8-K
FLOWSERVE CORP (FLS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
______________________
Date of Report (Date of earliest event reported): February 17, 2020
FLOWSERVE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| New York | 001-13179 | 31-0267900 |
|---|---|---|
| (State or Other Jurisdiction<br><br> <br>of Incorporation) | (Commission File Number) | (IRS Employer<br><br> Identification No.) |
| 5215 N. O’Connor Blvd., Suite 2300, Irving, Texas | 75039 | |
| --- | --- | |
| (Address of Principal Executive Offices) | (Zip Code) |
(972) 443-6500
(Registrant’s telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $1.25 Par Value | FLS | New York Stock Exchange |
| 1.25% Senior Notes due 2022 | FLS22A | New York Stock Exchange |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions \(see General Instruction A.2. below\):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On February 17, 2020, Flowserve Corporation, a New York corporation (the “Company”), issued a press release announcing financial results for the fourth quarter and full year ended December 31, 2019. A copy of this press release is attached as Exhibit 99.1 and incorporated herein by reference.
The information in this Item 2.02 of Form 8-K and in Exhibit 99.1 attached hereto is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 7.01 Regulation FD Disclosure.
On February 18, 2020, the Company will make a presentation about its financial and operating results for the fourth quarter of 2019, as noted in the press release described in Item 2.02 above. The Company has posted the presentation on its website at http://www.flowserve.com under the “Investor Relations” section.
The information in this Item 7.01 of Form 8-K and in Exhibit 99.1 attached hereto is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release, dated February 17, 2020. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FLOWSERVE CORPORATION | ||
|---|---|---|
| Dated: February 18, 2020 | By: | /s/<br><br><br><br> John E. Roueche, III |
| John E. Roueche, III | ||
| Vice President, Interim Chief Financial Officer |
Exhibit 99.1
Flowserve Corporation Reports Fourth Quarter and Full Year 2019 Results; Issues 2020 Financial Guidance
- Strong full year bookings and backlog growth, up 5.4% and 14.0%, respectively - Full year margin expansion through Flowserve 2.0 transformation program - 2019 free cash flow improved $140 million, a 130% increase year-over-year
DALLAS--(BUSINESS WIRE)--February 17, 2020--Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the fourth quarter and full year ended December 31, 2019.
Fourth Quarter 2019 Highlights (all comparisons to the 2018 fourth quarter, unless otherwise noted)
- Reported Earnings Per Share (EPS) of $0.53, up 10.4% and Adjusted EPS^[1]^of $0.66, up 13.8%
- Reported EPS includes pre-tax adjusted items of approximately $27 million, including realignment, transformation, voluntary retirement plan expenses and below-the-line foreign exchange impacts
- Adjusted EPS increased 11.9% on a sequential basis
- Total bookings were $1.05 billion, up 0.7%, or 1.7% on a constant currency basis
- Original equipment bookings were $535 million, or 51% of total bookings, up 4.5%, or 5.3% on a constant currency basis
- Aftermarket bookings were $517 million, or 49% of total bookings, down 2.9%, or 1.8% on a constant currency basis
- Sales were $1.07 billion, up 8.2%, or 9.3% on a constant currency basis
- Original equipment sales were $546 million, up 11.3%, or 12.1% on a constant currency basis
- Aftermarket sales were $522 million, up 5.3%, or 6.6% on a constant currency basis
- Reported gross and operating margins were 32.7% and 10.0%, respectively
- Adjusted gross and operating margins^[2]^ decreased 50 and 10 basis points to 33.2% and 11.8%, respectively
Full Year 2019 Highlights (all comparisons to full year 2018, unless otherwise noted)
- Reported EPS of $1.93, up 112.1% and Adjusted EPS^[1]^of $2.20, up 25.7%
- Reported EPS includes pre-tax adjusted items of approximately $54 million, primarily related to realignment and transformation expenses and below-the-line foreign exchange impacts
- Total bookings were $4.24 billion, up 5.4%, or 8.1% on a constant currency basis, and included approximately 0.8% negative impact related to divested businesses. Book-to-bill was 1.07.
- Original equipment bookings were $2.21 billion, or 52% of total bookings, up 10.9%, or 13.4% on a constant currency basis
- Aftermarket bookings were $2.03 billion, or 48% of total bookings, up 0.1%, or 2.9% on a constant currency basis
- Backlog at December 31, 2019 was $2.16 billion, up 14.0% versus 2018 beginning backlog
- Sales were $3.94 billion, up 2.9%, or 5.4% on a constant currency basis and included approximately 0.8% negative impact related to divested businesses
- Original equipment sales were $1.97 billion, up 1.6%, or 3.6% on a constant currency basis
- Aftermarket sales were $1.98 billion, up 4.3%, or 7.3% on a constant currency basis
- Reported gross and operating margins of 32.8% and 10.3%, respectively
- Adjusted gross and operating margins^[2]^increased 100 and 150 basis points to 33.3% and 11.3%, respectively
“We delivered strong results in 2019 thanks to the hard work and unwavering commitment of our associates,” said Scott Rowe, Flowserve’s president and chief executive officer. “Together, we delivered improved performance for our customers and shareholders, as evidenced by our second consecutive year of adjusted EPS growth exceeding 25%. Flowserve also generated solid cash flow from operations and free cash flow conversion, as we remain committed to continuous improvement in our working capital performance.”
Rowe concluded, “As we begin the second half of the Flowserve 2.0 journey, we now have a strong foundation in place to capitalize on the opportunities in front of us to further transform our operating model and continue our progress towards our long-term targets. While macroeconomic and geopolitical uncertainty remains, Flowserve’s strong backlog and expectations for continued traction from our growth-oriented transformation initiatives, such as commercial intensity and strike zone, position us well to drive enhanced performance in 2020. We remain fully committed to driving long-term value creation for our customers, associates and shareholders.”
2020 Initial Guidance^[3]^
Flowserve is providing Reported and Adjusted EPS guidance for 2020, as well as certain other financial metrics, as shown in the table below.
| 2020 Target Range | |
|---|---|
| Revenues | Up 3.0% to 5.0% |
| Reported Earnings Per Share | $2.05 - $2.20 |
| Adjusted Earnings Per Share | $2.30 - $2.45 |
| Net interest expense | $45 - $50 million |
| Adjusted Tax rate | 24% - 26% |
Flowserve’s 2020 Adjusted EPS target range excludes expected realignment and transformation charges of approximately $40 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items. Both the Reported and the Adjusted EPS target range includes the expected revenue increase of approximately 3.0 to 5.0 percent year-over-year, and is based on current foreign currency rates and commodity prices, 2019 year-end backlog, expected bookings levels and market conditions, the reset of annual incentive performance goals, a broad-based merit increase, modest above-the-line negative foreign currency impacts, net interest expense in the range of $45 to $50 million and an adjusted tax rate of 24 to 26 percent. The quarterly phasing of expected 2020 earnings is anticipated to be slightly more second half weighted than Flowserve’s traditional seasonality.
Fourth Quarter 2019 Results Conference Call
Flowserve will host its conference call with the financial community on Tuesday, February 18^th^ at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call can be accessed by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section.
| ^[1]^See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures. |
|---|
| ^[2]^Adjusted gross and operating margins are calculated by dividing adjusted gross profit and adjusted operating income, respectively, by revenues. Adjusted gross profit and<br> adjusted operating income are derived by excluding the adjusted items. See reconciliation of Non-GAAP Measures table for detailed reconciliation. |
| ^[3]^Adjusted 2020 EPS will exclude the Company’s realignment expenses, the impact from other specific one-time events and below-the-line foreign currency effects and utilizes<br> year-end 2019 FX rates and approximately 132 million fully diluted shares. |
| – FX headwind is calculated by comparing the difference between the actual average FX rates of 2018 and the year-end 2018 spot rates both as applied to our 2019 expectations, divided by the<br> number of shares expected for 2019. |
About Flowserve
Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 50 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company’s Web site at www.flowserve.com.
Safe Harbor Statement: This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.
The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; changes in global economic conditions and the potential for unexpected cancellations or delays of customer orders in our reported backlog; our dependence on our customers’ ability to make required capital investment and maintenance expenditures; if we are not able to successfully execute and realize the expected financial benefits from our strategic transformation and realignment initiatives, our business could be adversely affected; risks associated with cost overruns on fixed-fee projects and in taking customer orders for large complex custom engineered products; the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries; the adverse impact of volatile raw materials prices on our products and operating margins; economic, political and other risks associated with our international operations, including military actions, trade embargoes, epidemics or pandemics or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina; our furnishing of products and services to nuclear power plant facilities and other critical processes; potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims; expectations regarding acquisitions and the integration of acquired businesses; our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits; the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets; our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations; the highly competitive nature of the markets in which we operate; environmental compliance costs and liabilities; potential work stoppages and other labor matters; access to public and private sources of debt financing; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results; our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could disrupt our business operations and result in the loss of critical and confidential information; ineffective internal controls could impact the accuracy and timely reporting of our business and financial results; and other factors described from time to time in our filings with the Securities and Exchange Commission.
All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Throughout our materials we refer to non-GAAP measures as “Adjusted.” Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.
| CONSOLIDATED STATEMENTS OF INCOME | ||||||
|---|---|---|---|---|---|---|
| (Unaudited) | ||||||
| Three Months Ended December 31, | ||||||
| (Amounts in thousands, except per share data) | 2019 | 2018 | ||||
| Sales | $ | 1,068,171 | $ | 986,867 | ||
| Cost of sales | (718,598 | ) | (665,022 | ) | ||
| Gross profit | 349,573 | 321,845 | ||||
| Selling, general and administrative expense | (244,768 | ) | (231,869 | ) | ||
| Net earnings from affiliates | 2,425 | 3,235 | ||||
| Operating income | 107,230 | 93,211 | ||||
| Interest expense | (12,954 | ) | (14,516 | ) | ||
| Interest income | 1,915 | 2,228 | ||||
| Other income (expense), net | (9,521 | ) | (2,362 | ) | ||
| Earnings before income taxes | 86,670 | 78,561 | ||||
| Provision for income taxes | (15,424 | ) | (14,196 | ) | ||
| Net earnings, including noncontrolling interests | 71,246 | 64,365 | ||||
| Less: Net earnings attributable to noncontrolling interests | (1,453 | ) | (1,262 | ) | ||
| Net earnings attributable to Flowserve Corporation | $ | 69,793 | $ | 63,103 | ||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||
| Basic | $ | 0.53 | $ | 0.48 | ||
| Diluted | 0.53 | 0.48 |
| RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||||||||
| Three Months Ended December 31, 2019 | ||||||||||||||
| (Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||
| Sales | $ | 1,068,171 | $ | - | $ | - | $ | 1,068,171 | ||||||
| Gross profit | 349,573 | (4,451 | ) | (196 | ) | (3) | 354,220 | |||||||
| Gross margin | 32.7 | % | - | - | 33.2 | % | ||||||||
| Selling, general and administrative expense | (244,768 | ) | (4,315 | ) | (10,287 | ) | (4) | (230,166 | ) | |||||
| Operating income | 107,230 | (8,766 | ) | (10,483 | ) | 126,479 | ||||||||
| Operating income as a percentage of sales | 10.0 | % | - | - | 11.8 | % | ||||||||
| Interest and other expense, net | (20,560 | ) | - | (7,726 | ) | (5) | (12,834 | ) | ||||||
| Earnings before income taxes | 86,670 | (8,766 | ) | (18,209 | ) | 113,645 | ||||||||
| Provision for income taxes | (15,425 | ) | 5,679 | (2) | 4,122 | (6) | (25,226 | ) | ||||||
| Tax Rate | 17.8 | % | 64.8 | % | 22.6 | % | 22.2 | % | ||||||
| Net earnings attributable to Flowserve Corporation | $ | 69,793 | $ | (3,087 | ) | $ | (14,087 | ) | $ | 86,967 | ||||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||
| Basic | $ | 0.53 | $ | (0.02 | ) | $ | (0.11 | ) | $ | 0.66 | ||||
| Diluted | 0.53 | (0.02 | ) | (0.11 | ) | 0.66 | ||||||||
| Basic number of shares used for calculation | 130,863 | 130,863 | 130,863 | 130,863 | ||||||||||
| Diluted number of shares used for calculation | 131,667 | 131,667 | 131,667 | 131,667 | ||||||||||
| (a) Reported in conformity with U.S. GAAP | ||||||||||||||
| Notes: | ||||||||||||||
| --- | ||||||||||||||
| (1) Represents realignment expense incurred as a result of realignment programs | ||||||||||||||
| (2) Includes tax impact of items above and exit tax benefit of $4.0 million | ||||||||||||||
| (3) Represents Voluntary Retirement Program expense | ||||||||||||||
| (4) Represents $7.0 million related to Flowserve 2.0 transformation efforts and $3.3 million related to voluntary retirement program expense | ||||||||||||||
| (5) Represents below-the-line foreign exchange impacts | ||||||||||||||
| (6) Includes tax impact of items above |
| RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||||||||
| Three Months Ended December 31, 2018 | ||||||||||||||
| (Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||
| Sales | $ | 986,867 | $ | - | $ | - | $ | 986,867 | ||||||
| Gross profit | 321,845 | (11,104 | ) | - | 332,949 | |||||||||
| Gross margin | 32.6 | % | - | - | 33.7 | % | ||||||||
| Selling, general and administrative expense | (231,869 | ) | 513 | (13,815 | ) | (3) | (218,567 | ) | ||||||
| Loss on sale of business | - | - | - | - | ||||||||||
| Operating income | 93,211 | (10,591 | ) | (13,815 | ) | 117,617 | ||||||||
| Operating income as a percentage of sales | 9.4 | % | - | - | 11.9 | % | ||||||||
| Interest and other expense, net | (14,650 | ) | - | (2,337 | ) | (4) | (12,313 | ) | ||||||
| Earnings before income taxes | 78,561 | (10,591 | ) | (16,152 | ) | 105,304 | ||||||||
| Provision for income taxes | (14,197 | ) | 3,211 | (2) | 10,062 | (5) | (27,470 | ) | ||||||
| Tax Rate | 18.1 | % | 30.3 | % | 62.3 | % | 26.1 | % | ||||||
| Net earnings attributable to Flowserve Corporation | $ | 63,103 | $ | (7,380 | ) | $ | (6,090 | ) | $ | 76,573 | ||||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||
| Basic | $ | 0.48 | $ | (0.06 | ) | $ | (0.05 | ) | $ | 0.59 | ||||
| Diluted | 0.48 | (0.06 | ) | (0.05 | ) | 0.58 | ||||||||
| Basic number of shares used for calculation | 130,845 | 130,845 | 130,845 | 130,845 | ||||||||||
| Diluted number of shares used for calculation | 131,413 | 131,413 | 131,413 | 131,413 | ||||||||||
| (a) Reported in conformity with U.S. GAAP | ||||||||||||||
| Notes: | ||||||||||||||
| --- | ||||||||||||||
| (1) Represents realignment expense incurred as a result of realignment programs | ||||||||||||||
| (2) Includes tax impact of items above | ||||||||||||||
| (3) Represents Flowserve 2.0 transformation efforts | ||||||||||||||
| (4) Represents below-the-line foreign exchange impacts | ||||||||||||||
| (5) Includes tax impact of items above and a $5.7 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017 |
| SEGMENT INFORMATION | ||||||
|---|---|---|---|---|---|---|
| (Unaudited) | ||||||
| FLOWSERVE PUMP DIVISION | Three Months Ended December 31, | |||||
| (Amounts in millions, except percentages) | 2019 | 2018 | ||||
| Bookings | $ | 756.0 | $ | 728.6 | ||
| Sales | 739.5 | 662.5 | ||||
| Gross profit | 245.6 | 206.1 | ||||
| Gross profit margin | 33.2 | % | 31.1 | % | ||
| SG&A | 146.6 | 131.1 | ||||
| Segment operating income | 101.4 | 78.2 | ||||
| Segment operating income as a percentage of sales | 13.7 | % | 11.8 | % | ||
| FLOW CONTROL DIVISION | Three Months Ended December 31, | |||||
| (Amounts in millions, except percentages) | 2019 | 2018 | ||||
| Bookings | $ | 298.6 | $ | 318.0 | ||
| Sales | 330.2 | 325.9 | ||||
| Gross profit | 111.8 | 118.3 | ||||
| Gross profit margin | 33.9 | % | 36.3 | % | ||
| SG&A | 54.4 | 53.8 | ||||
| Segment operating income | 57.3 | 64.5 | ||||
| Segment operating income as a percentage of sales | 17.4 | % | 19.8 | % |
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||
| (Amounts in thousands, except per share data) | 2019 | 2018 | 2017 | ||||||
| Sales | $ | 3,944,850 | $ | 3,832,666 | $ | 3,660,831 | |||
| Cost of sales | (2,649,480 | ) | (2,644,830 | ) | (2,571,878 | ) | |||
| Gross profit | 1,295,370 | 1,187,836 | 1,088,953 | ||||||
| Selling, general and administrative expense | (899,813 | ) | (943,714 | ) | (901,727 | ) | |||
| Gain (loss) on sale of businesses | - | (7,727 | ) | 141,317 | |||||
| Net earnings from affiliates | 10,483 | 11,143 | 12,592 | ||||||
| Operating income | 406,040 | 247,538 | 341,135 | ||||||
| Interest expense | (54,980 | ) | (58,160 | ) | (59,730 | ) | |||
| Interest income | 8,409 | 6,465 | 3,429 | ||||||
| Other income (expense), net | (17,619 | ) | (19,569 | ) | (21,827 | ) | |||
| Earnings before income taxes | 341,850 | 176,274 | 263,007 | ||||||
| Provision for income taxes | (80,070 | ) | (51,224 | ) | (258,679 | ) | |||
| Net earnings, including noncontrolling interests | 261,780 | 125,050 | 4,328 | ||||||
| Less: Net earnings attributable to noncontrolling interests | (8,112 | ) | (5,379 | ) | (1,676 | ) | |||
| Net earnings attributable to Flowserve Corporation | $ | 253,668 | $ | 119,671 | $ | 2,652 | |||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | |||||||||
| Basic | $ | 1.94 | $ | 0.91 | $ | 0.02 | |||
| Diluted | 1.93 | 0.91 | 0.02 |
| RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||||||||||
| Year Ended December 31, 2019 | ||||||||||||||||
| (Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||||
| Sales | $ | 3,944,850 | $ | - | $ | - | $ | 3,944,850 | ||||||||
| Gross profit | 1,295,370 | (17,234 | ) | (196 | ) | (3 | ) | 1,312,800 | ||||||||
| Gross margin | 32.8 | % | - | - | 33.3 | % | ||||||||||
| Selling, general and administrative expense | (899,813 | ) | 9,304 | (31,331 | ) | (4 | ) | (877,786 | ) | |||||||
| Operating income | 406,040 | (7,930 | ) | (31,527 | ) | 445,497 | ||||||||||
| Operating income as a percentage of sales | 10.3 | % | - | - | 11.3 | % | ||||||||||
| Interest and other expense, net | (64,190 | ) | - | (14,460 | ) | (5 | ) | (49,730 | ) | |||||||
| Earnings before income taxes | 341,850 | (7,930 | ) | (45,987 | ) | 395,767 | ||||||||||
| Provision for income taxes | (80,070 | ) | 7,618 | (2 | ) | 10,463 | (6 | ) | (98,151 | ) | ||||||
| Tax Rate | 23.4 | % | 96.1 | % | 22.8 | % | 24.8 | % | ||||||||
| Net earnings attributable to Flowserve Corporation | $ | 253,668 | $ | (312 | ) | $ | (35,524 | ) | $ | 289,504 | ||||||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||||
| Basic | $ | 1.94 | $ | - | $ | (0.27 | ) | $ | 2.21 | |||||||
| Diluted | 1.93 | - | (0.27 | ) | 2.20 | |||||||||||
| Basic number of shares used for calculation | 131,034 | 131,034 | 131,034 | 131,034 | ||||||||||||
| Diluted number of shares used for calculation | 131,689 | 131,689 | 131,689 | 131,689 | ||||||||||||
| (a) Reported in conformity with U.S. GAAP | ||||||||||||||||
| Notes: | ||||||||||||||||
| --- | ||||||||||||||||
| (1) Represents realignment (expense) income incurred as a result of realignment programs. Income in selling, general and administrative due to gains from the sales<br> of non-strategic manufacturing facilities that are included in our Realignment Programs | ||||||||||||||||
| (2) Includes tax impact of items above and exit tax benefit of $4.0 million | ||||||||||||||||
| (3) Represents Voluntary Retirement Program expense | ||||||||||||||||
| (4) Represents $28.0 million related to Flowserve 2.0 transformation efforts and $3.3 million related to voluntary retirement program expense | ||||||||||||||||
| (5) Represents below-the-line foreign exchange impacts | ||||||||||||||||
| (6) Includes tax impact of items above |
| RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||||||||||
| Year Ended December 31, 2018 | ||||||||||||||||
| (Amounts in thousands, except per share data) | As Reported (a) | Realignment (1) | Other Items | As Adjusted | ||||||||||||
| Sales | $ | 3,832,666 | $ | - | $ | - | $ | 3,832,666 | ||||||||
| Gross profit | 1,187,836 | (42,697 | ) | (7,713 | ) | (3 | ) | 1,238,246 | ||||||||
| Gross margin | 31.0 | % | - | - | 32.3 | % | ||||||||||
| Selling, general and administrative expense | (943,714 | ) | (11,235 | ) | (58,180 | ) | (4 | ) | (874,299 | ) | ||||||
| Gain on sale of business | (7,727 | ) | - | (7,727 | ) | (5 | ) | - | ||||||||
| Operating income | 247,538 | (53,932 | ) | (73,620 | ) | 375,090 | ||||||||||
| Operating income as a percentage of sales | 6.5 | % | - | - | 9.8 | % | ||||||||||
| Interest and other expense, net | (71,264 | ) | - | (18,686 | ) | (6 | ) | (52,578 | ) | |||||||
| Earnings before income taxes | 176,274 | (53,932 | ) | (92,306 | ) | 322,512 | ||||||||||
| Provision for income taxes | (51,225 | ) | 12,863 | (2 | ) | 23,273 | (7 | ) | (87,361 | ) | ||||||
| Tax Rate | 29.1 | % | 23.9 | % | 25.2 | % | 27.1 | % | ||||||||
| Net earnings attributable to Flowserve Corporation | $ | 119,671 | $ | (41,069 | ) | $ | (69,033 | ) | $ | 229,773 | ||||||
| Net earnings per share attributable to Flowserve Corporation common shareholders: | ||||||||||||||||
| Basic | $ | 0.91 | $ | (0.31 | ) | $ | (0.53 | ) | $ | 1.76 | ||||||
| Diluted | 0.91 | (0.31 | ) | (0.53 | ) | 1.75 | ||||||||||
| Basic number of shares used for calculation | 130,823 | 130,823 | 130,823 | 130,823 | ||||||||||||
| Diluted number of shares used for calculation | 131,271 | 131,271 | 131,271 | 131,271 | ||||||||||||
| (a) Reported in conformity with U.S. GAAP | ||||||||||||||||
| Notes: | ||||||||||||||||
| --- | ||||||||||||||||
| (1) Represents realignment expense incurred as a result of realignment programs | ||||||||||||||||
| (2) Includes tax impact of items above | ||||||||||||||||
| (3) Represents $7.7 million related to IPD divestiture write-down of assets | ||||||||||||||||
| (4) Represents $9.7 million related to IPD divestiture write-down of assets, $7.3 million related to implementation costs for the adoption of ASC 606 and $41.2<br> million related to Flowserve 2.0 transformation efforts | ||||||||||||||||
| (5) Represents IPD loss on sale of business | ||||||||||||||||
| (6) Represents below-the-line foreign exchange impacts | ||||||||||||||||
| (7) Includes tax impact of items above and a $5.7 million tax benefit related to the U.S. Tax Cuts and Jobs Act of 2017 |
| SEGMENT INFORMATION | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | |||||||||
| FLOWSERVE PUMP DIVISION | Year Ended December 31, | ||||||||
| (Amounts in millions, except percentages) | 2019 | 2018 | 2017 | ||||||
| Bookings | $ | 3,007.9 | $ | 2,753.5 | $ | 2,587.4 | |||
| Sales | 2,706.3 | 2,623.3 | 2,478.7 | ||||||
| Gross profit | 899.3 | 775.7 | 692.1 | ||||||
| Gross profit margin | 33.2 | % | 29.6 | % | 27.9 | % | |||
| SG&A | 566.3 | 578.9 | 593.0 | ||||||
| Loss on sale of businesses | - | (7.7 | ) | - | |||||
| Segment operating income | 343.5 | 201.0 | 112.3 | ||||||
| Segment operating income as a percentage of sales | 12.7 | % | 7.7 | % | 4.5 | % | |||
| FLOW CONTROL DIVISION | Year Ended December 31, | ||||||||
| (Amounts in millions, except percentages) | 2019 | 2018 | 2017 | ||||||
| Bookings | $ | 1,240.9 | $ | 1,274.3 | $ | 1,225.7 | |||
| Sales | 1,244.0 | 1,215.8 | 1,188.1 | ||||||
| Gross profit | 411.6 | 416.9 | 396.7 | ||||||
| Gross profit margin | 33.1 | % | 34.3 | % | 33.4 | % | |||
| SG&A | 213.6 | 215.0 | 213.6 | ||||||
| Gain on sale of businesses | - | - | 141.3 | ||||||
| Segment operating income | 198.0 | 201.2 | 323.7 | ||||||
| Segment operating income as a percentage of sales | 15.9 | % | 16.5 | % | 27.2 | % |
| Fourth Quarter and Full Year 2019 - Segment Results | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions, comparison vs. 2018 fourth quarter and full year, unaudited) | ||||||||||||
| FPD | FCD | |||||||||||
| 4th Qtr | YTD | 4th Qtr | YTD | |||||||||
| Bookings | $ | 756.0 | $ | 3,007.9 | $ | 298.6 | $ | 1,240.9 | ||||
| - vs. prior year | 3.8 | % | 9.2 | % | -6.1 | % | -2.6 | % | ||||
| - on constant currency | 4.9 | % | 12.1 | % | -5.3 | % | -0.4 | % | ||||
| Sales | $ | 739.5 | $ | 2,706.3 | $ | 330.2 | $ | 1,244.0 | ||||
| - vs. prior year | 11.6 | % | 3.2 | % | 1.3 | % | 2.3 | % | ||||
| - on constant currency | 12.7 | % | 5.7 | % | 2.2 | % | 4.6 | % | ||||
| Gross Profit | $ | 245.6 | $ | 899.3 | $ | 111.8 | $ | 411.6 | ||||
| - vs. prior year | 19.2 | % | 15.9 | % | -5.5 | % | -1.3 | % | ||||
| Gross Margin (% of sales) | 33.2 | % | 33.2 | % | 33.9 | % | 33.1 | % | ||||
| - vs. prior year (in basis points) | 210 bps | 360 bps | (240) bps | (120) bps | ||||||||
| Operating Income | $ | 101.4 | $ | 343.5 | $ | 57.3 | $ | 198.0 | ||||
| - vs. prior year | 29.7 | % | 70.9 | % | -11.2 | % | -1.6 | % | ||||
| - on constant currency | 31.1 | % | 76.0 | % | -10.5 | % | -0.1 | % | ||||
| Operating Margin (% of sales) | 13.7 | % | 12.7 | % | 17.4 | % | 15.9 | % | ||||
| - vs. prior year (in basis points) | 190 bps | 500 bps | (240) bps | (60) bps | ||||||||
| Adjusted Operating Income * | $ | 104.7 | $ | 341.9 | $ | 61.7 | $ | 204.3 | ||||
| - vs. prior year | 15.6 | % | 25.9 | % | -1.8 | % | 0.1 | % | ||||
| - on constant currency | 16.8 | % | 29.7 | % | -1.2 | % | 1.6 | % | ||||
| Adj. Oper. Margin (% of sales)* | 14.2 | % | 12.6 | % | 18.7 | % | 16.4 | % | ||||
| - vs. prior year (in basis points) | 50 bps | 230 bps | (60) bps | (40) bps | ||||||||
| Backlog | $ | 1,560.9 | $ | 600.1 | ||||||||
| * Adjusted Operating Income and Adjusted Operating Margin exclude realignment charges and other specific discrete items |
| CONSOLIDATED BALANCE SHEETS | |||||
|---|---|---|---|---|---|
| December 31, | |||||
| (Amounts in thousands, except par value) | 2019 | 2018 | |||
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 670,980 | $ | 619,683 | ||
| Accounts receivable, net | 795,538 | 792,434 | |||
| Contract assets, net | 272,914 | 228,579 | |||
| Inventories, net | 660,837 | 633,871 | |||
| Prepaid expenses and other | 105,101 | 108,578 | |||
| Total current assets | 2,505,370 | 2,383,145 | |||
| Property, plant and equipment, net | 572,175 | 610,096 | |||
| Operating lease right-of-use assets, net | 186,218 | - | |||
| Goodwill | 1,193,010 | 1,197,640 | |||
| Deferred taxes | 54,879 | 44,682 | |||
| Other intangible assets, net | 180,805 | 190,550 | |||
| Other assets, net | 227,185 | 190,164 | |||
| Total assets | 4,919,642 | $ | 4,616,277 | ||
| LIABILITIES AND EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 447,582 | $ | 418,893 | ||
| Accrued liabilities | 401,385 | 391,406 | |||
| Contract liabilities | 216,541 | 202,458 | |||
| Debt due within one year | 11,272 | 68,218 | |||
| Operating lease liabilities | 36,108 | - | |||
| Total current liabilities | 1,112,888 | 1,080,975 | |||
| Long-term debt due after one year | 1,365,977 | 1,414,829 | |||
| Operating lease liabilities | 151,523 | - | |||
| Retirement obligations and other liabilities | 473,295 | 459,693 | |||
| Shareholders’ equity: | |||||
| Common shares, 1.25 par value | 220,991 | 220,991 | |||
| Shares authorized – 305,000 | |||||
| Shares issued — 176,793 and 176,793, respectively | |||||
| Capital in excess of par value | 501,045 | 494,551 | |||
| Retained earnings | 3,695,862 | 3,543,007 | |||
| Treasury shares, at cost – 46,262 and 46,237 shares, respectively | (2,051,583 | ) | (2,049,404 | ) | |
| Deferred compensation obligation | 8,334 | 7,117 | |||
| Accumulated other comprehensive loss | (584,292 | ) | (573,947 | ) | |
| Total Flowserve Corporation shareholders' equity | 1,790,357 | 1,642,315 | |||
| Noncontrolling interests | 25,602 | 18,465 | |||
| Total equity | 1,815,959 | 1,660,780 | |||
| Total liabilities and equity | 4,919,642 | $ | 4,616,277 |
All values are in US Dollars.
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||
| (Amounts in thousands) | 2019 | 2018 | 2017 | ||||||
| Cash flows – Operating activities: | |||||||||
| Net earnings, including noncontrolling interests | $ | 261,780 | $ | 125,050 | $ | 4,328 | |||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||
| Depreciation | 90,619 | 95,820 | 101,438 | ||||||
| Amortization of intangible and other assets | 13,862 | 16,653 | 17,016 | ||||||
| Loss (gain) on disposition of businesses | - | 7,727 | (141,317 | ) | |||||
| Stock-based compensation | 23,882 | 19,912 | 22,820 | ||||||
| Provision for U.S. Tax Cuts and Jobs Act of 2017 | - | (5,654 | ) | 115,320 | |||||
| Foreign currency, assets impairment and other non-cash adjustments | (11,224 | ) | 36,052 | 33,087 | |||||
| Change in assets and liabilities: | |||||||||
| Accounts receivable, net | 2,883 | (25,448 | ) | 60,216 | |||||
| Inventories, net | (31,058 | ) | (29,314 | ) | 48,642 | ||||
| Contract assets, net | (45,939 | ) | (23,693 | ) | - | ||||
| Prepaid expenses and other assets, net | 13,289 | (7,869 | ) | 32,935 | |||||
| Contract liabilities | 22,870 | (4,823 | ) | 12,403 | |||||
| Accounts payable | 14,390 | 33,710 | - | ||||||
| Accrued liabilities and income taxes payable | 4,184 | (18,248 | ) | (3,383 | ) | ||||
| Retirement obligations and other | (39,881 | ) | (44,314 | ) | (43,431 | ) | |||
| Net deferred taxes | (6,916 | ) | 15,270 | 50,992 | |||||
| Net cash flows provided (used) by operating activities | 312,741 | 190,831 | 311,066 | ||||||
| Cash flows – Investing activities: | |||||||||
| Capital expenditures | (66,170 | ) | (83,993 | ) | (61,602 | ) | |||
| Proceeds from disposal of assets | 42,333 | 6,190 | 5,435 | ||||||
| (Payments for) proceeds from disposition of businesses | - | (3,663 | ) | 232,767 | |||||
| Net cash flows provided (used) by investing activities | (23,837 | ) | (81,466 | ) | 176,600 | ||||
| Cash flows – Financing activities: | |||||||||
| Payments on long-term debt | (105,000 | ) | (60,000 | ) | (60,000 | ) | |||
| Payments of deferred loan costs | - | - | (1,503 | ) | |||||
| Proceeds from short-term financing | 75,000 | - | - | ||||||
| Payments on short-term financing | (75,000 | ) | - | - | |||||
| Proceeds under other financing arrangements | 4,639 | 3,377 | 7,359 | ||||||
| Payments under other financing arrangements | (9,281 | ) | (9,853 | ) | (19,030 | ) | |||
| Payments related to tax withholding for stock-based compensation | (3,900 | ) | (3,061 | ) | (6,238 | ) | |||
| Repurchases of common shares | (15,000 | ) | - | - | |||||
| Payments of dividends | (99,557 | ) | (99,416 | ) | (99,233 | ) | |||
| Other | (1,555 | ) | (4,331 | ) | (6,708 | ) | |||
| Net cash flows provided (used) by financing activities | (229,654 | ) | (173,284 | ) | (185,353 | ) | |||
| Effect of exchange rate changes on cash | (7,953 | ) | (19,843 | ) | 33,970 | ||||
| Net change in cash and cash equivalents | 51,297 | (83,762 | ) | 336,283 | |||||
| Cash and cash equivalents at beginning of year | 619,683 | 703,445 | 367,162 | ||||||
| Cash and cash equivalents at end of year | $ | 670,980 | $ | 619,683 | $ | 703,445 | |||
| Income taxes paid (net of refunds) | $ | 66,372 | $ | 87,009 | $ | 59,409 | |||
| Interest paid | 53,607 | 54,576 | 56,808 |
| CONSOLIDATED QUARTERLY FINANCIAL DATA | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Unaudited) | ||||||||
| (Amounts in millions, except per share data) | ||||||||
| 2019 | ||||||||
| Quarter | 4th | 3rd | 2nd | 1st | ||||
| Sales | $ | 1,068.2 | $ | 996.5 | $ | 990.1 | $ | 890.1 |
| Gross profit | 349.6 | 333.7 | 318.0 | 294.1 | ||||
| Earnings before income taxes | 86.7 | 96.2 | 82.9 | 76.1 | ||||
| Net earnings attributable to Flowserve Corporation | 69.8 | 68.4 | 58.2 | 57.3 | ||||
| Earnings per share (1): | ||||||||
| Basic | $ | 0.53 | $ | 0.52 | $ | 0.44 | $ | 0.44 |
| Diluted | $ | 0.53 | $ | 0.52 | $ | 0.44 | $ | 0.44 |
| 2018 | ||||||||
| Quarter | 4th | 3rd | 2nd | 1st | ||||
| Sales | $ | 986.9 | $ | 952.7 | $ | 973.1 | $ | 920.0 |
| Gross profit | 321.8 | 308.5 | 286.1 | 271.4 | ||||
| Earnings before income taxes | 78.6 | 44.4 | 28.3 | 25.0 | ||||
| Net earnings attributable to Flowserve Corporation | 63.1 | 28.2 | 13.2 | 15.1 | ||||
| Earnings per share (1): | ||||||||
| Basic | $ | 0.48 | $ | 0.22 | $ | 0.10 | $ | 0.12 |
| Diluted | $ | 0.48 | $ | 0.21 | $ | 0.10 | $ | 0.12 |
| (1) Earnings per share is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of<br> changes in weighted average quarterly shares outstanding. | ||||||||
| --- |
Contacts
Flowserve
Investor Contacts:
Jay Roueche, Interim Chief Financial Officer \(972\) 443-6560
Mike Mullin, Director, Investor Relations \(972\) 443-6636
Media Contact:
Lars Rosene, Vice President, Corporate & Marketing Communications \(972\) 443-6644