1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------
For Quarter Ended September 30, 1999March 31, 2000 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)
222 W. LAS COLINAS BLVD., SUITE 1500, IRVING, TEXAS 75039
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (972) 443-6500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
SHARES OF COMMON STOCK, $1.25 PAR VALUE,
OUTSTANDING AS OF SEPTEMBER 30, 1999 37,323,714MARCH 31, 2000 37,422,629
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FLOWSERVE CORPORATION
INDEX
Page
No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income -
Three Months Ended September 30,March 31, 2000 and 1999 and 1998 (unaudited) 3
Consolidated Statements of Comprehensive Income -
Three Months Ended September 30,March 31, 2000 and 1999 and 1998 (unaudited) 3
Consolidated Statements of Income -
Nine Months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Comprehensive Income -
Nine Months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Balance Sheets -
September 30, 1999March 31, 2000 (unaudited) and December 31, 1998 51999 4
Consolidated Statements of Cash Flows -
NineThree Months Ended September 30,March 31, 2000 and 1999 and 1998 (unaudited) 65
Notes to Consolidated Financial Statements 76
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISKS 1816
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 1816
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1816
SIGNATURE 1917
INDEX TO EXHIBITS 2018
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLOWSERVE CORPORATION
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
Three Months Ended September 30,
--------------------------------March 31,
------------------------------
2000 1999 1998
------------ ------------
Sales $ 253,973285,309 $ 264,776269,387
Cost of sales 165,658 165,196186,080 172,597
------------ ------------
Gross profit 88,315 99,58099,229 96,790
Selling and administrative expense 69,689 63,07771,628 67,110
Research, engineering and development expense 5,905 6,4316,155 6,872
Merger integration expense 2,984 4,154-- 3,432
------------ ------------
Operating income 9,737 25,91821,446 19,376
Interest expense 3,940 3,1416,523 3,083
Other income,(income) expense, net (1,564) (173)(3,217) 523
------------ ------------
Earnings before income taxes 7,361 22,95018,140 15,770
Provision for income taxes 2,503 8,033
------------ ------------
Earnings before cumulative effect of accounting change 4,858 14,917
Cumulative effect of accounting change -- (1,220)6,258 5,362
------------ ------------
Net earnings $ 4,85811,882 $ 16,13710,408
============ ============
Earnings per share (diluted and basic):
Before cumulative effect of accounting change $ 0.13 $ 0.37
Cumulative effect of accounting change -- 0.03
------------ ------------
Net earnings per share (basic and diluted) $ 0.130.31 $ 0.400.28
============ ============
AverageWeighted average shares outstanding 37,739 40,49737,810 37,591
============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Three Months Ended September 30,
----------------------------------March 31,
-----------------------------
2000 1999 1998
------------ ------------
Net earnings $ 4,85811,882 $ 16,13710,408
Foreign currency translation adjustments 4,737 4,3419,253 779
------------ ------------
Comprehensive income $ 1212,629 $ 11,7969,629
============ ============
See accompanying notes to consolidated financial statements.
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FLOWSERVE CORPORATION
(UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
Nine Months Ended September 30,
--------------------------------
1999 1998
------------ ------------
Sales $ 798,556 $ 803,821
Cost of sales 519,561 497,051
------------ ------------
Gross profit 278,995 306,770
Selling and administrative expense 203,002 194,623
Research, engineering and development expense 19,103 18,870
Merger integration expense 10,821 23,705
------------ ------------
Operating income 46,069 69,572
Interest expense 11,143 9,844
Other income, net (1,036) (2,545)
------------ ------------
Earnings before income taxes 35,962 62,273
Provision for income taxes 12,227 21,796
------------ ------------
Earnings before cumulative effect of accounting change 23,735 40,477
Cumulative effect of accounting change -- (1,220)
------------ ------------
Net earnings $ 23,735 $ 41,697
============ ============
Earnings per share (diluted and basic):
Before cumulative effect of accounting change $ 0.63 $ 1.00
Cumulative effect of accounting change -- 0.03
------------ ------------
Net earnings per share $ 0.63 $ 1.03
============ ============
Average shares outstanding 37,844 40,497
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Nine Months Ended September 30,
-------------------------------
1999 1998
------------ ------------
Net earnings $ 23,735 $ 41,697
Foreign currency translation adjustments 8,615 10,234
------------ ------------
Comprehensive income $ 15,120 $ 31,463
============ ============
See accompanying notes to consolidated financial statements.
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FLOWSERVE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
SEPTEMBER 30,MARCH 31, December 31,
2000 1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 17,91723,935 $ 24,92830,463
Accounts receivable, net 231,588 234,191233,364 213,625
Inventories 183,497 199,286208,475 168,356
Prepaids and other current assets 25,163 28,88542,701 41,344
------------ ------------
Total current assets 458,165 487,290508,475 453,788
Property, plant and equipment, net 214,679 209,032223,450 209,976
Intangible assets, net 97,747 91,384149,719 96,435
Other assets 61,228 82,49183,369 77,952
------------ ------------
Total assets $ 831,819965,013 $ 870,197838,151
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,87378,965 $ 76,74572,103
Notes payable 950 3,4881,459 734
Income taxes 6,137 17,472977 7,878
Accrued liabilities 95,877 107,028107,820 111,820
Long-term debt due within one year 2,588 14,3931,488 3,125
------------ ------------
Total current liabilities 179,425 219,126190,709 195,660
Long-term debt due after one year 212,758 186,292322,266 198,010
Postretirement benefits and deferred items 101,216 120,015140,946 136,207
Commitments and contingencies Shareholders' equity:
Serial preferred stock, $1.00 par value
Shares authorized - 1,000 -- --
Shares issued and outstanding - None
Common stock, $1.25 par value
Shares authorized - 120,000
Shares issued and outstanding - 41,484 51,856 51,856
Capital in excess of par value 70,700 70,69867,916 67,963
Retained earnings 361,109 353,249356,136 344,254
------------ ------------
483,665 475,803475,908 464,073
Treasury stock at cost - 4,1614,062 and 3,8174,071 shares (95,995) (90,404)(93,212) (93,448)
Accumulated other comprehensive expense (49,250) (40,635)(71,604) (62,351)
------------ ------------
Total shareholders' equity 338,420 344,764311,092 308,274
------------ ------------
Total liabilities and shareholders' equity $ 831,819965,013 $ 870,197838,151
============ ============
See accompanying notes to consolidated financial statements.4
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FLOWSERVE CORPORATION
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
NineThree Months Ended September 30,
--------------------------------March 31,
------------------------------
2000 1999 1998
------------ ------------
CASH FLOWS - OPERATING ACTIVITIES:
Net earnings $ 23,73511,882 $ 41,69710,408
Adjustments to reconcile net earnings to net cash providedused by
operating activities:
Depreciation 23,482 22,5838,041 9,551
Amortization 3,427 3.5982,574 806
Loss on the sale of fixed assets 170 13
Cumulative effect of accounting change -- (1,220)1 539
Change in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable 5,485 5,1857,955 (9,095)
Inventories 20,206 (20,957)(15,861) 3,808
Prepaid expenses 3,088 1,1121,572 (113)
Other assets 10,335 (2,551)(2,916) (2,995)
Accounts payable (5,814) (1,623)(2,535) (5,570)
Accrued liabilities (17,183) (22,476)(21,568) (5,539)
Income taxes (10,092) 564(2,988) (1,748)
Postretirement benefits and deferred items (19,909) (11,166)(1,568) (247)
Net deferred taxes 3,331 6121,235 (1,543)
------------ ------------
Net cash flows providedused by operating activities 40,261 15,371(14,176) (1,738)
CASH FLOWS - INVESTING ACTIVITIES:
Capital expenditures, net of disposals (28,402) (23,747)(4,394) (11,504)
Payment for acquisitions, net of cash acquired (6,365) (12,190)(22,172) --
------------ ------------
Net cash flows used by investing activities (34,767) (35,937)(26,566) (11,504)
CASH FLOWS - FINANCING ACTIVITIES:
Net (repayments) borrowingsrepayments under lines of credit (10,684) 1,564(831) (317)
Payments on long-term debt (11,404) (10,543)(1,062) (6,310)
Proceeds from long-term debt 32,467 67,557including revolving credit facility 36,798 15,547
Treasury share purchases (5,249) (56,486)-- (3,333)
Other stock activity (1,232) (1,787)168 238
Dividends paid (15,877) (16,926)-- (5,290)
------------ ------------
Net cash flows usedprovided by financing activities (11,979) (16,621)35,073 535
Effect of exchange rate changes (526) (606)(859) (881)
------------ ------------
Net change in cash and cash equivalents (7,011) (37,793)(6,528) (13,588)
Cash and cash equivalents at beginning of year 30,463 24,928 58,602
------------ ------------
Cash and cash equivalents at end of period $ 17,91723,935 $ 20,80911,340
============ ============
Taxes paid $ 23,5639,453 $ 22,2326,772
Interest paid $ 10,9855,751 $ 7,5012,615
See accompanying notes to consolidated financial statements.5
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FLOWSERVE CORPORATION
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
1. ACCOUNTING POLICIES - BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of September 30, 1999,March 31, 2000, and the
related consolidated statements of income, and comprehensive income and cash flows
for the three months ended March 31, 2000 and nine months ended September 30, 1999, and 1998, and the statements of
cash flows for the nine months ended September 30, 1999 and 1998, are unaudited. In
management's opinion, all adjustments comprising normal recurring adjustments
necessary for a fair presentation of such financial statements have been made.
The accompanying consolidated financial statements and notes in this Form 10-Q
are presented as permitted by Regulation S-X and do not contain certain
information included in the Company's annual financial statements and notes to
the financial statements. Accordingly, the accompanying consolidated financial
information should be read in conjunction with the Company's 19981999 Annual Report.
Interim results are not necessarily indicative of results to be expected for a
full year.
2. INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined for
certain inventories by the last-in, first-out (LIFO) method and for other
inventories by the first-in, first-out (FIFO) method.
Inventories and the method of determining costs were:
SEPTEMBERMARCH 30, December 31,
2000 1999 1998
------------ ------------
Raw materials $ 30,76132,050 $ 26,08829,674
Work in process and
finished goods 200,343 226,843227,047 182,493
Less: Progress billings (8,402) (15,024)(12,464) (5,746)
------------ ------------
222,702 237,907246,633 206,421
LIFO reserve (39,205) (38,621)(38,158) (38,065)
------------ ------------
Net inventory $ 183,497208,475 $ 199,286168,356
============ ============
Percent of inventory
accounted for by LIFO 62% 61% 64%
Percent of inventory
accounted for by FIFO 38% 39% 36%
3. EARNINGS PER SHARE
Earnings per share is presented in accordance with SFAS No. 128, "Earnings
Per Share." The Company's potentially dilutive common stock equivalents have
been immaterial for all periods presented. Accordingly, basic earnings per share
is equal to diluted earnings per share and is presented on the same line for
income statement presentation.
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998,1999, the Financial Accounting Standards Board issued Statement of
Position (SOP) No. 98-1, "Accounting for the Costs of Software Developed or
Obtained for Internal Use." SOP 98-1 is effective for fiscal periods beginning
after December 15, 1998, and establishes guidelines to determine whether
software-related costs should be capitalized or expensed. The Company is
currently accounting for software costs in accordance with these guidelines.
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In 1998, the Financial Accounting Standards Board also issuedone Statement of
Financial Accounting Standard (SFAS) that was applicable to the Company - SFAS
No. 137, "Deferral of the Effective Date of SFAS No. 133, "AccountingAccounting for
Derivative Instruments and Hedging Activities." This standard was to beSFAS No. 133 is now effective
for fiscal years beginning after June 15,
1999; however, the SFAS has recently
issued an exposure draft that would delay the effective date by one year. It
establishes accounting and reporting standards for derivative instruments and
hedging activities and6
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2000. This standard is not expected to materially impact Flowserve's reported
financial position, results of operations or cash flows.
5. MERGER
On July 22, 1997, shareholders of Durco International Inc. (Durco) and
BW/IP, Inc. (BW/IP) voted to approve a merger of the companies in a
stock-for-stock merger of equals that was accounted for as a pooling of
interests transaction (the merger). As part of the merger agreement, the Company
changed its name from Durco to Flowserve Corporation. The Company issued
approximately 16,914,000 shares of common stock in connection with the merger.
BW/IP shareholders received 0.6968 shares of the Company's common stock for each
previously owned share of BW/IP stock.
In 1997, the Company developed a merger integration program that included
facility rationalizations in North America and Europe, organizational
realignments at the corporate and divisional levels, procurement initiatives,
investments in training and support for service operations.RESTRUCTURING
In the fourth quarter of 1997,1999, the Company recognizedinitiated a restructuring
program that included a one-time restructuring charge of $32,600 related to this program. During the first six months of 1999, remaining
severance costs of $2,700 were paid and charged against the$15,860 recorded as restructuring
reserve.expense. The Company paid severance to approximately 331 employees.
As of June 30, 1999, the restructuring portion of the merger integration had
been completed. Since the inception of the merger integration program, the
Company has incurred costscharge related to the planned closure of 10
facilities and a corresponding reduction in workforce at those locations, as
well as at other locations that are part of the restructuring.
The restructuring program is expected to result in a net reduction of
$56,130. Of this amount,
$2,984approximately 300 employees at a cost of $12,900. In addition, exit costs
associated with the facilities closings are estimated at $2,960. As of March 31,
2000, the program had resulted in a net reduction of 111 employees.
Expenditures charged to the 1999 restructuring reserve were:
Other Exit
Severance Costs Total
------------ ------------ ------------
Balance at December 24, 1999 $ 12,900 $ 2,960 $ 15,860
Cash expenditures (102) -- (102)
------------ ------------ ------------
Balance at December 31, 1999 12,798 2,960 15,758
CASH EXPENDITURES (1,693) (583) (2,276)
------------ ------------ ------------
BALANCE AT MARCH 31, 2000 $ 11,105 $ 2,377 $ 13,482
============ ============ ============
6. ACQUISITION
On January 13, 2000, the Company acquired Innovative Valve Technologies,
Inc. (Invatec), a company which is principally engaged in providing
comprehensive maintenance, repair, replacement and value-added distribution
services for valves, piping systems, instrumentation and other process-system
components for industrial customers.
The purchase involved acquiring all of the outstanding stock of Invatec and
assuming Invatec's existing debt and related obligations. The transaction was
incurred duringaccounted for under the third quarterpurchase method of 1999, compared with $4,154
duringaccounting and was financed by
utilizing funds from the third quarterCompany's working capital. The results of 1998. Effectiveoperations
for Invatec are included in the Company's condensed consolidated financial
statements from the date of acquisition. The purchase price was approximately
$18.3 million in cash. Liabilities of $94.9 million were simultaneously paid off
through borrowings under Flowserve's revolving credit agreement.
The purchase price has been allocated to the net assets acquired based
primarily on information furnished by management of the acquired company. The
preliminary estimated fair value of net identifiable assets acquired exceeded
the purchase price by $4.3 million which resulted in net additional goodwill of
$48.6 million at the time of the purchase. The final allocation of the purchase
price will be determined in a reasonable time and will be based on a complete
evaluation of assets acquired and the liabilities assumed. Accordingly, the
information presented herein may differ from the final purchase price
allocation.
The following unaudited pro forma information presents the consolidated
results of operations as if the acquisition occurred on
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January 1, 1999, merger integration
costs relate solelyafter giving effect to certain adjustments, including, goodwill
amortization, interest and related income tax effects. The pro forma information
does not purport to represent what the Company's results of operations actually
would have been had such transactions or events occurred on the dates specified,
or to project the Company's results of operations for any future period. Pro
forma information has not been presented for 2000 as results prior to the
Company's business process improvement program,
"Flowserver."
The Company's Board of Directors approved a $120 million investment in
Flowserver. This business process improvement program has costsacquisition, (January 1, 2000 to January 12, 2000), are not material.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical
-----------------------------
Innovative Pro Forma
Flowserve Valve Pro Forma Combined
Corp. Technologies Adjustments Company
------------ ------------ ------------ ------------
Net Sales $ 269,387 $ 43,931 $ -- $ 313,318
Cost of Sales 172,597 30,803 -- 203,400
------------ ------------ ------------ ------------
Gross Profit 96,790 13,128 -- 109,918
Selling and administrative expense 67,110 11,005 (14)(a) 78,101
Research, engineering and development expense 6,872 -- -- 6,872
Merger integration expense 3,432 -- -- 3,432
------------ ------------ ------------ ------------
Operating Income 19,376 2,123 14 21,513
Interest expense 3,083 1,932 (1,732)(b) 3,283
Other expense (income), net 523 (38) -- 485
------------ ------------ ------------ ------------
Earnings before income taxes 15,770 229 1,746 17,745
Provision for income taxes 5,362 271 489(c) 6,122
------------ ------------ ------------ ------------
Net income (loss) $ 10,408 $ (42) $ 1,257 $ 11,623
============ ============ ============ ============
Earnings per share (basic and diluted) $ 0.28 $ -- $ -- $ 0.31
Weighted average shares outstanding (basic and diluted) 37,591 9,665 -- 37,591
Pro Forma Adjustments
Selling and benefits
incremental to the initial merger integration program. Flowserver includes the
standardization of the Company's processes and the implementation of a global
information system to facilitate common best practices. The Company is in the
process of re-evaluating its implementation plan for Flowserver. As a result,
the Company expects to reduce its Year 2000 investment in Flowserver. The
overall duration of the program also may extend beyond its originally planned
five years. During the first nine months of 1999, the Company incurred costs
associated with this project of $10,821 recorded as merger integration expense.
During 1999, it is estimated that the expense associated with this program will
be approximately $13 million. In addition, about $10 million of related capital
is expected to be incurred in 1999. Since the inception of the Flowserver
initiative, the Company has capitalized costs totaling $7,682 relating to this
program.
6.administrative expense:
(a) Represents incremental decrease in annual goodwill amortization based on
decrease of $4,279 in estimated goodwill originating from the acquisition
and the reduction of the amortization period from 40 to 20 years. (14)
Interest expense:
(b) Represents reduction in consolidated interest expense related to debt
financing prior to the acquisition date (1,732)
Provision for income taxes:
(c) Represents income tax adjust required to arrive at a combined company pro
forma effective tax rate of 34.5% 489
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7. SEGMENT INFORMATION
The Company has three divisions, each of which constitutes a business
segment. Each division manufactures different products and is defined by the
type of products and services provided. Each division has a President, who
reports directly to the Office of the Chief 8
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Executive Officer, and a Division Controller. For
decision-making purposes, the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer
and other members of upper management use financial information generated and
reported at the division level. The Company also has a corporate headquarters
that does not constitute a separate division or business segment.
Amounts classified as All Other include Corporate HeadquarterHeadquarters costs and
other minor entities that are not considered separate segments. The Company
evaluates segment performance and allocates resources based on operatingprofit or loss
excluding merger integration, interest expense, other income or loss before special itemsexpense and
income taxes. Intersegment sales and transfers are recorded at cost plus a
profit margin. Minor reclassifications have been made to certain previously
reported information to conform to the current business configuration.
ROTATING FLOW FLOW CONSOLIDATED
NINETHREE MONTHS ENDED SEPTEMBER 30, 1999MARCH 31, 2000 EQUIPMENT CONTROL SOLUTIONS ALL OTHER TOTAL
- ---------------------------------------------- -------------- -------------- -------------- ------------- ------------------------------------------------ ---------- ------------ ---------- ---------- ------------
SALES TO EXTERNAL CUSTOMERS $267,945 $212,442 $312,910 $ 5,259 $798,55672,588 $ 65,261 $ 145,922 $ 1,538 $ 285,309
INTERSEGMENT SALES 4,497 10,207 11,361 (26,065)845 2,508 2,958 (6,311) --
SEGMENT OPERATING INCOME (BEFORE 16,484 20,671 42,032 (22,297) 56,890
SPECIAL ITEMS)3,932 7,775 16,651 (6,912) 21,446
IDENTIFIABLE ASSETS $243,723 $211,894 $297,213 $ 78,989 $831,819223,655 $ 210,303 $ 434,173 $ 96,882 $ 965,013
Rotating Flow Flow Consolidated
Nine months ended September 30, 1998Three Months Ended March 31, 1999 Equipment Control Solutions All Other Total
- ---------------------------------------------- -------------- -------------- -------------- ------------- ------------------------------------------------ ---------- ------------ ---------- ---------- ------------
Sales to external customers $271,890 $219,318 $307,258 $ 5,355 $803,82190,099 $ 71,471 $ 105,741 $ 2,076 $ 269,387
Intersegment sales 4,853 10,651 12,195 (27,699)1,442 4,102 2,956 (8,500) --
Segment operating income (before
27,059 31,866 47,775 (13,423) 93,277
special items) 6,587 7,938 14,823 (6,540) 22,808
Identifiable assets $301,821 $233,703 $259,022 $ 67,682 $862,228258,046 $ 222,855 $ 286,040 $ 96,856 $ 863,797
Reconciliation of the total segment operating income before special items
(merger-related expenses) to consolidated earnings before income taxes follows:
NineThree Months Ended September 30,
--------------------------------March 31,
2000 1999 1998
------------ ------------
Total segment operating income (before special items and corporate expenses)items) $ 79,18728,358 $ 106,70029,348
Corporate expenses and other 22,297 13,4236,912 6,540
Merger integration expense 10,821 23,705-- 3,432
Interest expense 11,143 9,8446,523 3,083
Other (income) expense (income) (1,036) (2,545)(3,217) 523
------------ ------------
Earnings before income taxes $ 35,96218,140 $ 62,27315,770
============ ============
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7. SHARE REPURCHASE PROGRAM
During the second quarter of 1998,8. SUBSEQUENT EVENT
On February 10, 2000, the Company initiatedannounced that it had signed a $100 million
share repurchase program. In 1998, the Company spent approximately $64.5 million
to repurchase approximately 2.8 million, or 7.1% of its outstanding shares.
During the nine months ended September 30, 1999, the Company spent about $5.3
million to repurchase an additional 325,300 shares. During the third quarter,
118,600 of the shares were repurchased at a price of $1.9 million. The Company
generally used credit facilities to fund the purchases.
8. ACQUISITION
During September 1999, the Company agreeddefinitive
agreement to acquire certain assetsIngersoll-Dresser Pumps (IDP) for $775 million in cash. The
transaction, which will be accounted for as a purchase, will be financed with a
combination of bank financing and liabilitiessenior subordinated notes. Upon closing the
transaction, the existing Flowserve debt must be repaid. Flowserve has received
$1,425 million of Honeywell's industrial control-valve product linecommitted financing to pay for the acquisition and production
equipment located near Frankfurt, Germany.pay off
existing debt as well as provide for $300 million revolving credit facility in
connection with the acquisition. The Company expects to complete the
phased move of this operation to its existing control-valve manufacturing
facilities in Europetransaction is contingent on regulatory
approvals and management believes it will close by the middleend of June 2000. This business generated revenues of
about $10 million in 1998.
----------------------------------------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999MARCH 31,2000
In general, results for the thirdfirst quarter of 19992000 were lowerhigher than the
corresponding period in the previous year due to weaker market conditionsthe Company's acquisition of
Innovative Valve Technologies, Inc. (Invatec) on January 12, 2000. The
acquisition of Invatec is discussed in further detail in the Liquidity and
a
resultant increasingly competitive environment.Capital Resources section of this Management Discussion and Analysis.
Sales decreased 4.1%increased 5.9% to $254.0$285.3 million for the three months ended September 30, 1999,March 31,
2000, compared with $264.8$269.4 million for the same period in 1998.1999. Sales for the
quarter would have been $244.8 million without the acquisition of Invatec, 9.1%
below the first quarter of 1999. The change in sales is discussed further in the
following section on business segments. Net sales to international customers,
including export sales from the U.S., were approximately 51%45% during the thirdfirst
quarter of 1999,2000, compared with 50%52% during the thirdfirst quarter of 1998.1999. The lower
2000 percentage is due to Invatec's markets being principally U.S. Bookings
(incoming orders for which there are purchase commitments) were $259.0$310.7 million,
2.1%23.0% higher than the thirdfirst quarter of 19981999 when bookings were $253.8$252.6 million.
Excluding Invatec, bookings also showed year-on-year improvement of 5.9%.
BUSINESS SEGMENTS
Flowserve manages its operations through three business segments: Rotating
Equipment Division (RED) for petroleum, nuclear and chemical process centrifugalengineered pumps; Flow Control Division (FCD) for
automated and manual quarter-turn valves, control valves and nuclear valves and
valve actuators; and Flow Solutions Division (FSD) for precision mechanical
seals and flow management services.
Each business segment has been negatively impacted, to a greater or lesser
degree, by unfavorable market conditions for the Company's chemical and
petroleum customers. The unfavorable market conditions have resulted in a highly
competitive environment in which flow control companies' customers pursue a more
limited amount of spending. This has lowered selling prices that have reduced
margins. Margins are also lower year-over-year due to an unfavorable product mix
and reduced volumes in certain operations.
Sales and operating income before special items (merger-related expenses)
for each of the three business segments are:
ROTATING EQUIPMENT
DIVISION
----------------------------------------------------
Three Months Ended
September 30,
---------------------------March 31,
-------------------------
(In millions of dollars) 2000 1999
1998
- ------------------------------------------------------------------------------- ---------- ----------
Sales $ 82.773.4 $ 90.191.5
Operating income 4.9 8.43.9 6.6
The sales decrease in 19992000 was generally due to a reduced opening backlog
and lower
chemical process pump bookings.of highly engineered pumps. Unfavorable currency translation also reduced sales
by about 3%.
Operating income before special items, as a percentage of sales, declined
to approximately 5.9%5.3% in 19992000 from about 9.3%7.2% in the prior-year period. The
segment's results were negatively affected by unfavorable mix, lower volumes and
reduced selling prices, all of which were only partially offset by a reduction
in operating expenses. Theincome margin declined despite an improved gross margin due to an
improved product mix between standard chemical-process and petroleum pumps continuesa 10% reduction of operating expenses due to be unfavorable, and partsthe lower
sales were lower than the
comparable prior-year period.base.
FLOW CONTROL DIVISION
----------------------------------------------------
Three Months Ended
September 30,
---------------------------March 31,
-------------------------
(In millions of dollars) 2000 1999
1998
- ------------------------------------------------------------------------------- ---------- ----------
Sales $ 71.067.8 $ 77.075.6
Operating income 5.6 9.27.8 7.9
The decrease in sales was due to reduced backlog at the beginning of the
quarter and lower book-to-build volume during the quarter. 11
12Unfavorable currency
translation also reduced sales by about 1%.
Operating income before special items, as a percentage of sales, was 7.9%11.5%
in the thirdfirst quarter of 1999,2000, compared with 11.9%10.5% in 1998.1999. The declineimproved
operating margin in 19992000 was generally due to lower selling prices, an unfavorable product miximproved gross margins and lower
volumes.11
12
operating expenses. These improvements were generally due to reduced costs
principally related to the Company's restructuring program initiated in the
fourth quarter of 1999.
FLOW SOLUTIONS DIVISION
----------------------------------------------------
Three Months Ended
September 30,
---------------------------March 31,
-------------------------
(In millions of dollars) 2000 1999
1998
- ------------------------------------------------------------------------------- ---------- ----------
Sales $ 106.4148.9 $ 104.7108.7
Operating Income 14.116.7 14.8
Sales were slightly higher than the prior-year period generally due to acquisitions
made since the
third quarteracquisition of 1998.Invatec. The increase in sales was offset slightly by an
unfavorable currency translation which reduced sales by about 2%.
Operating income before special items, as a percentage of sales, decreased
to 13.3%11.2% from 14.1%13.6% in 1998.1999. The lower margins were generally due to reduced
selling prices,the
acquisition of Invatec, as Invatec's gross margins are historically lower "same store" service center volumesthan
the balance of FSD operations, and unfavorable mix.period integration expenses relating to the
Company's 1999 restructuring program.
CONSOLIDATED RESULTS
The gross profit margin was 34.8% for the three months ended September 30,
1999,March 31,
2000, compared with 37.6%35.9% for the same period in 1998.1999. The decrease was due to
the lower selling prices and unfavorable product and market mix, as well as reduced
business in volume-sensitive operations.margins associated with Invatec. Excluding Invatec, margins are
comparable to the prior year. Excluding period costs of $1.4 million related to
the 1999 restructuring program, the gross margin excluding Invatec was the
highest since the fourth quarter of 1998.
Selling and administrative expense as a percentage of net sales was 27.4%25.1%
for the three-month period ended September 30, 1999,March 31, 2000, compared with 23.8%24.9% for the
corresponding 19981999 period. The slight increase was generally due to expenses
related toperiod costs incurred
as a result of the implementation of a consolidated benefitCompany's 1999 restructuring program and other
personnel-relatedInvatec integration
costs of $0.7 million and costs associated with Flowserver, the Company's global
business process improvement initiative, which totaled $1.3 million in 1999.the first
quarter of 2000. In addition, the comparable period in 1998 was
unusually low due to lower sales commissions, lower accruals for performance
incentives1999, Flowserver expenses were $3.4 million and other cost control initiatives.were
identified and disclosed separately as merger integration expense.
Research, engineering and development expense was $5.9$6.2 million for the
thirdfirst quarter of 1999,2000, compared with $6.4$6.9 million during the same period last
year. The lower level of spending was generally the result of cost control
initiatives.initiatives and the reallocation of resources to assist in project engineering.
Interest expense during the thirdfirst quarter of 19992000 was $3.9$6.5 million, up $0.8$3.4
million from the same period in 19981999 due to higher interest rates and the
increased borrowing levels required to acquire Invatec stock and retire debt
obtained in the acquisition.
The Company recorded other income of $3.2 million in the first quarter of
2000, primarily as a result of two factors. Income of $1.8 million was realized
due to the share repurchase program.
Tax savings initiatives that were partquarterly mark-to-market adjustment requirement under the provisions
of EITF No. 97-14 "Accounting for Deferred Compensation Agreements Where Amounts
Earned are Held in a Rabbi Trust and Invested". In addition, $1.0 million of
income was recorded as a result of the merger integration tax
planning project reduced theCompany reaching an agreement and
receiving payment on an outstanding promissory note which had previously been
fully reserved.
The Company's effective tax rate for the first quarter of 2000 was 34.5%
compared to 34.0% duringin the thirdfirst quarter of 1999, compared with 35.0% during1999. The increase was due to the
same period in 1998.
Earnings before special itemsacquisition of Invatec.
12
13
Net earnings for the thirdfirst quarter of 19992000 were $6.8$11.9 million or $0.18$0.31 per
share. This was 58.5% below14.4% above net earnings before special items
of $17.6$10.4 million, or $0.44$0.28 per share,
for the same period in 1998. The reduction
was generally due to a lower gross margin and higher selling and administrative
expenses. Net earnings after1999. Excluding special items, were $4.9 million, or $0.13 per
share, for the three months ended September 30, 1999, compared with $16.1
million, or $0.40 per share, for the same period in 1998. Special items were
lower due to the completion of the initial phase of the merger integration
program with current spending limited to Flowserver.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999
In general, resultsnet earnings for the first
nine monthsquarter of 1999 were lower than$12.7 million or $0.34 per share.
RESTRUCTURING
In the corresponding period in the previous year due to weaker market conditions and an
increasingly competitive environment. Sales decreased slightly to $798.6 million
for the nine months ended September 30, 1999,
12
13
compared with $803.8 million for the same period in 1998. The change in sales is
discussed further in the following section on business segments. Net sales to
international customers, including export sales from the U.S., were
approximately 52% during the first nine monthsfourth quarter of 1999, compared with 50% during
the first nine monthsCompany initiated a restructuring
program designed to streamline the Company for better value and improve asset
utilization. This $26.7 million program consisted of 1998. Bookings (incoming orders for which therea one-time charge of $15.9
million recorded as restructuring expense and $10.8 million of other special
items. The restructuring charge related to the planned closure of 10 facilities
and a corresponding reduction in workforce at those locations, as well as at
other locations that are purchase commitments) were $763.2 million, 6.4% lower thanpart of the first nine months
of 1998 when bookings were $815.5 million.
BUSINESS SEGMENTS
Each business segment has been negatively impacted,restructuring. The other special items
related to inventory impairments, a greater or lesser
degree, by unfavorable market conditions for the Company's chemicalfixed asset impairment, and petroleum customers. This has resulted in a highly competitive environment in
which flow control companies' customers pursue a more limited amount of
spending. This has lowered selling prices which have reduced margins. Margins
are also lower year-over-year dueexecutive
separation contracts and certain costs related to unfavorable product mix and reduced volumes
in certain operations.
Sales andfourth-quarter 1999 facility
closures.
The Company currently expects to realize ongoing annual operating income
before special items (merger-related expenses)
for eachbenefits of the three business segments are:
ROTATING EQUIPMENT
DIVISION
---------------------------
Nine Months Ended
September 30,
---------------------------
(In millions of dollars) 1999 1998
- -------------------------------------------------------
Sales $ 272.4 $ 276.7
Operating income 16.5 27.1
Salesapproximately $20 million per year effective in 1999 were slightly below the prior year period. Lower volumes2001 from this
program. Approximately $10 million of chemical process pumps and parts were partially offset by reduced backlog.
Operating income before special items, as a percentage of sales, declinedsavings is expected to approximately 6.1% in 1999 from about 9.8% in the prior-year period. The decline
was due to reduced sales and lower margins resulting from an unfavorable product
and market mix and lower selling prices.
FLOW CONTROL DIVISION
------------------------
Nine Months Ended
September 30,
------------------------
(In millions of dollars) 1999 1998
---------------------------------------------------
Sales $ 222.6 $ 230.0
Operating income 20.7 31.9
The decrease in sales was due to lower bookings and sales volumes.
Operating income before special items, as a percentage of sales, was 9.3% in
the first nine months of 1999, compared with 13.9% in 1998. The decline in 1999
was generally due to lower volumes, reduced selling prices, an unfavorable
product mix--including a decline in replacement-parts business--and a slight
increasebe realized in
selling and administrative expense, primarily due towhile the Valtek
Engineering acquisition.
FLOW SOLUTIONS DIVISION
-------------------------
Nine Months Ended
September 30,
-------------------------
(In millionsremainder is expected in costs of
dollars) 1999 1998
- -------------------------- ------------ ------------
Sales $ 324.3 $ 319.5
Operating Income 42.0 47.8
Sales increased generally due to a fourth quarter 1998 acquisition.
Operating income before special items, as a percentage of sales, decreased
to 13.0% from 15.0% in 1998. The lower margins were generally due an unfavorable
mix, lower selling prices, and higher selling and administrative expenses
related to additional personnel to support the growth of service operations.
CONSOLIDATED RESULTS
The gross profit margin was 34.9% for the nine months ended September 30,
1999,
13
14
compared with 38.2% for the samesales.
In 2000, period in 1998. The decrease was due to lower
selling prices, unfavorable product and market mix and lower volumes.
Selling and administrative expense as a percentage of net sales was 25.4%
for the nine-month period ended September 30, 1999, compared with 24.2% for the
corresponding 1998 period. The increase in selling and administrative expenses
was primarily due to 1998 acquisitions, increased expenses associated with some
organizational changes and additional investments in personnel to support the
growth of service operations. These factors were mitigated somewhat by
cost-containment measures and merger benefits that reduced selling and
administrative expense year-over-year by about $2.6 million.
Research, engineering and development expense was $19.1 million for the
first nine months of 1999, compared with $18.9 million during the same period
last year.
Interest expense during the first nine months of 1999 was $11.1 million, an
increase of $1.3 million over the prior-year period, primarily the result of
higher interest rates and increased borrowing levels due to the share repurchase
program.
Tax savings initiatives that were part of the merger integration tax
planning project reduced the effective tax rate to 34.0% during the first nine
months of 1999, compared with 35.0% during the same period in 1998.
Earnings before special items for the first nine months of 1999 were $30.9
million, or $0.82 per share. This was 44.8% below earnings before special items
of $55.9 million, or $1.38 per share, for the same period in 1998. The reduction
was generally due to the lower gross margin. Net earnings after special items
were $23.7 million, or $0.63 per share, for the nine months ended September 30,
1999, compared with $41.7 million, or $1.03 per share, for the same period in
1998. Special items were lower due to the completion of the initial phase of the
merger integration program with current spending limited to Flowserver.
MERGER INTEGRATION PROGRAM
In 1997, the Company developed a program designed to achieve the synergies
planned for the merger of BW/IP and Durco. The program included facility
rationalizations in North America and Europe, organizational realignments at the
corporate and divisional levels, procurement initiatives, investments in
training and support for service operations. In the fourth quarter of 1997, the
Company recognized a one-time restructuring charge of $32,600 related to this
program. As of June 30, 1999, the restructuring portion of the merger
integration had been completed. Since the inception of the program, the Company
has incurred costs related to the program of $56,130. Of this amount, $2,984 was
incurred during the third quarter of 1999, compared with $4,154 during the third
quarter of 1998. Effective January 1, 1999, merger integration costs relate
solely to the Company's business process improvement program "Flowserver."
The Company's Board of Directors approved a $120 million investment in
Flowserver. This business process improvement program has costs and benefits
incremental to the initial merger integration program. Flowserver includes the
standardization of the Company's processes and the implementation of a global
information system to facilitate common best practices. The Company is in the
process of re-evaluating its implementation plan for Flowserver. As a result,
the Company expects to reduce its Year 2000 investment in Flowserver. The
overall duration
14
15 of the
program also may extend beyond its originallyare expected to offset a majority of the potential benefit. Current
estimates are that planned five years. During
1999, it is estimated that expensesavings of approximately $10 million will be offset
by period integration costs.
Additionally, in 2000, a majority of the costs associated with thisthe
restructuring program will be incurred and charged against the restructuring
reserve.
The restructuring program is expected to result in a net reduction of
approximately $13 million.300 employees. As of March 31, 2000, the program had resulted in a
net reduction of 111 employees.
Expenditures charged to the restructuring reserve as of March 31, 2000
were:
Other Exit
Severance Costs Total
---------------------------- ------------ ------------ ------------
Balance at December 24, 1999 $ 12,900 $ 2,960 $ 15,860
Cash expenditures (102) -- (102)
------------ ------------ ------------
Balance at December 31, 1999 12,798 2,960 15,758
CASH EXPENDITURES (1,693) (583) (2,276)
------------ ------------ ------------
BALANCE AT MARCH 31, 2000 $ 11,105 $ 2,377 $ 13,482
============ ============ ============
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities for the first ninethree months of 1999 of
$40.3 million2000
were significantly above the $15.4 million duringbelow the same period in 1998.1999. The increasedecrease in cash flows in
19992000 was primarily due to a lower level
of incentive payoutspayments relating to the restructuring program and
reduced merger related payments.Invatec acquisition.
Capital expenditures, net of disposals, were $28.4$4.4 million during the first
ninethree months of 1999,2000, compared with $23.7$11.5 million in the first ninethree months of
1998.1999. The reduction reflects a concerted effort by the Company to reduce capital
spending. Capital expenditures were funded primarily by operating cash flows.
Capital expenditures in 1999 included about $6.1 million related to Flowserver.
During the second quarter of 1998,On January 13, 2000, the Company initiatedacquired Invatec, a $100company which is
principally engaged in providing comprehensive maintenance, repair, replacement
and value-added distribution
13
14
services for valves, piping systems, instrumentation and other process-system
components for industrial customers.
The purchase involved acquiring all of the outstanding stock of Invatec and
assuming Invatec's existing debt and related obligations. The transaction was
accounted for under the purchase method of accounting and was financed through
borrowings under the revolving credit facility. The results of operations for
Invatec are included in the Company's condensed consolidated financial
statements from the date of acquisition. The purchase price was approximately
$18.3 million share repurchase program. In 1998,in cash. Liabilities of $94.9 million were simultaneously paid
through borrowing under Flowserve's revolving credit agreement.
The purchase price has been allocated to the net assets acquired based
primarily on information furnished by management of the acquired company. The
preliminary estimated fair value of net identifiable assets acquired exceeded
the purchase price by $4.3 million, which resulted in net additional goodwill of
$48.6 million at the time of the purchase. The final allocation of the purchase
price will be determined in a reasonable time and will be based on a complete
evaluation of assets acquired and the liabilities assumed. Accordingly, the
information presented herein may differ from the final purchase price
allocation.
On February 10, 2000, the Company spent approximately $64.5announced it had reached a definitive
agreement to acquire Ingersoll-Dresser Pumps (IDP) from Ingersoll-Rand for $775
million in cash. The acquisition is expected to repurchase approximately 2.8 million, or 7.1%close by the end of its outstanding shares. The
Company generally used credit facilities to fundJune 2000.
In connection with the purchases. The timing of
future repurchases depends on market conditions, the market price of Flowserve's
common stock and management's assessmentacquisition, all of the Company's liquidityexisting debt is
expected to be refinanced. The Company has signed a commitment letter from
Credit Suisse/First Boston and Bank of America for $1,425 million of financing
to acquire IDP. The Company also announced it was suspending the payment of its
cash flow needs. Duringdividend, which is required by the first nine months of 1999,proposed financing. The Company believes
that internally generated funds, including synergies from the Company spent about $5.3
millionIDP acquisition,
will be adequate to repurchase an additional 325,300 shares. Duringservice the third quarter,
118,600 of the shares were repurchased at a price of $1.9 million.debt.
At September 30, 1999,March 31, 2000, total debt was 39.0%51.1% of the Company's capital structure,
compared with 37.2%39.6% at December 31, 1998.1999. The interest coverage ratio of the
Company's indebtedness was 6.65.4 times interest at September 30, 1999,March 31, 2000, compared with
9.54.3 times interest at December 31, 1998.
Effective October 7, 1999, the Company entered into new revolving credit
facilities that provide borrowing capabilities up to $460 million with the
ability to increase borrowings to $600 million in the future.
The Company believes that internally generated funds, together with access
to external capital resources, will be sufficient to satisfy existing
commitments and plans and will provide adequate financial flexibility to take
advantage of potential strategic business opportunities should they arise.1999.
YEAR 2000 COSTSISSUES
Flowserve Corporation began preparing for the Year 2000 almost two years ago.
The Company assessed how it might be impacted by the Year 2000 issue, and
formulated and substantially completed implementation of a comprehensive plan to address all
known concerns. The plan has not changed significantly since the end
of the most recent fiscal year. To the best of the Company's knowledge, all mission criticalmission-critical business
and non-ITnon-information technology systems will now support its ability to provide
products and services into the next21st century. The Year 2000 issue is
briefly described below and is more fully described in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary
15
16
inability to process transactions, send invoices or engage in normal business
activities.
With regard to information systems, production and other equipment and
products, the Company is 100% complete with the assessmentcompleted all remediation and plan development
phase. Planned remediation efforts, testing and implementation are also 100%
complete and the Company is not currently aware of any current material system
issues that remain unresolved. The Company will continue its diligent efforts to
identify and remedy potential Year 2000 issues throughbefore the end of
the year.1999.
The Company is also working with its vendors and customers to ensure Year
2000 compliance throughout its supply chain. An important component of Year 2000
activities has been to survey suppliers regarding compliance and to communicate
with them on an on-going basis to do everything feasible to ensure that
production and delivery plans can be achieved. In addition, the Company has
prepared a standard letter outlining the importance of and commitment to
resolving the Year 2000 issue in a timely manner, and this letter is used to
respond to inquiries from customers. Although the review is continuing, the
Company is not currently aware of any vendor or customer circumstances that may
have a material adverse impact on the Company. The Company can provide no
assurance that Year 2000 compliance plans will be successfully completed by
suppliers and customers in a timely manner. The Company believes it has no
significant exposure to contingencies related to the Year 2000 issue for the
products it has sold.
The Company's estimate of the total cost for Year 2000 compliance was
originally approximately $7.0 million. To date, approximately $6.1 million has
been incurred and no major additional significant expenditures are expected.
Costs are being funded through operating cash flows. Virtually all of the
amounts spent to date relate to the cost to repair or replace software and
associated hardware. The Company's cost estimates include the amount
specifically related to addressing Year 2000 issues, as well as costs for
improved systems that are Year 2000 compliant. These systems would have been
acquired in the ordinary course of business, but their acquisition was
accelerated to ensure compliance by the Year 2000.
Incremental spending in addition to the $6.1 million is not expected to be
material because most Year 2000 compliance costs include items that are part of
the standard procurement and maintenance of the Company's information systems
and production and facilities equipment. Other non-Year 2000 efforts have not
been materially delayed or impacted by the Company's Year 2000 initiatives.
The Company continues to investigate and analyze potential operational
problems and related costs that would likely result from the failure by the
Company and certain third parties to complete efforts necessary to achieve Year
2000 compliance on a timely basis. In addition, the Company continues to monitor
particular risks including non-delivery of goods and services from suppliers and
vendors and the potential unavailability of utilities in international locations
where the Company manufactures products.
The Company believes that its most reasonably likely worst case scenario
would relate to problems with the systems of third parties, rather than with the
Company's internal operating systems. To mitigate potential non-compliance by
vendors or customers, the Company is poised to seek alternative suppliers and
purchase additional inventory prior to the end of the current year where
circumstances warrant. If the lack of utilities or other adverse operational
issues occur at any facility, the
16
17
Company believes it would be able to transfer the manufacturing of its products
to a functioning facility.
The Company currently believes that the Year 2000 issue willdid not pose significant
operational problems for the Company but will continue to evaluatemonitor the situation
closely. There can be no assurance that the Year 2000 issues of
other entities will not have a material adverse impact on the Company's systems
or results of operations. As the Year 2000 approaches, the Company will continue
to monitor the situation closely internally and externally and take the
necessary course of action to insure minimal disruption to its operations. The Company expectsbelieves that its early and thorough preparation will enablehas
enabled it to meet the needs of its customers and stakeholders without significant
interruption on
and after January 1, 2000.
- -------------------------------------------------------------------------------into the new century.
14
15
FORWARDING-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This Report on Form 10-Q and other written reports and oral statements made
from time to time by the Company contain various forward-looking statements and
includesinclude assumptions about Flowserve's future market conditions, operations and
results. These statements are based on current expectations and are subject to
significant risks and uncertainties. They are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Among the
many factors that could cause actual results to differ materially from the
forward-looking statements are: further changes in the already competitive
environment for the Company's products or competitors' responses to Flowserve's
strategies; the Company's ability to integrate IDP and Invatec into its
management and operations; political risks or trade embargoes affecting
important country markets; the health of the petroleum, chemical and power
industries; economic turmoil in areas outside the United States; continued
economic growth within the United States; unanticipated difficulties or costs or
reduction in benefits associated with the implementation of the Company's
"Flowserver" business process improvement initiative, including software; the impact of the "Year
2000" computer issue; and
the recognition of significant expenses associated with adjustments to realign
the combined Company's facilities and other capabilities with its strategic and
business conditions.conditions including, without limitation, expenses incurred in
restructuring the Company's operations to incorporate IDP facilities, and the
cost of financing to be assumed in acquiring IDP. The Company undertakes no
obligation to publicly update or revise any forward-looking statement as a
result of new information, future events or otherwise.
- -------------------------------------------------------------------------------
1715
1816
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There have been no material changes in reported market risk since the end
of 1998.1999.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the thirdfirst quarter of 1999,2000, the Company issued 167,5008,000 shares of
restricted common stock pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933. Shares were issued for the
benefit of certain officers.one officer and one other employee, subject to restrictions on
transfer and vesting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Loan agreement between2.1 Purchase Agreement among Flowserve Corporation, Flowserve RED
Corporation, IDP Acquisition, LLC and C. Scott
Greer.
(b) Exhibit 10.2 Flowserve Corporation Executive Equity Incentive Plan amended
and restated effective July 21, 1999.
(c)Ingersoll-Rand Company, dated as of
February 9, 2000.
Exhibit - 27. Financial Data Schedule.
(d) There were no reports(b) Reports on Form 8-K
filed duringForm 8-K dated January 13, 2000, Item 2, Acquisition of Assets-Relating to
the quarter ended September
30, 1999.
-----------------------------------
18Purchase of Innovative Valve Technologies, Inc. This Form 8-K was
amended on March 21, 2000 to include Item 7(a), Financial Statements of
Business Acquired and Item 7(b), Pro Forma Financial Information.
Form 8-K dated February 9, 2000, Item 5, Other Events, Purchase Agreement
with Ingersoll-Rand Company.
-------------------------------------------------
16
1917
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLOWSERVE CORPORATION
(Registrant)
/s/ Renee J. Hornbaker
--------------------------------------------------------------------------------------
Renee J. Hornbaker
Vice President and Chief Financial Officer
Date: NovemberMay 12, 19992000
- -------------------------
19------------------
17
2018
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Loan2.1 Purchase Agreement betweenAmong Flowserve Corporation, Flowserve
RED Corporation, IDP Acquisition, LLC and C. Scott
Greer
10.2 Flowserve Corporation Executive Equity Incentive Plan
amended and restated effective July 21, 1999Ingersoll-Rand
Company, dated as of February 9, 2000
27 Financial Data Schedule
20
18