Flowserve Earns $1.42 a Share in 2001, 58 Cents a Share in Fourth Quarter, Before Special and Extraordinary Items
Results Beat Last Year, Despite Economic Slowdown
First Quarter 2002 EPS Forecast at 27 to 31 Cents; Maintains Full Year EPS Outlook at $1.90 to $2.30
DALLAS - Feb. 4, 2002 - Flowserve Corp. (NYSE: FLS) today reported financial results for the full year and fourth quarter ended Dec. 31, 2001.
2001 Highlights (Excludes special and extraordinary items; comparisons are versus full year 2000 reported results, unless noted.)
EPS - Up 5 percent.
Operating income - Up 39 percent and margin up 110 basis points to 10.6 percent; Up 38 percent and margin up 310 basis points versus pro forma.
Sales - Up 25 percent; Down 2 percent versus pro forma.
Bookings - Up 30 percent; Down 3 percent versus pro forma.
Backlog - $662.8 million; Up from $659.3 million.
Interest expense - Down 22 percent in fourth quarter versus year ago period.
EBITDA - Up 36 percent; Up 23 percent versus pro forma.
Debt-to-capital ratio - Improved to 71 percent.
Full Year Results
Net income before special and extraordinary items in 2001 was $55.8 million, or $1.42 a share, an increase of 5 percent compared with net income of $51.0 million, or $1.35 a share, in 2000 calculated on the same basis. The results for 2001 are an increase of 407 percent compared with pro forma net income of $10.7 million, or 28 cents a share, in the prior year calculated on the same basis.
Operating income increased 39 percent to $204.0 million in 2001 compared with $146.6 million reported in 2000, and increased 38 percent compared with pro forma operating income of $147.4 million in 2000 before special items in both periods. Operating margin in 2001 was 10.6 percent, an increase of 110 basis points compared with reported results for 2000, and an increase of 310 basis points compared with pro forma results for 2000, before special items in both periods. The increase in operating income reflects the capture of synergy savings from the acquisition of Ingersoll-Dresser Pump Co. (IDP) in August 2000 and other operational improvements.
Special items include integration and restructuring expenses of $61.8 million in 2001 and $54.6 million in 2000, both related to the company’s acquisition of IDP. Extraordinary items, net of tax, are $17.9 million of expenses related to the prepayment premium and deferred financing fees as a result of the early extinguishment of $133 million of 12.25% senior subordinated notes in the fourth quarter of 2001, and $2.1 million of expenses related to debt refinancing in the third quarter of 2000.
Pro forma results give effect as if the company’s 2000 acquisition of IDP had been completed on Jan. 1, 2000 and include purchase accounting adjustments and estimated financing costs.
After special and extraordinary items, the company reported a net loss of $1.5 million, or 4 cents a share, in 2001 compared with reported net income of $13.2 million, or 35 cents a share, in 2000.
Full year 2001 sales were $1.92 billion, up 25 percent from 2000 reported sales of $1.54 billion. On a pro forma basis, sales were $1.96 billion in 2000. Unfavorable currency translation reduced 2001 sales by about 2 percent compared with the prior year pro forma.
Full year 2001 bookings were $1.98 billion, up 30 percent from 2000 reported bookings of $1.52 billion. On a pro forma basis, bookings were $2.04 billion in 2000. Unfavorable currency translation reduced 2001 bookings by about 2 percent compared with the prior year pro forma.
“Considering the disruption caused by the plant consolidations, the softer economy and the impact of Sept. 11 on our quick turnaround business, I am pleased with our results,” said Flowserve Chairman, President and Chief Executive Officer C. Scott Greer. “I am particularly pleased with the level of fourth quarter shipments from our pump plants, where we have been able to ship out the transferred backlog. The final integration issues at some of our plants that we have discussed in prior quarters, and said would be resolved by year end, are indeed behind us.”
Fourth Quarter Results
Fourth quarter 2001 net income before special and extraordinary items was $24.1 million, or 58 cents a share, an increase of 16 percent compared with 50 cents a share in the prior year period.
Operating income was $63.1 million in the fourth quarter of 2001 compared with $64.5 million in the fourth quarter of the prior year, before special items in both periods. The decline was generally due to changes in maintenance, repair and overhaul (MRO) mix, lower volumes of chemical and industrial process pumps, manual valves, service-related activities, and previously announced extra costs incurred to complete and deliver transferred work-in-process at several pump plants in conjunction with the integration of IDP. These extra costs masked incremental integration synergies in the quarter. Operating margin, before special items, in the fourth quarter of 2001 was 11.7 percent, compared with 11.9 percent in the year ago period.
Special items include $12.0 million of integration and restructuring expenses in 2001 and $27.0 million of similar expenses in 2000, both related to the acquisition of IDP. The extraordinary item is $17.9 million of expenses, net of tax, related to the prepayment premium and deferred financing fees as a result of the early extinguishment of $133 million of 12.25% senior subordinated notes in the fourth quarter of 2001.
After special and extraordinary items, the company reported a net loss of $1.4 million, or 3 cents a share, for the fourth quarter of 2001 compared with net income of $1.7 million, or 5 cents a share, in the year-ago quarter.
Sales in the fourth quarter of 2001 were $539.3 million compared with $541.7 million in the year ago quarter. The fourth quarter, traditionally a strong shipping quarter, was impacted in 2001 by the decline in bookings related to MRO activities.
Bookings in the fourth quarter of 2001 were $452.9 million compared with reported bookings of $502.3 million in the year ago quarter. However, the company’s backlog increased to $662.8 million at Dec. 31, 2001 from $659.3 million at the end of the prior year.
“As we have said previously, the slowdowns related to Sept. 11 impacted our fourth quarter bookings, particularly our quick turnaround business,” Greer said. “First quarter 2002 bookings to date appear to be returning to normal as daily order input patterns are starting to improve, which gives us confidence for our 2002 outlook. As we move into 2002, the IDP integration issues are behind us and we should realize the full benefits of the synergies during the year. The fourth quarter of 2001 marks the end of the special item expenses related to our acquisition of IDP.”
Quarterly Interest Expense Falls
Full year 2001 net interest expense was $118.1 million compared with $70.3 million in 2000, reflecting the full year of debt associated with the acquisition of IDP. However, net interest expense fell 22 percent to $26.6 million in the fourth quarter of 2001 compared with $34.0 million in the fourth quarter of the prior year. This improvement reflects the decline in market interest rates during 2001.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2001 was $279.4 million compared with $205.1 million reported, and $227.0 million pro forma, for the prior year, excluding special items and extraordinary items in both periods. EBITDA was $82.5 million in the fourth quarter of 2001 compared with $86.5 million in the year ago quarter, excluding special items in both periods and an extraordinary item in the 2001 period.
Working Capital Improves
Working capital as a percentage of sales improved to 25.1 percent at the end of 2001 compared with 26.8 percent at the end of the third quarter of 2001, primarily due to a significant reduction in the level of receivables-days sales outstanding. Further improvement in working capital utilization continues to be a major area of focus.
FPD Operating Income Slightly Lower, But Integration Issues Resolved
The Flowserve Pump Division (FPD) reported fourth quarter operating income of $49.4 million, compared with $51.4 million in the year ago quarter, a decline of 4 percent, excluding special items in both periods. Sales in the fourth quarter of 2001 were $319.4 million compared with $316.7 million in the prior year period. Operating margin for the fourth quarter of 2001 was 15.5 percent compared with 16.2 percent in the year-ago quarter, excluding special items in both periods.
“As expected, the Pump Division’s results for the fourth quarter of 2001 primarily reflect the delivery of some zero- or negative-margin business resulting from previously announced integration inefficiencies, and lower volumes of good-margin niche products and chemical and industrial process pumps, all of which offset some incremental synergies from the acquisition of IDP,” Greer said.
“The good news is that these final integration issues have been successfully resolved and are now behind us, with the two most affected plants achieving record deliveries in the fourth quarter. Moreover, the majority of the past due, low-margin backlog at these facilities is now out the door and new management is in place, enabling us to focus our full attention on our continuous improvement initiatives, including improving our on-time delivery,” Greer said.
FSD Operating Margin Improves on Lower Sales
The Flow Solutions Division (FSD) posted operating income of $15.2 million in the fourth quarter of 2001 compared with $15.7 million in the year-ago quarter, excluding special items in both periods. Sales were $157.8 million in the fourth quarter of 2001 compared with $166.0 million in the same period of last year. These declines primarily reflect deferrals of MRO activities following Sept.11. Operating margin improved 20 basis points to 9.6 percent for the fourth quarter of 2001 compared with the same quarter of the prior year, excluding special items in both periods. The improvement in margin on lower sales reflects the continued focus on cost.
FCD Operating Income Up 17 Percent
The Flow Control Division reported operating income of $6.1 million in the fourth quarter of 2001, a 17 percent increase compared with $5.2 million in the year-ago period primarily due to improvements in its cost structure. Sales were $69.3 million in the fourth quarter of 2001 compared with $69.6 million in the same period of 2000. Operating margin improved 130 basis points to 8.8 percent in the fourth quarter of 2001 compared with the fourth quarter of 2000.
“Looking back at 2001, we said it would be a year of integrating IDP and capturing the synergies from that acquisition,” Greer said. “As we enter 2002, we maintain our optimistic and upbeat outlook. Many of our key end-markets are poised for positive growth. In petroleum, upstream and downstream spending should remain at good levels, spurred by the ongoing quest to replace depleting wells and by mandated environmental requirements.
“In power, we enter the year with a solid backlog. In addition, there are many power opportunities outside the U.S. In the U.S., we expect new power project spending will be at a slower growth rate than in recent years. In water resources, demographic shifts, economic development and the need to improve existing infrastructure will continue to drive spending.
“Within the General Industry sector, the outlook for food and beverage, agriculture, and Navy and marine business remains positive,” Greer continued. “The other areas within General Industry, such as metals, mining, and pulp and paper should improve with the economy.
“While we are not as enthusiastic about the chemical industry in the near term, we continue to believe that we will see the beginnings of a recovery in that sector later this year.
“We are continuing to streamline our processes, improve our operations and strengthen our balance sheet,” Greer said. “In the fourth quarter of 2001 we used the proceeds from the issuance of 6.9 million shares of common stock to retire approximately $133 million of 12.25% senior subordinated notes. These actions improved our debt-to-capital ratio to 71 percent and will eliminate about $16.5 million in annual interest expense associated with that debt.
“In 2001, our attention was primarily focused on completing the integration of IDP,” Greer continued. “Thus, we did not recognize the full extent of improvements in working capital utilization we are capable of achieving. Now that the integration is complete, we can focus our energies on maximizing the improvement in working capital, enabling us to reduce debt more aggressively.
“Since we acquired IDP, we have primarily talked about the hard synergies and the reduction of costs achieved by integrating the two companies,” Greer said. “Entering the integration process, we also recognized that there were significant sales synergies. We are extremely bullish on the range of products we now possess-a range that no other company can provide. This should lead us to capture more incremental sales and increased market share.
“While bookings in the first half of 2002 could be flat to slightly down, the outlook for second half bookings is up due to increased project activity, such as desulfurization,” Greer said. “That said, we still feel strongly that with the harvesting of the full year of captured synergies and the operating improvements we have made, we can expect to report first quarter 2002 earnings per share in the range of 27 to 31 cents compared with the year ago quarter’s 10 cents, before special items, and reported net loss of 22 cents. We continue to expect to report full year 2002 earnings per share in the range of $1.90 to $2.30. The estimates for 2002 include the effects of the SFAS 142 accounting pronouncement.”
Flowserve Corp. is one of the world’s leading providers of industrial flow management services. Operating in 30 countries, the company produces engineered pumps for the process industries, precision mechanical seals, automated and manual quarter-turn valves, control valves and valve actuators, and provides a range of related flow management services.
More information about Flowserve Corp. can be obtained by visiting the company’s website at www.flowserve.com.
Income Statement 12/31/01 (pdf)
Balance Sheet 12/31/01 (pdf)
Segments 12/31/01 (pdf)
SAFE HARBOR STATEMENT: This news release contains various forward-looking statements and includes assumptions about Flowserve's future market conditions, operations and results. These statements are based on current expectations and are subject to significant risks and uncertainties. They are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Among the many factors that could cause actual results to differ materially from the forward-looking statements are: changes in the already competitive environment for the company's products or competitors' responses to Flowserve's strategies; the company’s ability to integrate past and future acquisitions into its management operations; political risks, military actions or trade embargoes affecting important country markets; the health of the company’s various customer industries, including the petroleum, chemical, power and water industries; economic turmoil in areas outside the United States; global economic growth; unanticipated difficulties or costs associated with new systems, including software; and the recognition of significant expenses associated with adjustments to realign the company's facilities and other capabilities with its strategies and business conditions, including, without limitation, expenses incurred in restructuring the company’s operations and the cost of financing, including increases in interest costs.
Source: Flowserve Corporation