The following discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with, the accompanying consolidated
financial statements and notes. See "Item 1A. Risk Factors" and the section
titled "Forward-Looking Information is Subject to Risk and Uncertainty" included
in this Annual Report on Form 10-K for the year ended December 31, 2019 ("Annual
Report") for a discussion of the risks, uncertainties and assumptions associated
with these statements. Unless otherwise noted, all amounts discussed herein are
consolidated.

EXECUTIVE OVERVIEW
Our Company
We believe that 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 employ approximately 17,000 employees
in more than 50 countries as of December 31, 2019.
Our business model is significantly influenced by the capital spending of global
infrastructure industries for the placement of new products into service and
maintenance spending for 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
business, which is primarily served by our network of 171 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 profitable growth
strategy.
Our operations are conducted through two business segments that are referenced
throughout this Management's Discussion and Analysis of Financial Condition and
Results of Operations ("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.




Our business segments share a focus on industrial flow control technology and
have a high 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, our economies of scale in reducing administrative and overhead
costs to serve customers more cost effectively and shared leadership for
operational support functions, such as 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, Argus, Edward,
Valbart 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, we continuously improve our global
operations. We also continue to expand our global supply chain capability to
meet global customer demands and ensure the quality and timely delivery of our
products. We are focusing on our ongoing low-cost sourcing, including greater
use of third-party suppliers and increasing our lower-cost, emerging market
capabilities. 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

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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 continued stabilization in business and
improved conditions in certain of our key markets.  With continued stability in
oil prices at improved levels through the middle of 2018 and 2019, our
large-project business is showing continued signs of recovery and we anticipate
that customers will continue to invest in maintenance and short cycle equipment
during 2020.
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, expand
margins, increase capital efficiency and improve organizational health. For
further information regarding our Flowserve 2.0 Transformation, see "Our Results
of Operations" below and Note 20 to our consolidated financial statements
included in Item 8 of this Annual Report.
Our Markets
The following discussion should be read in conjunction with the "Outlook for
2020" section included below in this MD&A.
Our products and services are used in several distinct industries: oil and gas,
chemical, power generation, water management, and several other industries, such
as mining, steel and paper, that are collectively referred to as "general
industries."
Demand for most of our products depends on the level of new capital investment
as well as planned and unplanned maintenance expenditures by our customers. The
level of new capital investment depends, in turn, on capital infrastructure
projects driven by the need for products that rely on oil and gas, chemicals,
power generation and water resource management, as well as general economic
conditions. These drivers are generally related to the phase of the business
cycle in their respective industries and the expectations of future market
behavior. The levels of maintenance expenditures are additionally driven by the
reliability of equipment, planned and unplanned downtime for maintenance and the
required capacity utilization of the process.
Sales to EPC firms and original equipment manufacturers are typically for large
project orders and critical applications, as are certain sales to distributors.
Project orders are typically procured for customers either directly from us or
indirectly through contractors for new construction projects or facility
enhancement projects.
The quick turnaround business, which we also refer to as "short-cycle," is
defined as orders that are received from the customer (booked) and shipped
generally within six months of receipt. These orders are typically for more
standardized, general purpose products, parts or services. Each of our two
business segments generate certain levels of this type of business.
In the sale of aftermarket products and services, we benefit from a large
installed base of our original equipment, which requires periodic maintenance,
repair and replacement parts. We use our manufacturing platform and global
network of QRCs to offer a broad array of aftermarket equipment services, such
as installation, advanced diagnostics, repair and retrofitting. In geographic
regions where we are positioned to provide quick response, we believe customers
have traditionally relied on us, rather than our competitors, for aftermarket
products due to our highly engineered and customized products. However, the
aftermarket for standard products is competitive, as the existence of common
standards allows for easier replacement of the installed products. As proximity
of service centers, timeliness of delivery and quality are important
considerations for all aftermarket products and services, we continue to
selectively expand our global QRC capabilities to improve our ability to capture
this important aftermarket business.
Oil and Gas
The oil and gas industry, which represented approximately 41% and 38% of our
bookings in 2019 and 2018, respectively, experienced an increase in capital
spending in 2019 compared to the previous year. The increase was primarily due
to increased project activity and short cycle investment. Aftermarket
opportunities in this industry remained stable throughout 2019 following
increased spending in 2018 due to catch up of deferred spending on our
customers' repair and maintenance budgets from previous years.

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The outlook for the oil and gas industry is heavily dependent on the demand
growth from both mature markets and developing geographies as well as changes in
the regulatory environment. In the short-term, we believe that stable oil prices
will support oil and gas upstream and mid-stream investment and we further
expect continued investment in later cycle downstream oil and gas and
petrochemical projects due to emerging market growth and certain regulatory
requirements, such as IMO 2020. We also believe stable oil prices support
increased demand for our aftermarket products and services. We believe the
medium and long-term fundamentals for this industry remain attractive and see a
stabilized environment as the industry works through current excess supply. In
addition, we believe projected depletion rates of existing fields and forecasted
long-term demand growth will require additional investments. With our
long-standing reputation in providing successful solutions for upstream,
mid-stream and downstream applications, along with the advancements in our
portfolio of offerings, we believe that we continue to be well-positioned to
assist our customers in this improving environment.
Chemical
The chemical industry represented approximately 22% of our bookings in both 2019
and 2018. The chemical industry is comprised of chemical-based and
pharmaceutical products. Capital spending in 2019 increased primarily due to
global economic growth and forecasted demand for chemical-based products. The
aftermarket opportunities remained stable throughout 2019 following increased
spending in 2018 due to catch up of deferred spending of our customers' repair
and maintenance budgets from previous years.
The outlook for the chemical industry remains heavily dependent on global
economic conditions. As global economies and unemployment conditions improve, a
rise in consumer spending should follow. An increase in spending would drive
greater demand for chemical-based products supporting improved levels of capital
investment. We believe the chemical industry in the near-term will continue to
invest in North America and Middle East capacity additions, maintenance and
upgrades for optimization of existing assets and that developing regions will
selectively invest in capital infrastructure to meet current and future
indigenous demand. We believe our global presence and our localized aftermarket
capabilities are well-positioned to serve the potential growth opportunities in
this industry.
Power Generation
The power generation industry represented approximately 11% of our bookings in
both 2019 and 2018. In 2019, the power generation industry continued to
experience softness in thermal power generation capital spending in the mature
and key developing markets.  China continued to curtail the construction of new
coal-fired power generation over the last year, while in India and southeast
Asia capital investment remained in place driven by increased demand forecasts.
Natural gas-fired combined cycle ("NGCC") plants increased their share of the
energy mix, driven by market prices for gas remaining low and stable (partially
due to the increasing global availability of liquefied natural gas ("LNG")), low
capital expenditures, and the ability of NGCC to stabilize unpredictable
renewable sources. With the potential of unconventional sources of gas, the
global power generation industry is forecasting an increased use of this form of
fuel for power generation plants.
Despite fewer new nuclear plants being constructed, nuclear power remains an
important contributor to the global energy mix. We continue to support our
significant installed base in the global nuclear fleet by providing aftermarket
and life extension products and services. Due to our extensive history, we
believe we are well positioned to take advantage of this ongoing source of
aftermarket and new construction opportunities.
Political efforts to limit the emissions of carbon dioxide may have some adverse
effect on thermal power investment plans depending on the potential requirements
imposed and the timing of compliance by country. However, many proposed methods
of capturing and limiting carbon dioxide emissions offer business opportunities
for our products and services. At the same time, we continue to take advantage
of new investments in concentrated solar power generating capacity, where our
pumps, valves, and seals are uniquely positioned for both molten salt
applications as well as the traditional steam cycle.
We believe the long-term fundamentals for the power generation industry remain
solid based on projected increases in demand for electricity driven by global
population growth, growth of urbanization in developing markets and the
increased use of electricity driven transportation. We also believe that our
long-standing reputation in the power generation industry, our portfolio of
offerings for the various generating methods, our advancements in serving the
renewable energy market and carbon capture methodologies, as well as our global
service and support structure, position us well for the future opportunities in
this important industry.

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Water Management
The water management industry represented approximately 4% our bookings in both
2019 and 2018. Water management industry activity levels increased in 2019 as
worldwide demand for fresh water, water treatment and re-use, desalination and
flood control continued to create requirements for new facilities or for
upgrades of existing systems, many of which require products that we offer,
particularly pumps. Capital and aftermarket spending are on the rise in
developed and emerging markets with governments and private industry providing
funding for critical projects.
The proportion of people living in regions that find it difficult to meet water
requirements is expected to double by 2025. We believe that the persistent
demand for fresh water during all economic cycles supports continued
investments, especially in North America and developing regions.
General Industries
General industries represented, in the aggregate, approximately 22% and 25% of
our bookings in 2019 and 2018, respectively. General industries comprise a
variety of different businesses, including mining and ore processing, pulp and
paper, food and beverage and other smaller applications, none of which
individually represented more than 5% of total bookings in 2019 and 2018.
General industries also include sales to distributors, whose end customers
operate in the industries we primarily serve. Sales to distributors in 2019 were
negatively impacted by decreased upstream oil and gas activity in North America.
The outlook for this group of industries is heavily dependent upon the condition
of global economies and consumer confidence levels. The long-term fundamentals
of many of these industries remain sound, as many of the products produced by
these industries are common staples of industrialized and urbanized economies.
We believe that our specialty product offerings designed for these industries
and our aftermarket service capabilities will provide continued business
opportunities.

OUR RESULTS OF OPERATIONS



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.
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 20 to our consolidated financial statements included
in Item 8 of this Annual Report. For the year ended December 31, 2019 and 2018,
we incurred Flowserve 2.0 Transformation related expenses of $28.0 million and
$41.2 million, respectively. The Flowserve 2.0 Transformation expenses
incurred primarily consist of professional services, project management and
related travel costs recorded in SG&A.

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In 2015, we initiated Realignment Programs that consist of both restructuring
and non-restructuring charges that are further discussed in Note 20 to our
consolidated financial statements included in Item 8 of this Annual Report. As
of December 31, 2019, the Realignment Programs are substantially complete and we
have incurred charges of $351.7 million to date. The total charges for
Realignment Programs and Flowserve 2.0 Transformation by segment are detailed
below for the years ended December 31, 2019 and 2018:
                                                                       

December 31, 2019

Subtotal-Reportable Eliminations and


 (Amounts in thousands)            FPD           FCD               Segments                All Other         Consolidated Total
Total Realignment and
Transformation Program Charges
   COS                         $  12,587     $   4,395     $             16,982        $            255     $           17,237
   SG&A(1)                       (14,506 )         774                  (13,732 )                32,467                 18,735
   Income tax expense(2)          (4,000 )           -                   (4,000 )                     -                 (4,000 )
Total                          $  (5,919 )   $   5,169     $               (750 )      $         32,722     $           31,972

_________________________


(1) Includes gains from the sales of non-strategic manufacturing facilities that
are included in our Realignment Programs.
(2) Income tax expense (benefit) includes exit taxes.

                                                                       December 31, 2018
                                                              Subtotal-Reportable       Eliminations and
 (Amounts in thousands)            FPD           FCD               Segments                All Other         Consolidated Total
Total Realignment and
Transformation Program Charges
   COS                         $  39,477     $   3,221     $             42,698        $              -     $           42,698
   SG&A                            5,910          (294 )                  5,616                  46,786                 52,402
   Income tax expense(1)          (1,000 )           -                   (1,000 )                     -                 (1,000 )
Total                          $  44,387     $   2,927     $             47,314        $         46,786     $           94,100

_________________________

(1) Income tax expense (benefit) includes exit taxes. Bookings and Backlog


                           2019         2018         2017
                               (Amounts in millions)
Bookings                $ 4,238.3    $ 4,019.8    $ 3,803.9

Backlog (at period end) 2,157.0 1,891.6 2,033.4





We define a booking as the receipt of a customer order that contractually
engages us to perform activities on behalf of our customer in regard to the
manufacture, delivery, and/or support of products or the delivery of service.
Bookings recorded and subsequently canceled within the same fiscal period are
excluded from reported bookings. Bookings of $4.2 billion in 2019 increased by
$218.5 million, or 5.4%, as compared with 2018. The increase included negative
currency effects of approximately $108 million. The increase was primarily
driven by customer original equipment bookings. The increase was driven by
higher bookings in the oil and gas, power generation, chemical and water
management industries, partially offset by decreased bookings in the general
industries. Bookings in 2018 included approximately $31 million related to
the two FPD locations and associated product lines that were divested in the
third quarter of 2018.

Bookings of $4.0 billion in 2018 increased by $215.9 million, or 5.7%, as compared with 2017. The increase included currency benefits of approximately $30 million. The increase was primarily driven by the oil and gas, general and chemical industries, partially offset by a decrease in the power generation industry. The increase was more heavily-weighted towards customer aftermarket bookings.


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Backlog represents the aggregate value of booked but uncompleted customer orders
and is influenced primarily by bookings, sales, cancellations and currency
effects. Backlog of $2.2 billion at December 31, 2019 increased by $265.4
million, or 14.0%, as compared with December 31, 2018. Currency effects provided
an increase of less than $1 million (currency effects on backlog are calculated
using the change in period end exchange rates). Backlog related to aftermarket
orders was approximately 33% and 36% of the backlog at December 31, 2019 and
2018, respectively. We expect to recognize revenue on approximately 88% of
December 31, 2019 backlog during 2020. Backlog includes our unsatisfied (or
partially unsatisfied) performance obligations related to contracts having an
original expected duration in excess of one year of approximately $709 million
as discussed in Note 2 to our consolidated financial statements included in Item
8 of this Annual Report.
Backlog of $1.9 billion at December 31, 2018 decreased by $141.8 million,
or 7.0%, as compared with December 31, 2017. Currency effects provided a
decrease of approximately $83 million. Backlog related to aftermarket orders was
approximately 36% and 31% of the backlog at December 31, 2018 and 2017,
respectively. We expected to recognize revenue on
approximately 89% of December 31, 2018 backlog during 2019.
Sales

2019 2018 2017


             (Amounts in millions)

Sales $ 3,944.9 $ 3,832.7 $ 3,660.8





Sales in 2019 increased by $112.2 million, or 2.9%, as compared with 2018. The
increase included negative currency effects of approximately $94 million. The
increase was more heavily-weighted to aftermarket sales, with increased sales
into North America, Europe and Asia Pacific, partially offset by decreased sales
into Latin America, Africa and the Middle East. Sales in 2018 included
approximately $30 million related to the two FPD locations and associated
product lines that were divested in the third quarter of 2018.

Sales in 2018 increased by $171.9 million, or 4.7%, as compared with 2017. The increase included currency benefits of approximately $31 million. The increase was more heavily-weighted to aftermarket sales, with increased sales into North America, Asia Pacific and Africa, partially offset by decreased sales in the Middle East and Europe.



Sales to international customers, including export sales from the U.S., were
approximately 63% of total sales in both 2019 and 2018 and 64% for 2017. Sales
into Europe, the Middle East and Africa ("EMA") were approximately 32% of total
sales in both 2019 and 2018 and 36% in 2017. Sales into Asia Pacific were
approximately 21% of total sales for 2019, 20% for 2018 and 19% for 2017. Sales
into Latin America were approximately 6% of total sales in 2019, 2018 and 2017.
Gross Profit and Gross Profit Margin
                          2019                2018             2017
                         (Amounts in millions, except percentages)
Gross profit        $     1,295.4       $     1,187.8       $ 1,089.0
Gross profit margin          32.8 %              31.0 %          29.7 %



Gross profit in 2019 increased by $107.6 million, or 9.1%, as compared with
2018. Gross profit margin in 2019 of 32.8% increased from 31.0% 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, 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 represent approximately
50% of total sales in both 2019 and 2018.

Gross profit in 2018 increased by $98.8 million, or 9.1%, as compared with 2017.
Gross profit margin in 2018 of 31.0% increased from 29.7% in 2017.
The increase in gross profit margin was primarily attributable to a $16.9
million charge for costs related to a contract to supply oil and gas platform
equipment to an end user in Latin America in 2017 that did not recur, revenue
recognized on higher margin projects, a mix shift to higher margin aftermarket
sales, favorable impact of increased sales on our absorption of fixed
manufacturing costs and increased savings related to our Realignment Programs,
partially offset by a $7.7 million charge for cost incurred related to the
write-down of inventory associated with the divestiture of two FPD locations and
related product lines in the second quarter of 2018. Aftermarket sales increased
to approximately 50% of total sales, as compared with approximately 48% of total
sales in 2017.

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SG&A
                                   2019               2018               2017
                                   (Amounts in millions, except percentages)
SG&A                          $      899.8       $      943.7       $      901.7
SG&A as a percentage of sales         22.8 %             24.6 %             

24.6 %





SG&A in 2019 decreased by $43.9 million, or 4.7%, as compared with 2018.
Currency effects yielded a decrease of approximately $18 million. In 2019, SG&A
as a percentage of sales decreased 180 basis points as compared with the same
period in 2018 primarily due to lower charges related to our Flowserve 2.0
Transformation and Realignment Programs, decreased broad-based annual incentive
compensation expense, gains from the sales of non-strategic manufacturing
facilities during the year, 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.

SG&A in 2018 increased by $42.0 million, or 4.7%, as compared with 2017.
Currency effects yielded an increase of approximately $7 million. In 2018, SG&A
as a percentage of sales remained relatively unchanged as compared with 2017.
SG&A was favorably impacted by increased sales leverage, a $26.0 million
impairment charge related to our manufacturing facility in Brazil in 2017 that
did not recur, lower stock-based compensation expense, lower bad debt expense
and lower charges and increased savings related to our Realignment Programs.
These favorable cost impacts were substantially offset by charges related to the
Flowserve 2.0 Transformation program, implementation costs associated with our
adoption of the New Revenue Standard, increased accrued broad-based annual
incentive compensation expense and an impairment charge of $9.7 million related
to the long-lived assets associated with the divestiture of two FPD locations
and related product lines in the second quarter of 2018.
(Loss) Gain on Sale of Businesses
                                     2019         2018       2017
                                        (Amounts in millions)

(Loss) gain on sale of businesses $ - $ (7.7 ) $ 141.3





The loss on sale of businesses in 2018 of $7.7 million resulted from the
divestiture of two FPD locations and related product lines. The gain on sale of
businesses in 2017 was the result of the $141.3 million gain from the sales of
the Gestra and Vogt businesses. See Note 3 to our consolidated financial
statements included in Item 8 of this Annual Report for additional information
on these sales.
Net Earnings from Affiliates
                                 2019         2018      2017
                                   (Amounts in millions)

Net earnings from affiliates $ 10.5 $ 11.1 $ 12.6





Net earnings from affiliates represents our net income from investments in six
joint ventures (one located in each of Chile, China, India, Saudi Arabia, South
Korea and the United Arab Emirates) that are accounted for using the equity
method of accounting. Net earnings from affiliates in 2019 decreased by $0.6
million, or 5.4%, as compared to the prior year, primarily as a result of
decreased earnings of our FPD joint venture in India. Net earnings from
affiliates in 2018 decreased by $1.5 million, or 11.9%, as compared to the prior
year, primarily as a result of decreased earnings of our FPD joint venture in
South Korea.
Operating Income
                                                      2019               2018               2017
                                                      (Amounts in millions, except percentages)
Operating income                                 $      406.0       $      247.5       $      341.1
Operating income as a percentage of sales                10.3 %              6.5 %              9.3 %



                                       32

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Operating income in 2019 increased by $158.5 million, or 64.0%, as compared with
2018. The increase included negative currency effects of approximately $12
million. The increase was primarily a result of the $107.6 million increase in
gross profit, the $43.9 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 in 2018 decreased by $93.6 million, or 27.4%, as compared
with 2017. The decrease included currency benefits of approximately $2 million.
The decrease was primarily a result of the $141.3 million gain from the sales of
the Gestra and Vogt businesses in 2017 that did not recur, the $42.0
million increase in SG&A and the loss of $7.7 million from the divestiture of
two FPD locations and related product lines, partially offset by the $98.8
million increase in gross profit discussed above.

Interest Expense and Interest Income


                   2019        2018        2017
                       (Amounts in millions)

Interest expense $ (55.0 ) $ (58.2 ) $ (59.7 ) Interest income 8.4 6.5 3.4




Interest expense in 2019 decreased by $3.2 million as compared with 2018. The
decrease 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. Interest income in 2019
increased by $1.9 million as compared to 2018 . The increase in interest income
was primarily attributable to higher average cash balances compared with same
period in 2018.
Interest expense in 2018 decreased by $1.5 million as compared with 2017.
The decrease was primarily attributable to lower borrowings in 2018, as compared
to the same period in 2017. Interest income in 2018 increased by $3.1 million as
compared with 2017. The increase in interest income was primarily attributable
to higher average cash balances compared with 2017.
Other Income (Expense), net
                              2019        2018        2017
                                  (Amounts in millions)

Other income (expense), net $ (17.6 ) $ (19.6 ) $ (21.8 )




Other expense, net decreased $2.0 million as compared to 2018, due to a $7.6
million decrease in losses from transactions in currencies other than our sites'
functional currencies, partially offset by a $3.3 million increase in losses
from foreign exchange contracts.  The net change was primarily due to the
foreign currency exchange rate movements in the Euro, Indian rupee, Singapore
dollar and Mexican peso in relation to the U.S. dollar during the year ended
December 31, 2019, as compared with the same period in 2018.
Other expense, net decreased $2.2 million in 2018, due to a $6.4
million decrease in net periodic benefit costs for pensions and post retirement
obligations, partially offset by a $5.3 million increase in losses from foreign
exchange contracts.  The net change was primarily due to the foreign currency
exchange rate movements in the Euro, Indian rupee, Mexican peso and Argentinian
peso in relation to the U.S. dollar during the year ended December 31, 2018, as
compared with the same period in 2017.
Tax Expense and Tax Rate
                                2019              2018              2017
                                (Amounts in millions, except percentages)
Provision for income taxes $      80.1       $      51.2       $       258.7
Effective tax rate                23.4 %            29.1 %              98.4 %




                                       33

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On December 22, 2017, the U.S. enacted the 2017 the Tax Cuts and Jobs Act of
2017 ("Tax Reform Act"), which significantly changed U.S. tax law. The Tax
Reform Act, among other things, lowered the Company's U.S. statutory federal
income tax rate from 35% to 21% effective January 1, 2018, while imposing a
deemed repatriation tax on deferred foreign income and implementing a modified
territorial tax system. The Tax Reform Act also provides for a one-time
transition tax on certain foreign earnings and the acceleration of depreciation
for certain assets placed into service after September 27, 2017 as well as
prospective changes which began in 2018, including repeal of the domestic
manufacturing deduction, capitalization of research and development
expenditures, additional limitations on executive compensation and limitations
on the deductibility of interest.
Our effective tax rate of 23.4% for the year ended December 31, 2019 decreased
from 29.1% in 2018 primarily due to the net impact of foreign operations. The
2019 tax rate differed from the federal statutory rate of 21% primarily due to
state tax and foreign audit assessments, partially offset by the net impact of
foreign operations. The 2018 tax rate differed from the federal statutory rate
of 21% primarily due to the net impact of foreign operations, including losses
in certain foreign jurisdictions for which no tax benefit was provided. The 2017
tax rate differed from the federal statutory rate of 35% primarily due to the
impacts pursuant to enactment of the Tax Reform Act, the net impact of foreign
operations, the establishment of a valuation allowance against our deferred tax
assets in various foreign jurisdictions, primarily Germany and Mexico, and taxes
related to the sale of the Gestra and Vogt businesses.
Our effective tax rate is based upon current earnings and estimates of future
taxable earnings for each domestic and international location. Changes in any of
these and other factors, including our ability to utilize foreign tax credits
and net operating losses or results from tax audits, could impact the tax rate
in future periods. As of December 31, 2019, we have foreign tax credits of $29.1
million, expiring in 2026, 2028 and 2029 tax years, against which we recorded a
valuation allowance of $29.1 million. Additionally, we have recorded other net
deferred tax assets of $55.0 million, which relate to net operating losses, tax
credits and other deductible temporary differences that are available to reduce
taxable income in future periods, most of which do not have a definite
expiration. Should we not be able to utilize all or a portion of these credits
and losses, our effective tax rate would increase.
Net Earnings and Earnings Per Share
                                                          2019               2018           2017
                                                    (Amounts in millions, except per share amounts)
Net earnings attributable to Flowserve Corporation $           253.7     $    119.7     $      2.7
Net earnings per share - diluted                   $            1.93     $     0.91     $     0.02
Average diluted shares                                         131.7          131.3          131.4



Net earnings in 2019 increased by $134.0 million to $253.7 million, or to $1.93
per diluted share, as compared with 2018. The increase was primarily
attributable to an increase in operating income of $158.5 million, a $2.0
million decrease in other expense, net and a $5.1 million decrease in interest
expense, net, partially offset by a $28.9 million increase in tax expense.

Net earnings in 2018 increased by $117.0 million to $119.7 million, or
to $0.91 per diluted share, as compared with 2017. The increase was primarily
attributable to a $207.5 million decrease in tax expense, a $2.2
million decrease in other expense net, and a $1.5 million decrease in interest
expense, partially offset by a decrease in operating income of $93.6 million.
Other Comprehensive Income (Loss)
                                    2019       2018        2017
                                       (Amounts in millions)

Other comprehensive income (loss) $ (9.8 ) $ (67.8 ) $ 119.8





Other comprehensive loss in 2019 decreased by $58.0 million as compared with
2018. The decreased loss was primarily due to foreign currency translation
adjustments resulting primarily from exchange rate movements of the Euro,
British pound, Chinese yuan and Indian rupee versus the U.S. dollar at
December 31, 2019 as compared with 2018.
Other comprehensive loss in 2018 increased by $187.6 million to $67.8
million from income of $119.8 million in 2017. The loss was primarily due to
foreign currency translation adjustments resulting primarily from exchange rate
movements

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of the Euro, Argentinian peso, Indian rupee and British pound versus the U.S.
dollar at December 31, 2018 as compared with 2017.
Business Segments
We conduct our operations through two business segments based on type of product
and how we manage the business. We evaluate segment performance and allocate
resources based on each segment's operating income. See Note 18 to our
consolidated financial statements included in Item 8 of this Annual Report for
further discussion of our segments. 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,
pre-test, distribute and service specialty and highly-engineered custom and
pre-configured pumps and pump systems, mechanical seals and auxiliary systems
(collectively referred to as "original equipment"). FPD includes longer lead
time, highly-engineered pump products and mechanical seals that are generally
manufactured within shorter lead times. FPD also manufactures replacement parts
and related equipment and provides aftermarket services. FPD primarily operates
in the oil and gas, petrochemical, chemical, power generation, water management
and general industries. FPD operates in 49 countries with 39 manufacturing
facilities worldwide, 13 of which are located in Europe, 12 in North America,
eight in Asia Pacific and six in Latin America, and we have 144 QRCs, including
those co-located in manufacturing facilities and/or shared with FCD.
                                                                          FPD
                                                        2019                2018              2017
                                                       (Amounts in millions, except percentages)
Bookings                                          $     3,007.9       $     2,753.5       $  2,587.4
Sales                                                   2,706.3             2,623.3          2,478.7
Gross profit                                              899.3               775.7            692.1
Gross profit margin                                        33.2 %              29.6 %           27.9 %
SG&A                                                      566.3               578.9            593.0
Loss on sale of business                                      -                (7.7 )              -
Segment operating income                                  343.5               201.0            112.3

Segment operating income as a percentage of sales 12.7 %

     7.7 %            4.5 %
Backlog (at period end)                                 1,560.9             

1,286.2 1,421.8





Bookings in 2019 increased by $254.4 million, or 9.2%, as compared with 2018.
The increase included negative currency effects of approximately $79 million.
Bookings in 2018 included approximately $31 million related to the two FPD
locations and associated product lines that were divested in the third quarter
of 2018. The increase in customer bookings was primarily driven by the oil and
gas, chemical and power generation industries, partially offset by decreased
bookings in the general industries. Increased customer bookings of $100.4
million into North America, $78.1 million into the Middle East, $72.1 million
into Asia Pacific, $18.6 million in Latin America and $11.5 million into Africa,
were partially offset by decreased customer bookings of $49.9 million into
Europe. The increase was primarily driven by customer original equipment
bookings. Of the $3.0 billion of bookings in 2019, approximately 44% were from
oil and gas, 22% from general industries, 19% from chemical, 10% from power
generation and 5% from water management.
Bookings in 2018 increased by $166.1 million, or 6.4%, as compared with 2017 and
included an order for approximately $80 million to provide pumps and related
equipment for the Hengli Integrated Refining Complex Project in China, and was
partially offset by approximately $23 million in reduced bookings due to the
divestiture of two FPD locations and related product lines in the third quarter
of 2018. The increase included currency benefits of approximately $19 million.
The increase in customer bookings was primarily driven by the oil and gas,
general and chemical industries. Customer bookings increased $91.4 million into
Europe, $61.7 million into the Middle East, $43.6 million into North America and
$3.4 million into Latin America and were partially offset by decreased customer
bookings of $18.7 million into Africa and $5.1 million into Asia Pacific.
The increase was primarily in aftermarket bookings. Of the $2.8 billion of
bookings in 2018, approximately 41% were from oil and gas, 25% from general
industries, 18% from chemical, 11% from power generation and 5% from water
management.

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Sales in 2019 increased $83.0 million, or 3.2%, as compared with 2018. The
increase included negative currency effects of approximately $66 million. Sales
in 2018 included approximately $30 million related to the two FPD locations and
associated product lines that were divested in the third quarter of 2018. The
increase was primarily driven by aftermarket sales, resulting from increased
customer sales of $45.3 million into North America, $28.6 million into Europe,
$16.8 million into the Middle East and $8.8 million into Africa, partially
offset by decreased sales of $17.8 million into Latin America and $4.0 million
into Asia Pacific.
Sales in 2018 increased $144.6 million, or 5.8%, as compared with 2017.
The increase included currency benefits of approximately $23 million and was
partially offset by approximately $19 million in reduced sales due to the
divestiture of two FPD locations and related product lines in the third quarter
of 2018. The increase was more heavily-weighted towards aftermarket sales,
resulting from increased customer sales of $69.9 million into North America,
$58.4 million into Asia Pacific, $55.8 million into Africa and $50.9
million into Latin America, partially offset by decreased sales of $82.4
million into the Middle East and $2.6 million into Europe.
Gross profit in 2019 increased by $123.6 million, or 15.9%, as compared with
2018. Gross profit margin in 2019 of 33.2% increased from 29.6% 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.
Gross profit in 2018 increased by $83.6 million, or 12.1%, as compared
with 2017. Gross profit margin in 2018 of 29.6% increased from 27.9% in 2017.
The increase in gross profit margin was primarily attributable to the favorable
impact of increased sales on our absorption of fixed manufacturing costs,
a $16.9 million charge for costs related to a contract to supply oil and gas
platform equipment to an end user in Latin America in 2017 that did not recur,
lower charges and increased savings related to our Realignment Programs and
revenue recognized on higher margin projects, partially offset by a $7.7
million charge for cost incurred related to the write-down of inventory
associated with the divestiture of two FPD locations and related product lines.
SG&A in 2019 decreased by $12.6 million, or 2.2%, as compared with 2018.
Currency effects provided a decrease of approximately $13 million. The decrease
in SG&A, including currency, was due to favorable impacts on SG&A due to gains
from the sales of non-strategic manufacturing facilities during the year, 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, substantially offset by an increase in selling-related expenses and
collections of previously reserved bad debts in 2018 that did not recur.
SG&A in 2018 decreased by $14.1 million, or 2.4%, as compared with 2017.
Currency effects provided an increase of approximately $5 million.
The decrease in SG&A was primarily attributable to a $26.0 million impairment
charge related to our manufacturing facility in Brazil in 2017 that did not
recur, lower bad debt expense and decreased charges related to our Realignment
Programs, partially offset by higher selling and administrative related expenses
and an impairment charge on long-lived assets related to the divestiture of two
FPD locations and related product lines of $9.7 million.
The loss on sale of businesses in 2018 of $7.7 million resulted from the
divestiture of two FPD locations and related product lines. Refer to Note 3 to
our consolidated financial statements included in Item 8 of this Annual Report
for additional information on this divestiture.
Operating income in 2019 increased by $142.5 million, or 70.9%, as compared with
2018. The increase included negative currency effects of approximately $10
million. The increase was due to the $123.6 million increase in gross profit,
the $12.6 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.
Operating income in 2018 increased by $88.7 million, or 79.0%, as compared
with 2017. The increase included negative currency effects of approximately $1
million. The increase was due to the $83.6 million increase in gross profit and
the $14.1 million decrease in SG&A, partially offset by 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 $1.6 billion at December 31, 2019 increased by $274.7 million, or
21.4%, as compared with December 31, 2018. Currency effects provided an increase
of approximately $5 million. Backlog of $1.3 billion at December 31,
2018 decreased by $135.6 million, or 9.5%, as compared with December 31, 2017.
Currency effects provided a decrease of approximately $66 million.

                                       36
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Flow Control Division Segment Results
FCD designs, manufactures, distributes and services a broad portfolio of
engineered and industrial valve and automation solutions, including isolation
and control valves, actuation, controls and related equipment. FCD leverages its
experience and application know-how by offering a complete menu of engineering
and project management 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. We believe that FCD is the second largest industrial valve supplier in
the world.
                                                                          FCD
                                                        2019                2018              2017
                                                       (Amounts in millions, except percentages)
Bookings                                          $     1,240.9       $     1,274.3       $  1,225.7
Sales                                                   1,244.0             1,215.8          1,188.1
Gross profit                                              411.6               416.9            396.7
Gross profit margin                                        33.1 %              34.3 %           33.4 %
SG&A                                                      213.6               215.0            213.6
Gain on sale of businesses                                    -                   -            141.3
Segment operating income                                  198.0               201.2            323.7

Segment operating income as a percentage of sales 15.9 %

    16.5 %           27.2 %
Backlog (at period end)                                   600.1               608.4            617.4



Bookings in 2019 decreased $33.4 million, or 2.6%, as compared with 2018. The
decrease included negative currency effects of approximately $29 million. The
decrease in customer bookings in the general and chemical industries were
partially offset by increases in the power generation, oil and gas and water
management industries. Decreased customer bookings of $27.3 million into North
America, $8.2 million into Asia Pacific and $2.6 million into Europe were
partially offset by increased bookings of $24.1 million into the Middle East.
The decrease was more heavily weighted towards customer aftermarket bookings. Of
the $1.2 billion of bookings in 2019, approximately 34% were from oil and gas,
29% from chemical, 24% from general industries and 13% from power generation.

Bookings in 2018 increased $48.6 million, or 4.0%, as compared with 2017.
The increase included currency benefits of approximately $11 million.
The increase in customer bookings in the general, oil and gas and chemical
industries were partially offset by decreases in the power generation and water
management industries. Increased customer bookings of $78.7 million into North
America and $17.4 million into Asia Pacific were partially offset by decreased
bookings of $27.7 million into Europe and $18.0 million into the Middle East.
The increase was driven by both customer original equipment and aftermarket
bookings. Of the $1.3 billion of bookings in 2018, approximately 33% were from
oil and gas, 29% from chemical, 27% from general industries and 11% from power
generation.
Sales in 2019 increased by $28.2 million, or 2.3%, as compared with 2018. The
increase included negative currency effects of approximately $28 million and was
driven by increased customer original equipment sales. Sales increased $40.2
million into Asia Pacific, $17.6 million into Europe, $6.5 million into Latin
America and $3.5 million into North America and were partially offset by
decreased customer sales of $23.5 million into the Middle East and $15.9 million
into Africa.

Sales in 2018 increased by $27.7 million, or 2.3%, as compared with 2017.
The increase included currency benefits of approximately $8 million and was
driven by increased customer original equipment sales. Sales increased $62.4
million into North America, $40.1 million into Asia Pacific and $7.9
million into Africa and were partially offset by a decrease in customer sales
of $46.0 million into Europe, $25.1 million into the Middle East and $10.8
million into Latin America.
Gross profit in 2019 decreased by $5.3 million, or 1.3%, as compared with 2018.
Gross profit margin in 2019 of 33.1% decreased from 34.3% 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 in 2018 increased by $20.2 million, or 5.1%, as compared with 2017.
Gross profit margin in 2018 of 34.3% increased from 33.4% in 2017.
The increase in gross profit margin was primarily attributable to the positive
impact of increased sales on our absorption of fixed manufacturing costs and
decreased charges and increased savings achieved related to our Realignment
Programs compared to the same period in 2017.

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SG&A in 2019 decreased by $1.4 million, or 0.7% as compared with 2018. Currency
effects provided a decrease of approximately $4 million. The decrease in SG&A
was primarily due to currency effects as compared to 2018.

SG&A in 2018 increased by $1.4 million, or 0.7%, as compared with 2017. Currency
effects provided an increase of approximately $2 million. The increase in SG&A
was primarily due to higher selling and administrative related expenses,
partially offset by lower charges and increased savings related to our
Realignment Programs compared to 2017.
The gain on sale of businesses in 2017 was the result of the $141.3 million gain
from the sales of the Gestra and Vogt businesses. See Note 3 to our consolidated
financial statements included in Item 8 of this Annual Report for additional
information on these sales.
Operating income in 2019 decreased by $3.2 million, or 1.6%, as compared with
2018. The decrease included negative currency effects of approximately $3
million. The decrease was primarily due to the $5.3 million decrease in gross
profit, partially offset by the decrease in SG&A of $1.4 million.
Operating income in 2018 decreased by $122.5 million, or 37.8%, as compared
with 2017. The decrease included  negative currency effects of approximately $1
million. The decrease was due to the $141.3 million gain from the sales of the
Gestra and Vogt businesses in 2017, which was partially offset by the $20.2
million increase in gross profit
Backlog of $600.1 million at December 31, 2019 decreased by $8.3 million, or
1.4%, as compared with December 31, 2018. Currency effects provided a decrease
of approximately $5 million. Backlog of $608.4 million at December 31,
2018 decreased by $9.0 million, or 1.5%, as compared with December 31, 2017.
Currency effects provided a decrease of approximately $17 million.


LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Analysis
                                                         2019        2018        2017
                                                             (Amounts in millions)

Net cash flows provided (used) by operating activities $ 312.7 $ 190.8

    $ 311.1
Net cash flows provided (used) by investing activities   (23.8 )     (81.5 )     176.6
Net cash flows provided (used) by financing activities  (229.7 )    (173.3 )    (185.4 )



Existing cash, cash generated by operations and borrowings available under our
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 total cash balance at
December 31, 2019 was $671.0 million, compared with $619.7 million at
December 31, 2018 and $703.4 million at December 31, 2017.
Our cash provided by operating activities was $312.7 million, $190.8 million and
$311.1 million in 2019, 2018 and 2017, respectively, which provided cash to
support short-term working capital needs. Cash flow used by working capital
increased in 2019 due primarily to cash used by higher contract assets of $45.9
million and higher inventory of $31.1 million, partially offset by higher
accounts payable of $22.9 million, higher accrued liabilities and income taxes
payable of $4.2 million, higher contract liabilities of $14.4 million and lower
accounts receivable of $2.9 million. Cash flow used by working capital increased
in 2018 due primarily to cash used by higher inventory of $29.3 million, higher
accounts receivables of $25.4 million, higher contract assets of $23.7 million
and lower accrued liabilities and income taxes payable of $18.2 million,
partially offset by cash provided by higher contract liabilities of $33.7
million. During 2019, we contributed $37.3 million to our defined benefit
pension plans as compared to $48.1 million in 2018.
Decreases in accounts receivable provided $2.9 million of cash flow in 2019, as
compared with cash flow used of $25.4 million in 2018 and cash flow provided of
$60.2 million in 2017, respectively. For the fourth quarter of 2019 our days'
sales outstanding ("DSO") was 67 days as compared to 72 days for 2018 and 75
days for 2017. We have not experienced a significant increase in customer
payment defaults in 2019.

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Increases in inventory used $31.1 million of cash flow in 2019 as compared with
$29.3 million in 2018 and cash provided of $48.6 million in 2017. The use of
cash from inventory in 2019 was primarily due to an increase in raw materials
and work in process and in 2018 the cash used was due to decreased progress
billings. Inventory turns were 4.3 times at December 31, 2019, as compared with
4.2 times for 2018 and 3.3 times for 2017. Our calculation of inventory turns
does not reflect the impact of advanced cash received from our customers.
Increases in contract assets used $45.9 million of cash flow and increases in
contact liabilities provided $14.4 million of cash flow in 2019. Increases in
contract assets used $23.7 million of cash flow and increases in contact
liabilities provided $33.7 million of cash flow in 2018.
Increases in accounts payable provided $22.9 million of cash flow in 2019
compared with cash used of $4.8 million in 2018 and cash provided of $12.4
million in 2017. Increases in accrued liabilities and income taxes payable
provided $4.2 million of cash flow in 2019 compared with cash used of $18.2
million and $3.4 million in 2018 and 2017, respectively.
Cash used by investing activities were $23.8 million in 2019, as compared to
$81.5 million in 2018 and cash provided of $176.6 million in 2017. The decrease
of cash used in 2019 was primarily due to a decrease in capital expenditures and
proceeds from the disposal of assets during the year which provided $42.3
million, primarily from the sale of non-strategic manufacturing facilities that
are included in our Realignment Programs. Capital expenditures were $66.2
million, $84.0 million and $61.6 million in 2019, 2018 and 2017, respectively.
In 2020, we currently estimate capital expenditures to be between $90 million
and $100 million before consideration of any acquisition activity.
Cash used by financing activities were $229.7 million in 2019 compared to $173.3
million and $185.4 million in 2018 and 2017, respectively. Cash outflows during
2019 resulted primarily from the $105.0 million in payments on long-term debt,
$99.6 million of dividend payments and the repurchase of $15.0 million of our
common stock. Cash outflows during 2018 resulted primarily from $99.4 million of
dividend payments and $60.0 million in payments on long-term debt. Cash outflows
during 2017 resulted primarily from $99.2 million of dividend payments and $60.0
million in payments on long-term debt.
In 2019 we repurchased 324,889 shares of our outstanding common stock for $15.0
million. As of December 31, 2019, we had $145.7 million of remaining capacity
under our share repurchase plan previously approved by the Board of Directors.
Our cash needs for the next 12 months are expected to be lower than those of
2019 due to our Realignment Programs being substantially completed and
anticipated benefits from working capital reductions. We believe cash flows from
operating activities, combined with availability under our senior credit
facility and our existing cash balances, will be sufficient to enable us to meet
our cash flow needs for the next 12 months. However, cash flows from operations
could be adversely affected by a decrease in the rate of general global economic
growth and an extended decrease in capital spending of our customers, as well as
economic, political and other risks associated with sales of our products,
operational factors, competition, regulatory actions, fluctuations in foreign
currency exchange rates and fluctuations in interest rates, among other factors.
We believe that cash flows from operating activities and our expectation of
continuing availability to draw upon our credit agreements are also sufficient
to meet our cash flow needs for periods beyond the next 12 months.
Acquisitions and Dispositions
We regularly evaluate acquisition opportunities of various sizes. The cost and
terms of any financing to be raised in conjunction with any acquisition,
including our ability to raise economical capital, is a critical consideration
in any such evaluation.
Note 3 to our consolidated financial statements included in Item 8 of this
Annual Report contains a discussion of our disposition activity.
Financing
Our credit agreement provides for a $800.0 million unsecured senior credit
facility with a maturity date of July 16, 2024 ("Senior Credit Facility"). The
Senior Credit Facility includes a $750.0 million sublimit for the issuance of
letters of credit and a $30.0 million sublimit for swing line loans. We have the
right to increase the amount of the Senior Credit Facility by an aggregate
amount not to exceed $400.0 million, subject to certain conditions, including
each Lender's approval providing any increase.
The interest rates per annum applicable to the Senior Credit Facility (other
than with respect to swing line loans) are LIBOR plus between 1.000% to 1.750%,
depending on our debt rating by either Moody's Investors Service, Inc. or
Standard & Poor's ("S&P") Ratings, or, at our option, the Base Rate (as defined
in the Senior Credit Agreement) plus between 0.000% to 0.750% depending on our
debt rating by either Moody's Investors Service, Inc. or S&P Global Ratings. At
December 31,

                                       39
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2019 the interest rate on the Senior Credit Facility was LIBOR plus 1.375% in
the case of LIBOR loans and the Base Rate plus 0.375% in the case of Base Rate
loans. In addition, a commitment fee is payable quarterly in arrears on the
daily unused portions of the Senior Credit Facility. The commitment fee will be
between 0.090% and 0.300% of unused amounts under the Senior Credit Facility
depending on our debt rating by either Moody's Investors Service, Inc. or S&P's
Ratings. Certain financing arrangements contain provisions that may result in an
event of default if there was a failure under other financing arrangements to
meet payment terms. Such provisions are referred to as "cross default"
provisions. A discussion of our debt and related covenants is included in Note
12 to our consolidated financial statements included in Item 8 of this Annual
Report. We were in compliance with the covenants as of December 31, 2019.
Liquidity Analysis
Our cash balance increased by $51.3 million to $671.0 million as of December 31,
2019 as compared with December 31, 2018. The cash increase included $312.7
million in operating cash inflows and $42.3 million from the sale of
non-strategic manufacturing facilities that are included in our Realignment
Programs, partially offset by $105.0 million in payments on long-term debt,
$99.6 million in dividend payments, $66.2 million in capital expenditures and
the repurchase of $15.0 million of our common stock.
At December 31, 2019 and 2018, as a result of the values of the plan's assets
and our contributions to the plan, our U.S. pension plan was fully-funded as
defined by applicable law. After consideration of our intent to maintain fully
funded status, we contributed $20.0 million to our U.S. pension plan in 2019,
excluding direct benefits paid of $0.6 million. We continue to maintain an asset
allocation consistent with our strategy to maximize total return, while reducing
portfolio risks through asset class diversification.

OUTLOOK FOR 2020
Our future results of operations and other forward-looking statements contained
in this Annual Report, including this MD&A, involve a number of risks and
uncertainties - in particular, the statements regarding our goals and
strategies, new product introductions, plans to cultivate new businesses, future
economic conditions, revenue, pricing, gross profit margin and costs, capital
spending, expected cost savings from our transformation and realignment
programs, global economic and political risk, depreciation and amortization,
research and development expenses, potential impairment of assets, tax rate and
pending tax and legal proceedings. Our future results of operations may also be
affected by employee incentive compensation including our annual program and the
amount, type and valuation of share-based awards granted, as well as the amount
of awards forfeited due to employee turnover. In addition to the various
important factors discussed above, a number of other factors could cause actual
results to differ materially from our expectations. See the risks described in
"Item 1A. Risk Factors" as well as the section titled "Forward-Looking
Information is Subject to Risk and Uncertainty" of this Annual Report.
Our bookings were $4,238.3 million during 2019. Because a booking represents a
contract that can be, in certain circumstances, modified or canceled, and can
include varying lengths between the time of booking and the time of revenue
recognition, there is no guarantee that bookings will result in comparable
revenues or otherwise be indicative of future results.
We expect a continued competitive economic environment in 2020. We anticipate
benefits from the continuation of our Flowserve 2.0 Transformation efforts,
end-user strategies, the strength of our high margin aftermarket
business, continued disciplined cost management, our diverse customer base, our
broad product portfolio and our unified operating platform. Similar to prior
years, we expect our results will be weighted towards the second half of the
year.  While we believe that our primary markets continue to provide
opportunities, we remain cautious in our outlook for 2020 given the continuing
uncertainty of capital spending in many of our markets as well as economic and
political risk associated with our international operations which could have a
negative effect on global economic conditions.
On December 31, 2019, we had $1,354.1 million of fixed-rate Senior Notes
outstanding.  We expect our interest expense in 2020 will be modestly lower
compared with amounts incurred in 2019. Our results of operations may also be
impacted by unfavorable foreign currency exchange rate movements. See "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk" of this Annual
Report.
We expect to generate sufficient cash from operations and have sufficient
capacity under our Senior Credit Facility to fund our working capital, capital
expenditures, dividend payments, share repurchases, debt payments and pension
plan contributions in 2020. The amount of cash generated or consumed by working
capital is dependent on our level of revenues, customer cash advances, backlog,
customer-driven delays and other factors. We will seek to improve our working
capital utilization, with a particular focus on improving the management of
accounts receivable and inventory. In 2020, our cash flows for investing
activities will be focused on strategic initiatives, information technology
infrastructure, general upgrades

                                       40
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and cost reduction opportunities and we currently estimate capital expenditures
to be between $90 million and $100 million, before consideration of any
acquisition activity.
We currently anticipate that our minimum contribution to our qualified
U.S. pension plan will be approximately $20 million, excluding direct benefits
paid, in 2020 in order to maintain fully-funded status as defined by applicable
law. We currently anticipate that our contributions to our non-U.S. pension
plans will be approximately $2 million in 2020, excluding direct benefits paid.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table presents a summary of our contractual obligations at
December 31, 2019:
                                                         Payments Due By Period
                                                                                  Beyond 5
                              Within 1 Year       1-3 Years       3-5 Years         Years          Total
                                                         (Amounts in millions)
Senior Notes                $             -     $   1,055.9     $     298.2     $         -     $  1,354.1
Fixed interest payments(1)             36.5            62.3            10.5               -          109.3
Other debt                             11.3            11.8               -               -           23.1
Leases:
Operating                              42.2            83.3            18.2            84.7          228.4
Finance                                 4.9             7.2             0.3             0.1           12.5
Purchase obligations:(2)
Inventory                             496.3             8.9             0.2               -          505.4
Non-inventory                          48.0             0.2             0.3               -           48.5
Pension and postretirement
benefits(3)                            61.7           125.1           125.3           300.7          612.8
Total                       $         700.9     $   1,354.7     $     453.0     $     385.5     $  2,894.1

_______________________________________

(1) Fixed interest payments represent interest payments on the Senior Notes as

defined in Note 12 to our consolidated financial statements included in

Item 8 of this Annual Report.

(2) Purchase obligations are presented at the face value of the purchase order,

excluding the effects of early termination provisions. Actual payments could

be less than amounts presented herein.

(3) Retirement and postretirement benefits represent estimated benefit payments

for our U.S. and non-U.S. defined benefit plans and our postretirement

medical plans, as more fully described below and in Note 13 to our

consolidated financial statements included in Item 8 of this Annual Report.




As of December 31, 2019, the gross liability for uncertain tax positions was
$40.6 million. We do not expect a material payment related to these obligations
to be made within the next twelve months. We are unable to provide a reasonably
reliable estimate of the timing of future payments relating to the uncertain tax
positions.
The following table presents a summary of our commercial commitments at
December 31, 2019:
                                      Commitment Expiration By Period
                                                                   Beyond 5
                   Within 1 Year      1-3 Years     3-5 Years       Years        Total
                                           (Amounts in millions)
Letters of credit $       343,407    $  148,665    $    14,050    $  52,395    $ 558,517
Surety bonds               70,445        11,889            196        3,526       86,056
Total             $       413,852    $  160,554    $    14,246    $  55,921    $ 644,573

We expect to satisfy these commitments through performance under our contracts.



PENSION AND POSTRETIREMENT BENEFITS OBLIGATIONS
Plan Descriptions

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We and certain of our subsidiaries have defined benefit pension plans and
defined contribution plans for full-time and part-time employees. Approximately
65% of total defined benefit pension plan assets and approximately 53% of
defined benefit pension obligations are related to the U.S. qualified plan as of
December 31, 2019. Unless specified otherwise, the references in this section
are to all of our U.S. and non-U.S. plans. None of our common stock is directly
held by these plans.
Our U.S. defined benefit plan assets consist of a balanced portfolio of equity
and fixed income securities. Our non-U.S. defined benefit plan assets include a
significant concentration of United Kingdom ("U.K.") fixed income securities, as
discussed in Note 13 to our consolidated financial statements included in Item 8
of this Annual Report. We monitor investment allocations and manage plan assets
to maintain an acceptable level of risk. At December 31, 2019, the estimated
fair market value of U.S. and non-U.S. plan assets for our defined benefit
pension plans increased to $745.1 million from $658.0 million at December 31,
2018. Assets were allocated as follows:
                                U.S. Plan
Asset category                 2019    2018
Cash and Cash Equivalents       1 %      1 %
Global Equity                  28 %     30 %
Global Real Assets             12 %     13 %
Equity securities              40 %     43 %
Diversified Credit             12 %     13 %
Liability-Driven Investment    47 %     43 %
Fixed income                   59 %     56 %



                                Non-U.S. Plans
Asset category                 2019       2018
Cash and Cash Equivalents        2 %        7 %
North American Companies         1 %        3 %
Global Equity                    1 %        2 %
Equity securities                2 %        5 %
U.K. Government Gilt Index      43 %       43 %
Global Fixed Income Bond         - %        2 %
Liability-Driven Investment      7 %        9 %
Fixed income                    50 %       54 %
Multi-asset                     19 %       19 %
Buy-in Contract                 21 %       10 %
Other                            6 %        5 %
Other types                     46 %       34 %


The projected benefit obligation ("Benefit Obligation") for our defined benefit
pension plans was $897.1 million and $809.2 million as of December 31, 2019 and
2018, respectively. Benefits under our defined benefit pension plans are based
primarily on participants' compensation and years of credited service.
The estimated prior service cost and the estimated actuarial net loss for the
defined benefit pension plans that will be amortized from accumulated other
comprehensive loss into net pension expense in 2020 is approximately $0.5
million and $10.9 million, respectively. We amortize any estimated net gains or
losses over the remaining expected service period or over the remaining expected
lifetime for plans with only inactive participants.
We sponsor defined benefit postretirement medical plans covering certain current
retirees and a limited number of future retirees in the U.S. These plans provide
for medical and dental benefits and are administered through insurance
companies. We fund the plans as benefits are paid, such that the plans hold no
assets in any period presented. Accordingly, we have no investment strategy or
targeted allocations for plan assets. The benefits under the plans are not
available to new employees or most existing employees.

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The Benefit Obligation for our defined benefit postretirement medical plans was
$18.9 million and $18.8 million as of December 31, 2019 and 2018, respectively.
The estimated actuarial net gain and the estimated prior service cost for the
defined benefit postretirement medical plans that are expected to be amortized
from accumulated other comprehensive loss into net pension expense in 2020 are
immaterial. We amortize any estimated net gain or loss over the remaining
average life expectancy of approximately 11 years.
Accrual Accounting and Significant Assumptions
We account for pension benefits using the accrual method, recognizing pension
expense before the payment of benefits to retirees. The accrual method of
accounting for pension benefits requires actuarial assumptions concerning future
events that will determine the amount and timing of the benefit payments.
Our key assumptions used in calculating our cost of pension benefits are the
discount rate, the rate of compensation increase and the expected long-term rate
of return on plan assets. We, in consultation with our actuaries, evaluate the
key actuarial assumptions and other assumptions used in calculating the cost of
pension and postretirement benefits, such as discount rates, expected return on
plan assets for funded plans, mortality rates, retirement rates and assumed rate
of compensation increases, and determine such assumptions as of December 31 of
each year to calculate liability information as of that date and pension and
postretirement expense for the following year. See discussion of our accounting
for and assumptions related to pension and postretirement benefits in the "Our
Critical Accounting Estimates" section of this MD&A.
In 2019, the service cost component of the pension expense for our defined
benefit pension plans included in operating income was $29.0 million compared
with $29.4 million in 2018 and $29.5 million in 2017. The non-service cost
portion of net pension expense (e.g., interest cost, actuarial gains and losses
and expected return on plan assets) for our defined benefit pension plans
included in other income (expense), net was $1.8 million, compared to a benefit
of $1.2 million in 2018 and an expense of $5.7 million  in 2017.
The following are assumptions related to our defined benefit pension plans as of
December 31, 2019:
                                                             U.S. Plan     Non-U.S. Plans
Weighted average assumptions used to determine Benefit
Obligation:
Discount rate                                                    3.41 %           1.61 %
Rate of increase in compensation levels                          3.50       

3.12

Weighted average assumptions used to determine 2019 net pension expense: Long-term rate of return on assets

                               6.00 %           3.37 %
Discount rate                                                    4.34       

2.42


Rate of increase in compensation levels                          3.50       

3.28




The following provides a sensitivity analysis of alternative assumptions on the
U.S. qualified and aggregate non-U.S. pension plans and U.S. postretirement
plans.
Effect of Discount Rate Changes and Constancy of Other Assumptions:
                                         0.5% Increase     0.5% Decrease
                                              (Amounts in millions)
U.S. defined benefit pension plan:
Effect on net pension expense           $        (1.9 )   $           2.0
Effect on Benefit Obligation                    (18.5 )              20.1
Non-U.S. defined benefit pension plans:
Effect on net pension expense                    (0.6 )               0.8
Effect on Benefit Obligation                    (31.7 )              36.0
U.S. Postretirement medical plans:
Effect on Benefit Obligation                     (0.5 )               0.6



                                       43

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Effect of Changes in the Expected Return on Assets and Constancy of Other Assumptions:


                                         0.5% Increase     0.5% Decrease
                                              (Amounts in millions)
U.S. defined benefit pension plan:
Effect on net pension expense           $        (2.1 )   $           2.1
Non-U.S. defined benefit pension plans:
Effect on net pension expense                    (1.1 )               1.1


As discussed below, accounting principles generally accepted in the U.S. ("U.S.
GAAP") provide that differences between expected and actual returns are
recognized over the average future service of employees or over the remaining
expected lifetime for plans with only inactive participants.
At December 31, 2019, as compared with December 31, 2018, we decreased our
discount rate for the U.S. plan from 4.34% to 3.41% based on an analysis of
publicly-traded investment grade U.S. corporate bonds, which had lower yields
due to current market conditions. The average discount rate for the non-U.S.
plans decreased from 2.42% to 1.61% based on analysis of bonds and other
publicly-traded instruments, by country, which had lower yields due to market
conditions. The average assumed rate of compensation remained unchanged at 3.50%
for the U.S. plan and decreased to 3.12% from 3.28% for our non-U.S. plans. To
determine the 2019 pension expense, the expected rate of return on U.S. plan
assets remained constant at 6.00% and we decreased our average rate of return on
non-U.S. plan assets from 3.62% to 3.37%, primarily based on our target
allocations and expected long-term asset returns. As the expected rate of return
on plan assets is long-term in nature, short-term market fluctuations do not
significantly impact the rate. For all U.S. plans, we adopted the Pri-2012
mortality tables and the MP-2019 improvement scale published in October 2019. We
applied the Pri-2012 tables based on the constituency of our plan population for
union and non-union participants. We adjusted the improvement scale to utilize
75% of the ultimate improvement rate, consistent with assumptions adopted by the
Social Security Administration trustees, based on long-term historical
experience. Currently, we believe this approach provides the best estimate of
our future obligation. Most plan participants elect to receive plan benefits as
a lump sum at the end of service, rather than an annuity. As such, the updated
mortality tables had an immaterial effect on our pension obligation.
We expect that the net pension expense for our defined benefit pension plans
included in earnings before income taxes will be approximately $3.6
million higher in 2020 than the $30.8 million in 2019, primarily due to an
increase in the amortization of actuarial losses and no anticipated special
events. We have used discount rates of 3.41%, 1.61% and 3.27% at December 31,
2019, in calculating our estimated 2020 net pension expense for the U.S. pension
plans, non-U.S. pension plans and postretirement medical plans, respectively.
The assumed ranges for the annual rates of increase in health care costs were
7.5% for 2019, 7.0% for 2018 and 7% for 2017, with a gradual decrease to 5.0%
for 2029 and future years. If actual costs are higher than those assumed, this
will likely put modest upward pressure on our expense for retiree health care.
Plan Funding
Our funding policy for defined benefit plans is to contribute at least the
amounts required under applicable laws and local customs. We contributed $37.3
million, $48.1 million and $44.9 million to our defined benefit plans in 2019,
2018 and 2017, respectively. After consideration of our intent to remain
fully-funded based on standards set by law, we currently anticipate that our
contribution to our U.S. pension plan in 2020 will be approximately $20 million,
excluding direct benefits paid. We expect to contribute approximately $2
million to our non-U.S. pension plans in 2020, excluding direct benefits paid.
For further discussion of our pension and postretirement benefits, see Note 13
to our consolidated financial statements included in Item 8 of this Annual
Report.

OUR CRITICAL ACCOUNTING ESTIMATES
The process of preparing financial statements in conformity with U.S. GAAP
requires the use of estimates and assumptions to determine reported amounts of
certain assets, liabilities, revenues and expenses and the disclosure of related
contingent assets and liabilities. These estimates and assumptions are based
upon information available at the time of the estimates or assumptions,
including our historical experience, where relevant. The most significant
estimates made by management include: timing and amount of revenue recognition;
deferred taxes, tax valuation allowances and tax reserves; reserves for
contingent loss; pension and postretirement benefits; and valuation of goodwill,
indefinite-lived intangible assets and other long-lived assets. The significant
estimates are reviewed at least annually if not quarterly by management. Because

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of the uncertainty of factors surrounding the estimates, assumptions and
judgments used in the preparation of our financial statements, actual results
may differ from the estimates, and the difference may be material.
Our critical accounting policies are those policies that are both most important
to our financial condition and results of operations and require the most
difficult, subjective or complex judgments on the part of management in their
application, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. We believe that the following represent
our critical accounting policies. For a summary of all of our significant
accounting policies, see Note 1 to our consolidated financial statements
included in Item 8 of this Annual Report. Management and our external auditors
have discussed our critical accounting estimates and policies with the Audit
Committee of our Board of Directors.
Revenue Recognition
We recognize revenue when (or as) we satisfy a performance obligation by
transferring control to a customer. Transfer of control is evaluated based on
the customer's ability to direct the use of and obtain substantially all of the
benefits of a performance obligation. Revenue is recognized either over time or
at a point in time, depending on the specific facts and circumstances for each
contract, including the terms and conditions of the contract as agreed with the
customer and the nature of the products or services to be provided.
Our primary method for recognizing revenue over time is the percentage of
completion ("POC") method, whereby progress towards completion is measured by
applying an input measure based on costs incurred to date relative to total
estimated costs at completion. If control of the products and/or services does
not transfer over time, then control transfers at a point in time. We determine
the point in time that control transfers to a customer based on the evaluation
of specific indicators, such as title transfer, risk of loss transfer, customer
acceptance and physical possession. For a discussion related to revenue
recognition refer to Note 2 included in Item 8 of this Annual Report.
Deferred Taxes, Tax Valuation Allowances and Tax Reserves
We recognize valuation allowances to reduce the carrying value of deferred tax
assets to amounts that we expect are more likely than not to be realized. Our
valuation allowances primarily relate to the deferred tax assets established for
certain tax credit carryforwards and net operating loss carryforwards for
non-U.S. subsidiaries, and we evaluate the realizability of our deferred tax
assets by assessing the related valuation allowance and by adjusting the amount
of these allowances, if necessary. We assess such factors as our forecast of
future taxable income and available tax planning strategies that could be
implemented to realize the net deferred tax assets in determining the
sufficiency of our valuation allowances. Failure to achieve forecasted taxable
income in the applicable tax jurisdictions could affect the ultimate realization
of deferred tax assets and could result in an increase in our effective tax rate
on future earnings. Implementation of different tax structures in certain
jurisdictions could, if successful, result in future reductions of certain
valuation allowances.
The amount of income taxes we pay is subject to ongoing audits by federal, state
and foreign tax authorities, which often result in proposed assessments.
Significant judgment is required in determining income tax provisions and
evaluating tax positions. We establish reserves for open tax years for uncertain
tax positions that may be subject to challenge by various tax authorities. The
consolidated tax provision and related accruals include the impact of such
reasonably estimable losses and related interest and penalties as deemed
appropriate. Tax benefits recognized in the financial statements from uncertain
tax positions are measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement.
While we believe we have adequately provided for any reasonably foreseeable
outcome related to these matters, our future results may include favorable or
unfavorable adjustments to our estimated tax liabilities. To the extent that the
expected tax outcome of these matters changes, such changes in estimate will
impact the income tax provision in the period in which such determination is
made.
Reserves for Contingent Loss
Liabilities are recorded for various contingencies arising in the normal course
of business when it is both probable that a loss has been incurred and such loss
is reasonably estimable. Assessments of reserves are based on information
obtained from our independent and in-house experts, including recent legal
decisions and loss experience in similar situations. The recorded legal reserves
are susceptible to changes due to new developments regarding the facts and
circumstances of each matter, changes in political environments, legal venue and
other factors. Recorded environmental reserves could change based on further
analysis of our properties, technological innovation and regulatory environment
changes.

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Estimates of liabilities for unsettled asbestos-related claims are based on
known claims and on our experience during the preceding two years for claims
filed, settled and dismissed, with adjustments for events deemed unusual and
unlikely to recur. A substantial majority of our asbestos-related claims are
covered by insurance or indemnities. Estimated indemnities and receivables from
insurance carriers for unsettled claims and receivables for settlements and
legal fees paid by us for asbestos-related claims are estimated using our
historical experience with insurance recovery rates and estimates of future
recoveries, which include estimates of coverage and financial viability of our
insurance carriers. We have claims pending against certain insurers that, if
resolved more favorably than estimated future recoveries, would result in
discrete gains in the applicable quarter. We are currently unable to estimate
the impact, if any, of unasserted asbestos-related claims, although future
claims would also be subject to existing indemnities and insurance coverage.
Changes in claims filed, settled and dismissed and differences between actual
and estimated settlement costs and insurance or indemnity recoveries could
impact future expense.
Pension and Postretirement Benefits
We provide pension and postretirement benefits to certain of our employees,
including former employees, and their beneficiaries. The assets, liabilities and
expenses we recognize and disclosures we make about plan actuarial and financial
information are dependent on the assumptions and estimates used in calculating
such amounts. The assumptions include factors such as discount rates, health
care cost trend rates, inflation, expected rates of return on plan assets,
retirement rates, mortality rates, turnover, rates of compensation increases and
other factors.
The assumptions utilized to compute expense and benefit obligations are shown in
Note 13 to our consolidated financial statements included in Item 8 of this
Annual Report. These assumptions are assessed annually in consultation with
independent actuaries and investment advisors as of December 31 and adjustments
are made as needed. We evaluate prevailing market conditions and local laws and
requirements in countries where plans are maintained, including appropriate
rates of return, interest rates and medical inflation (health care cost trend)
rates. We ensure that our significant assumptions are within the reasonable
range relative to market data. The methodology to set our significant
assumptions includes:
•      Discount rates are estimated using high quality debt securities based on

corporate or government bond yields with a duration matching the expected

benefit payments. For the U.S. the discount rate is obtained from an

analysis of publicly-traded investment-grade corporate bonds to establish

a weighted average discount rate. For plans in the U.K. and the Eurozone

we use the discount rate obtained from an analysis of AA-graded corporate

bonds used to generate a yield curve. For other countries or regions

without a corporate AA bond market, government bond rates are used. Our

discount rate assumptions are impacted by changes in general economic and

market conditions that affect interest rates on long-term high-quality

debt securities, as well as the duration of our plans' liabilities.

• The expected rates of return on plan assets are derived from reviews of

asset allocation strategies, expected long-term performance of asset

classes, risks and other factors adjusted for our specific investment

strategy. These rates are impacted by changes in general market

conditions, but because they are long-term in nature, short-term market

changes do not significantly impact the rates. Changes to our target asset


       allocation also impact these rates.


•      The expected rates of compensation increase reflect estimates of the
       change in future compensation levels due to general price levels,
       seniority, age and other factors.


Depending on the assumptions used, the pension and postretirement expense could
vary within a range of outcomes and have a material effect on reported earnings.
In addition, the assumptions can materially affect benefit obligations and
future cash funding. Actual results in any given year may differ from those
estimated because of economic and other factors.
We evaluate the funded status of each retirement plan using current assumptions
and determine the appropriate funding level considering applicable regulatory
requirements, tax deductibility, reporting considerations, cash flow
requirements and other factors. We discuss our funding assumptions with the
Finance Committee of our Board of Directors.
Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived
Assets
The initial recording of goodwill and intangible assets requires subjective
judgments concerning estimates of the fair value of the acquired assets. We test
the value of goodwill and indefinite-lived intangible assets for impairment as
of December 31 each year or whenever events or circumstances indicate such
assets may be impaired.
The test for goodwill impairment involves significant judgment in estimating
projections of fair value generated through future performance of each of the
reporting units. The identification of our reporting units began at the
operating segment level and considered whether components one level below the
operating segment levels should be identified as reporting units for purpose of
testing goodwill for impairment based on certain conditions. These conditions
included, among other factors,

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(i) the extent to which a component represents a business and (ii) the
aggregation of economically similar components within the operating segments and
resulted in four reporting units. Other factors that were considered in
determining whether the aggregation of components was appropriate included the
similarity of the nature of the products and services, the nature of the
production processes, the methods of distribution and the types of industries
served.
An impairment loss for goodwill is recognized if the implied fair value of
goodwill is less than the carrying value. We estimate the fair value of our
reporting units based on an income approach, whereby we calculate the fair value
of a reporting unit based on the present value of estimated future cash flows. A
discounted cash flow analysis requires us to make various judgmental assumptions
about future sales, operating margins, growth rates and discount rates, which
are based on our budgets, business plans, economic projections, anticipated
future cash flows and market participants. We did not record an impairment of
goodwill in 2019, 2018 or 2017.
We also considered our market capitalization in our evaluation of the fair value
of our goodwill. Our market capitalization increased as compared with 2018 and
did not indicate a potential impairment of our goodwill as of December 31, 2019.
Impairment losses for indefinite-lived intangible assets are recognized whenever
the estimated fair value is less than the carrying value. Fair values are
calculated for trademarks using a "relief from royalty" method, which estimates
the fair value of a trademark by determining the present value of estimated
royalty payments that are avoided as a result of owning the trademark. This
method includes judgmental assumptions about sales growth and discount rates
that have a significant impact on the fair value and are substantially
consistent with the assumptions used to determine the fair value of our
reporting unit discussed above. We did not record a material impairment of our
trademarks in 2019, 2018 or 2017.
The recoverable value of other long-lived assets, including property, plant and
equipment and finite-lived intangible assets, is reviewed when indicators of
potential impairments are present. The recoverable value is based upon an
assessment of the estimated future cash flows related to those assets, utilizing
assumptions similar to those for goodwill. Additional considerations related to
our long-lived assets include expected maintenance and improvements, changes in
expected uses and ongoing operating performance and utilization.
Due to uncertain market conditions and potential changes in strategy and product
portfolio, it is possible that forecasts used to support asset carrying values
may change in the future, which could result in non-cash charges that would
adversely affect our financial condition and results of operations.

ACCOUNTING DEVELOPMENTS We have presented the information about accounting pronouncements not yet implemented in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report.


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