<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
----------------------------------
For Quarter Ended June 30, 1998 Commission File Number 1-13179
FLOWSERVE CORPORATION
---------------------
(Exact name of Registrant as specified in its charter)
New York
--------
(State or other jurisdiction of incorporation or organization)
31-0267900
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(I.R.S. Employer Identification Number)
222 W. Las Colinas Blvd., Suite 1500, Irving, Texas 75039
--------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (972) 443-6500
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Shares of Common Stock, $1.25 par value,
outstanding as of June 30, 1998 39,440,329
<PAGE> 2
PART I: Financial Information
<PAGE> 3
FLOWSERVE CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended June 30
(Amounts in thousands, except per share data) 1998 1997
------------ -----------
<S> <C> <C>
Net sales $ 280,728 $ 300,658
Cost of sales 174,736 179,448
--------- ---------
Gross profit 105,992 121,210
Selling and administrative expense 67,345 74,302
Research, engineering and development expense 5,074 6,647
Merger integration expense 11,906 --
--------- ---------
Operating income 21,667 40,261
Interest expense 3,577 3,601
Other income (1,063) (2,768)
--------- ---------
Earnings before income taxes 19,153 39,428
Provision for income taxes 6,704 14,553
--------- ---------
Net earnings $ 12,449 $ 24,875
========= =========
Earnings per share (diluted and basic) $ 0.31 $ 0.61
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
FLOWSERVE CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Year to date June 30
(Amounts in thousands, except per share data) 1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 539,044 $ 563,169
Cost of sales 331,855 337,810
--------- ---------
Gross profit 207,189 225,359
Selling and administrative expense 131,546 142,831
Research, engineering and development expense 12,439 13,054
Merger integration expense 19,551 --
--------- ---------
Operating income 43,653 69,474
Interest expense 6,702 6,935
Other income (2,372) (3,566)
--------- ---------
Earnings before income taxes 39,323 66,105
Provision for income taxes 13,763 24,425
--------- ---------
Net earnings $ 25,560 $ 41,680
========= =========
Earnings per share (diluted and basic) $ 0.63 $ 1.02
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
FLOWSERVE CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31
(Amounts in thousands) (Unaudited) 1997
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,849 $ 58,602
Accounts receivable, net 221,368 234,437
Inventories 196,507 184,944
Prepaids and other current assets 33,978 36,681
-------- --------
Total current assets 472,702 514,664
Property, plant and equipment, net 208,259 209,509
Intangible assets, net 80,483 79,748
Other assets 81,056 76,104
-------- --------
Total assets $842,500 $880,025
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
FLOWSERVE CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1998 December 31
(Amounts in thousands, except per share data) (Unaudited) 1997
------------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,702 $ 68,241
Notes payable 4,786 5,644
Income taxes 14,496 15,548
Accrued liabilities 97,869 128,802
Long-term debt due within one year 11,215 12,209
--------- ---------
Total current liabilities 191,068 230,444
Long-term debt due after one year 158,155 128,936
Postretirement benefits and deferred items 121,986 125,372
Shareholders' equity:
Serial preferred stock, $1.00 par value,
no shares issued -- --
Common stock, $1.25 par value, 51,855 51,856
41,484 shares issued and 39,440 shares outstanding at June 30, 1998 and
41,484 shares issued and outstanding December 31, 1997
Capital in excess of par value 70,562 70,895
Retained earnings 340,837 326,681
--------- ---------
463,254 449,432
Treasury stock at cost, 2,044 shares at June 30, 1998 and (55,197) (23,145)
881 shares at December 31, 1997, respectively
Foreign currency and other equity adjustments (36,766) (31,014)
--------- ---------
Total shareholders' equity 371,291 395,273
--------- ---------
Total liabilities and shareholders' equity $ 842,500 $ 880,025
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
FLOWSERVE CORPORATION
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Foreign
currency Total
Capital in and other share-
Common excess of Retained Treasury equity holders'
(Amounts in thousands) stock par value earnings stock adjustments equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 51,854 $ 72,628 $ 298,563 $ (27,455) $ (6,966) $ 388,624
Net earnings - - 41,680 - - 41,680
Cash dividends ($.14 per share) - - (11,923) - - (11,923)
Foreign currency translation adjustment - - - - (17,973) (17,973)
Stock activity under stock plans 2 (363) - 1,404 (187) 856
-----------------------------------------------------------------------------
Balance at June 30, 1997 $ 51,856 $ 72,265 $ 328,320 $ (26,051) $ (25,126) $ 401,264
=============================================================================
Balance at December 31, 1997 $ 51,856 $ 70,895 $ 326,681 $ (23,145) $ (31,014) $ 395,273
Net earnings - - 25,560 - - 25,560
Cash dividends ($.14 per share) - - (11,404) - - (11,404)
Foreign currency translation adjustment - - - - (5,893) (5,893)
Treasury stock repurchases (1,337 shares) (36,590) (36,590)
Stock activity under stock plans (1) (333) - 4,538 141 4,345
-----------------------------------------------------------------------------
Balance at June 30, 1998 $ 51,855 $ 70,562 $ 340,837 $ (55,197) $ (36,766) $ 371,291
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
FLOWSERVE CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30
--------------------------------
(Amounts in thousands) 1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 25,560 $ 41,680
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 20,621 18,552
Loss (gain) on the sale of fixed assets 45 (42)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable 11,199 (7,186)
Inventories (14,487) (19,941)
Prepaid expenses and other assets (6,802) (5,394)
Accounts payable and accrued liabilities (35,541) 1,992
Income taxes (1,248) 281
Postretirement benefits and deferred items (2,597) (470)
-------- --------
Net cash flows (used by) from operating activities (3,250) 29,472
Investing activities:
Capital expenditures (17,511) (18,065)
Payment for acquisitions, net of cash acquired -- (9,000)
-------- --------
Net cash flows used by investing activities (17,511) (27,065)
Financing activities:
Net borrowings under lines of credit 3,929 2,674
Proceeds from long-term debt 23,131 7,532
Treasury share purchases (36,590) --
Proceeds from stock activity 4,726 493
Dividends paid (11,404) (11,923)
-------- --------
Net cash flows used by financing activities (16,208) (1,224)
Effect of exchange rate changes (784) (1,918)
-------- --------
Net change in cash and cash equivalents (37,753) (735)
Cash and cash equivalents at beginning of year 58,602 38,933
-------- --------
Cash and cash equivalents at end of period $ 20,849 $ 38,198
======== ========
Taxes paid $ 14,814 $ 22,008
Interest paid $ 6,098 $ 6,752
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
FLOWSERVE CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
1. Overview
Flowserve Corporation (the Company or Flowserve) was created on July
22, 1997, through a merger of equals between BW/IP Inc. and Durco
International Inc. accounted for under "pooling of interests"
accounting. Accordingly, all historical information has been restated
giving effect to the transaction as if the two companies had been
combined at the beginning of all periods presented. In addition,
certain other historical information has been reclassified for
consistency with the 1998 presentation.
2. Accounting Policies - Basis of Presentation
The accompanying consolidated balance sheet as of June 30, 1998 and the
related consolidated statements of income and cash flows for the three
months and the six months ended June 30, 1998 and 1997 are unaudited.
In management's opinion, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of such
financial statements have been made. The accompanying consolidated
financial statements and notes in this Form 10-Q are presented as
permitted by Regulation S-X and do not contain certain information
included in the Company's annual financial statements and notes to the
financial statements. Accordingly, the accompanying consolidated
financial information should be read in conjunction with the Company's
1997 Annual Report. Interim results are not necessarily indicative of
results to be expected for a full year and are subject to audit and
adjustments at the end of the year.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined for certain inventories by the last-in, first-out (LIFO)
method and for other inventories by the first-in, first-out (FIFO)
method.
<PAGE> 10
The amount of inventories and the method of determining costs for the
quarter ended June 30, 1998 and the year ended December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in millions) 1998 1997
------- -------
<S> <C> <C>
Raw materials $ 22.5 $ 18.1
Work in process and finished goods 224.6 216.4
Less: Progress billings (10.1) (10.9)
------- -------
237.0 223.6
LIFO reserve 40.5 38.6
------- -------
Net inventory $ 196.5 $ 185.0
======= =======
Percent of inventory accounted for by LIFO 42% 43%
Percent of inventory accounted for by FIFO 58% 57%
</TABLE>
4. Earnings per share
The Company's potentially dilutive common stock equivalents were
immaterial as of June 30, 1998 and all previous periods. Accordingly,
diluted earnings per share are equal to basic earnings per share for
all periods presented. Earnings per share for the six months ended June
30, 1998 and 1997 were based on average common shares and common share
equivalents outstanding of 40,781 and 40,700 respectively.
5. Impact of Recently Issued Accounting Standards
In 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income", SFAS No. 131 "Disclosures About
Segments of an Enterprise and Related Information", and SFAS No.132
"Employer's Disclosure About Pensions and Other Post Retirement
Benefits". All three standards are effective for fiscal years beginning
after December 15, 1997. These standards modify or expand current
disclosure requirements and, accordingly, are not expected to impact
the Company's reported financial position, results of operations, or
cash flows. The Company is assessing the impact of SFAS No. 131 on its
reporting segments.
6. Merger Integration Program
In the fourth quarter of 1997, the Company announced its merger
integration program. This $92.4 million program includes investments of
approximately $22.2 million for capital expenditures and approximately
$70.2 million for integration expenses. Of this
<PAGE> 11
$70.2 million, $32.6 million was recognized as a one-time restructuring
charge in the fourth quarter of 1997. The balance will be recognized as
incurred over the three-year life of the program.
In July, 1998 the Company's Board of Directors approved an $18 million
expenditure for the first phase of a global business process
improvement initiative which will build on and bring additional costs
and benefits to the on-going merger integration program. The total
incremental cost of the business process improvement initiative is
expected to approximate $120 million over a multi-year period. About
half of the costs associated with this initiative are expected to be
capitalized with the balance separately identified as merger
integration expense.
The Company incurred $11.9 million for merger integration expenses in
the second quarter of 1998 and has incurred $26.5 million since the
inception of the program. Merger integration expense in the second
quarter included costs for closing the San Jose, California and
Charleroi, Belgium pump plants and the Guelph, Ontario service center,
as well as some start-up costs for the business improvement initiative.
The Company's program includes facility rationalizations in North
America and Europe, organizational realignments at the corporate and
division levels, procurement initiatives, investments in training, and
support for the service and repair operations. The integration program
is expected to result in a net reduction of approximately 300 employees
at a cost $22.4 million. In addition, exit costs associated with the
facilities closings are estimated at $10.2 million. The integration
program is expected to be funded through operating cash flows and
available credit facilities.
In the second quarter ended June 30, 1998, severance costs of $6.6
million and exit costs of $1.5 million were paid and recorded against
the restructure accrual established in 1997. The remainder of the costs
are expected to be incurred over the life of the program.
<TABLE>
<CAPTION>
OTHER
Restructure Accrual (Amounts in millions) SEVERANCE EXIT COSTS TOTAL
--------- ---------- -----
<S> <C> <C> <C>
Balance at October 27, 1997 $22.4 $10.2 $32.6
Cash expenditures (3.4) (.5) (3.9)
Non-cash expenditures -- (1.2) (1.2)
----- ----- -----
Balance at December 31, 1997 $19.0 $ 8.5 $27.5
Cash expenditures (2.3) (0.4) (2.7)
Non-cash expenditures -- -- --
----- ----- -----
Balance at March 31, 1998 $16.7 $ 8.1 $24.8
Cash expenditures (6.6) (0.8) (7.4)
Non-cash expenditures -- (0.7) (0.7)
----- ----- -----
Balance at June 30, 1998 $10.1 $ 6.6 $16.7
===== ===== =====
</TABLE>
<PAGE> 12
7. Share Repurchase Program
During the second quarter of 1998, the Company initiated a $100 million
share repurchase program and as of June 30, 1998 had repurchased
approximately 1.3 million, or three percent, of its outstanding shares.
The purchases were funded through operating cash flows and available
credit facilities. The timing of future repurchases depends on market
conditions, the market price of Flowserve's common stock, and
management's assessment of the Company's liquidity and cash flow needs.
8. Subsequent Events
In July, 1998, the Company completed the acquisition of certain assets
and liabilities of the Valtek Engineering Division of Allen Power
Engineering, Limited, from Rolls Royce plc. The Valtek Engineering
Division has been the British licensee for many of Flowserve's control
valve products, with exclusive territorial rights for portions of
Europe, the Middle East and Africa since 1971. This business produced
sales of approximately $20 million in 1997.
---------------------------------------------
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Flowserve Corporation (the Company or Flowserve) was created on July 22,
1997, through a merger of equals between BW/IP, Inc. and Durco
International Inc. accounted for under "pooling of interests" accounting.
Accordingly, all historical information has been restated giving effect to
the transaction as if the two companies had been combined at the beginning
of all periods presented. In addition, certain other historical information
has been reclassified for consistency with the 1998 presentation.
Flowserve produces engineered pumps for the process industries, precision
mechanical seals, manual and automated quarter-turn valves, control valves
and valve actuators, and provides a range of related flow management
services to a diverse customer base worldwide. Equipment manufactured and
serviced by the Company is used in industries that utilize difficult to
handle and often corrosive fluids in environments with extreme temperature,
pressure, horsepower and speed. Flowserve's businesses are affected by
economic conditions in the U.S. and other countries where its products are
sold and serviced, and by the relationship of the U.S. dollar to other
currencies, and demand and pricing for customers' products. The impact of
these conditions is mitigated to some degree by the strength and diversity
of Flowserve's product lines and geographic coverage.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998
Net sales for the three months ended June 30, 1998 were $280.7 million,
compared with net sales of $300.6 million for the same period in 1997.
Approximately $9.0 million of the sales decrease was due to the unfavorable
currency translation effect resulting from the strengthening of the U.S.
dollar against foreign currencies and approximately $6.0 million due to
businesses sold in 1997. Without the adverse currency effects and sales
reductions from divestitures, second quarter sales would have been about
two percent below the second quarter of 1997. The balance of the decrease
in sales was due primarily to low petroleum industry spending caused by
lower oil prices and continued effects of the Asian economic crisis, that
has delayed major projects and reduced worldwide chemical market activity.
Net sales to international customers, including export sales from the U.S.,
were approximately 50% for the three months ended June 30, 1998 and
approximately 49% for the three months ended June 30, 1997.
The gross profit margin was 37.8% for the three months ended June 30, 1998,
compared with 40.3% for the same period in 1997. The decrease in the gross
profit margin was due to a reduction in higher profit parts sales, under
absorption resulting from lower sales volume and some valve price
discounting. Selling and administrative expenses as a percentage of net
sales were 24.0% for the three month period ended June 30, 1998, compared
with 24.7% for the corresponding period of 1997. The reduction in selling
and administrative expenses percentage was due primarily to savings
generated by the merger integration program and other cost control
initiatives across all divisions.
<PAGE> 14
Tax savings initiatives undertaken subsequent to the merger reduced the
effective tax rate to 35% compared with 37% in 1997.
Lower sales and gross profit percentage resulted in earnings before merger
integration expense for the second quarter of 1998 being $20.2 million, or
19% below the $24.9 million for the same period in 1997. Earnings per
diluted share before merger integration expense were $0.50 in the second
quarter of 1998, compared with $0.61 in 1997. Net earnings, after merger
integration expense, were $12.4 million for the three months ended June 30,
1998, compared with $24.9 million for the same period in 1997. The related
net earnings per diluted share, after merger integration expense, were
$0.31 for the second quarter of 1998, compared with $0.61 in 1997.
Bookings of $293.6 million for the second quarter of 1998 were slightly
above the $291.9 million recorded in the second quarter of 1997. Bookings
increased despite an offset of approximately $9.0 million due to
unfavorable currency translation rates and approximately $6.0 million
related to businesses that were sold in 1997. The increase in bookings was
due primarily to higher engineered pump bookings. Backlog at June 30, 1998
was $312.6 million, compared with $291.6 million at December 31, 1997.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998
Net sales for the six months ended June 30, 1998 were $539.0 million,
compared with net sales of $563.1 million for the same period in 1997.
Approximately $15.0 million of the sales decrease was due to unfavorable
currency translation rates and $12.0 million due to business sold in 1997.
Excluding these effects, sales would have increased slightly over 1997
levels. Net sales to international customers, including export sales from
the U.S., were 50% for the six months ended June 30, 1998 and 49% for the
six months ended June 30, 1997.
The gross profit margin was 38.4% for the six months ended June 30, 1998,
compared with 40.0% for the same period in 1997. The decrease in the gross
profit margin is due primarily to a reduction in higher margin parts sales
primarily to chemical customers, under absorption at certain locations and
some valve price discounting. Selling and administrative expenses as a
percentage of net sales were 24.4% for the six month period ended June 30,
1998, compared with 25.4% for the corresponding period of 1998. The
reduction in the selling and administrative expenses percentage was due
primarily to savings generated by the merger integration program and other
cost control initiatives across all divisions.
Tax savings initiatives undertaken subsequent to the merger reduced the
effective tax rate to 35% compared with 37% in 1997.
Earnings before merger integration expense were $38.2 million for the six
months ended June 30, 1998, compared with $41.6 million for the same period
in 1997. Earnings per diluted share before merger integration expense were
$0.94 for the six months ended June 30, 1998, compared with $1.02 in 1997.
Net earnings, after merger integration expense were $25.6 million for the
six months ended June 30, 1998, compared with $41.6 million for the same
period in 1997. The related net earnings
<PAGE> 15
per diluted share, after merger integration expense, were $0.63 for six
months ended June 30, 1998, compared with $1.02 in 1997.
Bookings of $561.7 million for the six months ended June 30, 1998 were 5%
below the $590.0 million for 1997. Approximately $15.0 million of the
bookings decrease was due to unfavorable currency translation rates and
approximately $12.8 million due to business divestitures in 1997. A decline
in oil prices resulted in lower petroleum-related capital spending and the
Asian economic crisis delayed several projects and reduced worldwide
chemical market activity, further contributed to the bookings decrease.
MERGER INTEGRATION PROGRAM
In the fourth quarter of 1997, the Company announced its merger integration
program. This $92.4 million program includes investments of approximately
$22.2 million for capital expenditures and approximately $70.2 million for
integration expense. Of this $70.2 million, $32.6 million was recognized as
a one-time restructuring charge in the fourth quarter of 1997. The balance
will be recognized as incurred over the three-year life of the program.
In July, 1998 the Company's Board of Directors approved an $18 million
expenditure for the first phase of a global business process improvement
initiative which will build on and bring additional costs and benefits to
the on-going merger integration program. This initiative includes the
standardization of processes across the business and the implementation of
a global information systems to facilitate common practices. The total
incremental cost of the business process improvement initiative is expected
to approximate $120 million over a three year period. About half of the
costs associated with this initiative are expected to be capitalized with
the balance separately identified as merger integration expense.
The Company incurred $11.9 million for merger integration expenses in the
second quarter 1998 and has incurred $26.5 million since the inception of
the program. Merger integration expense in the second quarter included
costs for closing the San Jose, California and Charleroi, Belgium pump
plants and the Guelph, Ontario service center, as well as some start up
costs for the business process improvement initiatives. The Company's
program includes facility rationalizations in North America and Europe,
organizational realignments at the corporate and division levels,
procurement initiatives, investments in training, and support for the
service and repair operations. The integration program is expected to
result in a net reduction of approximately 300 employees at a cost of $22.4
million. In addition, exit costs associated with the facilities closings
are estimated at $10.2 million. The integration program is expected to be
funded through operating cash flows and available credit facilities.
In the second quarter ended June 30, 1998, severance costs of $6.6 million
and exit costs of $1.5 million were paid and recorded against the
restructure accrual established in 1997. The remainder of the costs are
expected to be incurred over the life of the program.
<PAGE> 16
The Company believes the merger integration program will produce $45 to $55
million annually in operating income at the end of three years. This income
is expected to be produced by eliminating cost redundancies, capturing
procurement savings, and realizing earnings increases from sales synergies.
The Company realized integration savings of approximately $3.0 million,
before taxes, in the first quarter of 1998, and $3.8 million, before taxes,
in the second quarter of 1998. The Company believes the business process
improvement initiative will generate an additional $40 million in savings
in the first full year following completion.
CAPITAL RESOURCES AND LIQUIDITY
The Company's capital structure, consisting of long-term debt and
shareholders' equity, continued to enable the Company to finance short and
long-range business objectives. At June 30, 1998, total debt was 31.8% of
the Company's capital structure, compared with 27.1% at December 31, 1997.
Based upon annualized 1998 results, the interest coverage ratio of the
Company's indebtedness was 7.6 times interest at June 30, 1998, compared
with 7.8 times interest for the twelve months ended December 31, 1997.
Operating cash flows for the first six months of 1998 were below those in
the comparable period of 1997 principally due to the merger integration
program as well as lower operating profits.
The return on average net assets based on annualized results for June 30,
1998, before merger integration expense, was 12.8%, compared with 13.7% for
December 31, 1997. Including the impact of merger integration expense, the
annualized return on average net assets was 9.0% for June 30, 1998,
compared with 9.0% for December 31, 1997. The annualized return on average
shareholders' equity, before merger integration expense, was 19.6% at June
30, 1998, compared with 20.4% for December 31, 1997. Annualized return on
average shareholders' equity, including merger integration expense, was
13.1% for June 30, 1998 versus 13.0% for December 31, 1997.
During the second quarter of 1998, the Company initiated a $100 million
share repurchase program and as of June 30, 1998 had repurchased
approximately 1.3 million, or three percent, of its outstanding shares.
Operating cash flows and available credit facilities were utilized to fund
the repurchases. The timing of future repurchases depends on market
conditions, the market price of Flowserve's common stock, and management's
assessment of the Company's liquidity and cash flow needs.
On April 28, 1998 the Company announced its intentions to enhance its
capabilities to access additional credit markets to fund internal and
external growth opportunities. The Company is preparing to establish
short-term and long-term credit ratings with rating agencies and file an
initial $250-million public debt shelf registration.
<PAGE> 17
SAFE HARBOR STATEMENT
This document contains various forward-looking statements and includes
assumptions about Flowserve's future market conditions, operations, and
results. These statements are based on current expectations and are subject
to significant risks and uncertainties. They are made pursuant to safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Among the many factors that could cause actual results to differ materially
from the forward-looking statements are: further changes in the already
competitive environment for the Company's products or competitors'
responses to Flowserve's strategies; political risks or trade embargoes
affecting important country markets; economic turmoil in Asia/Pacific
region markets; unanticipated difficulties or costs associated with
integrating the management and operations of BW/IP, Inc. and Durco
International, Inc. including software implementation; the risk that
realized merger savings might not continue; and the recognition of
significant expenses associated with adjustments to realign the combined
Company's facilities and other capabilities with its strategies.
Net earnings for future periods are uncertain and dependent on general
worldwide economic conditions in the Company's major markets and their
strong impact on the level of incoming business activity.
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FLOWSERVE CORPORATION
(Registrant)
/s/ Renee Hornbaker
-------------------------------
Renee Hornbaker
Vice President and
Chief Financial Officer
Date: August 14, 1998
<PAGE> 19
PART II. OTHER INFORMATION
Item 2.
In 1998 the Company issued 8,200 shares of restricted common stock,
pursuant to an exemption from registration under Section 4(2) of the
Securities Act of 1933. Shares were issued for the benefit of directors
and employees of the Company subject to restrictions on transfer.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company was held on May
21, 1998.
(b) A proposal to approve the re-election of three Directors to the
Board of Directors, in each case for a term of three years, and
the re-election of one Director for a term of one year, was
approved as follows with respect to each nominee for office:
<TABLE>
<CAPTION>
Votes For Votes Withheld
<S> <C> <C>
Election for a three year term:
Hugh K. Coble 34,848,326 435,487
George T. Haymaker, Jr. 34,840,239 443,574
William C. Rusnack 34,838,856 444,957
Election for a one year term:
Charles M. Rampacek 34,845,539 438,274
</TABLE>
The other directors whose term of office continued after the
meeting were Diane C. Harris, Michael F. Johnston, William M.
Jordan, Bernard G. Rethore, James O. Rollans, Kevin E. Sheehan and
R. Elton White.
(c) A proposal to approve the Flowserve Corporation 1998 Restricted
Stock Plan was approved by shareholders with 31,287,754 votes cast
for the proposal, 3,806,574 votes cast against the proposal and an
aggregate of 189,486 abstentions and broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are attached hereto:
10.14 Flowserve Corporation Second Amendment to 1989 Stock Option
Plan, as Previously amended and restated.
10.28 Flowserve Corporation First Amendment to 1997 Stock Option
Plan
27.1 Financial Data Schedule
All other Exhibits are incorporated by reference.
(b) None
<PAGE> 20
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NO.
<S> <C>
3.1 1988 Restated Certificate of Incorporation of The Duriron Company, Inc. was filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1988.
3.2 1989 Amendment to Certificate of Incorporation was filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989.
3.3 By-Laws of The Duriron Company, Inc. (as restated) were filed with the Commission as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31,
1987.
3.4 1996 Certificate of Amendment of Certificate of Incorporation was filed as Exhibit 3.4 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
3.5 Amendment No. 1 to Restated Bylaws was filed as Exhibit 3.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
3.6 April 1997 Certificate of Amendment of Certificate of Incorporation was filed as part of
Annex VI to the Joint Proxy Statement/Prospectus which is part of the Registration
Statement on Form S-4, dated June 19, 1997.
3.7 July 1997 Certificate of Amendment of Certificate of Incorporation was filed as Exhibit 3.6
to the Company's Quarterly Report on Form 10-Q, for the Quarter ended June 30, 1997.
4.1 Lease agreement, indenture of mortgage and deed of trust, and guarantee agreement, all
executed on June 1, 1978 in connection with 9-1/8% Industrial Development Revenue Bonds,
Series A, City of Cookeville, Tennessee. +
4.2 Lease agreement, indenture of trust, and guaranty agreement, all executed on June 1, 1978
in connection with 7-3/8% Industrial Development Revenue Bonds, Series B, City of
Cookeville, Tennessee. +
4.3 Lease agreement and indenture, dated as of January 1, 1995 and bond purchase agreement
dated January 27, 1995, in connection with an 8% Taxable Industrial Development Revenue
Bond, City of Albuquerque, New Mexico.+
4.4 Rights Agreement dated as of August 1, 1986, between the Company and BankOne, N.A., as
Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate which was
filed as Exhibit 1 to the Company's Registration Statement on Form 8-A on August 13, 1986.
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
4.5 Amendment dated as of August 1, 1996, to Rights Agreement was filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
4.6 Amendment No. 2 dated as of June 1, 1998, to the Rights Agreement dated as of August 13,
1986, and amended as of August 1, 1996, was filed as Exhibit 1 to the Registrant's Form
8-A/A dated June 11, 1998.
4.7 Interest Rate and Currency Exchange Agreement between the Company and Barclays Bank PLC
dated November 17, 1992 in the amount of $25,000,000 was filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for year ended December 31, 1992.
4.8 Loan Agreement in the amount of $25,000,000 between the Company and Metropolitan Life
Insurance Company dated November 12, 1992 was filed as Exhibit 4.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
4.9 Revolving Credit Agreement between the Company and First of America Bank - Michigan, N.A.
in the amount of $20,000,000 and dated August 22, 1995 was filed as Exhibit 4.11 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
4.10 Credit Agreement dated as of November 26, 1997, among Flowserve Corporation, Bank of
America National Trust and Savings Association as Agent and Letter of Credit Issuing Bank
and the other Financial Institutions Party thereto was filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
4.11 Material Subsidiary Guarantee, dated as of November 26, 1997, by BW/IP International, Inc.
in favor of and for the benefit of Bank of America National Trust and Savings Association,
as Agent was filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
4.12 Rate Swap Agreement in the amount of $25,000,000 between the Company and National City Bank
dated November 14, 1996 was filed as Exhibit 4.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
4.13 Rate Swap Agreement in the amount of $25,000,000 between the Company and Key Bank National
Association dated October 28, 1996 was filed as Exhibit 4.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
4.14 Guaranty, dated August 1, 1997 between Flowserve Corporation and ABN-AMRO Bank N.V. was
filed as Exhibit 4.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
4.15 Credit Agreement, dated as of September 10, 1993, between BW/IP International B.V. and
ABN/AMRO was filed as Exhibit 10.dd to BWIP's Annual Report on Form 10-K for the year ended
December 31, 1993.
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
4.16 Note Agreement, dated as of November 15, 1996, between BW/IP International, Inc. and the Note
Purchasers named therein, with respect to $30,000,000 principal amount of 7.14% Senior Notes,
Series A, due November 15, 2006, and $20,000,000 principal amount of 7.17% Senior Notes, Series
B, due March 31, 2007, was filed as Exhibit 4.1 to BW/IP's Registration Statement on Form S-8
(Registration No. 333-21637) as filed February 12, 1997.
4.17 Note Agreement, dated as of April 15, 1992, between BW/IP International, Inc. and the Note
Purchasers named therein, with respect to $50,000,000 principal amount of 7.92% Senior Notes due
May 15, 1999, filed as Exhibit 4.a to BW/IP's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
10.1 The Duriron Company, Inc. Incentive Compensation Plan (the "Incentive Plan") for Senior
Executives, as amended and restated effective January 1, 1994, was filed as Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1993. **
10.2 Amendment No. 1 to the Incentive Plan was filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. **
10.3 The Duriron Company, Inc. Supplemental Pension Plan for Salaried Employees was filed with
the Commission as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987. **
10.4 The Duriron Company, Inc. amended and restated Director Deferral Plan was filed as
Attachment A to the Company's definitive 1996 Proxy Statement filed with the Commission on
March 10, 1996. **
10.5 Form of Change in Control Agreement between all executive officers and the Company was filed
as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996. **
10.6 The Duriron Company, Inc. First Master Benefit Trust Agreement dated October 1, 1987 was
filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.**
10.7 Amendment #1 to the First Master Benefit Trust Agreement dated October 1, 1987 was filed as
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31,
1993.**
10.8 Amendment #2 to First Master Benefit Trust Agreement was filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.**
10.9 The Duriron Company, Inc. Second Master Benefit Trust Agreement dated October 1, 1987 was
filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.**
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
10.10 First Amendment to Second Master Benefit Trust Agreement was filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.**
10.11 The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term Plan"), as amended and
restated effective November 1, 1993 was filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.**
10.12 Amendment No. 1 to the Long-Term Plan was filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.**
10.13 The Duriron Company, Inc. 1989 Stock Option Plan as amended and restated effective January 1, 1997
was filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.**
10.14 Flowserve Corporation Second Amendment to 1989 Stock Option Plan, as previously amended and restated
(filed herewith).**
10.15 The Duriron Company, Inc. 1989 Restricted Stock Plan (the "1989 Restricted Stock Plan") as amended
and restated effective January 1, 1997 was filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.**
10.16 The Duriron Company, Inc. Retirement Compensation Plan for Directors ("Director Retirement Plan") was
filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31,
1988.**
10.17 Amendment No. 1 to Director Retirement Plan was filed as Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.**
10.18 The Company's Benefit Equalization Pension Plan (the "Equalization Plan") was filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended December 31, 1989.**
10.19 Amendment #1 dated December 15, 1992 to the Equalization Plan was filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.**
10.20 The Company's Equity Incentive Plan as amended and restated effective July 21, 1995 was filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.**
10.21 Supplemental Pension Agreement between the Company and William M. Jordan dated January 18, 1993 was filed
as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.**
10.22 1979 Stock Option Plan, as amended and restated April 23, 1991, and Amendment #1 thereto dated December 15,
1992, was filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December
31, 1992.**
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
10.23 Deferred Compensation Plan for Executives was filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.**
10.24 Executive Life Insurance Plan of The Duriron Company, Inc. was filed as Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.**
10.25 Executive Long-Term Disability Plan of The Duriron Company, Inc. was filed as Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.**
10.26 Employee Protection Plan, as revised effective March 1, 1997 (which provides certain severance benefits to
employees upon a change of control of the Company) was filed as Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.**
10.27 1997 Stock Option Plan was included as Exhibit A to the Company's 1997 Proxy Statement which was filed
with the Commission on March 17, 1997.**
10.28 Flowserve Corporation First Amendment to 1997 Stock Option Plan (filed herewith).**
10.29 BW/IP International, Inc. Supplemental Executive Retirement Plan as amended and restated was filed as
Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998**
10.30 1998 Restricted Stock Plan was included as Exhibit A to the Company's 1998 Proxy Statement which was filed
with the Commission on April 9, 1998.**
10.31 Form of Employment Agreement between the Company and certain executive officers was filed as Exhibit 10.31
to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. **
10.32 Amendment No. 1 to the amended and restated Director Deferral Plan was filed as Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.**
10.33 Amendment # 1 to the 1989 Restricted Stock Plan as amended and restated was filed as Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. **
10.34 Employment Agreement, effective July 22, 1997, between the Company and Bernard G. Rethore was filed as
Exhibit 10.53 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.**
10.35 Employment Agreement, effective July 22, 1997, between the Company and William M. Jordan was filed as
Exhibit 10.54 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.**
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
10.36 Agreement and Plan of Merger dated as of May 6, 1997, among the Company, Bruin Acquisition Corp. and
BW/IP, Inc. ("BW/IP") was filed as Annex I to the Joint Proxy Statement/Prospectus which is part of the
Registration Statement on Form S-4, dated June 19, 1997.
27.1 Financial Data Schedule submitted to the SEC in electronic format (filed herewith).
"*" For exhibits of the Company incorporated by reference into this Quarterly Report on Form 10-Q form a
previous filing with the Commission, the Company's file number with the Commission since July 1997 is
"1-13179" and the previous file number was "0-325". All filings of BW/IP incorporated by reference in this
Quarterly Report on Form 10-Q cover the periods prior to the Merger.
"+" Indicates that the document relates to a class of indebtedness that does not exceed 10% of the total
assets of the Company and subsidiaries and that the Company will furnish a copy of the document to the
Commission upon request.
"**" Management contracts and compensatory plans and arrangements required to be filed as exhibits to this on
Form 10-Q.
</TABLE>
<PAGE> 1
EXHIBIT 10.14
7-7-98
FLOWSERVE CORPORATION
SECOND AMENDMENT TO 1989 STOCK OPTION PLAN,
AS PREVIOUSLY AMENDED AND RESTATED
THIS AMENDMENT of the Flowserve Corporation 1989 Stock Option Plan
(the "Plan") is being executed as of the 22nd day of July, 1998 under the
following circumstances:
A. The Plan was adopted by the Board of
Directors of Flowserve Corporation (the "Company") in
February 1989 and was approved by the shareholders of
the Company on April 26, 1989.
B. Pursuant to authorization by the Board of
Directors, the Plan was amended and restated
effective April 23, 1991 and was further amended by
First Amendment effective July 26, 1996.
C. Pursuant to authorization by the Compensation
Committee of the Board of Directors, the Plan is
being further amended by this Second Amendment.
NOW, THEREFORE, the Plan is hereby amended, effective July 22, 1998,
as follows:
PART 1. Section 2 of the Plan is amended by adding the following
definitions:
(j) "Designation of Beneficiary" means the written
designation by the Holder of the person or entity to receive the
Holder's options and any related Stock Appreciation Rights and
Unlimited Rights upon the Holder's death, which designation shall be
on such form as prescribed by the Committee and filed with the General
Counsel, the Chief Financial Officer, or the Treasurer of the Company
(or such other person as the Committee may designate).
(m) "Family Members" means children, stepchildren,
grandchildren, parents, stepparents, grandparents, spouse, siblings
(including half-brother and -sisters), nephews, nieces and in-laws.
(n) "Grantee" means the person who received the option
and any related Stock Appreciation Right and/or Limited Right from the
Company.
(o) Except where the context otherwise requires, "Holder"
or "holder" means the person(s) or entity who owns
<PAGE> 2
the option and any related Stock Appreciation Right and/or Limited
Right, whether the Grantee, Transferee, heir or other beneficiary. As
used in Section 9A, the term "Holder" shall have the meaning indicated
in Section 9A(a)(4).
(x) "Transferee" means the person who received the option
and any related Stock Appreciation Right and/or Limited Right from the
Grantee during the Grantee's lifetime in accordance with this Plan.
The other subsections of Section 2 shall be re-lettered so that all
definitions appear in alphabetical order.
PART 2. The word "holder" is changed to "Grantee" in the following
places:
1. Section 6(b)(1).
2. Section 6(b)(5), first and third uses only.
3. Section 6(b)(6), first use only.
4. Section 6(d).
5. Section 7(d), all uses.
PART 3. The first sentence of Section 6(b)(4) is amended to read as
follows:
Except as otherwise provided in the Plan, an option may be
exercised only if the Grantee thereof has been continuously
employed by the Company or a Subsidiary since the date of
grant.
PART 4. Section 10 of the Plan is amended in its entirety to read as
follows:
Non-Transferability.
(a) General Rule. Except as otherwise provided in
this Section 10, options, Stock Appreciation Rights and
Limited Rights may not be sold, pledged, assigned,
hypothecated, or transferred other than by Designation of
Beneficiary, or if none, by will or the laws of descent and
distribution upon the Holder's death, and may be exercised
during the lifetime of the Grantee only by such Grantee or by
his guardian or legal representative. All grants under the
Plan, with the exception of Incentive Stock Options and any
Stock Appreciation Rights and Limited Rights relating thereto,
may be transferred pursuant to a Qualified Domestic Relations
Order.
2
<PAGE> 3
(b) Transfers Permitted by the Committee. Subject to
this Section 10 and except as the Committee may otherwise
prescribe from time to time, the Committee may act to permit
the transfer or assignment of an option (together with any
related Stock Appreciation Right and/or Limited Right) by a
Grantee for no consideration to the Grantee's Family Members,
trusts for the sole benefit of the Grantee's Family Members,
or partnerships whose only partners are Family Members of the
Grantee; provided, however, that any such permitted transfer
or assignment shall not apply to an option that is an
Incentive Stock Option (but only if nontransferability is
necessary in order for the option to qualify as an Incentive
Stock Option) and to any Stock Appreciation Rights or Limited
Rights related to an Incentive Stock Option.
(c) Other Permitted Transfers. Unless the Committee
otherwise determines at the time of grant, the following
options (together with any related Stock Appreciation Right
and/or Limited Right) may be transferred or assigned by the
Grantee thereof for no consideration to the Grantee's Family
Members, trusts for the sole benefit of the Grantee's Family
Members, or partnerships whose only partners are Family
Members of the Grantee: (i) Director Options; and (ii) options
that both (x) are granted to or held by an individual who is
an officer of the Company, and (y) at the time of grant, are
Nonqualified Options. The provisions of this Section 10(c)
shall be applicable to any such option (described in the
preceding sentence) granted prior to July 22, 1998
notwithstanding that the written agreement evidencing such
option does not permit such transfer or assignment.
(d) Method and Effect of Transfer. Any permitted
transfer or assignment of an option and any Stock Appreciation
Right and/or Limited Right related thereto shall only be
effective upon receipt by the General Counsel, the Chief
Financial Officer, or the Treasurer of the Company (or such
other person as the Committee may designate) of an instrument
acceptable in form and substance to the Committee that effects
the transfer or assignment and that contains an agreement by
the Transferee to accept and comply with all the terms and
conditions of the stock option award and this Plan. A
Transferee shall possess all the same rights and obligations
as the Grantee under the Plan, except that
3
<PAGE> 4
the Transferee can subsequently transfer such option and any
related Stock Appreciation Rights and/or Limited Rights only
by (i) Designation of Beneficiary or, if none, then by will or
the laws of descent and distribution, or (ii) a transfer to a
beneficiary or partner if the Transferee is a trust or
partnership, respectively.
(e) Satisfaction of Withholding Tax Obligations.
Unless the Committee otherwise prescribes, upon the exercise
of a Nonqualified Option or its related Stock Appreciation
Rights or Limited Rights by a Transferee, when and as
permitted in accordance with this Section 10, the Grantee is
required to satisfy the applicable withholding tax obligations
by paying cash to the Company with respect to any income
recognized by the Grantee upon the exercise of such option by
the Transferee. If the Grantee does not satisfy the
applicable withholding tax obligations on the exercise date of
the option or related Stock Appreciation Right or Limited
Right, the Company shall, in the case of the exercise of an
option, retain from the Shares to be issued to the Transferee
upon the exercise of the option a number of Shares having a
Current Market Value on the exercise date equal to the
mandatory withholding tax payable by the Grantee or, in the
case of the exercise of a Stock Appreciation Right or Limited
Right, deduct from the cash to be delivered to the Transferee
such amount as in equal to the mandatory withholding taxes
payable by the Grantee.
PART 5. The last sentence of Section 17 of the Plan is amended to
read as follows:
No option shall be granted under the Plan after December 31,
1998.
PART 6. The term "option holder" is changed to "Grantee" in the
following places:
1. Section 9(A)(c), all uses.
2. Section 9A(d)(2), (3), and (4), all uses.
3. 9A(e).
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned officer has executed this Second
Amendment as of the day and year first written above.
FLOWSERVE CORPORATION
By /s/ Ronald F. Shuff
-------------------
Ronald F. Shuff
Vice President, Secretary
and General Counsel
5
<PAGE> 1
EXHIBIT 10.28
7-7-98
FLOWSERVE CORPORATION
FIRST AMENDMENT TO 1997 STOCK OPTION PLAN
THIS AMENDMENT of the Flowserve Corporation 1997 Stock Option Plan (the
"Plan") is being executed as of the 22nd day of July, 1998 under the following
circumstances:
A. The Plan was adopted by the Board of
Directors of Flowserve Corporation (the "Company") in
February 1997 and was approved by the shareholders of
the Company on April 24, 1997.
B. Pursuant to authorization by the Compensation
Committee of the Board of Directors, the Plan is
being amended by this First Amendment.
NOW, THEREFORE, the Plan is hereby amended, effective July 22nd, 1998,
as follows:
PART 1. Section 2(j) of the Plan is amended by deleting the phrase "the
Chief Financial Officer or Treasurer of the Company" and inserting in lieu
thereof the phrase "the General Counsel, the Chief Financial Officer, or the
Treasurer of the Company".
PART 2. The caption of Section 10(b) is amended to read as follows:
"Transfers Permitted by the Committee."
PART 3. Section 10 of the Plan is further amended by inserting the
following as subsection (c) immediately following the first paragraph of
subsection (b):
(c) Other Permitted Transfers. Unless the Committee
otherwise determines at the time of grant, the following
options (together with any related Stock Appreciation Right
and/or Limited Right) may be transferred or assigned by the
Grantee thereof for no consideration to the Grantee's Family
Members, trusts for the sole benefit of the Grantee's Family
Members, or partnerships whose only partners are Family
Members of the Grantee: (i) Director Options; and (ii) options
that both (x) are granted to or held by an individual who is
an officer of the Company, and (y) at the time of grant, are
Nonqualified Options. The provisions of this Section 10(c)
shall be applicable to any such option (described in the
preceding sentence) granted
<PAGE> 2
prior to July 22, 1998 notwithstanding that the written
agreement evidencing such option does not permit such transfer
or assignment.
PART 4. Section 10 of the Plan is further amended by designating the
second paragraph of subsection (b) as subsection (d) and inserting the following
caption at the beginning of such paragraph: "(d) Method and Effect of Transfer."
Such paragraph is further amended by deleting the phrase "the Chief Financial
Officer or Treasurer of the Company" and inserting in lieu thereof the phrase
"the General Counsel, the Chief Financial Officer, or the Treasurer of the
Company".
PART 4. Section 10 of the Plan is further amended by designating the
third paragraph of subsection (b) as subsection (e) and inserting the following
caption at the beginning of such paragraph: "(e) Satisfaction of Withholding
Obligations."
IN WITNESS WHEREOF, the undersigned officer has executed this First
Amendment as of the day and year first written above.
FLOWSERVE CORPORATION
By /s/ Ronald F. Shuff
-------------------------------------
Ronald F. Shuff
Vice President, Secretary
and General Counsel
2
<TABLE> <S> <C>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<RECEIVABLES> 221,368
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<INVENTORY> 196,507
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0
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