-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fomy7LHIrpqWxxqRN1IIa1fHtbgoAoYVlG0NsOz7yN6k2CgavJ5qc5eiK6/EGJaz e9ZuSLfpIwjhXGsImedpAg== 0000109446-96-000028.txt : 19960702 0000109446-96-000028.hdr.sgml : 19960702 ACCESSION NUMBER: 0000109446-96-000028 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZURN INDUSTRIES INC CENTRAL INDEX KEY: 0000109446 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 251040754 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05502 FILM NUMBER: 96589376 BUSINESS ADDRESS: STREET 1: ONE ZURN PL STREET 2: P O BOX 2000 CITY: ERIE STATE: PA ZIP: 16505 BUSINESS PHONE: 8144522111 MAIL ADDRESS: STREET 1: ONE ZURN PLACE CITY: ERIE STATE: PA ZIP: 16505 10-K405 1 3/31/96 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the Fiscal Year Ended March 31, 1996 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Transition Period From To Commission File Number 1-5502 ZURN INDUSTRIES, INC. State of Address and IRS Employer Incorporation Telephone Number Identification Number Pennsylvania One Zurn Place 25-1040754 Erie, Pennsylvania 16505 814-452-2111 Securities Registered Pursuant to Section 12(b) of the Act Title of Each Class Exchange on Which Registered Common Stock, $.50 Par Value New York Stock Exchange Pacific Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant was $251,454,000 based on the closing sale price per share for the 12,341,309 shares of Common Stock, $.50 par value, outstanding on May 31, 1996 and excluding the value of 2,074 shares of preferred stock which have no quoted market value. Documents Incorporated by Reference Portions of Annual Report to Shareholders for the year ended March 31, 1996 incorporated by reference in Parts I and II Portions of Proxy Statement dated June 27, 1996 incorporated by reference in Part III -1- PART I ITEM 1 - BUSINESS General Development Of Business Zurn Industries, Inc., a corporation founded in 1900 and incorporated in 1932 together with its subsidiaries (the "Company") designs, constructs, manufactures, markets, and operates in two industry segments: Water Control and Power Systems. A decision to sell the Lynx Golf and Mechanical Power Transmission segments was made in fiscal 1996. Financial Information About Industry Segments "Industry Segment Data" on page 25 of the Annual Report to Shareholders for the year ended March 31, 1996 is incorporated herein by reference. Narrative Description Of Business "Notes to Consolidated Financial Statements - Business Description" on page 28 of the Annual Report to Shareholders for the year ended March 31, 1996, excluding the last sentence of the first paragraph and the second and fourth sentences of the third paragraph, is incorporated herein by reference. Product Class Sales Year Ended March 31 Segment And Products 1996 1995 1994 (Thousands) Water Control Plumbing products $140,925 $121,133 $ 99,496 Water resource and treatment systems 84,245 58,808 85,921 Other products 57,877 52,921 61,048 Power Systems Power plants and steam generating systems 124,392 146,844 450,674 Other products 12,464 14,537 11,375 Water Control - Plumbing products, including roof, floor, and trench drains, primers, traps, backwater valves, hair, grease, oil, and solids interceptors and recovery systems, cleanouts, off-the-floor fixture supports, service basins, water hammer arrestors, hydrants, floor and mop sinks, ferrous castings, flush valves, shower heads, faucets, and hand dryers for commercial, industrial, and institutional applications; tubular brass and plastic plumbing supplies, sink strainers, shower heads, and toilet tank accessories; residential, commercial, and industrial pressure reducing and regulating valves, temperature/pressure relief valves, swing-away ball valves, reduced pressure backflow preventers, pressure vacuum breakers, check valves, double check valves, water gravity flow systems; construction of water resource and treatment systems and general construction services for civil, structural, and mechanical piping fields; automatic interior fire protection sprinkler -2- systems; engineered concrete products including precast prestressed concrete bridge components, box beam girders, pilings, panels, support systems, and underground wastewater pipe. Power Systems - Design, engineering, construction, and operation of small- to medium-sized alternate energy and combined-cycle power plants; factory- assembled and field-constructed steam generating systems, waste heat energy recovery systems, economizers, superheaters, spreader stokers, burners, pulverizers, and other auxiliary components; solid, liquid, and gaseous waste incineration systems; centrifugal fans and mechanical dust collectors. Segment Status No new segment or product is being planned or developed which will require the investment of a material amount of the Company's assets, or which otherwise is material. Sources And Availability Of Raw Materials The Company's businesses use ferrous and non-ferrous metals, concrete products, and plastics purchased from various domestic and foreign suppliers. The sources of supply are adequate and the Company is not substantially dependent upon any one supplier. Patents And Licenses The Company owns numerous patents relating to the design and manufacture of its products and systems. From time to time the Company grants licenses to others under certain of its patents and obtains licenses under the patents of others. While the Company considers that, in the aggregate, its patents and licenses are important in the operation of its businesses, it believes that the successful manufacture and sale of its products generally depends more upon its technological know-how and manufacturing and construction skills. Seasonal Business None of the industry segments is considered to have significant seasonal business. Working Capital Requirements Certain products of the Water Control segment are considered standard items and significant amounts of inventory are required to meet rapid delivery requirements of customers. Power plant construction by the Power Systems segment requires significant liquidity to support the performance of contracts involving payment retainage, or letters of credit in lieu thereof, the payment of certain amounts from projects' future cash flows, and loans to and equity investments in projects. -3- Customer Dependence None of the industry segments has a customer the loss of which would have a material adverse effect on the segment. Customer Identity There are no customers the loss of which would have a material adverse effect on the Company. Backlog The backlog of unshipped orders was as follows: March 31 1996 1995 (Thousands) Water Control $ 98,000 $122,000 Power Systems 73,000 65,000 $171,000 $187,000 Approximately 5% of the Water Control and 9% of the Power Systems backlogs are expected to be completed in fiscal years ending after March 31, 1997. Government Contracts No material portion of the business of any industry segment is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Competitive Conditions The Company's major markets are electric power generation, industrial, commercial, municipal, and consumer. The Company competes with a number and variety of diverse manufacturers, both large and small. Because of the multiplicity and diversity of such markets, it is impracticable to ascertain a proper competitive rating index for any of the Company's segments. In general, all the Company's products and systems are sold for the most part in world-wide markets characterized by substantial price, service, and product quality competition. Research And Development Research and development expenditures were not material in any of the last three years. Impact Of Environmental Laws And Regulations Federal, state, and local regulations enacted to regulate the discharge of materials into the environment will have no material effect on the Company's capital expenditures, earnings, or competitive position. -4- Number Of Employees The Company has approximately 2,625 employees. Foreign And Domestic Operations And Export Sales The Company's foreign operations represented less than 10% of consolidated sales, operating income, and assets in each of the last three years. Export sales were: 1996-$12,581,000; 1995-$10,681,000; 1994-$10,986,000. ITEM 2 - PROPERTIES The Company principally operates in various locations throughout the United States in facilities considered to be in good condition, well maintained, and adequate for its purposes. The approximate square feet of floor space utilized in the United States is as follows: Owned Leased Water Control 664,600 380,800 Power Systems 94,000 80,400 Corporate Headquarters and Others 233,300 991,900 461,200 ITEM 3 - LEGAL PROCEEDINGS The Company received an Administrative Order, effective April 30, 1992, issued by the United States Environmental Protection Agency (EPA) pursuant to Section 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 directing the Company and thirty-five others to implement response activities at the Millcreek Dumpsite in Erie County, Pennsylvania in accordance with a remedial plan. The Company is informed that EPA has secured estimates of the cost of the remedial work which approximate $12 million. The Company and seventeen of the other respondents have notified EPA of their intention to undertake the remedial action. In January 1994, the State of California filed a complaint in the Municipal Court of the Los Angeles Judicial District against the Company's subsidiary, Zurn Constructors, Inc., two of its employees, and another company and individual alleging felony and misdemeanor violations of the State's Health and Safety, Water, and Penal codes in connection with the discharge of a pollutant from the other company's property into a Coyote Creek tributary. The maximum fines for the alleged charges sought in the complaint against Zurn Constructors total $.6 million. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. -5- EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Positions Period Served Robert R. Womack 58 Chairman Since 1995 Director and Chief Executive Officer Since 1994 Independent Consultant 1993 - 1994 Vice Chairman and Chief Executive Officer - Imo Industries, Inc. (controls, pumps, and engineered power products) 1990 - 1993 Donald F. Fessler 65 Executive Vice President Since 1985 Donald L. Butynski 52 Group Vice President Since 1995 President - National Energy Production Corporation (a subsidiary of the Company) Since 1986 Frank E. Sheeder 53 Group Vice President Since 1995 President and Chief Executive Officer - Furmanite, Inc. (engineering and maintenance services), a subsidiary of Kaneb Services, Inc. 1994 - 1995 Independent Consultant 1992 - 1994 John R. Mellett 46 Senior Vice President- Since 1995 Chief Financial Officer Senior Vice President and Chief Financial Officer and Vice President-Finance (1992-1994) - LeFebure (financial institution capital equipment and services), a subsidiary of De La Rue, PLC 1992 - 1995 Independent Consultant 1991 - 1992 James A. Zurn 54 Senior Vice President Since 1981 John E. Rutzler III 55 Vice President-Controller Since 1989 Dennis Haines 43 General Counsel and Secretary Since 1993 Associate General Counsel 1989 - 1993 -6- PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The principal markets on which the Company's Common Stock is traded are the New York Stock Exchange and the Pacific Stock Exchange. "Unaudited Quarterly Financial Data - Common Stock Market Price" on page 23 of the Annual Report to Shareholders for the year ended March 31, 1996 is incorporated herein by reference. Holders At March 31, 1996, there were 4,791 holders of record of the Company's Common Stock. Dividends "Unaudited Quarterly Financial Data - Common Stock Cash Dividends Declared" on page 23 of the Annual Report to Shareholders for the year ended March 31, 1996 is incorporated herein by reference. ITEM 6 - SELECTED FINANCIAL DATA "Five Year Consolidated Financial Summary - Operating Data," "Five Year Consolidated Financial Summary - Financial Position at Year End - Total Assets and Debt and Capital Leases," and the footnotes thereto on page 22 of the Annual Report to Shareholders for the year ended March 31, 1996 are incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Financial Review" on pages 18 through 21 of the Annual Report to Shareholders for the year ended March 31, 1996 is incorporated herein by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and notes to consolidated financial statements on pages 24 through 33 of the Annual Report to Shareholders for the year ended March 31, 1996 are incorporated herein by reference. "Unaudited Quarterly Financial Data" on page 23 of the Annual Report to Shareholders for the year ended March 31, 1996 is incorporated herein by reference. -7- INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Zurn Industries, Inc. Erie, Pennsylvania We have audited the consolidated financial statements and the financial statement schedule of Zurn Industries, Inc. and subsidiaries listed in Item 14. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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, the financial statements listed in Item 14 present fairly, in all material respects, the consolidated financial position of Zurn Industries, Inc. and subsidiaries at March 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Erie, Pennsylvania May 16, 1996, except for the Subsequent Event note, as to which the date is June 27, 1996 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change in independent auditors within twenty-four months prior to the date of the most recent financial statements. -8- PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT "Nominees For a Term of Three Years Each" on page 1 and "Directors Whose Terms of Office Continue Until 1997", "Directors Whose Terms of Office Continue Until 1998", and "Director Who is Retiring" on page 2 of the Proxy Statement dated June 27, 1996 are incorporated herein by reference. Information with respect to executive officers is presented in Part I. Based solely upon a review of Forms 3, 4, and 5, and amendments thereto, furnished to the Company with respect to its most recent fiscal year, and written representations that no Form 5 was required, no person who, at any time during the fiscal year, was a director, officer, or beneficial owner of more than 10% of any class of equity securities of the Company failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year or prior fiscal years. ITEM 11 - EXECUTIVE COMPENSATION "Summary Compensation Table" on page 5, "Stock Option Grants" and "Stock Option Exercises And Fiscal Year End Option Values" on page 6, "Pension Plans" on page 7, "Directors' Compensation" on page 8, "Management Development and Compensation Committee Report" on pages 9 and 10, and "Performance Graph" on page 10 of the Proxy Statement dated June 27, 1996 are incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "Security Ownership Of Common Stock" on page 4 of the Proxy Statement dated June 27, 1996 is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "Related-Party Transactions" on page 4 of the Proxy Statement dated June 27, 1996 is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements The following consolidated financial statements included in the Annual Report to Shareholders for the year ended March 31, 1996 are incorporated herein by reference: -9- Consolidated Financial Position - March 31, 1996 and 1995 Consolidated Operations - Years Ended March 31, 1996, 1995, and 1994 Industry Segment Data - Years ended March 31, 1996, 1995, and 1994 Consolidated Cash Flows - Years ended March 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements Financial Statement Schedules The following consolidated financial statement schedule is included in this Item: Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. Exhibits The exhibits listed in the Exhibit Index to this report are incorporated herein by reference. Management contracts and compensatory plan arrangements are preceded by an asterisk ("*") in the Exhibit Index. Reports on Form 8-K January 15, 1996 incorporating a news release announcing an agreement for collaboration on future power generation projects with CMS Generation Co. which also resolves long-standing litigation with Imperial Resource Recovery Associates, L.P. -10- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Thousands)
Col. A Col. B Col. C Col. D Col. E Additions Balance at (1) (2) Balance Beginning of Charged to Costs Charged to Other Deductions- at End Description Period and Expenses Accounts-Describe Describe of Period Year Ended March 31, 1996 Allowance for doubtful accounts $ 4,238 $ 487 $ 24 -A $ 694 -B 1,408 -C $ 2,647 $ 4,238 $ 487 $ 24 $2,102 $ 2,647 Reserves: Plant closings $ 1,626 $ 581 -E 585 -F $ 460 Warranties 3,551 $(1,896) 200 -G 66 -C 1,389 $ 5,177 $(1,896) $1,432 $ 1,849 Year Ended March 31, 1995 Allowance for doubtful accounts $ 6,203 $ 1,062 $152 -D $3,179 -B $ 4,238 Reserves: Plant closings $ 7,729 $ 283 -D 5,131 -E 689 -F $ 1,626 Warranties 4,382 $ 113 944 -G 3,551 $12,111 $ 113 $7,047 $ 5,177 Year Ended March 31, 1994 Allowance for doubtful accounts $13,915 $(5,933) $ 1,779 -B $ 6,203 Reserves: Plant closings $ 4,052 $ 6,927 $1,625 -E 1,625 -F $ 7,729 Warranties 4,157 1,089 864 -G 4,382 $ 8,209 $ 8,016 $4,114 $12,111 A-Purchase of business. D-Account transfers. G-Warranty claims allowed. B-Uncollectible accounts written off, net of recoveries. E-Costs incurred. C-Discontinued operations. F-Credit to costs and expenses. -11- /TABLE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZURN INDUSTRIES, INC. (Registrant) June 3, 1996 /s/ Robert R. Womack Robert R. Womack Chairman 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 and on the date indicated. /s/ Robert R. Womack Director, Chairman, and June 3, 1996 Robert R. Womack Chief Executive Officer /s/ John R. Mellett Senior Vice President and June 3, 1996 John R. Mellett Chief Financial Officer /s/ John E. Rutzler III Vice President-Controller June 3, 1996 John E. Rutzler III /s/ Zoe Baird Director June 3, 1996 Zoe Baird /s/ M. K. Brown Director June 3, 1996 Michael K. Brown /s/ William E. Butler Director June 3, 1996 William E. Butler /s/ Edward J. Campbell Director June 3, 1996 Edward J. Campbell /s/ Robert D. Neary Director June 3, 1996 Robert D. Neary /s/ David W. Wallace Director June 3, 1996 David W. Wallace -12- EXHIBIT INDEX 3 Articles Of Incorporation And By-laws 3.1 Restated Articles of Incorporation with Amendments through April 22, 1996 By-laws as of August 1995 filed as Exhibit 3.1 to Form Incorporated 10-Q for the quarter ended September 30, 1995 by reference 4 Instruments Defining The Rights Of Security Holders, Including Indentures Description of Common Stock contained in the prospectus Incorporated dated July 26, 1972 beginning on page 18 ("Description of by reference Capital Stock") forming a part of Amendment No. 3 to the Form S-1 Registration Statement No. 2-44631 Description of Common Stock as set forth in the Restated Included in Articles of Incorporation with Amendments through Exhibit 3.1 April 22, 1996 Description of Preferred Share Purchase Rights contained Incorporated in the Form 8-A Registration Statement dated May 17, 1996 by reference 10 Material Contracts * 1986 Stock Option Plan filed as Exhibit 28A to Form S-8 Incorporated Post-Effective Amendment No. 1 Registration Statement No. by reference 33-19103 * 1989 Directors Stock Option Plan filed as Exhibit 28 to Incorporated Form S-8 Registration Statement No. 33-30383 by reference * 1995 Directors Stock Option Plan filed as Exhibit 99 to Incorporated Form S-8 Registration Statement No. 33-65219 by reference * 1991 Stock Option Plan filed as Exhibit 28 to Form S-8 Incorporated Registration Statement No. 33-49224 by reference * Supplemental Executive Retirement Plan of Zurn Incorporated Industries, Inc. filed as Exhibit 10.1 to Form 10-Q for by reference the quarter ended December 31, 1994 * 1982 Retirement Plan for Outside Directors of Zurn Incorporated Industries, Inc. filed as Exhibit 19A to Form 10-Q for by reference the quarter ended June 30, 1989 * 1986 Retirement Plan for Outside Directors of Zurn Incorporated Industries, Inc. filed as Exhibit 19B to Form 10-Q for by reference the quarter ended June 30, 1989 * Agreements Relating to Employment dated June 5, 1989 with Incorporated D.F. Fessler and J.A. Zurn filed as Exhibit 10H to Form by reference 10-Q for the quarter ended June 30, 1989; dated October -13- 17, 1994 with R.R. Womack filed as Exhibit 10.2 to Form 10-Q for the quarter ended December 31, 1994; dated May 1, 1995 with D.L. Butynski and July 1, 1995 with J.R. Mellett filed as Exhibit 10.8 to Form 10-Q for the quarter ended June 30, 1995; dated August 14, 1995 with F.E. Sheeder filed as Exhibit 10.11 to Form 10-Q for the quarter ended September 30, 1995 * Employment Agreement dated January 22, 1996 with R.R. Incorporated Womack filed as Exhibit 10.13 to Form 10-Q for the by reference quarter ended December 31, 1995 * Zurn Industries, Inc. Deferred Compensation Plan for Non- Incorporated Employee Directors filed as Exhibit 19E to Form 10-Q for by reference the quarter ended June 30, 1989 * Zurn Industries, Inc. Deferred Compensation Plan for Incorporated Salaried Employees filed as Exhibit 10.3 to Form 10-Q for by reference the quarter ended December 31, 1994 * Zurn Industries, Inc. Optional Deferment Plan for Incorporated Incentive Compensation Plan Participants filed as Exhibit by reference 10.4 to Form 10-Q for the quarter ended December 31, 1994 * Zurn Supplemental Pension Plan filed as Exhibit 10.5 to Incorporated Form 10-Q for the quarter ended December 31, 1994 by reference * Indemnity Agreements dated August 14, 1986 with E.J. Incorporated Campbell, D.W. Wallace, and J.A. Zurn filed as Exhibit by reference 19J to Form 10-Q for the quarter ended September 30, 1986; dated October 20, 1986 with D.F. Fessler filed as Exhibit 19A to Form 10-Q for the quarter ended December 31, 1986 and with J.E. Rutzler III filed as Exhibit 10B to Form 10-Q for the quarter ended December 31, 1988; dated January 25, 1993 with W.E. Butler, April 1, 1993 with D. Haines, and August 6, 1993 with Z. Baird filed as Exhibit 10A to Form 10-Q for the quarter ended June 30, 1993; dated October 17, 1994 with R.R. Womack filed as Exhibit 10.6 to Form 10-Q for the quarter ended December 31, 1994; dated May 1, 1995 with D.L. Butynski, June 8, 1995 with R.D. Neary, and July 1, 1995 with J.R. Mellett filed as Exhibit 10.9 to Form 10-Q for the quarter ended June 30, 1995; dated August 14, 1995 with F.E. Sheeder filed as Exhibit 10.12 to Form 10-Q for the quarter ended September 30, 1995; dated October 30, 1995 with M.K. Brown filed as Exhibit 10.14 to Form 10-Q for the quarter ended December 31, 1995 * Irrevocable Trust Agreements for the Grantor's: 1982 Incorporated Retirement Plan for Outside Directors of Zurn Industries, by reference Inc.; 1986 Retirement Plan for Outside Directors of Zurn Industries, Inc.; Deferred Compensation Plan for Non- -14- Employee Directors; Supplemental Executive Retirement Plan for Zurn Industries, Inc.; Zurn Industries, Inc. Supplemental Pension Plan for Participants in the Deferred Compensation Plan for Salaried Employees; Deferred Compensation Plan for Salaried Employees; Optional Deferment Plan for Incentive Compensation Plan Participants filed as Exhibit 19I to Form 10-Q for the quarter ended September 30, 1986 * Second Irrevocable Trust Agreement for the Grantor's Incorporated Indemnity Agreements filed as Exhibit 10A to Form 10-Q by reference for the quarter ended December 31, 1988 10.15* Incentive Compensation Plan 11 Statement Re Computation Of Per Share Earnings Computation of Earnings Per Share 13 Annual Report To Security Holders Electronic Format of Pages of Annual Report to Shareholders for the Year Ended March 31, 1996 Incorporated by Reference 21 Subsidiaries Of The Registrant Subsidiaries 23 Consents Of Experts And Counsel Consent of Independent Auditors 27 Financial Data Schedule 27.1 Financial Data Schedule Year Ended March 31, 1996 SEC Edgar Filing Only 27.2 Restated Financial Data Schedule Year Ended SEC Edgar March 31, 1996 Interim Quarters Filing Only 27.3 Restated Financial Data Schedule Year Ended SEC Edgar March 31, 1995 Filing Only 27.4 Restated Financial Data Schedule Year Ended SEC Edgar March 31, 1994 Filing Only 99 Additional Exhibits 99.1 Annual Report on Form 11-K of the Zurn Retirement Savings Plan for the year ended December 31, 1995 99.2 Annual Report on Form 11-K of the Zurn/NEPCO Retirement Savings Plan for the year ended December 31, 1995 * - Management contracts and compensatory plan arrangements. -15- EX-3.1 2 EXHIBIT 3.1 - RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 - RESTATED ARTICLES OF INCORPORATION RESTATED ARTICLES OF INCORPORATION-FOR PROFIT OF ZURN INDUSTRIES, INC. A Stock Business Corporation FIRST: The name of the Corporation is Zurn Industries, Inc. SECOND: The address of this Corporation's current registered office in this Commonwealth is One Zurn Place, Erie, Erie County, Pennsylvania 16512. THIRD: The purpose or purposes of the Corporation are: to buy, manufacture, sell, distribute, exchange, trade, and otherwise deal in, articles of commerce, and further the Corporation shall have unlimited power to engage in and to do any lawful act concerning any or all lawful business for which corporations may be incorporated under the Pennsylvania Business Corporation Law. FOURTH: The term of its existence is perpetual. FIFTH: The Corporation is incorporated under the provisions of the Act of General Assembly of April 29, 1874. SIXTH: The authorized capital of the Corporation is $55,000,000 divided into 5,000,000 shares of Preferred Stock having a par value of $1.00 per share, of which 150,000 shares were established as "$1.00 Cumulative Convertible Preferred Stock" and 3,000,000 shares were established as "Second Series Junior Participating Preferred Stock", and 100,000,000 shares of Common Stock having a par value of $.50 per share. I. Series of Preferred Stock, known as "$1.00 Cumulative Convertible Preferred Stock," (consisting originally of 150,000 shares, hereinafter referred to as "$1.00 Preferred Stock"). (A) The holders of the $1.00 Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the assets of the Corporation which by law are available for the payment of dividends, cash dividends at, but not exceeding, the rate of $1.00 per share per annum, payable quarter-annually on the first day of January, April, July, and October in each year. Such cash dividends shall accrue from February 1, 1969, and shall be cumulative. No dividends shall be paid, or declared and set apart for payment, with respect to shares of the Common Stock, and no assets available for the payment of dividends shall be paid or set aside for the purchase of shares of the Common Stock, until all current and accrued and unpaid dividends on the $1.00 Preferred Stock have been fully paid or declared and set apart for payment. -16- -1- (B) The $1.00 Preferred Stock may be redeemed in whole or in part by the Corporation at any time on or after January 1, 1974. The sums payable upon redemption (in addition to accrued and unpaid dividends up to and including the date fixed for redemption) shall be $40.00 per share. If less than all of the outstanding shares of the $1.00 Preferred Stock are to be redeemed, the shares so redeemed shall be chosen by lot or pro rata in share manner as the Board of Directors may determine; provided, however, that if full cumulative dividends shall not have been paid, or declared and set aside for payment, for all quarterly dividend periods preceding the current dividend period, the Corporation shall not call for redemption less than all of the then outstanding shares of the $1.00 Preferred Stock. Not less than 45 nor more than 60 days prior to the date fixed for redemption, a notice specifying the time and place thereof shall be given by mail to the holders of record of the shares of the $1.00 Preferred Stock to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, but no failure to mail such notice nor any default therein or in the mailing thereof shall affect the validity of the redemption except as to the holder to whom said Corporation has failed to mail said notice or to whom the notice was defective. From and after the date fixed in such notice as the date of redemption, all dividends upon the shares of the $1.00 Preferred Stock thereby called for redemption shall cease to accrue, and all rights of the holders thereof as shareholders of the Corporation shall cease and terminate, except the right to receive payment of the redemption price, but without interest. (C) In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation, there shall be paid to the holders of the $1.00 Preferred Stock the amount of $40.00 per share before any distribution shall be made to the holders of the Common Stock of the Corporation. In the event the amounts thus distributable among the holders of the $1.00 Preferred Stock shall be insufficient to permit the payment in full to the holders of the $1.00 Preferred Stock of such preferential amounts, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of the $1.00 Preferred Stock according to the amounts which they respectively would be entitled to receive if such assets were sufficient to permit the payment in full of such amounts. After payment in full of said preferential amounts to the holders of the $1.00 Preferred Stock, said holders shall not be entitled to share in the distribution of the remaining assets of the Corporation. (D) The $1.00 Preferred Stock shall be convertible at the option of the respective holders thereof into shares of the Common Stock of the Corporation at a conversion rate (subject to adjustment as hereinafter provided) hereinafter provided) of one (1) share of Common Stock for each share of the $1.00 Preferred Stock; provided, however, that as to any share of the $1.00 Preferred Stock called for redemption, the right of conversion shall terminate at the close of business on the fifth day preceding the date fixed for redemption. -17- -2- Any holder of the $1.00 Preferred Stock electing to convert shall deposit the certificates representing the shares to be converted together with a written request for conversion, with the Corporation. The conversion right shall be deemed to have been exercised at the date on which certificates shall have been so deposited and such person shall be treated for all purposes as the record holder of the Common Stock on said date. The Corporation shall not be required in connection with any such conversion to issue a fraction of a share of its Common Stock, but, in lieu of any faction of a share of Common Stock to which the person exercising such conversion right shall be entitled, the Corporation may make a cash payment equal to such fraction multiplied by the market price of the Common Stock on the date such shares of the $1.00 Preferred Stock are deposited for conversion. For the purpose of computing such payment to be made in lieu of fractional shares, the market price of the Common Stock on such date shall be the closing price on the New York Stock Exchange. As soon as practicable after the date of conversion of any shares of the $1.00 Preferred Stock into Common Stock, the Corporation shall deliver to the person entitled thereto certificates representing shares of the Common Stock and the cash, if any, to which such person shall be entitled on such conversion. The Corporation, as a condition to the exercise of any right of conversion, may require the payment of a sum equal to any transfer tax or other governmental charge (but not including any tax payable upon the issue of shares of the Common Stock) that may be imposed or required by law upon such conversion of shares of the $1.00 Preferred Stock into shares of the Common Stock. In the event that at any time while shares of the $1.00 Preferred Stock are outstanding the Corporation shall issue any additional shares of the Common Stock as a result of any stock dividend, stock split, or any subdivision or reclassification of shares of the outstanding Common Stock, then, in any of such events, the conversion rate in effect hereunder shall be adjusted to appropriately reflect such changes in capitalization. No adjustment shall be made, however, upon conversion of the $1.00 Preferred Stock for accrued and unpaid dividends thereon or for declared and unpaid dividends upon the Common Stock issuable upon such conversion. (E) So long as any shares of the $1.00 Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the holders of at least a majority of the $1.00 Preferred Stock then outstanding, in any manner: (1) increase the number of shares comprising the series of $1.00 Preferred Stock; (2) issue any other series of Preferred Stock, or create any other class of stock, ranking prior to or equal to the $1.00 Preferred Stock either as to dividends or distribution of assets in liquidation; or -18- -3- (3) change the preferences, powers, rights or limitations with respect to the $1.00 Preferred Stock in any manner prejudicial to the holders thereof. II. Series of Preferred Stock, known as "Second Series Junior Participating Preferred Stock". (A) Designation and Amount. The shares of such series shall be designated as "Second Series Junior Participating Preferred Stock" (the "Series Two Preferred Stock") and the number of shares constituting such series shall be 3,000,000. (B) Dividends and Distributions. (1) Subject to the prior and superior rights of the holders of any shares of any series of stock ranking prior and superior to the shares of Series Two Preferred Stock with respect to dividends, the holders of shares of Series Two Preferred Stock, in preference to the holders of Common Stock, par value $.50 per share, of the Corporation (the "Common Stock") and of any junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series Two Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.20 or (b) subject to the provision for adjustment hereinafter set forth, twice the aggregate per share amount of all cash dividends, and twice the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend or distribution payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series Two Preferred Stock. In the event the Corporation shall at any time after May 29, 1986 (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amounts to which holders of shares of Series Two Preferred Stock were entitled immediately prior to such event under clause (a) and clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) The Corporation shall declare a dividend or distribution on the Series Two Preferred Stock as provided in paragraph (1) of this Subarticle II(B) immediately after it declares a dividend or distribution on the Common Stock (other than a dividend or distribution payable in shares -19- -4- of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.20 per share on the Series Two Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date; and provided further that nothing contained in this paragraph (2) shall be construed so as to conflict with any provision relating to the declaration of dividends contained in the Articles of the Corporation. (3) Dividends shall begin to accrue and be cumulative on outstanding shares of Series Two Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series Two Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series Two Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series Two Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series Two Preferred Stock entitled to receive payment of a dividend or distribution declared thereon. (C) Voting Rights. The holders of shares of Series Two Preferred Stock shall have only such voting rights as are required by law or as are provided in the Articles of the Corporation. (D) Certain Restrictions. (1) Whenever quarterly dividends or other dividends or distributions payable on the Series Two Preferred Stock as provided in Subarticle II are in arrears, thereafter and until all accrued and unpaid dividends and distribution, whether or not declared, on shares of Series Two Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (a) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series Two Preferred Stock; -20- -5- (b) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series Two Preferred Stock, except dividends paid ratably on the Series Two Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series Two Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series Two Preferred Stock; or (d) purchase or otherwise acquire for consideration any shares of Series Two Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series Two Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of this Subarticle (D), purchase or otherwise acquire such shares at such time and in such manner. (E) Redemption. The Corporation may, at the option of the Board of Directors and in accordance with the Articles of the Corporation, redeem the whole or any part of the Series Two Preferred Stock at any time or from time to time at a redemption price equal to the greater of (a) $260 per -21- -6- share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date set for payment, or (b) subject to the provision for adjustment hereinafter set forth, twice the current market price (as hereinafter defined) per share of Common stock on the date notice of redemption is first mailed to the holders of the Series Two Preferred Stock. In the event the Corporation shall at any time after May 29, 1986 (i) declare any dividend on Common stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amounts to which holders of shares of Series Two Preferred Stock were entitled immediately prior to such event under clause (a) and clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. For purposes of this Section, "current market price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of the Common Stock for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Stock is determined during a period following the announcement by the Corporation of (i) a dividend or distribution in Common Stock payable in shares of Common Stock or securities convertible into shares of Common Stock or (ii) any subdivision, combination or reclassification of Common Stock, and prior to the expiration of the 30 Trading Day period after the ex-divided dated for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asking prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Corporation. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Corporation shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares -22- -7- of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share determined in good faith by the Board of Directors of the Corporation, whose determination shall be described in a statement mailed to the holders of the Series Two Preferred Stock with the notice of redemption. (F) Reacquired Shares. Any shares of Series Two Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. Except as otherwise required by the Articles of the Corporation, all such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. (G) Liquidation, Dissolution or Winding Up. (1) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series Two Preferred Stock unless, prior thereto, the holders of shares of Series Two Preferred Stock shall have received $2 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series Two Liquidation Preference"). Following the payment of the full amount of the Series Two Liquidation Preferences, no additional distributions shall be made to the holders of shares of Series Two Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series Two Liquidation Preference by (ii) two (as appropriately adjusted as set forth in subparagraph (3) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series Two Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series Two Preferred Stock and Common Stock, respectively, holders of Series Two Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (2) In the event, however, that there are not sufficient assets available to permit payment in full of the Series Two Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series Two Preferred Stock, then all such available assets shall be distributed ratably to the holders of the Series Two Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. In the -23- -8- event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then any such remaining assets shall be distributed ratably to the holders of Common Stock. (3) In the event the Corporation shall at any time after May 29, 1986 (a) declare any dividend on Common Stock payable in shares of Common Stock, (b) subdivide the outstanding Common Stock, or (c) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (H) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series Two Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to twice the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series Two Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (I) Fractional Shares. The Corporation may issue fractions and certificates representing fractions of a share of Series Two Preferred Stock in integral multiples of one-half of a share of Series Two Preferred Stock, or in lieu thereof, at the election of the Board of Directors of the Corporation at the time of the first issue of any shares of Series Two Preferred Stock, evidence such fractions by depositary receipts, pursuant to an appropriate agreement between the Corporation and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they would be entitled as beneficial owners of shares of Series Two Preferred Stock. In the event that fractional shares of Series Two Preferred Stock are issued, the holders thereof shall have all the rights provided herein for holders of full shares of Series Two Preferred Stock in the proportion which such fraction bears to a full share. -24- -9- (J) Ranking. The Series Two Preferred Stock shall rank junior to all other series of the Corporation's preferred stock outstanding at any time as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. (K) Amendment. The Articles, as amended, of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series Two Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series Two Preferred Stock, voting together as a single class. III. Preferred stock (for which no series has been established. (A) The Board of Directors shall have authority, by resolution, to divide Preferred Stock into series and whether or not so divided, may, to the extent authorized by law, fix and determine the relative rights and preferences of any series so established, and change redeemed or reacquired shares of series thereof into shares of another series and to otherwise fix and determine any or all of the following terms: (1) the distinctive serial designation of such series; (2) the annual divided rate for such series, and the date from which such dividends shall commence to accrue; (3) the redemption price or prices for such series and the terms and conditions on which shares of such series may be redeemed; (4) the sinking fund provisions, if any, for the redemption or purchase of shares of such series; (5) the amounts payable upon shares of such series in the event of the voluntary or involuntary liquidation of the Corporation; (6) the terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of shares of the Corporation into which such shares may be converted; and (7) such other terms, limitations and relative rights and preferences, if any, of such series as the Board of Directors may at the time of such resolutions, lawfully fix and determine under the laws of the Commonwealth of Pennsylvania. -25- -10- The Board of Directors is hereby expressly authorized to fix the number of shares which shall constitute any series of Preferred Stock, which number may at any time or from time to time be increased or decreased, but not below the number of shares thereof then outstanding. IV. Common Stock The holders of Common Stock shall be entitled to receive dividends when and as declared by the Board of Directors out of surplus legally available therefor, provided, however, that no dividends shall be declared or paid nor any distribution made on the Common Stock so long as any of the Preferred Stock remains outstanding unless all accumulated dividends on the Preferred Stock and the dividends for the current quarter-annual dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart. V. Voting Rights (A) In all elections of directors and in respect to all other matters as to which the vote or consent of shareholders of the corporation shall be required to be taken, the holders of Preferred Stock and Common Stock shall each be entitled to one vote for each share of such stock held by them respectively, voting together with the Common Stock and not as a separate class, provided that holders of Preferred Stock shall be entitled to vote as a class as required by law. (B) Unless otherwise provided in a resolution of the Board of Directors establishing any particular series, the number of authorized shares of Preferred stock or Common Stock may be increased solely by the affirmative vote of the combined outstanding shares of both the Preferred and Common stocks voting together, and not voting respectively as a class, or solely by action of the Board of Directors if permitted by law at the time such vote is taken. (C) No holder of the series designated $1.00 Cumulative Convertible Preferred Stock, Series Two Preferred Stock, Preferred Stock for which no series has been established, or Common Stock of the Corporation shall have the right in any election of Directors or otherwise to multiply the number of votes to which he/she may be entitled by the total number of directors to be elected in the same election, either by the holders of the class or classes of shares of which his/her shares are a part or together with all classes, and to cast the whole number of such shares for one candidate or to distribute them among two or more candidates, it being the intent in this Subarticle V that shareholders of the Corporation shall not have cumulative voting rights upon any matters that may be submitted to their vote. SEVENTH: I. Except as set forth in Subarticle II of this Article SEVENTH, the affirmative vote of the holders of eighty percent (80%) of the outstanding stock of the Corporation entitled to vote shall be required for: -26- -11- (A) any merger or consolidation to which the Corporation or any of its subsidiaries and an Interested Person (as hereinafter defined) are parties; (B) any sale or other disposition by the Corporation of all or any substantial part of its assets to an Interested Person; (C) any purchase or other acquisition by the Corporation, or any of its subsidiaries, of all or any substantial part of the assets of an Interested Person; and (D) any other transaction with an Interested Person which requires the approval of the shareholders of the Corporation under the Pennsylvania Business Corporation Law, as in effect from time to time. II. The provisions of Subarticle I shall not be applicable to any transaction described therein if: (A) the transaction has been approved by the Board of Directors prior to the time that a person, firm, corporation or other entity has become an Interested Person; or (B) the transaction has been approved by the Board of Directors after the time a person, firm, corporation or other entity has become an Interested Person where both of the following conditions have been fulfilled: (1) only Directors voting on the approval of the transaction were those who were Directors prior to such person, firm, corporation or other entity becoming an Interested Person; and (2) in such transaction the cash, or fair market value of other consideration, as valued by the Board of Directors as of the date of its approval of the transaction, to be received by the shareholders of the Corporation is not less per share than the highest price per share (including brokerage commissions and/or soliciting dealers' fees) paid by the Interested Person for any of its stock in the Corporation from the time that the Interested Person had obtained a beneficial ownership in excess of five percent (5%) of the Corporation's voting stock. III. As used in this Article SEVENTH the term "Interested Person" shall mean any person, firm, corporation or other entity, or any group thereof acting or intending to act in concert, including any person directly or indirectly controlling or controlled by or under direct or indirect common control with such person, firm, corporation or other entity or group, which -27- -12- owns of record or beneficially, directly or indirectly, thirty percent (30%) or more of any class of voting securities of the Corporation. IV. The Board of Directors of the Corporation shall have full power and authority to interpret, construe and apply the provisions of this Article SEVENTH. V. The affirmative vote of the holders of eighty percent (80%) of the outstanding stock of the Corporation entitled to vote shall be required to amend, alter or repeal this Article SEVENTH. VI. For purposes of any vote required by this Article SEVENTH, and for purposes of defining an "Interested Person" in accordance with Subarticle III above, all classes of voting stock of the Corporation shall be considered as one class. EIGHTH: To the fullest extent that the Laws of the Commonwealth of Pennsylvania, as in effect on January 27, 1987, or as thereafter amended, permit the elimination or limitation of liability of directors, no director of the Corporation shall be personally liable for monetary damages as such for any action taken or any failure to take any action as a director. The provisions of this Article shall be deemed to be a contract with each director of the Corporation who serves as such at any time while such provisions are in effect, and each director shall be deemed to be serving as such in reliance on such provisions. Any amendment to or repeal of this Article, or adoption of any other Article or Bylaw of the Corporation, which has the effect of increasing director liability shall require the affirmative vote of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote in any election of directors, voting together as a single class. Any such Amendment or repeal, or other Article or Bylaw, shall operate prospectively only and shall not have effect with respect to any action taken, or any failure to act, by a director prior thereto. -28- -13- EX-10.15 3 EXHIBIT 10.15 - INCENTIVE COMPENSATION PLAN EXHIBIT 10.15 - INCENTIVE COMPENSATION PLAN The Company's Incentive Compensation Plan, as it applies to executive officers, provides that an amount equal to 4% of earnings before income taxes in excess of a 10% return on the Company's net worth plus 4% of earnings before income taxes in excess of a 20% return on the Company's net worth is available to the Management Development and Compensation Committee to make incentive compensation payments. The distributable amount may be modified by the Committee in circumstances it views as appropriate (e.g., when the Company incurs an unusual gain or loss). Using both financial and nonfinancial criteria to measure performance, the Committee determines the amount to be awarded to the Chief Executive Officer and, based on his recommendations and their evaluation, to each other executive officer. -29- EX-11 4 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (Thousands Except Per Share Amounts) Year Ended March 31 1996 1995 1994 Primary Earnings Per Share Net income (loss) $16,670 $ 9,324 $(13,876) Preferred stock dividends 2 3 3 $16,668 $ 9,321 $(13,879) Shares outstanding Weighted average common shares 12,341 12,354 12,438 Net common shares issuable on Anti- exercise of stock options 37 1 dilutive Average common shares outstanding as adjusted 12,378 12,355 12,438 Primary earnings (loss) per share $ 1.35 $ .76 $ (1.12) Fully Diluted Earnings Per Share Net income $16,670 $ 9,324 A Interest on convertible debentures, n net of applicable income taxes 8 t $16,670 $ 9,332 i d Shares outstanding i Average common shares as adjusted l for primary computation 12,378 12,355 u Common shares issuable if the t preferred stock and convertible i debentures were converted at v the beginning of the year 5 32 e Additional common shares issuable on exercise of stock options 13 1 Average common shares outstanding as adjusted 12,396 12,388 Fully diluted earnings per share $ 1.35 $ .75 -30- EX-13 5 ELECTRONIC FORMAT OF ANNUAL REPORT PAGES TO SHAREHOLDERS EXHIBIT 13 ELECTRONIC FORMAT OF PAGES OF ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED MARCH 31, 1996 INCORPORATED BY REFERENCE ANNUAL REPORT PAGE 18 FINANCIAL REVIEW Business Restructuring The decision to sell the Lynx Golf and Mechanical Power Transmission segments was made in the fourth quarter of fiscal 1996 and, accordingly, they are reported in the consolidated financial statements as discontinued operations. The segments' assets and liabilities at March 31, 1996 have been removed from the consolidated accounts and are presented in the statement of financial position as a single net asset resulting in significant decreases in accounts receivable, inventories, property, plant, and equipment, and long-term obligations compared to the fiscal 1995 amounts. The statements of consolidated operations and cash flows, industry segment data, and quarterly financial data have been restated to present separately for all periods the continuing operations of the Water Control and Power Systems segments and the discontinued operations. SALES AND EARNINGS The single most significant factor affecting consolidated sales and earnings has been the increases (1996 - $19.8; 1995 - $21.6; 1994 - $11.4 million) in the Water Control segment's sales of plumbing products. The segment's other businesses had sales increases totaling $30.4 million, derived primarily from a water resource construction project, and greater operating profits in fiscal 1996 following a $35.2 million sales decline the prior year. The $24.5 million decline in Power Systems segment revenues is attributable to fewer power plants being under construction in fiscal 1996 as the segment continued its transition into the international markets while the $300.7 million drop in fiscal 1995 reflected the depressed domestic independent power market. Increasing plumbing products sales and the 11% improvement in their gross profit margin percentage over the last three years more than offset the effects of the Power Systems segment and water resource construction margin percentage declines. In fiscal 1994, the consolidated margin was lower primarily because a greater proportion of the sales were derived from the Power Systems segment which has lower margins. In addition, the Power Systems segment experienced high costs and a weak market for the steam generating systems it manufactured. Inflation's effect on the Company's costs over the last three years has not been as great as the consumer price index change due to cost containment measures and, in fiscal 1996 and 1995, outsourcing programs which reduced the costs of many manufactured products. Most cost increases have been recovered currently. Marketing and administration expenses for the most part do not bear a direct relationship to sales volumes. These expenses have increased in each of the last two years as a result of the plumbing products sales growth and new product introduction costs and, in fiscal 1996, the acquisition of a business. The costs associated with the new Asia-Pacific office opened in -31- ANNUAL REPORT PAGE 18 CONTINUED late fiscal 1995 were offset by lower costs in the Power Systems segment steam generating systems business and, in fiscal 1995, those lower costs were more than half of the plumbing products expense increase. The unusual items are described in the notes to consolidated financial statements and discussed elsewhere in this review. The items in the footnote table increased income $.22 and $.06 per share in fiscal 1996 and 1995 and they reduced income $2.61 per share in fiscal 1994. In addition, the income tax refund associated with the 1995 state tax settlement increased income for that year by $.04 per share. The revaluation of net deferred tax assets resulting from a tax law change added $.15 per share in fiscal 1994. Less interest income was derived from financial instruments in fiscal 1996 as cash balances declined. Higher interest rates in fiscal 1995 compared to 1994 mitigated the effect of lower cash levels. The higher income levels in 1995 and 1994 came from interest on federal income tax refunds in 1995, the financing of equipment for customers' projects by the Power Systems segment in both years, and the segment's long-term receivables in fiscal 1994. Interest expense on long-term obligations has declined in each of the last three years, but the total was higher as a result of providing for interest on the litigation liability recorded in fiscal 1994 which was settled in the third quarter of fiscal 1996. The greater amount of other income in fiscal 1996 is attributable to increased earnings of a power plant venture operated by the Power Systems segment and the sale of a minority interest investment in another company. Tax exempt investment income was a larger percentage of the lower pretax income in fiscal 1995 and 1994 and, therefore, had a greater impact on the effective tax rates. Also because of ANNUAL REPORT PAGE 19 the income level in those years, state taxes were a greater percentage of the overall effective rates. Settlement of prior year state tax assessments significantly reduced the effective tax rate in fiscal 1995. The net income (loss) per share from continuing operations for the last three years was: 1996 - $1.41; 1995 - $1.24; 1994 - $(.49). Absent the unusual items, continuing operations net income per share would have been: 1996 - $1.19; 1995 - $1.14; 1994 - $1.97. Discontinued operations reduced net income by $.06, $.48, and $.63 per share in each of the three years. The losses declined primarily as the result of actions taken to lower operating losses being incurred by the Lynx Golf segment. Backlog 1996 1995 1994 (Millions) Water Control $ 98 $122 $ 69 Power Systems 73 65 159 $171 $187 $228 Completion after fiscal 1997 is expected for 5% of the Water Control and 9% of the Power Systems amounts at March 31, 1996. -32- ANNUAL REPORT PAGE 19 CONTINUED Water Control Plumbing products, the segment's largest business, had sales increases of 16% in fiscal 1996 and 22% in 1995. $5.9 million of the 1996 increase was derived from the newly-acquired Sanitary-Dash business. Other sales increase contributors in both years were higher volumes, greater market share, price increases, and new products introduced over the last several years which drove the 13% sales gain in 1994. Water resource construction project revenues in 1996 were slightly less than fiscal 1994's level and declined 32% in 1995 as a result of the low beginning of the year backlog. Revenues from the installation of fire protection sprinkler systems were up 11% in fiscal 1996 after declining in each of the last two years as the result of the depressed, highly-competitive West Coast commercial construction market. The acquisitions note to the consolidated financial statements provides additional information about plumbing products businesses acquired by the Water Control segment. The segment's fiscal 1996 and 1995 operating profit improvements were dampened by reduced margins on water resource construction projects, including the effects of unanticipated contract costs in 1996 and delays experienced in 1995's fourth quarter caused by severe flooding in California, and new plumbing product development costs. As a result of downsizing and, in fiscal 1996, increased revenues, the fire sprinkler systems businesses' operating profit more than doubled in each of the last two years. While the plumbing products business has continued to outperform the nonresidential construction market it serves, the Water Control segment's backlog changes from year to year are generally attributable to the water resource construction business. Because the Southern California market it serves has a continuing need to expand and upgrade its water and wastewater infrastructure, there should be new projects that can be bid successfully and managed profitably. Power Systems During the 1990-1994 period, the segment's design, engineering, and construction of power plants made it the Company's most significant source of revenues. The sharp decline in fiscal 1995 revenues was the result of the weak domestic market, and much of the work on plants completed in 1995 had been performed in fiscal 1994 which had a record high beginning of the year backlog. Weak markets also have impacted the segment's equipment manufacturing businesses which suffered sales declines of 13%, 26%, and 21% in 1996, 1995, and 1994, respectively. The gross profit margins from construction of power plants were affected by cost overruns in both fiscal 1996 and 1995. In 1996, there were unanticipated costs on recent international projects and one domestic contract. In 1995, the overruns included additional costs to complete some projects that were started as early as fiscal 1992 which were substantially offset by profit estimate revisions on other projects. Margins on steam generating systems have improved each year as the result of outsourcing high cost manufacturing that had been performed in Company-owned facilities until fiscal 1995. Those costs, together with the sales decline, adversely affected the Company's overall gross profit margin in fiscal 1994. -33- The Power Systems segment's fiscal 1996 and 1995 operating losses are attributable to the lower revenues, cost overruns, and the higher cost of developing the international markets for ANNUAL REPORT PAGE 20 small- to medium-sized private power plants with long order lead times and, in 1996, the cost of closing a domestic office. The segment had an operating loss in fiscal 1994, rather than a $19.1 million profit, because of the $50.8 million of unusual items for litigation, plant closing costs, and the recovery of an account receivable written off in fiscal 1992. Power Systems revenues and operating profit from the domestic market are expected to remain at their low level in the near term because of the excess electric power generation capacity. For the balance of the decade, the North American market for new capacity will be substantially below the early 1990's level. The segment will not reflect the entire amounts for international projects in its revenues because they likely will be performed by consortiums such as the 50% owned joint venture which is responsible for the first such project being built in Australia. Rather, the segment's operating profit will include its equity in the earnings of the ventures which may be lower as the result of profit sharing with its partners and the highly competitive nature of the international markets. Corporate Compared to earlier years, fiscal 1996 expenses were offset by less investment income, the recognition of tax-related interest income associated with the litigation settlement described in the unusual items note to financial statements, and the gain from selling a minority interest investment in another company. Financial Condition Liquidity is important to the Company's ability to take on construction contract commitments. Year-end liquid assets amounted to $30.0 million, down from the $90.6 million accumulated at the end of fiscal 1993 primarily from the then growing level of power plant and water resource construction activities. Cash provided by continuing operations in fiscal 1996 would have been $21.9 million absent the $23.5 million net cash payments in connection with the litigation settlement. Less cash was provided by fiscal 1995's operations as the result of the lower earnings and the payment of accrued expenses, including most of the plant closing costs provided for in fiscal 1994. The amount of cash provided by continuing operations in fiscal 1994 was nominal partly because of the steam generating systems business loss. Cash from operations also was adversely affected in fiscal 1996 by the increase in contracts in progress and in the prior two years by the reductions in advance billings on contracts collected in fiscal 1993. The advance billings reductions offset the fiscal 1995 accounts receivable collections and, in 1994, they were almost double the benefit of utilizing inventories which had been purchased in the prior year. In addition to supplementing the cash used by operations in fiscal 1996 as a result of the litigation settlement, the marketable securities reduction was the source of the increase in cash and equivalents and provided funds for -34- capital expenditures, the plumbing products business acquisition, and the payment of dividends to shareholders. In fiscal 1995, the cash from investing activities provided 51% of the funds needed to pay dividends. The greater amount of capital expenditures in 1996 was for two new plumbing products facilities. Other significant uses of funds have been for ongoing investments in facilities and equipment, long-term investments, including the purchase of a plumbing products product line in fiscal 1994, and treasury stock purchases. The exclusion of the assets and liabilities of the discontinued operations from the individual working capital components in fiscal 1996 was the cause of most of the reductions from the prior year end. However, the accounts receivable and contracts in progress of continuing operations were greater as the result of the increase in construction activities by the Power Systems segment and the Water Control segment's water resource construction business. And more efficient cash management resulted in an increase in trade accounts payable. Most of the working capital components were reduced in both fiscal 1995 and 1994 as construction activities slowed. Year-end working capital without the discontinued operations' net assets averaged $118.2 million over the last three years and the fiscal 1996 year-end current ratio was equal to its historical level of 2.0 to 1. The Power Systems segment may find it necessary to make substantial equity and debt investments in power plant projects if it is to successfully compete in the domestic and international markets. Otherwise, no item, including the status of two power plant construction projects and the litigation described in the unusual items, commitments and contingencies note to the financial statements, is expected to have a ANNUAL REPORT PAGE 21 future material effect on the Company's financial position. Should financing be necessary in the future, the Company has a revolving credit agreement which is described in the debt and line of credit note to the financial statements. The $.22 per share quarterly dividend paid to shareholders since mid-fiscal 1991 was reduced to $.10 per share effective with the second quarter of fiscal 1996 payment as the result of a decision that the Company needed greater flexibility for growth opportunity investments in power plants or other business expansion. Prospectively, dividend payments will be based on future earnings trends and expectations and investment needs. Total capital employed at March 31, 1996 amounted to $238.5 million which includes $231.0 million ($18.71 per share of common stock) of shareholders' equity. The March 1996 equity to debt ratio was 31 to 1. Subsequent Event As stated in the note to financial statements, it was determined in June 1996 that the Company's earnings for the first quarter of fiscal 1997 would be reduced by approximately $3 million because of recent adverse weather and labor conditions at the Australian site of the power plant being constructed by the Power Systems segment's 50% joint venture. -35- ANNUAL REPORT PAGE 22 FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY Year Ended March 31 1995 1994 1993 1992 1991 (Thousands of Dollars Except Per Share Amounts) OPERATING DATA Net sales $421,539 $395,233 $709,225 $595,498 $536,532 Continuing operations income (loss) 17,288 15,159 (6,009) 29,750 14,584 Per share 1.41 1.24 (.49) 2.38 1.16 Common stock cash dividends declared per share .40 .88 .88 .88 .88 FINANCIAL POSITION AT YEAR END Liquid assets $ 30,031 $ 54,838 $ 65,433 $ 90,643 $ 69,723 Working capital 173,836 155,535 160,516 183,778 171,497 Property, plant, and equipment 42,054 56,162 57,003 70,423 67,138 Total assets 394,647 414,696 447,893 490,178 441,132 Debt and capital leases 7,549 11,553 13,806 20,934 18,164 Shareholders' equity 230,955 218,930 221,583 249,098 237,601 Per share of common stock 18.71 17.73 17.86 20.03 18.90 GENERAL STATISTICS Capital expenditures $ 10,238 $ 6,288 $ 5,746 $ 9,388 $7,237 Depreciation and amortization 6,527 6,253 7,439 7,573 8,537 Shareholders of record 4,822 5,355 6,277 6,278 6,445 Average common shares outstanding (thousands) 12,378 12,355 12,438 12,521 12,606 Common stock price range: High 26 23 3/8 39 1/2 40 3/4 39 1/4 Low 18 3/8 16 3/4 22 3/4 27 3/4 30 1/4 Data has been restated for the effects of the 1996 decision to discontinue the Lynx Golf and Mechanical Power Transmission segments. 1994 included costs relating to litigation ($38,902 - $2.00 per share) and a plant closing and the write off of assets ($20,300 - $1.02 per share). 1992 included restructuring costs ($14,700 - $.72 per share). -36- ANNUAL REPORT PAGE 23 UNAUDITED QUARTERLY FINANCIAL DATA
Year Ended March 31, 1996 Year Ended March 31, 1995 First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter (Thousands Except Per Share Amounts) Net sales $94,476 $103,267 $110,087 $113,709 $97,788 $97,131 $101,291 $99,023 Gross profit 20,709 24,483 23,984 20,421 18,767 21,816 20,165 21,948 Continuing operations income 2,758 4,112 4,780 5,638 2,807 4,062 3,693 4,597 Discontinued operations 1,891 (37) (1,286) (1,186) (863) (1,590) (2,331) (1,051) Net income 4,649 4,075 3,494 4,452 1,944 2,472 1,362 3,546 Earnings per share: Continuing operations .23 .34 .38 .46 .23 .33 .30 .38 Discontinued operations .15 (.01) (.10) (.10) (.07) (.13) (.19) (.09) Net income .38 .33 .28 .36 .16 .20 .11 .29 Common stock: Cash dividends declared .10 .10 .10 .10 .22 .22 .22 .22 Market price: High 20 7/8 26 25 5/8 23 1/4 23 3/8 20 3/8 19 5/8 191/2 Low 18 3/8 19 7/8 20 1/4 19 3/8 19 16 7/8 16 3/4 16 7/8 Fiscal 1996 fourth quarter unusual income items were gains on sales of underutilized assets ($2,442) and tax- related interest arising from the settlement of litigation ($2,152) totaling $.22 per share which were substantially offset by changes in the estimated costs of completing Power Systems segment international contracts. Fiscal 1995 unusual income items were interest ($546) and income taxes totaling $.07 per share in the fourth quarter from the settlement of prior year state assessments and $.03 per share during the year from adjusting plant closing provisions. Data has been restated for the effects of the fiscal 1996 fourth quarter decision to discontinue the Lynx Golf and Mechanical Power Transmission segments. Common stock market prices as reported in The Wall Street Journal. -37- /TABLE ANNUAL REPORT PAGE 24 CONSOLIDATED OPERATIONS Year Ended March 31 1995 1994 1993 (Thousands Except Per Share Amounts) Net Sales $421,539 $395,233 $709,225 Cost of sales 331,942 312,537 611,014 Marketing and administration 70,194 64,517 62,019 Unusual items (4,594) (1,191) 50,839 Interest income (3,368) (5,035) (5,035) Interest expense 3,496 3,859 3,128 Other income (2,559) (1,303) (1,351) Continuing Operations Income (Loss) Before Income Taxes 26,428 21,849 (11,389) Income tax expense (benefit) 9,140 6,690 (5,380) Continuing Operations Income (Loss) 17,288 15,159 (6,009) Discontinued operations: Loss from operations (18) (5,835) (7,867) Loss on disposal (600) Net Income (Loss) $ 16,670 $ 9,324 $ (13,876) Earnings (Loss) Per Share Continuing operations $1.41 $1.24 $ (.49) Discontinued operations (.06) (.48) (.63) Net income (loss) $1.35 $ .76 $(1.12) -38- ANNUAL REPORT PAGE 25 INDUSTRY SEGMENT DATA Corporate Water Power and Control Systems Others Total (Thousands) Year Ended March 31, 1996 Net sales $283,047 $136,856 $ 1,636 $421,539 Operating profit (loss) 34,291 (7,808) 445 26,928 Corporate expense 500 Income before income taxes 26,428 Identifiable assets: Continuing operations 154,520 90,861 92,013 Discontinued operations and total 57,253 394,647 Capital expenditures 8,900 1,083 255 10,238 Depreciation and amortization 4,481 1,325 721 6,527 Year Ended March 31, 1995 Net sales $232,862 $161,381 $ 990 $395,233 Operating profit (loss) 28,441 (4,768) 410 24,083 Corporate expense 2,234 Income before income taxes 21,849 Identifiable assets: Continuing operations 128,032 102,710 110,854 Discontinued operations and total 73,100 414,696 Capital expenditures 5,358 775 155 6,288 Depreciation and amortization 3,962 1,553 738 6,253 Year Ended March 31, 1994 Net sales $246,465 $462,049 $ 711 $709,225 Operating profit (loss) 22,095 (31,699) 43 (9,561) Corporate expense (1,828) Loss before income taxes (11,389) Identifiable assets: Continuing operations 124,042 122,021 126,446 Discontinued operations and total 75,384 447,893 Capital expenditures 3,923 1,599 224 5,746 Depreciation and amortization 3,623 3,063 753 7,439 See notes to consolidated financial statements. -39- ANNUAL REPORT PAGE 26 CONSOLIDATED FINANCIAL POSITION March 31 1996 1995 (Thousands) ASSETS Current Assets Cash and equivalents $ 16,195 $ 6,360 Marketable securities 13,836 48,478 Accounts receivable 93,713 115,373 Inventories and contracts in progress 69,753 84,264 Income taxes 32,340 38,751 Discontinued operations' net assets 57,253 Other assets 3,904 5,153 Total Current Assets 286,994 298,379 Property, Plant, And Equipment 42,054 56,162 Investments 37,611 35,447 Other Assets 27,988 24,708 $394,647 $414,696 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 48,441 $ 49,758 Advance billings on contracts in progress 13,787 14,623 Salaries, wages, and payroll items 10,404 10,761 Insurance 14,200 12,436 Litigation 27,501 Other liabilities 26,326 27,765 Total Current Liabilities 113,158 142,844 Long-Term Obligations 6,711 9,525 Retirement Obligations 43,823 43,397 Shareholders' Equity Common stock, $.50 par value per share 100,000 authorized - 12,570 issued 6,285 6,285 Capital in excess of par value 35,617 35,637 Retained earnings 194,418 182,393 Treasury stock - 229 and 230 shares (5,365) (5,385) 230,955 218,930 Commitments And Contingencies $394,647 $414,696 See notes to consolidated financial statements. -40- ANNUAL REPORT PAGE 27 CONSOLIDATED CASH FLOWS Year Ended March 31 1996 1995 1994 (Thousands) OPERATIONS Net income (loss) $ 16,670 $ 9,324 $(13,876) Items not affecting cash from continuing operations: Discontinued operations 618 5,835 7,867 Litigation 34,317 Plant closings and asset write-offs (2,442) (645) 20,476 Depreciation and amortization 6,527 6,253 7,439 Deferred income taxes 11,350 4,820 (15,030) Miscellaneous (2,294) (527) (496) Changes in operating assets and liabilities: Receivables (6,044) 1,780 (25,941) Inventories and prepaid expenses (2,520) (905) 3,531 Trade accounts payable and accrued expenses (21,472) (13,843) (16,100) Income taxes and interest (1,962) (1,408) 304 Total continuing operations (1,569) 10,684 2,491 Discontinued operations (2,484) 903 (694) Total (Used By) From Operations (4,053) 11,587 1,797 INVESTING Marketable securities 34,868 14,679 1,771 Capital expenditures (9,138) (6,288) (5,746) Purchase of business (5,967) (3,387) Sales of operations 3,476 521 2,716 Long-term investments 1,309 (2,226) (1,143) Notes receivable (170) 763 100 Property, plant, and equipment disposals 167 571 236 Discontinued operations (1,772) (2,507) (3,370) Total From (Used For) Investing 22,773 5,513 (8,823) FINANCING Dividends paid (6,415) (10,888) (10,956) Debt payments (1,458) (1,078) (1,334) Treasury stock purchased (1,926) (2,632) Stock options exercised 33 1,569 Discontinued operations (1,012) (1,018) (975) Total (Used For) Financing (8,885) (14,877) (14,328) CASH AND EQUIVALENTS Increase (decrease) 9,835 2,223 (21,354) Beginning of year 6,360 4,137 25,491 End Of Year $ 16,195 $ 6,360 $ 4,137 See notes to consolidated financial statements. -41- ANNUAL REPORT PAGE 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BUSINESS DESCRIPTION The Company and its subsidiaries operate in two industry segments. Its products and services are marketed by the Company's sales organizations and through factory sales offices and independent representatives and agents. Generally credit is extended based on evaluations of customers' financial condition. The Water Control segment manufactures and distributes plumbing products principally for the nonresidential construction markets in the United States and Canada with significant suppliers being located in China, Mexico, and the Pacific Rim. It also constructs a wide variety of systems to control and treat water and wastewater principally for government agencies in southern California and designs and installs fire sprinkler systems in the states of California, Hawaii, Texas, Utah, and Washington. The Power Systems segment designs, constructs, and operates small- to medium- sized alternate energy and combined-cycle power plants, designs steam generators and waste heat energy recovery and incineration systems, and produces equipment and fans to control emissions of solid particulate and gaseous pollutants. The segment's major construction contracts generally are with project financed entities with credit extended based on the financing without collateral. Since fiscal 1995, the Company has focused on the Asia-Pacific and South American markets; previously, most contracts had been for plants in the United States. Sales to individual customers amounting to more than 10% of consolidated sales were: 1995 - $42,253,000; 1994 - $192,456,000. The decision to sell the Lynx Golf and Mechanical Power Transmission segments before the end of fiscal 1997 was made in fiscal 1996. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements include the accounts of the Company and its subsidiaries after elimination of significant intercompany transactions and have been restated for the decision to discontinue two business segments. The reporting of amounts in the financial statements and related disclosures in conformity with generally accepted accounting principles requires management to make assumptions and estimates. Actual results could differ from the estimates. Investments Marketable and irrevocable trust securities are available-for-sale and are carried at their estimated fair values with unrealized gains and losses included in shareholders' equity as a component of retained earnings. Debt securities maturing within three months of purchase are cash equivalents. Certificates of deposit and notes receivable are carried at cost with interest recognized as it accrues. The sales-type lease represents the present value of future minimum rental payments. Business ventures are accounted for by the equity method, or carried at cost if less than 20% of the stock is owned. Financial Instrument Fair Values No class of instrument has a significant difference between its carrying value and estimated fair value based on market quotations, projected cash flows, and other estimating methods. -42- ANNUAL REPORT PAGE 28 CONTINUED Engineering and Construction Contracts Revenue and costs on long-term contracts are recognized by the cost-to-cost percentage-of-completion method, commencing when progress is sufficient to determine earnings with reasonable accuracy, based on estimates of total sales value and cost at completion. Earnings adjustments arising from changes in estimates are recognized currently. Estimated losses are recorded when identified. Inventories Inventories are valued at the lower of cost, which includes material, labor, and manufacturing overhead, or market. Properties Property, plant, and equipment are stated at cost. Depreciation and amortization of properties are provided over their estimated useful lives by the straight-line method. Foreign Currency Translation Translation adjustments of foreign subsidiaries, whose local currencies are their functional currencies, are included in shareholders' equity as a component of retained earnings. Earnings Per Share Earnings per share are based on income or loss and the average shares of common stock and dilutive stock options outstanding during the year (1996 - 12,378,000; 1995 - 12,355,000; 1994 - 12,438,000). Industry Segment Data Operating profit is net sales less operating costs and certain corporate administrative expenses, allocated to the segments in relation to their sales, payrolls, and assets, and excludes interest expense. Corporate amounts include gains from sales of businesses, investment income, interest expense, and administrative expenses allocated to discontinued operations and unallocated. Corporate assets consist principally of cash and equivalents, short-term marketable securities, long-term investments, and corporate headquarters and rental properties. Accounting Pronouncement Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," disclosures are not required until fiscal 1997 and, as permitted by the Statement, the Company intends to continue accounting for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". ANNUAL REPORT PAGE 29 UNUSUAL ITEMS, COMMITMENTS AND CONTINGENCIES The litigation charge was recognized as the result of a jury verdict against the Company in connection with a contract to construct an agricultural waste-burning power plant and includes $9,747,000 for the write-off of accounts receivable and $2,655,000 for legal costs. Settlement of the litigation in fiscal 1996 involved net cash payments of $23,500,000 and recognition of tax-related interest income, and provides future power plant investment, construction, and other business opportunities. The fiscal 1994 provision for closing the Energy Division manufacturing facilities of the Power Systems segment included $8,400,000 of probable cash -43- ANNUAL REPORT PAGE 29 CONTINUED expenditures and $11,900,000 in asset write-downs. The cash expenditure provision has been disbursed or allocated to retirement obligations and unused provisions were included in fiscal 1995's income. The fiscal 1996 gain on sale of the equipment was $2,085,000. In fiscal 1994, the Power Systems segment recovered an account receivable it had written off in fiscal 1992, and the revaluation of net deferred tax assets because of a tax law change reduced the Company's net loss for the year by $.15 per share. Interest from settlement of prior year state tax assessments included in unusual items and the associated income taxes amounted to $.07 per share in 1995. The Power Systems segment had nearly completed the construction of one power plant and commenced work on another when, in March 1996, the State of Illinois Retail Rate Law of 1987 was repealed and resulted in a bankruptcy filing by the first project and the halting of work on the other. The projects' owner has filed suits challenging the retroactive application of the law's repeal. If the repeal is not reversed and the projects' assets, including debt funding by the owner, are insufficient, the Company could sustain up to a $14,000,000 pretax loss for which no provision has been made as management believes the Company's costs will be recovered. In the normal course of business, financial and performance guarantees are made in connection with major engineering and construction contracts and a liability is recognized when a probable loss occurs. Also, there are various claims, legal, and environmental proceedings which management believes will have no material effect on the Company's financial position or results of operations when they are resolved. UNUSUAL ITEMS Year Ended March 31 1996 1995 1994 (Thousands) Litigation $(2,152) $38,902 Asset sales and plant closings (2,442) $ (645) 20,300 Doubtful account recovery (8,363) Prior year state income tax settlement (546) $(4,594) $(1,191) $50,839 SUBSEQUENT EVENT Adverse weather conditions and labor relations encountered subsequent to the end of fiscal 1996 at the site of the power plant being constructed by the Power Systems segment's 50% joint venture in Australia have increased the costs now expected to be incurred in completing the contract. The change in estimate is expected to reduce the Company's pretax earnings for the first quarter of fiscal 1997 by approximately $3,000,000. -44- ANNUAL REPORT PAGE 29 CONTINUED FINANCIAL INSTRUMENTS Unrealized March 31, 1996 Cost Gain Loss Fair Value (Thousands) Statement Classification Cash and equivalents $ 4,918 $ 4,918 Marketable securities 13,834 $ 5 $ 3 13,836 Other current assets 1,684 85 1,769 Investments 16,773 50 1,420 15,403 $37,209 $140 $1,423 $35,926 Investment Type Certificates of deposit $2,177 $2,177 Debt securities: United States Treasury 6,507 $ 3 6,504 States and subdivisions 11,755 $ 13 12 11,756 Tax exempt bond funds 7,721 127 7,848 Mortgage-backed 9,049 1,408 7,641 $37,209 $140 $1,423 $35,926 Unrealized March 31, 1995 Cost Gain Loss Fair Value (Thousands) Statement Classification Cash and equivalents $ 5,902 $ 5,902 Marketable securities 48,702 $ 2 $ 226 48,478 Other current assets 1,518 38 1,556 Investments 18,437 120 3,207 15,350 $74,559 $160 $3,433 $71,286 Investment Type Certificates of deposit $ 1,017 $ 1,017 Debt securities: United States Treasury 9,796 $ 1 9,795 States and subdivisions 33,453 $ 29 251 33,231 Tax exempt bond funds 21,128 131 3 21,256 Mortgage-backed 9,165 3,178 5,987 $74,559 $160 $3,433 $71,286 The certificates of deposit and United States Treasury securities are pledged in lieu of customers holding construction contract retainage. Debt securities mature within three years except for mortgage-backed instruments maturing in various subsequent years. -45- ANNUAL REPORT PAGE 30 ACCOUNTS RECEIVABLE (Thousands) At March 31, 1996 accounts receivable include retainage on long-term contracts expected to be collected in fiscal 1997 - $9,841 and 1998 - $2,491. Allowances deducted are: 1996 - $2,647; 1995 - $4,238. INVENTORIES AND CONTRACTS IN PROGRESS March 31 1996 1995 (Thousands) Finished products $45,386 $47,608 Work in process 3,708 12,751 Raw materials and supplies 5,430 15,577 Contracts in progress 15,229 8,328 $69,753 $84,264 Last-in, first-out (LIFO) method 77% 75% First-in, first-out (FIFO) method 23 25 Inventory increase if only the FIFO method, which approximates replacement costs, had been used $7,104 $13,100 PROPERTY, PLANT, AND EQUIPMENT March 31 1996 1995 (Thousands) Land and land improvements $ 6,621 $ 7,235 Buildings and leasehold improvements 31,183 37,217 Machinery and equipment 64,491 99,154 102,295 143,606 Depreciation and amortization 60,241 87,444 $ 42,054 $ 56,162 INVESTMENTS March 31 1996 1995 (Thousands) Irrevocable trust securities for nonqualified pension, deferred compensation, and other employee plans $15,403 $15,350 Notes receivable 11,690 8,426 Sales-type lease 7,441 7,659 Business ventures 3,058 3,726 Other 19 286 $37,611 $35,447 -46- ANNUAL REPORT PAGE 30 CONTINUED DEBT AND LINE OF CREDIT The Company has a $100,000,000 three-year commitment, annually extendable for one year by mutual agreement until February 2001, from a group of banks for letters of credit ($18,656,000 outstanding at March 31, 1996) and revolving credit loans with interest, at the Company's election, at the agent bank's prime rate, or based on quoted bid rates for certificates of deposit or the London interbank market rate. The line of credit contains restrictive covenants pertaining to the maintenance of working capital and net worth and limits certain indebtedness. Outstanding letters of credit issued under other arrangements amounted to $2,558,000 at March 31, 1996. Payment of the unsecured note is guaranteed by the lessee under a sales-type lease. LONG-TERM OBLIGATIONS March 31 1996 1995 (Thousands) Unsecured note - 8.46% interest $6,805 $ 7,148 Notes secured by various properties - 4% to 7% interest 59 436 Capital lease obligations 685 611 Discontinued operations 3,358 7,549 11,553 Less current portion 838 2,028 $6,711 $ 9,525 Year Ended March 31 1996 1995 1994 (Thousands) Interest incurred $3,584 $3,883 $3,128 Interest paid 3,306 3,998 2,763 Interest capitalized 88 24 Long-term obligation principal payments due in future fiscal years: 1997 - $838; 1998 - $691; 1999 - $578; 2000 - $533; 2001 - $572; thereafter - $4,337. ANNUAL REPORT PAGE 31 RETIREMENT OBLIGATIONS Substantially all employees are covered by noncontributory Company sponsored or multiemployer defined benefit plans. Benefits of stated amounts for each year of service are provided by the multiemployer plans and to 19% of the participants in the Company's plans, while benefits for others are based on years of service and the five highest years' compensation in the ten years prior to retirement, or compensation at retirement. Funding of Company sponsored plans, invested primarily in listed stocks and bonds and cash equivalents, is the minimum required by law and additional amounts as deemed appropriate from time to time. Contributions to multiemployer plans are related to hours worked or compensation levels. -47- ANNUAL REPORT PAGE 31 CONTINUED The Company provides postretirement medical and death benefits for certain retirees and their spouses from unfunded plans. Employees participating in the primary pension plan on December 31, 1986, or in other plans through various dates ending in 1989, are eligible for these benefits. The Company also sponsors defined contribution plans. FUNDING STATUS March 31 1996 1995 Pension Plans Medical Pension Plans Medical Over Under And Life Over Under And Life Funded Funded Plans Funded Funded Plans (Thousands) Actuarial present value of benefits: Vested $ 89,766 $ 10,863 $21,606 $ 74,964 $10,990 $ 20,613 Nonvested 1,319 63 5,256 897 249 4,570 Accumulated 91,085 10,926 26,862 75,861 11,239 25,183 Salary increases 9,356 18 6,682 1,495 Projected 100,441 10,944 26,862 82,543 12,734 25,183 Plans' assets 160,611 1,063 125,686 3,910 Asset excess (deficiency) 60,170 (9,881) (26,862) 43,143 (8,824) (25,183) Unrecognized: Net (gain) loss (37,536) 1,575 (4,743) (22,618) 521 (6,046) Initial (asset) obligation (1,311) 463 (3,478) (155) Prior service cost (2,724) (1) (331) (573) Minimum liability (2,158) (669) Prepaid (accrued) cost $ 18,599 $(10,002) $(31,605) $ 16,716 $(9,700) $(31,229) COSTS Company Defined Benefit Plans Pension Medical and Life Year Ended March 31 1996 1995 1994 1996 1995 1994 (Thousands) Service cost $ 1,659 $ 2,205 $ 2,654 $ 268 $ 459 $ 541 Interest 7,990 7,644 7,360 2,075 2,103 2,240 Termination benefits 1,111 2,652 142 Curtailment (gain) loss (1,112) (116) 63 (Return) loss on assets (38,165) 3,764 (13,888) Other 26,340 (15,056) 3,031 (309) Net expense (income) $ (2,176) $ (332) $ 697 $2,034 $2,446 $2,986 -48- ANNUAL REPORT PAGE 31 CONTINUED Other Plans Year Ended March 31 1996 1995 1994 (Thousands) Multiemployer $2,157 $1,841 $2,512 Defined contribution 327 223 341 ACTUARIAL ASSUMPTIONS Year Ended March 31 1996 1995 1994 Obligation discount 7.25% 8.5% 7.25% Compensation increase 4.35 to 7.5 4.85 to 8.0 4.35 to 7.5 Asset long-term return 9.0 9.0 9.0 Health care cost trend rate 12.0 12.5 13.0 The accumulated medical and life plan obligation is attributable to: retirees - 68%; fully-eligible employees - 12%; other active employees - 20%. The assumed health care cost trend rate declines 1/2% each year to 5.25% in 2010. A 1% greater rate would increase the accumulated obligation by $2,735,000 and the annual expense by $280,000. The fiscal 1996 increases in the actuarial present values of projected benefits generally are attributable to the obligation discount rate decrease. The pension plans' present value changes were offset by the greater than projected returns on assets included in the $26,340,000 of other pension costs. Most of the termination benefits and curtailment gains were included in the fiscal 1994 plant closing cost provision. SHAREHOLDERS' EQUITY There are 1,498,000 shares of unreserved authorized preferred stock and 1,569,000 shares of common stock are reserved for the exercise of stock options. 3,500,000 shares of Second Series Junior Participating Preferred Stock ($1.00 par value, $2.00 liquidation preference to common stock, aggregate liquidation payment of four times common stock payment, redeemable at the greater of $360 or four times the current common stock market price) are reserved for issuance on exercise of rights attached to outstanding common stock. The rights may be redeemed at $.01 per right and expire in May 2006. If 15% or more of the Company's common stock becomes beneficially owned by a person or group (subject to the Board of Directors' authority to defer distribution and exercise of the rights until 20% is acquired), or if an exchange or tender offer which would result in 15% or more ownership is commenced, the rightholders, except such beneficial owners, may purchase one-quarter share of the preferred stock for $90 or, for $90, they may purchase ANNUAL REPORT PAGE 32 shares of the Company's common stock at one-half their market value. If other change in control events occur, the same rightholders may, for $90, purchase shares of the acquirer's common stock at one-half their market value. The Company's stock option plan provides for granting either nonqualified or -49- ANNUAL REPORT PAGE 32 CONTINUED incentive stock options to key employees to purchase no earlier than six months after the grant date shares of common stock at its market value on the grant date. Another plan provides for the annual distribution of a nonqualified option for 2,000 shares of common stock, at its market value on the distribution date, to each director who is not employed by the Company. Outstanding options expire on dates from September 1996 to December 2005. In fiscal 1994, 30,000 shares of common stock ($884,000 market value) were received in lieu of cash and distributed on exercise of options for 42,000 shares and 12,000 additional shares were issued with a $248,000 charge to retained earnings. RETAINED EARNINGS COMPONENTS March 31 1996 1995 1994 (Thousands) Investment unrealized loss $ (809) $ (2,064) $ (1,241) Pension minimum liability (1,064) (291) (1,007) Currency translation (1,101) (912) (1,288) Retained earnings 197,392 185,660 187,206 STOCK OPTIONS Option Price Shares Per Share (Thousands of Shares) Year Ended March 31, 1996 Granted 220 $20.00 - $24.375 Canceled 10 20.75 - 34.50 At year end: Outstanding 1,158 18.25 - 45.375 Average 29.37 Exercisable 547 20.75 - 45.375 Available for grant 411 Year Ended March 31, 1995 Granted 262 $18.25 - $22.00 Exercised 2 21.125 Canceled 15 21.125 - 21.25 At year end: Outstanding 948 18.25 - 45.375 Average 31.26 Exercisable 465 28.75 - 45.375 Available for grant 476 Year Ended March 31, 1994 Granted 131 $32.75 - $37.25 Exercised 94 21.125 - 28.75 Canceled 5 37.25 -50- ANNUAL REPORT PAGE 32 CONTINUED CONSOLIDATED SHAREHOLDERS' EQUITY Capital in Common Excess of Retained Treasury Stock Par Value Earnings Stock Total (Thousands) Balance April 1, 1993 $6,285 $36,372 $210,483 $(4,042) $249,098 Net loss (13,876) (13,876) Cash dividends declared - $.88 per common share (10,945) (10,945) Treasury stock purchased - 99 shares (2,632) (2,632) Conversion of debentures - 8 shares (114) 227 113 Stock options - 64 shares (32) (248) 1,849 1,569 Investment unrealized loss (1,241) (1,241) Pension minimum liability (123) (123) Currency translation (380) (380) Balance March 31, 1994 6,285 36,226 183,670 (4,598) 221,583 Net income 9,324 9,324 Cash dividends declared - $.88 per common share (10,870) (10,870) Treasury stock purchased - 103 shares (1,926) (1,926) Conversion of debentures - 37 shares (577) 1,095 518 Stock options - 2 shares (12) 44 32 Investment unrealized loss (823) (823) Pension minimum liability 716 716 Currency translation 376 376 Balance March 31, 1995 6,285 35,637 182,393 (5,385) 218,930 Net income 16,670 16,670 Cash dividends declared - $.40 per common share (4,938) (4,938) Conversion of preferred stock - 1 shares (20) 20 Investment unrealized gain 1,255 1,255 Pension minimum liability (773) (773) Currency translation (189) (189) Balance March 31, 1996 $6,285 $35,617 $194,418 $(5,365) $230,955 -51- ANNUAL REPORT PAGE 33 INCOME TAXES NET DEFERRED TAX ASSET COMPONENTS March 31 1996 1995 (Thousands) Retirement obligations $12,700 $14,140 Litigation 10,090 Engineering and construction contracts 5,980 5,350 Insurance 4,830 4,650 Discontinued operations 4,280 Warranties 2,240 2,900 Deferred compensation 1,530 1,660 Plant closings 1,450 3,690 Allowance for doubtful accounts 1,220 3,560 Miscellaneous 1,220 2,520 35,450 48,560 Valuation allowance (40) (380) Depreciation and amortization (4,950) (6,440) $30,460 $41,740 PROVISIONS Year Ended March 31 1996 1995 1994 (Thousands) Current federal $(2,540) $2,400 $ 8,310 Current state 330 200 1,340 Prior year state tax settlement (730) (2,210) 1,870 9,650 Deferred federal 10,380 3,880 (12,210) Deferred state 970 940 (910) Deferred tax rate change (1,910) 11,350 4,820 (15,030) $ 9,140 $6,690 $ (5,380) TAX RATE RECONCILEMENT Year Ended March 31 1996 1995 1994 Federal statutory rate 35.0% 35.0% (35.0)% State income taxes, net of federal tax benefit 4.0 4.3 (7.9) Tax exempt investment income (2.2) (3.7) (9.4) Deferred tax valuation allowance (1.3) (1.4) 4.7 Prior year state tax settlement (2.2) Miscellaneous (.9) (1.4) .4 Effective rate 34.6% 30.6% (47.2)% -52- ANNUAL REPORT PAGE 33 CONTINUED TAXES PAID Year Ended March 31 1996 1995 1994 (Thousands) $4,473 $3,525 $ 9,357 JOINT VENTURE The Power Systems segment has a 50% joint venture interest in a contract to construct a natural gas-fired combined-cycle power plant in Australia and is providing engineering, construction management, and start-up services to the venture. Venture financial data for the twelve months ended March 31, 1996 and amounts included in the Company's fiscal 1996 consolidated financial statements related to the venture are: Joint Venture Data (Thousands) Revenues $ 74,273 Profit 884 Cash equivalents $ 2,894 Accounts receivable 13,439 Accounts payable (13,265) Advance billings on contracts in progress (1,545) Other assets and liabilities, net 191 Net assets $ 1,714 Consolidated Financial Statement Data (Thousands) Net sales $ 3,741 Accounts receivable 887 Advance billings on contracts in progress (430) See Subsequent Event note. ACQUISITIONS The Water Control segment purchased a plumbing products business in fiscal 1996's third quarter. The fair value of the assets acquired and liabilities assumed were $7,726,000 and $1,759,000, respectively. The business had fiscal 1995 sales of $14,204,000 and net income of $761,000. A plumbing products product line was purchased in fiscal 1994. -53- ANNUAL REPORT PAGE 33 CONTINUED DISCONTINUED OPERATIONS The net sales and pretax income (loss) of the Lynx Golf and Mechanical Power Transmission segments for the last three fiscal years and their net assets at March 31, 1996 were: 1996 1995 1994 (Thousands) Net sales $86,016 $67,948 $76,463 Income (loss) before income taxes 41 (8,465) (12,081) Accounts receivable $24,224 Inventories 29,891 Property, plant, and equipment 16,537 Trade accounts payable (6,763) Long-term obligations (2,411) Other assets and liabilities, net (4,225) Net assets $57,253 -54- EX-21 6 EXHIBIT 21 - SUBSIDIARIES EXHIBIT 21 - SUBSIDIARIES State or Other Jurisdiction Subsidiary of Incorporation Cosco Fire Protection, Inc. -A California Environmental Energy Company California Firetrol Protection Systems, Inc. Utah Gary Concrete Products, Inc. -A Georgia HL Capital Corp. California Lynx Golf, Inc. California Lynx Golf (Canada) Ltd. -B Ontario, Canada Lynx Golf (Scotland) Limited -B United Kingdom National Energy Production Corporation Washington NEPCO of Australia, Inc. -C Washington NEPCO of Canada, Inc. - C Delaware NEPCO of Ford Heights, Inc. -C Illinois NEPCO of Fulton Heights, Inc. -C Illinois NEPCO of Pakistan, Inc. -C Washington Nuevo Camino Constructors Co. California Operational Energy Corp. -C California Pakistan Construction Services, Inc. Delaware Sanitary-Dash Manufacturing Co., Inc. Delaware Sharyn Steam, Inc. California ZED Erection Services of Thailand, Inc. Delaware Zurco, Inc. Delaware Zurn (Cayman Islands), Inc. Delaware Zurn Constructors, Inc. California Zurn Export, Inc. U.S. Virgin Islands Zurn Industries Limited Ontario, Canada Zurn Industries (Thailand) Company Limited Thailand Zurn Thailand of Delaware, Inc. Delaware A-Subsidiary of Zurn Constructors, Inc. B-Subsidiary of Lynx Golf, Inc. C-Subsidiary of National Energy Production Corporation -55- EX-23 7 EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-8 No. 33-19103 pertaining to the 1986 Stock Option Plan, the Registration Statement on Form S-8 No. 33-30383 pertaining to the 1989 Directors Stock Option Plan, and the Registration Statement on Form S-8 No. 33-49224 pertaining to the 1991 Stock Option Plan of Zurn Industries, Inc., in Registration Statement on Form S-8 No. 333-00823 pertaining to the Zurn Retirement Savings Plan, and in Registration Statement on Form S-8 No. 333- 00813 pertaining to the Zurn/NEPCO Retirement Savings Plan of our report dated May 16, 1996, except for the Subsequent Event note, as to which the date is June 27, 1996 included in Item 8 with respect to the consolidated financial statements and financial statement schedule incorporated by reference or included in the Annual Report on Form 10-K of Zurn Industries, Inc. /s/ Ernst & Young LLP Erie, Pennsylvania June 27, 1996 -56- EX-27.1 8 EXHIBIT 27 - FINANCIAL DATA SCHEDULE YEAR ENDED MARCH 31, 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF CONSOLIDATED FINANCIAL POSITION AND CONSOLIDATED OPERATIONS LISTED IN ITEM 14 OF THIS REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 MAR-31-1996 MAR-31-1996 YEAR 16,195 13,836 96,360 2,647 69,753 286,994 102,295 60,241 394,647 113,158 6,711 0 0 6,285 224,670 394,647 421,539 0 331,942 0 0 0 3,496 26,428 9,140 17,288 (618) 0 0 16,670 1.35 0
EX-27.2 9 EXHIBIT 27 - RESTATED FINANCIAL DATA SCHEDULE YEAR ENDED MARCH 31, 1996 INTERIM QUARTERS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE INTERIM QUARTERS OF THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 MAR-31-1996 MAR-31-1996 MAR-31-1996 JUN-30-1995 SEP-30-1995 DEC-31-1995 3-MOS 6-MOS 9-MOS 11,282 5,348 13,507 41,941 44,333 16,225 115,420 108,819 105,204 0 0 0 88,960 96,638 108,133 300,188 296,483 283,821 146,157 149,859 152,282 89,630 91,345 92,468 417,395 417,051 411,467 141,547 138,227 130,506 9,089 9,002 8,400 0 0 0 0 0 0 6,285 6,285 6,285 216,754 219,858 222,314 417,395 417,051 411,467 94,476 103,267 110,087 0 0 0 73,767 78,784 86,103 0 0 0 0 0 0 0 0 0 1,084 1,133 974 4,688 6,732 7,710 1,930 2,620 2,930 2,758 4,112 4,780 1,891 (37) (1,286) 0 0 0 0 0 0 4,649 4,075 3,494 .38 .33 .28 0 0 0
EX-27.3 10 EXHIBIT 27 - RESTATED FINANCIAL DATA SCHEDULE YEAR ENDED MARCH 31, 1995
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995 LISTED IN ITEM 14 OF THIS REPORT ON FORM 10-K AND FOR INTERIM QUARTERS OF FISCAL 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 MAR-31-1995 MAR-31-1995 MAR-31-1995 MAR-31-1995 JUN-30-1994 SEP-30-1994 DEC-31-1994 MAR-31-1995 3-MOS 6-MOS 9-MOS YEAR 4,011 12,402 12,070 6,360 50,246 57,841 54,405 48,478 137,333 115,101 107,889 119,611 0 0 0 4,238 80,158 80,835 81,008 84,264 319,763 314,688 302,636 298,379 140,066 140,587 142,129 143,606 83,494 84,649 85,845 87,444 435,873 429,782 418,173 414,696 159,805 155,361 145,249 142,844 10,413 10,245 9,793 9,525 0 0 0 0 0 0 0 0 6,285 6,285 6,285 6,285 214,325 212,281 210,637 212,645 435,873 429,782 418,173 414,696 97,788 97,131 101,291 395,233 0 0 0 0 79,021 75,315 81,126 64,517 0 0 0 0 0 0 0 0 0 0 0 0 927 1,032 947 3,859 4,147 6,092 5,518 21,849 1,340 2,030 1,825 6,690 2,807 4,062 3,693 15,159 (863) (1,590) (2,331) (5,835) 0 0 0 0 0 0 0 0 1,944 2,472 1,362 9,324 .16 .20 .11 .76 0 0 0 0
EX-27.4 11 EXHIBIT 27 - RESTATED FINANCIAL DATA SCHEDULE YEAR ENDED MARCH 31, 1994
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994 LISTED IN ITEM 14 OF THIS REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 MAR-31-1994 MAR-31-1994 YEAR 4,137 61,296 138,531 6,203 86,379 331,662 138,781 81,778 447,893 171,146 10,972 0 0 6,285 215,298 447,893 709,225 0 611,014 0 0 0 3,128 (11,389) (5,380) (6,009) (7,867) 0 0 (13,876) (1.12) 0
EX-99.1 12 EXHIBIT 99.1 - FORM 11-K ZURN RETIREMENT SAVINGS PLAN EXHIBIT 99.1 FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the Fiscal Year Ended December 31, 1995 ___ Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Transition Period From ___________ To __________ Commission File Number 1-5502 ZURN RETIREMENT SAVINGS PLAN (Full title of the Plan) ZURN INDUSTRIES, INC. One Zurn Place, Erie, Pennsylvania 16505 (Name and address of issuer of securities held pursuant to the Plan) -1- Pension Committee Zurn Industries, Inc. Erie, Pennsylvania We have audited the accompanying statements of net assets available for benefits of the Zurn Retirement Savings Plan as of December 31, 1995 and 1994, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's administrator. 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 the administrator, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Zurn Retirement Savings Plan as of December 31, 1995 and 1994, and the changes in its net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of expressing an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes at December 31, 1995 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Pashke Twargowski & Lee Erie, Pennsylvania June 21, 1996 -2- STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS ZURN RETIREMENT SAVINGS PLAN December 31 1995 1994 ASSETS Investments in T. Rowe Price Funds: U.S. Treasury Money $2,608,541 $2,232,858 U.S. Treasury Intermediate 69,515 26,922 New Income 658,843 445,518 Balanced 223,059 58,186 Capital Appreciation 2,871,205 2,070,228 Equity Index 2,582,553 1,611,665 International Stock 424,092 306,343 OTC 205,270 84,488 9,643,078 6,836,208 Contributions receivable 24,080 30,369 Participants' loans 210,856 126,543 NET ASSETS AVAILABLE FOR BENEFITS $9,878,014 $6,993,120 See notes to financial statements. -3- STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS ZURN RETIREMENT SAVINGS PLAN Year Ended December 31, 1995
T. Rowe Price Funds U.S. Treasury New Capital Money Intermediate Income Balanced Appreciation ADDITIONS Investment income: Dividends $ 125,150 $ 3,260 $ 36,488 $ 7,590 $ 224,572 Net appreciation in value of investments 4,035 53,407 21,570 270,135 125,150 7,295 89,895 29,160 494,707 Participants' contributions 538,334 80,697 161,506 76,928 508,542 Participants' loan interest 2,972 1,006 577 1,036 3,788 TOTAL ADDITIONS 666,456 88,998 251,978 107,124 1,007,037 BENEFITS PAID TO PARTICIPANTS 275,850 764 52,008 3,998 128,003 NET ADDITIONS 390,606 88,234 199,970 103,126 879,034 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 2,232,858 26,922 445,518 58,186 2,070,228 Transfers (14,923) (45,641) 13,355 61,747 (78,057) End of year $2,608,541 $ 69,515 $ 658,843 $ 223,059 $2,871,205 See notes to financial statements. -4- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued ZURN RETIREMENT SAVINGS PLAN Year Ended December 31, 1995
T. Rowe Price Funds Equity International Index Stock OTC Other Total ADDITIONS Investment income: Dividends $ 99,425 $ 12,780 $ 23,671 $ 532,936 Net appreciation in value of investments 553,875 25,783 14,782 943,587 653,300 38,563 38,453 1,476,523 Participants' contributions 444,790 120,500 53,309 $ (6,289) 1,978,317 Participants' loan interest 4,871 530 55 14,835 TOTAL ADDITIONS 1,102,961 159,593 91,817 (6,289) 3,469,675 BENEFITS PAID TO PARTICIPANTS 117,529 3,424 1,476 1,729 584,781 NET ADDITIONS (DEDUCTIONS) 985,432 156,169 90,341 (8,018) 2,884,894 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 1,611,665 306,343 84,488 156,912 6,993,120 Transfers (14,544) (38,420) 30,441 86,042 End of year $2,582,553 $ 424,092 $ 205,270 $ 234,936 $9,878,014 See notes to financial statements. -5- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS ZURN RETIREMENT SAVINGS PLAN Year Ended December 31, 1994
T. Rowe Price Funds U.S. Treasury New Capital Money Intermediate Income Balanced Appreciation ADDITIONS Investment income (loss): Dividends $ 70,445 $ 1,039 $ 29,592 $ 2,978 $ 163,988 Net (depreciation) in value of investments (1,474) (37,461) (3,411) (96,013) 70,445 (435) (7,869) (433) 67,975 Participants' contributions 572,980 11,123 193,726 18,455 556,320 Participants' loan interest 1,488 473 1,822 TOTAL ADDITIONS 644,913 10,688 186,330 18,022 626,117 BENEFITS PAID TO PARTICIPANTS 160,548 7,719 2,499 80,112 NET ADDITIONS 484,365 10,688 178,611 15,523 546,005 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 1,893,688 364,646 1,596,947 Transfers (145,195) 16,234 (97,739) 42,663 (72,724) End of year $2,232,858 $ 26,922 $ 445,518 $ 58,186 $2,070,228 See notes to financial statements. -6- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued ZURN RETIREMENT SAVINGS PLAN Year Ended December 31, 1994
T. Rowe Price Funds Equity International Index Stock OTC Other Total ADDITIONS Investment income (loss): Dividends $ 59,665 $ 18,785 $ 8,722 $ 355,214 Net (depreciation) in value of investments (41,456) (28,283) (8,332) (216,430) 18,209 (9,498) 390 138,784 Participants' contributions 447,897 72,005 26,142 $ (1,693) 1,896,955 Participants' loan interest 1,874 548 29 6,234 TOTAL ADDITIONS 467,980 63,055 26,561 (1,693) 2,041,973 BENEFITS PAID TO PARTICIPANTS 84,853 4,111 390 1,745 341,977 NET ADDITIONS (DEDUCTIONS) 383,127 58,944 26,171 (3,438) 1,699,996 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 1,332,328 105,515 5,293,124 Transfers (103,790) 247,399 58,317 54,835 End of year $1,611,665 $ 306,343 $ 84,488 $ 156,912 $6,993,120 See notes to financial statements. -7- /TABLE NOTES TO FINANCIAL STATEMENTS ZURN RETIREMENT SAVINGS PLAN December 31, 1995 PLAN DESCRIPTION The Zurn Retirement Savings Plan is a defined contribution plan providing retirement benefits through participant-directed investments to participants in the Zurn Industries Retirement Plan and Cosco Fire Protection Plan for Salaried Employees. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company has agreed to contribute participants' elective deferrals of up to 20% of eligible compensation. Participants also may contribute non-taxed distributions from other employers' qualified plans and they may borrow from their accounts subject to specified limitations. Information about the Plan agreement and the benefit provisions is contained in the "Summary Plan Description" which may be obtained from Zurn Industries, Inc., the Plan Administrator. SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Investments The investments are stated at market value as determined by the funds. Investment Transactions Investment transactions are recorded as of the date the order to buy or sell is executed with realized gains and losses being included in investment income as a component of the net appreciation (depreciation) in the value of investments. Participants' Loans Participants' loans are stated at the principal amount due from the participants. Dividends Dividend income is recognized on the ex-dividend date. Expenses Administrative expenses are paid by the Plan Administrator. INCOME TAX STATUS The Internal Revenue Service has ruled that the Plan qualifies under Section 401(a) of the Internal Revenue Code and is, therefore, not subject to tax under present income tax law. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator is not aware of any course of action or series of events that might adversely affect the Plan's qualified status. -8- SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES ZURN RETIREMENT SAVINGS PLAN December 31, 1995 ASSETS OWNED AT YEAR-END Cost Current Value T. Rowe Price Funds: U.S. Treasury Money $2,608,540 $2,608,541 U.S. Treasury Intermediate 67,037 69,515 New Income 635,976 658,843 Balanced 205,290 223,059 Capital Appreciation 2,623,516 2,871,205 Equity Index 2,008,677 2,582,553 International Stock 420,724 424,092 OTC 198,867 205,270 Participants' loans - 7% to 10% interest -0- 210,856 -9- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Pension Committee of Zurn Industries, Inc. has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. ZURN RETIREMENT SAVINGS PLAN (Plan) June 21, 1996 /s/ James A. Zurn James A. Zurn, Chairman Pension Committee of Zurn Industries, Inc. -10- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-8 No. 333-00823 pertaining to the Zurn Retirement Savings Plan of our report dated June 21, 1996 with respect to the financial statements and supplemental schedule included in the Annual Report on Form 11-K of the Zurn Retirement Savings Plan. /s/ Pashke Twargowski & Lee Erie, Pennsylvania June 21, 1996 -11- EX-99.2 13 EXHIBIT 99.2 - FORM 11-K ZURN/NEPCO RETIREMENT SAVINGS PLAN EXHIBIT 99.2 FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the Fiscal Year Ended December 31, 1995 ___ Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Transition Period From ___________ To __________ Commission File Number 1-5502 ZURN/NEPCO RETIREMENT SAVINGS PLAN (Full title of the Plan) ZURN INDUSTRIES, INC. One Zurn Place, Erie, Pennsylvania 16505 (Name and address of issuer of securities held pursuant to the Plan) -1- Pension Committee Zurn Industries, Inc. Erie, Pennsylvania We have audited the accompanying statements of net assets available for benefits of the Zurn/NEPCO Retirement Savings Plan as of December 31, 1995 and 1994, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's administrator. 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 the administrator, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Zurn/NEPCO Retirement Savings Plan as of December 31, 1995 and 1994, and the changes in its net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of expressing an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes at December 31, 1995, and loans or fixed income obligations for the year then ended are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Pashke Twargowski & Lee Erie, Pennsylvania June 21, 1996 -2- STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS ZURN/NEPCO RETIREMENT SAVINGS PLAN December 31 1995 1994 ASSETS Investments in T. Rowe Price Funds: U.S. Treasury Money $1,034,694 $ 960,357 U.S. Treasury Intermediate 29,088 14,646 New Income 329,704 219,579 Balanced 156,206 77,858 Capital Appreciation 2,549,859 1,757,743 Equity Index 2,019,045 1,226,294 International Stock 514,214 360,970 OTC 201,807 55,369 6,834,617 4,672,816 Participants' loans 373,881 221,555 Contributions receivable: Participants' 41,905 38,184 Employers' 10,171 10,470 TOTAL ASSETS 7,260,574 4,943,025 FORFEITED EMPLOYERS' CONTRIBUTIONS 24,151 23,562 NET ASSETS AVAILABLE FOR BENEFITS $7,236,423 $4,919,463 See notes to financial statements. -3- STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS ZURN/NEPCO RETIREMENT SAVINGS PLAN Year Ended December 31, 1995
T. Rowe Price Funds U.S. Treasury New Capital Money Intermediate Income Balanced Appreciation ADDITIONS Investment income: Dividends $ 52,207 $ 1,620 $ 19,015 $ 6,319 $ 199,497 Net appreciation in value of investments 2,014 27,427 18,772 239,574 52,207 3,634 46,442 25,091 439,071 Contributions: Participants' 194,690 14,071 94,624 53,638 468,247 Employers' 53,980 2,633 20,382 8,441 99,679 Participants' loan interest 4,004 27 533 583 5,991 TOTAL ADDITIONS 304,881 20,365 161,981 87,753 1,012,988 DEDUCTIONS Benefits paid to participants 153,935 607 36,475 5,179 175,464 Forfeited employers' contributions 3,244 12 4,416 397 8,261 TOTAL DEDUCTIONS 157,179 619 40,891 5,576 183,725 NET ADDITIONS 147,702 19,746 121,090 82,177 829,263 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 960,357 14,646 219,579 77,858 1,757,743 Transfers (73,365) (5,304) (10,965) (3,829) (37,147) End of year $1,034,694 $ 29,088 $ 329,704 $ 156,206 $2,549,859 See notes to financial statements. -4- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued ZURN/NEPCO RETIREMENT SAVINGS PLAN Year Ended December 31, 1995
T. Rowe Price Funds Equity International Index Stock OTC Other Total ADDITIONS Investment income: Dividends $ 78,000 $ 15,496 $ 23,271 $ 395,425 Net appreciation in value of investments 430,321 32,551 11,687 762,346 508,321 48,047 34,958 1,157,771 Contributions: Participants' 348,541 164,940 69,919 $ 3,721 1,412,391 Employers' 71,042 33,642 11,256 (300) 300,755 Participants' loan interest 7,267 1,776 326 20,507 TOTAL ADDITIONS 935,171 248,405 116,459 3,421 2,891,424 DEDUCTIONS Benefits paid to participants 141,596 13,080 7,141 15,613 549,090 Forfeited employers' contributions 4,052 2,569 1,834 589 25,374 TOTAL DEDUCTIONS 145,648 15,649 8,975 16,202 574,464 NET ADDITIONS (DEDUCTIONS) 789,523 232,756 107,484 (12,781) 2,316,960 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 1,226,294 360,970 55,369 246,647 4,919,463 Transfers 3,228 (79,512) 38,954 167,940 End of year $2,019,045 $ 514,214 $ 201,807 $ 401,806 $7,236,423 See notes to financial statements. -5- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS ZURN/NEPCO RETIREMENT SAVINGS PLAN Year Ended December 31, 1994
T. Rowe Price Funds U.S. Treasury New Capital Money Intermediate Income Balanced Appreciation ADDITIONS Investment income (loss): Dividends $ 32,619 $ 587 $ 16,328 $ 3,750 $ 139,112 Net (depreciation) in value of investments (700) (21,794) (4,164) (80,215) 32,619 (113) (5,466) (414) 58,897 Contributions: Participants' 228,335 2,486 98,460 15,795 414,694 Employers' 68,708 877 26,818 3,955 106,452 Participants' loan interest 2,147 391 233 3,725 TOTAL ADDITIONS 331,808 3,250 120,203 19,569 583,768 DEDUCTIONS Benefits paid to participants 155,576 85 29,041 415 172,703 Forfeited employers' contributions 9,993 6,185 171 22,776 TOTAL DEDUCTIONS 165,569 85 35,226 586 195,479 NET ADDITIONS 166,239 3,165 84,977 18,983 388,289 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 906,824 256,413 1,424,286 Transfers (112,707) 11,481 (121,811) 58,875 (54,832) End of year $ 960,357 $ 14,646 $ 219,579 $ 77,858 $1,757,743 See notes to financial statements. -6- /TABLE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued ZURN/NEPCO RETIREMENT SAVINGS PLAN Year Ended December 31, 1994
T. Rowe Price Funds Equity International Index Stock OTC Other Total ADDITIONS Investment income (loss): Dividends $ 45,759 $ 22,134 $ 5,716 $ 266,005 Net (depreciation) in value of investments (33,620) (32,242) (5,426) (178,161) 12,139 (10,108) 290 87,844 Contributions: Participants' 306,932 131,710 15,218 $ (19,558) 1,194,072 Employers' 78,827 28,297 4,138 1,768 319,840 Participants' loan interest 2,962 468 109 10,035 TOTAL ADDITIONS 400,860 150,367 19,755 (17,790) 1,611,791 DEDUCTIONS Benefits paid to participants 125,159 13,566 219 11,216 507,980 Forfeited employers' contributions 16,414 3,290 55 4,063 62,947 TOTAL DEDUCTIONS 141,573 16,856 274 15,279 570,927 NET ADDITIONS (DEDUCTIONS) 259,287 133,511 19,481 (33,069) 1,040,864 NET ASSETS AVAILABLE FOR BENEFITS Beginning of year 1,126,505 164,571 3,878,599 Transfers (159,498) 227,459 35,888 115,145 End of year $1,226,294 $ 360,970 $ 55,369 $ 246,647 $4,919,463 See notes to financial statements. -7- /TABLE NOTES TO FINANCIAL STATEMENTS ZURN/NEPCO RETIREMENT SAVINGS PLAN December 31, 1995 PLAN DESCRIPTION The Zurn/NEPCO Retirement Savings Plan is a defined contribution plan providing retirement benefits through participant-directed investments to participants in the National Energy Production Corporation Pension Plan. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company has agreed to contribute participants' elective deferrals of up to 18% of eligible compensation plus one-half of such amounts up to 2% of eligible compensation. Participants also may contribute non-taxed distributions from other employers' qualified plans and they may borrow from their accounts subject to specified limitations. Information about the Plan agreement and the benefit provisions is contained in the "Summary Plan Description" which may be obtained from Zurn Industries, Inc., the Plan Administrator. SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Investments The investments are stated at market value as determined by the funds. Investment Transactions Investment transactions are recorded as of the date the order to buy or sell is executed with realized gains and losses being included in investment income as a component of the net appreciation (depreciation) in the value of investments. Participants' Loans Participants' loans are stated at the principal amount due from the participants. Dividends Dividend income is recognized on the ex-dividend date. Expenses Administrative expenses are paid by the Plan Administrator. INCOME TAX STATUS The Internal Revenue Service has ruled that the Plan qualifies under Section 401(a) of the Internal Revenue Code and is, therefore, not subject to tax under present income tax law. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator is not aware of any course of action or series of events that might adversely affect the Plan's qualified status. -8- SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES ZURN/NEPCO RETIREMENT SAVINGS PLAN December 31, 1995 ASSETS OWNED AT YEAR-END Cost Current Value T. Rowe Price Funds: U.S. Treasury Money $1,034,694 $1,034,694 U.S. Treasury Intermediate 28,138 29,088 New Income 318,360 329,704 Balanced 142,387 156,206 Capital Appreciation 2,357,438 2,549,859 Equity Index 1,586,559 2,019,045 International Stock 506,410 514,214 OTC 197,190 201,807 Participants' loans - 7% to 10% interest -0- 373,881 -9- SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS ZURN/NEPCO RETIREMENT SAVINGS PLAN Year Ended December 31, 1995 Amount Received Original During The Year Unpaid Amount Overdue Amount Principal Interest Balance Principal Interest Kelly A. Perry $1,000 $-0- $-0- $-0- $1,000 $-0- Route 2 Box 260 Participant loan - 9.5% Madrid, NY 13660 Distributed to participant -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Pension Committee of Zurn Industries, Inc. has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. ZURN/NEPCO RETIREMENT SAVINGS PLAN (Plan) June 21, 1996 /s/ James A. Zurn James A. Zurn, Chairman Pension Committee of Zurn Industries, Inc. -11- CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-8 No. 333-00813 pertaining to the Zurn/NEPCO Retirement Savings Plan of our report dated June 21, 1996 with respect to the financial statements and supplemental schedules included in the Annual Report on Form 11-K of the Zurn/NEPCO Retirement Savings Plan. /s/ Pashke Twargowski & Lee Erie, Pennsylvania June 21, 1996 -12- -----END PRIVACY-ENHANCED MESSAGE-----