FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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|
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|
|
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|
|
|
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|
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|
|
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|
|
|
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|
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|
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|
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|
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Total Flowserve Corporation Shareholders’ Equity
|
|
|
|
|
|
|
|
|
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Capital
in Excess of Par Value
|
|
Retained Earnings
|
|
|
|
|
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Deferred Compensation Obligation
|
|
Accumulated
Other Comprehensive Income (Loss)
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|
Total Equity
|
|
Common Stock
|
|
|
|
Treasury Stock
|
|
|
|
Non-
controlling Interests
|
|
|
Shares
|
|
Amount
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
(Amounts in thousands)
|
Balance — January 1, 2021
|
176,793
|
|
|
$
|
220,991
|
|
|
$
|
502,227
|
|
|
$
|
3,670,543
|
|
|
(46,768)
|
|
|
$
|
(2,059,309)
|
|
|
$
|
6,164
|
|
|
$
|
(609,625)
|
|
|
$
|
30,330
|
|
|
$
|
1,761,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock activity under stock plans
|
—
|
|
|
—
|
|
|
(23,081)
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|
|
—
|
|
|
401
|
|
|
18,453
|
|
|
(50)
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|
|
—
|
|
|
—
|
|
|
(4,678)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
9,760
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
14,080
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,081
|
|
|
17,161
|
|
Cash dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,465)
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,465)
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|
Repurchases of common shares
|
—
|
|
|
—
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|
|
—
|
|
|
—
|
|
|
(129)
|
|
|
(5,081)
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,081)
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|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,575)
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|
|
147
|
|
|
(6,428)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,804)
|
|
|
(3,804)
|
|
Balance — March 31, 2021
|
176,793
|
|
|
$
|
220,991
|
|
|
$
|
488,906
|
|
|
$
|
3,658,158
|
|
|
(46,496)
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|
|
$
|
(2,045,937)
|
|
|
$
|
6,114
|
|
|
$
|
(616,200)
|
|
|
$
|
29,754
|
|
|
$
|
1,741,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance — January 1, 2020
|
$
|
176,793
|
|
|
$
|
220,991
|
|
|
$
|
501,045
|
|
|
$
|
3,652,244
|
|
|
(46,262)
|
|
|
$
|
(2,051,583)
|
|
|
$
|
8,334
|
|
|
$
|
(584,292)
|
|
|
$
|
25,602
|
|
|
$
|
1,772,341
|
|
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326)
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,291)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,291)
|
|
Stock activity under stock plans
|
—
|
|
|
—
|
|
|
(17,635)
|
|
|
—
|
|
|
317
|
|
|
14,632
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,003)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
14,311
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
12,123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,100
|
|
|
14,223
|
|
Cash dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,382)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,382)
|
|
Repurchases of common shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,057)
|
|
|
(32,112)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32,112)
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(90,537)
|
|
|
839
|
|
|
(89,698)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(2,546)
|
|
|
(2,556)
|
|
Balance — March 31, 2020
|
176,793
|
|
|
$
|
220,991
|
|
|
$
|
497,721
|
|
|
$
|
3,630,694
|
|
|
(47,002)
|
|
|
$
|
(2,069,063)
|
|
|
$
|
8,324
|
|
|
$
|
(674,829)
|
|
|
$
|
25,995
|
|
|
$
|
1,639,833
|
|
See accompanying notes to condensed consolidated financial statements.
|
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
Cash flows – Operating activities:
|
|
|
|
Net earnings, including noncontrolling interests
|
$
|
17,161
|
|
|
$
|
14,223
|
|
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
|
|
|
|
Depreciation
|
21,522
|
|
|
20,716
|
|
Amortization of intangible and other assets
|
3,862
|
|
|
3,121
|
|
Loss on extinguishment of debt
|
7,610
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
9,760
|
|
|
14,311
|
|
|
|
|
|
Foreign currency, asset write downs and other non-cash adjustments
|
24,260
|
|
|
8,304
|
|
Change in assets and liabilities:
|
|
|
|
Accounts receivable, net
|
9,005
|
|
|
19,137
|
|
Inventories, net
|
(16,988)
|
|
|
(43,226)
|
|
Contract assets, net
|
(2,245)
|
|
|
(14,462)
|
|
Prepaid expenses and other assets, net
|
307
|
|
|
118
|
|
Accounts payable
|
(47,093)
|
|
|
(8,799)
|
|
Contract liabilities
|
9,001
|
|
|
16,649
|
|
Accrued liabilities and income taxes payable
|
187
|
|
|
10,698
|
|
Retirement obligations and other
|
5,248
|
|
|
12,949
|
|
|
|
|
|
Net deferred taxes
|
(5,219)
|
|
|
(6,236)
|
|
Net cash flows provided (used) by operating activities
|
36,378
|
|
|
47,503
|
|
Cash flows – Investing activities:
|
|
|
|
Capital expenditures
|
(11,422)
|
|
|
(15,955)
|
|
|
|
|
|
Proceeds from disposal of assets and other
|
1,934
|
|
|
10,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided (used) by investing activities
|
(9,488)
|
|
|
(5,218)
|
|
Cash flows – Financing activities:
|
|
|
|
|
|
|
|
Payments on long-term debt
|
(407,473)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds under other financing arrangements
|
425
|
|
|
1,694
|
|
Payments under other financing arrangements
|
(1,976)
|
|
|
(3,356)
|
|
Repurchases of common shares
|
(5,081)
|
|
|
(32,112)
|
|
Payments related to tax withholding for stock-based compensation
|
(5,547)
|
|
|
(3,137)
|
|
Payments of dividends
|
(26,465)
|
|
|
(26,023)
|
|
Other
|
(3,806)
|
|
|
(2,547)
|
|
Net cash flows provided (used) by financing activities
|
(449,923)
|
|
|
(65,481)
|
|
Effect of exchange rate changes on cash
|
(12,936)
|
|
|
(25,485)
|
|
Net change in cash and cash equivalents
|
(435,969)
|
|
|
(48,681)
|
|
Cash and cash equivalents at beginning of period
|
1,095,274
|
|
|
670,980
|
|
Cash and cash equivalents at end of period
|
$
|
659,305
|
|
|
$
|
622,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
FLOWSERVE CORPORATION
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation and Accounting Policies
Basis of Presentation
The accompanying condensed consolidated balance sheet as of March 31, 2021, the related condensed consolidated statements of income and comprehensive income for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of shareholders' equity for the three months ended March 31, 2021 and 2020 and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 of Flowserve Corporation are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for fair statement of such condensed consolidated financial statements have been made. Where applicable, prior period information has been updated to conform to current year presentation.
The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report").
Revision to Previously Reported Financial Information - During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 through the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by approximately $1 million, retained earnings by approximately $14 million and accumulated other comprehensive loss by approximately $15 million as of December 31, 2020.
In addition, as previously disclosed, during the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily related to an incurred but not reported ("IBNR") liability associated with unasserted asbestos claims, but also included adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR for periods beginning with the year ended December 31, 2014 through the second quarter of 2020 and to correct certain other previously identified immaterial errors.
We have assessed the above described errors, individually and in the aggregate, and concluded they were not material to the period ended March 31, 2020 or any previous period. The March 31, 2020 balances, as presented herein, have been revised. The remaining periods in 2020 not presented herein will be revised, as applicable, in future filings. For a detailed discussion related to the revised balances refer to Note 2.
Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first three months of 2021, we continue to be challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by COVID-19. As a result of the COVID-19 pandemic’s effect on oil prices, many of our large customers reduced capital expenditures and budgets in 2020. To date, customer spending has yet to return to pre-pandemic levels, resulting in lower bookings as well as lower revenue in the first three months of 2021 as compared to the prior year.
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, judgments and methodologies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expenses, our allowance for expected credit losses, stock based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, and valuation allowances for tax assets, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in the near to mid-term as new information becomes available. Actual results may differ from these estimates.
Accounting Developments
Pronouncements Implemented
In January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topics 321, 323 and 815." The amendments of the ASU addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The ASU is effective for annual periods beginning after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. The adoption of this ASU did not have an impact on our consolidated financial condition, results of operations or net cash flows.
In March of 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of The Effects of Reference Rate Reform on Financial Reporting." The ASU provides guidance designed to enable the process for migrating away from reference rates such as the London Interbank Offered Rate ("LIBOR") and others to new reference rates. Further, the amendments of the ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The amendments are effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. At this time, we do not have hedging relationships that reference LIBOR or another reference rate expected to be discontinued and therefore, have not applied the practical expedients and exceptions as required by the ASU. As referenced in Note 7 of this Quarterly Report, the Company’s Senior Credit Facility agreement includes a transition clause in the event LIBOR is discontinued, as such, we do not expect the transition of LIBOR to have a material impact on our consolidated financial statements. We do not expect the application of these expedients and exceptions to have an impact on our consolidated financial condition and results of operations.
In October 2020, the FASB issued ASU No. 2020-10, "Codification Improvements: Amendments to the FASB Accounting Standards Codification." The amendments in this ASU do not change GAAP and, therefore, are not expected to result in a significant change in practice. Rather, the amendments are intended to improve codification guidance and disclosure requirements in Company's financial statements and notes to the financial statements. The amendments are effective for annual periods beginning after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. The adoption of this ASU did not have an impact on our consolidated financial condition, results of operations or net cash flows.
2.Revision to Previously Reported Financial Information
During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 though the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by approximately $1 million, retained earnings by approximately $14 million and accumulated other comprehensive loss by approximately $15 million as of December 31, 2020.
In the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily relate to an IBNR associated with unasserted asbestos claims, but also include adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR and to correct certain other previously identified immaterial misstatements.
The following table presents the impact to affected line items for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021 on our condensed consolidated balance sheet as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Amounts in thousands)
|
As Reported
|
|
Adjustments
|
|
As Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement obligations and other liabilities
|
$
|
516,087
|
|
|
$
|
1,479
|
|
|
$
|
517,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
3,656,449
|
|
|
14,094
|
|
|
3,670,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
(594,052)
|
|
|
(15,573)
|
|
|
(609,625)
|
|
Total Flowserve Corporation shareholders’ equity
|
1,732,470
|
|
|
(1,479)
|
|
|
1,730,991
|
|
|
|
|
|
|
|
Total equity
|
1,762,800
|
|
|
(1,479)
|
|
|
1,761,321
|
|
|
|
|
|
|
|
_______________________________________
The following table presents the impact to affected line items on our condensed consolidated statement of income for the three months ended March 31, 2020, for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021 and the accounting errors related to the recognition of a liability for unasserted asbestos claims identified in the third quarter of 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Amounts in thousands)
|
As Reported
|
|
Adjustments
|
|
As Revised
|
Sales
|
$
|
894,457
|
|
|
$
|
(944)
|
|
|
$
|
893,513
|
|
Cost of sales
|
(628,480)
|
|
|
1,426
|
|
|
(627,054)
|
|
Gross profit
|
265,977
|
|
|
482
|
|
|
266,459
|
|
Selling, general and administrative expense (1)
|
(243,621)
|
|
|
(1,830)
|
|
|
(245,451)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
25,552
|
|
|
(1,348)
|
|
|
24,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net (2)
|
23,462
|
|
|
14,740
|
|
|
38,202
|
|
Earnings before income taxes
|
37,800
|
|
|
13,392
|
|
|
51,192
|
|
Provision for income taxes
|
(36,310)
|
|
|
(659)
|
|
|
(36,969)
|
|
Net earnings, including noncontrolling interests
|
1,490
|
|
|
12,733
|
|
|
14,223
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Flowserve Corporation
|
$
|
(610)
|
|
|
12,733
|
|
|
$
|
12,123
|
|
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
Diluted
|
—
|
|
|
0.09
|
|
|
0.09
|
|
_______________________________________
(1) Adjustment primarily relates to asbestos settlement and defense costs for related legal fees.
(2) Adjustment relates to the accounting error involving foreign currency transactions.
The following table presents the impact to affected line items for the correction of the accounting errors on our condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Amounts in thousands)
|
As Reported
|
|
Adjustments
|
|
As Revised
|
Net earnings, including noncontrolling interests
|
$
|
1,490
|
|
|
$
|
12,733
|
|
|
$
|
14,223
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Foreign currency translation adjustments, net of taxes
|
(81,353)
|
|
|
(14,708)
|
|
|
(96,061)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
(74,990)
|
|
|
(14,708)
|
|
|
(89,698)
|
|
Comprehensive income (loss), including noncontrolling interests
|
(73,500)
|
|
|
(1,975)
|
|
|
(75,475)
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Flowserve Corporation
|
$
|
(76,439)
|
|
|
$
|
(1,975)
|
|
|
$
|
(78,414)
|
|
The condensed consolidated statement of shareholders' equity for the period from January 1, 2020 to March 31, 2020 and the condensed consolidated statement of comprehensive income for the three months ended March 31, 2020 have also been revised to reflect the impacts of the above described errors.
Except for as described below in (1) and (2), the effect of the adjustments to the condensed consolidated statements of cash flows for the three months ended March 31, 2020 primarily related to the change in net earnings, including noncontrolling interest, in the table above and were offset primarily by a non-cash adjustment to foreign currency, asset write downs and other non-cash adjustments and impacts to changes in operating assets and liabilities. The following table presents the impact to affected line items for the correction of the errors on our condensed consolidated statement of cash flows for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Amounts in thousands)
|
As Reported
|
|
Adjustments
|
|
As Revised
|
Net cash flows provided (used) by operating activities
|
$
|
47,302
|
|
|
$
|
201
|
|
|
$
|
47,503
|
|
Net cash flows provided (used) by investing activities (1)
|
(6,573)
|
|
|
1,355
|
|
|
(5,218)
|
|
Net cash flows provided (used) by financing activities (2)
|
(63,925)
|
|
|
(1,556)
|
|
|
(65,481)
|
|
Cash and cash equivalents at end of period
|
622,299
|
|
|
—
|
|
|
622,299
|
|
_______________________________________
(1) Primarily related to adjustments resulting from the misclassification of Software as a service arrangements as property, plant and equipment rather than other assets, net, as prescribed by ASU 2018-15.
(2) Primarily resulting from the misclassification of non-cash items under proceeds and payments under other financing arrangements in financing activities, rather than other assets, net, in operating activities.
The impacts of the revisions have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.
3.Revenue Recognition
The majority of our revenues relate to customer orders that typically contain a single commitment of goods or services which have lead times under a year. Longer lead time, more complex contracts with our customers typically have multiple commitments of goods and services, including any combination of designing, developing, manufacturing, modifying, installing and commissioning of flow management equipment and providing services and parts related to the performance of such products. Control transfers over time when the customer is able to direct the use of and obtain substantially all of the benefits of our work as we perform.
Our primary method for recognizing revenue over time is the percentage of completion ("POC") method. Revenue from products and services transferred to customers over time accounted for approximately 18% and 23% of total revenue for the three month periods ended March 31, 2021 and 2020, respectively. If control does not transfer over time, then control transfers at a point in time. We recognize revenue at a point in time at the level of each performance obligation based on the evaluation of certain indicators of control transfer, such as title transfer, risk of loss transfer, customer acceptance and physical possession. Revenue from products and services transferred to customers at a point in time accounted for approximately 82% and 77% of total revenue for the three month periods ended March 31, 2021 and 2020, respectively. Refer to Note 3 to our consolidated financial statements included in our 2020 Annual Report for a more comprehensive discussion of our policies and accounting practices of revenue recognition.
Disaggregated Revenue
We conduct our operations through two business segments based on the type of product and how we manage the business:
•Flowserve Pump Division ("FPD") for custom, highly-engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and
•Flow Control Division ("FCD") designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products, boiler controls and related equipment.
Our revenue sources are derived from our original equipment manufacturing and our aftermarket sales and services. Our original equipment revenues are generally related to originally designed, manufactured, distributed and installed equipment that
can range from pre-configured, short-cycle products to more customized, highly-engineered equipment ("Original Equipment"). Our aftermarket sales and services are derived from sales of replacement equipment, as well as maintenance, advanced diagnostic, repair and retrofitting services ("Aftermarket"). Each of our two business segments generate Original Equipment and Aftermarket revenues.
The following table presents our customer revenues disaggregated by revenue source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Total
|
Original Equipment
|
$
|
214,164
|
|
|
$
|
192,720
|
|
|
$
|
406,884
|
|
Aftermarket
|
388,002
|
|
|
62,422
|
|
|
450,424
|
|
|
$
|
602,166
|
|
|
$
|
255,142
|
|
|
$
|
857,308
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
FPD
|
|
FCD
|
|
Total
|
Original Equipment
|
$
|
252,732
|
|
|
$
|
198,619
|
|
|
$
|
451,351
|
|
Aftermarket
|
382,394
|
|
|
59,768
|
|
|
442,162
|
|
|
$
|
635,126
|
|
|
$
|
258,387
|
|
|
$
|
893,513
|
|
Our customer sales are diversified geographically. The following table presents our revenues disaggregated by geography, based on the shipping addresses of our customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Total
|
North America(1)
|
$
|
223,975
|
|
|
$
|
90,247
|
|
|
$
|
314,222
|
|
Latin America(1)
|
42,040
|
|
|
6,818
|
|
|
48,858
|
|
Middle East and Africa
|
82,541
|
|
|
27,687
|
|
|
110,228
|
|
Asia Pacific
|
124,648
|
|
|
78,661
|
|
|
203,309
|
|
Europe
|
128,962
|
|
|
51,729
|
|
|
180,691
|
|
|
$
|
602,166
|
|
|
$
|
255,142
|
|
|
$
|
857,308
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
FPD
|
|
FCD
|
|
Total
|
North America(1)
|
$
|
267,524
|
|
|
$
|
123,118
|
|
|
$
|
390,642
|
|
Latin America(1)
|
42,187
|
|
|
5,511
|
|
|
47,698
|
|
Middle East and Africa
|
97,168
|
|
|
26,663
|
|
|
123,831
|
|
Asia Pacific
|
112,455
|
|
|
54,563
|
|
|
167,018
|
|
Europe
|
115,792
|
|
|
48,532
|
|
|
164,324
|
|
|
$
|
635,126
|
|
|
$
|
258,387
|
|
|
$
|
893,513
|
|
__________________________________
(1) North America represents the United States and Canada; Latin America includes Mexico.
On March 31, 2021, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $573 million. We estimate recognition of approximately $390 million of this amount as revenue in the remainder of 2021 and an additional $183 million in 2022 and thereafter.
Contract Balances
We receive payment from customers based on a contractual billing schedule and specific performance requirements as established in our contracts. We record billings as accounts receivable when an unconditional right to consideration exists. A contract asset represents revenue recognized in advance of our right to receive payment under the terms of a contract. A contract liability represents our right to receive payment in advance of revenue recognized for a contract.
The following tables present beginning and ending balances of contract assets and contract liabilities, current and long-term, for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
Contract Assets, net (Current)
|
|
Long-term Contract Assets, net(1)
|
|
Contract Liabilities (Current)
|
|
Long-term Contract Liabilities(2)
|
|
Beginning balance, January 1, 2021
|
$
|
277,734
|
|
|
1,139
|
|
|
$
|
194,227
|
|
|
$
|
822
|
|
|
Revenue recognized that was included in contract liabilities at the beginning of the period
|
—
|
|
|
—
|
|
|
(78,713)
|
|
|
—
|
|
|
Revenue recognized in the period in excess of billings
|
164,246
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
Billings arising during the period in excess of revenue recognized
|
—
|
|
|
—
|
|
|
82,712
|
|
|
—
|
|
|
Amounts transferred from contract assets to receivables
|
(156,805)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Currency effects and other, net
|
(10,988)
|
|
|
(98)
|
|
|
1,312
|
|
|
(30)
|
|
|
Ending balance, March 31, 2021
|
$
|
274,187
|
|
|
$
|
1,096
|
|
|
$
|
199,538
|
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
Contract Assets, net (Current)
|
|
Long-term Contract Assets, net(1)
|
|
Contract Liabilities (Current)
|
|
Long-term Contract Liabilities(2)
|
Beginning balance, January 1, 2020
|
$
|
272,914
|
|
|
$
|
9,280
|
|
|
$
|
221,095
|
|
|
$
|
1,652
|
|
Revenue recognized that was included in contract liabilities at the beginning of the period
|
—
|
|
|
—
|
|
|
(90,190)
|
|
|
(634)
|
|
Revenue recognized in the period in excess of billings
|
203,856
|
|
|
504
|
|
|
—
|
|
|
—
|
|
Billings arising during the period in excess of revenue recognized
|
—
|
|
|
—
|
|
|
100,121
|
|
|
—
|
|
Amounts transferred from contract assets to receivables
|
(185,456)
|
|
|
(93)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Currency effects and other, net
|
(15,387)
|
|
|
(7,229)
|
|
|
(1,896)
|
|
|
(53)
|
|
Ending balance, March 31, 2020
|
$
|
275,927
|
|
|
$
|
2,462
|
|
|
$
|
229,130
|
|
|
$
|
965
|
|
_____________________________________
(1) Included in other assets, net.
(2) Included in retirement obligations and other liabilities.
4.Allowance for Expected Credit Losses
As previously disclosed, on January 1, 2020 we adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments" ("CECL") on a prospective basis to determine our allowance for credit losses. As a result of the adoption of the ASU, we recorded a noncash cumulative effect after-tax adjustment to retained earnings of $7.3 million on our January 1, 2020 opening condensed consolidated balance sheet.
The allowance for credit losses is an estimate of the credit losses expected over the life of our financial assets and instruments. We assess and measure expected credit losses on a collective basis when similar risk characteristics exist, including market, geography, credit risk and remaining duration. Financial assets and instruments that do not share risk characteristics are evaluated on an individual basis. Our estimate of the allowance balance is assessed and quantified using internal and external valuation information relating to past events, current conditions and reasonable and supportable forecasts over the contractual terms of an asset.
Our primary exposure to expected credit losses is through our trade receivables and contract assets. For these financial assets, we record an allowance for expected credit losses that, when deducted from the gross asset balance, presents the net amount expected to be collected. Primarily, our experience of historical credit losses provides the basis for our estimation of the allowance. We estimate the allowance based on an aging schedule and according to historical losses as determined from our history of billings and collections. Additionally, we adjust the allowance for factors that are specific to our customers’ credit risk such as financial difficulties, liquidity issues, insolvency, and country and geopolitical risks. We also consider both the current and forecasted macroeconomic conditions as of the reporting date. As identified and needed, we adjust the allowance and recognize adjustments in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of previously written off amounts are reflected as a reduction to credit impairment losses in the condensed consolidated statements of income.
Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Generally, contract assets are recorded when contractual billing schedules differ from revenue recognition based on timing and are managed through the revenue recognition process. The current expected credit loss for contract assets is estimated to be approximately 1% of the asset balance.
The following table presents the changes in the allowance for expected credit losses for our trade receivables and contract assets for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
Trade receivables
|
|
Contract assets
|
Beginning balance, January 1, 2021
|
$
|
75,176
|
|
|
$
|
3,205
|
|
Charges to cost and expenses, net of recoveries
|
(79)
|
|
|
—
|
|
|
|
|
|
Currency effects and other, net
|
(1,268)
|
|
|
(66)
|
|
Ending balance, March 31, 2021
|
$
|
73,829
|
|
|
$
|
3,139
|
|
|
|
|
|
Beginning balance, January 1, 2020
|
$
|
53,412
|
|
|
$
|
206
|
|
Adoption of ASU 2016-13
|
7,291
|
|
|
2,403
|
|
Charges to cost and expenses, net of recoveries
|
4,058
|
|
|
—
|
|
|
|
|
|
Currency effects and other, net
|
1,491
|
|
|
72
|
|
Ending balance, March 31, 2020
|
$
|
66,252
|
|
|
$
|
2,681
|
|
Our allowance on long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of reserved receivables associated with the national oil company in Venezuela. The following table presents the changes in the allowance for long-term receivables for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
2021
|
|
2020
|
|
|
Balance at January 1
|
$
|
67,842
|
|
|
$
|
68,555
|
|
|
|
Adoption of ASU 2016-13
|
—
|
|
|
(552)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency effects and other, net
|
(1,059)
|
|
|
(574)
|
|
|
|
Balance at March 31
|
$
|
66,783
|
|
|
$
|
67,429
|
|
|
|
We also have exposure to credit losses from off-balance sheet exposures, such as financial guarantees and standby letters of credit, where we believe the risk of loss is immaterial to our financial statements as of March 31, 2021.
5.Stock-Based Compensation Plans
We maintain the Flowserve Corporation 2020 Long-Term Incentive Plan (“2020 Plan”), which is a shareholder approved plan authorizing the issuance of 12,500,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as "Restricted Shares"), incentive stock options, non-statutory stock options, stock appreciation rights and bonus stock. Of the shares of common stock authorized under the 2020 Plan, 11,230,386 were available for issuance as of March 31, 2021. Restricted Shares primarily vest over a three year period. Restricted Shares granted to employees who retire and have achieved at least 55 years of age and 10 years of service continue to vest over the original vesting period ("55/10 Provision"). As of March 31, 2021, 114,943 stock options were outstanding. No stock options were granted or vested during the three months ended March 31, 2021 and 2020.
Restricted Shares – Awards of Restricted Shares are valued at the closing market price of our common stock on the date of grant. The unearned compensation is amortized to compensation expense over the vesting period of the restricted shares, except for awards related to the 55/10 Provision which are expensed in the period granted. We had unearned compensation of $45.2 million and $18.7 million at March 31, 2021 and December 31, 2020, respectively, which is expected to be recognized over a remaining weighted-average period of approximately two years. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during the three months ended March 31, 2021 and 2020 was $23.4 million and $18.1 million, respectively.
We recorded stock-based compensation expense of $7.6 million ($9.8 million pre-tax) and $11.1 million ($14.3 million pre-tax) for the three months ended March 31, 2021 and 2020, respectively.
The following table summarizes information regarding Restricted Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Shares
|
|
Weighted Average
Grant-Date Fair
Value
|
Number of unvested shares:
|
|
|
|
Outstanding - January 1, 2021
|
1,373,657
|
|
|
$
|
46.76
|
|
Granted
|
947,047
|
|
|
39.47
|
|
Vested
|
(518,690)
|
|
|
45.17
|
|
Forfeited
|
(61,371)
|
|
|
52.31
|
|
Outstanding as of March 31, 2021
|
1,740,643
|
|
|
$
|
43.08
|
|
Unvested Restricted Shares outstanding as of March 31, 2021 included approximately 526,000 units with performance-based vesting provisions. Performance-based units are issuable in common stock and vest upon the achievement of pre-defined performance targets. Performance-based units issued in 2019 and 2020 have performance targets based on our average return on invested capital and our total shareholder return ("TSR") over a three-year period. Performance units issued in 2021 have primary performance targets based on average return on invested capital and free cash flow as a percent of net income, including a secondary relative total shareholder return performance measure which can increase or decrease the number of units by 15% depending on the Company's performance versus peers. Performance units issued in 2019 and 2020 have a vesting percentage between 0% and 200% and performance units issued in 2021 have a vesting percentage between 0% and 230%. Compensation expense is generally recognized ratably over a cliff-vesting period of 36 months, based on the fair value of our common stock on the date of grant, as adjusted for actual forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets for all performance-based units granted except for the TSR-based units. Vesting provisions range from 0 to approximately 1,101,000 shares based on performance targets. As of March 31, 2021, we estimate vesting of approximately 496,000 shares based on expected achievement of performance targets.
6.Derivative Instruments and Hedges
Our risk management and foreign currency derivatives and hedging policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 9 to our consolidated financial statements included in our 2020 Annual Report and Note 8 of this Quarterly Report for additional information on our derivatives. We enter into foreign exchange forward contracts to hedge our cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction.
Foreign exchange contracts with third parties had a notional value of $371.3 million and $388.1 million at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021, the length of foreign exchange contracts currently in place ranged from 6 days to 17 months.
We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under foreign exchange contracts agreements and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.
The fair values of foreign exchange contracts are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Amounts in thousands)
|
2021
|
|
2020
|
Current derivative assets
|
$
|
2,416
|
|
|
$
|
2,857
|
|
Noncurrent derivative assets
|
17
|
|
|
249
|
|
Current derivative liabilities
|
1,665
|
|
|
682
|
|
Noncurrent derivative liabilities
|
2
|
|
|
—
|
|
Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.
The impact of net changes in the fair values of foreign exchange contracts are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(Amounts in thousands)
|
|
|
|
|
2021
|
|
2020
|
Gains recognized in income
|
|
|
|
|
$
|
6,105
|
|
|
$
|
3,459
|
|
Gains and losses recognized in our condensed consolidated statements of income for foreign exchange contracts are classified as other income (expense), net.
As a means of managing the volatility of foreign currency exposure with the Euro/U.S. dollar exchange rate, we enter into cross-currency swaps agreements ("Swaps") as a hedge of our Euro investment in certain of our international subsidiaries. Accordingly, on March 9, 2021 we entered into a cross currency swap agreement with an early termination date of March 9, 2025 and during the third quarter of 2020 we entered into a cross currency swap agreement with an early termination date of September 22, 2025. Both swap agreements are designated as net investment hedges. As of March 31, 2021, the combined notional value of these swaps was €288.2 million. The swaps are included in retirement obligations and other liabilities in our condensed consolidated balance sheet as of March 31, 2021, with a fair value of $(18.3) million, compared to $(18.1) million as of December 31, 2020. The swaps are classified as Level II under the fair value hierarchy.
We exclude the interest accruals on the swaps from the assessment of hedge effectiveness and recognize the interest accruals in earnings within interest expense. For each reporting period, the change in the fair value of the swaps attributable to changes in the spot rate and differences between the change in the fair value of the excluded components and the amounts recognized in earnings under the swap accrual process are reported in accumulated other comprehensive loss on our consolidated balance sheet. For the period ending March 31, 2021, an interest accrual of $(0.6) million was recognized within interest expense, in our condensed consolidated statements of income.
The cumulative net investment hedge loss, net of deferred taxes, under cross-currency swaps recorded in accumulated other comprehensive loss (gain) ("AOCL") on our condensed consolidated balance sheet are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
(Amounts in thousands)
|
Gain-included component (1)
|
$
|
(1,613)
|
|
|
$
|
—
|
|
|
|
|
|
Loss-excluded component (2)
|
15,639
|
|
|
—
|
|
|
|
|
|
Loss recognized in AOCL
|
$
|
14,026
|
|
|
$
|
—
|
|
|
|
|
|
________________________
(1) Change in the fair value of the swaps attributable to changes in spot rates.
(2) Change in the fair value of the swaps due to changes other than those attributable to spot rates.
In March 2015, we designated €255.7 million of our 1.25% EUR 2022 Senior Notes ("2022 Euro Senior Notes") discussed in Note 7 as a net investment hedge of our Euro investment in certain of our international subsidiaries. On September 22, 2020, we increased the designated hedged value on the 2022 Euro Senior Notes to €336.3 million, which reflected the remaining balance of the 2022 Euro Senior Notes. For each reporting period, the change in the carrying value due to the remeasurement of the effective portion is reported in accumulated other comprehensive loss on our consolidated balance sheet and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income (expense), net in our
condensed consolidated statements of income. As a result of the redemption of our 2022 Euro Senior Notes discussed in Note 7, in February and March of 2021 we dedesignated the hedged value of our net investment hedge.
Prior to the dedesignation, the cumulative impact recorded in AOCL on our consolidated balance sheet from the change in carrying value due to the remeasurement of the effective portion of the net investment hedge are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
(Amounts in thousands)
|
Loss recognized in AOCL
|
$
|
29,554
|
|
|
$
|
8,520
|
|
|
|
|
|
Prior to the dedesignation of the net investment hedge, we used the spot method to measure the effectiveness of both net investment hedges and evaluate the effectiveness on a prospective basis at the beginning of each quarter. We did not record any ineffectiveness during the three months ended March 31, 2021 and 2020.
7.Debt
Debt, including finance lease obligations, net of discounts and debt issuance costs, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Amounts in thousands, except percentages)
|
2021
|
|
2020
|
1.25% EUR Senior Notes due March 17, 2022, net of unamortized discount and debt issuance costs of $1,070 as of December 31, 2020
|
$
|
—
|
|
|
$
|
410,243
|
|
3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $1,059 and $1,235
|
498,941
|
|
|
498,765
|
|
4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,234 and $1,345
|
298,766
|
|
|
298,655
|
|
3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $6,014 and $6,147
|
493,986
|
|
|
493,853
|
|
|
|
|
|
Finance lease obligations and other borrowings
|
24,228
|
|
|
25,390
|
|
Debt and finance lease obligations
|
1,315,921
|
|
|
1,726,906
|
|
Less amounts due within one year
|
8,342
|
|
|
8,995
|
|
|
|
|
|
Total debt due after one year
|
$
|
1,307,579
|
|
|
$
|
1,717,911
|
|
Senior Notes
On March 19, 2021, we redeemed the remaining $400.9 million of our 2022 Euro Senior Notes and have recorded a loss on early extinguishment of $7.6 million, which included the impact of a $6.6 million make-whole premium. During the third quarter of 2020 we tendered $191.4 million of our 2022 Euro Senior Notes and recorded a loss on early extinguishment of $1.2 million in interest expense.
Senior Credit Facility
On September 4, 2020, we amended our credit agreement with Bank of America, N.A., as administrative agent, and the other lenders party thereto ("Amended Credit Agreement") to provide greater flexibility in maintaining adequate liquidity in the event we have the need to access available borrowings under our Senior Credit Facility ("Credit Facility"). The Amended Credit Agreement provides for an $800.0 million unsecured senior credit facility with a maturity date of July 16, 2024. The 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 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 Amended Credit Agreement, among other things, (i) replaces the existing leverage ratio financial covenant (the “Existing Leverage Covenant”) with a leverage ratio financial covenant that requires the Company’s ratio of consolidated funded indebtedness, minus the amount of all cash and cash equivalents on our balance sheet in excess of $250.0 million, to the Company’s Consolidated EBITDA, not to exceed 4.00 to 1.00 as of the last day of any quarter through and including December 31, 2021 (the “Covenant Relief Period”), (ii) amends the Existing Leverage Covenant to provide that it will not be tested until
the quarter ending March 31, 2022, (iii) provides that the Existing Leverage Covenant, beginning March 31, 2022, cannot exceed 4.00 to 1.00 (or as increased to 4.50 to 1.00 in connection with certain acquisitions) and (iv) limits the Company’s ability to pay dividends and repurchase its shares of common stock, par value $1.25, during the Covenant Relief Period, to an amount not to exceed 115% of the total amount of dividends and share repurchases we made during the period commencing January 1, 2019 through and including June 30, 2020.
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 Financial Services LLC ("S&P") Ratings, or, at our option, the Base Rate (as defined in the Credit Agreement) plus between 0.000% to 0.750% depending on our debt rating by either Moody’s Investors Service, Inc. or S&P Ratings. At March 31, 2021, 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 Credit Facility. The commitment fee will be between 0.090% and 0.300% of unused amounts under the Credit Facility depending on our debt rating by either Moody’s Investors Service, Inc. or S&P’s Ratings. The commitment fee was 0.20% (per annum) during the period ended March 31, 2021.
As of March 31, 2021 and December 31, 2020, we had no revolving loans outstanding. We had outstanding letters of credit of $58.0 million and $58.1 million at March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, the amount available for borrowings under our Senior Credit Facility was $742.0 million, compared to $741.9 million at December 31, 2020.
Our compliance with applicable financial covenants under the Senior Notes and Credit Facility are tested quarterly. We were in compliance with all applicable covenants as of March 31, 2021.
8.Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized by hierarchical levels based upon the level of judgment associated with the inputs used to measure their fair values. Recurring fair value measurements are limited to investments in derivative instruments. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy. The fair values of our derivatives are included in Note 6.
Our financial instruments are presented at fair value in our condensed consolidated balance sheets, with the exception of our long-term debt. The estimated fair value of our long-term debt, excluding the Senior Notes, approximates the carrying value and is classified as Level II under the fair value hierarchy. The carrying value of our debt is included in Note 7. The estimated fair value of our Senior Notes at March 31, 2021 was $1,340.1 million compared to the carrying value of $1,291.7 million. The estimated fair value of the Senior Notes is based on Level I quoted market rates. The carrying amounts of our other financial instruments (e.g., cash and cash equivalents, accounts receivable, net, accounts payable and short-term debt) approximated fair value due to their short-term nature at March 31, 2021 and December 31, 2020.
9.Inventories
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(Amounts in thousands)
|
2021
|
|
2020
|
Raw materials
|
$
|
322,707
|
|
|
$
|
321,600
|
|
Work in process
|
233,795
|
|
|
210,174
|
|
Finished goods
|
204,604
|
|
|
221,532
|
|
|
|
|
|
Less: Excess and obsolete reserve
|
(88,983)
|
|
|
(86,078)
|
|
Inventories, net
|
$
|
672,123
|
|
|
$
|
667,228
|
|
10.Earnings Per Share
The following is a reconciliation of net earnings of Flowserve Corporation and weighted average shares for calculating net earnings per common share. Earnings per weighted average common share outstanding was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(Amounts in thousands, except per share data)
|
2021
|
|
2020
|
Net earnings of Flowserve Corporation
|
$
|
14,080
|
|
|
$
|
12,123
|
|
Dividends on restricted shares not expected to vest
|
—
|
|
|
—
|
|
Earnings attributable to common and participating shareholders
|
$
|
14,080
|
|
|
$
|
12,123
|
|
Weighted average shares:
|
|
|
|
Common stock
|
130,406
|
|
|
130,731
|
|
Participating securities
|
21
|
|
|
23
|
|
Denominator for basic earnings per common share
|
130,427
|
|
|
130,754
|
|
Effect of potentially dilutive securities
|
579
|
|
|
819
|
|
Denominator for diluted earnings per common share
|
131,006
|
|
|
131,573
|
|
Earnings per common share:
|
|
|
|
Basic
|
$
|
0.11
|
|
|
$
|
0.09
|
|
Diluted
|
0.11
|
|
|
0.09
|
|
Diluted earnings per share above is based upon the weighted average number of shares as determined for basic earnings per share plus shares potentially issuable in conjunction with stock options and Restricted Shares.
11.Legal Matters and Contingencies
Asbestos-Related Claims
We are a defendant in a substantial number of lawsuits that seek to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured and/or distributed by our heritage companies in the past. Typically, these lawsuits have been brought against multiple defendants in state and federal courts. While the overall number of asbestos-related claims in which we or our predecessors have been named has generally declined in recent years, there can be no assurance that this trend will continue, or that the average cost per claim to us will not further increase. Asbestos-containing materials incorporated into any such products were encapsulated and used as internal components of process equipment, and we do not believe that significant emission of asbestos fibers occurred during the use of this equipment.
Our practice is to vigorously contest and resolve these claims, and we have been successful in resolving a majority of claims with little or no payment, other than legal fees. Activity related to asbestos claims during the periods indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Year Ended
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
2020
|
Beginning claims(1)
|
|
|
|
|
8,366
|
|
|
8,345
|
|
|
8,345
|
|
New claims
|
|
|
|
|
629
|
|
|
581
|
|
|
2,140
|
|
Resolved claims
|
|
|
|
|
(544)
|
|
|
(641)
|
|
|
(2,203)
|
|
Other(2)
|
|
|
|
|
(6)
|
|
|
(3)
|
|
|
84
|
|
Ending claims(1)
|
|
|
|
|
8,445
|
|
|
8,282
|
|
|
8,366
|
|
____________________
(1) Beginning and ending claims data in each period excludes inactive claims, as the Company considers it unlikely that inactive cases will be pursued further by the respective plaintiffs. A claim is classified as inactive either due to inactivity over a period of time or if designated as inactive by the applicable court.
(2) Represents the net change in claims as a result of the reclassification of active cases as inactive and inactive cases as active during the period indicated. Cases moved from active to inactive status are removed from the claims count without being accounted for as a "Resolved claim", and cases moved from inactive status to active status are added back to the claims count without being accounted for as a “New claim”.
During the three months ended March 31, 2021 and 2020, the Company incurred expenses (net of insurance) approximately $2.7 million and $4.3 million, respectively, to defend, resolve or otherwise dispose of outstanding claims, including legal and other related expenses. These expenses are included within SG&A in our condensed consolidated statements of income.
The Company had cash (inflows)/outflows (net of insurance and/or indemnity) to defend, resolve or otherwise dispose of outstanding claims, including legal and other related expenses of approximately $1.6 million and $1.4 million during the periods ending March 31, 2021 and 2020, respectively.
Historically, a high percentage of resolved claims have been covered by applicable insurance or indemnities from other companies, and we believe that a substantial majority of existing claims should continue to be covered by insurance or indemnities, in whole or in part.
We believe that our reserve for asbestos claims and the receivable for recoveries from insurance carriers that we have recorded for these claims reflects reasonable and probable estimates of these amounts. Our estimate of our ultimate exposure for asbestos claims, however, is subject to significant uncertainties, including the timing and number and types of new claims, unfavorable court rulings, judgments or settlement terms and ultimate costs to settle. Additionally, including the continued viability of carriers, may also impact the amount of probable insurance recoveries. We believe that these uncertainties could have a material adverse impact on our business, financial condition, results of operations and cash flows, though we currently believe the likelihood is remote.
Additionally, we have claims pending against certain insurers that, if resolved more favorably than reflected in the recorded receivables, would result in discrete gains in the applicable quarter.
Other Claims
We are also a defendant in a number of other lawsuits, including product liability claims, that are insured, subject to the applicable deductibles, arising in the ordinary course of business, and we are also involved in other uninsured routine litigation incidental to our business. We currently believe none of such litigation, either individually or in the aggregate, is material to our business, operations or overall financial condition. However, litigation is inherently unpredictable, and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on our financial position, results of operations or cash flows for the reporting period in which any such resolution or disposition occurs.
Although none of the aforementioned potential liabilities can be quantified with absolute certainty except as otherwise indicated above, we have established or adjusted reserves covering exposures relating to contingencies, to the extent believed to be reasonably estimable and probable based on past experience and available facts. While additional exposures beyond these reserves could exist, they currently cannot be estimated. We will continue to evaluate and update the reserves as necessary and appropriate.
12.Retirement and Postretirement Benefits
Components of the net periodic cost for retirement and postretirement benefits for the three months ended March 31, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Defined Benefit Plans
|
|
Non-U.S.
Defined Benefit Plans
|
|
Postretirement
Medical Benefits
|
(Amounts in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
$
|
6.8
|
|
|
$
|
6.3
|
|
|
$
|
1.8
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
3.1
|
|
|
3.8
|
|
|
1.4
|
|
|
1.6
|
|
|
0.1
|
|
|
0.1
|
|
Expected return on plan assets
|
(6.5)
|
|
|
(6.7)
|
|
|
(1.5)
|
|
|
(1.2)
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
Amortization of unrecognized net loss (gain)
|
1.9
|
|
|
1.7
|
|
|
1.1
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
Net periodic cost recognized
|
$
|
5.3
|
|
|
$
|
5.1
|
|
|
$
|
2.9
|
|
|
$
|
3.2
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
The components of net periodic cost for retirement and postretirement benefits other than service costs are included in other income (expense), net in our condensed consolidated statements of income.
13.Shareholders’ Equity
Dividends – Generally, our dividend date-of-record is in the last month of the quarter, and the dividend is paid the following month. Any subsequent dividends will be reviewed by our Board of Directors and declared in its discretion.
Dividends declared per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
Dividends declared per share
|
|
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Share Repurchase Program – In 2014, our Board of Directors approved a $500.0 million share repurchase authorization. Our share repurchase program does not have an expiration date and we reserve the right to limit or terminate the repurchase program at any time without notice.
We repurchased 129,000 shares of our outstanding common stock for $5.1 million during the three months ended March 31, 2021, compared to 1,057,115 shares repurchases for $32.1 million for the same period in 2020. As of March 31, 2021, we had $108.5 million of remaining capacity under our current share repurchase program.
14.Income Taxes
For the three months ended March 31, 2021, we earned $21.0 million before taxes and provided for income taxes of $3.8 million resulting in an effective tax rate of 18.1%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended March 31, 2021 primarily due to the net impact of foreign operations, the reversal of certain deferred tax liabilities as a result of restructuring specific aspects of our global financing arrangements and higher withholding taxes related to transactions with and amongst various foreign subsidiaries.
For the three months ended March 31, 2020, we earned $51.2 million before taxes and provided for income taxes of $37.0 million resulting in an effective tax rate of 72.2%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended March 31, 2020 primarily due to the establishment of a valuation allowance against certain deferred tax assets given the current and anticipated impact to the Company's operations resulting from the COVID-19 pandemic and the distressed oil prices, and the net impact of foreign operations.
In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted
on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. For the three months ended March 31, 2021, there were no material tax impacts to our condensed consolidated financial statements as they relate to the CARES Act or any other global COVID-19 measures. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.
As of March 31, 2021, the amount of unrecognized tax benefits decreased by $1.4 million from December 31, 2020. With limited exception, we are no longer subject to U.S. federal income tax audits for years through 2017, state and local income tax audits for years through 2014 or non-U.S. income tax audits for years through 2013. We are currently under examination for various years in Argentina, Canada, Germany, India, Indonesia, Italy, Mexico, the Netherlands, Philippines, Saudi Arabia, the U.S. and Venezuela.
It is reasonably possible that within the next 12 months the effective tax rate will be impacted by the resolution of some or all of the matters audited by various taxing authorities. It is also reasonably possible that we will have the statute of limitations close in various taxing jurisdictions within the next 12 months. As such, we estimate we could record a reduction in our tax expense of approximately $15 million within the next 12 months.
15.Segment Information
The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the condensed consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Subtotal–Reportable Segments
|
|
Eliminations and All Other
|
|
Consolidated Total
|
Sales to external customers
|
$
|
602,166
|
|
|
$
|
255,142
|
|
|
$
|
857,308
|
|
|
$
|
—
|
|
|
$
|
857,308
|
|
Intersegment sales
|
476
|
|
|
681
|
|
|
1,157
|
|
|
(1,157)
|
|
|
—
|
|
Segment operating income
|
53,782
|
|
|
24,712
|
|
|
78,494
|
|
|
(22,391)
|
|
|
56,103
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
FPD
|
|
FCD
|
|
Subtotal–Reportable Segments
|
|
Eliminations and All Other
|
|
Consolidated Total
|
Sales to external customers
|
$
|
635,126
|
|
|
$
|
258,387
|
|
|
$
|
893,513
|
|
|
$
|
—
|
|
|
$
|
893,513
|
|
Intersegment sales
|
528
|
|
|
997
|
|
|
1,525
|
|
|
(1,525)
|
|
|
—
|
|
Segment operating income
|
39,725
|
|
|
17,181
|
|
|
56,906
|
|
|
(32,702)
|
|
|
24,204
|
|
16.Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in accumulated other comprehensive loss ("AOCL"), net of tax for the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
(Amounts in thousands)
|
Foreign currency translation items(1)
|
|
Pension and other post-retirement effects
|
|
Cash flow hedging activity
|
|
Total(1)
|
|
Foreign currency translation items(1)
|
|
Pension and other post-retirement effects
|
|
Cash flow hedging activity
|
|
Total(1)
|
Balance - January 1
|
$
|
(456,437)
|
|
|
$
|
(146,723)
|
|
|
$
|
(488)
|
|
|
$
|
(603,648)
|
|
|
$
|
(441,364)
|
|
|
$
|
(137,161)
|
|
|
$
|
(671)
|
|
|
$
|
(579,196)
|
|
Other comprehensive income (loss) before reclassifications
|
(10,889)
|
|
|
1,518
|
|
|
202
|
|
|
(9,169)
|
|
|
(96,061)
|
|
|
3,909
|
|
|
54
|
|
|
(92,098)
|
|
Amounts reclassified from AOCL
|
—
|
|
|
2,741
|
|
|
—
|
|
|
2,741
|
|
|
—
|
|
|
2,400
|
|
|
—
|
|
|
2,400
|
|
Net current-period other comprehensive income (loss)
|
(10,889)
|
|
|
4,259
|
|
|
202
|
|
|
(6,428)
|
|
|
(96,061)
|
|
|
6,309
|
|
|
54
|
|
|
(89,698)
|
|
Balance - March 31
|
$
|
(467,326)
|
|
|
$
|
(142,464)
|
|
|
$
|
(286)
|
|
|
$
|
(610,076)
|
|
|
$
|
(537,425)
|
|
|
$
|
(130,852)
|
|
|
$
|
(617)
|
|
|
$
|
(668,894)
|
|
________________________________
(1) Includes foreign currency translation adjustments attributable to noncontrolling interests of $5.9 million and $5.1 million at January 1, 2021 and 2020, respectively, and $6.1 million and $5.9 million at March 31, 2021 and 2020, respectively. Includes net investment hedges losses of $29.6 million and $8.5 million, net of deferred taxes, at March 31, 2021 and 2020, respectively. Amounts in parentheses indicate debits.
The following table presents the reclassifications out of AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(Amounts in thousands)
|
|
Affected line item in the statement of income
|
|
2021(1)
|
|
2020(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement effects
|
|
|
|
|
|
|
Amortization of actuarial losses(2)
|
|
Other income (expense), net
|
|
$
|
(3,059)
|
|
|
$
|
(2,657)
|
|
Prior service costs(2)
|
|
Other income (expense), net
|
|
(153)
|
|
|
(141)
|
|
|
|
Tax benefit
|
|
471
|
|
|
398
|
|
|
|
Net of tax
|
|
$
|
(2,741)
|
|
|
$
|
(2,400)
|
|
__________________________________
(1) Amounts in parentheses indicate decreases to income. None of the reclassified amounts have a noncontrolling interest component.
(2) These AOCL components are included in the computation of net periodic pension cost. See Note 12 for additional details.
17.Realignment and Transformation Programs
In the second quarter of 2020, we identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program (defined below) to right-size our organizational operations based on the current business environment, with the overall objective to reduce our workforce costs, including manufacturing optimization through the consolidation of certain facilities ("2020 Realignment Program"). The realignment activities consist of restructuring and non-restructuring charges. Restructuring charges represent costs associated with the relocation of certain business activities and facility closures and include related severance costs. Non-restructuring charges are primarily employee severance associated with the workforce reductions. Expenses are primarily reported in cost of sales ("COS") or selling, general and administrative ("SG&A"), as applicable, in our condensed consolidated statements of income. We anticipate a total investment in these activities of approximately $90 million and the majority of the charges were incurred in 2020 with the remainder to be incurred through the second quarter of 2021. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized.
In the second quarter of 2018, we launched and committed resources to our Flowserve 2.0 Transformation ("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. The Flowserve 2.0 Transformation expenses incurred primarily consisted of professional services, project management and related travel costs recorded in SG&A expenses. As of the first quarter of 2021, the Flowserve 2.0 Transformation efforts were substantially completed. For the three months ended March 31, 2021, there were no Flowserve 2.0 Transformation charges.
Generally, the aforementioned charges will be paid in cash, except for asset write-downs, which are non-cash charges. The following is a summary of total charges, net of adjustments, incurred in 2021 related to our 2020 Realignment Program and the total charges incurred in 2020 are related to our 2020 Realignment Program and Flowserve 2.0 Transformation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Subtotal–Reportable Segments
|
|
All Other
|
|
Consolidated Total
|
Realignment Charges
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
4,027
|
|
|
$
|
299
|
|
|
$
|
4,326
|
|
|
$
|
—
|
|
|
$
|
4,326
|
|
SG&A
|
—
|
|
|
(9)
|
|
|
(9)
|
|
|
—
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,027
|
|
|
$
|
290
|
|
|
$
|
4,317
|
|
|
$
|
—
|
|
|
$
|
4,317
|
|
Non-Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
3,892
|
|
|
$
|
598
|
|
|
$
|
4,490
|
|
|
$
|
590
|
|
|
$
|
5,080
|
|
SG&A
|
157
|
|
|
868
|
|
|
1,025
|
|
|
3,280
|
|
|
4,305
|
|
|
$
|
4,049
|
|
|
$
|
1,466
|
|
|
$
|
5,515
|
|
|
$
|
3,870
|
|
|
$
|
9,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realignment Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
7,919
|
|
|
$
|
897
|
|
|
$
|
8,816
|
|
|
$
|
590
|
|
|
$
|
9,406
|
|
SG&A
|
157
|
|
|
859
|
|
|
1,016
|
|
|
3,280
|
|
|
4,296
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
8,076
|
|
|
$
|
1,756
|
|
|
$
|
9,832
|
|
|
$
|
3,870
|
|
|
$
|
13,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Subtotal–Reportable Segments
|
|
All Other
|
|
Consolidated Total
|
Realignment Charges
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
1,680
|
|
|
$
|
(105)
|
|
|
$
|
1,575
|
|
|
$
|
—
|
|
|
$
|
1,575
|
|
SG&A
|
104
|
|
|
10
|
|
|
114
|
|
|
(16)
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,784
|
|
|
$
|
(95)
|
|
|
$
|
1,689
|
|
|
$
|
(16)
|
|
|
$
|
1,673
|
|
Non-Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
126
|
|
|
$
|
6,325
|
|
|
$
|
6,451
|
|
|
$
|
—
|
|
|
$
|
6,451
|
|
SG&A
|
485
|
|
|
50
|
|
|
535
|
|
|
645
|
|
|
1,180
|
|
|
$
|
611
|
|
|
$
|
6,375
|
|
|
$
|
6,986
|
|
|
$
|
645
|
|
|
$
|
7,631
|
|
Total Realignment Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
1,806
|
|
|
$
|
6,220
|
|
|
$
|
8,026
|
|
|
$
|
—
|
|
|
$
|
8,026
|
|
SG&A
|
589
|
|
|
60
|
|
|
649
|
|
|
629
|
|
|
$
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,395
|
|
|
$
|
6,280
|
|
|
$
|
8,675
|
|
|
$
|
629
|
|
|
$
|
9,304
|
|
|
|
|
|
|
|
|
|
|
|
Transformation Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,643
|
|
|
$
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,643
|
|
|
$
|
5,643
|
|
|
|
|
|
|
|
|
|
|
|
Total Realignment and Transformation Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
1,806
|
|
|
$
|
6,220
|
|
|
$
|
8,026
|
|
|
$
|
—
|
|
|
$
|
8,026
|
|
SG&A
|
589
|
|
|
$
|
60
|
|
|
649
|
|
|
6,272
|
|
|
6,921
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,395
|
|
|
$
|
6,280
|
|
|
$
|
8,675
|
|
|
$
|
6,272
|
|
|
$
|
14,947
|
|
The following is a summary of total inception to date charges, net of adjustments, related to the 2020 Realignment Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception to Date
|
(Amounts in thousands)
|
FPD
|
|
FCD
|
|
Subtotal–Reportable Segments
|
|
All Other
|
|
Consolidated Total
|
Realignment Charges
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
21,856
|
|
|
$
|
1,526
|
|
|
$
|
23,382
|
|
|
$
|
—
|
|
|
$
|
23,382
|
|
SG&A
|
51
|
|
|
316
|
|
|
367
|
|
|
—
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,907
|
|
|
$
|
1,842
|
|
|
$
|
23,749
|
|
|
$
|
—
|
|
|
$
|
23,749
|
|
Non-Restructuring Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
23,095
|
|
|
$
|
125
|
|
|
$
|
23,220
|
|
|
$
|
642
|
|
|
$
|
23,862
|
|
SG&A
|
10,838
|
|
|
5,422
|
|
|
16,260
|
|
|
21,162
|
|
|
37,422
|
|
|
$
|
33,933
|
|
|
$
|
5,547
|
|
|
$
|
39,480
|
|
|
$
|
21,804
|
|
|
$
|
61,284
|
|
Total Realignment Charges
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
44,951
|
|
|
$
|
1,651
|
|
|
$
|
46,602
|
|
|
$
|
642
|
|
|
$
|
47,244
|
|
SG&A
|
10,889
|
|
|
5,738
|
|
|
16,627
|
|
|
21,162
|
|
|
37,789
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
55,840
|
|
|
$
|
7,389
|
|
|
$
|
63,229
|
|
|
$
|
21,804
|
|
|
$
|
85,033
|
|
Restructuring charges represent costs associated with the relocation or reorganization of certain business activities and facility closures and include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to the termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets, accelerated amortization of intangible assets, divestiture of certain non-strategic assets and inventory write-downs. Other costs generally include costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges.
The following is a summary of restructuring charges, net of adjustments, for our restructuring activities related to our 2020 Realignment Program:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
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(Amounts in thousands)
|
Severance
|
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Contract Termination
|
|
Asset Write-Downs
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|
Other
|
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Total
|
|
|
|
|
|
|
|
|
|
|
COS
|
$
|
1,373
|
|
|
$
|
—
|
|
|
$
|
2,190
|
|
|
$
|
763
|
|
|
$
|
4,326
|
|
SG&A
|
—
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,373
|
|
|
$
|
—
|
|
|
$
|
2,190
|
|
|
$
|
754
|
|
|
$
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
(Amounts in thousands)
|
Severance
|
|
Contract Termination
|
|
Asset Write-Downs
|
|
Other
|
|
Total
|
COS
|
$
|
1,683
|
|
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
(105)
|
|
|
$
|
1,575
|
|
SG&A
|
139
|
|
|
—
|
|
|
(3)
|
|
|
(38)
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,822
|
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
(143)
|
|
|
$
|
1,673
|
|
The following is a summary of total inception to date restructuring charges, net of adjustments, related to our 2020 Realignment Program :
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception to Date
|
(Amounts in thousands)
|
Severance
|
|
Contract Termination
|
|
Asset Write-Downs
|
|
Other
|
|
Total
|
COS
|
$
|
16,617
|
|
|
$
|
52
|
|
|
$
|
3,602
|
|
|
$
|
3,111
|
|
|
$
|
23,382
|
|
SG&A
|
84
|
|
|
—
|
|
|
14
|
|
|
269
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
16,701
|
|
|
$
|
52
|
|
|
$
|
3,616
|
|
|
$
|
3,380
|
|
|
$
|
23,749
|
|
The following represents the activity, primarily severance charges from reductions in force, related to the restructuring reserves for the three months ended March 31, 2021 and 2020:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
2021
|
|
2020
|
Balance at January 1
|
$
|
18,255
|
|
|
$
|
6,703
|
|
Charges, net of adjustments
|
2,127
|
|
|
1,658
|
|
Cash expenditures
|
(8,296)
|
|
|
(1,827)
|
|
Other non-cash adjustments, including currency
|
(617)
|
|
|
(216)
|
|
Balance at March 31
|
$
|
11,469
|
|
|
$
|
6,318
|
|