<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Flowserve Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[FLOWSERVE LOGO]
Irving, Texas 75039
March 16, 2000
NOTICE OF 2000 ANNUAL MEETING
Flowserve's Annual Meeting of Shareholders will be held on Thursday, April 20,
2000, at 11:00 a.m. We are holding the meeting at the Omni Mandalay Hotel, 221
East Las Colinas Boulevard, Irving, Texas. If you owned Flowserve common stock
at the close of business on March 6, 2000, you may vote at this meeting.
At the meeting we plan to:
o elect three directors to each serve a three-year term, and
o attend to other business properly presented at the meeting.
This booklet includes the notice of annual meeting and the proxy statement. The
proxy statement contains information you should consider when you vote your
shares. The Board is not aware of any other proposals for the April 20, 2000
meeting.
Your vote is important. Whether or not you plan to attend the meeting in person,
we hope that you will vote. We ask you to vote by completing and mailing the
proxy card in the enclosed envelope.
On behalf of Flowserve's Board of Directors,
Ronald F. Shuff
Vice President, Secretary and General Counsel
<PAGE> 3
THE ANNUAL MEETING AND VOTING
This proxy statement and proxy card contain information about the item you will
vote on at the annual meeting.
Who can vote and number of votes
If you are a shareholder of record at the close of business on March 6, 2000,
you can vote. You have one vote for each share you own.
How to vote
You may vote in person by attending the meeting or by completing and returning a
proxy by mail. To vote your proxy, mark your vote on the enclosed proxy card;
then follow the instructions on the card. Your shares will then be voted
according to your directions. If you do not mark any selections, your shares
will be voted as recommended by the Board of Directors. Whether you plan to
attend the meeting or not, we encourage you to vote by proxy as soon as
possible.
Changing your vote
You can revoke your proxy before the time of the meeting by:
o mailing in a revised proxy dated later than the first or
o notifying Flowserve's corporate secretary in writing that you are
revoking your proxy.
You may also revoke your proxy by voting in person at the meeting.
A quorum for the meeting
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. A quorum is necessary to conduct business at the annual
meeting. You are part of the quorum if you have voted by proxy. Votes withheld
from director nominees count as "shares present" at the meeting for purposes of
determining a quorum.
Under the law of New York, Flowserve's state of incorporation, only "votes cast"
count in the voting results. Withheld votes will not be considered "votes cast."
Directors are elected by a plurality of votes cast.
At the close of business on March 6, 2000, the record date for the meeting,
Flowserve had 37,829,000 shares of common stock entitled to be voted.
Cost of proxy solicitation
Flowserve pays the cost of soliciting proxies. We will reimburse brokerage firms
and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for sending proxy materials to shareholders and obtaining
their votes.
Shareholder director nominations
If you are a shareholder entitled to vote at an annual meeting, you may nominate
one or more persons for election as directors of Flowserve at that meeting. You
may do this by sending a written notice to: Corporate Secretary, Flowserve
Corporation, 222 West Las Colinas Boulevard, Suite 1500, Irving, TX 75039. The
notice must include certain information about the persons you nominate.
Generally, we must receive it not less than 50 days before the annual meeting
date. However, if fewer than 60 days' notice or prior public disclosure of the
meeting date is given or made to shareholders, we must receive it not later than
the tenth day following the day on which notice of the date of the meeting was
mailed or such public disclosure was made. The proposed nomination will be
referred to the Executive Committee of the Board for further consideration. For
complete details, contact the corporate secretary.
Shareholder proposals
Flowserve plans to hold its next annual meeting on April 19, 2001. You must
submit shareholder proposals in writing by November 16, 2000, for them to be
considered for the 2001 proxy statement. Please address all shareholder
proposals to the corporate secretary of Flowserve at the above address.
Voting by participants in the Flowserve Corporation Retirement Savings Plan
If you are a participant in the Flowserve Corporation Retirement Savings Plan,
the proxy card serves as a voting instruction to the trustee for the Plan. This
card indicates the number of shares of common stock credited to your
1
<PAGE> 4
account under the Retirement Savings Plan as of March 6, 2000, the record date
for voting at the meeting.
o If you sign and return the card on time, the trustee will vote the
shares as you have directed.
o If you do not return the card, the trustee will vote your shares in
the same proportion as the shares voted by participants who return
their cards to the trustee.
Vote counting
Votes are counted by employees of National City Bank, Flowserve's independent
transfer agent and registrar. This bank is inspector of elections.
BOARD OF DIRECTORS
Committees and meetings of the Board
The Board of Directors considers all major decisions of Flowserve. The Board met
eight times in 1999. All directors attended at least 75% of the meetings of the
Board and committees on which they served. The Board maintained the following
committees in 1999:
Audit/Finance Committee
The Audit/Finance Committee advises the Board on strategic financial matters,
including making recommendations on acquisitions, divestitures, major financing,
pension fund performance, capital structure and dividend policy. The committee
meets with Flowserve's independent auditors, as well as the Company's internal
auditors and management personnel, to review the scope and results of the annual
audit of the Company. The committee considers the recommendations of the
independent auditors pertaining to accounting practices, policies and
procedures, and overall internal controls. The committee approves major capital
expenditures made in the ordinary course of business. It also approves annually
the appointment of independent auditors for the Company. The committee met seven
times in 1999.
Compensation Committee
The Compensation Committee is responsible for establishing executive
compensation for officers and key management personnel. This is done by the
committee in a manner that is internally equitable, externally competitive and
an incentive for effective performance in the best interests of shareholders.
The committee has the authority of the Board to fix the compensation of
officers, including the Chief Executive Officer, who are elected by the Board.
The committee is responsible for reviewing the management succession plan and
for recommending changes in director compensation to the Board. In addition,
this committee issues the report of the Compensation Committee on executive
compensation. (See page 12 of this proxy statement.) The committee met five
times in 1999.
Executive Committee
The Executive Committee has authority to act on behalf of the Board, except
about matters not delegable to a committee under the New York Business
Corporation Law. The committee makes recommendations to the Board for the
positions of Chairman of the Board, President, Chief Executive Officer and
candidates for director. The committee also reviews and makes recommendations to
the Board on Board self-governance matters. This committee met five times in
1999.
1999 CEO Search Committee
In 1999, the Board formed the special 1999 CEO Search Committee. This committee
successfully completed its mission when the Company recruited Mr. C. Scott Greer
to the Company as President (effective July 1, 1999) and Chief Executive Officer
(effective January 1, 2000).
BOARD SELF-GOVERNANCE GUIDELINES
The Board has adopted internal self-governance guidelines designed to promote
superior management of the Company. The guidelines address the director
selection process and the composition of Board committees (including selection
of an outside director as chairperson of the Executive Committee). They also
cover the formal process for Board review of Chief Executive Officer, individual
director and full Board performance. The guidelines establish requirements for
director stock ownership, including requiring the receipt of one-half of a
director's target annual compensation in the form of restricted common stock.
The guidelines further mandate that directors own common stock with a value of
at least $100,000 by the end of his or her fifth year of Board service.
2
<PAGE> 5
Finally, these guidelines require the offer of resignation by a non-employee
director when the director's principal occupation has changed during a term of
office.
DIRECTORS' COMPENSATION
Non-employee directors receive an annual retainer with a total target value of
$40,000 per year. One-half of this retainer is paid in the form of restricted
stock with a grant date valuation equal to $20,000. Dividends and voting rights
accompany the restricted stock which vests after one year. The other half of the
retainer is payable in cash. Non-employee directors also receive an annual stock
option grant at fair market value covering 2,000 shares of common stock.
Committee chairpersons receive an additional annual retainer of $2,000 and an
additional option grant of 200 shares. All non-employee directors also receive
$500 for attendance at any special meeting requiring travel.
Directors may elect to defer all or part of this compensation. Interest is paid
on cash deferrals and on the dividends accumulated from stock deferrals. If a
director elects to defer the cash retainer in the form of Flowserve stock, that
deferral is increased by 15%.
ELECTION OF DIRECTORS
Flowserve's Board of Directors has 10 members who are divided into three
classes. Directors are elected for three-year terms. The terms for members of
each class end in successive years.
The Board of Directors has nominated three members of the class of directors,
whose terms of office are expiring, to each serve for new three-year terms that
will end in 2003. They are Mr. C. Scott Greer, Ms. Diane C. Harris and Mr. James
O. Rollans.
Mr. Bernard G. Rethore, Chairman of the Board, will retire at the 2000 Annual
Meeting and not stand for reelection. He will become Chairman of the Board
Emeritus after the annual meeting.
The individuals named as proxies on the enclosed proxy card will vote your proxy
for the election of these nominees unless you withhold authority to vote for any
one or more of them. If any director is unable to stand for election, the Board
may reduce the number of directors or choose a substitute.
3
<PAGE> 6
NOMINEES TO SERVE FOR A THREE-YEAR TERM EXPIRING IN 2003
--------------------------------------------------------
<TABLE>
<S> <C>
C. SCOTT GREER
Age: 49
Director since: 1999
Flowserve Board Committee: Executive Committee
Principal occupation: President of Flowserve since July 1999 and Chief Executive Officer since January
2000.
Recent business experience: Mr. Greer was Chief Operating Officer in 1999 until succeeding Bernard G. Rethore
as Chief Executive Officer in January 2000. Mr. Greer had been President of UT
Automotive, a subsidiary of United Technologies Corporation, a supplier of
automotive systems and components, from 1997 to 1999. He was President and a
director of Echlin, Inc., an automotive parts supplier, from 1990 to 1997, and
its Chief Operating Officer from 1994 to 1997.
Other directorships: ECOAIR Corp., a technology development company.
----------------------------------------------------------------------------------
DIANE C. HARRIS
Age: 57
Director since: 1993
Flowserve Board Committees: Audit/Finance Committee and 1999 CEO Search Committee (Chair)
Principal occupation: President of Hypotenuse Enterprises, Inc., a merger and acquisition service and
corporate development outsourcing company.
Recent business experience: Ms. Harris was Vice President, Corporate Development, of Bausch & Lomb, an
optics and health care products company, from 1981 to 1996, when she left
to form Hypotenuse Enterprises, Inc. She was a director of the Association
for Corporate Growth from 1993 to 1998 and its President from 1997 to 1998.
----------------------------------------------------------------------------------
JAMES O. ROLLANS
Age: 57
Director since: 1997
Flowserve Board Committee: Audit/Finance Committee
Principal occupation: President and Chief Executive Officer since 1999 of Fluor Signature
Services, a subsidiary of Fluor Corporation, a major engineering and
construction firm.
Recent business experience: Mr. Rollans was Senior Vice President of Fluor from 1992 to 1999.
He was also its Chief Financial Officer from 1998 to 1999 and
1992 to 1994, Chief Administrative Officer from 1994 to 1998 and
Vice President, Corporate Communications, from 1982 to 1992.
Other directorships: Fluor Corporation and Inovision, Inc., a pharmaceutical products company.
</TABLE>
4
<PAGE> 7
DIRECTORS WHOSE TERMS EXPIRE IN 2002
-------------------------------------
<TABLE>
<S> <C>
MICHAEL F. JOHNSTON
Age: 52
Director since: 1997
Flowserve Board Committees: Compensation Committee and 1999 CEO Search Committee
Principal occupation: President, since 1999, of North America/Asia Pacific, Johnson Controls, Inc.,
Automotive Systems Group, a company serving the automotive and building services
industries.
Recent business experience: At Johnson Controls, Inc., Mr. Johnston was President of Americas Automotive Group from
1997 to 1999, Vice President and General Manager of ASG Interior Systems Business
during 1997, Vice President and General Manager of the Johnson Controls Battery Group
from 1993 to 1997, and Vice President and General Manager of SLI Battery Division from
1991 to 1993.
--------------------------------------------------------------------------------------
CHARLES M. RAMPACEK
Age: 56
Director since: 1998
Flowserve Board Committee: Audit/Finance Committee
Principal occupation: President and Chief Executive Officer of Lyondell-Citgo Refining LP, a
manufacturer of petroleum products, since 1996.
Recent business experience: Before joining Lyondell-Citgo Refining, Mr. Rampacek served as
President of Tenneco Gas Transportation Company from 1992 to 1996,
Executive Vice President of Tenneco Gas operations from 1989 to 1992
and Senior Vice President of Refining of Tenneco Oil Company from 1982
to 1988.
--------------------------------------------------------------------------------------
KEVIN E. SHEEHAN
Age: 54
Director since: 1990
Flowserve Board Committees: Compensation Committee (Chair) and Executive Committee
Principal occupation: General Partner of the CID Equity Partners, a venture capital firm,
concentrating on early-stage and high-growth entrepreneurial companies.
Recent business experience: Before joining CID Equity Partners, Mr. Sheehan was a Vice
President of Cummins Engine Company, a manufacturer of diesel engines and
related components, from 1980 to 1993.
Other directorships: Auburn Foundry Group.
</TABLE>
5
<PAGE> 8
DIRECTORS WHOSE TERMS EXPIRE IN 2001
------------------------------------
<TABLE>
<CAPTION>
<S> <C>
HUGH K. COBLE
Age: 65
Director since: 1994
Flowserve Board Committees: Compensation Committee and Executive Committee (Chair)
Principal occupation: Vice Chairman Emeritus of Fluor Corporation, a major engineering
and construction firm.
Recent business experience: Mr. Coble was a director of Fluor Corporation from 1984 and Vice Chairman from 1994
until his retirement in 1997. He joined Fluor Corporation in 1966 and most
recently was Group President of Fluor Daniel, Inc., a subsidiary of Fluor
Corporation, from 1986 to 1994.
Other directorships: Beckman Coulter Instruments, Inc., a company that sells medical instruments, and
ICO Global Communications, a telecommunications business.
--------------------------------------------------------------------------------------
GEORGE T. HAYMAKER, JR.
Age: 62
Director since: 1997
Flowserve Board Committees: Compensation Committee and 1999 CEO Search Committee
Principal occupation: Chairman of Kaiser Aluminum Corporation, a company that operates in
all principal aspects of the aluminum industry, since 1994.
Recent business experience: Mr. Haymaker was Chief Executive Officer of Kaiser Aluminum from 1994 to 1999. Prior
to joining Kaiser Aluminum in 1993 as a President and Chief Operating Officer, Mr.
Haymaker worked with a private partner in the acquisition and redirection of several
metal fabricating companies. He was Executive Vice President of Alumax, Inc. from
1984 to 1986 and was Vice President - International Operations for Alcoa, Inc. from
1982 to 1984.
Other directorships: Kaiser Aluminum Corporation, CII Carbon L.L.C., a supplier for aluminum smelters, and
Mid America Holdings, Ltd., an aluminum extruder
--------------------------------------------------------------------------------------
WILLIAM C. RUSNACK
Age: 55
Director since: 1997
Flowserve Board Committees: Audit/Finance Committee (Chair) and Executive Committee
Principal occupation: President, Chief Executive Officer and a director of Clark U.S.A., Inc., a company
which refines crude oil to manufacture petroleum products, since 1998.
Before joining Clark U.S.A., Inc., Mr. Rusnack had been Senior Vice President of
Recent business experience: ARCO, an integrated petroleum company, from 1990 to 1998 and President of ARCO
Products Company from 1993 to 1998.
Clark Refining & Marketing, Inc., which is affiliated with Clark U.S.A., Inc.
Other directorships:
</TABLE>
6
<PAGE> 9
FLOWSERVE STOCK OWNERSHIP
This table shows beneficial ownership of Flowserve common stock by directors and
executive officers at March 1, 2000. The named executive officers are the
current Chief Executive Officer, Mr. Greer; the former Chief Executive Officer,
Mr. Rethore; and the other three current officers who were the highest paid in
1999. No individual director, nominee or executive officer owned more than 1% of
the outstanding shares of Flowserve common stock. The total ownership shown for
directors and executive officers as a group (including shares that could be
purchased by exercise of stock options within 60 days after March 1, 2000)
represents approximately 2.9% of outstanding shares. Unless otherwise indicated,
voting power and investment power are exercised solely by the named individual
or are shared by the individual and his or her family members.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Exercisable Stock Number of Shares
Options(1) Owned(2)(3)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Hugh K. Coble - 7,651
C. Scott Greer - 123,000(4)
Diane C. Harris 788 10,908
George T. Haymaker - 9,176
Renee J. Hornbaker 42,450 28,545
Michael F. Johnston 4,703 5,160
Charles M. Rampacek - 8,426
Bernard G. Rethore 308,398 82,237
James O. Rollans 5,991 4,872
William C. Rusnack 9,056 5,075
George A. Shedlarski 45,020 53,687
Kevin E. Sheehan - 13,647
Howard D. Wynn 67,444 54,818
- ------------------------------------------------------------------------------------------------------------------------------------
Directors and executive officers as a 563,834 525,053
group (19 individuals)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares that the directors and officers had a right to acquire
within 60 days through the exercise of stock options under a Flowserve
stock option plan.
(2) For non-employee directors, includes shares deferred under the Director
Deferral Plan and/or a Flowserve restricted stock plan over which they have
no voting power as follows: Mr. Coble: 6,351; Ms. Harris: 7,608; Mr.
Haymaker: 3,876; Mr. Johnston: 4,176; Mr. Rampacek: 3,426; Mr. Rollans:
4,176; Mr. Rusnack: 2,275; and Mr. Sheehan: 6,835.
(3) For executive officers, includes restricted shares deferred under either a
Flowserve restricted stock plan or an executive compensation plan over
which they have no voting power as follows: Mr. Rethore: 16,978; Ms.
Hornbaker: 18,138; Mr. Shedlarski: 26,567; and Mr. Wynn: 18,395.
(4) Includes 100,000 shares issued under a restricted stock plan.
Compliance with director and officer reporting requirements
Section 16(a) of the rules of the Securities and Exchange Commission require
that directors and executive officers file reports with the SEC regarding their
ownership of Flowserve stock and any changes in their ownership. We believe that
all of these reports were filed on a timely basis in 1999.
7
<PAGE> 10
OWNERS OF MORE THAN 5% OF FLOWSERVE STOCK
The following shareholders reported to the Securities and Exchange Commission
that they owned more than 5% of Flowserve common stock. We know of no other
shareholders holding 5% or more of Flowserve stock.
<TABLE>
<CAPTION>
Name and address of Number of Per cent of
beneficial owner shares owned Flowserve common stock(1)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Investment Management, Inc.(2) 3,365,200 8.9%
4500 Main Street
Kansas City, MO 64141
Gabelli Funds, Inc.(3) 3,148,600 8.3%
One Corporate Center
Rye, NY 10580
Prudential Insurance Company of America(4) 2,690,201 7.1%
751 Broad Street
Newark, NJ 07102
</TABLE>
(1) Based on the number of outstanding shares on March 1, 2000.
(2) American Century reported on its Amendment No. 1 to Schedule 13G dated as
of December 31, 1999, sole power to vote and dispose of all the shares
shown. American Century's report covered interests of its affiliate
American Century Capital Portfolios, Inc., which had sole power to vote and
dispose of 2,763,400 of the shares.
(3) Gabelli's report on its Amendment No. 2 to Schedule 13D dated as of
February 10, 2000, covered interests owned or controlled by its affiliates.
According to the report, Gabelli Funds, LLC had sole power to vote and
dispose of 1,004,100 of the shares; GAMCO Investors, Inc. had sole power to
vote 2,107,900 of the shares and sole power to dispose of 2,136,400 of the
shares; Gabelli & Company, Inc. had sole power to vote and dispose of 600
of the shares; and Gabelli International II Limited had sole power to vote
and dispose of 7,500 of the shares.
(4) Prudential Insurance Company reported on a Schedule 13G, dated as of
December 31, 1999, that it had sole power to vote and dispose of 18,224 of
the shares and shared power to vote and dispose of 2,671,977 of the shares.
STOCK PERFORMANCE GRAPH
This graph compares the most recent five-year performance of Flowserve common
stock with the S&P 500 Index and S&P Machinery (Diversified) - 500 Index. It
shows an investment of $100 on December 31, 1994, and the reinvestment of all
dividends.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Flowserve Corporation $100.00 $134.36 $158.90 $167.02 $101.44 $107.59
S&P 500 Index $100.00 $137.58 $169.17 $225.60 $290.08 $351.12
S&P Machinery (Diversified)-500 $100.00 $123.41 $153.82 $203.47 $169.34 $200.21
</TABLE>
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
This table summarizes the compensation for the CEO and the other four executive
officers who were the highest paid in 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation(1)
Annual Compensation(1)(2) Awards Payouts
Number of
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation (3) Awards (4) Options Payouts(5) Compensation(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bernard G. Rethore 1999 $ 641,058 $ 138,089 $ 64,991 -0- 67,400 $ -0- $ 2,400
Chairman of the Board 1998 588,077 300,322 56,615 -0- 85,680 -0- 4,425
and Chief Executive 1997 480,930 566,578 -0- -0- 62,300 -0- 2,438
Officer(7)
- ----------------------
C. Scott Greer 1999 304,615 -0- 6,077 1,856,250 700,000 -0- -0-
President (8) 1998 -0- -0- -0- -0- -0- -0- -0-
1997 -0- -0- -0- -0- -0- -0-
- ----------------------
Renee J. Hornbaker 1999 259,587 45,866 -0- 286,875 15,000 -0- 9,863
Vice President Finance 1998 238,157 98,296 4,576 -0- 24,300 -0- 11,632
and Chief Financial 1997 174,333 144,544 -0- -0- 13,900 -0- 2,375
Officer
- ----------------------
George A. Shedlarski 1999 291,722 93,980 -0- -0- 30,000 -0- 7,449
Vice President and 1998 279,048 111,932 4,063 -0- 29,160 -0- 10,402
President Flow Solutions 1997 255,242 124,863 -0- -0- 9,000 143,199 10,042
and Flow Control
Divisions
- ----------------------
Howard D. Wynn 1999 286,846 111,852 -0- 286,875 15,000 -0- 9,215
Vice President and 1998 261,550 106,348 1,393 -0- 29,160 -0- 10,957
President Rotating 1997 219,732 176,678 -0- -0- 18,600 -0- 2,924
Equipment Division
</TABLE>
(1) Salary, annual bonus and long-term payouts may be deferred with interest
until retirement. Annual bonus and long-term payments may also be deferred
in the form of Flowserve stock.
(2) Includes $246,090 for Mr. Rethore, $89,836 for Ms. Hornbaker and $105,712
for Mr. Wynn paid by BW/IP, Inc. prior to the merger of BW/IP, Inc. and the
Company (the "Merger") in July 1997.
(3) Amounts shown include tax adjustment payments on relocation allowances. The
only other type of Other Annual Compensation was in the form of perquisites
and, except for Mr. Rethore, was less than the level required for
reporting. Perquisites in 1999 for Mr. Rethore include $30,000 for
commuting expenses, $16,320 for a Company-provided car and $17,100 for
financial planning and tax preparation services.
(4) The number and value of restricted stock holdings of each of the named
executive officers at December 31, 1999, were: Mr. Rethore: 3,693 shares
($62,781); Mr. Greer: 100,000 shares ($1,700,000); Ms. Hornbaker: 15,227
shares ($258,859); Mr. Shedlarski: 7,500 shares ($127,500); and Mr. Wynn:
15,245 shares ($259,165). All values were calculated at the price of $17.00
per share, the December 31, 1999, closing price for Flowserve stock.
(5) Of these executive officers, only Mr. Shedlarski was eligible for a
long-term payout for 1997, because he was an executive officer prior to the
Merger.
(6) Company contributions to the 401(k) savings plan for 1999 were: Mr.
Rethore: $2,400; Ms. Hornbaker: $3,031; Mr. Shedlarski: $2,807; and Mr.
Wynn: $2,843. The actuarial values of the non-term portion of 1999 premiums
for split-dollar life insurance covering the executives who participated in
1999 were: Ms. Hornbaker: $6,832; Mr. Shedlarski: $4,642 and Mr. Wynn:
$6,372.
(7) Mr. Rethore retired as Chief Executive Officer in December 1999. He was
succeeded by Mr. Greer.
(8) Mr. Greer joined the Company in July 1999 as President. Mr. Greer received
an interest-free loan in the amount of $325,738 in payment for the loss of
equity in his home upon relocation. If Mr. Greer maintains employment for
five years, the loan will be forgiven. He also received rights to a payment
of $450,000 upon his hiring by the Company in July 1999 in lieu of
participation in the 1999 Annual Incentive Plan and 1999-2001 Long-Term
Incentive Plan.
9
<PAGE> 12
1999 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at Assumed
% of Total Annual Rates of Stock Price
Number of Securities Options to Appreciation For
Underlying Options Employees in Exercise Price Expiration Option Term(4)
Name Granted(1) Fiscal Year Per Share(2)(3) Date 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard G. Rethore 67,400 5.4% $17.0000 8/02/09 $ 720,586 $ 1,826,109
C. Scott Greer 700,000 55.9 18.5625 6/30/09 8,171,730 20,708,660
Renee J. Hornbaker 15,000 1.2 19.1250 7/20/09 180,414 457,205
George A. Shedlarski 30,000 2.4 17.0000 8/02/09 320,736 812,808
Howard D. Wynn 15,000 1.2 19.1250 7/20/09 180,414 457,205
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options have an exercise price equal to the fair market value of
Flowserve stock on the date of grant and a 10-year life. They also have
certain "limited rights" which, in general, provide for a cash payment of
the value of the option in the event of a change in control of the Company.
(2) Annual option grants, including the grants to Mr. Rethore and Mr.
Shedlarski, become exercisable in three installments beginning on the first
anniversary of the grant date. In lieu of the annual grant, Ms. Hornbaker
and Mr. Wynn received special option grants that become exercisable after
one year, but only to the extent they acquire additional shares of
Flowserve stock subsequent to the grant date. Upon joining Flowserve, Mr.
Greer received a special option grant that becomes exercisable in three
installments beginning on the third anniversary of the grant date.
(3) All options are non-qualified options, except for 16,161 incentive stock
options granted to Mr. Greer and 5,594 to Mr. Shedlarski.
(4) The calculation of potential realizable value assumes annual growth rates
for each of the grants shown over their 10-year option term. For example, a
$17.00 per share price with a 5% annual growth rate results in a stock
price of $27.69 per share and a 10% rate results in a price of $44.09 per
share. Actual gains, if any, on stock option exercises are dependent on the
future performance of the stock.
1999 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
This chart shows the number and value of stock options, both exercisable and
unexercisable, for the following executive officers.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at Fiscal Year In-the-Money Options at Fiscal
Acquired End Year end(1)
on Realized ---------------------------------------------------------------------------------
Name Exercise Value Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard G. Rethore 0 0 308,398 145,287 $ 0 $ 0
C. Scott Greer 0 0 0 700,000 0 0
Renee J. Hornbaker 0 0 42,450 35,834 0 0
George A. Shedlarski 0 0 45,020 52,440 18,788 0
Howard D. Wynn 0 0 67,444 40,640 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The value of unexercised options is the difference between the option
exercise price and the year-end stock price of $17.00 per share, multiplied
by the number of option shares.
10
<PAGE> 13
PENSION PLANS
Flowserve provides pension benefits to executive officers under Flowserve's
qualified "cash balance" defined benefit pension plan and its non-qualified
supplemental executive retirement plans. The supplemental plans provide benefits
that plan participants cannot receive under the qualified plan because of
Internal Revenue Code limits. Since July 1, 1999, when the Company's pension
plan was converted to the cash balance design, participants accrue contribution
credits based on age and years of service at the rate of 3% to 7% for qualified
earnings up to the Social Security wage base and at the rate of 6% to 12% for
qualified earnings in excess of the Social Security wage base. Qualified
earnings include salary and annual incentive payments. For executive officers,
including the executives listed below, contribution percentages are increased by
5% under provisions of the non-qualified plan. Participants also earn interest
on the accrued cash benefit amount in their plan accounts. The following
executives (except Mr. Greer) also received certain transitional benefits in
their plan account balances when the Company converted to the cash balance plan.
The estimated annual retirement annuities for the following officers at age 65
are:
<TABLE>
<CAPTION>
Year Reaching Age 65
Age 65 Annual Annuity(1)
------ ---------------
<S> <C> <C>
Bernard G. Rethore 2006 $193,642(2)
C. Scott Greer 2015 505,043
Renee J. Hornbaker 2017 219,601
George A. Shedlarski 2009 281,851
Howard D. Wynn 2012 280,532
</TABLE>
(1) The estimated annual pension benefits shown assume: (a) annual bonuses for
all named executive officers, except Mr. Greer, equal to the bonus
received in the last year and annual bonuses for Mr. Greer, who became an
employee in 1999, equal to 75% of salary; (b) a 7% interest factor; (c)
retirement at age 65; and (d) no increase in current salary.
(2) The table does not include certain additional pension payments to which Mr.
Rethore is entitled. (See "Employment and Change in Control Agreements"
below). The amount of such pension payments would increase his annual
annuity by $170,515.
11
<PAGE> 14
REPORT OF THE COMPENSATION COMMITTEE
Committee membership and charter
The Compensation Committee of the Board consists of four directors, none of whom
is a present or former officer or employee of the Company. The Board-adopted
statement of purposes and responsibilities of the Compensation Committee states
that the Committee is charged with the broad responsibility of seeing that
officers and key management personnel are effectively compensated in terms of
salaries, supplemental compensation, and benefits that are internally equitable
and externally competitive.
Committee compensation philosophy
Following that charter, and in order to tie compensation directly to
performance, the Committee has adopted an "incentive-leveraged" compensation
policy. This policy offers the Company's officers, including the Chief Executive
Officer, the opportunity to supplement their base salaries with substantial cash
and stock-based incentives when Company financial objectives are achieved.
Compensation benchmark evaluation process
The Committee has established for all officers, including the Chief Executive
Officer, a compensation policy which would place the officers' total annual cash
compensation (consisting of salary and annual incentive plan awards) at the
sixty-fifth percentile of companies of comparable size, if the Company attains
its target financial goals under its incentive plans. The Committee established
this sixty-fifth percentile benchmark based on data received by the Committee
from Hay Associates and Hewitt Associates to allow the Committee to consider
overall executive compensation trends.
Incentive plans - 1999 overview
In 1999, the Company continued to maintain an annual incentive plan and
long-term incentive plan. For 1999, the Company's Chief Executive Officer's
annual and long-term incentives were set, when combined, to be 125% of his
individual salary reference rate if all goals were met. In comparison, the total
combined annual and long-term incentives were set within a band of 95% to 120%
of salary reference rate for other officers listed in the Summary Compensation
Table on page 9.
1999 incentive plan goals
The specific performance goals under these incentive plans were established by
the Compensation Committee at the beginning of 1999. The 1999 Annual Plan
contained quantitative financial goals and certain non-financial goals. The 1999
Long-Term Plan was EVA* based for all participants, including the CEO. Awards
under this plan may be earned by participants when the Company earns more than
its cost of capital (i.e., weighted equity and debt capitalization) over the
period 1999 to 2001.
Incentive plans - 1999 results
Under both the 1998-2000 and 1999-2001 Long-Term Plans, the officers listed in
the Summary Compensation Table received no awards because minimum performance
levels were not attained.
Under the 1999 Annual Incentive Plan, Mr. Rethore and the other listed officers
received awards which were substantially below target. The Company's
below-target financial performance was the reason for the below-target awards.
Mr. Greer was ineligible to participate in these plans in 1999, but he received
rights to a $450,000 payment in lieu of such participation.
2000 incentive plan goals
For 2000, the Committee has redesigned the Annual Incentive Plan to incent all
officers to sharpen the focus on improved annual financial performance.
Accordingly, the 2000 Annual Incentive Plan contains goals covering only
earnings per share and operating earnings targets, both at a substantially
higher level than 1999 results. The Committee also approved a special, one-time
increase in 2000 Annual Incentive Plan target awards to Company officers. This
action was taken to provide extra incentive in a year when the Company expects
to face critical acquisition integration work arising from its definitive
agreement to acquire Ingersoll-Dresser Pumps. The Committee maintained the
EVA-based targets of the 2000-2002 Long-Term Incentive Plan.
* EVA (R) IS A REGISTERED TRADEMARK OF STERN STEWART & CO.
12
<PAGE> 15
Stock-based compensation
Stock Options. With regard to stock options, the Committee has adopted a stock
option plan administration policy under which options are normally granted
annually to officers and selected key employees to better link the objectives of
management and shareholders.
In lieu of this annual grant, certain officers, including Mr. Wynn and Ms.
Hornbaker, received stock option grants upon beginning participation in the
Company's Equity Incentive Plan. This plan requires them to personally acquire
an additional 15,000 shares of common stock after beginning plan participation
to obtain all plan benefits. Also, a stock option grant of 700,000 shares to Mr.
Greer was part of his recruitment package.
Restricted Stock. In 1999 the Committee authorized grants of restricted stock to
certain officers, including 15,000 shares to Mr. Wynn and Ms. Hornbaker, in
connection with their starting participation in the Equity Incentive Plan. This
grant is a one-time grant and does not fully vest for 10 years. Mr. Greer
received a hiring grant of 100,000 restricted shares as part of his recruiting
package, which vests over three years. None of the other aforementioned officers
received restricted stock grants in 1999, since the Committee normally awards
these grants only under special circumstances.
Stock ownership guidelines
The Committee, as part of its review of stock-based compensation, adopted
personal stock ownership guidelines for all the Company officers. These
guidelines require unrestricted personal stock ownership equal to four times
salary for the Chief Executive Officer and two times salary for the other
officers. An executive in compliance receives an increase of 20% in an annual
stock option award over what the officer would have received if not in
compliance. Also, officers failing to meet their personal ownership within the
prescribed period are required to receive one-half of any future Incentive Plan
awards in common stock until compliance is attained.
Tax deductibility of executive compensation
The Committee has not formally adopted a policy with regard to qualifying
executive compensation plans for tax deductibility under Internal Revenue Code
Section 162(m), since the Company has never yet been affected by this provision.
Kevin E. Sheehan, Chair
Hugh K. Coble
George T. Haymaker
Michael F. Johnston
13
<PAGE> 16
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Greer as of July 1,
1999, for him to join the Company as President and Chief Operating Officer. Mr.
Greer succeeded Mr. Rethore as Chief Executive Officer on January 1, 2000. Mr.
Greer's employment agreement includes the following compensation: (i) annual
base salary of $600,000, subject to increase based on annual reviews, (ii)
minimum annual bonus opportunity of no less than 75% of base salary and
participation in the Long-Term Incentive Plan, (iii) a stock option grant to
purchase 700,000 shares of Flowserve common stock and a restricted stock grant
of 100,000 shares, (iv) an interest-free loan of $325,738, forgiven after five
year's employment, in recognition of loss of equity on his prior home, and (v)
rights to a $450,000 payment in lieu of participation in the Company's 1999
incentive plans.
Effective with the Merger, the Company entered into an employment agreement with
Mr. Rethore, which was subsequently amended. This agreement provides that Mr.
Rethore will receive at least his current annual base salary (subject to annual
adjustment) and an annual bonus opportunity equal to 75% of base salary until
July 31, 2003. He also has the right to participate in the Company's benefit
programs during this period, plus then receive an additional supplemental
retirement benefit assuming one additional year of service for each actual year
of service. Although Mr. Rethore retired as Chief Executive Officer on December
31, 1999, his rights to this contractual compensation were unaffected.
The Company entered into employment agreements with other executive officers,
including Ms. Hornbaker and Messrs. Shedlarski and Wynn, providing for
termination benefits in the event the individual's employment is terminated by
the Company without cause or by the officer for "good reason" (which includes a
substantial, detrimental change in position, duties or status or a material
breach of the agreement by the Company). Termination benefits under these
agreements include a payment equal to the sum of annual base salary and the
average annual bonus paid in the last two calendar years. These agreements
terminate July 31, 2001.
CHANGE-IN-CONTROL AGREEMENTS
The Company entered into change-in-control agreements with Mr. Rethore, Mr.
Greer, Ms. Hornbaker, Mr. Shedlarski, Mr. Wynn and certain other officers of the
Company providing the following benefits. These are paid in the event the
officer's employment is terminated within two years after a change-in-control
and include the following payments: (i) three times the sum of the officer's
base salary and the average of target awards under incentive plans for the
immediately following three years, (ii) a cash settlement of outstanding stock
options under any stock option plan of the Company, and (iii) full reimbursement
for certain potential excise tax liabilities.
The change-in-control agreements for all officers (except Mr. Greer) continue
until December 31, 2001. Mr. Greer's agreement continues until June 30, 2005.
OTHER INFORMATION
Relationship with independent accountants
Ernst & Young LLP has been the independent accounting firm that has audited the
financial statements of Flowserve annually since 1956. The Audit/Finance
Committee reviews the fees and services provided by Ernst & Young, including
both annual audit work and other unrelated work. This committee also reviews any
factors that could impact the independence of Ernst & Young in conducting the
audit.
Following the recommendation of the Audit/Finance Committee, the Board
re-appointed Ernst & Young to audit the 1999 financial statements.
Representatives from this firm will be at the annual meeting to make a
statement, if they choose, and answer any questions you may have.
14
<PAGE> 17
DETACH HERE
- --------------------------------------------------------------------------------
FLOWSERVE CORPORATION
PROXY FOR ANNUAL SHAREHOLDERS' MEETING - APRIL 20, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints C. SCOTT GREER and HUGH K. COBLE, and
each of them, with full power to act without the other, as proxies with full
power of substitution, to represent and to vote on behalf of the undersigned all
of the shares of common stock of Flowserve Corporation which the undersigned is
entitled in any capacity to vote if personally present at the 2000 Annual
Meeting of Shareholders of Flowserve Corporation to be held at 11:00 a.m. on
Thursday, April 20, 2000, at the Omni Mandalay Hotel, 221 East Las Colinas
Boulevard, Irving, Texas, and at any adjournment thereof, upon the proposal
listed on the reverse side of this proxy and more fully described in the Notice
of Annual Meeting of Shareholders and Proxy Statement, dated March 16, 2000, and
upon all matters presented at the Annual Meeting but not known to the Board of
Directors at a reasonable time before the solicitation of this proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
(CONTINUED, AND TO BE DATED AND SIGNED, ON OTHER SIDE)
<PAGE> 18
DETACH HERE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROXY NO. SHARES
<S> <C>
(Continued from the other side)
1.Election of three directors each for a three-year term.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through
the nominee's name below:
C. Scott Greer Diane C. Harris James O. Rollans
</TABLE>
DATE: 2000
-------------------
----------------------------
----------------------------
SIGNATURE(S) OF
SHAREHOLDER(S) PLEASE SIGN
AS NAME(S) APPEAR AT LEFT.
EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND
OTHERS SIGNING IN A
REPRESENTATIVE CAPACITY,
SHOULD INDICATE THE
CAPACITY IN WHICH THEY
SIGN. AN AUTHORIZED
OFFICER MAY SIGN ON BEHALF
OF A CORPORATION AND
SHOULD INDICATE THE NAME
OF THE CORPORATION AND HIS
OR HER CAPACITY.
