Company Quick10K Filing
Quick10K
SPX
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$36.99 44 $1,620
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-26 Quarter: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-14 Earnings, Exhibits
8-K 2019-02-14 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-07-10 Regulation FD, Exhibits
8-K 2018-06-13 Regulation FD, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-04-23 Enter Agreement, Exhibits
8-K 2018-02-20 Regulation FD, Exhibits
8-K 2018-02-15 Earnings, Exhibits
MO Altria Group 105,590
KEYS Keysight Technologies 17,020
INSM Insmed 2,500
IIIV I3 Verticals 628
EXTN Exterran 622
ATEN A10 Networks 514
CAI CAI International 469
LLIT Lianluo Smart 25
NAOV Nanovibronix 17
NRBT Novus Robotics 0
SPXC 2018-12-31
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
EX-21.1 q42018exhibit211.htm
EX-23.1 q42018exhibit231.htm
EX-31.1 q42018exhibit311.htm
EX-31.2 q42018exhibit312.htm
EX-32.1 q42018exhibit321.htm

SPX Earnings 2018-12-31

SPXC 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 spx-20181231x10kwxbrl.htm 10-K Document
 
 
 
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2018
 
or
o
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
 (State or other jurisdiction of
incorporation or organization)
38-1016240
(I.R.S. Employer
Identification No.)
13320-A Ballantyne Corporate Place,
Charlotte, NC 28277
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (980) 474-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, Par Value $0.01
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No x
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 requirement for the past 90 days. Yes x    No o
Indicate by check mark whether the registrant has submitted electronically 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). Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x

Accelerated filer o

 
 
Non-accelerated filer o

Smaller reporting company o

 
 
 
Emerging growth company o

 
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 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No x
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 1, 2018 was $1,472,890,877. The determination of affiliate status for purposes of the foregoing calculation is not necessarily a conclusive determination for other purposes.
____________________________________________________________________________
The number of shares outstanding of the registrant’s common stock as of February 8, 2019 was 43,498,066.
____________________________________________________________________________
Documents incorporated by reference: Portions of the Registrant’s proxy statement for its Annual Meeting to be held on May 9, 2019 are incorporated by reference into Part III of this Annual Report on Form 10-K.
 
 
 
 
 
 
 
 
 
 




SPX CORPORATION AND SUBSIDIARIES
FORM 10-K TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 






P A R T    I
ITEM 1. Business
(All currency and share amounts are in millions)
Forward-Looking Information
Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or other comparable terminology. Particular risks facing us include economic, business and other risks stemming from our internal operations, legal and regulatory risks, costs of raw materials, pricing pressures, pension funding requirements, integration of acquisitions and changes in the economy.  These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets.
All the forward-looking statements are qualified in their entirety by reference to the risks and uncertainties discussed, including in this filing, under the heading “Risk Factors,” and any subsequent filing with the U.S. Securities and Exchange Commission (“SEC”), as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these discussion of risks and uncertainties may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict all potentially relevant risks and uncertainties, and we cannot assess the impact, if any, of these factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We disclaim any responsibility to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document.
Business
SPX Corporation (“SPX”, “our” or “we”) was founded in Muskegon, Michigan in 1912 as the Piston Ring Company and adopted our current name in 1988. Since 1968, we have been incorporated under the laws of Delaware, and we have been listed on the New York Stock Exchange since 1972.
On September 26, 2015, 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. Prior to the Spin-Off, our businesses serving the power generation markets had a major impact on the consolidated financial results of SPX. In the recent years leading up to the Spin-Off, these businesses experienced significant declines in revenues and profitability associated with weak demand and increased competition within the global power generation markets. Based on a review of our post-spin portfolio and the belief that a recovery within the power generation markets was unlikely in the foreseeable future, we decided that our strategic focus would be on our (i) scalable growth businesses that serve the heating, ventilation and cooling (“HVAC”) and detection and measurement markets and (ii) power transformer and process cooling systems businesses. As a result, we have significantly reduced our exposure to the power generation markets as indicated by the dispositions of our dry cooling and Balcke Dürr businesses during the first and fourth quarters of 2016, respectively. Additionally, during 2018, we initiated a plan to wind-down the SPX Heat Transfer (“Heat Transfer”) business. See MD&A and Notes 1 and 4 to our consolidated financial statements for further discussion of these actions.
On March 1, 2018 and June 7, 2018, we completed the acquisitions of Schonstedt Instrument Company (“Schonstedt”) and Cues, Inc. (“Cues”), respectively. Schonstedt is a manufacturer and distributor of magnetic locator products used for locating underground utilities and buried objects, while Cues is a manufacturer of pipeline inspection and rehabilitation equipment. The post-acquisition operating results of Schonstedt and Cues are reflected in our Detection and Measurement reportable segment.

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On February 1, 2019, we completed the acquisition of Sabik Marine, a manufacturer of obstruction lighting products, from Carmanah Technologies Corporation. The post-acquisition operating results of Sabik Marine will be reflected in our Detection and Measurement reportable segment, beginning in the first quarter of 2019.
Unless otherwise indicated, amounts provided in Part I pertain to continuing operations only (see Notes 1 and 4 to our consolidated financial statements for information on discontinued operations).
We are a diversified, global supplier of infrastructure equipment serving the HVAC, detection and measurement, power transmission and generation, and industrial markets. With operations in approximately 15 countries and over 4,000 employees, we offer a wide array of highly engineered infrastructure products with strong brands.
HVAC solutions offered by our businesses include package cooling towers, residential and commercial boilers, comfort heating, and ventilation products. Our market leading brands, coupled with our commitment to continuous innovation and focus on our customers’ needs, enables our HVAC cooling and heating businesses to serve an expanding number of industrial, commercial and residential customers. Growth for our HVAC businesses will be driven by innovation, increased scalability, and our ability to meet the needs of broader markets.

Our detection and measurement product lines encompass underground pipe and cable locators, inspection and rehabilitation equipment, bus fare collection systems, communication technologies, and specialty lighting. Our detection and measurement solutions enable utilities, telecommunication providers and regulators, and municipalities and transit authorities to build, monitor and maintain vital infrastructure. Our technology and decades of experience have afforded us a strong position in specific detection and measurement markets. We intend to expand our portfolio of specialized products through new, innovative hardware and software solutions in an attempt to (i) further capitalize on the detection and measurement markets we currently serve and (ii) expand the number of markets that we serve.

Within our engineered solutions platform, we are a leading manufacturer of medium and large power transformers, as well as process cooling equipment. These solutions play a critical role in electricity transmission and generation. Specifically, our power transformers play an integral role in the North American power grid, while our process cooling equipment assist our customers in meeting their power generation and industrial needs. The businesses within the platform are committed to driving value through continued focus on operational and engineering efficiencies.
Our remaining businesses (see below for further discussion) engineer, design, manufacture, install and service equipment, including heat exchangers, for the industrial and power generation markets.
Reportable and Other Operating Segments
Prior to the fourth quarter of 2018, we aggregated our operating segments into the following three reportable segments: HVAC, Detection and Measurement, and Engineered Solutions. During the fourth quarter of 2018, due, in part, to certain wind-down activities and the related decline in volumes at our South African subsidiary, DBT Technologies (PTY) LTD (“DBT”), and Heat Transfer business, we concluded that these operating segments are no longer economically similar to the other operating segments within our Engineered Solutions reportable segment. As such, DBT and Heat Transfer are now being reported, for all periods presented, within an “All Other” category outside of our reportable segments.
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 reportable segments, we apply the threshold criteria of the Segment Reporting Topic of the Financial Accounting Standards Board Codification (“Codification”). Operating income or loss for each of our operating segments is determined before considering impairment and special charges, pension and postretirement expense, long-term incentive compensation, gains (losses) on the sale of our dry cooling business 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 had revenues of $582.1, $511.0 and $509.5 in 2018, 2017 and 2016, respectively, and backlog of $46.9 and $41.4 as of December 31, 2018 and 2017, respectively. Approximately 96% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019. The segment engineers, designs, manufactures, installs and services cooling products for the HVAC and industrial markets, as well as 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. Core brands for our cooling products include Marley and Recold, with the major competitors to these products being Baltimore Aircoil Company and Evapco. Our heating and ventilation products are sold under the Berko, Qmark, Fahrenheat, and Leading Edge brands, while our Marley-Wylain subsidiary sells Weil-McLain and Williamson-Thermoflo brands.

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Major competitors to these products are TPI Corporation, Ouellet, King Electric, Systemair Mfg. LLC, Cadet Manufacturing Company, and Dimplex North America Ltd for heating products, Burnham Holdings, Inc, Mestek, Cleaver Brooks, Lochinvar LLC, Navien Inc., and Buderus for boiler products, and TPI Corporation, Broan-NuTone LLC and Airmaster Fan Company for ventilation products.
Detection and Measurement Reportable Segment
Our Detection and Measurement reportable segment had revenues of $320.9, $260.3 and $226.4 in 2018, 2017 and 2016, respectively, and backlog of $71.9 and $54.0 as of December 31, 2018 and 2017, respectively. Approximately 76% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019. The segment engineers, designs, manufactures and installs underground pipe and cable locators, inspection and rehabilitation 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. Core brands for our underground pipe and cable locators and inspection and rehabilitation equipment are Radiodetection, Pearpoint, Schonstedt, Dielectric, Warren G-V, and Cues, with the major competitors to these products being Vivax-Metrotech, Leica, Subsite, IPEK, IBAK, System Studies, Agilent, Shawcor, Roper, and Ridgid. Our bus fare collection systems, communication technologies, and specialty lighting are sold under the Genfare, TCI and Flash Technology brand names, respectively. Major competitors to our bus fare collection systems include Scheidt & Bachmann, Trapeze Group, Init, and Vix Technology, while major competitors to our communication technologies products include Rohde & Schwarz, Thales Group, Saab Grintek, and LS Telcom. Lastly, major competitors of our specialty lighting products include H&P, TWR Lighting, Unimar, Dialight and ITL.
Engineered Solutions Reportable Segment
Our Engineered Solutions reportable segment had revenues of $537.0, $560.7 and $598.0 in 2018, 2017 and 2016, respectively, and backlog of $311.2 and $320.6 as of December 31, 2018 and 2017, respectively. Approximately 88% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019. The segment engineers, designs, manufactures, installs and services transformers for the power transmission and distribution market, as well as process cooling equipment for the power generation and industrial 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.
We sell transformers under the Waukesha brand name. Typical customers for this product line are publicly and privately held utilities. Our competitors in this market include ABB Ltd., GE-Prolec, Siemens, Hyundai Power Transformers, Delta Star Inc., Pennsylvania Transformer Technology, Inc., SGB-SMIT Group, Virginia Transformer Corporation, Howard Industries, Inc., and WEG S.A.
Our process cooling products are sold under the brand names of SPX Cooling, and Marley, with major competitors to these products and service lines being Enexio, Hamon & Cie, Thermal Engineering International, Howden Group Ltd, and Siemens AG.
All Other
Our “All Other” group of operating segments had revenues of $98.6, $93.8 and $138.4 in 2018, 2017 and 2016, respectively, and backlog of $26.8 and $113.4 as of December 31, 2018 and 2017, respectively. Approximately 97% of the backlog as of December 31, 2018 is expected to be recognized as revenue during 2019. These operating segments engineer, design, manufacture, install and service equipment, including heat exchangers, for the industrial and power generation markets. The primary distribution channels for the group’s products are direct to customers and third-party representatives. These operating segments have a presence in North America and South Africa.
Acquisitions
We regularly review and negotiate potential acquisitions in the ordinary course of business, some of which are or may be material.
On March 1, 2018, we completed the acquisition of Schonstedt, a manufacturer and distributor of magnetic locator products used for locating underground utilities and other buried objects, for a purchase price of $16.4, net of cash acquired of $0.3. On June 7, 2018, we completed the acquisition of Cues, a manufacturer of pipeline inspection and rehabilitation equipment, for a purchase price of $164.4, net of cash acquired of $20.6. The assets acquired and liabilities assumed in these transactions have been recorded at estimates of fair value as determined by management, based on information available and on assumptions as to future operations, and are subject to change based on the final assessment and valuation of certain income tax amounts.


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On February 1, 2019, we completed the acquisition of Sabik Marine, a manufacturer of obstruction lighting products, from Carmanah Technologies Corporation for cash proceeds of $77.0.
We did not acquire any businesses in 2017 or 2016.
Divestitures
We regularly review and negotiate potential divestitures in the ordinary course of business, some of which are or may be material. As a result of this continuous review, we determined that the Balcke Dürr and dry cooling businesses would be better strategic fits with other investors and, thus, we disposed of these businesses in 2016, with Balcke Dürr reflected as a discontinued operation for all periods presented.
International Operations
We are a multinational corporation with operations in approximately 15 countries. Sales outside the United States were $221.1, $182.5 and $237.1 in 2018, 2017 and 2016, respectively.
See Note 6 to our consolidated financial statements for more information on our international operations.
Research and Development
We are actively engaged in research and development programs designed to improve existing products and manufacturing methods and develop new products to better serve our current and future customers. These efforts encompass certain of our products with divisional engineering teams coordinating their resources. We place particular emphasis on the development of new products that are compatible with, and build upon, our manufacturing and marketing capabilities.
Patents/Trademarks
We own approximately 154 domestic and 219 foreign patents (comprising approximately 159 patent “families”), including approximately 40 patents that were issued in 2018, covering a variety of our products and manufacturing methods. We also own a number of registered trademarks. Although in the aggregate our patents and trademarks are of considerable importance in the operation of our business, we do not consider any single patent or trademark to be of such importance that its absence would adversely affect our ability to conduct business as presently constituted. We are both a licensor and licensee of patents. For more information, please refer to “Risk Factors.”
Outsourcing and Raw Materials
We manufacture many of the components used in our products; however, our strategy includes outsourcing certain components and sub-assemblies to other companies where strategically and economically beneficial. In instances where we depend on third-party suppliers for outsourced products or components, we are subject to the risk of customer dissatisfaction with the quality or performance of the products we sell due to supplier failure. In addition, business difficulties experienced by a third-party supplier can lead to the interruption of our ability to obtain the outsourced product and ultimately to our inability to supply products to our customers. We believe that we generally will be able to continue to obtain adequate supplies of key products or appropriate substitutes at reasonable costs.
We are subject to increases in the prices of many of our key raw materials, including petroleum-based products, steel and copper. In recent years, we have generally been able to offset increases in raw material costs. Occasionally, we are subject to long-term supplier contracts, which may increase our exposure to pricing fluctuations. We use forward contracts to manage our exposure on forecasted purchases of commodity raw materials (“commodity contracts”). See Note 13 to our consolidated financial statements for further information on commodity contracts.
Due to our diverse products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the raw materials needed in our operations. We are not significantly dependent on any one or a limited number of suppliers, and we have been able to obtain suitable quantities of raw materials at competitive prices.
Competition
Our competitive position cannot be determined accurately in the aggregate or by reportable or operating segment since we and our competitors do not offer all the same product lines or serve all the same markets. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors as they apply to the various products and services offered. See “Reportable and Other Operating Segments” above for a discussion of our competitors.

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Environmental Matters
See “MD&A — Critical Accounting Policies and Use of Estimates — Contingent Liabilities,” “Risk Factors” and Note 14 to our consolidated financial statements for information regarding environmental matters.
Employment
At December 31, 2018, we had over 4,000 employees. Six domestic collective bargaining agreements covered approximately 1,000 employees. We also had various collective labor arrangements as of that date covering certain non-U.S. employee groups. While we generally have experienced satisfactory labor relations, we are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes.
Other Matters
No customer or group of customers that, to our knowledge, are under common control accounted for more than 10% of our consolidated revenues for any period presented.
Our businesses maintain sufficient levels of working capital to support customer requirements, particularly inventory. We believe our businesses’ sales and payment terms are generally similar to those of our competitors.
Many of our businesses closely follow changes in the industries and end markets they serve. In addition, certain businesses have seasonal fluctuations. Historically, our businesses generally tend to be stronger in the second half of the year.
Our website address is www.spx.com. Information on our website is not incorporated by reference herein. We file reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and certain amendments to these reports. Copies of these reports are available free of charge on our website as soon as reasonably practicable after we file the reports with the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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ITEM 1A. Risk Factors
(All currency and share amounts are in millions)
You should consider the risks described below and elsewhere in our documents filed with the SEC before investing in any of our securities. We may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.
Many of the markets in which we operate are cyclical or are subject to industry events, and our results have been and could be affected as a result.
Many of the markets in which we operate are subject to general economic cycles or industry events. In addition, certain of our businesses are subject to market-specific cycles and weather-related fluctuations.
Furthermore, contract timing on projects, including those relating to power transmission and distribution systems, communication technologies, fare collection systems, and process cooling systems and towers may cause significant fluctuations in revenues and profits from period to period.
The businesses of many of our customers are to varying degrees cyclical and have experienced, and may continue to experience, periodic downturns. Cyclical changes and specific industry events could also affect sales of products in our other businesses. Downturns in the business cycles of our different operations may occur at the same time, which could exacerbate any adverse effects on our business. In addition, certain of our businesses have seasonal and weather-related fluctuations. Historically, many of our key businesses generally have tended to have stronger performance in the second half of the year. See "MD&A - Results of Continuing Operations and Results of Reportable and Other Operating Segments."
The price and availability of raw materials and components has and may adversely affect our business.
We are exposed to a variety of risks relating to the price and availability of raw materials and components. In recent years, we have faced volatility in the prices of many key raw materials (e.g., copper, steel and oil) and key components (e.g. circuit boards), including price increases in response to trade laws and tariffs. Increases in the prices of raw materials and components, including as a result of new or increased tariffs or the impact of new trade laws, or shortages or allocations of materials and components may have a material adverse effect on our financial position, results of operations or cash flows, as there may be delays in our ability, or we may not be able, to pass cost increases on to our customers, or our sales may be reduced. We are subject to, or may enter into, long-term supplier contracts that may increase our exposure to pricing fluctuations.
Our business depends on capital investment and maintenance expenditures by our customers.
Demand for most of our products and services depends on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers fluctuates based on planned expansions, new builds and repairs, commodity prices, general economic conditions, availability of credit, and expectations of future market behavior. Any of these factors, whether individually or in the aggregate, could have a material adverse effect on our customers and, in turn, our business, financial condition, results of operations and cash flows.
The fact that we outsource various elements of the products and services we sell subjects us to the business risks of our suppliers and subcontractors, which could have a material adverse impact on our operations.
In areas where we depend on third-party suppliers and subcontractors for outsourced products, components or services, we are subject to the risk of customer dissatisfaction with the quality or performance of the products or services we sell due to supplier or subcontractor failure. In addition, business difficulties experienced by a third-party supplier or subcontractor can lead to the interruption of our ability to obtain outsourced products or services and ultimately our inability to supply products or services to our customers. Third-party supplier and subcontractor business interruptions can include, but are not limited to, work stoppages, union negotiations and other labor disputes. Current economic conditions could also impact the ability of suppliers and subcontractors to access credit and, thus, impair their ability to provide us quality products or services in a timely manner, or at all.
Cost overruns, inflation, delays and other risks could significantly impact our results, particularly with respect to fixed-price contracts.
A portion of our revenues and earnings is generated through fixed-price contracts, particularly within our Engineered Solutions reportable segment and our “All Other” group of operating segments. We recognize revenues for certain of these contracts over-

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time whereby revenues and expenses, and thereby profit, in a given period are determined based on our estimates as to the project status and the costs remaining to complete a particular project.
Estimates of total revenues and cost at completion are subject to many variables, including the length of time to complete a contract. In addition, contract delays may negatively impact these estimates and our revenues and earnings results for affected periods.
To the extent that we underestimate the remaining cost to complete a project, we may overstate the revenues and profit in a particular period. Further, certain of these contracts provide for penalties or liquidated damages for failure to timely perform our obligations under the contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because some of our contracts are at a fixed price, we face the risk that cost overruns or inflation may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on our projects.
DBT’s contracts on two large power projects in South Africa highlight these types of contract-related risks. The business environment surrounding these projects has been difficult, as DBT has experienced delays, cost over-runs, and various other challenges associated with a complex set of contractual relationships among the end customer, prime contractors, various subcontractors (including DBT and its subcontractors), and various suppliers. These challenges have resulted in (i) significant adjustments to our revenue and cost estimates for the projects and (ii) various claims and disputes between DBT and other parties involved with the projects (e.g., prime contractors, subcontractors, suppliers, etc.). We may become subject to other claims, which could be significant. Our future financial position, operating results, and cash flows could be impacted by the resolution of current and any future claims, as well as potential changes to revenue and cost estimates relating to the execution of DBT’s remaining scope.
Although we believe that our current estimates of revenues and costs relating to our long-term contracts are reasonable, it is possible that future revisions of such estimates could have a material effect on our consolidated financial statements.
If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.
We are increasingly dependent on cloud-based and other information technology (“IT”) networks and systems, some of which are managed by third parties, to process, transmit, and store electronic information. We depend on such IT infrastructure for electronic communications among our locations around the world and between our personnel and suppliers and customers. In addition, we rely on these IT systems to record, process, summarize, transmit, and store electronic information, and to manage or support a variety of business processes and activities, including, among other things, our accounting and financial reporting processes; our manufacturing and supply chain processes; our sales and marketing efforts; and the data related to our research and development efforts. The failure of our IT systems or those of our business partners or third-party service providers to perform properly, or difficulties encountered in the development of new systems or the upgrade of existing systems, could disrupt our business and harm our reputation, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business, reputation, financial condition, and operating results to suffer. Upon expiration or termination of any of our agreements with third-party vendors, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete.
IT security threats are increasing in frequency and sophistication and we have detected numerous attempts to compromise the security of our IT systems. Cyber-attacks may be random, coordinated, or targeted, including sophisticated computer crime threats. These threats pose a risk to the security of our systems and networks, and those of our business partners and third-party service providers, and to the confidentiality, availability, and integrity of our data. Despite our implementation of security measures, cybersecurity threats, such as malicious software, phishing attacks, computer viruses, and attempts to gain unauthorized access, cannot be completely mitigated. Our business, reputation, operating results, and financial condition could be materially adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shutdown; our confidential, proprietary information is stolen or disclosed; the performance or security of our cloud-based product offerings is impacted; our intranet and internet sites are compromised; data is manipulated or destroyed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs.
In addition, newer generations of certain of our products include IT systems, including systems that are cloud-based and/or interconnect through the internet. These systems are subject to the same cybersecurity threats described above and the failure of these systems, including by cyber-attack, could disrupt our customers’ business, leading to potential exposure for us.


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Failure to protect or unauthorized use of our intellectual property may harm our business.
Despite our efforts to protect our proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. The steps we have taken may not prevent unauthorized use of our technology or knowledge, particularly in foreign countries where the laws may not protect our proprietary rights to the same extent as in the United States. Costs incurred to defend our rights may be material.
We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to asbestos, environmental, product liability and other matters.
We are subject to various laws, ordinances, regulations and other requirements of government authorities in the United States and other nations. Additionally, changes in laws, ordinances, regulations, or other governmental policies may significantly increase our expenses and liabilities.
Numerous claims, complaints, and proceedings arising in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (collectively, “claims”). These claims relate to litigation matters (e.g., class actions and contracts, intellectual property, and competitive claims), environmental matters, product liability matters (predominately associated with alleged exposure to asbestos-containing materials), and other risk management matters (e.g., general liability, automobile, and workers’ compensation claims). Periodically, claims, complaints and proceedings arising other than in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (e.g. patent infringement and disputes with subsidiary shareholder(s)), including claims with respect to businesses that we have acquired for matters arising before the relevant date of the acquisition. From time to time, we face actions by governmental authorities, both in and outside the United States. Additionally, we may become subject to other claims of which we are currently unaware, which may be significant, or the claims of which we are aware may result in our incurring significantly greater loss than we anticipate. Our insurance may be insufficient or unavailable (e.g., because of insurer insolvency) to protect us against potential loss exposures.
On the two large power projects in South Africa, DBT has experienced delays, cost over-runs, and various other challenges associated with a complex set of contractual relationships among the end customer, prime contractors, various subcontractors (including DBT and its subcontractors), and various suppliers. DBT is currently involved in a number of claims relating to these challenges and may be subject to other claims, which could be significant. We cannot assure you that that these claims and the costs to assert our claims and defend claims made against us will not have a material adverse effect on our financial position, results of operations, or cash flows.
We face environmental exposures including, for example, those relating to discharges from and materials handled as part of our operations, the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes, and the health and safety of our employees. We may be liable for the costs of investigation, removal, or remediation of hazardous substances or petroleum products on, under, or in our current or formerly owned or leased properties, or from third-party disposal facilities that we may have used, without regard to whether we knew of, or caused, the presence of the contaminants. The presence of, or failure to properly remediate, these substances may have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on the ability to sell or rent affected property or to borrow funds using affected property as collateral. New or existing environmental matters or changes in environmental laws or policies could lead to material costs for environmental compliance or cleanup. In addition, environmentally related product regulations are growing globally in number and complexity and could contribute to increased costs with respect to disclosure requirements, product sales and distribution related costs, and post-sale recycling and disposal costs. There can be no assurance that these liabilities and costs will not have a material adverse effect on our financial position, results of operations, or cash flows.
We devote significant time and expense to defend against the various claims, complaints, and proceedings brought against us. In addition, from time to time, we bring actions to enforce our rights against customers, suppliers, insurers, and other third parties. We cannot assure you that the expenses or distractions from operating our businesses arising from these defenses and actions will not increase materially.
We cannot assure you that our accruals and right to indemnity and insurance will be sufficient, that recoveries from insurance or indemnification claims will be available or that any of our current or future claims or other matters will not have a material adverse effect on our financial position, results of operations, or cash flows.
See “MD&A - Critical Accounting Policies and Use of Estimates - Contingent Liabilities” and Note 14 to our consolidated financial statements for further discussion.

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Our failure to successfully complete acquisitions could negatively affect us.
We may not be able to consummate desired acquisitions, which could materially impact our growth rate, results of operations, future cash flows and stock price. Our ability to achieve our goals depends upon, among other things, our ability to identify and successfully acquire companies, businesses and product lines, to effectively integrate them and to achieve cost savings. We may also be unable to raise additional funds necessary to consummate these acquisitions. In addition, decreases in our stock price may adversely affect our ability to consummate acquisitions. Competition for acquisitions in our business areas may be significant and result in higher prices for businesses, including businesses that we may target, which may also affect our acquisition rate or benefits achieved from our acquisitions.
We may not achieve the expected cost savings and other benefits of our acquisitions.
We strive for and expect to achieve cost savings in connection with our acquisitions, including: (i) manufacturing process and supply chain rationalization, (ii) streamlining redundant administrative overhead and support activities, (iii) restructuring and repositioning sales and marketing organizations to eliminate redundancies, and (iv) achieving anticipated revenue synergies. Cost savings expectations are estimates that are inherently difficult to predict and are necessarily speculative in nature, and we cannot assure you that we will achieve expected, or any, cost savings in connection with an acquisition. In addition, we cannot assure you that unforeseen factors will not offset the estimated cost savings or other benefits from our acquisitions. As a result, anticipated benefits could be delayed, differ significantly from our estimates and the other information contained in this report, or not be realized.
Acquisitions involve a number of risks and present financial, managerial and operational challenges.

Our acquisitions involve a number of risks and present financial, managerial and operational challenges, including:
Adverse effects on our reported operating results due to charges to earnings, including impairment charges associated with goodwill and other intangibles;
Diversion of management attention from core business operations;
Integration of technology, operations, personnel and financial and other systems;
Increased expenses;
Increased foreign operations, often with unique issues relating to corporate culture, compliance with legal and regulatory requirements and other challenges;
Assumption of known and unknown liabilities and exposure to litigation;
Increased levels of debt or dilution to existing stockholders; and
Potential disputes with the sellers of acquired businesses.

We conduct operational, financial, tax, and legal due diligence on all acquisitions; however, we cannot assure that all potential risks or liabilities are adequately discovered, disclosed, or understood in each instance.
In addition, internal controls over financial reporting of acquired companies may not be compliant with required standards. Issues may exist that could rise to the level of significant deficiencies or, in some cases, material weaknesses, particularly with respect to foreign companies or non-public U.S. companies.
Our integration activities may place substantial demands on our management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on our reputation and business.
Dispositions or liabilities retained in connection with dispositions could negatively affect us.
Our dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the disposed businesses and a potential dilutive effect on our earnings per share. In addition, we have agreed to retain certain liabilities in connection with the disposition of certain businesses, including the Balcke Dürr business. These liabilities may be significant and could negatively impact our business.
If dispositions are not completed in a timely manner, there may be a negative effect on our cash flows and/or our ability to execute our strategy. In addition, we may not realize some or all of the anticipated benefits of our dispositions. See “Business,” “MD&A - Results of Discontinued Operations,” and Note 4 to our consolidated financial statements for the status of our divestitures.

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Our technology is important to our success, and failure to develop new products may result in a significant competitive disadvantage.
We believe the development of our intellectual property rights is critical to the success of our business. In order to maintain our market positions and margins, we need to continually develop and introduce high-quality, technologically advanced and cost-effective products on a timely basis, in many cases in multiple jurisdictions around the world. The failure to do so could result in a significant competitive disadvantage.
Governmental laws and regulations could negatively affect our business.
Changes in laws and regulations to which we are or may become subject could have a significant negative impact on our business. In addition, we could face material costs and risks if it is determined that we have failed to comply with relevant law and regulation. We are subject to U.S. Customs and Export Regulations, including U.S. International Traffic and Arms Regulations and similar laws, which collectively control import, export and sale of technologies by companies and various other aspects of the operation of our business; the Foreign Corrupt Practices Act and similar anti-bribery laws, which prohibit companies from making improper payments to government officials for the purposes of obtaining or retaining business; the California Transparency in Supply Chain Act and similar laws and regulations, which relate to human trafficking and anti-slavery and impose new compliance requirements on our businesses and their suppliers; and the California Consumer Privacy Act of 2018 and the European General Data Protection Regulation, which establish data management requirements for the protection of personal information of individuals. While our policies and procedures mandate compliance with such laws and regulations, there can be no assurance that our employees and agents will always act in strict compliance. Failure to comply with such laws and regulations may result in civil and criminal enforcement, including monetary fines and possible injunctions against shipment of product or other of our activities, which could have a material adverse impact on our results of operations and financial condition.
Several of our businesses are reliant on or may be directly impacted by government regulations. Changes to these regulations may have a significant negative impact on these businesses. For example, (i) a reduction of Federal Aviation Administration regulations mandating lighting of towers and buildings at height; (ii) increases in Department of Energy regulations on energy efficiency requirements for heating, and (iii) a reduction in regulations requiring 811 calls to be made before the commencement of a digging project, could have a significant negative impact on these businesses. While we monitor these regulations and our businesses plan for potential changes, there can be no assurance that we will be able to adapt in each circumstance. Failure to adapt if regulations change could have a material adverse impact on our results of operations and financial condition.
Difficulties presented by domestic economic, political, legal, accounting and business factors could negatively affect our business.
In 2018, approximately 86% of our revenues were generated inside the United States. Our reliance on U.S. revenues and U.S. manufacturing bases exposes us to a number of risks, including:
Government embargoes or foreign trade restrictions such as antidumping duties, as well as the imposition of trade sanctions by the United States against a class of products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in which we conduct business, could significantly increase our cost of products imported into or exported from the United States or reduce our sales and harm our business and the relaxation of embargoes and foreign trade restrictions, including antidumping duties on transformers, by the United States could adversely affect the market for our products in the United States;
Customs and tariffs may make it difficult or impossible for us to move our products or assets across borders in a cost-effective manner and may increase the cost of our raw materials, including raw materials sourced domestically;
Transportation and shipping expenses add cost to our products;
Complications related to shipping, including delays due to weather, labor action, or customs, may impact our profit margins or lead to lost business;
Environmental and other laws and regulations could increase our costs or limit our ability to run our business; and
Our ability to obtain supplies from foreign vendors and ship products internationally may be impaired during times of crisis or otherwise.

Any of the above factors or other factors affecting the movement of people and products into and from various countries to North America could have a significant negative effect on our operations. In addition, our concentration on U.S. business may make it difficult to enter new markets, making it more difficult for our businesses to grow.

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Worldwide economic conditions could negatively impact our businesses.
Many of our customers historically have tended to delay capital projects, including expensive maintenance and upgrades, during economic downturns. Poor macroeconomic conditions could negatively impact our businesses by adversely affecting, among other things, our:
Revenues;
Margins;
Profits;
Cash flows;
Customers’ orders, including order cancellation activity or delays on existing orders;
Customers’ ability to access credit;
Customers’ ability to pay amounts due to us; and
Suppliers’ and distributors’ ability to perform and the availability and costs of materials and subcontracted services.

Downturns in global economies could negatively impact our performance or any expectations in reporting performance.
Our non-U.S. revenues and operations expose us to numerous risks that may negatively impact our business.
To the extent we generate revenues outside of the United States, non-U.S. revenues and non-U.S. manufacturing bases exposes us to a number of risks, including:
Significant competition could come from local or long-term participants in non-U.S. markets who may have significantly greater market knowledge and substantially greater resources than we do;
Local customers may have a preference for locally-produced products;
Credit risk or financial condition of local customers and distributors could affect our ability to market our products or collect receivables;
Regulatory or political systems or barriers may make it difficult or impossible to enter or remain in new markets. In addition, these barriers may impact our existing businesses, including making it more difficult for them to grow;
Local political, economic and social conditions, including the possibility of hyperinflationary conditions, political instability, nationalization of private enterprises, or unexpected changes relating to currency could adversely impact our revenues and operations;
The United Kingdom’s decision to exit from the European Union (commonly referred to as “Brexit”) has contributed to, and may continue to contribute to, economic, currency, market and regulatory uncertainty in the United Kingdom and European Union and could adversely affect economic, currency, market, regulatory, or political conditions both in those regions and worldwide;
Customs, tariffs and trade restrictions may make it difficult or impossible for us to move our products or assets across borders in a cost-effective manner;
Transportation and shipping expenses add cost to our products;
Complications related to shipping, including delays due to weather, labor action, or customs, may impact our profit margins or lead to lost business;
Local, regional or worldwide hostilities could impact our operations; and
Distance and language and cultural differences may make it more difficult to manage our business and employees and to effectively market our products and services.

Any of the above factors or other factors affecting social and economic activity in the United Kingdom, China, and South Africa or affecting the movement of people and products into and from these countries to our major markets, could have a significant negative effect on our operations.
Our customers have been and could be impacted by commodity availability and prices.
A number of factors outside our control, including fluctuating commodity prices, impact the demand for our products. Increased commodity prices, including as a result of new or increased tariffs or the impact of new trade laws, may increase our customers’ cost of doing business, thus causing them to delay or cancel large capital projects.
On the other hand, declining commodity prices may cause our customers to delay or cancel projects relating to the production of such commodities. Reduced demand for our products and services could result in the delay or cancellation of existing orders or lead to excess manufacturing capacity, which unfavorably impacts our absorption of fixed manufacturing costs. Reduced demand may also erode average selling prices in the relevant market.

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We may not be able to finance future needs or adapt our business plan to react to changes in economic or business conditions because of restrictions placed on us by our senior credit facilities and any existing or future instruments governing our other indebtedness.
Our senior credit facilities and agreements governing our other indebtedness contain, or future or revised instruments may contain, various restrictions and covenants that limit our ability to make distributions or other payments to our investors and creditors unless certain financial tests or other criteria are satisfied. We also must comply with certain specified financial ratios and tests. Our subsidiaries may also be subject to restrictions on their ability to make distributions to us. In addition, our senior credit facilities and agreements governing our other indebtedness contain or may contain additional affirmative and negative covenants. Material existing restrictions are described more fully in the MD&A and Note 12 to our consolidated financial statements. Each of these restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions.
If we do not comply with the covenants and restrictions contained in our senior credit facilities and agreements governing our other indebtedness, we could default under those agreements, and the debt, together with accrued interest, could be declared due and payable. If we default under our senior credit facilities, the lenders could cause all our outstanding debt obligations under our senior credit facilities to become due and payable or require us to repay the indebtedness under these facilities. If our debt is accelerated, we may not be able to repay or refinance our debt. In addition, any default under our senior credit facilities or agreements governing our other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross-acceleration or cross-default provisions. If the indebtedness under our senior credit facilities is accelerated, we may not have sufficient assets to repay amounts due under our senior credit facilities or other debt securities then outstanding. Our ability to comply with these provisions of our senior credit facilities and agreements governing our other indebtedness will be affected by changes in the economic or business conditions or other events beyond our control. Complying with our covenants may also cause us to take actions that are not favorable to us and may make it more difficult for us to successfully execute our business strategy and compete, including against companies that are not subject to such restrictions.
Our indebtedness may affect our business and may restrict our operating flexibility.
At December 31, 2018, we had $381.8 in total indebtedness. On that same date, we had $311.6 of available borrowing capacity under our revolving credit facilities, after giving effect to $32.0 reserved for outstanding letters of credit and $6.4 of borrowings under the revolving credit agreement, and $27.0 of available borrowing capacity under our trade receivables financing arrangement. In addition, at December 31, 2018, we had $30.1 of available issuance capacity under our foreign credit instrument facilities after giving effect to $119.9 reserved for outstanding letters of credit. At December 31, 2018, our cash and equivalents balance was $68.8. See MD&A and Note 12 to our consolidated financial statements for further discussion. We may incur additional indebtedness in the future, including indebtedness incurred to finance, or assumed in connection with, acquisitions. We may renegotiate or refinance our senior credit facilities or other debt facilities, or enter into additional agreements that have different or more stringent terms. The level of our indebtedness could:
Impact our ability to obtain new, or refinance existing, indebtedness, on favorable terms or at all;
Limit our ability to obtain, or obtain on favorable terms, additional debt financing for working capital, capital expenditures or acquisitions;
Limit our flexibility in reacting to competitive and other changes in the industry and economic conditions;
Limit our ability to pay dividends on our common stock in the future;
Coupled with a substantial decrease in net operating cash flows due to economic developments or adverse developments in our business, make it difficult to meet debt service requirements; and
Expose us to interest rate fluctuations to the extent existing borrowings are, and any new borrowings may be, at variable rates of interest, which could result in higher interest expense and interest payments in the event of increases in interest rates.

Our ability to make scheduled payments of principal or pay interest on, or to refinance, our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, whether in the ordinary course of business or upon an acceleration of such indebtedness, we may pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures, revising implementation of or delaying strategic plans or seeking additional equity capital. Any of these actions could have a material adverse effect on our business, financial condition, results of operations and stock price. In addition, we cannot assure that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements, or that these actions would be permitted under the terms of our various debt agreements.

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Numerous banks in many countries are syndicate members in our credit facility. Failure of one or more of our larger lenders, or several of our smaller lenders, could significantly reduce availability of our credit, which could harm our liquidity.
The loss of key personnel and an inability to attract and retain qualified employees could have a material adverse effect on our operations.
We are dependent on the continued services of our leadership team. The loss of these personnel without adequate replacement could have a material adverse effect on our operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience in many locations in order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we were unable to attract and retain sufficient numbers of qualified individuals or our costs to do so were to increase significantly, our operations could be materially adversely affected.
Currency conversion risk could have a material impact on our reported results of business operations.
Our operating results are presented in U.S. dollars for reporting purposes. The strengthening or weakening of the U.S. dollar against other currencies in which we conduct business could result in unfavorable translation effects as the results of transactions in foreign countries are translated into U.S. dollars.
Increased strength of the U.S. dollar will increase the effective price of our products sold in U.S. dollars into other countries, including countries utilizing the Euro, which may have a material adverse effect on sales or require us to lower our prices, and also decrease our reported revenues or margins related to sales conducted in foreign currencies to the extent we are unable or determine not to increase local currency prices. Likewise, the increased strength of the U.S. dollar could allow competitors with foreign-based manufacturing costs to sell their products in the U.S. at lower prices. Alternatively, decreased strength of the U.S. dollar could have a material adverse effect on the cost of materials and products purchased overseas.
Similarly, increased or decreased strength of the currencies of non-U.S. countries in which we manufacture will have a comparable effect against the currencies of other jurisdictions in which we sell. For example, our Radiodetection business manufactures a number of detection instruments in the United Kingdom and sells to customers in other countries, therefore increased strength of the British pound sterling will increase the effective price of these products sold in British pound sterling into other countries; and decreased strength of British pound sterling could have a material adverse effect on the cost of materials and products purchased outside of the United Kingdom.
Credit and counterparty risks could harm our business.
The financial condition of our customers and distributors could affect our ability to market our products or collect receivables. In addition, financial difficulties faced by our customers may lead to cancellations or delays of orders.
Our customers may suffer financial difficulties that make them unable to pay for a project when completed, or they may decide not or be unable to pay us, either as a matter of corporate decision-making or in response to changes in local laws and regulations. We cannot assure you that expenses or losses for uncollectible amounts will not have a material adverse effect on our revenues, earnings and cash flows.
We operate in highly competitive markets. Our failure to compete effectively could harm our business.
We sell our products in highly competitive markets, which could result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products. We compete on a number of fronts, including on the basis of product offerings, technical capabilities, quality, service and pricing. We have a number of competitors with substantial technological and financial resources, brand recognition and established relationships with global service providers. Some of our competitors have lower cost structures, support from local governments, or both. In addition, new competitors may enter the markets in which we participate. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that we cannot or will not match. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns and make more attractive offers to potential customers, employees and strategic partners. In addition, competitive environments in slow-growth markets, to which some of our businesses have exposure, have been inherently more influenced by pricing and domestic and global economic conditions. To remain competitive, we need to invest in manufacturing, marketing, customer service and support and our distribution networks. No assurances can be made that we will have sufficient resources to continue to make the investment required to maintain or increase our market share or that our investments will be successful. If we do not compete successfully, our business, financial condition, results of operations and cash flows could be materially adversely affected.

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Changes in tax laws and regulations or other factors could cause our income tax obligations to increase, potentially reducing our net income and adversely affecting our cash flows.
We are subject to taxation in various jurisdictions around the world. In preparing our financial statements, we provide for income taxes based on current tax laws and regulations and the estimated taxable income within each of these jurisdictions. Our income tax obligations, however, may be higher due to numerous factors, including changes in tax laws or regulations and the outcome of audits and examinations of our tax returns.
Officials in some of the jurisdictions in which we do business have proposed, or announced that they are reviewing, tax changes that could potentially increase taxes, and other revenue-raising laws and regulations, including those that may be enacted as a result of the OECD Base Erosion and Profit Shifting project. Any such changes in tax laws or regulations could impose new restrictions, costs or prohibitions on existing practices as well as reduce our net income and adversely affect our cash flows.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted which significantly changed United States (“U.S.”) income tax law for businesses and individuals. The Act introduced changes that impacted U.S. corporate tax rates (e.g., a reduction in the top tax rate from 35% to 21%), business-related exclusions, and deductions and credits. The Act also has tax consequences for many entities that operate internationally, including the timing and the amount of tax to be paid on undistributed foreign earnings. Certain aspects of the Act are unclear and, thus, we anticipate subsequent regulations and interpretations to be issued that will provide additional guidance around application of the Act. The additional guidance could have a material impact on our financial position, results of operations, and cash flows.
There is a risk that we could be challenged by tax authorities on certain of the tax positions we have taken, or will take, on our tax returns. Although we believe that current tax laws and regulations support our positions, there can be no assurance that tax authorities will agree with our positions. In the event tax authorities were to challenge one or more of our tax positions, an unfavorable outcome could have a material adverse impact on our financial position, results of operations, and cash flows.
If the fair value of any of our reporting units is insufficient to recover the carrying value of the goodwill and other intangibles of the respective reporting unit, a material non-cash charge to earnings could result.
At December 31, 2018, we had goodwill and other intangible assets, net, of $592.8. We conduct annual impairment testing to determine if we will be able to recover all or a portion of the carrying value of goodwill and indefinite-lived intangibles. In addition, we review goodwill and indefinite-lived intangible assets for impairment more frequently if impairment indicators arise. If the fair value is insufficient to recover the carrying value of our goodwill and indefinite-lived intangibles, we may be required to record a material non-cash charge to earnings.
The fair values of our reporting units generally are based on discounted cash flow projections that are believed to be reasonable under current and forecasted circumstances, the results of which form the basis for making judgments about carrying values of the reported net assets of our reporting units. Other considerations are also incorporated, including comparable price multiples. Many of our businesses closely follow changes in the industries and end markets that they serve. Accordingly, we consider estimates and judgments that affect the future cash flow projections, including principal methods of competition such as volume, price, service, product performance and technical innovations and estimates associated with cost reduction initiatives, capacity utilization, and assumptions for inflation and foreign currency changes. We monitor impairment indicators across all of our businesses. Significant changes in market conditions and estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give, and have given, rise to impairments in the period that the change becomes known.
Cost reduction actions may affect our business.
Cost reduction actions often result in charges against earnings. These charges can vary significantly from period to period and, as a result, we may experience fluctuations in our reported net income and earnings per share due to the timing of restructuring actions.
Our current and planned products may contain defects or errors that are detected only after delivery to customers. If that occurs, our reputation may be harmed and we may face additional costs.
We cannot assure you that our product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us with regard to our products. As a result, we may have, and from time to time have had, to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by our customers or our customers’

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end users and other losses to us or to any of our customers or end users, and could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.
Changes in key estimates and assumptions related to our defined benefit pension and postretirement plans, such as discount rates, assumed long-term return on assets, assumed long-term trends of future cost, and accounting and legislative changes, as well as actual investment returns on our pension plan assets and other actuarial factors, could affect our results of operations and cash flows.
We have defined benefit pension and postretirement plans, including both qualified and non-qualified plans, which cover a portion of our salaried and hourly employees and retirees, including a portion of our employees and retirees in foreign countries. As of December 31, 2018, our net liability to these plans was $150.7. The determination of funding requirements and pension expense or income associated with these plans involves significant judgment, particularly with respect to discount rates, long-term trends of future costs and other actuarial assumptions. If our assumptions change significantly due to changes in economic, legislative and/or demographic experience or circumstances, our pension and other benefit plans’ expense, funded status and our required cash contributions to such plans could be negatively impacted. In addition, returns on plan assets could have a material impact on our pension plans’ expense, funded status and our required contributions to the plans. Changes in regulations or law could also significantly impact our obligations. For example, see “MD&A - Critical Accounting Policies and Use of Estimates” for the impact that changes in certain assumptions used in the calculation of our costs and obligations associated with these plans could have on our results of operations and financial position.
We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.
At December 31, 2018, we had six domestic collective bargaining agreements covering approximately 1,000 of our over 4,000 employees. Two of these collective bargaining agreements expire in 2019 and are scheduled for negotiation and renewal. We also have various collective labor arrangements covering certain non-U.S. employee groups. We are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes. Further, we may be subject to work stoppages, which are beyond our control, at our suppliers or customers.
Provisions in our corporate documents and Delaware law may delay or prevent a change in control of our company, and accordingly, we may not consummate a transaction that our stockholders consider favorable.
Provisions of our Certificate of Incorporation and By-laws may inhibit changes in control of our company not approved by our Board. These provisions include, for example: a staggered board of directors; a prohibition on stockholder action by written consent; a requirement that special stockholder meetings be called only by our Chairman, President or Board; advance notice requirements for stockholder proposals and nominations; limitations on stockholders’ ability to amend, alter or repeal the By-laws; enhanced voting requirements for certain business combinations involving substantial stockholders; the authority of our Board to issue, without stockholder approval, preferred stock with terms determined in its discretion; and limitations on stockholders’ ability to remove directors. In addition, we are afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects. In general, Section 203 prohibits us from engaging in a “business combination” with an “interested stockholder” (each as defined in Section 203) for at least three years after the time the person became an interested stockholder unless certain conditions are met. These protective provisions could result in our not consummating a transaction that our stockholders consider favorable or discourage entities from attempting to acquire us, potentially at a significant premium to our then-existing stock price.
Increases in the number of shares of our outstanding common stock could adversely affect our common stock price or dilute our earnings per share.
Sales of a substantial number of shares of common stock into the public market, or the perception that these sales could occur, could have a material adverse effect on our stock price. As of December 31, 2018, we had the ability to issue up to an additional 1.683 shares as restricted stock shares, restricted stock units, performance stock units, or stock options under our 2002 Stock Compensation Plan, as amended in 2006, 2011, 2012, 2015, and 2017, and our 2006 Non-Employee Directors’ Stock Incentive Plan. We also may issue a significant number of additional shares, in connection with acquisitions, through a registration statement, or otherwise. Additional shares issued would have a dilutive effect on our earnings per share.
The Spin-Off of SPX FLOW could result in substantial tax liability to us and our stockholders.
In connection with the Spin-Off of SPX FLOW we received opinions of tax counsel satisfactory to us as to the tax-free treatment of the Spin-Off and certain related transactions. However, if the factual assumptions or representations upon which the opinions are based are inaccurate or incomplete in any material respect, we will not be able to rely on the opinions. Furthermore,

15



the opinions are not binding on the Internal Revenue Service (“IRS”) or the courts. Accordingly, the IRS may challenge the conclusions set forth in the opinions and any such challenge could prevail. If, notwithstanding the opinions, the Spin-Off or a related transaction is determined to be taxable, we could be subject to a substantial tax liability. In addition, if the Spin-Off is determined to be taxable, each holder of our common stock who received shares of SPX FLOW would generally be treated as having received a taxable distribution of property in an amount equal to the fair market value of the shares received.
The Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements.
The Spin-Off is subject to review under various state and federal fraudulent conveyance laws. Fraudulent conveyance laws generally provide that an entity engages in a constructive fraudulent conveyance when (1) the entity transfers assets and does not receive fair consideration or reasonably equivalent value in return, and (2) the entity (a) is insolvent at the time of the transfer or is rendered insolvent by the transfer, (b) has unreasonably small capital with which to carry on its business, or (c) intends to incur or believes it will incur debts beyond its ability to repay its debts as they mature. An unpaid creditor or an entity acting on behalf of a creditor (including, without limitation, a trustee or debtor-in-possession in a bankruptcy by us or SPX FLOW or any of our respective subsidiaries) may bring a lawsuit alleging that the Spin-Off or any of the related transactions constituted a constructive fraudulent conveyance. If a court accepts these allegations, it could impose a number of remedies, including, without limitation, voiding the distribution and returning SPX FLOW’s assets or SPX FLOW’s shares and subject us to liability.
The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction’s law is applied. Generally, an entity would be considered insolvent if (1) the present fair saleable value of its assets is less than the amount of its liabilities (including contingent liabilities); (2) the present fair saleable value of its assets is less than its probable liabilities on its debts as such debts become absolute and matured; (3) it cannot pay its debts and other liabilities (including contingent liabilities and other commitments) as they mature; or (4) it has unreasonably small capital for the business in which it is engaged. We cannot assure you what standard a court would apply to determine insolvency or that a court would determine that we, SPX FLOW or any of our respective subsidiaries were solvent at the time of or after giving effect to the Spin-Off.
The distribution of SPX FLOW common stock is also subject to review under state corporate distribution statutes. Under the General Corporation Law of the State of Delaware (the “DGCL”), a corporation may only pay dividends to its stockholders either (1) out of its surplus (net assets) or (2) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Although we believe that we and SPX FLOW were each solvent at the time of the Spin-Off (including immediately after the distribution of shares of SPX FLOW common stock), that we are able to repay our debts as they mature and have sufficient capital to carry on our businesses, and that the distribution was made entirely out of surplus in accordance with Section 170 of the DGCL, we cannot assure you that a court would reach the same conclusions in determining whether SPX FLOW or we were insolvent at the time of, or after giving effect to, the Spin-Off, or whether lawful funds were available for the separation and the distribution to our stockholders.




16



ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
The following is a summary of our principal properties as of December 31, 2018:
 
 
 
No. of
 
Approximate
Square Footage
 
Location
 
Facilities
 
Owned
 
Leased
 
 
 
 
 
(in millions)
HVAC reportable segment
6 U.S. states and 2 foreign countries
 
9

 
0.6

 
1.1

Detection and Measurement reportable segment
5 U.S. states and 2 foreign countries
 
10

 
0.3

 
0.2

Engineered Solutions reportable segment
7 U.S. states and 0 foreign country
 
10

 
1.8

 
0.1

All Other (including corporate)
2 U.S. states and 1 foreign country
 
4

 
0.6

 
0.1

Total
 
 
33

 
3.3

 
1.5

In addition to manufacturing plants, we own various sales, service and other locations throughout the world. We consider these properties, as well as the related machinery and equipment, to be well maintained and suitable and adequate for their intended purposes.
ITEM 3. Legal Proceedings
We are subject to legal proceedings and claims that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect individually or in the aggregate on our financial position, results of operations or cash flows; however, we cannot assure you that these proceedings or claims will not have a material effect on our financial position, results of operations or cash flows.
See “Risk Factors,” “MD&A — Critical Accounting Policies and Estimates — Contingent Liabilities,” and Note 14 to our consolidated financial statements for further discussion of legal proceedings.
ITEM 4. Mine Safety Disclosures
Not applicable.

17



P A R T    I I
ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “SPXC.”
We discontinued dividend payments in 2015 and, thus, there were no dividends declared in 2016, 2017, or 2018.
There were no repurchases of common stock during the three months ended December 31, 2018. The number of shareholders of record of our common stock as of February 8, 2019 was 2,959.
Company Performance
This graph shows a five-year comparison of cumulative total returns for SPX, the S&P 500 Index, the S&P 1500 Industrials Index, and the S&P 600 Index. The graph assumes an initial investment of $100 on December 31, 2013 and the reinvestment of dividends.
spx-2018123_chartx05556a03.jpg
 
2013
2014
2015
2016
2017
2018
SPX Corporation
$
100.00

$
87.59

$
38.13

$
96.95

$
128.29

$
114.48

S&P 500
100.00

113.69

115.26

129.04

157.22

150.33

S&P 1500 Industrials
100.00

108.47

105.53

127.06

153.83

133.25

S&P 600
100.00

104.44

100.93

125.91

140.68

126.96




18



ITEM 6. Selected Financial Data
 
As of and for the year ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
(in millions, except per share amounts)
Summary of Operations
 

 
 

 
 

 
 

 
 

Revenues (1)(5)
$
1,538.6

 
$
1,425.8

 
$
1,472.3

 
$
1,559.0

 
$
1,694.4

Operating income (loss) (1)(2)(3)(4)(5)
107.6

 
59.9

 
70.0

 
(106.3
)
 
(89.3
)
Other income (expense), net (6)(7)(8)(9)
(7.6
)
 
(7.1
)
 
(15.3
)
 
(25.9
)
 
394.0

Interest expense, net
(20.0
)
 
(15.8
)
 
(14.0
)
 
(20.7
)
 
(20.1
)
Loss on amendment/refinancing of senior credit agreement/ early extinguishment of debt (9)
(0.4
)
 
(0.9
)
 
(1.3
)
 
(1.4
)
 
(32.5
)
Income (loss) from continuing operations before income taxes
79.6

 
36.1

 
39.4

 
(154.3
)
 
252.1

Income tax (provision) benefit (10)
(1.4
)
 
47.9

 
(9.1
)
 
2.7

 
(137.5
)
Income (loss) from continuing operations
78.2

 
84.0

 
30.3

 
(151.6
)
 
114.6

Income (loss) from discontinued operations, net of tax (11)
3.0

 
5.3

 
(97.9
)
 
34.6

 
269.3

Net income (loss)
81.2

 
89.3

 
(67.6
)
 
(117.0
)
 
383.9

Less: Net loss attributable to noncontrolling interests

 

 
(0.4
)
 
(34.3
)
 
(9.5
)
Net income (loss) attributable to SPX Corporation common shareholders
81.2

 
89.3

 
(67.2
)
 
(82.7
)
 
393.4

Adjustment related to redeemable noncontrolling interests (12)

 

 
(18.1
)
 

 

Net income (loss) attributable to SPX Corporation common shareholders after adjustment related to redeemable noncontrolling interests
$
81.2

 
$
89.3

 
$
(85.3
)
 
$
(82.7
)
 
$
393.4

Basic income (loss) per share of common stock:
 

 
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
1.82

 
$
1.98

 
$
0.30

 
$
(2.90
)
 
$
2.98

Income (loss) from discontinued operations
0.07

 
0.13

 
(2.35
)
 
0.87

 
6.30

Net income (loss) per share
$
1.89

 
$
2.11

 
$
(2.05
)
 
$
(2.03
)
 
$
9.28

Diluted income (loss) per share of common stock:
 

 
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
1.75

 
$
1.91

 
$
0.30

 
$
(2.90
)
 
$
2.94

Income (loss) from discontinued operations
0.07

 
0.12

 
(2.32
)
 
0.87

 
6.20

Net income (loss) per share
$
1.82

 
$
2.03

 
$
(2.02
)
 
$
(2.03
)
 
$
9.14

Dividends declared per share (13)
$

 
$

 
$

 
$
0.75

 
$
1.50

Other financial data:
 

 
 

 
 

 
 

 
 

Total assets (2)
$
2,057.5

 
$
2,040.4

 
$
1,912.5

 
$
2,179.3

 
$
5,894.3

Total debt (2)
381.8

 
356.8

 
356.2

 
371.8

 
733.1

Other long-term obligations
840.5

 
915.4

 
921.1

 
851.6

 
861.8

SPX shareholders’ equity (2)
414.9

 
314.7

 
191.6

 
345.4

 
1,808.7

Noncontrolling interests

 

 

 
(37.1
)
 
3.2

Capital expenditures
12.4

 
11.0

 
11.7

 
16.0

 
19.3

Depreciation and amortization
29.2

 
25.2

 
26.5

 
37.0

 
40.6

___________________________________________________________________
(1) 
As previously indicated, on March 1, 2018 and June 7, 2018, we completed the acquisitions of Schonstedt and Cues, respectively. The aggregate revenues and operating income for these businesses, from their respective dates of acquisition, totaled $60.4 and $1.1, respectively, in 2018.
As indicated in Notes 1, 3, and 5 to our consolidated financial statements, effective January 1, 2018, we adopted the new revenue recognition requirements of Accounting Standards Codification (“ASC”) 606, with the requirements of ASC 606 adopted on a modified retrospective basis. The adoption of ASC 606 resulted in an increase in revenues and operating income of $14.2 and $2.0, respectively, in 2018, when compared to the amounts that would have been recorded under the previous revenue recognition standard.
During 2018, 2017, 2015 and 2014, we made revisions to expected revenues and costs on our large power projects in South Africa. These revisions resulted in a reduction of revenue and operating income of $2.7 and $4.7, respectively, in

19



2018,  $36.9 and $52.8, respectively, in 2017, $57.2 and $95.0, respectively, in 2015, and a reduction of revenue and operating income of $25.0 in 2014. See Notes 6 and 14 to our consolidated financial statements for additional details.
(2) 
As previously discussed, on September 26, 2015, we completed the Spin-Off of SPX FLOW. During 2015 and 2014 there was a significant amount of general and administrative costs associated with corporate employees and other corporate support that transferred to SPX FLOW at the time of the Spin-Off and did not meet the requirements to be presented within discontinued operations.
(3) 
During 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.
(4) 
During 2016, we recorded impairment charges of $30.1 related to the intangible assets of our Heat Transfer business.
During 2014, we recorded an impairment charge of $10.9 related to the trademarks of our Heat Transfer business. In addition, during 2014, we recorded an impairment charge of $18.0 related to our former dry cooling business’s investment in a joint venture with Shanghai Electric Group Co., Ltd.
(5) 
During 2016, we sold our dry cooling business, resulting in a pre-tax gain of $18.4. Revenues for our dry cooling business totaled $6.7, $87.3, and $130.5 during 2016, 2015, and 2014, respectively.
(6) 
During 2018, 2017, 2016, 2015, and 2014, we recognized income (expense) related to changes in the fair value of plan assets, actuarial gains (losses), settlement gains (losses) and curtailment gains (losses) of $(6.6), $(1.6) $(12.0), $(15.9), and $(95.0), respectively, associated with our pension and postretirement benefit plans.
(7) 
On January 7, 2014, we completed the sale of our 44.5% interest in EGS Electrical Group, LLC (“EGS”) to Emerson Electric Co. for cash proceeds of $574.1, which resulted in a pre-tax gain of $491.2. Accordingly, we recognized no equity earnings from this joint venture after 2013.
(8) 
During 2018, 2017, 2016, 2015, and 2014, we recognized losses of $(0.3), $(3.3), $(2.4), $(8.6), and $(2.6), respectively, associated with foreign currency transactions, foreign currency forward contracts, and currency forward embedded derivatives.
During 2018, 2017, 2016, 2015, and 2014, we recorded charges of $2.0, $3.5, $4.2, $8.0, and $3.1 respectively, associated with asbestos product liability matters.
(9) 
During the fourth quarter of 2018, we elected to reduce our participation foreign credit instrument facility commitment and our bilateral foreign credit instrument facility commitment by $35.0 and $15.0, respectively. In connection with the reduction of our foreign credit instrument facility commitments, we recorded a charge of $0.4 associated with the write-off of the unamortized deferred financing fees related to this previously available issuance capacity of $50.0.
During the fourth quarter of 2017, we amended our senior credit agreement. In connection with the amendment, we recorded a charge of $0.9, which consisted of the write-off of a portion of the unamortized deferred financing costs related to our senior credit facilities. In addition, we discontinued hedge accounting for the interest rate swap agreements that were entered into to hedge the interest rate risk on our then existing variable rate term loan, which resulted in a gain during 2017 of $2.7 that was recorded to “Other expense, net.”
During the third quarter of 2016, we elected to reduce our foreign credit instrument facilities. In connection with the reduction, we recorded a charge of $1.3 associated with the write-off of the unamortized deferred financing costs related to this previously available issuance capacity.
During the third quarter of 2015, we refinanced our senior credit facility in preparation of the Spin-Off. As a result of the refinancing, we recorded a charge of $1.4 which consisted of the write-off of a portion of the unamortized deferred financing costs related to our prior credit agreement.
During the first quarter of 2014, we completed the redemption of all of our 7.625% senior notes due in December 2014 for a total redemption price of $530.6. As a result of the redemption, we recorded a charge of $32.5 associated with the loss on early extinguishment of debt, which related to premiums paid to redeem the senior notes of $30.6, the write-off of unamortized deferred financing costs of $1.0, and other costs associated with the extinguishment of the senior notes of $0.9.
(10) 
During 2018, our income tax provision was impacted most significantly by (i) the utilization of $33.0 of prior years’ losses generated in foreign jurisdictions in which no benefit was previously recognized, (ii) $7.0 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions, and (iii) $2.2 of excess tax benefits resulting from stock-based compensation awards that vested during the year.

20



During 2017, our income tax benefit was impacted most significantly by (i) a tax benefit of $77.6 related to a worthless stock deduction in the U.S. associated with our investment in a South African subsidiary and (ii) $4.9 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions, partially offset by (iii) $11.8 of provisional tax charges associated with the impact of the Act and (iv) $68.2 of foreign losses generated during the year for which no foreign tax benefit was recognized as future realization of a foreign tax benefit is considered unlikely.
During 2016, our income tax provision was impacted by $0.3 of income taxes that were provided in connection with the $18.4 gain that was recorded on the sale of the dry cooling business, $2.4 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions, and $13.7 of foreign losses generated during the year for which no tax benefit was recognized, as future realization of such tax benefit is considered unlikely.
During 2015, our income tax benefit was impacted by (i) the effects of approximately $139.0 of foreign losses generated during the year for which no tax benefit was recognized, as future realization of any such tax benefit is considered unlikely, (ii) $3.7 of foreign taxes incurred during the year related to the Spin-Off and the reorganization actions undertaken to facilitate the Spin-Off, and (iii) $3.4 of taxes related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions.
During 2014, our income tax provision was impacted by the U.S. income taxes provided in connection with the $491.2 gain on the sale of our interest in EGS, income tax charges of $33.8 related to net increases in valuation allowances recorded against certain foreign deferred income tax assets, and $11.4 of income tax charges related to the repatriation of certain earnings of our non-U.S. subsidiaries. In addition, our income tax provision was impacted unfavorably by a low effective tax rate on foreign losses. The impact of these items was partially offset by the following income tax benefits: (i) $16.2 of tax benefits related to various audit settlements, statute expirations and other adjustments to liabilities for uncertain tax positions, with the most notable being the closure of our U.S. tax examination for the years 2008 through 2011, and (ii) $6.4 of tax benefits related to a loss on an investment in a foreign subsidiary.
(11) 
During 2018, we reached a settlement with the buyer of Balcke Dürr on the amount of cash and working capital at the closing date, as well as on various other matters, for a net payment from the buyer in the amount of Euro 3.0. The settlement resulted in a reduction of the net loss on sale of $3.8.
During 2017, we reduced the net loss associated with the sale of Balcke Dürr by $6.8. The reduction was comprised of an additional income tax benefit recorded for the sale of $9.4, partially offset by the impact of adjustments to liabilities retained in connection with the sale and certain other adjustments.
During 2016, we completed the sale of Balcke Dürr, resulting in a net loss of $78.6. The operating results of Balcke Dürr are presented within discontinued operations for all periods presented.
During 2015, we completed the Spin-Off of SPX FLOW. The operating results of SPX FLOW are presented within discontinued operations for all periods presented.
During 2014, we sold our Thermal Product Solutions, Precision Components, and Fenn businesses, resulting in an aggregate gain of $14.4.
See Note 4 to our consolidated financial statements for additional details regarding our discontinued operations.
(12) 
In connection with our noncontrolling interest in our South African subsidiary, we have reflected an adjustment of $18.1 to “Net income (loss) attributable to SPX Corporation common shareholders” for the excess redemption amount of the put option in our calculations of basic and diluted earnings per share for the year ended December 31, 2016. See Note 14 to our consolidated financial statements for additional details regarding the put option and this adjustment.
(13) 
In connection with the Spin-Off, we discontinued dividend payments immediately following the dividend payment for the second quarter of 2015.



21



ITEM 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(All currency and share amounts are in millions)
The following should be read in conjunction with our consolidated financial statements and the related notes thereto. Unless otherwise indicated, amounts provided in Item 7 pertain to continuing operations only.
Executive Overview
Revenue for 2018 totaled $1,538.6, compared to $1,425.8 in 2017 (and $1,472.3 in 2016). The increase in revenues was primarily due to the impact of the acquisitions of Schonstedt and Cues during 2018 (see below for additional details). In addition, revenues for 2018 were higher, when compared to 2017, due to (i) the impact of the adoption of ASC 606 (see below for additional details) and (ii) a reduction in revenue of $36.9 during 2017 resulting from revisions to the expected revenues and costs on our large power projects in South Africa (see Note 14 to our consolidated financial statements for additional details). Organic revenue was generally flat in 2018 as the significant increases for the businesses within our HVAC reportable segment were offset by declines associated with (i) lower sales of process cooling products and (ii) the continued wind-down of our Heat Transfer business (see below for additional details) and our large power projects in South Africa. The decrease in revenue in 2017, compared to 2016, was due primarily to the aforementioned $36.9 reduction in revenue on our large power projects in South Africa and, to a lesser extent, a decline in organic revenue.
For 2018, operating income totaled $107.6, compared to $59.9 in 2017 (and $70.0 in 2016). The increase in operating income during 2018, compared to 2017, was primarily due to an increase in profits within our HVAC reportable segment associated with organic revenue growth during the year. In addition, operating income for 2017 was impacted by (i) a reduction in profit of $52.8 associated with revisions during the second and fourth quarters of 2017 to the expected revenues and costs on our large power projects in South Africa and (ii) a gain of $10.2 on a contract settlement within our Heat Transfer business. Operating income for 2017, compared to 2016, was negatively impacted by the $52.8 charge noted above and favorably impacted by the $10.2 gain noted above, as well as an increase in profits within our Detection and Measurement reportable segment associated with organic revenue growth during the year. In addition, operating income for 2016 was impacted by (i) a gain on the sale of the dry cooling business of $18.4 and (ii) intangible asset impairment charges of $30.1, as further discussed below.
Operating cash flows from continuing operations totaled $112.9 in 2018, compared to $53.5 in 2017 (and $45.7 in 2016). The increase in operating cash flows from continuing operations, compared to 2017, was primarily the result of net income tax refunds in 2018 of $44.3 (versus net income tax payments in 2017 of $22.9). The increase in operating cash flows from continuing operations in 2017, compared to 2016, was due primarily to improved operating cash flows across our businesses related to improved profitability and reductions in working capital, partially offset by a year-over-year increase in net income tax payments ($22.9 in 2017, compared to $4.8 in 2016) and an increase in cash outflows associated with our large power projects in South Africa ($56.5 in 2017, compared to $33.1 in 2016).
Other significant items impacting the financial results for 2018, 2017, and 2016 are as follows:
2018:
Effective January 1, 2018, we adopted a new standard on revenue recognition (“ASC 606”) using the modified retrospective transition approach - See Notes 1, 3 and 5 to our consolidated financial statements for additional details:
The most significant effect of adopting ASC 606 is on our power transformer business.
The adoption of ASC 606 resulted in an increase in revenues of $14.2 and an increase in operating income of $2.0 during 2018 as compared to the amounts that would have been recorded under the prior revenue recognition standard.
On March 1, 2018, we completed the acquisition of Schonstedt - See Notes 1 and 4 to our consolidated financial statements for additional details:
The purchase price for Schonstedt was $16.4, net of cash acquired of $0.3.
Schonstedt’s revenues for the twelve months prior to the date of acquisition were approximately $9.0.
The post-acquisition operating results of Schonstedt are reflected within our Detection and Measurement reportable segment.


22



On March 8, 2018, we settled our then-existing interest rate swap agreement (“Old Swaps”) and entered into a new interest rate swap agreement (“New Swaps”) - See Note 13 to our consolidated financial statements for additional details:
Old Swaps
We discontinued hedge accounting for the Old Swaps in the fourth quarter of 2017 in connection with an amendment of our senior credit agreement.
During the three months ended March 31, 2018, we recorded a gain of $0.6 (to “Other expense, net”) representing the change in fair value of the Old Swaps from January 1, 2018 through the date of settlement on March 8, 2018.
New Swaps
The New Swaps have an initial notional amount of $260.0 and effectively convert a portion of our borrowings under our senior credit agreement to a fixed interest rate of 2.535%, plus the applicable margin.
We have designated, and are accounting for, the New Swaps as cash flow hedges.
On April 30, 2018, we reached an agreement with a subsidiary of mutares AG, the acquirer of Balcke Dürr in 2016 (the “Buyer”), on (i) the amount of cash and working capital of Balcke Dürr at the closing date of the sale and (ii) various other matters. The settlement resulted in:
A net payment from the Buyer in the amount of Euro 3.0; and
A gain, net of tax, of $3.8, which was recorded to “Gain (loss) on disposition of discontinued operations, net of tax” during 2018.
On June 7, 2018, we completed the acquisition of Cues - See Notes 1 and 4 to our consolidated financial statements for additional details:
The purchase price for Cues was $164.4, net of cash acquired of $20.6.
Cues’ revenues for the twelve months prior to the acquisition were approximately $84.0.
The post-acquisition operating results of Cues are reflected within our Detection and Measurement reportable segment.
During the second quarter of 2018, as a continuation of our strategic shift away from power generation end markets, we initiated a plan to wind-down the Heat Transfer business.
In connection with the planned wind-down, we recorded charges of $3.5 during 2018 with $0.9 related to the write-down of inventories (included in “Cost of products sold”), $0.6 related to the impairment of machinery and equipment and $2.0 related to severance costs (both included in “Special charges, net”).
In addition, we sold certain intangible assets of the Heat Transfer business for net cash proceeds of $4.8, which resulted in a gain of less than $0.1 within our 2018 operating results.
We anticipate completing the wind-down during the first half of 2019.

Actuarial Losses on Pension and Postretirement Plans (See Notes 1 and 10 to our consolidated financial statements for additional details) - We recorded net actuarial losses of $6.6 in the fourth quarter of 2018 in connection with the annual remeasurement of our pension and postretirement plans.
2017:
Income Tax Matters (see Notes 1 and 11 to our consolidated financial statements for additional details):
During the fourth quarter of 2017, we recorded an income tax benefit of $77.6 for a worthless stock deduction in the U.S. associated with our investment in a South African subsidiary.
On December 22, 2017, the Act was enacted which significantly changes U.S. income tax law for businesses and individuals. As a result of the Act, we recorded provisional net income tax charges of $11.8 during the fourth quarter of 2017.
Gain from a Contract Settlement - During the third quarter of 2017, we settled a contract that had been suspended and then ultimately cancelled by a customer. In connection with the settlement, we:
Received cash proceeds of $9.0 and other consideration; and
Recorded a gain of $10.2.
Amendment of Senior Credit Agreement - On December 19, 2017, we amended our senior credit agreement (see Note 12 to our consolidated financial statements for additional details). In connection with the amendment, we recorded:
A charge of $0.9 associated with the write-off of a portion of the deferred financing costs associated with the senior credit agreement; and

23



A gain of $2.7 related to the discontinuance of hedge accounting for the interest rate swap agreements that were entered into to hedge the interest rate risk on our then existing term loan.
Actuarial Gains and Losses on Pension and Postretirement Plans (see Notes 1 and 10 to our consolidated financial statements for additional details) - We recorded:
An actuarial gain during the third quarter of 2017 of $2.6 related to an amendment to our postretirement plans; and
Net actuarial losses of $4.2 in the fourth quarter of 2017 in connection with the annual remeasurement of our pension and postretirement plans.
2016:
Sale of Dry Cooling Business - On March 30, 2016, we completed the sale of the dry cooling business (see Notes 1 and 4 to our consolidated financial statements for additional details). In connection with the sale, we:
Received cash proceeds of $47.6; and
Recorded a gain of $18.4, which includes a reclassification from “Accumulated other comprehensive income” of $40.4 related to foreign currency translation.
Sale of Balcke Dürr - On December 30, 2016, we completed the sale of Balcke Dürr (see Notes 1, 4, and 16 to our consolidated financial statements for additional details).
The results of Balcke Dürr are presented as a discontinued operation.
In connection with the sale, we:
Received cash proceeds of less than $0.1;
Left $21.1 of cash in the business at the time of the sale; and
Recorded a net loss of $78.6 to “Gain (loss) on disposition of discontinued operations, net of tax” within our consolidated statement of operations for 2016.
Intangible Asset Impairment Charges - We recorded impairment charges of $30.1 related to the intangible assets of our Heat Transfer business, which included $23.9 for definite-lived intangible assets and $6.2 for indefinite-lived intangible assets.
Actuarial Losses on Pension and Postretirement Plans (see Notes 1 and 10 to our consolidated financial statements for additional details) - During the year, we recorded net actuarial losses of $12.0.

Results of Continuing Operations
Cyclicality of End Markets, Seasonality and Competition—The financial results of our businesses closely follow changes in the industries in which they operate and end markets in which they serve. In addition, certain of our businesses have seasonal fluctuations. For example, our heating and ventilation businesses tend to be stronger in the third and fourth quarters, as customer buying habits are driven largely by seasonal weather patterns. In aggregate, our businesses generally tend to be stronger in the second half of the year.
Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since none of our competitors offer all the same product lines or serve all the same markets as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors.
Non-GAAP Measures —Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions/divestitures, the impact of accounting standard adoptions, and the impact of the revenue reduction that resulted from the third quarter 2018 and second and fourth quarter 2017 revisions to the expected revenues and costs on our large power projects in South Africa, which resulted in a reduction of revenues of $2.7 in 2018 and $36.9 in 2017. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as, when read in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.




24




The following table provides selected financial information for the years ended December 31, 2018, 2017, and 2016, including the reconciliation of organic revenue decline to net revenue increase (decline):
 
Year ended December 31,
 
2018 vs
 
2017 vs
 
2018
 
2017
 
2016
 
2017%
 
2016%
Revenues
$
1,538.6

 
$
1,425.8

 
$
1,472.3

 
7.9
%
 
(3.2
)%
Gross profit
410.7

 
330.2

 
375.8

 
24.4

 
(12.1
)
% of revenues
26.7
%
 
23.2
%
 
25.5
%
 
 

 
 

Selling, general and administrative expense
292.6

 
277.2

 
286.0

 
5.6

 
(3.1
)
% of revenues
19.0
%
 
19.4
%
 
19.4
%
 
 

 
 

Intangible amortization
4.2

 
0.6

 
2.8

 
600.0

 
(78.6
)
Impairment of intangible assets

 

 
30.1

 
*

 
*

Special charges, net
6.3

 
2.7

 
5.3

 
133.3

 
(49.1
)
Gain on contract settlement

 
10.2

 

 
*

 
*

Gain on sale of dry cooling business

 

 
18.4

 
*

 
*

Other expense, net
(7.6
)
 
(7.1
)
 
(15.3
)
 
7.0

 
(53.6
)
Interest expense, net
(20.0
)
 
(15.8
)
 
(14.0
)
 
26.6

 
12.9

Loss on amendment/refinancing of senior credit agreement
(0.4
)
 
(0.9
)
 
(1.3
)
 
(55.6
)
 
(30.8
)
Income from continuing operations before income taxes
79.6

 
36.1

 
39.4

 
120.5

 
(8.4
)
Income tax (provision) benefit
(1.4
)
 
47.9

 
(9.1
)
 
*

 
*

Income from continuing operations
78.2

 
84.0

 
30.3

 
(6.9
)
 
177.2

Components of consolidated revenue increase (decline):
 

 
 

 
 

 
 

 
 

Organic
 

 
 

 
 

 
0.2

 
(0.8
)
Foreign currency
 

 
 

 
 

 
0.1

 
0.6

Sale of dry cooling business
 
 
 
 
 
 

 
(0.5
)
South Africa revenue revision
 

 
 

 
 

 
2.4

 
(2.5
)
Acquisitions
 
 
 
 
 
 
4.2

 

Adoption of ASC 606
 
 
 
 
 
 
1.0

 

Net revenue increase (decline)
 

 
 

 
 

 
7.9

 
(3.2
)
___________________________________________________________________
*
Not meaningful for comparison purposes.
Revenues — For 2018, the increase in revenues, compared to 2017, was primarily due to the impact of the acquisitions of Schonstedt and Cues acquisition during 2018. In addition, revenues were higher, when compared to 2017, due to (i) the impact of the adoption of ASC 606 and (ii) a reduction in revenue of $36.9 during 2017 resulting from revisions to the expected revenues and costs on our large power projects in South Africa (see Note 14 to our consolidated financial statements for additional details). Organic revenue was generally flat in 2018 as the significant increases for the businesses within our HVAC reportable segment were offset by declines associated with (i) lower sales of process cooling products and (ii) the continued wind-down of our Heat Transfer business and our large power projects in South Africa. See “Results of Reportable and Other Operating Segments” for additional details.
For 2017, the decrease in revenues, compared to 2016, was due, in part, to a decline in organic revenue associated with our Engineered Solutions reportable segment and our large power projects in South Africa, as these projects are in the latter stages of completion, partially offset by increases in organic revenue within our Detection and Measurement reportable segment. In addition, revenues were negatively impacted by (i) the reduction in revenue of $36.9 noted above related to our large power projects in South Africa and (ii) the impact of the sale of the dry cooling business at the end of the first quarter of 2016. These declines in revenue were partially offset by the impact of a weaker U.S. dollar during 2017. See “Results of Reportable and Other Operating Segments” for additional details.
Gross Profit — For 2018, gross profit and gross profit as a percentage of revenues, compared to 2017, was favorably impacted by the increase in revenues noted above. Additionally, during 2017, gross profit and gross profit as a percentage of revenues were

25



negatively impacted by a reduction in gross profit of $52.8 resulting from revisions to expected revenues and costs on our large power projects in South Africa. Lastly, during 2018, gross profit and gross profit as a percentage of revenue were negatively impacted by (i) charges of $4.6 associated with the excess fair value (over historical cost) of inventory acquired in the Schonstedt and Cues transactions which has been subsequently sold and (ii) a decline in profitability during 2018 for our power transformer business associated primarily with a less profitable sale mix, higher commodity costs, and less favorable cost absorption.
The decrease in gross profit and gross profit as a percentage of revenue in 2017, compared to 2016, was due primarily to the reduction in gross profit noted above of $52.8 related to our large power projects in South Africa, partially offset by the impact of the organic revenue growth in our Detection and Measurement reportable segment noted above.
Selling, General and Administrative (“SG&A”) Expense — For 2018, the increase in SG&A expense, compared to 2017, was primarily a result of the incremental SG&A associated with Schonstedt and Cues since their respective dates of acquisition and higher professional fees related to acquisition activities, partially offset by cost reductions associated with restructuring actions implemented over the past year.
For 2017, the decrease in SG&A expense, compared to 2016, was due primarily to the impact of (i) the sale of the dry cooling business at the end of the first quarter of 2016 and (ii) cost reduction actions within certain of our businesses during 2017.
Intangible Amortization — For 2018, the increase in intangible amortization, compared to 2017, was due to the impact of the intangible assets acquired in connection with the Schonstedt and Cues transactions.
For 2017, the decline in intangible amortization, compared to 2016, was primarily due to the impact of the $23.9 impairment charge recorded in the fourth quarter of 2016 associated with our Heat Transfer business’s definite-lived intangible assets.
Impairment of Intangible Assets — During 2016, we recorded impairment charges of $30.1 related to the intangible assets of our Heat Transfer business, which included $23.9 for definite-lived intangible assets and $6.2 for indefinite-lived intangible assets.
Special Charges, Net — Special charges, net, related primarily to restructuring initiatives to consolidate manufacturing, distribution, sales and administrative facilities, reduce workforce, and rationalize certain product lines. See Note 7 to our consolidated financial statements for the details of actions taken in 2018, 2017 and 2016. The components of special charges, net, are as follows:
 
Year ended December 31,
 
2018
 
2017
 
2016
Employee termination costs
$
5.7

 
$
2.5

 
$
1.7

Other cash costs, net

 
0.2

 

Non-cash asset write-downs
0.6

 

 
3.6

Total
$
6.3

 
$
2.7

 
$
5.3

Gain on Contract Settlement — During the third quarter of 2017, we settled a contract that had been suspended and then ultimately cancelled by a customer of our Heat Transfer business for cash proceeds of $9.0 and other consideration. In connection with the settlement, we recorded a gain of $10.2.
Gain on Sale of Dry Cooling Business — On March 30, 2016, we completed the sale of our dry cooling business resulting in a gain of $18.4. See Notes 1 and 4 to our consolidated financial statements for additional details.
Other Expense, Net — Other expense, net, for 2018 was composed primarily of pension and postretirement expense of $3.9, charges of $5.0 associated with legacy environmental matters, and charges of $2.0 associated with asbestos product liability matters, partially offset by income of $1.5 related to the reduction of the parent company guarantees and bank surety bonds liability and the amortization of related indemnification assets that remain outstanding in connection with the Balcke Dürr sale, income from company-owned life insurance policies of $0.9, and equity earnings in joint ventures of $0.6.
Other expense, net, for 2017 was composed primarily of pension and postretirement expense of $5.1, charges of $3.5 associated with asbestos product liability matters, foreign currency transaction losses of $2.9, and losses on currency forward embedded derivatives (“FX embedded derivatives”) of $0.6, partially offset by a gain of $2.7 associated with the discontinuance of hedge accounting on our interest rate swap agreements, income from company-owned life insurance policies of $1.7, and equity earnings in joint ventures of $0.7.
Other expense, net, for 2016 was composed primarily of pension and postretirement expense of $15.0, charges of $4.2 associated with asbestos product liability matters, losses on foreign currency forward contracts (“FX forward contracts”) of $5.1,

26



and losses on FX embedded derivatives of $1.2. These amounts were offset partially by foreign currency transaction gains of $3.9, income from company-owned life insurance policies of $2.8, equity earnings in joint ventures of $1.5, income associated with transition services provided in connection with the sale of the dry cooling business of $0.9, and gains on asset sales of $0.9.
Interest Expense, Net — Interest expense, net, includes both interest expense and interest income. The increase in interest expense, net, during 2018, compared to 2017, was primarily a result of the borrowings required to finance the acquisition of Cues and a higher weighted-average interest rate during 2018 on the outstanding borrowings of our senior credit facilities.
The increase in interest expense, net, during 2017, compared to 2016, was primarily a result of a higher weighted-average interest rate and higher average debt balances during 2017, compared to 2016.
Loss on Amendment/Refinancing of Senior Credit Agreement — During the fourth quarter of 2018, we elected to reduce the issuance capacity of our foreign credit facilities under our senior credit agreement by $50.0. In connection with such reduction, we recorded a charge of $0.4 associated with the write-off of the unamortized deferred financing costs related to the $50.0 of previously available issuance capacity.
During the fourth quarter of 2017, we amended our senior credit agreement. In connection with the amendment, we recorded a charge of $0.9, which consisted of the write-off of a portion of the unamortized deferred financing costs related to our senior credit facilities.
In the third quarter of 2016, we reduced the issuance capacity under our foreign credit facilities by $200.0. In connection with such reduction, we recorded a charge of $1.3 associated with the write-off of the unamortized deferred financing costs related to the $200.0 of previously available issuance capacity.
Income Taxes — During 2018, we recorded an income tax provision of $1.4 on $79.6 of pre-tax income from continuing operations, resulting in an effective tax rate of 1.8%. The most significant items impacting effective tax rate for 2018 were (i) the utilization of $33.0 of prior years’ losses generated in foreign jurisdictions in which no benefit was previously recognized, (ii) $7.0 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions, and (iii) $2.2 of excess tax benefits resulting from stock-based compensation awards that vested during the year.
During 2017, we recorded an income tax benefit of $47.9 on $36.1 of a pre-tax income from continuing operations, resulting in an effective tax rate of (132.7)%. The most significant items impacting effective tax rate for 2017 were (i) a tax benefit of $77.6 related to a worthless stock deduction in the U.S. associated with our investment in a South African subsidiary and (ii) $4.9 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions, partially offset by (iii) $11.8 of net tax charges associated with the impact of the Act described more fully above and (iv) $68.2 of foreign losses generated during the year for which no foreign tax benefit was recognized as future realization of any such foreign tax benefit is considered unlikely.
During 2016, we recorded an income tax provision of $9.1 on $39.4 of a pre-tax income from continuing operations, resulting in an effective tax rate of 23.1%. The most significant items impacting the effective tax rate for 2016 were the $0.3 of income taxes provided in connection with the $18.4 gain that was recorded on the sale of the dry cooling business, $13.7 of foreign losses generated during the period for which no tax benefit was recognized as future realization of any such foreign tax benefit is considered unlikely, and $2.4 of tax benefits related to various audit settlements, statute expirations, and other adjustments to liabilities for uncertain tax positions.
Results of Discontinued Operations
Sale of Balcke Dürr Business
As indicated in Note 1 to our consolidated financial statements, on December 30, 2016, we completed the sale of Balcke Dürr 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. In connection with the sale, we recorded a net loss of $78.6 to “Gain (loss) on disposition of discontinued operations, net of tax” during the fourth quarter of 2016.





27





The results of Balcke Dürr are presented as a discontinued operation. Major classes of line items constituting pre-tax loss and after-tax loss of Balcke Dürr for the year ended December 31, 2016 are shown below:
 
 
 
 
Revenues
$
153.4

Costs and expenses:
 
Costs of products sold
144.2

Selling, general and administrative
31.4

Special charges (credits), net
(1.3
)
Other expense, net
(0.2
)
Loss before taxes
(21.1
)
Income tax benefit
4.5

Loss from discontinued operations
$
(16.6
)
The following table presents selected financial information for Balcke Dürr that is included within discontinued operations in the consolidated statement of cash flows for the year ended December 31, 2016:
 
 
 
 
Non-cash items included in income (loss) from discontinued operations, net of tax
 
Depreciation and amortization
$
2.0

Capital expenditures
0.7

During 2017, we reduced the net loss associated with the sale of Balcke Dürr by $6.8. The reduction was comprised of an additional income tax benefit recorded for the sale of $9.4, partially offset by the impact of adjustments to liabilities retained in connection with the sale and certain other adjustments. During the second quarter of 2018, we reached a settlement with the Buyer on the amount of cash and working capital at the closing date, as well as on various other matters, for a net payment from the Buyer in the amount of Euro 3.0. The settlement resulted in a gain, net of tax, of $3.8, which was recorded to “Gain (loss) on disposition of discontinued operations, net of tax” during the second quarter of 2018. See Note 4 to our consolidated financial statements for information on discontinued operations.
Other Discontinued Operations Activity
In addition to the businesses discussed above, we recognized net losses of $0.8, $1.5 and $2.7 during 2018, 2017 and 2016, respectively, resulting from adjustments to gains/losses on dispositions of businesses discontinued prior to 2016.
Changes in estimates associated with liabilities retained in connection with a business divestiture (e.g., income taxes) may occur. As a result, it is possible that the resulting gains/losses on these and other previous divestitures may be materially adjusted in subsequent periods.

28



For the years ended December 31, 2018, 2017 and 2016, results of operations from our businesses reported as discontinued operations were as follows:
 
Year ended December 31,
 
2018
 
2017
 
2016
Balcke Dürr
 
 
 
 
 
Income (loss) from discontinued operations
$
6.3

 
$
(2.6
)
 
$
(107.0
)
Income tax (provision) benefit
(2.5
)
 
9.4

 
11.8

Income (loss) from discontinued operations, net
3.8

 
6.8

 
(95.2
)
 
 
 
 
 
 
All other
 
 
 
 
 
Loss from discontinued operations
(1.2
)
 
(4.0
)
 
(3.7
)
Income tax benefit
0.4

 
2.5

 
1.0

Loss from discontinued operations, net
(0.8
)
 
(1.5
)
 
(2.7
)
 
 
 
 
 
 
Total
 
 
 
 
 
Income (loss) from discontinued operations
5.1

 
(6.6
)
 
(110.7
)
Income tax (provision) benefit
(2.1
)
 
11.9

 
12.8

Income (loss) from discontinued operations, net
$
3.0

 
$
5.3

 
$
(97.9
)
Other Dispositions
Sale of Dry Cooling Business
As indicated in Note 1 to our consolidated financial statements, on March 30, 2016, we completed the sale of our dry cooling business for cash proceeds for $47.6 (net of cash transferred with the business of $3.0). In connection with the sale, we recorded a gain of $18.4.
Results of Reportable and Other Operating Segments
The following information should be read in conjunction with our consolidated financial statements and related notes. These results exclude the operating results of discontinued operations for all periods presented. See Note 6 to our consolidated financial statements for a description of each of our reportable segments.
Non-GAAP Measures — Throughout the following discussion of reportable and other operating segments, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure, and is not a substitute for net revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations — Non-GAAP Measures.”
HVAC Reportable Segment
 
Year Ended December 31,
 
2018 vs.
2017%
 
2017 vs.
2016%
 
2018
 
2017
 
2016
 
 
Revenues
$
582.1

 
$
511.0

 
$
509.5

 
13.9
 
0.3

Income
90.0

 
74.1

 
80.2

 
21.5
 
(7.6
)
% of revenues
15.5
%
 
14.5
%
 
15.7
%
 
 
 
 

Components of revenue increase:
 

 
 

 
 

 
 
 
 

Organic
 

 
 

 
 

 
13.7
 
0.3

Foreign currency
 

 
 

 
 

 
0.2
 

Net revenue increase
 

 
 

 
 

 
13.9
 
0.3

Revenues — For 2018, the increase in revenues, compared to 2017, was due to an increase in organic revenue and, to a lesser extent, the impact of a weaker U.S. dollar. The increase in organic revenue was a result of an increase in sales for all of the primary product lines within the segment.
For 2017, the increase in revenues, compared to 2016, was due to the increase in organic revenue. The increase in organic revenue was due primarily to an increase in sales of cooling products and heating and ventilation products, partially offset by a decline in sales of boiler products.

29



Income — For 2018, income and margin increased, compared to 2017, primarily as a result of the organic revenue growth noted above.
For 2017, income and margin decreased, compared to 2016, primarily as a result of a less profitable sales mix associated with the segment’s cooling and boiler products as well as lower absorption of fixed costs within the boiler products business due to the lower sales volumes noted above.
Backlog — The segment had backlog of $46.9 and $41.4 as of December 31, 2018 and 2017, respectively. Approximately 96% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019.
Detection and Measurement Reportable Segment
 
Year Ended December 31,
 
2018 vs.
2017%
 
2017 vs.
2016%
 
2018
 
2017
 
2016
 
 
Revenues
$
320.9

 
$
260.3

 
$
226.4

 
23.3

 
15.0

Income
72.4

 
63.4

 
45.3

 
14.2

 
40.0

% of revenues
22.6
%
 
24.4
%
 
20.0
%
 
 

 
 

Components of revenue increase:
 

 
 

 
 

 
 

 
 

Organic
 

 
 

 
 

 
(0.3
)
 
15.5

Foreign currency
 

 
 

 
 

 
0.4

 
(0.5
)
Acquisitions
 
 
 
 
 
 
23.2

 

Net revenue increase
 

 
 

 
 

 
23.3

 
15.0

Revenues — For 2018, the increase in revenues, compared to 2017, was primarily due to the impact of the Schonstedt and Cues acquisitions, partially offset by a decline in organic revenue. The decline in organic revenue was due primarily to lower sales of bus fare collection systems.
For 2017, the increase in revenues, compared to 2016, was due to an increase in organic revenue. The increase in organic revenue was the result of an increase in sales for all of the primary product lines within the segment.
Income — For 2018, income increased compared to 2017, primarily as a result of the revenue increase noted above. The decrease in margin was primarily the result of (i) a charge of $4.6 associated with the excess fair value (over historical cost) of inventory acquired in the Cues and Schonstedt transactions which has been subsequently sold and (ii) the incremental amortization expense associated with the intangible assets acquired in these transactions, partially offset by a more profitable sales mix in 2018.
For 2017, the increase in income and margin, compared to 2016, was due primarily to the revenue increase noted above and lower SG&A expense resulting from cost reductions within our bus fare collection systems’ and communication technologies’ businesses.
Backlog — The segment had backlog of $71.9 and $54.0 as of December 31, 2018 and 2017, respectively. Approximately 76% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019.
Engineered Solutions Reportable Segment
 
Year Ended December 31,
 
2018 vs.
2017%
 
2017 vs.
2016%
 
2018
 
2017
 
2016
 
 
Revenues
$
537.0

 
$
560.7

 
$
598.0

 
(4.2
)
 
(6.2
)
Income
35.0

 
44.2

 
39.1

 
(20.8
)
 
13.0

% of revenues
6.5
%
 
7.9
%
 
6.5
%
 
 

 
 

Components of revenue decline:
 

 
 

 
 

 
 

 
 

Organic
 

 
 

 
 

 
(6.7
)
 
(5.1
)
Sale of dry cooling business
 
 
 
 
 
 

 
(1.1
)
Adoption of ASC 606
 
 
 
 
 
 
2.5

 

Net revenue decline
 

 
 

 
 

 
(4.2
)
 
(6.2
)
Revenues — For 2018, the decrease in revenues, compared to 2017, was due primarily to a decline in organic revenue, partially offset by the impact of the adoption of ASC 606. The decline in organic revenue primarily resulted from a decrease in sales of process cooling products. Revenue for the segment’s process cooling business continues to be impacted by a shift in its sales model, as the business is now focused more on high-margin components and services and less on low-margin large projects.

30



For 2017, the decrease in revenues, compared to 2016, was due primarily to a decline in organic revenue. The decline in organic revenue was the result of lower sales of power transformers and process cooling products. The decrease in power transformer sales was due primarily to the timing of shipments, while the decrease in sales of process cooling products was primarily the result of the shift in the sales model noted above.
Income — For 2018, the decrease in income and margin, compared to 2017, was due primarily to a decline in profitability for the segment’s power transformer business associated with a less profitable sale mix, higher commodity costs, and less favorable cost absorption during 2018.
For 2017, the increase in income and margin, compared to 2016, was due primarily to increased profits within the segment’s process cooling business primarily as a result of the shift in its sales model noted above.
Backlog — The segment had backlog of $311.2 and $320.6 as of December 31, 2018 and 2017, respectively. Approximately 88% of the segment’s backlog as of December 31, 2018 is expected to be recognized as revenue during 2019.
All Other
 
Year Ended December 31,
 
2018 vs.
2017%
 
2017 vs.
2016%
 
2018
 
2017
 
2016
 
 
Revenues
$
98.6

 
$
93.8

 
$
138.4

 
5.1

 
(32.2
)
Loss
(18.9
)
 
(56.8
)
 
(21.8
)
 
(66.7
)
 
160.6

% of revenues
(19.2
)%
 
(60.6
)%
 
(15.8
)%
 
 

 
 

Components of revenue increase (decline):
 

 
 

 
 

 
 

 
 

Organic
 

 
 

 
 

 
(31.9
)
 
(13.2
)
Foreign currency
 

 
 

 
 

 
0.5

 
7.7

South Africa revenue revision
 
 
 
 
 
 
36.5

 
(26.7
)
Net revenue increase (decline)
 

 
 

 
 

 
5.1

 
(32.2
)
Revenues — For 2018, the increase in revenues, compared to 2017, was due primarily to (i) a reduction in revenue of $36.9 in 2017 related to revisions to the expected revenue and costs on our large power projects in South Africa and (ii) a weaker U.S. dollar versus the South African Rand during 2018, partially offset by a decline in organic revenue. The decline in organic revenue was the result of lower sales related to (i) the large power projects in South Africa, as these projects generally are in the latter stages of completion, and (ii) the impact of the wind-down of the Heat Transfer business.
For 2017, the decrease in revenues, compared to 2016, was due primarily to the $36.9 reduction in revenue noted above related to our large power projects in South Africa and a decline in organic revenue, partially offset by the impact of a weaker U.S. dollar versus the South African Rand during 2017. The decline in organic revenue was the result of lower sales related to the large power projects in South Africa, as these projects generally are in the latter stages of completion.
Loss — For 2018, the decrease in the loss, compared to 2017, was due primarily to the fact that 2017 included a charge of $52.8 associated with revisions to the expected revenues and costs of our large power projects in South Africa, partially offset by a $10.2 gain resulting from the settlement of a contract that had been suspended and then ultimately cancelled by a customer of our Heat Transfer business.
For 2017, the increase in the loss, compared to 2016, was due primarily to the $52.8 charge noted above associated with our large power projects in South Africa, partially offset by the $10.2 gain noted above.
Backlog — These operating segments had aggregate backlog of $26.8 and $113.4 as of December 31, 2018 and 2017, respectively. Approximately 97% of the backlog as of December 31, 2018 is expected to be recognized as revenue during 2019.

Corporate Expense and Other Expense
 
Year Ended December 31,
 
2018 vs.
2017%
 
2017 vs.
2016%
 
2018
 
2017
 
2016
 
 
Total consolidated revenues
$
1,538.6

 
$
1,425.8

 
$
1,472.3

 
7.9

 
(3.2
)
Corporate expense
48.5

 
46.2

 
41.7

 
5.0

 
10.8

% of revenues
3.2
%
 
3.2
%
 
2.8
%
 
 

 
 

Long-term incentive compensation expense
15.5

 
15.8

 
13.7

 
(1.9
)
 
15.3


31



Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, NC corporate headquarters. The increase in corporate expense in 2018, compared to 2017, was due primarily to professional fees and other costs incurred in connection with acquisition-related activities, partially offset by lower incentive compensation expense. The increase in corporate expense in 2017, compared to 2016, was due primarily to higher incentive compensation expense, as well as higher professional fees.
Long-Term Incentive Compensation Expense —  The decrease in long-term incentive compensation expense during 2018, compared to 2017, was due to the impact of award forfeitures as a result of participant resignations during the year. The increase in long-term incentive compensation expense during 2017, compared to 2016, was due primarily to additional charges of $1.6 in 2017 associated with certain of our long-term cash-awards, as we now expect to exceed the three-year segment income performance target required of these awards.
See Note 15 to our consolidated financial statements for further details on our long-term incentive compensation plans.
Liquidity and Financial Condition
Listed below are the cash flows from (used in) operating, investing and financing activities, and discontinued operations, as well as the net change in cash and equivalents for the years ended December 31, 2018, 2017 and 2016.
 
Years Ended December 31,
 
2018
 
2017
 
2016
Continuing operations:
 

 
 

 
 

Cash flows from operating activities
$
112.9

 
$
53.5

 
$
45.7

Cash flows from (used in) investing activities
(184.2
)
 
(10.6
)
 
44.1

Cash flows from (used in) financing activities
16.8

 
(6.2
)
 
(20.5
)
Cash flows from (used in) discontinued operations
1.3

 
(6.6
)
 
(77.8
)
Change in cash and equivalents due to changes in foreign currency exchange rates
(2.3
)
 
(5.4
)
 
6.7

Net change in cash and equivalents
$
(55.5
)
 
$
24.7

 
$
(1.8
)
2018 Compared to 2017
Operating Activities — The increase in cash flows from operating activities, compared to 2017, was due primarily to net income tax refunds in 2018 of $44.3 (versus net income tax payments of $22.9 during 2017).
Investing Activities — Cash flows used in investing activities for 2018 were comprised primarily of cash utilized in the acquisitions of Schonstedt and Cues of $180.8 and capital expenditures of $12.4, partially offset by net cash proceeds of $4.8 received in connection with the sale of certain intangible assets of our Heat Transfer business and cash proceeds of $4.6 received in connection with the subsequent sale of marketable securities acquired in connection with the Cues transaction. Cash flows used in investing activities for 2017 were comprised primarily of capital expenditures of $11.0.
Financing Activities — Cash flows from financing activities for 2018 primarily related to net borrowings in connection with the Cues acquisition. Cash flows used in financing activities for 2017 primarily related to financing fees of $3.6 paid in connection with the December 2017 amendment of our senior credit agreement and net repayments under our various debt instruments of $1.3.
Discontinued Operations — Cash flows from discontinued operations for 2018 related primarily to proceeds of $3.6 received in connection with a settlement reached with the Buyer of Balcke Dürr, partially offset by disbursements for liabilities retained in connection with dispositions. Cash flows used in discontinued operations for 2017 related primarily to disbursements for liabilities retained in connection with dispositions.
Change in Cash and Equivalents Due to Changes in Foreign Currency Exchange Rates — Changes in foreign currency exchange rates did not have a significant impact on our cash and equivalents during 2018 and 2017.

32



2017 Compared to 2016
Operating Activities — The increase in cash flows from operating activities, compared to 2016, was due primarily to improved operating cash flows across our businesses related to improved profitability and reductions in working capital, partially offset by a year-over-year increase in net income tax payments ($22.9 in 2017, compared to $4.8 in 2016) and an increase in cash outflows associated with our large power projects in South Africa ($56.5 in 2017, compared to $33.1 in 2016).
Investing Activities — Cash flows used in investing activities for 2017 were comprised primarily of capital expenditures of $11.0. Cash flows from investing activities for 2016 related to proceeds from asset sales of $48.1 (including proceeds from the sale of the dry cooling business of $47.6) and net proceeds from company-owned life insurance policies of $7.7, partially offset by capital expenditures of $11.7.
Financing Activities — During 2017, cash flows used in financing activities primarily related to financing fees of $3.6 paid in connection with the December 2017 amendment of our senior credit agreement and net repayments under our various debt instruments of $1.3. During 2016, cash flows used in financing activities primarily related to net repayments of debt of $18.9.
Discontinued Operations — Cash flows used in discontinued operations for 2017 related to disbursements for liabilities retained in connection with dispositions, while cash flows used in discontinued operations during 2016 related primarily to the operations of our Balcke Dürr business and the cash disposed of in connection with the sale of Balcke Dürr.
Change in Cash and Equivalents Due to Changes in Foreign Currency Exchange Rates — Changes in foreign currency exchange rates did not have a significant impact on our cash and equivalents during 2017 and 2016.
Borrowings
The following summarizes our debt activity (both current and non-current) for the year ended December 31, 2018:

December 31,
2017

Borrowings

Repayments

Other (4)

December 31,
2018
Revolving loans
$


$
199.4


$
(193.0
)

$


$
6.4

Term loan (1)
347.7






0.4


348.1

Trade receivables financing arrangement (2)


123.0


(100.0
)



23.0

Other indebtedness (3)
9.1


14.2


(19.0
)



4.3

Total debt
356.8


$
336.6


$
(312.0
)

$
0.4


381.8

Less: short-term debt
7.0











31.9

Less: current maturities of long-term debt
0.5








18.0

Total long-term debt
$
349.3








$
331.9

_____________________________________________________________
(1) 
The term loan is repayable in quarterly installments of 1.25% of the initial loan amount of $350.0, beginning in the first quarter of 2019, with the remaining balance payable in full on December 19, 2022. Balances are net of unamortized debt issuance costs of $1.9 and $2.3 at December 31, 2018 and December 31, 2017, respectively.
(2) 
Under this arrangement, we can borrow, on a continuous basis, up to $50.0, as available. At December 31, 2018, we had $27.0 of available borrowing capacity under this facility after giving effect to outstanding borrowings of $23.0. Borrowings under this arrangement are collateralized by eligible trade receivables of certain of our businesses.
(3) 
Primarily includes balances under a purchase card program of $2.5 and $2.8, capital lease obligations of $1.8 and $2.1, and borrowings under a line of credit in China of $0.0 and $4.1, at December 31, 2018 and 2017, 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, debt issuance costs incurred in connection with the term loan, and the impact of amortization of debt issuance costs associated with the term loan.
Maturities of long-term debt payable during each of the five years subsequent to December 31, 2018 are $18.0, $18.0, $17.9, $297.8 and $0.1, respectively.
Senior Credit Facilities
On December 19, 2017, we amended our senior credit agreement (the “Credit Agreement”) to, among other things, extend the term of each facility under the Credit Agreement (with the aggregate of each facility comprising the “Senior Credit Facilities”)

33



and provide committed senior secured financing with an aggregate amount of $900.0. On November 16, 2018, we elected to reduce our participation foreign credit instrument facility commitment and our bilateral foreign credit instrument facility commitment by $35.0 and $15.0, respectively, which resulted in a reduction of our committed senior secured financing from $900.0 to $850.0. The components of our senior secured financing (each with a final maturity of December 19, 2022) were as follows as of December 31, 2018:

A term loan facility in an aggregate principal amount of $350.0;
A domestic revolving credit facility, available for loans and letters of credit, in an aggregate principal amount up to $200.0;
A global revolving credit facility, available for loans in Euros, GBP and other currencies, in an aggregate principal amount up to the equivalent of $150.0;
A participation foreign credit instrument facility, available for performance letters of credit and guarantees, in an aggregate principal amount up to the equivalent of $110.0 (previously $145.0); and
A bilateral foreign credit instrument facility, available for performance letters of credit and guarantees, in an aggregate principal amount up to the equivalent of $40.0 (previously $55.0).
In connection with the reduction of our foreign credit instrument facility commitments as noted above, we recorded a charge of $0.4 to “Loss on amendment/refinancing of senior credit agreement,” during the fourth quarter of 2018 associated with the write-off of the unamortized deferred financing fees related to this previously available issuance capacity of $50.0.
The above amendment of our Credit Agreement also:
Adjusts the maximum aggregate amount of additional commitments we may seek, without consent of existing lenders, to add an incremental term loan facility and/or increase the commitments in respect of the domestic revolving credit facility, the global revolving credit facility, the participation foreign credit instrument facility, and/or the bilateral foreign credit instrument facility, to (i) the greater of (A) $200.0 or (B) our Consolidated EBITDA for the preceding four fiscal quarters, plus (ii) an amount equal to all voluntary prepayments of the term loan facility and the voluntary prepayments accompanied by permanent commitment reductions of revolving credit facilities and foreign credit instrument facilities, plus (iii) an unlimited amount so long as, immediately after giving effect thereto, our Consolidated Senior Secured Leverage Ratio for the prior four fiscal quarters does not exceed 2.75 to 1.00 (with the provisions described in clauses (ii) and (iii) being essentially unchanged from the previous agreement);

Permits unlimited investments, capital stock repurchases and dividends, and prepayments of subordinated debt if our Consolidated Leverage Ratio, after giving pro forma effect to such payments, is less than 2.75 to 1.00 (2.50 to 1.00 prior to the amendment);

Increases the Consolidated Leverage Ratio that we are required to maintain as of the last day of any fiscal quarter to not more than 3.50 to 1.00 (or 4.00 to 1.00 for the four fiscal quarters after certain permitted acquisitions) and included certain add-backs in the definition of consolidated EBITDA used in determining such ratio; and

Adjusts per annum fees charged and the interest rate margins applicable to Eurodollar and alternate base rate loans, in each case based on the Consolidated Leverage Ratio, to be as follows:

Consolidated
Leverage
Ratio
 
Domestic
Revolving
Commitment
Fee
 
Global
Revolving
Commitment
Fee
 
Letter of
Credit
Fee
 
Foreign
Credit
Commitment
Fee
 
Foreign
Credit
Instrument
Fee
 
LIBOR
Rate
Loans
 
ABR
Loans
Greater than or equal to 3.00 to 1.0
 
0.350
%
 
0.350
%
 
2.000
%
 
0.350
%
 
1.250
%
 
2.000
%
 
1.000
%
Between 2.25 to 1.0 and 3.00 to 1.0
 
0.300
%
 
0.300
%
 
1.750
%
 
0.300
%
 
1.000
%
 
1.750
%
 
0.750
%
Between 1.50 to 1.0 and 2.25 to 1.0
 
0.275
%
 
0.275
%
 
1.500
%
 
0.275
%
 
0.875
%
 
1.500
%
 
0.500
%
Less than 1.50 to 1.0
 
0.250
%
 
0.250
%
 
1.375
%
 
0.250
%
 
0.800
%
 
1.375
%
 
0.375
%

We are the borrower under each of the above facilities, and certain of our foreign subsidiaries are (and we may designate other foreign subsidiaries to be) borrowers under the global revolving credit facility and the foreign credit instrument facilities.

34



All borrowings and other extensions of credit under the Credit Agreement are subject to the satisfaction of customary conditions, including absence of defaults and accuracy in material respects of representations and warranties.
The letters of credit under the domestic revolving credit facility are stand-by letters of credit requested by SPX on behalf of any of our subsidiaries or certain joint ventures. The foreign credit instrument facility is used to issue foreign credit instruments, including bank undertakings to support our foreign operations.
The interest rates applicable to loans under the Credit Agreement are, at our option, equal to either (i) an alternate base rate (the highest of (a) the federal funds effective rate plus 0.5%, (b) the prime rate of Bank of America, N.A., and (c) the one-month LIBOR rate plus 1.0%) or (ii) a reserve-adjusted LIBOR rate for dollars (Eurodollars) plus, in each case, an applicable margin percentage as previously discussed, which varies based on our Consolidated Leverage Ratio (as defined in the Credit Agreement generally as the ratio of consolidated total debt (excluding the face amount of undrawn letters of credit, bank undertakings and analogous instruments and net of cash and cash equivalents not to exceed $150.0) at the date of determination to consolidated adjusted EBITDA for the four fiscal quarters ended most recently before such date). We may elect interest periods of one, two, three or six months (and, if consented to by all relevant lenders, twelve months) for Eurodollar borrowings.
The weighted-average interest rate of outstanding borrowings under our Senior Credit Facilities was approximately 4.3% at December 31, 2018.
The fees and bilateral foreign credit commitments are as specified above for foreign credit commitments unless otherwise agreed with the bilateral foreign issuing lender. We also pay fronting fees on the outstanding amounts of letters of credit and foreign credit instruments (in the participation facility) at the rates of 0.125% per annum and 0.25% per annum, respectively.
The Credit Agreement requires mandatory prepayments in amounts equal to the net proceeds from the sale or other disposition of, including from any casualty to, or governmental taking of, property in excess of specified values (other than in the ordinary course of business and subject to other exceptions) by SPX or our subsidiaries. Mandatory prepayments will be applied to repay, first, amounts outstanding under any term loans and, then, amounts (or cash collateralize letters of credit) outstanding under the global revolving credit facility and the domestic revolving credit facility (without reducing the commitments thereunder). No prepayment is required generally to the extent the net proceeds are reinvested (or committed to be reinvested) in permitted acquisitions, permitted investments or assets to be used in our business within 360 days (and if committed to be reinvested, actually reinvested within 180 days after the end of such 360-day period) of the receipt of such proceeds.
We may voluntarily prepay loans under the Credit Agreement, in whole or in part, without premium or penalty. Any voluntary prepayment of loans will be subject to reimbursement of the lenders’ breakage costs in the case of a prepayment of Eurodollar rate borrowings other than on the last day of the relevant interest period. Indebtedness under the Credit Agreement is guaranteed by:
Each existing and subsequently acquired or organized domestic material subsidiary with specified exceptions; and
SPX with respect to the obligations of our foreign borrower subsidiaries under the global revolving credit facility, the participation foreign credit instrument facility and the bilateral foreign credit instrument facility.
Indebtedness under the Credit Agreement is secured by a first priority pledge and security interest in 100% of the capital stock of our domestic subsidiaries (with certain exceptions) held by SPX or our domestic subsidiary guarantors and 65% of the capital stock of our material first-tier foreign subsidiaries (with certain exceptions). If SPX obtains a corporate credit rating from Moody’s and S&P and such corporate credit rating is less than “Ba2” (or not rated) by Moody’s and less than “BB” (or not rated) by S&P, then SPX and our domestic subsidiary guarantors are required to grant security interests, mortgages and other liens on substantially all of their assets. If SPX’s corporate credit rating is “Baa3” or better by Moody’s or “BBB-” or better by S&P and no defaults then exist, all collateral security is to be released and the indebtedness under the Credit Agreement would be unsecured.
The Credit Agreement requires that SPX maintain:
A Consolidated Interest Coverage Ratio (defined in the Credit Agreement generally as the ratio of consolidated adjusted EBITDA for the four fiscal quarters ended on such date to consolidated cash interest expense for such period) as of the last day of any fiscal quarter of at least 3.50 to 1.00; and
As previously discussed, a Consolidated Leverage Ratio as of the last day of any fiscal quarter of not more than 3.50 to 1.00 (or 4.00 to 1.00 for the four fiscal quarters after certain permitted acquisitions).
The Credit Agreement also contains covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make investments, loans, guarantees, or advances, make restricted junior payments, including dividends, redemptions

35



of capital stock, and voluntary prepayments or repurchase of certain other indebtedness, engage in mergers, acquisitions or sales of assets, enter into sale and leaseback transactions, or engage in certain transactions with affiliates, and otherwise restrict certain corporate activities. The Credit Agreement contains customary representations, warranties, affirmative covenants and events of default.
As previously discussed, we are permitted under the Credit Agreement to repurchase our capital stock and pay cash dividends in an unlimited amount if our Consolidated Leverage Ratio is (after giving pro forma effect to such payments) less than 2.75 to 1.00. If our Consolidated Leverage Ratio is (after giving pro forma effect to such payments) greater than or equal to 2.75 to 1.00, the aggregate amount of such repurchases and dividend declarations cannot exceed (A) $50.0 in any fiscal year plus (B) an additional amount for all such repurchases and dividend declarations made after the effective date equal to the sum of (i) $100.0 plus (ii) a positive amount equal to 50% of cumulative Consolidated Net Income (as defined in the Credit Agreement generally as consolidated net income subject to certain adjustments solely for the purposes of determining this basket) during the period from the effective date to the end of the most recent fiscal quarter preceding the date of such repurchase or dividend declaration for which financial statements have been (or were required to be) delivered (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit) plus (iii) certain other amounts.
At December 31, 2018, we had $311.6 of available borrowing capacity under our revolving credit facilities after giving effect to borrowings under the domestic revolving loan facility of $6.4 and $32.0 reserved for outstanding letters of credit. In addition, at December 31, 2018, we had $30.1 of available issuance capacity under our foreign credit instrument facilities after giving effect to $119.9 reserved for outstanding letters of credit.
At December 31, 2018, we were in compliance with all covenants of our Credit Agreement.
Other Borrowings and Financing Activities
Certain of our businesses purchase goods and services under a purchase card program allowing for payment beyond their normal payment terms. As of December 31, 2018 and 2017, the participating businesses had $2.5 and $2.8, respectively, outstanding under this arrangement.
We are party to a trade receivables financing agreement, whereby we can borrow, on a continuous basis, up to $50.0. Availability of funds may fluctuate over time given changes in eligible receivable balances, but will not exceed the $50.0 program limit. The facility contains representations, warranties, covenants and indemnities customary for facilities of this type. The facility does not contain any covenants that we view as materially constraining to the activities of our business.
In addition, we maintain line of credit facilities in China and South Africa available to fund operations in these regions, when necessary. At December 31, 2018, the aggregate amount of borrowing capacity under these facilities was $20.0, while the aggregate borrowings outstanding were $0.0.
Financial Instruments
We measure our financial assets and liabilities on a recurring basis, and nonfinancial assets and liabilities on a non-recurring basis, at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2) or significant unobservable inputs (Level 3).
Our derivative financial assets and liabilities include interest rate swap agreements, FX forward contracts, FX embedded derivatives, and forward contracts that manage the exposure on forecasted purchases of commodity raw materials (“commodity contracts”) that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk, and our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments active.
As of December 31, 2018, there was no significant impact to the fair value of our derivative liabilities due to our own credit risk as the related instruments are collateralized under our Senior Credit Facilities. Similarly, there was no significant impact to the fair value of our derivative assets based on our evaluation of our counterparties’ credit risk.
We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount. Assets and liabilities measured at fair value on a recurring basis are further discussed below.


36



Interest Rate Swaps
During the second quarter of 2016, we entered into interest rate swap agreements to hedge the interest rate risk on our then existing variable rate term loan. As a result of amending our Credit Agreement on December 19, 2017, these swaps (“Old Swaps”) no longer qualified for hedge accounting, resulting in a gain (recorded to “Other expense, net”) in 2017 of $2.7. On March 8, 2018, we extinguished the Old Swaps and entered into a new interest rate swap agreement (the “New Swaps”) to hedge the interest rate risk on the variable interest rate borrowings under the Credit Agreement. The New Swaps, which we have designated and are accounting for as cash flow hedges, have an initial notional amount of $260.0 and maturities through December 2021 and effectively convert a portion of the borrowings under our senior credit agreement to a fixed rate of 2.535%, plus the applicable margin. As of December 31, 2018, the aggregate notional amounts of the New Swaps was $260.0 and the unrealized gain, net of tax, recorded in accumulated other comprehensive income (“AOCI”) was $0.2. In addition, as of December 31, 2018 we recorded a long-term asset of $0.2 to recognize the fair value of the New Swaps. Changes in fair value for the New Swaps are reclassified into earnings as a component of interest expense, when the forecasted transaction impacts earnings.
Currency Forward Contracts and Currency Forward Embedded Derivatives
We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations. Our principal currency exposures relate to the South African Rand, GBP and Euro.
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. 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 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 $14.4 and $9.0 outstanding as of December 31, 2018 and 2017, respectively, with all of the $14.4 scheduled to mature in 2019. We also had FX embedded derivatives with an aggregate notional amount of $0.4 and $1.1 at December 31, 2018 and 2017, respectively, with all of the $0.4 scheduled to mature in 2019. There were no unrealized gains or losses recorded in AOCI related to FX forward contracts as of December 31, 2018 and 2017. The net loss recorded in “Other expense, net” related to FX forward contracts and embedded derivatives totaled $0.1 in 2018, $0.4 in 2017 and $6.3 in 2016.
Commodity Contracts
From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. The outstanding notional amounts of commodity contracts were 3.9 and 3.6 pounds of copper at December 31, 2018 and 2017, 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 December 31, 2018 and 2017, the fair value of these contracts was $1.0 (current liability) and $1.1 (current asset), respectively. The unrealized gain (loss), net of taxes, recorded in AOCI was $(0.8) and $0.8 as of December 31, 2018 and 2017, respectively. We anticipate reclassifying the unrealized loss as of December 31, 2018 to income over the next 12 months.
Other Fair Value Financial Assets and Liabilities
The carrying amounts of cash and equivalents and receivables reported in our consolidated balance sheets approximate fair value due to the short maturity of those instruments.
The fair value of our debt instruments as of December 31, 2018 approximated the related carrying values due primarily to the variable market-based interest rates for such instruments.



37



Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, and interest rate swap, foreign currency forward, and commodity contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions.
We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced significant, and believe we are not exposed to significant risk of loss in these accounts.
We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.
Concentrations of credit risk arising from trade accounts receivable are due to selling to customers in a particular industry. Credit risks are mitigated by performing ongoing credit evaluations of our customers’ financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10% of our revenues for any period presented.
Cash and Other Commitments
Our Senior Credit Facilities are payable in full on December 19, 2022. Our term loan is repayable in quarterly installments of 1.25% of the initial loan amount of $350.0, beginning in the first fiscal quarter of 2019. The remaining balance is repayable in full on December 19, 2022.
We use operating leases to finance certain equipment, vehicles and properties. At December 31, 2018, we had $31.2 of future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year.
Capital expenditures for 2018 totaled $12.4, compared to $11.0 and $11.7 in 2017 and 2016, respectively. Capital expenditures in 2018 related primarily to upgrades to manufacturing facilities, including replacement of equipment. We expect 2019 capital expenditures to approximate $15.0 to $20.0, with a significant portion related to replacement of equipment.
In 2018, we made contributions and direct benefit payments of $15.6 to our defined benefit pension and postretirement benefit plans. We expect to make $15.3 of minimum required funding contributions and direct benefit payments in 2019. Our pension plans have not experienced any liquidity difficulties or counterparty defaults due to the volatility in the credit markets. Our pension funds earned asset returns of approximately (5.0)% in 2018. See Note 10 to our consolidated financial statements for further disclosure of expected future contributions and benefit payments.
On a net basis, both from continuing and discontinued operations, we received $44.3 of income tax refunds for 2018, and paid incomes taxes of $22.9 and $4.8 in 2017 and 2016, respectively. In 2018, we made payments of $5.0 associated with the actual and estimated tax liability for federal, state and foreign tax obligations and received refunds of $49.3. The amount of income taxes that we receive or pay annually is dependent on various factors, including the timing of certain deductions. Deductions and the amount of income taxes can and do vary from year to year.
As of December 31, 2018, except as discussed in Notes 4, 14 and 16 to our consolidated financial statements and in the contractual obligations table below, we did not have any material guarantees, off-balance sheet arrangements or purchase commitments other than the following: (i) $32.0 of certain standby letters of credit outstanding, all of which relate to self-insurance or environmental matters and reduce the available borrowing capacity on our domestic revolving credit facility; (ii) $119.9 of letters of credit outstanding, all of which reduce the available borrowing capacity on our foreign trade facilities; and (iii) $80.4 of surety bonds.
Our Certificate of Incorporation provides that we indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law for any personal liability in connection with their employment or service with us, subject to limited exceptions. While we maintain insurance for this type of liability, the liability could exceed the amount of the insurance coverage.
We continually review each of our businesses in order to determine their long-term strategic fit. These reviews could result in selected acquisitions to expand an existing business or result in the disposition of an existing business. In addition, you should read “Risk Factors,” “Results for Reportable and Other Operating Segments” included in this MD&A, and “Business” for an understanding of the risks, uncertainties and trends facing our businesses.

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Contractual Obligations
The following is a summary of our primary contractual obligations as of December 31, 2018:
 
Total
 
Due
Within
1 Year
 
Due in
1-3 Years
 
Due in
3-5 Years
 
Due After
5 Years
Short-term debt obligations
$
31.9

 
$
31.9

 
$

 
$

 
$

Long-term debt obligations
351.8

 
18.0

 
35.9

 
297.9

 

Pension and postretirement benefit plan contributions and payments(1)
204.2

 
15.2

 
27.6

 
24.4

 
137.0

Purchase and other contractual obligation(2)
90.3

 
76.0

 
14.3

 

 

Future minimum operating lease payment(3)
31.2

 
9.1

 
11.8

 
7.2

 
3.1

Interest payments
58.5

 
15.8

 
29.3

 
13.4

 

Total contractual cash obligations(4)(5)
$
767.9

 
$
166.0

 
$
118.9

 
$
342.9

 
$
140.1

____________________________
(1) 
Estimated minimum required pension funding and pension and postretirement benefit payments are based on actuarial estimates using current assumptions for, among other things, discount rates, expected long-term rates of return on plan assets (where applicable), and health care cost trend rates. The expected pension contributions for the U.S. plans in 2018 and thereafter reflect the minimum required contributions under the Pension Protection Act of 2006 and the Worker, Retiree, and Employer Recovery Act of 2008. These contributions do not reflect potential voluntary contributions, or additional contributions that may be required in connection with acquisitions, dispositions or related plan mergers. See Note 10 to our consolidated financial statements for additional information on expected future contributions and benefit payments.
(2) 
Represents contractual commitments to purchase goods and services at specified dates.
(3) 
Represents rental payments under operating leases with remaining non-cancelable terms in excess of one year.
(4) 
Contingent obligations, such as environmental accruals and those relating to uncertain tax positions generally do not have specific payment dates and accordingly have been excluded from the above table. We believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by up to $4.0.
(5) 
In addition, the above table does not include potential payments under (i) our derivative financial instruments or (ii) the guarantees and bonds associated with Balcke Dürr.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties, are listed below. This section should be read in conjunction with Notes 1 and 2 to our consolidated financial statements, which include a detailed discussion of these and other accounting policies.
Contingent Liabilities
Numerous claims, complaints and proceedings arising in the ordinary course of business have been asserted or are pending against us or certain of our subsidiaries (collectively, “claims”). These claims relate to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims), environmental matters, product liability matters (predominately associated with alleged exposure to asbestos-containing materials), and other risk management matters (e.g., general liability, automobile, and workers’ compensation claims). Additionally, we may become subject to other claims of which we are currently unaware, which may be significant, or the claims of which we are aware may result in our incurring significantly greater loss than we anticipate. While we (and our subsidiaries) maintain property, cargo, auto, product, general liability, environmental, and directors’ and officers’ liability insurance and have acquired rights under similar policies in connection with acquisitions that we believe cover a significant portion of these claims, this insurance may be insufficient or unavailable (e.g., in the case of insurer insolvency) to protect us against potential loss exposures. Also, while we believe we are entitled to indemnification from third parties for some of these claims, these rights may be insufficient or unavailable to protect us against potential loss exposures.

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Our recorded liabilities related to these matters totaled $631.7 (including $587.5 for asbestos product liability matters) and $685.7 (including $641.2 for asbestos product liability matters) at December 31, 2018 and 2017, respectively. The liabilities we record for these claims are based on a number of assumptions, including historical claims and payment experience and, with respect to asbestos claims, actuarial estimates of the future period during which additional claims are reasonably foreseeable. While we base our assumptions on facts currently known to us, they entail inherently subjective judgments and uncertainties. As a result, our current assumptions for estimating these liabilities may not prove accurate, and we may be required to adjust these liabilities in the future, which could result in charges to earnings. These variances relative to current expectations could have a material impact on our financial position and results of operations.
We have recorded insurance recovery assets associated with the asbestos product liability matters, with such amounts totaling $541.9 and $590.9 at December 31, 2018 and 2017, respectively. These assets represent amounts that we believe we are or will be entitled to recover under agreements we have with insurance companies. The assets we record for these insurance recoveries are based on a number of assumptions, including the continued solvency of the insurers, and are subject to a variety of uncertainties. Our current assumptions for estimating these assets may not prove accurate, and we may be required to adjust these assets in the future, which could result in additional charges to earnings. These variances relative to current expectations could have a material impact on our financial position and results of operations.
Large Power Projects in South Africa
Overview - Since 2008, DBT has been executing contracts on two large power projects in South Africa. Over such time, the business environment surrounding these projects has been difficult, as DBT has experienced delays, cost over-runs, and various other challenges associated with a complex set of contractual relationships among the end customer, prime contractors, various subcontractors (including DBT and its subcontractors), and various suppliers. These challenges have resulted in (i) significant adjustments to our revenue and cost estimates for the projects and (ii) various claims and disputes between DBT and other parties involved with the projects (e.g., prime contractors, subcontractors, suppliers, etc.). We believe that our probable liability associated with known claims has been adequately provided for in our consolidated financial statements. We may become subject to other claims, which could be significant. DBT has completed the majority of its contractual scope on the projects and is targeting to complete the remainder by the end of 2019. It is possible that certain of the outstanding claims could be resolved in 2019, while others are not likely to be resolved until after DBT completes its remaining scope. Our future financial position, operating results, and cash flows could be impacted by the resolution of current and any future claims, as well as potential changes to revenue and cost estimates relating to the execution of DBT’s remaining scope.

Claims Activity - On February 15, 2019, DBT received a claim of South African Rand 116.7 (or $8.0) from one of its prime contractors on the projects alleging that DBT failed to meet a specific contract milestone. We believe that DBT has numerous defenses against this allegation and, thus, we do not believe that we have a probable liability associated with the claim. As such, no amount has been reflected in the accompanying consolidated financial statements for this matter.

DBT has made various claims against the prime contractors for the projects. We have recognized revenue associated with these claims, along with certain unapproved change orders, to the extent the related costs have been incurred and the amount expected of recovery is probable and reasonably estimable. As of December 31, 2018, the recorded cumulative revenues related to these claims and unapproved change orders totaled $37.9. We believe these amounts are recoverable under the provisions of the related contracts and reflect our best estimate of recoverable amounts.

On October 30, 2018, a non-governmental business adjudicator in South Africa provided a decision on certain claims made against DBT by one of its subcontractors. As part of its decision, the adjudicator concluded that the subcontractor was entitled to payment of South African Rand 256.0 (or $17.7). We believe that the decision is invalid on numerous bases. Therefore, DBT intends to pursue all available legal recourse in the matter and DBT has already referred the matter to both an arbitration process and court proceedings. Specifically, we believe, among other things, that (i) the adjudicator lacked jurisdiction to decide the claims and (ii) these and other claims were previously settled and satisfied by way of a 2015 amendment to the contract between DBT and the subcontractor. Based on the reasons stated above, we have concluded that it is not probable that a loss has been incurred with respect to this matter and, therefore, a liability has not been recorded in our consolidated financial statements.

It is possible that an adverse resolution for any of these claims could have a material effect on our consolidated financial statements.

Change in Cost Estimates - During 2017, we experienced higher than expected costs associated with (i) DBT’s efforts to accelerate completion of certain scopes of work, (ii) financial and other challenges facing certain of DBT’s subcontractors, and (iii) delays and other on-site productivity challenges. As a result, during the second and fourth quarters of 2017, we revised our estimates of revenues and costs associated with the projects. These revisions resulted in aggregate charges to “Income (loss) from continuing operations before income taxes” of $52.8 during 2017 ($22.9 and $29.9 during the second and fourth quarters of 2017,

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respectively), which is comprised of a reduction in revenue of $36.9 ($13.5 and $23.4 during the second and fourth quarters of 2017, respectively) and an increase in cost of products sold of $15.9 ($9.4 and $6.5 during the second and fourth quarters of 2017, respectively).
Although we believe that our current estimates of revenues and costs relating to these projects are reasonable, it is possible that future revisions of such estimates could have a material effect on our consolidated financial statements.
Noncontrolling Interest in South African Subsidiary
DBT has a Black Economic Empowerment shareholder (the “BEE Partner”) that holds a 25.1% noncontrolling interest in DBT. Under the terms of the shareholder agreement between the BEE Partner and SPX Technologies (PTY) LTD (“SPX Technologies”), the BEE Partner had the option to put its ownership interest in DBT to SPX Technologies, the majority shareholder of DBT, at a redemption amount determined in accordance with the terms of the shareholder agreement (the “Put Option”). The BEE Partner notified SPX Technologies of its intention to exercise the Put Option and, on July 6, 2016, an Arbitration Tribunal declared that the BEE Partner was entitled to South African Rand 287.3 in connection with the exercise of the Put Option, having not considered an amount due from the BEE Partner under a promissory note of South African Rand 30.3 held by SPX Technologies. As a result, we have reflected the net redemption amount of South African Rand 257.0 (or $17.7 and $20.9 at December 31, 2018 and 2017, respectively) within “Accrued expenses” on our consolidated balance sheets as of December 31, 2018 and 2017, with the related offset recorded to “Paid-in-capital” and “Accumulated other comprehensive income.” In addition, during 2016 we reclassified $38.7 from “Noncontrolling Interests” to “Paid-in capital.” Lastly, under the two-class method of calculating earnings per share, we have reflected an adjustment of $18.1 to “Net income (loss) attributable to SPX Corporation common shareholders” for the excess redemption amount of the Put Option (i.e., the increase in the redemption amount during the year ended December 31, 2016 in excess of fair value) in our calculations of basic and diluted earnings per share for the year ended December 31, 2016.
In August 2016, SPX Technologies applied to the High Court of South Africa (the “Court”) to have the Arbitration Tribunal’s ruling set aside. On January 22, 2018, the Court ruled in SPX Technologies’ favor and set aside the Arbitration Tribunal’s ruling. This ruling by the Court is subject to appeal by the BEE Partner. The BEE Partner has appealed the decision and SPXT is continuing to assert all legal defenses available to it. We expect the appeals court to hear this matter late in 2019.

Beginning in the third quarter of 2016, in connection with our accounting for the redemption of the BEE Partner’s ownership interest in DBT, we discontinued allocating earnings/losses of DBT to the BEE Partner within our consolidated financial statements.
Environmental Matters
We believe that we are in substantial compliance with applicable environmental requirements. We are currently involved in various investigatory and remedial actions at our facilities and at third-party waste disposal sites. It is our policy to accrue for estimated losses from legal actions or claims when events exist that make the realization of the losses or expenses probable and they can be reasonably estimated. Our environmental accruals cover anticipated costs, including investigation, remediation, and operation and maintenance of clean-up sites. Accordingly, our estimates may change based on future developments, including new or changes in existing environmental laws or policies, differences in costs required to complete anticipated actions from estimates provided, future findings of investigation or remediation actions, or alteration to the expected remediation plans. We expense costs incurred to investigate and remediate environmental issues unless they extend the economic useful lives of related assets. We record liabilities when it is probable that an obligation has been incurred and the amounts can be reasonably estimated. Our estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. It is our policy to realize a change in estimates once it becomes probable and can be reasonably estimated. In determining our accruals, we generally do not discount environmental accruals and do not reduce them by anticipated insurance, litigation and other recoveries. We take into account third-party indemnification from financially viable parties in determining our accruals where there is no dispute regarding the right to indemnification.
Self-Insured Risk Management Matters
We are self-insured for certain of our workers’ compensation, automobile, product and general liability, disability and health costs, and we believe that we maintain adequate accruals to cover our retained liability. Our accruals for self-insurance liabilities are determined by us, are based on claims filed and an estimate of claims incurred but not yet reported, and generally are not discounted. We consider a number of factors, including third-party actuarial valuations, when making these determinations. We maintain third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts; however, this insurance may be insufficient or unavailable (e.g., because of insurer insolvency) to protect us against potential loss exposures. The key assumptions considered in estimating the ultimate cost to settle reported claims and the estimated costs associated with incurred but not yet reported claims include, among other things, our historical and industry claims experience,

41



trends in health care and administrative costs, our current and future risk management programs, and historical lag studies with regard to the timing between when a claim is incurred versus when it is reported.
Revenue Recognition
As previously indicated, effective January 1, 2018, we adopted, under the modified retrospective transition approach, 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 revenue recognition guidance, including industry-specific guidance. This guidance requires revenue to be recognized over-time or at a point in time.

Most of our businesses recognize revenue at a point in time as satisfaction of the related performance obligations occur at the time of shipment or delivery, while certain of our businesses recognize revenue and costs for long-term contracts over-time (in 2018) or, under the previous revenue recognition guidance, utilizing the percentage-of-completion method (prior to 2018).

The revenue for these long-term contracts is recorded based on the percentage of costs incurred to date for each contract to the estimated total costs for such a contract at completion. In 2018, 2017, and 2016, we recognized $582.6, $255.5 and $336.1, respectively, of revenues under such methods. We record any provision for estimated losses on uncompleted long-term contracts in the period which the losses are determined.

Our long-term contracts often include unapproved change orders and claims. We include in our contract estimates additional revenue for unapproved change orders or claims when we believe we have an enforceable right to the unapproved change order or claim and the amount can be reliably estimated. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs, and the objective evidence available to support the claim. These estimates are also based on historical award experience. Due to uncertainties inherent in the estimation process, it is reasonably possible that the ultimate revenues and completion costs on our long-term contracts, including those arising from contract penalty provisions and final contract settlements, will be revised during the duration of the contract. These revised revenues and costs are recognized in the period in which the revisions are determined.
Our estimation process for determining revenues and costs for our long-term contracts is based upon (i) our historical experience, (ii) the professional judgment and knowledge of our engineers, project managers, and operations and financial professionals, and (iii) an assessment of the key underlying factors (see below).
As our long-term contracts generally range from six to eighteen months in duration, we typically reassess the estimated revenues and costs of these contracts on a quarterly basis, but may reassess more often as situations warrant. We record changes in estimates of revenues and costs when identified using the cumulative catch-up method prescribed by the applicable revenue recognition guidance.
We believe the underlying factors used to estimate our long-term contracts costs to complete and percentage-of-completion are sufficiently reliable to provide a reasonable estimate of revenue and profit; however, due to the length of time over which revenues are generated and costs are incurred, along with the judgment required in developing the underlying factors, the variability of revenue and cost can be significant. Factors that may affect revenue and costs relating to long-term contracts include, but are not limited to, the following:

Sales Price Incentives and Sales Price Escalation Clauses — Sales price incentives and sales price escalations that are reasonably assured and reasonably estimable are recorded over the performance period of the contract. Otherwise, these amounts are recorded when awarded.
Cost Recovery for Product Design Changes and Claims — On occasion, design specifications may change during the course of the contract. Any additional costs arising from these changes may be supported by change orders, or we may submit a claim to the customer. Change orders are accounted for as described above. See below for our accounting policies related to claims.
Material Availability and Costs — Our estimates of material costs generally are based on existing supplier relationships, adequate availability of materials, prevailing market prices for materials, and, in some cases, long-term supplier contracts. Changes in our supplier relationships, delays in obtaining materials, or changes in material prices can have a significant impact on our cost and profitability estimates.
Use of Subcontractors — Our arrangements with subcontractors are generally based on fixed prices; however, our estimates of the cost and profitability can be impacted by subcontractor delays, customer claims arising from subcontractor performance issues, or a subcontractor’s inability to fulfill its obligations.

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Labor Costs and Anticipated Productivity Levels — Where applicable, we include the impact of labor improvements in our estimation of costs, such as in cases where we expect a favorable learning curve over the duration of the contract. In these cases, if the improvements do not materialize, costs and profitability could be adversely impacted. Additionally, to the extent we are more or less productive than originally anticipated, estimated costs and profitability may also be impacted.
Effect of Foreign Currency Fluctuations — Fluctuations between currencies in which our long-term contracts are denominated and the currencies under which contract costs are incurred can have an impact on profitability. When the impact on profitability is potentially significant, we may enter into FX forward contracts or prepay certain vendors for raw materials to manage the potential exposure. See Note 13 to our consolidated financial statements for additional details on our FX forward contracts.
In some cases, the timing of revenue recognition, particularly for revenue recognized over time or under the percentage-of-completion method, differs from when such amounts are invoiced to customers, resulting in a contract asset (revenue recognition precedes the invoicing of the related revenue amount) or a contract liability (payment from the customer precedes recognition of the related revenue amount). Contract assets are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specific units, or completion of the contract.
In the event we incur litigation or other dispute-resolution costs in connection with claims, these costs are expensed as incurred, although we may seek to recover these costs. Claims against us are recognized when a loss is considered probable and amounts are reasonably estimable.
See Note 1, 3, and 5 to our consolidated financial statements for further information on our revenue recognition policies.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but instead are subject to annual impairment testing. We monitor the results of each of our reporting units as a means of identifying trends and/or matters that may impact their financial results and, thus, be an indicator of a potential impairment. The trends and/or matters that we specifically monitor for each of our reporting units are as follows:
Significant variances in financial performance (e.g., revenues, earnings and cash flows) in relation to expectations and historical performance;
Significant changes in end markets or other economic factors;
Significant changes or planned changes in our use of a reporting unit’s assets; and
Significant changes in customer relationships and competitive conditions.
The identification and measurement of goodwill impairment involves the estimation of the fair value of reporting units. We perform our impairment testing by comparing the estimated fair value of the reporting unit to the carrying value of the reported net assets, with such testing occurring during the fourth quarter of each year in conjunction with our annual financial planning process (or more frequently if impairment indicators arise), based primarily on events and circumstances existing as of the end of the third quarter. Fair value is generally based on the income approach using a calculation of discounted cash flows, based on the most recent financial projections for the reporting units. The revenue growth rates included in the financial projections are our best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each reporting unit based on current cost structure and, when applicable, anticipated net cost reductions.
The calculation of fair value for our reporting units incorporates many assumptions including future growth rates, profit margin and discount factors. Changes in economic and operating conditions impacting these assumptions could result in impairment charges in future periods.
Based on our annual goodwill impairment testing in 2018, we determined that the estimated fair value of each of our reporting units, exclusive of Cues, exceeded the carrying value of their respective net assets by over 90%. The estimated fair value of Cues approximates the carrying value of its net assets.
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. The 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.
See Note 9 to our consolidated financial statements for additional details.

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Employee Benefit Plans
Defined benefit plans cover a portion of our salaried and hourly paid employees, including certain employees in foreign countries. Additionally, domestic postretirement plans provide health and life insurance benefits for certain retirees and their dependents. We recognize changes in the fair value of plan assets and actuarial gains and losses into earnings during the fourth quarter of each year, unless earlier remeasurement is required, as a component of net periodic benefit expense. The remaining components of pension/postretirement expense, primarily service and interest costs and expected return on plan assets, are recorded on a quarterly basis.
Our pension plans have not experienced any significant impact on liquidity or counterparty exposure due to the volatility in the credit markets.
The costs and obligations associated with these plans are determined based on actuarial valuations. The critical assumptions used in determining these related expenses and obligations are discount rates and healthcare cost projections. These critical assumptions are calculated based on company data and appropriate market indicators, and are evaluated at least annually by us in consultation with outside actuaries. Other assumptions involving demographic factors such as retirement patterns, mortality, turnover and the rate of increase in compensation levels are evaluated periodically and are updated to reflect our experience and expectations for the future. While management believes that the assumptions used are appropriate, actual results may differ.
The discount rate enables us to state expected future cash flows at a present value on the measurement date. This rate is the yield on high-quality fixed income investments at the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension expense. Including the effects of recognizing actuarial gains and losses into earnings as described above, a 50 basis point decrease in the discount rate for our domestic plans would have increased our 2018 pension expense by approximately $13.1, and a 50 basis point increase in the discount rate would have decreased our 2018 pension expense by approximately $14.2.
The trend in healthcare costs is difficult to estimate, and it can significantly impact our postretirement liabilities and costs. The healthcare cost trend rate for 2019, which is the weighted-average annual projected rate of increase in the per capita cost of covered benefits, is 7.00%. This rate is assumed to decrease to 5.0% by 2027 and then remain at that level.
See Note 10 to our consolidated financial statements for further information on our pension and postretirement benefit plans.
Income Taxes
We record our income taxes based on the Income Taxes Topic of the Codification, which includes an estimate of the amount of income taxes payable or refundable for the current year and deferred income tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.
Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.
Realization of deferred tax assets involves estimates regarding (i) the timing and amount of the reversal of taxable temporary differences, (ii) expected future taxable income, and (iii) the impact of tax planning strategies. We believe that it is more likely than not that we will not realize the benefit of certain deferred tax assets and, accordingly, have established a valuation allowance against them. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of and potential changes to ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that the remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or tax strategies are no longer viable.
The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions and ongoing audits by federal, state and foreign tax authorities, which may result in proposed adjustments. We perform reviews of our income tax positions on a quarterly basis and accrue for potential uncertain tax positions. Accruals for these uncertain tax positions are recorded based on an expectation as to the timing of when the matter will be resolved. As events change or resolutions occur, these accruals are adjusted, such as in the case of audit settlements with taxing authorities. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters.
Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, statute ex