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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 September 30, 2023
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)
capture.gif
New York 31-0267900
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5215 N. O’Connor Blvd., Suite 700,Irving, Texas75039
(Address of principal executive offices) 
 
 (Zip Code)

(972)443-6500
(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 ValueFLSNew 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 of October 19, 2023 there were 131,208,631 shares of the issuer’s common stock outstanding.




FLOWSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 Page
 No.
 



  
 
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 September 30,
 20232022
Sales$1,094,718 $872,881 
Cost of sales(777,024)(633,304)
Gross profit317,694 239,577 
Selling, general and administrative expense(252,065)(221,142)
Net earnings from affiliates 4,627 5,782 
Operating income70,256 24,217 
Interest expense(17,273)(11,582)
Interest income2,134 1,141 
Other income (expense), net(13,710)28,676 
Earnings before income taxes41,407 42,452 
Benefit from (provision for) income taxes
11,186 (1,817)
Net earnings, including noncontrolling interests52,593 40,635 
Less: Net earnings attributable to noncontrolling interests(6,437)(2,235)
Net earnings attributable to Flowserve Corporation $46,156 $38,400 
Net earnings per share attributable to Flowserve Corporation common shareholders:  
Basic$0.35 $0.29 
Diluted0.35 0.29 
Weighted average shares – basic131,183 130,703 
Weighted average shares – diluted132,026 131,402 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands)Three Months Ended September 30,
 20232022
Net earnings, including noncontrolling interests$52,593 $40,635 
Other comprehensive income (loss):  
Foreign currency translation adjustments, net of taxes of $904 and $(3,183), respectively
(43,012)(89,282)
Pension and other postretirement effects, net of taxes of $(20) and $(213), respectively
2,205 6,161 
Cash flow hedging activity, net of taxes of $(7) and $0, respectively
30 29 
Other comprehensive income (loss)(40,777)(83,092)
Comprehensive income (loss), including noncontrolling interests11,816 (42,457)
Comprehensive (income) loss attributable to noncontrolling interests(1,626)(2,144)
Comprehensive income (loss) attributable to Flowserve Corporation$10,190 $(44,601)

See accompanying notes to condensed consolidated financial statements.
1

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)Nine Months Ended September 30,
 20232022
Sales$3,155,399 $2,576,161 
Cost of sales(2,218,114)(1,877,108)
Gross profit937,285 699,053 
Selling, general and administrative expense(726,424)(621,956)
Net earnings from affiliates 13,229 14,821 
Operating income224,090 91,918 
Interest expense(50,039)(33,337)
Interest income5,535 2,938 
Other income (expense), net(27,271)28,152 
Earnings before income taxes152,315 89,671 
Benefit from (provision for) income taxes(14,571)(16,618)
Net earnings, including noncontrolling interests137,744 73,053 
Less: Net earnings attributable to noncontrolling interests(13,618)(5,694)
Net earnings attributable to Flowserve Corporation$124,126 $67,359 
Net earnings per share attributable to Flowserve Corporation common shareholders:  
Basic$0.95 $0.52 
Diluted0.94 0.51 
Weighted average shares - basic131,095 130,604 
Weighted average shares - diluted131,864 131,233 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

(Amounts in thousands)Nine Months Ended September 30,
20232022
Net earnings, including noncontrolling interests$137,744 $73,053 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $1,458 and $(23,788), respectively
(20,605)(170,187)
Pension and other postretirement effects, net of taxes of $(62) and $(925), respectively
923 16,318 
Cash flow hedging activity, net of taxes of $(21) and $0, respectively
90 87 
Other comprehensive income (loss) (19,592)(153,782)
Comprehensive income (loss), including noncontrolling interests118,152 (80,729)
Comprehensive (income) loss attributable to noncontrolling interests(5,891)(6,941)
Comprehensive income (loss) attributable to Flowserve Corporation$112,261 $(87,670)

See accompanying notes to condensed consolidated financial statements.
2

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value)September 30,December 31,
20232022
ASSETS
Current assets:  
Cash and cash equivalents$480,458 $434,971 
Accounts receivable, net of allowance for expected credit losses of $83,513 and $83,062, respectively
868,855 868,632 
Contract assets, net of allowance for expected credit losses of $4,867 and $5,819, respectively
245,133 233,457 
Inventories, net916,107 803,198 
Prepaid expenses and other127,972 110,714 
Total current assets2,638,525 2,450,972 
Property, plant and equipment, net of accumulated depreciation of $1,133,913 and $1,172,957, respectively
492,323 500,945 
Operating lease right-of-use assets, net156,784 174,980 
Goodwill1,164,388 1,168,124 
Deferred taxes171,387 149,290 
Other intangible assets, net122,549 134,503 
Other assets, net of allowance for expected credit losses of $66,879 and $66,377, respectively
219,257 211,820 
Total assets$4,965,213 $4,790,634 
LIABILITIES AND EQUITY
Current liabilities:  
Accounts payable$481,337 $476,747 
Accrued liabilities461,841 427,578 
Contract liabilities270,725 256,963 
Debt due within one year61,213 49,335 
Operating lease liabilities31,699 32,528 
Total current liabilities1,306,815 1,243,151 
Long-term debt due after one year1,266,423 1,224,151 
Operating lease liabilities138,907 155,196 
Retirement obligations and other liabilities339,777 309,529 
Contingencies (See Note 10)
Shareholders’ equity:  
Common shares, $1.25 par value
220,991 220,991 
Shares authorized – 305,000
  
Shares issued – 176,793 and 176,793, respectively
  
Capital in excess of par value501,378 507,484 
Retained earnings3,818,392 3,774,209 
Treasury shares, at cost – 45,893 and 46,359 shares, respectively
(2,014,879)(2,036,882)
Deferred compensation obligation7,878 6,979 
Accumulated other comprehensive loss(659,653)(647,788)
Total Flowserve Corporation shareholders’ equity1,874,107 1,824,993 
Noncontrolling interests39,184 33,614 
Total equity1,913,291 1,858,607 
Total liabilities and equity$4,965,213 $4,790,634 
See accompanying notes to condensed consolidated financial statements.
3

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 Total Flowserve Corporation Shareholders’ Equity  
Capital
in Excess of Par Value		Retained EarningsDeferred Compensation ObligationAccumulated
Other Comprehensive Income (Loss)		Total Equity
 Common StockTreasury StockNon-
controlling Interests
 SharesAmountSharesAmount
 (Amounts in thousands)
Balance — July 1, 2023176,793 $220,991 $495,281 $3,798,984 (45,894)$(2,014,932)$7,815 $(623,687)$37,558 $1,922,010 
Stock activity under stock plans— — (153)— 1 53 63 — — (37)
Stock-based compensation— 6,250 — — — — — — 6,250 
Net earnings— — — 46,156 — — — — 6,437 52,593 
Cash dividends declared ($0.20 per share)
— — — (26,748)— — — — — (26,748)
Other comprehensive income (loss), net of tax— — — — — — — (35,966)(4,811)(40,777)
Balance — September 30, 2023176,793 $220,991 $501,378 $3,818,392 (45,893)$(2,014,879)$7,878 $(659,653)$39,184 $1,913,291 
Balance — July 1, 2022176,793 $220,991 $500,013 $3,666,935 (46,377)$(2,037,839)$6,921 $(635,618)$32,490 $1,753,893 
Stock activity under stock plans— — (129)— 1 81 29 — — (19)
Stock-based compensation— 6,860 — — — — — — 6,860 
Net earnings— — — 38,400 — — — — 2,235 40,635 
Cash dividends declared ($0.20 per share)
— — — (26,518)— — — — — (26,518)
Other comprehensive income (loss), net of tax— — — — — — — (83,001)(91)(83,092)
Balance — September 30, 2022176,793 $220,991 $506,744 $3,678,817 (46,376)$(2,037,758)$6,950 $(718,619)$34,634 $1,691,759 
See accompanying notes to condensed consolidated financial statements.

4

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
 Total Flowserve Corporation Shareholders’ Equity  
Capital
in Excess of Par Value		Retained EarningsDeferred Compensation ObligationAccumulated
Other Comprehensive Income (Loss)		Total Equity
 Common StockTreasury StockNon-
controlling Interests
 SharesAmountSharesAmount
 (Amounts in thousands)
Balance — January 1, 2023176,793 $220,991 $507,484 $3,774,209 (46,359)$(2,036,882)$6,979 $(647,788)$33,614 $1,858,607 
Stock activity under stock plans— — (28,233)— 466 22,003 899 — — (5,331)
Stock-based compensation— — 22,127 — — — — — — 22,127 
Net earnings— — — 124,126 — — — — 13,618 137,744 
Cash dividends declared ( $0.60 per share)
— — — (79,943)— — — — — (79,943)
Other comprehensive income (loss), net of tax— — — — — — — (11,865)(7,727)(19,592)
Other, net— — — — — — — — (321)(321)
Balance — September 30, 2023176,793 $220,991 $501,378 $3,818,392 (45,893)$(2,014,879)$7,878 $(659,653)$39,184 $1,913,291 
Balance — January 1, 2022176,793 $220,991 $506,386 $3,691,023 (46,794)$(2,057,706)$7,214 $(563,589)$33,026 $1,837,345 
Stock activity under stock plans— — (23,399)— 418 19,948 (264)— — (3,715)
Stock-based compensation— — 23,757 — — — — — — 23,757 
Net earnings— — — 67,359 — — — — 5,694 73,053 
Cash dividends declared ($0.60 per share)
— — — (79,565)— — — — — (79,565)
Other comprehensive income (loss), net of tax— — — — — — — (155,030)1,248 (153,782)
Other, net— — — — — — — — (5,334)(5,334)
Balance — September 30, 2022176,793 $220,991 $506,744 $3,678,817 (46,376)$(2,037,758)$6,950 $(718,619)$34,634 $1,691,759 
See accompanying notes to condensed consolidated financial statements.

5

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)Nine Months Ended September 30,
 20232022
Cash flows – Operating activities:  
Net earnings, including noncontrolling interests$137,744 $73,053 
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:  
Depreciation55,292 59,207 
Amortization of intangible and other assets7,782 10,051 
Stock-based compensation22,127 23,757 
Foreign currency, asset write downs and other non-cash adjustments (11,827)(24,085)
Change in assets and liabilities:  
Accounts receivable, net1,524 (78,376)
Inventories, net(114,596)(151,938)
Contract assets, net(10,239)(21,912)
Prepaid expenses and other, net(6,727)(14,881)
Accounts payable1,910 29,307 
Contract liabilities15,879 27,237 
Accrued liabilities and income taxes payable21,429 (32,735)
Retirement obligations and other liabilities38,838 24,123 
       Net deferred taxes (27,996)(32,293)
Net cash flows provided (used) by operating activities131,140 (109,485)
Cash flows – Investing activities:  
Capital expenditures(47,544)(45,831)
Other(833)184 
Net cash flows provided (used) by investing activities(48,377)(45,647)
Cash flows – Financing activities:  
Payments on term loan(30,000)(24,239)
Proceeds under revolving credit facility 230,000 — 
Payments under revolving credit facility(145,000)— 
Proceeds under other financing arrangements242 1,135 
Payments under other financing arrangements(2,098)(356)
Payments related to tax withholding for stock-based compensation(6,203)(4,578)
Payments of dividends(78,712)(78,406)
Other(320)(5,334)
Net cash flows provided (used) by financing activities(32,091)(111,778)
Effect of exchange rate changes on cash(5,185)(39,672)
Net change in cash and cash equivalents45,487 (306,582)
Cash and cash equivalents at beginning of period434,971 658,452 
Cash and cash equivalents at end of period$480,458 $351,870 
See accompanying notes to condensed consolidated financial statements.
6

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 September 30, 2023 and December 31, 2022, and the related condensed consolidated statements of income, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of shareholders' equity for the three and nine months ended September 30, 2023 and 2022 and condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 of Flowserve Corporation are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for the fair statement of such condensed consolidated financial statements have been made. 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 September 30, 2023 ("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, 2022 ("2022 Annual Report").
Coronavirus ("COVID-19") - We continue to assess and proactively respond to the remaining impacts of COVID-19 on all aspects of our business and geographies, including with respect to our associates, customers and communities, supply chain impacts and labor availability issues, and to take appropriate actions in an effort to mitigate adverse effects of the pandemic. During the first nine months of 2023, COVID-related supply chain, logistics and labor availability impacts decreased when compared to 2022. The Company's condensed consolidated financial statements presented reflect management's estimates and assumptions regarding the effects of COVID-19 as of the date of the condensed consolidated financial statements.
Russia and Ukraine Conflict - In response to the ongoing military conflict in Ukraine, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia. As a result of this conflict, including the aforementioned sanctions and overall instability in the region, in February 2022 we stopped accepting new orders in Russia and temporarily suspended fulfillment of existing orders. In March 2022, we made the decision to permanently cease all Company operations in Russia. We have substantially completed the necessary actions to cease operations of our Russian subsidiary, including taking steps to cancel existing contracts with customers and terminate our approximately 50 Russia-based employees and terminate other related contractual commitments. As a result of the conflict and the resulting macroeconomic impacts, we have also experienced supply chain issues and inflationary pressures.
In the first quarter of 2022, we recorded a $20.2 million pre-tax charge ($21.0 million after-tax) to reserve the asset positions of our Russian subsidiary (excluding cash) as of March 31, 2022, to record contra-revenue for previously recognized revenue and estimated cancellation fees on open contracts that were previously accounted for under POC and subsequently canceled, to establish a reserve for the estimated cost to exit the operations of our Russian subsidiary and to record a reserve for our estimated financial exposure on contracts that have been or are anticipated to be canceled.
In addition, we reevaluated our financial exposure as of December 31, 2022 and recorded an incremental $13.6 million pre-tax charge ($9.8 million after-tax) in the fourth quarter of 2022 for additional contract cancellation fees, to reserve our residual financial exposure due to increased Russia sanctions imposed during the latter part of 2022 and our decision to cancel backlog as a result of the additional sanctions.
We continue to monitor the situation involving Russia and Ukraine and its impact on the rest of our global business. This includes the macroeconomic impact, including with respect to global supply chain issues and inflationary pressures. We reevaluated our financial exposure as of September 30, 2023 and concluded that the reserve recorded as of December 31, 2022 is sufficient and no changes to material reserves were needed. To date, impacts have not been material to our business and we do not currently expect that any incremental impact in future quarters, including any financial impacts caused by our cancellation of customer contracts and ceasing of operations in Russia, will be material to the Company.
The following table presents the above impacts of the Russia pre-tax charge in the first nine months of 2022:
7

Nine Months Ended September 30, 2022
(Amounts in thousands)Flowserve Pump DivisionFlow Control DivisionConsolidated Total
Sales$(5,429)$(2)$(5,431)
Cost of sales ("COS")3,510 1,112 4,622 
Gross loss(8,939)(1,114)(10,053)
Selling, general and administrative expense ("SG&A")9,111 1,082 10,193 
Operating loss$(18,050)$(2,196)$(20,246)
8

Acquisition — On February 9, 2023 the Company entered into a definitive agreement to acquire all of the outstanding equity of Velan Inc., a manufacturer of highly engineered industrial valves, in an all cash transaction valued at approximately $245 million. In October 2023, the Company received notice that the required French foreign investment screening approval would not be obtained. As a result, the agreement and transaction were terminated. According to the terms of the agreement, no termination fee will be payable by either party. Cumulative acquisition related expenses in 2023 associated with the transaction were $8.5 million.
Prior Period Noncontrolling Interest Accounting Correction — The Company identified immaterial prior period errors in the allocation of certain taxes for several of our less than wholly-owned consolidated joint ventures in a foreign jurisdiction. In the third quarter of 2023, the Company recorded an adjustment of $3.6 million in net earnings attributable to noncontrolling interests to correct the cumulative impact of the errors, resulting in a reduction of reported net income in the current period.
Prior Period Lease Accounting Correction - In conjunction with our close process for the third quarter of 2022, the Company identified an accounting error related to certain operating real estate leases that have escalating rent payments which were not correctly recorded on a straight-line basis in the amount of $6.4 million. Approximately $5.8 million of the error impacted the Company’s condensed consolidated statements of income prior to adoption of ASU No. 2016-02, Leases (Topic 842) in 2019 and the remaining immaterial amount impacted each period subsequent to adoption. To correct the cumulative impact of the error the Company recorded an adjustment of $6.4 million of incremental operating lease expense in the third quarter of 2022 ($5.5 million classified as SG&A and $0.9 million classified as COS), with the offsetting adjustment to reduce operating lease right-of-use assets, net on our condensed consolidated balance sheet for the period ended September 30, 2022. There was no impact to our condensed statements of cash flows as a result of the correction of the error.
Accounting Developments
Pronouncements Implemented
In October 2021, the FASB issued ASU No. 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The amendments in this ASU improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The adoption of this ASU did not have a material impact on our condensed consolidated balance sheets, condensed consolidated statements of income or condensed consolidated statements of cash flows.
In September 2022, the FASB issued ASU No. 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations." The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period and associated roll-forward information. Only the amount outstanding at the end of the period must be disclosed in interim periods following the year of adoption. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective prospectively for fiscal years beginning after December 15, 2023.
We adopted ASU No. 2022-04 effective January 1, 2023. Flowserve partners with two banks to offer our suppliers the option of participating in a supplier financing program and receive payment early. Under the program agreement, Flowserve must reimburse each bank for approved and valid invoices in accordance with the originally agreed upon terms with the supplier. Flowserve has no obligation for fees; subscription, service, commissions or otherwise with either bank. Flowserve also has no obligation for pledged assets or other forms of guarantee and may terminate either program agreement with appropriate notice. As of September 30, 2023, $9.1 million remained outstanding with the supply chain financing partner banks and recorded within accounts payable on our condensed consolidated balance sheet.
Pronouncements Not Yet Implemented
In March 2023, the FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements." The amendments permits leasehold improvements to be amortized over the useful life of the asset when the lessee controls the use of the underlying asset and the lease is between common control entities. The amendments further allow entities to account for leasehold improvements as a transfer of assets between entities under common control through an equity adjustment when the lessee is no longer in control of the underlying asset. The amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We do not expect the impact of this ASU to be material.
In March 2023, the FASB issued ASU No. 2023-02, "Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The amendments allow companies to account for all of their tax equity investments using the proportional amortization method if certain conditions are met.
9

Companies can elect to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program rather than unilaterally or on an individual investment basis. The amendments are effective on either a modified retrospective or retrospective basis for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, depending on whether the company elects to evaluate its investments for which it still expects to receive income tax credits or other income tax benefits as of the beginning of the period of adoption or at the beginning of the earliest period presented. We do not expect the impact of this ASU to be material.
In August 2023, the FASB issued ASU No. 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement." The amendments requires that newly formed joint ventures measure the net assets and liabilities contributed at fair value. Subsequent measurement is in accordance with the requirements for acquirers of a business in Sections 805-10-35, 805-20-35, and 805-30-35, and other generally accepted accounting principles. The amendments are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, but companies may elect to apply the amendments retrospectively to joint ventures formed prior to January 1, 2025, if it has sufficient information. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We do not expect the impact of this ASU to be material.

2.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. Service-related revenues do not typically represent a significant portion of contracts with our customers and do not meet the thresholds requiring separate disclosure.
Revenue from products and services transferred to customers over time accounted for approximately 16% and 12% of total revenue for the three month period ended September 30, 2023 and 2022, respectively, and 15% and 12% for the nine month period ended September 30, 2023 and 2022, respectively. Our primary method for recognizing revenue over time is the POC method. 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 84% and 88% of total revenue for the three month period ended September 30, 2023 and 2022, respectively, and 85% and 88% for the nine month period ended September 30, 2023 and 2022, respectively. Refer to Note 2 to our consolidated financial statements included in our 2022 Annual Report for a more comprehensive discussion of our policies and accounting practices of revenue recognition.
Disaggregated Revenue
We conduct our operations through two business segments based on the type of product and how we manage the business:
•Flowserve Pump Division ("FPD") designs 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") designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products and related equipment and services.
Our revenue sources are derived from our original equipment manufacturing and our aftermarket sales and services. Our original equipment revenues are generally related to originally designed, manufactured, distributed and installed equipment that can range from pre-configured, short-cycle products to more customized, highly-engineered equipment ("Original Equipment"). Our aftermarket sales and services are derived from sales of replacement equipment, as well as maintenance, advanced diagnostic, repair and retrofitting services ("Aftermarket"). Each of our two business segments generate Original Equipment and Aftermarket revenues.
The following tables present our customer revenues disaggregated by revenue source:
10

Three Months Ended September 30, 2023
(Amounts in thousands)FPDFCDTotal
Original Equipment$284,323 $244,862 $529,185 
Aftermarket480,990 84,543 565,533 
$765,313 $329,405 $1,094,718 
Three Months Ended September 30, 2022
FPDFCDTotal
Original Equipment$196,539 $215,550 $412,089 
Aftermarket394,807 65,985 460,792 
$591,346 $281,535 $872,881 
Nine Months Ended September 30, 2023
(Amounts in thousands)FPDFCDTotal
Original Equipment$821,107 $689,384 $1,510,491 
Aftermarket1,408,536 236,372 1,644,908 
$2,229,643 $925,756 $3,155,399 
Nine Months Ended September 30, 2022
FPDFCDTotal
Original Equipment$609,640 $596,989 $1,206,629 
Aftermarket1,170,117 199,415 1,369,532 
$1,779,757 $796,404 $2,576,161 
Our customer sales are diversified geographically. The following tables present our revenues disaggregated by geography, based on the shipping addresses of our customers:
Three Months Ended September 30, 2023
(Amounts in thousands)FPDFCDTotal
North America(1)$320,182 $134,246 $454,428 
Latin America(2)72,637 7,329 79,966 
Middle East and Africa 129,370 43,134 172,504 
Asia Pacific106,455 87,265 193,720 
Europe136,669 57,431 194,100 
$765,313 $329,405 $1,094,718 
Three Months Ended September 30, 2022
FPDFCDTotal
North America(1)$249,968 $117,262 $367,230 
Latin America(2)49,063 6,959 56,022 
Middle East and Africa90,598 23,994 114,592 
Asia Pacific89,794 80,770 170,564 
Europe111,923 52,550 164,473 
$591,346 $281,535 $872,881 
11

Nine Months Ended September 30, 2023
(Amounts in thousands)FPDFCDTotal
North America(1)$920,433 $403,368 $1,323,801 
Latin America(2)199,730 22,385 222,115 
Middle East and Africa 373,891 108,066 481,957 
Asia Pacific330,243 227,608 557,851 
Europe405,346 164,329 569,675 
$2,229,643 $925,756 $3,155,399 
Nine Months Ended September 30, 2022
FPDFCDTotal
North America(1)$754,337 $344,690 $1,099,027 
Latin America(2)144,974 17,463 162,437 
Middle East and Africa247,205 67,392 314,597 
Asia Pacific288,971 220,980 509,951 
Europe344,270 145,879 490,149 
$1,779,757 $796,404 $2,576,161 
__________________________________
(1) North America represents the United States and Canada.
(2) Latin America includes Mexico.

On September 30, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $807 million. We estimate recognition of approximately $195 million of this amount as revenue in the remainder of 2023 and an additional $612 million in 2024 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.

12

The following tables present beginning and ending balances of contract assets and contract liabilities, current and long-term, for the nine months ended September 30, 2023 and 2022:

(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, 2023$233,457 $297 $256,963 $1,059 
Revenue recognized that was included in contract liabilities at the beginning of the period— — (191,728)— 
Revenue recognized in the period in excess of billings562,582 899 — — 
Billings arising during the period in excess of revenue recognized— — 203,692 562 
Amounts transferred from contract assets to receivables(546,247)(424)— — 
Currency effects and other, net(4,659)221 1,798 (573)
Ending balance, September 30, 2023$245,133 $993 $270,725 $1,048 


(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, 2022$195,598 $426 $202,965 $464 
Revenue recognized that was included in contract liabilities at the beginning of the period— — (133,730)— 
Revenue recognized in the period in excess of billings417,430 — — — 
Billings arising during the period in excess of revenue recognized— — 155,584 7 
Amounts transferred from contract assets to receivables(392,199)(1,406)— — 
Currency effects and other, net(15,593)987 (8,725)(38)
Ending balance, September 30, 2022$205,236 $7 $216,094 $433 
_____________________________________
(1) Included in other assets, net.
(2) Included in retirement obligations and other liabilities.

3.Allowance for 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 is assessed and quantified using internal and external valuation information relating to past events, current conditions and reasonable and supportable forecasts over the contractual terms of an asset.
Our primary exposure to expected credit losses is through our trade receivables and contract assets. For these financial assets, we record an allowance for expected credit losses that, when deducted from the gross asset balance, presents the net amount expected to be collected. Primarily, our experience of historical credit losses provides the basis for our estimation of the allowance. We estimate the allowance based on an aging schedule and according to historical losses as determined from our history of billings and collections. Additionally, we adjust the allowance for factors that are specific to our customers’ credit risk such as financial difficulties, liquidity issues, insolvency, and country and geopolitical risks. We also consider both the current and forecasted macroeconomic conditions as of the reporting date. As identified and needed, we adjust the allowance and recognize adjustments in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of previously written off amounts are reflected as a reduction to credit impairment losses in the condensed consolidated statements of income.
13

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 historical credit loss experience, the current expected credit loss for contract assets is estimated to be approximately 1% of the asset balance.
The following table presents the changes in the allowance for expected credit losses for our accounts receivable and short-term contract assets for the nine months ended September 30, 2023 and 2022:
(Amounts in thousands)Trade receivablesContract assets
Beginning balance, January 1, 2023$83,062 $5,819 
Charges to cost and expenses, net of recoveries8,070 — 
Write-offs(7,709)(1,406)
Currency effects and other, net90 454 
Ending balance, September 30, 2023$83,513 $4,867 
Beginning balance, January 1, 2022$74,336 $2,393 
Charges to cost and expenses, net of recoveries12,652 1,243 
Write-offs(792)— 
Currency effects and other, net(4,095)363 
Ending balance, September 30, 2022$82,101 $3,999 
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 nine months ended September 30, 2023 and 2022:

(Amounts in thousands)20232022
Balance at January 1$66,377 $67,696 
Currency effects and other, net502 (1,486)
Balance at September 30$66,879 $66,210 
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 September 30, 2023.

4.Stock-Based Compensation Plans
We maintain the Flowserve Corporation 2020 Long-Term Incentive Plan (“2020 Plan”), which is a shareholder approved plan authorizing the issuance of 12,500,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as "Restricted Shares"), incentive stock options, non-statutory stock options, stock appreciation rights and bonus stock. Of the shares of common stock authorized under the 2020 Plan, 8,289,876 were available for issuance as of September 30, 2023. 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 September 30, 2023, 114,943 stock options were outstanding. No stock options have been granted or vested since 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 $24.3 million and $18.0 million at September 30, 2023 and December 31, 2022, respectively, which is expected to be recognized over a remaining weighted-average period of approximately one year. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during both the three months ended September 30, 2023 and 2022 was $0.1 million. The total fair value of Restricted Shares vested during the nine months ended September 30, 2023 and 2022 was $23.8 million and $22.6 million, respectively.
We recorded stock-based compensation expense of $4.8 million ($6.2 million pre-tax) and $5.3 million ($6.9 million pre-tax) for the three months ended September 30, 2023 and 2022, respectively. We recorded stock-based compensation expense of
14

$17.1 million ($22.1 million pre-tax) and $18.4 million ($23.8 million pre-tax) for the nine months ended September 30, 2023 and 2022, respectively.
The following table summarizes information regarding Restricted Shares:
 Nine Months Ended September 30, 2023
SharesWeighted Average
Grant-Date Fair
Value
Number of unvested shares:  
Outstanding as of January 1, 20231,697,779 $37.17 
Granted918,610 36.67 
Vested(633,982)37.57 
Forfeited(222,232)43.23 
Outstanding as of September 30, 20231,760,175 $36.00 
Unvested Restricted Shares outstanding as of September 30, 2023 included approximately 473,000 units with performance-based vesting provisions issuable in common stock and vest upon the achievement of pre-defined performance metrics. Targets for outstanding performance awards are based on our average return on invested capital and free cash flow as a percent of net income over a three-year period. Performance units issued in 2023, 2022 and 2021 include a secondary measure, relative total shareholder return, which can increase or decrease the number of vesting units by 15% depending on the Company's performance versus peers. Performance units issued 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, 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. Vesting provisions range from 0 to approximately 1,087,000 shares based on performance targets. As of September 30, 2023, we estimate vesting of approximately 370,000 shares based on expected achievement of performance targets.

5.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 8 to our consolidated financial statements included in our 2022 Annual Report and Note 7 of this Quarterly Report for additional information on our derivatives. We enter into foreign exchange forward contracts to hedge our cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. We have not elected hedge accounting for our foreign exchange forward contracts and the changes in the fair values are recognized immediately in our condensed consolidated statements of income.
Foreign exchange forward contracts with third parties had a notional value of $678.6 million and $459.2 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the length of foreign exchange forward contracts currently in place ranged from 3 days to 19 months.
We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under foreign exchange forward 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 forward contracts are summarized below:
September 30,December 31,
(Amounts in thousands)20232022
Current derivative assets$3,449 $2,207 
Noncurrent derivative assets— 66 
Current derivative liabilities4,699 4,422 
Noncurrent derivative liabilities66 63 
Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.
The impact of net changes in the fair values of foreign exchange forward contracts are summarized below:
 Three Months Ended September 30,Nine Months Ended September 30,
(Amounts in thousands)2023202220232022
Gains (losses) recognized in income$(2,035)$1,245 $(3,760)$1,478 
Gains and losses recognized in our condensed consolidated statements of income for foreign exchange forward 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 entered into cross-currency swap 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 two Swaps, with both having termination dates of October 1, 2030 and the March 9, 2021 cross currency swap having an early termination date of March 11, 2025. Also, during the third quarter of 2020 we entered into Swaps with a termination date of October 1, 2030 and an early termination date of September 22, 2025. The Swaps were designated as net investment hedges and classified as Level II under the fair value hierarchy. On December 20, 2022 all outstanding Swaps were early terminated resulting in net cash proceeds received of $66.0 million. Prior to the early termination the cross-currency swaps had a combined notional value of €423.2 million and a fair value of $68.2 million.
Prior to early termination we excluded the interest accruals on the swaps from the assessment of hedge effectiveness and recognized 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 ("AOCL") on our consolidated balance sheet. For the three and nine months ending September 30, 2022 an interest accrual of $2.3 million and $6.4 million was recognized within interest expense in our condensed consolidated statements of income.
The cumulative net investment hedge (gains) losses, net of deferred taxes, under cross-currency swaps recorded in AOCL on our condensed consolidated balance sheet are summarized below:
 Three Months Ended September 30,Nine Months Ended September 30,
(Amounts in thousands)2023202220232022
(Gain) loss-included component (1)$— $(22,107)$— $(66,363)
(Gain) loss-excluded component (2)— 839 — (7,669)
(Gain) loss recognized in AOCL$— $(