FLOWSERVE CORP [FLS] Filings

10-Q 1 fls-20240630.htm 10-Q fls-20240630

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, 2024

☐ 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 700,

Irving,

Texas

75039

(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 Value

FLS

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 of July 23, 2024 there were 131,374,455 shares of the issuer’s common stock outstanding.

FLOWSERVE CORPORATION

FORM 10-Q

TABLE OF CONTENTS


			Page
			No.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended June 30, 202 4 and 202 3 (unaudited)			1
Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income (Loss) – Six Months Ended June 30, 202 4 and 202 3 (unaudited)			2
Condensed Consolidated Balance Sheets – June 30, 202 4 and December 31, 202 3 (unaudited)			3
Condensed Consolidated Statements of Shareholders ' Equity – Three Months Ended June 30, 202 4 and 202 3 (unaudited)			4
Condensed Consolidated Statements of Shareholders' Equity – Six Months Ended June 30, 2024 and 2023 (unaudited)			5
Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 202 4 and 202 3 (unaudited)			6
Notes to Condensed Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			34

PART II – OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 5. Other Information			37
Item 6. Exhibits			37
SIGNATURES			38

Table of Contents

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,
	2024		2023
Sales	$	1,156,892	$	1,080,376
Cost of sales	(790,796)		(757,616)
Gross profit	366,096		322,760
Selling, general and administrative expense	(238,627)		(230,082)
Loss on sale of business	(12,981)		—
Net earnings from affiliates	6,816		3,970
Operating income	121,304		96,648
Interest expense	(16,917)		(16,554)

Interest income	1,174		1,907
Other income (expense), net	(5,263)		(5,543)
Earnings (loss) before income taxes	100,298		76,458
Provision for income taxes	(23,846)		(21,304)
Net earnings (loss), including noncontrolling interests	76,452		55,154
Less: Net earnings attributable to noncontrolling interests	(3,836)		(3,951)
Net earnings (loss) attributable to Flowserve Corporation	$	72,616	$	51,203
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic	$	0.55	$	0.39
Diluted	0.55		0.39

Weighted average shares – basic	131,656		131,171
Weighted average shares – diluted	132,415		131,810

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


(Amounts in thousands)	Three Months Ended June 30,
	2024		2023
Net earnings (loss), including noncontrolling interests	$	76,452	$	55,154
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $2,280 and $(163), respectively	(24,431)		8,901
Pension and other postretirement effects, net of taxes of $(28) and $(29), respectively	819		(839)
Cash flow hedging activity, net of taxes of $(7) and $(7), respectively	24		30
Other comprehensive income (loss)	(23,588)		8,092
Comprehensive income (loss), including noncontrolling interests	52,864		63,246
Comprehensive (income) loss attributable to noncontrolling interests	(3,764)		(4,196)
Comprehensive income (loss) attributable to Flowserve Corporation	$	49,100	$	59,050

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


(Amounts in thousands, except per share data)	Six Months Ended June 30,
	2024		2023
Sales	$	2,244,371	$	2,060,681
Cost of sales	(1,539,307)		(1,441,090)
Gross profit	705,064		619,591
Selling, general and administrative expense	(467,045)		(474,359)
Loss on sale of business	(12,981)		—
Net earnings from affiliates	9,344		8,603
Operating income	234,382		153,835
Interest expense	(32,233)		(32,766)

Interest income	2,343		3,401
Other income (expense), net	(6,137)		(13,562)
Earnings (loss) before income taxes	198,355		110,908
Provision for income taxes	(43,988)		(25,757)
Net earnings (loss), including noncontrolling interests	154,367		85,151
Less: Net earnings attributable to noncontrolling interests	(7,531)		(7,181)
Net earnings (loss) attributable to Flowserve Corporation	$	146,836	$	77,970
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic	$	1.12	$	0.59
Diluted	1.11		0.59

Weighted average shares - basic	131,583		131,051
Weighted average shares - diluted	132,392		131,782

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


(Amounts in thousands)	Six Months Ended June 30,
	2024		2023
Net earnings (loss), including noncontrolling interests	$	154,367	$	85,151
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $3,108 and $554, respectively	(52,675)		22,407
Pension and other postretirement effects, net of taxes of $49 and $(41), respectively	2,195		(1,282)
Cash flow hedging activity, net of taxes of $(43) and $(14), respectively	19		60
Other comprehensive income (loss)	(50,461)		21,185
Comprehensive income (loss), including noncontrolling interests	103,906		106,336
Comprehensive (income) loss attributable to noncontrolling interests	(7,246)		(4,265)
Comprehensive income (loss) attributable to Flowserve Corporation	$	96,660	$	102,071

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Amounts in thousands, except par value)	June 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	515,083	$	545,678
Accounts receivable, net of allowance for expected credit losses of $80,591 and $80,013, respectively	1,031,656		881,869
Contract assets, net of allowance for expected credit losses of $4,815 and $4,993, respectively	287,676		280,228
Inventories	851,305		879,937

Prepaid expenses and other	130,095		116,065
Total current assets	2,815,815		2,703,777
Property, plant and equipment, net of accumulated depreciation of $1,156,824 and $1,158,451, respectively	491,864		506,158
Operating lease right-of-use assets, net	157,797		156,430
Goodwill	1,170,555		1,182,225
Deferred taxes	214,930		218,358
Other intangible assets, net	117,236		122,248
Other assets, net of allowance for expected credit losses of $65,895 and $66,864, respectively	196,287		219,523
Total assets	$	5,164,484	$	5,108,719

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	557,145	$	547,824
Accrued liabilities	457,697		504,430
Contract liabilities	293,354		287,697
Debt due within one year	66,439		66,243

Operating lease liabilities	31,705		32,382
Total current liabilities	1,406,340		1,438,576
Long-term debt due after one year	1,211,611		1,167,307
Operating lease liabilities	145,016		138,665
Retirement obligations and other liabilities	385,193		389,120
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 value	489,786		506,525
Retained earnings	3,945,577		3,854,717
Treasury shares, at cost – 45,620 and 45,885 shares, respectively	(2,004,494)		(2,014,474)
Deferred compensation obligation	7,979		7,942
Accumulated other comprehensive loss	(689,775)		(639,601)
Total Flowserve Corporation shareholders’ equity	1,970,064		1,936,100
Noncontrolling interests	46,260		38,951
Total equity	2,016,324		1,975,051
Total liabilities and equity	$	5,164,484	$	5,108,719

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF 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, 2024	176,793	$	220,991	$	483,963	$	3,900,922	(45,372)	$	(1,992,404)	$	6,767	$	(666,259)	$	42,232	$	1,996,212

Stock activity under stock plans	—	—		(2,920)		—		36	1,522		1,212		—		—		(186)
Stock-based compensation	—			8,743		—		—	—		—		—		—		8,743

Net earnings	—	—		—		72,616		—	—		—		—		3,836		76,452
Cash dividends declared ($0.21 per share)	—	—		—		(27,961)		—	—		—		—		—		(27,961)
Repurchases of common shares	—	—		—		—		(284)	(13,612)		—		—		—		(13,612)
Other comprehensive income (loss), net of tax	—	—		—		—		—	—		—		(23,516)		(72)		(23,588)

Other, net	—	—		—		—		—	—		—		—		264		264
Balance — June 30, 2024	176,793	$	220,991	$	489,786	$	3,945,577	(45,620)	$	(2,004,494)	$	7,979	$	(689,775)	$	46,260	$	2,016,324

Balance — April 1, 2023	176,793	$	220,991	$	492,147	$	3,774,379	(45,922)	$	(2,016,517)	$	6,852	$	(631,534)	$	33,379	$	1,879,697

Stock activity under stock plans	—	—		(2,791)		—		28	1,585		963		—		—		(243)
Stock-based compensation	—			5,925		—		—	—		—		—		—		5,925

Net earnings	—	—		—		51,203		—	—		—		—		3,951		55,154
Cash dividends declared ($0.20 per share)	—	—		—		(26,598)		—	—		—		—		—		(26,598)

Other comprehensive income (loss), net of tax	—	—		—		—		—	—		—		7,847		245		8,092

Other, net	—	—		—		—		—	—		—		—		(17)		(17)
Balance — June 30, 2023	176,793	$	220,991	$	495,281	$	3,798,984	(45,894)	$	(2,014,932)	$	7,815	$	(623,687)	$	37,558	$	1,922,010
See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF 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, 2024	176,793	$	220,991	$	506,525	$	3,854,717	(45,885)	$	(2,014,474)	$	7,942	$	(639,601)	$	38,951	$	1,975,051

Stock activity under stock plans	—	—		(34,139)		—		606	26,141		37		—		—		(7,961)
Stock-based compensation	—	—		17,400		—		—	—		—		—		—		17,400

Net earnings	—	—		—		146,836		—	—		—		—		7,531		154,367
Cash dividends declared ( $0.42 per share)	—	—		—		(55,976)		—	—		—		—		—		(55,976)
Repurchases of common shares	—	—		—		—		(341)	(16,161)		—		—		—		(16,161)
Other comprehensive income (loss), net of tax	—	—		—		—		—	—		—		(50,176)		(285)		(50,461)

Other, net	—	—		—		—		—	—		—		2		63		65
Balance — June 30, 2024	176,793	$	220,991	$	489,786	$	3,945,577	(45,620)	$	(2,004,494)	$	7,979	$	(689,775)	$	46,260	$	2,016,324

Balance — January 1, 2023	176,793	$	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	—	—		(28,081)		—		465	21,950		836		—		—		(5,295)
Stock-based compensation	—	—		15,878		—		—	—		—		—		—		15,878

Net earnings	—	—		—		77,970		—	—		—		—		7,181		85,151
Cash dividends declared ($0.40 per share)	—	—		—		(53,195)		—	—		—		—		—		(53,195)

Other comprehensive income (loss), net of tax	—	—		—		—		—	—		—		24,101		(2,916)		21,185

Other, net	—	—		—		—		—	—		—		—		(321)		(321)
Balance — June 30, 2023	176,793	$	220,991	$	495,281	$	3,798,984	(45,894)	$	(2,014,932)	$	7,815	$	(623,687)	$	37,558	$	1,922,010
See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(Amounts in thousands)	Six Months Ended June 30,
	2024		2023
Cash flows – Operating activities:
Net earnings (loss), including noncontrolling interests	$	154,367	$	85,151
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities:
Depreciation	37,883		37,452
Amortization of intangible and other assets	4,391		5,158

Loss on sale of business	12,981		—




Stock-based compensation	17,400		15,878

Foreign currency, asset write downs and other non-cash adjustments	10,935		(8,418)
Change in assets and liabilities:
Accounts receivable, net	(168,540)		(5,350)
Inventories	3,603		(99,240)
Contract assets, net	(13,267)		9,917
Prepaid expenses and other, net	10,945		(105)
Accounts payable	14,376		7,118
Contract liabilities	10,894		10,831
Accrued liabilities	(47,795)		(2,091)
Retirement obligations and other liabilities	4,402		8,412

Net deferred taxes	(3,100)		(14,329)
Net cash flows provided (used) by operating activities	49,475		50,384
Cash flows – Investing activities:
Capital expenditures	(28,289)		(31,893)
Payments for disposition of business	(2,352)		—
Other	551		(941)


Net cash flows provided (used) by investing activities	(30,090)		(32,834)
Cash flows – Financing activities:






Payments on term loan	(30,000)		(20,000)
Proceeds under revolving credit facility	100,000		150,000
Payments under revolving credit facility	(25,000)		(100,000)
Proceeds under other financing arrangements	562		197
Payments under other financing arrangements	(1,460)		(3,458)
Repurchases of common shares	(16,161)		—
Payments related to tax withholding for stock-based compensation	(9,093)		(6,235)
Payments of dividends	(55,259)		(52,471)
Other	(272)		(320)
Net cash flows provided (used) by financing activities	(36,683)		(32,287)
Effect of exchange rate changes on cash and cash equivalents	(13,297)		2,603
Net change in cash and cash equivalents	(30,595)		(12,134)
Cash and cash equivalents at beginning of period	545,678		434,971
Cash and cash equivalents at end of period	$	515,083	$	422,837

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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, 2024 and December 31, 2023, 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 six months ended June 30, 2024 and 2023 and condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 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.

The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 ("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, 2023 ("2023 Annual Report").

Coronavirus ("COVID-19") and Related Impacts - We continue to assess any 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. COVID-related supply chain, logistics and labor availability impacts decreased when compared to 2023 and 2022 and have generally stabilized. We do not currently expect that any incremental impact in future quarters from COVID-19 will be material to the Company.

Russia and Ukraine Conflict - In response to the Russia-Ukraine conflict, 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 March 2022 we permanently ceased all Company operations in Russia and are currently taking the necessary steps to wind down in the country.

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 and made a $2 million adjustment during the period ended March 31, 2024 to reduce the existing reserves. We made no further adjustments during the three-month period ended June 30, 2024. 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.

Terminated Acquisition — On February 9, 2023, we entered into a definitive agreement to acquire all of the outstanding equity of Velan Inc., a manufacturer of highly engineered industrial valves. In October 2023, we received notice that the required French foreign investment screening approval was not obtained. As a result, the transaction was terminated. Acquisition related expenses incurred during 2023 associated with the transaction were $7.3 million.

NAF AB Divestiture — Effective May 4, 2024, we divested NAF AB, a previously wholly-owned subsidiary and control valves business within our Flow Control Division ("FCD") segment, including the NAF AB facility located in Linkoping, Sweden. The sale included cash due at closing to the buyer of $2.4 million and resulted in both a pre-tax and after-tax loss of $13.0 million recorded in loss on sale of business in the condensed consolidated statements of income. In 2024, through the date of disposition, we recorded revenues of approximately $3.0 million and an immaterial amount of operating income.

Table of Contents

Accounting Developments

Pronouncements Implemented

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. We partner with two banks to offer our suppliers the option of participating in a supplier financing program and receiving payment early. Under the program agreement, we must reimburse each bank for approved and valid invoices in accordance with the originally agreed upon terms with the supplier. We have no obligation for fees, subscription, service, commissions or otherwise with either bank. We also have no obligation for pledged assets or other forms of guarantee and may terminate either program agreement with appropriate notice. As of June 30, 2024, and December 31, 2023, $7.8 million and $13.5 million, respectively, remained outstanding with the supply chain financing partner banks and recorded within accounts payable on our condensed consolidated balance sheet.

In March 2023, the FASB issued ASU No. 2023-01, "Leases (Topic 842): Common Control Arrangements." The amendments permit 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. 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 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. Companies can elect to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis 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. 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.

Pronouncements Not Yet Implemented

In August 2023, the FASB issued ASU No. 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement." The amendments require 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.

In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures." The amendments enhance the disclosure requirements of significant segment expenses and other segment items. The amendments are effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments are to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. Early adoption is permitted. We are evaluating the impact of this ASU on our disclosures.

Table of Contents

In December 2023, the FASB issued ASU No. 2023-08, "Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60)." The amendments require that assets that qualify as a crypto asset, in accordance with the new guidance, must be recorded and subsequently valued at fair value at each reporting period, recognizing changes within net income of the same period. The amendments also require that companies present crypto assets measured at fair value separately from other intangible assets on the balance sheet with changes related to the remeasurement of crypto assets reported separately from changes in carrying amounts of other intangible assets in the income statement. Specific disclosure is required around the activity of crypto assets during the reporting period. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. We do not own crypto assets, and therefore, do not expect the impact of this ASU to be material.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740)." The amendments require that entities on an annual basis disclose specific categories in the rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold, and disclose specific information about income taxes paid. The amendments eliminate previously required disclosures around changes in unrecognized tax benefits and cumulative amounts of certain temporary difference. The amendments are effective prospectively for annual periods beginning after December 15, 2024. Early adoption is permitted. We are evaluating the impact of this ASU on our disclosures.

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. More complex contracts with our customers typically have longer lead times and 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 17% and 15% of total revenue for the three month period ended June 30, 2024 and 2023, respectively, and 17% and 15% for the six month period ended June 30, 2024 and 2023, respectively. Our primary method for recognizing revenue over time is the percentage of completion ("POC") method. If control does not transfer over time, then control transfers at a point in time. For both POC and point in time methods, we recognize revenue 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 83% and 85% of total revenue for the three-month period ended June 30, 2024 and 2023, respectively, and 83% and 85% for the six-month period ended June 30, 2024 and 2023, respectively. Refer to Note 2, "Revenue Recognition," to our consolidated financial statements included in our 2023 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 Pumps 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

•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.

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:

Table of Contents


	Three Months Ended June 30, 2024
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	301,866	$	264,504	$	566,370
Aftermarket	508,747		81,775		590,522
	$	810,613	$	346,279	$	1,156,892

	Three Months Ended June 30, 2023
	FPD		FCD		Total
Original Equipment	$	284,053	$	233,770	$	517,823
Aftermarket	480,798		81,755		562,553
	$	764,851	$	315,525	$	1,080,376



	Six Months Ended June 30, 2024
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	586,904	$	508,067	$	1,094,971
Aftermarket	992,472		156,928		1,149,400
	$	1,579,376	$	664,995	$	2,244,371

	Six Months Ended June 30, 2023
	FPD		FCD		Total
Original Equipment	$	536,785	$	444,522	$	981,307
Aftermarket	927,545		151,829		1,079,374
	$	1,464,330	$	596,351	$	2,060,681

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 June 30, 2024
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	342,678	$	143,402	$	486,080
Latin America(2)	72,948		6,116		79,064
Middle East and Africa	134,652		50,627		185,279
Asia Pacific	105,832		87,036		192,868
Europe	154,503		59,098		213,601
	$	810,613	$	346,279	$	1,156,892

	Three Months Ended June 30, 2023
	FPD		FCD		Total
North America(1)	$	317,994	$	143,446	$	461,440
Latin America(2)	63,107		7,190		70,297
Middle East and Africa	130,158		36,536		166,694
Asia Pacific	110,390		72,510		182,900
Europe	143,202		55,843		199,045
	$	764,851	$	315,525	$	1,080,376

Table of Contents


	Six Months Ended June 30, 2024
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	653,143	$	272,405	$	925,548
Latin America(2)	143,334		11,150		154,484
Middle East and Africa	270,915		96,854		367,769
Asia Pacific	212,127		163,483		375,610
Europe	299,857		121,103		420,960
	$	1,579,376	$	664,995	$	2,244,371

	Six Months Ended June 30, 2023
	FPD		FCD		Total
North America(1)	$	600,258	$	269,124	$	869,382
Latin America(2)	127,102		15,055		142,157
Middle East and Africa	244,524		64,931		309,455
Asia Pacific	223,774		140,342		364,116
Europe	268,672		106,899		375,571
	$	1,464,330	$	596,351	$	2,060,681

__________________________________

(1) North America represents the United States and Canada.

(2) Latin America includes Mexico.

On June 30, 2024, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year was approximately $775 million. We estimate recognition of approximately $301 million of this amount as revenue in the remainder of 2024 and an additional $474 million in 2025 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 bill the customer under the terms of a contract. A contract liability represents our contractual billings in advance of revenue recognized for a contract.

Table of Contents

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, 2024 and 2023:


(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, 2024	$	280,228	$	1,034	$	287,697	$	1,543
Revenue recognized that was included in contract liabilities at the beginning of the period	—		—		(163,330)		(174)
Revenue recognized in the period in excess of billings	400,743		—		—		—
Billings arising during the period in excess of revenue recognized	—		—		175,447		—
Amounts transferred from contract assets to receivables	(380,362)		(437)		—		—

Currency effects and other, net	(12,933)		332		(6,460)		(57)
Ending balance, June 30, 2024	$	287,676	$	929	$	293,354	$	1,312


(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	—		—		(169,722)		—
Revenue recognized in the period in excess of billings	301,548		—		—		—
Billings arising during the period in excess of revenue recognized	—		—		176,491		661
Amounts transferred from contract assets to receivables	(310,232)		(301)		—		—

Currency effects and other, net	2,863		473		5,993		5,851
Ending balance, June 30, 2023	$	227,636	$	469	$	269,725	$	7,571

_____________________________________

(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 accounts receivable 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. Accounts receivable are written off against the allowance in the period when the receivable is deemed to be uncollectible and further collection efforts have ceased. Subsequent recoveries of previously written off amounts are reflected as a reduction to credit impairment losses in the condensed consolidated statements of income.

Table of Contents

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 six months ended June 30, 2024 and 2023:


(Amounts in thousands)	Trade receivables		Contract assets
Beginning balance, January 1, 2024	$	80,013	$	4,993
Charges to cost and expenses, net of recoveries	8,447		212
Write-offs	(5,463)		(271)
Currency effects and other, net	(2,406)		(119)
Ending balance, June 30, 2024	$	80,591	$	4,815

Beginning balance, January 1, 2023	$	83,062	$	5,819
Charges to cost and expenses, net of recoveries	2,645		—
Write-offs	(2,891)		(1,406)
Currency effects and other, net	1,542		7
Ending balance, June 30, 2023	$	84,358	$	4,420

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, 2024 and 2023:


(Amounts in thousands)	2024		2023
Balance at January 1	$	66,864	$	66,377


Currency effects and other, net	(969)		480
Balance at June 30	$	65,895	$	66,857

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, 2024.

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, 7,042,777 were available for issuance as of June 30, 2024. 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, 2024, 114,943 stock options with a weighted average exercise price of $48.63 and a weighted average remaining contractual life of 2.8 years were outstanding and exercisable. No stock options have been granted or vested since 2020.

Table of Contents

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 for awards issued prior to 2024. For awards of Restricted Shares granted beginning in 2024 and subject to the 55/10 Provision, compensation expense is recognized over a required six-month service period. We had unearned compensation of $32.0 million and $18.5 million at June 30, 2024 and December 31, 2023, respectively, which is expected to be recognized over a remaining weighted-average period of approximately one year. This amount will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during the three months ended June 30, 2024 and 2023 was $2.3 million and $1.9 million, respectively. The total fair value of Restricted Shares vested during the six months ended June 30, 2024 and 2023 was $28.0 million and $23.7 million, respectively.

We recorded stock-based compensation expense of $8.7 million ($6.8 million after-tax) and $5.9 million ($4.6 million after-tax) for the three months ended June 30, 2024 and 2023, respectively. We recorded stock-based compensation expense of $17.4 million ($13.5 million after-tax) and $15.9 million ($12.3 million after-tax) for the six months ended June 30, 2024 and 2023, respectively.

The following table summarizes information regarding Restricted Shares:


	Six Months Ended June 30, 2024
	Shares	Weighted Average Grant-Date Fair Value
Number of unvested shares:
Outstanding as of January 1, 2024	1,741,486	$	36.06
Granted	786,509	42.34
Vested	(768,397)	36.41
Forfeited	(68,580)	35.12
Outstanding as of June 30, 2024	1,691,018	$	38.86

Unvested Restricted Shares outstanding as of June 30, 2024 included approximately 518,000 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 2024, 2023 and 2022 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 1,191,000 shares based on performance targets. As of June 30, 2024, we estimate vesting of approximately 518,000 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 Note 7, "Fair Value," 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 $654.5 million and $656.6 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the length of foreign exchange forward contracts currently in place ranged from 8 days to 17 months.

We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under foreign exchange 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:


	June 30,		December 31,
(Amounts in thousands)	2024		2023
Current derivative assets	$	177	$	1,915
Noncurrent derivative assets	—		17
Current derivative liabilities	1,575		3,855
Noncurrent derivative liabilities	10		5

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 June 30,				Six Months Ended June 30,
(Amounts in thousands)	2024		2023		2024		2023
Gains (losses) recognized in income	$	(763)	$	258	$	4,525	$	(1,725)

Gains and losses recognized in our condensed consolidated statements of income for foreign exchange forward contracts are classified as other income (expense), net.

6.Debt and Finance Lease Obligations

Debt, including finance lease obligations, net of discounts and debt issuance costs, consisted of:


	June 30,		December 31,
(Amounts in thousands, except percentages)	2024		2023
3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $4,183 and $4,479, respectively	$	495,817	$	495,521
2.80% USD Senior Notes due January 15, 2032, net of unamortized discount and debt issuance costs of $4,877 and $5,164, respectively	495,123		494,836
Term Loan, interest rate of 6.68% at June 30, 2024 and 6.70% at December 31, 2023, net of debt issuance costs of $200 and $274, respectively	189,800		219,726
Revolving Credit Facility, interest rate of 6.80% at June 30, 2024	75,000		—
Finance lease obligations and other borrowings	22,310		23,467
Debt and finance lease obligations	1,278,050		1,233,550
Less amounts due within one year	66,439		66,243
Total debt due after one year	$	1,211,611	$	1,167,307

Senior Credit Facility

As discussed in Note 12, "Debt and Finance Lease Obligations," to our consolidated financial statements included in our 2023 Annual Report, our credit agreement (the "Senior Credit Agreement") provides a $800.0 million unsecured revolving credit facility (the "Revolving Credit Facility"), which includes a $750.0 million sublimit for the issuance of letters of credit and a $30.0 million sublimit for swing line loans, and a $300 million unsecured term loan facility (the "Term Loan") with a maturity date of September 13, 2026. On February 3, 2023, we amended and restated our credit agreement (the “Amendment”) which (i) replaced LIBOR with Secured Overnight Financing Rate (“SOFR”) as the benchmark reference rate, (ii) lowered the Material Acquisition (as defined in the Senior Credit Facility) threshold from $250.0 million to $200.0 million and (iii) extended compliance dates for certain financial covenants. We believe this Amendment will provide greater flexibility and additional liquidity under our Senior Credit Facility as we continue to pursue our business goals and strategy. Most other terms and conditions under the previous Senior Credit Facility remained unchanged.

The interest rates per annum applicable to the Revolving Credit Facility, other than with respect to swing line loans, are adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR") plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc. ("Moody's") or Standard & Poor’s Financial Services LLC ("S&P"), or, at our option, the Base Rate (as defined in the Senior Credit Agreement) plus between 0.000% to 0.750% depending on our debt rating by either Moody’s or S&P. An additional credit spread adjustment of 0.100% is included within Adjusted Term SOFR to

account for the transition from LIBOR to SOFR. At June 30, 2024, the interest rate on the Revolving Credit Facility was the Adjusted Term SOFR plus 1.375% in the case of Adjusted Term SOFR 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 Revolving Credit Facility. The commitment fee will be between 0.080% and 0.250% of unused amounts under the Revolving Credit Facility depending on our debt rating by either Moody’s or S&P. The commitment fee was 0.175% (per annum) during the period ended June 30, 2024.

Under the terms and conditions of the Senior Credit Agreement, interest rates per annum applicable to the Term Loan are stated as Adjusted Term SOFR plus between 0.875% to 1.625%, depending on the Company’s debt rating by either Moody’s or S&P, or, at the option of the Company, the Base Rate plus between 0.000% to 0.625% depending on the Company’s debt rating by either Moody’s or S&P. At June 30, 2024, the interest rate on the Term Loan was Adjusted Term SOFR plus 1.250% in the case of Adjusted Term SOFR loans and the Base Rate plus