Flowserve Corp. Q3 2009 Earnings Call Transcript

Oct.29.09 | About: Flowserve Corporation (FLS)

Flowserve Corp. (NYSE:FLS)

Q3 2009 Earnings Call

October 29, 2009 11:00 AM ET


Paul W. Fehlman - Vice President of Financial Planning and Analysis and Investor Relations

Mark A. Blinn - President and Chief Executive Officer

Kyle B Ahlfinger - Vice President, Chief Marketing Officer

Thomas E. Ferguson - Senior Vice President and President of Pump Division

Thomas L. Pajonas - Senior Vice President and President of Flow Control Division

Andrew J. Beall - Senior Vice President, Chief Information Officer, President of Flow Solutions Division


Michael Schneider - Robert W. Baird

Kevin Maczka - BB&T Capital Markets

Charles Brady - BMO Capital Markets

Jamie Sullivan - RBC Capital Market

Hamzah Mazari - Credit Suisse

R. Scott Graham - Ladenburg Thalmann

William Bremer - Maximum Group


Good morning. My name is Tania and I will be your conference operator today. At this time, I would like to welcome everyone to the Flowserve Third Quarter 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I will now turn the call over to Mr. Paul Fehlman. Sir, you may begin your conference.

Paul W. Fehlman

Thank you, operator. Hello everyone and thank you for joining us. Welcome to Flowserve's Third Quarter 2009 Earnings Conference Call. Today's call is being webcast with our earnings presentation via our website at flowserve.com

Simply click on the Investor Relations' tab to access the webcast and the accompanying presentation.

Before we get started with the presentation, I'd like to point out a few important items. Firstly, for those of you that have access today's call through our dial-in phone number and also wish to follow on with the earnings presentation slides via our website, please click on the click here to listen via phone icon at the bottom of your event details page.

I'd like to note that our webcast will be posted on our website for replay approximately two hours following the end of this call. The replay will stay on the site for on demand review over the next few months.

Joining us today are Mark A. Blinn, President and Chief Executive Officer along with Tom Ferguson, President of the Flowserve Pump Division, Tom Pajonas President of the Flow Control Division, Andy Beall, President of the Flow Solutions Division along with Kyle Ahlfinger, VP and Chief Marketing Officer, Dean Freeman; VP, Finance and Treasurer and Dick Guiltinan: VP of Finance and Chief Accounting Officer.

Following our commentary, we will begin the Q&A session. Regarding any forward-looking statements, I will refer you to yesterday's earnings release and 10-Q filing in today's earnings presentation slide deck for Flowserve Safe Harbor Statement on this topic.

All of this information can be found on the Flowserve's website under the Investor Relations section. I encourage you to read those statements carefully with respect to our conference call this morning.

The information in this call including all statements by management plus their answers to questions related in anyway the projections or other forward-looking statements are subject to Flowserve's Safe Harbor.

Now I'd like to turn it over to Mark to begin the formal presentation. Mark?

Mark A. Blinn

Thank you, Paul. And good morning everyone. Before I review the quarter, I'll make a few comments on our markets and our areas of focus.

We have seen increasing sign to stabilization in our markets. Notably in China, India, Brazil and the Middle East. And we continue to believe that the long-term secular spend drivers in power, water and oil and gas remain firmly in place. While our industry has continue to see pricing pressure and reduce volumes, companies like Flowserve that have strong technical capabilities; good execution and strong balance sheets have been able to maintain sound performance and we believe have expanded market share.

With these dynamics in place, we remain focused on being disciplined in market approach by leveraging our technical capabilities to maintaining price discipline as we continue to see large project opportunities going forward.

We've remain focused on execution. Throughout this year we have carried a large backlog and we maintain an on time delivery above 90%. We've continue to drive efficiency in our operating platform and focus on cost controls. And we've continued to invest in our business in areas like a realignment initiatives, end-user strategies and strategic growth markets and products.

Looking at the third quarter, we are very pleased with our continued strong earnings. Third quarter EPS of $2.07 represented a 1.5% increase of a prior year. Year-to-date earnings per share of $5.63 were basically flat to prior year, but up almost 7% when you exclude realignment charges. We have seen continued stable bookings, this was the fourth consecutive quarter bookings of approximately $1 billion and what has been a challenging economic environment.

Our booked to bill ratio for the quarter was 0.93 resulting in a strong backlog of 2.66 billion. We've also seen steady aftermarket performance. Third quarter bookings were down 7.3% or down 2.5% excluding currency, seeing the impact of reduce maintenance spend in refinery and chemical facilities offset by the growth from traction in our end user initiatives. Year-to-date aftermarket bookings were up 1% on the constant currency basis, despite the disruption we saw at the beginning of the year.

During the quarter, our margins remain strong. Third quarter operating margin was up a 100 basis points year-over-year to 15.3% and that included 110 basis points of realignment and discreet legal charges.

Gross margin for the quarter was up a 150 basis points. This was driven by our supply chain and low cost source initiatives, the benefit of mix shift, the pricing environment that we saw late last year and the benefits of realignment. Year-to-date, our operating margins grew a 100 basis points to 14.8% and this included realignment charges of 100 basis points. And we did this despite slightly lower sales.

We maintained strong cash flows in the quarter, which allow us to continue to provide growth investments and shareholder returns. We funded 23 million of CapEx in the quarter, returned 27 million to the shareholders and fully funded our U.S. pension obligation with 58 million of cash.

If you look at 2009, we're very proud of what we've accomplished. We've substantially completed our previously announced realignment program. And we now expect 60 million an annualize savings run-rate, approximately 50 million of which will be structural. We've generated strong cash flows to support capital expenditures of pension funding and return of shareholder capital. And Paul will talk about this a little more in detail later.

We've also continue to invest in key growth areas, like our integrated solutions group. Our colder acquisition, we've opened up QRCs. These initiatives are designed to continually improve our operating platform and expand our global capabilities to take advantage of future market opportunities which Kyle will review with you now. Kyle?

Kyle B Ahlfinger

Thanks Mark, good morning. As Chief Marketing Officer for Flowserve, one of my primary responsibilities is to remain current on the global outlook for our key markets, which include oil and gas, power, chemical and water.

As a general statement our key market continue to feel effects from the impact of the global recession. However, as we have discussed in the past the infrastructure markets have demonstrated resiliency even in tough economic times.

As shown slide eight, the drivers of infrastructure investment include items like demographics, independence and economic growth which are foundational in many of today's investments in the developing regions.

Moving to slide nine, you can see the booking split for the third quarter compared to the same period in 2008.

Two important points are worth noting; one is the greater contribution of bookings from the power industry. The other is the improved percentage of bookings from aftermarket reaching 39% for the quarter.

Slide 10 takes a look at the power industry as well as oil and gas. As can be seen by the graph on the left our booking is in the power industry have grown for first nine months each year from 2006 to 2009.

The power industry continues to show strength on a global scale. Industry forecast, point to incremental capacity expansion globally in access of 1000 gigawatts over the next 8 to 10 years. Approximately 40% of this forecast of expansion is focused on renewables with wind and solar becoming important, as well as a larger contribution from nuclear power. Recently, India announce plans to had 470 gigawatts of nuclear power by 2050 and China announce plans to increase the total power contribution nuclear from 4 to 8% by 2020.

Also the Governments of Belgium and Germany announce plans to extend the operating life of their existing nuclear facilities, which offers the potential for ground field investments as the existing plants prepare to run for a longer period.

Even with this increase interest in renewables, fossil fuels are still forecast to be the largest source of power generation well into the next couple of decades. Long-term investment in coal, fire power generation are currently be in challenged by unresolved legislation on carbon, cap and trade. This should drive more investments toward newer clean coal techniques, such as super critical and ultra super critical, because of their reduced carbon footprint.

Overall power industry forecast over the need for electricity around the globe to continue to support investment in power generation with developing market such as China and India leading the way. We believe Flowserve is well positioned in all forms of power generation with the established reputations in fossil fuel and nuclear, as well as a growing reputation in alternative renewable sources.

Turning to oil and gas, we have seen a decline and bookings from the highest of 2008, with 2009 bookings being challenged by recessionary concerns and the delay of some major capital projects in this industry. In the past month energy agencies have increased forecast to demand for oil in 2009, up by approximately one million barrels per day compared with mid year forecast.

This increase is driven predominantly by a greater than anticipated demand from the developing regions of the world. Carrying this increase in the future period should drive investments in expanding the supply of oil globally which will involve recovery and processing of more complex oil including Tar sands, deep water and other heavy oils.

In the area of natural gas, industry forecast and proposed property plans indicate continued investments and liquefied natural gas or LNG where our products investments have expanded our capabilities.

We believe that Flowserve's long standing reputation in oil, our technological advances in handling complex oil and our product capabilities in both oil and natural gas position us well for current and future opportunities in this important market.

Slide 11 takes a look at our other key industries of chemical and water; investments in the chemical marketplace are being forecasted in the developing regions with a focus on basic commodity and agricultural related chemical such as Ethylene, Ammonia and Urea.

In the matured markets, the chemical industry is still facing a tough market condition which may lead the more plant closures or shut it as the available exceeds the market demand.

Opportunities still exists for Brownfield and aftermarket investments, as customers move to optimize continuing operations and companies from the developing regions buy unused assets.

In the water industry the market continues to prepare for a strong growth investment in desalination worldwide. A recent market research report shows a potential compounded annual investment growth of 7.3% over the next five years in Reverse Osmosis Applications.

With the technology investments we have made, our established presence in these two industries and our long standing specialty products designed specifically for these industries.

We believe that we're positioned for market share growth in both chemical and water. As we model our key industries and prepare for their related business opportunities, it is important for us to remember that our customers buy equipment and services for three types of projects.

As seen on slide 12, one project type is a new capital purchases for Greenfield operations. As discussed on previous occasions, we utilize our end-user strategy and our technical knowledge to work to create long-term value for our customers with the aspiration of establishing full service of preferred choice for their flow management requirements.

Another project type is capital purchases for the enhancement or upgrade of continuing operations refer too as Brownfield projects.

This is a key area focus for our new integrated solutions group. By leveraging our application knowledge, we believe, we can partner with our customers to optimize the performance of continuing operations.

The third type of project spend is Aftermarket services to help ensure operational uptime of existing facilities. Utilizing our large global footprint of corporate spot centers and our diagnostic capabilities, we believe we can help minimize unplanned down time thereby driving to toward lowest total cost of ownership for our customers.

Let's now take a look at of our aftermarket business. On slide 13, you will see two graphics. The one of the left are compares our aftermarket bookings for nine months year-to-date from 2005 to 2009 in reported dollars.

The graph on the right is the same information formatted in constant dollars, based on currency rates as of June 30, 2009. When comparing aftermarket looking in 09 to 08 it is worth noting that these numbers were impacted by the drop in spending from global financial crisis, which began late fourth quarter 2008 and carried into the first two months of 2009.

As we look at our global markets, we continue to see aftermarket opportunities. We believe that continuing investments and expanding our QRC footprint is important in positioning closer for current aftermarket opportunities, as well as increasing opportunities which should become available as the economy recovers. In closing, we continue to see strengthened our position and our key industries around the globe and we will continue to drive and customer centric culture with the intent to gain market share growth in future periods.

Now, I'd like to turn the presentation over to Tom Ferguson to review our Pump business.

Thomas E. Ferguson

Thank you, Kyle. And good morning everyone. The Pump Divisions continued on page to have another record year in sales and operating income. Our focus on our end-user customers, operational excellence and our strategic growth initiatives continue to provide a platform to drive above market sales and income performance.

We did see continued challenging market conditions that affected our year-over-year bookings. But our aftermarket grew in spite of overall refinery and chemical maintenance spending declines.

By using our global opportunity management and sales approval tools, we were able to continue to drive our pricing discipline to avoid taking projects that are not strategic or they do not provide a reasonable return.

Our balance score card approach allowed us to sustain customer satisfaction at record levels while delivering it over 93% on time to our customers requested date.

Bookings in the quarter of 518 million were down 341 million or 40% versus 2008 and down 37% on the constant currency basis.

Year-to-date bookings of 1.7 billion were down 798 million or 32% and down 25% on a constant currency basis. Sales on the quarter of 637 million were down 2 million or virtually flat versus 2008 and up 4.5% on the constant currency basis. Year-to-date sales of 1.9 billion were up 63 million or 3% and up 13% on the constant currency basis.

Operating income in the quarter of 109 million was up 9 million or 9% and up 17% on a constant currency basis when adjusted for realignment. Year-to-date operating income of 326 million was up 44 million or 16% and up 34% on a constant currency basis when adjusted for realignment.

Operating margin including realignment in Q3 increased 150 basis points to 17.1% and increased year-to-date 180 basis points to 17.2%. Operating margin excluding realignment in Q3 increased 170 basis points to 17.3% and increased year-to-date 250 basis points to 17.9%.

Bookings were primarily impacted by low OE volume caused by the weak oil and gas and chemical markets. And our focus on maintaining pricing discipline. The aftermarket mix increase significantly versus Q3 of 2008 to 46% of our total bookings. Well aftermarket bookings were down 6% on the constant currency basis versus Q3 2008. This was primarily due to the lower volume of spare parts tide in the units, which we also consider to be aftermarket.

Year-to-date aftermarket bookings are only down 1% on the constant currency basis. And when you consider the global market conditions earlier this year, the lower maintenance spending and lower volume of parts tide to new projects, our core end user strategies have performed quiet well. Our original equipment to aftermarket sales mix only shifted slightly with aftermarket growing to 38% of the total sales in the quarter versus 36% in Q3 2008. Aftermarket sales were up 10% versus Q3 2008 on a constant currency basis.

Year-to-date and aftermarket sales are up 6% on a constant currency basis. Our period of downtime delivery performance, shorter cycle times and growing technical services capability should provide a strong platform for future aftermarket growth. I should also remind everybody that the Pump business is not a quarter-over-quarter business especially in relation to bookings.

The overall pipeline of opportunities remains at a good level but just a couple of orders moving by one week at the end of the month can have a significant impact on quarterly result.

For instance, this year we did not have an $85 million pipeline job like we did at the end of Q3 2008. Our backlog remains over 2 billion. And as we work to reduce cycle times we remained focus on book to ship aftermarket. This should allow us solid shipments well into 2010.

Our emphasis on our end user customers building nuclear sees and driving end user growth initiatives such as our new integrated solutions group provides us a platform to help ensure a long-term growth regardless of short-term market cycles.

Our integrated solutions approach brings a new technology platform in play to leverage our extensive -- in end-user sales network. We see some major opportunities to improve bookings based on several large projects that appeared to be moving to closure in Q4 early 2010. Or we cannot discuss these specifics of these opportunities.

The Middle East, China, India, Latin America and Russia are key areas of focus for us in the oil and gas and power markets.

We are also pursuing several new desalination and water opportunities in Asia Pacific in the Middle East. We opened our new QRC in South Korea in Q3 and continue to enhance our service capability and our newly open QRCs in Saudi Arabia, Dubai and Southeast Asia.

Our supply chain team continued to focus it's efforts on low cost sourcing and while improving the overall quality of our entire supply chain.

Our continues improvement efforts continue to generate solid benefits in cash, on time delivery an gross profit. We also continue to emphasis safety and total cost quality, while also developing leadership team for the future. I remain confident about our future as we drive growth initiatives utilized technology to provide new opportunities in both original equipment and aftermarket and maintain our emphasis on operational excellence.

And now over to Tom Pajonas, of the Valve Division.

Thomas L. Pajonas

Good morning. One of the focus areas for valve division over the last several years has been efficiency of asset delivery model.

So, I'd like to summarize the platform. Overall the valve division has 53 manufacturing and service centers worldwide including six joint ventures, 18 are in the Americas, 23 in European and Middle East and 12 in Asia Pacific. Approximately 67% of the valve business is outside North America producing products and solutions, which include valves, automation and aftermarket services.

Now lets take a look at the markets, financials and initiatives as shown on page 17. Bookings for Q3 decrease 34.5 million or 9.4% versus 2008 and 6.4% on a constant currency basis.

These Q3 bookings have increased sequentially from Q2 by 59 million or 21.6 % and from Q1 by 30 million or 10% and have produced a backlog of 506.2 million at the end of Q3 up 23.3 million from the end of 2008.

Year-to-date bookings were 907.2 million or down 23.6% and down 17.8% on a constant currency basis. The overall market and chemical continues to be soft with our distribution business channels cautious to restock which is putting pressure on product lead times.

This plays into our strength of being able to deliver against shorter lead times as well as our on time delivery of 94% year-to-date.

Chemicals use in agriculture and specialty chemical products continue to be a promising avenue for this industry along with renewed interest in China for acetic acids used in paints, adhesives and textiles and PVCs which are used in automobile components and computer housings. Power continues to forge ahead especially in the nuclear segment in the US, China, Korea, Europe as well as India. The Dow division has a established relationships with most of the major nuclear power plant suppliers.

We have secured of more than $45 million nuclear order from West in-house in Q3 packaging several of our products together in a single offering. In the oil and gas area, we are seeing good movements in the proposals activity for China, India, Brazil, North Africa and the Middle East. As these customers are generally continuing with long range capital spending plans.

Middle East activity is driven by gas development as well as Greenfield and Brownfield refinery expansion. Liquefied natural gas, LNG projects are continuing to be proposed despite the current lower natural gas demands and the lower price per million BTU. Overall, we are continuing to see some projects being delayed as customers and engineering procurement and construction EPC contractors, review demand and additional savings opportunities.

Overall, project and date however have not changed correspondingly, which will require shorterly times on our products. Desalinization opportunities continue to exist in the seawater Reverse Osmosis area, especially since this process requires wells like ours that are designed to operate in a high pressure cohesive environment.

Sales for Q3 decreased 71.7 million from 2008 or 19.6% and by 16.6% on a constant currency basis. Decreased sales in EMEA and North America attributed to the chemical market and also to the general industries which are both served on large part to our distribution channel.

Sales year-to-date were 893.2 million or down 13.8% from 2008 and down 6.6% on constant currency basis. Gross margin increased to 190 basis points to 38.2% in Q3 and increase 90 basis points on year-to-date basis including realignment.

This margin increase was attributable to material cost savings, favorable product mix specially in the nuclear business, higher margin critical applications valves and our low cost sourcing initiative as well as our lean and valve engineering programs.

We have reduced SG&A 13.9 million and 27 million on an absolute basis in comparison to prior Q3 in Q3 year-to-date respectively as a result of our sound financial controls.

SG&A on a percentage basis only increased 10 basis points from prior Q3 and increased only 20 basis points in Q3 year-to-date, in spite of a revenue decline which clearly demonstrates our ability to decrease cost in the business. Operating margin, including realignment in Q3 increased a 160 basis points to 18.4% and increased Q3 year-to-date 40 basis points to 16.6%.

Operating margin excluding realignment in Q3 and Q3 year-to-date increased a 180 basis points and a 130 basis points respectively versus the prior period.

Strong gross margin performance from our operating platform coupled with focused SG&A control consistent with our long-term strategic outlook allowed a solid operating margin performance.

The flow control organization will continue to focus on the global power market. In particular, the nuclear business continues to offer growth opportunities and we are well positioned with our manufacturing, service and long successful nuclear certification programs. The ability to package a broad array of products, services and solutions will continue to be an important aspect in the nuclear and oil and gas business.

Investment in diagnostics will continue as we drive our asset manageable programs in the areas of overall plant lifecycle initiatives.

We planned to continue our global aftermarket service center deployment in addition to the Indonesian, Malaysian, Saudi, and United Arab Emirate centers then we have added this year.

And now over to Andy Beall, the President of the flow division. Andy?

Andrew J. Beall

Thanks Tom. Flow solutions continued our focus to provide exemplary service to our end-user customers. And wind participation in new global projects by supplying mechanical seals and sealing support systems to pump and compressor OEMs.

This dual strategy continue to build our install base to renew project orders followed by a high rate of capture of aftermarket business from end-user customers, who operate the sealed equipment over the product lifecycle.

Our business model is designed to serve the full range of product lifecycle opportunities from new equipment design, startup, reliable operation, renewal and repair and finally decommissioning of the asset at the end of the it's useful life.

The third quarter was a solid period for the division with total bookings of 141.4 million including bookings to the Flowserve Pump Division.

Bookings during the quarter were above the first two quarters of the year and down compared to last year by 18.3% or 14.8% on a constant currency basis. The year-over-year decline in bookings stabilized. In fact the book to bill ratio in Q3 was greater than one and the division added nine million to our backlog in the quarter. Year-to-date bookings were down compared to last year by 20.9% or 15.3% on a constant currency basis.

Consistent with the first two quarters of 2009, project booking saw a greater decline than the aftermarket business. Our aftermarket bookings were more stable and correlate directly to the ongoing operation of sealed rotating equipment. Our close association with customers through the global network of rotating equipments specialist sales engineers, backed up by local quick response centers helped to ensure that when a seal need parts or repairs we were there to assist our customer faster than the competition.

The challenge is associated with today's global economic market encouraged our customers to move forward with the alliance agreements with Flowserve. Customer focus on their bottom-line, encourage customers to choose Flowserve to provide outsourced management of their mechanical seal assets.

In the quarter we signed 20 new alliance agreements, which increased in total number of long-term aftermarket customers we serve. Our reputation for improving liability our demonstrated ability to reduce a customers total cost. Our trained team of rotating equipments specialists and our global network of QRCs made this possible.

In the quarter, we expanded our ability to deliver service to our customers by investing a new QRCs in China, Canada and South Africa and completed our gas compressor seal test facility in Brazil. These investment showed our commitment to see things the strong opportunities available to us in this important growth markets.

Through our rotating equipments specialist training program, we have an outstanding team of global specialist, even more prepared to deliver values to Flowserve customers. This is important today's environment, where customers have fewer staff to maintain the rotating equipment. It can relay on flow solutions for our knowledge and expertise.

Shipments of 136.3 million in the quarter was slightly down compare to prior quarters of 2009, reflecting a lower available backlog at the beginning of Q3. The mix of business shifted from original equipment and projects to aftermarket. Our volume was heavily weighted towards the aftermarket which enabled year-to-date gross margin to improve to 46.2% and quarterly gross margin to increase even higher to 49.1%.

We anticipated early this year that market conditions could leave us with excess capacity. And Flowserve announced a realignment program to size the business to meet this change in demand.

We're very pleased that our financial performance reflects these realignment efforts which include cost controls, cost reductions delivered by our supply chain management team and the use of our flexible standard manufacturing platform to load our most effective operations first.

The results showed a lower cost of sales an increased expense reduction in quarter driving improved gross and operating margins.

The quarter's number show that we successfully align the organization to a $34.6 million lower sales volume versus Q3 of the prior year while still delivering 21.3% operating margin. Q3 sales were down compared to last year by 20.2% or 17.3% on a constant currency basis. While operating income was down 12.1% or 3% on constant currency basis and excluding realignment charges. For the nine month period, sales were down 14.3% or 8% on a constant currency basis. And although operating income was down 20% on a constant currency basis and excluding realignment charges operating income was flat.

This speaks well to our business model, focused on the end-user customer and shows how are quick action to remove cost as protected overall profit margins.

In summary, year-to-date 2009 has been a year of lower project activity and tight cost controls by our customers. While total demand has been lower Flow Solutions was rewarded by its customer for having provided solid value in the aftermarket. And we responded appropriately by successfully resizing our operations for the lower total business volume. The net result was the delivery of the solid financial performance for the third quarter and the year-to-date period.

And now over to Paul Fehlman to review the financials

Paul W. Fehlman

Thanks, Andy. And good morning everyone. As Mark discussed, we are pleased with our results for the quarter which demonstrate the strength of our global platform and our backlog. The success of our aftermarket focus and our continued execution of realignment efforts all driving strong earning in increased margins.

Turning briefly on slide 20, to our consolidated financial results third quarter bookings of the 975 million were down 29 % reported and down 26.3% on a constant currency basis. Sales of 1.051 billion were down 8.9% reported and down 4.8% on a constant currency basis.

Gross margin reported was up a 150 basis points to 36.6% and that include a 20 basis points of realignment expense. SG&A as a percentage of sales went up 50 basis points to 21.6% in the third quarter included about 19 basis points of realignment expenses and discreet legal expenses taking during the quarter to tentatively resolve remaining issues surrounding the shareholders suite.

The result was that operating margins were up a 100 basis points to 15.3% on a reported basis and adjustment for realignment expenses, the operating margin grew a 140 basis points to 15.7%.

Our reported earnings were $2.07 per share and adjusted to remove the effects of realignment expenses were $2.12 per share which represented an $0.08 increase over the prior year.

The year-over-year comparison includes a few discreet items that they are noting, Q3 of 2008 included $12.4 million in discreet tax benefit that did not recur in 2009. Additionally, other income and expense swung from a net expense of $8.7 million in Q3 of 2008 to a net gain of $7 million in Q3 2009. Primarily due to a $16.2 million currency related gain.

Looking at the year-to-date results, bookings of $2.946 billion were down 28.4% reported and down 22% on a constant currency basis. Sales of $3.166 billion represented a 4.2% decrease reported, but an increase of 4.2% on a constant currency basis. Gross margin year-to-date improves 60 basis points to 36% and included 60 basis points of realignment expense impact. SG&A as a percentage of sales improved 40 basis points over the three quarters and also included 40 basis points of realignment expense.

The result, is the year-to-date report of operating margins improved 100 basis points to 14.8% and adjusted operating margins improved a significant 200 basis points to 15.8%. Year-to-date reported earnings were $5.63 per share and adjusted earnings came in at $6.06 per share, representing a $0.38 increase over the prior year.

Turning now to page 21. Primary working capital was up about $31 million from last year at the same time, primarily driven by an increase in with inventory creating a large cash opportunity for Q4 which has historically been our largest operating cash flow quarter.

Page 22 outlines our cash flows; we were pleased with our $82 million of operating cash flow which included a contribution of $58 in U.S pension funding in the third quarter. Further we were able to invest $23 million in CapEx to further strengthen our operating platform and also a return $27 million to shareholders in dividends and share repurchases. Or driving an increase in our cash balance by $40 million, the things of investing our strong cash flow into organic growth opportunities through CapEx, returning capital of shareholders and strengthening our balance sheet have been consistent focus of management.

Page 23, outlines the significant uses of cash flows since the beginning of 2006. As you can see, we have invested well over $1 billion of our cash flow over the past three and three quarters years into strengthening the operation driving organic growth, returning capital shareholders and reducing off balance sheet leverage by toping up the US pension program and eliminating factoring and securitization.

Further, by strengthening our balance sheet, we have positioned ourselves well to take advantage of opportunities as they arise.

Slide 24 shows the result of operating excellence, cost and realignment initiatives over the past five years. The result include the improved metrics around SG&A and corporate expense as a percentage of sales, higher operating margins and higher bonus.

Entirely to underscore the work that has been done, although we are very happy we've driven growth across in essentially flat manufacturing footprints of 2005. That does not tell the whole story.

Only that of time, we've strategically shifted the footprint to more cost effective locations without scarifying quality or customer satisfaction.

To sum up, while we have now have been steadily taking our cost and driving the more efficient operating platform we have also been strategically investing and growth initiatives pursuing geographic expansion and developing markets and aftermarket growth opportunities while advancing our technological capabilities all of which makes us very well position for the future.

With that I'll turn it back over to Mark.

Mark A. Blinn

Thank you, Paul. As we've discussed, during the year industry has seen overall reduced business volumes, pressure on pricing and the respond we are driving market share growth initiates, our end-user strategies continued operational excellence initiatives, cost controls and our realignment initiatives. And because of our success in a realignment initiatives we are expanding our efforts to include additional realignment investment of up to $45 million.

We expect additional realignment charges of up to $30 million in 2009 and up to $15 million in 2010. And we project full year run rate savings of over $50 million from these new initiatives. A majority of which will be structural in nature.

Similar to our earlier initiatives we will be moving manufacturing a low cost facilities, consolidating product line to drive efficiency and reducing headcount.

So these realignment initiatives are also designed to create a more effective structure to drive our end-user strategy and leverage the growing network of QRCs.

Bottom line as we expect annual run rate savings from all of our initiatives of approximately $110 million with the majority of the benefits being structural. Looking forward, first I now expect 2009 full year earnings per share in the updated target range of $7.20 to $7.50 per share.

Looking at curious are focused on going forward we're going to remain committed to our business management discipline invest in our end-user strategies, investing geographic expansion particularly in development regions, focus on our talent pool, drive operation excellence execute on our realignment initiatives and maximize the potential of our balance sheet. We are confident to continuing global growth strategies and focusing on operational excellence initiatives will allow us to take advantage of future market opportunities.

And now I'll turn the back to Paul for Q&A

Paul W. Fehlman

Thanks, Mark. Operator we're ready to open the call for Q&A now.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Mike Schneider with Robert W. Baird.

Michael Schneider - Robert W. Baird

Good morning, gentlemen.

Paul Fehlman

Hi, Mike. How you doing?

Michael Schneider - Robert W. Baird

Doing, great. First, I really appreciate the new foreman I like the detail and the burg or the process. On the sales division, I'm wondering just to get some inside into what is actually market share gains as a result of the QRC strategy versus just same store sales growth. This may be too granule, but if you look at the bookings and sales that were down 14.6% in constant currency, are you able to want peal out the pumps division and just give us a sense of what your external customers bookings look like. And then secondly, do you have the same store sales number if there is one to get a sense just how much is through penetration growth by versus same-store sales declines?

Paul Fehlman

Well, if you will find in the aftermarket bookings, a lot of those are directed to customer, where do you see, it's on the OE side typically that you have in a divisional sales. Beyond that, we do look obviously QRC-by-QRC but as we talked about before, we're not our retail business. So, a lot of these QRCs are put into support customers. And so looking at the same store sales which really wouldn't reflect the business.

Overall when you look at it, what we commented on was and I think this is generally been across pumps and sales into a certain rebalance is that maintenance spend and refineries and chemical facilities in the United States and Europe has gone down. And we've got interaction from our end-user strategies. And that does include deployment of additional QRCs

Michael Schneider - Robert W. Baird

Okay. And then, remind me, what aftermarket bookings then we are in the sale division is that, generally would then exclude the Flowserve's pump division?

Paul Fehlman

Yeah, we haven't broken down the divisions that division specifically. But what we have talked about before generally Mike is and I think Andy talked about it. Roughly three quarters by business is aftermarket. We did see a soothing last year with a project activity but generally the run rate is about three quarters of our business is aftermarket

Michael Schneider - Robert W. Baird

Okay. And then, as look at pricing, this is a recurring topic and most it every industrial conference call right now. As you look at project pricing coming in now. Really, I guess focused on thousand pumps. Can you give us a sense of what magnitude of pricing declines whether expressed in sales dollars, percentages or in margins as you're seeing right now and is it accelerating or is it the level of pressure at this point at least constant?

Paul Fehlman

Yeah, I mean up, won't go into specific pricing and backlog, but generally we've seen pricing pressure during the course of the year. If you remember we talked about it, at end of the year. And if you look at pricing what happens is the first thing is when we have specific drop in material cost, the market tends to respond.

No, I'm not suggesting it's a 100% correlated. The fact is that other things coming into play eventually and it's going to what kind of access manufacturing capacity is out there. And it tends to be a little sticky on the way down and on the way up as well. We have certainly seen pricing during the course of the year.

In general, on our aftermarket business pricing is stable and see by that to be relatively stable pricing format. On the project side, it's really project-by-project. And so, that's kind of the environment that you have out there is it's really project specific.

Michael Schneider - Robert W. Baird

Do you view the level of pricing pressure rising today or it's just a steady pressure that we've seen as you mentioned over the last several quarters?

Paul Fehlman

Its been pretty steady over the last couple of quarters.

Michael Schneider - Robert W. Baird

And then final question. What should we read into the restructuring program being so significantly expanded. Is that a case now where because you've work through some of these long lead time orders you've got the ability to address the footprint and headcount more aggressively. Or is this a reflection of your view of what's coming in 2010?

Paul Fehlman

It's primarily the formal. I think you characterized that well. If you look back going back to 05 within doing this activities the sale of GSG (ph) we took about 13 million plus in 06 and went down in 07 and 08 primarily because we were focused on time delivery. And we have picking up bandwidth of our management. Frankly as those period of times you tend to go ahead and use sub-optimal capacity.

And when we got into share, as we saw the opportunity to drive some of the initiatives that we wanted to do. Now, as Andy mentioned at the beginning of the year some of our short cycle business is we did take action to respond to the markets. So I don't want to suggest that it's all structural, but certainly a vast majority of this in structural and as you kind of go through the course of this year. One of the things we wanted to stay focused on is, why we're realigning our business is we're big backlog. And we wanted to continue to sustain margins and deliver on time, because if you don't do that, that will impact margins more than anything. So, we maintain focus on executing to the customers and executing on this realignment initiatives. And we like the results.

Michael Schneider - Robert W. Baird

Will lead a more negative view of 2010 into the restructuring announcement?

Paul Fehlman

No. No, it shouldn't.

Michael Schneider - Robert W. Baird

Thank you again.

Unidentified Company Representative

Your welcome.


Your next questions comes from Kevin Maczka with BB&T Capital Markets.

Kevin Maczka - BB&T Capital Markets

Good morning.

Paul Fehlman

Good morning, Kevin.

Kevin Maczka - BB&T Capital Markets

I guess, just following on Mike's question on pricing, just one addition I'd like to ask there, are you actually walking way from business now, because of your price discipline I found your comments on discipline interesting there?

Paul Fehlman

Yeah, well. I mean if you look back over the couple of years walking away, I don't like to use that term, but we've been selected. During the course of over the last couple years and for multiple reasons, if you heard Tom, they go through a process where they looking global opportunities. So, you got to match capacity to be opportunity, you've to look at the strategic opportunity, in terms of the customer base and your ability to deliver aftermarket. And that's the type of discipline we're maintaining going forward. Understanding that, this is management team recognizes, we want to focus on margins. And we also know from past history for folks had been here a long time, because if you not careful about how you load your plans and get some unintended results. That's what driving the discipline around this. So, we are, we have to continued to be selective and sometimes that selection occurs at the customer by virtual one of our competitors or by our choice.

Kevin Maczka - BB&T Capital Markets

Okay. And than Mark, your comments on the 90 plus percent on time delivery and the pressure on lead times. Can you give us some sense on how that compares to your major competitors? And can you quantify or even give any colored on all on how much market share you think you're able to take, because of your ability to do that?

Paul Fehlman

Well I think that's benefited us over the last couple of years. And as we always say we got some very good competitors out there and what we focus on what we can control and we think that's a critical element is delivering at those high levels because if you think about it we're a portion of an overall project. But the fact is the project doesn't operate with that our equipment in it. So, we can, if don't execute well we can hold up a project. And customers and engineering contracting firms are well aware of that. So I think it's absolutely critical and at times like this which you saw and you see little bit in terms of how our booked to builds rolling out which


over the last couple of year is very large complex projects that very tight in terms of the supply base. So they were expanding lead times to make sure that they can manage the project. And so that was really correlated to the environment around the view of capacity out there that existed in 2007 and 2008. The fact on these projects is regardless in the environment during this time as money. No longer have these projects taken to put in place moment it's going to costs. So, they're going to bring in lead times.

And Tom, talked about that Tom in terms of the distributors they're going to try to focus on just in time inventory. And they're going demand short lead times. And on the projects for the pump and seal business what they're going to do is try to compress the lead times to reduce the cost. So which you see, what we talked about is these projects get pushed out. We don't anticipate that they are going to push out the commission dates by much affiliate at all. And then your ability to execute it's going to become critical.

Kevin Maczka - BB&T Capital Markets

Okay. Thank you

Paul Fehlman



Your next question comes from Charles Brady with BMO Capital Markets.

Charles Brady - BMO Capital Markets


Paul Fehlman

Hi. Charlie.

Charles Brady - BMO Capital Markets

If you look at the pump divisions from that it and we look at the aftermarket sales mix sequentially from Q2 you had a 200 basis points positive mid shift aftermarket. And I guess I'd like to drill down sort of the mix of business in terms of sales net in the quarter because given the you had a 200 basis points mix ship the operating margin didn't seeing to of course funding way and swing with this something other in the gross margin SG&A sequentially different from Q2 that you wouldn't have got and I guess as of a much of a benefit from a mix ship sequentially as I'd have thought you have got it?

Paul Fehlman

Yeah no. That's not the issues. If you look historically in terms of volumes because at the end of the day there is volume leverage in our business. Its historically Q4 has been our largest volume quarter followed by Q2 then Q3 and Q1. So, if you look sequentially at our revenue volumes in the pump business, you can see volumes were down. So, the fact is, as they were able to offset the impact of that volume with next shift.

Charles Brady - BMO Capital Markets

Okay. Yeah, so you pick it up year-on-year, so fair enough. On back to the seal question on the aftermarket mix, I know historically it is 75% aftermarket, but it sounded like in the prepared comments that mix had shifted meaningfully in a higher than the normalized 75%, did I hear that correctly?

Paul Fehlman

You've seen a shift with the comment where is around the shift over of last year because of reduced project activity. But so, what you see that, we saw it one time last year, I think it was roughly 60, 40 on the booking side quickly followed by the sales. So, 15% is a the significant shift.

Charles Brady - BMO Capital Markets

And if we look at the backlog number from the firm is a whole and typically on pump division; how much of that backlog is out next four quarters, the next 12 months?

Paul Fehlman

Charlie, we usually have our disclosure at the end of the year when we talk about shippable backlog. But one trend you saw last year if you look at prior look year this is I think our pump backlog expected shipment over the next year was a roughly about 85%.

I think that embedded a lot of a longer lead times that were being quoted. The fact is, is during the course of this year, lead times have been broaden. So all other things being equally should expect that to go up.

Charles Brady - BMO Capital Markets

Thank you


Your next question comes from Jamie Sullivan with RBC Capital Market.

Jamie Sullivan - RBC Capital Market

Hi, good morning everyone.

Paul Fehlman

Hi Jamie.

Unidentified Company Representative

Good morning Jamie.

Jamie Sullivan - RBC Capital Market

You saw their comments, how you expect orders to be up in the fourth quarter assuming decisions get made as you expect. I just wondering is it across the board or over you specifically talking about the Pump Division.

Unidentified Company Representative

Well, I mean the discussion was across the board. We did it, but if you heard Tom's comment and he was talking about the opportunities over out there. And Andy talked about certainly the booked to bill in the quarter. So I think all that is really designed to tie together.

Jamie Sullivan - RBC Capital Market

Okay. And then the sequential improvement in valves and sales bookings. Is that, just wondering if you could add a little bit more about whether that bouncing off the bottom is that taking advantage of prior or reorders following the pumps just some color there?

Unidentified Company Representative

Yeah. I mean Jamie, what we don't want to do is contrast, topics any things like that. Because again that would suggest that we are quarter-to-quarter business which we're not. I think if you look at the sequential order and Tom mentioned this is Q3 bookings have that wasting out order. So the fact is well last year we got a benefit from the Trust orders and the pipeline order and we're doing that in compares to be fair this year. We've got a talk about the wasting out order. But I think the important thing that to look at in that outsource is those that's reflective of opportunities to come in the power industry as they go through this nuclear renascent that's out there.

Jamie Sullivan - RBC Capital Market

Okay. Al right then on the I guess overall the follow-up on the price issue if you look at the pressure you're seeing there offset by some of the booking mixed with aftermarket, incremental restructuring just with the backlog you have, what's the most dominating force or can we assume that margins can be maintained with everything that's going on?

Unidentified Company Representative

Well. I don't see, we wont comments specifically on margins, but as I mentioned that is an area of focus. Because we think that's an efficiency metric, that's important of business. So, we do orient our decision around that.

As we talked about the before, the headwinds you face in businesses is going to be price and volume and everything as we do the offset that. And I think we've pretty consistent in saying just on a general basis, we have the opportunity around supply chain and our operational excellence initiatives to improve our platform. We see these realignment initiatives.

Some of the stuff is been pack up in terms of backlog of decisions we want to make for quite bit of time. With just another plan with to do it frankly. So, now we took the change to really start this business long-term and mix of structural benefit. And I think the important message Jamie is as we will certainly respond to markets over quarter-over-quarter and one year to the next. But while what we're doing is trying to position this business long-term to we can drive a little bit it earnings leverage, because we fundamentally believe that they are underpinning in terms of the secular drivers in water, power and oil and gas or there.

So, we're in a cyclical industry, we'll certainly say that and we'll respond, but a lot of what we're driving to is really long-term earnings leverage. And really taking better care of our customer and then optimizing use of our balance sheet.

Jamie Sullivan - RBC Capital Market

Okay thanks. I'll just sneak one quick one in, on free cash flow expectations for the fourth quarter?

Unidentified Company Representative

Well, I can only point to the past can say that historically fourth quarter is been a large cash flow. When you look at the third quarter, compared with the prior year we did, we booked a lot of width as we still have a backlog, but we need to ship out and we also put $58 million in our pension plan.

And I think another key thing that we want to make sure we drive home is, when you look at our, we look at pension plan is debt. And so, we were able to top that up and that's important. That's important not only to strength of our balance sheet, but to our employees.

Jamie Sullivan - RBC Capital Market

Thanks very much.

Unidentified Company Representative

You're welcome.


Your next question comes from the Hamzah Mazari with Credit Suisse.

Hamzah Mazari - Credit Suisse

Thank you. Good morning.

Unidentified Company Representative

Good morning Hamzah.

Hamzah Mazari - Credit Suisse

Thank you. Just touching on bookings again you know some of your competitors had bookings improved sequentially at Q3. I'm just wondering what your degree of confidence is in Q4 bookings being up sequentially? And is that all really timing related due to projects been pushed out due to revaluation of customer budget assumptions. Is that fair what's your degree of confidence there?

Unidentified Company Representative

Well I mean I'm not going to go beyond what we certainly said in our press release and that was around assuming the timings in these projects, we feel that bookings can be up. So, if I didn't believe it this wouldn't have upset it.

Hamzah Mazari - Credit Suisse

Okay. That's fair enough. And then on your free cash flow obviously Q4 is a big quarter for you guys. Can you talk a little bit about what your uses of free cash are going to be. Hypothetically you generate a little over 300 million of free cash? You already have a ton of cash on your balance sheet. What are your usage of cash over the next couple of months, more longer?

Unidentified Company Representative

Well. Yeah, sure, Hamzah what we do typically in the guidance as we talk about our cash plans at the beginning of the year and so we're probably done this year. We use our cash for capital expenditures a lot for new growth opportunities will return capital to shareholders and repurchase of dividends. We saw $82 million in the pension plan and as we did our plan this year we saw that the pension have been marked down the marks effective January 1st. And so we saw the opportunity in the near to go ahead and fund that up.

So, I think that's been consistent with our cash and keep in mind also at the beginning of the year, cash would gain for many businesses and we certainly recognize that. So what we'll do is we'll state the course we think these are bit leverage we don't want to may be mutual exclusive at this point in time. And then at the year end cal, we will let our cash plan little more specifically.

Hamzah Mazari - Credit Suisse

Okay. And on realignment, the savings that you're getting from realignment. Are they going to be spread out evenly through 2010 and going forward what's the ramp up of your realignment savings look like? Year-to-date you have 17 million is that right?

Unidentified Company Representative

Yeah, we have got year-to-date 17 million including 10 in the quarter. We expect approximately 30 this year from our initial realignment efforts and a 60 run rate on that.

So we expect a lot of that 60 to kick in during the course of next year. As far as the additional are to be expanded realignment initiatives, we don't see a lot of those really coming in until the latter half of next year.

Hamzah Mazari - Credit Suisse

Okay. Thank you very much, appreciated.


Your next question comes from Scott Graham with Ladenburg Thalmann.

Unidentified Analyst

Scott? I think we lost him.


Scott your line is open.

R. Scott Graham - Ladenburg Thalmann

I'm here, can you hear me?

Unidentified Company Representative

Yeah, I can you hear you now. Hi, Scott.

R. Scott Graham - Ladenburg Thalmann

Okay, great hi. Hi Guys. I've got a several questions. Two of them are in the pumps area, but the bookings and. I'm just, I know that these things are lumpy and I know that you're being price disciplined and I know projects get pushed back. But, obviously and I guess this is mostly question for you Tom. An OEM of minus 60 is a big number and I'm just wonder if you can to give us some more color on that and why that should improve going forward?

Thomas Ferguson

Yeah. I think a couple of things and we alluded to. We're not a quarter-over-quarter business and we didn't have an high pick size order in these third quarter. But we're maintaining our discipline, but and be in selective, but we see opportunities that have continued to push out starting to firm up.

And so I think the positive news for us is we are very strong in the Middle East and Brazil, Russia places like that. And that's where we see the highest level of activities especially on the oil and gas side.

So, I think we have tried to do our best job as possible in being selective but making sure that we're taking the business that we need to for both strategic reasons as well as to continue to grow that aftermarket generating base out there.

So that's been our focus and as Mark alluded too some of these projects schedules are not just firming up but the due dates and the commissioning dates are hanging out there. And the lead times or the available lead time is getting shorter. So we just feel that things are going to start to close and consequently that's why we've maintained our selectivity.

R. Scott Graham - Ladenburg Thalmann

So, the minus 60, if you had a bucket this time comparison push out, discipline just general market. What would you so it'd be kind of rank order there?

Unidentified Company Representative

By far projects pushing out. And I won't go into much more detail on that. But it's in mostly what we saw was a project pushing into Q4 and probably early 2010. And but formal approval for a lot of these projects is now been made by lot of the boards of our customers. So, we see that as a positive.

R. Scott Graham - Ladenburg Thalmann

Got it. On the aftermarket side, we saw a good sales number in after organically. But then we saw a tampering of the bookings and aftermarket. Is that now, should we now assume that the sales well growth that we saw in this quarter, just that now tampers over the next couple of quarters? I know that this is short cycle and I'm hoping that means easier to read but already you're seeing at there on the aftermarket side on a delivery schedule standpoints?

Unidentified Company Representative

Well what we're seeing, yeah it's mostly there are two things going on. One our customers have not been spending on their maintenance budget which means they're running into the issue of step break in. And having to be fixed on emergencies which drives our cycle times, which means we have to match up our cycle times to take advantage of those emergencies.

And we're doing that. And that's our quick response centers in our ability to deploy our engineers quickly and globally but get them into the local market where they need to be.

Secondly, Mark talked about the programs and Q3 is always a difficult quarter because you've got power plants running all out for the summer months. So they're not providing maintenance. And you've got refineries, who have their maintenance budgets squeezed in and now it's coming up to the end of the year. And I think it's a positive that we're seeing refineries having some budgets available at the end of the year. And then finally, what really went down in Q3 was the parts tied to the new projects, because we, since we didn't have a lot of project -- large project bookings earlier in the year. We're not seeing that type of startup up spares coming into play.

But we are continuing to ship out our backlog and as that happen in the next couple of quarters, we should start seeing some of those projects there's again. So, I say it's a pretty stable market and we feel well position to take advantage of it.

R. Scott Graham - Ladenburg Thalmann

Fair enough. Okay, Mark, this one for you the QRC footprint, I think is obviously an excellent opportunity for you, particularly with expending out. Andy alluded to the addition of three QRCs. Is this maybe marking the beginning really doubling down and I don't mean that literally, but a significant increasing investment and focus on buildings out the QRC base further is this the beginning of that?

Mark Blinn

Well I wouldn't say it's a beginning, because it's ongoing. But it is a priority for us. If you, we have talked about this before. If you look at our QRC network in our aftermarket delivery capability in the Gulf Coast region it's terrific.

And we'd like to see those capabilities worldwide. So, opportunity is right way to look at it. And that's why we like our balance sheet because we can deploy these, but Mike's earlier comments it's not a matter of like putting a retail store up. It's really has to be linked to projects and to the customers. So, we put the break in more, but we also have to have the service engineers, the field engineers that are capable out there to really make sure they deliver. So this is absolutely an area of focus, along with our focus on the developing regions both in terms of delivering on the project side in the aftermarket.

Unidentified Company Representative

So okay, I didn't remember that we being added in one quarter although it's possible that just wasn't talked about but. So 2010 with all the cash on a balance sheet with a lack of debt. It could be a pretty big year for QRCs, would you agree?

R. Scott Graham - Ladenburg Thalmann

Yeah that's fair.

Unidentified Company Representative

Very good, thanks.


Your next question comes from William Bremer with Maxim Group.

William Bremer - Maximum Group

Good morning gentlemen.

Unidentified Company Representative

Hello, good morning Bill.

William Bremer - Maximum Group

Most of my questions have been answered already. Going back to the next realignment initiative, okay $0.40 hitting the fourth quarter of the 15 in 2010. How do you see that plan out a higher waiting in the first step?

Unidentified Company Representative

Well. I mean, yeah. Because, we're starting those initiatives and we do anticipate that most of that expense will hit in the first half. Like we did this year, the one thing is we're going make sure with take care of our customers and that we execute those very, very methodically. Because we don't, we do want let performance in any way shift.

William Bremer - Maximum Group

Okay. it's all that.

Unidentified Company Representative



(Operator Instructions). Your next question comes from Jeff with Stifel Nicolaus.

Unidentified Analyst

Yeah. Couple of questions, this quarter we've seen a quite a divergence in bookings between valves and seals versus the pumps, has there been in the past they let say several quarter period and which is been a significantly divergence I think. They all serve similar end markets.

Unidentified Company Representative

Yeah any other asks, I mean the anytime a large project comes through, it will create a divergence. So, I mean I don't know specifically but I can what Tom talked about is we had the $85 million pipeline order in the third quarter last year and almost a 100 million plus of $100 million of plasters in the first quarter without looking at the comparison at the other divisions, but show there was a certainly a difference at that point.

Unidentified Analyst

I was talking more of a kind of trailing, say, three quarter timeframe?

Unidentified Company Representative

I may not, I may not understand your question.

Unidentified Analyst

I guess what bookings over a several quarter period and divergence in the bookings overtime.

Unidentified Company Representative

Yeah. I mean, I think if you are in the concept of around short cycle. Since our seal is our shorter cycle business. So we'll tend to see the impact of the markets first, downs next and then the pump business. Pump business need tends to be a longer cycle business. That answers your question?

Unidentified Analyst

Yeah, it sure does.

Unidentified Company Representative


Unidentified Analyst

Second. Can you give us an idea of what percentage or give us an idea how much your account taxes going into the QRC expansion?

Unidentified Company Representative

I mean I don't have that number right now. But its QRC can cost anywhere from $0.5 million or slightly less to a multi million dollar facility like we have in the Middle East.

So again I want to kind of get away from this retail concept that because there are going to be fairly event driven but we have the QRC that we opened in the Middle East which is very strategic for us it was many million to dollars.

Unidentified Analyst

Alright and last. As this recession still on full is here. The best input you can get from your managers out in the field. Are the customers continuing, are they outsourcing faster, more accelerating their trend or slowing it down to keep there own employees busy?

Unidentified Company Representative

I think there is a combination of forces in fact short-term and long-term. They talked about the maintenance budgets. So the first thing we'll do is look for way to curb cost that will include the deferring and maintenance spend, but also letting go some of other people. And what's that mean that's going to be an outsourcing opportunity.

I think long-term the drivers you had is frankly there maintenance shops. The people there have been there long time and they are starting to retire and they are looking for ways to outsource that. So, I think what you see is the opportunity to outsource more not only because of their cost structure, but reliability, we had some additional alliance agreements in our Flow solutions division this time. And think that's more indicative attraction around our strategy and in terms of being an alliance partner.

Unidentified Analyst

Fine, thank you.

Unidentified Company Representative



There are no further questions at this time.

Paul Fehlman

Okay. Thank you operator, I'd like to remind everybody that this webcast will available on our website for replay in approximately two hours. And thanks, everyone for joining us.

Unidentified Company Representative

Yeah. I do want to add one thing from me, from everybody in the room and everybody is thanks to Lewis Kling. He is been -- I know he is listening, very intently and he is been a good friend and a good leader to all of us. Thanks Lewis.

Unidentified Company Representative

Thanks Lewis.


This concludes today's conference call. You may now disconnect.

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