The company's has also completed its $100 million acquisition of Innovative Valve Technologies Inc. (Invatec; Houston), a distributor that provides maintenance, repair, and replacement services for industrial valves, piping systems, and process system components. Invatec lost $7.6 million on sales of $121.1 million during the first nine months of 1999. It will become part of Flow Solutions Division.
Flowserve, formed in 1997 by the merger of BW/IP, Inc. and Durco International Inc., has also seen its financial performance deteriorate with the slowdown in the chemical and petroleum processing industry. The company earned $51.6 million on sales of $1.15 billion in 1997. This slipped modestly to $48.9 million on sales of $1.08 billion during 1998.
For the first nine months of 1999, net sales slipped less than 1%, to $798.6 million, but net earnings plummeted to $23.7 million, from $41.7 million for the first nine months of 1998.
Although Flowserve's $27 million restructuring plan is small relative to the company's size, management believes it will boost operating income by $20 million annually. This is enough to make up for the falloff in net income during the first nine months of 1999. It will take until the start of 2001 before the benefits of the program begin to affect the bottom line.
Flowserve began restructuring in December, when it closed its San Jose, CA, engineering office and its Cincinnati, valve-automation systems plant, and terminated 100 employees. It plans to identify the facilities it will close as it implements the program during 2000.
The company will take three charges against fourth quarter 1999 income: (1) $16 million to cover future closures and workforce reductions; (2) $5 million for writedowns on inventories of low-margin product lines and assets related to one facility; and $6 million for executive separation contracts and certain costs related to fourth- quarter 1999 facility closures.
"This restructuring is designed to improve our asset utilization, or 'footprint,' so that we can better focus on productivity and streamline the company for better value creation," says Flowserve president/CEO C. Scott Greer. "The program also should position us to take advantage of the strengthening of the petroleum and chemical markets and the opportunities that lie ahead for us."
The restructuring may be just the start for Greer. He joined Flowserve in July 1999 after serving as president of UT Automotive, a subsidiary of United Technologies, since 1994. The unit was recently acquired by Lear Corp. Greer helped UT Automotive grow sales by 50%, to $4.5 billion. Earlier, as president and later CEO of Echlin, Inc., he helped the company more than double sales to $3.3 billion.
Greer's 23-year career includes experience streamlining operating systems, integrating more than 30 acquisitions, improving financial performance, solidifying customer relationships, and realigning sales and service activities.
Greer played a key role in the acquisition of Innovative Valve Technologies, Inc. (Invatec). Flowserve agreed to buy all Invatec's stock for $15.7 million ($1.62/share) and assume $84.0 million in debt and related obligations. The company had lost $7.6 million on sales of $121.1 million during the first nine months of 1999.
With 1998 revenues of $154.6 million, Invatec is a significant acquisition for Flowserve. Invatec provides comprehensive maintenance, repair, replacement, and value-added distribution services for valves, piping systems, instrumentation, and other process-system components. It operates 63 locations in the United States, two in Europe, and one in the Middle East.
The acquisition complements Flowserve's Flow Solutions Div., which provides service and repair services through 90 service and quick response centers in 23 countries around the world. The unit had operating profits of $65.1 million on sales of $428.5 million in 1998. During the first nine months of 1999, it reported operating profits of $42.0 million on $324.3 million sales.
"Invatec is an excellent strategic fit for Flowserve," Greer said when the deal was announced in November. "Through this acquisition, we will significantly expand our technical service and repair capabilities, as well as local facility presence for our customers. Importantly, we expect that the addition of Invatec to Flowserve's operations will be accretive in 2000. This acquisition will be a platform to significantly increase our existing service business going forward."
In addition to Flow Solutions, Flowserve has two other divisions. Rotating Equipment provides chemical process pumps and high- horsepower pumps for petroleum and power markets. The company has invested in its new line of PolyChem corrosion-resistant nonmetallic process pumps. The business had operating profits of $16.5 million on sales of $272.4 million during the first nine months of 1999.
The Flow Control Div., which introduced some of the first smart valves, provides control and manual valves. The business has pushed to add more digital capabilities to its broad product line. Flow Control had operating income of $20.7 million on sales of $222.6 million during the first nine months of 1999.
In 1998, Flowserve did 34% of its business in petroleum processing, 31% in chemical processing, and 15% in power. A full 58% of its sales came from the United States, followed by 25% from Europe/Mideast and 7% from Asia/Pacific.
For more information: Flowserve Corp., 222 W. Los Colinas Blvd., Suite 1500, Irving, TX 75039. Tel: 801-489-2378. Fax: 801-489-2686.
By Alan S. Brown