ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is provided to increase the understanding of, and should be read in conjunction with, the accompanying consolidated financial statements and notes. See “Item 1A. Risk Factors” and the section titled “Forward-Looking Information is Subject to Risk and Uncertainty” included in this Annual Report on Form 10-K for the year ended December 31, 2025 ("Annual Report") for a discussion of the risks, uncertainties and assumptions associated with these statements. Unless otherwise noted, all amounts discussed herein are consolidated.
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 energy, chemical, power generation and general, which includes water management and pharmaceuticals, where our products and services enable customers to achieve their goals. Through our manufacturing platform and global network of QRCs, we offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics and turnkey maintenance programs. As of December 31, 2025, we have approximately 16,000 employees globally and a footprint of manufacturing facilities and QRCs in approximately 48 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 152 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"):
• FPD designs, manufactures, pretests, distributes, and services highly custom 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 R&D, 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, Argus and Durametallic, w hich we believe to be one of the most comprehensive in the industry. Our products and services are sold either directly or through designated channels t o 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.
Through the Flowserve Business System, we are committed to operational excellence, which includes continuous enhancements of 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. One of the main focus areas of the Flowserve Business System is portfolio excellence. As part of these efforts, in 2024, we launched the complexity reduction (“CORE”) program that focuses on product rationalization and continuous improvement of our overall product portfolio. The CORE program has now been implemented in all of our main product segments. 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 improving our supply chain management capabilities to meet global customer demands. We also remain focused on improving on-time delivery and quality, while managing warranty costs 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 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 facilitate more efficient operations. 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 2024 and are substantially completed. In the fourth quarter of 2024, we launched the CORE program within the portfolio excellence category of the Flowserve Business System. During 2025 we also initiated certain other portfolio and footprint optimization activities. These optimization activities, together with the CORE program are referred to as the "2025 Realignment Programs," and collectively with the 2023 Realignment Programs are referred to as the "Realignment Programs."
Our Markets
Our products and services are used in several distinct industries: energy, chemical, power generation, and several other industries, such as water management, pharmaceuticals, mining, food and beverage, steel, and pulp and paper, that are collectively referred to as "general industries."
General Industries
General industries represented, in the aggregate, approximately 34% and 31% of our bookings in 2025 and 2024, respectively. General industries comprise a variety of different businesses, including water management, pharmaceuticals, mining and ore processing, pulp and paper, food and beverage, steel, and other smaller applications. General industries also include sales to distributors, whose end customers operate in the industries we primarily serve. General industry activity levels increased in 2025 for the third consecutive year, primarily due to customers' increased repair and maintenance budgets and the demand for fresh water, water treatment and re-use, desalination and flood control considerations that impact the water management component of this industry group.
The outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels. The long-term fundamentals of many of these industries remain sound, as many of the products produced by these industries are common staples of industrialized and urbanized economies. We believe that our specialty product offerings designed for these industries and our aftermarket service capabilities will provide continued business opportunities.
Energy
The energy industry represented approximately 33% and 37% of our bookings in 2025 and 2024, respectively. Customer repair and maintenance spending improved during 2025 supported by strong asset utilization, while short cycle investments continued at a reduced level to support global demand.
The outlook for the energy industry is dependent on the overall macroeconomic environment, including fuel demand, demand growth from both mature markets and developing geographies as well as changes in the regulatory environment. We currently expect continued growth in our business, including increased investment related to energy security and decarbonization efforts in 2026. We further believe consistent asset utilization at our customers' facilities provides support for increased demand for our aftermarket products and services. We believe the medium and long-term fundamentals for this industry remain attractive and see a stabilized environment with expected increased fuel demand on expected global
economic growth. In addition, we believe projected depletion rates of existing fields and forecasted long-term demand growth will require additional investments. With our long-standing reputation in providing successful solutions for upstream, mid-stream and downstream applications, along with the advancements in our portfolio of offerings, we believe that we continue to be well-positioned to assist our customers in this improving environment.
Chemical
The chemical industry represented approximately 19% of our bookings in both 2025 and 2024. The chemical industry is comprised of petrochemical and specialty chemical products. Customer spending in 2025 remained resilient for the fourth consecutive year following the pandemic's negative impact on demand for chemical products in 2020. Bookings levels increased modestly in 2025 as customers increased their repair and maintenance budgets and lowered project work.
The outlook for the chemical industry remains heavily dependent on global economic conditions. As global economies and unemployment conditions improve, a rise in consumer spending should follow. An increase in spending would drive greater demand for petrochemical and specialty chemical products supporting improved levels of capital investment. We believe the chemical industry will continue to invest in North America and Middle East capacity additions, maintenance and upgrades for optimization of existing assets and that developing regions will selectively invest in capital infrastructure to meet current and future indigenous demand. We believe our global presence and our localized aftermarket capabilities are well-positioned to serve the potential growth opportunities in this industry.
Power Generation
The power generation industry represented approximately 14% and 13% of our bookings in 2025 and 2024, respectively. In 2025, energy security concerns drove continued investment in the power generation industry, including nuclear new build and life extensions as well as traditional thermal power sources.
Natural gas-fired combined cycle (“NGCC”) plants have increased their share of the energy mix, driven by market prices for gas remaining low and stable (partially due to the increasing global availability of LNG), low capital expenditures, and the ability of NGCC to stabilize unpredictable renewable sources provide base-load power. With the potential of unconventional sources of gas, the global power generation industry is forecasting an increased use of this form of fuel for power generation plants.
As countries around the world look for opportunities to gain additional energy independence and satisfy increasing energy demands, nuclear power remains an important contributor to the global energy mix and is a key factor in our Diversification strategy. We continue to support our significant installed base in the global nuclear fleet by providing aftermarket and life extension products and services. Due to our extensive history and proven product portfolio, we believe we are well positioned to take advantage of this ongoing source of aftermarket and new project opportunities.
Global efforts to limit the emissions of carbon dioxide may have some adverse effect on thermal power investment plans depending on the potential requirements imposed and the timing of compliance by country. However, many proposed methods of capturing and limiting carbon dioxide emissions offer business opportunities for our products and services. At the same time, we continue to take advantage of new investments in concentrated solar power generating capacity, where our pumps, valves, and seals are uniquely positioned for both molten salt applications as well as the traditional steam cycle.
We believe the long-term fundamentals for the power generation industry remain solid positive based on projected increases in demand for electricity driven by the continued use and proliferation of artificial intelligence systems and machine learning, global population growth, growth of urbanization in developing markets and the increased use of electricity driven transportation. We also believe that our long-standing reputation in the power generation industry, our portfolio of offerings for the various generating methods, our advancements in serving the renewable energy market and carbon capture methodologies, as well as our global service and support structure, position us well for the future opportunities in this important industry.
Outlook for 2026
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 strategy is expected to deliver sustainable growth, while the Flowserve Business System is expected to unlock gains in organizational and operational efficiency. The current macroeconomic environment is dynamic and uncertainty exists given the current geopolitical climate and continued trade policy actions, including higher import tariffs in a number of countries in which we operate, the potential implementation
of modified or new tariffs and related retaliatory actions. We plan to leverage our global footprint, expansive manufacturing network, flexible supply chain and ability to incorporate tariff impacts into pricing decisions to minimize the economic impact of this uncertainty to our business. We will continue to monitor and manage macroeconomic trends and uncertainties, including inflationary and recessionary pressures resulting from the ongoing tariffs and geopolitical climate; however, with our strong backlog, improved execution and recent acquisitions activity, we expect to deliver annual revenue growth in 2026.
Our bookings were $4.7 billion during the year ended December 31, 2025. Because a booking represents a contract that can be, in certain circumstances, modified or canceled, and can include varying lengths between the time of booking and the time of revenue recognition, there is no guarantee that bookings will result in comparable revenues or otherwise be indicative of future results. Assuming a positive general macroeconomic environment and continued supportive environments in our end markets, we expect full-year bookings growth in 2026.
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. On December 31, 2025, we had $992.7 million of fixed-rate Senior Notes outstanding. We expect our interest expense in 2026 will be relatively consistent with amounts incurred in 2025. Our results of operations may also be impacted by unfavorable foreign currency exchange rate movements. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of this Annual Report.
We expect to generate sufficient cash from operations and have sufficient capacity under our Senior Credit Facility to fund any working capital, capital expenditures, dividend payments, share repurchases, debt payments and pension plan contributions in 2026. The amount of cash generated or consumed by working capital is dependent on our level of revenues, customer cash advances, backlog, customer-driven delays and other factors. We will seek to improve our working capital utilization, with a particular focus on improving the management of accounts receivable and inventory. In 2026, our cash flows for investing activities will be focused on strategic initiatives, information technology infrastructure, general upgrades and cost reduction opportunities and we currently estimate capital expenditures to be between $90 million and $100 million, before consideration of any acquisition activity. We currently anticipate that our contributions to our non-U.S. pension plans will be approximately $3 million in 2026, excluding direct benefits paid. We have no obligation to make contributions to our U.S. pension plans in 2025, but have authorization for contributions up to $10 million.
OUR RESULTS OF OPERATIONS
The following is the discussion and analysis of changes in the financial condition and results of operations for fiscal year December 31, 2025 compared to fiscal year 2024. The discussion and analysis of changes in the financial condition and results of operations for fiscal year 2024 compared to fiscal year 2023 that are not included in this Form 10-K may be found in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 26, 2025.
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.
As discussed in Note 2, "Acquisitions," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report, effective October 15, 2024, we acquired for inclusion in FCD, all of the equity interests of MOGAS Industries, Inc., MOGAS Real Estate LLC and MOGAS Systems & Consulting LLC (such entities collectively, "MOGAS"). We incurred $12.8 million in acquisition and integration related costs for fiscal year December 31, 2025 associated with the acquisition which are included within selling, general and administrative expense ("SG&A") and cost of sales ("COS") in our consolidated statements of income. A full year of MOGAS operating results are included within the consolidated statement of income for the period ended December 31, 2025.
Our realignment activities are implemented in phases. We currently anticipate a total investment of approximately $93 million in the 2025 Realignment Programs that have been evaluated and initiated, of which $17 million is estimated to be non-cash. We are evaluating the annualized cost savings expected to be achieved upon completion of the activities of the 2025 Realignment Programs that have been identified and initiated to date. Actual savings could vary from expected savings. 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:
December 31, 2025
(Amounts in thousands)
FPD
FCD
Subtotal–Reportable Segments
All Other
Consolidated Total
Total Realignment Charges
COS
Total
December 31, 2024
(Amounts in thousands)
FPD
FCD
Subtotal - Reportable Segments
All Other
Consolidated Total
Total Realignment Charges
COS
Loss on sale of business (2)
Total
10K only - Pulls from 12/31/2023
December 31, 2023
(Amounts in thousands)
FPD
FCD
Subtotal - Reportable Segments
All Other
Consolidated Total
Total Realignment Charges
COS
Total
(1) Includes the immaterial reversal of previously recognized realignment charges associated with our 2023 Realignment Programs and an immaterial non-cash gain recognized on the early cancellation of certain lease agreements and the resulting write-off of the remaining operating lease liabilities associated with our 2023 Realignment Programs, which were recognized in the first and second quarters of 2025, respectively. Our 2023 Realignment Programs are substantially completed. Also includes within FPD a gain of $6.9 million from the sale of a pump product line in the fourth quarter of 2025 associated with our 2025 Realignment Programs.
(2) Loss on sale of business related to NAF AB control valves business as described within Note 1, "Significant Accounting Policies and Accounting Developments," to our consolidated financial statements included in this Annual Report.
Restructuring charges are included within Total Realignment charges and include charges related to approved, but not yet announced, site closures.
Bookings and Backlog
(Amounts in millions)
Bookings
Backlog (at period end)
We revised the end market categories for bookings during the first quarter of 2025 to better reflect the end markets of our customers and better align with Flowserve's strategic focus. All bookings by industry amounts discussed below, including the 2024 comparative period, have been reclassified from five categories (i.e. , oil and gas, chemical, power generation, water management and general industries) to four categories (i.e. , energy, chemical, power generation and general industries) to conform to our current classification of end markets. The revisions implemented are as follows:
• the oil and gas end market is now referred to as the energy end market;
• the chemical end market no longer includes pharmaceuticals; and
• the general industries end market now includes pharmaceuticals and water management.
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 cancelled from the prior fiscal periods are excluded from the reported bookings and represent less than 1% for all periods presented. Bookings of $4.7 billion in 2025 increased by $52.2 million, or 1.1%, as compared with 2024. The increase included currency benefits of approximately $32 million and was driven by increased customer bookings of $157.2 million in general industries, $93.5 million in power generation and $6.0 million in chemical, partially offset by decreased customer bookings of $193.9 million in the energy industry. The increase in customer bookings was driven by aftermarket bookings.
Backlog represents the aggregate value of booked but uncompleted customer orders and is influenced primarily by bookings, sales, cancellations and currency effects. Backlog of $2.9 billion at December 31, 2025 increased by $78.1 million, or 2.8%, as compared with December 31, 2024. Currency effects provided an increase of approximately $154 million (curren cy effects on backlog are calculated using the change in period end exchange rates). Approximately 42% of the backlog at December 31, 2025 and 37% of the backlog at December 31, 2024 were related to aftermarket orders. We expect to recognize revenue on approximately 76% of the December 31, 2025 backlog during 2026. Backlog includes our unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year of approximately $1.0 billion as discussed in Note 3, "Revenue Recognition," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Sales
(Amounts in millions)
Sales
Sales in 2025 increased by $171.5 million, or 3.8%, as compared with 2024. The increase included currency benefits of approximately $31 million. The increased sales were driven by aftermarket customer sales, with increased customer sales of $152 million into North America, $35 million into Africa and $34 million into the Middle East, partially offset by decreased customer sales of $46 million into Asia Pacific, $10 million into Latin America and $2 million in Europe. Aftermarket sales represented approximately 53% of total sales in 2025 and 51% of total sales in 2024.
Sales to international customers, including export sales from the United States, were approximately 63% in 2025 and 64% in 2024. Sales into Europe, the Middle East and Africa ("EMA") were approximately 36% of total sales in 2025 and 35% in 2024. Sales into Asia Pacific were approximately 16% of total sales in 2025 and 17% in 2024. Sales into Latin America were approximately 7% of total sales in both 2025 and 2024.
Gross Profit and Gross Profit Margin
(Amounts in millions, except percentages)
Gross profit
Gross profit margin
Gross profit in 2025 increased by $147.2 million, or 10.3%, as compared with 2024. Gross profit margin in 2025 of 33.4% increased from 31.5% in 2024. The increase in gross profit margin was primarily due to the favorable impact of previously implemented sales price increases, an improved selective bidding approach, lower broad-based annual incentive compensation and $2.7 million in one-time U.S. pension transition benefit expense incurred in 2024 that did not recur, partially offset by increased charges of $23.1 million related to our realignment activities and $9.8 million of integration costs and amortization of step-up in value of acquired inventories and acquisition related intangible assets associated with the MOGAS acquisition as compared to the same period in 2024.
(Amounts in millions, except percentages)
SG&A as a percentage of sales
SG&A in 2025 increased by $84.1 million, or 8.6%, as compared with 2024. Currency effects yielded an increase of approximately $5.6 million. SG&A increased due to $41.2 million in transaction costs incurred associated with the termination of the planned merger with Chart Industries, Inc. ("Chart") (see Note 1, " Significant Accounting Policies and Accounting Developments," to our consolidated financial statements for further information), increased asbestos-related costs of $14.8 million for Incurred But Not Reported ("IBNR") asbestos liability activity prior to the Asbestos Divestiture, acquisition and integration costs and amortization of acquisition related intangibles assets associated with the MOGAS acquisition of $18.0 million and $1.7 million of other merger and acquisition costs, partially offset by a decrease in R&D costs of $15.8 million, lower broad-based annual incentive compensation, a decrease in bad debt expense of $5.3 million, $2.3 million in one-time U.S. pension plan transition benefit expense incurred in 2024 that did not recur and decreased charges of $1.3 million related to our realignment activities. SG&A as a percentage of sales for the twelve months ended increased 100 basis points driven by cost increases, including those associated with the termination of the planned merger with Chart.
Loss on Sale of Business
(Amounts in millions, except percentages)
Loss on sale of business
The loss on sale of business decreased by $13.0 million in 2025 due to the divestiture of NAF AB in 2024, a previously wholly owned subsidiary and control valves business within our FCD segment, including the NAF AB facility located in Linkoping, Sweden, that did not recur. See Note 1, "Significant Accounting Policies and Accounting Developments," to our consolidated financial statements included in this Quarterly Report for additional information on this transaction.
Loss on Divestiture of Asbestos-Related Assets and Liabilities
(Amounts in millions)
Loss on divestiture of asbestos-related assets and liabilities
The loss on divestiture of asbestos-related assets and liabilities was $140.1 million in 2025 due to the sale of BW/IP - New Mexico, Inc., a Delaware corporation and a previously wholly owned subsidiary of Flowserve that held the legacy
asbestos liabilities and related insurance assets. The sale occurred in the fourth quarter of 2025. The transaction included a $199.0 million contribution of cash and the loss on divestiture includes transaction costs of $8.3 million incurred during the twelve-month period ended December 31, 2025. Refer to Note 17 Legal Matters and Contingencies to the consolidated financial statements in Part II Item 8 of this Form 10-K for further information.
Net Earnings from Affiliates
(Amounts in millions)
Net earnings from affiliates
Net earnings from affiliates represents our net income from investments in five joint ventures (one located in each of Chile, India, Saudi Arabia, South Korea and the United Arab Emirates) that are accounted for using the equity method of accounting. Net earnings from affiliates in 2025 increased by $1.6 million, or 8.5%, as compared to the prior year, primarily as a result of increased earnings from our FPD joint venture in South Korea.
Operating Income
(Amounts in millions, except percentages)
Operating income
Operating income as a percentage of sales
Operating income in 2025 decreased by $62.4 million, or (13.5)%, as compared with 2024. The decrease included currency benefits of approximately $7 million. The decrease was primarily a result of the $147.2 million increase in gross profit, offset by the $84.1 million increase in SG&A and the loss on divestiture of asbestos-related assets and liabilities of $140.1 million.
Interest Expense and Interest Income
(Amounts in millions)
Interest expense
Interest income
Interest expense in 2025 increased by $8.4 million as compared with 2024. The increase was primarily attributable to higher outstanding debt during the period as compared to 2024. Interest income in 2025 increased by $2.2 million as compared to 2024. The increase in interest income was primarily attributed to higher interest rates on our average cash balances compared with same period in 2024.
Other Income (Expense), net
(Amounts in millions)
Other income (expense), net
Other income (expense), net increased $207.9 million as compared to 2024, due primarily to the $266.0 million payment received per the Mutual Termination Agreement in connection with the termination of the planned merger with Chart (see Note 1, “Significant Accounting Policies and Accounting Developments,” to our consolidated financial statements for further information), partially offset by a $28.2 million increase in losses from transactions in currencies other than our sites' functional currencies and a $18.0 million increase in losses arising from transactions on foreign exchange forward contracts. The net currency related change was primarily due to the foreign currency exchange rate movements in the Mexican peso, Euro, Swedish krona, Brazilian real, and Singapore dollar during the year ended December 31, 2025, as compared to the same period in 2024. This was further offset by $13.1 million in pension settlement
accounting losses incurred in conjunction with the freeze of our U.S. Qualified pension plan and on a United Kingdom based pension plan.
Income Tax and Tax Rate
(Amounts in millions, except percentages)
Provision for income taxes
Effective tax rate
Our effective tax rate of 29.6% for the year ended December 31, 2025 increased from 22.0% in 2024 and differed from the federal statutory tax rate of 21% primarily due to the impacts pursuant to the enactment of the One Big Beautiful Bill Act (OBBBA) and its related impacts, the Asbestos Divestiture and, state income taxes, partially offset by the net impact of foreign operations.
The 2024 effective tax rate differed from the federal statutory rate of 21% primarily due to the net impact of foreign divestiture and foreign operations.
Our effective tax rate is based upon current earnings and estimates of future taxable earnings for each domestic and international location. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates used in the underlying business. Changes in any of these and other factors, including our ability to utilize foreign tax credits and net operating losses or results from tax audits, could impact the tax rate in future periods. As of December 31, 2025, we had U.S. foreign tax credit carryforwards of $77.1 million, expiring in 2028-2035 tax years, against which we recorded a full valuation allowance. Additionally, we have recorded other net deferred tax assets of $147.8 million, which relate to net operating losses, tax credits and other deductible temporary differences that are available to reduce taxable income in future periods, most of which do not have a definite expiration. Should we not be able to utilize all or a portion of these credits and losses, our effective tax rate would increase.
Net Earnings and Earnings Per Share
(Amounts in millions, except per share amounts)
Net earnings attributable to Flowserve Corporation
Net earnings per share - diluted
Average diluted shares
Net earnings in 2025 increased by $63.5 million to $346.2 million, or to $2.64 per diluted share, as compared with 2024. The increase was primarily attributable to a $207.9 million increase in other income, net, partially offset by a decrease in operating income of $62.4 million, a $8.4 million increase in interest expense, a $70.7 million increase in income tax expense and a $5.1 million increase in net earnings attributable to noncontrolling interests.
Other Comprehensive Income (Loss)
(Amounts in millions)
Other comprehensive income (loss):
Other comprehensive income (loss) in 2025 increased by $268.1 million from a loss of $102.2 million in 2024. The net income in 2025 was primarily due to foreign currency translation adjustments resulting primarily from exchange rate movements of the Euro, British pound and Mexican peso versus the U.S. dollar at December 31, 2025 as compared with 2024, and pension and other postretirement activity.
Business Segments
We conduct our operations through two business segments based on type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment’s operating income. See Note 21,
"Business Segment Information," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report for further discussion of our segments. 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, pretest, distribute and service highly custom engineered pumps, pre-configured industrial pumps, pump systems, mechanical seals and auxiliary systems and related services. FPD includes highly engineered pump products with longer lead times and mechanical seals that are generally manufactured within shorter lead times. FPD also manufactures replacement parts and related equipment and provides aftermarket services. FPD operates in the energy, power generation, chemical and general industries. FPD operates in 48 countries with 37 manufacturing facilities worldwide, 12 of which are located in North America, 11 in Europe, eight in Asia Pacific and six in Latin America, and we have 126 QRCs, including those co-located in manufacturing facilities and/or shared with FCD.
FPD
(Amounts in millions, except percentages)
Bookings
Sales
Gross profit
Gross profit margin
Segment operating income
Segment operating income as a percentage of sales
Backlog (at period end)
As discussed above, we revised the end market categories for bookings during the first quarter of 2025. All bookings by industry amounts discussed below, including the 2024 comparative period, have been reclassified from five categories (i.e. , oil and gas, chemical, power generation, water management and general industries) to four categories (i.e. , energy, chemical, power generation and general industries) to conform to our current classification of end markets.
Bookings in 2025 decreased by $31.0 million, or 0.9%, as compared with 2024. The decrease included currency benefits of approximately $29 million. The decrease in customer bookings was driven by a decrease in orders of $199.5 million from energy and $4.4 million from chemical, partially offset by increased bookings of $129.2 million from general industries and $48.5 million from power generation. Decreased customer orders of $142.1 million into the Middle East, $72.8 million into Europe, and $13.7 million into Asia Pacific were partially offset by increased customer orders of $172.1 million into North America and $28.7 million into Africa. The decrease in customer bookings was substantially driven by original equipment bookings, including the impact of original equipment 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. Of the $3.3 billion of bookings in 2025, approximately 38% were from general industries, 33% were from energy, 15% from chemical and 14% from power generation.
Sales in 2025 increased $76.7 million, or 2.4%, as compared with 2024. The increase included currency benefits of approximately $26 million. The increase was driven by aftermarket customer sales, resulting from increased customer sales of $97.3 million into North America, $43.6 million into Africa and $14.5 million into the Middle East, partially offset by decreased customer sales of $42.4 million into Asia Pacific, $24.1 million into Latin America and $19.9 million into Europe.
Gross profit in 2025 increased by $121.7 million, or 12.0%, as compared with 2024. Gross profit margin in 2025 of 35.2% increased from 32.2% in 2024. The increase in gross profit margin was primarily due to strategic sourcing decisions, an improved selective bidding approach, favorable mix, lower broad-based annual incentive compensation and a $1.7 million one-time U.S. pension plan transition benefit charge incurred in 2024 that did not recur as compared to the same period in 2024.
SG&A in 2025 increased by $2.3 million, or 0.4%, as compared with 2024. Currency effects provided an increase of approximately $3 million. The increase in SG&A was primarily due to increased volume, a $2.8 million increase related to
our Realignment Programs and $0.7 million of transaction costs incurred in conjunction with the acquisition of Greenray Turbine Solutions, Ltd. ("Greenray"), partially offset by a $12.8 million decrease in research and development expense, $3.5 million decrease in bad debt expense, lower broad-based annual incentive compensation and a $0.8 million one-time U.S. pension plan transition benefit charge incurred in 2024 that did not recur as compared to the same period in 2024.
Operating income in 2025 increased by $120.7 million, or 25.1%, as compared with 2024. The increase included currency benefits of approximately $9 million. The increase was primarily due to the $121.7 million increase in gross profit partially offset by the $2.3 million increase in SG&A.
Backlog of $2.0 billion at December 31, 2025 increased by $114.4 million, or 5.9%, as compared with December 31, 2024. Currency effects provided an increase of approximately $130 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 44 manufacturing facilities and 26 QRCs, including those shared with FPD, in 23 countries around the world, with seven of its 18 manufacturing operations located in Europe, five located in the United States , five located in Asia Pacific, and one located in the Latin America. Based on independent industry sources, we believe that FCD is the second largest industrial valve supplier on a global basis.
FCD
(Amounts in millions, except percentages)
Bookings
Sales
Gross profit
Gross profit margin
Gain (loss) on sale of business
Segment operating income
Segment operating income as a percentage of sales
Backlog (at period end)
As discussed above, we revised the end market categories for bookings during the first quarter of 2025. All bookings by industry amounts discussed below, including the 2024 comparative period, have been reclassified from five categories (i.e. , oil and gas, chemical, power generation, water management and general industries) to four categories (i.e. , energy, chemical, power generation and general industries) to conform to our current classification of end markets.
Bookings in 2025 increased $83.6 million, or 6.1%, as compared with 2024. The increase included currency benefits of approximately $3 million. The increase in customer bookings was driven by increased orders of $44.9 million in power generation, $28.0 million in general industries, $10.4 million in chemical and $5.6 million in energy. There were increased customer orders of $72.3 million into North America, $43.5 million into the Middle East, $11.4 million into Africa and $6.5 million into Latin America, partially offset by decreased bookings of $34.3 million into Asia Pacific and $10.7 million into Europe. The increase in customer bookings was driven by both original equipment and aftermarket bookings. Of the $1.5 billion of bookings in 2025, approximately 32% were from energy, 27% were from chemical, 25% from general industries and 16% from power generation.
Sales in 2025 increased by $95.2 million, or 6.8%, as compared with 2024. The increase included currency benefits of approximately $5 million. The increase was driven by both increased customer original equipment and aftermarket sales, resulting from increased customer sales of $54.5 million into North America, $19.5 million into the Middle East, $18.2 million into Europe and $14.2 million into Latin America, partially offset by decreased customer sales of $8.9 million into Africa and $3.5 million into Asia Pacific.
Gross profit in 2025 increased by $21.7 million, or 5.1%, as compared with 2024. Gross profit margin in 2025 of 29.6% decreased from 30.1% in December 31, 2024. The decrease in gross profit margin was primarily due to increased charges of $23.0 million related to our realignment activities and an increase of $9.8 million of acquisition and integration
costs and amortization of step-up in value of acquired inventories and acquisition related intangibles assets associated with the MOGAS acquisition, partially offset by the favorable impact of previously implemented sales price increases and lower broad-based annual incentive compensation as compared to the same period in 2024.
SG&A in 2025 increased by $13.3 million, or 5.3% as compared with 2024. Currency effects provided an increase of less than a million. The increase in SG&A was primarily due to acquisition and integration costs and amortization of acquisition related intangibles assets associated with the MOGAS acquisition of $17.4 million, partially offset by decreased charges of $5.6 million related to our realignment activities, decreased charges of bad debt expense of $1.8 million and lower broad-based annual incentive compensation as compared to the same period in 2024.
The loss on sale of business decreased by $13.0 million in 2025 due to the divestiture of NAF AB in 2024, a previously wholly owned subsidiary and control valves business within our FCD segment, including the NAF AB facility located in Linkoping, Sweden, that did not recur. The loss on sale of business is included within charges related to our realignment activities.
Operating income in 2025 increased by $21.4 million, or 13.5%, as compared with 2024. The increase included negative currency effects of approximately $1 million. The increase was primarily due to the $21.7 million increase in gross profit and the $13.0 million loss on sale of business in 2024 that did not recur, partially offset by the increase in SG&A of $13.3 million.
Backlog of $828.6 million at December 31, 2025 decreased by $41.0 million, or 4.7%, as compared with December 31, 2024. Currency effects provided an increase of approximately $24 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Analysis
December 31, 2025
December 31, 2024
December 31, 2023
(Amounts in millions)
Net cash flows provided by operating activities
Net cash flows used by investing activities
Net cash flows (used) provided by financing activities
The following is a discussion and analysis of the Company’s liquidity and capital resources for the years ended December 31, 2025 and 2024. A discussion of changes in the Company’s liquidity and capital resources for the year ended December 31, 2024 and 2023 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 26, 2025.
Existing cash, cash generated by operations and borrowings available under our 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 total cash balance at December 31, 2025 was $760.2 million, compared to $675.4 million at December 31, 2024.
At December 31, 2025, our cash provided by operating activities was $505.9 million, as compared to cash provided of $425.3 million in 2024. 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 flow used by working capital decreased in 2025, primarily due to increased cash flows provided by, or decreased cash flows used by, accounts receivable, inventories and contract assets, partially offset by decreased cash flows provided by, or increased cash flows used by, prepaid expenses and other assets, accounts payable, contract liabilities and accrued liabilities as compared to the same period in 2024.
Increases in accounts receivable provided $0.7 million of cash flow in 2025, compared to cash used of $82.2 million in December 31, 2024. For the fourth quarter of 2025, our days' sales outstanding ("DSO") was 76 days as compared to 74 days in 2024. We have not experienced a significant increase in customer payment defaults in 2025.
Decreases in inventory provided $86.7 million of cash flow in 2025, compared with cash provided of $38.9 million in December 31, 2024. Inventory turns were 3.9 times at December 31, 2025 and 3.8 times at December 31, 2024. Our calculation of inventory turns does not reflect the impact of advanced cash received from our customers.
Increases in contract assets used $13.3 million of cash flow and decreases in contact liabilities used $23.5 million of cash flow in 2025.
Increases in accounts payable used $28.9 million of cash flow in 2025 compared with cash used of $12.3 million in 2024. Increases in accrued liabilities provided $25.2 million of cash flow in 2025 compared to cash provided of $49.6 million in 2024.
Cash flows used by investing activities were $125.2 million in 2025, as compared to $387.2 million in 2024. Capital expenditures were $70.9 million in 2025, as compared to $81.0 million in 2024. The decrease in cash used in 2025 resulted primarily from the $305.9 million payment for the acquisition of MOGAS in 2024, which was partially offset by the $65.9 million payment for the Greenray acquisition. In 2026, we currently estimate capital expenditures to be between $90 million and $100 million, before consideration of any merger and acquisition activity.
Cash flows used by financing activities were $326.9 million in 2025 compared to cash provided of $117.5 million in 2024. Cash outflows during 2025 resulted primarily from $254.9 million in stock repurchases, $109.6 million of dividend payments, $37.5 million in payments on our Term Loan, $15.0 million contingent consideration payment related to the MOGAS acquisition and $11.8 million in payments related to tax withholding for stock-based compensation.
In 2025, we repurchased 4,850,887 shares of our outstanding common stock during the year. As of December 31, 2025, we had $197.9 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.
Our material cash requirements for the next 12 months, include our estimated 2026 capital expenditures described above and our contractual obligations summarized below under the subheading "Contractual Obligations". In the aggregate, our cash needs vary based on working capital activity and will be evaluated throughout 2026. 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. We believe that cash flows from operating activities and our expectation of continuing availability to draw upon our credit agreements are also sufficient to meet our cash flow needs for periods beyond the next 12 months.
Financing
On September 13, 2021, we amended and restated our credit agreement (the "Senior Credit Agreement") under our Senior Credit Facility ("Credit Facility") with Bank of America, N.A. and the other lenders to provide greater flexibility in maintaining adequate liquidity and access to available borrowings (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement, (i) retained, from the previous credit agreement, the $800.0 million unsecured Revolving Credit Facility (the "Revolving Credit Facility"), which included a $750.0 million sublimit for the issuance of letters of credit and a $30.0 million sublimit for swing line loans, (ii) provided for an up to $300 million unsecured Term Loan Facility (the "Term Loan"), (iii) extended the maturity date of the agreement to September 13, 2026, (iv) reduced commitment fees, (v) extended net leverage ratio covenant definition through the maturity of the agreement, and (vi) provided the ability to make certain adjustments to the otherwise applicable commitment fee, interest rate and letter of credit fees based on the Company’s performance against to-be-established key performance indicators with respect to certain of the Company’s environmental, social and governance targets. On February 3, 2023, we entered into an amendment to the Credit Facility (the “Amendment”) which (i) replaced LIBOR with Secured Overnight Financing Rate (“SOFR”) as the benchmark reference rate, (ii) lowered the Material Acquisition (as defined in the Credit Facility) threshold from $250 million to $200 million and, (iii) extended compliance dates for certain financial covenants. Subsequently, on October 10, 2024, we amended and our Senior Credit Agreement and entered into the Second Amended and Credit Agreement (the "Second Amended and Credit Agreement") with Bank of America, N.A., as administrative agent, and the other lenders (together, the "Lenders") and letter of credit issuers party thereto 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 December 31, 2025, we had an available capacity of $615.8 million under our Second Amended and Restated Credit Agreement, which provided for a $800.0 million unsecured revolving credit facility. We believe this Second Amended and Restated Credit Agreement will provide greater flexibility and additional liquidity under our Credit Facility as we continue to pursue our business goals and strategy. Most other terms and conditions under the previous Credit Facility remained unchanged.
Under the terms and conditions of the Second Amended and Restated Credit Agreement, the interest rates per annum applicable to the Revolving Credit Facility and Term Loan, other than with respect to swing line loans, are adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR") plus between 1.000% to 1.750%, depending on our debt rating by either Moody’s Investors Service, Inc. ("Moody's") or Standard & Poor’s Financial Services LLC ("S&P"), or, at our option, the Base Rate (as defined in the Second Amended and Restated Credit Agreement) plus between 0.000% to 0.750% depending on our debt rating by either Moody’s or S&P. At December 31, 2025, the interest rate on the Revolving Credit Facility was the Adjusted Term Secured Overnight Financing Rate ("SOFR") plus 1.375% in the case of Adjusted Term SOFR loans and the Base Rate plus 0.375% in the case of Base Rate loans. In addition, a commitment fee is payable quarterly in arrears on the daily unused portions of the Revolving Credit Facility. The commitment fee will be between 0.080% and 0.250% of unused amounts under the Revolving Credit Facility depending on our debt rating by either Moody’s or S&P. The commitment fee was 0.175% (per annum) during the period ended December 31, 2025.
A discussion of our debt and related covenants is included in Note 13, "Debt and Finance Lease Obligations," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report. We were in compliance with the covenants as of December 31, 2025.
Liquidity Analysis
Our cash balance increased by $84.7 million to $760.2 million as of December 31, 2025 as compared to December 31, 2024. The cash increase included $505.9 million in operating cash inflows, including the $266.0 million for the termination of the planned merger with Chart (See Note 1, “Significant Accounting Policies and Accounting Developments,” to our consolidated financial statements for further information), partially offset by $254.9 million in repurchases of common shares, $199.0 million payment for the divestiture of our asbestos-related assets and liabilities, $109.6 million in dividend payments, $70.9 million in capital expenditures, $65.9 million payment for the acquisition of Greenray and $37.5 million in payments on long-term debt.
During 2025, we made $10.0 million cash contributions to our U.S. pension plan, compared to $20.0 million cash contributions in 2024. At December 31, 2025 and 2024, as a result of the values of the plan’s assets and our contributions to the plan, our U.S. pension plan was fully-funded as defined by applicable law. As of December 31, 2025 direct benefits paid by the U.S. pension plan were 2.0 million. We continue to maintain an asset allocation consistent with our strategy to maximize total return, while reducing portfolio risks through asset class diversification.
As of December 31, 2025, we had approximately $1,376 million of liquidity, consisting of cash and cash equivalents of $760 million and $616 million of borrowings available under our Credit Facility. In light of the liquidity currently available to us, and the costs savings measures planned and already in place, we expect to be able to maintain adequate liquidity over the next 12 months. 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 currently available to us. We will continue to actively monitor the credit markets in order to maintain sufficient liquidity and access to capital throughout 2026.
Contractual Obligations
The following table presents a summary of our contractual obligations at December 31, 2025:
Payments Due By Period
(Amounts in millions)
Within 1 Year
1-3 Years
3-5 Years
Beyond 5 Years
Total
Senior Notes and Term Loan Facility
Fixed interest payments (1)
Variable interest payments(4)
Other Debt
Leases:
Operating
Finance
Purchase obligations:(2)
Inventory
Non-inventory
Pension and postretirement benefits(3)
Total
(1) Fixed interest payments represent interest payments on the Senior Notes as defined in Note 13, "Debt and Finance Lease Obligations," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
(2) Purchase obligations are presented at the face value of the purchase order, excluding the effects of early termination provisions. Actual payments could be less than amounts presented herein.
(3) Pension and postretirement benefits represent estimated benefit payments for our U.S. and non-U.S. defined benefit plans and our postretirement medical plans, as more fully described below and in Note 15, "Pension and Postretirement Benefits," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
(4) Variable interest payments represent interest payments on the Term Loan Facility as defined in Note 13, "Debt and Finance Lease Obligations," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
The following table presents a summary of our commercial commitments at December 31, 2025:
Commitment Expiration By Period
Within 1 Year
1-3 Years
3-5 Years
Beyond 5 Years
Total
(Amount in millions)
Letters of credit
Surety bonds
Total
We expect to satisfy these commitments through performance under our contracts.
PENSION AND POSTRETIREMENT BENEFITS OBLIGATIONS
Plan Descriptions
We and certain of our subsidiaries have defined benefit pension plans and defined contribution plans for full-time and part-time employees. Approximately 69% of total defined benefit pension plan assets and approximately 57% of defined
benefit pension obligations are related to the U.S. qualified plan as of December 31, 2025. Unless specified otherwise, the references in this section are to all of our U.S. and non-U.S. plans. None of our common stock is directly held by these plans.
In August 2023, we amended the Company-sponsored qualified defined benefit pension plan in the United States (the "Qualified Plan") for non-union employees to discontinue future benefit accruals under the Qualified Plan and freeze existing accrued benefits effective January 1, 2025. Benefits earned by participants under the Qualified Plan prior to January 1, 2025, are not affected. We also amended the Company-sponsored non-qualified defined benefit pension plan in the United States (the "Non-Qualified Plan") that provides enhanced retirement benefits to select members of management. The Qualified Plan and the Non-Qualified Plan were closed to new entrants effective January 1, 2024, and September 1, 2023, respectively. The amendments resulted in a curtailment of both plans, and the curtailment loss incurred and the change in projected benefit obligation was immaterial.
In conjunction with the amendment of the Qualified Plan, the Organization and Compensation Committee of our Board of Directors approved certain transition benefits associated with freezing the Qualified Plan. During the first quarter of 2025, a one-time cash transition benefit was paid to a limited group of employees in the United States that met certain criteria. We recorded a $5.0 million liability for this obligation prior to payment which is included within accrued liabilities in our consolidated balance sheet at December 31, 2024. We also issued approximately the same amount of value in the form of restricted shares to an additional group of employees in the United States during the first quarter of 2025. The restricted shares are subject to three year cliff-vesting.
Our U.S. defined benefit plan assets consist of a portfolio of equity and fixed income securities. Our non-U.S. defined benefit plan assets include a significant concentration of United Kingdom fixed income securities , as discussed in Note 15, " Pension and Postretirement Benefits," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report. We monitor investment allocations and manage plan assets to maintain an acceptable level of risk. At December 31, 2025, the estimated fair market value of U.S. and non-U.S. plan assets for our defined ben efit pension plans increased to $528.4 million from $520.0 million at December 31, 2024. Assets were allocated as follows:
U.S. Plan
Asset category
December 31, 2025
December 31, 2024
Cash and Cash Equivalents
Global Equity
Global Real Assets
Equity securities
Diversified Credit
Liability-Driven Investment
Fixed income
Non-U.S. Plans
Asset category
December 31, 2025
December 31, 2024
Cash and Cash Equivalents
U.K. Government Gilt Index
Liability-Driven Investment
Fixed income
Multi-asset
Buy-in Contract
Other
Other types
The projected benefit obligation ("Benefit Obligation") for our defined benefit pension plans was $700.3 million and $700.7 million as of December 31, 2025 and December 31, 2024, respectively. Benefits under our defined benefit pension plans are based primarily on participants’ compensation and years of credited service.
We sponsor defined benefit postretirement medical plans covering certain current retirees and a limited number of future retirees in the United States. These plans provide for medical and dental benefits and are administered through insurance companies. We fund the plans as benefits are paid, such that the plans hold no assets in any period presented. Accordingly, we have no investment strategy or targeted allocations for these plans. The benefits under the plans are not available to new employees or most existing employees.
The Benefit Obligation for our defined benefit postretirement medical plans was $7.9 million and $11.8 million as of December 31, 2025 and December 31, 2024, respectively.
Accrual Accounting and Significant Assumptions
We account for pension benefits using the accrual method, recognizing pension expense before the payment of benefits to retirees. The accrual method of accounting for pension benefits requires actuarial assumptions concerning future events that will determine the amount and timing of the benefit payments.
Our key assumptions used in calculating our cost of pension benefits are the discount rate, the rate of compensation increase and the expected long-term rate of return on plan assets. We, in consultation with our actuaries, evaluate the key actuarial assumptions and other assumptions used in calculating the cost of pension and postretirement benefits, such as discount rates, expected return on plan assets for funded plans, mortality rates, retirement rates and assumed rate of compensation increases, and determine such assumptions as of December 31 of each year to calculate liability information as of that date and pension and postretirement expense for the following year. See discussion of our accounting for and assumptions related to pension and postretirement benefits in the “Our Critical Accounting Estimates” section of this MD&A.
In 2025, the service cost component of the pension expense for our defined benefit pension plans included in operating income was $7.1 million compared to $30.3 million in 2024. The non-service cost portion of net pension expense (e.g., interest cost, actuarial gains and losses and expected return on plan assets) for our defined benefit pensi on plans included in other income (expense), net was $20.6 million in 2025, compared to $6.0 million in 2024.
The following are assumptions related to our defined benefit pension plans as of December 31, 2025:
U.S. Plan
Non-U.S. Plans
Weighted average assumptions used to determine Benefit Obligation:
Discount rate
Rate of increase in compensation levels
Weighted average assumptions used to determine 2025 net pension expense:
Long-term rate of return on assets
Discount rate
Rate of increase in compensation levels
Weighted-average interest crediting rates
The following provides a sensitivity analysis of alternative assumptions on the U.S. qualified, aggregate non-U.S. pension plans and U.S. postretirement plans.
Effect of Discount Rate Changes and Constancy of Other Assumptions:
0.5% Increase
0.5% Decrease
(Amounts in millions)
U.S. defined benefit pension plan:
Effect on net pension expense
Effect on Benefit Obligation
Non-U.S. defined benefit pension plans:
Effect on net pension expense
Effect on Benefit Obligation
U.S. Postretirement medical plans:
Effect on Benefit Obligation
Effect of Changes in the Expected Return on Assets and Constancy of Other Assumptions:
0.5% Increase
0.5% Decrease
(Amounts in millions)
U.S. defined benefit pension plan:
Effect on net pension expense
Non-U.S. defined benefit pension plans:
Effect on net pension expense
As discussed below, accounting principles generally accepted in the U.S. (“U.S. GAAP”) provide that differences between expected and actual returns are recognized over the average future service of employees or over the remaining expected lifetime for plans with only inactive participants.
At December 31, 2025, as compared with December 31, 2024, we decreased our discount rate for the U.S. plan from 5.73% to 5.58% based on an analysis of publicly traded investment grade U.S. corporate bonds, which had lower yields due to current market conditions. The average discount rate for the non-U.S. plans increased from 4.71% to 4.94% based on analysis of bonds and other publicly traded instruments, by country, which had higher yields due to market conditions. The average assumed rate of compensation for the U.S. plan was 4.00% for both 2025 and 2024, and for our non-U.S. plans decreased to 3.39% from 3.51% in 2025. To determine the 2025 pension expense, the expected rate of return on U.S. plan assets increased to 6.25% from 6.00% in 2024, and the expected rate of return on non-US plan assets increased to 4.82% from 4.65% in 2024, based on our target allocations and expected long-term asset returns. As the expected rate of return on plan assets is long-term in nature, short-term market fluctuations do not significantly impact the rate. For all U.S. plans, we adopted the Pri-2012 mortality tables and the MP-2021 improvement scale published in October 2021. We applied the Pri-2012 tables based on the constituency of our plan population for union and non-union participants. We adjusted the improvement scale to utilize the Proxy SSA Long Term Improvement Rates, consistent with assumptions adopted by the Social Security Administration trustees, based on long-term historical experience. Currently, we believe this approach provides the estimate of our future obligation. Most plan participants elect to receive plan benefits as a lump sum at the end of service, rather than an annuity. As such, the updated mortality tables had an immaterial effect on our pension obligation.
We expect that the net pension expense for our defined benefit pension plans included in earnings before income taxes will be approximately $7.2 million lower in 2026 than the $27.7 million in 2025, primarily due to settlement charges incurred in 2025 on non-U.S. pension plans. We have used discount rates of 5.58%, 4.94% and 5.25% at December 31, 2025, in calculating our estimated 2026 net pension expense for the U.S. pension plans, non-U.S. pension plans and postretirement medical plans, respectively.
The assumed ranges for the annual rates of increase in health care costs were 7.00% for both 2024 and 2023. As of December 31, 2025, medical benefits have reached the Plan’s medical benefit cap and changes in assumed medical cost trend rates no longer affect the postretirement obligation.
Plan Funding
Our funding policy for defined benefit plans is to contribute at least the amounts required under applicable laws and local customs. In 2025 , we contributed $24.4 million , to our defined benefit plans, compared to $32.6 million in 2024 . We have no obligation to make contributions to our U.S. pension plans in 2026, but have authorization for contributions up to $10 million. We expect to contribute approximately $3 million to our non-U.S. pension plans in 2026, excluding direct benefits paid.
For further discussion of our pension and postretirement benefits, see Note 15, "Pension and Postretirement Benefits," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
OUR CRITICAL ACCOUNTING ESTIMATES
The process of preparing financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine reported amounts of certain assets, liabilities, revenues and expenses and the disclosure of related contingent assets and liabilities. These estimates and assumptions are based upon information available at the time of the estimates or assumptions, including our historical experience, where relevant. The most significant estimates made by
management include: timing and amount of 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 significant estimates are reviewed at least annually if not quarterly by management. Because of the uncertainty of factors surrounding the estimates, assumptions and judgments used in the preparation of our financial statements, actual results may differ from the estimates, and the difference may be material.
Our critical accounting policies are those policies that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following represent our critical accounting policies. For a summary of all of our significant accounting policies, see Note 1, "Significant Accounting Policies and Accounting Developments," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report. Management and our external auditors have discussed our critical accounting estimates and policies with the Audit Committee of our Board of Directors.
Business Combinations
We allocate the purchase price of acquired businesses to the estimated fair values of the assets acquired and liabilities assumed, as well as any contingent consideration, as of the date of acquisition. The fair values of the long-lived assets acquired, primarily intangible assets, are determined using calculations which can be complex and require significant judgment. Estimates include many factors such as the nature of the acquired company’s business, its historical financial position and results, technology obsolescence, customer retention rates, discount rates, royalty rates and expected future performance. Independent valuation specialists are used to assist in determining certain fair value calculations.
While we use our best estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, pre-acquisition contingencies and contingent considerations, the fair value estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement period are recorded in the Consolidated Statements of Income. The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can affect net income.
Revenue Recognition
We recognize revenue when (or as) we satisfy a performance obligation by transferring control to a customer. Transfer of control is evaluated based on the customer’s ability to direct the use of and obtain substantially all of the benefits of a performance obligation. Revenue is recognized either over time or at a point in time, depending on the specific facts and circumstances for each contract, including the terms and conditions of the contract as agreed with the customer and the nature of the products or services to be provided. Service-related revenues do not typically represent a significant portion of the contracts with our customers and do not meet the thresholds requiring separate disclosure.
Our primary method for recognizing revenue over time is the percentage of completion ("POC") method, whereby progress towards completion is measured by applying an input measure based on costs incurred to date relative to total estimated costs at completion. If control of the products and/or services does not transfer over time, then control transfers at a point in time. We determine the point in time that control transfers to a customer based on the evaluation of specific indicators, such as title transfer, risk of loss transfer, customer acceptance and physical possession. For a discussion related to revenue recognition refer to Note 3, "Revenue Recognition" included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Deferred Taxes, Tax Valuation Allowances and Tax Reserves
We recognize valuation allowances to reduce the carrying value of deferred tax assets to amounts that we expect are more likely than not to be realized. Our valuation allowances primarily relate to the deferred tax assets established for certain tax credit carryforwards, capital loss carryforwards, and net operating loss carryforwards for non-U.S. subsidiaries, and we evaluate the realizability of our deferred tax assets and adjust the amount of the valuation allowances, if necessary. We assess such factors as our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets in determining the sufficiency of our valuation allowances. Failure to achieve forecasted taxable income in the applicable tax jurisdictions could affect the ultimate realization of deferred tax
assets and could result in an increase in our effective tax rate on future earnings. Implementation of different tax structures in certain jurisdictions could, if successful, result in future reductions of certain valuation allowances.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various tax authorities. The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate. Tax benefits recognized in the financial statements from uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
While we believe we have adequately provided for any reasonably foreseeable outcomes related to these matters, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities. To the extent that the expected tax outcome of these matters changes, such changes in estimate will impact the income tax provision in the period in which such determination is made. For a discussion related to deferred taxes, tax valuation allowances and tax reserves refer to Note 20, "Income Taxes," included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Reserves for Contingent Loss
On December 11, 2025, Flowserve completed the divestiture of all our legacy asbestos liabilities by selling BW/IP - New Mexico, Inc. ("BWIP"), a Delaware corporation and previously wholly owned subsidiary of the Company that held the liabilities and related insurance assets, to Ajax HoldCo LLC (“Buyer”), an affiliate of Acorn Investment Partners, a portfolio company of funds managed by Oaktree Capital Management L.P. (the "Asbestos Divestiture"). As a result of the Asbestos Divestiture, the divested asbestos liabilities and related insurance assets were removed from the Company's consolidated balance sheet. The buyer has assumed management of BWIP, including the management of its claims and insurance policy reimbursements, and Flowserve is fully indemnified.
Prior to the Asbestos Divestiture we were a defendant in a number of lawsuits that sought to recover damages for personal injury allegedly resulting from exposure to asbestos-containing products formerly manufactured and/or distributed by heritage companies of the Company. We previously estimated the liability for pending and future claims not yet asserted, and which are probable and estimable, could be experienced through 2054, which represented the expected end of the asbestos liability exposure with no further ongoing claims expected beyond that date.
Prior to the Asbestos Divestiture, we also reviewed the amount of potential insurance coverage for such claims, taking into account the remaining limits of such coverage, the number and amount of claims on our insurance from co-insured parties, ongoing litigation against the Company’s prior insurers, potential remaining recoveries from insolvent insurers, the impact of previous insurance settlements and coverage available from solvent insurers not party to the coverage litigation. We reviewed ongoing insurance coverage available for a significant amount of the potential future asbestos-related claims and in the future could secure additional insurance coverage as deemed necessary. For a discussion pertaining to asbestos claims refer to Note 17, "Legal Matters and Contingencies," included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
Liabilities are recorded for various non-asbestos contingencies arising in the normal course of business when it is both probable that a loss has been incurred and such loss is reasonably estimable. Assessments of reserves are based on information obtained from our independent and in-house experts, including recent legal decisions and loss experience in similar situations. The recorded legal reserves are susceptible to changes due to new developments regarding the facts and circumstances of each matter, changes in political environments, legal venue and other factors. Recorded environmental reserves could change based on further analysis of our properties, technological innovation and regulatory environment changes.
Pension and Postretirement Benefits
We provide pension and postretirement benefits to certain of our employees, including former employees, and their beneficiaries. The assets, liabilities and expenses we recognize and disclosures we make about plan actuarial and financial information are dependent on the assumptions and estimates used in calculating such amounts. The assumptions include factors such as discount rates, health care cost trend rates, inflation, expected rates of return on plan assets, retirement rates, mortality rates, turnover, rates of compensation increases and other factors.
The assumptions utilized to compute expense and benefit obligations are shown in Note 15, "Pension and Postretirement Benefits," to our consolidated financial statements included in "Item 8. Financial Statements and
Supplementary Data" of this Annual Report. These assumptions are assessed annually in consultation with independent actuaries and investment advisors as of December 31 and adjustments are made as needed. We evaluate prevailing market conditions and local laws and requirements in countries where plans are maintained, including appropriate rates of return, interest rates and medical inflation (health care cost trend) rates. We ensure that our significant assumptions are within the reasonable range relative to market data. The methodology to set our significant assumptions includes:
• Discount rates are estimated using high quality debt securities based on corporate or government bond yields with a duration matching the expected benefit payments. For the United States, the discount rate is obtained from an analysis of publicly-traded investment-grade corporate bonds to establish a weighted average discount rate. For plans in the United Kingdom and the Eurozone we use the discount rate obtained from an analysis of AA-graded corporate bonds used to generate a yield curve. For other countries or regions without a corporate AA bond market, government bond rates are used. Our discount rate assumptions are impacted by changes in general economic and market conditions that affect interest rates on long-term high-quality debt securities, as well as the duration of our plans’ liabilities.
• The expected rates of return on plan assets are derived from reviews of asset allocation strategies, expected long-term performance of asset classes, risks and other factors adjusted for our specific investment strategy. These rates are impacted by changes in general market conditions, but because they are long-term in nature, short-term market changes do not significantly impact the rates. Changes to our target asset allocation also impact these rates.
• The expected rates of increase in compensation levels reflect estimates due to general price levels, seniority, age and other factors.
Depending on the assumptions used, the pension and postretirement expense could vary within a range of outcomes and have a material effect on reported earnings. In addition, the assumptions can materially affect benefit obligations and future cash funding. Actual results in any given year may differ from those estimated because of economic and other factors.
We evaluate the funded status of each retirement plan using current assumptions and determine the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations, cash flow requirements and other factors. We discuss our funding assumptions with the Technology, Innovation and Risk Committee of our Board of Directors.
Valuation of Goodwill, Indefinite-Lived Intangible Assets and Other Long-Lived Assets
The initial recording of goodwill and intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets. We test the value of goodwill, indefinite-lived intangible assets and long-lived assets for impairment as of December 31 each year or whenever events or circumstances indicate such assets may be impaired. The test for goodwill impairment involves significant judgment in estimating projections of fair value generated through future performance of each of the reporting units. We did not record a material impairment for goodwill, indefinite-lived intangible assets or long-lived assets in 2025, 2024 or 2023.
Due to uncertain market conditions and potential changes in strategy and product portfolio, it is possible that forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our financial condition and results of operations. For a discussion pertaining to goodwill, indefinite-lived intangible assets and long-lived assets refer to Note 1, "Significant Accounting Policies and Accounting Developments," included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
ACCOUNTING DEVELOPMEN TS
We have presented the informati on about accounting pronouncements not yet implemented in Note 1, "Significant Accounting Policies and Accounting Developments," to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report.
