Realignment and Transformation Programs

12 Months Ended

Dec. 31, 2019

Restructuring and Related Activities [Abstract]

Realignment and Transformation Programs

REALIGNMENT AND TRANSFORMATION PROGRAMS

In the second quarter of 2018, we launched and committed resources to our Flowserve 2.0 Transformation ("Flowserve 2.0 Transformation"), a program designed to transform our business model to drive operational excellence, reduce complexity, accelerate growth, improve organizational health and better leverage our existing global platform. For the years ended December 31, 2019 and 2018, we incurred Flowserve 2.0 Transformation related expenses of $28.0 million and 41.2 million, respectively. The Flowserve 2.0 Transformation expenses incurred primarily consist of professional services, project management and related travel costs recorded in SG&A.

In 2015, we initiated realignment programs to better align costs and improve long-term efficiency, including manufacturing optimization through the consolidation of facilities, reduction in our workforce and divestiture of certain non-strategic assets (the “Realignment Programs”).  The Realignment Programs consist of both restructuring and non-restructuring charges. Restructuring charges represent costs associated with the relocation or reorganization of certain business activities and facility closures and include related severance costs. Non-restructuring charges are primarily employee severance associated with workforce reductions to reduce redundancies. Expenses are primarily reported in COS or SG&A, as applicable, in our consolidated statements of income. These Realignment Programs have been substantially completed as of December 31, 2019 and we have incurred charges of $351.7 million to date.

Generally, the aforementioned charges will be paid in cash, except for asset write-downs, which are non-cash charges. The following is a summary of total charges, net of adjustments, related to the Realignment and Flowserve 2.0 Transformation program charges:

	December 31, 2019
(Amounts in thousands)	FPD			FCD		Subtotal–Reportable Segments			Eliminations and All Other		Consolidated Total
Restructuring Charges
COS	$	1,149		$	2,653	$	3,802		$	—	$	3,802
SG&A(1)	(16,610		)	556		(16,054		)	—		(16,054		)
Income tax expense(2)	(4,000		)	—		(4,000		)	—		(4,000		)
	$	(19,461	)	$	3,209	$	(16,252	)	$	—	$	(16,252	)
Non-Restructuring Charges
COS	$	11,438		$	1,742	$	13,180		$	255	$	13,435
SG&A	2,104			218		2,322			4,428		6,750
	$	13,542		$	1,960	$	15,502		$	4,683	$	20,185
Transformation Charges
SG&A	$	—		$	—	$	—		$	28,039	$	28,039
	$	—		$	—	$	—		$	28,039	$	28,039
Total Realignment and Transformation Charges
COS	$	12,587		$	4,395	$	16,982		$	255	$	17,237
SG&A	(14,506		)	774		(13,732		)	32,467		18,735
Income tax expense(2)	(4,000		)	—		(4,000		)	—		(4,000		)
Total	$	(5,919	)	$	5,169	$	(750	)	$	32,722	$	31,972

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(1) Includes gains from the sales of non-strategic manufacturing facilities that are included in our Realignment Programs.

(2) Income tax expense (benefit) includes exit taxes.

	December 31, 2018
(Amounts in thousands)	FPD			FCD			Subtotal–Reportable Segments			Eliminations and All Other		Consolidated Total
Restructuring Charges
COS	$	18,405		$	4,370		$	22,775		$	—	$	22,775
SG&A	1,853			358			2,211			38		2,249
Income tax expense(1)	(1,000		)	—			(1,000		)	—		(1,000		)
	$	19,258		$	4,728		$	23,986		$	38	$	24,024
Non-Restructuring Charges
COS	21,072			$	(1,149	)	$	19,923		$	—	$	19,923
SG&A	4,057			(652		)	3,405			5,580		8,985
	$	25,129		$	(1,801	)	$	23,328		$	5,580	$	28,908
Transformation Charges
SG&A	$	—		$	—		$	—		$	41,168	$	41,168
	$	—		$	—		$	—		$	41,168	$	41,168
Total Realignment and Transformation Charges
COS	$	39,477		$	3,221		$	42,698		$	—	$	42,698
SG&A	5,910			(294		)	5,616			46,786		52,402
Income tax expense(1)	(1,000		)	—			(1,000		)	—		(1,000		)
Total	$	44,387		$	2,927		$	47,314		$	46,786	$	94,100

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(1) Income tax expense (benefit) includes exit taxes as well as non-deductible costs.    

The following is a summary of total inception to date charges, net of adjustments, related to the Realignment Programs:

	Inception to Date
(Amounts in thousands)	FPD		FCD		Subtotal–Reportable Segments		Eliminations and All Other		Consolidated Total
Restructuring Charges
COS	$	110,191	$	29,678	$	139,869	$	—	$	139,869
SG&A	20,300		10,011		30,311		317		30,628
Income tax expense(1)	14,700		1,800		16,500		—		16,500
	$	145,191	$	41,489	$	186,680	$	317	$	186,997
Non-Restructuring Charges
COS	$	79,922	$	15,460	$	95,382	$	263	$	95,645
SG&A	41,408		7,730		49,138		19,930		69,068
	$	121,330	$	23,190	$	144,520	$	20,193	$	164,713
Total Realignment Charges
COS	$	190,113	$	45,138	$	235,251	$	263	$	235,514
SG&A	61,708		17,741		79,449		20,247		99,696
Income tax expense(1)	14,700		1,800		16,500		—		16,500
Total	$	266,521	$	64,679	$	331,200	$	20,510	$	351,710

____________________________________

(1) Income tax expense (benefit) includes exit taxes as well as non-deductible costs.

Restructuring charges represent costs associated with the relocation or reorganization of certain business activities and facility closures and include costs related to employee severance at closed facilities, contract termination costs, asset write-downs and other costs. Severance costs primarily include costs associated with involuntary termination benefits. Contract termination costs include costs related to termination of operating leases or other contract termination costs. Asset write-downs include accelerated depreciation of fixed assets, accelerated amortization of intangible assets, divestiture of certain non-strategic assets and inventory write-downs. Other costs generally include costs related to employee relocation, asset relocation, vacant facility costs (i.e., taxes and insurance) and other charges.

The following is a summary of restructuring charges, net of adjustments, for the Realignment Programs:

	December 31, 2019
(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs/(Gains)			Other			Total
COS	$	2,183	$	58	$	(1,782	)	$	3,343		$	3,802
SG&A(1)	2,211		—		(18,429		)	164			(16,054		)
Income tax expense(2)	—		—		—			(4,000		)	(4,000		)
Total	$	4,394	$	58	$	(20,211	)	$	(493	)	$	(16,252	)

_________________________

(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our Realignment Programs.

(2) Income tax expense (benefit) includes exit taxes.

	December 31, 2018
(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs		Other			Total
COS	$	2,975	$	5	$	9,018	$	10,777		$	22,775
SG&A	1,875		—		12		362			2,249
Income tax expense(1)	—		—		—		(1,000		)	(1,000		)
Total	$	4,850	$	5	$	9,030	$	10,139		$	24,024

_____________________________________

(1) Income tax expense (benefit) includes exit taxes as well as non-deductible costs.

The following is a summary of total inception to date restructuring charges, net of adjustments, related to the Realignment Programs:

	Inception to Date
(Amounts in thousands)	Severance		Contract Termination		Asset Write-Downs			Other		Total (1)
COS	$	87,343	$	965	$	22,553		$	29,008	$	139,869
SG&A	33,956		43		(16,740		)	13,369		30,628
Income tax expense(1)	—		—		—			16,500		16,500
Total	$	121,299	$	1,008	$	5,813		$	58,877	$	186,997

_______________________________

(1) Income tax expense (benefit) includes exit taxes as well as non-deductible costs.

The following represents the activity, primarily severance, related to the restructuring reserve for the Realignment Programs for the years ended December 31, 2019 and 2018:

(Amounts in thousands)	2019			2018
Balance at January 1,	$	11,927		$	39,230
Charges	7,958			15,996
Cash expenditures	(12,865		)	(28,267		)
Other non-cash adjustments, including currency(1)	(317		)	(15,032		)
Balance at December 31,	$	6,703		$	11,927

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(1) Includes a reduction of severance accruals associated with the divestiture of two FPD locations and associated product lines in 2018. Refer to Note 3 of this Annual Report for further discussion.