UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                     to                    .

FLOWSERVE CORPORATION

(Exact name of registrant as specified in its charter)

New York		31-0267900
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
5215 N. O’Connor Blvd., Suite 2300, Irving, Texas		75039
(Address of principal executive offices)		(Zip Code)

(972) 443-6500

(Registrant’s telephone number, including area code)

     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. þYes o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). oYes o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     As of April 24, 2009, there were 56,027,538 shares of the issuer’s common stock outstanding.

 

 

FLOWSERVE CORPORATION
FORM 10-Q

TABLE OF CONTENTS

		Page
		No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Statements of Income — Three Months Ended March 31, 2009 and 2008 (unaudited)			1
Condensed Consolidated Statements of Comprehensive Income — Three Months Ended March 31, 2009 and 2008 (unaudited)			1
Condensed Consolidated Balance Sheets — March 31, 2009 and December 31, 2008 (unaudited)			2
Condensed Consolidated Statements of Cash Flows — Three months Ended March 31, 2009 and 2008 (unaudited)			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			30
Item 4. Controls and Procedures.			31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.			32
Item 1A. Risk Factors.			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			32
Item 3. Defaults Upon Senior Securities.			33
Item 4. Submission of Matters to a Vote of Security Holders.			33
Item 5. Other Information.			33
Item 6. Exhibits.			33
SIGNATURES			34
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

FLOWSERVE CORPORATION
(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2009				2008
Sales		$	1,024,726			$	993,319
Cost of sales			(656,953	)			(647,473	)
Gross profit			367,773				345,846
Selling, general and administrative expense			(225,311	)			(232,501	)
Net earnings from affiliates			4,675				5,972
Operating income			147,137				119,317
Interest expense			(10,109	)			(12,858	)
Interest income			1,075				2,855
Other (expense) income, net			(9,295	)			16,477
Earnings before income taxes			128,808				125,791
Provision for income taxes			(35,983	)			(37,099	)
Net earnings, including noncontrolling interests			92,825				88,692
Less: Net earnings attributable to noncontrolling interests			(520	)			(627	)
Net earnings of Flowserve Corporation		$	92,305			$	88,065
Net earnings per share of Flowserve Corporation common shareholders:
Basic		$	1.65			$	1.53
Diluted			1.64				1.52
Cash dividends declared per share		$	0.27			$	0.25

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
Net earnings		$	92,305			$	88,065
Other comprehensive (expense) income:
Foreign currency translation adjustments, net of tax			(40,017	)			33,951
Pension and other postretirement effects, net of tax			884				(819	)
Cash flow hedging activity, net of tax			883				(3,267	)
Other comprehensive (loss) income			(38,250	)			29,865
Comprehensive income		$	54,055			$	117,930

See accompanying notes to condensed consolidated financial statements.

FLOWSERVE CORPORATION
(Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,				December 31,
(Amounts in thousands, except per share data)		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	201,539			$	472,056
Accounts receivable, net of allowance for doubtful accounts of $23,606 and $23,667, respectively			828,445				808,522
Inventories, net			884,033				834,612
Deferred taxes			119,126				126,890
Prepaid expenses and other			92,137				90,345
Total current assets			2,125,280				2,332,425
Property, plant and equipment, net of accumulated depreciation of $595,175 and $594,991, respectively			533,784				547,235
Goodwill			824,526				828,395
Deferred taxes			31,427				32,561
Other intangible assets, net			118,605				121,919
Other assets, net			160,040				161,159
Total assets		$	3,793,662			$	4,023,694
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	445,414			$	598,498
Accrued liabilities			854,781				967,099
Debt due within one year			25,178				27,731
Deferred taxes			15,491				14,668
Total current liabilities			1,340,864				1,607,996
Long-term debt due after one year			544,101				545,617
Retirement obligations and other liabilities			495,210				495,883
Shareholders’ equity:
Common shares, $1.25 par value			73,547				73,477
Shares authorized — 120,000
Shares issued — 58,838 and 58,781, respectively
Capital in excess of par value			583,924				586,371
Retained earnings			1,236,723				1,159,634
			1,894,194				1,819,482
Treasury shares, at cost — 3,596 and 3,566 shares, respectively			(245,880	)			(248,073	)
Deferred compensation obligation			7,588				7,678
Accumulated other comprehensive loss			(249,570	)			(211,320	)
Noncontrolling interest			7,155				6,431
Total shareholders’ equity			1,413,487				1,374,198
Total liabilities and shareholders’ equity		$	3,793,662			$	4,023,694

See accompanying notes to condensed consolidated financial statements.

FLOWSERVE CORPORATION
(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
Cash flows — Operating activities:
Net earnings of Flowserve Corporation		$	92,305			$	88,065
Adjustments to reconcile net earnings to net cash used by operating activities:
Depreciation			18,145				18,134
Amortization of intangible and other assets			2,430				2,503
Amortization of deferred loan costs			397				454
Net loss (gain) on disposition of assets			270				(666	)
Gain on bargain purchase			—				(3,400	)
Excess tax benefits from stock-based compensation arrangements			(290	)			(8,278	)
Stock-based compensation			10,070				6,972
Net earnings from affiliates, net of dividends received			(2,914	)			(4,690	)
Change in assets and liabilities:
Accounts receivable, net			(43,979	)			(80,937	)
Inventories, net			(75,700	)			(108,882	)
Prepaid expenses and other			(10,571	)			(8,772	)
Other assets, net			6,509				(8,991	)
Accounts payable			(107,975	)			(58,320	)
Accrued liabilities and income taxes payable			(93,693	)			(15,557	)
Retirement obligations and other liabilities			9,455				10,659
Net deferred taxes			15,434				(725	)
Net cash flows used by operating activities			(180,107	)			(172,431	)
Cash flows — Investing activities:
Capital expenditures			(44,251	)			(14,256	)
Net cash flows used by investing activities			(44,251	)			(14,256	)
Cash flows — Financing activities:
Excess tax benefits from stock-based compensation arrangements			290				8,278
Payments on long-term debt			(1,420	)			(1,420	)
Borrowings (payments) under other financing arrangements			(2,264	)			612
Repurchase of common shares			(7,071	)			—
Payments of dividends			(13,970	)			(8,592	)
Proceeds from stock option activity			202				8,232
Net cash flows (used) provided by financing activities			(24,233	)			7,110
Effect of exchange rate changes on cash			(21,926	)			5,733
Net change in cash and cash equivalents			(270,517	)			(173,844	)
Cash and cash equivalents at beginning of year			472,056				373,238
Cash and cash equivalents at end of period		$	201,539			$	199,394

See accompanying notes to condensed consolidated financial statements.

FLOWSERVE CORPORATION
(Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Accounting Policies

Basis of Presentation

     The accompanying condensed consolidated balance sheet as of March 31, 2009, and the related condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2009 and 2008, and the condensed consolidated statements of cash flows for the three months ended March 31, 2009 and 2008, are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for a fair presentation of such condensed consolidated financial statements have been made.

     The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 (“Quarterly Report”) are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Annual Report”).

     Certain reclassifications and retrospective adjustments have been made to prior period information to conform to current period presentation. These reclassifications and retrospective adjustments primarily result from our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” and Financial Accounting Standards Board (“FASB”) Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” respectively, which are discussed more fully below.

Accounting Policies

     Significant accounting policies, for which no significant changes have occurred in the three months ended March 31, 2009, are detailed in Note 1 of our 2008 Annual Report.

Accounting Developments

     Pronouncements Implemented

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which establishes a single definition of fair value and a framework for measuring fair value under accounting principles generally accepted in the United States (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements; however, it does not require any new fair value measurements. In February 2008, the FASB issued Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which amended SFAS No. 157 by delaying the adoption of SFAS No. 157 for our nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. Our adoption of FSP No. FAS 157-2, effective January 1, 2009, did not have a material impact on our consolidated financial condition or results of operations.

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) establishes principles and requirements for how the acquirer in a business combination recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree and goodwill acquired, and expands disclosures about business combinations. SFAS No. 141(R) requires the acquirer to recognize changes in valuation allowances on acquired deferred tax assets in operations. These changes in deferred tax benefits were previously recognized through a corresponding reduction to goodwill. With the exception of the provisions regarding acquired deferred taxes and tax contingencies, which are applicable to all business combinations, SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Our adoption of SFAS No. 141(R), effective January 1, 2009 did not have a material impact on our consolidated financial condition or results of operations.

     In December 2007, the FASB issued SFAS No. 160, which establishes accounting and reporting standards that require:

•

the ownership interests in subsidiaries held by parties other than the parent to be clearly identified, labeled and presented in the consolidated balance sheet within equity, but separate from the parent’s equity;

	•		the amount of consolidated net income attributable to the parent and to the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of income;
	•		changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently;
	•		when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary to be initially measured at fair value; and
	•		entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.

     Our adoption of SFAS No. 160, effective January 1, 2009, which has been applied retrospectively for all periods presented, did not have a material impact on our consolidated financial condition and results of operations.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 enhances the disclosure framework in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” by requiring entities to provide detailed disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and how derivative instruments and related hedged items affect an entity’s financial condition, results of operations and cash flows. Our adoption of SFAS No. 161, effective January 1, 2009, did not impact on consolidated financial condition or results of operations.

     In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 “Goodwill and Other Intangible Assets.” FSP No. FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. Our adoption of FSP No. FAS 142-3, effective January 1, 2009 did not impact our consolidated financial condition or results of operations.

     In June 2008, the FASB issued FSP No. EITF 03-6-1, which concluded that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and, therefore, are considered participating securities for purposes of computing earnings per share. Entities that have participating securities are required to use the “two-class” method of computing earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Our adoption of FSP No. EITF 03-6-1, effective January 1, 2009, which has been applied retrospectively for all periods presented, did not have a material impact on our consolidated financial condition or results of operations (see Note 10).

     In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP No. FAS 141(R)-1 amends and clarifies SFAS No. 141(R) to address application on initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. FSP No. FAS 141(R)-1 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Our adoption of SFAS No. 141(R), effective January 1, 2009 did not impact our consolidated financial condition or results of operations.

     Pronouncements Not Yet Implemented

     In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” FSP No. FAS 132(R)-1 amends SFAS No. 132 (R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosure requirements of FSP No. FAS 132(R)-1 are effective for fiscal years ending after December 15, 2009. We do not expect the adoption of FSP No. FAS 132(R)-1 to have a material impact on our consolidated financial condition or results of operations.

     In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly-traded companies, as well as in annual financial statements. The disclosure requirements of FSP No. FAS 107-1 and APB 28-1 are effective for interim reporting

periods ending after June 15, 2009. We do not expect the adoption of FSP No. FAS 107-1 and APB 28-1 to have a material impact on our consolidated financial condition or results of operations.

     In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP No. FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments of debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP No. FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. We do not expect the adoption of FSP No. FAS 115-2 and FAS 124-2 to have a material impact on our consolidated financial condition or results of operations.

     In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP No. FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP No. FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. We do not expect the adoption of FSP No. FAS 157-4 to have a material impact on our consolidated financial condition or results of operations.

     Although there are no other final pronouncements recently issued that we have not adopted and that we expect to impact reported financial information or disclosures, accounting promulgating bodies have a number of pending projects that may directly impact us. We continue to evaluate the status of these projects, and as these projects become final, we will provide disclosures regarding the likelihood and magnitude of their impact, if any.

2. Acquisition

     Flowserve Pump Division acquired the remaining 50% interest in Niigata Worthington Company, Ltd. (“Niigata”), a Japanese manufacturer of pumps and other rotating equipment, effective March 1, 2008, for $2.4 million in cash. The incremental interest acquired was accounted for as a step acquisition and Niigata’s results of operations have been consolidated since the date of acquisition. Prior to this transaction, our 50% interest in Niigata was recorded using the equity method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on estimates of fair values at the date of the acquisition. The estimate of the fair value of the net assets acquired exceeded the cash paid and, accordingly, no goodwill was recognized. This acquisition was accounted for as a bargain purchase, resulting in a gain of $3.4 million recorded in the first quarter of 2008, which was reduced by $0.6 million to $2.8 million in the fourth quarter of 2008 when the purchase accounting was finalized. This gain is included in other income, net in the consolidated statement of income due to immateriality. No pro forma information has been provided due to immateriality.

3. Stock-Based Compensation Plans

     The Flowserve Corporation 2004 Stock Compensation Plan (the “2004 Plan”), which was established on April 21, 2004, authorized the issuance of up to 3,500,000 shares of common stock through grants of stock options, restricted shares and other equity-based awards. Of the 3,500,000 shares of common stock that have been authorized under the 2004 Plan, 667,119 remain available for issuance as of March 31, 2009. Our stock-based compensation is accounted for under SFAS No. 123(R), “Share-Based Payment.” Under this method, we recorded stock-based compensation as follows:

		Three Months Ended March 31,
		2009												2008
		Stock				Restricted								Stock				Restricted
(Amounts in millions)		Options				Shares				Total				Options				Shares				Total
Stock—based compensation expense		$	0.2			$	9.9			$	10.1			$	0.5			$	6.5			$	7.0
Related income tax benefit			—				(3.0	)			(3.0	)			(0.2	)			(2.0	)			(2.2	)
Net stock—based compensation expense		$	0.2			$	6.9			$	7.1			$	0.3			$	4.5			$	4.8

     Stock Options — Information related to stock options issued to officers, other employees and directors under all plans described in Note 7 to our consolidated financial statements included in our 2008 Annual Report is presented in the following table:

		Three Months Ended March 31, 2009
						Weighted Average				Remaining Contractual				Aggregate Intrinsic
		Shares				Exercise Price				Life (in years)				Value (in millions)
Number of shares under option:
Outstanding — January 1, 2009			303,100			$	39.58
Exercised			(9,467	)			25.29
Outstanding — March 31, 2009			293,633			$	40.04				6.1			$	4.8
Exercisable — March 31, 2009			250,634			$	37.73				5.9			$	4.6

     No options were granted during the three months ended March 31, 2009 or 2008. The total fair value of stock options vested during the three months ended March 31, 2009 and 2008 was $1.6 million and $2.1 million, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model.

     As of March 31, 2009, we had $0.2 million of unrecognized compensation cost related to outstanding unvested stock option awards, which is expected to be recognized over a weighted-average period of less than 1 year. The total intrinsic value of stock options exercised during the three months ended March 31, 2009 and 2008 was $0.3 million and $16.9 million, respectively.

     Restricted Shares — Awards of restricted shares are valued at the closing market price of our common stock on the date of grant. The unearned compensation is amortized to compensation expense over the vesting period of the restricted shares. We had unearned compensation of $52.4 million and $34.1 million at March 31, 2009 and December 31, 2008, respectively, which is expected to be recognized over a weighted-average period of approximately 2 years. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of restricted shares vested during the three months ended March 31, 2009 and 2008 was $13.6 million and $9.3 million, respectively.

     The following table summarizes information regarding restricted share activity:

		Three Months Ended March 31, 2009
						Weighted Average
						Grant-Date Fair
		Shares				Value
Number of unvested shares:
Outstanding — January 1, 2009			1,080,237			$	71.11
Granted			544,466				54.20
Vested			(219,489	)			61.76
Cancelled			(29,569	)			72.92
Unvested restricted shares — March 31, 2009			1,375,645			$	65.87

     Unvested restricted shares outstanding as of March 31, 2009, includes a total of 540,000 shares granted in three annual grants since January 1, 2007 with performance-based vesting provisions. Performance-based restricted shares vest upon the achievement of pre-defined performance targets, and are issuable in common stock. Our performance targets are based on our average annual return on net assets over a rolling three-year period as compared with the same measure for a defined peer group for the same period. Compensation expense is recognized over a 36-month cliff vesting period based on the fair market value of our common stock on the date of grant, as adjusted for anticipated forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets. Vesting provisions range from 0 to 1,040,000 shares based on performance targets. As of March 31, 2009, we estimate vesting of 800,000 shares based on expected achievement of performance targets.

4. Derivative Instruments and Hedges

     Our risk management and derivatives policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 8 to our consolidated financial statements included in our 2008 Annual Report and Note 5 of this Quarterly Report for additional information on our purpose for entering into derivatives not designated as hedging instruments under SFAS No. 133 and our overall risk management strategies. We enter into forward exchange contracts to hedge our risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. At March 31, 2009 and December 31, 2008, we had $754.0 million and $555.7 million, respectively, of notional amount in outstanding forward exchange contracts with third parties. At March 31, 2009, the length of forward exchange contracts currently in place ranged from 1 day to 21 months. Also as part of our risk management program, we enter into interest rate swap agreements to hedge exposure to floating

interest rates on certain portions of our debt. At both March 31, 2009 and December 31, 2008, we had $385.0 million of notional amount in outstanding interest rate swaps with third parties. All interest rate swaps are 100% effective. At March 31, 2009, the maximum remaining length of any interest rate swap contract in place was approximately 27 months.

     We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward contracts and interest rate swap agreements and expect all counterparties to meet their obligations. If material, we would adjust the values of our derivative contracts for our or our counterparties’ credit risks. We have not experienced credit losses from our counterparties.

     The fair value of forward exchange contracts not designated as hedging instruments under SFAS No. 133 are summarized below:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Current derivative assets			6,245				12,172
Noncurrent derivative assets			15				264
Current derivative liabilities			13,327				15,350
Noncurrent derivative liabilities			793				314

     The fair value of interest rate swaps in SFAS No. 133 cash flow hedging relationships are summarized below:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Current derivative liabilities			7,553				8,213
Noncurrent derivative liabilities			1,880				2,407

     Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.

     The impact of net changes in the fair values of forward exchange contracts not designated as hedging instruments under SFAS No. 133 are summarized below:

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
(Loss) gain recognized in income			(8,338	)			17,915

     The impact of net changes in the fair values of interest rate swaps in SFAS No. 133 cash flow hedging relationships are summarized below:

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
Loss reclassified from accumulated other comprehensive income into income for settlements, net of tax			(1,268	)			(27	)
Loss recognized in other comprehensive income, net of tax			(385	)			(3,398	)

     Gains and losses recognized in our condensed consolidated statements of income for forward exchange contracts and interest rate swaps are classified as other income (expense), net, and interest expense, respectively.

5. Fair Value of Financial Instruments

     Our financial instruments are presented at fair value in our condensed consolidated balance sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels, as defined by SFAS No. 157 are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. Our application of SFAS No. 157 for recurring fair value

measurements is limited to investments in derivative instruments and some equity securities. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy as defined in SFAS No. 157. The fair values of our derivatives are included above in Note 4. The fair value measurements of our equity securities are determined using quoted market prices. The fair values of our equity securities, and changes thereto, are immaterial to our condensed consolidated financial position and results of operations.

6. Debt

     Debt, including capital lease obligations, consisted of:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Term Loan, interest rate of 2.77% in 2009 and 2.99% in 2008		$	548,277			$	549,697
Capital lease obligations and other			21,002				23,651
Debt and capital lease obligations			569,279				573,348
Less amounts due within one year			25,178				27,731
Total debt due after one year		$	544,101			$	545,617

Credit Facilities

     Our credit facilities, as amended, are comprised of a $600.0 million term loan expiring on August 10, 2012 and a $400.0 million revolving line of credit, which can be utilized to provide up to $300.0 million in letters of credit, expiring on August 10, 2012. We hereinafter refer to these credit facilities collectively as our Credit Facilities. At both March 31, 2009 and December 31, 2008, we had no amounts outstanding under the revolving line of credit. We had outstanding letters of credit of $97.6 million and $104.2 million at March 31, 2009 and December 31, 2008, respectively, which reduced borrowing capacity to $302.4 million and $295.8 million, respectively.

     Borrowings under our Credit Facilities bear interest at a rate equal to, at our option, either (1) the base rate (which is based on the greater of the prime rate most recently announced by the administrative agent under our Credit Facilities or the Federal Funds rate plus 0.50%) or (2) London Interbank Offered Rate (“LIBOR”) plus an applicable margin determined by reference to the ratio of our total debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which as of March 31, 2009 was 0.875% and 1.50% for borrowings under our revolving line of credit and term loan, respectively.

     We may prepay loans under our Credit Facilities in whole or in part, without premium or penalty. During the three months ended March 31, 2009, we made scheduled repayments under our Credit Facilities of $1.4 million. We have scheduled repayments under our Credit Facilities of $1.4 million due in each of the next four quarters.

European Letter of Credit Facility

     On September 14, 2007, we entered into a 364-day unsecured European Letter of Credit Facility (“European LOC Facility”), to issue letters of credit in an aggregate face amount not to exceed €150.0 million at any time. The initial commitment of €80.0 million was increased to €110.0 million upon renewal in September 2008. The aggregate commitment of the European LOC Facility may be increased up to €150.0 million as may be agreed among the parties, and may be decreased by us at our option without any premium, fee or penalty. The European LOC Facility is used for contingent obligations solely in respect of surety and performance bonds, bank guarantees and similar obligations. We had outstanding letters of credit drawn on the European LOC Facility of €93.5 million ($124.2 million) and €104.0 million ($145.2 million) as of March 31, 2009 and December 31, 2008, respectively. We pay certain fees for the letters of credit written against the European LOC Facility based upon the ratio of our total debt to consolidated EBITDA. As of March 31, 2009, the annual fees equaled 0.875% plus a fronting fee of 0.1%.

7. Realignment Program

     In February 2009, we announced our plan to incur up to $40 million in realignment costs to reduce and optimize certain non-strategic manufacturing facilities and our overall cost structure by improving our operating efficiency, reducing redundancies, maximizing global consistency and driving improved financial performance (the “Realignment Program”). The Realignment Program consists of both restructuring and non-restructuring costs. Restructuring charges incurred to date represent charges associated with the expected relocation of activities from two of our Flowserve Pump Division facilities, which will be closed, to other existing

Flowserve Pump Division facilities. Non-restructuring charges, which represent the majority of the Realignment Program, are charges incurred to improve operating efficiency and reduce redundancies and primarily represent employee severance. All expenses under the Realignment Program are expected to be recognized during 2009. Expenses are reported in cost of sales (“COS”) or selling, general and administrative expense (“SG&A”), as applicable, in our condensed consolidated statement of income.

Restructuring Charges

     Restructuring charges include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other exit costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets, accelerated amortization of intangible assets and inventory write-downs. Other is expected to include costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges.

     Restructuring charges incurred by Flowserve Pump Division and total restructuring charges expected to be incurred by Flowserve Pump Division are as follows:

						Contract				Asset write-
(Amounts in thousands)		Severance				termination				downs				Other				Total
Three Months ended March 31, 2009 (1)
COS		$	1,663			$	—			$	121			$	—			$	1,784
SG&A			215				—				—				—				215
		$	1,878				—			$	121				—			$	1,999
Total Expected Restructuring Charges for 2009 (2)
COS		$	1,761			$	600			$	5,620			$	2,424			$	10,405
SG&A			215				—				—				—				215
		$	1,976			$	600			$	5,620			$	2,424			$	10,620

     We established a restructuring reserve of $1.9 million in the first quarter of 2009. The following represents the activity related to the restructuring reserve:

						Contract
(Amounts in thousands)		Severance				Termination				Other				Total
Balance at December 31, 2008		$	—			$	—			$	—			$	—
Charges			1,878				—				—				1,878
Cash Expenditures			—				—				—				—
Balance at March 31, 2009		$	1,878			$	—			$	—			$	1,878

Total Realignment Program Charges

     The following is a summary of total charges incurred related to the Realignment Program:

Three Months Ended March 31, 2009

														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in millions)		Pump				Control				Solutions				Segments				All Other				Total
Restructuring Charges
COS		$	1.8			$	—			$	—			$	1.8			$	—			$	1.8
SG&A			0.2				—				—				0.2				—				0.2
		$	2.0			$	—			$	—			$	2.0			$	—			$	2.0
Non-Restructuring Charges
COS		$	1.0			$	0.2			$	3.1			$	4.3			$	—			$	4.3
SG&A			0.4				0.3				2.7				3.4				0.2				3.6
		$	1.4			$	0.5			$	5.8			$	7.7			$	0.2			$	7.9
Total Realignment Program Charges
COS		$	2.8			$	0.2			$	3.1			$	6.1			$	—			$	6.1
SG&A			0.6				0.3				2.7				3.6				0.2				3.8
		$	3.4			$	0.5			$	5.8			$	9.7			$	0.2			$	9.9

     The following is a summary of total charges expected to be incurred related to the Realignment Program:

Total Expected Charges for 2009

														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in millions)		Pump				Control				Solutions				Segments				All Other				Total
Total Expected Restructuring Charges
COS		$	10.4			$	—			$	—			$	10.4			$	—			$	10.4
SG&A			0.2				—				—				0.2				—				0.2
		$	10.6			$	—			$	—			$	10.6			$	—			$	10.6
Total Expected Non-restructuring Charges
COS		$	3.7			$	7.6			$	3.2			$	14.5			$	—			$	14.5
SG&A			5.9				2.3				3.0				11.2				0.2				11.4
		$	9.6			$	9.9			$	6.2			$	25.7			$	0.2			$	25.9
Expected Total Realignment Program Charges (1)
COS		$	14.1			$	7.6			$	3.2			$	24.9			$	—			$	24.9
SG&A			6.1				2.3				3.0				11.4				0.2				11.6
		$	20.2			$	9.9			$	6.2			$	36.3			$	0.2			$	36.5

The majority of the remaining charges are expected to be incurred in the second quarter.

8. Inventories

     Inventories are stated at lower of cost or market. Cost is determined by the first-in, first-out method. Inventories, net consisted of the following:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Raw materials		$	260,353			$	241,953
Work in process			682,705				635,490
Finished goods			261,344				264,746
Less: Progress billings			(263,696	)			(250,289	)
Less: Excess and obsolete reserve			(56,673	)			(57,288	)
Inventories, net		$	884,033			$	834,612
9. Equity Method Investments
Summarized below is combined income statement information, based on the most recent financial information, for investments in entities we account for using the equity method:
		Three Months Ended March 31,
(Amounts in thousands)		2009				2008 (1)
Revenues		$	60,767			$	110,339
Gross profit			23,128				32,917
Income before provision for income taxes			16,426				22,551
Provision for income taxes			(5,216	)			(6,576	)
Net income		$	11,210			$	15,975

     The provision for income taxes is based on the tax laws and rates in the countries in which our investees operate. The tax jurisdictions vary not only by their nominal rates, but also by the allowability of deductions, credits and other benefits. Our share of net income is reflected in our condensed consolidated statements of income.

10. Earnings Per Share

     As discussed in Note 1, effective January 1, 2009, we adopted FSP No. EITF 03-6-1, “Participating Securities and the Two-Class Method under FASB Statement No. 128.” We have retrospectively adjusted earnings per common share for all prior periods presented. We now use the “two-class” method of computing earnings per share. The “two-class” method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security as if all earnings for the period had been distributed. As concluded in FSP No. EITF 03-6-1, unvested restricted share awards that earn non-forfeitable dividend rights qualify as participating securities under SFAS No. 128, “Earnings per Share,” and, accordingly, are now included in the basic computation as such. Our unvested restricted shares participate on an equal basis with common shares; therefore, there is no difference in undistributed earnings allocated to each participating security. Accordingly, the presentation below is prepared on a combined basis and is presented as earnings per common share. Previously, such unvested restricted shares were not included as outstanding within basic earnings per common share and were included in diluted earnings per common share pursuant to the treasury stock method. The following is a reconciliation of net earnings and weighted average shares for calculating basic net earnings per common share.

     Earnings per weighted average common share outstanding was calculated as follows:

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2009				2008
Net earnings of Flowserve Corporation		$	92,305			$	88,065
Dividends on restricted shares not expected to vest			8				11
Earnings attributable to common and participating shareholders		$	92,313			$	88,076
Weighted average shares:
Common stock			55,519				56,840
Participating securities			445				585
Denominator for basic earnings per common share			55,964				57,425
Effect of potentially dilutive securities			361				392
Denominator for diluted earnings per common share			56,325				57,817
Earnings per common share:
Basic		$	1.65			$	1.53
Diluted			1.64				1.52

     Diluted earnings per share above is based upon the weighted average number of shares as determined for basic earnings per share plus shares potentially issuable in conjunction with stock options, restricted share units and performance share units.

     For the three months ended both March 31, 2009 and 2008, we had no options to purchase common stock that were excluded from the computation of potentially dilutive securities.

     We have retrospectively adjusted the prior period to reflect the results that would have been reported had we applied the provisions of FSP No. EITF 03-6-1 for computing earnings per common share for all periods presented. The effects of the change as it relates to our earnings per common share for the three months ended March 31, 2008 are as follows:

		Basic				Diluted
As previously reported		$	1.55			$	1.53
Effect of adoption of FSP No. EITF 03-6-1			(0.02	)			(0.01	)
As retrospectively adjusted		$	1.53			$	1.52

11. Legal Matters and Contingencies

Asbestos-Related Claims

     We are a defendant in a large number of pending lawsuits (which include, in many cases, multiple claimants) that seek to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured and/or distributed by us in the past. While the aggregate number of asbestos-related claims has declined in recent years, there can be no assurance that this trend will continue, and the average cost per claim has increased. Asbestos-containing materials incorporated into any such products were primarily encapsulated and used as components of process equipment, and we do not believe that any significant emission of asbestos-containing fibers occurred during the use of this equipment. We believe that a high percentage of the claims are covered by applicable insurance or indemnities from other companies.

Shareholder Litigation — Appeal of Dismissed Class Action Case; Derivative Case Dismissals

     In 2003, related lawsuits were filed in federal court in the Northern District of Texas, alleging that we violated federal securities laws. After these cases were consolidated, the lead plaintiff amended its complaint several times. The lead plaintiff’s last pleading was the fifth consolidated amended complaint (the “Complaint”). The Complaint alleged that federal securities violations occurred between February 6, 2001 and September 27, 2002 and named as defendants our company, C. Scott Greer, our former Chairman, President and Chief Executive Officer, Renee J. Hornbaker, our former Vice President and Chief Financial Officer, PricewaterhouseCoopers LLP, our independent registered public accounting firm, and Banc of America Securities LLC and Credit Suisse First Boston LLC, which served as underwriters for our two public stock offerings during the relevant period. The Complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 thereunder, and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). The lead plaintiff sought unspecified

compensatory damages, forfeiture by Mr. Greer and Ms. Hornbaker of unspecified incentive-based or equity-based compensation and profits from any stock sales and recovery of costs. By orders dated November 13, 2007 and January 4, 2008, the court denied the plaintiffs’ motion for class certification and granted summary judgment in favor of the defendants on all claims. The plaintiffs have appealed both rulings to the federal Fifth Circuit Court of Appeals. The appellate briefing is complete and oral argument was held on February 2, 2009 and, to date, there have been no further developments. We will defend vigorously this appeal or any other effort by the plaintiffs to overturn the court’s denial of class certification or its entry of judgment in favor of us and the other defendants.

     In 2005, a shareholder derivative lawsuit was filed purportedly on our behalf in the 193rd Judicial District of Dallas County, Texas. The lawsuit originally named as defendants Mr. Greer, Ms. Hornbaker, and former and current board members Hugh K. Coble, George T. Haymaker, Jr., William C. Rusnack, Michael F. Johnston, Charles M. Rampacek, Kevin E. Sheehan, Diane C. Harris, James O. Rollans and Christopher A. Bartlett. We were named as a nominal defendant. Based primarily on the purported misstatements alleged in the above-described federal securities case, the original lawsuit in this action asserted claims against the defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. The plaintiff alleged that these purported violations of state law occurred between April 2000 and the date of suit. The plaintiff sought on our behalf an unspecified amount of damages, injunctive relief and/or the imposition of a constructive trust on defendants’ assets, disgorgement of compensation, profits or other benefits received by the defendants from us and recovery of attorneys’ fees and costs. We filed a motion seeking dismissal of the case, and the court thereafter ordered the plaintiffs to replead. On October 11, 2007, the plaintiffs filed an amended petition adding new claims against the following additional defendants: Kathy Giddings, our former Vice-President and Corporate Controller; Bernard G. Rethore, our former Chairman and Chief Executive Officer; Banc of America Securities, LLC and Credit Suisse First Boston, LLC, which served as underwriters for our public stock offerings in November 2001 and April 2002, and PricewaterhouseCoopers, LLP, our independent registered public accounting firm. On April 2, 2008, the lawsuit was dismissed by the court without prejudice at the plaintiffs’ request.

     On March 14, 2006, a shareholder derivative lawsuit was filed purportedly on our behalf in federal court in the Northern District of Texas. The lawsuit named as defendants Mr. Greer, Ms. Hornbaker, and former and current board members Mr. Coble, Mr. Haymaker, Mr. Lewis M. Kling, Mr. Rusnack, Mr. Johnston, Mr. Rampacek, Mr. Sheehan, Ms. Harris, Mr. Rollans and Mr. Bartlett. We were named as a nominal defendant. Based primarily on certain of the purported misstatements alleged in the above-described federal securities case, the plaintiff asserted claims against the defendants for breaches of fiduciary duty that purportedly occurred between 2000 and 2004. The plaintiff sought on our behalf an unspecified amount of damages, disgorgement by Mr. Greer and Ms. Hornbaker of salaries, bonuses, restricted stock and stock options and recovery of attorneys’ fees and costs. Pursuant to a motion filed by us, the federal court dismissed that case on March 14, 2007, primarily on the basis that the case was not properly filed in federal court. On or about March 27, 2007, the same plaintiff re-filed essentially the same lawsuit naming the same defendants in the Supreme Court of the State of New York. We believed that this new lawsuit was improperly filed in the Supreme Court of the State of New York and filed a motion seeking dismissal of the case. On January 2, 2008, the court entered an order granting our motion to dismiss all claims and allowed the plaintiffs an opportunity to replead. A notice of entry of the dismissal order was served on the plaintiff on January 15, 2008. To date, the plaintiff has neither filed an amended complaint nor appealed the dismissal order.

United Nations Oil-for-Food Program

     We have entered into and disclosed previously in our Securities Exchange Commission (“SEC”) filings the material details of settlements with the SEC, the Department of Justice (the “DOJ”) and the Dutch authorities in 2008 relating to products that two of our foreign subsidiaries delivered to Iraq from 1996 through 2003 under the United Nations Oil-for-Food Program. We believe that a confidential French investigation may still be ongoing, and, accordingly, we cannot predict the outcome of the French investigation at this time. We currently do not expect to incur additional case resolution costs of a material amount in this matter; however, if the French authorities take enforcement action against us regarding its investigation, we may be subject to additional monetary and non-monetary penalties.

     In addition to the settlements and governmental investigation referenced above, on June 27, 2008, the Republic of Iraq filed a civil suit in federal court in New York against 93 participants in the United Nations Oil-for-Food Program, including us and our two foreign subsidiaries that participated in the program. We intend to vigorously contest the suit, and we believe that we have valid defenses to the claims asserted. However, we cannot predict the outcome of the suit at the present time or whether the resolution of this suit will have a material adverse financial impact on our company.

Export Compliance

     In March 2006, we initiated a voluntary process to determine our compliance posture with respect to United States (“U.S”). export control and economic sanctions laws and regulations. Upon initial investigation, it appeared that some product transactions and technology transfers were not handled in full compliance with U.S. export control laws and regulations. As a result, in

conjunction with outside counsel, we conducted a voluntary systematic process to further review, validate and voluntarily disclose export violations discovered as part of this review process. We completed our comprehensive disclosures to the appropriate U.S. government regulatory authorities at the end of 2008, although these disclosures may be refined or supplemented. Based on our review of the data collected, during the self-disclosure period of October 1, 2002 through October 1, 2007, a number of process pumps, valves, mechanical seals and parts related thereto were exported, in limited circumstances, without required export or reexport licenses or without full compliance with all applicable rules and regulations to a number of different countries throughout the world, including certain U.S. sanctioned countries. The foregoing information is subject to revision as we further review this submittal with applicable U.S. regulatory authorities.

     We have taken a number of actions to increase the effectiveness of our global export compliance program. This has included increasing the personnel and resources dedicated to export compliance, providing additional export compliance tools to employees, improving our export transaction screening processes and enhancing the content and frequency of our export compliance training programs.

     Any self-reported violations of U.S. export control laws and regulations may result in civil or criminal penalties, including fines and/or other penalties. We are currently unable to definitively determine the full extent or nature or total amount of penalties to which we might be subject as a result of any such self-reported violations of the U.S. export control laws and regulations.

Other

     We are currently involved as a potentially responsible party at two former public waste disposal sites that 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 remediation at these sites, as well as our alleged “fair share” allocation, will remain uncertain 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 that appear able to pay their share of the remediation costs. Based on our information about the waste disposal practices at these sites and the environmental regulatory process in general, we believe 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. We believe that our exposure for existing disposal sites will not be material.

     We are also a defendant in a number of other lawsuits, including product liability claims, that are insured, subject to the applicable deductibles, arising in the ordinary course of business, and we are also involved in ordinary routine litigation incidental to our business, none of which, either individually or in the aggregate, we believe to be material to our business, operations or overall financial condition. However, litigation is inherently unpredictable, and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on our financial position, results of operations or cash flows for the reporting period in which any such resolution or disposition occurs.

     Although none of the aforementioned potential liabilities can be quantified with absolute certainty except as otherwise indicated above, we have established reserves covering exposures relating to contingencies, to the extent believed to be reasonably estimable and probable based on past experience and available facts. While additional exposures beyond these reserves could exist, they currently cannot be estimated. We will continue to evaluate these potential contingent loss exposures and, if they develop, recognize expense as soon as such losses become probable and can be reasonably estimated.

12. Retirement and Postretirement Benefits

     Components of the net periodic cost for retirement and postretirement benefits for the three months ended March 31, 2009 and 2008 were as follows:

		U.S.								Non-U.S.								Postretirement
		Defined Benefit Plans								Defined Benefit Plans								Medical Benefits
(Amounts in millions)		2009				2008				2009				2008				2009				2008
Service cost		$	4.2			$	4.4			$	0.9			$	0.9			$	—			$	—
Interest cost			4.9				4.4				2.9				3.5				0.7				0.9
Expected return on plan assets			(5.6	)			(4.7	)			(1.0	)			(1.4	)			—				—
Amortization of unrecognized net loss (gain)			1.6				1.1				0.6				0.1				(0.6	)			—
Amortization of prior service benefit			(0.3	)			(0.3	)			—				—				(0.5	)			(0.6	)
Net periodic cost (gain) recognized		$	4.8			$	4.9			$	3.4			$	3.1			$	(0.4	)		$	0.3

     See additional discussion of our retirement and postretirement benefits in Note 13 to our consolidated financial statements included in our 2008 Annual Report.

13. Shareholders’ Equity

     On February 23, 2009, our Board of Directors authorized an increase in our quarterly cash dividend to $0.27 per share from $0.25 per share, effective for the first quarter of 2009. Generally, our dividend date-of-record is in the last month of the quarter, and the dividend is paid the following month.

     On February 26, 2008 our Board of Directors authorized a program to repurchase up to $300.0 million of our outstanding common stock over an unspecified time period. The program commenced in the second quarter of 2008, and we repurchased 150,000 shares for $7.1 million during the three months ended March 31, 2009. To date, we have repurchased a total of 1.9 million shares for $172.1 million under this program.

14. Income Taxes

     For the three months ended March 31, 2009, we earned $128.8 million before taxes and provided for income taxes of $36.0 million, resulting in an effective tax rate of 27.9%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended March 31, 2009 primarily due to the net impact of foreign operations.

     For the three months ended March 31, 2008, we earned $125.8 million before taxes and provided for income taxes of $37.1 million, resulting in an effective tax rate of 29.5%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended March 31, 2008 primarily due to the net impact of foreign operations.

     As of March 31, 2009, the amount of unrecognized tax benefits has decreased by $2.2 million from December 31, 2008, due primarily to currency translation adjustments. With limited exception, we are no longer subject to U.S. federal, state and local income tax audits for years through 2004 or non-U.S. income tax audits for years through 2003. We are currently under examination for various years in Argentina, France, Germany, India, Italy, the United States and Venezuela.

     It is reasonably possible that within the next 12 months the effective tax rate will be impacted by the resolution of some or all of the matters audited by various taxing authorities. It is also reasonably possible that we will have the statute of limitations close in various taxing jurisdictions within the next 12 months. As such, we estimate we could record a reduction in our tax expense of up to approximately $11 million.

15. Segment Information

     We are principally engaged in the worldwide design, manufacture, distribution and service of industrial flow management equipment. We provide pumps, valves and mechanical seals primarily for oil and gas, chemical, power generation, water management and other industries requiring flow management products.

     We have the following three divisions, each of which constitutes a business segment:

•

Flowserve Pump Division (“FPD”);

	•		Flow Control Division (“FCD”); and
	•		Flow Solutions Division (“FSD”).

     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 our Chief Executive Officer, and a Division Vice President — Finance, who reports directly to our Chief Accounting Officer. For decision-making purposes, our Chief Executive Officer and other members of senior executive management use financial information generated and reported at the division level. Our corporate headquarters does not constitute a separate division or business segment.

     We evaluate segment performance and allocate resources based on each segment’s operating income. Amounts classified as “All Other” include corporate headquarters costs and other minor entities that do not constitute separate segments. Intersegment sales and transfers are recorded at cost plus a profit margin, with the margin on such sales eliminated in consolidation.

     The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the condensed consolidated financial statements.

Three Months Ended March 31, 2009

														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in thousands)		Pump				Control				Solutions				Segments				All Other				Total
Sales to external customers		$	598,883			$	296,009			$	128,411			$	1,023,303			$	1,423			$	1,024,726
Intersegment sales			719				1,146				15,314				17,179				(17,179	)			—
Segment operating income			103,577				47,583				20,699				171,859				(24,722	)			147,137
Three Months Ended March 31, 2008
														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in thousands)		Pump				Control				Solutions				Segments				All Other				Total
Sales to external customers		$	560,536			$	298,801			$	132,604			$	991,941			$	1,378			$	993,319
Intersegment sales			576				1,517				17,990				20,083				(20,083	)			—
Segment operating income			78,484				43,131				26,923				148,538				(29,221	)			119,317

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2008 Annual Report.

EXECUTIVE OVERVIEW

     We are an established industry leader with a strong product portfolio of pumps, valves, seals, automation and aftermarket services in support of global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products add value. Our products are integral to the movement, control and protection of the flow of materials in our customers’ critical processes. We currently employ more than 15,000 employees in more than 55 countries who are focused on key strategies that reach across the business. Our business model is influenced by the capital spending of these industries for the placement of new products into service and aftermarket services for existing operations. The worldwide installed base of our products is an important source of aftermarket revenue, where products are expected to ensure the maximum operating time of many key industrial processes. Over the past several years, we have significantly invested in our aftermarket strategy to provide local support to maximize our customers’ investment in our offerings, as well as to provide business stability during various economic periods. The aftermarket business, which is served by more than 150 of our Quick Response Centers (“QRCs”) located around the globe, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value added services, and is generally a higher margin business and a key component to our profitable growth.

     We experienced favorable conditions in much of 2008 in our key industries, which softened moderately in the last quarter of 2008 and continued through the first two months of 2009. We still have not experienced a significant level of cancellations in our backlog. The overall demand for our products and services reflects continuing investments in oil and gas, capacity expansion projects in power generation, incremental capacity expansion projects in desalination, chemical manufacturing expansion in developing regions and aftermarket opportunities, including optimization projects of continuing operations. Overall global demand growth in our key industries was impacted by moderate growth in the developing markets offset by slight declines in the mature markets.

     The global demand growth over the past several years has provided us the opportunity to increase our installed base of new products and drive recurring aftermarket business. We continue to build on our geographic breadth through our QRC network with the goal to be positioned as near to our customers as possible for service and support in order to capture this important aftermarket business. Although we have experienced strong demand for our products and services in recent periods, we face challenges affecting many companies in our industry with a significant multinational presence, such as economic, political and other risks.

     Along with ensuring that we have the local capability to sell, install and service our equipment in remote regions, it is equally imperative to continuously improve our global operations. We continue to expand our global supply chain capability to meet global customer demands and ensure the quality and timely delivery of our products. Significant efforts are underway to improve the supply chain processes across our divisions to find areas of synergy and cost reduction. In addition, we are improving our supply chain management capability to ensure it can meet global customer demands. We continue to focus on improving on-time delivery and quality, while reducing warranty costs as a percentage of sales across our global operations, through the assistance of a focused Continuous Improvement Process (“CIP”) initiative. The goal of the CIP initiative, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity. This program is a key factor in our margin expansion plans.

     Ongoing disruptions in global financial markets and banking systems are making credit and capital markets difficult for companies to access, and are generally driving up the costs of newly raised debt. We continue to assess the implications of these factors on our current business and the state of the global economy. While we believe that these financial market disruptions have not directly had a disproportionate adverse impact on our financial position, results of operations or liquidity as of March 31, 2009, continuing volatility in the credit and capital markets could potentially materially impair our and our customers’ ability to access these markets and increase associated costs. There can be no assurance that we will not be materially adversely affected by these financial market disruptions and the global economic recession as economic events and circumstances continue to evolve. Only 1% of our term loan is due to mature in each of 2009 and 2010, and after the effects of $385.0 million of notional interest rate swaps, approximately 70% of our term debt was at fixed rates at March 31, 2009. Our revolving line of credit and our European Letter of Credit Facility are committed and are held by a diversified group of financial institutions. Our cash balance decreased by $270.5 million to $201.5 million as of March 31, 2009 as compared with December 31, 2008. The cash draw was anticipated based on planned significant cash uses in the three months ended March 31, 2009, including approximately $115 million in long-term and broad-based annual incentive program payments related to prior period performance, $44.3 million in capital expenditures, $14.0 million in dividend payments, $7.1 million of share

repurchases and the funding of increased working capital requirements. We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have placed our deposits with creditworthy financial institutions. See the “Liquidity and Capital Resources” section of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

RESULTS OF OPERATIONS — Three months ended March 31, 2009 and 2008

     As discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report, FPD acquired the remaining 50% interest in Niigata, a Japanese manufacturer of pumps and other rotating equipment, effective March 1, 2008, for $2.4 million in cash. The incremental interest acquired was accounted for as a step acquisition and Niigata’s results of operations have been consolidated since the date of acquisition. Prior to this transaction, our 50% interest in Niigata was recorded using the equity method of accounting. No pro forma information has been provided due to immateriality.

     As discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report, in February 2009, we announced our Realignment Program to incur up to $40 million in realignment costs to reduce and optimize certain non-strategic manufacturing facilities and our overall cost structure by improving our operating efficiency, reducing redundancies, maximizing global consistency and driving improved financial performance. The Realignment Program consists of both restructuring and non-restructuring costs. Restructuring charges incurred to date represent the expected relocation of activities from two of our FPD facilities, which will be closed, to other existing FPD facilities. Non-restructuring charges, which represent the majority of the Realignment Program, are charges incurred to improve operating efficiency and reduce redundancies, which includes a reduction in headcount. All expenses under the Realignment Program are expected to be recognized during 2009. Expenses are reported in COS or SG&A, as applicable, in our condensed consolidated statement of income.

     The following is a summary of Realignment Program charges included in operating income for the three months ended March 31, 2009:

Three Months Ended March 31, 2009

														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in millions)		Pump				Control				Solutions				Segments				All Other				Total
Restructuring Charges
COS		$	1.8			$	—			$	—			$	1.8			$	—			$	1.8
SG&A			0.2				—				—				0.2				—				0.2
		$	2.0			$	—			$	—			$	2.0			$	—			$	2.0
Non-Restructuring Charges
COS		$	1.0			$	0.2			$	3.1			$	4.3			$	—			$	4.3
SG&A			0.4				0.3				2.7				3.4				0.2				3.6
		$	1.4			$	0.5			$	5.8			$	7.7			$	0.2			$	7.9
Total Realignment Program Charges
COS		$	2.8			$	0.2			$	3.1			$	6.1			$	—			$	6.1
SG&A			0.6				0.3				2.7				3.6				0.2				3.8
		$	3.4			$	0.5			$	5.8			$	9.7			$	0.2			$	9.9

     The following is a summary of total expected Realignment Program charges:

Total Expected Charges for 2009

														Subtotal -
		Flowserve				Flow				Flow				Reportable								Consolidated
(Amounts in millions)		Pump				Control				Solutions				Segments				All Other				Total
Total Expected Restructuring Charges
COS		$	10.4			$	—			$	—			$	10.4			$	—			$	10.4
SG&A			0.2				—				—				0.2				—				0.2
		$	10.6			$	—			$	—			$	10.6			$	—			$	10.6
Total Expected Non-restructuring Charges
COS		$	3.7			$	7.6			$	3.2			$	14.5			$	—			$	14.5
SG&A			5.9				2.3				3.0				11.2				0.2				11.4
		$	9.6			$	9.9			$	6.2			$	25.7			$	0.2			$	25.9
Expected Total Realignment Program Charges (1)
COS		$	14.1			$	7.6			$	3.2			$	24.9			$	—			$	24.9
SG&A			6.1				2.3				3.0				11.4				0.2				11.6
		$	20.2			$	9.9			$	6.2			$	36.3			$	0.2			$	36.5

     The majority of the remaining charges are expected to be incurred in the second quarter.

Consolidated Results

Bookings, Sales and Backlog

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Bookings		$	968.2			$	1,429.3
Sales			1,024.7				993.3

     We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer with regard to manufacture, service or support. Bookings for the three months ended March 31, 2009 decreased by $461.1 million, or 32.3%, as compared with the same period in 2008. The decrease includes negative currency effects of approximately $102 million. The decrease is also attributable to decreased bookings across our divisions, primarily related to decreases in the oil and gas and general industries, and reflects our customers’ responses to concerns regarding ongoing disruptions in the credit and capital markets, global economic conditions, declines in oil and gas prices and the re-bidding of certain projects, thereby delaying expected bookings. The decrease is also attributable to $74.0 million of thruster orders recorded in the first quarter of 2008 that did not recur.

     Sales for the three months ended March 31, 2009 increased by $31.4 million, or 3.2%, as compared with the same period in 2008. The increase includes negative currency effects of approximately $101 million. The increase is attributable to increased sales by FPD, which is related to the strength in bookings during 2008. Original equipment sales showed continued strength, increasing approximately 5%, as compared with the same period in 2008, while aftermarket sales were comparable with the same period in 2008. Original equipment sales growth reflects execution against a strong order backlog, which arose predominantly from growth in the oil and gas and power industries over the past two years. Net sales to international customers, including export sales from the U.S., were approximately 67% of consolidated sales for the three months ended March 31, 2009, as compared with approximately 66% for the same period in 2008.

     Backlog represents the value of aggregate uncompleted customer orders. Backlog of $2,671.6 million at March 31, 2009 decreased by $153.5 million, or 5.4%, as compared with December 31, 2008. Currency effects provided a decrease of approximately $79 million. The remaining decrease in backlog is a result of the impact of cancellations of $14.8 million of orders booked during the prior year.

Gross Profit and Gross Profit Margin

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Gross profit		$	367.8			$	345.8
Gross profit margin			35.9	%			34.8	%

     Gross profit for the three months ended March 31, 2009 increased by $22.0 million, or 6.4%, as compared with the same period in 2008. Gross profit margin for the three months ended March 31, 2009 of 35.9% increased from 34.8% for the same period in 2008. The increase is primarily attributable to increased sales in FPD, which favorably impacts our absorption of fixed costs, improved pricing on orders booked in late 2007 and early 2008 and cost savings achieved through our CIP and supply chain initiatives, and is partially offset by $6.1 million of charges related to our Realignment Program and a sales mix shift. Additionally, gross profit margin for the three months ended March 31, 2009 was favorably impacted by the production of specialty pumps, which had a higher margin. As a result of increased original equipment sales and relatively flat aftermarket sales, original equipment sales increased to approximately 63% of total sales, as compared with approximately 62% of total sales in the same period in 2008. Original equipment generally carries a lower margin than aftermarket.

Selling, General and Administrative Expense (“SG&A”)

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
SG&A		$	225.3			$	232.5
SG&A as a percentage of sales			22.0	%			23.4	%
SG&A for the three months ended March 31, 2009 decreased by $7.2 million, or 3.1%, as compared with the same period in 2008. Currency effects yielded a decrease of approximately $18 million, which is partially offset by $3.8 million of charges related to the Realignment Program, a decrease in selling and marketing-related expenses and other individually immaterial items. SG&A as a percentage of sales for the three months ended March 31, 2009 improved 140 basis points as compared with the same period in 2008. The improvement is primarily attributable to leverage from higher sales.
Net Earnings from Affiliates
		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Net earnings from affiliates		$	4.7			$	6.0

     Net earnings from affiliates for the three months ended March 31, 2009 decreased by $1.3 million, or 21.7%, as compared with the same period in 2008. Net earnings from affiliates represent our joint venture interests in Asia Pacific and the Middle East. The decrease in earnings is primarily attributable to an FCD joint venture in India, which was driven by a decline in oil and gas project sales, as well as the consolidation of Niigata beginning in March 2008. As discussed above, effective March 1, 2008, we purchased the remaining 50% interest in Niigata, resulting in the full consolidation of Niigata as of that date. Prior to this transaction, our 50% interest was recorded using the equity method of accounting.

Operating Income and Operating Margin

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Operating income		$	147.1			$	119.3
Operating margin			14.4	%			12.0	%

     Operating income for the three months ended March 31, 2009 increased by $27.8 million, or 23.3%, as compared with the same period in 2008. The increase includes negative currency effects of approximately $24 million. The increase is primarily a result of the $22.0 million increase in gross profit and the $7.2 million decrease in SG&A, and includes the total impact of $9.9 million in charges related to our Realignment Program, as discussed above. Operating margin improved 240 basis points, due to improved gross profit and the decline in SG&A as a percentage of sales, as discussed above.

Interest Expense and Interest Income

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Interest expense		$	(10.1	)		$	(12.9	)
Interest income			1.1				2.9

     Interest expense for the three months ended March 31, 2009 decreased by $2.8 million, as compared with the same period in 2008. The decrease is primarily attributable to a decrease in the average interest rate. Approximately 70% of our debt was at fixed rates at March 31, 2009, including the effects of $385.0 million of notional interest rate swaps.

     Interest income for the three months ended March 31, 2009 decreased by $1.8 million, as compared with the same period in 2008. The decrease is primarily attributable to a decrease in the average interest rate.

Other (Expense) Income, net

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Other (expense) income, net		$	(9.3	)		$	16.5

     Other (expense) income, net for the three months ended March 31, 2009 decreased to net expense of $9.3 million, as compared with income of $16.5 million for the same period in 2008, primarily due to a $8.3 million net loss on forward exchange contracts in 2009 as compared with a net gain on forward exchange contracts of $17.9 million in 2008, reflecting volatility in foreign exchange rates, as well as the $3.4 million gain on the bargain purchase of Niigata, which was recorded in the first quarter of 2008.

Tax Expense and Tax Rate

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Provision for income tax		$	36.0			$	37.1
Effective tax rate			27.9	%			29.5	%

     Our effective tax rate of 27.9% for the three months ended March 31, 2009 decreased from 29.5% for the same period in 2008. The decrease is primarily due to the net impact of foreign operations.

Other Comprehensive (Loss) Income

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Other comprehensive (loss) income		$	(38.3	)		$	29.9

     Other comprehensive (loss) income for the three months ended March 31, 2009 decreased to a loss of $38.3 million, as compared with income of $29.9 million for the same period in 2008, primarily reflecting the strengthening of the U.S. Dollar exchange rate versus the Euro during the three months ended March 31, 2009, as compared with a weakening during the same period in 2008.

Business Segments

     We conduct our operations through three business segments:

	•		FPD for engineered pumps, industrial pumps and related services;
	•		FCD for engineered and industrial valves, control valves, actuators and controls and related services; and
	•		FSD for precision mechanical seals and related products and services.

     We evaluate segment performance and allocate resources based on each segment’s operating income. See Note 15 to our condensed consolidated financial statements included in this Quarterly Report for further discussion of our segments. The key operating results for our three business segments, FPD, FCD and FSD are discussed below.

Flowserve Pump Division

     Through FPD, we design, manufacture, distribute and service engineered and industrial pumps and pump systems and submersible motors (collectively referred to as “original equipment”) primarily in the oil and gas, chemical and power generation industries. FPD also manufactures replacement parts and related equipment, and provides a full array of support services (collectively referred to as “aftermarket”). FPD has 30 manufacturing facilities worldwide, eight of which are located in North America, 12 in Europe, four in Latin America and six in Asia. FPD also has 79 service centers, including those co-located in a manufacturing facility, in 28 countries.

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Bookings		$	550.3			$	890.2
Sales			599.6				561.1
Gross profit			198.7				174.6
Gross profit margin			33.1	%			31.1	%
Operating income			103.6				78.5
Operating margin			17.3	%			14.0	%

     Bookings for the three months ended March 31, 2009 decreased by $339.9 million, or 38.2%, as compared with the same period in 2008. The decrease includes a negative currency effect of approximately $58 million. Bookings for original equipment decreased approximately 51% and represented more than 90% of the total bookings decrease. The decrease in overall original equipment bookings was driven by a decline across all industries, but primarily oil and gas and general industries, including $74.0 million of thruster orders recorded in the first quarter of 2008 that did not recur. Aftermarket bookings decreased approximately 13%, including a $13.1 million decrease in commissioning spare parts for major projects. Europe, Middle East and Africa (“EMA”) and North America bookings decreased $226.6 million and $105.8 million, respectively. The decrease in bookings reflects our customers’ responses to concerns regarding ongoing disruptions in the credit and capital markets, global economic conditions and declines in oil and gas prices and demand.

     Sales for the three months ended March 31, 2009 increased by $38.5 million, or 6.9%, as compared with the same period in 2008. The increase includes negative currency effects of approximately $53 million, partially offset by incremental sales provided by Niigata of $15.5 million. North America, Asia Pacific and Latin America sales increased $16.8 million, $16.4 million and $13.5 million, respectively. Original equipment sales show continued strength, increasing approximately 14%, while aftermarket sales were relatively comparable with the same period in 2008. Original equipment sales growth reflects execution against a strong order backlog, which predominantly resulted from growth in the oil and gas and power markets over the past two years.

     Gross profit for the three months ended March 31, 2009 increased by $24.1 million, or 13.8%, as compared with the same period in 2008, and includes incremental gross profit attributable to Niigata of $3.6 million. Gross profit margin for the three months ended March 31, 2009 of 33.1% increased from 31.1% for the same period in 2008. The increase is attributable to higher volumes, improved capacity utilization, improved operating efficiencies and order execution, improved absorption of fixed manufacturing costs resulting from higher sales, improved pricing on orders booked in late 2007 and early 2008 and focused execution of CIP programs and implementation of supply chain initiatives, slightly offset by $2.0 million of charges related to our Realignment Program and a sales mix shift. Additionally, gross profit margin for the three months ended March 31, 2009 was favorably impacted by the production of specialty pumps, which had a higher margin. As a result of increased original equipment sales and relatively flat aftermarket sales, original equipment sales increased to approximately 61% of total sales, as compared with approximately 57% of total sales in the same period in 2008. Original equipment generally carries a lower margin than aftermarket.

     Operating income for the three months ended March 31, 2009 increased by $25.1 million or 32.0%, as compared with the same period in 2008. The increase includes negative currency effects of approximately $14 million. The increase was due primarily to improved gross profit of $24.1 million. Although we have placed additional expense discipline around our discretionary SG&A levels through focused reduction and the Realignment Program, we are continuing to invest and have expanded our spending in research and development, information systems and training.

     Backlog of $2,120.5 million at March 31, 2009 decreased by $132.6 million, or 5.9%, as compared with December 31, 2008. Currency effects provided a decrease of approximately $65 million. The remaining decrease in backlog is a result of the impact of cancellations of $14.1 million of orders booked during the prior year.

Flow Control Division

     Our second largest business segment is FCD, through which we design, manufacture and distribute a broad portfolio of engineered and industrial valves, control valves, actuators, controls and related services. FCD leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio. FCD has a total of 48 manufacturing facilities and QRCs in 23 countries around the world, with only five of its 19 manufacturing operations located in the U.S. Based on independent industry sources, we believe that we are the third largest industrial valve supplier on a global basis.

		Three Months Ended March 31,
(Amounts in millions)		2009				2008
Bookings		$	302.8			$	389.8
Sales			297.2				300.3
Gross profit			107.2				106.2
Gross profit margin			36.1	%			35.4	%
Operating income			47.6				43.1
Operating margin			16.0	%			14.4	%