Flowserve Corp: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto, and the other financial data included elsewhere in this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements, and notes thereto, and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") included in our 2023 Annual Report.

EXECUTIVE OVERVIEW

Our Company

We are a world-leading manufacturer and aftermarket service provider of comprehensive flow control systems. We develop and manufacture precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in our customers’ critical processes. Our product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation, nuclear and water management, as well as general industrial markets where our products and services enable customers to achieve their goals. Through our manufacturing platform and global network of Quick Response Centers ("QRCs"), we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics and turnkey maintenance programs. We currently have approximately 16,000 employees globally and a footprint of manufacturing facilities and QRCs in more than 50 countries.

Our business model is significantly influenced by the capital and operating spending of global infrastructure industries for the placement of new products into service and maintenance spending for aftermarket services for existing operations. The worldwide installed base of our products is an important source of aftermarket revenue, where products are relied upon to maximize operating time of many key industrial processes. We continue to invest in our aftermarket strategy to provide local support to drive customer investments in our offerings and use of our services to replace or repair installed products. The aftermarket portion of our business also helps provide business stability during various economic periods. The aftermarket business, which is primarily served by our network of 155 QRCs (some of which are shared by our two business segments) located around the globe, provides a variety of service offerings for our customers including spare parts, service solutions, product life cycle solutions and other value-added services. It is generally a higher margin business compared to our original equipment business and a key component of our profitable growth strategy.

Our operations are conducted through two business segments that are referenced throughout this MD&A:

• 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
• 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 business segments share a focus on industrial flow control technology and have a number of common customers. These segments also have complementary product offerings and technologies that are often combined in applications that provide us a net competitive advantage. Our segments also benefit from our global footprint, our economies of scale in reducing administrative and overhead costs to serve customers more cost effectively and our shared leadership for operational support functions, such as research and development, marketing, and supply chain.

The reputation of our product portfolio is built on more than 50 well-respected brand names such as Worthington, IDP, SIHI, INNOMAG, Valtek, Limitorque, Durco and Argus, which we believe to be one of the most comprehensive in the industry. Our products and services are sold either directly or through designated channels to more than 10,000 companies, including some of the world’s leading engineering, procurement and construction ("EPC") firms, original equipment manufacturers, distributors and end users.

We continuously strive to enhance our global supply chain capability to increase our ability to meet global customer demands and improve the quality and timely delivery of our products over the long-term. Additionally, we continue to devote resources to improving the supply chain processes across our business segments to find areas of synergy and cost reduction and to improve our supply chain management capability to meet global customer demands. We also remain focused on improving on-time delivery and quality, while managing warranty costs as a percentage of sales across our global operations, through our operational excellence program. The goal of the program, which includes lean manufacturing, six sigma business management strategy and value engineering, is to maximize service fulfillment to customers through on-time delivery, reduced cycle time and quality at the highest internal productivity.

In the first quarter of 2023, we identified and initiated certain realignment activities concurrent with the consolidation of our FPD aftermarket and pump operations into a single operating model. This consolidated operating model was designed to better align our go-to-market strategy with our product offerings, enable end-to-end lifecycle responsibility and accountability, and to facilitate more efficient operations. Additionally, we committed to an estimated $50 million in cost reduction efforts to begin in 2023. Collectively, the above realignment activities are referred to as the "2023 Realignment Programs." The activities of the 2023 Realignment Programs were identified and implemented in phases throughout 2023 and are continuing through 2024.

MOGAS Industries Acquisition — On October 15, 2024, we acquired all of the equity interests of MOGAS Industries, Inc., MOGAS Real Estate and MOGAS Systems & Consulting LLC (such entities collectively, "MOGAS"), for a cash purchase price of $290.0 million, before including closing working capital adjustments and a contingent earnout payment of up to $15.0 million based on MOGAS achieving certain financial goals for the calendar year ended December 31, 2024. MOGAS, a privately held provider of mission-critical severe service valves and associated aftermarket services, is based in Houston, Texas and has operations primarily in North America and, to a lesser extent, Europe and Asia Pacific. The acquisition was funded using a combination of cash on hand and term loan financing under our Second Amended and Restated Credit Agreement. MOGAS's differentiated valve products are expected to enhance our installed base, creating meaningful aftermarket opportunities with the addition of MOGAS's strong brand, heritage, and technical expertise in diverse and attractive end markets, including the growing mining industry. MOGAS's 2023 sales were approximately $166 million.

The acquisition will be accounted for as a business combination under Accounting Standards Codification 805, Business Combinations, using the acquisition method of accounting. The purchase price allocation remains preliminary pending management's valuation assessment. Acquisition related expenses incurred during the three and nine months ended September 30, 2024 were $1.7 million and $2.8 million, respectively, and are included within selling, general and administrative ("SG&A") expense in our condensed consolidated statements of income.

2024 Outlook

We have seen growth from the end-markets we serve and continue to focus on our strategic plan that takes a balanced approach to integrating both short-term and long-term initiatives and aims to accelerate growth through three key areas: diversification, decarbonization, and digitization, the "3D Strategy." Our sales volume is expected to deliver sustainable and healthy growth, while our 2023 Realignment Programs and the new operating model have unlocked gains in organizational efficiency. With our strong backlog and supportive market environment, we expect to deliver annual revenue growth in 2024.

As of September 30, 2024, we have cash and cash equivalents of $611.7 million and $615.2 million of borrowings available under our Senior Credit Agreement. On October 10, 2024, we entered into the Second Amended and Restated Credit Agreement, which includes a $800.0 million Revolving Credit Facility and $500.0 million Term Loan. We do not currently anticipate, nor are we aware of, any significant market conditions or commitments that would change any of our conclusions of the liquidity available to us. We expect the liquidity discussed above coupled with the costs savings measures planned and already in place will further enable us to maintain adequate liquidity over the short-term (next 12 months) and long-term (beyond the next 12 months). We will continue to actively monitor the credit markets in order to maintain sufficient liquidity and access to capital.

RESULTS OF OPERATIONS — Three and nine months ended September 30, 2024 and 2023

Throughout this discussion of our results of operations, we discuss the impact of fluctuations in foreign currency exchange rates. We have calculated currency effects on operations by translating current year results on a monthly basis at prior year exchange rates for the same periods.

The activities of the 2023 Realignment Programs were identified and implemented in phases throughout 2023 and are continuing into 2024. We currently anticipate a total investment in realignment activities that have been evaluated and initiated of approximately $123 million of which $37 million is estimated to be non-cash. Based on the activities of the 2023 Realignment Programs initiated to date, we estimate that we recognized cost savings of approximately $89 million through September 30, 2024. Upon completion of the activities of the 2023 Realignment Programs that have been identified and initiated to date, we expect to achieve annualized cost savings in excess of $100 million. Actual savings could vary from expected savings, which represent management's best estimate to date. There are certain remaining realignment activities that are currently being evaluated, but have not yet been approved and therefore are not included in the above anticipated total investment or estimated savings.

Realignment Activity

The following tables present our realignment activity by segment related to our 2023 Realignment Programs:

(Amounts in thousands)

30

(Amounts in thousands)

(Amounts in thousands)

(1) Loss on sale of business related to NAF AB control valves business as described within Note 1, "Basis of Presentation and Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report.

(Amounts in thousands)

Consolidated Results

Bookings, Sales and Backlog

(Amounts in millions)

(Amounts in millions)

31

We define a booking as the receipt of a customer order that contractually engages us to perform activities on behalf of our customer with regard to manufacturing, service or support. Bookings recorded and subsequently canceled within the year-to-date period are excluded from year-to-date bookings. Bookings for the three months ended September 30, 2024 increased by $136.1 million, or 12.7%, as compared with the same period in 2023. The increase included negative currency effects of approximately $7 million. The increase was driven by increased customer orders of $60 million in the water management industry, $34 million in the power generation industry, $31 million in the oil and gas industry and $22 million in general industries, partially offset by a decrease of $15 million in the chemical industry. The increase in customer bookings was driven substantially by original equipment bookings.

Bookings for the nine months ended September 30, 2024 increased by $252.5 million, or 7.8%, as compared with the same period in 2023. The increase included negative currency effects of approximately $16 million. The increase was driven by increased customer bookings of $119 million in the oil and gas industry, $80 million in the power generation industry, $50 million in the water management industry and $10 million in general industries, partially offset by a decrease of $4 million in the chemical industry. The increase in customer bookings was driven substantially by original equipment bookings and included the impact of FPD orders booked in the second quarter of 2024 in excess of $150 million to supply pumps and related equipment to support the continued development of an onshore unconventional gas project and a petrochemical project in the Middle East.

Sales for the three months ended September 30, 2024 increased by $38.4 million, or 3.5%, as compared with the same period in 2023. The increase included negative currency effects of approximately $5 million. The increased sales were driven by both aftermarket and original equipment customer sales, with increased customer sales of $25 million into the Middle East, $13 million into Europe, $9 million into Latin America and $6 million into Asia Pacific, partially offset by decreased customer sales of $4 million into both Africa and North America. Net sales to international customers, including export sales from the United States, were approximately 64% and 63% of total sales for the three months ended September 30, 2024 and 2023, respectively. Aftermarket sales represented approximately 51% of total sales, as compared with approximately 52% of total sales for the same period in 2023.

Sales for the nine months ended September 30, 2024 increased by $222.1 million, or 7.0%, as compared with the same period in 2023. The increase included negative currency effects of approximately $9 million. The increased sales were driven by both aftermarket and original equipment customer sales, with increased customer sales of $83 million into the Middle East, $60 million into Europe, $54 million into North America, $22 million into Latin America and $18 million into Asia Pacific, partially offset by decreased customer sales of $3 million into Africa. Net sales to international customers, including export sales from the United States, were approximately 64% and 63% of total sales for the nine months ended September 30, 2024 and 2023, respectively. Aftermarket sales represented approximately 51% of total sales, as compared with approximately 52% of total sales for the same period in 2023.

Backlog represents the aggregate value of booked but uncompleted customer orders and is influenced primarily by bookings, sales, cancellations and currency effects. Backlog of $2,783.8 million at September 30, 2024 increased by $88.7 million, or 3.3%, as compared with December 31, 2023. Currency effects provided an increase of less than $1 million. Approximately 38% and 37% of the backlog at September 30, 2024 and December 31, 2023, respectively, was related to aftermarket orders. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $924 million, as discussed in Note 2, "Revenue Recognition," to our condensed consolidated financial statements included in this Quarterly Report.

Gross Profit and Gross Profit Margin

(Amounts in millions, except percentages)

(Amounts in millions, except percentages)

Gross profit for the three months ended September 30, 2024 increased by $39.4 million, or 12.4%, as compared with the same period in 2023. Gross profit margin for the three months ended September 30, 2024 of 31.5% increased from 29.0% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases, higher sales volume, lower broad-based annual incentive compensation and decreased charges of $0.4 million related to our 2023 Realignment Programs, partially offset by $2.7 million in one-time U.S. pension plan transition benefit expense as compared to the same period in 2023.

Gross profit for the nine months ended September 30, 2024 increased by $124.8 million, or 13.3%, as compared with the same period in 2023. Gross profit margin for the nine months ended September 30, 2024 of 31.4% increased from 29.7% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases and higher sales volume, partially offset by increased charges of $8.5 million related to our 2023 Realignment Programs, $2.7 million in one-time U.S. pension transition benefit expense and higher broad-based annual incentive compensation as compared to the same period in 2023.

Selling, General and Administrative Expense

(Amounts in millions, except percentages)

(Amounts in millions, except percentages)

SG&A for the three months ended September 30, 2024 increased by $6.9 million, or 2.7%, as compared with the same period in 2023. Currency effects yielded a decrease of approximately $1 million. SG&A increased due to increased charges of $11.0 million in research and development costs which includes the $7.2 million strategic acquisition of intellectual property related to certain liquefied natural gas ("LNG") technology, $2.3 million in one-time U.S. pension plan transition benefit expense, $1.7 million of expense related to the MOGAS acquisition, asbestos-related costs of $1.3 million driven by a $12.0 million adjustment for Incurred But Not Reported ("IBNR") asbestos liability accruals based on an annual actuarial study, and an increase in bad debt expense of $0.8 million, partially offset by decreased charges of $12.8 million related to our 2023 Realignment Programs, $2.5 million of expense related to the terminated Velan acquisition incurred in the third quarter of 2023 that did not recur and lower broad-based annual incentive compensation as compared with the same period in 2023. SG&A as a percentage of sales for the three months ended September 30, 2024 decreased 10 basis points primarily due to increased sales leverage that outpaced cost increases.

SG&A for the nine months ended September 30, 2024 decreased by $0.3 million, or less than one percent, as compared with the same period in 2023. Currency effects yielded a decrease of approximately $2 million. SG&A decreased due to decreased charges of $35.7 million related to our 2023 Realignment Programs, $8.5 million of expense related to the terminated Velan acquisition incurred in 2023 that did not recur, a $2.9 million impairment of a licensing intangible in 2023 that did not recur, the reversal of previously recognized expenses of $2.0 million related to our financial exposure in Russia and lower broad-based annual incentive compensation, partially offset by an increase in research and development costs of $20.2 million which includes the $7.2 million strategic acquisition of intellectual property related to certain LNG technology, an increase in bad debt expense of $5.6 million, asbestos-related costs of $3.4 million for IBNR asbestos liability accruals, $2.8 million of expense related to the MOGAS acquisition and a $1.8 million discrete software asset impairment as compared with the same period in 2023. SG&A as a percentage of sales for the nine months ended September 30, 2024 decreased 150 basis points primarily due to increased sales leverage and cost decreases.

Loss on Sale of Business

(Amounts in millions)

The loss on sale of business for the nine months ended September 30, 2024 increased by $13.0 million from zero in 2023 to $13.0 million in 2024 due to the divestiture of NAF AB, a previously wholly-owned subsidiary and control valves business within our FCD segment, including the NAF AB facility located in Linkoping, Sweden. See Note 1, "Basis of Presentation and Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report for additional information on this transaction.

Net Earnings from Affiliates

(Amounts in millions)

(Amounts in millions)

Net earnings from affiliates for the three months ended September 30, 2024 increased by $0.6 million, or 13.0%, as compared with the same period in 2023. The increase in net earnings was primarily a result of increased earnings of our FPD joint venture in South Korea.

Net earnings from affiliates for the nine months ended September 30, 2024 increased by $1.3 million, or 9.8%, as compared with the same period in 2023. The increase was primarily a result of increased earnings of our FPD joint venture in South Korea.

Operating Income and Operating Margin

(Amounts in millions, except percentages)

(Amounts in millions, except percentages)

Operating income for the three months ended September 30, 2024 increased by $32.9 million, or 46.8%, as compared with the same period in 2023. The increase included negative currency effects of approximately $2 million. The increase was primarily a result of the $39.4 million increase in gross profit partially offset by the $6.9 million increase in SG&A.

Operating income for the nine months ended September 30, 2024 increased by $113.5 million, or 50.6%, as compared with the same period in 2023. The increase included negative currency effects of approximately $4 million. The increase was primarily a result of the $124.8 million increase in gross profit and $0.3 million decrease in SG&A, partially offset by $13.0 million loss on sale of business.

Interest Expense and Interest Income

(Amounts in millions)

(Amounts in millions)

Interest expense for the three months ended September 30, 2024 decreased by $0.7 million, as compared with the same period in 2023, primarily due to lower outstanding debt during the period and lower effective interest rates as compared with the same period in 2023.

Interest expense for the nine months ended September 30, 2024 decreased by $1.2 million, as compared with the same period in 2023, primarily due to lower outstanding debt during the period and lower effective interest rates as compared with the same period in 2023.

Other Income (Expense), Net

(Amounts in millions)

(Amounts in millions)

Other expense, net for the three months ended September 30, 2024 decreased by $7.8 million as compared with the same period in 2023, primarily due to a $7.0 million decrease in losses from transactions in currencies other than our sites' functional currencies and $2.0 million decrease in losses arising from transactions on foreign exchange forward contracts. The net change was primarily due to the foreign currency exchange rate movements in the United Arab Emirates dirhams, Singapore dollar, Mexican peso and Argentine peso during the three months ended September 30, 2024, as compared with the same period in 2023.

Other expense, net for the nine months ended September 30, 2024 decreased by $15.2 million as compared with the same period in 2023, primarily due to a $14.0 million decrease in losses from transactions in currencies other than our sites' functional currencies and a $8.3 million decrease in losses arising from transactions on foreign exchange forward contracts. The net change was primarily due to the foreign currency exchange rate movements in the Euro, Argentine peso, Mexican peso, and Brazilian real during the nine months ended September 30, 2024, as compared with the same period in 2023.

Income Taxes and Tax Rate

(Amounts in millions, except percentages)

(Amounts in millions, except percentages)

The effective tax rate of 22.8% for the three months ended September 30, 2024 increased from (27.0)% for the same period in 2023. The effective tax rate varied from the U.S. federal statutory rate for the three months ended September 30, 2024 primarily due to the net impact of foreign operations. Refer to Note 13, "Income Taxes," to our condensed consolidated financial statements included in this Quarterly Report for further discussion.

The effective tax rate of 22.4% for the nine months ended September 30, 2024 increased from 9.6% for the same period in 2023. The effective tax rate varied from the U.S. federal statutory rate for the nine months ended September 30, 2024 primarily due to the net impact of foreign divestiture and foreign operations. Refer to Note 13, "Income Taxes," to our condensed consolidated financial statements included in this Quarterly Report for further discussion.

Other Comprehensive Income (Loss)

(Amounts in millions)

(Amounts in millions)

Other comprehensive income for the three months ended September 30, 2024 increased by $91.5 million from a loss of $40.8 million in the same period in 2023. The income was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, Great British pound, Chinese yuan, Malaysian ringgits and Mexican peso versus the U.S. dollar during the three months ended September 30, 2024, as compared with the same period in 2023.

Other comprehensive income for the nine months ended September 30, 2024 increased by $19.8 million from a loss of $19.6 million in the same period in 2023. The income was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, Brazilian real, Great British pound, Malaysian ringgits and Mexican peso versus the U.S. dollar during the nine months ended September 30, 2024, as compared with the same period in 2023.

Business Segments

We conduct our operations through two business segments based on the type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. The key operating results for our two business segments, FPD and FCD, are discussed below.

Flowserve Pumps Division Segment Results

Our largest business segment is FPD, through which we design, manufacture, distribute and service highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals, and auxiliary systems (collectively referred to as "original equipment") and related services. FPD includes highly engineered pump products with longer lead times and mechanical seals, which are generally manufactured within shorter lead times. FPD also manufactures replacement parts and related equipment and provides aftermarket services. FPD primarily operates in the oil and gas, power generation, chemical, water management and general industries. FPD operates in 49 countries with 36 manufacturing facilities worldwide, 11 of which are located in Europe and the Middle East, 11 in North America, eight in Asia and six in Latin America, and it operates 131 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.

(Amounts in millions, except percentages)

36

(Amounts in millions, except percentages)

Bookings for the three months ended September 30, 2024 increased by $151.9 million, or 20.7%, as compared with the same period in 2023. The increase included negative currency effects of approximately $7 million. The increase in customer bookings was driven by increased customer orders of $59.5 million in the water management industry, $27.8 million in the power generation industry, $26.5 million in the oil and gas industry, $26.3 million in general industries and $3.1 million in the chemical industry. Customer bookings increased $88.6 million into North America, $48.3 million into Europe, $29.8 million into the Middle East and $20.9 million into Africa, partially offset by decreased customer orders of $27.6 million into Asia Pacific, and $18.2 million into Latin America. The increase was primarily driven by original equipment bookings.

Bookings for the nine months ended September 30, 2024 increased by $266.3 million, or 12.0%, as compared with the same period in 2023. The increase included negative currency effects of approximately $13 million. The increase in customer bookings was driven by increased customer orders of $118 million in the oil and gas industry, $54 million in the water management industry, $44 million in the power generation industry, $29 million in general industries and $21 million in the chemical industry. Customer bookings increased $195.5 million into the Middle East, $86.2 million into North America, $47.1 million into Europe and $4.3 million into Africa, partially offset by decreased customer orders of $64.3 million into Asia Pacific and $5.0 million into Latin America. The increase was primarily driven by original equipment bookings and included the impact of orders booked in the second quarter of 2024 in excess of $150 million to supply pumps and related equipment to support the continued development of an onshore unconventional gas project and a petrochemical project in the Middle East.

Sales for the three months ended September 30, 2024 increased by $15.9 million, or 2.1% as compared with the same period in 2023 and included negative currency effects of approximately $6 million. The increase was driven by aftermarket customer sales. Increased customer sales of $9.4 million into Latin America, $8.5 million into the Middle East, $7.9 million into Europe and $3.4 million into Asia Pacific were partially offset by decreased sales of $4.3 million into North America and $3.3 million into Africa.

Sales for the nine months ended September 30, 2024 increased by $132.0 million, or 5.9% as compared with the same period in 2023 and included negative currency effects of approximately $8 million. The increase was driven by both aftermarket and original equipment customer sales. Increased customer sales of $50.1 million into North America, $39.8 million into Europe, $38.8 million into the Middle East and $26.0 million into Latin America were partially offset by decreased sales of $7.9 million into Asia Pacific and $6.6 million into Africa.

Gross profit for the three months ended September 30, 2024 increased by $32.9 million, or 14.9%, as compared with the same period in 2023. Gross profit margin for the three months ended September 30, 2024 of 32.4% increased from 28.8% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases, higher sales volume and lower broad-based annual incentive compensation, partially offset by increased charges of $2.3 million related to our 2023 Realignment Programs and $1.7 million in one-time U.S. pension plan transition benefit expense as compared to the same period in 2023.

Gross profit for the nine months ended September 30, 2024 increased by $92.7 million, or 13.9%, as compared with the same period in 2023. Gross profit margin for the nine months ended September 30, 2024 of 32.2% increased from 30.0% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases and higher sales volume, partially offset by increased charges of $13.4 million related to our 2023 Realignment Programs, $1.7 million in one-time U.S. pension plan transition benefit expense and higher broad-based annual incentive compensation as compared to the same period in 2023.

SG&A for the three months ended September 30, 2024 increased by $2.4 million, or 1.6%, as compared with the same period in 2023. Currency effects provided a decrease of approximately $1 million. The increase in SG&A was primarily due to a $11.6 million increase in research and development costs which includes the strategic acquisition of intellectual property related to certain LNG technology, $0.8 million in one-time U.S. pension plan transition benefit expense and $0.2 million increase in bad debt expense, partially offset by decreased charges of $9.2 million related to our 2023 Realignment Programs and lower broad-based annual incentive compensation and as compared to the same period in 2023.

SG&A for the nine months ended September 30, 2024 decreased by $1.6 million, or 0.4%, as compared with the same period in 2023. Currency effects provided a decrease of approximately $1.1 million. The decrease in SG&A was primarily due to realized cost savings associated with previously implemented 2023 Realignment Programs, decreased charges of $11.0 million related to our 2023 Realignment Programs, $2.9 million impairment of a licensing intangible in 2023 that did not recur and the reversal of previously recognized expenses of $2.0 million related to our financial exposure in Russia, partially offset by a $18.5 million increase in research and development costs which includes the strategic acquisition of intellectual property related to certain LNG technology, $3.2 million increase in bad debt expense, higher broad-based annual incentive compensation and $0.8 million in one-time U.S. pension plan transition benefit expense as compared to the same period in 2023.

Operating income for the three months ended September 30, 2024 increased by $31.0 million, or 39.6%, as compared with the same period in 2023. The increase included negative currency effects of approximately $2 million. The increase was primarily due to the $32.9 million increase in gross profit partially offset by the $2.4 million increase in SG&A.

Operating income for the nine months ended September 30, 2024 increased by $95.8 million, or 37.5%, as compared with the same period in 2023. The increase included negative currency effects of approximately $4 million. The increase was primarily due to the $92.7 million increase in gross profit and $1.6 million decrease in SG&A.

Backlog of $1,982.8 million at September 30, 2024 increased by $91.1 million, or 4.8%, as compared with December 31, 2023. Currency effects provided a decrease of approximately $1 million.

Flow Control Division Segment Results

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. FCD leverages its experience and application know-how by offering a complete menu of engineered services to complement its expansive product portfolio. FCD has a total of 42 manufacturing facilities and QRCs in 22 countries around the world, with five of its 18 manufacturing operations located in the United States, seven located in Europe and the Middle East, five located in Asia Pacific and one located in Latin America. Based on independent industry sources, we believe that FCD is the second largest industrial valve supplier on a global basis.

(Amounts in millions, except percentages)

(Amounts in millions, except percentages)

Bookings for the three months ended September 30, 2024 decreased by $12.1 million, or 3.7%, as compared with the same period in 2023. Bookings included currency benefits of less than $1 million. The decrease in customer bookings was driven by decreased customer orders of $17.9 million in the chemical industry and $3.9 million in general industries, partially offset by increased customer orders of $5.7 million in the power generation industry and $4.9 million in the oil and gas industry. Decreased customer bookings were driven by decreased orders of $14.4 million into Asia Pacific, $5.6 million into Africa and $3.4 million into the Middle East, partially offset by increased orders of $7.2 million into Europe, $2.8 million into Latin America and $2.4 million into North America. The decrease was primarily driven by customer original equipment bookings.

Bookings for the nine months ended September 30, 2024 decreased by $13.8 million, or 1.4%, as compared with the same period in 2023. Bookings included negative currency effects of approximately $3 million. The decrease in customer bookings was primarily driven by decreased customer orders of $24.7 million in the chemical industry, $18.2 million in general industries and $4.3 million from the water management industry, partially offset by increased customer orders of $36.3 million in the power generation industry and $0.9 million in the oil and gas industry. Decreased customer bookings were driven by decreased orders of $19.4 million into the Middle East, $8.3 million into North America, $4.0 million into Asia Pacific and $3.6 million into Africa, partially offset by increased orders of $14.3 million into Latin America and $11.0 million into Europe. The decrease was driven by customer original equipment bookings.

Sales for the three months ended September 30, 2024 increased $22.4 million, or 6.8%, as compared with the same period in 2023. The increase included currency benefits of approximately $1 million. Increased customer sales were driven by customer original equipment sales. The increase was primarily driven by increased customer sales of $16.1 million into the Middle East, $5.6 million into Europe, $2.6 million into Asia Pacific and $0.5 million into North America, partially offset by decreased customer sales of $0.2 million into both Africa and Latin America.

Sales for the nine months ended September 30, 2024 increased $91.4 million, or 9.8%, as compared with the same period in 2023. The increase included negative currency effects of approximately $1 million. Increased customer sales were driven by customer original equipment sales. The increase was primarily driven by increased customer sales of $44.7 million into the Middle East, $26.0 million into Asia Pacific, $20.0 million into Europe, $4.2 million into North America and $3.3 million into Africa, partially offset by decreased customer sales of $4.1 million into Latin America.

Gross profit for the three months ended September 30, 2024 increased by $8.9 million, or 9.1%, as compared with the same period in 2023. Gross profit margin for the three months ended September 30, 2024 of 30.2% increased from the 29.5% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases, higher sales volume, decreased charges of $2.7 million related to our 2023 Realignment Programs and lower broad-based annual incentive compensation, partially offset by $0.8 million in one-time U.S. pension plan transition benefit expense and slightly unfavorable mix as compared to the same period in 2023.

Gross profit for the nine months ended September 30, 2024 increased by $34.6 million, or 12.8%, as compared with the same period in 2023. Gross profit margin for the nine months ended September 30, 2024 of 29.9% increased from the 29.1% for the same period in 2023. The increase was primarily due to the favorable impact of previously implemented sales price increases, higher sales volume, decreased charges of $4.9 million related to our 2023 Realignment Programs and lower broad-based annual incentive compensation, partially offset by $0.8 million in one-time U.S. pension plan transition benefit expense and slightly unfavorable mix as compared to the same period in 2023.

SG&A for the three months ended September 30, 2024 increased by $5.8 million, or 10.7%, as compared with the same period in 2023. Currency effects provided an increase of less than $1 million. The increase in SG&A was primarily due to $1.7 million of expense related to the MOGAS acquisition, $1.6 million increase in research and development costs, $0.6 million increase in bad debt expense and $0.4 million in one-time U.S. pension plan transition benefit expense, partially offset by $2.5 million of expense related to the terminated Velan acquisition incurred in the third quarter of 2023 that did not recur, lower broad-based annual incentive compensation and decreased charges of $0.2 million related to our 2023 Realignment Programs as compared to the same period in 2023.

SG&A for the nine months ended September 30, 2024 increased by $6.1 million, or 3.5%, as compared with the same period in 2023. Currency effects provided an increase of less than $1 million. The increase in SG&A was primarily due to increased sales volume, $5.0 million increase in research and development costs, $2.8 million of expense related to the MOGAS acquisition, $2.4 million increase in bad debt expense and $0.4 million in one-time U.S. pension plan transition benefit expense, partially offset by decreased charges of $9.0 million related to our 2023 Realignment Programs, $8.5 million of expense related to the terminated Velan acquisition incurred in 2023 that did not recur and lower broad-based annual incentive compensation as compared to the same period in 2023.

Loss on sale of business for the nine months ended September 30, 2024 increased by $13.0 million from zero in 2023 to $13.0 million in 2024 due to the divestiture of NAF AB, a previously wholly-owned subsidiary and control valves business within our FCD segment, including the NAF AB facility located in Linkoping, Sweden. The loss on sale of business is included within charges related to our 2023 Realignment Programs.

Operating income for the three months ended September 30, 2024 increased by $3.2 million, or 7.4%, as compared with the same period in 2023. The increase included negative currency effects of less than $1 million. The increase was primarily due to $8.9 million increase in gross profit, partially offset by $5.8 million increase in SG&A.

Operating income for the nine months ended September 30, 2024 increased by $15.5 million, or 15.8%, as compared with the same period in 2023. The increase included negative currency effects of approximately $1 million. The increase was primarily due to the $34.6 million increase in gross profit, partially offset by the $13.0 million loss on sale of business and $6.1 million increase in SG&A.

Backlog of $814.4 million at September 30, 2024 decreased by $12.4 million, or 1.5%, as compared with December 31, 2023. Currency effects provided an increase of approximately $2 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow and Liquidity Analysis

(Amounts in millions)

Existing cash, cash generated by operations and borrowings available under the Second Amended and Restated Credit Agreement are our primary sources of short-term liquidity. We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have placed our deposits with creditworthy financial institutions. Our sources of operating cash generally include the sale of our products and services and the conversion of our working capital, particularly accounts receivable and inventories. Our cash balance at September 30, 2024 was $611.7 million as compared with $545.7 million at December 31, 2023.

Our cash balance increased by $66.0 million to $611.7 million at September 30, 2024, as compared with December 31, 2023. The cash activity during the first nine months of 2024 included cash provided by operating activities, $82.8 million in dividend payments, $52.2 million in capital expenditures, $45.0 million of payments on our Term Loan and $20.1 million of share repurchases.

For the nine months ended September 30, 2024, our cash provided by operating activities was $228.0 million, as compared to cash provided of $131.1 million for the same period in 2023. Working capital levels vary from period to period and are primarily affected by our volume of work, and can be impacted by billing schedules on our projects. Cash flows used by working capital accounts increased for the nine months ended September 30, 2024, primarily due to increased cash flows used by or decreased cash flows provided by accounts receivable, contract assets, contract liabilities and accrued liabilities, partially offset by increased cash flows provided by or decreased cash flows used by inventories, prepaid expenses and other assets and accounts payable as compared to the same period in 2023.

Increases in accounts receivable used $96.4 million of cash flow for the nine months ended September 30, 2024, as compared to $1.5 million provided for the same period in 2023. As of September 30, 2024, our days’ sales outstanding ("DSO") was 77 days as compared with 71 days as of September 30, 2023.

Increases in contract assets used $23.3 million of cash flow for the nine months ended September 30, 2024, as compared with cash flows used of $10.2 million for the same period in 2023.

Decreases in inventory provided $2.9 million of cash flow for the nine months ended September 30, 2024, as compared with cash flows used of $114.6 million for the same period in 2023. Inventory turns were 3.5 times at September 30, 2024, as compared to 3.3 times as of September 30, 2023.

Increases in accounts payable provided $24.7 million of cash flow for the nine months ended September 30, 2024, as compared with $1.9 million of cash provided for the same period in 2023. Decreases in accrued liabilities used $33.9 million of cash flow for the nine months ended September 30, 2024, as compared with $21.4 million of cash flow provided for the same period in 2023.

Increases in contract liabilities provided $8.5 million of cash flow for the nine months ended September 30, 2024, as compared to cash flows provided of $15.9 million for the same period in 2023.

Cash flows used by investing activities during the nine months ended September 30, 2024 were $54.1 million, as compared to cash flows used of $48.4 million for the same period in 2023. Cash outflows in the nine months ended September 30, 2024 resulted primarily from capital expenditures of $52.2 million, an increase of $4.6 million, and payment for disposition of business of $2.6 million as compared with the same period in 2023. Our capital expenditures are generally focused on strategic initiatives to pursue information technology infrastructure, ongoing scheduled replacements and upgrades and cost reduction opportunities. In 2024, we currently estimate capital expenditures to be between $75 million and $85 million before consideration of any acquisition activity.

Cash flows used by financing activities during the nine months ended September 30, 2024 were $107.4 million, as compared to $32.1 million of cash flows used for the same period in 2023. Cash outflows in the nine months ended September 30, 2024 resulted primarily from the $45.0 million of payments on our Term Loan, $82.8 million of dividend payments, $50.0 million of payments on our Revolving Credit Facility and $20.1 million of share repurchases, partially offset by $100.0 million of cash proceeds from our Revolving Credit Facility. Cash outflows during the nine months ended September 30, 2023 resulted primarily from $30.0 million of payments on our Term Loan, $145.0 million repayments under our Revolving Credit Facility and $78.7 million of dividend payments, partially offset by cash inflows of $230.0 million from our Revolving Credit Facility.

As of September 30, 2024, we had an available capacity of $615.2 million on our Senior Credit Agreement, which provided for a $800.0 million unsecured revolving credit facility with a maturity date of September 13, 2026. On October 10, 2024, we amended and restated our Senior Credit Agreement and entered into the Second Amended and Restated Credit Agreement to (i) retain from the Senior Credit Agreement the $800.0 million Revolving Credit Facility, and the right, subject to certain conditions including a Lender approving such increase, to increase the amount of such Revolving Credit Facility by an aggregate amount not to exceed $400.0 million, (ii) increase our Term Loan from $300.0 million to $500.0 million, and (iii) extend the maturity date to October 10, 2029. As of September 30, 2024, approximately $15.0 million of our outstanding Term Loan is due to mature in the remainder of 2024 and approximately $59.9 million in 2025. However, under the Second Amended and Restated Credit Agreement signed October 10, 2024, the scheduled repayments due in each of the next four quarters on our Term Loan have been reduced to $9.4 million per quarter. Our borrowing capacity is subject to financial covenant limitations based on the terms of our Second Amended and Restated Credit Agreement and is also reduced by outstanding letters of credit. Our Second Amended and Restated Credit Agreement is committed and held by a diversified group of financial institutions. Refer to Note 6, "Debt and Finance Lease Obligations," to our condensed consolidated financial statements included in this Quarterly Report for additional information concerning our Second Amended and Restated Credit Agreement.

During the nine months ended September 30, 2024, we contributed $20.0 million to our U.S. pension plan, compared to $2.0 million contributions for the same period in 2023. At December 31, 2023, our U.S. pension plan was fully funded as defined by applicable law. We continue to maintain an asset allocation consistent with our strategy to maximize total return, while reducing portfolio risks through asset class diversification.

Considering our current debt structure and cash needs, we currently believe cash flows generated from operating activities combined with availability under our Second Amended and Restated Credit Agreement and our existing cash balance will be sufficient to meet our cash needs for our short-term (next 12 months) and long-term (beyond the next 12 months) business needs. However, cash flows from operations could be adversely affected by a decrease in the rate of general global economic growth and an extended decrease in capital spending of our customers, as well as economic, political and other risks associated with sales of our products, operational factors, competition, regulatory actions, fluctuations in foreign currency exchange rates and fluctuations in interest rates, among other factors. See "Financing" and "Cautionary Note Regarding Forward-Looking Statements" below.

As of September 30, 2024, we have $279.9 million of remaining capacity for Board of Directors approved share repurchases. While we currently intend to continue to return cash through dividends and/or share repurchases for the foreseeable future, any future returns of cash through dividends will be reviewed individually, declared by our Board of Directors at its discretion and implemented by management.

Financing

Credit Facilities

See Note 6, "Debt and Finance Lease Obligations," to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our Senior Credit Agreement, Second Amended and Restated Credit Agreement, and related covenants. We were in compliance with all applicable covenants under the Senior Notes and the Senior Credit Agreement as of September 30, 2024.

As of September 30, 2024, we have cash and cash equivalents of $611.7 million and $615.2 million of borrowings available under our Senior Credit Agreement. During the second quarter of 2024, the Company borrowed on the Revolving Credit Facility for general corporate purposes and as of September 30, 2024 had $50.0 million outstanding. We do not currently anticipate, nor are we aware of, any significant market conditions or commitments that would change any of our conclusions of the liquidity available to us. We will continue to actively monitor the credit markets in order to maintain sufficient liquidity and access to capital.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Annual Report. The critical policies, for which no significant changes have occurred in the nine months ended September 30, 2024, include:

• Revenue Recognition;
• Deferred Taxes, Tax Valuation Allowances and Tax Reserves;
• Reserves for Contingent Loss;
• Pension and Postretirement Benefits; and
• Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived Assets.

The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates. The significant estimates are reviewed quarterly with the Audit Committee of our Board of Directors.

Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below.

ACCOUNTING DEVELOPMENTS

We have presented the information about pronouncements not yet implemented in Note 1, "Basis of Presentation and Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, statements concerning our future financial performance, future debt and financing levels, investment objectives, implications of litigation and regulatory investigations and other management plans for future operations and performance.

The forward-looking statements included in this Quarterly Report are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements. Specific factors that might cause such a difference include, without limitation, the following:

• economic, political and other risks associated with our international operations, including military actions, trade embargoes, epidemics or pandemics or changes to tariffs or trade agreements that could affect customer markets, particularly North African, Latin American, Asian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations;
• any volatile regional and global economic conditions resulting from a public health emergency on our business and operations; global supply chain disruptions and the current inflationary environment could adversely affect the efficiency of our manufacturing and increase the cost of providing our products to customers;
• a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins;
• changes in the global financial markets and the availability of capital and the potential for unexpected cancellations or delays of customer orders in our reported backlog;
• our dependence on our customers' ability to make required capital investment and maintenance expenditures;
• if we are not able to successfully execute and realize the expected financial benefits from our restructuring, realignment and other cost-saving initiatives, our business could be adversely affected;
• the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries;
• the adverse impact of volatile raw materials prices on our products and operating margins;
• increased aging and slower collection of receivables, particularly in Latin America and other emerging markets;
• our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela and Argentina;
• potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims;
• expectations regarding acquisitions and the integration of acquired businesses;
• the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets;
• our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations;
• the highly competitive nature of the markets in which we operate;
• environmental compliance costs and liabilities;
• potential work stoppages and other labor matters;
• access to public and private sources of debt financing;
• our inability to protect our intellectual property in the United States, as well as in foreign countries;
• obligations under our defined benefit pension plans;
• our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud;
• the recording of increased deferred tax asset valuation allowances in the future or the impact of tax law changes on such deferred tax assets could affect our operating results;
• our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks or network security breaches, which could disrupt our business operations and result in the loss of critical and confidential information; and
• ineffective internal controls could impact the accuracy and timely reporting of our business and financial results.

These and other risks and uncertainties are more fully discussed in the risk factors identified in "Item 1A. Risk Factors" in Part I of our 2023 Annual Report and Part II of this Quarterly Report, and may be identified in our Quarterly Reports on Form 10-Q and our other filings with the SEC and/or press releases from time to time. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

We have market risk exposure arising from changes in foreign currency exchange rate movements in foreign exchange forward contracts. We are exposed to credit-related losses in the event of non-performance by counterparties to financial instruments, but we currently expect our counterparties will continue to meet their obligations given their current creditworthiness.

Foreign Currency Exchange Rate Risk

A substantial portion of our operations are conducted by our subsidiaries outside of the United States in currencies other than the U.S. dollar. Almost all of our non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions, including firm commitments and anticipated transactions, denominated in a currency other than our or a non-U.S. subsidiary’s functional currency. We recognized net gains (losses) associated with foreign currency translation of $52.9 million and $(43.0) million for the three months ended September 30, 2024 and 2023, respectively, and $0.2 million and $(20.6) million for the nine months ended September 30, 2024 and 2023, respectively, which are included in other comprehensive income (loss).

We employ a foreign currency risk management strategy to minimize potential changes in cash flows from unfavorable foreign currency exchange rate movements. Where available, the use of foreign exchange forward contracts allows us to mitigate transactional exposure to exchange rate fluctuations as the gains or losses incurred on the foreign exchange forward contracts will help offset, in whole or in part, losses or gains on the underlying foreign currency exposure. Our policy allows foreign currency coverage only for identifiable foreign currency exposures. As of September 30, 2024, we had a U.S. dollar equivalent of $644.5 million in aggregate notional amount outstanding in foreign exchange forward contracts with third parties, as compared with $656.6 million at December 31, 2023. Transactional currency gains and losses arising from transactions outside of our sites’ functional currencies and changes in fair value of non-designated foreign exchange forward contracts are included in our consolidated results of operations. We recognized foreign currency net gains (losses) of $(3.2) million and $(12.2) million for the three months ended September 30, 2024 and 2023, respectively, and $(2.1) million and $(24.3) million for the nine months ended September 30, 2024 and 2023, respectively, which are included in other income (expense), net in the accompanying condensed consolidated statements of income.

Based on a sensitivity analysis at September 30, 2024, a 10% change in the foreign currency exchange rates for the nine months ended September 30, 2024 would have impacted our net earnings by approximately $19 million. This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices. This calculation does not take into account the impact of the foreign currency exchange forward contracts discussed above.

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are controls and other procedures that are designed to ensure that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There are numerous factors that affect our business, financial condition, results of operations, cash flows, reputation and/or prospects, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to "Item 1A. Risk Factors" in Part I and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our 2023 Annual Report, which contain descriptions of significant factors that might cause the actual results of operations in future periods to differ materially from those currently projected in the forward-looking statements contained therein.

There have been no material changes in risk factors discussed in our 2023 Annual Report and subsequent SEC filings. The risks described in this Quarterly Report filed for the period ended September 30, 2024, our 2023 Annual Report and in our other SEC filings or press releases from time to time are not the only risks we face. Additional risks and uncertainties are currently deemed immaterial based on management's assessment of currently available information, which remains subject to change; however, new risks that are currently unknown to us may surface in the future that materially adversely affect our business, financial condition, results of operations or cash flows.