Flowserve Files 2005 Form 10-K; Reports Sharply Improved Segment Performance In 2005

(All comparisons in this news release are versus 2004)

Announcement Highlights:

-- 2005 Form 10-K Filed with the SEC

-- Record bookings of $3.02 billion, up 13 percent, excluding currency

-- Record sales of $2.70 billion, up 7 percent, excluding currency

-- Consolidated gross profit increased to $862 million, up 14 percent

-- Consolidated gross margin percentage improved to 32 percent, an increase of 190 basis points

-- Operating income from continuing operations of $190.1 million, up 18 percent

-- Earnings per diluted share from continuing operations of 82 cents, up 78 percent, despite being reduced by high professional fees and costs related to the successful $1 billion refinancing

-- Earnings per diluted share of 21 cents, including the $34.4 million loss from discontinued operations, which were divested in December 2005

-- Strong operating cash flow facilitated funding of $78 million repayment of debt and other financing obligations, a greater than required pension contribution and refinancing related costs

-- Net debt-to-capital ratio improved to 40.6 percent

-- Number of material weaknesses in internal controls fell significantly and is expected to be further reduced or eliminated in 2006

-- Expects to be current with all of its SEC financial report filings by Sept. 30, 2006

2005 Form 10-K Filed

Flowserve filed the 2005 Form 10-K annual report with the SEC. "Weare pleased to complete our 2005 financial statements, close the 2005audit, and file our Form 10-K as we continue to make good progresstoward becoming current with all of our SEC quarterly and annualfinancial report filings," said Flowserve President and ChiefExecutive officer Lewis M. Kling. "We continue to expect to file our2005 Form 10-Qs this summer, and file our first and second quarter2006 Form 10-Qs by the end of September to become current."

2005 Financial Results

Bookings, including discontinued operations, were a record $3.02billion, a 13 percent increase, excluding currency benefits ofapproximately $10 million. Year-end backlog, which excludesdiscontinued operations, was a record $994.1 million, a 27 percentincrease, excluding negative currency effects of approximately $67million. Sales, excluding discontinued operations, were $2.70 billion,a 7 percent increase, excluding currency benefits of approximately $8million.

Gross profit from continuing operations increased 14 percent to$861.8 million. Gross profit margin percentage improved 190 basispoints to 32.0 percent. These increases primarily reflect cost savingsresulting from the company's operational excellence and ongoingcontinuous improvement initiatives, improved operating leverage,improved pricing discipline, increased sales and a lower charge forobsolete and slow moving inventory (OSMI).

"We are extremely pleased by the marked year-over-yearimprovements in our continuing business operations as we gain tractionwith our operational excellence initiatives. These initiativescombined with strategic sourcing programs have helped us offset rawmaterial price increases," said CEO Kling. "We are well positioned tocontinue to take advantage of the robust market environment."

Selling, general and administrative expenses (SG&A) were $671.7million, an increase of 12 percent, excluding currency effects ofapproximately $3 million. The increase is mainly due to increases inprofessional fees related to the 2004 restatement, including increasesin audit fees and fees related to tax consulting, accounting andinternal audit assistance; an increase in employee-related expenses,primarily as a result of non-recurring costs associated withmanagement transition and severance expenses, including non-cash costsarising from modifications of stock options. These increases werepartially offset by decreases in legal expenses and costs related toSarbanes-Oxley compliance.

"Our 2005 results contain a significant amount of costs associatedwith the 2004 restatement and management transition. Now that theseare behind us, and as we bring in-house more of our complianceefforts, we expect to see a meaningful decline in the amount of theseprofessional fees over future periods," said Chief Financial OfficerMark A. Blinn. "However, some related costs will be included in ourfinancial results for 2006. We anticipate that 2007 will be morerepresentative of our true run rate for such expenses."

Operating income from continuing operations was $190.1 million, anincrease of 18 percent. This improvement is mainly due to the factorsdiscussed above that increased gross profit, partially offset by theincreases in SG&A. Currency had a nominal effect on 2005 results.Operating margin percentage improved to 7.1 percent, an increase of 70basis points.

Results for 2005 were impacted by a $37.1 million provision forincome taxes, resulting in an effective tax rate of 45 percentcompared to a 2004 effective tax rate of 61 percent. In 2005, theconsolidated effective tax rate was adversely impacted by high taxeson certain foreign earnings. The company expects its 2006 effectivetax rate will be lower.

Net income from continuing operations increased 78 percent to$46.2 million, or 82 cents a diluted share. Including losses of $34.4million related to discontinued operations, net income was $11.8million or 21 cents a diluted share. Diluted earnings per share werenegatively impacted by a higher average share count of approximately 2percent.

Discontinued operations were the General Services Group, which wassold in 2005, and the government and marine business unit, which wassold in 2004.

In addition to strategic uses of cash, including a greater thanrequired pension contribution of $45 million and $26 million of costsrelated to the $1 billion refinancing, the company repaid outstandingdebt and effectively reduced other financing obligations by about $78million, excluding currency effects, as previously disclosed. As aresult, the company's net debt-to-capital ratio improved to 40.6percent at year-end. "Our 2005 refinancing gives us considerableflexibility for employing our cash flow," said CFO Blinn. "We willcontinue to review a variety of options for using that cash flow infuture periods."

2005 SEGMENT RESULTS

Flowserve Pump Division

Flowserve Pump Division (FPD) bookings were $1.58 billion, anincrease of 17 percent, excluding currency benefits of approximately$3 million. Sales were $1.40 billion, an increase of 5 percent,excluding currency benefits of approximately $4 million. FPD's grossprofit was $390.6 million, an increase of 14 percent. Gross profitbenefited from higher sales, price increases, improved pricingdiscipline, improved operating leverage and the impact of thecompany's operational excellence initiatives. Gross profit marginpercentage increased 220 basis points to 27.9 percent. Operatingincome was $144.6 million, an increase of $35.7 million, or 32percent, excluding unfavorable currency effects of approximately $1million. Operating margin percentage increased 200 basis points to10.3 percent.

Flow Control Division

Flow Control Division (FCD) bookings were $936.0 million, anincrease of $81.5 million, or 10 percent, excluding currency benefitsof approximately $3 million. Sales from continuing operations were$894.3 million, an increase of 6 percent, excluding currency benefitsof approximately $2 million. FCD's gross profit was $284.9 million, a13 percent increase. Gross profit benefited from higher sales volume,price increases, improved pricing discipline, improved operatingleverage and reduced expense related to OSMI. Gross profit marginpercentage increased 180 basis points to 31.9 percent. Operatingincome from continuing operations was $89.2 million, an increase of 36percent, excluding currency benefits of less than $1 million.Operating margin increased 220 basis points to 10.0 percent.

Flow Solutions Division

Flow Solutions Division (FSD) bookings were $463.4 million, anincrease of 16 percent, excluding currency benefits of approximately$4 million. Sales were $443.6 million, an increase of 12 percent,excluding currency benefits of approximately $3 million. FSD's grossprofit was $193.4 million, an increase of 14 percent. Gross profitbenefited from higher sales, price increases, improved pricingdiscipline, improved operating leverage and the impact of thecompany's operational excellence initiatives. Gross profit marginpercentage increased 40 basis points to 43.6 percent. Operating incomewas $86.0 million, an increase of 18 percent, excluding currencybenefits of less than $1 million. Operating margin increased 100 basispoints to 19.4 percent.

Internal Controls Update

While the company reported a significant decrease in the number ofmaterial weaknesses in its internal controls, the company expects tocontinue to make significant improvements in reducing or eliminatingthese weaknesses in 2006.

Outlook

"We have continued to make significant progress in becomingcurrent with our SEC financial report filings and improving ourinternal controls and operations, while our operating businesses havecontinued to successfully implement key operational excellence andprocess improvement initiatives," Kling said. "These successes arereflected in our improved segment results and position the companyvery well for the future."

Conference Call

The company will hold a conference call on Wednesday, July 12,2006, at 11:00 a.m. Eastern Time to discuss today's announcement. Thisconference call can be accessed through the company's website atwww.flowserve.com. More information about Flowserve Corp. can also beobtained by visiting this website.

Flowserve Corp. is one of the world's leading providers of fluidmotion and control products and services. Operating in 56 countries,the company produces engineered and industrial pumps, seals and valvesas well as a range of related flow management services.

Safe Harbor Statement: This news release includes forward-lookingstatements. Forward looking statements are all statements that are notstatements of historical facts and include, without limitation,statements relating to our business strategy and statements ofexpectations, beliefs, future plans and strategies and anticipateddevelopments concerning our industry, business, operations andfinancial performance and condition. The words "believe", "seek","anticipate", "plan", "estimate", "expect", "intend", "project","forecast", "predict", "potential", "continue", "will", "may","could", "should", and other words of similar meaning are intended toidentify forward-looking statements. The forward-looking statementsmade in this news release are made pursuant to safe harbor provisionsof the Private Securities Litigation Reform Act of 1995. Theseforward-looking statements involve known and unknown risks,uncertainties and other factors that, in some cases, are beyond ourcontrol. These risks, uncertainties and factors may cause our actualresults, performance and achievements, or industry results and markettrends, to be materially different from any future results,performance, achievements or trends expressed or implied by suchforward-looking statements. Important risks, uncertainties and otherfactors that could cause actual results to differ from theseforward-looking statements include, but are not limited to, thefollowing: delays in future reports of the Company's management andoutside auditors on the Company's internal control over financialreporting and related certifications; continuing delays in theCompany's filing of its periodic public reports and any SEC, NYSE ordebt rating agencies' actions resulting therefrom; the possibility ofadverse consequences of the pending securities litigation; thepossibility of adverse consequences related to the investigations bythe SEC and foreign authorities regarding our participation in theUnited States Oil-for-Food program; the possibility of adverseconsequences of governmental tax audits of the Company's tax returns,including the upcoming IRS audit of the company's U.S. tax returns forthe years 2002 through 2004; the Company's ability to convertbookings, which are not subject to nor computed in accordance withgenerally accepted accounting principles, into revenues at acceptable,if any, profit margins, since such profit margins cannot be assurednor be necessarily assumed to follow historical trends; changes in thefinancial markets and the availability of capital; changes in thealready competitive environment for the Company's products orcompetitors' responses to the Company's strategies; the Company'sability to integrate acquisitions into its management and operations;political risks, military actions or trade embargoes affectingcustomer markets, including the continuing conflict in Iraq,uncertainties in certain Middle Eastern countries such as Iran, andtheir potential impact on Middle Eastern markets and global petroleumproducers; the Company's ability to comply with the laws andregulations affecting its international operations, including the U.S.export laws, and the effect of any noncompliance; the health of thepetroleum, chemical, power and water industries; economic conditionsand the extent of economic growth in the U.S. and other countries andregions; unanticipated difficulties or costs associated with theimplementation of systems, including software; the Company's relativegeographical profitability and its impact on the Company's utilizationof foreign tax credits; the recognition of significant expensesassociated with realigning operations of acquired companies with thoseof Flowserve; the Company's ability to meet the financial covenantsand other requirements in its debt agreements; any terrorist attacksand the response of the U.S. to such attacks or to the threat of suchattacks; technological developments in the Company's products ascompared with those of its competitors; changes in prevailing interestrates and the Company's effective interest costs; and adverse changesin the regulatory climate and other legal obligations imposed on theCompany. It is not possible to foresee or identify all the factorsthat may affect our future performance or any forward-lookinginformation, and new risk factors can emerge from time to time. Giventhese risks and uncertainties, you should not place undue reliance onforward-looking statements as a prediction of actual results. Allforward-looking statements included in this news release are based oninformation available to us on the date of this news release. Weundertake no obligation to revise or update any forward-lookingstatement or disclose any facts, events or circumstances that occurafter the date hereof that may affect the accuracy of anyforward-looking statement.

Flowserve Corporation
Condensed Consolidated Statements of Operations

(Amounts in millions, except per share data) Year Ended December 31,
------------------------
2005 2004
----------- ----------

Sales $ 2,695.2 $ 2,522.5
Cost of sales 1,833.4 1,763.9
----------- ----------
Gross profit 861.8 758.6
Selling, general and administrative expense 671.7 597.1
----------- ----------
Operating income 190.1 161.5
Interest expense, net (70.7) (78.5)
Loss on debt repayment and extinguishment (27.7) (2.7)
Other expense, net (8.4) (14.0)
----------- ----------
Earnings before income taxes 83.3 66.3
Provision for income taxes 37.1 40.4
----------- ----------
Income from continuing operations 46.2 25.9
Discontinued operations, net of tax (31.9) (4.7)
(Loss) gain from sale of discontinued
operations, net of tax (2.5) 3.0
----------- ----------
Net earnings $ 11.8 $ 24.2
=========== ==========

Average shares outstanding - basic 55.5 55.1
Average shares outstanding - diluted 56.7 55.7

Net earnings per share:
Basic:
Continuing operations $ 0.83 $ 0.47
Net earnings 0.21 0.44
Diluted:
Continuing operations $ 0.82 $ 0.46
Net earnings 0.21 0.43

Bookings $ 3,022.3 $ 2,657.4
Ending backlog 994.1 836.4



Flowserve Corporation
Condensed Consolidated Balance Sheets

December 31,
------------------------
(Amounts in millions, except per share data) 2005 2004
----------- ----------

ASSETS
Current assets:
Cash and cash equivalents $ 92.9 $ 63.8
Restricted cash 3.6 -
Accounts receivable, net 472.9 462.1
Inventories, net 361.8 388.4
Deferred taxes 114.0 81.2
Prepaid expenses and other 26.0 54.2
----------- ----------
Total current assets 1,071.2 1,049.7
Property, plant and equipment, net 397.6 432.8
Goodwill 834.9 865.3
Deferred taxes 34.3 10.4
Other intangible assets, net 146.2 157.9
Other assets, net 91.3 117.9
----------- ----------
Total assets $ 2,575.5 $ 2,634.0
=========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 316.7 $ 316.5
Accrued liabilities 360.8 347.8
Debt due within one year 12.4 44.1
Deferred taxes 5.0 -
----------- ----------
Total current liabilities 694.9 708.4
Long-term debt due after one year 652.8 657.7
Retirement and postretirement benefits and
other liabilities 396.0 397.7
Total shareholders' equity 831.8 870.2
----------- ----------
Total liabilities and shareholders' equity $ 2,575.5 $ 2,634.0



Flowserve Corporation
Condensed Consolidated Statements of Cash Flows

(Amounts in millions) Year Ended December 31,
-----------------------
2005 2004
----------- ---------
Cash flows - Operating activities:
Net earnings $ 11.8 $ 24.2
Adjustments to reconcile net earnings to net
cash provided by operating activities: 143.2 70.4
Change in assets and liabilities, net of
acquisitions: (27.6) 172.9
----------- ---------
Net cash flows provided by operating activities 127.4 267.5
Net cash flows used by investing activities (39.3) (14.1)
Net cash flows used by financing activities (53.3) (250.6)
Effect of exchange rate changes on cash (5.7) 7.5
----------- ---------
Net change in cash and cash equivalents 29.1 10.3
Cash and cash equivalents at beginning of year 63.8 53.5
----------- ---------
Cash and cash equivalents at end of year $ 92.9 $ 63.8
=========== =========


Flowserve Corporation
Supplemental Segment Data

Year Ended December 31, 2005:
(amounts in Flowserve Flow Flow All Consolidated
thousands) Pump Solutions Control Other Total
---------- ---------- ------- -------- ------------
Total division
bookings $1,575.7 $463.4 $936.0 $ 47.2 $3,022.3
Total division
sales 1,398.4 443.6 894.3 (41.0) 2,695.3
Segment operating
income 144.6 86.0 89.2 (129.7) 190.1

Year Ended December 31, 2004:
(amounts in Flowserve Flow Flow All Consolidated
thousands) Pump Solutions Control Other Total
---------- ---------- ------- -------- ------------
Total division
bookings $1,339.1 $395.0 $851.8 $ 71.5 $2,657.4
Total division
sales 1,329.8 394.0 838.7 (40.0) 2,522.5
Segment operating
income 110.1 72.6 65.3 (86.5) 161.5