Flowserve(FLS) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, statements of shareholders' equity, and cash flows, for the periods ended June 30, 2025 and 2024, along with detailed notes explaining accounting policies, acquisitions, revenue recognition, debt, equity, and other financial matters Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2025 and 2024 (unaudited) Presents the unaudited consolidated income and comprehensive income for the three months ended June 30, 2025 and 2024, showing key financial metrics like sales, gross profit, operating income, net earnings, and comprehensive income Key Financial Data (Three Months Ended June 30) | Metric | 2025 (thousands) | 2024 (thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Sales | $1,188,092 | $1,156,892 | | Net earnings attributable to Flowserve Corporation | $81,754 | $72,616 | | Diluted Net earnings per share | $0.62 | $0.55 | | Comprehensive income attributable to Flowserve Corporation | $192,078 | $49,100 | Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income – Six Months Ended June 30, 2025 and 2024 (unaudited) Provides the unaudited consolidated income and comprehensive income for the six months ended June 30, 2025 and 2024, detailing sales, gross profit, operating income, net earnings, and comprehensive income over the half-year period Key Financial Data (Six Months Ended June 30) | Metric | 2025 (thousands) | 2024 (thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Sales | $2,332,635 | $2,244,371 | | Net earnings attributable to Flowserve Corporation | $155,659 | $146,836 | | Diluted Net earnings per share | $1.18 | $1.11 | | Comprehensive income attributable to Flowserve Corporation | $313,879 | $96,660 | Condensed Consolidated Balance Sheets – June 30, 2025 and December 31, 2024 (unaudited) Presents the unaudited consolidated balance sheets as of June 30, 2025, and December 31, 2024, outlining the company's assets, liabilities, and equity Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (thousands) | December 31, 2024 (thousands) | | :-------------------------- | :------------------------ | :-------------------------- | | Total Assets | $5,682,525 | $5,500,821 | | Total Liabilities | $3,403,123 | $3,449,077 | | Total Equity | $2,279,002 | $2,051,712 | | Cash and cash equivalents | $629,203 | $675,441 | Condensed Consolidated Statements of Shareholders' Equity – Three Months Ended June 30, 2025 and 2024 (unaudited) Details the changes in shareholders' equity for the three months ended June 30, 2025 and 2024, including common stock, capital in excess of par value, retained earnings, treasury stock, deferred compensation, and accumulated other comprehensive loss Shareholders' Equity Highlights (Three Months Ended June 30) | Metric | June 30, 2025 (thousands) | June 30, 2024 (thousands) | | :------------------------------------ | :------------------------ | :------------------------ | | Total Flowserve Corporation Shareholders' Equity | $2,223,051 | $2,016,324 | | Cash dividends declared ($0.21 per share) | $(27,795) | $(27,961) | | Repurchases of common shares | $(31,709) | $(13,612) | Condensed Consolidated Statements of Shareholders' Equity – Six Months Ended June 30, 2025 and 2024 (unaudited) Outlines the changes in shareholders' equity for the six months ended June 30, 2025 and 2024, providing a comprehensive view of equity movements over the half-year period Shareholders' Equity Highlights (Six Months Ended June 30) | Metric | June 30, 2025 (thousands) | June 30, 2024 (thousands) | | :------------------------------------ | :------------------------ | :------------------------ | | Total Flowserve Corporation Shareholders' Equity | $2,223,051 | $2,016,324 | | Cash dividends declared ($0.42 per share) | $(55,740) | $(55,976) | | Repurchases of common shares | $(52,797) | $(16,161) | Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2025 and 2024 (unaudited) Presents the unaudited consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, categorizing cash flows into operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30) | Activity | 2025 (thousands) | 2024 (thousands) | | :------------------------------------ | :--------------- | :--------------- | | Net cash flows provided by operating activities | $104,212 | $49,475 | | Net cash flows (used) by investing activities | $(27,473) | $(30,090) | | Net cash flows (used) by financing activities | $(154,444) | $(36,683) | | Cash and cash equivalents at end of period | $629,203 | $515,083 | Notes to Condensed Consolidated Financial Statements (unaudited) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering significant accounting policies, recent acquisitions, revenue recognition, debt, equity, and other material financial and operational items 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES Describes the basis of presentation for the unaudited condensed consolidated financial statements, highlights the impact of the Russia-Ukraine conflict and the NAF AB divestiture, and outlines recently implemented and not-yet-implemented accounting pronouncements - The company permanently ceased all operations in Russia in March 2022 due to the Russia-Ukraine conflict. A $2 million adjustment was made in Q1 2024 to reduce existing reserves, with no further adjustments through June 30, 2025, and no material incremental impact expected[29][30] - Effective May 4, 2024, the company divested NAF AB, a control valves business, resulting in a $13.0 million pre-tax and after-tax loss on sale of business[31] - ASU No. 2023-05 (Joint Venture Formations) was adopted with no material impact. ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Expense Disaggregation) are effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively, with the company evaluating their impact on disclosures. ASU No. 2025-03 (Acquirer in VIE Acquisition) is effective after December 15, 2026, and is not expected to have a material impact[32][33][34][35][36] 2. ACQUISITION Details the acquisition of MOGAS Industries, Inc. on October 15, 2024, for $290.0 million, plus a $15.0 million contingent earn-out paid in Q1 2025. The acquisition aims to enhance Flowserve's market presence and product portfolio, with goodwill of $127.2 million recorded - Acquired MOGAS Industries, Inc. on October 15, 2024, for $290.0 million, plus a $15.0 million contingent earn-out payment made in Q1 2025[38] - The acquisition was funded using cash on hand and term loan financing, resulting in $127.2 million in goodwill, expected to be fully tax deductible[38][40] - Incurred $5.2 million in acquisition and integration related costs for the six months ended June 30, 2025, included in selling, general and administrative expense and cost of sales[40] 3. MERGER Reports the termination of the Merger Agreement with Chart Industries, Inc. on July 28, 2025. Flowserve received a $266 million payment, including a $250 million termination fee and $16 million for expenses, which will be recognized in Q3 2025 - The Agreement and Plan of Merger with Chart Industries, Inc. was terminated on July 28, 2025[43] - Flowserve received a $266 million cash payment, comprising a $250 million termination fee and $16 million for expenses, to be reflected in Q3 2025 financial statements[43] - A letter of intent was signed to amend an existing supply agreement between Chart and Flowserve, extending its term and expanding product coverage[43] 4. REVENUE RECOGNITION Details the company's revenue recognition policies, distinguishing between revenue recognized over time (17-18% of total) and at a point in time (82-83% of total). It also disaggregates revenue by business segment (FPD, FCD) and geography, and provides information on contract balances - Approximately 17-18% of total revenue is recognized over time, primarily using the percentage of completion method, while 82-83% is recognized at a point in time[46] Customer Revenues Disaggregated by Source (Three Months Ended June 30, 2025) | (Amounts in thousands) | FPD | FCD | Total | | :--------------------- | :------ | :------ | :-------- | | Original Equipment | $284,481 | $270,970 | $555,451 | | Aftermarket | $533,019 | $99,622 | $632,641 | | Total | $817,500 | $370,592 | $1,188,092 | Customer Revenues Disaggregated by Source (Six Months Ended June 30, 2025) | (Amounts in thousands) | FPD | FCD | Total | | :--------------------- | :-------- | :-------- | :---------- | | Original Equipment | $564,711 | $547,785 | $1,112,496 | | Aftermarket | $1,034,278 | $185,861 | $1,220,139 | | Total | $1,598,989 | $733,646 | $2,332,635 | - As of June 30, 2025, the aggregate transaction price allocated to unsatisfied performance obligations with an original expected duration over one year was approximately $994 million, with $373 million expected in the remainder of 2025 and $621 million in 2026 and thereafter[53] 5. ALLOWANCE FOR EXPECTED CREDIT LOSSES Explains the methodology for assessing and measuring expected credit losses for financial assets, primarily accounts receivable and contract assets. It provides a table detailing changes in the allowance for expected credit losses for trade receivables and contract assets for the six months ended June 30, 2025 and 2024 - The allowance for expected credit losses is estimated based on an aging schedule, historical losses, customer-specific credit risk factors, and current/forecasted macroeconomic conditions[60] Changes in Allowance for Expected Credit Losses (Six Months Ended June 30, 2025) | (Amounts in thousands) | Trade receivables | Contract assets | | :------------------------------------ | :---------------- | :-------------- | | Beginning balance, January 1, 2025 | $79,059 | $3,404 | | Charges to cost and expenses, net of recoveries | $8,617 | $1,076 | | Write-offs | $(722) | $(91) | | Currency effects and other, net | $4,957 | $188 | | Ending balance, June 30, 2025 | $91,911 | $4,577 | - The current expected credit loss for contract assets is estimated to be approximately 1% of the asset balance[61] 6. STOCK-BASED COMPENSATION PLANS Describes the Flowserve Corporation 2020 Long-Term Incentive Plan, including the types of awards (Restricted Shares, stock options) and their vesting provisions. It also details the stock-based compensation expense recognized and the number of unvested Restricted Shares outstanding - The 2020 Long-Term Incentive Plan authorized 12,500,000 shares, with 5,350,333 shares available for issuance as of June 30, 2025[65] Stock-Based Compensation Expense | Period | 2025 (millions) | 2024 (millions) | | :------------------------------------ | :-------------- | :-------------- | | Three Months Ended June 30 | $10.1 | $8.7 | | Six Months Ended June 30 | $18.8 | $17.4 | - As of June 30, 2025, 1,626,786 unvested Restricted Shares were outstanding, including approximately 519,000 performance-based units, with an estimated 583,000 shares expected to vest[68] 7. DERIVATIVES AND HEDGING ACTIVITIES Outlines the company's use of foreign exchange forward contracts to hedge cash flow risks, noting that hedge accounting is not elected for these contracts. It provides the notional value of contracts and the fair values of derivative assets and liabilities - Foreign exchange forward contracts are used to hedge cash flow risks, with a notional value of $697.3 million at June 30, 2025, and $695.9 million at December 31, 2024[69][70] Fair Values of Foreign Exchange Contracts (June 30, 2025) | Type | Amount (thousands) | | :-------------------------- | :--------------- | | Current derivative assets | $9,383 | | Noncurrent derivative assets | $539 | | Current derivative liabilities | $6,411 | | Noncurrent derivative liabilities | $0 | Gains (Losses) Recognized in Income from Foreign Exchange Contracts | Period | 2025 (thousands) | 2024 (thousands) | | :------------------------------------ | :--------------- | :--------------- | | Three Months Ended June 30 | $2,520 | $(763) | | Six Months Ended June 30 | $(2,031) | $4,525 | 8. DEBT AND FINANCE LEASE OBLIGATIONS Provides a breakdown of debt and finance lease obligations, including Senior Notes and the Term Loan Facility. It details the Second Amended and Restated Credit Agreement, which increased the Term Loan to $500.0 million and extended its maturity to October 10, 2029, enhancing financial flexibility Debt and Finance Lease Obligations | (Amounts in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | 3.50% USD Senior Notes due October 1, 2030 | $496,424 | $496,118 | | 2.80% USD Senior Notes due January 15, 2032 | $495,710 | $495,415 | | Term Loan Facility | $471,012 | $489,632 | | Finance lease obligations and other borrowings | $22,400 | $23,026 | | Total Debt and Finance Lease Obligations | $1,485,546 | $1,504,191 | | Less amounts due within one year | $(44,870) | $(44,059) | | Total debt due after one year | $1,440,676 | $1,460,132 | - The Second Amended and Restated Credit Agreement, effective October 10, 2024, increased the Term Loan from $300.0 million to $500.0 million and extended its maturity to October 10, 2029[77] - As of June 30, 2025, the company had no revolving loans outstanding and $661.0 million available for borrowings under its Revolving Credit Facility, and was in compliance with all applicable covenants[79][80] 9. SUPPLIER FINANCE PROGRAMS Describes the company's supplier financing programs with two banks, allowing suppliers early payment. Flowserve is obligated to reimburse banks for approved invoices but has no obligation for fees, pledged assets, or guarantees - The company partners with two banks for supplier financing programs, allowing suppliers early payment[81] - As of June 30, 2025, $13.0 million remained outstanding with supply chain financing partner banks, recorded within accounts payable[82] - Flowserve has no obligation for fees, pledged assets, or other forms of guarantee under these programs[81] 10. FAIR VALUE OF FINANCIAL INSTRUMENTS Defines fair value and categorizes financial instruments by hierarchical levels. It notes that recurring fair value measurements are limited to derivative instruments (Level II inputs) and that the carrying value of most financial instruments approximates fair value, except for long-term debt - Fair value measurements for derivative instruments are determined using models with observable market inputs and are classified as Level II under the fair value hierarchy[83] - The estimated fair value of Senior Notes at June 30, 2025, was $899.4 million compared to a carrying value of $992.1 million, based on Level I quoted market rates[84] - The carrying values of other financial instruments (e.g., cash, accounts receivable, accounts payable, short-term debt) approximated fair value due to their short-term nature[84] 11. INVENTORIES Provides a detailed breakdown of inventory components, including raw materials, work in process, finished goods, and the excess and obsolete reserve, as of June 30, 2025, and December 31, 2024 Inventories (Amounts in thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Raw materials | $412,748 | $391,562 | | Work in process | $275,040 | $262,173 | | Finished goods | $274,443 | $275,975 | | Less: Excess and obsolete reserve | $(97,699) | $(92,456) | | Inventories | $864,532 | $837,254 | 12. EARNINGS PER SHARE Reconciles net earnings and weighted average shares for calculating basic and diluted earnings per common share for the three and six months ended June 30, 2025 and 2024 Earnings Per Common Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Basic EPS | $0.62 | $0.55 | | Diluted EPS | $0.62 | $0.55 | Earnings Per Common Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Basic EPS | $1.19 | $1.12 | | Diluted EPS | $1.18 | $1.11 | 13. LEGAL MATTERS AND CONTINGENCIES Discusses the company's involvement in asbestos-related lawsuits, detailing claim activity and the estimated asbestos liability. It also mentions other routine litigation, asserting that none are currently material to the company's financial condition Asbestos Claims Activity (Three Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Beginning claims | 8,131 | 8,225 | | New claims | 768 | 652 | | Resolved claims | (1,424) | (729) | | Ending claims | 7,487 | 8,146 | Estimated Asbestos Liability (Amounts in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Beginning balance, January 1 | $110,332 | $102,903 | | Ending balance, June 30 | $99,007 | $98,318 | - The company incurred expenses (net of insurance) of approximately $4.1 million for the six months ended June 30, 2025, to defend and resolve asbestos claims, compared to $6.9 million for the same period in 2024[90] - Management believes the reserve for asbestos claims and receivable for insurance recoveries reflect reasonable estimates, and other routine litigation is not currently material to the company's financial condition[93][95] 14. PENSION AND POSTRETIREMENT BENEFITS Presents the components of net periodic cost for pension and postretirement benefits for the three and six months ended June 30, 2025 and 2024. It also details the freeze of the U.S. Qualified Defined Benefit Pension Plan for non-union employees and related transition benefits Net Periodic Cost Recognized (Six Months Ended June 30, 2025, Amounts in millions) | Plan Type | 2025 | | :-------------------------- | :--- | | U.S. Defined Benefit Plans | $3.1 | | Non-U.S. Defined Benefit Plans | $7.2 | | Postretirement Medical Benefits | $0.1 | - The Company-sponsored Qualified Plan for non-union employees was amended to discontinue future benefit accruals and freeze existing accrued benefits effective January 1, 2025[100] - A pension settlement loss of $3.0 million was incurred for the six months ended June 30, 2025, as part of an estimated full-year loss of $6-7 million, triggered by expected cash outflows exceeding service and interest costs[98] - Transition benefits, including a one-time cash payment and restricted shares, were provided to employees in Q1 2025 in conjunction with the Qualified Plan freeze[101] 15. SHAREHOLDERS' EQUITY Discusses dividends declared and the share repurchase program. It details the increase in share repurchase authorization to $300.0 million and the shares repurchased during the three and six months ended June 30, 2025 and 2024 Dividends Declared Per Share | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $0.21 | $0.21 | | Six Months Ended June 30 | $0.42 | $0.42 | - The Board of Directors approved an increase in the total remaining capacity under the share repurchase program to $300.0 million, effective February 19, 2024[103] Common Shares Repurchased | Period | Shares Repurchased (2025) | Value (2025, millions) | Shares Repurchased (2024) | Value (2024, millions) | | :-------------------------- | :------------------------ | :--------------------- | :------------------------ | :--------------------- | | Three Months Ended June 30 | 737,524 | $31.7 | 284,000 | $13.6 | | Six Months Ended June 30 | 1,165,098 | $52.8 | 341,000 | $16.2 | - As of June 30, 2025, $227.1 million of remaining capacity was available under the current share repurchase program[104] 16. INCOME TAXES Reports the provision for income taxes and effective tax rates for the three and six months ended June 30, 2025 and 2024, explaining variations from the U.S. federal statutory rate due to foreign operations and U.S. discrete items. It also discusses valuation allowances and the potential impact of the newly enacted One Big Beautiful Bill Act (OBBBA) Effective Tax Rates | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 15.1% | 23.8% | | Six Months Ended June 30 | 16.6% | 22.2% | - The effective tax rate varied from the U.S. federal statutory rate primarily due to the net impact of foreign operations and U.S. discrete items[105] - The company maintains a full valuation allowance against net deferred tax assets in certain foreign tax jurisdictions and is evaluating the impact of the newly enacted One Big Beautiful Bill Act (OBBBA) on its deferred tax balances for Q3 2025[107][109] 17. BUSINESS SEGMENT INFORMATION Provides a summary of financial information for the two reportable segments, Flowserve Pumps Division (FPD) and Flow Control Division (FCD), reconciled to the consolidated financial statements. It includes sales, intersegment sales, cost of sales, SG&A, other segment items, segment operating income, depreciation and amortization, identifiable assets, and capital expenditures for the three and six months ended June 30, 2025 and 2024 Segment Financial Highlights (Three Months Ended June 30, 2025, Amounts in thousands) | Metric | FPD | FCD | Subtotal – Reportable Segments | | :-------------------------- | :-------- | :-------- | :----------------------------- | | Sales to external customers | $817,500 | $370,592 | $1,188,092 | | Segment operating income | $162,744 | $37,772 | $200,516 | | Identifiable assets | $3,289,405 | $1,778,910 | $5,068,315 | | Capital expenditures | $10,623 | $3,331 | $13,954 | Segment Financial Highlights (Six Months Ended June 30, 2025, Amounts in thousands) | Metric | FPD | FCD | Subtotal – Reportable Segments | | :-------------------------- | :---------- | :---------- | :----------------------------- | | Sales to external customers | $1,598,989 | $733,646 | $2,332,635 | | Segment operating income | $299,259 | $69,254 | $368,513 | | Identifiable assets | $3,289,405 | $1,778,910 | $5,068,315 | | Capital expenditures | $17,567 | $5,627 | $23,194 | - Total segment operating income for the six months ended June 30, 2025, was $368,513k, reconciling to $201,060k in earnings before income taxes[114] 18. ACCUMULATED OTHER COMPREHENSIVE LOSS Presents the changes in Accumulated Other Comprehensive Loss (AOCL), net of tax, for the three and six months ended June 30, 2025 and 2024, broken down by foreign currency translation items, pension and other postretirement effects, and cash flow hedging activity. It also details reclassifications out of AOCL Accumulated Other Comprehensive Loss (AOCL) (Amounts in thousands) | Metric | June 30, 2025 | January 1, 2025 | | :------------------------------------ | :------------ | :-------------- | | Balance - AOCL | $(590,429) | $(748,742) | Net Current-Period Other Comprehensive Income (Loss) (Amounts in thousands) | Period | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Three Months Ended June 30 | $110,384 | $(23,588) | | Six Months Ended June 30 | $158,313 | $(50,461) | - Reclassifications out of AOCL for the six months ended June 30, 2025, included $(3,717)k (net of tax) for pension and other postretirement effects and $(48)k (net of tax) for cash flow hedging activity[121] 19. REALIGNMENT PROGRAMS Discusses the 2023 Realignment Programs, which are substantially completed, and the newly launched 2025 Realignment Programs (including the CORE program) focused on product rationalization and optimization. It provides a summary of restructuring and non-restructuring charges incurred by segment and type for the three and six months ended June 30, 2025 and 2024, as well as inception-to-date charges - The 2023 Realignment Programs, focused on consolidating FPD operations, are substantially completed. The 2025 Realignment Programs, including the CORE program, were launched in Q4 2024 and 2025, with an anticipated total investment of approximately $28 million ($9 million non-cash)[124][125] Total Realignment Charges (Consolidated Total, Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $3,318 | $20,235 | | Six Months Ended June 30 | $12,029 | $27,402 | Inception-to-Date Total Realignment Charges (Consolidated Total, Amounts in thousands) | Program | Inception to Date | | :-------------------------- | :---------------- | | 2025 Realignment Programs | $14,971 | | 2023 Realignment Programs | $112,591 | Restructuring Reserves Activity (Six Months Ended June 30, Amounts in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Balance at January 1 | $8,300 | $8,184 | | Charges, net of adjustments | $10,666 | $5,566 | | Cash expenditures | $(5,962) | $(72) | | Balance at June 30 | $14,160 | $10,964 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, offering insights into performance drivers, strategic initiatives, and future outlook. It covers consolidated results, segment performance, liquidity, critical accounting estimates, and forward-looking statements EXECUTIVE OVERVIEW Provides an overview of Flowserve Corporation as a global manufacturer and aftermarket service provider of flow control systems, emphasizing its two business segments (FPD and FCD), strategic focus (3D Strategy: diversification, decarbonization, digitization), and operational excellence initiatives (Flowserve Business System, CORE program). It also mentions the impact of the OBBBA and the 2025 outlook - Flowserve is a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems, operating through two business segments: Flowserve Pumps Division (FPD) and Flow Control Division (FCD)[145][147] - The company's strategic plan, the '3D Strategy,' focuses on diversification, decarbonization, and digitization to accelerate growth, complemented by the Flowserve Business System for operational efficiency, including the CORE program for product rationalization[149][151] - For 2025, the company expects annual revenue growth driven by a strong backlog, improved execution, and the recent MOGAS acquisition, despite macroeconomic uncertainties[153] - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is being evaluated for its impact on the company's Q3 2025 financial statements[150] OUR RESULTS OF OPERATIONS — Three months ended June 30, 2025 and 2024 Discusses the consolidated financial performance for the three and six months ended June 30, 2025 and 2024, including the impact of foreign currency fluctuations, the MOGAS acquisition, and realignment activities. It provides detailed analysis of bookings, sales, backlog, gross profit, SG&A, and other income/expense items - The MOGAS acquisition resulted in $5.2 million in acquisition and integration related costs for the six months ended June 30, 2025, which were not material to the period's results[156] - The 2025 Realignment Programs are anticipated to involve a total investment of approximately $28 million, with $9 million estimated as non-cash[157] Total Realignment Charges (Consolidated Total, Amounts in thousands) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $3,318 | $20,235 | | Six Months Ended June 30 | $12,029 | $27,402 | Bookings, Sales and Backlog Reports consolidated bookings, sales, and backlog, noting changes in end market categories. Bookings decreased for the three months but increased for the six months, while sales increased for both periods. Backlog also increased, with a significant portion related to aftermarket orders Consolidated Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $1,073.9 | $1,246.1 | | | Six Months Ended June 30 | $2,299.4 | $2,283.8 | | Sales | Three Months Ended June 30 | $1,188.1 | $1,156.9 | | | Six Months Ended June 30 | $2,332.6 | $2,244.4 | - Bookings for the three months ended June 30, 2025, decreased by 13.8% ($172.2 million), while for the six months, they increased by 0.7% ($15.6 million). Sales increased by 2.7% for the three months and 3.9% for the six months[165][166][167][168] - Backlog increased by 2.3% to $2,853.2 million at June 30, 2025, compared to December 31, 2024, with approximately 40% related to aftermarket orders[169] Gross Profit and Gross Profit Margin Analyzes the increase in gross profit and gross profit margin for both the three and six months ended June 30, 2025, attributing it primarily to sales price increases, improved bidding, and decreased realignment charges, partially offset by MOGAS acquisition costs Consolidated Gross Profit and Margin (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Gross profit | Three Months Ended June 30 | $406.6 | $366.1 | | Gross profit margin | Three Months Ended June 30 | 34.2% | 31.6% | | Gross profit | Six Months Ended June 30 | $775.9 | $705.1 | | Gross profit margin | Six Months Ended June 30 | 33.3% | 31.4% | - Gross profit increased by 11.1% for the three months and 10.0% for the six months, driven by favorable sales price increases, an improved selective bidding approach, and decreased realignment charges[170][171] - The increase was partially offset by $3.4 million (Q2) and $6.9 million (H1) in integration costs and amortization related to the MOGAS acquisition[170][171] Selling, General and Administrative Expense Examines the increase in SG&A expenses for the three and six months ended June 30, 2025, primarily due to Chart Merger transaction costs, MOGAS acquisition integration costs, and increased bad debt expense, partially offset by lower incentive compensation and decreased realignment charges Consolidated SG&A (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | SG&A | Three Months Ended June 30 | $265.9 | $238.6 | | SG&A as a percentage of sales | Three Months Ended June 30 | 22.4% | 20.6% | | SG&A | Six Months Ended June 30 | $509.1 | $467.0 | | SG&A as a percentage of sales | Six Months Ended June 30 | 21.8% | 20.8% | - SG&A increased by 11.4% ($27.3 million) for the three months and 9.0% ($42.1 million) for the six months, primarily due to $15.5 million in Chart Merger transaction costs and MOGAS acquisition integration costs ($4.5 million for Q2, $7.1 million for H1)[172][173] - Increases were partially offset by decreased realignment activities charges ($1.5 million for Q2, $4.3 million for H1) and lower research and development costs[172][173] Loss on Sale of Business Reports a $13.0 million decrease in loss on sale of business for the three and six months ended June 30, 2025, due to the divestiture of NAF AB in 2024 not recurring in the current period Consolidated Loss on Sale of Business (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :--- | :----- | | Three Months Ended June 30 | $0 | $(13.0) | | Six Months Ended June 30 | $0 | $(13.0) | - The $13.0 million loss on sale of business in 2024 was related to the divestiture of NAF AB and did not recur in 2025[174] Net Earnings from Affiliates Shows a decrease in net earnings from affiliates for the three months ended June 30, 2025, but an increase for the six months, primarily due to the performance of the FPD joint venture in South Korea Consolidated Net Earnings from Affiliates (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | $5.9 | $6.8 | | Six Months Ended June 30 | $11.6 | $9.3 | - Net earnings from affiliates decreased by $0.9 million (13.2%) for the three months but increased by $2.3 million (24.7%) for the six months, primarily due to the FPD joint venture in South Korea[175][176] Operating Income Highlights a significant increase in operating income for both the three and six months ended June 30, 2025, driven by higher gross profit, partially offset by increased SG&A Consolidated Operating Income (Amounts in millions, except percentages) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Operating income | Three Months Ended June 30 | $146.6 | $121.3 | | Operating income as a percentage of sales | Three Months Ended June 30 | 12.3% | 10.5% | | Operating income | Six Months Ended June 30 | $278.5 | $234.4 | | Operating income as a percentage of sales | Six Months Ended June 30 | 11.9% | 10.4% | - Operating income increased by 20.9% ($25.3 million) for the three months and 18.8% ($44.1 million) for the six months, primarily due to increased gross profit, partially offset by higher SG&A[177][178] Interest Expense and Interest Income Reports an increase in interest expense for both periods due to higher outstanding debt, and an increase in interest income due to higher average cash balances Consolidated Interest Expense and Income (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Interest expense | Three Months Ended June 30 | $(20.3) | $(16.9) | | Interest income | Three Months Ended June 30 | $2.5 | $1.2 | | Interest expense | Six Months Ended June 30 | $(39.4) | $(32.2) | | Interest income | Six Months Ended June 30 | $4.3 | $2.3 | - Interest expense increased by $3.4 million for the three months and $7.2 million for the six months due to higher outstanding debt. Interest income increased by $1.3 million for the three months and $2.0 million for the six months due to higher average balances[179][180] Other Expense, Net Details a significant increase in other expense, net, for both periods, primarily driven by increased losses from foreign currency transactions and a pension settlement loss related to the U.S. Qualified pension plan freeze Consolidated Other Expense, Net (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(25.0) | $(5.3) | | Six Months Ended June 30 | $(42.3) | $(6.1) | - Other expense, net, increased by $19.7 million for the three months and $36.2 million for the six months, primarily due to increased losses from foreign currency transactions ($23.1 million for Q2, $26.0 million for H1) and a pension settlement loss ($1.5 million for Q2, $3.0 million for H1)[181][182] Income Taxes and Tax Rate Reports a decrease in the effective tax rate for both the three and six months ended June 30, 2025, primarily due to the net impact of foreign operations and U.S. discrete items Consolidated Effective Tax Rate | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 15.1% | 23.8% | | Six Months Ended June 30 | 16.6% | 22.2% | - The decrease in the effective tax rate was primarily due to the net impact of foreign operations and U.S. discrete items[183][184] Other Comprehensive Income (Loss) Shows a significant increase in other comprehensive income for both periods, primarily driven by favorable foreign currency translation adjustments due to exchange rate movements of the Euro, British pound, and Mexican peso against the U.S. dollar Consolidated Other Comprehensive Income (Loss) (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $110.4 | $(23.6) | | Six Months Ended June 30 | $158.3 | $(50.5) | - Other comprehensive income increased significantly due to favorable foreign currency translation adjustments, primarily from exchange rate movements of the Euro, British pound, and Mexican peso versus the U.S. dollar[185][186] Business Segments Provides a detailed analysis of the performance of Flowserve's two business segments, FPD and FCD, covering bookings, sales, gross profit, SG&A, and operating income for the three and six months ended June 30, 2025 and 2024 Flowserve Pumps Division Segment Results Details the performance of the FPD segment, which designs, manufactures, and services highly engineered pumps and mechanical seals. Bookings decreased for both periods, while sales and gross profit increased, leading to a significant rise in segment operating income FPD Segment Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $723.8 | $898.8 | | | Six Months Ended June 30 | $1,576.1 | $1,602.2 | | Sales | Three Months Ended June 30 | $818.9 | $812.2 | | | Six Months Ended June 30 | $1,602.1 | $1,581.6 | - FPD bookings decreased by 19.5% for the three months and 1.6% for the six months, primarily driven by decreased customer orders in the energy and chemical industries[191][192] - FPD sales increased by 0.8% for the three months and 1.3% for the six months, driven by aftermarket customer sales[193][194] - FPD gross profit margin increased to 36.5% (from 32.0%) for the three months and 35.4% (from 32.1%) for the six months, primarily due to strategic sourcing, improved bidding, and decreased realignment charges[195][196] - FPD segment operating income increased by 24.2% ($31.7 million) for the three months and 23.7% ($57.4 million) for the six months[199][200] - FPD backlog increased by 2.6% to $1,980.7 million at June 30, 2025, compared to December 31, 2024[201] Flow Control Division Segment Results Presents the performance of the FCD segment, which focuses on isolation and control valves. Bookings and sales increased for both periods. Gross profit margin decreased due to MOGAS integration costs and realignment charges, but operating income increased due to the non-recurrence of the NAF AB divestiture loss FCD Segment Bookings and Sales (Amounts in millions) | Metric | Period | 2025 | 2024 | | :-------------------------- | :-------------------------- | :----- | :----- | | Bookings | Three Months Ended June 30 | $354.7 | $349.2 | | | Six Months Ended June 30 | $730.4 | $689.9 | | Sales | Three Months Ended June 30 | $371.5 | $347.7 | | | Six Months Ended June 30 | $735.6 | $668.2 | - FCD bookings increased by 1.6% for the three months and 5.9% for the six months, driven by increased customer orders in the energy and general industries[204][205] - FCD sales increased by 6.8% for the three months and 10.1% for the six months, driven by both original equipment and aftermarket customer sales[206][207] - FCD gross profit margin decreased to 29.0% (from 30.6%) for the three months and 28.3% (from 29.8%) for the six months, primarily due to MOGAS integration costs and increased realignment charges[208][209] - FCD segment operating income increased by 17.0% ($5.5 million) for the three months and 3.4% ($2.3 million) for the six months, benefiting from the non-recurrence of the $13.0 million loss on sale of business in 2024[212][213][215] - FCD backlog increased by 1.3% to $880.9 million at June 30, 2025, compared to December 31, 2024[216] LIQUIDITY AND CAPITAL RESOURCES Discusses the company's liquidity position, including cash flows from operating, investing, and financing activities, and available borrowing capacity. It highlights the decrease in cash balance, increased operating cash flow, and significant cash outflows from financing activities due to share repurchases, dividends, and MOGAS acquisition payments Cash Flow Summary (Six Months Ended June 30, Amounts in millions) | Activity | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Net cash flows provided by operating activities | $104.2 | $49.5 | | Net cash flows (used) by investing activities | $(27.5) | $(30.1) | | Net cash flows (used) by financing activities | $(154.4) | $(36.7) | | Cash and cash equivalents at end of period | $629.2 | $515.1 | - The cash balance decreased by $46.2 million to $629.2 million at June 30, 2025, compared to December 31, 2024[218] - Key financing outflows for H1 2025 included $52.8 million in stock repurchases, $55.2 million in dividend payments, $18.8 million in Term Loan payments, and a $15.0 million contingent consideration payment for the MOGAS acquisition[226] - As of June 30, 2025, the company had $661.0 million of available capacity under its Second Amended and Restated Credit Agreement[227] Cash Flow Analysis Provides a detailed breakdown of cash flow movements across operating, investing, and financing activities for the six months ended June 30, 2025 and 2024, explaining the drivers behind changes in working capital components and capital expenditures - Operating cash flows for H1 2025 were positively impacted by increased cash flows from accounts receivable, inventories, and prepaid expenses, but negatively by contract assets, accounts payable, contract liabilities, and accrued liabilities[219] - Days' sales outstanding (DSO) remained at 80 days at June 30, 2025 and 2024, while inventory turns slightly decreased to 3.5 times from 3.6 times[220][221] - Capital expenditures for H1 2025 were $28.3 million, with an estimated full-year capital expenditure between $80 million and $90 million[224][225] Financing Reaffirms compliance with credit facility covenants and reiterates sufficient liquidity from cash on hand, operating cash flows, and available credit facilities to meet short-term and long-term business needs - The company was in compliance with all applicable covenants under its Second Amended and Restated Credit Agreement as of June 30, 2025[231] - Management expects current liquidity, including $629.2 million in cash and $661.0 million available under the credit agreement, to be sufficient for short-term and long-term business needs[232] OUR CRITICAL ACCOUNTING ESTIMATES States that critical accounting policies and estimates, including revenue recognition, deferred taxes, contingent loss reserves, pension benefits, and goodwill valuation, remain unchanged from the 2024 Annual Report. It emphasizes the use of estimates and assumptions in financial statement preparation and the potential for material differences in actual results - Critical accounting policies, including Revenue Recognition, Deferred Taxes, Reserves for Contingent Loss, Pension and Postretirement Benefits, and Valuation of Goodwill, remain unchanged from the 2024 Annual Report[233][239] - The preparation of financial statements involves significant estimates and assumptions, which are reviewed quarterly with the Audit Committee, and actual results could differ materially[234] ACCOUNTING DEVELOPMENTS Refers to Note 1, "Basis of Presentation and Accounting Policies," for information on pronouncements not yet implemented - Information regarding pronouncements not yet implemented is presented in Note 1, "Basis of Presentation and Accounting Policies"[236] Cautionary Note Regarding Forward-Looking Statements Warns that the report contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from forecasts. It lists specific factors such as global supply chain disruptions, economic conditions, customer spending, execution of initiatives, international operations risks, and cybersecurity threats - The report contains forward-looking statements, identified by terms like "may," "expects," and "plans," which are subject to numerous risks and uncertainties[237][238] - Key risks include global supply chain disruptions, changes in global economic conditions, dependence on customer capital investment, execution of restructuring initiatives, risks associated with international operations, and potential adverse effects from litigation or cybersecurity breaches[240][247] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's market risk exposure, primarily from foreign currency exchange rate movements, and its strategy to mitigate these risks through foreign exchange forward contracts Foreign Currency Exchange Rate Risk Discusses the company's exposure to foreign currency exchange rate risk due to substantial international operations. It outlines the use of foreign exchange forward contracts to mitigate transactional exposure and provides figures for translation adjustments and transactional gains/losses Foreign Currency Translation Adjustments (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $111.7 | $(24.4) | | Six Months Ended June 30 | $159.2 | $(52.7) | - The company uses foreign exchange forward contracts with a notional value of $697.3 million at June 30, 2025, to mitigate transactional exposure to exchange rate fluctuations[244] Transactional Currency Gains and Losses (Amounts in millions) | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(20.0) | $(0.2) | | Six Months Ended June 30 | $(31.4) | $1.1 | - A sensitivity analysis indicates a 10% change in foreign currency exchange rates would impact net earnings by approximately $16.0 million for the six months ended June 30, 2025, excluding hedging impacts[245] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures States that management, under the supervision of the Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and concluded they were effective - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[249] Changes in Internal Control Over Financial Reporting Reports that there have been no material changes in internal control over financial reporting during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[250] PART II – OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 13 for details on legal proceedings, including asbestos-related claims. Management does not expect current litigation, individually or in aggregate, to have a material adverse effect on financial position, results of operations, or cash flows - Legal proceedings are described in Note 13, "Legal Matters and Contingencies"[253] - Management does not currently expect any liability from lawsuits or other proceedings to have a material adverse effect on the company's financial position, results of operations, or cash flows[253] Item 1A. Risk Factors States that there have been no material changes to the risk factors discussed in the 2024 Annual Report and subsequent SEC filings. It advises careful consideration of these factors, as well as potential new, currently unknown risks - No material changes in risk factors have occurred since the 2024 Annual Report and subsequent SEC filings[255] - Readers should carefully consider the risk factors identified in the 2024 Annual Report and other SEC filings, as well as potential new, currently unknown risks[254][255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Discusses the company's share repurchase program and quarterly dividends. It details the shares repurchased during the three months ended June 30, 2025, and the remaining capacity under the program - The Board of Directors approved a $300.0 million share repurchase authorization, effective February 19, 2024[257] Share Repurchase Activity (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | | :-------------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------- | | April 1 - 30 | 2,088 | $42.93 | 737,524 | | May 1 - 31 | 2,737 | $48.73 | — | | June 1 - 30 | 811 | $47.15 | — | | Total | 5,636 | $46.36 | 737,524 | - As of June 30, 2025, $227.1 million of remaining capacity was available under the current share repurchase program[257] Item 3. Defaults Upon Senior Securities States that there were no defaults upon senior securities - There were no defaults upon senior securities[260] Item 4. Mine Safety Disclosures States that this item is not applicable - This item is not applicable[261] Item 5. Other Information Reports that no insider trading plans or arrangements (Rule 10b5-1(c) or non-Rule 10b5-1) were adopted, terminated, or modified during the quarter ended June 30, 2025 - No insider trading plans or other arrangements were adopted, terminated, or modified by directors and executive officers during the quarter ended June 30, 2025[262] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including the Restated Certificate of Incorporation, By-Laws, Mutual Termination Agreement with Chart Industries, Inc., certifications, and XBRL documents - Key exhibits include the Restated Certificate of Incorporation, By-Laws, and the Mutual Termination Agreement with Chart Industries, Inc. (Exhibit 10.1)[265] - Certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) are included, along with XBRL documents[265] SIGNATURES SIGNATURES Contains the signatures of Amy B. Schwetz, Senior Vice President and Chief Financial Officer, and Scott K. Vopni, Vice President and Chief Accounting Officer, certifying the report on July 30, 2025 - The report is signed by Amy B. Schwetz, Senior Vice President and Chief Financial Officer, and Scott K. Vopni, Vice President and Chief Accounting Officer[269] - The report was signed on July 30, 2025[269]