Document and Company Informatio
Document and Company Information (USD $) | |||
6 Months Ended
Jun. 30, 2009 | Jul. 24, 2009
| Jun. 30, 2008
| |
Document And Company Information [Abstract] | |||
Entity Registrant Name | FLOWSERVE CORPORATION | ||
Entity Central Index Key | 0000030625 | ||
Document Type | 10-Q | ||
Document Period End Date | 2009-06-30 | ||
Amendment Flag | false | ||
Amendment Description | n/a | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $6,345,000,000 | ||
Entity Common Stock, Shares Outstanding (actual number) | 55,926,750 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (USD $) | ||||
In Thousands, except Per Share data | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Sales | $1,090,399 | $1,157,605 | $2,115,125 | $2,150,924 |
Cost of sales | (704,078) | (739,635) | (1,361,031) | (1,387,108) |
Gross profit | 386,321 | 417,970 | 754,094 | 763,816 |
Selling, general and administrative expense | (231,345) | (250,152) | (456,656) | (482,655) |
Net earnings from affiliates | 3,777 | 4,512 | 8,452 | 10,484 |
Operating income | 158,753 | 172,330 | 305,890 | 291,645 |
Interest expense | (9,931) | (12,732) | (20,040) | (25,591) |
Interest income | 457 | 1,605 | 1,532 | 4,460 |
Other (expense) income, net | (71) | 575 | (9,365) | 17,055 |
Earnings before income taxes | 149,208 | 161,778 | 278,017 | 287,569 |
Provision for income taxes | (40,604) | (38,165) | (76,587) | (75,264) |
Net earnings including noncontrolling interests | 108,604 | 123,613 | 201,430 | 212,305 |
Less: Net earnings attributable to noncontrolling interests | (386) | (749) | (905) | (1,374) |
Net earnings of Flowserve Corporation | $108,218 | $122,864 | $200,525 | $210,931 |
Net earnings per share of Flowserve Corporation common shareholders: | ||||
Basic | 1.94 | 2.14 | 3.59 | 3.67 |
Diluted | 1.92 | 2.12 | 3.56 | 3.65 |
Cash dividends declared per share | 0.27 | 0.25 | 0.54 | 0.5 |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Comprehensive Income (USD $) | ||||
In Thousands | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Net earnings | $108,218 | $122,864 | $200,525 | $210,931 |
Other comprehensive income (expense): | ||||
Foreign currency translation adjustments, net of tax | 75,215 | 573 | 35,197 | 34,524 |
Pension and other postretirement effects, net of tax | (4,484) | 105 | (3,600) | (713) |
Cash flow hedging activity, net of tax | 954 | 2,897 | 1,836 | (370) |
Other comprehensive income | 71,685 | 3,575 | 33,433 | 33,441 |
Comprehensive income | $179,903 | $126,439 | $233,958 | $244,372 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (USD $) | ||
In Thousands | Jun. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $251,538 | $472,056 |
Accounts receivable, net of allowance for doubtful accounts of $20,999 and $23,667, respectively | 853,139 | 808,522 |
Inventories, net | 891,610 | 834,612 |
Deferred taxes | 124,509 | 126,890 |
Prepaid expenses and other | 100,254 | 90,345 |
Total current assets | 2,221,050 | 2,332,425 |
Property, plant and equipment, net of accumulated depreciation of $635,855 and $594,991, respectively | 550,511 | 547,235 |
Goodwill | 863,309 | 828,395 |
Deferred taxes | 31,185 | 32,561 |
Other intangible assets, net | 129,069 | 121,919 |
Other assets, net | 158,211 | 161,159 |
Total assets | 3,953,335 | 4,023,694 |
Current liabilities: | ||
Accounts payable | 437,655 | 598,498 |
Accrued liabilities | 859,160 | 967,099 |
Debt due within one year | 28,344 | 27,731 |
Deferred taxes | 17,805 | 14,668 |
Total current liabilities | 1,342,964 | 1,607,996 |
Long-term debt due after one year | 542,634 | 545,617 |
Retirement obligations and other liabilities | 486,183 | 495,883 |
Shareholders' equity: | ||
Common shares, $1.25 par value Shares authorized - 120,000 Shares issued - 58,838 and 58,781, respectively | 73,547 | 73,477 |
Capital in excess of par value | 594,011 | 586,371 |
Retained earnings | 1,329,739 | 1,159,634 |
Stockholders' equity before treasury stock deferred compensation equity accumulated other comprehensive loss net of tax and noncontrolling interest | 1,997,297 | 1,819,482 |
Treasury shares, at cost - 3,715 and 3,566 shares, respectively | (254,184) | (248,073) |
Deferred compensation obligation | 8,654 | 7,678 |
Accumulated other comprehensive loss | (177,887) | (211,320) |
Noncontrolling interest | 7,674 | 6,431 |
Total shareholders' equity | 1,581,554 | 1,374,198 |
Total liabilities and shareholders' equity | $3,953,335 | $4,023,694 |
2_Condensed Consolidated Balanc
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | ||
In Thousands | Jun. 30, 2009
| Dec. 31, 2008
|
Allowance for doubtful accounts | $20,999 | $23,667 |
Accumulated depreciation on property, plant and equipment | $635,855 | $594,991 |
Common shares, par value | 1.25 | 1.25 |
Common shares, shares authorized | 120,000 | 120,000 |
Common shares, shares issued | 58,838 | 58,781 |
Treasury shares, shares | 3,715 | 3,566 |
3_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (USD $) | ||
In Thousands | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Cash flows - Operating activities: | ||
Net earnings including noncontrolling interests | $201,430 | $212,305 |
Adjustments to reconcile net earnings to net cash used by operating activities: | ||
Depreciation | 42,282 | 36,501 |
Amortization of intangible and other assets | 4,827 | 5,021 |
Amortization of deferred loan costs | 839 | 908 |
Net loss (gain) on disposition of assets | 448 | (1,018) |
Gain on bargain purchase | 0 | (3,400) |
Excess tax benefits from stock-based compensation arrangements | (415) | (10,066) |
Stock-based compensation | 21,495 | 16,392 |
Net earnings from affiliates, net of dividends received | (3,207) | (4,763) |
Change in assets and liabilities: | ||
Accounts receivable, net | (28,426) | (211,047) |
Inventories, net | (39,952) | (165,242) |
Prepaid expenses and other | (9,673) | (9,376) |
Other assets, net | 5,933 | (4,169) |
Accounts payable | (159,619) | (45,690) |
Accrued liabilities and income taxes payable | (108,939) | 42,914 |
Retirement obligations and other liabilities | (19,375) | (49,587) |
Net deferred taxes | 15,305 | 12,063 |
Net cash flows used by operating activities | (77,047) | (178,254) |
Cash flows - Investing activities: | ||
Capital expenditures | (64,261) | (37,706) |
Proceeds from disposal of assets | 0 | 2,178 |
Payments for acquisitions, net of cash acquired | (28,369) | 0 |
Net cash flows used by investing activities | (92,630) | (35,528) |
Cash flows - Financing activities: | ||
Excess tax benefits from stock-based compensation arrangements | 415 | 10,066 |
Payments on long-term debt | (2,841) | (2,841) |
(Payments) borrowings under other financing arrangements | 768 | 10,816 |
Repurchase of common shares | (16,154) | (34,980) |
Payments of dividends | (29,077) | (22,997) |
Proceeds from stock option activity | 627 | 9,929 |
Net cash flows used by financing activities | (46,262) | (30,007) |
Effect of exchange rate changes on cash | (4,579) | 7,653 |
Net change in cash and cash equivalents | (220,518) | (236,136) |
Cash and cash equivalents at beginning of year | 472,056 | 373,238 |
Cash and cash equivalents at end of period | $251,538 | $137,102 |
Basis of Presentation and Accou
Basis of Presentation and Accounting Policies | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Basis of Presentation and Accounting Policies [Abstract] | |
Basis of Presentation and Accounting Policies | 1. Basis of Presentation and Accounting Policies Basis of Presentation The accompanying condensed consolidated balance sheet as of June30, 2009, and the related condensed consolidated statements of income and comprehensive income for the three and six months ended June30, 2009 and 2008, and the condensed consolidated statements of cash flows for the six months ended June30, 2009 and 2008, are unaudited. In managements opinion, all adjustments comprising normal recurring adjustments necessary for a fair presentation of such condensed consolidated financial statements have been made. The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended June30, 2009 (Quarterly Report) are presented as permitted by RegulationS-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 consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December31, 2008 (2008 Annual Report). Certain reclassifications and retrospective adjustments have been made to prior period information to conform to current period presentation. These reclassifications and retrospective adjustments primarily result from our adoption of Statement of Financial Accounting Standards (SFAS) No.160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No.51, and Financial Accounting Standards Board (FASB) Staff Position (FSP) No.EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, respectively, which are discussed more fully below. Accounting Policies Significant accounting policies, for which no significant changes have occurred in the six months ended June30, 2009, are detailed in Note 1 of our 2008 Annual Report. Subsequent Events We evaluate subsequent events through the date of filing of our interim and annual reports. Accounting Developments Pronouncements Implemented In September2006, the FASB issued SFAS No.157, Fair Value Measurements, which establishes a single definition of fair value and a framework for measuring fair value under accounting principles generally accepted in the United States (GAAP), and expands disclosures about fair value measurements. SFAS No.157 applies under other accounting pronouncements that require or permit fair value measurements; however, it does not require any new fair value measurements. In February2008, the FASB issued Staff Position (FSP) No.FAS 157-2, Effective Date of FASB Statement No.157, which amended SFAS No.157 by delaying the adoption of SFAS No.157 for our nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January1, 2009. Our adoption of FSP No.FAS 157-2, effective January1, 2009, did not have a material impact on our consolidated financial condition or results of operations. In December2007, the FASB issued SFAS No.141(R |
Acquisition
Acquisition | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Acquisition [Abstract] | |
Acquisition | 2. Acquisition Effective April21, 2009, Flowserve Pump Division acquired Calder AG, a private Swiss company and a supplier of energy recovery technology for use in the global desalination market, for up to $44.1million, net of cash acquired. Of the total purchase price, $28.4million was paid at closing and $2.4million was paid after the valuation of the working capital was completed in early July2009. The remaining $13.3million of the total purchase price is contingent upon Calder AG achieving certain performance metrics after closing, and, to the extent achieved, is expected to be paid in cash within 12months of the acquisition date. We recognized a liability of $4.4million as an estimate of the acquisition date fair value of the contingent consideration, which is based on the weighted probability of achievement of the performance metrics as of the date of the acquisition. Failure to meet the performance metrics would reduce this liability to $0, while complete achievement would increase this liability to the full remaining purchase price of $13.3million. Any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date will be recognized in earnings in the period the estimated fair value changes. The purchase price was allocated to the assets acquired and liabilities assumed based on estimates of fair values at the date of acquisition. The preliminary allocation of the purchase price is summarized below: (amounts in millions) Purchase price, net of cash acquired $ 30.8 Fair value of contingent consideration (recorded as a liability) 4.4 Total expected purchase price at date of acquisition $ 35.2 Current assets $ 4.7 Intangible assets (expected useful life of approximately 10years) 10.5 Property, plant and equipment 0.1 Current liabilities (4.2 ) Noncurrent liabilities (1.1 ) Net tangible and intangible assets 10.0 Goodwill 25.2 $ 35.2 The excess of the acquisition date fair value of the total purchase price over the estimated fair value of the net tangible and intangible assets was recorded as goodwill. No pro forma information has been provided due to immateriality. Flowserve Pump Division acquired the remaining 50% interest in Niigata Worthington Company, Ltd. (Niigata), a Japanese manufacturer of pumps and other rotating equipment, effective March1, 2008, for $2.4million in cash. The incremental interest acquired was accounted for as a step acquisition and Niigatas results of operations have been consolidated since the date of acquisition. Prior to this transaction, our 50% interest in Niigata was recorded using the equity method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on estimates of fair values at the date of the acquisition. The estimate of the fair value of the net assets acquired exceeded the cash paid and, accordingly, no goodwill was recognized. This acquisition was accounted for as a bargain purchase, resulting in a gain of $3.4 million recorded in the first |
Stock Based Compensation Plans
Stock Based Compensation Plans | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Stock-Based Compensation Plans [Abstract] | |
Stock-Based Compensation Plans | 3. Stock-Based Compensation Plans The Flowserve Corporation 2004 Stock Compensation Plan (the 2004 Plan), which was established on April21, 2004, authorized the issuance of up to 3,500,000 shares of common stock through grants of stock options, restricted shares and other equity-based awards. Of the 3,500,000 shares of common stock that have been authorized under the 2004 Plan, 663,165 shares remain available for issuance as of June30, 2009. We recorded stock-based compensation as follows: Three Months Ended June 30, 2009 2008 Stock Restricted Stock Restricted (Amounts in millions) Options Shares Total Options Shares Total Stock-based compensation expense $ $ 11.4 $ 11.4 $ 0.4 $ 9.1 $ 9.5 Related income tax benefit (3.5 ) (3.5 ) (2.7 ) (2.7 ) Net stock-based compensation expense $ $ 7.9 $ 7.9 $ 0.4 $ 6.4 $ 6.8 Six Months Ended June 30, 2009 2008 Stock Restricted Stock Restricted (Amounts in millions) Options Shares Total Options Shares Total Stock-based compensation expense $ 0.2 $ 21.3 $ 21.5 $ 0.9 $ 15.5 $ 16.4 Related income tax benefit (0.1 ) (6.5 ) (6.6 ) (0.2 ) (4.7 ) (4.9 ) Net stock-based compensation expense $ 0.1 $ 14.8 $ 14.9 $ 0.7 $ 10.8 $ 11.5 Stock Options Information related to stock options issued to officers, other employees and directors under all plans described in Note 7 to our consolidated financial statements included in our 2008 Annual Report is presented in the following table: Six Months Ended June 30, Weighted Average Remaining Contractual Aggregate Intrinsic Shares Exercise Price Life (in years) Value (in millions) Number of shares under option: Outstanding January 1, 2009 303,100 $ 39.58 Exercised (28,134 ) 26.84 Outstanding June30, 2009 274,966 $ 40.89 6.0 $ 8.0 Exercisable June30, 2009 241,133 $ 39.28 5.8 $ 7.4 No options were granted during the six months ended June30, 2009 or 2008. The total fair value of stock options vested during the three months ended June30, 2009 and 2008 was $0.3million and $0.5million, respectively. The total fair value of stock options vested during the six months ended June30, 2009 and 2008 was $1.9million and $2.6million, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model. As of June30, 2009, we had $0.1million of unrecognized compensation cost related to outstanding unvested stock option awards, whi |
Derivative Instruments and Hedg
Derivative Instruments and Hedges | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Derivative Instruments and Hedges Disclosure [Abstract] | |
Derivative Instruments and Hedges | 4. Derivative Instruments and Hedges Our risk management and derivatives policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 8 to our consolidated financial statements included in our 2008 Annual Report and Note 5 of this Quarterly Report for additional information on our purpose for entering into derivatives not designated as hedging instruments and our overall risk management strategies. We enter into forward exchange contracts to hedge our risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. At June30, 2009 and December31, 2008, we had $566.4million and $555.7million, respectively, of notional amount in outstanding forward exchange contracts with third parties. At June30, 2009, the length of forward exchange contracts currently in place ranged from 1day to 20months. Also as part of our risk management program, we enter into interest rate swap agreements to hedge exposure to floating interest rates on certain portions of our debt. At both June30, 2009 and December31, 2008, we had $385.0million of notional amount in outstanding interest rate swaps with third parties. All interest rate swaps are 100% effective. At June30, 2009, the maximum remaining length of any interest rate swap contract in place was approximately 24months. We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward contracts and interest rate swap agreements and expect all counterparties to meet their obligations. If material, we would adjust the values of our derivative contracts for our or our counterparties credit risks. We have not experienced credit losses from our counterparties. The fair value of forward exchange contracts not designated as hedging instruments are summarized below: June 30, December 31, (Amounts in thousands) 2009 2008 Current derivative assets $ 9,922 $ 12,172 Noncurrent derivative assets 86 264 Current derivative liabilities 4,004 15,350 Noncurrent derivative liabilities 125 314 The fair value of interest rate swaps in cash flow hedging relationships are summarized below: June 30, December 31, (Amounts in thousands) 2009 2008 Current derivative liabilities $ 7,371 $ 8,213 Noncurrent derivative liabilities 490 2,407 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 forward exchange contracts not designated as hedging instruments are summarized below: Three Months Ended June 30, Six Months Ended June 30, (Amounts in thousands) 2 |
Fair Value
Fair Value | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Fair Value of Financial Instruments [Abstract] | |
Fair Value | 5. Fair Value Our financial instruments are presented at fair value in our condensed consolidated balance sheets. 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 based upon the level of judgment associated with the inputs used to measure their fair values. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. Recurring fair value measurements are limited to investments in derivative instruments and some equity securities. 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 above in Note 4. The fair value measurements of our investments in equity securities are determined using quoted market prices. The fair values of our investments in equity securities, and changes thereto, are immaterial to our condensed consolidated financial position and results of operations. As discussed in Note 2 above, a liability of $4.4million was recognized as an estimate of the acquisition date fair value of the contingent consideration. This liability is classified as Level III under the fair value hierarchy as it is based on the weighted probability as of the date of the acquisition of achievement of performance metrics, which is not observable in the market. As of June30, 2009, there has been no material change in this liability. |
Debt
Debt | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Debt [Abstract] | |
Debt | 6. Debt Debt, including capital lease obligations, consisted of: June 30, December 31, (Amounts in thousands) 2009 2008 Term Loan, interest rate of 2.12% in 2009 and 2.99% in 2008 $ 546,857 $ 549,697 Capital lease obligations and other 24,121 23,651 Debt and capital lease obligations 570,978 573,348 Less amounts due within one year 28,344 27,731 Total debt due after one year $ 542,634 $ 545,617 Credit Facilities Our credit facilities, as amended, are comprised of a $600.0million term loan expiring on August10, 2012 and a $400.0million revolving line of credit, which can be utilized to provide up to $300.0million in letters of credit, expiring on August10, 2012. We hereinafter refer to these credit facilities collectively as our Credit Facilities. At both June30, 2009 and December31, 2008, we had no amounts outstanding under the revolving line of credit. We had outstanding letters of credit of $112.1million and $104.2million at June30, 2009 and December31, 2008, respectively, which reduced borrowing capacity to $287.9million and $295.8million, respectively. The interbank market for our Term Loan implied a fair value of approximately $525million at June 30, 2009 and $495million at December31, 2008, as compared with a carrying value of $546.9million and $549.7million at June30, 2009 and December31, 2008, respectively. Borrowings under our Credit Facilities bear interest at a rate equal to, at our option, either (1)the base rate (which is based on the greater of the prime rate most recently announced by the administrative agent under our Credit Facilities or the Federal Funds rate plus 0.50%) or (2) London Interbank Offered Rate (LIBOR) plus an applicable margin determined by reference to the ratio of our total debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), which as of June30, 2009 was 0.875% and 1.50% for borrowings under our revolving line of credit and term loan, respectively. We may prepay loans under our Credit Facilities in whole or in part, without premium or penalty. During the three and six months ended June30, 2009, we made scheduled repayments under our Credit Facilities of $1.4million and $2.8million, respectively. We have scheduled repayments under our Credit Facilities of $1.4million due in each of the next four quarters. European Letter of Credit Facility On September14, 2007, we entered into a 364-day unsecured European Letter of Credit Facility (European LOC Facility), to issue letters of credit in an aggregate face amount not to exceed 150.0million at any time. The initial commitment of 80.0million was increased to 110.0million upon renewal in September2008. The aggregate commitment of the European LOC Facility may be increased up to 150.0million as may be agreed among the parties, and may be decreased by us at our option without any premium, fee or penalty. The European LOC Facility is used for contingent obligations solely in respect of surety and performance bonds, bank guarantees and similar obligation |
Realignment Program
Realignment Program | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Realignment Program [Abstract] | |
Realignment Program | 7. Realignment Program In February2009, we announced our plan to incur up to $40million in realignment costs to reduce and optimize certain non-strategic manufacturing facilities and our overall cost structure by improving our operating efficiency, reducing redundancies, maximizing global consistency and driving improved financial performance (the Realignment Program). The Realignment Program consists of both restructuring and non-restructuring costs. Restructuring charges represent charges associated with the relocation of certain business activities, outsourcing of some business activities and facility closures. Non-restructuring charges, which represent the majority of the Realignment Program, are charges incurred to improve operating efficiency and reduce redundancies and primarily represent employee severance. All expenses under the Realignment Program are expected to be recognized during 2009. Expenses are reported in cost of sales (COS) or selling, general and administrative expense (SGA), as applicable, in our condensed consolidated statement of income. Restructuring Charges Restructuring charges include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other exit costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets, accelerated amortization of intangible assets and inventory write-downs. Other includes costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges. Restructuring charges incurred for the three and six months ended June30, 2009 and total restructuring charges expected to be incurred are as follows: Contract Asset (Amounts in thousands) Severance termination write-downs Other Total Three Months ended June30, 2009 COS Flowserve Pump Division $ 1,826 $ $ 4,281 $ 333 $ 6,440 Flow Control Division 122 360 482 Flow Solutions Division 575 33 42 650 SGA Flowserve Pump Division Flow Control Division 152 152 Flow Solutions Division 127 127 Total $ 2,802 $ 33 $ 4,641 $ 375 $ 7,851 Six Months ended June30, 2009 (1) COS Flowserve Pump Division $ 3,489 $ $ 4,400 $ 333 $ 8,222 Flow Control Division 122 360 482 Flow Solutions Division 575 33 42 650 SGA Flowserve Pump Division 215 215 |
Inventories
Inventories | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Inventories [Abstract] | |
Inventories | 8. Inventories Inventories are stated at lower of cost or market. Cost is determined by the first-in, first-out method. Inventories, net consisted of the following: June 30, December 31, (Amounts in thousands) 2009 2008 Raw materials $ 270,623 $ 241,953 Work in process 757,956 635,490 Finished goods 261,860 264,746 Less: Progress billings (336,361 ) (250,289 ) Less: Excess and obsolete reserve (62,468 ) (57,288 ) Inventories, net $ 891,610 $ 834,612 |
Equity Method Investments
Equity Method Investments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Equity Method Investments [Abstract] | |
Equity Method Investments | 9. Equity Method Investments As of June30, 2009, we had investments in seven joint ventures (one located in each of China, Japan, Korea, Saudi Arabia and the United Arab Emirates and two located in India) that were accounted for using the equity method. Summarized below is combined income statement information, based on the most recent financial information, for those investments: Three Months Ended June 30, (Amounts in thousands) 2009 2008 Revenues $ 52,255 $ 84,595 Gross profit 17,988 23,682 Income before provision for income taxes 12,729 17,042 Provision for income taxes (3,961 ) (5,074 ) Net income $ 8,768 $ 11,968 Six Months Ended June 30, (Amounts in thousands) 2009 2008 (1) Revenues $ 113,022 $ 187,822 Gross profit 41,116 53,702 Income before provision for income taxes 29,155 38,307 Provision for income taxes (9,177 ) (11,675 ) Net income $ 19,978 $ 26,632 (1) As discussed in Note 2, effective March1, 2008, we purchased the remaining 50% interest in Niigata, resulting in the full consolidation of Niigata as of that date. Prior to this transaction, our 50% interest was recorded using the equity method of accounting. As a result, Niigatas income statement information presented herein includes only the first two months of 2008. The provision for income taxes is based on the tax laws and rates in the countries in which our investees operate. The tax jurisdictions vary not only by their nominal rates, but also by the allowability of deductions, credits and other benefits. Our share of net income is reflected in our condensed consolidated statements of income. |
Earnings Per Share
Earnings Per Share | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Earnings Per Share [Abstract] | |
Earnings Per Share | 10. Earnings Per Share As discussed in Note 1, effective January1, 2009, we adopted FSP No.EITF 03-6-1. We have retrospectively adjusted earnings per common share for all prior periods presented. We now use the two-class method of computing earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security as if all earnings for the period had been distributed. Unvested restricted share awards that earn non-forfeitable dividend rights qualify as participating securities and, accordingly, are now included in the basic computation as such. Our unvested restricted shares participate on an equal basis with common shares; therefore, there is no difference in undistributed earnings allocated to each participating security. Accordingly, the presentation below is prepared on a combined basis and is presented as earnings per common share. Previously, such unvested restricted shares were not included as outstanding within basic earnings per common share and were included in diluted earnings per common share pursuant to the treasury stock method. The following is a reconciliation of net earnings of Flowserve Corporation and weighted average shares for calculating basic net earnings per common share. Earnings per weighted average common share outstanding was calculated as follows: Three Months Ended June 30, (Amounts in thousands, except per share data) 2009 2008 Net earnings of Flowserve Corporation $ 108,218 $ 122,864 Dividends on restricted shares not expected to vest 5 7 Earnings attributable to common and participating shareholders $ 108,223 $ 122,871 Weighted average shares: Common stock 55,460 56,962 Participating securities 442 551 Denominator for basic earnings per common share 55,902 57,513 Effect of potentially dilutive securities 496 329 Denominator for diluted earnings per common share 56,398 57,842 Earnings per common share: Basic $ 1.94 $ 2.14 Diluted 1.92 2.12 Six Months Ended June 30, (Amounts in thousands, except per share data) 2009 2008 Net earnings of Flowserve Corporation $ 200,525 $ 210,931 Dividends on restricted shares not expected to vest 13 18 Earnings attributable to common and participating shareholders $ 200,538 $ 210,949 Weighted average shares: Common stock 55,489 56,926 Participating securities 443 568 Denominator for basic earnings per common share 55,932 57,494 Effect of potentially dilutive securities 429 365 Denominator for diluted earnings per common share 56,361 57,859 Earnings per common share: Basic $ 3.59 $ 3.67 Diluted 3.56 3.65 Diluted earnings per share abov |
Legal Matters and Contingencies
Legal Matters and Contingencies | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Legal Matters and Contingencies [Abstract] | |
Legal Matters and Contingencies | 11. Legal Matters and Contingencies Asbestos-Related Claims We are a defendant in a number of pending lawsuits (which include, in many cases, multiple claimants) that seek to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured and/or distributed by us in the past. While the overall number of asbestos-related claims has generally declined in recent years, there can be no assurance that this trend will continue, or that the average cost per claim will not increase. Asbestos-containing materials incorporated into any such products were primarily encapsulated and used as components of process equipment, and we do not believe that any significant emission of asbestos-containing fibers occurred during the use of this equipment. We believe that a high percentage of the claims are covered by applicable insurance or indemnities from other companies. Shareholder Litigation In 2003, related lawsuits were filed in federal court in the Northern District of Texas, alleging that we violated federal securities laws. After these cases were consolidated, the lead plaintiff amended its complaint several times. The lead plaintiffs last pleading was the fifth consolidated amended complaint (the Complaint). The Complaint alleged that federal securities violations occurred between February6, 2001 and September27, 2002 and named as defendants our company, C. Scott Greer, our former Chairman, President and Chief Executive Officer, Renee J. Hornbaker, our former Vice President and Chief Financial Officer, PricewaterhouseCoopers LLP, our independent registered public accounting firm, and Banc of America Securities LLC and Credit Suisse First Boston LLC, which served as underwriters for our two public stock offerings during the relevant period. The Complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act), and Rule10b-5 thereunder, and Sections11 and 15 of the Securities Act of 1933 (the Securities Act). The lead plaintiff sought unspecified compensatory damages, forfeiture by Mr.Greer and Ms.Hornbaker of unspecified incentive-based or equity-based compensation and profits from any stock sales and recovery of costs. By orders dated November13, 2007 and January4, 2008, the District Court denied the plaintiffs motion for class certification and granted summary judgment in favor of the defendants on all claims. The plaintiffs appealed both rulings to the federal Fifth Circuit Court of Appeals (Court of Appeals), and on June19, 2009, the Court of Appeals issued an opinion vacating the District Courts denial of class certification, reversing in part and vacating in part the District Courts entry of summary judgment, and remanding the case to the District Court for further proceedings consistent with the Court of Appeals opinion. As a result of the Court of Appeals opinion, the case will be returned to the District Court for further consideration of certain issues, including whether the plaintiffs can demonstrate that the case should be certified as a class action. We continue to believe we have valid defenses to the claims asserted, and |
Retirement and Postretirement B
Retirement and Postretirement Benefits | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Retirement and Postretirement Benefits [Abstract] | |
Retirement and Postretirement Benefits | 12. Retirement and Postretirement Benefits Components of the net periodic cost for retirement and postretirement benefits for the three months ended June30, 2009 and 2008 were as follows: U.S. Non-U.S. Postretirement Defined Benefit Plans Defined Benefit Plans Medical Benefits (Amounts in millions) 2009 2008 2009 2008 2009 2008 Service cost $ 5.0 $ 4.2 $ 0.9 $ 0.9 $ $ Interest cost 4.7 4.5 2.9 3.4 0.5 1.1 Expected return on plan assets (5.4 ) (5.4 ) (1.0 ) (1.5 ) Amortization of unrecognized net loss (gain) 1.6 1.1 0.6 (0.1 ) (0.9 ) 0.1 Amortization of prior service benefit (0.3 ) (0.4 ) 0.2 (0.4 ) (0.7 ) Net periodic cost (gain) recognized $ 5.6 $ 4.0 $ 3.4 $ 2.9 $ (0.8 ) $ 0.5 Components of the net periodic cost for retirement and postretirement benefits for the six months ended June30, 2009 and 2008 were as follows: U.S. Non-U.S. Postretirement Defined Benefit Plans Defined Benefit Plans Medical Benefits (Amounts in millions) 2009 2008 2009 2008 2009 2008 Service cost $ 9.2 $ 8.6 $ 1.9 $ 1.8 $ $ Interest cost 9.6 8.9 5.8 6.9 1.2 2.0 Expected return on plan assets (11.1 ) (10.1 ) (2.1 ) (2.9 ) Amortization of unrecognized net loss 3.3 2.2 1.2 (1.5 ) 0.1 Amortization of prior service benefit (0.6 ) (0.7 ) 0.2 (0.9 ) (1.3 ) Net periodic cost recognized $ 10.4 $ 8.9 $ 6.8 $ 6.0 $ (1.2 ) $ 0.8 See additional discussion of our retirement and postretirement benefits in Note 13 to our consolidated financial statements included in our 2008 Annual Report. |
Shareholders Equity
Shareholders Equity | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Shareholders' Equity [Abstract] | |
Shareholders' Equity | 13. Shareholders Equity On February23, 2009, our Board of Directors authorized an increase in our quarterly cash dividend to $0.27 per share from $0.25 per share, effective for the first quarter of 2009. Generally, our dividend date-of-record is in the last month of the quarter, and the dividend is paid the following month. On February26, 2008 our Board of Directors authorized a program to repurchase up to $300.0 million of our outstanding common stock over an unspecified time period. The program commenced in the second quarter of 2008, and we repurchased 131,500 shares for $9.1million and 281,500 shares for $16.2million during the three and six months ended June30, 2009, respectively. To date, we have repurchased a total of 2.0million shares for $181.2million under this program. |
Income Taxes
Income Taxes | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Income Taxes [Abstract] | |
Income Taxes | 14. Income Taxes For the three months ended June30, 2009, we earned $149.2million before taxes and provided for income taxes of $40.6million, resulting in an effective tax rate of 27.2%. For the six months ended June30, 2009, we earned $278.0million before taxes and provided for income taxes of $76.6 million, resulting in an effective tax rate of 27.5%. The effective tax rate varied from the U.S. federal statutory rate for both the three and six months ended June30, 2009 primarily due to the net impact of foreign operations. For the three months ended June30, 2008, we earned $161.8million before taxes and provided for income taxes of $38.2million, resulting in an effective tax rate of 23.6%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended June, 2008 primarily due to the net favorable impact of foreign operations, a favorable tax ruling in Luxembourg of $2.7 million and net changes in uncertain tax positions of $6.3million. For the six months ended June 30, 2008, we earned $287.6million before taxes and provided for income taxes of $75.3million, resulting in an effective tax rate of 26.2%. The effective tax rate varied from the U.S. federal statutory rate for the six months ended June30, 2008 primarily due to the net favorable impact of foreign operations, a favorable tax ruling in Luxembourg of $2.7million and net changes in uncertain tax positions of $6.3million. As of June30, 2009, the amount of unrecognized tax benefits has increased by $5.3million from December31, 2008, due primarily to interest on prior year positions and currency translation adjustments. With limited exception, we are no longer subject to U.S. federal, state and local income tax audits for years through 2004 or non-U.S. income tax audits for years through 2003. We are currently under examination for various years in Argentina, France, Germany, India, Italy, Japan, the United States and Venezuela. It is reasonably possible that within the next 12months 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 12months. As such, we estimate we could record a reduction in our tax expense of up to approximately $14.2million. |
Segment Information
Segment Information | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Segment Information [Abstract] | |
Segment Information | 15. Segment Information We are principally engaged in the worldwide design, manufacture, distribution and service of industrial flow management equipment. We provide pumps, valves and mechanical seals primarily for oil and gas, chemical, power generation, water management and other industries requiring flow management products. We have the following three divisions, each of which constitutes a business segment: Flowserve Pump Division (FPD); Flow Control Division (FCD); and Flow Solutions Division (FSD). Each division manufactures different products and is defined by the type of products and services provided. Each division has a President, who reports directly to our Chief Executive Officer, and a Division Vice President Finance, who reports directly to our Chief Accounting Officer. For decision-making purposes, our Chief Executive Officer and other members of senior executive management use financial information generated and reported at the division level. Our corporate headquarters does not constitute a separate division or business segment. We evaluate segment performance and allocate resources based on each segments operating income. Amounts classified as All Other include corporate headquarters costs and other minor entities that do not constitute separate segments. Intersegment sales and transfers are recorded at cost plus a profit margin, with the margin on such sales eliminated in consolidation. 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 June30, 2009 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 659,278 $ 300,904 $ 129,387 $ 1,089,569 $ 830 $ 1,090,399 Intersegment sales 569 1,584 15,334 17,487 (17,487 ) Segment operating income 113,756 46,777 28,519 189,052 (30,299 ) 158,753 Three Months Ended June30, 2008 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 632,634 $ 368,593 $ 155,115 $ 1,156,342 $ 1,263 $ 1,157,605 Intersegment sales 590 1,635 18,915 21,140 (21,140 ) Segment operating income 103,683 62,878 37,906 204,467 (32,137 ) 172,330 Six Months Ended June30, 2009 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 1,258,161 $ 596,912 $ 257,799 $ 2,112,872 $ 2,253 $ 2 |