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What changed in FLOWSERVE CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FLOWSERVE CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+287 added−292 removedSource: 10-K (2024-02-20) vs 10-K (2023-03-07)

Top changes in FLOWSERVE CORP's 2023 10-K

287 paragraphs added · 292 removed · 236 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

59 edited+13 added−8 removed130 unchanged
Biggest changeMoreover, our ability to achieve our other strategic goals and business plans may be adversely affected, and we could experience business disruptions with customers and elsewhere if any restructuring and realignment efforts prove ineffective. 12 We sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products.
Biggest changeWe sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products. The markets for our products and services are geographically diverse and highly competitive.
Some of the more common challenges associated with acquisitions that we may experience, and have experienced in the past, include: • loss of key employees or customers of the acquired company; • conforming the acquired company's standards, processes, procedures and controls, including accounting systems and controls, with our operations, which could cause deficiencies related to our internal control over financial reporting; • coordinating operations that are increased in scope, geographic diversity and complexity; 15 • retooling and reprogramming of equipment; • hiring additional management and other critical personnel; and • the diversion of management's attention from our day-to-day operations.
Some of the more common challenges associated with acquisitions that we may experience, and have experienced in the past, include: • loss of key employees or customers of the acquired company; • conforming the acquired company's standards, processes, procedures and controls, including accounting systems and controls, with our operations, which could cause deficiencies related to our internal control over financial reporting; • coordinating operations that are increased in scope, geographic diversity and complexity; • retooling and reprogramming of equipment; • hiring additional management and other critical personnel; and • the diversion of management's attention from our day-to-day operations.
This uncertainty may also affect regulations and trade agreements affecting U.S. companies, global stock markets (including the NYSE, on which our common shares are traded), currency exchange rates, and general global economic conditions. All of these factors are outside of our control, but may nonetheless cause us to adjust our strategy in 18 order to compete effectively in global markets.
This uncertainty may also affect regulations and trade agreements affecting U.S. companies, global stock markets (including the NYSE, on which our common shares are traded), currency exchange rates, and general global economic conditions. All of these factors are outside of our control, but may nonetheless cause us to adjust our strategy in order to compete effectively in global markets.
These agreements limit or restrict our ability, among other things, to: incur additional debt; fully utilize the capacity under the senior credit facility; pay dividends and make other distributions; repurchase shares of our common stock in certain circumstances; prepay subordinated debt; make investments and other restricted payments; create liens; sell assets; and enter into transactions with affiliates.
These agreements limit or restrict our ability, among other things, to: incur additional debt; fully utilize the capacity under the senior credit facility; pay dividends and make 21 other distributions; repurchase shares of our common stock in certain circumstances; prepay subordinated debt; make investments and other restricted payments; create liens; sell assets; and enter into transactions with affiliates.
In addition, acquisitions sometimes require large one-time charges and can result in the incurrence of contingent liabilities, adverse tax consequences, substantial depreciation or deferred compensation charges, the amortization of identifiable purchased intangible assets or impairment of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, acquisitions sometimes require large one-time charges 15 and can result in the incurrence of contingent liabilities, adverse tax consequences, substantial depreciation or deferred compensation charges, the amortization of identifiable purchased intangible assets or impairment of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Existing or future legislation and regulations related to GHG emissions and climate change by the U.S. Congress, state and foreign legislatures and federal, state, local and foreign governmental agencies could adversely affect our business. Additionally, it is uncertain whether, when and in what form mandatory carbon dioxide emissions reduction programs may be adopted.
Existing or future legislation and regulations related to GHG emissions and climate change by the U.S. Congress, state and foreign legislatures and federal, state, local and foreign governmental agencies could adversely affect our business. Additionally, it is uncertain whether, when and in what form mandatory carbon dioxide emissions reduction programs may 19 be adopted.
Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and related utilities, freight, and cost of labor which have been and may continue to be driven by inflation, tightening labor markets, prevailing price levels, exchange rates, and other economic factors.
Our operating costs are subject to fluctuations, particularly due to changes in prices for commodities, parts, raw materials, energy and 13 related utilities, freight, and cost of labor which have been and may continue to be driven by inflation, tightening labor markets, prevailing price levels, exchange rates, and other economic factors.
The adoption of new or revised accounting principles may require us to make changes to our systems, processes and internal controls, which could have a significant effect on our reported financial results and internal controls, cause unexpected financial reporting fluctuations, retroactively affect previously reported results or require us to make costly changes to our operational processes and accounting systems upon our following the adoption of these standards.
The 22 adoption of new or revised accounting principles may require us to make changes to our systems, processes and internal controls, which could have a significant effect on our reported financial results and internal controls, cause unexpected financial reporting fluctuations, retroactively affect previously reported results or require us to make costly changes to our operational processes and accounting systems upon our following the adoption of these standards.
Moreover, we may determine that it is in the best interest of our company and our shareholders to prioritize other business, social, governance or sustainable 14 investments over the achievement of our current commitments based on economic, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders.
Moreover, we may determine that it is in the best interest of our company and our shareholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders.
See Note 1 to our consolidated financial statements included in Item 8 of this Annual Report for further discussion of the termination of our Russian operations. In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices.
See Note 1 to our consolidated financial statements included in Item 8 of this Annual Report for further discussion of the termination of our Russian operations. 17 In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices.
In addition, actual or alleged violations could damage our reputation or ability to do business. Regulatory and Legal Risks Our operations are subject to a variety of complex and continually changing laws, regulations and policies, both internationally and domestically, which could adversely affect our business.
In addition, actual or alleged violations could damage our reputation or ability to do business. 18 Regulatory and Legal Risks Our operations are subject to a variety of complex and continually changing laws, regulations and policies, both internationally and domestically, which could adversely affect our business.
We continually review our funding policy related to our U.S. pension plan in accordance with applicable laws and regulations. U.S. regulations have increased the minimum level of funding for U.S. pension plans in prior years, which has 20 at times required significant contributions to our pension plans.
We continually review our funding policy related to our U.S. pension plan in accordance with applicable laws and regulations. U.S. regulations have increased the minimum level of funding for U.S. pension plans in prior years, which has at times required significant contributions to our pension plans.
The potential consequences of a material cybersecurity incident include reputational damage, loss of customers, litigation with third parties, regulatory actions and fines, theft of intellectual property, disruption of manufacturing plant operations and increased cybersecurity protection and remediation costs.
The potential consequences of a material cybersecurity incident include reputational damage, loss of customers, litigation with third parties, regulatory actions and fines, theft of intellectual property, systems disruption, disruption of manufacturing plant operations and increased cybersecurity protection and remediation costs.
For example, our chemical customers generally tend to reduce their spending on capital investments and operate their facilities at lower levels in a soft economic environment, which reduces demand for our products and services.
For example, our chemical customers generally tend to reduce their spending on capital investments and operate their facilities at lower levels in a soft 11 economic environment, which reduces demand for our products and services.
In some cases forward-looking statements can be identified by terms such as "may," "should," "expects," 22 "could," "intends," "projects," "predicts," "plans," "anticipates," "estimates," "believes," "forecasts," "seeks" or other comparable terminology.
In some cases forward-looking statements can be identified by terms such as "may," "should," "expects," "could," "intends," "projects," "predicts," "plans," "anticipates," "estimates," "believes," "forecasts," "seeks" or other comparable terminology.
We also have unionized employees or employee work councils i n Argentina, Australia, Austria, Brazil, Finland, France, Germany, India, Italy, Japan, Mexico, The Netherlands, Romania, South Africa, Spain, and Sweden.
We also have unionized employees or employee work councils i n Argentina, Australia, Austria, Brazil, Finland, France, Germany, India, Italy, Japan, Mexico, The Netherlands, South Africa, Spain, and Sweden.
Such products 19 were used as internal components of process equipment, and we do not believe that there was any significant emission of asbestos-containing fibers during the use of this equipment.
Such products were used as internal components of process equipment, and we do not believe that there was any significant emission of asbestos-containing fibers during the use of this equipment.
Accordingly, our business and results of operations are subject to risks associated with doing business internationally, including: • instability in a specific country's or region's political or economic conditions, particularly economic conditions in Europe and Latin America, and political conditions in the Middle East, Asia, North Africa, Latin America, the Trans-Pacific region and other emerging markets; 16 • trade protection measures, such as tariff increases, and import and export licensing and control requirements; • political, financial market or economic instability relating to epidemics or pandemics (including the ongoing COVID-19 pandemic); • uncertainties related to any geopolitical, economic and regulatory effects or changes due to recent or upcoming domestic and international elections; • the imposition of governmental economic sanctions on countries in which we do business; • potentially negative consequences from changes in tax laws or tax examinations; • difficulty in staffing and managing widespread operations; • increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; • difficulty of enforcing agreements and collecting receivables through some foreign legal systems; • differing and, in some cases, more stringent labor regulations; • potentially negative consequences from fluctuations in foreign currency exchange rates; • partial or total expropriation; • differing protection of intellectual property; • inability to repatriate income or capital; and • difficulty in administering and enforcing corporate policies, which may be different than the customary business practices of local cultures.
Accordingly, our business and results of operations are subject to risks associated with doing business internationally, including: • instability in a specific country's or region's political or economic conditions, particularly economic conditions in Europe and Latin America, and political conditions in the Middle East, Asia, North Africa, Latin America, the Trans-Pacific region and other emerging markets; • trade protection measures, such as tariff increases, and import and export licensing and control requirements; • political, financial market or economic instability relating to epidemics or pandemics; • uncertainties related to any geopolitical, economic and regulatory effects or changes due to recent or upcoming domestic and international elections; • the imposition of governmental economic sanctions on countries in which we do business; • potentially negative consequences from changes in tax laws or tax examinations; • difficulty in staffing and managing widespread operations; • increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; • difficulty of enforcing agreements and collecting receivables through some foreign legal systems; • differing and, in some cases, more stringent labor regulations; • potentially negative consequences from fluctuations in foreign currency exchange rates; • partial or total expropriation; • differing protection of intellectual property; • inability to repatriate income or capital; and • difficulty in administering and enforcing corporate policies, which may be different than the customary business practices of local cultures.
In 2023, our ability to meet customer delivery schedules for backlog is dependent on a number of factors including, but not limited to, sufficient manufacturing plant capacity, adequate supply channel access to the raw materials and other inventory required for production, an adequately trained and capable workforce, project engineering expertise for certain large projects and appropriate planning and scheduling of manufacturing resources.
In 2024, our ability to meet customer delivery schedules for backlog is dependent on a number of factors including, but not limited to, sufficient manufacturing plant capacity, adequate supply channel access to the raw materials and other inventory required for production, an adequately trained and capable workforce, project engineering expertise for certain large projects and appropriate planning and scheduling of manufacturing resources.
The GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored.
The GDPR imposes additional obligations on companies regarding the 16 handling of personal data and provides certain individual privacy rights to persons whose data is stored.
Based on our assessment of our def erred tax assets, we determined, based on projected future income and certain available tax planning strategies, that approximately $297 million of our deferred tax assets will more likely than not be realized in the future, and no valuation allowance is currently required for this portion of our deferred tax assets.
Based on our assessment of our def erred tax assets, we determined, based on projected future income and certain available tax planning strategies, that approximately $331 million of our deferred tax assets will more likely than not be realized in the future, and no valuation allowance is currently required for this portion of our deferred tax assets.
Reduced demand for our products and services from time to time results in the delay or cancellation of existing orders or lead to excess manufacturing capacity, which unfavorably impacts our absorption of fixed manufacturing costs. This reduced demand has in the past and may continue in the future to also erode average selling prices in our industry.
Reduced demand for our products and services from time to time results in the delay or cancellation of existing orders or leads to excess manufacturing capacity, which unfavorably impacts our absorption of fixed manufacturing costs. This reduced demand has in the past and may continue in the future to also erode average selling prices in our industry.
Such a loss of anticipated revenues could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our inability to deliver our backlog on time could affect our revenues, future sales and profitability and our relationships with customers. At December 31, 2022, our backlog was $2.7 billion.
Such a loss of anticipated revenues could have a material adverse effect on our business, financial condition, results of operations and cash flows. Our inability to deliver our backlog on time could affect our revenues, future sales and profitability and our relationships with customers. At December 31, 2023, our backlog was $2.7 billion.
Increased public awareness and concern regarding global climate change will result in more regulations designed to reduce GHG emissions.
Increased public awareness and 14 concern regarding global climate change will result in more regulations designed to reduce GHG emissions.
To conduct our operations, we regularly move data across national borders and must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. For example, the E.U. recently adopted the General Data Protection Regulation (the “GDPR”).
To conduct our operations, we regularly move data across national borders and must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. For example, the E.U. has adopted the General Data Protection Regulation (the “GDPR”).
Although we have concluded that there is no impairment on the goodwill associated with our pump reporting unit as of December 31, 2022, we will continue to monitor its performance and related market conditions for future indicators of potential impairment.
Although we have concluded that there is no impairment on the goodwill associated with our pump reporting unit as of December 31, 2023, we will continue to monitor its performance and related market conditions for future indicators of potential impairment.
Moreover, because such expenses are difficult to predict and are necessarily inexact, we may incur substantial expenses in connection with the execution of any future restructuring and realignment plans in excess of what is currently anticipated.
Moreover, because such expenses are difficult to predict and are necessarily inexact, we may incur substantial expenses in connection with the execution of any current or future restructuring and realignment plans in excess of what is currently anticipated.
The projected cost of remediation at these sites, as well as our alleged "fair share" allocation, while not anticipated to be material, has been reserved. However, until all studies have been completed and the parties have either negotiated an amicable resolution or the matter has been judicially resolved, some degree of uncertainty remains.
The projected cost of remediation at these sites, as well as our alleged "fair share" allocation, while not anticipated to be material, has been reserved. However, until all studies have been completed and the parties have either negotiated an amicable resolution or the matter has been judicially resolved, some degree of uncertainty remains with respect to the anticipated impact.
These information technology networks and related systems and devices and those under control of third parties are susceptible to damage, disruptions or shutdowns due to programming errors, defects or other vulnerabilities, power outages, hardware failures, computer viruses, cyber-attacks, malware attacks, ransomware attacks, theft, misconduct by employees or other insiders, misuse, human errors or other events.
These information technology networks and related systems and devices and those under control of third parties are susceptible to damage, disruptions or shutdowns due to programming errors, defects or other vulnerabilities, power outages, hardware failures, computer viruses, cyber-attacks, malware attacks, ransomware attacks, theft, misconduct by employees or other insiders, misuse, human errors or other cybersecurity incidents.
Failure to successfully execute and realize the expected financial benefits from any restructuring and strategic realignment and other cost-saving initiatives could adversely affect our business. Adverse effects from our execution of any future restructuring and realignment activities could interfere with our realization of anticipated synergies, customer service improvements and cost savings from these strategic initiatives.
Failure to successfully execute and realize the expected financial benefits from any restructuring and strategic realignment and other cost-saving initiatives could adversely affect our business. 12 Adverse effects from our execution of any current or future restructuring and realignment activities could interfere with our realization of anticipated synergies, customer service improvements and cost savings from these strategic initiatives.
The potential for future such events, the national and international responses to such events or perceived threats to national security, and other actual or potential conflicts or wars, such as the Russia-Ukraine conflict, the Israeli-Hamas conflict and ongoing instability in Syria and Egypt, have created many economic and political uncertainties.
The potential for future such events, the national and international responses to such events or perceived threats to national security, and other actual or potential conflicts or wars, such as the Russia-Ukraine conflict, the Israel-Hamas war and ongoing instability in Syria and Egypt, have created many economic and political uncertainties.
In addition, any of the aforementioned breaches or disruptions could expose us to a risk of loss, disclosure, misuse, corruption, or interruption of sensitive and critical data, information and functions, including our proprietary and confidential information and information related to our customers, suppliers and employees.
In addition, any of the aforementioned cybersecurity incidents or disruptions could expose us to a risk of loss, disclosure, misuse, corruption, or interruption of sensitive and critical data, information and functions, including our proprietary and confidential information and information related to our customers, suppliers and employees.
If any of the aforementioned breaches or disruptions occur and our business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition, results of operations, and liquidity could be materially adversely affected.
If any of the aforementioned cybersecurity incidents or disruptions occur and our business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition, results of operations, and liquidity could be materially adversely affected.
If we are unable to prevent, anticipate, detect or adequately respond to security breaches, our operations could be disrupted and our business could be materially and adversely affected. Developments in the applicable legal standards for the handling of personal data from time to time require changes to our business practices, penalties, increased cost of operations, or otherwise harm our business.
If we are unable to prevent, anticipate, detect or adequately respond to cybersecurity incidents, our operations could be disrupted and our business could be materially and adversely affected. Developments in the applicable legal standards for the handling of personal data from time to time require changes to our business practices, penalties, increased cost of operations, or otherwise harm our business.
Our manufacturing plant operations, capacity and supply chain are subject to disruption as a result of equipment failure, severe weather conditions and other natural or manmade disasters, including power outages, fires, explosions, terrorism, cyber-based attacks, conflicts or unrest, epidemics or pandemics (including the ongoing COVID-19 pandemic), labor disputes, acts of God, or other reasons.
Our manufacturing plant operations, capacity and supply chain are subject to disruption as a result of equipment failure, severe weather conditions and other natural or manmade disasters, including power outages, fires, explosions, terrorism, cyber-based attacks, conflicts or unrest, epidemics or pandemics, labor disputes, acts of God, or other reasons.
The COVID-19 pandemic, including actions taken by governments in response, caused and may continue to cause, a 13 substantial curtailment of business activities (including the decrease in demand for a broad variety of goods and services), weakened economic conditions, supply chain disruptions, significant economic uncertainty and volatility in the financial and commodity markets, including global volatility in supply and demand for oil and gas.
The COVID-19 pandemic, including actions taken by governments in response, caused and could in the future cause, a substantial curtailment of business activities (including the decrease in demand for a broad variety of goods and services), weakened economic conditions, supply chain disruptions, significant economic uncertainty and volatility in the financial and commodity markets, including global volatility in supply and demand for oil and gas.
Throughout 2022, our operating costs have been impacted by price inflation, including with respect to the cost of certain raw materials, commodities, freight and logistics, and we expect this to continue for the foreseeable future.
Throughout 2023, our operating costs were impacted by price inflation, including with respect to the cost of certain raw materials, commodities, freight and logistics, and we expect this to continue for the foreseeable future.
Our business may be adversely impacted by work stoppages and other labor matters. As of December 31, 2022, w e had approximat ely 16,000 emp loyees, of which approximately 4,500 were located in the U.S. Approximately 5% of our U.S. employees are represented by unions.
Our business may be adversely impacted by work stoppages and other labor matters. As of December 31, 2023, w e had approximat ely 16,000 empl oyees, of which approximately 4,600 were located in the U.S. Approximately 5% of our U.S. employees are represented by unions.
These factors, together with other key global events during 2022 (such as the ongoing global economic impact of the COVID-19 pandemic, as well as ongoing conflicts and terrorist activity), may adversely impact the ability or willingness of non-U.S. companies to transact business in the U.S.
These factors, together with other key global events during 2023 (such as the ongoing conflicts and terrorist activity), may adversely impact the ability or willingness of non-U.S. companies to transact business in the U.S.
It is also possible a security breach could result in theft of material trade secrets or other material intellectual property.
It is also possible a cybersecurity incident could result in theft of material trade secrets or other material intellectual property.
As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to, among other things, terrorist acts, conflicts (including as a result of geopolitical uncertainty and/or conflicts in the countries and/or regions where we operate, including the United Kingdom, the European Union, Ukraine and the Trans-Pacific region), severe weather conditions and other natural or manmade disasters, including power outages, fires, explosions, cyber-based attacks, epidemics or pandemics (including the ongoing COVID-19 pandemic), labor disputes, and acts of God wherever located around the world.
As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to, among other things, terrorist acts, conflicts (including as a result of geopolitical uncertainty and/or conflicts in the countries and/or regions where we operate, including the United Kingdom, the European Union, Ukraine, the Middle East and the Trans-Pacific region), severe weather conditions, the potential physical effects of climate change, and other natural or manmade disasters, including power outages, fires, floods, earthquakes, hurricanes, storms, rising sea levels, explosions, cyber-based attacks, epidemics or pandemics, labor disputes, and acts of God wherever located around the world.
Our ability to implement this growth strategy will be limited by our ability to identify appropriate acquisition candidates, covenants in our credit agreement and other debt agreements and our financial resources, including available cash and borrowing capacity.
Our ability to implement this growth strategy may be limited by our ability to identify appropriate acquisition candidates, secure the requisite regulatory approvals, covenants in our credit agreement and other debt agreements and our financial resources, including available cash and borrowing capacity.
Our inability to obtain raw materials at favorable prices may adversely affect our operating margins and results of operations. We purchase substantially all electric power and other raw materials we use in the manufacturing of our products from outside sources.
Our inability to obtain raw materials at favorable prices may adversely affect our operating margins and results of operations. We purchase substantially all electric power and other raw materials we use in the manufacturing of our products from outside sources. The costs of these raw materials have been volatile historically and are influenced by factors that are outside our control.
Similarly, certain countries, including the U.S., have adopted the Paris Climate Agreement and these and other existing international initiatives or those under consideration affect our operations.
Similarly, certain countries, including the U.S., have adopted the Paris Climate Agreement and these and other existing international initiatives, such as the agreement resulting from the 2023 United Nations Climate Change Conference, or those under consideration may affect our operations.
Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected. The COVID-19 pandemic has had, and may continue to have an adverse impact on our operations and financial performance.
Actions we take to mitigate volatility in manufacturing and operating costs may not be successful and, as a result, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
In addition, there have been recent changes to trade agreements, like the U.S. withdrawal from the Trans-Pacific Partnership and the replacement of the North American Free Trade Agreement with the United States-Mexico-Canada Agreement. 17 Uncertainties with respect to tariffs, trade agreements, or any potential trade wars negatively impact the global economic markets and could affect our customers’ ability to invest in capital expenditures, which may in turn result in reduced demand for our products and services, and could have a material adverse effect on our financial condition, results of operations and cash flows.
Uncertainties with respect to tariffs, trade agreements, or any potential trade wars negatively impact the global economic markets and could affect our customers’ ability to invest in capital expenditures, which may in turn result in reduced demand for our products and services, and could have a material adverse effect on our financial condition, results of operations and cash flows.
The ongoing COVID-19 pandemic, and the volatile regional and global economic conditions stemming from the pandemic, have precipitated or aggravated many of the factors described above, and we expect that these factors will continue to adversely impact our operations and financial performance as well as those of many of our customers and suppliers.
The COVID-19 pandemic, and the volatile regional and global economic conditions stemming from the pandemic, precipitated or aggravated many of the factors described above, and a resurgence or development of new strains or variants of COVID-19, or other public health emergencies, could cause these factors to continue to adversely impact our operations and financial performance as well as those of many of our customers and suppliers.
In particular, there is uncertainty related to the Biden administration’s plans for new or existing treaty and trade relationships with other countries, including with respect to the January 2017 U.S. withdrawal from the Trans-Pacific Partnership, which may affect restrictions or tariffs imposed on products we buy or sell.
In particular, there is uncertainty related to new or existing treaty and trade relationships with other countries which may affect restrictions or tariffs imposed on products we buy or sell.
Reductions in or impairment of the value of our goodwill or other intangible assets will result in charges against our earnings, which could have a material adverse effect on our reported results of operations and financial position in future periods. 21 There are numerous risks that may cause the fair value of a reporting unit to fall below its carrying amount, which could lead to the measurement and recognition of goodwill impairment.
Reductions in or impairment of the value of our goodwill or other intangible assets will result in charges against our earnings, which could have a material adverse effect on our reported results of operations and financial position in future periods.
Our failure to successfully manage our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with standards and procedures. Our future success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations.
Our failure to successfully manage our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with standards and procedures.
Warranty claims are not generally covered by insurance, and we may incur significant warranty costs that are not reimbursable, which could adversely affect our financial condition, results of operations and cash flows.
Even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and our company. 20 Warranty claims are not generally covered by insurance, and we may incur significant warranty costs that are not reimbursable, which could adversely affect our financial condition, results of operations and cash flows.
For further discussion of the risks presented by the ongoing pandemic, see the discussion below under the 11 heading “The COVID-19 pandemic has had, and may continue to have, an adverse impact on our operations and financial performance.” Additionally, our customers sometimes delay capital investment and maintenance even during favorable conditions in their industries or markets.
For further discussion of the risks presented by the pandemic, see the discussion below under the heading “The COVID-19 pandemic adversely impacted our operations and financial performance, and a resurgence or development of new strains or variants of COVID-19, or other public health emergencies, could have a material adverse impact on our business, results of operation, financial condition and liquidity, the nature and extent of which is highly uncertain.” Additionally, our customers sometimes delay capital investment and maintenance even during favorable conditions in their industries or markets.
Similarly, military conflicts in Russia/Ukraine, the Middle East, Asia and North Africa could soften the level of capital investment and demand for our products and services. In response to the Russia-Ukraine conflict, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia.
In response to the Russia-Ukraine conflict, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia.
Any of these factors could, however, materially adversely affect our international operations and, consequently, our financial condition, results of operations and cash flows. Implementation of new tariffs and changes to or uncertainties related to tariffs and trade agreements could adversely affect our business. The U.S. has implemented certain tariffs on steel and aluminum imported into the country.
Implementation of new tariffs and changes to or uncertainties related to tariffs and trade agreements could adversely affect our business. The U.S. has implemented certain tariffs on steel and aluminum imported into the country. In response, certain foreign governments have implemented or reportedly considered implementing additional tariffs on U.S. goods.
As a result of this conflict, including the aforementioned sanctions and overall instability in the region, in February 2022 we stopped accepting new orders in Russia and temporarily suspended fulfillment of existing orders. In March 2022, we made the decision to permanently cease all Company operations in Russia.
As a result of this conflict, including the aforementioned sanctions and overall instability in the region, in March 2022 we permanently ceased all Company operations in Russia and are currently taking the necessary steps to wind down in the country.
We compete based on price, technical expertise, timeliness of delivery, contractual terms, project management, proximity to service centers, previous installation history and reputation for quality and reliability.
We compete against large and well-established national and global companies, as well as regional and local companies, low-cost replicators of spare parts and in-house maintenance departments of our end-user customers. We compete based on price, technical expertise, timeliness of delivery, contractual terms, project management, proximity to service centers, previous installation history and reputation for quality and reliability.
The costs of these raw materials have been volatile historically and are influenced by factors that are outside our control, including more recently due to the COVID-19 pandemic. In recent years, the prices for energy, metal alloys, nickel and certain other of our raw materials have been volatile.
In recent years, the prices for energy, metal alloys, nickel and certain other of our raw materials have been volatile.
If these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in future charges.
If these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in future charges. Moreover, our ability to achieve our other strategic goals and business plans may be adversely affected, and we could experience business disruptions with customers and elsewhere if any restructuring and realignment efforts prove ineffective.
These effects have had an adverse impact on our operations and financial performance and the operations and financial performance of many of our customers and suppliers.
These effects had an adverse impact on our operations and financial performance and the operations and financial performance of many of our customers and suppliers. Our operations have generally stabilized since the peak of the COVID-19 pandemic. In May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency.
Removed
The markets for our products and services are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local companies, low-cost replicators of spare parts and in-house maintenance departments of our end-user customers.
Added
An economic slowdown or recession in the United States or in any other country that significantly affects the supply of or demand for oil or natural gas could negatively impact our operations and therefore adversely affect our results.
Removed
For example, the global supply chain and logistics constraints affecting global markets adversely affected the speed at which we can manufacture and ship our products to customers, and have also led to an increase in logistics, transportation and freight costs, requiring that we diversify our supply chain and, in some instances, source materials from new suppliers.
Added
The COVID-19 pandemic adversely impacted our operations and financial performance, and a resurgence or development of new strains or variants of COVID-19, or other public health emergencies, could have a material adverse impact on our business, results of operation, financial condition and liquidity, the nature and extent of which is highly uncertain.
Removed
These effects in some cases impacted our ability to deliver products to customers on time, which has in turn led to an increase in backlog at some of our manufacturing sites.
Added
Our operations expose us to risks associated with public health emergencies, such as outbreaks of epidemics, pandemics, and contagious diseases, including COVID-19.
Removed
These disruptions in our supply chain and their effects have continued into 2023 and we expect they will continue as ongoing global supply chain and logistics headwinds continue to affect global markets.
Added
However, a resurgence or development of new strains of COVID-19 or other public health emergencies could result in unpredictable responses by authorities around the world which could negatively impact our global operations, customers and suppliers.
Removed
The ultimate impact of the COVID-19 pandemic on our operations and financial performance will continue to depend on many factors that are not within our control, including, but not limited, to, any future resurgence and actions taken by governments in response thereto.
Added
Any future public health emergencies could result in disruptions to our manufacturing operations, including higher rates of employee absenteeism, and supply chain, which could negatively impact our ability to meet customer demand.
Removed
We have commenced the necessary actions to cease operations of our Russian subsidiary, including taking steps to cancel existing contracts with customers, terminate our approximately 50 Russia-based employees and terminate other related contractual commitments and currently expect this process to continue throughout 2023.
Added
The extent to which new strains or variants of COVID-19, or other public health emergencies, could impact our business, results of operations, financial condition or liquidity is highly uncertain and would depend on future developments, including the scope, spread and duration of any such virus and variants, potential responsive actions taken by governmental authorities, and how quickly economic conditions stabilize and recover.
Removed
In response, certain foreign governments have implemented or reportedly considered implementing additional tariffs on U.S. goods.
Added
Any of the foregoing can be exacerbated by a delay or failure to detect a cybersecurity incident or the full extent of such incident. In addition, our liability insurance, which includes cyber insurance, might not be sufficient in type or amount to cover us against claims related to cybersecurity incidents, attacks and other related incidents.
Removed
Even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and our company.
Added
Similarly, military conflicts in Russia/Ukraine, the Middle East, Asia and North Africa could soften the level of capital investment and demand for our products and services. We have experienced logistics disruptions as a result of the Israel-Hamas war that have increased expenses and delayed import of our products in the region.
Added
The conflict is ongoing and the length, impact, and outcome is highly unpredictable. If the conflict further intensifies or develops, it could have an adverse impact on our business operations in the Middle East or other affected areas.
Added
Additionally, increasing tensions between the U.S. and China may result in further restrictions or actions by the U.S. government with respect to doing business in China or by the Chinese government with respect to business conducted by foreign entities in China, which could impact certain of our manufacturing operations, as well as supply for our raw materials and components.
Added
Our future success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these factors could, however, materially adversely affect our international operations and, consequently, our financial condition, results of operations and cash flows.
Added
In addition, there have been recent changes to trade agreements, like the U.S. withdrawal from the Trans-Pacific Partnership and the replacement of the North American Free Trade Agreement with the United States-Mexico-Canada Agreement.
Added
There are numerous risks that may cause the fair value of a reporting unit to fall below its carrying amount, which could lead to the measurement and recognition of goodwill impairment.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBusiness" in this Annual Report for further information with respect to all of our manufacturing and operational facilities, including QRCs. Number of Facilities Approximate Aggregate Square Footage FPD U.S. 7 1,198,000 Non-U.S. 18 3,598,000 FCD U.S. 5 925,000 Non-U.S. 10 1,495,000 We own the majority of our manufacturing facilities, and those manufacturing facilities we do not own are leased.
Biggest changeBusiness" in this Annual Report for further information with respect to all of our manufacturing and operational facilities, including QRCs. 24 Number of Facilities Approximate Aggregate Square Footage FPD U.S. 7 1,171,000 Non-U.S. 19 3,651,000 FCD U.S. 5 925,000 Non-U.S. 10 1,495,000 We own the majority of our manufacturing facilities, and those manufacturing facilities we do not own are leased.
We believe we will be able to extend leases on our various facilities as necessary, as they expire. We believe that our current facilities are adequate to meet the requirements of our present and foreseeable future operations. We continue to review our capacity requirements as part of our strategy to optimize our global manufacturing 23 efficiency.
We believe we will be able to extend leases on our various facilities as necessary, as they expire. We believe that our current facilities are adequate to meet the requirements of our present and foreseeable future operations. We continue to review our capacity requirements as part of our strategy to optimize our global manufacturing efficiency.
We have the option to renew the current lease for two additional five-year periods. We currently occupy approximately 130,000 square feet at this facility. Our major manufacturing facilities (those with 50,000 or more square feet of manufacturing capacity) operating at December 31, 2022 are presented in the table below. See "Item 1.
We have the option to renew the current lease for two additional five-year periods. We currently occupy approximately 130,000 square feet at this facility. Our major manufacturing facilities (those with 50,000 or more square feet of manufacturing capacity) operating at December 31, 2023 are presented in the table below. See "Item 1.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the outcome of lawsuits or other proceedings involving us, and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect these matters, either individually or in the aggregate, to have a material effect on our financial position, results of operations or cash flows.
Biggest changeAlthough the outcome of lawsuits or other proceedings involving us and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect the amount of any liability that could arise with respect to these matters, either individually or in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows.
In addition to the foregoing, we and our subsidiaries are named defendants in certain other routine lawsuits incidental to our business and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business.
In addition to the foregoing, we and our subsidiaries are named defendants in certain other ordinary routine lawsuits incidental to our business and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24 Item 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 47 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 25 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. [Reserved] 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−0 removed2 unchanged
Biggest change(2) Includes 789 shares that were tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares at an average price per share of $29.96 and 943 shares purchased at a price of $30.51 per share by a rabbi trust that we established in connection with our director deferral plans, pursuant to which non-employee directors may elect to defer directors’ quarterly cash compensation to be paid at a later date in the form of common stock. 24 (3) On November 13, 2014, our Board of Directors approved a $500.0 million share repurchase authorization.
Biggest change(2) Shares purchased at a price of $37.10 per share by a rabbi trust that we established in connection with our director deferral plans, pursuant to which non-employee directors may elect to defer directors’ quarterly cash compensation to be paid at a later date in the form of common stock.
Stock Performance Graph The following graph depicts the most recent five-year performance of our common stock with the S&P 500 Index and S&P 500 Industrials. The graph assumes an investment of $100 on December 31, 2017, and assumes the reinvestment of any dividends over the following five years.
Stock Performance Graph The following graph depicts the most recent five-year performance of our common stock with the S&P 500 Index and S&P 500 Industrials. The graph assumes an investment of $100 on December 31, 2018, and assumes the reinvestment of any dividends over the following five years.
Issuer Purchases of Equity Securities During the quarter ended December 31, 2022, we had no repurchases of our common stock shares as part of publicly announced plans. As of December 31, 2022, we had $96.1 million of remaining capacity under our current share repurchase program.
Issuer Purchases of Equity Securities During the quarter ended December 31, 2023, we had no repurchases of our common stock shares as part of publicly announced plans. As of December 31, 2023, we had $96.1 million of remaining capacity under our current share 25 repurchase program.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "FLS" and our CUSIP number is 34354P105. O n March 1, 2023, our records showed 897 share holders of record.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "FLS" and our CUSIP number is 34354P105. O n February 14, 2024, our records showed 838 share holders of record.
The following table sets forth the repurchase data for each of the three months during the quarter ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan (3)(4) Approximate Dollar Value That May Yet Be Purchased Under the Plan (In millions) October 1 - 31 928 (1) $ 27.17 — $ 96.1 November 1 - 30 1,732 (2) 30.26 — 96.1 December 1 - 31 3,944 (1) 29.92 — 96.1 Total 6,604 $ 29.62 — _______________________________________ (1) Shares tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares.
The following table sets forth the repurchase data for each of the three months during the quarter ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan (3)(4) Approximate Dollar Value That May Yet Be Purchased Under the Plan (In millions) October 1 - 31 192 (1) $ 38.81 — $ 96.1 November 1 - 30 1,705 (2) 37.10 — 96.1 December 1 - 31 2,328 (1) 40.56 — 96.1 Total 4,225 $ 39.09 — _______________________________________ (1) Shares tendered by employees to satisfy minimum tax withholding amounts for Restricted Shares.
The stock price performance shown in the graph is not necessarily indicative of future price performance. Base Period December 31, Company/Index 2017 2018 2019 2020 2021 2022 Flowserve Corporation $100.00 $91.79 $122.70 $93.41 $79.31 $81.74 S&P 500 Index 100.00 95.61 125.71 148.83 191.51 156.80 S&P 500 Industrials 100.00 86.68 112.10 124.49 150.75 142.44 25
The stock price performance shown in the graph is not necessarily indicative of future price performance. 26 Base Period December 31, Company/Index 2018 2019 2020 2021 2022 2023 Flowserve Corporation $100.00 $133.67 $101.76 $86.40 $89.05 $122.28 S&P 500 Index 100.00 131.49 155.66 200.31 164.00 207.06 S&P 500 Industrials 100.00 129.32 143.62 173.92 164.33 194.03 27
Added
Effective February 19, 2024, the Board of Directors authorized an increase in our total remaining capacity in the share repurchase program to $300.0 million.
Added
(3) On November 13, 2014, our Board of Directors approved a $500.0 million share repurchase authorization. Effective February 19, 2024, the Board of Directors authorized an increase in our total remaining capacity in the share repurchase program to $300.0 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

157 edited+36 added−48 removed60 unchanged
Biggest changeIn 2022, SG&A as a percentage of sales increased 10 basis points primarily due to a $15.7 million charge taken in 2022 related to our financial exposure in Russia, incremental operating lease expense of $5.5 million related to the identification and correction of an accounting error and the acquisition and expense of $4.8 million of in-process research and development, partially offset by lower costs related to our realignment actions, a $8.6 million favorable settlement with a customer to reimburse previously incurred legal fees, the reversal of $5.1 million of previously reserved accounts receivable due to collection from a customer, a $4.2 million gain resulting from the sale of a small FPD QRC facility and lower broad-based annual incentive compensation as compared with the same period in 2021.
Biggest changeIn 2023, SG&A increased due to increased charges of $45.5 million related to our Realignment Programs, higher broad-based annual incentive compensation, $8.8 million increase in research and development costs, $7.3 million of expense related to the terminated Velan acquisition, higher asbestos-related costs of $7.4 million for IBNR asbestos liability accruals based on an annual actuarial study and related legal expense, and a $2.9 million impairment of a licensing intangible, partially offset by a $15.7 million charge taken in 2022 related to our financial exposure in Russia that did not recur as compared with the same period in 2022.
We reevaluated our financial exposure as of December 31, 2022 and recorded an incremental $13.6 million pre-tax charge ($9.8 million after-tax) in the fourth quarter of 2022 for additional contract cancellation fees and to reserve our residual financial exposure due to increased Russia sanctions imposed during the latter part of 2022 and our decision to cancel backlog as a result of the additional sanctions.
In addition, we reevaluated our financial exposure as of December 31, 2022 and recorded an incremental $13.6 million pre-tax charge ($9.8 million after-tax) in the fourth quarter of 2022 for additional contract cancellation fees, to reserve our residual financial exposure due to increased Russia sanctions imposed during the latter part of 2022 and our decision to cancel backlog as a result of the additional sanctions.
Business Segments 35 We conduct our operations through two business segments based on type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. See Note 19 to our consolidated financial statements included in Item 8 of this Annual Report for further discussion of our segments.
Business Segments We conduct our operations through two business segments based on type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. See Note 19 to our consolidated financial statements included in Item 8 of this Annual Report for further discussion of our segments.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various tax authorities.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by 45 various tax authorities.
For a discussion related to revenue recognition refer to Note 2 included in Item 8 of this Annual Report. 44 Deferred Taxes, Tax Valuation Allowances and Tax Reserves We recognize valuation allowances to reduce the carrying value of deferred tax assets to amounts that we expect are more likely than not to be realized.
For a discussion related to revenue recognition refer to Note 2 included in Item 8 of this Annual Report. Deferred Taxes, Tax Valuation Allowances and Tax Reserves We recognize valuation allowances to reduce the carrying value of deferred tax assets to amounts that we expect are more likely than not to be realized.
We continue to leverage our QRC network to be positioned as near to customers as possible for service and support in order to capture valuable aftermarket business. Along with ensuring that we have the local capability to sell, install and service our equipment in remote regions, we continuously improve our global operations.
We continue to leverage our QRC network to be positioned as near to customers as possible for service and support in order to capture valuable aftermarket business. Along with ensuring that we have the local capability to sell, install and 28 service our equipment in remote regions, we continuously improve our global operations.
The amount of cash generated or consumed by working capital is dependent on our level of revenues, customer cash advances, backlog, customer-driven delays and other factors. We will seek to improve our working capital utilization, with a particular focus on improving the management of accounts receivable and inventory.
The amount of cash generated or consumed by working capital is dependent on our level of 31 revenues, customer cash advances, backlog, customer-driven delays and other factors. We will seek to improve our working capital utilization, with a particular focus on improving the management of accounts receivable and inventory.
To date, these impacts have not been material to our business and we do not currently expect that any incremental impact in future quarters, including any financial impacts caused by our cancellation of customer contracts and ceasing of operations in Russia, will be material to the Company.
To date, impacts have not been material to our business and we do not currently expect that any incremental impact in future quarters, including any financial impacts caused by our cancellation of customer contracts and ceasing of operations in Russia, will be material to the Company.
We evaluate the funded status of each retirement plan using current assumptions and determine the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations, cash flow requirements and other factors. We discuss our funding assumptions with the Finance Committee of our Board of Directors.
We evaluate the funded status of each retirement plan using current assumptions and determine the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations, cash flow requirements and other factors. We discuss our funding assumptions with the Finance and Risk Committee of our Board of Directors.
Risk Factors” and the section titled “Forward-Looking Information is Subject to Risk and Uncertainty” included in this Annual Report on Form 10-K for the year ended December 31, 2022 ("Annual Report") for a discussion of the risks, uncertainties and assumptions associated with these statements. Unless otherwise noted, all amounts discussed herein are consolidated.
Risk Factors” and the section titled “Forward-Looking Information is Subject to Risk and Uncertainty” included in this Annual Report on Form 10-K for the year ended December 31, 2023 ("Annual Report") for a discussion of the risks, uncertainties and assumptions associated with these statements. Unless otherwise noted, all amounts discussed herein are consolidated.
The assumed ranges for the annual rates of increase in health care costs were 7.25% for 2022, 7.50% for 2021 and 7.00% for 2020, with a gradual decrease to 5.00% for 2032 and future years. If actual costs are higher than those assumed, this will likely put modest upward pressure on our expense for retiree health care.
The assumed ranges for the annual rates of increase in health care costs were 7.00% for 2023, 7.25% for 2022 and 7.50% for 2021, with a gradual decrease to 5.00% for 2032 and future years. If actual costs are higher than those assumed, this will likely put modest upward pressure on our expense for retiree health care.
Postretirement medical plans: Effect on Benefit Obligation (0.3) 0.3 Effect of Changes in the Expected Return on Assets and Constancy of Other Assumptions: 0.5% Increase 0.5% Decrease (Amounts in millions) U.S. defined benefit pension plan: Effect on net pension expense $ (2.2) $ 2.2 Non-U.S. defined benefit pension plans: Effect on net pension expense (1.2) 1.2 As discussed below, accounting principles generally accepted in the U.S.
Postretirement medical plans: Effect on Benefit Obligation (0.3) 0.3 Effect of Changes in the Expected Return on Assets and Constancy of Other Assumptions: 0.5% Increase 0.5% Decrease (Amounts in millions) U.S. defined benefit pension plan: Effect on net pension expense $ (2.0) $ 2.0 Non-U.S. defined benefit pension plans: Effect on net pension expense (0.8) 0.8 As discussed below, accounting principles generally accepted in the U.S.
For a discussion pertaining to goodwill, indefinite-lived intangible assets and long-lived assets refer to Note 1 included in Item 8 of this Annual Report. ACCOUNTING DEVELOPMEN TS We have presented the informati on about accounting pronouncements not yet implemented in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report. 46
For a discussion pertaining to goodwill, indefinite-lived intangible assets and long-lived assets refer to Note 1 included in Item 8 of this Annual Report. ACCOUNTING DEVELOPMEN TS We have presented the informati on about accounting pronouncements not yet implemented in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report. 47
Our material cash requirements for the next 12 months, include our estimated 2023 capital expenditures described above and our contractual obligations summarized below under the subheading "--Contractual Obligations". In the aggregate, our cash needs in 2023 are expected to be lower than those of 2022 due to anticipated benefits from working capital reductions.
Our material cash requirements for the next 12 months, include our estimated 2024 capital expenditures described above and our contractual obligations summarized below under the subheading "--Contractual Obligations". In the aggregate, our cash needs in 2024 are expected to be lower than those of 2023 due to anticipated benefits from working capital reductions.
In light of the uncertainties and variables inherent in the long-term projection of the total asbestos liability, as part of our ongoing review of asbestos claims, each year we will reassess the projected liability of unasserted asbestos claims to be filed through 2052, and we will continually reassess the time horizon over which a reasonable estimate of unasserted claims can be projected.
In light of the uncertainties and variables inherent in the long-term projection of the total asbestos liability, as part of our ongoing review of asbestos claims, each year we will reassess the projected liability of unasserted asbestos claims to be filed through 2053, and we will continually reassess the time horizon over which a reasonable estimate of unasserted claims can be projected.
In 2023, our cash flows for investing activities will be focused on strategic initiatives, information technology infrastructure, general upgrades and cost reduction opportunities and we currently estimate capital expenditures to be between $75 million and $85 million, before consideration of any acquisition activity.
In 2024, our cash flows for investing activities will be focused on strategic initiatives, information technology infrastructure, general upgrades and cost reduction opportunities and we currently estimate capital expenditures to be between $75 million and $85 million, before consideration of any acquisition activity.
We have estimated that the liability for pending and future claims not yet asserted, and which are probable and estimable, could be experienced through 2052, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date.
We have estimated that the liability for pending and future claims not yet asserted, and which are probable and estimable, could be experienced through 2053, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date.
FPD operates in 49 countries with 35 manufacturing facilities worldwide, 10 of which are located in Europe, 11 in North America, eight in Asia Pacific and six in Latin America, and we have 132 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.
FPD operates in 49 countries with 35 manufacturing facilities worldwide, 10 of which are located in Europe, 11 in North America, eight in Asia Pacific and six in Latin America, and we have 131 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.
We believe that the persistent demand for fresh water during all economic cycles supports continued investments, especially in North America and developing regions. 29 Impact of Russia-Ukraine Conflict on our Business In response to the ongoing military conflict in Ukraine, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia.
We believe that the persistent demand for fresh water during all economic cycles supports continued investments, especially in North America and developing regions. Impact of Russia-Ukraine Conflict on our Business In response to the Russia-Ukraine conflict, several countries, including the United States, have imposed economic sanctions and export controls on certain industry sectors and parties in Russia.
A discussion of changes in the Company’s liquidity and capital resources for the year ended December 31, 2021 and 2020 can be found in Part II, “Item 7.
A discussion of changes in the Company’s liquidity and capital resources for the year ended December 31, 2022 and 2021 can be found in Part II, “Item 7.
The goal of the CIP initiative, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.
The goal of the program, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.
We believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry. Power Generation The power generation industry represented approximately 12% and 12% of our bookings in 2022 and 2021, respectively.
We believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry. Power Generation The power generation industry represented approximately 11% and 12% of our bookings in 2023 and 2022, respectively.
The aftermarket business, which is primarily served by our network o f 152 QRCs located around the globe, some of which are shared by our two business segments, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value-added services.
The aftermarket business, which is primarily served by our network of 156 QRCs located around the globe, some of which are shared by our two business segments, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value-added services.
Natural gas-fired combined cycle (“NGCC”) plants increased their share of the energy mix, driven by market prices for gas remaining low and stable (partially due to the increasing global availability of liquefied natural gas (“LNG”)), low capital expenditures, and the ability of NGCC to stabilize unpredictable renewable sources.
Natural gas-fired combined cycle (“NGCC”) plants have increased their share of the energy mix, driven by market prices for gas remaining low and stable (partially due to the increasing global availability of LNG), low capital expenditures, and the ability of NGCC to stabilize unpredictable renewable sources.
Because a booking represents a contract that can be, in certain circumstances, modified or canceled, and can include varying lengths between the time of booking and the time of revenue recognition, there is no guarantee that bookings will r esult in comparable revenues or otherwise be indicative of future 30 results.
Because a booking represents a contract that can be, in certain circumstances, modified or canceled, and can include varying lengths between the time of booking and the time of revenue recognition, there is no guarantee that bookings will result in comparable revenues or otherwise be indicative of future results.
Additionally, we have recorded other net deferred tax assets of $55.8 million, which relate to net operating losses, tax credits and other deductible temporary differences that are available to reduce taxable income in future periods, most of which do not have a definite expiration.
Additionally, we have recorded other net deferred tax assets of $202.6 million, which relate to net operating losses, tax credits and other deductible temporary differences that are available to reduce taxable income in future periods, most of which do not have a definite expiration.
PENSION AND POSTRETIREMENT BENEFITS OBLIGATIONS Plan Descriptions We and certain of our s ubsidiaries have defined benefit pension plans and defined contribution plans for full-time and part-time employees. Approximately 68% of total defined benefit pension plan assets and approximately 58% of defined benefit pension obligations are related to the U.S. qualified plan as of December 31, 2022.
PENSION AND POSTRETIREMENT BENEFITS OBLIGATIONS Plan Descriptions We and certain of our s ubsidiaries have defined benefit pension plans and defined contribution plans for full-time and part-time employees. Approximately 67% of total defined benefit pension plan assets and approximately 58% of defined benefit pension obligations are related to the U.S. qualified plan as of December 31, 2023.
We did not record a material impairment for goodwill, indefinite-lived intangible assets or long-lived assets in 2022, 2021 or 2020.
We did not record a material impairment for goodwill, indefinite-lived intangible assets or long-lived assets in 2023, 2022 or 2021.
Loss on Extinguishment of Debt 2022 2021 2020 (Amounts in millions) Loss on extinguishment of debt $ — $ (46.2) $ (1.2) Loss on extinguishment of d ebt in 2021 of $46.2 million resulted from the redemption of our 2023 Senior Notes, 2022 Senior Notes and 2022 Euro Senior Notes and the write-off of deferred financing fees due to the amendment and restatement of the previous Senior Credit facility.
Loss on Extinguishment of Debt 2023 2022 2021 (Amounts in millions) Loss on extinguishment of debt $ — $ — $ (46.2) Loss on extinguishment of debt in 2021 of $46.2 million resulted from the redemption of our 2023 Senior Notes, 2022 Senior Notes and 2022 Euro Senior Notes and the write-off of deferred financing fees due to the amendment and restatement of the previous Senior Credit facility.
As a result of the above, in the first quarter of 2022 we recorded a $20.2 million pre-tax charge ($21.0 million after-tax) to reserve the asset positions of our Russian subsidiary (excluding cash) as of March 31, 2022, to record contra-revenue for previously recognized revenue and estimated cancellation fees on open contracts that were previously accounted for under POC and subsequently canceled, to establish a reserve for the estimated cost to exit the operations of our Russian subsidiary and to record a reserve for our estimated financial exposure on contracts that have or are anticipated to be cancelled.
In the first quarter of 2022, we recorded a $20.2 million pre-tax charge ($21.0 million after-tax) to reserve the asset positions of our Russian subsidiary (excluding cash) as of March 31, 2022, to record contra-revenue for previously recognized revenue and estimated cancellation fees on open contracts that were previously accounted for under the percentage of completion ("POC") method and subsequently canceled, to establish a reserve for the estimated cost to exit the operations of our Russian subsidiary and to record a reserve for our estimated financial exposure on contracts that have been or are anticipated to be canceled.
The increase included negative currency effects of approximately $134 million. The increase in customer bookings was driven by increased orders in the oil and gas, power generation, chemical, general and water industries.
The increase included negative currency effects of approximately $5 million. The increase in customer bookings was driven by increased orders in the oil and gas, power generation, chemical, general and water management industries.
The discussion and analysis of changes in the financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020 that are not included in this Form 10-K may be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022.
The discussion and analysis of changes in the financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021 that are not included in this Form 10-K may be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 7, 2023.
We expect to recognize revenue on approximately 81% of the December 31, 2022 backlog during 2023. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $652 million as discussed in Note 2 to our consolidated financial statements included in Item 8 of this Annual Report.
We expect to recognize revenue on approximately 87% of the December 31, 2023 backlog during 2024. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $772 million as discussed in Note 2 to our consolidated financial statements included in Item 8 of this Annual Report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022. Existing cash, cash generated by operations and borrowings available under our senior credit facility are our primary sources of short-term liquidity.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 7, 2023. Existing cash, cash generated by operations and borrowings available under our senior credit facility are our primary sources of short-term liquidity.
The key operating results for our two business segments, FPD and FCD, are discussed below. Flowserve Pump Division Segment Results Our largest business segment is FPD, through which we design, manufacture, pretest, distribute and service specialty and highly-engineered custom and pre-configured pumps and pump systems, mechanical seals and auxiliary systems (collectively referred to as "original equipment").
The key operating results for our two business segments, FPD and FCD, are discussed below. Flowserve Pumps Division Segment Results 36 Our largest business segment is FPD, through which we design, manufacture, distribute and service highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals and auxiliary systems (collectively referred to as "original equipment") and related services.
The Benefit Obligation for our defined benefit postretirement medical plans was $13.4 million and $17.0 million as of December 31, 2022 and 2021, respectively. Accrual Accounting and Significant Assumptions We account for pension benefits using the accrual method, recognizing pension expense before the payment of benefits to retirees.
The Benefit Obligation for our defined benefit postretirement medical plans was $12.4 million and $13.4 million as of December 31, 2023 and 2022, respectively. Accrual Accounting and Significant Assumptions We account for pension benefits using the accrual method, recognizing pension expense before the payment of benefits to retirees.
See discussion of our accounting for and assumptions related to pension and postretirement benefits in the “Our Critical Accounting Estimates” section of this MD&A. In 2022, the service cost component of the pension expense for our defined benefit pension plans included in operating income was $30.7 million compared to $32.5 million in 2021.
See discussion of our accounting for and assumptions related to pension and postretirement benefits in the “Our Critical Accounting Estimates” section of this MD&A. In 2023, the service cost component of the pension expense for our defined benefit pension plans included in operating income was $26.0 million compared to $30.7 million in 2022.
To determine the 2022 pension expense, the expected rate of return on U.S. plan and non-US plan assets decreased to 5.75% from 6.00% and increased to 2.43% from 2.37%, respectively, based on our target allocations and expected long-term asset returns.
To determine the 2023 pension expense, the expected rate of return on U.S. plan and non-US plan assets increased to 6.00% from 5.75% and increased to 3.97% from 2.43%, respectively, based on our target allocations and expected long-term asset returns.
In 2022, energy security concerns drove increased investment in the power generation industry, including nuclear new build and life extensions as well as traditional thermal power sources.
In 2023, energy security concerns drove continued investment in the power generation industry, including nuclear new build and life extensions as well as traditional thermal power sources.
With improved management of the pandemic, we expect capital and aftermarket spending to rise in developed and emerging markets with governments and private industry providing funding for critical projects when their priorities shift away from pandemic-management. The proportion of people living in regions that find it difficult to meet water requirements is expected to double by 2025.
We expect capital and aftermarket spending to rise in developed and emerging markets with governments and private industry providing funding for critical projects when their priorities shift away from pandemic-management. The proportion of people living in regions that find it difficult to meet water requirements is expected to increase significantly in the coming years.
Through our manufacturing platform and global network of QRCs, we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting. As of December 31, 2022, we have approximately 16,000 employees (“associates”) globally and a footprint of manufacturing facilities and QRCs in more than 50 countries.
Through our manufacturing platform and global network of QRCs, we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics and turnkey maintenance programs. As of December 31, 2023, we have approximately 16,000 employees (“associates”) globally and a footprint of manufacturing facilities and QRCs in more than 50 countries.
LIQUIDITY AND CAPITAL RESOURCES Cash Flow Analysis 2022 2021 2020 (Amounts in millions) Net cash flows provided (used) by operating activities $ (40.0) $ 250.1 $ 310.5 Net cash flows provided (used) by investing activities (6.1) (59.5) (41.7) Net cash flows provided (used) by financing activities (150.0) (599.7) 147.6 The following is a discussion and analysis of the Company’s liquidity and capital resources for the years ended December 31, 2022 and 2021.
LIQUIDITY AND CAPITAL RESOURCES Cash Flow Analysis 2023 2022 2021 (Amounts in millions) Net cash flows provided (used) by operating activities $ 325.8 $ (40.0) $ 250.1 Net cash flows provided (used) by investing activities (68.6) (6.1) (59.5) Net cash flows provided (used) by financing activities (153.0) (150.0) (599.7) The following is a discussion and analysis of the Company’s liquidity and capital resources for the years ended December 31, 2023 and 2022.
Net Earnings from Affiliates 2022 2021 2020 (Amounts in millions) Net earnings from affiliates $ 18.5 $ 16.3 $ 11.8 Net earnings from affiliates represents our net income from investments in five joint ventures (one located in each of Chile, India, Saudi Arabia, South Korea and the United Arab Emirates) that a re accounted for using the equity method of accounting.
Net Earnings from Affiliates 2023 2022 2021 (Amounts in millions) Net earnings from affiliates $ 17.9 $ 18.5 $ 16.3 Net earnings from affiliates represents our net income from investments in five joint ventures (one located in each of Chile, India, Saudi Arabia, South Korea and the United Arab Emirates) that are accounted for using the equity method of accounting.
In light of the liquidity currently available to us, and the costs savings measures planned and already in place, we expect to be able to maintain adequate liquidity over the next 12 months as we manage through the current market environment.
In light of the liquidity currently available to us, and the costs savings measures planned and already in place, we expect to be able to maintain adequate liquidity over the next 12 months.
At December 31, 2022, as compared with December 31, 2021, we increased our discount rate for the U.S. plan from 3.00% to 5.73% based on an analysis of publicly-traded investment grade U.S. corporate bonds, which had higher yields due to current market conditions.
At December 31, 2023, as compared with December 31, 2022, we decreased our discount rate for the U.S. plan from 5.73% to 5.41% based on an analysis of publicly-traded investment grade U.S. corporate bonds, which had lower yields due to current market conditions.
We also believe that our long-standing reputation in the power generation industry, our portfolio of offerings for the various generating methods, our advancements in serving the renewable energy market and carbon capture methodologies, as well as our global service and support structure, position us well for the future opportunities in this important industry.
We also believe that our long-standing reputation in the power generation industry, our portfolio of offerings for the various generating methods, our advancements in serving the renewable energy market and carbon capture methodologies, as well as our global service and support structure, position us well for the future opportunities in this important industry. 30 Water Management The water management industry represented approximately 4% of our bookings in each of 2023 and 2022.
At December 31, 2022, the estimated fair market value of U.S. and non-U.S. plan assets for our defined ben efit pension plans decreased to $537.3 million from $764.2 million at December 31, 2021. Assets were allocated as follows: U.S.
At December 31, 2023, the estimated fair market value of U.S. and non-U.S. plan assets for our defined ben efit pension plans increased to $540.6 million from $537.3 million at December 31, 2022. Assets were allocated as follows: U.S.
Effect of Discount Rate Changes and Constancy of Other Assumptions: 0.5% Increase 0.5% Decrease (Amounts in millions) U.S. defined benefit pension plan: Effect on net pension expense $ (2.1) $ 2.0 Effect on Benefit Obligation (12.5) 13.4 Non-U.S. defined benefit pension plans: Effect on net pension expense (0.6) 0.7 Effect on Benefit Obligation (15.7) 16.2 U.S.
Effect of Discount Rate Changes and Constancy of Other Assumptions: 0.5% Increase 0.5% Decrease (Amounts in millions) U.S. defined benefit pension plan: Effect on net pension expense $ 0.2 $ (0.2) Effect on Benefit Obligation (14.5) 15.6 Non-U.S. defined benefit pension plans: Effect on net pension expense (0.4) 0.4 Effect on Benefit Obligation (17.0) 18.6 U.S.
Our product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products and services add value.
Our product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets where our products and services enable customers to achieve their goals.
We have used discount rates of 5.73%, 4.46% and 5.83% at December 31, 2022, in calculating our estimated 2023 net pension expense for the U.S. pension plans, non-U.S. pension plans and postretirement medical plans, respectively.
We have used discount rates of 5.41%, 4.22% and 5.57% at December 31, 2023, in calculating our estimated 2024 net pension expense for the U.S. pension plans, non-U.S. pension plans and postretirement medical plans, respectively.
Government Gilt Index 38 % 42 % Liability-Driven Investment 12 % 9 % Fixed income 50 % 51 % Multi-asset 20 % 20 % Buy-in Contract 19 % 20 % Other 10 % 7 % Other types 49 % 47 % The projected benefit obligation ("Benefit Obligation") for our defined benefit pension plans was $651.3 million and $892.6 million as of December 31, 2022 and 2021, respectively.
Government Gilt Index 39 % 38 % Liability-Driven Investment 12 % 12 % Fixed income 51 % 50 % Multi-asset 19 % 20 % Buy-in Contract 18 % 19 % Other 12 % 10 % Other types 49 % 49 % The projected benefit obligation ("Benefit Obligation") for our defined benefit pension plans was $715.2 million and $651.3 million as of December 31, 2023 and 2022, respectively.
Bookings and Backlog 2022 2021 2020 (Amounts in millions) Bookings $ 4,447.5 $ 3,774.4 $ 3,411.6 Backlog (at period end) 2,735.3 2,003.6 1,854.9 We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer in regard to the manufacture, delivery, and/or support of products or the delivery of service.
Bookings and Backlog 2023 2022 2021 (Amounts in millions) Bookings $ 4,271.8 $ 4,447.5 $ 3,774.4 Backlog (at period end) 2,695.1 2,735.3 2,003.6 We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer with regard to manufacturing, service or support.
FCD has a total of 44 manufacturing facilities and QRCs in 22 countries around the world, with five of its 19 manufacturing operations located in the U.S., eight located in Europe, five located in Asia Pacific and one located in Latin America. We believe that FCD is the second largest industrial valve supplier in the world.
FCD has a total of 44 manufacturing facilities and QRCs in 22 countries around the world, with five of its 19 manufacturing operations located in the U.S., eight located in Europe, five located in Asia Pacific and one located in Latin America.
Plan Asset category 2022 2021 Cash and Cash Equivalents 1 % 1 % Global Equity 21 % 26 % Global Real Assets 13 % 16 % Equity securities 34 % 42 % Diversified Credit 18 % 15 % Liability-Driven Investment 47 % 42 % Fixed income 65 % 57 % 41 Non-U.S.
Plan Asset category 2023 2022 Cash and Cash Equivalents 2 % 1 % Global Equity 21 % 21 % Global Real Assets 15 % 13 % Equity securities 36 % 34 % Diversified Credit 15 % 18 % Liability-Driven Investment 47 % 47 % Fixed income 62 % 65 % 42 Non-U.S.
Cash flow provided from working capital decreased in 2022 due primarily to increased cash flows used by or decreased cash flows provided by accounts receivable, inventory, contract assets, retirement obligations and other liabilities and accrued liabilities and income tax payable, partially offset by increased cash flows provided by or decreased cash flows used by contract liabilities, accounts payable and prepaid expenses and other assets as compared to 2021 .
Cash flow used by working capital decreased in 2023, due primarily to decreased cash flows used by or increased cash flows provided by accounts receivable, inventories, contract assets, accrued liabilities and income taxes payable and retirement obligations and other liabilities, partially offset by decreased cash flows provided by or increased cash flows used by contract liabilities, prepaid expenses and other and accounts payable as compared to the same period in 2022 .
Increases in accounts receivable used $152.0 million of cash flow in 2022, compared to $8.7 million in 2021. For the fourth quarter of 2022 our days' sales outstanding ("DSO") w as 75 d ays as compared to 72 days in 2021. We have not experienced a significant increase in customer payment defaults in 2022.
Increases in accounts receivable provided $4.7 million of cash flow in 2023, compared to cash used of $152.0 million in 2022. For the fourth quarter of 2023 our days' sales outstanding ("DSO") was 68 days as compared to 75 days in 2022. We have not experienced a significant increase in customer payment defaults in 2023.
Decreases in accrued liabil ities and income taxes payable used $5.2 million of cash flow in 2022 compared to $13.9 million in 2021. Cash used by investing activities were $6.1 million in 2022, as compared to $59.5 million in 2021.
Increases in accrued liabil ities and income taxes payable provided $59.2 million of cash flow in 2023 compared to cash used of $5.2 million in 2022. Cash used by investing activities were $68.6 million in 2023, as compared to $6.1 million in 2022.
The average discount rate for the non-U.S. plans increased from 1.71% to 4.46% based on analysis of bonds and other publicly-traded instruments, by country, which had higher yields due to market conditions. The average assumed rate of compensation remained constant at 3.50% for the U.S. plan and increased to 3.61% from 3.18% for our non-U.S. plans.
The average discount rate for the non-U.S. plans decreased from 4.46% to 4.22% based on analysis of bonds and other publicly-traded instruments, by country, which had lower yields due to market conditions. The average assumed rate of compensation increased from 3.50% to 4.00% for the U.S. plan and decreased to 3.24% from 3.61% for our non-U.S. plans.
Net Earnings and Earnings Per Share 2022 2021 2020 (Amounts in millions, except per share amounts) Net earnings attributable to Flowserve Corporation $ 188.7 $ 125.9 $ 130.4 Net earnings per share — diluted $ 1.44 $ 0.96 $ 1.00 Average diluted shares 131.3 130.9 131.1 Net earnings in 2022 increased by $62.8 million to $188.7 million , or to $1.44 per diluted share, as compared with 2021.
Net Earnings and Earnings Per Share 2023 2022 2021 (Amounts in millions, except per share amounts) Net earnings attributable to Flowserve Corporation $ 186.7 $ 188.7 $ 125.9 Net earnings per share — diluted $ 1.42 $ 1.44 $ 0.96 Average diluted shares 131.9 131.3 130.9 Net earnings in 2023 decreased by $2.0 million to $186.7 million , or to $1.42 per diluted share, as compared with 2022.
Plans Weighted average assumptions used to determine Benefit Obligation: Discount rate 5.73 % 4.46 % Rate of increase in compensation levels 3.50 3.61 Weighted average assumptions used to determine 2022 net pension expense: Long-term rate of return on assets 5.75 % 2.43 % Discount rate 3.00 1.71 Rate of increase in compensation levels 3.50 3.18 Weighted-average interest crediting rates 3.79 % 1.49 % The following provides a sensitivity analysis of alternative assumptions on the U.S. qualified and aggregate non-U.S. pension plans and U.S. postretirement plans.
Plans Weighted average assumptions used to determine Benefit Obligation: Discount rate 5.41 % 4.22 % Rate of increase in compensation levels 4.00 3.24 Weighted average assumptions used to determine 2023 net pension expense: Long-term rate of return on assets 6.00 % 3.97 % Discount rate 5.73 4.46 Rate of increase in compensation levels 3.50 3.62 Weighted-average interest crediting rates 4.00 % 2.29 % 43 The following provides a sensitivity analysis of alternative assumptions on the U.S. qualified, aggregate non-U.S. pension plans and U.S. postretirement plans.
We determine the point in time that control transfers to a customer based on the evaluation of specific indicators, such as title transfer, risk of loss transfer, customer acceptance and physical possession.
If control of the products and/or services does not transfer over time, then control transfers at a point in time. We determine the point in time that control transfers to a customer based on the evaluation of specific indicators, such as title transfer, risk of loss transfer, customer acceptance and physical possession.
Currently, we believe this approach provides the best estimate of our future obligation. 43 Most plan participants elect to receive plan benefits as a lump sum at the end of service, rather than an annuity. As such, the updated mortality tables had an immaterial effect on our pension obligation.
Most plan participants elect to receive plan benefits as a lump sum at the end of service, rather than an annuity. As such, the updated mortality tables had an immaterial effect on our pension obligation.
Bookings recorded and subsequently canceled within the same fiscal period are excluded from reported bookings. Bookings cancelled from the prior fiscal periods are excluded from the reported bookings and represent less than 1% for all periods presented. Bookings of $4.4 billion in 2022 increased by $673.0 million, or 17.8%, as compared with 2021.
Bookings recorded and subsequently canceled within the year-to-date period are excluded from year-to-date bookings. Bookings cancelled from the prior fiscal periods are excluded from the reported bookings and represent less than 1% for all periods presented. Bookings of $4.3 billion in 2023 decreased by $175.8 million, or 4.0%, as compared with 2022.
FCD 2022 2021 2020 (Amounts in millions, except percentages) Bookings $ 1,247.2 $ 1,112.8 $ 1,065.8 Sales 1,100.6 1,075.9 1,057.5 Gross profit 305.5 316.7 321.9 Gross profit margin 27.8 % 29.4 % 30.4 % SG&A 192.1 197.4 196.3 Segment operating income 113.4 119.7 125.6 Segment operating income as a percentage of sales 10.3 % 11.1 % 11.9 % Backlog (at period end) 745.5 639.8 623.1 Bookings in 2022 increased $134.4 million, or 12.1%, as compared with 2021.
FCD 2023 2022 2021 (Amounts in millions, except percentages) Bookings $ 1,345.9 $ 1,247.2 $ 1,112.8 Sales 1,266.0 1,100.6 1,075.9 Gross profit 372.8 305.5 316.7 Gross profit margin 29.4 % 27.8 % 29.4 % SG&A 224.8 192.1 197.4 Segment operating income 148.0 113.4 119.7 Segment operating income as a percentage of sales 11.7 % 10.3 % 11.1 % Backlog (at period end) 826.8 745.5 639.8 Bookings in 2023 increased $98.7 million, or 7.9%, as compared with 2022.
Increases in inventory used $147.5 million of cash flow in 2022 as compared with cash used of $32.1 million in 2021. Inventory turns were 3.6 t imes at December 31, 2022, as compared with 3.8 times for 2021. Our calculation of inventory turns does not reflect the impact of advanced cash received from our customers.
Increases in inv entory used $59.8 million of cash flow in 2023, compared with cash used of $147.5 million in 2022. Inventory turns were 3.6 t imes at both December 31, 2023 and 2022. Our calculation of inventory turns does not reflect the impact of advanced cash received from our customers.
The decrease of cash used in 2022 was primarily due to the termination of cross-currency swaps resulting in cash proceeds received of $66.0 million, higher cash proceeds provided from the disposal of assets during the year of $1.8 million and lower net affiliate investment activity of $7.0 million.
The increase of cash used in 2023 was primarily due to the termination of cross-currency swaps resulting in cash proceeds received of $66.0 million in 2022 that did not recur, lower cash proceeds provided from the disposal of assets during the year of $2.4 million and higher net affiliate investment activity of $3.1 million.
FPD 2022 2021 2020 (Amounts in millions, except percentages) Bookings $ 3,214.7 $ 2,675.7 $ 2,358.4 Sales 2,522.5 2,470.8 2,675.7 Gross profit 728.1 760.4 811.4 Gross profit margin 28.9 % 30.8 % 30.3 % SG&A 538.5 535.6 552.2 Gain on sale of business — 1.8 — Segment operating income 208.0 243.2 271.0 Segment operating income as a percentage of sales 8.2 % 9.8 % 10.1 % Backlog (at period end) 2,008.9 1,368.9 1,236.9 Bookings in 2022 increased by $539.0 million, or 20.1%, as compared with 2021 .
FPD 2023 2022 2021 (Amounts in millions, except percentages) Bookings $ 2,941.2 $ 3,214.7 $ 2,675.7 Sales 3,064.5 2,522.5 2,470.8 Gross profit 906.8 728.1 760.4 Gross profit margin 29.6 % 28.9 % 30.8 % SG&A 575.8 538.5 535.6 Gain on sale of business — — 1.8 Segment operating income 348.9 208.0 243.2 Segment operating income as a percentage of sales 11.4 % 8.2 % 9.8 % Backlog (at period end) 1,891.7 2,008.9 1,368.9 Bookings in 2023 decreased by $273.5 million, or 8.5%, as compared with 2022 .
The non-service cost portion of net pension expense (e.g., interest cost, actuarial gains and losses and expected return on plan assets) for our defined benefit pensi on plans included in other income (expense), net was $(4.2) million in 2022, compared to $(0.2) million in 2021. 42 The following are assumptions related to our defined benefit pension plans as of December 31, 2022: U.S.
The non-service cost portion of net pension expense (e.g., interest cost, actuarial gains and losses and expected return on plan assets) for our defined benefit pensi on plans included in other income (expense), net was $4.5 million in 2023, compared to $(4.2) million in 2022.
General industry activity levels increased in 2022 for the second consecutive year, primarily due to customers' improved repair and maintenance budgets. The outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels.
General industries also include sales to distributors, whose end customers operate in the industries we primarily serve. General industry activity levels increased in 2023 for the second consecutive year, primarily due to customers' improved repair and maintenance budgets. 29 The outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels.
The interest rates per annum applicable to the Credit Facility, other than with respect to swing line loans, are London Interbank Offered Rate (“LIBOR”) plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc.
T he interest rates per annum applicable to the Revolving Credit Facility, other than with respect to swing line loans, are adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR") plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc.
Currency effects provided a decrease of approximately $53 million (curren cy effects on backlog are calculated using the change in period end exchange rates). Backlog related to aftermarket orders was a pproximately 34% and 38% of the backlog at December 31, 2022 and 2021, respectively.
Currency effects provided an increase of approximately $42 million (curren cy effects on backlog are calculated using the change in period end exchange rates). Approximately 37% of the backlog at December 31, 2023 and 34% of the backlog at December 31, 2022 was related to aftermarket orders.
Gross Profit and Gross Profit Margin 2022 2021 2020 (Amounts in millions, except percentages) Gross profit $ 994.3 $ 1,049.7 $ 1,116.8 Gross profit margin 27.5 % 29.6 % 30.0 % Gross profit in 2022 decreased by $55.4 million, or 5.3%, as compared with 2021. Gross profit margin in 2022 of 27.5% decreased from 29.6% in 2021.
Gross Profit and Gross Profit Margin 33 2023 2022 2021 (Amounts in millions, except percentages) Gross profit $ 1,276.8 $ 994.3 $ 1,049.7 Gross profit margin 29.6 % 27.5 % 29.6 % Gross profit in 2023 increased by $282.5 million, or 28.4%, as compared with 2022. Gross profit margin in 2023 of 29.6% increased from 27.5% in 2022.
As of December 31, 2022, we had U.S. foreign tax credit carryforwards of $93.5 million, expiring in 2026-2032 tax years, against which we recorded a valuation allowance of $45.2 million related to the U.S. foreign tax credit carryforwards on foreign branch category income.
As of December 31, 2023, we had U.S. foreign tax credit carryforwards of $63.5 million, expiring in 2028-2033 tax years, against which we recorded a valuation allowance of $49.1 million related to the U.S. foreign tax credit carryforwards on foreign branch category income.
The net loss in 2022 was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, British pound, Indian rupee, Chinese yuan and Mexican peso versus the U.S. dollar at December 31, 2022 as compared with 2021.
The net loss in 2023 was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, British pound, Colombian peso and Mexican peso versus the U.S. dollar at December 31, 2023 as compared with 2022, partially offset by pension and other postretirement activity.
We also remain focused on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through the assistance of a focused Continuous Improvement Process ("CIP") initiative.
We also remain focused on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through our operational excellence program.
Our total cash balance at December 31, 2022 was $435.0 million, compared with $658.5 million at December 31, 2021. At December 31, 2022 our cash used by operating activities was $40.0 million, as compared to cash provided of $250.1 million in 2021.
Our total cash balance at December 31, 2023 was $545.7 million, compared with $435.0 million at December 31, 2022. At December 31, 2023 our cash provided by operating activities was $325.8 million, as compared to cash used of $40.0 million in 2022.
Operating income in 2022 decreased by $6.3 million, or 5.3%, as compared with 2021. The decrease included negative currency effects of approximately $4 million. The decrease was primarily due to the $11.2 million decrease in gross profit partially offset by decrease in SG&A of $5.3 million.
Operating income in 2023 increase d by $34.6 million, or 30.5%, as compared with 2022. The increase included negative currency effects of approximately $2 million. The increase was primarily due to the $67.3 million increase in gross profit partially offset by the increase in SG&A of $32.7 million.
Despite recent supply chain 26 disruption caused by the COVID-19 pandemic and labor constraints, we continue to enhance our global supply chain capability to increase our ability to meet global customer demands and improve the quality and timely delivery of our products over the long-term.
We continue to enhance our global supply chain capability to increase our ability to meet global customer demands and improve the quality and timely delivery of our products over the long-term.
We adjusted the improvement scale to utilize the Proxy SSA Long Term Improvement Rates, consistent with assumptions adopted by the Social Security Administration trustees, based on long-term historical experience.
We adjusted the improvement scale to utilize the Proxy SSA Long Term Improvement Rates, consistent with assumptions adopted by the Social Security Administration trustees, based on long-term historical experience. Currently, we believe this approach provides the best estimate of our future obligation.
Quantitative and Qualitative Disclosures about Market Risk” of this Annual Report. We expect to generate sufficient cash from operations and have sufficient capacity under our Senior Credit Facility to fund our working capital, capital expenditures, dividend payments, share repurchases, debt payments and pension plan contributions in 2023.
We expect to generate sufficient cash from operations and have sufficient capacity under our Senior Credit Facility to fund any working capital, capital expenditures, dividend payments, share repurchases, debt payments and pension plan contributions in 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe net loss in 2022 was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, British pound, Indian rupee, Chinese yuan and Mexican peso versus the U.S. dollar at December 31, 2022 as compared with 2021.
Biggest changeThe net loss in 2023 was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, British pound, Colombian peso and Mexican peso versus the U.S. dollar at December 31, 2023 as compared with 2022.
LIBOR On March 5, 2021, the UK Financial Conduct Authority (“FCA”), which regulates LIBOR issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration.
LIBOR/SOFR On March 5, 2021, the UK Financial Conduct Authority (“FCA”), which regulates LIBOR issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration.
As a result of the expected LIBOR cessation, the Company amended its Credit Agreement on February 3, 2023 whereby it has replaced LIBOR references with SOFR as the benchmark reference rate. 47
As a result of the expected LIBOR cessation, the Company amended its Credit Agreement on February 3, 2023 whereby it has replaced LIBOR references with SOFR as the benchmark reference rate. 48
At December 31, 2021, a 10% change in the foreign currency exchange rates for the year ended December 31, 2021 would have impacted our net earnings by approximately $10 million.
At December 31, 2022, a 10% change in the foreign currency exchange rates for the year ended December 31, 2022 would have impacted our net earnings by approximately $7 million.
Based on a sensitivity analysis at December 31, 2022, a 10% change in the foreign currency exchange rates for the year ended December 31, 2022 would have impacted our net earnings by approximately $7 million.
Based on a sensitivity analysis at December 31, 2023, a 10% change in the foreign currency exchange rates for the year ended December 31, 2023 would have impacted our net earnings by approximately $1 million.
We recognized foreign currency net gains (losses) of $9.7 million, $(27.4) million and $9.6 million for the years ended December 31, 2022, 2021 and 2020, respectively, which are included in other income (expense), net in the accompanying consolidated statements of income.
We recognized foreign currency net gains (losses) of $(41.1) million, $9.7 million and $(27.4) million for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in other income (expense), net in the accompanying consolidated statements of income.
We realized net gains (losses) associated with foreign currency translation of $(98.7) million, $0.5 million and $(15.2) million for the years ended December 31, 2022, 2021 and 2020, respectively, which are included in other comprehensive income (loss).
We realized net gains (losses) associated with foreign currency translation of $30.8 million, $(98.7) million and $0.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in other comprehensive income (loss).
As of December 31, 2022, we had a U.S. dollar equivalent of $459.2 million in aggregate notional amount outstanding in foreign exchange contracts with third parties, compared with $425.2 million at December 31, 2021.
As of December 31, 2023, we had a U.S. dollar equivalent of $656.6 million in aggregate notional amount outstanding in foreign exchange contracts with third parties, compared with $459.2 million at December 31, 2022.

Other FLS 10-K year-over-year comparisons