Table of Contents

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Title of Each Class		Name of Each Exchange on Which Registered
COMMON STOCK, $1.25 PAR VALUE		NEW YORK STOCK EXCHANGE

---

Table of Contents

i

---

 

				Page
PART I
Item 1.		Business			1
Item 2.		Properties			17
Item 3.		Legal Proceedings			18
Item 4.		Submission of Matters to a Vote of Security Holders			20
PART II
Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
Item 6.		Selected Financial Data			21
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			60
Item 8.		Financial Statements and Supplementary Data			62
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			131
Item 9A.		Controls and Procedures			131
Item 9B.		Other Information			138
PART III
Item 10.		Directors, Executive Officers and Other Corporate Officers of the Registrant			138
Item 11.		Executive Compensation			143
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			151
Item 13.		Certain Relationships and Related Transactions			153
Item 14.		Principal Accountant Fees and Services			153
PART IV
Item 15.		Exhibits and Financial Statement Schedules			154
Signatures					162
Index to Exhibits					165
Asset Purchase Agreement
Separation and Release Agreement
Employment Agreement - Kevin E. Sheehan
Form of Restricted Stock Agreement
Form of Incentive Stock Option Agreement
Form of Non-Qualified Stock Option Agreement
Amendment to Long Term Incentive Plan
Amendment to Incentive Compensation Plan for Key Employees
Amendment to Long Term Incentive Plan as Restated
Amendment to Long-Term Incentive Plan
Amendment to First Master Benefit Trust Agreement
Amendment to Amended and Restated Director Cash Deferral Plan
Amendment to Retirement Compensation Plan for Directors
Amendment to Amended and Restated Director Deferral Plan
Amendment to Deferred Compensation Plan
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

ii

---

Table of Contents

ITEM 1.	BUSINESS

	•	Flowserve Pump Division (“FPD”) for engineered pumps, industrial pumps and related services;
	•	Flow Control Division (“FCD”) for industrial valves, manual valves, control valves, nuclear valves, valve actuators and controls and related services; and
	•	Flow Solutions Division (“FSD”) for precision mechanical seals and related services.

1

---

Table of Contents

Centrifugal Pumps		Positive Displacement Pumps		Specialty Products & Systems
• Chemical Process ANSI and ISO		• Reciprocating		• Hydraulic Decoking Systems
• Petroleum Process API 610		• Gear		• Reactor Recycle Systems
• Horizontal Between Bearing Single stage		• Twin Screw
• Horizontal Between Bearing Multi stage
• Vertical
• Submersible Motor
• Nuclear

• ACEC		• Cameron
• Byron Jackson		• Duriron
• Durco		• IDP
• Flowserve		• Pleuger
• Pacific		• Sier-Bath
• Scienco		• United Centrifugal
• Worthington-Simpson		• Wilson-Snyder
• Western Land Roller		• Jeumont-Schneider
• Worthington		• TKL
• Aldrich

2

---

Table of Contents

3

---

Table of Contents

• Actuators and Accessories		• Digital Communications
• Control Valves		• Manual Quarter-Turn Valves
• Ball Valves		• Valve Automation Systems
• Lubricated Plug Valves		• Valve/ Actuator Software
• Pneumatic Positioners		• Nuclear Valves
• Electro Pneumatic Positioners		• Quarter-Turn Actuators
• Smart Valves		• Valve Repair Services
FCD Brand Names
• Accord		• NAF
• Anchor/ Darling		• NAVAL
• Argus		• Noble Alloy
• Atomac		• Norbro
• Automax		• Nordstrom
• Battig		• PMV
• Durco		• P+W
• Edward		• Serck Audco
• Gestra		• Schmidt Armaturen
• Kammer		• Valtek
• Limitorque		• Vogt
• McCANNA/ MARPAC		• Worcester Controls

4

---

Table of Contents

FSD Product Types		FSD Brand Names
• Cartridge Seals		• BW Seals
• Dry-Running Seals		• Durametallic
• Metal Bellow Seals		• Five Star Seal
• Elastomeric Seals		• Flowserve
• Slurry Seals		• Flowstar
• Split Seals		• GASPAC
• Gas Barrier Seals		• Interseal
• Couplings		• Pacific Wietz
• Service and Repair		• Pac-Seal
• Accessories and Support Systems
• Monitoring and Diagnostics

5

---

Table of Contents

6

---

Table of Contents

7

---

Table of Contents

8

---

Table of Contents

	•	annual reports on Form 10-K,
	•	quarterly reports on Form 10-Q,
	•	current reports on Form 8-K,
	•	changes in beneficial ownership for insiders,
	•	proxy statements, and
	•	any amendments thereto,

9

---

Table of Contents

	We have material weaknesses in our internal control over financial reporting, which could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.

	If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, our business prospects and stock valuation could be adversely affected.

	We are currently subject to securities class action litigation, the unfavorable outcome of which might have a material adverse effect on our financial condition, results of operations and cash flows.

10

---

Table of Contents

	The ongoing SEC investigation regarding our restatement could materially adversely affect our company.

	The IRS is auditing our tax returns, and a negative outcome of the audit would require us to make additional tax payments that may be material.

	We operate and manage our business on a number of different computer systems, including several aging Enterprise Resource Planning (“ERP”) systems that rely on manual processes, which could adversely affect our ability to accurately report our financial condition, results of operations and cash flows.

11

---

Table of Contents

	Economic, political and other risks associated with international operations could adversely affect our business.

	•	changes in foreign currency exchange rates;
	•	instability in a specific country’s or region’s political or economic conditions, particularly in emerging markets and the Middle East;
	•	trade protection measures, such as tariff increases, and import and export licensing and control requirements;
	•	potentially negative consequences from changes in tax laws;
	•	difficulty in staffing and managing widespread operations;
	•	difficulty of enforcing agreements and collecting receivables through some foreign legal systems;
	•	differing and, in some cases, more stringent labor regulations;
	•	partial or total expropriation;
	•	differing protection of intellectual property;
	•	unexpected changes in regulatory requirements;
	•	inability to repatriate income or capital; and
	•	difficulty in administering and enforcing corporate policies, which may be different than the normal business practices of local cultures.

12

---

Table of Contents

	Our business depends on the levels of capital investment and maintenance expenditures by our customers, which in turn are affected by the cyclical nature of their markets and their liquidity.

	As we expand our customer alliance programs, an increasing portion of our revenues will be on a fixed-fee basis, subjecting us to the risks associated with cost overruns.

13

---

Table of Contents

	We sell our products in highly competitive markets, which puts pressure on our profit margins and limits our ability to maintain or increase the market share of our products.

	Environmental compliance costs and liabilities could adversely affect our financial condition, results of operations and cash flows.

	We are party to asbestos-containing product litigation that could adversely affect our financial condition, results of operations and cash flows.

	Our business may be adversely impacted by work stoppages and other labor matters.

14

---

Table of Contents

	Our competitive position is affected by our ability to protect our intellectual property.

	Our success will depend to a significant extent on our ability to retain senior executives and other key personnel.

	If we are unable to obtain raw materials at favorable prices, our operating margins and results of operations will be adversely affected.

	Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of our obligations under our defined benefit pension plans, the funded status of these plans and our pension expense.

15

---

Table of Contents

	We may incur material costs as a result of product liability and warranty claims, which could adversely affect our financial condition, results of operations and cash flows.

	Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill our obligations under our indebtedness.

	•	make it more difficult for us to satisfy our obligations with respect to our indebtedness;
	•	increase our vulnerability to general adverse economic and industry conditions;
	•	require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
	•	limit our ability to take advantage of business opportunities as a result of various restrictive covenants in our debt agreements;
	•	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•	place us at a competitive disadvantage compared to our competitors that have less debt; and
	•	limit our ability to borrow money or sell stock to fund our working capital, capital expenditures, acquisitions or other corporate requirements.

	Restrictive covenants in the agreements governing our indebtedness limit our operating and financial flexibility.

	•	incur additional debt;
	•	make capital expenditures;

16

---

Table of Contents

	•	change fiscal year;
	•	pay dividends and make other distributions;
	•	prepay subordinated debt, make investments and other restricted payments;
	•	enter into sale and leaseback transactions;
	•	create liens;
	•	sell assets; and
	•	enter into transactions with affiliates.

	We may not be able to continue to expand our market presence through acquisitions, and any future acquisitions may present unforeseen integration difficulties or costs.

	•	loss of key employees or customers of the acquired company;
	•	conforming the acquired company’s standards, processes, procedures and controls, including accounting systems and controls, with our operations;
	•	coordinating operations that are increased in scope, geographic diversity and complexity;
	•	retooling and reprogramming of equipment;
	•	hiring additional management and other critical personnel; and
	•	the diversion of management’s attention from our day-to-day operations.

ITEM 2.	PROPERTIES

17

---

Table of Contents

			No. of				Approx. Sq.
			Plants				Footage
FPD
	U.S.:			7				1,284,000
	Non-U.S.:			16				2,598,000
FSD
	U.S.:			3				205,000
	Non-U.S.:			4				246,000
FCD
	U.S.:			5				1,087,000
	Non-U.S.:			17				1,400,000

ITEM 3.	LEGAL PROCEEDINGS

18

---

Table of Contents

19

---

Table of Contents

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

		2005		2004		2003
First Quarter		$27.72/$23.69		$22.77/$18.64		$15.43/$10.40
Second Quarter		$31.25/$25.16		$25.09/$19.47		$19.91/$11.14
Third Quarter		$37.78/$29.73		$25.35/$21.21		$22.86/$16.60
Fourth Quarter		$39.75/$32.75		$28.18/$20.40		$22.93/$18.90

20

---

Table of Contents

		Year Ended December 31,
		2004(a)				2003(b)(f)				2002(c)(f)				2001(d)(g)				2000(e)(g)
						(As restated)				(As restated)				(As restated)				(As restated)
		(Amounts in thousands, except per share data and ratios)
RESULTS OF OPERATIONS
Sales		$	2,638,199			$	2,372,559			$	2,228,036			$	1,892,123			$	1,538,293
Gross profit			778,816				705,411				666,335				589,294				504,185
Selling, general and administrative expense			623,035				540,845				478,220				411,226				365,718
Integration expense			—				19,768				16,179				62,866				35,211
Restructuring expense			—				2,879				4,347				(1,208	)			19,364
Operating income			155,781				141,919				167,589				116,409				83,891
Interest expense			81,016				84,206				95,480				119,636				72,749
Provision (benefit) for income taxes			39,470				12,789				29,669				(6,911	)			5,824
Income (loss) from continuing operations			20,154				43,108				32,696				(18,092	)			5,439
Income (loss) from continuing operations per share (diluted)			0.36				0.78				0.63				(0.46	)			0.14
Net earnings (loss)			24,200				44,463				34,759				(15,957	)			5,439
Net earnings (loss) per share (diluted)			0.43				0.80				0.67				(0.41	)			0.14
Cash flows from operating activities			267,501				181,304				249,028				(47,749	)			18,431
Dividends paid per share			—				—				—				—				—
Bookings			2,657,404				2,423,728				2,184,074				1,975,536				1,528,800
Ending backlog			836,380				818,200				733,662				662,803				659,250
FINANCIAL CONDITION
Working capital		$	341,259			$	454,439			$	514,923			$	473,372			$	472,641
Total assets			2,634,036				2,680,512				2,639,873				2,045,877				2,065,782
Total debt			701,844				950,801				1,095,431				1,042,035				1,130,204
Retirement obligations and other liabilities			397,655				370,201				360,448				223,639				210,555
Shareholders’ equity			870,225				822,463				708,557				388,771				301,515
FINANCIAL RATIOS
Return on average net assets			4.7	%			4.2	%			4.8	%			3.6	%			3.3	%
Net debt to capital ratio			42.3	%			52.2	%			59.6	%			72.4	%			78.3	%

(a)		Financial condition in 2004 includes the effects of the accounts receivable securitization which increased cash by $60.0 million, reduced accounts receivable by $48.7 million and increased total debt by $11.3 million.
(b)		Financial results in 2003 include integration expense of $19.8 million and restructuring expense of $2.9 million, resulting in a reduction in after tax net earnings of $14.7 million (as restated).
(c)		Financial results in 2002 include IFC results from the date of acquisition. Financial results in 2002 include integration expense of $16.2 million, restructuring expense of $4.3 million, a loss on debt extinguishment of $11.2 million, and a $5.2 million purchase accounting adjustment associated with the required write-up and subsequent sale of acquired inventory, resulting in a reduction in after tax net earnings of $24.1 million (as restated).

21

---

Table of Contents

(d)		Financial results in 2001 include integration expense of $63.0 million, a reduction of our restructuring expense of $1.2 million and a loss on debt extinguishment of $17.9 million net of tax, resulting in a reduction in after tax net earnings of $59.6 million (as restated).
(e)		Financial results in 2000 include Invatec and IDP from the date of the respective acquisitions. Financial results in 2000 include integration expense of $35.2 million, restructuring expense of $19.4 million and a loss on debt extinguishment of $2.1 million net of tax, resulting in a reduction in after tax net earnings of $37.5 million (as restated).
(f)		As discussed in Note 2 to the consolidated financial statements included in this Annual Report, the financial statements from which the selected financial data are derived have been restated.
(g)		Primarily from the matters described in Note 2 to the consolidated financial statements included in this Annual Report, the selected financial data has been restated as follows:

		2001												2000
										As Restated with												As Restated with
		As Previously								Discontinued				As Previously								Discontinued
		Reported				As Restated				Operations				Reported				As Restated				Operations
		(Amounts in thousands)												(Amounts in thousands)
Sales		$	1,917,332			$	1,917,160			$	1,892,123			$	1,538,293			$	1,538,293			$	1,538,293
Gross Profit			603,542				595,212				589,294				504,713				504,185				504,185
Selling, general and administrative expense			411,338				413,754				411,226				361,619				365,718				365,718
Operating Income			130,369				119,800				116,409				88,519				83,891				83,891
Provision (benefit) for income taxes			(589	)			(5,657	)			(6,911	)			5,713				5,824				5,824
Income (loss) from continuing operations			(10,488	)			(15,957	)			(18,092	)			10,822				5,439				5,439
Net earnings (loss)			(10,488	)			(15,957	)			(15,957	)			10,822				5,439				5,439

	ITEM 7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

---

Table of Contents

	Restatement of Financial Statements

23

---

Table of Contents

24

---

Table of Contents

	Pending SEC Investigations

	Securities Class Action and Derivative Lawsuits

25

---

Table of Contents

	IRS Audits

	Management Changes and Other Employee Matters

26

---

Table of Contents

	(i)	the regular term of options otherwise expiring in 2005 will expire 30 days after the options first become exercisable when our SEC filings have become current and an effective SEC Form S-8 Registration Statement has been filed with the SEC, and

	(ii)	the regular term of options otherwise expiring in 2006 will expire on the later of:

	(1) 75 days after the regular term of the option as originally granted expires, or
	(2) December 31, 2006 (assuming the options become exercisable in 2006 for the reasons included in (i) above).

	Completion of Refinancing

27

---

Table of Contents

	Accounts Receivable Securitization

	Acquisitions and Divestitures

	Our Company

28

---

Table of Contents

	•	Flowserve Pump Division (“FPD”), for engineered pumps, industrial pumps and related services;
	•	Flow Control Division (“FCD”), for industrial valves, manual valves, control valves, nuclear valves, valve actuators and controls and related services; and
	•	Flow Solutions Division (“FSD”), for precision mechanical seals and related services.

	Our Markets

29

---

Table of Contents

	Our Strategies

	Organic Growth

30

---

Table of Contents

	Globalization

	•	Expanding our global presence to capture business outside our traditional geographic market areas (China, Russia, South America and Africa),
	•	Utilizing low cost sourcing opportunities to remain competitive in the global economy, and
	•	Attract and retain the global intellectual capital required to support our global growth plans in the new geographical areas.

	Process Excellence

	•	driving improved customer fulfillment across our company through metrics such as on-time delivery, cost reduction, quality, cycle time reduction and warranty reduction; and
	•	continuing to develop a culture of continuous improvement that delivers maximum productivity and cost efficiencies, implements consistent processes across our company and ensures our future success as an integrated company.

31

---

Table of Contents

	Portfolio Management

	Organizational Capability

	•	The development of a deeper talent pool through training and cross-divisional and functional assignments allows us the flexibility as we grow and expand the organization to fill positions internally. Career learning and development is critical to the building of an improved global organizational capability for the future.
	•	The need to capture the intellectual capital in our workforce and that of our customers and share it within our company is considered a competitive advantage, and
	•	Building an organization with improved compliance to mandatory and recommended processes and procedures and implementing the information systems that ensure compliance will be the backbone of our culture as we move forward.

32

---

Table of Contents

	Technology

	Sales

														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
Sales		$	2,638.2			$	2,372.6			$	2,228.0			$	2,385.4

33

---

Table of Contents

	Bookings and Backlog

														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
Bookings		$	2,657.4			$	2,423.7			$	2,184.1			$	2,326.2
Backlog (at period end)			836.4				818.2				733.7				733.7

	Gross Profit and Gross Profit Margin

														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
Gross profit		$	778.8			$	705.4			$	666.3			$	719.1
Gross profit margin			29.5	%			29.7	%			29.9	%			30.1	%

34

---

Table of Contents

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

														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
SG&A		$	623.0			$	540.8			$	478.2			$	514.1
SG&A as a percentage of sales			23.6	%			22.8	%			21.5	%			21.6	%

	Integration and Restructuring Expense

		2004				2003				2002
		(Amounts in millions)
Integration expense		$	—			$	19.8			$	16.2
Restructuring expense			—				2.9				4.3

	Operating Income

														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
Operating income		$	155.8			$	141.9			$	167.6			$	182.7
Operating income as percentage of sales			5.9	%			6.0	%			7.5	%			7.7	%

35

---

Table of Contents

	Interest Expense and Loss on Repayment of Debt

		2004				2003				2002
		(Amounts in millions)
Interest expense		$	81.0			$	84.2			$	95.5
Interest income			1.9				4.1				2.5
Loss on debt repayment and extinguishment			2.7				1.3				11.2

	Other (Expense) Income, net

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Other (expense) income, net		$	(14.4	)		$	(4.5	)		$	(1.1	)

	Tax Expense and Tax Rate

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Provision for income taxes		$	39.5			$	12.8			$	29.7
Effective tax rate			66.2	%			22.9	%			47.6	%

36

---

Table of Contents

	Net Earnings and Earnings Per Share

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions, except per share)
Income from continuing operations		$	20.2			$	43.1			$	32.7
Net earnings			24.2				44.5				34.8
Net earnings per share from continuing operations — diluted			0.36				0.78				0.63
Net earnings per share — diluted			0.43				0.80				0.67
Average diluted shares			55.7				55.3				52.2

37

---

Table of Contents

	Other Comprehensive Income (Expense)

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Other comprehensive income (expense)		$	15.1			$	68.3			$	(11.0	)

	Business Segments

	Flowserve Pump Division Segment Results

		Flowserve Pump Division
		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Bookings		$	1,339.1			$	1,207.1			$	1,123.8
Sales			1,329.8				1,164.6				1,181.5
Gross profit			341.3				282.9				314.9
Gross profit margin			25.7	%			24.3	%			26.7	%
Segment operating income			110.1				85.9				121.3
Segment operating income as a percentage of sales			8.3	%			7.4	%			10.3	%
Backlog (at period end)			575.8				569.6				495.5

38

---

Table of Contents

	Flow Control Division Segment Results

39

---

Table of Contents

		Flow Control Division
														Pro Forma
		2004				2003				2002				2002
						(As restated)				(As restated)				(As restated)
		(Amounts in millions)
Bookings		$	967.8			$	890.5			$	747.5			$	889.7
Sales			954.5				881.4				727.5				884.8
Gross profit			273.0				262.0				204.2				257.0
Gross profit margin			28.6	%			29.7	%			28.1	%			29.0	%
Segment operating income (before special items)			59.6				61.1				42.2				54.0
Integration expense			—				19.8				16.2				16.2
Restructuring expense			—				2.9				4.3				6.2
Purchase accounting adjustment for inventory			—				—				5.2				—
Segment operating income (after special items)			59.6				38.4				16.5				31.6
Segment operating income (after special items) as a percentage of sales			6.2	%			4.4	%			2.3	%			3.6	%
Backlog (at period end)			227.6				215.5				210.8				210.8

40

---

Table of Contents

	Flow Solutions Division Segment Results

		Flow Solutions Division
		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Bookings		$	395.0			$	361.1			$	343.2
Sales			394.0				357.7				348.6
Gross profit			170.3				160.1				151.0
Gross profit margin			43.2	%			44.8	%			43.3	%
Segment operating income			72.6				73.9				64.6
Segment operating income as a percentage of sales			18.4	%			20.7	%			18.5	%
Backlog (at period end)			43.7				41.0				34.0

41

---

Table of Contents

	Restructuring Costs — IFC

42

---

Table of Contents

							Other
			Severance				Exit Costs				Total
			(Amounts in millions)
Balance created on June 5, 2002			$	6.9			$	4.1			$	11.0
	Additional accruals			6.9				2.7				9.6
	Cash expenditures			(3.1	)			(1.1	)			(4.2	)
Balance at December 31, 2002				10.7				5.7				16.4
	Additional accruals			3.8				0.7				4.5
	Cash expenditures			(8.8	)			(2.8	)			(11.6	)
Balance at December 31, 2003				5.7				3.6				9.3
	Non-cash adjustments			(1.4	)			(0.9	)			(2.3	)
	Cash expenditures			(2.2	)			(1.2	)			(3.4	)
Balance at December 31, 2004			$	2.1			$	1.5			$	3.6

	Integration Costs — IFC

		2003				2002
		(Amounts in
		millions)
Personnel and related costs		$	7.9			$	8.4
Transfer of product lines			4.6				3.5
Asset impairments			4.2				0.8
Other			3.1				3.5
IFC integration expense		$	19.8			$	16.2
Cash expense		$	15.6			$	15.1
Non-cash expense			4.2				1.1
IFC integration expense		$	19.8			$	16.2

	Remaining Restructuring and Integration Costs — IFC

43

---

Table of Contents

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Net cash flows provided by operating activities		$	267.5			$	181.3			$	249.0
Net cash flows used by investing activities			(14.1	)			(26.6	)			(557.2	)
Net cash flows (used) provided by financing activities			(250.6	)			(162.8	)			327.6

	Cash Flow Analysis

44

---

Table of Contents

	Payments for Acquisitions

	Capital Expenditures

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Capital expenditures		$	45.2			$	28.8			$	30.9
Depreciation expense			62.5				61.6				55.8

45

---

Table of Contents

	Financing

			December 31
			2004				2003
							(As restated)
			(Amounts in thousands)
Term Loan Tranche A:
	U.S. Dollar Tranche, interest rate of 5.02% in 2004 and 3.74% in 2003		$	76,240			$	200,004
	Euro Tranche, interest rate of 4.69% in 2004 and 4.65% in 2003			13,257				12,292
Term Loan Tranche C, interest rate of 5.20% in 2004 and 4.00% in 2003				233,851				465,473
Senior Subordinated Notes net of discount, interest rate of 12.25%:
	U.S. Dollar denominated			187,004				186,739
	Euro denominated			87,484				80,998
EIB loan, interest rate of 2.39%				85,000				—
Receivable securitization and factoring obligations				17,635				4,543
Capital lease obligations and other				1,373				752
Debt and capital lease obligations				701,844				950,801
Less amounts due within one year				44,098				71,035
Total debt due after one year			$	657,746			$	879,766

	Senior Credit Facilities

	2000 Credit Facilities

46

---

Table of Contents

	New Credit Facilities

	EIB Credit Facility

	Senior Subordinated Notes

	Debt Prepayments and Repayments

		2004				2003				2002
		(Amounts in millions)
Scheduled repayment		$	27.5			$	0.9			$	33.8
Mandatory repayment			167.9				—				—
Optional prepayment			160.0				163.1				170.0
Loss on debt repayment and extinguishment			2.7				1.3				11.2

47

---

Table of Contents

	•	100% of the net cash proceeds of asset sales; and
	•	Unless we attain and maintain investment grade credit ratings:

	•	75% of our excess cash flow, subject to a reduction based on the ratio of our total debt to consolidated EBITDA;
	•	50% of the proceeds of any equity offerings; and
	•	100% of the proceeds of any debt issuances (subject to certain exceptions).

	Accounts Receivable Securitization

48

---

Table of Contents

	Accounts Receivable Factoring

	Debt Covenants and Other Matters

49

---

Table of Contents

			Payments Due by Period
			Within												Beyond
			1 Year(3)				2-3 Years				4-5 Years				5 Years				Total
			(Amounts in millions)
Long-term debt(1)(2)			$	43.6			$	99.2			$	198.1			$	359.5			$	700.4
Capital lease obligations				0.5				0.5				0.4				—				1.4
Operating leases				19.4				24.9				13.9				16.2				74.4
Purchase obligations:
	Inventory			84.2				3.0				0.1				—				87.3
	Non-inventory			5.2				0.5				0.4				0.2				6.3

(1)	After giving effect to the refinancing, the termination of our accounts receivable securitization agreement, an optional prepayment of approximately $20 million that we made in December 2005, and a mandatory repayment of $10.9 million that we made in January 2006 using the net proceeds from the sale of GSG, our scheduled long-term debt obligations are $1.5 million due within one year, $5.7 million due within two to three years, $11.4 million due within four to five years, and $635.4 million due beyond five years.
(2)	Interest payments on scheduled long-term debt obligations under our New Credit Facilities are estimated to be $55.0 million due within one year, $86.4 million due within two to three years, $84.4 million due within four to five years, and $92.4 million due beyond five years. These estimates are based on fixed or synthetically fixed rate debt and floating rate debt assuming a base rate of three-month LIBOR as of December 31, 2005.
(3)	We have no minimum pension funding requirements in 2005, but we made voluntary contributions to our U.S. pension plan of approximately $43 million in 2005.

		Commitment Expiration by Period
		Within												Beyond
		1 Year				2-3 Years				4-5 Years				5 Years				Total
		(Amounts in millions)
Standby letters of credit/bank guarantees		$	120.7			$	71.2			$	7.8			$	0.5			$	200.2
Surety bonds			44.8				21.2				—				—				66.0

50

---

Table of Contents

	Plan Description

		U.S. Plan								Non-U.S. Plans
Asset Category		2004				2003				2004				2003(1)
Equity securities			64%				65%				45%				52%
Debt securities			31%				35%				42%				48%
Other			5%				—				13%				—

(1)	Non-U.S. plans in 2003 were adjusted to reflect certain non-U.S.  pension plans that were not actuarially determined under GAAP in prior years.

	Accrual Accounting and Significant Assumptions

51

---

Table of Contents

			U.S. Plan				Non-U.S. Plans
Weighted average assumptions used to determine benefit obligations:
	Discount rate			5.75	%			5.12	%
	Rate of increase in compensation levels			4.50	%			3.04	%
Weighted average assumptions used to determine net cost:
	Long-term rate of return on assets			8.75	%			6.86	%
	Discount rate			6.25	%			5.51	%
	Rate of increase in compensation levels			4.50	%			3.00	%

			Increase				Decrease
			of 0.5%				of 0.5%
			(Amounts in millions)
U.S. defined benefit pension plan:
	Effect on pension expense		$	(0.7	)		$	0.7
	Effect on Projected Benefit Obligation			(9.3	)			10.0
Non-U.S. defined benefit pension plans:
	Effect on pension expense		$	(0.5	)		$	0.8
	Effect on Projected Benefit Obligation			(14.6	)			15.6
U.S. Postretirement medical plans:
	Effect on postretirement medical expense		$	(0.2	)		$	0.2
	Effect on Projected Benefit Obligation			(3.6	)			3.7

52

---

Table of Contents

			Increase				Decrease
			of 0.5%				of 0.5%
			(Amounts in millions)
U.S. defined benefit pension plan:
	Effect on pension expense		$	(1.0	)		$	1.0
	Effect on Projected Benefit Obligation			N/A				N/A
Non-U.S. defined benefit pension plans:
	Effect on pension expense		$	(0.3	)		$	0.3
	Effect on Projected Benefit Obligation			N/A				N/A
U.S. Postretirement medical plans:
	Effect on postretirement medical expense			N/A				N/A
	Effect on Projected Benefit Obligation			N/A				N/A

	Delayed Recognition of Actuarial Gains and Losses

53

---

Table of Contents

	Plan Funding

54

---

Table of Contents

	Revenue Recognition

55

---

Table of Contents

	Accounts Receivable and Related Allowance for Doubtful Accounts

	Inventories and Related Reserves

	Deferred Tax Asset Valuation

	Tax Reserves

56

---

Table of Contents

	Restructuring and Integration Expense

	Legal and Environmental Accruals

	Warranty Accruals

	Pension and Postretirement Benefits Obligations

	•	discount rates;
	•	expected return on plan assets for funded plans;
	•	life expectancy of participants;
	•	assumed rate of wage increases; and
	•	assumed rate of health care cost increases.

57

---

Table of Contents

	Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived Assets

58

---

Table of Contents

										Percentage
										increase
Bookings		2004				2005				(decrease)
		(Cumulative amounts in millions)
First quarter		$	662.8			$	712.6				7.5%
Second quarter			1,333.0				1,435.8				7.7%
Third quarter			1,997.7				2,230.1				11.6%
Fourth quarter			2,657.4				3,026.1				13.9%

59

---

Table of Contents

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

60

---

Table of Contents

		Impact on Net
Currency		Earnings
		(Amounts in millions)
Euro		$	3.5
Singapore dollar			1.0
Swiss franc			0.8
Indian rupee			0.7
British pound			0.5
Canadian dollar			0.5
Mexican peso			0.4
Venezuelan bolivar			0.4
Australian dollar			0.3
Argentinean peso			0.2
Brazilian real			0.1
Swedish krona			0.1
Other			0.6
Total		$	9.1

			Other Comprehensive Income (Expense)
			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands)
Reclassification to earnings for settlements during the year:
	Forward contracts		$	(458	)		$	(24	)		$	(106	)
	Interest rate swap agreements			2,689				3,014				4,336
Change in fair value:
	Forward contracts			(190	)			458				24
	Interest rate swap agreements			(162	)			(1,574	)			(6,603	)
Year ended December 31			$	1,879			$	1,874			$	(2,349	)

			Forward				Interest Rate
			Contracts				Swaps				Total
			(Amounts in millions)
2005			$	(0.1	)		$	(1.3	)		$	(1.4	)
2006				(0.1	)			(0.9	)		$	(1.0	)
	Total		$	(0.2	)		$	(2.2	)		$	(2.4	)

61

---

Table of Contents

	ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

62

---

Table of Contents

	(a) The Company did not effectively communicate the importance of controls throughout the company or set an adequate tone around control consciousness.
	(b) The Company did not maintain a sufficient complement of personnel with an appropriate level of accounting and tax knowledge, experience and training in the application of GAAP commensurate with its financial reporting requirements.
	(c) The Company failed to implement adequate assignment of authority and responsibility and the necessary lines of communication between operations and accounting and financial staff and personnel. Specifically, there was inadequate sharing of financial information within and across the corporate and

63

---

Table of Contents

	divisional offices and other operating facilities to adequately raise issues to the appropriate level of accounting and financial reporting personnel.
	(d) The Company did not maintain an effective anti-fraud program designed to detect and prevent fraud relating to (i) an effective whistle-blower program, (ii) consistent background checks of personnel in positions of responsibility, and (iii) an ongoing program to manage identified fraud risks.
	(e) The Company did not maintain an adequate level of control consciousness as it relates to the establishment and update of its policies and procedures with respect to the primary components of information technology general controls. This resulted in either not having adequate controls designed and in place or not achieving operating effectiveness over controls in systems development, software change management, computer operations and security, which the Company refers to as “information technology general controls”. This contributed to the material weakness discussed in item 4 below.

	(a) The Company’s policies and procedures with respect to the review, supervision and monitoring of its accounting operations throughout the organization were either not designed and in place or not operating effectively.
	(b) The Company did not maintain an effective internal audit function. Specifically, there was an insufficient complement of personnel with an appropriate level of experience, training and lines of reporting to allow internal audit to function effectively in determining the adequacy of its internal control over financial reporting and monitoring the ongoing effectiveness thereof.

	(a) The Company did not maintain effective controls over the period-end consolidation process. Specifically, the Company did not maintain effective controls to ensure that it identified and accumulated all required supporting information to ensure the completeness and accuracy of the consolidated financial statements and that balances and disclosures reported in the consolidated financial statements reconciled to the underlying supporting schedules and accounting records. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in the Company’s annual 2002 consolidated financial statements, the interim and annual 2003 consolidated financial statements and the interim consolidated financial statements for the first quarter of 2004 which have been corrected in the restatement of the Company’s consolidated financial statements for each of these periods (the restatement of the annual 2002, the annual and interim 2003 and the 2004 first quarter consolidated financial statements is collectively referred to as the “2004 restatement”) and (ii) adjustments, including audit adjustments, to the 2004 annual and second, third and fourth quarters consolidated financial statements (collectively referred to as the “2004 adjustments”).
	(b) The Company did not maintain effective controls over the translation of its subsidiary financial statements denominated in currencies other than U.S. dollars. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in the consolidated financial statements which have been corrected in the 2004 restatement and (ii) the 2004 adjustments.

64

---

Table of Contents

65

---

Table of Contents

66

---

Table of Contents

67

---

Table of Contents

				December 31,
				2004				2003
								(As restated)
				(Amounts in thousands,
				except per share data)
ASSETS
Current Assets:
	Cash and cash equivalents			$	63,759			$	53,522
	Accounts receivable, net				485,070				505,949
	Inventories, net				401,672				412,374
	Deferred taxes				81,225				64,585
	Prepaid expenses and other				17,943				26,091
		Total current assets			1,049,669				1,062,521
Property, plant and equipment, net					450,302				443,864
Goodwill					865,351				871,960
Deferred taxes					10,430				31,741
Other intangible assets, net					158,003				169,084
Other assets, net					100,281				101,342
Total assets				$	2,634,036			$	2,680,512
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	314,787			$	250,614
	Accrued liabilities				349,525				286,433
	Debt due within one year				44,098				71,035
		Total current liabilities			708,410				608,082
Long-term debt due after one year					657,746				879,766
Retirement obligations and other liabilities					397,655				370,201
Commitments and contingencies
Shareholders’ equity:
	Serial preferred stock, $1.00 par value, 1,000 shares authorized, no shares issued
	Common shares, $1.25 par value				72,018				72,018
		Shares authorized — 120,000
		Shares issued — 57,614
	Capital in excess of par value				472,180				477,443
	Retained earnings				434,328				410,128
					978,526				959,589
Treasury stock, at cost — 2,146 and 2,775 shares, respectively					(48,171	)			(62,575	)
Deferred compensation obligation					6,784				7,445
Accumulated other comprehensive loss					(66,914	)			(81,996	)
		Total shareholders’ equity			870,225				822,463
Total liabilities and shareholders’ equity				$	2,634,036			$	2,680,512

68

---

Table of Contents

					Year Ended December 31,
					2004				2003				2002
									(As restated)				(As restated)
					(Amounts in thousands, except per share data)
Sales					$	2,638,199			$	2,372,559			$	2,228,036
Cost of sales						1,859,383				1,667,148				1,561,701
Gross profit						778,816				705,411				666,335
	Selling, general and administrative expense					623,035				540,845				478,220
	Integration expense					—				19,768				16,179
	Restructuring expense					—				2,879				4,347
						623,035				563,492				498,746
Operating income						155,781				141,919				167,589
	Interest expense					(81,016	)			(84,206	)			(95,480	)
	Interest income					1,942				4,078				2,548
	Loss on debt repayment and extinguishment					(2,708	)			(1,346	)			(11,237	)
	Other (expense) income, net					(14,375	)			(4,548	)			(1,055	)
Earnings before income taxes						59,624				55,897				62,365
Provision for income taxes						39,470				12,789				29,669
Income from continuing operations						20,154				43,108				32,696
Discontinued operations, net of tax						1,034				1,355				2,063
Gain from sale of discontinued operations, net of tax						3,012				—				—
Net earnings					$	24,200			$	44,463			$	34,759
Net earnings per share
	Basic:
		Continuing operations			$	0.37			$	0.79			$	0.63
		Discontinued operations				0.07				0.02				0.04
			Net earnings		$	0.44			$	0.81			$	0.67
	Diluted:
		Continuing operations			$	0.36			$	0.78			$	0.63
		Discontinued operations				0.07				0.02				0.04
			Net earnings		$	0.43			$	0.80			$	0.67

69

---

Table of Contents

			Year Ended December 31,
			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands)
Net earnings			$	24,200			$	44,463			$	34,759
Other comprehensive income (expense)
	Foreign currency translation adjustments, net of tax			21,414				57,917				36,518
	Minimum pension liability effects, net of tax			(8,211	)			8,497				(45,146	)
	Cash flow hedging activity, net of tax			1,879				1,874				(2,349	)
Other comprehensive income (expense)				15,082				68,288				(10,977	)
Comprehensive income			$	39,282			$	112,751			$	23,782

70

---

Table of Contents

			Year End December 31,
			2004								2003								2002
			Shares				Amount				Shares				Amount				Shares				Amount
			(Amounts in thousands)
COMMON STOCK
	Beginning balance — January 1			57,614			$	72,018				57,614			$	72,018				48,414			$	60,518
	Sale of common stock			—				—				—				—				9,200				11,500
	Ending Balance — December 31			57,614			$	72,018				57,614			$	72,018				57,614			$	72,018
CAPITAL IN EXCESS OF PAR VALUE
	Beginning balance — January 1						$	477,443							$	477,635							$	211,113
	Stock activity under stock plans							(5,875	)							(192	)							90
	Sale of common stock							—								—								264,032
	Tax benefit associated with the exercise of stock options							612								—								2,400
	Ending Balance — December 31						$	472,180							$	477,443							$	477,635
RETAINED EARNINGS
	Balance at January 1, 2002, as previously reported							—								—							$	344,588
	Restatement adjustments to net earnings prior to January 1, 2002							—								—								(13,682	)
	Beginning balance — January 1 (As restated)						$	410,128							$	365,665							$	330,906
	Net earnings (As restated)							24,200								44,463								34,759
	Ending Balance — December 31 (As restated)						$	434,328							$	410,128							$	365,665
TREASURY STOCK
	Beginning balance — January 1			(2,775	)		$	(62,575	)			(2,794	)		$	(63,809	)			(3,622	)		$	(82,718	)
	Stock activity under stock plans			629				14,404				19				1,234				828				18,909
	Ending Balance — December 31			(2,146	)		$	(48,171	)			(2,775	)		$	(62,575	)			(2,794	)		$	(63,809	)
DEFERRED COMPENSATION OBLIGATION
	Beginning balance — January 1						$	7,445							$	7,332							$	8,260
	Increases to obligation for new deferrals							888								473								769
	Compensation obligations satisfied							(1,549	)							(360	)							(1,697	)
	Ending Balance — December 31						$	6,784							$	7,445							$	7,332
ACCUMULATED OTHER COMPREHENSIVE LOSS
	Balance at January 1, 2002, as previously reported							—								—							$	(142,137	)
	Restatement adjustments to accumulated other comprehensive loss prior to January 1, 2002							—								—								2,830
	Beginning balance — January 1 (As restated)						$	(81,996	)						$	(150,284	)						$	(139,307	)
	Foreign currency translation adjustments, net of tax (As restated)							21,414								57,917								36,518
	Minimum pension liability effect, net of tax (As restated)							(8,211	)							8,497								(45,146	)
	Cash flow hedging activity, net of tax (As restated)							1,879								1,874								(2,349	)
	Ending Balance — December 31 (As restated)							(66,914	)						$	(81,996	)						$	(150,284	)
TOTAL SHAREHOLDERS’ EQUITY
	Balance at January 1, 2002, as previously reported							—								—							$	399,624
	Restatement adjustments prior to January 1, 2002							—								—								(10,852	)
	Beginning balance — January 1 (As restated)			54,839			$	822,463				54,820			$	708,557				44,792			$	388,772
	Net changes in shareholders’ equity (As restated)			629				47,762				19				113,906				10,028				319,785
	Ending Balance — December 31 (As restated)			55,468			$	870,225				54,839			$	822,463				54,820			$	708,557

71

---

Table of Contents

					Year Ended December 31,
					2004				2003				2002
									(As restated)				(As restated)
					(Amounts in thousands)
Cash flows — Operating activities:
	Net earnings				$	24,200			$	44,463			$	34,759
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation				62,465				61,640				55,808
		Amortization				10,691				10,528				8,667
		Amortization of deferred loan costs				5,049				4,971				5,149
		Write-off of unamortized deferred loan costs and discount				2,708				1,346				5,842
		Other direct costs of long-term debt repayment				—				—				5,394
		Net (gain) loss on the disposition of fixed assets				(6,937	)			2,141				(798	)
		Gain on sale of discontinued operations				(7,394	)			—				—
		Impairment of assets				979				163				—
		Restricted stock compensation expense				1,821				608				719
		Change in assets and liabilities, net of acquisitions:
			Accounts receivable			39,394				23,822				67,834
			Inventories			25,535				29,407				36,358
			Prepaid expenses			8,895				5,152				17,206
			Other assets			—				1,422				(16,058	)
			Accounts payable			46,586				16,985				(2,592	)
			Accrued liabilities			32,059				(5,290	)			1,747
			Retirement obligations and other liabilities			25,025				(17,070	)			31,092
			Net deferred taxes			(3,575	)			1,016				(2,099	)
Net cash flows provided by operating activities						267,501				181,304				249,028
Cash flows — Investing activities:
	Capital expenditures					(45,241	)			(28,788	)			(30,875	)
	Proceeds from sale of discontinued operations					28,000				—				—
	Cash received for disposal of fixed assets					12,593				2,207				8,720
	Payments for acquisitions — net of cash acquired					(9,429	)			—				(535,067	)
Net cash flows used by investing activities						(14,077	)			(26,581	)			(557,222	)
Cash flows — Financing activities:
	Net borrowings (repayments) under lines of credit					—				2,969				(70,000	)
	Proceeds from issuance of long-term debt					98,843				—				794,876
	Payments on long-term debt					(355,570	)			(164,000	)			(683,923	)
	Payment of prepaid financing fees					(665	)			(1,767	)			(6,080	)
	Proceeds from issuance of common shares					—				—				275,925
	Net proceeds from stock option activity					6,787				—				16,850
Net cash flows (used) provided by financing activities						(250,605	)			(162,798	)			327,648
Effect of exchange rate changes on cash						7,418				12,606				8,037
Net change in cash and cash equivalents						10,237				4,531				27,491
Cash and cash equivalents at beginning of year						53,522				48,991				21,500
Cash and cash equivalents at end of year					$	63,759			$	53,522			$	48,991
Income taxes paid (net of refunds)					$	35,630			$	37,728			$	4,895
Interest paid					$	74,996			$	78,662			$	87,923

72

---

Table of Contents

1.	SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING DEVELOPMENTS

	•	Revenue, net of liquidated damages and other delivery penalties;
	•	Allowance for doubtful accounts;
	•	Reserve for excess and obsolete inventories;
	•	Deferred tax asset valuation allowances and tax reserves;
	•	Restructuring reserves;
	•	Legal and environmental accruals;
	•	Warranty accruals;
	•	Insurance reserves;
	•	Pension and postretirement benefit obligations; and
	•	Valuation of goodwill, indefinite-lived intangible assets and other long-lived assets.

73

---

Table of Contents

74

---

Table of Contents

75

---

Table of Contents

76

---

Table of Contents

77

---

Table of Contents

			Year Ended December 31,
			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands, except
			per share amounts)
Net earnings, as reported			$	24,200			$	44,463			$	34,759
Restricted stock compensation expense included in net earnings, net of tax				1,195				399				472
Stock-based employee compensation expense determined under fair value method for all awards, net of tax				(2,297	)			(3,210	)			(3,562	)
Pro forma net earnings			$	23,098			$	41,652			$	31,669
Net earnings per share — basic:
	As reported		$	0.44			$	0.81			$	0.67
	Pro forma			0.42				0.76				0.61
Net earnings per share — diluted:
	As reported		$	0.43			$	0.80			$	0.67
	Pro forma			0.42				0.75				0.61

Buildings and improvements			10 to 40 years
Furniture and fixtures			3 to 7 years
Machinery and equipment			3 to 12 years
Capital leases			3 to 25 years

78

---

Table of Contents

79

---

Table of Contents

	•	we deem the hedge to be ineffective and determine that the designation of the derivative as a hedging instrument is no longer appropriate;
	•	the derivative no longer effectively offsets changes in the cash flows of a hedged item (such as firm commitments or contracts);
	•	the derivative expires, terminates or is sold; or
	•	occurrence of the contracted or committed transaction is no longer probable, or will not occur in the originally expected period.

80

---

Table of Contents

			Year Ended December 31,
			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands, except
			per share amounts)
Income from continuing operations			$	20,154			$	43,108			$	32,696
Net Earnings			$	24,200			$	44,463			$	34,759
Denominator for basic earnings per share — weighted average shares				55,071				55,139				51,836
Effect of potentially dilutive securities				579				111				357
Denominator for diluted earnings per share — weighted average shares adjusted for dilutive securities				55,650				55,250				52,193
Net earnings per share:
Basic
	Continuing operations		$	0.37			$	0.79			$	0.63
	Net earnings			0.44				0.81				0.67
Diluted
	Continuing operations		$	0.36			$	0.78			$	0.63
	Net earnings			0.43				0.80				0.67

	Accounting Developments

	Pronouncements Implemented

81

---

Table of Contents

	Pronouncements Not Yet Implemented

82

---

Table of Contents

2.	RESTATEMENT

		2003				2002
		(Amounts in
		thousands)
Net earnings, as previously reported		$	52,888			$	45,497
Inventory valuation			(4,326	)			121
Long-term contract accounting			(3,225	)			(3,082	)
Intercompany reconciliations			(3,081	)			(3,552	)
Pension expense			2,045				(190	)
Fixed assets and intangibles			(1,369	)			(264	)
Financial derivatives			1,601				2,942
Unclaimed property			(798	)			(2,028	)
Other			(6,635	)			(608	)
Tax matters			1,957				(6,061	)
Tax impact of restatement corrections			5,406				1,984
Net earnings, as restated		$	44,463			$	34,759

83

---

Table of Contents

	•	errors in the original allocation of the purchase price for acquired businesses to property, plant and equipment, goodwill, accrued liabilities and deferred income taxes;
	•	errors in reconciliations of account balances;
	•	errors in accounting for equity investments that were based on foreign accounting standards rather than U.S. GAAP; and
	•	other errors which were not deemed individually significant for separate disclosure.

84

---

Table of Contents

			2003												2002
											As Restated												As Restated
											with												with
			As Previously								Discontinued				As Previously								Discontinued
			Reported				As Restated				Operations				Reported				As Restated				Operations
			(Amounts in thousands, except per share)
Sales			$	2,404,371			$	2,396,962			$	2,372,559			$	2,251,148			$	2,253,741			$	2,228,036
Cost of sales				1,681,950				1,687,075				1,667,148				1,573,478				1,581,262				1,561,701
Gross profit				722,421				709,887				705,411				677,670				672,479				666,335
	Selling, general, and administrative expense			539,782				543,171				540,845				477,433				481,089				478,220
	Integration expense			19,768				19,768				19,768				16,179				16,179				16,179
	Restructuring expense			2,879				2,879				2,879				4,347				4,347				4,347
Operating income				159,992				144,069				141,919				179,711				170,864				167,589
	Interest expense			(84,206	)			(84,206	)			(84,206	)			(95,480	)			(95,480	)			(95,480	)
	Interest income			3,985				4,078				4,078				2,548				2,548				2,548
	Loss on debt repayment and extinguishment			(1,346	)			(1,346	)			(1,346	)			(11,237	)			(11,237	)			(11,237	)
	Other (expense) income, net			(4,590	)			(4,548	)			(4,548	)			(3,241	)			(1,055	)			(1,055	)
Earnings before income taxes				73,835				58,047				55,897				72,301				65,640				62,365
Provision for income taxes				20,947				13,584				12,789				26,804				30,881				29,669
Income from continuing operations				52,888				44,463				43,108				45,497				34,759				32,696
Discontinued operations, net of tax				—				—				1,355				—				—				2,063
Net earnings			$	52,888			$	44,463			$	44,463			$	45,497			$	34,759			$	34,759

85

---

Table of Contents

			2003												2002
											As Restated												As Restated
											with												with
			As Previously								Discontinued				As Previously								Discontinued
			Reported				As Restated				Operations				Reported				As Restated				Operations
			(Amounts in thousands, except per share)
Net earnings per share — basic:
	Continuing operations		$	0.96			$	0.81			$	0.79			$	0.88			$	0.67			$	0.63
	Discontinued operations			—				—				0.02				—				—				0.04
Net earnings			$	0.96			$	0.81			$	0.81			$	0.88			$	0.67			$	0.67
Net earnings per share — diluted:
	Continuing operations		$	0.96			$	0.80			$	0.78			$	0.87			$	0.67			$	0.63
	Discontinued operations			—				—				0.02				—				—				0.04
Net earnings			$	0.96			$	0.80			$	0.80			$	0.87			$	0.67			$	0.67

	•	Sales decreased $7.4 million for the year ended December 31, 2003 and increased $2.6 million for the year ended December 31, 2002, primarily due to an error in the application of percentage of completion accounting for one long-term contract that includes subcontractors ($4.2 million decrease in 2003), and errors that reported sales in a period later than determined in accordance with GAAP ($2.8 million decrease in 2003 and $2.6 million increase in 2002) and errors in other account reconciliations ($0.4 million decrease in 2003).
	•	Cost of sales increased for the years ended December 31, 2003 and 2002, primarily due to errors in the following (in thousands):

		2003				2002
Inventory valuation		$	4,326			$	(121	)
Intercompany reconciliations			2,468				1,498
Pension expense			(1,552	)			411
Long-term contract accounting			—				3,082
Unclaimed property			—				1,268
Other (mainly errors in account reconciliations)			(117	)			1,646
Total cost of sales		$	5,125			$	7,784

	•	Selling, general and administrative expense increased for the years ended December 31, 2003 and 2002, primarily due to errors in the following (in thousands):

		2003				2002
Fixed assets and intangibles		$	1,369			$	265
Intercompany reconciliations			612				2,050
Unclaimed property			486				645
Long-term contract accounting			(970	)			—
Pension expense			(367	)			(115	)
Other (mainly errors in account reconciliations)			2,259				811
Total selling, general and administrative expense		$	3,389			$	3,656

86

---

Table of Contents

	•	Other (expense) income, net decreased $2.2 million for the year ended December 31, 2002 primarily due to errors in the accounting for foreign currency forward contracts that did not meet the criteria for hedge accounting ($2.9 million in 2002) and other individually insignificant errors.
	•	Provision for income taxes decreased $7.4 million and increased $4.1 million for the years ended December 31, 2003 and 2002 respectively, primarily due to corrections in deferred tax accounts and the income tax effect of the errors described above. Included in this was $5.4 million and $2.0 million for the years 2003 and 2002 respectively, due to the tax impact on the restatement items. In addition, there was $2.0 million and ($6.1) million for the years 2003 and 2002 respectively, due to tax matters, primarily a correction in our deferred tax accounts.

		2003								2002
		As Previously								As Previously
		Reported				As Restated				Reported				As Restated
		(Amounts in thousands)
Net earnings		$	52,888			$	44,463			$	45,497			$	34,759
Foreign currency translation adjustments, net of tax			36,827				57,917				23,267				36,518
Minimum pension liability adjustments, net of tax			7,706				8,497				(42,947	)			(45,146	)
Cash flow hedging activity, net of tax			889				1,874				(161	)			(2,349	)
Other comprehensive income (expense)			45,422				68,288				(19,841	)			(10,977	)
Comprehensive income		$	98,310			$	112,751			$	25,656			$	23,782

87

---

Table of Contents

				2003
												As Restated
												with
				As Previously								Discontinued
				Reported				As Restated				Operations
				(Amounts in thousands)
Assets
Current assets:
	Cash and cash equivalents			$	53,522			$	53,522			$	53,522
	Accounts receivable, net				499,873				509,872				505,949
	Inventories, net				435,946				418,047				412,374
	Deferred taxes				79,083				64,585				64,585
	Prepaid expenses and other				22,610				16,495				26,091
		Total current assets			1,091,034				1,062,521				1,062,521
Property, plant, and equipment, net					440,324				445,469				443,864
Goodwill					871,466				871,960				871,960
Deferred taxes					138,072				31,741				31,741
Other intangibles assets, net					167,282				169,084				169,084
Other assets, net					92,475				99,737				101,342
Total assets				$	2,800,653			$	2,680,512			$	2,680,512
Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable				262,553				253,926				250,614
	Accrued liabilities				283,538				283,121				286,433
	Debt due within one year				66,492				71,035				71,035
	Deferred taxes				20,075				—				—
		Total current liabilities			632,658				608,082				608,082
Long-term debt due after one year					879,766				879,766				879,766
Retirement obligations and other liabilities					467,481				370,201				370,201
Shareholders’ equity					820,748				822,463				822,463
Total liabilities and shareholders’ equity				$	2,800,653			$	2,680,512			$	2,680,512

•	Accounts receivable, net, increased $10.0 million at December 31, 2003, primarily from recording an accounts receivable factoring arrangement in one foreign location, previously reported as a sale, as a secured borrowing ($4.5 million), errors in accounting for one long-term contract ($4.0 million), and errors in account reconciliations and other individually insignificant items ($1.5 million).

88

---

Table of Contents

	•	Inventories, net decreased $17.9 million at December 31, 2003, primarily due to errors in the following (in thousands):

Long-term contract accounting		$	(9,507	)
Inventory valuation — obsolete and slow moving			(2,421	)
Inventory valuation — LIFO			(1,947	)
Inventory valuation — lower of cost or market adjustment			(1,211	)
Intercompany reconciliations			(806	)
Other adjustments to correct reconciliation of underlying records			(2,007	)
Total inventories, net		$	(17,899	)

	•	Prepaid expenses and other decreased $6.1 million primarily due to reclassification in tax matters ($6.4 million) partially offset by other reconciling items ($0.3 million).
	•	Current and non-current deferred tax assets decreased $14.5 million and $106.3 million at December 31, 2003, respectively, to correct errors in recording deferred taxes for purchase accounting, the tax effects of restatement errors, and the tax effects of errors in accumulated other comprehensive loss. Non-current deferred tax assets have been primarily restated to properly net assets and liabilities. See also decrease in non-current deferred tax liability.
	•	Property, plant and equipment, net increased $5.1 million at December 31, 2003, to correct the accounting for foreign currency translations relating to the IDP acquisition where fair value was not pushed down to the local entities’ general ledgers, disposals and abandonment of assets, depreciation and amortization due to disposals and excessive amortization periods for leasehold improvements and errors in account reconciliations. These corrections were due to errors in the following (in thousands):

Currency translation impact of push-down accounting		$	11,960
Disposals and abandonments			(7,867	)
Depreciation and amortization			1,052
Total property, plant and equipment, net		$	5,145

	•	Goodwill increased $0.5 million at December 31, 2003, primarily to correct purchase accounting related to the acquisitions of IDP in 2000 and IFC in 2002. These corrections were due to errors in the following (in thousands):

Intercompany reconciliations		$	(7,133	)
Fixed assets			3,133
Deferred income taxes			3,226
Other			1,268
Total goodwill		$	494

	•	Other intangibles, net increased $1.8 million at December 31, 2003, primarily to correct the accounting for purchased intellectual property.
	•	Other assets, net increased $7.3 million at December 31, 2003, to reclassify over-funded pension plans to assets ($11.5 million), partially offset by the write down of the value of equity investments based on GAAP conforming adjustments ($3.6 million) and other reconciling items ($0.6 million).
	•	Accounts payable decreased $8.6 million at December 31, 2003, to record the adjustments resulting from intercompany account reconciliations ($10.1 million) and other reconciling items ($0.2 million) partially offset by an accrual on long-term contract costs ($1.7 million).

89

---

Table of Contents

	•	Accrued liabilities decreased $0.4 million at December 31, 2003, to correct errors in the following (in thousands):

Tax Matters		$	(7,823	)
Intercompany reconciliations			(708	)
Purchased intellectual property			3,542
Unclaimed property			3,227
Financial derivatives			(747	)
Other accruals			2,092
Total accrued liabilities		$	(417	)

	•	Debt due within one year increased $4.5 million at December 31, 2003, to correct the accounts receivable factoring arrangement as a secured borrowing rather than as a sale.
	•	Current and non-current deferred tax liabilities decreased $20.1 million and $101.9 million, respectively, at December 31, 2003, to correct errors in deferred taxes, the tax effects of errors in the restatement and the tax effects of errors in accumulated other comprehensive loss. Non-current deferred tax liabilities have been primarily restated to properly net assets and liabilities. See also decrease in non-current deferred tax assets.
	•	Retirement obligations and other liabilities increased by $4.6 million at December 31, 2003, excluding the decrease of $101.9 million in non-current deferred tax liabilities discussed above, primarily to reclassify over-funded pension plans to other assets, net as described above ($11.5 million) offset by correcting the actuarially determined obligations and accounting for several non-U.S. pension plans in accordance with GAAP and the related liabilities that meet the criteria of a defined benefit plan ($5.8 million) and other reconciling items ($1.1 million).

			2003								2002
			As Previously								As Previously
			Reported				As Restated				Reported				As Restated
							(Amounts in thousands)
Net cash flows provided (used) by:
	Operating activities		$	184,019			$	181,304			$	248,852			$	249,028
	Investing activities			(26,581	)			(26,581	)			(557,222	)			(557,222	)
	Financing activities			(165,767	)			(162,798	)			328,078				327,648
Effect of exchange rate changes on cash				12,606				12,606				8,037				8,037
Net change in cash and cash equivalents				4,277				4,531				27,745				27,491
Cash and cash equivalents at beginning of year				49,245				48,991				21,500				21,500
Cash and cash equivalents at end of year			$	53,522			$	53,522			$	49,245			$	48,991

90

---

Table of Contents

3.	DISCONTINUED OPERATIONS

		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in millions)
Sales		$	21.6			$	24.4			$	25.7
Cost of sales			17.6				19.9				19.6
Selling, general and administrative expense			2.4				2.3				2.8
Earnings before income taxes			1.6				2.2				3.3
Provision for income taxes			0.6				0.8				1.2
Results of discontinued operations, net of tax		$	1.0			$	1.4			$	2.1

		2004
		(Amounts in millions)
Pretax gain from sale of discontinued operations		$	7.4
Provision for income taxes			4.4
Gain on sale of discontinued operations, net of tax		$	3.0

		(As restated)
		(Amounts in millions)
Accounts receivable, net		$	3.9
Inventory, net			5.7
Property, plant and equipment, net			1.6
Goodwill			7.8
Other intangible assets, net			1.4
Total assets		$	20.4
Accounts payable			3.3
Accrued liabilities			2.0
Total liabilities		$	5.3

91

---

Table of Contents

4.	ACQUISITIONS

		2002
		(As restated)
		(Amounts in
		thousands,
		except per
		share amounts)
Net Sales		$	2,385,373
Operating income			182,650
Net earnings			46,903
Net earnings per share — basic			0.90
Net earnings per share — diluted			0.90

92

---

Table of Contents

		(As restated)
		(Amounts in millions)
Current assets		$	168
Non-current assets, excluding goodwill			185
Goodwill(1)			304
Total assets acquired			657
Current liabilities(2)		$	84
Non-current liabilities			34
Total liabilities assumed			118
Net assets acquired		$	539

(1)	Includes $151.2 million that we consider deductible for income tax purposes.
(2)	Represents $90 million of current liabilities reduced by $6.1 million of transaction costs incurred.

5.	GOODWILL AND OTHER INTANGIBLE ASSETS

			December 31, 2004
							Beginning												Ending
			Useful Life				Gross				Change Due				Disposals/				Gross				Accumulated
			(Years)				Amount				to Currency				Impairment				Amount				Amortization
			(Amounts in thousands, except years)
Finite-lived intangible assets:
	Engineering drawings(2)			10-22.5			$	82,383			$	676			$	(1,397	)		$	81,662			$	(18,371	)
	Distribution networks			15				13,700				—				—				13,700				(4,034	)
	Software			10				5,900				—				—				5,900				(2,606	)
	Patents			9.5-15.5				28,396				785				—				29,181				(8,640	)
	Other			3-40				13,532				491				—				14,023				(10,584	)
							$	143,911			$	1,952			$	(1,397	)		$	144,466			$	(44,235	)
Indefinite-lived intangible assets — Trademarks(3)(4)							$	59,173			$	1,061			$	(979	)		$	59,255			$	(1,483	)

93

---

Table of Contents

			December 31, 2003
							Beginning								Purchase				Ending
			Useful Life				Gross				Change Due				Price				Gross				Accumulated
			(Years)				Amount				to Currency				Allocation(1)				Amount				Amortization
			(As restated)
			(Amounts in thousands, except years)
Finite-lived intangible assets:
	Engineering drawings(2)			10-22.5			$	81,010			$	1,373			$	—			$	82,383			$	(13,665	)
	Distribution networks			15				13,700				—				—				13,700				(3,121	)
	Software			10				5,900				—				—				5,900				(2,016	)
	Patents			9.5-15.5				26,871				1,525				—				28,396				(5,520	)
	Other			3-40				13,150				382				—				13,532				(8,195	)
							$	140,631			$	3,280			$	—			$	143,911			$	(32,517	)
Indefinite-lived intangible assets — Trademarks(3)							$	63,258			$	(799	)		$	(3,286	)		$	59,173			$	(1,483	)

(1)	We recorded $3.3 million of adjustments between trademarks and goodwill resulting from refinements in the purchase price allocation for the IFC acquisition during the allocation period of the transaction.
(2)	Engineering drawings represent the estimated fair value associated with specific product and component schematics. These assets have been recognized as a result of our acquisitions of IFC and IDP and were valued based upon independent third party appraisals.
(3)	Accumulated amortization for indefinite-lived intangible assets relates to amounts recorded prior to the implementation date of SFAS No. 142, “Goodwill and Other Intangible Assets”.
(4)	During 2004, we evaluated the fair value of our trademarks and recorded an impairment charge of $979,000 related to one of the trademarks we acquired from IFC. This charge is included in selling, general and administrative expense on the accompanying consolidated statement of operations.

		Amortization
		Expense
		(Amounts in
		thousands)
Actual for year ended December 31, 2004		$	10,691
Estimate for year ending December 31, 2005			9,907
Estimate for year ending December 31, 2006			9,907
Estimate for year ending December 31, 2007			9,140
Estimate for year ending December 31, 2008			8,505
Estimate for year ending December 31, 2009			8,505
Thereafter			54,267

94

---

Table of Contents

		Flowserve				Flow				Flow
		Pump				Solutions				Control				Total
		(Amounts in thousands)
Balance — January 1, 2003 (As restated)		$	470,180			$	29,512			$	326,150			$	825,842
Refinements to IFC purchase price			—				—				31,612				31,612
Resolution of tax contingencies			(1,100	)			—				(1,492	)			(2,592	)
Other			442				—				—				442
Currency translation			4,032				2,754				9,870				16,656
Balance — December 31, 2003 (As restated)		$	473,554			$	32,266			$	366,140			$	871,960
Reduction in restructuring reserves			—				—				(2,272	)			(2,272	)
Resolution of tax contingencies			(7,438	)			—				499				(6,939	)
Sale of GMBU			(7,824	)			—				—				(7,824	)
Other			(204	)			—				760				556
Currency translation			1,808				1,352				6,710				9,870
Balance — December 31, 2004		$	459,896			$	33,618			$	371,837			$	865,351

6.	FACTORING OF ACCOUNTS RECEIVABLE

7.	INVENTORIES

95

---

Table of Contents

			2004				2003
							(As restated)
			(Amounts in thousands)
Raw materials			$	129,472			$	115,695
Work in process				201,368				229,049
Finished goods				223,785				230,234
Less progress billings				(59,048	)			(92,490	)
Less excess and obsolete reserve				(60,829	)			(43,354	)
				434,748				439,134
LIFO reserve				(33,076	)			(26,760	)
Net inventory			$	401,672			$	412,374
Percent of inventory accounted for by:
	LIFO			45	%			50	%
	FIFO			55	%			50	%

8.	RESTRUCTURING AND ACQUISITION RELATED CHARGES

96

---

Table of Contents

							Other
			Severance				Exit Costs				Total
			(Amounts in millions)
Balance created on June 5, 2002			$	6.9			$	4.1			$	11.0
	Additional accruals			6.9				2.7				9.6
	Cash expenditures			(3.1	)			(1.1	)			(4.2	)
Balance at December 31, 2002				10.7				5.7				16.4
	Additional accruals			3.8				0.7				4.5
	Cash expenditures			(8.8	)			(2.8	)			(11.6	)
Balance at December 31, 2003				5.7				3.6				9.3
	Non-cash adjustments			(1.4	)			(0.9	)			(2.3	)
	Cash expenditures			(2.2	)			(1.2	)			(3.4	)
Balance at December 31, 2004			$	2.1			$	1.5			$	3.6

		2003				2002
		(Amounts in millions)
Personnel and related costs		$	7.9			$	8.4
Transfer of product lines			4.6				3.5
Asset impairments			4.2				0.8
Other			3.1				3.5
IFC integration expense		$	19.8			$	16.2
Cash expense		$	15.6			$	15.1
Non-cash expense			4.2				1.1
IFC integration expense		$	19.8			$	16.2

97

---

Table of Contents

9.	STOCK-BASED COMPENSATION PLANS

			2004								2003								2002
							Weighted								Weighted								Weighted
							Average								Average								Average
							Exercise								Exercise								Exercise
			Shares				Price				Shares				Price				Shares				Price
Number of shares under option:
	Outstanding — beginning of year			3,096,317			$	21.72				2,878,251			$	22.41				3,402,318			$	21.86
	Granted			234,520				23.03				403,820				18.98				371,356				25.09
	Exercised			(323,904	)			19.09				(28,500	)			17.39				(739,232	)			20.74
	Cancelled			(186,773	)			24.81				(157,254	)			27.94				(156,191	)			23.64
Outstanding — end of year				2,820,160			$	21.93				3,096,317			$	21.72				2,878,251			$	22.41
Exercisable — end of year				2,269,979			$	21.98				2,184,113			$	22.10				1,791,764			$	22.75

98

---

Table of Contents

						Options Outstanding								Options Exercisable
		Weighted Average								Weighted Average								Weighted Average
Range of Exercise		Remaining				Number				Exercise Price				Number				Exercise Price
Prices per Share		Contractual Life				Outstanding				per Share				Outstanding				per Share
$ 0.00 -  11.82			0.01				1,576			$	1.25				1,576			$	1.25
$11.82 - 15.76			5.98				62,759				13.39				62,759				13.39
$15.76 - 19.70			3.69				1,512,292				18.43				1,285,033				18.30
$19.70 - 23.63			6.00				286,784				22.99				55,264				22.80
$23.63 - 27.57			4.30				658,169				26.06				566,767				26.25
$27.57 - 31.51			2.61				216,300				30.00				216,300				30.00
$31.51 - 35.45			7.30				12,600				32.12				12,600				32.12
$35.45 - 39.39			1.83				69,680				35.88				69,680				35.88
							2,820,160			$	21.93				2,269,979			$	21.98

		2004				2003				2002
Risk-free interest rate			4.8	%			5.1	%			5.2	%
Dividend yield			—				—				—
Stock volatility			44.1	%			46.1	%			45.6	%
Average expected life (years)			6.8				7.5				7.2
Forfeiture rate			9.5	%			8.4	%			7.8	%

99

---

Table of Contents

		Year Ended December 31,
		2004				2003				2002
Shares and units granted during the year			288,447				39,275				31,100
Weighted average grant date fair value per share		$	23.00			$	17.20			$	27.20
Compensation expense, net of forfeitures of previously recognized expense (in thousands)		$	1,821			$	608			$	719
Unexpired shares and units with unmet restrictions at December 31			317,799				94,543				79,232

	(i)	the regular term of options otherwise expiring in 2005 will expire 30 days after the options first become exercisable when our SEC filings have become current and an effective SEC Form S-8 Registration Statement has been filed with the SEC, and

	(ii) the regular term of options otherwise expiring in 2006 will expire on the later of:

	(1) 75 days after the regular term of the option as originally granted expires, or
	(2) December 31, 2006 (assuming the options become exercisable in 2006 for the reasons included in (i) above).

100

---

Table of Contents

10.	DERIVATIVES AND HEDGING ACTIVITIES

101

---

Table of Contents

			Other Comprehensive Income (Expense)
			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands)
Reclassification to earnings for settlements during the year:
	Forward contracts		$	(458	)		$	(24	)		$	(106	)
	Interest rate swap agreements			2,689				3,014				4,336
Change in fair value:
	Forward contracts			(190	)			458				24
	Interest rate swap agreements			(162	)			(1,574	)			(6,603	)
Year ended December 31			$	1,879			$	1,874			$	(2,349	)

			Forward Contracts				Interest Rate Swaps				Total
			(Amounts in millions)
2005			$	(0.1	)		$	(1.3	)		$	(1.4	)
2006				(0.1	)			(0.9	)			(1.0	)
	Total		$	(0.2	)		$	(2.2	)		$	(2.4	)

		December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Trade receivables		$	333,334			$	427,527
Current portion of residual interest on securitized receivables			80,570				—
Other receivables			79,860				97,063
Allowance for doubtful accounts			(8,694	)			(18,641	)
Accounts receivable, net		$	485,070			$	505,949

102

---

Table of Contents

		December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Land		$	67,531			$	63,115
Buildings, improvements, furniture, and fixtures			416,560				392,034
Machinery, equipment, capital leases, and construction in progress			430,338				400,551
Gross property, plant and equipment			914,429				855,700
Less accumulated depreciation			(464,127	)			(411,836	)
Property, plant and equipment, net		$	450,302			$	443,864

		December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Investments in unconsolidated affiliates		$	34,260			$	34,419
Prepaid financing fees			13,163				15,790
Deferred compensation funding			33,516				31,493
Other			19,342				19,640
Other assets, net		$	100,281			$	101,342

		December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Wages, compensation and other benefits		$	148,386			$	99,899
Restructuring costs			3,606				9,320
Interest expense			15,379				14,409
Commissions and royalties			27,879				17,585
Progress billings in excess of accumulated costs			17,363				16,172
Warranty costs			27,683				19,176
Professional services			5,558				5,441
Legal and environmental matters			18,954				27,052
Derivative contracts			2,341				5,017
Income tax			9,336				—
Other			73,040				72,362
Accrued liabilities		$	349,525			$	286,433

103

---

Table of Contents

		December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Retirement obligations		$	291,917			$	275,922
Deferred taxes			23,091				34,474
Deferred compensation			8,579				6,859
Derivative contracts			15,874				—
Other			58,194				52,946
Total		$	397,655			$	370,201

12.	DEBT AND LEASE OBLIGATIONS

			December 31,
			2004				2003
							(As restated)
			(Amounts in thousands)
Term Loan Tranche A:
	U.S. Dollar Tranche, interest rate of 5.02% in 2004 and 3.74% in 2003		$	76,240			$	200,004
	Euro Tranche, interest rate of 4.69% in 2004 and 4.65% in 2003			13,257				12,292
Term Loan Tranche C, interest rate of 5.20% in 2004 and 4.00% in 2003				233,851				465,473
Senior Subordinated Notes net of discount, interest rate of 12.25%:
	U.S. Dollar denominated			187,004				186,739
	Euro denominated			87,484				80,998
EIB loan, interest rate of 2.39%				85,000				—
Receivable securitization and factoring obligations				17,635				4,543
Capital lease obligations and other				1,373				752
Debt and capital lease obligations				701,844				950,801
Less amounts due within one year				44,098				71,035
Total debt due after one year			$	657,746			$	879,766

104

---

Table of Contents

														Securitization,
						Senior Subordinated								Capital Leases
		Term Loans				Notes				EIB Loan				& Other				Total
		(Amounts in thousands)
2005		$	25,990			$	—			$	—			$	18,108			$	44,098
2006			65,208				—				—				530				65,738
2007			34,039				—				—				—				34,039
2008			132,073				—				—				121				132,194
2009			66,038				—				—				249				66,287
Thereafter			—			$	274,488			$	85,000				—				359,488
Total		$	323,348			$	274,488			$	85,000			$	19,008			$	701,844

		2004				2003				2002
		(Amounts in millions)
Scheduled payment		$	27.5			$	0.9			$	33.8
Mandatory repayment			167.9				—				—
Optional prepayment			160.0				163.1				170.0
Loss on debt repayment and extinguishment			2.7				1.3				11.2

105

---

Table of Contents

106

---

Table of Contents

	•	100% of the net cash proceeds of asset sales; and
	•	Unless we attain and maintain investment grade credit ratings:

	•	75% of our excess cash flow, subject to a reduction based on the ratio of our total debt to consolidated EBITDA;
	•	50% of the proceeds of any equity offerings; and
	•	100% of the proceeds of any debt issuances (subject to certain exceptions).

107

---

Table of Contents

108

---

Table of Contents

109

---

Table of Contents

Year Ended December 31,
2005		$	19,367
2006			15,034
2007			9,903
2008			7,535
2009			6,407
Thereafter			16,190
Total minimum lease payments		$	74,436

13.	RETIREMENT AND POSTRETIREMENT BENEFITS

		Year Ended December 31,
		2004				2003				2002
		(Amounts in thousands)
Service cost		$	13,876			$	13,473			$	13,050
Interest cost			15,385				15,802				15,970
Expected return on plan assets			(17,306	)			(17,187	)			(18,874	)
Settlement and curtailment of benefits			609				309				570
Amortization of unrecognized prior service benefit			(1,291	)			(1,296	)			(1,408	)
Amortization of unrecognized net loss			2,493				863				427
U.S. pension expense		$	13,766			$	11,964			$	9,735

110

---

Table of Contents

			Year Ended December 31,
			2004				2003
							(As restated)
			(Amounts in thousands)
Benefit obligations			$	271,208			$	258,137
Plan assets, at fair value				176,573				170,586
	Funded status			(94,635	)			(87,551	)
Unrecognized net loss				96,859				89,575
Unrecognized prior service benefit				(12,276	)			(13,639	)
Intangible asset				(704	)			(780	)
Minimum pension liability				(53,668	)			(48,273	)
Deferred tax asset				(30,071	)			(26,801	)
Net U.S. pension liability			$	(94,495	)		$	(87,469	)

			Year Ended
			December 31,
			2004				2003				2002
Weighted average assumptions used to determine benefit obligations:
	Discount rate			5.75	%			6.25	%			6.75	%
	Rate of increase in compensation levels			4.5				4.5				4.5
Weighted average assumptions used to determine net cost:
	Long-term rate of return on assets			8.75	%			8.75	%			9.0	%
	Discount rate			6.25				6.75				7.0
	Rate of increase in compensation levels			4.5				4.5				4.5

111

---

Table of Contents

		Year Ended December 31,
		2004				2003
		(Amounts in thousands)
Beginning benefit obligations		$	258,137			$	246,715
Service cost			13,876				13,473
Interest cost			15,385				15,802
Curtailment of benefits			—				(995	)
Plan amendments			73				1,235
Actuarial loss			9,006				8,521
Benefits paid			(25,269	)			(26,614	)
Ending benefit obligations		$	271,208			$	258,137
Accumulated benefits obligations		$	271,068			$	258,056

		Year Ended December 31,
		2004				2003
		(Amounts in thousands)
Beginning plan assets		$	170,586			$	141,048
Return on plan assets			15,927				29,161
Company contributions			15,329				26,991
Benefits paid			(25,269	)			(26,614	)
Ending plan assets		$	176,573			$	170,586

Company contributions — 2005			$	43
Benefit payments:
	2005		$	25
	2006			23
	2007			23
	2008			25
	2009			28
	2010-2014			142

112

---

Table of Contents

										Percentage of
										Actual Plan
		Target								Assets at
		Allocation								December 31,
Asset Category		2005				2004				2004				2003
Equity securities			65%				65%				64%				65%
Debt securities			30%				30%				31%				35%
Other			5%				5%				5%				—

		Year Ended December 31,
		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in thousands)
Service cost		$	3,423			$	2,533			$	2,153
Interest cost			8,780				7,709				5,867
Expected return on plan assets			(4,407	)			(3,696	)			(3,958	)
Settlement and curtailment of benefits			—				116				7
Amortization of unrecognized net loss			1,296				1,330				402
Non-U.S. pension expense		$	9,092			$	7,992			$	4,471

113

---

Table of Contents

			Year Ended December 31,
			2004				2003
							(As restated)
			(Amounts in thousands)
Benefit obligations			$	217,538			$	162,150
Plan assets, at fair value				99,728				62,407
	Funded status			(117,810	)			(99,743	)
Unrecognized net loss				35,387				24,222
Minimum pension liability				(8,434	)			(5,618	)
Deferred tax asset				(4,519	)			(2,700	)
Net non-U.S. pension liability			$	(95,376	)		$	(83,839	)

		Year Ended December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Plans with assets in excess of benefit obligations (included in other assets, net)		$	12,363			$	11,470
Plans with benefit obligations in excess of plan assets (included in retirement obligations and other liabilities)			(107,739	)			(95,309	)
Net non-U.S. pension liability		$	(95,376	)		$	(83,839	)

			Year Ended December 31,
			2004				2003(1)				2002(1)
Weighted average assumptions used to determine benefit obligations:
	Discount rate			5.12	%			5.51	%			5.79	%
	Rate of increase in compensation levels			3.04				3.00				3.13
Weighted average assumptions used to determine net cost:
	Long-term rate of return on assets			6.86	%			7.32	%			8.11	%
	Discount rate			5.51				5.79				6.15
	Rate of increase in compensation levels			3.00				3.13				3.08

(1)	The assumptions for non-U.S. plans have been adjusted to reflect weighted average effects of assumptions on plans included in the restatement, which is more fully described in Note 2.

114

---

Table of Contents

		Year Ended December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Beginning benefit obligations		$	162,150			$	134,225
Service cost			3,423				2,533
Interest cost			8,780				7,709
Employee contributions			1,059				749
Acquisitions(1)			19,342				802
Curtailment of benefits			—				(250	)
Actuarial loss			17,737				3,568
Benefits paid			(9,287	)			(9,336	)
Currency exchange impact			14,334				22,150
Ending benefit obligations		$	217,538			$	162,150
Accumulated benefits obligations		$	202,494			$	152,424

(1)	Acquisitions represent obligations for transfers of former IFC employees into Flowserve plans, which formally occurred during 2004.

		Year Ended December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Beginning plan assets		$	62,407			$	51,557
Return on plan assets			7,982				4,647
Employee contributions			1,059				749
Company contributions			8,051				7,705
Currency exchange impact			6,623				7,085
Acquisitions(1)			22,893				—
Benefits paid			(9,287	)			(9,336	)
Ending plan assets		$	99,728			$	62,407

(1)	Acquisitions represent obligations for transfers of former IFC employees into Flowserve plans, which formally occurred during 2004.

115

---

Table of Contents

Company contributions — 2005			$	9
Benefit payments:
	2005		$	8
	2006			8
	2007			8
	2008			9
	2009			9
	2010-2014			44

		Percentage
		of Plan
		Assets at
		December 31
Asset Category		2004				2003
Equity securities			45%				52%
Debt securities			42%				48%
Other			13%				—

		Year Ended December 31,
		2004				2003
						(As restated)
		(Amounts in thousands)
Projected benefit obligation		$	393,758			$	368,109
Accumulated benefit obligation			387,634				363,275
Fair value of plan assets			188,340				184,062

116

---

Table of Contents

		Year Ended December 31,
		2004				2003				2002
		(Amounts in thousands)
Service cost		$	183			$	199			$	292
Interest cost			5,331				5,838				6,839
Amortization of unrecognized prior service benefit			(3,149	)			(3,275	)			(2,685	)
Amortization of net loss			1,460				1,379				1,065
Postretirement benefit expense		$	3,825			$	4,141			$	5,511

		Year Ended
		December 31,
		2004				2003
		(Amounts in
		thousands)
Beginning accumulated postretirement benefit obligations		$	92,227			$	91,670
Service cost			183				199
Interest cost			5,331				5,838
Curtailment			—				(383	)
Actuarial (gain) loss			(413	)			3,162
Net benefits paid			(8,597	)			(8,259	)
Ending accumulated postretirement benefit obligations		$	88,731			$	92,227

		2004				2003
		(Amounts in thousands)
Postretirement benefit obligations		$	88,731			$	92,227
Funded status		$	(88,731	)		$	(92,227	)
Unrecognized prior service benefit			(16,848	)			(19,997	)
Unrecognized net loss			20,905				22,778
Accrued postretirement benefits		$	(84,674	)		$	(89,446	)

117

---

Table of Contents

		Expected				Medicare
		Cash Flows				Subsidy
		(Amounts in thousands)
2005		$	8,788			$	0
2006			9,233				431
2007			9,141				425
2008			8,982				417
2009			8,657				402
2010-2014			38,911				1,800

			2004				2003				2002
Weighted average assumptions used to determine benefit obligations — discount rate				5.75	%			6.25	%			6.75	%
Weighted average assumptions used to determine net cost:
	Discount rate			6.25	%			6.75	%			7.00	%
	Expected return on plan assets			—				—				—

		1% Increase				1% Decrease
		(Amounts in thousands)
Effect on postretirement benefit obligation		$	5,258			$	(4,438	)
Effect on service cost plus interest cost			296				(250	)

14.	LEGAL MATTERS AND CONTINGENCIES

118

---

Table of Contents

119

---

Table of Contents

120

---

Table of Contents

15.	WARRANTY RESERVE

			2004				2003				2002
							(As restated)				(As restated)
			(Amounts in thousands)
Balance — January 1			$	19,233			$	15,899			$	13,754
	Accruals for warranty expense			32,487				27,409				21,266
	Settlements made			(23,974	)			(24,075	)			(19,121	)
Balance — December 31			$	27,746			$	19,233			$	15,899

16.	SHAREHOLDERS’ EQUITY

17.	INCOME TAXES

				Year Ended December 31,
				2004				2003				2002
								(As restated)				(As restated)
				(Amounts in thousands)
Current:
	U.S. federal			$	586			$	(8,808	)		$	(10,109	)
	Non-U.S.				53,117				29,536				22,443
	State and local				(2,379	)			857				368
		Total current			51,324				21,585				12,702
Deferred:
	U.S. federal				2,047				1,342				8,384
	Non-U.S.				(13,450	)			(9,796	)			8,050
	State and local				(451	)			(342	)			533
		Total deferred		$	(11,854	)		$	(8,796	)		$	16,967
Total provision				$	39,470			$	12,789			$	29,669

121

---

Table of Contents

		Year Ended December 31,
		2004				2003				2002
						(As restated)				(As restated)
Statutory federal income tax at 35%		$	20.9			$	19.5			$	21.8
Foreign impact, net			23.3				2.2				9.2
Change in valuation allowances			(0.3	)			(5.5	)			1.0
State and local income taxes, net			(2.0	)			0.2				0.8
Extraterritorial income exclusion			(4.9	)			(2.5	)			(4.7	)
Meals and entertainment			0.9				1.0				0.8
Other			1.6				(2.1	)			0.8
Total		$	39.5			$	12.8			$	29.7
Effective tax rate			66.2	%			22.9	%			47.6	%

122

---

Table of Contents

				December 31,
				2004				2003
				(As restated)
				(Amounts in thousands)
Deferred tax assets related to:
	Retirement benefits			$	78,869			$	73,495
	Net operating loss carryforwards				43,081				39,076
	Compensation accruals				35,157				23,420
	Inventories				26,351				13,504
	Credit carryforwards				16,660				24,945
	Loss on dispositions				475				4,708
	Warranty and accrued liabilities				28,288				28,883
	Restructuring charge				23				1,449
	Other				14,488				6,258
		Total deferred tax assets			243,392				215,738
Valuation allowances					(34,208	)			(30,330	)
Net deferred tax assets					209,184				185,408

123

---

Table of Contents

				December 31,
				2004				2003
				(As restated)
				(Amounts in thousands)
Deferred tax liabilities related to:
	Property, plant and equipment				(49,732	)			(53,661	)
	Goodwill and Intangibles				(39,653	)			(32,505	)
	Unrealized foreign exchange gain				(33,717	)			(22,517	)
	Foreign losses subject to recapture				(10,699	)			(11,562	)
	Foreign equity investments				(6,819	)			(3,311	)
		Total deferred tax liabilities			(140,620	)			(123,556	)
Deferred tax assets, net				$	68,564			$	61,852

		Year Ended December 31,
		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in thousands)
U.S.		$	(40,363	)		$	(1,451	)		$	(19,308	)
Non-U.S.			99,987				57,348				81,673
Total		$	59,624			$	55,897			$	62,365

18.	BUSINESS SEGMENT INFORMATION

	•	Flowserve Pump Division;
	•	Flow Solutions Division; and
	•	Flow Control Division.

124

---

Table of Contents

														Subtotal-
		Flowserve				Flow				Flow				Reportable								Consolidated
		Pump				Solutions				Control				Segments				All Other				Total
		(Amounts in thousands)
Year ended December 31, 2004:
Sales to external customers		$	1,323,399			$	360,333			$	949,157			$	2,632,889			$	5,310			$	2,638,199
Intersegment sales			6,393				33,648				5,295				45,336				(45,336	)			—
Segment operating income(1)			110,113				72,573				59,590				242,276				(86,495	)			155,781
Depreciation and amortization			31,703				5,910				31,062				68,675				4,481				73,156
Identifiable assets			1,365,416				172,089				1,001,847				2,539,352				94,684				2,634,036
Capital expenditures			18,815				3,581				14,298				36,694				8,547				45,241

														Subtotal-
		Flowserve				Flow				Flow				Reportable								Consolidated
		Pump				Solutions				Control				Segments				All Other				Total
		(Amounts in thousands)
Year ended December 31, 2003: (As restated)
Sales to external customers		$	1,159,108			$	333,441			$	874,055			$	2,366,604			$	5,955			$	2,372,559
Intersegment sales			5,531				24,239				7,380				37,150				(37,150	)			—
Segment operating income (before special items)(2)			85,898				73,901				61,091				220,890				(56,324	)			164,566
Depreciation and amortization			30,469				6,662				29,029				66,160				6,008				72,168
Identifiable assets			1,319,510				169,555				1,014,133				2,503,198				177,314				2,680,512
Capital expenditures			10,350				3,724				11,814				25,888				2,900				28,788

125

---

Table of Contents

														Subtotal-
		Flowserve				Flow				Flow				Reportable								Consolidated
		Pump				Solutions				Control				Segments				All Other				Total
		(Amounts in thousands)
Year ended December 31, 2002: (As restated)
Sales to external customers		$	1,176,098			$	325,381			$	720,216			$	2,221,695			$	6,341			$	2,228,036
Intersegment sales			5,394				23,264				7,247				35,905				(35,905	)			—
Segment operating income (before special items)(3)			121,254				64,641				42,241				228,136				(34,781	)			193,355
Depreciation and amortization			29,562				7,150				22,357				59,069				5,406				64,475
Identifiable assets			1,322,805				172,708				976,105				2,471,618				168,255				2,639,873
Capital expenditures			12,166				3,044				11,105				26,315				4,560				30,875

(1)	There were no special items in 2004.
(2)	Special items reflect costs incurred by Flow Control Division in association with the IFC acquisition including integration expense of $19.8 million and restructuring expense of $2.9 million.
(3)	Special items reflect costs incurred by Flow Control Division in association with the IFC acquisition including a $5.2 million negative purchase accounting adjustment associated with the required write-up and sale of inventory (recorded as a cost of sales), integration expense of $16.2 million and restructuring expense of $4.3 million.

			Year Ended December 31,
			2004				2003				2002
							(As restated)				(As restated)
			Profit
			(Amounts in thousands)
Total segment operating income (before special items)			$	155,781			$	164,566			$	193,355
Net interest expense				79,074				80,128				92,932
Other expense, net				14,375				4,548				1,055
Loss on debt repayment and extinguishment				2,708				1,346				11,237
Special items:
	Purchase accounting adjustment associated with the required write-up of inventory			—				—				5,240
	Integration expense			—				19,768				16,179
	Restructuring expense			—				2,879				4,347
				96,157				108,669				130,990
Earnings before income taxes			$	59,624			$	55,897			$	62,365

126

---

Table of Contents

		Year Ended December 31, 2004
										Long-Lived
		Sales				Percentage				Assets				Percentage
		(Amounts in thousands)
United States		$	1,122,063				42.6	%		$	1,037,394				65.9	%
Europe			1,151,561				43.6	%			454,043				28.9	%
Other(1)			364,575				13.8	%			82,500				5.2	%
Consolidated total		$	2,638,199				100.0	%		$	1,573,937				100.0	%

		Year Ended December 31, 2003
										Long-Lived
		Sales				Percentage				Assets				Percentage
		(As restated)
		(Amounts in thousands)
United States		$	1,092,922				46.0	%		$	1,078,881				68.0	%
Europe			995,688				42.0	%			438,872				27.7	%
Other(1)			283,949				12.0	%			68,497				4.3	%
Consolidated total		$	2,372,559				100.0	%		$	1,586,250				100.0	%

		Year Ended December 31, 2002
										Long-Lived
		Sales				Percentage				Assets				Percentage
		(As restated)
		(Amounts in thousands)
United States		$	1,146,031				51.5	%		$	1,081,212				70.0	%
Europe			789,668				35.4	%			398,914				25.8	%
Other(1)			292,337				13.1	%			64,747				4.2	%
Consolidated total		$	2,228,036				100.0	%		$	1,544,873				100.0	%

(1)	Includes Canada, South America and Asia Pacific. No individual geographic segment within this group represents 10% or more of consolidated totals.
(2)	Net sales to international customers, including export sales from the United States, represented 63%, 60% and 55% in 2004, 2003 and 2002, respectively.

127

---

Table of Contents

19.	ACCUMULATED OTHER COMPREHENSIVE LOSS

		Year Ended December 31,
		2004				2003				2002
						(As restated)				(As restated)
		(Amounts in thousands)
Foreign currency translation adjustments		$	(2,384	)		$	(23,798	)		$	(81,715	)
Minimum pension liability effects			(62,102	)			(53,891	)			(62,388	)
Cash flow hedging activity			(2,428	)			(4,307	)			(6,181	)
Accumulated other comprehensive loss		$	(66,914	)		$	(81,996	)		$	(150,284	)

		Year Ended December 31, 2004
		Before-Tax								After-Tax
		Amount				Income Tax				Amount
		(Amounts in thousands)
Foreign currency translation adjustments		$	27,320			$	(5,906	)		$	21,414
Minimum pension liability effects			(13,300	)			5,089				(8,211	)
Cash flow hedging activity			2,431				(552	)			1,879
Other comprehensive income (expense)		$	16,451			$	(1,369	)		$	15,082

		Year Ended December 31, 2003
		Before-Tax								After-Tax
		Amount				Income Tax				Amount
		(Amounts in thousands)
Foreign currency translation adjustments		$	74,534			$	(16,617	)		$	57,917
Minimum pension liability effects			12,146				(3,649	)			8,497
Cash flow hedging activity			3,044				(1,170	)			1,874
Other comprehensive income (expense)		$	89,724			$	(21,436	)		$	68,288

		Year Ended December 31, 2002
		Before-Tax								After-Tax
		Amount				Income Tax				Amount
		(Amounts in thousands)
Foreign currency translation adjustments		$	53,158			$	(16,640	)		$	36,518
Minimum pension liability effects			(68,863	)			23,717				(45,146	)
Cash flow hedging activity			(3,595	)			1,246				(2,349	)
Other comprehensive income (expense)		$	(19,300	)		$	8,323			$	(10,977	)

128

---

Table of Contents

20.	QUARTERLY FINANCIAL DATA (UNAUDITED)

			2004
Quarter			4th				3rd				2nd				1st
																							As Restated with
															As Previously								Discontinued
															Reported				As Restated				Operations
			(Amounts in millions, except per share data)
Sales			$	732.5			$	652.1			$	648.5			$	611.4			$	610.8			$	605.1
Gross profit				208.4				193.8				197.7				178.1				179.8				178.9
Earnings before income taxes				7.1				15.9				21.4				16.4				15.3				15.2
Income from continuing operations				1.3				6.0				5.8				—				—				7.1
Income from discontinued operations				2.6				0.6				0.7				—				—				0.1
Net earnings			$	3.9			$	6.6			$	6.5			$	10.3			$	7.2			$	7.2
Earnings per share (basic)
	Continuing operations		$	0.02			$	0.11			$	0.11				—				—			$	0.13
	Discontinued operations			0.05				0.01				0.01				—				—				—
	Net earnings		$	0.07			$	0.12			$	0.12			$	0.19			$	0.13			$	0.13
Earnings per share (diluted)
	Continuing operations		$	0.02			$	0.11			$	0.10				—				—			$	0.13
	Discontinued operations			0.05				0.01				0.01				—				—				—
	Net earnings		$	0.07			$	0.12			$	0.11			$	0.19			$	0.13			$	0.13

			2003
Quarter			4th												3rd												2nd												1st
											As Restated												As Restated												As Restated												As Restated
			As								with				As								with				As								with				As								with
			Previously				As				Discontinued				Previously				As				Discontinued				Previously				As				Discontinued				Previously				As				Discontinued
			Reported				Restated				Operations				Reported				Restated				Operations				Reported				Restated				Operations				Reported				Restated				Operations
			(Amounts in millions, except per share data)
Sales			$	660.1			$	658.6			$	651.2			$	565.6			$	561.8			$	556.0			$	614.4			$	614.3			$	608.2			$	564.3			$	562.3			$	557.2
Gross profit				199.4				190.3				188.0				172.7				168.7				168.6				181.8				182.4				181.4				168.6				168.5				167.4
Earnings before income taxes				22.7				13.7				11.9				16.3				11.7				12.1				23.4				23.3				22.9				11.4				9.4				9.0
Income from continuing operations				—				—				13.5				—				—				10.1				—				—				14.4				—				—				5.1
Income from discontinued operations				—				—				1.0				—				—				(0.4	)			—				—				0.4				—				—				0.4
Net earnings			$	15.9			$	14.5			$	14.5			$	14.2			$	9.7			$	9.7			$	15.3			$	14.8			$	14.8			$	7.5			$	5.5			$	5.5
Earnings per share (basic)
	Continuing operations			—				—			$	0.25				—				—			$	0.19				—				—			$	0.26				—				—			$	0.09
	Discontinued operations			—				—				0.01				—				—				(0.01	)			—				—				0.01				—				—				0.01
	Net earnings		$	0.29			$	0.26			$	0.26			$	0.26			$	0.18			$	0.18			$	0.28			$	0.27			$	0.27			$	0.14			$	0.10			$	0.10
Earnings per share (diluted)
	Continuing operations			—				—			$	0.24				—				—			$	0.19				—				—			$	0.26				—				—			$	0.09
	Discontinued operations			—				—				0.01				—				—				(0.01	)			—				—				0.01				—				—				0.01
	Net earnings		$	0.29			$	0.25			$	0.25			$	0.26			$	0.18			$	0.18			$	0.28			$	0.27			$	0.27			$	0.14			$	0.10			$	0.10

129

---

Table of Contents

21.	SUBSEQUENT EVENTS

130

---

Table of Contents

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

	(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
	(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
	(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

131

---

Table of Contents

	(1) We did not maintain an effective control environment because of the following material weaknesses:

	(a) We did not effectively communicate the importance of controls throughout our Company or set an adequate tone around control consciousness.
	(b) We did not maintain a sufficient complement of personnel with an appropriate level of accounting and tax knowledge, experience and training in the application of GAAP commensurate with our financial reporting requirements.
	(c) We failed to implement adequate assignment of authority and responsibility and the necessary lines of communication between operations and accounting and financial staff and personnel. Specifically, there was inadequate sharing of financial information within and across our corporate and divisional offices and other operating facilities to adequately raise issues to the appropriate level of accounting and financial reporting personnel.
	(d) We did not maintain an effective anti-fraud program designed to detect and prevent fraud relating to (i) an effective whistle-blower program, (ii) consistent background checks of personnel in positions of responsibility, and (iii) an ongoing program to manage identified fraud risks.
	(e) We did not maintain an adequate level of control consciousness as it relates to the establishment and update of our policies and procedures with respect to the primary components of information technology general controls. This resulted in either not having adequate controls designed and in place or not achieving operating effectiveness over controls in systems development, software change management, computer operations and security, which we refer to as “information technology general controls”. This contributed to the material weakness discussed in item 4 below.

	(2) We did not maintain effective monitoring controls to determine the adequacy of our internal control over financial reporting and related policies and procedures because of the following material weaknesses:

	(a) Our policies and procedures with respect to the review, supervision and monitoring of our accounting operations throughout the organization were either not designed and in place or not operating effectively.
	(b) We did not maintain an effective internal audit function. Specifically, there was an insufficient complement of personnel with an appropriate level of experience, training and lines of reporting to allow internal audit to function effectively in determining the adequacy of our internal control over financial reporting and monitoring the ongoing effectiveness thereof.

132

---

Table of Contents

	(3) We did not maintain effective controls over certain of our period-end financial close and reporting processes. Specifically, we did not maintain effective controls over the preparation and review of the interim and annual consolidated financial statements, which resulted in the following material weaknesses.

	(a) We did not maintain effective controls over the period-end consolidation process. Specifically, we did not maintain effective controls to ensure that we identified and accumulated all required supporting information to ensure the completeness and accuracy of the consolidated financial statements and that balances and disclosures reported in the consolidated financial statements reconciled to the underlying supporting schedules and accounting records. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in our annual 2002 consolidated financial statements, our interim and annual 2003 consolidated financial statements and our interim consolidated financial statements for the first quarter of 2004 which have been corrected in the restatement of our consolidated financial statements for each of these periods (the restatement of our annual 2002, our annual and interim 2003 and our 2004 first quarter consolidated financial statements is collectively referred to as the “2004 Restatement”) and (ii) adjustments, including audit adjustments, to our 2004 annual and second, third and fourth quarters consolidated financial statements (collectively referred to as the “2004 Adjustments”).
	(b) We did not maintain effective controls over the translation of our subsidiary financial statements denominated in currencies other than U.S. dollars. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.

	(4) We did not maintain effective segregation of duties over automated and manual transaction processes. Specifically, we did not maintain effective controls over the granting, maintenance and monitoring of access to financial systems and data. Certain information technology personnel had unrestricted access to financial applications, programs and data beyond that needed to perform their individual job responsibilities and without any independent monitoring. In addition, certain financial personnel in our purchasing, payables, production and inventory control departments had incompatible duties that allowed for the creation, review and processing of certain financial data without independent review and authorization. This control deficiency affects substantially all financial statement accounts. This control deficiency did not result in adjustments to our consolidated financial statements.
	(5) We did not maintain effective controls over the preparation, review and approval of account reconciliations. Specifically, we did not have effective controls over the completeness and accuracy of supporting schedules for substantially all financial statement account reconciliations. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(6) We did not maintain effective controls over the complete and accurate recording and monitoring of intercompany accounts. Specifically, effective controls were not designed and in place to ensure that intercompany balances were completely and accurately classified and reported in our underlying accounting records and to ensure proper elimination as part of the consolidation process. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(7) We did not maintain effective controls over the recording of journal entries, both recurring and non-recurring. Specifically, effective controls were not designed and in place to ensure that journal entries were properly prepared with sufficient support or documentation or were reviewed and approved to ensure the accuracy and completeness of the journal entries recorded. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.

133

---

Table of Contents

	(8) We did not maintain effective controls over the existence, completeness and accuracy of fixed assets and related depreciation and amortization expense. Specifically, effective controls were not designed and in place for the periodic physical verification of fixed assets and the selection of appropriate useful lives for plant and equipment and amortization periods for leasehold improvements. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(9) We did not maintain effective controls over the completeness and accuracy of revenue, deferred revenue, accounts receivable and accrued liabilities. Specifically, we failed to recognize revenue using the percentage-of-completion method for certain long-term contracts in accordance with GAAP. Also, effective controls were not designed and in place to ensure that sales orders were authorized, complete, accurate and recorded on a timely basis. Furthermore, review and approval procedures were not effective to ensure that invoices or customer credit and credit memoranda adjustments were completely, timely and accurately applied to customer receivable accounts and that unapplied cash receipts were properly identified as unclaimed third party property. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(10) We did not maintain effective controls over the completeness, accuracy, valuation and existence of our inventory and related cost of sales accounts. Specifically, our controls with respect to the accuracy of product costing, job order closeout, accounting for cost accumulation on long-term contracts and certain inventory management processes, including obsolete and slow-moving inventory identification, lower-of-cost-or-market and LIFO inventory valuation were not effective. Also, we did not maintain effective controls over the accurate and timely recording of inventory receipts and shipments. Furthermore, we did not maintain effective controls over the accuracy and completeness of periodic physical counts of our inventory quantities. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(11) We did not maintain effective controls over the completeness and accuracy of our reporting of certain non-U.S. pension plans. Specifically, we failed to obtain actuarial valuations for certain of our non-U.S. pension plans to ensure that we properly accounted for and reported pension expense and related obligations for certain non-U.S. pension plans in accordance with GAAP. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(12) We did not maintain effective controls over the complete and accurate recording of rights and obligations associated with our accounts receivable factoring and securitization transactions. Specifically, effective controls were not designed and in place to ensure that the gain and loss on each receivable sale, the receivable balance and the associated accretion of interest, and recording of fees associated with the securitization facility were accurate and complete. This control deficiency primarily affected accounts receivable, debt due within one year, and interest expense, net. This control deficiency resulted in (i) misstatements in our fourth quarter and annual consolidated financial statements for 2003 which have been corrected in the restatement of our consolidated financial statements for each of these periods and (ii) adjustments, including audit adjustments, to our fourth quarter and annual consolidated financial statements for 2004.
	(13) We did not maintain effective controls over accounting for certain derivative transactions. Specifically, we did not adequately document the criteria for measuring hedge effectiveness at the inception of certain derivative transactions and did not subsequently evaluate and document the ongoing effectiveness of certain foreign currency forward contracts in order to qualify for hedge accounting treatment. This control deficiency affected accounts receivable, long-term debt, other expense, other comprehensive income and accumulated other comprehensive income. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.

134

---

Table of Contents

	(14) We did not maintain effective controls over the accounting for equity investments. Specifically, we did not maintain effective controls with respect to adjusting for differences between GAAP and the accounting standards used in certain foreign countries. This control deficiency affected other assets, net and selling, general and administrative expense This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(15) We did not maintain effective controls over our accounting for income taxes, including income taxes payable, deferred income tax assets and liabilities and the related income tax provision. Specifically, we did not maintain effective controls over the accuracy and completeness of the components of the income tax provision calculations and related deferred income taxes and income taxes payable, and over the monitoring of the differences between the income tax basis and the financial reporting basis of assets and liabilities to effectively reconcile the differences to the reported deferred income tax balances. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(16) We did not maintain effective controls over our accounting for mergers and acquisitions. Specifically, the controls with respect to the application of purchase accounting, including the establishment of deferred taxes, were ineffective and resulted in errors in the allocation of the purchase price to the underlying assets acquired, including goodwill, and liabilities assumed. This primarily affected property, plant and equipment, deferred income tax assets and liabilities, goodwill and long-term liabilities. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(17) We did not maintain effective controls over the completeness and accuracy of certain accrued liabilities and the related operating expense accounts. Specifically, effective controls were not designed and in place to ensure the completeness, accuracy and timeliness of the recording of accrued liabilities and related expenses at period end. This control deficiency primarily affected our accrued warranty obligations, non-U.S. litigation contingencies, sales tax liabilities, self-insurance reserves, liabilities for goods received not invoiced, and related operating expenses. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(18) We did not maintain effective controls over the completeness, accuracy and validity of payroll and accounts payable disbursements to ensure that they were adequately reviewed and approved prior to being recorded and reported. This control deficiency primarily affected our accounts payable and accrued liabilities. This control deficiency did not result in any adjustments to our consolidated financial statements.
	(19) We did not maintain effective controls over the completeness, accuracy and validity of spreadsheets used in our financial reporting process to ensure that access was restricted to appropriate personnel, and that unauthorized modification of the data or formulas within spreadsheets was prevented. This control deficiency affects substantially all financial statement accounts and resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.
	(20) We did not maintain effective controls over the accuracy, valuation and disclosure of our goodwill and intangible asset accounts and the related amortization and impairment expense accounts. Specifically, effective controls were not designed and in place to ensure that an adequate periodic impairment analysis was conducted, reviewed, and approved in order to identify and record impairments as required under GAAP and that periodic amortization expense was accurately and completely recorded and reported. This control deficiency resulted in (i) misstatements in our consolidated financial statements which have been corrected in the 2004 Restatement and (ii) the 2004 Adjustments.

135

---

Table of Contents

	•	appointed a Chief Compliance Officer;
	•	expanded and strengthened our internal audit organization, which now reports directly to our audit committee, by hiring additional senior audit staff as well as increasing the number of external consultants engaged by our internal audit organization;
	•	expanded our accounting policy and controls organization by creating and filling new positions with qualified accounting and finance personnel, including the director of accounting policy and controls, director of financial reporting and corporate accounting, director of company level, corporate and antifraud controls and director of site controls;
	•	redefined certain job requirements for our finance employees and established a team, led by a newly hired senior manager, focused on developing and implementing improvements in our finance function;
	•	re-staffed our senior tax positions and expanded our tax compliance and audit staff, including creating and filling the position of a European tax director;
	•	centralized our information technology management structure to provide more effective monitoring and control capabilities for information technology general controls over financial reporting as such controls relate to database, security, application and infrastructure change management; and
	•	initiated a rotation program designed to increase cross-border skills of our accounting personnel and communication within our global accounting organizations through rotation of our U.S. manager level finance personnel in our foreign locations and our foreign manager level finance personnel in the U.S.

	•	enhanced our GAAP review and application procedures, pursuant to which our corporate accounting policy and controls organization (i) periodically reviews our accounting policies, (ii) where appropriate, makes enhancements to our accounting policies and improves or formalizes documentation of such

136

---

Table of Contents

		policies, and (iii) communicates our accounting policies to our financial and accounting personnel on a company-wide basis;
	•	created a centrally managed Internal Control Financial Review Program that encompasses analytical reviews, internal control questionnaires, antifraud matrices and site visits by key finance management and internal audit personnel across multiple locations;
	•	improved communication and disclosure procedures by (i) instituting monthly global conference calls held by our Chief Accounting Officer to communicate current transactions, events and trends to corporate, division and site finance managers, (ii) conducting global accounting conferences and training, and discussions of policy and procedures, revenue recognition and the Sarbanes-Oxley Act requirements, (iii) expanding our financial statement review and certification process for our annual and quarterly reports filed with the SEC, and (iv) enhancing the features of our site-level financial disclosure checklist and automating the checklist response tracking;
	•	enhanced policies and procedures designed to detect and prevent fraud, including ethics programs initiated under the guidance of our Ethics and Compliance Committee; and
	•	addressed key financial control activities where segregation of duty issues were identified.

	•	enhanced our policies, procedures and communication of the importance of control consciousness around general computer and application controls, including data retention and documentation of data and system changes;
	•	centralized network access and security and enhanced intrusion detection and virus and spam safeguards of our firewalls;
	•	centralized and upgraded our Local Area Network management;
	•	migrated additional Information Technology operations to our data centers to streamline Information Technology management of our application systems;
	•	completed the first phase of a multi-site implementation of a new financial control and reporting system in Latin America;
	•	migrated four of our locations with aging Enterprise Resource Planning (“ERP”) systems to systems with stronger internal controls; and
	•	implemented enhancements to our access control password mechanisms, including stronger password parameters and employee status reviews.

137

---

Table of Contents

ITEM 9B.	OTHER INFORMATION

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND OTHER CORPORATE OFFICERS OF THE REGISTRANT

Name		Age				Position
Andrew J. Beall			48			Vice President and President of Flow Solutions Division
Deborah K. Bethune			47			Vice President, Tax
Mark A. Blinn			44			Vice President and Chief Financial Officer
Mark D. Dailey			47			Vice President and Chief Compliance Officer
Paul W. Fehlman			42			Vice President and Corporate Treasurer
Thomas E. Ferguson			49			Vice President and President of Flowserve Pump Division
Richard J. Guiltinan, Jr.			51			Vice President, Controller and Chief Accounting Officer
John H. Jacko, Jr.			48			Vice President, Marketing and Communications
Linda P. Jojo			40			Vice President and Chief Information Officer
Lewis M. Kling			60			President, Chief Executive Officer and Director
Thomas L. Pajonas			50			Vice President and President of Flow Control Division
Joseph R. Pinkston, III			51			Vice President, Human Resources
Jerry Rockstroh			50			Vice President, Supply Chain and Continuous Improvement Process

138

---

Table of Contents

Name		Age				Position
Ronald F. Shuff			53			Vice President, Secretary and General Counsel
Christopher A. Bartlett			62			Director
Hugh K. Coble			71			Director
Diane C. Harris			63			Director
George T. Haymaker, Jr.			68			Director
Michael F. Johnston			58			Director
Charles M. Rampacek			62			Director
James O. Rollans			63			Director
William C. Rusnack			61			Director
Kevin E. Sheehan			60			Director

139

---

Table of Contents

140

---

Table of Contents

141

---

Table of Contents

142

---

Table of Contents

ITEM 11.	EXECUTIVE COMPENSATION

																			Long-Term Compensation(1)
																			Awards								Payouts
							Annual Compensation(1)
																			Restricted				Securities
															Other Annual				Stock				Underlying				LTIP				All Other
							Salary				Bonus				Compensation				Award(s)				Options				Payouts				Compensation
Name and Principal Position			Year				($)				($)				($)(2)				($)(3)				(#)				($)				($)(4)(5)
Beall, Andrew J.				2004				234,923				212,800				—				171,750				7,500				—				8,420
	Vice President and			2003				192,934				—				13,667				—				9,000				—				787
	President of Flow			2002				—				—				—				—				—				—				—
	Solutions Division(6)
Ferguson, Thomas E.				2004				319,615				256,880				—				164,880				9,000				—				9,510
	Vice President and			2003				296,692				—				—				287,250				15,000				—				6,440
	President of Flowserve			2002				232,542				103,616				—				—				3,200				—				6,361
	Pump Division
Greer, C. Scott				2004				787,670				917,700				4,925				732,800				54,000				—				72,347
	Former Chairman of			2003				776,901				—				7,727				—				55,000				—				3,570
	the Board, President			2002				710,439				114,000				11,590				—				55,000				—				3,330
	and Chief Executive
	Officer(7)
Hornbaker, Renée J.				2004				209,658				—				—				—				—				—				636,915
	Former Vice			2003				345,538				—				—				—				11,000				—				7,545
	President and Chief			2002				317,769				76,000				—				—				11,000				—				7,497
	Financial Officer(8)
Kling, Lewis M				2004				238,462				371,469				6,316				1,070,420				75,000				—				5,816
	President and Chief			2003				—				—				—				—				—				—				—
	Executive Officer(9)			2002				—				—				—				—				—				—				—
Shuff, Ronald F.				2004				289,770				194,684				—				114,500				8,500				—				9,516
	Vice President,			2003				277,692				—				—				—				9,000				—				6,413
	Secretary and			2002				262,477				52,000				—				—				9,000				—				6,492
	General Counsel

(1)	Salary, annual bonus and long-term payouts may be deferred at the election of the named executive officer until retirement. Annual bonus and long-term payouts may also be received in the form of Company stock held in a Rabbi Trust.

143

---

Table of Contents

(2)	Amounts shown include tax adjustment payments on relocation allowances for Mr. Kling, tax adjustment payments on the forgiveness of loans for Mr. Greer and the imputed interest income thereon (see footnote 5 below) and tax adjustment payments for Mr. Beall’s service in Mexico prior to becoming Vice President and President of Flow Solutions Division. The only other type of Other Annual Compensation was in the form of perquisites. The cost incurred by the Company during the presented years for various perquisites provided to each of the Named Executive Officers is not included as Other Annual Compensation, because the amount did not exceed the lesser of $50,000 or 10% of such executive officer’s salary and bonus of any of the years.
(3)	On July 9, 2004, Mr. Kling was granted an award of 46,000 shares of our restricted stock, of which 40,000 shares of restricted stock will vest on July 9, 2007 and the remaining 6,000 shares will vest in three equal annual installments on July 9, 2005, July 9, 2006 and July 9, 2007, respectively. Additionally, on July 15, 2004, the following awards of our restricted stock were granted: Mr. Beall — 7,500 shares; Mr. Ferguson — 7,200 shares; Mr. Greer — 32,000 shares; and Mr. Shuff — 5,000 shares. The shares of restricted stock granted on July 15, 2004 vest in three equal one-third increments for each Named Executive Officer commencing on July 15, 2005, except that one-third of Mr. Greer’s shares became fully vested on June 30, 2005 and the remaining two-thirds of Mr. Greer’s shares were forfeited pursuant to the terms of a Separation and Release Agreement entered into between Mr. Greer and the Company. See “Employment and Change in Control Arrangements” below. The value of such shares shown is based on the closing price of the common stock of the Company on the date of grant. The total number of shares of unvested restricted stock held as of December 31, 2004 and the value of such shares based on the closing price of the common stock of the Company at December 31, 2004 of $27.54 is set forth below:

		Number of
		Shares				Value
Beall, Andrew J.			7,500			$	206,550
Ferguson, Thomas E.			22,200			$	611,388
Greer, C. Scott(a)			32,000	(a)		$	881,280	(a)
Hornbaker, Renée J.			0			$	0
Kling, Lewis M.			46,000			$	1,266,840
Shuff, Ronald F.			5,000			$	137,700

	(a)	Pursuant to the terms of a Separation and Release Agreement entered into between Mr. Greer and the Company, one-third of Mr. Greer’s restricted shares became vested on June 30, 2005 and the remaining two-thirds of his shares were forfeited.

	The restricted shares are eligible to receive dividends; however, the Company currently does not declare or pay dividends on its common stock.

(4)	The Company’s contributions to the 401(k) savings plan for the following officers in 2004 were: Mr. Beall — $7,551; Mr. Ferguson — $8,200; Ms. Hornbaker — $5,803; Mr. Kling — $4,616; and Mr. Shuff — $7,752. Life insurance premiums paid by the Company for the following officers in 2004 were: Mr. Beall — $869; Mr. Ferguson — $1,310; Mr. Greer — $7,200; Ms. Hornbaker — $1,286; Mr. Kling — $1,200; and Mr. Shuff — $1,764. The amount reflected for Ms. Hornbaker includes severance payments of $351,800 pursuant to a Separation and Release Agreement entered into between Ms. Hornbaker and the Company on August 3, 2004, and also includes lump-sum distributions of accrued benefits under the Company’s pension and retirement plans of $278,026. Mr. Greer and Ms. Hornbaker will also receive lump-sum distributions of accrued benefits under the Company’s pension and retirement plans in 2005 and 2006, as described under “Pension Plans” below.
(5)	Upon joining the Company in July 1999, Mr. Greer received an interest-free loan in the amount of $325,738 in payment for the loss of equity in his home upon relocation, with 20% of the loan forgiven for each of his four full years of service since July 1999. The 2004 amount includes $65,147 for Mr. Greer, which reflects the remaining 20% of the loan that was forgiven.
(6)	Mr. Beall began serving as Vice President and President of Flow Solutions Division in May 2003.

144

---

Table of Contents

(7)	Effective April 4, 2005, Mr. Greer resigned as the Company’s Chairman, President and Chief Executive Officer pursuant to the terms of a Separation and Release Agreement entered into between Mr. Greer and the Company on April 4, 2005. Mr. Greer remained as an employee of the Company until June 30, 2005. See “Employment and Change in Control Arrangements.” As of April 4, 2005, Kevin E. Sheehan became the Company’s Interim President and Chief Executive Officer and Chairman of the Board and served until the appointment of Mr. Kling as President and Chief Executive Officer on August 1, 2005. Mr. Sheehan continues to serve as the non-executive Chairman of the Board.
(8)	Effective June 15, 2004, Ms. Hornbaker resigned as the Company’s Vice President and Chief Financial Officer pursuant to the terms of a Separation and Release Agreement entered into between Ms. Hornbaker and the Company on August 3, 2004. Ms. Hornbaker remained as an employee of the Company until July 30, 2004. See “Employment and Change in Control Arrangements.” In October 2004, Mark A. Blinn was appointed as Vice President and Chief Financial Officer of the Company.
(9)	Mr. Kling joined the Company in July 2004 as Chief Operating Officer. He became President and Chief Executive Officer and an appointed member of the Board of Directors, on August 1, 2005. See “Employment and Change in Control Arrangements” below.

																		Potential Realizable Value
																		at Assumed Annual Rates
		Number of				Percentage												of Stock Price
		Securities				of Total												Appreciation For Option
		Underlying				Options to												Term(4)
		Options				Employees in				Exercise Price				Expiration
Name		Granted(1)(2)(3)				Fiscal Year				Per Share				Date				5%				10%
Beall, Andrew J.			7,500				3.2	%		$	22.90				07/15/14			$	108,013			$	273,725
Ferguson, Thomas E.			9,000				3.8	%			22.90				07/15/14				129,615				328,470
Greer, C. Scott			54,000				23	%			22.90				07/15/14				259,230	(5)			656,940	(5)
Hornbaker, Renée J.			-0-				N/A				N/A				N/A				N/A				N/A
Kling, Lewis M.			75,000				32	%			23.27				07/09/14				1,125,328				2,809,229
Shuff, Ronald F.			8,500				3.6	%			22.90				07/15/14				122,414				310,222

(1)	All options have an exercise price equal to the fair market value of common stock of the Company on the date of grant and a 10-year life. They also have certain “limited rights” which, in general, provide for a cash payment of the value of the option in the event of a change in control of the Company.
(2)	The figures reported above include incentive option grants for 2004 as follows: Mr. Beall — 0; Mr. Ferguson — 9,000; Mr. Greer — 4,366; Ms. Hornbaker -0; Mr. Kling — 4,297 and Mr. Shuff  — 4,691. All other options granted were non-qualified.
(3)	Annual option grants become exercisable on a pro rata basis in three installments commencing on the first anniversary of the grant date, and in regard to incentive stock options, to the extent at which they are allowed to do so subject to Internal Revenue Service valuation limits.
(4)	The calculation of potential realizable value assumes annual growth rates for each of the grants shown over their 10-year option term and are not suggested to be indicative of projected results. For example, a $22.90 per share price with a 5% annual growth rate results in a stock price of $37.30 per share and a 10% rate results in a price of $59.40 per share. Actual gains, if any, on stock option exercises are dependent on the future performance of the stock.
(5)	Only one-third of these option shares vested and Mr. Greer forfeited the remaining option shares pursuant to the terms and conditions of his Separation and Release Agreement. The potential realizable value presented above only relates to one-third of Mr. Greer’s 2004 Stock Option Grant.

145

---

Table of Contents

										Number of Securities								Value of Unexercised
										Underlying Unexercised								In-the-Money Options
		Shares								Options at Fiscal Year-End								at Fiscal Year-End
		Acquired on				Value
Name		Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Beall, Andrew J.			-0-				N/A				26,080				14,500			$	138,888			$	87,840
Ferguson, Thomas E.			-0-				N/A				16,200				25,067				70,002				170,491
Greer, C. Scott			-0-				N/A				755,001				108,999	(2)			6,537,073	(2)			607,687	(2)
Hornbaker, Renée J.			12,400	(1)		$	60,350				-0-				-0-				-0-				-0-
Kling, Lewis M.			-0-				N/A				-0-				75,000				-0-				320,250
Shuff, Ronald F.			-0-				N/A				62,740				17,500				262,722				97,880

(1)	All shares upon exercise were immediately sold.
(2)	Under the terms of Mr. Greer’s Separation and Release Agreement, 54,333 shares were forfeited which represented $320,854 of the value of the unexercised in-the-money options at the end of fiscal year 2004.

		Year Reaching				Age 65
Executive Officer		Age 65				Annual Annuity(1)
Beall, Andrew J.			2021			$	260,070
Ferguson, Thomas E.			2021			$	430,512
Greer, C. Scott(2)			2015				N/A
Hornbaker, Renée J.(3)			2017				N/A
Kling, Lewis M.			2010			$	89,275
Shuff, Ronald F.			2017			$	231,277

(1)	The estimated annual pension benefits shown assume: (a) annual bonuses for all Named Executive Officers equal to bonus at target; (b) a 5.25% interest factor; (c) retirement at age 65; and (d) a 4.5% annual increase in current salary until age 65.
(2)	Effective April 4, 2005, Mr. Greer resigned as the Company’s Chairman, President and Chief Executive Officer pursuant to the terms of a Separation and Release Agreement entered into between Mr. Greer and the Company on April 4, 2005. Mr. Greer remained as an employee of the Company until June 30, 2005. See “Employment and Change in Control Arrangements.” In connection with his resignation, Mr. Greer received in 2005 lump-sum distributions of certain accrued benefits under the Qualified Plan

146

---

Table of Contents

	and the Non-qualified Plans of $807,857, representing the actuarial present value of such accrued benefits. He will receive additional lump-sum distributions of $183,020 in 2006, representing the actuarial present value of his remaining accrued benefits.
(3)	Effective June 15, 2004, Ms. Hornbaker resigned as the Company’s Vice President and Chief Financial Officer pursuant to the terms of an agreement and general release entered into between Ms. Hornbaker and the Company on August 3, 2004. Ms. Hornbaker remained as an employee of the Company until July 30, 2004. See “Employment and Change in Control Arrangements.” In connection with her resignation, Ms. Hornbaker received in 2004 lump-sum distributions of certain accrued benefits under the Qualified Plan and the Non-qualified Plans of $278,026, representing the actuarial present value of such accrued benefits. She also received an additional lump-sum distributions of $124,359 in 2005, representing the actuarial present value of her remaining accrued benefits.

		Supplemental				Supplemental
Board Committee		Service Retainer				Chairman Retainer
Audit Committee		$	10,000			$	10,000
Finance Committee		$	7,500			$	7,500
Organization and Compensation Committee		$	7,500			$	7,500
Corporate Governance and Nominating Committee		$	2,500			$	7,500

147

---

Table of Contents

		Supplemental
Director		Compensation
Charles M. Rampacek		$	87,500
George T. Haymaker, Jr.		$	35,000
Hugh K. Coble		$	28,000
Kevin E. Sheehan		$	12,250
William C. Rusnack		$	56,000

148

---

Table of Contents

	C. Scott Greer

149

---

Table of Contents

	Renée I. Hornbaker

150

---

Table of Contents

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

		Exercisable Stock				Number of Shares				Percent of Company
Name		Options(1)				Owned(2)(3)(4)				Common Stock(5)
Christopher A. Bartlett			1,500				14,630				*
Andrew J. Beall			38,942				70,705				*
Hugh K. Coble			6,500				31,750				*
Thomas E. Ferguson			34,888				81,860				*
C. Scott Greer(6)			-0-				-0-				*
Diane C. Harris			7,100				36,886				*
George T. Haymaker, Jr.			7,300				36,345				*
Renée J. Hornbaker(6)			-0-				-0-				*
Michael F. Johnston			11,203				34,113				*
Lewis M. Kling			7,000				113,341				*
Charles M. Rampacek			6,500				39,136				*
James O. Rollans			12,491				35,323				*
William C. Rusnack			10,879				28,792				*
Kevin E. Sheehan			7,300				41,932				*
Ronald F. Shuff			75,818				146,422				*
All current directors and executive officers as a group (19 individuals)			227,421				711,235				1.27	%

*	Less than 1%

(1)	Represents shares that the directors and Named Executive Officers had a nominal right, subject to the exercise suspension discussed below, to acquire within 60 days of February 6, 2006 through the exercise of stock options under a Company stock option plan. These stock option shares are not currently exercisable due to the temporary suspension of our stock option exercise program, as a result of which current employees, including executive officers, qualified retirees and our directors are unable to exercise their vested options. The stock option exercise program was temporarily suspended due to the fact that we were not able to timely file our annual and quarterly periodic reports with the SEC, which made it impossible to issue registered shares upon option exercises. During the suspension period, each such person disclaims beneficial ownership of such shares subject to such options.
(2)	For non-employee directors, the figures above include shares deferred under the Director Deferral Plan and/or a Flowserve Restricted Stock Plan over which they have no voting power as follows: Mr. Bartlett — 9,043; Mr. Coble — 23,950; Ms. Harris — 25,698; Mr. Haymaker — 23,745; Mr. Johnston — 21,926; Mr. Rampacek — 23,636; Mr. Rollans — 22,136; Mr. Rusnack — 9,113; and Mr. Sheehan — 25,820.

151

---

Table of Contents

(3)	For Named Executive Officers, the aggregate figures above include shares deferred under either an Executive Compensation Plan and/or a Flowserve Restricted Stock Plan over which they have no voting power as follows: Mr. Ferguson — 2,829; Mr. Greer — 0; Ms. Hornbaker — 0; and Mr. Shuff — 30,123.
(4)	The number of shares owned includes shares for exercisable stock options, which are presented in the first column and discussed in note (1) above.
(5)	Based on the number of outstanding shares on February 6, 2006 (56,218,606 shares).
(6)	On April 4, 2005, Mr. Greer resigned as the Company’s President and Chief Executive Officer and as a director (including his capacity as Chairman of the Board). Ms. Hornbaker resigned as the Company’s Vice President and Chief Financial Officer effective June 15, 2004. Therefore, Mr. Greer’s and Ms. Hornbaker’s shares are not included in the current ownership table reported above.

						Percent of
		Number of				Company
Name and Address of Beneficial Owner		Shares Owned				Common Stock(1)
Hotchkis and Wiley Capital Management, LLC(2) 725 South Figueroa Street, 39th Floor Los Angeles, CA 90017-5439			6,428,400				11.43	%
Gabelli Asset Management, Inc.(3) One Corporate Center Rye, NY 10580			4,979,051				8.86	%
Dimensional Fund Advisors, Inc.(4) 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401			3,575,377				6.36	%
Franklin Resources, Inc.(5) One Franklin Parkway San Mateo, CA 94403-1906			3,347,420				5.95	%
Pioneer Global Asset Management S.p.A.(6) Galleria San Carlo 6 20122 Milan, Italy			2,930,195				5.21	%

(1)	Based on the number of outstanding shares on February 6, 2006 (56,218,606 shares).
(2)	As reported on Schedule 13G dated November 9, 2005, Hotchkis and Wiley Capital Management, LLC has sole voting power as to 5,865,000 shares and sole dispositive power as to 6,428,400 shares, but disclaims beneficial ownership of such securities.
(3)	As reported on Schedule 13D/A dated January 25, 2006, Gabelli Investors, Inc. and affiliated entities have sole voting power as to 4,782,751 shares and sole dispositive power as to 4,979,051 shares.
(4)	As reported on Schedule 13G dated February 9, 2005, Dimensional Fund Advisors, Inc. has sole voting power as to 3,575,377 shares, but disclaims beneficial ownership of such securities.
(5)	As reported on Schedule 13G dated February 11, 2005, Franklin Advisors, Inc. has sole voting power and sole dispositive power as to 2,361,600 shares and Franklin Templeton Portfolio Advisors, Inc. has sole voting and sole dispositive power as to 985,820 shares.
(6)	As reported on Schedule 13G dated April 20, 2005, Pioneer Global Asset Management S.p.A. has sole voting power and sole dispositive power as to all 2,930,195 shares.

152

---

Table of Contents

Number of Securities Remaining

Number of Securities to

Weighted-average

Available for Future Issuance Under

Be Issued Upon Exercise

Exercise Price of

Equity Compensation Plans

of Outstanding Options,

Outstanding Options,

(Excluding Securities Reflected in

Plan Category

Warrants, and Rights

Warrants and Rights

Column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

2,820,160

$

21.93

3,334,833

Equity compensation plans not approved by security holders

-0-

-0-

-0-

Total

2,820,160

$

21.93

3,334,833

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

153

---

Table of Contents

			2004				2003
AUDIT FEES			$	31,053,831			$	4,804,088
AUDIT RELATED FEES
	Benefit Plan Audits			220,137				184,000
	Sarbanes-Oxley Readiness			—				80,700
TOTAL AUDIT RELATED FEES				220,137				264,700
TAX FEES
	Compliance			182,079				385,560
	Consulting/ Advisory			304,496				140,250
TOTAL TAX FEES				486,575				525,810
ALL OTHER FEES				10,347				—
	TOTAL FEES		$	31,770,890			$	5,594,598

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	1. Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm			62
Flowserve Corporation Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2003 and 2004			68
For each of the three years in the period ended December 31, 2004:
Consolidated Statements of Operations			69
Consolidated Statements of Comprehensive Income (Loss)			70
Consolidated Statements of Shareholders’ Equity			71
Consolidated Statements of Cash Flows			72
Notes to Consolidated Financial Statements			73

154

---

Table of Contents

	2. Consolidated Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts			F-1

	3. Exhibits

EXHIBIT
NO.				DESCRIPTION
	2	.1		Purchase Agreement by and among Flowserve Corporation, Flowserve RED Corporation, IDP Acquisition, LLC and Ingersoll-Rand Company, dated as of February 9, 2000, filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
	2	.2		Amendment No. 1, dated as of July 14, 2000, to the Purchase Agreement dated as of February 9, 2000, by and among Flowserve Corporation, Flowserve RED Corporation, IDP Acquisition, LLC and Ingersoll-Rand Company, filed as Exhibit 2.1 to the Company’s report on Form 8-K, dated as of July 19, 2000.
	2	.3		Agreement and Plan of Merger among Flowserve Corporation, Forest Acquisition Sub., Inc. and Innovative Valve Technologies, Inc., dated as of November 18, 1999, filed as Exhibit 99(c)(1) to the Schedule 14 D-1 Tender Offer Statement and Statement on Schedule 13-D, dated as of November 22, 1999.
	3	.1		1988 Restated Certificate of Incorporation of The Duriron Company, Inc., filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988.
	3	.2		1989 Amendment to Certificate of Incorporation, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989.
	3	.3		1996 Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
	3	.4		April 1997 Certificate of Amendment of Certificate of Incorporation, filed as part of Annex VI to the Joint Proxy Statement/ Prospectus, which is part of the Registration Statement on Form S-4, dated June 19, 1997.
	3	.5		July 1997 Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q, for the Quarter ended June 30, 1997.
	3	.6		Amended and Restated By-Laws of the Company, as restated December 31, 1987, and as further amended effective April 26, 2004, filed as Exhibit 3.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
	4	.1		Lease agreement and indenture, dated as of January 1, 1995 and bond purchase agreement, dated January 27, 1995, in connection with an 8% Taxable Industrial Development Revenue Bond, City of Albuquerque, New Mexico. (Relates to a class of indebtedness that does not exceed 10% of the total assets of the Company. The Company will furnish a copy of the documents to the Commission upon request.)
	4	.2		Rights Agreement, dated as of August 1, 1986 between the Company and Bank One, N.A., as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate, filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A on August 13, 1986.
	4	.3		Amendment, dated August 1, 1996, to Rights Agreement, filed as Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
	4	.4		Amendment No. 2 dated as of June 1, 1998, to the Rights Agreement dated as of August 13, 1986, and amended as of August 1, 1996, filed as Exhibit 10.3 to the Company’s Form 8-A/A, dated June 11, 1998.

155

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	4	.5		Rate Swap Agreement in the amount of $25,000,000 between the Company and National City Bank, dated November 14, 1996, filed as Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.
	4	.6		Rate Swap Agreement in the amount of $25,000,000 between the Company and Key Bank National Association, dated October 28, 1996, filed as Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.
	10	.1		Flowserve Corporation Incentive Compensation Plan for Senior Executives, as amended and restated effective October 1, 2000, filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.2		Supplemental Pension Plan for Salaried Employees, filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*
	10	.3		Flowserve Corporation Director Deferral Plan, as amended and restated effective October 1, 2000, filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.4		First Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*
	10	.5		Amendment No. 1 to the First Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.6		Amendment No. 2 to First Master Benefit Trust Agreement, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.7		Second Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*
	10	.8		First Amendment to Second Master Benefit Trust Agreement, filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.9		Long-Term Incentive Plan, as amended and restated effective October 1, 2000, filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.10		Flowserve Corporation 1989 Stock Option Plan as amended and restated effective January 1, 1997, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.*
	10	.11		Flowserve Corporation Second Amendment to the 1989 Stock Option Plan as previously amended and restated, filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.*
	10	.12		Amendment No. 3 to the Flowserve Corporation 1989 Stock Option Plan, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.13		Flowserve Corporation 1989 Restricted Stock Plan (the “1989 Restricted Stock Plan”) as amended and restated, effective January 1, 1997, filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.*
	10	.14		Amendment No. 1 to the 1989 Restricted Stock Plan as amended and restated, filed as Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.*
	10	.15		Amendment No. 2 to Flowserve Corporation 1989 Restricted Stock Plan, filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.16		Flowserve Corporation 1989 Restricted Stock Dividend Plan, effective October 1, 2000, filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.17		Flowserve Corporation Retirement Compensation Plan for Directors (“Director Retirement Plan”), filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988.*

156

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.18		Amendment No. 1 to Director Retirement Plan, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.19		The Company’s Benefit Equalization Pension Plan (the “Equalization Plan”), filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989.*
	10	.20		Amendment No. 1, dated December 15, 1992 to the Equalization Plan, filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1992.*
	10	.21		Flowserve Corporation Executive Equity Incentive Plan as amended and restated, effective July 21, 1999, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.*
	10	.22		Flowserve Corporation Deferred Compensation Plan, filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.23		Amendment No. 1 to the Flowserve Corporation Deferred Compensation Plan, as amended and restated, effective June 1, 2000, filed as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.24		Executive Life Insurance Plan of The Duriron Company, Inc., filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.25		Executive Long-Term Disability Plan of The Duriron Company, Inc, filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.26		The Duriron Company, Inc. 1997 Stock Option Plan, included as Exhibit A to the Company’s 1997 Proxy Statement, filed on March 17, 1997.*
	10	.27		First Amendment to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.*
	10	.28		Amendment No. 2 to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.*
	10	.29		Amendment No. 3 to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.30		Flowserve Corporation 1999 Stock Option Plan, included as Exhibit A to the Company’s 1999 Proxy Statement, filed on March 15, 1999.*
	10	.31		Amendment No. 1 to the Flowserve Corporation 1999 Stock Option Plan, filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.*
	10	.32		Amendment No. 2 to the Flowserve Corporation 1999 Stock Option Plan, filed as Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.33		BW/IP International, Inc. Supplemental Executive Retirement Plan as amended and restated, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q for the quarter entered March 31, 1998.*
	10	.34		Flowserve Corporation 1998 Restricted Stock Plan, included as Appendix A to the Company’s 1999 Proxy Statement, filed on April 9, 1998.*
	10	.35		Amendment No. 1 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.*
	10	.36		Amendment No. 2 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.*
	10	.37		Amendment No. 3 to Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.38		Amendment No. 4 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.*
	10	.39		Flowserve Corporation 1998 Restricted Stock Dividend Plan (effective October 1, 2000), filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*

157

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.40		Employment Agreement, effective July 1, 1999, between the Company and C. Scott Greer, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 1999.*
	10	.41		Amendment to Master Benefit Trust Agreement, filed as Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.42		Executive Severance Arrangement, filed as Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.*
	10	.43		Flowserve Corporation Executive Officers Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.46 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.44		Flowserve Corporation Officer Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.45		Flowserve Corporation Key Management Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.48 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.46		Amendment No. 1 to the Flowserve Corporation Flex Health & Welfare Plan, as amended and restated, effective December 1, 2002, filed as Exhibit 10.49 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.47		2002 Restricted Stock Unit Plan, effective December 1, 2002, filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.48		Flowserve Corporation Senior Management Retirement Plan, effective July 1, 1999, filed as Exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.49		Flowserve Corporation Supplemental Executive Retirement Plan, effective July 1, 1999, filed as Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.50		Flowserve Corporation Performance Unit Plan, effective January 1, 2001, filed as Exhibit 10.54 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.51		Finance Contract, dated April 19, 2004 entered into by and among the Company, Flowserve B.V. and European Investment Bank, filed as Exhibit 10.5 to the Company’s Report on Form 8-K, dated as of March 18, 2005.
	10	.52		Letter Amendment to Finance Contract, dated July 2, 2004, filed as Exhibit 10.6 to the Company’s Report on Form 8-K, dated as of March 18, 2005.
	10	.53		Credit Agreement, dated as of August 12, 2005, among the Company, the lenders referred therein, and Bank of America, N.A., as swingline lender, administrative agent and collateral agent, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of August 17, 2005.
	10	.54		Asset Purchase Agreement by and between Flowserve US Inc. and Curtiss-Wright Electro-Mechanical Corporation, dated November 1, 2004 (filed herewith).
	10	.55		Flowserve Corporation Transitional Executive Security Plan, effective as of March 14, 2005, filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated as of March 17, 2005.
	10	.56		Separation and Release Agreement between the Company and C. Scott Greer, dated April 4, 2005 (filed herewith).*
	10	.57		Employment Agreement between the Company and Kevin E. Sheehan, dated April 1, 2005 (filed herewith).*
	10	.58		Employment Agreement between the Company and Lewis M. Kling, dated July 28, 2005, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated August 3, 2005.
	10	.59		Form of Restricted Stock Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*

158

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.60		Form of Incentive Stock Option Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*
	10	.61		Form of Non-Qualified Stock Option Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*
	10	.62		Amendment to The Duriron Company, Inc. Long-Term Incentive Plan, dated December 14, 2005 (filed herewith).*
	10	.63		Amendment to The Duriron Company, Inc. Incentive Compensation Plan for Key Employees as Amended and Restated, effective as of January 1, 1992, dated December 14, 2005 (filed herewith).*
	10	.64		Amendment to The Duriron Company, Inc., Long-Term Incentive Plan as Restated November 1, 1993, dated December 14, 2005 (filed herewith).*
	10	.65		Amendment to The Duriron Company, Inc. 1996-1998 Long-Term Incentive Plan, dated December 14, 2005 (filed herewith).*
	10	.66		Amendment to The Duriron Company, Inc. First Master Benefit Trust Agreement, dated December 14, 2005 (filed herewith).*
	10	.67		Amendment to Flowserve Corporation Amended and Restated Director Cash Deferral Plan, dated December 14, 2005 (filed herewith).*
	10	.68		Amendment to The Duriron Company, Inc. Retirement Compensation Plan for Directors, dated December 14, 2005 (filed herewith).*
	10	.69		Amendment to The Duriron Company, Inc. Amended and Restated Director Deferral Plan, dated December 14, 2005 (filed herewith).*
	10	.70		Amendment to Flowserve Corporation Deferred Compensation Plan, dated December 14, 2005 (filed herewith).*
	10	.71		Amendment and Waiver, dated December 20, 2005 and effective December 23, 2005, to that certain Credit Agreement, dated as of August 12, 2005, among the Company, the financial institutions from time to time party thereto, and Bank of America, N.A., as Swingline Lender, Administrative Agent and Collateral Agent, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of December 30, 2005.
	10	.72		Asset Purchase Agreement, dated December 31, 2005 between the Company, Furmanite Worldwide Inc., a unit of Xanser Corp. and certain subsidiaries of Furmanite, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of January 6, 2006.
	14	.1		Flowserve Financial Management Code of Ethics adopted by the Company’s principal executive officer and CEO, principal financial officer and CFO, principal accounting officer and controller, and other senior financial managers filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
	21	.1		Subsidiaries of the Company (filed herewith).
	23	.1		Consent of PricewaterhouseCoopers LLP (filed herewith).
	31	.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	31	.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

*	Management contracts and compensatory plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K.

159

---

Table of Contents

	•	delays in future reports of the Company’s management and outside auditors on the company’s internal control over financial reporting and related certification;
	•	continuing delays in the Company’s filing of its periodic public reports and any SEC, NYSE or debt rating agencies’ actions resulting therefrom;
	•	the possibility of adverse consequences of the pending securities litigation and SEC investigations;
	•	the possibility of adverse consequences of governmental tax audits of the Company’s tax returns, including the IRS audit of the company’s U.S. tax returns for the years 2002 through 2004;
	•	the Company’s ability to convert bookings, which are not subject to nor computed in accordance with generally accepted accounting principles, into revenues at acceptable, if any, profit margins, since such profit margins cannot be assured nor be necessarily assumed to follow historical trends;
	•	changes in the financial markets and the availability of capital;
	•	changes in the already competitive environment for the Company’s products or competitors’ responses to the Company’s strategies;
	•	the Company’s ability to integrate acquisitions into its management and operations;
	•	political risks, military actions or trade embargoes affecting customer markets, including the continuing conflict in Iraq and its potential impact on Middle Eastern markets and global petroleum producers;
	•	the Company’s ability to comply with the laws and regulations affecting its international operations, including the U.S. export laws, and the effect of any noncompliance;
	•	the health of the petroleum, chemical, power and water industries;
	•	economic conditions and the extent of economic growth in the U.S. and other countries and regions;
	•	unanticipated difficulties or costs associated with the implementation of systems, including software;
	•	the Company’s relative geographical profitability and its impact on the Company’s utilization of foreign tax credits;
	•	the recognition of significant expenses associated with realigning operations of acquired companies with those of Flowserve;
	•	the Company’s ability to meet the financial covenants and other requirements in its debt agreements;
	•	any terrorist attacks and the response of the U.S. to such attacks or to the threat of such attacks;

160

---

Table of Contents

	•	technological developments in the Company’s products as compared with those of its competitors;
	•	changes in prevailing interest rates and the Company’s effective interest costs; and
	•	adverse changes in the regulatory climate and other legal obligations imposed on the Company.

161

---

Table of Contents

	FLOWSERVE CORPORATION (Registrant)

	By:	/s/     Lewis M. Kling

	Lewis M. Kling
	President and Chief Executive Officer

SIGNATURE				TITLE		DATE
/s/  Lewis M. Kling    Lewis M. Kling				President, Chief Executive Officer and Director (Principal Executive Officer)		February 13, 2006
/s/  Mark A. Blinn    Mark A. Blinn				Vice President and Chief Financial Officer (Principal Financial Officer)		February 13, 2006
/s/  Richard J. Guiltinan, Jr.    Richard J. Guiltinan, Jr.				Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)		February 13, 2006
/s/  James O. Rollans    James O. Rollans				Director, Chairman of Audit Committee, Member of Corporate Governance and Nominating Committee		February 13, 2006
/s/  Charles M. Rampacek    Charles M. Rampacek				Director, Chairman of Corporate Governance and Nominating Committee, Member of Audit Committee		February 13, 2006
/s/  William C. Rusnack    William C. Rusnack				Director, Member of Audit Committee		February 13, 2006
/s/  Michael F. Johnston    Michael F. Johnston				Director, Chairman of Finance Committee, Member of Corporate Governance and Nominating Committee		February 13, 2006
/s/  Diane C. Harris    Diane C. Harris				Director, Member of Finance Committee		February 13, 2006

162

---

Table of Contents

SIGNATURE				TITLE		DATE
/s/  Kevin E. Sheehan    Kevin E. Sheehan				Chairman of the Board, Director, Member of Finance Committee		February 13, 2006
/s/  Christopher A. Bartlett    Christopher A. Bartlett				Director, Member of Organization and Compensation Committee		February 13, 2006
/s/  George T. Haymaker, Jr.    George T. Haymaker, Jr.				Director, Chairman of Organization and Compensation Committee, Member of Corporate Governance and Nominating Committee		February 13, 2006

163

---

Table of Contents

Column A			Column B				Column C								Column D				Column E
											Additions Charged to
							Additions				Other Accounts —
			Balance at				Charged to Cost				Acquisitions and				Deductions				Balance at
			Beginning of Year				and Expenses				Related Adjustments				From Reserve				End of Year
Description
			(Amounts in thousands)
Year ended December 31, 2004:
	Allowance for doubtful accounts(a):		$	18,641			$	2,516			$	3,200			$	(15,663	)		$	8,694
	Inventory reserves(b):		$	43,354			$	26,000			$	—			$	(8,525	)		$	60,829
	Deferred tax asset valuation allowance(c):		$	30,330			$	8,754			$	1,236			$	(6,112	)		$	34,208
Year ended December 31, 2003:
	Allowance for doubtful accounts(a):		$	20,569			$	4,251			$	—			$	(6,179	)		$	18,641
	Inventory reserves(b):		$	40,929			$	22,495			$	463			$	(20,533	)		$	43,354
	Deferred tax asset valuation allowance(c):		$	23,606			$	10,120			$	3,021			$	(6,417	)		$	30,330
Year ended December 31, 2002:
	Allowance for doubtful accounts(a):		$	20,419			$	3,716			$	2,423			$	(5,989	)		$	20,569
	Inventory reserves(b):		$	42,768			$	13,453			$	—			$	(15,292	)		$	40,929
	Deferred tax asset valuation allowance(c):		$	15,296			$	6,575			$	2,786			$	(1,051	)		$	23,606

(a)	Deductions from reserve represent accounts written off net of recoveries and reductions due to improved aging of receivables.

(b)		Deductions from reserve represent inventory disposed of or written off.
(c)		Deductions from reserve result from the expiration or utilization of foreign tax credits previously reserved.

F-1

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	2	.1		Purchase Agreement by and among Flowserve Corporation, Flowserve RED Corporation, IDP Acquisition, LLC and Ingersoll-Rand Company, dated as of February 9, 2000, filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
	2	.2		Amendment No. 1, dated as of July 14, 2000, to the Purchase Agreement dated as of February 9, 2000, by and among Flowserve Corporation, Flowserve RED Corporation, IDP Acquisition, LLC and Ingersoll-Rand Company, filed as Exhibit 2.1 to the Company’s report on Form 8-K, dated as of July 19, 2000.
	2	.3		Agreement and Plan of Merger among Flowserve Corporation, Forest Acquisition Sub., Inc. and Innovative Valve Technologies, Inc., dated as of November 18, 1999, filed as Exhibit 99(c)(1) to the Schedule 14 D-1 Tender Offer Statement and Statement on Schedule 13-D, dated as of November 22, 1999.
	3	.1		1988 Restated Certificate of Incorporation of The Duriron Company, Inc., filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988.
	3	.2		1989 Amendment to Certificate of Incorporation, filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989.
	3	.3		1996 Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
	3	.4		April 1997 Certificate of Amendment of Certificate of Incorporation, filed as part of Annex VI to the Joint Proxy Statement/ Prospectus, which is part of the Registration Statement on Form S-4, dated June 19, 1997.
	3	.5		July 1997 Certificate of Amendment of Certificate of Incorporation, filed as Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q, for the Quarter ended June 30, 1997.
	3	.6		Amended and Restated By-Laws of the Company, as restated December 31, 1987, and as further amended effective April 26, 2004, filed as Exhibit 3.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
	4	.1		Lease agreement and indenture, dated as of January 1, 1995 and bond purchase agreement, dated January 27, 1995, in connection with an 8% Taxable Industrial Development Revenue Bond, City of Albuquerque, New Mexico. (Relates to a class of indebtedness that does not exceed 10% of the total assets of the Company. The Company will furnish a copy of the documents to the Commission upon request.)
	4	.2		Rights Agreement, dated as of August 1, 1986 between the Company and Bank One, N.A., as Rights Agent, which includes as Exhibit B thereto the Form of Rights Certificate, filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A on August 13, 1986.
	4	.3		Amendment, dated August 1, 1996, to Rights Agreement, filed as Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
	4	.4		Amendment No. 2 dated as of June 1, 1998, to the Rights Agreement dated as of August 13, 1986, and amended as of August 1, 1996, filed as Exhibit 10.3 to the Company’s Form 8-A/A, dated June 11, 1998.
	4	.5		Rate Swap Agreement in the amount of $25,000,000 between the Company and National City Bank, dated November 14, 1996, filed as Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.
	4	.6		Rate Swap Agreement in the amount of $25,000,000 between the Company and Key Bank National Association, dated October 28, 1996, filed as Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.
	10	.1		Flowserve Corporation Incentive Compensation Plan for Senior Executives, as amended and restated effective October 1, 2000, filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.2		Supplemental Pension Plan for Salaried Employees, filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*

165

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.3		Flowserve Corporation Director Deferral Plan, as amended and restated effective October 1, 2000, filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.4		First Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*
	10	.5		Amendment No. 1 to the First Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.6		Amendment No. 2 to First Master Benefit Trust Agreement, filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.7		Second Master Benefit Trust Agreement dated October 1, 1987, filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987.*
	10	.8		First Amendment to Second Master Benefit Trust Agreement, filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993.*
	10	.9		Long-Term Incentive Plan, as amended and restated effective October 1, 2000, filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.10		Flowserve Corporation 1989 Stock Option Plan as amended and restated effective January 1, 1997, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.*
	10	.11		Flowserve Corporation Second Amendment to the 1989 Stock Option Plan as previously amended and restated, filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.*
	10	.12		Amendment No. 3 to the Flowserve Corporation 1989 Stock Option Plan, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.13		Flowserve Corporation 1989 Restricted Stock Plan (the “1989 Restricted Stock Plan”) as amended and restated, effective January 1, 1997, filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1996.*
	10	.14		Amendment No. 1 to the 1989 Restricted Stock Plan as amended and restated, filed as Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.*
	10	.15		Amendment No. 2 to Flowserve Corporation 1989 Restricted Stock Plan, filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.16		Flowserve Corporation 1989 Restricted Stock Dividend Plan, effective October 1, 2000, filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.17		Flowserve Corporation Retirement Compensation Plan for Directors (“Director Retirement Plan”), filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988.*
	10	.18		Amendment No. 1 to Director Retirement Plan, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.19		The Company’s Benefit Equalization Pension Plan (the “Equalization Plan”), filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989.*
	10	.20		Amendment No. 1, dated December 15, 1992 to the Equalization Plan, filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1992.*
	10	.21		Flowserve Corporation Executive Equity Incentive Plan as amended and restated, effective July 21, 1999, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.*

166

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.22		Flowserve Corporation Deferred Compensation Plan, filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.23		Amendment No. 1 to the Flowserve Corporation Deferred Compensation Plan, as amended and restated, effective June 1, 2000, filed as Exhibit 10.50 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.24		Executive Life Insurance Plan of The Duriron Company, Inc., filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.25		Executive Long-Term Disability Plan of The Duriron Company, Inc, filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.*
	10	.26		The Duriron Company, Inc. 1997 Stock Option Plan, included as Exhibit A to the Company’s 1997 Proxy Statement, filed on March 17, 1997.*
	10	.27		First Amendment to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.*
	10	.28		Amendment No. 2 to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.*
	10	.29		Amendment No. 3 to the Flowserve Corporation 1997 Stock Option Plan, filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.30		Flowserve Corporation 1999 Stock Option Plan, included as Exhibit A to the Company’s 1999 Proxy Statement, filed on March 15, 1999.*
	10	.31		Amendment No. 1 to the Flowserve Corporation 1999 Stock Option Plan, filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.*
	10	.32		Amendment No. 2 to the Flowserve Corporation 1999 Stock Option Plan, filed as Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.33		BW/IP International, Inc. Supplemental Executive Retirement Plan as amended and restated, filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q for the quarter entered March 31, 1998.*
	10	.34		Flowserve Corporation 1998 Restricted Stock Plan, included as Appendix A to the Company’s 1999 Proxy Statement, filed on April 9, 1998.*
	10	.35		Amendment No. 1 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.*
	10	.36		Amendment No. 2 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.*
	10	.37		Amendment No. 3 to Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.38		Amendment No. 4 to the Flowserve Corporation 1998 Restricted Stock Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.*
	10	.39		Flowserve Corporation 1998 Restricted Stock Dividend Plan (effective October 1, 2000), filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.40		Employment Agreement, effective July 1, 1999, between the Company and C. Scott Greer, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 1999.*
	10	.41		Amendment to Master Benefit Trust Agreement, filed as Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.*
	10	.42		Executive Severance Arrangement, filed as Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.*
	10	.43		Flowserve Corporation Executive Officers Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.46 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*

167

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.44		Flowserve Corporation Officer Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.45		Flowserve Corporation Key Management Change In Control Severance Plan, effective January 1, 2002, filed as Exhibit 10.48 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.46		Amendment No. 1 to the Flowserve Corporation Flex Health & Welfare Plan, as amended and restated, effective December 1, 2002, filed as Exhibit 10.49 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.47		2002 Restricted Stock Unit Plan, effective December 1, 2002, filed as Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.48		Flowserve Corporation Senior Management Retirement Plan, effective July 1, 1999, filed as Exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.49		Flowserve Corporation Supplemental Executive Retirement Plan, effective July 1, 1999, filed as Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.50		Flowserve Corporation Performance Unit Plan, effective January 1, 2001, filed as Exhibit 10.54 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.*
	10	.51		Finance Contract, dated April 19, 2004 entered into by and among the Company, Flowserve B.V. and European Investment Bank, filed as Exhibit 10.5 to the Company’s Report on Form 8-K, dated as of March 18, 2005.
	10	.52		Letter Amendment to Finance Contract, dated July 2, 2004, filed as Exhibit 10.6 to the Company’s Report on Form 8-K, dated as of March 18, 2005.
	10	.53		Credit Agreement, dated as of August 12, 2005, among the Company, the lenders referred therein, and Bank of America, N.A., as swingline lender, administrative agent and collateral agent, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of August 17, 2005.
	10	.54		Asset Purchase Agreement by and between Flowserve US Inc. and Curtiss-Wright Electro-Mechanical Corporation, dated November 1, 2004 (filed herewith).
	10	.55		Flowserve Corporation Transitional Executive Security Plan, effective as of March 14, 2005, filed as Exhibit 10.1 to the Company’s Report on Form 8-K dated as of March 17, 2005.
	10	.56		Separation and Release Agreement between the Company and C. Scott Greer, dated April 4, 2005 (filed herewith).*
	10	.57		Employment Agreement between the Company and Kevin E. Sheehan, dated April 1, 2005 (filed herewith).*
	10	.58		Employment Agreement between the Company and Lewis M. Kling, dated July 28, 2005, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of August 3, 2005.
	10	.59		Form of Restricted Stock Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*
	10	.60		Form of Incentive Stock Option Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*
	10	.61		Form of Non-Qualified Stock Option Agreement pursuant to the Company’s 2004 Stock Compensation Plan (filed herewith).*
	10	.62		Amendment to The Duriron Company, Inc. Long-Term Incentive Plan, dated December 14, 2005 (filed herewith).*
	10	.63		Amendment to The Duriron Company, Inc. Incentive Compensation Plan for Key Employees as Amended and Restated, effective January 1, 1992, dated December 14, 2005 (filed herewith).*
	10	.64		Amendment to The Duriron Company, Inc., Long-Term Incentive Plan as Restated November 1, 1993, dated December 14, 2005 (filed herewith).*

168

---

Table of Contents

EXHIBIT
NO.				DESCRIPTION
	10	.65		Amendment to The Duriron Company, Inc. 1996-1998 Long-Term Incentive Plan, dated December 14, 2005 (filed herewith).*
	10	.66		Amendment to The Duriron Company, Inc. First Master Benefit Trust Agreement, dated December 14, 2005 (filed herewith).*
	10	.67		Amendment to Flowserve Corporation Amended and Restated Director Cash Deferral Plan, dated December 14, 2005 (filed herewith).*
	10	.68		Amendment to The Duriron Company, Inc. Retirement Compensation Plan for Directors, dated December 14, 2005 (filed herewith).*
	10	.69		Amendment to The Duriron Company, Inc. Amended and Restated Director Deferral Plan, dated December 14, 2005 (filed herewith).*
	10	.70		Amendment to Flowserve Corporation Deferred Compensation Plan, dated December 14, 2005 (filed herewith).*
	10	.71		Amendment and Waiver, dated December 20, 2005 and effective December 23, 2005, to that certain Credit Agreement, dated as of August 12, 2005, among the Company, the financial institutions from time to time party thereto, and Bank of America, N.A., as Swingline Lender, Administrative Agent and Collateral Agent, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of December 30, 2005.
	10	.72		Asset Purchase Agreement dated December 31, 2005 between the Company, Furmanite Worldwide Inc., a unit of Xanser Corp. and certain subsidiaries of Furmanite, filed as Exhibit 10.1 to the Company’s Report on Form 8-K, dated as of January 6, 2006.
	14	.1		Flowserve Financial Management Code of Ethics adopted by the Company’s principal executive officer and CEO, principal financial officer and CFO, principal accounting officer and controller, and other senior financial managers filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
	21	.1		Subsidiaries of the Company (filed herewith).
	23	.1		Consent of PricewaterhouseCoopers LLP (filed herewith).
	31	.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	31	.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32	.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

*	Management contracts and compensatory plans and arrangements required to be filed as exhibits to this Annual Report on Form 10-K.

169

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

 

---

 

---

 

 

---

 

---

 

---

 

---

 

---

 

---

 

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

---

 

 

 

 

 

 

---

 

 

 

 

 

 

---

 

---

 

---