A Leader in Global Infrastructure REPORT
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2008 ANNUAL A Leader in Global Infrastructure REPORT Experience In Motion To Our Shareholders: The backbone of our global manufacturing and service platform remains our Quick Response Centers (QRCs). Now totaling more than 150 QRCs worldwide, in 2008 we opened new or expanded facilities in India, Russia, Norway, Malaysia, “A Leader in Global Infrastructure” is our theme for this annual report. New Zealand, Canada, as well as other strategically important markets. It highlights our outstanding performance in 2008 through our support Globalization highlights centered on signifi cant of critical infrastructure projects around the world. As a key provider agreements with some of our largest customers of products and services for a variety of industries, we were honored around the world. We signed a 10-year strategic supplier agreement with Saudi Aramco to supply this year to be added to the select membership of the S&P 500 Index. our entire range of fl ow control products and value-added services for use in their existing and Now into our second decade under the Flowserve banner and supported by planned facilities. Flowserve also completed a a heritage of more than 200 years, being a leader in global infrastructure strategic cooperation agreement to be the preferred vendor to China Petroleum & Chemical Corporation is a position of which we are proud and strive daily to maintain. (Sinopec), and fi nalized an exclusive relationship with Petrobras at one of the largest refi neries in Brazil — our fi rst alliance with a national oil As a leading manufacturer and aftermarket Flowserve global leadership was again focused company in Latin America. service provider of comprehensive fl ow control around our clearly articulated identity statement systems, Flowserve continued in 2008 to expand and key strategies. We continue to develop and Also in Brazil, we announced plans to invest more our presence supporting infrastructure initiatives manufacture precision-engineered fl ow control than $15 million for a new 130,000 square foot around the world. Our dedication toward global equipment — primarily pumps, valves, and seals — manufacturing plant to support the new “mega” leadership in our industry drove us to another year for critical service applications in the oil and gas, oil fi eld discoveries there. We also completed the of record-setting performance across several power generation, chemical, water, and general full purchase of Niigata Worthington, a previously key operating measurements. These results and industry markets. This strategy emphasizes industry 50/50 Pump Division joint venture in Japan, as returns for our shareholders were driven by a diversity and geographic breadth to mitigate the well as the development of a new joint venture dedicated and focused workforce of more than impact of normal economic downturns in any one with The Linde Group in Germany. This initiative 15,000 associates in more than 55 countries. of the industries or parts of the world we serve. features the development of ionic compression Financial Highlights FOR THE YEARS ENDED DECEMBER 31, 2008 2007 2006 2005 2004 Operating Data (Amounts in thousands*) Sales $ 4,473,473 $ 3,762,694 $ 3,061,063 $ 2,695,277 $ 2,522,489 Gross Profit 1,580,312 1,247,722 1,007,302 870,561 763,158 Selling, General and Administrative Expense (984,403) (856,501) (782,503) (684,271) (605,145) Operating Income 612,872 409,916 239,619 198,823 166,079 Cash Flows from Operating Activities 406,025 417,365 163,186 127,445 267,501 Earnings Per Share** 7.74 4.46 2.00 0.91 0.52 Bookings 5,105,719 4,318,734 3,616,993 3,022,280 2,657,404 Financial Ratios Return on Average Net Assets 20.3% 13.8% 8.1% 5.6% 5.1% Net Debt to Net Capital Ratio 6.9% 12.5% 32.6% 40.0% 41.9% Ending Backlog 2,825,091 2,276,631 1,630,025 994,076 836,380 * Except Earnings Per Share and Financial Ratios percentages ** From Continuing Operations (Diluted) All monetary figures in the report are calculated in US Dollars. technology, iKompressor,TM and will provide time, as well as lower inventory levels and a platform for global business in clean fuel reduce costs. refueling technologies. Led by the Flowserve Technology Office, we continue To support global infrastructure requirements, to invest in the exploration and commercialization we remain focused on our robust product offerings — of new and emerging technologies that enable us to a lineup supported by a research and development deliver a continuous stream of innovative products. investment of more than $80 million over the last This effort focuses on five major areas: materials three years. Further, to provide the highest level of science, fluid dynamics, mechanical design, value to our customers, we continue emphasizing mechatronics, and electronics and software. TM our aftermarket and LifeCycle Advantage programs. LEWIS M. KLING These dedicated approaches strengthen existing Combined, all of these focused efforts have been President and Chief Executive Officer customer relationships and deliver improved asset instrumental in the evolution and strength of the and energy management, plant process flow control, Flowserve brand name. Research reveals that and reduced total cost of equipment ownership. since 2003, the image of Flowserve has evolved favorably. Where we were once viewed almost As always, our commitment to excellence starts exclusively as a pump manufacturer, today we from within. In 2008, we continued to focus benefit from being seen as a comprehensive on our organizational capability by launching provider of pumps, valves, and seals — and more and enhancing a number of comprehensive importantly, as a trusted partner our customers education initiatives. Subjects ranged from ethics around the world count on every day. and compliance, facility safety, and harassment awareness training, to highly-sophisticated It is a position we know we must work hard to pump reliability, rotating equipment, and certified maintain. But by continuing to execute against artisan programs. This approach also extends our strategies, we will capitalize on global growth to our process excellence strategy and continuous opportunities and deepen our relationships KEVIN E. SHEEHAN improvement process (CIP) initiatives. With more with customers to support long-term success. Chairman of the Board than 1,400 CIP “Green Belts” or “Black Belts” Most importantly, the creativity, energy, and worldwide, we continue to implement processes dedication of our employees around the world to reduce engineering and manufacturing time, will help us maintain and expand our place as improve on-time delivery and service response A Leader in Global Infrastructure. SALES EARNINGS PER SHARE GROSS PROFIT in Millions 4473 in US Dollars 7.74 in Millions 1580 3763 1248 3061 1007 2695 2522 4.46 871 763 2.00 0.91 0.52 04 05 06 07 08 07060504 08 060504 07 08 BOOKINGS OPERATING INCOME NET DEBT TO NET CAPITAL RATIO in Millions 5106 in Millions 612.9 Percentage 2008 > 41.9% 4319 40.0% 3617 409.9 32.6% 3022 2657 239.6 198.8 FLOWSERVE 166.1 12.5% 6.9% 04 05 06 07 08 04 05 06 07 08 0504 0706 08 1 A Leader in Global Infrastructure Defining the Company Key Strategies Flowserve is a multinational Organic Growth industrial products company that… Strategic Acquisitions Targets major capital projects in the oil and gas, power, chemical, water, and general industries that Globalization Sustainable meet our financial and operational criteria. Portfolio Management Profitable Leverages our aftermarket services to reduce our Process Excellence Growth customers’ total cost of ownership. Technology/Innovation Capitalizes on our global footprint of Organizational Capability local expertise. Utilizes our integrated competencies on a global scale. DRIVING LONG-TERM SUCCESS “Our leadership and strength come from our demonstrated ability to deliver on our core customer requirements, which 2008 > in turn positions us for long- term success in our industry.” MARK A. BLINN Senior Vice President; Chief Financial Officer and Latin America Operations FLOWSERVE 2 Global Project Wins Flowserve continued in 2008 to execute our strategy of increasing our presence in all regions of the world, securing new capital projects, and maximizing the resulting aftermarket business opportunities. Our impressive global footprint continued to expand from wins in key geographic regions and in multiple industries. From new and expanded oil refineries and desalination initiatives to thruster and nuclear power plant projects, the Flowserve reputation as a leader in global infrastructure and trusted partner positions us to capitalize on future opportunities worldwide. Just a few examples of project wins around the world include: FRANCE UAE MALAYSIA UNITED STATES Nuclear Power Plant Crude Oil Pipeline Deep Water Oil Project Heavy Oil Upgrade Project SPAIN RUSSIA MALAYSIA UNITED STATES Refinery Expansion Thrusters Project Oil and Gas Production Deep Water Oil Project PORTUGAL RUSSIA SINGAPORE VENEZUELA Refinery Project Refinery Expansion Oil and Gas Project Power Plant ALGERIA RUSSIA SINGAPORE ECUADOR Desalination Project Gas Field Development Parallel Train Project Oil and Gas Pipeline TURKMENISTAN INDIA VIETNAM BRAZIL Desulphurization Project Refinery Decoking Project Oil Refinery Construction Deep Water Oil Project SAUDI ARABIA INDIA KOREA CHILE Phenolics Chemical Plant Oil Refinery Expansion Project Nuclear Power Plant Power Plant Project KENYA CHINA CANADA CHILE Oil and Gas Expansion Nuclear Power Projects Tar Sands Oil Refinery Coal Fired Power Stations TECHNOLOGY AND PROCESS