Flowserve(FLS) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Presents unaudited condensed consolidated financial statements for H1 2022, including a pre-tax charge for ceasing Russian operations Condensed Consolidated Statements of Income (Unaudited) | (Amounts in thousands, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Sales | $882,222 | $898,178 | $1,703,280 | $1,755,486 | | Gross Profit | $249,829 | $278,238 | $459,477 | $529,138 | | Operating Income | $60,332 | $72,162 | $67,700 | $128,265 | | Net Earnings Attributable to Flowserve | $44,777 | $45,354 | $28,960 | $59,434 | | Diluted EPS | $0.34 | $0.35 | $0.22 | $0.45 | Condensed Consolidated Balance Sheets (Unaudited) | (Amounts in thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $2,280,927 | $2,388,677 | | Total Assets | $4,582,732 | $4,749,768 | | Total Current Liabilities | $1,091,717 | $1,131,805 | | Total Liabilities | $2,828,839 | $2,912,423 | | Total Equity | $1,753,893 | $1,837,345 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (Amounts in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash flows (used) by operating activities | $(71,367) | $61,306 | | Net cash flows (used) by investing activities | $(28,997) | $(23,840) | | Net cash flows (used) by financing activities | $(77,710) | $(491,094) | | Net change in cash and cash equivalents | $(200,107) | $(464,877) | - In response to the Russia-Ukraine conflict, the company ceased all operations in Russia and recorded a $20.2 million pre-tax charge in the first quarter of 2022[25][27] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes H1 2022 performance, noting increased bookings but decreased sales and margins due to supply chain issues and Russia exit Consolidated Results H1 2022 bookings rose 12.3% while sales fell 3.0%, with gross margin contracting significantly due to cost pressures Key Performance Indicators - H1 2022 vs H1 2021 | Metric (Amounts in millions) | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Bookings | $2,129.7 | $1,896.8 | +12.3% | | Sales | $1,703.3 | $1,755.5 | -3.0% | | Gross Profit | $459.5 | $529.1 | -13.2% | | Gross Profit Margin | 27.0% | 30.1% | -310 bps | | Operating Income | $67.7 | $128.3 | -47.2% | - Backlog increased by 15.6% to $2.32 billion at June 30, 2022, despite a $25.2 million negative impact from order cancellations in Russia[117] - The effective tax rate for the six months ended June 30, 2022, was 31.4%, a significant increase from 9.1% in the prior-year period, primarily due to the tax impact of the Russia-Ukraine conflict[135] Business Segments Details performance of FPD and FCD segments, both showing increased bookings but lower sales and operating margins in H1 2022 Flowserve Pump Division (FPD) H1 2022 vs H1 2021 | Metric (Amounts in millions) | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Bookings | $1,513.0 | $1,322.2 | +14.4% | | Sales | $1,190.5 | $1,220.1 | -2.4% | | Segment Operating Income | $78.3 | $121.6 | -35.6% | | Operating Margin | 6.6% | 10.0% | -340 bps | Flow Control Division (FCD) H1 2022 vs H1 2021 | Metric (Amounts in millions) | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Bookings | $624.2 | $582.6 | +7.1% | | Sales | $516.3 | $537.0 | -3.9% | | Segment Operating Income | $45.6 | $61.9 | -26.3% | | Operating Margin | 8.8% | 11.5% | -270 bps | Liquidity and Capital Resources Maintains a solid liquidity position despite a significant shift to cash used by operations due to working capital changes - Cash and cash equivalents decreased by $200.2 million during the first six months of 2022, ending at $458.3 million[152] - Net cash used by operating activities was $71.4 million in H1 2022, compared to $61.3 million provided in H1 2021, driven by increased inventory and a one-time tax payment[150][152] - The company paid $52.3 million in dividends and made $15.9 million in payments on its Term Loan during H1 2022[152] Quantitative and Qualitative Disclosures About Market Risk Outlines exposure to foreign currency and interest rate risks and the use of derivatives to mitigate these exposures - The company is managing the transition from LIBOR, as its Amended and Restated Credit Agreement includes provisions for determining a successor rate[162] - To manage Euro/U.S. dollar exchange rate volatility, the company has entered into three cross-currency swap agreements with a combined notional value of €423.2 million[163] - As of June 30, 2022, the company held foreign exchange forward contracts with an aggregate notional value of $413.9 million to mitigate transactional currency exposure[163] Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[164] - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2022[165] PART II – OTHER INFORMATION Legal Proceedings Details involvement in various legal proceedings, primarily asbestos-related claims, not expected to be materially adverse - The company is a defendant in numerous lawsuits, including product liability and asbestos-related claims, which are considered routine and incidental to the business[169] - As of June 30, 2022, the company had 8,917 ending asbestos-related claims and a recorded liability of $90.1 million[63][64] Risk Factors States no material changes to risk factors have occurred since the 2021 Annual Report - No material changes in risk factors have occurred since the company's 2021 Annual Report[170] Unregistered Sales of Equity Securities and Use of Proceeds Reports no share repurchases under the public program during the quarter, with $96.1 million remaining authorized - The company had no repurchases of its common stock under its publicly announced program during the three months ended June 30, 2022[171] - As of June 30, 2022, $96.1 million remained available for future repurchases under the board-approved program[171] Defaults Upon Senior Securities None Mine Safety Disclosures Not applicable Other Information None Exhibits Lists all exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Exhibits filed include officer certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101, 104)[175]