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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 March 31, 2022
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)
https://cdn.kscope.io/8758b9a0adbc9419e57a8fb4ce44c3dc-fls-20220331_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 700,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
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 April 28, 2022 there were 130,644,615 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 (LOSS)
(Unaudited)
(Amounts in thousands, except per share data)Three Months Ended March 31,
 20222021
Sales$821,058 $857,308 
Cost of sales(611,411)(606,408)
Gross profit209,647 250,900 
Selling, general and administrative expense(206,138)(198,315)
Net earnings from affiliates 3,858 3,518 
Operating income7,367 56,103 
Interest expense(10,693)(16,778)
Loss on extinguishment of debt (7,610)
Interest income943 602 
Other income (expense), net(8,114)(11,364)
Earnings (loss) before income taxes(10,497)20,953 
(Provision for) benefit from income taxes(3,182)(3,792)
Net earnings (loss), including noncontrolling interests(13,679)17,161 
Less: Net earnings attributable to noncontrolling interests(2,141)(3,081)
Net earnings (loss) attributable to Flowserve Corporation$(15,820)$14,080 
Net earnings (loss) per share attributable to Flowserve Corporation common shareholders:  
Basic$(0.12)$0.11 
Diluted(0.12)0.11 
Weighted average shares - basic130,410 130,427 
Weighted average shares - diluted130,410 131,006 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands)Three Months Ended March 31,
 20222021
Net earnings (loss), including noncontrolling interests$(13,679)$17,161 
Other comprehensive income (loss):  
Foreign currency translation adjustments, net of taxes of $(13,306) and $654, respectively
(16,744)(10,889)
Pension and other postretirement effects, net of taxes of $(254) and $(471), respectively
3,587 4,259 
Cash flow hedging activity, net of taxes of $(9) and $(62), respectively
29 202 
Other comprehensive income (loss)(13,128)(6,428)
Comprehensive income (loss), including noncontrolling interests(26,807)10,733 
Comprehensive (income) loss attributable to noncontrolling interests(3,476)(3,230)
Comprehensive income (loss) attributable to Flowserve Corporation$(30,283)$7,503 

See accompanying notes to condensed consolidated financial statements.
1


Table of Contents
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value)March 31,December 31,
20222021
ASSETS
Current assets:  
Cash and cash equivalents$575,795 $658,452 
Accounts receivable, net of allowance for expected credit losses of $79,326 and $74,336, respectively
730,201 739,210 
Contract assets, net of allowance for expected credit losses of $3,338 and $2,393, respectively
200,054 195,598 
Inventories, net722,380 678,287 
Prepaid expenses and other148,426 117,130 
Total current assets2,376,856 2,388,677 
Property, plant and equipment, net of accumulated depreciation of $1,161,374 and $1,191,823, respectively
506,655 515,927 
Operating lease right-of-use assets, net187,272 193,863 
Goodwill1,186,221 1,196,479 
Deferred taxes31,692 44,049 
Other intangible assets, net148,461 152,463 
Other assets, net of allowance for expected credit losses of $68,184 and $67,696, respectively
265,854 258,310 
Total assets$4,703,011 $4,749,768 
LIABILITIES AND EQUITY
Current liabilities:  
Accounts payable$418,719 $410,062 
Accrued liabilities447,175 445,092 
Contract liabilities204,158 202,965 
Debt due within one year44,616 41,058 
Operating lease liabilities32,938 32,628 
Total current liabilities1,147,606 1,131,805 
Long-term debt due after one year1,251,595 1,261,770 
Operating lease liabilities160,057 166,786 
Retirement obligations and other liabilities352,698 352,062 
Commitments and contingencies (See Note 11)
Shareholders’ equity:  
Common shares, $1.25 par value
220,991 220,991 
Shares authorized – 305,000
  
Shares issued – 176,793
  
Capital in excess of par value496,151 506,386 
Retained earnings3,648,678 3,691,023 
Treasury shares, at cost – 46,424 and 46,794 shares, respectively
(2,039,900)(2,057,706)
Deferred compensation obligation7,122 7,214 
Accumulated other comprehensive loss(578,053)(563,589)
Total Flowserve Corporation shareholders’ equity1,754,989 1,804,319 
Noncontrolling interests36,066 33,026 
Total equity1,791,055 1,837,345 
Total liabilities and equity$4,703,011 $4,749,768 
See accompanying notes to condensed consolidated financial statements.
2


Table of Contents
FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ 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, 2022176,793 $220,991 $506,386 $3,691,023 (46,794)$(2,057,706)$7,214 $(563,589)$33,026 $1,837,345 
Stock activity under stock plans— — (21,246)— 370 17,806 (92)— — (3,532)
Stock-based compensation— 11,011 — — — — — — 11,011 
Net loss— — — (15,820)— — — — 2,141 (13,679)
Cash dividends declared— — — (26,525)— — — — — (26,525)
Other comprehensive income (loss), net of tax— — — — — — — (14,464)1,336 (13,128)
Other, net— — — — — — —  (437)(437)
Balance — March 31, 2022176,793 $220,991 $496,151 $3,648,678 (46,424)$(2,039,900)$7,122 $(578,053)$36,066 $1,791,055 
Balance — January 1, 2021176,793 $220,991 $502,227 $3,670,543 (46,768)$(2,059,309)$6,164 $(609,625)$30,330 $1,761,321 
Stock activity under stock plans— — (23,081)— 401 18,453 (50)— — (4,678)
Stock-based compensation— — 9,760 — — — — — — 9,760 
Net earnings— — — 14,080 — — — — 3,081 17,161 
Cash dividends declared— — — (26,465)— — — — — (26,465)
Repurchases of common shares— — — — (129)(5,081)— — — (5,081)
Other comprehensive income (loss), net of tax— — — — — — — (6,575)147 (6,428)
Other, net— — — — — — — — (3,804)(3,804)
Balance — March 31, 2021176,793 $220,991 $488,906 $3,658,158 (46,496)$(2,045,937)$6,114 $(616,200)$29,754 $1,741,786 
See accompanying notes to condensed consolidated financial statements.

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FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)Three Months Ended March 31,
 20222021
Cash flows – Operating activities:  
Net earnings (loss), including noncontrolling interests$(13,679)$17,161 
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:  
Depreciation20,148 21,522 
Amortization of intangible and other assets3,396 3,862 
Loss on extinguishment of debt 7,610 
Stock-based compensation11,011 9,760 
Foreign currency, asset write downs and other non-cash adjustments 6,893 24,260 
Change in assets and liabilities:  
Accounts receivable, net5,039 9,005 
Inventories, net(48,715)(16,988)
Contract assets, net(5,655)(2,245)
Prepaid expenses and other assets, net(33,197)307 
Accounts payable8,204 (47,093)
Contract liabilities2,600 9,001 
Accrued liabilities and income taxes payable7,302 187 
Retirement obligations and other 10,912 5,248 
       Net deferred taxes (1,032)(5,219)
Net cash flows provided (used) by operating activities(26,773)36,378 
Cash flows – Investing activities:  
Capital expenditures(14,052)(11,422)
Proceeds from disposal of assets and other1,834 1,934 
Net cash flows provided (used) by investing activities(12,218)(9,488)
Cash flows – Financing activities:  
Payments on senior notes (407,473)
Payments on term loan(7,593) 
Proceeds under other financing arrangements555 425 
Payments under other financing arrangements(484)(1,976)
Repurchases of common shares (5,081)
Payments related to tax withholding for stock-based compensation(4,304)(5,547)
Payments of dividends(26,128)(26,465)
Other(437)(3,806)
Net cash flows provided (used) by financing activities(38,391)(449,923)
Effect of exchange rate changes on cash(5,275)(12,936)
Net change in cash and cash equivalents(82,657)(435,969)
Cash and cash equivalents at beginning of period658,452 1,095,274 
Cash and cash equivalents at end of period$575,795 $659,305 
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 March 31, 2022, and the related condensed consolidated statements of income (loss), condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of shareholders' equity and condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 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. 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 March 31, 2022 ("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, 2021 ("2021 Annual Report").
Coronavirus Pandemic ("COVID-19") and Oil and Gas Market - During the first three months of 2022, we continue to be challenged by macroeconomics and global economic impacts based on the disruption and uncertainties caused by COVID-19. As a result of the COVID-19 pandemic’s effect on oil prices, many of our large customers reduced capital expenditures and budgets in 2020. To date, while we have seen customer maintenance, repair and overhaul ("MRO") and aftermarket spending return close to pre-pandemic levels, and although we are seeing momentum in project-based capital expenditures, such business has yet to return to pre-pandemic levels. In addition, many of our suppliers have also experienced varying lengths of production and shipping delays related to the COVID-19 pandemic and its effects, some of which continue to exist in highly affected countries. These conditions have had an adverse effect on 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.
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.
Russia and Ukraine Conflict - In response to the recent and 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. 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. 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 2022.
In 2021 our Russian subsidiary had approximately $14 million of sales with an additional $36 million of sales from certain of our other foreign subsidiaries into the Russian market. As of March 31, 2022, the net assets held on our Russian subsidiary's balance sheet were $2.7 million, including $7.1 million of cash, $3.6 million of accounts receivables, a $9.3 million net intercompany payable position and other immaterial amounts. In addition, certain of our other foreign subsidiaries had open contracts with Russian customers that were subsequently cancelled for which revenue had been previously recognized over time utilizing the percentage of completion ("POC") method. As a result of the above, in the first quarter of 2022 we recorded a $20.2 million pre-tax charge ($21.0 million after-tax) to reserve the asset positions of our Russian subsidiary (excluding cash) as of March 31, 2022, to record a contra-revenue for previously recognized revenue and estimated cancellation fees on open
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contracts that were previously accounted for under POC and subsequently canceled, to establish a reserve for the estimated cost to exit the operations of our Russian subsidiary and to record a reserve for our estimated financial exposure on contracts that have or are anticipated to be cancelled.
The following table presents the above impacts of the Russia pre-tax charge:
Three Months Ended March 31, 2022
(Amounts in thousands)Flowserve Pump DivisionFlow Control DivisionConsolidated Total
Sales$(5,429)$(2)$(5,431)
Cost of sales3,510 1,112 4,622 
Gross loss(8,939)(1,114)(10,053)
Selling, general and administrative expense9,111 1,082 10,193 
Operating loss$(18,050)$(2,196)$(20,246)
We continue to monitor the situation involving Russia and Ukraine and its impact on the rest of our global business. 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.
Accounting Developments
Pronouncements Not Yet Implemented
In October 2021, the FASB issued ASU No. 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The amendments in this Update improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. We do not expect the impact of this ASU to be material.
In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832)." The amendments in this ASU do not change GAAP and, therefore, are not expected to result in a significant change in practice. Rather, the amendments aim to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. The amendments are effective for annual periods beginning after December 15, 2021 and can be applied either prospectively or retrospectively. We do not expect the impact of this ASU to be material.
In March 2022, the FASB issued ASU No. 2022-02, "Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the Current Expected Credit Loss ("CECL") model and enhance the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively. We are evaluating the impact of this ASU on our disclosures.

2.Revenue Recognition
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 the asset.
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Our primary method for recognizing revenue over time is the POC method. Revenue from products and services transferred to customers over time accounted for approximately 12% and 18% of total revenue for the three month period ended March 31, 2022 and 2021, 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 88% and 82% of total revenue for the three month period ended March 31, 2022 and 2021, respectively. Refer to Note 3 to our consolidated financial statements included in our 2021 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") designs and manufactures 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") designs, manufactures and distributes a broad portfolio of engineered-to-order and configured-to-order isolation valves, control valves, valve automation products and related equipment.
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 tables present our customer revenues disaggregated by revenue source:
Three Months Ended March 31, 2022
(Amounts in thousands)FPDFCDTotal
Original Equipment$200,340 $182,842 $383,182 
Aftermarket373,646 64,230 437,876 
$573,986 $247,072 $821,058 
Three Months Ended March 31, 2021
FPDFCDTotal
Original Equipment$214,164 $192,720 $406,884 
Aftermarket388,002 62,422 450,424 
$602,166 $255,142 $857,308 
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Our customer sales are diversified geographically. The following tables present our revenues disaggregated by geography, based on the shipping addresses of our customers:
Three Months Ended March 31, 2022
(Amounts in thousands)FPDFCDTotal
North America(1)$238,710 $107,634 $346,344 
Latin America(2)47,619 5,550 53,169 
Middle East and Africa 71,701 21,351 93,052 
Asia Pacific101,599 67,793 169,392 
Europe114,357 44,744 159,101 
$573,986 $247,072 $821,058 
Three Months Ended March 31, 2021
FPDFCDTotal
North America(1)$223,975 $90,247 $314,222 
Latin America(2)42,040 6,818 48,858 
Middle East and Africa82,541 27,687 110,228 
Asia Pacific124,648 78,661 203,309 
Europe128,962 51,729 180,691 
$602,166 $255,142 $857,308 
__________________________________
(1) North America represents the United States and Canada.
(2) Latin America includes Mexico.

On March 31, 2022, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $544 million. We estimate recognition of approximately $325 million of this amount as revenue in the remainder of 2022 and an additional $219 million in 2023 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.

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The following tables present beginning and ending balances of contract assets and contract liabilities, current and long-term, for the three months ended March 31, 2022 and 2021:

(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, 2022$195,598 $426 $202,965 $464 
Revenue recognized that was included in contract liabilities at the beginning of the period  (79,792) 
Revenue recognized in the period in excess of billings116,140 1,757   
Billings arising during the period in excess of revenue recognized  78,156  
Amounts transferred from contract assets to receivables(109,358)   
Currency effects and other, net(2,326)(1,750)2,829 (2)
Ending balance, March 31, 2022$200,054 $433 $204,158 $462 


(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, 2021$277,734 $1,139 $194,227 $822 
Revenue recognized that was included in contract liabilities at the beginning of the period  (78,713) 
Revenue recognized in the period in excess of billings164,246 55   
Billings arising during the period in excess of revenue recognized  82,712  
Amounts transferred from contract assets to receivables(156,805)   
Currency effects and other, net(10,988)(98)1,312 (30)
Ending balance, March 31, 2021$274,187 $1,096 $199,538 $792 
_____________________________________
(1) Included in other assets, net.
(2) Included in retirement obligations and other liabilities.

3.Allowance for Expected Credit Losses
The allowance for credit losses is an estimate of the credit losses expected over the life of our financial assets and instruments. We assess and measure expected credit losses on a collective basis when similar risk characteristics exist, including market, geography, credit risk and remaining duration. Financial assets and instruments that do not share risk characteristics are evaluated on an individual basis. Our estimate of the allowance is assessed and quantified using internal and external valuation information relating to past events, current conditions and reasonable and supportable forecasts over the contractual terms of an asset.
Our primary exposure to expected credit losses is through our 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. Primarily, our experience of historical credit losses provides the basis for our estimation of the allowance. We estimate the allowance based on an aging schedule and according to historical losses as determined from our history of billings and collections. 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 geopolitical risks. We also consider both the current and forecasted macroeconomic conditions as of the reporting date. As identified and needed, 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 previously written off amounts are reflected as a reduction to credit impairment losses in the condensed consolidated statements of income.
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Contract assets represent a conditional right to consideration for satisfied performance obligations that become a receivable when the conditions are satisfied. Generally, contract assets are recorded when contractual billing schedules differ from revenue recognition based on timing and are managed through the revenue recognition process. Based on our historical credit loss experience, the current expected credit loss for contract assets is estimated to be approximately 1% of the asset balance.
The following table presents the changes in the allowance for expected credit losses for our trade receivables and contract assets for the three months ended March 31, 2022 and 2021:
(Amounts in thousands)Trade receivablesContract assets
Beginning balance, January 1, 2022$74,336 $2,393 
Charges to cost and expenses, net of recoveries5,225 896 
Currency effects and other, net(235)49 
Ending balance, March 31, 2022$79,326 $3,338 
Beginning balance, January 1, 2021$75,176 $3,205 
Charges to cost and expenses, net of recoveries(79) 
Currency effects and other, net(1,268)(66)
Ending balance, March 31, 2021$73,829 $3,139 
Our allowance on long-term receivables, included in other assets, net, represent receivables with collection periods longer than 12 months and the balance primarily consists of reserved receivables associated with the national oil company in Venezuela. The following table presents the changes in the allowance for long-term receivables for the three months ended March 31, 2022 and 2021:

(Amounts in thousands)20222021
Balance at January 1$67,696 $67,842 
Currency effects and other, net488 (1,059)
Balance at March 31$68,184 $66,783 
We also 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 March 31, 2022.

4.Stock-Based Compensation Plans
We maintain the Flowserve Corporation 2020 Long-Term Incentive Plan (“2020 Plan”), which is a shareholder approved plan authorizing the issuance of 12,500,000 shares of our common stock in the form of restricted shares, restricted share units and performance-based units (collectively referred to as "Restricted Shares"), incentive stock options, non-statutory stock options, stock appreciation rights and bonus stock. Of the shares of common stock authorized under the 2020 Plan, 9,566,526 were available for issuance as of March 31, 2022. Restricted Shares primarily vest over a three year period. Restricted Shares granted to employees who retire and have achieved at least 55 years of age and 10 years of service continue to vest over the original vesting period ("55/10 Provision"). As of March 31, 2022, 114,943 stock options were outstanding. No stock options were granted or vested during the three months ended March 31, 2022 and 2021.
 Restricted Shares – Awards of Restricted Shares are valued at the closing market price of our common stock on the date of grant. The unearned compensation is amortized to compensation expense over the vesting period of the restricted shares, except for awards related to the 55/10 Provision which are expensed in the period granted. We had unearned compensation of $41.7 million and $24.2 million at March 31, 2022 and December 31, 2021, respectively, which is expected to be recognized over a remaining weighted-average period of approximately two years. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested during the three months ended March 31, 2022 and 2021 was $20.7 million and $23.4 million, respectively.
We recorded stock-based compensation expense of $8.5 million ($11.0 million pre-tax) and $7.6 million ($9.8 million pre-tax) for the three months ended March 31, 2022 and 2021, respectively.
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The following table summarizes information regarding Restricted Shares:
 Three Months Ended March 31, 2022
SharesWeighted Average
Grant-Date Fair
Value
Number of unvested shares:  
Outstanding as of January 1, 20221,671,011 $43.06 
Granted891,178 33.12 
Vested(477,498)43.25 
Forfeited(109,206)52.43 
Outstanding as of March 31, 20221,975,485 $38.01 
Unvested Restricted Shares outstanding as of March 31, 2022 included approximately 516,000 units with performance-based vesting provisions issuable in common stock and vest upon the achievement of pre-defined performance metrics. Targets for outstanding performance awards are based on our average return on invested capital, total shareholder return ("TSR") or free cash flow as a percent of net income over a three-year period. Performance units issued in 2022 and 2021 include a secondary measure, relative TSR, which can increase or decrease the number of vesting units by 15% depending on the Company's performance versus peers. Performance units issued in 2022 and 2021 each have a vesting percentage between 0% and 230%. Performance units issued in 2020 have a vesting percentage between 0% and 200%. Compensation expense is recognized ratably over a cliff-vesting period of 36 months, based on the fair value of our common stock on the date of grant, adjusted for actual forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets for all performance-based units granted except for the TSR-based units. Vesting provisions range from 0 to approximately 1,137,000 shares based on performance targets. As of March 31, 2022, we estimate vesting of approximately 441,000 shares based on expected achievement of performance targets.

5.Derivative Instruments and Hedges
Our risk management and foreign currency derivatives and hedging policy specifies the conditions under which we may enter into derivative contracts. See Notes 1 and 9 to our consolidated financial statements included in our 2021 Annual Report and Note 7 of this Quarterly Report for additional information on our derivatives. We enter into foreign exchange forward contracts to hedge our cash flow risks associated with transactions denominated in currencies other than the local currency of the operation engaging in the transaction. We have not elected hedge accounting for our foreign contracts and the changes in the fair values are recognized immediately in our condensed consolidated statements of income.
Foreign exchange contracts with third parties had a notional value of $422.2 million and $425.2 million at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, the length of foreign exchange contracts currently in place ranged from 22 days to 18 months.
We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under foreign exchange contracts agreements and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.
The fair values of foreign exchange contracts are summarized below:
March 31,December 31,
(Amounts in thousands)20222021
Current derivative assets$425 $740 
Noncurrent derivative assets 2 
Current derivative liabilities4,491 2,924 
Noncurrent derivative liabilities54 82 
Current and noncurrent derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other and other assets, net, respectively. Current and noncurrent derivative liabilities are reported in our condensed consolidated balance sheets in accrued liabilities and retirement obligations and other liabilities, respectively.
The impact of net changes in the fair values of foreign exchange contracts are summarized below:
 Three Months Ended March 31,
(Amounts in thousands)20222021
Gains (losses) recognized in income$(2,359)$6,105 
Gains and losses recognized in our condensed consolidated statements of income for foreign exchange contracts are classified as other income (expense), net.
As a means of managing the volatility of foreign currency exposure with the Euro/U.S. dollar exchange rate, we enter into cross-currency swap agreements as a hedge of our Euro investment in certain of our international subsidiaries. Accordingly, on April 14, 2021 and March 9, 2021, we entered into cross currency swap agreements, with termination dates of October 1, 2030 and an early termination date of March 11, 2025, respectively. Also, during the third quarter of 2020 we entered into a cross currency swap agreement with an early termination date of September 22, 2025. The swap agreements are designated as net investment hedges and as of March 31, 2022 the combined notional value of these swaps was €423.2 million. The swaps are classified as Level II under the fair value hierarchy.
The fair values of our cross-currency swaps are summarized below:
March 31,December 31,
(Amounts in thousands)20222021
Other assets, net$34,335 $23,129 
We exclude the interest accruals on the swaps from the assessment of hedge effectiveness and recognize the interest accruals in earnings within interest expense. For each reporting period, the change in the fair value of the swaps attributable to changes in the spot rate and differences between the change in the fair value of the excluded components and the amounts recognized in earnings under the swap accrual process are reported in accumulated other comprehensive loss ("AOCL") on our consolidated balance sheet. For the three months ending March 31, 2022, an interest accrual of $2.0 million was recognized within interest expense in our condensed consolidated statements of income.
The cumulative net investment hedge (gains) losses, net of deferred taxes, under cross-currency swaps recorded in AOCL on our condensed consolidated balance sheet are summarized below:
 March 31,
(Amounts in thousands)20222021
(Gain) loss-included component (1)$(25,385)$(1,613)
(Gain) loss-excluded component (2)(874)15,639 
(Gain) loss recognized in AOCL$(26,259)$14,026 
_____________________________________________
(1) Change in the fair value of the swaps attributable to changes in spot rates.
(2) Change in the fair value of the swaps due to changes other than those attributable to spot rates.
In March 2015, we designated €255.7 million of our 1.25% EUR 2022 Senior Notes ("2022 Euro Senior Notes") as a net investment hedge of our Euro investment in certain of our international subsidiaries. On September 22, 2020, we increased the designated hedged value on the 2022 Euro Senior Notes to 336.3 million, which reflected the remaining balance of the 2022 Euro Senior Notes. For each reporting period, the change in the carrying value due to the remeasurement of the effective portion is reported in AOCL on our condensed consolidated balance sheet and the remaining change in the carrying value of the ineffective portion, if any, is recognized in other income (expense), net in our condensed consolidated statements of income. As a result of the redemption of our 2022 Euro Senior Notes in the first quarter of 2021, we dedesignated the hedged value of our net investment hedge.
Prior to the dedesignation, the cumulative impact recorded in AOCL on our condensed consolidated balance sheet from the change in carrying value due to the remeasurement of the effective portion of the net investment hedge is summarized below:
Three Months Ended March 31,
(Amounts in thousands)20222021
Loss recognized in AOCL$ $29,554 
We use the spot method to measure the effectiveness of our net investment hedges and evaluate the effectiveness on a prospective basis at the beginning of each quarter. We did not record any ineffectiveness during the three months ended March 31, 2022 and 2021.

6.Debt
Debt, including finance lease obligations, net of discounts and debt issuance costs, consisted of:
March 31,
  December 31,  
(Amounts in thousands, except percentages)20222021
3.50% USD Senior Notes due October 1, 2030, net of unamortized discount and debt issuance costs of $5,474 and $5,611, respectively
$494,526 $494,389 
2.80% USD Senior Notes due January 15, 2032, net of unamortized discount and debt issuance costs of $6,138 and $6,273, respectively
493,862 493,727 
Term Loan Facility, interest rate of 2.26% at March 31, 2022 and 1.45% at December 31, 2021, net of debt issuance costs of $589 and $639, respectively
284,411 291,861 
Finance lease obligations and other borrowings23,412 22,851 
Debt and finance lease obligations1,296,211 1,302,828 
Less amounts due within one year44,616 41,058 
Total debt due after one year$1,251,595 $1,261,770 

Senior Notes
On March 19, 2021, we redeemed the remaining $400.9 million of our 2022 Euro Senior Notes and have recorded a loss on early extinguishment of $7.6 million in the first quarter of 2021, which included the impact of a $6.6 million make-whole premium.
Senior Credit Facility
As discussed in Note 13 to our consolidated financial statements included in our 2021 Annual Report, we amended our credit agreement ("Amended and Restated Credit Agreement") under our Senior Credit Facility ("Credit Facility") with Bank of America, N.A. ("Administrative Agent") and the other lenders to provide greater flexibility in maintaining adequate liquidity and access to available borrowings. The Amended and Restated Credit Agreement, (i) retained, from the previous credit agreement, the $800.0 million unsecured Revolving Credit Facility, which includes a $750.0 million sublimit for the issuance of letters of credit and a $30.0 million sublimit for swing line loans, (ii) provides for an up to $300 million unsecured Term Loan Facility (the "Term Loan"), (iii) extends the maturity date of the agreement to September 13, 2026, (iv) reduces commitment fees, (v) extends net leverage ratio covenant definition through the maturity of the agreement, and (vi) provides the ability to make certain adjustments to the otherwise applicable commitment fee, interest rate and letter of credit fees based on the Company’s performance against to-be-established key performance indicators with respect to certain of the Company’s environmental, social and governance targets.
The interest rates per annum applicable to the Revolving Credit Facility are unchanged under the Amended and Restated Credit Agreement. The interest rates per annum applicable to the Credit Facility, other than with respect to swing line loans, are LIBOR plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc. ("Moody's") or Standard & Poor’s Financial Services LLC ("S&P"), or, at our option, the Base Rate (as defined in the Amended and Restated Credit Agreement) plus between 0.000% to 0.750% depending on our debt rating by either Moody’s or S&P. At March 31, 2022, the interest rate on the Revolving Credit Facility was LIBOR plus 1.375% in the case of LIBOR loans and the Base Rate plus 0.375% in the case of Base Rate loans. In addition, a commitment fee is payable quarterly in arrears on the daily unused portions of the Credit Facility. The commitment fee will be between 0.080% and 0.250% of unused amounts under the Credit Facility depending on our debt rating by either Moody’s or S&P. The commitment fee was 0.175% (per annum) during the period ended March 31, 2022.
Under the terms and conditions of the Amended and Restated Credit Agreement, interest rates per annum applicable to the Term Loan are stated as LIBOR plus between 0.875% to 1.625%, depending on the Company’s debt rating by either Moody’s
or S&P, or, at the option of the Company, the Base Rate plus between 0.000% to 0.625% depending on the Company’s debt rating by either Moody’s or S&P.
As of March 31, 2022 and December 31, 2021, we had no revolving loans outstanding and we had outstanding letters of credit of $87.1 million and $78.3 million at March 31, 2022 and December 31, 2021, respectively. After consideration of the financial covenants under our Senior Credit Facility and outstanding letters of credit, as of March 31, 2022, the amount available for borrowings was limited to $383.5 million. As of December 31, 2021, the amount available for borrowings under our Revolving Credit Facility was $614.2 million.
Our compliance with applicable financial covenants under the Senior Notes and Credit Facility are tested quarterly. We were in compliance with all applicable covenants as of March 31, 2022. We have scheduled repayments of $7.5 million due in each of the next two quarters and $10.0 million due on December 31, 2022 and March 31, 2023, respectively, on our Term Loan.

7.Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our condensed consolidated balance sheets are categorized by hierarchical levels based upon the level of judgment associated with the inputs used to measure their fair values. Recurring fair value measurements are limited to investments in derivative instruments. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy. The fair values of our derivatives are included in Note 5.
The carrying value of our financial instruments as reflected in our condensed consolidated balance sheets approximates fair value, with the exception of our long-term debt. The estimated fair value of our long-term debt, excluding the Senior Notes, approximates the carrying value and is determined using Level II inputs under the fair value hierarchy. The carrying value of our debt is included in Note 6. The estimated fair value of our Senior Notes at March 31, 2022 was $914.1 million compared to the carrying value of $988.4 million. The estimated fair value of the Senior Notes is based on Level I quoted market rates. The carrying amounts of our other financial instruments (e.g., cash and cash equivalents, accounts receivable, net, accounts payable and short-term debt) approximated fair value due to their short-term nature at March 31, 2022 and December 31, 2021.