<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ To __________
Commission File No. 1-13179
A. Full title of the Plan and the address of Plan, if different from
that of the issuer named below:
BW/IP INTERNATIONAL, INC.
CAPITAL ACCUMULATION PLAN
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office.
FLOWSERVE CORPORATION
222 West Las Colinas Boulevard
Suite 1500
Irving, TX 75039
- -------------------------------------------------------------------------------
<PAGE> 2
BW/IP International, Inc.
Capital Accumulation Plan
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Signatures................................................................................................ 3
Consent of Ernst & Young LLP Independent Auditors......................................................... 4
Consent of Price Waterhouse LLP Independent Accountants.................................................. 5
Financial Statements of the BW/IP International, Inc. Capital Accumulation Plan
Report of Ernst & Young LLP Independent Auditors.......................................................... 6
Report of Price Waterhouse LLP Independent Accountants.................................................... 7
Audited Financial Statements
Statements of Net Assets Available for Plan Benefits
with Fund Information as of December 31, 1997 and 1996................................................. 8
Statement of Changes in Net Assets Available for Benefits
with Fund Information for the Year Ended December 31, 1997............................................. 11
Notes to Financial Statements............................................................................. 13
Supplemental Schedules
Line 27a - Schedule of Assets Held for Investment
Purposes as of December 31, 1997....................................................................... 18
Line 27d - Schedule of Reportable
Transactions for the Year Ended December 31, 1997...................................................... 19
</TABLE>
2 of 19
<PAGE> 3
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Committee administering the Plan has duly caused this Annual Report
to be signed on its behalf by the undersigned hereto duly authorized.
BW/IP International, Inc.
Capital Accumulation Plan
/s/ Renee Hornbaker
Date: June 26, 1998 ------------------------------------------
------------------- Renee Hornbaker
Vice President and Chief Financial Officer
3 of 19
<PAGE> 4
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-50667) pertaining to the BW/IP International, Inc. Capital
Accumulation Plan of our report dated June 5, 1998, with respect to the
financial statements and schedules of the BW/IP International, Inc. Capital
Accumulation Plan included in this Annual Report (Form 11-K) for the year ended
December 31, 1997.
/s/ ERNST & YOUNG
Dallas, Texas
June 26, 1998
4 of 19
<PAGE> 5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-50667) of Flowserve Corporation of our report
(relating to the BW/IP International, Inc. Capital Accumulation Plan) dated June
25, 1997 appearing on page 7 of the Annual Report of the BW/IP International,
Inc. Capital Accumulation Plan on Form 11-K for the year ended December 31,
1997.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Los Angeles, California
June 26, 1998
5 of 19
<PAGE> 6
Report of Ernst & Young LLP Independent Auditors
The Participants and Administrative Committee of
BW/IP International, Inc. Capital Accumulation Plan
We have audited the accompanying statement of net assets available for plan
benefits of BW/IP International, Inc. Capital Accumulation Plan (the Plan) as of
December 31, 1997, and the related statement of changes in net assets available
for plan benefits for the year then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statement of the Plan for the year ended December 31, 1996, were audited by
other auditors whose report dated June 25, 1997, expressed an unqualified
opinion on that statement.
We conducted our audit 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 audit provides 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 plan benefits of the Plan at
December 31, 1997, and the changes in net assets available for plan benefits for
the year then ended, in conformity with generally accepted accounting
principles.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investments purposes as of December 31, 1997, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The Fund Information in the
statement of net assets available for plan benefits as of December 31, 1997 and
the statement of changes in net assets available for plan benefits for the year
then ended is presented for purposes of additional analysis rather than to
present the net assets available for benefits and changes in net assets
available for benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures applied in our audit
of the 1997 financial statements and, in our opinion, are fairly stated in all
material respects in relation to the 1997 financial statements taken as a whole.
/s/ ERNST & YOUNG
Dallas, Texas
June 5, 1998
6 of 19
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and
Administrative Committee of the
BW/IP International, Inc.
Capital Accumulation Plan
In our opinion, the accompanying statement of net assets available for plan
benefits presents fairly, in all material respects, the net assets available
for plan benefits of the BW/IP International, Inc. Capital Accumulation Plan
(the Plan) at December 31, 1996, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Plan's Administrative Committee; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by the Plan's Administrative Committee, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Fund Information in the statement of
net assets available for plan benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits of
each fund. The Fund Information has been subjected to the auditing procedures
applied in the audit of the basic financial statement and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statement taken as a whole.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Los Angeles, California
June 25, 1997
7 OF 19
<PAGE> 8
BW/IP International, Inc.
Capital Accumulation Plan
Statements of Net Assets Available for Plan Benefits
with Fund Information
December 31, 1997
<TABLE>
<CAPTION>
NON-PARTICIPANT
DIRECTED PARTICIPANT DIRECTED
-------------------------------------------------------------------
COMPANY COMPANY EQUITY INDEX
STOCK FUND STOCK FUND TRUST FUND
-------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at fair value:
Cash and cash equivalents -- -- --
Common stock $ 6,382,225 $ 6,419,140 --
Registered investment -- -- $ 1,983,364
companies
Group Annuity Contracts
with insurance
companies, at contract value -- -- --
Participant loans -- -- --
-------------------------------------------------------------------
6,382,225 6,419,140 1,983,364
RECEIVABLES:
Participant contributions -- 6,720 862
Employer contributions 1,081,223 -- --
Interest and dividends -- -- --
-------------------------------------------------------------------
1,081,223 6,720 862
-------------------------------------------------------------------
Net assets available for
benefits $ 7,463,448 $ 6,425,860 $ 1,984,226
===================================================================
<CAPTION>
PARTICIPANT DIRECTED
--------------------------------------------------------------------
STABLE MFS TOTAL GROWTH
VALUE FUND RETURN FUND FUND
--------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at fair value:
Cash and cash equivalents -- -- --
Common stock -- -- --
Registered investment $16,107,061 $ 9,534,041 $ 4,355,937
companies
Group Annuity Contracts
with insurance
companies, at contract value 17,192,682 -- --
Participant loans -- -- --
--------------------------------------------------------------------
33,299,743 9,534,041 4,355,937
RECEIVABLES:
Participant contributions 8,083 5,537 2,563
Employer contributions -- -- --
Interest and dividends -- -- --
--------------------------------------------------------------------
8,083 5,537 2,563
--------------------------------------------------------------------
Net assets available for $33,307,826 $ 9,539,578 $ 4,358,500
benefits ====================================================================
See accompanying notes.
</TABLE>
8 of 19
<PAGE> 9
BW/IP International, Inc.
Capital Accumulation Plan
Statements of Net Assets Available for Plan Benefits
with Fund Information
December 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------
AIM CONSTELLATION IVY INTERNATIONAL
FUND FUND MAGELLAN FUND
------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at fair value:
Cash and cash equivalents -- -- $20,780
Common stock -- -- --
Registered investment $ 1,397,023 $ 1,070,337 35,831,884
companies
Group Annuity Contracts
with insurance
companies, at contract value -- -- --
Participant loans -- -- --
-----------------------------------------------------
1,397,023 1,070,337 35,852,664
RECEIVABLES:
Participant contributions 1,267 774 13,844
Employer contributions -- -- --
Interest and dividends -- -- 11,435
-----------------------------------------------------
1,267 774 25,279
-----------------------------------------------------
Net assets available for
benefits $ 1,398,290 $ 1,071,111 $ 35,877,943
=====================================================
<CAPTION>
PARTICIPANT DIRECTED
-------------------------------------------------------------
MERRILL LYNCH BASIC
VALUE FUND LOAN FUND TOTAL
-------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at fair value:
Cash and cash equivalents -- -- $20,780
Common stock -- -- 12,801,365
Registered investment $ 2,426,701 -- 72,706,348
companies
Group Annuity Contracts
with insurance
companies, at contract value -- -- 17,192,682
Participant loans -- $ 3,429,561 3,429,561
-------------------------------------------------------------
2,426,701 3,429,561 106,150,736
RECEIVABLES:
Participant contributions 906 -- 40,556
Employer contributions -- -- 1,081,223
Interest and dividends -- -- 11,435
------------------------------------------------------------
906 -- 1,133,214
------------------------------------------------------------
Net assets available for
benefits $ 2,427,607 $ 3,429,561 $107,283,950
============================================================
See accompanying notes.
</TABLE>
9 of 19
<PAGE> 10
BW/IP International, Inc.
Capital Accumulation Plan
Statements of Net Assets Available for Plan Benefits
with Fund Information
December 31, 1996
<TABLE>
<CAPTION>
NON-PARTICIPANT
DIRECTED
----------------------------------------------------
COMPANY COMPANY STABLE
STOCK FUND STOCK FUND VALUE FUND
----------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at fair
value:
Cash and cash $ 9,464 $ 10,545 $ 501,037
equivalents
Common stock 4,278,238 4,754,588 --
Registered
investment -- -- 9,342,843
companies
Group Annuity
Contracts with
insurance companies,
at contract value -- -- 23,706,389
Participant loans -- -- --
----------------------------------------------------
4,287,702 4,765,133 33,550,269
RECEIVABLES:
Participant -- 66,557 79,394
contributions
Employer contributions 373,320 -- --
Interest and dividends 28,000 29,025 1,762
----------------------------------------------------
401,320 95,582 81,156
----------------------------------------------------
Net assets available for
benefits $ 4,689,022 $ 4,860,715 $33,631,425
====================================================
See accompanying notes.
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------------
BALANCED MAGELLAN LOAN
FUND FUND FUND TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at fair
value:
Cash and cash $ 9,599,074 $ 20,000 $ 30,094 $10,170,214
equivalents
Common stock -- -- -- 9,032,826
Registered
investment -- 32,670,829 -- 42,013,672
companies
Group Annuity
Contracts with
insurance companies,
at contract value -- -- -- 23,706,389
Participant loans -- -- 3,027,035 3,027,035
-----------------------------------------------------------
9,599,074 32,690,829 3,057,129 87,950,136
RECEIVABLES:
Participant 55,384 161,183 -- 362,518
contributions
Employer contributions -- -- -- 373,320
Interest and dividends 94 304 79 59,264
-----------------------------------------------------------
55,478 161,487 79 795,102
-----------------------------------------------------------
Net assets available for
benefits $ 9,654,552 $32,852,316 $ 3,057,208 $88,745,238
===========================================================
See accompanying notes.
</TABLE>
10 of 19
<PAGE> 11
BW/IP International, Inc.
Capital Accumulation Plan
Statement of Changes in Net Assets Available for Plan Benefits
with Fund Information
Year Ended December 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
--------------------------------------------
COMPANY STOCK COMPANY STOCK EQUITY INDEX
FUND FUND FUND
--------------------------------------------
<S> <C> <C> <C>
Additions (deductions) in net assets
available for plan benefits:
Interest and dividends $ 131,566 $ 189,327 $ 4,498
Net appreciation in fair value
of investments 916,996 948,126 266,297
Contributions by participants -- 1,035,224 132,762
Contributions by employer 1,902,036 -- --
Net loan activity -- (22,489) (48,266)
Benefit payments to participants
(214,253) (233,315) (8,444)
Administrative Expenses (440) (2,241) (294)
--------------------------------------------
Net increase prior to interfund
transfers 2,735,905 1,914,632 346,553
Interfund transfers 38,521 (349,487) 1,637,673
--------------------------------------------
Net increase (decrease) 2,774,426 1,565,145 1,984,226
Net assets available for plan
benefits:
Beginning of year 4,689,022 4,860,715 --
--------------------------------------------
End of year $7,463,448 $6,425,860 $1,984,226
============================================
See accompanying notes.
<CAPTION>
-----------------------------------------------
STABLE VALUE MFS TOTAL RETURN GROWTH
FUND FUND FUND
-----------------------------------------------
<S> <C> <C> <C>
Additions (deductions) in net assets
available for plan benefits:
Interest and dividends $ 2,315,427 $ 1,130,243 $ 324,702
Net appreciation in fair value
of investments 84,592 737,672 87,443
Contributions by participants 1,245,121 853,006 394,786
Contributions by employer -- -- --
Net loan activity (215,315) (85,628) (24,367)
Benefit payments to participants
(2,548,255) (443,032) (50,565)
Administrative Expenses (3,665) (1,594) (527)
-----------------------------------------------
Net increase prior to interfund
transfers 877,905 2,190,667 731,472
Interfund transfers (1,201,504) 7,348,911 3,627,028
-----------------------------------------------
Net increase (decrease) (323,599) 9,539,578 4,358,500
Net assets available for plan
benefits:
Beginning of year 33,631,425 -- --
-----------------------------------------------
End of year $ 33,307,826 $ 9,539,578 $ 4,358,500
===============================================
See accompanying notes.
</TABLE>
11 or 19
<PAGE> 12
BW/IP International, Inc.
Capital Accumulation Plan
Statement of Changes in Net Assets Available for Plan Benefits
with Fund Information
Year ended December 31, 1997
<TABLE>
<CAPTION>
NON-PARTICIPANT
DIRECTED
------------------------------------------------------
AIM IVY
CONSTELLATION INTERNATIONAL MAGELLAN
FUND FUND FUND
------------------------------------------------------
<S> <C> <C> <C>
Additions (deductions) in net
assets available for plan
benefits:
Interest and dividends $ 125,302 $ 17,588 $ 2,496,941
Net appreciation in fair
value of investments 47,475 13,313 5,269,747
Contributions by
participants 195,120 119,167 2,132,537
Contributions by employer -- -- --
Net loan activity (1,637) (22,293) 75,353
Benefit payments to
participants (16,948) (63,998) (1,360,629)
Administrative expenses (90) (151) (4,643)
------------------------------------------------------
Net increase prior to interfund
transfers 349,222 63,626 8,609,306
Interfund transfers 1,049,068 1,007,485 (5,583,679)
------------------------------------------------------
Net increase (decrease) 1,398,290 1,071,111 3,025,627
Net assets available for plan
benefits:
Beginning of year -- -- 32,852,316
------------------------------------------------------
End of year $ 1,398,290 $1,071,111 $ 35,877,943
======================================================
See accompanying notes.
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------------
MERRILL LYNCH
BASIC VALUE BALANCED LOAN
FUND FUND FUND TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Additions (deductions) in net
assets available for plan
benefits:
Interest and dividends $ 161,975 -- -- $ 6,897,569
Net appreciation in fair
value of investments 153,817 -- -- 8,525,478
Contributions by
participants 139,730 -- -- 6,247,453
Contributions by employer -- -- -- 1,902,036
Net loan activity (27,711) -- $ 372,353 --
Benefit payments to
participants (80,526) -- -- (5,019,965)
Administrative expenses (214) -- -- (13,859)
----------------------------------------------------------------------
Net increase prior to interfund
transfers 347,071 -- 372,353 18,538,712
Interfund transfers 2,080,536 $ (9,654,552) -- --
----------------------------------------------------------------------
Net increase (decrease) 2,427,607 (9,654,552) 372,353 18,538,712
Net assets available for plan
benefits:
Beginning of year -- 9,654,552 3,057,208 88,745,238
----------------------------------------------------------------------
End of year $2,427,607 $ -- $3,429,561 $107,283,950
======================================================================
See accompanying notes.
</TABLE>
12 of 19
<PAGE> 13
BW/IP International, Inc.
Capital Accumulation Plan
Notes to Financial Statements
December 31, 1997
1. DESCRIPTION OF THE PLAN
GENERAL
The BW/IP International, Inc. Capital Accumulation Plan (the Plan), is a defined
contribution plan covering certain U.S. employees of BW/IP International, Inc.
(the Company or Plan Sponsor). An employee is eligible to participate in the
Plan on the first day of the calendar month following the completion of three
calendar months of employment commencing on his date of hire by the Company. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
On July 22, 1997, the Company merged with Durco International, Inc. and formed
Flowserve Corporation (Flowserve).
On January 2, 1997, the Plan's Trustee and recordkeeper were changed from the
Northern Trust Company and William M. Mercer, Inc., respectively, to Merrill
Lynch Trust Company of California and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, respectively.
The Plan is administered by an Administrative Committee consisting of at least
three persons appointed by the Board of Directors of the Company.
CONTRIBUTIONS
Participant contributions to the Plan are based upon a percentage of gross pay
as designated by each participant. Participants may contribute up to 16% of
their eligible earnings on a pre-tax or after-tax basis. Contributions
made by participants are invested based on each participant's election.
The Company makes matching contributions of 25% of the first 6% of a
participant's contributions. The Company may make an additional matching
contribution of up to 75% of the first 2% of a participant's contribution,
based upon the company's performance during the year. The Company's matching
contributions are made in shares of common stock of the Company and cannot be
transferred to any other investment fund options within the Plan.
PARTICIPANTS' ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of the Company's matching contributions and Plan earnings, and
charged with an allocation of administrative expenses. Allocations of earnings
are based on participant earnings or account balances, as defined.
13 of 19
<PAGE> 14
BW/IP International, Inc.
Capital Accumulation Plan
Notes to Financial Statements(continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
VESTING
All participant and Company contributions are fully vested at all times.
BENEFIT PAYMENTS AND PARTICIPANT LOANS
Participants or beneficiaries may elect to withdraw benefits upon termination of
employment, retirement, permanent disability, or death. Other withdrawals and
loans from the Plan can be made under certain circumstances. Participants may
generally borrow up to the lesser of 50% of their vested balance or $50,000 for
terms ranging from 1 - 15 years and bear interest at rates ranging from 6.7% to
10.0%. The loans are collateralized by the participant's interest in the Plan.
PLAN TERMINATION
Although it has not expressed any intention to do so, the Company has the right,
under the terms of the Plan, to terminate the Plan subject to ERISA provisions.
In the event the Plan is terminated, the accounts of participants will be
distributed within the guidelines of distribution provided for in the Plan
agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
INVESTMENT INCOME
Interest and dividend income are recorded as earned. The net appreciation or
depreciation in the fair value of investments comprises realized gains or losses
and unrealized appreciation or depreciation of investments.
PAYMENT OF BENEFITS
Benefit payments to participants are recorded upon distribution.
CASH AND CASH EQUIVALENTS
For reporting purposes, the Plan's Administrative Committee considers all
short-term highly liquid investments with maturities of three months or less at
the date of acquisition to be cash equivalents.
14 of 19
<PAGE> 15
BW/IP International, Inc.
Capital Accumulation Plan
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT VALUATION
Cash and cash equivalents are recorded at cost which approximates fair value.
Investments in common stock are stated at fair value. Investments in registered
investment companies are stated at net asset value. The carrying amounts of
investments in common stock and registered investment companies approximate fair
value based upon quoted market prices.
Group Annuity Contracts (GAC), with the exception of the Executive Life GAC (see
Note 4), are stated at contract value. The carrying values of Group Annuity
Contracts approximate fair value based upon current rates offered to the Company
for investments of the same remaining maturity. Participant loans are stated at
cost which approximates fair value.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. INVESTMENT OPTIONS
Plan participants may choose among the following investment options for 1997:
Company Stock Fund - This fund is primarily comprised of shares of Company
common stock. Previously held BW/IP, Inc. shares were converted to Flowserve
Corporation common stock in 1997.
Merrill Lynch Equity Index Trust Fund - The trust seeks to approximate the total
return of the Standard and Poor's 500 Composite Stock Price Index.
Stable Value Fund - The Fund's primary objective is to provide a fixed rate of
return while preserving principal. The fund invests in Group Annuity Contracts
issued by insurance companies (see Note 4) and the Merrill Lynch Retirement
Preservation Trust valued at $16,107,061 and $9,342,843 at December 31, 1997 and
1996, respectively.
15 of 19
<PAGE> 16
3. INVESTMENT OPTIONS (CONTINUED)
MFS Total Return Fund - The Fund's objective is to earn above average current
income, compared to a portfolio invested entirely in equity securities,
consistent with the prudent employment of capital. The fund also seeks
reasonable opportunities for growth of capital and income.
Merrill Lynch Growth Fund - The Fund seeks to invest in equity securities,
placing principal emphasis on those securities that Fund management believes are
undervalued. The Fund may invest up to 40% of its total assets in foreign
securities.
AIM Constellation Fund - The Fund's objective is to seek long-term growth of
capital by investing in securities of primarily small and medium sized companies
that Fund management believes have demonstrated superior earnings growth.
Ivy International Fund - The Fund primarily seeks long-term capital growth with
current income as a secondary consideration.
Fidelity Magellan Fund - The Fund seeks capital appreciation by investing
primarily in common stock and securities convertible into common stock.
Merrill Lynch Basic Value Fund - The Fund seeks capital appreciation and,
secondarily, income by investing in securities, primarily equities, that
Fund management believes are undervalued.
In 1996, participants could elect to participate in the Fidelity Magellan fund,
the Stable Value Fund and the Balanced Fund (Vanguard's Wellesley Income Fund)
in addition to the Company Stock Fund discussed above.
4. GROUP ANNUITY CONTRACTS WITH INSURANCE COMPANIES
In 1994 and 1995 the Plan entered into investment contracts with Commonwealth
Life Insurance Company, New York Life Insurance Company, John Hancock Mutual
Life Insurance Company, Continental Assurance Company, and Principal Mutual Life
Insurance Company. The contracts are credited with earnings on the underlying
investments and charged for Plan withdrawals and administrative expenses. The
contracts are fully benefit responsive. There are no reserves against contract
value for credit risk of the contract issuer or otherwise. The average yield and
crediting interest rates range between 6.28% to 7.15% for 1997 and 1996. (The
contract with Principal Mutual Life Insurance Company was valued at $6,363,937
and $5,945,055 at December 31, 1997 and 1996, respectively and the contract with
CNA Insurance Company was valued at $3,117,772 and $5,833,062 at December 31,
1997 and 1996, respectively.)
16 of 19
<PAGE> 17
BW/IP International, Inc.
Capital Accumulation Plan
Notes to Financial Statements (continued)
4. GROUP ANNUITY CONTRACTS WITH INSURANCE COMPANIES (CONTINUED)
In 1990, the Company entered into an investment contract with Executive Life
Insurance Company. In 1991, Executive Life Insurance Company was placed in
conservatorship at which point the contract was frozen. From 1991 through 1996,
the carrying value of the contract was written down in accordance with
management's estimate of expected receipts under the contract and payments plus
interest were received on the contract. In April 1997, $562,831 was received
which was in excess of the contract's adjusted carrying value.
5. TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated March 26, 1998, that the Plan and related trust are designed in accordance
with applicable sections of the Internal Revenue Code (IRC). The Plan has been
amended since receiving the determination letter. However, the Plan
administrator believes that the Plan is designed and is currently being operated
in compliance with the applicable requirements of the IRC.
6. ADMINISTRATIVE EXPENSES
Expenses incurred by the Plan for accounting and administration are borne by
the Company. Such expenses amounted to approximately $166,000 and $276,000
for the plan years ended December 31, 1997 and 1996.
7. YEAR 2000 ISSUE (UNAUDITED)
The Plan Sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Plan Sponsor currently expects the project to be substantially complete by
early 1999. The Plan Sponsor does not expect this project to have a significant
effect on plan operations.
17 of 19
<PAGE> 18
BW/IP International, Inc.
Capital Accumulation Plan
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF ISSUER, DESCRIPTION OF INVESTMENT, INCLUDING
BORROWER, LESSOR, OR SIMILAR PARTY MATURITY DATE, RATE OF INTEREST, COLLATERAL, PAR OR MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment companies:
MFS Total Return Fund 602,657 shares
Merrill Lynch Growth Fund* 152,040 shares
AIM Equity Index Constellation Fund 52,958 shares
Ivy International Fund 27,423 shares
Fidelity Magellan Fund, Inc. 376,109 shares
Merrill Lynch Basic Value Fund* 65,445 shares
Merrill Lynch Retirement Preservation Trust* 16,107,061 shares
Total investment companies
U.S. corporation common stock
Flowserve Corporation* 458,223 shares, common stock, $ 1.25 par value
Contracts with insurance companies:
Executive Life Insurance Company Group Annuity Contract, 10.01% annual rate, maturity 6/30/92
Commonwealth Life Insurance Company Group Annuity Contract, 6.83% annual rate, maturity 9/30/98
New York Life Insurance Company Group Annuity Contract, 6.30% annual rate, maturity 9/30/99
John Hancock Insurance Company Group Annuity Contract, 6.28% annual rate, maturity 9/30/99
CNA Insurance Company Group Annuity Contract, 6.90% annual rate, maturity 3/31/98
Principal Mutual Life Insurance Company Group Annuity Contract, 7.15% annual rate, maturity 3/31/99
Total contracts with insurance companies
Cash equivalents
CMA Money Fund 20,780 shares
Participant loans:
Participant loans* Loans to Plan participants, interest rates ranging from 6.7% to 10.0%
per annum, maturity dates ranging from April 1998 to December 2012
collateralized by vested interest in individual plan accounts
Collective Trusts:
Merrill Lynch Equity Index Trust 30,338 shares
<CAPTION>
CURRENT
COST VALUE
------------------------------
<S> <C> <C>
Investment companies:
MFS Total Return Fund $ 9,048,136 $ 9,534,041
Merrill Lynch Growth Fund* 4,324,708 4,355,937
AIM Equity Index Constellation Fund 1,403,695 1,397,023
Ivy International Fund 1,090,538 1,070,337
Fidelity Magellan Fund, Inc. 30,915,240 35,831,884
Merrill Lynch Basic Value Fund* 2,294,110 2,426,701
Merrill Lynch Retirement Preservation Trust* 16,107,061 16,107,061
----------- ------------
Total investment companies 65,183,488 70,722,984
----------- ------------
U.S. corporation common stock
Flowserve Corporation* 12,389,128 12,801,365
Contracts with insurance companies:
Executive Life Insurance Company 595,887 --
Commonwealth Life Insurance Company 3,111,583 3,111,583
New York Life Insurance Company 2,305,736 2,305,736
John Hancock Insurance Company 2,293,654 2,293,654
CNA Insurance Company 3,117,772 3,117,772
Principal Mutual Life Insurance Company 6,363,937 6,363,937
----------- ------------
Total contracts with insurance companies 17,788,569 17,192,682
----------- ------------
Cash equivalents
CMA Money Fund 20,780 20,780
Participant loans:
Participant loans*
-- 3,429,561
Collective Trusts:
Merrill Lynch Equity Index Trust 1,727,647 1,983,364
------------ ------------
$ 97,109,612 $106,150,736
============ ============
* Party-in-interest
</TABLE>
18 of 19
<PAGE> 19
BW/IP International, Inc.
Capital Accumulation Plan
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1997
<TABLE>
<CAPTION>
EXPENSE
INCURRED
PURCHASE SELLING LEASE WITH
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE RENTAL TRANSACTION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Category (i) - Individual security transactions in excess of 5% of January 1, 1997 Plan assets
- ----------------------------------------------------------------------------------------------
Merrill Lynch * MSF Total Return Fund $ 9,667,687 -- -- --
Northern Trust COLTV Short-Term Investment Fund -- $ 9,599,074 -- --
Category (iii) - Series of security transactions in excess of 5% of January 1, 1997 Plan assets
- ------------------------------------------------------------------------------------------------
Flowserve Corporation* Flowserve Common Stock $ 4,226,242 -- -- --
Flowserve Corporation* Flowserve Common Stock -- 2,297,496 -- --
Merrill Lynch * MFS Total Return Fund 22,161,936 -- --
Merrill Lynch * MFS Total Return Fund -- 13,282,981 -- --
Merrill Lynch * Merrill Lynch Growth Fund 4,952,445 -- --
Merrill Lynch * Merrill Lynch Growth Fund -- 683,514 -- --
Merrill Lynch * Fidelity Magellan Fund, Inc. 5,546,215 -- --
Merrill Lynch * Fidelity Magellan Fund, Inc. -- 8,066,732 -- --
<CAPTION>
CURRENT VALUE
OF ASSET
COST OF TRANSACTION NET GAIN OR
ASSET DATE (LOSS)
- ------------------------------------------------------------------------------------------------
<S> <C>
Category (i) - Individual security transactions in excess of 5% of January 1, 1997 Plan assets
- ------------------------------------------------------------------------------------------------
Merrill Lynch * $ 9,667,687 $ 9,667,687 --
Northern Trust 9,599,074 9,599,074 --
Category (iii) - Series of security transactions in excess of 5% of January 1, 1997 Plan assets
- ------------------------------------------------------------------------------------------------
Flowserve Corporation* $ 4,226,242 $ 4,226,242 --
Flowserve Corporation* 2,042,653 2,297,496 254,843
Merrill Lynch * 22,161,936 22,161,936 --
Merrill Lynch * 13,045,829 13,282,981 237,152
Merrill Lynch * 4,952,445 4,952,445 --
Merrill Lynch * 627,737 683,514 55,777
Merrill Lynch * 5,546,215 5,596,215 --
Merrill Lynch * 7,539,977 8,066,732 526,755
* Party-in-interest
There were no category (ii) or (iv) reportable transactions.
</TABLE>
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