UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2021~~March 31, 2022

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

FOR THE TRANSITION PERIOD FROM to .

Commission File No. 1-13179

FLOWSERVE CORPORATION

(Exact name of registrant as specified in its charter)

New York

31-0267900

(State or other jurisdiction of incorporation or organization)

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

5215 N. O’Connor Blvd., Suite 700,

Irving,

Texas

75039

(Address of principal executive offices)

(Zip Code)

~~( 972 ) 443-6500~~

(

972

)

443-6500

(Registrant’s telephone number, including area code)

Former name, former address and former fiscal year, if changed since last report: N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $1.25 Par Value

FLS

New York Stock Exchange

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

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

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~October 25, 2021~~April 28, 2022 there were ~~130,267,675~~130,644,615 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.~~Statements
Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (unaudited)			1
~~Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income (Loss) – Nine Months Ended September 30, 2021 and 2020 (unaudited)~~			2
Condensed Consolidated Balance Sheets – Condensed Consolidated Balance Sheets – ~~September 30, 2021~~Mar ch 3 1 , 202 2 and December 31, ~~2020~~202 1 (unaudited)			32
Condensed Consolidated Statements of Shareholders' Equity – Three Months Ended ~~September 30, 2021~~March 3 1 , 202 2 and ~~2020~~202 1 (unaudited)			43
~~Condensed Consolidated Statements of Stockholders' Equity – Nine Months Ended September 30, 2021 and 2020 (unaudited)~~			5
Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30, 2021~~March 31 , 202 2 and ~~2020~~202 1 (unaudited)			64
Notes to Condensed Consolidated Financial Statements (unaudited)			75
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3120
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4631
Item 4. Controls and Procedures			4731

PART II – OTHER INFORMATION
Item 1. Legal Proceedings			4833
Item 1A. Risk Factors			4833
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4833
Item 3. Defaults Upon Senior Securities			5035
Item 4. Mine Safety Disclosures			5035
Item 5. Other Information			5035
Item 6. Exhibits			5035
SIGNATURES			5136

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial ~~Statements.~~Statements

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)


(Amounts in thousands, except per share data)	(Amounts in thousands, except per share data)	Three Months Ended September 30,				(Amounts in thousands, except per share data)	Three Months Ended March 31,
		2021		2020			2022		2021
Sales	Sales	$	866,118	$	924,301	Sales	$	821,058	$	857,308
Cost of sales	Cost of sales	(612,626)		(639,092)		Cost of sales	(611,411)		(606,408)
Gross profit	Gross profit	253,492		285,209		Gross profit	209,647		250,900
Selling, general and administrative expense	Selling, general and administrative expense	(200,862)		(200,729)		Selling, general and administrative expense	(206,138)		(198,315)

Net earnings from affiliates	Net earnings from affiliates	4,732		2,842		Net earnings from affiliates	3,858		3,518
Operating income	Operating income	57,362		87,322		Operating income	7,367		56,103
Interest expense	Interest expense	(14,746)		(13,509)		Interest expense	(10,693)		(16,778)
Loss on extinguishment of debt	Loss on extinguishment of debt	(563)		(1,201)		Loss on extinguishment of debt	—		(7,610)
Interest income	Interest income	827		673		Interest income	943		602
Other income (expense), net	Other income (expense), net	(1,504)		4,673		Other income (expense), net	(8,114)		(11,364)
Earnings before income taxes		41,376		77,958
Earnings (loss) before income taxes						Earnings (loss) before income taxes	(10,497)		20,953
(Provision for) benefit from income taxes	(Provision for) benefit from income taxes	10,433		(19,196)		(Provision for) benefit from income taxes	(3,182)		(3,792)
Net earnings, including noncontrolling interests		51,809		58,762
Net earnings (loss), including noncontrolling interests						Net earnings (loss), including noncontrolling interests	(13,679)		17,161
Less: Net earnings attributable to noncontrolling interests	Less: Net earnings attributable to noncontrolling interests	(2,024)		(2,647)		Less: Net earnings attributable to noncontrolling interests	(2,141)		(3,081)
Net earnings attributable to Flowserve Corporation		$	49,785	$	56,115
Net earnings per share attributable to Flowserve Corporation common shareholders:
Net earnings (loss) attributable to Flowserve Corporation						Net earnings (loss) attributable to Flowserve Corporation	$	(15,820)	$	14,080
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:						Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:
Basic	Basic	$	0.38	$	0.43	Basic	$	(0.12)	$	0.11
Diluted	Diluted	0.38		0.43		Diluted	(0.12)		0.11

Weighted average shares - basic						Weighted average shares - basic	130,410		130,427
Weighted average shares - diluted						Weighted average shares - diluted	130,410		131,006

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


(Amounts in thousands)	(Amounts in thousands)	Three Months Ended September 30,				(Amounts in thousands)	Three Months Ended March 31,
		2021		2020			2022		2021
Net earnings, including noncontrolling interests		$	51,809	$	58,762
Net earnings (loss), including noncontrolling interests						Net earnings (loss), including noncontrolling interests	$	(13,679)	$	17,161
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $1,274 and $140, respectively		(15,561)		19,555
Pension and other postretirement effects, net of taxes of $(471) and $(421), respectively		4,955		(976)
Cash flow hedging activity		(1,347)		41
Foreign currency translation adjustments, net of taxes of $(13,306) and $654, respectively						Foreign currency translation adjustments, net of taxes of $(13,306) and $654, respectively	(16,744)		(10,889)
Pension and other postretirement effects, net of taxes of $(254) and $(471), respectively						Pension and other postretirement effects, net of taxes of $(254) and $(471), respectively	3,587		4,259
Cash flow hedging activity, net of taxes of $(9) and $(62), respectively						Cash flow hedging activity, net of taxes of $(9) and $(62), respectively	29		202
Other comprehensive income (loss)	Other comprehensive income (loss)	(11,953)		18,620		Other comprehensive income (loss)	(13,128)		(6,428)
Comprehensive income (loss), including noncontrolling interests	Comprehensive income (loss), including noncontrolling interests	39,856		77,382		Comprehensive income (loss), including noncontrolling interests	(26,807)		10,733
Comprehensive (income) loss attributable to noncontrolling interests	Comprehensive (income) loss attributable to noncontrolling interests	(2,021)		(2,643)		Comprehensive (income) loss attributable to noncontrolling interests	(3,476)		(3,230)
Comprehensive income (loss) attributable to Flowserve Corporation	Comprehensive income (loss) attributable to Flowserve Corporation	$	37,835	$	74,739	Comprehensive income (loss) attributable to Flowserve Corporation	$	(30,283)	$	7,503

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED ~~STATEMENTS OF INCOME~~

~~(Unaudited)~~
(Amounts in thousands, except per share data) Nine Months Ended September 30,
2021 2020
Sales $ 2,621,604 $ 2,742,826
Cost of sales (1,838,974) (1,921,451)
Gross profit 782,630 821,375
Selling, general and administrative expense (609,965) (675,523)
Gain on sale of business 1,806 —
Net earnings from affiliates 11,157 9,125
Operating income 185,628 154,977
Interest expense (45,847) (39,407)
Loss on extinguishment of debt (8,173) (1,201)
Interest income 1,893 3,571
Other income (expense), net (20,717) 23,969
Earnings before income taxes 112,784 141,909
(Provision for) benefit from income taxes 3,929 (60,650)
Net earnings, including noncontrolling interests 116,713 81,259
Less: Net earnings attributable to noncontrolling interests (7,495) (6,890)
Net earnings attributable to Flowserve Corporation $ 109,218 $ 74,369
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic $ 0.84 $ 0.57
Diluted 0.83 0.57

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~
(Amounts in thousands) Nine Months Ended September 30,
2021 2020
Net earnings, including noncontrolling interests $ 116,713 $ 81,259
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $7,021 and $6,114, respectively (12,452) (57,456)
Pension and other postretirement effects, net of taxes of $(1,414) and $(1,263), respectively 11,273 7,091
Cash flow hedging activity (1,130) 139
Other comprehensive income (loss) (2,309) (50,226)
Comprehensive income (loss), including noncontrolling interests 114,404 31,033
Comprehensive (income) loss attributable to noncontrolling interests (7,654) (7,662)
Comprehensive income (loss) attributable to Flowserve Corporation $ 106,750 $ 23,371

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

~~Table of Contents~~

~~FLOWSERVE CORPORATION~~

~~CONDENSED CONSOLIDATED~~ BALANCE SHEETS

(Unaudited)


(Amounts in thousands, except par value)	(Amounts in thousands, except par value)	September 30,		December 31,		(Amounts in thousands, except par value)	March 31,		December 31,
		2021		2020			2022		2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,457,269	$	1,095,274	Cash and cash equivalents	$	575,795	$	658,452
Accounts receivable, net of allowance for expected credit losses of $75,966 and $75,176, respectively		710,782		753,462
Contract assets, net of allowance for expected credit losses of $2,778 and $3,205, respectively		235,917		277,734
Accounts receivable, net of allowance for expected credit losses of $79,326 and $74,336, respectively						Accounts receivable, net of allowance for expected credit losses of $79,326 and $74,336, respectively	730,201		739,210
Contract assets, net of allowance for expected credit losses of $3,338 and $2,393, respectively						Contract assets, net of allowance for expected credit losses of $3,338 and $2,393, respectively	200,054		195,598
Inventories, net	Inventories, net	698,046		667,228		Inventories, net	722,380		678,287

Prepaid expenses and other	Prepaid expenses and other	121,209		110,635		Prepaid expenses and other	148,426		117,130
Total current assets	Total current assets	3,223,223		2,904,333		Total current assets	2,376,856		2,388,677
Property, plant and equipment, net of accumulated depreciation of $1,117,487 and $1,093,348, respectively		513,168		556,873
Property, plant and equipment, net of accumulated depreciation of $1,161,374 and $1,191,823, respectively						Property, plant and equipment, net of accumulated depreciation of $1,161,374 and $1,191,823, respectively	506,655		515,927
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	194,306		208,125		Operating lease right-of-use assets, net	187,272		193,863
Goodwill	Goodwill	1,202,598		1,224,886		Goodwill	1,186,221		1,196,479
Deferred taxes	Deferred taxes	57,849		30,538		Deferred taxes	31,692		44,049
Other intangible assets, net	Other intangible assets, net	155,994		168,496		Other intangible assets, net	148,461		152,463
Other assets, net of allowance for expected credit losses of $67,697 and $67,842, respectively		248,778		221,426
Other assets, net of allowance for expected credit losses of $68,184 and $67,696, respectively						Other assets, net of allowance for expected credit losses of $68,184 and $67,696, respectively	265,854		258,310
Total assets	Total assets	$	5,595,916	$	5,314,677	Total assets	$	4,703,011	$	4,749,768

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	370,977	$	440,199	Accounts payable	$	418,719	$	410,062
Accrued liabilities	Accrued liabilities	468,153		463,222		Accrued liabilities	447,175		445,092
Contract liabilities	Contract liabilities	199,103		194,227		Contract liabilities	204,158		202,965
Debt due within one year	Debt due within one year	836,618		8,995		Debt due within one year	44,616		41,058

Operating lease liabilities	Operating lease liabilities	34,034		34,990		Operating lease liabilities	32,938		32,628
Total current liabilities	Total current liabilities	1,908,885		1,141,633		Total current liabilities	1,147,606		1,131,805
Long-term debt due after one year	Long-term debt due after one year	1,272,246		1,717,911		Long-term debt due after one year	1,251,595		1,261,770
Operating lease liabilities	Operating lease liabilities	165,588		176,246		Operating lease liabilities	160,057		166,786
Retirement obligations and other liabilities	Retirement obligations and other liabilities	457,964		517,566		Retirement obligations and other liabilities	352,698		352,062
Commitments and contingencies (See Note 11)	Commitments and contingencies (See Note 11)	0		0		Commitments and contingencies (See Note 11)	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common shares, $1.25 par value	Common shares, $1.25 par value	220,991		220,991		Common shares, $1.25 par value	220,991		220,991
Shares authorized – 305,000	Shares authorized – 305,000					Shares authorized – 305,000
Shares issued – 176,793	Shares issued – 176,793					Shares issued – 176,793
Capital in excess of par value	Capital in excess of par value	501,122		502,227		Capital in excess of par value	496,151		506,386
Retained earnings	Retained earnings	3,700,507		3,670,543		Retained earnings	3,648,678		3,691,023
Treasury shares, at cost – 46,804 and 46,768 shares, respectively		(2,058,168)		(2,059,309)
Treasury shares, at cost – 46,424 and 46,794 shares, respectively						Treasury shares, at cost – 46,424 and 46,794 shares, respectively	(2,039,900)		(2,057,706)
Deferred compensation obligation	Deferred compensation obligation	7,145		6,164		Deferred compensation obligation	7,122		7,214
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(612,093)		(609,625)		Accumulated other comprehensive loss	(578,053)		(563,589)
Total Flowserve Corporation shareholders’ equity	Total Flowserve Corporation shareholders’ equity	1,759,504		1,730,991		Total Flowserve Corporation shareholders’ equity	1,754,989		1,804,319
Noncontrolling interests	Noncontrolling interests	31,729		30,330		Noncontrolling interests	36,066		33,026
Total equity	Total equity	1,791,233		1,761,321		Total equity	1,791,055		1,837,345
Total liabilities and equity	Total liabilities and equity	$	5,595,916	$	5,314,677	Total liabilities and equity	$	4,703,011	$	4,749,768

See accompanying notes to condensed consolidated financial statements.

Table of Contents

FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


		Total Flowserve Corporation Shareholders’ Equity																																			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															Treasury Stock														Non- controlling Interests
		Shares	Amount								Shares			Amount												Shares						Amount										Shares						Amount
		(Amounts in thousands)																																			(Amounts in thousands)
Balance — July 1, 2021		176,793	$	220,991			$	494,221			$	3,677,117		(46,806)			$	(2,058,279)						$	7,077					$	(600,143)							$	29,708			$	1,770,692
Balance — January 1, 2022																																				Balance — January 1, 2022	176,793				$	220,991						$	506,386				$	3,691,023			(46,794)				$	(2,057,706)		$	7,214		$	(563,589)		$	33,026		$	1,837,345

Stock activity under stock plans																																				Stock activity under stock plans	—				—				(21,246)					—					370			17,806			(92)			—			—			(3,532)
Stock-based compensation																																				Stock-based compensation	—								11,011					—					—			—			—			—			—			11,011

Net loss																																				Net loss	—				—				—					(15,820)					—			—			—			—			2,141			(13,679)
Cash dividends declared																																				Cash dividends declared	—				—				—					(26,525)					—			—			—			—			—			(26,525)

Other comprehensive income (loss), net of tax																																				Other comprehensive income (loss), net of tax	—				—				—					—					—			—			—			(14,464)			1,336			(13,128)

Other, net																																				Other, net	—				—				—					—					—			—			—			—			(437)			(437)
Balance — March 31, 2022																																				Balance — March 31, 2022	176,793				$	220,991			$	496,151				$	3,648,678				(46,424)			$	(2,039,900)		$	7,122		$	(578,053)		$	36,066		$	1,791,055

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	—	—				(237)				—			2			111					68					—								—					(58)	Stock activity under stock plans		—				—					(23,081)				—				401			18,453			(50)			—			—			(4,678)
Stock-based compensation	Stock-based compensation	—	—		7,138				—				—		—				—			—					—						7,138			Stock-based compensation	—				—				9,760					—					—			—			—			—			—			9,760

Net earnings	Net earnings	—	—		—				49,785				—		—				—			—					2,024						51,809			Net earnings	—				—				—					14,080					—			—			—			—			3,081			17,161
Cash dividends declared	Cash dividends declared	—	—		—				(26,395)				—		—				—			—					—						(26,395)			Cash dividends declared	—				—				—					(26,465)					—			—			—			—			—			(26,465)

Repurchases of common shares																																				Repurchases of common shares	—				—				—					—					(129)			(5,081)			—			—			—			(5,081)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	—	—		—				—				—		—				—			(11,950)					(3)						(11,953)			Other comprehensive income (loss), net of tax	—				—				—					—					—			—			—			(6,575)			147			(6,428)

Other, net	Other, net	—	—		—				—				—		—				—			—					—						—			Other, net	—				—				—					—					—			—			—			—			(3,804)			(3,804)
Balance — September 30, 2021		176,793	$	220,991	$	501,122			$	3,700,507			(46,804)		$	(2,058,168)			$	7,145		$	(612,093)				$	31,729					$	1,791,233

Balance — July 1, 2020		176,793	$	220,991	$	499,152			$	3,610,470			(46,873)		$	(2,064,302)			$	6,036		$	(653,916)				$	27,779					$	1,646,210

Stock activity under stock plans		—	—		(5,220)				—				98		4,636				64			—					—						(520)
Stock-based compensation		—	—		5,629				—				—		—				—			—					—						5,629

Net earnings		—	—		—				56,115				—		—				—			—					2,647						58,762
Cash dividends declared		—	—		—				(26,357)				—		—				—			—					—						(26,357)

Other comprehensive income (loss), net of tax		—	—		—				—				—		—				—			18,624					(4)						18,620

Balance — September 30, 2020		176,793	$	220,991	$	499,561			$	3,640,228			(46,775)		$	(2,059,666)			$	6,100		$	(635,292)				$	30,422					$	1,702,344
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
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 SHAREHOLDERS’ EQUITY~~

~~(Unaudited)~~
Total Flowserve Corporation Shareholders’ Equity
Capital
in Excess of Par Value Retained Earnings Deferred Compensation Obligation Accumulated
Other Comprehensive Income (Loss) Total Equity
Common Stock Treasury Stock Non-
controlling Interests
Shares Amount Shares Amount
(Amounts in thousands)
Balance — January 1, 2021 176,793 $ 220,991 $ 502,227 $ 3,670,543 (46,768) $ (2,059,309) $ 6,164 $ (609,625) $ 30,330 $ 1,761,321
Stock activity under stock plans — — (24,715) — 404 18,672 981 — — (5,062)
Stock-based compensation — — 23,610 — — — — — — 23,610
Net earnings — — — 109,218 — — — — 7,495 116,713
Cash dividends declared — — — (79,254) — — — — — (79,254)
Repurchases of common shares — — — — (440) (17,531) — — — (17,531)
Other comprehensive income (loss), net of tax — — — — — — — (2,468) 159 (2,309)
Other, net — — — — — — — — — —
Balance — September 30, 2021 176,793 $ 220,991 $ 501,122 $ 3,700,507 (46,804) $ (2,058,168) $ 7,145 $ (612,093) $ 31,729 $ 1,791,233
Balance — January 1, 2020 176,793 $ 220,991 $ 501,045 $ 3,652,245 (46,262) $ (2,051,583) $ 8,334 $ (584,294) $ 25,602 $ 1,772,340
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326)
— — — (7,291) — — — — — (7,291)
Stock activity under stock plans — — (25,588) — 544 24,029 (2,234) — — (3,793)
Stock-based compensation — — 24,104 — — — — — — 24,104
Net earnings — — — 74,369 — — — — 6,890 81,259
Cash dividends declared — — — (79,095) — — — — — (79,095)
Repurchases of common shares — — — — (1,057) (32,112) — — — (32,112)
Other comprehensive income (loss), net of tax — — — — — — — (50,998) 772 (50,226)
Other, net — — — — — — — — (2,842) (2,842)
Balance — September 30, 2020 176,793 $ 220,991 $ 499,561 $ 3,640,228 (46,775) $ (2,059,666) $ 6,100 $ (635,292) $ 30,422 $ 1,702,344
See accompanying notes to condensed consolidated financial statements.

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FLOWSERVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(Amounts in thousands)	(Amounts in thousands)	Nine Months Ended September 30,				(Amounts in thousands)	Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows – Operating activities:	Cash flows – Operating activities:					Cash flows – Operating activities:
Net earnings, including noncontrolling interests		$	116,713	$	81,259
Net earnings (loss), including noncontrolling interests						Net earnings (loss), including noncontrolling interests	$	(13,679)	$	17,161
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	66,316		63,887		Depreciation	20,148		21,522
Amortization of intangible and other assets	Amortization of intangible and other assets	10,643		8,788		Amortization of intangible and other assets	3,396		3,862
Loss on extinguishment of debt	Loss on extinguishment of debt	8,173		1,201		Loss on extinguishment of debt	—		7,610

Stock-based compensation	Stock-based compensation	23,610		24,104		Stock-based compensation	11,011		9,760

Foreign currency, asset write downs and other non-cash adjustments	Foreign currency, asset write downs and other non-cash adjustments	9,897		1,880		Foreign currency, asset write downs and other non-cash adjustments	6,893		24,260
Change in assets and liabilities:	Change in assets and liabilities:					Change in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	24,361		24,324		Accounts receivable, net	5,039		9,005
Inventories, net	Inventories, net	(47,533)		(51,974)		Inventories, net	(48,715)		(16,988)
Contract assets, net	Contract assets, net	35,358		(37,328)		Contract assets, net	(5,655)		(2,245)
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	2,429		6,168		Prepaid expenses and other assets, net	(33,197)		307
Accounts payable	Accounts payable	(58,600)		(21,756)		Accounts payable	8,204		(47,093)
Contract liabilities	Contract liabilities	9,379		(22,468)		Contract liabilities	2,600		9,001
Accrued liabilities and income taxes payable	Accrued liabilities and income taxes payable	9,136		22,762		Accrued liabilities and income taxes payable	7,302		187
Retirement obligations and other	Retirement obligations and other	(23,842)		22,729		Retirement obligations and other	10,912		5,248

Net deferred taxes	Net deferred taxes	(34,933)		(9,325)		Net deferred taxes	(1,032)		(5,219)
Net cash flows provided (used) by operating activities	Net cash flows provided (used) by operating activities	151,107		114,251		Net cash flows provided (used) by operating activities	(26,773)		36,378
Cash flows – Investing activities:	Cash flows – Investing activities:					Cash flows – Investing activities:
Capital expenditures	Capital expenditures	(34,034)		(46,424)		Capital expenditures	(14,052)		(11,422)

Proceeds from disposal of assets		2,525		13,759
Net affiliate investment activity		(7,204)		—
Proceeds from disposal of assets and other						Proceeds from disposal of assets and other	1,834		1,934

Net cash flows provided (used) by investing activities	Net cash flows provided (used) by investing activities	(38,713)		(32,665)		Net cash flows provided (used) by investing activities	(12,218)		(9,488)
Cash flows – Financing activities:	Cash flows – Financing activities:					Cash flows – Financing activities:

Payments on senior notes	Payments on senior notes	(407,473)		(191,258)		Payments on senior notes	—		(407,473)

Proceeds from issuance of senior notes		498,280		498,280
Proceeds from long-term debt		300,000		—
Payments of deferred loan cost		(5,399)		(4,572)

Payments on term loan						Payments on term loan	(7,593)		—
Proceeds under other financing arrangements	Proceeds under other financing arrangements	1,408		603		Proceeds under other financing arrangements	555		425
Payments under other financing arrangements	Payments under other financing arrangements	(6,215)		(7,145)		Payments under other financing arrangements	(484)		(1,976)
Repurchases of common shares	Repurchases of common shares	(17,531)		(32,112)		Repurchases of common shares	—		(5,081)
Payments related to tax withholding for stock-based compensation	Payments related to tax withholding for stock-based compensation	(5,899)		(4,521)		Payments related to tax withholding for stock-based compensation	(4,304)		(5,547)
Payments of dividends	Payments of dividends	(78,551)		(78,106)		Payments of dividends	(26,128)		(26,465)
Other	Other	(6,276)		(2,314)		Other	(437)		(3,806)
Net cash flows provided (used) by financing activities	Net cash flows provided (used) by financing activities	272,344		178,855		Net cash flows provided (used) by financing activities	(38,391)		(449,923)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(22,743)		(10,243)		Effect of exchange rate changes on cash	(5,275)		(12,936)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	361,995		250,198		Net change in cash and cash equivalents	(82,657)		(435,969)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	1,095,274		670,980		Cash and cash equivalents at beginning of period	658,452		1,095,274
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	1,457,269	$	921,178	Cash and cash equivalents at end of period	$	575,795	$	659,305

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 ~~September 30, 2021,~~March 31, 2022, and the related condensed consolidated statements of income ~~and~~(loss), condensed consolidated statements of comprehensive income (loss) ~~for the three and nine months ended September 30, 2021 and 2020, the~~, condensed consolidated statements of shareholders' equity ~~for the three~~ and ~~nine months ended September 30, 2021 and 2020 and the~~ condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ of Flowserve Corporation are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for fair statement of such condensed consolidated financial statements have been made. Prior period information has been updated to conform to current year presentation.

The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2021~~March 31, 2022 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 ("~~2020~~2021 Annual Report").

~~Revision to Previously Reported Financial Information -~~ During the first quarter of 2021, as previously disclosed, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 through the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by $1.5 million, retained earnings by $14.0 million and accumulated other comprehensive loss by $15.5 million as of December 31, 2020. Additionally, we identified and corrected certain immaterial errors of cash flow activities on our condensed consolidated statement of cash flows for the nine month period ended September 30, 2020.

We have assessed the above described errors and concluded the effects were not material to the period ended September 30, 2020 or any previous period. The September 30, 2020 balances, as presented herein, have been revised. Additionally, the December 31, 2020 balances will be revised the next time such financial statements are filed. Refer to Note 2 for a detailed discussion related to the impact of the revision as of and for the three and nine months ended September 30, 2020 and the impact to the December 31, 2020 balances, which will be revised in future filings.

Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first ~~nine~~three months of ~~2021,~~2022, we continue to be challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by COVID-19. As a result of the COVID-19 pandemic’s effect on oil prices, many of our large customers reduced capital expenditures and budgets in 2020. To date, while we have seen customer maintenance, repair and overhaul ("MRO") and aftermarket spending return close to pre-pandemic levels, and although we are seeing momentum in project-based capital expenditures, such business has yet to return to pre-pandemic levels. In addition, many of our suppliers have also experienced varying lengths of production and shipping delays related to the COVID-19 pandemic and its effects, some of which continue to exist in highly affected 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.

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.

Russia and Ukraine Conflict - In response to the recent and ongoing military conflict in Ukraine, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia. As a result of this conflict, including the aforementioned sanctions and overall instability in the region, in February 2022 we stopped accepting new orders in Russia and temporarily suspended fulfillment of existing orders. In March 2022, we made the decision to permanently cease all Company operations in Russia. We have commenced the necessary actions to cease operations of our Russian subsidiary, including taking steps to cancel existing contracts with customers, terminate our approximately 50 Russia-based employees and terminate other related contractual commitments, and currently expect this process to continue throughout 2022.

In 2021 our Russian subsidiary had approximately $14 million of sales with an additional $36 million of sales from certain of our other foreign subsidiaries into the Russian market. As of March 31, 2022, the net assets held on our Russian subsidiary's balance sheet were $2.7 million, including $7.1 million of cash, $3.6 million of accounts receivables, a $9.3 million net intercompany payable position and other immaterial amounts. In addition, certain of our other foreign subsidiaries had open contracts with Russian customers that were subsequently cancelled for which revenue had been previously recognized over time utilizing the percentage of completion ("POC") method. As a result of the above, in the first quarter of 2022 we recorded a $20.2 million pre-tax charge ($21.0 million after-tax) to reserve the asset positions of our Russian subsidiary (excluding cash) as of March 31, 2022, to record a contra-revenue for previously recognized revenue and estimated cancellation fees on open

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contracts that were previously accounted for under POC and subsequently canceled, to establish a reserve for the estimated cost to exit the operations of our Russian subsidiary and to record a reserve for our estimated financial exposure on contracts that have or are anticipated to be cancelled.

The following table presents the above impacts of the Russia pre-tax charge:


	Three Months Ended March 31, 2022
(Amounts in thousands)	Flowserve Pump Division		Flow Control Division		Consolidated Total
Sales	$	(5,429)	$	(2)	$	(5,431)
Cost of sales	3,510		1,112		4,622
Gross loss	(8,939)		(1,114)		(10,053)
Selling, general and administrative expense	9,111		1,082		10,193
Operating loss	$	(18,050)	$	(2,196)	$	(20,246)

We continue to monitor the situation involving Russia and Ukraine and its impact on the rest of our global business. To date, these impacts have not been material to our business and we do not currently expect that any incremental impact in future quarters, including any financial impacts caused by our cancellation of customer contracts and ceasing of operations in Russia, will be material to the Company.

Accounting Developments

Pronouncements Not Yet Implemented

In January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topics 321, 323 and 815." The amendments of the ASU addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The ASU is effective for annual periods beginning after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. The adoption of this ASU did not have an impact on our consolidated financial condition, results of operations or net cash flows.

~~In March of 2020,~~October 2021, the FASB issued ASU No. ~~2020-04, "Reference Rate Reform (Topic 848): Facilitation of The Effects of Reference Rate Reform on Financial Reporting.~~2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ~~ASU provides guidance designed to enable~~amendments in this Update improve comparability for both the ~~process for migrating away from reference rates such as~~recognition and measurement of acquired revenue contracts with customers at the ~~London Interbank Offered Rate ("LIBOR")~~date of 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.after a business combination. The amendments are effective ~~as of March 12, 2020 through~~for fiscal years beginning after December ~~31,~~15, 2022, including interim periods within those fiscal years and ~~may~~should be applied prospectively to ~~contract modifications and hedging relationships from~~business combinations occurring on or after the ~~beginning~~effective date of an interim period that includes or is subsequent to March 12, 2020. At this time, we do not have hedging relationships that reference LIBOR or another reference rate expected to be discontinued and therefore, have not applied the practical expedients and exceptions as required by the ASU. 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.amendments. We do not expect the ~~application~~impact of ~~these expedients and exceptions~~this ASU to ~~have an impact on our consolidated financial condition and results of operations.~~be material.

In ~~October 2020,~~November 2021, the FASB issued ASU No. ~~2020-10, "Codification Improvements: Amendments to the FASB Accounting Standards Codification.~~2021-10, "Government Assistance (Topic 832)." 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~~aim to ~~improve codification guidance and disclosure requirements~~provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in ~~Company's financial statements and~~the notes to the financial statements. The amendments are effective for annual periods beginning after December 15, ~~2020~~2021 and can be applied either prospectively or retrospectively. We do not expect the impact of this ASU to be material.

In March 2022, the FASB issued ASU No. 2022-02, "Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the Current Expected Credit Loss ("CECL") model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied ~~retrospectively to all periods presented. The adoption~~prospectively. We are evaluating the impact of this ASU ~~did not have an impact~~ on our ~~consolidated financial condition, results of operations or net cash flows.~~disclosures.

2.~~Revision to Previously Reported Financial Information~~

During the first quarter of 2021, we identified an accounting error involving foreign currency transactions beginning with the first quarter of 2020 though the year ended December 31, 2020. These adjustments increased retirement obligations and other liabilities by $1.5 million, retained earnings by $14.0 million and accumulated other comprehensive loss by $15.5 million as of December 31, 2020. Additionally, we identified and corrected certain immaterial errors of cash flow activities on our condensed consolidated statement of cash flows for the nine month period ended September 30, 2020.

The following tables present the impact to affected line items on our condensed consolidated financial statements for the periods indicated for the correction of the accounting error involving foreign currency transactions identified in the first quarter of 2021:

September 30, 2020
(Amounts in thousands) As Reported Adjustments(1) As Revised
Retirement obligations and other liabilities $ 541,721 $ 1,499 $ 543,220
Retained earnings 3,625,291 14,937 3,640,228
Accumulated other comprehensive loss (618,856) (16,436) (635,292)
Total Flowserve Corporation shareholders’ equity 1,673,421 (1,499) 1,671,922
Total equity 1,703,843 (1,499) 1,702,344