UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2010~~MARCH 31, 2011


o
		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ to _____ .

Commission File No. 1-13179

FLOWSERVE CORPORATION

(Exact name of registrant as specified in its charter)


New York		31-0267900

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


5215 N. O’Connor Blvd., Suite 2300, Irving, Texas		75039

(Address of principal executive offices)		(Zip Code)

(972) 443-6500

(Registrant’s telephone number, including area code)

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.þ Yeso No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).þ Yeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filerþ	Accelerated filero	~~Accelerated filer~~o	Non-accelerated filero (do not check if a smaller reporting company)
Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ No

As of ~~October~~April 21, ~~2010,~~2011, there were ~~55,831,257~~55,828,048 shares of the issuer’s common stock outstanding.

PART I — FINANCIAL INFORMATION

Item 1. ~~Condensed Consolidated~~ Financial Statements.

FLOWSERVE CORPORATION
(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(Amounts in thousands, except per share data)	Three Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2011			2010

Sales	$	971,681		$	1,051,064		$	997,207		$	958,906
Cost of sales		(638,183	)		(665,859	)		(649,512	)		(610,596	)

Gross profit		333,498			385,205			347,695			348,310
Selling, general and administrative expense		(207,741	)		(227,265	)		(222,639	)		(211,240	)
Net earnings from affiliates		3,439			3,265			5,197			5,104

Operating income		129,196			161,205			130,253			142,174
Interest expense		(8,266	)		(10,119	)		(8,605	)		(8,995	)
Interest income		430			562			489			334
Other income, net		18,578			6,997
Other income (expense), net								8,488			(21,533	)

Earnings before income taxes		139,938			158,645			130,625			111,980
Provision for income taxes		(35,713	)		(42,006	)		(33,629	)		(31,775	)

Net earnings, including noncontrolling interests		104,225			116,639			96,996			80,205
Less: Net (earnings) loss attributable to noncontrolling interests		(306	)		305			(14	)		15

Net earnings of Flowserve Corporation	$	103,919		$	116,944
Net earnings attributable to Flowserve Corporation							$	96,982		$	80,220


Net earnings per share of Flowserve Corporation common shareholders:
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic	$	1.86		$	2.10		$	1.74		$	1.44
Diluted		1.84			2.07			1.72			1.42

Cash dividends declared per share	$	0.29		$	0.27		$	0.32		$	0.29

FLOWSERVE CORPORATION
(Unaudited)

~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME~~

(Amounts in thousands, except per share data) Nine Months Ended September 30,
2010 2009

Sales   $ 2,891,683   $ 3,166,189
Cost of sales (1,866,510 ) (2,026,890 )

Gross profit 1,025,173 1,139,299
Selling, general and administrative expense (620,311 ) (683,920 )
Net earnings from affiliates 12,537 11,718

Operating income 417,399 467,097
Interest expense (25,942 ) (30,159 )
Interest income 1,170 2,094
Other expense, net (15,259 ) (2,369 )

Earnings before income taxes 377,368 436,663
Provision for income taxes (101,133 ) (118,593 )

Net earnings, including noncontrolling interests 276,235 318,070
Less: Net earnings attributable to noncontrolling interests (448 ) (601 )

Net earnings of Flowserve Corporation   $ 275,787   $ 317,469

Net earnings per share of Flowserve Corporation common shareholders:
Basic   $ 4.94   $ 5.68
Diluted 4.89 5.63

Cash dividends declared per share   $ 0.87   $ 0.81

CONDENSED CONSOLIDATED ~~STATEMENTS OF COMPREHENSIVE INCOME~~BALANCE SHEETS

(Amounts in thousands) Nine Months Ended September 30,
2010 2009
Net earnings, including noncontrolling interests $ 276,235 $ 318,070

Other comprehensive income (expense):
Foreign currency translation adjustments, net of tax (1,922 ) 69,472
Pension and other postretirement effects, net of tax 3,255 (2,763 )
Cash flow hedging activity, net of tax 2,126 2,567

Other comprehensive income 3,459 69,276

Comprehensive income, including noncontrolling interests 279,694 387,346
Comprehensive (income) loss attributable to noncontrolling interests (600 ) 1,253

Comprehensive income of Flowserve Corporation $ 279,094 $ 388,599


	March 31,			December 31,
(Amounts in thousands, except per share data)	2011			2010

ASSETS
Current assets:
Cash and cash equivalents	$	288,858		$	557,579
Accounts receivable, net of allowance for doubtful accounts of $20,536 and $18,632, respectively		909,342			839,566
Inventories, net		1,021,443			886,731
Deferred taxes		135,988			131,996
Prepaid expenses and other		137,589			107,872

Total current assets		2,493,220			2,523,744
Property, plant and equipment, net of accumulated depreciation of $711,090 and $682,715, respectively		586,348			581,245
Goodwill		1,027,178			1,012,530
Deferred taxes		20,610			24,343
Other intangible assets, net		147,535			147,112
Other assets, net		174,643			170,936

Total assets	$	4,449,534		$	4,459,910


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	461,967		$	571,021
Accrued liabilities		789,043			817,837
Debt due within one year		54,277			51,481
Deferred taxes		18,608			16,036

Total current liabilities		1,323,895			1,456,375
Long-term debt due after one year		470,857			476,230
Retirement obligations and other liabilities		426,928			414,272
Shareholders’ equity:
Common shares, $1.25 par value		73,664			73,664
Shares authorized – 120,000
Shares issued – 58,931 and 58,931, respectively
Capital in excess of par value		598,275			613,861
Retained earnings		1,927,584			1,848,680

		2,599,523			2,536,205
Treasury shares, at cost – 3,683 and 3,872 shares, respectively		(289,158	)		(292,210	)
Deferred compensation obligation		9,328			9,533
Accumulated other comprehensive loss		(102,286	)		(150,506	)

Total Flowserve Corporation shareholders’ equity		2,217,407			2,103,022
Noncontrolling interest		10,447			10,011

Total equity		2,227,854			2,113,033

Total liabilities and equity	$	4,449,534		$	4,459,910

See accompanying notes to condensed consolidated financial statements.

FLOWSERVE CORPORATION
(Unaudited)

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF CASH FLOWS

September 30, December 31,
(Amounts in thousands, except per share data) 2010 2009

ASSETS

Current assets:
Cash and cash equivalents   $ 310,613   $ 654,320
Accounts receivable, net of allowance for doubtful accounts of $19,341 and $18,769, respectively 839,710 791,722
Inventories, net 947,818 795,233
Deferred taxes 120,143 145,864
Prepaid expenses and other 115,941 112,183

Total current assets 2,334,225 2,499,322
Property, plant and equipment, net of accumulated depreciation of $670,742 and $635,527, respectively 544,449 560,472
Goodwill 1,007,799 864,927
Deferred taxes 29,376 31,324
Other intangible assets, net 148,644 124,678
Other assets, net 165,331 168,171

Total assets   $ 4,229,824   $ 4,248,894

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable   $ 437,139   $ 493,306
Accrued liabilities 780,747 916,945
Debt due within one year 28,536 27,355
Deferred taxes 21,827 20,477

Total current liabilities 1,268,249 1,458,083
Long-term debt due after one year 535,825 539,373
Retirement obligations and other liabilities 402,662 449,691
Shareholders’ equity:
Common shares, $1.25 par value 73,664 73,594
Shares authorized – 120,000
Shares issued – 58,931 and 58,875, respectively
Capital in excess of par value 606,162 611,745
Retained earnings 1,752,543 1,526,774

2,432,369 2,212,113
Treasury shares, at cost – 3,768 and 3,919 shares, respectively (280,765 ) (275,656 )
Deferred compensation obligation 9,424 8,684
Accumulated other comprehensive loss (145,569 ) (149,028 )
Noncontrolling interest 7,629 5,634

Total equity 2,023,088 1,801,747

Total liabilities and equity   $ 4,229,824   $ 4,248,894


(Amounts in thousands)	Three Months Ended March 31,
	2011			2010

Cash flows – Operating activities:
Net earnings, including noncontrolling interests	$	96,996		$	80,205
Adjustments to reconcile net earnings to net cash used by operating activities:
Depreciation		21,807			21,286
Amortization of intangible and other assets		3,320			2,425
Amortization of deferred loan costs		723			915
Net gain on disposition of assets		(493	)		(121	)
Excess tax benefits from stock-based compensation arrangements		(4,987	)		(9,860	)
Stock-based compensation		8,610			8,298
Net earnings from affiliates, net of dividends received		(839	)		(5,104	)
Change in assets and liabilities:
Accounts receivable, net		(43,753	)		(46,542	)
Inventories, net		(106,686	)		(23,254	)
Prepaid expenses and other		(38,087	)		(25,646	)
Other assets, net		(2,822	)		1,817
Accounts payable		(125,280	)		(84,305	)
Accrued liabilities and income taxes payable		(48,490	)		(88,466	)
Retirement obligations and other liabilities		8,394			11,282
Net deferred taxes		3,400			8,111

Net cash flows used by operating activities		(228,187	)		(148,959	)


Cash flows – Investing activities:
Capital expenditures		(23,501	)		(14,933	)
Proceeds from disposal of assets		2,773			2,890
Affiliate investing activity, net		-			5,073

Net cash flows used by investing activities		(20,728	)		(6,970	)


Cash flows – Financing activities:
Excess tax benefits from stock-based compensation arrangements		4,987			9,860
Payments on long-term debt		(6,250	)		(1,420	)
Borrowings under other financing arrangements		3,460			775
Repurchase of common shares		(13,819	)		(11,989	)
Payments of dividends		(16,132	)		(15,017	)
Proceeds from stock option activity		223			4,612

Net cash flows used by financing activities		(27,531	)		(13,179	)
Effect of exchange rate changes on cash		7,725			(16,856	)

Net change in cash and cash equivalents		(268,721	)		(185,964	)
Cash and cash equivalents at beginning of year		557,579			654,320

Cash and cash equivalents at end of period	$	288,858		$	468,356

See accompanying notes to condensed consolidated financial statements.

~~FLOWSERVE CORPORATION~~
~~(Unaudited)~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

(Amounts in thousands) Nine Months Ended September 30,
2010 2009
Cash flows – Operating activities:

Net earnings, including noncontrolling interests   $ 276,235   $ 318,070
Adjustments to reconcile net earnings to net cash used by operating activities:
Depreciation 64,727 63,527
Amortization of intangible and other assets 7,192 7,288
Amortization of deferred loan costs 2,699 1,312
Net (gain) loss on disposition of assets (97 ) 666
Gain on sale of investment (2,618 ) -
Excess tax benefits from stock-based compensation arrangements (9,971 ) (1,040 )
Stock-based compensation 24,295 31,393
Net earnings from affiliates, net of dividends received (5,869 ) (3,805 )
Change in assets and liabilities:
Accounts receivable, net (47,883 ) 8,141
Inventories, net (112,528 ) (8,084 )
Prepaid expenses and other (17,034 ) (20,881 )
Other assets, net 5,812 4,130
Accounts payable (61,960 ) (209,247 )
Accrued liabilities and income taxes payable (138,420 ) (116,886 )
Retirement obligations and other liabilities (31,632 ) (75,712 )
Net deferred taxes 30,433 5,934

Net cash flows (used) provided by operating activities (16,619 ) 4,806

Cash flows – Investing activities:

Capital expenditures (46,429 ) (87,067 )
Proceeds from disposal of assets 6,748 -
Payments for acquisitions, net of cash acquired (199,396 ) (30,750 )
Affiliate investing activity, net 4,326 -

Net cash flows used by investing activities (234,751 ) (117,817 )

Cash flows – Financing activities:

Excess tax benefits from stock-based compensation arrangements 9,971 1,040
Payments on long-term debt (4,261 ) (4,261 )
Borrowings under other financing arrangements 438 88
Repurchase of common shares (34,074 ) (27,527 )
Payments of dividends (47,419 ) (44,151 )
Proceeds from stock option activity 5,576 2,496
Dividends paid to noncontrolling interests (259 ) (265 )
Purchase of shares from noncontrolling interests, net 1,654 -

Net cash flows used by financing activities (68,374 ) (72,580 )
Effect of exchange rate changes on cash (23,963 ) 4,760

Net change in cash and cash equivalents (343,707 ) (180,831 )
Cash and cash equivalents at beginning of year 654,320 472,056

Cash and cash equivalents at end of period   $ 310,613   $ 291,225

~~See accompanying notes to condensed consolidated financial statements.~~

FLOWSERVE CORPORATION
(Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet as of ~~September 30, 2010,~~March 31, 2011, the related condensed consolidated statements of income and comprehensive income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ of Flowserve Corporation, are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for a fair presentation of such condensed consolidated financial statements have been made.

The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2010~~March 31, 2011 (“Quarterly Report”) are presented as permitted by Regulation S-X and do not contain certain information included in our annual consolidated financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010 (“~~2009~~2010 Annual Report”).

~~Segment Reorganization~~Recent Events in North Africa, Middle East and Japan– ~~As previously disclosed~~We experienced limited shipment delays in ~~our 2009 Annual Report, we reorganized our divisional operations by combining Flowserve Pump Division (“FPD”)~~the first quarter of 2011 resulting from the recent developing political and ~~Flow Solutions Division (“FSD”) into~~economic conditions in North Africa. We estimate the ~~new Flow Solutions Group (“FSG”), effective January 1, 2010. FSG has been divided into two reportable segments~~unfavorable impact on operating income of these shipment delays was $2.5 million in the first quarter of 2011, with EPD and IPD impacted $1.8 million and $0.7 million, respectively. We are closely monitoring the conditions in the Middle East and North Africa and, while there are many potential outcomes in each individual country, based on ~~type of product~~current facts and ~~how~~circumstances as we ~~manage~~understand them, we anticipate that the ~~business: FSG Engineered Product Division (“EPD”) and FSG Industrial Product Division (“IPD”). EPD includes~~delayed shipments should be released throughout the ~~longer lead-time, highly engineered pump product operations~~remainder of the ~~former FPD~~year. The preponderance of our physical assets in the region are located in the Kingdom of Saudi Arabia and ~~substantially all~~the United Arab Emirates and have, to date, not been affected by the unrest elsewhere in the region. Additionally, although our organization and assets were not directly affected by the earthquake and tsunami in Japan, we continue to assess the conditions and potential adverse impacts, in particular as they relate to our customers and suppliers in the impacted geographical regions, as well as potential regulatory impacts to the overall civilian nuclear market. We did not experience any significant adverse impacts due to shipment delays, collection issues or supply chain disruptions during the first quarter of the operations of the former FSD. IPD consists of the more standardized, general purpose pump product operations of the former FPD. Flow Control Division (“FCD”) remains unchanged. We have retrospectively adjusted prior period financial information to reflect our new reporting structure.2011.

Venezuela– As previously disclosed in our 2009 and 2010 Annual ~~Report,~~Reports, effective January 11, 2010, the Venezuelan government devalued its currency (Bolivar) and moved to a two-tier exchange structure. The official exchange rate moved from 2.15 to 4.30 Bolivars to the United States (“U.S.”) dollar for non-essential items and to 2.60 Bolivars to the U.S. dollar for essential items. Additionally, effective January 1, 2010, Venezuela was designated as hyperinflationary, and as a result, we began to use the U.S. dollar as our functional currency in Venezuela. ~~In accordance with hyperinflationary accounting, all subsequent currency fluctuations between~~On December 30, 2010, the ~~Bolivar and~~Venezuelan government announced its intention to eliminate the ~~U.S. dollar are recorded in our statements of income.~~favorable essential items rate effective January 1, 2011. Our operations in Venezuela generally consist of a service center that both imports equipment and parts from certain of our other locations for resale to third parties within Venezuela and performs service and repair activities. Our Venezuelan subsidiary’s sales for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010 and total assets at ~~September 30,~~March 31, 2011 and 2010 represented approximately 1% or less of our consolidated sales and total assets for the same ~~period.~~periods.

Although approvals by Venezuela’s Commission for the Administration of Foreign Exchange have ~~become uncertain,~~slowed, we have historically been able to remit dividends and other payments at the official rate, and we currently anticipate doing so in the future. Accordingly, we used the official rate of 4.30 Bolivars to the U.S. dollar for re-measurement of our Venezuelan financial statements into U.S. ~~dollars.~~dollars for all periods presented. As a result of the currency devaluation, we recognized a ~~one-time~~ loss of $12.4 million ~~during~~in the first quarter of 2010. The loss was reported in other ~~expense,~~income (expense), net in our condensed consolidated statement of income and resulted in no tax benefit. In addition, as a result of settling certain U.S. dollar denominated liabilities relating to essential import items at the 2.60 Bolivars to the U.S. dollar exchange rate, we realized ~~$0.2 million and $4.0~~$3.5 million of foreign currency exchange gains during the first quarter of 2010 in other ~~expense,~~income (expense), net ~~for the three and nine months ended September 30, 2010, respectively,~~ in our condensed consolidated statement of income that resulted in no tax expense. The elimination of the favorable essential items rate, effective January 1, 2011, had no impact on our consolidated financial position or results of operations for the three months ended March 31, 2011. The settlement of certain U.S. dollar denominated liabilities relating to essential import items no longer results in foreign exchange gains in other income (expense), net in our condensed consolidated statement of income.

We have evaluated the carrying value of related assets and concluded that there is no current impairment. We are continuing to assess and monitor the ongoing impact of the currency devaluation on our Venezuelan operations and imports into the market, including ~~our~~the Venezuelan subsidiary’s ability to remit cash for dividends and other payments at the official rate, the future ability of our imported products to be classified as essential items and the ability to recover exchange losses, as well as further actions of the

Venezuelan government and economic conditions in Venezuela that may adversely impact our future consolidated financial condition or results of operations.

Accounting Policies

~~Significant~~Effective January 1, 2011, we adopted Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition (Accounting Standards Codification (“ASC”) 605): Multiple-Deliverable Revenue Arrangements — a consensus of the Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force,” which resulted in expanded disclosure requirements regarding our revenue recognition policy (see “Revenue Recognition” below). Our adoption of ASU No. 2009-13, effective January 1, 2011, had no impact on our consolidated financial condition or results of operations. Except for the incremental revenue recognition policy disclosure included below, significant accounting policies, for which no other significant changes have occurred in the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, are detailed in Note 1 to our consolidated financial statements included in our 2010 Annual Report.

Revenue Recognition

Revenues for product sales are recognized when the risks and rewards of ownership are transferred to the customers, which is typically based on the contractual delivery terms agreed to with the customer and fulfillment of all but inconsequential or perfunctory actions. In addition, our policy requires persuasive evidence of an arrangement, a fixed or determinable sales price and reasonable assurance of collectability. We defer the recognition of revenue when advance payments are received from customers before performance obligations have been completed and/or services have been performed. Freight charges billed to customers are included in sales and the related shipping costs are included in cost of sales in our condensed consolidated statements of income. Our contracts typically include cancellation provisions that require customers to reimburse us for costs incurred up to the date of cancellation, as well as any contractual cancellation penalties.

We enter into certain contracts with multiple deliverables that may include any combination of designing, developing, manufacturing, modifying, installing and commissioning of flow control equipment and providing services related to the performance of such products. Delivery of these products and services typically occurs within a one to two-year period, although many arrangements, such as “book and ship” type orders, have a shorter timeframe for delivery. We aggregate or separate deliverables into units of accounting based on whether the deliverable(s) have stand-alone value to the customer and when no general right of return exists. Contract value is allocated ratably to the units of accounting in the arrangement based on their relative selling prices determined as if the deliverables were sold separately.

Revenues for long-term contracts, including separate units of accounting from multiple-deliverable contracts, that exceed certain internal thresholds regarding the size, complexity and duration of the project and provide for the receipt of progress billings from the customer are recorded on the percentage of completion method with progress measured on a cost-to-cost basis. Percentage of completion revenue represented approximately 9% of our ~~2009 Annual Report.~~consolidated sales for the three months ended March 31, 2011 and 2010.

Revenue on service and repair contracts is recognized after services have been agreed to by the customer and rendered. Revenues generated under fixed fee service and repair contracts are recognized on a ratable basis over the term of the contract. These contracts can range in duration, but generally extend for up to five years. Revenue on fixed fee service contracts represented less than 1% of our consolidated sales for the three months ended March 31, 2011 and 2010.

In certain instances, we provide guaranteed completion dates under the terms of our contracts. Failure to meet contractual delivery dates can result in late delivery penalties or non-recoverable costs. In instances where the payment of such costs are deemed to be probable, we perform a project profitability analysis accounting for such costs as a reduction of realizable revenues, which could potentially cause estimated total project costs to exceed projected total revenues realized from the project. In such instances, we would record reserves to cover such excesses in the period they are determined. In circumstances where the total projected reduced revenues still exceed total projected costs, the incurrence of unrealized incentive fees or non-recoverable costs generally reduces profitability of the project at the time of subsequent revenue recognition. Our reported results would change if different estimates were used for contract costs or if different estimates were used for contractual contingencies.

Accounting Developments

Pronouncements Implemented

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance related to variable interest entities (“VIE”) under Accounting Standards Codification (“ASC”) 810. This guidance eliminates the exclusion of qualifying special-purpose entities (“QSPE”) from consideration for consolidation and revises the determination of the primary beneficiary of a VIE to require a qualitative assessment of whether a company has a controlling financial interest through (1) the power to direct the activities that most significantly impact the VIE’s economic performance and (2) the right to receive benefits from or obligation to absorb losses of the VIE that could potentially be significant to the VIE. The determination of the primary beneficiary must be reconsidered on an ongoing basis. Our adoption of this guidance, effective January 1, 2010, did not have a material impact on our consolidated financial condition or results of operations.

In January 2010, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements,” which requires additional disclosures on transfers in and out of Level I and Level II and on activity for Level III fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures of Level III activity, which are

effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Our adoption of the Level I and ~~Level~~ II disclosure guidance, effective January 1, 2010, and Level III disclosure guidance, effective January 1, 2011, did not have a material impact on our consolidated financial condition or results of operations. ~~We do not expect the adoption of the Level III disclosure guidance to have a material impact on our consolidated financial condition or results of operations.~~

In May 2010, the FASB issued ASU No. 2010-19, “Foreign Currency (ASC 830): Multiple Foreign Currency Exchange Rates,” which requires additional disclosures in cases where reported balances for financial reporting purposes differ from the actual U.S. dollar denominated balances on investments in Venezuela. Our adoption of this guidance, effective January 1, 2010, did not have a material impact on our consolidated financial condition or results of operations.

~~Pronouncements Not Yet Implemented~~

In September 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (ASC 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force,” which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined ~~unit.~~unit and requires expanded revenue recognition policy disclosures. This amendment addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. ~~ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We do not expect the~~As noted above, our adoption of ASU No. 2009-13, effective January 1, 2011, had no impact on our consolidated financial condition or results of operations.

In December 2010, the FASB issued ASU No. 2010-28, “Intangibles — Goodwill and Other (ASC 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts — a consensus of the FASB Emerging Issues Task Force,” which modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. This amendment requires an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists and to consider whether there are any adverse qualitative factors indicating that an impairment may exist. Our adoption of ASU No. 2010-28, effective January 1, 2011, had no impact on our consolidated financial condition or results of operations.

In December 2010, the FASB issued ASU No. 2010-29, “Business Combinations (ASC 805): Disclosure of Supplementary Pro Forma Information for Business Combinations — a consensus of the FASB Emerging Issues Task Force,” which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This amendment also expands the supplemental pro forma disclosures under ASC 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. Our adoption of ASU No. 2010-29, effective January 1, 2011, had no material impact on our consolidated financial condition or results of operations.

Pronouncements Not Yet Implemented

There have been no pronouncements that have been issued but not yet implemented that we believe will have a material impact on our consolidated financial condition or results of operations.

2. ~~Acquisitions~~Acquisition

Valbart Srl

~~Effective~~As discussed in Note 2 to our consolidated financial statements included in our 2010 Annual Report, effective July 16, 2010, ~~FCD~~we acquired ~~100% of~~for inclusion in FCD, Valbart Srl (“Valbart”), a privately-owned Italian valve manufacturer, ~~in a share purchase~~ for ~~cash of~~ $199.4 million, which included $33.8 million of existing Valbart net debt ~~(defined as Valbart’s third~~(third party debt less cash on hand) that was repaid at closing. Valbart manufactures trunnion-mounted ball valves used primarily in upstream and midstream oil and gas applications, ~~which enables us~~and its acquisition is intended to ~~offer~~improve our ability to provide a more complete valve ~~product~~ portfolio to ~~our~~ oil and gas project customers. The acquisition included Valbart’s portion of the joint venture with us that we entered into in December 2009. Under the terms of the purchase agreement, we deposited $5.8 million into escrow to be held and applied against any breach of representations, warranties or indemnities for 30 months. At the expiration of the escrow, any residual amounts shall be released to the sellers in satisfaction of the purchase price.

The purchase price has been allocated on a preliminary basis to the assets acquired and liabilities assumed based on initial estimates of fair values at the date of the acquisition. We will continue to evaluate the initial purchase price allocation, which will be adjusted as additional information relative to the fair values of the assets and liabilities becomes available. We currently do not anticipate material adjustments in future periods. The preliminary allocation of the purchase price is summarized below:


~~(Amounts in millions)~~
~~Accounts receivable~~	$	~~12.2~~
~~Inventories~~		~~50.5~~
~~Deferred taxes~~		~~8.7~~
~~Prepaid expenses and other~~		~~1.0~~
~~Intangible assets~~
~~Existing customer relationships~~		~~15.9~~
~~Trademarks~~		~~9.6~~
~~Non-compete agreements~~		~~3.2~~
~~Engineering drawings~~		~~2.3~~
~~Backlog~~		~~2.7~~
~~Property, plant and equipment~~		~~10.1~~
~~Current liabilities~~		~~(41.3~~	)
~~Noncurrent liabilities~~		~~(13.6~~	)

~~Net tangible and intangible assets~~		~~61.3~~
~~Goodwill~~		~~138.1~~

~~Purchase price~~	$	~~199.4~~

The excess of the acquisition date fair value of the total purchase price over the estimated fair value of the net tangible and intangible assets was recorded as goodwill. Goodwill of $138.1 million represents the value expected to be obtained from the ability to be more competitive through the offering of a more complete valve product portfolio and from leveraging our current sales, distribution and service network. The goodwill related to this acquisition is recorded in the FCD segment and is not expected to be deductible for tax purposes. Trademarks are indefinite-lived intangible assets. Existing customer relationships, non-compete agreements and engineering drawings have expected weighted average useful lives of five years, four years and 10 years, respectively. Backlog will be amortized as related sales are recognized, which is expected to be within twelve months of the date of acquisition. In total, amortizable intangible assets have a weighted average useful life of five years.

Subsequent to July 16, 2010, the revenues and expenses of Valbart have been included in our condensed consolidated statement of income. The Valbart acquisition decreased operating income for the three and nine months ended September 30, 2010 by approximately $4.3 million and $5.1 million, respectively, including $1.4 million and $2.2 million in acquisition-related costs for the three and nine months ended September 30, 2010, respectively. These acquisition-related costs are included in the condensed consolidated statement of income in selling, general and administrative expense (“SG&A”).projects. Valbart generated approximately €81 million ($104 million, at then-current exchange rates) in sales (unaudited) during its fiscal year ended May 31, 2010. No pro forma information ~~has been~~was provided due to immateriality.

~~Calder AG~~

Effective April 21, 2009, EPD acquired Calder AG, a private Swiss company and a supplier of energy recovery technology for use in the global desalination market, for up to $44.1 million, net of cash acquired. Of the total purchase price, $28.4 million was paid at closing and $2.4 million was paid after the working capital valuation was completed in early July 2009. The remaining $13.3 million of the total purchase price was contingent upon Calder AG achieving certain performance metrics during the twelve months following the acquisition, and, to the extent achieved, was expected to be paid in cash within 12 months of the acquisition date. We initially recognized a liability of $4.4 million as an estimate of the acquisition date fair value of the contingent consideration, which was based on the weighted probability of achievement of the performance metrics over a specified period of time as of the date of the acquisition.

~~The purchase price was allocated to the assets acquired and liabilities assumed based on estimates of fair values at the date of acquisition. The allocation of the purchase price is summarized below:~~


~~(Amounts in millions)~~
~~Purchase price, net of cash acquired~~	$	~~30.8~~
~~Fair value of contingent consideration (recorded as a liability)~~		~~4.4~~

~~Total expected purchase price at date of acquisition~~	$	~~35.2~~


~~Current assets~~	$	~~4.7~~
~~Intangible assets (expected useful life of approximately 10 years)~~		~~10.5~~
~~Property, plant and equipment~~		~~0.1~~
~~Current liabilities~~		~~(4.2~~	)
~~Noncurrent liabilities~~		~~(1.1~~	)

~~Net tangible and intangible assets~~		~~10.0~~
~~Goodwill~~		~~25.2~~

~~Total expected purchase price at date of acquisition~~	$	~~35.2~~

The excess of the acquisition date fair value of the total purchase price over the estimated fair value of the net tangible and intangible assets was recorded as goodwill. No pro forma information has been provided due to immateriality.

During the third quarter of 2009, the estimated fair value of the contingent consideration was reduced to $2.2 million based on third quarter 2009 results and an updated weighted probability of achievement of the performance metrics within the specified time frame. During the fourth quarter of 2009, the estimated fair value of the contingent consideration was reduced to $0 based on 2009 results and an updated weighted probability of achievement of the performance metrics during the twelve months following the acquisition. The resulting gains were included in SG&A in our condensed consolidated statements of income. The final measurement date of the performance metrics was March 31, 2010. The performance metrics were not met, resulting in no payment of contingent consideration.

3. ~~Goodwill~~

As discussed in Note 1 of this Quarterly Report, effective January 1, 2010, we reorganized our divisional operations resulting in redefined reportable segments and reporting units. In connection with this segment reorganization, we reallocated goodwill to our redefined reporting units and evaluated goodwill for impairment. The identification of the reporting units began at the operating segment level: EPD, IPD and FCD, and considered whether components one level below the operating segment levels should be identified as reporting units for purposes of allocating goodwill and testing goodwill for impairment based on certain conditions. These conditions included, among other factors, (i) the extent to which a component represents a business and (ii) the aggregation of economically similar components within the operating segments, which resulted in nine reporting units. Other factors that were considered in determining whether the aggregation of components was appropriate included the similarity of the nature of the products and services, the nature of the production processes, the methods of distribution and the types of industries served. Based on the results of the impairment test of reallocated goodwill, we determined that no impairment existed at January 1, 2010.

~~Goodwill associated with our redefined reportable segments and changes in the carrying amount of goodwill for the nine months ended September 30, 2010 are as follows:~~

Flow Solutions Group
(Amounts in thousands) EPD IPD FCD Total
Balance as of January 1, 2010   $ 405,441   $ 122,501   $ 336,985   $ 864,927
Acquisitions (1) -     -     138,077 138,077
Currency translation 310 (917 ) 5,402 4,795

Balance as of September 30, 2010   $ 405,751   $ 121,584   $ 480,464   $ 1,007,799

~~(1) Goodwill related to the acquisition of Valbart. See Note 2 for additional information.~~

4. Stock-Based Compensation Plans

We established the Flowserve Corporation Equity and Incentive Compensation Plan (the “2010 Plan”), effective January 1, 2010. This shareholder-approved plan authorizes the issuance of up to 2,900,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as “Restricted Shares”), incentive stock options,

December 31, ~~2009,~~2010, we had ~~$456.3~~$384.6 million and ~~$309.6~~$358.5 million, respectively, of notional amount in outstanding forward exchange contracts with third parties. At ~~September 30, 2010,~~March 31, 2011, the length of forward exchange contracts currently in place ranged from 48 days to 3428 months. Also as part of our risk management program, we enter into interest rate swap agreements to hedge exposure to floating interest rates on certain portions of our debt. At ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, we had ~~$380.0~~$345.0 million and ~~$385.0~~$350.0 million of notional amount in outstanding interest rate swaps with third parties. All interest rate swaps are highly effective. At ~~September 30, 2010,~~March 31, 2011, the maximum remaining length of any interest rate swap contract in place was approximately 36 months.

We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward exchange contracts and interest rate swap agreements and expect all counterparties to meet their obligations. If material, we would adjust the values of our derivative contracts for our or our counterparties’ credit risks. We have not experienced credit losses from our counterparties.

The fair value of forward exchange contracts not designated as hedging instruments are summarized below:


	September 30,		December 31,		March 31,		December 31,
(Amounts in thousands)	2010		2009		2011		2010
Current derivative assets	$	8,412	$	3,753	$	8,607	$	4,397
Noncurrent derivative assets		848		-		1,170		50
Current derivative liabilities		6,043		4,339		3,367		2,949
Noncurrent derivative liabilities		244		145		39		473

0.50%) or ~~(2) London Interbank Offered Rate (“LIBOR”)~~(3) a daily rate equal to the one month LIBOR plus 1.0% plus, as applicable, an applicable margin of 0.75% - 1.50% determined by reference to the ratio of our total debt to consolidated ~~Earnings Before Interest, Taxes, Depreciation~~earnings before interest, taxes, depreciation and ~~Amortization~~amortization (“EBITDA”)~~, which~~. The applicable interest rate as of ~~September 30, 2010~~March 31, 2011 was ~~0.875% and 1.50%~~2.31% for borrowings under our ~~revolving line~~Credit Facilities. In connection with our Credit Facilities, we have entered into $345.0 million of ~~credit and term loan, respectively. We have elected the latter option~~notional amount of interest rate swaps at March 31, 2011 to ~~determine the respective~~hedge exposure to floating interest ~~rates of the Credit Facilities.~~rates.

We may prepay loans under our Credit Facilities in whole or in part, without premium or ~~penalty.~~penalty, at any time. During the three ~~and nine~~ months ended ~~September 30, 2010,~~March 31, 2011, we made scheduled repayments under our Credit Facilities of ~~$1.4 million and $4.3 million, respectively.~~$6.3 million. We have scheduled repayments ~~under our Credit Facilities~~ of ~~$1.4~~$6.3 million due in the each of the next four quarters.

European Letter of Credit Facilities

Our ability to issue additional letters of credit under our previous European Letter of Credit Facility (“Old European LOC Facility”), which had a commitment of €110.0 million, expired November 9, 2009. We paid annual and fronting fees of 0.875% and 0.10%, respectively, for letters of credit written against the Old European LOC Facility. We had outstanding letters of credit written against the Old European LOC Facility of €42.4 million ($57.8 million) and €77.9 million ($111.5 million) as of September 30, 2010 and December 31, 2009, respectively.

– On October 30, 2009, we entered into a new 364-day unsecured European Letter of Credit Facility (“New European LOC Facility”) with an initial commitment of €125.0 million. The New European LOC Facility is renewable annually and ~~consistent with the Old European LOC Facility,~~ is used for contingent obligations in respect of surety and performance bonds, bank guarantees and similar obligations with maturities up to five years. We renewed the New European LOC Facility in October 2010 consistent with its terms for an additional 364-day period. We pay fees of 1.35% and 0.40% for utilized and unutilized capacity, respectively, under our New European LOC Facility. We had outstanding letters of credit drawn on the New European LOC Facility of ~~€46.8~~€59.5 million ($~~63.8~~84.3 million) and ~~€2.8~~€55.7 million ($~~4.0~~74.5 million) as of ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively.

Our ability to issue additional letters of credit under our previous European Letter of Credit Facility (“Old European LOC Facility”), which had a commitment of €110.0 million, expired November 9, 2009. We paid annual and fronting fees of 0.875% and 0.10%, respectively, for letters of credit written against the Old European LOC Facility. We had outstanding letters of credit written against the Old European LOC Facility of €25.6 million ($36.3 million) and €33.3 million ($44.5 million) as of March 31, 2011 and December 31, 2010, respectively.

Certain banks are parties to both facilities and are managing their exposures on an aggregated basis. As such, the commitment under the New European LOC Facility is reduced by the face amount of existing letters of credit written against the Old European LOC Facility prior to its expiration. These existing letters of credit will remain outstanding, and accordingly ~~partially~~ offset the €125.0 million capacity of the New European LOC Facility until their maturity, which, as of ~~September 30, 2010,~~March 31, 2011, was approximately one year for the majority of the outstanding existing letters of credit. After consideration of outstanding commitments under both facilities, the available capacity under the New European LOC Facility was ~~€96.1~~€107.6 million as of ~~September 30, 2010,~~March 31, 2011, of which €~~46.8~~€59.5 million has been drawn.

7.6. Realignment Programs

~~In February~~Beginning in 2009, we ~~announced our plan to incur up to $40 million in costs~~initiated realignment programs to reduce and optimize certain non-strategic manufacturing facilities and our overall cost structure by improving our operating efficiency, reducing redundancies, maximizing global consistency and driving improved financial performance (the “Initial Realignment Program”). Substantially all expenses under the Initial Realignment Program were recognized during 2009. Expenses are reported in Cost of Sales (“COS”) or SG&A, as applicable, in our condensed consolidated statements of income.

~~In October 2009, we announced our plan to commence additional realignment initiatives (the “Subsequent Realignment Program”)~~ and ~~incur additional costs to~~ expand our efforts to optimize assets, ~~reduce our overall cost structure,~~ respond to reduced orders and ~~enhance our~~drive an enhanced customer-facing ~~organization. The Subsequent~~ organization (“Realignment Program began in the fourth quarter of 2009 and will continue through 2010 and into 2011. The Initial Realignment Program and the Subsequent Realignment Program are collectively referred to as our “Realignment Programs.”Programs”). We currently expect total Realignment Program charges will be approximately ~~$88~~$90 million for approved plans, of which ~~$78.3~~$87.2 million has been incurred through ~~September 30, 2010.~~March 31, 2011. Total expected realignment charges represent management’s best estimate to date for approved plans. As the execution of certain initiatives are still in process, the amount and nature of actual realignment charges incurred could vary from total expected charges.

The Realignment Programs consist of both restructuring and non-restructuring charges. Restructuring charges represent costs associated with the relocation of certain business activities, outsourcing of some business activities and facility closures. Non-restructuring charges are costs incurred to improve operating efficiency and reduce redundancies and primarily represent employee severance. ~~The Initial Realignment Program consisted primarily of non-restructuring charges, while the Subsequent Realignment Program consists primarily of restructuring charges.~~ Expenses are reported in ~~COS~~Cost of Sales (“COS”) or Selling, General & Administrative Expense (“SG~~&A,~~&A”), as applicable, in our condensed consolidated statements of income.

~~As the Initial Realignment Program is substantially complete, we have combined both~~Charges related to our Realignment Programs inwere $0.8 million and $0.5 million for the ~~tables below.~~

~~Total Realignment Program Charges~~

three months ended March 31, 2011 and March 31, 2010, respectively. Charges are presented net of adjustments relating to changes in estimates of previously recorded amounts. Net adjustments recorded during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and March 31, 2010 were ~~$1.0~~$1.3 million and ~~$4.3~~$1.4 million, respectively.

~~Three Months Ended September 30,~~ Due to immateriality, we have not presented detail of types of charges or charges by reportable segment. The restructuring reserve was $3.6 million and $7.1 million at March 31, 2011 and December 31, 2010,

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges

COS   $ 0.4   $ 0.9   $ 0.2   $ 1.5   $ -       $ 1.5
SG&A (0.3 ) -     (0.2 ) (0.5 ) -     (0.5 )

  $ 0.1   $ 0.9   $ -       $ 1.0   $ -       $ 1.0

Non-Restructuring Charges

COS   $ -       $ 0.3   $ 0.8   $ 1.1   $ -       $ 1.1
SG&A -     (0.1 ) -     (0.1 ) 0.1 -

  $ -       $ 0.2   $ 0.8   $ 1.0   $ 0.1   $ 1.1

Total Realignment Program Charges

COS   $ 0.4   $ 1.2   $ 1.0   $ 2.6   $ -       $ 2.6
SG&A (0.3 ) (0.1 ) (0.2 ) (0.6 ) 0.1 (0.5 )

  $ 0.1   $ 1.1   $ 0.8   $ 2.0   $ 0.1   $ 2.1

~~Three Months Ended September 30, 2009~~

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges

COS   $ 0.2   $ 0.7   $ -       $ 0.9   $ -       $ 0.9
SG&A -     -     -     -     -     -

  $ 0.2   $ 0.7   $ -       $ 0.9   $ -       $ 0.9

Non-Restructuring Charges

COS   $ 0.2   $ 0.4   $ 0.6   $ 1.2   $ -       $ 1.2
SG&A 0.7 0.2 -     0.9 0.6 1.5

  $ 0.9   $ 0.6   $ 0.6   $ 2.1   $ 0.6   $ 2.7

Total Realignment Program Charges

COS   $ 0.4   $ 1.1   $ 0.6   $ 2.1   $ -       $ 2.1
SG&A 0.7 0.2 -     0.9 0.6 1.5

  $ 1.1   $ 1.3   $ 0.6   $ 3.0   $ 0.6   $ 3.6

Inception to Date Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges
COS   $ 16.4   $ 7.4   $ 1.5   $ 25.3   $ 0.7   $ 26.0
SG&A 8.6 0.2 0.2 9.0 1.7 10.7

  $ 25.0   $ 7.6   $ 1.7   $ 34.3   $ 2.4   $ 36.7

Non-Restructuring Charges
COS   $ 9.7   $ 6.9   $ 9.1   $ 25.7   $ -      $ 25.7
SG&A 8.1 2.4 4.5 15.0 0.9 15.9

  $ 17.8   $ 9.3   $ 13.6   $ 40.7   $ 0.9   $ 41.6

Total Realignment Program Charges
COS   $ 26.1   $ 14.3   $ 10.6   $ 51.0   $ 0.7   $ 51.7
SG&A 16.7 2.6 4.7 24.0 2.6 26.6

  $ 42.8   $ 16.9   $ 15.3   $ 75.0   $ 3.3   $ 78.3

Total Expected Realignment Program Charges (1)
  $ 44.8   $ 20.5   $ 18.8   $ 84.1   $ 3.4   $ 87.5

~~(1)~~

Total expected realignment charges represent management’s best estimate to date for approved plans. As the execution of certain initiatives are still in process, the amount and nature of actual realignment charges incurred could vary from total expected charges.

~~Realignment Program – Restructuring Charges~~

Restructuring charges include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other exit costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets and inventory write-downs. Other includes costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges.

~~Restructuring charges, net of adjustments, for the Realignment Programs are as follows:~~

Contract Asset
(Amounts in thousands) Severance termination write-downs Other Total
Three Months Ended September 30, 2010
COS   $ (957 )   $ 74   $ 2,014   $ 351   $ 1,482
SG&A (673 ) 24 -    125 (524 )

Total   $ (1,630 )   $ 98   $ 2,014   $ 476   $ 958

Three Months Ended September 30, 2009
COS   $ 25   $ -      $ 206   $ 655   $ 886
SG&A 4 -    -    16 20

Total   $ 29   $ -      $ 206   $ 671   $ 906

Nine Months Ended September 30, 2010
COS   $ 682   $ 511   $ 3,128   $ 1,179   $ 5,500
SG&A (1,638 ) 227 -    254 (1,157 )

Total   $ (956 )   $ 738   $ 3,128   $ 1,433   $ 4,343

Nine Months Ended September 30, 2009
COS   $ 4,212   $ 33   $ 4,966   $ 1,029   $ 10,240
SG&A 497 -    -    16 513

Total   $ 4,709   $ 33   $ 4,966   $ 1,045   $ 10,753

Total Restructuring Charges Inception to Date

COS   $ 12,335   $ 1,344   $ 9,180   $ 3,022   $ 25,881
SG&A 10,127 227 18 335 10,707

Total   $ 22,462   $ 1,571   $ 9,198   $ 3,357   $ 36,588

Total Expected Restructuring Charges (1)
COS   $ 13,409   $ 1,830   $ 10,240   $ 4,181   $ 29,660
SG&A 10,897 227 18 349 11,491

Total   $ 24,306   $ 2,057   $ 10,258   $ 4,530   $ 41,151

~~(1)~~

Total expected restructuring charges represent management’s best estimate to date for approved plans. As the execution of certain initiatives are still in process, the amount and nature of actual realignment charges incurred could vary from total expected charges.

~~The following represents the~~ respectively. As there was no significant activity related to the restructuring ~~reserve:~~reserve during the three months ended March 31, 2011, we have not presented detail of the activity.

Contract
(Amounts in thousands) Severance Termination Other Total
Balance at December 31, 2009   $ 18,930   $ -      $ 421   $ 19,351

Charges, net of adjustments (553 ) 454 711 612
Cash expenditures (2,874 ) (400 ) (657 ) (3,931 )
Other non-cash adjustments, including currency 265 -    238 503

Balance at March 31, 2010 15,768 54 713 16,535

Charges, net of adjustments 1,226 185 245 1,656
Cash expenditures (4,017 ) (205 ) (430 ) (4,652 )
Other non-cash adjustments, including currency (894 ) (3 ) (20 ) (917 )

Balance at June 30, 2010 12,083 31 508 12,622

Charges, net of adjustments (1,630 ) 98 476 (1,056 )
Cash expenditures (2,672 ) (97 ) (597 ) (3,366 )
Other non-cash adjustments, including currency 546 1 23 570

Balance at September 30, 2010   $ 8,327   $ 33   $ 410   $ 8,770

8.7. Fair Value

Our financial instruments are presented at fair value in our condensed consolidated balance sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. Recurring fair value measurements are limited to investments in derivative instruments and some equity securities. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy. The fair values of our derivatives are included above in Note 5.4. The fair value measurements of our investments in equity securities are determined using quoted market prices. The fair values of our investments in equity securities, and changes thereto, are immaterial to our condensed consolidated ~~balance sheets~~financial position and ~~statements~~results of ~~income.~~operations.

8. Inventories

~~As discussed in Note 2 above, a liability of $4.4 million was initially recognized as an estimate of the acquisition date fair value of the contingent consideration related~~Certain reclassifications have been made to the Calder AG acquisition. This liability was classified as Level III under the fair value hierarchy as it was based on the weighted probability as of the date of the acquisition of achievement of performance metrics, which was not observable in the market. As of December 31, 2009, this liability was reducedprior period information to ~~$0 based on an updated weighted probability of achievement of performance metrics during the twelve months following the acquisition.~~

~~9. Inventories~~conform to current year presentation.

Inventories, net consisted of the following:


	September 30,			December 31,			March 31,			December 31,
(Amounts in thousands)	2010			2009			2011			2010
Raw materials	$	265,275		$	239,793		$	302,402		$	265,742
Work in process		778,901			649,128			726,918			688,710
Finished goods		314,000			245,725			312,564			306,083
Less: Progress billings		(343,461	)		(275,364	)		(249,615	)		(305,541	)
Less: Excess and obsolete reserve		(66,897	)		(64,049	)		(70,826	)		(68,263	)

Inventories, net	$	947,818		$	795,233		$	1,021,443		$	886,731


	Three Months Ended March 31,
(Amounts in thousands)	2011			2010
Revenues	$	79,231		$	61,364
Gross profit		27,716			22,635
Income before provision for income taxes		19,799			16,504
Provision for income taxes		(6,229	)		(4,368	)

Net income	$	13,570		$	12,136

The provision for income taxes is based on the tax laws and rates in the countries in which our investees operate. The tax jurisdictions vary not only by their nominal rates, but also by the allowability of deductions, credits and other benefits. Our share of net income is reflected in our condensed consolidated statements of income.

~~11.~~10. Earnings Per Share

The following is a reconciliation of net earnings of Flowserve Corporation and weighted average shares for calculating net earnings per common share. Earnings per weighted average common share outstanding was calculated as follows:


	Three Months Ended September 30,				Three Months Ended March 31,
(Amounts in thousands, except per share data)	2010		2009		2011		2010
Net earnings of Flowserve Corporation	$	103,919	$	116,944	$	96,982	$	80,220
Dividends on restricted shares not expected to vest		4		5		4		4

Earnings attributable to common and participating shareholders	$	103,923	$	116,949	$	96,986	$	80,224


Weighted average shares:
Common stock		55,499		55,351		55,356		55,258
Participating securities		311		441		298		378

Denominator for basic earnings per common share		55,810		55,792		55,654		55,636
Effect of potentially dilutive securities		576		586		685		864

Denominator for diluted earnings per common share		56,386		56,378		56,339		56,500


Earnings per common share:
Basic	$	1.86	$	2.10	$	1.74	$	1.44
Diluted		1.84		2.07		1.72		1.42

	Nine Months Ended September 30,
(Amounts in thousands, except per share data)	2010		2009
Net earnings of Flowserve Corporation	$	275,787	$	317,469
Dividends on restricted shares not expected to vest		12		18

Earnings attributable to common and participating shareholders	$	275,799	$	317,487


Weighted average shares:
Common stock		55,448		55,443
Participating securities		338		443

Denominator for basic earnings per common share		55,786		55,886
Effect of potentially dilutive securities		667		481

Denominator for diluted earnings per common share		56,453		56,367


Earnings per common share:
Basic	$	4.94	$	5.68
Diluted		4.89		5.63

probable and not otherwise in dispute. While unfavorable rulings, judgments or settlement terms regarding these claims could have a material adverse impact on our business, financial condition, results of operations and cash flows, we currently believe the likelihood is remote. In one asbestos insurance related matter, we have a claim in litigation against relevant insurers substantially in excess of the recorded receivable. If our claim is resolved more favorably than reflected in this receivable, we would benefit from a one-time gain in the amount of such excess. We are currently unable to estimate the impact, if any, of unasserted asbestos-related claims, although future claims would also be subject to existing indemnities and insurance coverage.

United Nations Oil-for-Food Program

A French investigation ~~has been~~was formally opened in the first quarter of 2010 relating to products that one of our French subsidiaries delivered to Iraq from 1996 through 2003 under the United Nations Oil-for-Food Program. We currently do not expect to incur additional case resolution costs of a material amount in this matter; however, if the French authorities take enforcement action against our French subsidiary regarding its investigation, we may be subject to monetary and non-monetary penalties, which we currently do not believe will have a material adverse effect on our company.

In addition to the governmental investigation referenced above, on June 27, 2008, the Republic of Iraq filed a civil suit in federal court in New York against 93 participants in the United Nations Oil-for-Food Program, including us and our two foreign subsidiaries that participated in the program. There have been no material developments in this case since it was initially filed. We intend to vigorously contest the suit, and we believe that we have valid defenses to the claims asserted. ~~However,~~While we cannot predict the outcome of the suit at the present time, ~~or whether~~we do not currently believe the resolution of this suit will have a material adverse financial impact on our company.

Export Compliance

In March 2006, we initiated a voluntary process to determine our compliance posture with respect to ~~United States (“~~U.S.”) export control and economic sanctions laws and regulations. Upon initial investigation, it appeared that some product transactions and technology transfers were not handled in full compliance with U.S. export control laws and regulations. As a result, in conjunction with outside counsel, we conducted a voluntary systematic process to further review, validate and voluntarily disclose export violations discovered as part of this review process. We completed our comprehensive disclosures to the appropriate U.S. government regulatory authorities at the end of 2008, and we have continued to work with those authorities to supplement and clarify specific aspects of those disclosures. Based on our review of the data collected, during the self-disclosure period of October 1, 2002 through October 1, 2007, a number of process pumps, valves, mechanical seals and parts related thereto were exported, in limited circumstances, without required export or reexport licenses or without full compliance with all applicable rules and regulations to a number of different countries throughout the world, including certain U.S. sanctioned countries.

We have taken a number of actions to increase the effectiveness of our global export compliance program. This has included increasing the personnel and resources dedicated to export compliance, providing additional export compliance tools to employees, improving our export transaction screening processes and enhancing the content and frequency of our export compliance training programs.

Our self-reported violations of U.S. export control laws and regulations are expected to result in civil penalties, including fines and/or other penalties, and we are currently engaged in discussions with U.S. regulators about ~~such penalties~~the final disposition of the case as part of our effort to resolve this matter. We currently do not believe any such penalties will have a material adverse impact on our company, and we believe appropriate reserves have been accrued to address this matter.

Other

We are currently involved as a potentially responsible party at ~~four~~five former public waste disposal sites in various stages of evaluation or remediation. The projected cost of remediation at these sites, as well as our alleged “fair share” allocation, will remain uncertain 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. 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 our information about the waste disposal practices at these sites and the environmental regulatory process in general, we believe 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. We believe that our exposure for existing disposal sites will not be material.

Although none of the aforementioned potential liabilities can be quantified with absolute certainty except as otherwise indicated above, we have established reserves covering exposures relating to contingencies, to the extent believed to be reasonably estimable and probable based on past experience and available facts. While additional exposures beyond these reserves could exist, they currently cannot be estimated. We will continue to evaluate and update the reserves as necessary and appropriate.

~~13.~~12. Retirement and Postretirement Benefits

Components of the net periodic cost for retirement and postretirement benefits for the three months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ were as follows:

U.S. Non-U.S. Postretirement
(Amounts in millions) Defined Benefit Plans Defined Benefit Plans Medical Benefits
2010 2009 2010 2009 2010 2009
Service cost   $ 5.1   $ 4.6   $ 1.3   $ 0.9   $ -      $ -
Interest cost 4.4 4.8 3.3 2.9 0.5 0.7
Expected return on plan assets (5.9 ) (5.5 ) (1.9 ) (1.0 ) -    -
Amortization of unrecognized net loss (gain) 2.3 1.6 0.6 0.6 (0.7 ) (0.7 )
Amortization of prior service benefit (0.3 ) (0.3 ) -    -    (0.5 ) (0.5 )
Settlements 0.4 -    -    -    -    -
��
Net periodic cost (benefit) recognized   $ 6.0   $ 5.2   $ 3.3   $ 3.4   $ (0.7 )   $ (0.5 )

~~Components of the net periodic cost for retirement and postretirement benefits for the nine months ended September 30, 2010 and 2009 were as follows:~~


	U.S.						Non-U.S.						Postretirement						U.S.						Non-U.S.						Postretirement
(Amounts in millions)	Defined Benefit Plans						Defined Benefit Plans						Medical Benefits						Defined Benefit Plans						Defined Benefit Plans						Medical Benefits
	2010			2009			2010			2009			2010			2009			2011			2010			2011			2010			2011			2010
Service cost	$	15.3		$	13.8		$	3.7		$	2.9		$	-		$	-		$	5.3		$	5.1		$	1.2		$	1.2		$	-		$	-
Interest cost		13.5			14.4			9.8			8.7			1.5			1.9			4.3			4.5			3.3			3.3			0.4			0.5
Expected return on plan assets		(18.0	)		(16.6	)		(5.6	)		(3.1	)		-			-			(5.5	)		(6.0	)		(2.0	)		(1.9	)		-			-
Amortization of unrecognized net loss (gain)		7.2			4.9			1.8			1.8			(1.8	)		(2.2	)		2.7			2.5			0.5			0.6			(0.4	)		(0.5	)
Amortization of prior service benefit		(0.9	)		(0.9	)		-			-			(1.5	)		(1.5	)		(0.3	)		(0.3	)		-			-			(0.4	)		(0.5	)
Settlements		0.4			-			-			-			-			-

Net periodic cost (benefit) recognized	$	17.5		$	15.6		$	9.7		$	10.3		$	(1.8	)	$	(1.8	)	$	6.5		$	5.8		$	3.0		$	3.2		$	(0.4	)	$	(0.5	)

resolution of tax audits and the lapse of the statute of limitations in certain jurisdictions. The effective tax rate varied from the U.S. federal statutory rate for the nine months ended September 30, 2010 primarily due to the net impact of foreign operations, including the adverse tax impact from the non-deductibility of the net losses resulting from Venezuela’s currency devaluation, and a net reduction of our reserve for uncertain tax positions due to the resolution of tax audits and the lapse of the statute of limitations in certain jurisdictions.

For the three months ended ~~September 30, 2009,~~March 31, 2010, we earned ~~$158.6~~$112.0 million before taxes and provided for income taxes of ~~$42.0~~$31.8 million, resulting in an effective tax rate of ~~26.5%. For the nine months ended September 30, 2009, we earned $436.7 million before taxes and provided for income taxes of $118.6 million, resulting in an effective tax rate of 27.2%~~28.4%. The effective tax rate varied from the U.S. federal statutory rate for the three ~~and nine~~ months ended ~~September 30, 2009~~March 31, 2010 primarily due to the net impact of foreign operations.

The U. S. enacted the Patient Protection and Affordable Care Act (“PPACA”) into law on March 23, 2010, and on March 30, 2010, enacted the Health Care and Education Reconciliation Act of 2010, which amended certain aspects of the PPACA (collectively the “Acts”). These Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health care plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. As a result, these subsidy payments will effectively become taxable in tax years beginning after December 31, 2012. The tax impact of these changes resulted in an immaterial increase in our tax expense during the three and nine months ended September 30, 2010.

As of ~~September 30, 2010,~~March 31, 2011, the amount of unrecognized tax benefits has ~~decreased~~increased by ~~$14.4~~$1.2 million from December 31, ~~2009,~~2010, due to the net impacts of currency translation adjustments, expiration of statutes and audit ~~settlements and currency devaluation in Venezuela.~~settlements. With limited exception, we are no longer subject to U.S. federal, state and local income tax audits for years through 2006 or non-U.S. income tax audits for years through 2003. We are currently under examination for various years in Austria, Germany, India, ~~Mexico,~~ Singapore, the U.S. and Venezuela.

It is reasonably possible that within the next 12 months the effective tax rate will be impacted by the resolution of some or all of the matters audited by various taxing authorities. It is also reasonably possible that we will have the statute of limitations close in various taxing jurisdictions within the next 12 months. As such, we estimate we could record a reduction in our tax expense of between ~~$7.4~~$5.5 million and ~~$19.1~~$18.0 million within the next 12 months.

~~16.~~15. Segment Information

We are principally engaged in the worldwide design, manufacture, distribution and service of industrial flow management equipment. We provide long lead-time, highly engineered pumps, standardized, general purpose pumps, mechanical seals, industrial valves and related automation products and solutions primarily for oil and gas, chemical, power generation, water management and other general industries requiring flow management products and services.

We ~~have~~conduct our operations through three business segments based on type of product and how we manage the ~~following reportable segments:~~business:

	•		~~EPD;~~

	•		~~IPD; and~~

	•		~~FCD.~~

Flow Solutions Group (“FSG”) Engineered Product Division (“EPD”) for long lead-time, engineered pumps and pump systems, mechanical seals, auxiliary systems and replacement parts and related services;

FSG Industrial Product Division (“IPD”) for pre-configured pumps and pump systems and related products and services; and

FCD for engineered and industrial valves, control valves, actuators and controls and related services.

The President of FSG reports directly to the Chief Executive Officer (“CEO”) and the FSG Vice President – Finance reports directly to our Chief Accounting Officer (“CAO”). The structure of FSG consists of two reportable operating segments: EPD and ~~IPD, each with a Vice President – Finance, who reports directly to our Chief Accounting Officer (“CAO”).~~IPD. FCD has a President, who reports directly to our CEO, and a Vice President – Finance, who reports directly to our CAO. For decision-making purposes, our CEO and other members of senior executive management use financial information generated and reported at the reportable segment level. Our corporate headquarters does not constitute a separate division or business segment.

We evaluate segment performance and allocate resources based on each reportable segment’s operating income. Amounts classified as “Eliminations and All Other” include corporate headquarters costs and other minor entities that do not constitute separate segments. Intersegment sales and transfers are recorded at cost plus a profit margin, with the sales and related margin on such sales eliminated in consolidation.

The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the condensed consolidated financial statements:

Three Months Ended ~~September 30,~~March 31, 2011


							Subtotal –		Eliminations
	Flow Solutions Group						Reportable		and All			Consolidated
(Amounts in thousands)	EPD		IPD		FCD		Segments		Other			Total
Sales to external customers	$	499,760	$	160,912	$	336,535	$	997,207	$	-		$	997,207
Intersegment sales		24,011		15,413		1,062		40,486		(40,486	)		-
Segment operating income		91,756		13,076		47,534		152,366		(22,113	)		130,253

Three Months Ended March 31, 2010

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in thousands) EPD IPD FCD Segments Other Total
Sales to external customers   $ 494,912   $ 166,741   $ 310,028   $ 971,681   $ -      $ 971,681
Intersegment sales 16,388 9,729 2,532 28,649 (28,649 ) -
Segment operating income 92,785 9,534 45,690 148,009 (18,813 ) 129,196

Three Months Ended September 30, 2009

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in thousands) EPD IPD FCD Segments Other Total
Sales to external customers   $ 526,727   $ 231,872   $ 292,465   $ 1,051,064   $ -      $ 1,051,064
Intersegment sales 13,942 12,290 1,074 27,306 (27,306 ) -
Segment operating income 111,072 25,458 54,038 190,568 (29,363 ) 161,205

Nine Months Ended September 30, 2010

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in thousands) EPD IPD FCD Segments Other Total
Sales to external customers 1,520,267 539,634 831,782 2,891,683 -    2,891,683
Intersegment sales 47,310 31,610 5,618 84,538 (84,538 ) -
Segment operating income 301,418 46,414 127,920 475,752 (58,353 ) 417,399
Identifiable assets 1,772,632 696,772 1,325,696 3,795,100 434,724 4,229,824

Nine Months Ended September 30, 2009

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in thousands) EPD IPD FCD Segments Other Total
Sales to external customers   $ 1,612,232   $ 664,580   $ 889,377   $ 3,166,189   $ -      $ 3,166,189
Intersegment sales 47,994 35,525 3,804 87,323 (87,323 ) -
Segment operating income 324,402 76,969 148,398 549,769 (82,672 ) 467,097
Identifiable assets 1,812,037 732,486 1,055,197 3,599,720 417,307 4,017,027


							Subtotal –		Eliminations
	Flow Solutions Group						Reportable		and All			Consolidated
(Amounts in thousands)	EPD		IPD		FCD		Segments		Other			Total
Sales to external customers	$	517,095	$	187,072	$	254,739	$	958,906	$	-		$	958,906
Intersegment sales		14,731		9,063		1,323		25,117		(25,117	)		-
Segment operating income		102,370		20,968		40,075		163,413		(21,239	)		142,174

2214

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our condensed consolidated financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) included in our ~~2009~~2010 Annual Report.

EXECUTIVE OVERVIEW

Our Company

We believe that we are a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems. We develop and manufacture precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in our customers’ critical processes. Our product portfolio of pumps, valves, seals, ~~and~~ automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products and services add value. Through our manufacturing platform and global network of Quick Response Centers (“QRCs”), we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting. We currently employ approximately 15,000 employees in more than 50 countries.

Our business model is significantly influenced by the capital spending of global infrastructure industries for the placement of new products into service and aftermarket services for existing operations. The worldwide installed base of our products is an important source of aftermarket revenue, where products are expected to ensure the maximum operating time of many key industrial processes. Over the past several years, we have significantly invested in our aftermarket strategy to provide local support to maximize our customers’ investment in our offerings, as well as to provide business stability during various economic periods. The aftermarket business, which is served by more than ~~150~~160 of our QRCs located around the globe, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other ~~value added~~value-added services, and is generally a higher margin business and a key component of our profitable ~~growth strategy.~~growth.

Our operations are conducted through three business segments that are referenced throughout this MD&A:

Flow Solutions Group (“FSG”) Engineered Product Division (“EPD”) for long lead time, engineered pumps and pump systems, mechanical seals, auxiliary systems and replacement parts and related services;

FSG Industrial Product Division (“IPD”) for pre-configured pumps and pump systems and related products and services; and

Flow Control Division (“FCD”) for engineered and industrial valves, control valves, actuators and controls and related services.

The reputation of our product portfolio ~~which we believe to be one of the most comprehensive in the industry,~~ is built on more than 50 well-respected brand names such as Worthington, IDP, Valtek, Limitorque and ~~Durametallic. During~~Durametallic, which we believe to be one of the ~~third quarter of 2010, we acquired Valbart, a manufacturer of trunnion-mounted ball valves used primarily~~most comprehensive in ~~upstream and midstream oil and gas applications, which enables us to offer a more complete valve product portfolio to our oil and gas project customers. Our~~the industry. The products and services are sold either directly or through designated channels to more than 10,000 companies, including some of the world’s leading engineering, procurement and construction firms, original equipment manufacturers, distributors and end users.

We continue to build on our geographic breadth through our QRC network with the goal to be positioned as near to the customers as possible for service and support in order to capture this important aftermarket business.

Along with ensuring that we have the local capability to sell, install and service our equipment in remote regions, it is equally imperative to continuously improve our global operations. We continue to expand our global supply chain capability to meet global customer demands and ensure the quality and timely delivery of our products. We ~~remain focused on~~continue to devote resources to improving ~~our~~the supply chain processes across our divisions ~~finding~~to find areas of synergy and cost reduction and ~~improving~~to improve our supply chain management capability to ensure it can meet global customer demands. We continue to focus on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through the assistance of a focused Continuous Improvement Process (“CIP”) initiative. The goal of the CIP initiative, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.

In the first quarter of 2011, we experienced improved market conditions as the effects from the global recession continued to stabilize. The oil and gas industry experienced improved conditions, as the developing regions’ economic growth plans rekindled projections of demand growth for oil and natural gas. The developing regions also experienced increased chemical processing investment. In the mature regions, the oil and gas and chemical industries experienced a moderate level of investment. Pipeline and refining investments were driven by infrastructure expansion plans in growing regions. Overcapacity in oil refining in some geographies affected capital investments. The water management industry displayed stability in its spending levels, as investments in this market tend to persist in varying economic conditions.

During the first ~~nine months~~quarter of ~~2010, our core industries~~2011, we continued to show signs of improvement particularly in the developing regions around the globe. Increased activity around major projects in oil and gas helped provide increased bookings compared to the same period in 2009. In the mature regions, markets remained challenged from the lingering effects of the global recession. With a level of stabilization and moderate improvements in specific industry areas, aftermarket opportunities have improved resulting in increased bookings for those services. Demand forecastsexperience favorable conditions in our ~~core~~aftermarket business driven by our customers’ need to maintain continuing operations across several industries ~~continue to reflect favorable growth over~~and the ~~next five years. The majority~~expansion of this forecasted demand growth remains concentrated in the developing regions of the world with the mature markets experiencing moderate growth or even slight decline in demand, particularly in the daily demand for oil.

our aftermarket capabilities provided through our new integrated solutions offerings. Our pursuit of major capital projects globally and investing in our ability to serve the customer in a local manner remain key components of our long-term growth ~~strategy. We believe that our customer relationships, our global presence and our highly regarded technical capabilities~~strategy, as well as to provide ~~strengths that allow us to effectively compete globally.~~stability during various economic periods. We believe that our commitment to localize service support capabilities close to our customers’ operations through our QRC network has provided us with the opportunity to grow our market share in the aftermarket portion of our business.

With overall demand ~~growth~~ and the need to replace aging

infrastructure, we believe ~~there~~that with our customer relationships, our global presence and our highly regarded technical capabilities, we will continue to behave opportunities in our core ~~industries across all geographical regions;~~industries; however, we face challenges affecting many companies in our industry with a significant multinational presence, such as economic, political, currency and other risks. ~~See “Cautionary Note Regarding Forward-Looking Statements” below.~~

We experienced limited shipment delays in the first quarter of 2011 resulting from the recent developing political and economic conditions in North Africa. We estimate the unfavorable impact on operating income of these shipment delays was $2.5 million in the first quarter of 2011, with EPD and IPD impacted $1.8 million and $0.7 million, respectively. We are closely monitoring the conditions in the Middle East and North Africa and, while there are many potential outcomes in each individual country, based on current facts and circumstances as we understand them, we anticipate that the delayed shipments should be released throughout the remainder of the year. The preponderance of our physical assets in the region are located in the Kingdom of Saudi Arabia and the United Arab Emirates and have, to date, not been affected by the unrest elsewhere in the region. Additionally, although our organization and assets were not directly affected by the earthquake and tsunami in Japan, we continue to assess the conditions and potential adverse impacts, in particular as they relate to our customers and suppliers in the impacted geographical region, as well as potential regulatory impacts to the overall civilian nuclear market. We did not experience any significant adverse impacts due to shipment delays, collection issues or supply chain disruptions during the first quarter of 2011.

RESULTS OF OPERATIONS – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~

Throughout this discussion of our results of operations, we discuss the impact of fluctuations in foreign currency exchange rates. We have calculated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods.

As discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report, we acquired for inclusion in FCD, ~~acquired~~ Valbart Srl (“Valbart”), a privately-owned Italian valve manufacturer, effective July 16, 2010, and Valbart’s results of operations have been consolidated since the date of acquisition. No pro forma information has been provided for the acquisition due to immateriality.

As discussed in Note 26 to our condensed consolidated financial statements included in this Quarterly Report, EPD acquired Calder AG, a Swiss supplier of energy recovery technology, effective April 21, 2009, and Calder AG’s results of operations have been consolidated since the date of acquisition. No pro forma information has been provided for the acquisition due to immateriality.

~~As discussed~~beginning in ~~Note 7 to our condensed consolidated financial statements included in this Quarterly Report, in February~~ 2009, we ~~announced our intent to incur up to $40 million in realignment costs (the “Initial~~initiated Realignment ~~Program”)~~Programs to reduce and optimize certain non-strategic manufacturing facilities and our overall cost structure by improving our operating efficiency, reducing redundancies, maximizing global consistency and driving improved financial performance. The Initial Realignment Program was substantially complete at December 31, 2009. In October 2009, we announced our intent to incur additional realignment costs (the “Subsequent Realignment Program”) to expandperformance, as well as expanding our efforts to optimize assets, ~~reduce our overall cost structure, respond~~responding to reduced orders and ~~drive~~driving an enhanced customer-facing ~~organization, of which approximately $30 million was~~organization. To date, we have incurred ~~in 2009. In January 2010, we announced our expectation that up to $20 million in~~ charges related to our Realignment Programs ~~would be incurred~~of $87.2 million, including $18.3 million in 2010 and ~~into 2011, which when combined with the~~ $68.1 million in 2009. We expect to incur approximately $3 million of additional charges ~~incurred in 2009, results in~~for total expected Realignment Programs charges of approximately $90 million for approved plans. Total expected realignment charges ~~of approximately $88 million~~represent management’s best estimate to date for approved ~~plans, including $2.1 million~~plans. As the execution of certain initiatives are still in process, the amount and ~~$10.2 million~~nature of actual realignment charges incurred ~~in the three and nine months ended September 30, 2010, respectively. Unless otherwise stated, information about our Realignment Programs included in this MD&A is presented in total.~~could vary from total expected charges.

The Realignment Programs consist of both restructuring and non-restructuring costs. Restructuring charges represent costs associated with the relocation of certain business activities, outsourcing of some business activities and facility closures. Non-restructuring charges are costs incurred to improve operating efficiency and reduce redundancies, which includes a reduction in headcount. Expenses are reported in ~~COS~~Cost of Sales (“COS”) or Selling, General & Administrative Expense (“SG~~&A,~~&A”), as applicable, in our condensed consolidated statements of income.

Net adjustments recorded during the nine months ended September 30, 2010 were $4.3 million. The following is a summary of charges included in operating income for the nine months ended September 30, 2010 and 2009 related to our Realignment Programs:

~~Nine Months Ended September 30, 2010~~

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges

COS   $ 1.8   $ 2.7   $ 1.0   $ 5.5   $ -      $ 5.5
SG&A (1.3 ) (0.1 ) -    (1.4 ) 0.3 (1.1 )

  $ 0.5   $ 2.6   $ 1.0   $ 4.1   $ 0.3   $ 4.4

Non-Restructuring Charges

COS   $ -      $ 2.5   $ 2.1   $ 4.6   $ -      $ 4.6
SG&A -    0.3 0.8 1.1 0.1 1.2

  $ -      $ 2.8   $ 2.9   $ 5.7   $ 0.1   $ 5.8

Total Realignment Program Charges

COS   $ 1.8   $ 5.2   $ 3.1   $ 10.1   $ -      $ 10.1
SG&A (1.3 ) 0.2 0.8 (0.3 ) 0.4 0.1

  $ 0.5   $ 5.4   $ 3.9   $ 9.8   $ 0.4   $ 10.2

Nine Months Ended September 30, 2009

Subtotal – Eliminations
Flow Solutions Group Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges

COS   $ 6.1   $ 3.7   $ 0.5   $ 10.3   $ -      $ 10.3
SG&A 0.1 0.2 0.2 0.5 -    0.5

  $ 6.2   $ 3.9   $ 0.7   $ 10.8   $ -      $ 10.8

Non-Restructuring Charges

COS   $ 5.5   $ 0.8   $ 3.8   $ 10.1   $ -      $ 10.1
SG&A 6.6 1.0 3.8 11.4 0.9 12.3

  $ 12.1   $ 1.8   $ 7.6   $ 21.5   $ 0.9   $ 22.4

Total Realignment Program Charges

COS   $ 11.6   $ 4.5   $ 4.3   $ 20.4   $ -      $ 20.4
SG&A 6.7 1.2 4.0 11.9 0.9 12.8

  $ 18.3   $ 5.7   $ 8.3   $ 32.3   $ 0.9   $ 33.2

~~The following is a summary of total charges related to identified initiatives under our Realignment Programs expected to be incurred:~~

Total Expected Charges (1) Flow Solutions Group Subtotal – Eliminations
Reportable and All Consolidated
(Amounts in millions) EPD IPD FCD Segments Other Total
Restructuring Charges

COS   $ 17.7   $ 8.4   $ 2.9   $ 29.0   $ 0.7   $ 29.7
SG&A 8.6 0.2 1.0 9.8 1.7 11.5

  $ 26.3   $ 8.6   $ 3.9   $ 38.8   $ 2.4   $ 41.2

Non-Restructuring Charges

COS   $ 9.9   $ 9.4   $ 10.0   $ 29.3   $ -      $ 29.3
SG&A 8.6 2.5 4.9 16.0 1.0 17.0

  $ 18.5   $ 11.9   $ 14.9   $ 45.3   $ 1.0   $ 46.3

Total Realignment Program Charges

COS   $ 27.6   $ 17.8   $ 12.9   $ 58.3   $ 0.7   $ 59.0
SG&A 17.2 2.7 5.9 25.8 2.7 28.5

  $ 44.8   $ 20.5   $ 18.8   $ 84.1   $ 3.4   $ 87.5

~~(1)~~

$1.4 million, respectively.

Based on actions under our Realignment Programs, we have realized increased savings of approximately ~~$25 million and $65~~$10 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 as compared with the same period in 2010, ~~respectively,~~ and we expect to realize total savings in ~~2010~~2011 of approximately ~~$93~~$115 million. Upon completion of our Realignment Programs, we expect annual run rate cost savings of approximately ~~$115 million.~~$120 million at current exchange rates. Approximately two-thirds of ~~the~~ savings from the Realignment Programs were and will be realized in COS and the remainder in SG&A. Actual savings realized could vary from expected savings, which represent management’s best estimate to date.

Generally, the aforementioned charges ~~presented~~ were or will be paid in cash, except for asset write-downs, which are non-cash charges. Asset write-down charges ~~(including accelerated depreciation~~ of ~~fixed assets, accelerated amortization of intangible assets~~$1.2 million and ~~inventory write-downs) of $2.0~~$0.5 million were recorded during the ~~period~~three months ended ~~September 30, 2010.~~March 31, 2011 and 2010, respectively. The majority of ~~the~~remaining cash payments ~~remaining~~ related to our Realignment Programs will be incurred in ~~2010.~~2011.

increases. These decreases were partially offset by a sales mix shift ~~toward higher margin~~towards aftermarket sales in EPD and IPD, as well increased utilization of low cost regions by FCD, ~~and positive~~ impacts of increased savings resulting from our Realignment Programs and various CIP initiatives. Aftermarket sales generally carry a higher margin than original equipment sales. ~~Aftermarket~~As a result of the sales mix shift, aftermarket sales increased to approximately ~~39%~~43% of total sales, as compared with approximately ~~37%~~39% of total sales in the same period in ~~2009.~~2010.

Selling, General and Administrative Expense


	Three Months Ended March 31,
(Amounts in millions)	2011		2010
SG&A	$	222.6	$	211.2
SG&A as a percentage of sales		22.3%		22.0%

~~Gross profit~~SG&A for the ~~nine~~three months ended ~~September 30, 2010 decreased~~March 31, 2011 increased by ~~$114.1~~$11.4 million, or ~~10.0%~~5.4%, as compared with the same period in ~~2009.~~2010. Currency effects yielded an increase of approximately $3 million. The ~~decrease includes~~increase included the effect of approximately ~~$29~~$4 million in increased savings ~~realized and a decrease of $10.3 million in charges resulting~~ from our Realignment Programs as compared with the same period in ~~2009. Gross profit margin for the nine months ended September 30, 2010 of 35.5% decreased from 36.0% for the same period in 2009.~~2010. The ~~decrease is~~increase was primarily attributable to ~~less favorable pricing from beginning of year backlog~~increased selling and marketing related expenses in FCD and EPD, as well as continued investment in our people and ~~existing backlog~~ in ~~IPD as compared with the same period in 2009 and the negative impact of decreased sales on our absorption of fixed manufacturing costs,~~high growth markets. These increases were partially offset by a sales mix shift toward higher margin aftermarket sales in EPD and IPD, increased utilization of low cost regions by FCD, positive impacts of our Realignment Programs and various CIP initiatives. Aftermarket sales generally carry a higher margin than original equipment sales. Aftermarket sales increased to approximately 39% of total sales, as compared with approximately 36% of total sales in the same period in 2009.

~~Selling, General and Administrative Expense~~

Three Months Ended September 30,
(Amounts in millions) 2010 2009

SG&A $ 207.7 $ 227.3
SG&A as a percentage of sales 21.4 % 21.6 %

Nine Months Ended September 30,
(Amounts in millions) 2010 2009

SG&A $ 620.3 $ 683.9
SG&A as a percentage of sales 21.5 % 21.6 %

SG&A for the three months ended September 30, 2010 decreased by $19.6 million, or 8.6%, as compared with the same period in 2009. Currency effects yielded an increase of approximately $7 million. The overall net decrease includes the effect of approximately $5 million in increased savings realized and a decrease of $2.0 million in charges resulting from our Realignment Programs as compared with the same period in 2009. The decrease is primarily attributable to decreased selling and marketing-related expenses, strict cost control actions ~~in 2010~~ and ~~increased~~ savings realized ~~and a decrease in charges resulting from our Realignment Programs discussed above, partially offset by incremental Valbart SG&A and acquisition-related costs.~~

SG&A for the nine months ended September 30, 2010 decreased by $63.6 million, or 9.3%, as compared with the same period in 2009. Currency effects yielded a decrease of approximately $1 million. The decrease includes the effect of approximately $17 million in increased savings realized and a decrease of $12.7 million in charges resulting from our Realignment Programs as compared with

Other Income (Expense), Net


	Three Months Ended March 31,
(Amounts in millions)	2011		2010
Other income (expense), net	$	8.5	$	(21.5	)

Other income (expense), net for the three months ended March 31, 2011 increased to other income, net of $8.5 million, as compared with other expense, net of $21.5 million for the same period in 2010, primarily due to a ~~$10.6~~$15.6 million increase in gains (due to a $5.6 million gain in the current period as compared with a $10.0 million loss in the prior period) on ~~forward~~foreign exchange contracts, ~~partially offset by~~as well as a ~~$3.2~~$14.7 million increase in ~~losses~~gains (due to a $3.1 million gain in the current period as compared with an $11.6 million loss in the prior period) arising from transactions in currencies other than our sites’ functional ~~currencies. Both of~~currencies, which reflect the ~~above mentioned increases primarily reflect the~~relative weakening of the U.S. dollar exchange rate versus the Euro during the three months ended ~~September 30, 2010,~~March 31, 2011 as compared with the ~~same~~comparable period in ~~2009. Additionally, we sold our investment in a joint venture that was accounted for under the cost method for a gain of $2.6 million in the third quarter of~~ 2010.

~~Other expense, net for the nine months ended September 30, 2010 increased $12.9 million, or 537.5%, as compared with the same period in 2009 which was primarily due to a $17.8 million~~ The above mentioned increase in losses on forward exchange contracts and a $1.1 million increase in losses arising from transactions in currencies other than our sites’ functional currencies. Both of the above mentioned increases primarily reflect the strengthening of the U.S. dollar exchange rate versus the Euro. Also included in the above $1.1 million increase in losses isgains includes the impact of the ~~$12.4~~$8.9 million net loss ~~during~~recorded in the first quarter of 2010 as a result of Venezuela’s currency devaluation ~~partially offset by realized foreign currency exchange gains of $4.0 million related to~~and the settlement of U.S. dollar denominated liabilities at the more favorable essential items exchange rate of 2.60 Bolivars to the U.S. ~~dollar. See Note 1 to our condensed consolidated financial statements included~~dollar recorded, which did not recur in this Quarterly Report for additional details on the impact of Venezuela’s currency devaluation. The above losses were partially offset by a $2.6 million gain on the sale of an investment in a joint venture in the third quarter of 2010 that was accounted for under the cost method.2011.

Tax Expense and Tax Rate


Three Months Ended September 30,
							Three Months Ended March 31,
(Amounts in millions)	2010			2009			2011		2010

Provision for income tax	$	35.7		$	42.0
Provision for income taxes							$	33.6	$	31.8
Effective tax rate		25.5	%		26.5	%		25.7%		28.4%

Nine Months Ended September 30,
(Amounts in millions)	2010			2009

Provision for income tax	$	101.1		$	118.6
Effective tax rate		26.8	%		27.2	%

The decrease is primarily due to the net impact of foreign operations, including the adverse tax impact from the non-deductibility of the net losses resulting from Venezuela’s currency devaluation, and a net reduction of our reserve for uncertain tax positions due to the resolution of tax audits and the lapse of the statute of limitations in certain jurisdictions.

Other Comprehensive Income (Expense)

Three Months Ended September 30,
(Amounts in millions) 2010 2009

Other comprehensive income $ 95.9 $ 36.3

Nine Months Ended September 30,
(Amounts in millions) 2010 2009

Other comprehensive income $ 3.5 $ 69.3


	Three Months Ended March 31,
(Amounts in millions)	2011		2010
Other comprehensive income (expense)	$	48.6	$	(34.1	)

Other comprehensive income (expense) for the three months ended ~~September 30, 2010~~March 31, 2011 increased ~~$59.6~~$82.7 million, or 242.5%, to income of $48.6 million as compared with the same period in ~~2009,~~2010, primarily reflecting the impact from the weakening of the U.S. dollar exchange rate versus certain currencies, principally the Euro, during the three months ended ~~September 30, 2010,~~March 31, 2011, as compared with the same period in 2009. Other comprehensive income for the nine months ended September 30, 2010 decreased $65.8 million as compared with the same period in 2009, primarily reflecting the strengthening of the U.S. dollar exchange rate versus the Euro during the nine months ended September 30, 2010, as compared with the same period in 2009.2010.

Business Segments

As discussed in Note 1 to our condensed consolidated financial statements included in this Quarterly Report, we reorganized our divisional operations by combining the former FPD and FSD into FSG, effective January 1, 2010, with FSG being divided into EPD and IPD. We ~~now~~ conduct our operations through three business segments based on type of product and how we manage the ~~business:~~

	•		~~EPD for long lead-time, engineered pumps and pump systems, mechanical seals, auxiliary systems and replacement parts and related services;~~

	•		~~IPD for pre-configured pumps and pump systems and related products and services; and~~

	•		~~FCD for engineered and industrial valves, control valves, actuators and controls and related services.~~

business. We evaluate segment performance and allocate resources based on each segment’s operating income. See Note 1615 to our condensed consolidated financial statements included in this Quarterly Report for further discussion of our segments. The key operating results for our three business segments, EPD, IPD and FCD, are discussed below. ~~We have retrospectively adjusted prior period financial information to reflect our new reporting structure.~~

FSG Engineered Product Division Segment Results

Our largest business segment is EPD, through which we design, manufacture, distribute and service engineered pumps and pump systems, mechanical seals, auxiliary systems and provide related ~~services.~~services (collectively referred to as “original equipment”). EPD includes longer lead-time, highly engineered pump products and shorter cycle engineered mechanical seals ~~(collectively referred to as “original equipment”).~~that are generally manufactured much more quickly. EPD also manufactures replacement parts and related equipment and provides a full array of replacement parts, repair and support services (collectively referred to as “aftermarket”). EPD primarily operates in the oil and gas, petrochemical and power generation industries. EPD operates 27in 39 countries with 26 manufacturing facilities worldwide, ~~ten~~nine of which are located in Europe, nine in North America, four in Asia and four in Latin America, and it has ~~116~~117 service centers, including those co-located in a manufacturing ~~facility, in 39 countries.~~

Three Months Ended September 30,
(Amounts in millions) 2010 2009

Bookings $ 497.9 $ 468.5
Sales 511.3 540.7
Gross profit 184.8 206.2
Gross profit margin 36.1 % 38.1 %
Operating income 92.8 111.1
Operating margin 18.1 % 20.5 %
facilities.

3219

Bookings for the three months ended ~~September 30, 2010~~March 31, 2011 increased by ~~$29.4~~$10.3 million, or ~~6.3%~~1.7%, as compared with the same period in ~~2009.~~2010. The increase ~~includes negative~~included currency ~~effects~~benefits of approximately $12 million. Customer bookings in Latin America and Asia Pacific increased $20.9 million (including currency benefits of approximately $3 ~~million. The overall net increase in bookings reflects higher demand for our products in the oil~~million) and ~~gas and power generation industries. Customer bookings increased $58.3~~$4.5 million (including currency benefits of approximately $6 million), respectively. These increases were partially offset by decreases of $11.3 million (including currency benefits of approximately $2 million) ~~in Latin America, $28.6 million in North America~~ and ~~$17.5~~$6.3 million (including currency benefits of approximately $4$1 million) in ~~Asia Pacific, partially offset by a $44.3 million decrease (including negative currency effects~~EMA and North America, respectively. The overall net increase consisted of ~~approximately $12 million)~~increases in ~~Europe, the Middle East and Africa (“EMA”). The increases were driven by original equipment and aftermarket~~ bookings ~~primarily~~ in the oil and gas, mining, water management and ~~power~~chemical industries, ~~partially~~primarily driven by aftermarket bookings. These increases were slightly offset by decreased bookings in the ~~water management~~power generation and general industries. Interdivision bookings (which are eliminated and are not included in consolidated bookings as disclosed above) increased ~~$8.7~~$2.5 million.

~~Sales for the three months ended September 30, 2010 decreased $29.4 million, or 5.4%, as compared with the same period in 2009. The decrease includes negative currency effects of approximately $12~~$13 million. The decrease was primarily ~~driven by decreased original equipment~~due to decreases in customer sales in EMA and North America, partially offset by increased aftermarket sales in Asia Pacific and Latin America and increased original equipment sales in Asia Pacific. Customer sales decreased $35.4 million (including negative currency effects of approximately $19 million) in EMA and $18.6 million in North America. These decreases were partially offset by increased customer sales of $17.5 million (including currency benefits of approximately $5 million) in Asia Pacific and $4.0$47.6 million (including currency benefits of approximately $2 million), driven by decreased original equipment sales, primarily resulting from lower beginning of year backlog in EMA. In addition, Latin America decreased by $4.2 million (including currency benefits of approximately $3 million), driven by decreased original equipment sales, mostly offset by increased aftermarket sales, These decreases were partially offset by increases of customer sales in North America of $19.4 million (including currency benefits of approximately $1 million) and Asia Pacific of $13.5 million (including currency benefits of approximately $6 million), primarily driven by increased aftermarket sales. Interdivision sales (which are eliminated and are not included in consolidated sales as disclosed above) increased ~~$2.5~~$9.3 million.

period in 2009 and the negative impact of decreased sales on our absorption of fixed manufacturing costs, partially offset by a sales mix shift towards higher margin aftermarket sales, increased savings realized and decreased charges resulting from our Realignment Programs as compared with the same period in 2009, as well as operational efficiencies and savings realized from our supply chain initiatives.2010.

Operating income for the three months ended ~~September 30, 2010~~March 31, 2011 decreased by ~~$18.3~~$10.6 million, or ~~16.5%~~10.4%, as compared with the same period in ~~2009.~~2010. The decrease includes negative currency effects of approximately $1 million. The decrease was due primarily to reduced gross profit of $21.4 million, as discussed above, slightly offset by decreased SG&A of $2.5 million, which was due to increased savings realized and a decrease in charges resulting from our Realignment Programs as compared with the same period in 2009, partially offset by bad debt recoveries from the same period in 2009 that did not recur.

~~Operating income for the nine months ended September 30, 2010 decreased by $23.0 million, or 7.1%, as compared with the same period in 2009. The decrease includes~~included currency benefits of approximately $2$3 million. The overall net decrease was due primarily to reduced gross profit of ~~$44.1~~$8.5 million as discussed above ~~partially offset by decreased~~and increased SG&A of ~~$18.4~~$2.6 million, which was due to increased selling and marketing related expenses in certain regions, as well as allowance for doubtful accounts recoveries during the same period in 2010 that did not recur, partially offset by increased savings realized ~~and a decrease in charges resulting~~ from our Realignment Programs as compared with the same period in ~~2009, decreased selling and marketing-related expenses and strict cost control actions in~~ 2010.

Backlog of ~~$1,507.2~~$1,547.9 million at ~~September 30, 2010~~March 31, 2011 increased by ~~$125.1~~$112.4 million, or ~~9.1%~~7.8%, as compared with December 31, ~~2009.~~2010. Currency effects provided ~~a decrease~~an increase of approximately ~~$16~~$37 million. Backlog at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 includes ~~$30.0~~$22.5 million and ~~$29.9~~$25.5 million, respectively, of interdivision backlog (which is eliminated and not included in consolidated backlog as disclosed above).

FSG Industrial Product Division Segment Results

Through IPD, we design, manufacture, distribute and service pre-configured pumps and pump systems, including submersible motors (collectively referred to as “original equipment”). Additionally, IPD manufactures replacement parts and related equipment, and provides a full array of support services (collectively referred to as “aftermarket”). IPD ~~primarily~~ includes standardized, general purpose pump products and primarily operates in the oil and gas, chemical, water management, power generation and general industries. IPD operates 1213 manufacturing facilities, three of which are located in the U.S and six in Europe, and it operates 2021 QRCs worldwide, including ~~ten~~11 sites in Europe and ~~three~~four in the U.S., including those co-located in a manufacturing ~~facility.~~facilities.


Three Months Ended September 30,
							Three Months Ended March 31,

(Amounts in millions)	2010			2009			2011		2010

Bookings	$	202.9		$	196.4		$	225.0	$	194.4
Sales		176.5			244.2			176.3		196.1
Gross profit		42.0			66.2			45.2		55.0
Gross profit margin		23.8	%		27.1	%		25.6%		28.0%
Operating income		9.5			25.5
Operating margin		5.4	%		10.4	%

Nine Months Ended September 30,
(Amounts in millions)	2010			2009

Bookings	$	609.5		$	612.5
Sales		571.2			700.1
Gross profit		146.6			192.4
Gross profit margin		25.7	%		27.5	%
Operating income		46.4			77.0
Operating margin		8.1	%		11.0	%
Segment operating income								13.1		21.0
Segment operating income as a percentage of sales								7.4%		10.7%

by declines in customer bookings of $50.2 million in EMA and Australia, partially offset by increased customer bookings of $37.5 million in the Americas. Decreased customer bookings of original equipment were primarily driven by the power generation and mining industries, partially offset by increased customer bookings in the oil and gas markets. Interdivision bookings (which are eliminated and are not included in consolidated bookings as disclosed above) increased $8.2 million.

Sales for the three months ended September 30, 2010 decreased by $67.7 million, or 27.7%, as compared with the same period in 2009. The decrease includes negative currency effects of approximately $8$3 million. The decrease in customer sales ~~was driven by declines~~ of ~~$47.6~~$30.8 million in EMA and Australia ~~and $17.7~~was primarily attributable to decreased original equipment sales, which were driven by lower beginning of year original equipment backlog. This decrease was slightly offset by a $3.9 million increase in customer sales in the Americas, ~~primarily~~ driven by ~~the power generation industry. Additionally, the declines were attributable to shipment delays and lower existing backlog as compared with 2009.~~increased aftermarket sales. Interdivision sales (which are eliminated and are not included in consolidated sales as disclosed above) ~~decreased $2.6 million.~~

Sales for the nine months ended September 30, 2010 decreased by $128.9 million, or 18.4%, as compared with the same period in 2009. The decrease includes negative currency effects of approximately $1 million. The decreases in customer sales of $92.6 million in EMA and Australia and $31.4 million in the Americas were primarily driven by decreased original equipment customer bookings. The declines, primarily in the power generation, mining and chemical industries were also attributable to lower existing backlog as compared with 2009. Interdivision sales (which are eliminated and are not included in consolidated sales as disclosed above) decreased $3.9increased $6.4 million.

Gross profit for the three months ended ~~September 30, 2010~~March 31, 2011 decreased by ~~$24.2~~$9.8 million, or ~~36.6%~~17.8%, as compared with the same period in ~~2009.~~2010. Gross profit margin for the three months ended ~~September 30, 2010~~March 31, 2011 of ~~23.8%~~25.6% decreased from ~~27.1%~~28.0% for the same period in ~~2009.~~2010. The decrease iswas primarily attributable to the ~~negative~~ impact of decreased sales, onwhich negatively impacts our absorption of fixed manufacturing costs, and less favorable pricing ~~from existing~~in backlog as compared with ~~same period in 2009 and operational efficiency issues, partially~~2010. These decreases were slightly offset by a sales mix shift toward more profitable aftermarket sales and increased savings realized from our Realignment Programs as compared with the same period in ~~2009.~~

Gross profit for the nine months ended September 30, 2010 decreased by $45.8 million, or 23.8%, as compared with the same period in 2009. Gross profit margin for the nine months ended September 30, 2010 of 25.7% decreased from 27.5% for the same period in 2009. The decrease is primarily attributable to the negative impact of decreased sales on our absorption of fixed manufacturing costs, less favorable pricing from existing backlog as compared with the same period in 2009 and operational efficiency issues, partially offset by a sales mix shift toward more profitable aftermarket sales, and increased savings realized from our Realignment Programs as compared with the same period in 2009.2010.

Operating income for the three months ended ~~September 30, 2010~~March 31, 2011 decreased by ~~$16.0~~$7.9 million, or ~~62.7%~~37.6%, as compared with the same period in ~~2009.~~2010. The decrease ~~includes negative~~included currency effects of approximately $1 million. The decrease is due to the $24.2 million decrease in gross profit discussed above, partially offset by an $8.3 million decrease in SG&A. The decrease in SG&A is due to decreased selling-related expenses, strict cost control actions in 2010 and increased savings realized from our Realignment Programs as compared with the same period in 2009.

~~Operating income for the nine months ended September 30, 2010 decreased by $30.6 million, or 39.7%, as compared with the same period in 2009. The decrease includes negative currency effects~~benefits of less than $1 million. The decrease iswas due to the ~~$45.8~~$9.8 million decrease in gross profit discussed above, partially offset by a ~~$15.2~~$1.9 million decrease in SG~~&A. The decrease in SG~~&A, ~~is due to~~which was driven by decreased ~~selling-related~~selling and marketing-related expenses and strict cost control ~~actions in 2010 and increased savings realized from our Realignment Programs as compared with the same period in 2009.~~actions.

Backlog of ~~$566.9~~$625.7 million at ~~September 30, 2010~~March 31, 2011 increased by ~~$11.3~~$57.7 million, or ~~2.0%~~10.2%, as compared with December 31, ~~2009.~~2010. Currency effects provided ~~a decrease~~an increase of approximately ~~$19~~$21 million. Backlog at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009~~2010 includes ~~$28.9~~$44.1 million and ~~$19.8~~$38.5 million, respectively, of interdivision backlog (which is eliminated and not included in consolidated backlog as disclosed above).

Flow Control Division Segment Results

Our second largest business segment is FCD, ~~through~~ which ~~we design, manufacture~~designs, manufactures and ~~distribute~~distributes a broad portfolio of ~~engineered~~engineered-to-order and ~~industrial~~configured-to-order isolation valves, control valves, ~~actuators,~~valve automation products, boiler controls and related services. FCD leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio. FCD has a total of 5153 manufacturing facilities and QRCs in 2223 countries around the world, with only five of its 2124 manufacturing operations located in the U.S. Based on independent industry sources, we believe that we are the ~~third~~fourth largest industrial valve supplier on a global basis.

3521


					Three Months Ended March 31,
	Three Months Ended September 30,
(Amounts in millions)	2010		2009		2011		2010

Bookings	$	335.0	$	333.1	$	377.3	$	318.9
Sales		312.6		293.5		337.6		256.1
Gross profit		107.4		112.0		115.6		95.7
Gross profit margin		34.4%		38.2%		34.2%		37.4%
Operating income		45.7		54.0
Operating margin		14.6%		18.4%

	Nine Months Ended September 30,
(Amounts in millions)	2010		2009

Bookings	$	978.7	$	907.2
Sales		837.4		893.2
Gross profit		303.2		328.3
Gross profit margin		36.2%		36.8%
Operating income		127.9		148.4
Operating margin		15.3%		16.6%
As discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report, FCD acquired Valbart, a privately-owned Italian valve manufacturer, effective July 16, 2010. Valbart’s results of operations have been consolidated since the date of acquisition and are included in FCD’s segment results of operations above. No pro forma information has been provided for the acquisition due to immateriality. The acquisition of Valbart resulted in purchase accounting adjustments to establish the fair value of acquired inventory and backlog of $10.0 million and $2.7 million, respectively, which are amortized as sales are recognized. The impact of the acquisition of Valbart on FCD’s results of operations, including acquisition-related costs of $1.4 million and $2.2 million for the three and nine months ended September 30, 2010, respectively, is as follows:

	Three Months Ended September 30,
(Amounts in millions)	2010		2009

Bookings	$	14.7	$	-
Sales		12.3		-
Gross profit		1.0		-
Gross profit margin		8.1%		-
Operating income		(4.3)		-
Operating margin		(35.0%)		-

	Nine Months Ended September 30,
(Amounts in millions)	2010		2009

Bookings	$	14.7	$	-
Sales		12.3		-
Gross profit		1.0		-
Gross profit margin		8.1%		-
Operating income		(5.1)		-
Operating margin		(41.5%)		-
Segment operating income						47.5		40.1
Segment operating income as a percentage of sales						14.1%		15.7%

Sales for the three months ended September 30, 2010 increased $19.1 million, or 6.5%, as compared with the same period in 2009. The increase includes negative currency effects of approximately $12 million. The overall net increase in sales was primarily attributable to original equipment, driven by the oil and gas and power generation industries. Sales in Asia Pacific increased by approximately $21 million, partially offset by decreased sales in EMA of approximately $11 million, reflecting customer-driven project delays.previously delayed large projects. Additionally, Valbart provided sales of ~~$12.3~~$30.0 million.

Sales for the nine months ended September 30, 2010 decreased $55.8 million, or 6.2%, as compared with the same period in 2009. The decrease includes negative currency effects of approximately $7 million. The decrease in sales was driven by decreased original equipment and aftermarket sales across all industries. Sales in EMA, North America and Latin America decreased approximately $45 million, $12 million and $6 million, respectively, which includes the impact of customer-driven project delays. These decreases were partially offset by increased sales of approximately $3 million in Asia Pacific.

Gross profit for the three months ended ~~September 30, 2010 decreased~~March 31, 2011 increased by ~~$4.6~~$19.9 million, or ~~4.1%~~20.8%, as compared with the same period in ~~2009.~~2010. Gross profit margin for the three months ended ~~September 30, 2010~~March 31, 2011 of ~~34.4%~~34.2% decreased from ~~38.2%~~37.4% for the same period in ~~2009.~~2010. The decrease iswas attributable to ~~pricing pressure~~a sales mix shift towards lower margin original equipment and the negative impact of ~~the amortization of Valbart’s inventory purchase accounting adjustment, partially~~low margins on acquired Valbart backlog. These decreases were slightly offset by ~~increased savings realized from our Realignment Programs as compared with the same period in 2009,~~improved absorption of fixed manufacturing costs, various CIP initiatives, ~~and~~ improved utilization of low cost ~~regions.~~

~~Gross~~regions and includes gross profit for the nine months ended September 30, 2010 decreased by $25.1 million, or 7.6%, as compared with the same period in 2009. Gross profit margin for the nine months ended September 30, 2010 of 36.2% decreased from 36.8% for the same period in 2009. The decrease is primarily attributable to ~~the negative impact~~Valbart of decreased sales on our absorption of fixed manufacturing costs and the impact of the amortization of Valbart’s inventory purchase accounting adjustment, partially offset by favorable product mix and increased savings realized from our Realignment Programs as compared with the same period in 2009, as well as various CIP initiatives and improved utilization of low cost regions.$4.7 million.

Operating income for the three months ended ~~September 30, 2010 decreased~~March 31, 2011 increased by ~~$8.3~~$7.4 million, or ~~15.4%~~18.5%, as compared with the same period in ~~2009.~~2010. The ~~decrease~~increase includes ~~negative~~ currency ~~effects~~benefits of approximately $1 million. The ~~decrease is~~increase, which includes the impact of Valbart’s $1.4 million operating loss, was principally attributable to the ~~$4.6~~$19.9 million ~~decrease~~increase in gross profit discussed above, and ~~a $3.3~~was partially offset by the $12.1 million increase in SG~~&A.~~&A, which includes SG&A attributable to Valbart of $6.1 million. We do not expect the operating loss of Valbart to continue as acquired backlog is delivered and we work to fully integrate Valbart’s operations. Increased SG&A is attributable to ~~incremental Valbart SG&A, acquisition-related costs~~increased selling and ~~bad debt recoveries from the same period in 2009 that did not recur, partially offset by increased savings realized and a decrease in charges resulting from our Realignment Programs as compared~~marketing related expenses, which is consistent with the ~~same period~~increase in ~~2009. Valbart provided a net operating loss of $4.3 million, including the impact of $1.4 million in transaction costs.~~

Operating income for the nine months ended September 30, 2010 decreased by $20.5 million, or 13.8%, as compared with the same period in 2009. The decrease includes negative currency effects of less than $1 million. The decrease is principally attributable to the $25.1 million decrease in gross profit discussed above, partially offset by a $6.4 million decrease in SG&A. Decreased SG&A is attributable to decreased selling and marketing-related expenses and increased savings realized and decreased charges resulting from our Realignment Programs as compared with the same period in 2009, partially offset by $4.3 million in bad debt recoveries from the same period in 2009 that did not recur, $2.7 million of incremental Valbart SG&A and $2.2 million in acquisition-related costs. Valbart provided a net operating loss of $5.1 million, including the impact of acquisition-related costs.sales.

Backlog of ~~$695.8~~$709.5 million at ~~September 30, 2010~~March 31, 2011 increased by ~~$210.5~~$51.0 million, or ~~43.4%~~7.7%, as compared with December 31, ~~2009.~~2010. Currency effects provided ~~a decrease~~an increase of approximately ~~$6 million. The overall net increase includes backlog related to the acquisition of Valbart of $78.4~~$13 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Analysis


					Three Months Ended March 31,
	Nine Months Ended September 30,
(Amounts in millions)	2010		2009		2011			2010

Net cash flows (used) provided by operating activities	$	(16.6)	$	4.8
Net cash flows used by operating activities					$	(228.2	)	$	(149.0	)
Net cash flows used by investing activities		(234.8)		)	(20.7	)		(7.0	)
Net cash flows used by financing activities		(68.4)		)	(27.5	)		(13.2	)

Increases in accounts receivable used ~~$47.9~~$43.8 million of cash flow for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared with ~~$8.1~~$46.5 million ~~provided~~ for the same period in ~~2009.~~2010. As of ~~September 30, 2010,~~March 31, 2011, our days’ sales receivables outstanding (“DSO”) was 7882 days as compared with 7277 days as of ~~September 30, 2009.~~March 31, 2010. For reference purposes based on ~~2010~~2011 sales, an improvement of one day could provide approximately $11 million in cash flow. Increases in inventory used ~~$112.5~~$106.7 million of cash flow for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared with ~~$8.1~~$23.3 million for the same period in ~~2009.~~2010. The increase is primarily due to increased bookings during the first quarter of 2011, requiring higher raw material and work in process inventory levels to support period ending backlog. In addition, progress billings decreased $55.9 million during the first quarter of 2011 compared with an increase of $53.3 million during the same period in 2010. Inventory turns were ~~2.7~~2.5 times as of ~~September 30, 2010~~March 31, 2011 and 3.0 times as of ~~September 30, 2009.~~March 31, 2010. Our calculation of inventory turns does not reflect the impact of advanced cash received from our customers. For reference purposes based on ~~2010~~2011 data, an improvement of one turn could yield approximately ~~$257~~$288 million in cash flow. Decreases in accounts payable used $125.3 million of cash flow for the three months ended March 31, 2011 compared with $84.3 million for the same period in 2010. The decrease is primarily due to higher accounts payable balances related to certain inventory and equipment purchases and corporate-level expenses at December 31, 2010 that required payment during the first quarter of 2011 based upon contractual payment terms, as compared with the same period in 2010.

Cash flows used by investing activities during the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 were ~~$234.8~~$20.7 million, ~~which included $199.4 million for the acquisition of Valbart,~~ as compared with ~~$117.8~~$7.0 million for the same period in ~~2009, which included $28.4 million for the acquisition of Calder AG. See “Acquisitions and Dispositions” below.~~2010. Capital expenditures during the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 were ~~$46.4~~$23.5 million, ~~a decrease~~an increase of ~~$40.6~~$8.6 million as compared with the same period in 2009, reflecting, in part, payments made during the first quarter of 2009 on strategic projects committed to during 2008 and were partially offset by proceeds from disposal of assets of $6.7 million and affiliate investing activity, net of $4.3 million in 2010. In ~~2010,~~2011, our cash flows for investing activities ~~are~~will be focused on strategic initiatives to pursue new markets, geographic expansion, ~~enterprise resource planning,~~Enterprise Resource Planning (“ERP”) application upgrades, information technology infrastructure and cost reduction opportunities and are expected to be ~~approximately $100~~between $120 million and $135 million for the full year, ~~excluding~~before consideration of any acquisition activity. In addition, for the three months ended March 31, 2010 there were net cash inflows of $5.1 million from affiliate investing activity that did not recur in 2011.

Cash flows used by financing activities during the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 were ~~$68.4~~$27.5 million, as compared with ~~$72.6~~$13.2 million for the same period in ~~2009.~~2010. Cash outflows during the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 resulted primarily from the payment of ~~$47.4~~$16.1 million in dividends and ~~$34.1~~$13.8 million for the repurchase of common shares. Cash outflows for the same period in 2010 resulted primarily from payment of $15.0 million in dividends and $12.0 million for the repurchase of common shares, partially offset by proceeds and excess tax benefits from stock option activity. ~~Cash outflows for the same period in 2009 resulted primarily from the payment of $44.2 million in dividends and $27.5 million for the repurchase of common shares.~~

Lingering effects of financial markets and banking systems disruptions experienced in 2008 and 2009 continue to limit the access of some companies to credit and capital markets, and the costs of newly raised debt for most companies have generally increased. Additional disruptions in these markets could potentially impair our ability to access these markets and increase associated costs. Notwithstanding these uncertain market conditions, consideringConsidering our current debt structure and cash needs, we currently believe cash flows from operating activities combined with availability under our existing revolving credit agreement and our existing cash balance will be sufficient to enable us to meet our cash flow needs for the next 12 months. Cash flows from operations could be adversely affected by economic, political and other risks associated with sales of our products, operational factors, competition, fluctuations in foreign exchange rates and fluctuations in interest rates, among other factors. See “Liquidity Analysis” and “Cautionary Note Regarding Forward-Looking Statements” below.

On February 26, 2008, our Board of Directors authorized a program to repurchase up to $300.0 million of our outstanding common stock over an unspecified time ~~period. The~~period and the program commenced in the second quarter of 2008. We repurchased 112,500 shares for ~~$11.0~~$13.8 million and ~~131,500~~112,500 shares for ~~$11.3~~$12.0 million during the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009, respectively. We repurchased 337,500 shares for $34.1 million and 413,000 shares for $27.5 million during the nine months ended September 30, 2010 and 2009,~~ respectively. To date, we have repurchased a total of ~~2,623,100~~2,848,100 shares for ~~$240.0~~$265.8 million under this program. See “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” below.

On February ~~22, 2010,~~21, 2011, our Board of Directors authorized an increase in the payment of quarterly dividends on our common stock from ~~$0.27~~$0.29 per share to ~~$0.29~~$0.32 per share payable quarterly beginning on April ~~7, 2010.~~14, 2011. On February ~~23, 2009,~~22, 2010, our Board of Directors authorized an increase in our quarterly cash dividend from ~~$0.25~~$0.27 per share to ~~$0.27~~$0.29 per share, effective for the first quarter of ~~2009.~~2010. Generally, our dividend date-of-record is in the last month of the quarter, and the dividend is paid the following month. While we currently intend to pay regular quarterly dividends in the foreseeable future, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on its assessment of our financial condition and business outlook at the applicable time.

improve our ability to provide a more complete valve portfolio to oil and gas projects. Valbart generated approximately €81 million ($104 million, at then-current exchange rates) in sales (unaudited) during its fiscal year ended May 31, 2010.

~~As discussed~~Effective April 11, 2011, we purchased the assets of FEDD Wireless LLC (“FEDD”), a privately-owned wireless data acquisition company based in ~~Note 2~~Houston, including existing inventory and equipment and rights to ~~our condensed consolidated financial statements included~~the related intellectual property for inclusion in ~~this Quarterly Report, effective April 21, 2009,~~EPD. The asset purchase was less than $1 million in cash. This acquisition is expected to allow EPD ~~acquired Calder AG, a private Swiss company~~to capitalize on growth opportunities and ~~a supplier of energy recovery technology for use in the global desalination market, for up to $44.1 million, net of cash acquired. Of the total purchase price, $28.4 million was paid at closing~~expand existing asset management and $2.4 million was paid after the working capital valuation was completed in early July 2009. The remaining $13.3 million was contingent upon Calder AG achieving certain performance metrics during the twelve months following the acquisition. The final measurement date of the performance metrics was March 31, 2010. The performance metrics were not met, resulting in no payment of contingent consideration.optimization services

Financing

Credit Facilities

Our credit facilities ~~as amended, consist~~are comprised of a ~~$600.0~~$500.0 million term loan ~~expiring on August 10, 2012~~facility with a maturity date of December 14, 2015 and a ~~$400.0~~$500.0 million revolving ~~line~~credit facility with a maturity date of December 14, 2015 (collectively referred to as the “Credit Facilities”). The revolving credit ~~which can be utilized to provide up to~~facility includes a $300.0 million insublimit for the issuance of letters of credit. Subject to certain conditions, we have the right to increase the amount of the revolving credit ~~also expiring on August 10, 2012. We hereinafter refer~~facility by an aggregate amount not to ~~these credit facilities collectively as our Credit Facilities.~~exceed $200.0 million.

At both ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, we had no amounts outstanding under the revolving ~~line of credit.~~credit facility. We had outstanding letters of credit of ~~$116.2~~$134.0 million and ~~$123.1~~$133.9 million at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively, which reduced our borrowing capacity to ~~$283.8~~$366.0 million and ~~$276.9~~$366.1 million, respectively.

Borrowings under our Credit Facilities, other than in respect of swingline loans, bear interest at a rate equal to, at our option, either (1) London Interbank Offered Rate (“LIBOR”) plus 1.75% - 2.50%, as applicable, depending on our consolidated leverage ratio (2) the base rate (which is based on ~~the~~ greater of the prime rate most recently announced by the administrative agent under our New Credit Facilities or the Federal Funds rate plus 0.50%) or ~~(2) London Interbank Offered Rate (“LIBOR”)~~(3) a daily rate equal to the one month LIBOR plus 1.0% plus, as applicable, an applicable margin of 0.75% - 1.50% determined by reference to the ratio of our total debt to consolidated ~~Earnings Before Interest, Taxes, Depreciation~~earnings before interest, taxes, depreciation and ~~Amortization~~amortization (“EBITDA”)~~, which~~. The applicable interest rate as of ~~September 30, 2010~~March 31, 2011 was ~~0.875% and 1.50%~~2.31% for borrowings under our ~~revolving line~~Credit Facilities. In connection with our Credit Facilities, we have entered into $345.0 million of ~~credit and term loan, respectively.~~notional amount of interest rate swaps at March 31, 2011 to hedge exposure to floating interest rates.

We may prepay loans under our Credit Facilities in whole or in part, without premium or ~~penalty.~~penalty, at any time. During the three ~~and nine~~ months ended ~~September 30, 2010,~~March 31, 2011, we made scheduled repayments under our Credit Facilities of ~~$1.4 million and $4.3 million, respectively.~~$6.3 million. We have scheduled repayments of ~~$1.4~~$6.3 million due in the each of the next four quarters.

Our obligations under the Credit ~~Facilities~~Agreement are unconditionally guaranteed, jointly and severally, ~~guaranteed~~ by substantially all of our existing and subsequently acquired or organized domestic subsidiaries and 65% of the capital stock of certain foreign ~~subsidiaries.~~subsidiaries, subject to certain controlled company and materiality exceptions. The Lenders have agreed to release the collateral if we achieve an Investment Grade Rating (as defined in the Credit Agreement) by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services for our senior unsecured, non-credit-enhanced, long-term debt (in each case, with an outlook of stable or better), with the understanding that identical collateral will be required to be pledged to the Lenders anytime following a release of the collateral that an Investment Grade Rating is not maintained. In addition, prior to our obtaining and maintaining investment grade credit ratings, our and the guarantors’ obligations under the Credit ~~Facilities~~Agreement are collateralized by substantially all of our and the guarantors’ assets. We have not achieved these ratings as of March 31, 2011.

Additional discussion of our Credit Facilities, including amounts outstanding and applicable interest rates, is included in Note 65 to our condensed consolidated financial statements included in this Quarterly Report.

We have entered into interest rate swap agreements to hedge our exposure to variable interest payments related to our Credit Facilities. These agreements are more fully described in Note 54 to our condensed consolidated financial statements included in this Quarterly Report, and in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.

European Letter of Credit Facilities

On October 30, 2009, we entered into a new 364-day unsecured European Letter of Credit Facility (“New European LOC Facility”) with an initial commitment of €125.0 million. The New European LOC Facility is renewable annually and ~~consistent with~~

Our ability to issue additional letters of credit under our previous European Letter of Credit Facility (“Old European LOC Facility”), which had a commitment of €110.0 million, expired November 9, 2009. We paid annual and fronting fees of 0.875% and 0.10%, respectively, for letters of credit written against the Old European LOC Facility. We had outstanding letters of credit written against the Old European LOC Facility of €25.6 million ($36.3 million) and €33.3 million ($44.5 million) as of March 31, 2011 and December 31, 2010, respectively.

Certain banks are parties to both facilities and are managing their exposures on an aggregated basis. As such, the commitment under the New European LOC Facility is reduced by the face amount of existing letters of credit written against the Old European LOC Facility prior to its expiration. These existing letters of credit will remain outstanding, and accordingly offset the €125.0 million capacity of the New European LOC Facility until their maturity, which, as of ~~September 30, 2010,~~March 31, 2011, was approximately one year for the majority of the outstanding existing letters of credit. After consideration of outstanding ~~letters of credit~~commitments under both facilities, the available capacity under the New European LOC Facility was ~~€96.1~~€107.6 million as of ~~September 30, 2010,~~March 31, 2011, of which ~~€46.8~~€59.5 million has been drawn.

See Note 1211 to our consolidated financial statements included in our ~~2009~~2010 Annual Report for a discussion of covenants related to our Credit Facilities and our New European LOC Facility. We complied with all covenants through ~~September 30, 2010.~~March 31, 2011.

Liquidity Analysis

Our cash balance decreased by ~~$343.7~~$268.7 million to ~~$310.6~~$288.9 million as of ~~September 30, 2010~~March 31, 2011 as compared with December 31, ~~2009.~~2010. The cash draw was ~~primarily due to the acquisition of Valbart for $199.4 million in cash during the third quarter of 2010 and~~anticipated based on planned significant cash uses in ~~2010,~~the first quarter of 2011, including the funding of increased working capital requirements, broad-based annual employee incentive compensation program payments related to prior period performance, ~~reductions in advanced cash received from customers, $46.4~~$23.5 million in capital expenditures, ~~$47.4~~$16.1 million in dividend payments ~~$34.1~~and $13.8 million of share ~~repurchases and the funding of increased working capital requirements.~~repurchases. We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have placed our deposits with creditworthy financial institutions.

Approximately 1%5% of our term loan is due to mature in ~~2010~~2011 and ~~26%~~5% in ~~2011.~~2012. As noted above, our term loan and our revolving line of credit both mature in ~~August 2012.~~December 2015. After the effects of ~~$380.0~~$345.0 million of notional interest rate swaps, approximately 70% of our term debt was at fixed rates at ~~September 30, 2010.~~March 31, 2011. As of ~~September 30, 2010,~~March 31, 2011, we had a borrowing capacity of ~~$283.8~~$366.0 million on our ~~$400.0~~$500.0 million revolving line of credit, and we had outstanding letters of credit drawn on ~~our~~the both of the European LOC Facilities of ~~€89.2 million.~~€85.1 million as of March 31, 2011. Our revolving line of credit and our European LOC ~~Facilities~~Facility are committed and are held by a diversified ~~groups~~group of financial institutions.

~~We experienced significant declines~~During the three months ended March 31, 2011 and 2010, we made no contributions to our U.S. pension plan. At December 31, 2010, as a result of increases in ~~the~~ values of the plan’s assets and our contributions to the plan, our U.S. pension plan assets in 2008 resulting primarily from declines in global equity markets. The decline is being recognized into earnings over the remaining service period. In 2009, we experienced increases in the values of our U.S. pension plan assets.was fully funded. After consideration of ~~the impact of our contributions in 2009, the partial recovery in 2009 of asset value declines in 2008 and~~ our intent to ~~remain fully-funded,~~maintain fully funded status, as defined by the U.S. Pension Protection Act, we ~~contributed $30.0 million~~currently anticipate our contribution to our U.S. pension plan ~~during the nine months ended September 30 2010,~~in 2011 will be between $7 million and $10 million, excluding direct benefits paid. We continue to maintain an asset allocation consistent with our strategy to maximize total return, while reducing portfolio risks through asset class diversification.

~~Lingering effects~~We experienced limited shipment delays in the first quarter of ~~global financial markets~~2011 resulting from the recent developing political and ~~banking systems disruptions experienced~~economic conditions in ~~2008~~North Africa. We estimate the unfavorable impact on operating income of these shipment delays was $2.5 million in the first quarter of 2011, with EPD and ~~2009~~IPD impacted $1.8 million and $0.7 million, respectively. We are closely monitoring the conditions in the Middle East and North Africa and, while there are many potential outcomes in each individual country, based on current facts and circumstances as we understand them, we anticipate that the delayed shipments should be released throughout the remainder of the year. Additionally, although our organization and assets were not directly affected by the earthquake and tsunami in Japan, we continue to ~~make credit~~assess the conditions and ~~capital markets difficult for some companies~~potential adverse impacts, in particular as they relate to access, and the costs of newly raised debt for most companies have generally increased. We continue to monitor and evaluate the implications of these factors on our current business (including our access to capital), our customers and suppliers ~~and the state of the global economy. While credit and capital markets have stabilized somewhat in recent months, additional disruptions or lingering uncertainty~~ in the ~~functioning of these markets could potentially materially impair our and our customers’ ability to access these markets and increase associated costs,~~impacted geographical regions, as well as ~~our customers’ ability~~potential regulatory impacts to ~~pay in full and/~~the overall civilian nuclear market. We did not experience any significant adverse impacts due to shipment delays, collection issues or ~~on a timely basis.~~supply chain disruptions during the first quarter of 2011.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our more critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in our ~~2009~~2010 Annual Report.

Effective January 1, 2011, we adopted ASU No. 2009-13, “Revenue Recognition (ASC 605): Multiple-Deliverable Revenue

Arrangements — a consensus of the FASB Emerging Issues Task Force,” which resulted in expanded disclosure requirements regarding our revenue recognition policy (see “Revenue Recognition” below). Our adoption of ASU No. 2009-13, effective January 1, 2011, had no impact on our consolidated financial condition or results of operations. Except for the incremental revenue recognition policy disclosure included below, we believe that there were no significant changes in those critical accounting policies and estimates during the three months ended March 31, 2011.

Revenue Recognition

Revenues for product sales are recognized when the risks and rewards of ownership are transferred to the customers, which is typically based on the contractual delivery terms agreed to with the customer and fulfillment of all but inconsequential or perfunctory actions. In addition, our policy requires persuasive evidence of an arrangement, a fixed or determinable sales price and reasonable assurance of collectability. We defer the recognition of revenue when advance payments are received from customers before performance obligations have been completed and/or services have been performed. Freight charges billed to customers are included in sales and the related shipping costs are included in cost of sales in our consolidated statements of income. Our contracts typically include cancellation provisions that require customers to reimburse us for costs incurred up to the date of cancellation as well as any contractual cancellation penalties.

Revenues for long-term contracts, including separate units of accounting from multiple-deliverable contracts, that exceed certain internal thresholds regarding the size, complexity and duration of the project and provide for the receipt of progress billings from the customer are recorded on the percentage of completion method with progress measured on a cost-to-cost basis. Percentage of completion revenue represents approximately 9% of our consolidated sales for the three months ended both March 31, 2011 and 2010.

Revenue on service and repair contracts is recognized after services have been agreed to by the customer and rendered. Revenues generated under fixed fee service and repair contracts are recognized on a ratable basis over the term of the contract. These contracts can range in duration, but generally extend for up to five years. Fixed fee service contracts represent less than 1% of our consolidated sales for the three months ended both March 31, 2011 and 2010.

Other critical policies, for which no significant changes have occurred in the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, include:

	•		~~Revenue Recognition;~~

	•		Deferred Taxes, Tax Valuation Allowances and Tax Reserves;

•

Reserves for Contingent Loss;

Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See “Cautionary Note Regarding Forward-Looking Statements” below.

ACCOUNTING DEVELOPMENTS

WeThere have ~~presented the information about~~been no accounting pronouncements that have been issued but not yet implemented that we believe will have a material impact our consolidated financial condition or results of operations, as discussed in Note 1 to our condensed consolidated financial statements included in this Quarterly Report.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report 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,” “projects,” “predicts,” “plans,” “anticipates,” “estimates,” “believes,” ~~“forecasts,” “predicts”~~“forecasts” or other similar expressions are intended to identify forward-looking statements, which include, without limitation, statements concerning our future financial performance, future debt and financing levels, investment objectives, implications of litigation and regulatory investigations and other management plans for future operations and performance.

The forward-looking statements included in this Quarterly Report 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;~~

	•		~~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;~~

	•		~~our dependence on our customers’ ability to make required capital investment and maintenance expenditures;~~

	•		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 oil and gas, chemical, power generation and water management industries;~~

	•		~~the adverse impact of volatile raw materials prices on our products and operating margins;~~

	•		~~our ability to execute and realize the expected financial benefits from our strategic realignment initiatives;~~

	•		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 oil and gas producers, and non-compliance with U.S. export/reexport control, foreign corrupt practice laws, economic sanctions and import laws and regulations;

a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins;

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;

our dependence on our customers’ ability to make required capital investment and maintenance expenditures;

risks associated with cost overruns on fixed fee projects and in taking customer orders for large complex custom engineered products;

the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries;

the adverse impact of volatile raw materials prices on our products and operating margins;

our ability to execute and realize the expected financial benefits from our strategic realignment initiatives;

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 oil and gas producers, and non-compliance with U.S. export/reexport control, foreign corrupt practice laws, economic sanctions and import laws and regulations;

our exposure to fluctuations in foreign currency exchange rates, particularly in hyperinflationary countries such as Venezuela;

our furnishing of products and services to nuclear power plant facilities and other critical applications;

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	•		~~our exposure to fluctuations in foreign currency exchange rates, including hyperinflationary countries such as Venezuela;~~

	•		~~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 litigation involving asbestos-containing material claims;~~

	•		~~a foreign government investigation regarding our participation in the United Nations Oil-for-Food Program;~~

	•		~~expectations regarding acquisitions and the integration of acquired businesses;~~

	•		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;~~

	•		~~the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets;~~

	•		~~our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations;~~

	•		~~the highly competitive nature of the markets in which we operate;~~

	•		~~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; and~~

	•		~~obligations under our defined benefit pension plans.~~

potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims;

a foreign government investigation regarding our participation in the United Nations Oil-for-Food Program;

expectations regarding acquisitions and the integration of acquired businesses;

risks associated with certain of our foreign subsidiaries autonomously conducting limited business operations and sales in certain countries 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;

the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets;

our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations;

the highly competitive nature of the markets in which we operate;

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; and

obligations under our defined benefit pension plans.

These and other risks and uncertainties are more fully discussed in the risk factors identified in “Item 1A. Risk Factors” in Part I of our ~~2009~~2010 Annual Report, and may be identified in our Quarterly Reports on Form 10-Q and our other filings with the U.S. Securities and Exchange Commission (“SEC”) and/or press releases from time to time. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We have market risk exposure arising from changes in interest rates and foreign currency exchange rate movements. We are exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, including interest rate swaps and forward exchange contracts, but we currently expect all counterparties will continue to meet their obligations given their current creditworthiness.

Interest Rate Risk

Our earnings are impacted by changes in short-term interest rates as a result of borrowings under our Credit Facilities, which bear interest based on floating rates. At ~~September 30, 2010,~~March 31, 2011, after the effect of interest rate swaps, we had ~~$159.8~~$148.8 million of variable rate debt obligations outstanding under our Credit Facilities with a weighted average interest rate of ~~1.81%~~2.31%. A hypothetical change of 100 basis points in the interest rate for these borrowings, assuming constant variable rate debt levels, would have changed interest expense by ~~$1.2~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2010.~~March 31, 2011. At ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, we had ~~$380.0 million~~$345.0 and ~~$385.0~~$350.0 million, respectively, of notional amount in outstanding interest rate swaps with third parties with varying maturities through ~~December 2011.~~March 2014.

Foreign Currency Exchange Rate Risk

A substantial portion of our operations are conducted by our subsidiaries outside of the U.S. in currencies other than the U.S. dollar. Almost all of our non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions, including firm commitments and anticipated transactions, denominated in a currency other than a non-U.S. subsidiary’s functional currency. Generally, we view our investments in foreign subsidiaries from a long-term perspective and, therefore, do not hedge these investments. We use capital structuring techniques to manage our investment in foreign subsidiaries as deemed necessary. We realized net gains (losses) associated with foreign currency translation of ~~$96.4~~$48.8 million and ~~$34.7~~($37.5) million for the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009, respectively, and $(1.9) million and $69.5 million for the nine months ended September 30, 2010 and 2009,~~ respectively, which are included in other comprehensive ~~income.~~income (expense).

We employ a foreign currency risk management strategy to minimize potential changes in cash flows from unfavorable foreign currency exchange rate movements. The use of forward exchange contracts allows us to mitigate transactional exposure to exchange rate fluctuations as the gains or losses incurred on the forward exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. Our policy allows foreign currency coverage only for identifiable foreign currency exposures. As of ~~September 30, 2010,~~March 31, 2011, we had a U.S. dollar equivalent of ~~$456.3~~$384.6 million in aggregate notional amount outstanding in forward exchange contracts with third parties, compared with ~~$309.6~~$358.5 million at December 31, ~~2009.~~2010. Transactional currency gains and losses arising from transactions outside of our sites’ functional currencies and changes in fair value of certain forward exchange contracts are included in our consolidated results of operations. We recognized foreign currency net gains (losses) of ~~$14.1~~$8.7 million and ~~$6.6~~($21.7) million for the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009, respectively, and $(22.0) million and $(3.0) million for the nine months ended September 30, 2010 and 2009,~~ respectively, which are included in other ~~expense,~~income (expense), net in the accompanying condensed consolidated statements of income. ~~The net (losses) gains~~As discussed ~~above, include the impact of a one-time $12.4 million loss recognized~~in more detail in Note 1 to our condensed consolidated financial statements included in this Quarterly Report, during the first quarter of 2010 we recognized an $8.9 million net loss as a result of Venezuela’s currency devaluation ~~partially offset by realized foreign currency exchange gains of $0.2 million~~ and ~~$4.0 million for the three and nine months ended September 30, 2010, respectively, related to the~~ settlement of U.S. dollar denominated liabilities at the more favorable essential items exchange rate of 2.60 Bolivars to the U.S. dollar. ~~See Note 1 to our condensed consolidated financial statements included in this Quarterly Report for additional information.~~

Based on a sensitivity analysis at ~~September 30, 2010,~~March 31, 2011, a 10% change in the foreign currency exchange rates for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 would have impacted ~~the translation of~~ our net earnings ~~into U.S. dollars~~ by approximately ~~$18~~$6 million, due primarily to the Euro. This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. This calculation does not take into account the impact of the foreign currency forward exchange contracts discussed above.

4329

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are controls and other procedures that are designed to ensure that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2010.~~March 31, 2011. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~September 30, 2010.~~March 31, 2011.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2010~~March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4430

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are party to the legal proceedings that are described in Note 1211 to our condensed consolidated financial statements included in “Item 1. Financial ~~Statements”~~Statements.” of this Quarterly Report, and such disclosure is incorporated by reference into this “Item 1. Legal Proceedings.” In addition to the foregoing, we and our subsidiaries are named defendants in certain other ordinary routine lawsuits incidental to our business and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving us and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect these matters, either individually or in the aggregate, to have a material effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to “Item 1A. Risk ~~Factors”~~Factors.” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations.” in Part II of our ~~2009~~2010 Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently expected or desired.

There have been no ~~additional~~ material changes in the risk factors discussed in our ~~2009~~2010 Annual Report and subsequent SEC filings. The risks described in this Quarterly Report, our ~~2009~~2010 Annual Report and in our other SEC filings or press releases from time to time are not the only risks we face. Additional risks and uncertainties are currently deemed immaterial based on management’s assessment of currently available information, which remains subject to change; however, new risks that are currently unknown to us may surface in the future that materially adversely affect our business, financial condition, results of operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On February 27, 2008, our Board of Directors announced the approval of a program to repurchase up to $300.0 million of our outstanding common stock, which commenced in the second quarter of 2008. The share repurchase program does not have an expiration date, and we reserve the right to limit or terminate the repurchase program at any time without notice. During the quarter ended ~~September 30, 2010,~~March 31, 2011, we repurchased a total of 112,500 shares of our common stock under the program for approximately ~~$11.0~~$13.8 million (representing an average cost of ~~$97.55~~$122.84 per share). Since the adoption of this program, we have repurchased a total of ~~2.6~~2.8 million shares of our common stock under the program for ~~$240.0~~$265.7 million (representing an average cost of ~~$91.49~~$93.30 per share). We may repurchase up to an additional ~~$60.0~~$34.3 million of our common stock under the share repurchase program. The following table sets forth the repurchase data for each of the three months during the quarter ended ~~September 30, 2010:~~March 31, 2011:

Maximum Number of
Shares (or Approximate
Total Number of Dollar Value) That May
Shares Purchased as Yet Be Purchased Under
Total Number of Average Price Part of Publicly the
Period Shares Purchased Paid per Share Announced Plan Plan (in millions)
July 1 - 31 65 (1)   $ 95.85 -        $ 71.0
August 1 - 31 113,835 (2) 97.59 112,500 60.0
September 1 - 30 170 (3) 104.33 -     60.0

Total 114,070   $ 97.60 112,500


								Maximum Number of
								Shares (or Approximate
						Total Number of		Dollar Value) That May
						Shares Purchased as		Yet Be Purchased Under
	Total Number of			Average Price		Part of Publicly		the
Period	Shares Purchased			Paid per Share		Announced Plan		Plan (in millions)
January 1 - 31		259	(1)	$	119.22			$	48.1
February 1 - 28		29,985	(2)		131.50				48.1
March 1 - 31		188,687	(3)		123.91		112,500		34.3

Total		218,931		$	124.94		112,500

	(1)		Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for restricted stock awards at an average price per share of ~~$95.85.~~$119.22.

	(2)		~~Includes 273~~Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for restricted stock awards at an average price per share of ~~$93.80,~~$131.50.

	(3)		Includes 75,326 shares that were tendered by employees to satisfy minimum tax withholding amounts for restricted stock awards at an average price per share of $125.48, and includes ~~1,062~~861 shares purchased at a price of ~~$102.79~~$126.88 per share by a rabbi trust that we established in connection with our director deferral plans, pursuant to which non-employee directors may elect to defer directors’ quarterly cash compensation to be paid at a later date in the form of common stock.

	~~(3)~~		~~Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for restricted stock awards at an average price per share of $104.33.~~

4531

Item 6. Exhibits.


Exhibit No.		Description

3.1		Restated Certificate of Incorporation of Flowserve Corporation (incorporated by reference to Exhibit 3(i) to the Registrant’s Current Report on Form 8-K/A dated August 16, 2006).

3.2		Flowserve Corporation By-Laws, as amended and restated on May 17, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 18, 2010).

10.1		Trust for Non-Qualified Deferred Compensation Benefit Plans, dated February 10, 2011 (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K dated February 23, 2011).*

10.2		First Amendment to the Flowserve Corporation Executive Officer Change In Control Severance Plan, effective January 1, 2011 (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K dated February 23, 2011).*

10.3		First Amendment to the Flowserve Corporation Officer Change In Control Severance Plan, effective January 1, 2011 (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K dated February 23, 2011).*

10.4		First Amendment to the Flowserve Corporation Key Management Change In Control Severance Plan, effective January 1, 2011 (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K dated February 23, 2011).*

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


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

4733

Exhibits Index


Exhibit No.		Description

3.1		Restated Certificate of Incorporation of Flowserve Corporation (incorporated by reference to Exhibit 3(i) to the Registrant’s Current Report on Form 8-K/A dated August 16, 2006).

3.2		Flowserve Corporation By-Laws, as amended and restated on ~~May 17, 2010~~August 31, 2009 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated ~~May 18,~~August 31, 2009).

10.1		2007 Flowserve Corporation Long-Term Stock Incentive Plan, as amended and restated effective January 1, 2010 (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K dated February 24, 2010).*

10.2		2007 Flowserve Corporation Annual Incentive Plan, as amended and restated effective January 1, 2010 (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K dated February 24, 2010).*

10.3		Flowserve Corporation Officer Severance Plan, amended and restated effective January 1, 2010 (incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K dated February 24, 2010).*

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


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

4935


		Page
		No.

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Statements of Income – Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)		1
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)		1
	Condensed Consolidated ~~Statements of Income~~Balance Sheets – ~~Nine Months Ended September 30,~~March 31, 2011 and December 31, 2010 ~~and 2009~~ (unaudited)		2
	~~Condensed Consolidated Statements of Comprehensive Income – Nine Months Ended September 30, 2010 and 2009 (unaudited)~~		2
	~~Condensed Consolidated Balance Sheets – September 30, 2010 and December 31, 2009 (unaudited)~~		3
	Condensed Consolidated Statements of Cash Flows ~~–Nine Months~~– Three months Ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ (unaudited)		43
	Notes to Condensed Consolidated Financial Statements		54
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		2315
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		4329
Item 4.	Controls and Procedures.		4430


PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.		4531
Item 1A.	Risk Factors.		4531
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		4531
Item 3.	Defaults Upon Senior Securities.		4632
Item 4.	(Removed and ~~Reserved.)~~Reserved)		4632
Item 5.	Other Information.		4632
Item 6.	Exhibits.		4733
SIGNATURES			4834
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT


(Amounts in thousands)	Three Months Ended September 30,					Three Months Ended March 31,
	2010			2009		2011			2010
Net earnings, including noncontrolling interests	$	104,225		$	116,639	$	96,996		$	80,205

Other comprehensive income (expense):
Foreign currency translation adjustments, net of tax		96,435			34,733		48,789			(37,532	)
Pension and other postretirement effects, net of tax		(906	)		836		(395	)		2,919
Cash flow hedging activity, net of tax		342			731		248			555

Other comprehensive income		95,871			36,300
Other comprehensive income (expense):							48,642			(34,058	)

Comprehensive income, including noncontrolling interests		200,096			152,939		145,638			46,147
Comprehensive (income) loss attributable to noncontrolling interests		(495	)		111
Comprehensive income attributable to noncontrolling interests							(436	)		(39	)

Comprehensive income of Flowserve Corporation	$	199,601		$	153,050
Comprehensive income attributable to Flowserve Corporation						$	145,202		$	46,108


	Nine Months Ended September 30, 2010
				Weighted Average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in millions)
Number of shares under option:
Outstanding - January 1, 2010		206,815		$	42.58
Exercised		(128,609	)		43.35
Expired		(1,500	)		17.81

Outstanding - September 30, 2010		76,706		$	41.77		4.6	$	5.2

Exercisable - September 30, 2010		76,706		$	41.77		4.6	$	5.2


	Three Months Ended March 31, 2011
				Weighted Average		Remaining Contractual		Aggregate Intrinsic
	Shares			Exercise Price		Life (in years)		Value (in millions)
Number of shares under option:
Outstanding - January 1, 2011		68,071		$	40.48
Exercised		(11,875	)		34.59

Outstanding - March 31, 2011		56,196		$	41.72		4.3	$	4.9

Exercisable - March 31, 2011		56,196		$	41.72		4.3	$	4.9


	Nine Months Ended September 30, 2010					Three Months Ended March 31, 2011
				Weighted Average					Weighted Average
				Grant-Date Fair					Grant-Date Fair
	Shares			Value		Shares			Value
Number of unvested shares:
Outstanding - January 1, 2010		1,545,244		$	64.08
Number of unvested Restricted Shares:
Outstanding - January 1, 2011							1,259,377		$	77.05
Granted		399,441			98.59		206,017			131.04
Vested		(547,366	)		58.13		(381,442	)		88.07
Cancelled		(128,203	)		68.86		(10,523	)		81.49

Outstanding - September 30, 2010		1,269,116		$	77.03
Outstanding - March 31, 2011							1,073,429		$	83.45


Inception to Date							Subtotal –		Eliminations
	Flow Solutions Group						Reportable		and All		Consolidated
(Amounts in millions)	EPD		IPD		FCD		Segments		Other		Total
Restructuring Charges
COS	$	16.4	$	7.4	$	1.5	$	25.3	$	0.7	$	26.0
SG&A		8.6		0.2		0.2		9.0		1.7		10.7

	$	25.0	$	7.6	$	1.7	$	34.3	$	2.4	$	36.7


Non-Restructuring Charges
COS	$	9.7	$	6.9	$	9.1	$	25.7	$	-	$	25.7
SG&A		8.1		2.4		4.5		15.0		0.9		15.9

	$	17.8	$	9.3	$	13.6	$	40.7	$	0.9	$	41.6


Total Realignment Program Charges
COS	$	26.1	$	14.3	$	10.6	$	51.0	$	0.7	$	51.7
SG&A		16.7		2.6		4.7		24.0		2.6		26.6

	$	42.8	$	16.9	$	15.3	$	75.0	$	3.3	$	78.3

Total Expected Realignment Program Charges (1)	$	44.8	$	20.5	$	18.8	$	84.1	$	3.4	$	87.5


				Contract		Asset
(Amounts in thousands)	Severance			termination		write-downs		Other		Total
Three Months Ended September 30, 2010
COS	$	(957	)	$	74	$	2,014	$	351	$	1,482
SG&A		(673	)		24		-		125		(524	)

Total	$	(1,630	)	$	98	$	2,014	$	476	$	958


Three Months Ended September 30, 2009
COS	$	25		$	-	$	206	$	655	$	886
SG&A		4			-		-		16		20

Total	$	29		$	-	$	206	$	671	$	906


Nine Months Ended September 30, 2010
COS	$	682		$	511	$	3,128	$	1,179	$	5,500
SG&A		(1,638	)		227		-		254		(1,157	)

Total	$	(956	)	$	738	$	3,128	$	1,433	$	4,343


Nine Months Ended September 30, 2009
COS	$	4,212		$	33	$	4,966	$	1,029	$	10,240
SG&A		497			-		-		16		513

Total	$	4,709		$	33	$	4,966	$	1,045	$	10,753


Total Restructuring Charges Inception to Date
COS	$	12,335		$	1,344	$	9,180	$	3,022	$	25,881
SG&A		10,127			227		18		335		10,707

Total	$	22,462		$	1,571	$	9,198	$	3,357	$	36,588


Total Expected Restructuring Charges (1)
COS	$	13,409		$	1,830	$	10,240	$	4,181	$	29,660
SG&A		10,897			227		18		349		11,491

Total	$	24,306		$	2,057	$	10,258	$	4,530	$	41,151


Total Expected Charges (1)	Flow Solutions Group						Subtotal –		Eliminations
							Reportable		and All		Consolidated
(Amounts in millions)	EPD		IPD		FCD		Segments		Other		Total
Restructuring Charges
COS	$	17.7	$	8.4	$	2.9	$	29.0	$	0.7	$	29.7
SG&A		8.6		0.2		1.0		9.8		1.7		11.5

	$	26.3	$	8.6	$	3.9	$	38.8	$	2.4	$	41.2


Non-Restructuring Charges
COS	$	9.9	$	9.4	$	10.0	$	29.3	$	-	$	29.3
SG&A		8.6		2.5		4.9		16.0		1.0		17.0

	$	18.5	$	11.9	$	14.9	$	45.3	$	1.0	$	46.3


Total Realignment Program Charges
COS	$	27.6	$	17.8	$	12.9	$	58.3	$	0.7	$	59.0
SG&A		17.2		2.7		5.9		25.8		2.7		28.5

	$	44.8	$	20.5	$	18.8	$	84.1	$	3.4	$	87.5


	FLOWSERVE CORPORATION
Date: ~~October~~April 27, ~~2010~~2011	/s/ Mark A. Blinn
	Mark A. Blinn
	President and Chief Executive Officer (Principal Executive Officer)

Date: ~~October~~April 27, ~~2010~~2011	/s/ Richard J. Guiltinan, Jr.
	Richard J. Guiltinan, Jr.
	Senior Vice President, Finance and Chief Accounting Officer (Principal Financial Officer)