Document and Company Informatio
Document and Company Information (USD $) | |||
9 Months Ended
Sep. 30, 2009 | Oct. 23, 2009
| Jun. 30, 2008
| |
Document and Company Information [Abstract] | |||
Entity Registrant Name | FLOWSERVE CORP | ||
Entity Central Index Key | 0000030625 | ||
Document Type | 10-Q | ||
Document Period End Date | 2009-09-30 | ||
Amendment Flag | false | ||
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) | 55,849,075 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (Unaudited) (USD $) | ||||
In Thousands, except Per Share data | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Sales | $1,051,064 | $1,153,592 | $3,166,189 | $3,304,516 |
Cost of sales | (665,859) | (748,668) | (2,026,890) | (2,135,776) |
Gross profit | 385,205 | 404,924 | 1,139,299 | 1,168,740 |
Selling, general and administrative expense | (227,265) | (243,799) | (683,920) | (726,453) |
Net earnings from affiliates | 3,265 | 3,389 | 11,718 | 13,873 |
Operating income | 161,205 | 164,514 | 467,097 | 456,160 |
Interest expense | (10,119) | (13,105) | (30,159) | (38,695) |
Interest income | 562 | 2,152 | 2,094 | 6,612 |
Other income (expense), net | 6,997 | (8,690) | (2,369) | 8,365 |
Earnings before income taxes | 158,645 | 144,871 | 436,663 | 432,442 |
Provision for income taxes | (42,006) | (26,948) | (118,593) | (102,212) |
Net earnings, including noncontrolling interests | 116,639 | 117,923 | 318,070 | 330,230 |
Less: Net loss (earnings) attributable to noncontrolling interests | 305 | (874) | (601) | (2,249) |
Net earnings of Flowserve Corporation | $116,944 | $117,049 | $317,469 | $327,981 |
Net earnings per share of Flowserve Corporation common shareholders: | ||||
Basic | 2.1 | 2.05 | 5.68 | 5.72 |
Diluted | 2.07 | 2.04 | 5.63 | 5.68 |
Cash dividends declared per share | 0.27 | 0.25 | 0.81 | 0.75 |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) | ||||
In Thousands | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Net earnings | $116,944 | $117,049 | $317,469 | $327,981 |
Other comprehensive income (expense): | ||||
Foreign currency translation adjustments, net of tax | 34,927 | (105,060) | 70,124 | (70,535) |
Pension and other postretirement effects, net of tax | 836 | 2,665 | (2,763) | 1,952 |
Cash flow hedging activity, net of tax | 731 | 901 | 2,567 | 531 |
Other comprehensive income (expense) | 36,494 | (101,494) | 69,928 | (68,052) |
Comprehensive income | $153,438 | $15,555 | $387,397 | $259,929 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) (USD $) | ||
In Thousands | Sep. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $291,225 | $472,056 |
Accounts receivable, net of allowance for doubtful accounts of $21,091 and $23,667, respectively | 841,251 | 808,522 |
Inventories, net | 884,422 | 834,612 |
Deferred taxes | 136,553 | 126,890 |
Prepaid expenses and other | 114,342 | 90,345 |
Total current assets | 2,267,793 | 2,332,425 |
Property, plant and equipment, net of accumulated depreciation of $663,900 and $594,991, respectively | 561,679 | 547,235 |
Goodwill | 865,437 | 828,395 |
Deferred taxes | 32,105 | 32,561 |
Other intangible assets, net | 127,834 | 121,919 |
Other assets, net | 162,179 | 161,159 |
Total assets | 4,017,027 | 4,023,694 |
Current liabilities: | ||
Accounts payable | 398,507 | 598,498 |
Accrued liabilities | 869,659 | 967,099 |
Debt due within one year | 27,786 | 27,731 |
Deferred taxes | 20,390 | 14,668 |
Total current liabilities | 1,316,342 | 1,607,996 |
Long-term debt due after one year | 541,151 | 545,617 |
Retirement obligations and other liabilities | 438,959 | 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 | 602,669 | 586,371 |
Retained earnings | 1,431,507 | 1,159,634 |
Stockholders' equity before treasury stock, deferred compensation equity and accumulated other comprehensive loss net of tax and noncontrolling interest | 2,107,723 | 1,819,482 |
Treasury shares, at cost - 3,787 and 3,566 shares, respectively | (261,739) | (248,073) |
Deferred compensation obligation | 8,564 | 7,678 |
Accumulated other comprehensive loss | (141,392) | (211,320) |
Noncontrolling interest | 7,419 | 6,431 |
Total shareholders' equity | 1,720,575 | 1,374,198 |
Total liabilities and shareholders' equity | $4,017,027 | $4,023,694 |
2_Condensed Consolidated Balanc
Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $) | ||
In Thousands | Sep. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Allowance for doubtful accounts | $21,091 | $23,667 |
Accumulated depreciation on property, plant and equipment | $663,900 | $594,991 |
Shareholders' equity: | ||
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 | 3,787 | 3,566 |
3_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) | ||
In Thousands | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Cash flows - Operating activities: | ||
Net earnings, including noncontrolling interests | $318,070 | $330,230 |
Adjustments to reconcile net earnings to net cash used by operating activities: | ||
Depreciation | 63,527 | 54,414 |
Amortization of intangible and other assets | 7,288 | 7,519 |
Amortization of deferred loan costs | 1,312 | 1,265 |
Net loss (gain) on disposition of assets | 666 | (6,200) |
Gain on bargain purchase | 0 | (3,400) |
Excess tax benefits from stock-based compensation arrangements | (1,040) | (16,414) |
Stock-based compensation | 31,393 | 23,981 |
Net earnings from affiliates, net of dividends received | (3,805) | (5,911) |
Change in assets and liabilities: | ||
Accounts receivable, net | 8,141 | (280,343) |
Inventories, net | (8,084) | (190,292) |
Prepaid expenses and other | (20,881) | (26,763) |
Other assets, net | 4,130 | 7,571 |
Accounts payable | (209,247) | (32,599) |
Accrued liabilities and income taxes payable | (117,151) | 212,336 |
Retirement obligations and other liabilities | (75,712) | (48,283) |
Net deferred taxes | 5,934 | (31,914) |
Net cash flows provided (used) by operating activities | 4,541 | (4,803) |
Cash flows - Investing activities: | ||
Capital expenditures | (87,067) | (72,506) |
Proceeds from disposal of assets | 0 | 7,556 |
Payments for acquisitions, net of cash acquired | (30,750) | 0 |
Net cash flows used by investing activities | (117,817) | (64,950) |
Cash flows - Financing activities: | ||
Excess tax benefits from stock-based compensation arrangements | 1,040 | 16,414 |
Payments on long-term debt | (4,261) | (4,261) |
Borrowings under other financing arrangements | 88 | 9,644 |
Repurchase of common shares | (27,527) | (134,997) |
Payments of dividends | (44,151) | (37,348) |
Proceeds from stock option activity | 2,496 | 11,214 |
Net cash flows used by financing activities | (72,315) | (139,334) |
Effect of exchange rate changes on cash | 4,760 | (10,201) |
Net change in cash and cash equivalents | (180,831) | (219,288) |
Cash and cash equivalents at beginning of year | 472,056 | 373,238 |
Cash and cash equivalents at end of period | $291,225 | $153,950 |
Basis of Presentation and Accou
Basis of Presentation and Accounting Policies | |
9 Months Ended
Sep. 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 September30, 2009, and the related condensed consolidated statements of income and comprehensive income for the three and nine months ended September30, 2009 and 2008, and the condensed consolidated statements of cash flows for the nine months ended September30, 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 September30, 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 guidance related to (1)noncontrolling interest under Accounting Standards Codification (ASC) 810, Consolidation, and (2)guidance related to the two-class method of calculating Earnings Per Share (EPS) under ASC 260, Earnings Per Share. Accounting Policies Significant accounting policies, for which no significant changes have occurred in the nine months ended September30, 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 Financial Accounting Standards Board (FASB) issued guidance under ASC 820, Fair Value Measurements and Disclosures, 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. This guidance 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 additional guidance, which delayed the adoption 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 this guidance, effective January1, 2009, did not have a material impact on our consolidated financial condition or results of operations. In December2007, the FASB issued guidance related to business combinations under ASC 805, Business Combinations, which established principles and requirements for how the acquirer in a business combinatio |
Acquisition
Acquisition | |
9 Months Ended
Sep. 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 working capital valuation was completed in early July 2009. The remaining $13.3million of the total purchase price is contingent upon Calder AG achieving certain performance metrics within a specified time frame 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 $13.3 million. Any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date is recognized in earnings in the period the estimated fair value changes. During the third quarter of 2009, the estimated fair value of the contingent consideration was reduced to $2.2million based on third quarter 2009 results and an updated weighted probability of achievement of the performance metrics within the specified time frame. The resulting gain is included in selling, general and administrative expense (SGA) in our condensed consolidated statements of income. The purchase price was allocated to the assets acquired and liabilities assumed based on estimates of fair values at the date of acquisition. The 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 m |
Stock Based Compensation Plans
Stock Based Compensation Plans | |
9 Months Ended
Sep. 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, 669,102 shares remain available for issuance as of September30, 2009. We recorded stock-based compensation as follows: Three Months Ended September 30, 2009 2008 Stock Restricted Stock Restricted (Amounts in millions) Options Shares Total Options Shares Total Stock-based compensation expense $ 0.1 $ 9.8 $ 9.9 $ 0.3 $ 7.3 $ 7.6 Related income tax benefit (3.8 ) (3.8 ) (0.1 ) (2.2 ) (2.3 ) Net stock-based compensation expense $ 0.1 $ 6.0 $ 6.1 $ 0.2 $ 5.1 $ 5.3 Nine Months Ended September 30, 2009 2008 Stock Restricted Stock Restricted (Amounts in millions) Options Shares Total Options Shares Total Stock-based compensation expense $ 0.3 $ 31.1 $ 31.4 $ 1.2 $ 22.8 $ 24.0 Related income tax benefit (0.1 ) (10.3 ) (10.4 ) (0.3 ) (6.9 ) (7.2 ) Net stock-based compensation expense $ 0.2 $ 20.8 $ 21.0 $ 0.9 $ 15.9 $ 16.8 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: Nine Months Ended September 30, 2009 Weighted Average Remaining Contractual Aggregate Intrinsic Shares Exercise Price Life (in years) Value (in millions) Number of shares under option: Outstanding January1, 2009 303,100 $ 39.58 Exercised (81,968 ) 32.32 Outstanding September30, 2009 221,132 $ 42.28 5.7 $ 12.4 Exercisable September30, 2009 190,132 $ 40.65 5.5 $ 11.0 No options were granted during the nine months ended September30, 2009 or 2008. The total fair value of stock options vested during the three months ended September30, 2009 and 2008 was $0.1million and $1.3million, respectively. The total fair value of stock options vested during the nine months ended September30, 2009 and 2008 was $2.0million and $3.9million, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model. As of September30, 2009, we had less than $0.1million of unrecogn |
Derivative Instruments and Hedg
Derivative Instruments and Hedges | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Derivative Instruments and Hedges [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 cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. At September30, 2009 and December31, 2008, we had $342.8 million and $555.7million, respectively, of notional amount in outstanding forward exchange contracts with third parties. At September30, 2009, the length of forward exchange contracts currently in place ranged from one day to 17months. 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 September30, 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 September30, 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: September 30, December 31, (Amounts in thousands) 2009 2008 Current derivative assets $ 12,045 $ 12,172 Noncurrent derivative assets 89 264 Current derivative liabilities 2,708 15,350 Noncurrent derivative liabilities 232 314 The fair value of interest rate swaps in cash flow hedging relationships are summarized below: September 30, December 31, (Amounts in thousands) 2009 2008 Current derivative assets $ 4 $ Noncurrent derivative assets 485 Current derivative liabilities 7,000 8,213 Noncurrent derivative liabilities 168 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 summa |
Fair Value
Fair Value | |
9 Months Ended
Sep. 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 initially 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 September30, 2009, this liability was reduced to $2.2million based on an updated weighted probability of achievement of performance metrics. |
Debt
Debt | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Debt [Abstract] | |
Debt | 6. Debt Debt, including capital lease obligations, consisted of: September 30, December 31, (Amounts in thousands) 2009 2008 Term Loan, interest rate of 1.81% in 2009 and 2.99% in 2008 $ 545,436 $ 549,697 Capital lease obligations and other 23,501 23,651 Debt and capital lease obligations 568,937 573,348 Less amounts due within one year 27,786 27,731 Total debt due after one year $ 541,151 $ 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 September30, 2009 and December 31, 2008, we had no amounts outstanding under the revolving line of credit. We had outstanding letters of credit of $114.3million and $104.2 million at September30, 2009 and December31, 2008, respectively, which reduced borrowing capacity to $285.7million and $295.8million, respectively. The carrying amount of our term loan approximated fair value at September30, 2009. The interbank market for our term loan implied a fair value of approximately $495million at December31, 2008, as compared with a carrying value of $549.7million. 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 September30, 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 nine months ended September30, 2009, we made scheduled repayments under our Credit Facilities of $1.4million and $4.3million, 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 As previously disclosed, our 364-day unsecured European Letter of Credit Facility (European rLOC Facility), which has a commitment of 110.0million, was extended beyond its September11, 2009 expiration date through November9, 2009. The European LOC Facility is used for contingent obligations solely in respect of surety and performance bonds, bank guarantees and similar obligations. We had outstanding letters of credit drawn on the European LOC Facility of 81.7 million ($119.6million) and 104.0million ($145.2million) as of September30, 2009 and December 31, 2008, respectively. We pay certain fees for the letters of credit written against the European LOC |
Realignment Program
Realignment Program | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Realignment Program [Abstract] | |
Realignment Program | 7. Realignment Program In February2009, we announced our plan to incur up to $40million in 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 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 nine months ended September30, 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 September30, 2009 COS Flowserve Pump Division $ 25 $ $ 206 $ 544 $ 775 Flow Control Division Flow Solutions Division 111 111 SGA Flowserve Pump Division 16 16 Flow Control Division 4 4 Flow Solutions Division Total $ 29 $ $ 206 $ 671 $ 906 Nine Months Ended September30, 2009 (1) COS Flowserve Pump Division $ 3,515 $ $ 4,606 $ 877 $ 8,998 Flow Control Division 122 360 482 Flow Solutions Division 575 33 152 760 SGA Flowserve Pump Division 215 16 231 Flow Control Division 155 155 Flow Solutions |
Inventories
Inventories | |
9 Months Ended
Sep. 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: September 30, December 31, (Amounts in thousands) 2009 2008 Raw materials $ 262,095 $ 241,953 Work in process 744,508 635,490 Finished goods 262,676 264,746 Less: Progress billings (321,160 ) (250,289 ) Less: Excess and obsolete reserve (63,697 ) (57,288 ) Inventories, net $ 884,422 $ 834,612 |
Equity Method Investments
Equity Method Investments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Equity Method Investments [Abstract] | |
Equity Method Investments | 9. Equity Method Investments As of September30, 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 September 30, (Amounts in thousands) 2009 2008 Revenues $ 46,346 $ 71,365 Gross profit 16,426 16,318 Income before provision for income taxes 11,578 11,481 Provision for income taxes (3,428 ) (3,101 ) Net income $ 8,150 $ 8,380 Nine Months Ended September 30, (Amounts in thousands) 2009 2008 (1) Revenues $ 159,368 $ 259,187 Gross profit 57,541 70,020 Income before provision for income taxes 40,733 49,788 Provision for income taxes (12,605 ) (14,776 ) Net income $ 28,128 $ 35,012 (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 | |
9 Months Ended
Sep. 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 the two-class method of calculating EPS. 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 September 30, (Amounts in thousands, except per share data) 2009 2008 Net earnings of Flowserve Corporation $ 116,944 $ 117,049 Dividends on restricted shares not expected to vest 5 5 Earnings attributable to common and participating shareholders $ 116,949 $ 117,054 Weighted average shares: Common stock 55,351 56,726 Participating securities 441 442 Denominator for basic earnings per common share 55,792 57,168 Effect of potentially dilutive securities 586 301 Denominator for diluted earnings per common share 56,378 57,469 Earnings per common share: Basic $ 2.10 $ 2.05 Diluted 2.07 2.04 Nine Months Ended September 30, (Amounts in thousands, except per share data) 2009 2008 Net earnings of Flowserve Corporation $ 317,469 $ 327,981 Dividends on restricted shares not expected to vest 18 23 Earnings attributable to common and participating shareholders $ 317,487 $ 328,004 Weighted average shares: Common stock 55,443 56,843 Participating securities 443 526 Denominator for basic earnings per common share 55,886 57,369 Effect of potentially dilutive securities 481 340 Denominator for diluted earnings per common share 56,367 57,709 Earnings per common share: Basic $ 5.68 $ 5.72 Diluted 5.63 5.68 Di |
Legal Matters and Contingencies
Legal Matters and Contingencies | |
9 Months Ended
Sep. 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 Appeal of Dismissed ClassAction Case; Derivative Case Dismissals 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. The parties h |
Retirement and Postretirement B
Retirement and Postretirement Benefits | |
9 Months Ended
Sep. 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 September30, 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 $ 4.6 $ 4.3 $ 0.9 $ 0.9 $ $ 0.1 Interest cost 4.8 4.5 2.9 3.4 0.7 0.6 Expected return on plan assets (5.5 ) (5.1 ) (1.0 ) (1.4 ) Amortization of unrecognized net loss (gain) 1.6 1.0 0.6 0.1 (0.7 ) Amortization of prior service benefit (0.3 ) (0.3 ) (0.5 ) (0.6 ) Net periodic cost (benefit) recognized $ 5.2 $ 4.4 $ 3.4 $ 3.0 $ (0.5 ) $ 0.1 Components of the net periodic cost for retirement and postretirement benefits for the nine months ended September30, 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 $ 13.8 $ 12.9 $ 2.9 $ 2.7 $ $ 0.1 Interest cost 14.4 13.4 8.7 10.3 1.9 2.6 Expected return on plan assets (16.6 ) (15.2 ) (3.1 ) (4.3 ) Amortization of unrecognized net loss (gain) 4.9 3.2 1.8 0.3 (2.2 ) 0.1 Amortization of prior service benefit (0.9 ) (1.0 ) (1.5 ) (1.9 ) Net periodic cost (benefit)recognized $ 15.6 $ 13.3 $ 10.3 $ 9.0 $ (1.8 ) $ 0.9 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 | |
9 Months Ended
Sep. 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. We repurchased 131,500 shares for $11.3million and 413,000 shares for $27.5million during the three and nine months ended September30, 2009, respectively. To date, we have repurchased a total of 2.2million shares for $192.5million under this program. |
Income Taxes
Income Taxes | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Income Taxes [Abstract] | |
Income Taxes | 14. Income Taxes For the three months ended September30, 2009, we earned $158.6million before taxes and provided for income taxes of $42.0million, resulting in an effective tax rate of 26.5%. For the nine months ended September30, 2009, we earned $436.7million before taxes and provided for income taxes of $118.6million, resulting in an effective tax rate of 27.2%. The effective tax rate varied from the U.S. federal statutory rate for both the three and nine months ended September30, 2009 primarily due to the net impact of foreign operations. For the three months ended September30, 2008, we earned $144.9million before taxes and provided for income taxes of $26.9million, resulting in an effective tax rate of 18.6%. The effective tax rate varied from the U.S. federal statutory rate for the three months ended September 30, 2008 primarily due to the net impact of foreign operations, as well as a net tax benefit of $12.4million arising from our permanent reinvestment in foreign subsidiaries, the release of certain reserves related to the closure of the statute of limitations in various jurisdictions and repatriation of cash. For the nine months ended September30, 2008, we earned $432.4million before taxes and provided for income taxes of $102.2million, resulting in an effective tax rate of 23.6%. The effective tax rate varied from the U.S. federal statutory rate for the nine months ended September30, 2008 primarily due to the net favorable impact of foreign operations, a favorable tax ruling in Luxembourg, our permanent reinvestment in foreign subsidiaries, the release of certain reserves related to the closure of the statute of limitations in various jurisdictions and repatriation of cash. As of September30, 2009, the amount of unrecognized tax benefits has increased by $9.1 million 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, Austria, France, Germany, India, Italy, Mexico, the U.S. 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 between $2million to $29million. |
Segment Information
Segment Information | |
9 Months Ended
Sep. 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 September30, 2009 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 635,949 $ 292,465 $ 121,669 $ 1,050,083 $ 981 $ 1,051,064 Intersegment sales 1,153 1,074 14,590 16,817 (16,817 ) Segment operating income 108,649 54,038 29,066 191,753 (30,548 ) 161,205 Three Months Ended September30, 2008 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 638,767 $ 363,417 $ 149,904 $ 1,152,088 $ 1,504 $ 1,153,592 Intersegment sales 398 1,778 20,966 23,142 (23,142 ) Segment operating income 99,398 61,378 33,103 193,879 (29,365 ) 164,514 Nine Months Ended September30, 2009 Subtotal Flowserve Flow Flow Reportable Consolidated (Amounts in thousands) Pump Control Solutions Segments All Other Total Sales to external customers $ 1,894,110 $ 889,377 $ 379,467 $ 3,162,954 $ |