Attached files

file filename
EX-3.1 - EXHIBIT 3.1 - AMENDED AND RESTATED CERTIFICATE OF INCORPORATION - SPX FLOW, Inc.ex31-amendedandrestatedcer.htm
EX-32.1 - EXHIBIT 32.1 - CEO/CFO 906 CERTIFICATIONS (Q2 2018) - SPX FLOW, Inc.ex321-ceocfo906certsq22018.htm
EX-31.2 - EXHIBIT 31.2 - CFO 302 CERTIFICATION (Q2 2018) - SPX FLOW, Inc.ex312-cfo302certq22018.htm
EX-31.1 - EXHIBIT 31.1 - CEO 302 CERTIFICATION (Q2 2018) - SPX FLOW, Inc.ex311-ceo302certq22018.htm
EX-10.1 - EXHIBIT 10.1 - SPX FLOW ANNUAL ENTERPRISE INCENTIVE PLAN - SPX FLOW, Inc.ex101-spxflowannualenterpr.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
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 1-37393
SPX FLOW, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
47-3110748
(State or Other Jurisdiction of Incorporation or
Organization)
(I.R.S. Employer Identification No.)
13320 Ballantyne Corporate Place
Charlotte, NC
28277
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code (704) 752-4400
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer o
 
Smaller Reporting Company o
 
 
 
(Do not check if a smaller reporting company)
 
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use 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 Exchange Act). o Yes ý No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2018 was approximately $1,830 million. The determination of affiliate status for purposes of the foregoing calculation is not necessarily a conclusive determination for other purposes.
Common shares outstanding as of July 27, 2018 were 42,545,744.



SPX FLOW, INC. AND SUBSIDIARIES
FORM 10-Q INDEX


 
 
 
 
 
 
 
 
 




PART I—FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)




 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Revenues
$
531.2

 
$
498.0

 
$
1,021.5

 
$
931.2

Cost of products sold
358.5

 
345.0

 
693.1

 
639.1

Gross profit
172.7

 
153.0

 
328.4

 
292.1

Selling, general and administrative
118.8

 
113.0

 
234.3

 
228.3

Intangible amortization
4.3

 
4.3

 
8.7

 
8.9

Special charges
1.1

 
6.7

 
3.7

 
15.3

Operating income
48.5

 
29.0

 
81.7

 
39.6

 
 
 
 
 
 
 
 
Other expense, net
(0.8
)
 
(0.3
)
 
(5.4
)
 
(2.4
)
Interest expense, net
(12.4
)
 
(15.8
)
 
(24.9
)
 
(31.7
)
Income before income taxes
35.3

 
12.9

 
51.4

 
5.5

Income tax provision
(11.9
)
 
(2.7
)
 
(12.7
)
 
(2.6
)
Net income
23.4

 
10.2

 
38.7

 
2.9

Less: Net income (loss) attributable to noncontrolling interests
0.5

 
(0.1
)
 
0.3

 

Net income attributable to SPX FLOW, Inc.
$
22.9

 
$
10.3

 
$
38.4

 
$
2.9

 
 
 
 
 
 
 
 
Basic income per share of common stock
$
0.54

 
$
0.25

 
$
0.91

 
$
0.07

Diluted income per share of common stock
$
0.54

 
$
0.24

 
$
0.90

 
$
0.07

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
42.146

 
41.844

 
42.072

 
41.724

Weighted average number of common shares outstanding - diluted
42.616

 
42.221

 
42.559

 
42.058

The accompanying notes are an integral part of these statements.

1


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)


 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Net income
$
23.4

 
$
10.2

 
$
38.7

 
$
2.9

Other comprehensive income (loss), net - foreign currency translation adjustments
(78.0
)
 
47.4

 
(38.0
)
 
96.9

Total comprehensive income (loss)
(54.6
)
 
57.6

 
0.7

 
99.8

Less: Total comprehensive income (loss) attributable to noncontrolling interests
0.1

 
0.2

 
(0.1
)
 
1.1

Total comprehensive income (loss) attributable to SPX FLOW, Inc.
$
(54.7
)
 
$
57.4

 
$
0.8

 
$
98.7

The accompanying notes are an integral part of these statements.


2


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share data)


 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
204.9

 
$
263.7

Accounts receivable, net
383.2

 
381.4

Contract assets
77.4

 
57.7

Inventories, net
325.3

 
293.9

Other current assets
39.8

 
50.0

Total current assets
1,030.6

 
1,046.7

Property, plant and equipment:
 
 
 
Land
34.3

 
35.1

Buildings and leasehold improvements
233.8

 
238.3

Machinery and equipment
463.7

 
461.6

 
731.8

 
735.0

Accumulated depreciation
(383.7
)
 
(374.1
)
Property, plant and equipment, net
348.1

 
360.9

Goodwill
754.5

 
771.3

Intangibles, net
335.5

 
350.3

Other assets
149.4

 
159.8

TOTAL ASSETS
$
2,618.1

 
$
2,689.0

 
 
 
 
LIABILITIES, MEZZANINE EQUITY AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
234.1

 
$
219.4

Contract liabilities
192.6

 
182.3

Accrued expenses
178.9

 
207.3

Income taxes payable
23.7

 
21.6

Short-term debt
27.0

 
24.2

Current maturities of long-term debt
20.5

 
20.5

Total current liabilities
676.8

 
675.3

Long-term debt
792.1

 
850.9

Deferred and other income taxes
55.2

 
63.3

Other long-term liabilities
119.7

 
125.5

Total long-term liabilities
967.0

 
1,039.7

Commitments and contingent liabilities (Note 11)


 


Mezzanine equity
21.0

 
22.2

Equity:
 
 
 
SPX FLOW, Inc. shareholders’ equity:
 
 
 
Preferred stock, no par value, 3,000,000 shares authorized, and no shares issued and outstanding

 

Common stock, par value $0.01 per share, 300,000,000 shares authorized, 42,920,361 issued and 42,545,744 outstanding at June 30, 2018, and 42,690,342 issued and 42,405,222 outstanding at December 31, 2017
0.4

 
0.4

Paid-in capital
1,656.7

 
1,650.9

Accumulated deficit
(283.3
)
 
(327.5
)
Accumulated other comprehensive loss
(417.7
)
 
(372.8
)
Common stock in treasury (374,617 shares at June 30, 2018, and 285,120 shares at December 31, 2017)
(13.3
)
 
(8.9
)
Total SPX FLOW, Inc. shareholders' equity
942.8

 
942.1

Noncontrolling interests
10.5

 
9.7

Total equity
953.3

 
951.8

TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY
$
2,618.1

 
$
2,689.0

The accompanying notes are an integral part of these statements.

3


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in millions)


 
Six Months Ended June 30, 2018
 
Common Stock
 
Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Common Stock in Treasury
 
Total SPX FLOW, Inc. Shareholders' Equity
 
Noncontrolling Interests
 
Total Equity
 
Shares Outstanding
 
Par
 
 
 
 
 
 
 
Balance at December 31, 2017
42.4

 
$
0.4

 
$
1,650.9

 
$
(327.5
)
 
$
(372.8
)
 
$
(8.9
)
 
$
942.1

 
$
9.7

 
$
951.8

Adoption of accounting standards

 

 

 
5.8

 
(7.3
)
 

 
(1.5
)
 

 
(1.5
)
Net income

 

 

 
38.4

 

 

 
38.4

 
0.3

 
38.7

Other comprehensive loss, net

 

 

 

 
(37.6
)
 

 
(37.6
)
 
(0.4
)
 
(38.0
)
Incentive plan activity

 

 
2.4

 

 

 

 
2.4

 

 
2.4

Stock-based compensation expense

 

 
9.1

 

 

 

 
9.1

 

 
9.1

Restricted stock and restricted stock unit vesting, net of tax withholdings
0.1

 

 

 

 

 
(4.4
)
 
(4.4
)
 

 
(4.4
)
Acquisition of noncontrolling interest

 

 
(5.7
)
 

 

 

 
(5.7
)
 
3.1

 
(2.6
)
Dividends attributable to noncontrolling interests

 

 

 

 

 

 

 
(2.2
)
 
(2.2
)
Balance at June 30, 2018
42.5

 
$
0.4

 
$
1,656.7

 
$
(283.3
)
 
$
(417.7
)
 
$
(13.3
)
 
$
942.8

 
$
10.5

 
$
953.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Six Months Ended July 1, 2017
 
Common Stock
 
Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Common Stock in Treasury
 
Total SPX FLOW, Inc. Shareholders' Equity
 
Noncontrolling Interests
 
Total Equity
 
Shares Outstanding
 
Par
 
 
 
 
 
 
 
Balance at December 31, 2016
41.9

 
$
0.4

 
$
1,640.4

 
$
(373.9
)
 
$
(521.4
)
 
$
(4.9
)
 
$
740.6

 
$
1.5

 
$
742.1

Net income

 

 

 
2.9

 

 

 
2.9

 

 
2.9

Other comprehensive income, net

 

 

 

 
95.8

 

 
95.8

 
1.1

 
96.9

Incentive plan activity
0.1

 

 
3.0

 

 

 

 
3.0

 

 
3.0

Stock-based compensation expense

 

 
7.9

 

 

 

 
7.9

 

 
7.9

Restricted stock and restricted stock unit vesting, net of tax withholdings
0.3

 

 
0.3

 

 

 
(3.3
)
 
(3.0
)
 

 
(3.0
)
Dividends attributable to noncontrolling interests and other

 

 

 

 

 

 

 
(1.1
)
 
(1.1
)
Balance at July 1, 2017
42.3

 
$
0.4

 
$
1,651.6

 
$
(371.0
)
 
$
(425.6
)
 
$
(8.2
)
 
$
847.2

 
$
1.5

 
$
848.7


The accompanying notes are an integral part of these statements.



4


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)


 
Six months ended
 
June 30, 2018
 
July 1, 2017
Cash flows from operating activities:
 
 
 
Net income
$
38.7

 
$
2.9

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Special charges
3.7

 
15.3

Deferred income taxes
1.4

 
(3.9
)
Depreciation and amortization
29.8

 
30.7

Stock-based compensation
9.1

 
7.9

Pension and employee benefits provided in stock
4.4

 
3.3

Loss (gain) on asset sales and other, net
0.2

 
(1.5
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable and other assets
(4.1
)
 
25.5

Contract assets and liabilities, net
(7.6
)
 
17.3

Inventories
(34.9
)
 
(18.4
)
Accounts payable, accrued expenses and other
(12.0
)
 
11.3

Cash spending on restructuring actions
(10.1
)
 
(18.5
)
Net cash from operating activities
18.6

 
71.9

Cash flows from (used in) investing activities:
 
 
 
Proceeds from asset sales and other, net

 
31.1

Capital expenditures
(12.4
)
 
(11.4
)
Net cash from (used in) investing activities
(12.4
)
 
19.7

Cash flows used in financing activities:
 
 
 
Borrowings under senior credit facilities
55.8

 
125.5

Repayments of senior credit facilities
(115.8
)
 
(202.5
)
Borrowings under trade receivables financing arrangement
65.5

 
77.1

Repayments of trade receivables financing arrangement
(62.5
)
 
(98.3
)
Borrowings under other financing arrangements
3.7

 
5.8

Repayments of other financing arrangements
(3.9
)
 
(9.6
)
Minimum withholdings paid on behalf of employees for net share settlements, net
(4.4
)
 
(3.3
)
Dividends paid to noncontrolling interests in subsidiary
(2.2
)
 
(1.5
)
Net cash used in financing activities
(63.8
)
 
(106.8
)
Change in cash, cash equivalents and restricted cash due to changes in foreign currency exchange rates
(1.3
)
 
26.2

Net change in cash, cash equivalents and restricted cash
(58.9
)
 
11.0

Consolidated cash, cash equivalents and restricted cash, beginning of period
264.9

 
216.2

Consolidated cash, cash equivalents and restricted cash, end of period
$
206.0

 
$
227.2

The accompanying notes are an integral part of these statements.

5


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions, except per share data)



(1)    BASIS OF PRESENTATION
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in three business segments.
We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States (“GAAP”) can be condensed or omitted. The financial statements represent our accounts after the elimination of intercompany transactions and, in our opinion, include the adjustments (consisting only of normal and recurring items) necessary for their fair presentation.
Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated and combined financial statements contained in our 2017 Annual Report on Form 10-K. Interim results are not necessarily indicative of full year results and the condensed consolidated financial statements may not be indicative of the Company’s future performance.
Certain customer contract-related amounts in the accompanying condensed consolidated balance sheet as of December 31, 2017 and condensed consolidated statement of cash flows for the six months ended July 1, 2017 have been reclassified to conform to the current year presentation.
We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2018 are March 31, June 30, and September 29, compared to the respective April 1, July 1, and September 30, 2017 dates. We had one less day in the first quarter of 2018 and will have one more day in the fourth quarter of 2018 than in the respective 2017 periods.
(2)    NEW ACCOUNTING PRONOUNCEMENTS
The following is a summary of new accounting pronouncements that apply or may apply to our business.
New Revenue Recognition Pronouncement
Effects of Adoption - In May 2014, and as subsequently amended, the Financial Accounting Standards Board (the "FASB") issued a new standard on revenue recognition that outlines a single comprehensive model for accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in accordance with the transfer of control over those goods and services. The new standard also requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows.
We adopted the standard effective January 1, 2018 using the modified retrospective adoption method. In connection with our adoption of the new revenue recognition pronouncement, we recorded a reduction in our accumulated deficit of $2.3, representing the net earnings which would have been recognized as of December 31, 2017 under the new standard on executed customer contracts (“orders”) in effect on that date. This reduction in our accumulated deficit reflects the net effects of (1) an increase in the amount of revenue to be recognized over time, as described below for certain product lines that were previously recognized at a point in time under the previous standard, partially offset by (2) a decrease in the amount of revenue recognized over time under the previous standard for certain contracts which do not contain a contractual enforceable right to payment in the event of customer cancellation or default, which are being recognized at a point in time under the new standard. The impacts of the new standard on our reportable segments are as follows:
Food and Beverage - Under previous accounting principles, we recognized revenue on certain long-term systems projects, most of which are customer-owned assets, over time using the cost-to-cost method, and revenue on long-term service contracts on a straight-line basis over the life of the related agreements. All other revenues were recognized at a point in time when the risks and rewards of ownership transferred to the customer. Under the new standard, revenue for (1) all customer-owned systems projects and service contracts is recognized over time on a cost-to-cost basis, (2) contracts for skids assembled in our factories or systems projects not owned by the customer during execution that

6


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

explicitly provide an enforceable right to payment is recognized over time on a cost-to-cost basis and (3) all other skids and systems projects, as well as customer contracts for the sale of component and aftermarket parts, is recognized at a point in time upon transfer of control to the customer.
Power and Energy - Under previous accounting principles, we recognized revenue on certain long-term contracts for large pumps over time using the cost-to-cost method. We recognized all other product revenues in this segment, including revenues for most service contracts, at a point in time. In assessing the new standard, we determined our large pumps manufactured for use in upstream oil and nuclear power generation applications generally have limited alternative use. Likewise, our larger and more complex valve products and metering systems have limited alternative use. Our contractual enforceable rights to payment for performance completed to date in the event of customer cancellation or default is contract-specific for substantially all product lines in the segment. Under the new standard, revenue is recognized over time, if a contract explicitly provides an enforceable right to payment, for large pumps, large and/or complex valve products and metering systems. Revenue for service contracts is recognized over time. Revenue for all other products is recognized at a point in time, upon transfer of control of the product to the customer.
Industrial - Under previous accounting principles, substantially all of this segment’s revenue was recognized at a point in time when the risks and rewards of ownership transferred to the customer. In assessing the new standard, we determined that certain original equipment ("OE") products such as large mixers constructed with unique metals, custom-enclosed heat exchangers, and certain dehydration systems have little to no alternative use. Our contractual enforceable rights to payment for performance completed to date in the event of customer cancellation or default is contract specific for substantially all product lines in this segment. Under the new standard, revenue is recognized over time, if a contract explicitly provides an enforceable right to payment, for certain OE mixer types, custom-enclosed heat exchanger units, unique dehydration systems and service contracts. Revenue for all other products within this segment is recognized at a point in time, upon transfer of control of the product to the customer (i.e., effectively no change).
Application of New Revenue Recognition Standard to Contract Revenues Recognized Over Time:
Under the new revenue recognition standard, a contract with a customer is an agreement approved by both parties that creates enforceable rights and obligations, has commercial substance and includes identified payment terms under which collectability is probable. Once the Company has entered a contract, the contract is evaluated to identify performance obligations. For OE contracts that are recognized over time, our customers generally contract with us to provide a service of integrating a complex set of tasks and components into a single project of a highly engineered and tailored capability that generally cannot be re-sold to another customer without significant re-engineering and/or re-work cost. Such contracts are typically accounted for as a single performance obligation. For aftermarket service contracts, our customers generally receive and consume the benefits of the service as we perform, or our performance enhances a customer-controlled asset. As noted above, we generally recognize revenue over time, using costs incurred to date relative to total estimated costs at completion (“EAC’s”) for these OE and service contracts. This measure best depicts the transfer of control to customers continuously over time which occurs as we incur costs related to satisfaction of performance obligation(s) under our contracts. This transfer of control over time is also supported by the work being either customer-owned throughout the life of the project or by termination clauses which allow us to recover costs incurred plus a reasonable profit. Revenues, including estimated profits, are recorded proportionally as costs are incurred. For certain long-term aftermarket maintenance contracts where we stand ready to perform at any time, we recognize revenue ratably over the life of the related contract.
During the three months ended June 30, 2018, we recognized revenues of $81.4, $37.6 and $17.4 under contracts for which control transferred over time in our Food and Beverage, Power and Energy, and Industrial segments, respectively. During the six months ended June 30, 2018, we recognized revenues of $144.0, $65.5 and $36.1 under contracts for which control transferred over time in each segment, respectively.
We have established controls and procedures to update project EAC’s for cost-to-cost contracts at least quarterly. Costs to fulfill include primarily labor, materials and subcontractors’ costs, as well as other direct costs. Our cost estimation process is based upon (i) historical experience, (ii) the professional judgment and knowledge of our engineers, project managers, and operations and financial professionals, and (iii) an assessment of key factors such as progress towards completion and the related program schedule, identified opportunities and risks and the related changes in estimates of revenues and costs.
EAC adjustments are recognized in the period in which they become known, including the resulting impact on revenues and operating income. These adjustments may result from positive (or negative) project performance, and may result in an increase (or decrease) in operating income during performance, depending on whether or not we are successful in mitigating

7


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities. If and when EAC costs exceed revenue to be earned on a project, a provision for the entire expected loss on the performance obligation is recognized in the period the loss is determined. The impact of EAC adjustments on our revenues and operating income was insignificant during the three and six months ended June 30, 2018.
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year, and had recorded $0.5 in “Other current assets” in our condensed consolidated balance sheets for such costs as of June 30, 2018 and December 31, 2017. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period is expected to be less than one year. These costs primarily include the Company's internal sales force compensation program; under the terms of this program these costs are generally earned and recognized at the time the revenue is recognized.
Disaggregated Information about Revenues:
Our aftermarket revenues generally include sales of parts and service/maintenance services, and OE revenues generally include all other revenue streams described above. The following table provides disaggregated information about our OE, including Food and Beverage systems, and aftermarket revenues by reportable segment for the three and six months ended June 30, 2018:
 
For the Three Months Ended June 30, 2018
 
For the Six Months Ended June 30, 2018
 
Original Equipment
 
Aftermarket
 
Total Revenues
 
Original Equipment
 
Aftermarket
 
Total Revenues
Food and Beverage
$
126.3

(1)
$
61.3

 
$
187.6

 
$
229.6

(1)
$
124.5

 
$
354.1

Power and Energy
83.4

 
68.4

 
151.8

 
157.3

 
139.2

 
296.5

Industrial
129.1

 
62.7

 
191.8

 
251.7

 
119.2

 
370.9

Total revenues
$
338.8

 
$
192.4

 
$
531.2

 
$
638.6

 
$
382.9

 
$
1,021.5

(1)     Includes $66.5 and $120.6, for the three and six months ended June 30, 2018, respectively, of revenue realized from the sale of highly engineered Food and Beverage systems.
Contract Assets and Liabilities:
Contract assets include unbilled amounts typically resulting from sales under cost-to-cost contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Contract assets are generally classified as current, as we expect to bill the amounts within the next twelve months. Contract liabilities include billings in excess of revenue recognized under cost-to-cost contracts and advance payments received from customers related to product sales (unearned revenue). We classify contract liabilities generally as a current liability, as we expect to recognize the related revenue within the next twelve months. Our contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. Our contract assets and liabilities, and changes in such balances, were as follows:
 
June 30, 2018
 
December 31, 2017
 
Change(1)
 
% Change
Contract assets
$
77.4

 
$
57.7

 
$
19.7

 
34.1
%
Contract liabilities
(192.6
)
 
(182.3
)
 
(10.3
)
 
5.7
%
Net contract liabilities
$
(115.2
)
 
$
(124.6
)
 
$
9.4

 
 
(1)    The $9.4 reduction in our net contract liabilities from December 31, 2017 to June 30, 2018 was primarily due to the timing of advance and milestone payments received on certain Food and Beverage and Power and Energy cost-to-cost contracts, and of performance obligations satisfied and the related revenue recognized on such contracts.

8


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Reconciliation of Operating Results and Balance Sheet - Previous vs. Current Revenue Recognition Standard:
In accordance with the new revenue recognition standard requirements, the disclosure of the impact of adoption on our condensed consolidated statements of operations and balance sheet is as follows:
 
 
For the three months ended June 30, 2018
Statement of Operations
 
Amounts without adoption of new revenue standard
 
Effect of adoption
higher / (lower)
 
As Reported
Revenues
 
$
519.4

 
$
11.8

 
$
531.2

Cost of products sold
 
348.7

 
9.8

 
358.5

Selling, general and administrative
 
118.7

 
0.1

 
118.8

Income tax provision
 
11.5

 
0.4

 
11.9

Net income
 
21.9

 
1.5

 
23.4

Net income attributable to SPX FLOW, Inc.
 
21.4

 
1.5

 
22.9

 
 
For the six months ended June 30, 2018
Statement of Operations
 
Amounts without adoption of new revenue standard
 
Effect of adoption
higher / (lower)
 
As Reported
Revenues
 
$
1,000.4

 
$
21.1

 
$
1,021.5

Cost of products sold
 
676.7

 
16.4

 
693.1

Selling, general and administrative
 
234.2

 
0.1

 
234.3

Income tax provision
 
12.0

 
0.7

 
12.7

Net income
 
34.8

 
3.9

 
38.7

Net income attributable to SPX FLOW, Inc.
 
34.5

 
3.9

 
38.4

 
 
As of June 30, 2018
Balance Sheet
 
Amounts without adoption of new revenue standard
 
Effect of adoption
higher / (lower)
 
As Reported
Assets
 
 
 
 
 
 
Contract assets
 
$
59.4

 
$
18.0

 
$
77.4

Inventories, net
 
335.9

 
(10.6
)
 
325.3

Other current assets
 
39.3

 
0.5

 
39.8

Other assets
 
149.9

 
(0.5
)
 
149.4

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Contract liabilities
 
193.0

 
(0.4
)
 
192.6

Accrued expenses
 
179.0

 
(0.1
)
 
178.9

Income taxes payable
 
23.2

 
0.5

 
23.7

Deferred and other income taxes
 
54.0

 
1.2

 
55.2

 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
Accumulated deficit
 
(289.5
)
 
6.2

 
(283.3
)
Remaining Performance Obligations:
Remaining performance obligations represent the transaction price of orders for which (i) control of goods or services has not been transferred to the customer or we have not otherwise met our performance obligations, or (ii) where revenue is

9


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

accounted for over time, proportional costs have not yet been incurred. Such remaining performance obligations exclude unexercised contract options and potential orders under “blanket order” contracts (e.g., with indefinite delivery dates or quantities). As of June 30, 2018, the aggregate amount of our remaining performance obligations was $1,050.1. The Company expects to recognize revenue on approximately 89% and substantially all of our remaining performance obligations within the next 12 and 24 months, respectively, with an insignificant remaining amount expected to be recognized thereafter.
Other New Accounting Pronouncements
In February 2016, the FASB issued a new standard which requires a lessee to recognize on its balance sheet the assets and liabilities associated with the rights and obligations created by leases with terms that exceed twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of costs and cash flows arising from a lease. The new standard is effective for interim and annual reporting periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. We are currently evaluating the effect that this new standard will have on our consolidated financial statements, including (i) performing procedures to assess the completeness of the population of our lease arrangements and (ii) reviewing the relevant terms of applicable leases and compiling such terms in a centralized database in order to facilitate the determination of the effect of the new standard on our consolidated financial statements.
In October 2016, the FASB issued an amendment that requires recognition of the income tax consequences of an intra-entity transfer of assets other than inventory. Under current authoritative guidance, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. This amendment requires tax expense and deferred tax asset recognition from the intra-entity sale of the asset in the seller’s tax jurisdiction when the asset transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. We adopted this amendment as of the beginning of the first quarter of 2018 using modified retrospective application, and recorded a cumulative charge of $3.8 to accumulated deficit during the quarter.
In November 2016, the FASB issued an amendment to guidance for statement of cash flow presentation, which requires that entities explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows. Entities are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. We adopted this amendment in the first quarter of 2018 using retrospective application. We held $1.1 and $1.2 of restricted cash as of June 30, 2018 and December 31, 2017, respectively, and $1.1 of restricted cash as of July 1, 2017 and December 31, 2016, which was reported in "Other current assets" in our condensed consolidated balance sheets and included in "Cash, cash equivalents and restricted cash" in our condensed consolidated statements of cash flows as of the respective dates. Such restricted cash balances consist primarily of deposits which serve as bank guarantees related to our performance under customer contracts and are required by law in certain international jurisdictions in lieu of letters or credit or other forms of security.
In February 2018, the FASB issued an amendment to guidance which allows entities to reclassify certain stranded income tax effects from accumulated other comprehensive income/loss to retained earnings resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”), as well as additional financial statement disclosures to clarify the effects of adoption. The Company adopted this amendment as of the beginning of the first quarter of 2018 and elected to reclassify the income tax effects of the Tax Act between accumulated other comprehensive loss and accumulated deficit. The Company recorded a cumulative reduction of $7.3 of accumulated deficit and corresponding charge to accumulated other comprehensive loss during the quarter. The tax effects reclassified under this standard included the change in federal tax rate (net of the change in federal benefit of state tax, where applicable) pursuant to the Tax Act on the foreign exchange gains (losses) recorded through accumulated other comprehensive loss and the reversal of the tax impact of certain gains (losses) where the Tax Act impacted the Company’s intention to repatriate certain earnings that were previously taxed but would result in a tax on the foreign exchange gain (loss) upon repatriation.
In March 2018, the FASB issued an amendment to update the FASB Accounting Standards Codification (the "Codification") and XBRL Taxonomy as a result of the Tax Act, and to incorporate Staff Accounting Bulletin No. 118 as released by the SEC, which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Act in the period of enactment. This amendment is effective for interim and annual reporting periods beginning after December 15, 2018. The Company continues to evaluate the impact this tax reform legislation may have on its consolidated financial statements.

10


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Summary of Effects of Retrospective Accounting Standard Changes Adopted in First Quarter of 2018
The cumulative effects of the changes made to our condensed consolidated balance sheet as of the beginning of the first quarter of 2018 as a result of the adoption of the accounting standard updates on (i) revenue recognition, (ii) income tax consequences of intra-entity non-inventory asset transfers and (iii) reclassification of certain stranded income tax effects from accumulated other comprehensive loss ("AOCL") to accumulated deficit, were as follows:
 
 
 
 
Effects of adoption of accounting standards updates related to:
 
 
 
 
Balance Sheet
 
As filed December 31, 2017
 
Revenue recognition
 
Tax effects of intra-entity non-inventory asset transfers
 
Stranded AOCL reclassifications due to the Tax Act
 
Total effects of adoption
 
With effect of accounting standard updates January 1, 2018
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Contract assets
 
$
57.7

 
$
17.8

 
$

 
$

 
$
17.8

 
$
75.5

Inventories, net
 
293.9

 
5.8

 

 

 
5.8

 
299.7

Other current assets
 
50.0

 
0.5

 

 

 
0.5

 
50.5

Other assets
 
159.8

 
(0.5
)
 
(3.8
)
 

 
(4.3
)
 
155.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Contract liabilities
 
182.3

 
20.5

 

 

 
20.5

 
202.8

Accrued expenses
 
207.3

 
(0.2
)
 

 

 
(0.2
)
 
207.1

Income taxes payable
 
21.6

 
0.2

 

 

 
0.2

 
21.8

Deferred and other income taxes
 
63.3

 
0.8

 

 

 
0.8

 
64.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated deficit
 
(327.5
)
 
2.3

 
(3.8
)
 
7.3

 
5.8

 
(321.7
)
Accumulated other comprehensive loss
 
(372.8
)
 

 

 
(7.3
)
 
(7.3
)
 
(380.1
)

11


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

(3)    INFORMATION ON REPORTABLE SEGMENTS, CORPORATE EXPENSE AND OTHER
We innovate with customers to help feed and enhance the world by designing, delivering and servicing high value solutions at the heart of growing and sustaining our diverse communities with operations in over 30 countries and sales in over 150 countries around the world.  The Company's product offering is concentrated in rotating, actuating and hydraulic technologies, as well as automated process systems, into food and beverage, industrial and power and energy markets.
We have three reportable segments: Food and Beverage, Power and Energy, and Industrial. In determining our segments, we apply the threshold criteria of the Segment Reporting Topic of the Codification to operating income or loss of each segment before considering impairment and special charges, pension and postretirement service costs and other indirect corporate expenses (including corporate stock-based compensation). This is consistent with the way our chief operating decision maker evaluates the results of each segment.
Food and Beverage
The Food and Beverage reportable segment operates in a regulated, global industry with customers who demand highly engineered, turn-key solutions. Key demand drivers include dairy consumption, emerging market capacity expansion, sustainability and productivity initiatives, customer product innovation and food safety. Key products for the segment include mixing, drying, evaporation and separation systems and components, heat exchangers, and reciprocating and centrifugal pump technologies. We also design and construct turn-key systems that integrate many of these products for our customers. Our core brands include Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell.
Power and Energy
The Power and Energy reportable segment primarily serves customers in the oil and gas industry and, to a lesser extent, the nuclear and other conventional power industries. A large portion of the segment's revenues are concentrated in oil extraction, production and transportation at existing wells, and in pipeline applications. The underlying driver of this segment includes demand for power and energy. Key products for the segment include pumps, valves and related accessories, while the core brands include APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes.
Industrial
The Industrial reportable segment primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, general industrial and water treatment industries. Key demand drivers of this segment are tied to macroeconomic conditions and growth in the respective end markets we serve. Key products for the segment are air dryers, filtration equipment, mixers, pumps, hydraulic technologies and heat exchangers. Core brands include Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone.
Corporate Expense
Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters and our Asia Pacific center in Shanghai, China.

12


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Reportable Segment Financial Data
Financial data for our reportable segments for the three and six months ended June 30, 2018 and July 1, 2017 were as follows:
 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Revenues(1):
 
 
 
 
 
 
 
Food and Beverage
$
187.6

 
$
176.5

 
$
354.1

 
$
342.4

Power and Energy
151.8

 
145.0

 
296.5

 
250.9

Industrial
191.8

 
176.5

 
370.9

 
337.9

     Total revenues
$
531.2

 
$
498.0

 
$
1,021.5

 
$
931.2

 
 
 
 
 
 
 
 
Income:
 
 
 
 
 
 
 
Food and Beverage
$
20.0

 
$
17.3

 
$
37.9

 
$
32.8

Power and Energy
14.5

 
10.0

 
26.7

 
8.5

Industrial
27.5

 
20.8

 
48.0

 
41.9

     Total income for reportable segments
62.0

 
48.1

 
112.6

 
83.2

 
 
 
 
 
 
 
 
Corporate expense
12.0

 
12.1

 
26.4

 
27.6

Pension and postretirement service costs
0.4

 
0.3

 
0.8

 
0.7

Special charges
1.1

 
6.7

 
3.7

 
15.3

Consolidated operating income
$
48.5

 
$
29.0

 
$
81.7

 
$
39.6

(1)      
We recognized revenues of $136.4 and $47.9 over time in the three months ended June 30, 2018 and July 1, 2017, respectively. For the six months ended June 30, 2018 and July 1, 2017, revenues recognized over time were $245.6 and $108.3, respectively.
(4)     SPECIAL CHARGES
Special charges for the three and six months ended June 30, 2018 and July 1, 2017 were as follows:
 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Food and Beverage
$
0.6

 
$
3.5

 
$
0.7

 
$
5.0

Power and Energy
(0.7
)
 
1.3

 
1.4

 
2.3

Industrial
1.2

 
1.9

 
1.6

 
4.7

Other

 

 

 
3.3

Total
$
1.1

 
$
6.7

 
$
3.7

 
$
15.3

Special Charges By Reportable Segment
Unless otherwise noted below, charges for the three and six months ended July 1, 2017 related to our multi-year global realignment program which concluded in the fourth quarter of 2017. Refer to the notes to our consolidated and combined financial statements in our 2017 Annual Report on Form 10-K for additional information regarding the global realignment program.
Food and Beverage — Charges for the three months ended June 30, 2018 related primarily to a further consolidation of our facilities in Poland, including the termination and other exit costs associated with a leased facility.
Charges for the three months ended July 1, 2017 related primarily to severance and other costs associated with the reorganization of certain commercial, operational and administrative functions across all regions in which the segment operates. Charges for the six months ended July 1, 2017 included these charges and, to a lesser extent, severance and other costs associated

13


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

with (i) the consolidation and relocation of a manufacturing facility in Germany to an existing facility in Poland, and (ii) reorganization and consolidation of certain administrative functions primarily in Europe and the Asia Pacific region.
Power and Energy — The credit for the three months ended June 30, 2018 related primarily to a revision of estimates for certain previously recognized restructuring initiatives. Charges for the six months ended June 30, 2018 included this credit, which was more than offset by severance and other costs associated with a reduction in workforce of the manufacturing operations of a facility in the U.K.
Charges for the three months ended July 1, 2017 related primarily to severance and other costs associated with the reorganization of certain commercial, operational and administrative functions primarily in Europe and North America, partially offset by revisions of estimates for severance and other costs which were previously recorded in the first quarter of 2017 and in 2016. Charges for the six months ended July 1, 2017 included these net charges as well as severance and other costs associated with (i) various locations in North America, and (ii) the reorganization and consolidation of certain administrative functions primarily in the EMEA region.
Industrial — Charges for the three and six months ended June 30, 2018 related primarily to severance and other costs associated with (i) operations and commercial personnel in North America and the Asia Pacific region, partially offset by (ii) revisions of estimates related to certain previously announced restructuring activities.
Charges for the three months ended July 1, 2017 related primarily to severance and other costs associated with the (i) consolidation and relocation of the manufacturing operations of a facility in the Netherlands to an existing facility in Poland and (ii) reorganization of certain commercial, operational and administrative functions primarily in Europe and North America, partially offset by revisions of estimates for severance and other costs related to the previously planned consolidation and relocation of a manufacturing facility in the U.S. Charges for the six months ended July 1, 2017 related primarily to severance and other costs associated with (i) the consolidation and relocation of a manufacturing facility in Sweden to an existing facility in Poland and, to a lesser extent, (ii) the reorganization and consolidation of certain administrative functions in the U.S., EMEA and Asia Pacific, in addition to the aforementioned charges for the three months ended July 1, 2017.
Other — Charges for the six months ended July 1, 2017 reflected primarily asset impairment and other related charges in connection with the sale of certain corporate assets during the period.
Expected charges still to be incurred under actions approved as of June 30, 2018 were approximately $0.4.
The following is an analysis of our restructuring liabilities for the six months ended June 30, 2018 and July 1, 2017:
 
Six months ended
 
June 30, 2018
 
July 1, 2017
Balance at beginning of year
$
12.4

 
$
33.6

Special charges(1)
3.7

 
11.7

Utilization — cash
(10.1
)
 
(18.5
)
Currency translation adjustment and other
(0.2
)
 
1.0

Balance at end of period
$
5.8

 
$
27.8

(1)
Amounts that impacted special charges but not the restructuring liabilities included $3.6 of asset impairment and other related charges during the six months ended July 1, 2017.

14


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

(5)    INVENTORIES, NET
Inventories at June 30, 2018 and December 31, 2017 comprised the following:
 
June 30, 2018
 
December 31, 2017
Finished goods
$
98.1

 
$
92.3

Work in process
118.8

 
99.2

Raw materials and purchased parts
114.9

 
108.9

Total FIFO cost
331.8

 
300.4

Excess of FIFO cost over LIFO inventory value
(6.5
)
 
(6.5
)
Total inventories
$
325.3

 
$
293.9

Inventories include material, labor and factory overhead costs and are reduced, when necessary, to estimated net realizable values. Certain domestic inventories are valued using the last-in, first-out (“LIFO”) method. These inventories were approximately 7% of total inventory at June 30, 2018 and December 31, 2017. Other inventories are valued using the first-in, first-out (“FIFO”) method.
(6)    GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill by reportable segment during the six months ended June 30, 2018 were as follows:
 
December 31, 2017
 
Impairments
 
Foreign Currency Translation and Other
 
June 30, 2018
Food and Beverage
$
271.8

 
$

 
$
(5.9
)
 
$
265.9

Power and Energy(1)
272.4

 

 
(4.1
)
 
268.3

Industrial(2)
227.1

 

 
(6.8
)
 
220.3

Total
$
771.3

 
$

 
$
(16.8
)
 
$
754.5

(1)
The carrying amount of goodwill included $252.6 and $256.5 of accumulated impairments as of June 30, 2018 and December 31, 2017, respectively.
(2)
The carrying amount of goodwill included $67.7 of accumulated impairments as of June 30, 2018 and December 31, 2017.
As of June 30, 2018, there were no indicators necessitating an interim impairment test of any of our reporting units, based on management's review of operating performance.
We will perform our annual impairment testing of goodwill (and indefinite-lived intangible assets that are not amortized), during the fourth quarter of 2018 in conjunction with our annual financial planning process. In performing that annual impairment testing, we will assess, among other items, order trends and the operating cash flow performance of our reporting units.

15


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Other Intangibles, Net
Identifiable intangible assets were as follows:
 
June 30, 2018
 
December 31, 2017
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Intangible assets with determinable lives:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
221.3

 
$
(124.8
)
 
$
96.5

 
$
226.1

 
$
(121.9
)
 
$
104.2

Technology
91.6

 
(52.0
)
 
39.6

 
94.1

 
(50.9
)
 
43.2

Patents
6.7

 
(5.2
)
 
1.5

 
6.8

 
(5.1
)
 
1.7

Other
13.4

 
(10.9
)
 
2.5

 
13.8

 
(11.1
)
 
2.7

 
333.0

 
(192.9
)
 
140.1

 
340.8

 
(189.0
)
 
151.8

Trademarks with indefinite lives
195.4

 

 
195.4

 
198.5

 

 
198.5

Total
$
528.4

 
$
(192.9
)
 
$
335.5

 
$
539.3

 
$
(189.0
)
 
$
350.3

As of June 30, 2018, the net carrying value of intangible assets with determinable lives consisted of the following by reportable segment: $72.2 in Power and Energy, $47.2 in Food and Beverage, and $20.7 in Industrial. Trademarks with indefinite lives consisted of the following by reportable segment: $100.1 in Food and Beverage, $60.1 in Industrial, and $35.2 in Power and Energy.
No impairment charges were recorded during the six months ended June 30, 2018 or July 1, 2017. Changes in the gross carrying values of trademarks and other identifiable intangible assets during the six months ended June 30, 2018 related to foreign currency translation.
(7)    EMPLOYEE BENEFIT PLANS
SPX FLOW sponsors a number of defined benefit pension plans and a postretirement plan. For all of these plans, changes in the fair value of plan assets and actuarial gains and losses are recognized to earnings in the fourth quarter of each year, unless earlier remeasurement is required. The remaining components of pension and postretirement expense, primarily service and interest costs and expected return on plan assets, are recorded on a quarterly basis.
Components of Net Periodic Pension and Postretirement Benefit Expense (Income)
Net periodic benefit expense (income) for our foreign pension plans and our domestic pension and postretirement plans for the three and six months ended June 30, 2018 and July 1, 2017 included the following components:
 
Foreign Pension Plans
 
Domestic Pension and Postretirement Plans
 
Total
 
Statement of Operations Caption in Which Expense is Reported
 
Three months ended
 
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
 
Service cost
$
0.1

 
0.1

 
$
0.3

 
$
0.2

 
$
0.4

 
$
0.3

 
Selling, general and administrative
Interest cost
0.1

 
0.3

 
0.2

 
0.1

 
0.3

 
0.4

 
Other expense, net
Recognized net actuarial loss(1)
0.6

 

 

 

 
0.6

 

 
Other expense, net
Total net periodic benefit expense
$
0.8

 
$
0.4

 
$
0.5

 
$
0.3

 
$
1.3

 
$
0.7

 
 

16


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

 
Foreign Pension Plans
 
Domestic Pension and Postretirement Plans
 
Total
 
Statement of Operations Caption in Which Expense (Income) is Reported
 
Six Months Ended
 
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
 
Service cost
$
0.3

 
0.3

 
$
0.5

 
$
0.4

 
$
0.8

 
$
0.7

 
Selling, general and administrative
Interest cost
0.3

 
0.4

 
0.3

 
0.3

 
0.6

 
0.7

 
Other expense, net
Curtailment gain(2)

 
(1.1
)
 

 

 

 
(1.1
)
 
Other expense, net
Recognized net actuarial loss(1)
0.6

 

 

 

 
0.6

 

 
Other expense, net
Total net periodic benefit expense (income)
$
1.2

 
$
(0.4
)
 
$
0.8

 
$
0.7

 
$
2.0

 
$
0.3

 
 
(1)
Represents a cumulative charge related to a change in the accounting for certain foreign benefit plans from defined contribution plans to defined benefit plans. These plans include approximately 50 active participants.
(2)
Gain is related to the cessation of accrual of future benefits by participants in a defined benefit pension plan in the Netherlands effective March 31, 2017. The accumulated obligations for future pension payments to participants in this plan were also transferred to an insurance company at that time. Under the agreement, the insurance company irrevocably assumed the obligation to make future pension payments to the approximately 60 participants of the plan.
Employer Contributions
During the six months ended June 30, 2018 and July 1, 2017, contributions to the foreign and domestic pension plans we sponsor were less than $0.1.
(8)    INDEBTEDNESS
Debt at June 30, 2018 and December 31, 2017 was comprised of the following:
 
June 30, 2018
 
December 31, 2017
Term loan(1)
$
210.0

 
$
270.0

5.625% senior notes, due in August 2024
300.0

 
300.0

5.875% senior notes, due in August 2026
300.0

 
300.0

Trade receivables financing arrangement
3.0

 

Other indebtedness(2)
35.7

 
35.8

Less: deferred financing fees(3)
(9.1
)
 
(10.2
)
Total debt
839.6

 
895.6

Less: short-term debt
27.0

 
24.2

Less: current maturities of long-term debt
20.5

 
20.5

Total long-term debt
$
792.1

 
$
850.9

(1)
The term loan, which had an initial principal balance of $400.0, is repayable in quarterly installments of 5.0% annually which began with our third quarter of 2016, with the remaining balance repayable in full on September 24, 2020. In January and May 2018, we made voluntary principal prepayments in the amounts of $30.0 and $20.0, respectively, under the term loan facility, funded by cash on hand. There was no penalty associated with these prepayments.
(2)
Primarily includes capital lease obligations of $11.2 and $11.6 and balances under a purchase card program of $23.3 and $21.9 as of June 30, 2018 and December 31, 2017, respectively. The purchase card program allows for payment beyond customary 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.
(3)
Deferred financing fees were comprised of fees related to the term loan and senior notes.

17


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

A detailed description of our senior credit facilities and senior notes is included in our consolidated and combined financial statements included in our 2017 Annual Report on Form 10-K.
The weighted-average interest rate of outstanding borrowings under our senior credit facilities was approximately 3.8% and 4.1% at June 30, 2018 and December 31, 2017, respectively.
At June 30, 2018, we had $443.0 of borrowing capacity under our revolving credit facilities after giving effect to $7.0 reserved for outstanding letters of credit. At June 30, 2018, we had $36.0 of available borrowing capacity under our trade receivables financing arrangement after giving effect to borrowings of $3.0. Our trade receivables financing arrangement provides for a total commitment of $50.0 from associated lenders, depending upon our trade receivables balance and other factors. In addition, at June 30, 2018, we had $357.2 of available issuance capacity under our foreign credit instrument facilities after giving effect to $142.8 reserved for outstanding bank guarantees and standby letters of credit.
At June 30, 2018, in addition to the revolving lines of credit described above, we had approximately $7.1 of letters of credit outstanding under separate arrangements in China and India.
During the first quarter of 2018 and as a result of our consolidated leverage and interest coverage ratios being less than or equal to 3.25:1.00 and greater than or equal to 3.50:1.00, respectively, the Company voluntarily ended its covenant relief period prior to its December 31, 2018 termination date, in accordance with provisions provided in the second amendment to our senior credit facilities.
At June 30, 2018, we were in compliance with all covenants of our senior credit facilities and senior notes.
(9)    DERIVATIVE FINANCIAL INSTRUMENTS
We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency ("FX") 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 Euro, Chinese Yuan and British Pound.
We had FX forward contracts with an aggregate notional amount of $38.4 and $44.6 outstanding as of June 30, 2018 and December 31, 2017, respectively, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $18.4 and $16.9 at June 30, 2018 and December 31, 2017, respectively, with scheduled maturities of $18.3 and $0.1 within one and two years, respectively. There were no unrealized gains or losses recorded in accumulated other comprehensive loss related to FX forward contracts as of June 30, 2018 and December 31, 2017, respectively. The net gains (losses) recorded in "Other expense, net" related to FX gains (losses) totaled $0.3 and $(1.6) for the three months ended June 30, 2018 and July 1, 2017, respectively, and $(4.0) and $(3.4) for the six months then ended.
We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our FX forward contracts in our condensed consolidated balance sheets. The gross fair values of our FX forward contracts and FX embedded derivatives, in aggregate, were $2.2 and $2.3 (gross assets) and $0.2 and $0.0 (gross liabilities) at June 30, 2018 and December 31, 2017, respectively.

18


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

(10)    EQUITY AND STOCK-BASED COMPENSATION
Income Per Share
The following table sets forth the number of weighted-average shares outstanding used in the computation of basic and diluted income per share: 
 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Weighted-average shares outstanding, basic
42.146

 
41.844

 
42.072

 
41.724

Dilutive effect of share-based awards
0.470

 
0.377

 
0.487

 
0.334

Weighted-average shares outstanding, dilutive(1)
42.616

 
42.221

 
42.559

 
42.058

(1)
Unvested restricted stock shares/units not included in the computation of diluted income per share because required internal performance thresholds for vesting (as discussed below) were not met, were 0.248 and 0.234 for the three months ended June 30, 2018 and July 1, 2017, respectively, and 0.227 and 0.213 for the six months then ended. Stock options outstanding excluded from the computation of diluted income per share because their exercise price was greater than the average market price of common shares, were 0.342 and 0.360 for the three months ended June 30, 2018 and July 1, 2017, respectively, and 0.342 and 0.364 for the six months then ended.
Stock-Based Compensation
SPX FLOW stock-based compensation awards may be granted to certain eligible employees or non-employee directors under the SPX FLOW Stock Compensation Plan (the “Stock Plan”).  Under the Stock Plan, up to 0.923 unissued shares of our common stock were available for future grant as of June 30, 2018. The Stock Plan permits the issuance of authorized but unissued shares or shares from treasury upon the vesting of restricted stock units, granting of restricted stock shares or exercise of stock options. Each restricted stock share, restricted stock unit and stock option granted reduces share availability under the Stock Plan by one share.
Restricted stock shares or restricted stock units may be granted to certain eligible employees or non-employee directors in accordance with the Stock Plan and applicable award agreements. Subject to participants' continued service and other award terms and conditions, the restrictions lapse and awards generally vest over a period of time, generally three years (or one year for awards to non-employee directors). In some instances, such as death, disability, or retirement, awards may vest concurrently with or following an employee's termination. Approximately half of such restricted stock shares and restricted stock unit awards vest based on performance thresholds, while the remaining portion vest based on the passage of time since grant date.
Eligible employees, including officers, were granted 2018 target performance awards, primarily during the three months ended March 31, 2018, in which the employee can earn between 50% and 150% of the target performance award in the event, and to the extent, the award meets the required performance vesting criteria. Such awards are generally subject to the employees’ continued employment during the three-year vesting period, and may be completely forfeited if the threshold performance criteria are not met. Vesting for the 2018 target performance awards is based on SPX FLOW shareholder return versus the performance of a composite group of companies, as established under the awards (the "Composite Group"), over the three-year period from January 1, 2018 through December 31, 2020. In addition, certain eligible employees, including officers, were granted 2018 internal performance metric awards, primarily during the three months ended March 31, 2018, that vest subject to attainment of stated improvements in a three-year average annual return on invested capital (as defined under the awards) measured at the conclusion of the measurement period ending December 31, 2020 (including eligible employees’ continued employment during the measurement period). These target performance and internal performance metric awards were issued as restricted stock units to eligible non-officer employees and restricted stock shares to eligible officers.
Eligible employees, including officers, also were granted 2018 awards, primarily during the three months ended March 31, 2018, that vest ratably over three years, subject to the passage of time and the employees’ continued employment during such period. In some instances, such as death, disability, or retirement, awards may vest concurrently with or following an employee's termination. These awards were issued as restricted stock units to eligible non-officer employees and restricted stock shares to eligible officers.
Non-employee directors received restricted stock share awards in the three months ended June 30, 2018 that vest at the close of business on the day before the date of the Company's next regular annual meeting of shareholders held after the date of the grant, subject to the passage of time and the directors' continued service during such period.

19


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Restricted stock share and unit awards granted to eligible employees, including officers, primarily during the three months ended March 31, 2018, include early retirement provisions which permit recipients to be eligible for vesting generally upon reaching the age of 60 and completing ten years of service (and, if applicable, subject to the attainment of performance measures).
Restricted stock shares and restricted stock units that do not vest within the applicable vesting period are forfeited.
Stock options may be granted to eligible employees in the form of incentive stock options or nonqualified stock options. The option price per share may be no less than the fair market value of our common stock at the close of business on the date of grant. Upon exercise, the employee has the option to surrender previously owned shares at current value in payment of the exercise price and/or for withholding tax obligations.
The recognition of compensation expense for share-based awards is based on their grant-date fair values. The fair value of each award is amortized over the lesser of the award's requisite or derived service period, which is generally up to three years as noted above. For the three and six months ended June 30, 2018 and July 1, 2017, we recognized compensation expense related to share-based programs in “Selling, general and administrative” expense in the accompanying condensed consolidated statements of operations as follows:
 
Three months ended
 
Six months ended
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Stock-based compensation expense
$
4.0

 
$
3.9

 
9.1

 
7.9

Income tax benefit
(1.0
)
 
(1.5
)
 
(2.2
)
 
(2.8
)
Stock-based compensation expense, net of income tax benefit
$
3.0

 
$
2.4

 
$
6.9

 
$
5.1

Restricted Stock Share and Restricted Stock Unit Awards
The Monte Carlo simulation model valuation technique was used to determine the fair value of our restricted stock shares and restricted stock units that contain a “market condition.” The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair value of each restricted stock share and restricted stock unit award.
The following table summarizes the unvested restricted stock share and restricted stock unit activity for the six months ended June 30, 2018:
 
Unvested Restricted Stock Shares and Restricted Stock Units
 
Weighted-Average Grant-Date Fair Value Per Share
Outstanding at December 31, 2017
1.132
 
$32.65
Granted
0.402
 
48.69
Vested
(0.283)
 
39.60
Forfeited and other
(0.030)
 
32.07
Outstanding at June 30, 2018
1.221
 
$36.33
As of June 30, 2018, there was $23.8 of unrecognized compensation cost related to restricted stock share and restricted stock unit compensation arrangements. We expect this cost to be recognized over a weighted-average period of 2.0 years.
Stock Options
There were 0.342 of SPX FLOW stock options outstanding as of June 30, 2018 and December 31, 2017, all of which were exercisable as of June 30, 2018. The weighted-average exercise price per share of the stock options is $61.29 and the weighted-average grant-date fair value per share is $19.33. The term of these options expires on January 2, 2025 (subject to earlier expiration upon a recipient's termination of service as provided under the awards). There was no unrecognized compensation cost related to these stock options as of June 30, 2018.

20


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Accumulated Other Comprehensive Loss
Substantially all of accumulated other comprehensive loss as of June 30, 2018 and December 31, 2017, and in the changes thereof during the three and six months then ended, was foreign currency translation adjustment.
Substantially all of accumulated other comprehensive loss as of July 1, 2017 and December 31, 2016, and in the changes thereof during the three and six months then ended, was foreign currency translation adjustment.
Common Stock in Treasury
During the six months ended June 30, 2018 and July 1, 2017, “Common stock in treasury” was increased by $4.4 and $3.3, respectively, for common stock that was surrendered by recipients of restricted stock as a means of funding the related minimum income tax withholding requirements.
Incentive Plan Activity
As of the market close on March 29, 2018, the Company amended the SPX FLOW Retirement Savings Plan (the "401(k) Plan") to institute a freeze of new investments (whether through contributions, transfers, exchanges or rebalancing) directed into the SPX FLOW Stock Fund investment option provided under the 401(k) Plan. All Company matching contributions to the 401(k) Plan related to payroll periods ending after March 29, 2018 have been contributed in cash instead of Company common stock and, as a result of this change, Company matching contributions after such date have not impacted the number of outstanding shares or "Paid-In Capital."
(11)    LITIGATION, CONTINGENT LIABILITIES AND OTHER MATTERS
We are subject to litigation matters 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.
We are subject to domestic and international environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. We believe our compliance obligations with environmental protection laws and regulations should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.
Mezzanine Equity
Independent noncontrolling shareholders in certain foreign subsidiaries of the Company have put options under their respective joint venture operating agreements that allow them to sell their common stock to the controlling shareholders (wholly-owned subsidiaries of SPX FLOW) upon the satisfaction of certain conditions, including the passage of time. The respective carrying values presented in "Mezzanine equity" of our condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 are stated at the the current exercise value of the put options, irrespective of whether the options are currently exercisable. To the extent the noncontrolling interests' put option price is correlated with the estimated fair value of the subsidiary, we have used the market method to estimate such fair values. This represents a Level 3 fair value measurement as described in Note 13. None of the noncontrolling interest put options are exercisable at this time. If and when such options are exercised, we expect to settle the option value in cash. Of the $21.0 of current exercise value of the put options outstanding as of June 30, 2018, options with a value of $11.5 become exercisable during our third quarter of 2018.
(12)    INCOME TAXES
Enactment of the Tax Cuts and Jobs Act
On December 22, 2017, the President of the United States signed into law the Tax Act. The Tax Act included numerous changes to existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction was effective for the Company as of January 1, 2018. As a result of the reduction in the federal corporate income tax rate, the Company revalued its net U.S. federal deferred tax liability. The Company substantially completed its accounting for the revaluation of its net U.S. federal deferred tax liabilities and recorded a tax benefit of approximately $17.8 in the fourth quarter of 2017, excluding the impact for rate change on earnings which were not considered indefinitely reinvested. There were

21


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

certain deferred tax balances that could only be estimated during the fourth quarter of 2017, so the rate change on these balances was a provisional estimate as of December 31, 2017. No revisions to the December 31, 2017 provisional estimate were made during the six months ended June 30, 2018, and the accounting for the revaluation of the Company’s net U.S. federal deferred tax liabilities remains substantially complete as of June 30, 2018.
The Tax Act provides a full dividends received deduction for any future dividends from non-U.S. subsidiaries to their U.S. parent company. Generally, this will allow the Company to repatriate cash more freely than under the historical U.S. tax system. To transition to this new tax regime, the Tax Act also provided for a mandatory one-time "deemed repatriation" of accumulated post-1986 foreign earnings which had not been previously taxed. The Company recorded a provisional estimate for this transition tax of $50.4 in the fourth quarter of 2017. As of June 30, 2018, the Company revised this estimate based on additional analysis of the provisions of the Tax Act and a change in certain elections available pursuant to the Tax Act. This revision resulted in an increase to the previously estimated transition tax of $0.8 and $2.6 for the three and six months ended June 30, 2018, resulting in a cumulative provision estimate of $53.0 for the transition tax. Previously, the Company had recorded taxes of $59.8 on earnings not indefinitely reinvested. In the fourth quarter of 2017, the Company recorded a benefit of $53.4 for the reduced tax rate on such earnings. Additionally, during the first two quarters of 2018, the Company analyzed a provision of the Tax Act that allows for additional foreign tax credits upon the subsequent distribution of amounts subject to the transition tax. As a result, the Company recorded a benefit of $9.4 during the three months ended March 31, 2018 and a net charge of $0.8 during the three months ended June 30, 2018. Based on the mechanisms of the transition tax calculation, these additional foreign tax credits will be utilized to offset the transition tax. As of June 30, 2018, the Company expects to pay U.S. federal tax of approximately $12.3 on the deemed repatriation after utilization of tax loss and foreign tax credit carryforwards. The Company will pay this amount over a period of up to nine years as a result of fiscal year-ends of certain foreign subsidiaries ending after December 31, 2017. The accounting for the transition tax as required by the Tax Act remains provisional at June 30, 2018 due to (1) anticipated guidance from the U.S. Treasury department on interpreting various provisions of the Tax Act, (2) foreign subsidiaries with differing U.S. tax year-ends where final cash balances will not be known until November 2018 and (3) final foreign tax credit amounts from foreign subsidiaries that have not yet filed tax returns.
The Tax Act is a comprehensive bill containing several other provisions, some of which will not materially impact the Company. Other provisions, such as the taxation of Global Intangible Low-Taxed Income (“GILTI”) and the limitation of deductions for interest expense, could have significant impacts to the Company’s future tax position and cash taxes. The Company has not yet adopted an accounting policy related to the provision of deferred taxes related to GILTI. As such, the Company has not recorded any deferred taxes for GILTI but treated it as a period cost in computing the tax provision for the three and six months ended June 30, 2018. The Company anticipates future issuance of U.S. Treasury department regulations and notices that will clarify significant issues dealing with the application and computation of taxes due under the GILTI provisions.
The Tax Act made significant changes to the taxation of undistributed foreign earnings, requiring that all previously untaxed earnings and profits of our controlled foreign corporations be subjected to a one-time mandatory repatriation tax as described above. The transition tax substantially eliminated the basis difference that existed previously for purposes of Section 740 of the Codification. However, there are limited other taxes that could continue to apply such as foreign withholding and certain state taxes. At June 30, 2018, the Company is still evaluating the full impact of the Tax Act on our assertion regarding the indefinite reinvestment of the earnings of our foreign corporations. The Company recorded a charge of $1.1 in the first quarter of 2018 and a charge of $0.2 in the second quarter of 2018 for a change in the expected liability upon the future repatriation of certain earnings resulting from the changes to the transition tax, as described above.
Unrecognized Tax Benefits
As of June 30, 2018, we had gross unrecognized tax benefits of $5.3 (net unrecognized tax benefits of $1.9), of which $1.9, if recognized, would impact our effective tax rate.
We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of June 30, 2018, gross accrued interest totaled $0.3 (net accrued interest of $0.2), and there was no accrual for penalties included in our unrecognized tax benefits.
Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by $0.8 to $2.0. The previously unrecognized tax benefits relate to transfer pricing matters.

22


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

The unrecognized tax benefits described above represent amounts that were included in tax returns filed by the Company. Historically, a portion of the Company's operations were included in tax returns filed by SPX Corporation (the "former Parent") or its subsidiaries that were not part of our spin-off from the former Parent (the "Spin-Off"). As a result, some uncertain tax positions related to the Company's operations resulted in unrecognized tax benefits that are now potential obligations of the former Parent or its subsidiaries that were part of the Spin-Off. In addition, some of the Company's tax returns included the operations of the former Parent's subsidiaries that were not part of the Spin-Off. In certain of these cases, these subsidiaries' activities gave rise to unrecognized tax benefits for which the Company could be potentially liable. When required under the Income Taxes Topic of the Codification, we have recorded a liability for these uncertain tax positions within our condensed consolidated balance sheets.
Other Tax Matters
During the three months ended June 30, 2018, we recorded an income tax provision of $11.9 on $35.3 of pre-tax income, resulting in an effective tax rate of 33.7%. This compares to an income tax provision for the three months ended July 1, 2017 of $2.7 on $12.9 of pre-tax income, resulting in an effective tax rate of 20.9%. The effective tax rate for the second quarter of 2018 was impacted by an income tax benefit of $2.3 resulting from the finalization of the transfer pricing analysis on intercompany transactions to be reported on tax returns of the Company and its subsidiaries, which was partially offset by income tax charges of (i) $0.8 resulting from a refinement of the transition tax calculation and (ii) $0.8 resulting from adjustments to the amount of foreign tax credits available to the Company arising from distributions of income tax under the transition tax provision of the Tax Act. The effective tax rate for the second quarter of 2017 was impacted by (i) an income tax benefit of $3.4 resulting from changes to unrecognized tax benefits due to expiration of the statute of limitations during the period and (ii) an income tax charge of $1.3 related to pre-tax losses generated in the period for which no tax benefit can be recognized.
During the six months ended June 30, 2018, we recorded an income tax provision of $12.7 on $51.4 of pre-tax income, resulting in an effective tax rate of 24.7%. This compares to an income tax provision for the six months ended July 1, 2017 of $2.6 on $5.5 of pre-tax income, resulting in an effective tax rate of 47.3%. The effective tax rate for the first six months of 2018 was impacted by income tax benefits of (i) $8.6 resulting from additional foreign tax credits available to the Company arising from distributions of income taxed under the transition tax provisions of the Tax Act and (ii) $2.3 resulting from the finalization of the transfer pricing analysis on intercompany transactions to be reported on tax returns of the Company and its subsidiaries, which was partially offset by income tax charges of (i) $2.6 resulting from a refinement of the transition tax calculation, (ii) $1.3 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized, and (iii) $1.1 resulting from an increase to the liability for earnings not considered indefinitely reinvested caused by the changes to the transition tax calculation. The effective tax rate for the first six months of 2017 was impacted by (i) an income tax benefit of $3.4 resulting from changes to our unrecognized tax benefits due to expiration of the statute of limitations during the period, (ii) an income tax charge of $2.2 related to pre-tax losses generated in the period for which no tax benefit can be recognized, and (iii) an income tax charge of $1.3 related to the vesting of certain restricted stock shares and restricted stock units during the period.
We review our income tax positions on a continuous basis and record unrecognized tax benefits for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. As events change and resolutions occur, adjustments are made to amounts previously provided, such as in the case of audit settlements with taxing authorities.
In connection with the Spin-Off, we and the former Parent entered into a Tax Matters Agreement which, among other matters, addresses the allocation of certain tax adjustments that might arise upon examination of the 2013, 2014 and the pre-Spin-Off portion of the 2015 federal income tax returns of the former Parent. None of those returns are currently under examination, and we believe any contingencies have been adequately provided for.
State income tax returns generally are subject to examination for a period of three to five years after filing the respective tax returns. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination. We believe any uncertain tax positions related to these examinations have been appropriately reflected as unrecognized tax benefits.
We have various non-U.S. income tax returns under examination. The most significant of these is the examination in Germany for the 2010 through 2014 tax years. We expect this examination will conclude in 2018. We believe that any uncertain tax positions related to these examinations have been appropriately reflected as unrecognized tax benefits.

23


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

An unfavorable resolution of one or more of the above matters could have a material adverse effect on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process or we have not yet reached the final stages of the appeals process, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.
(13)     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. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 — Significant inputs to the valuation model are unobservable.
There were no changes during the periods presented to the valuation techniques we use to measure asset and liability fair values on a recurring basis. There were no transfers between the three levels of the fair value hierarchy during the periods presented.
The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.
Derivative Financial Instruments
Our derivative financial assets and liabilities include FX forward contracts and FX embedded derivatives, valued using valuation models based on observable market inputs such as forward rates, interest rates, our own credit risk and the credit risk of our counterparties, which comprise investment-grade financial institutions. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. We have not made any adjustments to the inputs obtained from the independent sources. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments active. We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount.
As of June 30, 2018 and December 31, 2017, the gross fair values of our derivative financial assets and liabilities, in aggregate, were $2.2 and $2.3 (gross assets) and $0.2 and $0.0 (gross liabilities), respectively. As of June 30, 2018, there had been 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 had been no significant impact to the fair value of our derivative assets based on our evaluation of our counterparties’ credit risks.
Equity Security Investment
Until June 2017, we had an investment in an equity security that was accounted for under the fair value option, but not readily marketable, and therefore which was classified as a Level 3 asset in the fair value hierarchy. In April 2017, we entered into an agreement to sell our investment in the equity security to a third party, and the security’s value as of the end of the first quarter of 2017 reflected the sales price under this agreement. We received proceeds from the sale of the equity security during the second quarter of 2017. We held no equity securities required to be stated at fair value as of June 30, 2018 and December 31, 2017.

24


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

The table below presents a reconciliation of our investment in the equity security measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended July 1, 2017, including net unrealized losses recorded to “Other expense, net.”
 
Six months ended
 
July 1, 2017
Balance at beginning of year
$
7.6

Unrealized losses recorded to earnings
(1.4
)
Proceeds received from sale of investment
(6.2
)
Balance at end of period
$

Mezzanine Equity
To the extent the noncontrolling interests' put option price is correlated with the estimated fair value of the subsidiary, we use the market method to estimate the fair values of noncontrolling interest put options reported in "Mezzanine equity" using unobservable inputs (Level 3) on a recurring basis. Changes to the noncontrolling interest put option values are reflected as adjustments to "Mezzanine equity" and "Accumulated deficit." Refer to Note 11 for further discussion.
Goodwill, Indefinite-Lived Intangible and Other Long-Lived Assets
Certain of our non-financial assets are subject to impairment analysis, including long-lived assets, indefinite-lived intangible assets and goodwill. We review the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually for indefinite-lived intangible assets and goodwill. Any resulting impairment would require that the asset be recorded at its fair value. At June 30, 2018, we did not have any significant non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis. Refer to Note 6 for further discussion pertaining to our annual evaluation of goodwill and other intangible assets for impairment.
Indebtedness and Other
The estimated fair values of other financial liabilities (excluding capital leases and deferred financing fees) not measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 were as follows:
 
June 30, 2018
 
December 31, 2017
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term loan(1)
$
210.0

 
$
210.0

 
$
270.0

 
$
270.0

5.625% Senior notes(1)
300.0

 
295.5

 
300.0

 
315.0

5.875% Senior notes(1)
300.0

 
294.0

 
300.0

 
320.3

Trade receivables financing arrangement
3.0

 
3.0

 

 

Other indebtedness
24.5

 
24.5

 
24.2

 
24.2

(1)
Carrying amount reflected herein excludes related deferred financing fees.
The following methods and assumptions were used in estimating the fair value of these financial instruments:
The fair values of the senior notes were determined using Level 2 inputs within the fair value hierarchy and were based on quoted market prices for the same or similar instruments or on current rates offered to us for debt with similar maturities, subordination and credit default expectations.
The fair values of amounts outstanding under our term loan and trade receivables financing arrangement approximated carrying value due primarily to the variable-rate nature and credit spreads of these instruments, when compared to other similar instruments.
The fair values of other indebtedness approximated carrying value due primarily to the short-term nature of these instruments.

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SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

The carrying amounts of cash and equivalents, receivables and contract assets reported in our condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 approximate fair value due to the short-term nature of those instruments.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions, unless otherwise noted)
FORWARD-LOOKING STATEMENTS
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”). 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, or 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 similar expressions. Particular risks facing us include business, internal operations, legal and regulatory risks, costs of raw materials, pricing pressures 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 in this document are qualified in their entirety by reference to the factors discussed herein and under the heading “Risk Factors” in our 2017 Annual Report on Form 10-K and in any documents incorporated by reference herein 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 risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk 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 undertake no obligation to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document.
EXECUTIVE OVERVIEW
Our Business
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in three business segments. Based in Charlotte, North Carolina, SPX FLOW innovates with customers to help feed and enhance the world by designing, delivering and servicing high value solutions at the heart of growing and sustaining our diverse communities. The Company's product offering is concentrated in rotating, actuating and hydraulic technologies, as well as automated process systems, into food and beverage, industrial and power and energy markets. In 2017, SPX FLOW had approximately $2 billion in annual revenues with operations in more than 30 countries and sales in more than 150 countries, with approximately 40%, 37%, and 23% from sales into the Americas, EMEA, and Asia Pacific regions, respectively.
We serve the food and beverage, power and energy and industrial markets. Our product portfolio of pumps, valves, mixers, filters, air dryers, hydraulic tools, homogenizers, separators and heat exchangers, along with the related aftermarket parts and services, supports global industries, including food and beverage, oil and gas, power generation (including nuclear and conventional), chemical processing, compressed air and mining. From an end market perspective, in 2017, approximately 37% of our revenues were from sales into the food and beverage end markets, approximately 28% were from sales into the power and energy end markets, and approximately 35% were from sales into the industrial end markets. Our core strengths include expertise in rotating, actuating and hydraulic equipment, a highly skilled workforce, global capabilities, product breadth, and a deep application knowledge that enables us to optimize configuration and create custom-engineered solutions for diverse processes.
Between 2015 and 2017 we executed a multi-year, global realignment plan to transition our organization to an operating structure, improve our competitive position and increase our ability to serve customers. As part of this plan, we optimized our global footprint by consolidating eight manufacturing sites and a shared service center.  In addition, we improved our capabilities

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in high value countries, streamlined several business processes and reduced selling, general and administrative expense across our support functions. The majority of the improvements tied to the global realignment program are structural in nature to allow us to operate at a lower cost structure and more efficiently.
We have aligned our segment teams to focus primarily on developing intimate customer relationships and expanding our relevance to customers within each end market.  The key areas our end market teams are emphasizing include (i) product management, (ii) channel development, (iii) localization and (iv) project execution and delivery. We made substantial progress in these areas during 2016 and 2017. Our ultimate goal was to create a more customer-centric, service-oriented organization and deliver greater value to our customers, investors and employees.
Our business is organized into three reportable segments — Food and Beverage, Power and Energy, and Industrial. The following summary describes the products and services offered by each of our reportable segments:
Food and Beverage:  The Food and Beverage reportable segment operates in a regulated, global industry with customers who demand highly engineered, turn-key solutions. Key demand drivers include dairy consumption, emerging market capacity expansion, sustainability and productivity initiatives, customer product innovation and food safety. Key products for the segment include mixing, drying, evaporation and separation systems and components, heat exchangers, and reciprocating and centrifugal pump technologies. We also design and construct turn-key systems that integrate many of these products for our customers. Our core brands include Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital and Waukesha Cherry-Burrell. The segment's primary competitors are Alfa Laval AB, Fristam Pumps, GEA Group AG, Krones AG, Südmo, Tetra Pak International S.A. and various regional companies. 
Power and Energy:  The Power and Energy reportable segment primarily serves customers in the oil and gas industry and, to a lesser extent, the nuclear and other conventional power industries. A large portion of the segment's revenues are concentrated in oil extraction, production and transportation at existing wells, and in pipeline applications. The underlying driver of this segment includes demand for power and energy. Key products for the segment include pumps, valves and the related accessories, while the core brands include APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty and Vokes. The segment's primary competitors are Cameron, Ebara Fluid Handling, Flowserve Corporation, ITT Goulds Pumps, KSB AG and Sulzer Ltd. 
Industrial:  The Industrial reportable segment primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, general industrial and water treatment industries. Key demand drivers of this segment are tied to macroeconomic conditions and growth in the respective end markets we serve. Key products for the segment are air dryers, filtration equipment, mixers, pumps, hydraulic technologies and heat exchangers. Core brands include Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team and Stone. The segment's primary competitors are Alfa Laval AB, Chemineer Inc., EKATO, Actuant, Enerpac, IDEX Viking Pump, KSB AG, Parker Domnick Hunter and various regional companies.
Summary of Operating Results
Non-GAAP Measures - Throughout the following segment discussion, we use organic revenue growth (decline) to facilitate explanation of the operating performance of our segments based on the revenue recognition standard which we utilized throughout the comparative period of 2017. 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 Operations-Non-GAAP Measures.”
The financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations and cash flows may be in the future.
The following summary is intended to provide a few highlights of the discussion and analysis that follows (all comparisons are to the related period in the prior year):
Revenues — For the three months ended June 30, 2018, revenues increased $33.2 (6.7%). The increase in revenues was due primarily to an increase in organic revenue and an increase in revenue recognized during the second quarter of 2018 as a result of our application of the new revenue recognition standard adopted effective January 1, 2018. A weakening of the U.S. dollar during the period against various foreign currencies also contributed to the increase in revenues. The increase in organic revenue was due primarily to an increase in aftermarket sales across our segments and in revenues across most Industrial product lines, partially offset by a decline in Food and Beverage systems revenues and filters in our Power and Energy segment.

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For the six months ended June 30, 2018, revenues increased $90.3 (9.7%). The increase in revenues was due primarily to a weakening of the U.S. dollar against various foreign currencies, an increase in organic revenue and, to a lesser extent, the impact of our application of the new revenue recognition standard in 2018. The increase in organic revenue was due primarily to an increase in aftermarket revenues across our segments, valves into midstream oil and nuclear applications, and capital project revenues in our Industrial segment, partially offset by a decline in Food and Beverage systems revenues.
Income before Income Taxes — Income before income taxes increased from $12.9 in the three months ended July 1, 2017 to $35.3 in the three months ended June 30, 2018, and from $5.5 in the six months ended July 1, 2017 to $51.4 in the six months ended June 30, 2018. The improvement in pre-tax income for both periods was due primarily to (i) an increase in segment profitability, (ii) reduced special charges as our global realignment program concluded in the fourth quarter of 2017, and (iii) reduced interest expense due primarily to vol