SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-13179

FLOWSERVE CORPORATION
(Exact name of registrant as specified in its charter)

NEW YORK                                        31-0267900
-------------------------------                       -------------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                        Identification No.)

222 W. LAS COLINAS BOULEVARD
SUITE 1500
IRVING, TEXAS                                     75039
----------------------------------------                ---------------------
(Address of principal executive offices)                      (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 443-6500
---------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS                          WHICH REGISTERED
-------------------                      ------------------------

COMMON STOCK, $1.25 PAR VALUE               NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the common stock held by non-affiliates of the
registrant as of February 15, 2002 was approximately $1,166.4 million.

The number of shares outstanding of the registrant's common stock as of February
15, 2002: 45,277,715 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement dated March 18, 2002 are
incorporated by reference into Part III of this Form 10-K.

Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 2001 are incorporated by reference into Parts I, II and IV of this
Form 10-K.

PART I

ITEM 1. BUSINESS

Flowserve Corporation ("Flowserve") was incorporated in the State of New York on
May 1, 1912. Except where otherwise indicated and unless the context otherwise
requires, the terms "Flowserve," "Company," "we," "us," "our" and "our company"
refer collectively to Flowserve Corporation and its subsidiaries.

We believe that we are the largest manufacturer and aftermarket service provider
of comprehensive flow control systems throughout the world. Our Company develops
and manufactures precision-engineered flow control equipment for critical
service applications where high reliability is required. The flow control system
components we produce include pumps, valves and mechanical seals. The Company's
products and services are used in several industries, including petroleum,
chemical, power generation and water treatment.

We conduct our operations through three segments that encompass our primary
product types: (1) Pump Division, (2) Flow Solutions Division and (3) Flow
Control Division. Our Pump Division supplies engineered pumps. Our Flow Control
Division supplies valves and related products. Our Flow Solutions Division
provides mechanical seals and aftermarket services. Through each of our
segments, we provide aftermarket replacement parts.

PUMP DIVISION

Through our Pump Division, we design, manufacture and distribute engineered and
industrial pumps and pump systems, replacement parts and related equipment
principally to industrial markets. Pump's products and services are primarily
used by companies that operate in the petroleum, chemical processing, power
generating, water treatment and general industrial markets. We manufacture our
pump systems and components at eight plants in the United States, one in
Canada, three in Latin America, ten in Europe and one in Asia. We also
manufacture a small portion of our pumps through several foreign joint ventures.
We market our pump products, which are primarily sold to end users and
engineering and construction companies, through our worldwide sales force,
regional service and repair centers, independent distributors and sales
representatives.

PUMP PRODUCTS

We manufacture more than 350 different pump models, of which approximately
60-70% are highly engineered and designed for customized applications. These
high horsepower engineered pumps are manufactured with a wide range of metal
alloys and in a variety of configurations including pumps that utilize seals
(sealed) and pumps that do not (sealless).

The following is a summary list of Pump's general product types and globally
recognized brands:

PRODUCT TYPES

Centrifugal Pumps
-  Chemical Process ANSI and ISO
-  Petroleum Process API 610
-  Horizontal Between Bearing Single-stage
-  Horizontal Between Bearing Multi-stage
-  Vertical
-  Submersible Motor
-  Specialty
-  Nuclear

Positive Displacement Pumps

-  Reciprocating
-  Gear
-  Twin Screw

BRAND NAMES

- ACEC
- Aldrich
- Byron Jackson(R)
- Cameron
- Durco(R)
- Flowserve(R)
- Jeumont-Schneider
- Pacific
- Pleuger
- PolyChem
- Scienco
- Sier-Bath
- Simpson
- Stork
- United Centrifugal(R)
- Western Land Roller
- Wilson-Snyder(R)
- Worthington(R)

1

PUMP NEW PRODUCT DEVELOPMENTS

Our investments in new product research and development have consistently led to
producing longer lasting and more efficient pumps. The majority of our new
products and enhancements are driven by our customers' needs to achieve higher
throughput at lower costs. As a result, we continually work with our customers
to develop better pump products to improve their operations.

PUMP CUSTOMERS

Pump sells its products to more than 1,000 customers including leading
engineering and construction firms, original equipment manufacturers (OEM),
distributors and end users. Pump sales are diversified across several industries
including petroleum, power, chemical and water. Our sales mix of original
equipment products and aftermarket replacement parts diversifies our business
and mitigates somewhat the impact of an economic downturn on our business.

PUMP COMPETITION

The industry is highly fragmented with more than 500 competitors. We compete,
however, primarily against a relatively limited number of large companies
operating on a global scale. Competition is generally based on price, expertise,
delivery times, breadth of product offerings, contractual terms, previous
installation history and reputation for quality. Price competition for original
equipment tends to be more intense than for aftermarket services.

The pump industry has undergone consolidation in recent years. The two primary
causes for the consolidation trend are: (1) the need to lower costs through
reduction of excess capacity in the market and (2) customers' preference to
align with global full service suppliers and simplify their supplier base.
Despite the consolidation activity, the market remains highly competitive.

PUMP BACKLOG

The Pump Division's backlog of orders at December 31, 2001 was $520.9 million,
compared with $526.4 million at December 31, 2000. We believe that a high
percentage of the current backlog will be shipped by December 31, 2002.

FLOW SOLUTIONS DIVISION

Through our Flow Solutions Division ("FSD"), we design, manufacture and
distribute mechanical seals and sealing systems and provide parts, repair and
services for flow control equipment used in process industries. Flow control
products require mechanical seals to be replaced throughout the products' useful
lives. The replacement of mechanical seals is an integral part of aftermarket
services. Our mechanical seals are used on a variety of pumps, mixers,
compressors, steam turbines and specialty equipment, primarily in the petroleum,
chemical processing, power generation, water treatment industries and general
industrial end-markets. We manufacture mechanical seals through two plants in
the United States, three in Europe and the Middle East, two in Latin America and
three in Asia. Through FSD's global network of service and quick response
centers, we provide service, repair and diagnostic services for maintaining
flow control systems components.

Our mechanical seal products are primarily marketed through our sales force
directly to end users. A portion of our mechanical seal products is sold
directly to OEMs for incorporation into pumps, compressors, mixers or other
rotating equipment requiring mechanical seals. Distributors and sales agents are
also used in the sale of mechanical seals.

FSD PRODUCTS AND SERVICES

MECHANICAL SEALS. We design, manufacture and distribute approximately 180
different models of mechanical seals and sealing systems, of which approximately
65% are highly engineered and designed for customized applications. We believe
our ability to turn around engineered new seal product orders within 72 hours
from the customer's request, through design, engineering, manufacturing, testing
and delivery, provides us with a competitive advantage. The mechanical seal is
critical to the reliable operation of pumps, compressors and mixers for
prevention of leakage and emissions of hazardous substances and the reduction of
shaft wear caused by non-mechanical seals. We also manufacture a 

2

gas-lubricated mechanical seal used in high-speed compressors for gas
transmission and oil and gas production markets. We continually update our
mechanical seals and sealing systems for new technologies.

The following is a summary list of FSD's general product types and globally
recognized brands:

PRODUCT TYPES

- Cartridge
- Dry-Running
- Metal Bellow
- Elastomeric
- Split
- Gas Barrier
- Service and Repair
- Monitoring and Diagnostics

BRAND NAMES

- BW Seals(R) 
- Durametallic(R) 
- Five Star Seal(R) 
- GASPAC(R) 
- Pacific Wietz(TM) 
- Pac-Seal(R)

SERVICE. We provide aftermarket services through our global network of
approximately 150 service and quick response centers in 30 countries. Our
service personnel provide a comprehensive set of equipment maintenance services
for flow control systems, including repair, advanced diagnostics, installation,
commissioning, re-rate and retrofit programs and full machining capabilities. A
large portion of our service work is performed on a quick response basis, and we
offer 24-hour service in all of our major markets.

FSD NEW PRODUCT DEVELOPMENTS

Our investments in new product research and development are focused on
developing products that last longer and work more efficiently. Approximately
30% of our original equipment mechanical seal sales for 2001 were sales of
products developed within the past five years. Our latest mechanical seal and
seal system innovations include a double gas bellows seal, a high pressure
compressor seal, a steam turbine gas seal, a modular cartridge seal platform, a
modular mixer seal platform and a flushless heavy duty slurry seal, as well as
numerous product upgrades and improvements.

FSD CUSTOMERS

Our mechanical seal products are sold to OEMs for incorporation into pumps,
compressors, mixers or other rotating equipment requiring mechanical seals, and
directly to end-users. FSD's mechanical seal sales are diversified among several
industries, including petroleum, chemical, power generation and other
industries. Our aftermarket services are provided to many of the same end-users
that we serve for pump, valve and mechanical seal products.

We have established alliances with over 200 customers. These alliances provide
significant benefits to us, as well as to our customers, by creating a more
efficient supply chain through the reduction of procurement costs and increased
communication with our customers. Our alliances enable us to provide products
and services to our customers in a timely and cost-effective manner.

FSD COMPETITION

We compete against a number of manufacturers in the sale of mechanical seals.
Our largest global mechanical seal competitor is John Crane, a unit of Smiths
Group Plc.

In the service business, we often compete against the customers' in-house
maintenance departments and locally owned and operated repair shops.

FSD BACKLOG

FSD's backlog of orders at December 31, 2001 was $73.8 million, compared with
$69.4 million at December 31, 2000. We believe that virtually all of the current
backlog will be shipped by December 31, 2002.

FLOW CONTROL DIVISION

Through our Flow Control Division ("FCD"), we design, manufacture and distribute
manual valves, control valves, actuators and related equipment. FCD's valve
products are an integral part of a flow control system and are used to control
the flow of liquids and gases. Substantially all of FCD's valves are specialized
and engineered to perform specific functions within a flow control system.

3

FCD's products are primarily used by companies that operate in the petroleum,
chemical and power generation industries. We manufacture valves and actuators
through four plants in the United States, six in Europe and three in other
regions. We also manufacture a small portion of our valves through a foreign
joint venture. Manual valve products and valve actuators are distributed through
our sales force personnel and a network of distributors. Automatic control
valves are marketed through sales engineers and service and repair centers or on
a commission basis through sales representatives in our principal markets.

FCD PRODUCTS

We manufacture approximately 50 different valves, actuators and automated valve
accessories, of which approximately 65% are highly engineered and designed for
customized applications. Our valves are used in a wide variety of applications
from general service to highly corrosive environments, as well as in
environments experiencing extreme temperatures and/or pressures and applications
requiring zero leakage. In addition to traditional valves, we also produce
valves under the Valtek(R) brand that incorporate "smart" valve technologies.
"Smart" valve technology packages integrate high technology sensors,
microprocessor controls and digital positioners into a high performance control
valve, which permits real time system analysis, system warnings and remote
services. We were the first company to introduce "smart" valve technologies in
response to demands for increased plant automation, more efficient process
control and digital communications. We offer a growing line of digital products
and are incorporating digital technologies into existing products to upgrade
performance.

The following is a summary list of FCD's general product types and globally
recognized brands:

PRODUCT TYPES

- Actuator Accessories 
- Control Valves 
- Digital Communications 
- Manual Quarter-Turn Valves 
- Valve Automation Systems 
- Valve/Actuator Software 
- Nuclear Valves 
- Quarter-Turn Actuators

BRAND NAMES

- Accord(R)
- Anchor/Darling
- Atomac(TM) 
- Automax(R) 
- Battig 
- Durco(R) 
- Kammer(R) 
- Sereg(TM) 
- Valtek(R)

FCD NEW PRODUCT DEVELOPMENTS

Our investments in new product research and development are focused on
maintaining our technological leadership position and differentiating our
product offering. When necessary, we invest in the redesign of existing products
in an effort to improve their performance and continually meet customer needs.
Our latest product innovations include the Logix digital positioner which
enhances performance, speed and accuracy of pneumatic control valves and
provides for quick calibration and setup; the BUSwitch which enables control and
monitoring of automated on/off quarter-turn valves through FOUNDATION fieldbus
technology; and the Mach 1 high performance plug valve for higher temperature
and pressure applications in the chemical processing industry.

FCD CUSTOMERS

FCD's customer mix is diversified within several industries including chemical,
petroleum, power and other industries. We sell a mix of original equipment and
aftermarket parts.

FCD COMPETITION

Like the industrial pump market, the industrial valve market is highly
fragmented and has undergone a significant amount of consolidation in recent
years. Within the valves segment, we believe that the top ten domestic
manufacturers generate less than 25% of domestic sales.

FCD BACKLOG

FCD's backlog of orders at December 31, 2001 was $68.0 million, compared with

4

$62.9 million at December 31, 2000. We believe that 85% to 90% of the current
backlog will be shipped by December 31, 2002.

GENERAL BUSINESS

COMPETITION

The markets for the Company's products are highly competitive. Competition
occurs on the basis of price, technical expertise, delivery, contractual terms,
previous installation history and reputation for quality. Delivery speed and the
proximity of service centers are important with respect to aftermarket products.
Customers are generally more likely to rely on the Company than its competitors
for the Company's aftermarket products relating to its more highly engineered
and customized products than for its standard products. Price competition tends
to be more significant for OEMs than aftermarket services and has been generally
increasing. In the aftermarket portion of its service business, the Company
competes against both large and well-established national or global competitors
and, in some markets, against smaller regional and local companies, as well as
the in-house maintenance departments of the Company's end-user customers. In the
sale of aftermarket products and services, the Company benefits from the large
installed base of pumps which require maintenance, repair and replacement parts.

In the petroleum industry, the competitors for aftermarket services tend to be
the customers themselves because of their in-house capabilities. In other
industries, except the nuclear power industry, the competitors for aftermarket
services tend to be low cost replicators of spare parts and local independent
repair shops for the Company's products. The Company has certain competitive
advantages in the nuclear power industry because it maintains the N Stamp that
is required to service customers in that industry and because the Company has a
considerable base of proprietary knowledge.

Customers for the Company's products are attempting to reduce the number of
vendors from which they purchase in order to reduce the size and diversity of
their inventory. Although vendor reduction programs could adversely affect the
Company's business, the Company has been successful in entering into "alliance"
arrangements with a number of customers both in the United States and overseas
which provide competitive advantages to the Company.

RESEARCH AND DEVELOPMENT

The Company conducts research and development at its own facilities in various
locations. In 2001, 2000 and 1999, the Company spent approximately $23.4
million, $24.8 million, and $25.6 million, respectively, on Company-sponsored
research and development, primarily for new product development and extensions
of existing products.

The Company's research and development group consists of engineers involved in
new product development as well as the support and improvement of existing
products. Additionally, the Company sponsors consortium programs for research
with various universities and conducts limited development work jointly with
certain of its vendors, licensees and customers. Management believes current
expenditures are adequate to sustain ongoing research and development
activities.

CUSTOMERS

The Company sells to a wide variety of customers. No individual customer
accounted for more than 10% of the Company's 2001 net sales.

RISKS OF INTERNATIONAL BUSINESS

In 2001, 43% of our sales originated outside the United States. Sales to foreign
destinations, including U.S. export sales, were 48% of our sales in 2001, and
included substantial business activity in the Middle East. Our activities thus
are subject to the customary risks of operating in an international
environment, such as unstable political situations, local laws, the potential
imposition of trade restrictions or tariff increases and the relationship of the
U.S. dollar to other currencies. The impact of these conditions is mitigated
somewhat by the strength and diversity of the Company's product lines and
geographic coverage. To minimize the impact of foreign exchange rate 

5

movements on its operating results, the Company often enters into forward
exchange contracts to hedge specific foreign currency denominated transactions.
See Note 1 to consolidated financial statements on pages 36 to 39 of the 2001
Annual Report to Shareholders, which is incorporated by reference in this Form
10-K.

INTELLECTUAL PROPERTY

The Company owns a number of trademarks and patents relating to the name and
design of its products. The Company considers its trademarks to be important to
its business. The patents underlying much of the technology for the Company's
products have been in the public domain for many years. Surviving patents are
not considered, either individually or in the aggregate, to be material to the
Company's business. However, the Company's pool of proprietary information,
consisting of know-how and trade secrets relating to the design, manufacture and
operation of its products and their use, is considered particularly important
and valuable. Accordingly, the Company protects such proprietary information.
The Company, in general, is the owner of the rights to the products which it
manufactures and sells, and the Company is not dependent in any material way
upon any license or franchise to operate.

RAW MATERIALS

The principal raw materials we use in manufacturing our products are readily
available. The main raw materials we use include bar stock and structural steel,
castings, fasteners, gaskets, motors, silicon and carbon faces and Teflon(R).
While substantially all raw materials are purchased from outside sources, we
have been able to obtain an adequate supply of raw materials, and no shortage of
such materials is currently anticipated. We intend to expand our use of
worldwide sourcing to capitalize on low cost sources of purchased goods.

We are a vertically-integrated manufacturer of certain pump and valve products.
Certain corrosion-resistant castings for Company pumps and quarter-turn valves
are manufactured at our Dayton, Ohio foundries. Other metal castings are
manufactured at our two other foundries or are purchased from outside sources.

We also produce most of our highly engineered corrosion resistant plastic parts
for certain pump and valve product lines. This includes rotomolding as well as
injection and compression molding of a variety of fluorocarbon and other
plastic materials.

Suppliers of raw materials for nuclear markets must be qualified by the American
Society of Mechanical Engineers and, accordingly, are limited in number.
However, to date we have experienced no significant difficulty in obtaining
such materials.

EMPLOYEES AND LABOR RELATIONS

We employ approximately 11,000 persons of whom approximately 50% work in the
United States. Our hourly employees at our Vernon, California pump manufacturing
plant, plus those at our valve manufacturing plant in Williamsport, Pennsylvania
and at our foundry in Dayton, Ohio are represented by unions. Our operations in
the following countries are unionized: Argentina, Austria, Belgium, Brazil,
Canada, France, Germany, Italy, Mexico, The Netherlands, Spain and the United
Kingdom. We believe employee relations throughout our operations are generally
satisfactory, including those represented by unions.

ENVIRONMENTAL REGULATIONS AND PROCEEDINGS

We are subject to environmental laws and regulations in all jurisdictions in
which we have operating facilities. We periodically make capital expenditures
for pollution abatement and control to meet environmental requirements.

At present, we have no plans for any material capital expenditures for
environmental control facilities. However, we have experienced and continue to
experience operating costs relating to environmental matters, although certain
costs have been offset by our successful waste minimization programs. Based on
information currently available, we believe that future environmental compliance
expenditures will not have a material adverse effect on our financial position.
We have established reserves which we believe to be adequate to cover potential
environmental liabilities.

6

EXPORTS

Licenses are required from U.S. government agencies to export certain of the
Company's products from the United States. In particular, products with nuclear
applications are restricted, although limitations are placed on the export of
certain other pump, valve and mechanical seal products.

The Company's export sales from the United States to foreign unaffiliated
customers were $167.3 million in 2001, $148.1 million in 2000 and $142.7 million
in 1999.

FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY

This Annual Report on Form 10-K, and other written reports and oral
statements made from time-to-time by the Company, contain various
forward-looking statements and include assumptions about Flowserve's future
market conditions, operations and results. These statements are based on
current expectations and are subject to significant risks and
uncertainties. They are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Among the many factors
that could cause actual results to differ materially from the
forward-looking statements are: 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 Flowserve's strategies;
the Company's ability to integrate past and future acquisitions into its
management and operations; political risks or trade embargoes affecting
important country markets; the health of the petroleum, chemical, water
treatment, and power generation industries; economic conditions and the
extent of economic growth in areas inside and outside the United States;
unanticipated difficulties or costs associated with the implementation of
systems, including software; the Company's ability to meet the financial
covenants and other requirements of its financing agreements; repercussions
from the terrorist attacks of September 11, 2001, and the response of the
United States to those attacks; technological developments in the Company's
products as compared to those of its competitors; changes in the prevailing
interest rates and the effective interest cost which the Company bears; and
adverse changes in the regulatory climate and other legal obligations
imposed on Flowserve. The Company undertakes no obligation to publicly
update or revise any forward-looking statement as a result of new
information, future events or otherwise.

7

ITEM 2. PROPERTIES

The Company's corporate headquarters is a leased facility in Irving, Texas
encompassing approximately 49,000 square feet.

Information on the principal manufacturing facilities, by segment after giving
effect to facility closings completed in 2001, is as follows:

No. of       Approx. Sq.
Plants         Footage
------       -----------

PUMP
Domestic:                    8            1,129,900
International:               15           1,991,000

FLOW SOLUTIONS
Domestic:                    2              162,000
International:               8              286,400

FLOW CONTROL
Domestic:                    4              528,400
International:               9              389,850

Most of the Company's principal manufacturing facilities are owned; its leased
facilities are subject to long-term lease agreements.

On the average, the Company utilizes approximately 55% to 75% of its
manufacturing capacity, although there is a variation in usage rate among the
facilities. The Company could, in general, increase its capacity through the
purchase of new or additional manufacturing equipment without obtaining
additional facilities.

We maintain a substantial network of domestic and foreign service centers and
sales offices. Most of these facilities are leased.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in ordinary routine litigation incidental to its
business, none of which we believe to be material to the Company's financial
condition. For further information about such litigation, see Note 11 of the
Consolidated Financial Statements provided as part of Item 8 of this Form 10-K
and incorporated herein by reference.

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

None.

8

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock of the Company (FLS) is traded on the New York Stock Exchange.
On February 15, 2002, the Company's records showed approximately 1,800
shareholders of record. Based on these records plus requests from brokers and
nominees listed as shareholders of record, the Company estimates there are
approximately 12,100 beneficial owners of its common stock. The company did not
pay a dividend on its shares of common stock in 2001 and has no current plans to
begin paying dividends.

PRICE RANGE OF FLOWSERVE COMMON STOCK
(INTRADAY HIGH/LOW PRICES)

2001                    2000
-------------          -------------

First Quarter                               $24.35/$19.22          $17.00/$10.56
Second Quarter                              $33.30/$20.76          $17.69/$12.00
Third Quarter                               $31.15/$18.90          $18.88/$14.50
Fourth Quarter                              $27.02/$18.70          $23.50/$16.13

During 2001, 2000 and 1999, the Company issued 27,700, 26,645 and 181,213 shares
of restricted common stock, respectively, pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933. Shares were
issued for the benefit of directors and certain officers and employees of the
Company subject to restrictions on transfer.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data for the five years ended December 31, 2001, which
appears on page 61 of the 2001 Annual Report to Shareholders, is incorporated
herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis appears on pages 23 through 31 of the 2001
Annual Report to Shareholders and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosure about market risk appears on page 30 of the Company's 2001 Annual
Report to Shareholders under the heading "Market Risks Associated with Financial
Instruments" and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and accompanying notes appearing on pages 32 through 60
of the 2001 Annual Report to Shareholders, together with the reports thereon of
PricewaterhouseCoopers LLP, dated February 5, 2002, and Ernst & Young LLP, dated
February 10, 2000, except for Note 8 as to which date is July 14, 2000,
appearing on page 22 of the 2001 Annual Report to Shareholders, and selected
quarterly financial data appearing on page 60 of the 2001 Annual Report to
Shareholders are incorporated herein by reference.

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

None.

9

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained under the heading "Election of Directors" in the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
April 18, 2002, (the "2002 Proxy Statement") is incorporated herein by
reference. The executive officers of the Company, all positions and offices
presently held by each person named, their ages as of February 15, 2002, and
their business experience during the last five years are stated below. Executive
officers serve at the discretion of the Board of Directors.

Name and Position                            Age      Principal Occupation During Past Five Years
-----------------                            ---      -------------------------------------------

C. Scott Greer                                51      President since July 1999, Chief Executive Officer since January
Chairman, President and CEO                           2000, and Chairman of the Board since April 2000; Chief Operating
Officer from July to December 1999; President of UT Automotive, a
subsidiary of United Technologies Corporation, a supplier of
automotive systems and components, from 1997 to 1999; President
and a director of Echlin, Inc., an automotive parts supplier,
from 1990 to 1997, and its Chief Operating Officer from 1994 to
1997.

Carlos Cardoso                                43      Vice President and President, Pump Division since August
Vice President and President, Pump                    2001; Vice President and General Manager of the Engine
Division                                              Systems and Accessories Division of Honeywell International
Inc. (formerly Allied Signal, Inc.) from 1999 to August 2001;
Vice President and General Manager of Marketing, Sales and
Services/Aerospace Services of Allied Signal, Inc from 1998
to 1999.  Vice President of Operations for Aerospace
Equipment Systems, a division of the Allied Signal Aerospace
Sector from 1996 to 1998.

Mark D. Dailey                                43      Vice President, Supply Chain and Continuous Improvement, since 1999;
Vice President,                                       Vice President, Supply Chain and other supply chain management
Supply Chain and Continuous Improvement               positions, from 1992 to 1999 for the North American Power Tools
Division of The Black and Decker Company, a manufacturer of power
tools, fastening and assembly systems and security hardware and
plumbing products.

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Name and Position                            Age      Principal Occupation During Past Five Years
-----------------                            ---      -------------------------------------------

Renee J. Hornbaker                            49      Vice President and Chief Financial Officer since December
Vice President and                                    1997; Vice President, Business Development and Chief
Chief Financial Officer                               Information Officer in 1997; Vice President, Finance and
Chief Financial Officer of BW/IP, Inc. in 1997; Vice
President, Business Development of BW/IP from 1996 to 1997.

Rory E. MacDowell                             51      Vice President and Chief Information Officer since 1998;
Vice President and                                    Chief Information Officer of Keystone International, Inc., a
Chief Information Officer                             manufacturer and distributor of flow control products from
1993 to 1997.

Cheryl D. McNeal                              51      Vice President, Human Resources since 1996.
Vice President,
Human Resources

George A. Shedlarski                          57      President, Flow Solutions Division since January 1999 and       
Vice President and President, Flow                    President, Flow Control Division since August, 1999; President, 
Solutions and Flow Control Divisions                  Fluid Sealing Division from 1997 to January 1999; President,    
ServiceRepair Division in 1997; President, Rotating Equipment   
Group in 1997; Group Vice President, Industrial Products Group  
from 1994 to 1997.                                              

Ronald F. Shuff                               49      Vice President since 1990 and Secretary and General Counsel
Vice President, Secretary and                         since 1988.
General Counsel

Kathleen A. Giddings                          39      Vice President and Controller since October 2000; Vice
Vice President and Controller                         President and Controller of the Pump Division from 1997 to
October 2000; and Controller from 1993 to 1997.

David F. Chavenson                            49      Vice President and Treasurer since October 2001; Senior Vice
Vice President and Treasurer                          President and Chief Financial Officer for Worldwide Flight
Services, Inc. from 2000 to October 2001; Vice President,
Finance and Chief Financial Officer of Rutherford - Moran Oil
Corporation from 1996 to 1999.

11

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is set forth in the 2002 Proxy
Statement and is incorporated herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The information required by this Item 12 is set forth in the 2002 Proxy
Statement and is incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is set forth to the extent applicable
in the 2002 Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.  Financial Statements

The financial statements listed on the accompanying Index to Financial
Statements and Financial Statement Schedule, on page F-1 hereof, are
filed as part of this Form 10-K.

2.  Financial Statement Schedule

The required financial statement schedule, together with the report
thereon of PricewaterhouseCoopers LLP dated February 5, 2002, listed in
the accompanying Index to Financial Statements and Financial Statement
Schedule on page F-1 hereof, is filed as part of this Form 10-K.

3.  Exhibits

The exhibits listed on the accompanying Index to Exhibits on pages 13
through 17 are filed as part of this Form 10-K.

(b)      Reports on Form 8-K

None.

(c)      See Item 14(a) 3 above.

(d)      See Item 14(a) 2 above.

12

INDEX TO EXHIBITS*

EXHIBIT
NUMBER                                  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, was 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, was 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, was 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. was filed as Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1988.

3.2         1989 Amendment to Certificate of Incorporation was filed as Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.

3.3         By-Laws of The Duriron Company, Inc. (as restated) were filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987.

3.4         1996 Certificate of Amendment of Certificate of Incorporation was
filed as Exhibit 3.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.

3.5         Amendment No. 1 to Restated Bylaws was filed as Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.

3.6         April 1997 Certificate of Amendment of Certificate of Incorporation
was 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.

3.7         July 1997 Certificate of Amendment of Certificate of Incorporation
was filed as Exhibit 3.6 to the Company's Quarterly Report on Form
10-Q, for the Quarter ended June 30, 1997.

4.1         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
BankOne, N.A., as Rights Agent, which includes as Exhibit B thereto
the Form of Rights Certificate which was filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A on August 13, 1986.

13

4.3         Amendment dated August 1, 1996, to Rights Agreement was 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, was
filed as Exhibit 1 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 was 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 was filed
as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.

4.7         Indenture dated as of August 8, 2000, between the Company, the
guarantors identified therein and The Bank of New York, as trustee
for $290,000,000 aggregate principal amount of 12.25% Senior
Subordinated Notes due August 15, 2010, was filed as Exhibit 4.7 to
the Form S-4 Registration Statement dated as of September 27, 2000.

4.8         Indenture dated as of August 8, 2000, between Flowserve Finance
B.V., the guarantors identified therein and The Bank of New York, as
Trustee for $100,000,000 aggregate principal amount of 12.25% Senior
Subordinated Notes due August 15, 2010, was filed as Exhibit 4.8 to
the Form S-4 Registration Statement dated as of September 27, 2000.

4.9         Dollar Notes Registration Rights Agreement dated August 3, 2000,
among the Company, the Dollar Notes Guarantors, Credit Suisse First
Boston, Bank of America Securities Inc, ABN AMRO Incorporated and
Banc One Capital Markets, Inc., was filed as Exhibit 4.10 to the
Form S-4 Registration Statement dated as of September 27, 2000.

4.10        Euro Notes Registration Rights Agreement dated August 3, 2000, among
FFBV, the Euro Notes Guarantors, Credit Suisse First Boston (Europe)
Limited, Bank of America International Limited, ABN AMRO
International Limited and First Chicago Limited, was filed as
Exhibit 4.11 to the Form S-4 Registration Statement, dated as of
September 27, 2000.

10.1        Flowserve Corporation Incentive Compensation Plan for Senior
Executives, as amended and restated effective October 1, 2000 was
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 was 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 was 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 was filed
as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987.**

14

10.5        Amendment No. 1 to the first Master Benefit Trust Agreement dated
October 1, 1987 was filed as Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.**

10.6        Amendment No. 2 to First Master Benefit Trust Agreement was filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.**

10.7        Second Master Benefit Trust Agreement dated October 1, 1987 was
filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.**

10.8        First Amendment to Second Master Benefit Trust Agreement was filed
as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.**

10.9        Long-Term Incentive Plan, as amended and restated effective October
1, 2000 was 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 was 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 was 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
was 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 was 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 was 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
was 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 was 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") was filed as Exhibit 10.15 to the
Company's Annual Report to Form 10-K for the year ended December 31,
1988.**

10.18       Amendment No. 1 to Director Retirement Plan was filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.**

15

10.19       The Company's Benefit Equalization Pension Plan (the "Equalization
Plan") was filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989.**

10.20       Amendment # 1 dated December 15, 1992 to the Equalization Plan was
filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.**

10.21       Flowserve Corporation Executive Equity Incentive Plan as amended and
restated effective July 21, 1999, was 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 was filed as
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.**

10.23       Executive Life Insurance Plan of Flowserve Corporation was filed as
Exhibit 10.29 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.**

10.24       Executive Long-Term Disability Plan of The Duriron Company, Inc. was
filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.**

10.25       Flowserve Corporation 1997 Stock Option Plan was included as Exhibit
A to the Company's 1997 Proxy Statement which was filed on March 17,
1997.**

10.26       First Amendment to the Flowserve Corporation 1997 Stock Option Plan
was filed as Exhibit 10.28 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998. **

10.27       Amendment No. 2 to the Flowserve Corporation 1997 Stock Option Plan
was filed as Exhibit 10.29 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999..**

10.28       Amendment No. 3 to the Flowserve Corporation 1997 Stock Option Plan
was filed as Exhibit 10.29 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000.**

10.29       Flowserve Corporation 1999 Stock Option Plan was included as Exhibit
A to the Company's 1999 Proxy Statement which was filed on March 15,
1999.**

10.30       Amendment No. 1 to the Flowserve Corporation 1999 Stock Option Plan
was filed as Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 1999.**

10.31       Amendment No. 2 to the Flowserve Corporation 1999 Stock Option Plan
was filed as Exhibit 10.32 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000.**

10.32       BW/IP International, Inc. Supplemental Executive Retirement Plan as
amended and restated was filed as Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarter entered March 31,
1998.**

10.33       Flowserve Corporation 1998 Restricted Stock Plan was included as
Exhibit A to the Company's 1999 Proxy Statement which was filed on
April 9, 1998 .**

10.34       Amendment No. 1 to the Flowserve Corporation 1998 Restricted Stock
Plan was filed as Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.**

16

10.35       Amendment No. 2 to the Flowserve Corporation 1998 Restricted Stock
Plan was filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.**

10.36       Amendment No. 3 to Flowserve Corporation 1998 Restricted Stock Plan
was filed as Exhibit 10.37 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000.**

10.37       Amendment No. 4 to the Flowserve Corporation 1998 Restricted Stock
Plan was filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2001.

10.38       Flowserve Corporation 1998 Restricted Stock Dividend Plan (effective
October 1, 2000) was filed as Exhibit 10.38 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.**

10.39       Employment Agreement, effective July 1, 1999, between the Company
and C. Scott Greer was filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
**

10.40       Loan Agreement between the Company and C. Scott Greer was filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.**

10.41       Credit Agreement among the Registrant, certain of its subsidiaries
referred to therein, the lenders referred therein, Credit Suisse
First Boston, New York branch, a syndication agent, Bank of America,
N.A., as administrative agent, collateral agent and swingline
lender, and ABN AMRO Bank N.V., Bank One, N.A. and Salomon Smith
Barney, Inc., as co-documentation agents, dated August 8, 2000
("2000 Credit Agreement"), was filed as Exhibit 10.45 to the Form
S-4 Registration Statement dated as of September 27, 2000.

10.42       Security Agreement among the Registrant, certain of its subsidiaries
referred to therein and Bank of America, N.A. dated as of August 8,
2000, was filed as Exhibit 10.46 to the Form S-8 Registration
Statement dated as of September 27, 2000.

10.43       First Amendment to the 2000 Credit Agreement dated November 9, 2001
(filed herewith).

10.44       Amendment to Master Benefit Trust Agreement was filed as Exhibit
10.45 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.**

10.45       Executive severance arrangement (filed herewith).**

13.1        2001 Annual Report to Shareholders (filed herewith as part of this
report to the extent incorporated herein by reference).

21.1        Subsidiaries of the Company (filed herewith).

23.1        Consent of PricewaterhouseCoopers LLP (filed herewith).

23.2        Consent of Ernst & Young LLP (filed herewith).

17

"*"    For exhibits of the Company incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission, the
Company's file number with the Commission since July 1997 is "1-13179"
and the previous file number was "0-325."

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

18

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on this 21st day of
February 2002.

FLOWSERVE CORPORATION
(Registrant)

By:  /s/ C. Scott Greer
---------------------------------------
C. Scott Greer
Chairman, President and Chief 
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.

SIGNATURE                               TITLE                                                DATE
---------                               -----                                                ----

/s/ C. Scott Greer                      Chairman, President and                              February 21, 2002
---------------------------------       Chief Executive Officer
C. Scott Greer                          (Principal Executive Officer)

/s/ Renee J. Hornbaker                  Vice President and Chief Financial Officer           February 21, 2002
---------------------------------       (Principal Financial Officer)
Renee J. Hornbaker

/s/ Kathleen A. Giddings                Vice President and Controller                        February 21, 2002
---------------------------------       (Principal Accounting Officer)
Kathleen A. Giddings

/s/ Diane C. Harris                     Director, Chairman of Audit/Finance Committee        February 21, 2002
---------------------------------
Diane C. Harris

/s/ William C. Rusnack                  Director, Member Audit/Finance Committee             February 21, 2002
---------------------------------
William C. Rusnack

/s/ Charles M. Rampacek                 Director, Member Audit/Finance Committee             February 21, 2002
---------------------------------
Charles M. Rampacek

/s/ James O. Rollans                    Director, Member Audit/Finance Committee             February 21, 2002
---------------------------------
James O. Rollans

19

FLOWSERVE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Item 14(a)(1) and (2)

Annual Report       Annual Report
To                   on
Shareholders          Form 10-K
------------        -------------

Flowserve Corporation Consolidated Financial Statements

Reports of Independent Accountants and Auditors                                       22
Consolidated Balance Sheets at                                                        33
December 31, 2001 and 2000
For each of the three years in the period ended December 31, 2001:
Consolidated Statements of Operations                                             32
Consolidated Statements of Comprehensive Loss                                     32
Consolidated Statements of Shareholders' Equity                                   34
Consolidated Statements of Cash Flows                                             35
Notes to Consolidated Financial Statements                                       36-60

Flowserve Corporation Financial Statement Schedule for each of the three years
in the period ended December 31, 2001

Report of Independent Accountants on
Financial Statement Schedule                                                                       F-2
Schedule II - Valuation and Qualifying Accounts                                                       F-3

Financial statement schedules not included in this Annual Report on Form 10-K
have been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders 
of Flowserve Corporation:

Our audits of the consolidated financial statements referred to in our report
dated February 5, 2002 appearing in the 2001 Annual Report to Shareholders of
Flowserve Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K as of December 31, 2001 and 2000 and for each of the two years then ended.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. The financial statement
schedule of the Company as of December 31, 1999 and for the year then ended was
audited by other independent auditors whose report dated February 10, 2000
expressed an unqualified opinion on the financial statement schedule.

/s/PricewaterhouseCoopers LLP
Dallas, Texas
February 5, 2002

F-2

FLOWSERVE CORPORATION
Schedule II - Valuation and Qualifying Accounts
(dollars in thousands)

Column A                         Column B          Column C         Column D           Column E           Column F
---------------   ---------------   ---------------   ---------------   ---------------
Balance at         Additions        Deductions        Acquisitions      Balance at
beginning         charged to      from reserve       and related         end of
of year          earnings                           adjustments          year

Description

Year ended December 31, 2001:

Allowance for doubtful accounts (a):       $        18,481   $         4,556   $         4,324   $         2,087   $        20,800
===============   ===============   ===============   ===============   ===============

Year ended December 31, 2000:

Allowance for doubtful accounts (a):       $         5,705   $         2,782   $         1,392   $        11,386   $        18,481
===============   ===============   ===============   ===============   ===============

Year ended December 31, 1999:

Allowance for doubtful accounts (a):       $         4,533   $         2,214   $         1,042   $            --   $         5,705
===============   ===============   ===============   ===============   ===============

Year ended December 31, 2001:

Inventory reserves (b):                    $        37,114          $  4,949   $         5,025   $         5,948   $        42,986
===============   ===============   ===============   ===============   ===============

Year ended December 31, 2000:

Inventory reserves (b):                    $        18,935   $         6,066   $         5,082   $        17,195   $        37,114
===============   ===============   ===============   ===============   ===============

Year ended December 31, 1999:

Inventory reserves (b):                    $        16,051   $         5,254   $         2,370   $            --   $        18,935
===============   ===============   ===============   ===============   ===============

(a)  Deductions from reserve represent accounts written off net of recoveries.

(b)  Deductions from reserve represent inventory written off.

F-3

EXHIBIT 10.43

FLOWSERVE CORPORATION
FIRST AMENDMENT
TO CREDIT AGREEMENT

This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
dated as of November 9, 2001 and entered into by and among Flowserve
Corporation, a New York corporation (the "Borrower"), the Lenders (as defined in
Article I of the Credit Agreement) executing this Agreement, Credit Suisse First
Boston, a bank organized under the laws of Switzerland, acting through its New
York branch ("CSFB"), as syndication agent (the "Syndication Agent") and Bank of
America, N.A., a national banking association ("BofA"), as swingline lender (in
such capacity, the "Swingline Lender"), as administrative agent (in such
capacity, the "Administrative Agent") and as collateral agent (in such capacity,
the "Collateral Agent") for the Lenders, and is made with reference to that
certain Credit Agreement dated as of August 8, 2000 (the "Credit Agreement"), by
and among the Borrower, the Lenders, the Syndication Agent and the
Administrative Agent. Capitalized terms used herein without definition shall
have the same meanings herein as set forth in the Credit Agreement.

RECITALS

WHEREAS, the Borrower and the Lenders desire to amend the
Credit Agreement in certain respects;

NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:

SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT

1.1 AMENDMENTS TO ARTICLE I: DEFINITIONS

A. Section 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definition, which shall be inserted in proper
alphabetical order:

"Fall 2001 Equity Issuance" means a public offering
of the Borrower's common stock made by the Borrower on or before
December 31, 2001 resulting in gross cash proceeds of at least
$150,000,000.

B. The definition of "Consolidated Interest Expense" is hereby
amended by adding the following parenthetical phrase immediately after the
phrase "premium payments" in the third line:

"(other than premium payments associated with the repurchase or
prepayment of the Subordinated Notes from proceeds of the Fall 2001
Equity Issuance)".

C. The definition of "Excess Cash Flow" is hereby amended by
adding the following phrase at the end of the parenthetical phrase in clause
(b)(iv) thereof:

(Flowserve Corporation First Amendment to Credit Agreement)

"and other than repurchases or prepayments of the Subordinated Notes
out of proceeds of the Fall 2001 Equity Issuance".

1.2 AMENDMENTS TO ARTICLE II: THE CREDITS

A. Section 2.13(b) of the Credit Agreement is hereby amended
by deleting the word "fifth" in the first line and substituting in lieu thereof
the word "tenth".

B. Section 2.13 of the Credit Agreement is hereby further
amended by deleting clause (c) in its entirety and substituting in lieu thereof
the following:

"(c) Subject to paragraph (j) below, in the event and
on each occasion that an Equity Issuance occurs, the Borrower shall,
substantially simultaneously with (and in any event not later than the
fifth Business Day next following) the occurrence of each Equity
Issuance, apply 75% of the Net Cash Proceeds therefrom to prepay
outstanding Term Loans in accordance with Section 2.13(g); provided,
however, that in the event the Leverage Ratio on the date of such
Equity Issuance (and after giving effect thereto and to the use of the
proceeds thereof) is less than 3.0 to 1.0, such amount shall be reduced
to 50%; provided further that with respect to the Fall 2001 Equity
Issuance, (i) the Borrower may apply the Net Cash Proceeds therefrom to
repurchase Subordinated Notes and/or to prepay principal of, interest
on and premium, if any, on the Subordinated Notes, up to an aggregate
amount equal to the sum of (x) the maximum principal amount of
Subordinated Notes that may be repurchased or prepaid pursuant to the
optional redemption provisions of the Subordinated Note Indentures, and
(y) the 12.25% prepayment premium associated therewith (plus the amount
of accrued interest on the principal amount so repurchased or prepaid),
and (ii) 100% of any Net Cash Proceeds therefrom in excess of the
amount so applied to repurchase and/or prepay the Subordinated Notes
shall be applied to prepay outstanding Term Loans in accordance with
Section 2.13(g)."

C. Section 2.23(c) of the Credit Agreement is hereby amended
by deleting the number "180" in the second line and substituting in lieu thereof
the number "360".

D. Section 2.23(c) of the Credit Agreement is hereby further
amended by deleting the amount "$20,000,000" in clause (i) thereof and inserting
in lieu thereof the amount "$40,000,000".

1.3 AMENDMENTS TO ARTICLE VI: NEGATIVE COVENANTS

A. Section 6.05(b) of the Credit Agreement is hereby amended
by adding the following proviso at the end of such section:

"provided that the limitations set forth in this clause (iii)
shall not apply to the non-recourse factoring of accounts
receivable by Foreign Subsidiaries, provided that the
aggregate outstanding amount of accounts receivable (assuming
each such account receivable remains 

(Flowserve Corporation First Amendment to Credit Agreement)
2

outstanding for the number of days provided in the applicable
invoice for non-delinquent payment) at any time which have
been so factored shall not exceed $25,000,000."

B. Section 6.09(b) of the Credit Agreement is hereby amended
by adding the following proviso at the end of such section:

"provided that the Borrower may repurchase and/or prepay the
Subordinated Notes to the extent provided in the final proviso
of Section 2.13(c)."

SECTION 2. CONDITIONS TO EFFECTIVENESS

2.1 AMENDMENT OTHER THAN SECTION 1. This Amendment (other than Section 1 of this
Amendment) shall become effective upon receipt by the Administrative Agent on or
before November 16, 2001 of all of the following, in form and substance
satisfactory to the Administrative Agent:

A. AMENDMENT. This Amendment executed by the Borrower, the
Agents and the Required Lenders;

B. PAYMENT OF AMENDMENT FEE. Evidence of payment to the
Administrative Agent for the account of each Lender that executes this Amendment
on or before November 9, 2001 of an amendment fee equal to 0.125% of the sum of
such Lender's Revolving Credit Commitment and the principal amount Term Loans
held by such Lender.

C. PAYMENT OF FEES. Evidence of payment by the Borrower of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the date hereof, together with attorney costs of BofA to the extent invoiced
prior to date hereof.

D. BORROWER CERTIFICATE. A certificate signed by a Responsible
Officer of the Borrower, dated as of the date hereof, stating that:

(i) the representations and warranties contained in
Section 3 hereof and in Article III of the Credit Agreement are true
and correct on and as of such date, as though made on and as of such
date; and

(ii) no Default or Event of Default exists and no
Default or Event of Default existed as of September 30, 2001.

2.2 EFFECTIVENESS OF SECTION 1. Section 1 of this Amendment shall become
effective upon satisfaction of the conditions set forth in Section 2.1 and
receipt by the Administrative Agent on or before December 31, 2001 of all of the
following, in form and substance satisfactory to the Administrative Agent, it
being understood and agreed that if such conditions are not satisfied on 

(Flowserve Corporation First Amendment to Credit Agreement)
3

or prior to December 31, 2001, Section 1 of this Amendment shall not be
effective (the date of satisfaction of such conditions being referred to herein
as the "First Amendment Effective Date"):

A. EVIDENCE OF FALL 2001 EQUITY ISSUANCE AND REDUCTION OF
INDEBTEDNESS. Evidence satisfactory to the Administrative Agent that (i) the
Fall 2001 Equity Issuance has been consummated and that the Borrower has
received the Net Cash Proceeds thereof, and (ii) such Net Cash Proceeds have
been applied in the manner set forth in the final proviso of Section 2.13(c).

B. PAYMENT OF FEES. Evidence of payment by the Borrower of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the First Amendment Effective Date, together with attorney costs of BofA to
the extent invoiced prior to or on the First Amendment Effective Date.

C. BORROWER CERTIFICATE. A certificate signed by a Responsible
Officer of the Borrower, dated as of the First Amendment Effective Date, stating
that:

(iii) the representations and warranties contained in
Section 3 hereof and in Article III of the Credit Agreement are true
and correct on and as of such date, as though made on and as of such
date; and

(iv) no Default or Event of Default exists.

SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders to enter into this Amendment
and to amend the Credit Agreement in the manner provided herein, the Borrower
represents and warrants to each Lender that the following statements are true,
correct and complete:

A. DUE INCORPORATION, VALID EXISTENCE AND GOOD STANDING;
CORPORATE POWER AND AUTHORITY. The Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of New York.
The Borrower has all requisite corporate power and authority to enter into this
Amendment and to carry out the transactions contemplated by, and perform its
obligations under, the Credit Agreement as amended by this Amendment (the
"Amended Agreement").

B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Borrower.

C. NO CONFLICT. The execution and delivery by the Borrower of
this Amendment and the performance by the Borrower of the Amended Agreement do
not and will not (i) violate any provision of any law or any governmental rule
or regulation applicable to the Borrower or any of its Subsidiaries, the
certificate or articles of incorporation or by-laws of the Borrower or any of
its Subsidiaries or any order, judgment or decree of any court or other agency
of government binding on the Borrower or any of its Subsidiaries, (ii) conflict
with, result in a 

(Flowserve Corporation First Amendment to Credit Agreement)
4

breach of or constitute (with due notice or lapse of time or both) a default
under any contractual obligation, agreement or other instrument of the Borrower
or any of its Subsidiaries, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of the Borrower or
any of its Subsidiaries (other than Liens created under any of the Loan
Documents in favor of Administrative Agent on behalf of Lenders), or (iv)
require any approval of stockholders or any approval or consent of any person
under any contractual obligation, agreement or other instrument of the Borrower
or any of its Subsidiaries.

D. GOVERNMENTAL CONSENTS. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.

E. BINDING OBLIGATION. This Amendment has been duly executed
and delivered by the Borrower and this Amendment and the Amended Agreement are
the legally valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles relating
to enforceability.

F. ABSENCE OF DEFAULT. No event has occurred and is continuing
or will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Default.

SECTION 4. MISCELLANEOUS

A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS.

(i) On and after the First Amendment Effective Date,
each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Credit Agreement, and each reference in the other Loan Documents to
the "Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to the
Amended Agreement.

(ii) Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan Documents shall
remain in full force and effect and are hereby ratified and confirmed.

(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power
or remedy of the Administrative Agent or any Lender under, the Credit
Agreement or any of the other Loan Documents.

(Flowserve Corporation First Amendment to Credit Agreement)
5

B. FEES AND EXPENSES. The Borrower acknowledges that all
costs, fees and expenses as described in the Credit Agreement incurred by the
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Borrower.

C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.

D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

E. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.

(Flowserve Corporation First Amendment to Credit Agreement)
6

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

FLOWSERVE CORPORATION,

By    
/s/ Dave Chavenson
----------------------------------------
Name:   Dave Chavenson
Title:  Vice President and Treasurer

BANK OF AMERICA, N.A., individually
and as Administrative Agent, Collateral
Agent and Swingline Lender

By
/s/ Dan Killian
----------------------------------------
Name:   Dan M. Killian
Title:  Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

CREDIT SUISSE FIRST BOSTON,
individually and as Syndication Agent,

By
/s/ William S. Lutkins
----------------------------------------
Name:    William S. Lutkins
Title:   Vice President

By
/s/ David M. Koczan
----------------------------------------
Name:    David M. Koczan
Title:   Associate

(Flowserve Corporation First Amendment to Credit Agreement)

ABN AMRO BANK N.V.,

By
/s/ Mary L. Honda
----------------------------------------
Name:    Mary L. Honda
Title:   Group Vice President

By
/s/ Wendy E. Pace
----------------------------------------
Name:    Wendy E. Pace
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

BANK ONE, NA,

By
/s/ Kathy Turner
----------------------------------------
Name:    Kathy Turner
Title:   Director

(Flowserve Corporation First Amendment to Credit Agreement)

BANK OF CHINA, LOS ANGELES
BRANCH,

By
/s/ Liu, Haiping
----------------------------------------
Name:    Liu, Haiping
Title:   Branch Manager

(Flowserve Corporation First Amendment to Credit Agreement)

BANK OF MONTREAL

By
/s/ S. Valia
----------------------------------------
Name:    S. Valia
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

THE BANK OF TOKYO-MITSUBISHI, LTD.,

By
/s/ Doug Barnell
----------------------------------------
Name:    D. Barnell
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

CITICORP USA INC.

By
/s/ F. Rockwell Lowe
----------------------------------------
Name:    F. Rockwell Lowe
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

COMERICA BANK,

By
/s/ T. Bancroft Mattei
----------------------------------------
Name:    T. Bancroft Mattei
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

THE DAI ICHI KANGYO BANK, LIMITED

By
/s/ Tsutomu Yamamoto
----------------------------------------
Name:    Tsutomu Yamamoto
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

HSBC BANK USA,

By
/s/ James McClintock
----------------------------------------
Name:    James McClintock
Title:   First Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

LLOYDS TSB BANK PLC,

By
/s/ Ian Dimmock
----------------------------------------
Name:   Ian Dimmock
Title:  Vice President Acquisition 
Finance D080

By
/s/ Peter Hart
----------------------------------------
Name:   Peter Hart
Title:  Assistant Director Structured
Finance H002

(Flowserve Corporation First Amendment to Credit Agreement)

NATEXIS BANQUES POPULAIRES,

By
/s/ Timothy L. Polvado
----------------------------------------
Name:    Timothy L. Polvado
Title:   Vice President and Group 
Manager

By
/s/ Renaud J. d'Herbes
----------------------------------------
Name:    Renaud J. d'Herbes
Title:   Senior Vice President and
Regional Manager

(Flowserve Corporation First Amendment to Credit Agreement)

NATIONAL WESTMINSTER BANK PLC

By: NatWest Capital Markets Limited, its 
Agent

By: Greenwich Capital Markets, Inc. its 
Agent

By
/s/ Harry Paschalidis
----------------------------------------
Name:    Harry Paschalidis
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

ORIX FINANCIAL SERVICES, INC.

By
/s/ Michael J. Cox
----------------------------------------
Name:    Michael J. Cox
Title:   Senior Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

THE SUMITOMO TRUST & BANKING
CO., LTD., NEW YORK BRANCH,

By
/s/ Elizabeth A. Quiric
----------------------------------------
Name:    Elizabeth A. Quiric
Title:   Vice-President

(Flowserve Corporation First Amendment to Credit Agreement)

TORONTO DOMINION (NEW YORK), INC.,

By
/s/ Dana Schwalie
----------------------------------------
Name:    Dana Schwalie
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

LANDMARK CDO LIMITED,
By:  Aladdin Asset Management LLC
as Manager

By
/s/ Joseph A. Moroney
----------------------------------------
Name:    Joseph A. Moroney
Title:   Vice President
Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AIMCO CDO SERIES 2000-A

By
/s/ unable to read signature
----------------------------------------
Name:  
------------------------------
Title:
------------------------------

By
/s/ unable to read signature
-------------------------------------
Name:    
------------------------------
Title:   
------------------------------

(Flowserve Corporation First Amendment to Credit Agreement)

ALLSTATE LIFE INSURANCE COMPANY

By
/s/ unable to read signature
-------------------------------------
Name:
------------------------------
Title: 
------------------------------

By
/s/ unable to read signature
-------------------------------------
Name:    
------------------------------
Title:   
------------------------------

(Flowserve Corporation First Amendment to Credit Agreement)

KZH STERLING LLC,

By
/s/ Susan Lee
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

AMMC CDO II, LIMITED,

By:        American Money Management Corp.,
as Collateral Manager

/s/ David P. Meyer
-------------------------------------
Name:    David P. Meyer
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

ARES LEVERAGED INVESTMENT FUND II, L.P.

By:        ARES Management II, L.P.
Its:       General Partner

/s/ David A. Sachs
-------------------------------------
Name:    David A. Sachs
Title:   Vice President

ARES III CLO LTD.

By:        ARES CLO Management, LLC
Its:       Investment Manager

/s/ David A. Sachs
-------------------------------------
Name:    David A. Sachs
Title:   Vice President

ARES IV CLO LTD.

By:        ARES CLO Management IV, L.P.
Investment Manager

By:        Ares CLO GP IV, LLC
Its:       Managing Member

/s/ David A. Sachs
-------------------------------------
Name:    David A. Sachs
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

CARAVELLE INVESTMENT FUND II, L.L.C.
By Trimaran Advisors, L.L.C.

/s/ Dean T. Criares
-------------------------------------
Name:    Dean T. Criares
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

CARLYLE-HIGH YIELD PARTNERS II, LTD

By
/s/ Linda M. Pace
-------------------------------------
Name:    Linda M. Pace
Title:   Vice President

CARLYLE-HIGH YIELD PARTNERS III, LTD

By
/s/ Linda M. Pace
-------------------------------------
Name:    Linda M. Pace
Title:   Vice President

CARLYLE-HIGH YIELD PARTNERS, LP

By
/s/ Linda M. Pace
-------------------------------------
Name:    Linda M. Pace
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

CENTURION CDO II, LTD

By:  American Express Asset Management
Group Inc, as Collateral Manager

/s/ Michael M. Leyland
-------------------------------------
Name:    Michael M. Leyland
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

CONTINENTAL CASUALTY COMPANY,

By
/s/ Marilou R. McGirr
-------------------------------------
Name:    Marilou R. McGirr
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

PROMETHEUS INVESTMENT FUNDING NO. 1, CPF 
ASSET ADVISORY, LLC AS INVESTMENT MANAGER

By
/s/ Elizabeth H. Tallmadge
-------------------------------------
Name:    Elizabeth H. Tallmadge
Title:   Managing Director
Chief Investment Officer

By
/s/ Steven Simons
-------------------------------------
Name:    Steven Simons
Title:   Associate Director

(Flowserve Corporation First Amendment to Credit Agreement)

CYPRESSTREE INVESTMENT PARTNERS I, LTD,

By:   CypressTree Investment Management 
Company, Inc., as Portfolio Manager

/s/ Peter Campo
-------------------------------------
Name:    Peter Campo
Title:   Investment Analyst

CYPRESSTREE INVESTMENT PARTNERS II, LTD,

By:   CypressTree Investment Management 
Company, Inc., as Portfolio Manager

By
/s/ Peter Campo
-------------------------------------
Name:    Peter Campo
Title:   Investment Analyst

CYPRESSTREE INVESTMENT MANAGEMENT COMPANY,
INC.

As:   Attorney-in-Fact and on behalf of 
First Allmerica Financial Life 
Insurance Company as Portfolio 
Manager

By
/s/ Peter Campo
-------------------------------------
Name:    Peter Campo
Title:   Investment Analyst

(Flowserve Corporation First Amendment to Credit Agreement)

GRAYSON & CO,

By:   BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

SENIOR DEBT PORTFOLIO,

By:   BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

EATON VANCE CDO II, LTD,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

EATON VANCE CDO III, LTD,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

EATON VANCE CDO IV, LTD,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

CONSTANITINUS EATON VANCE CDO V, LTD.,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

EATON VANCE INSTITUTIONAL SENIOR LOAN FUND,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

OXFORD STRATEGIC INCOME FUND,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

EATON VANCE SENIOR INCOME TRUST,

By:   EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR,

By
/s/ Scott H. Page
-------------------------------------
Name:    Scott H. Page
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

FC CBO II, LIMITED

By
/s/ Mike McCarthy
-------------------------------------
Name:    Mike McCarthy
Title:   Manager

(Flowserve Corporation First Amendment to Credit Agreement)

FLAGSHIP CLO-2001-1,

By
/s/ Mark S. Pelletier
-------------------------------------
Name:    Mark S. Pelletier
Title:   Director

(Flowserve Corporation First Amendment to Credit Agreement)

FREMONT INVESTMENT & LOAN,

By
/s/ Maria Chachere
-------------------------------------
Name:    Maria Chachere
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

GOLDMAN SACHS CREDIT PARTNERS L.P.

By
/s/ Robert S. Fanelli
-------------------------------------
Name:    Robert S. Fanelli
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

GRAYSTON CLO 2001-01 LTD.

By:   Bear Stearns Asset Management Inc.
as its Collateral Manager

By
/s/ Niell D. Rosenberg
-------------------------------------
Name:    Niell D. Rosenberg
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

HARCH CLO I LIMITED,

By
/s/ Michael E. Hewitt
-------------------------------------
Name:    Michael E. Hewitt
Title:

(Flowserve Corporation First Amendment to Credit Agreement)

INDOUEZ CAPITAL FUNDING IV, L.P.

By:   Indosuez Capital as Portfolio Advisor

By
/s/ Jack C. Henry
-------------------------------------
Name:    Jack C. Henry
Title:   Vice President and Portfolio
Manager

INDOUEZ CAPITAL FUNDING VI, LIMITED

By:   Indosuez Capital as Collateral 
Manager

By
/s/ Jack C. Henry
-------------------------------------
Name:    Jack C. Henry
Title:   Vice President and Portfolio
Manager

(Flowserve Corporation First Amendment to Credit Agreement)

ARCHIMEDES FUNDING III, LTD.

By:   ING Capital Advisors LLC,
as Collateral Manager

By
/s/ Greg M. Masuda
-------------------------------------
Name:    Greg M. Masuda
Title:   Vice President

ARCHIMEDES FUNDING IV (CAYMAN), LTD.

By:   ING Capital Advisors LLC,
as Collateral Manager

By
/s/ Greg M. Masuda
-------------------------------------
Name:    Greg M. Masuda
Title:   Vice President

THE ING CAPITAL SENIOR SECURED HIGH INCOME 
HOLDINGS FUND, LTD.

By:   ING Capital Advisors LLC,
as Investment Manager

By
/s/ Greg M. Masuda
-------------------------------------
Name:    Greg M. Masuda
Title:   Vice President

SEQUILS-ING I (HBDGM), LTD.

By:   ING Capital Advisors LLC,
as Collateral Manager

By
/s/ Greg M. Masuda
-------------------------------------
Name:    Greg M. Masuda
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

SWISS LIFE US RAINBOW LIMITED

By:   ING Capital Advisors LLC,
as Collateral Manager

By
/s/ Greg M. Masuda
-------------------------------------
Name:    Greg M. Masuda
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

INVESCO CBO 2000-1 LTD.

By:   INVESCO Senior Secured Management, Inc.
As Portfolio Advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AERIES FINANCE-II LTD.

By:   INVESCO Senior Secured Management, Inc.
As Sub-Managing Agent

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AMARA 2 FINANCE, LTD.

By:   INVESCO Senior Secured Management, Inc.
As Sub-Advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AMARA-1 FINANCE, LTD. LTD.

By:   INVESCO Senior Secured Management, Inc.
As Sub-advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AVALON CAPITAL LTD.

By:   INVESCO Senior Secured Management, Inc.
As Portfolio Advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AVALON CAPITAL LTD. 2

By:   INVESCO Senior Secured Management, Inc.
As Portfolio Advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

CERES II FINANCE LTD.

By:   INVESCO Senior Secured Management, Inc.
As Sub-Manging Agent (Financial)

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

CHARTER VIEW PORTFOLIO

By:   INVESCO Senior Secured Management, Inc.
As Investment Advisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

AIM FLOATING RATE FUND

By:   INVESCO Senior Secured Management, Inc.
As Attorney in fact

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

OASIS COLLATERALIZED HIGH INCOME PORTFOLIO-1, 
LTD.

By:   INVESCO Senior Secured Management, Inc.
As Subadvisor

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

SEQUILS LIBERTY, LTD.

By:   INVESCO Senior Secured Management, Inc.
As Collateral Manager

By
/s/ Gregory Stoeekle
----------------------------------------
Name:    Gregory Stoeekle
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

JUPITER FUNDING TRUST,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

KATONAH I, LTD.,

By
/s/ Ralph Della Rocca
-------------------------------------
Name:    Ralph Della Rocca
Title:   Authorized Officer

KATONAH II, LTD.,

By
/s/ Ralph Della Rocca
-------------------------------------
Name:    Ralph Della Rocca
Title:   Authorized Officer

(Flowserve Corporation First Amendment to Credit Agreement)

KZH CNC LLC,

By
/s/ Susan Lee
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

KZH CYPRESSTREE-1 LLC,

By
/s/ Susan Lee
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

MAGNETITE ASSET INVESTORS III, L.L.C,

By
/s/ M. Williams
-------------------------------------
Name:    M. Williams
Title:   Director

MAGNETITE ASSET INVESTORS, L.L.C,

By
/s/ M. Williams
-------------------------------------
Name:    M. Williams
Title:   Director

(Flowserve Corporation First Amendment to Credit Agreement)

MONY LIFE INSURANCE COMPANY,

By
/s/ Suzanne E. Walton
-------------------------------------
Name:    Suzanne E. Walton
Title:   Managing Director

MONY LIFE INSURANCE COMPANY
OF AMERICA,

By
/s/ Suzanne E. Walton
-------------------------------------
Name:    Suzanne E. Walton
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

MORGAN STANLEY PRIME TRUST,

By
/s/ Peter Gewirtz
-------------------------------------
Name:    Peter Gewirtz
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

MUIRFIELD TRADING LLC,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

OAK HILL CREDIT PARTNERS I, LIMITED,

BY   OAK HILL CLO MANAGEMENT I, LLC
AS INVESTMENT MANAGER

By
/s/ Scott D. Krase
-------------------------------------
Name:    Scott D. Krase
Title:   Authorized Signatory

(Flowserve Corporation First Amendment to Credit Agreement)

OLYMPIC FUNDING TRUST, SERIES 1999-1,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

SENIOR FLOATING RATE FUND,

By
/s/ David Foxhoven
-------------------------------------
Name:    David Foxhoven
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

PPM SPYGLASS FUNDING TRUST,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

PVT DIVERSIFIED INCOME,

By
/s/ John R. Verani
-------------------------------------
Name:    John R. Verani
Title:   Vice President

PUTNAM HIGH YIELD TRUST,

By
/s/ John R. Verani
-------------------------------------
Name:    John R. Verani
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

RIVIERA FUNDING LLC,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

SAWGRASS TRADING LLC,

By
/s/ Ann E. Morris
-------------------------------------
Name:    Ann E. Morris
Title:   Assistant Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

SCUDDER FLOATING RATE FUND,

By
/s/ Kenneth Weber
-------------------------------------
Name:    Kenneth Weber
Title:   Senior Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

KZH RIVERSIDE LLC,

By
/s/ Susan Lee
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

SEABOARD CLO 2000 LTD.

BY    ORIX CAPITAL MARKETS, LLC
ITS COLLATERAL MANAGER

/s/ Sheppard H.C. Davis, Jr.
-------------------------------------
Name:    Sheppard H.C. Davis, Jr.
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

SEQUILS-CENTURION V, LTD

By    American Express Asset Manager
Group Inc, as Collateral Manager

/s/ Michael M. Leyland
-------------------------------------
Name:    Michael M. Leyland
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

SEQUILS-CUMBERLAND I, LTD.,

By:   Deerfield Management LLC,
as its Collateral Manager,

/s/ Dale Burrow               
-------------------------------------
Name:    Dale Burrow
Title:   Senior Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

SIERRA CLO I, LTD.,

By
/s/ unable to read signature
-------------------------------------
Name:
----------------------------
Title:
----------------------------

(Flowserve Corporation First Amendment to Credit Agreement)

LIBERTY-STEIN ROE ADVISOR FLOATING RATE 
ADVANTAGE FUND

By:    Stein Roe & Farnham Incorporated,
as Advisor,

By
/s/ Brian W. Good             
-------------------------------------
Name:    Brian W. Good
Title:   Sr. Vice President & 
Portfolio Manager

(Flowserve Corporation First Amendment to Credit Agreement)

GALAXY CLO 1999-1, LTD.,

By:    SAI Investment Adviser, Inc.,
its Collateral Manager,

By
/s/ Thomas G. Brandt  
-------------------------------------
Name:    Thomas G. Brandt
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

KZH SOLEIL LLC,

By
/s/ Susan Lee         
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

KZH SOLEIL-2 LLC,

By
/s/ Susan Lee         
-------------------------------------
Name:    Susan Lee
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

TEXTRON FINANCIAL CORPORATION,

By
/s/ Matthew J. Colgan 
-------------------------------------
Name:    Matthew J. Colgan
Title:   Director

(Flowserve Corporation First Amendment to Credit Agreement)

COLUMBUS LOAN FUNDING LTD.

BY TRAVELERS ASSET MANAGEMENT INTERNATIONAL
COMPANY, LLC

By
/s/ Matthew J. McInerny       
-------------------------------------
Name:    Matthew J. McInerny
Title:   Assistant Investment Officer

TRAVELERS CORPORATE LOAN FUND INC.,

BY TRAVELERS ASSET MANAGEMENT INTERNATIONAL
COMPANY, LLC

By
/s/ Matthew J. McInerny       
-------------------------------------
Name:    Matthew J. McInerny
Title:   Assistant Investment Officer

THE TRAVELERS INSURANCE COMPANY

By
/s/ Matthew J. McInerny       
-------------------------------------
Name:    Matthew J. McInerny
Title:   Assistant Investment Officer

(Flowserve Corporation First Amendment to Credit Agreement)

APEX (TRIMARAN) CDO I, LTD.,

By Trimaran Advisors, L.L.C.

By
/s/ Dean T. Criares   
-------------------------------------
Name:    Dean T. Criares
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

TYLER TRADING, INC.,

By
/s/ Don C. Day        
-------------------------------------
Name:    Don C. Day
Title:   Vice President

(Flowserve Corporation First Amendment to Credit Agreement)

VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT INC.,
AS COLLATERAL MANAGER

By
/s/ Darvin D. Pierce  
-------------------------------------
Name:    Darvin D. Pierce
Title:   Executive Director

VAN KAMPEN
PRIME RATE INCOME TRUST
BY: VAN KAMPEN INVESTMENT ADVISORY CORP.

By
/s/ Darvin D. Pierce  
-------------------------------------
Name:    Darvin D. Pierce
Title:   Executive Director

VAN KAMPEN
SENIOR INCOME TRUST
BY: VAN KAMEPN INVESTMENT ADVISORY CORP.

By
/s/ Darvin D. Pierce  
-------------------------------------
Name:    Darvin D. Pierce
Title:   Executive Director

(Flowserve Corporation First Amendment to Credit Agreement)

WHITNEY CASHFLOW FUND II,

By
/s/ Michael Deflorio  
-------------------------------------
Name:    Michael Deflorio
Title:   Managing Director

WHITNEY PRIVATE DEBT FUND L.P.,

By
/s/ Michael Deflorio  
-------------------------------------
Name:    Michael Deflorio
Title:   Managing Director

(Flowserve Corporation First Amendment to Credit Agreement)

WINGED FOOT FUNDING TRUST,

By
/s/ Ann E. Morris     
-------------------------------------
Name:    Ann E. Morris
Title:   Authorized Agent

(Flowserve Corporation First Amendment to Credit Agreement)

EXHIBIT 10.45

H. D. WYNN: SUMMARY OF SEPARATION BENEFITS

Continuation of employment in a consulting role from July 27, 2001, until
retirement on February 28, 2002, at base pay in effect on July 27, 2001, with no
change in benefits.

Severance pay equal to annual base salary as of the date of termination plus the
average of the annual bonuses actually paid for 1999 and 2000, payable in
monthly installments over a 12-month period, beginning on March 1, 2002.

Vesting in unvested portion of transitional supplemental executive retirement
benefit.

EXHIBIT 13.1

FINANCIAL REVIEW

Reports of Independent Accountants and Auditors                   22

Report of Management                                              22

Management's Discussion and Analysis                              23

Consolidated Statements of Operations                             32

Consolidated Statements of Comprehensive Loss                     32

Consolidated Balance Sheets                                       33

Consolidated Statements of Shareholders' Equity                   34

Consolidated Statements of Cash Flows                             35

Notes to Consolidated Financial Statements                        36

Five-Year Selected Financial Data                                 61

FLOWSERVE 2001  /  ANNUAL REPORT  22

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Shareholders of
Flowserve Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive loss, shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of Flowserve Corporation and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 5 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," on January 1, 2001.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Dallas, Texas
February 5, 2002

--------------------------------------------------------------------------------

REPORT OF INDEPENDENT AUDITORS

To The Board of Directors and Shareholders of
Flowserve Corporation

We have audited the accompanying consolidated statement of operations,
comprehensive loss, shareholders' equity, and cash flows of Flowserve
Corporation and subsidiaries for the year ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Flowserve Corporation and subsidiaries for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Ernst & Young LLP
Dallas, Texas
February 10, 2000, except for Note 8 as to which date is July 14, 2000

--------------------------------------------------------------------------------

REPORT OF MANAGEMENT

The Company's management is responsible for preparation of the accompanying
consolidated financial statements. These statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and include amounts that are based on management's best estimates and
business judgment. Management maintains a system of internal controls, which in
management's opinion provides reasonable assurance that assets are safeguarded
and transactions properly recorded and executed in accordance with management's
authorization. The internal control system is supported by internal audits and
is tested and evaluated by the independent auditors in connection with their
annual audit. The Board of Directors pursues its responsibility for financial
information through an Audit/ Finance Committee comprised entirely of
independent directors. This committee regularly meets not only with management,
but also separately with representatives of the independent external and
internal auditors.

/s/ C. SCOTT GREER

C. Scott Greer
Chairman, President and Chief Executive Officer

/s/ RENEE J. HORNBAKER

Renee J. Hornbaker
Vice President and Chief Financial Officer

/s/ KATHLEEN A. GIDDINGS

Kathleen A. Giddings
Vice President and Chief Accounting Officer

FLOWSERVE 2001 / ANNUAL REPORT 23

MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

The following discussion and analysis are provided to increase understanding of,
and should be read in conjunction with, the consolidated financial statements
and accompanying notes.

Flowserve produces engineered and industrial pumps, precision mechanical
seals, automated and manual quarter-turn valves, control valves and valve
actuators, and provides a range of related flow management services worldwide,
primarily for the process industries. Equipment manufactured and serviced by the
Company is predominately used in industries that deal with difficult-to-handle
and often corrosive fluids in environments with extreme temperature, pressure,
horsepower and speed. Flowserve's businesses are affected by economic conditions
in the United States and other countries where its products are sold and
serviced, the cyclical nature of the petroleum, chemical, power and other
industries served, by the relationship of the U.S. dollar to other currencies,
and by the demand for and pricing of customers' products. The Company believes
the impact of these conditions is somewhat mitigated by the strength and
diversity of Flowserve's product lines, geographic coverage and significant
installed base, which provides potential for an annuity stream of revenue from
parts and services.

RESULTS OF OPERATIONS

In general, 2001 results were higher than the prior year due to the Company's
acquisition of Ingersoll-Dresser Pump Company (IDP) on August 8, 2000. That
acquisition plus the Company's acquisition of Innovative Valve Technologies,
Inc. (Invatec) on January 12, 2000 generally resulted in 2000 results greater
than those of 1999. These acquisitions are discussed in further detail in the
Liquidity and Capital Resources section of this Management Discussion and
Analysis. Pro forma results referenced throughout this discussion give effect as
if the Company's August 2000 acquisition of IDP had been completed on January 1,
2000 and includes purchase accounting adjustments and estimated financing costs.
Special items include integration expense, restructuring expense, extraordinary
items and, in 1999, other special items for asset impairment, executive
separation contracts and facilities closure costs.

Sales increased 24.7% to $1,917.5 million in 2001, compared with $1,538.3
million in 2000. Pro forma sales in 2000 were $1,960.1 million. Sales for 2001
compared to the prior year on a pro forma basis were adversely affected by an
unfavorable currency translation of approximately 1.9%, the divestiture of
product lines in late 2000 to comply with the Department of Justice consent
decree to acquire IDP and the closure or sale of several service operations.
Additionally, sales in 2001 were adversely impacted by the disruption following
September 11th and its resultant impact on an already weakening U.S. economy,
which contributed to a reduction in quick turnaround business. Sales increased
44.9% to $1,538.3 million in 2000, compared with $1,061.3 million in 1999. This
increase was largely a result of the acquisitions.

The change in sales is discussed further in the following section on Business
Segments.

SALES AND BOOKINGS

(In millions of dollars)

2001           2000           1999
----           ----           ----

Bookings                         $1,975.5       $1,521.6       $1,039.3
Sales                             1,917.5        1,538.3        1,061.3

Bookings, or incoming orders for which there are purchase commitments, were
$1,975.5 million in 2001, or 29.9% higher than 2000 when bookings were $1,521.6
million. Pro forma bookings in 2000 were $2,036.8 million. Bookings in 2001 were
relatively strong in the petroleum, power and water markets. Bookings activity
was mixed-to-slightly weaker in the chemical and general industrial markets.
Bookings might have been greater had it not been for the adverse impact of the
September 11th events. The quick turnaround business, including maintenance,
repair and overhaul (MRO), manual valves, parts, seals and ISO and ANSI pump
bookings, slowed after September 11th as many of the Company's customers
instituted tighter security measures at their plant sites. Bookings in 2000 were
46.4% higher than in 1999 when bookings were $1,039.3 million. This increase was
largely a result of the acquisitions. Backlog at December 31, 2001 was $662.8
million compared with $659.3 million in the previous year. The increase in
backlog in 2001 reflects bookings strength in the petroleum, power and water
markets, products which tend to have longer lead times, partially offset by a
downturn in chemical and industrial markets, products which tend to have shorter
lead times. Backlog in 2000 was up from 1999 due to the acquisitions.

Sales originating outside the United States were 43% of total sales in 2001,
compared with 38% in 2000 and 42% in 1999. The higher 2001 percentage is
primarily due to including IDP's significant international operations for the
full year in 2001. The lower 2000 percentage is primarily due to Invatec's
markets being principally in the United States

FLOWSERVE 2001 / ANNUAL REPORT 24

MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)

and the negative impact of currency translation. Sales to destinations outside
the United States were 48%, unchanged from the prior year.

BUSINESS SEGMENTS

Flowserve manages its operations through three business segments: Flowserve Pump
Division for engineered and industrial pumps; Flow Solutions Division for
precision mechanical seals and flow management services; and Flow Control
Division for automated and manual quarter-turn valves, control valves, nuclear
valves and valve actuators.

Sales, including intersegment sales, and operating income before special
items, for each of the three business segments follows:

Flowserve Pump Division
-------------------------------
(In millions of dollars)                        2001       2000        1999
--------   --------    --------

Sales                                         $1,030.5   $  672.2    $  353.2
Operating income (before special items)          124.4       78.8        23.1

Sales of pumps and pump parts for the Flowserve Pump Division (FPD),
increased to $1,030.5 million in 2001 from $672.2 million in 2000 and $353.2
million in 1999. The sales increases were due to the acquisition of IDP. On a
pro forma basis, revenues were $1,048.6 million in 2000. The decrease in 2001
sales compared to 2000 pro forma sales generally resulted from unfavorable
currency translation, which reduced sales by about 2.1% year-over-year, and the
divestiture of product lines in late 2000 to comply with the Department of
Justice consent decree. Sales would likely have been higher if not for the
slowdown in quick turnaround sales following September 11th. On a comparable
operations basis without IDP and Invatec, sales in 2000 declined slightly
compared to 1999 primarily due to unfavorable currency translation.

FPD operating income in 2001, before special items, increased 57.9% from 2000
results of $78.8 million and 72.8% from pro forma 2000 results of $72.0 million.
FPD operating income in 2000, before special items, increased 241.1% from 1999
results of $23.1 million. Operating income, before special items, as a
percentage of FPD sales increased to approximately 12.1% in 2001 from 11.7% in
2000 on an as reported basis and 6.9% on a pro forma basis, and from 6.5% in
1999. The increase primarily resulted from the synergy savings realized from the
IDP integration activities, which include the reduction of overlapping sales
activities and the closure, divestiture or significant downsizing of a number of
pump plants.

Flow Solutions Division
-------------------------------
(In millions of dollars)                        2001       2000        1999
--------   --------    --------

Sales                                         $  638.5   $  624.0    $  438.5
Operating income (before special items)           79.4       68.2        56.1

Sales of seal products and services for the Flow Solutions Division (FSD)
increased to $638.5 million in 2001, compared with $624.0 million in 2000 and
$438.5 million in 1999. Sales in 2001 were higher than in 2000 primarily due to
a full year of the inclusion of a portion of IDP's service repair business in
2001. Pro forma sales were $669.5 million in 2000. The decrease from pro forma
sales is due to unfavorable currency translation of 1.5%, the reduction in quick
turnaround seal shipments and service business after the September 11th events,
and the closure or sale of several service operations. The sales increase in
2000 was primarily due to the acquisitions of IDP and Invatec. On a comparable
operations basis without IDP and Invatec, sales in 2000 increased slightly,
generally due to the seal business.

FSD operating income in 2001 of $79.4 million, before special items, was
16.4% above 2000 results of $68.2 million and 4.6% above 2000 pro forma results
of $75.9 million. FSD operating income in 2000, before special items, increased
21.6% from 1999 results of $56.1 million. Operating income, before special
items, as a percentage of FSD sales increased to 12.4% in 2001 from 10.9% in
2000 on an as reported basis and 11.3% on a pro forma basis, and from 12.8% in
1999. The improvement in 2001 reflects the benefits of the integration of the
service operations and the consolidation of the North American seal business.
The decrease in 2000 is due to the acquisition of Invatec, including disruption
during the integration of Invatec and Invatec's historically lower gross
margins, and unfavorable variances and period costs related to the restructuring
of the seal business.

Flow Control Division
-------------------------------
(In millions of dollars)                        2001       2000        1999
--------   --------    --------

Sales                                         $  278.9   $  276.3    $  295.3
Operating income (before special items)           31.5       28.8        25.1

Sales of valves and valve automation products for the Flow Control
Division (FCD) increased to $278.9 million in 2001 from $276.3 million in 2000
and were below the $295.3 million in 1999. Sales in 2001 increased slightly over
2000 despite an unfavorable currency translation, which reduced sales by about
1.8% and the slowdown in quick turnaround manual valve sales after the September
11th events. Sales in 2000 decreased primarily due to a general decline in
business levels in the served markets of chemical, petrochemical and refining.
The decline in 2000 was also caused by unfavorable currency translation of about
4%.

FLOWSERVE 2001 / ANNUAL REPORT 25

FCD operating income in 2001 of $31.5 million, before special items,
increased 9.4% from 2000 results of $28.8 million. FCD operating income, before
special items, in 2000 increased 14.7% from 1999 results of $25.1 million.
Operating income before special items, as a percentage of FCD sales was 11.3% in
2001, compared with 10.4% in 2000 and 8.5% in 1999. The improved operating
margin in 2001 was primarily due to efficiency improvements, which resulted in
cost reductions. The increase in 2000 was primarily due to the benefits of the
1999 restructuring program.

CONSOLIDATED RESULTS

The gross profit of $614.6 million in 2001 increased 21.2% compared with 2000
reflecting the IDP acquisition. The gross profit in 2001 increased 2.5% compared
with 2000 on a pro forma basis, despite a 2.2% reduction in pro forma sales.
Gross profit margin, gross profit as a percentage of sales, was 32.0% in 2001,
33.0% in 2000 and 34.2% in 1999. The decrease in 2001 and 2000 gross profit as
reported was primarily due to the acquisition of IDP, as IDP's margins
historically are lower than those for the balance of the Company. The Company's
margin in 2001 increased 140 basis points when compared with the 2000 pro forma
margin of 30.6%. This improvement primarily resulted from IDP manufacturing
integration synergies that resulted from closing, divesting or significantly
downsizing a number of pump manufacturing facilities and numerous service and
repair facilities. Additionally, the Company benefitted from the consolidation
of its North American seal business and consolidation of certain other valve
businesses throughout 2000. The benefits were partially offset by a less
profitable product mix of chemical process pumps, manual valves, seals and
service which was caused by the slowdown in quick turnaround business.

Inventories are stated at the lower of cost or market. Cost is determined for
U.S. inventories by the last-in, first-out (LIFO) method and for other
inventories by the first-in, first-out (FIFO) method. The Company's LIFO reserve
for U.S. inventories declined to $33.9 million at December 31, 2001 from $37.5
million at December 31, 2000 due primarily to a reduction in the FIFO cost
caused by deflation in materials cost in 2001. Therefore, the impact of this
reduction on 2001 earnings was insignificant.

Selling, general and administrative expense was $410.6 million in 2001,
compared with $360.3 million in 2000 and $301.5 million in 1999. The increased
expense in 2001 and 2000 was due to the acquisitions and period costs associated
with the Company's various facility consolidation projects. Selling, general and
administrative expense of $410.6 million in 2001 declined 9.3% from 2000 on a
pro forma basis. Selling and administrative expense in 1999 included $5.8
million in special items for executive separation contracts and certain costs
relating to fourth-quarter 1999 facility closings. On a comparable operations
basis without IDP and Invatec, the expense in 2000 was down over 8%, compared
with 1999 (excluding the results of IDP and Invatec). Selling, general and
administrative expense as a percentage of net sales was 21.4% in 2001, compared
with 23.4% in 2000 as reported and 23.1% in 2000 on a pro forma basis, and 27.9%
in 1999, excluding $5.8 million in special items for executive separation
contracts and certain costs relating to fourth-quarter 1999 facility closings.
The decrease in 2001 from the 2000 and 1999 percentages is due to IDP
integration savings, including sales force reductions, the IDP headquarters
closure, productivity improvements, a reduction in incentive compensation due to
lower than planned performance and other cost reduction initiatives.

Operating income of $204.0 million, before special items, in 2001 increased
39.2% over 2000 and 38.4% over 2000 on a pro forma basis. Operating income of
$146.6 million, before special items, in 2000 increased 101.7% over 1999. The
improvements generally reflect synergy benefits related to the acquisition and
integration of IDP, offset in part by the impact of the aforementioned product
mix shift.

The 2001 restructuring benefit of $1.2 million and 2000 restructuring charge
of $19.4 million were realized as part of the IDP integration program. The
benefit resulted from a change in estimate in 2001. The charge of $15.9 million
in 1999 was related to the 1999 restructuring program. Integration expense was
$63.0 million in 2001, $35.2 million in 2000, and $14.2 million in 1999.
Integration expense in 2001 and 2000 related to the acquisition of IDP. The 1999
expense related solely to the Flowserver program, a business process improvement
program, which was an extension of the 1997 and 1998 Flowserve merger
integration program. As part of the 1999 restructuring program, the Company also
recorded special items of $5.1 million in cost of sales for inventory and fixed
asset impairments and special items of $5.8 million in selling, general and
administrative expense for executive separation contracts and certain costs
related to fourth-quarter 1999 facility closures.

Net interest expense was $118.1 million in 2001, compared with $70.3 million
in 2000 and $14.7 million in 1999. The 2001 and 2000 amounts reflect the
increased interest costs associated with the financing of the Invatec and IDP
acquisitions partially offset by lower borrowing rates during 2001. About
two-thirds of the debt at December 31, 2001 is floating rate debt and can be
impacted by market interest rate changes.

The effective tax rate, before extraordinary items, was 36.2% in 2001,
compared with 34.0% in 2000 and 33.3% in 1999. The increased tax rates in 2001
and 2000 reflect the acquisition of IDP, which has a greater mix of business in
higher taxed foreign countries.

In 2001, the Company recognized a net of tax extraordinary item of $17.9
million, or $0.46 per share, related to the prepayment premium, other direct
costs, and write-off of unamortized prepaid financing fees

FLOWSERVE 2001 / ANNUAL REPORT 26

MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)

and discount as a result of the early extinguishment of $133 million of 12.25%
senior subordinated notes with proceeds from a sale of the Company's common
shares. In 2000, the Company recognized a net of tax extraordinary item which
totaled $0.05 per share, related to the prepayment of its outstanding
indebtedness which was required as part of the financing to acquire IDP.

EARNINGS PER SHARE

Earnings (loss) after special items were a loss of $1.5 million ($0.04 per
share) in 2001, compared with earnings of $13.2 million ($0.35 per share) in
2000 and earnings of $12.2 million ($0.32 per share) in 1999. Special items
include extraordinary items, restructuring expenses (benefit), integration
expenses and, in 1999, inventory and fixed asset impairments, and costs
associated with obligations under executive employment and separation
agreements. Earnings before special items were $55.8 million ($1.42 per share)
in 2001, compared with $51.0 million ($1.35 per share) in 2000 and $39.5 million
($1.04 per share) in 1999. Earnings before special items were $10.7 million
($0.28 per share) in 2000 on a pro forma basis. The increase in earnings before
special items in 2001 and 2000 was due to the acquisitions during 2000, synergy
benefits related to the acquisitions, as well as the benefits of Flowserve's
restructuring program initiated at the end of 1999.

Operating results before special items and pro forma results should not be
considered an alternative to operating results calculated in accordance with
generally accepted accounting principles.

RESTRUCTURING

In August 2000, in conjunction with the acquisition of IDP, the Company
initiated a restructuring program designed to reduce costs and to eliminate
excess capacity by consolidating facilities. The Company's actions, approved and
committed to in the third quarter of 2000, resulted in the net reduction of
approximately 1,100 positions and have resulted in at least $90 million in
annual synergy savings at full run-rates. The Company expects the cost of
achieving these synergies will be approximately $158 million, net of the Tulsa
reversal and excluding capital expenditures associated with the integration. The
program included the closure of IDP's former headquarters, the closure,
divestiture or significant downsizing of a number of pump manufacturing
facilities and service and repair centers, and a reduction of sales and sales
support personnel.

The Company's current estimate of $65 million in restructuring cost is
comprised of approximately $42 million which relates to the IDP operations
acquired, of which $26 million has been capitalized in goodwill as part of the
purchase price of IDP ($42 million of estimated costs less deferred tax effect
of $16 million), while the remaining cost of $23 million relates to the
Flowserve operations and was recorded as restructuring expense. This expense was
offset by a reversal of a restructuring charge of $5.3 million recorded in 1999
for the Company's Tulsa facility. As part of an agreement with the Department of
Justice to acquire IDP, the Company was required to sell its Tulsa facility.
This facility had been previously targeted for closure in 1999. Additionally,
during 2000 and 2001, the Company recorded non-cash reductions to reclassify
certain retirement obligations and other liabilities from the restructuring
reserve and to recognize changes in estimate in the restructuring reserve.

The balance of the $158 million in cost was recorded as integration expense
as incurred. During 2001 and 2000, the Company incurred $63.0 million and $35.2
million, respectively, in integration costs in conjunction with this program.
The Company has substantially completed its integration activities as of
December 31, 2001.

Expenditures charged to the 2000 restructuring reserve were:

Other
Severance      Exit Costs        Total
---------      ----------      ---------

Balance at August 16, 2000              $  45,980      $   14,832      $  60,812
Cash expenditures                         (18,645)         (2,434)       (21,079)
Net non-cash reduction                     (8,849)             --         (8,849)
---------      ----------      ---------
Balance at December 31, 2000               18,486          12,398         30,884
---------      ----------      ---------
Cash expenditures                         (13,267)         (6,712)       (19,979)
Net non-cash reduction                     (2,817)         (2,567)        (5,384)
---------      ----------      ---------
Balance at December 31, 2001            $   2,402      $    3,119      $   5,521
=========      ==========      =========

In the fourth quarter of 1999, the Company initiated a restructuring program
that included a one-time charge of $15.9 million recorded as restructuring
expense. The restructuring charge related to the planned closure of several
facilities and a reduction in workforce at those and other locations.

As part of an agreement with the Department of Justice to acquire IDP, the
Company was required to sell its Tulsa facility. Since the facility had been
previously targeted for closure in 1999, this resulted in a

FLOWSERVE 2001 / ANNUAL REPORT 27

non-cash reduction of the existing 1999 restructuring reserve of $5.3 million in
2000.

The 1999 restructuring program resulted in a net reduction of approximately
261 employees at a cost of $8.5 million. In addition, exit costs associated with
the facilities closings were $1.9 million.

Expenditures charged to the 1999 restructuring reserve were:

Other
Severance      Exit Costs        Total
---------      ----------      ---------

Balance at December 24, 1999     $  12,900      $    2,960      $  15,860
Cash expenditures                     (102)             --           (102)
---------      ----------      ---------
Balance at December 31, 1999        12,798           2,960         15,758
Cash expenditures                   (6,766)         (1,932)        (8,698)
Non-cash reduction                  (4,364)         (1,028)        (5,392)
---------      ----------      ---------
Balance at December 31, 2000         1,668              --          1,668
Cash expenditures                   (1,668)             --         (1,668)
---------      ----------      ---------
Balance at December 31, 2001     $      --      $       --      $      --
=========      ==========      =========

BUSINESS PROCESS IMPROVEMENT INITIATIVE

In 1998, the Company's Board of Directors approved a $120 million expenditure
for Flowserver. This business process improvement program was planned to have
costs and benefits incremental to the initial merger integration program.
Flowserver included the standardization of the Company's processes and
implementation of a global information system to facilitate common practices.

In the fourth quarter of 1999, the Company re-evaluated the Flowserver
project and determined that the scope of the program would be scaled back
significantly and the overall duration of the program will extend beyond its
original five-year plan.

In 2000, the Company incurred costs associated with the project of $7.3
million recorded as selling and administrative expense and $4.8 million as
capital expenditures. In 1999, these costs were $14.2 million recorded as
integration expenses and $11.4 million as capital expenditures. Expenses prior
to 2000 were recorded as integration expenses as they generally related to the
development of a common, integrated business model for the Company. No costs
were incurred for this project in 2001.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis is based on the Company's consolidated
financial statements and related footnotes contained within this report. The
Company's more critical accounting policies used in the preparation of those
consolidated financial statements are discussed below.

Revenues and costs are generally recognized based on the shipping terms
agreed to with the customer and fulfillment of all but inconsequential or
perfunctory actions required of the Company. Revenue for certain longer-term
contracts is recognized based on the percentage of completion method.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Significant estimates made by management include the allowance for doubtful
accounts, inventory valuation, deferred tax asset valuation allowances,
restructuring accruals, warranty accruals, legal and environmental accruals,
insurance accruals, and retirement benefit obligations.

The Company's estimates for uncollectible accounts receivable are based upon
an analysis of the Company's prior collection experience, customer
creditworthiness and current economic trends, including changes in the
industries served by the Company. Estimates are determined for inventory
valuation reserves based upon management's assessment of the market conditions
for its products. The Company has recorded valuation allowances to reflect the
estimated amount of deferred tax assets that may not be realized based upon the
Company's analysis of existing net operating losses and tax credits by
jurisdiction and expectations of the Company's ability to utilize these tax
attributes through a review of estimated future taxable income and establishment
of tax strategies. These estimates could be impacted by changes in future
taxable income and the results of tax strategies. The Company has net deferred
tax assets totaling $51 million related to net operating loss and foreign tax
credit carryforwards at December 31, 2001.

Warranty obligations are contingent upon product failure rates, materials
usage or service delivery costs. The Company estimates its warranty provisions
based upon an analysis of all identified or expected claims and an estimate of
the cost to resolve those claims. Legal and environmental reserves are recorded
based upon a case by case analysis of the facts, circumstances and related
costs. Insurance reserves are recorded based upon an analysis of the Company's
claim loss history and an estimate of incurred but not recorded claims.
Retirement benefit obligations are affected by a number of estimates made by
management in consultation with independent actuaries, including the discount
rate, long-term rate of return on assets, and assumed rate of increase in health
care costs.

These estimates and assumptions are based upon the best available information
and are subject to change as conditions within and beyond the control of the
Company change, including but not limited to economic conditions, the
availability of additional information and actual experience rates different
from those used in the Company's estimates. Accordingly, actual results could
differ from those estimates.

FLOWSERVE 2001 / ANNUAL REPORT 28

MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM OPERATIONS

Cash flows from operations and borrowings available under the Company's existing
credit agreement are its primary sources of short-term liquidity. Cash flows
used in operating activities in 2001 were $47.9 million, compared with providing
$18.4 million in 2000 and $84.1 million in 1999. Cash flows from operating
activities for 2001 were significantly below 2000 cash flows, generally due to
payments associated with the IDP integration program, including restructuring
and integration payments, higher interest payments attributable to the August
2000 acquisition of IDP and increases in working capital. The primary reasons
for the increase in working capital were an increase in inventories in support
of backlog for future shipments, increased finished goods safety stock to meet
customer deliveries during the integration process, and a systems conversion at
a valve plant. At December 31, 2001, the Company had drawn $70.0 million of
revolving credit primarily to fund integration activities and increases in
working capital. The Company believes cash flows from operating activities would
have provided approximately $6 million in 2001 if not for funding the costs of
the restructuring activities, integration of IDP and the extraordinary items.
The decrease in operating cash flow in 2000 from 1999 primarily resulted from an
increase in accounts receivable due to the high volume of FPD shipments late in
the year. FPD shipments, on a pro forma basis including IDP, have been
historically weighted toward the fourth quarter each year.

The Company expects improved cash flows from operating activities in 2002 due
to reduced restructuring and integration payments, a full year of synergy
benefits, lower interest payments and an increased focus on working capital
management. The Company believes improved cash flows from operating activities
combined with availability under its existing credit agreement will be
sufficient to enable the Company to meet its cash flow needs during 2002.
However, cash flows from operations could be adversely affected by economic,
political and other risks associated with international sales and operations,
intense competition, fluctuations in foreign exchange rates and fluctuations in
interest rates, among other factors.

PAYMENTS FOR ACQUISITIONS

In January 2000, the Company acquired Invatec, a company principally engaged in
providing comprehensive maintenance, repair, replacement and value-added
distribution services for valves, piping systems, instrumentation and other
process-system components for industrial customers.

The purchase involved acquiring all of the outstanding stock of Invatec and
assuming Invatec's existing debt and related obligations. The transaction was
accounted for under the purchase method of accounting and was financed by
utilizing available funds. The results of operations for Invatec are included in
the Company's consolidated financial statements from the date of acquisition.
The purchase price was approximately $16.6 million in cash for shares tendered.
Net debt of $87.7 million was simultaneously paid off through borrowings under
the Company's revolving credit agreement.

In August 2000, the Company completed the acquisition of IDP, a leading
manufacturer of pumps with a diverse mix of pump products and customers with
operations in 30 countries, for $775 million in cash. As part of the purchase,
the Company acquired $25 million in cash. The seller also agreed to provide for
severance for certain employees and costs related to the accelerated closure of
several U.S. facilities which the Company estimated at $52 million. The
transaction, which was accounted for as a purchase, was financed with a
combination of senior secured term loans and issuance of senior subordinated
notes. Upon closing of the transaction, the existing Company debt was also
refinanced into the new senior secured credit facility.

The Company regularly evaluates acquisition opportunities of various sizes.
Its ability to raise additional capital through debt or equity financing is a
critical consideration in any such evaluation.

CAPITAL EXPENDITURES

Capital expenditures were $35.2 million in 2001, compared with $27.8 million in
2000 and $40.5 million in 1999. Capital expenditures were funded primarily by
operating cash flows and bank borrowings. For each of the three years, capital
expenditures were invested in new and replacement machinery and equipment,
information technology, integration activities including structures and
realignment and equipment required at receiving facilities. Capital expenditures
included $4.8 million in 2000 and $11.4 million in 1999 related to Flowserver.

Cash proceeds on the disposal of assets associated with the IDP integration
activities were $8.7 million in 2001. Cash proceeds from the sale of Tulsa and
disposal of other assets were $5.4 million in 2000.

FLOWSERVE 2001 / ANNUAL REPORT 29

FINANCING

During the third quarter of 2000, in connection with the acquisition of IDP, the
Company entered into a Senior Secured Credit Facility (the Credit Facility)
which included a $275 million term loan (Tranche A) due June 2006, a $475
million term loan (Tranche B) due June 2008, and a $300 million revolving credit
facility with a final maturity of June 2006. The Credit Facility is secured by
substantially all domestic assets of the Company and a pledge of 65% of the
stock of the foreign subsidiaries. The term loans bear floating interest rates
based on LIBOR plus a credit spread, or the Prime Rate plus a credit spread, at
the option of the Company. The credit spread can increase or decrease based on
the Company's leverage ratio as defined. At December 31, 2001 the interest rates
on the term loans were 4.69%, 4.88% and 5.06% relating to Tranche A and 5.63%
and 5.81% relating to Tranche B. As of December 31, 2001, $70.0 million of the
revolving credit was drawn and $726.9 million of the term loans were
outstanding.

The term loans require scheduled principal payments which began June 30,
2001. At December 31, 2001, the Company had repaid $23 million of the term
loans. The scheduled principal payments of the term loans outstanding at
December 31, 2001 are summarized as follows: $44.5 million in 2002, $59.4
million in 2003, $63.3 million in 2004, $67.3 million in 2005, $105.9 million in
2006, $257.5 million in 2007 and $129.1 million in 2008. Effective December 31,
2001, the Company is required to use a percentage of excess cash from
operations, as defined in the Credit Facility and the indenture, to reduce the
outstanding principal of the term loans in the following year. No additional
principal payments are due in 2002 under this provision.

The revolving credit facility allows the Company to issue up to $200 million
in letters of credit. As of December 31, 2001, $27.4 million of letters of
credit had been issued under the facility. As letters of credit issued under the
facility reduce availability, the Company had $202.6 million remaining in unused
borrowing capacity at December 31, 2001 under the revolving credit facility.

The Company also issued 10 year senior subordinated notes on August 8, 2000
in a U.S. dollar tranche and a Euro tranche. Proceeds of $285.9 million from the
dollar tranche and EUR 98.6 million from the Euro tranche, equivalent to $89.2
million, were also used in completing the IDP acquisition. The notes, issued at
a fixed rate of 12.25%, were originally priced at a discount to yield 12.50%,
and have no scheduled principal payment prior to maturity in August 2010.
Beginning in August 2005, the notes become callable at a fixed redemption price.
The notes can also be redeemed by the Company under certain circumstances and
have mandatory redemption features under certain circumstances, including a
change in control as defined. Interest on the notes is payable semi-annually in
February and August. A portion of these notes was repaid in 2001 as described in
the next paragraph.

During 2001, the Company completed an offering of approximately 6.9 million
shares of its common stock for net proceeds of approximately $154 million. These
proceeds were used to prepay $101.5 million of the U.S. dollar tranche, EUR 35
million of the Euro tranche of the senior subordinated notes, and to pay
associated prepayment premiums and other direct costs. The Company recorded an
extraordinary item of $17.9 million, net of tax, comprised of the prepayment
premiums, other direct costs, and the write-off of unamortized prepaid financing
fees and discount for the portion of the senior subordinated notes that was
prepaid.

The Company recognizes that it has incurred significant indebtedness for the
recent acquisitions that is substantial in relation to shareholders' equity.
This indebtedness increases the Company's vulnerability to adverse economic and
industry conditions, requires the Company to dedicate a substantial portion of
cash flow from operating activities to payments on the indebtedness and could
limit its ability to borrow additional funds and/or raise additional capital.

The provisions of the Credit Facility require the Company to meet or exceed
specified financial covenants that are defined in the Credit Facility. These
covenants include a leverage ratio, an interest coverage ratio, and a fixed
charge coverage ratio. Further, the provisions of the Credit Facility and the
senior subordinated notes require limitations or restrictions on indebtedness,
liens, sale and leaseback transactions, acquisitions, asset sales, payment of
dividends or other distributions, capital expenditures, and other customary
restrictions. At December 31, 2001, the Company was in compliance with these
covenants.

At December 31, 2001, net debt was 71.3% of the Company's capital structure,
compared with 78.1% at December 31, 2000 and 35.7% at December 31, 1999. The
ratio decreased in 2001 due to the repayment of a portion of the senior
subordinated notes and the term loans combined with an increase in shareholders'
equity due to the common stock offering. The ratio increased in 2000 due to the
financing incurred for the 2000 acquisitions. The interest coverage ratio of the
Company's indebtedness, as defined in the Credit Facility, was 1.7 times
interest at December 31, 2001, compared with 2.0 times interest at December 31,
2000 and 4.3 times interest at December 31, 1999.

Maturities of the Company's long-term debt, and future capital lease and
operating lease obligations at December 31, 2001 are summarized as follows: $57
million in 2002, $69 million in 2003, $70 million in 2004, $73 million in 2005,
$179 million in 2006 and $635 million thereafter.

The return on average net assets, before special items, based on results for
2001 was 7.8%, compared with 8.9% for 2000 and 7.7% for 1999. Including the
impact of special items, the return on average net assets was 4.4% for 2001,
compared with 5.5% for 2000 and 3.4%

FLOWSERVE 2001 / ANNUAL REPORT 30

MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)

for 1999. The decrease in the return on average net assets both before and after
special items in 2001 compared with 2000 is generally due to the goodwill and
other intangible assets associated with the IDP acquisition. The increase in
2000 compared with 1999 is due to the benefits of the 1999 restructuring program
and a disproportionate share of IDP's 2000 earnings included during the period
from the acquisition date through December 31, 2000 due to the seasonality of
its business. The return on average shareholders' equity before special items
was 18.5% for 2001, compared with 16.7% for 2000 and 11.7% for 1999. The
increases in return on average shareholders' equity before special items in 2001
compared with 2000 and in 2000 compared with 1999 are due to improved earnings
before special items and the reduction in shareholders' equity due to other
comprehensive expense (principally for cumulative translation adjustment). The
return on shareholders' equity, including special items, was (0.5)% for 2001,
4.4% for 2000 and 3.6% for 1999. The decrease in return on average shareholders'
equity including special items in 2001 compared with 2000 is generally due to an
increase in special items. The increase in return on average shareholders'
equity including special items in 2000 compared with 1999 is generally due to
earnings from IDP, partially offset by increased special items.

Inflation during the past three years had little impact on the Company's
consolidated financial performance. Foreign currency translation had the effect
of reducing the Company's sales by 2% and earnings before income taxes by 9% in
2001, sales by 5% and earnings before income taxes by 12% in 2000 and sales by
1% and earnings before income taxes by 9% in 1999.

RETIREMENT BENEFITS

The Company sponsors several defined benefit pension plans and post-retirement
health care plans. The Company's recorded liability for these plans was $146.8
million at December 31, 2001 and $122.2 million at December 31, 2000. The
increase in the liability in 2001 reflects a decline in the fair value of
pension plan assets due to weak market performance and increased benefits
payments due to personnel reductions in recent years. The Company expects to
fund contributions to the plans from operating cash flows.

MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS

The Company has market risk exposure arising from changes in interest rates and
foreign currency exchange rate movements.

The Company's earnings are impacted by changes in short-term interest rates
as a result of borrowings under its Credit Facility, which bear interest based
on floating rates. At December 31, 2001, after the effect of interest rate swaps
held by the Company, the Company had approximately $650 million of variable-rate
debt obligations outstanding with a weighted average interest rate of 5.79%. A
hypothetical change of 100-basis points in the interest rate for these
borrowings, assuming debt levels at December 31, 2001, would change interest
expense by approximately $6.5 million for the year ended December 31, 2001.

The Company, as part of its risk management program, is party to interest
rate swap agreements for the purpose of hedging its exposure to floating
interest rates on certain portions of its debt. The Company is exposed to
credit-related losses in the event of non-performance by counterparties to
financial instruments, but it expects all counterparties to meet their
obligations given their creditworthiness. As of December 31, 2001 and 2000, the
Company had $150 million and $75 million of notional amount in outstanding
interest rate swaps with third parties with maturities of up to 5 years.

The Company employs a foreign currency hedging strategy to minimize potential
losses in earnings or cash flows from unfavorable foreign currency exchange
rate movements. Foreign currency exposures arise from transactions, including
firm commitments and anticipated transactions, denominated in a currency other
than an entity's functional currency and from foreign-denominated revenues and
profits translated back into U.S. dollars. Based on the sensitivity analysis at
December 31, 2001, a 10% adverse change in the foreign currency exchange rates
could impact the Company's results of operation by $3.0 million. The primary
currencies to which the Company has exposure are the Euro, British pound,
Canadian dollar, Mexican peso, Japanese yen, Singapore dollar, Brazilian real
and Australian dollar.

Exposures are hedged primarily with foreign currency forward contracts that
generally have maturity dates less than one year. Company policy allows foreign
currency coverage only for identifiable foreign currency exposures and,
therefore, the Company does not enter into foreign currency contracts for
trading purposes where the objective is to generate profits. As of December 31,
2001 and 2000, the Company had an U.S. dollar equivalent of $69.4 million and
$103.9 million in outstanding forward contracts with third parties.

Generally, the Company views its investments in foreign subsidiaries from a
long-term perspective, and therefore, does not hedge these investments. The
Company uses capital structuring techniques to manage its investment in foreign
subsidiaries as deemed necessary.

The Company incurred foreign currency translation losses of $37.6 million in
2001, $20.7 million in 2000 and $20.9 million in 1999. These losses, included in
other comprehensive expense, were the result of a general strengthening of the
U.S. dollar versus the Euro and other currencies of the Company's foreign
subsidiaries.

FLOWSERVE 2001 / ANNUAL REPORT 31

EURO CONVERSION

On January 1, 1999, 11 European Union member states (Germany, France, The
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium, Portugal and
Luxembourg) adopted the Euro as their common national currency. Until January 1,
2002, either the Euro or a participating country's national currency will be
accepted as legal tender. Beginning on January 1, 2002, Euro-denominated bills
and coins will be issued, and by July 1, 2002, only the Euro will be accepted as
legal tender. The Company does not expect its future financial condition,
results of operations or cash flows to be materially impacted by the Euro
conversion.

ACCOUNTING DEVELOPMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for using the
purchase method. Additionally, SFAS No. 141 establishes specific criteria for
the recognition of intangible assets separately from goodwill. SFAS No. 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their acquisition and is effective for the Company on January 1, 2002. The
most significant changes made by SFAS No. 142 require that goodwill and
indefinite lived intangible assets no longer be amortized and be tested for
impairment at least on an annual basis. Additionally, the amortization period
for intangible assets will no longer be limited to forty years.

The Company is currently assessing the impact of SFAS 141 and 142 and has not
yet determined the full effects these statements will have on its consolidated
financial position or results of operations. However, the Company has estimated
that the reduction in annual amortization expense for goodwill and indefinite
lived intangible assets will total approximately $19 million, or approximately
$14 million or $0.30 per share after-tax.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
the Company on January 1, 2003. The Company is currently assessing the impact of
SFAS No. 143 and has not yet determined the effects, if any, it will have on its
consolidated financial position or results of operations.

FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY

This Annual Report and other written reports and oral statements made from
time-to-time by the Company contain various forward-looking statements and
include assumptions about Flowserve's future market conditions, operations and
results. These statements are based on current expectations and are subject to
significant risks and uncertainties. They are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Among the
many factors that could cause actual results to differ materially from the
forward-looking statements are: 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 Flowserve's strategies; the
Company's ability to integrate past and future acquisitions into its management
and operations; political risks or trade embargoes affecting important country
markets; the health of the petroleum, chemical and power industries; economic
conditions and the extent of economic growth in areas inside and outside the
United States; unanticipated difficulties or costs associated with the
implementation of systems, including software; the Company's ability to meet the
financial covenants and other requirements of its financing agreements;
repercussions from the terrorist attacks of September 11, 2001, and the response
of the United States to those attacks; technological developments in the
Company's products as compared to those of its competitors; changes in
prevailing interest rates and the effective interest costs which the Company
bears; and adverse changes in the regulatory climate and other legal obligations
imposed on the Company. The Company undertakes no obligation to publicly update
or revise any forward-looking statement as a result of new information, future
events or otherwise.

FLOWSERVE 2001 / ANNUAL REPORT 32

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31,
------------------------------------------------
(Amounts in thousands, except per share data)                                   2001              2000              1999
------------      ------------      ------------

Sales                                                                       $  1,917,507      $  1,538,293      $  1,061,272
Cost of sales                                                                  1,302,955         1,031,381           697,928
------------      ------------      ------------
Gross profit                                                                     614,552           506,912           363,344
Selling, general and administrative expense                                    410,563           360,306           301,529
Restructuring expenses                                                          (1,208)           19,364            15,860
Integration expenses                                                            63,043            35,211            14,207
------------      ------------      ------------
Operating income                                                                 142,154            92,031            31,748
Net interest expense                                                           118,072            70,321            14,677
Other income, net                                                               (1,547)           (1,474)           (1,174)
------------      ------------      ------------
Earnings before income taxes                                                      25,629            23,184            18,245
Provision for income taxes                                                         9,275             7,876             6,068
------------      ------------      ------------
Earnings before extraordinary items                                               16,354            15,308            12,177
Extraordinary items, net of income taxes (See footnote 7)                        (17,851)           (2,067)               --
------------      ------------      ------------
Net (loss) earnings                                                         $     (1,497)     $     13,241      $     12,177
============      ============      ============
Earnings (loss) per share (basic and diluted):
Before extraordinary items                                                $       0.42      $       0.40      $       0.32
Extraordinary items, net of income taxes                                         (0.46)            (0.05)               --
------------      ------------      ------------
Net (loss) earnings per share                                               $      (0.04)     $       0.35      $       0.32
============      ============      ============

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Year ended December 31,
------------------------------------------------
(Amounts in thousands)                                                          2001              2000              1999
------------      ------------      ------------

Net (loss) earnings                                                         $     (1,497)     $     13,241      $     12,177
Other comprehensive (expense) income:
Foreign currency translation adjustments                                      (37,560)          (20,724)          (20,874)
Retirement plan adjustments (See footnote 10)                                 (16,223)           (1,149)             (842)
Cumulative effect of change in accounting principle (See footnote 5)              840                --                --
Hedging transactions (See footnote 5)                                          (4,985)               --                --
------------      ------------      ------------
Other comprehensive expense                                                      (57,928)          (21,873)          (21,716)
------------      ------------      ------------ 
Comprehensive loss                                                          $    (59,425)     $     (8,632)     $     (9,539)
============      ============      ============

See accompanying notes to consolidated financial statements.

FLOWSERVE 2001 / ANNUAL REPORT 33

Consolidated Balance Sheets

December 31,
--------------------------
(Amounts in thousands, except per share data)              2001            2000
----------      ----------

ASSETS
Current assets:
Cash and cash equivalents                            $   21,533      $   42,341
Accounts receivable, net                                455,861         487,274
Inventories                                             347,591         305,958
Current deferred tax asset                               36,316          39,726
Prepaid expenses                                         36,838          22,753
----------      ----------
Total current assets                                  898,139         898,052
Property, plant and equipment, net                         362,388         405,412
Goodwill, net                                              515,175         506,576
Other intangible assets, net                               131,079         139,195
Other assets                                               145,194         160,908
----------      ----------
Total assets                                            $2,051,975      $2,110,143
==========      ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                     $  178,480      $  172,366
Accrued liabilities                                     193,768         243,553
Long-term debt due within one year                       44,523          18,098
----------      ----------
Total current liabilities                             416,771         434,017
Long-term debt due after one year                          996,222       1,111,108
Retirement benefits and deferred items                     227,963         260,107
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                           60,518          51,856
Shares authorized - 120,000
Shares issued - 48,414 and 41,484
Capital in excess of par value                          211,113          65,785
Retained earnings                                       355,998         357,495
----------      ----------
627,629         475,136
Treasury stock, at cost - 3,622 and 4,048 shares        (82,718)        (92,545)
Deferred compensation obligation                          8,260           6,544
Accumulated other comprehensive loss                   (142,152)        (84,224)
----------      ----------
Total shareholders' equity                            411,019         304,911
----------      ----------
Total liabilities and shareholders' equity              $2,051,975      $2,110,143
==========      ==========

See accompanying notes to consolidated financial statements.

FLOWSERVE 2001 / ANNUAL REPORT 34

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

2001                       2000                        1999
-----------------------     -----------------------     ----------------------
(Amounts in thousands)                              Shares         Amount       Shares         Amount       Shares        Amount
--------       --------     --------       --------     --------      --------

COMMON SHARES
Beginning balance - January 1                     41,484       $ 51,856       41,484       $ 51,856       41,484      $ 51,856
Sale of common shares                              6,930          8,662           --             --           --            --
--------       --------     --------       --------     --------      --------
Ending balance - December 31                      48,414       $ 60,518       41,484       $ 51,856       41,484      $ 51,856
--------       --------     --------       --------     --------      --------

CAPITAL IN EXCESS OF PAR VALUE
Beginning balance - January 1                                  $ 65,785                    $ 67,963                   $ 70,698
Stock activity under stock plans                                    (32)                     (2,178)                    (2,735)
Sale of common shares                                           145,360                          --                         --
--------                    --------                   --------
Ending balance - December 31                                   $211,113                    $ 65,785                   $ 67,963
--------                    --------                   --------

RETAINED EARNINGS
Beginning balance - January 1                                  $357,495                    $344,254                   $353,249
Net (loss) earnings                                              (1,497)                     13,241                     12,177
Cash dividends declared                                              --                          --                    (21,172)
--------                    --------                   --------
Ending balance - December 31                                   $355,998                    $357,495                   $344,254
--------                    --------                   --------

TREASURY STOCK
Beginning balance - January 1                     (4,048)      $(92,545)      (4,071)      $(93,448)      (3,817)     $(90,404)
Stock activity under stock plans                     502         11,389           49          1,244          154         3,903
Treasury stock repurchases                            --             --           --             --         (315)       (5,250)
Rabbi Trust activity                                 (76)        (1,562)         (26)          (341)         (93)       (1,697)
--------       --------     --------       --------     --------      --------
Ending balance - December 31                      (3,622)      $(82,718)      (4,048)      $(92,545)      (4,071)     $(93,448)
--------       --------     --------       --------     --------      --------

DEFERRED COMPENSATION OBLIGATION
Beginning balance - January 1                                  $  6,544                    $     --                   $     --
Increases to obligation                                           1,716                       6,544                         --
--------                    --------                   --------
Ending balance - December 31                                   $  8,260                    $  6,544                   $     --
--------                    --------                   --------

ACCUMULATED OTHER COMPREHENSIVE LOSS                                                                               
Beginning balance - January 1                                  $(84,224)                   $(62,351)                  $(40,635)
Foreign currency translation adjustments                        (37,560)                    (20,724)                   (20,874)
Retirement plan adjustments                                     (16,223)                     (1,149)                      (842)
Hedging transactions                                             (4,145)                         --                         --
--------                    --------                   --------
Ending balance - December 31                                   $(142,152)                  $(84,224)                  $(62,351)
--------                    --------                   --------

TOTAL SHAREHOLDERS' EQUITY
Beginning balance - January 1                     37,436       $304,911       37,413       $308,274       37,667      $344,764
Net changes in shareholders' equity                7,356        106,108           23         (3,363)        (254)      (36,490)
--------       --------     --------       --------     --------      --------
Ending balance - December 31                      44,792       $411,019       37,436       $304,911       37,413      $308,274
========       ========     ========       ========     ========      ========

See accompanying notes to consolidated financial statements.

FLOWSERVE 2001 / ANNUAL REPORT 35

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,
------------------------------------------
(Amounts in thousands)                                                       2001            2000           1999
----------      ----------      ----------

Cash flows - Operating activities:
Net (loss) earnings                                                    $   (1,497)     $   13,241      $   12,177
Adjustments to reconcile net (loss) earnings to net cash
(used) provided by operating activities:
Depreciation                                                             48,891          42,676          35,045
Amortization                                                             24,964          14,361           4,554
Amortization of prepaid financing fees and discount                       6,736           3,074             236
Premiums and other direct costs of long-term debt repayment              17,320           1,013              --
Write-off of unamortized prepaid financing fees and discount              7,654           2,216              --
(Gain) loss on the sale of fixed assets                                    (783)            150             440
Loss on impairments of assets                                               679           3,673           2,834
Change in assets and liabilities, net of effects of acquisitions
and dispositions:
Accounts receivable                                                    15,604         (70,102)         12,723
Inventories                                                           (54,840)         (1,963)         28,359
Prepaid expenses                                                      (14,686)          7,968         (12,910)
Other assets                                                           (9,557)        (24,781)          2,383
Accounts payable                                                       (3,510)         18,084          (1,919)
Accrued liabilities                                                   (55,861)        (18,215)          6,333
Income taxes                                                              184          (7,639)        (12,395)
Retirement benefits and deferred items                                (12,509)         32,753           8,072
Net deferred taxes                                                    (16,718)          1,922          (1,817)
----------      ----------      ----------
Net cash flows (used) provided by operating activities                       (47,929)         18,431          84,115
----------      ----------      ----------
Cash flows - Investing activities:
Capital expenditures                                                      (35,225)        (27,819)        (40,535)
Cash received for disposals of assets                                       8,723           5,404              --
Payments for acquisitions, net of cash acquired                            (1,685)       (770,714)         (5,743)
----------      ----------      ----------
Net cash flows used by investing activities                                  (28,187)       (793,129)        (46,278)
----------      ----------      ----------
Cash flows - Financing activities:
Net borrowings (repayments) under lines of credit                          70,000         (91,011)        (13,645)
Payments of long-term debt                                               (155,580)       (358,488)         (6,370)
Premiums and other direct costs of long-term debt repayment               (17,320)         (1,013)             --
Payment of prepaid financing fees                                              --         (46,474)         (2,183)
Proceeds from long-term debt                                                  420       1,284,469          18,776
Repurchase of common stock                                                     --              --          (5,250)
Net proceeds (payments) from stock option activity                          7,999             615            (529)
Proceeds from issuance of common stock                                    154,022              --              --
Dividends paid                                                                 --              --         (21,172)
Other                                                                          --              --            (842)
----------      ----------      ----------
Net cash flows provided (used) by financing activities                        59,541         788,098         (31,215)
Effect of exchange rate changes                                               (4,233)         (1,522)         (1,087)
----------      ----------      ----------
Net change in cash and cash equivalents                                      (20,808)         11,878           5,535
Cash and cash equivalents at beginning of year                                42,341          30,463          24,928
----------      ----------      ----------
Cash and cash equivalents at end of year                                  $   21,533      $   42,341      $   30,463
==========      ==========      ==========

Taxes paid                                                                $   15,444      $   19,880      $   19,336
Interest paid                                                             $  125,190      $   45,704      $   16,128

See accompanying notes to consolidated financial statements.

FLOWSERVE 2001 / ANNUAL REPORT 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly and majority-owned subsidiaries. Intercompany profits, transactions
and balances have been eliminated. Investments in unconsolidated affiliated
companies, which represent all nonmajority ownership interests, are carried on
the equity basis, which approximates the Company's equity interest in their
underlying net book value.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Significant estimates made by management include the allowance for
doubtful accounts, inventory valuation, deferred tax asset valuation allowances,
restructuring accruals, warranty accruals, legal and environmental accruals,
insurance accruals, and retirement benefit obligations.

The Company's estimates for uncollectible accounts receivable are based upon
an analysis of the Company's prior collection experience, customer
creditworthiness and current economic trends, including changes in the
industries served by the Company. Estimates are determined for inventory
valuation reserves based upon management's assessment of the market conditions
for its products. The Company has recorded valuation allowances to reflect the
estimated amount of deferred tax assets that may not be realized based upon the
Company's analysis of existing net operating losses and tax credits by
jurisdiction and expectations of the Company's ability to utilize these tax
attributes through a review of future taxable income and establishment of tax
strategies. These estimates could be impacted by changes in future taxable
income and the results of the tax strategies.

Warranty obligations are contingent upon product failure rates, materials
usage or service delivery costs. The Company estimates its warranty provisions
based upon an analysis of all identified or expected claims and an estimate of
the cost to resolve those claims. Legal and environmental reserves are recorded
based upon a case by case analysis of the facts, circumstances and related
costs. Insurance reserves are recorded based upon an analysis of the Company's
claim loss history and an estimate of incurred but not recorded claims.
Retirement benefit obligations are affected by a number of estimates made by
management in consultation with independent actuaries, including the discount
rate, long-term rate of return on assets, and assumed rate of increase in health
care costs.

These estimates and assumptions are based upon the best available information
and are subject to change as conditions within and beyond the control of the
Company change, including but not limited to economic conditions, the
availability of additional information and actual experience rates different
from those used in the Company's estimates. Accordingly, actual results could
differ from those estimates.

BASIS OF COMPARISON

Certain amounts in 2000 and 1999 have been reclassified to conform with the 2001
presentation.

BUSINESS COMBINATIONS

Business combinations accounted for under the purchase method of accounting
include the results of operations of the acquired business from the date of
acquisition. Net assets of the companies acquired are recorded at their fair
value to the Company at the date of acquisition and any excess of purchase price
over fair value of the identifiable net assets is recorded as goodwill.

REVENUE RECOGNITION

Revenues and costs are generally recognized based on the shipping terms agreed
to with the customer and fulfillment of all but inconsequential or perfunctory
actions required of the Company. Revenue for certain longer-term contracts is
recognized based on the percentage of completion method. Shipping and handling
costs are reported in cost of sales and amounts billed to customers for these
costs are included in revenues. Progress billings are generally shown as a
reduction of inventory unless such billings are in excess of accumulated costs,
in which case such balances are included in accrued liabilities.

SHORT-TERM INVESTMENTS

The Company places its temporary cash investments with financial institutions
and, by policy, invests in those institutions and instruments that have minimal
credit and market risk. These investments, with an original maturity of three
months or less when purchased, are classified as cash equivalents. They are
highly liquid with principal values not subject to significant risk of change
due to interest rate fluctuations.

ACCOUNTS RECEIVABLE AND CREDIT RISK

Accounts receivable are stated net of the allowance for doubtful accounts of
$20,800 and $18,481 at December 31, 2001 and 2000, respectively.

Credit risk is mitigated by the large number of customers in the Company's
customer base across many different geographic regions and an analysis of the
creditworthiness of such customers. As of December 31, 2001, the Company does
not believe that it had significant concentrations of credit risk.

FLOWSERVE 2001 / ANNUAL REPORT 37

INVENTORIES

Inventories are stated at the lower-of-cost or market. Cost is determined for
U.S. inventories by the last-in, first-out (LIFO) method and for other
inventories by the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION

Property, plant and equipment are stated on the basis of cost. Depreciation is
computed by the straight-line method based on the estimated useful lives of the
depreciable assets for financial statement purposes and by accelerated methods
for income tax purposes. The estimated useful lives of the assets are:

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

GOODWILL

The excess cost over the fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over 20-40 years. The carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the related operations over
the remaining amortization period, the Company's carrying value of the goodwill
will be adjusted accordingly. Accumulated amortization was $47,351 and $29,699
as of December 31, 2001 and 2000, respectively.

INTANGIBLES

Intangible assets consist primarily of engineering drawings, trademarks,
assembled workforce and patents which are being amortized over their useful
lives generally ranging from 9 to 40 years. Accumulated amortization was $14,521
and $6,976 as of December 31, 2001 and 2000, respectively.

LONG-LIVED ASSETS

The Company periodically reviews the net realizable value of its long-lived
assets, including goodwill and other intangible and tangible assets, through an
assessment of the estimated future cash flows related to such assets. In the
event that assets are found to be carried at amounts which are in excess of
estimated gross future cash flows, then the assets will be adjusted for
impairment to a level commensurate with a discounted cash flow analysis of the
underlying assets. The Company believes no impairment of long-lived assets
exists at December 31, 2001.

DERIVATIVES AND HEDGING ACTIVITIES

The Company is party to forward contracts for purposes of hedging certain
transactions denominated in foreign currencies. The Company, as part of its risk
management program, is also party to interest rate swap agreements for the
purpose of hedging its exposure to floating interest rates on certain portions
of its debt. The Company has a risk-management and derivatives policy statement
outlining the conditions in which the Company can enter into hedging or forward
transactions.

The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," and the corresponding amendments on January 1, 2001. In
accordance with the transition provisions of SFAS No. 133, the Company recorded
a cumulative-effect adjustment in other comprehensive income as of January 1,
2001 of $0.8 million, net of deferred tax of $0.5 million, representing the
current fair value of hedging instruments. Of the gross asset amount of $1.3
million, $3.4 million related to foreign currency forward contracts, offset by
a liability of $2.1 million related to interest rate swap agreements.

Beginning January 1, 2001, all derivatives are recognized on the balance
sheet at their fair value. On the date that the Company enters into a derivative
contract, it designates the derivative as (1) a hedge of (a) a forecasted
transaction or (b) the variability of cash flows that are to be received or paid
in connection with a recognized asset or liability (a "cash flow" hedge); or (2)
a foreign currency fair value or cash flow hedge (a "foreign currency" hedge).
Changes in the fair value of a derivative that is highly effective and is
designated and qualifies as a cash flow hedge, to the extent that the hedge is
effective, are recorded in other comprehensive income, until earnings are
affected by the variability of cash flows of the hedged transaction. Any hedge
ineffectiveness (which represents the amount by which the changes in the fair
value of the derivative exceed the variability in the cash flows of the
forecasted transaction) is recorded in current period earnings. Changes in the
fair value of a derivative that is highly effective, designated and qualifies as
a foreign currency hedge are recorded in other comprehensive income, since it
satisfies the criteria for a cash flow hedge. As of December 31, 2001, all
hedges outstanding were highly effective.

The Company formally documents all relationships between hedging instruments
and hedge items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow, or foreign currency
hedges to (1) specific assets and liabilities on the balance sheet or (2)
specific firm commitments or forecasted transactions. The Company also formally
assesses (both at the inception of the hedge and on an ongoing basis) whether
the derivatives that are used in hedging transactions have been highly effective
in offsetting changes in the fair value or cash flows of hedged items and
whether those derivatives may be expected to remain highly effective in future
periods.

FLOWSERVE 2001 / ANNUAL REPORT 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedge item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the
forecasted transaction will occur; or (4) management determines that
designating the derivative as a hedging instrument is no longer appropriate.

When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remaining in accumulated other
comprehensive income is reclassified into earnings. In all situations in which
hedge accounting is discontinued and the derivative remains outstanding, the
Company will carry the derivative at its fair value on the balance sheet,
recognizing changes in the fair value in current period earnings.

Prior to 2001, gains and losses on forward contracts qualifying as hedges
were deferred and included in the measurement of the related foreign currency
transaction. Gains and losses on hedges of existing assets or liabilities were
included in the carrying amounts of those assets or liabilities and were
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to hedges of anticipated transactions were recognized in income
as the transactions occurred. Gains and losses on swap agreements were
recognized in interest expense as they were realized.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments approximate fair
value at December 31, 2001, except for long-term debt, which had a carrying
value of $1,041 million and an estimated fair value of $1,077 million. The
carrying amounts of all of the Company's financial instruments approximate fair
value at December 31, 2000.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's foreign affiliates, other than those
located in highly inflationary countries, if any, are translated at current
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
accumulated other comprehensive loss, except for those associated with highly
inflationary countries, which are reported directly in the consolidated
statements of operations.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development costs are charged to expense when incurred. Research
and development costs were $23.4 million in 2001, $24.8 million in 2000 and
$25.6 million in 1999.

EARNINGS PER SHARE

Basic and diluted earnings per share were calculated as follows:

Year ended December 31,                         2001          2000          1999
--------      --------      --------

Earnings before
extraordinary items                         $ 16,354      $ 15,308      $ 12,177
Extraordinary items, net of
income taxes                                 (17,851)       (2,067)           --
--------      --------      --------
Net (loss) earnings                           $ (1,497)     $ 13,241      $ 12,177
========      ========      ========
Denominator for basic earnings per
share - weighted average shares               38,719        37,823        37,807
Effect of potentially dilutive securities          611            19            49
--------      --------      --------
Denominator for diluted earnings per
share - weighted average shares
adjusted for dilutive securities              39,330        37,842        37,856
========      ========      ========
Earnings per share - basic
Before extraordinary items                  $   0.42      $   0.40      $   0.32
Extraordinary items                            (0.46)        (0.05)           --
--------      --------      --------
Net (loss) earnings per share               $  (0.04)     $   0.35      $   0.32
========      ========      ========
Earnings per share - diluted
Before extraordinary items                  $   0.42      $   0.40      $   0.32
Extraordinary items                            (0.46)        (0.05)           --
--------      --------      --------
Net (loss) earnings per share               $  (0.04)     $   0.35      $   0.32
========      ========      ========

Options to purchase 3,402,598, 3,413,411, and 2,521,623 shares of common stock
were outstanding at December 31, 2001, 2000, and 1999, respectively, but were
not included in the computation of diluted earnings per share because the
options' exercise prices were greater than the average market price of the
common stock.

INCOME TAXES

The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.

FLOWSERVE 2001 / ANNUAL REPORT 39

STOCK-BASED COMPENSATION

The Company accounts for stock options granted to employees and directors using
the intrinsic-value method. Under the intrinsic-value method, no compensation
expense is recorded if the exercise price of the Company's stock options is
equal to or greater than the market price of the underlying stock on the date of
grant.

ACCOUNTING DEVELOPMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for using the
purchase method. Additionally, SFAS No. 141 establishes specific criteria for
the recognition of intangible assets separately from goodwill. SFAS No. 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their acquisition and is effective for the Company on January 1, 2002. The
most significant changes made by SFAS No. 142 require that goodwill and
indefinite lived intangible assets no longer be amortized and be tested for
impairment at least on an annual basis. Additionally, the amortization period
for intangible assets will no longer be limited to 40 years.

The Company is currently assessing the impact of SFAS No. 141 and No. 142 and
has not yet determined the full effects these statements will have on its
consolidated financial position or results of operations. However, the Company
has estimated that the reduction in annual amortization expense will total
approximately $19 million, or approximately $14 million or $0.30 per share
after-tax.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
the Company on January 1, 2003. The Company is currently assessing the impact of
SFAS No. 143 and has not yet determined the effects, if any, it will have on its
consolidated financial position or results of operations.

NOTE 2: ACQUISITIONS

In January 2000, the Company acquired Innovative Valve Technologies, Inc.
(Invatec), a company principally engaged in providing comprehensive maintenance,
repair, replacement and value-added distribution services for valves, piping
systems, instrumentation and other process-system components for industrial
customers.

The purchase involved acquiring all of the outstanding stock of Invatec and
assuming Invatec's existing debt and related obligations. The transaction was
accounted for under the purchase method of accounting and was financed by
utilizing funds from the Company's working capital. The purchase price was
approximately $16.6 million in cash for shares tendered. Net debt of $87.7
million was simultaneously paid off through borrowings under the Company's
revolving credit agreement.

In August 2000, the Company completed the acquisition of Ingersoll-Dresser
Pump Company (IDP), a leading manufacturer of pumps with a diverse mix of pump
products and customers with operations in 30 countries, for $775 million in
cash. The transaction, which was accounted for as a purchase, was financed with
a combination of senior secured term loans and issuance of senior subordinated
notes. Upon closing of the transaction, the existing Company debt was also
refinanced into the new senior secured credit facility. (See Note 7, Debt and
Lease Obligations, for information on the debt incurred to finance the
acquisition).

The purchase price has been allocated to assets acquired and liabilities
assumed based on estimated fair market value at the date of the acquisition.
These allocations include $137.6 million for intangibles and $401.3 million
recorded as goodwill.

The operating results of these acquired businesses have been included in the
consolidated statements of operations from the dates of acquisition.

The table below reflects unaudited pro forma results of the Company, Invatec
and IDP as if the acquisitions had taken place at the beginning of fiscal years
2000 and 1999, including purchase accounting adjustments and estimated financing
costs.

PRO FORMA

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Year ended December 31,                     2000         1999
----------   ----------

Net sales                                $1,960,121   $2,060,653
Operating income before special items       147,418      128,576
Net loss before extraordinary items         (24,281)     (22,657)
Net loss                                    (26,348)     (22,657)
Net loss per share
(basic and diluted):
Before extraordinary items          $    (0.64)  $    (0.60)
Net loss                                 (0.70)       (0.60)

The pro forma information does not purport to represent what the Company's
results of operations actually would have been had such transactions or events
occurred on the dates specified, or to project the Company's results of
operations for any future period. The pro forma results in 2000 included
integration expense of $35.2 million and restructuring expense of $19.4 million
related to integrating the IDP business into Flowserve.

FLOWSERVE 2001 / ANNUAL REPORT 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In October 1999, the Company purchased certain assets and liabilities of
Honeywell's industrial control-valve product line and production equipment. The
Company completed the phased move of this operation to its existing
control-valve manufacturing facilities in Europe in March of 2000. This business
generated revenues of about $7 million in 1999.

NOTE 3: RESTRUCTURING AND ACQUISITION RELATED CHARGES

In August 2000, in conjunction with the acquisition of IDP, the Company
initiated a restructuring program designed to reduce costs and to eliminate
excess capacity by consolidating facilities. The Company's actions, approved and
committed to in the third quarter of 2000, have resulted in the net reduction of
approximately 1,100 positions, which was consistent with the plan. The program
includes the closure of IDP's former headquarters, the closure or significant
downsizing of a number of pump manufacturing facilities and service and repair
centers, and a reduction of sales and sales support personnel.

The Company currently estimates that the costs associated with the
restructuring portion of the program will be approximately $65 million. The
Company had originally estimated these costs to be approximately $61 million.
The changes from the original estimate are primarily due to updated actuarial
information for post-retirement and pension expense relating to a plant closure.
This increase was offset by a non-cash reclassification from the restructuring
accrual to retirement benefit obligations and other liabilities which resulted
in a net reduction to the accrual of $8.8 million in 2000 and $2.5 million
during 2001. In the fourth quarter of 2001, the Company reduced the
restructuring reserve by $2.9 million due to lower than previously estimated
costs related to employee severance and relocation expenses. The $2.9 million
reduction includes $1.2 million related to Flowserve operations that was
recorded as a reduction of restructuring expense, while the remaining $1.7
million related to IDP operations and was recorded as a reduction of goodwill.

The Company's current estimate of $65 million in restructuring cost is
comprised of approximately $42 million which relates to the IDP operations
acquired, of which $26 million has been capitalized in goodwill as part of the
purchase price of IDP ($42 million of estimated costs less deferred tax effect
of $16 million), while the remaining cost of $23 million relates to the
Flowserve operations and was recorded as restructuring expense. This expense was
offset by a reversal of a restructuring charge of $5.3 million recorded in 1999
for the Company's Tulsa facility. As part of an agreement with the Department of
Justice to acquire IDP, the Company was required to sell its Tulsa facility.
This facility had been previously targeted for closure in 1999.

During 2001 and 2000, the Company also incurred $63.0 million and $35.2
million, respectively, in integration costs in conjunction with this program.
The total costs of integrating IDP were $158 million, net of the Tulsa reversal
and excluding capital expenditures associated with the integration. The balance
of the $158 million in costs was recorded as integration expense as incurred.
The Company has substantially completed its integration activities as of
December 31, 2001.

Expenditures charged to the 2000 restructuring reserve were:

Other
Severance      Exit Costs         Total
---------      ----------       ---------

Balance at August 16, 2000       $  45,980      $   14,832       $  60,812
Cash expenditures                  (18,645)         (2,434)        (21,079)
Net non-cash reduction              (8,849)             --          (8,849)
---------      ----------       ---------
Balance at December 31, 2000        18,486          12,398          30,884
Cash expenditures                  (13,267)         (6,712)        (19,979)
Net non-cash reduction              (2,817)         (2,567)         (5,384)
---------      ----------       ---------
Balance at December 31, 2001     $   2,402      $    3,119       $   5,521
=========      ==========       =========

In the fourth quarter of 1999, the Company initiated a restructuring program
that included a one-time charge of $15.9 million recorded as restructuring
expense. The restructuring charge related to the planned closure of several
facilities and a reduction in workforce at those and other locations.

As part of an agreement with the Department of Justice to acquire IDP, the
Company was required to sell its Tulsa facility. Since the facility had been
previously targeted for closure in 1999, this resulted in a non-cash reduction
of the existing 1999 restructuring reserve of $5.3 million in 2000.

The 1999 restructuring program resulted in a net reduction of approximately
261 employees at a cost of $8.5 million. In addition, exit costs associated with
the facilities closings were $1.9 million.

Expenditures charged to the 1999 restructuring reserve were:

Other
Severance      Exit Costs        Total
---------      ----------      ---------

Balance at December 24, 1999     $  12,900      $    2,960      $  15,860
Cash expenditures                     (102)             --           (102)
---------      ----------      ---------
Balance at December 31, 1999        12,798           2,960         15,758
Cash expenditures                   (6,766)         (1,932)        (8,698)
Non-cash reduction                  (4,364)         (1,028)        (5,392)
---------      ----------      ---------
Balance at December 31, 2000         1,668              --          1,668
Cash expenditures                   (1,668)             --         (1,668)
---------      ----------      ---------
Balance at December 31, 2001     $      --      $       --      $      --
=========      ==========      =========

FLOWSERVE 2001 / ANNUAL REPORT 41

NOTE 4: STOCK PLANS

The Company maintains shareholder-approved stock option plans to purchase shares
of the Company's common stock. At December 31, 2001, approximately 413,783
options were available for grant. Options under these plans have been granted to
officers, other employees and directors to purchase shares of common stock at or
above the fair market value at the date of grant. Generally, these options,
whether granted from the current or prior plans, become exercisable over
staggered periods, but expire after 10 years from the date of the grant. The
plan provides that any option may include a stock appreciation right; however,
none has been granted since 1989. The aggregate number of exercisable shares was
2,065,006 at December 31, 2001, 2,195,599 at December 31, 2000, and 2,117,816 at
December 31, 1999.

Information concerning stock options issued to officers, other employees and
directors is presented in the following table:

2001                        2000                         1999
------------------------    ------------------------    -----------------------
Weighted                    Weighted                   Weighted
Average                     Average                    Average
Exercise                    Exercise                   Exercise
Shares         Price        Shares         Price        Shares        Price
----------      --------    ----------      --------    ----------     --------

Number of shares under option:
Outstanding at beginning of year       3,778,380      $  21.29     3,672,327      $  21.56     2,689,420     $  23.33
Granted                                  298,017         26.82       337,700         17.38     1,249,500        17.96
Exercised                               (470,976)        19.05       (71,036)        14.40       (31,599)       11.93
Cancelled                               (203,103)        24.47      (160,611)        22.26      (234,994)       24.31
----------      --------    ----------      --------    ----------     --------
Outstanding at end of year             3,402,318      $  21.86     3,778,380      $  21.29     3,672,327     $  21.56
==========      ========    ==========      ========    ==========     ========

The weighted average remaining contractual life of options outstanding at
December 31, 2001 is 6.5 years. Additional information relating to the ranges of
options outstanding at December 31, 2001, is as follows:

Options Outstanding              Options Exercisable
-----------------------------     -----------------------------
Weighted                          Weighted                          Weighted
Average                           Average                           Average
Range of Exercise Prices          Remaining         Number       Exercise Price       Number       Exercise Price
Per Share                     Contractual Life    Outstanding       Per Share       Exercisable       Per Share
------------------------      ----------------    -----------    --------------     -----------    --------------

$ 0.83-16.00                        5.5                87,382        $13.49              64,049        $13.62
$16.01-18.49                        7.8               657,354        $17.31             341,975        $17.17
$18.50-19.00                        7.2             1,208,737        $18.54             508,737        $18.50
$19.01-27.00                        4.8               673,041        $24.15             617,941        $24.09
$27.01-39.20                        5.9               775,804        $29.86             532,304        $31.11
-----------                       -----------
3,402,318                         2,065,006
===========                       ===========

FLOWSERVE 2001 / ANNUAL REPORT 42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Disclosure of pro forma information regarding net earnings and earnings per
share as if the Company had accounted for its stock options granted subsequent
to December 31, 1994, under a fair value method is required. The "fair value"
for these options at the date of grant was estimated using a binomial option
pricing model (a modified Black-Scholes model).

The assumptions used in this valuation are as follows:

For the year ended December 31,    2001      2000      1999
------    ------    ------

Risk-free interest rate              5.5%      5.4%      6.1%
Dividend yield                        --        --       3.3%
Stock volatility                    33.6%     32.9%     32.5%
Average expected life (years)        6.7       7.8       9.1

The options granted had a weighted average "fair value" per share on date of
grant of $12.40 in 2001, $8.63 in 2000, and $5.75 in 1999. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting periods.

The Company's pro forma information is as follows:

For the year ended December 31,     2001        2000        1999
--------    --------    --------

Net (loss) earnings
As reported                     $ (1,497)   $ 13,241    $ 12,177
Pro forma                         (4,368)      9,423       8,671
Earnings (loss) per share
(diluted and basic):
As reported                     $  (0.04)   $   0.35    $   0.32
Pro forma                          (0.11)       0.25        0.23

Because the determination of the fair value of all options granted includes
an expected volatility factor and, because additional option grants are expected
to be made each year, the above pro forma disclosures are not representative of
pro forma effects for future years.

The Company also has a restricted stock plan that authorizes the grant of up
to 250,000 shares of the Company's common stock. In general, the shares cannot
be transferred for a period of at least one but not more than 10 years and are
subject to forfeiture during the restriction period. The intrinsic value of the
shares is amortized to compensation expense over the periods in which the
restrictions lapse. Restricted stock grants were 27,700 shares in 2001, 26,645
shares in 2000, and 181,213 shares in 1999. The weighted average intrinsic value
of the restricted stock grants, based on the stock price at date of grant, was
$25.49 in 2001, $13.42 in 2000, and $18.66 in 1999. Total compensation expense
recognized in the income statement for all stock based awards was $1,320 in
2001, $1,041 in 2000, and $878 in 1999.

NOTE 5: DERIVATIVES AND HEDGING ACTIVITIES

The Company is party to forward contracts for purposes of hedging certain
transactions denominated in foreign currencies. The Company has a risk
management and derivatives policy statement outlining the conditions in which
the Company can enter into hedging or forward transactions. As of December 31,
2001 and 2000, the Company had approximately $69.4 million and $103.9 million,
respectively, of notional amount in outstanding contracts with third parties. As
of December 31, 2001, the maximum length of any forward contract currently in
place is about 17 months.

The Company, as part of its risk management program, is party to interest
rate swap agreements for the purpose of hedging its exposure to floating
interest rates on certain portions of its debt. As of December 31, 2001 and
2000, the Company had $150 million and $75 million, respectively, of notional
amount in outstanding interest rate swaps with third parties. As of December 31,
2001, the maximum length of any interest rate contract currently in place is
about 5 years.

At December 31, 2001, the fair value of the hedging instruments is a
liability of $6.5 million.

The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments, but it expects all
counterparties to meet their obligations given their creditworthiness.

Hedging related transactions recorded to other comprehensive income (expense)
during 2001 were:

OTHER
COMPREHENSIVE
INCOME (EXPENSE)
----------------

Record fair market value of hedges, as of
January 1, 2001, net of deferred taxes of $472          $   840
Reclassify to earnings amount necessary to
offset floating interest rate gains during 2001,
net of deferred taxes of $684                             1,205
Reclassify to earnings amount necessary to
offset foreign currency gains during 2001,
net of deferred taxes of $377                               660
Change in fair market value of swap agreements as
of December 31, 2001, net of deferred
taxes of $2,201                                          (3,790)
Change in fair market value of foreign currency
forward contracts as of December 31, 2001,
net of deferred taxes of $1,779                          (3,060)
-------
YEAR ENDED DECEMBER 31, 2001                             $(4,145)
=======

FLOWSERVE 2001 / ANNUAL REPORT 43

The Company expects that within the next twelve months it will reclassify as
expense $2.6 million, net of deferred tax, of the amount recorded in accumulated
other comprehensive loss for contracts that will settle during the period.

NOTE 6: DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS

INVENTORIES

Inventories and the method of determining cost were:

December 31,                                2001       2000
--------   --------

Raw materials                             $ 62,818   $ 59,403
Work in process                            146,494    119,868
Finished goods                             258,856    239,884
Less: Progress billings                    (43,655)   (38,605)
Less: Excess and obsolete reserve          (42,986)   (37,114)
--------   --------
381,527    343,436
LIFO reserve                               (33,936)   (37,478)
--------   --------
Net inventory                             $347,591   $305,958
========   ========
Percent of inventory accounted
for by LIFO                                  62%        67%
Percent of inventory accounted
for by FIFO                                  38%        33%

The decline in the LIFO reserve in 2001 primarily reflects the impact of
deflation in the materials component of the Company's inventory. Therefore, the
impact of this reduction in the reserve on 2001 earnings was insignificant.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment were:

December 31,                                2001       2000
--------   --------

Land                                      $ 46,655   $ 48,434
Buildings, improvements, furniture
and fixtures                            344,682    331,293
Machinery, equipment, capital
leases and construction in progress     266,094    275,967
--------   --------
657,431    655,694
Less: Accumulated depreciation            (295,043)  (265,134)
--------   --------
362,388    390,560
Assets held for sale                            --     14,852
--------   --------
Net property, plant and equipment         $362,388   $405,412
========   ========

Certain fixed assets were held for sale at December 31, 2000 associated with
the Company's integration of IDP. Proceeds of $8.7 million were received in 2001
in conjunction with the sale of these assets. The differential between the net
carrying value and realizable value for these IDP fixed assets was adjusted to
goodwill during 2001 as the Company finalized its allocation of the IDP purchase
price. The differential for Flowserve assets was recorded as a loss on sale of
fixed assets and recorded in integration expense.

OTHER ASSETS

Other assets were:

December 31,                                     2001         2000
--------     --------

Deferred tax assets                            $ 61,205     $ 66,977
Investments in unconsolidated subsidiaries       18,713       20,377
Prepaid financing fees                           31,787       44,331
Deferred compensation funding                    16,250       17,743
Other                                            17,239       11,480
--------     --------
Total                                          $145,194     $160,908
========     ========

ACCRUED LIABILITIES

Accrued liabilities were:

December 31,                                     2001        2000
--------    --------

Wages, compensation, and other benefits        $ 84,161    $100,774
Accrued restructuring                             5,521      32,552
Accrued interest                                 17,199      29,489
Accrued commissions and royalties                 3,372       6,916
Progress billings in excess of
accumulated costs                             13,747       9,529
Other                                            69,768      64,293
--------    --------
Total                                          $193,768    $243,553
========    ========

RETIREMENT BENEFITS AND DEFERRED ITEMS

Retirement benefits and deferred items were:

December 31,                           2001        2000
--------    --------

Retirement benefits                  $146,761    $122,153
Deferred taxes                         36,639      78,379
Deferred compensation                  10,752      12,977
Other                                  33,811      46,598
--------    --------
Total                                $227,963    $260,107
========    ========

FLOWSERVE 2001 / ANNUAL REPORT 44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7: DEBT AND LEASE OBLIGATIONS

Long-term debt, including capital lease obligations, consisted of:

December 31,                                 2001          2000
----------    -----------

Term Loan Tranche A, interest rate of
4.69%, 4.88% and 5.06% in 2001
and 9.31% and 9.50% in 2000             $  257,078    $   275,000
Term Loan Tranche B, interest rate of
5.63% and 5.81% in 2001 and
10.06% and 10.25% in 2000                  469,842        475,000
Senior Subordinated Notes,
interest rate of 12.25%                    243,370        379,021
Revolving credit agreement,
interest rate of 4.69% in 2001              70,000             --
Capital lease obligations and other              455            185
----------    -----------
1,040,745      1,129,206
Less amounts due within one year              44,523         18,098
----------    -----------
Total long-term debt due after one year   $  996,222    $ 1,111,108
==========    ===========

Maturities of long-term debt, including capital lease obligations, for the
next five years are:

2002                                 $   44,523
2003                                     59,385
2004                                     63,307
2005                                     67,262
2006                                    175,860
Thereafter                              630,408
----------
Total                                $1,040,745
==========

In August 2000, in connection with the acquisition of IDP, the Company
entered into a senior secured credit facility (the "Credit Facility") which
includes a $275 million term loan due June 2006, a $475 million term loan due
June 2008, and a $300 million revolving credit facility with a final maturity of
June 2006. The Credit Facility is secured by substantially all domestic assets
of the Company and a pledge of 65% of the stock of the foreign subsidiaries. The
term loans bear interest based on LIBOR plus a credit spread, or the Prime Rate
plus a credit spread, at the option of the Company. The credit spread can
increase or decrease based on the Company's leverage ratio as defined. As of
December 31, 2001, $70.0 million of the revolving credit facility was drawn and
$726.9 million of the term loans were outstanding.

The revolving credit facility also allows the Company to issue up to $200
million in letters of credit. As of December 31, 2001, $27.4 million of letters
of credit had been issued under the facility. As letters of credit issued under
the facility reduce availability, the Company had $202.6 million remaining in
unused borrowing capacity at December 31, 2001 under the revolving credit
facility.

Quarterly principal payments of the term loans began in June 2001 and amounts
outstanding at December 31, 2001 are summarized as follows: $44.5 million in
2002, $59.4 million in 2003, $63.3 million in 2004, $67.3 million in 2005,
$105.9 million in 2006, $257.5 million in 2007 and $129.1 million in 2008.
Effective December 31, 2001, the Company is required to use a percentage of
excess cash from operations, as defined in the Credit Facility as well as the
Company's indenture, to reduce the outstanding principal of the term loans in
the following year. No additional principal payments are due in 2002 under this
provision.

The Company also issued 10 year senior subordinated notes (the "Notes") on
August 8, 2000 in a U.S. dollar tranche and a Euro tranche. Proceeds of $285.9
million from the dollar tranche ($290.0 million face amount less discount of
$4.1 million) and EUR 98.6 million from the Euro tranche (EUR 100.0 million face
amount less discount of EUR 1.4 million), were also used in completing the IDP
acquisition. The Notes, issued at a fixed rate of 12.25%, were originally priced
at a discount to yield 12.50%, and have no scheduled principal payments prior
to maturity in August 2010. Beginning in August 2005, the Notes become callable
at a fixed redemption price. The Notes can also be redeemed by the Company under
certain circumstances and have mandatory redemption features under certain
circumstances, including a change in control as defined. Interest on the Notes
is payable semi-annually in February and August.

During 2001, the Company completed an offering of approximately 6.9 million
shares of its common stock for net proceeds of approximately $154 million. These
proceeds were used to prepay $101.5 million of the U.S. dollar tranche, EUR 35
million ($31 million) of the Euro tranche of the senior subordinated notes, and
to pay associated prepayment premiums and other direct costs. The Company
recorded an extraordinary item of $17.9 million, which is net of $7.1 million of
tax, comprised of the prepayment premiums, other direct costs, and the write-off
of unamortized prepaid financing fees and discount for the portion of the Notes
that was prepaid.

The provisions of the Credit Facility require the Company to meet or exceed
specified defined financial covenants. These covenants include a leverage ratio,
an interest coverage ratio, and a fixed charge coverage ratio. Further, the
provisions of the Credit Facility and the Notes contain limitations or
restrictions on indebtedness, liens, sale and leaseback transactions, asset
sales, payment of dividends, capital expenditures, and other customary
restrictions. As of December 31, 2001, the Company was in compliance with these
covenants.

Flowserve 2001 / Annual Report 45

In 2000, the Company recorded an extraordinary item of $2.1 million, which is
net of tax of $1.2 million, for prepayment premiums and the write-off of prepaid
financing fees associated with the prepayment of certain long-term debt.

The Company has noncancelable operating leases for certain offices, service
and quick response centers, certain manufacturing and operations facilities, and
machinery, equipment and automobiles. Rental expense relating to operating
leases was $14,041 in 2001, $13,020 in 2000, and $11,648 in 1999.

The future minimum lease payments due under noncancelable operating leases
are:

2002                            $12,265
2003                              9,138
2004                              6,926
2005                              5,697
2006                              3,435
Thereafter                        5,188
-------
Total                           $42,649
=======

NOTE 8: GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS

In connection with the IDP acquisition and as part of the related financing, the
Company and newly formed Dutch subsidiary, Flowserve Finance B.V., issued the
Notes (comprised of the U.S. dollar Notes and the Euro Notes), in private
placements pursuant to Rule 144A and Regulation S. The U.S. dollar Notes and the
Euro Notes are general unsecured obligations of the Company and Flowserve
Finance B.V., respectively, subordinated in right of payment to all existing and
future senior indebtedness of the Company and Flowserve Finance B.V.,
respectively, and guaranteed on a full, unconditional, joint and several basis
by the Company's wholly-owned domestic subsidiaries and, in the case of the Euro
Notes, by the Company.

The following consolidating financial information presents:

(1) Consolidating balance sheets as of December 31, 2001 and 2000 and the
related statements of operations and cash flows for the years then ended of
(a) Flowserve Corporation, the parent, (b) Flowserve Finance B.V., (c) the
guarantor subsidiaries, (d) the nonguarantor subsidiaries, and the Company
on a consolidated basis, and

(2) Consolidating statements of operations and cash flows for the year ended
December 31, 1999, of (a) Flowserve Corporation, the parent, (b) the
guarantor subsidiaries, (c) the nonguarantor subsidiaries, and the Company
on a consolidated basis, and

(3) Elimination entries necessary to consolidate Flowserve Corporation, the
parent, with Flowserve Finance, B.V., guarantor and nonguarantor
subsidiaries.

Investments in subsidiaries are accounted for by the parent using the equity
method of accounting. The guarantor and nonguarantor subsidiaries are presented
on a combined basis. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Separate financial
statements for the guarantor subsidiaries and the nonguarantor subsidiaries are
not presented because management believes such financial statements would not be
meaningful to investors.

Effective January 1, 2001, the Company effected a domestic legal
reorganization. This primarily resulted in a reclassification between the parent
and guarantor subsidiaries.

FLOWSERVE 2001 / ANNUAL REPORT 46

CONSOLIDATING STATEMENT OF OPERATIONS

Year ended December 31, 2001
----------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR     NONGUARANTOR                  CONSOLIDATED
(Amounts in thousands)                            PARENT    FINANCE B.V.  SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS        TOTAL
--------   ------------  ------------   ------------  ------------    ------------

Sales                                            $     --     $    --     $  1,176,386   $    851,043  $   (109,922)   $  1,917,507
Cost of sales                                          --          --          826,849        586,028      (109,922)      1,302,955
--------     -------     ------------   ------------  ------------    ------------
Gross profit                                           --          --          349,537        265,015            --         614,552
Selling, general and administrative expense         --          --          271,915        138,648            --         410,563
Restructuring expenses                              --          --           (1,108)          (100)           --          (1,208)
Integration expenses                                --          --           50,187         12,856            --          63,043
--------     -------     ------------   ------------  ------------    ------------
Operating income                                       --          --           28,543        113,611            --         142,154
Net interest expense                            19,269       2,174           86,731          9,898            --         118,072
Other expense (income), net                         --           2          (29,046)        27,497            --          (1,547)
Equity in (earnings) loss of subsidiaries      (22,814)         --               --             --        22,814               -
--------     -------     ------------   ------------  ------------    ------------
Earnings (loss) before income taxes                 3,545      (2,176)         (29,142)        76,216       (22,814)         25,629
(Benefit) provision for income taxes               (7,130)         --          (10,782)        27,187            --           9,275
--------     -------     ------------   ------------  ------------    ------------
Earnings (loss) before extraordinary items         10,675      (2,176)         (18,360)        49,029       (22,814)         16,354
Extraordinary items, net of income taxes          (12,172)     (5,679)              --             --            --         (17,851)
--------     -------     ------------   ------------  ------------    ------------
Net (loss) earnings                              $ (1,497)    $(7,855)    $    (18,360)  $     49,029  $    (22,814)   $     (1,497)
========     =======     ============   ============  ============    ============

FLOWSERVE 2001 / ANNUAL REPORT 47

CONSOLIDATING STATEMENT OF OPERATIONS

Year ended December 31, 2000
----------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR     NONGUARANTOR                  CONSOLIDATED
(Amounts in thousands)                            PARENT    FINANCE B.V.  SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS       TOTAL
--------   ------------  ------------   ------------  ------------    -----------

Sales                                            $151,825     $    --     $    857,475   $    611,117  $   (82,124)    $ 1,538,293
Cost of sales                                     116,703          --          582,238        414,564       (82,124)     1,031,381
--------     -------     ------------   ------------  ------------    -----------
Gross profit                                       35,122          --          275,237        196,553            --        506,912
Selling, general and administrative expense     54,899          --          190,989        114,418            --        360,306
Restructuring expenses                           9,064          --            2,564          7,736            --         19,364
Integration expenses                             6,346          --           16,822         12,043            --         35,211
--------     -------     ------------   ------------  ------------    -----------
Operating income                                  (35,187)         --           64,862         62,356            --         92,031
Net interest expense                            26,980         343           34,799          5,862         2,337         70,321
Other (income) expense, net                     (2,918)         --          (36,881)        40,662        (2,337)        (1,474)
Equity in (earnings) loss of subsidiaries      (51,709)         --               --             --        51,709             --
--------     -------     ------------   ------------  ------------    -----------
(Loss) earnings before income taxes                (7,540)       (343)          66,944         15,832       (51,709)        23,184
(Benefit) provision for income taxes              (21,910)         --           26,618          3,168            --          7,876
--------     -------     ------------   ------------  ------------    -----------
Earnings (loss) before extraordinary items         14,370        (343)          40,326         12,664       (51,709)        15,308
Extraordinary items, net of income taxes           (1,129)         --             (938)            --            --         (2,067)
--------     -------     ------------   ------------  ------------    -----------
Net earnings (loss)                              $ 13,241       $(343)    $     39,388   $     12,664      $(51,709)   $    13,241
========     =======     ============   ============  ============    ===========

CONSOLIDATING STATEMENT OF OPERATIONS

Year ended December 31, 1999
------------------------------------------------------------------
GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                            PARENT    SUBSIDIARIES  SUBSIDIARIES   ELIMINATIONS      TOTAL
--------   ------------  ------------   ------------  -----------

Sales                                            $140,710     $519,035    $    472,563   $    (71,036) $  1,061,272
Cost of sales                                      72,042      380,302         316,620        (71,036)      697,928
--------     --------    ------------   ------------  ------------
Gross profit                                       68,668      138,733         155,943             --       363,344
Selling, general and administrative expense     66,460      137,963          97,106             --       301,529
Restructuring expenses                              --       13,674           2,186             --        15,860
Integration expenses                                --       13,514             693             --        14,207
--------     --------    ------------   ------------  ------------
Operating income                                    2,208      (26,418)         55,958             --        31,748
Net interest expense                             2,007       11,939           1,437           (706)       14,677
Other (income) expense, net                     (1,878)     (10,584)         10,582            706        (1,174)
Equity in (earnings) loss of subsidiaries      (10,915)          --              --         10,915            --
--------     --------    ------------   ------------  ------------
Earnings (loss) before income taxes                12,994      (27,773)         43,939        (10,915)       18,245
Provision (benefit) for income taxes                  817       (8,027)         13,278             --         6,068
--------     --------    ------------   ------------  ------------
Net earnings (loss)                              $ 12,177     $(19,746)   $     30,661   $    (10,915) $     12,177
========     ========    ============   ============  ============

FLOWSERVE 2001 / ANNUAL REPORT 48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING BALANCE SHEET

December 31, 2001
------------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                           PARENT     FINANCE B.V.   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS       TOTAL
------------  ------------   ------------  ------------  ------------   ------------

Current assets:
Cash and cash equivalents                  $         --  $         --   $         --  $     21,533  $         --   $     21,533
Intercompany receivables                         82,513            --         62,875        77,513      (222,901)            --
Accounts receivable, net                             --            --        231,484       224,377            --        455,861
Inventories                                          --            --        201,707       145,884            --        347,591
Current deferred tax asset                           --            --         33,727         2,589            --         36,316
Prepaid expenses                                     --            --         22,981        13,857            --         36,838
------------  ------------   ------------  ------------  ------------   ------------
Total current assets                           82,513            --        552,774       485,753      (222,901)       898,139
Property, plant and equipment, net                      --            --        201,595       160,793            --        362,388
Investment in subsidiaries                         399,026            --        464,633            --      (863,659)            --
Intercompany receivables                           893,415        85,254          6,198        34,003    (1,018,870)            --
Goodwill, net                                           --            --        414,465       100,710            --        515,175
Other intangible assets, net                            --            --        115,123        15,956            --        131,079
Other assets                                        29,094         2,693        100,320        13,087            --        145,194
------------  ------------   ------------  ------------  ------------   ------------
Total assets                                  $  1,404,048  $     87,947   $  1,855,108  $    810,302  $ (2,105,430)  $  2,051,975
============  ============   ============  ============  ============   ============
Current liabilities:
Accounts payable                           $        145  $         --   $     85,861  $     92,474  $         --   $    178,480
Intercompany payables                             4,240        (1,191)        45,004       174,848      (222,901)            --
Income taxes                                     (1,257)           --        (15,606)       16,863            --             --
Accrued liabilities                              15,034         2,665        107,191        68,878            --        193,768
Long-term debt due within one year               44,521            --              2            --            --         44,523
------------  ------------   ------------  ------------  ------------   ------------
Total current liabilities                      62,683         1,474        222,452       353,063      (222,901)       416,771
Long-term debt due after one year                  938,606        57,163            420            33            --        996,222
Intercompany payables                                   --        37,115        930,985        50,770    (1,018,870)            --
Retirement benefits and deferred items                  --            --        172,483        55,480            --        227,963
Shareholders' equity:
Serial preferred stock                               --            --             --            --            --             --
Common shares                                    60,518            --              2       182,331      (182,333)        60,518
Capital in excess of par value                  211,113            --        313,221        72,991      (386,212)       211,113
Retained earnings (deficit)                     355,998        (8,198)       237,279       162,241      (391,322)       355,998
------------  ------------   ------------  ------------  ------------   ------------
627,629        (8,198)       550,502       417,563      (959,867)       627,629
Treasury stock, at cost                         (82,718)           --             --            --            --        (82,718)
Accumulated other comprehensive
(loss) income                                  (142,152)          393        (29,994)      (66,607)       96,208       (142,152)
Deferred compensation obligation                     --            --          8,260            --            --          8,260
------------  ------------   ------------  ------------  ------------   ------------
Total shareholders' equity                    402,759        (7,805)       528,768       350,956      (863,659)       411,019
------------  ------------   ------------  ------------  ------------   ------------
Total liabilities and shareholders' equity    $  1,404,048  $     87,947   $  1,855,108  $    810,302  $ (2,105,430)  $  2,051,975
============  ============   ============  ============  ============   ============

FLOWSERVE 2001 / ANNUAL REPORT 49

CONSOLIDATING BALANCE SHEET

December 31, 2000
------------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                           PARENT     FINANCE B.V.   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS       TOTAL
------------  ------------   ------------  ------------  ------------   ------------

Current assets:
Cash and cash equivalents                  $         --  $         --   $         --  $     50,239  $     (7,898)  $     42,341
Intercompany receivables                         23,530            --         33,252       104,836      (161,618)            --
Accounts receivable, net                         20,767            --        224,746       241,761            --        487,274
Inventories                                      10,432            --        181,258       114,268            --        305,958
Current deferred tax asset                           --            --         38,765           961            --         39,726
Prepaid expenses                                  6,261            --         12,216         4,276            --         22,753
------------  ------------   ------------  ------------  ------------   ------------
Total current assets                           60,990            --        490,237       516,341      (169,516)       898,052
Property, plant and equipment, net                  34,332            --        189,978       181,102            --        405,412
Investment in subsidiaries                         784,893            --        443,092            --    (1,227,985)            --
Intercompany receivables                           501,286        90,112         10,849        21,598      (623,845)            --
Goodwill, net                                        7,814            --        452,118        46,644            --        506,576
Other intangible assets, net                            --            --        121,994        17,201            --        139,195
Other assets                                        52,991         4,865         97,861         5,191            --        160,908
------------  ------------   ------------  ------------  ------------   ------------
Total assets                                  $  1,442,306  $     94,977   $  1,806,129  $    788,077  $ (2,021,346)  $  2,110,143
============  ============   ============  ============  ============   ============
Current liabilities:
Accounts payable                           $      5,588  $          1   $     76,910  $     97,766  $     (7,899)  $    172,366
Intercompany payables                            33,973         2,279         20,704       104,658      (161,614)            --
Income taxes                                      4,679            --          2,928        (7,607)           --             --
Accrued liabilities                              13,443           111        120,729       110,202          (932)       243,553
Long-term debt due within one year               18,000            --             90             8            --         18,098
------------  ------------   ------------  ------------  ------------   ------------
Total current liabilities                      75,683         2,391        221,361       305,027      (170,445)       434,017
Long-term debt due after one year                1,018,063        92,958              2            85            --      1,111,108
Intercompany payables                                  131            --        468,840       154,873      (623,844)            --
Retirement benefits and deferred items              50,062            --        166,187        42,926           932        260,107
Shareholders' equity:
Serial preferred stock                               --            --             --            --            --             --
Common shares                                    51,856            --              2       197,582      (197,584)        51,856
Capital in excess of par value                   65,785            --        676,035        89,489      (765,524)        65,785
Retained earnings                               357,495          (343)       285,998       138,332      (423,987)       357,495
------------  ------------   ------------  ------------  ------------   ------------
475,136          (343)       962,035       425,403    (1,387,095)       475,136
Treasury stock, at cost                         (92,545)           --           (613)        2,246        (1,633)       (92,545)
Accumulated other comprehensive
(loss) income                                   (84,224)          (29)       (18,227)     (142,483)      160,739        (84,224)
Deferred compensation obligation                     --            --          6,544            --            --          6,544
------------  ------------   ------------  ------------  ------------   ------------
Total shareholders' equity                    298,367          (372)       949,739       285,166    (1,227,989)       304,911
------------  ------------   ------------  ------------  ------------   ------------
Total liabilities and shareholders' equity    $  1,442,306  $     94,977   $  1,806,129  $    788,077  $ (2,021,346)  $  2,110,143
============  ============   ============  ============  ============   ============

FLOWSERVE 2001 / ANNUAL REPORT 50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended December 31, 2001
------------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                          PARENT     FINANCE B.V.   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS       TOTAL
------------  ------------   ------------  ------------  ------------   ------------

Cash flows - Operating activities:
Net (loss) earnings                       $     (1,497) $     (7,855)  $    (18,360) $     49,029  $    (22,814)  $     (1,497)
Adjustments to reconcile net (loss)
earnings to net cash (used) provided
by operating activities:
Depreciation                                      --            --         28,703        20,188            --         48,891
Amortization                                      --            --         21,365         3,599            --         24,964
Amortization of prepaid financing
fees and discount                             5,857           879             --            --            --          6,736
Premiums and other direct costs of
long-term debt repayment                     13,476         3,844             --            --            --         17,320
Write-off of unamortized prepaid
financing fees and discount                   5,844         1,810             --            --            --          7,654
Loss (gain) on the sale of fixed
assets                                           --            --            114          (897)           --           (783)
Loss on impairment of assets                      --            --            679            --            --            679
Change in assets and liabilities,
net of effects of acquisitions and
dispositions:
Accounts receivable                             12            --         12,462         3,130            --         15,604
Inventories                                     --            --        (13,765)      (41,075)           --        (54,840)
Intercompany receivable and payable       (136,416)       36,017        (15,476)       62,487        53,388             --
Prepaid expenses                                --            --          6,945       (21,631)           --        (14,686)
Other assets                                  (859)          (48)        28,760       (37,410)           --         (9,557)
Accounts payable                            (1,466)           --         13,277       (15,321)           --         (3,510)
Accrued liabilities                         13,482         2,560        (23,728)      (48,175)           --        (55,861)
Income taxes                                  (619)           --        (20,193)       20,996            --            184
Retirement benefits and
deferred items                              8,221            --        (37,734)       17,004            --        (12,509)
Net deferred taxes                              --            --        (23,236)        6,518            --        (16,718)
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows (used) provided by
operating activities                            (93,965)       37,207        (40,187)       18,442        30,574        (47,929)
------------  ------------   ------------  ------------  ------------   ------------
Cash flows - Investing activities:
Capital expenditures                                --            --        (20,537)      (14,688)           --        (35,225)
Cash received for disposals of assets               --            --          5,855         2,868            --          8,723
Payments for acquisitions                           --            --         (1,685)           --            --         (1,685)
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows used by investing activities            --            --        (16,367)      (11,820)           --        (28,187)
------------  ------------   ------------  ------------  ------------   ------------
Cash flows - Financing activities:
Net borrowings under lines of credit            70,000            --             --            --            --         70,000
Payment of long-term debt                     (124,580)      (31,000)            --            --            --       (155,580)
Premiums and other direct costs of
long-term debt repayment                      (13,476)       (3,844)            --            --            --        (17,320)
Proceeds from long-term debt                        --            --            420            --            --            420
Proceeds from issuance of common stock         154,022            --             --            --            --        154,022
Other                                            7,999        (2,363)        56,141       (31,102)      (22,676)         7,999
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows provided (used)
by financing activities                         93,965       (37,207)        56,561       (31,102)      (22,676)        59,541
Effect of exchange rate changes                        --            --             (7)       (4,226)           --         (4,233)
------------  ------------   ------------  ------------  ------------   ------------
Net change in cash and cash equivalents                --            --             --       (28,706)        7,898        (20,808)
Cash and cash equivalents at
beginning of year                                   --            --             --        50,239        (7,898)        42,341
------------  ------------   ------------  ------------  ------------   ------------
Cash and cash equivalents at end of year     $         --  $         --   $         --  $     21,533  $         --   $     21,533
============  ============   ============  ============  ============   ============

FLOWSERVE 2001 / ANNUAL REPORT 51

CONSOLIDATING STATEMENTS OF CASH FLOWS

CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended December 31, 2000
------------------------------------------------------------------------------------
FLOWSERVE     GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                          PARENT     FINANCE B.V.   SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS       TOTAL
------------  ------------   ------------  ------------  ------------   ------------

Cash flows - Operating activities:
Net earnings (loss)                       $     13,241  $       (343)  $     39,388  $     12,664  $    (51,709)  $     13,241
Adjustments to reconcile net
earnings (loss) to net cash
(used) provided by operating
activities:
Depreciation                                   6,221            --         25,778        10,677            --         42,676
Amortization                                     461            --         11,088         2,812            --         14,361
Amortization of prepaid financing
fees and discount                             2,773           301             --            --            --          3,074
Premiums and other direct costs of
long-term debt repayment                         --            --          1,013            --            --          1,013
Write-off of unamortized prepaid
financing fees and discount                      --            --          2,216            --            --          2,216
Loss (gain) on the sale of fixed
assets                                           --            --           (260)          410            --            150
Loss on impairment of facilities
and equipment                                    --            --          3,673            --            --          3,673
Change in assets and liabilities,
net of effects of acquisitions
and dispositions:
Accounts receivable                         (4,065)           --        (32,305)      (33,732)           --        (70,102)
Inventories                                  7,380            --        (16,558)        7,215            --         (1,963)
Intercompany receivable and payable       (589,288)      (87,832)       560,455       117,050          (385)            --
Prepaid expenses                              (403)           --         (2,729)       15,737        (4,637)         7,968
Other assets                               (17,289)         (354)        (7,888)          750            --        (24,781)
Accounts payable                            (6,891)           --          6,840        21,831        (3,696)        18,084
Accrued liabilities                          4,544           111        (19,280)       (2,658)         (932)       (18,215)
Income taxes                                   173            --            665        (9,696)        1,219         (7,639)
Retirement benefits and deferred
items                                     15,222            --         21,042        (4,443)          932         32,753
Net deferred taxes                          (6,533)           --         10,214        (1,759)           --          1,922
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows (used) provided by
operating activities                          (574,454)      (88,117)       603,352       136,858       (59,208)        18,431
------------  ------------   ------------  ------------  ------------   ------------
Cash flows - Investing activities:
Capital expenditures                            (7,330)           --         (9,300)      (11,189)           --        (27,819)
Cash received for disposals of assets               --            --          5,368            36            --          5,404
Payments for acquisitions, net of cash
acquired                                    (387,793)           --       (241,019)     (699,357)      557,455       (770,714)
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows (used) provided by investing
activities                                    (395,123)           --       (244,951)     (710,510)      557,455       (793,129)
------------  ------------   ------------  ------------  ------------   ------------
Cash flows - Financing activities:
Net repayments under lines of credit                --            --        (88,903)       (2,108)           --        (91,011)
Payment of long-term debt                     (161,663)           --       (189,997)       (6,828)           --       (358,488)
Premiums and other direct costs of
long-term debt repayment                          --            --         (1,013)           --            --         (1,013)
Payment of prepaid financing fees              (41,663)       (4,811)            --            --            --        (46,474)
Proceeds from long-term debt                 1,191,511        92,958             --            --            --      1,284,469
Proceeds from issuance of common stock             615            --             --            --            --            615
Other                                          (19,223)           --        (79,377)      604,353      (505,753)            --
------------  ------------   ------------  ------------  ------------   ------------
Net cash flows provided (used) by financing
activities                                     969,577        88,147       (359,290)      595,417      (505,753)       788,098
Effect of exchange rate changes                        --           (30)            --        (1,492)           --         (1,522)
------------  ------------   ------------  ------------  ------------   ------------
Net change in cash and cash equivalents                --            --           (889)       20,273        (7,506)        11,878
Cash and cash equivalents at beginning
of year                                             --            --            889        29,966          (392)        30,463
------------  ------------   ------------  ------------  ------------   ------------
Cash and cash equivalents at end of year     $         --  $         --   $         --  $     50,239  $     (7,898)  $     42,341
============  ============   ============  ============  ============   ============

FLOWSERVE 2001 / ANNUAL REPORT 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Year ended December 31, 1999
-------------------------------------------------------------------
GUARANTOR    NONGUARANTOR                 CONSOLIDATED
(Amounts in thousands)                            PARENT     SUBSIDIARIES  SUBSIDIARIES   ELIMINATIONS      TOTAL
---------   ------------  ------------   ------------  ------------

Cash flows - Operating activities:
Net earnings (loss)                           $  12,177   $    (19,746) $     30,661   $    (10,915) $     12,177
Adjustments to reconcile net earnings
(loss) to net cash provided (used)
by operating activities:
Depreciation                                    2,771         18,003        14,271             --        35,045
Amortization                                      450          1,484         2,620             --         4,554
Amortization of prepaid financing
fees and discount                               236             --            --             --           236
Loss (gain) on the sale of fixed assets           232            294           (86)            --           440
Loss on impairment of facilities
and equipment                                 2,834             --            --             --         2,834
Change in assets and liabilities,
net of effects of
acquisitions and dispositions:
Accounts receivable                          (2,159)        14,459           423             --        12,723
Inventories                                  13,276         18,047        (2,964)            --        28,359
Intercompany receivable and payable         161,256       (340,917)      (80,885)       260,546            --
Prepaid expenses                            (15,236)         6,359        (4,033)            --       (12,910)
Other assets                                 20,179        (28,125)       10,329             --         2,383
Accounts payable                              1,610        (13,123)        3,852          5,742        (1,919)
Accrued liabilities                         (18,633)        24,460           506             --         6,333
Income taxes                                 24,051        (28,483)       (7,963)            --       (12,395)
Retirement benefits and
deferred items                            (29,941)        47,176        (9,163)            --         8,072
Net deferred taxes                           13,037        (11,695)       (3,159)            --        (1,817)
---------   ------------  ------------   ------------  ------------
Net cash flows provided (used) by
operating activities                            186,140       (311,807)      (45,591)       255,373        84,115
---------   ------------  ------------   ------------  ------------
Cash flows - Investing activities:
Capital expenditures                             (3,940)       (14,580)      (22,015)            --       (40,535)
Payments for acquisitions, net of
cash acquired                                  (5,743)            --            --             --        (5,743)
---------   ------------  ------------   ------------  ------------
Net cash flows used by investing activities         (9,683)       (14,580)      (22,015)            --       (46,278)
---------   ------------  ------------   ------------  ------------
Cash flows - Financing activities:
Net borrowings (repayments) under
lines of credit                                   638         (8,403)       (5,880)            --       (13,645)
Payments of long-term debt                       (8,333)            --         1,963             --        (6,370)
Payments of prepaid financing fees               (2,183)            --            --             --        (2,183)
Proceeds from long-term debt                   (117,912)       138,397        (1,709)            --        18,776
Repurchase of common stock                       (5,250)            --            --             --        (5,250)
Proceeds from issuance of common stock             (529)            --            --             --          (529)
Dividends paid                                  (21,172)            --            --             --       (21,172)
Other                                                --        241,460         7,329       (249,631)         (842)
---------   ------------  ------------   ------------  ------------
Net cash flows (used) provided by
financing activities                           (154,741)       371,454         1,703       (249,631)      (31,215)
---------   ------------  ------------   ------------  ------------
Effect of exchange rate changes                    (21,716)       (44,178)       64,807             --        (1,087)
---------   ------------  ------------   ------------  ------------
Net change in cash and cash equivalents                 --            889        (1,096)         5,742         5,535
Cash and cash equivalents at beginning of year          --             --        31,062         (6,134)       24,928
---------   ------------  ------------   ------------  ------------
Cash and cash equivalents at end of year         $      --   $        889  $     29,966   $       (392) $     30,463
=========   ============  ============   ============  ============

FLOWSERVE 2001 / ANNUAL REPORT 53

NOTE 9: DEFERRED COMPENSATION - RABBI TRUST

The Company has established deferred compensation plans under which a portion of
amounts earned by employees are invested in the Company's common stock and
placed in a Rabbi Trust.

Effective October 1, 2000, the Company amended the provisions of the deferred
compensation plans. As amended, the stock deferred compensation plans do not
allow diversification and require the obligation for the deferred compensation
amounts held in Company stock be settled by the delivery of a fixed number of
shares of Company stock. Accordingly, the deferred compensation obligation to be
settled with stock is reflected in shareholders' equity. Prior to these
amendments, the Company recorded net expense of $923 in 2000 and $243 in 1999 to
reflect the change in fair value of the deferred compensation liability for
Company stock.

NOTE 10: RETIREMENT BENEFITS

The Company sponsors several noncontributory defined benefit pension plans,
covering substantially all domestic employees and certain foreign employees,
which provide benefits based on years of service and compensation. Retirement
benefits for all other employees are provided through defined contribution
pension plans, cash balance pension plans, and government-sponsored retirement
programs. All defined benefit pension plans are funded based on independent
actuarial valuations to provide for current service and an amount sufficient to
amortize unfunded prior service over periods not to exceed 30 years.

Net defined benefit pension expense for domestic pension plans (including
both qualified and nonqualified plans) was:

Year ended December 31,                 2001        2000        1999
--------    --------    --------

Service cost-benefits earned
during the period                   $  9,550    $  8,753    $  7,585
Interest cost on projected
benefit obligations                   16,169      15,396      14,637
Gain on plan assets                    (20,346)    (19,996)    (18,638)
Amortization of unrecognized
prior service (benefit) cost          (1,292)     (1,313)       (232)
Amortization of unrecognized
net asset                                 --        (404)       (529)
Special termination expense                 --       5,210          --
--------    --------    --------
Net defined benefit pension
expense                             $  4,081    $  7,646    $  2,823
========    ========    ========

Special termination expense represents costs relating to a plant closure and
as such, were recorded as restructuring expense in the consolidated statements
of operations.

Net defined benefit pension expense for foreign pension plans was:

Year ended December 31,               2001        2000        1999
--------    --------    --------

Service cost-benefits earned
during the period                 $  1,839    $  1,506    $    232
Interest cost on projected
benefit obligations                  2,703       1,193         341
Gain on plan assets                   (2,955)     (1,460)       (499)
Amortization of unrecognized
prior service benefit                   --          --         (79)
Curtailment                               50          --          --
Amortization of unrecognized
net asset                              (47)        (55)         --
--------    --------    --------
Net defined benefit pension
expense                           $  1,590    $  1,184    $     (5)
========    ========    ========

The following table reconciles the domestic plans' funded status to
amounts recognized in the Company's consolidated balance sheets:

December 31,                                2001       2000
--------   --------

Projected benefit obligations             $238,163   $225,564
Plan assets, at fair value                 191,017    225,659
--------   --------
Funded status                              (47,146)        95
Unrecognized net loss                       46,519      6,884
Unrecognized prior service cost            (19,031)   (20,810)
Accumulated other comprehensive loss       (17,242)    (1,019)
Deferred tax asset                         (10,125)        --
--------   --------
Net pension liability                     $(47,025)  $(14,850)
========   ========
Discount rate                                  7.0%       7.5%
Rate of increase in compensation levels        4.5%       4.5%
Long-term rate of return on assets             9.5%       9.5%

During 2001 the Company recorded an additional minimum liability of $16
million, net of tax, as a component of other comprehensive expense.

FLOWSERVE 2001 / ANNUAL REPORT 54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table reconciles the foreign plans' funded status to amounts
recognized in the Company's consolidated balance sheets:

December 31,                                2001       2000
--------   --------

Projected benefit obligations             $ 44,898   $ 46,036
Planned assets, at fair value               33,384     37,593
--------   --------
Funded status                              (11,514)    (8,443)
Unrecognized net transition asset               --        (55)
Accumulated other comprehensive loss          (131)      (131)
Unrecognized net loss                        6,104      1,896
--------   --------
Net pension liability                     $ (5,541)  $ (6,733)
========   ========

Discount rate                                 6.15%      5.99%
Rate of increase in compensation levels        3.3%       3.4%
Long-term rate of return on assets             8.0%       7.7%

Following is a reconciliation of the domestic plans' defined benefit pension
obligations:

December 31,                                2001       2000
--------   --------

Beginning benefit obligations             $225,564   $203,761
Service cost                                 9,550      8,753
Interest cost                               16,169     15,396
Plan amendments                                346       (842)
Actuarial loss                              10,429     11,323
Benefits paid                              (26,011)   (18,037)
Special termination costs                    2,116      5,210
--------   --------
Ending benefit obligations                $238,163   $225,564
========   ========

The special termination costs of $2.1 million in 2001 represents a liability
assumed in the acquisition of IDP that was reclassified from the restructuring
reserve.

Following is a reconciliation of the foreign plans' defined benefit pension
obligations:

December 31,                                2001       2000
--------   --------

Beginning benefit obligations             $ 46,036   $  4,984
Acquisitions                                    --     39,650
Service cost                                 1,839      1,507
Interest cost                                2,703      1,193
Employee contributions                         568        385
Curtailments                                (3,606)        --
Actuarial loss (gain)                        1,706       (820)
Benefits paid                               (2,481)    (1,162)
Foreign exchange impact                     (1,867)       299
--------   --------
Ending benefit obligations                $ 44,898   $ 46,036
========   ========

Following is a reconciliation of the domestic plans' defined benefit pension
assets:

December 31,                                2001       2000
--------   --------

Beginning plan assets                     $225,659   $233,722
Return on plan assets                       (9,002)     9,391
Company contributions                          371        583
Benefits paid                              (26,011)   (18,037)
--------   --------
Ending plan assets                        $191,017   $225,659
========   ========

Following is a reconciliation of the foreign plans' defined benefit pension
assets:

December 31,                                2001       2000
--------   --------

Beginning plan assets                     $ 37,593   $  5,411
Acquisitions                                    --     33,689
Employee contributions                         568        385
Company contributions                        2,194        904
Foreign exchange impact                     (1,165)      (285)
Return on plan assets                       (3,325)    (1,651)
Benefits paid                               (2,481)      (860)
--------   --------
Ending plan assets                        $ 33,384   $ 37,593
========   ========

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $283,061, $279,593, and $224,401, respectively, as
of December 31, 2001, and $20,271, $19,411, and $213, respectively, as of
December 31, 2000.

Effective July 1, 1999, three existing defined benefit programs for United
States employees were consolidated into one program. The plan was amended to
reflect the conversion of primarily final average pay methodologies into a cash
balance design and resulted in lowering the defined benefit pension obligation
by $21,617 in 1999. In conjunction with this change, new employee groups became
eligible to participate in the plan.

The Company sponsors several defined contribution plans covering
substantially all domestic and Canadian employees and certain other foreign
employees. Employees may contribute to these plans, and these contributions are
matched in varying amounts by the Company. The Company may also make additional
contributions for eligible employees. Defined contribution plan expense for the
Company was $9,421 in 2001, $7,324 in 2000, and $7,712 in 1999.

The Company also sponsors several defined benefit post-retirement health care
plans covering most current and certain future retirees in the United States.
These plans are for medical and dental benefits and are administered through
insurance companies and health maintenance

FLOWSERVE 2001 / ANNUAL REPORT 55

organizations. The plans include participant contributions, deductibles,
co-insurance provisions and other limitations, and are integrated with Medicare
and other group plans. The plans are funded by the Company as insured benefits
and health maintenance organization premiums are incurred. The benefits are no
longer available to new employees and certain existing employees.

Net post-retirement benefit expense comprised:

Year ended December 31,               2001    2000    1999
------  ------  ------

Service cost - benefits earned
during the period                 $  246  $  869  $  957
Interest cost on accumulated post-
retirement benefit obligations     6,630   4,707   3,841
Amortization of unrecognized
prior service benefit             (2,306) (2,002) (1,333)
Curtailment                              --   5,904      --
------  ------  ------
Net post-retirement benefit
expense                           $4,570  $9,478  $3,465
======  ======  ======

Following is a reconciliation of the accumulated post-retirement benefits
obligations:

December 31,                                 2001      2000
--------  -------

Beginning accumulated post-
retirement benefit obligations          $ 89,331  $49,045
Service cost                                    246      869
Interest cost                                 6,630    4,707
Curtailment                                       -   11,537
Plan amendments                                   -   (3,000)
Acquisition                                       -   25,000
Actuarial loss (gain)                        15,661    5,441
Benefits paid                                (8,428)  (4,268)
--------  -------
Ending accumulated post-retirement
benefit obligations                     $103,440  $89,331
========  =======

Effective with the purchase of IDP on August 8, 2000, the Company assumed
post-retirement liabilities for all former IDP active employees as of the date
of the purchase. In connection with the restructuring plans announced in 2000, a
curtailment liability of $11.5 million was recognized to reflect termination
related post-retirement obligations. Curtailment expense of $5.9 million is
included in restructuring expense in the consolidated statement of operations
for the year ended December 31, 2000. The remaining $5.6 million of curtailment
cost relates to former IDP employees and is included in goodwill.

The following table presents the components of post-retirement benefit
amounts recognized in the Company's consolidated balance sheets:

December 31,                               2001       2000
--------   --------

Accumulated post-retirement
benefit obligations                    $103,440   $ 89,331
Unrecognized prior service benefit         11,595     14,014
Unrecognized net loss                     (19,753)    (4,205)
--------   --------
Accrued post-retirement benefits         $ 95,282   $ 99,140
========   ========
Discount rate                                 7.0%       7.5%

The assumed ranges for the annual rates of increase in per capita costs for
periods prior to Medicare were 10.0% for 2001 and 2002 and a gradual decrease to
5.0% for 2007 and future years.

Increasing the assumed rate of increase in post-retirement benefit costs by
1% in each year would increase net post-retirement benefit expense by
approximately $450 and accumulated post-retirement benefit obligation by $6,443.
Reducing the assumed rate of decrease in post-retirement benefit costs by 1% in
each year would reduce net post-retirement benefit expense by approximately $416
and accumulated benefit obligations by $5,967.

The Company made contributions to the defined benefit post-retirement plans
of $8,428 in 2001, $4,268 in 2000, and $4,105 in 1999.

NOTE 11: CONTINGENCIES

As of December 31, 2001, the Company was involved as a "potentially responsible
party" (PRP) at four former public waste disposal sites that may be subject to
remediation under pending government procedures. The sites are in various stages
of evaluation by federal and state environmental authorities. The projected cost
of remediating these sites, as well as the Company's alleged "fair share"
allocation, is uncertain and speculative until all studies have been completed
and the parties have either negotiated an amicable resolution or the matter has
been judicially resolved. At each site, there are many other parties who have
similarly been identified, and the identification and location of additional
parties is continuing under applicable federal or state law. Many of the other
parties identified are financially strong and solvent companies that appear able
to pay their share of the remediation costs. Based on the Company's preliminary
information about the waste disposal practices at these sites and the
environmental regulatory process in general, the Company believes that it is
likely that ultimate remediation liability costs for each site will be
apportioned among all liable parties, including site owners and waste
transporters, according to the volumes and/or toxicity of the wastes shown to
have been disposed of at the sites.

FLOWSERVE 2001 / ANNUAL REPORT 56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company is a defendant in numerous pending lawsuits (which include, in
many cases, multiple claimants) that seek to recover damages for alleged
personal injury allegedly resulting from exposure to asbestos-containing
products formerly manufactured and/or distributed by the Company. All such
products were used within self-contained process equipment, and management does
not believe that there was any emission of ambient asbestos-containing fiber
during the use of this equipment.

The Company is also a defendant in several other products liability lawsuits
that are insured, subject to the applicable deductibles, and certain other
noninsured lawsuits received in the ordinary course of business. Management
believes that the Company has adequately accrued estimated losses for such
lawsuits. No insurance recovery has been projected for any of the insured
claims, because management currently believes that all will be resolved within
applicable deductibles. The Company is also a party to other noninsured
litigation that is incidental to its business, and, in management's opinion,
will be resolved without a material adverse impact on the Company's financial
statements.

Although none of the aforementioned potential liabilities can be quantified
with any certainty, the Company has established reserves covering these possible
exposures, which management believes are reasonable based on past experience and
available facts. While additional exposures beyond these reserves could exist,
none gives rise to any additional liability that can now be reasonably
estimated, and the Company believes any such costs will not have a material
adverse impact on the Company. The Company will continue to evaluate these
potentially additional contingent loss exposures and, if they develop, recognize
expense as soon as such losses can be reasonably estimated.

NOTE 12: SHAREHOLDERS' EQUITY

Each share of the Company's common stock contains a preferred stock purchase
right. These rights are not currently exercisable and trade in tandem with the
common stock. The rights become exercisable and trade separately in the event of
certain significant changes in common stock ownership or on the commencement of
certain tender offers that, in either case, may lead to a change of control of
the Company. Upon becoming exercisable, the rights provide shareholders the
opportunity to acquire a new series of Company preferred stock to be then
automatically issued at a pre-established price. In the event of certain forms
of acquisition of the Company, the rights also provide Company shareholders the
opportunity to purchase shares of the acquiring Company's common stock from the
acquirer at a 50% discount from the current market value. The rights are
redeemable for $0.022 per right by the Company at any time prior to becoming
exercisable and will expire in August 2006.

NOTE 13: INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

Year ended December 31,        2001          2000          1999
--------      --------      --------

Current:
U.S. federal              $     --      $    (98)     $  1,179
Non-U.S                     20,992         8,775         8,836
State and local                373         1,097         1,630
--------      --------      --------
Total current             21,365         9,774        11,645
--------      --------      --------
Deferred:
U.S. federal               (24,919)       (2,924)      (11,780)
Non-U.S                      6,545          (455)        6,777
State and local               (865)          319          (574)
--------      --------      --------
Total deferred           (19,239)       (3,060)       (5,577)
--------      --------      --------
Total provision              $  2,126      $  6,714      $  6,068
========      ========      ========

The provision (benefit) for income taxes is included in the consolidated
financial statements as follows:

Year ended December 31,                  2001       2000      1999
--------   --------  --------

Earnings before extraordinary items    $  9,275   $  7,876  $  6,068
Extraordinary items                      (7,149)    (1,162)       --
--------   --------  --------
Total provision                        $  2,126   $  6,714  $  6,068
========   ========  ========

During 2001, the Company recorded an extraordinary item for costs totaling
$25 million associated with the prepayment of long-term debt. The $7 million tax
benefit on the extraordinary item is less than the Company's effective tax rate
because certain costs associated with the prepayment are not deductible for tax
purposes.

FLOWSERVE 2001 / ANNUAL REPORT 57

The provision for income taxes on earnings before extraordinary items was
different from the statutory corporate rate due to the following:

Year ended December 31,                 2001     2000    1999
------   ------  ------

U.S. federal income tax rate             35.0%    35.0%   35.0%
Non-U.S. tax rate differential
and utilization of operating
loss carryforwards                      1.9      1.2     0.7
State and local income taxes, net        (0.5)     4.5     2.7
Utilization of tax credits               (0.2)    (6.5)   (1.6)
Foreign sales corporation                 2.3     (4.8)   (2.2)
Goodwill                                  5.3      4.6     1.6
Meals and entertainment                   4.3      4.0     2.7
Equity in income of
unconsolidated subsidiaries            (3.1)    (5.3)   (2.6)
Reduction of tax contingencies
for closed statutes                   (12.5)      --      --
Other, net                                3.7      1.3    (3.0)
------   ------  ------
Effective tax rate                       36.2%    34.0%   33.3%
======   ======  ======

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's consolidated deferred tax assets and liabilities were:

December 31,                                2001       2000
---------  --------

Deferred tax assets related to: 
Retirement benefits                    $  55,688  $ 40,989
Net operating loss carryforwards          35,255    11,207
Compensation accruals                      7,147    13,266
Inventories                                4,690     5,130
Credit carryforwards                      35,797    20,491
Loss on dispositions                       1,693     3,454
Warranty and accrued liabilities           5,915    10,637
Restructuring charge                       4,117     9,797
Other                                      7,068     2,398
---------  --------
Total deferred tax assets              157,370   117,369
Less valuation allowances                 18,603    14,036
---------  --------
Net deferred tax assets                  138,767   103,333
---------  --------
Deferred tax liabilities related to:
Property, plant and equipment             38,736    40,460
Goodwill                                  30,341    31,811
Other                                      9,888     1,865
---------  --------
Total deferred tax liabilities           78,965    74,136
---------  --------
Deferred tax assets, net                  $  59,802  $ 29,197
=========  ========

The Company has recorded valuation allowances to reflect the estimated
amount of deferred tax assets that may not be realized due to the expiration of
net operating loss and foreign tax credit carryforwards. The amount of the
deferred tax assets considered realizable, however, could be changed in the near
term if circumstances related to future taxable income or results of tax
planning strategies differ from management's expectations during the
carryforward period. The net changes in the valuation allowances during 2001
were primarily attributable to an increase in expected non-utilization of net
operating loss and credit carryforwards. The Company had approximately $96,302
of net operating loss carryforwards at December 31, 2001. Net operating losses
of $18,618 were generated in non-U.S. jurisdictions. Net operating losses
generated in the U.S. will not start to expire until 2017. The Company had
approximately $34,451 of foreign tax credit carryforwards at December 31, 2001,
which expire in 2003 through 2006 if unused.

Earnings before income taxes comprised:

Year ended December 31,                  2001       2000      1999
--------   --------  --------

U.S.                                   $(51,694)  $  1,114  $(21,116)
Non-U.S.                                 77,323     22,070    39,361
--------   --------  --------
Total                                  $ 25,629   $ 23,184  $ 18,245
========   ========  ========

Undistributed earnings of the Company's non-U.S. subsidiaries amounted to
approximately $259,655 at December 31, 2001. These earnings are considered to be
indefinitely reinvested and, accordingly, no additional United States income
taxes or non-U.S. withholding taxes have been provided. Determination of the
amount of additional taxes that would be payable if such earnings were not
considered indefinitely reinvested is not practical.

NOTE 14: SEGMENT INFORMATION

Flowserve is principally engaged in the worldwide design, manufacture,
distribution and service of industrial flow management equipment. The Company
provides pumps, valves, and mechanical seals primarily for the petroleum
industry, the chemical-processing industry, power-generation industry, water
industry, general industry and other industries requiring flow management
products.

The Company has three divisions, each of which constitutes a business
segment. Each division manufactures different products and is defined by the
type of products and services provided. Each division has a president, who
reports directly to the Chief Executive Officer, and a Division Controller. For
decision-making purposes, the Chief Executive Officer, Chief Financial Officer
and other members of upper

FLOWSERVE 2001 / ANNUAL REPORT 58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

management use financial information generated and reported at the division
level.

The Flowserve Pump Division designs, manufactures and distributes pumps and
related equipment. The Flow Solutions Division designs, manufactures and
distributes mechanical seals and sealing systems and provides service and repair
for flow control equipment used in process industries. The Flow Control Division
designs, manufactures and distributes automated and manual quarter-turn valves,
control valves and valve actuators, and related components. The Company also has
a corporate headquarters that does not constitute a separate division or
business segment. Amounts classified as All Other include Corporate headquarter
costs and other minor entities that are not considered separate segments. The
results for Invatec and IDP are included in the Flow Solutions Division and
Flowserve Pump Division, respectively, from the date of acquisition.

The Company evaluates segment performance and allocates resources based on
profit or loss excluding integration, restructuring and interest expense, other
income and income taxes. The accounting policies of the reportable segments are
the same as described in Note 1 - Significant Accounting Policies. Intersegment
sales and transfers are recorded at cost plus a profit margin. This intersegment
profit is eliminated in consolidation. Minor reclassifications have been made
to certain previously reported information to conform to the current business
configuration.

Flowserve        Flow          Flow                       Consolidated
Year ended December 31, 2001       Pump         Solutions      Control       All Other         Total
----------      ---------      --------      ---------     ------------

Sales to external customers     $1,023,332      $ 617,555      $271,245      $  5,375      $  1,917,507
Intersegment sales                   7,180         20,983         7,662       (35,825)               --
Segment operating income(1)        124,359         79,374        31,470       (31,214)          203,989
Depreciation and amortization       41,392         18,196         8,089         6,178            73,855

Identifiable assets             $1,285,165      $ 458,265      $206,693      $101,852      $  2,051,975
Capital expenditures                14,866         11,736         6,821         1,802            35,225

(1) Excludes integration expense, restructuring, interest expense, other income
and income taxes.

Flowserve        Flow          Flow                       Consolidated
Year ended December 31, 2000       Pump         Solutions      Control       All Other         Total
----------      ---------      --------      ---------     ------------

Sales to external customers     $  659,181      $ 606,741      $266,368      $   6,003     $  1,538,293
Intersegment sales                  13,031         17,273         9,916        (40,220)              --
Segment operating income(1)         78,793         68,232        28,811        (29,230)         146,606
Depreciation and amortization       26,517         17,631         9,035          3,854           57,037

Identifiable assets             $1,313,853      $ 435,320      $197,061      $ 163,909     $  2,110,143
Capital expenditures                 8,425         10,880         3,843          4,671           27,819

(1) Excludes integration expense, restructuring, interest expense, other income
and income taxes.

Flowserve        Flow          Flow                       Consolidated
Year ended December 31, 1999       Pump         Solutions      Control       All Other         Total
----------      ---------      --------      ---------     ------------

Sales to external customers     $  347,159      $ 423,658      $283,670      $   6,785     $  1,061,272
Intersegment sales                   6,011         14,841        11,650        (32,502)              --
Segment operating income(1)         19,927         55,882        23,536        (37,530)          61,815
Segment operating income
(before all special items)(2)      23,095         56,148        25,069        (31,631)          72,681
Depreciation and amortization       10,246         12,998         9,824          6,531           39,599

Identifiable assets             $  222,999      $ 292,015      $213,322      $ 109,815     $    838,151
Capital expenditures                12,377         17,068         4,583          6,507           40,535

(1) Excludes integration expense, restructuring, interest expense, other income
and income taxes.

(2) Excludes asset impairments of $5,067 and severance and other closure costs
of $5,799.

FLOWSERVE 2001 / ANNUAL REPORT 59

RECONCILIATION OF SEGMENT INFORMATION TO CONSOLIDATED AMOUNTS
Significant items from the Company's reportable segments can be reconciled to
the consolidated amounts as follows:

Year Ended December 31,
-----------------------------------------
Sales                             2001           2000           1999
-----------    -----------    -----------

Total external sales for
reportable segments         $ 1,912,132    $ 1,532,290    $ 1,054,487
Total intersegment sales
for reportable segments          35,825         40,220         32,502
Other sales                          5,375          6,003          6,785
Elimination of inter-
segment sales                   (35,825)       (40,220)       (32,502)
-----------    -----------    -----------
Total sales                    $ 1,917,507    $ 1,538,293    $ 1,061,272
===========    ===========    ===========

Year Ended December 31,
-------------------------------------
Profit or Loss                   2001          2000          1999
---------     ---------     ---------

Total segment operating
income                      $ 235,203     $ 175,836     $  99,345
Corporate expenses
and other                      31,214        29,230        37,530
Restructuring expenses            (1,208)       19,364        15,860
Integration expenses              63,043        35,211        14,207
Net interest expense             118,072        70,321        14,677
Other income, net                 (1,547)       (1,474)       (1,174)
---------     ---------     ---------
Earnings before income
taxes                       $  25,629     $  23,184     $  18,245
=========     =========     =========

Year Ended December 31,
-----------------------------------------
Assets                             2001           2000          1999
-----------    -----------    -----------

Total assets for reportable
segments                    $ 1,950,123    $ 1,946,234    $   728,336
Other assets                       217,454        231,983        141,911
Elimination of inter-
segment receivables            (115,602)       (68,074)       (32,096)
-----------    -----------    -----------
Total assets                   $ 2,051,975    $ 2,110,143    $   838,151
===========    ===========    ===========

GEOGRAPHIC INFORMATION

The Company attributes revenues to different geographic areas based on the
facilities' location. Long-lived assets are classified based on the geographic
area in which the assets are located. Sales related to and investment in
identifiable assets by geographic area are as follows:

Long-lived
Year ended December 31, 2001            Sales        Assets
----------  ----------

United States                         $1,095,622  $  802,835
Europe                                   568,226     256,891
Other(1)                                 253,659      32,905
----------  ----------
Consolidated total                    $1,917,507  $1,092,631
==========  ==========

Long-lived
Year ended December 31, 2000            Sales        Assets
----------  ----------

United States                         $  950,783  $  877,322
Europe                                   372,442     231,530
Other(1)                                 215,068      36,262
----------  ----------
Consolidated total                    $1,538,293  $1,145,114
==========  ==========

Long-lived
Year ended December 31, 1999            Sales        Assets
----------  ----------

United States                         $  611,374  $  243,107
Europe                                   270,850      81,616
Other(1)                                 179,048      28,559
----------  ----------
Consolidated total                    $1,061,272  $  353,282
==========  ==========

(1) Includes Canada, Latin America and Asia Pacific. No individual geographic
segment within this group represents 10% or more of consolidated totals.

MAJOR CUSTOMER INFORMATION

The Company has not received revenues from any customer that represent 10% or
more of consolidated revenues for any of the years presented.

FLOWSERVE 2001 / ANNUAL REPORT 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 15: UNAUDITED QUARTERLY FINANCIAL DATA

(Amounts in millions, except per share data)                2001(a)                            2000(b)
---------------------------------   -------------------------------
Quarter                                          4th     3rd      2nd       1st      4th     3rd      2nd      1st
------  ------  -------   -------   ------  ------   ------  ------

Net sales                                       $539.3  $469.6  $ 464.6   $ 444.0   $541.7  $412.1   $299.2  $285.3
Gross profit                                     169.0   152.3    155.7     137.6    174.4   130.1    103.2    99.2
Earnings (loss) before extraordinary items        16.5     5.8      2.6      (8.5)     1.7   (10.9)    12.6    11.9
Net earnings (loss)                               (1.4)    5.8      2.6      (8.5)     1.7   (13.0)    12.6    11.9
Earnings (loss) per share before
extraordinary items (basic and diluted)        0.39    0.15     0.07     (0.22)    0.05   (0.29)    0.33    0.31
Earnings (loss) per share (basic and diluted)    (0.03)   0.15     0.07     (0.22)    0.05   (0.34)    0.33    0.31

(a) Net earnings in 2001 include IDP integration expenses of $63.0 million, a
reduction of Flowserve restructuring expense of $1.2 million, and an 
extraordinary item of $17.9 million net of tax, resulting in a reduction of
net earnings of $57.3 million, or $1.46 per share after tax. On a quarterly
basis, earnings per share before special and extraordinary items were $0.58,
$0.38, $0.35 and $0.10 per share in the fourth, third, second and first
quarter, respectively, of 2001.

(b) Net earnings in 2000 include IDP integration expenses of $35.2 million,
IDP restructuring expenses of $19.4 million, and extraordinary items of $2.1
million net of tax, resulting in a reduction of net earnings of $37.8
million, or $1.00 per share after tax. On a quarterly basis, earnings per
share before special and extraordinary items were $0.50, $0.18, $0.33 and
$0.31 per share in the fourth, third, second and first quarter,
respectively, of 2000.

FLOWSERVE 2001 / ANNUAL REPORT 61

FIVE-YEAR SELECTED FINANCIAL DATA

December 31
----------------------------------------------------------------------
(Amounts in thousands, except per share data and ratios)       2001(a)        2000(b)       1999(c)        1998(d)        1997(e)
-----------    -----------   -----------    -----------    -----------

RESULTS OF OPERATIONS
Sales                                                        $ 1,917,507    $ 1,538,293   $ 1,061,272    $ 1,083,086    $ 1,152,196
Gross profit                                                     614,552        506,912       363,344        415,333        448,877
Selling, general and administrative expense                      410,563        360,306       301,529        291,928        312,783
Restructuring and merger transaction expenses                     (1,208)        19,364        15,860             --         44,531
Integration expenses                                              63,043         35,211        14,207         38,326          6,982
Operating income                                                 142,154         92,031        31,748         85,079         84,581
Net interest expense                                             118,072         70,321        14,677         11,378         11,326
Earnings before income taxes                                      25,629         23,184        18,245         73,157         89,789
Provision for income taxes                                         9,275          7,876         6,068         25,502         38,223
Earnings before extraordinary items and cumulative
effect of change in accounting principle                         16,354         15,308        12,177         47,655         51,566
Cumulative effect of change in accounting principle                   --             --            --         (1,220)            --
Extraordinary items, net of income taxes                         (17,851)        (2,067)           --             --             --
Net (loss) earnings                                               (1,497)        13,241        12,177         48,875         51,566
Average shares outstanding                                        39,330         37,842        37,856         39,898         40,896
Net (loss) earnings per share (basic and diluted)            $     (0.04)   $      0.35   $      0.32    $      1.23   $       1.26
Dividends paid per share                                              --             --          0.56           0.56           0.65
Bookings                                                       1,975,536      1,521,561     1,039,262      1,082,484      1,172,431
Ending backlog                                                   662,803        659,250       270,647        291,082        291,568

PERFORMANCE RATIOS (as a percent of sales)

Gross profit margin                                                 32.0%          33.0%         34.2%          38.3%          39.0%
Selling, general and administrative expense                         21.4%          23.4%         28.4%          26.9%          27.1%
Operating income                                                     7.4%           6.0%          3.0%           7.9%           7.3%
Net earnings                                                          --            0.9%          1.1%           4.5%           4.5%

FINANCIAL CONDITION
Working capital                                              $   481,368    $   464,035   $   258,128    $   268,164    $   284,220
Net property, plant and equipment                                362,388        405,412       209,976        209,032        209,509
Intangibles and other assets                                     791,448        806,679       174,387        173,875        155,852
Total assets                                                   2,051,975      2,110,143       838,151        870,197        880,025
Capital expenditures                                              35,225         27,819        40,535         38,249         39,560
Depreciation and amortization                                     73,855         57,037        39,599         39,299         38,933
Long term debt                                                   996,222      1,111,108       198,010        186,292        128,936
Retirement benefits and deferred items                           227,963        260,107       136,207        120,015        125,372
Shareholders' equity                                             411,019        304,911       308,274        344,764        395,273

FINANCIAL RATIOS
Return on average shareholders' equity                       $      (0.5)%          4.4%          3.6%          13.1%          13.0%
Return on average net assets                                         4.4%           5.5%          3.4%           8.6%           9.0%
Net debt to capital ratio                                           71.3%          78.1%         35.7%          34.2%          18.2%
Current ratio                                                        2.2            2.1           2.3            2.2            2.2 
Interest coverage ratio                                              1.7            2.0           4.3            9.5           10.7

(a) Financial results in 2001 include integration expenses of $63,043, a 
reduction of Flowserve restructuring expense of $1,208 and an extraordinary
item of $17,851 net of tax, resulting in a reduction in after tax net
earnings of $57,307 or $1.46 per share, for a net earnings per share before
special items of $1.42.

(b) Financial results in 2000 include Invatec and IDP from the date of the
respective acquisitions. Financial results in 2000 include integration
expenses of $35,211, restructuring expenses of $19,364 and an extraordinary
item of $2,067 net of tax, resulting in a reduction in after tax net
earnings of $37,752 or $1.00 per share, for a net earnings per share before
special items of $1.35.

(c) Financial results in 1999 include integration expenses of $14,207 relating
to the Company's Flowserver program, restructuring expenses of $15,860,
other nonrecurring items for inventory and fixed asset impairment of $5,067
(included in costs of sales), and executive separation contracts and certain
costs related to fourth-quarter 1999 facility closures of $5,799 (included
in selling and administrative expense), resulting in a reduction in net
earnings of $27,322 or $0.72 per share after tax, for net earnings per share
before special items of $1.04.

(d) Financial results in 1998 include integration expenses of $38,326, an
obligation under an executive employment agreement of $3,803 (included in
selling and administrative expense) and, except for operating income, the
benefit of the cumulative effect of an accounting change of $1,220,
resulting in a reduction in net earnings of $26,062, or $0.65 per share
after tax, for a net earnings per share before special items of $1.88.

(e) Financial results in 1997 include restructuring and integration expenses of
$51,513 and an $11,376 gain on the sale of a subsidiary, resulting in a
reduction in net earnings of $30,483, or $0.75 per share after tax, for net
earnings per share before special items of $2.01.

EXHIBIT 21.1
FLOWSERVE CORPORATION
LIST OF SUBSIDIARIES

JURISDICTION                 PERCENTAGE
NAME OF SUBSIDIARY                                                     OF INCORPORATION                 OWNED
------------------                                                     ----------------               ----------

Flowserve  Argentina S.A.                                                  Argentina                     100%
Flowserve FSD Pty. Ltd.                                                    Australia                     100%
Flowserve Australia Pty. Ltd.                                              Australia                     100%
Flowserve Pty. Ltd.                                                        Australia                     100%
Flowserve Dichtungstechnik Gesellschaft m.b.H                               Austria                      100%
Ingersoll-Dresser Pumps GmbH                                                Austria                      100%
Flowserve International (Barbados), Ltd. Foreign                           Barbados                      100%
Sales Corporation
ARS N.V.                                                                    Belgium                      100%
ARS Loheren N.V.                                                            Belgium                      100%
Flowserve FSD N.V.                                                          Belgium                      100%
Flowserve RED S.A.                                                          Belgium                      100%
Flowserve SRD N. V.                                                         Belgium                      100%
Flowserve Ltda do Brazil                                                    Brazil                       100%
Ingersoll-Dresser Pumps do Brazil                                           Brazil                       100%
Industria e Comercio Ltda.

Flowserve Inc.                                                              Canada                       100%
Flowserve Chile S.A.                                                         Chile                       100%
Flowserve International (China) Inc.                                         China                       100%
Flowserve Colombia, S.A.                                                   Colombia                      100%
Flowserve Europe Holding ApS                                                Denmark                      100%
Flowserve Finance ApS                                                       Denmark                      100%
Flowserve S.A.S                                                             France                       100%
IDP International S.A.                                                      France                       100%
IDP Pleuger S.A.                                                            France                       100
Flowserve  Pompes S.A.S.                                                    France                       100%
Flowserve Ahaus GmbH                                                        Germany                      100%
Flowserve Essen GmbH                                                        Germany                      100%
Flowserve Dortmund Verwaltungs GmbH                                         Germany                      100%
Flowserve Dortmund GmbH & Co. KG                                            Germany

100%
Ingersoll-Dresser Pumpen GmbH                                               Germany                      100%
IDP Pumpen GmbH                                                             Germany                      100%

1

JURISDICTION                 PERCENTAGE
NAME OF SUBSIDIARY                                                     OF INCORPORATION                 OWNED
------------------                                                     ----------------               ----------

Ingersoll-Dresser Pumpen GmbH                                               Germany                      100%
IPSCO GmbH                                                                  Germany                      100%
Pleuger Worthington GmbH                                                    Germany                      100%
Flowserve Microfinish Pumps Pvt. Ltd.                                        India                       76%
Flowserve India Controls Pvt. Ltd.                                           India                       95%
Flowserve Microfinish Valves Pvt. Ltd.                                       India                       76%
PT Flowserve                                                               Indonesia                     75%
Flowserve Spa                                                                Italy                       100%
Ingersoll-Dresser Pumps S.p.A.                                               Italy                       100%
Worthington S.p.A.                                                           Italy                       100%
Flowserve Japan K.K.                                                         Japan                       100%
Flowserve SAAG Sdn. Bhd.                                                   Malaysia                      70%
Flowserve (Mauritius) Corporation                                          Mauritius                     100%
Flowserve S.A. de C.V.                                                      Mexico                       100%
Flowserve B.V.                                                            Netherlands                    100%
Flowserve International B.V.                                              Netherlands                    100%
Flowserve Repair & Services B.V.                                          Netherlands                    100%
Flowserve Finance B.V.                                                    Netherlands                    100%
Flowserve New Zealand Limited                                             New Zealand                    100%
Flowserve Abahsain Co.Ltd.                                               Saudi Arabia                    60%
Flowserve Pte. Ltd.                                                        Singapore                     100%
Flowserve South Africa (Proprietary) Limited                             South Africa                    100%
Compania Ingersoll-Dresser Pump S.A.                                         Spain                       100%
Flowserve, S.A.                                                              Spain                       100%
Flowserve S.A.                                                            Switzerland                    100%
ID Pump AG                                                                Switzerland                    100%
Ingersoll-Dresser Pump Services Sarl                                      Switzerland                    100%
Ingersoll-Dresser Pump S.A.                                               Switzerland                    100%
Flowserve (Thailand) Limited                                               Thailand                      60%
Ingersoll-Dresser Pump (Thailand) Ltd.                                     Thailand                      100%
Flowserve International Limited                                         United Kingdom                   100%
Flowserve Limited                                                       United Kingdom                   100%
Flowserve Pumps Ltd.                                                    United Kingdom                   100%
Ingersoll-Dresser Pumps Newark Ltd.                                     United Kingdom                   100%
IPSCO U.K. Limited                                                      United Kingdom                   100%

2

JURISDICTION                 PERCENTAGE
NAME OF SUBSIDIARY                                                     OF INCORPORATION                 OWNED
------------------                                                     ----------------               ----------

CFM-V.R. Tesco Inc.                                                     U.S. - Delaware                  100%
Flowserve International, Inc.                                           U.S. - Delaware                  100%
Flowserve US Inc                                                        U.S. - Delaware                  100%
Flowserve Holdings, Inc.                                               U. S. - Delaware                  100%
Flowserve International LLC                                             U.S. - Delaware                  100%
Flowserve Management Company  (Business Trust)                         U. S. - Delaware                  100%
Ingersoll-Dresser Pump Company                                          U.S. - Delaware                  100%
Durametallic Australia Holding Company                                  U.S. - Michigan                  100%
BW/IP New Mexico, Inc.                                                 U.S. - New Mexico                 100%
Flowserve Venezuela S.A.                                                   Venezuela                     100%
Hot Tapping & Plugging C.A.                                                Venezuela                     100%

3

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-62044) and to the incorporation by reference in
the Registration Statements on Form S-8 (Nos. 33-28497, 333-82081, 33-28497,
333-50667, and 333-46234) of Flowserve Corporation of our report dated February
5, 2002 relating to the financial statements, which appears in the Annual Report
to Shareholders, which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report dated February 5,
2002 relating to the financial statement schedule, which appears in this Form
10-K.

PricewaterhouseCoopers LLP
Dallas, Texas
March 8, 2002

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Flowserve Corporation of our report dated February 10, 2000 (except for Note
8, as to which date is July 14, 2000), with respect to the consolidated
statements of operations, comprehensive loss, shareholders' equity and cash
flows of Flowserve Corporation and subsidiaries for the year ended December 31,
1999, included in the 2001 Annual Report to Shareholders of Flowserve
Corporation for the year ended December 31, 2001.

Our audit also included the financial statement schedule of Flowserve
Corporation for the year ended December 31, 1999, listed in Item 14(a). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-28497) pertaining to the 1989 Stock Option Plan, (Form S-8
No.333-82081) and (Form S-8 No. 33-28497) pertaining to Flowserve Corporation
Retirement Savings Plan (formerly the Duriron Company, Inc. Saving and Thrift
Plan), (Form S-8 No. 333-50667) pertaining to the BW/IP, Inc. 1996 Long-Term
Incentive Plan, the BW/IP, Inc. 1996 Directors' Stock and Deferred Compensation
Plan, the BW/IP International, Inc. 1992 Long-Term Incentive Plan and the BWIP
Holding, Inc. Non-Employee Directors' Stock Option Plan, (Form S-8 No.
333-46234) pertaining to the 1997 and 1999 Stock Option Plans, and (Form S-3 No.
333-62044) and in the related Prospectus of our report dated February 10, 2000
(except for Note 8, as to which date is July 14, 2000), with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Flowserve
Corporation.

/s/ Ernst & Young LLP

Dallas, Texas
March 8, 2002