e8vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 30, 2006
FLOWSERVE CORPORATION
(Exact name of registrant as specified in its charter)
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New York
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1-13179
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31-0267900 |
(State or other jurisdiction
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(Commission File Number)
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(I.R.S. Employer Identification No.) |
of incorporation) |
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5215 N. OConnor Blvd., Suite 2300, Irving, Texas
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75039 |
(Address of principal executive offices)
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(Zip Code) |
Registrants
telephone number, including area code: (972) 443 - 6500
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
TABLE OF CONTENTS
Item 2.02. Results of Operations and Financial Condition
On June 30, 2006, the Company issued a press release announcing the filing of its 2005
Annual Report on Form 10-K and announcing financial and operating results for the fiscal year
December 31, 2005.
The press release is furnished as Exhibit 99.1 to this Form 8-K.
The information in this Item 2.02 and the Exhibit attached hereto shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933, except as shall be
expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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Exhibit |
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Number |
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Description |
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99.1
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Press Release issued by the Company on June 30, 2006 furnished pursuant to Item 2.02 of this
Form 8-K. |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FLOWSERVE CORPORATION |
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By:
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/s/ Ronald F. Shuff |
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Ronald F. Shuff |
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Vice President, Secretary and General Counsel |
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Date: June 30, 2006 |
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2
Exhibit Index
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Exhibit |
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Number |
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Description |
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99.1
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Press Release issued by the Company on June 30, 2006 furnished pursuant to Item 2.02 of this
Form 8-K. |
3
exv99w1
Exhibit 99.1
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Investor Contact:
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Michael E. Conley (972) 443-6557 |
Media Contact:
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Lars Rosene (469) 420-3264 |
FOR IMMEDIATE RELEASE
Flowserve Files 2005 Form 10-K;
Reports Sharply Improved Segment Performance In 2005
DALLAS June 30, 2006 Flowserve Corp. (NYSE: FLS) today filed its 2005 Form 10-K Annual
Report with the Securities and Exchange Commission and announced financial results for 2005,
including significantly improved operating segment results in bookings, sales, gross margin and
operating income.
(All comparisons in this news release are versus 2004)
Announcement Highlights:
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2005 Form 10-K Filed with the SEC |
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Record bookings of $3.02 billion, up 13 percent, excluding currency |
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Record sales of $2.70 billion, up 7 percent, excluding currency |
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Consolidated gross profit increased to $861 million, up 14 percent |
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Consolidated gross margin percentage improved to 32 percent, an increase of 190 basis points |
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Operating income from continuing operations of $190.1 million, up 18 percent |
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Earnings per diluted share from continuing operations of 82 cents, up 78 percent, despite being reduced by high
professional fees and costs related to the successful $1 billion refinancing |
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Earnings per diluted share of 21 cents, including the $31.9 million loss from discontinued operations, which were
divested in December 2005 |
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Strong operating cash flow facilitated funding of $78 million repayment of debt and other financing obligations, a
greater than required pension contribution and refinancing related costs |
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Net debt-to-capital ratio improved to 40.6 percent |
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Number of material weaknesses in internal controls fell significantly and is expected to be further reduced or
eliminated in 2006 |
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Expects to be current with all of its SEC financial report filings by Sept. 30, 2006 |
2005 Form 10-K Filed
Flowserve filed the 2005 Form 10-K annual report with the SEC. We are pleased to complete our
2005 financial statements, close the 2005 audit, and file our Form 10-K as we continue to make good
progress toward becoming current with all of our SEC quarterly and annual financial report
filings, said Flowserve President and Chief Executive officer Lewis M. Kling. We continue to
expect to file our 2005 Form 10-Qs this summer, and file our first and second quarter 2006 Form
10-Qs by the end of September to become current.
2005 Financial Results
Bookings, including discontinued operations, were a record $3.02 billion, a 13 percent increase,
excluding currency benefits of approximately $10 million. Year-end backlog, which excludes
discontinued operations, was a record $994.1 million, a 27 percent increase, excluding negative
currency effects of approximately $67 million. Sales, excluding discontinued operations, were $2.70
billion, a 7 percent increase, excluding currency benefits of approximately $8 million.
Gross profit from continuing operations increased 14 percent to $861.8 million. Gross profit
margin percentage improved 190 basis points to 32.0 percent.
2
These increases primarily reflect cost savings resulting from the companys operational excellence
and ongoing continuous improvement initiatives, improved operating leverage, improved pricing
discipline, increased sales and a lower charge for obsolete and slow moving inventory (OSMI).
We are extremely pleased by the marked year-over-year improvements in our continuing business
operations as we gain traction with our operational excellence initiatives. These initiatives
combined with strategic sourcing programs have helped us offset raw material price increases, said
CEO Kling. We are well positioned to continue to take advantage of the robust market environment.
Selling, general and administrative expenses (SG&A) were $671.7 million, an increase of 12 percent,
excluding currency effects of approximately $3 million. The increase is mainly due to increases in professional fees related to the 2004 restatement,
including increases in audit fees and fees related to tax consulting, accounting and internal audit
assistance; an increase in employee-related expenses, primarily as a result of non-recurring costs
associated with management transition and severance expenses, including non-cash costs arising from
modifications of stock options. These increases were partially offset by decreases in legal
expenses and costs related to Sarbanes-Oxley compliance.
3
Our 2005 results contain a significant amount of costs associated with the 2004 restatement and
management transition. Now that these are behind us, and as we bring in-house more of our
compliance efforts, we expect to see a meaningful decline in the amount of these professional fees
over future periods, said Chief Financial Officer Mark A. Blinn. However, some related costs
will be included in our financial results for 2006. We anticipate that 2007 will be more
representative of our true run rate for such expenses.
Operating income from continuing operations was $190.1 million, an increase of 18 percent. This
improvement is mainly due to the factors discussed above that increased gross profit, partially
offset by the increases in SG&A. Currency had a nominal effect on 2005 results. Operating margin
percentage improved to 7.1 percent, an increase of 70 basis points.
Results for 2005 were impacted by a $37.1 million provision for income taxes, resulting in an
effective tax rate of 45 percent compared to a 2004 effective tax rate of 61 percent. In 2005, the
consolidated effective tax rate was adversely impacted by high taxes on certain foreign earnings.
The company expects its 2006 effective tax rate will be lower.
Net income from continuing operations increased 78 percent to $46.2 million, or 82 cents a diluted
share. Including losses of $31.9 million related to discontinued operations, net income was $11.8
million or 21 cents a diluted share. Diluted
4
earnings per share were negatively impacted by a higher average share count of approximately 2
percent.
Discontinued operations were the General Services Group, which was sold in 2005, and the government
and marine business unit, which was sold in 2004.
In addition to strategic uses of cash, including a greater than required pension contribution of
$45 million and $26 million of costs related to the $1 billion refinancing, the company repaid
outstanding debt and effectively reduced other financing obligations by about $78 million,
excluding currency effects, as previously disclosed. As a result, the companys net
debt-to-capital ratio improved to 40.6 percent at year-end. Our 2005 refinancing gives us
considerable flexibility for employing our cash flow, said CFO Blinn. We will continue to review
a variety of options for using that cash flow in future periods.
2005 SEGMENT RESULTS
Flowserve Pump Division
Flowserve Pump Division (FPD) bookings were $1.58 billion, an increase of 17 percent, excluding
currency benefits of approximately $3 million. Sales were $1.40 billion, an increase of 5 percent,
excluding currency benefits of approximately $4 million. FPDs gross profit was $390.6 million, an
increase of 14 percent. Gross profit benefited from higher sales, price increases, improved
pricing discipline, improved operating leverage and the impact of the companys
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operational excellence initiatives. Gross profit margin percentage increased 220 basis points to
27.9 percent. Operating income was $144.7 million, an increase of $35.8 million, or 33 percent,
excluding unfavorable currency effects of approximately $1 million. Operating margin percentage
increased 200 basis points to 10.3 percent.
Flow Control Division
Flow Control Division (FCD) bookings were $936.0 million, an increase of $81.5 million, or 10
percent, excluding currency benefits of approximately $3 million. Sales from continuing operations
were $894.3 million, an increase of 7 percent, excluding currency benefits of approximately $2
million. FCDs gross profit was $284.9 million, a 13 percent increase. Gross profit benefited
from higher sales volume, price increases, improved pricing discipline, improved operating leverage
and reduced expense related to OSMI. Gross profit margin percentage increased 180 basis points to
31.9 percent. Operating income from continuing operations was $89.2 million, an increase of 36
percent, excluding currency benefits of less than $1 million. Operating margin increased 220 basis
points to 10.0 percent.
Flow Solutions Division
Flow Solutions Division (FSD) bookings were $463.4 million, an increase of 16 percent, excluding
currency benefits of approximately $4 million. Sales were $443.6 million, an increase of 12
percent, excluding currency benefits of
6
approximately $3 million. FSDs gross profit was $193.4 million, an increase of 14 percent. Gross
profit benefited from higher sales, price increases, improved pricing discipline, improved
operating leverage and the impact of the companys operational excellence initiatives. Gross
profit margin percentage increased 40 basis points to 43.6 percent. Operating income was $86.0
million, an increase of 18 percent, excluding currency benefits of less than $1 million. Operating
margin increased 100 basis points to19.4 percent.
Internal Controls Update
While the company reported a significant decrease in the number of material weaknesses in its
internal controls, the company expects to continue to make significant improvements in reducing or
eliminating these weaknesses in 2006.
Outlook
We have continued to make significant progress in becoming current with our SEC financial
report filings and improving our internal controls and operations, while our operating businesses
have continued to successfully implement key operational excellence and process improvement
initiatives, Kling said. These successes are reflected in our improved segment results and
position the company very well for the future.
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Conference Call
The company will hold a conference call on Wednesday, July 12, 2006, at 11:00 a.m. Eastern Time to
discuss todays announcement. This conference call can be accessed through the companys website
at www.flowserve.com. More information about Flowserve Corp. can also be obtained by visiting this
website.
Flowserve Corp. is one of the worlds leading providers of fluid motion and control products and
services. Operating in 56 countries, the company produces engineered and industrial pumps, seals
and valves as well as a range of related flow management services.
Safe Harbor Statement: This news release includes forward-looking statements. Forward looking
statements are all statements that are not statements of historical facts and include, without
limitation, statements relating to our business strategy and statements of expectations, beliefs,
future plans and strategies and anticipated developments concerning our industry, business,
operations and financial performance and condition. The words believe, seek, anticipate,
plan, estimate, expect, intend, project, forecast, predict, potential, continue,
will, may, could, should, and other words of similar meaning are intended to identify
forward-looking statements. The forward-looking statements made in this news release are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve known and unknown risks, uncertainties and other factors that,
in some cases, are beyond our control. These risks, uncertainties and factors may cause our actual
results, performance and achievements, or industry results and market trends, to be materially
different from any future results, performance, achievements or trends expressed or implied by such
forward-looking statements. Important risks, uncertainties and other factors that could cause
actual results to differ from these forward-looking statements include, but are not limited to, the
following: delays in future reports of the Companys management and outside auditors on the
Companys internal control over financial reporting and related certifications; continuing delays
in the Companys 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; the possibility of adverse consequences related to the investigations by the SEC and
foreign authorities regarding our participation in the United States Oil-for-Food program; the
possibility of adverse consequences of governmental tax audits of the Companys tax returns,
including the upcoming IRS audit of the companys U.S. tax returns for the years 2002 through 2004;
the Companys ability to convert bookings, which are not
8
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 Companys products
or competitors responses to the Companys strategies; the Companys 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, uncertainties in
certain Middle Eastern countries such as Iran, and their potential impact on Middle Eastern markets
and global petroleum producers; the Companys 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 Companys relative geographical profitability and its impact on the Companys
utilization of foreign tax credits; the recognition of significant expenses associated with
realigning operations of acquired companies with those of Flowserve; the Companys 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; technological
developments in the Companys products as compared with those of its competitors; changes in
prevailing interest rates and the Companys effective interest costs; and adverse changes in the
regulatory climate and other legal obligations imposed on the Company. It is not possible to
foresee or identify all the factors that may affect our future performance or any forward-looking
information, and new risk factors can emerge from time to time. Given these risks and
uncertainties, you should not place undue reliance on forward-looking statements as a prediction of
actual results. All forward-looking statements included in this news release are based on
information available to us on the date of this news release. We undertake no obligation to revise
or update any forward-looking statement or disclose any facts, events or circumstances that occur
after the date hereof that may affect the accuracy of any forward-looking statement.
(Tables Follow)
9
Flowserve Corporation
Condensed Consolidated Statements of Operations
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Year
Ended December 31, |
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(Amounts in millions, except per share data) |
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2005 |
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2004 |
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Sales |
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$ |
2,695.2 |
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$ |
2,522.5 |
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Cost of sales |
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1,833.4 |
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1,763.9 |
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Gross profit |
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861.8 |
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758.6 |
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Selling, general and administrative expense |
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671.7 |
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597.1 |
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Operating income |
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190.1 |
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161.5 |
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Interest expense, net |
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(70.7 |
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(78.5 |
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Loss on debt repayment and extinguishment |
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(27.7 |
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(2.7 |
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Other expense, net |
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(8.4 |
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(14.0 |
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Earnings before income taxes |
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83.3 |
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66.3 |
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Provision for income taxes |
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37.1 |
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40.4 |
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Income from continuing operations |
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46.2 |
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25.9 |
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Discontinued operations, net of tax |
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(31.9 |
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(4.7 |
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(Loss) gain from sale of discontinued operations, net of tax |
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(2.5 |
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3.0 |
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Net earnings |
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$ |
11.8 |
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$ |
24.2 |
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Average shares outstanding basic |
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55.5 |
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55.1 |
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Average shares outstanding diluted |
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56.7 |
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55.7 |
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Net earnings per share: |
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Basic: |
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Continuing operations |
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$ |
0.83 |
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$ |
0.47 |
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Net earnings |
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0.21 |
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0.44 |
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Diluted: |
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Continuing operations |
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$ |
0.82 |
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$ |
0.46 |
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Net earnings |
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0.21 |
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0.43 |
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Bookings |
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$ |
3,022.3 |
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$ |
2,657.4 |
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Ending backlog |
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994.1 |
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836.4 |
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Flowserve Corporation
Condensed Consolidated Balance Sheets
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December 31, |
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(Amounts in millions, except per share data) |
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2005 |
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2004 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
92.9 |
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$ |
63.8 |
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Restricted cash |
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3.6 |
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Accounts receivable, net |
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472.9 |
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462.1 |
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Inventories, net |
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361.8 |
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388.4 |
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Deferred taxes |
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114.0 |
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81.2 |
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Prepaid expenses and other |
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26.0 |
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54.2 |
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Total current assets |
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1,071.2 |
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1,049.7 |
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Property, plant and equipment, net |
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397.6 |
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432.8 |
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Goodwill |
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834.9 |
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865.3 |
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Deferred taxes |
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34.3 |
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10.4 |
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Other intangible assets, net |
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146.2 |
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157.9 |
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Other assets, net |
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91.3 |
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117.9 |
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Total assets |
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$ |
2,575.5 |
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$ |
2,634.0 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
316.7 |
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$ |
316.5 |
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Accrued liabilities |
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360.8 |
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347.8 |
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Debt due within one year |
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|
12.4 |
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44.1 |
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Deferred taxes |
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5.0 |
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Total current liabilities |
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694.9 |
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708.4 |
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Long-term debt due after one year |
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652.8 |
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657.7 |
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Retirement and postretirement benefits and other liabilities |
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396.0 |
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|
397.7 |
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Total shareholders equity |
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831.8 |
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870.2 |
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Total liabilities and shareholders equity |
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$ |
2,575.5 |
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$ |
2,634.0 |
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|
|
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Flowserve Corporation
Condensed Consolidated Statements of Cash Flows
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Year
Ended December 31, |
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(Amounts in millions) |
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2005 |
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2004 |
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Cash flows Operating activities: |
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Net earnings |
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$ |
11.8 |
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$ |
24.2 |
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Adjustments to reconcile net earnings to net cash provided by
operating activities: |
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143.2 |
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|
70.4 |
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Change in assets and liabilities, net of acquisitions: |
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(27.6 |
) |
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|
172.9 |
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|
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Net cash flows provided by operating activities |
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|
127.4 |
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|
|
267.5 |
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Net cash flows used by investing activities |
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(39.3 |
) |
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(14.1 |
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Net cash flows used by financing activities |
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|
(53.3 |
) |
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|
(250.6 |
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Effect of exchange rate changes on cash |
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(5.7 |
) |
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|
7.5 |
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|
|
|
|
|
|
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Net change in cash and cash equivalents |
|
|
29.1 |
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|
|
10.3 |
|
Cash and cash equivalents at beginning of year |
|
|
63.8 |
|
|
|
53.5 |
|
|
|
|
|
|
|
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Cash and cash equivalents at end of year |
|
$ |
92.9 |
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|
$ |
63.8 |
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|
|
|
|
|
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|
Flowserve Corporation
Supplemental Segment Data
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Year Ended December 31,2005: |
|
Flowserve |
|
|
Flow |
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|
Flow |
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|
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Consolidated |
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(amounts in thousands) |
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Pump |
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Solutions |
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Control |
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All Other |
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Total |
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Total division bookings |
|
$ |
1,575.7 |
|
|
$ |
463.4 |
|
|
$ |
936.0 |
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$ |
47.2 |
|
|
$ |
3,022.3 |
|
Total division sales |
|
|
1,398.4 |
|
|
|
443.6 |
|
|
|
894.3 |
|
|
|
(41.0 |
) |
|
|
2,695.3 |
|
Segment operating income |
|
|
144.6 |
|
|
|
86.0 |
|
|
|
89.2 |
|
|
|
(129.7 |
) |
|
|
190.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,2004: |
|
Flowserve |
|
|
Flow |
|
|
Flow |
|
|
|
|
|
|
Consolidated |
|
(amounts in thousands) |
|
Pump |
|
|
Solutions |
|
|
Control |
|
|
All Other |
|
|
Total |
|
Total division bookings |
|
$ |
1,339.1 |
|
|
$ |
395.0 |
|
|
$ |
851.8 |
|
|
$ |
71.5 |
|
|
$ |
2,657.4 |
|
Total division sales |
|
|
1,329.8 |
|
|
|
394.0 |
|
|
|
838.7 |
|
|
|
(40.0 |
) |
|
|
2,522.5 |
|
Segment operating income |
|
|
110.1 |
|
|
|
72.6 |
|
|
|
65.3 |
|
|
|
(86.5 |
) |
|
|
161.5 |
|
###