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Realignment and Transformation Programs

6 Months Ended

Jun. 30, 2020

Restructuring and Related Activities [Abstract]

Realignment and Transformation Programs

Realignment and Transformation Programs

In the second quarter of 2020, we identified and initiated certain realignment activities resulting from our Flowserve 2.0 Transformation Program (defined below) to right-size our organizational operations based on the current business environment, with the overall objective to reduce our workforce costs, including manufacturing optimization through the consolidation of certain facilities ("2020 Realignment Program"). The realignment activities consist of restructuring and non-restructuring charges. Restructuring charges represent costs associated with the relocation of certain business activities and facility closures and include related severance costs. Non-restructuring charges are primarily employee severance associated with the workforce reductions. Expenses are primarily reported in cost of sales ("COS") or selling, general and administrative ("SG&A"), as applicable, in our condensed consolidated statements of income. We anticipate a total investment in these activities of approximately $65 million and that the majority of the charges will be incurred in 2020. There are certain other realignment activities that are currently being evaluated, but have not yet been finalized. The realignment programs initiated in 2015 ("2015 Realignment Programs"), which consisted of both restructuring and non-restructuring charges, were substantially complete as of March 31, 2020, resulting in $362.4 million of total charges incurred through the completion of the programs.

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

Generally, the aforementioned charges will be paid in cash, except for asset write-downs, which are non-cash charges. The following is a summary of total charges, net of adjustments, related to our realignment activities and Flowserve 2.0 Transformation charges. Realignment charges incurred in the second quarter of 2020 related to our 2020 Realignment Program and realignment charges incurred in 2019 related to our 2015 Realignment Programs:

			Three Months Ended June 30, 2020
(Amounts in thousands)			FPD						FCD						Subtotal–Reportable Segments						All Other						Consolidated Total
Realignment Charges
Restructuring Charges
COS			$	11,650					$	(167)					$	11,483					$	—					$	11,483
SG&A			126						24						150						—						150
			$	11,776					$	(143)					$	11,633					$	—					$	11,633
Non-Restructuring Charges
COS			$	12,003					$	5,819					$	17,822					$	548					$	18,370
SG&A			9,316						4,312						13,628						14,852						28,480
			$	21,319					$	10,131					$	31,450					$	15,400					$	46,850
Total Realignment Charges
COS			$	23,653					$	5,652					$	29,305					$	548					$	29,853
SG&A			9,442						4,336						13,778						14,852						$	28,630
Total			$	33,095					$	9,988					$	43,083					$	15,400					$	58,483
Transformation Charges
SG&A			$	—					$	—					$	—					$	5,618					$	5,618
			$	—					$	—					$	—					$	5,618					$	5,618
Total Realignment and Transformation Charges
COS			$	23,653					$	5,652					$	29,305					$	548					$	29,853
SG&A			9,442						4,336						13,778						20,470						34,248
Total			$	33,095					$	9,988					$	43,083					$	21,018					$	64,101

_______________________________

			Three Months Ended June 30, 2019
(Amounts in thousands)			FPD						FCD						Subtotal–Reportable Segments						All Other						Consolidated Total
Realignment Charges
Restructuring Charges
COS			$	(928)					$	23					$	(905)					$	—					$	(905)
SG&A			1,345						90						1,435						—						1,435
			$	417					$	113					$	530					$	—					$	530
Non-Restructuring Charges
COS			$	4,727					$	42					$	4,769					$	—					$	4,769
SG&A			254						35						289						713						1,002
			$	4,981					$	77					$	5,058					$	713					$	5,771
Total Realignment Charges
COS			$	3,799					$	65					$	3,864					$	—					$	3,864
SG&A			1,599						125						1,724						713						$	2,437
Total			$	5,398					$	190					$	5,588					$	713					$	6,301
Transformation Charges
SG&A			$	—					$	—					$	—					$	7,573					$	7,573
			$	—					$	—					$	—					$	7,573					$	7,573
Total Realignment and Transformation Charges
COS			$	3,799					$	65					$	3,864					$	—					$	3,864
SG&A			1,599						$	125					1,724						8,286						10,010
Total			$	5,398					$	190					$	5,588					$	8,286					$	13,874

			Six Months Ended June 30, 2020
(Amounts in thousands)			FPD						FCD						Subtotal–Reportable Segments						All Other						Consolidated Total
Realignment Charges
Restructuring Charges
COS			$	13,331					$	(272)					$	13,059					$	—					$	13,059
SG&A			230						(3)						227						—						227
			$	13,561					$	(275)					$	13,286					$	—					$	13,286
Non-Restructuring Charges
COS			$	12,128					$	13,579					$	25,707					$	548					$	26,255
SG&A			9,801						4,384						14,185						15,497						29,682
			$	21,929					$	17,963					$	39,892					$	16,045					$	55,937
Total Realignment Charges
COS			$	25,459					$	13,307					$	38,766					$	548					$	39,314
SG&A			10,031						4,381						14,412						15,497						29,909
Total			$	35,490					$	17,688					$	53,178					$	16,045					$	69,223
Transformation Charges
SG&A			—						—						—						11,261						11,261
			$	—					$	—					$	—					$	11,261					$	11,261
Total Realignment and Transformation Charges
COS			$	25,459					$	13,307					$	38,766					$	548					$	39,314
SG&A			10,031						4,381						14,412						26,758						41,170
Total			$	35,490					$	17,688					$	53,178					$	27,306					$	80,484
_______________________________

			Six Months Ended June 30, 2019
(Amounts in thousands)			FPD						FCD						Subtotal–Reportable Segments						All Other						Consolidated Total
Restructuring Charges
COS			$	1,695					$	479					$	2,174					$	—					$	2,174
SG&A(1)			(17,126)						413						(16,713)						16						(16,697)
			$	(15,431)					$	892					$	(14,539)					$	16					$	(14,523)
Non-Restructuring Charges
COS			$	7,122					$	68					$	7,190					$	—					$	7,190
SG&A			427						34						461						1,243						1,704
			$	7,549					$	102					$	7,651					$	1,243					$	8,894
Total Realignment Charges
COS			$	8,817					$	547					$	9,364					$	—					$	9,364
SG&A			(16,699)						447						(16,252)						1,259						(14,993)
Total			$	(7,882)					$	994					$	(6,888)					$	1,259					$	(5,629)
Transformation Charges
SG&A			—						—						—						15,986						15,986
			$	—					$	—					$	—					$	15,986					$	15,986
Total Realignment and Transformation Charges
COS			$	8,817					$	547					$	9,364					$	—					$	9,364
SG&A			(16,699)						447						(16,252)						17,245						993
Total			$	(7,882)					$	994					$	(6,888)					$	17,245					$	10,357

_______________________________

(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.

The following is a summary of total inception to date charges, net of adjustments, related to the 2020 Realignment Program initiated in the second quarter of 2020:

			Inception to Date
(Amounts in thousands)			FPD						FCD						Subtotal–Reportable Segments						All Other						Consolidated Total
Realignment Charges
Restructuring Charges
COS			$	11,650					$	(167)					$	11,483					$	—					$	11,483
SG&A			126						24						150						—						150
			$	11,776					$	(143)					$	11,633					$	—					$	11,633
Non-Restructuring Charges
COS			$	12,003					$	5,819					$	17,822					$	548					$	18,370
SG&A			9,316						4,312						13,628						14,852						28,480
			$	21,319					$	10,131					$	31,450					$	15,400					$	46,850
Total Realignment Charges
COS			$	23,653					$	5,652					$	29,305					$	548					$	29,853
SG&A			9,442						4,336						13,778						14,852						28,630
Total			$	33,095					$	9,988					$	43,083					$	15,400					$	58,483

_______________________________

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

The following is a summary of restructuring charges, net of adjustments, for our restructuring activities. Restructuring charges incurred in the second quarter of 2020 related to our 2020 Realignment Program and restructuring charges incurred in 2019 related to our 2015 Realignment Programs:

			Three Months Ended June 30, 2020
(Amounts in thousands)			Severance						Contract Termination						Asset Write-Downs						Other						Total
COS			$	10,572					$	—					$	994					$	(83)					$	11,483
SG&A			126						—						24						—						150
Total			$	10,698					$	—					$	1,018					$	(83)					$	11,633

			Three Months Ended June 30, 2019
(Amounts in thousands)			Severance						Contract Termination						Asset Write-Downs						Other						Total
COS			$	148					$	9					$	(1,051)					$	(11)					$	(905)
SG&A			1,302						—						—						133						1,435
Total			$	1,450					$	9					$	(1,051)					$	122					$	530

			Six Months Ended June 30, 2020
(Amounts in thousands)			Severance						Contract Termination						Asset Write-Downs						Other						Total
COS			$	12,255					$	—					$	991					$	(187)					$	13,059
SG&A			265												—						(38)						227
Total			$	12,520					$	—					$	991					$	(225)					$	13,286

			Six Months Ended June 30, 2019
(Amounts in thousands)			Severance						Contract Termination						Asset Write-Downs/ (Gains)						Other						Total
COS			$	1,827					$	48					$	(818)					$	1,117					$	2,174
SG&A(1)			1,618						—						(18,502)						187						(16,697)
Total			$	3,445					$	48					$	(19,320)					$	1,304					$	(14,523)

_______________________________

(1) Primarily consists of gains from the sales of non-strategic manufacturing facilities that are included in our 2015 Realignment Programs.

The following is a summary of total inception to date restructuring charges, net of adjustments, related to our 2020 Realignment Program initiated in the second quarter of 2020:

			Inception to Date
(Amounts in thousands)			Severance						Contract Termination						Asset Write-Downs						Other						Total
COS			$	10,572					$	—					$	994					$	(83)					$	11,483
SG&A			126						—						24						—						150
Total			$	10,698					$	—					$	1,018					$	(83)					$	11,633

The following represents the activity, primarily severance charges from reductions in force, related to the restructuring reserves for the six months ended June 30, 2020 and 2019:

(Amounts in thousands)			2020						2019
Balance at January 1			$	6,703					$	11,927
Charges, net of adjustments			12,270						4,796
Cash expenditures			(2,713)						(4,733)
Other non-cash adjustments, including currency			(118)						(205)
Balance at June 30			$	16,142					$	11,785

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- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 420
-URI http://asc.fasb.org/topic&trid=2175745

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