Risk & Compliance

SEC Probing Flowserve Restatements

Inventory reconciliation adjustments are in question.
Stephen TaubFebruary 10, 2004

Flowserve Corp., a provider of industrial flow-management services, said the SEC has launched an informal inquiry related to its February 3 announcement to restate its financial statements dating back to 2000.

Last week the company announced that during the latter part of the fourth quarter, it became aware of potential inventory reconciliation adjustments related to certain of its facilities. Flowserve later determined that the adjustments were required, generally due to from the failure of employees at a local site to comply with the company’s internal control procedures.

Most of the adjustments relate to the company’s valve service and pump businesses, it added.

Flowserve said it will reduce pretax earnings by $2.8 million for the nine months ended September 30, 2003; $4.8 million for calendar 2002; $3 million for 2001; and $400,000 for 2000. The estimated adjustments do not affect the company’s operations going forward.

“The company believes that, despite these restatements, it still would have been in compliance with its financial covenants for all reported periods,” Flowserve added in a statement.

Meanwhile, Standard & Poor’s said the restatements will not affect the company’s rating or outlook.

“Standard & Poor’s believes the restatements will not weaken the company’s liquidity position or reduce access to its bank credit facilities,” it stated. “In addition, there is no impact on previously reported cash flow from operations, although Flowserve will likely incur some additional costs to strengthen internal controls.”