10-Q 1 q1201910-q.htm FLOW FORM 10-Q - Q1 2019 Document


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 March 30, 2019
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 every Interactive Data File required to be submitted 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 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
 
 
 
 
 
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, Par Value $0.01
 
FLOW
 
New York Stock Exchange
Common shares outstanding as of April 26, 2019 were 42,533,833.


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
 
March 30, 2019
 
March 31, 2018
Revenues
$
491.1

 
$
490.3

Cost of products sold
336.6

 
334.6

Gross profit
154.5

 
155.7

Selling, general and administrative
108.9

 
115.5

Intangible amortization
3.8

 
4.4

Restructuring and other related charges
5.0

 
2.6

Operating income
36.8

 
33.2

 
 
 
 
Other income (expense), net
4.7

 
(4.6
)
Interest expense, net
(10.7
)
 
(12.5
)
Income before income taxes
30.8

 
16.1

Income tax provision
(10.7
)
 
(0.8
)
Net income
20.1

 
15.3

Less: Net income (loss) attributable to noncontrolling interests
0.6

 
(0.2
)
Net income attributable to SPX FLOW, Inc.
$
19.5

 
$
15.5

 
 
 
 
Basic income per share of common stock
$
0.46

 
$
0.37

Diluted income per share of common stock
$
0.46

 
$
0.36

 
 
 
 
Weighted average number of common shares outstanding - basic
42.452

 
41.978

Weighted average number of common shares outstanding - diluted
42.577

 
42.530

The accompanying notes are an integral part of these statements.

1

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


 
Three months ended
 
March 30, 2019
 
March 31, 2018
Net income
$
20.1

 
$
15.3

Other comprehensive income (loss), net:
 
 
 
Net unrealized gains on qualifying cash flow hedges, net of tax provision of $0.1
0.2

 
—

Foreign currency translation adjustments
(8.9
)
 
40.0

Other comprehensive income (loss), net
(8.7
)
 
40.0

Total comprehensive income
11.4

 
55.3

Less: Total comprehensive income (loss) attributable to noncontrolling interests
0.6

 
(0.2
)
Total comprehensive income attributable to SPX FLOW, Inc.
$
10.8

 
$
55.5

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)


 
March 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
202.2

 
$
213.3

Accounts receivable, net
377.3

 
375.7

Contract assets
69.2

 
69.3

Inventories, net
314.6

 
304.8

Other current assets
39.1

 
44.3

Total current assets
1,002.4

 
1,007.4

Property, plant and equipment:
 
 
 
Land
34.4

 
34.2

Buildings and leasehold improvements
226.5

 
232.1

Machinery and equipment
471.5

 
463.3

 
732.4

 
729.6

Accumulated depreciation
(404.1
)
 
(394.1
)
Property, plant and equipment, net
328.3

 
335.5

Goodwill
744.1

 
744.3

Intangibles, net
311.1

 
312.3

Other assets
221.9

 
152.3

TOTAL ASSETS
$
2,607.8

 
$
2,551.8

 
 
 
 
LIABILITIES, MEZZANINE EQUITY AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
208.3

 
$
203.7

Contract liabilities
169.5

 
174.9

Accrued expenses
202.7

 
195.3

Income taxes payable
31.7

 
28.2

Short-term debt
24.0

 
26.0

Current maturities of long-term debt
20.6

 
21.2

Total current liabilities
656.8

 
649.3

Long-term debt
711.7

 
722.1

Deferred and other income taxes
88.3

 
83.6

Other long-term liabilities
165.7

 
112.2

Total long-term liabilities
965.7

 
917.9

Commitments and contingent liabilities (Note 11)


 


Mezzanine equity
21.2

 
21.5

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, 43,087,886 issued and 42,533,035 outstanding at March 30, 2019, and 42,932,339 issued and 42,542,888 outstanding at December 31, 2018
0.4

 
0.4

Paid-in capital
1,665.8

 
1,662.6

Accumulated deficit
(254.6
)
 
(265.6
)
Accumulated other comprehensive loss
(439.4
)
 
(430.7
)
Common stock in treasury (554,851 shares at March 30, 2019, and 389,451 shares at December 31, 2018)
(19.0
)
 
(13.9
)
Total SPX FLOW, Inc. shareholders' equity
953.2

 
952.8

Noncontrolling interests
10.9

 
10.3

Total equity
964.1

 
963.1

TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY
$
2,607.8

 
$
2,551.8

The accompanying notes are an integral part of these statements.

3

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


 
Three months ended March 30, 2019
 
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, 2018
42.5

 
$
0.4

 
$
1,662.6

 
$
(265.6
)
 
$
(430.7
)
 
$
(13.9
)
 
$
952.8

 
$
10.3

 
$
963.1

Adoption of lease accounting standard
—

 
—

 
—

 
(8.5
)
 
—

 
—

 
(8.5
)
 
—

 
(8.5
)
Net income
—

 
—

 
—

 
19.5

 
—

 
—

 
19.5

 
0.6

 
20.1

Other comprehensive loss, net
—

 
—

 
—

 
—

 
(8.7
)
 
—

 
(8.7
)
 
—

 
(8.7
)
Stock-based compensation expense
—

 
—

 
3.2

 
—

 
—

 
—

 
3.2

 
—

 
3.2

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

 
—

 
—

 
—

 
—

 
(5.1
)
 
(5.1
)
 
—

 
(5.1
)
Balance at March 30, 2019
42.5

 
$
0.4

 
$
1,665.8

 
$
(254.6
)
 
$
(439.4
)
 
$
(19.0
)
 
$
953.2

 
$
10.9

 
$
964.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Three months ended March 31, 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 (loss)
—

 
—

 
—

 
15.5

 
—

 
—

 
15.5

 
(0.2
)
 
15.3

Other comprehensive income, net
—

 
—

 
—

 
—

 
40.0

 
—

 
40.0

 
—

 
40.0

Incentive plan activity
—

 
—

 
2.4

 
—

 
—

 
—

 
2.4

 
—

 
2.4

Stock-based compensation expense
—

 
—

 
5.1

 
—

 
—

 
—

 
5.1

 
—

 
5.1

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

 
—

 
—

 
—

 
—

 
(4.0
)
 
(4.0
)
 
—

 
(4.0
)
Dividends attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1.0
)
 
(1.0
)
Balance at March 31, 2018
42.5

 
$
0.4

 
$
1,658.4

 
$
(306.2
)
 
$
(340.1
)
 
$
(12.9
)
 
$
999.6

 
$
8.5

 
$
1,008.1


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)


 
Three months ended
 
March 30, 2019
 
March 31, 2018
Cash flows from operating activities:
 
 
 
Net income
$
20.1

 
$
15.3

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Restructuring and other related charges
5.0

 
2.6

Deferred income taxes
4.4

 
3.5

Depreciation and amortization
13.8

 
15.1

Stock-based compensation
3.2

 
5.1

Pension and other employee benefits
0.5

 
3.1

Loss on asset sales and other, net
0.1

 
—

Gain from investment in equity security
(6.2
)
 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable and other assets
10.5

 
14.1

Contract assets and liabilities, net
(5.6
)
 
10.6

Inventories
(9.4
)
 
(21.9
)
Accounts payable, accrued expenses and other
(14.2
)
 
(28.1
)
Cash spending on restructuring actions
(0.4
)
 
(3.8
)
Net cash from operating activities
21.8

 
15.6

Cash flows used in investing activities:
 
 
 
Net cash used in investing activities - capital expenditures
(6.9
)
 
(5.2
)
Cash flows used in financing activities:
 
 
 
Borrowings under senior credit facilities
22.0

 
19.5

Repayments of senior credit facilities
(27.0
)
 
(54.5
)
Borrowings under trade receivables financing arrangement
42.0

 
28.0

Repayments of trade receivables financing arrangement
(42.0
)
 
(23.0
)
Repayments of other financing arrangements
(2.1
)
 
(3.1
)
Minimum withholdings paid on behalf of employees for net share settlements, net
(5.1
)
 
(4.0
)
Dividends paid to noncontrolling interests in subsidiary
—

 
(1.0
)
Net cash used in financing activities
(12.2
)
 
(38.1
)
Change in cash, cash equivalents and restricted cash due to changes in foreign currency exchange rates
(13.8
)
 
7.9

Net change in cash, cash equivalents and restricted cash
(11.1
)
 
(19.8
)
Consolidated cash, cash equivalents and restricted cash, beginning of period
214.3

 
264.9

Consolidated cash, cash equivalents and restricted cash, end of period
$
203.2

 
$
245.1

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash from the condensed consolidated balance sheets:
 
 
 
Cash and cash equivalents
$
202.2

 
$
243.9

Restricted cash included in other current assets
1.0

 
1.2

Consolidated cash, cash equivalents and restricted cash, end of period
$
203.2

 
$
245.1

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
General Matters
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in three business segments: Food and Beverage, Power and Energy, and Industrial.
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 financial statements contained in our 2018 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.
Amounts previously captioned “Special Charges” in our condensed consolidated financial statements included in our first quarter 2018 Quarterly Report on Form 10-Q are now reported under the caption “Restructuring and other related charges” 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 2019 are March 30, June 29, and September 28, compared to the respective March 31, June 30, and September 29, 2018 dates. We had one less day in the first quarter of 2019 and will have one more day in the fourth quarter of 2019 than in the respective 2018 periods.
Revenue Recognition
Contract Balances:
Contract assets include unbilled amounts typically resulting from sales under contracts recognized over time 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 contracts recognized over time 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 accounts receivable, assets and liabilities, and changes in such balances, were as follows:
 
March 30, 2019
 
December 31, 2018
 
Change(1)
 
% Change
Contract accounts receivable(2)
$
367.8

 
$
369.8

 
$
(2.0
)
 
(0.5
)%
Contract assets
69.2

 
69.3

 
(0.1
)
 
(0.1
)%
Contract liabilities
(169.5
)
 
(174.9
)
 
5.4

 
(3.1
)%
Net contract balance
$
267.5

 
$
264.2

 
$
3.3

 
 
(1)    The $3.3 increase in our net contract balance from December 31, 2018 to March 30, 2019 was primarily due to the timing of advance and milestone payments received on certain Food and Beverage and Power and Energy contracts recognized over time, and of performance obligations satisfied and the related revenue recognized on such contracts.
(2)     Included in “Accounts receivable, net” in our condensed consolidated balance sheets. Amounts are presented before consideration of the allowance for uncollectible accounts.
During the three months ended March 30, 2019, we recognized revenues of $68.9 related to contract liabilities outstanding as of December 31, 2018.

6

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

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 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 March 30, 2019, the aggregate amount of our remaining performance obligations was $917.4. The Company expects to recognize revenue on approximately 88% and substantially all of our remaining performance obligations within the next 12 and 24 months, respectively.
(2)    NEW ACCOUNTING PRONOUNCEMENTS
The following is a summary of new accounting pronouncements that apply or may apply to our business.
New Leases Pronouncement
Effects of Adoption - In February 2016, and as subsequently amended, the Financial Accounting Standards Board (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. 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.
We adopted the standard effective January 1, 2019 using the modified retrospective adoption method which allowed us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit. In connection with our adoption of the new lease pronouncement, we recorded a charge to accumulated deficit of $8.5, reflecting the effects of (1) an impairment of a right-of-use (“ROU”) asset resulting from the rationalization of a business in our Food and Beverage segment during the fourth quarter of 2018 and, to a lesser extent, (2) the reclassification of a former capital lease to an operating lease. See Note 4 for additional information regarding the rationalization of the Food and Beverage business.
We have elected to use the practical expedient package that allows us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We additionally elected to use the practical expedients that allow lessees to: (1) treat the lease and non-lease components of leases as a single lease component for all of our leases and (2) not recognize on our balance sheet leases with terms less than twelve months.
We determine if an arrangement is a lease at inception. We lease certain manufacturing facilities, warehouses, administrative offices, sales and service locations, machinery and equipment, vehicles and office equipment under operating leases. Under the new standard, operating leases result in the recognition of ROU assets and lease liabilities on the consolidated balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Under the new standard, operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, upon adoption of the new standard, we used our country-specific estimated incremental borrowing rate based on the information available, including lease term, as of January 1, 2019 to determine the present value of lease payments. Operating lease ROU assets are adjusted for any lease payments made prior to January 1, 2019 and any lease incentives. Certain of our leases may include options to extend or terminate the original lease term. We generally conclude that we are not reasonably certain to exercise these options due primarily to the length of the original lease term and our assessment that economic incentives are not reasonably certain to be realized. Operating lease expense under the new standard is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components and, as noted above, we account for the lease and non-lease components as a single lease component under the new standard. Our current finance lease obligations consist primarily of manufacturing facility leases.
Upon adoption of the new standard, we reclassified a single lease from capital to operating based on specific transition requirements for build-to-suit arrangements recognized as capital leases under the prior accounting standard. Upon derecognizing the former capital lease asset and liability, we determined the lease to be operating under the new standard. Refer to the “Summary of Effects of Lease Accounting Standard Update Adopted in First Quarter of 2019” below for further details.

7

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

Leases accounted for under the new standard have initial remaining lease terms of one to 15 years. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of operating and finance lease ROU assets and liabilities as of March 30, 2019 were as follows:
 
March 30, 2019
 
Balance Sheet Caption in Which Balance is Reported
Finance lease ROU assets
$
3.7

 
Property, plant and equipment, net
Operating lease ROU assets
65.4

 
Other assets
Current portion of operating lease liabilities
20.8

 
Accrued expenses
Current portion of finance lease liabilities
0.6

 
Current maturities of long-term debt
Long-term finance lease liabilities
3.9

 
Long-term debt
Long-term operating lease liabilities
53.1

 
Other long-term liabilities
The components of lease expense for the three months ended March 30, 2019 were as follows:
 
Three months ended
 
March 30, 2019
Operating lease cost(1)
$
6.1

Finance lease cost:
 
Amortization of leased assets(1)
0.1

Interest on lease liabilities(2)
0.1

Short-term lease cost(1)
0.9

Variable lease cost(1)
0.5

Total lease cost
$
7.7

(1)    Included in “Cost of products sold” and “Selling, general and administrative” in our condensed consolidated statement of operations.
(2)    Included in “Interest expense, net” in our condensed consolidated statement of operations.
The future lease payments under operating and finance leases with initial remaining terms in excess of one year as of March 30, 2019 were as follows:
Year Ending December 31,
 
Operating leases
 
Finance leases
 
Total
2019
 
$
17.6

 
$
0.6

 
$
18.2

2020
 
18.4

 
0.8

 
19.2

2021
 
12.9

 
0.8

 
13.7

2022
 
8.9

 
0.8

 
9.7

2023
 
6.5

 
0.7

 
7.2

Thereafter
 
20.6

 
1.7

 
22.3

Total lease payments
 
84.9

 
5.4

 
90.3

Less: interest
 
(11.0
)
 
(0.9
)
 
(11.9
)
Present value of lease liabilities
 
$
73.9

 
$
4.5

 
$
78.4


8

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

The future lease payments under operating and capital leases as of December 31, 2018 were as follows:
Year Ending December 31,
 
Operating leases
 
Capital leases
2019
 
$
23.4

 
$
1.6

2020
 
17.5

 
1.6

2021
 
12.1

 
1.6

2022
 
7.6

 
1.6

2023
 
5.5

 
1.6

Thereafter
 
18.0

 
4.4

Total lease payments
 
$
84.1

 
12.4

Less: interest
 

 
(1.6
)
Present value of lease liabilities
 

 
$
10.8

Key assumptions used in accounting for our operating and finance leases as of March 30, 2019 were as follows:
 
March 30, 2019
Weighted-average remaining lease term (years):
 
Operating leases
6.0

Finance leases
6.8

Weighted-average discount rate:
 
Operating leases
4.71
%
Finance leases
5.85
%
Cash flows and non-cash activities related to our operating and finance leases for the three months ended March 30, 2019 were as follows:
 
Three months ended
 
March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows paid for operating leases
$
6.0

Operating cash flows paid for finance leases
0.1

Financing cash flows paid for finance leases
0.3

Non-cash activities:
 
Operating lease ROU assets obtained in exchange for new operating lease liabilities
1.5

Finance lease ROU assets obtained in exchange for new finance lease liabilities
0.6


9

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

Summary of Effects of Lease Accounting Standard Update Adopted in First Quarter of 2019
The cumulative effects of the changes made to our condensed consolidated balance sheet as of the beginning of the first quarter of 2019 as a result of the adoption of the accounting standard update on leases were as follows:
 
 
 
 
Effects of adoption of lease accounting standard update related to:
 
 
 
 
Balance Sheet
 
As filed December 31, 2018
 
Recognition of Operating Leases
 
Reclassification of Capital Lease to Operating Lease
 
Impairment of Operating Lease ROU Asset
 
Total effects of adoption
 
With effect of lease accounting standard update January 1, 2019
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$
44.3

 
$
(1.2
)
 
$
—

 
$
—

 
$
(1.2
)
 
$
43.1

Buildings and leasehold improvements
 
232.1

 
—

 
(7.2
)
 
—

 
(7.2
)
 
224.9

Accumulated depreciation
 
(394.1
)
 
—

 
0.7

 
—

 
0.7

 
(393.4
)
Other assets
 
152.3

 
71.8

 
5.8

 
(8.4
)
 
69.2

 
221.5

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses
 
195.3

 
20.2

 
0.9

 
—

 
21.1

 
216.4

Current maturities of long-term debt
 
21.2

 
—

 
(0.7
)
 
—

 
(0.7
)
 
20.5

Long-term debt
 
722.1

 
—

 
(6.1
)
 
—

 
(6.1
)
 
716.0

Other long-term liabilities
 
112.2

 
50.4

 
5.3

 
—

 
55.7

 
167.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated deficit
 
(265.6
)
 
—

 
(0.1
)
 
(8.4
)
 
(8.5
)
 
(274.1
)
Other New Accounting Pronouncements
In June 2016, and as subsequently amended, the FASB issued an amendment on the measurement of credit losses. This amendment requires companies to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This amendment is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact this amendment may have on its condensed consolidated financial statements.
In March 2018, the FASB issued an amendment to update the Codification and XBRL Taxonomy as a result of the Tax Cuts and Jobs Act (the “Tax Act”), and to incorporate the Staff Accounting Bulletin 118 (“SAB 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 completed its accounting for the impact of this tax reform legislation as of December 31, 2018. Our adoption of this amendment had no impact on our condensed consolidated financial statements in the first quarter of 2019 .
In August 2018, the FASB issued an amendment to modify the disclosure requirements related to fair value measurements. This amendment removes, modifies and adds certain disclosures required under current guidance. For example, the amendment removes the requirements to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy as well as the policy for timing of transfers between levels, and requires certain additional disclosures related to Level 3 fair value measurements. This amendment is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact this amendment may have on its condensed consolidated financial statements.
In August 2018, the FASB issued an amendment to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). Amongst other changes in requirements, the amendments in this update also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This amendment is effective for interim and

10

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

annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact this amendment may have on its condensed consolidated financial statements.
In August 2018, the FASB issued an amendment to modify the disclosure requirements related to defined benefit plans. This amendment removes, clarifies and adds certain disclosures required under current guidance. For example, the amendment removes the requirement to disclose the effects of a one-percentage point change in assumed health care cost trend rates on postretirement benefit obligations and service and interest cost components of periodic benefit costs, and requires an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This amendment is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact this amendment may have on its condensed consolidated financial statements.
(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 asset impairment charges, restructuring and other related 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. Corporate expense also reflects stock-based compensation costs associated with corporate employees.

11

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 months ended March 30, 2019 and March 31, 2018 were as follows:
 
Three months ended
 
March 30, 2019
 
March 31, 2018
Revenues:
 
 
 
Food and Beverage
$
172.5

 
$
166.5

Power and Energy
136.3

 
144.7

Industrial
182.3

 
179.1

     Total revenues
$
491.1

 
$
490.3

 
 
 
 
Income:
 
 
 
Food and Beverage
$
18.5

 
$
17.9

Power and Energy
9.8

 
12.2

Industrial
27.1

 
20.5

     Total income for reportable segments
55.4

 
50.6

 
 
 
 
Corporate expense
13.3

 
14.4

Pension and postretirement service costs
0.3

 
0.4

Restructuring and other related charges
5.0

 
2.6

Consolidated operating income
$
36.8

 
$
33.2

Revenues recognized over time:
The following table provides revenues recognized over time by reportable segment for the three months ended March 30, 2019 and March 31, 2018:
 
Three months ended
 
March 30, 2019
 
March 31, 2018
Revenues recognized over time:
 
 
 
Food and Beverage
$
79.8

 
$
62.6

Power and Energy
24.7

 
27.9

Industrial
16.0

 
18.7

     Total revenues recognized over time
$
120.5

 
$
109.2


12

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

Disaggregated Information about Revenues:
Our aftermarket revenues generally include sales of parts and service/maintenance services, and original equipment (“OE”) revenues generally include all other revenue streams. The following table provides disaggregated information about our OE, including Food and Beverage systems, and aftermarket revenues by reportable segment for the three months ended March 30, 2019 and March 31, 2018:
 
Three months ended March 30, 2019
 
Three months ended March 31, 2018
 
Original Equipment
 
Aftermarket
 
Total Revenues
 
Original Equipment
 
Aftermarket
 
Total Revenues
Food and Beverage
$
112.6

(1) 
$
59.9

 
$
172.5

 
$
103.3

(1) 
$
63.2

 
$
166.5

Power and Energy
70.3

 
66.0

 
136.3

 
73.9

 
70.8

 
144.7

Industrial
125.1

 
57.2

 
182.3

 
122.6

 
56.5

 
179.1

Total revenues
$
308.0

 
$
183.1

 
$
491.1

 
$
299.8

 
$
190.5

 
$
490.3

(1)     Includes $62.6 and $54.1 for the three months ended March 30, 2019 and March 31, 2018, respectively, of revenue realized from the sale of highly engineered Food and Beverage systems.
(4)     RESTRUCTURING AND OTHER RELATED CHARGES
Restructuring and other related charges for the three months ended March 30, 2019 and March 31, 2018 were as follows:
 
Three months ended
 
March 30, 2019
 
March 31, 2018
Food and Beverage
$
4.4

 
$
0.1

Power and Energy
—

 
2.1

Industrial
0.6

 
0.4

Total
$
5.0

 
$
2.6

Restructuring and Other Related Charges By Reportable Segment
Food and Beverage — Charges for the three months ended March 30, 2019 related primarily to severance and other costs associated with the further rationalization, initiated during the fourth quarter of 2018, of a business based primarily in the EMEA region.
Power and Energy — Charges for the three months ended March 31, 2018 related primarily to severance and other costs associated with a reduction in workforce of the manufacturing operations of a facility in the U.K.
Industrial — Charges for the three months ended March 30, 2019 related primarily to severance and other costs associated with certain operations personnel in the EMEA region.
Charges for the three months ended March 31, 2018 related primarily to severance and other costs associated with (i) operations personnel in North America and the Asia Pacific region, partially offset by (ii) revisions of estimates related to certain previously announced restructuring activities.
Expected charges still to be incurred under actions approved as of March 30, 2019 were approximately $1.0.

13

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

The following is an analysis of our restructuring liabilities (included in “Accrued expenses” in our condensed consolidated balance sheets) for the three months ended March 30, 2019 and March 31, 2018:
 
Three months ended
 
March 30, 2019
 
March 31, 2018
Balance at beginning of year
$
7.7

 
$
12.4

Restructuring and other related charges(1)
4.7

 
2.6

Utilization — cash
(0.4
)
 
(3.8
)
Currency translation adjustment and other
—

 
0.3

Balance at end of period
$
12.0

 
$
11.5

(1)     Amounts that impacted restructuring and other related charges but not the restructuring liabilities included $0.3 of other related charges during the three months ended March 30, 2019.
(5)    INVENTORIES, NET
Inventories at March 30, 2019 and December 31, 2018 comprised the following:
 
March 30, 2019
 
December 31, 2018
Finished goods
$
102.0

 
$
93.7

Work in process
103.5

 
98.8

Raw materials and purchased parts
116.5

 
119.7

Total FIFO cost
322.0

 
312.2

Excess of FIFO cost over LIFO inventory value
(7.4
)
 
(7.4
)
Total inventories
$
314.6

 
$
304.8

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 9% and 8% of total inventory at March 30, 2019 and December 31, 2018, respectively. 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 three months ended March 30, 2019 were as follows:
 
December 31, 2018
 
Impairments
 
Foreign Currency Translation and Other
 
March 30, 2019
Food and Beverage
$
261.5

 
$
—

 
$
(1.4
)
 
$
260.1

Power and Energy(1)
263.9

 
—

 
3.0

 
266.9

Industrial(2)
218.9

 
—

 
(1.8
)
 
217.1

Total
$
744.3

 
$
—

 
$
(0.2
)
 
$
744.1

(1)
The carrying amount of goodwill included $251.2 and $248.5 of accumulated impairments as of March 30, 2019 and December 31, 2018, respectively.
(2)
The carrying amount of goodwill included $67.7 of accumulated impairments as of March 30, 2019 and December 31, 2018.
As of March 30, 2019, there were no indicators necessitating an interim impairment test of any of our reporting units, based on management's review of operating performance.

14

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

We will perform our annual impairment testing of goodwill (and indefinite-lived intangible assets that are not amortized), during the fourth quarter of 2019 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.
Other Intangibles, Net
Identifiable intangible assets were as follows:
 
March 30, 2019
 
December 31, 2018
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Intangible assets with determinable lives:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
218.9

 
$
(131.5
)
 
$
87.4

 
$
218.1

 
$
(128.7
)
 
$
89.4

Technology
84.1

 
(54.7
)
 
29.4

 
84.5

 
(54.0
)
 
30.5

Patents
6.7

 
(5.4
)
 
1.3

 
6.7

 
(5.3
)
 
1.4

Other
10.9

 
(10.9
)
 
—

 
10.8

 
(10.8
)
 
—

 
320.6

 
(202.5
)
 
118.1

 
320.1

 
(198.8
)
 
121.3

Trademarks with indefinite lives
193.0

 
—

 
193.0

 
191.0

 
—

 
191.0

Total
$
513.6

 
$
(202.5
)
 
$
311.1

 
$
511.1

 
$
(198.8
)
 
$
312.3

As of March 30, 2019, the net carrying value of intangible assets with determinable lives consisted of the following by reportable segment: $68.5 in Power and Energy, $32.5 in Food and Beverage, and $17.1 in Industrial. Trademarks with indefinite lives consisted of the following by reportable segment: $98.7 in Food and Beverage, $59.5 in Industrial, and $34.8 in Power and Energy.
No impairment charges were recorded during the three months ended March 30, 2019 or March 31, 2018. Changes in the gross carrying values of trademarks and other identifiable intangible assets during the three months ended March 30, 2019 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
Net periodic benefit expense for our foreign pension plans and our domestic pension and postretirement plans for the three months ended March 30, 2019 and March 31, 2018 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
 
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
 
March 30, 2019
 
March 31, 2018
 
Service cost
$
0.3

 
0.2

 
$
—

 
$
0.2

 
$
0.3

 
$
0.4

 
Selling, general and administrative
Interest cost
0.1

 
0.2

 
0.1

 
0.1

 
0.2

 
0.3

 
Other income (expense), net
Total net periodic benefit expense
$
0.4

 
$
0.4

 
$
0.1

 
$
0.3

 
$
0.5

 
$
0.7

 
 
Employer Contributions
During the three months ended March 30, 2019 and March 31, 2018, contributions to the foreign and domestic pension plans we sponsor were less than $0.1.

15

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

(8)    INDEBTEDNESS
Debt at March 30, 2019 and December 31, 2018 was comprised of the following:
 
March 30, 2019
 
December 31, 2018
Term loan(1)
$
135.0

 
$
140.0

5.625% senior notes, due in August 2024
300.0

 
300.0

5.875% senior notes, due in August 2026
300.0

 
300.0

Other indebtedness(2)
29.0

 
37.3

Less: deferred financing fees(3)
(7.7
)
 
(8.0
)
Total debt
756.3

 
769.3

Less: short-term debt
24.0

 
26.0

Less: current maturities of long-term debt
20.6

 
21.2

Total long-term debt
$
711.7

 
$
722.1

(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.
(2)
Primarily includes finance lease obligations (previously “capital lease obligations” in 2018 under prior accounting guidance) of $4.5 and $10.8 and balances under a purchase card program of $22.1 and $23.0 as of March 30, 2019 and December 31, 2018, 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. See Note 2 for further discussion regarding our adoption of a new lease accounting standard during the three months ended March 30, 2019 and the impact of such adoption on our capital lease obligations.
(3)
Deferred financing fees were comprised of fees related to the term loan and senior notes.
A detailed description of our senior credit facilities and senior notes is included in our consolidated financial statements included in our 2018 Annual Report on Form 10-K.
The weighted-average interest rate of outstanding borrowings under our senior credit facilities was approximately 4.2% and 4.3% at March 30, 2019 and December 31, 2018, respectively.
At March 30, 2019, we had $444.0 of borrowing capacity under our revolving credit facilities after giving effect to $6.0 reserved for outstanding letters of credit. At March 30, 2019, we had $27.3 of available borrowing capacity under our trade receivables financing arrangement. 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 March 30, 2019, we had $396.1 of available issuance capacity under our foreign credit instrument facilities after giving effect to $103.9 reserved for outstanding bank guarantees and standby letters of credit.
At March 30, 2019, in addition to the revolving lines of credit described above, we had approximately $9.1 of letters of credit outstanding under separate arrangements in China and India.
At March 30, 2019, 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 $68.8 and $65.3 outstanding as of March 30, 2019 and December 31, 2018, respectively, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $16.6 and $15.3 at March 30, 2019 and December 31, 2018, respectively, with scheduled maturities of $16.4 and $0.2 within one and two years, respectively. There were unrealized losses of $0.1 and $0.3 recorded in accumulated other comprehensive loss related to FX forward contracts as of March 30, 2019 and December 31, 2018, respectively. The net losses recorded in “Other income (expense), net” related to FX losses totaled $1.2 and $4.3 for the three months ended March 30, 2019 and March 31, 2018, respectively.

16

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

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 $1.8 and $2.1 (gross assets) and $0.5 and $0.2 (gross liabilities) at March 30, 2019 and December 31, 2018, respectively.
(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
 
March 30, 2019
 
March 31, 2018
Weighted-average shares outstanding, basic
42.452

 
41.978

Dilutive effect of share-based awards
0.125

 
0.552

Weighted-average shares outstanding, dilutive(1)
42.577

 
42.530

(1)
Unvested restricted stock shares/units not included in the computation of diluted income per share because required market thresholds for vesting (as discussed below) were not met, were 0.202 for the three months ended March 30, 2019. 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 0.151 and 0.216 for the three months ended March 30, 2019 and March 31, 2018, respectively. 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 for the three months ended March 30, 2019 and March 31, 2018.
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 0.754 unissued shares of our common stock were available for future grant as of March 30, 2019. 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 2019 target performance awards during the three months ended March 30, 2019 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 2019 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, 2019 through December 31, 2021. In addition, certain eligible employees, including officers, were granted 2019 target performance awards during the three months ended March 30, 2019 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, 2021 (including eligible employees’ continued employment during the measurement period). These target performance awards were issued as restricted stock units to eligible employees, including officers.
Eligible employees, including officers, also were granted 2019 awards during the three months ended March 30, 2019 that vest ratably over three years, subject to the passage of time and the employees’ continued employment during such period. An officer also was granted a 2019 award during the three months ended March 30, 2019 that vests at the end of three years, subject to the passage of time and the officer’s continued employment during such period. In some instances, such as death,

17

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

disability, or retirement, awards may vest concurrently with or following an employee's termination. These awards were issued as restricted stock units to eligible employees, including officers.
Restricted stock unit awards granted to eligible employees, including officers, during the three months ended March 30, 2019, 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 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 months ended March 30, 2019 and March 31, 2018, 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
 
March 30, 2019
 
March 31, 2018
Stock-based compensation expense
$
3.2

 
$
5.1

Income tax benefit
(0.7
)
 
(1.2
)
Stock-based compensation expense, net of income tax benefit
$
2.5

 
$
3.9

Restricted Stock Unit Awards
The Monte Carlo simulation model valuation technique was used to determine the fair value of our 2019 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 unit award. The following assumptions were used in determining the fair value of the awards granted on the date indicated below:
 
Annual Expected Stock Price Volatility
 
Annual Expected Dividend Yield
 
Risk-free Interest Rate
 
Correlations Between Total Shareholder Return for SPX FLOW and Individual Companies in the Composite Group
 
 
 
 
Minimum
 
Average
 
Maximum
March 21, 2019:
 
 
 
 
 
 
 
 
 
 
 
SPX FLOW
36.9
%
 
—
%
 
2.45
%
 
0.1274

 
0.4364

 
0.7393

Composite Group
28.1
%
 
n/a

 
2.45
%
 
 
 
 
 
 
Annual expected stock price volatility was based on the weighted average of SPX FLOW’s historical volatility as of the grant date. An expected annual dividend yield was not assumed as dividends are not currently granted on common shares by SPX FLOW. The average risk-free interest rate was based on an interpolation of the two-year and three-year daily treasury yield curve rate as of the grant date.

18

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

The following table summarizes the unvested restricted stock share and restricted stock unit activity for the three months ended March 30, 2019:
 
Unvested Restricted Stock Shares and Restricted Stock Units
 
Weighted-Average Grant-Date Fair Value Per Share
Outstanding at December 31, 2018
1.176
 
$36.40
Granted
0.469
 
33.97
Vested
(0.421)
 
32.17
Forfeited and other
(0.226)
 
30.20
Outstanding at March 30, 2019
0.998
 
$38.43
As of March 30, 2019, there was $27.1 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 2.3 years.
Stock Options
There were 0.342 of SPX FLOW stock options outstanding as of March 30, 2019 and December 31, 2018, all of which were exercisable as of March 30, 2019. 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 March 30, 2019.
Accumulated Other Comprehensive Loss
Substantially all of accumulated other comprehensive loss (“AOCL”) as of March 30, 2019 and December 31, 2018 was foreign currency translation adjustment (there were unrealized losses of $0.1 and $0.3, net of taxes, recorded in AOCL related to FX forward contracts as of March 30, 2019 and December 31, 2018, respectively, as discussed in Note 9). See the condensed consolidated statement of comprehensive income for changes in AOCL for the three months ended March 30, 2019 and March 31, 2018.
Common Stock in Treasury
During the three months ended March 30, 2019 and March 31, 2018, “Common stock in treasury” was increased by $5.1 and $4.0, respectively, for common stock that was surrendered by recipients of restricted stock as a means of funding the related applicable income tax withholding requirements.
(11)    LITIGATION, CONTINGENT LIABILITIES AND OTHER MATTERS
Various claims, complaints and proceedings arising in the ordinary course of business, including those relating to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims, and claims to certain indemnification obligations arising from previous acquisitions/dispositions), have been filed or are pending against us and certain of our subsidiaries. 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.
During the first quarter of 2019, the Company received a payment demand from a customer arising from a project that is substantially complete in terms of production, revenue recognition and receipt of payment.  Management does not have sufficient information at this time to estimate a potential loss or range of loss associated with this matter, but if the matter were to be concluded adversely to the Company, it could have a material impact on earnings and cash flows in the period so determined. 
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.

19

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

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 March 30, 2019 and December 31, 2018 are stated at 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. Of the $21.2 of current exercise value of the put options outstanding as of March 30, 2019, options with a value of $11.9 became exercisable during 2018. If and when such options are exercised, we expect to settle the option value in cash.
(12)    INCOME TAXES
Unrecognized Tax Benefits
As of March 30, 2019, we had gross unrecognized tax benefits of $5.3 (net unrecognized tax benefits of $2.9), of which $2.9, 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 March 30, 2019, gross accrued interest totaled $0.4 (net accrued interest of $0.3), 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 $1.5 to $2.5. The previously unrecognized tax benefits relate to transfer pricing matters.
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 effected on September 26, 2015 (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 March 30, 2019, we recorded an income tax provision of $10.7 on $30.8 of pre-tax income, resulting in an effective tax rate of 34.7%. This compares to an income tax provision for the three months ended March 31, 2018 of $0.8 on $16.1 of pre-tax income, resulting in an effective tax rate of 5.0%. The effective tax rate for the first quarter of 2019 was impacted by a charge of $2.1 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized. The effective tax rate for the first quarter of 2018 was impacted by a benefit of $9.4 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 partially offset by charges of (i) $1.8 resulting from a refinement of the transition tax calculation, (ii) $1.1 resulting from an increase to the liability for earnings not considered indefinitely reinvested caused by the changes to the transition tax calculation, and (iii) $1.3 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized.
During the fourth quarter of 2018, the U.S. Treasury issued additional guidance regarding a provision of the Tax Act which effectively eliminated the $9.4 benefit related to the foreign tax credits arising from distributions of income taxed under the transition tax provisions of the Tax Act and recorded in the first quarter of 2018 as described above. Refer to the notes to our consolidated financial statements in our 2018 Annual Report on Form 10-K for additional information regarding the Tax Act and its impact on our income tax provision.

20

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

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. Of these returns, the 2014 and pre-Spin-Off portion of the 2015 federal income tax returns are currently under audit, 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 a limited number of 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 2019. We believe that any uncertain tax positions related to these examinations have been appropriately reflected as unrecognized tax benefits.
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

21

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

value instruments active. We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount.
As of March 30, 2019 and December 31, 2018, the gross fair values of our derivative financial assets and liabilities, in aggregate, were $1.8 and $2.1 (gross assets) and $0.5 and $0.2 (gross liabilities), respectively. As of March 30, 2019, 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
In connection with an adoption of new accounting guidance, we adjusted an investment in an equity security from its historical cost to estimated fair value during the fourth quarter of 2018. Utilizing a practical expedient, the fair value of our equity security was based on our ownership percentage, applied to the net asset value derived from the investee's most currently issued, audited financial statements at that time. Our investment in the equity security is reflected at its net asset value in “other assets” in our condensed consolidated balance sheets as of March 30, 2019 and December 31, 2018 and the increase in our investment, based on the equity security’s most recently determined net asset value, is reflected in “Other income (expense), net” in our condensed consolidated statement of operations during the three months ended March 30, 2019. We are restricted from transferring this investment without approval of the manager of the investee.
The table below represents a reconciliation of our investment in the equity security, measured at net asset value using a practical expedient to fair value guidance, for the three months ended March 30, 2019, including the increase in net asset value recorded to “Other income (expense), net.” As noted above, this investment was recognized at its historical cost until the fourth quarter of 2018.
 
Three months ended
 
March 30, 2019
Balance at beginning of year
$
16.6

Increase in net asset value recorded to earnings
6.2

Proceeds received from partial distribution of investee
(2.6
)
Balance at end of period
$
20.2

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 March 30, 2019, 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.

22

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

Indebtedness and Other
The estimated fair values of other financial liabilities (excluding finance leases and deferred financing fees) not measured at fair value on a recurring basis as of March 30, 2019 and December 31, 2018 were as follows:
 
March 30, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Term loan(1)
$
135.0

 
$
135.0

 
$
140.0

 
$
140.0

5.625% Senior notes(1)
300.0

 
300.8

 
300.0

 
283.5

5.875% Senior notes(1)
300.0

 
300.8

 
300.0

 
279.4

Other indebtedness
24.5

 
24.5

 
26.5

 
26.5

(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 approximated carrying value due primarily to the variable-rate nature and credit spread of this 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.
The carrying amounts of cash and equivalents, receivables and contract assets reported in our condensed consolidated balance sheets as of March 30, 2019 and December 31, 2018 approximate fair value due to the short-term nature of those instruments.
(14)     SUBSEQUENT EVENT
On May 2, 2019, the Company announced that its Board of Directors has initiated a process to divest a substantial portion of the Company’s Power and Energy reportable segment. The Company’s Board has not set a timetable for the conclusion of this process nor has it made any decision related to any transaction at this time.
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.

23


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 2018 Annual Report on Form 10-K and in any other documents subsequently filed by us under the Exchange Act 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: Food and Beverage, Power and Energy, and Industrial. 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 2018, 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%, 35% and 25% from sales into the Americas, EMEA and Asia Pacific regions, respectively.
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 2018, approximately 36% 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 36% 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.
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,

24

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. 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 March 30, 2019, revenues increased $0.8 (0.2%). The modest increase in revenues was due to an increase in organic revenue, largely offset by a strengthening of the U.S. dollar during the period against various foreign currencies. The increase in organic revenue was due primarily to an increased volume of systems and components sales in our Food and Beverage segment and an increased volume of shipments of mixers, dehydration equipment and hydraulic tools in our Industrial segment.
Income before Income Taxes — Income before income taxes increased $14.7 (91.3%) in the three months ended March 30, 2019. The improvement in pre-tax income was due primarily to (i) an increase in segment profitability, (ii) an increase in other income related to an increase in the net asset value of an equity security during the 2019 period, and (iii) a reduction in foreign currency exchange losses, as the 2018 period included certain losses related to the effect on certain cash and cash equivalents due to the devaluation of the Angolan Kwanza against the U.S. dollar.
Cash Flows from Operations — For the three months ended March 30, 2019, cash flows from operations increased to $21.8 from $15.6 primarily as a result of (i) reduced payments for incentive compensation, partially offset by (ii) decreases in working capital driven by the timing of project execution and associated milestone payments.
RESULTS OF OPERATIONS
The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our annual consolidated financial statements included in our 2018 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for a full year. 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 2019 are March 30, June 29, and September 28, compared to the respective March 31, June 30, and September 29, 2018 dates. We had one less day in the first quarter of 2019 and will have one more day in the fourth quarter of 2019 than in the respective 2018 periods.
Cyclicality of End Markets, Seasonality and Competition - The financial results of many of our businesses closely follow changes in the industries and end markets they serve.
In our Food and Beverage reportable segment, system revenues are highly correlated to timing on capital projects, which may cause significant fluctuations in our financial performance from period to period. Fluctuations in dairy commodity prices and production of dairy related products, particularly those aimed at serving the China market, can influence the timing of capital spending by many end customers in our Food and Beverage reportable segment.
In our Power and Energy reportable segment, capital spending on original equipment by our customers in the oil and gas industries is heavily influenced by current and expected oil and gas prices.
Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since our competitors do not offer all the same product lines or serve all the same markets. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups,

25


competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. See “Executive Overview - Our Business” for a discussion of our competitors.
Non-GAAP Measures - Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as, when read in conjunction with our revenues, it presents a tool to evaluate our ongoing operations and provides investors with a metric they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.
The following table provides selected financial information for the three months ended March 30, 2019 and March 31, 2018, respectively, including the reconciliation of organic revenue growth to net revenue growth:
 
Three months ended
 
March 30, 2019
 
March 31, 2018
 
% Change
Revenues
$
491.1

 
$
490.3

 
0.2

Gross profit
154.5

 
155.7

 
(0.8
)
% of revenues
31.5
%
 
31.8
%
 
 
Selling, general and administrative
108.9

 
115.5

 
(5.7
)
% of revenues
22.2
%
 
23.6
%
 
 
Intangible amortization
3.8

 
4.4

 
(13.6
)
Restructuring and other related charges
5.0

 
2.6

 
92.3

Other income (expense), net
4.7

 
(4.6
)
 
*

Interest expense, net
(10.7
)
 
(12.5
)
 
(14.4
)
Income before income taxes
30.8

 
16.1

 
91.3

Income tax provision
(10.7
)
 
(0.8
)
 
*

Net income
20.1

 
15.3

 
31.4

Less: Net income (loss) attributable to noncontrolling interests
0.6

 
(0.2
)
 
*

Net income attributable to SPX FLOW, Inc.
19.5

 
15.5

 
25.8

 
 
 
 
 
 
Components of consolidated revenue growth:
 
 
 
 
Organic growth
 
 
 
 
4.6

Foreign currency
 
 
 
 
(4.4
)
Net revenue growth
 
 
 
 
0.2

*Not meaningful for comparison purposes
 
 
 
 
 
Revenues - For the three months ended March 30, 2019, the modest increase in revenues, compared to the respective 2018 period, was due to an increase in organic revenue, largely offset by a strengthening of the U.S. dollar during the period against various foreign currencies. The increase in organic revenue was due primarily to an increased volume of systems and components sales in our Food and Beverage segment and an increased volume of shipments of mixers, dehydration equipment and hydraulic tools in our Industrial segment.
See “Results of Reportable Segments” for additional details.
Gross Profit - The modest decreases in gross profit and margin for the three months ended March 30, 2019, compared to the respective 2018 period, were attributable primarily to a strengthening of the U.S. dollar during the period against various foreign currencies and, to a lesser extent, a less favorable revenue mix in our Food and Beverage segment and lower revenues in our Power and Energy segment. The effects of these items were largely offset by improvements in our Industrial segment's gross margin resulting from (i) the increased volume of shipments of mixers, dehydration equipment and hydraulic tools noted

26


above, (ii) costs associated with the repair of a large mixer incurred in the 2018 period that did not recur in the current period and (iii) improved operational execution.
See “Results of Reportable Segments” for additional details.
Selling, General and Administrative (“SG&A”) Expense - For the three months ended March 30, 2019, the decrease in SG&A expense, compared to the respective 2018 period, was due primarily to a strengthening of the U.S. dollar during the period against various foreign currencies and, to a lesser extent, a decrease in stock compensation expense. See “Corporate Expense and Pension and Postretirement Service Costs” below for additional details regarding the decrease in stock compensation expense.
Intangible Amortization - For the three months ended March 30, 2019, the decrease in intangible amortization, compared to the respective period in 2018, was due to (i) a reduction in intangible assets subject to amortization that resulted from the impairment of certain such assets of our Food and Beverage reportable segment during the fourth quarter of 2018 and (ii) a strengthening of the U.S. dollar during the period against various foreign currencies.
Restructuring and Other Related Charges - Charges for the three months ended March 30, 2019 related primarily to severance and other costs associated with the further rationalization, initiated during the fourth quarter of 2018, of a Food and Beverage business based primarily in the EMEA region. Charges for the three months ended March 31, 2018 related primarily to severance and other costs associated with a reduction in workforce of the manufacturing operations of a Power and Energy facility in the U.K. See Note 4 to our condensed consolidated financial statements for further details of actions taken during the three months ended March 30, 2019 and March 31, 2018.
Other Income (Expense), net - Other income, net, for the three months ended March 30, 2019 was composed of investment-related gains of $6.2, partially offset by foreign currency (“FX”) losses of $1.2, non-service-related pension and postretirement costs of $0.2 and net losses on asset sales of $0.1. The investment-related gains related to an increase in the net asset value of our investment in an equity security. See Note 13 to our condensed consolidated financial statements for additional details.
Other expense, net, for the three months ended March 31, 2018 was composed of FX losses of $4.3 and non-service-related pension and postretirement costs of $0.3. Of the $4.3 of FX losses, $2.8 related to the effect of the devaluation of the Angolan Kwanza against the U.S. dollar during the first quarter of 2018 and the impact of that devaluation on certain Kwanza-denominated cash and cash equivalents held by the Company.
Interest Expense, net - Interest expense, net, for the three months ended March 30, 2019 and March 31, 2018, was composed primarily of interest expense related to our senior notes and senior credit facilities and, to a lesser extent, interest expense related to our trade receivables financing arrangement, finance lease obligations and miscellaneous lines of credit, partially offset by interest income on cash and cash equivalents.
Interest expense, net, included interest expense of $12.7 and $14.5 during the three months ended March 30, 2019 and March 31, 2018, respectively, partially offset by interest income of $2.0 in both periods. The decrease in interest expense, net, during the three months ended March 30, 2019, compared to the respective 2018 period, was due primarily to a lower level of average outstanding borrowings under our term loan facility. The reduction in our term loan borrowings was due primarily to voluntary principal repayments of $20.0 and $60.0, respectively, during the second and fourth quarters of 2018. See Note 8 to our condensed consolidated financial statements for additional details on our third-party debt.
Income Tax Provision - During the three months ended March 30, 2019, we recorded an income tax provision of $10.7 on $30.8 of pre-tax income, resulting in an effective tax rate of 34.7%. This compares to an income tax provision for the three months ended March 31, 2018 of $0.8 on $16.1 of pre-tax income, resulting in an effective tax rate of 5.0%. The effective tax rate for the first quarter of 2019 was impacted by a charge of $2.1 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized. The effective tax rate for the first quarter of 2018 was impacted by a benefit of $9.4 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 partially offset by charges of (i) $1.8 resulting from a refinement of the transition tax calculation, (ii) $1.1 resulting from an increase to the liability for earnings not considered indefinitely reinvested caused by the changes to the transition tax calculation, and (iii) $1.3 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized.

27


During the fourth quarter of 2018, the U.S. Treasury issued additional guidance regarding a provision of the Tax Act which effectively eliminated the $9.4 benefit related to the foreign tax credits arising from distributions of income taxed under the transition tax provisions of the Tax Act and recorded in the first quarter of 2018 as described above. Refer to the notes to our consolidated financial statements in our 2018 Annual Report on Form 10-K for additional information regarding the Tax Act and its impact on our income tax provision.
Our future effective tax rate may vary, particularly during the first quarter of each year, based on tax charges or benefits that could result from potential future vestings of restricted stock shares and restricted stock units.
RESULTS OF REPORTABLE SEGMENTS
The following information should be read in conjunction with our condensed consolidated financial statements and related notes.
Food and Beverage
 
As of and for the three months ended
 
March 30, 2019
 
March 31, 2018
 
% Change
Backlog
$
290.0

 
$
390.6

 
(25.8
)
Orders
153.1

 
171.2

 
(10.6
)
 
 
 
 
 
 
Revenues
172.5

 
166.5

 
3.6

Income
18.5

 
17.9

 
3.4

% of revenues
10.7
%
 
10.8
%
 
 
Components of revenue growth:
 
 
 
 
Organic growth
 
 
 
 
8.5

Foreign currency
 
 
 
 
(4.9
)
Revenue growth
 
 
 
 
3.6

Revenues - For the three months ended March 30, 2019, the increase in revenues, compared to the respective 2018 period, was due to an increase in organic revenue, partially offset by a strengthening of the U.S. dollar during the period against various foreign currencies. The increase in organic revenue was due primarily to execution of dry dairy systems projects recorded as orders in 2017 and, to a lesser extent, growth in component revenues.
Income - For the three months ended March 30, 2019, income modestly increased and margin modestly declined, compared to the respective 2018 period, primarily due to the mix of organic revenue growth noted above.
Backlog - The segment had backlog of $290.0 and $390.6 as of March 30, 2019 and March 31, 2018, respectively. Of the $100.6 year-over-year decrease in backlog, $72.2 was attributable to organic decline and $28.4 was attributable to the impact of fluctuations in foreign currencies relative to the U.S. dollar. The organic decline was due primarily to a decrease in orders for dry dairy systems projects, consistent with the Company's strategy to limit its exposure to large projects in that market and, to a lesser extent, a reduction of component backlog.

28

Power and Energy
 
As of and for the three months ended
 
March 30, 2019
 
March 31, 2018
 
% Change
Backlog
$
395.0

 
$
428.4

 
(7.8
)
Orders
116.7

 
144.4

 
(19.2
)
 
 
 
 
 
 
Revenues
136.3

 
144.7

 
(5.8
)
Income
9.8

 
12.2

 
(19.7
)
% of revenues
7.2
%
 
8.4
%
 
 
Components of revenue decline:
 
 
 
 
Organic decline
 
 
 
 
(2.1
)
Foreign currency
 
 
 
 
(3.7
)
Revenue decline
 
 
 
 
(5.8
)
Revenues - For the three months ended March 30, 2019, the decrease in revenues, compared to the respective 2018 period, was due to a strengthening of the U.S. dollar during the period against various foreign currencies and, to a lesser extent, a decrease in organic revenue. The decrease in organic revenue was due primarily to a decreased volume of OE shipments and, to a lesser extent, of aftermarket revenue.
Income - For the three months ended March 30, 2019, income and margin decreased, compared to the respective 2018 period, primarily due to the reduction of organic revenue noted above.
Backlog - The segment had backlog of $395.0 and $428.4 as of March 30, 2019 and March 31, 2018, respectively. Of the $33.4 year-over-year decrease in backlog, $11.7 was attributable to organic decline and $21.7 was attributable to the impact of fluctuations in foreign currencies relative to the U.S. dollar. The organic decline was due primarily to a reduction of backlog for pumps, partially offset by an increased backlog for pipeline valves.
Industrial
 
As of and for the three months ended
 
March 30, 2019
 
March 31, 2018
 
% Change
Backlog
$
232.4

 
$
231.8

 
0.3

Orders
189.6

 
193.4

 
(2.0
)
 
 
 
 
 
 
Revenues
182.3

 
179.1

 
1.8

Income
27.1

 
20.5

 
32.2

% of revenues
14.9
%
 
11.4
%
 
 
Components of revenue growth:
 
 
 
 
Organic growth
 
 
 
 
6.4

Foreign currency
 
 
 
 
(4.6
)
Revenue growth
 
 
 
 
1.8

Revenues - For the three months ended March 30, 2019, the increase in revenues, compared to the respective 2018 period, was due to an increase in organic revenue, partially offset by a strengthening of the U.S. dollar during the period against various foreign currencies. The increase in organic revenue was due primarily to an increased volume of shipments of mixers, dehydration equipment and hydraulic tools, partially offset by a decline in shipments of pumps.
Income - For the three months ended March 30, 2019, income and margin increased compared to the respective 2018 period, due primarily to (i) income from the organic revenue growth noted above, (ii) costs associated with the repair of a large mixer incurred in the 2018 period that did not recur in the current period and (iii) improved operational execution.

29

Backlog - The segment had backlog of $232.4 and $231.8 as of March 30, 2019 and March 31, 2018, respectively. Of the $0.6 year-over-year modest increase in backlog, $13.2 was attributable to organic growth which was largely offset by a $12.6 decrease attributable to the impact of fluctuations in foreign currencies relative to the U.S. dollar. The organic growth was due primarily to an increase in backlog of mixers, hydraulic tools and heat exchangers, partially offset by a reduction in backlog of dehydration equipment.
CORPORATE EXPENSE AND PENSION AND POSTRETIREMENT SERVICE COSTS
 
Three months ended
 
March 30, 2019
 
March 31, 2018
 
% Change
Total consolidated revenues
$
491.1

 
$
490.3

 
0.2

Corporate expense
13.3

 
14.4

 
(7.6
)
% of revenues
2.7
%
 
2.9
%
 
 
Pension and postretirement service costs
0.3

 
0.4

 
(25.0
)
Corporate Expense - Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters and our Asia Pacific center in Shanghai, China. Corporate expense also reflects stock-based compensation costs associated with corporate employees.
The decrease in corporate expense for the three months ended March 30, 2019, compared to the respective 2018 period, was due primarily to a decrease in the number of executive employees whose awards became fully vested and were fully recognized as compensation expense based on early retirement provisions during the first quarter of 2019, compared to the first quarter of 2018.
See Note 10 to our condensed consolidated financial statements for further details regarding our stock-based compensation awards.
Pension and Postretirement Service Costs - 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 as a component of net periodic benefit expense, 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. Non-service-related pension and postretirement costs (benefits) are reported in “Other income (expense), net.”
See Note 7 to our condensed consolidated financial statements for further details regarding our pension and postretirement plans.
LIQUIDITY AND FINANCIAL CONDITION
Listed below are the cash flows from (used in) operating, investing and financing activities, as well as the net change in cash, cash equivalents and restricted cash, for the three months ended March 30, 2019 and March 31, 2018.
Cash Flow
 
Three months ended
 
March 30, 2019
 
March 31, 2018
Cash flows from operating activities
$
21.8

 
$
15.6

Cash flows used in investing activities
(6.9
)
 
(5.2
)
Cash flows used in financing activities
(12.2
)
 
(38.1
)
Change in cash, cash equivalents and restricted cash due to changes in foreign currency exchange rates
(13.8
)
 
7.9

Net change in cash, cash equivalents and restricted cash
$
(11.1
)
 
$
(19.8
)

30

Operating Activities - During the three months ended March 30, 2019, the increase in cash flows from operating activities, compared to the same period in 2018, was primarily attributable to (i) reduced payments for incentive compensation, partially offset by (ii) decreases in working capital driven by the timing of project execution and associated milestone payments.
Investing Activities - During the three months ended March 30, 2019 and March 31, 2018, cash flows used in investing activities were comprised of capital expenditures associated generally with the upgrades of manufacturing facilities and information technology.
Financing Activities - During the three months ended March 30, 2019, cash flows used in financing activities related primarily to repayments under our term loan facility of $5.0 and payments of minimum withholdings on behalf of employees in connection with net share settlements during the period of $5.1. During the three months ended March 31, 2018, cash flows used in financing activities related primarily to net repayments of our senior credit facilities of $35.0, including a voluntary prepayment in the amount of $30.0 under our term loan facility.
Change in Cash, Cash Equivalents and Restricted Cash due to Changes in Foreign Currency Exchange Rates - The decrease in cash, cash equivalents and restricted cash due to foreign currency exchange rates of $13.8 in the three months ended March 30, 2019, reflected primarily a decrease in U.S. dollar equivalent balances of foreign-denominated cash, cash equivalents and restricted cash primarily as a result of changes in the U.S. dollar against the British Pound and, to a lesser extent, of changes in the U.S. dollar against certain other foreign currencies during the period.
The increase in cash, cash equivalents and restricted cash due to foreign currency exchange rates of $7.9 in the three months ended March 31, 2018, reflected primarily an increase in U.S. dollar equivalent balances of foreign-denominated cash, cash equivalents and restricted cash as a result of the weakening of the U.S. dollar against the Euro, British Pound and various other foreign currencies during the period.
Borrowings and Availability
Borrowings —Debt at March 30, 2019 and December 31, 2018 was comprised of the following:
 
March 30, 2019
 
December 31, 2018
Term loan(1)
$
135.0

 
$
140.0

5.625% senior notes, due in August 2024
300.0

 
300.0

5.875% senior notes, due in August 2026
300.0

 
300.0

Other indebtedness(2)
29.0

 
37.3

Less: deferred financing fees(3)
(7.7
)
 
(8.0
)
Total debt
756.3

 
769.3

Less: short-term debt
24.0

 
26.0

Less: current maturities of long-term debt
20.6

 
21.2

Total long-term debt
$
711.7

 
$
722.1

(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.
(2)
Primarily includes finance lease obligations (previously “capital lease obligations” in 2018 under prior accounting guidance) of $4.5 and $10.8 and balances under a purchase card program of $22.1 and $23.0 as of March 30, 2019 and December 31, 2018, 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. See Note 2 to our condensed consolidated financial statements for further discussion regarding our adoption of a new lease accounting standard during the three months ended March 30, 2019 and the impact of such adoption on our capital lease obligations.
(3)
Deferred financing fees were comprised of fees related to the term loan and senior notes.
Availability — At March 30, 2019, we had $444.0 of borrowing capacity under our revolving credit facilities after giving effect to $6.0 reserved for outstanding letters of credit, and $27.3 of available borrowing capacity under our trade receivables financing arrangement. In addition, at March 30, 2019, we had $396.1 of available issuance capacity under our foreign credit instrument facilities after giving effect to $103.9 reserved for outstanding bank guarantees and standby letters of credit.

31

At March 30, 2019, in addition to the revolving lines of credit described above, we had approximately $9.1 of letters of credit outstanding under separate arrangements in China and India.
Refer to Note 8 for further information on our borrowings as of March 30, 2019.
At March 30, 2019, we were in compliance with all covenants of our senior credit facilities and senior notes.
Financial Instruments
We measure our financial assets and liabilities on a recurring basis, and nonfinancial assets and liabilities on a non-recurring basis, at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2) or significant unobservable inputs (Level 3).
Our derivative financial assets and liabilities include FX forward contracts and FX embedded derivatives measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments active.
As of March 30, 2019, there had been no significant impact to the fair value of our derivative liabilities due to our own credit risk as the related instruments were 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.
We primarily use the income approach, market approach, or both approaches, as appropriate. The income approach uses valuation techniques to convert future amounts to a single present amount. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business). Assets and liabilities measured at fair value on a recurring basis are further discussed below.
Currency Forward Contracts and Currency Forward Embedded Derivatives
We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations (see Note 9 to our condensed consolidated financial statements). Our principal currency exposures relate to the Euro, Chinese Yuan and British Pound.
We had FX forward contracts with an aggregate notional amount of $68.8 and $65.3 outstanding as of March 30, 2019 and December 31, 2018, respectively, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $16.6 and $15.3 at March 30, 2019 and December 31, 2018, respectively, with scheduled maturities of $16.4 and $0.2 within one and two years, respectively. There were unrealized losses of $0.1 and $0.3 recorded in accumulated other comprehensive loss related to FX forward contracts as of March 30, 2019 and December 31, 2018, respectively. The net losses recorded in “Other income (expense), net” related to FX losses totaled $1.2 and $4.3 for the three months ended March 30, 2019 and March 31, 2018, respectively.
The net fair values of our FX forward contracts and FX embedded derivatives were $1.3 (asset) and $1.9 (asset) at March 30, 2019 and December 31, 2018, respectively.
Other Fair Value Financial Assets and Liabilities
The carrying amounts of cash and equivalents, receivables and contract assets reported in our condensed consolidated balance sheets approximate fair value due to the short-term nature of those instruments.
The fair value of our debt instruments (excluding finance leases and deferred financing fees), based on borrowing rates available to us at March 30, 2019 for similar debt, was $761.1, compared to our carrying value of $759.5.

32

Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, contract assets and FX forward contracts. These financial instruments, other than trade accounts receivable and contract assets, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions.
We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced, and believe we are not exposed to significant risk of, loss in these accounts.
We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.
Concentrations of credit risk arising from trade accounts receivable and contract assets are due to selling to customers in a particular industry. Credit risks are mitigated by performing ongoing credit evaluations of our customers' financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that, to our knowledge, are under common control, accounted for more than 10% of our revenues for any period presented.
Other Matters
Contractual Obligations - As of March 30, 2019, there were no material changes in our contractual obligations from those disclosed in our 2018 Annual Report on Form 10-K.
Our total net liabilities for unrecognized tax benefits including interest were $3.2 as of March 30, 2019. Of that amount, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits (including interest) could decrease by $1.5 to $2.5.
Contingencies and Other Matters - Various claims, complaints and proceedings arising in the ordinary course of business, including those relating to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims, and claims to certain indemnification obligations arising from previous acquisitions/dispositions), have been filed or are pending against us and certain of our subsidiaries. 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. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our financial position, results of operations or cash flows.
Refer to Note 11 for discussion regarding amounts reported in “Mezzanine equity” on the condensed consolidated balance sheets as of March 30, 2019 and December 31, 2018. Subsequent changes, if any, in amounts reported are not expected to have a material adverse effect on our financial position, results of operations or cash flows.
Critical Accounting Policies and Use of Estimates
General - The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties are discussed in our consolidated financial statements included in our 2018 Annual Report on Form 10-K.
Effective January 1, 2019, we adopted the FASB's new standard on accounting for leases, which requires a lessee to recognize on its balance sheet the assets and liabilities associated with the rights and obligations created by leases. Refer to Note 2 of our condensed consolidated financial statements for further information regarding estimates and assumptions associated with our adoption of the new standard on accounting for leases.

33


ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity raw material prices, and we selectively use financial instruments to manage certain of these risks. We do not enter into financial instruments for speculative or trading purposes; however, these instruments may be deemed speculative if the future cash flows originally hedged are no longer probable of occurring as anticipated. Our currency exposures vary, but are primarily concentrated in the Euro, Chinese Yuan and British Pound. We generally do not hedge currency translation exposures. Our exposures for commodity raw materials vary, with the highest concentration relating to steel. See Note 9 to our condensed consolidated financial statements for further details.
The following table provides information, as of March 30, 2019, about our primary outstanding debt obligations and presents principal cash flows by expected maturity dates, weighted-average interest rates and fair values.
 
Due Within 1 Year
 
Due Within 2 Years
 
Due Within 3 Years
 
Due Within 4 Years
 
Due Within 5 Years
 
Thereafter
 
Total
 
Fair Value
Term loan
$
20.0

 
$
115.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
135.0

 
$
135.0

Average interest rate
 
 
 
 
 
 
 
 
 
 
 
 
4.249
%
 
 
5.625% senior notes
—

 
—

 
—

 
—

 
—

 
300.0

 
300.0

 
300.8

Average interest rate
 
 
 
 
 
 
 
 
 
 
 
 
5.625
%
 
 
5.875% senior notes
—

 
—

 
—

 
—

 
—

 
300.0

 
300.0

 
300.8

Average interest rate
 
 
 
 
 
 
 
 
 
 
 
 
5.875
%
 
 
We believe that cash and equivalents, cash flows from operations, and availability under revolving credit facilities and our trade receivables financing arrangement will be sufficient to fund working capital needs, planned capital expenditures, dividend payments (if declared), other operational cash requirements and required debt service obligations for at least the next 12 months.
We had FX forward contracts with an aggregate notional amount of $68.8 outstanding as of March 30, 2019, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $16.6 at March 30, 2019, with scheduled maturities of $16.4 and $0.2 within one and two years, respectively. The gross fair values of our FX forward contracts and FX embedded derivatives, in aggregate, were $1.8 (gross assets) and $0.5 (gross liabilities) as of March 30, 2019.
ITEM 4. Controls and Procedures
SPX FLOW management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15 and 15d-15, as of March 30, 2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 30, 2019.
Effective January 1, 2019 and as outlined in Note 2 of our condensed consolidated financial statements as of and for the three months ended March 30, 2019, we adopted the FASB's new standard on accounting for leases, which requires a lessee to recognize on its balance sheet the assets and liabilities associated with the rights and obligations created by leases.
Concurrent with the effective date of adoption of the new lease standard, we implemented changes to our business processes and related control activities associated with leases.  These included the development of new policies and procedures based on the requirements provided in the new lease standard, new training, ongoing lease review requirements, and gathering and review of information provided for required disclosures.
Other than as noted above, no changes during the quarter ended March 30, 2019 were identified that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

34


PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings
The information required by this Item is incorporated by reference from the footnotes to the condensed consolidated financial statements, specifically Note 11, “Litigation, Contingent Liabilities and Other Matters,” included under Part I of this Form 10-Q.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our 2018 Annual Report on Form 10-K, which could materially affect our business, financial condition, future results of operations or cash flows.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes the repurchases of common stock during the three months ended March 30, 2019:
Period
 
Total Number of Shares Purchased(1)
 
Average Price Per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program
 
Maximum Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan or Program
1/1/19 - 1/31/19
 
129,346

 
$
30.75

 
—
 
 
2/1/19 - 2/28/19
 
—

 
—

 
—
 
 
3/1/19 - 3/30/19
 
36,054

 
32.89

 
—
 
 
Total
 
165,400

 
 
 
—
 
 
(1) Reflects the surrender to us of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock shares and restricted stock units.
ITEM 6. Exhibits
The exhibits to this Quarterly Report on Form 10-Q are listed in the accompanying Index to Exhibits.




35

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
SPX FLOW, Inc.
 
 
(Registrant)
 
 
 
Date: May 2, 2019
By
/s/ Marcus G. Michael
 
 
President and Chief Executive Officer
 
 
 
Date: May 2, 2019
By
/s/ Jaime M. Easley
 
 
Vice President, Chief Financial Officer and Chief Accounting Officer


36


INDEX TO EXHIBITS
Item No.
 
Description
 
Separation Agreement dated as of December 17, 2018 between SPX FLOW, Inc. and Jeremy W. Smeltser, incorporated herein by reference from the SPX FLOW, Inc. Amendment No. 2 to Current Report on Form 8-K filed on March 1, 2019 (file no. 1-37393).
 
Form of Change of Control Agreement between each of Jaime M. Easley, Dwight Gibson, Tyrone Jeffers, Jose Larios and Ryan Taylor and SPX FLOW, Inc., incorporated herein by reference from the SPX FLOW, Inc. Annual Report on Form 10-K for the year ended December 31, 2016 (file no. 1-37393).
 
Statement regarding computation of earnings per share. See condensed consolidated statements of operations on page 1 of this Form 10-Q.
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1
 
SPX FLOW, Inc. financial information from its Form 10-Q for the quarterly period ended March 30, 2019, formatted in XBRL, including: (i) Condensed Consolidated Statements of Operations for the three months ended March 30, 2019 and March 31, 2018; (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 30, 2019 and March 31, 2018; (iii) Condensed Consolidated Balance Sheets as of March 30, 2019 and December 31, 2018; (iv) Condensed Consolidated Statements of Equity for the three months ended March 30, 2019 and March 31, 2018; (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2019 and March 31, 2018; and (vi) Notes to Condensed Consolidated Financial Statements.
__________________________________________________________________



37