Flowserve Reports Significant Improvements In Bookings, Margins And Net Income

Flowserve Corp. (NYSE: FLS) today filed its Form 10-Q reports for the first and second quarters of 2006 with the Securities and Exchange Commission and is now current in filing its financial reports with the commission. The company announced financial results for these 2006 periods and year-to-date, including significantly improved bookings, gross margin and operating income. (All comparisons in this news release are first six months of 2006 versus the same period of 2005, unless otherwise noted.) Announcement Highlights: Organic bookings up 32 percent; reported bookings (including divested operations) up 25 percent, including negative currency, to $1.8 billion Sales up 8 percent, including negative currency, to $1.4 billion Gross profit margin improved 140 basis points, to 33.1 percent Gross profit up 13 percent, to $466.1 million Consolidated operating margin improved 150 basis points, to 7.8 percent; reached 9.6 percent in second quarter All segment operating margins achieved improved double digits for first half of 2006 Operating income up 34 percent, to $110.0 million, including negative currency Earnings per diluted share of 81 cents, up 224 percent from 25 cents Net debt-to-capital ratio improved to 39.6 percent Filed first and second quarter 2006 10-Qs with the SEC Became current with all SEC financial report filings 2006 Form 10-Qs Filed Flowserve filed its first and second quarter 2006 Form 10-Q quarterly reports with the SEC and is now current with its financial report filings with the commission. "We are delighted to return to current filer status,” said Flowserve President and Chief Executive Officer Lewis M. Kling. "We have taken many steps to improve our financial reporting processes. In addition, our global financial organization is well positioned to continue to support our operations in taking advantage of our exciting current business opportunities.” Outlook "I am very proud that we attained these significantly improved financial results while working hard to become a current SEC filer,” Kling said. "We are encouraged by the success to date of our operational excellence initiatives, our strong operating performance, and our ability to take advantage of extremely robust markets, which we expect to continue. Today’s stock repurchase announcement further underscores our positive view and confidence in our company and our businesses.” FIRST HALF 2006 CONSOLIDATED RESULTS Organic bookings, which excludes currency in the 2006 periods and discontinued operations in 2005, increased 32 percent. Reported bookings were $1.8 billion, a 25 percent increase, including negative currency effects of approximately $36 million. These increases in bookings reflect strong growth in both aftermarket business and project-related business. First and second quarter 2006 reported bookings increased 23 percent and 26 percent compared with their respective prior year periods on an absolute basis, which includes discontinued operations that were divested on Dec. 31, 2005. Ending backlog for the first half of 2006 was a record $1.4 billion, a 41 percent increase, including currency benefits of approximately $55 million, compared with year-end 2005. The increase in backlog was primarily driven by strong pump business and reflects the number and size of major project orders and longer customer requested lead times typical of robust markets. First half 2006 sales were $1.4 billion, an 8 percent increase, including negative currency effects of approximately $19 million. This increase reflects strong growth in both project-related and aftermarket business. For the first and second quarters of 2006, sales increased 6 percent and 9 percent compared with their respective prior year periods. Gross profit increased 13 percent to $466.1 million. Gross profit margin improved 140 basis points to 33.1 percent. These increases primarily reflect the increased sales, which favorably affects the absorption of fixed costs, cost savings resulting from the company’s operational excellence and ongoing continuous improvement initiatives, improved pricing discipline and a greater volume of higher margin aftermarket business. For the first and second quarters of 2006, gross profit increased 12 percent and 13 percent compared with their respective prior year periods. "We are extremely pleased by the significant improvements in our bookings, sales and gross profit margin, and particularly the flow-through from sales,” Kling said. "This again confirms that our operational excellence programs are continuing to gain momentum as we simultaneously benefit from the robust market conditions. It is important to note that given this very strong customer market environment, Flowserve was still able to improve its overall year-to-date on-time delivery performance despite an environment increasingly characterized by occasional availability constraints with subcontractors and suppliers. Bottom line, our operational excellence initiatives are gaining traction and making a difference in our business.” First half 2006 selling, general and administrative expenses (SG&A) as a percentage of sales declined 10 basis points to 25.3 percent. In the second quarter of 2006, SG&A as a percentage of sales declined 330 basis points to 23.8 percent, from 27.1 percent in the first quarter of this year, which includes costs in closing the company’s 2004 and 2005 financial statements. SG&A for the first half of 2006 was $356.1 million, an increase of 7 percent, reflecting increased professional fees primarily related to the company’s previously delayed financial reporting as well as stock option and other equity-based compensation expense. "We understand the nature and sources of our corporate expenses and professional fees, and are starting to see the expected progress in reducing them,” said Chief Financial Officer Mark A. Blinn. "As we have said before, some costs and fees related to compliance and completion of the 2004 and 2005 audits have reduced our financial results for the first half of 2006. We continue to anticipate that 2007 will be more representative of our true run rate for such expenses.” Operating margin improved to 7.8 percent, an increase of 150 basis points. Second quarter 2006 operating margin improved 390 basis points to 9.6 percent, from 5.7 percent in the first quarter of this year. Operating income increased 34 percent to $110.0 million. This improvement is mainly due to the previously discussed factors that increased gross profit, partially offset by the increases in SG&A. The increase includes negative currency effects of approximately $2 million. Interest expense for the first half of 2006 declined $8.0 million, or 20 percent, to $31.9 million, reflecting the benefits of the company’s $1 billion August 2005 refinancing. Net income more than tripled to $47.0 million, or 81 cents a diluted share, from $13.9 million, or 25 cents a diluted share, reflecting the improvements in gross profit and operating income, reduction in interest expense, and the increase in other income, primarily due to unrealized gains on forward exchange contracts versus losses in the prior year period. First quarter 2006 net income increased to $13.9 million, or 24 cents a diluted share, from a net loss of $4.0 million, or 7 cents a diluted share, in the prior year period. Second quarter 2006 net income increased 84 percent to $33.1 million, or 57 cents a diluted share, compared with $18.0 million, or 32 cents a diluted share, in the prior year period. The company continued to generate solid cash flow in the first half of 2006 and used a portion of it to repay $15.9 million of outstanding debt during the first half of the year. As a result, the company’s net debt-to-capital ratio improved to 39.6 percent at the end of the second quarter of 2006. The company also said that Moody’s Investor Service recently upgraded the company’s bank debt rating to Ba2, from Ba3. "We are encouraged by Moody’s decision to upgrade our debt rating,” Blinn said. The company made no material contributions to its U.S. pension plan during the first half of 2006. "In September, we contributed approximately $36 million to our U.S. plan,” Blinn said. "In addition to the stock repurchase program of up to 2 million shares that we are announcing today, we will continue to review a variety of additional options for using our expected cash flow in future periods, including possible dividends, increased capital expenditures and other strategic opportunities.” FIRST HALF 2006 SEGMENT RESULTS Flowserve Pump Division Flowserve Pump Division (FPD) bookings in the first half of 2006 were $1.0 billion, an increase of 46 percent, primarily driven by increased new major project business, slightly offset by negative currency effects of approximately $22 million. Sales were $715.0 million, an increase of 6 percent, including negative currency effects of approximately $10 million. FPD’s gross profit was $201.2 million, an increase of 13 percent. Gross profit margin increased 160 basis points to 28.1 percent. Gross profit margin benefited from higher sales and through operational excellence processes. Operating income was $71.4 million, an increase of 29 percent, including negative currency effects of approximately $1 million. Operating margin increased 180 basis points to 10.0 percent. First and second quarter bookings increased 38 percent and 55 percent, respectively, compared with their prior year periods, while first and second quarter sales increased 5 percent and 7 percent, respectively, on the same basis. In the first quarter of 2006, FPD’s gross profit margin improved 260 basis points to 28.0 percent and operating margin improved 190 basis points to 7.5 percent, both compared with the prior year period. In the second quarter of 2006, gross profit margin improved 80 basis points to 28.3 percent and operating margin improved 160 basis points to 12.1 percent, both compared with the prior year period. Flow Control Division Flow Control Division (FCD) first half 2006 organic bookings increased 19 percent compared with 2005 organic bookings. Reported bookings of $541.6 million for the first half of 2006 increased 4 percent, including negative currency effects of approximately $12 million. Sales increased 7 percent to $470.1 million, including negative currency effects of approximately $8 million. FCD’s first half 2006 gross profit was $160.2 million, an increase of nearly 11 percent. Gross profit margin increased 130 basis points to 34.1 percent. Gross profit margin benefited from operational excellence initiatives, higher sales volume and higher margins on control valve projects. Operating income was $53.4 million, an increase of 16 percent, including negative currency effects of approximately $1 million. Operating margin increased 90 basis points to 11.4 percent. First and second quarter 2006 organic bookings increased 25 percent and 14 percent, respectively, compared with organic bookings in their prior year periods. First and second quarter 2006 reported bookings increased 6 percent and 2 percent, respectively, compared with reported bookings in their prior year periods. First and second quarter 2006 sales increased 4 percent and 10 percent, respectively, with their prior year periods. In the first quarter of 2006, FCD’s gross profit margin improved 70 basis points to 34.1 percent and operating margin improved 160 basis points to 11.1 percent, both compared with the prior year period. In the second quarter of 2006, FCD’s gross profit margin improved 180 basis points to 34.1 percent and operating margin improved 20 basis points to 11.6 percent, both compared with the prior year period. Flow Solutions Division Flowserve Solutions Division (FSD) bookings in the first half of 2006 were $250.6 million, an increase of 6 percent, including negative currency effects of approximately $2 million. Sales were $243.2 million, an increase of 13 percent, including negative currency effects of approximately $1 million. FSD’s gross profit was $108.2 million, an increase of approximately 15 percent. Gross profit margin increased 60 basis points to 44.5 percent. Gross profit margin benefited from higher sales. Operating income was $50.6 million, an increase of 18 percent. Currency had a negligible impact on operating income. Operating margin increased 80 basis points to 20.8 percent. First quarter bookings increased 14 percent and second quarter bookings fell about 1 percent compared with their prior year periods. Second quarter 2005 bookings included three major special orders. First and second quarter sales increased 15 percent and 12 percent, respectively, on the same basis. In the first quarter of 2006, FSD’s gross profit margin improved 40 basis points to 43.6 percent and operating margin improved 150 basis points to 19.7 percent, both compared with the prior year period. In the second quarter of 2006, FSD’s gross profit margin improved 80 basis points to 45.4 percent and operating margin improved 20 basis points to 21.8 percent, both compared with the prior year period. Conference Call The company will host a conference call on Tuesday, Oct. 10, 2006, at 11:00 a.m. Eastern Time to discuss today’s announcement. This conference call can be accessed through the company’s website at www.flowserve.com. More information about Flowserve Corp. can also be obtained by visiting this website. Flowserve Corp. is one of the world's leading providers of fluid motion and control products and services. Operating in 56 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. Safe Harbor Statement: This news release includes forward-looking statements. Forward-looking statements are all statements that are not statements of historical facts and include, without limitation, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition. The words "believe”, "seek”, "anticipate”, "plan”, "estimate”, "expect”, "intend”, "project”, "forecast”, "predict”, "potential”, "continue”, "will”, "may”, "could”, "should”, and other words of similar meaning are intended to identify forward-looking statements. The forward-looking statements made in this news release are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that, in some cases, are beyond our control. These risks, uncertainties and factors may cause our actual results, performance and achievements, or industry results and market trends, to be materially different from any future results, performance, achievements or trends expressed or implied by such forward-looking statements. Important risks, uncertainties and other factors that could cause actual results to differ from these forward-looking statements include, but are not limited to, the following: delays in future reports of the Company’s management and outside auditors on the Company’s internal control over financial reporting and related certifications; continuing delays in the Company’s filing of its periodic public reports and any SEC, NYSE or debt rating agencies’ actions resulting therefrom; the possibility of adverse consequences of the pending securities litigation; the possibility of adverse consequences related to the investigations by the SEC and foreign authorities regarding our participation in the United States Oil-for-Food program; the possibility of adverse consequences of governmental tax audits of the Company’s tax returns, including the upcoming IRS audit of the company's U.S. tax returns for the years 2002 through 2004; the Company’s ability to convert bookings, which are not subject to nor computed in accordance with generally accepted accounting principles, into revenues at acceptable, if any, profit margins, since such profit margins cannot be assured nor be necessarily assumed to follow historical trends; changes in the financial markets and the availability of capital; changes in the already competitive environment for the Company’s products or competitors' responses to the Company’s strategies; the Company’s ability to integrate acquisitions into its management and operations; political risks, military actions or trade embargoes affecting customer markets, including the continuing conflict in Iraq, uncertainties in certain Middle Eastern countries such as Iran, and their potential impact on Middle Eastern markets and global petroleum producers; the Company’s ability to comply with the laws and regulations affecting its international operations, including the U.S. export laws, and the effect of any noncompliance; the health of the petroleum, chemical, power and water industries; economic conditions and the extent of economic growth in the U.S. and other countries and regions; unanticipated difficulties or costs associated with the implementation of systems, including software; the Company’s relative geographical profitability and its impact on the Company's utilization of foreign tax credits; the recognition of significant expenses associated with realigning operations of acquired companies with those of Flowserve; the Company’s ability to meet the financial covenants and other requirements in its debt agreements; any terrorist attacks and the response of the U.S. to such attacks or to the threat of such attacks; technological developments in the Company’s products as compared with those of its competitors; changes in prevailing interest rates and the Company’s effective interest costs; and adverse changes in the regulatory climate and other legal obligations imposed on the Company. It is not possible to foresee or identify all the factors that may affect our future performance or any forward-looking information, and new risk factors can emerge from time to time. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements included in this news release are based on information available to us on the date of this news release. We undertake no obligation to revise or update any forward-looking statement or disclose any facts, events or circumstances that occur after the date hereof that may affect the accuracy of any forward-looking statement. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)   (Amounts in thousands, except per share data) Three Months Ended March 31,   2006    2005    Sales $ 653,857  $ 616,118  Cost of sales   439,465    424,975  Gross profit 214,392  191,143  Selling, general and administrative expense   176,872    165,316  Operating income 37,520  25,827  Interest expense (15,682) (20,035) Interest income 1,083  844  Other income (expense), net   1,133    (2,713) Earnings before income taxes 24,054  3,923  Provision for income taxes   10,162    1,024  Income from continuing operations 13,892  2,899  Discontinued operations, net of tax   --    (6,913) Net income (loss) $ 13,892  $ (4,014)   Earnings (loss) per share: Basic: Continuing operations $ 0.25  $ 0.05  Discontinued operations   --    (0.12) Net earnings (loss) $ 0.25  $ (0.07) Diluted: Continuing operations $ 0.24  $ 0.05  Discontinued operations   --    (0.12) Net earnings (loss) $ 0.24  $ (0.07) CONDENSED CONSOLIDATED BALANCE SHEETS   (Amounts in thousands, except per share data) March 31, December 31, 2006  2005    ASSETS Current assets: Cash and cash equivalents $ 45,784  $ 92,864  Restricted cash 2,920  3,628  Accounts receivable, net of allowance for doubtful accounts of $15,147 and $14,271, respectively 481,280  472,946  Inventories, net 391,675  361,770  Deferred taxes 120,793  113,957  Prepaid expenses and other   31,939    26,034  Total current assets 1,074,391  1,071,199  Property, plant and equipment, net of accumulated depreciation of $462,631 and $444,701, respectively 400,686  397,622  Goodwill 836,976  834,863  Deferred taxes 30,316  34,261  Other intangible assets, net 144,198  146,251  Other assets, net   95,555    91,342  Total assets $ 2,582,122  $ 2,575,538    LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 310,435  $ 316,713  Accrued liabilities 329,179  360,798  Debt due within one year 22,833  12,367  Deferred taxes   5,246    5,044  Total current liabilities 667,693  694,922  Long-term debt due after one year 651,520  652,769  Retirement obligations and other liabilities 407,294  396,013  Shareholders’ equity: Series A preferred stock, $1.00 par value, 1,000 shares authorized, no shares issued --  --  Common shares, $1.25 par value 72,018  72,018  Shares authorized – 120,000 Shares issued – 57,614 Capital in excess of par value 473,711  477,201  Retained earnings   460,055    446,163  1,005,784  995,382  Treasury shares, at cost – 1,334 and 1,640 shares, respectively (31,061) (37,547) Deferred compensation obligation 4,739  4,656  Accumulated other comprehensive loss   (123,847)   (130,657) Total shareholders’ equity   855,615    831,834  Total liabilities and shareholders’ equity $ 2,582,122  $ 2,575,538  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (Amounts in thousands) Three Months Ended March 31,   2006    2005    Cash flows – Operating activities: Net earnings (loss) $ 13,892  $ (4,014) Adjustments to reconcile net earnings (loss) to net cash used by operating activities: Depreciation 14,613  16,488  Amortization of intangible and other assets 2,552  2,674  Amortization of deferred loan costs and discount 528  1,125  Impairment of assets --  5,905  Equity based compensation expense 3,882  1,248  Equity income in unconsolidated subsidiaries, net of dividends received (3,494) (1,665) Change in assets and liabilities: Accounts receivable, net (3,824) 17,535  Inventories, net (26,204) (29,941) Prepaid expenses and other (4,086) (9,401) Other assets, net (1,432) 671  Accounts payable (11,968) (15,943) Accrued liabilities and income taxes payable (35,927) (25,200) Retirement obligations and other liabilities 6,477  (152) Net deferred taxes   (690)   (6,070) Net cash flows used by operating activities   (45,681)   (46,740)   Cash flows – Investing activities: Capital expenditures (12,482) (8,965) Change in restricted cash   708    --  Net cash flows used by investing activities   (11,774)   (8,965)   Cash flows – Financing activities: Net borrowings under lines of credit 20,072  20,368  Payments on long-term debt (10,856) -  Proceeds from stock option activity   --    514  Net cash flows provided by financing activities 9,216  20,882  Effect of exchange rate changes on cash   1,159    (1,215) Net change in cash and cash equivalents (47,080) (36,038) Cash and cash equivalents at beginning of year   92,864    63,759  Cash and cash equivalents at end of period $ 45,784  $ 27,721  SEGMENT INFORMATION   Flowserve Pump Division Three Months Ended March 31, (Amounts in millions)   2006    2005  Bookings $ 495.6  $ 359.3  Sales 328.1  312.9  Gross profit 91.8  79.4  Gross profit margin 28.0% 25.4% Operating income 24.5  17.6  Operating income as a percentage of sales 7.5% 5.6% Backlog 877.6  703.5    Flow Control Division Three Months Ended March 31, (Amounts in millions)   2006    2005  Bookings - continuing operations $ 267.7  $ 224.8  Bookings - discontinued operations   --    26.8  Total bookings 267.7  251.6  Sales 217.8  209.5  Gross profit 74.3  70.0  Gross profit margin 34.1% 33.4% Operating income 24.1  20.0  Operating income as a percentage of sales 11.1% 9.5% Backlog 292.2  239.9    Flow Solutions Division Three Months Ended March 31, (Amounts in millions)   2006    2005  Bookings $ 127.9  $ 112.3  Sales 118.2  102.9  Gross profit 51.5  44.5  Gross profit margin 43.6% 43.2% Operating income 23.3  18.7  Operating income as a percentage of sales 19.7% 18.2% Backlog 71.1  61.2  CONDENSED CONSOLIDATED STATEMENTS OF INCOME   (Amounts in thousands, except per share data) Three Months Ended June 30,   2006    2005    Sales $ 752,859  $ 691,165  Cost of sales   501,140    468,463  Gross profit 251,719  222,702  Selling, general and administrative expense   179,241    166,399  Operating income 72,478  56,303  Interest expense (16,260) (19,861) Interest income 1,070  618  Other income (expense), net   4,392    (5,866) Earnings before income taxes 61,680  31,194  Provision for income taxes   28,609    12,633  Income from continuing operations 33,071  18,561  Discontinued operations, net of tax   --    (611) Net earnings $ 33,071  $ 17,950    Earnings (loss) per share: Basic: Continuing operations $ 0.59  $ 0.33  Discontinued operations   --    (0.01) Net earnings $ 0.59  $ 0.32  Diluted: Continuing operations $ 0.57  $ 0.33  Discontinued operations   --    (0.01) Net earnings $ 0.57  $ 0.32  CONDENSED CONSOLIDATED STATEMENTS OF INCOME   (Amounts in thousands, except per share data) Six Months Ended June 30,   2006    2005    Sales $ 1,406,716  $ 1,307,283  Cost of sales   940,605    893,438  Gross profit 466,111  413,845  Selling, general and administrative expense   356,113    331,715  Operating income 109,998  82,130  Interest expense (31,941) (39,896) Interest income 2,153  1,462  Other income (expense), net   5,524    (8,579) Earnings before income taxes 85,734  35,117  Provision for income taxes   38,771    13,658  Income from continuing operations 46,963  21,459  Discontinued operations, net of tax   --    (7,523) Net earnings $ 46,963  $ 13,936    Earnings (loss) per share: Basic: Continuing operations $ 0.84  $ 0.39  Discontinued operations   --    (0.14) Net earnings $ 0.84  $ 0.25  Diluted: Continuing operations $ 0.81  $ 0.38  Discontinued operations   --    (0.13) Net earnings $ 0.81  $ 0.25  CONDENSED CONSOLIDATED BALANCE SHEETS   (Amounts in thousands, except per share data) June 30,2006 December 31, 2005   ASSETS Current assets: Cash and cash equivalents $ 58,247  $ 92,864  Restricted cash 2,436  3,628  Accounts receivable, net of allowance for doubtful accounts of $15,614 and $14,271, respectively 506,107  472,946  Inventories, net 429,407  361,770  Deferred taxes 121,596  113,957  Prepaid expenses and other   37,160    26,034  Total current assets 1,154,953  1,071,199  Property, plant and equipment, net of accumulated depreciation of $484,868 and $444,701, respectively 421,893  397,622  Goodwill 844,870  834,863  Deferred taxes 17,462  34,261  Other intangible assets, net 146,576  146,251  Other assets, net   93,392    91,342  Total assets $ 2,679,146  $ 2,575,538    LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 321,143  $ 316,713  Accrued liabilities 354,865  360,798  Debt due within one year 10,731  12,367  Deferred taxes   5,322    5,044  Total current liabilities 692,061  694,922  Long-term debt due after one year 644,875  652,769  Retirement obligations and other liabilities 429,555  396,013  Shareholders’ equity: Series A preferred stock, $1.00 par value, 1,000 shares authorized, no shares issued --  --  Common shares, $1.25 par value 72,018  72,018  Shares authorized – 120,000 Shares issued – 57,614 Capital in excess of par value 479,541  477,201  Retained earnings   493,126    446,163  1,044,685  995,382  Treasury shares, at cost – 1,346 and 1,640 shares, respectively (31,655) (37,547) Deferred compensation obligation 4,960  4,656  Accumulated other comprehensive loss   (105,335)   (130,657) Total shareholders’ equity   912,655    831,834  Total liabilities and shareholders’ equity $ 2,679,146  $ 2,575,538  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (Amounts in thousands) Six Months Ended June 30,   2006    2005      Cash flows – Operating activities: Net earnings $ 46,963  $ 13,936  Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation 29,291  31,395  Amortization 5,130  5,245  Amortization of deferred loan costs and discount 1,001  2,424  Net (gain) loss on the disposition of assets (503) 396  Equity based compensation expense 9,321  9,568  Equity income in unconsolidated subsidiaries, net of dividends received (1,737) (3,435) Impairment of assets --  5,905  Change in assets and liabilities: Accounts receivable, net (14,841) 1,643  Inventories, net (52,155) (35,112) Prepaid expenses and other (3,651) (12,531) Other assets, net (10,569) 2,981  Accounts payable (15,340) (4,389) Accrued liabilities and income taxes payable (18,471) 3,025  Retirement obligations and other liabilities 22,377  (5,927) Net deferred taxes   11,126    (17,724) Net cash flows provided (used) by operating activities   7,942    (2,600)   Cash flows – Investing activities: Capital expenditures (29,458) (17,885) Change in restricted cash   1,192    (1,736) Net cash flows used by investing activities   (28,266)   (19,621)   Cash flows – Financing activities: Net borrowings under lines of credit --  1,070  Payments on long-term debt (15,856) --  Proceeds from stock option activity   --    1,111  Net cash flows (used) provided by financing activities (15,856) 2,181  Effect of exchange rate changes on cash   1,563    (2,528) Net change in cash and cash equivalents (34,617) (22,568) Cash and cash equivalents at beginning of year   92,864    63,759  Cash and cash equivalents at end of period $ 58,247  $ 41,191  SEGMENT INFORMATION   Flowserve Pump Division Three Months Ended June 30, (Amounts in millions)   2006    2005  Bookings $ 529.6  $ 342.8  Sales 387.0  360.2  Gross profit 109.4  98.9  Gross profit margin 28.3% 27.5% Operating income 46.9  37.7  Operating income as a percentage of sales 12.1% 10.5% Backlog 1,020.6  703.5    Flow Control Division Three Months Ended June 30, (Amounts in millions)   2006    2005  Bookings - continuing operations $ 273.9  $ 240.9  Bookings - discontinued operations   --    27.2  Total bookings 273.9  268.1  Sales 252.3  228.9  Gross profit 86.0  74.0  Gross profit margin 34.1% 32.3% Operating income 29.3  26.2  Operating income as a percentage of sales 11.6% 11.4% Backlog 318.7  239.9    Flow Solutions Division Three Months Ended June 30, (Amounts in millions)   2006    2005  Bookings $ 122.7  $ 124.2  Sales 125.0  111.9  Gross profit 56.7  49.9  Gross profit margin 45.4% 44.6% Operating income 27.3  24.2  Operating income as a percentage of sales 21.8% 21.6% Backlog 71.7  61.2  SEGMENT INFORMATION   Flowserve Pump Division Six Months Ended June 30, (Amounts in millions)   2006    2005  Bookings $ 1,025.2  $ 702.1  Sales 715.0  673.1  Gross profit 201.2  178.2  Gross profit margin 28.1% 26.5% Operating income 71.4  55.4  Operating income as a percentage of sales 10.0% 8.2% Backlog 1,020.6  703.5    Flow Control Division Six Months Ended June 30, (Amounts in millions)   2006    2005  Bookings - continuing operations $ 541.6  $ 465.6  Bookings - discontinued operations   --    54.1  Total bookings 541.6  519.7  Sales 470.1  438.4  Gross profit 160.2  143.9  Gross profit margin 34.1% 32.8% Operating income 53.4  46.2  Operating income as a percentage of sales 11.4% 10.5% Backlog 318.7  239.9    Flow Solutions Division Six Months Ended June 30, (Amounts in millions)   2006    2005  Bookings $ 250.6  $ 236.6  Sales 243.2  214.8  Gross profit 108.2  94.4  Gross profit margin 44.5% 43.9% Operating income 50.6  42.9  Operating income as a percentage of sales 20.8% 20.0% Backlog 71.7  61.2