Flowserve Corporation (FLS) provides pumps, valves, seals and related services to industrial and municipal markets globally. Bookings in Q1 2009 were $968 million, with a backlog of $2.67 billion. FLS initiated a realignment to reduce costs through facility optimization and headcount reductions, expecting $40 million in charges but $56 million in annual savings. Q2 2009 results exceeded projections with EPS of $1.92, excluding $0.25 in realignment charges. Analysts project FLS will continue outperforming competitors due to its diversification and aftermarket services. Top competitors include Crane, Dresser-Rand, KSB and Tyco's flow control division.

1. Flowserve Corporation (FLS)Industrials GroupAndrew Yoon

2. BookingsClarification: What is Bookings?Booking: Receipt of a customer order that obligates FLS to manufacture or perform services.

3. Backlog: Accumulated value of all bookings.

4. Using Q1 2009 as example (sales of $1.02 billion):

5. Bookings in Q1 2009 = $968 millionvalue of all orders received in 2009.

6. Backlog for Q1 2009 = $2.67 billionvalue of all uncompleted orders received over all time.

7. Therefore, like we discussed last time, bookings can decrease while revenues increases for a given quarter. Simply means that value of orders received in that quarter has decreased relative to the previous year.Cash Flow Statement ExaminationRecap from last time: Strong PerformanceCurrent Ratio = 1.45 Quick Ratio = 0.93Increasing gross margin, net margin, ROA, and ROE over time2008 P/E = 9.34, 2008 EPS = 7.82

8. Cash Flow Statement ExaminationExamination of Cash Flow Statements*Hurt primarily by large increases in A/R, about 100 more than in 2007.Conclusion: quite clear that strong ratio increases and operating cash flows are from improvements in net income.

9. RestructuringFLS Realignment InitiativeGoals of realignment:

10. Reduce and optimize non-strategic manufacturing facilities

11. Reducing headcount

12. SG&A expense reductions

13. Accelerate continuing improvement programs

14. Expect to incur up to $40 million in realignment fees in 2009 ($0.50/share).

15. Claim to have achieved $7 million in benefits already, and expect increased benefits in 2nd half of 2009.

16. Believe that realignment will deliver full annual run rate savings of $56 million (assumes that things will continue as they are).

17. Charges of $10 million ($0.13/share) in Q1 Charges of $19 million ($0.25/share) in Q2

18. Indicates that most of realignment is complete (max of $0.50/share).UN Oil-for-Food ProgramFiasco with SEC/DOJSource: FLS 2007 10-K

19. Two foreign subsidiaries delivered products to Iraq between 1996 and 2003 under UN Oil-For-Food Program.

20. FLS hired outside counsel in Feb. 2006 to investigate – found that “certain non-U.S. personnel” authorized payments that were not authorized under UN Oil-For-Food Program, and not properly documented in foreign subsidiary accounting records.

21. Without denying or admitting SEC charges, FLS settled with both SEC and DOJ monetarily.

22. Details are somewhat sketchy, still not completely sure what happened…

23. Good news is, major management seems to have changed:ManagementManagement ProfilesLewis M Kling (President and CEO) – Age 63 Joined FLS as COO in 2004, President and CEO since 2005.