EXECUTIVE OVERVIEW
Our Company We are a world-leading manufacturer and 
aftermarket service provider of comprehensive flow control systems. We develop 
and manufacture precision-engineered flow control equipment integral to the 
movement, control and protection of the flow of materials in our customers’ 
critical processes. Our product portfolio of pumps, valves, seals, automation 
and aftermarket services supports global infrastructure industries, including 
oil and gas, chemical, power generation and water management, as well as 
general industrial markets where our products and services add value. Through 
our manufacturing platform and global network of Quick Response Centers 
("QRCs"), we offer a broad array of aftermarket equipment services, such as 
installation, advanced diagnostics, repair and retrofitting. We currently 
employ approximately 17,000 employees in more than 50 countries. Our business 
model is significantly influenced by the capital spending of global 
infrastructure industries for the placement of new products into service and 
aftermarket services for existing operations. The worldwide installed base of 
our products is an important source of aftermarket revenue, where products are 
expected to ensure the maximum operating time of many key industrial processes. 
Over the past several years, we have significantly invested in our aftermarket 
strategy to provide local support to drive customer investments in our 
offerings and use of our services to replace or repair installed products. The 
aftermarket portion of our business also helps provide business stability 
during various economic periods. The aftermarket service and solutions 
business, which is primarily served by our network of 173 QRCs located around 
the globe, provides a variety of service offerings for our customers including 
spare parts, service solutions, product life cycle solutions and other 
value-added services. It is generally a higher margin business compared to our 
original equipment business and a key component of our business strategy.

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

•

FPD for custom, highly-engineered pumps, pre-configured industrial pumps, pump 
systems, mechanical seals, auxiliary systems and replacement parts and related 
services; and

•

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

In the second quarter of 2018, we launched and committed resources to our 
Flowserve 2.0 Transformation, a program designed to transform our business 
model to drive operational excellence, reduce complexity, accelerate growth, 
improve organizational health and better leverage our existing global platform, 
which is further discussed in Note 17 to our condensed consolidated financial 
statements included in this Quarterly Report. In connection with the Flowserve 
2.0 Transformation, we have determined that there are meaningful operational 
synergies and benefits to combine our previously reported EPD and IPD segments 
into one reportable segment, FPD. The reorganization of the segments reflects 
how our chief operating decision maker (Chief Executive Officer) regularly 
reviews financial information to allocate resources and assess performance. The 
reorganization of the segments was implemented during the first quarter of 2019 
and prior periods presentations were retrospectively adjusted to conform to the 
new reportable segment composition. This change had no impact on our historical 
consolidated financial position or results of operations. Please refer to Note 
15 to our condensed consolidated financial statements included in this 
Quarterly Report for further discussion regarding the segment combination. Our 
business segments share a focus on industrial flow control technology and have 
a number of common customers. These segments also have complementary product 
offerings and technologies that are often combined in applications that provide 
us a net competitive advantage. Our segments also benefit from our global 
footprint and our economies of scale in reducing administrative and overhead 
costs to serve customers more cost effectively. For example, our segments share 
leadership for operational support functions, such as sales, research and 
development, marketing and supply chain. The reputation of our product 
portfolio is built on more than 50 well-respected brand names such as 
Worthington, IDP, Valtek, Limitorque, Durco, Edward, Anchor/Darling, SIHI, 
Halberg and Durametallic, which we believe to be one of the most comprehensive 
in the industry. Our products and services are sold either directly or through 
designated channels to more than 10,000 companies, including some of the 
world’s leading engineering, procurement and construction ("EPC") firms, 
original equipment manufacturers, distributors and end users. We continue to 
leverage our QRC network to be positioned as near to customers as possible for 
service and support in order to capture valuable aftermarket business. Along 
with ensuring that we have the local capability to sell, install and service 
our equipment in remote regions, it is equally imperative to continuously 
improve our global operations. We continue to expand our global supply chain 
capability to meet global customer demands and ensure the quality and timely 
delivery of our products. Additionally, we continue to devote resources to 
improving the supply chain processes across our business segments to find areas 
of synergy and cost reduction and to improve our supply chain management 
capability to ensure it can meet global customer demands. We also remain 
focused on improving on-time delivery and quality, while managing warranty 
costs as a percentage of sales across our global operations, through the 
assistance of a focused Continuous Improvement Process ("CIP") initiative. The 
goal of the CIP initiative, which includes lean manufacturing, six sigma 
business management strategy and value engineering, is to maximize service 
fulfillment to customers through on-time delivery, reduced cycle time and 
quality at the highest internal productivity. Over the past year, we have 
experienced a stabilization in business conditions and gained both traction and 
momentum in certain of our key markets. With continued stability in oil prices, 
at improved levels beginning in the second half of 2017, our large-project 
business is showing signs of recovery, while we expect increased geopolitical 
uncertainty to continue to challenge customers maintenance and short cycle 
investment in the near term.

RESULTS OF OPERATIONS — Three and nine months ended September 30, 2019 and 2018

Throughout this discussion of our results of operations, we discuss the impact 
of fluctuations in foreign currency exchange rates. We have calculated currency 
effects on operations by translating current year results on a monthly basis at 
prior year exchange rates for the same periods. We anticipate that the 
Flowserve 2.0 Transformation will result in restructuring charges, 
non-restructuring charges and other related transformation expenses. For the 
three months ended September 30, 2019 and 2018 we incurred Flowserve 2.0 
Transformation related expenses of $5.1 million and $24.0 million, 
respectively. For the nine months ended September 30, 2019 and 2018 we incurred 
Flowserve 2.0 Transformation related expenses of $21.0 million and $27.4 
million, respectively. The Flowserve 2.0 Transformation expenses incurred 
primarily consist of professional services, project management and related 
travel costs recorded in SG&A. The Realignment Programs, initiated in 2015, as 
discussed Note 17 to our condensed consolidated financial statements included 
in this Quarterly Report, were substantially complete as of December 31, 2018, 
with an estimated total investment in these programs of approximately $350 
million. The total charges for Realignment Programs and Flowserve 2.0 
Transformation by segment are detailed below for the three and nine months 
ended September 30, 2019 and 2018:


Three Months Ended September 30, 2019 (Amounts in thousands)

We define a booking as the receipt of a customer order that contractually 
engages us to perform activities on behalf of our customer with regard to 
manufacturing, service or support. Bookings recorded and subsequently canceled 
within the year-to-date period are excluded from year-to-date bookings. 
Bookings for the three months ended September 30, 2019 increased by $13.0 
million, or 1.3%, as compared with the same period in 2018. The increase 
included negative currency effects of approximately $22 million. The increase 
was driven by higher bookings in the power generation, chemical and water 
management industries, partially offset by decreased bookings in the oil and 
gas and general industries. The increase was driven by customer original 
equipment bookings. The three months ended September 30, 2018 included bookings 
of approximately $7 million related to the two FPD locations and associated 
product lines that were divested in the third quarter of 2018. Bookings for the 
nine months ended September 30, 2019 increased by $213.9 million, or 7.2%, as 
compared with the same period in 2018. The increase included negative currency 
effects of approximately $97 million. The increase was primarily driven by 
customer original equipment bookings. The increase was driven by higher 
bookings in the oil and gas, chemical, power generation and water management 
industries, partially offset by decreased bookings in the general industries. 
The nine months ended September 30, 2018 included bookings of approximately $31 
million related to the two FPD locations and associated product lines that were 
divested in the third quarter of 2018. Sales for the three months ended 
September 30, 2019 increased by $43.8 million, or 4.6%, as compared with the 
same period in 2018. The increase included negative currency effects of 
approximately $22 million. The increased sales were more heavily weighted 
towards aftermarket sales, with increased sales into North America, Asia 
Pacific, the Middle East and Europe, partially offset by decreased sales into 
Latin America and Africa. The three months ended September 30, 2018 included 
sales of approximately $5 million related to the two FPD locations and 
associated product lines that were divested in the third quarter of 2018. Net 
sales to international customers, including export sales from the U.S., were 
approximately 63% of total sales for the three months ended September 30, 2019 
and 2018. Sales for the nine months ended September 30, 2019 increased by $30.9 
million, or 1.1%, as compared with the same period in 2018. The increase 
included negative currency effects of approximately $83 million. The increase 
was driven by aftermarket sales, with increased sales into Europe, North 
America and Asia Pacific, partially offset by decreased sales into the Middle 
East and Latin America. The nine months ended September 30, 2018 included sales 
of approximately $44 million related to the two FPD locations and associated 
product lines that were divested in the third quarter of 2018. Net sales to 
international customers, including export sales from the U.S., were 
approximately 63% of total sales for the nine months ended September 30, 2019 
and 2018. Backlog represents the aggregate value of booked but uncompleted 
customer orders and is influenced primarily by bookings, sales, cancellations, 
and currency effects. Backlog of $2,137.5 million at September 30, 2019 
increased by $245.9 million, or 13.0%, as compared with December 31, 2018. 
Currency effects provided a decrease of approximately $47 million. 
Approximately 33% of the backlog at September 30, 2019 was related to 
aftermarket orders. Backlog includes our unsatisfied (or partially unsatisfied) 
performance obligations related to contracts having an original expected 
duration in excess of one year of approximately $579 million, as discussed in 
Note 2 to our condensed consolidated financial statements included in this 
Quarterly Report.

Gross Profit and Gross Profit Margin

Gross profit for the three months ended September 30, 2019 increased by $25.2 
million, or 8.2%, as compared with the same period in 2018. Gross profit margin 
for the three months ended September 30, 2019 of 33.5% increased from 32.4% for 
the same period in 2018. The increase in gross profit margin was primarily 
attributed to the favorable impact of revenue recognized on higher margin 
projects, lower realignment charges associated with our Realignment Programs 
and improvements in operational efficiency. Aftermarket sales represented 
approximately 49% of total sales, as compared with approximately 48% of total 
sales for the same period in 2018. Gross profit for the nine months ended 
September 30, 2019 increased by $79.8 million, or 9.2%, as compared with the 
same period in 2018. Gross profit margin for the nine months ended September 
30, 2019 of 32.9% increased from 30.4% for the same period in 2018. The 
increase in gross profit margin was primarily attributed to the favorable 
impact of revenue recognized on higher margin projects, sales mix shift to 
higher margin aftermarket sales, lower realignment charges associated with our 
Realignment Programs, improvements in operational efficiency and a $7.7 million 
charge related to the write-down of inventory in the second quarter of 2018 
that did not recur. Aftermarket sales represented approximately 51% of total 
sales, as compared with approximately 49% of total sales for the same period in 
2018.

SG&A for the three months ended September 30, 2019 decreased by $15.7 million, 
or 6.5%, as compared with the same period in 2018. Currency effects yielded a 
decrease of approximately $4 million. SG&A as a percentage of sales for the 
three months ended September 30, 2019 decreased 270 basis points as compared 
with the same period in 2018 primarily due to lower charges related to our 
Flowserve 2.0 Transformation program, decreased broad-based annual incentive 
compensation expense and the reversal of a loss contingency related to a legal 
matter.

SG&A for the nine months ended September 30, 2019 decreased by $56.8 million, 
or 8.0%, as compared with the same period in 2018. Currency effects yielded a 
decrease of approximately $16 million. SG&A as a percentage of sales for the 
nine months ended September 30, 2019 decreased 220 basis points as compared 
with the same period in 2018 primarily due to lower charges related to our 
Flowserve 2.0 Transformation program, decreased broad-based annual incentive 
compensation expense, gains from the sales of non-strategic manufacturing 
facilities in the first quarter of 2019, favorable impacts resulting from the 
2018 divestiture of two FPD locations and a $9.7 million impairment charge 
related to long-lived assets in the second quarter of 2018 that did not recur.

Loss on Sale of Businesses

The loss on sale of businesses for the three and nine months ended September 
30, 2018 is due to the loss of $7.7 million from the divestiture of two FPD 
locations and related product lines in the third quarter of 2018. See Note 3 to 
our condensed consolidated financial statements included in this Quarterly 
Report for additional information on these transactions.

Net Earnings from Affiliates

Net earnings from affiliates for the three months ended September 30, 2019 
decreased $1.2 million, or 36.4%, as compared with the same period in 2018. The 
decrease was primarily a result of decreased earnings of our FPD joint venture 
in India.

Net earnings from affiliates for the nine months ended September 30, 2019 were 
relatively flat when compared with prior year.

Operating Income and Operating Margin

Operating income for the three months ended September 30, 2019 increased by 
$47.4 million, or 76.2%, as compared with the same period in 2018. The increase 
included negative currency effects of approximately $2 million. The increase 
was primarily a result of the $25.2 million increase in gross profit, the $15.7 
million decrease in SG&A and the loss of $7.7 million from the divestiture of 
two FPD locations and related product lines in the third quarter of 2018 that 
did not recur.

Operating income for the nine months ended September 30, 2019 increased by 
$144.5 million, or 93.6%, as compared with the same period in 2018. The 
increase included negative currency effects of approximately $11 million. The 
increase was primarily a result of the $79.8 million increase in gross profit, 
the $56.8 million decrease in SG&A and the loss of $7.7 million from the 
divestiture of two FPD locations and related product lines in the third quarter 
of 2018 that did not recur.

Interest Expense and Interest Income

Interest expense for the three months ended September 30, 2019 remained 
relatively constant as compared with the same period in 2018. Interest income 
for the three months ended September 30, 2019 increased $1.0 million as 
compared with the same period in 2018. The increase in interest income was 
primarily attributable to higher average cash balances compared with same 
period in 2018.

Interest expense and interest income for the nine months ended September 30, 
2019 decreased $1.6 million and increased $2.3 million, respectively, as 
compared with the same period in 2018. The decrease in interest expense was 
primarily attributable to lower borrowings in 2019 and currency impacts on 
interest expense associated with our outstanding Euro-denominated senior notes, 
as compared to the same period in 2018. The increase in interest income was 
primarily attributable to higher average cash balances compared with same 
period in 2018.

Other income (expense), net for the three months ended September 30, 2019 
decreased $3.7 million, as compared with the same period in 2018, due primarily 
to a $4.0 million decrease in losses from transactions in currencies other than 
our sites' functional currencies, partially offset by a $0.7 million increase 
in losses arising from transactions on foreign exchange contracts. The net 
change was primarily due to the foreign currency exchange rate movements in the 
Mexican peso, Euro, Brazilian real and Indian rupee in relation to the U.S. 
dollar during the three months ended September 30, 2019, as compared with the 
same period in 2018.

Other income (expense), net for the nine months ended September 30, 2019 
decreased $9.1 million, as compared with the same period in 2018, due primarily 
to a $11.7 million decrease in losses from transactions in currencies other 
than our sites' functional currencies, partially offset by a $2.1 million 
increase in losses arising from transactions on foreign exchange contracts. The 
net change was primarily due to the foreign currency exchange rate movements in 
the Indian rupee, Euro, Mexican peso and Brazilian real in relation to the U.S. 
dollar during the nine months ended September 30, 2019, as compared with the 
same period in 2018.

Tax Expense and Tax Rate

The effective tax rate of 26.7% for the three months ended September 30, 2019 
decreased from 33.6% for the same period in 2018. The effective tax rate varied 
from the U.S. federal statutory rate for the three months ended September 30, 
2019 primarily due to the BEAT provision in the Tax Reform Act and state tax. 
The effective tax rate varied from the U.S. federal statutory rate for the 
three months ended September 30, 2018 primarily due to the net impact of taxes 
on foreign operations, including losses in certain foreign jurisdictions for 
which no tax benefit was provided. Refer to Note 14 to our condensed 
consolidated financial statements included in this Quarterly Report for further 
discussion.

The effective tax rate of 25.3% for the nine months ended September 30, 2019 
decreased from 37.9% for the same period in 2018. The effective tax rate varied 
from the U.S. federal statutory rate for the nine months ended September 30, 
2019 primarily due to the BEAT provision in the Tax Reform Act and state tax, 
partially offset by the net impact of foreign operations. The effective tax 
rate varied from the U.S. federal statutory rate for the nine months ended 
September 30, 2018 primarily due to the net impact of taxes on foreign 
operations, including losses in certain foreign jurisdictions for which no tax 
benefit was provided. Refer to Note 14 to our condensed consolidated financial 
statements included in this Quarterly Report for further discussion.

Other comprehensive loss for the three months ended September 30, 2019 
increased $9.9 million from a loss of $17.0 million in the same period in 2018. 
The increased loss was primarily due to foreign currency translation 
adjustments resulting primarily from exchange rate movements of the Euro, 
British pound, Chinese yuan and Mexican peso versus the U.S. dollar during the 
three months ended September 30, 2019, as compared with the same period in 
2018.

Other comprehensive loss for the nine months ended September 30, 2019 decreased 
$33.6 million from a loss of $52.9 million in the same period in 2018. The 
decreased loss was primarily due to foreign currency translation adjustments 
resulting primarily from exchange rate movements of the Euro, British pound and 
Mexican peso versus the U.S. dollar during the nine months ended September 30, 
2019, as compared with the same period in 2018.

Business Segments We conduct our operations through two business segments based 
on the type of product and how we manage the business. We evaluate segment 
performance and allocate resources based on each segment’s operating income. 
The key operating results for our two business segments, FPD and FCD, are 
discussed below. Flowserve Pump Division Segment Results Our largest business 
segment is FPD, through which we design, manufacture, distribute and service 
highly custom engineered pumps, pre-configured industrial pumps, pump systems, 
mechanical seals, auxiliary systems and replacement parts (collectively 
referred to as "original equipment") and related services. FPD primarily 
operates in the oil and gas, power generation, chemical and general industries. 
FPD operates in 50 countries with 41 manufacturing facilities worldwide, 14 of 
which are located in Europe, 13 in North America, eight in Asia and six in 
Latin America, and it operates 145 QRCs, including those co-located in 
manufacturing facilities and/or shared with FCD.


Bookings for the three months ended September 30, 2019 increased by $43.7 
million, or 6.3%, as compared with the same period in 2018. The increase 
included negative currency effects of approximately $17 million. The increase 
in customer bookings was driven by the chemical, power generation and general 
industries, partially offset by decreased bookings in the oil and gas industry. 
The three months ended September 30, 2018 included bookings of approximately $7 
million related to the two FPD locations and associated product lines that were 
divested in the third quarter of 2018. Increased customer bookings of $22.8 
million into the Middle East, $20.3 million into North America, $18.0 million 
into Africa, $7.0 million into Asia Pacific and $1.9 million into Latin America 
were partially offset by decreased customer bookings of $25.1 million into 
Europe. The increase was driven by customer original equipment bookings. 
Bookings for the nine months ended September 30, 2019 increased by $230.3 
million, or 11.4%, as compared with the same period in 2018. The increase 
included negative currency effects of approximately $71 million. The increase 
in customer bookings was driven by the oil and gas, chemical and power 
generation industries, partially offset by decreased bookings in the general 
industries. The nine months ended September 30, 2018 included bookings of 
approximately $31 million related to the two FPD locations and associated 
product lines that were divested in the third quarter of 2018. Increased 
customer bookings of $121.4 million into North America, $104.5 million into the 
Middle East, $68.6 million into Asia Pacific and $14.5 million in Latin America 
were partially offset by decreased customer bookings of $93.8 million into 
Europe. The increase was more heavily-weighted towards customer original 
equipment bookings. Sales for the three months ended September 30, 2019 
increased $34.7 million, or 5.4%, as compared with the same period in 2018. The 
increase in sales included negative currency effects of approximately $15 
million. The three months ended September 30, 2018 included sales of 
approximately $5 million related to the two FPD locations and associated 
product lines that were divested in the third quarter of 2018. The increase in 
sales was driven by aftermarket services sales. Customer sales increased $27.3 
million into North America, $18.8 million into the Middle East, $9.4 million 
into Asia Pacific and $5.0 million into Europe, which were partially offset by 
decreased sales of $25.1 million into Latin America and $1.6 million into 
Africa. Sales for the nine months ended September 30, 2019 increased $6.0 
million, or 0.3%, as compared with the same period in 2018. The increase in 
sales included negative currency effects of approximately $59 million. The nine 
months ended September 30, 2018 included sales of approximately $44 million 
related to the two FPD locations and associated product lines that were 
divested in the third quarter of 2018. The increase in sales was driven by 
aftermarket services sales. Customer sales increased $20.0 million into North 
America, $19.7 million into Europe and $12.9 million into Africa, which were 
partially offset by decreased sales of $27.2 million into Latin America, $20.0 
million into Asia Pacific and $4.3 million into the Middle East. Gross profit 
for the three months ended September 30, 2019 increased by $30.5 million, or 
15.3%, as compared with the same period in 2018. Gross profit margin for the 
three months ended September 30, 2019 of 33.7% increased from 30.8% for the 
same period in 2018. The increase in gross profit margin was primarily 
attributable to revenue recognized on higher margin projects, lower realignment 
charges associated with our Realignment Programs, sales mix shift to higher 
margin aftermarket sales and improvements in operational efficiency. Gross 
profit for the nine months ended September 30, 2019 increased by $84.2 million, 
or 14.8%, as compared with the same period in 2018. Gross profit margin for the 
nine months ended September 30, 2019 of 33.2% increased from 29.0% for the same 
period in 2018. The increase in gross profit margin was primarily attributable 
to revenue recognized on higher margin projects, lower realignment charges 
associated with our Realignment Programs, sales mix shift to higher margin 
aftermarket sales, improvements in operational efficiency and a $7.7 million 
charge related to the write-down of inventory in the second quarter of 2018 
that did not recur.

SG&A for the three months ended September 30, 2019 increased by $8.1 million, 
or 5.8%, as compared with the same period in 2018. Currency effects provided a 
decrease of approximately $3 million. The increase in SG&A is primarily due to 
increased selling-related expenses as compared to the same period in 2018. SG&A 
for the nine months ended September 30, 2019 decreased by $28.1 million, or 
6.3%, as compared with the same period in 2018. Currency effects provided a 
decrease of approximately $11 million. The decrease in SG&A is primarily due to 
favorable impacts on SG&A due to gains from the sales of non-strategic 
manufacturing facilities in the first quarter of 2019, the 2018 divestiture of 
two FPD locations and a $9.7 million impairment charge related to the 
long-lived assets in the second quarter of 2018 that did not recur. Operating 
income for the three months ended September 30, 2019 increased by $29 million, 
or 51.3%, as compared with the same period in 2018. The increase included 
negative currency effects of approximately $2 million. The increase was 
primarily due to the $30.5 million increase in gross profit, partially offset 
by the $8.1 million increase in SG&A and the $7.7 million loss from the 
divestiture of two FPD locations and related product lines in the third quarter 
of 2018 that did not recur. Operating income for the nine months ended 
September 30, 2019 increased by $119.3 million, or 97.1%, as compared with the 
same period in 2018. The increase included negative currency effects of 
approximately $9 million. The increase was primarily due to the $84.2 million 
increase in gross profit, the $28.1 million decrease in SG&A and the $7.7 
million loss from the divestiture of two FPD locations and related product 
lines in the third quarter of 2018 that did not recur. Backlog of $1,514.6 
million at September 30, 2019 increased by $228.4 million, or 17.8%, as 
compared with December 31, 2018. Currency effects provided a decrease of 
approximately $33 million.

Flow Control Division Segment Results FCD designs, manufactures and distributes 
a broad portfolio of engineered-to-order and configured-to-order isolation 
valves, control valves, valve automation products, boiler controls and related 
services. FCD leverages its experience and application know-how by offering a 
complete menu of engineered services to complement its expansive product 
portfolio. FCD has a total of 49 manufacturing facilities and QRCs in 22 
countries around the world, with five of its 21 manufacturing operations 
located in the U.S., 10 located in Europe, five located in Asia Pacific and one 
located in Latin America. Based on independent industry sources, we believe 
that FCD is the third largest industrial valve supplier on a global basis.


Three Months Ended September 30,

2019

Bookings for the three months ended September 30, 2019 decreased by $31.5 
million, or 10.0%, as compared with the same period in 2018. Bookings included 
negative currency effects of approximately $5 million. Decreased customer 
bookings in the oil and gas and chemical industries were partially offset by 
increased bookings in the power generation industry. Decreased customer 
bookings of $17.3 million into Europe, $12.8 million into North America, $2.1 
million into Latin America and $1.5 million into Asia Pacific were partially 
offset by increased bookings of $2.3 million into the Middle East and $2.2 
million into Africa. The decrease was primarily driven by customer original 
equipment bookings. Bookings for the nine months ended September 30, 2019 
decreased by $15.1 million, or 1.6%, as compared with the same period in 2018. 
Bookings included negative currency effects of approximately $26 million. 
Decreased customer bookings in the general industries were partially offset by 
increased bookings in the power generation, chemical, water management and oil 
and gas industries. Decreased customer bookings of $26 million into North 
America, $4.4 million into Latin America and $4.1 million into Africa were 
partially offset by increased bookings of $14.9 million into the Middle East. 
The decrease was primarily driven by customer aftermarket bookings. Sales for 
the three months ended September 30, 2019 increased $8.6 million, or 2.8%, as 
compared with the same period in 2018. The increase included negative currency 
effects of approximately $6 million. Increased sales were driven by original 
equipment sales. The increase was primarily driven by increased customer sales 
of $21.1 million into Asia Pacific, $3.2 million into Latin America and $1.6 
million into Europe, partially offset by decreased sales of $9.0 million into 
Africa, $6.8 million into North America and $1.2 million into the Middle East. 
Sales for the nine months ended September 30, 2019 increased $24.0 million, or 
2.7%, as compared with the same period in 2018. The increase included negative 
currency effects of approximately $25 million. Increased sales were driven by 
original equipment sales. The increase was primarily driven by increased 
customer sales of $28.7 million into Asia Pacific, $13.1 million into Europe, 
$8.1 million into Latin America and $4.6 million into North America, partially 
offset by decreased sales of $15.9 million into the Middle East and $14.8 
million into Africa. Gross profit for the three months ended September 30, 2019 
decreased by $6.8 million, or 6.2%, as compared with the same period in 2018. 
Gross profit margin for the three months ended September 30, 2019 of 32.6% 
decreased from 35.7% for the same period in 2018. The decrease in gross profit 
margin was primarily attributed to a mix shift to more original equipment sales 
and revenue recognized on lower margin original equipment orders as compared to 
the same period in 2018. Gross profit for the nine months ended September 30, 
2019 increased by $1.2 million, or 0.4%, as compared with the same period in 
2018. Gross profit margin for the nine months ended September 30, 2019 of 32.8% 
decreased from 33.6% for the same period in 2018. The decrease in gross profit 
margin was primarily attributed to a mix shift to more original equipment sales 
and revenue recognized on lower margin original equipment orders as compared to 
the same period in 2018. SG&A for the three months ended September 30, 2019 
remained relatively flat as compared with the same period in 2018. Currency 
effects provided a decrease of approximately $1 million. SG&A for the nine 
months ended September 30, 2019 decreased by $1.9 million, or 1.2%, as compared 
with the same period in 2018. Currency effects provided a decrease of 
approximately $4 million. Operating income for the three months ended September 
30, 2019 decreased by $6.4 million, or 11.3%, as compared with the same period 
in 2018. The decrease included negative currency effects of approximately $1 
million. The decrease was primarily due to the $6.8 million decrease in gross 
profit. Operating income for the nine months ended September 30, 2019 increased 
by $3.9 million, or 2.9%, as compared with the same period in 2018. The 
increase included negative currency effects of approximately $3 million. The 
increase was primarily due to the $1.2 million increase in gross profit and the 
decrease in SG&A of $1.9 million. Backlog of $627.0 million at September 30, 
2019 increased by $18.6 million, or 3.1%, as compared with December 31, 2018. 
Currency effects provided a decrease of approximately $14 million.

LIQUIDITY AND CAPITAL RESOURCES Cash Flow and Liquidity Analysis

Existing cash, cash generated by operations and borrowings available under our 
New Senior Credit Facility are our primary sources of short-term liquidity. We 
monitor the depository institutions that hold our cash and cash equivalents on 
a regular basis, and we believe that we have placed our deposits with 
creditworthy financial institutions. Our sources of operating cash generally 
include the sale of our products and services and the conversion of our working 
capital, particularly accounts receivable and inventories. Our cash balance at 
September 30, 2019 was $547.3 million, as compared with $619.7 million at 
December 31, 2018. Our cash balance decreased by $72.4 million to $547.3 
million at September 30, 2019, as compared with December 31, 2018. The cash 
activity during the first nine months of 2019 included $38.9 million of 
proceeds from the sale of non-strategic manufacturing facilities that are 
included in our Realignment Programs, $74.7 million in dividend payments and 
$105.0 million of payments on long-term debt. For the nine months ended 
September 30, 2019, our cash provided by operating activities was $144.0 
million, as compared to $26.3 million for the same period in 2018. Cash flow 
provided by working capital increased for the nine months ended September 30, 
2019, due primarily to improved cash flow related to accounts payable, contract 
assets and contract liabilities, partially offset by inventories and accrued 
liabilities and income taxes payable. Increases in accounts receivable used 
$13.4 million of cash flow for the nine months ended September 30, 2019, as 
compared to $9.5 million for the same period in 2018. As of September 30, 2019, 
our days’ sales outstanding ("DSO") was 71 days as compared with 74 days as of 
September 30, 2018. Increases in contract assets used $36.3 million of cash 
flow for the nine months ended September 30, 2019, as compared to $54.8 million 
for the same period in 2018. Increases in inventory used $68.7 million and 
$46.7 million of cash flow for the nine months ended September 30, 2019 and 
September 30, 2018, respectively. Inventory turns were 3.9 times at both 
September 30, 2019 and 2018. Decreases in accounts payable used $17.9 million 
of cash flow for the nine months ended September 30, 2019, as compared with 
$30.0 million for the same period in 2018. Decreases in accrued liabilities and 
income taxes payable used $6.4 million of cash flow for the nine months ended 
September 30, 2019, as compared with $13.7 million for the same period in 2018. 
Increases in contract liabilities provided $21.3 million and $3.4 million of 
cash flow for the nine months ended September 30, 2019 and September 30, 2018, 
respectively. Cash flows used by investing activities during the nine months 
ended September 30, 2019 were $3.9 million, as compared with to $49.6 million 
for the same period in 2018. Capital expenditures during the nine months ended 
September 30, 2019 were $44.6 million, a decrease of $5.4 million as compared 
with the same period in 2018. Our capital expenditures are generally focused on 
strategic initiatives to pursue new markets, geographic expansion, information 
technology infrastructure, ongoing scheduled replacements and upgrades, and 
cost reduction opportunities. In 2019, total capital expenditures are expected 
to be between $75 million and $85 million. In addition, proceeds from disposal 
of assets during the nine months ended September 30, 2019 provided $40.8 
million, primarily from the sale of non-strategic manufacturing facilities that 
are included in our Realignment Programs. Cash flows used by financing 
activities during the nine months ended September 30, 2019 were $195.5 million, 
as compared with $133.2 million for the same period in 2018. Cash outflows 
during the nine months ended September 30, 2019 resulted primarily from the 
repurchase of $5.4 million of common shares, $74.7 million of dividend payments 
and $105.0 million of payments on long-term debt. As of September 30, 2019, we 
had an available capacity of $720.5 million on our $800.0 million New Senior 
Credit Facility. Our borrowing capacity is subject to financial covenant 
limitations based on the terms of our New Senior Credit Facility and is also 
reduced by outstanding letters of credit. On July 16, 2019, we borrowed $75.0 
million under the New Senior Credit Facility, which provides for a $800.0 
million unsecured revolving credit facility with a maturity date of July 16, 
2024, to repay all outstanding indebtedness under our Senior Credit Facility. 
In connection with this repayment, our outstanding letters of credit under the 
Senior Credit Facility were transferred to the New Senior Credit Facility, and 
we terminated the Senior Credit Facility. Our New Senior Credit Facility is 
committed and held by a diversified group of financial institutions. On 
September 16, 2019, the $75.0 million borrowed under the New Senior Credit 
Facility was paid in full. Refer to Note 7 to our condensed consolidated 
financial statements included in this Quarterly Report for additional 
information concerning our New Senior Credit Facility. During both the nine 
months ended September 30, 2019 and 2018, we contributed $20.0 million to our 
U.S. pension plan. At December 31, 2018 our U.S. pension plan was fully funded 
as defined by applicable law. After consideration of our funded status, we do 
not anticipate making any additional contributions to our U.S. pension plan in 
2019, excluding direct benefits paid. We continue to maintain an asset 
allocation consistent with our strategy to maximize total return, while 
reducing portfolio risks through asset class diversification. Considering our 
current debt structure and cash needs, we currently believe cash flows 
generated from operating activities combined with availability under our New 
Senior Credit Facility and our existing cash balance will be sufficient to meet 
our cash needs for the next 12 months. Cash flows from operations could be 
adversely affected by economic, political and other risks associated with sales 
of our products, operational factors, competition, fluctuations in foreign 
exchange rates and fluctuations in interest rates, among other factors. See 
"Cautionary Note Regarding Forward-Looking Statements" below. As of September 
30, 2019, we have $155.3 million of remaining capacity for Board of Directors 
approved share repurchases. While we intend to continue to return cash through 
dividends and/or share repurchases for the foreseeable future, any future 
returns of cash through dividends and/or share repurchases will be reviewed 
individually, declared by our Board of Directors at its discretion and 
implemented by management.

Financing Credit Facilities See Note 11 to our consolidated financial 
statements included in our 2018 Annual Report and Note 7 to our condensed 
consolidated financial statements included in this Quarterly Report for a 
discussion of our New Senior Credit Facility and related covenants. We were in 
compliance with all applicable covenants under our New Senior Credit Facility 
as of September 30, 2019.


•Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived 
Assets.

The process of preparing condensed consolidated financial statements in 
conformity with U.S. GAAP requires the use of estimates and assumptions to 
determine certain of the assets, liabilities, revenues and expenses. These 
estimates and assumptions are based upon what we believe is the best 
information available at the time of the estimates or assumptions. The 
estimates and assumptions could change materially as conditions within and 
beyond our control change. Accordingly, actual results could differ materially 
from those estimates. The significant estimates are reviewed quarterly with the 
Audit Committee of our Board of Directors.

Risks and uncertainties may cause actual results to differ materially from what 
is forecast in such forward-looking statements, and include, without 
limitation, the following:

•

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


•

changes in the global financial markets and the availability of capital and the 
potential for unexpected cancellations or delays of customer orders in our 
reported backlog;


•

our dependence on our customers' ability to make required capital investment 
and maintenance expenditures. The liquidity and financial position of our 
customers could impact capital investment decisions and their ability to pay in 
full and/or on a timely basis;


•

if we are not able to successfully execute and realize the expected financial 
benefits from our strategic transformation, realignment and other cost-saving 
initiatives, our business could be adversely affected;


•

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


•

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


•

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


•

economic, political and other risks associated with our international 
operations, including military actions, trade embargoes or changes to tariffs 
or trade agreements that could affect customer markets, particularly North 
African, Russian and Middle Eastern markets and global oil and gas producers, 
and non-compliance with U.S. export/reexport control, foreign corrupt practice 
laws, economic sanctions and import laws and regulations;


•

increased aging and slower collection of receivables, particularly in Latin 
America and other emerging markets;


•

our exposure to fluctuations in foreign currency exchange rates, particularly 
the Euro and British pound and in hyperinflationary countries such as Venezuela 
and Argentina;


•

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


•

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


•

expectations regarding acquisitions and the integration of acquired businesses;


•

our relative geographical profitability and its impact on our utilization of 
deferred tax assets, including foreign tax credits;


•

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


•

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


•

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


•

environmental compliance costs and liabilities;


•

potential work stoppages and other labor matters;


•

access to public and private sources of debt financing;


•

our inability to protect our intellectual property in the U.S., as well as in 
foreign countries;


•

obligations under our defined benefit pension plans;


•

our internal control over financial reporting may not prevent or detect 
misstatements because of its inherent limitations, including the possibility of 
human error, the circumvention or overriding of controls, or fraud;


•

the recording of increased deferred tax asset valuation allowances in the 
future or the impact of tax law changes on such deferred tax assets could 
affect our operating results;


•

risks and potential liabilities associated with cyber security threats; and


•

ineffective internal controls could impact the accuracy and timely reporting of 
our business and financial results.

These and other risks and uncertainties are more fully discussed in the risk 
factors identified in "Item 1A. Risk Factors" in Part I of our 2018 Annual 
Report and Part II of this Quarterly Report, and may be identified in our 
Quarterly Reports on Form 10-Q and our other filings with the SEC and/or press 
releases from time to time. All forward-looking statements included in this 
document are based on information available to us on the date hereof, and we 
assume no obligation to update any forward-looking statement.


Quantitative and Qualitative Disclosures about Market Risk. We have market risk 
exposure arising from changes in foreign currency exchange rate movements in 
foreign exchange contracts. We are exposed to credit-related losses in the 
event of non-performance by counterparties to financial instruments, but we 
currently expect our counterparties will continue to meet their obligations 
given their current creditworthiness. Foreign Currency Exchange Rate Risk A 
substantial portion of our operations are conducted by our subsidiaries outside 
of the U.S. in currencies other than the U.S. dollar. Almost all of our 
non-U.S. subsidiaries conduct their business primarily in their local 
currencies, which are also their functional currencies. Foreign currency 
exposures arise from translation of foreign-denominated assets and liabilities 
into U.S. dollars and from transactions, including firm commitments and 
anticipated transactions, denominated in a currency other than our or a 
non-U.S. subsidiary’s functional currency. We previously designated €255.7 
million of our €500.0 million 2022 Euro Senior Notes as a net investment hedge 
of our investments in certain of our international subsidiaries that use the 
Euro as their functional currency. Generally, we view our investments in 
foreign subsidiaries from a long-term perspective and use capital structuring 
techniques to manage our investment in foreign subsidiaries as deemed 
necessary. We realized net losses associated with foreign currency translation 
of $(30.6) million and $(19.7) million for the three months ended September 30, 
2019 and 2018, respectively, and $(26.5) million and $(61.2) million for the 
nine months ended September 30, 2019 and 2018, respectively which are included 
in other comprehensive income (loss). We employ a foreign currency risk 
management strategy to minimize potential changes in cash flows from 
unfavorable foreign currency exchange rate movements. Where available, the use 
of foreign exchange contracts allows us to mitigate transactional exposure to 
exchange rate fluctuations as the gains or losses incurred on the foreign 
exchange contracts will offset, in whole or in part, losses or gains on the 
underlying foreign currency exposure. As of September 30, 2019, we had a U.S. 
dollar equivalent of $377.6 million in aggregate notional amount outstanding in 
foreign exchange contracts with third parties, as compared with $280.9 million 
at December 31, 2018. Transactional currency gains and losses arising from 
transactions outside of our sites’ functional currencies and changes in fair 
value of non-designated foreign exchange contracts are included in our 
consolidated results of operations. We recognized foreign currency net losses 
of $(0.9) million and $(4.3) million for the three months ended September 30, 
2019 and 2018, respectively, and $(6.7) million and $(16.4) million for the 
nine months ended September 30, 2019 and 2018, respectively, which are included 
in other income (expense), net in the accompanying condensed consolidated 
statements of income. Based on a sensitivity analysis at September 30, 2019, a 
10% change in the foreign currency exchange rates for the nine months ended 
September 30, 2019 would have impacted our net earnings by approximately $12 
million. This calculation assumes that all currencies change in the same 
direction and proportion relative to the U.S. dollar and that there are no 
indirect effects, such as changes in non-U.S. dollar sales volumes or prices. 
This calculation does not take into account the impact of the foreign currency 
exchange contracts discussed above.