ITEM 1. DESCRIPTION OF BUSINESS
(A) General Development of Business
Goulds Pumps, Incorporated (the "Company") started business in 1848 and was later incorporated in 1864 under the laws of New York State as Downs & Co. Manufacturing Company. In 1869, the Company's name was changed to The Goulds Manufacturing Company and in 1926 the name was changed to Goulds Pumps, Incorporated. Effective December 31, 1984, the Company was reincorporated under the laws of the State of Delaware by virtue of a merger transaction. The Company's Corporate headquarters is in Fairport, New York, a suburb of Rochester, New York.
(B) Financial Information About Industry/Market Segments
Financial information about market segments is contained in Note 14 (Major Market Segment Information) of Exhibit 13, Portions of the Annual Report to Stockholders for 1996, which is incorporated herein by reference.
(C) Narrative Description of Business
Overview
The Company designs, manufactures, sells and repairs centrifugal pumps and accessories for diverse applications. The Company's pumps are used in the following worldwide markets: residential, chemical, commercial, pulp and paper, general industry, sewage/drainage, oil refining and gas processing, agriculture/irrigation and power generation.
The Company is organized into two sectors: Industrial Products ("IP") and Water Technologies ("WT").
Industrial Products
The Industrial Products sector represented 52% of the Company's sales and 57% of operating earnings for 1996 after recording a restructuring credit of $1.6 million. Excluding the restructuring credit, the Industrial Products sector represented 54% of the Company's operating earnings in 1996. The types of pumps manufactured for customers served by the Industrial Products sector include end-suction, double-suction, multistage, axial flow, vertical turbine, sump and slurry pumps to meet a wide variety of needs in the industrial market including pumps designed for API and ANSI standards. The Company also manufactures pumps from nonmetallic materials for applications where metal alloys are unsatisfactory or prohibitively expensive. The Company's vertical industrial turbine pumps are used throughout industries where space limitations or unsatisfactory suction conditions make the use of horizontal pumps impractical. The Company's slurry pumps serve the alumina and phosphate mining and minerals markets. Abrasion resistant pumps are manufactured for mining, utility and steel mill applications. The Company's Pump Repair and Overhaul ("PRO") Service Centers play a role in customer service by rebuilding and repairing pumps and other rotating equipment produced by any manufacturer. The Company currently operates seven PRO Service Centers in the U.S., three in Canada, one in Thailand and one in Venezuela.
The Company has a repair parts service organization to assist customers in key industrial areas of the United States. Service representatives provide emergency service and technical advice on a 24-hour basis.
In 1996, IP posted record sales of $399.5 million, an increase of $22.1 million, or 5.9%, compared to 1995 results. IP sales improvements were attributable principally to growth in regions outside the U.S., particularly Asia Pacific and Latin America.
The Company's industrial sales organization markets pumps for U.S. industrial users through direct sales offices, independent sales representatives and distributors. The services of the independent representatives and distributors are used in geographic areas where it is not economical to maintain a direct branch office and in some of the large metropolitan areas where they supplement branch personnel in servicing specialized markets. The Company employs approximately 60 sales engineers nationwide in its branch sales offices and has 40 distributors and representatives.
Water Technologies
The Water Technologies sector represented 48% of the Company's sales and 43% of operating earnings for 1996 after recording a restructuring charge of $1.5 million. Excluding the restructuring charges, the Water Technologies sector represented 46% of the Company's operating earnings. The WT sector manufactures, sells and repairs water pump systems, which include pumps, motors, pressure tanks and related accessories, used to supply water for farms, single and multiple family residences, office buildings, restaurants and other commercial uses, and municipal water supply and sewage treatment facilities. A commercial line of pumps is manufactured and sold for light industrial applications and OEM applications. In addition, sump, effluent and sewage pumps (SES) are manufactured and used in de-watering and sewage ejection applications. Submersible and deep-well turbine pumps are used for irrigation and other agricultural services. The Company believes it is the largest manufacturer of home water pump systems in the world.
In 1996, WT posted sales of $374.9 million, an increase of $33.5 million, or 9.8%, over 1995. WT sales were at record levels for the year, and sales were up in all regions of the world in this sector.
The Company's agricultural pumps and U.S. water systems pumps manufactured by WT are marketed in the U.S. through a field sales force of approximately 50 people who call on approximately 500 distributors throughout the country. These distributors, primarily plumbing, heating and pump specialty wholesalers, sell to and service 20,000 dealers, including over 7,000 Goulds Professional Dealers Association members.
Joint Venture
As of December 31, 1995, the Company had a 45% interest in a joint venture with Nanjing Deep Well Pump Works of Nanjing, China. The joint venture produces agricultural vertical turbine pumps in China for sale worldwide, through a separate corporation, Nanjing Goulds Pumps Limited Co. In January 1996, the Company gained a controlling interest in this company by investing an additional $1.4 million. This investment increased the Company's ownership from 45% to 62%. The Company began to consolidate the financial results for this affiliate in 1996.
(D) General
Competition
The pump industry is highly competitive with numerous competitors in the field. Some competitors are divisions of large corporations while others are companies with a limited product line.
The Company is one of the largest manufacturers of pumps in the United States. There are few competitors in the industrial sector in the United States which carry a diversified product line with a broad service network comparable to that of the Company.
The Company competes principally on the basis of product performance, quality, service and price. The Company enjoys the reputation of a "quality" pump manufacturer with complete repair parts service. It believes it can strengthen its present competitive position in select markets by continuing to improve its customer service levels and manufacturing equipment and processes, by designing and developing new and improved products, by maintaining strategically located parts distribution centers and PRO Service Centers and by promoting the efforts of its sales force in the world market.
Product Development
The Company is committed to the ongoing development of new products and improvement of existing products. Research and development ("R&D") expenses in 1996 were $9.4 million, an increase of 13.9% over 1995. On a percentage to sales basis, R&D expenses were up 0.1 percentage point, reflecting a consistent effort in the development of new products.
Non-U.S. Operations
Outside the U.S., the Company operates in four Regions (Europe, Asia Pacific, Latin America, and Middle East) and Canada. Sales generated by non-U.S. affiliates amounted to $291 million, $253 million and $157 million for 1996, 1995 and 1994, respectively.
In Europe, manufacturing and assembly is performed in Italy, Austria and the United Kingdom. Lowara S.p.A., in Italy, fabricates stainless-steel pumps which are sold worldwide. Vogel, the Company's Austrian operation, produces pumps for medium- and heavy-duty water systems and industrial applications. Other European locations are maintained in Belgium, Denmark, France, Germany, Ireland, the Netherlands, Poland and Portugal.
The Asia Pacific Region includes a joint venture manufacturing operation in China, producing agricultural vertical turbine pumps for sale worldwide. The Philippines subsidiary assembles residential and agricultural water systems pumps. A manufacturing and testing facility is located in Korea, while Singapore is the site of a distribution center. Thailand is the location of a PRO service center. Offices to support sales within the Region are in Melbourne, Australia; Beijing and Nanjing, China; Hong Kong; Tokyo, Japan; Seoul, South Korea; Singapore; Taipei, Taiwan; and Bangkok, Thailand.
In Latin America, the Mexican operation manufactures various pumps for industrial and water applications, while the Venezuelan operation serves primarily as a PRO Service Center with light assembly. Sales efforts in Latin America are supported by offices in Miami, Florida; Santiago, Chile; Mexico City, Mexico; Lima, Peru; and Caracas, Venezuela.
Sales offices for the Middle East Region are located in Cairo, Egypt; Surrey, England; Athens, Greece; Dammam, Saudi Arabia; and Abu Dhabi, United Arab Emirates. The Middle East Region has no manufacturing or assembly locations.
Canada includes an assembly facility in Cambridge, Ontario for water systems and industrial products as well as sales offices in Calgary, Edmonton, Montreal and Vancouver. Canadian PRO Service Centers are located in Cambridge, Edmonton and Montreal.
Export sales from the United States were $90 million in 1996, $69 million in 1995 and $58 million in 1994. The Company's export sales are distributed throughout the world without concentration in any one geographic region.
Financial information about non-U.S. operations and export sales is included in Note 14 (Major Market Segment Information) of Exhibit 13, portions of the Annual Report to Stockholders for 1996, which is incorporated herein by reference.
Raw Materials
The principal raw materials essential to manufacturing pumps are nickel, iron, bronze and stainless steel. These materials are used to produce castings in the Company's five foundries. These internal foundries supply most stainless steel and hard iron castings to the Company's machining locations, thus reducing the need to purchase these products from external suppliers.
In addition, sheets of stainless steel are used in various stamping processes. Other components such as drivers, ball bearings and mechanical seals, along with bar stock for shafts, are purchased from several suppliers.
Raw materials for the Company's products are in adequate supply from a number of alternative suppliers and, at present, the Company has the ability to select and apportion among vendors based on price, quality and delivery capability. The Company has entered into several alliances with selected vendors in order to focus on improving the quality, delivery and costs related to purchased material.
The Company purchases motors for its U.S. water systems submersible pump line primarily from Franklin Electric Company. The Company expects that it will continue to purchase motors from Franklin, but if the Company were required to establish a relationship with another supplier, manufacturing of that product line could be temporarily disrupted.
Employee Relations
The Company presently employs approximately 5,250 people. Approximately 1,230 employees in the U.S. are covered under union contracts stipulating rates of pay, hours of employment and other conditions of employment. In the U.S., four labor agreements covering 420 people expire in 1997. Approximately 2,700 persons are employed in the U.S. while approximately 2,550 persons work at non-U.S. locations.
Seasonal Business
The Company operates at its lowest level during the first and last quarter of each calendar year due primarily to the Water Technologies market decline in winter months. The Industrial Products sector of the Company is not a seasonal business.
Environmental Considerations
In 1995, a legal action was filed against the Company and 21 other defendants in the United States District Court for the Western District of New York (Rochester) by two plaintiffs seeking damages for environmental contamination at or near an inactive landfill site in Seneca Falls, New York. The Company's investigation into the allegations in these actions is in its preliminary phases. The Company believes that under applicable laws it should not bear any liability to one of the claimants, the current landfill owner, who purchased the property with full knowledge of its prior use and continued to operate it thereafter. In addition, the Company believes that there is little reasonable likelihood of material liability to the other claimant at this stage of investigation, based upon considerations of the damages claimed, nature of contamination and the existence of other financially viable co-defendants, and after reviewing applicable legal principles. The Company has answered the complaint by denying the material allegations and asserting various affirmative defenses, cross-claims and counterclaims. The Company intends to vigorously defend this litigation, but no assurance can be given as to the ultimate outcome of such litigation or its impact on the Company.
Apart from issues discussed above, the Company is not currently aware of any other environmental matters which would be reasonably likely to have a material impact on recurring costs, capital expenditures or mandated expenditures.
Although the Company is unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal, existing legislation and regulations have had no material adverse effect on its capital expenditures, earnings or competitive position. Capital expenditures for property, plant and equipment for environmental control were not material during 1996 and are not anticipated to be material in 1997 or 1998.
Patents and Trademarks
Although the Company owns several beneficial patents, none are considered to be material to its operations. The Company believes its trademark "Goulds" is of importance worldwide, since its products have been sold and used for almost 150 years.
Backlog
Backlog exists primarily in the Industrial Products sector. The Water Technologies sector maintains small backlog levels since products are normally shipped within two weeks from receipt of a customer order. The backlog of orders was $130.3 million at February 28, 1997, a decrease of $10.0 million from February 29, 1996 levels. This decrease is due principally to the sale of certain product lines of the Municipal Business Unit.
EXECUTIVE OFFICERS
Name Age Present Office and Experience
Thomas C. McDermott 60 Chairman of the Board since 1995 and Chief Executive Officer and President since June 1994; Director since 1988; previously, a Director and President and Chief Operating Officer of Bausch & Lomb, Incorporated 1986- 1993.
Douglas J. Bingler 50 Vice President and President - Water Technologies North America since February, 1997; previously President - Water Technologies Group, America, 1995-1997; President of Keystone Railway Equipment Company, 1993-1995; Corporate Vice President and General Manager, Liquid Metronics and Hartell Divisions of Milton-Roy Company, 1988- 1993.
William G. Kelley 50 Vice President - Human Resources since July 1996; previously, Vice-President - IPG Human Resources, 1994-1996; Director of Human Resources, 1992-1994. Joined the Company in 1992; previously, Director of International Human Resources of Fisher-Price, Inc., 1989-1992.
J. Kevin Kilbane 58 Vice President and President - Europe effective February, 1997; previously President - Europe, 1996-1997; President - Engineered Pump Group of Ingersoll Dresser Pump Company, 1992-1995.
John P. Murphy 50 Vice President - Finance and Chief Financial Officer since August 1993; previously Executive Vice President and Chief Financial Officer of Westcan Chromalox, Inc., 1991- 1993.
John J. Scanlon 62 Vice President - Worldwide Commercial Strategies and President - Asia Pacific since November, 1996; previously President - Asia Pacific and Latin America, 1995-1996; Vice President and General Manager Asia Pacific, 1991-1995.
Eric L. Steenburgh 56 Senior Vice President and President - Industrial Products since September 1995; previously, President and Chief Operating Officer of Ricoh Corporation, 1992 - 1995. Before joining Ricoh, he spent 27 years with Xerox Corporation, and held several senior management positions including having responsibility for all manufacturing operations worldwide.
Michael T. Tomaino 59 Vice President, General Counsel and Secretary since July 1995; previously a Partner of the law firm Nixon, Hargrave, Devans & Doyle, 1971 - 1995.
No family relationship exists between any of the above executive officers. The normal term of office for all executive officers listed above runs from one Annual Meeting of Stockholders of the Company to the next, or approximately one year.
ITEM 2.

ITEM 2. PROPERTIES
The Company leases its Corporate headquarters in Fairport, New York. The two largest U.S. manufacturing facilities are located in Seneca Falls, New York and Auburn, New York. Other U.S. manufacturing facilities are located in Baldwinsville and Penn Yan, New York; Ashland, Pennsylvania; Lubbock and Slaton, Texas; and City of Industry, California. The Company's largest non-U.S. manufacturing plant is located in Italy. Other non-U.S. manufacturing facilities are currently located in Austria, Canada, China, Mexico and South Korea. Goulds Pumps Europe has subsidiaries which are located in Austria, Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Poland, Portugal and the United Kingdom.
Substantially all manufacturing sites are owned, and most sales offices, warehouses and service facilities are leased. The Company maintains warehouses or distribution centers for inventories of pumps and parts sold to industrial users in Chicago, Illinois; Memphis, Tennessee; Houston, Texas; Baton Rouge, Louisiana; Fairfield, New Jersey; Portland, Oregon; and Huntington, West Virginia. The Company maintains regional warehouses to keep inventories of water pump systems and deep-well turbine components readily available in the vicinities of Chicago, Illinois; Orlando, Florida; Fresno, California; Memphis, Tennessee; Melbourne, Australia; Waardenburg, the Netherlands; and Singapore.
During the five years ended December 31, 1996, the Company invested approximately $163 million in capital improvements, primarily relating to upgrades in machinery and equipment. Management believes that the Company's facilities are well maintained and adequate for its operations.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
In 1995, a legal action was filed against the Company and 21 other defendants in the United States District Court for the Western District of New York (Rochester) by two plaintiffs seeking damages for environmental contamination at or near an inactive landfill site in Seneca Falls, New York. The Company's investigation into the allegations in these actions is in its preliminary phases. The Company believes that under applicable laws it should not bear any liability to one of the claimants, the current landfill owner, who purchased the property with full knowledge of its prior use and continued to operate it thereafter. In addition, the Company believes that there is little reasonable likelihood of material liability to the other claimant at this stage of investigation, based upon considerations of the damages claimed, nature of contamination and the existence of other financially viable co-defendants, and after reviewing applicable legal principles. The Company has answered the complaint by denying the material allegations and asserting various affirmative defenses, cross-claims and counterclaims. The Company intends to vigorously defend this litigation, but no assurance can be given as to the ultimate outcome of such litigation or its impact on the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter of 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the NASDAQ National Market System under the symbol GULD. Quarterly high and low bid information reported by NASDAQ National Markets System and related dividend information of the Company for the past two years is set forth below:
Market value per common share 1996 1995 Quarter High Low Quarter High Low
1st $25.13 $20.88 1st $24.25 $19.63
2nd $25.88 $20.00 2nd $25.50 $20.38
3rd $25.88 $21.13 3rd $23.63 $21.00
4th $25.00 $20.38 4th $26.00 $22.63
Year $25.88 $20.00 Year $26.00 $19.63
Dividend paid per common share Quarter 1996 1995
1st $.20 $.20
2nd $.20 $.20
3rd $.20 $.20
4th $.20 $.20
Year $.80 $.80
The approximate number of holders of the Company's common stock as of February 28, 1997 was 4,726.
The Company's policy is to pay cash dividends quarterly. A quarterly cash dividend has been paid without interruption since 1948. The amount of dividends is within the discretion of the Board of Directors and depends, among other factors, on earnings, capital requirements and the operating and financial condition of the Company.
There are no dividend restrictions which materially limit the Company's current ability to pay dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1995, the Board of Directors of the Company approved an arrangement whereby newly elected directors of the Company would receive 50% of their annual $20,000 retainer in Company common stock until the value of that Director's holdings of the Company common stock reached 200% of the annual retainer, or $40,000. Under this arrangement, shares of common stock were transferred by the Company to Mr. David P. Gruber, a Director of the Company, in transactions exempt from registration under Section 4(2) of the Securities Act of 1933 as follows:
Number of Date shares transferred
March 8, 1996 21 May 5, 1996 102 May 8, 1996 91 October 9, 1996 112 December 16, 1996 109
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Financial Data Goulds Pumps, Incorporated (Dollars in millions except per share data)
OPERATIONS 1996 1995 1994 1993 1992
Net sales $774.4 $718.8 $585.5 $555.7 $558.9
Gross profit 227.0 204.7 167.1 156.3 173.3
Interest expense 11.2 11.4 6.6 5.4 5.0
Earnings from continuing operations before income taxes, cumulative effect of accounting changes 53.9 25.1 29.6 34.4 35.8
Earnings from continuing operations before cumulative effect of accounting changes 34.7 18.1 18.2 23.5 21.8
Cumulative effect of accounting changes -- -- -- (1.0) (29.7)
Net earnings (loss) 34.7 18.1 18.2 22.5 (7.9)
COMMON STOCK Number of stockholders at year-end 5,212 4,988 5,276 5,555 5,902
Average shares outstanding (in thousands) 21,313 21,240 21,175 21,126 21,027
Net earnings (loss) per share: Continuing operations before cumulative effect of accounting changes $ 1.63 $ .85 $.86 $ 1.12 $ 1.04 Cumulative effect of accounting changes -- -- -- (.05) (1.42)
Net earnings (loss) per share 1.63 .85 .86 1.07 (.38)
Dividends per share .80 .80 .80 .80 .80
Stockholders' equity per share 9.88 8.94 9.03 8.85 9.15
FINANCIAL DATA
Purchases of property, plant and equipment $ 36.4 $ 33.5 $ 28.1 $ 24.7 $ 40.0
Depreciation expense 27.0 26.0 24.9 24.8 23.8
Property, plant and equipment --net 183.5 173.3 152.8 149.0 154.6
Working capital 106.8 106.9 116.8 109.7 122.1
Debt (including short-term) 123.7 133.1 89.1 87.4 65.3
Total assets 554.9 554.0 457.2 438.5 418.8
Stockholders' equity 211.1 190.3 191.3 187.2 192.8
Debt to equity % 58.6 69.9 46.6 46.7 33.9
Continuing operations before cumulative effect of accounting changes: Return on average stockholders' equity % 17.3 9.3 9.5 12.4 9.6
Return on average capital % 12.2 7.7 7.6 9.7 8.0
Number of employees at year-end 5,250 4,900 4,200 4,100 4,300
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is presented in pages 52 through 58 of Exhibit 13 (Portions of the Annual Report to Stockholders) of this Form 10-K, and is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is presented in pages 59 through 82 of Exhibit 13 (Portions of the Annual Report to Stockholders) of this Form 10-K, and is incorporated herein by reference.
ITEM 9.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pages 1 through 5 of the Proxy Statement dated March 24, 1997 for the Company's Annual Meeting of Stockholders contain information concerning Directors which is incorporated herein by reference. Information concerning executive officers is included in Part I of this Form 10-K, following Item 1.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Pages 6 through 15 of the Proxy Statement contain information concerning executive compensation which is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Page 5 of the Proxy Statement contains information concerning ownership of the Company's common stock which is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pages 3 and 12 of the Proxy Statement contain information concerning transactions with management and others which is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The financial statements of the Company for the years 1994- 1996 are included in Exhibit 13 of this Form 10-K as follows:
Page in Exhibit 13
Management's Discussion and Analysis of Financial Condition and Results of Operations 52 Independent Auditors' Report 59 Consolidated Statements of Earnings 60 Consolidated Balance Sheets 61 Consolidated Statements of Cash Flows 62 Consolidated Statements of Stockholders' Equity 63 Notes to Consolidated Financial Statements 64 - 82
Page in Form 10-K
(2) Financial Statement Schedules: Independent Auditors' Report on Financial Statement Schedules 19
The following schedule is included in this Form 10-K:
II - Valuation and Qualifying Accounts 20
All other Financial Statement Schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1996.
(c) Exhibits:
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Goulds Pumps, Incorporated, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOULDS PUMPS, INCORPORATED
By: /s/Thomas C. McDermott Thomas C. McDermott (Chairman, Chief Executive Officer and President)
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.
/s/Thomas C. McDermott March 27, 1997 Thomas C. McDermott Date (Chairman, Chief Executive Officer and President)
/s/John P. Murphy March 27, 1997 John P. Murphy Date (Vice President - Finance and Chief Financial Officer)
/s/Diana R. Kurty March 27, 1997 Diana R. Kurty Date (Vice President and Corporate Controller)
/s/Jerry H. Ballengee March 21, 1997 Jerry H. Ballengee Date (Director)
William W. Goessel Date (Director)
/s/David P. Gruber March 12, 1997 David P. Gruber Date (Director)
/s/Melvin Howard March 20, 1997 Melvin Howard Date (Director)
/s/Barbara B. Lucas March 19, 1997 Barbara B. Lucas Date (Director)
/s/James C. Miller III March 20, 1997 James C. Miller III Date (Director)
/s/Peter Oddleifson March 13, 1997 Peter Oddleifson Date (Director)
/s/Arthur M. Richardson March 12, 1997 Arthur M. Richardson Date (Director)
FINANCIAL STATEMENT SCHEDULE
INDEPENDENT AUDITORS' REPORT
Goulds Pumps, Incorporated:
We have audited the consolidated financial statements of Goulds Pumps, Incorporated and subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated January 24, 1997; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Goulds Pumps, Incorporated and subsidiaries, listed in Item 14(a)2. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP Deloitte & Touche LLP
Rochester, New York January 24, 1997
Schedule II
GOULDS PUMPS, INCORPORATED AND CONSOLIDATED SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
BALANCE ADDITIONS BALANCE AT BEGINNING CHARGED TO DEDUCTIONS AT END OF YEAR INCOME (1) OF YEAR Allowance for Doubtful Accounts, Deducted from Trade Receivables:
1996........... $3,007 $2,017 $1,991 $3,033
1995........... $2,838(2) $2,209 $2,040 $3,007
1994........... $2,177 $1,172 $ 956 $2,393
(1) Accounts written off, less recoveries.
(2) Includes opening balance of Vogel.
EXHIBIT INDEX
Exhibit Number Description of Exhibits
(3) Articles of Incorporation and By-Laws:
* Restated Certificate of Incorporation filed May 6, 1985 (Exhibit 19 to Form 10-Q for the period ended June 30, 1985).
* Amendment to the Certificate of Incorporation, (the Company's definitive Proxy Statement for its Annual Meeting of Stockholders held on May 4, 1988, copies of which were filed with the Commission on April 11, 1988, wherein said amendment is identified as exhibit (B)).
* Amendment to the Certificate of Incorporation as filed by the Delaware Secretary of State on May 31, 1989 (Exhibit (a), Form 10-Q for the period ended June 30, 1989).
* By-Laws of the Company, amended and restated as of September 19, 1996 (Exhibit III (ii) to Form 10-Q for the period ended September 30, 1996).
(10) Material Contracts:
(iii) Compensatory Plans for Officers and Directors:
* Agreement dated June 20, 1996 between Goulds Pumps, Incorporated and Thomas C. McDermott (filed as Exhibit X on page 14 of Form 10-Q for the period ended June 30, 1996).
* Goulds Pumps, Incorporated 1994 Incentive Plan to Increase Stockholder Value, effective on May 4, 1994 (filed as Exhibit A on page 19 of Proxy Statement dated March 31, 1994).
* Goulds Pumps, Incorporated 1994 Stock Option Plan for Non-Employee Directors, effective on date May 4, 1994 (filed as Exhibit B on page 35 of Proxy Statement dated March 31, 1994).
* Goulds Pumps, Incorporated Supplemental Executive Pension Plan, effective January 1, 1992 (filed as Exhibit 10 on page 29 of Form 10-K for year ended December 31, 1991).
* Goulds Pumps, Incorporated Senior Executive Severance Agreement, effective May 12, 1983 (Exhibit 19, Form 10-Q for period ended June 30, 1983).
* Goulds Pumps, Incorporated Revised Incentive Stock Option Plan, effective March 19, 1987 (Form S-8 Registration Statement No. 2-78145, filed on June 25, 1982. Appendices No. 1 and No. 2 to the prospectus filed with SEC on June 8, 1983 and May 8, 1987, respectively).
* Goulds Pumps, Incorporated 1988 Stock Incentive Plan (Form S-8 Registration Statement No. 33-22902 filed on July 5, 1988).
Goulds Pumps, Incorporated Executive Security Plan Agreement (filed as Exhibit 10-A on page 23 of this Form 10-K).
Goulds Pumps, Incorporated Severance Plan for Executives (filed as Exhibit 10-B on page 27 of this Form 10-K).
Goulds Pumps, Incorporated Deferred Compensation Plan for Directors (filed as Exhibit 10-C on page 37 of this Form 10-K).
Agreement, dated December 6, 1996, between Goulds Pumps, Incorporated and Frank J. Zonarich (filed as Exhibit 10-D on page 44 of this Form 10-K).
(11) Computation of Earnings Per Share (page 50 of this Form 10-K).
(13) Annual Report to Security Holders: Portions of the 1996 Annual Report to Stockholders (incorporated sections only in electronic filing), filed herewith (page 51 of this Form 10-K).
(21) Subsidiaries of the Registrant (page 82 of this Form 10-K).
(23) Consents of Experts and Counsel (page 83 of this Form 10-K).
(27) Financial Data Schedule (filed electronically only).
All other exhibits are omitted because they are not applicable or the required information is shown elsewhere in this Form 10-K.
* Incorporated herein by reference to the filed document indicated in parenthesis.
EXHIBIT 10-A
GOULDS PUMPS, INC.
EXECUTIVE SECURITY PLAN AGREEMENT
This Agreement is made and entered into as of the _______________ day of _______________, _______________, by and between Goulds Pumps, Inc., a Delaware Corporation (hereinafter referred to as the "Company" and _______________ (hereinafter referred to as the "Employee").
The Company and its subsidiaries are hereinafter collectively referred to as the "Company."
In consideration of each other's undertakings in this Agreement, the Employee and the Company agree as follows:
1. Death Benefits
(a) If Employee's death occurs before his 65th birthday and while Employee is either actively employed by the Company, or on an authorized leave of absence, or then receiving disability benefits under a plan of the Company or is retired from the active employ of the Company, provided death was not due to suicide occurring within two years of the date this agreement was first entered into, the Company will pay to the Employee's Beneficiary, if any, the following death benefit:
(1) For each of the first twelve months (commencing with the first full month following the month of death) an amount equal to 1/12 of the Employee's annual base rate of compensation in effect immediately preceding the Employee's death, disability or retirement.
(2) Commencing with the thirteenth month, and continuing thereafter through the month in which the Employee would have attained age 65, an amount equal to 1/24 of the Employee's annual base rate of compensation in effect immediately preceding the Employee's death, disability or retirement
(3) Provided, however, that no Employee's beneficiary shall receive less than one and one-half (1 1/2) times the Employee's annual base rate of compensation as set forth above.
(4) All of the above benefits are subject to a $100,000 deductible.
(EXAMPLE: For the purpose of illustrating the limitations set forth above, if the deceased Employee had an annual base rate of compensation of $50,000, the $100,000 deductible provided herein would be deemed to have been satisfied in the following manner: In the first twelve months, $50,000, in the next twenty-four months the remaining $50,000; so that in this example, the first payment from the Company, after the deductible, equal to 1/24 of the Employee's annual base rate of compensation would commence only on the thirty-seventh month following the date of death.)
(b) If Employee's death occurs on or after his 65th birthday, provided death was not due to suicide occurring within two years of the date this agreement was first entered into, and provided further that if the Employee is actually employed by the Company, or is retired from the active employ of the Company at the time of his death, and if retired, that Employee's retirement had occurred while this Agreement was in full force and effect, the Company will pay to the Employee's Beneficiary, if any, the following death benefit: The death benefit shall consist of an amount equal to the difference, if any, between an amount equal to one and one-half (1 1/2) times the Employee's annual base rate of compensation in effect immediately preceding the Employee's death or retirement less the $100,000 deductible. The death benefit will be paid in a single sum within 45 days of the Employee's date of death.
2. Beneficiary
The term "Beneficiary" as used in this Agreement shall mean the person(s) named by the Employee as shown on the Executive Security Plan Beneficiary Designation Form (Exhibit I of this Agreement). If no person(s) are named, the beneficiary will be the Estate of the Employee. The Beneficiary may be changed at any time by giving written notice to the Corporate Benefits Department. The change will take effect on entry in those records.
3. Termination by Election
(a) The Company reserves the right to terminate this Agreement by giving Employee not less than 30 days written notice to such effect, provided, however, that the Company shall not have the right to terminate this Agreement as to any Employee's Beneficiaries who have become entitled to benefits under this Plan prior to such 30-day written notice, it being the intention hereof to vest in those Beneficiaries all of the rights conferred under this Agreement even if this Agreement, and the program contemplated hereby, is modified or terminated by the Company following the death of the subject employee.
(b) In the event of merger of the Company into another Corporation, the purchase of all or a majority of the Company's common stock by another Corporation or other similar circumstances resulting in a change in the ownership of the Company, and if this Agreement is thereafter terminated, or the employment of any covered Employee hereunder is thereafter terminated, the Company agrees to provide or cause to be provided for each Employee covered in this Plan at that time, the applicable death benefit described in Section 1 hereof subject to the terms of this Agreement, in the event of the covered Employee's death occurring during the 60-month period commencing with the month in which such change in ownership occurs, it being the intention of this provision to vest in each qualified covered Employee the benefits of this Agreement for his Beneficiaries if said covered Employee dies within the relevant 60-month period following the change of ownership as set forth hereunder. In the event the covered Employee dies after expiration of the relevant 60-month period, said Employee's beneficiaries would still be entitled to receive the minimum benefits as set forth in Section 1, an amount equal to one and one-half (1 1/2) times the covered Employee's annual base rate of compensation, as defined, less than $100,000 deductible.
4. Administration
This Agreement shall be administered on behalf of the Company by the Vice President-Human Resources. All matters relating to the interpretation of the provisions of this Agreement, the commencement and amount of benefit payments hereunder, the allocation of benefit payments to be made to or among various Beneficiaries, and all of the rights and obligations of the parties hereunder shall be determined by the Human Resources Committee as regularly appointed and constituted by the Board of Directors of the Company from time to time, and the determination of any and all matters relating to this agreement by said Human Resources Committee shall be binding upon the parties hereto and all other persons or parties having any interest in or rising from this Agreement.
5. No Employment Obligation
This Agreement does not in any way require the Company to continue the employment of the Employee with the Company or limit the right of the Company to terminate the Employee's employment with the Company at any time. Termination of the Employee's employment with the Company for any reason prior to retirement, whether by action of the Company or Employee, shall immediately terminate this agreement and all further obligations hereunder except as expressly provided otherwise in this Agreement.
6. Other Benefits and Agreement
The benefits provided for the Employee or Beneficiary under this Agreement are in addition to any other benefits available to the Employee under any other plan or program of the Company for its employees and except as otherwise expressly provided in this Agreement, this Agreement shall supplement and shall not supersede any other Agreement between the Company and Employee, or any provision contained therein.
7. Notices
Any notice which shall be or may be given under this Agreement shall be in writing and shall be mailed by United States Certified Mail, return receipt requested, addressed as indicated below:
(a) Notice to Employee:
______________________________ ______________________________ ______________________________
(Employee's name and last known address according to the records of the Company)
(b) Notice to the Company:
Vice President - Human Resources Goulds Pumps, Inc. 300 WillowBrook Office Park Fairport, New York 14450-4285
Either party may, from time to time, change the address to which notices shall be mailed by giving notice of such new address in the manner provided herein.
8. Amendments
This Agreement sets forth the entire understanding between the parties regarding the subject matter covered herein and it can be amended or modified only by a written instrument signed by the President of the Company and approved by the Human Resources Committee of the Board of Directors.
9. Funding Not Required
The Company may undertake to provide any of the benefits made available under this Agreement by any method it deems suitable, and shall not be required to fund its obligations hereunder. It is intended that an Employee and/or his Beneficiary, if any, shall acquire no greater rights under this Agreement than those of any other general creditor of the Company.
10. Medical History and Examination
It is agreed that this Agreement will become effective only upon a determination by the insurance company which may issue a policy of life insurance on the life of the Employee that the Employee is in insurable health. Employee will furnish a statement of age and medical history and will submit to one or more physical examinations by a physician or physicians designated by said insurance company for this purpose. The effectiveness of this Agreement shall be evidenced by the delivery to the Employee of a copy of this Agreement, bearing the signature of the President of the Company. If the Employee's statement of age or medical history contains a material misrepresentation, the Company shall have the right to terminate this Agreement, with no further obligation to the Employee, Beneficiary or any other person, at any time within 60 days after discovering such material misrepresentation.
11. Cancellation of Insurance
If any issuer thereof cancels an insurance policy on the life of an Employee which the Company may have acquired on the basis of misrepresentation or omission of fact by the Employee, it shall conclusively entitle the Company to so terminate this Agreement.
IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the date first above set forth.
_____________________________________________________________________ Date Employee
______________________________ Goulds Pumps, Inc. Date
by:____________________________ Goulds Pumps, Incorporated
EXHIBIT 10-B
A Summary of the Goulds Pumps, Inc. Severance Plan for Executives
Effective January 1, 1996
PURPOSE Page 1
ELIGIBILITY Page 1
DEFINITIONS Page 1
PAYMENTS OF BENEFITS Page 3 Eligibility Page 3 Disqualifying Events Page 3 Payment of Benefits Page 4
CALCULATION OF SEVERANCE BENEFITS Page 4 Formula Page 4 Duration of Payments Page 4
OTHER BENEFITS Page 5
ADMINISTRATION Page 5 The Plan Administrator Page 5 Notification to Employees Page 5 Claims by Employees Page 6 Claims Appeals Page 6
AMENDMENT AND TERMINATION Page 7
MISCELLANEOUS Page 7 Right to Terminate Employment Page 7 Source of Benefits Page 7 Benefits Not to be Construed as Pension Benefits Page 7 No Assignment; Binding Effect Page 7 Gender and Number Page 8
Goulds Pumps, Inc. Severance Plan for Executives Effective January 1, 1996
PURPOSE
The purpose of this Severance Plan for Executives (the "Plan") is to provide financial support and continuation of some benefits, for a limited time, to eligible Employees following a qualified involuntary termination.
ELIGIBILITY
All employees who are specifically designated as eligible by the Goulds Pumps, Inc. Human Resources Committee (the "Committee") of the Board of Directors are covered by this Plan. Eligibility may also be removed by the Committee under their discretion.
The Plan Administrator reserves the right to decide whether the circumstances justify the application of the Plan in any particular case, and the decision of the Plan Administrator is final.
DEFINITIONS
For purposes of this Plan, the following terms when capitalized will have the following meanings:
a. Appeals Committee means the Chairman of the Board of Directors of Goulds Pumps, Inc., and the General Counsel or the designee(s) of such Appeals Committee.
b. Company means Goulds Pumps, Inc. and its subsidiaries, divisions, subdivisions, plants and locations.
c. Comparable Employment means a position of equal pay and benefits.
d. Compensation is the Employee's annualized base salary at the time of termination.
e. Competitor is a company that competes with Goulds Pumps, as determined by the Plan Administrator.
f. Employee is any full-time salaried individual employed by the Company who:
(i) is not covered by a written employment contract which over rides this Plan on the date of termination of employment; and
(ii) has been designated as eligible for the Plan by the Committee; and
(iii) is on active duty as of the time of termination or has been on active duty within the six (6) month period immediately preceding the Employee's termination. To be considered to have been on active duty, the Employee must have actually performed work for the Company for which the Employee received W-2 earnings from the Company.
g. Non-Competitor means a company that does not compete with Goulds Pumps, as determined by the Plan Administrator.
h. Plan means the Goulds Pumps, Inc. Severance Plan for Executives, as amended from time to time.
i. Plan Administrator means the Chairman of the Board of Directors for Goulds Pumps, Inc. or his/her designee.
j. Plan Year means the 12 month period beginning on January 1 and ending on the following December 31.
PAYMENTS OF BENEFITS
Eligibility for Severance Benefits An Employee is eligible for benefits from the Plan when the Company involuntarily and permanently terminates the Employee's employment as a result of
- permanent layoff;
- inherent inability to perform the duties of the position;
- economic reason, reduction in force, facility closing, reorganization or consolidation other than a Change in Control as defined in the Senior Executive Severance Plan.
Disqualifying Events An Employee who might otherwise qualify for a severance pay benefit under this Plan shall be disqualified if the Employee
(a) fails to continue in the employ of the Company satisfactorily performing the Employee's assigned duties, until the date actually set for the Employee's termination by the Company;
(b) works for a subsidiary, division, subdivision, plant, location, or other identifiable entity that is sold or otherwise transferred to an owner other than the Company, whether or not the Employee is offered employment by the new owner and whether or not such employment as is offered by the new owner is comparable to the employment engaged in by the Employee immediately prior to the sale or transfer;
(c) refuses to sign or abide by the - Employee Secrecy and Invention Agreement which is Attachment A to this Plan;
(d) is terminated for reasonable cause, including but not limited to insubordination, dishonesty, theft, willful misconduct, improper and illegal harassment, or being under the influence of illicit drugs or alcohol at work or on the Company's premises;
(e) is terminated by retirement, resignation, death, permanent or temporary disability (occupational or not);
(f) refuses to accept a transfer to Comparable Employment within the Company within the Employee's geographic area;
(g) is receiving benefits under any other separation allowance Plan sponsored or offered by the Company;
(h) is laid off and the Company expects to offer re-employment within six months. If the Employee is not recalled within six months of the lay off, the Employee is then entitled to receive benefits under the Plan; or if
(i) the Plan Administrator determines that under the facts and circumstances relating to the Employee's termination, or because of the Employee's conduct subsequent to termination, it would be inappropriate to commence or continue severance payments.
Payment of Benefits Applicable federal, state, and local income taxes and Social Security taxes are withheld from payments. Payments are made with the same frequency as the Employee's pay while an active Employee. No lump sum payments will be made, except if a person dies while receiving severance pay, any unpaid balance will be paid in a lump sum to the terminated Employee's estate.
CALCULATION OF SEVERANCE BENEFITS
Formula Benefit level paid as outlined below, an employee who is eligible for this plan is not eligible for any other severance plans offered by the Company.
Benefit Level: 12 months Compensation
Duration of Payments Severance payments will continue for the number of months stated in the Formula, or until the terminated Employee obtains employment with a Competitor, whichever occurs first.
If the terminated Employee obtains employment with a Non- Competitor, severance payments will be offset by the base salary received from the Non-Competitor.
Notifying the Company About Gaining Employment If the terminated Employee gains employment during the period when severance is being paid by the Company, the terminated Employee shall so notify the Company. The terminated Employee's severance pay shall cease immediately if employed by a Competitor and shall be offset as stated above if employed by a Non-Competitor.
OTHER BENEFITS
Applicable medical, executive medical, dental, basic life, supplemental life, and accidental death & dismemberment insurance coverage will continue for the number of months calculated above, as long as the Employee makes insurance premium contributions, if required. Participation in all other benefit plans ends at the time of termination unless specifically continued by approval of the Committee.
Severance Plan payments do not extend the termination date for benefits purposes, nor are payments included in the calculation of pension plan benefits.
Terminated Employees may be eligible for COBRA continuation of health insurance (Medical, Executive Medical, Dental, EAP and Health Care Spending Account) benefits. The severance period time shall be applied to reduce the benefit extension period required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) or any amendment thereto.
Any payroll deductions for previously approved payments, such as the United Way and Credit Union, will continue unless canceled in writing.
Reasonable outplacement services as determined by the Plan Administrator will be provided.
Bonus or other long or short term incentive plans will be treated per the provisions of their plan documents and/or agreements.
ADMINISTRATION
The Plan Administrator The Plan Administrator shall administer this Plan, and furnish all notices and do all filings, according to law, and shall have the power to implement, operate and interpret this Plan and, further, to take such other action as the Plan Administrator deems equitable under the circumstances in light of the purpose of this Plan.
Notification to Employees The Plan Administrator or his or her designee(s) shall notify Employees when and if such Employees become eligible for a benefit under the provisions of this Plan.
Claims by Employees Any Employee covered by this Plan who believes that an event has occurred which entitles such Employee to a benefit under this Plan but who has not been advised of such benefit or who believes that the calculation of the benefit is in error, shall file a claim with the Plan Administrator. The claim must be filed within ten (10) calendar days of the date on which the Employee was advised of the Employee's scheduled termination or within ten (10) calendar days of the date the Employee learned the amount of the benefit under this Plan, or that there will be no benefit.
The claim shall be in writing and explain briefly the basis for the claim. The claim must be dated and signed by the Employee.
The claim shall be mailed to the Plan Administrator by certified mail or presented in person to the Plan Administrator. If the claim is presented in person to the Plan Administrator, the Plan Administrator must give the Employee an acknowledgment of receipt in writing.
Within ten (10) work days of receipt of the claim the Plan Administrator shall respond in writing to the Employee.
Claims Appeals Any Employee not satisfied by the disposition of the claim by the Plan Administrator shall have the right to appeal to the Appeals Committee.
The appeal shall be in writing and shall include a copy of the claim made to the Plan Administrator and the decision by the Plan Administrator. The appeal shall explain briefly why the Employee believes the decision of the Plan Administrator was in error.
The appeal shall be filed with the Appeals Committee, by certified mail or in person. If the appeal is filed in person the member of the Appeals Committee must give the Employee an acknowledgment of receipt in writing.
Appeals must be decided by the Appeals Committee, and a written response to the appeal sent to the Employee, within thirty (30) calendar days of the date on which the notice of appeal was filed and received by the members of the Appeals Committee.
AMENDMENT AND TERMINATION
The Goulds Pumps, Inc. Severance Plan for Executives is established and maintained by Goulds Pumps, Inc. effective as of the date of its adoption.
The Company reserves the right to amend this Plan from time to time and to terminate this Plan at any time by resolution of the Committee. The benefits provided for in this Plan are not vested benefits. However, terminated Employees receiving benefits on the Plan termination date will continue to receive them as provided in the Plan.
MISCELLANEOUS
Right to Terminate Employment The fact that a former Employee has failed to qualify for a benefit under this Plan shall not nullify or otherwise affect in any manner whatsoever the Employee's termination of employment from the Company, and such failure to qualify for a benefit shall not establish any right of any kind or description whatsoever (a) to a continuation or reinstatement of employment with the Company or (b) to receive any payment from the Company in lieu of such benefit.
Source of Benefits All benefits paid to a terminated Employee under this Plan shall be made from the general assets of the Company, and the status of the claim of a person to any benefit shall be the same as the status of a claim against the Company by any general and unsecured creditor. No person shall look to, or have any claim against, any officer, director, Employee or agent of the Company in his/her individual capacity for the payment of any benefits under this Plan.
Benefits Not to be Construed as Pension Benefits If the benefits provided for by this benefit plan, together with other termination benefits (other than benefits provided for in a qualified benefit plan) equal or exceed the equivalent of two years' compensation, the Plan Administrator has the authority to reduce payments payable under this Plan to that amount.
No Assignment; Binding Effect No Employee shall have the right to alienate, assign, commute or otherwise encumber his or her benefit under this Plan for any purpose whatsoever, and any attempt to do so shall be disregarded completely as null and void. The provisions of this Plan shall be binding on each Employee (and on each person who claims a benefit under any such Employee) and on the Company.
Gender and Number Whenever applicable, the masculine gender, when used in this Plan, shall include the feminine or neuter gender, and the singular shall include the plural.
Goulds Pumps, Inc.
Date
Attest
Plan Information
Name of Plan: Goulds Pumps, Inc. Severance Plan for Executives
Name of Plan Sponsor: Goulds Pumps, Inc. 300 WillowBrook Office Park Fairport, NY 14450-4285
Name of Plan Administrator: Goulds Pumps, Inc. 300 WillowBrook Office Park Fairport, NY 14450-4285
Business Telephone No.: 716-387-6600
Ending Date of Plan's Fiscal Year: Month 12 Day 31
Goulds Pumps, Inc. Severance Plan for Executives Attachment A
EMPLOYEE SECRECY AND INVENTION AGREEMENT
In consideration of my employment or continuing employment by Goulds Pumps, Inc. herein after referred to as the COMPANY.
1. I will not disclose or use any confidential information relating to the COMPANY or its business either during or after my employment, except as required in my duties to the COMPANY. I understand that confidential information includes matters of a technical nature such as formulae, secret processes and machines, inventions, research projects and know-how; matters of a business nature such as data, costs, profits, products, product designs, product names, trademarks, marketing information and plans form future developments; and any other information pertaining to the COMPANY'S affairs or interests which the COMPANY does not make available to the public.
2. I will not disclose to the COMPANY, or induce the COMPANY to use, any confidential information belonging to others.
3. I acknowledge that all inventions, discoveries, improvements, and other intellectual property relating to the COMPANY'S actual or potential business conceived or made by me during my employment, whether or not during working hours, are the property of the COMPANY and I will promptly disclose them to the COMPANY.
4. During and after my employment, I will, at the COMPANY'S request, sign all documents and do anything else (at the COMPANY'S expense) that the COMPANY deems necessary to perfect its title to the inventions, discoveries, improvements, and other intellectual property disclosed pursuant to the preceding paragraph and to obtain for the COMPANY domestic and foreign patents and other intellectual property rights therein.
5. On termination of my employment, I will deliver to the COMPANY all copies of confidential memoranda, notes, drawings, letters, data, reports, and other records in my possession relating to the COMPANY or its business.
6. I will report below any inventions, discoveries, improvements, and other intellectual properties I have made or conceived prior to my date of employment in order to exclude them from this agreement. I will not describe them in such detail as will amount to a disclosure, but rather merely to identify them by general description.
7. I have read this Employee Secrecy and Invention Agreement and I have listed above all inventions, discoveries, improvements, and other intellectual properties which I have made or conceived prior to the date of my employment with the COMPANY and which are excluded from this agreement.
___________________________________ _____________________ Employee's Name (Print) Date
__________________________ __________________________ Employee's Signature Witnessed by
Form HR420.2
White (original) - Human Resource Copy Yellow - Employee's Copy
Goulds Pumps, Inc. Severance Plan For Executives Attachment B
General Release and Covenant Not to Sue In consideration for the payments made to me by Goulds Pumps, Inc. (the "Company") according to the Severance Plan for Executives (the "Plan"), I hereby release and discharge the Company and its successors, assigns, subsidiaries, owners, employees, officers, directors and agents (hereinafter referred to as "the Company") from all claims, liabilities, demands and causes of action, whether known or unknown, which claims, demands or causes of action arise out of or are in any way connected with or related to employment with or termination from employment with the Company.
I further hereby covenant not to bring, maintain, prosecute, or recover upon any lawsuit, charge, or claim asserting any such claims. This includes, but is not limited to any action sounding in tort, contract, or discrimination of any kind or any causes of action arising under federal or state statute, including but not limited to, the Age Discrimination in Employment Act 29 U.S.C. 621 to 634, New York Executive Law, Art. 15, Sec 296 and/or claims growing out of any legal restrictions on the Company's right to terminate its employees. This release and covenant does not have any effect on any claims I may have against the Company unrelated to this termination.
I agree to indemnify the Company for any attorneys fees and costs associated with defending a breach of this General Release and Covenant Not to Sue.
I have carefully read and fully understand all of the provisions of this General Release and Covenant Not to Sue which sets forth the entire agreement between me and the Company pertaining to the subject matter hereof and I acknowledge that I have not relied upon any representation or statement, written oral, not set forth in this document.
I acknowledge that the Company advised me to consult an attorney before signing this General Release and Covenant Not to Sue. I acknowledge that I was given at least twenty-one (21) days to negotiate, review and consider all the terms, conditions, and covenants entered into herein and have had the opportunity to consult my attorney in connection with such negotiations, review and consideration prior to signing this General Release and Covenant Not to Sue.
I acknowledge that I have the right to revoke this General Release and Covenant Not to Sue for a period of seven (7) days following the date of my signature set forth below and in such event this General Release and Covenant Not to Sue shall be null and void. This General Release and Covenant Not to Sue shall become fully effective and enforceable after the expiration of such seven (7) day period, in which case the Company and I shall be fully bound by the terms hereof.
Any provision within this release deemed to be in contravention of local, state or federal law shall be considered eliminated and of no force or effect upon the remaining provisions validly set forth herein.
Employee's Name (Print) Date
Employee's Signature
Sworn to before me this day of 19 .
Notary Public
EXHIBIT 10-C
Goulds Pumps, Inc. Deferred Compensation Plan for Directors
Article 1. Establishment and Purposes 1.1 Establishment. Goulds Pumps, Inc., a Delaware corporation (the "Company"), hereby established, effective as of October 1, 1994, a deferred compensation plan for Directors as described herein, which shall be known as the "Goulds Pumps, Inc. Deferred Compensation Plan for Directors" (the "Plan").
1.2 Purpose. The primary purpose of the Plan is to provide Directors with the opportunity to voluntarily defer a portion of their compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain Directors of outstanding competence.
Article 2. Definitions Whenever used herein, the following terms shall have the meanings set forth below, and, when the defined meaning is intended, the term is capitalized:
(a) "Board" or "Board of Directors" means the Board of Directors of the Company.
(b) "Chairman Fee" means fees paid to a Director as compensation for the additional duties of leading a committee of the Board.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of two (2) or more individuals, appointed by the Board to administer this Plan, pursuant to Article 3.
(e) "Company" means Goulds Pumps, Inc., a Delaware corporation.
(f) "Compensation" means the gross Retainers, Meeting Fees, Chairman Fees, and other payments eligible for deferral under the Plan, which are payable to a Participant with respect to Board services performed during a Year.
(g) "Director" means an individual who serves as an elected member of the Board of Directors, but who is not otherwise an employee of the Company.
(h) "Disability" means a disability as determined under the disability provisions of the Goulds Pumps, Inc. Retirement Plan for Non-Employee Directors.
(i) "Effective Date" means the date the Plan becomes effective, as set forth in Section 1.1 herein.
(j) "Meeting Fees" means per diem payments made to Directors for attendance at various meetings of the Board, including full Board meetings and Committee meetings.
(k) "Participant" means a Director who is actively participating in the Plan.
(l) "Plan" means the Goulds Pumps, Inc. Deferred Compensation Plan for Directors.
(m) "Retainer" means the annual amounts payable to a Director as compensation for the Director's services on the Board during the Year and shall be exclusive of any Meeting Fees, Chairman Fees, or any other fees payable to a Director.
(n) "Retirement" means the Participant leaves the service of the Board and is eligible to retire under the terms of the Goulds Pumps, Inc. Retirement Plan for Non-Employee Directors.
(o) "Subsidiary" means any corporation (other than the Company) in which the Company or a Subsidiary of the Company owns fifty percent (50%) or more of the total combined voting power of all classes of stock.
(p) "Year" means the fiscal year of the Company.
Article 3. Administration 3.1 Authority of the Committee. The Plan shall initially be administered by the Human Resources Committee of the Board. Subject to the terms of this Plan, the Board may appoint a successor Committee to administer the Plan. The members of the Committee shall be appointed by and shall serve at the discretion of the Board.
The terms of each Director's participation shall be governed by this Plan. Subject to the terms of this Plan the Committee shall have the authority to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; to amend (subject to the provisions of Article 8 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make other determinations which may be necessary or advisable for the administration of the Plan. Subject to the terms of the Plan, the Committee may delegate any or all of its authority granted under the Plan to an executive or executives of the Company.
3.2 Decisions Binding. All determinations and decisions of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, conclusive, and binding on all parties.
3.3 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party, or in which he or she may be involved by reason of any action taken or failure to act under the Plan, and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Article 4. Eligibility and Participation 4.1 Eligibility. All Directors shall be eligible to participate in the Plan during their service as Directors.
4.2 Partial Year Eligibility. In the event that a Director first becomes eligible to participate in the Plan during a Year, such Director shall, within thirty (30) calendar days of becoming eligible, be notified by the Company of his or her eligibility to participate, and the Company shall provide each such Director with an "Election to Defer" form, which must be completed by the Director as provided in Section 5.2 herein; provided, however, that such Director may only make an election to defer with respect to that portion of his or her Compensation for such Year which is to be earned after the filing of the deferral election.
Article 5. Deferral Opportunity 5.1 Amount Which May Be Deferred. A Participant may elect to defer up to one hundred percent (100%) of each eligible component of Compensation, including but not limited to Retainers, Chairman Fees and Meeting Fees, in any Year. The minimum amount of any single eligible component of Compensation which may be deferred in any Year is the lesser of ten percent (10%) of such component Compensation or one thousand dollars ($1,000). In addition, an election to defer Compensation in any Year shall be expressed by each Participant in minimum increments of either ten percent (10%) of the applicable component of Compensation or one thousand dollars ($1,000).
5.2 Deferral Election. Participants shall make their elections to defer Compensation under the Plan at least thirty (30) calendar days prior to the beginning of each Year, or not later than thirty (30) calendar days following notification of eligibility to participate for a partial Year. All deferral elections shall be irrevocable, and shall be made on an "Election to Defer" form, as described herein.
Participants shall make the following irrevocable elections on each "Election to Defer" form:
(a) The amount to be deferred with respect to each eligible component of Compensation for the Year;
(b) The length of the deferral period with respect to each eligible component of Compensation, pursuant to the terms of Section 5.3 herein; and
(c) The form of payment to be made to the Participant at the end of the deferral period(s), pursuant to the terms of Section 5.4 herein.
Notwithstanding the amounts requested to be deferred pursuant to subparagraph (a) above, the limits on deferrals set forth in Section 5.1 herein shall apply to the requested deferrals each Year.
5.3 Length of Deferral. The deferral periods elected by each Participant with respect to deferrals of Compensation for any Year shall be at least equal to one (1) year following the end of the Year in which the Compensation is earned. However, notwithstanding the deferral periods elected by a Participant, payment of deferred amounts and accumulated interest thereon shall be made to the Participant in a single lump sum in the event the Participant's service on the Board is involuntarily terminated for any reason, including, but not limited to death or Disability at any time prior to full payment of deferred amounts and interest thereon. Such payment following termination shall be made in cash, within thirty (30) calendar days after the termination of the Participant's service on the Board.
5.4 Payment of Deferred Amounts. Participants shall be entitled to elect to receive payment of deferred amounts, together with interest earned thereon, at the end of the deferral period in a single lump-sum cash payment or by means of installments.
(a) Lump-Sum Payment. Such payment shall be made in cash in single lump sum, within thirty (30) days following Retirement pursuant to Section 5.2 herein.
(b) Installment Payments. Participants may elect payout in installments, with a minimum number of installments of two (2) and a maximum of five (5). The initial payment shall be made in cash within thirty (30) calendar days after the commencement date selected by the Participant pursuant to Sections 5.2 and 5.3 herein. The remaining installment payments shall be made in cash during January each year thereafter, until the Participant's entire deferred compensation account has been paid. Interest shall accrue on the deferred amounts in the Participant's deferred compensation account, as provided in Section 6.2 of this Plan. The amount of each installment payment shall be equal to the balance remaining in the Participant's deferred compensation account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining.
(c) Involuntary Termination. In the event a Participant's service on the Board of the Company is involuntarily terminated for any reason, including but not limited to death or Disability at a time when there is a balance in the Participant's deferred compensation account, the entire balance shall be paid out to the Participant, as set forth in Section 5.3 herein.
Article 6. Deferred Compensation Accounts 6.1 Participants' Accounts. The Company shall establish and maintain an individual bookkeeping account for deferrals made by each Participant under Article 5 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant.
6.2 Interest on Deferred Amounts. Compensation deferred under Article 5 shall accrue interest on an annual basis at an annual interest rate equal to the average of the interest rate on the Company's 401(k) Fixed Income Fund for the relevant Year. Each Participant's deferred compensation account shall be credited on the last day of the calendar year, with one quarter of the annual rate of interest computed on the beginning balance in the account for each quarter during such year. The beginning balance of each quarter is credited with deferrals made during the prior quarter. Interest is compounded annually.
Interest earned on deferred amounts shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts.
6.3 Charges Against Accounts. There shall be charged against each Participant's deferred compensation account any payments made to the Participant or to his or her beneficiary.
6.4 Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries who, upon the Participant's death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date delivered to the Secretary of the Company by the Participant.
Participants may, at any time, change their designation of beneficiary on such form as prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Secretary of the Company prior to the Participant's death.
In the event that all the beneficiaries named by a Participant pursuant to this Section 6.4 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participant's beneficiaries shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate.
Article 7. Rights of Participants 7.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participants' accounts when due. Payment of account balances shall be made out of the general funds of the Company.
7.2 Unsecured Interest. No Participant or party claiming an interest in deferred amounts or contributions under a Participant's account shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company.
The Company may establish one or more trusts, with such trustee as the Committee may approve, for the purpose of providing for the payment of deferred amounts and/or contributions. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors. To the extent any deferred amounts or contributions under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such deferred amounts and contributions shall remain the obligation of, and shall be paid by, the Company.
Article 8. Amendment and Termination The Company hereby reserves the right to amend, modify, or terminate the Plan at any time by action of the Committee; provided however, that no such amendment or termination shall in any material manner adversely affect any Participant's rights to deferred amounts, contributions, or interest earned thereon, without the consent of the Participant.
Article 9. Miscellaneous 9.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Secretary of the company. Notice to the Secretary of the Company, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
9.2 Non-transferability. Participants' rights to deferred amounts, contributions, and interest earned thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant.
9.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
9.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.
9.5 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company. All costs incurred by Participants as a result of participation in the Plan, such as legal, financial planning, or tax preparation fees, are the responsibility of the participant.
9.6 Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the state of New York.
9.7 Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
IN WITNESS HEREOF, the Company has caused this document to be executed by its duly authorized officer on this 22nd day of November, 1994.
Goulds Pumps, Inc.
ATTEST:
Contents
Page
Article 1. Establishment and Purposes 1
Article 2. Definitions 1
Article 3. Administration 2
Article 4. Eligibility and Participation 3
Article 5. Deferral Opportunity 3
Article 6. Deferred Compensation Accounts 4
Article 7. Rights of Participants 5
Article 8. Amendment and Termination 5
Article 9. Miscellaneous 6
EXHIBIT 10-D
SEVERANCE AGREEMENT
AGREEMENT made as of the 5th day of December, 1996 between GOULDS PUMPS, INCORPORATED, a Delaware Corporation with its principal office at 300 WillowBrook Office Park, Fairport, New York ("Goulds"), and Frank J. Zonarich residing at 2906 Route 89, Seneca Falls, New York 13152 ("Employee").
WHEREAS, Employee has been employed by Goulds and has served as Vice President - Water Technologies of Goulds, President of the Water Technologies Group of Goulds, as an officer or director of a number of subsidiaries and affiliates of Goulds and, since September 16, 1996, his title has been Vice President - Commercial Products Strategies; and
WHEREAS, Employee intends to resign as an officer of Goulds and as an officer and director of all Goulds' subsidiaries as to which he is a director or officer; and
WHEREAS, Goulds is desirous of retaining Employee as an employee;
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, it is mutually agreed as follows:
1. Employee hereby resigns as an officer of Goulds and as an officer or director of each of Goulds' affiliates, effective as of the earlier of January 1, 1997 or the date on which Employee's purchase of the assets of Allegheny Pump & Equipment Co. closes (the "Resignation Date"). Such resignation shall require no further action by Employee, except as may be required to comply with local laws. After the Resignation Date, Employee shall remain as an Employee of Goulds on a one year paid leave of absence followed by a one year unpaid leave of absence without any break in service (collectively, such leaves of absence being referred to herein as the "Leave of Absence"). During the Leave of Absence, Employee is required to be available for consulting on matters related to the Company, in addition to Employee's obligations in paragraph 6 hereof.
2. During the first year of the Leave of Absence, Goulds shall pay a monthly salary of $20,583.33 to Employee subject to withholding, on a semi-monthly basis for twelve (12) months commencing after the Resignation Date.
3. During the Leave of Absence, the following compensation and benefit provisions will apply:
a. An award will be made to Employee under the Goulds Pumps, Incorporated Executive Incentive Plan in 1997 with respect to 1996 performance which represents ninety percent (90%) of the earned annual award.
b. Employee will not be eligible for any award or other payment under Goulds' Long Term Incentive Compensation Plan.
c. Pension credits under Goulds' Pension Plan III will continue to accumulate. No Supplemental Executive Pension Plan credit will be given during the Leave of Absence or thereafter.
d. Employee will not be eligible to receive any stock options during the Leave of Absence period or any future period. Presently held stock options will continue to vest for the Leave of Absence only. All stock options which remain unvested on the final day of the Leave of Absence shall expire on that date. Except as specifically stated herein, all provisions of the 1981 Stock Option Plan, the 1988 Stock Option Plan and the 1994 Stock Incentive Plan to Increase Stockholder Value and any Stock Option Grant Agreements made pursuant thereto, shall apply including, but in no way limited to, the provisions of the above referenced plans which would provide that upon the termination of the Leave of Absence the stock options may be exercisable at any time during the three month period following such termination.
e. Goulds will reimburse, upon submission of appropriate claim for reimbursement, up to $2,000 of Employee's expenses for financial planning services for one year from the date hereof.
f. Employee shall remain a participant in Goulds' Executive Medical Coverage (to a maximum of $5,000) for one year from the Resignation Date.
g. Employee will continue to participate in the Goulds medical, dental and life insurance plans in active Employee status under the terms of such plans, provided Employee makes the required Employee contributions.
h. Should Employee's house at 2906 Route 89 in Seneca Falls not be under an agreement to sell within one year of the Resignation Date, Goulds will reimburse Employee's utility, tax, maintenance and interest costs on such house to a maximum of $10,000, for a period of six months thereafter or until the house sells, whichever comes sooner.
i. Short Term Disability and Long Term Disability as defined by Goulds will cease upon the Resignation Date, and there are no conversion privileges. However, Goulds will reasonably assist Employee in obtaining third party long term disability coverage provided it is at no cost to Goulds.
j. Employee will remain eligible to contribute to the Goulds Pumps Employee Savings and Retirement (401(k)) Plan for the initial twelve months of the Leave of Absence during which payments are being made under paragraph 2 above. Such contributions shall be made by appropriate withholding in accordance with such plan.
k. Except as expressly stated above, all other compensation, benefits, perquisites and rights to which Employee was or may be entitled as an officer or employee of Goulds or any of its affiliates, including without limitation, the Senior Executive Severance Agreement (Change In Control) and the Executive Security (Life Insurance) Plan will no longer be effective, and Employee shall not have any further rights in same.
l. Upon obtaining age 55, Employee shall be entitled to receive a total retirement benefit of approximately $7,006.60 per month comprised of payments from the Pension Plan III and the Supplemental Executive Pension Plan based upon his selection of the 100% Joint and Survivor Annuity Benefit. Employee shall have the right to select a Joint and Survivor Benefit Plan other than 100%, with the above benefit being appropriately adjusted to take into account the option selected.
The compensation and benefits provided for herein shall not be subject to reduction or offset for compensation and benefits received by Employee through his ownership of Allegheny Pump & Equipment Co.
4. Following the Leave of Absence, Employee will be put on "special employee" status until Employee reaches age 55. During this period, Employee will be eligible to stay in the Goulds medical plan provided he pays 100% of the monthly premiums. Life Insurance and Dental Insurance coverage will cease. Employee will resign, without further action, from his "special employee" status, will take early retirement from Goulds at age 55 and will then be eligible for retiree medical benefits under Goulds Pension Plan III.
5. (a) In consideration of the benefits to be provided to Employee and as part of his fiduciary obligations to Goulds, Employee shall not, at any time while he is receiving benefits hereunder, directly or indirectly compete with any business of Goulds as engaged in or under active development by Goulds or any of its subsidiaries. For the purpose of this Agreement, the phrase "compete" shall include serving as an employee, officer, director, owner, partner or a 5% or more shareholder of any business or otherwise engaging in or assisting another to engage in any business. Notwithstanding the foregoing, it is agreed that Employee's ownership and operation of Allegheny Pump & Equipment Co. shall not be deemed a violation of this covenant.
(b) Employee shall not, directly or indirectly, on his own behalf or on behalf of any other person, firm or company: (i) induce any employee, agent, representative or other person (an "Employee") associated with Goulds to terminate his or her association with such entity, provided, however, that the foregoing shall not restrict Employee from hiring any such Employee if such Employee was terminated by Goulds, or (ii) induce any customer or supplier of Goulds to terminate its association with Goulds.
6. The foregoing payment and benefit obligations of Goulds are contingent upon Goulds' receipt of Employee's continued cooperation until the conclusion of all matters, such as litigation, that are now pending or that may reasonably arise in the future from circumstances occurring during Employee's tenure as an officer of Goulds. Goulds will reimburse Employee for his reasonable out-of-pocket expenses for travel, lodging, and other similar expenses incurred at the advance written request of Goulds in order to comply with the duty of cooperation set forth in this paragraph.
In the event that Goulds reasonably believes that Employee is not cooperating in such matters, Goulds shall promptly give Employee notice of such non-cooperation specifying in reasonable detail the manner in which Goulds believes Employee is not cooperating. Employee shall then have a period of fifteen (15) calendar days to cure the default which Goulds has detailed. If at the end of said fifteen (15) calendar day period Employee has not cured the said default, Goulds shall have the right to terminate said payments and benefits and Employee's rights hereunder shall terminate.
7. Nothing herein shall be deemed to deny or limit Employee's right to coverage under applicable director and officer liability policies of insurance carried by Goulds for circumstances arising during the period he served as Vice President of Goulds.
8. All car phone charges billed after Employee's resignation as an officer of Goulds shall be for the account of Employee. Any outstanding amounts owed to Goulds in Employee's Personal and Sundry Account will be deducted from the first salary payment that is administratively feasible following Employee's resignation as an Officer of Goulds. All expense reimbursements due Employee will be made within a reasonable period after the submission of documentation.
9. Employee agrees that he will not, without prior written consent of Goulds, disclose or cause to be disclosed, or use or make known, any confidential and trade secret information of Goulds. Confidential and trade secret information of Goulds shall for purpose of this Agreement include Goulds matters not readily available to the public which:
1) Are of a technical nature such as methods, formula, drawings, blueprints, inventions, processes, discoveries, machines, computer programs, software, software documentation and similar items;
2) Are of a business nature such as, but not limited to, information about sales or lists of customers, prices, costs, purchasing, profits, markets and product capabilities; or
3) Pertain to future developments such as, but not limited to, research and development, new or improved products, business ventures and marketing and merchandising plans and ideas.
Employee agrees to turn over to Goulds all data and information, including without limitation all drawings, photographs, graphs, tables, charts, documents, correspondence, specifications, blueprints, notebooks, report sketches, formula, computer programs, software, software documentation, sales data, business manuals, price lists, customer lists, samples and all other materials and copies thereof including product and other embodiments relating in any way to the business of Goulds, made fully or in part, or obtained by him during the period of his active employment with Goulds, of a confidential or trade secret nature, which are in his possession or under his control.
10. Employee agrees that during the period of this Agreement he will maintain the confidentiality of this Agreement except that he may disclose its terms to his spouse, attorney and tax advisor. Goulds will also maintain the confidentiality of this Agreement disclosing it only within the Company on an absolute need-to- know basis. Further, Employee shall not in any way during the period of this Agreement directly or indirectly disparage, discredit, demean, or otherwise communicate displeasure with Goulds, its officers or employees. Goulds will use its best efforts to require that Goulds will not either directly or indirectly, disparage, discredit, demean, or otherwise communicate displeasure with Employee following the date of signing of this Agreement.
11. In exchange for a portion of the payments and benefits described herein which are provided as additional consideration, Employee also agrees and hereby does release Goulds, and its successors, subsidiaries, affiliates and assigns, and their present and former officers, directors, agents, and employees from all actions, causes of action including, but not limited to, suits, debts, sums of money, accounts, reckonings, bonds, executions, claims, and demands which Employee, his heirs, successors or assigns ever had, or has, or hereafter may have against Goulds from the beginning of the world to the date of this Agreement including, but not limited to, all claims for attorneys' fees, costs and expenses, and other actions or claims arising out of or related to Employee's past employment with Goulds, including liabilities arising under the Age Discrimination in Employment Act of 1967 as amended, the New York Human rights Law, the New York Labor Law and the Employee Retirement Income Security Act (except insofar as it relates to Employee's pension benefits) and any federal or state employment discrimination laws, but specifically excluding obligations pursuant to this Agreement.
12. Goulds hereby releases Employee from all actions, causes of action including, but not limited to, suits, debts, sums of money, accounts, reckonings, bonds, executions, claims, and demands which Goulds and its successors, subsidiaries, affiliates and assigns ever had, or has, or hereafter may have against Employee from the beginning of the world to the date of this Agreement including, but not limited to, all claims for attorneys' fees, costs and expenses, and other actions or claims arising out of or related to Employee's past employment with Goulds.
13. Employee is hereby advised to consult with an attorney prior to executing this Agreement. Employee acknowledges that he has had at least twenty-one days to consider whether or not enter into this Agreement, and he shall have seven days following the execution of the Agreement during which he may revoke the Agreement. The Agreement will not become effective or enforceable until the revocation period has expired.
14. Each party shall take such further actions as are necessary to effect the purposes of this Agreement.
The Agreement shall be governed by the internal laws of the State of New York. The parties consent to the exclusive jurisdiction of and venue in New York or Federal courts in Monroe County, New York, for the resolution of all disputes arising under this Agreement.
This Agreement is the entire agreement of the parties as to the subject matter hereof.
GOULDS PUMPS, INCORPORATED
Signed /s/ William G. Kelley Signed /s/ Frank J. Zonarich William G. Kelley Frank J. Zonarich Vice President - Human Resources
Date December 5, 1996 Date December 5, 1996
STATE OF NEW YORK COUNTY OF SENECA
On the 5th day of December, 1996 before me personally came Frank J. Zonarich, to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same.
/s/ Joan S. Grela Notary Public
STATE OF NEW YORK COUNTY OF SENECA
On the 5th day of December, 1996 before me personally came William G. Kelley, to me known who, being by me duly sworn, did depose and say that he resides in Canandaigua, New York, that he is Vice President - Human Resources of Goulds Pumps, Incorporated, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation and that he signed his name thereto by like order.
/s/ Joan S. Grela Notary Public
EXHIBIT 11
GOULDS PUMPS, INCORPORATED AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994 a. Net earnings - as reported............. $34,707 $18,072 $18,201
b. Actual weighted average number of shares outstanding............................ 21,313 21,240 21,175
c. Primary earnings per share based on actual average shares outstanding (a / b) (1)................ $ 1.63 $ .85 $ .86
d. Shares exercisable under all common stock equivalents............................ 968 893 423
e. Proceeds assuming exercise of outstanding options................................ $19,864 $18,650 $ 8,073
Reinvestment of proceeds under "Treasury Stock Method":
f. Average market price per share during each year or market price at year-end (whichever is higher)......... $ 22.94 $ 25.00 $ 22.34
g. Shares to be acquired (e/f)............ 866 746 361 h. Net increase in all common stock equivalents (d -g)................................ 102 147 62
i. Adjusted weighted average shares outstanding (b + h)................................ 21,415 21,387 21,237
j. Fully diluted earnings per share (a/i). $ 1.62 $ .84 $ .86
k. Dilutive effect on earnings per share (c - j) (2)............................ $ .01 $ .01 $ --
(1) Earnings per share information is based on weighted average number of shares of common stock outstanding during each year. No effect has been given to options outstanding under the Company's Stock Option Plans as no material dilutive effect would result from the exercise of these options.
(2) This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9038 although not required by APB Opinion No. 15 since no material dilutive effect would result from the exercise of these options.
EXHIBIT 13
Portions of the 1996 Annual Report to Stockholders
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this review should be read in conjunction with the accompanying consolidated financial statements, the related Notes to Consolidated Financial Statements and the Eleven-Year Summary of Financial Data. Forward-looking statements in this review are qualified by the cautionary statement on page 81 of this Annual Report.
OVERVIEW
Goulds Pumps had an outstanding year in 1996, setting records for sales, orders and earnings. Consolidated sales rose 7.7% to a record $774.4 million for the year. Sales in both of the Company's sectors grew in 1996, with a 9.8% increase in Water Technologies (WT) and a 5.9% increase in Industrial Products (IP). The growth in both sectors was influenced significantly by a strong showing in the non- U.S. Regions. Orders in 1996 continued to strengthen and set a record at $752.0 million, an increase of 4.0% over 1995. Net earnings were $34.7 million in 1996, up 91.7% from 1995. Earnings per common share were $1.63 for 1996, up 91.8% from 1995's reported results of $.85.
The financial results for 1996 and 1995 included the impact of certain restructuring activities. The 1995 results included a net pre-tax restructuring charge of $18.5 million ($10.6 million after taxes, or $.50 per share) which reflected the Company's decision to wind down its Venezuelan manufacturing activities and to transfer ownership of its 100%-owned subsidiary, Environamics Corporation, to that company's management. In 1996, a $0.1 million net pre-tax credit was recorded, reflecting a $1.6 million reversal of a portion of the 1995 restructuring charge, largely offset by a $1.5 million restructuring charge at the Company's European operations. Excluding restructuring charges in both years, earnings per common share would have been $1.63 in 1996 and $1.35 in 1995, or an increase of 20.7%.
Several noteworthy events impacted the Company during 1996. These events are summarized as follows:
- The Company's ANSI pump focused factory became fully functional at its facility in Seneca Falls, New York in June 1996. Focused factories are cellular manufacturing systems that are designed to provide manufacturing and productivity enhancements. This factory has substantially enhanced productivity, increased throughput and improved customer on time performance with respect to ANSI products, which represent a very important part of the Company's product portfolio. In September 1996, a second focused factory for the Model 3171 general industrial vertical sump and process pump became fully operational at the Company's Ashland, Pennsylvania facility.
- The Company opened its new Auburn, New York facility to accommodate manufacturing of Water Systems products that had previously been produced at the Seneca Falls, New York plant. Begun in the second quarter of 1996, this $9.0 million project was completed in December 1996, well ahead of schedule. The Auburn facility, previously used for assembly and warehousing, was expanded by adding 48,500 square feet of manufacturing space, and existing office space was renovated. This state-of-the-art facility utilizes focused factory cellular manufacturing to meet the increasing demand for products and further improve the Company's competitive position.
- The Company established a global strategic alliance with John Crane International, a division of TI Group plc, in March 1996. The Company believes that this alliance with John Crane, the world's leading mechanical seal company, will leverage the strengths of both companies to foster product innovation and supply chain integration. As a result of this alliance, the two companies are jointly developing pump and seal combinations to enhance plant performance and optimize life cycle costs.
- A new management team was formed in Europe, which has provided increased focus on profitable growth for the European Region. As a result of efforts to contain costs by leveraging the operating expense base in the Region, Europe's selling, general and administrative costs as a percentage of sales improved by two percentage points in 1996.
- The Company sold certain product lines of its Municipal Business Unit (MBU) in Baldwinsville, New York in February 1996 for $2.7 million, realizing a gain of $1.2 million. These product lines were not considered to be a core business for the Company, and the investments necessary to achieve a viable market in these products were not consistent with the Company's strategy. Net sales associated with these product lines in 1995 were $5.5 million.
- The Company purchased a controlling interest in Nanjing Goulds Pumps Limited Co., China in early 1996 by investing an additional $1.4 million. This investment increased the Company's ownership from 45% to 62%. As a result, the financial results of this affiliate have been consolidated for the year ended December 31, 1996. Net sales for this operation in 1996 were $1.4 million.
Analysis of Operations (Dollars in millions) 1996 vs. 1995 vs. 1996 1995 1994 1995 1994
Net sales $774.4 $718.8 $585.5 7.7% 22.8%
Net Sales
The increase in total net sales of $55.6 million in 1996 compared with 1995 resulted from a $33.5 million or 9.8% increase in Water Technologies and a $22.1 million or 5.9% increase in Industrial Products. WT sales for 1996 reached record levels of $374.9 million, outpacing 1995's sales of $341.4 million. Geographically, sales in the WT sector were up in all Regions of the world.
IP sales reached a record $399.5 million in 1996 primarily due to strong growth in Regions outside the U.S., particularly in Asia Pacific and Latin America. Shipments increased in 1996 mainly due to strong demand in the chemical market and the impact of the unusually high backlog in late 1995 that resulted from manufacturing throughput issues earlier that year. Partially offsetting this sales growth was a downturn in the pulp and paper market, the impact of the sale of the municipal product lines in early 1996 and the transfer of ownership of Environamics Corporation in late 1995.
In 1995, consolidated net sales increased $133.3 million, or 22.8%, compared with 1994. IP sales increased $54.1 million in 1995 due primarily to incremental sales from the acquisition of the Company's Vogel subsidiary in Austria, which accounted for $29.7 million of the increase, and strong demand in both the pulp and paper and chemical markets. WT's 1995 sales increased $79.2 million due to a combination of additional sales from Vogel, which accounted for $33.5 million of the increase, an expanded sales presence and new product growth in Europe, as well as growing market acceptance of recently introduced products in North America.
Costs and Expenses (As a % of Net Sales) 1996 1995 1994
Gross profit 29.3% 28.5% 28.5% Selling, general and administrative expenses 19.8% 20.1% 20.1% Research and development expenses 1.2% 1.1% 1.8%
Consolidated gross profit as a percentage of net sales in 1996 improved to 29.3%, versus 1995's 28.5%. This improvement was due largely to significant strides that were made in operating efficiencies, including the implementation of focused factories and the benefits realized from the first full year of the Company's strategic purchasing function. There was also a favorable impact from the downsizing of the Venezuelan manufacturing operation and the transfer of ownership of Environamics Corporation that occurred in late 1995. Gross profit as a percentage of net sales in Europe, however, declined somewhat as a result of raw material cost increases, which were incrementally influenced by the negative impact of currency fluctuations within the Region.
In 1995, consolidated gross profit as a percentage of net sales was constant with 1994 at 28.5%. Improvements resulting from manufacturing efficiencies were offset by higher raw material costs in Europe and temporary manufacturing issues in North America that adversely affected throughput and lead times during the year.
Selling, general and administrative (SG&A) expenses as a percentage of net sales improved to 19.8% in 1996, down from 20.1% in 1995. This improvement was attributable to the Company's ability to leverage its operating expense base, chiefly in Europe where SG&A expenses fell by two percentage points. In addition, the disposition of Environamics Corporation and the downsizing of the Venezuelan manufacturing operation at the end of 1995 had a favorable impact on SG&A costs. SG&A expenses in 1995 as a percentage of net sales were unchanged from 1994.
Research and development (R&D) expenses in 1996 were $9.4 million, an increase of 13.9% over 1995. On a percentage of sales basis, R&D expenses were up 0.1 percentage point, reflecting a consistent effort in the development of new products. In 1995, R&D expenses were $8.2 million, a decrease of 22.1% from 1994. The higher level of R&D expenses in 1994 was related to Environamics Corporation, where all costs were charged to R&D prior to the first product shipments in late 1994.
Restructuring Charges
In 1996, the Company recorded a net pre-tax restructuring credit of $0.1 million. This net credit resulted from two offsetting items. First, the Company recorded a $1.5 million restructuring charge as a result of the decision to consolidate European facilities. This European restructuring plan is expected to result in pre-tax savings, mainly compensation related, of approximately $1.5 million annually. More than offsetting this charge was a $1.6 million credit for the reversal of certain termination and exit costs related to the 1995 restructuring reserve.
In 1995, the Company recorded a pre-tax restructuring charge of $18.5 million. This charge resulted from the Company's decision to wind down its manufacturing operation in Venezuela, impacting the Company's investment in this subsidiary, and to transfer its ownership interest in Environamics Corporation to that company's management. The charges associated with these items amounted to $19.7 million and were offset in part by a $1.2 million reversal of a portion of 1994's restructuring charge. The decision to transfer ownership of Environamics Corporation came after losses were recorded in both 1994 and 1995 and the Company concluded that further losses were likely to occur in 1996, requiring substantial additional investment. Net sales for Environamics Corporation in 1995 were $3.1 million.
The decision to close the manufacturing operations in Venezuela was the result of losses that had been sustained in almost every year since 1990, coupled with an uncertain economic climate in Venezuela. This business unit now operates primarily as a PRO (Pump Repair and Overhaul) Service Center. The Company has maintained its presence in the country with sales offices, and shipments have continued into Venezuela from the Company's other manufacturing facilities.
As stated above, $1.6 million of the 1995 restructuring charge was reversed in 1996. Net of the reversal, the total $18.1 million restructuring charge for Environamics Corporation and Venezuela consisted of $1.7 million of termination benefits and $16.4 million of other exit costs (including the write-off of previous investments). Through year-end 1996, the Company has incurred $1.5 million in termination costs and $15.7 million in exit costs. The balance for this restructuring reserve at December 31, 1996 was $0.9 million.
In 1994, the Company recorded a pre-tax restructuring charge of $3.5 million for the downsizing of the Company's California, Netherlands and Mexico based operations, and the consolidation of sales offices, PRO Service Centers and other Company facilities. As stated above, $1.2 million of the 1994 restructuring charge was reversed in 1995 due to lower than expected outsourcing in California and the transfer of certain Netherlands employees to other Goulds Pumps Europe operations. The restructuring included the termination of 126 employees. Net of the reversal, the total related costs for this restructuring amounted to $1.1 million to exit facilities and $1.2 million for termination benefits. At December 31, 1996, there was no reserve remaining.
Other Income and Expenses (Dollars in millions) 1996 1995 1994 Interest expense $11.2 $11.4 $6.6 Interest income (1.8) (1.8) (3.0) Other expense (income)--net 1.1 (0.4) (1.1)
Interest expense decreased $0.2 million in 1996. This decrease resulted from lower worldwide interest rates, substantially offset by higher average borrowings. The $4.8 million increase in interest expense in 1995 was mainly the result of debt assumed or incurred in connection with the Vogel acquisition, as well as other increased debt levels.
Interest income in 1996 was substantially unchanged from 1995, while 1995's interest income declined $1.2 million from 1994. The decrease in 1995 resulted primarily from a short-term investment arrangement in 1994 which increased interest income in that year by $1.4 million.
"Other expense (income)--net" changed by $1.5 million, from a "net - other income" of $0.4 million in 1995 to a "net - other expense" of $1.1 million in 1996. This unfavorable change is mainly due to currency exchange losses that relate to the devaluation of the Venezuelan bolivar and currency transaction losses in Europe and Canada. Additionally, 1996's "other income" included a $1.2 million gain from the sale of certain product lines of the Company's Municipal Business Unit and 1995's "other income" included certain customs refunds at Vogel.
For 1995, the year-over-year comparisons of "other expense (income)--net" are affected by a 1994 benefits curtailment gain of $4.2 million and a 1994 charge of $1.7 million due to foreign currency transaction losses. Excluding these items, "other expense (income)--net" improved $1.8 million in 1995 over 1994 mainly from transaction and translation losses that occurred in 1994 resulting from significant devaluations of the Venezuelan bolivar.
Income Taxes
1996 1995 1994
Effective tax rate 35.6% 28.0% 38.6%
The low effective tax rate of 28.0% in 1995 resulted from tax benefits associated with the Venezuelan restructuring charge and a non-U.S. tax reorganization strategy. The 1996 and 1994 rates are reflective of a more typical range, based on the Company's current mix of federal, state and non-U.S. jurisdictions. The 1996 effective tax rate was at the lower end of this range due to a number of factors, including the utilization of loss carryforwards existing in various non-U.S. operations, relatively lower pre-tax earnings in higher tax jurisdictions, and continued efforts to reduce state income taxes.
Return on Equity
The return on average stockholders' equity in 1996 increased to 17.3% from 9.3% in 1995 and 9.5% in 1994. The changes in both years were principally due to changes in net earnings which were significantly impacted by restructuring and environmental litigation charges in 1995 and 1994. Excluding restructuring charges, net of taxes, the returns on average stockholders' equity were 10.6%, 14.7% and 17.3% in 1994, 1995 and 1996, respectively.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows for 1996, the $54.7 million of cash provided by operating activities was used to fund $31.3 million of net investing activities and $24.6 million of financing activities, thus decreasing cash and cash equivalents by $1.2 million. Significant changes in working capital items that impacted cash flow from operating activities in 1996 included an $11.8 million increase in trade receivables largely related to a growing base of customers outside the U.S. where payment terms are typically longer than in the U.S., a $7.1 million decrease in inventories resulting from efforts to manage inventory more effectively, and a $12.5 million decrease in trade payables and accrued expenses that resulted mainly from payments made in connection with the 1995 restructurings and reduced inventory levels.
Capital additions in 1996 were $36.4 million, compared with depreciation of $27.0 million. Expenditures were made for various upgrades and additions to equipment and buildings, including the construction of the new Water Systems manufacturing facility in Auburn, New York.
Total debt at the end of 1996 was $9.4 million lower when compared with year-end 1995, primarily due to favorable cash flows from operations during the fourth quarter of 1996. During 1995, total debt increased $44.0 million due to the Vogel acquisition and increased borrowings at European operations mainly required to finance working capital needs.
In December 1996, the Company declared a regular quarterly dividend of $.20 per share of common stock outstanding, payable on January 15, 1997 to stockholders of record as of January 6, 1997. This was the 200th consecutive quarterly dividend by the Company dating back to 1947.
The Company operates internationally, giving rise to exposure to market risks from changes in interest rates, foreign exchange rates, and the cost of non-ferrous metals used in the production of its products. Derivative financial instruments are used by the Company to reduce those risks. The Company does not hold or issue financial or derivative financial instruments for trading or speculative purposes.
Cumulative translation adjustments in the accompanying Consolidated Balance Sheets were $10.7 million at December 31, 1996 compared with $12.2 million at December 31, 1995. This decrease was principally the result of the strengthening of the Italian lira against the U.S. dollar, offset partially by a weakening of the Austrian schilling.
Orders and Backlog
In 1996, orders received set a new record of $752.0 million, an increase of 4.0% over 1995's record orders level of $722.8 million, which have been adjusted to exclude orders related to Environamics Corporation and the Municipal Business Unit. WT posted record orders with an increase of 8.4% in 1996 over 1995, while IP orders rose 0.1% to a new record. Within the WT sector, the increase in 1996 orders activity was led by growth in Europe, with solid increases also in the U.S. and Asia Pacific. The IP sector's order activity for 1996 reflected significant growth in the worldwide chemical market, partly offset by a decline in the pulp and paper market. Regionally, industrial orders improved impressively in Latin America, Asia Pacific and the Middle East, while the U.S. and Canada experienced a decline. In addition, the Company has been much more selective in the bidding of large engineered projects to ensure that those projects undertaken are profitable.
Backlog levels at December 31, 1996 totaled $124.5 million. Excluding the 1995 backlog for the municipal business lines that were sold in early 1996, backlog decreased 13.7% from 1995. This decrease resulted from an abnormally high backlog at the end of 1995 which was due to 1995 manufacturing throughput issues which have since been resolved. Backlog exists primarily at the IP sector, as the WT sector maintains small backlog levels. WT products are normally shipped within two weeks from receipt of a customer order.
Inflation
Generally, increases in material costs have been offset by productivity improvements and sales price increases. The Company continues to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions.
Environmental Matters
In 1995, a legal action was filed against the Company and 21 other defendants in the United States District Court for the Western District of New York (Rochester) by two plaintiffs seeking damages for environmental contamination at or near an inactive landfill site in Seneca Falls, New York. The Company's investigation into the allegations in these actions is in its preliminary phases. The Company believes that under applicable laws it should not bear any liability to one of the claimants, the current landfill owner, who purchased the property with full knowledge of its prior use and continued to operate it thereafter. In addition, the Company believes that there is little reasonable likelihood of material liability to the other claimant at this stage of investigation, based upon considerations of the damages claimed, nature of contamination and the existence of other financially viable co-defendants, and after reviewing applicable legal principles. The Company has answered the complaint by denying the material allegations and asserting various affirmative defenses, cross-claims and counterclaims. The Company intends to vigorously defend this litigation, but no assurance can be given as to the ultimate outcome of such litigation or its impact on the Company.
In 1994, complaints were filed against the Company in California and Washington alleging unlawful discharge of lead into drinking water sources. Additionally in 1994, a class action complaint was filed principally alleging violations of federal securities laws. As a result of these complaints, a pre-tax charge of $3.5 million was recorded by the Company in that year for legal and other fees related to the vigorous defense of these lawsuits. During 1995, all litigation related to these complaints was resolved, and the Company reversed the then remaining reserve of $0.9 million.
The Company recorded a $2.0 million provision in 1991 for estimated costs to monitor and remediate an inactive Company landfill site in Seneca Falls, New York. At December 31, 1996, the remaining reserve was $0.7 million. The remediation plan was approved by the New York State Department of Environmental Conservation in 1995 and is expected to be completed in 1997. The Company believes that the current reserve associated with this site is sufficient to absorb any future costs.
Apart from issues discussed above, the Company is not currently aware of other environmental matters which would be reasonably likely to have any material impact on recurring costs, capital expenditures or mandated expenditures.
Outlook
Management continues to place a strong emphasis on improving gross margins and controlling operating expenses. Overall, gross margins are expected to improve in 1997 due mainly to improved operating efficiencies, and the Company believes that further reductions in SG&A expenses as a percentage of sales can be achieved. For R&D expenses in 1997, the Company plans to continue to invest in new product development, as well as in enhancements to existing products, at approximately the same percentage of sales as in 1996. The Company expects that its effective tax rate in 1997 will be in the range of 36.5% to 37%.
The Company expects to spend approximately $35 - $40 million for capital additions during 1997. This spending level includes continued major investments in upgrades of machinery and equipment, facilities additions and improvements, and product development related expenditures, including the ongoing development of focused factories in North America and the construction of a regional distribution and assembly facility in the Philippines to support the strong growth opportunities in the Asia Pacific Region.
The Company believes cash generated from operations and committed and uncommitted credit facilities worldwide at December 31, 1996 will be sufficient to meet its liquidity needs during 1997.
It is possible that future currency devaluations may occur at some of the Company's non-U.S. locations. The Company continually evaluates methods to minimize the impact of devaluations on operations and reported operating results.
In Conclusion
In summary, 1996 was a most impressive year for Goulds Pumps, reflecting vigorous sales growth in Regions outside the U.S., improved gross margins, lower operating expense levels as a percentage of sales and positive free cash flow, which translated into strongly improved profitability. The Company further strengthened its management team during 1996 and expects that the momentum that has been realized during the past two years will carry forward with another strong, record-setting year in 1997.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Goulds Pumps, Incorporated:
We have audited the accompanying consolidated balance sheets of Goulds Pumps, Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Goulds Pumps, Incorporated and 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.
Deloitte & Touche LLP Rochester, New York January 24, 1997
Goulds Pumps, Incorporated
Consolidated Statements of Earnings (Dollars in thousands except per share amounts)
For the year ended December 31, 1996 1995 1994
Net sales $774,420 $718,763 $585,476
Costs and expenses Cost of sales 547,465 514,050 418,386 Selling, general and administrative expenses 153,237 144,603 117,572 Research and development expenses 9,370 8,227 10,564 Restructuring (credit) charges (83) 18,513 3,463 Provision (credit) for environmental litigation -- (890) 3,454 Interest expense 11,171 11,373 6,553 Interest income (1,778) (1,825) (3,038) Other expense (income)--net 1,136 (384) (1,121)
720,518 693,667 555,833
Earnings before income taxes 53,902 25,096 29,643 Income taxes 19,195 7,024 11,442
Net earnings $ 34,707 $18,072 $ 18,201
Net earnings per common share $ 1.63 $ .85 $ .86
See Notes to Consolidated Financial Statements.
Goulds Pumps, Incorporated
Consolidated Balance Sheets (Dollars in thousands except per share amounts)
December 31, 1996 1995
ASSETS Current assets: Cash and cash equivalents $ 5,227 $ 6,383 Receivables--net 156,018 143,819 Inventories--net 125,507 131,693 Deferred tax asset 6,867 18,972 Prepaid expenses and other current assets 16,358 16,598 Total current assets 309,977 317,465
Property, plant and equipment--net 183,457 173,304 Other investments 9,218 9,046 Deferred tax asset 10,607 8,834 Goodwill--net 25,880 29,858 Other assets 15,732 15,479
$554,871 $553,986
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 51,108 $ 37,904 Current portion of long-term debt 14,631 21,716 Trade payables 68,951 71,406 Compensation and commissions 26,925 24,265 Income taxes payable 615 839 Pension 5,169 4,515 Progress payments 3,749 8,793 Warranty reserves 5,632 4,555 Dividends payable 4,275 4,257 Deferred tax liability 52 1,514 Restructuring accrual 2,403 7,701 Other current liabilities 19,622 23,071 Total current liabilities 203,132 210,536
Long-term debt 57,965 73,454 Pension 28,258 26,302 Other postretirement benefits obligation 51,220 50,903 Deferred tax liability and other 3,190 2,477
Stockholders' equity: Preferred stock - $20.00 par value: shares - authorized: 750,000; issued and outstanding: none -- -- Common stock - $1.00 par value: shares - authorized: 90,000,000; issued and outstanding: 1996 - 21,376,093; 1995 - 21,283,496 21,376 21,283 Additional paid-in capital 61,351 59,175 Retained earnings 140,388 122,741 Cumulative translation adjustments and other (12,009) (12,885) Total stockholders' equity 211,106 190,314
$554,871 $553,986
See Notes to Consolidated Financial Statements.
Goulds Pumps, Incorporated
Consolidated Statements of Cash Flows (Dollars in thousands) For the year ended December 31, 1996 1995 1994 Operating activities: Net earnings $34,707 $18,072 $18,201 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 26,989 26,016 24,925 Amortization 2,554 2,100 1,428 Gain on sale of certain product lines (1,174) -- -- Restructuring (credit) charges (83) 18,513 3,463 Earnings from affiliates (7) (23) (451) Dividends received from affiliates -- -- 11,622 Changes in assets and liabilities, net of effects from acquisitions: Decrease in deferred tax liability (2,018) (1,371) (1,008) Decrease (increase) in deferred tax asset 10,686 (6,339) (1,852) Increase in receivables--net (11,755) (22,584) (6,295) Decrease (increase) in inventories --net 7,083 (7,098) (4,566) Increase (decrease) in trade payables and accrued expenses (12,478) 16,754 10,808 Other--net 150 1,951 4,755 Net cash provided by operating activities 54,654 45,991 61,030
Investing activities: Purchases of property, plant and equipment (36,434) (33,468) (28,080) Proceeds from sale of certain product lines 2,723 -- -- Investment in Vogel -- -- (17,800) Other--net 2,457 (1,975) 99 Net cash applied to investing activities (31,254) (35,443) (45,781)
Financing activities: Proceeds from long-term debt 18,652 25,191 12,446 Payment on long-term debt (29,871) (20,894) (2,319) Increase (decrease) in revolving credit facility classified as long-term debt (11,000) 11,000 -- Increase (decrease) in short-term borrowings 13,084 (8,063) (9,776) Proceeds from stock options exercised 1,550 1,643 617 Dividends paid (17,042) (16,984) (16,937) Net cash applied to financing activities (24,627) (8,107) (15,969)
Effect of exchange rate changes on cash and cash equivalents 71 (3,432) 941 Increase (decrease) in cash and cash equivalents (1,156) (991) 221
Cash and cash equivalents, beginning of year 6,383 7,374 7,153 Cash and cash equivalents, end of year $ 5,227 $ 6,383 $ 7,374
Supplemental cash flow information: Interest paid $11,259 $10,588 $ 6,479 Income taxes paid $11,357 $16,750 $13,956
See Notes to Consolidated Financial Statements.
Goulds Pumps, Incorporated
Consolidated Statements of Stockholders' Equity (Dollars in thousands except per share amounts)
Cumulative Number of Additional Translation Total Common Shares Common Paid-in Retained Adjustments Stockholders' Outstanding Stock Capital Earnings and Other Equity
Balance, January 1 1994 21,153,966 $21,154 $57,044 $120,415 $(11,412) $187,201
Net earnings -- -- -- 18,201 -- 18,201
Dividends declared -- -- -- (16,945) -- (16,945) Stock options exercised 39,088 39 578 -- -- 617
Translation adjustments -- -- -- -- 1,758 1,758
Change in minimum pension liability -- -- -- -- 455 455
Balance, December 31, 1994 21,193,054 21,193 57,622 121,671 (9,199) 191,287
Net earnings -- -- -- 18,072 -- 18,072
Dividends declared -- -- -- (17,002) -- (17,002)
Stock options exercised 90,442 90 1,553 -- -- 1,643
Translation adjustments -- -- -- -- (3,344) (3,344)
Change in minimum pension liability -- -- -- -- (342) (342)
Balance, December 31, 1995 21,283,496 21,283 59,175 122,741 (12,885) 190,314
Net earnings -- -- -- 34,707 -- 34,707
Dividends declared -- -- -- (17,060) -- (17,060)
Stock options exercised 82,485 83 1,469 -- -- 1,552
Translation adjustments -- -- -- -- 1,521 1,521
Change in minimum pension liability -- -- -- -- (398) (398)
Other 10,112 10 707 -- (247) 470
Balance, December 31,1996 21,376,093 $21,376 $61,351 $140,388 $(12,009) $211,106
See Notes to Consolidated Financial Statements. Notes To Consolidated Financial Statements (Dollars in thousands except per share amounts)
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries after elimination of all significant intercompany transactions. Investments in affiliates representing 20% to 50% of the ownership of such companies are accounted for under the equity method. Investments in affiliates representing less than 20% of the ownership of such companies are accounted for under the cost method.
The majority of the non-U.S. subsidiaries have fiscal year-ends of October 31 or November 30 to facilitate consolidation of the subsidiaries' financial statements.
Foreign Currency
The Company accounts for its foreign currency denominated transactions and non-U.S. operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Gains and losses from foreign currency transactions are included in net earnings. For subsidiaries where the local currency is the functional currency, assets and liabilities are translated at current exchange rates. Income and expense items are translated using average exchange rates during the year. Foreign currency translation adjustments are accumulated and reported as a separate component of stockholders' equity.
For subsidiaries located in highly inflationary economies, balance sheet items are translated using current exchange rates, and average exchange rates are used for statement of earnings items except for inventory, property, plant and equipment, and their related statement of earnings accounts, which are translated using historical exchange rates. Resultant translation gains and losses are included in earnings.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less.
Inventories
U.S. inventories are stated at the lower of cost or market, with cost generally determined by the last-in, first-out (LIFO) method. Inventories of non-U.S. subsidiaries are stated at the lower of cost or market, with cost being determined by the first-in, first-out (FIFO) method or the average cost method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 15 to 50 years for buildings and 3 to 14 years for machinery and equipment.
Intangible Assets
The excess of the cost over the fair value of net tangible assets of purchased businesses is recorded as goodwill and is amortized on a straight-line basis over periods of 30 years or less. The cost of other acquired intangibles is amortized on a straight-line basis over their estimated useful lives. The Company continually evaluates the carrying value of goodwill and other intangible assets. Any impairments would be recognized when the expected future operating cash flows derived from such intangible assets are less than their carrying value.
Derivative Financial Instruments
The Company uses derivative financial instruments for purposes other than trading and does so to reduce its exposure to fluctuations in interest rates, foreign currency exchange rates and the cost of raw materials. Gains and losses on hedges of existing assets or liabilities are included in the carrying amounts of those assets or liabilities and are ultimately recognized in income. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs.
Litigation and Environmental Expenditures Policy
The Company is a party to various legal and environmental actions which have arisen in the ordinary course of its business. The Company records liabilities and insurance recoveries when they are probable and can be estimated. The Company's environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Liabilities are recorded on a gross basis when environmental assessments and/or remedial efforts become probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with completion of a feasibility study or the Company's commitment to a formal plan of action.
Income Taxes
The Company accounts for deferred income taxes by the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The aggregate undistributed earnings of certain non-U.S. subsidiaries which, under existing law, will not be subject to U.S. tax until distributed as dividends were $37,562 on December 31, 1996. Since the earnings have been or are intended to be indefinitely reinvested in non-U.S. operations, no provision has been made for any U.S. taxes that may be applicable thereto. Any taxes paid to non- U.S. governments on those earnings may be used, in whole or in part, as credits against U.S. tax on any dividends distributed from such earnings.
Net Earnings and Dividends Per Common Share
Net earnings per share of common stock are based upon the weighted average number of shares of common stock outstanding during the year (21,313,000 in 1996, 21,240,000 in 1995, and 21,175,000 in 1994). No effect has been given to options and awards outstanding under the Company's Stock Option and Award Plans since no material dilutive effect would result from the exercise of these items. Dividends declared for each year ended December 31, 1996, 1995 and 1994 were $.80 per common share.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the related revenues and expenses during the reporting period. Actual amounts could differ from those estimated.
2. Receivables--net
December 31, 1996 1995
Receivables $159,051 $146,826 Less allowance for doubtful accounts 3,033 3,007
$156,018 $143,819
3. Inventories--net
December 31, 1996 1995
Raw materials $ 43,358 $ 38,962 Work in process 53,143 58,097 Finished goods 61,072 66,613
Inventories valued at FIFO/average cost 157,573 163,672 Less LIFO allowance 32,066 31,979
$125,507 $131,693
Inventories of non-U.S. subsidiaries, valued at FIFO or average cost, were $76,688 and $82,715 at December 31, 1996 and 1995, respectively.
4. Property, Plant and Equipment--net
December 31, 1996 1995
Land $ 10,608 $ 10,077 Buildings 60,311 59,366 Machinery and equipment 379,538 357,043 Construction-in-progress 20,803 12,466
471,260 438,952 Less accumulated depreciation 287,803 265,648
$183,457 $173,304
5. Other Investments
December 31, 1996 1995
Insurance certificates Variable, $2,588 due 1998, $1,961 due 2003, $1,968 due 2008 $6,517 $6,250
Austrian bank certificates 7.26% weighted average at December 31, 1996, due 1997 - 2003 1,801 1,939
Italian government VAT bond 9.50% stated rate, due 1999 900 857
$9,218 $9,046
The Company has the ability and intent to hold all of its other investments until maturity. All of the investments are classified as held to maturity and are stated at amortized cost.
6. Goodwill--net
December 31, 1996 1995
Goodwill $29,042 $31,797 Less accumulated amortization 3,162 1,939
$25,880 $29,858
7. Debt and Credit Agreements
December 31, 1996 1995
Non-U.S. unsecured short-term loans 6.45% weighted average at December 31, 1996, due 1997 $ 39,608 $ 35,481
Unsecured committed lines of credit borrowings -- 2,423
Unsecured uncommitted lines of credit borrowings 6.63% weighted average at December 31, 1996, due 1997 11,500 --
Non-U.S. long-term notes payable 7.13% weighted average at December 31, 1996, due 1997-2014 35,993 36,837
Industrial development revenue bonds 4.74% weighted average at December 31, 1996, due 1997-2009 3,171 3,280
Revolving credit agreement borrowings Agreement expires 1999 -- 11,000
Unsecured committed credit facilities borrowings 5.40% weighted average at December 31, 1996, due 1997-1998 11,916 17,817
Term loan 7.18%, due 1997-2000 16,000 20,000
Capital leases 7.42% weighted average at December 31, 1996, due 1997-2012 5,516 6,236
123,704 133,074 Less payments due within one year 65,739 59,620
$ 57,965 $ 73,454
At December 31, 1996, the Company had a $55,000 unused revolving committed line of credit that permits borrowings under several interest rate options which are reflective of current market rates of interest. Non-U.S. subsidiaries have unused short-term credit lines available at prevailing interest rates in the amount of $54,576. The weighted average interest rates on short-term borrowings at December 31, 1996 and 1995 were 6.49% and 8.76%, respectively.
The Company's non-U.S. subsidiaries had $17,499 in borrowings for which property, plant and equipment with a net book value of $23,841 and other investments carried at $6,605 were pledged as collateral. The Company's industrial development revenue bonds are collateralized by property, plant and equipment with a net book value of $17,974.
The Company's borrowing agreements impose certain financial restrictions on the Company relative to leverage, interest coverage, working capital and tangible net worth. The Company was in compliance with these restrictions at December 31, 1996.
Debt maturities, excluding maturities of capital lease obligations, during the next five years are $65,132 in 1997, $14,705 in 1998, $8,399 in 1999, $6,270 in 2000, and $1,745 in 2001. See Note 13 for future minimum payments on capital lease obligations.
8. Employee Benefit Plans
Pension Plans
The Company has several defined benefit pension plans covering substantially all U.S. employees. Plans covering salaried exempt employees provide pension benefits based upon final average salary and years of service. Benefits to other covered employees are based on a fixed amount for each year of service. The Company's funding policy is to contribute annually an amount that falls within the range determined to be deductible for federal income tax purposes. Plan assets consist primarily of listed stocks and bonds.
Net pension cost includes the following components:
For the year ended December 31, 1996 1995 1994
Service cost - benefits earned during the year $ 4,142 $ 3,000 $ 3,855 Interest cost on projected benefit obligation 8,092 7,589 7,194 Actual return on plan assets (13,000) (18,567) 1,825 Net amortization and deferral 4,084 9,763 (9,854)
Net pension cost $ 3,318 $ 1,785 $ 3,020
The following table sets forth the plans' funded status and the amounts recognized in the Company's Consolidated Balance Sheets:
Plans where Plans where assets exceed accumulated accumulated benefits benefits exceed assets December 31, 1996 1995 1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $56,428 $51,439 $46,572 $45,966
Accumulated benefit obligation $57,456 $52,035 $50,735 $47,115
Projected benefit obligation $70,560 $63,609 $50,794 $47,457
Plan assets at fair value 70,245 60,127 41,242 39,302
Projected benefit obligation in excess of plan assets 315 3,482 9,552 8,155 Unrecognized net gain (loss) 769 2,808 1,301 (2,227) Unrecognized prior service cost (724) (589) (7,502) (7,399) Unrecognized net asset (liability) 4,618 729 (2,898) 1,735 Adjustment required to recognize minimum liability -- -- 9,040 7,549
Accrued pension liabilities $ 4,978 $ 6,430 $ 9,493 $ 7,813
In determining the actuarial present value of the projected benefit obligation, the weighted average discount rate was 7.50% and 7.46% as of December 31, 1996 and 1995, respectively; the rate of increase in future compensation levels was 4.5% as of December 31, 1996 and 1995; and the expected long-term rate of return on assets was 9.5% for each year.
As required by SFAS No. 87, "Employers' Accounting for Pensions," for plans as to which the accumulated benefit obligation exceeds the fair value of plan assets, the Company has recognized in the accompanying Consolidated Balance Sheets the minimum liability of the unfunded accumulated benefit obligation as a long-term liability with an offsetting intangible asset and equity adjustment, net of tax effect.
The Company's Italian subsidiary is required by Italian law to provide a lump sum severance payment to personnel upon termination of employment. The amounts are subject to annual revaluation on the basis of indices. The provision for employee severance amounted to $2,097 in 1996, $2,174 in 1995, and $1,898 in 1994, and the related accrued liability at December 31, 1996 and 1995 was $12,181 and $10,406, respectively.
The Company's Austrian subsidiary is required by Austrian law to provide certain actuarially determined benefits to personnel upon termination of employment. The expense provision was $949 in 1996 and $493 in 1995 and indemnities paid were $940 in 1996 and $615 in 1995. The accrued liability for these benefits at December 31, 1996 and 1995 was $3,905 and $4,187, respectively.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company's U.S. subsidiaries provide certain medical and life insurance benefits for eligible retired employees. The benefit amount is determined based on the age and/or length of service of the employee at retirement. The plan is currently unfunded, and the Company has the right to modify or terminate the plan in the future.
Net postretirement benefit cost includes the following components:
For the year ended December 31, 1996 1995 1994
Service cost - benefits earned during the year $ 1,017 $ 767 $1,335 Interest cost on accumulated postretirement benefit obligation 2,593 2,369 3,819 Amortization of prior service cost and actuarial gain (1,316) (2,105) (645)
Net postretirement benefit cost $ 2,294 $1,031 $4,509
The accrued postretirement benefit obligation, included in the accompanying Consolidated Balance Sheets, is comprised of the following:
December 31, 1996 1995
Accumulated postretirement benefit obligation attributable to: Retirees $18,043 $18,698 Active, eligible employees 4,846 5,205 Active, non-eligible employees 11,260 11,907 Total accumulated postretirement benefit obligation 34,149 35,810 Unrecognized net gain 9,714 10,565 Unrecognized prior service gain 9,599 6,677 Accrued postretirement benefit obligation $53,462 $53,052
In determining the accrued postretirement benefit obligation as of December 31, 1996 and 1995, weighted average discount rates of 7.50% and 7.46% and medical care cost trend rates for under-65 premiums of 9.0% and 10.0%, respectively, and medical care cost trend rates for over-65 premiums of 5.0% were used. The under-65 medical care cost trend rates used in the actuarial computations as of December 31, 1996 and 1995 were gradually reduced to 4.5% by 2001. As of December 31, 1996 and 1995, the over-65 medical care cost trend rate used in the actuarial computations was assumed to remain level until the year 2001, when it would decrease to 4.5% and remain at that level thereafter. The effect of a one percentage point increase in the assumed medical care cost trend rate would have increased the 1996 and 1995 service and interest components of the net postretirement benefit cost by $523 and $364, respectively, and the accrued postretirement benefit obligation at December 31, 1996 and 1995 by $3,379 and $3,581, respectively.
In 1996, the Company introduced a managed care option under its retiree medical plan which decreased the prior service cost base by $3,564 as of December 31, 1996.
9. Income Taxes
The components of the provision for income taxes are as follows:
For the year ended December 31, 1996 1995 1994 Current: U.S. federal $ 8,999 $10,060 $11,199 U.S. state 1,156 1,541 2,225 Non-U.S. 3,949 4,254 3,658 Total 14,104 15,855 17,082 Deferred: U.S. federal 7,585 (8,458) (4,700) U.S. state 58 167 (488) Non-U.S. (2,552) (540) (452) Total 5,091 (8,831) (5,640)
Provision for income taxes $19,195 $ 7,024 $11,442
Reconciliations of the U.S. federal statutory tax rate with the effective tax rates reported for earnings before income taxes were as follows:
For the year ended December 31, 1996 1995 1994
U.S. federal statutory rate 35.0% 35.0% 35.0% U.S. state taxes--net 2.1 4.3 3.8 Non-U.S. taxes in excess of U.S. federal statutory rate, net of U.S. credits 0.9 7.4 4.5 U.S. benefits of foreign sales corporation (1.7) (3.1) (2.3) Non-U.S. tax restructuring and recapitalization -- (6.3) -- Excess tax basis on restructuring charges -- (6.1) -- Other--net (0.7) (3.2) (2.4)
Effective tax rate 35.6% 28.0% 38.6%
The net deferred tax asset components are as follows:
December 31, 1996 1995 Deferred tax assets: Postretirement benefits other than pensions $18,641 $18,530 Other nondeductible liabilities and reserves 3,948 3,500 Tax credit carryforwards 3,673 2,587 Deferrals under non-U.S.jurisdictions 1,306 5,416 Deferrals under U.S. state jurisdictions--net 1,250 1,826 Workers' compensation and other claims 1,881 2,206 Accrued vacation pay 1,016 965 Pension benefits 912 2,341 Restructuring reserves 245 8,440 Miscellaneous 1,019 1,152 Gross deferred tax assets 33,891 46,963
Valuation allowance for deferred tax assets (1,992) (4,786)
Deferred tax liabilities: Property, plant and equipment (11,162) (10,809) Deferrals under non-U.S. jurisdictions (2,050) (4,091) Inventories (1,299) (1,000) Other assets and miscellaneous (1,964) (2,462) Gross deferred tax liabilities (16,475) (18,362)
Net deferred tax asset $15,424 $23,815
Earnings before income taxes resulting from non-U.S. operations for 1996, 1995 and 1994 were $8,709, $5,860 and $1,315, respectively.
The Company and its U.S. subsidiaries file a consolidated U.S. federal income tax return. Such returns have been audited and settled through the year 1991.
The valuation allowance for deferred tax assets decreased by $2,794 in 1996 and increased by $1,831 in 1995.
At December 31, 1996, the Company had non-U.S. tax credit carryforwards of $3,673 that will expire at the end of the following years if not otherwise used: $354 - 1997, $1,581 - 1998, $684 - 2000 and $1,054 - 2001.
10. Stock Option and Award Plans
The Company has four active stock option and award plans. Under the plans the exercise price for shares of the Company's common stock related to stock options may not be less than 100% of the fair market value on the date of grant; stock option grants to employees vest over four years; all stock option grants have a contractual life of ten years; and grants of restricted stock vest as determined by the agreement between the employee and the Company, with a minimum vesting period of three years.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," effective January 1, 1996. As permitted by that standard, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock-based compensation. Employee stock-based compensation expense related to restricted stock and performance-based stock awards recognized for the year ended December 31, 1996 was $749, with no expense recognized during 1995 and 1994.
The 1994 Incentive Plan to Increase Stockholder Value (1994 Plan) permits up to 1,000,000 shares of common stock to be issued for stock options, stock appreciation rights, restricted stock awards, and performance-based restricted stock awards to officers and other key employees of the Company until May 2004. At December 31, 1996, 352,693 shares were reserved for future grants, and 610,500 shares were subject to outstanding stock options, of which options for 60,925 shares were exercisable.
In 1995, the Board of Directors authorized performance-based restricted stock awards to be made to key executives subject to the achievement of pre-established levels of Company earnings per common share over a three-year period, under the 1994 Plan. The value of the awards will vary based on the degree to which earnings per common share goals are attained over the three-year cycle. During the performance period, dividends on the performance-based stock awards are accrued currently as performance-based stock awards. During 1996, the Company granted 1,282 shares of performance-based restricted stock awards with a weighted-average fair value of $23.88 per share. Performance-based restricted stock awards for 24,132 shares were outstanding at December 31, 1996, none of which had vested, including 933 shares accrued as dividends.
During 1996, the Company granted 12,200 shares of restricted stock awards with a weighted-average fair value of $24.56 per share, under the 1994 Plan. Restricted stock awards for 12,200 shares were outstanding at December 31, 1996, none of which had vested.
The 1994 Incentive Plan for Non-Employee Directors permits up to 175,000 shares of common stock to be issued for stock options which may be granted until May 2004, or the day after the 2004 Annual Meeting, to Directors of the Company who are not employees of the Company or any affiliate. This Plan replaces the portion of the 1988 Stock Incentive Plan that related to non-employee Directors. Each non-employee Director receives an annual Nonstatutory Option of 1,500 shares that vests one year after the date of grant. At December 31, 1996, 142,000 shares were reserved for future grants, and 33,000 shares were subject to stock options outstanding, of which options for 22,500 shares were exercisable.
The 1988 Stock Incentive Plan permits up to 1,500,000 shares of common stock to be issued for stock options and stock awards to key employees during the period ending in May 1998. At December 31, 1996, 321,916 shares were reserved for future grants, and 981,263 shares were subject to stock options outstanding, of which options for 670,301 shares were exercisable.
The 1981 Incentive Stock Option Plan permitted up to 1,000,000 shares of common stock to be issued for stock options to key employees during the period ended April 1992. At December 31, 1996, no shares were available for future grants, and 93,957 shares were subject to stock options outstanding, all of which were exercisable.
The following table summarizes stock option activity for the three years ended December 31, 1996:
Shares Subject to Weighted-Average Options Exercise Price
Outstanding at January 1, 1994 929,969 $21.73
Granted 339,165 $22.70 Exercised (42,681) $16.64 Forfeited (33,272) $20.93
Outstanding at December 31, 1994 1,193,181 $22.21
Granted 526,900 $21.96 Exercised (101,187) $18.80 Forfeited (93,584) $23.19
Outstanding at December 31, 1995 1,525,310 $22.29
Granted 405,400 $25.14 Exercised (82,485) $18.79 Forfeited (129,505) $23.22
Outstanding at December 31, 1996 1,718,720 $23.06
Exercisable at December 31, 1994 541,462 $21.09
Exercisable at December 31, 1995 660,847 $21.97
Exercisable at December 31, 1996 847,683 $22.58
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable Weighted- Average Weighted- Range of Shares Average Remaining Shares Average Exercise Subject to Exercise Life of Subject to Exercise Prices Options Price Contract Options Price
$15.50 to $23.00 785,407 $21.13 7.0 367,619 $20.43 $23.25 to $25.25 33,313 $24.69 7.3 480,064 $24.23
$15.50 to $25.25 1,718,720 $23.06 7.2 847,683 $22.58
The weighted-average fair value of stock options granted for the years ended December 31, 1996 and 1995 were $6.63 and $5.88 per share, respectively.
Pro forma information regarding net earnings and earnings per common share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options and awards under the fair value method of that standard. The Company's pro forma net earnings and net earnings per common share for the years ended December 31, 1996 and 1995, were $33,887 and $17,370, and $1.59 and $.82 per share, respectively. The fair value of those stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended December 31, 1996 and 1995: risk-free interest rates of 6.8% and 6.7%, respectively; dividend yields of 3.2% and 3.6%, respectively; volatility factors of the expected market price of the Company's common stock of .25 and .28, respectively; and for each year a weighted-average expected life of six years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.
11. Financial Instruments and Derivative Financial Instruments
Concentrations of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, trade receivables and other investments. The Company places its temporary cash investments and other investments with creditworthy financial institutions and limits the amount of credit exposure to any one financial institution. The Company actively evaluates the creditworthiness of the financial institutions with which it invests. Concentrations of credit risk with respect to trade receivables are limited due to a large, diversified customer base. Letters of credit are the principal security obtained to support lines of credit or negotiated contracts when the financial strength of a customer is not considered sufficient. At December 31, 1996 and 1995, the Company had no significant concentrations of credit risks.
Letters of Credit. At December 31, 1996 and 1995, the Company had performance letters of credit outstanding totaling $7,980 and $9,754, respectively, which primarily guarantee various trade activities. The contract amount of the letters of credit is fixed over the life of the commitment and is the amount at which settlement of the obligation would occur with the counterparty. The Company recognizes losses on these commitments as incurred. No material losses on these commitments have been incurred, nor are any anticipated.
Derivative Financial Instruments and Risk Management. The Company operates internationally, giving rise to exposure to market risks from changes in interest rates, foreign exchange rates, and the cost of non-ferrous metals used in the production of its products. Derivative financial instruments are used by the Company to reduce those risks. The Company does not hold or issue financial or derivative financial instruments for trading or speculative purposes.
Notional Amounts and Credit Exposures of Derivative Financial Instruments. The notional amounts of derivatives do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged during the term of the derivatives are calculated on the basis of the notional amounts and the other contractual conditions of the derivatives, which relate to interest rates, indices, and foreign currency exchange rates.
The Company actively evaluates the creditworthiness of the financial institutions which are counterparties to derivative financial instruments, and it does not expect any counterparties to fail to meet their obligations. The credit exposure of interest rate, foreign exchange and commodity contracts is represented by the fair value of contracts with a favorable fair value at December 31, 1996 and 1995.
Interest Rate Risk Management. All of the Company's one-year interest rate derivatives have been designated by management as hedges of the Company's variable rate borrowings. The amounts receivable and payable are recorded as a current liability, with realized gains or losses recognized as adjustments to interest expense.
The Company utilizes interest rate swaps to reduce the impact on interest expense of fluctuating interest rates on its variable rate debt. Under the Company's interest rate swap agreement, the Company agreed with the counterparty to exchange, at quarterly intervals, the difference between the Company's fixed pay rate and the counterparty's variable pay rate of three-month LIBOR. At December 31, 1996 and 1995, the Company was a fixed rate payor of 6.060% and 5.325% and received a variable rate of 5.594% and 5.668% on notional amounts of $20,000 and $15,000, respectively. The fair values at December 31, 1996 and 1995, as estimated by a dealer, were unfavorable $73 and $9, respectively.
At December 31, 1996 and 1995, the Company held zero-cost collars with notional amounts of $10,371 and $19,416, with weighted-average ceiling rates of 4.83% and 5.63%, and with weighted-average floor rates of 3.73% and 4.33%, respectively. The fair values at December 31, 1996 and 1995, as estimated by dealers, were unfavorable $4 and $9, respectively.
Commodity Price Risk Management. All of the Company's commodity derivatives have been designated by management as hedges of the Company's anticipated purchases of non-ferrous metals used in the production of its products. The amounts receivable and payable are recorded as a current liability, with realized gains or losses recognized as adjustments to cost of sales when the commodities are consumed. At December 31, 1996, the Company held zero-cost collars for non-ferrous metals with notional amounts of $8,920, with a weighted-average ceiling of $2,901 (in whole dollars) per metric ton, and with a weighted-average floor of $2,557 (in whole dollars) per metric ton. These derivatives extend through 1998. The fair value at December 31, 1996, as estimated by dealers, was unfavorable $931. At December 31, 1995, the Company did not have any commodity derivatives.
Foreign Exchange Risk Management. The Company enters into foreign exchange forward contracts and option contracts to hedge anticipated and firmly committed foreign currency transactions. The Company does not hedge foreign currency translation or foreign currency net assets or liabilities. The terms of the derivatives are one year or less.
The Company held foreign forward exchange contracts for notional amounts as follows:
December 31, 1996 1995 Buy Sell Buy Sell
Italian lire $12,688 $ 110 $ 9,758 $ 130 Canadian dollars -- 9,122 225 17,581 United States dollars -- -- 3,929 -- Australian dollars -- 2,552 -- 1,440 Austrian schillings -- 1,371 36 -- Other 182 -- 395 --
$12,870 $13,155 $14,343 $19,151
Fair value $13,158 $13,234 $14,699 $19,298
At December 31, 1996, the Company had 10 option contracts to purchase Canadian dollars, with a total notional amount of $10,001. The Company also had 10 option contracts to sell Canadian dollars, with a total notional amount of $10,001. Each of the contracts to purchase currency matures on the same date as a sell contract at the same notional amount. These contracts had a net fair value of $63 unfavorable. At December 31, 1996 and 1995, the fair values of the foreign exchange forward contracts and option contracts were estimated by dealers.
Fair Value of Financial Instruments. Short-term financial instruments are valued at their carrying amounts included in the Consolidated Balance Sheets, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach applies to cash and cash equivalents, receivables, short-term borrowings and certain other current liabilities.
The fair value of other investments and long-term debt approximates their carrying value at December 31, 1996 and 1995. Those fair values were estimated by discounting cash flows using rates currently available for financial instruments with similar terms and remaining maturities.
12. Unusual Charges
Restructuring Charges. In October 1996, the Company recorded a restructuring charge of $1,509 as a result of the decision to consolidate European facilities. The consolidation is projected to generate annual savings of approximately $1,500. The charge includes $1,288 for severance costs associated with the consolidation, and $221 of other exit costs. At December 31, 1996, the reserve was $1,478.
In December 1995, the Company implemented a restructuring plan to wind down its Venezuelan manufacturing activities, which impacted the Company's investment in this subsidiary, and to transfer its ownership interest in Environamics Corporation to that company's management. As a result, a restructuring charge of $19,698 was recorded in the Company's consolidated financial statements in December 1995. The Environamics portion of the restructuring was $13,658 for exit costs (including the write-off of previous investments), and at December 31, 1996 and 1995, the remaining reserve was $700 and $5,091, respectively. During the fourth quarter of 1996, the Company reversed $1,023 as a result of lower exit costs than anticipated. The Environamics restructuring plan is expected to be substantially completed by the end of 1997. The Venezuelan portion of the restructuring plan was $6,040, which included the termination of approximately 50 employees, and provided severance benefits of $1,365 and other exit costs of $4,675. During the fourth quarter of 1996, the Company reversed $569 due to generally lower costs than originally estimated. At December 31, 1996 and 1995, the reserve for the Venezuelan restructuring was $225 and $1,865, respectively, with $225 related to severance benefits, and with $1,365 for severance benefits and $500 for other exit costs, respectively. The Venezuelan restructuring plan is expected to be completed during 1997.
In December 1994, the Company recorded a restructuring charge of $3,463 and a related liability for such costs. The restructuring plan included the downsizing of the Company's California, Netherlands and Mexico based operations and the consolidation of sales offices, PRO Service Center, and other Company facilities. As a result, the related cost to exit owned and leased facilities was $1,036 and the related termination benefits for 126 employees was $2,427. During the fourth quarter of 1995, the Company reversed $1,185 for excess severance benefits reserves since fewer employees were terminated in the United States than originally announced, and non-U.S. termination benefits were less than originally estimated. During 1996, the reserve was completely used. At December 31, 1995, the reserve was $745, with $411 for remaining severance benefits and $334 for remaining other exit costs.
Provision for Environmental Litigation. A charge of $3,454 was recorded in 1994 for legal and other fees related to the Company's vigorous defense of lawsuits commenced in California and Washington in that year alleging unlawful discharge of lead into drinking water sources, and a class action complaint principally alleging violations of federal securities laws. In 1995, after all such litigation was resolved, the Company reversed into income the remaining accrual of $890.
13. Commitments and Contingencies
In 1991, the Company recorded a $2,000 provision for estimated environmental costs. This charge reflects anticipated costs to monitor and remediate an inactive Company landfill site in Seneca Falls, New York. At December 31, 1996 and 1995, the remaining reserve, classified as a current liability, was $732 and $1,667, respectively. No third party recoveries have been included in the determination of this reserve, nor are any expected. The remediation is expected to be completed in 1997, and the Company does not currently expect any additional material costs in future years associated with this site beyond the amount accrued.
The Company has various noncancellable lease agreements for sales offices, warehouses, computers, and other equipment. Total rental expense for the years ended December 31, 1996, 1995 and 1994 was $8,005, $6,225 and $5,088, respectively. Future minimum payments, by year and in the aggregate, under noncancellable capital leases and operating leases with initial or remaining terms of one year or more consisted of the following at December 31, 1996:
Capital Operating Leases Leases 1997 $ 982 $4,844 1998 819 3,893 1999 733 2,249 2000 733 744 2001 673 350 Future years 4,116 554 Total minimum lease payments 8,056 Amounts representing interest 2,540 Present value of net minimum payments 5,516 Current portion 607 Long-term portion $4,909
14. Major Market Segment Information
The Company operates in two major market segments, Industrial Products and Water Technologies. The Industrial Products segment produces and sells pumps used in various industries including pulp and paper, chemical processing, petrochemical, food and beverage, oil, mining and electric utility, and provides parts and repair services for various types of pumps and other rotating equipment. The Water Technologies segment produces and sells pumps for residential, farm, irrigation and commercial/light industrial use. Intersegment sales are not material.
1996 1995(2) 1994 Industry Segments Net sales: Industrial Products $399,507 $377,399 $323,254 Water Technologies 374,913 341,364 262,222 Total net sales $774,420 $718,763 $585,476
Operating earnings: Industrial Products $ 40,648(1) $ 9,258(3) $ 18,224(4) Water Technologies 31,284(1) 31,195(3) 20,896(4) Total operating earnings 71,932 40,453 39,120 General corporate expenses 7,501 6,193 7,083 Interest expense--net 9,393 9,548 3,515 Other expense (income)--net 1,136 (384) (1,121) Earnings before income taxes $ 53,902 $ 25,096 $ 29,643
Identifiable assets: Industrial Products $245,699 $243,186 $205,079 Water Technologies 287,874 278,241 214,356 Investments in affiliates -- 1,207 1,178 Investment in Vogel -- -- 17,800 General corporate assets 21,298 31,352 18,828 Total assets $554,871 $553,986 $457,241
Geographic Segments Net sales: United States $483,433 $466,234 $428,002 Europe 205,538 183,336 99,613 Other 85,449 69,193 57,861 Total net sales $774,420 $718,763 $585,476
Operating earnings: United States $ 58,207(1) $ 36,383(3) $ 36,181(4) Europe 9,466(1) 9,616(3) 5,390(4) Other 4,259(1) (5,546)(3) (2,451)(4) Total operating earnings 71,932 40,453 39,120 General corporate expenses 7,501 6,193 7,083 Interest expense--net 9,393 9,548 3,515 Other expense(income)--net 1,136 (384) (1,121) Earnings before income taxes $ 53,902 $ 25,096 $ 29,643
Identifiable assets: United States $257,096 $252,905 $243,220 Europe 227,674 233,821 137,540 Other 48,803 34,701 38,675 Investments in affiliates -- 1,207 1,178 Investment in Vogel -- -- 17,800 General corporate assets 21,298 31,352 18,828 Total assets $554,871 $553,986 $457,241
Other information:
Purchases of property, Depreciation expense plant and equipment Export net sales 1996 1995(2) 1994 1996 1995(2) 1994 1996 1995(2) 1994
Industrial Products $14,879 $14,142 $14,901 $17,444 $17,416 $11,893 $74,06(2) $52,137 $45,328
Water Technologies 11,862 11,605 9,698 18,633 15,463 15,456 15,787 16,923 12,851
Corporate 248 269 326 357 589 731 -- -- --
$26,989 $26,016 $24,925 $36,434 $33,468 $28,080 $89,849(5) $69,060 $58,179
1 Industry segment operating earnings include the impact of the restructuring (credit) charge (IP - ($1,592); WT - $1,509). On a geographical basis, IP's restructuring reversal impacted the United States by ($1,023) and Other by ($569), whereas WT's charge is included in Europe.
2 Prior to 1995, the Company's IJmuiden, Netherlands operations were part of Industrial Products. In 1995, these operations became part of Water Technologies.
3 Includes the impact of the restructuring charge (credit) (IP - $19,217; WT - ($704)) and the reversal of a provision for environmental litigation (WT - ($890)). On a geographical basis, the IP restructuring charge impacted the United States by $13,192 and Other by $6,025. WT's reversal for restructuring specifically relates to the Company's IJmuiden, Netherlands operations. The reversal of the environmental litigation provision impacted only the United States.
4 Includes the impact of the restructuring charge (IP - $3,332; WT - $127) and provision for environmental litigation (WT - $3,454). On a geographical basis, the restructuring charge impacted the United States by $1,619, Europe by $1,378 and Other by $462. The entire provision for environmental litigation impacted the United States.
5 Comprised of net sales from the United States to external customers in Europe, the Middle East and Africa of $24,019, Latin America of $30,536 and Asia Pacific of $35,294.
15. Quarterly Financial Data (Unaudited)
For the quarter ended 3/31/96 6/30/96 9/30/96 12/31/96
Net sales $183,581 $197,576 $205,512 $187,751
Gross profit 53,427 59,367 61,929 52,232
Net earnings 7,237 9,798 10,649 7,023
Net earnings per common share .34 .46 .50 .33
Dividends per common share .20 .20 .20 .20
Market value per common share: - High 25.13 25.88 25.88 25.00 - Low 20.88 20.00 21.13 20.38
For the quarter ended 3/31/95 6/30/95 9/30/95 12/31/95
Net sales $160,052 $180,693 $191,474 $186,544
Gross profit 45,491 51,822 55,536 51,864
Net earnings (loss) 5,434 8,274 8,924 (4,560)
Net earnings (loss) per common share .26 .39 .42 (.21)
Dividends per common share .20 .20 .20 .20
Market value per common share: - High 24.25 25.50 23.63 26.00 - Low 19.63 20.38 21.00 22.63
In an effort to give investors a well-rounded view of the Company's current condition and future opportunities, this Annual Report includes statements by the Company's management about future performance and results. Because they are forward-looking, such statements involve uncertainties. They include risks of increases in manufacturing costs; market acceptance of or preference for the Company's products; competitive forces; the impact of, and changes in, government regulations, such as trade restrictions or prohibitions, import and other charges or taxes; changes in global demand for pumps and pump-related products; availability of the Company's products; cyclicality of industries to which the Company markets certain of its products; general economic factors in markets where the Company's products are sold, manufactured or marketed; technological factors; and other factors discussed in the Company's filings with the Securities and Exchange Commission.
EXHIBIT 21
Subsidiaries of Goulds Pumps, Incorporated listed below are included in the consolidated financial statements.
Ownership State or Country Percentage as of Incorporated Subsidiary December 31, 1996 or Organized AVIS Werbung Gmbh........................... 100 Austria Bombas Goulds de Mexico, S. de R.L. de C.V.. 100 Mexico Bombas Goulds de Venezuela, S.R.L........... 100 Venezuela Goulds Pumps (Asia), Ltd.................... 100 Hong Kong Goulds Pumps Australia Ltd. Pty............. 100 Australia Goulds Pumps (Barbados) Ltd................. 100 Barbados Goulds Pumps Canada, Inc.................... 100 Canada Goulds Pumps Delaware, Inc.................. 100 Delaware Goulds Pumps Deutschland Gmbh............... 90 Germany Goulds Pumps Europe B.V..................... 100 Netherlands Goulds Pumps Financial Services............. 100 Ireland Goulds Pumps Investments, Inc............... 100 Canada Goulds Pumps (IPG), Inc..................... 100 Delaware Goulds Pumps Korea Co. Ltd.................. 100 South Korea Goulds Pumps Ltd............................ 100 United Kingdom Goulds Pumps Nederlands B.V................. 100 Netherlands Goulds Pumps (N.Y.), Inc.................... 100 New York Goulds Pumps (PA), Inc...................... 100 Delaware Goulds Pumps (Phil.), Inc................... 100 Philippines Goulds Pumps Polska......................... 100 Poland Goulds Pumps (Portugal) comercio de bombas, Lda....................................... 75 Portugal Goulds Pumps (Singapore) PTE, Ltd........... 100 Singapore Goulds Pumps (Taiwan) Co. Ltd............... 100 Taiwan Goulds Pumps Trading Corp................... 100 Delaware Goulds Pumps World Sales (V.I.) Ltd......... 100 U.S. Virgin Islands Lowara Belgium, NV.......................... 100 Belgium Lowara Danmark A/S.......................... 80 Denmark Lowara France S.A........................... 100 France Lowara Ireland Ltd.......................... 100 Ireland Lowara Nederlands B.V....................... 100 Netherlands Lowara S.p.A................................ 100 Italy Nanjing Goulds Pumps Limited Co............. 62 China Ochsner Pumpen GmbH......................... 100 Germany Pumpenfabrik Ernst Vogel Gmbh............... 100 Austria Quality Industrial Technology Co., Ltd...... 100 Thailand
The names of particular subsidiaries have been omitted in accordance with SEC Reg. S-K 601(21)(ii) because they do not, in the aggregate, constitute a "significant subsidiary" of the Company.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Goulds Pumps, Incorporated:
We consent to the incorporation by reference in Registration Statement Nos. 2-64847, 2-64530, 2-78145, 2-90969, 33-22902, 33-54419 and 33-54437 of Goulds Pumps, Incorporated on Form S-8 of our reports dated January 24, 1997, appearing in and incorporated by reference in this Form 10-K of Goulds Pumps, Incorporated for the year ended December 31, 1996.
/s/Deloitte & Touche LLP Deloitte & Touche LLP
Rochester, New York March 27, 1997