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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11897
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BW/IP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-027054
- ---------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 OCEANGATE BOULEVARD
SUITE 900
LONG BEACH, CALIFORNIA 90802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (562) 435-3700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 7, 1997 (based on the closing sale price as reported on
the New York Stock Exchange on such date) was approximately $372 million.
The number of shares outstanding of the registrant's Common Stock as of March 7,
1997: 24,275,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of Stockholders
to be held on or about May 6, 1997, are incorporated by reference into Part III
of this Form 10-K.
Portions of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1996, are incorporated by reference into Parts I, II and IV
of this Form 10-K.
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PART I
ITEM 1. BUSINESS
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BW/IP, Inc. ("BW/IP") was incorporated in Delaware on March 12, 1987 to acquire
from Borg-Warner Corporation ("Borg-Warner") BW/IP International, Inc.
("International"), International's foreign marketing affiliates and certain
related assets in The Netherlands and other overseas locations (the
"Acquisition"). All of BW/IP's operations are conducted through International
and International's subsidiaries (BW/IP, International and its consolidated
subsidiaries are together referred to as the "Company"). Prior to the
Acquisition, Borg-Warner had operated certain of the International businesses
for over 30 years. In the course of an initial public offering in May 1991 and
a number of secondary offerings thereafter, a majority of the shares of the
Company's Common Stock were sold to the public.
The Company is a worldwide supplier of advanced technology fluid transfer and
control equipment, systems and services. Its principal products are pumps,
mechanical seals and valves. The Company designs, manufactures, distributes and
services throughout the world both highly engineered and standard centrifugal
pumps primarily for use in the power and petroleum industries, mechanical seals
and seal support systems primarily for use in the petroleum and chemical
industries and valves for use in the power, process and marine industries. The
Company has manufacturing facilities in seven countries and service centers in
20 countries.
The Company operates in one business segment. For certain financial information
by geographic location see Note 10 to Consolidated Financial Statements on page
32 of the 1996 Annual Report to Stockholders which page is incorporated by
reference in this Form 10-K.
MARKETS SERVED
Sales of the Company's pumps, seals and valves are primarily made to the
petroleum, power and (to a lesser extent) chemical markets. Approximately 72%
of the Company's 1996 net sales were to the petroleum and power markets
worldwide.
The principal segments of the petroleum industry that the Company serves are
refineries and pipelines. In addition to the U.S. market, which in 1996
accounted for approximately 50% of the Company's net sales to the petroleum
industry, the Company serves the petroleum industry in Europe, Africa, Asia,
South America, Canada, Mexico and the Middle East.
Sales to worldwide power markets include both nuclear and fossil fuel powered
generating utilities. The majority of the Company's sales in the nuclear power
market are in the United States and Japan, where the Company's large installed
base of equipment provides a continuing market for products and services to
ensure safety and reliability, a major customer concern. A significant
characteristic of the nuclear market worldwide is the stringent requirements
that must be met in order to sell products to nuclear power plants. For
example, the Company maintains a Nuclear Stamp ("N Stamp") from the American
Society of Mechanical Engineers, which is required for qualification to supply
certain kinds of products to the U.S. nuclear industry. The Company must comply
with significant requirements (including triennial audits) in order to maintain
its N Stamp. Sales to the nuclear power industry relate primarily to
aftermarket products and services and comprised approximately 11% of the
Company's 1996 sales.
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The Company could face liability in excess of its own commercial or government
provided insurance if any of its products were found to contribute to an
accident at a nuclear power facility or at other industrial facilities. The
Company does not maintain nuclear liability insurance for the United States or
Canada, but maintains an aggregate of $15 million in nuclear liability insurance
for all other countries. The Federal Price-Anderson Act of 1954 provides U.S.
nuclear utilities with a system of no-fault insurance coverage up to $7 billion
for third party losses or damages resulting from a nuclear incident. Canada's
Nuclear Liability Act provides for a system of insurance coverage that generally
makes the operator of a nuclear installation absolutely liable for third party
claims arising as a result of a nuclear incident, up to a maximum liability of
Can.$75 million. No assurance can be given that the Company's insurance
coverages will be adequate in the event of a major nuclear incident.
Most of the non-nuclear power sales are to utilities in the United States,
Mexico, Canada, Europe and Asia/Pacific.
The Company also serves agricultural, municipal water, chemical, pulp and paper,
mineral and ore processing and other general industry markets.
PRODUCTS AND SERVICES
The Company designs, manufactures, distributes and services centrifugal pumps,
submersible electric motors and pumps, mechanical seals, mechanical seal support
systems and valves. Pump products and services (including valves) accounted for
approximately 69%, 66% and 71% of the Company's 1996, 1995 and 1994 net sales,
respectively, and seal products and services accounted for approximately 31%,
34% and 29% of net sales, respectively, for such periods.
While the Company produces standard products, its technical focus and expertise
is in engineered products for severe service applications where a specialized
product is required for extreme temperatures, high horsepower, high speed or
high pressure. Compared to standard products, the Company's specialty products
are usually capable of higher performance, are more differentiated from each
other and have greater engineering content. Because of unique designs and high
engineering content, the Company's customers for specialized products tend to
purchase more aftermarket services than customers for the Company's standard
products. Recently the Company expanded its engineered products lines through
two acquisitions. In December 1996 the Company acquired the assets of
Anchor/Darling Valve Company ("Anchor/Darling"), a manufacturer of high-
specification, custom engineered valves, and in January 1997 the Company
acquired the engineered pump business of Stork Pompen B.V. ("Stork Pompen"), a
manufacturer of centrifugal pumps for the petroleum and municipal water
industries.
Pump Products. Pump products for the power generating industry include a
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variety of pumps used in both nuclear and fossil fuel utilities to generate
steam. Products for the nuclear power generating industry include reactor
coolant pumps, horizontal multi-stage pumps for steam generators, and vertical
circulating pumps. Products for the fossil fuel power generation industry are
horizontal double case pumps for high pressure boiler feed, horizontal multi-
stage pumps for low pressure boiler feed, vertical double case pumps and
vertical circulating pumps.
Pump products for the petroleum industry include horizontal double case pumps
used especially for hot oils under high pressure, horizontal multi-stage pumps
used in pipelines, vertical pumps used for low temperature processes, vertical
circulating pumps used for cooling water, submersible pumps used for water or
brine injection in oil fields, and submersible water pumps used on offshore
platforms to supply
2
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water for fire fighting. The Company also supplies pumps for other industrial
uses, including industrial production, utility services and pollution control,
the mining industry and pumps and related aftermarket parts and services to the
U.S. military, primarily the U.S. Navy.
Seal Products. The mechanical seal is critical to the smooth operation of
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centrifugal pumps, compressors and mixers because mechanical seals control
leakage between a rotating shaft and a stationary casing and in doing so, reduce
shaft wear on pumps, compressors and mixers used in many industries. The need
to reduce or eliminate the leakage of liquids and gases due to increasingly
stringent environmental regulations and safety concerns has expanded the market
for mechanical seals. The Company's seals are used on a wide variety of pumps,
mixers, compressors, steam turbines and specialty equipment, principally in the
oil refining and chemical processing industries. The Company also manufactures
a dry gas seal used in gas transmission and oil and gas production markets.
Valve Products. The Company offers a complete line of gate, globe and check
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valves (including valve actuators) for the nuclear power market. Through the
Anchor/Darling acquisition the Company broadened its valve product line to serve
both nuclear and non-nuclear customers in the power, process and marine
industries.
Aftermarket Products. Aftermarket products and services for pumps, mechanical
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seals and valves include supplying parts, making repairs, and providing a
variety of technical services for maintenance life extension, retrofitting and
upgrading of customer equipment. For example, the Company repairs pumps and
seals to acceptable operating condition, provides field diagnostic analysis and
in-place machinery repair and remanufactures pumps to restore them to their
original or upgraded condition.
WORLDWIDE FACILITIES AND DISTRIBUTION
The Company is engaged in the design, manufacture, distribution and service of
its products throughout the world. Pumps or pump components are produced in
plant facilities in the United States (two in California, one in Oklahoma, two
in New Mexico), The Netherlands (one in Etten-Leur, one in Hengelo), Mexico,
Argentina and Belgium. Seals are produced in facilities in the United States,
The Netherlands, Germany, Mexico, Argentina and Japan. Valves are produced in
plant facilities in the United States.
In 1995, a new large-component facility in New Mexico was completed and, in
conjunction with the Company's existing small-component facility, provides a
significant portion of pump components previously manufactured at the Company's
integrated U.S. pump plants. These U.S. plants now focus on the engineering,
assembly and testing of pumps. The two specialized component manufacturing
facilities also supply components to other Company plants outside of the U.S. on
an economically selective basis. The construction of the large-component
facility was an important element of the Company's restructuring program which
is described in more detail in Management's Discussion and Analysis and in Note
3 to Consolidated Financial Statements starting respectively on page 12 and page
22 of the 1996 Annual Report to Stockholders.
In 1996, nearly 42% of the Company's products manufactured in the United States,
measured by gross sales (which include intercompany sales), were shipped to
international markets. Pump manufacturing facilities in The Netherlands and
Belgium and seal manufacturing facilities in The Netherlands and Germany are the
primary source of pumps and seals sold in Europe, Africa and the Middle East.
The Argentine facility provides products primarily for Argentine customers as
well as customers in other South American countries, while the Japanese plant
provides products for Japan and parts of Southeast Asia.
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The acquisition of Stork Pompen is expected to provide the Company greater
access to pump markets in Europe, Asia, the Pacific Rim and South America. In
addition to its own operations, the Company is a party to numerous license
agreements and joint ventures for the manufacture and/or service of pump and
seal products.
The Company's Mexican operation, which has approximately 280 employees,
manufactures pumps and mechanical seals. Its principal customers in Mexico are
Petroleos Mexicanos (the state-owned oil company) and Comision Federal de
Electricidad (the national electric power company). The Company's large
vertical circulating pumps manufactured in Mexico are distributed worldwide.
The Company's worldwide pump, seal and valve sales forces sell its products
directly to end-users and engineering and construction firms. The Company's
worldwide pump sales organization sells to petroleum, power and general industry
customers within regional territories. A portion of the Company's seal products
are sold directly to original equipment ("OE") manufacturers, for either pumps,
compressors, mixers or other rotating equipment requiring sealing.
Distributors, dealers, commissioned representatives and sales agents are used to
a lesser extent in the distribution and sale of the products.
The Company has sales offices in most European countries and has independent
representatives to support foreign sales efforts where the Company does not
maintain a presence. Of the Company's 52 service facilities, 30 are located
outside the United States in Argentina, Belgium, Canada, France, Germany,
Indonesia, Italy, Japan, Malaysia, Mexico, The Netherlands, Saudi Arabia,
Singapore, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom
and Venezuela. An agent of the Company operates one service facility in Saudi
Arabia.
COMPETITION
In general, the markets for the Company's pump and seal products are highly
competitive. In the OE market, the Company competes against a variety of other
companies, some of which are significantly larger, have greater financial
resources, broader product lines or have larger overall market shares; this is
particularly true in the mechanical seal market where the Company estimates that
John Crane Inc. has a substantially larger market share than the Company or any
other competitor. Competition, particularly for OE sales, has been increasing
in a number of the Company's served markets.
Competition occurs on the basis of price, technical expertise, delivery,
previous installation history and reputation for quality. Delivery speed and
the proximity of service centers are particularly important with respect to
aftermarket products and services. The Company's customers, especially for
pumps, are more likely to rely on the Company for aftermarket products and
services relating to more highly engineered and customized products than for
standard products. Price competition tends to be more significant for OE than
aftermarket services and has been increasingly important with ongoing over
capacity in the Company's pump and seal markets.
Due to the high cost of inventory, customers for pump and seal products are
attempting to reduce the number of vendors from which they purchase in order to
reduce the size and diversity of inventory. Although vendor reduction programs
could adversely affect the Company's business, the Company has been successful
in entering into "partnering" arrangements with a number of companies both in
the United States and overseas. Under these arrangements, in exchange for
certain services the customer commits to using the Company as a principal or
sole source. The Company is seeking to enter into similar arrangements with
additional customers.
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Until 1995 the Company was the only corporation among its global competitors
which manufactured and distributed both pumps and mechanical seals. Since then
a domestic pump and competing domestic seal company have merged, and another
domestic pump company formed a global alliance with another competing seal
company. So far the Company does not believe these events have any significant
impact on its business.
In the aftermarket portion of its pump and seal business, the Company competes
against both large and well-established national or global competitors and, in
some markets, against smaller regional and local companies, as well as the in-
house maintenance departments of the Company's end-user customers. In the
petroleum industry the competitors for aftermarket services tend to be the
customers themselves because of their sophisticated in-house capabilities,
whereas in other industries, except the nuclear power industry, the competitors
for aftermarket services tend to be low cost replicators of spare parts and
local repair shops for the Company's products. In the sale of aftermarket
products and services the Company enjoys the benefit of a large installed base
of pumps and mechanical seals which require maintenance, repair and replacement
parts. The Company has certain competitive advantages in the nuclear power
industry because it has obtained and maintained the N Stamp that is required to
service customers in that industry, and because the Company has a considerable
base of proprietary knowledge.
CUSTOMERS
The Company sells to a wide variety of customers. No individual customer
accounted for more than 2% of the Company's 1996 net sales and the Company's ten
largest customers represented approximately 10% of the Company's net sales in
1996.
BACKLOG
The Company's backlog of firm unfilled orders totaled approximately $175.2
million as of December 31, 1996, compared with approximately $148.2 million as
of December 31, 1995. The year-end backlog at December 31, 1996, is comprised
of 28% aftermarket parts and services compared with 31% for the prior year. The
Company estimates approximately 90% of the December 31, 1996, backlog will be
shipped by December 31, 1997.
RISKS OF INTERNATIONAL BUSINESS
The Company's activities are subject to the customary risks of operating in an
international environment, such as unstable political situations, local laws,
the potential imposition of trade restrictions or tariff increases and currency
fluctuations. Historically, U.S. dollar currency fluctuations have not
significantly affected export orders from either the United States or any
foreign Company location. The risk of currency fluctuations is mitigated by the
fact that most of the Company's foreign business transactions are conducted in
the local currency. To minimize the impact of foreign exchange rate movements
on its operating results, the Company enters into forward exchange contracts to
hedge specific foreign currency denominated transactions. Given the nature of
its business, the Company's financial results are subject to fluctuations in
foreign currency rates against the U.S. dollar within the countries where it
operates. See Note 1 to Consolidated Financial Statements on pages 20 and 21 of
the 1996 Annual Report to Stockholders, which are incorporated by reference in
this Form 10-K. The Company conducts substantial business activities in the
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Middle East and is a leading supplier of pump and seal products to Saudi Arabia
and Iran. The Middle East region is subject to additional risks such as changes
in governmental policies, political risk, wars, transportation delays, tariffs,
and import, export, exchange and tax controls.
RESEARCH AND DEVELOPMENT
The Company conducts research and development at its own facilities in various
locations. In 1996, 1995, and 1994, the Company spent approximately $6.0
million, $6.6 million, and $5.3 million, respectively, on Company-sponsored
research and development.
Management believes current expenditures are adequate to sustain ongoing
research and development activities. The Company's research and development
group consists of engineers involved in new product development as well as the
support and improvement of existing products. Additionally, the Company
sponsors consortium programs for research with various universities and conducts
limited development work jointly with certain of its vendors, licensees and
customers.
INTELLECTUAL PROPERTY
Most of the intangible property that the Company uses in its business, including
technology, licenses, patents, copyrights, trademarks and trade names, was
acquired in connection with the Acquisition. The Company considers its
trademarks Byron Jackson(R), United Centrifugal(R), Byron Jackson/United /TM/,
BW Seals(R), GASPAC(R), Pacific Wietz /TM/, Five Star Seal(R) and
Wilson-Snyder(R) to be important to its business. The patents underlying much of
the technology for the Company's products have been in the public domain for
many years. Surviving patents are not considered, either individually or in the
aggregate, material to the Company's business. However, the Company's pool of
proprietary information, consisting of know-how and trade secrets relating to
the design, manufacture and operation of its products and their use, is
considered particularly important and valuable. Accordingly the Company actively
protects such proprietary information.
RAW MATERIALS
The principal raw materials used by the Company in the manufacture of its
industrial products are normally readily available. While all raw materials are
purchased from outside sources, the Company has been able to obtain an adequate
supply of raw materials and no shortage of such materials is currently
anticipated. The Company has elected to obtain certain materials from a single
supplier for certain requirements, but alternate sources could be developed
without creating a critical shortage for the Company. The Company intends to
expand its use of worldwide sourcing to capitalize on low cost sources of
purchased goods.
Suppliers of raw materials for nuclear markets must be qualified by the American
Society of Mechanical Engineers and, accordingly, are limited in number.
However, the Company to date has experienced no significant difficulty in
obtaining such materials.
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EMPLOYEES AND LABOR RELATIONS
The Company and its subsidiaries employ approximately 3,300 persons of whom
approximately 50% work in the United States. The Company's hourly employees at
its three principal U.S. pump manufacturing plants in Los Angeles, San Jose and
Tulsa and at its valve manufacturing plant in Williamsport, Pennsylvania are
unionized. The Company's U.S. operations have been conducted without a work
stoppage since 1978. The Company's operations in Mexico, The Netherlands,
Germany and Belgium are unionized. Unions represent approximately 24% of the
Company's worldwide work force. The Company believes employee relations
throughout its operations are satisfactory.
ENVIRONMENTAL REGULATIONS AND PROCEEDINGS
The Company is subject to environmental laws and regulations in all
jurisdictions in which it has operating facilities and periodically makes
capital expenditures for pollution abatement and control to meet environmental
requirements. In connection with the Acquisition, Borg-Warner agreed to bring
certain environmental matters into compliance with applicable regulations,
including matters at the Temecula, California facility. In addition, under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Company was named a potentially responsible party ("PRP") at the
Operating Industries, Inc. Superfund Site (Monterey Park, California)
("Operating Industries") and the Stringfellow Acid Pits Superfund Site (Glen
Avon, California) ("Stringfellow") due to waste materials from the Company's
plants having been disposed of at these sites. These sites have been
administered by the U.S. Environmental Protection Agency. Borg-Warner is
contractually obligated by the agreements relating to the Acquisition to
indemnify the Company in the event it is held liable as a PRP at the Operating
Industries and Stringfellow sites. Borg-Warner has undertaken the active
defense or representation of the Company in the legal and administrative
proceedings related to the Operating Industries and Stringfellow matters, and
has paid amounts as they have become due in connection therewith.
As a result of pre-existing contamination found at its property in San Jose,
California, the Company is in the process of performing remediation work on the
site. The Company has established an allowance for certain remediation and
other anticipated costs and initiated legal action against the prior owner for
indemnification of past and anticipated future expenses. Pursuant to the terms
of a purchase and sale agreement, the prior owner of the Company's Williamsport,
Pennsylvania facility is obligated to perform remediation, if required, for
contamination existing at the time the Company acquired the property.
The Company believes that future expenditures will not have a material adverse
effect on its financial position and has established allowances which it
believes to be adequate to cover potential environmental liabilities.
EXPORT LICENSES
Licenses are required from U.S. government agencies to export from the United
States many of the Company's products. In particular, products with nuclear
applications are restricted, although limitations are placed on the export of
certain other pump and seal products as well.
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ITEM 2. PROPERTIES
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The following tables set forth certain information relating to the Company's
principal facilities. The Company operates other smaller domestic and foreign
manufacturing facilities, service centers and sales offices which are omitted
from these tables.
OWNED FACILITIES
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE PRINCIPAL OPERATIONS
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<S> <C> <C>
Albuquerque, New Mexico 50,000 Manufacture of pump products
Benicia, California 22,200 Service of pump products
Boothwyn, Pennsylvania 17,500 Service of pump products
Elgin, Illinois 24,578 Service of pump products
Etten-Leur, The Netherlands 175,100 Manufacture of pump products
Florence, South Carolina 24,873 Service of seal products
Houston, Texas 34,900 Service of pump products
Leduc, Alberta, Canada 30,000 Service of pump products
Los Angeles, California 273,220 Manufacture and service of pump
products
Roosendaal, The Netherlands 48,400 Manufacture of seal products
Santa Clara, Mexico 154,262 Manufacture of pump and seal
products
Santa Fe, New Mexico 30,025 Manufacture of pump products
San Jose, California 99,588 Manufacture of pump products
Temecula, California 64,284 Manufacture of seal products
Tulsa, Oklahoma 319,656 Manufacture of pump products
Williamsport, Pennsylvania 141,000 Manufacture of valve products
LEASED FACILITIES
<CAPTION>
LOCATION SQUARE FOOTAGE PRINCIPAL OPERATIONS
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<S> <C> <C>
Charleroi, Belgium (1) 54,000 Manufacture of pump products
Dortmund, Germany (2) 70,000 Manufacture of seal products
Guelph, Ontario, Canada (3) 18,080 Service of pump products
Hengelo, The Netherlands(4) 49,400 Manufacture of pump products
Osaka, Japan (5) 25,000 Manufacture of seal products
Mendoza, Argentina (6) 80,900 Manufacture of pump and seal
products
Long Beach, California (7) 36,902 Administrative Headquarters
</TABLE>
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(1) Expires 2001.
(2) Expires 2012.
(3) Expires 2002
(4) Expires 2000.
(5) Expires 2004.
(6) Expires 1998.
(7) Expires 2000.
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The Company maintains a total of 22 domestic and 30 foreign service centers and
23 domestic and 27 foreign sales offices.
The Company has offered for sale its manufacturing facility in Van Nuys,
California. This property had been used by the Fluid Controls business segment
until the Company's sale of this segment in October 1994. The property was
vacated by the Company's tenant at the end of 1995. See Note 2 to Consolidated
Financial Statements on page 22 of the 1996 Annual Report to Stockholders.
ITEM 3. LEGAL PROCEEDINGS
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The Company is involved in ordinary routine litigation incidental to its
business, none of which it believes to be material to its financial condition.
See also "Environmental Regulations and Proceedings" above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, all positions and offices presently held
by each person named, their ages as of March 14, 1997, and their business
experience during the last five years are stated below. Executive officers
serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name and Position Age Principal Occupation During Past Five Years
----------------- --- -------------------------------------------
<S> <C> <C>
Bernard G. Rethore 55 Chairman of the Board of Directors of
Chairman of the Board of BW/IP and International since 1997 and
Directors, President and President and Chief Executive Officer of
Chief Executive Officer BW/IP and International since 1995; Senior
Vice President of Phelps Dodge Corporation
and President of Phelps Dodge Industries,
its diversified international
manufacturing business, from 1989 to 1995.
Charles F. Cargile 32 Corporate Controller of BW/IP and
Corporate Controller International since 1996, Director
Corporate Accounting from March to
December 1996, and Manager Operations and
Financial Analysis from 1992 to March 1996.
Eugene P. Cross 61 Executive Vice President, Finance, and
Executive Vice President, Chief Financial Officer of BW/IP and
Finance, and Chief International since 1991; Vice President,
Financial Officer Finance of BW/IP from 1987 to 1991; Vice
President, Finance of International from
1975 to 1991.
John D. Hannesson 45 Vice President, General Counsel and
Vice President, General Secretary of BW/IP and International since
Counsel and Secretary 1987.
Renee J. Hornbaker 44 Vice President, Business Development of
Vice President, Business BW/IP and International since 1996;
Development Director Business Analysis and Planning of
Phelps Dodge Industries, the diversified
international manufacturing business of
Phelps Dodge Corporation, from February to
April 1996 and Director Financial Analysis
and Control from July 1991 to February 1996.
Darrach G. Taylor 62 Vice President, Human Resources of BW/IP
Vice President, since 1987 and Vice President, Human
Human Resources Resources of International since 1976.
Howard D. Wynn 50 Vice President of BW/IP and International
Vice President and President since 1996; Vice President of the Pump
- Pump Division Division from 1993 to 1996; Operations
Manager Service from 1988 to 1993.
Richard R. Testwuide 48 Vice President of BW/IP since 1987; Vice
Vice President and President President of International since 1984;
- Seal Division President of the Seal Division since 1995;
Vice President - General Manager of the
Seal Division from 1991 to 1995.
Zohar Ziv 44 Treasurer of BW/IP and International since
Treasurer and Worldwide 1989 and Worldwide Controller of the Pump
Controller - Pump Division Division since 1996.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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Information on the market prices and dividends regarding the Company's Common
Stock, which appears on page 35 of the 1996 Annual Report to Stockholders, is
incorporated herein by reference.
As of March 7, 1997, BW/IP's Common Stock was held by approximately 4,100
stockholders of record or through nominee or street name accounts with brokers.
BW/IP's ability to pay dividends on its Common Stock depends on International's
ability to pay dividends to BW/IP. International's domestic credit agreement
and senior notes restrict the payment of dividends by International to BW/IP
(and thereby limit BW/IP's ability to pay dividends on the Common Stock) except
in certain specified circumstances or unless certain financial tests are met.
As of December 31, 1996, after giving effect to the dividends declared to date,
approximately $48 million is available for the payment of dividends by
International to BW/IP pursuant to the most restrictive covenants.
ITEM 6. SELECTED FINANCIAL DATA
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Selected financial data for the five years ended December 31, 1996, which
appears on page 16 of the 1996 Annual Report to Stockholders, is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's Discussion and Analysis appears on pages 12 through 15 of the 1996
Annual Report to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The financial statements, together with the report thereon of Price Waterhouse
LLP dated January 28, 1997, appearing on pages 17 through 34 of the 1996 Annual
Report to Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
11
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information contained under the heading "Proposal -- Election of Directors"
in the definitive Proxy Statement for the Annual Meeting of Stockholders to be
held on or about May 6, 1997, (the "1997 Proxy Statement") is incorporated
herein by reference. For information concerning the executive officers of
BW/IP, see "Executive Officers of the Registrant" in Part I of this Form 10-K.
DISCLOSURE PURSUANT TO ITEM 405 OF REGULATION S-K
Information contained under the heading "Beneficial Ownership of Common Stock -
Compliance With Section 16(a) of the Exchange Act" in the 1997 Proxy Statement
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information contained under the heading "Executive Compensation" in the 1997
Proxy Statement is incorporated herein by reference (except for the sections
"Report of the Compensation and Benefits Committee" and "Performance Graph for
Common Stock" which are not deemed to be filed as part of this Form 10-K).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------- ----------
The information contained under the heading "Beneficial Ownership of Common
Stock" in the 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
None.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The financial statements, together with the report thereon of Price
Waterhouse LLP dated January 28, 1997, appearing on pages 17 through
34 of the 1996 Annual Report to Stockholders are incorporated herein
by reference.
2. Financial Statement Schedules
-----------------------------
The required financial statement schedules together with the report
thereon of Price Waterhouse LLP dated January 28, 1997, listed in the
accompanying index on page F-1, are filed as part of this Form 10-K.
3. Exhibits
--------
The exhibits listed on the accompanying index to exhibits on pages 14
through 17 are filed as part of this Form 10-K.
(b) Reports on Form 8-K
-------------------
None.
(c) See Item 14(a) 3 above.
(d) See Item 14(a) 2 above.
13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.a Form of Third Restated Certificate of Incorporation of
BW/IP, Inc. (formerly BWIP Holding, Inc.) ("BW/IP"), as
filed with the Secretary of State of Delaware.
Incorporated by reference to Appendix A of BW/IP's Proxy
Statement for the 1994 Annual Meeting of Stockholders
dated April 11, 1994, as filed with the SEC.
3.b Certificate of Designation of Junior Participating
Cumulative Preferred Stock of BW/IP ("Certificate of
Designation of Junior Participating Cumulative Preferred
Stock"), as filed with the Secretary of State of
Delaware. Incorporated by reference to Exhibit 3a of
BW/IP's quarterly report on Form 10-Q for the quarter
ended September 30, 1993 as filed with the SEC
3.c Bylaws of BW/IP, as amended and restated on May 14,
1996. Incorporated by reference to Exhibit 3 of BW/IP's
quarterly report on Form 10-Q for the quarter ended
September 30, 1996, as filed with the SEC.
4.a Rights Agreement between BW/IP and Bank One,
Indianapolis, N. A., Rights Agent, dated as of July 26,
1993 which includes as Exhibit B the form of Right
Certificate (assumed by American Stock Transfer & Trust
Company as of November 1, 1995). Incorporated by
reference to Exhibit 4 of BW/IP's Report on Form 8-K
dated July 30, 1993 as filed with the SEC.
4.b Certificate of Designation of Junior Participating
Cumulative Preferred Stock (filed as Exhibit 3.b)
10.a Credit Agreement, dated as of December 1, 1995, among
BW/IP International, Inc., the Financial Institutions
named therein, Citicorp USA, Inc., as Agent, and ABN
AMRO Bank, as Co-Agent. Incorporated by reference to
Exhibit 10b of BW/IP's 1995 Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, as filed
with the SEC ("BW/IP's 1995 Annual Report on Form 10-K").
10.b Credit Agreement, dated as of July 5, 1991, between
BW/IP International B.V. and Algemene Bank Nederland N.V.
Incorporated by reference to Exhibit 4t of BW/IP's
Registration Statement on Form S-8 ( Registration No. 33-
44806) as filed on December 27, 1991, with the SEC (the
"1991 Form S-8").
10.c Guaranty, dated October 9, 1991, by BW/IP International,
Inc. to Algemene Bank Nederland N.V. Incorporated by
reference to Exhibit 4u of the 1991 Form S-8.
10.d Note Agreement, dated as of November 15, 1996, between
BW/IP International, Inc. and the Note Purchasers named
therein, with respect to $30,000,000 principal amount of
7.14% Senior Notes, Series A due November 15, 2006 and
$20,000,000 principal amount of 7.17% Senior Notes,
Series B, due March 31, 2007. Incorporated by reference
to Exhibit 4l of BW/IP's Registration Statement on
Form S-8 (Registration No. 333 - 21637) as filed on
February 12, 1997, with the SEC ("BW/IP's 1997
Form S-8").
14
<PAGE>
10.e Note Agreement, dated as of April 15, 1992, between
BW/IP International, Inc. and the Note Purchasers named
therein, with respect to $50,000,000 principal amount of
7.92% Senior Notes due May 15, 1999. Incorporated by
reference to Exhibit 4a of BW/IP's quarterly report on
Form 10-Q for the quarter ended June 30, 1992 as filed
with the SEC.
10.f Credit Agreement, dated as of September 10, 1993 between
BW/IP International B.V. and ABN/AMRO. Incorporated by
reference to Exhibit 10dd of BW/IP's 1993 Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
as filed with the SEC ("BW/IP'S 1993 Annual Report on
Form 10-K").
10.g Guaranty, dated July 30, 1995, by BW/IP International,
Inc. to ABN-AMRO Bank N.V. Incorporated by reference to
Exhibit 4s to BW/IP's Registration Statement on Form S-8
(Registration No. 33-64143) as filed on November 13, 1995
with the SEC ("BW/IP's 1995 Form S-8")
10.h Bond Purchase Agreement, dated January 27, 1995, among
BW/IP-New Mexico, Inc., the City of Albuquerque, New
Mexico and BW/IP International, Inc. (Not filed herewith
pursuant to Item 601(b)(4)(iii) of Regulation S-K. BW/IP
hereby agrees to furnish a copy of such bond purchase
agreement to the SEC upon request.)
10.i BW/IP International, Inc. 1992 Long-Term Incentive Plan.
Incorporated by reference to Appendix A of BW/IP's Proxy
Statement for the 1992 Annual Meeting of Stockholders,
dated April 17, 1992, as filed with the SEC.*
10.j BW/IP, Inc. 1996 Long-Term Incentive Plan. Incorporated
by reference to Appendix A to BW/IP's Proxy Statement for
the 1996 Annual Meeting of Stockholders dated April 9,
1996 as filed with the SEC (the "BW/IP's 1996 Proxy
Statement").*
10.k First Amendment to the BW/IP, Inc. 1996. Long-Term
Incentive Plan. Incorporated by reference to Exhibit 99.d
of BW/IP's 1997 Form S-8.*
10.l Supplemental Executive Retirement Plan. Incorporated by
reference to Exhibit 10rrrr of BW/IP's Registration
Statement on Form S-1 (Registration No. 33-45165) as
filed February 18, 1992, with the SEC.*
10.m BW/IP International, Inc. Retirement Plan (as amended
and restated as of January 1, 1993). Incorporated by
reference to Exhibit 99l of BW/IP's 1995 Form S-8.*
10.n Amendment Number One to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit 99m
of BW/IP's 1995 Form S-8.*
10.o Amendment Number Two to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit 99n
of BW/IP's 1995 Form S-8.*
10.p Amendment Number Three to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit 99o
of BW/IP's 1995 Form S-8.*
15
<PAGE>
10.q Amendment Number Four to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit 99p
of BW/IP's 1995 Form S-8.*
10.r Amendment Number Five to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit 99q
of BW/IP's 1995 Form S-8.*
10.s Amendment Number Six to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit
10.m of BW/IP's 1995 Annual Report on Form 10-K.
10.t Amendment Number Seven to the BW/IP International, Inc.
Retirement Plan. Incorporated by reference to Exhibit
10.n of BW/IP's 1995 Annual Report on Form 10-K.*
10.u Amendment Number One to the Supplemental Executive
Retirement Plan. Incorporated by reference to Exhibit
10ee to BW/IP's 1993 Annual Report on Form 10-K.*
10.v BW/IP Holding, Inc. Non Employee Directors' Stock
Option Plan. Incorporated by reference to Appendix A of
BW/IP's Proxy Statement for the 1993 Annual Meeting of
Stockholders dated April 16, 1993 as filed with the SEC.*
10.w Non Employee Directors' Charitable Gift Plan.
Incorporated by reference to Exhibit kk to BW/IP's 1992
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the SEC.*
10.x BW/IP, Inc. 1996 Directors Stock and Deferred
Compensation Plan. Incorporated by reference to Appendix
B of BW/IP's 1996 Proxy Statement.*
10.y First Amendment to the BW/IP, Inc. 1996 Directors Stock
and Deferred Compensation Plan. Incorporated by reference
to Exhibit 99.f of BW/IP's 1997 Form S-8.*
10.z Amended and Restated BW/IP International, Inc. Retiree
Health Care Plan. Incorporated by reference to Exhibit
10jj to BW/IP's 1993 Annual Report on Form 10-K.*
10.aa BW/IP International, Inc. 1996 Management Incentive
Plan. Incorporated by reference to Exhibit 10ff to
BW/IP's 1995 Annual Report on Form 10-K.*
10.bb Amendment to the BW/IP International, Inc. Retiree Health
Care Plan. Incorporated by reference to Exhibit 10mm of
BW/IP's 1994 Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 as filed with the SEC
("BW/IP's 1994 Annual Report on Form 10-K").*
10.cc Amendment to the BW/IP International, Inc. Retiree
Health Care Plan . Incorporated by reference to Exhibit
10.x of BW/IP's 1995 Annual Report on Form 10-K.*
10.dd Amendment to the BW/IP International, Inc. Supplemental
Executive Retirement Plan. Incorporated by reference
to Exhibit 10.nn of BW/IP's 1994 Annual Report on
Form 10-K.*
16
<PAGE>
10.ee Amendment to the BW/IP International, Inc. Supplemental
Executive Retirement Plan. Incorporated by reference to
Exhibit 10.z of BW/IP's 1995 Annual Report on Form 10-K*.
10.ff Form of Employment Continuation Agreement. Incorporated
by reference to Exhibit 10.aa of BW/IP's 1995 Annual
Report on Form 10-K.*
10.gg Employment Agreement, dated October 19, 1995, between
BW/IP, Inc. and Bernard G. Rethore. Incorporated by
reference to Exhibit 10.bb of BW/IP's 1995 Annual Report
on Form 10-K.*
10.hh Employment Continuation Agreement, dated December 14,
1995, between BW/IP, Inc. and Bernard G. Rethore.
Incorporated by reference to Exhibit 10.cc of BW/IP's
1995 Annual Report on Form 10-K.*
10.ii 1995 Stock Option Agreements, dated as of October 19,
1995, between BW/IP, Inc. and Bernard G. Rethore.
Incorporated by reference to Exhibit 10.dd of BW/IP's
1995 Annual Report by Form 10-K.*
10.jj Consulting Agreement, dated December 14, 1995, between
BW/IP, Inc. and Peter C. Valli. Incorporated by reference
to Exhibit 10.ee of BW/IP's 1995 Annual Report on
Form 10-K.*
10.kk BW/IP International, Inc. 1997, Management Incentive
Plan (filed herewith).*
10.ll Employment Agreement, dated March 4, 1997, between
BW/IP, Inc. and Ronald W. Hoppel (filed herewith)*
13.a 1996 Annual Report to Stockholders of BW/IP (filed
herewith as part of this report to the extent
incorporated herein by reference).
21.a Subsidiaries of BW/IP (filed herewith).
23.a Consent of Price Waterhouse LLP (filed herewith).
24.a Powers of Attorney (filed herewith).
27.a Financial Data Schedule, submitted to the SEC in
electronic format.
- -----------------------------
* Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this form pursuant to Item 14(c) of this Form 10-K.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 27th day of March
1997.
BW/IP, INC.
(Registrant)
By: /s/ Eugene P. Cross
-------------------
Eugene P. Cross
Executive Vice President, Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BERNARD G. RETHORE Chairman, President, March 27, 1997
- ----------------------------- Chief Executive Officer and
Bernard G. Rethore Director
(Principal Executive Officer)
/s/ CHARLES F. CARGILE Corporate Controller, March 27, 1997
- ----------------------------- (Principal Accounting Officer)
Charles F. Cargile
/s/ EUGENE P. CROSS Executive Vice President, March 27, 1997
- ----------------------------- Finance,
Eugene P. Cross Chief Financial Officer
(Principal Financial Officer)
/s/ ROY A. HERBERGER, JR.* Director March 27, 1997
- -----------------------------
Roy A. Herberger, Jr.
/s/ MICHAEL F. JOHNSTON* Director March 27, 1997
- -----------------------------
Michael F. Johnston
/s/ GEORGE D. LEAL* Director March 27, 1997
- -----------------------------
George D. Leal
/s/ H. JACK MEANY* Director March 27, 1997
- -----------------------------
H. Jack Meany
/s/ JAMES S. PIGNATELLI* Director March 27, 1997
- -----------------------------
James S. Pignatelli
/s/ JAMES O. ROLLANS* Director March 27, 1997
- -----------------------------
James O. Rollans
/s/ WILLIAM C. RUSNACK* Director March 27, 1997
- -----------------------------
William C. Rusnack
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER C. VALLI* Director March 27, 1997
- -----------------------------
Peter C. Valli
/s/ JEFFREY L. ZELMS* Director March 27, 1997
- -----------------------------
Jeffrey L. Zelms
</TABLE>
*By: /s/ John D. Hannesson
- -------------------------------------
(John D. Hannesson, Attorney-in-fact)
19
<PAGE>
BW/IP, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(a)(1) AND (2)
<TABLE>
<CAPTION>
ANNUAL REPORT ANNUAL REPORT
TO ON
STOCKHOLDERS FORM 10-K
------------- -------------
<S> <C> <C>
BW/IP, Inc. Consolidated Financial Statements
Report of Independent Accountants 34
Consolidated Balance Sheets at
December 31, 1996 and 1995 17
For the three years ended December 31, 1996:
Consolidated Statements of Income and Retained Earnings 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20-33
BW/IP, Inc. Financial Statement Schedules at
December 31, 1996 and 1995 or for the three years
ended December 31, 1996.
Report of Independent Accountants on
Financial Statement Schedules F-2
Schedule I - Condensed Financial Information of
Parent Company F-3 - F-5
Schedule II - Valuation and Qualifying Accounts F-6
</TABLE>
Financial statement schedules not included in this Annual Report on Form 10-K
have been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
and Stockholders of BW/IP, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 28, 1997 appearing on page 34 of the 1996 Annual Report to
Stockholders of BW/IP, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedules listed in Item 14(a) of this Form
10-K. In our opinion, these Financial Statement Schedules present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Los Angeles, California
January 28, 1997
- ---------------------------
F-2
<PAGE>
BW/IP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The following condensed financial statements of BW/IP, Inc. reflect the parent
company only, using the equity method of accounting for its wholly owned
subsidiary, BW/IP International, Inc. All footnote disclosure has been omitted
since all information has been included in the BW/IP, Inc. consolidated
financial statements included elsewhere in this Form 10-K.
BW/IP, INC.
(PARENT COMPANY ONLY)
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
--------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
- ------
Due from subsidiary $ 2,670 $ 2,670
Investment in subsidiary 188,845 179,474
-------- --------
Total assets $191,515 $182,144
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued liabilities $ 2,670 $ 2,670
-------- --------
Total current liabilities 2,670 2,670
Other long-term liabilities -- --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized and
unissued -- --
Common stock, $.01 par value;
40,000,000 shares authorized;
24,450,000 shares issued and
outstanding 245 245
Paid-in capital 85,763 85,763
Retained earnings 109,173 92,008
Cumulative translation adjustment (5,723) 2,071
-------- --------
189,458 180,087
Less common stock in treasury, at
cost (613) (613)
-------- --------
Total stockholders' equity 188,845 179,474
-------- --------
Total liabilities and $191,515 $182,144
stockholders' equity ======== ========
</TABLE>
F-3
<PAGE>
BW/IP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BW/IP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
----------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Equity in net income of
wholly owned subsidiary/(1)/ $27,846 $23,349 $24,985
------- ------- -------
Net income $27,846 $23,349 $24,985
======= ======= =======
</TABLE>
/(1)/ BW/IP, Inc. files a consolidated tax return with its wholly owned
subsidiary, BW/IP International, Inc. Any necessary income taxes on the
equity in net income of BW/IP International, Inc. are provided by BW/IP
International, Inc. Effective January 1, 1994, certain employees and
related costs of the corporate office were transferred from BW/IP
International, Inc. to BW/IP, Inc. and a management agreement was
executed. Under the terms of the agreement, all amounts incurred by
BW/IP, Inc. are reimbursed by BW/IP International, Inc.
F-4
<PAGE>
BW/IP, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BW/IP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
_________________________________
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid $(10,681) $(10,196) $(8,739)
Dividend from wholly owned subsidiary 10,681 10,196 8,739
-------- -------- -------
Net change in cash and cash equivalents/(1)/ $ -- $ -- $ --
======== ======== =======
Supplemental schedule of non-cash financing activities:
Dividends declared but not paid $ 2,670 $ 2,670 $ 2,428
</TABLE>
/(1)/ BW/IP, Inc. had no other transactions impacting cash and cash equivalents
during each of the three years.
F-5
<PAGE>
BW/IP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS AMOUNTS BALANCE
BEGINNING CHARGED TO WRITTEN AT END
OF PERIOD PROFIT AND LOSS OFF OTHER(1) OF PERIOD
---------- ---------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Receivables -
Allowance for doubtful accounts:
1996 $ 3,775 1,340 (1,647) (189) $ 3,279
======= ====== ====== ====== =======
1995 $ 2,967 2,073 (1,288) 23 $ 3,775
======= ====== ====== ====== =======
1994 $ 2,805 1,059 (916) 19 $ 2,967
======= ====== ====== ====== =======
Inventories -
Reserves:
1996 $13,771 658 (2,154) (1,376) $10,899
======= ====== ====== ====== =======
1995 $12,107 1,098 (582) 1,148 $13,771
======= ====== ====== ====== =======
1994 $ 7,624 2,192 (740) 3,031 $12,107
======= ====== ====== ====== =======
</TABLE>
/(1)/ Represents foreign currency translation adjustments, acquisitions and
other adjustments.
F-6
<PAGE>
EXHIBIT 10.kk
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
PURPOSE
The BW/IP International, Inc. 1997 Management Incentive Plan (MIP) is intended
to reward selected members of the Company's management team whose achievements
contribute substantially to the Company's performance as defined in annual
objectives and operating strategies.
This Plan is in force for calendar and fiscal year 1997 (1 January to 31
December 1997). The Plan will not be continued beyond the Year ending December
31, 1997 without the written approval of the Compensation, Benefits and
Organization Committee ("Compensation Committee").
ELIGIBILITY
The minimum qualification for participation in the Plan, using the BW/IP job
evaluation system, is 670 Hay points with 175 Accountability points. In
addition to the minimum point-based eligibility requirement, an employee must be
recommended by an Officer of the Company and be approved by the President and,
in some cases, the Compensation Committee of the Board of Directors. The
Administrator will notify Participants of their eligibility in writing.
Participants will be assigned to one of seven (7) Tiers which will determine the
amount of incentive compensation available to the Participant, pursuant to Plan
provisions, and may also dictate specific Performance Objectives, performance
standards, or other requirements for receipt of an Award by the Participant.
Generally, assignment to a Tier will be based on the number of Hay points for
the position. The President may alter the Tier assignment, however, based on
his assessment of factors which may not be entirely reflected by Hay points.
An employee must be on the BW/IP payroll prior to July 1 of the Year to be
eligible for participation in that Year's Plan.
DETERMINATION AND ALLOCATION OF AWARDS
Before the beginning of each Year, the Compensation Committee will establish
each Participant's Award potential for such year based upon the MIP Tier to
which the Participant is assigned. The Award potential will be defined as a
percent (or percentages) of the annual base salary of the Participant as of 31
December of the Year.
1
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
DETERMINATION AND ALLOCATION OF AWARDS (CONTINUED)
Incentive Award opportunity, as a percent of annual base salary, for each Tier
will be:
<TABLE>
<CAPTION>
PLAN TIER MINIMUM TARGET MAXIMUM
- ------------ -------- ------- --------
<S> <C> <C> <C>
1 25% 58% 82%
2 22% 50% 72%
3 20% 45% 65%
4 18% 38% 56%
5 13% 28% 40%
6 10% 21% 30%
7 7% 15% 20%
</TABLE>
SETTING PERFORMANCE OBJECTIVES
Awards earned pursuant to the Plan will be based on achievement of pre-
established annual Performance Objectives, as determined by the Administrator.
Upon establishment of the Performance Objectives for the Year, the Administrator
will notify each Participant in writing of the established Objectives and the
associated Award opportunity at various levels of performance.
No participant may be assigned more than six (6) objectives. Each Performance
Objective will be assigned a relative weight, with the total weights for all
Objectives equaling 100%. No single Objective may be weighted less than 10%.
1997 Management Incentive Plan
------------------------------
<TABLE>
<CAPTION>
CORPORATE PARTICIPANTS TIERS
- ---------------------- -----
1 3 4 5 6 7
- - - - - -
<S> <C> <C> <C> <C> <C> <C>
CORPORATE
- ---------
EPS/NE 50% 50% 50% 50% 50% 50%
ROCE 30 30 30 30 10-30 10-30
EVA 20 20 20 20 20 20
OTHER FINANCIAL (optional) 0-20 0-20 0-20
----- ----- ----- ----- ----- -----
TOTAL 100% 100% 100% 100% 100% 100%
</TABLE>
DIVISION PARTICIPANTS
- ---------------------
<TABLE>
<CAPTION>
Corporate
- ---------
<S> <C> <C> <C> <C> <C>
EPS/NE 20 15 10 10 10
ROCE 10 0-10
Division
- --------
DOI/Contribution Profit (CP) 30 35 20-30 20-30 20-30
Plant DOI/CP 20-35 20-35 20-30
PRIMARY WORKING CAPITAL (PWC%) 15 10-15 10-15 10-15 10-15
DIVISION EVA 15 10-15 10 10 10
BOOKINGS 10 10-30 0-30 0-30 0-30
OTHER FINANCIAL (optional) 0-20 0-20 0-20
----- ----- ----- ----- -----
TOTAL 100% 100% 100% 100% 100%
</TABLE>
Note: Maximum 6 Goals
2
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
EXAMPLE #1
Manager A is a Plant Manager and is a Tier 5 Participant. The Objectives
assigned to him for 1997 might be:
<TABLE>
<S> <C>
Plant DOI/CP 35%
- ----------------------------------
DOI 25%
- ----------------------------------
Division EVA 10%
- ----------------------------------
Primary Working Capital (PWC's) 10%
- ----------------------------------
Bookings 10%
- ----------------------------------
Net Earnings 10%
- ---------------------------------- ---
TOTAL 100%
</TABLE>
EXAMPLE #2
Manager B is an Engineering Manager and is a Tier 7 Participant. The Objectives
assigned to her for 1997 might be:
<TABLE>
<S> <C>
Plant DOI/CP 35%
- ---------------------------------
DOI 20%
- ---------------------------------
Primary Working Capital (PWC%) 15%
- ---------------------------------
Product Cost Reduction 10%
- ---------------------------------
Division EVA 10%
- ---------------------------------
Net Earnings 10%
- --------------------------------- ---
TOTAL 100%
</TABLE>
As a condition of participation in the MIP for 1997, a Participant's Performance
Objectives must be approved by the Administrator no later than December 31,
1996. By this date, the specific performance level may not be established,
merely the measure by which performance will be measured. For example:
. A Participant has "Revenue" approved as an Objective with a relative weight
of 20%
. The estimated or projected performance target may be $75 million
. The Objective of "Revenue" is approved by the Administrator by December 31,
1996 but the target of $75 million is still tentative.
It is the responsibility of the Participant to ensure that the Administrator has
determined and approved Performance Objectives prior to December 31 of the
preceding Year.
3
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
SETTING PERFORMANCE TARGETS
After the Company's objectives for the Year have been determined, the
Participant will receive the specific performance targets for each objective.
This will typically occur after:
. The financial results for the prior year have been presented to the Board of
Directors
. The Board of Directors has approved overall Company performance objectives
for the year.
For each Objective, a specific scale will be established indicating the amount
of Award, subject to the relative weights, to be paid for a given level of
performance on that Objective. For example, if a financial objective is $100
million the performance award scale might be:
<TABLE>
<CAPTION>
PERFORMANCE RANGE
FINANCIAL OBJECTIVE AS A PERCENT OF TARGET
- ---------------------- -----------------------
<S> <C>
Below $80 mm 0%
$80 mm 80%
$85 mm 85%
$90 mm 90%
$95 mm 95%
$100 mm 100%
$105 mm 105%
$110 mm 110%
$115 mm 115%
$120 mm 120%
</TABLE>
Performance levels between two indicated levels will be interpolated on a linear
basis.
Prior to the final assignment of targeted performance levels, the Company will
ensure that aggregated performance among the various Divisions, Departments, and
Units equals overall performance; for example:
. Total revenue from all entities must equal the Company's targeted revenue for
the year
. Similarly, total profit from all entities must equal the Company's targeted
profit for the year.
4
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
REVIEWING PERFORMANCE OBJECTIVES
At or near the midpoint of the Year, the Administrator* will review the
Performance Objectives for each Participant to ensure the continued relevance
and appropriateness of the Objectives.
If the Administrator determines that a change in Objectives is indicated, the
Participant may receive a substitute Objective for one or more Performance
Objectives that were established at or near the beginning of the Year.
If, during the course of the Year, the Administrator determines one or more of
the established Objectives are no longer suitable given Company objectives and
priorities due to a change in the Company's business, operations, corporate
structure, capital structure, or other conditions deemed by the Administrator to
be material, the Administrator may substitute one or more Objectives with a
different Objective as considered appropriate and equitable. The Administrator
may make such substitutions but may not alter the targeted performance level of
an established Objective. Extending the foregoing example:
. The Participant's "Revenue" Performance Objective is determined by the
Administrator to be inappropriate in light of significant changes in the
Company's markets and business strategy
. The Administrator may not change the Objective from the originally
established target of $75 million
. Instead, the Administrator authorized a substitution of the Revenue Objective
for a Market Share Objective of 12%.
PAYMENT OF AWARDS EARNED
The basis for Awards for a given Plan Year will be the assessment by the
Administrator of performance against the pre-established Performance Objectives.
The Award for each Participant will not exceed the Participant's established
maximum award potential.
The performance level on each Objective, as a percent of target, will be
assessed against the performance-award scale for that Objective, then multiplied
by the relative weight, as shown in the Illustration. The Award earned by each
Participant will be paid in cash, as soon as administratively possible but in no
event later than March 15 of the Year following the Plan Year.
* (See page 7 for definition)
5
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
TERMINATION OF EMPLOYMENT
A Participant must be an employee of BW/IP on 31 December of the Plan Year to be
eligible for payment of an Award.
In the event of a Participant's death, permanent disability, or retirement
during a Plan Year the Administrator will determine the amount of Award, if any,
to be paid to the Participant, their estate, or their legal representative. In
no event, however, will an Award be paid if the death, permanent disability, or
retirement occurs prior to July 1 of the Plan Year.
OTHER PROVISIONS
No Right to Participate. Nothing in the Plan will be deemed to give a
Participant or a Participant's legal representative or any other person or
entity claiming under or through a Participant any contract or right to
participate in the benefits of the Plan.
No Right to Award. Prior to the Administrator's determination and approval of an
Award payment, a Participant has no right to or claim on any payments
pursuant to this Plan. The Administrator has the full, final, and binding
authority with respect to determining the amount of Award, if any, based on
the review and interpretation of all available information.
No Employment Right. Participation in this Plan will not be construed as
constituting a commitment, guarantee, agreement, or understanding of any kind
that the Company will continue to employ any individual.
No Right to Participate in Other Plans. Participation in this Plan will not be
construed as constituting a right to participate in any other plan or program
offered by the Company to any employee or group of employees. This exclusion
includes, but is not limited to the 1996 Long-Term Incentive Plan,
Supplemental Executive Retirement Plan, Employment Continuation Program and
any successor plans or programs thereto.
Effect on Other Compensation and Benefits Programs. Award payments will be
included for U.S. pension calculations but will be excluded from calculations
for any and all insurance programs and plans and will be excluded from
calculations for the Capital Accumulation Plan. Pension and savings plans for
Non-U.S. participants will govern for those plans.
Withholding. The Company has the right to deduct any sums national, state, and
local tax laws require to be withheld with respect to the payment of any
Award.
Restricted Liability. Payments held by the Company before distribution will not
be liable for the debts, contracts, or engagements or any Participant or
beneficiary, or be taken by attachment or garnishment, or by any other legal
or equitable proceeding.
6
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
PLAN ADMINISTRATION
The Compensation Committee will adopt rules, policies and forms for the
administration, interpretation, and application of the Plan. The Compensation
Committee will have, subject to the provisions of the Plan, full and final
authority to interpret the Plan, to establish and revise rules, regulations, and
guides relating to the Plan, and make any other determination deemed necessary
or advisable for the administration of the Plan.
The Compensation Committee may amend, suspend, or terminate the Plan at any
time. Such amendment, suspension, or termination will not adversely alter or
affect any right or obligation to any Award made before this action.
The Administrator for the Plan will be determined by the Tier to which the
Participant is assigned.
. The Compensation and Benefits Committee will serve as Administrator of the
Plan for Participants in Tier 1
. The President/CEO will serve as Administrator of the Plan for Participants in
Tiers 2, 3, and 4
. The Executive Committee members will serve as Administrator of the Plan for
Participants in Tiers 5, 6, and 7.
The Administrator will approve the Performance Objectives and amount of Award
for each Participant, subject to the terms and conditions of the Plan.
All decisions, determinations, and interpretations made by the Administrator
will be final and binding.
7
<PAGE>
BW/IP INTERNATIONAL, INC.
1997 MANAGEMENT INCENTIVE PLAN
DEFINITIONS
For purpose of operating and administering the Plan, the terms below have the
indicated meanings:
"Administrator" means the individual, committee, or other party or parties
designed by the Plan and empowered to make final and binding decisions
pursuant to and not inconsistent with the Plan.
"Award" means a contingent right to receive a cash payment following the end of
a Plan Year.
"Plan Year" means the fiscal year of the Company and for the 1997 Plan Year
refers to calendar year 1997.
"Board" or "Board of Directors" means the Board of Directors of BW/IP
International, Inc.
"Compensation, Benefits and Organization Committee" means the Compensation,
Benefits and Organization Committee of the Board of Directors, or any
successor committee established by the Board with responsibility and
authority for overseeing the overall operation and administration of the
Plan.
"Executive Committee" means the Company officers designated by the President as
members of said Committee or any successor committee established by the
President.
"Participant" means an employee of the Company determined by the Committee as
eligible to receive an Award.
"Performance Objective" or "Objective" means a financial, operational, or other
standard of performance against which Participants will be measured for
purposes of determining the amount to be paid, if any, as an Award to that
Participant.
"Year" means the calendar year and fiscal year of the Company beginning 1
January and ending 31 December.
8
<PAGE>
Exhibit 10.ll
COMPANY CONFIDENTIAL
Employment Agreement
THIS EMPLOYMENT AGREEMENT is entered into by and between Ronald W. Hoppel
(hereinafter referred to as "Employee") and BW/IP, Inc.
WHEREAS, Employee has been employed by BW/IP, Inc. or its subsidiaries or
predecessors (hereinafter individually or collectively referred to as "BWIP")
since March of 1964 in various positions and until August 13, 1996 in the
executive capacity of Vice President and Pump Division President.
WHEREAS, Employee and BWIP desire to continue Employee's employment
relationship in a capacity other than as an officer of BWIP on the terms and for
the period set forth herein.
THEREFORE, in consideration of the mutual obligations set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Employee and BWIP agree as follows:
1. Employment of Employee by BWIP. BWIP agrees to employ
------------------------------
Employee through March 31, 2000, at which time Employee agrees to retire.
<PAGE>
2. Duties. Employee shall render his utmost cooperation in the
------
conduct of the business affairs of BWIP performing such mutually agreeable
services as may be directed by President and CEO of BWIP or their successors
which are consistent with his former position as a corporate officer, and
Employee shall devote such time as shall be necessary and mutually agreeable to
fully discharge his obligation hereunder. Employee shall be based in San Pedro
or such other location as Employee shall select.
3. Salary. BWIP shall pay to Employee in accord with its
------
normal payroll practices, the monthly equivalent of $242,000 per annum through
March 31, 1997, and shall pay Employee the monthly equivalent of $125,800
commencing April 1, 1997 and terminating on March 31, 2000. Payment of this
amount shall be deemed to include payment for any vacation, holiday or salary
continuation benefits to which Employee would otherwise be entitled as an
employee during the period preceding or covered by this Agreement.
4. Benefit(s). Until the dates specified below, Employee shall
----------
be provided with the following benefits.
2
<PAGE>
(a) Until March 31, 2000 Employee shall be provided all group
insurance benefits (life, medical, long term disability and dental) to which he
would have been entitled had he remained an officer of BWIP and received annual
compensation of $242,000 or $125,800, as the case may be, and under the same
terms and conditions.
(b) Until March 31, 2000, Employee shall continue to be an
active employee participant in the BW/IP International, Inc. Retirement Plan;
the BW/IP International, Inc. Supplemental Executive Retirement Plan ("SERP");
and the BW/IP International, Inc. Capital Accumulation Plan ("CAP Plan").
(c) Employee shall be ineligible for participation in the
BW/IP International, Inc. Management Incentive Plan for calendar year 1996 and
thereafter. Employee shall no longer be eligible for the award of Stock Options
or any other form of incentive or contingent compensation under the BW/IP, Inc.
Long Term Incentive Plan or any other incentive compensation plan or program.
This provision shall not effect the rights of Employee under any previously
granted stock options under the 1991 or 1996 Long Term Incentive Plans.
(d) Until, January 1, 1998 Employee shall have the continued
use of the BWIP automobile currently in possession of and driven by Employee and
BWIP shall pay or reimburse
3
<PAGE>
Employee for all expenses incurred in connection with the use of said automobile
in accordance with the existing BWIP policy regarding BWIP leased or owned
automobiles. On January 1, 1998, the automobile will, be transferred to Employee
at no cost, however, Employee shall be responsible for any transfer fees or
taxes, including income taxes attributable to the transfer of the automobile.
(e) Until June 30, 1998, Employee shall be provided with tax
preparation and financial planning benefits in accordance with existing BWIP
policy. The maximum amount to which Employee is entitled under this policy is
$3,000 per calendar year.
(f) The Employment Continuation Agreement between Employee
and BWIP dated January 2, 1996 which provides Employee with certain benefits
following a "Change of Control" of BWIP (as that term is defined in the
agreement) shall terminate upon the execution of this Agreement and shall
thereafter be treated as void and without effect.
(g) Employee shall not be eligible for any additional
benefits provided to other employees of BWIP under any policy, practice, or plan
currently in existence or which may be adopted in the future except to the
extent expressly provided for in this Agreement .
4
<PAGE>
(h) Business Expenses. Employee is not authorized to incur
-----------------
business expenses on behalf of BWIP without the prior authorization or direction
of the President and CEO of BWIP.
5. Death or Disability of Employee. In the event of the death of
-------------------------------
Employee prior to March 31, 2000 the balance of any payments due under Section 3
hereof shall be paid and shall be payable to Employee's estate or The Hoppel
Family Trust in a lump sum. In the event of Employee's disability during the
term hereof, including total and permanent disability, the obligations of BWIP
to Employee hereunder shall not be altered or modified except that the salary
under Section 3 hereof shall be reduced by the amount of any disability payments
received by Employee pursuant to any long term disability coverage provided by
BWIP.
6. Termination. This Agreement may be terminated at any time for
-----------
any reason by Employee upon thirty (30) days written notice delivered to BWIP.
This Agreement may be terminated by BWIP only in the event of a breach of
Employees obligations under the Covenant Against Competition attached hereto as
Exhibit "A," or a material breach of any of the Employee's obligations
hereunder. Upon termination of this Agreement all obligations of
5
<PAGE>
BWIP and Employee hereunder shall cease except as provided in Sections 7,8,12,
and 13, and Exhibits A and B hereof.
7. Covenant Against Competition. Employee agrees to execute
----------------------------
simultaneously with the Employment Agreement the Covenant Against Competition,
attached hereto as Exhibit "A", the provisions of which are acknowledged and
agreed by the parties to survive the termination of this Agreement. Employee
acknowledges that a material part of the inducement for BWIP to enter into this
Agreement are Employee's covenants with respect to non-competition, non-
disclosure, non-cooperation and non-solicitation contained in Exhibit "A".
Employee agrees that if employee shall breach any covenant contained in Exhibit
"A", BWIP shall have no further obligation to pay Employee any benefits
otherwise payable hereunder, or otherwise perform or honor any of its
obligations hereunder. BWIP shall not withhold payment from Employee until the
issue of Employee's breach of the covenant against competition has been finally
determined through arbitration or litigation. Employee agrees and undertakes to
repay in full to BWIP, all amounts paid to Employee pursuant to this Agreement
during any period when he is determined to have been in violation of the
covenant against competition.
6
<PAGE>
8. Waiver and Release. Employee agrees to execute simultaneously
------------------
with this Agreement the Waiver and Release attached hereto as Exhibit "B", the
provisions of which are acknowledged and agreed by the parties to survive the
termination of this Agreement.
9. Integration. This Agreement and Exhibits "A" and "B" attached
-----------
hereto together constitute the entire agreement between the parties hereto and
fully supersede any and all prior agreements or understandings whether written
or oral between the parties pertaining to the subject matter hereof. This
Agreement may only be amended by a written instrument executed by the parties
hereto.
10. Severability. If any provision of this Agreement is deemed by
------------
law to be void, invalid or inoperative for any reason, or any phrase or clause
within such provision is deemed by law to be void, invalid or inoperative, that
phrase, clause or provision shall be deemed modified to the extent necessary to
make it valid and operative, or if it cannot be so modified, then such phrase,
clause or provision shall be deemed severed from this Agreement, with the
remaining phrases, clauses and provisions continuing in full force and effect as
if the agreement had been signed with the void, invalid or inoperative
7
<PAGE>
portion so modified or eliminated. In addition, a phrase, clause or provision
shall be substituted which is consistent with the intent of this Agreement and
the severed phrase, clause or provision which provides the maximum protection to
the parties original agreement as is available at law.
11. Applicable Law. This Agreement shall be governed by and enforced
--------------
in accordance with the laws of the State of California.
12. Arbitration. All controversies, claims, disputes and matters in
-----------
question arising out of, or relating to, this Agreement or the breach thereof,
shall be decided by arbitration in accordance with the provisions of this
Section. The arbitration proceedings shall be conducted under the applicable
rules of the American Arbitration Association in effect at the time a written
demand for arbitration under the rules is made by one party hereto to the other
party. The decision of the arbitrator selected by the parties, including the
determination of the amount of damages suffered by either party, shall be
conclusive, final and binding on the parties hereto, their respective heirs,
legal representatives, successors and assigns. The losing party shall pay to the
prevailing party its expenses in the arbitration including administrative costs
of the American
8
<PAGE>
Arbitration Association, the arbitrator's fees and expenses,
attorney's fees and expenses, expert witnesses fees and expenses and for all
other costs and expenses incurred in presenting its case.
13. Attorney's Fees and Costs. In the event that it shall be
-------------------------
necessary for either party hereto to institute legal action to enforce any of
the terms and conditions or provisions contained herein, or for any breach
thereof, the prevailing party in such action shall be entitled to costs and
reasonable attorney's fees.
14 Binding Agreement. The terms and conditions of this Agreement
-----------------
shall be binding upon and inure to the benefit of the successor and assignees of
BWIP and to the personal representative, heirs and legatees of Employee.
15. Drafting of Agreement, Construction. The parties hereto
-----------------------------------
acknowledge and agree that no provision in this Agreement shall be interpreted
for or against any party because that party or that party's attorney drafted the
provision. Neither this agreement nor any action taken pursuant thereto shall
be construed or deemed to be evidence of an admission on the part of
9
<PAGE>
any party hereto or any of his or its employees, agents, representatives or
attorneys, of any fact, matter or thing.
16. Captions. The captions of any provisions herein are included for
--------
convenient reference only, and the same shall not be, nor be deemed to be,
interpretive of the contents of such provisions.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement at Long Beach, California.
Date: Febraury 19, 1997 Ronald W. Hoppel
----------------- -----------------------
RONALD W. HOPPEL
BW/IP, INC.
Date: March 4, 1997 By: John D. Hannesson
----------------- -----------------
Vice President
10
<PAGE>
EXHIBIT 13.a
Management's Discussion and Analysis
Results of Operations
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the consolidated financial statements
and accompanying notes.
Net income was $27.8 million in 1996 compared with $23.3 million in 1995 and
$25.0 million in 1994. The related net income per share was $1.15 in 1996
compared with $0.96 in 1995 and $1.03 in 1994. Net income for 1994 reflects the
loss on discontinued operations of $1.9 million ($0.08 per share) related to the
October 1994 sale of the Company's Fluid Controls segment. The real property,
which was retained, was vacated by the Company's tenant at the end of 1995. The
property is currently offered for sale and proceeds are expected to approximate
the current carrying value of the property.
The Company's consolidated financial results for the last three years are
summarized below:
<TABLE>
<CAPTION>
(Dollar amounts in millions, except per share data) 1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $492.2 $451.2 $448.7
- ---------------------------------------------------------------------------------
Gross profit 184.8 176.9 169.1
- ---------------------------------------------------------------------------------
Selling, administrative and operating expenses 132.7 131.1 119.9
- ---------------------------------------------------------------------------------
Operating income 52.1 45.8 49.2
- ---------------------------------------------------------------------------------
Net income 27.8 23.3 25.0
- ---------------------------------------------------------------------------------
Per share:
From continuing operations $ 1.15 $ 0.96 $ 1.11
Discontinued operations (0.08)
- ---------------------------------------------------------------------------------
Net income 1.15 0.96 1.03
- ---------------------------------------------------------------------------------
Bookings $525.0 $458.6 $464.5
Backlog 175.2 148.2 159.4
- ---------------------------------------------------------------------------------
</TABLE>
Bookings, an indicator of future sales, reached an all-time high of $525.0
million in 1996 compared with $458.6 million in 1995 and $464.5 million in 1994.
Order input grew in 1996 compared with 1995 and 1994 due to the Company's more
competitive selling prices which were supported by the improved cost structure
related to the restructure of the Pump Division and due to increased original
equipment (OE) project opportunities. OE bookings increased 30.4% in 1996
compared to 1995, while aftermarket bookings increased 5.1% over the same
period. OE bookings increased in all geographic regions served and were
especially strong in North America. The decrease in order input in 1995 compared
with 1994 was primarily due to lower OE bookings in the United States and
Mexico, offset in large measure by higher bookings in Europe and the Pacific
Rim.
Backlog at December 31, 1996, 1995 and 1994 was $175.2 million, $148.2 million
and $159.4 million, respectively. Increased backlog in 1996 was due to the
strong bookings, while the decline in 1995 was principally due to the lower
bookings in the United States and Mexico.
Net sales increased to $492.2 million, also an all-time high, and compare
favorably with sales of $451.2 million in 1995 and $448.7 million in 1994. Net
sales in 1996 benefited from both the
Net Sales in Dollars and by Product Mix
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET SALES
in millions 399.3 427.2 448.7 451.2 492.2
- ------------------------------------------------------------------------------------------
ORIGINAL EQUIPMENT 34% 43% 42% 38% 40%
- ------------------------------------------------------------------------------------------
AFTERMARKET 66% 57% 58% 62% 60%
- ------------------------------------------------------------------------------------------
</TABLE>
12.
<PAGE>
Company's competitive pricing position and increased demand for its pump
products. Increases in 1996 were achieved in both the OE and aftermarket
sectors. OE sales increased $25.2 million or 14.8% in 1996 compared to 1995
while aftermarket sales increased $15.8 million or 5.6% over the same period.
Sales in 1995 were higher than in 1994 due to increases in the aftermarket
sector of $22.2 million which were partially offset by a decline in OE sales of
$19.7 million. This decline in OE sales in 1995 was related to a continuation of
the very competitive environment in the OE pumps sector offset by sales from
newly acquired entities of approximately $7 million and an increase in sales of
approximately $5 million due to more favorable currency exchange rates.
Net sales were up in 1996 in all major geographic regions served by the Company.
In 1995 as compared to 1994, net sales were down in Europe and Mexico, offset by
increases in the United States, South America and the Pacific Rim.
Gross profit as a percentage of sales decreased to 37.6% in 1996 from 39.2% in
1995 and 37.7% in 1994 primarily as a result of the higher percentage of lower-
margin pump OE sales in 1996 compared to 1995. The increase in gross profit in
1995 compared with 1994 was generally due to a change in mix to the more
profitable aftermarket sales and cost reduction, partly as a result of
restructuring efforts.
The decline in gross margin in 1996 was offset by lower selling, administrative
and operating expenses which, as a percentage of sales, decreased to 27.0% in
1996 from 29.1% in 1995 and were comparable to the 26.7% in 1994, principally
due to sales growth and cost reduction efforts. The increase in selling,
administrative and operating expenses in 1995 compared to 1994 was primarily due
to lower-than-anticipated sales, lower royalty income received, costs associated
with acquisitions, expansion in the Pacific Rim and certain sales and marketing
initiatives outpacing sales growth. Expenses in 1995 also included a $1.3
million charge in the fourth quarter to realign personnel in Europe and the
United States.
Operating income in 1996 increased to $52.1 million up from $45.8 million in
1995 and $49.2 million in 1994. As a percentage of sales, operating income in
1996 improved to 10.6% versus 10.2% in 1995, although down from the 11.0% in
1994. The increase in the percentage in 1996 was a result of reductions in
selling, administrative and operating expenses outpacing the lower gross margin
percentage. The decline in operating income margin in 1995 compared with 1994
was due to higher selling, administrative and operating expenses which more than
offset the improvement in gross margin.
Higher debt levels increased interest expense by $0.6 million for 1996 compared
to 1995. In 1995, higher debt levels were more than offset by lower average
rates that reduced interest expense by $0.2 million for 1995 as compared to
1994.
The Company's effective tax rate was 37.0% in 1996 compared with 39.0% and 36.5%
in 1995 and 1994, respectively. The decrease in the effective tax rate in 1996
resulted from a combination of factors, including geographical shifts in
earnings composition and implementation of various tax savings strategies. The
increase in the effective tax rate in 1995 from 1994 resulted primarily from
lower foreign tax credits in 1995.
Bookings in Dollars and by Product Mix
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
BOOKINGS 451.2 399.6 464.5 458.6 525.0
in millions
- ---------------------------------------------------------------------------
ORIGINAL EQUIPMENT
45% 38% 40% 38% 42%
- ---------------------------------------------------------------------------
AFTERMARKET
55% 62% 60% 62% 58%
- ---------------------------------------------------------------------------
</TABLE>
Backlog in Dollars
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
BACKLOG
in millions 199.6 165.1 159.4 148.2 175.2
- ---------------------------------------------------------------------------
</TABLE>
13.
<PAGE>
Restructuring Plan
During 1996, the Company completed its restructuring plan initiated in 1993. The
restructuring plan was adopted because of continued overcapacity and increased
price sensitivity of pump OE purchasers. The restructuring was designed to
reduce substantially the Company's costs and permit the Company to improve
selectively its competitive position. As part of the plan, the Company opened a
new pump large-component manufacturing facility and refocused existing pump
facilities in the United States on engineering, assembly and testing.
The following table summarizes the Company's restructuring reserve during 1994
and 1995:
<TABLE>
<CAPTION>
Machinery Asset Disposal &
Relocation, Organizational
Personnel Installation, and Realignment
(Dollar amounts in millions) Costs Related Costs Costs Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 9.6 $ 5.3 $ 7.2 $22.1
Cash expenditures (1.9) (.6) (1.0) (3.5)
Losses on asset disposals - - (.7) (.7)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1994 7.7 4.7 5.5 17.9
Cash expenditures (3.6) (1.8) (3.0) (8.4)
Losses on asset disposals - - (1.5) (1.5)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 4.1 $ 2.9 $ 1.0 $ 8.0
==================================================================================================
</TABLE>
During 1996, the restructuring plan was completed and the remaining reserve
balance was expended in accordance with the plan. Non-cash charges were not
significant.
- ------------------------------------------------------------------------------
Personnel costs in the restructuring plan were primarily related to realigning
various employee groups to support the focused factory concept, including
termination, relocation and training of employees. Machinery relocation,
installation and related costs were principally for moving production equipment
among the various facilities, including installation and bringing such equipment
into full production. Asset disposal and organizational realignment costs
included estimated losses related to the disposal of property, plant and
equipment, and the costs for realigning certain support functions. Additional
activities resulting from the restructuring plan included cash expenditures
related to termination benefits for approximately 300 employees, the shutdown of
the Company's Fresno, California, plant and losses related to the disposal of
property, plant and equipment.
The benefits of the restructure and associated capital expenditures have been
realized as the changes were implemented. The ultimate savings generated by the
restructure will depend upon both current and future market conditions which
cannot be precisely quantified. Cost benefits relating to staff reductions have
been realized almost immediately, while the benefits from new facilities,
machinery and systems have been realized only after incurring certain start-up
costs and working through inefficiencies of the learning curve. Benefits arising
from new facilities, machinery and systems started to be realized during late
1995 and will continue in 1997 and beyond.
Financial Position and Liquidity
<TABLE>
<CAPTION>
(Dollar amounts in millions, except debt to capital ratio) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations $40.1 $26.2 $32.5
Capital expenditures 18.8 26.6 12.1
Total debt $89.8 $83.0 $65.1
Debt to capital ratio 32.2% 31.6% 28.2%
</TABLE>
14.
<PAGE>
Cash flows from operations and credit available under its credit agreements are
the Company's primary sources of short-term liquidity. Cash flows from operating
activities in 1996 increased to $40.1 million over the $26.2 million in 1995 and
$32.5 million in 1994. The increase in cash flows in 1996 is generally due to
the higher income as well as improvement in working capital, especially
inventories, due to concerted efforts by the Company. Nonetheless, changes in
operating assets and liabilities are affected by the mix, stage of completion
and commercial terms of OE projects.
In 1996, the Company spent $18.8 million on capital expenditures primarily on
equipment renewal and replacement and service center expansion. Capital
expenditures of $26.6 million in 1995 were higher than in 1996 due to the
restructuring plan and service center expansion.
The debt to capital ratio at December 31, 1996, was 32.2%, compared with 31.6%
and 28.2% at December 31, 1995 and 1994, respectively. At December 31, 1996, the
Company had borrowings outstanding under its credit facilities totaling $34.0
million and letters of credit totaling $14.3 million, and had $73.6 million
available for borrowing thereunder.
The Company has other uncommitted, unsecured revolving credit facilities
totaling $42.5 million, under which $0.7 million was outstanding as of December
31, 1996. In December 1996, the Company extended the terms of its domestic
credit facility to December 2001. It had $23.1 million of obligations relating
to performance bonds outstanding. The Company believes that funds provided by
operations together with existing credit facilities will be sufficient to meet
its current operating, expansion and capital needs.
As of December 31, 1996, the Company had borrowings of $25.0 million outstanding
under senior notes issued in May 1992 and an additional $30.0 million of
borrowings outstanding under senior notes issued in November 1996 to certain
institutional investors. Interest on the Company's outstanding senior notes is
between 7.14% and 7.92%. However, all of the Company's borrowings under its
other senior credit facilities are currently at floating interest rates.
Interest costs are therefore subject to change depending upon the movement of
short-term interest rates.
Other
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS No. 121). The adoption of SFAS No. 121 had no
impact on the Company's consolidated results of operations or financial
position.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Adoption of the accounting standards prescribed by
SFAS No. 123 is optional. The Company has elected to continue accounting for its
plan under previous accounting standards and has adopted the "disclosure only"
alternative available under SFAS No. 123.
Inflation during the past three years has had little impact on the Company's
financial performance.
15.
<PAGE>
Five-Year Selected Financial Data
<TABLE>
<CAPTION>
December 31
(Amounts in thousands, except per share ----------------------------------------------------------
amounts, ratios and number of employees) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $492,191 $451,191 $448,719 $427,192 $399,289
Restructuring charge -- -- -- 22,728 --
Operating income 52,082 45,814 49,228 33,330 71,289
Interest expense, net 6,628 6,075 6,280 6,091 9,019
Income from continuing operations
before income taxes 44,200 38,290 42,262 26,351 61,064
Income from continuing operations 27,846 23,349 26,836 17,854 40,807
Discontinued operations, net of tax -- -- (1,851) (13,509) 1,683
Net income 27,846 23,349 24,985 4,345 24,024
Bookings $525,015 $458,620 $464,465 $399,562 $451,236
Backlog 175,203 148,155 159,429 165,129 199,605
COMMON STOCK
Shares outstanding - end of year 24,275 24,275 24,275 24,275 24,275
Average shares outstanding 24,275 24,275 24,275 24,275 24,275
Income per share:
From continuing operations $ 1.15 $ .96 $ 1.11 $ .74 $ 1.68
Discontinued operations -- -- (.08) (.56) .07
Net income per share 1.15 .96 1.03 .18 .99
Dividends declared per share .44 .43 .38 .30 .2175
FINANCIAL DATA
Working capital $125,951 $116,774 $108,381 $122,881 $106,292
Capital expenditures 18,848 26,611 12,143 16,368 13,705
Depreciation and amortization 14,827 13,754 14,207 11,518 10,603
Total assets 404,286 405,747 367,894 341,288 327,822
Total debt 89,810 83,011 65,074 64,082 67,476
Stockholders' equity 188,845 179,474 165,914 146,391 152,793
Total debt to total capital 32.2% 31.6% 28.2% 30.4% 30.6%
Return on average equity(1) 15.3% 13.5% 17.2% 11.9% 27.9%
Return on average capital(1) 12.0% 11.2% 14.0% 17.6% 20.6%
Number of employees - end of year 3,181 3,002 2,967 3,105 3,155
======================================================================================================
</TABLE>
(1) Based on income from continuing operations.
16.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
--------------------
(Dollar amounts in thousands, except per share data) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,458 $ 9,162
Accounts and notes receivable, net 110,564 110,215
Inventories 81,353 85,381
Other, including net assets held for disposition (Note 2) 9,719 9,813
Deferred income taxes 5,522 12,649
--------------------
Total current assets 216,616 227,220
Property, plant and equipment, net 111,827 106,251
Goodwill (net of accumulated amortization at December 31, 1996
and 1995 of $8,305 and $6,556) 55,522 53,835
Other assets 20,321 18,441
--------------------
Total assets $404,286 $405,747
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,087 $ 8,836
Accounts payable 36,755 42,955
Accrued liabilities 43,160 54,292
Accrued and deferred income taxes 1,663 4,363
--------------------
Total current liabilities 90,665 110,446
Long-term debt 80,723 74,175
Other long-term liabilities 36,448 33,645
Deferred income taxes 7,605 8,007
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized and unissued -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
24,450,000 shares issued and outstanding 245 245
Paid-in capital 85,763 85,763
Retained earnings 109,173 92,008
Cumulative translation adjustment (5,723) 2,071
--------------------
189,458 180,087
Less common stock in treasury; 175,000 shares, at cost (613) (613)
--------------------
Total stockholders' equity 188,845 179,474
--------------------
Total liabilities and stockholders' equity $404,286 $405,747
====================
</TABLE>
See accompanying notes to consolidated financial statements.
17.
<PAGE>
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------
(Dollar amounts in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 492,191 $ 451,191 $ 448,719
Cost of sales 307,364 274,244 279,630
------------------------------------------
Gross profit 184,827 176,947 169,089
Selling, administrative and operating expenses 132,745 131,133 119,861
------------------------------------------
Operating income 52,082 45,814 49,228
Interest expense, net 6,628 6,075 6,280
Other expenses 1,254 1,449 686
------------------------------------------
Income from continuing operations before income taxes 44,200 38,290 42,262
Provision for income taxes 16,354 14,941 15,426
------------------------------------------
Income from continuing operations 27,846 23,349 26,836
Discontinued operations, net of tax (Note 2) -- -- (1,851)
------------------------------------------
Net income 27,846 23,349 24,985
Retained earnings at beginning of year 92,008 79,097 63,337
Dividends declared (10,681) (10,438) (9,225)
------------------------------------------
Retained earnings at end of year $ 109,173 $ 92,008 $ 79,097
==========================================
Income per share:
From continuing operations $ 1.15 $ .96 $ 1.11
Discontinued operations - - (.08)
------------------------------------------
Net income per share (Note 6) $ 1.15 $ .96 $ 1.03
==========================================
Dividends declared per share (Note 5) $ .44 $ .43 $ .38
==========================================
Weighted average number of shares outstanding 24,275,000 24,275,000 24,275,000
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
18.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31
----------------------------------
(Dollar amounts in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,846 $ 23,349 $ 24,985
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,827 13,754 14,207
Amortization of goodwill and debt issuance costs 1,749 1,604 1,534
Loss on disposition of segment -- -- 3,411
Deferred taxes 3,560 (2,589) (3,886)
Other changes in assets and liabilities:
Accounts and notes receivable 2,149 2,382 (9,731)
Inventories 7,234 (14,543) 11,696
Other current assets 103 (332) (5,138)
Accounts payable and accrued liabilities (20,028) 3,332 4,015
Other 2,656 (761) (8,545)
---------------------------------
Net cash provided by operating activities 40,096 26,196 32,548
---------------------------------
Cash flows from investing activities:
Capital expenditures (18,839) (26,611) (12,143)
Acquisitions and dispositions, net (13,240) (9,306) (15,012)
Other (258) 1,618 4,311
---------------------------------
Net cash used in investing activities (32,337) (34,299) (22,844)
Cash flows from financing activities:
Net borrowings (payments) under credit agreements (15,000) 30,000 8,000
Net borrowing (payments) of senior notes 21,667 (8,333) (8,333)
Dividends paid (10,681) (10,196) (8,739)
Other 134 (2,963) (443)
---------------------------------
Net cash provided by (used in) financing activities (3,880) 8,508 (9,515)
---------------------------------
Effect of exchange rate changes on cash (3,583) (395) 1,292
---------------------------------
Net increase in cash and cash equivalents 296 10 1,481
Cash and cash equivalents at beginning of year 9,162 9,152 7,671
---------------------------------
Cash and cash equivalents at end of year $ 9,458 $ 9,162 $ 9,152
=================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 7,429 $ 8,082 $ 7,158
Income taxes 10,080 8,576 14,660
Non-cash financing activities:
Dividends declared but not paid $ 2,670 $ 2,670 $ 2,428
</TABLE>
See accompanying notes to consolidated financial statements.
19.
<PAGE>
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 1
Summary of Significant Accounting Policies
Principles of Consolidation
BW/IP, Inc. (formerly known as BWIP Holding, Inc.) is the parent company of
BW/IP International, Inc. (BW/IP). Unless the context otherwise requires,
references herein to "the Company" are to BW/IP, Inc. and BW/IP International,
Inc. and its consolidated subsidiaries. The Company and its affiliates
manufacture and sell industrial pumps, seals and valves on a global basis.
The consolidated financial statements include the accounts of the Company and
majority-owned subsidiaries. Investments in companies where ownership is 50% or
less are accounted for on the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates
and assumptions that significantly impact financial statement presentation and a
number of the individual balances shown therein.
Cash Equivalents
For purposes of presenting the consolidated statements of cash flows, short-term
investments, which have a maturity of 90 days or less at the time of purchase,
are considered to be cash equivalents. The carrying amount of cash equivalents
approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Expenditures for maintenance and repairs are
charged to expense as incurred. Renewals or betterments of significant items are
capitalized. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the respective
accounts, and any resulting gain or loss is recognized.
Depreciation and amortization of property, plant and equipment are provided for
using the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
- ----------------------------------------------
<S> <C>
Buildings and improvements 5 to 35 years
Machinery and equipment 3 to 12 years
Capital lease assets 5 to 25 years
- ----------------------------------------------
</TABLE>
Income Taxes
Deferred tax liabilities and assets are recognized based on applying enacted tax
rates to differences between the financial statement and tax bases of assets and
liabilities. Provision is made for withholding taxes and income taxes, if
appropriate, on the unremitted earnings of joint ventures and foreign
subsidiaries which are not considered to be permanently reinvested.
Research and Development
Expenditures for research and development are charged to expense in the year
incurred. Such costs were $6.0 million in 1996, $6.6 million in 1995 and $5.3
million in 1994.
20.
<PAGE>
Foreign Currency Translation
The assets and liabilities of the Company's foreign operations are translated at
the end-of-period exchange rates; revenues and expenses are translated at the
average exchange rates prevailing during the period. The effects of unrealized
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated in stockholders' equity.
Forward Contracts
The Company is party to forward contracts in order to hedge certain transactions
denominated in foreign currencies. Gains and losses on forward contracts
qualifying as hedges are deferred and included in the measurement of the related
foreign currency transaction. The Company is exposed to credit-related losses in
the event of nonperformance by counterparties to financial instruments, but it
expects all counterparties to meet their obligations given their high credit
ratings.
As of December 31, 1996, the Company had outstanding $19.0 million of foreign
currency forward contracts, the majority of which were in Dutch Guilders, and
which mature between two and fifteen months. Deferred gains and losses on
hedging transactions were not significant at December 31, 1996.
Contract Revenues and Costs
Revenues and costs pertaining to contracts are recognized as units are shipped.
Unbilled costs are included in inventory. Progress billings are shown as a
reduction of inventory unless such billings are in excess of accumulated costs,
in which case, such balances are included in accrued liabilities.
Goodwill
The excess of cost over the fair value of net assets of purchased subsidiaries
is amortized on the straight-line basis over not more than 40 years. Permanent
diminutions in value, if any, are recognized immediately.
Concentrations of Credit Risk
The Company places its temporary cash investments with financial institutions
and, by policy, limits the amount of credit exposure to any one financial
institution. A limited concentration of credit risk exists because much of the
Company's business is with entities involved in the power and petroleum
industries. Such risk, however, is limited due to the large number of customers
comprising the Company's customer base, the Company's diverse product line and
the dispersion of the Company's customers across many different geographic
regions. As of December 31, 1996, the Company does not believe that it had
significant concentrations of credit risk.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation.
21.
<PAGE>
Note 2
Acquisitions and Dispositions
The Company acquired certain assets and liabilities of Anchor/Darling Valves in
1996 and certain product lines of Wilson-Snyder in 1995. In 1994, the Company
acquired Pacific Wietz GmbH & Co. KG and Five Star Seal Corporation. These
acquisitions are in keeping with the Company's goals for strategic long-term
growth. The acquisitions were accounted for by the purchase method of accounting
and the results of operations of the acquired companies are included in the
Company's consolidated statements of income and retained earnings subsequent to
the date of acquisition. The acquisitions did not have a significant impact on
the Company's consolidated financial position or results of operations.
In October 1994, the Company completed the sale of its Fluid Controls segment.
Certain assets and liabilities of the segment, including real property and
certain accrued employee benefits, were retained by the Company. During 1994,
the Company recorded a loss from the disposition of $1.9 million, net of tax, or
$.08 per share. Losses recorded in 1994 related primarily to a reduction in the
net realizable value of real property and certain personnel termination costs.
The real property was vacated by the Company's tenant in 1995 and is currently
offered for sale. Proceeds are expected to approximate the current carrying
value of the property. Revenues for the discontinued Fluid Controls segment were
$23.4 million during 1994.
Note 3
Restructuring Charge
During 1996, the Company completed its restructuring plan initiated in 1993. The
restructuring plan was adopted because of continued overcapacity and increased
price sensitivity of pump original equipment purchasers. The restructuring was
designed to reduce substantially the Company's costs and permit the Company to
improve selectively its competitive position. As part of the plan, the Company
opened a new pump large-component manufacturing facility and refocused existing
pump facilities in the United States on engineering, assembly and testing.
Personnel costs in the restructuring plan were primarily related to realigning
various employee groups to support the focused factory concept, including
termination, relocation and training of employees. Machinery relocation,
installation and related costs were principally for moving production equipment
among the various facilities, including installation and bringing such equipment
into full production. Asset disposal and organizational realignment costs
included estimated losses related to the disposal of property, plant and
equipment, and the costs for realigning certain support functions. Additional
activities resulting from the restructure plan included cash expenditures
related to termination benefits for approximately 300 employees, the shutdown of
the Company's Fresno, California, plant and losses related to the disposal of
property, plant and equipment.
The following table summarizes the Company's restructuring reserve during 1994
and 1995:
<TABLE>
<CAPTION>
Machinery Asset Disposal &
Relocation, Organizational
Personnel Installation, and Realignment
Costs Related Costs Costs Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 9,595 $ 5,310 $ 7,187 $22,092
Cash expenditures (1,922) (591) (954) (3,467)
Losses on asset disposals -- -- (739) (739)
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1994 7,673 4,719 5,494 17,886
Cash expenditures (3,608) (1,770) (2,959) (8,337)
Losses on asset disposals -- -- (1,545) (1,545)
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 4,065 $ 2,949 $ 990 $ 8,004
================================================================================================
</TABLE>
During 1996, the restructuring plan was completed and the remaining reserve
balance was expended in accordance with the plan. Non-cash charges were not
significant.
22.
<PAGE>
Note 4
Income Taxes
Taxes (benefits) on income from continuing operations were provided as follows:
<TABLE>
<CAPTION>
For the year ended December 31
--------------------------------
1996 1995 1994
- ----------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 1,069 $ 2,561 $ 893
State 1,478 1,432 1,494
Foreign 10,247 7,508 8,044
- ----------------------------------------------
12,794 11,501 10,431
==============================================
Deferred
Federal 4,558 1,051 1,889
State (30) 527 651
Foreign (968) 1,862 2,455
- ----------------------------------------------
3,560 3,440 4,995
- ----------------------------------------------
$16,354 $14,941 $15,426
=============================================
</TABLE>
A summary of components of deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
December 31
-----------------
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits $ 7,417 $ 7,655
Warranty and accrued liabilities 3,959 2,623
Pension and other 3,135 3,909
Loss on disposition of segment 2,461 2,930
Inventories 526 2,515
Restructuring charge 188 3,164
- --------------------------------------------------------
Total deferred tax assets 17,686 22,796
- --------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 6,849 7,367
Goodwill 5,894 5,193
Other -- 1,847
- --------------------------------------------------------
Total deferred tax liabilities 12,743 14,407
- --------------------------------------------------------
Net deferred tax asset $ 4,943 $ 8,389
========================================================
</TABLE>
23.
<PAGE>
Reconciliation of the effective income tax rate with the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0
Foreign earnings taxed at different rates,
including withholding taxes 4.5 4.9 5.3
State income taxes, net of federal
income tax benefit 2.1 3.8 3.9
Utilization of tax credits (3.5) (6.3) (7.8)
Other (1.1) 1.6 0.1
- -------------------------------------------------------------------------------
37.0% 39.0% 36.5%
===============================================================================
</TABLE>
Income from continuing operations before income taxes was taxed within the
following jurisdictions:
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
1996 1995 1994
- --------------------------------------------------
<S> <C> <C> <C>
Domestic $22,178 $18,434 $19,348
Foreign 22,022 19,856 22,914
- --------------------------------------------------
$44,200 $38,290 $42,262
==================================================
</TABLE>
The Company has not provided taxes relating to the distribution of undistributed
earnings considered to be indefinitely reinvested. The amount of additional
taxes that would be payable if such earnings were distributed is estimated to be
$14 million.
Note 5
Debt and
Lease Obligation
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Credit Agreements; average interest rate 6.5% in 1996
and 7.1% in 1995 $34,678 $49,242
7.92% Senior Notes; interest payable semi-annually 25,000 33,333
7.14% Senior Notes; interest payable semi-annually 30,000 --
Capital lease obligations 132 436
- ------------------------------------------------------------------------------
89,810 83,011
Less current maturities (9,087) (8,836)
- ------------------------------------------------------------------------------
Total long-term debt $80,723 $74,175
==============================================================================
Aggregate maturities of long-term debt are as follows:
1997 $ 9,087
1998 8,376
1999 8,347
2000 --
2001 --
Later years 64,000
- ------------------------------------------------------------------------------
$89,810
==============================================================================
</TABLE>
The carrying value of the Company's long-term debt approximates fair value.
24.
<PAGE>
Credit Agreements
The Company's domestic credit agreement is an unsecured $100.0 million, five-
year facility extending through December 2001. The Company also has a Dutch
credit agreement, available to the Company's Dutch subsidiary, which is a 50
million Dutch Guilder ($28.7 million as of December 31, 1996) unsecured
revolving credit facility of which 35 million Dutch Guilders ($20.1 million as
of December 31, 1996) is restricted to the issuance of letters of credit and
bank guarantees for the benefit of the Company's foreign subsidiaries.
At December 31, 1996, the Company had outstanding borrowings under its domestic
and Dutch credit agreements that totaled $34.0 million and letters of credit
totaling $14.3 million, and had $73.6 million available for borrowing
thereunder. In addition, the Company has other uncommitted, unsecured revolving
credit facilities totaling $42.5 million, under which $0.7 million was
outstanding as of December 31, 1996. As of December 31, 1996, the Company had
$23.1 million of obligations relating to Dutch bank guarantees and domestic
performance bonds outstanding.
The provisions of the credit agreements require the Company to maintain
specified financial covenants that are defined in the agreements. The agreements
also contain limitations or restrictions relating to new indebtedness and liens,
disposition of assets and payment of dividends or other distributions.
Senior Notes
In May 1992, the Company issued $50.0 million principal amount of senior notes
to certain institutional investors of which $25.0 million was outstanding at
December 31, 1996. The 1992 Senior Notes bear interest at 7.92% per annum,
payable semiannually, and require annual payments of $8.3 million through May
15, 1999. The 1992 Senior Notes are also subject to optional prepayment by the
Company, upon payment of a "make-whole" premium.
In November 1996, the Company issued $30.0 million principal amount of senior
notes to certain institutional investors. The 1996 Senior Notes bear interest at
7.14% per annum, payable semiannually, and require annual principal payments of
$6.0 million commencing in 2002.
Leases
The Company leases office and service center space, machinery, equipment and
automobiles under non-cancelable operating leases. Rental expense relating to
operating leases was $5.6 million in 1996, $4.7 million in 1995 and $5.2 million
in 1994.
25.
<PAGE>
The future minimum lease payments under non-cancelable operating leases as of
December 31, 1996, are:
<TABLE>
<S> <C>
1997 $ 5,157
1998 5,027
1999 4,553
2000 4,220
2001 2,087
Later years 8,241
-------
$29,285
=======
</TABLE>
Restriction of Net Assets of Subsidiary
The Company's domestic credit agreement and senior notes restrict the payment of
dividends by BW/IP to BW/IP, Inc. (and thereby limit BW/IP, Inc.'s ability to
pay dividends on its common stock) except in certain specific circumstances or
unless certain financial tests are met. As of December 31, 1996, after giving
effect to dividends declared to date, approximately $48 million is available for
the payment of dividends by BW/IP to BW/IP, Inc. pursuant to its most
restrictive covenants.
Note 6
Stockholders' Equity
Option Plans
In 1996, the stockholders of the Company approved the BW/IP International, Inc.
1996 Long-Term Incentive Plan (the "LTI Plan"). Under the LTI Plan, the Company
may grant incentive and non-qualified stock options to officers and other key
employees with respect to a maximum of 1,500,000 shares of Company common stock.
Stock options are granted at fair market value of the Company's common stock at
the date of grant, become exercisable for one-third of the options commencing on
the first anniversary of the grant thereof, with an additional one-third
becoming exercisable on each of the two succeeding anniversaries, and expire in
10 years.
Stock options granted in 1995 and 1994 were pursuant to the long-term incentive
plan approved by stockholders in 1992.
Activity under the LTI Plan for the years ended December 31, 1996, 1995 and
1994, is as follows:
<TABLE>
<CAPTION>
Number of
Options Option Price
- -------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1993 224,700 $26.50 - 27.31
Options granted 175,300 19.50
Options/Units forfeited/expired (27,450) 19.50 - 27.31
- -------------------------------------------------------------------------
Balance at December 31, 1994 372,550 19.50 - 27.31
Options granted 573,200 15.88 - 25.00
Options/Units forfeited/expired -- --
- -------------------------------------------------------------------------
Balance at December 31, 1995 945,750 15.88 - 27.31
Options granted 335,800 16.00 - 21.00
Options/Units forfeited/expired (36,350) 15.88 - 27.31
- -------------------------------------------------------------------------
Balance at December 31, 1996 1,245,200 $15.88 - 27.31
=========================================================================
</TABLE>
26.
<PAGE>
There are no charges to income in connection with the issuance of options.
For income per share purposes, the options are considered common stock
equivalents; however, they are anti-dilutive and are therefore not included in
the calculation of earnings per share.
During 1993, the stockholders approved the Non-Employee Directors' Stock Option
Plan, which provides for the granting of up to 125,000 stock options. Options
vest after one year of service on the Board of Directors and are exercisable for
10 years. Options granted in 1996, 1995 and 1994 totaled 21,600, 15,000 and
10,000, respectively, and were at fair market value.
Had compensation cost for the Company's option plans been determined based on
the fair value at the grant dates, as prescribed by SFAS No. 123, net income and
net income per share would have been as follows:
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Net Income
As reported $27,846 $23,349
Pro forma 26,993 22,784
Net Income Per Share
As reported $ 1.15 $ .96
Pro forma 1.11 .94
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method with the following assumptions used for grants during the
applicable period: dividend yield of 2.6% for both periods; risk-free interest
rate of 5.5% in 1996 and 6.9% in 1995; and a weighted average expected option
term of 4 years for both periods.
Because the determination of the fair value of all options granted includes an
expected volatility factor in addition to the factors described in the preceding
paragraph and, because additional option grants are expected to be made each
year, the above pro forma disclosures are not representative of pro forma
effects of reported net income for future years.
Purchase Rights Plan
On July 27, 1993, the Company's Board of Directors adopted a Preferred Stock
Purchase Rights Plan (the "Plan") and declared a dividend of one Preferred Stock
Purchase Right (a "Right") on each share of the Company's common stock. The
dividend distribution was made on August 10, 1993, to the stockholders of record
on July 26, 1993.
The Plan provides that if there is an announcement or notice to the Company that
a person or group has acquired 15% or more of the Company's common stock (except
pursuant to a tender offer for all such shares at a price and on terms
determined to be fair and in the best interests of the Company and its
stockholders by a majority of the directors who are not nominees of, or
affiliated or associated with, the 15% holder), each holder of a Right, other
than Rights
27.
<PAGE>
beneficially owned by the 15% holder, will thereafter have the right to purchase
for $85.00 a number of shares of the Company's common stock having a market
value of $170.00 or twice the Right's exercise price. All Rights that were
beneficially owned by the 15% holder will thereafter be void.
Each Right will entitle the stockholder to buy one one-hundredth of a share of a
new series of junior participating cumulative preferred stock at an exercise
price of $85.00. The Rights will become exercisable after the earlier to occur
of (i) 10 business days following a public announcement or notice to the Company
that a person or group has acquired 15% or more of the Company's common stock or
(ii) 10 business days, or such later date as the directors determine, after a
person commences a tender offer which, if accepted, would result in the person's
owning 15% or more of the Company's common stock.
The preferred stock is designed so that each one one-hundredth of a share
approximates one share of the Company's common stock in all respects, except for
a minimum annual preferential dividend of $.10 and a minimum liquidation payment
of $.10 for each one one-hundredth of a share of preferred stock.
Under the Rights agreement, the Company will not effect a merger or certain
other kinds of business combination transactions after a public announcement or
notice to the Company that a person or group has acquired 15% or more of the
Company's common stock, unless provision has been made so that after the
transaction a holder of a Right would be able to buy for $85.00 stock of the
acquiring company having a market value of $170.00, or twice the exercise price
of the Right.
The Company's directors can redeem the Rights at $.01 per Right until 10
business days after a public announcement or notice to the Company that a person
or group has acquired 15% or more of the Company's common stock. The redemption
period can be extended by the directors before such an announcement or notice.
If the Board of Directors redeems the Rights after such an announcement or
notice, the redemption requires concurrence of a majority of the continuing
directors who are not nominees of, or affiliated or associated with, the 15%
stockholder. In addition, after a person or group acquires 15% or more (but less
than 50%) of the Company's common stock, the Board of Directors may, with such a
concurrence by the continuing directors, exchange one share of common stock for
each outstanding Right, except for Rights held by the 15% holder, which will
become void.
The Rights, which expire in 10 years, have no voting power.
Note 7
Benefit Plans
Pension Plans
The Company has certain non-contributory, defined benefit pension plans covering
substantially all domestic employees. The union hourly plans base benefits upon
years of service, while the salaried/union-free plan uses both years of service
and earnings to determine benefits. The Company also has a Supplemental
Executive Retirement Plan.
It is the Company's policy to fund an amount necessary to satisfy the minimum
funding requirements of ERISA. The amount to be funded is subject to annual
review by management and its consulting actuary. The actuarial method used to
determine the plan liability is the unit credit method. The plans hold their
assets as units in commingled funds consisting principally of high quality
corporate equities and corporate and government bonds.
28.
<PAGE>
Net periodic pension expense for the Company's domestic and foreign non-
contributory defined benefit pension plans is as follows:
<TABLE>
<CAPTION>
For the year ended December 31
---------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of current period $ 3,754 $ 2,654 $ 3,515
Interest cost on projected benefit obligation 8,934 8,210 8,071
Actual (return) loss on assets (11,973) (20,656) 3,884
Net amortization and deferral 2,293 11,792 (12,424)
- -----------------------------------------------------------------------------------
Net periodic pension expense $ 3,008 $ 2,000 $ 3,046
===================================================================================
</TABLE>
The following sets forth the plans' funded status reconciled with amounts
reported in the consolidated balance sheets at:
<TABLE>
<CAPTION>
December 31
--------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Present value of benefit obligation:
Vested benefits $101,880 $ 98,688
Non-vested benefits 4,037 4,436
- ---------------------------------------------------------------------------------
Accumulated benefit obligation 105,917 103,124
Value of future pay increases 16,939 16,998
- ---------------------------------------------------------------------------------
Total projected benefit obligation 122,856 120,122
Plan assets at fair value 114,903 106,374
- ---------------------------------------------------------------------------------
Excess of projected benefit obligation over plan assets (7,953) (13,748)
Unrecognized prior service cost 2,339 2,639
Unrecognized net loss (261) 4,755
Unrecognized net obligation 168 222
- ---------------------------------------------------------------------------------
Accrued pension obligation $ (5,707) $ (6,132)
=================================================================================
Discount rate 8.0% 7.5%
Rate of increase in compensation levels 4.0-8.0% 4.0-8.0%
Long-term rate of return on assets 10.0% 10.0%
</TABLE>
The Company's Dutch employees are covered by a multi-employer defined benefit
plan. Certain of the Company's other foreign employees are insured under
irrevocable annuity contracts. Pension expense associated with these
arrangements was $1.6 million in 1996, $1.8 million in 1995 and $1.5 million in
1994. The Company also is required to make benefit payments on behalf of certain
employees in foreign countries based upon local laws. Amounts paid are based on
a percentage of salary earned (defined contribution plans) and are not
significant.
Postretirement and Postemployment Benefits
The Company's postretirement benefit program is made up of two plans, the Life
Insurance Plan and the Health Care Plan. Both plans cover domestic employees
only. Any permanent full-time employee is eligible upon retirement after age 55
and with 10 years of service with the Company. The Health Care Plan is a
contributory plan.
29.
<PAGE>
Net periodic postretirement benefit expense is as follows:
<TABLE>
<CAPTION>
For the year ended December 31
-------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of current period $ 241 $ 182 $ 288
Interest cost on accumulated postretirement
benefit obligation 889 1,024 1,000
Amortization of prior service benefit (872) (872) (927)
- ---------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 258 $ 334 $ 361
=================================================================================
</TABLE>
The following sets forth the postretirement program's funded status reconciled
with amounts reported in the consolidated balance sheets at:
<TABLE>
<CAPTION>
December 31
--------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $ 7,494 $ 9,021
Fully eligible active plan participants 2,188 2,465
Other active plan participants 2,256 1,861
- -----------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 11,938 13,347
Plan assets at fair value -- --
- -----------------------------------------------------------------------------
Excess of accumulated postretirement benefit
obligation over plan assets (11,938) (13,347)
Unrecognized prior service benefit, arising from
July 1, 1993, plan amendment (5,358) (6,230)
Unrecognized net (gain) loss (844) 895
- -----------------------------------------------------------------------------
Accrued postretirement benefit obligation $(18,140) $(18,682)
=============================================================================
Discount rate 8.0% 7.5%
Rate of increase in per capita cost of covered
health care benefits 9.0% 9.0%
</TABLE>
An increase in the assumed health care cost trend rate of 1% for each year would
increase the accumulated postretirement benefit obligation by less than $0.1
million and the net service and interest cost components of the net periodic
postretirement benefit expense for the year by less than $0.1 million.
Capital Accumulation Plan
The Company has a Capital Accumulation Plan (the "CAP Plan") qualified under
section 401(k) of the Internal Revenue Code, which allows for participant
contributions and for Company matching contributions. The Company intends to
make all matching contributions in shares of its common stock. Employees
immediately vest in all Company matching contributions. The Company expensed
$1.1 million in 1996, $0.8 million in 1995 and $1.4 million in 1994 under the
CAP Plan.
30.
<PAGE>
Note 8
Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. It is the opinion of management, upon the advice of
legal counsel, that the ultimate disposition of these matters will not
materially affect the Company's financial position. As the predecessor to the
Company's business, Borg-Warner agreed to indemnify the Company for
litigation and potential claims identified at May 20, 1987, to the extent such
claims were not provided for at May 20, 1987.
The Company is subject to pollution and hazardous waste disposal regulations in
all jurisdictions in which it has operating facilities and periodically makes
capital expenditures to meet environmental requirements. The Company believes
that future expenditures will not have a material adverse effect on its
financial position. In addition, under the requirements of the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("Superfund"), the Company has been named a potentially responsible party
("PRP") at several Superfund sites being administered by the U.S. Environmental
Protection Agency. Borg-Warner is obligated to indemnify the Company, in whole
or in part, in the event it is held liable as a PRP at these identified sites.
Final resolution of the above matters is not expected to be material to the
Company's financial position.
Note 9
Details of Certain
Consolidated Balance Sheet Captions
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Accounts and notes receivable:
Trade $100,750 $100,336
Progress billings 3,993 4,063
Other 9,100 9,591
- -------------------------------------------------------------------------
113,843 113,990
Less allowance for doubtful accounts (3,279) (3,775)
- -------------------------------------------------------------------------
$110,564 $110,215
=========================================================================
Inventories:
Finished parts $ 52,623 $ 47,985
Work in process 26,465 34,054
Raw materials and supplies 9,472 10,595
- -------------------------------------------------------------------------
88,560 92,634
Less progress billings (7,207) (7,253)
- -------------------------------------------------------------------------
$ 81,353 $ 85,381
=========================================================================
Property, plant and equipment:
Land $ 15,455 $ 15,119
Buildings and improvements 46,171 42,605
Machinery and equipment 123,294 112,549
Capital lease assets 4,748 4,075
Construction in progress 7,701 5,194
- -------------------------------------------------------------------------
197,369 179,542
Less accumulated depreciation and amortization (85,542) (73,291)
- -------------------------------------------------------------------------
$111,827 $106,251
=========================================================================
Accrued liabilities:
Accrued salaries, wages, taxes and benefits $ 27,852 $ 28,065
Accrued restructuring charge - 8,004
Accrued dividends payable 2,670 2,670
Other 12,638 15,553
- -------------------------------------------------------------------------
$ 43,160 $ 54,292
=========================================================================
</TABLE>
31.
<PAGE>
Note 10
Operations Information by Geographic
Location
The Company currently operates in one business segment. A summary of information
about the Company's operations by geographic location for the years ended
December 31, 1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $253,272 $237,934 $232,989
Western Europe 138,871 132,188 135,432
Other foreign 100,048 81,069 80,298
- -----------------------------------------------------------------------------
$492,191 $451,191 $448,719
=============================================================================
Intersegment sales (not included above):
United States $ 27,693 $ 23,124 $ 16,540
Western Europe 4,991 4,520 3,217
Other foreign 2,455 1,466 2,757
- -----------------------------------------------------------------------------
$ 35,139 $ 29,110 $ 22,514
=============================================================================
Operating income:
United States $ 28,156 $ 22,249 $ 21,318
Western Europe 10,676 12,201 14,126
Other foreign 13,250 11,364 13,784
- -----------------------------------------------------------------------------
$ 52,082 $ 45,814 $ 49,228
=============================================================================
Identifiable assets:
United States $187,984 $223,303 $195,927
Western Europe 158,735 126,226 119,944
Other foreign 57,567 56,218 52,023
- -----------------------------------------------------------------------------
$404,286 $405,747 $367,894
=============================================================================
</TABLE>
Net sales by geographic location exclude intercompany sales. Included in
domestic sales are export sales of $91.0 million in 1996, $68.7 million in 1995
and $69.9 million in 1994.
32.
<PAGE>
Note 11
Quarterly Results
of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995 (dollar amounts in millions except per share
data):
<TABLE>
<CAPTION>
Three Months Ended
- -------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net sales $121.9 $119.8 $120.9 $129.6
Operating income 11.9 13.4 12.0 14.7
Net income 6.1 7.0 6.7 8.0
Net income per share $ .25 $ .29 $ .27 $ .34
====================================================================
<CAPTION>
Three Months Ended
- --------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales $107.0 $110.3 $110.1 $123.8
Operating income 10.8 12.5 12.5 10.0
Net income 5.5 6.5 6.3 5.0
Net income per share $ .23 $ .27 $ .26 $ .20
====================================================================
</TABLE>
Safe Harbor Statement
This Annual Report contains various forward-looking statements and includes
assumptions concerning BW/IP's operations, future results and prospects. These
forward-looking state-ments are based on current expectations and are subject to
risk and uncertainties. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, BW/IP provides the following
cautionary statement identifying important economic, political and technology
factors which, among others, could cause the actual results or events to differ
materially from those set forth in or implied by the forward-looking statements
and related assumptions.
Such factors include the following: (1) changes in the current and future
business environment, particularly capital spending in the petroleum refining,
petrochemical, and pipeline industries or electric utility industry; (2)
competitive factors and competitors' responses to BW/IP's initiatives; (3)
successful development and market introduction of anticipated new products and
establishment of additional facilities in new geographic markets; (4) changes in
government laws and regulations, particularly with respect to trade embargoes or
other trade restraints on trade with important foreign country markets; (5)
continuation of the favorable environment to make acquisitions, domestic and
foreign, including regulatory requirements and market values of candidates.
33.
<PAGE>
Report of Independent Accountants
[LOGO OF PRICE WATERHOUSE LLP]
To the Board of Directors and Stockholders of BW/IP, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of BW/IP, Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Los Angeles, California
January 28, 1997
Report of Management
The Company's management is responsible for preparation of the accompanying
consolidated financial statements. These statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and business judgment. Management
maintains a system of internal controls, which in management's opinion provides
reasonable assurance that assets are safeguarded and transactions properly
recorded and executed in accordance with management's authorization. The
internal control system is supported by internal audits and is tested and
evaluated by the independent accountants in connection with their annual audit.
The Board of Directors pursues its responsibility for financial information
through an Audit and Finance Committee comprised entirely of independent
Directors. This committee regularly meets not only with management, but also
separately with representatives of the independent accountants and internal
audit.
<TABLE>
<S> <C>
/s/ BERNARD G. RETHORE /s/ EUGENE P. CROSS
Bernard G. Rethore Eugene P. Cross
Chairman of the Board, President Executive Vice President and
and Chief Executive Officer Chief Financial Officer
</TABLE>
34.
<PAGE>
Common Stock Prices and Dividends
The Company's common stock is listed through the New York Stock Exchange under
the symbol "BWF". The following table displays the high and low reported sale
prices for the periods indicated and the cash dividend per share of common stock
in each quarter.
<TABLE>
<CAPTION>
Market Price Dividends
------------
Period High Low Declared
- -------------------------------------------------------------
<S> <C> <C> <C>
1992:
First Quarter $28 3/4 $19 3/4 $.0375
Second Quarter 28 3/4 23 .06
Third Quarter 26 3/4 22 1/4 .06
Fourth Quarter 30 3/4 23 1/2 .06
1993:
First Quarter $30 1/4 $23 3/4 $ .06
Second Quarter 26 1/4 23 .08
Third Quarter 27 1/4 22 1/2 .08
Fourth Quarter 25 1/4 22 1/2 .08
1994:
First Quarter $25 3/4 $15 3/4 $ .08
Second Quarter 19 15 .10
Third Quarter 19 1/2 15 3/4 .10
Fourth Quarter 19 3/4 16 1/4 .10
1995:
First Quarter $17 1/4 $ 14 $ .10
Second Quarter 19 16 .11
Third Quarter 20 1/4 17 1/4 .11
Fourth Quarter 18 3/4 14 1/2 .11
1996:
First Quarter $18 1/4 $ 13 1/2 $ .11
Second Quarter 21 1/2 17 7/8 .11
Third Quarter 20 15 1/8 .11
Fourth Quarter 16 5/8 12 3/4 .11
</TABLE>
At March 7, 1997, the Company's common stock was held by approximately 4,100
stockholders of record or through nominee or street name accounts with brokers.
While the company expects to continue its policy of paying regular quarterly
cash dividends, future dividends will be dependent on future earnings, the
financial condition of the Company and capital requirements.
35.
<PAGE>
Exhibit 21.a
BW/IP INC.
----------
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction Where Incorporated Percentage
- ------------------ ------------------------------- ----------
<S> <C> <C>
BW/IP International, Inc. Delaware, U.S.A 100%
Byron Jackson Argentina Province of Mendoza, 51%
Industrial and Commercial Argentine Republic
Sociedad Anonima (I.C.S.A.)
BW/IP International, Ltd. Canada 100%
BW Mechanical Seals K.K. Japan 100%
BW Mechanical Seals (S.E.A.) Pte. Ltd. Singapore 100%
Byron Jackson K.K. Japan 100%
Byron Jackson Co., S.A. de C.V. Mexico 100%
BW/IP International GmbH Germany 100%
BW/IP International Limited United Kingdom 100%
BW/IP International S.A. Spain 100%
BW/IP International S.A.R.L. France 100%
BW/IP International S.r.l. Italy 100%
BW/IP International B.V. The Netherlands 100%
Ebara-Byron Jackson Co., Ltd. Japan 50%
BW/IP de Venezuela S.A. Venezuela 75%
BW Mechanical Seals (Malaysia) Sdn. Bhd. Malaysia 70%
PT BW Mechanical Seals Indonesia Indonesia 75%
BW/IP International S.A. Belgium 100%
BW/IP Pacific Dichtungstechnik Gesellschaft m.b.H. Austria 100%
BW/IP Pacific Dichtungstechnik AG Switzerland 100%
BW/IP Pacific Wietz GmbH & Co. KG Germany 100%
BW/IP Pacific Wietz Verwaltungs GmbH Germany 100%
BW/IP Services B.V. The Netherlands 100%
</TABLE>
<PAGE>
BW/IP INC.
----------
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<S> <C> <C>
BW/Abahsain Seal Company Limited Saudi Arabia 60%
BW/IP - New Mexico, Inc. Delaware, U.S.A. 100%
BW/IP International (Barbados), Ltd. Bardados 100%
BW/IP - Siam Co., Ltd. Thailand 60%
BW/IP International IP, Inc. California, U.S.A. 100%
BW/IP International (GP), Inc. California, U.S.A. 100%
BW/IP International (LP), Inc. California, U.S.A. 100%
BW/IP International of Pennsylvania, Inc. Pennsylvania, U.S.A. 100%
BW/IP International (TX) L.L.P. Texas, U.S.A. 100%
BW/IP International of Oklahoma, Inc. Oklahoma, U.S.A. 100%
</TABLE>
<PAGE>
Exhibit 23.a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-44806, No. 33-64143 and No. 333-21637) of BW/IP,
Inc. of our report dated January 28, 1997 appearing on page 34 of the Annual
Report to Stockholders which is incorporated in this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Los Angeles, California
March 28, 1997
<PAGE>
EXHIBIT 24.a
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ Roy A. Herberger, Jr.
-------------------------
Roy A. Herberger, Jr.
Dated: 2/20/97
------------
1
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ Michael F. Johnston
-----------------------
Michael F. Johnston
Dated: 2/20/97
------------
2
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ George D. Leal
------------------
George D. Leal
Dated: Feb. 20, 1997
------------------
3
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ H. Jack Meany
-----------------
H. Jack Meany
Dated: 2-19-97
------------
4
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ James S. Pignatelli
-----------------------
James S. Pignatelli
Dated: 2/20/97
-------------
5
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ James O. Rollans
--------------------
James O. Rollans
Dated: 2/20/97
------------
6
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ William C. Rusnack
----------------------
William C. Rusnack
Dated: 2/20/97
------------
7
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ Peter C. Valli
------------------
Peter C. Valli
Dated: 2/20/97
------------
8
<PAGE>
BW/IP, INC.
POWER OF ATTORNEY
-----------------
The undersigned does hereby make, constitute and appoint John D. Hannesson, John
M. Nanos and Mary Jane Young, and each of them, with full power in each to act
without the other, his true and lawful attorney, in his name, place and stead to
execute on his behalf, as director of BW/IP, Inc. (the "Company"), the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments or supplements thereto, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder, together with any other instruments that such attorneys
or any one of them, shall deem necessary or advisable in connection therewith,
giving and granting to each of such attorneys full power and authority to do and
to perform every act necessary or advisable in furtherance of the purposes
hereof as fully as he could do himself, with full power of substitution and
revocation, hereby ratifying and confirming all that such attorneys or
substitutes may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
/s/ Jeffrey L. Zelms
--------------------
Jeffrey L. Zelms
Dated: 2/20/97
------------
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,458
<SECURITIES> 0
<RECEIVABLES> 100,750
<ALLOWANCES> (3,279)
<INVENTORY> 81,353
<CURRENT-ASSETS> 216,616
<PP&E> 197,369
<DEPRECIATION> 85,542
<TOTAL-ASSETS> 404,286
<CURRENT-LIABILITIES> 90,665
<BONDS> 80,723
0
0
<COMMON> 245
<OTHER-SE> 188,600
<TOTAL-LIABILITY-AND-EQUITY> 404,286
<SALES> 492,191
<TOTAL-REVENUES> 492,191
<CGS> 307,364
<TOTAL-COSTS> 307,364
<OTHER-EXPENSES> 132,745
<LOSS-PROVISION> 1,340
<INTEREST-EXPENSE> 6,628
<INCOME-PRETAX> 44,200
<INCOME-TAX> 16,354
<INCOME-CONTINUING> 27,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,846
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
