FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..............to..............
Commission file number 0-684
GOULDS PUMPS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 15-0321120
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 WillowBrook Office Park, Fairport, New York 14450
(Address of principal executive offices)
(Zip Code)
(716) 387-6600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 31, 1996, 21,312,291 shares of $1 par value common stock were
outstanding.
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GOULDS PUMPS, INCORPORATED
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995............... 3
Condensed Consolidated Statements of Earnings -
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995........... 4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1996 and 1995........... 5
Notes to Condensed Consolidated Financial
Statements........................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....7-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................ 13
Item 6. Exhibits and Reports on Form 8-K.................13-22
Signature........................................ 23
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PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
Goulds Pumps, Incorporated
June 30, December 31,
1996 1995
(In thousands) (Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,515 $ 6,383
Receivables - net 159,245 143,819
Inventories 144,893 131,693
Deferred tax asset 20,413 18,972
Prepaid expenses and other current assets 13,191 16,598
Total current assets 342,257 317,465
Property, plant and equipment - net 170,210 173,304
Deferred tax asset 9,406 8,834
Goodwill - net 26,189 29,858
Other assets 26,737 24,525
$574,799 $553,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 43,900 $ 37,904
Current portion of long-term debt 17,824 21,716
Trade payables 67,387 71,406
Compensation and commissions 23,720 24,265
Other 50,207 55,245
Total current liabilities 203,038 210,536
Long-term debt 91,154 73,454
Pension 27,016 26,302
Other postretirement benefit obligation 51,020 50,903
Deferred tax liability and other 3,540 2,477
STOCKHOLDERS' EQUITY:
Preferred stock - $20.00 par value; shares -
authorized: 750,000; issued and outstanding:
none -- --
Common stock - $1.00 par value; authorized
90,000,000; issued and outstanding
21,309,018 and 21,283,496 shares,
respectively 21,309 21,283
Additional paid-in capital 59,971 59,175
Retained earnings 131,255 122,741
Cumulative translation adjustments and other (13,504) (12,885)
Total stockholders' equity 199,031 190,314
$574,799 $553,986
See Accompanying Notes to Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Earnings (Unaudited)
Goulds Pumps, Incorporated
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net sales $197,576 $180,693 $381,157 $340,745
Cost and expenses:
Cost of sales 138,209 128,871 268,363 243,432
Selling, general and
administrative expenses 37,810 33,804 76,412 66,958
Research and development
expenses 2,510 2,062 4,838 4,092
Interest expense 2,887 3,078 5,674 5,196
Interest income (323) (425) (648) (1,071)
Other expense (income) - net 1,215 148 (12) 344
Earnings before income taxes 15,268 13,155 26,530 21,794
Income taxes 5,470 4,881 9,495 8,086
Net earnings $ 9,798 $ 8,274 $ 17,035 $ 13,708
Net earnings per
common share $ .46 $ .39 $ .80 $ .65
Dividends per
common share $ .20 $ .20 $ .40 $ .40
Weighted average shares
outstanding (in thousands) 21,300 21,233 21,296 21,220
See Accompanying Notes to Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
Goulds Pumps, Incorporated
Six Months Ended June 30,
(In Thousands) 1996 1995
OPERATING ACTIVITIES:
Net earnings $17,035 $13,708
Adjustments to reconcile net earnings to net
cash (applied to) provided by operations:
Depreciation and amortization 14,499 14,098
Gain on sale of product lines (1,174) --
Net changes in assets and liabilities, net of
effects from acquisition (37,622) (25,991)
Net cash (applied to) provided by operating
activities (7,262) 1,815
INVESTING ACTIVITIES:
Capital additions (10,376) (12,980)
Purchases of other assets (1,508) (2,543)
Proceeds from sale of product lines 2,723 --
Other - net 965 87
Net cash applied to investing activities (8,196) (15,436)
FINANCING ACTIVITIES:
Proceeds from long-term debt 67,200 31,566
Payments on long-term debt (52,173) (11,302)
Increase in short-term borrowings 6,783 3,403
Proceeds from issuance of common stock 500 848
Dividends paid (8,516) (8,483)
Net cash provided by financing activities 13,794 16,032
Effect of exchange rate changes on cash (204) (2,300)
Increase (decrease) in cash and cash equivalents (1,868) 111
Cash and cash equivalents:
Beginning of period 6,383 7,374
End of period $ 4,515 $ 7,485
See Accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
fairly present the Company's financial position as of June 30, 1996 and
the results of operations for the three and six month periods ended June
30, 1996 and 1995 and cash flows for the six month periods ended June
30, 1996 and 1995. The results of operations for the six month period
ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire year of 1996.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, effective January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to all of its stock
based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in its Annual
Report on Form 10-K for the year ending December 31, 1996.
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements in the 1995 Goulds
Pumps, Incorporated Annual Report on Form 10-K, which is incorporated by
reference.
2. Net earnings per share of common stock are based upon the weighted
average number of shares of common stock outstanding during the period.
No effect has been given to options outstanding under the Company's
Stock Option Plans as no significant dilutive effect would result from
the exercise of these options. See Exhibit XI on page 22.
3. Inventories were as follows (in thousands):
June 30, December 31,
1996 1995
(Unaudited) (Audited)
Raw Materials $ 42,346 $ 38,962
Work-in-Process 63,145 58,097
Finished Goods 72,400 66,613
Inventories Valued at FIFO 177,891 163,672
LIFO Allowance (32,998) (31,979)
Inventories Less LIFO Allowance $144,893 $131,693
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Management's discussion and analysis reviews the Company's operating results
for the three and six month periods ended June 30, 1996 and 1995, and its
financial position at June 30, 1996. The focus of this review is on the
underlying business reasons for significant changes and trends affecting our
sales, net earnings and financial position. This review should be read in
conjunction with the accompanying condensed consolidated financial
statements.
In an effort to give investors a more complete view of the Company's current
condition and future opportunities, this Form 10-Q includes forward looking
statements by the Company's management about future performance and results.
Because they are forward-looking, these statements about future performance
are exposed to certain significant risks such as potential increases in
manufacturing costs; market acceptance of or preference for the Company's
products; competitive forces; the impact of, and changes in, government
regulations, such as trade restrictions or prohibition, import and other
charges or taxes; changes in global demand for pumps and pump-related
products; availability of the Company's products; cyclicality of industries
to which the Company markets certain of its products; general and economic
factors in markets where the Company's products are sold, manufactured or
marketed; technological factors; and other factors discussed in the Company's
filings with the Securities and Exchange Commission.
Overview
The Company's second quarter and first half 1996 results reflected the
highest second quarter and first half sales and earnings in its history,
with increases in second quarter 1996 sales and earnings of 9.3% and 18.4%,
respectively, and increases in first half 1996 sales and earnings of 11.9%
and 24.3%, respectively, as compared to the same periods last year.
Second quarter 1996 net sales were a second quarter record of $197.6 million,
compared with $180.7 million for the second quarter 1995. This increase
combines increases of $10.3 million, or 11.6%, in Industrial Products (IP)
sector sales and $6.6 million, or 7.1%, in Water Technologies (WT) sector
sales. The increase in IP sector shipments reflects the Company's continued
strength in the chemical and general industrial markets. Geographically, IP
sales in the Asia Pacific region more than doubled and those in Latin America
increased 40% over the second quarter, 1995. The WT shipments for the second
quarter of 1996, which represents an all-time high quarterly sales figure for
that sector, reflects considerable improvement in residential water systems
sales compared to the same period last year due to improved weather
conditions and sales promotions while the commercial markets posted double
digit sales gains.
For the first six months of the year, sales of $381.2 million increased
11.9%, orders of $362.4 million increased 3.6%, and net earnings of $17.0
million increased 24.3% over the first half of 1995.
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The Company expects the continuation of broad based sales growth,
particularly in international markets and believes that its record second
quarter 1996 results reflect its continued drive towards attaining its
strategic imperatives, particularly that of improving profitability.
Results of Operations
Second quarter 1996 net sales were a second quarter record of $197.6 million,
compared with $180.7 million for the second quarter 1995. This increase
combines increases of $10.3 million, or 11.6%, in Industrial Products (IP)
sector sales and $6.6 million, or 7.1%, in Water Technologies (WT) sector
sales. The increase in IP sector shipments reflects the Company's continued
strength in the chemical and general industrial markets. Geographically,
industrial sales in the Asia Pacific region more than doubled and those in
Latin America increased 40% over the second quarter, 1995. The WT shipments
for the second quarter of 1996, which represents an all-time high quarterly
sales figure for that sector, reflects considerable improvement in
residential water systems sales compared to the same period last year due to
improved weather conditions and sales promotions while the commercial markets
posted double digit sales gains.
The increase in sales of $40.4 million in the first half of 1996 compared
with the first six months of 1995 is composed of a $26.4 million, or a
15.4%, increase in IP sector sales and a $14.0 million, or 8.2%, increase in
WT sector sales. The increase in IP sales reflects continued strength in
sales in Asia Pacific and Latin America which posted increases in net sales
over the same period last year of 100% and 43%, respectively. The increase
in sales achieved in WT is primarily attributable to increased sales in
Europe, Latin America and North America and reflects strong second quarter
growth in both residential and commercial water system markets.
Gross margin as a percentage of sales increased to 30.0% in the second
quarter of 1996 compared with 28.7% for the second quarter of 1995. The IP
sector gross profit percentage increased to 30.7% in the second quarter of
1996 from 28.2% for the second quarter of 1995. This increase reflects
improved absorption due to very strong second quarter throughput,
efficiencies resulting from the continued implementation of the Company's
focused factory strategy, and a continuation of the Company's more selective
approach on the pricing of large engineered projects. The WT sector s gross
profit percentage was 29.1% in the second quarter of 1996 and 1995. The
gross profit percentage for the second quarter of 1996 reflects a 1.1
percentage point improvement in the gross profit for North America. This is
the result of the net effect of the January 1996 price increase, which
averaged about 3%, and cost efficiencies, offset by promotional discounts and
limited material and overhead cost increases. These improvements in
profitability in North America were offset by the impact of some non-repeat
municipal government projects in the Asia Pacific region.
Gross margin as a percentage of sales improved to 29.6% for the first six
months of 1996 compared to 28.6% for the first six months of 1995. The IP
sector s gross profit percentage increased to 30.3% in 1996 from 28.3% for
the first half of 1995. The reasons supporting this increase are the same
as those for the second quarter 1996 increase in the IP gross profit
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percentage as described in the preceding paragraph. For the first half of
1996, the WT sector s gross profit percentage decreased to 28.3% from 29.0%
in the first half of 1995. This decline reflects the first quarter 1996
effects of higher raw material costs in Europe.
As a percentage of sales, selling, general and administrative (SG&A) expenses
were 19.1% and 18.7% for the second quarter of 1996 and 1995, respectively,
compared with 20.0% and 19.7% for the first six months of 1996 and 1995,
respectively. These percentages reflect a one-time credit in the second
quarter of 1995 of $750,000 for the unused portion of the legal fee accrual
for the submersible water pump litigation in California and a $1.2 million
charge associated with the European management change in the first quarter of
1996. Without these non-recurring charges, SG&A expenses, as a percentage
of sales, would have been $19.1% for the second quarter of 1996 and 1995,
and 19.7% for the first six months of 1996 and 1995.
Research and development (R&D) expenses increased 21.7% and 18.2% for the
second quarter and first six months of 1996, respectively, compared with the
same periods for 1995. As a percentage of sales, R&D expenses were 1.3% for
the second quarter and first six months of 1996 compared to 1.1% and 1.2% for
the second quarter and first six months of 1995.
Interest expense decreased $.2 million and increased $.5 million in the
second quarter and the first six months of 1996 compared with the same
periods for 1995. The decline in interest expense for the second quarter of
1996 is attributable to a decline in interest rates compared to the same
period last year. The increase in the first six months of 1996 reflects
slightly higher borrowing levels partially offset by lower overall interest
rates.
Other expense-net increased by $1.1 million for the second quarter of 1996
compared with the second quarter of 1995. This increase is attributable to
currency exchange losses caused mainly by the recent devaluation in
Venezuela, as well as smaller transaction losses in Canada and Europe.
Other income - net was $12 thousand of income for the first six months of
1996 compared with $344 thousand of expense for the first six months of 1995.
This change reflects the $1.1 million of second quarter 1996 currency
exchange losses offset primarily by the first quarter 1996 gain of $1.2
million on the sale of certain product lines of the Company's Municipal
Business Unit.
The provision for income taxes represents 35.8% and 37.1% of earnings before
income taxes for the second quarter of 1996 and 1995, respectively, and the
first six months of both years. The lower 1996 effective tax rate, which
management expects to be the rate applicable to the full year, is reflective
of domestic state tax reduction strategies and a reduction in the effective
tax rate due to relatively higher profitability levels in lower tax
jurisdictions.
Liquidity and Capital Resources
As reflected in the Condensed Consolidated Statements of Cash Flows, $13.8
million of cash generated by net financing activities was used to fund $7.3
million of net operating activities and $8.2 million of net investing
activities while decreasing cash and cash equivalents by $1.9 million.
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Significant items impacting cash flow from operating activities in 1996
include a $17.0 million increase in net receivables resulting from the high
level of second quarter shipments, a $13.9 million increase in inventories
due in part to the seasonal build-up of inventory to meet the requirements
of WT-Europe and a $9.6 million decrease in trade payables and accrued
expenses resulting primarily from certain payments made in connection with
the Environamics and Venezuelan restructuring and the sale of certain
Municipal Business Unit product lines.
In the first six months of 1996, capital additions were $10.4 million.
Significant projects included equipment and building additions, primarily in
North America and Europe. The Company expects to spend approximately $35 to
$40 million in capital expenditures for the year.
Cumulative translation adjustments on the accompanying Condensed Consolidated
Balance Sheet at June 30, 1996 were $13.5 million compared to $12.9 million
at December 31, 1995 reflecting the first quarter 1996 effects of the
weakening Italian lira and Mexican peso, which have begun to strengthen in
the second quarter, and the devaluation of the Venezuelan bolivar in the
second quarter of 1996. Future currency changes could occur at some of the
Company s international locations. The Company evaluates on an on-going
basis methods to minimize the impact of currency fluctuations on operations
and reported operating results.
Restructuring Charges
In December 1995, the Company recorded a pre-tax restructuring charge of
$19.7 million. This charge resulted from the Company's decision to transfer
its ownership interest in Environamics Corporation to that company's
management and to wind down its manufacturing activities in Venezuela. The
charge provided for $1.4 million of termination costs and $18.3 million of
other exit costs (including the write-off of previous investments). The
following charges against this restructuring reserve were recorded in the
first six months of 1996: costs of termination benefits were $.9 million;
costs to exit owned and leased facilities were $14.8 million.
In the fourth quarter of 1994, the Company recorded an initial pre-tax
restructuring charge of $3.5 million and a related liability for these costs.
The restructuring plan included the downsizing of the Company's operations in
California, the Netherlands, Mexico, and the consolidation of sales offices,
PRO Service Centers and other Company facilities. In December 1995, the
Company reversed $1.2 million of the 1994 restructuring charge due to lower
than expected outsourcing in California and the transfer of certain
Netherlands employees to other Goulds Pumps European operations. At June 30,
1996, the remaining reserve related to the 1994 restructuring was $.1 million
compared to $.7 million at December 31, 1995, reflecting charges against the
reserve in the first six months of 1996 of $.3 million related to costs of
termination benefits and $.3 million of costs to exit owned and leased
facilities.
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The Company believes its restructuring reserves are adequate to complete the
restructuring plans, outlined above, by December 31, 1996.
Orders and Backlog
Orders for the second quarter 1996 of $184.8 million, which equaled 1995 s
record second quarter orders, reflect an approximate $4 million increase in
WT orders offset by an equivalent decrease in IP orders. For the first six
months of 1996, orders of $362.4 million represented a 3.6% increase over
orders of $349.9 million for the first half of 1995. This increase is
composed of a $13.6 million increase in WT orders while IP orders decreased
by $1.1 million. Water Technologies orders reflected continued broad-based
global strength with increases in orders reported in Europe and North
America. Industrial Products orders were particularly strong in Asia Pacific
and Latin America in the chemical and general industrial markets. The pulp
and paper market was softer than last year s record level as paper companies
deferred many large capital projects.
Backlog was $129.1 million at June 30, 1996 compared with $151.7 million at
June 30, 1995. The primary reason for the decline is the substantial second
quarter throughput resulting from implementation of the ANSI focused factory
and other manufacturing improvements.
Environmental Matters
In 1995, a legal action was filed against the Company and 21 other defendants
in the United States District Court for the Western District of New York
(Rochester) by two plaintiffs seeking damages for environmental contamination
at or near an inactive landfill site in Seneca Falls, New York. The
Company's investigation into the allegations in these actions is in its
preliminary phases. The Company believes that under applicable laws it
should not bear any liability to one of the claimants, the current landfill
owner, who purchased the property with full knowledge of its prior use and
continued to operate it thereafter. In addition, the Company believes that
there is little reasonable likelihood of material liability to the other
claimant at this stage of investigation, based upon considerations of the
damages claimed, nature of contamination and the existence of other
financially viable codefendants, and after reviewing the applicable legal
principles. The Company has answered the complaint by denying the material
allegations and asserting various affirmative defenses, cross-claims and
counter-claims. The Company intends to vigorously defend this litigation,
but no assurance can be given as to the ultimate outcome of such litigation
or its impact on the Company.
The Company recorded a $2.0 million provision in 1991 for estimated costs to
monitor and remediate an inactive Company landfill site in Seneca Falls, New
York. At June 30, 1996, the remaining reserve was $1.7 million. The
remediation plan has been approved by the New York State Department of
Environmental Conservation and is expected to be completed by the end of
1996. The Company currently believes that the reserve associated with this
site is sufficient to absorb any future costs.
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Apart from issues discussed above, the Company is not currently aware of any
other environmental matters which would be reasonably likely to have a
material impact on recurring costs, capital expenditures, or mandated
expenditures.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Disclosures regarding legal proceedings are set forth in Part I, Item 3
of the Company's Form 10-K for the year ended December 31, 1995, which is
incorporated herein by reference.
No material developments have occurred since that report was filed on
March 29, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit X Material Contracts:
(iii) Management Contracts and Compensatory Agreements:
Agreement dated June 20, 1996 between Goulds Pumps, Incorporated,
and Thomas C. McDermott.
(b) Exhibit XI (Earnings Per Share Computation)
(c) No reports on Form 8-K were filed for the three months ended
June 30, 1996.
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EXHIBIT X
AGREEMENT
THIS AGREEMENT is made as of the 20th day of June, 1996, by and
between Goulds Pumps, Incorporated, a Delaware corporation ( Goulds ) and
Thomas C. McDermott ( Employee ).
WHEREAS, Employee has contributed substantially to the growth and
success of Goulds; and
WHEREAS, Goulds desires to retain Employee's services as set forth in
this Agreement and to provide the necessary compensation to assure such
services.
NOW, THEREFORE, Goulds and Employee agree as follows:
1. Employment. Goulds hereby employs Employee as Chairman, Chief
Executive Officer and President or in such other senior executive position
as the Board of Directors and Employee shall mutually agree upon provided,
however, that the Board of Directors may elect a separate President and
Chief Operating Officer, without affecting the other terms of this
Agreement, at any time during the term of employment. Employee hereby
accepts the employment specified herein, agrees to perform, in good faith,
the duties, consistent with his position, prescribed by the Board of
Directors, and to abide by the terms and conditions described in this
Agreement and to devote Employee's full working time to the interests and
business of Goulds.
2. Term of Employment. The term of employment under this Agreement
shall commence on July 1, 1996 (the Commencement Date ) and shall extend
through June 30, 2001 (the Termination Date ). During the first three (3)
years of the term, Employee shall serve as Chairman, Chief Executive
Officer and President. During the remainder of the term, it is fully
anticipated that Employee will serve as Chairman. In the Board's
discretion, however, it may determine that it would be in Goulds' best
interest to elect a successor Chief Executive Officer as Chairman in which
event Employee shall serve in such other senior executive position as
mutually agreed upon during the remainder of the term. In any event,
irrespective of such mutual agreement, Employee shall be entitled to the
compensation provided in Section 3 for the remainder of the term.
3. Compensation.
(a) Base Salary as Chairman, Chief Executive Officer and
President. From July 1, 1996 through December 31, 1996, for services as
Chairman, Chief Executive Officer and President, Employee shall receive a
base annual salary of Five Hundred Forty Thousand Dollars ($540,000.00).
Each calendar year and each portion thereof during the term, for so long as
Employee serves as Chairman, Chief Executive Officer and President,
Employee shall receive the base salary and such additional merit increase
as determined by the Board of Directors. Such compensation shall be
payable in equal monthly installments or in such other number of
installments as shall be agreed upon between Employee and Goulds.
(b) Base Salary During Remainder of Term. Commencing on July 1,
1999 or such later date within the term of this Agreement that Employee
ceases to serve as Chairman, Chief Executive Officer and President,
Employee shall receive, for services as Chairman, a base annual salary
equal to fifty percent (50%) of his most recent base annual salary in such
combined capacities. In the event that the Board of Directors elects a
successor Chief Executive Officer as Chairman, Employee will receive a
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salary at the annual rate of $270,000 for the remainder of the term and the
Board of Directors will have the option not to appoint Employee to another
executive position.
(c) Incentive Payments. During all portions of the term in
which Employee serves as President and Chief Executive Officer, Goulds
shall pay Employee an incentive payment, calculated in accordance with the
Executive Incentive Plan ( EIP ) or successor plans. The target incentive
payment established for Employee shall be sixty percent (60%) of the annual
base salary paid to Employee.
(d) Stock Options. In each year of the term, Goulds will grant
to Employee, at such time as options are granted generally to employees,
that number of stock options which are commensurate with his performance
and position under either the 1988 Stock Incentive Plan (the 1988 Plan ),
the 1994 Incentive Plan to Increase Stockholder Value (the 1994 Plan ) or
a subsequently adopted plan which permits stock option grants to employees
(collectively, the Plans ) as determined by the Human Resources Committee
of the Board. All options shall be governed by the terms of the Plans
under which they are granted except that vesting shall be at least at the
rate of twenty-five percent (25%) per year. All outstanding options shall
immediately vest upon the termination of this Agreement except that, in the
event of termination under Section 4(a)(i) below or for Cause under Section
4(a)(ii) below while Employee is serving as Chief Executive Officer,
Employee will not be deemed to have retired under the Plans and any non-
vested option shall lapse.
(e) Restricted Stock Grant. During the term of this Agreement
Goulds shall grant to Employee restricted stock awards under the 1994 Plan
under the following terms: (i) 10,000 shares shall be granted on the
Commencement Date, with 10,000 additional shares granted on the four
successive anniversaries of such date, provided, however, that should this
Agreement be terminated prior to the fourth anniversary date for reasons
other than termination under Section 4(a)(i) or for Cause under 4(a)(ii),
all remaining shares shall be immediately granted (or, at the option of the
Human Resources Committee, their cash equivalent paid) to Employee
provided, however, that in the event of termination under Section 4(a)(iii)
Employee or his Estate will receive a maximum of 20,000 remaining shares
(10,000 remaining shares on the anniversary date in the calendar year in
which such termination occurs and 10,000 remaining shares on the next
anniversary date); (ii) shares shall vest according to the terms of the
1994 Plan, provided, however, that all restricted stock shall immediately
vest upon the termination of this Agreement (or, to the extent the terms of
the 1994 Plan do not allow such vesting, Employee shall be paid the cash
equivalent of such shares) and further provided, however, that in the event
of termination under Section 4(a)(i) or for Cause under Section 4(a)(ii)
while Employee is serving as Chief Executive Officer, Employee will not be
deemed to have retired under the 1994 Plan and any non-vested restricted
stock will be forfeited; and (iii) Employee shall receive all dividends on
such shares pending vesting.
(f) SERP and Pension Plan III. Employee shall continue to
participate in both the SERP and Pension Plan III during the full term of
this Agreement, on the same basis as Employee participates in such plans at
the time of the execution of this Agreement.
(g) Other. Goulds shall provide Employee with other benefits,
facilities, services and perquisites no less favorable than those Employee
is receiving from Goulds at the time of the execution of this Agreement,
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including, without limitation, those set forth on Schedule A of this
Agreement.
4. Termination.
(a) In any of the following events:
(i) Employee resigns from the employ of Goulds prior to
the Termination Date for any reason other than either a Change in
Control under Section 6 or a material breach of this Agreement by
Goulds;
(ii) Goulds terminates Employee s employment prior to the
Termination Date for Cause (as defined in subsection (c), below);
or
(iii) Employee dies or becomes permanently disabled (as
defined in Goulds Long-Term Disability Plan);
then Employee shall not be entitled to further base salary or incentive
payment under Sections 3(a), (b) or (c) of this Agreement or to further
stock options under Section 3(d) above or the other benefits under Section
3(g) above (provided that, in the event of Employee's death, Employee's
estate will be paid his base salary through his date of death and for the
number of months remaining in the calendar year in which death occurs or
for the number of months until the next anniversary of the Commencement
Date whichever is greater, and provided further that Employee will be
considered to have earned, and his estate will be paid, any incentive
payment that would have otherwise been paid for the calendar year in which
death occurred), and this Agreement shall terminate in all respects except
for Sections 5, 7 and 8.
(b) Subject to Section 5 hereof, in the event that Goulds
terminates Employee s employment other than for Cause, or if Employee
resigns because of a material breach of this Agreement by Goulds, then
Employee shall be entitled to receive the compensation provided for under
Section 3 throughout the remainder of the term, including merit increases
and incentive payments, such compensation to be calculated and paid as if
Employee had met all performance and other targets throughout the remainder
of the term. The compensation under this section supersedes any prior
severance plan or agreement applicable to Employee and will not be payable
if the provisions of Section 6(c) apply.
(c) For purposes of this Agreement, Cause shall mean:
(i) any material misappropriation of funds or intentional
material damage to the property or business of Goulds by
Employee;
(ii) repeated or persistent neglect or refusal by Employee to
perform his duties and which Employee does not remedy within
thirty (30) days after receipt of written notice from Goulds;
(iii) the breach by Employee of any provision of Section 5 or 8;
or
(iv) commission of a felony by Employee.
5. Restrictive Covenant. Employee agrees that during Employee's
employment hereunder and for five (5) years after the Termination Date,
Employee will not, without prior written consent of Goulds, directly or
indirectly, as a principal, officer, director, stockholder (except as the
owner of less than five percent (5%) of the stock of a company whose stock
is publicly traded), partner, employee or in any other capacity whatsoever,
engage in or become associated with, or advise or assist, any business or
enterprise which is engaged in providing any goods or services that are
competitive with any goods or services that are offered by Goulds. For the
purposes of this Section 5, a business or enterprise shall be deemed to be
<F50>
engaged in providing goods or services that are competitive with any goods
or services offered by Goulds if the Board of Directors of Goulds so
determines. During such period, Employee will not solicit or contact any
employee of Goulds to leave its employ or to become employed by or
associated with any business enterprise with which Employee has become
associated. It is agreed that, in addition to its other legal or equitable
remedies in the event of Employee's breach of this Section 5, Goulds may
terminate all compensation otherwise payable to Employee under Sections 3
or 4 with respect to the period of time after such breach.
6. Change in Control.
(a) Definition. For the purposes of this Agreement, a Change
in Control shall be deemed to have taken place if: (i) a third person,
including a group as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the beneficial owner of shares of Goulds
having 20% or more of the total number of votes that may be cast for the
election of Directors of Goulds; or (ii) as the result of, or in connection
with, any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of
the foregoing transactions (a Transaction ), the persons who were
Directors of Goulds before the Transaction shall cease to constitute a
majority of the Board of Directors of Goulds or any successor to the
Goulds.
(b) Termination of Employment. Termination of Employment
under this Section 6 shall mean termination by Goulds of the employment of
the Employee for any reason other than death, disability or cause (as
defined below), or resignation of the Employee upon the occurrence of
either of the following events:
(i) a significant change in the nature or scope of Employee's
authority, or a reduction in his total compensation under this
Agreement, from that prior to a Change in Control or a change in
the location where Employee is required to perform services from
that prior to a Change in Control; or
(ii) a reasonable determination by Employee that, as a result of a
Change in Control and a change in circumstances thereafter
significantly affecting his position, he is unable to exercise
the authority, powers, function or duties attached to his
position;
provided, however, that Employee shall have the right to resign upon the
same basis set forth in any change in control severance agreement between
Goulds and other Corporate Officers entered into during the term of
employment under this Agreement.
The term cause under this section means fraud, misappropriation or
intentional material damage to the property or business of the Corporation
or commission of a felony.
(c) Payments and Benefits. Upon Termination of Employment
after a Change in Control as provided in subsection (b) above, Employee
shall be entitled to:
(i) receive immediate payment of a lump sum of an amount equal
to: (1) the total of all base salary which Employee would have
been paid for the period through the Termination Date, at the
annual rate in effect on the date of the termination of
Employee s employment with Goulds, increased to reflect annual
merit increases (using the percentage of the highest annual merit
increase received by Employee during the term of this Agreement),
and (2) the total of all potential annual incentive payments
<F50>
which Employee would have been paid for the period through the
Termination Date, assuming Employee remained in the position held
at the time of the termination of employment and assuming further
that all performance targets had been met, at a rate equal to the
highest annual incentive bonus paid or payable to Employee with
respect to any 12 consecutive month period during the three years
ending with the date of Employee's termination under the annual
incentive plan in effect as of the date of the termination of
Employee s employment with Goulds;
(ii) at Employee's election, either: (a) continued provision of
and payment by Goulds of Employee s benefits, facilities,
services and perquisites, as described in Section 3(g) above, in
effect for Employee as of the date of the termination of
Employee's employment with Goulds, to the same extent as if
Employee had continued to be an employee of Goulds through the
Termination Date, and such benefits shall, to the extent not
available or paid under any benefit plan or program, be provided
or paid by Goulds; or (b) immediate payment of a lump sum of an
amount (as estimated by an independent consultant) sufficient to
allow Employee to purchase equivalent benefits for the period
from termination of Employee's employment with Goulds through the
Termination Date;
(iii) immediate vesting of all outstanding shares of the
restricted stock grant described in Section 3(e) above (or, to
the extent the terms of the 1994 Plan do not allow such vesting,
Employee will be paid the cash equivalent thereof);
(iv) receive a lump sum payment by Goulds to Employee, equal to
the difference between (A) the monthly annuity payable under the
SERP and Pension Plan III as of the date of Termination of
Employment with Goulds, and (B) that which would have been paid
under such plans had Employee remained in the employ of Goulds
through the Termination Date and received the level of base
salary and annual incentive payments calculated under Section
6(c)(i) above. For the purpose of calculating such amount, if
the Employee would not otherwise be vested and if no benefit
would therefore be payable under one or more of the Goulds
retirement plans, then the entire benefit shall be deemed vested
and shall be paid pursuant to this Agreement, based on the
relevant plan formula and employee facts; and
(v) exercise in accordance with their terms all stock options to
which Employee may be entitled as of the date of Termination of
Employment with Goulds. To the extent allowable under any such
plan without amendment, upon Termination of Employment with
Goulds, Goulds agrees to accelerate and make immediately
exercisable in full all options which Employee would have been
granted under any such plan had Employee remained employed by
Goulds through the Termination Date. At his discretion, or in
the event any options under any such plan have lapsed by reason
of Termination of Employment, Employee may elect to surrender to
Goulds his rights in any such options (whether or not then
exercisable) held by him and, upon such surrender, Goulds shall
pay him an amount in cash equal to the aggregate spread between
the exercise prices of all such options and the value of the
underlying Common Stock of Goulds on the date of Termination of
Employment, such stock value to be determined at the closing
<F50>
price of such stock on NASDAQ on such date (or the nearest
previous date on which such stock was traded, if the date of
termination is not such a date).
(vi) For the purposes of this subsection, any restricted stock
granted to Employee as Long-Term Incentive Compensation awards
shall be deemed to have been earned by Employee as of the date of
Termination of Employment.
Payments of continued base salary, incentive payments, option rights,
stock grants and benefits under the foregoing shall be subject to
withholding by Goulds of any federal, state, city or other taxes to the
extent required by law.
In addition to the amounts specified in clauses (i), (ii), (iii) and
(iv) of subsection (c), Goulds shall pay to the Employee, at the same time
as those amounts are paid, an amount which, after taking into account all
federal, state and local income and excise taxes that Employee is required
to pay with respect to receipt of such additional amount, will render the
net after-tax payment to Employee equal to the sum of:
(A) all federal, state and local income and excise taxes that
Employee is required to pay with respect to the benefits provided
and payments made pursuant to clause (ii); and
(B) all federal, state and local excise taxes that Employee is
required to pay with respect to the benefits provided and
payments made pursuant to clauses (i), (iii) and (iv).
The foregoing amounts of federal, state and local income and excise taxes
shall be determined initially by a nationally recognized firm of
independent public accountants retained by Employee at his expense or, at
Employee's option, by Goulds independent public accountants at Goulds
expense, and such determination and the basis therefor shall be furnished
in writing to Goulds or Employee, as the case may be. Payment shall be
made by Goulds in accordance with such initial determination regardless of
whether there is a dispute over the accuracy thereof. If either party
disputes such initial determination, the matter shall promptly be referred
to a nationally recognized firm of independent public accountants selected
by Employee (which firm shall not have been involved in the initial
determination), and Employee and Goulds shall promptly furnish to such firm
such information as it shall reasonably request. Goulds shall make such
additional payment to Employee, or Employee shall make such refund to
Goulds, as the case may be, in accordance with such firm s determination.
The fees and expenses of such firm shall be borne equally by Goulds and
Employee.
Goulds may withhold from any payments due to Employee hereunder such
amounts as its independent public accountants may determine are required to
be withheld under applicable federal, state and local tax laws.
The payments under this Section 6(c) supersede any prior severance
agreement or plan applicable to Employee and will not be payable if the
provisions of Section 4(b) apply.
7. Legal Expenses and Interest.
(a) If, with respect to any alleged failure by Goulds to comply
prior to a Change in Control with any of the terms of this Agreement,
Employee hires legal counsel with respect to this Agreement or institutes
any negotiations or institutes or responds to legal action to assert or
defend the validity of, enforce his rights under, or recover damages for
breach of this Agreement and thereafter Goulds is found in a judgment no
longer subject to review or appeal to have breached this Agreement in any
material respect, then Goulds shall indemnify Employee for his actual
<F50>
expenses for attorneys fees and disbursements, together with such
additional payments, if any, as may be necessary so that the net after-tax
payments to Employee equal such fees and disbursements.
(b) If, with respect to any alleged failure by Goulds to comply
subsequent to a Change in Control with any of the terms of this Agreement,
Employee hires legal counsel with respect to this Agreement or institutes
any negotiations or institutes or responds to legal action to assert or
defend the validity of, enforce his rights under, or recover damages for
breach of this Agreement, Goulds shall pay, as they are incurred, his
actual expenses for attorneys fees and disbursements, together with such
additional payments, if any, as may be necessary so that the net after-tax
payments to Employee equal such fees and disbursements. Employee shall not
be obliged to repay any such payments made by Goulds, regardless of the
outcome of the negotiations or legal action.
(c) To the extent permitted by law, Goulds shall pay to Employee
on demand a late charge on any amount not paid in full when due under the
terms of this Agreement. The late charge shall be computed by applying to
the sum of all delinquent amounts a late charge rate. The late charge rate
shall be a fixed rate per year which shall equal the sum of three percent
(3%) plus the prime rate of Morgan Guaranty Trust Company of New York
( Morgan ) publicly announced by Morgan to be in effect on the day on which
Employee s employment terminates, or if Morgan no longer publicly announces
a prime rate on such date, any substantially equivalent rate announced by
Morgan to be in effect on such date.
8. Trade Secrets. Employee agrees that unless duly authorized in
writing by Goulds, he will neither during his employment by Goulds nor at
any time thereafter divulge or use any trade secrets or confidential
information first acquired by him during and by virtue of his employment
with Goulds.
9. Funding. Goulds may in its discretion establish a trust to fund
any of the payments which are or may become payable to Employee under this
Agreement.
10. Notice. Any and all notices referred to herein shall be
sufficient if furnished in writing and sent by nationally recognized
overnight courier or registered mail to the parties.
11. Transferability. The rights and benefits of Goulds under this
Agreement shall be transferable and all covenants and agreements hereunder
shall inure to the benefit of and be enforceable by or against its
successors and assigns. Whenever the term Goulds is used in this
Agreement, such term shall mean and include Goulds Pumps, Inc. and its
successors and assigns. The rights and benefits of Employee under this
Agreement shall not be transferable.
12. Waiver. Any waiver of or breach of any of the terms of this
Agreement shall not operate as a waiver of any other breach of such terms
or conditions or any other terms or conditions, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of
any other provision hereof. Goulds agrees that, in the event that Employee
becomes entitled to compensation under this Agreement, Employee shall have
no obligation to mitigate damages and Goulds shall not assert any right of
set-off as a result of subsequent employment of Employee against sums owing
to Employee. Goulds shall not be entitled to set-off liabilities of
Employee to Goulds against sums owing to Employee under this Agreement.
13. Severability. If any provision of this Agreement or the
application thereof is held invalid or unenforceable, the invalidity or
unenforceability thereof shall not affect any other provisions of this
<F50>
Agreement which can be given effect without the invalid or unenforceable
provision, and to this end the provisions of this Agreement are to be
severable.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York and any action to
enforce this Agreement will be brought in Rochester, New York.
15. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
GOULDS PUMPS, INCORPORATED
By: _/s/ Arthur M. Richardson
Title: __Director_______________
_/s/ Thomas C. McDermott_________
THOMAS C. McDERMOTT
<F50>
EXHIBIT XI
GOULDS PUMPS, INCORPORATED AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
a. Net earnings - as reported $ 9,798 $ 8,274 $17,035 $13,708
b. Actual weighted average number
of shares outstanding 21,300 21,233 21,296 21,220
c. Primary earnings per share based
on actual average shares outstanding
(a / b) (1) $ .46 $ .39 $ .80 $ .65
d. Shares exercisable under
outstanding options 1,472 793 1,472 677
e. Proceeds assuming exercise of
outstanding options $35,344 $16,273 $35,293 $13,572
Reinvestment of proceeds under "Treasury Stock Method":
f. Average market price per share
during each period or market
price at period-end
(whichever is higher) $ 25.63 $ 23.41 $ 25.63 $ 22.51
g. Shares to be acquired (e / f) 1,379 695 1,377 603
h. Net increase in outstanding shares
relative to stock options (d - g) 93 98 95 74
i. Other Common Stock Equivalents 41 -- 41 --
j. Net increase in common stock
equivalents 134 98 136 74
k. Adjusted weighted average shares
outstanding (b + j) 21,434 21,331 21,432 21,294
l. Fully Diluted Earnings Per
Share (a / k) $ .46 $ .39 $ .79 $ .64
m. Dilutive effect on earnings
per share (c - l)(2) $ -- $ -- $ .01 $ .01
(1) Earnings per share information is based on weighted average number
of shares of common stock outstanding during each period. No effect
has been given to options outstanding under the Company's Stock Option
Plans as no material dilutive effect would result from the exercise of
these options.
(2) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9038 although not required by APB Opinion
No. 15 since no material dilutive effect would result from the exercise
of these items.
<F50>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOULDS PUMPS, INCORPORATED
(Registrant)
Date: August 12, 1996 /s/ John P. Murphy
John P. Murphy
Vice President - Finance
(Mr. Murphy is the Chief
Financial Officer and has
been duly authorized to sign
on behalf of the registrant.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,515
<SECURITIES> 0
<RECEIVABLES> 159,245
<ALLOWANCES> 0
<INVENTORY> 144,893
<CURRENT-ASSETS> 342,257
<PP&E> 170,210
<DEPRECIATION> 0
<TOTAL-ASSETS> 574,799
<CURRENT-LIABILITIES> 203,038
<BONDS> 0
0
0
<COMMON> 21,309
<OTHER-SE> 177,722
<TOTAL-LIABILITY-AND-EQUITY> 574,799
<SALES> 381,157
<TOTAL-REVENUES> 381,157
<CGS> 268,363
<TOTAL-COSTS> 268,363
<OTHER-EXPENSES> 81,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,026
<INCOME-PRETAX> 26,530
<INCOME-TAX> 9,495
<INCOME-CONTINUING> 17,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,035
<EPS-PRIMARY> .80
<EPS-DILUTED> 0
</TABLE>
