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EX-32.2 - EXHIBIT 32.2 - FLOWSERVE CORPfls9-30x14exhibit322.htm
EX-31.1 - EXHIBIT 31.1 - FLOWSERVE CORPfls9-30x14exhibit311.htm
EX-32.1 - EXHIBIT 32.1 - FLOWSERVE CORPfls9-30x14exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - FLOWSERVE CORPfls9-30x14exhibit312.htm
 
 
 


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

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
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)

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, Texas
 
75039
(Address of principal executive offices)
 
 
 (Zip Code)

 
(972) 443-6500
 
(Registrant’s telephone number, including area code)
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. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨ (do not check if a smaller reporting company)
Smaller reporting company ¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of October 17, 2014, there were 136,308,350 shares of the issuer’s common stock outstanding.


 
 
 




FLOWSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS

 
Page
 
No.
 
 
 
 
 
 EX-31.1
 
 EX-31.2
 
 EX-32.1
 
 EX-32.2
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 
i



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,
 
2014
 
2013
Sales
$
1,204,012

 
$
1,229,057

Cost of sales
(782,522
)
 
(806,318
)
Gross profit
421,490

 
422,739

Selling, general and administrative expense
(230,872
)
 
(231,569
)
Net earnings from affiliates
1,825

 
2,218

Operating income
192,443

 
193,388

Interest expense
(15,130
)
 
(13,046
)
Interest income
400

 
325

Other income, net
5,612

 
1,733

Earnings before income taxes
183,325

 
182,400

Provision for income taxes
(52,725
)
 
(55,870
)
Net earnings, including noncontrolling interests
130,600

 
126,530

Less: Net earnings attributable to noncontrolling interests
(2,038
)
 
(259
)
Net earnings attributable to Flowserve Corporation
$
128,562

 
$
126,271

Net earnings per share attributable to Flowserve Corporation common shareholders:
 
 
 
Basic
$
0.94

 
$
0.90

Diluted
0.93

 
0.90

Cash dividends declared per share
$
0.16

 
$
0.14


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Three Months Ended September 30,
 
2014
 
2013
Net earnings, including noncontrolling interests
$
130,600

 
$
126,530

Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustments, net of taxes of $60,220 and $(23,353), respectively
(100,195
)
 
38,581

Pension and other postretirement effects, net of taxes of $(2,805) and $(407), respectively
7,278

 
(373
)
Cash flow hedging activity, net of taxes of $1,089 and $(74), respectively
(2,797
)
 
152

Other comprehensive (loss) income
(95,714
)
 
38,360

Comprehensive income, including noncontrolling interests
34,886

 
164,890

Comprehensive income attributable to noncontrolling interests
(1,934
)
 
(29
)
Comprehensive income attributable to Flowserve Corporation
$
32,952

 
$
164,861


See accompanying notes to condensed consolidated financial statements.


1



FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)
Nine Months Ended September 30,
 
2014
 
2013
Sales
$
3,496,526

 
$
3,565,179

Cost of sales
(2,267,609
)
 
(2,347,555
)
Gross profit
1,228,917

 
1,217,624

Selling, general and administrative expense
(685,277
)
 
(706,278
)
Net earnings from affiliates (Note 2)
7,442

 
36,043

Operating income
551,082

 
547,389

Interest expense
(45,306
)
 
(38,262
)
Interest income
1,238

 
877

Other expense, net
(1,129
)
 
(8,679
)
Earnings before income taxes
505,885

 
501,325

Provision for income taxes
(141,533
)
 
(154,998
)
Net earnings, including noncontrolling interests
364,352

 
346,327

Less: Net earnings attributable to noncontrolling interests
(4,544
)
 
(1,878
)
Net earnings attributable to Flowserve Corporation
$
359,808

 
$
344,449

Net earnings per share attributable to Flowserve Corporation common shareholders:
 
 
 
Basic
$
2.62

 
$
2.42

Diluted
2.60

 
2.41

Cash dividends declared per share
$
0.48

 
$
0.42


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
Nine Months Ended September 30,
 
2014
 
2013
Net earnings, including noncontrolling interests
$
364,352

 
$
346,327

Other comprehensive loss:
 
 
 
Foreign currency translation adjustments, net of taxes of $53,769 and $17,254, respectively
(89,462
)
 
(28,505
)
Pension and other postretirement effects, net of taxes of $(4,563) and $(4,634), respectively
11,520

 
9,254

Cash flow hedging activity, net of taxes of $1,031 and $(399), respectively
(2,694
)
 
627

Other comprehensive loss
(80,636
)
 
(18,624
)
Comprehensive income, including noncontrolling interests
283,716

 
327,703

Comprehensive income attributable to noncontrolling interests
(4,615
)
 
(1,722
)
Comprehensive income attributable to Flowserve Corporation
$
279,101

 
$
325,981


See accompanying notes to condensed consolidated financial statements.


2



FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value)
September 30,
 
December 31,
 
2014
 
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
162,869

 
$
363,804

Accounts receivable, net of allowance for doubtful accounts of $27,421 and $24,073, respectively
1,131,075

 
1,155,327

Inventories, net
1,118,283

 
1,060,670

Deferred taxes
157,946

 
157,448

Prepaid expenses and other
103,037

 
110,133

Total current assets
2,673,210

 
2,847,382

Property, plant and equipment, net of accumulated depreciation of $845,679 and $849,863, respectively
678,307

 
716,289

Goodwill
1,079,327

 
1,107,551

Deferred taxes
21,261

 
19,533

Other intangible assets, net
145,956

 
160,548

Other assets, net
195,713

 
185,430

Total assets
$
4,793,774

 
$
5,036,733

 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable
$
490,514

 
$
612,092

Accrued liabilities
758,799

 
861,010

Debt due within one year
54,122

 
72,678

Deferred taxes
11,170

 
12,319

Total current liabilities
1,314,605

 
1,558,099

Long-term debt due after one year
1,112,636

 
1,127,619

Retirement obligations and other liabilities
442,834

 
473,894

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 value
479,724

 
476,218

Retained earnings
3,278,771

 
2,985,391

Treasury shares, at cost – 41,513 and 39,630 shares, respectively
(1,772,808
)
 
(1,600,266
)
Deferred compensation obligation
10,420

 
9,522

Accumulated other comprehensive loss
(302,184
)
 
(221,477
)
Total Flowserve Corporation shareholders’ equity
1,914,914

 
1,870,379

Noncontrolling interests
8,785

 
6,742

Total equity
1,923,699

 
1,877,121

Total liabilities and equity
$
4,793,774

 
$
5,036,733


See accompanying notes to condensed consolidated financial statements.

3



FLOWSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended September 30,
 
2014
 
2013
Cash flows – Operating activities:
 
 
 
Net earnings, including noncontrolling interests
$
364,352

 
$
346,327

Adjustments to reconcile net earnings to net cash used by operating activities:
 
 
 
Depreciation
69,748

 
66,700

Amortization of intangible and other assets
13,555

 
11,884

Net gain on disposition of assets
(59
)
 
(248
)
Gain on sale of business
(13,403
)
 

Gain on sale of equity investment in affiliate

 
(12,995
)
Gain on remeasurement of acquired assets

 
(15,315
)
Excess tax benefits from stock-based compensation arrangements
(8,490
)
 
(10,104
)
Stock-based compensation
26,685

 
24,395

Net earnings from affiliates, net of dividends received
(560
)
 
(3,397
)
Change in assets and liabilities:
 
 
 
Accounts receivable, net
(27,146
)
 
10,828

Inventories, net
(113,848
)
 
(101,745
)
Prepaid expenses and other
(16,765
)
 
(6,870
)
Other assets, net
(10,980
)
 
(12,574
)
Accounts payable
(88,380
)
 
(126,976
)
Accrued liabilities and income taxes payable
(56,984
)
 
(61,139
)
Retirement obligations and other
(11,524
)
 
117

Net cash flows provided by operating activities
126,201

 
108,888

Cash flows – Investing activities:
 
 
 
Capital expenditures
(83,602
)
 
(94,702
)
Proceeds from disposal of assets
1,613

 
969

Payments for acquisition, net of cash acquired

 
(10,143
)
Proceeds from sale of business, net of cash divested
46,805

 

Proceeds from equity investments in affiliates

 
46,240

Net cash flows used by investing activities
(35,184
)
 
(57,636
)
Cash flows – Financing activities:
 
 
 
Excess tax benefits from stock-based compensation arrangements
8,490

 
10,104

Payments on long-term debt
(30,000
)
 
(15,000
)
Short-term financing, net

 
196,000

Proceeds under other financing arrangements
14,388

 
9,844

Payments under other financing arrangements
(16,377
)
 
(10,415
)
Repurchases of common shares
(188,324
)
 
(370,127
)
Payments of dividends
(63,287
)
 
(57,337
)
Other
(2,499
)
 
(78
)
Net cash flows used by financing activities
(277,609
)
 
(237,009
)
Effect of exchange rate changes on cash
(14,343
)
 
(4,744
)
Net change in cash and cash equivalents
(200,935
)
 
(190,501
)
Cash and cash equivalents at beginning of period
363,804

 
304,252

Cash and cash equivalents at end of period
$
162,869

 
$
113,751


See accompanying notes to condensed consolidated financial statements.

4



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, 2014, the related condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2014 and 2013, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013, 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.
The accompanying condensed consolidated financial statements and notes in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 ("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 consolidated financial statements presented in our audited Annual Report on Form 10-K for the year ended December 31, 2013 ("2013 Annual Report").
As discussed in Note 15 to our consolidated financial statements included in our 2013 Annual Report, on May 23, 2013, our certificate of incorporation was amended to increase the number of authorized shares of common stock from 120.0 million to 305.0 million and enable a three-for-one stock split approved by the Board of Directors on February 7, 2013 in the form of a 200% common stock dividend. The record date for the stock split was June 7, 2013, and additional shares were distributed on June 21, 2013. Shareholders' equity and all share data, including treasury shares and stock-based compensation award shares, and per share data presented herein have been retrospectively adjusted to reflect the impact of the increase in authorized shares and the stock split, as appropriate.
Venezuela – Our operations in Venezuela generally consist of a service center that performs service and repair activities. In addition, certain of our operations in other countries sell equipment and parts that are typically denominated in United States ("U.S.") dollars directly to Venezuelan customers. Our Venezuelan subsidiary's sales for the three and nine months ended September 30, 2014 and total assets at September 30, 2014 represented less than 1% of consolidated sales and total assets for the same periods. Effective February 13, 2013, the Venezuelan government devalued its currency (bolivar) from 4.3 to 6.3 bolivars to the U.S. dollar. As a result of the devaluation, we recognized a loss of $4.0 million in the first quarter of 2013. The loss was reported in other expense, net in our condensed consolidated statements of income and resulted in no tax benefit.
In the first quarter of 2014, the Venezuelan government expanded the use of periodic auctions for U.S. dollars conducted under the Complementary System of Foreign Currency Administration ("SICAD I"). At September 30, 2014 the SICAD I exchange rate was 12.0 bolivars to the U.S. dollar, compared with the official exchange rate of 6.3 bolivars to the U.S. dollar ("Official"). In addition, during the second quarter of 2014 the Venezuelan government created a third currency exchange mechanism ("SICAD II") that is currently being interpreted to be available to all entities for all transactions at an exchange rate that is significantly less favorable than the Official exchange rate or the SICAD I exchange rate.
As of September 30, 2014, we believe the Official exchange rate continues to be the most appropriate rate to remeasure the U.S. dollar value of the assets, liabilities and results of operations of our Venezuelan subsidiary. We are continuing to assess and monitor the ongoing impact of the recent changes in the Venezuelan foreign exchange market on our Venezuelan operations and imports into the market, including our Venezuelan subsidiary's ability to remit cash for dividends and other payments at the Official exchange rate, as well as further actions of the Venezuelan government and economic conditions that may adversely impact our future consolidated financial condition or results of operations. For reference, if we were to remeasure our bolivar-denominated net monetary assets as of September 30, 2014 utilizing the SICAD I or SICAD II exchange rate, it is estimated that the resulting loss would have been approximately $7 million or $13 million, respectively.
Accounting Policies
Significant accounting policies, for which no significant changes have occurred in the nine months ended September 30, 2014, are detailed in Note 1 to our consolidated financial statements included in our 2013 Annual Report.
Accounting Developments
Pronouncements Implemented
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-04, "Liabilities (Topic 405) - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date," which requires a reporting entity that is jointly and severally liable to

5



measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of one or more co-obligors. The scope of this ASU excludes obligations addressed by existing guidance. The ASU shall be applied retrospectively for arrangements existing at the beginning of the year of adoption. Our adoption of ASU No. 2013-04 effective January 1, 2014 did not have an impact on our consolidated financial condition and results of operations.
In April 2013, the FASB issued ASU No. 2013-07, "Presentation of Financial Statements (Topic 205) - Liquidation Basis of Accounting," which requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). The ASU shall be applied prospectively from the day that liquidation becomes imminent. Our adoption of ASU No. 2013-07 effective January 1, 2014 did not have an impact on our consolidated financial condition and results of operations.
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which provides guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The ASU shall be applied prospectively to all unrecognized tax benefits that exist at the effective date. The adoption of ASU No. 2013-11 effective January 1, 2014 did not have an impact on our consolidated financial condition and results of operations.
In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which provides guidance on the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component of an entity or group of components of an entity meets the criteria to be classified as held for sale, is disposed of by sale, or is disposed of other than by sale (e.g., by abandonment or in a distribution to owners in a spinoff). This ASU also introduces new disclosure requirements for discontinued operations. The ASU shall be applied prospectively to (a) all disposals (or classifications as held for sale) of components of an entity and (b) businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur after the effective date. We early adopted this ASU effective January 1, 2014 and it did not have an impact on our consolidated financial condition and results of operations.
 Pronouncements Not Yet Implemented
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" which supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)." The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. There are also expanded disclosure requirements in this ASU. For public entities ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and allows for either full retrospective adoption or modified retrospective adoption. We are currently evaluating the impact of ASU No. 2014-09 on our consolidated financial condition and results of operations.
In June 2014, the FASB issued ASU No. 2014-11 "Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." This ASU changes the accounting for repurchase-to-maturity transactions and linked repurchase financings so that such transactions will now be accounted for as secured borrowings. This accounting change is effective for the first interim or annual period beginning after December 15, 2014 and early adoption is not permitted. There are also new disclosure requirements in this ASU. The adoption of ASU No. 2014-11 will not have a material impact on our consolidated financial condition and results of operations.
In June 2014, the FASB issued ASU No. 2014-12 "Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." This ASU was issued to address share-based payment awards with a performance target affecting vesting that could be achieved after the employee’s requisite service period. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. This ASU may be applied either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU No. 2014-12 will not have a material impact on our consolidated financial condition and results of operations.
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." This ASU requires management to evaluate

6



whether there are conditions or events that raise substantial doubt about the ability of a company to continue as a going concern for one year from the date the financial statements are issued or within one year after the date that the financial statements are available to be issued when applicable. Further, the ASU provides management guidance regarding its responsibility to disclose the ability of a company to continue as a going concern in the notes to the financial statements. This ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of ASU No. 2014-15 will not have an impact on our consolidated financial condition and results of operations.
2.
Disposition, Acquisition and Exit of Joint Venture
Effective March 31, 2014, we sold our Flow Control Division's ("FCD") Naval OY ("Naval") business to a Finnish valve manufacturer. The sale included Naval's manufacturing facility located in Laitila, Finland and a service and support center located in St. Petersburg, Russia. The cash proceeds for the sale totaled $46.8 million, net of cash divested, and resulted in a $13.4 million pre-tax gain recorded in selling, general and administrative expense in the condensed consolidated statements of income. Net sales related to the Naval business totaled $8.2 million in the first quarter of 2014.
As discussed in Note 2 to our consolidated financial statements included in our 2013 Annual Report, effective December 10, 2013, we acquired for inclusion in Industrial Product Division ("IPD"), 100% of Innovative Mag-Drive, LLC ("Innomag"), a privately-owned, U.S.-based company specializing in advanced sealless magnetic drive centrifugal pumps for the chemical and general industries, in an asset purchase up to $78.7 million in cash. Of the total purchase price, $67.5 million has been paid. The remaining $11.2 million of the total purchase price is contingent upon Innomag achieving certain performance metrics during the two- and five-year periods following the acquisition, and to the extent achieved, is expected to be paid in cash within four months of the performance measurement dates. We recorded a liability of $7.5 million as an estimate of the acquisition date fair value of the contingent consideration, which is based on the weighted probability of achievement of the performance metrics. No pro forma financial information has been presented due to immateriality.
As discussed in Note 2 to our consolidated financial statements included in our 2013 Annual Report, effective March 28, 2013, we and our joint venture partner agreed to exit our joint venture, Audco India, Limited (“AIL”), which manufactures integrated industrial valves in India. To effect the exit, in two separate transactions, FCD acquired 100% ownership of AIL's plug valve manufacturing business in an asset purchase for cash of $10.1 million and sold its 50% equity interest in AIL to the joint venture partner for $46.2 million in cash. We remeasured to fair value our previously held equity interest in the purchased net assets of the plug valve manufacturing business resulting in net assets acquired of approximately $25 million and a pre-tax gain of $15.3 million. The sale of our equity interest in AIL resulted in a pre-tax gain of $13.0 million. In the first quarter of 2013, both of the above gains were recorded in net earnings from affiliates in the condensed consolidated statements of income. No pro forma information has been provided due to immateriality. Prior to these transactions, our 50% interest in AIL was recorded using the equity method of accounting.
3.
Stock-Based Compensation Plans
We maintain the Flowserve Corporation Equity and Incentive Compensation Plan (the "2010 Plan"), which is a shareholder-approved plan authorizing the issuance of up to 8,700,000 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 8,700,000 shares of common stock authorized under the 2010 Plan, 5,072,904 were available for issuance as of September 30, 2014. The Flowserve Corporation 2004 Stock Compensation Plan expired on June 22, 2014, with 827,835 shares unissued. No stock options have been granted since 2006.
 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. We had unearned compensation of $36.5 million and $31.5 million at September 30, 2014 and December 31, 2013, respectively, which is expected to be recognized over a weighted-average period of approximately one year. These amounts will be recognized into net earnings in prospective periods as the awards vest. The total fair value of Restricted Shares vested was less than $0.1 million during the three months ended September 30, 2014 and $0.1 million for the three months ended September 30, 2013. The total fair value of Restricted Shares vested during the nine months ended September 30, 2014 and 2013 was $34.5 million and $34.9 million, respectively.
We recorded stock-based compensation expense of $5.5 million ($8.4 million pre-tax) and $5.3 million ($8.1 million pre-tax) for the three months ended September 30, 2014 and 2013, respectively. We recorded stock-based compensation expense of $17.6 million ($26.7 million pre-tax) and $16.1 million ($24.4 million pre-tax) for the nine months ended September 30, 2014 and 2013, respectively.

7



The following table summarizes information regarding Restricted Shares:
 
Nine Months Ended September 30, 2014
 
Shares
 
Weighted Average
Grant-Date Fair
Value
Number of unvested shares:
 
 
 
Outstanding - January 1, 2014
2,020,678

 
$
44.68

Granted
493,309

 
72.31

Vested
(778,843
)
 
44.24

Canceled
(94,495
)
 
51.13

Outstanding - September 30, 2014
1,640,649

 
$
52.82

Unvested Restricted Shares outstanding as of September 30, 2014, includes approximately 818,000 units with performance-based vesting provisions. Performance-based units are issuable in common stock and vest upon the achievement of pre-defined performance targets, primarily based on our average annual return on net assets over a three-year period as compared with the same measure for a defined peer group for the same period. Most units were granted in three annual grants since January 1, 2012 and have a vesting percentage between 0% and 200% depending on the achievement of the specific performance targets. Compensation expense is recognized ratably over a cliff-vesting period of 36 months, based on the fair market value of our common stock on the date of grant, as adjusted for anticipated forfeitures. During the performance period, earned and unearned compensation expense is adjusted based on changes in the expected achievement of the performance targets. Vesting provisions range from 0 to approximately 1,593,000 shares based on performance targets. As of September 30, 2014, we estimate vesting of approximately 1,007,000 shares based on expected achievement of performance targets.
4.
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 6 to our consolidated financial statements included in our 2013 Annual Report and Note 7 of this Quarterly Report for additional information on our derivatives. We enter into foreign exchange forward and swap 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. All designated foreign exchange hedging instruments are highly effective.
Foreign exchange contracts designated as hedging instruments had a notional value of $66.4 million and $6.2 million, at September 30, 2014 and December 31, 2013, respectively. Foreign exchange contracts with third parties not designated as hedging instruments had a notional value of $726.8 million and $610.7 million, at September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, the length of foreign exchange contracts currently in place ranged from one day to 18 months.
Also as part of our risk management program, we enter into interest rate swap agreements to hedge exposure to floating interest rates on certain portions of our debt. At September 30, 2014 and December 31, 2013, we had $40.0 million and $140.0 million, respectively, of notional amount in outstanding interest rate swaps with third parties. All interest rate swaps are highly effective. At September 30, 2014, the maximum remaining length of any interest rate swap contract in place was approximately 9 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 and interest rate swap agreements and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.
The fair value of foreign exchange contracts not designated as hedging instruments are summarized below:
 
September 30,
 
December 31,
(Amounts in thousands)
2014
 
2013
Current derivative assets
$
17,960

 
$
5,215

Noncurrent derivative assets

 
729

Current derivative liabilities
6,410

 
2,207

Noncurrent derivative liabilities
189

 
113



8



The fair value of interest rate swaps and foreign exchange contracts designated as hedging instruments are summarized below:
 
September 30,
 
December 31,
(Amounts in thousands)
2014
 
2013
Current derivative assets
$

 
$
146

Noncurrent derivative assets

 

Current derivative liabilities
4,159

 
409

Noncurrent derivative liabilities
96

 
37

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 September 30,
 
Nine Months Ended September 30,
(Amounts in thousands)
2014
 
2013
 
2014
 
2013
Gain (loss) recognized in income
$
1,615

 
$
3,817

 
$
1,738

 
$
(3,714
)
Gains and losses recognized in our condensed consolidated statements of income for foreign exchange contracts are classified as other income (expense), net.
The impact of net changes in the fair values of interest rate swaps in cash flow hedging relationships are summarized in Note 15.
5.
Debt
Debt, including capital lease obligations, consisted of:
 
September 30,
 
  December 31,  
(Amounts in thousands, except percentages)
2014
 
2013
4.00% Senior Notes due November 15, 2023, net of unamortized discount
$
298,702

 
$
298,615

3.50% Senior Notes due September 15, 2022, net of unamortized discount
498,416

 
498,289

Term Loan Facility, interest rate of 1.48% at September 30, 2014 and 1.50% at December 31, 2013
340,000

 
370,000

Capital lease obligations and other borrowings
29,640

 
33,393

Debt and capital lease obligations
1,166,758

 
1,200,297

Less amounts due within one year
54,122

 
72,678

Total debt due after one year
$
1,112,636

 
$
1,127,619


Senior Notes
As discussed in Note 10 to our consolidated financial statements included in our 2013 Annual Report, on November 1, 2013 we completed the public offering of $300.0 million in aggregate principal amount of senior notes due November 15, 2023. On September 11, 2012, we completed the public offering of $500.0 million in aggregate principal amount of senior notes due September 15, 2022.

Senior Credit Facility
As discussed in Note 10 to our consolidated financial statements included in our 2013 Annual Report, on October 4, 2013 we amended our existing credit agreement that provided for a $400.0 million term loan (“Term Loan Facility”) and a $1.0 billion revolving credit facility (“Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Credit Facility”) with a maturity date of October 4, 2018. As of September 30, 2014 and December 31, 2013, we had no amounts outstanding under the Revolving Credit Facility. We had outstanding letters of credit of $74.8 million and $106.1 million at September 30, 2014 and December 31, 2013, respectively, which reduced our borrowing capacity to $925.2 million and $893.9 million, respectively. Our obligations under the Senior Credit Facility are guaranteed by certain of our 100% owned domestic subsidiaries. Such guarantees are released if we achieve certain credit ratings. We had not achieved these ratings as of September 30, 2014. Our compliance with applicable financial covenants under the Senior Credit Facility is tested quarterly, and we complied with all covenants at September 30, 2014.
We may prepay loans under our Senior Credit Facility in whole or in part, without premium or penalty, at any time. A commitment fee, which is payable quarterly on the daily unused portions of the Senior Credit Facility, was 0.175% (per annum) during the period ended September 30, 2014. During the nine months ended September 30, 2014, we made scheduled repayments of $30.0 million under our Term Loan Facility. We have scheduled repayments of $10.0 million due in each of the next four quarters on our Senior Credit Facility. Our Senior Credit Facility bears a floating rate of interest, and we have $40.0 million of notional amount of interest rate swaps at September 30, 2014 to hedge exposure to floating interest rates.

European Letter of Credit Facility
Due to the increased capacity and the removal of the performance letters of credit sublimit of the Revolving Credit Facility, we elected not to renew our 364-day unsecured, committed €125.0 million European Letter of Credit Facility ("European LOC Facility"), which expired in October 2013; however, the existing letters of credit remain outstanding and are still bound by the facility's covenants. We were in compliance with all covenants under our European LOC Facility as of September 30, 2014.
We had outstanding letters of credit drawn on the European LOC Facility of €7.5 million ($9.5 million) and €69.6 million ($95.4 million) as of September 30, 2014 and December 31, 2013, respectively.
6.
Supplemental Guarantor Financial Information

Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by certain of our 100% owned domestic subsidiaries. The following condensed consolidating financial statements present the financial position, results of operations and cash flows of Flowserve Corporation (referred to as “Parent” for the purpose of this note only) on a Parent-only (Issuer) basis, the combined guarantor subsidiaries on a guarantor-only basis, the combined non-guarantor subsidiaries on a non-guarantor-only basis and elimination adjustments necessary to arrive at the information for the Parent, guarantor subsidiaries and non-guarantor subsidiaries on a condensed consolidated basis. Investments in subsidiaries have been accounted for using the equity method for this presentation.

FLOWSERVE CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
Three Months Ended September 30, 2014
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Sales
$

 
$
477,166

 
$
823,193

 
$
(96,347
)
 
$
1,204,012

Cost of sales

 
(312,258
)
 
(566,611
)
 
96,347

 
(782,522
)
Gross profit

 
164,908

 
256,582

 

 
421,490

Selling, general and administrative expense
(455
)
 
(114,640
)
 
(115,777
)
 

 
(230,872
)
Net earnings from affiliates

 
267

 
1,558

 

 
1,825

Net earnings from consolidated subsidiaries, net of tax
135,270

 
100,336

 

 
(235,606
)
 

Operating income
134,815

 
150,871

 
142,363

 
(235,606
)
 
192,443

Interest expense, net
(8,887
)
 
(2,736
)
 
(3,107
)
 

 
(14,730
)
Other income (expense), net
22

 
(1,134
)
 
6,724

 

 
5,612

Earnings before income taxes
125,950

 
147,001

 
145,980

 
(235,606
)
 
183,325

Provision for income taxes
2,612

 
(11,731
)
 
(43,606
)
 

 
(52,725
)
Net earnings, including noncontrolling interests
128,562

 
135,270

 
102,374

 
(235,606
)
 
130,600

Less: Net earnings attributable to noncontrolling interests

 

 
(2,038
)
 

 
(2,038
)
Net earnings attributable to Flowserve Corporation
$
128,562

 
$
135,270

 
$
100,336

 
$
(235,606
)
 
$
128,562

Comprehensive income attributable to Flowserve Corporation
$
32,952

 
$
39,625

 
$
23,573

 
$
(63,198
)
 
$
32,952


9



 
Three Months Ended September 30, 2013
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Sales
$

 
$
483,039

 
$
842,426

 
$
(96,408
)
 
$
1,229,057

Cost of sales

 
(311,255
)
 
(591,471
)
 
96,408

 
(806,318
)
Gross profit

 
171,784

 
250,955

 

 
422,739

Selling, general and administrative expense
(457
)
 
(114,511
)
 
(116,601
)
 

 
(231,569
)
Net earnings from affiliates

 
565

 
1,653

 

 
2,218

Net earnings from consolidated subsidiaries, net of tax
131,425

 
93,959

 

 
(225,384
)
 

Operating income
130,968

 
151,797

 
136,007

 
(225,384
)
 
193,388

Interest expense, net
(7,253
)
 
(3,026
)
 
(2,442
)
 

 
(12,721
)
Other (expense) income, net

 
(1,822
)
 
3,555

 

 
1,733

Earnings before income taxes
123,715

 
146,949

 
137,120

 
(225,384
)
 
182,400

Provision for income taxes
2,556

 
(15,524
)
 
(42,902
)
 

 
(55,870
)
Net earnings, including noncontrolling interests
126,271

 
131,425

 
94,218

 
(225,384
)
 
126,530

Less: Net earnings attributable to noncontrolling interests

 

 
(259
)
 

 
(259
)
Net earnings attributable to Flowserve Corporation
$
126,271

 
$
131,425

 
$
93,959

 
$
(225,384
)
 
$
126,271

Comprehensive income attributable to Flowserve Corporation
$
164,861

 
$
169,865

 
$
129,539

 
$
(299,404
)
 
$
164,861


 
Nine Months Ended September 30, 2014
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Sales
$

 
$
1,394,633

 
$
2,357,079

 
$
(255,186
)
 
$
3,496,526

Cost of sales

 
(900,114
)
 
(1,622,681
)
 
255,186

 
(2,267,609
)
Gross profit

 
494,519

 
734,398

 

 
1,228,917

Selling, general and administrative expense
(1,351
)
 
(285,189
)
 
(398,737
)
 

 
(685,277
)
Net earnings from affiliates

 
630

 
6,812

 

 
7,442

Net earnings from consolidated subsidiaries, net of tax
379,764

 
245,540

 

 
(625,304
)
 

Operating income
378,413

 
455,500

 
342,473

 
(625,304
)
 
551,082

Interest expense, net
(26,945
)
 
(8,183
)
 
(8,940
)
 

 
(44,068
)
Other income (expense), net
24

 
(6,111
)
 
4,958

 

 
(1,129
)
Earnings before income taxes
351,492

 
441,206

 
338,491

 
(625,304
)
 
505,885

Provision for income taxes
8,316

 
(61,442
)
 
(88,407
)
 

 
(141,533
)
Net earnings, including noncontrolling interests
359,808

 
379,764

 
250,084

 
(625,304
)
 
364,352

Less: Net earnings attributable to noncontrolling interests

 

 
(4,544
)
 

 
(4,544
)
Net earnings attributable to Flowserve Corporation
$
359,808

 
$
379,764

 
$
245,540

 
$
(625,304
)
 
$
359,808

Comprehensive income attributable to Flowserve Corporation
$
279,101

 
$
164,588

 
$
182,396

 
$
(346,984
)
 
$
279,101


10



 
Nine Months Ended September 30, 2013
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Sales
$

 
$
1,423,260

 
$
2,415,936

 
$
(274,017
)
 
$
3,565,179

Cost of sales

 
(921,473
)
 
(1,700,099
)
 
274,017

 
(2,347,555
)
Gross profit

 
501,787

 
715,837

 

 
1,217,624

Selling, general and administrative expense
(2,520
)
 
(277,228
)
 
(426,530
)
 

 
(706,278
)
Net earnings from affiliates

 
966

 
35,077

 

 
36,043

Net earnings from consolidated subsidiaries, net of tax
360,756

 
219,391

 

 
(580,147
)
 

Operating income
358,236

 
444,916

 
324,384

 
(580,147
)
 
547,389

Interest expense, net
(20,987
)
 
(8,785
)
 
(7,613
)
 

 
(37,385
)
Other expense, net

 
(5,203
)
 
(3,476
)
 

 
(8,679
)
Earnings before income taxes
337,249

 
430,928

 
313,295

 
(580,147
)
 
501,325

Provision for income taxes
7,200

 
(70,172
)
 
(92,026
)
 

 
(154,998
)
Net earnings, including noncontrolling interests
344,449

 
360,756

 
221,269

 
(580,147
)
 
346,327

Less: Net earnings attributable to noncontrolling interests

 

 
(1,878
)
 

 
(1,878
)
Net earnings attributable to Flowserve Corporation
$
344,449

 
$
360,756

 
$
219,391

 
$
(580,147
)
 
$
344,449

Comprehensive income attributable to Flowserve Corporation
$
325,981

 
$
341,344

 
$
196,768

 
$
(538,112
)
 
$
325,981


11




FLOWSERVE CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEETS
 
September 30, 2014
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
509

 
$

 
$
162,360

 
$

 
$
162,869

Accounts receivable, net

 
266,947

 
864,128

 

 
1,131,075

Intercompany receivables
6,270

 
132,139

 
223,215

 
(361,624
)
 

Inventories, net

 
381,908

 
736,375

 

 
1,118,283

Other current assets, net
641

 
151,942

 
108,400

 

 
260,983

Total current assets
7,420

 
932,936

 
2,094,478

 
(361,624
)
 
2,673,210

Property, plant and equipment, net

 
228,451

 
449,856

 

 
678,307

Goodwill

 
709,240

 
370,087

 

 
1,079,327

Intercompany receivables
432,500

 
271,945

 
64,114

 
(768,559
)
 

Investment in consolidated subsidiaries
2,617,150

 
1,584,885

 

 
(4,202,035
)
 

Other assets, net
13,159

 
202,854

 
146,917

 

 
362,930

Total assets
$
3,070,229

 
$
3,930,311

 
$
3,125,452

 
$
(5,332,218
)
 
$
4,793,774

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
127,460

 
$
363,054

 
$

 
$
490,514

Intercompany payables
115

 
229,370

 
132,139

 
(361,624
)
 

Accrued liabilities
10,358

 
251,017

 
497,424

 

 
758,799

Debt due within one year
40,000

 

 
14,122

 

 
54,122

Deferred taxes

 

 
11,170

 

 
11,170

Total current liabilities
50,473

 
607,847

 
1,017,909

 
(361,624
)
 
1,314,605

Long-term debt due after one year
1,097,118

 

 
15,518

 

 
1,112,636

Intercompany payables
1,144

 
495,470

 
271,945

 
(768,559
)
 

Retirement obligations and other liabilities
6,580

 
209,844

 
226,410

 

 
442,834

Total liabilities
1,155,315

 
1,313,161

 
1,531,782

 
(1,130,183
)
 
2,870,075

Total Flowserve Corporation shareholders’ equity
1,914,914

 
2,617,150

 
1,584,885

 
(4,202,035
)
 
1,914,914

Noncontrolling interests

 

 
8,785

 

 
8,785

Total equity
1,914,914

 
2,617,150

 
1,593,670

 
(4,202,035
)
 
1,923,699

Total liabilities and equity
$
3,070,229

 
$
3,930,311

 
$
3,125,452

 
$
(5,332,218
)
 
$
4,793,774








12



 
December 31, 2013
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
29,086

 
$

 
$
334,718

 
$

 
$
363,804

Accounts receivable, net

 
263,594

 
891,733

 

 
1,155,327

Intercompany receivables

 
155,422

 
74,089

 
(229,511
)
 

Inventories, net

 
371,172

 
689,498

 

 
1,060,670

Other current assets, net
1,879

 
144,551

 
121,151

 

 
267,581

Total current assets
30,965

 
934,739

 
2,111,189

 
(229,511
)
 
2,847,382

Property, plant and equipment, net

 
220,072

 
496,217

 

 
716,289

Goodwill

 
715,722

 
391,829

 

 
1,107,551

Intercompany receivables
432,500

 
9,520

 
186,789

 
(628,809
)
 

Investment in consolidated subsidiaries
2,579,701

 
1,850,998

 

 
(4,430,699
)
 

Other assets, net
15,486

 
211,755

 
138,270

 

 
365,511

Total assets
$
3,058,652

 
$
3,942,806

 
$
3,324,294

 
$
(5,289,019
)
 
$
5,036,733

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
163,254

 
$
448,838

 
$

 
$
612,092

Intercompany payables
81

 
74,008

 
155,422

 
(229,511
)
 

Accrued liabilities
12,874

 
293,012

 
555,124

 

 
861,010

Debt due within one year
40,000

 
5

 
32,673

 

 
72,678

Deferred taxes

 

 
12,319

 

 
12,319

Total current liabilities
52,955

 
530,279

 
1,204,376

 
(229,511
)
 
1,558,099

Long-term debt due after one year
1,126,904

 

 
715

 

 
1,127,619

Intercompany payables
1,144

 
618,145

 
9,520

 
(628,809
)
 

Retirement obligations and other liabilities
7,270

 
214,681

 
251,943

 

 
473,894

Total liabilities
1,188,273

 
1,363,105

 
1,466,554

 
(858,320
)
 
3,159,612

Total Flowserve Corporation shareholders’ equity
1,870,379

 
2,579,701

 
1,850,998

 
(4,430,699
)
 
1,870,379

Noncontrolling interests

 

 
6,742

 

 
6,742

Total equity
1,870,379

 
2,579,701

 
1,857,740

 
(4,430,699
)
 
1,877,121

Total liabilities and equity
$
3,058,652

 
$
3,942,806

 
$
3,324,294

 
$
(5,289,019
)
 
$
5,036,733













13



FLOWSERVE CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 30, 2014
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Net cash flows provided by operating activities
$
253,034

 
$
276,330

 
$
28,315

 
$
(431,478
)
 
$
126,201

Cash flows — Investing activities:
 
 
 
 
 
 
 
 
 

Capital expenditures

 
(33,917
)
 
(49,685
)
 

 
(83,602
)
Proceeds from sale of business, net of cash divested

 

 
46,805

 

 
46,805

Intercompany short-term financing, net

 

 
(156,072
)
 
156,072

 

Intercompany loan proceeds

 
83

 
122,675

 
(122,758
)
 

Intercompany loan payments

 
(1,864
)
 

 
1,864

 

Proceeds from disposition of assets

 
146

 
1,467

 

 
1,613

Net cash flows used by investing activities

 
(35,552
)
 
(34,810
)
 
35,178

 
(35,184
)
Cash flows — Financing activities:
 
 
 
 
 
 
 
 
 
Excess tax benefits from stock-based payment arrangements

 
6,486

 
2,004

 

 
8,490

Payments on long-term debt
(30,000
)
 

 

 

 
(30,000
)
Proceeds under other financing arrangements

 

 
14,388

 

 
14,388

Payments under other financing arrangements

 
(5
)
 
(16,372
)
 

 
(16,377
)
Repurchases of common shares
(188,324
)
 

 

 

 
(188,324
)
Payments of dividends
(63,287
)
 

 

 

 
(63,287
)
Intercompany short-term financing, net

 
156,072

 

 
(156,072
)
 

Intercompany loan proceeds

 

 
1,864

 
(1,864
)
 

Intercompany loan payments

 
(122,675
)
 
(83
)
 
122,758

 

Intercompany dividends

 
(280,656
)
 
(150,822
)
 
431,478

 

All other financing, net

 

 
(2,499
)
 

 
(2,499
)
Net cash flows used by financing activities
(281,611
)
 
(240,778
)
 
(151,520
)
 
396,300

 
(277,609
)
Effect of exchange rate changes on cash

 

 
(14,343
)
 

 
(14,343
)
Net change in cash and cash equivalents
(28,577
)
 

 
(172,358
)
 

 
(200,935
)
Cash and cash equivalents at beginning of period
29,086

 

 
334,718

 

 
363,804

Cash and cash equivalents at end of period
$
509

 
$

 
$
162,360

 
$

 
$
162,869



14



 
Nine Months Ended September 30, 2013
 
Parent (Issuer)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated Total
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
Net cash flows provided (used) by operating activities
$
245,150

 
$
138,849

 
$
(26,091
)
 
$
(249,020
)
 
$
108,888

Cash flows — Investing activities:
 
 
 
 
 
 
 
 
 

Capital expenditures

 
(27,827
)
 
(66,875
)
 

 
(94,702
)
Payments for acquisition, net of cash acquired

 

 
(10,143
)
 

 
(10,143
)
Intercompany loan proceeds

 
911

 
56,333

 
(57,244
)
 

Intercompany loan payments

 
(52
)
 
(173,511
)
 
173,563

 

Proceeds from disposition of assets

 
93

 
876

 

 
969

Affiliate investment activity, net

 

 
46,240

 

 
46,240

Net cash flows used by investing activities

 
(26,875
)
 
(147,080
)
 
116,319

 
(57,636
)
Cash flows — Financing activities:
 
 
 
 
 
 
 
 
 
Excess tax benefits from stock-based payment arrangements

 
8,265

 
1,839

 

 
10,104

Payments on long-term debt
(15,000
)
 

 

 

 
(15,000
)
Short-term financing, net
196,000

 

 

 

 
196,000

Proceeds under other financing arrangements

 

 
9,844

 

 
9,844

Payments under other financing arrangements

 
(15
)
 
(10,400
)
 

 
(10,415
)
Repurchases of common shares
(370,127
)
 

 

 

 
(370,127
)
Payments of dividends
(57,337
)
 

 

 

 
(57,337
)
Intercompany loan proceeds

 
173,511

 
52

 
(173,563
)
 

Intercompany loan payments

 
(56,333
)
 
(911
)
 
57,244

 

Intercompany dividends

 
(237,402
)
 
(11,618
)
 
249,020

 

All other financing, net
91

 

 
(169
)
 

 
(78
)
Net cash flows used by financing activities
(246,373
)
 
(111,974
)
 
(11,363
)
 
132,701

 
(237,009
)
Effect of exchange rate changes on cash

 

 
(4,744
)
 

 
(4,744
)
Net change in cash and cash equivalents
(1,223
)
 

 
(189,278
)
 

 
(190,501
)
Cash and cash equivalents at beginning of period
2,609