UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to .
Commission File No. 1-13179
FLOWSERVE CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
New York | | | | 31-0267900 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
| | | | |
5215 N. O’Connor Blvd., Suite 2300,700, | Irving, | Texas | | 75039 |
(Address of principal executive offices) | | | | (Zip Code) |
( 972 ) 443-6500
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| | | | | | | | |
(Registrant’s telephone number, including area code) | | | | | | | | |
Former name, former address and former fiscal year, if changed since last report: N/A | | | | | | | | |
| | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | | | Trading Symbol | | | | | Name of Each Exchange on Which Registered |
Common Stock, $1.25 Par Value | | | FLS | | | | | New York Stock Exchange |
1.25% Senior Notes due 2022 | | | FLS22A | | | | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
| | | | | |
| | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As oAfs of July 23, 202030, 2021 there were 130,159,720130,262,789 shares of the issuer’s common stock outstanding.
FLOWSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
i
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements.
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | |
(Amounts in thousands, except per share data) | Three Months Ended June 30, | | |
| 2020 | | 2019 |
Sales | $ | 924,965 | | | $ | 990,084 | |
Cost of sales | (657,805) | | | (672,051) | |
Gross profit | 267,160 | | | 318,033 | |
Selling, general and administrative expense | (227,358) | | | (223,676) | |
| | | |
Net earnings from affiliates | 3,086 | | | 3,661 | |
Operating income | 42,888 | | | 98,018 | |
Interest expense | (12,900) | | | (14,013) | |
Interest income | 1,149 | | | 2,218 | |
Other income (expense), net | (14,941) | | | (3,336) | |
Earnings before income taxes | 16,196 | | | 82,887 | |
Provision for income taxes | (5,409) | | | (22,413) | |
Net earnings, including noncontrolling interests | 10,787 | | | 60,474 | |
Less: Net earnings attributable to noncontrolling interests | (2,142) | | | (2,302) | |
Net earnings attributable to Flowserve Corporation | $ | 8,645 | | | $ | 58,172 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | |
Basic | $ | 0.07 | | | $ | 0.44 | |
Diluted | 0.07 | | | 0.44 | |
| | | |
| | | | | | | | | | | |
(Amounts in thousands, except per share data) | Three Months Ended June 30, |
| 2021 | | 2020 |
Sales | $ | 898,178 | | | $ | 925,012 | |
Cost of sales | (619,940) | | | (655,305) | |
Gross profit | 278,238 | | | 269,707 | |
Selling, general and administrative expense | (210,789) | | | (229,343) | |
Gain on sale of business | 1,806 | | | 0 | |
Net earnings from affiliates | 2,907 | | | 3,088 | |
Operating income | 72,162 | | | 43,452 | |
Interest expense | (14,322) | | | (12,935) | |
| | | |
Interest income | 465 | | | 1,149 | |
Other income (expense), net | (7,850) | | | (18,907) | |
Earnings before income taxes | 50,455 | | | 12,759 | |
Provision for income taxes | (2,711) | | | (4,485) | |
Net earnings, including noncontrolling interests | 47,744 | | | 8,274 | |
Less: Net earnings attributable to noncontrolling interests | (2,390) | | | (2,142) | |
Net earnings attributable to Flowserve Corporation | $ | 45,354 | | | $ | 6,132 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | |
Basic | $ | 0.35 | | | $ | 0.05 | |
Diluted | 0.35 | | | 0.05 | |
| | | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| | | | | | | | | | | |
(Amounts in thousands) | Three Months Ended June 30, | | |
| 2020 | | 2019 |
Net earnings, including noncontrolling interests | $ | 10,787 | | | $ | 60,474 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments, net of taxes of $(1,188) and $(1,492), respectively | 15,084 | | | (2,848) | |
Pension and other postretirement effects, net of taxes of $(444) and $(222), respectively | 1,758 | | | 2,186 | |
Cash flow hedging activity | 44 | | | 43 | |
Other comprehensive income (loss) | 16,886 | | | (619) | |
Comprehensive income (loss), including noncontrolling interests | 27,673 | | | 59,855 | |
Comprehensive income (loss) attributable to noncontrolling interests | (2,079) | | | (2,290) | |
Comprehensive income (loss) attributable to Flowserve Corporation | $ | 25,594 | | | $ | 57,565 | |
| | | | | | | | | | | |
(Amounts in thousands) | Three Months Ended June 30, |
| 2021 | | 2020 |
Net earnings, including noncontrolling interests | $ | 47,744 | | | $ | 8,274 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments, net of taxes of $(6,401) and $(1,188), respectively | 13,998 | | | 19,048 | |
Pension and other postretirement effects, net of taxes of $(472) and $(444), respectively | 2,059 | | | 1,758 | |
Cash flow hedging activity | 15 | | | 44 | |
Other comprehensive income (loss) | 16,072 | | | 20,850 | |
Comprehensive income (loss), including noncontrolling interests | 63,816 | | | 29,124 | |
Comprehensive (income) loss attributable to noncontrolling interests | (2,403) | | | (2,079) | |
Comprehensive income (loss) attributable to Flowserve Corporation | $ | 61,413 | | | $ | 27,045 | |
See accompanying notes to condensed consolidated financial statements.
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | |
| | | |
(Amounts in thousands, except per share data) | Six Months Ended June 30, | | |
| 2020 | | 2019 |
Sales | $ | 1,819,422 | | | $ | 1,880,135 | |
Cost of sales | (1,286,285) | | | (1,268,026) | |
Gross profit | 533,137 | | | 612,109 | |
Selling, general and administrative expense | (470,980) | | | (428,830) | |
| | | |
Net earnings from affiliates | 6,283 | | | 5,970 | |
Operating income | 68,440 | | | 189,249 | |
Interest expense | (25,863) | | | (28,044) | |
Interest income | 2,898 | | | 4,241 | |
Other income (expense), net | 8,521 | | | (6,476) | |
Earnings before income taxes | 53,996 | | | 158,970 | |
Provision for income taxes | (41,719) | | | (38,999) | |
Net earnings, including noncontrolling interests | 12,277 | | | 119,971 | |
Less: Net earnings attributable to noncontrolling interests | (4,242) | | | (4,538) | |
Net earnings attributable to Flowserve Corporation | $ | 8,035 | | | $ | 115,433 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | |
Basic | $ | 0.06 | | | $ | 0.88 | |
Diluted | 0.06 | | | 0.88 | |
| | | |
| | | | | | | | | | | |
| | | |
(Amounts in thousands, except per share data) | Six Months Ended June 30, |
| 2021 | | 2020 |
Sales | $ | 1,755,486 | | | $ | 1,818,526 | |
Cost of sales | (1,226,348) | | | (1,282,360) | |
Gross profit | 529,138 | | | 536,166 | |
Selling, general and administrative expense | (409,104) | | | (474,794) | |
Gain on sale of business | 1,806 | | | 0 | |
Net earnings from affiliates | 6,425 | | | 6,283 | |
Operating income | 128,265 | | | 67,655 | |
Interest expense | (31,101) | | | (25,898) | |
Loss on extinguishment of debt | (7,610) | | | 0 | |
Interest income | 1,067 | | | 2,898 | |
Other income (expense), net | (19,213) | | | 19,295 | |
Earnings before income taxes | 71,408 | | | 63,950 | |
Provision for income taxes | (6,503) | | | (41,453) | |
Net earnings, including noncontrolling interests | 64,905 | | | 22,497 | |
Less: Net earnings attributable to noncontrolling interests | (5,471) | | | (4,243) | |
Net earnings attributable to Flowserve Corporation | $ | 59,434 | | | $ | 18,254 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | |
Basic | $ | 0.46 | | | $ | 0.14 | |
Diluted | 0.45 | | | 0.14 | |
| | | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | |
| | | |
(Amounts in thousands) | Six Months Ended June 30, | | |
| 2020 | | 2019 |
Net earnings, including noncontrolling interests | $ | 12,277 | | | $ | 119,971 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments, net of taxes of $5,974 and $1,190, respectively | (66,269) | | | 4,097 | |
Pension and other postretirement effects, net of taxes of $(842) and $(429), respectively | 8,067 | | | 3,403 | |
Cash flow hedging activity | 98 | | | 105 | |
Other comprehensive income (loss) | (58,104) | | | 7,605 | |
Comprehensive income (loss), including noncontrolling interests | (45,827) | | | 127,576 | |
Comprehensive income (loss) attributable to noncontrolling interests | (5,018) | | | (5,203) | |
Comprehensive income (loss) attributable to Flowserve Corporation | $ | (50,845) | | | $ | 122,373 | |
| | | | | | | | | | | |
| | | |
(Amounts in thousands) | Six Months Ended June 30, |
| 2021 | | 2020 |
Net earnings, including noncontrolling interests | $ | 64,905 | | | $ | 22,497 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments, net of taxes of $(5,747) and $5,974, respectively | 3,109 | | | (77,013) | |
Pension and other postretirement effects, net of taxes of $(942) and $(842), respectively | 6,318 | | | 8,067 | |
Cash flow hedging activity | 217 | | | 98 | |
Other comprehensive income (loss) | 9,644 | | | (68,848) | |
Comprehensive income (loss), including noncontrolling interests | 74,549 | | | (46,351) | |
Comprehensive (income) loss attributable to noncontrolling interests | (5,633) | | | (5,018) | |
Comprehensive income (loss) attributable to Flowserve Corporation | $ | 68,916 | | | $ | (51,369) | |
See accompanying notes to condensed consolidated financial statements.
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
(Amounts in thousands, except par value) | June 30, | | December 31, |
| 2020 | | 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 561,705 | | | $ | 670,980 | |
Accounts receivable, net of allowance for expected credit losses of $72,084 and $53,412, respectively | 759,381 | | | 795,538 | |
Contract assets, net of allowance for expected credit losses of $3,010 at June 30, 2020 | 309,149 | | | 272,914 | |
Inventories, net | 684,431 | | | 660,837 | |
| | | |
Prepaid expenses and other | 115,889 | | | 105,101 | |
Total current assets | 2,430,555 | | | 2,505,370 | |
Property, plant and equipment, net of accumulated depreciation of $1,034,893 and $1,013,207, respectively | 541,768 | | | 572,175 | |
Operating lease right-of-use assets, net | 173,212 | | | 186,218 | |
Goodwill | 1,187,735 | | | 1,193,010 | |
Deferred taxes | 31,119 | | | 54,879 | |
Other intangible assets, net | 172,709 | | | 180,805 | |
Other assets, net of allowance for expected credit losses of $98,971 and $101,439, respectively | 218,604 | | | 227,185 | |
Total assets | $ | 4,755,702 | | | $ | 4,919,642 | |
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 428,856 | | | $ | 447,582 | |
Accrued liabilities | 401,041 | | | 401,385 | |
Contract liabilities | 214,135 | | | 216,541 | |
Debt due within one year | 9,058 | | | 11,272 | |
| | | |
Operating lease liabilities | 35,648 | | | 36,108 | |
Total current liabilities | 1,088,738 | | | 1,112,888 | |
Long-term debt due after one year | 1,367,478 | | | 1,365,977 | |
Operating lease liabilities | 138,735 | | | 151,523 | |
Retirement obligations and other liabilities | 470,400 | | | 473,295 | |
Shareholders’ equity: | | | |
Common shares, $1.25 par value | 220,991 | | | 220,991 | |
Shares authorized – 305,000 | | | |
Shares issued – 176,793 | | | |
Capital in excess of par value | 499,152 | | | 501,045 | |
Retained earnings | 3,643,868 | | | 3,695,862 | |
Treasury shares, at cost – 46,873 and 46,262 shares, respectively | (2,064,302) | | | (2,051,583) | |
Deferred compensation obligation | 6,036 | | | 8,334 | |
Accumulated other comprehensive loss | (643,173) | | | (584,292) | |
Total Flowserve Corporation shareholders’ equity | 1,662,572 | | | 1,790,357 | |
Noncontrolling interests | 27,779 | | | 25,602 | |
Total equity | 1,690,351 | | | 1,815,959 | |
Total liabilities and equity | $ | 4,755,702 | | | $ | 4,919,642 | |
| | | | | | | | | | | |
(Amounts in thousands, except par value) | June 30, | | December 31, |
| 2021 | | 2020 |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 630,397 | | | $ | 1,095,274 | |
Accounts receivable, net of allowance for expected credit losses of $74,782 and $75,176, respectively | 729,551 | | | 753,462 | |
Contract assets, net of allowance for expected credit losses of $3,038 and $3,205, respectively | 262,231 | | | 277,734 | |
Inventories, net | 690,145 | | | 667,228 | |
| | | |
Prepaid expenses and other | 128,364 | | | 110,635 | |
Total current assets | 2,440,688 | | | 2,904,333 | |
Property, plant and equipment, net of accumulated depreciation of $1,107,765 and $1,093,348, respectively | 526,101 | | | 556,873 | |
Operating lease right-of-use assets, net | 204,075 | | | 208,125 | |
Goodwill | 1,213,103 | | | 1,224,886 | |
Deferred taxes | 46,904 | | | 30,538 | |
Other intangible assets, net | 160,653 | | | 168,496 | |
Other assets, net of allowance for expected credit losses of $67,770 and $67,842, respectively | 227,145 | | | 221,426 | |
Total assets | $ | 4,818,669 | | | $ | 5,314,677 | |
| | | |
LIABILITIES AND EQUITY |
Current liabilities: | | | |
Accounts payable | $ | 393,608 | | | $ | 440,199 | |
Accrued liabilities | 422,161 | | | 463,222 | |
Contract liabilities | 209,092 | | | 194,227 | |
Debt due within one year | 9,599 | | | 8,995 | |
| | | |
Operating lease liabilities | 35,256 | | | 34,990 | |
Total current liabilities | 1,069,716 | | | 1,141,633 | |
Long-term debt due after one year | 1,307,149 | | | 1,717,911 | |
Operating lease liabilities | 173,388 | | | 176,246 | |
Retirement obligations and other liabilities | 497,724 | | | 517,566 | |
Commitments and contingencies (See Note 11) | 0 | | 0 |
Shareholders’ equity: | | | |
Common shares, $1.25 par value | 220,991 | | | 220,991 | |
Shares authorized – 305,000 | | | |
Shares issued – 176,793 | | | |
Capital in excess of par value | 494,221 | | | 502,227 | |
Retained earnings | 3,677,117 | | | 3,670,543 | |
Treasury shares, at cost – 46,806 and 46,768 shares, respectively | (2,058,279) | | | (2,059,309) | |
Deferred compensation obligation | 7,077 | | | 6,164 | |
Accumulated other comprehensive loss | (600,143) | | | (609,625) | |
Total Flowserve Corporation shareholders’ equity | 1,740,984 | | | 1,730,991 | |
Noncontrolling interests | 29,708 | | | 30,330 | |
Total equity | 1,770,692 | | | 1,761,321 | |
Total liabilities and equity | $ | 4,818,669 | | | $ | 5,314,677 | |
See accompanying notes to condensed consolidated financial statements.
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Flowserve Corporation Shareholders’ Equity | | | | | | | | | | | | | | | | | | |
| | | | | Capital in Excess of Par Value | | Retained Earnings | | | | | | Deferred Compensation Obligation | | Accumulated Other Comprehensive Income (Loss) | | | | Total Equity |
| Common Stock | | | | | | | | Treasury Stock | | | | | | | | Non- controlling Interests | | |
| Shares | | Amount | | | | | | Shares | | Amount | | | | | | | | |
| (Amounts in thousands) | | | | | | | | | | | | | | | | | | |
Balance — April 1, 2020 | 176,793 | | | $ | 220,991 | | | $ | 497,721 | | | $ | 3,661,579 | | | (47,002) | | | $ | (2,069,063) | | | $ | 8,324 | | | $ | (660,122) | | | $ | 25,995 | | | $ | 1,685,425 | |
| | | | | | | | | | | | | | | | | | | |
Stock activity under stock plans | — | | | — | | | (2,733) | | | — | | | 129 | | | 4,761 | | | (2,288) | | | — | | | — | | | (260) | |
Stock-based compensation | — | | | — | | | 4,164 | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,164 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 8,645 | | | — | | | — | | | — | | | — | | | 2,142 | | | 10,787 | |
Cash dividends declared | — | | | — | | | — | | | (26,356) | | | — | | | — | | | — | | | — | | | — | | | (26,356) | |
Repurchases of common shares | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,949 | | | (63) | | | 16,886 | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (295) | | | (295) | |
Balance — June 30, 2020 | 176,793 | | | $ | 220,991 | | | $ | 499,152 | | | $ | 3,643,868 | | | (46,873) | | | $ | (2,064,302) | | | $ | 6,036 | | | $ | (643,173) | | | $ | 27,779 | | | $ | 1,690,351 | |
| | | | | | | | | | | | | | | | | | | |
Balance — April 1, 2019 | $ | 176,793 | | | $ | 220,991 | | | $ | 487,673 | | | $ | 3,575,014 | | | (45,969) | | | $ | (2,037,586) | | | $ | 7,107 | | | $ | (566,400) | | | $ | 21,187 | | | $ | 1,707,986 | |
| | | | | | | | | | | | | | | | | | | |
Stock activity under stock plans | — | | | — | | | (2,382) | | | — | | | 26 | | | 729 | | | — | | | — | | | — | | | (1,653) | |
Stock-based compensation | — | | | — | | | 7,746 | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,746 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 58,172 | | | — | | | — | | | — | | | — | | | 2,302 | | | 60,474 | |
Cash dividends declared | — | | | — | | | — | | | (25,258) | | | — | | | — | | | — | | | — | | | — | | | (25,258) | |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (607) | | | (12) | | | (619) | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | 1,112 | | | — | | | — | | | 1,112 | |
Balance —June 30, 2019 | 176,793 | | | $ | 220,991 | | | $ | 493,037 | | | $ | 3,607,928 | | | (45,943) | | | $ | (2,036,857) | | | $ | 8,219 | | | $ | (567,007) | | | $ | 23,477 | | | $ | 1,749,788 | |
See accompanying notes to condensed consolidated financial statements. | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Flowserve Corporation Shareholders’ Equity | | | | |
| | | | | Capital in Excess of Par Value | | Retained Earnings | | | | | | Deferred Compensation Obligation | | Accumulated Other Comprehensive Income (Loss) | | | | Total Equity |
| Common Stock | | | | Treasury Stock | | | | Non- controlling Interests | |
| Shares | | Amount | | | | Shares | | Amount | | | | |
| (Amounts in thousands) |
Balance — April 1, 2021 | 176,793 | | | $ | 220,991 | | | $ | 488,906 | | | $ | 3,658,158 | | | (46,496) | | | $ | (2,045,937) | | | $ | 6,114 | | | $ | (616,200) | | | $ | 29,754 | | | $ | 1,741,786 | |
| | | | | | | | | | | | | | | | | | | |
Stock activity under stock plans | — | | | — | | | (1,397) | | | — | | | 1 | | | 107 | | | 963 | | | — | | | — | | | (327) | |
Stock-based compensation | — | | | — | | | 6,712 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,712 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 45,354 | | | — | | | — | | | — | | | — | | | 2,390 | | | 47,744 | |
Cash dividends declared | — | | | — | | | — | | | (26,395) | | | — | | | — | | | — | | | — | | | — | | | (26,395) | |
Repurchases of common shares | — | | | — | | | — | | | — | | | (311) | | | (12,449) | | | — | | | — | | | — | | | (12,449) | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,058 | | | 14 | | | 16,072 | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (2,450) | | | (2,451) | |
Balance — June 30, 2021 | 176,793 | | | $ | 220,991 | | | $ | 494,221 | | | $ | 3,677,117 | | | (46,806) | | | $ | (2,058,279) | | | $ | 7,077 | | | $ | (600,143) | | | $ | 29,708 | | | $ | 1,770,692 | |
| | | | | | | | | | | | | | | | | | | |
Balance — April 1, 2020 | 176,793 | | | $ | 220,991 | | | $ | 497,721 | | | $ | 3,630,694 | | | (47,002) | | | $ | (2,069,063) | | | $ | 8,324 | | | $ | (674,829) | | | $ | 25,995 | | | $ | 1,639,833 | |
| | | | | | | | | | | | | | | | | | | |
Stock activity under stock plans | — | | | — | | | (2,733) | | | — | | | 129 | | | 4,761 | | | (2,288) | | | — | | | — | | | (260) | |
Stock-based compensation | — | | | — | | | 4,164 | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,164 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 6,132 | | | — | | | — | | | — | | | — | | | 2,142 | | | 8,274 | |
Cash dividends declared | — | | | — | | | — | | | (26,356) | | | — | | | — | | | — | | | — | | | — | | | (26,356) | |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 20,913 | | | (63) | | | 20,850 | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (295) | | | (295) | |
Balance — June 30, 2020 | 176,793 | | | $ | 220,991 | | | $ | 499,152 | | | $ | 3,610,470 | | | (46,873) | | | $ | (2,064,302) | | | $ | 6,036 | | | $ | (653,916) | | | $ | 27,779 | | | $ | 1,646,210 | |
See accompanying notes to condensed consolidated financial statements. |
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Flowserve Corporation Shareholders’ Equity | | | | | | | | | | | | | | | | | | |
| | | | | Capital in Excess of Par Value | | Retained Earnings | | | | | | Deferred Compensation Obligation | | Accumulated Other Comprehensive Income (Loss) | | | | Total Equity |
| Common Stock | | | | | | | | Treasury Stock | | | | | | | | Non- controlling Interests | | |
| Shares | | Amount | | | | | | Shares | | Amount | | | | | | | | |
| (Amounts in thousands) | | | | | | | | | | | | | | | | | | |
Balance — January 1, 2020 | 176,793 | | | $ | 220,991 | | | $ | 501,045 | | | $ | 3,695,862 | | | (46,262) | | | $ | (2,051,583) | | | $ | 8,334 | | | $ | (584,292) | | | $ | 25,602 | | | $ | 1,815,959 | |
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326) | — | | | — | | | — | | | (7,291) | | | — | | | — | | | — | | | — | | | — | | | (7,291) | |
Stock activity under stock plans | — | | | — | | | (20,368) | | | — | | | 446 | | | 19,393 | | | (2,298) | | | — | | | — | | | (3,273) | |
Stock-based compensation | — | | | — | | | 18,475 | | | — | | | — | | | — | | | — | | | — | | | — | | | 18,475 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 8,035 | | | — | | | — | | | — | | | — | | | 4,242 | | | 12,277 | |
Cash dividends declared | — | | | — | | | — | | | (52,738) | | | — | | | — | | | — | | | — | | | — | | | (52,738) | |
Repurchases of common shares | — | | | — | | | — | | | — | | | (1,057) | | | (32,112) | | | — | | | — | | | — | | | (32,112) | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (58,881) | | | 777 | | | (58,104) | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,842) | | | (2,842) | |
Balance — June 30, 2020 | 176,793 | | | $ | 220,991 | | | $ | 499,152 | | | $ | 3,643,868 | | | (46,873) | | | $ | (2,064,302) | | | $ | 6,036 | | | $ | (643,173) | | | $ | 27,779 | | | $ | 1,690,351 | |
| | | | | | | | | | | | | | | | | | | |
Balance — January 1, 2019 | 176,793 | | | $ | 220,991 | | | $ | 494,551 | | | $ | 3,543,007 | | | (46,237) | | | $ | (2,049,404) | | | $ | 7,117 | | | $ | (573,947) | | | $ | 18,465 | | | $ | 1,660,780 | |
| | | | | | | | | | | | | | | | | | | |
Stock activity under stock plans | — | | | — | | | (16,869) | | | — | | | 294 | | | 12,547 | | | — | | | — | | | — | | | (4,322) | |
Stock-based compensation | — | | | — | | | 15,355 | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,355 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 115,433 | | | — | | | — | | | — | | | — | | | 4,538 | | | 119,971 | |
Cash dividends declared | — | | | — | | | — | | | (50,512) | | | — | | | — | | | — | | | — | | | — | | | (50,512) | |
| | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,940 | | | 665 | | | 7,605 | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | 1,102 | | | — | | | (191) | | | 911 | |
Balance — June 30, 2019 | 176,793 | | | $ | 220,991 | | | $ | 493,037 | | | $ | 3,607,928 | | | (45,943) | | | $ | (2,036,857) | | | $ | 8,219 | | | $ | (567,007) | | | $ | 23,477 | | | $ | 1,749,788 | |
See accompanying notes to condensed consolidated financial statements. | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Flowserve Corporation Shareholders’ Equity | | | | |
| | | | | Capital in Excess of Par Value | | Retained Earnings | | | | | | Deferred Compensation Obligation | | Accumulated Other Comprehensive Income (Loss) | | | | 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 | — | | | — | | | (24,478) | | | — | | | 402 | | | 18,561 | | | 913 | | | — | | | — | | | (5,004) | |
Stock-based compensation | — | | | — | | | 16,472 | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,472 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 59,434 | | | — | | | — | | | — | | | — | | | 5,471 | | | 64,905 | |
Cash dividends declared | — | | | — | | | — | | | (52,860) | | | — | | | — | | | — | | | — | | | — | | | (52,860) | |
Repurchases of common shares | — | | | — | | | — | | | — | | | (440) | | | (17,531) | | | — | | | — | | | — | | | (17,531) | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 9,482 | | | 162 | | | 9,644 | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,255) | | | (6,255) | |
Balance — June 30, 2021 | 176,793 | | | $ | 220,991 | | | $ | 494,221 | | | $ | 3,677,117 | | | (46,806) | | | $ | (2,058,279) | | | $ | 7,077 | | | $ | (600,143) | | | $ | 29,708 | | | $ | 1,770,692 | |
| | | | | | | | | | | | | | | | | | | |
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 | — | | | — | | | (20,368) | | | — | | | 446 | | | 19,393 | | | (2,298) | | | — | | | — | | | (3,273) | |
Stock-based compensation | — | | | — | | | 18,475 | | | — | | | — | | | — | | | — | | | — | | | — | | | 18,475 | |
| | | | | | | | | | | | | | | | | | | |
Net earnings | — | | | — | | | — | | | 18,254 | | | — | | | — | | | — | | | — | | | 4,243 | | | 22,497 | |
Cash dividends declared | — | | | — | | | — | | | (52,737) | | | — | | | — | | | — | | | — | | | — | | | (52,737) | |
Repurchases of common shares | — | | | — | | | — | | | — | | | (1,057) | | | (32,112) | | | — | | | — | | | — | | | (32,112) | |
Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (69,624) | | | 776 | | | (68,848) | |
| | | | | | | | | | | | | | | | | | | |
Other, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,842) | | | (2,842) | |
Balance — June 30, 2020 | 176,793 | | | $ | 220,991 | | | $ | 499,152 | | | $ | 3,610,470 | | | (46,873) | | | $ | (2,064,302) | | | $ | 6,036 | | | $ | (653,916) | | | $ | 27,779 | | | $ | 1,646,210 | |
See accompanying notes to condensed consolidated financial statements. |
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
(Amounts in thousands) | Six Months Ended June 30, | | |
| 2020 | | 2019 |
Cash flows – Operating activities: | | | |
Net earnings, including noncontrolling interests | $ | 12,277 | | | $ | 119,971 | |
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | |
Depreciation | 43,350 | | | 46,666 | |
Amortization of intangible and other assets | 6,136 | | | 8,003 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Stock-based compensation | 18,475 | | | 15,354 | |
| | | |
Foreign currency, asset write downs and other non-cash adjustments | 21,739 | | | (20,206) | |
Change in assets and liabilities: | | | |
Accounts receivable, net | 858 | | | (13,445) | |
Inventories, net | (36,575) | | | (47,610) | |
Contract assets, net | (44,229) | | | 12,432 | |
Prepaid expenses and other assets, net | (9,341) | | | 4,949 | |
Accounts payable | (9,139) | | | (20,660) | |
Contract liabilities | 3,468 | | | 6,744 | |
Accrued liabilities and income taxes payable | 5,787 | | | (56,935) | |
Retirement obligations and other | 13,618 | | | (6,824) | |
| | | |
Net deferred taxes | (5,193) | | | 911 | |
Net cash flows provided (used) by operating activities | 21,231 | | | 49,350 | |
Cash flows – Investing activities: | | | |
Capital expenditures | (31,971) | | | (25,267) | |
| | | |
Proceeds from disposal of assets and other | 10,810 | | | 40,302 | |
| | | |
| | | |
| | | |
Net cash flows provided (used) by investing activities | (21,161) | | | 15,035 | |
Cash flows – Financing activities: | | | |
| | | |
Payments on long-term debt | — | | | (30,000) | |
| | | |
| | | |
| | | |
Proceeds under other financing arrangements | 1,477 | | | 1,699 | |
Payments under other financing arrangements | (2,497) | | | (5,124) | |
Repurchases of common shares | (32,112) | | | — | |
Payments related to tax withholding for stock-based compensation | (3,850) | | | (3,441) | |
Payments of dividends | (52,054) | | | (49,772) | |
Other | (2,845) | | | (190) | |
Net cash flows provided (used) by financing activities | (91,881) | | | (86,828) | |
Effect of exchange rate changes on cash | (17,464) | | | (770) | |
Net change in cash and cash equivalents | (109,275) | | | (23,213) | |
Cash and cash equivalents at beginning of period | 670,980 | | | 619,683 | |
Cash and cash equivalents at end of period | $ | 561,705 | | | $ | 596,470 | |
| | | | | | | | | | | |
(Amounts in thousands) | Six Months Ended June 30, |
| 2021 | | 2020 |
Cash flows – Operating activities: | | | |
Net earnings, including noncontrolling interests | $ | 64,905 | | | $ | 22,497 | |
Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | | | |
Depreciation | 44,491 | | | 41,711 | |
Amortization of intangible and other assets | 7,433 | | | 6,136 | |
Loss on extinguishment of debt | 7,610 | | | 0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Stock-based compensation | 16,472 | | | 18,475 | |
| | | |
Foreign currency, asset write downs and other non-cash adjustments | 12,460 | | | 10,970 | |
Change in assets and liabilities: | | | |
Accounts receivable, net | 14,285 | | | 858 | |
Inventories, net | (30,784) | | | (36,575) | |
Contract assets, net | 12,232 | | | (44,276) | |
Prepaid expenses and other assets, net | (16,187) | | | (3,956) | |
Accounts payable | (41,146) | | | (9,201) | |
Contract liabilities | 17,026 | | | 4,412 | |
Accrued liabilities and income taxes payable | (37,123) | | | (1,140) | |
Retirement obligations and other | (2,761) | | | 15,717 | |
| | | |
Net deferred taxes | (7,607) | | | (5,445) | |
Net cash flows provided (used) by operating activities | 61,306 | | | 20,183 | |
Cash flows – Investing activities: | | | |
Capital expenditures | (22,541) | | | (29,072) | |
| | | |
Proceeds from disposal of assets | 2,085 | | | 10,810 | |
Net affiliate investment activity | (3,384) | | | 0 | |
| | | |
| | | |
Net cash flows provided (used) by investing activities | (23,840) | | | (18,262) | |
Cash flows – Financing activities: | | | |
| | | |
Payments on long-term debt | (407,473) | | | 0 | |
| | | |
| | | |
| | | |
| | | |
Proceeds under other financing arrangements | 1,386 | | | 1,990 | |
Payments under other financing arrangements | (3,256) | | | (4,862) | |
Repurchases of common shares | (17,531) | | | (32,112) | |
Payments related to tax withholding for stock-based compensation | (5,777) | | | (3,850) | |
Payments of dividends | (52,168) | | | (52,054) | |
Other | (6,275) | | | (2,844) | |
Net cash flows provided (used) by financing activities | (491,094) | | | (93,732) | |
Effect of exchange rate changes on cash | (11,249) | | | (17,464) | |
Net change in cash and cash equivalents | (464,877) | | | (109,275) | |
Cash and cash equivalents at beginning of period | 1,095,274 | | | 670,980 | |
Cash and cash equivalents at end of period | $ | 630,397 | | | $ | 561,705 | |
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 June 30, 2020,2021, the related condensed consolidated statements of income and comprehensive income (loss) for the three and six months ended June 30, 20202021 and 2019,2020, the condensed consolidated statements of stockholders'shareholders' equity for the three and six months ended June 30, 20202021 and 20192020 and the condensed consolidated statements of cash flows for the six months ended June 30, 20202021 and 20192020 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 June 30, 20202021 ("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, 20192020 ("20192020 Annual Report").
Revision to Previously Reported Financial Information - During the first quarter of 2021, as previously disclosed, 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 $1.5 million, retained earnings by $14.0 million and accumulated other comprehensive loss by $15.5 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 June 30, 2020 or any previous period. The June 30, 2020, balances, as presented herein, have been revised. Additionally, the remaining periods in 2020 will be revised the next time such financial statements are filed as applicable. Refer to Note 2 for a detailed discussion related to the impact of the revision as of and for the three and six months ended June 30, 2020 and the impact to future periods in 2020 which will be revised in future filings.
Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first halfsix months of 2020,2021, we have beencontinue to be challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by COVID-19 and the emanating impactsCOVID-19. As a result of the pandemicCOVID-19 pandemic’s effect on pricingoil prices, many of our large customers reduced capital expenditures and dampened demand for oil, further resultingbudgets in instability and volatility in oil commodity prices.2020. To date, the COVID-19 pandemiccustomer spending has had widespread implications worldwide and has caused substantial economic uncertainty and challenging operational conditions.yet to return to pre-pandemic levels.
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 June 2016,January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments-Credit Losses2020-01, "Investments—Equity Securities (Topic 326)321), Measurement of Credit Losses on Financial Instruments" ("CECL"). The ASU requires, among other things,Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the use of a new current expected credit loss model in order to determine an allowance for expected credit losses with respect to financial assetsInteractions between Topics 321, 323 and instruments held. The CECL model requires that we estimate the lifetime of an expected credit loss for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On January 1, 2020, we adopted the ASU on a prospective basis to determine our allowance for credit losses in accordance with the requirements of Topic 326, and we modified our accounting policy and processes to facilitate this approach. 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 opening condensed consolidated balance sheet.
Our primary exposure to financial assets that are within the scope of CECL are 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. We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history. 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 political risk. We also consider both the current and forecasted direction of macroeconomic conditions at the reporting date. The CECL
model requires consideration of reasonable and supportable forecasts of future economic conditions in the estimate of expected credit losses.
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 amounts previously written off are reflected as a reduction to credit impairment losses in the income statement.
Our allowance for expected credit losses for short-term receivables as of June 30, 2020, was $72.1 million, compared to $53.4 million as of December 31, 2019. The six months of activity included $6.9 million for the adoption of the CECL model at January 1, 2020 and $11.8 million for current period adjustments.
Our long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of amounts to be collected from insurance companies and fully-reserved receivables associated with the national oil company in Venezuela. As of June 30, 2020, we had $110.7 million of long-term receivables, compared to $118.5 million as of December 31, 2019. Our allowance for expected credit losses for long-term receivables as of June 30, 2020 was $99.0 million, compared to $101.4 million as of December 31, 2019.
We 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 June 30, 2020.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this ASU allow companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2017-04 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.815." The amendments of the ASU modifyaddresses accounting for the disclosure requirements for fair value measurements by removing, modifying, or addingtransition into and out of the equity method and measurement of certain disclosure requirements for assetspurchased options and liabilities measured at fair value in the statement of financial position or disclosed in the notesforward contracts to the financial statements.acquire investments. The ASU is effective for fiscal years, and interimannual periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. Our adoption of ASU No. 2018-13 effective January 1, 2020 did not have an impact on our disclosures.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The ASU addresses how entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract. Per the amendments of the ASU, implementation costs incurred in a cloud computing arrangement that is a service contract should be accounted for in the same manner as implementation costs incurred to develop or obtain software for internal use as prescribed by guidance in ASC 350-40. The ASU requires that implementation costs incurred in a cloud computing arrangement be capitalized rather than expensed. Further, the ASU specifies the method for the amortization of costs incurred during implementation, and the manner in which the unamortized portion of these capitalized implementation costs should be evaluated for impairment. The ASU also provides guidance on how to present such implementation costs in the financial statements and also creates additional disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2019. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Our adoption of ASU No. 2018-15 effective January 1, 2020 on a prospective basis did not have a material impact on our condensed consolidated financial condition and results of operations.
In October 2018, the FASB issued ASU No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("VIEs")." The standard reduces the cost and complexity of financial reporting associated with VIEs. The new standard amends the guidance for determining whether a decision-making fee is a VIE. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety as currently required in U.S. Generally Accepted Accounting Principles ("GAAP"). The amendments of this ASU are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-17 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606." The ASU clarifies the interaction between the guidance for certain collaborative arrangements and ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which we adopted
January 1, 2018. The amendments of the ASU provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within ASU No. 2014-09. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. Parts of the collaborative arrangement that are not in the purview of the revenue recognition standard should be presented separately. The amendments are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-18 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. We early adopted ASU No. 2019-12 effective January 1, 2020 on a prospective basis and the adoption did not have an impact on our condensed consolidated financial condition and results of operations.
Pronouncements Not Yet Implemented
In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The ASU amends the disclosure requirements by adding, clarifying, or removing certain disclosures for sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. We are currently evaluating the impact of ASU No. 2018-14 and we anticipate that ourThe adoption of this ASU willdid not have an impact on our disclosures.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 shouldmay be applied prospectively to all periods presented. Wecontract 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 evaluatedhedging relationships that reference LIBOR or another reference rate expected to be discontinued and therefore, have not applied the impact of ASU No. 2020-04practical expedients and we anticipate that our adoptionexceptions as required by the ASU. As referenced in Note 7 of this ASU willQuarterly 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 condensed 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 $1.5 million, retained earnings by $14.0 million and accumulated other comprehensive loss by $15.5 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 tables present the impact to the affected line items on our condensed consolidated financial statements for the periods indicated for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021, the accounting errors related to the recognition of a liability for unasserted asbestos claims identified in the third quarter of 2020, and other immaterial misstatements previously identified:
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| June 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments | | As Revised |
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Contract assets, net of allowance for expected credit losses | $ | 309,149 | | | $ | 47 | | | $ | 309,196 | |
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Total current assets | 2,430,555 | | | 47 | | | 2,430,602 | |
Property, plant and equipment, net of accumulated depreciation(1) | 541,768 | | | 5,703 | | | 547,471 | |
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Other assets, net of allowance for expected credit losses(2) | 218,604 | | | 16,926 | | | 235,530 | |
Total assets | 4,755,702 | | | 22,676 | | | 4,778,378 | |
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Accrued liabilities(3) | 401,041 | | | (4,029) | | | 397,012 | |
Contract liabilities(4) | 214,135 | | | 5,498 | | | 219,633 | |
Debt due within one year | 9,058 | | | 156 | | | 9,214 | |
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Total current liabilities | 1,088,738 | | | 1,625 | | | 1,090,363 | |
Long-term debt due after one year(1) | 1,367,478 | | | 5,646 | | | 1,373,124 | |
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Retirement obligations and other liabilities(5) | $ | 470,400 | | | $ | 59,546 | | | $ | 529,946 | |
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Retained earnings(6) | 3,643,868 | | | (33,398) | | | 3,610,470 | |
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Accumulated other comprehensive loss | (643,173) | | | (10,743) | | | (653,916) | |
Total Flowserve Corporation shareholders’ equity | 1,662,572 | | | (44,141) | | | 1,618,431 | |
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Total equity | 1,690,351 | | | (44,141) | | | 1,646,210 | |
Total liabilities and equity | $ | 4,755,702 | | | $ | 22,676 | | | $ | 4,778,378 | |
______________________________________(1) Adjustment relates to right-of-use (“ROU”) asset and lease liability for an operating lease.
(2) Adjustment relates to the associated receivables for expected insurance proceeds for asbestos settlements and defense costs.
(3) Adjustment primarily relates to non-restructuring realignment charges associated with workforce reductions in our Realignment Programs ("2020 Realignment Program"). Refer to Note 17 for further discussion of this program.
(4) Adjustment relates to one of our sites for correction in contract position caused by errors in estimated costs under the over time revenue recognition model.
(5) Adjustment primarily relates to IBNR reserves associated with unasserted asbestos claims.
(6) The adjustments to retained earnings are the cumulative effect of the immaterial errors that were corrected in prior periods.
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| Three Months Ended June 30, 2020 |
(Amounts in thousands, except per share data) | As Reported | | Adjustments | | As Revised |
Sales | $ | 924,965 | | | $ | 47 | | | $ | 925,012 | |
Cost of sales(1) | (657,805) | | | 2,500 | | | (655,305) | |
Gross profit | 267,160 | | | 2,547 | | | 269,707 | |
Selling, general and administrative expense(2) | (227,358) | | | (1,985) | | | (229,343) | |
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Operating income | 42,888 | | | 564 | | | 43,452 | |
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Other income (expense), net(3) | (14,941) | | | (3,966) | | | (18,907) | |
Earnings before income taxes | 16,196 | | | (3,437) | | | 12,759 | |
Provision for income taxes | (5,409) | | | 924 | | | (4,485) | |
Net earnings, including noncontrolling interests | 10,787 | | | (2,513) | | | 8,274 | |
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Net earnings (loss) attributable to Flowserve Corporation | $ | 8,645 | | | $ | (2,513) | | | $ | 6,132 | |
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.07 | | | $ | (0.02) | | | $ | 0.05 | |
Diluted | 0.07 | | | (0.02) | | | 0.05 | |
(1) Adjustment primarily relates to non-restructuring realignment charges associated with workforce reductions in our 2020 Realignment Program.
(2) Adjustment primarily relates to asbestos settlement and defense costs for related legal fees.
(3) Adjustment relates to the accounting error involving foreign currency transactions.
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| Three Months Ended June 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments | | As Revised |
Net earnings, including noncontrolling interests(1) | $ | 10,787 | | | $ | (2,513) | | | $ | 8,274 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes(2) | 15,084 | | | 3,964 | | | 19,048 | |
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Other comprehensive income (loss) | 16,886 | | | 3,964 | | | 20,850 | |
Comprehensive income (loss), including noncontrolling interests | 27,673 | | | 1,451 | | | 29,124 | |
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Comprehensive income (loss) attributable to Flowserve Corporation | $ | 25,594 | | | $ | 1,451 | | | $ | 27,045 | |
(1) Adjustment relates to cumulative effect of the accounting errors that were corrected in the periods, as outlined above.
(2) Adjustment relates to the accounting error involving foreign currency transactions.
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| Six Months Ended June 30, 2020 |
(Amounts in thousands, except per share data) | As Reported | | Adjustments | | As Revised |
Sales | $ | 1,819,422 | | | $ | (896) | | | $ | 1,818,526 | |
Cost of sales(1) | (1,286,285) | | | 3,925 | | | (1,282,360) | |
Gross profit | 533,137 | | | 3,029 | | | 536,166 | |
Selling, general and administrative expense(2) | (470,980) | | | (3,814) | | | (474,794) | |
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Operating income | 68,440 | | | (785) | | | 67,655 | |
Interest expense | (25,863) | | | (35) | | | (25,898) | |
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Other income (expense), net(3) | 8,521 | | | 10,774 | | | 19,295 | |
Earnings before income taxes | 53,996 | | | 9,954 | | | 63,950 | |
Provision for income taxes | (41,719) | | | 266 | | | (41,453) | |
Net earnings, including noncontrolling interests | 12,277 | | | 10,220 | | | 22,497 | |
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Net earnings (loss) attributable to Flowserve Corporation | $ | 8,035 | | | $ | 10,219 | | | $ | 18,254 | |
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.06 | | | $ | 0.08 | | | $ | 0.14 | |
Diluted | 0.06 | | | 0.08 | | | 0.14 | |
(1) Adjustment primarily relates to non-restructuring realignment charges associated with workforce reductions in our 2020 Realignment Program.
(2) Adjustment primarily relates to asbestos settlement and defense costs for related legal fees.
(3) Adjustment relates to the accounting error involving foreign currency transactions.
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| Six Months Ended June 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments | | As Revised |
Net earnings, including noncontrolling interests(1) | $ | 12,277 | | | $ | 10,220 | | | $ | 22,497 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes(2) | (66,269) | | | (10,744) | | | (77,013) | |
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| | | | | |
Other comprehensive income (loss) | (58,104) | | | (10,744) | | | (68,848) | |
Comprehensive income (loss), including noncontrolling interests | (45,827) | | | (524) | | | (46,351) | |
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Comprehensive income (loss) attributable to Flowserve Corporation | $ | (50,845) | | | $ | (524) | | | $ | (51,369) | |
(1) Adjustment relates to cumulative effect of the accounting errors that were corrected in the periods, as outlined above.
(2) Adjustment relates to the accounting error involving foreign currency transactions.
The following tables present the impact to affected line items on our condensed consolidated financial statements for the periods indicated for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021:
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| September 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
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Retirement obligations and other liabilities | $ | 541,721 | | | $ | 1,500 | | | $ | 543,221 | |
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Retained earnings | 3,625,291 | | | 14,936 | | | 3,640,227 | |
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Accumulated other comprehensive loss | (618,856) | | | (16,436) | | | (635,292) | |
Total Flowserve Corporation shareholders’ equity | 1,673,421 | | | (1,500) | | | 1,671,921 | |
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Total equity | 1,703,843 | | | (1,500) | | | 1,702,343 | |
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(1) Adjustments relate to the accounting error involving foreign currency transactions.
2.
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| Three Months Ended September 30, 2020 |
(Amounts in thousands, except per share data) | As Reported | | Adjustments(1) | | As Revised |
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Other income (expense), net | $ | (963) | | | $ | 5,636 | | | $ | 4,673 | |
Earnings before income taxes | 72,322 | | | 5,636 | | | 77,958 | |
Provision for income taxes | (18,672) | | | (524) | | | (19,196) | |
Net earnings, including noncontrolling interests | 53,650 | | | 5,112 | | | 58,762 | |
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Net earnings attributable to Flowserve Corporation | $ | 51,003 | | | $ | 5,112 | | | $ | 56,115 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.39 | | | $ | 0.04 | | | $ | 0.43 | |
Diluted | 0.39 | | | 0.04 | | | 0.43 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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| Three Months Ended September 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
Net earnings, including noncontrolling interests | $ | 53,650 | | | $ | 5,112 | | | $ | 58,762 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes | 25,204 | | | (5,649) | | | 19,555 | |
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Other comprehensive income (loss) | 24,269 | | | (5,649) | | | 18,620 | |
Comprehensive income (loss), including noncontrolling interests | 77,919 | | | (537) | | | 77,382 | |
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Comprehensive income (loss) attributable to Flowserve Corporation | $ | 75,276 | | | $ | (537) | | | $ | 74,739 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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(Amounts in thousands, except per share data) | Nine Months Ended September 30, 2020 |
| As Reported | | Adjustments(1) | | As Revised |
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Other income (expense), net | $ | 7,558 | | | $ | 16,411 | | | $ | 23,969 | |
Earnings before income taxes | 125,498 | | | 16,411 | | | 141,909 | |
Provision for income taxes | (59,175) | | | (1,475) | | | (60,650) | |
Net earnings, including noncontrolling interests | 66,323 | | | 14,936 | | | 81,259 | |
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Net earnings attributable to Flowserve Corporation | $ | 59,433 | | | $ | 14,936 | | | $ | 74,369 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.46 | | | $ | 0.11 | | | $ | 0.57 | |
Diluted | 0.45 | | | 0.12 | | | 0.57 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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| Nine Months Ended September 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
Net earnings, including noncontrolling interests | $ | 66,323 | | | $ | 14,936 | | | $ | 81,259 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes | (41,022) | | | (16,434) | | | (57,456) | |
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Other comprehensive income (loss) | (33,792) | | | (16,434) | | | (50,226) | |
Comprehensive income (loss), including noncontrolling interests | 32,531 | | | (1,498) | | | 31,033 | |
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Comprehensive income (loss) attributable to Flowserve Corporation | $ | 24,869 | | | $ | (1,498) | | | $ | 23,371 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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| December 31, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
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Retirement obligations and other liabilities | $ | 516,087 | | | $ | 1,479 | | | $ | 517,566 | |
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Retained earnings | 3,656,449 | | | 14,094 | | | 3,670,543 | |
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Accumulated other comprehensive loss | (594,052) | | | (15,573) | | | (609,625) | |
Total Flowserve Corporation shareholders’ equity | 1,732,470 | | | (1,479) | | | 1,730,991 | |
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Total equity | 1,762,800 | | | (1,479) | | | 1,761,321 | |
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(1) Adjustments relate to the accounting error involving foreign currency transactions.
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(Amounts in thousands, except per share data) | Three Months Ended December 31, 2020 |
| As Reported | | Adjustments(1) | | As Revised |
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Other income (expense), net | $ | (17,811) | | | $ | (931) | | | $ | (18,742) | |
Earnings before income taxes | 61,314 | | | (931) | | | 60,383 | |
Provision for income taxes | (856) | | | 89 | | | (767) | |
Net earnings, including noncontrolling interests | 60,458 | | | (842) | | | 59,616 | |
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Net earnings attributable to Flowserve Corporation | $ | 56,893 | | | $ | (842) | | | $ | 56,051 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.44 | | | $ | (0.01) | | | $ | 0.43 | |
Diluted | 0.43 | | | 0 | | | 0.43 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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| Three Months Ended December 31, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
Net earnings, including noncontrolling interests | $ | 60,458 | | | $ | (842) | | | $ | 59,616 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes | 41,411 | | | 862 | | | 42,273 | |
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Other comprehensive income (loss) | 24,803 | | | 862 | | | 25,665 | |
Comprehensive income (loss), including noncontrolling interests | 85,261 | | | 20 | | | 85,281 | |
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Comprehensive income (loss) attributable to Flowserve Corporation | $ | 81,698 | | | $ | 20 | | | $ | 81,718 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
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(Amounts in thousands, except per share data) | Year Ended December 31, 2020 |
| As Reported | | Adjustments(1) | | As Revised |
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Other income (expense), net | $ | (10,254) | | | $ | 15,480 | | | $ | 5,226 | |
Earnings before income taxes | 186,812 | | | 15,480 | | | 202,292 | |
Provision for income taxes | (60,031) | | | (1,386) | | | (61,417) | |
Net earnings, including noncontrolling interests | 126,781 | | | 14,094 | | | 140,875 | |
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Net earnings attributable to Flowserve Corporation | $ | 116,326 | | | $ | 14,094 | | | $ | 130,420 | |
Net earnings per share attributable to Flowserve Corporation common shareholders: | | | | | |
Basic | $ | 0.89 | | | $ | 0.11 | | | $ | 1.00 | |
Diluted | 0.89 | | | 0.11 | | | 1.00 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
(Amounts in thousands) | As Reported | | Adjustments(1) | | As Revised |
Net earnings, including noncontrolling interests | $ | 126,781 | | | $ | 14,094 | | | $ | 140,875 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments, net of taxes | 388 | | | (15,571) | | | (15,183) | |
| | | | | |
| | | | | |
Other comprehensive income (loss) | (8,991) | | | (15,571) | | | (24,562) | |
Comprehensive income (loss), including noncontrolling interests | 117,790 | | | (1,477) | | | 116,313 | |
| | | | | |
Comprehensive income (loss) attributable to Flowserve Corporation | $ | 106,565 | | | $ | (1,477) | | | $ | 105,088 | |
(1) Adjustments relate to the accounting error involving foreign currency transactions.
The condensed consolidated statements of shareholders' equity for the three and six months ended June 30, 2020 have been revised to reflect the impacts of the above described errors. Additionally, the condensed consolidated statements of shareholders' equity for the periods from July 1, 2020 to September 30, 2020, January 1, 2020 to September 30, 2020 and for the year ended December 31, 2020, which will be revised the next time such financial statements are filed, have been corrected to reflect the impact of the errors described above and there are no other adjustments impacting those statements.
The following tables present the impact to affected sub-totals for the correction of the errors on our condensed consolidated statement of cash flows for the six month and nine month periods ended June 30, 2020 and September 30, 2020, respectively. There was no impact on the condensed consolidated statement of cash flows for the year ended December 31, 2020.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments | | As Revised |
Net cash flows provided (used) by operating activities (1) | $ | 21,231 | | | $ | (1,048) | | | $ | 20,183 | |
Net cash flows provided (used) by investing activities (2) | (21,161) | | | 2,899 | | | (18,262) | |
Net cash flows provided (used) by financing activities(3) | (91,881) | | | (1,851) | | | (93,732) | |
Cash and cash equivalents at end of period | 561,705 | | | 0 | | | 561,705 | |
______________________________________(1) Adjustment relates to cumulative effect of the accounting errors that were corrected in the periods, as outlined above.
(2) 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.
(3) 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.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
(Amounts in thousands) | As Reported | | Adjustments | | As Revised |
Net cash flows provided (used) by operating activities (1) | $ | 115,629 | | | $ | (1,380) | | | $ | 114,249 | |
Net cash flows provided (used) by investing activities (1) | (34,160) | | | 1,495 | | | (32,665) | |
Net cash flows provided (used) by financing activities | 178,972 | | | (115) | | | 178,857 | |
Cash and cash equivalents at end of period | 921,178 | | | 0 | | | 921,178 | |
(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.
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 15% and 22% and 19%of total revenue for the three month periodsperiod ended June 30, 20202021 and 2019,2020, respectively, and 22%16% and 18%22% for the six month period ended June 30, 20202021 and 2019,2020, 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 78%85% and 81%78% of total revenue for the three month period ended June 30, 20202021 and 2019,2020, respectively, and 78%84% and 82%78% for the six month period ended June 30, 20202021 and 2019,2020, respectively. Refer to Note 23 to our consolidated financial statements included included in our 20192020 Annual Report for a more comprehensive discussion of our policies and accounting practices of revenue recognition.
Disaggregated Revenue
We conduct our operations through 2 business segments based on the type of product and how we manage the business:
•Flowserve Pump Division ("FPD") fordesigns and manufactures 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") for engineereddesigns, manufactures and industrialdistributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, actuators and controlsvalve automation products and related services.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 2 business segments generate Original Equipment and Aftermarket revenues.
The following table presents our customer revenues disaggregated by revenue source:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | |
(Amounts in thousands) | FPD | | FCD | | Total |
Original Equipment | $ | 271,465 | | | $ | 191,311 | | | $ | 462,776 | |
Aftermarket | 402,089 | | | 60,100 | | | 462,189 | |
| $ | 673,554 | | | $ | 251,411 | | | $ | 924,965 | |
| | | | | |
| Three Months Ended June 30, 2019 | | | | |
| FPD | | FCD | | Total |
Original Equipment | $ | 243,625 | | | $ | 248,927 | | | $ | 492,552 | |
Aftermarket | 430,341 | | | 67,191 | | | 497,532 | |
| $ | 673,966 | | | $ | 316,118 | | | $ | 990,084 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six Months Ended June 30, 2020 | | | | |
(Amounts in thousands) | FPD | | FCD | | Total |
Original Equipment | $ | 524,197 | | | $ | 390,874 | | | $ | 915,071 | |
Aftermarket | 784,482 | | | 119,869 | | | 904,351 | |
| $ | 1,308,679 | | | $ | 510,743 | | | $ | 1,819,422 | |
| | | | | |
| Six Months Ended June 30, 2019 | | | | |
| FPD | | FCD | | Total |
Original Equipment | $ | 449,429 | | | $ | 462,973 | | | $ | 912,402 | |
Aftermarket | 833,296 | | | 134,437 | | | 967,733 | |
| $ | 1,282,725 | | | $ | 597,410 | | | $ | 1,880,135 | |
The following tables present our customer revenues disaggregated by revenue source: | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
(Amounts in thousands) | FPD | | FCD | | Total |
Original Equipment | $ | 220,387 | | | $ | 214,097 | | | $ | 434,484 | |
Aftermarket | 397,047 | | | 66,647 | | | 463,694 | |
| $ | 617,434 | | | $ | 280,744 | | | $ | 898,178 | |
| | | | | |
| Three Months Ended June 30, 2020 |
| FPD | | FCD | | Total |
Original Equipment | $ | 271,465 | | | $ | 191,358 | | | $ | 462,823 | |
Aftermarket | 402,089 | | | 60,100 | | | 462,189 | |
| $ | 673,554 | | | $ | 251,458 | | | $ | 925,012 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six Months Ended June 30, 2021 |
(Amounts in thousands) | FPD | | FCD | | Total |
Original Equipment | $ | 434,541 | | | $ | 406,817 | | | $ | 841,358 | |
Aftermarket | 785,059 | | | 129,069 | | | 914,128 | |
| $ | 1,219,600 | | | $ | 535,886 | | | $ | 1,755,486 | |
| | | | | |
| Six Months Ended June 30, 2020 |
| FPD | | FCD | | Total |
Original Equipment | $ | 524,198 | | | $ | 389,977 | | | $ | 914,175 | |
Aftermarket | 784,482 | | | 119,869 | | | 904,351 | |
| $ | 1,308,680 | | | $ | 509,846 | | | $ | 1,818,526 | |
Our customer sales are diversified geographically. The following table presentstables present our revenues disaggregated by geography, based on the shipping addresses of our customers:
| | | Three Months Ended June 30, 2020 | | | Three Months Ended June 30, 2021 |
(Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Total | (Amounts in thousands) | FPD | | FCD | | Total |
North America(1) | North America(1) | $ | 269,610 | | | $ | 106,737 | | | $ | 376,347 | | North America(1) | $ | 243,611 | | | $ | 98,118 | | | $ | 341,729 | |
Latin America(1) | 46,909 | | | 6,905 | | | 53,814 | | |
Latin America(2) | | Latin America(2) | 52,219 | | | 8,879 | | | 61,098 | |
Middle East and Africa | Middle East and Africa | 96,740 | | | 21,687 | | | 118,427 | | Middle East and Africa | 69,662 | | | 26,530 | | | 96,192 | |
Asia Pacific | Asia Pacific | 128,102 | | | 64,499 | | | 192,601 | | Asia Pacific | 119,375 | | | 88,944 | | | 208,319 | |
Europe | Europe | 132,193 | | | 51,583 | | | 183,776 | | Europe | 132,567 | | | 58,273 | | | 190,840 | |
| | $ | 673,554 | | | $ | 251,411 | | | $ | 924,965 | | | $ | 617,434 | | | $ | 280,744 | | | $ | 898,178 | |
| | | Three Months Ended June 30, 2019 | | | Three Months Ended June 30, 2020 |
| | FPD | | FCD | | Total | | FPD | | FCD | | Total |
North America(1) | North America(1) | $ | 269,737 | | | $ | 134,715 | | | $ | 404,452 | | North America(1) | $ | 269,610 | | | $ | 106,737 | | | $ | 376,347 | |
Latin America(1) | 45,771 | | | 10,093 | | | 55,864 | | |
Latin America(2) | | Latin America(2) | 46,909 | | | 6,905 | | | 53,814 | |
Middle East and Africa | Middle East and Africa | 87,344 | | | 22,875 | | | 110,219 | | Middle East and Africa | 96,740 | | | 21,687 | | | 118,427 | |
Asia Pacific | Asia Pacific | 124,206 | | | 83,189 | | | 207,395 | | Asia Pacific | 128,102 | | | 64,546 | | | 192,648 | |
Europe | Europe | 146,908 | | | 65,246 | | | 212,154 | | Europe | 132,193 | | | 51,583 | | | 183,776 | |
| | $ | 673,966 | | | $ | 316,118 | | | $ | 990,084 | | | $ | 673,554 | | | $ | 251,458 | | | $ | 925,012 | |
| | | | Six Months Ended June 30, 2020 | | | Six Months Ended June 30, 2021 |
(Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Total | (Amounts in thousands) | FPD | | FCD | | Total |
North America (1) | $ | 537,135 | | | $ | 229,862 | | | $ | 766,997 | | |
Latin America(1) | 89,096 | | | 12,415 | | | 101,511 | | |
North America(1) | | North America(1) | $ | 467,582 | | | $ | 188,368 | | | $ | 655,950 | |
Latin America(2) | | Latin America(2) | 94,256 | | | 15,694 | | | 109,950 | |
Middle East and Africa | Middle East and Africa | 193,908 | | | 48,352 | | | 242,260 | | Middle East and Africa | 152,207 | | | 54,226 | | | 206,433 | |
Asia Pacific | Asia Pacific | 240,557 | | | 120,000 | | | 360,557 | | Asia Pacific | 244,027 | | | 167,600 | | | 411,627 | |
Europe | Europe | 247,983 | | | 100,114 | | | 348,097 | | Europe | 261,528 | | | 109,998 | | | 371,526 | |
| | $ | 1,308,679 | | | $ | 510,743 | | | $ | 1,819,422 | | | $ | 1,219,600 | | | $ | 535,886 | | | $ | 1,755,486 | |
| | | Six Months Ended June 30, 2019 | | | Six Months Ended June 30, 2020 |
| | FPD | | FCD | | Total | | FPD | | FCD | | Total |
North America (1) | $ | 517,506 | | | $ | 269,874 | | | $ | 787,380 | | |
Latin America(1) | 83,373 | | | 15,893 | | | 99,266 | | |
North America(1) | | North America(1) | $ | 537,135 | | | $ | 229,862 | | | $ | 766,997 | |
Latin America(2) | | Latin America(2) | 89,096 | | | 12,415 | | | 101,511 | |
Middle East and Africa | Middle East and Africa | 161,710 | | | 45,763 | | | 207,473 | | Middle East and Africa | 193,908 | | | 48,352 | | | 242,260 | |
Asia Pacific | Asia Pacific | 238,154 | | | 140,401 | | | 378,555 | | Asia Pacific | 240,557 | | | 119,103 | | | 359,660 | |
Europe | Europe | 281,982 | | | 125,479 | | | 407,461 | | Europe | 247,984 | | | 100,114 | | | 348,098 | |
| | $ | 1,282,725 | | | $ | 597,410 | | | $ | 1,880,135 | | | $ | 1,308,680 | | | $ | 509,846 | | | $ | 1,818,526 | |
(1) North America represents the United States and Canada;Canada.
(2) Latin America includes Mexico.
On June 30, 20202021, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $548$470 million. We estimate recognition of approximately $273$294 million of this amount as revenue in the remainder of 20202021 and an additional $275$176 million in 20212022 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 six months ended June 30, 20202021 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | |
(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 | | | $ | 216,541 | | | $ | 1,652 | | |
Revenue recognized that was included in contract liabilities at the beginning of the period | — | | | — | | | (134,440) | | | (646) | | |
Revenue recognized in the period in excess of billings | 386,250 | | | 511 | | | — | | | — | | |
Billings arising during the period in excess of revenue recognized | — | | | — | | | 141,156 | | | — | | |
Amounts transferred from contract assets to receivables | (335,505) | | | (93) | | | — | | | — | | |
| | | | | | | | |
Currency effects and other, net | (14,510) | | | (6,689) | | | (9,122) | | | (31) | | |
Ending balance, June 30, 2020 | $ | 309,149 | | | $ | 3,009 | | | $ | 214,135 | | | $ | 975 | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(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 | 0 | | | 0 | | | (112,835) | | | 0 | | |
Revenue recognized in the period in excess of billings | 321,040 | | | 54 | | | 0 | | | 0 | | |
Billings arising during the period in excess of revenue recognized | 0 | | | 0 | | | 126,591 | | | 0 | | |
Amounts transferred from contract assets to receivables | (326,634) | | | (28) | | | 0 | | | 0 | | |
| | | | | | | | |
Currency effects and other, net | (9,909) | | | (86) | | | 1,109 | | | (19) | | |
Ending balance, June 30, 2021 | $ | 262,231 | | | $ | 1,079 | | | $ | 209,092 | | | $ | 803 | | |
| | | | | | | | |
| (Amounts in thousands) | (Amounts in thousands) | Contract Assets, net (Current) | | Long-term Contract Assets, net(1) | | Contract Liabilities (Current) | | Long-term Contract Liabilities(2) | (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, 2019 | $ | 228,579 | | | $ | 10,967 | | | $ | 202,458 | | | $ | 1,370 | | |
Beginning balance, January 1, 2020 | | 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 | Revenue recognized that was included in contract liabilities at the beginning of the period | — | | | — | | | (108,769) | | | — | | Revenue recognized that was included in contract liabilities at the beginning of the period | 0 | | | 0 | | | (138,994) | | | (646) | |
Revenue recognized in the period in excess of billings | Revenue recognized in the period in excess of billings | 361,384 | | | — | | | — | | | — | | Revenue recognized in the period in excess of billings | 386,250 | | | 511 | | | 0 | | | 0 | |
Billings arising during the period in excess of revenue recognized | Billings arising during the period in excess of revenue recognized | — | | | — | | | 119,726 | | | — | | Billings arising during the period in excess of revenue recognized | 0 | | | 0 | | | 141,156 | | | 0 | |
Amounts transferred from contract assets to receivables | Amounts transferred from contract assets to receivables | (372,398) | | | (2,444) | | | — | | | — | | Amounts transferred from contract assets to receivables | (335,505) | | | (93) | | | 0 | | | 0 | |
| Currency effects and other, net | Currency effects and other, net | (2,125) | | | 45 | | | (3,726) | | | (360) | | Currency effects and other, net | (14,463) | | | (6,689) | | | (3,624) | | | (31) | |
Ending balance, June 30, 2019 | $ | 215,440 | | | $ | 8,568 | | | $ | 209,689 | | | $ | 1,010 | | |
Ending balance, June 30, 2020 | | Ending balance, June 30, 2020 | $ | 309,196 | | | $ | 3,009 | | | $ | 219,633 | | | $ | 975 | |
(1) Included in other assets, net.
(2) Included in retirement obligations and other liabilities.
3. Leases
We have operating and finance leasesAllowance for certain manufacturing facilities, offices, service and quick response centers, machinery, equipment and automobiles. Our leases have remaining lease terms of up to 33 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.
We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account. For lease contracts containing more than one lease component, we allocate the contract consideration to each of the lease components on the basis of relative standalone prices in order to identify the lease payments for each lease component.
Right-of-use ("ROU") assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.
Operating leases are included in operating lease ROU assets, net and operating lease liabilities in our condensed consolidated balance sheets. Finance leases are included in property plant and equipment, debt due within one year and long-term debt due after one year in our condensed consolidated balance sheets.
We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.
We have certain lease contracts where we provide a guarantee to the lessor that the value of an underlying asset will be at least a specified amount at the end of the lease. Estimated amounts expected to be paid for residual value guarantees are included in operating lease liabilities and ROU assets, net.
We had $34.2 million and $34.7 million of legally binding minimum lease payments for operating leases signed but not yet commenced as of June 30, 2020 and December 31, 2019, respectively. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.Expected Credit Losses
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
Other information relatedrisk 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. Based on our leaseshistorical credit loss experience, the current expected credit loss for contract assets is as follows:estimated to be approximately 1% of the asset balance.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | June 30, | | December 31, |
(Amounts in thousands) | | | | | 2020 | | 2019 |
Operating Leases: | | | | | | | |
ROU assets recorded under operating leases | | | | | $ | 223,839 | | | $ | 220,865 | |
Accumulated amortization associated with operating leases | | | | | (50,627) | | | (34,647) | |
Total operating leases ROU assets, net | | | | | $ | 173,212 | | | $ | 186,218 | |
| | | | | | | |
Liabilities recorded under operating leases (current) | | | | | $ | 35,648 | | | $ | 36,108 | |
Liabilities recorded under operating leases (non-current) | | | | | 138,735 | | | 151,523 | |
Total operating leases liabilities | | | | | $ | 174,383 | | | $ | 187,631 | |
| | | | | | | |
Finance Leases: | | | | | | | |
ROU assets recorded under finance leases | | | | | $ | 20,126 | | | $ | 19,606 | |
Accumulated depreciation associated with finance leases | | | | | (8,421) | | | (7,551) | |
Total finance leases ROU assets, net(1) | | | | | $ | 11,705 | | | $ | 12,055 | |
| | | | | | | |
| | | | | | | |
Total finance leases liabilities(2) | | | | | $ | 11,501 | | | $ | 11,788 | |
| | | | | | | |
The costs components of operating and finance leases are as follows: | | | | | | | |
| | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(Amounts in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Operating Lease Costs: | | | | | | | |
Fixed lease expense(3) | $ | 14,072 | | | $ | 14,797 | | | $ | 28,542 | | | $ | 30,006 | |
| | | | | | | |
Variable lease expense(3) | 1,519 | | | 1,306 | | | 3,690 | | | 2,880 | |
Total operating lease expense | $ | 15,591 | | | $ | 16,103 | | | $ | 32,232 | | | $ | 32,886 | |
| | | | | | | |
Finance Lease Costs: | | | | | | | |
Depreciation of finance lease ROU assets(3) | $ | 1,235 | | | $ | 1,130 | | | $ | 2,539 | | | $ | 2,287 | |
Interest on lease liabilities(4) | 23 | | | 73 | | | 256 | | | 151 | |
Total finance lease expense | $ | 1,258 | | | $ | 1,203 | | | $ | 2,795 | | | $ | 2,438 | |
The following table presents the changes in the allowance for expected credit losses for our trade receivables and contract assets for the six months ended June 30, 2021 and 2020:_____________________
(1) Included in property, plant and equipment, net of accumulated depreciation.
(2) Included in debt due within one year and long-term debt due after one year, accordingly.
(3) Included in cost of sales and selling, general and administrative expense, accordingly.
(4) Included in interest expense. | | | | | | | | | | | |
(Amounts in thousands) | Trade receivables | | Contract assets |
Beginning balance, January 1, 2021 | $ | 75,176 | | | $ | 3,205 | |
Charges to cost and expenses, net of recoveries | 865 | | | 0 | |
Write-offs | (2,015) | | | 0 | |
Currency effects and other, net | 756 | | | (167) | |
Ending balance, June 30, 2021 | $ | 74,782 | | | $ | 3,038 | |
| | | |
Beginning balance, January 1, 2020 | $ | 53,412 | | | $ | 206 | |
Adoption of ASU 2016-13 | 6,970 | | | 2,779 | |
Charges to cost and expenses, net of recoveries | 11,800 | | | 0 | |
| | | |
Currency effects and other, net | (98) | | | 25 | |
Ending balance, June 30, 2020 | $ | 72,084 | | | $ | 3,010 | |
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 six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | |
(Amounts in thousands) | 2021 | | 2020 | | |
Balance at January 1 | $ | 67,842 | | | $ | 68,555 | | | |
Adoption of ASU 2016-13 | 0 | | | (679) | | | |
| | | | | |
| | | | | |
Currency effects and other, net | (72) | | | (617) | | | |
Balance at June 30 | $ | 67,770 | | | $ | 67,259 | | | |
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 June 30, 2021.
5.Stock-Based Compensation Plans
Supplemental cash flows information as of and for the six months ended:
| | | | | | | | | | | |
| June 30, | | |
(Amounts in thousands, except lease term and discount rate) | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases(1) | $ | 36,067 | | | $ | 26,448 | |
| | | |
Financing cash flows from finance leases(2) | 2,026 | | | 2,297 | |
ROU assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 13,964 | | | 11,983 | |
Finance leases | 3,143 | | | 6,006 | |
Weighted average remaining lease term (in years) | | | |
Operating leases | 8 years | | 9 years |
Finance leases | 3 years | | 3 years |
Weighted average discount rate (percent) | | | |
Operating leases | 4.5 | % | | 4.5 | % |
Finance leases | 3.5 | % | | 3.8 | % |
_____________________
(1) Included in our condensed consolidated statement of cash flows, operating activities, prepaid expenses and other assets, net and retirement obligations and other.
(2) Included in our condensed consolidated statement of cash flows, financing activities, payments under other financing arrangements.
Future undiscounted lease payments under operating and finance leases as of June 30, 2020 were as follows (amounts in thousands):
| | | | | | | | | | | |
Year ending December 31, | Operating Leases | | Finance Leases |
2020 (excluding the six months ended June 30, 2020) | $ | 21,733 | | | $ | 3,836 | |
2021 | 36,114 | | | 3,991 | |
2022 | 29,428 | | | 2,697 | |
2023 | 23,638 | | | 1,362 | |
2024 | 18,420 | | | 330 | |
Thereafter | 79,872 | | | 54 | |
Total future minimum lease payments | $ | 209,205 | | | $ | 12,270 | |
Less: Imputed interest | (34,822) | | | (769) | |
Total | $ | 174,383 | | | $ | 11,501 | |
| | | |
Other current liabilities | $ | 35,648 | | | $ | — | |
Operating lease liabilities | 138,735 | | | — | |
Debt due within one year | — | | | 4,725 | |
Long-term debt due after one year | — | | | 6,776 | |
Total | $ | 174,383 | | | $ | 11,501 | |
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4. Stock-Based Compensation Plans
Effective January 1, 2020, our shareholders approvedWe maintain the Flowserve Corporation 2020 Long-Term Incentive Plan (“2020 Plan”). The 2020 Plan replaces and supersedes the Flowserve Corporation Equity and Incentive Compensation Plan ("2010 Plan") in its entirety. See Note 7 to our consolidated financial statements included in our 2019 Annual Report for additional information on the 2010 Plan. The 2020 Plan authorizes, 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, in addition to any shares available for issuance or subject to forfeiture under the 2010 Plan as of its expiration on December 31, 2019. stock. Of the shares of common stock authorized under the 2020 Plan, and remaining shares under the 2010 Plan, 13,380,817 w11,273,436ere were available for issuance as of June 30, 2020.2021. 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 June 30, 2020,2021, 114,943 stock options were outstanding, with a grant date fair value of $2.0 million recognized over three years. As of June 30, 2020outstanding. , compensation associated with theseNaN stock options was fully earned. The total fair value of stock optionswere granted or vested during both the three and six months ended June 30, 2020 was $2.0 million, compared to 0 stock options vested during both the three and six months ended June 30, 2019. The fair value2021 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 $38.1 million $32.4 millionand $23.4$18.7 million at June 30, 20202021 and December 31, 2019,2020, respectively, which is expected to be recognized over a remaining weighted-average period of approximately approximatone yearely two years. . These amounts will be recognized into net earnings in prospective periods as the awardsawards vest. The total fair value of Restricted Shares vested during the three months ended June 30, 2021 and 2020 and 2019 was $2.9$0.9 million and $2.4$2.9 million, respectively. The total fair value of Restricted Shares vested during the six months ended June 30, 2021 and 2020 and 2019 was $21.0$24.4 million and $16.3$21.0 million, respectively.
We recorded stock-based compensation expense of $5.1 million ($6.7 million pre-tax) and $3.3 million ($4.2 million pre-tax) and $5.9 million ($7.7 million pre-tax) for the three months ended June 30, 20202021 and 2019,2020, respectively. We recorded stock-based compensation expense of $14.4$12.7 million ($18.516.5 million pre-tax) and $11.914.4 million ($15.3 ($18.5 million pre-tax) for the six months ended June 30, 2021 and 2020, and 2019, respectively. Performance-based shares granted in 2016 did not vest due to performance targets not being achieved, resulting in 115,302 forfeited shares and a $4.5 million reduction of stock-based compensation expense for the six months ended June 30, 2019.
The following table summarizes information regarding Restricted Shares:
| | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | |
| Shares | | Weighted Average Grant-Date Fair Value |
Number of unvested shares: | | | |
Outstanding - January 1, 2020 | 1,690,600 | | | $ | 46.71 | |
Granted | 697,472 | | | 47.12 | |
Vested | (458,639) | | | 45.76 | |
Forfeited | (325,048) | | | 49.72 | |
Outstanding as of June 30, 2020 | 1,604,385 | | | $ | 46.55 | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Shares | | Weighted Average Grant-Date Fair Value |
Number of unvested shares: | | | |
Outstanding - January 1, 2021 | 1,373,657 | | | $ | 46.76 | |
Granted | 995,204 | | | 39.59 | |
Vested | (550,370) | | | 44.27 | |
Forfeited | (117,090) | | | 48.01 | |
Outstanding as of June 30, 2021 | 1,701,401 | | | $ | 43.29 | |
Unvested Restricted Shares outstanding as of June 30, 20202021 included approximately 562,000509,000 units with performance-based vesting provisions. Performance-based units areprovisions issuable in common stock and vest upon the achievement of pre-defined performance targets. Performance-based units havemetrics. Targets for outstanding performance targetsawards are based on our average return on invested capital, and our total shareholder return ("TSR") or free cash flow as a percent of net income over a three-year period. Most unvestedPerformance units were grantedissued in 2021 include a secondary measure, relative total shareholder return, which can increase or decrease the number of vesting units bythree 15% annual grants since January 1, 2018depending on the Company's performance versus peers. Performance units issued in 2019 and 2020 have a vesting percentage between 0% and 200% depending on, while the achievement of the specific2021 performance targets. Except for shares granted under the 55/10 Provision, compensationunits have a vesting percentage up to 230%. Compensation expense is 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 1,124,0001,063,000 shares based on performance targets. As of June 30, 2020,2021, we estimate vesting of approximately 618,000480,000 shares based on expected achievement of performance targets.
5. 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 89 to our consolidated financial statements included in our 20192020 Annual Report and Note 8 ofof 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.
ForeignForeign exchange contracts withwith third parties had a notional value of $385.1$385.7 million and $398.5$388.1 million at June 30, 20202021 and December 31, 2019,2020, respectively. At June 30, 2020,2021, the length of foreign exchange contracts currently in place ranged from 626 days to 2627 months.
We are exposed to risk from credit-relatedcredit-related losses resulting from nonperformancenonperformance 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:
| | | June 30, | | December 31, | | June 30, | | December 31, |
(Amounts in thousands) | (Amounts in thousands) | 2020 | | 2019 | (Amounts in thousands) | 2021 | | 2020 |
Current derivative assets | Current derivative assets | $ | 2,206 | | | $ | 892 | | Current derivative assets | $ | 1,389 | | | $ | 2,857 | |
Noncurrent derivative assets | Noncurrent derivative assets | — | | | 15 | | Noncurrent derivative assets | 20 | | | 249 | |
Current derivative liabilities | Current derivative liabilities | 1,202 | | | 3,418 | | Current derivative liabilities | 914 | | | 682 | |
Noncurrent derivative liabilities | Noncurrent derivative liabilities | 231 | | | 8 | | Noncurrent derivative liabilities | 62 | | | 0 | |
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 June 30, | | | Six Months Ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(Amounts in thousands) | (Amounts in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (Amounts in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Gains (losses) recognized in income | $ | (3,520) | | | $ | (1,413) | | | $ | (61) | | | $ | (2,694) | | |
(Losses) gains recognized in income | | (Losses) gains recognized in income | $ | (4,312) | | | $ | (3,520) | | | $ | 1,793 | | | $ | (61) | |
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 April 14, 2021 and March 9, 2021, we entered into cross currency swap agreements, with termination dates of October 1, 2030 and an early termination date of March 11, 2025, respectively. Also, during the third quarter of 2020 we entered into a cross currency swap agreement with an early termination date of September 22, 2025. The swap agreements are designated as net investment hedges and as of June 30, 2021 the combined notional value of these swaps was €423.2 million. The swaps are included in retirement obligations and other liabilities in our condensed consolidated balance sheet as of June 30, 2021, with a fair value of $5.3 million, compared to $18.1 million as of December 31, 2020. The swaps are classified as Level II under the fair value hierarchy.
We previously designaexclude 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 three and six months ending June 30, 2021, an interest accrual of $(2.1) million and $(2.7) million, respectively, was recognized in other income (expense), net, 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 ("AOCL") on our condensed consolidated balance sheet are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Amounts in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Loss (gain)-included component (1) | $ | 1,798 | | | $ | 0 | | | $ | 185 | | | $ | 0 | |
(Gain) loss-excluded component (2) | (11,749) | | | 0 | | | 3,890 | | | 0 | |
(Gain) loss recognized in AOCL | $ | (9,951) | | | $ | 0 | | | $ | 4,075 | | | $ | 0 | |
(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.
tedIn March 2015, we designated €255.7 million of our €500.0 million1.25% EUR 2022 Senior Notes ("2022 Euro senior notesSenior Notes") discussed in Note 67 as a net investment hedge of our investmentsEuro investment in certain of our intinternational 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.ernational subsidiaries that use the Euro as their functional currency. We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for For each reporting period, the change in the carrying value of the Euro senior notes due to the remeasurement of the effective portion is reported in accumulated other comprehensive lossAOCL on our condensed 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 statementstatements of income. We evaluateAs a result of the effectivenessredemption 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 condensed 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (Amounts in thousands) |
Loss recognized in AOCL | $ | 0 | | | $ | 3,990 | | | $ | 29,554 | | | $ | 12,510 | |
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 for during the three and six months ended June 30, 2021 and 2020, and 2019.respectively.
6. Debt
Debt, including finance lease obligations,
net of discounts and debt issuance costs, consisted of:
| | | | | | | | | | | |
| June 30, | | 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 | $ | 0 | | | $ | 410,243 | |
3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $882 and $1,235 | 499,118 | | | 498,765 | |
4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,122 and $1,345 | 298,878 | | | 298,655 | |
3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $5,881 and $6,147 | 494,119 | | | 493,853 | |
| | | |
Finance lease obligations and other borrowings | 24,633 | | | 25,390 | |
Debt and finance lease obligations | 1,316,748 | | | 1,726,906 | |
Less amounts due within one year | 9,599 | | | 8,995 | |
| | | |
Total debt due after one year | $ | 1,307,149 | | | $ | 1,717,911 | |
| | | | | | | | | | | |
| June 30, | | December 31, |
(Amounts in thousands, except percentages) | 2020 | | 2019 |
1.25% EUR Senior Notes due March 17, 2022, net of unamortized discount and debt issuance costs of $2,065 and $2,653 | $ | 559,485 | | | $ | 557,847 | |
3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $1,583 and $1,924 | 498,417 | | | 498,076 | |
4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,563 and $1,777 | 298,437 | | | 298,223 | |
| | | |
Finance lease obligations and other borrowings | 20,197 | | | 23,103 | |
Debt and finance lease obligations | 1,376,536 | | | 1,377,249 | |
Less amounts due within one year | 9,058 | | | 11,272 | |
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Total debt due after one year | $ | 1,367,478 | | | $ | 1,365,977 | |
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 July 16, 2019,September 4, 2020, we entered into aamended our credit agreement (“Credit Agreement”) with Bank of America, N.A., as administrative agent, and the other lenders party thereto.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 (“Senior Credit Facility”).2024. The Senior Credit Facility includes a $750.0 million sublimit for the issuance of letters of credit and a $30.0 million sublimit for swing line loans. We have the right to increase the amount of the Senior Credit Facility by an aggregate amount not to exceed $400.0 million, subject to certain conditions, including each Lender's approval providing any increase.
The 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 June 30, 2020,2021, 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 Senior Credit Facility. The commitment fee will be between 0.090% and 0.300% of unused amounts under the Senior Credit Facility depending on our debt rating by either Moody’s Investors Service, Inc. or S&P’s Ratings. The commitment fee was 0.20% (per annum) during the periodthree and six months ended June 30, 2020.2021.
AsAs of June 30, 20202021 and December 31, 2019,2020, we had 0 revolving loans outstanding. We had outstanding letters of credit of $62.4$61.1 million and $88.5$58.1 million at June 30, 20202021 and December 31, 2019,2020, respectively. AsAs of June 30, 2020, due to a financial covenant in2021, the Senior Credit Facility, the amount available for borrowings was effectively limited to $722.2 million. The amount available for borrowings under our Senior Credit Facility was $711.5$738.9 million, compared to $741.9 million at December 31, 2019.2020.
Our compliance with applicable financial covenants under the Senior Notes and Senior Credit Facility are tested quarterly. We were in compliance with all applicable covenants as of June 30, 2020.2021.
7. 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 5.6.
OurThe carrying value of our financial instruments are presented at fair valueas reflected in our condensed consolidated balance sheets approximates fair value, with the exception of our long-term debt. The estimated fair value of our long-term debt, excluding the Senior Notes, approximatesapproximates the carrying value and is classified as Level II under the fair value hierarchy.hierarchy. The carrying value of our debt is included in Note 6.7. The estimated fair value of our Senior Notes at June 30, 20202021 was $1,353.4$1,356.4 million compared to the carrying value of $1,356.3$1,292.1 million. The estimated fair value of the Senior Notes is based on Level I quoted market rates. The carrying amounts of our other financialfinancial instruments (e.g., cash and cash equivalents, accounts receivable, net, accounts payable and short-term debt) approximatedapproximated fair value due to their short-term nature at June 30, 20202021 and December 31, 2019.2020.
8. Inventories
Inventories, net consisted of the following:
| | | | | | | | | | | |
| June 30, | | December 31, |
(Amounts in thousands) | 2020 | | 2019 |
Raw materials | $ | 340,941 | | | $ | 328,080 | |
Work in process | 226,134 | | | 192,993 | |
Finished goods | 198,827 | | | 218,408 | |
| | | |
Less: Excess and obsolete reserve | (81,471) | | | (78,644) | |
Inventories, net | $ | 684,431 | | | $ | 660,837 | |
9.Inventories
Inventories, net consisted of the following: | | | | | | | | | | | |
| June 30, | | December 31, |
(Amounts in thousands) | 2021 | | 2020 |
Raw materials | $ | 327,799 | | | $ | 321,600 | |
Work in process | 253,097 | | | 210,174 | |
Finished goods | 201,802 | | | 221,532 | |
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Less: Excess and obsolete reserve | (92,553) | | | (86,078) | |
Inventories, net | $ | 690,145 | | | $ | 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 June 30, | | | Three Months Ended June 30, |
(Amounts in thousands, except per share data) | (Amounts in thousands, except per share data) | 2020 | | 2019 | (Amounts in thousands, except per share data) | 2021 | | 2020 |
Net earnings of Flowserve Corporation | Net earnings of Flowserve Corporation | $ | 8,645 | | | $ | 58,172 | | Net earnings of Flowserve Corporation | $ | 45,354 | | | $ | 6,132 | |
Dividends on restricted shares not expected to vest | Dividends on restricted shares not expected to vest | — | | | — | | Dividends on restricted shares not expected to vest | 0 | | | 0 | |
Earnings attributable to common and participating shareholders | Earnings attributable to common and participating shareholders | $ | 8,645 | | | $ | 58,172 | | Earnings attributable to common and participating shareholders | $ | 45,354 | | | $ | 6,132 | |
Weighted average shares: | Weighted average shares: | | | | Weighted average shares: | | | |
Common stock | Common stock | 130,148 | | | 131,126 | | Common stock | 130,279 | | | 130,148 | |
Participating securities | Participating securities | 22 | | | 21 | | Participating securities | 26 | | | 22 | |
Denominator for basic earnings per common share | Denominator for basic earnings per common share | 130,170 | | | 131,147 | | Denominator for basic earnings per common share | 130,305 | | | 130,170 | |
Effect of potentially dilutive securities | Effect of potentially dilutive securities | 560 | | | 607 | | Effect of potentially dilutive securities | 499 | | | 560 | |
Denominator for diluted earnings per common share | Denominator for diluted earnings per common share | 130,730 | | | 131,754 | | Denominator for diluted earnings per common share | 130,804 | | | 130,730 | |
Earnings per common share: | Earnings per common share: | | | | Earnings per common share: | | | |
Basic | Basic | $ | 0.07 | | | $ | 0.44 | | Basic | $ | 0.35 | | | $ | 0.05 | |
Diluted | Diluted | 0.07 | | | 0.44 | | Diluted | 0.35 | | | 0.05 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
(Amounts in thousands, except per share data) | 2021 | | 2020 |
Net earnings of Flowserve Corporation | $ | 59,434 | | | $ | 18,254 | |
Dividends on restricted shares not expected to vest | 0 | | | 0 | |
Earnings attributable to common and participating shareholders | $ | 59,434 | | | $ | 18,254 | |
Weighted average shares: | | | |
Common stock | 130,342 | | | 130,439 | |
Participating securities | 24 | | | 24 | |
Denominator for basic earnings per common share | 130,366 | | | 130,463 | |
Effect of potentially dilutive securities | 539 | | | 689 | |
Denominator for diluted earnings per common share | 130,905 | | | 131,152 | |
Earnings per common share: | | | |
Basic | $ | 0.46 | | | $ | 0.14 | |
Diluted | 0.45 | | | 0.14 | |
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
(Amounts in thousands, except per share data) | 2020 | | 2019 |
Net earnings of Flowserve Corporation | $ | 8,035 | | | $ | 115,433 | |
Dividends on restricted shares not expected to vest | — | | | — | |
Earnings attributable to common and participating shareholders | $ | 8,035 | | | $ | 115,433 | |
Weighted average shares: | | | |
Common stock | 130,439 | | | 131,044 | |
Participating securities | 23 | | | 21 | |
Denominator for basic earnings per common share | 130,462 | | | 131,065 | |
Effect of potentially dilutive securities | 690 | | | 578 | |
Denominator for diluted earnings per common share | 131,152 | | | 131,643 | |
Earnings per common share: | | | |
Basic | $ | 0.06 | | | $ | 0.88 | |
Diluted | 0.06 | | | 0.88 | |
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.
10.11.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 any 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. payment, other than legal fees. Activity related to asbestos claims during the periods indicated was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months | | Year Ended |
| June 30, | | June 30, | | December 31, |
| 2021 | | 2020 | | 2021 | | 2020 | | 2020 |
Beginning claims(1) | 8,445 | | | 8,282 | | | 8,366 | | | 8,345 | | | 8,345 | |
New claims | 603 | | | 456 | | | 1,232 | | | 1,037 | | | 2,140 | |
Resolved claims | (479) | | | (667) | | | (1,023) | | | (1,308) | | | (2,203) | |
Other(2) | (10) | | | 29 | | | (16) | | | 26 | | | 84 | |
Ending claims(1) | 8,559 | | | 8,100 | | | 8,559 | | | 8,100 | | | 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 June 30, 2021 the Company incurred expenses (net of insurance) of approximately $1.8 million, compared to $5.9 million for the same period in 2020 to defend, resolve or otherwise dispose of outstanding claims, including legal and other related expenses. During the six months ended June 30, 2021 the Company incurred expenses (net of insurance) of approximately $4.5 million, compared to $10.2 million for the same period in 2020 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 $(3.3) million and $(6.7) million during the six months ended June 30, 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. Accordingly,
We believe that our reserve for asbestos claims and the receivable for recoveries from insurance carriers that we have recorded a liability for ourthese 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 most likely settlementtiming and number and types of assertednew claims, and a related receivable from insurers or other companies for our estimated recovery, to the extent we believe that the amounts of recovery are probable. While unfavorable court rulings, judgments or settlement terms regardingand ultimate costs to settle.Additionally, the continued viability of carriers may also impact the amount of probable insurance recoveries.We believe that these claimsuncertainties 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. We are currently unable to estimate the impact, if any, of unasserted asbestos-related claims, although we expect that future claims would also be subject to then existing indemnities and insurance coverage.
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.
11.12.Retirement and Postretirement Benefits
Components of the net periodic cost for retirement and postretirement benefits for the three months ended June 30, 20202021 and 20192020 were as follows:
| | | U.S. Defined Benefit Plans | | | Non-U.S. Defined Benefit Plans | | | Postretirement Medical Benefits | | | U.S. Defined Benefit Plans | | Non-U.S. Defined Benefit Plans | | Postretirement Medical Benefits |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | Service cost | $ | 6.6 | | | $ | 5.9 | | | $ | 1.7 | | | $ | 1.5 | | | $ | — | | | $ | — | | Service cost | $ | 5.8 | | | $ | 6.6 | | | $ | 1.9 | | | $ | 1.7 | | | $ | 0 | | | $ | 0 | |
Interest cost | Interest cost | 3.7 | | | 4.2 | | | 1.6 | | | 2.2 | | | 0.2 | | | 0.2 | | Interest cost | 2.9 | | | 3.7 | | | 1.4 | | | 1.6 | | | 0.1 | | | 0.2 | |
Expected return on plan assets | Expected return on plan assets | (6.1) | | | (6.3) | | | (1.2) | | | (1.9) | | | — | | | — | | Expected return on plan assets | (6.2) | | | (6.1) | | | (1.7) | | | (1.2) | | | 0 | | | 0 | |
Amortization of prior service cost | Amortization of prior service cost | 0.1 | | | 0.1 | | | — | | | 0.1 | | | — | | | — | | Amortization of prior service cost | 0.1 | | | 0.1 | | | 0.1 | | | 0 | | | 0.1 | | | 0 | |
Amortization of unrecognized net loss (gain) | Amortization of unrecognized net loss (gain) | 1.8 | | | 0.9 | | | 1.1 | | | 0.7 | | | — | | | — | | Amortization of unrecognized net loss (gain) | 2.0 | | | 1.8 | | | 1.2 | | | 1.1 | | | 0 | | | 0 | |
Net periodic cost recognized | Net periodic cost recognized | $ | 6.1 | | | $ | 4.8 | | | $ | 3.2 | | | $ | 2.6 | | | $ | 0.2 | | | $ | 0.2 | | Net periodic cost recognized | $ | 4.6 | | | $ | 6.1 | | | $ | 2.9 | | | $ | 3.2 | | | $ | 0.2 | | | $ | 0.2 | |
Components of the net periodic cost for retirement and postretirement benefits for the six months ended June 30, 20202021 and 20192020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Defined Benefit Plans | | | | Non-U.S. Defined Benefit Plans | | | | Postretirement Medical Benefits | | |
(Amounts in millions) | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Service cost | $ | 12.9 | | | $ | 11.5 | | | $ | 3.4 | | | $ | 2.9 | | | $ | — | | | $ | — | |
Interest cost | 7.5 | | | 8.7 | | | 3.2 | | | 4.5 | | | 0.3 | | | 0.4 | |
Expected return on plan assets | (12.8) | | | (12.8) | | | (2.4) | | | (3.8) | | | — | | | — | |
Amortization of prior service cost | 0.1 | | | 0.1 | | | 0.1 | | | 0.1 | | | 0.1 | | | — | |
Amortization of unrecognized net loss (gain) | 3.5 | | | 1.8 | | | 2.1 | | | 1.5 | | | (0.1) | | | (0.1) | |
Net periodic cost recognized | $ | 11.2 | | | $ | 9.3 | | | $ | 6.4 | | | $ | 5.2 | | | $ | 0.3 | | | $ | 0.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | 12.6 | | | $ | 12.9 | | | $ | 3.7 | | | $ | 3.4 | | | $ | 0 | | | $ | 0 | |
Interest cost | 6.0 | | | 7.5 | | | 2.8 | | | 3.2 | | | 0.2 | | | 0.3 | |
Expected return on plan assets | (12.7) | | | (12.8) | | | (3.2) | | | (2.4) | | | 0 | | | 0 | |
Amortization of prior service cost | 0.1 | | | 0.1 | | | 0.2 | | | 0.1 | | | 0.1 | | | 0.1 | |
Amortization of unrecognized net loss (gain) | 3.9 | | | 3.5 | | | 2.3 | | | 2.1 | | | 0 | | | (0.1) | |
Net periodic cost recognized | $ | 9.9 | | | $ | 11.2 | | | $ | 5.8 | | | $ | 6.4 | | | $ | 0.3 | | | $ | 0.3 | |
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 statementstatements of income.
12.13.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 June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Dividends declared per share | $ | 0.20 | | | $ | 0.19 | | | $ | 0.40 | | | $ | 0.38 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Dividends declared per share | $ | 0.20 | | | $ | 0.20 | | | $ | 0.40 | | | $ | 0.40 | |
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 had 0 repurchases ofrepurchased 311,000 shares of our outstanding common stock for $12.5 million during the three months ended June 30, 2020 and 2019.2021, compared to no repurchases for the same period in 2020. We repurchased 1,057,115440,000 shares of our outstanding common stock for $32.1$17.5 million duduring the ring the six months ended June 30, 2020,2021, compared to 01,057,115 shares repurchases of sharesfor $32.1 million for the same period in 2019.2020. As of June 30, 2020,2021, we had $113.6$101.2 million of remaining capacity under our current share repurchase program.
13.14.Income Taxes
For the three months ended June 30, 2021, we earned $50.5 million before taxes and provided for income taxes of $2.7 million resulting in an effective tax rate of 5.4%. For the six months ended June 30, 2021, we earned $71.4 million before taxes and provided for income taxes of $6.5 million resulting in an effective tax rate of 9.1%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended June 30, 2021 primarily due to the net impact of foreign operations and favorable resolution of audits in foreign jurisdictions. The effective tax rate varied from the U.S. federal statutory rate for the six months ended June 30, 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, higher withholding taxes related to transactions with and amongst various foreign subsidiaries and favorable resolution of audits in foreign jurisdictions.
For the three months ended June 30, 2020, we earned $16.2$12.8 million before taxes and provided for income taxes of $5.4$4.5 million resulting in an effective tax rate of 33.4%35.2%. For the six months ended June 30, 2020, we earned $54.0$64.0 million before taxes and provided for income taxes of $41.7$41.5 million resulting in an effective tax rate of 77.3%64.8%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended June 30, 2020 primarily due to the net impact of foreign operations. The effective tax rate varied from the U.S. federal statutory rate for the six months ended June 30, 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.
For the three months ended June 30, 2019, we earned $82.9 million before taxes and provided for income taxes of $22.4 million resulting in an effective tax rate of 27.0%. For the six months ended June 30, 2019, we earned $159.0 million before taxes and provided for income taxes of $39.0 million resulting in an effective tax rate of 24.5%. The effective tax rate varied from the U.S. federal statutory rate for the three and six months ended June 30, 2019 primarily due to the base erosion and anti-abuse tax ("BEAT") provision and state tax, partially offset by 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 and six months ended June 30, 2020,2021, there werewere 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 June 30, 2020,2021, the amount of unrecognized tax benefits increaseddecreased by $2.7$3.6 million from December 31, 2019.2020. 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 20132014 or non-U.S. income tax audits for years through 2012.2013. We are currently under examination for various years in Canada, France, Germany, India, Indonesia, Italy, Malaysia, 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 $7$13 million within the next 12 months.
14.
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 June 30, 2020 | | |
Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2021 |
(Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Sales to external customers | Sales to external customers | $ | 673,554 | | | $ | 251,411 | | | $ | 924,965 | | | $ | — | | | $ | 924,965 | | Sales to external customers | $ | 617,434 | | | $ | 280,744 | | | $ | 898,178 | | | $ | — | | | $ | 898,178 | |
Intersegment sales | Intersegment sales | 510 | | | 828 | | | 1,338 | | | (1,338) | | | — | | Intersegment sales | 257 | | | 416 | | | 673 | | | (673) | | | — | |
Segment operating income | Segment operating income | 60,419 | | | 23,622 | | | 84,041 | | | (41,153) | | | 42,888 | | Segment operating income | 67,845 | | | 37,229 | | | 105,074 | | | (32,912) | | | 72,162 | |
| Three Months Ended June 30, 2019 | | |
Three Months Ended June 30, 2020 | | Three Months Ended June 30, 2020 |
| | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total | | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Sales to external customers | Sales to external customers | $ | 673,966 | | | $ | 316,118 | | | $ | 990,084 | | | $ | — | | | $ | 990,084 | | Sales to external customers | $ | 673,554 | | | $ | 251,458 | | | $ | 925,012 | | | $ | — | | | $ | 925,012 | |
Intersegment sales | Intersegment sales | 651 | | | 822 | | | 1,473 | | | (1,473) | | | — | | Intersegment sales | 510 | | | 828 | | | 1,338 | | | (1,338) | | | — | |
Segment operating income | Segment operating income | 76,161 | | | 46,161 | | | 122,322 | | | (24,304) | | | 98,018 | | Segment operating income | 60,355 | | | 26,227 | | | 86,582 | | | (43,130) | | | 43,452 | |
| Six Months Ended June 30, 2020 | | |
Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
(Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Sales to external customers | Sales to external customers | $ | 1,308,679 | | | $ | 510,743 | | | $ | 1,819,422 | | | $ | — | | | $ | 1,819,422 | | Sales to external customers | $ | 1,219,600 | | | $ | 535,886 | | | $ | 1,755,486 | | | $ | — | | | $ | 1,755,486 | |
Intersegment sales | Intersegment sales | 1,037 | | | 1,825 | | | 2,862 | | | (2,862) | | | — | | Intersegment sales | 733 | | | 1,096 | | | 1,829 | | | (1,829) | | | — | |
Segment operating income | Segment operating income | 100,144 | | | 40,320 | | | 140,464 | | | (72,024) | | | 68,440 | | Segment operating income | 121,627 | | | 61,942 | | | 183,569 | | | (55,304) | | | 128,265 | |
| | | | | | | | | | |
Six Months Ended June 30, 2019 | | |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 |
| | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total | | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Sales to external customers | Sales to external customers | $ | 1,282,725 | | | $ | 597,410 | | | $ | 1,880,135 | | | $ | — | | | $ | 1,880,135 | | Sales to external customers | $ | 1,308,680 | | | $ | 509,846 | | | $ | 1,818,526 | | | $ | — | | | $ | 1,818,526 | |
Intersegment sales | Intersegment sales | 1,301 | | | 1,650 | | | 2,951 | | | (2,951) | | | — | | Intersegment sales | 1,037 | | | 1,825 | | | 2,862 | | | (2,862) | | | — | |
Segment operating income | Segment operating income | 156,624 | | | 90,583 | | | 247,207 | | | (57,958) | | | 189,249 | | Segment operating income | 100,080 | | | 43,408 | | | 143,488 | | | (75,833) | | | 67,655 | |
15.16.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 June 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | | | | | | | 2019 | | | | | | |
(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 - April 1 | $ | (522,717) | | | $ | (130,852) | | | $ | (617) | | | $ | (654,186) | | | $ | (440,980) | | | $ | (119,430) | | | $ | (796) | | | $ | (561,206) | |
Other comprehensive income (loss) before reclassifications | 15,084 | | | (793) | | | 44 | | | 14,335 | | | (2,848) | | | 663 | | | 43 | | | (2,142) | |
Amounts reclassified from AOCL | — | | | 2,551 | | | — | | | 2,551 | | | — | | | 1,523 | | | — | | | 1,523 | |
Net current-period other comprehensive income (loss) | 15,084 | | | 1,758 | | | 44 | | | 16,886 | | | (2,848) | | | 2,186 | | | 43 | | | (619) | |
Balance -June 30 | $ | (507,633) | | | $ | (129,094) | | | $ | (573) | | | $ | (637,300) | | | $ | (443,828) | | | $ | (117,244) | | | $ | (753) | | | $ | (561,825) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 - April 1 | $ | (467,326) | | | $ | (142,464) | | | $ | (286) | | | $ | (610,076) | | | $ | (537,425) | | | $ | (130,852) | | | $ | (617) | | | $ | (668,894) | |
Other comprehensive income (loss) before reclassifications | 13,998 | | | (713) | | | 15 | | | 13,300 | | | 19,048 | | | (793) | | | 44 | | | 18,299 | |
Amounts reclassified from AOCL | 0 | | | 2,772 | | | 0 | | | 2,772 | | | 0 | | | 2,551 | | | 0 | | | 2,551 | |
Net current-period other comprehensive income (loss) | 13,998 | | | 2,059 | | | 15 | | | 16,072 | | | 19,048 | | | 1,758 | | | 44 | | | 20,850 | |
Balance - June 30 | $ | (453,328) | | | $ | (140,405) | | | $ | (271) | | | $ | (594,004) | | | $ | (518,377) | | | $ | (129,094) | | | $ | (573) | | | $ | (648,044) | |
(1) Includes foreign currency translation adjustments attributable to noncontrolling interests of $5.9$6.1 million and $5.2$5.9 million at April 1, 20202021 and 2019,2020, respectively, and $5.9$6.1 million and $5.2$5.9 million at June 30, 2021 and 2020, and 2019, respectively. Includes net investment hedge losses of $4.0 million and $3.0 million, net of deferred taxes, at June 30, 2020 and 2019, respectively. Amounts in parentheses indicate debits.an increase to AOCL.
The following table presents the reclassifications out of AOCL:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in thousands) | (Amounts in thousands) | | Affected line item in the statement of income | | 2020(1) | | 2019(1) | (Amounts in thousands) | | Affected line item in the statement of income | | 2021(1) | | 2020(1) |
| Pension and other postretirement effects | Pension and other postretirement effects | | | | | | Pension and other postretirement effects | | | | | |
Amortization of actuarial losses(2) | Amortization of actuarial losses(2) | | Other income (expense), net | | $ | (2,857) | | | $ | (1,607) | | Amortization of actuarial losses(2) | | Other income (expense), net | | $ | (3,089) | | | $ | (2,857) | |
Prior service costs(2) | Prior service costs(2) | | Other income (expense), net | | (138) | | | (138) | | Prior service costs(2) | | Other income (expense), net | | (155) | | | (138) | |
| | Tax benefit | | 444 | | | 222 | | | Tax benefit | | 472 | | | 444 | |
| | Net of tax | | $ | (2,551) | | | $ | (1,523) | | | Net of tax | | $ | (2,772) | | | $ | (2,551) | |
(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 1112 for additional details.
The following table presents the changes in AOCL, net of tax for the six months ended June 30, 20202021 and 2019:2020:
| | | 2020 | | | 2019 | | | 2021 | | 2020 |
(Amounts in thousands) | (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) | (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 | Balance - January 1 | $ | (441,364) | | | $ | (137,161) | | | $ | (671) | | | $ | (579,196) | | | $ | (447,925) | | | $ | (120,647) | | | $ | (858) | | | $ | (569,430) | | Balance - January 1 | $ | (456,437) | | | $ | (146,723) | | | $ | (488) | | | $ | (603,648) | | | $ | (441,364) | | | $ | (137,161) | | | $ | (671) | | | $ | (579,196) | |
Other comprehensive (loss) income before reclassifications | Other comprehensive (loss) income before reclassifications | (66,269) | | | 3,116 | | | 98 | | | (63,055) | | | 4,097 | | | 393 | | | 105 | | | 4,595 | | Other comprehensive (loss) income before reclassifications | 3,109 | | | 804 | | | 217 | | | 4,130 | | | (77,013) | | | 3,116 | | | 98 | | | (73,799) | |
Amounts reclassified from AOCL | Amounts reclassified from AOCL | — | | | 4,951 | | | — | | | 4,951 | | | — | | | 3,010 | | | — | | | 3,010 | | Amounts reclassified from AOCL | 0 | | | 5,514 | | | 0 | | | 5,514 | | | 0 | | | 4,951 | | | 0 | | | 4,951 | |
Net current-period other comprehensive (loss) income | Net current-period other comprehensive (loss) income | (66,269) | | | 8,067 | | | 98 | | | (58,104) | | | 4,097 | | | 3,403 | | | 105 | | | 7,605 | | Net current-period other comprehensive (loss) income | 3,109 | | | 6,318 | | | 217 | | | 9,644 | | | (77,013) | | | 8,067 | | | 98 | | | (68,848) | |
Balance - June 30 | Balance - June 30 | $ | (507,633) | | | $ | (129,094) | | | $ | (573) | | | $ | (637,300) | | | $ | (443,828) | | | $ | (117,244) | | | $ | (753) | | | $ | (561,825) | | Balance - June 30 | $ | (453,328) | | | $ | (140,405) | | | $ | (271) | | | $ | (594,004) | | | $ | (518,377) | | | $ | (129,094) | | | $ | (573) | | | $ | (648,044) | |
(1) Includes foreign currency translation adjustments attributable to noncontrolling interests of $5.1$5.9 million and $4.5$5.1 million at January 1, 2021 and 2020, respectively, and 2019, respectively, and $5.9$6.1 million and $5.2$5.9 million at June 30, 20202021 and 2019, respectively. Includes net investment hedge losses of $12.5 million and $15.2 million, net of deferred taxes, for the six months ended June 30, 2020, and 2019, respectively. Amounts in parentheses indicate debits.an increase to AOCL.
The following table presents the reclassifications out of AOCL:
| | | | | | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(Amounts in thousands) | (Amounts in thousands) | | Affected line item in the statement of income | | 2020(1) | | 2019(1) | (Amounts in thousands) | | Affected line item in the statement of income | | 2021(1) | | 2020(1) |
| Pension and other postretirement effects | Pension and other postretirement effects | | | | | | | Pension and other postretirement effects | |
Amortization of actuarial losses(2) | Amortization of actuarial losses(2) | | Other income (expense), net | | $ | (5,514) | | | $ | (3,163) | | Amortization of actuarial losses(2) | | Other income (expense), net | | $ | (6,148) | | | $ | (5,514) | |
Prior service costs(2) | Prior service costs(2) | | Other income (expense), net | | (279) | | | (276) | | Prior service costs(2) | | Other income (expense), net | | (308) | | | (279) | |
| | Tax benefit | | 842 | | | 429 | | | Tax benefit | | 942 | | | 842 | |
| | Net of tax | | $ | (4,951) | | | $ | (3,010) | | | Net of tax | | $ | (5,514) | | | $ | (4,951) | |
(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 1112 for additional details.
16.17.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 $65$95 million and that the majority of the charges willwere incurred in 2020 with the remainder to be incurred inthrough 2021. 2020. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized. The realignment programs initiated in 2015 ("2015 Realignment Programs"), which consisted of both restructuring and non-restructuring charges, were substantially complete as of March 31, 2020, resulting in $362.4 million of total charges incurred through the completion of the programs.
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 consistconsisted of professional services, project management and related travel costs recorded in SG&A expenses. As of December 31, 2020, the Flowserve 2.0 Transformation efforts were substantially completed. For the six months ended June 30, 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, related to our realignment activities and Flowserve 2.0 Transformation charges. Realignment charges incurred in the second quarter of 20202021 related to our 2020 Realignment Program and realignmentthe total charges incurred in 20192020 are related to our 20152020 Realignment Programs:Program and Flowserve 2.0 Transformation:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | 11,650 | | | $ | (167) | | | $ | 11,483 | | | $ | — | | | $ | 11,483 | |
SG&A | 126 | | | 24 | | | 150 | | | — | | | 150 | |
| | | | | | | | | |
| $ | 11,776 | | | $ | (143) | | | $ | 11,633 | | | $ | — | | | $ | 11,633 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 12,003 | | | $ | 5,819 | | | $ | 17,822 | | | $ | 548 | | | $ | 18,370 | |
SG&A | 9,316 | | | 4,312 | | | 13,628 | | | 14,852 | | | 28,480 | |
| $ | 21,319 | | | $ | 10,131 | | | $ | 31,450 | | | $ | 15,400 | | | $ | 46,850 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 23,653 | | | $ | 5,652 | | | $ | 29,305 | | | $ | 548 | | | $ | 29,853 | |
SG&A | 9,442 | | | 4,336 | | | 13,778 | | | 14,852 | | | $ | 28,630 | |
| | | | | | | | | |
Total | $ | 33,095 | | | $ | 9,988 | | | $ | 43,083 | | | $ | 15,400�� | | | $ | 58,483 | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | $ | — | | | $ | — | | | $ | — | | | $ | 5,618 | | | $ | 5,618 | |
| | | | | | | | | |
| $ | — | | | $ | — | | | $ | — | | | $ | 5,618 | | | $ | 5,618 | |
| | | | | | | | | |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 23,653 | | | $ | 5,652 | | | $ | 29,305 | | | $ | 548 | | | $ | 29,853 | |
SG&A | 9,442 | | | 4,336 | | | 13,778 | | | 20,470 | | | 34,248 | |
| | | | | | | | | |
Total | $ | 33,095 | | | $ | 9,988 | | | $ | 43,083 | | | $ | 21,018 | | | $ | 64,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | (928) | | | $ | 23 | | | $ | (905) | | | $ | — | | | $ | (905) | |
SG&A | 1,345 | | | 90 | | | 1,435 | | | — | | | 1,435 | |
| | | | | | | | | |
| $ | 417 | | | $ | 113 | | | $ | 530 | | | $ | — | | | $ | 530 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 4,727 | | | $ | 42 | | | $ | 4,769 | | | $ | — | | | $ | 4,769 | |
SG&A | 254 | | | 35 | | | 289 | | | 713 | | | 1,002 | |
| $ | 4,981 | | | $ | 77 | | | $ | 5,058 | | | $ | 713 | | | $ | 5,771 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 3,799 | | | $ | 65 | | | $ | 3,864 | | | $ | — | | | $ | 3,864 | |
SG&A | 1,599 | | | 125 | | | 1,724 | | | 713 | | | $ | 2,437 | |
| | | | | | | | | |
Total | $ | 5,398 | | | $ | 190 | | | $ | 5,588 | | | $ | 713 | | | $ | 6,301 | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | $ | — | | | $ | — | | | $ | — | | | $ | 7,573 | | | $ | 7,573 | |
| | | | | | | | | |
| $ | — | | | $ | — | | | $ | — | | | $ | 7,573 | | | $ | 7,573 | |
| | | | | | | | | |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 3,799 | | | $ | 65 | | | $ | 3,864 | | | $ | — | | | $ | 3,864 | |
SG&A | 1,599 | | | $ | 125 | | | 1,724 | | | 8,286 | | | 10,010 | |
| | | | | | | | | |
Total | $ | 5,398 | | | $ | 190 | | | $ | 5,588 | | | $ | 8,286 | | | $ | 13,874 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | 13,331 | | | $ | (272) | | | $ | 13,059 | | | $ | — | | | $ | 13,059 | |
SG&A | 230 | | | (3) | | | 227 | | | — | | | 227 | |
| | | | | | | | | |
| $ | 13,561 | | | $ | (275) | | | $ | 13,286 | | | $ | — | | | $ | 13,286 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 12,128 | | | $ | 13,579 | | | $ | 25,707 | | | $ | 548 | | | $ | 26,255 | |
SG&A | 9,801 | | | 4,384 | | | 14,185 | | | 15,497 | | | 29,682 | |
| $ | 21,929 | | | $ | 17,963 | | | $ | 39,892 | | | $ | 16,045 | | | $ | 55,937 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 13,307 | | | $ | 38,766 | | | $ | 548 | | | $ | 39,314 | |
SG&A | 10,031 | | | 4,381 | | | 14,412 | | | 15,497 | | | 29,909 | |
| | | | | | | | | |
Total | $ | 35,490 | | | $ | 17,688 | | | $ | 53,178 | | | $ | 16,045 | | | $ | 69,223 | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | — | | | — | | | — | | | 11,261 | | | 11,261 | |
| | | | | | | | | |
| $ | — | | | $ | — | | | $ | — | | | $ | 11,261 | | | $ | 11,261 | |
| | | | | | | | | |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 13,307 | | | $ | 38,766 | | | $ | 548 | | | $ | 39,314 | |
SG&A | 10,031 | | | 4,381 | | | 14,412 | | | 26,758 | | | 41,170 | |
| | | | | | | | | |
Total | $ | 35,490 | | | $ | 17,688 | | | $ | 53,178 | | | $ | 27,306 | | | $ | 80,484 | |
_______________________________ | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Restructuring Charges | | | | | | | | | |
COS | $ | 1,695 | | | $ | 479 | | | $ | 2,174 | | | $ | — | | | $ | 2,174 | |
SG&A(1) | (17,126) | | | 413 | | | (16,713) | | | 16 | | | (16,697) | |
| | | | | | | | | |
| $ | (15,431) | | | $ | 892 | | | $ | (14,539) | | | $ | 16 | | | $ | (14,523) | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 7,122 | | | $ | 68 | | | $ | 7,190 | | | $ | — | | | $ | 7,190 | |
SG&A | 427 | | | 34 | | | 461 | | | 1,243 | | | 1,704 | |
| $ | 7,549 | | | $ | 102 | | | $ | 7,651 | | | $ | 1,243 | | | $ | 8,894 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 8,817 | | | $ | 547 | | | $ | 9,364 | | | $ | — | | | $ | 9,364 | |
SG&A | (16,699) | | | 447 | | | (16,252) | | | 1,259 | | | (14,993) | |
| | | | | | | | | |
Total | $ | (7,882) | | | $ | 994 | | | $ | (6,888) | | | $ | 1,259 | | | $ | (5,629) | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | — | | | — | | | — | | | 15,986 | | | 15,986 | |
| | | | | | | | | |
| $ | — | | | $ | — | | | $ | — | | | $ | 15,986 | | | $ | 15,986 | |
| | | | | | | | | |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 8,817 | | | $ | 547 | | | $ | 9,364 | | | $ | — | | | $ | 9,364 | |
SG&A | (16,699) | | | 447 | | | (16,252) | | | 17,245 | | | 993 | |
| | | | | | | | | |
Total | $ | (7,882) | | | $ | 994 | | | $ | (6,888) | | | $ | 17,245 | | | $ | 10,357 | |
(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | 2,016 | | | $ | 171 | | | $ | 2,187 | | | $ | 0 | | | $ | 2,187 | |
SG&A | 667 | | | 0 | | | 667 | | | 0 | | | 667 | |
| | | | | | | | | |
| $ | 2,683 | | | $ | 171 | | | $ | 2,854 | | | $ | 0 | | | $ | 2,854 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 1,558 | | | $ | 80 | | | $ | 1,638 | | | $ | 0 | | | $ | 1,638 | |
SG&A | 338 | | | (129) | | | 209 | | | 915 | | | 1,124 | |
| $ | 1,896 | | | $ | (49) | | | $ | 1,847 | | | $ | 915 | | | $ | 2,762 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 3,574 | | | $ | 251 | | | $ | 3,825 | | | $ | 0 | | | $ | 3,825 | |
SG&A | 1,005 | | | (129) | | | 876 | | | 915 | | | 1,791 | |
| | | | | | | | | |
Total | $ | 4,579 | | | $ | 122 | | | $ | 4,701 | | | $ | 915 | | | $ | 5,616 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | 11,650 | | | $ | (167) | | | $ | 11,483 | | | $ | 0 | | | $ | 11,483 | |
SG&A | 126 | | | 3 | | | 129 | | | 0 | | | 129 | |
| | | | | | | | | |
| $ | 11,776 | | | $ | (164) | | | $ | 11,612 | | | $ | 0 | | | $ | 11,612 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 12,003 | | | $ | 2,917 | | | $ | 14,920 | | | $ | 548 | | | $ | 15,468 | |
SG&A | 9,316 | | | 4,333 | | | 13,649 | | | 14,852 | | | 28,501 | |
| $ | 21,319 | | | $ | 7,250 | | | $ | 28,569 | | | $ | 15,400 | | | $ | 43,969 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 23,653 | | | $ | 2,750 | | | $ | 26,403 | | | $ | 548 | | | $ | 26,951 | |
SG&A | 9,442 | | | 4,336 | | | 13,778 | | | 14,852 | | | $ | 28,630 | |
| | | | | | | | | |
Total | $ | 33,095 | | | $ | 7,086 | | | $ | 40,181 | | | $ | 15,400 | | | $ | 55,581 | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5,618 | | | $ | 5,618 | |
| | | | | | | | | |
| $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5,618 | | | $ | 5,618 | |
| | | | | | | | | |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 23,653 | | | $ | 2,750 | | | $ | 26,403 | | | $ | 548 | | | $ | 26,951 | |
SG&A | 9,442 | | | $ | 4,336 | | | 13,778 | | | 20,470 | | | 34,248 | |
| | | | | | | | | |
Total | $ | 33,095 | | | $ | 7,086 | | | $ | 40,181 | | | $ | 21,018 | | | $ | 61,199 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | | | | | | | | | |
Restructuring Charges | | | | | | | | | |
COS | $ | 6,043 | | | $ | 470 | | | $ | 6,513 | | | $ | 0 | | | $ | 6,513 | |
SG&A | 667 | | | (9) | | | 658 | | | 0 | | | 658 | |
| | | | | | | | | |
| $ | 6,710 | | | $ | 461 | | | $ | 7,171 | | | $ | 0 | | | $ | 7,171 | |
| | | | | | | | | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 5,449 | | | $ | 678 | | | $ | 6,127 | | | $ | 590 | | | $ | 6,717 | |
SG&A | 495 | | | 739 | | | 1,234 | | | 4,195 | | | 5,429 | |
| $ | 5,944 | | | $ | 1,417 | | | $ | 7,361 | | | $ | 4,785 | | | $ | 12,146 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 11,492 | | | $ | 1,148 | | | $ | 12,640 | | | $ | 590 | | | $ | 13,230 | |
SG&A | 1,162 | | | 730 | | | 1,892 | | | 4,195 | | | 6,087 | |
| | | | | | | | | |
Total | $ | 12,654 | | | $ | 1,878 | | | $ | 14,532 | | | $ | 4,785 | | | $ | 19,317 | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Restructuring Charges | | | | | | | | | |
COS | $ | 13,331 | | | $ | (272) | | | $ | 13,059 | | | $ | 0 | | | $ | 13,059 | |
SG&A(1) | 230 | | | (3) | | | 227 | | | 0 | | | 227 | |
| | | | | | | | | |
| $ | 13,561 | | | $ | (275) | | | $ | 13,286 | | | $ | 0 | | | $ | 13,286 | |
Non-Restructuring Charges | | | | | | | | | |
COS | $ | 12,128 | | | $ | 9,242 | | | $ | 21,370 | | | $ | 548 | | | $ | 21,918 | |
SG&A | 9,801 | | | 4,384 | | | 14,185 | | | 15,497 | | | 29,682 | |
| $ | 21,929 | | | $ | 13,626 | | | $ | 35,555 | | | $ | 16,045 | | | $ | 51,600 | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 8,970 | | | $ | 34,429 | | | $ | 548 | | | $ | 34,977 | |
SG&A | 10,031 | | | 4,381 | | | 14,412 | | | 15,497 | | | 29,909 | |
| | | | | | | | | |
Total | $ | 35,490 | | | $ | 13,351 | | | $ | 48,841 | | | $ | 16,045 | | | $ | 64,886 | |
| | | | | | | | | |
Transformation Charges | | | | | | | | | |
| | | | | | | | | |
SG&A | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 11,261 | | | $ | 11,261 | |
| | | | | | | | | |
| $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 11,261 | | | $ | 11,261 | |
| | | | | | | | | |
Total Realignment Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 8,970 | | | $ | 34,429 | | | $ | 548 | | | $ | 34,977 | |
SG&A | 10,031 | | | 4,381 | | | 14,412 | | | 26,758 | | | 41,170 | |
| | | | | | | | | |
Total | $ | 35,490 | | | $ | 13,351 | | | $ | 48,841 | | | $ | 27,306 | | | $ | 76,147 | |
The following is a summary of total inception to date charges, net of adjustments, related to the 2020 Realignment Program initiated in the second quarter of 2020:Program:
| | | Inception to Date | | | Inception to Date |
(Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | All Other | | Consolidated Total |
Realignment Charges | Realignment Charges | | | | | | | | | | Realignment Charges | | | | | | | | | |
Restructuring Charges | Restructuring Charges | | Restructuring Charges | |
COS | COS | $ | 11,650 | | | $ | (167) | | | $ | 11,483 | | | $ | — | | | $ | 11,483 | | COS | $ | 23,872 | | | $ | 1,697 | | | $ | 25,569 | | | $ | 0 | | | $ | 25,569 | |
SG&A | SG&A | 126 | | | 24 | | | 150 | | | — | | | 150 | | SG&A | 718 | | | 316 | | | 1,034 | | | 0 | | | 1,034 | |
| | | $ | 11,776 | | | $ | (143) | | | $ | 11,633 | | | $ | — | | | $ | 11,633 | | | $ | 24,590 | | | $ | 2,013 | | | $ | 26,603 | | | $ | 0 | | | $ | 26,603 | |
Non-Restructuring Charges | Non-Restructuring Charges | | | | | | | | | | Non-Restructuring Charges | | | | | | | | | |
COS | COS | $ | 12,003 | | | $ | 5,819 | | | $ | 17,822 | | | $ | 548 | | | $ | 18,370 | | COS | $ | 24,653 | | | $ | 205 | | | $ | 24,858 | | | $ | 642 | | | $ | 25,500 | |
SG&A | SG&A | 9,316 | | | 4,312 | | | 13,628 | | | 14,852 | | | 28,480 | | SG&A | 11,176 | | | 5,293 | | | 16,469 | | | 22,077 | | | 38,546 | |
| | $ | 21,319 | | | $ | 10,131 | | | $ | 31,450 | | | $ | 15,400 | | | $ | 46,850 | | | $ | 35,829 | | | $ | 5,498 | | | $ | 41,327 | | | $ | 22,719 | | | $ | 64,046 | |
Total Realignment Charges | Total Realignment Charges | | | | | | | | | | Total Realignment Charges | | | | | | | | | |
COS | COS | $ | 23,653 | | | $ | 5,652 | | | $ | 29,305 | | | $ | 548 | | | $ | 29,853 | | COS | $ | 48,525 | | | $ | 1,902 | | | $ | 50,427 | | | $ | 642 | | | $ | 51,069 | |
SG&A | SG&A | 9,442 | | | 4,336 | | | 13,778 | | | 14,852 | | | 28,630 | | SG&A | 11,894 | | | 5,609 | | | 17,503 | | | 22,077 | | | 39,580 | |
| Total | Total | $ | 33,095 | | | $ | 9,988 | | | $ | 43,083 | | | $ | 15,400 | | | $ | 58,483 | | Total | $ | 60,419 | | | $ | 7,511 | | | $ | 67,930 | | | $ | 22,719 | | | $ | 90,649 | |
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. Restructuring charges incurred in the second quarter of 2020activities related to our 2020 Realignment Program and restructuring charges incurred in 2019 related to our 2015 Realignment Programs:Program:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
| | | | | | | | | |
COS | $ | (154) | | | $ | 0 | | | $ | (849) | | | $ | 3,190 | | | $ | 2,187 | |
SG&A | 168 | | | 0 | | | 0 | | | 499 | | | 667 | |
| | | | | | | | | |
Total | $ | 14 | | | $ | 0 | | | $ | (849) | | | $ | 3,689 | | | $ | 2,854 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 10,572 | | | $ | 0 | | | $ | 994 | | | $ | (83) | | | $ | 11,483 | |
SG&A | 126 | | | 0 | | | 3 | | | 0 | | | 129 | |
| | | | | | | | | |
Total | $ | 10,698 | | | $ | 0 | | | $ | 997 | | | $ | (83) | | | $ | 11,612 | |
| | | Three Months Ended June 30, 2020 | | | Six Months Ended June 30, 2021 |
(Amounts in thousands) | (Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total | (Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
| COS | COS | $ | 10,572 | | | $ | — | | | $ | 994 | | | $ | (83) | | | $ | 11,483 | | COS | $ | 1,219 | | | $ | 0 | | | $ | 1,341 | | | $ | 3,953 | | | $ | 6,513 | |
SG&A | SG&A | 126 | | | — | | | 24 | | | — | | | 150 | | SG&A | 168 | | | 0 | | 0 | | | 490 | | | 658 | |
| Total | Total | $ | 10,698 | | | $ | — | | | $ | 1,018 | | | $ | (83) | | | $ | 11,633 | | Total | $ | 1,387 | | | $ | 0 | | | $ | 1,341 | | | $ | 4,443 | | | $ | 7,171 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 148 | | | $ | 9 | | | $ | (1,051) | | | $ | (11) | | | $ | (905) | |
SG&A | 1,302 | | | — | | | — | | | 133 | | | 1,435 | |
| | | | | | | | | |
Total | $ | 1,450 | | | $ | 9 | | | $ | (1,051) | | | $ | 122 | | | $ | 530 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 12,255 | | | $ | 0 | | | $ | 991 | | | $ | (187) | | | $ | 13,059 | |
SG&A | 265 | | | 0 | | | 0 | | | (38) | | | 227 | |
| | | | | | | | | |
Total | $ | 12,520 | | | $ | 0 | | | $ | 991 | | | $ | (225) | | | $ | 13,286 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 12,255 | | | $ | — | | | $ | 991 | | | $ | (187) | | | $ | 13,059 | |
SG&A | 265 | | | | | — | | | (38) | | | 227 | |
| | | | | | | | | |
Total | $ | 12,520 | | | $ | — | | | $ | 991 | | | $ | (225) | | | $ | 13,286 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs/ (Gains) | | Other | | Total |
COS | $ | 1,827 | | | $ | 48 | | | $ | (818) | | | $ | 1,117 | | | $ | 2,174 | |
SG&A(1) | 1,618 | | | — | | | (18,502) | | | 187 | | | (16,697) | |
| | | | | | | | | |
Total | $ | 3,445 | | | $ | 48 | | | $ | (19,320) | | | $ | 1,304 | | | $ | (14,523) | |
(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.
The following is a summary of total inception to date restructuring charges, net of adjustments, related to our 2020 Realignment Program initiated in the second quarter of 2020:Program:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Inception to Date | | | | | | | | |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 10,572 | | | $ | — | | | $ | 994 | | | $ | (83) | | | $ | 11,483 | |
SG&A | 126 | | | — | | | 24 | | | — | | | 150 | |
| | | | | | | | | |
Total | $ | 10,698 | | | $ | — | | | $ | 1,018 | | | $ | (83) | | | $ | 11,633 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Inception to Date |
(Amounts in thousands) | Severance | | Contract Termination | | Asset Write-Downs | | Other | | Total |
COS | $ | 16,463 | | | $ | 52 | | | $ | 2,753 | | | $ | 6,301 | | | $ | 25,569 | |
SG&A | 252 | | | 0 | | | 14 | | | 768 | | | 1,034 | |
| | | | | | | | | |
Total | $ | 16,715 | | | $ | 52 | | | $ | 2,767 | | | $ | 7,069 | | | $ | 26,603 | |
The following represents the activity, primarily severance charges from reductions in force, related to the restructuring reserves for the six months ended June 30, 20202021 and 2019:2020:
| | (Amounts in thousands) | (Amounts in thousands) | 2020 | | 2019 | (Amounts in thousands) | 2021 | | 2020 |
Balance at January 1 | Balance at January 1 | $ | 6,703 | | | $ | 11,927 | | Balance at January 1 | $ | 18,255 | | | $ | 6,703 | |
Charges, net of adjustments | Charges, net of adjustments | 12,270 | | | 4,796 | | Charges, net of adjustments | 5,830 | | | 12,270 | |
Cash expenditures | Cash expenditures | (2,713) | | | (4,733) | | Cash expenditures | (14,388) | | | (2,713) | |
Other non-cash adjustments, including currency | Other non-cash adjustments, including currency | (118) | | | (205) | | Other non-cash adjustments, including currency | (461) | | | (118) | |
Balance at June 30 | Balance at June 30 | $ | 16,142 | | | $ | 11,785 | | Balance at June 30 | $ | 9,236 | | | $ | 16,142 | |
____________________________
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto, and the other financial data included elsewhere in this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") included in our 20192020 Annual Report.
EXECUTIVE OVERVIEW
Our Company
We are a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems. We develop and manufacture precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in our customers’ critical processes. Our product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products and services add value. Through our manufacturing platform and global network of Quick Response Centers ("QRCs"), we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting. We currently employ approximately 17,00015,000 employees in more than 50 countries.
Our business model is significantly influenced by the capital and operating spending of global infrastructure industries for the placement of new products into service and aftermarket services for existing operations. The worldwide installed base of our products is an important source of aftermarket revenue, where products are expected to ensure the maximum operating time of many key industrial processes. We have significantly invested in our aftermarket strategy to provide local support to drive customer investments in our offerings and use of our services to replace or repair installed products. The aftermarket portion of our business also helps provide business stability during various economic periods. The aftermarket service and solutions business, which is primarily served by our network of 168162 QRCs located around the globe, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value-added services. It is generally a higher margin business compared to our original equipment business and a key component of our business strategy.
Our operations are conducted through two business segments that are referenced throughout this MD&A:
•Flowserve Pump Division ("FPD") fordesigns and manufactures 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") for engineereddesigns, manufactures and industrialdistributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, actuators and controlsvalve automation products and related services.equipment.
Our business segments share a focus on industrial flow control technology and have a number of common customers. These segments also have complementary product offerings and technologies that are often combined in applications that provide us a net competitive advantage. Our segments also benefit from our global footprint and our economies of scale in reducing administrative and overhead costs to serve customers more cost effectively. For example, our segments share leadership for operational support functions, such as sales, research and development, marketing and supply chain.
The reputation of our product portfolio is built on more than 50 well-respected brand names such as Worthington, IDP, Valtek, Limitorque, Durco, Argus, Edward, Valbart and Durametallic, which we believe to be one of the most comprehensive in the industry. Our products and services are sold either directly or through designated channels to more than 10,000 companies, including some of the world’s leading engineering, procurement and construction ("EPC") firms, original equipment manufacturers, distributors and end users.
We continue to leverage our QRC network to be positioned as near to customers as possible for service and support in order to capture valuable aftermarket business. Along with ensuring that we havemaintaining the local capability to sell, install and service our equipment in remote regions, it is equally imperative to continuously improve our global operations. Despite recent headwinds caused by the COVID-19 pandemic, we continue to enhance our global supply chain capabilitycapabilities to continue to increase our ability to meet global customer demands and improve the quality and timely delivery of our products over the long-term. Additionally, we continue to devote resources to improvingimprove the supply chain processes across our business segments toand find areas of synergy and cost reduction, and to improveall along improving our supply chain management capability to meet global customer demands. We also remain focused on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through the assistance of a focused Continuous Improvement Process ("CIP") initiative. The goal of the CIP initiative, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.
COVID-19 Update
Over the past several months, we have continued to see the evolving impact that the COVID-19 pandemic is having on human health, the global economy and society at large. The pandemic's ongoing adverse impact on our operations and financial performance is expected to continue to adversely impact for its duration, our operations and financial performance.In response, we have been monitoring and continue to actively monitor the impacts of the COVID-19 pandemic on all aspects of our business and geographies. Our cross-functional crisis management team established during the first quarter of 2020 has continued monitoring and making recommendations to management to help us continue operating as an essential business, while also protecting the health and safety of our associates. We expect that widespread implications of the pandemic worldwide will continue to cause substantial economic uncertainty and challenging operational conditions throughout 2021.
Despite our response,We continue to actively monitor the impacts of the COVID-19 pandemic has had an adverse effect on all aspects of our performance during the first half of 2020, which we expect will continue through the second half of 2020.business and geographies.
While we cannot reasonably estimate with certainty the duration and severity of the COVID-19 pandemic or its ultimate impact on the global economy, our business or our financial condition and results, we nonetheless remain committed to providing the critical support, products and services that our customers rely on, and currently believe that we will emerge from these events well positioned for long-term growth.
Health and Safety of Our Associates
Our first priority has been and continues to be to protect theThe health and safety of our associates, suppliers and customers around the world.world continues to be a priority as we navigate the COVID-19 pandemic, including recent spikes in cases of the virus and its variants in various geographies in which we operate. We are incredibly proud of the great teamwork exhibited by our global workforce who have demonstrated strong resilience in adapting to continually evolving health and safety guidelines while addressing these challenging times and providing products and services to our customers.
We haveAt the beginning of the pandemic we implemented policies and practices to help protect our workforce so they can safely and effectively carry out their vital work, and we have revisedcontinued to revise those policies and practices in light of guidance received from local and regional health authorities where appropriate. We instituted global restrictions on non-essential travel in March 2020 and the work-from-home policy for all non-essential employees who are able to do so has continued in effect in locations where health officials have advised such policies, including for our global headquarters in Irving, Texas. In those locations where employees are going to work in our facilities, including our global headquarters in Irving, Texas, which began a phased reopening during the second quarter of 2021, we have continuedcontinue taking steps, consistent with guidelines from local and global health experts to protect our employees so that we can continue tooperations and manufacture critical technologies and equipment, including providing face coverings and other personal protective equipment, enhanced cleaning of sites and implemented social distancing protocols.
Our employees and facilities have a key role in keeping essential infrastructure and industries operating, including oil and gas, water, chemical, power generation and other essential industries, such as food and beverage and healthcare. While some of
our facilities have experienced periods of temporary closures during the first half of 2020 in accordance with decrees, orders and laws in their respective countries and geographies, many of which occurred at the onset of the pandemic, as of July 30, 2020,August 5, 2021, all of our facilities are open and operational, and are running close to pre-COVID-19 levels as we continue to make essential products and provide services for our customers. However,While the measures described above, combined with continued employee costs and under-absorption of manufacturing costs as a result of temporary closures and work-from-home policies, have had and are expected to continue having an adverse impact on our financial performance throughout the remainder of the pandemic.pandemic, we have seen these adverse impacts begin to decline as the roll out of vaccines has improved around the world, and we expect a further decline of these adverse impacts and as we navigate further through the pandemic in 2021.
Customer Demand
During the first six months of 2020,2021, the ongoing effects of the COVID-19 pandemic’s reduction in global demand for oil and gas, coupled with excessive supply due to disagreements between the Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations, led to extreme volatilitypandemic in global markets and in oil prices. These conditions havehas continued to adversely impactedimpact our customers, particularly in the oil and gas markets. For example, these conditions droveAs a significant and broad-based decrease in customer planned capital spending, leadingresult of the pandemic’s effect (among certain other effects) on oil prices during 2020, many of our large customers reduced capital expenditures and budgets last year. To date, while we have announced double-digit capital expenditure budget decreases for the remainder of 2020.seen some modest improvement, customer spending has yet to return to pre-pandemic levels. As a result, while bookings in the first six months of 2021 continued to be lower than pre-pandemic levels, we saw an overall increase in bookings decline by 26.9%of 6.3% in the second quarterfirst six months of 20202021 as compared to the same period in 2019, resulting in a lower sequential backlog, though2020.
While we have not seen a significant increase in the levels of customer cancellations in our existing backlog.
Additionally, the rapidly evolving impactsexpect that many of the COVID-19 pandemic have caused reduced activity levels in our aftermarket business due to deferred spending of our customers' repair and maintenance budgets, includingprojects that were paused by our customers last year as a result of the impact of restricted accesspandemic will ultimately need to our customers' facilities.
These trends are likely to continue duringbe completed, the timing will largely depend on the duration of the COVID-19 pandemic asand how the virus continues to spread in our customers’ various actions implemented to combat the pandemic will continue to reduce demand for oil and gas. As a result,geographies. While we have experienced decreasedseen some recovery in capital expenditure budgets and, therefore, our bookings, sales and financial performance and anticipate this continuing throughoutduring the remainderfirst half of the pandemic. Additionally,2021, we do not expect the headwindsplanned capital spending to approach pre-pandemic levels in the oil and gas markets that have resulted in, and are likely to continue to result in, reduced capital expenditures and bookings for oil and gas customers to continue at least until oil demand and prices stabilize, which may not occur until after the pandemic subsides.
Supply Chain Impact
Since the onset of the pandemic, many of our suppliers have also experienced varying lengths of production and shipping conditionsdelays related to the COVID-19 pandemic, some of which continue to exist in highly affected countries such as India.countries. These conditions have had an adverse effect on the speed at which we can manufacture and ship our products to customers, and have also led to an increase in logistics, transportation and freight costs, requiring that we diversify our supply chain and, in some instances, source materials from new suppliers. Additionally, these conditions have in some cases impacted our ability to deliver products to customers on time, which has in turn led to an increase in backlog at some of our manufacturing sites. TheseThough some of these issues have abated as the pandemic has progressed, certain disruptions in our supply chain and their effects have continued throughout the of month of July and we expect they will continue as the COVID-19 pandemic continues.
Operational Impacts
We have also engagedcontinue to engage in a number of cost savings measures in order to help mitigate certain of the adverse effects of the COVID-19 pandemic on our financial results, including certain realignment activities (further described below under “—RESULTS OF OPERATIONS – Three and six months ended June 30, 20202021 and 2019”2020”), a freeze on all non-essential open employment requisitions, cancellation of merit-based payroll increases for 2020, reduction ofreductions in capital expenditures to approximately $60 million and continued cuts in other discretionary spending. Together, we are planning approximately $100 million of cost reductions, excluding realignment charges, in 2020 as compared to 2019,spending due in large part to our response to the effects of COVID-19.COVID-19, which partially offsets the continued costs and operational impacts of the safety protocols and procedures that we have implemented and sustained as described above under the heading "Health and Safety of Our Associates." We continue to evaluate additional cost savings measures and will continue to implement such measures in the near term in order to reduce the impact of the COVID-19 pandemic on our financial results.
We continually monitor and assess the spread of COVID-19 and known variants, including in areas that have seen recent increases in cases, and we will continue to adapt our operations to respond the changing conditions as needed. As we continue to manage our business through this unprecedented time of uncertainty and market volatility, we will remain focused on the health and safety of our associates, suppliers, customers, and will continue to provide essential products and services to our customers.
20202021 Outlook
As the headwinds experienced during the first half of 2020 continue to impact our business, we expect to see an approximately 20% decline in bookings in the second half of 2020 as compared to the same period in 2019, with slightly less of an impact on revenue, which we expect will decline approximately 15% as compared to the same period in 2019. Despite these effects, however, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment. As of June 30, 2020,2021, we had approximately $1.3$1.4 billion of liquidity, consisting of cash and cash equivalents of $561.7$630.4 million and $722.2$738.9 million of borrowings available under our Senior Credit Facility. We will continue to actively monitor the potential impacts of COVID-19 and related events onon the credit markets in order to maintain sufficient liquidity and access to capital throughout 2020.2021. As the world continues to make progress against COVID-19 largely through increased vaccinations, we have begun to see an inflection in our served end-markets as commodity prices and mobility levels increase. As such, we expect full-year bookings in 2021 to increase over 10% compared to 2020 levels.
RESULTS OF OPERATIONS — Three months ended June 30, 20202021 and 20192020
Throughout this discussion of our results of operations, we discuss the impact of fluctuations in foreign currency exchange rates. We have calculated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods.
During the first quarter of 2021, as previously disclosed, 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 $1.5 million, retained earnings by $14.0 million and accumulated other comprehensive loss by $15.5 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 weand to correct certain other previously identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program to right-size our organizational operations based onimmaterial errors.
We have assessed the current business environment, with the overall objective to reduce our workforce costs. We anticipate a total investment in these activities of approximately $65 millionabove described errors, individually and that the majority of charges will be incurred through the remainder of 2020. Based on actions initiated in the second quarter of 2020, we estimate that we have achieved cost savings of approximately $5 million as ofaggregate, and concluded they were not material to the period ended June 30, 2020 with approximately $2 million of those savingsor any previous period. The June 30, 2020, balances, as presented herein, have been revised. Additionally, the remaining periods in COS and approximately $3 million in SG&A. Upon completion2020 will be revised the next time such financial statements are filed as applicable. Refer to Note 2 for a detailed discussion related to the impact of the realignment activities, we expect full year run-rate cost savings of approximately $100 million. Actual savings could vary from expected savings, which represent management’s best estimate to date. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized. The realignment programs initiated in 2015 ("2015 Realignment Programs"), which consisted of both restructuring and non-restructuring charges, were substantially completerevision as of March 31,and for the three and six months ended June 30, 2020 resultingand the impact to future periods in $362.4 million of total charges incurred through the completion of the programs.2020 which will be revised in future filings.
In the second quarter of 2018, we launched and committed resources to our Flowserve 2.0 Transformation, a program designed to transform our business model to drive operational excellence, reduce complexity, accelerate growth, improve organizational health and better leverage our existing global platform, which is further discussed in Note 1617 to our condensed consolidated financial statements included in this Quarterly Report. We anticipate that the Flowserve 2.0 Transformation will result in further restructuring charges, non-restructuring charges and other related transformation expenses. The Flowserve 2.0 Transformation expenses incurred primarily consist of professional services, project management and related travel costs recorded in SG&A expenses. As of December 31, 2020, the Flowserve 2.0 Transformation efforts were substantially complete.
In the second quarter of 2020, we identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program to right-size our organizational operations based on the current business environment, with the overall objective to reduce our workforce costs. We anticipate a total investment in 2020 Realignment Program activities of approximately $95 million and the majority of the charges were incurred in 2020 with the remainder to be incurred through the remainder of 2021. Based on the actions initiated with the 2020 Realignment Program, we estimate that we have achieved cost savings of approximately $49 million for the six months ended June 30, 2021, with approximately $25 million of those savings in COS and approximately $24 million in SG&A. Upon completion of the 2020 Realignment Program activities, we expect full year run-rate cost savings of approximately $125 million. Actual savings could vary from expected savings, which represent management’s best estimate to date. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized.
Realignment Activity
The following tables present out realignment activity by segment related to our 2020 Realignment Program. For the three and six months ended June 30, 2021, the total charges incurred are related to our 2020 Realignment Program and there were no Flowserve 2.0 Transformation charges. For the three and six months ended June 30, 2020, the total charges incurred are related to our 2020 Realignment Program and Flowserve 2.0 Transformation:
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| Three Months Ended June 30, 2021 |
| | | | | | | | |
(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment Charges | | | | | | | | | |
COS | $ | 3,574 | | | $ | 251 | | | $ | 3,825 | | | $ | — | | | $ | 3,825 | |
SG&A | 1,005 | | | (129) | | | 876 | | | 915 | | | 1,791 | |
| | | | | | | | | |
Total | $ | 4,579 | | | $ | 122 | | | $ | 4,701 | | | $ | 915 | | | $ | 5,616 | |
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Realignment Activity
The total charges incurred in the second quarter of 2020 related to our 2020 Realignment Program activities and Flowserve 2.0 Transformation by segment and the charges incurred in 2019 related to our 2015 Realignment Programs and Flowserve 2.0 Transformation by segment:
| | | | | | | Three Months Ended June 30, 2020 | | | Three Months Ended June 30, 2020 |
| (Amounts in thousands) | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total | (Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | Total Realignment and Transformation Charges | | | | | | | | | | Total Realignment and Transformation Charges | | | | | | | | | |
COS | COS | $ | 23,653 | | | $ | 5,652 | | | $ | 29,305 | | | $ | 548 | | | $ | 29,853 | | COS | $ | 23,653 | | | $ | 2,750 | | | $ | 26,403 | | | $ | 548 | | | $ | 26,951 | |
SG&A | SG&A | 9,442 | | | 4,336 | | | 13,778 | | | 20,470 | | | 34,248 | | SG&A | 9,442 | | | $ | 4,336 | | | 13,778 | | | 20,470 | | | 34,248 | |
| Total | Total | $ | 33,095 | | | $ | 9,988 | | | $ | 43,083 | | | $ | 21,018 | | | $ | 64,101 | | Total | $ | 33,095 | | | $ | 7,086 | | | $ | 40,181 | | | $ | 21,018 | | | $ | 61,199 | |
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| Six Months Ended June 30, 2021 |
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(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 11,492 | | | $ | 1,148 | | | $ | 12,640 | | | $ | 590 | | | $ | 13,230 | |
SG&A | 1,162 | | | $ | 730 | | | 1,892 | | | 4,195 | | | 6,087 | |
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Total | $ | 12,654 | | | $ | 1,878 | | | $ | 14,532 | | | $ | 4,785 | | | $ | 19,317 | |
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| Six Months Ended June 30, 2020 |
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(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 8,970 | | | $ | 34,429 | | | $ | 548 | | | $ | 34,977 | |
SG&A | 10,031 | | | 4,381 | | | 14,412 | | | 26,758 | | | 41,170 | |
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Total | $ | 35,490 | | | $ | 13,351 | | | $ | 48,841 | | | $ | 27,306 | | | $ | 76,147 | |
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| Three Months Ended June 30, 2019 | | | | | | | | |
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(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 3,799 | | | $ | 65 | | | $ | 3,864 | | | $ | — | | | $ | 3,864 | |
SG&A | 1,599 | | | $ | 125 | | | 1,724 | | | 8,286 | | | 10,010 | |
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Total | $ | 5,398 | | | $ | 190 | | | $ | 5,588 | | | $ | 8,286 | | | $ | 13,874 | |
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| Six Months Ended June 30, 2020 | | | | | | | | |
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(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 25,459 | | | $ | 13,307 | | | $ | 38,766 | | | $ | 548 | | | $ | 39,314 | |
SG&A | 10,031 | | | $ | 4,381 | | | 14,412 | | | 26,758 | | | 41,170 | |
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Total | $ | 35,490 | | | $ | 17,688 | | | $ | 53,178 | | | $ | 27,306 | | | $ | 80,484 | |
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| Six Months Ended June 30, 2019 | | | | | | | | |
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(Amounts in thousands) | FPD | | FCD | | Subtotal–Reportable Segments | | Eliminations and All Other | | Consolidated Total |
Total Realignment and Transformation Charges | | | | | | | | | |
COS | $ | 8,817 | | | $ | 547 | | | $ | 9,364 | | | $ | — | | | $ | 9,364 | |
SG&A(1) | (16,699) | | | 447 | | | (16,252) | | | 17,245 | | | 993 | |
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Total | $ | (7,882) | | | $ | 994 | | | $ | (6,888) | | | $ | 17,245 | | | $ | 10,357 | |
(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.
Consolidated Results
Bookings, Sales and Backlog
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 |
Bookings | Bookings | $ | 808.3 | | | $ | 1,105.0 | | Bookings | $ | 952.8 | | | $ | 808.3 | |
Sales | Sales | 925.0 | | | 990.1 | | Sales | 898.2 | | | 925.0 | |
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| Six Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Bookings | $ | 1,783.6 | | | $ | 2,165.1 | |
Sales | 1,819.4 | | | 1,880.1 | |
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| Six Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Bookings | $ | 1,896.8 | | | $ | 1,783.6 | |
Sales | 1,755.5 | | | 1,818.5 | |
We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer with regard to manufacturing, service or support. Bookings recorded and subsequently canceled within the year-to-date period are excluded from year-to-date bookings. Bookings for the three months ended June 30, 2020 decreased2021 increased by $296.7$144.5 million, or 26.9%17.9%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $20$39 million. The decreaseincrease was primarily driven by lowerincreased customer bookings in the oil and gas, chemical, water and to a lesser extent in the general, chemical, power generation and water management industries. The decreaseincrease in customer bookings was primarily driven by customerboth original equipment bookings which have decreased in lightand aftermarket bookings.
Bookings for the six months ended June 30, 20202021 decreasedincreased by $381.5$113.2 million, or 17.6%6.3%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $40$65 million. The decreaseincrease was driven by lowerincreased customer bookings in the chemical, water, general and oil and gas chemical, power generationindustries and water management industries,were partially offset by increaseddecreased bookings in the general industries.power generation industry. The decreaseincrease in customer bookings was primarily driven by customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.to a lesser extent aftermarket bookings.
Sales for the three months ended June 30, 20202021 decreased by $65.1$26.8 million, or 6.6%2.9%, as compared with the same period in 2019.2020. The decrease included negative currency effectsbenefits of approximately $24$39 million. The decreased sales were driven by both original equipment, and aftermarket sales, with decreased sales into North America, Europethe Middle East and Asia Pacific,Africa, partially offset by increased sales into the Middle East.Asia Pacific, Europe and Latin America. Net sales to international customers, including export sales fromfrom the U.S., were approximately 66% and 64% of total sales for the three months ended June 30, 2021 and 2020, respectively.
Sales for the six months ended June 30, 2021 decreased by $63.0 million, or 3.5%, as compared with the same period in 2020. The decrease included currency benefits of approximately $66 million. The decreased sales were driven by original equipment, with decreased sales into North America, the Middle East and Africa, partially offset by increased sales into Asia Pacific, Europe and Latin America. Net sales to international customers, including export sales from the U.S., were approximately 67% and 63% of total sales for the three months ended June 30, 2021 and 2020, and 2019, respectively.
Sales for the six months ended June 30, 2020 decreased by $60.7 million, or 3.2%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $39 million. The decreased sales were driven by aftermarket sales, with decreased sales into Europe, North America, Asia Pacific and Africa, partially offset by increased sales into the Middle East and Latin America. Net sales to international customers, including export sales from the U.S., were approximately 63% and 63% of total sales for the three months ended June 30, 2020 and 2019, respectively.
Backlog represents the aggregate value of booked but uncompleted customer orders and is influenced primarily by bookings, sales, cancellations and currency effects. Backlog of $2,067.2$1,949.5 million at June 30, 2020 decreased2021 increased by $89.8$94.6 million, or 4.2%5.1%, as compared with December 31, 2019.2020. Currency effects provided a decrease of approximately $32$29 million. Approximately 35%37% and 33% of the backlog at June 30, 20202021 and December 31, 2019,2020, respectively, was related to aftermarket orders. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $548$470 million, as discussed in Note 23 to our condensed consolidated financial statements included in this Quarterly Report.
Gross Profit and Gross Profit Margin
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
Gross profit | Gross profit | $ | 267.2 | | | $ | 318.0 | | Gross profit | $ | 278.2 | | | $ | 269.7 | |
Gross profit margin | Gross profit margin | 28.9 | % | | 32.1 | % | Gross profit margin | 31.0 | % | | 29.2 | % |
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| Six Months Ended June 30, | | |
(Amounts in millions, except percentages) | 2020 | | 2019 |
Gross profit | $ | 533.1 | | | $ | 612.1 | |
Gross profit margin | 29.3 | % | | 32.6 | % |
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| Six Months Ended June 30, |
(Amounts in millions, except percentages) | 2021 | | 2020 |
Gross profit | $ | 529.1 | | | $ | 536.2 | |
Gross profit margin | 30.1 | % | | 29.5 | % |
Gross profit for the three months ended June 30, 2020 decreased2021 increased by $50.8$8.5 million, or 16.0%3.2%, as compared with the same period in 2019.2020. Gross profit margin for the three months ended June 30, 20202021 of 28.9% decreased31.0% increased from 32.1%29.2% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily due to increaseda $6.6 million charge of underutilized capacity manufacturing costs expensed related to the COVID-19 pandemic that did not recur, a mix shift to higher margin aftermarket sales and decreased realignment charges and increased savings associated with our realignment actions initiatedas compared to the same period in the second quarter of 2020, and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resultinpartially offset by g in $6.6 million of manufacturing costs being expensed and other related costs.revenue recognized on lower margin original equipment orders. Aftermarket sales represented approximately 52% of total sales, as compared with approximately 50% of total sales for both three months ended June 30,the same period in 2020 and 2019..
Gross profit for the six months ended June 30, 20202021 decreased by $79.0$7.1 million,, or 12.9%1.3%, as compared with the same period in 2019.2020. Gross profit margin for the six months ended June 30, 20202021 of 29.3% decreased30.1% increased from 32.6%29.5% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily due to a sales$15.0 million charge of underutilized capacity manufacturing costs expensed related to the COVID-19 pandemic in 2020 that did not recur, a mix shift to lowerhigher margin original equipmentaftermarket sales and decreased charges and increased savings related to our realignment actions as compared to the same period in 2019, the2020, partially offset by increased realignment charges associated with ourrevenue recognized on lower margin original equipment realignment actions initiated in the second quarter of 2020 and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $15.0 million of manufacturing costs being expensed and other related costs.orders. Aftermarket sales represented approximately50% 52% of totaltotal sales, as compared with approximately 52% 50% of total sales for the same period in 2019.2020.
Selling, General and Administrative Expense
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
SG&A | SG&A | $ | 227.4 | | | $ | 223.7 | | SG&A | $ | 210.8 | | | $ | 229.3 | |
SG&A as a percentage of sales | SG&A as a percentage of sales | 24.6 | % | | 22.6 | % | SG&A as a percentage of sales | 23.5 | % | | 24.8 | % |
| | | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
SG&A | SG&A | $ | 471.0 | | | $ | 428.8 | | SG&A | $ | 409.1 | | | $ | 474.8 | |
SG&A as a percentage of sales | SG&A as a percentage of sales | 25.9 | % | | 22.8 | % | SG&A as a percentage of sales | 23.3 | % | | 26.1 | % |
SG&A for the three months ended June 30, 2020 increased2021 decreased by $3.7$18.5 million, or 1.7%8.1%, as compared with the same period in 2019.2020. Currency effects yielded a decreasean increase of approximately $36 million. SG&A as a percentage of sales for the three months ended June 30, 2020 increased 2002021 decreased 130 basis points asprimarily due to decreased charges and increased savings related to our realignment actions, partially offset by increased broad-based annual incentive compensation compared with the same period in 2019 primarily due to increased realignment charges associated with our realignment actions initiated in the second quarter of 2020, partially offset by a decrease in travel and selling-related expenses compared to the same period in 2019.2020.
SG&A for the six months ended June 30, 2020 increased2021 decreased by $42.2$65.7 million, or 9.8%13.8%, as compared with the same period in 2019.2020. Currency effects yielded a decreasean increase of approximately $6$11 million. SGSG&A as a percentage of sales for the six months ended June 30, 20202021 decreased 280 basis points primarily due to decreased charges and increased 310 basis pointssavings related to our realignment actions, decreased travel-related expenses and lower bad debt expense, partially offset by increased broad-based annual incentive compensation as compared with the same period in 2019 primarily due to increased charges related to our realignment programs, an $8.5 million write-down of accounts receivables and contract assets related to a contract with an oil and gas customer in Latin America and the favorable impacts resulting from gains from the sales of non-strategic manufacturing facilities in the first quarter of 2019 that did not recur, partially offset by a decrease in travel and selling-related expenses compared to the same period in 2019.2020.
Net Earnings from Affiliates
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| Three Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Net earnings from affiliates | $ | 2.9 | | | $ | 3.1 | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 |
Net earnings from affiliates | Net earnings from affiliates | $ | 3.1 | | | $ | 3.7 | | Net earnings from affiliates | $ | 6.4 | | | $ | 6.3 | |
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| Six Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Net earnings from affiliates | $ | 6.3 | | | $ | 6.0 | |
Net earnings from affiliates for the three months ended June 30, 20202021 decreased $0.6$0.2 million, or 16.2%6.5%, as compared with the same period in 2019. The decrease was primarily a result of decreased earnings of our FPD joint venture in South Korea.2020.
Net earnings from affiliates for the six months ended June 30, 20202021 increased $0.3$0.1 million, or 5.0%1.6%, as compared with the same period in 2019. The increase2020. was primarily a result of increased earnings of our FPD joint venture in South Korea.
Operating Income and Operating Margin
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
Operating income | Operating income | $ | 42.9 | | | $ | 98.0 | | Operating income | $ | 72.2 | | | $ | 43.5 | |
Operating income as a percentage of sales | Operating income as a percentage of sales | 4.6 | % | | 9.9 | % | Operating income as a percentage of sales | 8.0 | % | | 4.7 | % |
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| Six Months Ended June 30, |
(Amounts in millions, except percentages) | 2021 | | 2020 |
Operating income | $ | 128.3 | | | $ | 67.7 | |
Operating income as a percentage of sales | 7.3 | % | | 3.7 | % |
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| Six Months Ended June 30, | | |
(Amounts in millions, except percentages) | 2020 | | 2019 |
Operating income | $ | 68.4 | | | $ | 189.2 | |
Operating income as a percentage of sales | 3.8 | % | | 10.1 | % |
Operating income for the three months ended June 30, 2020 decreased2021 increased by $55.1$28.7 million, or 56.2%66.0%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $5$6 million. The decreaseincrease was primarily a result of the $50.8$18.5 million decrease in gross profitSG&A and by the $3.7$8.5 million increase in SG&A.gross profit.
Operating income for the six months ended June 30, 2020 decreased2021 increased by $120.8$60.6 million, or 63.8%89.5%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $6 $7 million. The decreaseThe increase was primarily a result of the $42.2$65.7 million increasedecrease in SG&A, andpartially offset by the $79.07 million decrease in gross profit.
Interest Expense and Interest Income
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| Three Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Interest expense | $ | (12.9) | | | $ | (14.0) | |
Interest income | 1.1 | | | 2.2 | |
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| Three Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Interest expense | $ | (14.3) | | | $ | (12.9) | |
Interest income | 0.5 | | | 1.1 | |
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| Six Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Interest expense | $ | (31.1) | | | $ | (25.9) | |
Interest income | 1.1 | | | 2.9 | |
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| Six Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Interest expense | $ | (25.9) | | | $ | (28.0) | |
Interest income | 2.9 | | | 4.2 | |
Interest expense for the three months ended June 30, 2020 decreased $1.12021 increased $1.4 million, as compared with the same period in 2019.2020. Interest income for the three months ended June 30, 20202021 decreased $1.10.7 million, as compared with the same period in 2019.2020. The decreaseincrease in interest expense was primarily attributable to lower borrowings comparedinterest expense associated with same periodthe senior notes issued in 2019.the third quarter of 2020. The decrease in interest income was partially due to lower interest rates on our average cash balances compared with same period in 2019.2020.
Interest expense for the six months ended June 30, 2020 decreased $2.12021 increased $5.2 million, as compared with the same period in 2019. 2020. Interest income for the six months ended June 30, 20202021 decreased $1.3$1.8 million,, as compared with the same period in 2019.2020. The decreaseincrease in interest expense was primarily attributable to lower borrowings comparedinterest expense associated with same periodthe senior notes issued in 2019.the third quarter of 2020. The decrease in interest income was partially due to lower interest rates on our average cash balances compared with same period in 2019.2020.
Loss on Extinguishment of Debt
| | | | | | | | | | | |
| Six Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Loss on extinguishment of debt | $ | (7.6) | | | $ | — | |
Loss on extinguishment of debt for the six months ended June 30, 2021 of $7.6 million, resulted from the redemption of our 2022 Euro Senior Notes. For a further discussion on the redemption of our 2022 Euro Senior Notes refer to Note 7 to our condensed consolidated financial statements included in this Quarterly Report.
Other Income (Expense), Net
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 |
Other income (expense), net | Other income (expense), net | $ | (14.9) | | | $ | (3.3) | | Other income (expense), net | $ | (7.9) | | | $ | (18.9) | |
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| Six Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Other income (expense), net | $ | (19.2) | | | $ | 19.3 | |
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| Six Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Other income (expense), net | $ | 8.5 | | | $ | (6.5) | |
Other income (expense), net for the three months ended June 30, 2020 increased $11.62021 decreased $11.0 million as compared with the same period in 2019,2020, due primarily to an $8.9$14.6 million increasedecreases in losses from transactions in currencies other than our sites' functional currencies, andpartially offset by a $2.1$0.8 million increase inin losses arising from transactions on foreign exchange contracts. The net change was primarily due to the foreign currencycurrency exchange rate movements in the Mexican peso, Euro, Brazilian real, Canadian dollar and Singapore dollar in relation to the U.S. dollar during the three months ended June 30, 2020,2021, as compared with the same period in 2019.2020.
Other income (expense), net for the six months ended June 30, 2020 increased $152021 decreased $38.5 million from an expense of $6.5 millionas compared with the same period in 2019,2020, due primarily to a $14.7an $37.9 million increase in gainslosses from transactions in currencies other than our sites' functional currencies, andpartially offset by a $2.6$1.9 million increase inin gains arising from transactions on foreign exchange contracts. The net change was primarily due to the foreign currency exchange rate movements in thethe Canadian dollar, Mexican peso, Euro and Brazilian real Canadian dollar and Euro in relation to the U.S. dollar during the threesix months ended June 30, 2020, 2021, as comparas compareded with the same period in 2019.2020.
Tax Expense and Tax Rate
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| Three Months Ended June 30, | | |
(Amounts in millions, except percentages) | 2020 | | 2019 |
Provision for income taxes | $ | 5.4 | | | $ | 22.4 | |
Effective tax rate | 33.4 | % | | 27.0 | % |
| | | Six Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
Provision for income taxes | Provision for income taxes | $ | 41.7 | | | $ | 39.0 | | Provision for income taxes | $ | 2.7 | | | $ | 4.5 | |
Effective tax rate | Effective tax rate | 77.3 | % | | 24.5 | % | Effective tax rate | 5.4 | % | | 35.2 | % |
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| Six Months Ended June 30, |
(Amounts in millions, except percentages) | 2021 | | 2020 |
Provision for income taxes | $ | 6.5 | | | $ | 41.5 | |
Effective tax rate | 9.1 | % | | 64.8 | % |
The effective tax rate of 33.4%5.4% for the three months ended June 30, 2020 increased2021 decreased from 27.0%35.2% for the same period in 2019.2020. The effective tax rate varied from the U.S. federal statutory rate for the three months ended June 30, 20202021 primarily due to the net impact of foreign operations.operations and favorable resolution of audits in foreign jurisdictions. Refer to Note 1314 to our condensed consolidated financial statements included in this Quarterly Report for further discussion.
The effective tax rate of 77.3%9.1% for the six months ended June 30, 2020 increased2021 decreased from 24.5%64.8% for the same period in 2019.2020. The effective tax rate varied from the U.S. federal statutory rate for the six months ended June 30, 20202021 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.operations, favorable resolution of audits in foreign jurisdictions, the reversal of certain deferred tax liabilities as a result of restructuring specific aspects of our global financing arrangements, higher withholding taxes related to transactions with and amongst various foreign subsidiaries and favorable resolution of audits in foreign jurisdictions.Refer to Note 1314 to our condensed consolidated financial statements included in this Quarterly Report for further discussion.
Other Comprehensive Income (Loss)
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 |
Other comprehensive income (loss) | Other comprehensive income (loss) | $ | 16.9 | | | $ | (0.6) | | Other comprehensive income (loss) | $ | 16.1 | | | $ | 20.9 | |
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| | | |
| Six Months Ended June 30, | | |
(Amounts in millions) | 2020 | | 2019 |
Other comprehensive income (loss) | $ | (58.1) | | | $ | 7.6 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
(Amounts in millions) | 2021 | | 2020 |
Other comprehensive income (loss) | $ | 9.6 | | | $ | (68.8) | |
Other comprehensive income (loss) for the three months ended June 30, 20202021 increased $17.5 million from a loss of $0.6 million in 2019. The increased loss was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, Colombian peso, Mexican peso, and Canadian dollar versus the U.S. dollar during the three months ended June 30, 2020, as compared with the same period in 2019.
Other comprehensive income (loss) for the six months ended June 30, 2020 increased $65.7decreased $4.8 million from income of $7.6$20.9 million in the same period in 2019. 2020. The increased lossdecreased income was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Mexicanthe Euro, Colombian peso, British pound, Indian rupee and Colombian peso versusBritish pound versus the U.S. dollar during the sixthree months ended June 30, 2020,2021, as compared with the same period in 2019.2020.
Other comprehensive income for the six months ended June 30, 2021 increased $78.4 million from a loss of $68.8 million in 2020. The increased income was primarily due to foreign currency translation adjustments resulting primarily from
exchange rate movements of the Euro, Brazilian real, Mexican peso and Indian rupee versus the U.S. dollar during the three months ended June 30, 2021, as compared with the same period in 2020.
Business Segments
We conduct our operations through two business segments based on the type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. The key operating results for our two business segments, FPD and FCD, are discussed below.
Flowserve Pump Division Segment Results
Our largest business segment is FPD, through which we design, manufacture, distribute and service highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, and auxiliary systems and replacement parts (collectively referred to as "original"original equipment") and related services. FPD primarily operates in the oil and gas, power generation, chemical and general industries. FPD operates in 4948 countries with 39 manufacturing facilities worldwide, 13 of which are located in Europe, 12 in North America, eight in Asia and six in Latin America, and it operates 141136 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
Bookings | Bookings | $ | 536.5 | | | $ | 761.9 | | Bookings | $ | 668.8 | | | $ | 536.5 | |
Sales | Sales | 674.1 | | | $ | 674.6 | | Sales | 617.5 | | | 674.1 | |
Gross profit | Gross profit | 198.0 | | | $ | 222.7 | | Gross profit | 196.4 | | | 197.9 | |
Gross profit margin | Gross profit margin | 29.4 | % | | 33.0 | % | Gross profit margin | 31.8 | % | | 29.4 | % |
SG&A | SG&A | 140.6 | | | 150.2 | | SG&A | 133.6 | | | 140.6 | |
| Gain on sale of business | | Gain on sale of business | 1.8 | | | — | |
Segment operating income | Segment operating income | 60.4 | | | 76.2 | | Segment operating income | 67.8 | | | 60.4 | |
Segment operating income as a percentage of sales | Segment operating income as a percentage of sales | 9.0 | % | | 11.3 | % | Segment operating income as a percentage of sales | 11.0 | % | | 9.0 | % |
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(Amounts in millions, except percentages) | (Amounts in millions, except percentages) | 2020 | | 2019 | (Amounts in millions, except percentages) | 2021 | | 2020 |
Bookings | Bookings | $ | 1,220.1 | | | $ | 1,512.0 | | Bookings | $ | 1,322.2 | | | $ | 1,220.1 | |
Sales | Sales | 1,309.7 | | | 1,284.0 | | Sales | 1,220.1 | | | 1,309.7 | |
Gross profit | Gross profit | 393.7 | | | 423.3 | | Gross profit | 379.2 | | | 393.7 | |
Gross profit margin | Gross profit margin | 30.1 | % | | 33.0 | % | Gross profit margin | 31.1 | % | | 30.1 | % |
SG&A | SG&A | 299.9 | | | 272.6 | | SG&A | 266.2 | | | 299.9 | |
| Gain on sale of business | | Gain on sale of business | 1.8 | | | — | |
Segment operating income | Segment operating income | 100.1 | | | 156.6 | | Segment operating income | 121.6 | | | 100.1 | |
Segment operating income as a percentage of sales | Segment operating income as a percentage of sales | 7.6 | % | | 12.2 | % | Segment operating income as a percentage of sales | 10.0 | % | | 7.6 | % |
Bookings for the three months ended June 30, 2020 decreased2021 increased by $225.4$132.3 million, or 29.6%24.7%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $14$29 million. The decreaseincrease in customer bookings was driven by decreaseincreased orders in the oil and gas, chemical, and power generationwater industries and were partially offset by increaseddecreased bookings in the general industries.industry. The decrease in customerCustomer bookings increased $46.6 million into North America, $39.3 million into the Middle East, $22.3 million into Europe, $16.8 million into Latin America and $13.9 million into Africa and were partially offset by decreased bookings of $3.6 million into Asia Pacific. The increase was across all regions and was primarily more heavily weighted towarddriven by customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.s aftermarket bookings.
Bookings for the six months ended June 30, 2020 decreased2021 increased by $291.9$102.1 million, or 19.3%8.4%, as compared with the same periodperiod in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $29$46 million. The decreaseincrease in customer bookings was driven by decreasedincreased orders in the chemical, oil and gas chemical and power generationwater industries and were partially offset by increaseddecreased bookings in the general industries. The decrease inpower generation industry. customerCustomer bookings increased $42.6 million into North America, $30.1 million into Latin America, $29.3 million into the Middle East and $22.3 million into Europe and were partially offset by decreased bookings of $51.1 million into Asia Pacific. The increase was across all regions and was primarily more heavily weighted towarddriven by customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.s aftermarket bookings.
Sales for the three months ended June 30, 2020 remained relatively flat compared with the same period in 2019 and included negative currency effects of approximately $20 million. Increases in customer original equipment sales were substantially offset2021 decreased by decreases in customer aftermarket sales. Customer sales increased $12.9 million into the Middle East, $4.3 million into Asia Pacific and $1.3 million into Latin America, were substantially offset by decreased sales of $14.3 million into Europe and $3.2 million into Africa.
Sales for the six months ended June 30, 2020 increased $25.7$56.6 million, or 2.0%,8.4% as compared with the same period in 2019. The increase in sales2020 and included negative currency effectsbenefits of approximately $31$27 million. The increasedecrease was driven by customer original equipment sales. Decreased customer sales of $26.1 million into North America, $17.2 million into the Middle East, $10.0 million into Africa and $9.0 million into Asia Pacific were partially offset by increased sales of $5.3 million into Latin America.
Sales for the six months ended June 30, 2021 decreased by $89.6 million, or 6.8% as compared with the same period in sales2020 and included currency benefits of approximately $45 million. The decrease was driven by customer original equipment sales. Customersales. Decreased customer sales increased $41.1of $69.8 million into North America, $34.3 million into the Middle East $21.3and $7.5 million into North America, $6.0Africa were partially offset by increased sales of $13.6 million into Europe, $5.2 million into Latin America and $3.2$3.3 million into Asia Pacific, partially offset by decreased sales of $33.3 million into Europe and $8.3 million into Africa.Pacific.
Gross profit for the three months ended June 30, 20202021 decreased by $24.7$1.5 million, or 11.1%0.8%, as compared with the same period in 2019.2020. Gross profit margin for the three months ended June 30, 20202021 of 29.4% decreased31.8% increased from 33.0%29.4% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily dueattributable to a sales mix shift to lower margin original equipment sales decreased charges and increased savings under our realignment actions as compared to the same period in 2019, the increased charges related to our realignment actions initiated in the second quarter of 2020, and the unfavorable impacta $3.3 million charge of underutilized capacity frommanufacturing costs expensed related to the COVID-19 pandemic resulting in 2020 that did not recur and $3.3 million of manufacturing costs being expensed and other related costs, partially offset by a sales mix shift to higher margin aftermarket sales as compared to the same period in 2019.sales.
Gross profit for the six months ended June 30, 20202021 decreased by $29.6$14.5 million, or 7.0%3.7%, as compared with the same period in 2019.2020. Gross profit margin for the six months ended June 30, 20202021 of 30.1% decreased31.1% increased from 33.0%30.1% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily dueattributable to a sales mix shift to lower margin original equipment salesdecreased charges and increased savings under our realignment actions as compared to the same period in 2019, the increased charges related to our realignment actions initiated in the second quarter of 2020, and the unfavorable impacta $9.2 million charge of underutilized capacity frommanufacturing costs expensed related to the COVID-19 pandemic resulting in $9.2 million of manufacturing costs being expensed2020 that did not recur and other related costs.a mix shift to higher margin aftermarket sales.
SG&A for the three months ended June 30, 20202021 decreased by $9.6$7.0 million, or 6.4%5.0%, as compared with the same period in 2019.2020. Currency effects provided a decreasean increase of approximately $2$5 million. The decrease in SG&A was primarily due to decreased charges and increased savings under our realignment actions as compared to the same period in 2020.
SG&A for the six months ended June 30, 2021 decreased by $33.7 million, or 11.2%, as compared with the same period in 2020. Currency effects provided an increase of approximately $8 million. The decrease in SG&A was primarily due to a decrease in travel, administrative and selling-related expenses, partially offset by inlower bad debt expense and dcreasedecreased charges related toand increased savings under our realignment actions initiated in the second quarter of 2020.
SG&A for the six months ended June 30, 2020 increased by $27.3 million, or 10.0%, as compared with the same period in 2019. Currency effects provided a decrease of approximately $5 million. The increase in SG&A was primarily due to increased charges related to our realignment programs, an $8.5 million write-down of accounts receivables and contract assets related to a
contract with an oil and gas customer in Latin America, the favorable impacts resulting from gains from the sales of non-strategic manufacturing facilities in the first quarter of 2019 that did not recur and increased charges related to our realignment actions initiated in the second quarter of 2020, partially offset by a decrease in travel and selling-related expenses compared to the same period in 2019.2020.
Operating income for the three months ended June 30, 2020 decreased2021 increased by $15.8$7.4 million, or 20.7%12.3%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $4$5 million. The decreaseincrease was primarily due to the $24.7$7.0 million decrease in SG&A partially offset by the $1.5 million decrease in gross profit, partially offset by the $9.6 million decrease in SG&A .profit.
Operating income for the six months ended June 30, 2020 decreased2021 increased by $56.5$21.5 million, or 36.1%21.5%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $5$6 million. The decreaseincrease was primarily due to the $29.6$33.7 million decrease in SG&A partially offset by the$14.5 milliondecrease in gross profit and the $27.3 million increase in SG&A.profit.
Backlog of $1,418.2$1,294.1 million at June 30, 2020 decrease2021 increased by $142.7$57.2 million, or 9.1%4.6%, as compared with December 31, 2019.2020. Currency effects provided a decrease of approximately $31$22 million.
Flow Control Division Segment Results
FCD designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products boiler controls and related services.equipment. FCD leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio. FCD has a total of 4946 manufacturing facilities and QRCs in 22 countries around the world, with five of its 2119 manufacturing operations located in the U.S., 10eight located in Europe, five located in Asia Pacific and one located in Latin America. Based on independent industry sources, we believe that FCD is the second largest industrial valve supplier on a global basis.
| | | | | | | | | | | |
| Three Months Ended June 30, | | |
(Amounts in millions, except percentages) | 2020 | | 2019 |
Bookings | $ | 274.6 | | | $ | 346.4 | |
Sales | 252.2 | | | 316.9 | |
Gross profit | 73.6 | | | 99.4 | |
Gross profit margin | 29.2 | % | | 31.4 | % |
SG&A | 50.0 | | | 53.3 | |
| | | |
Segment operating income | 23.6 | | | 46.2 | |
Segment operating income as a percentage of sales | 9.4 | % | | 14.6 | % |
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
(Amounts in millions, except percentages) | 2020 | | 2019 |
Bookings | $ | 570.8 | | | $ | 659.6 | |
Sales | 512.6 | | | 599.1 | |
Gross profit | 147.9 | | | 197.2 | |
Gross profit margin | 28.9 | % | | 32.9 | % |
SG&A | 107.6 | | | 106.6 | |
| | | |
Segment operating income | 40.3 | | | 90.6 | |
Segment operating income as a percentage of sales | 7.9 | % | | 15.1 | % |
| | | | | | | | | | | |
| Three Months Ended June 30, |
(Amounts in millions, except percentages) | 2021 | | 2020 |
Bookings | $ | 289.1 | | | $ | 274.6 | |
Sales | 281.2 | | | 252.3 | |
Gross profit | 84.8 | | | 76.2 | |
Gross profit margin | 30.2 | % | | 30.2 | % |
SG&A | 48.0 | | | 50.0 | |
| | | |
Segment operating income | 37.2 | | | 26.2 | |
Segment operating income as a percentage of sales | 13.2 | % | | 10.4 | % |
| | | | | | | | | | | |
| Six Months Ended June 30, |
(Amounts in millions, except percentages) | 2021 | | 2020 |
Bookings | $ | 582.6 | | | $ | 570.8 | |
Sales | 537.0 | | | 511.7 | |
Gross profit | 159.4 | | | 151.0 | |
Gross profit margin | 29.7 | % | | 29.5 | % |
SG&A | 97.8 | | | 107.6 | |
| | | |
Segment operating income | 61.9 | | | 43.4 | |
Segment operating income as a percentage of sales | 11.5 | % | | 8.5 | % |
Bookings for the three months ended June 30, 2020 decreased2021 increased by $71.8$14.5 million, or 20.7%5.3%, as compared with the same period in 2019.2020. Bookings included negative currency effectsbenefits of approximately $6 million. Decreased $10 million. The increase in customer bookings was primarily driven by increased orders in the general, power generation and chemical industries, partially offset by decreased bookings in the chemical and oil and gas industry. Increase customers bookings of $36.2 million into North America and general industries$12.3 million into Europe were partially offset by increased bookings in the power generation industry. Decreased customerdecreased bookings of $37.6$26.8 million into North America, $32.9 million into Europe, $8.6Asia Pacific, $5.2 million into the Middle East, and $2.3 million into Africa were partially offset by increased bookings of $16.0 million into Asia Pacific and $3.3$2.4 million into Latin America. America and $1.4 million into Africa. The decrease increasewas primarily driven by both customer original equipment and aftermarket bookings.
Bookings for the six months ended June 30, 2020 decreased2021 increased by $88.8$11.8 million, or 13.5%2.1%, as compared with the same period in 2019.2020. Bookings included negative currency effectsbenefits of approximately $11$19 million. Decreased The increase in customer bookings was primarily driven by increased orders in the chemical, power generation and general industries, partially offset by decreased orders in the the oil and gas industry. Increase customers bookings of $26.2 million into North America and general industries$1.9 million into Asia Pacific were partially offset by increased bookings in the power generation industry.
Decreased customerdecreased bookings of $72.7 million into North America, $21.7 million into Europe, $4.6 million into Africa and $1.1$12.9 million into the Middle East were partially offset by increased bookings of $5.5 million into Asia Pacific and $3.1$3.2 million into Latin America. The decrease increasewas primarily driven by customer original equipment bookings.
Sales for the three months ended June 30, 2020 decreased $64.72021 increased $28.9 million, or 20.4%11.5%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $4$12 million. DecreasedIncreased sales were more heavily weighted towards driven by both original equipment and aftermarket sales. The decreaseincrease was primarily driven by decreased increased customer sales of $28.4 million into North America, $19.0$24.5 million into Asia Pacific, $13.9$6.7 million into Europe, $3.2$3.9 million into the Middle East and $2.0 million into Latin America, and $1.7partially offset by decreased sales of $8.6 million into Africa.North America.
Sales for the six months ended June 30, 2020 decreased $86.52021 increased $25.3 million, or 14.4%4.9%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of approximately $8$21 million. DecreasedIncreased sales were primarily driven by both original equipment and aftermarket sales. The decreaseincrease was primarily driven by decreasedincreased customer sales of $40.5 million into North America, $25.6 million into Europe, $20.6$48.0 million into Asia Pacific, $10.1 million into Europe, $6.4 million into the Middle East and $3.5$3.3 million into Latin America, partially offset by increased decreased sales of $1.3 million into Africa and $1.241.1 million into the Middle East.North America.
Gross profit for the three months ended June 30, 2020 decreased2021 increased by $25.8$8.6 million, or 26.0%11.3%, as compared with the same period in 2019.2020. Gross profit margin for the three months ended June 30, 20202021 of 29.2% decreased from 31.4%30.2% remained consistent with the 30.2% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily dueattributable to increased chargesa $3.4 million charge of underutilized capacity manufacturing costs expensed related to the COVID-19 pandemic that did not recur and decreased charges and increased savings under our realignment actions, initiatedcompletely offset by revenue recognized on lower margin original equipment orders as compared to the same period in the second quarter of 2020 and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $3.4 million of manufacturing costs being expensed and other related costs.2020.
Gross profit for the six months ended June 30, 2021 increased by $8.4 million, or 5.6%, as compared with the same period in 2020. Gross profit margin for the six months ended June 30, 2020 decreased 2021 of $49.3 million, or 25.0%, as compared with the same period in 2019. Gross profit margin for the six months ended June 30, 2020 of 28.9% decreased29.7% increased from 32.9%29.5% for the same period in 2019.2020. The decreaseincrease in gross profit margin was primarily dueattributable to a $5.8 million charge of underutilized capacity
manufacturing costs expensed related to the COVID-19 pandemic that did not recur and decreased charges and increased savings under our realignment actions, initiated in the second quarter of 2020, a mix shift to more original equipment sales and substantially offset by revenue recognized on lower margin original equipment orders as compared to the same period in 2019 and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $5.8 million of manufacturing costs being expensed and other related costs.2020.
SG&A for the three months ended June 30, 20202021 decreased by $3.3$2.0 million, or 6.2%4.0%, as compared with the same period in 2019.2020. Currency effects provided a decreasean increase of approximately $12 million. The decrease in SG&A was primarily due to a decrease in traveldecreased charges and selling-related expenses, partially offset by increased chargessavings related to our realignment actions, initiatedpartially offset by increased selling-related expenses as compared to the same period in the second quarter of 2020.
SG&A for the six months ended June 30, 2020 2021 decreasedincrease by d by $1.0$10 million, or 0.9%9.1%, as comparedcompared with the same period in 2019.2020. Currency effects provided aan increase of approximately $3 million. The decrease of approximately $1 million. The increase in SG&A was primarily due to increaseddecreased charges relatedand increased savings related to our realignment actions, initiated in the second quarter of 2020, substantiallypartially offset by a decrease in travel andincreased selling-related expenses as compared to the same period in 2019.2020.
Operating income for the three months ended June 30, 2020 decreased2021 increased by $22.6$11.0 million, or 48.9%42.0%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effectsbenefits of less thanapproximately $1 million. The decreaseincrease was primarily due to the $25.8$8.6 million decreaseincrease in gross profit partially offset byand the $3.3$2.0 million decrease in SG&A.
Operating income for the six months ended June 30, 2020 decreased2021 increased by $50.319 million, or 55.5%42.6%, as compared with the same period in 2019.2020. The decreaseincrease included negative currency effects benefits of less than $1approximately $2 million. The decreaseincrease was primarily due to the $49.3$8.4 million decreaseincrease in gross profit.profit and the $9.8 million decrease in SG&A.
Backlog of $652.5$660.4 million at June 30, 20202021 increased by $52.4$37.3 million, or 8.7%6.0%, as compared with December 31, 2019.2020. Currency effects provided a decrease of approximately $1$6 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Liquidity Analysis
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(Amounts in millions) | (Amounts in millions) | 2020 | | 2019 | (Amounts in millions) | 2021 | | 2020 |
Net cash flows provided (used) by operating activities | Net cash flows provided (used) by operating activities | $ | 21.2 | | | $ | 49.4 | | Net cash flows provided (used) by operating activities | $ | 61.3 | | | $ | 20.2 | |
Net cash flows provided (used) by investing activities | Net cash flows provided (used) by investing activities | (21.2) | | | 15.0 | | Net cash flows provided (used) by investing activities | (23.8) | | | (18.3) | |
Net cash flows provided (used) by financing activities | Net cash flows provided (used) by financing activities | (91.9) | | | (86.8) | | Net cash flows provided (used) by financing activities | (491.1) | | | (93.7) | |
Existing cash, cash generated by operations and borrowings available under our Senior Credit Facility are our primary sources of short-term liquidity. We monitor the depository institutions that hold our cash and cash equivalents on a regular
basis, and we believe that we have placed our deposits with creditworthy financial institutions. Our sources of operating cash generally include the sale of our products and services and the conversion of our working capital, particularly accounts receivable and inventories. Our cash balance at June 30, 20202021 was $561.7 $630.4 million, as compared with $671.0$1,095.3 million at December 31, 2019.2020.
Our cash balance decreased by $109.3$464.9 million to $561.7$630.4 million at June 30, 2020,2021, as compared with December 31, 2019.2020. The cash activity during the first six months of 20202021 included $10.8the $407.5 million redemptionof proceeds from the sale of non-strategic manufacturing facilitiesour 2022 Euro Senior Notes, $52.2 million in 2019 that were includeddividend payments, $22.5 million in our 2015 Realignment Programs, $32.1capital expenditures and $17.5 million of share repurchases, $52.1 million in dividend payments and $32.0 million in capital expenditures.partially offset by cash provided by operating activities.
For the six months ended June 30, 2020,2021, our cash provided by operating activities was $21.2$61.3 million, as compared to $49.420.2 million for the same period in 2019.2020. Cash flow provided from working capital increased for the six months ended June 30, 2020,2021, due primarily to improveddecreased cash flow related to accounts receivable,flows used or increased cash flows provided by contract assets, contract liabilities and inventories, partially offset by increased cash flows used or decreased cash flows provided by accounts payable and inventory, partially offset by reduced cash flows from contract assets.accounts receivable compared to the same period in 2020.
Decreases in accounts receivable provided $0.9$14.3 million of cash flow for the six months ended June 30, 2020,2021, as compared to a use of $13.4$0.9 million for the same period in 2019.2020. As of June 30, 2020,2021, our days’ sales outstanding ("DSO") was 7473 days as compared with 7374 days as of June 30, 2019.2020.
IncreasesDecreases in contract assets used $44.2provided $12.2 million of cash flow for the six months ended June 30, 2020,2021, as compared towith cash flows providedused of $12.4$44.3 million for the same period in 2019.2020.
Increases in inventory used $36.630.8 million and $47.6$36.6 million of cash flow for the six months ended June 30, 20202021 and June 30, 2019,2020, respectively. Inventory turns were 3.83.6 times at June 30, 2020,2021, as compared to 3.93.8 as of June 30, 2019.2020.
Decreases in accounts payable used $9.1$41.1 million of cash flow for the six months ended June 30, 2020,2021, as compared with $20.7$9.2 million for the same period in 2019. 2020. DecreasesIncreases in accrued liabilities and income taxes payable provided $5.8used $37.1 million of cash flow for the six months ended June 30, 2020,2021, as compared with cash flows used of $56.9$1.1 million for the same period in 2019.2020.
Increases in contract liabilities provided $3.517.0 million and $6.7 million of cash flow for the six months ended June 30, 2020 and June 30, 2019, respectively.2021, as compared to $4.4 million for the same period in 2020.
Cash flows used by investing activities during the six months ended June 30, 20202021 were $21.223.8 million, as compared to cash flows provided of $15.0$18.3 million for the same period in 2019.2020. Capital expenditures during the six months ended June 30, 20202021 were $32.022.5 million, an increasea decrease of $6.7$6.5 million as compared with the same period in 2019.2020. Our capital expenditures are generally focused on strategic initiatives to pursue information technology infrastructure, ongoing scheduled replacements and upgrades and cost reduction opportunities. In 2020, total2021, we currently estimate capital expenditures are expected to be approximately $60 million.between $70 million and $80 million, before consideration of any acquisition activity. In addition, proceeds received during the six months ended June 30, 20202021 from disposal of assets provided $10.8$2.1 million, primarily from the 20192020 sale of non-strategic manufacturing facilities that were included in our Realignment Programs. Proceeds received during the first six months of 20192020 included $40.310.8 million of proceeds from the disposal of assets, primarily due to the 2019 sale of non-strategic manufacturing facilities that arewere included in our 2015 Realignment Programs.
Cash flows used by financing activities during the six months ended June 30, 20202021 were $91.9491.1 million, as compared with $86.8to $93.7 million for the same period in 2019.2020. Cash outflows during the six months ended June 30, 20202021 resulted primarily from a $407.5 million payment on long-term debt resulting from the redemption of our 2022 Euro Senior Notes, $52.2 million of dividend payments and the repurchase of $32.1$17.5 million of common shares and $52.1 million of dividend payments.shares.
As of June 30, 2020,2021, we had an available capacity of $722.2 $738.9 million on our Senior Credit Facility, which provides for a $800.0 million unsecured revolving credit facility with a maturity date of July 16, 2024. Our borrowing capacity is subject to financial covenant limitations based on the terms of our Senior Credit Facility and is also reduced by outstanding letters of credit. Our Senior Credit Facility is committed and held by a diversified group of financial institutions. Refer to Note 67 to our condensed consolidated financial statements included in this Quarterly Report for additional information concerning our Senior Credit Facility.
During the six months ended June 30, 20202021 we made no cash contributions to our U.S. pension plan. At December 31, 20192020 our U.S. pension plan was fully funded as defined by applicable law. After consideration of our funded status, we are currently evaluating whether we will make any incrementalanticipate making $20 million in contributions to theour U.S. pension plan in 2020.2021, excluding direct benefits paid. We continue to maintain an asset allocation consistent with our strategy to maximize total return, while reducing portfolio risks through asset class diversification.
Considering our current debt structure and cash needs, we currently believe cash flows generated from operating activities combined with availability under our Senior Credit Facility and our existing cash balance will be sufficient to meet our cash needs for the next 12 months. Cash flows from operations could be adversely affected by economic, political and other risks associated with sales of our products, operational factors, competition, fluctuations in foreign exchange rates and fluctuations in
interest rates, among other factors. See "COVID-19 Liquidity Update" and "Cautionary Note Regarding Forward-Looking Statements" below.
As of June 30, 2020,2021, we have $113.6$101.2 million of remaining capacity for Board of Directors approved share repurchases. While we currently intend to continue to return cash through dividends and/or share repurchases for the foreseeable future, any future returns of cash through dividends and/or share repurchases will be reviewed individually, declared by our Board of Directors at its discretion and implemented by management.
Financing
Credit Facilities
See Note 12 to our consolidated financial statements included in our 2019 Annual Report and Note 67 to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our Senior Credit Facility and related covenants. We were in compliance with all applicable covenants under our Senior Credit Facility as of June 30, 2020.2021.
COVID-19 Liquidity Update
Given our current financial condition, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment.
As of June 30, 2020,2021, we had approximately $1.3$1.4 billion of liquidity, consisting of cash and cash equivalents of $561.7$630.4 million and $722.2$738.9 million of borrowings available under our Senior Credit Facility. In light of the liquidity currently available to us, and the costs savings measures planned and already in place, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment. We willwill continue to actively monitor the potential impacts of COVID-19 and related events on the credit markets in order to maintain sufficient liquidity and access to capital throughout 2020.2021.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 20192020 Annual Report. TheseThe critical policies, for which no significant changes have occurred in the six months ended June 30, 2020,2021, include:
•Revenue Recognition;
•Deferred Taxes, Tax Valuation Allowances and Tax Reserves;
•Reserves for Contingent Loss;
•Retirement and Postretirement Benefits; and
•Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived Assets.
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates. The significant estimates are reviewed quarterly with the Audit Committee of our Board of Directors.
Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below.
ACCOUNTING DEVELOPMENTS
We have presented the information about pronouncements not yet implemented in Note 1 to our condensed consolidated financial statements included in this Quarterly Report.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, statements concerning our future financial performance, future debt and financing levels, investment objectives, implications of litigation and regulatory investigations and other management plans for future operations and performance.
The forward-looking statements included in this Quarterly Report are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ
materially from what is forecast in such forward-looking statements and are currently, or in the future could be, amplified by the COVID-19 pandemic. Specific factors that might cause such a difference include, without limitation, the following:
•uncertainties related to the impact of the COVID-19 pandemic on our business and operations, financial results and financial position, our customers and suppliers, and on the global economy, including its impact on our sales;
•a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins;
•changes in the global financial markets and the availability of capital and the potential for unexpected cancellations or delays of customer orders in our reported backlog;
•our dependence on our customers' ability to make required capital investment and maintenance expenditures. The liquidity and financial position of our customers could impact capital investment decisions and their ability to pay in full and/or on a timely basis;
•if we are not able to successfully execute and realize the expected financial benefits from our strategic transformation, realignment and other cost-saving initiatives, our business could be adversely affected;
•risks associated with cost overruns on fixed fee projects and in accepting customer orders for large complex custom engineered products;
•the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries;
•the adverse impact of volatile raw materials prices on our products and operating margins;
•economic, political and other risks associated with our international operations, including military actions, trade embargoes or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/reexport control, foreign corrupt practice laws, economic sanctions and import laws and regulations;
•increased aging and slower collection of receivables, particularly in Latin America and other emerging markets;
•our exposure to fluctuations in foreign currency exchange rates, particularly the Euro and British pound and in hyperinflationary countries such as Venezuela and Argentina;
•our furnishing of products and services to nuclear power plant facilities and other critical applications;
•potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-
containingasbestos-containing material claims;
•expectations regarding acquisitions and the integration of acquired businesses;
•our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits;
•the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets;
•our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations;
•the highly competitive nature of the markets in which we operate;
•environmental compliance costs and liabilities;
•potential work stoppages and other labor matters;
•access to public and private sources of debt financing;
•our inability to protect our intellectual property in the U.S., as well as in foreign countries;
•obligations under our defined benefit pension plans;
•our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud;
•the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results;
•risks and potential liabilities associated with cyber security threats; and
•ineffective internal controls could impact the accuracy and timely reporting of our business and financial results.
These and other risks and uncertainties are more fully discussed in the risk factors identified in "Item 1A. Risk Factors" in Part I of our 20192020 Annual Report Part II of the Quarterly Report for the period ended March 31, 2020, and Part II of this Quarterly Report, and may be identified in our Quarterly Reports on Form 10-Q and our other filings with the SEC and/or press releases from time to time. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
We have market risk exposure arising from changes in foreign currency exchange rate movements in foreign exchange contracts. We are exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but we currently expect our counterparties will continue to meet their obligations given their current creditworthiness.
LIBOR
On March 5, 2021, the UK Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”) issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration. That announcement confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after December 31, 2021 for all non-USD LIBOR reference rates, and for 1-Week and 2-Month USD LIBOR and after June 30, 2023 for other USD LIBOR reference rates. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, has proposed the replacement of U.S. dollar LIBOR rates with a new index calculated by short-term repurchase agreements backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). Whether or not SOFR is generally accepted as the LIBOR replacement remains in question and the future of LIBOR at this time is uncertain. The Company’s current Senior Credit Facility agreement includes a provision for the determination of a successor LIBOR rate when appropriate by reference to the then-prevailing market convention for determining an interest rate for syndicated loans in the United States, subject to a right of the lenders thereunder to reject the application of the determined rate by written notice. While we will work with our administrative agent to incorporate a successor reference rate, there can be no assurances as to what alternative reference rates may be and whether such rates will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR.
Foreign Currency Exchange Rate Risk
A substantial portion of our operations are conducted by our subsidiaries outside of the U.S. in currencies other than the U.S. dollar. Almost all of our non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into
U.S. dollars and from transactions, including firm commitments and anticipated transactions, denominated in a currency other than our or a non-U.S. subsidiary’s functional currency. We previously designated €255.7 millionAs a means of managing the volatility of foreign currency exposure with the Euro/U.S. dollar exchange rate, we entered into three swap agreements associated with our €500.0 million 2022 Euro Senior Notes as a net investment hedge of our investments in certain of our international subsidiaries that usesubsidiaries. The swap agreements are designated as a net investment hedges and as of June 30, 2021, the Euro as their functional currency. Generally,notional value of the swaps agreements was €423.20 million. Routinely, we viewreview our investments in foreign subsidiaries from a long-term perspective and use capital structuring techniques to manage our investment in foreign subsidiaries as deemed necessary. For further discussion related to these swap agreements refer to Note 6 to our condensed consolidated financial statements included in this Quarterly Report. We realizedrecognized net gains (losses) associated with foreign currency translationtranslation of $15.1$14.0 million and $(2.8)$19.0 million for the three months ended June 30, 20202021 and 2019,2020, respectively, and $(66.3)$3.1 million and $4.1and $(77.0) million for the six months ended June 30, 20202021 and 2019,2020, respectively, which are included in other comprehensive income (loss).
We employ a foreign currency risk management strategy to minimize potential changes in cash flows from unfavorable foreign currency exchange rate movements. Where available, the use of foreign exchange contracts allows us to mitigate transactional exposure to exchange rate fluctuations as the gains or losses incurred on the foreign exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. As of June 30, 2020,2021, we had a U.S. dollar equivalent of $385.1$385.7 million in aggregateaggregate notional amount outstanding in foreign exchange contracts with third parties, as compared with $398.5$388.1 million at December 31, 2019.2020. Transactional currency gains and losses arising from transactions outside of our sites’ functional currencies and changes in fair value of non-designatednon-designated foreign exchange contracts are included in our consolidated results of operations. We recognized foreign currency net (losses) gains of $(14.1)$(4.2) million and $(3.1)$(18.0) million for the three months ended June 30, 20202021 and 2019,2020, respectively, and $11.6$(13.7) million and $(5.8)$22.4 million for the six months ended June 30, 20202021 and 2019,2020, respectively, which are included in other income (expense), net in the accompanying condensed consolidated statements of income.
Based on a sensitivity analysis at June 30, 2020,2021, a 10% change in the foreignforeign currency exchange rates for the six months ended June 30, 20202021 would have impacted our net earnings by approximatelapproximately $11 million. Ty $10 million. Thishis calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. This calculation does not take into account the impact of the foreign currency exchange contracts discussed above.
Item 4.Controls and Procedures.
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are controls and other procedures that are designed to ensure that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report, our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2020.2021. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2020.2021.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.Legal Proceedings.
We are party to the legal proceedings that are described in Note 1011 to our condensed consolidated financial statements included in "Item 1. Financial Statements" of this Quarterly Report, and such disclosure is incorporated by reference into this "Item 1. Legal Proceedings." In addition to the foregoing, we and our subsidiaries are named defendants in certain other ordinary routine lawsuits incidental to our business and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving us and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect the amount of any liability that could arise with respect to these matters, either individually or in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A.Risk Factors.
There are numerous factors that affect our business, financial condition, results of operations, cash flows, reputation and/or prospects, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to "Item 1A. Risk Factors" in Part I and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our 20192020 Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently projected in the forward-looking statements contained therein.
There have been no material changes in risk factors discussed in our 20192020 Annual Report and subsequent SEC filings. The risks described in this Quarterly Report the Quarterly Report filed for the period ended March 31,June 30, 2021, our 2020 our 2019 Annual Report and in our other SEC filings or press releases from time to time are not the only risks we face. Additional risks and uncertainties are currently deemed immaterial based on management's assessment of currently available information, which remains subject to change; however, new risks that are currently unknown to us may surface in the future that materially adversely affect our business, financial condition, results of operations or cash flows.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Note 1213 to our condensed consolidated financial statements included in this Quarterly Report includes a discussion of our share repurchase program and payment of quarterly dividends on our common stock.
During the quarter ended June 30, 2020,2021, we had no repurchasesrepurchased 311,000 for $12.5 million (representing an average cost of our common stock shares.$40.03 per share). As of June 30, 2020,2021, we have $113.6$101.2 million of reremamainingining capacity under our current share repurchase program. The following table sets forth the activity for each of the three months during the quarter ended June 30, 2020:2021:
| | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Number of Shares (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Program (in millions) | | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | | Maximum Number of Shares (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Program (in millions) | |
Period | Period | | | | | | | | Period | | | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | | Maximum Number of Shares (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Program (in millions) | |
April 1 - 30 | April 1 - 30 | 8,161 | | (1) | $ | 23.16 | | | — | | | $ | 113.6 | | | April 1 - 30 | 244,530 | | (2) | $ | 39.78 | | | 244,000 | | | $ | 103.9 | | |
May 1 - 31 | 5,559 | | (2) | 22.99 | | | — | | | 113.6 | | | |
May 1 -31 | | May 1 -31 | 71,835 | | (3) | 41.05 | | | 67,000 | | | 101.2 | | |
June 1 - 30 | June 1 - 30 | 2,607 | | (1) | 27.97 | | | — | | | 113.6 | | | June 1 - 30 | 1,353 | | (4) | 42.66 | | | — | | | 101.2 | | |
Total | Total | 16,327 | | | $ | 23.87 | | | — | | | | | Total | 317,718 | | | $ | 40.08 | | | 311,000 | | | | |
(1)Represents shares that were tendered by employeesOn November 13, 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 satisfy minimum tax withholding amounts for Restricted Shares.limit or terminate the repurchase program at any time without notice.
(2)Includes 2,790Includes 530 shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares at an average price per share of $22.93$40.02.
(3)Includes 3,290 shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares at an average price per share of $42.93 and 2,7691,545 shares purchased at a price of $23.05$41.32 per share by a rabbi trust that we established in connection with our director deferral plans, pursuant to which non-employee directors may elect to defer directors’ quarterly cash compensation to be paid at a later date in the form of common stock.
(4)Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares.
Item 3.Defaults Upon Senior Securities.
None
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
None
Item 6.Exhibits
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Exhibit No. | | Description |
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| | Restated Certificate of Incorporation of Flowserve Corporation, as amended and restated effective May 26, 202020, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K datedfiled on May 26, 2020).25, 2021. |
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| | Flowserve Corporation By-Laws, as amended and restated effective May 22, 202020, 2021 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K datedfiled on May 26, 2020)25, 2021). |
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| | Form of Restrictive Covenants Agreement for Officer.* |
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| | Form of Restricted Stock Unit Agreement for certain officers pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan.* |
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| | Form of Performance Restricted Stock Unit Agreement for certain officers pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan (TSR).* |
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| | Form of Performance Restricted Stock Unit Agreement for certain officer pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan (ROIC).* |
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| | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| | Senior Indenture, dated September 11, 2012, by and between Flowserve Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No. 001-13179) dated September 11, 2012). |
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| | First Supplemental Indenture, dated September 11, 2012, by and among Flowserve Corporation, certain of its subsidiaries and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K (File No. 001-13179) dated September 11, 2012). |
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| | Second Supplemental Indenture, dated November 1, 2013, by and among Flowserve Corporation, certain of its subsidiaries and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K (File No. 001-13179) dated November 1, 2013). |
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| | Third Supplemental Indenture, dated March 17, 2015, by and among Flowserve Corporation, certain of its subsidiaries and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K (File No. 001-13179) dated March 17, 2015). |
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| | Fourth Supplemental Indenture, dated September 21, 2020, between Flowserve Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated September 22, 2020). |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2020,2021, formatted in Inline XBRL (included as Exhibit 101) |
_______________________
* Management contracts and compensatory plans and arrangements required to be filed as exhibits to this Quarterly + Report on Form 10-Q.
+ Filed herewith.
++ Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: | July 30, 2020August 5, 2021 | /s/ Amy B. Schwetz | |
| | Amy B. Schwetz | |
| | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | |
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Date: | July 30, 2020August 5, 2021 | /s/ Scott V.K. Vopni | |
| | Scott V.K. Vopni | |
| | Vice President and Chief Accounting Officer (Principal Accounting Officer) | |