þ | ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
A. | Full title of the plan and address of the plan, if different from that of the issuer named below: |
B. | Name of the issuer of the securities held pursuant to the plan and the address of its principal executive office: |
(a) | Report of Independent Registered Public Accounting Firm. | ||
(b) | Statements of Net Assets Available for Benefits as of December 31, 2005 and 2004. | ||
(c) | Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2005. | ||
(d) | Notes to Financial Statements. | ||
(e) | Schedule H; Line 4i Schedule of Assets (Held at End of Year) as of December 31, 2005. | ||
(f) | Schedule H; Line 4j Schedule of Reportable Transactions for the Year Ended December 31, 2005. |
SIGNATURES | ||||||||
INDEX TO EXHIBITS | ||||||||
Consent of Independent Registered Public Accounting Firm | ||||||||
Annual Financial Statements |
Flowserve Corporation Retirement Savings Plan |
||||
By: | /s/ RONALD F. SHUFF, | |||
Ronald F. Shuff, | ||||
Authorized member of the Pension and Investment Committee |
||||
23.1 | Consent of Independent Registered Public Accounting Firm | |
99.1 | Annual Financial Statements of the Flowserve Corporation Retirement Savings Plan as of December 31, 2005 and 2004 and for the year ended December 31, 2005 with Report of Independent Registered Public Accounting Firm |
Page | ||||
Report of Independent Registered Public Accounting Firm |
1 | |||
Financial Statements: |
||||
Statements of Net Assets Available for Benefits
as of December 31, 2005 and 2004 |
2 | |||
Statement of Changes in Net Assets Available for Benefits
for the year ended December 31, 2005 |
3 | |||
Notes to Financial Statements |
4 | |||
Supplemental Schedules: |
||||
Schedule H; Line 4i Schedule of Assets (Held at End of Year)
as of December 31, 2005 |
12 | |||
Schedule H; Line 4j Schedule of Reportable Transactions
for the year ended December 31, 2005 |
13 |
December 31, | ||||||||
2005 | 2004 | |||||||
Investments: |
||||||||
Registered investment companies |
$ | 336,190,628 | $ | 309,413,848 | ||||
Common and collective trusts |
89,370,266 | 89,907,737 | ||||||
Flowserve Corporation common stock |
35,777,602 | 27,120,090 | ||||||
Loans receivable from participants |
8,927,301 | 8,369,510 | ||||||
Total investments |
470,265,797 | 434,811,185 | ||||||
Receivables: |
||||||||
Employer contributions |
3,425,402 | 2,449,840 | ||||||
Participant contributions |
870,711 | 789,050 | ||||||
Total receivables |
4,296,113 | 3,238,890 | ||||||
Net assets available for benefits |
$ | 474,561,910 | $ | 438,050,075 | ||||
2
Investment income: |
||||
Dividend income |
$ | 14,191,481 | ||
Interest income from other than participant loans |
3,514,376 | |||
Interest income from participant loans |
494,275 | |||
Net appreciation in fair value of investments |
23,220,967 | |||
41,421,099 | ||||
Contributions: |
||||
Employer |
9,722,232 | |||
Participant |
23,740,693 | |||
33,462,925 | ||||
Total additions |
74,884,024 | |||
Deductions: |
||||
Benefits paid to participants |
(38,254,178 | ) | ||
Other deductions |
(118,011 | ) | ||
Total deductions |
(38,372,189 | ) | ||
Increase in net assets available for benefits |
36,511,835 | |||
Net assets available for benefits: |
||||
Beginning of year |
438,050,075 | |||
End of year |
$ | 474,561,910 | ||
3
1. | DESCRIPTION OF THE PLAN | |
The following description of the Flowserve Corporation Retirement Savings Plan (the Plan) provides only general information. Participants should refer to the Plan Agreement for a more complete description of the Plans provisions. | ||
General and eligibility | ||
The Plan is a defined contribution plan. Full-time and part-time employees of Flowserve Corporation and its wholly-owned subsidiaries located in the United States (collectively the Company) are eligible to participate in the Plan upon commencement of their employment. The Plan is subject to the provision of the Employee Retirement Income Security Act, as amended (ERISA). | ||
Participant accounts | ||
Each participants account is credited with the participants contribution, the employers contribution and an allocation of investment income from each fund as defined in the Plan Agreement. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account. Additionally, the Plan has certain expenses that are deducted from participant accounts. | ||
Contributions | ||
Participants contribute a percentage of their compensation, as defined in the Plan agreement. Unless newly hired participants elect otherwise, they automatically contribute 3% of eligible compensation to the Plan. Additionally, the maximum contribution rate for participants is generally 50% of eligible compensation, of which up to $14,000 (the maximum annual salary deferral contribution limit as set forth by the Internal Revenue Code (the Code) for the 2005 plan year) may be made pre-tax. All participants who are eligible to make elective deferrals under the Plan and who have attained age 50 before the close of the Plan year are eligible to make additional catch-up contributions of up to $4,000 during fiscal 2005. Contributions made by participants are invested based on each participants election. | ||
The Company matches 50% of participant contributions, up to 6% of eligible compensation, except for union employees represented by the: |
| United Steelworkers of America at the Vernon, California facility, | ||
| United Steelworkers of America, AFL-CIO-CLC, District 30 Local Number 3320 at the Dayton, Ohio facility, | ||
| IAM, District Lodge 1130 at the Cleveland, Ohio facility; and | ||
| United Steelworkers of America AFL-CIO and its Local 9404 at the Phillipsburg, New Jersey facility. |
Each of the above exception groups receive Company matching contributions of 25% of participant contributions up to 6% of eligible compensation. |
4
Company matching contributions are made in cash and allocated among a participants account in the same percentage in which the participant directs his or her contributions. The Company may also make a discretionary contribution based upon the Company meeting its performance targets, as determined by the Company in its sole discretion. All Company discretionary contributions are made in Company common stock and invested into the Company Stock Fund. Discretionary contributions are generally allocated among the participants based on the amount of Company matching contributions made during the Plan year, unless otherwise specified by a collective bargaining agreement. In 2006, the Company made a discretionary contribution of $3,139,992 for the Plan year 2005. The discretionary contribution is recorded as an employer receivable on the Statement of Net Assets. | ||
The Plan allows all amounts allocated to participant accounts to be invested in accordance with participant investment directions except for the Company discretionary contribution which shall automatically be invested in the Company Stock Fund and cannot be transferred for a one year period. | ||
Vesting | ||
Participants are immediately vested in their contributions and associated earnings thereon. Unless otherwise specified in a collective bargaining agreement, participants become 20% vested in the Companys contributions and associated earnings after one year of service. Vesting increases by 20% for each additional year of service until a participant becomes fully vested after five years of service. | ||
Forfeitures | ||
Forfeitures are used to reduce the Companys contributions. During 2005, participants forfeited $464,940 of nonvested account balances. In 2005, employer contributions were reduced by $875,000 from previously forfeited account balances, in accordance with plan documents. Unutilized forfeitures at December 31, 2005 and 2004 total $54,867 and $457,014, respectively. | ||
Payment of benefits | ||
Terminated participants may be paid their vested balance in a lump sum or rollover as soon as administratively possible after their date of termination. | ||
Investments | ||
Participants may direct their contributions and account balances among the following investment funds: | ||
Company Stock Fund Invests in publicly traded common stock of the Company. | ||
American Funds EuroPacific Fund Invests primarily in securities of issuers located in Europe and the Pacific Basin. |
5
Royce Premier Fund Invests primarily in small-cap securities and seeks long-term capital appreciation. | ||
T. Rowe Price Mid-Cap Growth Fund Invests primarily in mid-cap common stocks of United States and foreign companies that, in the fund managers opinion, possess above average growth potential. | ||
Vanguard 500 Index Fund Invests in large cap equity securities that are managed to achieve results similar to those of the overall stock market as measured by the Standard & Poors 500 Index. | ||
Vanguard Retirement Savings Trust Fund Invests primarily in investment contracts or similar fixed-income instruments, that are managed to yield higher levels of current income without capital appreciation. | ||
Vanguard Target Retirement 2005 Fund Included in a mix of other Vanguard Mutual Funds designed for individuals planning to retire in or within a few years of 2005. | ||
Vanguard Target Retirement 2015 Fund Included in a mix of other Vanguard Mutual Funds designed for individuals planning to retire in or within a few years of 2015. | ||
Vanguard Target Retirement 2025 Fund Included in a mix of other Vanguard Mutual Funds designed for individuals planning to retire in or within a few years of 2025. | ||
Vanguard Target Retirement 2035 Fund Included in a mix of other Vanguard Mutual Funds designed for individuals planning to retire in or within a few years of 2035. | ||
Vanguard Target Retirement 2045 Fund Included in a mix of other Vanguard Mutual Funds designed for individuals planning to retire in or within a few years of 2045. | ||
Vanguard Target Retirement Fund Invests in equity securities of companies that, in the fund managers opinion, possess prospects for continued growth, strong industry positions and skilled management teams. | ||
Vanguard Total Bond Market Index Fund Invests primarily in fixed-income securities that are managed to yield performance mirroring the Lehman Brothers Aggregate Bond Index. | ||
Vanguard PRIMECAP Fund Invests in a mix of other Vanguard Mutual Funds designed for individuals currently in retirement. | ||
Vanguard Wellington Fund Invests 65% in equity securities and 35% in high-quality bonds, which are managed in the aggregate to generate capital appreciation in the long-term while providing current income. |
6
Vanguard Windsor II Fund Invests primarily in equity and other instruments issued by large and medium-sized companies that, in the fund managers opinion, are undervalued based on current price/earnings ratios or dividend yields. | ||
Administration | ||
The Plan is administered by the Pension and Investment Committee, which is appointed by the senior management of the Company. The Company pays the majority of the expenses related to the Plans operations. | ||
Participant loans | ||
Subject to certain limitations set forth in the Plan, participants may borrow from their vested account balances using their account balance as collateral. Participants may borrow an aggregate maximum of the lesser of: |
| $50,000, subject to certain adjustments as set forth in the Plan, or | ||
| One-half of the participants vested account balance at the time the loan is made. |
General purpose loans have a maximum term of five years, while primary residence loans have a maximum term of fifteen years. Loan repayments are generally made via bi-weekly payroll deductions. Loans bear interest at rates that become fixed at loan inception, based on prevailing interest rates at loan inception. Loans outstanding at December 31, 2005 have interest rates ranging from 5% to 10.5%. | ||
Plan termination | ||
Although it has not expressed any intent to do so, the Company may terminate the Plan at any time. In the event of termination of the Plan, distribution would be made to participants in the amounts of their respective account balances. In the event of Plan termination, all components of participants balances become 100% vested. | ||
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of accounting | ||
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. | ||
Investment valuation and income recognition | ||
The Plans investments are stated at fair value based on quoted market prices. Shares of registered investment companies are valued at the net asset value of shares held by the Plan at year end. Shares of common/collective trusts are valued at the net asset value of shares held by the Plan at year end as reported by the trustee. Participant loans are valued at cost plus accrued interest, which approximates fair value. |
7
Purchases and sales of investments are recorded on a trade-date basis. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. | ||
The Plans investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with investments in mutual funds, common collective trusts and stocks, it is at least reasonably possible that changes in the values of such investments could occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the statements of net assets available for benefits. | ||
Determination of unrealized appreciation/depreciation | ||
The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. | ||
Use of estimates | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts of net assets available for benefits and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates. | ||
Benefits | ||
Benefits are recorded when paid. |
8
3. | INVESTMENTS | |
All Plan investments are held by Vanguard under a trust agreement dated May 27, 1999. The fair values of individual investments that represent 5% or more of the Plans net assets available for benefits at December 31, 2005 and 2004 are as follows: |
2005 | 2004 | |||||||
T. Rowe Price Mid-Cap Growth Mutual Fund |
$ | 47,862,471 | $ | 43,798,595 | ||||
Vanguard 500 Index Mutual Fund |
88,688,170 | 92,282,391 | ||||||
Vanguard Wellington Mutual Fund |
91,735,690 | 79,577,807 | ||||||
Vanguard Windsor II Mutual Fund |
30,044,711 | 27,674,414 | ||||||
Vanguard Retirement Savings Trust |
89,370,266 | 89,907,737 | ||||||
Flowserve Corporation common stock* |
35,777,602 | 27,120,090 |
During 2005, the Plans investments had net appreciation in fair value as follows: |
Registered investment companies |
$ | 11,466,387 | ||||||
Common stock |
11,754,580 | |||||||
Total net appreciation |
$ | 23,220,967 | ||||||
* | Includes non-participant directed funds (see Note 5). |
4. | STABLE VALUE FUND | |
Investments in bank collective investment funds that hold benefit-responsive investment contracts are presented at fair value on the statement of net assets available for benefits and the amount representing the difference between fair value and contract value of the bank collective investment fund is presented on the face of the statement of net assets available for benefits as a single amount, calculated as the sum of the amounts necessary to adjust the portion of net assets attributable to each fully benefit-responsive investment contract from fair value to contract value. The statement of changes in net assets available for benefits is prepared on a basis that reflects income credited to participants in the Plan and net appreciation or depreciation in the fair value of only those investment contracts that are not deemed to be fully benefit responsive. |
9
5. | NON-PARTICIPANT DIRECTED INVESTMENTS | |
The Company discretionary contribution is automatically invested in the Company Stock Fund and cannot be transferred for a one year period. Employees also have the option of investing their contributions, or a portion thereof, in the Companys common stock. Since the activity of the non-participant directed and participant directed investments in the Companys common stock are combined, the entire investment is considered non-participant directed for purposes of this disclosure. Information regarding the net assets available for benefits and the changes in net assets available for benefits for that fund, the Company Stock Fund, is shown below: |
December 31, | ||||||||
2005 | 2004 | |||||||
Assets: |
||||||||
Flowserve Corporation Common Stock |
$ | 35,777,602 | $ | 27,120,090 | ||||
Company contribution receivable |
3,139,992 | 2,170,472 | ||||||
Net assets available for benefits |
$ | 38,917,594 | $ | 29,290,562 | ||||
Year Ended | ||||||||
December 31, | ||||||||
2005 | ||||||||
Changes in net assets available for benefits: |
||||||||
Additions: |
||||||||
Contributions |
$ | 4,164,133 | ||||||
Net appreciation in fair value of investments |
11,754,580 | |||||||
Interfund transfers |
(4,057,445 | ) | ||||||
Total additions net of interfund transfers |
11,861,268 | |||||||
Deductions: |
||||||||
Benefits paid to participants |
(2,234,236 | ) | ||||||
Increase in net assets available for benefits |
9,627,032 | |||||||
Net assets available for benefits at beginning of year |
29,290,562 | |||||||
Net assets available for benefits at end of year |
$ | 38,917,594 | ||||||
10
6. | PARTY-IN-INTEREST TRANSACTIONS | |
Certain investments are shares of mutual funds managed by an affiliate of Vanguard Fiduciary Trust Company, which is the trustee as defined by the Plan and, therefore, transactions with these mutual funds qualify as party-in-interest transactions. | ||
Additionally, the Plan holds investments in the Companys common stock and loans receivable from participants, both of which constitute party-in-interest transactions. During the year, the Company had sales and purchases of Flowserve stock of $16,667,555 and $12,970,487, respectively. | ||
7. | INCOME TAX STATUS | |
The Plan has received a determination letter from the Internal Revenue Service dated March 19, 2003, stating that the Plan as then designed and operated qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. The Plan has been amended since receipt of the determination letter; however, the Plan Administrator believes the Plan operated in compliance with the applicable requirements of the Code throughout 2005 and, therefore, the Plan and the related trust are exempt from taxation. | ||
8. | NON-CURRENT FILER IMPACT ON THE PLAN | |
As of May 1, 2005, due to the non-current status of the Companys financial filings with the SEC, the Companys Registration Statements on Form S-8 were no longer available to cover offers and sales of securities to the Companys employees and other persons. Since that date, the acquisition of interests in the Plans common stock fund by plan participants may have been subject to the registration requirements of the Securities Act of 1933 or applicable state securities laws and may not have qualified for an available exemption from such requirements. Federal securities laws generally provide for a one-year rescission right for an investor who acquires unregistered securities in a transaction that is subject to registration and for which no exemption was available. As such, an investor successfully asserting a rescission right during the one-year time period has the right to require an issuer to repurchase the securities acquired by the investor at the price paid by the investor for the securities (or if such security has been disposed of, to receive damages with respect to any loss on such disposition), plus interest from the date of acquisition. These rights may apply to affected participants in the Plan. Based on the Companys current stock price Company management believes that the Companys current potential liability for rescission claims is not material to its financial condition or results of operations or to the financial statements of the Plan; however, this potential liability could become material in the future if the Companys stock price were to fall below participants acquisition prices for their interest in the common stock fund during the one-year period following the unregistered acquisitions. |
11
(c) | ||||||||||
Description of Investment | ||||||||||
(b) | Including Maturity Date, | (f) | ||||||||
Identity of Issue, Borrower, | Rate of Interest, Collateral, | (d) | Current | |||||||
(a) | Lessor or Similar Party | Par, or Maturity Value | Cost | Value | ||||||
American Funds EuroPacific R5 Mutual Fund | Registered investment company | ** | $ | 14,024,859 | ||||||
Royce Premier Mutual Fund | Registered investment company | ** | 20,533,321 | |||||||
T. Rowe Price Mid-Cap Growth Mutual Fund | Registered investment company | ** | 47,862,471 | |||||||
* |
Vanguard 500 Index Mutual Fund | Registered investment company | ** | 88,688,170 | ||||||
* |
Vanguard PRIMECAP Mutual Fund | Registered investment company | ** | 20,618,578 | ||||||
* |
Vanguard Total Bond Market Index Mutual Fund | Registered investment company | ** | 15,148,818 | ||||||
* |
Vanguard Target Retirement 2005 Mutual Fund | Registered investment company | ** | 1,606,363 | ||||||
* |
Vanguard Target Retirement 2015 Mutual Fund | Registered investment company | ** | 3,048,719 | ||||||
* |
Vanguard Target Retirement 2025 Mutual Fund | Registered investment company | ** | 1,548,719 | ||||||
* |
Vanguard Target Retirement 2035 Mutual Fund | Registered investment company | ** | 815,808 | ||||||
* |
Vanguard Target Retirement 2045 Mutual Fund | Registered investment company | ** | 350,908 | ||||||
* |
Vanguard Target Retirement Mutual Fund | Registered investment company | ** | 163,493 | ||||||
* |
Vanguard Wellington Mutual Fund | Registered investment company | ** | 91,735,690 | ||||||
* |
Vanguard Windsor II Mutual Fund | Registered investment company | ** | 30,044,711 | ||||||
* |
Vanguard Retirement Savings Trust Fund | Common collective trust | ** | 89,370,266 | ||||||
* |
Flowserve Corporation Common Stock | Common stock, 904,388 shares | $19,453,901 | 35,777,602 | ||||||
* |
Loans Receivable from Participants | 5% - 10.5% due through 2020 | 8,927,301 | |||||||
Total assets held for investment purposes |
$ | 470,265,797 | ||||||||
* | Denotes an investment issued by an entity known to be a party-in-interest to the Plan. | |
** | Cost omitted for participant-directed investments. |
12
(h) | ||||||||||||||||||||||||||
(b) | Current Value | |||||||||||||||||||||||||
(a) | Description of Asset | (c) | (d) | (g) | of Asset on | |||||||||||||||||||||
Identity of Party | (include interest rate and | Purchase | Selling | Cost of | Transaction | (i) | ||||||||||||||||||||
Involved | maturity in the case of a loan) | # of Shares | Price | Price | Asset | Date | Gain or (Loss) | |||||||||||||||||||
The Vanguard Group |
Flowserve Corporation Common Stock | 772,081 | $ | 12,970,487 | $ | | $ | | $ | 12,970,487 | $ | | ||||||||||||||
The Vanguard Group |
Flowserve Corporation Common Stock | 914,766 | | 16,067,555 | 12,205,847 | 16,067,555 | 3,861,708 |
* | Transactions or a series of transactions in non-participant directed funds which exceed 5% of the current value of the Plans assets as of the beginning of the plan year, as defined in Section 2520.103-6 of the Department of Labors Rules and Regulations for Reporting and Disclosure under ERISA. |
13