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