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EX-32.1 - EXHIBIT 32.1 - SPX CORPexhibit321q32016.htm
EX-31.2 - EXHIBIT 31.2 - SPX CORPexhibit312q32016.htm
EX-31.1 - EXHIBIT 31.1 - SPX CORPexhibit311q32016.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2016
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            to            
 
Commission file number 1-6948
 
SPX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
38-1016240
(State or Other Jurisdiction of Incorporation or
Organization)
 
(I.R.S. Employer Identification No.)
 
13320-A Ballantyne Corporate Place, Charlotte, North Carolina 28277
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s Telephone Number, Including Area Code (980) 474-3700
 
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer x
 
Accelerated Filer ¨
 
 
 
Non-Accelerated Filer ¨
 
Smaller Reporting Company ¨
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No.
 
Common shares outstanding October 28, 2016, 41,887,206
 




SPX CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART I—FINANCIAL INFORMATION
 
ITEM 1. Financial Statements
 
SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited; in millions, except per share amounts)
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Revenues
$
385.2

 
$
374.1

 
$
1,187.4

 
$
1,209.8

Costs and expenses:
 

 
 

 
 

 
 

Cost of products sold
301.2

 
371.2

 
918.8

 
1,036.4

Selling, general and administrative
76.3

 
106.8

 
239.5

 
322.4

Intangible amortization
0.8

 
1.3

 
2.6

 
3.9

Special charges, net
1.5

 
8.4

 
3.8

 
14.0

Impairment of intangible assets

 

 
4.0

 

Gain on sale of dry cooling business
1.7

 

 
18.4

 

Operating income (loss)
7.1

 
(113.6
)
 
37.1

 
(166.9
)
 
 
 
 
 
 
 
 
Other income (expense), net
0.3

 
(4.6
)
 
0.6

 
(7.5
)
Interest expense
(3.8
)
 
(6.3
)
 
(11.1
)
 
(18.5
)
Interest income

 
0.4

 
0.4

 
1.3

Loss on early extinguishment of debt
(1.3
)
 
(1.4
)
 
(1.3
)
 
(1.4
)
Equity earnings in joint ventures
0.3

 
0.3

 
1.1

 
0.8

Income (loss) from continuing operations before income taxes
2.6

 
(125.2
)
 
26.8

 
(192.2
)
Income tax (provision) benefit

 
(5.5
)
 
(6.1
)
 
8.6

Income (loss) from continuing operations
2.6

 
(130.7
)
 
20.7

 
(183.6
)
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax

 
0.7

 

 
80.8

Loss on disposition of discontinued operations, net of tax
(0.7
)
 
(0.6
)
 
(2.2
)
 
(1.5
)
Income (loss) from discontinued operations, net of tax
(0.7
)
 
0.1

 
(2.2
)
 
79.3

 
 
 
 
 
 
 
 
Net income (loss)
1.9

 
(130.6
)
 
18.5

 
(104.3
)
Less: Net loss attributable to redeemable noncontrolling interests

 
(25.6
)
 
(0.4
)
 
(31.1
)
Net income (loss) attributable to SPX Corporation common shareholders
1.9

 
(105.0
)
 
18.9

 
(73.2
)
Adjustment related to redeemable noncontrolling interest (Note 13)

 

 
(18.1
)
 

Net income (loss) attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
1.9

 
$
(105.0
)
 
$
0.8

 
$
(73.2
)
 
 
 
 
 
 
 
 
Amounts attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest:
 

 
 

 
 

 
 

Income (loss) from continuing operations, net of tax
$
2.6

 
$
(105.1
)
 
$
3.0

 
$
(153.4
)
Income (loss) from discontinued operations, net of tax
(0.7
)
 
0.1

 
(2.2
)
 
80.2

Net income (loss)
$
1.9

 
$
(105.0
)
 
$
0.8

 
$
(73.2
)
 
 
 
 
 
 
 
 
Basic income (loss) per share of common stock:
 

 
 

 
 

 
 

Income (loss) from continuing operations attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.06

 
$
(2.58
)
 
$
0.07

 
$
(3.78
)
Income (loss) from discontinued operations attributable to SPX Corporation common shareholders
(0.02
)
 

 
(0.05
)
 
1.98

Net income (loss) per share attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.04

 
$
(2.58
)
 
$
0.02

 
$
(1.80
)
 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — basic
41.721

 
40.663

 
41.537

 
40.590

 
 
 
 
 
 
 
 
Diluted income (loss) per share of common stock:
 

 
 

 
 

 
 

Income (loss) from continuing operations attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.06

 
$
(2.58
)
 
$
0.07

 
$
(3.78
)
Income (loss) from discontinued operations attributable to SPX Corporation common shareholders
(0.02
)
 

 
(0.05
)
 
1.98

Net income (loss) per share attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.04

 
$
(2.58
)
 
$
0.02

 
$
(1.80
)
 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — diluted
42.475

 
40.663

 
41.884

 
40.590

 
 
 
 
 
 
 
 
Comprehensive loss
$
(4.9
)
 
$
(170.5
)
 
$
(30.6
)
 
$
(233.7
)
The accompanying notes are an integral part of these statements.

3



SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share data)
 
October 1,
2016
 
December 31,
2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and equivalents
$
83.4

 
$
101.4

Accounts receivable, net
318.0

 
367.0

Inventories, net
176.7

 
170.7

Other current assets
50.7

 
36.1

Assets held for sale

 
107.1

Total current assets
628.8

 
782.3

Property, plant and equipment:
 

 
 

Land
16.4

 
16.3

Buildings and leasehold improvements
125.2

 
120.4

Machinery and equipment
359.8

 
357.2

 
501.4

 
493.9

Accumulated depreciation
(291.3
)
 
(274.4
)
Property, plant and equipment, net
210.1

 
219.5

Goodwill
343.7

 
342.8

Intangibles, net
145.1

 
154.2

Other assets
615.9

 
629.6

Deferred income taxes
45.9

 
50.9

TOTAL ASSETS
$
1,989.5

 
$
2,179.3

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
143.3

 
$
176.9

Accrued expenses
356.4

 
403.7

Income taxes payable
2.0

 
1.7

Short-term debt
14.9

 
22.1

Current maturities of long-term debt
17.9

 
9.1

Liabilities held for sale

 
41.3

Total current liabilities
534.5

 
654.8

Long-term debt
331.2

 
340.6

Deferred and other income taxes
46.4

 
55.2

Other long-term liabilities
804.0

 
820.4

Total long-term liabilities
1,181.6

 
1,216.2

Commitments and contingent liabilities (Note 13)


 


Equity:
 

 
 

SPX Corporation shareholders’ equity:
 

 
 

Common stock (100,665,453 and 41,853,173 issued and outstanding at October 1, 2016, respectively, 100,525,876 and 41,415,909 issued and outstanding at December 31, 2015, respectively)
1.0

 
1.0

Paid-in capital
2,588.0

 
2,649.6

Retained earnings
916.7

 
897.8

Accumulated other comprehensive income
235.4

 
283.3

Common stock in treasury (58,812,280 and 59,109,967 shares at October 1, 2016 and December 31, 2015, respectively)
(3,467.7
)
 
(3,486.3
)
Total SPX Corporation shareholders’ equity
273.4

 
345.4

Noncontrolling interests

 
(37.1
)
Total equity
273.4

 
308.3

TOTAL LIABILITIES AND EQUITY
$
1,989.5

 
$
2,179.3

The accompanying notes are an integral part of these statements.

4



SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
Cash flows used in operating activities:
 

 
 

Net income (loss)
$
18.5

 
$
(104.3
)
Less: Income (loss) from discontinued operations, net of tax
(2.2
)
 
79.3

Income (loss) from continuing operations
20.7

 
(183.6
)
Adjustments to reconcile income (loss) from continuing operations to net cash used in operating activities:
 

 
 

Special charges, net
3.8

 
14.0

Gain on asset sales

 
(1.2
)
Gain on sale of dry cooling business
(18.4
)
 

Impairment of intangible assets
4.0

 

Loss on early extinguishment of debt
1.3

 
1.4

Deferred and other income taxes
6.8

 
(1.8
)
Depreciation and amortization
21.7

 
31.2

Pension and other employee benefits
12.0

 
22.9

Long-term incentive compensation
10.5

 
30.5

Other, net
0.2

 

Changes in operating assets and liabilities, net of effects from divestiture:
 
 


Accounts receivable and other assets
45.9

 
(55.3
)
Inventories
(11.9
)
 
(47.4
)
Accounts payable, accrued expenses and other
(133.9
)
 
27.0

Cash spending on restructuring actions
(6.7
)
 
(6.0
)
Net cash used in continuing operations
(44.0
)
 
(168.3
)
Net cash from (used in) discontinued operations
(1.6
)
 
54.3

Net cash used in operating activities
(45.6
)
 
(114.0
)
Cash flows from (used in) investing activities:
 

 
 
Net proceeds from sale of dry cooling business
47.6

 

Proceeds from asset sales
0.1

 
2.0

Increase in restricted cash
(1.7
)
 

Capital expenditures
(8.4
)
 
(12.8
)
Net cash from (used in) continuing operations
37.6

 
(10.8
)
Net cash used in discontinued operations

 
(38.3
)
Net cash from (used in) investing activities
37.6

 
(49.1
)
Cash flows used in financing activities:
 

 
 
Borrowings under senior credit facilities
56.2

 
1,235.0

Repayments under senior credit facilities
(60.6
)
 
(1,138.0
)
Borrowings under trade receivables financing arrangement
44.0

 
154.0

Repayments under trade receivables financing arrangement
(44.0
)
 
(122.0
)
Net borrowings (repayments) under other financing arrangements
(7.1
)
 
4.5

Minimum withholdings paid on behalf of employees for net share settlements, net of proceeds from the exercise of employee stock options and other
(1.6
)
 
(5.9
)
Financing fees paid

 
(12.2
)
Dividends paid

 
(30.6
)
Cash divested in connection with spin-off of FLOW Business

 
(207.1
)
Net cash used in continuing operations
(13.1
)
 
(122.3
)
Net cash used in discontinued operations

 
(1.9
)
Net cash used in financing activities
(13.1
)
 
(124.2
)
Change in cash and equivalents due to changes in foreign currency exchange rates
3.1

 
(57.8
)
Net change in cash and equivalents
(18.0
)
 
(345.1
)
Consolidated cash and equivalents, beginning of period
101.4

 
427.6

Consolidated cash and equivalents, end of period
$
83.4

 
$
82.5

The accompanying notes are an integral part of these statements.

5



SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions, except per share data)
 
(1) 
BASIS OF PRESENTATION
Unless otherwise indicated, “we,” “us” and “our” mean SPX Corporation and its consolidated subsidiaries (“SPX”).
We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States (“GAAP”) can be condensed or omitted. The financial statements represent our accounts after the elimination of intercompany transactions and, in our opinion, include the adjustments (consisting only of normal and recurring items) necessary for their fair presentation.
Spin-Off of FLOW Business
On September 26, 2015 (the “Distribution Date”), we completed the spin-off to our stockholders (the “Spin-Off”) of all the outstanding shares of SPX FLOW, Inc. (“SPX FLOW”), a wholly-owned subsidiary of SPX prior to the Spin-Off, which at the time of the Spin-Off held the businesses comprising our Flow Technology reportable segment, our Hydraulic Technologies business, and certain of our corporate subsidiaries (collectively, the “FLOW Business”). On the Distribution Date, each of our stockholders of record as of the close of business on September 16, 2015 (the “Record Date”) received one share of common stock of SPX FLOW for every share of SPX common stock held as of the Record Date. SPX FLOW is now an independent public company trading under the symbol “FLOW” on the New York Stock Exchange. Following the Spin-Off, SPX’s common stock continues to be listed on the New York Stock Exchange, but trades under the new ticker symbol “SPXC”.
The financial results of SPX FLOW for the three and nine months ended September 26, 2015 have been classified as discontinued operations within the accompanying condensed consolidated financial statements. See Note 3 for additional information regarding discontinued operations.
In connection with the Spin-Off, SPX and SPX FLOW entered into several administrative agreements covering various services, such as information technology, human resources and finance, to be provided by each party for a period of up to 12 months following the Distribution Date. These services ceased during the third quarter of 2016. The financial activity associated with these agreements was not material to our condensed consolidated financial results for the three and nine months ended October 1, 2016.
Sale of Dry Cooling Business
On March 30, 2016, we completed the sale of our dry cooling business, a business within our Power reportable segment, to Paharpur Cooling Towers Limited (“Paharpur”) for cash proceeds of $45.9 (net of cash transferred with the business of $3.0). During the third quarter of 2016, we reached an agreement with Paharpur regarding the final working capital of the dry cooling business, resulting in additional cash proceeds during the quarter of $1.7. In connection with the sale, we recorded a gain of $18.4, including $1.7 recorded during the third quarter of 2016 associated with the aforementioned working capital settlement. The gain includes a reclassification from “Equity” of other comprehensive income totaling $40.4 related to foreign currency translation.
We provided customary indemnifications to Paharpur in connection with the sale. Accordingly, it is possible that the sales price and resulting gain for this divestiture may be materially adjusted in subsequent periods.
The assets and liabilities of the dry cooling business, as of December 31, 2015, have been classified as “held for sale” within the accompanying condensed consolidated balance sheet. See Note 3 for information on such assets and liabilities.
Other
Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements contained in our 2015 Annual Report on Form 10-K. Interim results are not necessarily indicative of full year results. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only. See Note 3 for information on discontinued operations.
We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2016 are April 2, July 2 and October 1, compared to the respective March 28, June 27 and September 26, 2015 dates. We had six more days in the first quarter of 2016 and will have five fewer days in the fourth quarter of 2016 than in the respective 2015 periods. We do not believe the six

6



additional days during the first quarter of 2016 had a material impact on our consolidated operating results for the first nine months of 2016, when compared to the consolidated operating results for the respective 2015 period.
(2)                                NEW ACCOUNTING PRONOUNCEMENTS
The following is a summary of new accounting pronouncements that apply or may apply to our business.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard on revenue recognition that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new standard contains a five-step approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing revenue when (or as) each performance obligation is satisfied. The new standard requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows. The disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the effect this new standard will have on our condensed consolidated financial statements.
In April 2015, the FASB issued a new standard that requires debt issuance costs related to a recognized debt liability to be reported in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. An amendment to this standard was issued in August 2015 that permits entities to present debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortize such debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The standard was effective for interim and annual reporting periods beginning after December 15, 2015, and shall be applied retrospectively. We adopted this guidance on January 1, 2016 and, thus, the debt issuance costs associated with the term loan under our senior credit facilities have been presented as a direct deduction from the carrying amount of the term loan in the accompanying condensed consolidated balance sheets. See Note 10 for additional details.
In February 2016, the FASB issued an amendment to existing guidance that requires lessees to recognize assets and liabilities for the rights and obligations created by long-term leases. In addition, this amendment requires new qualitative and quantitative disclosures about leasing arrangements. This standard is effective for annual periods beginning on or after December 15, 2018 for public business entities, and interim periods within those fiscal years. Early adoption is permitted, and adoption must be applied on a modified retrospective basis. We are currently evaluating the effect this amendment will have on our condensed consolidated financial statements.
In March 2016, the FASB issued an amendment to existing guidance that simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the effect this amendment will have on our condensed consolidated financial statements.
In August 2016, the FASB issued an amendment to existing guidance to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This amendment provides clarification on eight specific cash flow presentation issues. The issues include, but are not limited to, debt prepayment or extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement of insurance claims, and cash receipts from payments on beneficial interests in securitization transactions. This amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the effect this amendment will have on our condensed consolidated financial statements.


7



(3) 
DISCONTINUED OPERATIONS AND SALE OF DRY COOLING BUSINESS
Spin-Off of SPX FLOW
As indicated in Note 1, we completed the spin-off of SPX FLOW on September 26, 2015. The results of SPX FLOW are presented as a discontinued operation within the accompanying condensed consolidated statements of operations for the three and nine months ended September 26, 2015 and the condensed consolidated statement of cash flows for the nine months ended September 26, 2015. Major classes of line items constituting pre-tax income and after-tax income of SPX FLOW are shown below:
 
Three months ended
 
Nine months ended
 
September 26,
2015
 
September 26,
2015
Revenues
$
589.5

 
$
1,775.1

Costs and expenses:


 


Cost of products sold
391.5

 
1,179.3

Selling, general and administrative (1)
121.7

 
368.2

Intangible amortization
5.8

 
17.7

Impairment of intangible assets
15.0

 
15.0

Special charges
34.0

 
41.2

Other income (expense), net
(2.4
)
 
1.3

Interest expense, net
(11.0
)
 
(32.6
)
Income before taxes
8.1

 
122.4

Income tax provision
(7.4
)
 
(41.6
)
Income from discontinued operations, net of tax
0.7

 
80.8

Less: Net loss attributable to noncontrolling interest

 
(0.9
)
Income from discontinued operations attributable to SPX Corporation common shareholders, net of tax
$
0.7

 
$
81.7

___________________________
(1) 
Includes $16.8 and $30.8 for the three and nine months ended September 26, 2015, respectively, of professional fees and other costs that were incurred in connection with the Spin-Off.
The following table presents selected financial information regarding cash flows of SPX FLOW that are included within discontinued operations in the condensed consolidated statement of cash flows for the nine months ended September 26, 2015:
Non-cash items included in income from discontinued operations:
 
Depreciation and amortization
$
44.3

Impairment of intangible assets
15.0

Capital expenditures
43.1

Other Discontinued Operations Activity
In addition to the Spin-Off of SPX FLOW, we recognized net losses of $0.7 and $2.2 during the three and nine months ended October 1, 2016, respectively, and net losses of $0.6 and $1.5 during the three and nine months ended September 26, 2015, respectively, resulting primarily from revisions to liabilities retained from businesses discontinued prior to 2015.
For the three and nine months ended October 1, 2016 and September 26, 2015, the table below presents a reconciliation of discontinued operations activity to the related amounts in the condensed consolidated statements of operations:

8



 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
SPX FLOW
 
 
 
 
 
 
 
Income from discontinued operations
$


$
8.1


$


$
122.4

Income tax provision


(7.4
)



(41.6
)
Income from discontinued operations, net


0.7




80.8

 







All other







Loss from discontinued operations
(0.5
)

(1.1
)

(2.3
)

(3.6
)
Income tax (provision) benefit
(0.2
)

0.5


0.1


2.1

Loss from discontinued operations, net
(0.7
)

(0.6
)

(2.2
)

(1.5
)
 







Total







Income (loss) from discontinued operations
(0.5
)

7.0


(2.3
)

118.8

Income tax (provision) benefit
(0.2
)

(6.9
)

0.1


(39.5
)
Income (loss) from discontinued operations, net
$
(0.7
)

$
0.1


$
(2.2
)

$
79.3

Sale of Dry Cooling Business
On November 20, 2015, we entered into an agreement for the sale of our dry cooling business. The assets and liabilities of our dry cooling business are presented as “held for sale” within the accompanying condensed consolidated balance sheet as of December 31, 2015. The major classes of assets and liabilities held for sale as of December 31, 2015 are shown below:
Assets:
 
   Accounts receivable, net
$
49.2

   Inventories, net
12.9

   Other current assets
13.9

   Property, plant and equipment, net
3.3

   Goodwill
10.7

   Intangibles, net
8.3

   Other assets
8.8

      Assets held for sale
$
107.1

Liabilities:
 
   Accounts payable
$
13.7

   Accrued expenses
25.3

   Other long-term liabilities
2.3

      Liabilities held for sale
$
41.3

As indicated in Note 1, on March 30, 2016, we completed the sale of our dry cooling business to Paharpur for cash proceeds of $45.9 (net of cash transferred with the business of $3.0). During the third quarter of 2016, we reached an agreement with Paharpur regarding the final working capital of the dry cooling business, resulting in additional cash proceeds during the quarter of $1.7. In connection with the sale, we recorded a gain of $18.4, including $1.7 recorded during the third quarter of 2016 associated with the aforementioned working capital settlement. The gain includes a reclassification from “Equity” of other comprehensive income totaling $40.4 related to foreign currency translation.

(4)                              INFORMATION ON REPORTABLE SEGMENTS
We are a global supplier of highly specialized, engineered solutions with operations in over 20 countries and sales in over 100 countries around the world.
We have aggregated our operating segments into the following three reportable segments: HVAC, Detection and Measurement, and Power. The factors considered in determining our aggregated segments are the economic similarity of the businesses, the nature of products sold or services provided, production processes, types of customers, distribution methods, and regulatory environment. In determining our segments, we apply the threshold criteria of the Segment Reporting Topic of the Codification to operating income or loss of each segment before considering gains/losses on sales of businesses, impairment and special charges, pension and postretirement expense/income, long-term incentive compensation and other indirect corporate expenses. This is consistent with the way our CODM evaluates the results of each segment.

9



HVAC Reportable Segment
Our HVAC reportable segment engineers, designs, manufactures, installs and services cooling products for the HVAC and industrial markets, as well as boilers, comfort heating and ventilation products for the residential and commercial markets. The primary distribution channels for the segment’s products are direct to customers, independent manufacturing representatives, third-party distributors, and retailers. The segment primarily serves a North American customer base.
Detection and Measurement Reportable Segment
Our Detection and Measurement reportable segment engineers, designs, manufactures and installs underground pipe and cable locators and inspection equipment, bus fare collection systems, communication technologies, and specialty lighting. The primary distribution channels for the segment’s products are direct to customers and third-party distributors. The segment serves a global customer base, with a strong presence in North America, Europe and Asia.
Power Reportable Segment
Our Power reportable segment engineers, designs, manufactures, installs and services evaporative and hybrid cooling systems, rotating and stationary heat exchangers, and pollution control systems for the power generation market, and transformers for the power transmission and distribution market. The primary distribution channels for the segment’s products are direct to customers and third-party representatives. The segment serves a global customer base, with a strong presence in North America, Europe, Asia Pacific, and South Africa.
Corporate Expense
Corporate expense generally relates to the cost of our Charlotte, NC corporate headquarters. Corporate expense for the three and nine months ended September 26, 2015 also included costs related to our former Asia Pacific center in Shanghai, China, which was part of the Spin-Off, costs that were previously allocated to the FLOW Business that do not meet the requirements to be presented within discontinued operations, and the cost of corporate employees who became employees of SPX FLOW at the time of the Spin-Off.
Financial data for our reportable segments for the three and nine months ended October 1, 2016 and September 26, 2015 are presented below:
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Revenues: (1)
 

 
 

 
 

 
 

HVAC segment
$
116.9

 
$
142.7

 
$
350.4

 
$
368.7

Detection and Measurement segment
52.3

 
55.9

 
167.8

 
166.0

Power segment (2)
216.0

 
175.5

 
669.2

 
675.1

Consolidated revenues
$
385.2

 
$
374.1

 
$
1,187.4

 
$
1,209.8

 
 
 
 
 
 
 
 
Income (Loss):
 

 
 

 
 

 
 

HVAC segment
$
15.6

 
$
23.5

 
$
48.6

 
$
49.4

Detection and Measurement segment
7.8

 
8.3

 
30.9

 
27.4

Power segment (2)
(2.2
)
 
(96.5
)
 
(9.5
)
 
(106.3
)
Total income (loss) for segments
21.2

 
(64.7
)
 
70.0

 
(29.5
)
 
 
 
 
 
 
 
 
Corporate expense
(9.2
)
 
(27.6
)
 
(28.3
)
 
(84.5
)
Long-term incentive compensation expense
(4.2
)
 
(5.5
)
 
(10.5
)
 
(30.5
)
Pension and postretirement expense
(0.9
)
 
(7.4
)
 
(4.7
)
 
(8.4
)
Special charges, net
(1.5
)
 
(8.4
)
 
(3.8
)
 
(14.0
)
Impairment of intangible assets

 

 
(4.0
)
 

Gain on sale of dry cooling business
1.7

 

 
18.4

 

 
 
 
 
 
 
 
 
Consolidated operating income (loss)
$
7.1

 
$
(113.6
)
 
$
37.1

 
$
(166.9
)
___________________________
(1) 
Under the percentage-of-completion method, we recognized revenues of $111.0 and $78.8 in the three months ended October 1, 2016 and September 26, 2015, respectively. For the nine months ended October 1, 2016 and September 26, 2015, revenues under the percentage-of-completion method were $347.6 and $325.1, respectively. Costs and estimated earnings in excess of billings on uncompleted contracts accounted for under the percentage-of-completion method were $91.3 and $106.3 as of October 1, 2016 and December 31, 2015, respectively, and are reported as a component of ‘‘Accounts receivable, net’’ in the condensed consolidated balance

10



sheets. Billings in excess of costs and estimated earnings on uncompleted contracts accounted for under the percentage-of-completion method were $75.8 and $116.3 as of October 1, 2016 and December 31, 2015, respectively, and are reported as a component of ‘‘Accrued expenses’’ in the condensed consolidated balance sheets.
(2) 
As further discussed in Note 13, during the three months ended September 26, 2015, we made revisions to our estimates of expected revenues and profits on our large power projects in South Africa. As a result of these revisions, we reduced revenue and segment income by $57.2 and $95.0, respectively, during the three and nine months ended September 26, 2015.
(5)
SPECIAL CHARGES, NET
Special charges, net, for the three and nine months ended October 1, 2016 and September 26, 2015 are described in more detail below:
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
HVAC segment
$

 
$
(0.1
)
 
$

 
$
1.1

Detection and Measurement segment
0.3

 
(0.1
)
 
0.5

 
0.5

Power segment
1.3

 
7.6

 
3.4

 
11.4

Corporate
(0.1
)
 
1.0

 
(0.1
)
 
1.0

Total
$
1.5

 
$
8.4

 
$
3.8

 
$
14.0

HVAC Segment — The benefit for the three months ended September 26, 2015 related primarily to the reversal of previously accrued costs associated with our boiler products business, while the charges for the nine months ended September 26, 2015 related primarily to costs associated with facility consolidation efforts in Asia Pacific.
Detection and Measurement Segment — Charges for the three and nine months ended October 1, 2016 related to severance and other costs associated with our bus fare collection systems business. The benefit for the three months ended September 26, 2015 related primarily to the reversal of previously accrued costs associated with our bus fare collection systems business, while charges for the nine months ended September 26, 2015 related primarily to severance and other costs associated with restructuring initiatives at our specialty lighting business.
Power Segment — Charges for the three and nine months ended October 1, 2016 related primarily to costs incurred in connection with restructuring actions at our SPX Heat Transfer (“Heat Transfer”) business in order to reduce the cost base of the business in response to reduced demand, partially offset by a reduction in the expected cost of the restructuring actions at our Balcke Duerr business. The costs incurred for the Heat Transfer business restructuring actions included asset impairment charges associated with the discontinuance of a product line and outsourcing initiatives of $0.7 and $3.3 for the three and nine months ended October 1, 2016, respectively, as well as severance costs. Charges for the three and nine months ended September 26, 2015 related primarily to severance and other costs associated with restructuring actions at our Balcke Duerr and dry cooling businesses.
Corporate — The benefits for the three and nine months ended October 1, 2016 related to a reduction of severance costs accrued in connection with the Spin-Off. Charges for the three and nine months ended September 26, 2015 related primarily to severance costs incurred in connection with the Spin-Off.
Expected charges still to be incurred under actions approved as of October 1, 2016 were approximately $0.4.
The following is an analysis of our restructuring liabilities for the nine months ended October 1, 2016 and September 26, 2015:
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
Balance at beginning of year
$
11.3

 
$
5.1

Special charges (1)
0.2

 
13.7

Utilization — cash
(6.7
)
 
(6.0
)
Currency translation adjustment and other
(0.1
)
 
(0.1
)
Balance at end of period
$
4.7

 
$
12.7

___________________________
(1) 
The nine months ended October 1, 2016 and September 26, 2015 included $3.6 and $0.3 of non-cash charges, respectively, that did not impact the restructuring liability. 

11



(6)
INVENTORIES, NET
Inventories at October 1, 2016 and December 31, 2015 comprised the following:
 
October 1,
2016
 
December 31,
2015
Finished goods
$
56.6

 
$
58.4

Work in process
58.4

 
58.2

Raw materials and purchased parts
74.7

 
79.4

Total FIFO cost
189.7

 
196.0

Excess of FIFO cost over LIFO inventory value
(13.0
)
 
(12.4
)
Total inventories, net (1)
$
176.7

 
$
183.6

___________________________
(1) 
The balance at December 31, 2015 includes $12.9 related to our dry cooling business. As previously noted, the assets and liabilities of the dry cooling business have been classified as “held for sale” in the accompanying condensed consolidated balance sheet as of December 31, 2015. See Note 3 for information on the assets and liabilities of the dry cooling business as of December 31, 2015.
Inventories include material, labor and factory overhead costs and are reduced, when necessary, to estimated net realizable values. Certain domestic inventories are valued using the last-in, first-out (“LIFO”) method. These inventories were approximately 52% and 46% of total inventory at October 1, 2016 and December 31, 2015, respectively. Other inventories are valued using the first-in, first-out (“FIFO”) method.
(7)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill, by reportable segment, were as follows:
 
December 31,
2015
 
Goodwill
Resulting from
Business
Combinations
 
Impairments
 
Disposition of Business (2)
 
Foreign
Currency
Translation
and Other
 
October 1,
2016
HVAC segment
 

 
 

 
 

 
 
 
 

 
 

Gross goodwill
$
261.3

 
$

 
$

 
$

 
$
(0.1
)
 
$
261.2

Accumulated impairments
(145.2
)
 

 

 

 
0.7

 
(144.5
)
Goodwill
116.1

 

 

 

 
0.6

 
116.7

 
 
 
 
 
 
 
 
 
 
 
 
Detection and Measurement segment
 

 
 

 
 

 
 
 
 

 
 

Gross goodwill
219.1

 

 

 

 
(3.3
)
 
215.8

Accumulated impairments
(138.0
)
 

 

 

 
2.7

 
(135.3
)
Goodwill
81.1

 

 

 

 
(0.6
)
 
80.5

 
 
 
 
 
 
 
 
 
 
 
 
Power segment
 

 
 

 
 

 
 
 
 

 
 

Gross goodwill
405.3

 

 

 
(36.1
)
 
2.3

 
371.5

Accumulated impairments
(249.0
)
 

 

 
25.9

 
(1.9
)
 
(225.0
)
Goodwill (1)
156.3

 

 

 
(10.2
)
 
0.4

 
146.5

 
 
 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 
 
 

 
 

Gross goodwill
885.7

 

 

 
(36.1
)
 
(1.1
)
 
848.5

Accumulated impairments
(532.2
)
 

 

 
25.9

 
1.5

 
(504.8
)
Goodwill (1)
$
353.5

 
$

 
$

 
$
(10.2
)
 
$
0.4

 
$
343.7

___________________________
(1) 
The net carrying value at December 31, 2015 includes $10.7 related to our dry cooling business. As previously noted, the assets and liabilities of the dry cooling business have been classified as “held for sale” in the accompanying condensed consolidated balance sheet as of December 31, 2015. See Note 3 for information on the assets and liabilities of the dry cooling business as of December 31, 2015.
(2) 
Represents goodwill allocated to our dry cooling business upon its disposition.

12



Other Intangibles, Net
Identifiable intangible assets at October 1, 2016 and December 31, 2015 comprised the following:
 
October 1, 2016
 
December 31, 2015
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Intangible assets with determinable lives:
 

 
 

 
 

 
 

 
 

 
 

Customer relationships
$
25.4

 
$
(10.5
)
 
$
14.9

 
$
25.4

 
$
(9.5
)
 
$
15.9

Technology (1)
20.8

 
(10.1
)
 
10.7

 
40.7

 
(25.2
)
 
15.5

Patents
4.6

 
(4.6
)
 

 
4.6

 
(4.6
)
 

Other
13.3

 
(7.8
)
 
5.5

 
14.2

 
(8.1
)
 
6.1

 
64.1

 
(33.0
)
 
31.1

 
84.9

 
(47.4
)
 
37.5

Trademarks with indefinite lives (1) (2)
114.0

 

 
114.0

 
125.0

 

 
125.0

Total (3)
$
178.1

 
$
(33.0
)
 
$
145.1

 
$
209.9

 
$
(47.4
)
 
$
162.5

___________________________
(1) 
The net carrying value at December 31, 2015 includes $2.4 and $5.9 of technology and trademarks, respectively, related to our dry cooling business. As previously noted, the assets and liabilities of the dry cooling business have been classified as “held for sale” in the accompanying condensed consolidated balance sheet as of December 31, 2015. See Note 3 for information on the assets and liabilities of the dry cooling business as of December 31, 2015.
(2) 
As noted below, we recorded an impairment charge of $4.0 during the first quarter of 2016 related to the trademarks of our Heat Transfer business.
(3) 
Changes in the gross carrying values of “Other Intangibles, Net” during the nine months ended October 1, 2016 related to the sale of our dry cooling business, the impairment charge related to the Heat Transfer trademarks noted above, and, to a lesser extent, foreign currency translation.
At October 1, 2016, the net carrying value of intangible assets with determinable lives consisted of $4.4 in the HVAC segment and $26.7 in the Power segment. At October 1, 2016, trademarks with indefinite lives consisted of $89.2 in the HVAC segment, $10.2 in the Detection and Measurement segment and $14.6 in the Power segment.
We perform our annual goodwill impairment testing during the fourth quarter in conjunction with our annual financial planning process, with such testing based primarily on events and circumstances existing as of the end of the third quarter. In addition, we test goodwill for impairment on a more frequent basis if there are indications of potential impairment. A significant amount of judgment is involved in determining if an indication of impairment has occurred between annual testing dates. Such indication may include: a significant decline in expected future cash flows; a significant adverse change in legal factors or the business climate; unanticipated competition; and a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit.
We perform our annual trademarks impairment testing during the fourth quarter, or on a more frequent basis if there are indications of potential impairment. The fair values of our trademarks are determined by applying estimated royalty rates to projected revenues, with the resulting cash flows discounted at a rate of return that reflects current market conditions (fair value based on unobservable inputs - Level 3, as defined in Note 15). The primary basis for these projected revenues is the annual operating plan for each of the related businesses, which is prepared in the fourth quarter of each year. Based on our annual impairment testing during the fourth quarter of 2015, the estimated fair value of the trademarks for Heat Transfer was comparable to their carrying value of $9.5. The revenue projections used in the 2015 annual impairment analysis were based on the most recent historical trends for Heat Transfer. At the end of the first quarter of 2016, we concluded that the more recent trends were indicating that Heat Transfer’s revenues for the foreseeable future would be significantly less than the projected amounts included in the 2015 annual analysis. In response to this new information, we performed an impairment analysis of Heat Transfer’s trademarks as of April 2, 2016. Based on such analysis, we recorded an impairment charge of $4.0 to our consolidated results of operations during the first quarter of 2016.
In addition to its trademarks, Heat Transfer has definite-lived intangible assets with an aggregate carrying value at October 1, 2016 of $26.7. Although there are no current indications of impairment associated with Heat Transfer’s intangible assets, further deterioration in the business’s financial results could lead to impairment charges in subsequent periods.
No impairment charges were recorded in the first nine months of 2015. 

13



(8) 
WARRANTY
The following is an analysis of our product warranty accrual for the periods presented:
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
Balance at beginning of year
$
39.6

 
$
37.5

Provisions
10.7

 
13.1

Usage
(11.9
)
 
(11.9
)
Currency translation adjustment
(0.3
)
 
(0.4
)
Balance at end of period
38.1

 
38.3

Less: Current portion of warranty
18.7

 
20.3

Non-current portion of warranty
$
19.4

 
$
18.0

(9)
EMPLOYEE BENEFIT PLANS
In connection with the Spin-Off, participants in the SPX U.S. Pension Plan (the “U.S. Plan”) that were transferred to SPX FLOW became eligible to elect a lump-sum payment option in lieu of a future pension benefit under the U.S. Plan. During the second quarter of 2016, approximately 9%, or $25.2, of the projected benefit obligation of the U.S. Plan was settled as a result of lump-sum payments. In connection with these lump-sum payments, we remeasured the assets and liabilities of the U.S. Plan as of May 31, 2016, which resulted in a charge to net periodic pension benefit expense of $1.0 during the second quarter.
During the second quarter of 2016, we made lump-sum payments to certain participants of the Supplemental Individual Account Retirement Plan (“SIARP”), settling approximately 22%, or $2.7, of the SIARP's projected benefit obligation. In connection with these lump-sum payments, we remeasured the liabilities of the SIARP as of June 30, 2016, which resulted in a charge to net periodic pension benefit expense of $0.8 during the second quarter.
On July 14, 2015, we amended the U.S. Plan and SIARP to freeze all benefits for active non-union participants. The amendments resulted in a curtailment gain of $5.1 during the third quarter of 2015. In connection with the amendments, we remeasured the assets and liabilities of the U.S. Plan and the SIARP as of June 30, 2015, which resulted in a charge to net periodic pension benefit expense of $11.4 during the third quarter of 2015.
Net periodic benefit expense (income) for our pension and postretirement plans included the following components:
Domestic Pension Plans
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Service cost
$
0.1

 
$
0.4

 
$
0.3

 
$
2.2

Interest cost
3.3

 
4.3

 
10.4

 
12.9

Expected return on plan assets
(3.2
)
 
(4.5
)
 
(9.6
)
 
(14.3
)
Curtailment gain (1)

 
(5.1
)
 

 
(5.1
)
Recognized net actuarial loss (2)

 
11.4

 
1.8

 
11.4

Amortization of unrecognized prior service credits
(0.1
)
 

 
(0.1
)
 

Total net periodic pension benefit expense
$
0.1

 
$
6.5

 
$
2.8

 
$
7.1

___________________________
(1) 
Represents a curtailment gain recorded during the third quarter of 2015 in connection with the amendments of the U.S. Plan and SIARP noted above.
(2) 
Represents actuarial losses resulting from the remeasurement of the assets and obligations of the U.S. Plan and the SIARP during the second quarter of 2016 and third quarter of 2015, which was required in connection with the lump-sum payments and plan amendments noted above.

14



Foreign Pension Plans
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Service cost
$

 
$
0.4

 
$

 
$
1.2

Interest cost
1.4

 
2.0

 
4.3

 
6.0

Expected return on plan assets
(1.5
)
 
(2.4
)
 
(5.0
)
 
(7.3
)
Recognized net actuarial loss

 
0.7

 

 
0.7

Total net periodic pension benefit (income) expense
(0.1
)
 
0.7

 
(0.7
)
 
0.6

Less: Net periodic pension benefit expense of discontinued operations

 
0.7

 

 
2.0

Net periodic pension benefit income of continuing operations
$
(0.1
)
 
$

 
$
(0.7
)
 
$
(1.4
)
Postretirement Plans
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Service cost
$

 
$

 
$

 
$

Interest cost
1.1

 
1.1

 
3.2

 
3.3

Amortization of unrecognized prior service credits
(0.2
)
 
(0.2
)
 
(0.6
)
 
(0.6
)
Net periodic postretirement benefit expense
$
0.9

 
$
0.9

 
$
2.6

 
$
2.7

 
(10)
INDEBTEDNESS
The following summarizes our debt activity (both current and non-current) for the nine months ended October 1, 2016:

December 31,
2015
 
Borrowings
 
Repayments
 
Other(4)
 
October 1,
2016
Revolving loans
$

 
$
56.2

 
$
(56.2
)
 
$

 
$

Term loan (1)
348.0

 

 
(4.4
)
 
0.3

 
343.9

Trade receivables financing arrangement (2)

 
44.0

 
(44.0
)
 

 

Other indebtedness (3)
23.8

 
19.5

 
(26.6
)
 
3.4

 
20.1

Total debt
371.8

 
$
119.7

 
$
(131.2
)
 
$
3.7

 
364.0

Less: short-term debt
22.1

 
 
 
 
 
 
 
14.9

Less: current maturities of long-term debt
9.1

 
 
 
 
 
 
 
17.9

Total long-term debt
$
340.6

 
 
 
 
 
 
 
$
331.2

___________________________
(1) 
The term loan is repayable in quarterly installments of 5.0% annually, beginning in the third fiscal quarter of 2016. The remaining balance is repayable in full on September 24, 2020. Balances are net of unamortized debt issuance costs of $1.7 and $2.0 at October 1, 2016 and December 31, 2015, respectively. See Note 2 for additional details.
(2) 
Under this arrangement, we can borrow, on a continuous basis, up to $50.0, as available. At October 1, 2016, we had $26.4 of available borrowing capacity under this facility.
(3) 
Primarily includes balances under a purchase card program of $3.7 and $4.8, capital lease obligations of $5.2 and $1.7, and borrowings under a line of credit in China of $9.7 and $17.3 at October 1, 2016 and December 31, 2015, respectively. The purchase card program allows for payment beyond the normal payment terms for goods and services acquired under the program. As this arrangement extends the payment of these purchases beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt. 
(4) 
“Other” primarily includes $3.8 of capital lease obligations and the impact of amortization of debt issuance costs associated with the term loan, partially offset by foreign currency translation on any debt instruments denominated in currencies other than the U.S. dollar.
Senior Credit Facilities
A detailed description of our senior credit facilities is included in our 2015 Annual Report on Form 10-K.

15



On September 29, 2016, we elected to reduce our participation foreign credit instrument facility commitment and our bilateral foreign credit instrument facility commitment by $125.0, to $175.0, and by $75.0, to $125.0, respectively. In connection with the reduction of our foreign credit instrument facility commitments, we recorded a charge of $1.3 to "Loss on early extinguishment of debt" during the third quarter of 2016 associated with the write-off of the deferred financing costs related to this previously available issuance capacity of $200.0.
At October 1, 2016, we had $46.5 and $207.6 of outstanding letters of credit issued under our revolving credit and our foreign credit instrument facilities of our senior credit agreement, respectively.
The weighted-average interest rate of outstanding borrowings under our senior credit agreement was approximately 2.3% at October 1, 2016.
At October 1, 2016, we were in compliance with all covenants of our senior credit agreement.

(11)
DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps
During the second quarter of 2016, we entered into interest rate swap agreements (“Swaps”) to hedge the interest rate risk on our variable rate term loan. These Swaps, which we designate and account for as cash flow hedges, have effective dates beginning in January 2017 and maturities through September 2020 and effectively converted 50% of the borrowing under the variable rate term loan to a fixed rate of 1.2895% plus the applicable margin. These are amortizing Swaps; therefore, the outstanding notional value is scheduled to decline commensurate with the scheduled maturities of the term loan. As of October 1, 2016, the aggregate notional amounts of the Swaps was $170.8 and the unrealized loss, net of tax, recorded in accumulated other comprehensive income (“AOCI”) was $1.2. In addition, we have recorded a long-term liability of $1.9 to recognize the fair value of these Swaps.
Currency Forward Contracts
From time to time, we enter into forward contracts to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries (“FX forward contracts”). In addition, some of our contracts contain currency forward embedded derivatives (“FX embedded derivatives”), because the currency of exchange is not “clearly and closely” related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings, but are included in AOCI. These changes in fair value are reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings.
We had FX forward contracts with an aggregate notional amount of $63.7 and $139.8 outstanding as of October 1, 2016 and December 31, 2015, respectively, with all of the $63.7 scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $18.7 and $120.8 at October 1, 2016 and December 31, 2015, respectively, with notional amounts of $17.9 and $0.8 scheduled to mature within one and two years thereafter, respectively. The decline in the notional amount of FX forward contracts and FX embedded derivatives was due primarily to the sale of our dry cooling business. The unrealized losses, net of tax, recorded in AOCI related to FX forward contracts were $0.0 and $0.6 as of October 1, 2016 and December 31, 2015, respectively.
With regard to our FX forward contacts, these arrangements are designed to provide the right of setoff in the event of counterparty default or insolvency, and, thus, we have elected to offset the fair values of these instruments in our condensed consolidated balance sheets. The gross fair values of our FX forward contracts were $0.0 and $0.1 (gross assets) and $0.5 and $1.5 (gross liabilities) at October 1, 2016 and December 31, 2015, respectively.
The fair values of our embedded derivative instruments were not material in relation to our condensed consolidated balance sheets as of October 1, 2016 and December 31, 2015.
Commodity Contracts
From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. At October 1, 2016 and December 31, 2015, the outstanding notional amount of commodity contracts was 4.0 and 4.2 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. As of October 1, 2016 and December 31, 2015, the fair value of these contracts was $0.2 (current asset) and

16



$1.7 (current liability), respectively. The unrealized gains (losses), net of tax, recorded in AOCI were $0.1 and $(1.2) as of October 1, 2016 and December 31, 2015, respectively. We anticipate reclassifying the unrealized losses as of October 1, 2016 to income over the next 12 months.
(12)
SHAREHOLDERS’ EQUITY AND LONG-TERM INCENTIVE COMPENSATION
Income (Loss) Per Share
The following table sets forth the number of weighted-average shares outstanding used in the computation of basic and diluted income (loss) per share:
 
Three months ended
 
Nine months ended
 
October 1,
2016
 
September 26,
2015
 
October 1,
2016
 
September 26,
2015
Weighted-average number of common shares used in basic income (loss) per share
41.721

 
40.663

 
41.537

 
40.590

Dilutive securities — Restricted stock shares, restricted stock units, and stock options
0.754

 

 
0.347

 

Weighted-average number of common shares and dilutive securities used in diluted income (loss) per share
42.475

 
40.663

 
41.884

 
40.590

The weighted-average number of restricted stock shares/units and stock options excluded from the computation of diluted income per share because the assumed proceeds for these instruments exceed the average market value of the underlying common stock for the related periods was 0.992 and 1.542, respectively, for the three months ended October 1, 2016, and 1.134 and 1.346, respectively, for the nine months ended October 1, 2016.
For the three and nine months ended September 26, 2015, 0.342 and 0.315 of unvested restricted stock shares/units, respectively, and 0.323 of outstanding stock options were excluded from the computation of diluted income (loss) per share as we incurred losses from continuing operations during the periods. In addition, 0.536 and 0.541 of unvested restricted stock shares/units, respectively, did not meet the required market thresholds for vesting (as discussed in our 2015 Annual Report on Form 10-K).
Long-Term Incentive Compensation
Long-term incentive compensation awards may be granted to certain eligible employees or non-employee directors. A detailed description of the awards granted prior to 2016 is included in our 2015 Annual Report on Form 10-K.
Awards granted on March 2, 2016 to executive officers and other members of senior management were comprised of performance stock units (“PSU’s”), stock options, time-based restricted stock units (“RSU’s”), and long-term cash awards, while other eligible employees were granted RSU’s and long-term cash awards. The PSU’s are eligible to vest at the end of a three-year performance period, with performance based on the total return of our stock over the three-year performance period against the S&P 600 Capital Goods Index. Stock options and RSU’s vest ratably over the three-year period subsequent to the date of grant. Long-term cash awards are eligible to vest at the end of a three-year performance measurement period, with performance based on our achieving a target segment income amount over the three-year measurement period.
Effective May 24, 2016, we granted 0.049 RSU’s to our non-employee directors, which vest in their entirety immediately prior to the annual meeting of stockholders in May 2017.
Compensation expense within income from continuing operations related to long-term incentive awards totaled $4.2 and $5.5 for the three months ended October 1, 2016 and September 26, 2015, respectively, and $10.5 and $30.5 for the nine months ended October 1, 2016 and September 26, 2015, respectively. The related tax benefit was $1.6 and $2.1 for the three months ended October 1, 2016 and September 26, 2015, respectively, and $4.0 and $11.4 for the nine months ended October 1, 2016 and September 26, 2015, respectively.
Accumulated Other Comprehensive Income (Loss)
The changes in the components of accumulated other comprehensive income, net of tax, for the three months ended October 1, 2016 were as follows:

17



 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Losses
on Qualifying Cash
Flow Hedges(1)
 
Pension and
Postretirement
Liability Adjustment(2)
 
Total
Balance at beginning of period
$
239.6

 
$
(1.6
)
 
$
4.2

 
$
242.2

Other comprehensive income (loss) before reclassifications
(7.2
)
 
0.3

 

 
(6.9
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
0.2

 
(0.1
)
 
0.1

Current-period other comprehensive income (loss)
(7.2
)
 
0.5

 
(0.1
)
 
(6.8
)
Balance at end of period
$
232.4

 
$
(1.1
)
 
$
4.1

 
$
235.4

__________________________
(1) 
Net of tax benefit of $0.7 and $1.0 as of October 1, 2016 and July 2, 2016, respectively.
(2) 
Net of tax provision of $2.8 and $3.0 as of October 1, 2016 and July 2, 2016, respectively. The balances as of October 1, 2016 and July 2, 2016 represent net unamortized prior service credits.
The changes in the components of accumulated other comprehensive income, net of tax, for the nine months ended October 1, 2016 were as follows:
 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Losses
on Qualifying Cash
Flow Hedges
(2)
 
Pension and
Postretirement
Liability Adjustment
(3)
 
Total
Balance at beginning of period
$
280.6

 
$
(1.8
)
 
$
4.5

 
$
283.3

Other comprehensive loss before reclassifications
(7.8
)
 
(1.4
)
 

 
(9.2
)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
(40.4
)
 
2.1

 
(0.4
)
 
(38.7
)
Current-period other comprehensive income (loss)
(48.2
)
 
0.7

 
(0.4
)
 
(47.9
)
Balance at end of period
$
232.4

 
$
(1.1
)
 
$
4.1

 
$
235.4

__________________________
(1) 
In connection with the sale of our dry cooling business, we reclassified $40.4 of other comprehensive income related to foreign currency translation to “Gain (loss) on sale of dry cooling business.”
(2) 
Net of tax benefit of $0.7 and $0.8 as of October 1, 2016 and December 31, 2015, respectively.
(3) 
Net of tax provision of $2.8 and $3.1 as of October 1, 2016 and December 31, 2015. The balances as of October 1, 2016 and December 31, 2015 represent net unamortized prior service credits.
The changes in the components of accumulated other comprehensive loss, net of tax, for the three months ended September 26, 2015 were as follows:
 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Losses
on Qualifying Cash Flow Hedges(1)
 
Pension and Postretirement
Liability Adjustment(2)
 
Total
Balance at beginning of period
$
(30.4
)
 
$
(1.4
)
 
$
4.6

 
$
(27.2
)
Other comprehensive income (loss) before reclassifications
(41.5
)
 
(0.5
)
 
0.5

 
(41.5
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
0.8

 
(0.1
)
 
0.7

Current-period other comprehensive income (loss)
(41.5
)
 
0.3

 
0.4

 
(40.8
)
Spin-Off of FLOW Business
354.5

 
0.1

 

 
354.6

Balance at end of period
$
282.6

 
$
(1.0
)
 
$
5.0

 
$
286.6

___________________________
(1) 
Net of tax benefit of $0.8 and $0.4 as of September 26, 2015 and June 27, 2015, respectively.
(2) 
Net of tax provision of $3.2 and $2.9 as of September 26, 2015 and June 27, 2015, respectively. The balances as of September 26, 2015 and June 27, 2015 include net unamortized prior service credits.
The changes in the components of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 26, 2015 were as follows:

18



 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Losses
on Qualifying Cash Flow Hedges
(1)
 
Pension and
Postretirement
Liability Adjustment
(2)
 
Total
Balance at beginning of period
$
59.0

 
$
(1.3
)
 
$
4.9

 
$
62.6

Other comprehensive income (loss) before reclassifications
(130.9
)
 
(0.4
)
 
0.5

 
(130.8
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
0.6

 
(0.4
)
 
0.2

Current-period other comprehensive income (loss)
(130.9
)
 
0.2

 
0.1

 
(130.6
)
Spin-Off of FLOW Business
354.5

 
0.1

 

 
354.6

Balance at end of period
$
282.6

 
$
(1.0
)
 
$
5.0

 
$
286.6

__________________________
(1) 
Net of tax benefit of $0.8 and $1.1 as of September 26, 2015 and December 31, 2014, respectively.
(2) 
Net of tax provision of $3.2 and $3.0 as of September 26, 2015 and December 31, 2014, respectively. The balances as of September 26, 2015 and December 31, 2014 include net unamortized prior service credits.
The following summarizes amounts reclassified from each component of accumulated comprehensive income (loss) for the three months ended October 1, 2016 and September 26, 2015:
 
Amount Reclassified from AOCI
 
 
 
Three months ended
 
 
 
October 1, 2016
 
September 26, 2015
 
Affected Line Item in the Condensed
Consolidated Statements of Operations
Losses on qualifying cash flow hedges:
 

 
 

 
 
FX forward contracts
$

 
$
0.2

 
Revenues
Commodity contracts
0.3

 
0.9

 
Cost of products sold
Pre-tax
0.3

 
1.1

 
 
Income taxes
(0.1
)
 
(0.3
)
 
 
 
$
0.2

 
$
0.8

 
 
 
 
 
 
 
 
Gains on pension and postretirement items:
 

 
 

 
 
Amortization of unrecognized prior service credits
$
(0.3
)
 
$
(0.2
)
 
Selling, general and administrative
Pre-tax
(0.3
)
 
(0.2
)
 
 
Income taxes
0.2

 
0.1

 
 
 
$
(0.1
)
 
$
(0.1
)
 
 
The following summarizes amounts reclassified from each component of accumulated comprehensive income (loss) for the nine months ended October 1, 2016 and September 26, 2015:

19



 
Amount Reclassified from AOCI
 
 
 
Nine months ended
 
 
 
October 1, 2016
 
September 26, 2015
 
Affected Line Item in the Condensed
Consolidated Statements of Operations
(Gains) losses on qualifying cash flow hedges:
 

 
 

 
 
FX forward contracts
$
1.0

 
$
(0.9
)
 
Revenues
Commodity contracts
1.9

 
2.1

 
Cost of products sold
Pre-tax
2.9

 
1.2

 
 
Income taxes
(0.8
)
 
(0.6
)
 
 
 
$
2.1

 
$
0.6

 
 
 
 
 
 
 
 
Gains on pension and postretirement items:
 

 
 

 
 
Amortization of unrecognized prior service credits
$
(0.7
)
 
$
(0.6
)
 
Selling, general and administrative
Pre-tax
(0.7
)
 
(0.6
)
 
 
Income taxes
0.3

 
0.2

 
 
 
$
(0.4
)
 
$
(0.4
)
 
 
 
 
 


 
 
Gain on sale of dry cooling business:
 
 


 
 
 Recognition of foreign currency translation adjustment
associated with the sale of our dry cooling business
$
(40.4