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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM           to          .
Commission File No. 1-13179
FLOWSERVE CORPORATION
(Exact name of registrant as specified in its charter)
fls-20200930_g1.gif
New York 31-0267900
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5215 N. O’Connor Blvd., Suite 2300,Irving, Texas75039
(Address of principal executive offices) 
 
 (Zip Code)
( 972 ) 443-6500
(Registrant’s telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, $1.25 Par ValueFLSNew York Stock Exchange
1.25% Senior Notes due 2022FLS22ANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 6, 2020 there were 130,263,432 shares of the issuer’s common stock outstanding.





FLOWSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS

 Page
 No.
 



  
 
i


Table of Contents
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements.
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)Three Months Ended September 30,
 20202019
Sales$924,301 $995,709 
Cost of sales(639,092)(662,856)
Gross profit285,209 332,853 
Selling, general and administrative expense(200,729)(230,362)
Net earnings from affiliates 2,842 2,087 
Operating income87,322 104,578 
Interest expense(14,710)(13,981)
Interest income673 2,253 
Other income (expense), net(963)(8,477)
Earnings before income taxes72,322 84,373 
Provision for income taxes(18,672)(22,410)
Net earnings, including noncontrolling interests53,650 61,963 
Less: Net earnings attributable to noncontrolling interests(2,647)(2,121)
Net earnings attributable to Flowserve Corporation$51,003 $59,842 
Net earnings per share attributable to Flowserve Corporation common shareholders:  
Basic$0.39 $0.46 
Diluted0.39 0.45 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands)Three Months Ended September 30,
 20202019
Net earnings, including noncontrolling interests$53,650 $61,963 
Other comprehensive income (loss):  
Foreign currency translation adjustments, net of taxes of $140 and $852, respectively
25,204 (30,600)
Pension and other postretirement effects, net of taxes of $(421) and $(231), respectively
(976)3,648 
Cash flow hedging activity41 44 
Other comprehensive income (loss)24,269 (26,908)
Comprehensive income (loss), including noncontrolling interests77,919 35,055 
Comprehensive (income) loss attributable to noncontrolling interests(2,643)(2,055)
Comprehensive income (loss) attributable to Flowserve Corporation$75,276 $33,000 

See accompanying notes to condensed consolidated financial statements.
1


Table of Contents
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)Nine Months Ended September 30,
 20202019
Sales$2,742,826 $2,871,517 
Cost of sales(1,921,451)(1,931,756)
Gross profit821,375 939,761 
Selling, general and administrative expense(675,523)(665,625)
Net earnings from affiliates 9,125 8,057 
Operating income154,977 282,193 
Interest expense(40,608)(42,025)
Interest income3,571 6,494 
Other income (expense), net7,558 (15,153)
Earnings before income taxes125,498 231,509 
Provision for income taxes(59,175)(58,607)
Net earnings, including noncontrolling interests66,323 172,902 
Less: Net earnings attributable to noncontrolling interests(6,890)(6,659)
Net earnings attributable to Flowserve Corporation$59,433 $166,243 
Net earnings per share attributable to Flowserve Corporation common shareholders:  
Basic$0.46 $1.27 
Diluted0.45 1.26 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)Nine Months Ended September 30,
 20202019
Net earnings, including noncontrolling interests$66,323 $172,902 
Other comprehensive income (loss):  
Foreign currency translation adjustments, net of taxes of $6,114 and $2,043, respectively
(41,022)(26,503)
Pension and other postretirement effects, net of taxes of $(1,263) and $(660), respectively
7,091 7,051 
Cash flow hedging activity139 149 
Other comprehensive income (loss) (33,792)(19,303)
Comprehensive income (loss), including noncontrolling interests32,531 153,599 
Comprehensive (income) loss attributable to noncontrolling interests(7,662)(7,258)
Comprehensive income (loss) attributable to Flowserve Corporation$24,869 $146,341 

See accompanying notes to condensed consolidated financial statements.

2


Table of Contents
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value)September 30,December 31,
20202019
ASSETS
Current assets:  
Cash and cash equivalents$921,178 $670,980 
Accounts receivable, net of allowance for expected credit losses of $76,061 and $53,412, respectively
750,897 795,538 
Contract assets, net of allowance for expected credit losses of $3,043 at September 30, 2020
310,130 272,914 
Inventories, net714,489 660,837 
Prepaid expenses and other109,451 106,478 
Total current assets2,806,145 2,506,747 
Property, plant and equipment, net of accumulated depreciation of $1,068,613 and $1,013,207, respectively
551,011 563,564 
Operating lease right-of-use assets, net166,850 186,218 
Goodwill1,204,609 1,193,010 
Deferred taxes32,206 54,879 
Other intangible assets, net171,246 180,805 
Other assets, net of allowance for expected credit losses of $97,897 and $101,439, respectively
241,509 253,054 
Total assets$5,173,576 $4,938,277 
LIABILITIES AND EQUITY
Current liabilities:  
Accounts payable$428,870 $447,582 
Accrued liabilities423,117 401,385 
Contract liabilities198,380 221,095 
Debt due within one year8,581 11,272 
Operating lease liabilities34,634 36,108 
Total current liabilities1,093,582 1,117,442 
Long-term debt due after one year1,701,082 1,365,977 
Operating lease liabilities133,348 151,523 
Retirement obligations and other liabilities541,721 530,994 
Shareholders’ equity:  
Commitments and contingencies (See Note 11)
Common shares, $1.25 par value
220,991 220,991 
Shares authorized – 305,000
  
Shares issued – 176,793
  
Capital in excess of par value499,561 501,045 
Retained earnings3,625,291 3,652,244 
Treasury shares, at cost – 46,775 and 46,262 shares, respectively
(2,059,666)(2,051,583)
Deferred compensation obligation6,100 8,334 
Accumulated other comprehensive loss(618,856)(584,292)
Total Flowserve Corporation shareholders’ equity1,673,421 1,746,739 
Noncontrolling interests30,422 25,602 
Total equity1,703,843 1,772,341 
Total liabilities and equity$5,173,576 $4,938,277 
See accompanying notes to condensed consolidated financial statements.
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FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 Total Flowserve Corporation Shareholders’ Equity  
Capital
in Excess of Par Value
Retained EarningsDeferred Compensation ObligationAccumulated
Other Comprehensive Income (Loss)
Total Equity
 Common StockTreasury StockNon-
controlling Interests
 SharesAmountSharesAmount
 (Amounts in thousands)
Balance — July 1, 2020176,793 $220,991 $499,152 $3,600,645 (46,873)$(2,064,302)$6,036 $(643,129)$27,779 $1,647,172 
Stock activity under stock plans— — (5,220)— 98 4,636 64 — — (520)
Stock-based compensation— — 5,629 — — — — — — 5,629 
Net earnings— — — 51,003 — — — — 2,647 53,650 
Cash dividends declared— — — (26,357)— — — — — (26,357)
Other comprehensive income (loss), net of tax— — — — — — — 24,273 (4)24,269 
Other, net— — — — — —  —   
Balance — September 30, 2020176,793 $220,991 $499,561 $3,625,291 (46,775)$(2,059,666)$6,100 $(618,856)$30,422 $1,703,843 
Balance — July 1, 2019$176,793 $220,991 $493,037 $3,570,119 (45,943)$(2,036,857)$8,219 $(567,007)$23,477 $1,711,979 
Stock activity under stock plans— — (260)— 4 149 58 — — (53)
Stock-based compensation— — 7,153 — — — — — — 7,153 
Net earnings— — — 59,842 — — — — 2,121 61,963 
Cash dividends declared— — — (25,245)— — — — — (25,245)
Repurchases of common shares— — — — (114)(5,432)— — — (5,432)
Other comprehensive income (loss), net of tax— — — — — — — (26,842)(66)(26,908)
Other, net— — — — — —  — (63)(63)
Balance — September 30, 2019176,793 $220,991 $499,930 $3,604,716 (46,053)$(2,042,140)$8,277 $(593,849)$25,469 $1,723,394 
See accompanying notes to condensed consolidated financial statements.

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FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 Total Flowserve Corporation Shareholders’ Equity  
Capital
in Excess of Par Value
Retained EarningsDeferred Compensation ObligationAccumulated
Other Comprehensive Income (Loss)
Total Equity
 Common StockTreasury StockNon-
controlling Interests
 SharesAmountSharesAmount
 (Amounts in thousands)
Balance — January 1, 2020176,793 $220,991 $501,045 $3,652,244 (46,262)$(2,051,583)$8,334 $(584,292)$25,602 $1,772,341 
ASU No. 2016-13 - Measurement of Credit Losses on Financial Instruments (Topic 326)
— — — (7,291)— — — — — (7,291)
Stock activity under stock plans— — (25,588)— 544 24,029 (2,234)— — (3,793)
Stock-based compensation— — 24,104 — — — — — — 24,104 
Net earnings— — — 59,433 — — — — 6,890 66,323 
Cash dividends declared— — — (79,095)— — — — — (79,095)
Repurchases of common shares— — — — (1,057)(32,112)— — — (32,112)
Other comprehensive income (loss), net of tax— — — — — — — (34,564)772 (33,792)
Other, net— — — — — — — — (2,842)(2,842)
Balance — September 30, 2020176,793 $220,991 $499,561 $3,625,291 (46,775)$(2,059,666)$6,100 $(618,856)$30,422 $1,703,843 
Balance — January 1, 2019176,793 $220,991 $494,551 $3,514,229 (46,237)$(2,049,404)$7,117 $(573,947)$18,465 $1,632,002 
Stock activity under stock plans— — (17,129)— 298 12,696 1,160 — — (3,273)
Stock-based compensation— — 22,508 — — — — — — 22,508 
Net earnings— — — 166,243 — — — — 6,659 172,902 
Cash dividends declared— — — (75,756)— — — — — (75,756)
Repurchases of common shares— — — — (114)(5,432)— — — (5,432)
Other comprehensive income (loss), net of tax— — — — — — — (19,902)599 (19,303)
Other, net— — — — — —  — (254)(254)
Balance — September 30, 2019176,793 $220,991 $499,930 $3,604,716 (46,053)$(2,042,140)$8,277 $(593,849)$25,469 $1,723,394 
See accompanying notes to condensed consolidated financial statements.

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FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)Nine Months Ended September 30,
 20202019
Cash flows – Operating activities:  
Net earnings, including noncontrolling interests$66,323 $172,902 
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:  
Depreciation63,887 69,320 
Amortization of intangible and other assets8,788 10,134 
Stock-based compensation24,104 22,507 
Foreign currency, asset write downs and other non-cash adjustments 19,519 (8,284)
Change in assets and liabilities:  
Accounts receivable, net24,324 (11,994)
Inventories, net(51,974)(64,280)
Contract assets, net(37,328)(35,607)
Prepaid expenses and other assets, net6,051 (26,194)
Accounts payable(21,756)(11,994)
Contract liabilities(22,468)26,641 
Accrued liabilities and income taxes payable24,257 (8,459)
Retirement obligations and other 22,729 9,257 
       Net deferred taxes (10,827)(726)
Net cash flows provided (used) by operating activities115,629 143,223 
Cash flows – Investing activities:  
Capital expenditures(47,919)(45,276)
Proceeds from disposal of assets and other13,759 40,773 
Net cash flows provided (used) by investing activities(34,160)(4,503)
Cash flows – Financing activities:  
Payments on long-term debt(191,258)(105,000)
Proceeds from short-term financing 75,000 
Payments on short-term financing (75,000)
Proceeds from issuance of senior notes498,280  
Payments of deferred loan cost(4,572) 
Proceeds under other financing arrangements154 2,572 
Payments under other financing arrangements(5,773)(8,903)
Repurchases of common shares(32,112)(5,432)
Payments related to tax withholding for stock-based compensation(4,521)(3,835)
Payments of dividends(78,106)(74,695)
Other(3,120)(252)
Net cash flows provided (used) by financing activities178,972 (195,545)
Effect of exchange rate changes on cash(10,243)(17,009)
Net change in cash and cash equivalents250,198 (73,834)
Cash and cash equivalents at beginning of period670,980 619,683 
Cash and cash equivalents at end of period$921,178 $545,849 

See accompanying notes to condensed consolidated financial statements.
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FLOWSERVE CORPORATION
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation and Accounting Policies

Basis of Presentation
The accompanying condensed consolidated balance sheet as of September 30, 2020, the related condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 of Flowserve Corporation are unaudited. In management’s opinion, all adjustments comprising normal recurring adjustments necessary for fair statement of such condensed consolidated financial statements have been made. Where applicable, prior period information has been updated to conform to current year presentation.
The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 ("Quarterly Report") are presented as permitted by Regulation S-X and do not contain certain information included in our annual financial statements and notes thereto. Accordingly, the accompanying condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements presented in our Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Annual Report").
Revision to Previously Reported Financial Information - In conjunction with our close process for the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily related to an incurred but not reported ("IBNR") liability associated with unasserted asbestos claims, but also included adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR for periods beginning with the year ended December 31, 2014 through the second quarter of 2020 and to correct certain other previously identified immaterial errors.
We have assessed these errors, individually and in the aggregate, and concluded that they were not material to any prior annual or interim period. However, the aggregate amount of the prior period errors would have been material to our current interim condensed consolidated statements of income and to our anticipated full year results and therefore, we have revised our previously issued unaudited condensed consolidated financial information for the three and nine months ended September 30, 2019. Prior periods not presented herein will be revised, as applicable, in future filings. See Note 2 for more information.
Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first nine months of 2020, we have been challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by COVID-19 and the emanating impacts of the pandemic on pricing and dampened demand for oil, further resulting in instability and volatility in oil commodity prices. To date, the COVID-19 pandemic has had widespread implications worldwide and has caused substantial economic uncertainty and challenging operational conditions. For example, in the first nine months of 2020, these conditions drove the announcement of significant and broad-based decreases in customer planned capital spending. As a result, many of our large customers have announced double-digit capital expenditure budget decreases for the remainder of the year, resulting in lower bookings in the first nine months of 2020 as compared to the prior year.
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, judgments and methodologies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic directly or indirectly impacts our business, results of operations and financial condition, including sales, expenses, our allowance for expected credit losses, stock based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, and valuation allowances for tax assets, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers, suppliers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in the near to mid-term as new information becomes available. Actual results may differ from these estimates.
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Accounting Developments
Pronouncements Implemented
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments" ("CECL"). The ASU requires, among other things, the use of a new current expected credit loss model in order to determine an allowance for expected credit losses with respect to financial assets and instruments held. The CECL model requires that we estimate the lifetime of an expected credit loss for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On January 1, 2020, we adopted the ASU on a prospective basis to determine our allowance for credit losses in accordance with the requirements of Topic 326, and we modified our accounting policy and processes to facilitate this approach. As a result of the adoption of the ASU, we recorded a noncash cumulative effect after-tax adjustment to retained earnings of $7.3 million on our opening condensed consolidated balance sheet.
Our primary exposure to financial assets that are within the scope of CECL are trade receivables and contract assets. For these financial assets, we record an allowance for expected credit losses that, when deducted from the gross asset balance, presents the net amount expected to be collected. We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history. Additionally, we adjust the allowance for factors that are specific to our customers’ credit risk such as financial difficulties, liquidity issues, insolvency, and country and political risk. We also consider both the current and forecasted direction of macroeconomic conditions at the reporting date. The CECL model requires consideration of reasonable and supportable forecasts of future economic conditions in the estimate of expected credit losses.
We adjust the allowance and recognize adjustments in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of amounts previously written off are reflected as a reduction to credit impairment losses in the income statement.
Our allowance for expected credit losses for short-term receivables as of September 30, 2020, was $76.1 million, compared to $53.4 million as of December 31, 2019. The nine months of activity included $6.9 million for the adoption of the CECL model at January 1, 2020 and $15.8 million for current period adjustments.
Our long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of amounts to be collected from insurance companies and fully-reserved receivables associated with the national oil company in Venezuela. As of September 30, 2020, we had $108.2 million of long-term receivables, compared to $118.5 million as of December 31, 2019. Our allowance for expected credit losses for long-term receivables as of September 30, 2020 was $97.9 million, compared to $101.4 million as of December 31, 2019.
We have exposure to credit losses from off-balance sheet exposures, such as financial guarantees and standby letters of credit, where we believe the risk of loss is immaterial to our financial statements as of September 30, 2020.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this ASU allow companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2017-04 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The amendments of the ASU modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosure requirements for assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to the financial statements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. Our adoption of ASU No. 2018-13 effective January 1, 2020 did not have an impact on our disclosures.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The ASU addresses how entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract. Per the amendments of the ASU, implementation costs incurred in a cloud computing arrangement that is a service contract should be accounted for in the same manner as implementation costs incurred to develop or obtain software for internal use as prescribed by guidance in ASC 350-40. The ASU requires that implementation
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costs incurred in a cloud computing arrangement be capitalized rather than expensed. Further, the ASU specifies the method for the amortization of costs incurred during implementation, and the manner in which the unamortized portion of these capitalized implementation costs should be evaluated for impairment. The ASU also provides guidance on how to present such implementation costs in the financial statements and also creates additional disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2019. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Our adoption of ASU No. 2018-15 effective January 1, 2020 on a prospective basis did not have a material impact on our condensed consolidated financial condition and results of operations.
In October 2018, the FASB issued ASU No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("VIEs")." The standard reduces the cost and complexity of financial reporting associated with VIEs. The new standard amends the guidance for determining whether a decision-making fee is a VIE.  The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety as currently required in U.S. Generally Accepted Accounting Principles ("GAAP"). The amendments of this ASU are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-17 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In November 2018, the FASB issued ASU No. 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606." The ASU clarifies the interaction between the guidance for certain collaborative arrangements and ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which we adopted January 1, 2018. The amendments of the ASU provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within ASU No. 2014-09. The ASU also provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. Parts of the collaborative arrangement that are not in the purview of the revenue recognition standard should be presented separately. The amendments are effective for fiscal years beginning after December 15, 2019. Our adoption of ASU No. 2018-18 effective January 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. We early adopted ASU No. 2019-12 effective January 1, 2020 on a prospective basis and the adoption did not have an impact on our condensed consolidated financial condition and results of operations.

Pronouncements Not Yet Implemented
In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The ASU amends the disclosure requirements by adding, clarifying, or removing certain disclosures for sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. We are currently evaluating the impact of ASU No. 2018-14 and we anticipate that our adoption of this ASU will not have an impact on our disclosures.
In March of 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of The Effects of Reference Rate Reform on Financial Reporting." The ASU provides guidance designed to enable the process for migrating away from reference rates such as the London Interbank Offered Rate ("LIBOR") and others to new reference rates. Further, the amendments of the ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The amendments are effective as of March 12, 2020 through December 31, 2022 and should be applied prospectively to all periods presented. We have evaluated the impact of ASU No. 2020-04 and we anticipate that our adoption of this ASU will not have an impact on our condensed consolidated financial condition and results of operations.

2.Revision to Previously Reported Financial Information

In conjunction with our close process for the third quarter of 2020, we identified accounting errors related to the recognition of a liability for unasserted asbestos claims. The adjustments primarily relate to an IBNR associated with unasserted asbestos claims, but also include adjustments related to the associated receivables for expected insurance proceeds for asbestos settlement and defense costs from insurance coverage and the recognition as an expense the related legal fees that
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were previously estimated to be recoverable from insurance carriers for which coverage is not currently sufficient following the recognition of the IBNR and to correct certain other previously identified immaterial misstatements. Prior periods not presented herein will be revised, as applicable, in future filings.
The following table presents the impact of correcting the errors previously discussed on the affected line items of our condensed consolidated balance sheet as of December 31, 2019:

December 31, 2019
(Amounts in thousands, except par value)As Reported AdjustmentsAs Revised
Prepaid expenses and other$105,101 $1,377 $106,478 
Total current assets2,505,370 1,377 2,506,747 
Property, plant and equipment, net of accumulated depreciation (1)572,175 (8,611)563,564 
Other assets, net of allowance for expected credit losses (2)227,185 25,869 253,054 
Total assets4,919,642 18,635 4,938,277 
Contract liabilities (3)216,541 4,554 221,095 
Total current liabilities1,112,888 4,554 1,117,442 
Retirement obligations and other liabilities (4)473,295 57,699 530,994 
Retained earnings (5)3,695,862 (43,618)3,652,244 
Total Flowserve Corporation shareholders’ equity1,790,357 (43,618)1,746,739 
Total equity1,815,959 (43,618)1,772,341 
Total liabilities and equity$4,919,642 $18,635 $4,938,277 
_______________________________________
(1) Adjustment related to the misclassification of Software as a Service arrangements as property, plant and equipment rather than other assets, net, as prescribed by ASU 2018-15.
(2) Adjustment related to the associated receivables for expected insurance proceeds for asbestos settlements and defense costs.
(3) Adjustment related to one of our sites for correction in contract position caused by errors in estimated costs under the over time revenue recognition model.
(4) Adjustment primarily relates to IBNR reserves associated with unasserted asbestos claims.
(5) The adjustments to retained earnings represents the cumulative effect of the immaterial errors that were corrected in periods prior to and through December 31, 2019.

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

(Amounts in thousands, except per share data)Three Months Ended September 30, 2019
 As ReportedAdjustmentsAs Revised
Sales$996,544 $(835)$995,709 
Gross profit333,688 (835)332,853 
Selling, general and administrative expense (1)(226,216)(4,146)(230,362)
Operating income109,559 (4,981)104,578 
Other income (expense), net (2)(1,622)(6,855)(8,477)
Earnings before income taxes96,209 (11,836)84,373 
Provision for income taxes (3)(25,646)3,236 (22,410)
Net earnings, including noncontrolling interests70,563 (8,600)