DALLAS -- Oct. 28, 2009 -- Flowserve Corp. (NYSE:FLS), a global leader in the fluid motion and control industry, announced today third quarter of 2009 results in its Form 10-Q report filed with the Securities and Exchange Commission. The Company announced third quarter fully diluted EPS of $2.07, up $0.03 or 1%, including realignment charges of $0.05. Bookings for the third quarter were $975 million, down 29%, or 26% excluding negative currency effects of $37 million. Third quarter sales were $1.05 billion, down 9%, or 5% excluding negative currency effects of $47 million. Operating income declined $3 million to $161 million, including $4 million in realignment charges, discrete legal costs of $7.5 million and also included negative currency effects of $10 million. Flowserve also posted a quarterly operating margin of 15.3%, including charges totaling 110 basis points. All comparisons above relate to the third quarter of 2008. The Company also reported a continued solid backlog of $2.66 billion, including positive currency effects of $90 million, when compared to $2.83 billion in backlog at December 31, 2008.

“Many of the markets we serve continue to be challenged by the impact of global economic conditions,” said Mark Blinn, Flowserve President and Chief Executive Officer. “That said, we received orders of approximately $1 billion for the quarter, and we continue to see strong emerging market and aftermarket opportunities, plus continued bidding activity for attractive major project orders. One of the traditional strengths of our business is that while our project business is cyclical, aftermarket business is not and usually carries higher margins. Assuming the timing of some major project releases, we expect that our fourth quarter bookings will be improved sequentially over the third quarter. Regardless of market conditions, however, we will continue our focus on maintaining appropriate pricing discipline and investing in structural cost reductions, as well as implementing long-term strategic growth initiatives. These actions will help drive strong margins and cash flow and better serve our customers,” Blinn added.

Highlights

Third Quarter of 2009 (all comparisons versus the third quarter of 2008 unless otherwise noted):

• Third quarter fully diluted EPS of $2.07, up 1%, including approximately $0.05 of realignment charges
• Bookings of $975 billion, down 29%, or 26% excluding negative currency effects of $37 million
• Sales of $1.05 billion, down 9%, or 5% excluding negative currency effects of $47 million
• Gross margin increased 150 basis points to 36.6%, including realignment charges of 20 basis points
• Selling, General & Administrative Expense (SG&A) as a percentage of sales increased 50 basis points to 21.6%, including increased legal costs of $7.5 million related to the pending resolution of the 2003 shareholder class action litigation (which remains contingent on resolution of certain closure issues) and realignment charges, together representing 90 basis points as a percentage of sales
• Operating income of $161 million, down $3 million or 2%, including $4 million of realignment charges and negative currency effects of $10 million
• Operating margin increased 100 basis points to 15.3%, including such increased legal costs and realignment charges of 110 basis points
• Backlog of $2.66 billion, including positive currency effects of $90 million, when compared to $2.83 billion of backlog at December 31, 2008

The Year-to-Date 2009 (all comparisons versus year-to-date 2008, unless otherwise noted):

• Year-to-date fully diluted EPS of $5.63, down 1% from $5.68, including approximately $0.43 of realignment charges
• Bookings of $2.95 billion, down 28%, or 22% excluding negative currency effects of $264 million
• Sales of $3.17 billion, down 4%, or up 4% excluding negative currency effects of $277 million
• Gross margin increased 60 basis points to 36.0%, including realignment charges of 60 basis points
• Continued SG&A improvement as a percentage of sales, down 40 basis points to 21.6%, including realignment charges of 40 basis points
• Operating income of $467 million, up $11 million or 2%, including $33 million of realignment charges and negative currency effects of $58 million
• Strong operating margin performance, up 100 basis points to 14.8%, including realignment charges of 100 basis points

Discussion and analysis of the third quarter of 2009 financial results (all comparisons versus the third quarter of 2008 unless otherwise noted)

Fully diluted third quarter 2009 EPS increased to $2.07 per share, up 1% from the record level of third quarter 2008, and includes realignment charges of $0.05. EPS was higher despite a 9% decrease in sales primarily due to a 100 basis point improvement in operating margin resulting from margins on orders booked in 2008, production cost savings from operational excellence programs, and cost containment initiatives including the realignment. Savings generated in the third quarter 2009 from realignment activities was approximately $10 million. The impact on third quarter 2009 EPS growth from foreign currency hedging gains and reduced net interest expense was offset by a higher tax rate resulting from discrete tax benefits in the third quarter 2008 that did not recur. In addition, EPS was favorably impacted by lower weighted average common shares outstanding at September 30, 2009 resulting from our share repurchasing program.

Bookings for the third quarter were $975 million, down 29%, or 26% excluding negative currency effects of $37 million. The decrease is primarily related to the chemical, oil and gas and general industries markets. It reflects customers’ responses to lingering disruptions in the credit and capital markets, global economic conditions generally and the re-evaluation of customer budget assumptions for particular projects, thereby delaying certain expected orders.

Backlog decreased 6% to $2.66 billion from $2.83 billion at December 31, 2008. The decrease includes positive currency effects of approximately $90 million and cancellations of $35 million of orders booked in the prior year.

Sales decreased to $1.05 billion, down $103 million, a decrease of 9%, or 5% excluding negative currency effects of approximately $47 million. The result is largely attributable to lower sales by the Flow Control Division (FCD) and the Flow Solutions Division (FSD).

Gross profit decreased to $385 million, down $20 million or 5%. Gross margin increased by 150 basis points to 36.6%. Gross margin performance was driven by project orders booked during 2008, sales mix shift towards higher margin aftermarket sales and cost savings from operational excellence programs and the realignment initiatives, partially offset by $2 million of realignment charges.

SG&A decreased to $227 million, down $17 million or 7%. The SG&A decrease is attributable to the impact of currency benefits of approximately $7 million and cost containment initiatives including the realignment, partially offset by $1 million of realignment charges and $7.5 million of legal costs relating to the pending resolution of the 2003 shareholder class action litigation (which remains contingent on resolution of certain closure issues). This $7.5 million charge, along with a smaller earlier accrual, reflects the company’s current determination of its exposure relating to the tentative settlement. SG&A as a percentage of sales increased 50 basis points to 21.6%. The increase included approximately 90 basis points relating to realignment and such increased legal costs. Corporate SG&A increased $1.3 million reflecting the impact of the increase in such legal costs, partially offset by the impact of decreased incentive compensation expense and cost containment initiatives.

Operating income decreased to $161 million, down $3 million or 2%. The operating income decrease includes negative currency effects of approximately $10 million and approximately $4 million of realignment charges and such legal costs. Operating margin increased 100 basis points from 14.3% to 15.3%, including 110 basis points from realignment charges and such legal costs.

“As we continue to use our balance sheet strength to improve our operating platform, we are working diligently to drive out structural costs and better prepare the company for new growth opportunities. This, along with our aftermarket service commitment, global reach and long-term customer alliances, positions us well for the future,” added Blinn.

Flowserve Pump Division

Highlights

Third Quarter of 2009 (all comparisons versus the third quarter of 2008 unless otherwise noted):

• Bookings of $518 million, down 40%, or 37% excluding negative currency effects of $21 million
• Sales of $637 million, flat with prior year, or up 5% excluding negative currency effects of $31 million
• Gross margin increase of 190 basis points to 32.4%
• SG&A as a percentage of sales, up 50 basis points to 15.5%
• Operating income of $109 million, up $9 million or 9%
• Substantial operating margin improvement of 150 basis points to 17.1%, including realignment charges of 20 basis points

FPD Bookings of original equipment decreased approximately 60%, which represents most of the total decrease. This original equipment decrease was driven by a decline across all industries, but primarily the chemical, oil and gas and general industries markets.

Sales were generally comparable to the same period in 2008 and reflect negative currency effects of 5%. Excluding currency effects, sales of original equipment increased approximately 1%, while aftermarket sales increased 10%. Original equipment sales reflect successful execution against the strong backlog in the oil and gas and power markets of FPD. Gross profit increased to $206 million, up $11 million or 6%, including $1 million of realignment charges. Gross margin for the third quarter of 2009 increased 190 basis points to 32.4%, impacted by shipments of orders booked in 2008, cost savings from continuous improvement process (CIP) initiatives and an original equipment sales mix shift to 62% from 64% in the prior year.

Flow Control Division

Highlights

Third Quarter of 2009 (all comparisons versus the third quarter of 2008 unless otherwise noted):

• Bookings of $333 million, down 9%, or 6% excluding negative currency effects of $11 million
• Sales of $294 million, down 20%, or 17% excluding negative currency effects of $11 million
• Gross margin increased 190 basis points to 38.2%
• SG&A as a percentage of sales, up 10 basis points to 20.0%
• Operating income of $54 million, down $7 million or 12%
• Operating margin increase of 160 basis points to 18.4%, including realignment charges of 20 basis points

The FCD bookings decrease was generally attributable to weakness in the chemical and general industries markets in Europe, Middle East and Africa and Asia Pacific, partially offset by nuclear orders in North America. Large project awards were being delayed as customers reviewed demand, pricing and other savings opportunities. The distribution market channel decline has slowed. However, the channel has not restocked sufficiently in the aggregate, to offset earlier destocking behavior.

FCD sales in Europe and North America fell due to softness in demand in the chemical and general industries markets served through distributors. Gross margin improvement was driven by product mix, low cost sourcing initiatives and other CIP programs.

Flow Solutions Division

Highlights

Third Quarter of 2009 (all comparisons versus the third quarter of 2008 unless otherwise noted):

• Bookings of $141 million, down 18%, or 15% excluding negative currency effects of $6 million
• Sales of $136 million, down 20%, or 17% excluding negative currency effects of $5 million
• Gross margin improvement of 360 basis points to 49.1%
• SG&A as a percentage of sales, up 190 basis points to 28.8%
• Operating income of $29 million, down $4 million or 12%
• Operating margin increase of 190 basis points to 21.3%, including realignment charges of 80 basis points

The FSD bookings decrease was primarily attributable to decreased original equipment. The decrease in FSD sales was driven by sales declines in all regions. Reductions in project sales shifted the sales mix toward aftermarket business with a related beneficial impact on gross margin.

Conclusion

“I am pleased by our notable progress in reducing our global cost structure,” said Blinn. “I am also excited about our prospects for growth in emerging markets and aftermarket business, plus particularly in the area of new technologies such as solar, wind, geothermal and complex oil and gas recovery. These emerging industries, along with the strength of the existing markets we serve globally and the efficiencies we are driving through our global operating platform, provide significant opportunities for Flowserve in 2010 and beyond,” he added.

In a separate press release also issued today, the Company provided updated guidance, subject to the Safe Harbor Statement noted below, on its 2009 EPS forecast, as well as information regarding the expansion of its realignment initiatives designed to further reduce its cost structure for the future.

Conference Call

The conference call will take place on Thursday, October 29 at 11:00 am Eastern time.

Mark Blinn, President and Chief Executive Officer, as well as other members of the management team will be presenting.

The call can be accessed at Flowserve’s website at www.flowserve.com under the Investor Relations section.

About Flowserve Corp.

Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 55 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company’s Web site at www.flowserve.com.

SAFE HARBOR STATEMENT: This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, “may,” “should,” “expects,” “could,” “intends,” “plans,” “anticipates,” “estimates,” “believes,” “predicts” or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; our dependence on our customers’ ability to make required capital investment and maintenance expenditures; the highly competitive nature of the markets in which we operate; risks associated with cost overruns on fixed-fee projects and in taking customer orders for large complex custom engineered products requiring sophisticated program management skills and technical expertise for completion; the substantial dependence of our sales on the success of the petroleum, chemical, power and water industries; the adverse impact of volatile raw materials prices on our products and operating margins; economic, political and other risks associated with our international operations, including military actions or trade embargoes that could affect customer markets, particularly Middle Eastern markets and global petroleum producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; our furnishing of products and services to nuclear power plant facilities; potential adverse consequences resulting from litigation to which we are a party, such as shareholder litigation and litigation involving asbestos-containing material claims; a foreign government investigation regarding our participation in the United Nations Oil-for-Food Program; risks associated with certain of our foreign subsidiaries conducting business operations and sales in certain countries that have been identified by the U.S. State Department as state sponsors of terrorism; our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits, and tax liabilities that could result from audits of our tax returns by regulatory authorities in various tax jurisdictions; the potential adverse impact of an impairment in the carrying value of goodwill or other intangibles; our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations; changes in the global financial markets and the availability of capital and the potential for unexpected cancellations or delays of customer orders in our reported backlog; environmental compliance costs and liabilities; potential work stoppages and other labor matters; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; and other factors described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.