1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 ---------------------------------- For Quarter Ended September 30, 1997 Commission File Number 1-13179 ------------------ -------- FLOWSERVE CORPORATION --------------------- (Exact name of Registrant as specified in its charter) New York -------- (State or other jurisdiction of incorporation or organization) 31-0267900 ---------- (I.R.S. Employer Identification Number) 3100 Research Boulevard, Dayton, Ohio 45420 ------------------------------------- ----- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (937) 476-6100 ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Shares of Common Stock, $1.25 par value, outstanding as of September 30, 1997 40,573,941
2 PART I: Financial Information
3 FLOWSERVE CORPORATION Consolidated Statement of Income Quarters Ended September 30, 1997 and 1996 (dollars in thousands except per share data) (Unaudited) <TABLE> <CAPTION> 1997 1996 --------- --------- <S> <C> <C> Net sales $ 281,805 $ 271,023 Cost of sales 174,395 165,134 --------- --------- Gross profit 107,410 105,889 Selling and administrative expense 71,199 67,680 Research, engineering and development expense 5,647 4,817 Other income (deductions) (699) (1,886) Merger transaction expense (footnote 2) 10,200 -- Interest expense 2,697 3,259 --------- --------- Income before income taxes 16,968 28,247 Provision for income taxes 9,918 10,019 --------- --------- Net income 7,050 18,228 ========= ========= Net income per share $ 0.17 $ 0.44 ========= ========= </TABLE> (See accompanying notes)
4 FLOWSERVE CORPORATION Consolidated Statement of Income Nine Months Ended September 30, 1997 and 1996 (dollars in thousands except per share data) (Unaudited) <TABLE> <CAPTION> 1997 1996 --------- --------- <S> <C> <C> Net sales $ 844,974 $ 812,990 Cost of sales 512,205 490,966 --------- --------- Gross profit 332,769 322,024 Selling and administrative expense 210,885 206,040 Research, engineering and development expense 16,946 15,751 Other income (deductions) (2,053) (5,694) Merger transaction expense (footnote 2) 10,200 -- Restructuring expense -- 5,778 Interest expense 9,612 9,866 --------- --------- Income before income taxes 83,073 78,895 Provision for income taxes 34,343 28,572 --------- --------- Net income 48,730 50,323 ========= ========= Net income per share $ 1.19 $ 1.21 ========= ========= </TABLE> (See accompanying notes)
5 FLOWSERVE CORPORATION Consolidated Balance Sheet (dollars in thousands except per share data) (Unaudited) <TABLE> <CAPTION> September 30, December 31, ASSETS 1997 1996 ------------- ------------ <S> <C> <C> Current assets: Cash and cash equivalents $ 32,140 $ 38,932 Accounts receivable 224,216 223,274 Inventories 206,387 182,423 Prepaid expenses 23,984 24,405 -------- -------- Total current assets 486,727 469,034 Property, plant and equipment, at cost 465,325 455,050 Less accumulated depreciation and amortization 254,403 243,311 -------- -------- Net property, plant and equipment 210,922 211,739 Intangibles and other assets 153,675 149,003 -------- -------- Total assets $851,324 $829,776 ======== ======== </TABLE> (See accompanying notes)
6 FLOWSERVE CORPORATION Consolidated Balance Sheet (dollars in thousands except per share data) (Unaudited) <TABLE> <CAPTION> September 30, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 ------------- ------------ <S> <C> <C> Current liabilities: Accounts payable $ 71,217 $ 68,011 Notes payable 14,985 14,871 Income taxes 6,265 4,961 Accrued liabilities 100,405 93,695 Long-term debt due within one year 5,278 7,525 --------- --------- Total current liabilities 198,150 189,063 Long-term debt due after one year 144,850 143,962 Postretirement benefits and other deferred items 105,648 108,127 Shareholders' equity: Serial preferred stock, $1.00 par value, no shares issued -- -- Common stock, $1.25 par value, 41,484,300 shares issued ( 41,482,400 in 1996) 51,856 51,853 Capital in excess of par value 71,353 72,629 Retained earnings 329,528 298,563 --------- --------- 452,737 423,045 Treasury stock, 910,400 shares at cost (1,081,000 in 1996) (23,823) (27,455) Foreign currency and other equity adjustments (26,238) (6,966) --------- --------- Total shareholders' equity 402,676 388,624 --------- --------- Total liabilities and shareholders' equity $ 851,324 $ 829,776 ========= ========= </TABLE> (See accompanying notes)
7 FLOWSERVE CORPORATION Consolidated Statement of Cash Flows Nine Months Ended September 30, 1997 and 1996 (dollars in thousands) (Unaudited) <TABLE> <CAPTION> 1997 1996 -------- -------- <S> <C> <C> Cash flows provided by operating activities before merger transaction expenses $ 58,095 $ 41,537 Merger transaction expenses (10,200) -- -------- -------- Cash flows provided by operating activities 47,895 41,537 Cash flows from investing activities: Capital expenditures (28,979) (23,487) Acquisitions and dispositions, net (9,000) 390 Other 171 (3,374) -------- -------- Net cash used in investing activities (37,808) (26,471) Cash flows from financing activities: Net borrowings under lines-of-credit 1,010 17,286 Payments on long-term debt (36,476) (12,375) Proceeds from long-term debt 38,833 27,355 Proceeds from common stock transactions 2,306 2,245 Repurchases of common stock -- (27,850) Dividends paid (20,435) (17,572) Other (170) -- -------- -------- Net cash flows used in financing activities (14,932) (10,911) Effect of exchange rate changes (1,947) (2,027) -------- -------- Net (decrease) increase in cash and cash equivalents (6,792) 2,128 Cash and cash equivalents at beginning of year 38,932 28,596 -------- -------- Cash and cash equivalents at end of period $ 32,140 $ 30,724 ======== ======== Supplemental disclosures of cash flow information: Cash paid during period for: Interest $ 8,344 $ 8,017 Income taxes $ 26,914 $ 24,922 </TABLE> (See accompanying notes)
8 FLOWSERVE CORPORATION Notes to Consolidated Financial Statements 1. Accounting Policies - Basis of Presentation The interim consolidated financial statements include the accounts of Flowserve Corporation (the Company) and its subsidiaries. As described in Note 2, on July 22, 1997 the shareholders of Durco International Inc. and BW/IP Inc. voted to approve a merger between a wholly owned subsidiary of Durco International Inc. and BW/IP Inc. in a stock-for-stock merger of equals that was accounted for as a pooling-of-interests transaction. As part of the merger agreement, the Company changed its name from Durco International Inc. to Flowserve Corporation. These consolidated financial statements reflect the combined balance sheets, statements of income, and cash flows of Durco International Inc. and BW/IP Inc. as if they had been combined for all periods presented. Certain amounts have been reclassified to conform with the current year presentation. The accompanying consolidated balance sheet as of September 30, 1997 and the related consolidated statements of income and cash flows for the three months and nine months ended September 30, 1997 and 1996 are unaudited. In management's opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such financial statements have been made. The accompanying consolidated financial statements and notes in this Form 10-Q are presented as permitted by Regulation S-X and do not contain certain information included in the Companys' annual financial statements and notes. Accordingly, the accompanying consolidated financial information should be read in conjunction with the respective Companys' 1996 Annual Reports to Stockholders. Interim results are not necessarily indicative of results to be expected for a full year and are subject to audit and adjustments at the end of the year. 2. Merger of Durco International Inc. and BW/IP International Inc. On July 22, 1997, shareholders of Durco International Inc. and BW/IP Inc. voted to approve a merger between a wholly owned subsidiary of Durco International and BW/IP Inc. in a stock-for-stock merger of equals that was accounted for as a pooling-of-interests transaction. As part of the merger agreement, the Company changed its name from Durco International to Flowserve Corporation. On July 23, 1997, the Company's common stock began trading on the New York Stock Exchange under the symbol "FLS". The Company issued approximately 16.9 million shares of common stock in connection with the merger. BW/IP shareholders received .6968 shares of the Company's common stock for each previously owned share of BW/IP stock.
9 In connection with the merger, the Company recorded a one-time charge of $10.2 million for merger related expenses in the third quarter of 1997. These expenses include investment banking fees, legal fees, and other costs related to the merger, which are non-deductible for tax purposes. The consolidated financial statements have been restated for all periods prior to the merger to include the financial position, results of operations, and cash flows of BW/IP Inc. and Durco International Inc. The following reflects certain unaudited financial information of the individual entities for the period prior to the merger as follows: <TABLE> <CAPTION> (dollars in thousands) Six Months Six Months ended ended June 30, 1997 June 30, 1996 ------------- -------------- <S> <C> <C> Net sales BW/IP Inc. $252,701 $241,702 Durco International Inc. 310,468 300,265 -------- -------- Total $563,169 $541,967 ======== ======== Net income BW/IP Inc. $ 15,062 $ 13,067 Durco International Inc. 26,618 19,029 -------- -------- Total $ 41,680 $ 32,096 ======== ======== </TABLE>
10 3. Inventories. Inventories for the Company are stated at the lower of cost or market, using the last-in, first-out (LIFO) method or the first-in, first-out (FIFO) method. The amount of inventories and the method of determining costs for the quarter ended September 30, 1997 and the year ended December 31, 1996 were as follows: <TABLE> <CAPTION> (dollars in thousands) Inventories Inventories Total (FIFO) (LIFO) inventories --------- --------- ------------ <S> <C> <C> <C> September 30, 1997 Raw materials $ 18,278 $ 4,583 $ 22,861 Work in process and finished goods 144,682 55,814 200,496 --------- --------- --------- Less: Progress billings (16,970) -- (16,970) --------- --------- --------- $ 145,990 $ 60,397 $ 206,387 ========= ========= ========= December 31, 1996 Raw materials $ 12,811 $ 2,285 $ 15,096 Work in process and finished goods 121,921 52,613 174,534 --------- --------- --------- Less: Progress billings (7,207) -- (7,207) --------- --------- --------- $ 127,525 $ 54,898 $ 182,423 ========= ========= ========= </TABLE> LIFO inventories at current cost are $39,125,000 and $38,039,000 higher than reported at September 30, 1997 and December 31, 1996, respectively.
11 4. Dividends. Dividends paid during the quarters ended September 30, 1997 and 1996 were based on 40,574,000 and 41,471,200 respectively, common shares outstanding on the applicable dates of record. 5. Earnings per share. Earnings per share for the nine months ended September 30, 1997 and 1996 were based on average common shares and common share equivalents outstanding of 40,873,000 and 41,616,000 respectively. 6. Contingencies. As of September 30, 1997, the Company was involved as a "potentially responsible party" at five former public waste disposal sites which may be subject to remediation under pending government procedures. The sites are in various stages of evaluation by federal and state environmental authorities. The projected cost of remediating these sites, as well as the Company's alleged "fair share" allocation, is uncertain and speculative until all studies have been completed and the parties have either negotiated an amicable resolution or the matter has been judicially resolved. At each site, there are many other parties who have similarly been identified, and the identification and location of additional parties is continuing under applicable federal or state law. Many of the other parties identified are financially strong and solvent companies which appear able to pay their share of the remediation costs. Based on the Company's preliminary information about the waste disposal practices at these sites and the environmental regulatory process in general, the Company believes that it is likely that ultimate remediation liability costs for each site will be apportioned among all liable parties, including site owners and waste transporters, according to the volumes and/or toxicity of the wastes shown to have been disposed of at the sites. The Company is a defendant in numerous pending lawsuits (which include, in many cases, multiple claimants) which seek to recover damages for alleged personal injury allegedly resulting from exposure to asbestos-containing products formerly manufactured and distributed by the Company. All such products were used within self-contained process equipment, and management does not believe that there was any emission of ambient asbestos fiber during the use of this equipment. The Company continues to have a substantial amount of available insurance for these claims. The Company is also a defendant in several other products liability lawsuits which are insured, subject to the applicable deductibles, and certain other non-insured lawsuits received in the ordinary course of business. Management believes that the Company has adequately accrued estimated losses for such lawsuits. No insurance recovery has been projected for any of the insured claims because management currently believes that all
12 will be resolved within applicable deductibles. The Company is also a party to other non-insured litigation which is incidental to its business and which, in management's opinion, will be resolved without a material impact on the Company's financial statements. On July 22, 1997, the Company completed a merger with BW/IP Inc. and effectively assumed certain contingent liabilities of BW/IP as a result thereof. Management does not now believe that any such newly assumed contingent liabilities will either individually nor in the aggregate be resolved in a way that has a material impact on the Company's financial statements. Although none of the aforementioned gives rise to any additional liability that can now be reasonably estimated, it is possible that the Company could incur additional costs in the range of $250,000 to $1,000,000 over the upcoming five years to fully resolve these matters. Although the Company has accrued the minimum end of this range as a precaution, management has no current reason to believe that any such additional costs are probable or quantifiable. The Company will continue to evaluate these contingent loss exposures and, if they develop, recognize expense as soon as such losses can be reasonably estimated. 7. Impact of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating earnings per share, the dilutive effect of stock options would be excluded. The impact of Statement 128 on the calculation of earnings per share is not material for the periods presented. 8. Subsequent event On October 27, 1997, the Company announced a merger integration program of approximately $85 million. The program includes investments of approximately $25 million in capital and approximately $60 million in integration expenses. Of this $60 million, $25 million is expected to be recognized as a one-time restructuring charge in the fourth quarter of this year. The remaining $35 million will be recognized as incurred over the three-year life of the plan, as required by current accounting rules. The Company program includes facility rationalizations in North America and Europe, organizational realignments at the corporate and division levels, procurement initiatives, investments in training, and support for the service and repair operations. The Company believes the program will produce benefits that exceed the earlier announced merger synergy estimates of $35-$45 million in additional annual operating income at the end of three years. Most of this income is expected to be produced by eliminating cost redundancies and the balance by procurement savings and earnings increases from sales synergies. ---------------------------------------------
13 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 - ------------------------------------------------------------- The interim consolidated financial statements include the accounts of Flowserve Corporation (the Company) and its subsidiaries. On July 22, 1997 the shareholders of Durco International Inc. and BW/IP International Inc. voted to approve a merger between a wholly owned subsidiary of Durco International Inc. and BW/IP Inc. in a stock-for-stock merger of equals that was accounted for as a pooling-of-interests transaction. As part of the merger agreement, the Company changed its name from Durco International Inc. to Flowserve Corporation. These consolidated financial statements reflect the combined balance sheets, statements of income, and cash flows of Durco International Inc. and BW/IP Inc. as if they had been combined for all periods presented. Excluding merger transaction expenses of $10.2 million, net income was $17.3 million, or $.42 per share, for the three months ended September 30, 1997, compared with $18.2 million, or $.44 per share, for the corresponding period in 1996. Including merger transaction expenses, net income was $7.1 million, or $.17 per share, for the third quarter of 1997 compared to net income of $18.2 million, or $.44 per share, for the third quarter of 1996. Merger transaction costs were primarily related to investment banking fees, legal fees, and other costs related to the merger, which are non-deductible for tax purposes. Bookings, an indicator of future sales, were $279.6 million for the third quarter of 1997. This compares to $267.3 million in the third quarter of 1996. Reported bookings for the quarter were adversely affected by translating foreign currencies into U.S. dollars. Backlog at September 30, 1997 was $296.8 million, compared with a backlog of $287.1 million at December 31, 1996. Increased backlog in 1997 is due to acquisitions and overall strong original equipment bookings. Net sales for the three months ended September 30, 1997 were $281.8 million, compared to net sales of $271.0 million for the same period in 1996. The 4% increase in net sales reflects increased shipments from the Flow Control Division, significant shipments of Rotating Equipment Division original equipment orders, and additional sales from recently acquired entities. Partially offsetting the increase in sales was the impact of the strengthening of the U.S. dollar against foreign currencies. International contributions to consolidated net sales were 41% for both of the three month periods ended September 30, 1997 and 1996. Total net sales to international customers, including export sales from the U.S., were 53% for both of the respective periods. The gross profit margin was 38% for the three months ended September 30, 1997. This compares to 39% for the same period in 1996. The decrease in the margin reflects the impact of lower-margin pump original equipment shipments in the third quarter. Selling and administrative expenses as a percentage of net sales were 25% for both of the three month periods ended September 30, 1997 and 1996.
14 The effective tax rate for the third quarter of 1997, including merger transaction expenses, was 58%, compared with 36% in 1996. Excluding the tax impact of the merger transaction expenses, which are not deductible, the tax rate for the third quarter of 1997 was 36%. On October 27, 1997, the Company announced an approximately $85 million merger integration program. The program includes investments of approximately $25 million in capital and approximately $60 million in integration expenses. Of this $60 million, $25 million is expected to be recognized as a one-time restructuring charge in the fourth quarter of this year. The remaining $35 million will be recognized as incurred over the three-year life of the plan, as required by current accounting rules. The Company program includes facility rationalizations in North America and Europe, organizational realignments at the corporate and division levels, procurement initiatives, investments in training, and support for the service and repair operations. The Company believes the program will produce benefits that exceed the earlier announced merger synergy estimates of $35-$45 million in additional annual operating income at the end of three years. Most of this income is expected to be produced by eliminating cost redundancies and the balance by procurement savings and earnings increases from sales synergies. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 - ------------------------------------------------------------ Excluding merger transaction expenses of $10.2 million, net income was $58.9 million, or $1.44 per share, for the nine months ended September 30, 1997, compared with $53.9 million, or $1.30 per share, for the corresponding period in 1996. Including merger transaction expenses, net income was $48.7 million, or $1.19 per share, for the first nine months of 1997 compared to net income, including restructuring charges, of $50.3 million, or $1.21 per share, for the corresponding period of 1996. Bookings increased to $869.6 million for the first nine months of 1997, compared to $851.3 million in 1996's first nine months. Bookings increased despite strengthening of the U.S. dollar against the European currencies, which negatively impacted total Company bookings by approximately $35 million or 4%. Net sales for the nine months ended September 30, 1997 were $845.0 million, compared to net sales of $813.0 million for the same period in 1996. The 4% increase in net sales reflects increased shipments from the Flow Control Division, significant shipments of Rotating Equipment Division original equipment orders, and additional sales from recently acquired entities. Partially offsetting the increase in sales was the impact of the strengthening of the U.S. dollar against foreign currencies, which negatively impacted net sales by approximately $35 million. International contributions to consolidated net sales were 40% for both of the nine month periods ended September 30, 1997 and 1996. Total net sales to international customers including export sales from the U.S. were 51% and 53%, respectively. The reduction in international contributions reflects the currency translation impact of the weaker European currencies.
15 The gross profit margin was 39% for the nine months ended September 30, 1997 compared to 40% for the same period in 1996. Selling and administrative expenses as a percentage of net sales were 25% for both of the nine month periods ended September 30, 1997 and 1996. The effective tax rate for the nine months ended September 30, 1997, including merger transaction expenses, was 41%, compared with 36% in 1996. Excluding the tax impact of the merger transaction expenses, which are non-deductible, the tax rate for the nine months ended September 30, 1997 was 37%. During 1996, the Company recognized a restructuring charge in the former Durco units of $5.8 million, before income taxes, to consolidate former Durco operations in Europe and Australia. Through September 30, 1997, essentially all termination fees and exit costs were incurred with no changes in estimate from the original accrual. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- The Company's capital structure, consisting of long-term debt, deferred items and shareholders' equity, continues to enable the Company to finance short and long-range business objectives. At September 30, 1997, long-term debt was 22% of the Company's capital structure, compared to 23% at December 31, 1996. Based upon annualized 1997 results, the interest coverage ratio of the Company's indebtedness was 9.6 at September 30, 1997, compared with 9.9 for the twelve months ended December 31, 1996. The return on average net assets based on annualized results at September 30, 1997, excluding the impact of merger transaction expenses, was 13%, compared to 14% at December 31, 1996. Excluding the impact of merger transaction expenses, annualized return on average shareholders' equity was 20% at September 30, 1997, compared to 19% at December 31, 1996. The Company's liquidity position is reflected in a current ratio of 2.5 to 1 at September 30, 1997, unchanged from December 31, 1996. Cash in excess of current requirements was invested in high-grade, short-term securities. The Company believes that cash flow generated by operations and amounts available under borrowing arrangements will be adequate to fund operating needs, the integration plans, and capital expenditures through the remainder of the year. SAFE HARBOR STATEMENT: This document contains various forward-looking statements and includes assumptions about the Company's future market conditions, operations, and results. These statements are based on current expectations and are subject to significant risks and uncertainties. They are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Among the many factors that could cause actual results to differ materially from the forward-looking statements are: further changes in the already competitive environment for the Company's products or competitor's responses to the Company's strategies, political risks or trade embargoes affecting important country markets, unanticipated expenses or unfavorable market reaction to the merger of the Company and BW/IP Inc., unanticipated difficulties or costs associated with integrating
16 the management and operations of the Company and BW/IP Inc. following the merger, and recognition of significant expenses associated with adjustments to realign the combined company's facilities and other capabilities with its strategies. Net earnings for future quarters of 1997 and thereafter are uncertain and dependent on general worldwide economic conditions in the Company's major markets and their strong impact on the level of bookings activity.
17 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLOWSERVE CORPORATION (Registrant) /s/Bruce E. Hines ---------------------------- Bruce E. Hines Senior Vice President Chief Financial Officer Date: November 14, 1997 - -----------------------
18 PART II OTHER INFORMATION ITEM 1 Not Applicable During Reporting Period ITEM 2 Not Applicable During Reporting Period ITEM 3 Not Applicable During Reporting Period ITEM 4 See Special Meeting of Stockholders Summary located after Index to Exhibits ITEM 5 Not Applicable During Reporting Period ITEM 6 Exhibits and Reports on Form 10-K (a) The following Exhibits are attached hereto: 4.12 Guaranty, dated August 1, 1997, between Flowserve Corporation and ABN-AMRO Bank N.V. 10.38 BW/IP International, Inc. Retirement Plan (as amended and restated as of August 1, 1996) 10.39 Amendment Number One to the BW/IP International, Inc. Retirement Plan 10.53 Employment Agreement, effective July 22, 1997 between Durco International Inc. and Bernard G. Rethore 10.54 Employment Agreement, effective July 22, 1997 between Durco International Inc. and William M. Jordan 27.1 Financial Data Schedule All other Exhibits are incorporated by reference (b) A Report on Form 8-K dated July 22, 1997, was filed with respect to Item 5, "Other Events" for completion of the merger of the Company and BW/IP Inc. on July 22, 1997.
19 INDEX TO EXHIBITS <TABLE> <CAPTION> FOOTNOTE REFERENCE --------- <S> <C> <C> (3) ARTICLES OF INCORPORATION AND BY-LAWS: 2.1 Agreement and Plan of Merger dated as of May 6, 1997, among the Company, Bruin Acquisition Corp. and BW/IP, Inc. "BW/IP" was filed as Annex I to the Joint Proxy Statement/ Prospectus which is part of the Registration Statement on Form S-4, dated June 19, 1997......................... * 2.2 Durco Stock Option Agreement dated as of May 6, 1997, between the Company, as issuer, and BW/IP, Inc. as grantee, was filed as Annex II to the Joint Proxy Statement/ Prospectus which is part of the Registration Statement on Form S-4, dated June 19, 1997............................ * 2.3 BW/IP Stock Option Agreement dated as of May 6, 1997, between BW/IP Inc., as issuer, and the Company, as grantee, was filed as Annex III to the Joint Proxy Statement/ Prospectus which is part of the Registration Statement on Form S-4, dated June 19, 1997............................. * 3.1 1988 Restated Certificate of Incorporation of The Duriron Company, Inc. was filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988...................... * 3.2 1989 Amendment to Certificate of Incorporation was filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989............................................. * 3.3 By-Laws of The Duriron Company, Inc. (as restated) were filed with the Commission as Exhibit 3.2 to The Company's Annual Report on Form 10-K for the year ended December 31, 1987.......................................................... * </TABLE>
20 <TABLE> <S> <C> <C> 3.4 1996 Certificate of Amendment of Certificate of Incorporation was filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995............................................ * 3.5 Amendment No. 1 to Restated Bylaws was filed as Exhibit 3.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.................................................................. * 3.6 July 1997 Certificate of Amendment of Certificate of Incorporation was filed as Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q, for the Quarter ended June 30, 1997................................... * (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES: 4.1 Lease agreement, indenture of mortgage and deed of trust, and guarantee agreement, all executed on June 1, 1978 in connection with 9-1/8% Industrial Development Revenue Bonds, Series A, City of Cookeville, Tennessee.............. + 4.2 Lease agreement, indenture of trust, and guaranty agreement, all executed on June 1, 1978 in connection with 7-3/8% Industrial Development Revenue Bonds, Series B, City of Cookeville, Tennessee........................................ + 4.3 Lease agreement and indenture, dated as of January 1, 1995 and bond purchase agreement dated January 27, 1995, in connection with an 8% Taxable Industrial Development Revenue Bond, City of Albaquerque, New Mexico.................................. + 4.4 Form of Rights Agreement dated as of August 1, 1986 was filed as an Exhibit to the Company's Form 8-A dated August 13, 1986....... * 4.5 Amendment to Rights Agreement dated August 1, 1996 was filed as Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.......... * </TABLE>
21 <TABLE> <S> <C> <C> 4.6 Interest Rate and Currency Exchange Agreement between the Company and Barclays Bank dated November 17, 1992 PLC in the amount of $25,000,000 was filed as Exhibit 4.9 to Company's Report of Form 10-K for year ended December 31, 1992............................................. * 4.7 Loan Agreement in the amount of $25,000,000 between the Company and Metropolitan Life Insurance Company dated November 12, 1992 was filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 ............................................ * 4.8 Revolving Credit Agreement between the Company and First of America Bank - Michigan, N.A. in the amount of $20,000,000 and dated August 22, 1995 was filed as Exhibit 4.11 to the Company's Report on Form 10-K for the year ended December 31, 1995................................................ + 4.9 Credit Facility between the Company in the amount of $100,000,000 and National City Bank, as Agent, dated December 3, 1996 was filed as Exhibit 4.8 to the Company's Report on Form 10-K for the year ended December 31, 1996..................................... * 4.10 Rate Swap Agreement in the amount of $25,000,000 between the Company and National City Bank dated November 14, 1996 was filed as Exhibit 4.9 to the Company's Report on Form 10-K for the year ended December 31, 1996................................................. * 4.11 Rate Swap Agreement in the amount of $25,000,000 between the Company and Key Bank National Association dated October 28, 1996 was filed as Exhibit 4.10 to the Company's Report on Form 10-K for the year ended December 31, 1996..................... * </TABLE>
22 <TABLE> <S> <C> <C> 4.12 Guaranty, dated August 1, 1997 between Flowserve Corporation and ABN-AMRO Bank N.V..................... (filed herewith) 4.13 Credit Agreement, dated as of September 10, 1993, between BW/IP International B.V. and ABN/AMRO was filed as Exhibit 10.dd to BWIP's Annual Report on Form 10-K for the year ended December 31, 1993...................... * 4.14 Note Agreement, dated as of November 15, 1996, between BW/IP International, Inc. and the Note Purchasers named therein, with respect to $30,000,000 principal amount of 7.14% Senior Notes, Series A, due November 15, 2006, and $20,000,000 principal amount of 7.17% Senior Notes, Series B, due March 31, 2007, was filed as Exhibit 4.l to BW/IP's Registration Statement on Form S-8 (Registration No. 333-21637) as filed February 12, 1997....... * 4.15 Note Agreement, dated as of April 15, 1992, between BW/IP International, Inc. and the Note Purchasers named therein, with respect to $50,000,000 principal amount of 7.92% Senior Notes due May 15, 1999, filed as Exhibit 4.a to BW/IP's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.................................................... * (10) MATERIAL CONTRACTS: (See Footnote "a") 10.1 The Duriron Company, Inc. Incentive Compensation Plan (the "Incentive Plan") for Senior Executives, as amended and restated effective January 1, 1994, was filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993........................................................... * 10.2 Amendment No. 1 to the Incentive Plan was filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995....... * 10.3 The Duriron Company, Inc. Supplemental Pension Plan for Salaried Employees was filed with the Commission as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987............................................. * </TABLE>
23 <TABLE> <S> <C> <C> 10.4 The Duriron Company, Inc. amended and restated Director Deferral Plan was filed as Attachment A to the Company's definitive 1996 Proxy Statement filed with the Commission on March 10, 1996............................................. * 10.5 Change in Control Agreement ("CIC") between The Duriron Company, Inc. and William M. Jordan, Chairman, President and CEO was filed as Exhibit 10.5 to the Company's Report on Form 10-K for the year ended December 31, 1996........................... * 10.6 Form of CIC Agreement between all other executive officers of the Company was filed as Exhibit 10.6 to the Company's Report on Form 10-K for the year ended December 31, 1996................................ * 10.7 The Duriron Company, Inc. First Master Benefit Trust Agreement dated October 1, 1987 was filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987... * 10.8 Amendment #1 to the first Master Benefit Trust Agreement dated October 1, 1987 was filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993........................................................... * 10.9 Amendment #2 to First Master Benefit Trust Agreement was filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993........................... * 10.10 The Duriron Company, Inc. Second Master Benefit Trust Agreement dated October 1, 1987 was filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987.... * 10.11 First Amendment to Second Master Benefit Trust Agreement was filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993........................... * </TABLE>
24 <TABLE> <S> <C> <C> 10.12 The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term Plan"), as amended and restated effective November 1, 1993 was filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.. * 10.13 Amendment No. 1 to the Long-Term Plan was filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995............................................................ * 10.14 The Duriron Company, Inc. 1989 Stock Option Plan as amended and restated effective January 1, 1997 was filed as Exhibit 10.14 to the Company's Report on Form 10-K for the year ended December 31, 1996............................................................ * 10.15 The Duriron Company, Inc. 1989 Restricted Stock Plan (the "Restricted Stock Plan") as amended and restated effective January 1, 1997 was filed as Exhibit 10.15 to the Company's Report on Form 10-K for the year ended December 31, 1996............ * 10.16 The Duriron Company, Inc. Retirement Compensation Plan for Directors ("Director Retirement Plan") was filed as Exhibit 10.15 on the Company's Annual Report to Form 10-K for the year ended December 31, 1988....................... * 10.17 Amendment No. 1 to Director Retirement Plan was filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995............................................... * </TABLE>
25 <TABLE> <S> <C> <C> 10.18 The Company's Benefit Equalization Pension Plan ("Equalization Plan") was filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989....... * 10.19 Amendment #1 dated December 15, 1992 to the Equalization Plan was filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992........................... * 10.20 The Company's Equity Incentive Plan as amended and restated effective July 21, 1995 was filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.. * 10.21 Supplemental Pension Agreement between the Company and William M. Jordan dated January 18, 1993 was filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992................ * 10.22 1979 Stock Option Plan, as amended and restated April 23, 1991, and Amendment #1 thereto dated December 15, 1992, was filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 ............................................ * 10.23 Deferred Compensation Plan for Executives was filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 ............................................ * 10.24 Executive Life Insurance Plan of The Duriron Company, Inc. was filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995............................ * 10.25 Executive Long-Term Disability Plan of The Duriron Company, Inc. was filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995........................ * </TABLE>
26 <TABLE> <S> <C> <C> 10.26 Consulting Agreement between James S. Ware and Durametallic Corporation dated April 21, 1991 was filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995................................................ * 10.27 Senior Executive Death Benefit Agreement between James S. Ware and Durametallic dated April 12, 1991 was filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995........................ * 10.28 Executive Severance Agreement between James S. Ware and Durametallic Corporation dated January 6, 1994 was filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.............................. * 10.29 Agreement between James S. Ware and the Company dated September 11, 1995 was filed as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995....................................... * 10.30 Agreement and Plan of Merger Among The Duriron Company, Inc., Wolverine Acquisition Corporation and Durametallic Corporation, dated as of September 11, 1995 was filed as Annex A on the Form S-4 Registration Statement filed by the Company on September 11, 1995....................................................... * 10.31 Split-Dollar Life Insurance Agreement between the Company and James S. and Sheila D. Ware Irrevocable Trust II signed March 6, 1996 was filed as Exhibit 10.36 to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1996.................................................................... * 10.32 Employee Protection Plan, as revised effective March 1, 1997 (which provides certain severance benefits to employees upon a change of control of the Company) was filed as Exhibit 10.32 to the Company's Report on Form 10-K for the year ended December 31, 1996..................................................... * 10.33 1997 Stock Option Plan was included as Exhibit A to the Company's 1997 Proxy Statement which was filed with the Commission on March 17, 1997...................................... * </TABLE>
27 <TABLE> <S> <C> <C> 10.34 BW/IP International, Inc. 1992 Long-Term Incentive Plan was filed as Appendix A to BW/IP's Proxy Statement for the 1992 Annual Meeting of Stockholders, dated April 17, 1992............... * 10.35 BW/IP, Inc. 1996 Long-Term Incentive Plan was filed as Appendix A to BW/IP's Proxy Statement for the 1996 Annual Meeting of Stockholders, dated April 9, 1996.......................... * 10.36 First Amendment to the BW/IP, Inc. 1996 Long-Term Incentive Plan was filed as Exhibit 99.d to BW/IP's Registration Statement on Form S-8 (Registration No. 333-21637) as filed February 12, 1997......................................................... * 10.37 Supplemental Executive Retirement Plan was filed as Exhibit 10.rrrr to BW/IP's Registration Statement on Form S-1 (Registration No. 33-45165) as filed February 18, 1992......... * 10.38 BW/IP International, Inc. Retirement Plan (as amended and restated as of August 1, 1996)........................................ (filed herewith) 10.39 Amendment Number One to the BW/IP International, Inc. Retirement Plan......................................................... (filed herewith) 10.40 Amendment Number One to the Supplemental Executive Retirement Plan was filed as Exhibit 10.ee to BW/IP's Annual Report on 10-K for the year ended December 31, 1993........ * 10.41 BWIP Holding, Inc. Non Employee Directors Stock Option Plan, filed as Appendix A to BW/IP's Proxy Statement for the 1993 Annual Meeting of Stockholders, dated April 16, 1993.......................................................... * 10.42 BW/IP, Inc. 1996 Directors Stock and Deferred Compensation Plan was filed as Appendix B to BW/IP's Proxy Statement for the 1996 Annual Meeting of Stockholders dated April 9, 1996....... * 10.43 First Amendment to the BW/IP Inc. 1996 Directors Stock and Deferred Compensation Plan was filed as Exhibit 99.f to BW/IP's Registration Statement on Form S-8 (Registration No. 333-21637) dated February 12, 1997.................................................. * 10.44 Amended and Restated BW/IP International, Inc. Retiree Health Care Plan was filed as Exhibit 10.jj to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1993.............. * </TABLE>
28 <TABLE> <S> <C> <C> 10.45 Amendment to the BW/IP International Inc. Retiree Health Care Plan was filed as Exhibit 10.mm to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1994................. * 10.46 Amendment to the BW/IP International, Inc. Retiree Health Care Plan was filed as Exhibit 10.x to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1995.......................... * 10.47 Amendment to the BW/IP International, Inc. Supplemental Executive Retirement Plan was filed as Exhibit 10.nn to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1994................................................. * 10.48 Amendment to the BW/IP International, Inc. Supplemental Executive Retirement Plan was filed as Exhibit 10.z to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1995................ * 10.49 Employment Agreement, dated October 19, 1995 between BW/IP, Inc. and Bernard G. Rethore was filed as Exhibit 10.bb to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1995......... * 10.50 Employment Continuation Agreement, dated December 14, 1995, between BW/IP, Inc. and Bernard G. Rethore was filed as Exhibit 10.cc to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1995............................................................... * 10.51 1995 Stock Option Agreements, dated as of October 19, 1995, between BW/IP, Inc. and Bernard G. Rethore were filed as Exhibit 10.dd to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1995................................................................ * 10.52 BW/IP International, Inc. 1997 Management Incentive Plan was filed as Exhibit 10.kk to BW/IP's Annual Report on Form 10-K for the year ended December 31, 1996.................................................. * 10.53 Employment Agreement, effective July 22, 1997, between Durco International Inc. and Bernard G. Rethore................................... (filed herewith) 10.54 Employment Agreement, effective July 22, 1997, between Durco International Inc. and William M. Jordan.................................... (filed herewith) </TABLE>
29 <TABLE> <S> <C> <C> (27) FINANCIAL DATA SCHEDULE 27.1 Financial Data Schedule (submitted for the SEC's information).............................................. (filed herewith) <FN> - -------------- "*" Indicates that the exhibit is incorporated by reference into this Quarterly Report on Form 10-Q from a previous filing with the Commission. The Company's file number with the Commission is "1-13179" (previous file number "0-325") "+" Indicates that the document relates to a class of indebtedness that does not exceed 10% of the total assets of the Company and subsidiaries and that the Company will furnish a copy of the document to the Commission upon request. "a" The documents identified under Item 10 include all management contracts and compensatory plans and arrangements required to be filed as exhibits. </TABLE>
30 Item 4 Submission of Matters to a Vote of Security Holders (a) A Special Meeting of Stockholders of the Company was held on July 22, 1997. (c) The following matters were submitted to a vote of the stockholders: (I) A proposal to approve issuance of shares of Company common stock in accordance with the terms of the Agreement and Plan of Merger, dated May 6, 1997, among Durco International Inc. ("Durco"), Bruin Acquisition Corp., a wholly owned subsidiary of Durco ("Sub") and BW/IP, Inc. (BW/IP) which provided for the merger of Sub with and into BW/IP, with BW/IP surviving as a wholly owned subsidiary of Durco. The proposal was approved with 18,251,793 votes cast for the proposal, 186,960 votes cast against the proposal and an aggregate of 44,955 abstentions and broker non-votes. (II) A proposal to amend the Company's Restated Certificate of Incorporation to change the corporate name from Durco International Inc. to Flowserve Corporation. The proposal was approved with 19,039,619 votes cast for the proposal, 958,782 votes cast against the propsal and an aggregate of 87,982 abstentions and broker non-votes. (III) A proposal to increase the authorized number of shares of Durco common stock from 60,000,000 to 120,000,000. The proposal was approved with 18,955,103 votes cast for the proposal, 1,056,832 votes against the proposal and an aggregate of 74,449 abstentions and broker non-votes.