Revision to Previously Reported Financial Information

9 Months Ended

Sep. 30, 2020

Accounting Changes and Error Corrections [Abstract]

Revision to Previously Reported Financial Information

Revision to Previously Reported Financial Information In conjunction with our close process for the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily relate to an IBNR associated with unasserted asbestos claims, but also include adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that

were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR and to correct certain other previously identified immaterial misstatements. Prior periods not presented herein will be revised, as applicable, in future filings.

The following table presents the impact of correcting the errors previously discussed on the affected line items of our condensed consolidated balance sheet as of December 31, 2019:

	December 31, 2019
(Amounts in thousands, except par value)	As Reported		Adjustments		As Revised
Prepaid expenses and other	$	105,101	$	1,377	$	106,478
Total current assets	2,505,370		1,377		2,506,747
Property, plant and equipment, net of accumulated depreciation (1)	572,175		(8,611)		563,564
Other assets, net of allowance for expected credit losses (2)	227,185		25,869		253,054
Total assets	4,919,642		18,635		4,938,277
Contract liabilities (3)	216,541		4,554		221,095
Total current liabilities	1,112,888		4,554		1,117,442
Retirement obligations and other liabilities (4)	473,295		57,699		530,994
Retained earnings (5)	3,695,862		(43,618)		3,652,244
Total Flowserve Corporation shareholders’ equity	1,790,357		(43,618)		1,746,739
Total equity	1,815,959		(43,618)		1,772,341
Total liabilities and equity	$	4,919,642	$	18,635	$	4,938,277

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(1) Adjustment related to the misclassification of Software as a Service arrangements as property, plant and equipment rather than other assets, net, as prescribed by ASU 2018-15.

(2) Adjustment related to the associated receivables for expected insurance proceeds for asbestos settlements and defense costs.

(3) Adjustment related to one of our sites for correction in contract position caused by errors in estimated costs under the over time revenue recognition model.

(4) Adjustment primarily relates to IBNR reserves associated with unasserted asbestos claims.

(5) The adjustments to retained earnings represents the cumulative effect of the immaterial errors that were corrected in periods prior to and through December 31, 2019.

The following table presents the impact of correcting the errors previously discussed on the affected line items of our condensed consolidated statement of income for the three months ended September 30, 2019:

(Amounts in thousands, except per share data)	Three Months Ended September 30, 2019
	As Reported		Adjustments		As Revised
Sales	$	996,544	$	(835)	$	995,709
Gross profit	333,688		(835)		332,853
Selling, general and administrative expense (1)	(226,216)		(4,146)		(230,362)
Operating income	109,559		(4,981)		104,578
Other income (expense), net (2)	(1,622)		(6,855)		(8,477)
Earnings before income taxes	96,209		(11,836)		84,373
Provision for income taxes (3)	(25,646)		3,236		(22,410)
Net earnings, including noncontrolling interests	70,563		(8,600)		61,963
Net earnings attributable to Flowserve Corporation	$	68,442	(8,600)		$	59,842
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic	$	0.52	$	(0.06)	$	0.46
Diluted	0.52		(0.07)		0.45

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(1) Adjustment primarily relate to asbestos settlement and defense costs for related legal fees.

(2) Adjustment related to our Argentinian subsidiary's use of an incorrect exchange rate in connection with a change to using the U.S. dollar as the functional currency.

(3) Adjustment related to tax impacts of the matters described in notes (1) and (2), above.

The following table presents the impact of correcting the errors previously discussed on the affected line items of our condensed consolidated statement of income for the nine months ended September 30, 2019:

(Amounts in thousands, except per share data)	Nine Months Ended September 30, 2019
	As Reported		Adjustments		As Revised
Sales (1)	$	2,876,679	(5,162)		$	2,871,517
Cost of sales	(1,930,881)		(875)		(1,931,756)
Gross profit	945,798		(6,037)		939,761
Selling, general and administrative expense (2)	(655,046)		(10,579)		(665,625)
Operating income	298,809		(16,616)		282,193
Other income (expense), net (3)	(8,098)		(7,055)		(15,153)
Earnings before income taxes	255,180		(23,671)		231,509
Provision for income taxes (4)	(64,646)		6,039		(58,607)
Net earnings, including noncontrolling interests	190,534		(17,632)		172,902
Net earnings attributable to Flowserve Corporation	$	183,875	(17,632)		$	166,243
Net earnings per share attributable to Flowserve Corporation common shareholders:
Basic	$	1.40	$	(0.13)	$	1.27
Diluted	1.40		(0.14)		1.26

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(1) Adjustment related to one of our sites related to errors in estimated costs under the over time revenue recognition model.

(2) Adjustment primarily relate to asbestos settlement and defense costs from insurance coverage and expense for related legal fees and broad-based annual incentive compensation.

(3) Adjustment related to our Argentinian subsidiary's use of an incorrect exchange rate in connection with a change to using the U.S. dollar as the functional currency.

(4) Adjustment related to tax impacts of the matters described in notes (1), (2) and (3), above.

The condensed consolidated statements of stockholders' equity for the period from January 1, 2019 to September 30, 2019 and the period from July 1, 2019 to September 30, 2019 and the condensed consolidated statements of comprehensive income for the three months and nine months ended September 30, 2019 have also been revised to reflect the impacts to net earnings. The impact of errors arising in periods commencing prior to January 1, 2019 and July 1, 2019 have been reflected as a reduction to opening retained earnings in the amount of $28.8 million and $37.8 million, respectively, in the condensed consolidated statement of stockholders' equity.

Except for as described below in (1), the effect of the adjustments to the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 primarily related to net earnings, including noncontrolling interests, for the change in net earnings in the table above and were offset primarily by impacts to changes in operating assets and liabilities. The following table presents the impact of correcting the errors previously discussed on the affected line items of our condensed consolidated statement of cash flows for the nine months ended September 30, 2019:

	Nine Months Ended September 30, 2019
(Amounts in thousands)	As Reported		Adjustments		As Revised
Net cash flows provided (used) by operating activities (1)	$	143,991	$	(768)	$	143,223
Net cash flows provided (used) by investing activities (1)	(3,851)		(652)		(4,503)
Cash and cash equivalents at end of period (1)	547,270		(1,421)		545,849

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(1) Primarily related to adjustments resulting from the misclassification of Software as a Service arrangements as property, plant and equipment rather than other assets, net, as prescribed by ASU 2018-15, and adjustments related to our international operations’ exposure to fluctuations in foreign currency exchange rates, resulting from our Argentinian subsidiary's change in using the U.S. dollar as our functional currency in Argentina. The impacts of the revisions have been reflected throughout the financial statements, including the applicable footnotes, as appropriate.