Revenue Recognition

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

The majority of our revenues relate to customer orders that typically contain a single commitment of goods or services which have lead times under a year. Longer lead time, more complex contracts with our customers typically have multiple commitments of goods and services, including any combination of designing, developing, manufacturing, modifying, installing and commissioning of flow management equipment and providing services and parts related to the performance of such products. Control transfers over time when the customer is able to direct the use of and obtain substantially all of the benefits of our work as we perform.

Our primary method for recognizing revenue over time is the percentage of completion ("POC") method. Revenue from products and services transferred to customers over time accounted for approximately 22% and 19% total revenue for the three month periods ended June 30, 2020 and 2019, respectively, and 22% and 18% for the six month period ended June 30, 2020 and 2019, respectively. If control does not transfer over time, then control transfers at a point in time. We recognize revenue at a point in time at the level of each performance obligation based on the evaluation of certain indicators of control transfer, such as title transfer, risk of loss transfer, customer acceptance and physical possession. Revenue from products and services transferred to customers at a point in time accounted for approximately 78% and 81% of total revenue for the three month period ended June 30, 2020 and 2019, respectively, and 78% and 82% for the six month period ended June 30, 2020 and 2019, respectively. Refer to Note 2 to our consolidated financial statements included in our 2019 Annual Report for a more comprehensive discussion of our policies and accounting practices of revenue recognition.

Disaggregated Revenue

We conduct our operations through two business segments based on the type of product and how we manage the business:

•Flowserve Pump Division ("FPD") for custom, highly-engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and

•Flow Control Division ("FCD") for engineered and industrial valves, control valves, actuators and controls and related services.

Our revenue sources are derived from our original equipment manufacturing and our aftermarket sales and services. Our original equipment revenues are generally related to originally designed, manufactured, distributed and installed equipment that can range from pre-configured, short-cycle products to more customized, highly-engineered equipment ("Original Equipment"). Our aftermarket sales and services are derived from sales of replacement equipment, as well as maintenance, advanced diagnostic, repair and retrofitting services ("Aftermarket"). Each of our two business segments generate Original Equipment and Aftermarket revenues.

The following table presents our customer revenues disaggregated by revenue source:


	Three Months Ended June 30, 2020
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	271,465	$	191,311	$	462,776
Aftermarket	402,089		60,100		462,189
	$	673,554	$	251,411	$	924,965

	Three Months Ended June 30, 2019
	FPD		FCD		Total
Original Equipment	$	243,625	$	248,927	$	492,552
Aftermarket	430,341		67,191		497,532
	$	673,966	$	316,118	$	990,084



	Six Months Ended June 30, 2020
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	524,197	$	390,874	$	915,071
Aftermarket	784,482		119,869		904,351
	$	1,308,679	$	510,743	$	1,819,422

	Six Months Ended June 30, 2019
	FPD		FCD		Total
Original Equipment	$	449,429	$	462,973	$	912,402
Aftermarket	833,296		134,437		967,733
	$	1,282,725	$	597,410	$	1,880,135

Our customer sales are diversified geographically. The following table presents our revenues disaggregated by geography, based on the shipping addresses of our customers:


	Three Months Ended June 30, 2020
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	269,610	$	106,737	$	376,347
Latin America(1)	46,909		6,905		53,814
Middle East and Africa	96,740		21,687		118,427
Asia Pacific	128,102		64,499		192,601
Europe	132,193		51,583		183,776
	$	673,554	$	251,411	$	924,965

	Three Months Ended June 30, 2019
	FPD		FCD		Total
North America(1)	$	269,737	$	134,715	$	404,452
Latin America(1)	45,771		10,093		55,864
Middle East and Africa	87,344		22,875		110,219
Asia Pacific	124,206		83,189		207,395
Europe	146,908		65,246		212,154
	$	673,966	$	316,118	$	990,084



	Six Months Ended June 30, 2020
(Amounts in thousands)	FPD		FCD		Total
North America (1)	$	537,135	$	229,862	$	766,997
Latin America(1)	89,096		12,415		101,511
Middle East and Africa	193,908		48,352		242,260
Asia Pacific	240,557		120,000		360,557
Europe	247,983		100,114		348,097
	$	1,308,679	$	510,743	$	1,819,422

	Six Months Ended June 30, 2019
	FPD		FCD		Total
North America (1)	$	517,506	$	269,874	$	787,380
Latin America(1)	83,373		15,893		99,266
Middle East and Africa	161,710		45,763		207,473
Asia Pacific	238,154		140,401		378,555
Europe	281,982		125,479		407,461
	$	1,282,725	$	597,410	$	1,880,135

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(1) North America represents the United States and Canada; Latin America includes Mexico.

On June 30, 2020, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $548 million. We estimate recognition of approximately $273 million of this amount as revenue in the remainder of 2020 and an additional $275 million in 2021 and thereafter.

Contract Balances

We receive payment from customers based on a contractual billing schedule and specific performance requirements as established in our contracts. We record billings as accounts receivable when an unconditional right to consideration exists. A contract asset represents revenue recognized in advance of our right to receive payment under the terms of a contract. A contract liability represents our right to receive payment in advance of revenue recognized for a contract.

The following tables present beginning and ending balances of contract assets and contract liabilities, current and long-term, for the six months ended June 30, 2020 and 2019:


(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)
Beginning balance, January 1, 2020	$	272,914	9,280		$	216,541	$	1,652
Revenue recognized that was included in contract liabilities at the beginning of the period	—		—		(134,440)		(646)
Revenue recognized in the period in excess of billings	386,250		511		—		—
Billings arising during the period in excess of revenue recognized	—		—		141,156		—
Amounts transferred from contract assets to receivables	(335,505)		(93)		—		—

Currency effects and other, net	(14,510)		(6,689)		(9,122)		(31)
Ending balance, June 30, 2020	$	309,149	$	3,009	$	214,135	$	975


(Amounts in thousands)	Contract Assets, net (Current)		Long-term Contract Assets, net(1)		Contract Liabilities (Current)		Long-term Contract Liabilities(2)
Beginning balance, January 1, 2019	$	228,579	$	10,967	$	202,458	$	1,370
Revenue recognized that was included in contract liabilities at the beginning of the period	—		—		(108,769)		—
Revenue recognized in the period in excess of billings	361,384		—		—		—
Billings arising during the period in excess of revenue recognized	—		—		119,726		—
Amounts transferred from contract assets to receivables	(372,398)		(2,444)		—		—

Currency effects and other, net	(2,125)		45		(3,726)		(360)
Ending balance, June 30, 2019	$	215,440	$	8,568	$	209,689	$	1,010

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(1) Included in other assets, net.

(2) Included in retirement obligations and other liabilities.