Good morning, my name is Amanda and I will be your conference operator today. At this time I would like to welcome everyone to the Flowserve Fourth Quarter and 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. [Operator Instructions]. I would now like to turn the call over to Mr. Zac Nagel, Vice President of Investor Relation. Please go ahead, sir.

Thank you, operator. Hello everyone and thank you for joining us. Welcome to Flowserve's 2007 investor conference call. Today's call is being webcast with our earnings presentation by our website at www.flowserve.com. Just click on the Investor Relations tab to access the webcast and the company in presentation. Before we get started with presentations, I want to make one brief note. For those of you who have accessed today's call through our dial-in phone number and also wish to follow along with our earnings presentation slides by our website. Please click on the click here to listen via phone icon at the bottom of the event details page. I also like to note that our webcast we posted on our website for replay approximately two hours following the end of the call, the replay will stand aside on demand for the next few months. Joining today are Lou Kling, President and CEO of Flowserve; Senior Vice President and Chief Financial Officer in Latin American Operations Mark Blinn; and Vice President and Chief Accounting Officer, Dick Guiltinan. Following our commentary we'll begin the Q&A session. Regarding a forward-looking statements I'll refer you to yesterday's earnings release and 10-K filings and today's earnings presentation slide deck for Flowserve's Safe Harbor statement on this topic. All this information can be found on Flowserve's website under the Investor Relations sections. I encourage you to read these statements carefully with respect to our conference call this morning. Information on this conference call including the initial statements by management, plus their answers to questions related in anyway to projections or other forward-looking statements are subject to Flowserve's Safe Harbor statement. Now I would like to turn over to Lou to begin the formal presentation.

Thanks Zac and good morning. It's certainly a pleasure to welcome you to our 2007 fourth quarter and yearend conference call. I am pleased to report that the fourth quarter was another outstanding wicked quarter for Flowserve. We delivered on our announced targets and executed well against our primary goals and objectives of the company. While we still have plenty of additional internal improvement opportunities as well as significant external growth opportunities ahead, the fourth quarter was a terrific end to a great year. On the next few slides, I will spend a few minutes outlining some of the significant company highlights in the fourth quarter and the full year, as well as listen to few of the key project wins we've had over the past year or so. While I will show just a small subset of these wins, I believe we would demonstrate how we are executing strategically within the geographies as well our segments to position the company for success over the long-term. I will then spend a fair amount of time reviewing our end markets. What we are seeing today and what our outlook is going forward. So you can get a clear sense of the significant opportunities we see ahead. And then I will conclude with a brief wrap up slide summering how was the pairing for the future. For those of you who have followed this company for some time, you maybe familiar with slide 4 which calls out our identity begin that defines what Flowserve is and our key strategies for driving sustainable profitable growth. In 2007 we made significant progress, across each of these strategies. We drove significant organic growth. Made key built-on on strategic acquisitions and dispositions, continue to expand our global foot print, further developed our product portfolio and continue…

Thanks Lou and Good morning everyone. As Lou indicated we are very pleased with our strong results and strong execution across the company. This morning I'll focus on a few key financial themes for the quarter and for the year which demonstrate the strong earnings leverage and strong cash flow leverage of the company. These around margin improvement, improving tax rate and strong cash flow. Within this margin improvement we had tremendous margin improvement in 2007. In our gross margin we saw 30 basis point increase for the year and 50 basis point increase for the quarter. This includes the impact of better pricing across all of our businesses, improved absorption, improved lien and CIP, supply management and low cost sourcing. There is a whole set of initiatives we are driving and they are all in progress. Now, this increase in gross margin was despite at 300 basis points shift in 08 in the pump business for the quarter and the year. We also saw tremendous leverage in SG&A as a percentage of sales which decreased 280 basis point for the year and 470 basis points for the quarter. As you'll recall in the first quarter we put programs in place and we saw great progress during the year but we still have work to do in 08 and beyond. Also in the third quarter if you remember we discussed the impact of oil for food. In the fourth quarter we did see $15 million benefit from the sale of our TKL asset and also the resolution of certain various legal matters. Basically for the year these things balanced out but we did see a benefit in the fourth quarter. SG&A did increase in 2007 in total of $74 million. This increase reflects over half of that in selling. $10…

[Operator Instructions]. Your first question comes from Charlie Brady with BMO Capital Markets.

Hi, thanks. Good morning guys. Outstanding quarter, guys you look pretty happy with over the results there. Just a question on pricing and raw material cost. How much of the gross margin improvement is coming out of pricing, sort of what kind of price increases are kind of embedded in to expectations in '08 and along with that how are you mitigating expected increases in raw material, optically steel in 2008.

Yes, Charlie thanks for your comments first of all on pricing, we don't provide specifics and our pricings as you can imagine, relative to increases but we did mention that pricing has been improving over the last couple of years. A lot of the growth and the gross margin came from many of the aspects. Pricing was included but we did see better absorption and also the impact of supply chain. So it really was across all of those fronts. But as we have indicated for 2008 we did see better pricing in our back log in 2007. With respect to raw materials we had certainly seen fluctuations over the last couple of years, Nickel for example rose at the early part of 2007 and went down and our comments have been the same on both sides. We do have e exposure to raw materials but those are more typically in some of our quick term products for example the seal face [ph], where we buy the raw material and it's turned in product and delivered. So that does provide us with a natural hedge but reduces the risk of raw material increases but also does not give the benefit that you see in other companies when raw materials go down. A lot of our long lead time projects, we typically source the components contemporaneous with winning the bid. So in those instances we pass on the raw material cost to our sub suppliers. An example on that is motors. If you look at copper a motor is basically wound copper and so in the early part of '06 there was a lot exposure to increasing copper prices. So motor price is typically good for five days, when we win the bid these days what we will do is we will go out and secure that motor and past that risk on. So the point is, is that it can put certainly can put pressure we are not saying that it doesn't have any impact but a lot of that we lay of to sub supplier or we have a benefit from the fact that those raw materials go into quick term products but the same applies when raw materials are going down that's usually not a big opportunity necessarily for this company.

Thank you.

Your next question comes from Andrea Wirth with Robert Baird.

Good morning Guys.

Good morning Andrea.

I wanted to get a start [ph] just on the corporate expense that was probably the most off from our model I guess first upon the charges front I guess the benefit the remainder of that $15 million of that from CKL that actual is an corporate expense is that correct?

Yes the remainder of those are primarily in corporate expense those are really across all of our divisions, but its primarily in corporate expense. So as your trying to look at corporate expense, let me line out a couple of things that segment includes off course our corporate expense in our company profit elimination as we talked and then the P&L for our foundry but a bulk of it is the corporate expense if you want to look at the trends year-over-year as we talked about in the third quarter the impact of oil for food was completely within that segment that for a segment and then the benefits aside from TKL that we saw in the fourth quarter this year were primarily in that segment as well and the other impacting the year-over-year trend as I mentioned earlier, which we again we view as a recurring charge would be the incremental broad based employee incentive expense. So those are going to be the drivers in the year-over-year comparison.

Fair, sure and then I guess just how should we look at, corporate expense going forward in the past, you sort of tried to target percentage sales by about 2% to 3 % its kind of a your long term goal. Is that the way we should still be looking at corporate expense or you know with, obviously how successful it's been and you know the recurring bonuses should be the may be increasing that amount as we go forward?

No, I mean, I think the way all look at is we intend to get that to 2 to 300 basis points and the point on the incremental incentive that I wanted to make is to get what you got last year you got to do better next year and so that certainly provides some leverage and opportunity. But now we are still sticking to the 2 to 300 basis points, if you heard my comments around the opportunities around SG&A, what we see an opportunity in 2008 are certainly reduced compliance cost, a lot of those which were in that corporate segment.

Thanks.

Your next question comes from Amit Daryanani with RBC Capital Markets.

Thanks a lot guys just I had a quick question on the advanced cash which I guess is the money you get from your customers to procure raw material. As numbers are almost up by a 100% I think year-over-year, is there a change in strategy or do you give people a shot at lead time or how does that dynamic work?

Well I mean its dynamic that's in the market place and one of the things I didn't comment on is we often provided advanced cash to some of our suppliers as well. To secure delivery on time. You can look at it a number of ways, some of it look at this is kind of securing manufacturing slots, which has an aspect to it as well it's a fairly tight market out there but we also look at it is a really a word of confidence from our customer as well as they are willing to put cash up front to for you to execute on it so I think some of it is to offset reviews that certainly offset the inventory, the change in strategy internally is yes we have, we created an organization that really focuses on contracts and contract terms, in terms of risk mitigation and one of the areas was to go in widen any contract to secure this opportunity, so I think its our focused on it its and indication of the market itself which also applies to our suppliers but more importantly I think its an indication of the quality, product we provide and our ability to execute because I can tell, that wouldn't give this cash, if they didn't you can deliver.

That's makes a whole lot of sense and then just looking at the valve, the flow control division, the margin improved pretty nicely at 14.3% in the quarter. I think the last few quarters and I look at, it looks like Q4 has actually been the softer quarter for margins at least in that our business. Was this a one time favorable driver that impacted that or this business just started hit its stride and we should see sustained margin expansion going forward?

I mean the first thing to say is there are getting tremendous leverage and improvement, so that's and that's not one time. Now if you heard my general comments overall when you did the compares to last year we did have realignment costs last year some of those which were in the valve division so if you review the information from last year you would see them in the valve and the pump. But even if you exclude the impact to that what your seeing really across all of our business was particularly this year in theirs was very good cost control and very good leverage in that business. So the way I'd look at is, this is not a one time trend for this they will continue to drive SG&A efficiency and gross margin improvement.

This is my final question I am going to hop off after that the 300 million buyback that we just announced, no accretion from that is built into the EPS guidance's at this point, is that fair?

Yes we... I mean on the guidance that we said we will revise it I mean we got this program not here, I don't want to comment on when we are going to execute on it because we haven't put specific time frame out there but we didn't necessarily coupled those two things.

Fair enough, congratulation on a good quarter guys.

Thank You.

Your next question comes from Ned Armstrong with FBR Capital Markets.

Thank You, Good morning.

Good morning Ned.

Just couple of questions, first your outlook was very positive overall and I was just wondering if we turn that around a little bit maybe and ask how you are thinking about areas that are rather good now, there could be challenges going forward, what particular areas might you highlight from that perspective.

Well, in the short run as I said in the presentation all the markets that we are looking at are looking extremely positive from chemical oil and gas, power, solar. I wouldn't say looking in the short run, I don't see any right now we really concerned about.

Okay and then, with regard to the power generation business you had mentioned that India and China were very strong. I heard other companies talk about solid projects in places like South Africa and some actually in the Americas. Are you seeing similar strengths there and it's just that China and India are particularly strong or you just focusing your efforts on China and India given the size of those markets.

No, no you know one of the things we mention in these comments around Brazil and Russia, we are seeing tremendous opportunity really all across South America even following the discoveries that Pet roll process has it is basically taking them into the top ten oil companies around the world you are also in the process of vertically integrating that as a country it is rich in waste and natural resources. You know we clearly see South America coming online very, very strong particular Petro Boss [ph] you know their spend anticipated expense before these two incremental signs over the next five years was anticipated to be around a $120 billion, around half of which was upstream and quarter of which was downstream. So they forecast very strong growth and as you know they had two significant finds in oil and also one significant find in natural gas as well. And just to point out a little bit further in that oil a lot of those the sub C platforms. So we see great opportunity there in other parts of South Americas as well and also the nuclear side which is obviously more long term is looking very-very positive depending on who you talk to 80 to 120, 130 different plants, throughout again they are in China, India, U.S. of course so that's a market that's looking extremely strong.

Okay good thank you.

Welcome.

Your next question comes from Will Boland [ph] with Wachovia.

Good morning.

Hi Will.

Hi Will.

I just wanted to ask would you help us understand the bidding and negotiation process for project and please if you could tell us about the margin the back log it looks like relative to sales that you know I guess you want to know about the margin in the backlog right now relative to existing sales and I guess what it looks like the back log declined sequentially while booking improved. Are you seeing project cancellation as well?

No let me got to your last question first, if rolled there is little impact from currency but if you roll booking sales you can see our sales were in line with bookings which would indicate that backlog is relatively flat the other thing to think about is you know a lot of shipments go out in the fourth quarter. So you know does it surprise that our backlog at the end of third quarter and backlog at the end of the third quarter and back log at the end of the fourth quarter was flat, not at all. Because what you have seen now we talked about this last year as bookings were out stripping sales as you were ramping up and starting to develop these project, back log continue to grow. But you know overtime of back log grows there can be one or two things, your bookings very strong which we were but also could be that you are not executing on your sales and we did. So that's I think that's an important message. On the bidding process, on these large major projects from inception to finish it could range from 5,3, 5 to 7 years as these things go into drawing board. We are typically involved in a lot of the engineering and a lot if the analysis around it before its even bid out to the general contractor and then period of time depending on the complexity of projects we'll come on line and bid one that project itself. So that's the process on these large projects and we are talking about you said margin and the back log, the only comment I made about that, I didn't talk specifically about margins in the backlog but I did say that we saw better pricing and the way we look at prices is basically the multiplier we put on projects particularly in the pump business, so those multipliers go up, we saw better pricing at our back log at the end of 07 than we did in ''06. Also if you just take an analysis, of our after market and original equipment mix and doing attribution analysis, you can see that the original equipment margins, gross margins did improved during the year, which reflect the benefit of pricing that we saw in ''05 and '06 and also our execution of that back log.

Okay. So in a way of cancellations you are not really seeing much of that at this point?

Yes we are not seeing cancellations.

Okay, thank you and then just next question it looks like beyond cash use for share backs and the dividend which includes the increase that you announced. Has there been any thought towards acquisition I mean rather than investing in infrastructure on your own, maybe leveraging some of the works that other have done and possibly increasing your footprint and distribution that way, I know its something that you have done historically but it was pretty light in 2007?

Yes, it is something that we are looking at in all three businesses to see what we want to do with acquisitions. When we looked an acquisition be it small or large sometimes it is make versus buy its better sometimes to buy sometimes it is better to make, so the answer to your question directly is yes we are looking and we have the what we call the dry powder to make it happen.

Well that was on the cash flow, that was a message, the repurchase we can score that dividend certainly the organic growth and the structure that we can build out and also strategic acquisitions as well, we've got a very strong balance sheet, we can do all those things.

We do have a follow up question from Charlie Brady with BMO Capital market.

Hey thanks. Can you just talk about the Sinopec agreement you guys reached in, are you guys still forced on that now or few little more detail on really what that mean kind of longer term for you guys something a pretty positive event?

The Sinopec is obviously one of the largest oil companies in China. These an agreement going forward that we will be working closely with them developing products, developing needs and obviously knowing which way they are going so it's a very positive agreement for us and Sinopec.

Thank you.

You do have a follow up question from Andrea Wirth with Robert Baird.

Can you dig little bit into the seal margins obviously you guys have done a lot on the investment funds, the operating margins, the operating margins have slowly year-over-year been you know expanding more and more, so I was just curious to have you pulled back the investments a little bit as far as dollar amounts go or how should we look at it as far show much you actual year are spending now and then going forward really on the investment front deal?

I think probably a good way to look at it, is that we are going to continue drive and focus on top line growth as I mentioned this is a high margin business, high performance business and we want to grow the top line, so you should expect continued investment in sales and engineers. One of the things that I would say is probably more event driven, for lack of better term as they are spending quite a bit on their ERP platform. Because they operate on a hub and spoke model and one of the backbones of that hub and spoke model is a very efficient ERP system so that we can move work literally electronically around the world. To be very responsive to our customers. So in '07, have had heavy investment and there'll be some in 08 but they continue to drive adsorption and improve their businesses they over time. Also the QRCs, they'll continue to invest in those and there's typically a little bit of a lag time before and as to build the infrastructure before you are getting up and running but there are those QRCs have very high IRR. So I would say that the trends you have seen over the last couple of years are a really systemic and one of the things that at this point may be kind of suppressing those trends but I think given us future benefits its going to be our investment in the systems and in the platforms.

And then just searching over the pump side and the aftermarket side, obviously seeing a, saw a good acceleration and the revenue but, looks like that orders are up only 10%, is there some worry we should have there just kind of given the deceleration in the growth rates and especially as it relates to probably seeing this aftermarket shift coming up as lot of this install base just put in place after coming off warranty?

No there's nothing you need to read into that. First of all, this, again this is a market because mid, maybe slightly higher single-digit. So any thing if you know over that sustained period of time indicates that we're exceeding the market growth and you know again this is not a quarter-to-quarter business. There is a lot of focus in the fourth quarter on projects and getting projects out as you can imagine. But this is a trend on aftermarket that we really look at over the year and anything, any growth rate for us in high single-digits low double digits is tremendous for our business because of the kind of the kind of aftermarket margins that drives through and you can also there's important thing that we remember also that this aftermarket business as it pulls through our original equipment products. So you can't think of it is just projects and then aftermarket. What we are finding in these alliance arrangements, our ability to deliver aftermarket actually pulls through, our pumps, our seals, our auxiliary systems and even our barrels to certain degree into these new projects in these major refinery expansions. So nothing to read into that. We are very excited with growth and how they are executing on their strategy and there are still more work to do.

And then just as a follow up to that quickly. Just, could you maybe comment as to where you believe you are right now as far as, lot of the projects you've already a lot of pump you plant placed already this is last cycle. Are they starting to come up warranty, you are starting to see a benefit from that yet or is that still you have to come?

When we look over the horizon we still think that good portion of that benefit is yet to come in terms of, the projects we put in and the after market that comes from that. But we are not waiting for that to come as you know. We are going to go out and get aftermarket business that the customers were actually performing on their own equipment that replicators are performing or that maybe our competitors are.

Thanks guys.

We have now reached the allotted time for questions. I would now like to turn the call over to Mr. Zac Nagel for any closing remarks.

So I want to thank everyone for joining us and who have involved today here in this conference call. [Indiscernible].

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