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EX-32.1 - EXHIBIT 32.1 - SPX CORPexhibit321q32017.htm
EX-31.2 - EXHIBIT 31.2 - SPX CORPexhibit312q32017.htm
EX-31.1 - EXHIBIT 31.1 - SPX CORPexhibit311q32017.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 September 30, 2017
¨
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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)
 
Emerging growth company ¨ 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to used the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

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 27, 2017, 42,609,256
 




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 INCOME (LOSS)
(Unaudited; in millions, except per share amounts)
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Revenues
$
348.5

 
$
345.0

 
$
1,038.8

 
$
1,077.0

Costs and expenses:
 

 
 

 
 

 
 

Cost of products sold
263.4

 
264.2

 
789.5

 
815.2

Selling, general and administrative
62.9

 
68.5

 
203.9

 
215.6

Intangible amortization
0.2

 
0.8

 
0.5

 
2.6

Special charges, net
1.0

 
1.9

 
2.0

 
4.8

Impairment of intangible assets

 

 

 
4.0

Gain on contract settlement
10.2

 

 
10.2

 

Gain on sale of dry cooling business

 
1.7

 

 
18.4

Operating income
31.2

 
11.3

 
53.1

 
53.2

 
 
 
 
 
 
 
 
Other income (expense), net
(0.3
)
 
0.9

 
(3.1
)
 
2.2

Interest expense
(4.3
)
 
(3.8
)
 
(12.9
)
 
(11.1
)
Interest income
0.2

 

 
0.9

 
0.4

Loss on early extinguishment of debt

 
(1.3
)
 

 
(1.3
)
Income from continuing operations before income taxes
26.8

 
7.1

 
38.0

 
43.4

Income tax provision
(4.8
)
 
(0.5
)
 
(14.0
)
 
(10.1
)
Income from continuing operations
22.0

 
6.6

 
24.0

 
33.3

 
 
 
 
 
 
 
 
Loss from discontinued operations, net of tax

 
(4.0
)
 

 
(12.6
)
Gain (loss) on disposition of discontinued operations, net of tax
0.3

 
(0.7
)
 
6.7

 
(2.2
)
Income (loss) from discontinued operations, net of tax
0.3

 
(4.7
)
 
6.7

 
(14.8
)
 
 
 
 
 
 
 
 
Net income
22.3

 
1.9

 
30.7

 
18.5

Less: Net loss attributable to redeemable noncontrolling interests

 

 

 
(0.4
)
Net income attributable to SPX Corporation common shareholders
22.3

 
1.9

 
30.7

 
18.9

Adjustment related to redeemable noncontrolling interest (Note 13)

 

 

 
(18.1
)
Net income attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
22.3

 
$
1.9

 
$
30.7

 
$
0.8

 
 
 
 
 
 
 
 
Amounts attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest:
 

 
 

 
 

 
 

Income from continuing operations, net of tax
$
22.0

 
$
6.6

 
$
24.0

 
$
15.6

Income (loss) from discontinued operations, net of tax
0.3

 
(4.7
)
 
6.7

 
(14.8
)
Net income
$
22.3

 
$
1.9

 
$
30.7

 
$
0.8

 
 
 
 
 
 
 
 
Basic income per share of common stock:
 

 
 

 
 

 
 

Income from continuing operations attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.51

 
$
0.16

 
$
0.56

 
$
0.38

Income (loss) from discontinued operations attributable to SPX Corporation common shareholders
0.01

 
(0.12
)
 
0.16

 
(0.36
)
Net income per share attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.52

 
$
0.04

 
$
0.72

 
$
0.02

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — basic
42.540

 
41.721

 
42.347

 
41.537

 
 
 
 
 
 
 
 
Diluted income per share of common stock:
 

 
 

 
 

 
 

Income from continuing operations attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.50

 
$
0.16

 
$
0.55

 
$
0.37

Income (loss) from discontinued operations attributable to SPX Corporation common shareholders
0.01

 
(0.12
)
 
0.15

 
(0.35
)
Net income per share attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interest
$
0.51

 
$
0.04

 
$
0.70

 
$
0.02

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — diluted
44.064

 
42.475

 
43.728

 
41.884

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
41.4

 
$
(4.9
)
 
$
48.9

 
$
(30.6
)
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)
 
September 30,
2017
 
December 31,
2016
ASSETS
 

 
 

Current assets:
 

 
 

Cash and equivalents
$
87.2

 
$
99.6

Accounts receivable, net
266.6

 
251.7

Inventories, net
165.6

 
145.7

Other current assets
39.6

 
30.6

Total current assets
559.0

 
527.6

Property, plant and equipment:
 

 
 

Land
15.6

 
15.4

Buildings and leasehold improvements
119.7

 
117.3

Machinery and equipment
335.2

 
329.8

 
470.5

 
462.5

Accumulated depreciation
(281.7
)
 
(267.0
)
Property, plant and equipment, net
188.8

 
195.5

Goodwill
345.4

 
340.4

Intangibles, net
117.7

 
117.9

Other assets
675.0

 
680.5

Deferred income taxes
46.9

 
50.6

TOTAL ASSETS
$
1,932.8

 
$
1,912.5

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
143.3

 
$
137.6

Accrued expenses
284.3

 
304.3

Income taxes payable
1.4

 
1.7

Short-term debt
39.0

 
14.8

Current maturities of long-term debt
18.0

 
17.9

Total current liabilities
486.0

 
476.3

Long-term debt
311.0

 
323.5

Deferred and other income taxes
39.6

 
42.4

Other long-term liabilities
841.2

 
878.7

Total long-term liabilities
1,191.8

 
1,244.6

Commitments and contingent liabilities (Note 13)


 


Equity:
 

 
 

Common stock (51,113,497 and 42,573,512 issued and outstanding at September 30, 2017, respectively, 50,754,779 and 41,940,089 issued and outstanding at December 31, 2016, respectively)
0.5

 
0.5

Paid-in capital
1,305.7

 
1,307.9

Retained deficit
(800.9
)
 
(831.6
)
Accumulated other comprehensive income
253.3

 
235.1

Common stock in treasury (8,539,985 and 8,814,690 shares at September 30, 2017 and December 31, 2016, respectively)
(503.6
)
 
(520.3
)
Total equity
255.0

 
191.6

TOTAL LIABILITIES AND EQUITY
$
1,932.8

 
$
1,912.5

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
 
September 30,
2017
 
October 1,
2016
Cash flows used in operating activities:
 

 
 

Net Income
$
30.7

 
$
18.5

Less: Income (loss) from discontinued operations, net of tax
6.7

 
(14.8
)
Income from continuing operations
24.0

 
33.3

Adjustments to reconcile income from continuing operations to net cash used in operating activities:
 

 
0

Special charges, net
2.0

 
4.8

Gain on sale of dry cooling business

 
(18.4
)
Impairment of intangible assets

 
4.0

Loss on early extinguishment of debt

 
1.3

Deferred and other income taxes
(0.7
)
 
6.8

Depreciation and amortization
18.9

 
20.2

Pension and other employee benefits
8.3

 
11.9

Long-term incentive compensation
10.4

 
10.2

Other, net
2.9

 
0.2

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


Accounts receivable and other assets
(18.0
)
 
53.8

Inventories
(17.2
)
 
(11.2
)
Accounts payable, accrued expenses and other
(31.6
)
 
(126.4
)
Cash spending on restructuring actions
(1.4
)
 
(1.8
)
Net cash used in continuing operations
(2.4
)
 
(11.3
)
Net cash used in discontinued operations
(6.1
)
 
(34.3
)
Net cash used in operating activities
(8.5
)
 
(45.6
)
Cash flows from (used in) investing activities:
 

 
 
Proceeds from asset sales

 
47.7

Capital expenditures
(8.4
)
 
(7.8
)
Net cash from (used in) continuing operations
(8.4
)
 
39.9

Net cash used in discontinued operations

 
(2.3
)
Net cash from (used in) investing activities
(8.4
)
 
37.6

Cash flows from (used in) financing activities:
 

 
 
Borrowings under senior credit facilities
46.4

 
56.2

Repayments under senior credit facilities
(59.5
)
 
(60.6
)
Borrowings under trade receivables financing arrangement
70.0

 
44.0

Repayments under trade receivables financing arrangement
(39.0
)
 
(44.0
)
Net repayments under other financing arrangements
(7.8
)
 
(7.1
)
Minimum withholdings paid on behalf of employees for net share settlements, net of proceeds from the exercise of employee stock options and other
(1.1
)
 
(1.6
)
Net cash from (used in) continuing operations
9.0

 
(13.1
)
Net cash from (used in) discontinued operations

 

Net cash from (used in) financing activities
9.0

 
(13.1
)
Change in cash and equivalents due to changes in foreign currency exchange rates
(4.5
)
 
3.1

Net change in cash and equivalents
(12.4
)
 
(18.0
)
Consolidated cash and equivalents, beginning of period
99.6

 
101.4

Consolidated cash and equivalents, end of period
$
87.2

 
$
83.4

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.

We account for investments in unconsolidated companies where we exercise significant influence but do not have control using the equity method. In determining whether we are the primary beneficiary of a variable interest entity (“VIE”), we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties to determine which party has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and which party has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We have an interest in a VIE, in which we are not the primary beneficiary, as a result of the sale of Balcke Dürr. See below and Note 15 for further discussion of the sale of Balcke Dürr. All other VIEs are considered immaterial, individually and in aggregate, to our condensed consolidated financial statements.

Sale of Dry Cooling Business

On March 30, 2016, we completed the sale of our dry cooling business, a business previously within our Engineered Solutions reportable segment, to Paharpur Cooling Towers Limited (“Paharpur”) for cash proceeds of $45.9 (net of cash transferred with the business of $3.0), resulting in a gain during the quarter ended April 2, 2016 of $17.9. The gain includes a reclassification from “Equity” of other comprehensive income totaling $40.4 related to foreign currency translation.

During the second quarter of 2016, we reduced the gain by $1.2 in connection with adjustments to certain liabilities retained from the sale. During the third quarter of 2016, we increased the gain by $1.7 in connection with the settlement of the final working capital associated with the business.

In connection with the sale, we provided customary indemnifications to Paharpur. Accordingly, it is possible that the sales price and resulting gain for this divestiture may be materially adjusted in subsequent periods.

Sale of Balcke Dürr Business

On December 30, 2016, we completed the sale of Balcke Dürr to a subsidiary of mutares AG (the “Buyer”) for cash proceeds of less than $0.1. In addition, we left $21.1 of cash in Balcke Dürr at the time of the sale and provided the Buyer with a non-interest bearing loan of $9.1, payable in installments due at the end of 2018 and 2019. The results of Balcke Dürr are presented as a discontinued operation within the accompanying condensed consolidated financial statements. In connection with the sale, we recorded a net loss of $78.6 in the fourth quarter of 2016 to “Gain (loss) on disposition of discontinued operations, net of tax.” During the first quarter of 2017, we reduced the net loss associated with the sale of Balcke Dürr by $7.2. The reduction was comprised of an additional income tax benefit recorded for the sale of $8.4, partially offset by adjustments to liabilities retained in connection with the sale of $1.2. During the second quarter of 2017, we increased the net loss associated with the sale of Balcke Dürr by $0.4, with the increase resulting from adjustments to liabilities retained in connection with the sale.

The purchase agreement provided that existing parent company guarantees of approximately €79.0 and bank and surety bonds of approximately €79.0 would remain in place through each instrument’s expiration date, with such expiration dates ranging from 2017 to 2022. Balcke Dürr and the Buyer have provided us a full indemnity in the event that any of these guarantees or bonds are called. Also, Balcke Dürr has provided cash collateral of €4.0 and mutares AG has provided a guarantee of €5.0 as a security for the above indemnifications. In connection with the sale, we recorded a liability for the estimated fair value of the guarantees and bonds and an asset for the estimated fair value of the cash collateral and indemnities provided. See Note 15 for further details regarding these estimated fair values.

6




The final sales price for Balcke Dürr is subject to adjustment based on cash and working capital existing at the closing date and is subject to agreement with the Buyer. Final agreement of the cash and working capital amounts with the Buyer has yet to occur. Accordingly, it is possible that the sales price and resulting loss for this divestiture may be materially adjusted in subsequent periods.

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 Annual Report on Form 10-K for the year ended December 31, 2016. Interim results are not necessarily indicative of full year results. We have reclassified certain prior year amounts, including the results of discontinued operations, to conform to the current year presentation. 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 2017 are April 1, July 1 and September 30, compared to the respective April 2, July 2 and October 1, 2016 dates. We had two fewer days in the first quarter of 2017 and will have one more day in the fourth quarter of 2017 than in the respective 2016 periods. We do not believe the two fewer days during the first quarter of 2017 had a material impact on our consolidated operating results for the first nine months of 2017, when compared to the consolidated operating results for the respective 2016 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 and we currently plan to adopt the standard using the modified retrospective transition method. The modified retrospective transition approach will recognize any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods. We are continuing to assess the potential effect that the standard is expected to have on our consolidated financial statements. We believe the more significant effects on our existing accounting policies will be associated with our power transformer business. Under the new standard, revenue for our power transformers will be recognized over time, which is a change from our current accounting policy of recognizing revenue for power transformers at a point in time.
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 new standard 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. We adopted this guidance on January 1, 2017, and, thus, excess income tax benefits recognized on stock-based compensation awards are now being reflected, on a prospective basis, in our condensed consolidated statement of operations as a component of the provision for income taxes (versus the previous requirement to reflect such amounts within “equity”). In accordance with this prospective adoption, we recognized income tax benefits of $0.1 and $1.3 in our condensed consolidated statements of operations for the three and nine

7



months ended September 30, 2017, respectively. In addition, we prospectively adopted the amendment to present excess income tax benefits on share-based compensation awards as an operating activity within our condensed consolidated statement of cash flows (versus the previous requirement to reflect such amounts as a financing activity), which resulted in the classification of $1.3 of such income tax benefits within operating activities of the condensed consolidated statement of cash flows for the nine months ended September 30, 2017. Cash paid on employees’ behalf related to shares withheld for income taxes payable continues to be classified as a financing activity. Lastly, we elected to continue estimating stock-based compensation award forfeitures in determining the amount of compensation expense to be recognized in each period.

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 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.

In January 2017, the FASB issued an amendment to simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires that an entity recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This amendment is effective for annual reporting periods beginning after December 31, 2019, including interim periods within those annual reporting periods. Early adoption is permitted. The impact of this amendment on our consolidated financial statements will depend on the results of future goodwill impairment tests.

In March 2017, the FASB issued an amendment to revise the presentation of net periodic pension and postretirement benefit cost. The amendment requires the service cost component to be presented separately from the other components of net periodic pension and postretirement benefit cost. Service cost will be presented with other employee compensation costs within operating income. The other components of net periodic pension and postretirement benefit cost, such as interest cost, expected return on plan assets, amortization of prior service cost/credits, and gains or losses, are required to be separately presented outside of operating income. This amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. The amendment to the presentation in the income statement of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost shall be applied retrospectively. Early adoption is permitted. We will adopt the standard effective January 1, 2018. The adoption is not expected to have a material impact on our condensed consolidated financial statements. See Note 9 for details of our pension and postretirement expense.

In August 2017, the FASB issued significant amendments to hedge accounting. The FASB’s new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The amendments can be adopted immediately in any interim or annual period (including the current period). The mandatory effective date for calendar year-end public companies is January 1, 2019. We are currently evaluating the effect this amendment will have on our condensed consolidated financial statements.

(3) 
DISCONTINUED OPERATIONS
As indicated in Note 1, the results of Balcke Dürr are presented as a discontinued operation within the accompanying condensed consolidated financial statements for the three and nine months ended October 1, 2016. Major classes of line items constituting pre-tax loss and after-tax loss of Balcke Dürr for the three and nine months ended October 1, 2016 are shown below:

8



 
Three months ended
 
Nine months ended
 
October 1,
2016
 
October 1,
2016
Revenues
$
40.2

 
$
110.4

Costs and expenses:


 


Cost of products sold
37.0

 
103.6

Selling, general and administrative
7.8

 
23.9

Special charges (credits), net
(0.4
)
 
(1.0
)
Other expense, net
(0.3
)
 
(0.5
)
Loss before taxes
(4.5
)
 
(16.6
)
Income tax benefit
0.5

 
4.0

Loss from discontinued operations, net of tax
$
(4.0
)
 
$
(12.6
)
The following table presents selected financial information for Balcke Dürr that is included within discontinued operations in the condensed consolidated statement of cash flows for the nine months ended October 1, 2016:
Non-cash items included in loss from discontinued operations:
 
Depreciation and amortization
$
1.5

Capital expenditures
0.6

During the first quarter of 2017, we reduced the net loss associated with the sale of Balcke Dürr by $7.2. The reduction was comprised of an additional income tax benefit recorded for the sale of $8.4, partially offset by adjustments to liabilities retained in connection with the sale of $1.2. During the second quarter of 2017, we increased the net loss associated with the sale of Balcke Dürr by $0.4, with the increase resulting from adjustments to liabilities retained in connection with the sale. In addition to the adjustments to the net loss related to the Balcke Dürr sale, we recognized net income (losses) of $0.3 and $(0.1) during the three and nine months ended September 30, 2017, and $(0.7) and $(2.2) during the three and nine months ended October 1, 2016, respectively, resulting from revisions to liabilities retained from businesses discontinued prior to 2016.
For the three and nine months ended September 30, 2017 and October 1, 2016, the table below presents a reconciliation of discontinued operations activity to the related amounts in the condensed consolidated statements of operations:
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Balcke Dürr
 
 
 
 
 
 
 
Loss from discontinued operations
$


$
(4.5
)

$
(2.6
)

$
(16.6
)
Income tax benefit


0.5


9.4


4.0

Income (loss) from discontinued operations, net


(4.0
)

6.8


(12.6
)
 







All other







Loss from discontinued operations
(0.1
)

(0.5
)

(1.0
)

(2.3
)
Income tax (provision) benefit
0.4


(0.2
)

0.9


0.1

Income (loss) from discontinued operations, net
0.3


(0.7
)

(0.1
)

(2.2
)
 







Total







Loss from discontinued operations
(0.1
)

(5.0
)

(3.6
)

(18.9
)
Income tax benefit
0.4


0.3


10.3


4.1

Income (loss) from discontinued operations, net
$
0.3


$
(4.7
)

$
6.7


$
(14.8
)
(4)                              INFORMATION ON REPORTABLE SEGMENTS
We are a global supplier of highly specialized engineered solutions with operations in over 15 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 Engineered Solutions. 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. Operating income or loss for each of our segments is determined before considering impairment and

9



special charges, pension and postretirement expense/income, long-term incentive compensation and other indirect corporate expenses. This is consistent with the way our chief operating decision maker evaluates the results of each segment.
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 serves a customer base in North America, Europe, and Asia Pacific.
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 Pacific.
Engineered Solutions Reportable Segment
Our Engineered Solutions reportable segment engineers, designs, manufactures, installs and services transformers for the power transmission and distribution market and process cooling equipment and heat exchangers for the industrial and power generation markets. The primary distribution channels for the segment’s products are direct to customers and third-party representatives. The segment has a strong presence in North America and South Africa.
Corporate Expense
Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters.
Financial data for our reportable segments for the three and nine months ended September 30, 2017 and October 1, 2016 are presented below:
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Revenues: (1)
 

 
 

 
 

 
 

HVAC segment
$
119.4

 
$
116.9

 
$
349.8

 
$
350.4

Detection and Measurement segment
66.9

 
52.3

 
185.0

 
167.8

Engineered Solutions segment (2)
162.2

 
175.8

 
504.0

 
558.8

Consolidated revenues
$
348.5

 
$
345.0

 
$
1,038.8

 
$
1,077.0

 
 
 
 
 
 
 
 
Income:
 

 
 

 
 

 
 

HVAC segment
$
15.6

 
$
15.6

 
$
47.5

 
$
48.6

Detection and Measurement segment
16.5

 
7.8

 
45.0

 
30.9

Engineered Solutions segment (2) (3)
13.3

 
2.6

 
7.9

 
8.5

Total income for segments
45.4

 
26.0

 
100.4

 
88.0

 
 
 
 
 
 
 
 
Corporate expense
(11.0
)
 
(9.6
)
 
(33.7
)
 
(29.6
)
Long-term incentive compensation expense
(3.6
)
 
(4.1
)
 
(10.4
)
 
(10.2
)
Pension and postretirement income (expense)
1.4

 
(0.8
)
 
(1.2
)
 
(4.6
)
Special charges, net
(1.0
)
 
(1.9
)
 
(2.0
)
 
(4.8
)
Impairment of intangible assets

 

 

 
(4.0
)
Gain on sale of dry cooling business

 
1.7

 

 
18.4

Consolidated operating income
$
31.2

 
$
11.3

 
$
53.1

 
$
53.2

___________________________
(1) 
Under the percentage-of-completion method, we recognized revenues of $67.0 and $78.3 in the three months ended September 30, 2017 and October 1, 2016, respectively. For the nine months ended September 30, 2017 and October 1, 2016, revenues under the percentage-of-completion method were $211.6 and $262.7, respectively. Costs and estimated earnings in excess of billings on uncompleted contracts accounted for under the percentage-of-completion method were $41.0 and $33.9 as of September 30, 2017 and December 31, 2016, respectively, and are reported as a component of ‘‘Accounts receivable, net’’ in the condensed consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts accounted for under the percentage-of-completion method were $19.7 and $53.3 as of September 30, 2017 and December 31, 2016, respectively, and are reported as a component of ‘‘Accrued expenses’’ in the condensed consolidated balance sheets.

10



(2) 
As further discussed in Note 13, during the second quarter of 2017, we made revisions to our 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 $13.5 and $22.9, respectively, for the nine months ended September 30, 2017.
(3) 
During the third quarter of 2017, we settled a contract that had been suspended and then ultimately cancelled by a customer for cash proceeds of $9.0 and other consideration. In connection with the settlement, we recorded a gain of $10.2 during the quarter within our Engineered Solutions reportable segment.
(5)
SPECIAL CHARGES, NET
Special charges, net, for the three and nine months ended September 30, 2017 and October 1, 2016 are described in more detail below:
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
HVAC segment
$

 
$

 
$
0.4

 
$

Detection and Measurement segment

 
0.3

 
0.3

 
0.5

Engineered Solutions segment
1.0

 
1.8

 
1.2

 
4.5

Corporate

 
(0.2
)
 
0.1

 
(0.2
)
Total
$
1.0

 
$
1.9

 
$
2.0

 
$
4.8

HVAC Segment — Charges for the nine months ended September 30, 2017 related primarily to severance costs associated with a restructuring action at the segment’s Cooling Americas business.
Detection and Measurement Segment — Charges for the nine months ended September 30, 2017 related to severance costs associated with a restructuring action at the segment’s communication technologies business during the first quarter of 2017. Charges for the three and nine months ended October 1, 2016 related to severance costs associated with a restructuring action at the segment’s bus fare collection systems business.
Engineered Solutions Segment — Charges for the three and nine months ended September 30, 2017 related primarily to severance costs associated with restructuring actions at the segment’s process cooling and South African businesses. Charges for the three and nine months ended October 1, 2016 related primarily to costs incurred in connection with restructuring actions at our Heat Transfer business in order to reduce the cost base of the business in response to reduced demand. 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. 
Corporate — Charges for the nine months ended September 30, 2017 related to severance costs incurred in connection with the sale of Balcke Dürr. 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 of SPX FLOW Inc. in the third quarter of 2015.
The following is an analysis of our restructuring liabilities for the nine months ended September 30, 2017 and October 1, 2016:
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
Balance at beginning of year
$
0.9

 
$
1.6

Special charges (1)
2.0

 
1.2

Utilization — cash
(1.4
)
 
(1.8
)
Currency translation adjustment and other

 
(0.2
)
Balance at end of period
$
1.5

 
$
0.8

___________________________
(1) 
The nine months ended September 30, 2017 and October 1, 2016 included $0.0 and $3.6 of non-cash charges, respectively, that did not impact the restructuring liability. 

11



(6)
INVENTORIES, NET
Inventories at September 30, 2017 and December 31, 2016 comprised the following:
 
September 30,
2017
 
December 31,
2016
Finished goods
$
48.3

 
$
43.0

Work in process
60.3

 
50.0

Raw materials and purchased parts
69.1

 
64.9

Total FIFO cost
177.7

 
157.9

Excess of FIFO cost over LIFO inventory value
(12.1
)
 
(12.2
)
Total inventories, net
$
165.6

 
$
145.7


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 60% and 51% of total inventory at September 30, 2017 and December 31, 2016, 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,
2016
 
Impairments
 
Foreign
Currency
Translation
and Other
 
September 30,
2017
HVAC segment
 

 
 

 
 

 
 

Gross goodwill
$
258.5

 
$

 
$
4.7

 
$
263.2

Accumulated impairments
(144.2
)
 

 
(0.5
)
 
(144.7
)
Goodwill
114.3

 

 
4.2

 
118.5

 
 
 
 
 
 
 
 
Detection and Measurement segment
 

 
 

 
 

 
 

Gross goodwill
214.4

 

 
2.2

 
216.6

Accumulated impairments
(134.2
)
 

 
(1.8
)
 
(136.0
)
Goodwill
80.2

 

 
0.4

 
80.6

 
 
 
 
 
 
 
 
Engineered Solutions segment
 

 
 

 
 

 
 

Gross goodwill
351.4

 

 
6.2

 
357.6

Accumulated impairments
(205.5
)
 

 
(5.8
)
 
(211.3
)
Goodwill
145.9

 

 
0.4

 
146.3

 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

Gross goodwill
824.3

 

 
13.1

 
837.4

Accumulated impairments
(483.9
)
 

 
(8.1
)
 
(492.0
)
Goodwill
$
340.4

 
$

 
$
5.0

 
$
345.4


12




Other Intangibles, Net
Identifiable intangible assets at September 30, 2017 and December 31, 2016 comprised the following:
 
September 30, 2017
 
December 31, 2016
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Intangible assets with determinable lives:
 

 
 

 
 

 
 

 
 

 
 

Customer relationships
$
1.4

 
$
(1.4
)
 
$

 
$
1.4

 
$
(1.4
)
 
$

Technology
2.1

 
(0.5
)
 
1.6

 
2.1

 
(0.4
)
 
1.7

Patents
4.5

 
(4.5
)
 

 
4.5

 
(4.5
)
 

Other
11.8

 
(7.8
)
 
4.0

 
12.7

 
(7.4
)
 
5.3

 
19.8

 
(14.2
)
 
5.6

 
20.7

 
(13.7
)
 
7.0

Trademarks with indefinite lives
112.1

 

 
112.1

 
110.9

 

 
110.9

Total (1)
$
131.9

 
$
(14.2
)
 
$
117.7

 
$
131.6

 
$
(13.7
)
 
$
117.9

___________________________
(1) 
Changes in the gross carrying values of “Other Intangibles, Net” during the nine months ended September 30, 2017 related to foreign currency translation.
At September 30, 2017, the net carrying value of intangible assets with determinable lives consisted of $4.0 in the HVAC segment and $1.6 in the Engineered Solutions segment. At September 30, 2017, trademarks with indefinite lives consisted of $89.4 in the HVAC segment, $10.3 in the Detection and Measurement segment and $12.4 in the Engineered Solutions 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.
In the first quarter of 2016, we recorded an impairment charge of $4.0 related to trademarks of our Heat Transfer business. No impairment charges were recorded in the first nine months of 2017.
(8) 
WARRANTY
The following is an analysis of our product warranty accrual for the periods presented:
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
Balance at beginning of year
$
35.8

 
$
36.3

Provisions
9.7

 
10.6

Usage
(11.5
)
 
(11.6
)
Currency translation adjustment
0.2

 
(0.4
)
Balance at end of period
34.2

 
34.9

Less: Current portion of warranty
14.2

 
15.7

Non-current portion of warranty
$
20.0

 
$
19.2



13



(9)
EMPLOYEE BENEFIT PLANS
In connection with the spin-off of SPX Flow, Inc. (“SPX Flow”) on September 26, 2015, 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 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 quarter.
In July 2014, we discontinued our sponsorship of post-65 age healthcare plans, effective January 1, 2015, which resulted in eligible retirees being transitioned to coverage in the individual healthcare insurance market that we subsidize through health reimbursement accounts. In November 2014, a lawsuit was filed challenging certain aspects of this action. In September 2017, we received a favorable ruling related to the lawsuit. During the third quarter of 2017, in connection with the favorable ruling, we reduced our unfunded liability related to postretirement benefits by $26.8. The offset for the reduction of the unfunded liability was recorded to accumulated other comprehensive income and represents unrecognized prior service credits. These unrecognized prior service credits will be recorded to net periodic postretirement benefit (income) expense over a period of approximately eight years, beginning in the fourth quarter of 2017. In addition, we remeasured our unfunded liability related to postretirement benefits, which resulted in a gain within net periodic postretirement benefit expense and a reduction of the unfunded liability of $2.6 during the third quarter of 2017.
Net periodic benefit expense (income) for our pension and postretirement plans included the following components:
Domestic Pension Plans
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Service cost
$
0.1

 
$
0.1

 
$
0.3

 
$
0.3

Interest cost
3.4

 
3.3

 
10.0

 
10.4

Expected return on plan assets
(2.5
)
 
(3.2
)
 
(7.5
)
 
(9.6
)
Recognized net actuarial loss

 

 

 
1.8

Amortization of unrecognized prior service credits
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Total net periodic pension benefit expense
$
0.9

 
$
0.1

 
$
2.7

 
$
2.8


Foreign Pension Plans
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Service cost
$

 
$

 
$

 
$

Interest cost
1.2

 
1.4

 
3.6

 
4.3

Expected return on plan assets
(1.6
)
 
(1.5
)
 
(4.7
)
 
(5.0
)
Net periodic pension benefit income
$
(0.4
)
 
$
(0.1
)
 
$
(1.1
)
 
$
(0.7
)
Less: Net periodic pension benefit expense of discontinued operations

 
0.1

 

 
0.1

Net periodic pension benefit income of continuing operations
$
(0.4
)
 
$
(0.2
)
 
$
(1.1
)
 
$
(0.8
)

14



Postretirement Plans
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Service cost
$

 
$

 
$

 
$

Interest cost
0.9

 
1.1

 
2.8

 
3.2

Recognized net actuarial gain
(2.6
)
 

 
(2.6
)
 

Amortization of unrecognized prior service credits
(0.2
)
 
(0.2
)
 
(0.6
)
 
(0.6
)
Net periodic postretirement benefit (income) expense
$
(1.9
)
 
$
0.9

 
$
(0.4
)
 
$
2.6

 
(10)
INDEBTEDNESS
The following summarizes our debt activity (both current and non-current) for the nine months ended September 30, 2017:

December 31,
2016
 
Borrowings
 
Repayments
 
Other(4)
 
September 30,
2017
Revolving loans
$

 
$
46.4

 
$
(46.4
)
 
$

 
$

Term loan (1)
339.6

 

 
(13.1
)
 
0.3

 
326.8

Trade receivables financing arrangement (2)

 
70.0

 
(39.0
)
 

 
31.0

Other indebtedness (3)
16.6

 
25.6

 
(33.4
)
 
1.4

 
10.2

Total debt
356.2

 
$
142.0

 
$
(131.9
)
 
$
1.7

 
368.0

Less: short-term debt
14.8

 
 
 
 
 
 
 
39.0

Less: current maturities of long-term debt
17.9

 
 
 
 
 
 
 
18.0

Total long-term debt
$
323.5

 
 
 
 
 
 
 
$
311.0

___________________________
(1) 
The term loan is repayable in quarterly installments of 1.25% of the original loan balance of $350.0. The remaining balance is repayable in full on September 24, 2020. Balances are net of unamortized debt issuance costs of $1.3 and $1.6 at September 30, 2017 and December 31, 2016, respectively.
(2) 
Under this arrangement, we can borrow, on a continuous basis, up to $50.0, as available. At September 30, 2017, we had $18.3 of available borrowing capacity under this facility.
(3) 
Primarily includes balances under a purchase card program of $3.6 and $3.9, capital lease obligations of $2.2 and $1.7, and borrowings under lines of credit in South Africa and China totaling $4.1 and $10.2 at September 30, 2017 and December 31, 2016, 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 debt assumed, foreign currency translation on any debt instruments denominated in currencies other than the U.S. dollar, and the impact of amortization of debt issuance costs associated with the term loan.
Senior Credit Facilities
On March 20, 2017, we entered into an amendment to our senior credit facilities. Among other things, the amendment extended the period during which we may reinvest the net proceeds from the disposition of our dry cooling business. A detailed description of our senior credit facilities is included in our 2016 Annual Report on Form 10-K.
At September 30, 2017, we had $35.9 and $178.6 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 3.0% at September 30, 2017.
At September 30, 2017, 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

15



beginning in January 2017 and maturities through September 2020 and effectively convert 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 September 30, 2017, the aggregate notional amounts of the Swaps was $164.8 and the unrealized gain, net of tax, recorded in accumulated other comprehensive income (“AOCI”) was $1.2. In addition, we have recorded a long-term asset of $2.3 to recognize the fair value of these Swaps. These changes in fair value are reclassified into earnings as a component of interest expense, when the forecasted transaction impacts earnings.
Currency Forward Contracts and Currency Forward Embedded Derivatives
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 accumulated other comprehensive income (“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. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives’ fair value is recorded as a component of “Other income (expense), net” in the period in which the transaction is no longer considered probable of occurring. To the extent a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs.
We had FX forward contracts with an aggregate notional amount of $6.9 and $8.8 outstanding as of September 30, 2017 and December 31, 2016, respectively, with all of the $6.9 scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $0.4 and $0.9 at September 30, 2017 and December 31, 2016, respectively, with all of the $0.4 scheduled to mature within one year. There were no unrealized gains or losses recorded in AOCI related to FX forward contracts as of September 30, 2017 and December 31, 2016.
The fair value of our FX forward contracts and FX embedded derivative instruments were not material in relation to our condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016.
Commodity Contracts
From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. At September 30, 2017 and December 31, 2016, the outstanding notional amount of commodity contracts was 3.7 and 4.1 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 September 30, 2017 and December 31, 2016, the fair value of these contracts was $0.6 (current asset) and $1.1 (current asset), respectively. The unrealized gains, net of tax, recorded in AOCI were $0.6 and $0.8 as of September 30, 2017 and December 31, 2016, respectively. We anticipate reclassifying the unrealized gains as of September 30, 2017 to income over the next 12 months.
(12)
SHAREHOLDERS’ EQUITY AND LONG-TERM INCENTIVE COMPENSATION
Income Per Share
The following table sets forth the number of weighted-average shares outstanding used in the computation of basic and diluted income per share:
 
Three months ended
 
Nine months ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Weighted-average number of common shares used in basic income per share
42.540

 
41.721

 
42.347

 
41.537

Dilutive securities — Employee stock options, restricted stock shares and restricted stock units
1.524

 
0.754

 
1.381

 
0.347

Weighted-average number of common shares and dilutive securities used in diluted income per share
44.064

 
42.475

 
43.728

 
41.884


16



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 period was 0.452 and 0.961, respectively, for the three months ended September 30, 2017, and 0.534 and 1.009, respectively, for the nine months ended September 30, 2017.
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 period 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.
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 2017 is included in our 2016 Annual Report on Form 10-K.
Awards granted on March 1, 2017 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 8, 2017, we granted 0.024 RSU’s to our Non-employee directors, which vest in their entirety immediately prior to the annual meeting of stockholders in May 2018.

Compensation expense within income from continuing operations related to long-term incentive awards totaled $3.6 and $4.1 for the three months ended September 30, 2017 and October 1, 2016, respectively, and $10.4 and $10.2 for the nine months ended September 30, 2017 and October 1, 2016, respectively. The related tax benefit was $1.4 and $1.6 for the three months ended September 30, 2017 and October 1, 2016, respectively, and $4.0 and $3.9 for the nine months ended September 30, 2017 and October 1, 2016, respectively.
Accumulated Other Comprehensive Income (Loss)
The changes in the components of accumulated other comprehensive income, net of tax, for the three months ended September 30, 2017 were as follows:
 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Gains
on Qualifying Cash
Flow Hedges(1)
 
Pension and
Postretirement
Liability Adjustment(2) (3)
 
Total
Balance at beginning of period
$
229.3

 
$
1.3

 
$
3.6

 
$
234.2

Other comprehensive income before reclassifications
2.4

 
0.6

 
16.3

 
19.3

Amounts reclassified from accumulated other comprehensive income

 
(0.1
)
 
(0.1
)
 
(0.2
)
Current-period other comprehensive income
2.4

 
0.5

 
16.2

 
19.1

Balance at end of period
$
231.7

 
$
1.8

 
$
19.8

 
$
253.3

__________________________
(1) 
Net of tax provision of $1.1 and $0.8 as of September 30, 2017 and July 1, 2017, respectively.
(2) 
As indicated in Note 9, we reduced our unfunded liability related to postretirement benefits and increased accumulated other comprehensive income (before tax effects) by $26.8.
(3) 
Net of tax provision of $12.9 and $2.6 as of September 30, 2017 and July 1, 2017, respectively. The balances as of September 30, 2017 and July 1, 2017 represent net unamortized prior service credits.
    

17



The changes in the components of accumulated other comprehensive income, net of tax, for the nine months ended September 30, 2017 were as follows:
 
Foreign
Currency
Translation
Adjustment
 
Net Unrealized Gains
on Qualifying Cash
Flow Hedges
(1)
 
Pension and
Postretirement
Liability Adjustment
(2) (3)
 
Total
Balance at beginning of period
$
229.7

 
$
1.5

 
$
3.9

 
$
235.1

Other comprehensive income before reclassifications
2.0

 
1.1

 
16.3

 
19.4

Amounts reclassified from accumulated other comprehensive income

 
(0.8
)
 
(0.4
)
 
(1.2
)
Current-period other comprehensive income
2.0

 
0.3

 
15.9

 
18.2

Balance at end of period
$
231.7

 
$
1.8

 
$
19.8

 
$
253.3

_________________________
(1) 
Net of tax provision of $1.1 and $0.9 as of September 30, 2017 and December 31, 2016, respectively.
(2) 
As indicated in Note 9, we reduced our unfunded liability related to postretirement benefits and increased accumulated other comprehensive income (before tax effects) by $26.8.
(3) 
Net of tax provision of $12.9 and $2.7 as of September 30, 2017 and December 31, 2016. The balances as of September 30, 2017 and December 31, 2016 represent net unamortized prior service credits.
The changes in the components of accumulated other comprehensive income, net of tax, for the three months ended October 1, 2016 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
$
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 include 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 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, respectively. The balances as of October 1, 2016 and December 31, 2015 include net unamortized prior service credits.

18



The following summarizes amounts reclassified from each component of accumulated comprehensive income for the three months ended September 30, 2017 and October 1, 2016:
 
Amount Reclassified from AOCI
 
 
 
Three months ended
 
 
 
September 30, 2017
 
October 1, 2016
 
Affected Line Item in the Condensed
Consolidated Statements of Operations
(Gains) losses on qualifying cash flow hedges:
 

 
 

 
 
FX forward contracts
$

 
$

 
Revenues
Commodity contracts
(0.2
)
 
0.3

 
Cost of products sold
Swaps

 

 
Interest expense
Pre-tax
(0.2
)
 
0.3

 
 
Income taxes
0.1

 
(0.1
)
 
 
 
$
(0.1
)
 
$
0.2

 
 
 
 
 
 
 
 
Gains on pension and postretirement items:
 

 
 

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

 
0.2

 
 
 
$
(0.1
)
 
$
(0.1
)
 
 
The following summarizes amounts reclassified from each component of accumulated comprehensive income for the nine months ended September 30, 2017 and October 1, 2016:
 
Amount Reclassified from AOCI
 
 
 
Nine months ended
 
 
 
September 30, 2017
 
October 1, 2016
 
Affected Line Item in the Condensed
Consolidated Statements of Operations
(Gains) losses on qualifying cash flow hedges:
 

 
 

 
 
FX forward contracts
$

 
$
1.0

 
Revenues
Commodity contracts
(1.6
)
 
1.9

 
Cost of products sold
Swaps
0.3

 

 
Interest expense
Pre-tax
(1.3
)
 
2.9

 
 
Income taxes
0.5

 
(0.8
)
 
 
 
$
(0.8
)
 
$
2.1

 
 
 
 
 
 
 
 
Gains on pension and postretirement items:
 

 
 

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

 
0.3

 
 
 
$
(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
)
 
Gain on sale of dry cooling business
Common Stock in Treasury
During the nine months ended September 30, 2017 and October 1, 2016, “Common stock in treasury” was decreased by the settlement of restricted stock units issued from treasury stock of $16.7 and $18.6, respectively.

19



Changes in Equity
A summary of the changes in equity for the three months ended September 30, 2017 and October 1, 2016 is provided below:
 
September 30, 2017
 
October 1, 2016
 
SPX
Corporation
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
SPX
Corporation
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Equity, beginning of period
$
208.7

 
$

 
$
208.7

 
$
272.6

 
$

 
$
272.6

Net income
22.3

 

 
22.3

 
1.9

 

 
1.9

Net unrealized gains on qualifying cash flow hedges, net of tax provision of $0.3 for the three months ended September 30, 2017 and October 1, 2016
0.5

 

 
0.5

 
0.5

 

 
0.5

Pension and postretirement liability adjustment, net of tax (provision) benefit of $(10.3) and $0.2 for the three months ended September 30, 2017 and October 1, 2016, respectively
16.2

 

 
16.2

 
(0.1
)
 

 
(0.1
)
Foreign currency translation adjustments
2.4

 

 
2.4

 
(7.2
)
 

 
(7.2
)
Total comprehensive income (loss), net
41.4

 

 
41.4

 
(4.9
)
 

 
(4.9
)
Incentive plan activity
2.0

 

 
2.0

 
2.2

 

 
2.2

Long-term incentive compensation expense
3.0

 

 
3.0

 
3.5

 

 
3.5

Restricted stock and restricted stock unit vesting, net of tax withholdings, and related tax benefit of $0.0 for the three months ended September 30, 2017 and October 1, 2016
(0.1
)
 

 
(0.1
)
 

 

 

Equity, end of period
$
255.0

 
$

 
$
255.0

 
$
273.4

 
$

 
$
273.4


A summary of the changes in equity for the nine months ended September 30, 2017 and October 1, 2016 is provided below:
 
September 30, 2017
 
October 1, 2016
 
SPX
Corporation
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
SPX
Corporation
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
Equity, beginning of period
$
191.6

 
$

 
$
191.6

 
$
345.4

 
$
(37.1
)
 
$
308.3

Net income (loss)
30.7

 

 
30.7

 
18.9

 
(0.4
)
 
18.5

Net unrealized gains on qualifying cash flow hedges, net of tax provision of $0.2 and $0.1 for the nine months ended September 30, 2017 and October 1, 2016, respectively
0.3

 

 
0.3