30625--6/30/2006--FLOWSERVE

related topics

{financial, litigation, operation}

{customer, product, revenue}

{tax, income, asset}

{cost, contract, operation}

{cost, regulation, environmental}

{system, service, information}

{property, intellectual, protect}

{condition, economic, financial}

{cost, operation, labor}

{acquisition, growth, future}

{operation, international, foreign}

{product, market, service}

{investment, property, distribution}

{personnel, key, retain}

{debt, indebtedness, cash}

{stock, price, share}

{regulation, change, law}

We are currently subject to securities class action litigation, the unfavorable outcome of which might have a material adverse effect on our financial condition, results of operations and cash flows. The ongoing SEC and foreign government investigation regarding our participation in the United Nations Oil-for-Food Program could materially adversely affect our Company. Potential noncompliance with U.S. export control laws could materially adversely affect our business. The Internal Revenue Service ( IRS ) is auditing our tax returns, and a negative outcome of the audit would require us to make additional tax payments that may be material. The recording of increased deferred tax asset valuation allowances in the future could affect our operating results. We operate and manage our business on a number of different computer systems, including several aging Enterprise Resource Planning ( ERP ) systems that rely on manual processes, which could adversely affect our ability to accurately report our financial condition, results of operations and cash flows. Economic, political and other risks associated with international operations could adversely affect our business. We may be unable to deliver our backlog on time which could affect our future sales and profitability and our relationships with customers. Our business depends on the levels of capital investment and maintenance expenditures by our customers, which in turn are affected by the cyclical nature of their markets and their liquidity. As we expand our customer alliance programs, an increasing portion of our revenues will be on a fixed-fee basis, subjecting us to the risks associated with cost overruns. We sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products. Environmental compliance costs and liabilities could adversely affect our financial condition, results of operations and cash flows. We are party to asbestos-containing product litigation that could adversely affect our financial condition, results of operations and cash flows. Our business may be adversely impacted by work stoppages and other labor matters. Inability to protect our intellectual property could negatively affect our competitive position. Our success will depend to a significant extent on our ability to retain senior executives and other key personnel. If we are unable to obtain raw materials at favorable prices, our operating margins and results of operations may be adversely affected. Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of our obligations under our defined benefit pension plans, the funded status of these plans and our pension expense. An exemption from the registration requirements of the Securities Act may not be available for certain acquisitions of interest in our common stock fund in the Flowserve Corporation Retirement Savings Plan ( 401(k) plan ) which exposes us to potential liabilities, including rescission rights. A significant number of stock option exercises following the removal of the current suspension on stock option exercises would have a dilutive effect on our earnings per share We may incur material costs as a result of product liability and warranty claims, which could adversely affect our financial condition, results of operations and cash flows. Our outstanding indebtedness and the restrictive covenants in the agreements governing our indebtedness limit our operating and financial flexibility. We may not be able to continue to expand our market presence through acquisitions, and any future acquisitions may present unforeseen integration difficulties or costs. Forward-Looking Information is Subject to Risk and Uncertainty

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30625--6/30/2006--FLOWSERVE_CORP