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, 2020~~MARCH 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM to .

Commission File No. 1-13179

FLOWSERVE CORPORATION

(Exact name of registrant as specified in its charter)

New York

31-0267900

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

5215 N. O’Connor Blvd., Suite 2300,

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

~~1.25% Senior Notes due 2022~~

~~FLS22A~~

~~New York Stock Exchange~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

~~As o~~A~~f July 23, 2020~~s of April 28, 2021 there were ~~130,159,720~~130,315,204 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~~,March 31, 2021 and 2020 ~~and 2019~~ (unaudited)			1

Condensed Consolidated ~~Statements of Income and~~Balance Sheets – Condensed Consolidated ~~Statements of Comprehensive Income~~Balance Sheets – ~~Six~~ ~~Months Ended~~ ~~June 30~~,March 31, 2021 and December 31, 2020 ~~and 2019~~ (unaudited)			2
Condensed Consolidated ~~Balance Sheets~~Statements of Shareholders' Equity – ~~June 30~~,Three Months Ended March 31, 2021 and 2020 ~~and December 31, 2019~~ (unaudited)			3
~~Condensed Consolidated Statements of Stockholders' Equity – Three Months Ended~~ ~~June 30, 2020 and 2019 (unaudited)~~			4
~~Condensed Consolidated Statements of Stockholders' Equity –~~ ~~Six~~ ~~Months Ended~~ ~~June~~ ~~30, 20~~20 ~~and 20~~19 ~~(unaudited)~~			5
Condensed Consolidated Statements of Cash Flows – ~~Six~~Three Months Ended ~~June 30~~,March 31, 2021 and 2020 ~~and 2019~~ (unaudited)			64
Notes to Condensed Consolidated Financial Statements (unaudited)			75
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3325
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4836
Item 4. Controls and Procedures			4936

PART II – OTHER INFORMATION
Item 1. Legal Proceedings			5037
Item 1A. Risk Factors			5037
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5037
Item 3. Defaults Upon Senior Securities			5239
Item 4. Mine Safety Disclosures			5239
Item 5. Other Information			5239
Item 6. Exhibits			5239
SIGNATURES			5340

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)	(Amounts in thousands, except per share data)	Three Months Ended June 30,							(Amounts in thousands, except per share data)	Three Months Ended March 31,
		2020		2019			2021			2020
Sales	Sales	$	924,965	$	990,084	Sales	$	857,308		$	893,513
Cost of sales	Cost of sales	(657,805)		(672,051)		Cost of sales	(606,408)			(627,054)
Gross profit	Gross profit	267,160		318,033		Gross profit	250,900			266,459
Selling, general and administrative expense	Selling, general and administrative expense	(227,358)		(223,676)		Selling, general and administrative expense	(198,315)			(245,451)

Net earnings from affiliates	Net earnings from affiliates	3,086		3,661		Net earnings from affiliates	3,518			3,196
Operating income	Operating income	42,888		98,018		Operating income	56,103			24,204
Interest expense	Interest expense	(12,900)		(14,013)		Interest expense	(16,778)			(12,963)
Loss on extinguishment of debt						Loss on extinguishment of debt	(7,610)			0
Interest income	Interest income	1,149		2,218		Interest income	602			1,749
Other income (expense), net	Other income (expense), net	(14,941)		(3,336)		Other income (expense), net	(11,364)			38,202
Earnings before income taxes	Earnings before income taxes	16,196		82,887		Earnings before income taxes	20,953			51,192
Provision for income taxes	Provision for income taxes	(5,409)		(22,413)		Provision for income taxes	(3,792)			(36,969)
Net earnings, including noncontrolling interests	Net earnings, including noncontrolling interests	10,787		60,474		Net earnings, including noncontrolling interests	17,161			14,223
Less: Net earnings attributable to noncontrolling interests	Less: Net earnings attributable to noncontrolling interests	(2,142)		(2,302)		Less: Net earnings attributable to noncontrolling interests	(3,081)			(2,100)
Net earnings attributable to Flowserve Corporation	Net earnings attributable to Flowserve Corporation	$	8,645	$	58,172	Net earnings attributable to Flowserve Corporation	$	14,080		$	12,123
Net earnings per share attributable to Flowserve Corporation common shareholders:	Net earnings per share attributable to Flowserve Corporation common shareholders:					Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic	Basic	$	0.07	$	0.44	Basic	$	0.11		$	0.09
Diluted	Diluted	0.07		0.44		Diluted	0.11			0.09

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


(Amounts in thousands)	(Amounts in thousands)	Three Months Ended June 30,							(Amounts in thousands)	Three Months Ended March 31,
		2020		2019			2021			2020
Net earnings, including noncontrolling interests	Net earnings, including noncontrolling interests	$	10,787	$	60,474	Net earnings, including noncontrolling interests	$	17,161		$	14,223
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $(1,188) and $(1,492), respectively		15,084		(2,848)
Pension and other postretirement effects, net of taxes of $(444) and $(222), respectively		1,758		2,186
Foreign currency translation adjustments, net of taxes of $654 and $7,162, respectively						Foreign currency translation adjustments, net of taxes of $654 and $7,162, respectively	(10,889)			(96,061)
Pension and other postretirement effects, net of taxes of $(471) and $(398), respectively						Pension and other postretirement effects, net of taxes of $(471) and $(398), respectively	4,259			6,309
Cash flow hedging activity	Cash flow hedging activity	44		43		Cash flow hedging activity	202			54
Other comprehensive income (loss)	Other comprehensive income (loss)	16,886		(619)		Other comprehensive income (loss)	(6,428)			(89,698)
Comprehensive income (loss), including noncontrolling interests	Comprehensive income (loss), including noncontrolling interests	27,673		59,855		Comprehensive income (loss), including noncontrolling interests	10,733			(75,475)
Comprehensive income (loss) attributable to noncontrolling interests		(2,079)		(2,290)
Comprehensive (income) loss attributable to noncontrolling interests						Comprehensive (income) loss attributable to noncontrolling interests	(3,230)			(2,939)
Comprehensive income (loss) attributable to Flowserve Corporation	Comprehensive income (loss) attributable to Flowserve Corporation	$	25,594	$	57,565	Comprehensive income (loss) attributable to Flowserve Corporation	$	7,503		$	(78,414)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED ~~STATEMENTS OF INCOME~~BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except per share data) Six Months Ended June 30,
2020 2019
Sales $ 1,819,422 $ 1,880,135
Cost of sales (1,286,285) (1,268,026)
Gross profit 533,137 612,109
Selling, general and administrative expense (470,980) (428,830)
Net earnings from affiliates 6,283 5,970
Operating income 68,440 189,249
Interest expense (25,863) (28,044)
Interest income 2,898 4,241
Other income (expense), net 8,521 (6,476)
Earnings before income taxes 53,996 158,970
Provision for income taxes (41,719) (38,999)
Net earnings, including noncontrolling interests 12,277 119,971
Less: Net earnings attributable to noncontrolling interests (4,242) (4,538)
Net earnings attributable to Flowserve Corporation $ 8,035 $ 115,433
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.06 $ 0.88
Diluted 0.06 0.88

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~

(Amounts in thousands) Six Months Ended June 30,
2020 2019
Net earnings, including noncontrolling interests $ 12,277 $ 119,971
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $5,974 and $1,190, respectively (66,269) 4,097
Pension and other postretirement effects, net of taxes of $(842) and $(429), respectively
8,067 3,403
Cash flow hedging activity 98 105
Other comprehensive income (loss) (58,104) 7,605
Comprehensive income (loss), including noncontrolling interests (45,827) 127,576
Comprehensive income (loss) attributable to noncontrolling interests (5,018) (5,203)
Comprehensive income (loss) attributable to Flowserve Corporation $ (50,845) $ 122,373


(Amounts in thousands, except par value)	March 31,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	659,305	$	1,095,274
Accounts receivable, net of allowance for expected credit losses of $73,829 and $75,176, respectively	730,481		753,462
Contract assets, net of allowance for expected credit losses of $3,139 and $3,205, respectively	274,187		277,734
Inventories, net	672,123		667,228

Prepaid expenses and other	112,867		110,635
Total current assets	2,448,963		2,904,333
Property, plant and equipment, net of accumulated depreciation of $1,087,994 and $1,093,348, respectively	534,899		556,873
Operating lease right-of-use assets, net	200,306		208,125
Goodwill	1,209,119		1,224,886
Deferred taxes	33,684		30,538
Other intangible assets, net	163,236		168,496
Other assets, net of allowance for expected credit losses of $66,783 and $67,842, respectively	219,431		221,426
Total assets	$	4,809,638	$	5,314,677

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	386,210	$	440,199
Accrued liabilities	453,595		463,222
Contract liabilities	199,538		194,227
Debt due within one year	8,342		8,995

Operating lease liabilities	36,046		34,990
Total current liabilities	1,083,731		1,141,633
Long-term debt due after one year	1,307,579		1,717,911
Operating lease liabilities	168,572		176,246
Retirement obligations and other liabilities	507,970		517,566
Commitments and contingencies (See Note 11)	0		0
Shareholders’ equity:
Common shares, $1.25 par value	220,991		220,991
Shares authorized – 305,000
Shares issued – 176,793
Capital in excess of par value	488,906		502,227
Retained earnings	3,658,158		3,670,543
Treasury shares, at cost – 46,496 and 46,768 shares, respectively	(2,045,937)		(2,059,309)
Deferred compensation obligation	6,114		6,164
Accumulated other comprehensive loss	(616,200)		(609,625)
Total Flowserve Corporation shareholders’ equity	1,712,032		1,730,991
Noncontrolling interests	29,754		30,330
Total equity	1,741,786		1,761,321
Total liabilities and equity	$	4,809,638	$	5,314,677

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,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $ 561,705 $ 670,980
Accounts receivable, net of allowance for expected credit losses of $72,084 and $53,412, respectively 759,381 795,538
Contract assets, net of allowance for expected credit losses of $3,010 at June 30, 2020 309,149 272,914
Inventories, net 684,431 660,837
Prepaid expenses and other 115,889 105,101
Total current assets 2,430,555 2,505,370
Property, plant and equipment, net of accumulated depreciation of $1,034,893 and $1,013,207, respectively 541,768 572,175
Operating lease right-of-use assets, net 173,212 186,218
Goodwill 1,187,735 1,193,010
Deferred taxes 31,119 54,879
Other intangible assets, net 172,709 180,805
Other assets, net of allowance for expected credit losses of $98,971 and $101,439, respectively 218,604 227,185
Total assets $ 4,755,702 $ 4,919,642
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 428,856 $ 447,582
Accrued liabilities 401,041 401,385
Contract liabilities 214,135 216,541
Debt due within one year 9,058 11,272
Operating lease liabilities 35,648 36,108
Total current liabilities 1,088,738 1,112,888
Long-term debt due after one year 1,367,478 1,365,977
Operating lease liabilities 138,735 151,523
Retirement obligations and other liabilities 470,400 473,295
Shareholders’ equity:
Common shares, $1.25 par value 220,991 220,991
Shares authorized – 305,000
Shares issued – 176,793
Capital in excess of par value 499,152 501,045
Retained earnings 3,643,868 3,695,862
Treasury shares, at cost – 46,873 and 46,262 shares, respectively (2,064,302) (2,051,583)
Deferred compensation obligation 6,036 8,334
Accumulated other comprehensive loss (643,173) (584,292)
Total Flowserve Corporation shareholders’ equity 1,662,572 1,790,357
Noncontrolling interests 27,779 25,602
Total equity 1,690,351 1,815,959
Total liabilities and equity $ 4,755,702 $ 4,919,642

~~See accompanying notes to condensed consolidated financial statements.~~

~~Table of~~ ~~Contents~~

~~FLOWSERVE CORPORATION~~

~~CONDENSED CONSOLIDATED~~ STATEMENTS OF ~~STOCKHOLDERS’~~SHAREHOLDERS’ EQUITY

(Unaudited)


		Total Flowserve Corporation Shareholders’ Equity																																																		Total Flowserve Corporation Shareholders’ Equity
						Capital in Excess of Par Value				Retained Earnings										Deferred Compensation Obligation			Accumulated Other Comprehensive Income (Loss)				Total 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				Common Stock						Capital in Excess of Par Value	Retained Earnings				Treasury Stock					Deferred Compensation Obligation				Accumulated Other Comprehensive Income (Loss)					Non- controlling Interests		Total Equity
		Shares		Amount												Shares						Amount																Non- controlling Interests					Amount						Capital in Excess of Par Value						Amount									Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests	Total Equity
		(Amounts in thousands)																																																					(Amounts in thousands)
Balance — April 1, 2020		176,793		$	220,991			$	497,721			$	3,661,579		(47,002)			$	(2,069,063)				$	8,324	$	(660,122)	$	25,995			$	1,685,425
Balance — January 1, 2021																													Balance — January 1, 2021	176,793			$	220,991		$	502,227				$	3,670,543						(46,768)				$	(2,059,309)			$	6,164				$	(609,625)			$	30,330			$	1,761,321

Stock activity under stock plans																													Stock activity under stock plans	—			—		(23,081)				—				401				18,453				(50)		—			—				(4,678)
Stock-based compensation																													Stock-based compensation	—			—		9,760				—				—			—				—		—			—				9,760

Net earnings																													Net earnings	—			—		—				14,080				—			—				—		—			3,081				17,161
Cash dividends declared																													Cash dividends declared	—			—		—				(26,465)				—			—				—		—			—				(26,465)
Repurchases of common shares																													Repurchases of common shares	—			—		—				—				(129)			(5,081)				—		—			—				(5,081)
Other comprehensive income, net of tax																													Other comprehensive income, net of tax	—			—		—				—				—			—				—		(6,575)			147				(6,428)

Other, net																													Other, net	—			—		—				—				—			—				0		—			(3,804)				(3,804)
Balance — March 31, 2021																													Balance — March 31, 2021	176,793			$	220,991	$	488,906			$	3,658,158			(46,496)			$	(2,045,937)			$	6,114	$	(616,200)		$	29,754			$	1,741,786

Balance — January 1, 2020																													Balance — January 1, 2020	$	176,793		$	220,991	$	501,045			$	3,652,244			(46,262)			$	(2,051,583)			$	8,334	$	(584,292)		$	25,602			$	1,772,341
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326)																													ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326)	—			—		—				(7,291)				—			—				—		—			—				(7,291)
Stock activity under stock plans	Stock activity under stock plans	—		—		(2,733)				—				129		4,761				(2,288)			—		—		(260)		Stock activity under stock plans	—			—		(17,635)				—				317			14,632				0		—			—				(3,003)
Stock-based compensation	Stock-based compensation	—		—		4,164				—				—		—				—			—		—		4,164		Stock-based compensation	—			—		14,311				—				—			—				—		—			—				14,311

Net earnings	Net earnings	—		—		—				8,645				—		—				—			—		2,142		10,787		Net earnings	—			—		—				12,123				—			—				—		—			2,100				14,223
Cash dividends declared	Cash dividends declared	—		—		—				(26,356)				—		—				—			—		—		(26,356)		Cash dividends declared	—			—		—				(26,382)				—			—				—		—			—				(26,382)
Repurchases of common shares	Repurchases of common shares	—		—		—				—				—		—				—			—		—		—		Repurchases of common shares	—			—		—				—				(1,057)			(32,112)				—		—			—				(32,112)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	—		—		—				—				—		—				—			16,949		(63)		16,886		Other comprehensive income (loss), net of tax	—			—		—				—				—			—				—		(90,537)			839				(89,698)

Other, net	Other, net	—		—		—				—				—		—				—			—		(295)		(295)		Other, net	—			—		—				—				—			—				(10)		—			(2,546)				(2,556)
Balance — June 30, 2020		176,793		$	220,991	$	499,152			$	3,643,868			(46,873)		$	(2,064,302)			$	6,036		$	(643,173)	$	27,779	$	1,690,351

Balance — April 1, 2019		$	176,793	$	220,991	$	487,673			$	3,575,014			(45,969)		$	(2,037,586)			$	7,107		$	(566,400)	$	21,187	$	1,707,986

Stock activity under stock plans		—		—		(2,382)				—				26		729				—			—		—		(1,653)
Stock-based compensation		—		—		7,746				—				—		—				—			—		—		7,746

Net earnings		—		—		—				58,172				—		—				—			—		2,302		60,474
Cash dividends declared		—		—		—				(25,258)				—		—				—			—		—		(25,258)

Other comprehensive income (loss), net of tax		—		—		—				—				—		—				—			(607)		(12)		(619)

Other, net		—		—		—				—				—		—				1,112			—		—		1,112
Balance —June 30, 2019		176,793		$	220,991	$	493,037			$	3,607,928			(45,943)		$	(2,036,857)			$	8,219		$	(567,007)	$	23,477	$	1,749,788
Balance — March 31, 2020																													Balance — March 31, 2020	176,793			$	220,991	$	497,721			$	3,630,694			(47,002)			$	(2,069,063)			$	8,324	$	(674,829)		$	25,995			$	1,639,833
See accompanying notes to condensed consolidated financial statements.	See accompanying notes to condensed consolidated financial statements.																																																											See accompanying notes to condensed consolidated financial statements.

~~Table of~~ ~~Contents~~

~~FLOWSERVE CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

Total Flowserve Corporation Shareholders’ Equity
Capital
in Excess of Par Value Retained Earnings Deferred Compensation Obligation Accumulated
Other Comprehensive Income (Loss) Total Equity
Common Stock Treasury Stock Non-
controlling Interests
Shares Amount Shares Amount
(Amounts in thousands)
Balance — January 1, 2020 176,793 $ 220,991 $ 501,045 $ 3,695,862 (46,262) $ (2,051,583) $ 8,334 $ (584,292) $ 25,602 $ 1,815,959
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326) — — — (7,291) — — — — — (7,291)
Stock activity under stock plans — — (20,368) — 446 19,393 (2,298) — — (3,273)
Stock-based compensation — — 18,475 — — — — — — 18,475
Net earnings — — — 8,035 — — — — 4,242 12,277
Cash dividends declared — — — (52,738) — — — — — (52,738)
Repurchases of common shares — — — — (1,057) (32,112) — — — (32,112)
Other comprehensive income (loss), net of tax — — — — — — — (58,881) 777 (58,104)
Other, net — — — — — — — — (2,842) (2,842)
Balance — June 30, 2020 176,793 $ 220,991 $ 499,152 $ 3,643,868 (46,873) $ (2,064,302) $ 6,036 $ (643,173) $ 27,779 $ 1,690,351
Balance — January 1, 2019 176,793 $ 220,991 $ 494,551 $ 3,543,007 (46,237) $ (2,049,404) $ 7,117 $ (573,947) $ 18,465 $ 1,660,780
Stock activity under stock plans — — (16,869) — 294 12,547 — — — (4,322)
Stock-based compensation — — 15,355 — — — — — — 15,355
Net earnings — — — 115,433 — — — — 4,538 119,971
Cash dividends declared — — — (50,512) — — — — — (50,512)
Other comprehensive income (loss), net of tax — — — — — — — 6,940 665 7,605
Other, net — — — — — — 1,102 — (191) 911
Balance — June 30, 2019 176,793 $ 220,991 $ 493,037 $ 3,607,928 (45,943) $ (2,036,857) $ 8,219 $ (567,007) $ 23,477 $ 1,749,788
See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(Amounts in thousands)	(Amounts in thousands)	Six Months Ended June 30,							(Amounts in thousands)	Three Months Ended March 31,
		2020		2019			2021			2020
Cash flows – Operating activities:	Cash flows – Operating activities:					Cash flows – Operating activities:
Net earnings, including noncontrolling interests	Net earnings, including noncontrolling interests	$	12,277	$	119,971	Net earnings, including noncontrolling interests	$	17,161		$	14,223
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:	Adjustments to reconcile net earnings to net cash provided (used) by operating activities:					Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation	Depreciation	43,350		46,666		Depreciation	21,522			20,716
Amortization of intangible and other assets	Amortization of intangible and other assets	6,136		8,003		Amortization of intangible and other assets	3,862			3,121

Loss on extinguishment of debt						Loss on extinguishment of debt	7,610			0

Stock-based compensation	Stock-based compensation	18,475		15,354		Stock-based compensation	9,760			14,311

Foreign currency, asset write downs and other non-cash adjustments	Foreign currency, asset write downs and other non-cash adjustments	21,739		(20,206)		Foreign currency, asset write downs and other non-cash adjustments	24,260			8,304
Change in assets and liabilities:	Change in assets and liabilities:					Change in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	858		(13,445)		Accounts receivable, net	9,005			19,137
Inventories, net	Inventories, net	(36,575)		(47,610)		Inventories, net	(16,988)			(43,226)
Contract assets, net	Contract assets, net	(44,229)		12,432		Contract assets, net	(2,245)			(14,462)
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	(9,341)		4,949		Prepaid expenses and other assets, net	307			118
Accounts payable	Accounts payable	(9,139)		(20,660)		Accounts payable	(47,093)			(8,799)
Contract liabilities	Contract liabilities	3,468		6,744		Contract liabilities	9,001			16,649
Accrued liabilities and income taxes payable	Accrued liabilities and income taxes payable	5,787		(56,935)		Accrued liabilities and income taxes payable	187			10,698
Retirement obligations and other	Retirement obligations and other	13,618		(6,824)		Retirement obligations and other	5,248			12,949

Net deferred taxes	Net deferred taxes	(5,193)		911		Net deferred taxes	(5,219)			(6,236)
Net cash flows provided (used) by operating activities	Net cash flows provided (used) by operating activities	21,231		49,350		Net cash flows provided (used) by operating activities	36,378			47,503
Cash flows – Investing activities:	Cash flows – Investing activities:					Cash flows – Investing activities:
Capital expenditures	Capital expenditures	(31,971)		(25,267)		Capital expenditures	(11,422)			(15,955)

Proceeds from disposal of assets and other	Proceeds from disposal of assets and other	10,810		40,302		Proceeds from disposal of assets and other	1,934			10,737

Net cash flows provided (used) by investing activities	Net cash flows provided (used) by investing activities	(21,161)		15,035		Net cash flows provided (used) by investing activities	(9,488)			(5,218)
Cash flows – Financing activities:	Cash flows – Financing activities:					Cash flows – Financing activities:

Payments on long-term debt	Payments on long-term debt	—		(30,000)		Payments on long-term debt	(407,473)			0

Proceeds under other financing arrangements	Proceeds under other financing arrangements	1,477		1,699		Proceeds under other financing arrangements	425			1,694
Payments under other financing arrangements	Payments under other financing arrangements	(2,497)		(5,124)		Payments under other financing arrangements	(1,976)			(3,356)
Repurchases of common shares	Repurchases of common shares	(32,112)		—		Repurchases of common shares	(5,081)			(32,112)
Payments related to tax withholding for stock-based compensation	Payments related to tax withholding for stock-based compensation	(3,850)		(3,441)		Payments related to tax withholding for stock-based compensation	(5,547)			(3,137)
Payments of dividends	Payments of dividends	(52,054)		(49,772)		Payments of dividends	(26,465)			(26,023)
Other	Other	(2,845)		(190)		Other	(3,806)			(2,547)
Net cash flows provided (used) by financing activities	Net cash flows provided (used) by financing activities	(91,881)		(86,828)		Net cash flows provided (used) by financing activities	(449,923)			(65,481)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(17,464)		(770)		Effect of exchange rate changes on cash	(12,936)			(25,485)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(109,275)		(23,213)		Net change in cash and cash equivalents	(435,969)			(48,681)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	670,980		619,683		Cash and cash equivalents at beginning of period	1,095,274			670,980
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	561,705	$	596,470	Cash and cash equivalents at end of period	$	659,305		$	622,299

See accompanying notes to condensed consolidated financial statements.

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FLOWSERVE CORPORATION

(Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Basis of Presentation and Accounting Policies

Basis of Presentation

The accompanying condensed consolidated balance sheet as of ~~June 30, 2020,~~March 31, 2021, the related condensed consolidated statements of income and comprehensive income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the condensed consolidated statements of ~~stockholders'~~shareholders' equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ and the condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ of Flowserve Corporation are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for fair statement of such condensed consolidated financial statements have been made. Where applicable, prior period information has been updated to conform to current year presentation.

The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended ~~June 30, 2020~~March 31, 2021 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 ("~~2019~~2020 Annual Report").

Revision to Previously Reported Financial Information - During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 through the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by approximately $1 million, retained earnings by approximately $14 million and accumulated other comprehensive loss by approximately $15 million as of December 31, 2020.

In addition, as previously disclosed, during the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily related to an incurred but not reported ("IBNR") liability associated with unasserted asbestos claims, but also included adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR for periods beginning with the year ended December 31, 2014 through the second quarter of 2020 and to correct certain other previously identified immaterial errors.

We have assessed the above described errors, individually and in the aggregate, and concluded they were not material to the period ended March 31, 2020 or any previous period. The March 31, 2020 balances, as presented herein, have been revised. The remaining periods in 2020 not presented herein will be revised, as applicable, in future filings. For a detailed discussion related to the revised balances refer to Note 2.

Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first ~~half~~three months of ~~2020,~~2021, we ~~have been~~continue to be challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by ~~COVID-19 and the emanating impacts~~COVID-19. As a result of the ~~pandemic~~COVID-19 pandemic’s effect on ~~pricing~~oil prices, many of our large customers reduced capital expenditures and ~~dampened demand for oil, further~~budgets in 2020. To date, customer spending has yet to return to pre-pandemic levels, resulting in ~~instability and volatility~~lower bookings as well as lower revenue in ~~oil commodity prices. To date~~ the ~~COVID-19 pandemic has had widespread implications worldwide and has caused substantial economic uncertainty and challenging operational conditions.~~first three months of 2021 as compared to the prior year.

The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, judgments and methodologies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expenses, our allowance for expected credit losses, stock based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, and valuation allowances for tax assets, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in the near to mid-term as new information becomes available. Actual results may differ from these estimates.

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Accounting Developments

Pronouncements Implemented

In ~~June 2016,~~January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2016-13, "Financial Instruments-Credit Losses~~2020-01, "Investments—Equity Securities (Topic ~~326)~~321), ~~Measurement of Credit Losses on Financial Instruments" ("CECL"). The ASU requires, among other things,~~Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the ~~use of a new current expected credit loss model in order to determine an allowance for expected credit losses with respect to financial assets~~Interactions between Topics 321, 323 and instruments held. The CECL model requires that we estimate the lifetime of an expected credit loss for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On January 1, 2020, we adopted the ASU on a prospective basis to determine our allowance for credit losses in accordance with the requirements of Topic 326, and we modified our accounting policy and processes to facilitate this approach. As a result of the adoption of the ASU, we recorded a noncash cumulative effect after-tax adjustment to retained earnings of ~~$7.3 million on our opening condensed consolidated balance shee~~t.

Our primary exposure to financial assets that are within the scope of CECL are trade receivables and contract assets. For these financial assets, we record an allowance for expected credit losses that, when deducted from the gross asset balance, presents the net amount expected to be collected. We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history. Additionally, we adjust the allowance for factors that are specific to our customers’ credit risk such as financial difficulties, liquidity issues, insolvency, and country and political risk. We also consider both the current and forecasted direction of macroeconomic conditions at the reporting date. The CECL

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~~model requires consideration of reasonable and supportable forecasts of future economic conditions in the estimate of expected credit losses.~~

We adjust the allowance and recognize adjustments in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of amounts previously written off are reflected as a reduction to credit impairment losses in the income statement.

~~Our allowance for expected credit losses for short-term receivables as of June 30, 2020, wa~~s $72.1 million, compared to $53.4 million as of December 31, 2019. The six months of activity included $6.9 million for the adoption of the CECL model at January 1, 2020 and $11.8 million for current period adjustments.

~~Our long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of amounts to~~ be collected from insurance companies and fully-reserved receivables associated with the national oil company in Venezuela. As of June 30, 2020, we had $110.7 million of long-term receivables, compared to $118.5 million as of December 31, 2019. Our allowance for expected credit losses for long-term receivables as of June 30, 2020 was $99.0 million, compared to $101.4 million as of December 31, 2019.

We have exposure to credit losses from off-balance sheet exposures, such as financial guarantees and standby letters of credit, where we believe the risk of loss is immaterial to our financial statements as of June 30, 2020.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this ASU allow companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2017-04 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.

~~In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.~~815." The amendments of the ASU ~~modify~~addresses accounting for the ~~disclosure requirements for fair value measurements by removing, modifying, or adding~~transition into and out of the equity method and measurement of certain ~~disclosure requirements for assets~~purchased options and ~~liabilities measured at fair value in the statement of financial position or disclosed in the notes~~forward contracts to ~~the financial statements.~~acquire investments. The ASU is effective for ~~fiscal years, and interim~~annual periods ~~within those fiscal years,~~ beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. Our adoption of ASU No. 2018-13 effective January 1, 2020 did not have an impact on our disclosures.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The ASU addresses how entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract. Per the amendments of the ASU, implementation costs incurred in a cloud computing arrangement that is a service contract should be accounted for in the same manner as implementation costs incurred to develop or obtain software for internal use as prescribed by guidance in ASC 350-40. The ASU requires that implementation costs incurred in a cloud computing arrangement be capitalized rather than expensed. Further, the ASU specifies the method for the amortization of costs incurred during implementation, and the manner in which the unamortized portion of these capitalized implementation costs should be evaluated for impairment. The ASU also provides guidance on how to present such implementation costs in the financial statements and also creates additional disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2019. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Our adoption of ASU No. 2018-15 effective January 1, 2020 on a prospective basis did not have a material impact on our condensed consolidated financial condition and results of operations.

In October 2018, the FASB issued ASU No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("VIEs")." The standard reduces the cost and complexity of financial reporting associated with VIEs. The new standard amends the guidance for determining whether a decision-making fee is a VIE. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety as currently required in U.S. Generally Accepted Accounting Principles ("GAAP"). The amendments of this ASU are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-17 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.

In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606." The ASU clarifies the interaction between the guidance for certain collaborative arrangements and ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which we adopted

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January 1, 2018. The amendments of the ASU provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within ASU No. 2014-09. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. Parts of the collaborative arrangement that are not in the purview of the revenue recognition standard should be presented separately. The amendments are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-18 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. We early adopted ASU No. 2019-12 effective January 1, 2020 on a prospective basis and the adoption did not have an impact on our condensed consolidated financial condition and results of operations.

~~Pronouncements Not Yet Implemented~~

In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The ASU amends the disclosure requirements by adding, clarifying, or removing certain disclosures for sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. ~~We are currently evaluating the impact of ASU No. 2018-14 and we anticipate that our~~The adoption of this ASU ~~will~~did not have an impact on our ~~disclosures.~~consolidated financial condition, results of operations or net cash flows.

In March of 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of The Effects of Reference Rate Reform on Financial Reporting." The ASU provides guidance designed to enable the process for migrating away from reference rates such as the London Interbank Offered Rate ("LIBOR") and others to new reference rates. Further, the amendments of the ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The amendments are effective as of March 12, 2020 through December 31, 2022 and ~~should~~may be applied ~~prospectively~~ to ~~all periods presented. We~~contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. At this time, we do not have ~~evaluated~~hedging relationships that reference LIBOR or another reference rate expected to be discontinued and therefore, have not applied the ~~impact of ASU No. 2020-04~~practical expedients and ~~we anticipate that our adoption~~exceptions as required by the ASU. As referenced in Note 7 of this ~~ASU will~~Quarterly Report, the Company’s Senior Credit Facility agreement includes a transition clause in the event LIBOR is discontinued, as such, we do not expect the transition of LIBOR to have a material impact on our consolidated financial statements. We do not expect the application of these expedients and exceptions to have an impact on our ~~condensed~~ consolidated financial condition and results of operations.

In October 2020, the FASB issued ASU No. 2020-10, "Codification Improvements: Amendments to the FASB Accounting Standards Codification." The amendments in this ASU do not change GAAP and, therefore, are not expected to result in a significant change in practice. Rather, the amendments are intended to improve codification guidance and disclosure requirements in Company's financial statements and notes to the financial statements. The amendments are effective for annual periods beginning after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. The adoption of this ASU did not have an impact on our consolidated financial condition, results of operations or net cash flows.

2.Revision to Previously Reported Financial Information

During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 though the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by approximately $1 million, retained earnings by approximately $14 million and accumulated other comprehensive loss by approximately $15 million as of December 31, 2020.

In the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily relate to an IBNR associated with unasserted asbestos claims, but also include adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR and to correct certain other previously identified immaterial misstatements.

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The following table presents the impact to affected line items for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021 on our condensed consolidated balance sheet as of December 31, 2020:


	December 31, 2020
(Amounts in thousands)	As Reported		Adjustments		As Revised



























Retirement obligations and other liabilities	$	516,087	$	1,479	$	517,566






Retained earnings	3,656,449		14,094		3,670,543


Accumulated other comprehensive loss	(594,052)		(15,573)		(609,625)
Total Flowserve Corporation shareholders’ equity	1,732,470		(1,479)		1,730,991

Total equity	1,762,800		(1,479)		1,761,321

The following table presents the impact to affected line items on our condensed consolidated statement of income for the three months ended March 31, 2020, for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021 and the accounting errors related to the recognition of a liability for unasserted asbestos claims identified in the third quarter of 2020:


	Three Months Ended March 31, 2020
(Amounts in thousands)	As Reported		Adjustments		As Revised
Sales	$	894,457	$	(944)	$	893,513
Cost of sales	(628,480)		1,426		(627,054)
Gross profit	265,977		482		266,459
Selling, general and administrative expense (1)	(243,621)		(1,830)		(245,451)


Operating income	25,552		(1,348)		24,204



Other income (expense), net (2)	23,462		14,740		38,202
Earnings before income taxes	37,800		13,392		51,192
Provision for income taxes	(36,310)		(659)		(36,969)
Net earnings, including noncontrolling interests	1,490		12,733		14,223

Net earnings (loss) attributable to Flowserve Corporation	$	(610)	12,733		$	12,123
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic	$	0	$	0.09	$	0.09
Diluted	0		0.09		0.09

(1) Adjustment primarily relates to asbestos settlement and defense costs for related legal fees.

(2) Adjustment relates to the accounting error involving foreign currency transactions.

The following table presents the impact to affected line items for the correction of the accounting errors on our condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2020:


	Three Months Ended March 31, 2020
(Amounts in thousands)	As Reported		Adjustments		As Revised
Net earnings, including noncontrolling interests	$	1,490	$	12,733	$	14,223
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes	(81,353)		(14,708)		(96,061)


Other comprehensive income (loss)	(74,990)		(14,708)		(89,698)
Comprehensive income (loss), including noncontrolling interests	(73,500)		(1,975)		(75,475)

Comprehensive income (loss) attributable to Flowserve Corporation	$	(76,439)	$	(1,975)	$	(78,414)

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The condensed consolidated statement of shareholders' equity for the period from January 1, 2020 to March 31, 2020 and the condensed consolidated statement of comprehensive income for the three months ended March 31, 2020 have also been revised to reflect the impacts of the above described errors.

Except for as described below in (1) and (2), the effect of the adjustments to the condensed consolidated statements of cash flows for the three months ended March 31, 2020 primarily related to the change in net earnings, including noncontrolling interest, in the table above and were offset primarily by a non-cash adjustment to foreign currency, asset write downs and other non-cash adjustments and impacts to changes in operating assets and liabilities. The following table presents the impact to affected line items for the correction of the errors on our condensed consolidated statement of cash flows for the three months ended March 31, 2020:


	Three Months Ended March 31, 2020
(Amounts in thousands)	As Reported		Adjustments		As Revised
Net cash flows provided (used) by operating activities	$	47,302	$	201	$	47,503
Net cash flows provided (used) by investing activities (1)	(6,573)		1,355		(5,218)
Net cash flows provided (used) by financing activities (2)	(63,925)		(1,556)		(65,481)
Cash and cash equivalents at end of period	622,299		0		622,299

(1) Primarily related to adjustments resulting from the misclassification of Software as a service arrangements as property, plant and equipment rather than other assets, net, as prescribed by ASU 2018-15.

(2) Primarily resulting from the misclassification of non-cash items under proceeds and payments under other financing arrangements in financing activities, rather than other assets, net, in operating activities.

The impacts of the revisions have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.

3.Revenue Recognition

The majority of our revenues relate to customer orders that typically contain a single commitment of goods or services which have lead times under a year. Longer lead time, more complex contracts with our customers typically have multiple commitments of goods and services, including any combination of designing, developing, manufacturing, modifying, installing and commissioning of flow management equipment and providing services and parts related to the performance of such products. Control transfers over time when the customer is able to direct the use of and obtain substantially all of the benefits of our work as we perform.

Our primary method for recognizing revenue over time is the percentage of completion ("POC") method. Revenue from products and services transferred to customers over time accounted for approximately ~~22%~~18% and ~~19%~~23% of total revenue for the three month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 22% and 18% for the six month period ended June 30, 2020 and 2019,~~ respectively. If control does not transfer over time, then control transfers at a point in time. We recognize revenue at a point in time at the level of each performance obligation based on the evaluation of certain indicators of control transfer, such as title transfer, risk of loss transfer, customer acceptance and physical possession. Revenue from products and services transferred to customers at a point in time accounted for approximately ~~78%~~82% and ~~81%~~77% of total revenue for the three month ~~period~~periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and 78% and 82% for the six month period ended June 30, 2020 and 2019,~~ respectively. Refer to Note 23 to our consolidated financial statements included in our ~~2019~~2020 Annual Report for a more comprehensive discussion of our policies and accounting practices of revenue recognition.

Disaggregated Revenue

We conduct our operations through 2 business segments based on the type of product and how we manage the business:

•Flowserve Pump Division ("FPD") for custom, highly-engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and

•Flow Control Division ("FCD") ~~for engineered~~designs, manufactures and ~~industrial~~distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, ~~actuators and~~valve automation products, boiler controls and related ~~services.~~equipment.

Our revenue sources are derived from our original equipment manufacturing and our aftermarket sales and services. Our original equipment revenues are generally related to originally designed, manufactured, distributed and installed equipment that

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can range from pre-configured, short-cycle products to more customized, highly-engineered equipment ("Original Equipment"). Our aftermarket sales and services are derived from sales of replacement equipment, as well as maintenance, advanced diagnostic, repair and retrofitting services ("Aftermarket"). Each of our 2 business segments generate Original Equipment and Aftermarket revenues.

The following table presents our customer revenues disaggregated by revenue source:


		Three Months Ended June 30, 2020											Three Months Ended March 31, 2021
(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Total		(Amounts in thousands)	FPD		FCD		Total
Original Equipment	Original Equipment	$	271,465	$	191,311	$	462,776	Original Equipment	$	214,164	$	192,720	$	406,884
Aftermarket	Aftermarket	402,089		60,100		462,189		Aftermarket	388,002		62,422		450,424
		$	673,554	$	251,411	$	924,965		$	602,166	$	255,142	$	857,308

		Three Months Ended June 30, 2019											Three Months Ended March 31, 2020
		FPD		FCD		Total			FPD		FCD		Total
Original Equipment	Original Equipment	$	243,625	$	248,927	$	492,552	Original Equipment	$	252,732	$	198,619	$	451,351
Aftermarket	Aftermarket	430,341		67,191		497,532		Aftermarket	382,394		59,768		442,162
		$	673,966	$	316,118	$	990,084		$	635,126	$	258,387	$	893,513

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Six Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Total
Original Equipment $ 524,197 $ 390,874 $ 915,071
Aftermarket 784,482 119,869 904,351
$ 1,308,679 $ 510,743 $ 1,819,422
Six Months Ended June 30, 2019
FPD FCD Total
Original Equipment $ 449,429 $ 462,973 $ 912,402
Aftermarket 833,296 134,437 967,733
$ 1,282,725 $ 597,410 $ 1,880,135

Our customer sales are diversified geographically. The following table presents our revenues disaggregated by geography, based on the shipping addresses of our customers:

Three Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Total
North America(1) $ 269,610 $ 106,737 $ 376,347
Latin America(1) 46,909 6,905 53,814
Middle East and Africa 96,740 21,687 118,427
Asia Pacific 128,102 64,499 192,601
Europe 132,193 51,583 183,776
$ 673,554 $ 251,411 $ 924,965
Three Months Ended June 30, 2019
FPD FCD Total
North America(1) $ 269,737 $ 134,715 $ 404,452
Latin America(1) 45,771 10,093 55,864
Middle East and Africa 87,344 22,875 110,219
Asia Pacific 124,206 83,189 207,395
Europe 146,908 65,246 212,154
$ 673,966 $ 316,118 $ 990,084

~~Table of~~ ~~Contents~~


		Six Months Ended June 30, 2020											Three Months Ended March 31, 2021
(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Total		(Amounts in thousands)	FPD		FCD		Total
North America (1)		$	537,135	$	229,862	$	766,997
North America(1)								North America(1)	$	223,975	$	90,247	$	314,222
Latin America(1)	Latin America(1)	89,096		12,415		101,511		Latin America(1)	42,040		6,818		48,858
Middle East and Africa	Middle East and Africa	193,908		48,352		242,260		Middle East and Africa	82,541		27,687		110,228
Asia Pacific	Asia Pacific	240,557		120,000		360,557		Asia Pacific	124,648		78,661		203,309
Europe	Europe	247,983		100,114		348,097		Europe	128,962		51,729		180,691
		$	1,308,679	$	510,743	$	1,819,422		$	602,166	$	255,142	$	857,308

		Six Months Ended June 30, 2019											Three Months Ended March 31, 2020
		FPD		FCD		Total			FPD		FCD		Total
North America (1)		$	517,506	$	269,874	$	787,380
North America(1)								North America(1)	$	267,524	$	123,118	$	390,642
Latin America(1)	Latin America(1)	83,373		15,893		99,266		Latin America(1)	42,187		5,511		47,698
Middle East and Africa	Middle East and Africa	161,710		45,763		207,473		Middle East and Africa	97,168		26,663		123,831
Asia Pacific	Asia Pacific	238,154		140,401		378,555		Asia Pacific	112,455		54,563		167,018
Europe	Europe	281,982		125,479		407,461		Europe	115,792		48,532		164,324
		$	1,282,725	$	597,410	$	1,880,135		$	635,126	$	258,387	$	893,513

(1) North America represents the United States and Canada; Latin America includes Mexico.

On ~~June 30, 2020~~March 31, 2021, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately ~~$548~~$573 million. We estimate recognition of approximately ~~$273~~$390 million of this amount as revenue in the remainder of ~~2020~~2021 and an additional ~~$275~~$183 million in ~~2021~~2022 and thereafter.

Contract Balances

We receive payment from customers based on a contractual billing schedule and specific performance requirements as established in our contracts. We record billings as accounts receivable when an unconditional right to consideration exists. A contract asset represents revenue recognized in advance of our right to receive payment under the terms of a contract. A contract liability represents our right to receive payment in advance of revenue recognized for a contract.

The following tables present beginning and ending balances of contract assets and contract liabilities, current and long-term, for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


(Amounts in thousands)	(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)		(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)
Beginning balance, January 1, 2020		$	272,914	9,280		$	216,541	$	1,652
Beginning balance, January 1, 2021										Beginning balance, January 1, 2021	$	277,734	1,139		$	194,227	$	822
Revenue recognized that was included in contract liabilities at the beginning of the period	Revenue recognized that was included in contract liabilities at the beginning of the period	—		—		(134,440)		(646)		Revenue recognized that was included in contract liabilities at the beginning of the period	0		0		(78,713)		0
Revenue recognized in the period in excess of billings	Revenue recognized in the period in excess of billings	386,250		511		—		—		Revenue recognized in the period in excess of billings	164,246		55		0		0
Billings arising during the period in excess of revenue recognized	Billings arising during the period in excess of revenue recognized	—		—		141,156		—		Billings arising during the period in excess of revenue recognized	0		0		82,712		0
Amounts transferred from contract assets to receivables	Amounts transferred from contract assets to receivables	(335,505)		(93)		—		—		Amounts transferred from contract assets to receivables	(156,805)		0		0		0

Currency effects and other, net	Currency effects and other, net	(14,510)		(6,689)		(9,122)		(31)		Currency effects and other, net	(10,988)		(98)		1,312		(30)
Ending balance, June 30, 2020		$	309,149	$	3,009	$	214,135	$	975
Ending balance, March 31, 2021										Ending balance, March 31, 2021	$	274,187	$	1,096	$	199,538	$	792

1210

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(Amounts in thousands)	(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)		(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)
Beginning balance, January 1, 2019		$	228,579	$	10,967	$	202,458	$	1,370
Beginning balance, January 1, 2020										Beginning balance, January 1, 2020	$	272,914	$	9,280	$	221,095	$	1,652
Revenue recognized that was included in contract liabilities at the beginning of the period	Revenue recognized that was included in contract liabilities at the beginning of the period	—		—		(108,769)		—		Revenue recognized that was included in contract liabilities at the beginning of the period	0		0		(90,190)		(634)
Revenue recognized in the period in excess of billings	Revenue recognized in the period in excess of billings	361,384		—		—		—		Revenue recognized in the period in excess of billings	203,856		504		0		0
Billings arising during the period in excess of revenue recognized	Billings arising during the period in excess of revenue recognized	—		—		119,726		—		Billings arising during the period in excess of revenue recognized	0		0		100,121		0
Amounts transferred from contract assets to receivables	Amounts transferred from contract assets to receivables	(372,398)		(2,444)		—		—		Amounts transferred from contract assets to receivables	(185,456)		(93)		0		0

Currency effects and other, net	Currency effects and other, net	(2,125)		45		(3,726)		(360)		Currency effects and other, net	(15,387)		(7,229)		(1,896)		(53)
Ending balance, June 30, 2019		$	215,440	$	8,568	$	209,689	$	1,010
Ending balance, March 31, 2020										Ending balance, March 31, 2020	$	275,927	$	2,462	$	229,130	$	965

(1) Included in other assets, net.

(2) Included in retirement obligations and other liabilities.

~~Table of~~ 4.~~Contents~~

~~3. Leases~~

~~We have operating and finance leases~~Allowance for ~~certain manufacturing facilities, offices, service and quick response centers, machinery, equipment and automobiles. Our leases have remaining lease terms of up to~~ 33 years. The terms and conditions of our leases may include options to extend or terminate the lease which are considered and included in the lease term when these options are reasonably certain of exercise.

We determine if a contract is (or contains) a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. For all classes of leased assets, we have elected the practical expedient to account for any non-lease components in the contract together with the related lease component in the same unit of account. For lease contracts containing more than one lease component, we allocate the contract consideration to each of the lease components on the basis of relative standalone prices in order to identify the lease payments for each lease component.

Right-of-use ("ROU") assets and lease liabilities are recognized in our condensed consolidated balance sheets at the commencement date based on the present value of remaining lease payments over the lease term. Additionally, ROU assets include any lease payments made at or before the commencement date, as well as any initial direct costs incurred, and are reduced by any lease incentives received. As most of our operating leases do not provide an implicit rate, we apply our incremental borrowing rate to determine the present value of remaining lease payments. Our incremental borrowing rate is determined based on information available at the commencement date of the lease.

Operating leases are included in operating lease ROU assets, net and operating lease liabilities in our condensed consolidated balance sheets. Finance leases are included in property plant and equipment, debt due within one year and long-term debt due after one year in our condensed consolidated balance sheets.

We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred.

We have certain lease contracts where we provide a guarantee to the lessor that the value of an underlying asset will be at least a specified amount at the end of the lease. Estimated amounts expected to be paid for residual value guarantees are included in operating lease liabilities and ROU assets, net.

~~We had $34.2 million and $34.7 million of legally binding minimum lease payments for operating leases signed but not yet commenced as of June 30, 2020~~ ~~and December 31, 2019, respectively. We did not have material subleases, leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.~~Expected Credit Losses

As previously disclosed, on January 1, 2020 we adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments" ("CECL") on a prospective basis to determine our allowance for credit losses. As a result of the adoption of the ASU, we recorded a noncash cumulative effect after-tax adjustment to retained earnings of $7.3 million on our January 1, 2020 opening condensed consolidated balance sheet.

The allowance for credit losses is an estimate of the credit losses expected over the life of our financial assets and instruments. We assess and measure expected credit losses on a collective basis when similar risk characteristics exist, including market, geography, credit risk and remaining duration. Financial assets and instruments that do not share risk characteristics are evaluated on an individual basis. Our estimate of the allowance balance is assessed and quantified using internal and external valuation information relating to past events, current conditions and reasonable and supportable forecasts over the contractual terms of an asset.

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

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~~Other information related~~Contract assets represent a conditional right to ~~our leases~~consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Generally, contract assets are recorded when contractual billing schedules differ from revenue recognition based on timing and are managed through the revenue recognition process. The current expected credit loss for contract assets is ~~as follows:~~estimated to be approximately 1% of the asset balance.

June 30, December 31,
(Amounts in thousands) 2020 2019
Operating Leases:
ROU assets recorded under operating leases $ 223,839 $ 220,865
Accumulated amortization associated with operating leases (50,627) (34,647)
Total operating leases ROU assets, net $ 173,212 $ 186,218
Liabilities recorded under operating leases (current) $ 35,648 $ 36,108
Liabilities recorded under operating leases (non-current) 138,735 151,523
Total operating leases liabilities $ 174,383 $ 187,631
Finance Leases:
ROU assets recorded under finance leases $ 20,126 $ 19,606
Accumulated depreciation associated with finance leases (8,421) (7,551)
Total finance leases ROU assets, net(1) $ 11,705 $ 12,055
Total finance leases liabilities(2) $ 11,501 $ 11,788
The costs components of operating and finance leases are as follows:
Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2020 2019 2020 2019
Operating Lease Costs:
Fixed lease expense(3) $ 14,072 $ 14,797 $ 28,542 $ 30,006
Variable lease expense(3) 1,519 1,306 3,690 2,880
Total operating lease expense $ 15,591 $ 16,103 $ 32,232 $ 32,886
Finance Lease Costs:
Depreciation of finance lease ROU assets(3) $ 1,235 $ 1,130 $ 2,539 $ 2,287
Interest on lease liabilities(4) 23 73 256 151
Total finance lease expense $ 1,258 $ 1,203 $ 2,795 $ 2,438
The following table presents the changes in the allowance for expected credit losses for our trade receivables and contract assets for the three months ended March 31, 2021 and 2020:

~~_____________________~~

~~(1) Included in property, plant and equipment, net of accumulated depreciation.~~

~~(2) Included in debt due within one year and long-term debt due after one year, accordingly.~~

~~(3) Included in cost of sales and selling, general and administrative expense, accordingly.~~

~~(4) Included in interest expense.~~


(Amounts in thousands)	Trade receivables		Contract assets
Beginning balance, January 1, 2021	$	75,176	$	3,205
Charges to cost and expenses, net of recoveries	(79)		0

Currency effects and other, net	(1,268)		(66)
Ending balance, March 31, 2021	$	73,829	$	3,139

Beginning balance, January 1, 2020	$	53,412	$	206
Adoption of ASU 2016-13	7,291		2,403
Charges to cost and expenses, net of recoveries	4,058		0

Currency effects and other, net	1,491		72
Ending balance, March 31, 2020	$	66,252	$	2,681

Our allowance on long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of reserved receivables associated with the national oil company in Venezuela. The following table presents the changes in the allowance for long-term receivables for the three months ended March 31, 2021 and 2020:


(Amounts in thousands)	2021		2020
Balance at January 1	$	67,842	$	68,555
Adoption of ASU 2016-13	0		(552)


Currency effects and other, net	(1,059)		(574)
Balance at March 31	$	66,783	$	67,429

We also have exposure to credit losses from off-balance sheet exposures, such as financial guarantees and standby letters of credit, where we believe the risk of loss is immaterial to our financial statements as of March 31, 2021.

5.Stock-Based Compensation Plans

~~Table of~~ ~~Contents~~

~~Supplemental cash flows information as of and for the six months ended~~:

June 30,
(Amounts in thousands, except lease term and discount rate) 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases(1) $ 36,067 $ 26,448
Financing cash flows from finance leases(2) 2,026 2,297
ROU assets obtained in exchange for lease obligations:
Operating leases $ 13,964 11,983
Finance leases 3,143 6,006
Weighted average remaining lease term (in years)
Operating leases 8 years 9 years
Finance leases 3 years 3 years
Weighted average discount rate (percent)
Operating leases 4.5 % 4.5 %
Finance leases 3.5 % 3.8 %

~~_____________________~~

~~(1) Included in our condensed consolidated statement of cash flows, operating activities, prepaid expenses and other assets, net and retirement obligations and other.~~

~~(2) Included in our condensed consolidated statement of cash flows, financing activities, payments under other financing arrangements.~~

~~Future undiscounted lease payments under operating and finance leases as of June 30, 2020 were as follows (amounts in thousands):~~

Year ending December 31, Operating
Leases Finance Leases
2020 (excluding the six months ended June 30, 2020) $ 21,733 $ 3,836
2021 36,114 3,991
2022 29,428 2,697
2023 23,638 1,362
2024 18,420 330
Thereafter 79,872 54
Total future minimum lease payments $ 209,205 $ 12,270
Less: Imputed interest (34,822) (769)
Total $ 174,383 $ 11,501
Other current liabilities $ 35,648 $ —
Operating lease liabilities 138,735 —
Debt due within one year — 4,725
Long-term debt due after one year — 6,776
Total $ 174,383 $ 11,501

~~Table of~~ ~~Contents~~

~~4. Stock-Based Compensation Plans~~

~~Effective January 1, 2020, our shareholders approved~~We maintain the Flowserve Corporation 2020 Long-Term Incentive Plan (“2020 Plan”). The 2020 Plan replaces and supersedes the Flowserve Corporation Equity and Incentive Compensation Plan ("2010 Plan") in its entirety. See Note 7 to our consolidated financial statements included in our 2019 Annual Report for additional information on the 2010 Plan. The 2020 Plan authorizes, which is a shareholder approved plan authorizing the issuance of 12,500,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as "Restricted Shares"), incentive stock options, non-statutory stock options, stock appreciation rights and bonus ~~stock, in addition to any shares available for issuance or subject to forfeiture under the 2010 Plan as of its expiration on December 31, 2019.~~ stock. Of the shares of common stock authorized under the 2020 Plan, ~~and remaining shares under the 2010 Plan,~~ ~~13,380,817 were~~11,230,386 were available for issuance as of ~~June 30, 2020.~~March 31, 2021. Restricted Shares primarily vest over a three year period. Restricted Shares granted to employees who retire and have achieved at least 55 years of age and 10 years of service continue to vest over the original vesting period ("55/10 Provision"). As of ~~June 30, 2020~~,March 31, 2021, 114,943 stock options were ~~outstanding, with a grant date fair value of $2.0 million recognized over three years. As of June 30, 2020~~, ~~compensation associated with these stock options was fully earned. The total fair value of stock options vested during both the three and six months ended~~ ~~June 30, 2020~~ ~~was $2.0 million, compared to~~ ~~0 stock options vested during both the three and six months ended June 30, 2019. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model.~~ outstanding. NaN stock options were granted or vested during the ~~six~~three months ended March 31, 2021 and 2020.

Table of ~~June 30, 2020~~Contents ~~and 2019.~~

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 $~~32.4~~45.2 million and ~~$23.4~~$18.7 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, which is expected to be recognized over a remaining weighted-average period of ~~approximately~~ approximat~~one year~~ely two years. . These amounts will be recognized into net earnings in prospective periods as the ~~awards~~awards vest. The total fair value of Restricted Shares vested during the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$2.9~~$23.4 million and ~~$2.4 million~~, ~~respectively. The total fair value of Restricted Shares vested during the six months ended June 30, 2020 and 2019 was $21.0 million and~~ ~~$16.3~~$18.1 million, respectively.

We recorded stock-based compensation expense of ~~$3.3~~$7.6 million ($~~4.2~~9.8 million pre-tax) and ~~$5.9~~$11.1 million ($~~7.7~~14.3 million pre-tax) for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~We recorded stock-based compensation expense of $14.4 million ($18.5 million pre-tax) and~~ ~~$11.9 million ($15.3 million~~ pre-tax) for the six months ended June 30, 2020 and 2019, respectively. Performance-based shares granted in 2016 did not vest due to performance targets not being achieved, resulting in 115,302 forfeited shares and a $4.5 million reduction of stock-based compensation expense for the six months ended June 30, 2019.

The following table summarizes information regarding Restricted Shares:

Six Months Ended June 30, 2020
Shares Weighted Average
Grant-Date Fair
Value
Number of unvested shares:
Outstanding - January 1, 2020 1,690,600 $ 46.71
Granted 697,472 47.12
Vested (458,639) 45.76
Forfeited (325,048) 49.72
Outstanding as of June 30, 2020 1,604,385 $ 46.55


	Three Months Ended March 31, 2021
	Shares	Weighted Average Grant-Date Fair Value
Number of unvested shares:
Outstanding - January 1, 2021	1,373,657	$	46.76
Granted	947,047	39.47
Vested	(518,690)	45.17
Forfeited	(61,371)	52.31
Outstanding as of March 31, 2021	1,740,643	$	43.08

Unvested Restricted Shares outstanding as of ~~June 30, 2020~~March 31, 2021 included approximately ~~562,000~~526,000 units with performance-based vesting provisions. Performance-based units are issuable in common stock and vest upon the achievement of pre-defined performance targets. Performance-based units issued in 2019 and 2020 have performance targets based on our average return on invested capital and our total shareholder return ("TSR") over a three-year period. ~~Most unvested~~Performance units ~~were granted~~issued in ~~three~~ ~~annual grants since January 1, 2018~~2021 have primary performance targets based on average return on invested capital and free cash flow as a percent of net income, including a secondary relative total shareholder return performance measure which can increase or decrease the number of units by 15% depending on the Company's performance versus peers. Performance units issued in 2019 and 2020 have a vesting percentage between 0% and 200% ~~depending on the achievement of the specific~~and performance ~~targets. Except for shares granted under the 55/10 Provision, compensation~~units issued in 2021 have a vesting percentage between 0% and 230%. Compensation expense is generally recognized ratably over a cliff-vesting period of 36 months, based on the fair value of our common stock on the date of grant, as adjusted for actual forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets for all performance-based units granted except for the TSR-based units. Vesting provisions range from 0 to approximately ~~1,124,000~~1,101,000 shares based on performance targets. As of ~~June 30, 2020,~~March 31, 2021, we estimate vesting of approximately ~~618,000~~496,000 shares based on expected achievement of performance targets.

~~Table of~~ ~~Contents~~

5. 6.Derivative Instruments and Hedges

Our risk management and foreign currency derivatives and hedging policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 89 to our consolidated financial statements included in our ~~2019~~2020 Annual Report and Note 8 ofof this Quarterly Report for additional information on our derivatives. We enter into foreign exchange forward contracts to hedge our cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction.

~~Foreign~~Foreign exchange contracts w~~ith~~with third parties had a notional value of ~~$385.1~~$371.3 million and ~~$398.5~~$388.1 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. At ~~June 30, 2020,~~March 31, 2021, the length of foreign exchange contracts currently in place ranged from 6 days to 2617 months.

We are exposed to risk from ~~credit-related~~credit-related losses resulting from ~~nonperformance~~nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under foreign exchange contracts agreements and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.

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The fair values of foreign exchange contracts are summarized below:


		June 30,		December 31,			March 31,		December 31,
(Amounts in thousands)	(Amounts in thousands)	2020		2019		(Amounts in thousands)	2021		2020
Current derivative assets	Current derivative assets	$	2,206	$	892	Current derivative assets	$	2,416	$	2,857
Noncurrent derivative assets	Noncurrent derivative assets	—		15		Noncurrent derivative assets	17		249
Current derivative liabilities	Current derivative liabilities	1,202		3,418		Current derivative liabilities	1,665		682
Noncurrent derivative liabilities	Noncurrent derivative liabilities	231		8		Noncurrent derivative liabilities	2		0

Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.

The impact of net changes in the fair values of foreign exchange contracts are summarized below:

Three Months Ended June 30, Six Months Ended June 30,
(Amounts in thousands) 2020 2019 2020 2019
Gains (losses) recognized in income $ (3,520) $ (1,413) $ (61) $ (2,694)


	Three Months Ended March 31,
(Amounts in thousands)		2021		2020
Gains recognized in income		$	6,105	$	3,459

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

As a means of managing the volatility of foreign currency exposure with the Euro/U.S. dollar exchange rate, we enter into cross-currency swaps agreements ("Swaps") as a hedge of our Euro investment in certain of our international subsidiaries. Accordingly, on March 9, 2021 we entered into a cross currency swap agreement with an early termination date of March 9, 2025 and during the third quarter of 2020 we entered into a cross currency swap agreement with an early termination date of September 22, 2025. Both swap agreements are designated as net investment hedges. As of March 31, 2021, the combined notional value of these swaps was €288.2 million. The swaps are included in retirement obligations and other liabilities in our condensed consolidated balance sheet as of March 31, 2021, with a fair value of $(18.3) million, compared to $(18.1) million as of December 31, 2020. The swaps are classified as Level II under the fair value hierarchy.

We ~~previously designa~~exclude the interest accruals on the swaps from the assessment of hedge effectiveness and recognize the interest accruals in earnings within interest expense. For each reporting period, the change in the fair value of the swaps attributable to changes in the spot rate and differences between the change in the fair value of the excluded components and the amounts recognized in earnings under the swap accrual process are reported in accumulated other comprehensive loss on our consolidated balance sheet. ~~ted~~For the period ending March 31, 2021, an interest accrual of $(0.6) million was recognized within interest expense, in our condensed consolidated statements of income.

The cumulative net investment hedge loss, net of deferred taxes, under cross-currency swaps recorded in accumulated other comprehensive loss (gain) ("AOCL") on our condensed consolidated balance sheet are summarized below:


	March 31,
	2021		2020
	(Amounts in thousands)
Gain-included component (1)	$	(1,613)	$	0
Loss-excluded component (2)	15,639		0
Loss recognized in AOCL	$	14,026	$	0

________________________

(1) Change in the fair value of the swaps attributable to changes in spot rates.

(2) Change in the fair value of the swaps due to changes other than those attributable to spot rates.

In March 2015, we designated €255.7 million of our ~~€500.0 million~~1.25% EUR 2022 Senior Notes ("2022 Euro ~~senior notes~~Senior Notes") discussed in Note 67 as a net investment hedge of our ~~investments~~Euro investment in certain of our ~~int~~international subsidiaries. On September 22, 2020, we increased the designated hedged value on the 2022 Euro Senior Notes to €336.3 million, which reflected the remaining balance of the 2022 Euro Senior Notes.~~ernational subsidiaries that use the Euro as their functional currency. We use the spot method to measure the effectiveness of our net investment hedge. Under this method, for~~ For each reporting period, the change in the carrying value ~~of the Euro senior notes~~ due to the remeasurement of the effective portion is reported in accumulated other comprehensive loss on our ~~condensed~~ consolidated balance sheet and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income (expense), net in our

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condensed consolidated ~~statement~~statements of income. ~~We evaluate~~As a result of the ~~effectiveness~~redemption of our 2022 Euro Senior Notes discussed in Note 7, in February and March of 2021 we dedesignated the hedged value of our net investment hedge.

Prior to the dedesignation, the cumulative impact recorded in AOCL on our consolidated balance sheet from the change in carrying value due to the remeasurement of the effective portion of the net investment hedge are summarized below:


	March 31,
	2021		2020
	(Amounts in thousands)
Loss recognized in AOCL	$	29,554	$	8,520

Prior to the dedesignation of the net investment hedge, we used the spot method to measure the effectiveness of both net investment hedges and evaluate the effectiveness on a prospective basis at the beginning of each quarter. We did not record any ineffectiveness ~~for~~ during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

187.Debt

~~Table of~~ ~~Contents~~

~~6. Debt~~

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


		June 30,		December 31,			March 31,		December 31,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2020		2019		(Amounts in thousands, except percentages)	2021		2020
1.25% EUR Senior Notes due March 17, 2022, net of unamortized discount and debt issuance costs of $2,065 and $2,653		$	559,485	$	557,847
3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $1,583 and $1,924		498,417		498,076
4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,563 and $1,777		298,437		298,223
1.25% EUR Senior Notes due March 17, 2022, net of unamortized discount and debt issuance costs of $1,070 as of December 31, 2020						1.25% EUR Senior Notes due March 17, 2022, net of unamortized discount and debt issuance costs of $1,070 as of December 31, 2020	$	0	$	410,243
3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $1,059 and $1,235						3.50% USD Senior Notes due September 15, 2022, net of unamortized discount and debt issuance costs of $1,059 and $1,235	498,941		498,765
4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,234 and $1,345						4.00% USD Senior Notes due November 15, 2023, net of unamortized discount and debt issuance costs of $1,234 and $1,345	298,766		298,655
3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $6,014 and $6,147						3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $6,014 and $6,147	493,986		493,853

Finance lease obligations and other borrowings	Finance lease obligations and other borrowings	20,197		23,103		Finance lease obligations and other borrowings	24,228		25,390
Debt and finance lease obligations	Debt and finance lease obligations	1,376,536		1,377,249		Debt and finance lease obligations	1,315,921		1,726,906
Less amounts due within one year	Less amounts due within one year	9,058		11,272		Less amounts due within one year	8,342		8,995

Total debt due after one year	Total debt due after one year	$	1,367,478	$	1,365,977	Total debt due after one year	$	1,307,579	$	1,717,911

Senior Notes

On March 19, 2021, we redeemed the remaining $400.9 million of our 2022 Euro Senior Notes and have recorded a loss on early extinguishment of $7.6 million, which included the impact of a $6.6 million make-whole premium. During the third quarter of 2020 we tendered $191.4 million of our 2022 Euro Senior Notes and recorded a loss on early extinguishment of $1.2 million in interest expense.

Senior Credit Facility

On ~~July 16, 2019,~~September 4, 2020, we ~~entered into a~~amended our credit agreement ~~(“Credit Agreement”)~~ with Bank of America, N.A., as administrative agent, and the other lenders party ~~thereto.~~thereto ("Amended Credit Agreement") to provide greater flexibility in maintaining adequate liquidity in the event we have the need to access available borrowings under our Senior Credit Facility ("Credit Facility"). The Amended Credit Agreement provides for an $800.0 million unsecured senior credit facility with a maturity date of July 16, ~~2024 (“Senior Credit Facility”).~~2024. The ~~Senior~~ Credit Facility includes a $750.0 million sublimit for the issuance of letters of credit and a $30.0 million sublimit for swing line loans. We have the right to increase the amount of the ~~Senior~~ Credit Facility by an aggregate amount not to exceed $400.0 million, subject to certain conditions, including each Lender's approval providing any increase.

The Amended Credit Agreement, among other things, (i) replaces the existing leverage ratio financial covenant (the “Existing Leverage Covenant”) with a leverage ratio financial covenant that requires the Company’s ratio of consolidated funded indebtedness, minus the amount of all cash and cash equivalents on our balance sheet in excess of $250.0 million, to the Company’s Consolidated EBITDA, not to exceed 4.00 to 1.00 as of the last day of any quarter through and including December 31, 2021 (the “Covenant Relief Period”), (ii) amends the Existing Leverage Covenant to provide that it will not be tested until

the quarter ending March 31, 2022, (iii) provides that the Existing Leverage Covenant, beginning March 31, 2022, cannot exceed 4.00 to 1.00 (or as increased to 4.50 to 1.00 in connection with certain acquisitions) and (iv) limits the Company’s ability to pay dividends and repurchase its shares of common stock, par value $1.25, during the Covenant Relief Period, to an amount not to exceed 115% of the total amount of dividends and share repurchases we made during the period commencing January 1, 2019 through and including June 30, 2020.

The interest rates per annum applicable to the Senior Credit Facility, other than with respect to swing line loans, are LIBOR plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc. or Standard & Poor’s Financial Services LLC ("S&P") Ratings, or, at our option, the Base Rate (as defined in the Credit Agreement) plus between 0.000% to 0.750% depending on our debt rating by either Moody’s Investors Service, Inc. or S&P Ratings. At ~~June 30, 2020,~~March 31, 2021, the interest rate on the Senior Credit Facility was LIBOR plus 1.375% in the case of LIBOR loans and the Base Rate plus 0.375% in the case of Base Rate loans. In addition, a commitment fee is payable quarterly in arrears on the daily unused portions of the ~~Senior~~ Credit Facility. The commitment fee will be between 0.090% and 0.300% of unused amounts under the ~~Senior~~ Credit Facility depending on our debt rating by either Moody’s Investors Service, Inc. or S&P’s Ratings. The commitment fee was 0.20% (per annum) during the period ended ~~June 30, 2020.~~March 31, 2021.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had0 revolving loans outstanding. We had outstanding letters of credit of $~~62.4~~58.0 million and ~~$88.5~~$58.1 million at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. AsAs of ~~June 30, 2020, due to a financial covenant in the Senior Credit Facility,~~March 31, 2021, the amount available for borrowings ~~was effectively limited to~~ u~~$722.2 million. The amount available for borrowings under~~nder our Senior Credit Facility was ~~$711.5~~ $742.0 million, compared to $741.9 million at December 31, ~~2019.~~2020.

Our compliance with applicable financial covenants under the Senior Notes and ~~Senior~~ Credit Facility are tested quarterly. We were in compliance with all applicable covenants as of ~~June 30, 2020.~~March 31, 2021.

198.Fair Value

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~~7. Fair Value~~

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized by hierarchical levels based upon the level of judgment associated with the inputs used to measure their fair values. Recurring fair value measurements are limited to investments in derivative instruments. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy. The fair values of our derivatives are included in Note 5.6.

Our financial instruments are presented at fair value in our condensed consolidated balance sheets, with the exception of our long-term debt. The estimated fair value of our long-term debt, excluding the Senior Notes, ~~approximates~~approximates the carrying value and is classified as Level II under the fair value h~~ierarchy.~~hierarchy. The carrying value of our debt is included in Note 6.7. The estimated fair value of our Senior Notes at ~~June 30, 2020~~March 31, 2021 was ~~$1,353.4~~$1,340.1 million compared to the carrying value of ~~$1,356.3~~$1,291.7 million. The estimated fair value of the Senior Notes is based on Level I quoted market rates. The carrying amounts of our other ~~financial~~financial instruments (e.g., cash and cash equivalents, accounts receivable, net, accounts payable and short-term debt) ~~approximated~~approximated fair value due to their short-term nature at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

8. 9.Inventories

Inventories, net consisted of the following:

June 30, December 31,
(Amounts in thousands) 2020 2019
Raw materials $ 340,941 $ 328,080
Work in process 226,134 192,993
Finished goods 198,827 218,408
Less: Excess and obsolete reserve (81,471) (78,644)
Inventories, net $ 684,431 $ 660,837


	March 31,		December 31,
(Amounts in thousands)	2021		2020
Raw materials	$	322,707	$	321,600
Work in process	233,795		210,174
Finished goods	204,604		221,532

Less: Excess and obsolete reserve	(88,983)		(86,078)
Inventories, net	$	672,123	$	667,228

2015

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10.Earnings Per Share

The following is a reconciliation of net earnings of Flowserve Corporation and weighted average shares for calculating net earnings per common share. Earnings per weighted average common share outstanding was calculated as follows:


		Three Months Ended June 30,							Three Months Ended March 31,
(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)	2020		2019		(Amounts in thousands, except per share data)	2021		2020
Net earnings of Flowserve Corporation	Net earnings of Flowserve Corporation	$	8,645	$	58,172	Net earnings of Flowserve Corporation	$	14,080	$	12,123
Dividends on restricted shares not expected to vest	Dividends on restricted shares not expected to vest	—		—		Dividends on restricted shares not expected to vest	0		0
Earnings attributable to common and participating shareholders	Earnings attributable to common and participating shareholders	$	8,645	$	58,172	Earnings attributable to common and participating shareholders	$	14,080	$	12,123
Weighted average shares:	Weighted average shares:					Weighted average shares:
Common stock	Common stock	130,148		131,126		Common stock	130,406		130,731
Participating securities	Participating securities	22		21		Participating securities	21		23
Denominator for basic earnings per common share	Denominator for basic earnings per common share	130,170		131,147		Denominator for basic earnings per common share	130,427		130,754
Effect of potentially dilutive securities	Effect of potentially dilutive securities	560		607		Effect of potentially dilutive securities	579		819
Denominator for diluted earnings per common share	Denominator for diluted earnings per common share	130,730		131,754		Denominator for diluted earnings per common share	131,006		131,573
Earnings per common share:	Earnings per common share:					Earnings per common share:
Basic	Basic	$	0.07	$	0.44	Basic	$	0.11	$	0.09
Diluted	Diluted	0.07		0.44		Diluted	0.11		0.09

Six Months Ended June 30,
(Amounts in thousands, except per share data) 2020 2019
Net earnings of Flowserve Corporation $ 8,035 $ 115,433
Dividends on restricted shares not expected to vest — —
Earnings attributable to common and participating shareholders $ 8,035 $ 115,433
Weighted average shares:
Common stock 130,439 131,044
Participating securities 23 21
Denominator for basic earnings per common share 130,462 131,065
Effect of potentially dilutive securities 690 578
Denominator for diluted earnings per common share 131,152 131,643
Earnings per common share:
Basic $ 0.06 $ 0.88
Diluted 0.06 0.88

Diluted earnings per share above is based upon the weighted average number of shares as determined for basic earnings per share plus shares potentially issuable in conjunction with stock options and Restricted Shares.

~~10.~~11.Legal Matters and Contingencies

Asbestos-Related Claims

We are a defendant in a substantial number of lawsuits that seek to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured and/or distributed by our heritage companies in the past. Typically, these lawsuits have been brought against multiple defendants in state and federal courts. While the overall number of asbestos-related claims in which we or our predecessors have been named has generally declined in recent years, there can be no assurance that this trend will continue, or that the average cost per claim to us will not further increase. Asbestos-containing materials incorporated into any such products were encapsulated and used as internal components of process equipment, and we do not believe that ~~any~~ significant emission of asbestos fibers occurred during the use of this equipment.

Our practice is to vigorously contest and resolve these claims, and we have been successful in resolving a majority of claims with little or no ~~payment.~~ payment, other than legal fees. Activity related to asbestos claims during the periods indicated was as follows:


	Three Months		Year Ended
	March 31,		December 31,
		2021	2020	2020
Beginning claims(1)		8,366	8,345	8,345
New claims		629	581	2,140
Resolved claims		(544)	(641)	(2,203)
Other(2)		(6)	(3)	84
Ending claims(1)		8,445	8,282	8,366

____________________

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(1) Beginning and ending claims data in each period excludes inactive claims, as the Company considers it unlikely that inactive cases will be pursued further by the respective plaintiffs.A claim is classified as inactive either due to inactivity over a period of time or if designated as inactive by the applicable court.

(2) Represents the net change in claims as a result of the reclassification of active cases as inactive and inactive cases as active during the period indicated.Cases moved from active to inactive status are removed from the claims count without being accounted for as a "Resolved claim", and cases moved from inactive status to active status are added back to the claims count without being accounted for as a “New claim”.

During the three months ended March 31, 2021 and 2020, the Company incurred expenses (net of insurance) approximately $2.7 million and $4.3 million, respectively, to defend, resolve or otherwise dispose of outstanding claims, including legal and other related expenses. These expenses are included within SG&A in our condensed consolidated statements of income.

The Company had cash (inflows)/outflows (net of insurance and/or indemnity) to defend, resolve or otherwise dispose of outstanding claims, including legal and other related expenses of approximately $1.6 million and $1.4 million during the periods ending March 31, 2021 and 2020, respectively.

Historically, a high percentage of resolved claims have been covered by applicable insurance or indemnities from other companies, and we believe that a substantial majority of existing claims should continue to be

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covered by insurance or indemnities, in whole or in part. ~~Accordingly,~~

We believe that our reserve for asbestos claims and the receivable for recoveries from insurance carriers that we have recorded ~~a liability~~ for ~~our~~these claims reflects reasonable and probable estimates of these amounts.Our estimate of our ultimate exposure for asbestos claims, however, is subject to significant uncertainties, including the ~~most likely settlement~~timing and number and types of ~~asserted~~new claims, ~~and a related receivable from insurers or other companies for our estimated recovery, to the extent we believe that the amounts of recovery are probable. While~~ unfavorable court rulings, judgments or settlement terms ~~regarding~~and ultimate costs to settle.Additionally, including the continued viability of carriers, may also impact the amount of probable insurance recoveries.We believe that these ~~claims~~uncertainties could have a material adverse impact on our business, financial condition, results of operations and cash flows, though we currently believe the likelihood is remote.

Additionally, we have claims pending against certain insurers that, if resolved more favorably than reflected in the recorded receivables, would result in discrete gains in the applicable quarter. We are currently unable to estimate the impact, if any, of unasserted asbestos-related claims, although we expect that future claims would also be subject to then existing indemnities and insurance coverage.

Other Claims

We are also a defendant in a number of other lawsuits, including product liability claims, that are insured, subject to the applicable deductibles, arising in the ordinary course of business, and we are also involved in other uninsured routine litigation incidental to our business. We currently believe none of such litigation, either individually or in the aggregate, is material to our business, operations or overall financial condition. However, litigation is inherently unpredictable, and resolutions or dispositions of claims or lawsuits by settlement or otherwise could have an adverse impact on our financial position, results of operations or cash flows for the reporting period in which any such resolution or disposition occurs.

Although none of the aforementioned potential liabilities can be quantified with absolute certainty except as otherwise indicated above, we have established or adjusted reserves covering exposures relating to contingencies, to the extent believed to be reasonably estimable and probable based on past experience and available facts. While additional exposures beyond these reserves could exist, they currently cannot be estimated. We will continue to evaluate and update the reserves as necessary and appropriate.

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~~11.~~12.Retirement and Postretirement Benefits

Components of the net periodic cost for retirement and postretirement benefits for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


		U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans								Postretirement Medical Benefits					U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans		Postretirement Medical Benefits
(Amounts in millions)	(Amounts in millions)	2020		2019		2020		2019		2020		2019		(Amounts in millions)	2021		2020		2021		2020		2021		2020
Service cost	Service cost	$	6.6	$	5.9	$	1.7	$	1.5	$	—	$	—	Service cost	$	6.8	$	6.3	$	1.8	$	1.7	$	0	$	0
Interest cost	Interest cost	3.7		4.2		1.6		2.2		0.2		0.2		Interest cost	3.1		3.8		1.4		1.6		0.1		0.1
Expected return on plan assets	Expected return on plan assets	(6.1)		(6.3)		(1.2)		(1.9)		—		—		Expected return on plan assets	(6.5)		(6.7)		(1.5)		(1.2)		0		0
Amortization of prior service cost	Amortization of prior service cost	0.1		0.1		—		0.1		—		—		Amortization of prior service cost	0		0		0.1		0.1		0		0
Amortization of unrecognized net loss (gain)	Amortization of unrecognized net loss (gain)	1.8		0.9		1.1		0.7		—		—		Amortization of unrecognized net loss (gain)	1.9		1.7		1.1		1.0		0		0
Net periodic cost recognized	Net periodic cost recognized	$	6.1	$	4.8	$	3.2	$	2.6	$	0.2	$	0.2	Net periodic cost recognized	$	5.3	$	5.1	$	2.9	$	3.2	$	0.1	$	0.1

~~Components of the net periodic cost for retirement and postretirement benefits for the~~ ~~six~~ ~~months ended June 30, 2020 and 2019 were as follows:~~

U.S.
Defined Benefit Plans Non-U.S.
Defined Benefit Plans Postretirement
Medical Benefits
(Amounts in millions) 2020 2019 2020 2019 2020 2019
Service cost $ 12.9 $ 11.5 $ 3.4 $ 2.9 $ — $ —
Interest cost 7.5 8.7 3.2 4.5 0.3 0.4
Expected return on plan assets (12.8) (12.8) (2.4) (3.8) — —
Amortization of prior service cost 0.1 0.1 0.1 0.1 0.1 —
Amortization of unrecognized net loss (gain) 3.5 1.8 2.1 1.5 (0.1) (0.1)
Net periodic cost recognized $ 11.2 $ 9.3 $ 6.4 $ 5.2 $ 0.3 $ 0.3

The components of net periodic cost for retirement and postretirement benefits other than service costs are included in other income (expense), net in our condensed consolidated ~~statement~~statements of income.

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~~12.~~13.Shareholders’ Equity

Dividends – Generally, our dividend date-of-record is in the last month of the quarter, and the dividend is paid the following month. Any subsequent dividends will be reviewed by our Board of Directors and declared in its discretion.

Dividends declared per share were as follows:

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Dividends declared per share $ 0.20 $ 0.19 $ 0.40 $ 0.38


	Three Months Ended March 31,
		2021		2020
Dividends declared per share		$	0.20	$	0.20

Share Repurchase Program – In 2014, our Board of Directors approved a $500.0 million share repurchase authorization. Our share repurchase program does not have an expiration date and we reserve the right to limit or terminate the repurchase program at any time without notice.

We ~~had 0 repurchases of~~repurchased 129,000 shares of our outstanding common stock for $5.1 million during the three months ended ~~June 30, 2020 and 2019. We repurchased~~March 31, 2021, compared to 1,057,115 shares ~~of our outstanding common stock~~repurchases for $32.1 million du~~ring the six months ended June 30, 2020, compared to 0 repurchases of shares~~ for the same period in ~~2019.~~2020. As of ~~June 30, 2020,~~March 31, 2021, we had ~~$113.6~~$108.5 million of remaining capacity under our current share repurchase program.

~~13.~~14.Income Taxes

For the three months ended ~~June 30, 2020,~~March 31, 2021, we earned ~~$16.2~~$21.0 million before taxes and provided for income taxes of ~~$5.4~~$3.8 million resulting in an effective tax rate of ~~33.4%. For the six months ended June 30, 2020, we earned $54.0 million before taxes and provided for income taxes of $41.7 million resulting in an effective tax rate of 77.3%~~ 18.1%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended ~~June 30, 2020~~March 31, 2021 primarily due to the net impact of foreign ~~operations.~~operations, the reversal of certain deferred tax liabilities as a result of restructuring specific aspects of our global financing arrangements and higher withholding taxes related to transactions with and amongst various foreign subsidiaries.

For the three months ended March 31, 2020, we earned $51.2 million before taxes and provided for income taxes of $37.0 million resulting in an effective tax rate of 72.2%. The effective tax rate varied from the U.S. federal statutory rate for the ~~six~~three months ended ~~June 30,~~March 31, 2020 primarily due to the establishment of a valuation allowance against certain deferred tax assets given the current and anticipated impact to the Company's operations resulting from the COVID-19 pandemic and the distressed oil prices, and ~~the net impact of foreign operations.~~

For the three months ended June 30, 2019, we earned $82.9 million before taxes and provided for income taxes of $22.4 million resulting in an effective tax rate of 27.0%. For the six months ended June 30, 2019, we earned $159.0 million before taxes and provided for income taxes of $39.0 million resulting in an effective tax rate of 24.5%. The effective tax rate varied from the U.S. federal statutory rate for the three and six months ended June 30, 2019 primarily due to the base erosion and anti-abuse tax ("BEAT") provision and state tax, partially offset by the net impact of foreign operations.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures may include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted

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on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. For the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, there were no material tax impacts to our condensed consolidated financial statements as they relate to the CARES Act or any other global COVID-19 measures. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

As of ~~June 30, 2020,~~March 31, 2021, the amount of unrecognized tax benefits ~~increased~~decreased by ~~$2.7~~$1.4 million from December 31, ~~2019.~~2020. With limited exception, we are no longer subject to U.S. federal income tax audits for years through 2017, state and local income tax audits for years through ~~2013~~2014 or non-U.S. income tax audits for years through ~~2012.~~2013. We are currently under examination for various years in Argentina, Canada, ~~France,~~ Germany, India, Indonesia, Italy, Mexico, the Netherlands, Philippines, Saudi Arabia, the U.S. and Venezuela.

It is reasonably possible that within the next 12 months the effective tax rate will be impacted by the resolution of some or all of the matters audited by various taxing authorities. It is also reasonably possible that we will have the statute of limitations close in various taxing jurisdictions within the next 12 months. As such, we estimate we could record a reduction in our tax expense of approximately $7$15 million within the next 12 months.

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~~14.~~15.Segment Information

The following is a summary of the financial information of the reportable segments reconciled to the amounts reported in the condensed consolidated financial statements:

Three Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Sales to external customers $ 673,554 $ 251,411 $ 924,965 $ — $ 924,965
Intersegment sales 510 828 1,338 (1,338) —
Segment operating income 60,419 23,622 84,041 (41,153) 42,888
Three Months Ended June 30, 2019
FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Sales to external customers $ 673,966 $ 316,118 $ 990,084 $ — $ 990,084
Intersegment sales 651 822 1,473 (1,473) —
Segment operating income 76,161 46,161 122,322 (24,304) 98,018


Three Months Ended March 31, 2021
(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total
Sales to external customers	$	602,166	$	255,142	$	857,308	$	—	$	857,308
Intersegment sales	476		681		1,157		(1,157)		—
Segment operating income	53,782		24,712		78,494		(22,391)		56,103

Three Months Ended March 31, 2020
	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total
Sales to external customers	$	635,126	$	258,387	$	893,513	$	—	$	893,513
Intersegment sales	528		997		1,525		(1,525)		—
Segment operating income	39,725		17,181		56,906		(32,702)		24,204

Six Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Sales to external customers $ 1,308,679 $ 510,743 $ 1,819,422 $ — $ 1,819,422
Intersegment sales 1,037 1,825 2,862 (2,862) —
Segment operating income 100,144 40,320 140,464 (72,024) 68,440

Six Months Ended June 30, 2019
FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Sales to external customers $ 1,282,725 $ 597,410 $ 1,880,135 $ — $ 1,880,135
Intersegment sales 1,301 1,650 2,951 (2,951) —
Segment operating income 156,624 90,583 247,207 (57,958) 189,249

2419

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~~15.~~16.Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive loss ("AOCL"), net of tax for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		2020														2019															2021				2020
(Amounts in thousands)	(Amounts in thousands)	Foreign currency translation items(1)		Pension and other post-retirement effects		Cash flow hedging activity		Total(1)		Foreign currency translation items(1)		Pension and other post-retirement effects		Cash flow hedging activity		Total(1)		(Amounts in thousands)	Foreign currency translation items(1)		Pension and other post-retirement effects		Cash flow hedging activity		Total(1)		Foreign currency translation items(1)		Pension and other post-retirement effects		Cash flow hedging activity		Total(1)
Balance - April 1		$	(522,717)	$	(130,852)	$	(617)	$	(654,186)	$	(440,980)	$	(119,430)	$	(796)	$	(561,206)
Balance - January 1																		Balance - January 1	$	(456,437)	$	(146,723)	$	(488)	$	(603,648)	$	(441,364)	$	(137,161)	$	(671)	$	(579,196)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	15,084		(793)		44		14,335		(2,848)		663		43		(2,142)		Other comprehensive income (loss) before reclassifications	(10,889)		1,518		202		(9,169)		(96,061)		3,909		54		(92,098)
Amounts reclassified from AOCL	Amounts reclassified from AOCL	—		2,551		—		2,551		—		1,523		—		1,523		Amounts reclassified from AOCL	0		2,741		0		2,741		0		2,400		0		2,400
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	15,084		1,758		44		16,886		(2,848)		2,186		43		(619)		Net current-period other comprehensive income (loss)	(10,889)		4,259		202		(6,428)		(96,061)		6,309		54		(89,698)
Balance -June 30		$	(507,633)	$	(129,094)	$	(573)	$	(637,300)	$	(443,828)	$	(117,244)	$	(753)	$	(561,825)
Balance - March 31																		Balance - March 31	$	(467,326)	$	(142,464)	$	(286)	$	(610,076)	$	(537,425)	$	(130,852)	$	(617)	$	(668,894)

(1) Includes foreign currency translation adjustments attributable to noncontrolling interests of $5.9 million and ~~$5.2~~$5.1 million at ~~April~~January 1, ~~2020~~2021 and ~~2019,~~2020, respectively, and $6.1 million and $5.9 million at March 31, 2021 and ~~$5.2 million at June 30,~~ 2020, ~~and 2019,~~ respectively. Includes net investment ~~hedge~~hedges losses of ~~$4.0~~$29.6 million and ~~$3.0~~$8.5 million, net of deferred taxes, at ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Amounts in parentheses indicate debits.

The following table presents the reclassifications out of AOCL:


			Three Months Ended June 30,								Three Months Ended March 31,
(Amounts in thousands)	(Amounts in thousands)	Affected line item in the statement of income	2020(1)		2019(1)		(Amounts in thousands)	Affected line item in the statement of income	2021(1)		2020(1)

Pension and other postretirement effects	Pension and other postretirement effects						Pension and other postretirement effects
Amortization of actuarial losses(2)	Amortization of actuarial losses(2)	Other income (expense), net	$	(2,857)	$	(1,607)	Amortization of actuarial losses(2)	Other income (expense), net	$	(3,059)	$	(2,657)
Prior service costs(2)	Prior service costs(2)	Other income (expense), net	(138)		(138)		Prior service costs(2)	Other income (expense), net	(153)		(141)
		Tax benefit	444		222			Tax benefit	471		398
		Net of tax	$	(2,551)	$	(1,523)		Net of tax	$	(2,741)	$	(2,400)

(1) Amounts in parentheses indicate decreases to income. None of the reclassified amounts have a noncontrolling interest component.

(2) These AOCL components are included in the computation of net periodic pension cost. See Note 1112 for additional details.

~~Table of~~ ~~Contents~~

~~The following table presents the changes in AOCL, net of tax for the~~ ~~six~~ ~~months ended June 30, 2020 and 2019:~~

2020 2019
(Amounts in thousands) Foreign currency translation items(1) Pension and other post-retirement effects Cash flow hedging activity Total(1) Foreign currency translation items(1) Pension and other post-retirement effects Cash flow hedging activity Total(1)
Balance - January 1 $ (441,364) $ (137,161) $ (671) $ (579,196) $ (447,925) $ (120,647) $ (858) $ (569,430)
Other comprehensive (loss) income before reclassifications (66,269) 3,116 98 (63,055) 4,097 393 105 4,595
Amounts reclassified from AOCL — 4,951 — 4,951 — 3,010 — 3,010
Net current-period other comprehensive (loss) income (66,269) 8,067 98 (58,104) 4,097 3,403 105 7,605
Balance - June 30 $ (507,633) $ (129,094) $ (573) $ (637,300) $ (443,828) $ (117,244) $ (753) $ (561,825)

~~(1) Includes foreign currency translation adjustments attributable to noncontrolling interests of $5.1 million and $4.5 million at January 1, 2020 and 2019, respectively, and $5.9 million and $5.2 million at June 30, 2020 and 2019, respectively. Includes net investment hedge losses of $12.5 million~~ ~~and~~ ~~$15.2 million, net of deferred taxes, for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020 and 2019,~~ ~~respectively. Amounts in parentheses indicate debits.~~

~~The following table presents the reclassifications out of AOCL:~~

Six Months Ended June 30,
(Amounts in thousands) Affected line item in the statement of income 2020(1) 2019(1)
Pension and other postretirement effects
Amortization of actuarial losses(2) Other income (expense), net $ (5,514) $ (3,163)
Prior service costs(2) Other income (expense), net (279) (276)
Tax benefit 842 429
Net of tax $ (4,951) $ (3,010)

~~(1) Amounts in parentheses indicate decreases to income. None of the reclassified amounts have a noncontrolling interest component.~~

~~(2) These AOCL components are included in the computation of net periodic pension cost. See Note 11 for additional details.~~

~~Table of~~ ~~Contents~~

~~16.~~17.Realignment and Transformation Programs

In the second quarter of 2020, we identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program (defined below) to right-size our organizational operations based on the current business environment, with the overall objective to reduce our workforce costs, including manufacturing optimization through the consolidation of certain facilities ("2020 Realignment Program"). The realignment activities consist of restructuring and non-restructuring charges. Restructuring charges represent costs associated with the relocation of certain business activities and facility closures and include related severance costs. Non-restructuring charges are primarily employee severance associated with the workforce reductions. Expenses are primarily reported in cost of sales ("COS") or selling, general and administrative ("SG&A"), as applicable, in our condensed consolidated statements of income. We anticipate a total investment in these activities of approximately ~~$65~~$90 million and ~~that~~ the majority of the charges ~~will~~were incurred in 2020 with the remainder to be incurred inthrough the second quarter of 2021. ~~2020.~~ There are certain other realignment activities that are currently being evaluated, but have not yet been finalized. ~~The realignment programs initiated in 2015 ("2015 Realignment Programs"), which consisted~~

Table of ~~both restructuring and non-restructuring charges, were substantially complete as of March 31, 2020, resulting in $362.4 million of total charges incurred through the completion of the programs.~~Contents

In the second quarter of 2018, we launched and committed resources to our Flowserve 2.0 Transformation ("Flowserve 2.0 Transformation"), a program designed to transform our business model to drive operational excellence, reduce complexity, accelerate growth, improve organizational health and better leverage our existing global platform. The Flowserve 2.0 Transformation expenses incurred primarily ~~consist~~consisted of professional services, project management and related travel costs recorded in SG&A expenses. As of the first quarter of 2021, the Flowserve 2.0 Transformation efforts were substantially completed. For the three months ended March 31, 2021, there were no Flowserve 2.0 Transformation charges.

Generally, the aforementioned charges will be paid in cash, except for asset write-downs, which are non-cash charges. The following is a summary of total charges, net of adjustments, ~~related to our realignment activities and Flowserve 2.0 Transformation charges. Realignment charges~~ incurred in ~~the second quarter of 2020~~2021 related to our 2020 Realignment Program and ~~realignment~~the total charges incurred in ~~2019~~2020 are related to our ~~2015~~2020 Realignment ~~Programs:~~Program and Flowserve 2.0 Transformation:

Three Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments All Other Consolidated Total
Realignment Charges
Restructuring Charges
     COS $ 11,650 $ (167) $ 11,483 $ — $ 11,483
     SG&A 126 24 150 — 150
$ 11,776 $ (143) $ 11,633 $ — $ 11,633
Non-Restructuring Charges
     COS $ 12,003 $ 5,819 $ 17,822 $ 548 $ 18,370
     SG&A 9,316 4,312 13,628 14,852 28,480
$ 21,319 $ 10,131 $ 31,450 $ 15,400 $ 46,850
Total Realignment Charges
     COS $ 23,653 $ 5,652 $ 29,305 $ 548 $ 29,853
     SG&A 9,442 4,336 13,778 14,852 $ 28,630
Total $ 33,095 $ 9,988 $ 43,083 $ 15,400�� $ 58,483
Transformation Charges
     SG&A $ — $ — $ — $ 5,618 $ 5,618
$ — $ — $ — $ 5,618 $ 5,618
Total Realignment and Transformation Charges
     COS $ 23,653 $ 5,652 $ 29,305 $ 548 $ 29,853
     SG&A 9,442 4,336 13,778 20,470 34,248
Total $ 33,095 $ 9,988 $ 43,083 $ 21,018 $ 64,101


	Three Months Ended March 31, 2021
(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		All Other		Consolidated Total
Realignment Charges
Restructuring Charges
COS	$	4,027	$	299	$	4,326	$	0	$	4,326
SG&A	0		(9)		(9)		0		(9)

	$	4,027	$	290	$	4,317	$	0	$	4,317
Non-Restructuring Charges
COS	$	3,892	$	598	$	4,490	$	590	$	5,080
SG&A	157		868		1,025		3,280		4,305
	$	4,049	$	1,466	$	5,515	$	3,870	$	9,385












Total Realignment Charges
COS	$	7,919	$	897	$	8,816	$	590	$	9,406
SG&A	157		859		1,016		3,280		4,296

Total	$	8,076	$	1,756	$	9,832	$	3,870	$	13,702

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		Three Months Ended June 30, 2019																			Three Months Ended March 31, 2020
(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		All Other		Consolidated Total		(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		All Other		Consolidated Total
Realignment Charges	Realignment Charges											Realignment Charges
Restructuring Charges	Restructuring Charges											Restructuring Charges
COS	COS	$	(928)	$	23	$	(905)	$	—	$	(905)	COS	$	1,680	$	(105)	$	1,575	$	0	$	1,575
SG&A	SG&A	1,345		90		1,435		—		1,435		SG&A	104		10		114		(16)		98

		$	417	$	113	$	530	$	—	$	530		$	1,784	$	(95)	$	1,689	$	(16)	$	1,673
Non-Restructuring Charges	Non-Restructuring Charges											Non-Restructuring Charges
COS	COS	$	4,727	$	42	$	4,769	$	—	$	4,769	COS	$	126	$	6,325	$	6,451	$	0	$	6,451
SG&A	SG&A	254		35		289		713		1,002		SG&A	485		50		535		645		1,180
		$	4,981	$	77	$	5,058	$	713	$	5,771		$	611	$	6,375	$	6,986	$	645	$	7,631
Total Realignment Charges	Total Realignment Charges											Total Realignment Charges
COS	COS	$	3,799	$	65	$	3,864	$	—	$	3,864	COS	$	1,806	$	6,220	$	8,026	$	0	$	8,026
SG&A	SG&A	1,599		125		1,724		713		$	2,437	SG&A	589		60		649		629		$	1,278

Total	Total	$	5,398	$	190	$	5,588	$	713	$	6,301	Total	$	2,395	$	6,280	$	8,675	$	629	$	9,304

Transformation Charges	Transformation Charges											Transformation Charges

SG&A	SG&A	$	—	$	—	$	—	$	7,573	$	7,573	SG&A	$	—	$	—	$	—	$	5,643	$	5,643

		$	—	$	—	$	—	$	7,573	$	7,573		$	—	$	—	$	—	$	5,643	$	5,643

Total Realignment and Transformation Charges	Total Realignment and Transformation Charges											Total Realignment and Transformation Charges
COS	COS	$	3,799	$	65	$	3,864	$	—	$	3,864	COS	$	1,806	$	6,220	$	8,026	$	0	$	8,026
SG&A	SG&A	1,599		$	125	1,724		8,286		10,010		SG&A	589		$	60	649		6,272		6,921

Total	Total	$	5,398	$	190	$	5,588	$	8,286	$	13,874	Total	$	2,395	$	6,280	$	8,675	$	6,272	$	14,947

~~Table of~~ ~~Contents~~

Six Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments All Other Consolidated Total
Realignment Charges
Restructuring Charges
COS $ 13,331 $ (272) $ 13,059 $ — $ 13,059
SG&A 230 (3) 227 — 227
$ 13,561 $ (275) $ 13,286 $ — $ 13,286
Non-Restructuring Charges
COS $ 12,128 $ 13,579 $ 25,707 $ 548 $ 26,255
SG&A 9,801 4,384 14,185 15,497 29,682
$ 21,929 $ 17,963 $ 39,892 $ 16,045 $ 55,937
Total Realignment Charges
COS $ 25,459 $ 13,307 $ 38,766 $ 548 $ 39,314
SG&A 10,031 4,381 14,412 15,497 29,909
Total $ 35,490 $ 17,688 $ 53,178 $ 16,045 $ 69,223
Transformation Charges
SG&A — — — 11,261 11,261
$ — $ — $ — $ 11,261 $ 11,261
Total Realignment and Transformation Charges
COS $ 25,459 $ 13,307 $ 38,766 $ 548 $ 39,314
SG&A 10,031 4,381 14,412 26,758 41,170
Total $ 35,490 $ 17,688 $ 53,178 $ 27,306 $ 80,484
_______________________________

~~Table of~~ ~~Contents~~

Six Months Ended June 30, 2019
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments All Other Consolidated Total
Restructuring Charges
     COS $ 1,695 $ 479 $ 2,174 $ — $ 2,174
     SG&A(1) (17,126) 413 (16,713) 16 (16,697)
$ (15,431) $ 892 $ (14,539) $ 16 $ (14,523)
Non-Restructuring Charges
     COS $ 7,122 $ 68 $ 7,190 $ — $ 7,190
     SG&A 427 34 461 1,243 1,704
$ 7,549 $ 102 $ 7,651 $ 1,243 $ 8,894
Total Realignment Charges
     COS $ 8,817 $ 547 $ 9,364 $ — $ 9,364
     SG&A (16,699) 447 (16,252) 1,259 (14,993)
Total $ (7,882) $ 994 $ (6,888) $ 1,259 $ (5,629)
Transformation Charges
     SG&A — — — 15,986 15,986
$ — $ — $ — $ 15,986 $ 15,986
Total Realignment and Transformation Charges
     COS $ 8,817 $ 547 $ 9,364 $ — $ 9,364
     SG&A (16,699) 447 (16,252) 17,245 993
Total $ (7,882) $ 994 $ (6,888) $ 17,245 $ 10,357

~~(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.~~

3022

Table of Contents

The following is a summary of total inception to date charges, net of adjustments, related to the 2020 Realignment ~~Program initiated in the second quarter of 2020:~~Program:


		Inception to Date																			Inception to Date
(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		All Other		Consolidated Total		(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		All Other		Consolidated Total
Realignment Charges	Realignment Charges											Realignment Charges
Restructuring Charges	Restructuring Charges											Restructuring Charges
COS	COS	$	11,650	$	(167)	$	11,483	$	—	$	11,483	COS	$	21,856	$	1,526	$	23,382	$	0	$	23,382
SG&A	SG&A	126		24		150		—		150		SG&A	51		316		367		0		367

		$	11,776	$	(143)	$	11,633	$	—	$	11,633		$	21,907	$	1,842	$	23,749	$	0	$	23,749
Non-Restructuring Charges	Non-Restructuring Charges											Non-Restructuring Charges
COS	COS	$	12,003	$	5,819	$	17,822	$	548	$	18,370	COS	$	23,095	$	125	$	23,220	$	642	$	23,862
SG&A	SG&A	9,316		4,312		13,628		14,852		28,480		SG&A	10,838		5,422		16,260		21,162		37,422
		$	21,319	$	10,131	$	31,450	$	15,400	$	46,850		$	33,933	$	5,547	$	39,480	$	21,804	$	61,284
Total Realignment Charges	Total Realignment Charges											Total Realignment Charges
COS	COS	$	23,653	$	5,652	$	29,305	$	548	$	29,853	COS	$	44,951	$	1,651	$	46,602	$	642	$	47,244
SG&A	SG&A	9,442		4,336		13,778		14,852		28,630		SG&A	10,889		5,738		16,627		21,162		37,789

Total	Total	$	33,095	$	9,988	$	43,083	$	15,400	$	58,483	Total	$	55,840	$	7,389	$	63,229	$	21,804	$	85,033

Restructuring charges represent costs associated with the relocation or reorganization of certain business activities and facility closures and include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to the termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets, accelerated amortization of intangible assets, divestiture of certain non-strategic assets and inventory write-downs. Other costs generally include costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges.

The following is a summary of restructuring charges, net of adjustments, for our restructuring ~~activities. Restructuring charges incurred in the second quarter of 2020~~activities related to our 2020 Realignment ~~Program and restructuring charges incurred in 2019 related to our 2015 Realignment Programs:~~Program:


		Three Months Ended June 30, 2020																			Three Months Ended March 31, 2021
(Amounts in thousands)	(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total		(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total

COS	COS	$	10,572	$	—	$	994	$	(83)	$	11,483	COS	$	1,373	$	0	$	2,190	$	763	$	4,326
SG&A	SG&A	126		—		24		—		150		SG&A	0		0		0		(9)		(9)

Total	Total	$	10,698	$	—	$	1,018	$	(83)	$	11,633	Total	$	1,373	$	0	$	2,190	$	754	$	4,317


		Three Months Ended June 30, 2019																			Three Months Ended March 31, 2020
(Amounts in thousands)	(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total		(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total
COS	COS	$	148	$	9	$	(1,051)	$	(11)	$	(905)	COS	$	1,683	$	0	$	(3)	$	(105)	$	1,575
SG&A	SG&A	1,302		—		—		133		1,435		SG&A	139		0		(3)		(38)		98

Total	Total	$	1,450	$	9	$	(1,051)	$	122	$	530	Total	$	1,822	$	0	$	(6)	$	(143)	$	1,673

Table of Contents

Six Months Ended June 30, 2020
(Amounts in thousands) Severance Contract Termination Asset Write-Downs Other Total
COS $ 12,255 $ — $ 991 $ (187) $ 13,059
SG&A 265 — (38) 227
Total $ 12,520 $ — $ 991 $ (225) $ 13,286

Six Months Ended June 30, 2019
(Amounts in thousands) Severance Contract Termination Asset Write-Downs/ (Gains) Other Total
COS $ 1,827 $ 48 $ (818) $ 1,117 $ 2,174
SG&A(1) 1,618 — (18,502) 187 (16,697)
Total $ 3,445 $ 48 $ (19,320) $ 1,304 $ (14,523)

~~(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.~~

The following is a summary of total inception to date restructuring charges, net of adjustments, related to our 2020 Realignment Program ~~initiated in the second quarter of 2020:~~:


		Inception to Date																			Inception to Date
(Amounts in thousands)	(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total		(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other		Total
COS	COS	$	10,572	$	—	$	994	$	(83)	$	11,483	COS	$	16,617	$	52	$	3,602	$	3,111	$	23,382
SG&A	SG&A	126		—		24		—		150		SG&A	84		0		14		269		367

Total	Total	$	10,698	$	—	$	1,018	$	(83)	$	11,633	Total	$	16,701	$	52	$	3,616	$	3,380	$	23,749

The following represents the activity, primarily severance charges from reductions in force, related to the restructuring reserves for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

(Amounts in thousands) 2020 2019
Balance at January 1 $ 6,703 $ 11,927
Charges, net of adjustments 12,270 4,796
Cash expenditures (2,713) (4,733)
Other non-cash adjustments, including currency (118) (205)
Balance at June 30 $ 16,142 $ 11,785

~~____________________________~~




(Amounts in thousands)	2021		2020
Balance at January 1	$	18,255	$	6,703
Charges, net of adjustments	2,127		1,658
Cash expenditures	(8,296)		(1,827)
Other non-cash adjustments, including currency	(617)		(216)
Balance at March 31	$	11,469	$	6,318

~~Table of~~ ~~Contents~~

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto, and the other financial data included elsewhere in this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") included in our ~~2019~~2020 Annual Report.

EXECUTIVE OVERVIEW

Our Company

We are a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems. We develop and manufacture precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in our customers’ critical processes. Our product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products and services add value. Through our manufacturing platform and global network of Quick Response Centers ("QRCs"), we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting. We currently employ approximately ~~17,000~~16,000 employees in more than 50 countries.

Our business model is significantly influenced by the capital and operating spending of global infrastructure industries for the placement of new products into service and aftermarket services for existing operations. The worldwide installed base of our products is an important source of aftermarket revenue, where products are expected to ensure the maximum operating time of many key industrial processes. We have significantly invested in our aftermarket strategy to provide local support to drive customer investments in our offerings and use of our services to replace or repair installed products. The aftermarket portion of our business also helps provide business stability during various economic periods. The aftermarket service and solutions business, which is primarily served by our network of ~~168~~162 QRCs located around the globe, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value-added services. It is generally a higher margin business compared to our original equipment business and a key component of our business strategy.

Table of Contents

Our operations are conducted through two business segments that are referenced throughout this MD&A:

Our business segments share a focus on industrial flow control technology and have a number of common customers. These segments also have complementary product offerings and technologies that are often combined in applications that provide us a net competitive advantage. Our segments also benefit from our global footprint and our economies of scale in reducing administrative and overhead costs to serve customers more cost effectively. For example, our segments share leadership for operational support functions, such as sales, research and development, marketing and supply chain.

The reputation of our product portfolio is built on more than 50 well-respected brand names such as Worthington, IDP, Valtek, Limitorque, Durco, Argus, Edward, Valbart and Durametallic, which we believe to be one of the most comprehensive in the industry. Our products and services are sold either directly or through designated channels to more than 10,000 companies, including some of the world’s leading engineering, procurement and construction ("EPC") firms, original equipment manufacturers, distributors and end users.

We continue to leverage our QRC network to be positioned as near to customers as possible for service and support in order to capture valuable aftermarket business. Along with ~~ensuring that we have~~maintaining the local capability to sell, install and service our equipment in remote regions, it is equally imperative to continuously improve our global operations. Despite ~~recent~~continued headwinds caused by the COVID-19 pandemic, we continue to enhance our global supply chain ~~capability~~capabilities to continue to increase our ability to meet global customer demands and continue to improve the quality and timely delivery of our products over the long-term. Additionally, we continue to devote resources to ~~improving~~improve the supply chain processes across our business segments toand find areas of synergy and cost reduction, ~~and to improve~~all along improving our supply chain management capability to meet global customer demands. We also remain focused on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through the assistance of a focused Continuous Improvement Process ("CIP") initiative. The goal of the CIP initiative, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.

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COVID-19 Update

Over the past several months, we have continued to see the evolving impact that the COVID-19 pandemic is having on human health, the global economy and society at large. The pandemic's ongoing adverse impact on our operations and financial performance is expected to continue to adversely impact for its duration, our operations and financial performance.~~In response, we have been monitoring and continue to actively monitor the impacts of the COVID-19 pandemic on all aspects of our business and geographies.~~ Our cross-functional crisis management team established during the first quarter of 2020 has continued monitoring and making recommendations to management to help us continue operating as an essential business, while also protecting the health and safety of our associates.

~~Despite our response,~~ We anticipate that the COVID-19 pandemic ~~has had~~will have less of an ~~adverse effect~~impact on human health, the global economy and society at large in 2021 as vaccine supply continues to increase and efforts to distribute and administer ramped up worldwide. As a result, the pandemic is expected to have less of an impact on our operations and financial performance ~~during the first half of~~as we progress through 2021 than it did in 2020, ~~which~~though we expect that widespread implications of the pandemic worldwide will continue ~~through the second half of 2020.~~to cause substantial economic uncertainty and challenging operational conditions throughout 2021. We continued to actively monitor the impacts of the COVID-19 pandemic on all aspects of our business and geographies.

While we cannot reasonably estimate with certainty the duration and severity of the COVID-19 pandemic or its ultimate impact on the global economy, our business or our financial condition and results, we nonetheless remain committed to providing the critical support, products and services that our customers rely on, and currently believe that we will emerge from these events well positioned for long-term growth.

Health and Safety of Our Associates

~~Our first priority has been and continues to be to protect the~~The health and safety of our associates, suppliers and customers around the ~~world.~~world continues to be our first priority as we continue to navigate the COVID-19 pandemic, including recent spikes in cases of the virus and its variants in various geographies in which we operate. We are incredibly proud of the great teamwork exhibited by our global workforce who have demonstrated strong resilience in adapting to continually evolving health and safety guidelines while addressing these challenging times and providing products and services to our customers.

~~We have~~

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At the beginning of the pandemic we implemented policies and practices to help protect our workforce so they can safely and effectively carry out their vital work, and we have ~~revised~~continued to revise those policies and practices in light of guidance received from local and regional health authorities where appropriate. We continue to enforce the previously instituted global restrictions on non-essential travel ~~in March 2020~~ and the work-from-home policy for all non-essential employees who are able to do so has continued in effect in locations where health officials have advised such policies, including for our global headquarters in Irving, ~~Texas.~~Texas, which will maintain its work-from-home policy for at least through the middle of 2021. In those locations where employees are going to work in our facilities, we ~~have continued~~continue taking steps, consistent with guidelines from local and global health experts to protect our employees so that we can continue tooperations and manufacture critical technologies and equipment, including providing face coverings and other personal protective equipment, enhanced cleaning of sites and implemented social distancing protocols.

Our employees and facilities have a key role in keeping essential infrastructure and industries operating, including oil and gas, water, chemical, power generation and other essential industries, such as food and beverage and healthcare. While some of our facilities have experienced periods of temporary closures ~~during the first half of 2020~~ in accordance with decrees, orders and laws in their respective countries and geographies, many of which occurred at the onset of the pandemic, as of ~~July 30, 2020,~~May 3, 2021, all of our facilities are open and operational, and are running close to pre-COVID-19 levels as we continue to make essential products and provide services for our customers. ~~However,~~While the measures described above, combined with continued employee costs and under-absorption of manufacturing costs as a result of temporary closures and work-from-home policies, have had and are expected to continue having an adverse impact on our financial performance throughout the remainder of the ~~pandemic.~~pandemic, we anticipate that these adverse impacts will decline as the roll out of vaccines improves around the world and as we navigate further through the pandemic in 2021.

Customer Demand

During the first ~~six~~three months of ~~2020,~~2021, the ongoing effects of the COVID-19 pandemic’s reduction in global demand for oil and gas, coupled with excessive supply due to disagreements between the Organization of Petroleum Exporting Countries (“OPEC”) and other oil producing nations, led to extreme volatilitypandemic in global markets ~~and in oil prices. These conditions have~~has continued to adversely ~~impacted~~impact our customers, particularly in the oil and gas markets. ~~For example, these conditions drove~~As a ~~significant and broad-based decrease in customer planned capital spending, leading~~result of the pandemic’s effect on oil prices during 2020, many of our large customers ~~have announced double-digit~~reduced capital ~~expenditure budget decreases for the remainder of 2020.~~expenditures and budgets last year. To date, customer spending has yet to return to pre-pandemic levels. As a result, we saw an overall decline in bookings ~~decline by~~of ~~26.9%~~3.3% in the ~~second~~first quarter of ~~2020~~2021 as compared to the same period in ~~2019, resulting in a lower sequential backlog,~~2020, though we have not seen a significant increase in the levels of customer cancellations in our existing backlog.

~~Additionally, the rapidly evolving impacts~~While we expect that many of the ~~COVID-19 pandemic have caused reduced activity levels in our aftermarket business due to deferred spending of our customers'~~ repair and maintenance ~~budgets, including~~projects that were paused by our customers last year as a result of the ~~impact of restricted access~~pandemic will ultimately need to ~~our customers' facilities.~~

~~These trends are likely to continue during~~be completed, the timing will largely depend on the duration of the COVID-19 pandemic asand how the virus continues to spread in our customers’ various actions implemented to combat the pandemic will continue to reduce demand for oil and gas. As a result, we have experienced decreased bookings, sales and financial performance and anticipate this continuing throughout the remainder of the pandemic. Additionally,geographies. While we expect ~~the headwinds~~to see some recovery in ~~the oil~~capital expenditure budgets and, ~~gas markets that have resulted in, and are likely~~therefore, our bookings, as we navigate throughout 2021, we do not expect planned capital spending to ~~continue to result in, reduced capital expenditures and bookings~~approach pre-pandemic levels for ~~oil and gas customers to continue at least until oil demand and prices stabilize, which may not occur until after the pandemic subsides.~~

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some time.

Supply Chain Impact

Since the onset of the pandemic, many of our suppliers have also experienced varying lengths of production and shipping ~~conditions~~delays related to the COVID-19 pandemic, some of which continue to exist in highly affected ~~countries such as India.~~countries. These conditions have had an adverse effect on the speed at which we can manufacture and ship our products to customers, and have also led to an increase in logistics, transportation and freight costs, requiring that we diversify our supply chain and, in some instances, source materials from new suppliers. Additionally, these conditions have in some cases impacted our ability to deliver products to customers on time, which has in turn led to an increase in backlog at some of our manufacturing sites. ~~These~~Though some of these issues have abated as the pandemic has progressed, certain disruptions in our supply chain and their effects have continued ~~throughout the of month of July~~ and we expect they will continue as the COVID-19 pandemic continues.

Operational Impacts

We ~~have also engaged~~continue to engage in a number of cost savings measures in order to help mitigate certain of the adverse effects of the COVID-19 pandemic on our financial results, including certain realignment activities (further described below under “—RESULTS OF OPERATIONS – Three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019”~~2020”), ~~a freeze on all non-essential open employment requisitions, cancellation of merit-based payroll increases for 2020, reduction of~~reductions in capital expenditures ~~to approximately $60 million~~ and continued cuts in other discretionary ~~spending. Together, we are planning approximately~~ $~~100~~ ~~million of cost reductions, excluding realignment charges, in 2020 as compared to 2019,~~spending due ~~in large part~~ to our response to the effects of ~~COVID-19.~~COVID-19, which partially offsets the continued costs and operational impacts of the safety protocols and procedures that we have implemented and sustained as described above under the heading "-Health and Safety of Our Associates." We continue to evaluate additional cost savings measures ~~and will continue to implement such measures in the near term~~ in order to reduce the impact of the COVID-19 pandemic on our financial results.

We continually monitor and assess the spread of COVID-19 and known variants, including in areas that have seen recent increases in cases, and we will continue to adapt our operations to respond the changing conditions as needed. As we continue to manage our business through this unprecedented time of uncertainty and market volatility, we will remain focused on the

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health and safety of our associates, suppliers, customers, and will continue to provide essential products and services to our customers.

~~2020~~2021 Outlook

As the headwinds experienced ~~during the first half of~~in 2020 continue to impact our business, largely in the form of lower bookings which resulted in a lower starting 2021 backlog, we expect ~~to see an approximately 20%~~revenues will decline in ~~bookings in the second half of 2020~~2021 approximately 3% to 5% as compared to the same period in ~~2019, with slightly less of an impact on revenue, which we expect will decline approximately 15% as compared to the same period in 2019.~~2020. Despite these effects, however, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment. As of ~~June 30, 2020,~~March 31, 2021, we had ~~approximately $1.3~~approximately $1.4 billion of liquidity, consisting of cash and cash equivalents of ~~$561.7~~$659.3 million and ~~$722.2~~$742.0 million of borrowings available under our Senior Credit Facility. We will continue to actively monitor the potential impacts of COVID-19 and related events onon the credit markets in order to maintain sufficient liquidity and access to capital throughout ~~2020.~~2021. As the world continues to make progress against COVID-19 largely through increased vaccinations, we have begun to see an inflection in our served end-markets as commodity prices and mobility levels increase. As such, we expect full-year bookings in 2021 to increase compared to 2020 levels in the mid-single digit percentage range.

RESULTS OF OPERATIONS — Three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~

Throughout this discussion of our results of operations, we discuss the impact of fluctuations in foreign currency exchange rates. We have calculated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods.

During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 through the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by approximately $1 million, retained earnings by approximately $14 million and accumulated other comprehensive loss by approximately $15 million as of December 31, 2020.

In addition, as previously disclosed, during the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily related to an incurred but not reported ("IBNR") liability associated with unasserted asbestos claims, but also included adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR for periods beginning with the year ended December 31, 2014 through the second quarter of 2020 weand to correct certain other previously identified ~~and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program to right-size our organizational operations based on~~immaterial errors.

We have assessed the ~~current business environment, with the overall objective to reduce our workforce costs. We anticipate a total investment in these activities of approximately $65 million~~above described errors, individually and ~~that the majority of charges will be incurred through the remainder of 2020. Based on actions initiated~~ in the ~~second quarter of 2020, we estimate that we have achieved cost savings of approximately $5 million as of June 30, 2020, with approximately $2 million of those savings in COS~~aggregate, and ~~approximately $3 million in SG&A. Upon completion of~~concluded they were not material to the ~~realignment activities, we expect full year run-rate cost savings of approximately~~ ~~$100 million.~~ Actual savings could vary from expected savings, which represent management’s best estimate to date. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized. The realignment programs initiated in 2015 ("2015 Realignment Programs"), which consisted of both restructuring and non-restructuring charges, were substantially complete as ofperiod ended March 31, 2020 ~~resulting~~or any previous period. The March 31, 2020 balances, as presented herein, have been revised. The remaining periods in ~~$362.4 million of total charges incurred through~~2020 not presented herein will be revised, as applicable, in future filings. For a detailed discussion related to the ~~completion of the programs.~~revised balances refer to Note 2.

In the second quarter of 2018, we launched and committed resources to our Flowserve 2.0 Transformation, a program designed to transform our business model to drive operational excellence, reduce complexity, accelerate growth, improve organizational health and better leverage our existing global platform, which is further discussed in Note 1617 to our condensed consolidated financial statements included in this Quarterly Report. ~~We anticipate that the Flowserve 2.0 Transformation will result in further restructuring charges, non-restructuring charges and other related transformation expenses.~~ The Flowserve 2.0 Transformation expenses incurred primarily consist of professional services, project management and related travel costs recorded in SG&A expenses. As of the first quarter of 2021, the Flowserve 2.0 Transformation efforts were substantially complete.

In the second quarter of 2020, we identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program to right-size our organizational operations based on the current business environment, with the overall objective to reduce our workforce costs. We anticipate a total investment in 2020 Realignment Program activities of approximately $90 million and and the majority of the charges were incurred in 2020 with the remainder to be incurred through the second quarter of 2021. Based on the actions initiated with the 2020 Realignment Program, we estimate that we have achieved cost savings of approximately $21 million as of March 31, 2021, with approximately $10 million of those savings in COS and approximately $11 million in SG&A. Upon completion of the 2020 Realignment Program activities, we expect full year run-rate cost savings of approximately $125 million. Actual savings could vary from expected savings, which represent management’s best estimate to date. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized.

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Realignment Activity

The following tables present out realignment activity by segment related to our 2020 Realignment Program. For the three months ended March 31, 2021, the total charges incurred in ~~the second quarter of 2020~~are related to our 2020 Realignment Program ~~activities~~and there were no Flowserve 2.0 Transformation charges. For the three months ended March 31, 2020, the total charges incurred in are related to our 2020 Realignment Program and Flowserve 2.0 ~~Transformation by segment and the charges incurred in 2019 related to our 2015 Realignment Programs and Flowserve 2.0 Transformation by segment:~~Transformation:


		Three Months Ended June 30, 2020																			Three Months Ended March 31, 2021

(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total		(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total
Total Realignment and Transformation Charges
Total Realignment Charges												Total Realignment Charges
COS	COS	$	23,653	$	5,652	$	29,305	$	548	$	29,853	COS	$	7,919	$	897	$	8,816	$	590	$	9,406
SG&A	SG&A	9,442		4,336		13,778		20,470		34,248		SG&A	157		859		1,016		3,280		4,296

Total	Total	$	33,095	$	9,988	$	43,083	$	21,018	$	64,101	Total	$	8,076	$	1,756	$	9,832	$	3,870	$	13,702


		Three Months Ended June 30, 2019																			Three Months Ended March 31, 2020

(Amounts in thousands)	(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total		(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total
Total Realignment and Transformation Charges	Total Realignment and Transformation Charges											Total Realignment and Transformation Charges
COS	COS	$	3,799	$	65	$	3,864	$	—	$	3,864	COS	$	1,806	$	6,220	$	8,026	$	—	$	8,026
SG&A	SG&A	1,599		$	125	1,724		8,286		10,010		SG&A	589		$	60	649		6,272		6,921

Total	Total	$	5,398	$	190	$	5,588	$	8,286	$	13,874	Total	$	2,395	$	6,280	$	8,675	$	6,272	$	14,947

Six Months Ended June 30, 2020
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Total Realignment and Transformation Charges
     COS $ 25,459 $ 13,307 $ 38,766 $ 548 $ 39,314
     SG&A 10,031 $ 4,381 14,412 26,758 41,170
Total $ 35,490 $ 17,688 $ 53,178 $ 27,306 $ 80,484
Six Months Ended June 30, 2019
(Amounts in thousands) FPD FCD Subtotal–Reportable Segments Eliminations and All Other Consolidated Total
Total Realignment and Transformation Charges
     COS $ 8,817 $ 547 $ 9,364 $ — $ 9,364
     SG&A(1) (16,699) 447 (16,252) 17,245 993
Total $ (7,882) $ 994 $ (6,888) $ 17,245 $ 10,357

~~(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.~~

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Consolidated Results

Bookings, Sales and Backlog


		Three Months Ended June 30,							Three Months Ended March 31,
(Amounts in millions)	(Amounts in millions)	2020		2019		(Amounts in millions)	2021		2020
Bookings	Bookings	$	808.3	$	1,105.0	Bookings	$	945.0	$	976.9
Sales	Sales	925.0		990.1		Sales	857.3		893.5

Six Months Ended June 30,
(Amounts in millions) 2020 2019
Bookings $ 1,783.6 $ 2,165.1
Sales 1,819.4 1,880.1

We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer with regard to manufacturing, service or support. Bookings recorded and subsequently canceled within the year-to-date period are excluded from year-to-date bookings. Bookings for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$296.7~~$31.9 million, or ~~26.9%~~3.3%, as compared with the same period in ~~2019.~~2020. The decrease included ~~negative~~ currency ~~effects~~benefits of approximately ~~$20~~$26 million. The decrease was driven by lower customer bookings in the oil and gas and ~~to a lesser extent~~power generation industries and were partially offset by increased bookings in the ~~general,~~ chemical ~~power generation~~ and ~~water management~~general industries. The decrease in customer bookings was ~~primarily~~ driven by ~~customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.~~aftermarket bookings.

~~Bookings~~Sales for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$381.5~~$36.2 million, or ~~17.6%~~4.1%, as compared with the same period in ~~2019.~~2020. The decrease included ~~negative~~ currency ~~effects~~benefits of approximately $40 million. The decrease was driven by lower bookings in the oil and gas, chemical, power generation and water management industries, partially offset by increased bookings in the general industries. The decrease was primarily driven by customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.

~~Sales for the three months ended June 30, 2020 decreased by $65.1 million, or 6.6%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $24~~$27 million. The decreased sales were driven by ~~both~~ original equipment, ~~and aftermarket sales,~~ with decreased sales into North America ~~Europe~~ and ~~Asia Pacific,~~the Middle East, partially offset by increased sales into ~~the Middle East. Net sales to international customers, including export sales from the U.S., were approximately 64% and 63% of total sales for the three months ended June 30, 2020 and 2019, respectively.~~

Sales for the six months ended June 30, 2020 decreased by $60.7 million, or 3.2%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $39 million. The decreased sales were driven by aftermarket sales, w~~ith decreased sales into Europe, North America,~~ Asia Pacific, ~~and Africa, partially offset by increased sales into the Middle East~~Europe and Latin America. Net sales to international customers, including export sales f~~rom~~from the U.S., were approximately ~~63%~~68% and ~~63%~~62% of total sales for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

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Backlog represents the aggregate value of booked but uncompleted customer orders and is influenced primarily by bookings, sales, cancellations and currency effects. Backlog of ~~$2,067.2~~$1,883.9 million at ~~June 30, 2020 decreased~~March 31, 2021 increased by ~~$89.8~~$29.0 million, or ~~4.2%~~1.6%, as compared with December 31, ~~2019.~~2020. Currency effects provided a decrease of approximately ~~$32~~$42 million. Approximately ~~35%~~34% and 33% of the backlog at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, was related to aftermarket orders. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $~~548~~573 million, as discussed in Note 23 to our condensed consolidated financial statements included in this Quarterly Report.

Gross Profit and Gross Profit Margin


		Three Months Ended June 30,										Three Months Ended March 31,
(Amounts in millions, except percentages)	(Amounts in millions, except percentages)	2020			2019			(Amounts in millions, except percentages)	2021			2020
Gross profit	Gross profit	$	267.2		$	318.0		Gross profit	$	250.9		$	266.5
Gross profit margin	Gross profit margin	28.9		%	32.1		%	Gross profit margin	29.3		%	29.8		%

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Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Gross profit $ 533.1 $ 612.1
Gross profit margin 29.3 % 32.6 %

Gross profit for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$50.8~~$15.6 million, or ~~16.0%~~5.9%, as compared with the same period in ~~2019.~~2020. Gross profit margin for the three months ended ~~June 30, 2020~~March 31, 2021 of ~~28.9%~~29.3% decreased from ~~32.1%~~29.8% for the same period in ~~2019.~~2020. The decrease in gross profit margin was primarily due to i~~ncreased realignment charges associated with our~~ ~~realignment actions initiated in the second quarter of 2020 and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $6.6 million of manufacturing costs being expensed and other related costs. Aftermarket sales represented approximately 50% of total sales for both three months ended June 30, 2020 and 2019.~~

~~Gross profit for the six months ended June 30, 2020 decreased by~~ ~~$79.0 million~~, or 12.9%, as compared with the same period in 2019. Gross profit margin for the six months ended June 30, 2020 of 29.3% decreased from 32.6% for the same period in 2019. The decrease in gross profit margin was primarily due to ~~a sales mix shift to~~revenue recognized on lower margin original equipment orders, partially offset by a $8.4 million charge of underutilized capacity manufacturing costs expensed related to the COVID-19 pandemic in 2020, a mix shift to higher margin aftermarket sales and increased savings related to our realignment actions as compared to the same period in ~~2019, the~~ ~~increased realignment charges associated with our~~ ~~realignment actions initiated in the second quarter of 2020 and~~ ~~the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $15.0 million~~ ~~of manufacturing costs being expensed and other related costs.~~2020. Aftermarket sales represented approximately~~50%~~ 53% of t~~otal~~total sales, as compared with approximately ~~52%~~ 49% of total sales for the same period in ~~2019.~~2020.

Selling, General and Administrative Expense


		Three Months Ended June 30,										Three Months Ended March 31,
(Amounts in millions, except percentages)	(Amounts in millions, except percentages)	2020			2019			(Amounts in millions, except percentages)	2021			2020
SG&A	SG&A	$	227.4		$	223.7		SG&A	$	198.3		$	245.5
SG&A as a percentage of sales	SG&A as a percentage of sales	24.6		%	22.6		%	SG&A as a percentage of sales	23.1		%	27.5		%

Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
SG&A $ 471.0 $ 428.8
SG&A as a percentage of sales 25.9 % 22.8 %

SG&A for the three months ended ~~June 30, 2020 increased~~March 31, 2021 decreased by ~~$3.7~~$47.2 million, or ~~1.7%~~19.2%, as compared with the same period in ~~2019.~~2020. Currency effects yielded ~~a decrease~~an increase of approximately $35 million. SG&A as a percentage of sales for the three months ended ~~June 30, 2020~~March 31, 2021 decreased 440 basis points primarily due to decreased charges and increased ~~200 basis points~~savings related to our realignment actions and lower bad debt expense, partially offset by increased broad-based annual incentive compensation as compared with the same period in ~~2019 primarily due to increased realignment charges associated with our realignment actions initiated in the second quarter of 2020~~, ~~partially offset by a~~ ~~decrease in travel and selling-related expenses compared to the same period in 2019.~~

~~SG&A for the six months ended June 30, 2020 increased by $42.2 million, or~~ ~~9.8%, as compared with the same period in 2019. Currency effects yielded a decrease of approximately $6 million. SG&A as a percentage of sales for the six months ended June 30, 2020 increased 310 basis points as compared with the same period in 2019~~ ~~primarily due to~~ ~~increased charges related to our realignment programs~~, ~~an $8.5 million~~ ~~write-down of accounts receivables and contract assets related to a contract with an oil and gas customer in Latin America~~ ~~and the favorable impacts resulting from gains from the sales of non-strategic manufacturing facilities in the first quarter of 2019 that did not recur, partially offset by a~~ ~~decrease in travel and selling-related expenses compared to the same period in 2019.~~2020.

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Net Earnings from Affiliates


		Three Months Ended June 30,							Three Months Ended March 31,
(Amounts in millions)	(Amounts in millions)	2020		2019		(Amounts in millions)	2021		2020
Net earnings from affiliates	Net earnings from affiliates	$	3.1	$	3.7	Net earnings from affiliates	$	3.5	$	3.2

Six Months Ended June 30,
(Amounts in millions) 2020 2019
Net earnings from affiliates $ 6.3 $ 6.0

Net earnings from affiliates for the three months ended ~~June 30, 2020 decreased $0.6~~March 31, 2021 increased $0.3 million, or ~~16.2%~~9.4%, as compared with the same period in ~~2019.~~2020. The ~~decrease was primarily a result of decreased earnings of our FPD joint venture in South Korea.~~

~~Net earnings from affiliates for the~~ ~~six~~ ~~months ended June 30, 2020 increased $0.3 million or 5.0% compared with the same period in 2019. The~~ increase was primarily a result of increased earnings of our FPD joint venture in South Korea.

~~Operating Income and Operating Margin~~

Three Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Operating income $ 42.9 $ 98.0
Operating income as a percentage of sales 4.6 % 9.9 %

Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Operating income $ 68.4 $ 189.2
Operating income as a percentage of sales 3.8 % 10.1 %

Operating income for the three months ended June 30, 2020 decreased by $55.1 million, or 56.2%, as compared with the same period in 2019. The decrease included negative currency effects of approximately ~~$5 million. The decrease was primarily a result of the $50.8 million decrease in gross profit and the $3.7 million increase in SG&A.~~

Operating income for the six months ended June 30, 2020 decreased by $120.8 million, or 63.8%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $6 million. The decrease was primarily a result of the $42.2 million increase in SG&A and the ~~$79.0 milliondecrease~~ ~~in gross profit.~~

~~Interest Expense and Interest Income~~

Three Months Ended June 30,
(Amounts in millions) 2020 2019
Interest expense $ (12.9) $ (14.0)
Interest income 1.1 2.2

Six Months Ended June 30,
(Amounts in millions) 2020 2019
Interest expense $ (25.9) $ (28.0)
Interest income 2.9 4.2

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Operating Income and Operating Margin


	Three Months Ended March 31,
(Amounts in millions, except percentages)	2021			2020
Operating income	$	56.1		$	24.2
Operating income as a percentage of sales	6.5		%	2.7		%

Operating income for the three months ended March 31, 2021 increased by $31.9 million, or 131.8%, as compared with the same period in 2020. The increase included currency benefits of approximately $1 million. The increase was primarily a result of the $47.2 million decrease in SG&A, partially offset by the $15.6 million decrease in gross profit.

Interest Expense and Interest Income


	Three Months Ended March 31,
(Amounts in millions)	2021		2020
Interest expense	$	(16.8)	$	(13.0)
Interest income	0.6		1.7

Interest expense for the three months ended ~~June 30, 2020 decreased $1.1~~March 31, 2021 increased $3.8 million, as compared with the same period in ~~2019.~~2020. Interest income for the three months ended ~~June 30, 2020~~March 31, 2021 decreased $1.1 million, as compared with the same period in ~~2019.~~2020. The ~~decrease~~increase in interest expense was primarily attributable to ~~lower borrowings compared~~interest expense associated with ~~same period~~the senior notes issued in ~~2019.~~the third quarter of 2020. The decrease in interest income was partially due to lower interest rates on our average cash balances compared with same period in ~~2019.~~2020.

~~Interest expense~~

Loss on Extinguishment of Debt


	Three Months Ended March 31,
(Amounts in millions)	2021		2020
Loss on extinguishment of debt	$	(7.6)	$	—

Loss on extinguishment of debt for the ~~six~~three months ended ~~June 30, 2020 decreased~~March 31, 2021 of $~~2.1~~7.6 million ~~as compared with~~, resulted from the ~~same period~~redemption of our 2022 Euro Senior Notes. For a further discussion on the redemption of our 2022 Euro Senior Notes refer to Note 7 to our condensed consolidated financial statements included in ~~2019. Interest income for the six months ended June 30, 2020 decreased $1.3 million~~, ~~as compared with the same period in 2019. The decrease in~~ interest expense was primarily attributable to lower borrowings compared with same period in 2019. The decrease in interest income was partially due to lower interest rates on our average cash balances compared with same period in 2019.this Quarterly Report.

Other Income (Expense), Net


		Three Months Ended June 30,							Three Months Ended March 31,
(Amounts in millions)	(Amounts in millions)	2020		2019		(Amounts in millions)	2021		2020
Other income (expense), net	Other income (expense), net	$	(14.9)	$	(3.3)	Other income (expense), net	$	(11.4)	$	38.2

Six Months Ended June 30,
(Amounts in millions) 2020 2019
Other income (expense), net $ 8.5 $ (6.5)

Other income (expense), net for the three months ended ~~June 30, 2020 increased $11.6~~March 31, 2021 decreased $49.6 million as compared with the same period in ~~2019,~~2020, due primarily to an ~~$8.9~~$52.5 million increase in losses from transactions in currencies other than our sites' functional currencies, ~~and a $2.1 million increase in losses arising from transactions on foreign exchange contracts. The net change was primarily due to the foreign currency exchange rate movements in the Mexican peso, Euro, Brazilian real and Singapore dollar in relation to the U.S. dollar during the three months ended June 30, 2020, as compared with the same period in 2019.~~

Other income (expense), net for the six months ended June 30, 2020 increased $15 million from an expense of $6.5 million in 2019, due primarily to a $14.7 million increase in gains from transactions in currencies other than our sites' functional currencies andpartially offset by a $2.6 million increase inin gains arising from transactions on foreign exchange contracts. The net change was primarily due to the foreign ~~currency~~currency exchange rate movements in the Canadian dollar, Mexican peso, Euro and Brazilian real ~~Canadian dollar and Euro~~ in relation to the U.S. dollar during the three months ended ~~June 30, 2020,~~ March 31, 2021, as compar~~as compared~~ed with the same period in ~~2019.~~2020.

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Tax Expense and Tax Rate


		Three Months Ended June 30,										Three Months Ended March 31,
(Amounts in millions, except percentages)	(Amounts in millions, except percentages)	2020			2019			(Amounts in millions, except percentages)	2021			2020
Provision for income taxes	Provision for income taxes	$	5.4		$	22.4		Provision for income taxes	$	3.8		$	37.0
Effective tax rate	Effective tax rate	33.4		%	27.0		%	Effective tax rate	18.1		%	72.2		%

Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Provision for income taxes $ 41.7 $ 39.0
Effective tax rate 77.3 % 24.5 %

The effective tax rate of ~~33.4%~~18.1% for the three months ended ~~June 30, 2020 increased~~March 31, 2021 decreased from ~~27.0%~~72.2% for the same period in ~~2019.~~2020. The effective tax rate varied from the U.S. federal statutory rate for the three months ended ~~June 30, 2020~~March 31, 2021 primarily due to the net impact of foreign ~~operations.~~operations, the reversal of certain deferred tax liabilities as a result of restructuring specific aspects of our global financing arrangements and higher withholding taxes related to transactions with and amongst various foreign subsidiaries. Refer to Note ~~13 to our condensed consolidated financial statements included in this Quarterly Report for further discussion.~~

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~~The effective tax rate of 77.3% for the six months ended~~ ~~June 30, 2020~~ ~~increased from 24.5% for the same period in 2019. The effective tax rate varied from the U.S. federal statutory rate for the six months ended June 30, 2020 primarily due~~ to the establishment of a valuation allowance against certain deferred tax assets given the current and anticipated impact to the Company's operations resulting from the COVID-19 pandemic and the distressed oil prices, ~~and the net impact of foreign operations.Refer to Note 13~~14 to our condensed consolidated financial statements included in this Quarterly Report for further discussion.

Other Comprehensive Income (Loss)


		Three Months Ended June 30,							Three Months Ended March 31,
(Amounts in millions)	(Amounts in millions)	2020		2019		(Amounts in millions)	2021		2020
Other comprehensive income (loss)	Other comprehensive income (loss)	$	16.9	$	(0.6)	Other comprehensive income (loss)	$	(6.4)	$	(89.7)

Six Months Ended June 30,
(Amounts in millions) 2020 2019
Other comprehensive income (loss) $ (58.1) $ 7.6

Other comprehensive income ~~(loss)~~ for the three months ended ~~June 30, 2020~~March 31, 2021 increased ~~$17.5~~$83.3 million from a loss of ~~$0.6~~$89.7 million in ~~2019.~~2020. The increased ~~loss~~income was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, Colombian peso, Mexican peso and ~~Canadian dollar~~British pound versus the U.S. dollar during the three months ended ~~June 30, 2020,~~March 31, 2021, as compared with the same period in ~~2019.~~

~~Other comprehensive income (loss) for the six months ended~~ ~~June 30, 2020~~ ~~increased $65.7 million from income of~~ ~~$7.6 million~~ ~~in the same period in 2019.~~ ~~The increased loss was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Mexican peso, British pound, Indian rupee and Colombian peso versus the U.S. dollar during the~~ ~~six~~ ~~months ended June 30, 2020, as compared with the same period in 2019.~~2020.

Business Segments

We conduct our operations through two business segments based on the type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. The key operating results for our two business segments, FPD and FCD, are discussed below.

Flowserve Pump Division Segment Results

Our largest business segment is FPD, through which we design, manufacture, distribute and service highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, and auxiliary systems ~~and replacement parts~~ (collectively referred to as "original ~~equipment"~~equipment") and related services. FPD primarily operates in the oil and gas, power generation, chemical and general industries. FPD operates in 4948 countries with 39 manufacturing facilities worldwide, 13 of which are located in Europe, 12 in North America, eight in Asia and six in Latin America, and it operates ~~141~~136 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.


		Three Months Ended June 30,										Three Months Ended March 31,
(Amounts in millions, except percentages)	(Amounts in millions, except percentages)	2020			2019			(Amounts in millions, except percentages)	2021			2020
Bookings	Bookings	$	536.5		$	761.9		Bookings	$	653.8		$	685.1
Sales	Sales	674.1			$	674.6		Sales	602.6			635.7
Gross profit	Gross profit	198.0			$	222.7		Gross profit	182.9			195.8
Gross profit margin	Gross profit margin	29.4		%	33.0		%	Gross profit margin	30.4		%	30.8		%
SG&A	SG&A	140.6			150.2			SG&A	132.6			159.2

Segment operating income	Segment operating income	60.4			76.2			Segment operating income	53.8			39.7
Segment operating income as a percentage of sales	Segment operating income as a percentage of sales	9.0		%	11.3		%	Segment operating income as a percentage of sales	8.9		%	6.2		%

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Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Bookings $ 1,220.1 $ 1,512.0
Sales 1,309.7 1,284.0
Gross profit 393.7 423.3
Gross profit margin 30.1 % 33.0 %
SG&A 299.9 272.6
Segment operating income 100.1 156.6
Segment operating income as a percentage of sales 7.6 % 12.2 %

Bookings for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$225.4~~$31.3 million, or ~~29.6%~~4.6%, as compared with the same period in ~~2019.~~2020. The decrease included ~~negative~~ currency ~~effects~~benefits of approximately ~~$14~~$18 million. The decrease in customer bookings was driven by decreased orders in the oil and gas ~~chemical~~ and power generation industries, partially offset by increased bookings in the

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chemical and general industries. ~~The~~ ~~decrease in~~ ~~customer~~Customer bookings decreased $47.5 million into Asia Pacific, $9.9 million into the Middle East and $4.0 million into North America and were partially offset by increased bookings of $13.4 million into Latin America and $2.9 million into Africa. The decrease was ~~across all regions~~more heavily weighted towards aftermarket bookings. Interdivision bookings (which are eliminated and ~~was primarily~~ ~~driven~~are not included in consolidated bookings) decreased by ~~customer original equipment bookings which have decreased in light of the impacts of the COVID-19 and distressed oil prices on these industries.~~$2.2 million.

~~Bookings~~Sales for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$291.9~~$33.1 million, or ~~19.3%,~~5.2% as compared with the same period in ~~2019. The decrease~~2020 and included ~~negative~~ currency ~~effects~~benefits of approximately ~~$29~~$18 million. The decrease ~~in customer bookings~~ was ~~driven by decreased orders in the oil and gas, chemical and power generation industries, partially offset by increased bookings in the general industries. The decrease in~~ ~~customer bookings of was across all regions and was primarily~~ driven by customer original equipment ~~bookings which have decreased in light~~sales. Decreased customer sales of ~~the impacts of the COVID-19~~$43.6 million into North America and ~~distressed oil prices on these industries.~~

Sales for the three months ended June 30, 2020 remained relatively flat compared with the same period in 2019 and included negative currency effects of approximately $20 million. Increases in customer original equipment sales were substantially offset by decreases in customer aftermarket sales. Customer sales increased $12.9$17.1 million into the Middle East, ~~$4.3~~partially offset by increased sales of $13.3 million into Europe, $12.3 million into Asia Pacific and ~~$1.3~~$2.5 million into ~~Latin America, were substantially offset by decreased sales of $14.3 million into Europe and $3.2 million into~~ Africa.

~~Sales for the six months ended June 30, 2020 increased $25.7 million, or 2.0%, as compared with the same period in 2019. The increase in sales included negative currency effects~~ ~~of approximately $31 million. The increase in sales was driven by original equipment sales.~~ ~~Customer sales increased $41.1 million into the Middle East, $21.3 million into North America, $6.0 million into Latin America and $3.2 million into Asia Pacific, partially offset by decreased~~ ~~sales of $33.3 million into Europe and $8.3 million into Africa.~~

Gross profit for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$24.7~~$12.9 million, or ~~11.1%~~6.6%, as compared with the same period in ~~2019.~~2020. Gross profit margin for the three months ended ~~June 30, 2020~~March 31, 2021 of ~~29.4%~~30.4% decreased from ~~33.0%~~30.8% for the same period in ~~2019.~~2020. The decrease in gross profit margin was primarily ~~due~~attributable to ~~a sales mix shift to lower margin original equipment sales~~ increased charges under our realignment actions as compared to the same period in ~~2019, the increased~~2020 and revenue recognized on lower margin original equipment ~~charges related to our~~ orders~~realignment actions initiated in the second quarter of 2020~~ ~~and~~ ~~the unfavorable impact~~, substantially offset by a $6.0 million charge of underutilized capacity ~~from~~manufacturing costs expensed related to the COVID-19 pandemic ~~resulting~~ in ~~$3.3 million of manufacturing costs being expensed and other related costs, partially offset by~~ 2020 that did not recur, a ~~sales~~ mix shift to higher margin aftermarket sales and increased savings related to our realignment actions as compared to the same period in ~~2019.~~

Gross profit for the six months ended June 30, 2020 decreased by $29.6 million, or 7.0%, as compared with the same period in 2019. Gross profit margin for the six months ended June 30, 2020 of 30.1% decreased from 33.0% for the same period in 2019. The decrease in gross profit margin was primarily due to ~~a sales mix shift to lower margin original equipment sales as compared to the same period in 2019, the increased charges related to our realignment actions initiated in the second quarter of 2020 and~~ ~~the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $9.2 million~~ ~~of manufacturing costs being expensed and other related costs.~~2020.

SG&A for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$9.6~~$26.6 million, or ~~6.4%~~16.7%, as compared with the same period in ~~2019.~~2020. Currency effects provided ~~a decrease~~an increase of approximately $2$4 million. The decrease in SG&A was primarily due to a decrease in travel, administrative and selling-related expenses, ~~partially offset by in~~lower bad debt expense and ~~creased charges~~increased savings related to our realignment actions ~~initiated in the second quarter of 2020.~~

~~SG&A for the six months ended June 30, 2020~~ ~~increased by $27.3 million, or 10.0%,~~ as ~~compared with the same period in 2019. Currency effects provided a decrease of approximately $5 million. The~~ ~~increase~~ ~~in SG&A was primarily due to~~ ~~increased charges related to our realignment programs~~, ~~an $8.5 million~~ ~~write-down of accounts receivables and contract assets related to a~~

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~~contract with an oil and gas customer in Latin America,~~ ~~the favorable impacts resulting from gains from the sales of non-strategic manufacturing facilities in the first quarter of 2019 that did not recur and increased charges related to our realignment actions initiated in the second quarter of 2020, partially offset by a~~ ~~decrease in travel and selling-related expenses~~ compared to the same period in ~~2019.~~2020.

Operating income for the three months ended ~~June 30, 2020 decreased~~March 31, 2021 increased by ~~$15.8~~$14.1 million, or ~~20.7%~~35.5%, as compared with the same period in ~~2019.~~2020. The ~~decrease~~increase included ~~negative~~ currency ~~effects~~benefits of approximately $4$1 million. The ~~decrease~~increase was primarily due to the ~~$24.7~~$26.6 million decrease in SG&A partially offset by the $12.9 million decrease in gross ~~profit~~profit.~~, partially offset by the $9.6 million decrease in SG&A~~ .

Operating income for the six months ended June 30, 2020 decreased by $56.5 million, or 36.1%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $5 million. The decrease was primarily due to the $29.6 million decrease in gross profit and the $27.3 million increase in SG&A.

Backlog of ~~$1,418.2~~$1,238.6 million at ~~June 30, 2020 decrease~~March 31, 2021 increased by ~~$142.7~~$1.7 million, or ~~9.1%~~0.1%, as compared with December 31, ~~2019.~~2020. Currency effects provided a decrease of approximately ~~$31~~$32 million.

Flow Control Division Segment Results

FCD designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products, boiler controls and related ~~services.~~equipment. FCD leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio. FCD has a total of 4946 manufacturing facilities and QRCs in 22 countries around the world, with five of its 2119 manufacturing operations located in the U.S., 10eight located in Europe, five located in Asia Pacific and one located in Latin America. Based on independent industry sources, we believe that FCD is the second largest industrial valve supplier on a global basis.


		Three Months Ended June 30,										Three Months Ended March 31,
(Amounts in millions, except percentages)	(Amounts in millions, except percentages)	2020			2019			(Amounts in millions, except percentages)	2021			2020
Bookings	Bookings	$	274.6		$	346.4		Bookings	$	294.0		$	296.3
Sales	Sales	252.2			316.9			Sales	255.8			259.4
Gross profit	Gross profit	73.6			99.4			Gross profit	74.6			74.8
Gross profit margin	Gross profit margin	29.2		%	31.4		%	Gross profit margin	29.2		%	28.8		%
SG&A	SG&A	50.0			53.3			SG&A	49.9			57.7

Segment operating income	Segment operating income	23.6			46.2			Segment operating income	24.7			17.2
Segment operating income as a percentage of sales	Segment operating income as a percentage of sales	9.4		%	14.6		%	Segment operating income as a percentage of sales	9.7		%	6.6		%

Six Months Ended June 30,
(Amounts in millions, except percentages) 2020 2019
Bookings $ 570.8 $ 659.6
Sales 512.6 599.1
Gross profit 147.9 197.2
Gross profit margin 28.9 % 32.9 %
SG&A 107.6 106.6
Segment operating income 40.3 90.6
Segment operating income as a percentage of sales 7.9 % 15.1 %

Bookings for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$71.8~~$2.3 million, or ~~20.7%~~0.8%, as compared with the same period in ~~2019.~~2020. Bookings included ~~negative~~ currency ~~effects~~benefits of approximately $6$8 million. ~~Decreased~~ The decrease in customer bookings was primarily driven by decreased orders in the ~~chemical and~~ oil and gas and general industries, ~~were partially~~substantially offset by increased bookings in the chemical and power generation ~~industry.~~ ~~Decreased customer~~industries. Decrease customers bookings of ~~$37.6~~$13.0 million into Europe, $10.0 million into North America ~~$32.9 million into Europe, $8.6~~and $7.7 million into the Middle East and ~~$2.3 million into Africa~~ were ~~partially~~mostly offset by increased bookings of ~~$16.0~~$28.7 million into Asia Pacific and ~~$3.3~~$0.9 million into ~~Latin America.~~ Africa. The ~~decrease was~~ ~~primarily~~decreasewas driven by customer ~~original equipment~~aftermarket bookings.

~~Bookings~~Sales for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 decreased ~~by $88.8~~$3.6 million, or ~~13.5%~~1.4%, as compared with the same period in ~~2019. Bookings included negative currency effects of approximately~~ ~~$11 million. Decreased customer bookings in the chemical and oil and gas and general industries were partially offset by increased bookings in the power generation industry.~~

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~~Decrease~~d customer bookings of $72.7 million into North America, $21.7 million into Europe, $4.6 million into Africa and $1.1 million into the Middle East were partially offset by increased bookings of $5.5 million into Asia Pacific and $3.1 million into Latin America. ~~The decrease was primarily driven by customer original equipment bookings.~~

~~Sales for the three months ended June 30, 2020 decreased $64.7 million, or 20.4%, as compared with the same period in 2019.~~2020. The decrease included ~~negative~~ currency ~~effects~~benefits of approximately $4$8 million. Decreased sales were ~~more heavily weighted towards original equipment sales.~~ ~~The decrease was primarily driven by decreased~~ ~~customer sales of~~ ~~$28.4 million into North America, $19.0 million into Asia Pacific, $13.9 million into Europe, $3.2 million into Latin America and $1.7 million into Africa.~~

~~Sales for the six months ended June 30, 2020 decreased $86.5 million, or 14.4%, as compared with the same period in 2019. The decrease included negative currency effects of approximately $8 million. Decrease~~d ~~sales were primarily~~ driven by original equipment sales. The decrease was primarily driven by decreased customer sales of ~~$40.5~~$32.5 million into North America ~~$25.6~~and $1.4 million

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into ~~Europe, $20.6 million into Asia Pacific and $3.5 million into Latin America, partially~~ Africa, substantially offset by increased sales of~~$1.3 million~~ $23.5 million into ~~Africa and $1.2~~Asia Pacific, $3.4 million into Europe, $2.5 million into the Middle ~~East.~~East and $1.3 million into Latin America.

Gross profit for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$25.8~~$0.2 million, or ~~26.0%~~0.3%, as compared with the same period in ~~2019.~~2020. Gross profit margin for the three months ended ~~June 30, 2020~~March 31, 2021 of 29.2% ~~decreased~~increased from ~~31.4%~~28.8% for the same period in ~~2019.~~2020. The ~~decrease in~~ ~~gross profit margin was primarily due to~~ ~~increased charges related to our realignment actions initiated in the second quarter of 2020~~ ~~and the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $3.4 million of manufacturing costs being expensed and other related costs.~~

~~Gross profit margin for the six months ended June 30, 2020~~ ~~decreased~~ of ~~$49.3 million, or 25.0%, as compared with the same period in 2019. Gross profit margin for the~~ ~~six~~ ~~months ended June 30, 2020 of~~ ~~28.9% decreased from 32.9% for the same period in 2019. The~~ ~~decrease~~increase in gross profit margin was primarily ~~due~~attributable to ~~increased charges~~a $2.4 million charge of underutilized capacity manufacturing costs expensed related to the COVID-19 pandemic that did not recur and decreased charges and increased savings under our realignment actions, ~~initiated in the second quarter of 2020, a mix shift to more original equipment sales and~~ partially offset by revenue recognized on lower margin original equipment orders as compared to the same period in ~~2019 and~~ ~~the unfavorable impact of underutilized capacity from the COVID-19 pandemic resulting in $5.8 million of manufacturing costs being expensed and other related costs.~~2020.

SG&A for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by ~~$3.3~~$7.8 million, or ~~6.2%~~13.5%, as compared with the same period in ~~2019.~~2020. Currency effects provided ~~a decrease~~an increase of approximately $1 million. The decrease in SG&A was primarily due to a decrease in travel, administrative and selling-related expenses, ~~partially offset by~~ and increased ~~charges~~savings related to our realignment actions ~~initiated in the second quarter of 2020.~~

~~SG&A for the six months ended June 30, 2020~~ ~~increased by $1.0 million, or~~ ~~0.9%, as compared with the same period in 2019. Currency effects provided a decrease of approximately $1 million.~~ ~~The increase in SG&A was primarily due to increased charges related to our realignment actions initiated in the second quarter of 2020, substantially offset by a decrease in travel and selling-related expenses~~ compared to the same period in ~~2019.~~2020.

Operating income for the three months ended ~~June 30, 2020 decreased~~March 31, 2021 increased by ~~$22.6~~$7.5 million, or ~~48.9%~~43.6%, as compared with the same period in ~~2019.~~2020. The ~~decrease~~increase included ~~negative~~ currency ~~effects~~benefits of ~~less than $1 million.~~approximately $1 million. The decrease was primarily due to the ~~$25.8~~$7.8 million decrease in ~~gross profit, partially offset by~~SG&A and the ~~$3.3 million decrease in SG&A.~~

~~Operating income for the six months ended June 30, 2020~~ ~~decreased by~~ ~~$50.3 million, or~~ ~~55.5%, as compared with the same period in 2019. The decrease included negative currency effects of less than $1 million. The~~ ~~decrease was primarily due to the $49.3~~$0.2 million decrease in gross profit.

Backlog of ~~$652.5~~$649.3 million at ~~June 30, 2020~~March 31, 2021 increased by ~~$52.4~~$26.2 million, or ~~8.7%~~4.2%, as compared with December 31, ~~2019.~~2020. Currency effects provided a decrease of approximately $1$9 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow and Liquidity Analysis


		Six Months Ended June 30,							Three Months Ended March 31,
(Amounts in millions)	(Amounts in millions)	2020		2019		(Amounts in millions)	2021		2020
Net cash flows provided (used) by operating activities	Net cash flows provided (used) by operating activities	$	21.2	$	49.4	Net cash flows provided (used) by operating activities	$	36.4	$	47.5
Net cash flows provided (used) by investing activities	Net cash flows provided (used) by investing activities	(21.2)		15.0		Net cash flows provided (used) by investing activities	(9.5)		(5.2)
Net cash flows provided (used) by financing activities	Net cash flows provided (used) by financing activities	(91.9)		(86.8)		Net cash flows provided (used) by financing activities	(449.9)		(65.5)

Existing cash, cash generated by operations and borrowings available under our Senior Credit Facility are our primary sources of short-term liquidity. We monitor the depository institutions that hold our cash and cash equivalents on a regular

~~Table of~~ ~~Contents~~

basis, and we believe that we have placed our deposits with creditworthy financial institutions. Our sources of operating cash generally include the sale of our products and services and the conversion of our working capital, particularly accounts receivable and inventories. Our cash balance at ~~June 30, 2020~~March 31, 2021 was ~~$561.7~~$659.3 million, as compared with ~~$671.0~~$1,095.3 million at December 31, ~~2019.~~2020.

Our cash balance decreased by ~~$109.3~~$436.0 million to ~~$561.7~~$659.3 million at ~~June 30, 2020,~~March 31, 2021, as compared with December 31, ~~2019.~~2020. The cash activity during the first ~~six~~three months of ~~2020~~2021 included ~~$10.8~~the $407.5 million redemptionof ~~proceeds from the sale of non-strategic manufacturing facilities~~our 2022 Euro Senior Notes, $26.5 million in ~~2019 that were included~~dividend payments, $11.4 million in ~~our 2015 Realignment Programs, $32.1~~capital expenditures and $5.1 million of share repurchases, ~~$52.1 million in dividend payments and $32.0 million in capital expenditures.~~partially offset by cash provided by operating activities.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, our cash provided by operating activities was ~~$21.2~~$36.4 million, as compared to $~~49.4~~47.5 million for the same period in ~~2019.~~2020. Cash flow provided from working capital ~~increased~~decreased for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, due primarily to ~~improved~~increased cash ~~flow related to~~flows used or decreased cash flows provided by accounts payable, contract liabilities, accounts receivable ~~accounts~~and accrued liabilities and income taxes payable ~~and inventory,~~, partially offset by ~~reduced~~decreased cash flows used from inventory and contract ~~assets.~~assets to the same period in 2020.

Decreases in accounts receivable provided ~~$0.9~~$9.0 million of cash flow for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~a use of $13.4~~$19.1 million for the same period in ~~2019.~~2020. As of ~~June 30, 2020,~~March 31, 2021, our days’ sales outstanding ("DSO") was 7477 days as compared with 7374 days as of ~~June 30, 2019.~~March 31, 2020.

~~Increases~~Decreases in contract assets ~~used $44.2~~provided $2.2 million of cash flow for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared towith cash flows ~~provided~~used of ~~$12.4~~$14.5 million for the same period in ~~2019.~~2020.

Increases in inventory used $~~36.6~~17.0 million and ~~$47.6~~$43.2 million of cash flow for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively. Inventory turns were ~~3.8~~3.6 times at ~~June 30, 2020,~~March 31, 2021, as compared to ~~3.9~~3.7 as of ~~June 30, 2019.~~March 31, 2020.

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Decreases in accounts payable used ~~$9.1~~$47.1 million of cash flow for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared with ~~$20.7~~$8.8 million for the same period in ~~2019.~~2020. Increases in accrued liabilities and income taxes payable provided ~~$5.8~~$0.2 million of cash flow for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared with cash flows used of ~~$56.9~~$10.7 million for the same period in ~~2019.~~2020.

Increases in contract liabilities provided $~~3.5~~9.0 million ~~and $6.7 million~~ of cash flow for the ~~six~~three months ended ~~June 30, 2020 and June 30, 2019, respectively.~~March 31, 2021, as compared to $16.6 million for the same period in 2020.

Cash flows used by investing activities during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were $~~21.2~~9.5 million, as compared to ~~cash flows provided of $15.0~~$5.2 million for the same period in ~~2019.~~2020. Capital expenditures during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were $~~32.0~~11.4 million, ~~an increase~~a decrease of ~~$6.7~~$4.5 million as compared with the same period in ~~2019.~~2020. Our capital expenditures are generally focused on strategic initiatives to pursue information technology infrastructure, ongoing scheduled replacements and upgrades and cost reduction opportunities. In ~~2020, total~~2021, we currently estimate capital expenditures ~~are expected~~ to be ~~approximately $60 million.~~between $70 million and $80 million, before consideration of any acquisition activity. In addition, proceeds received during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 from disposal of assets provided ~~$10.8~~$1.9 million, primarily from the ~~2019~~2020 sale of non-strategic manufacturing facilities that were included in our Realignment Programs. Proceeds received during the first ~~six~~three months of ~~2019~~2020 included $~~40.3~~10.7 million of proceeds from the disposal of assets, primarily from the 2019 sale of non-strategic manufacturing facilities that ~~are~~were included in ~~our 2015~~ Realignment Programs.

Cash flows used by financing activities during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were $~~91.9~~449.9 million, as compared ~~with $86.8~~to $65.5 million for the same period in ~~2019.~~2020. Cash outflows during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 resulted primarily from a $407.5 million payment on long-term debt resulting from the redemption of our 2022 Euro Senior Notes, $26.5 million of dividend payments and the repurchase of ~~$32.1~~$5.1 million of common ~~shares and~~ ~~$52.1 million~~ ~~of dividend payments.~~shares.

As of ~~June 30, 2020,~~March 31, 2021, we had an available capacity of ~~$722.2~~ $742.0 million on our Senior Credit Facility, which provides for a $800.0 million unsecured revolving credit facility with a maturity date of July 16, 2024. Our borrowing capacity is subject to financial covenant limitations based on the terms of our Senior Credit Facility and is also reduced by outstanding letters of credit. Our Senior Credit Facility is committed and held by a diversified group of financial institutions. Refer to Note 67 to our condensed consolidated financial statements included in this Quarterly Report for additional information concerning our Senior Credit Facility.

During the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 we made no cash contributions to our U.S. pension plan. At December 31, ~~2019~~2020 our U.S. pension plan was fully funded as defined by applicable law. After consideration of our funded status, we ~~are~~ currently ~~evaluating whether we will make any incremental~~anticipate making $20 million in contributions to ~~the~~our U.S. pension plan in ~~2020.~~2021, excluding direct benefits paid. We continue to maintain an asset allocation consistent with our strategy to maximize total return, while reducing portfolio risks through asset class diversification.

Considering our current debt structure and cash needs, we currently believe cash flows generated from operating activities combined with availability under our Senior Credit Facility and our existing cash balance will be sufficient to meet our cash needs for the next 12 months. Cash flows from operations could be adversely affected by economic, political and other risks associated with sales of our products, operational factors, competition, fluctuations in foreign exchange rates and fluctuations in

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interest rates, among other factors. See "COVID-19 Liquidity Update" and "Cautionary Note Regarding Forward-Looking Statements" below.

As of ~~June 30, 2020,~~March 31, 2021, we have ~~$113.6~~$108.5 million of remaining capacity for Board of Directors approved share repurchases. While we currently intend to continue to return cash through dividends and/or share repurchases for the foreseeable future, any future returns of cash through dividends and/or share repurchases will be reviewed individually, declared by our Board of Directors at its discretion and implemented by management.

Financing

Credit Facilities

See Note 1213 to our consolidated financial statements included in our ~~2019~~2020 Annual Report and Note 67 to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our Senior Credit Facility and related covenants. We were in compliance with all applicable covenants under our Senior Credit Facility as of ~~June 30, 2020.~~March 31, 2021.

COVID-19 Liquidity Update

~~Given our current financial condition, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment.~~ As of ~~June 30, 2020,~~March 31, 2021, we had approximately ~~$1.3~~$1.4 billion of liquidity, consisting of cash and cash equivalents of ~~$561.7~~$659.3 million and ~~$722.2~~$742.0 million of borrowings available under our Senior Credit Facility. In light of the liquidity currently available to us, and the costs savings measures planned and already in place, we expect to be able to maintain adequate liquidity over the

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next 12 months as we manage through the current market environment. We ~~will~~will continue to actively monitor the potential impacts of COVID-19 and related events on the credit markets in order to maintain sufficient liquidity and access to capital throughout ~~2020.~~2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our ~~2019~~2020 Annual Report. ~~These~~The critical policies, for which no significant changes have occurred in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, include:

•Revenue Recognition;

•Deferred Taxes, Tax Valuation Allowances and Tax Reserves;

•Reserves for Contingent Loss;

•Retirement and Postretirement Benefits; and

•Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived Assets.

The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates. The significant estimates are reviewed quarterly with the Audit Committee of our Board of Directors.

Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below.

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ACCOUNTING DEVELOPMENTS

We have presented the information about pronouncements not yet implemented in Note 1 to our condensed consolidated financial statements included in this Quarterly Report.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, statements concerning our future financial performance, future debt and financing levels, investment objectives, implications of litigation and regulatory investigations and other management plans for future operations and performance.

The forward-looking statements included in this Quarterly Report are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements and are currently, or in the future could be, amplified by the COVID-19 pandemic. Specific factors that might cause such a difference include, without limitation, the following:

•uncertainties related to the impact of the COVID-19 pandemic on our business and operations, financial results and financial position, our customers and suppliers, and on the global economy, including its impact on our sales;

•a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins;

•changes in the global financial markets and the availability of capital and the potential for unexpected cancellations or delays of customer orders in our reported backlog;

•our dependence on our customers' ability to make required capital investment and maintenance expenditures. The liquidity and financial position of our customers could impact capital investment decisions and their ability to pay in full and/or on a timely basis;

•if we are not able to successfully execute and realize the expected financial benefits from our strategic transformation, realignment and other cost-saving initiatives, our business could be adversely affected;

•risks associated with cost overruns on fixed fee projects and in accepting customer orders for large complex custom engineered products;

•the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries;

•the adverse impact of volatile raw materials prices on our products and operating margins;

•economic, political and other risks associated with our international operations, including military actions, trade embargoes or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/reexport control, foreign corrupt practice laws, economic sanctions and import laws and regulations;

•increased aging and slower collection of receivables, particularly in Latin America and other emerging markets;

•our exposure to fluctuations in foreign currency exchange rates, particularly the Euro and British pound and in hyperinflationary countries such as Venezuela and Argentina;

•our furnishing of products and services to nuclear power plant facilities and other critical applications;

•potential adverse consequences resulting from litigation to which we are a party, such as litigation involving ~~asbestos-~~

~~containing~~asbestos-containing material claims;

•expectations regarding acquisitions and the integration of acquired businesses;

•our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits;

•the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets;

•our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations;

•the highly competitive nature of the markets in which we operate;

•environmental compliance costs and liabilities;

•potential work stoppages and other labor matters;

•access to public and private sources of debt financing;

•our inability to protect our intellectual property in the U.S., as well as in foreign countries;

•obligations under our defined benefit pension plans;

•our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud;

•the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results;

•risks and potential liabilities associated with cyber security threats; and

•ineffective internal controls could impact the accuracy and timely reporting of our business and financial results.

These and other risks and uncertainties are more fully discussed in the risk factors identified in "Item 1A. Risk Factors" in Part I of our ~~2019~~2020 Annual Report ~~Part II of the Quarterly Report for the period ended March 31, 2020,~~ and Part II of this Quarterly Report, and may be identified in our Quarterly Reports on Form 10-Q and our other filings with the SEC and/or press releases from time to time. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

We have market risk exposure arising from changes in foreign currency exchange rate movements in foreign exchange contracts. We are exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but we currently expect our counterparties will continue to meet their obligations given their current creditworthiness.

LIBOR

On March 5, 2021, the UK Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”) issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration. That announcement confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after December 31, 2021 for all non-USD LIBOR reference rates, and for 1-Week and 2-Month USD LIBOR and after June 30, 2023 for other USD LIBOR reference rates. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, has proposed the replacement of U.S. dollar LIBOR rates with a new index calculated by short-term repurchase agreements backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). Whether or not SOFR is generally accepted as the LIBOR replacement remains in question and the future of LIBOR at this time is uncertain. The Company’s current Senior Credit Facility agreement includes a provision for the determination of a successor LIBOR rate when appropriate by reference to the then-prevailing market convention for determining an interest rate for syndicated loans in the United States, subject to a right of the lenders thereunder to reject the application of the determined rate by written notice. While we will work with our administrative agent to incorporate a successor reference rate, there can be no assurances as to what alternative reference rates may be and whether such rates will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR.

Foreign Currency Exchange Rate Risk

A substantial portion of our operations are conducted by our subsidiaries outside of the U.S. in currencies other than the U.S. dollar. Almost all of our non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions, including firm commitments and anticipated transactions, denominated in a currency other than our or a non-U.S. subsidiary’s functional currency. ~~We previously designated €255.7 million~~As a means of managing the volatility of foreign currency exposure with the Euro/U.S. dollar exchange rate, we entered into two swap agreements associated with our ~~€500.0 million 2022~~ Euro ~~Senior Notes as a net~~ investment ~~hedge of our investments~~ in certain of our international ~~subsidiaries that use~~subsidiaries. The swap agreements are designated as a net investment hedges and as of March 31, 2021, the ~~Euro as their functional currency. Generally,~~notional value of the swaps agreements was €288.2 million. Routinely, we ~~view~~review our investments in foreign subsidiaries from

a long-term perspective and use capital structuring techniques to manage our investment in foreign subsidiaries as deemed necessary. For further discussion related to these swap agreements refer to Note 6 to our condensed consolidated financial statements included in this Quarterly Report. We ~~realized~~recognized net gains (losses) associated with foreign currency ~~translation~~translation of ~~$15.1~~$(10.9) million and ~~$(2.8)~~$(96.1) million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $(66.3) million an~~d ~~$4.1 million~~ ~~for the six months ended June 30, 2020 and 2019,~~ respectively, which are included in other comprehensive income (loss).

We employ a foreign currency risk management strategy to minimize potential changes in cash flows from unfavorable foreign currency exchange rate movements. Where available, the use of foreign exchange contracts allows us to mitigate transactional exposure to exchange rate fluctuations as the gains or losses incurred on the foreign exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. As of ~~June 30, 2020,~~March 31, 2021, we had a U.S. dollar equivalent of ~~$385.1~~$371.3 million in a~~ggregate~~aggregate notional amount outstanding in foreign exchange contracts with third parties, as compared with ~~$398.5~~$388.1 million at December 31, ~~2019.~~2020. Transactional currency gains and losses arising from transactions outside of our sites’ functional currencies and changes in fair value of ~~non-designated~~non-designated foreign exchange contracts are included in our consolidated results of operations. We recognized foreign currency net (losses) gains of ~~$(14.1)~~$(9.5) million and ~~$(3.1)~~$40.4 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $11.6 million and $(5.8) million for the six months ended June 30, 2020 and 2019,~~ respectively, which are included in other income (expense), net in the accompanying condensed consolidated statements of income.

Based on a sensitivity analysis at ~~June 30, 2020,~~March 31, 2021, a 10% change in the ~~foreign~~foreign currency exchange rates for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 would have impacted our net earnings by ~~approximatel~~approximately $9 million. T~~y $10 million.~~ ~~This~~his calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. This calculation does not take into account the impact of the foreign currency exchange contracts discussed above.

Item 4.Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are controls and other procedures that are designed to ensure that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30, 2020.~~March 31, 2021. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2020.~~March 31, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

We are party to the legal proceedings that are described in Note 1011 to our condensed consolidated financial statements included in "Item 1. Financial Statements" of this Quarterly Report, and such disclosure is incorporated by reference into this "Item 1. Legal Proceedings." In addition to the foregoing, we and our subsidiaries are named defendants in certain other ordinary routine lawsuits incidental to our business and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving us and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect the amount of any liability that could arise with respect to these matters, either individually or in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.Risk Factors.

There are numerous factors that affect our business, financial condition, results of operations, cash flows, reputation and/or prospects, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to "Item 1A. Risk Factors" in Part I and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our ~~2019~~2020 Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently projected in the forward-looking statements contained therein.

There have been no material changes in risk factors discussed in our ~~2019~~2020 Annual Report and subsequent SEC filings. The risks described in this Quarterly Report ~~the Quarterly Report~~ filed for the period ended March 31, ~~2020,~~2021, our ~~2019~~2020 Annual Report and in our other SEC filings or press releases from time to time are not the only risks we face. Additional risks and uncertainties are currently deemed immaterial based on management's assessment of currently available information, which remains subject to change; however, new risks that are currently unknown to us may surface in the future that materially adversely affect our business, financial condition, results of operations or cash flows.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Note 1213 to our condensed consolidated financial statements included in this Quarterly Report includes a discussion of our share repurchase program and payment of quarterly dividends on our common stock.

During the quarter ended ~~June 30, 2020,~~March 31, 2021, we ~~had no repurchases~~repurchased 129,000 for $5.1 million (representing an average cost of ~~our common stock shares.~~$39.39 per share). As of ~~June 30, 2020,~~March 31, 2021, we have ~~$113.6~~$108.5 million of remaining capacity under our current share repurchase program. The following table sets forth the activity for each of the three months during the quarter ended ~~June 30, 2020:~~March 31, 2021:

Total Number of Shares Purchased Average Price Paid per Share Total Number of
Shares Purchased as
Part of Publicly Announced Program Maximum Number of
Shares (or
Approximate Dollar
Value) of Shares That May Yet
Be Purchased Under
the Program (in millions)
Period
April 1 - 30 8,161 (1) $ 23.16 — $ 113.6
May 1 - 31 5,559 (2) 22.99 — 113.6
June 1 - 30 2,607 (1) 27.97 — 113.6
Total 16,327 $ 23.87 —


	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Maximum Number of Shares (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Program (in millions)
Period
January 1 - 31	1,624	(2)	$	37.01	—	$	113.6
February 1 - 28	137,353	(2)	38.37		—	113.6
March 1 - 31	140,433	(3)	39.29		129,000	108.5
Total	279,410		$	38.82	129,000

(1)On November 13, 2014, our Board of Directors approved a $500.0 million share repurchase authorization. Our share repurchase program does not have an expiration date, and we reserve the right to limit or terminate the repurchase program at any time without notice.

~~(1)~~(2)Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares.

~~(2)~~(3)Includes ~~2,790~~9,747 shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares at an average price per share of ~~$22.93~~$38.18 and ~~2,769~~1,686 shares purchased at a price of ~~$23.05~~$37.85 per share by a rabbi trust that we established in connection with our director deferral plans, pursuant to which non-employee directors may elect to defer directors’ quarterly cash compensation to be paid at a later date in the form of common stock.

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Item 3.Defaults Upon Senior Securities.

None

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None

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Item 6.Exhibits


Exhibit No.						Description




3.1						Restated Certificate of Incorporation of Flowserve Corporation, as amended and restated effective May 26, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 26, 2020).

3.2						Flowserve Corporation By-Laws, as amended and restated effective ~~May 22,~~August 12, 2020 (incorporated by reference to Exhibit ~~3.2~~3.1 to the Registrant’s Current Report on Form 8-K dated ~~May 26,~~August 14, 2020).

~~10.1+~~						Form of Restrictive Covenants Agreement for Officer.*

~~10.2+~~						Form of Restricted Stock Unit Agreement for certain officers pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan.*

~~10.3+~~						Form of Performance Restricted Stock Unit Agreement for certain officers pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan (TSR).*

~~10.4+~~						Form of Performance Restricted Stock Unit Agreement for certain officer pursuant to the Flowserve Corporation 2020 Long-Term Incentive Plan (ROIC).*





31.1+						Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+						Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1++						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2++						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

104						The cover page from the Company’s Quarterly Report on Form 10-Q for the period ended ~~June 30, 2020,~~March 31, 2021, formatted in Inline XBRL (included as Exhibit 101)

_______________________

* Management contracts and compensatory plans and arrangements required to be filed as exhibits to this Quarterly + Report on Form 10-Q.

+ Filed herewith.

++ Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						FLOWSERVE CORPORATION


Date:	~~July 30, 2020~~May 3, 2021	/s/ Amy B. Schwetz
		Amy B. Schwetz
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)




Date:	~~July 30, 2020~~May 3, 2021	/s/ Scott V.K. Vopni
		Scott V.K. Vopni
		Vice President and Chief Accounting Officer (Principal Accounting Officer)

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	June 30,
(Amounts in thousands, except lease term and discount rate)	2020			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases(1)	$	36,067		$	26,448

Financing cash flows from finance leases(2)	2,026			2,297
ROU assets obtained in exchange for lease obligations:
Operating leases	$	13,964		11,983
Finance leases	3,143			6,006
Weighted average remaining lease term (in years)
Operating leases	8 years			9 years
Finance leases	3 years			3 years
Weighted average discount rate (percent)
Operating leases	4.5		%	4.5		%
Finance leases	3.5		%	3.8		%


Year ending December 31,	Operating Leases		Finance Leases
2020 (excluding the six months ended June 30, 2020)	$	21,733	$	3,836
2021	36,114		3,991
2022	29,428		2,697
2023	23,638		1,362
2024	18,420		330
Thereafter	79,872		54
Total future minimum lease payments	$	209,205	$	12,270
Less: Imputed interest	(34,822)		(769)
Total	$	174,383	$	11,501

Other current liabilities	$	35,648	$	—
Operating lease liabilities	138,735		—
Debt due within one year	—		4,725
Long-term debt due after one year	—		6,776
Total	$	174,383	$	11,501