Flowserve Files 2005 Form 10-K; Reports Sharply Improved Segment Performance In 2005.DALLAS Dallas, city (1990 pop. 1,006,877), seat of Dallas co., N Tex., on the Trinity River near the junction of its three forks; inc. 1871. The second largest Texas city, after Houston, and the eighth largest U.S. -- Flowserve The Flowserve Corporation (NYSE: FLS) is a global supplier of pumps, valves, seals, automation, and services to the power, oil, gas, chemical and other industries. The Flowserve brand named originated in 1997 with a merger of BW/IP and Durco International. Corp. (NYSE NYSE See: New York Stock Exchange : FLS FLS Falls FLS Forward Looking SONAR FLS Front Line States FLS First Level Support (helpdesk) FLS Fire Life Safety FLS Fatty Liver Syndrome (hepatic lipidosis) FLS Foreign Language School ) today filed its 2005 Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. Annual Report with the Securities and Exchange Commission and announced financial results for 2005, including significantly improved operating segment results in bookings, sales, gross margin and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. . (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 continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $190.1 million, up 18 percent --Earnings per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. 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 Refinancing An extension and/or increase in amount of existing debt. --Earnings per diluted share of 21 cents, including the $34.4 million loss from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , which were divested in December December: see month. 2005 --Strong operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. 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. "We are pleased to complete our 2005 financial statements, close the 2005 audit, and file our Form 10-K as we continue to make good progress toward becoming current with all of our SEC quarterly and annual financial report filings," said Flowserve President and Chief Executive officer Lewis M. Kling Kling is an architectural and engineeering firm based in Philadelphia, Pennsylvania. Founded in 1946 by Vincent Kling, FAIA, it has grown to become the largest architecture firm in Philadelphia, and one of the largest in the world. . "We continue to expect to file our 2005 Form 10-Qs Form 10-Q See 10-Q. this summer, and file our first and second quarter 2006 Form 10-Qs by the end of September September: see month. to become current." 2005 Financial Results Bookings, including discontinued operations, were a record $3.02 billion, a 13 percent increase, excluding currency benefits of approximately $10 million. Year-end backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. , which excludes discontinued operations, was a record $994.1 million, a 27 percent increase, excluding negative currency effects of approximately $67 million. Sales, excluding discontinued operations, were $2.70 billion, a 7 percent increase, excluding currency benefits of approximately $8 million. Gross profit from continuing operations increased 14 percent to $861.8 million. Gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. percentage improved 190 basis points to 32.0 percent. These increases primarily reflect cost savings resulting from the company's operational excellence and ongoing continuous improvement initiatives, improved operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. , improved pricing discipline, increased sales and a lower charge for obsolete OBSOLETE. This term is applied to those laws which have lost their efficacy, without being repealed, 2. A positive statute, unrepealed, can never be repealed by non-user alone. 4 Yeates, Rep. 181; Id. 215; 1 Browne's Rep. Appx. 28; 13 Serg. & Rawle, 447. and slow moving inventory (OSMI OSMI Obsolete and Slow Moving Inventory ). "We are extremely pleased by the marked year-over-year improvements in our continuing business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets as we gain traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. with our operational excellence initiatives. These initiatives combined with strategic sourcing programs have helped us offset raw material price increases," said CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Kling. "We are well positioned to continue to take advantage of the robust market environment." Selling, general and administrative expenses (SG&A) were $671.7 million, an increase of 12 percent, excluding currency effects of approximately $3 million. The increase is mainly due to increases in professional fees related to the 2004 restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. , including increases in audit fees and fees related to tax consulting, accounting and internal audit assistance; an increase in employee-related expenses, primarily as a result of non-recurring costs associated with management transition and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when expenses, including non-cash costs arising from modifications of stock options. These increases were partially offset by decreases in legal expenses and costs related to Sarbanes-Oxley compliance. "Our 2005 results contain a significant amount of costs associated with the 2004 restatement and management transition. Now that these are behind us, and as we bring in-house In-house In the context of general equities, keeping an activity within the firm. For example, rather than go to the marketplace and sell a security for a client to anyone, an attempt is made to find a buyer to complete the transaction with the firm. more of our compliance efforts, we expect to see a meaningful decline in the amount of these professional fees over future periods," said Chief Financial Officer Mark A. Blinn. "However, some related costs will be included in our financial results for 2006. We anticipate that 2007 will be more representative of our true run rate for such expenses." Operating income from continuing operations was $190.1 million, an increase of 18 percent. This improvement is mainly due to the factors discussed above that increased gross profit, partially offset by the increases in SG&A. Currency had a nominal effect on 2005 results. Operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: percentage improved to 7.1 percent, an increase of 70 basis points. Results for 2005 were impacted by a $37.1 million provision for income taxes, resulting in an effective tax rate of 45 percent compared to a 2004 effective tax rate of 61 percent. In 2005, the consolidated effective tax rate was adversely impacted by high taxes on certain foreign earnings. The company expects its 2006 effective tax rate will be lower. Net income from continuing operations increased 78 percent to $46.2 million, or 82 cents a diluted share. Including losses of $34.4 million related to discontinued operations, net income was $11.8 million or 21 cents a diluted share. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of were negatively impacted by a higher average share count of approximately 2 percent. Discontinued operations were the General Services Group, which was sold in 2005, and the government and marine business unit, which was sold in 2004. In addition to strategic uses of cash, including a greater than required pension contribution of $45 million and $26 million of costs related to the $1 billion refinancing, the company repaid outstanding debt and effectively reduced other financing obligations by about $78 million, excluding currency effects, as previously disclosed. As a result, the company's net debt-to-capital ratio improved to 40.6 percent at year-end. "Our 2005 refinancing gives us considerable flexibility for employing our cash flow," said CFO See Chief Financial Officer. Blinn. "We will continue to review a variety of options for using that cash flow in future periods." 2005 SEGMENT RESULTS Flowserve Pump Division Flowserve Pump Division (FPD (1) (Flat Panel Display) See LCD, plasma display, EL display, FED and flat panel display. (2) (Field Programmable Device) An umbrella term for all chips that can be programmed by the customer including SPLDs, CPLDs and FPGAs. See PLD. ) bookings were $1.58 billion, an increase of 17 percent, excluding currency benefits of approximately $3 million. Sales were $1.40 billion, an increase of 5 percent, excluding currency benefits of approximately $4 million. FPD's gross profit was $390.6 million, an increase of 14 percent. Gross profit benefited from higher sales, price increases, improved pricing discipline, improved operating leverage and the impact of the company's operational excellence initiatives. Gross profit margin percentage increased 220 basis points to 27.9 percent. Operating income was $144.6 million, an increase of $35.7 million, or 32 percent, excluding unfavorable currency effects of approximately $1 million. Operating margin percentage increased 200 basis points to 10.3 percent. Flow Control Division Flow Control Division (FCD FCD FC Dallas (soccer) FCD Foundation for Child Development FCD Floating Car Data (now generally superseded by FDV) FCD Flood and Coastal Defence (UK) FCD Flood Control District ) bookings were $936.0 million, an increase of $81.5 million, or 10 percent, excluding currency benefits of approximately $3 million. Sales from continuing operations were $894.3 million, an increase of 6 percent, excluding currency benefits of approximately $2 million. FCD's gross profit was $284.9 million, a 13 percent increase. Gross profit benefited from higher sales volume, price increases, improved pricing discipline, improved operating leverage and reduced expense related to OSMI. Gross profit margin percentage increased 180 basis points to 31.9 percent. Operating income from continuing operations was $89.2 million, an increase of 36 percent, excluding currency benefits of less than $1 million. Operating margin increased 220 basis points to 10.0 percent. Flow Solutions Division Flow Solutions Division (FSD FSD Female Sexual Dysfunction FSD File System Driver FSD Family Support Division FSD Fire Services Department (Hong Kong) FSD Full Scale Development FSD Full Scale Deflection FSD Federal Systems Division ) bookings were $463.4 million, an increase of 16 percent, excluding currency benefits of approximately $4 million. Sales were $443.6 million, an increase of 12 percent, excluding currency benefits of approximately $3 million. FSD's gross profit was $193.4 million, an increase of 14 percent. Gross profit benefited from higher sales, price increases, improved pricing discipline, improved operating leverage and the impact of the company's operational excellence initiatives. Gross profit margin percentage increased 40 basis points to 43.6 percent. Operating income was $86.0 million, an increase of 18 percent, excluding currency benefits of less than $1 million. Operating margin increased 100 basis points to 19.4 percent. Internal Controls Update While the company reported a significant decrease in the number of material weaknesses in its internal controls, the company expects to continue to make significant improvements in reducing or eliminating these weaknesses in 2006. Outlook "We have continued to make significant progress in becoming current with our SEC financial report filings and improving our internal controls and operations, while our operating businesses have continued to successfully implement key operational excellence and process improvement initiatives," Kling said. "These successes are reflected in our improved segment results and position the company very well for the future." 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. This conference call can be accessed through the company's website at www.flowserve.com. More information about Flowserve Corp. can also be obtained by visiting this website. Flowserve Corp. is one of the world's leading providers of fluid motion and control products and services. Operating in 56 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement: This news release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . Forward looking statements are all statements that are not statements of historical facts and include, without limitation, statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition. The words "believe", "seek", "anticipate", "plan", "estimate", "expect", "intend", "project", "forecast", "predict", "potential", "continue", "will", "may", "could", "should", and other words of similar meaning are intended to identify forward-looking statements. The forward-looking statements made in this news release are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that, in some cases, are beyond our control. These risks, uncertainties and factors may cause our actual results, performance and achievements, or industry results and market trends, to be materially different from any future results, performance, achievements or trends expressed or implied by such forward-looking statements. Important risks, uncertainties and other factors that could cause actual results to differ from these forward-looking statements include, but are not limited to, the following: delays in future reports of the Company's management and outside auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together on the Company's internal control over financial reporting and related certifications; continuing delays in the Company's filing of its periodic public reports and any SEC, NYSE or debt rating agencies' actions resulting therefrom there·from adv. From that place, time, or thing. Adv. 1. therefrom - from that circumstance or source; "atomic formulas and all compounds thence constructible"- W.V. ; the possibility of adverse consequences of the pending securities litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. ; the possibility of adverse consequences related to the investigations by the SEC and foreign authorities regarding our participation in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Oil-for-Food program; the possibility of adverse consequences of governmental tax audits of the Company's tax returns, including the upcoming IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. audit of the company's U.S. tax returns for the years 2002 through 2004; the Company's ability to convert bookings, which are not subject to nor computed in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , into revenues at acceptable, if any, profit margins, since such profit margins cannot be assured nor be necessarily assumed to follow historical trends; changes in the financial markets and the availability of capital; changes in the already competitive environment for the Company's products or competitors' responses to the Company's strategies; the Company's ability to integrate acquisitions into its management and operations; political risks, military actions or trade embargoes affecting customer markets, including the continuing conflict in Iraq, uncertainties in certain Middle Eastern countries such as Iran, and their potential impact on Middle Eastern markets and global petroleum producers; the Company's ability to comply with the laws and regulations affecting its international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , including the U.S. export laws, and the effect of any noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance ; the health of the petroleum, chemical, power and water industries; economic conditions and the extent of economic growth in the U.S. and other countries and regions; unanticipated difficulties or costs associated with the implementation of systems, including software; the Company's relative geographical profitability and its impact on the Company's utilization of foreign tax credits; the recognition of significant expenses associated with realigning operations of acquired companies with those of Flowserve; the Company's ability to meet the financial covenants and other requirements in its debt agreements; any terrorist attacks and the response of the U.S. to such attacks or to the threat of such attacks; technological developments in the Company's products as compared with those of its competitors; changes in prevailing interest rates and the Company's effective interest costs; and adverse changes in the regulatory climate regulatory climate The extent to which a regulated firm or industry is permitted to earn an adequate return on the stockholders' investment. This term is nearly always used in reference to utilities, which are required to obtain approval for rate changes. and other legal obligations imposed on the Company. It is not possible to foresee fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. or identify all the factors that may affect our future performance or any forward-looking information, and new risk factors can emerge from time to time. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements included in this news release are based on information available to us on the date of this news release. We undertake no obligation to revise or update any forward-looking statement or disclose any facts, events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or that occur after the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" that may affect the accuracy of any forward-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
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