SPX FLOW : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

(All currency and share amounts are in millions, unless otherwise noted)
The following should be read in conjunction with the other sections of this
Annual Report on Form 10-K, including our audited consolidated financial
statements and the related notes and "  Our Business  ." The following
discussion contains certain forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ materially from
the results contemplated by these forward-looking statements due to a number of
factors including, but not limited to, those discussed under the heading "  Risk
Factors  ."
Our audited consolidated financial statements, which we discuss below, reflect
our historical financial condition, results of operations and cash flows. The
financial information discussed below and included in this Annual Report on Form
10-K, however, may not necessarily reflect what our financial condition, results
of operations or cash flows may be in the future.
Prior to 2019, we aggregated our operating segments into three reportable
segments. In connection with the expected closing of the sale of the substantial
portion of our former Power and Energy reportable segment and its
reclassification as a discontinued operation in 2019, we are no longer reporting
the remaining business of Power and Energy as a separate reportable segment, as
the operations and organizational structure of that remaining business
(primarily the Bran+Luebbe product line) have been absorbed into the Industrial
reportable segment, and the operating results of the Industrial reportable
segment (now including that product line) are regularly reviewed by the
Company's chief operating decision maker. The results of that remaining business
have been reclassified into the Industrial reportable segment in all periods
presented. See   Note 4   to our accompanying consolidated financial statements
for further information regarding discontinued operations.
Unless otherwise indicated, amounts reported in this "  Management's Discussion
and Analysis of Financial Condition and Results of Operations  " pertain to
continuing operations only.
EXECUTIVE OVERVIEW
SPX FLOW, Inc. and its consolidated subsidiaries ("SPX FLOW," ''the Company,''
"we," "us," or "our") operate in two business segments. In 2019, SPX FLOW had
approximately $1.5 billion in annual revenues with operations in more
than 30 countries and sales in more than 140 countries, with approximately 40%,
33%, and 27% from sales into the Americas, EMEA, and Asia Pacific regions,
respectively.
Summary of Results from Continuing Operations
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
•In 2019, decreased 5.5% to $1,506.6, as a result of a decrease in organic
revenue and a strengthening of the U.S. dollar against various foreign
currencies. The decrease in organic revenue was due primarily to (i) a decline
in revenue from large dry-dairy systems projects in the Food and Beverage
segment, consistent with the Company's strategy to methodically reduce its
exposure to that market and (ii) a lower level of capital project revenue in our
Industrial segment and, reflective of a broad, global slowdown in the demand for
industrial products, reductions in shipments of dehydration equipment and
industrial pumps. Partially offsetting these declines were organic growth in
process component shipments and aftermarket sales in the Food and Beverage
segment as well as an increase in shipments of mixers in the Industrial segment.
•In 2018, increased 7.5% to $1,593.9, primarily as a result of an increase in
aftermarket revenues across both of our segments as well as shipments of mixers,
dehydration equipment, pumps and hydraulic tools in our Industrial segment. Of
the 7.5% increase in revenues, 0.8% was attributable to the application of a new
revenue recognition standard in 2018.
Income before Income Taxes
•In 2019, increased from $71.8 to $85.5. Among other items, the improvement in
pre-tax income was due to (i) an increase in segment profitability, (ii)
investment-related gains related to an increase in the net asset value of an
investment in an equity security, (iii) reduced foreign currency exchange
losses, and (iv) reduced interest
                                       20
--------------------------------------------------------------------------------

expense due primarily to voluntary principal prepayments on our former term loan
facility of $110.0 during 2018. Such improvements in pre-tax income were
partially offset by an increase in professional fees related to the development
of the Company's enterprise strategy and long-term growth plans and
non-service-related pension and postretirement costs resulting from
mark-to-market adjustments recognized in the fourth quarter.
•In 2018, increased from $36.6 to $71.8. Among other items, the improvement in
pre-tax income was due to an increase in segment profitability and reduced
interest expense due primarily to voluntary principal prepayments on our former
term loan facility of $100.0 in the fourth quarter of 2017 and $110.0 during
2018.
Cash Flows from Operations
•In 2019, increased to $130.1 (from $28.0 in 2018), primarily as a result of (i)
a reduced investment in inventories and other components of working capital,
reflective of lower order intake in 2019, compared to 2018, and lower backlog
levels as of December 31, 2019, compared to December 31, 2018 and (ii) reduced
payments for incentive compensation.
•In 2018, decreased to $28.0 (from $115.0 in 2017), primarily as a result of (i)
increases in working capital driven by the timing of project execution and
associated milestone payments and (ii) increased payments for incentive
compensation, partially offset by (iii) increased cash flows generated by the
improved operating results of our segments during the period and (iv) reduced
spending on restructuring actions.
RESULTS OF CONTINUING OPERATIONS
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.
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, 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 "  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 (i) foreign currency
fluctuations, and (ii) in comparing the years ended December 31, 2018 and
December 31, 2017, the impact of a new revenue recognition standard which we
adopted on a modified retrospective basis effective January 1, 2018. 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 under a
consistent basis of revenue recognition methodology 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.
                                       21
--------------------------------------------------------------------------------

Years Ended December 31, 2019, 2018 and 2017
The following table provides selected financial information for the years ended
December 31, 2019, 2018 and 2017, including the reconciliation of organic
revenue growth (decline) to net revenue growth (decline):
                                                     Year ended December 31,
                                             2019               2018               2017           2019 vs. 2018 %           2018 vs. 2017 %
Revenues                                 $ 1,506.6          $ 1,593.9          $ 1,483.2                      (5.5)                   7.5
Gross profit                                 520.4              513.2              487.5                       1.4                    5.3
% of revenues                                 34.5  %            32.2  %            32.9  %
Selling, general and administrative          372.8              366.0              377.0                       1.9                   (2.9)
% of revenues                                 24.7  %            23.0  %            25.4  %
Intangible amortization                       11.4               13.2               13.8                     (13.6)                  (4.3)
Asset impairment charges                      11.2               14.4                4.9                     (22.2)                 193.9
Restructuring and other related charges        9.3                7.6               12.9                      22.4                  (41.1)
Other income (expense), net                   (0.5)              (5.9)               3.9                     (91.5)                     *
Interest expense, net                        (29.7)             (34.3)             (46.2)                    (13.4)                 (25.8)

Income from continuing operations before      85.5               71.8               36.6                      19.1                   96.2
income taxes
Income tax provision                         (28.9)             (61.3)              (2.6)                    (52.9)                     *
Income from continuing operations             56.6               10.5               34.0                         *                  (69.1)
Income (loss) from discontinued             (149.7)              34.2               12.8                         *                  167.2
operations, net of tax
Net income (loss)                            (93.1)              44.7               46.8                         *                   (4.5)
Less: Net income attributable to               2.0                0.7                0.4                     185.7                   75.0
noncontrolling interests
Net income (loss) attributable to SPX    $   (95.1)         $    44.0          $    46.4                         *                   (5.2)
FLOW, Inc.
Components of consolidated revenue
growth (decline):
Organic growth (decline)                                                                                      (2.8)                   6.0
Foreign currency                                                                                              (2.7)                   0.7
Impact of new revenue recognition                                                                                -                    0.8

standard

Net revenue growth (decline)                                                                                  (5.5)                   7.5
* Not meaningful for comparison
purposes.


Revenues - For 2019, the decrease in revenues, compared to 2018, was due to an
organic decline and a strengthening of the U.S. dollar against various foreign
currencies during the period. The decrease in organic revenue was due primarily
to (i) a decline in revenue from large dry-dairy systems projects in the Food
and Beverage segment, consistent with the Company's strategy to methodically
reduce its exposure to that market and (ii) a lower level of capital project
revenue in our Industrial segment and, reflective of a broad, global slowdown in
the demand for industrial products, reductions in shipments of dehydration
equipment and industrial pumps which experienced such declines primarily in the
fourth quarter of 2019 relative to the comparable period of 2018. Partially
offsetting these declines were organic growth in process component shipments and
aftermarket sales in the Food and Beverage segment as well as an increase in
shipments of mixers in the Industrial segment.
For 2018, the increase in revenues, compared to 2017, was due primarily to an
increase in (i) organic growth and, to a lesser extent, (ii) the impact of our
application of a new revenue recognition standard in 2018, and (iii) a weakening
of the U.S. dollar against various foreign currencies during the period. The
increase in organic revenue was due primarily to an increase in aftermarket
revenues across both of our segments, as well as shipments of mixers,
dehydration equipment, pumps and hydraulic tools in our Industrial segment.
See "  Results of Reportable Segments  " for additional details.
Gross Profit - The increase in gross profit and margin for 2019, compared to
2018, was attributable primarily to a higher margin mix of revenue as well as
net pricing benefits, improved operational execution, savings from cost
reduction initiatives and costs associated with the repair of a large mixer
incurred in our Industrial segment in the 2018 period that did not recur in the
current period.
The increase in gross profit for 2018, compared to 2017, was attributable
primarily to the revenue increase noted above, as well as incremental savings
from restructuring actions in connection with the Company's global realignment
program, concluded in the fourth quarter of 2017, and other cost reduction
initiatives. The effects of these items on margin for 2018, compared to 2017,
were more than offset by increased operating costs as well as the costs
associated with the repair of a larger mixer, which was damaged while in
operation at a customer site, in our Industrial segment.
                                       22
--------------------------------------------------------------------------------

See "  Results of Reportable Segments  " for additional details.
Selling, General and Administrative ("SG&A") Expense - For 2019, the increase in
SG&A expense, compared to 2018, was due primarily to (i) an increase in
professional fees related to the further development of the Company's enterprise
strategy and long-term growth plans, partially offset by (i) savings from cost
reduction initiatives within the Food and Beverage segment and (ii) the effects
of a strengthening of the U.S. dollar during the period against various
currencies.
For 2018, the decrease in SG&A expense, compared to 2017, was due primarily to a
decrease in variable incentive compensation, based on the Company's performance
relative to certain incentive targets in 2018 as compared to 2017's performance
relative to that year's targets as well as incremental savings from
restructuring actions in connection with the Company's global realignment
program, concluded in the fourth quarter of 2017, and other cost reduction
initiatives. These reductions in SG&A expense were partially offset by the
effect of a weaker U.S. dollar during 2018, compared to 2017, against various
foreign currencies.
Intangible Amortization - For 2019, the decrease in intangible amortization,
compared to 2018, was due primarily to (i) a reduction in intangible assets
subject to amortization that resulted from the impairment of certain such assets
of a business associated with the execution of large dry-dairy systems projects
within our Food and Beverage reportable segment during the fourth quarter of
2018 and (ii) a strengthening of the U.S. dollar during the periods against
various foreign currencies.
For 2018, the decrease in intangible amortization, compared to 2017, was due
primarily to certain intangible assets having become fully amortized during the
first quarter of 2017.
Asset Impairment Charges - During 2019, we recorded an asset impairment charge
of $10.8 that resulted from management's decision to market a corporate asset
for sale. To a lesser extent, we recorded charges in our Industrial reportable
segment of $0.2 related to the impairment of a right-of-use lease asset,
resulting from the decision to close a sales and service facility, and of $0.2
related to the impairment of a tangible long-lived asset.
During 2018, we recorded an impairment charge of $9.7 related to certain
intangible assets of a business associated with the execution of large dry-dairy
systems projects within our Food and Beverage reportable segment in conjunction
with our annual intangible asset impairment test and, concurrently during the
fourth quarter of 2018, with management's decision to rationalize this business
and reduce the Company's exposure to this market. In addition, we recorded
tangible long-lived asset impairment charges of (i) $4.5 associated with the
rationalization of the business and (ii) $0.2 related to certain assets of the
Industrial segment.
During 2017, we recorded tangible long-lived asset impairment charges of $3.6 in
connection with the sale of certain corporate assets during the year, $0.8
related to certain corporate-based information technology assets, and $0.5
related to a Food and Beverage segment product line which was exited and
formerly based primarily in the EMEA region.
See   Note     10   to our consolidated financial statements for further
discussion of asset impairment charges.
Restructuring and Other Related Charges - Restructuring and other related
charges for 2019 and 2018 included severance and other costs associated with the
rationalization of a business primarily associated with the execution of large
dry-dairy systems projects in the Food and Beverage segment, initiated during
the fourth quarter of 2018 and then subsequently broadened during 2019, in order
to reduce the Company's exposure to this market.
Restructuring and other related charges for 2019 also included severance and
other costs associated primarily with (i) the closure of a Food and Beverage
segment facility in South America, (ii) the closure of an Industrial segment
manufacturing facility in the U.S. and consolidation and relocation of that
facility into an existing manufacturing facility in the U.S., (iii) certain
Industrial segment operations personnel in the EMEA region, and (iv) the closure
of an Industrial segment sales office and service center in North America.
Restructuring and other related charges for 2018 also included costs associated
primarily with other employee terminations and, to a lesser extent, facility
consolidation, across both segments.
Restructuring and other related charges for 2017 related to our global
realignment program including restructuring initiatives to consolidate
manufacturing, distribution, sales and administrative facilities, reduce
workforce, and rationalize certain product lines.
                                       23
--------------------------------------------------------------------------------

See Note 8 to our consolidated financial statements for the details of restructuring actions taken in 2019, 2018 and 2017. The components of restructuring and other related charges were as follows:

                                         Year ended December 31,
                                    2019              2018        2017
Employee termination costs       $   9.3            $ 6.6       $ 10.0
Facility consolidation costs           -              1.0          2.9

Total                            $   9.3            $ 7.6       $ 12.9


Other Income (Expense), net - Other expense, net, for 2019 was composed of
non-service-related pension and postretirement costs of $5.7 and foreign
currency ("FX") losses of $3.1, partially offset by investment-related gains of
$7.8, net gains on asset sales of $0.3 and other items of $0.2. Of the $3.1 of
FX losses, $1.9 related to the effect of the devaluation of the Angolan Kwanza
against the U.S. dollar during 2019 and the impact of that devaluation on
certain Kwanza-denominated cash and cash equivalents held by the Company. The
investment-related gains related to an increase in the net asset value of our
investment in an equity security.
Other expense, net, for 2018 was composed of FX losses of $7.4 and net losses on
asset sales and other of $0.3, partially offset by non-service-related pension
and postretirement benefits of $1.2 and gains of $0.6 related to the
remeasurement of indemnification receivables from and obligations to third
parties related to certain of the Company's domestic and foreign defined benefit
pension and postretirement obligations. Of the $7.4 of FX losses, $5.8 related
to the effect of the devaluation of the Angolan Kwanza against the U.S. dollar
during 2018 and the impact of that devaluation on certain Kwanza-denominated
cash and cash equivalents held by the Company.
Other income, net, for 2017 was composed of gains of $3.5 related to the
remeasurement of an indemnification receivable from a third party related to
certain of the Company's foreign defined benefit pension obligations, net gains
on asset sales and other of $2.9, non-service-related pension and postretirement
benefits of $0.9 and other items of $0.3, partially offset by FX losses
of $2.3 and investment-related losses of $1.4. The investment-related losses
represented unrealized losses on our investment in a former equity security.
Interest Expense, net - Interest expense, net, is comprised primarily of
interest expense related to our senior notes and senior credit facilities and,
to a lesser extent, interest expense related to our former trade receivables
financing arrangement, finance lease obligations (capital lease obligations in
2018 and 2017) and miscellaneous lines of credit, partially offset by interest
income on cash and cash equivalents.
Interest expense, net, included interest expense of $36.6, $41.2 and $50.7, and
interest income of $6.9, $6.9 and $4.5, during 2019, 2018 and 2017,
respectively. The decrease in interest expense in 2019, compared to 2018, was
due primarily to a lower level of average outstanding borrowings under our term
loan facilities, partially offset by a $1.0 charge related to the write-off of
deferred financing fees resulting from the extinguishment of the term loan and
other facilities of our former senior credit facility during 2019, related to
the amendment and restatement of our senior credit facilities in June 2019. The
reduction in our term loan borrowings was due primarily to voluntary principal
repayments of $110.0 during 2018. The decrease in interest expense in 2018,
compared to 2017, was due primarily to a lower level of average outstanding
borrowings under our former term loan facility. The reduction in our term loan
borrowings was due primarily to voluntary principal repayments of $110.0 during
2018, as noted previously, and $100.0 during the fourth quarter of 2017.
See   Note     13   to our consolidated financial statements for additional
details on our third-party debt, including further discussion of the amendment
and restatement of our senior credit facilities during the second quarter of
2019 and   Note 4   for additional details regarding our allocation of certain
interest expense to discontinued operations.
Income Tax Provision - During 2019, we recorded an income tax provision of $28.9
on $85.5 of income before income taxes, resulting in an effective tax rate of
33.8%. The effective tax rate for 2019 was impacted by income tax charges of (i)
$6.9 resulting from the addition of a valuation allowance for certain
subsidiaries for which the benefit of previously incurred losses or credits is
not expected to be realized, (ii) $3.1 resulting from losses occurring in
certain jurisdictions where the tax benefit of those losses is not expected to
be realized and (iii) $6.0 resulting from the outbound transfer of an affiliate
to non-U.S. entities, partially offset by income tax benefits of (1) $1.8
resulting from an outside basis difference from continuing operations that will
be realized through the disposition of held-for-sale assets and (2) $3.9
resulting from the net impact of the cancellation of certain intercompany
indebtedness.
During 2018, we recorded an income tax provision of $61.3 on $71.8 of income
before income taxes, resulting in an effective tax rate of 85.4%. The effective
tax rate for 2018 was impacted by income tax charges of (i) $22.2 for
adjustments to
                                       24
--------------------------------------------------------------------------------

the deemed repatriation tax and related elections and (ii) $9.0 resulting from
losses occurring in certain jurisdictions where the tax benefit of those losses
is not expected to be realized.
During 2017, we recorded an income tax provision of $2.6 on $36.6 of income
before income taxes, resulting in an effective tax rate of 7.1%. The effective
tax rate for 2017 was impacted by an income tax benefit of $71.2 related to
revaluation of our net deferred tax liabilities resulting from the change in the
U.S. federal tax rate, including the reduction for earnings that were not
indefinitely reinvested, and income tax charges of (i) $50.4 for the deemed
repatriation tax and (ii) $10.4 resulting from losses occurring in certain
jurisdictions where the tax benefit of those losses is not expected to be
realized.
Income (Loss) from Discontinued Operations, Net of Tax - See "  Results of
Discontinued Operations  " below for additional details.
RESULTS OF REPORTABLE SEGMENTS
The following information should be read in conjunction with our consolidated
financial statements and related notes.
Non-GAAP Measures - Throughout the following discussion of reportable segments,
we use "organic revenue" growth (decline) to facilitate explanation of the
operating performance of our reportable segments. Organic revenue growth
(decline) is a non-GAAP financial measure and is not a substitute for net
revenue growth (decline). Refer to the explanation of this measure and purpose
of use by management under "  Results of     Continuing
    Operations  -Non-GAAP Measures."
Food and Beverage
                                                                                                                           2019       2018
                                               Year ended December 31,                                                      vs.        vs.
                                                                                                                        2018    2017
                                        2019             2018             2017                                           %       %
Backlog                              $ 275.3          $ 317.2          $ 371.7              (13.2)             (14.7)
Orders                                 669.0            703.0            772.7               (4.8)              (9.0)

Revenues                             $ 702.9          $ 743.9          $ 715.9               (5.5)               3.9
Income                                  90.5             87.7             74.9                3.2               17.1
% of revenues                           12.9  %          11.8  %          10.5  %
Components of revenue growth
(decline):
Organic growth (decline)                                                                     (2.7)               1.6
Foreign currency                                                                             (2.8)               0.9
Impact of new revenue recognition                                                               -                1.4
standard
Net revenue growth (decline)                                                                 (5.5)               3.9


Revenues - For 2019, the decrease in revenues, compared to 2018, was due to a
strengthening of the U.S. dollar during the period against various foreign
currencies and a decrease in organic revenue. The decrease in organic revenue
was due primarily to a lower level of revenue from large dry-dairy systems,
consistent with the Company's strategy to methodically reduce its exposure to
that market, partially offset by organic growth in process component shipments
and aftermarket sales.
For 2018, the increase in revenues, compared to 2017, was due primarily to an
increase in organic revenue, an increase in revenue recognized as a result of
our application of a new revenue recognition standard in 2018, and a weakening
of the U.S. dollar during the period against various foreign currencies. The
increase in organic revenue was due primarily to higher volumes of aftermarket
and components sales, which were partially offset by a lower volume of systems
revenues.
Income - For 2019, the increase in income and margin, compared to 2018, was
primarily due to a higher margin mix of revenue (from a lower level of revenue
from large dry-dairy systems, as noted above) and improved execution on the
delivery of process systems to customers, savings from cost reduction
initiatives and realization of net pricing benefits, partially offset by charges
recognized during the second quarter of 2019 associated with rationalization of
the reportable segment's geographical presence in South America and related
closure of a facility in that region.
For 2018, the increase in income and margin, compared to 2017, was primarily due
to the revenue growth noted above, savings from restructuring actions in
connection with the Company's global realignment program concluded in the fourth
quarter of 2017 and other cost reduction initiatives, and a decrease in variable
incentive compensation, based on the Company's performance relative to certain
incentive targets in 2018 as compared to 2017's performance relative to that
year's targets.
                                       25
--------------------------------------------------------------------------------

Backlog - The segment had backlog of $275.3 and $317.2 as of December 31, 2019
and 2018, respectively. Of the $41.9 year-over-year decline in backlog, $38.3
was attributable to organic decline and $3.6 was attributable to the impact of
fluctuations in foreign currencies relative to the U.S. dollar. The organic
decline was due primarily to a lower level of backlog of large dry-dairy
systems, consistent with the Company's strategy to methodically reduce its
exposure to this market, as noted above and, to a lesser extent, a decline in
backlog of components. Approximately 86% of the segment's backlog as of December
31, 2019 is expected to be recognized as revenue during 2020.
Industrial
                                                                                                                           2019       2018
                                               Year ended December 31,                                                      vs.        vs.
                                                                                                                        2018    2017
                                        2019             2018             2017                                           %       %
Backlog                              $ 243.9          $ 260.3          $ 266.7               (6.3)              (2.4)
Orders                                 790.5            862.3            840.0               (8.3)               2.7

Revenues                             $ 803.7          $ 850.0          $ 767.3               (5.4)              10.8
Income                                 110.5            103.5             89.0                6.8               16.3
% of revenues                           13.7  %          12.2  %          11.6  %
Components of revenue growth
(decline):
Organic growth (decline)                                                                     (2.8)              10.0
Foreign currency                                                                             (2.6)               0.4
Impact of new revenue recognition                                                               -                0.4
standard
Net revenue growth (decline)                                                                 (5.4)              10.8


Revenues - For 2019, the decrease in revenues, compared to 2018, was due to a
decrease in organic revenue and a strengthening of the U.S. dollar during the
period against various foreign currencies. The decrease in organic revenue was
due primarily to a lower level of capital project revenue and, reflective of a
broad, global slowdown in the demand for industrial products, due to reductions
in shipments of dehydration equipment and industrial pumps which experienced
such declines primarily in the fourth quarter of 2019 relative to the comparable
period of 2018. Such declines were partially offset by increased shipments of
mixers.
For 2018, the increase in revenues, compared to 2017, was due primarily to an
increase in organic revenue and, to a lesser extent, the impact of our
application of a new revenue recognition standard in 2018 and a weakening of the
U.S. dollar during the period against various foreign currencies. The increase
in organic revenue was across a variety of Industrial segment product lines,
including primarily an increased volume of shipments of mixers, dehydration
equipment, pumps and hydraulic tools.
Income - For 2019, income and margin increased, compared to 2018, primarily due
to the effects of (i) a higher margin mix of revenue (from increased shipments
of mixers and lower levels of capital project revenue), (ii) improved
operational execution in our factories, and (iii) costs associated with the
repair of a large mixer incurred in 2018 that did not recur in 2019.
For 2018, income and margin increased, compared to 2017, primarily due to income
from the organic revenue growth noted above and savings from restructuring
actions and other cost reduction initiatives. The effects of these improvements
in income and margin were partially offset by the effects of increased operating
costs and the costs associated with the repair of a large mixer during the first
quarter of 2018, which was damaged while in operation at a customer site.
Backlog - The segment had backlog of $243.9 and $260.3 as of December 31, 2019
and 2018, respectively. Of the $16.4 year-over-year decline in backlog, $15.0
was attributable to organic decline and $1.4 was attributable to the impact of
fluctuations in foreign currencies relative to the U.S. dollar. The organic
decline was primarily reflective of a broad, global slowdown in the demand for
industrial products throughout the second half of 2019, and included declines
primarily in the backlog of dehydration equipment and industrial pumps, which
were partially offset by an increase in the backlog of mixers. Approximately 93%
of the segment's backlog as of December 31, 2019 is expected to be recognized as
revenue during 2020.
                                       26
--------------------------------------------------------------------------------

CORPORATE EXPENSE AND PENSION AND POSTRETIREMENT SERVICE COSTS

                                                                                                                                   2019       2018
                                                    Year ended December 31,                                                         vs.        vs.
                                                                                                                                2018    2017
                                           2019               2018               2017                                            %       %
Total consolidated revenues            $ 1,506.6          $ 1,593.9

 $ 1,483.2               (5.5)               7.5
Corporate expense                           63.9               55.5               66.0               15.1              (15.9)
% of revenues                                4.2  %             3.5  %             4.4  %
Pension and postretirement service           0.9                1.7                1.2              (47.1)              41.7

costs

Corporate Expense - Corporate expense generally relates to the cost of our
Charlotte, NC corporate headquarters and our Asia Pacific center in Shanghai,
China. Corporate expense also reflects stock-based compensation costs associated
with corporate employees.
The increase in corporate expense during 2019, compared to 2018, was due
primarily to an increase in professional fees associated with the further
development of the Company's enterprise strategy and long-term growth plans,
partially offset by a decrease in the number of executive employees whose
stock-based compensation 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.
The decrease in corporate expense during 2018, compared to 2017, was due
primarily to (i) a decrease in variable incentive compensation, and, to a lesser
extent, (ii) savings from restructuring actions undertaken in connection with
our global restructuring program during 2017.
See   Note     15   to our 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 recorded in
"Other income (expense), net."
During 2019, pension and postretirement service costs decreased, compared to
2018, partially due to the effect on such costs of an accelerated vesting of a
year of service credit related to the resignation of a former participant in our
domestic pension plan during the fourth quarter of 2018.
During 2018, pension and postretirement service costs increased, compared to
2017, primarily due to the effect on such costs of an accelerated vesting of a
year of service credit related to the resignation of a former participant in our
domestic pension plan, as noted above, during the fourth quarter of 2018.
See   Note     11   to our consolidated financial statements for further details
on our pension and postretirement plans.
RESULTS OF DISCONTINUED OPERATIONS
We report business or asset groups as discontinued operations when, among other
things, we commit to a plan to divest the business or asset group, we actively
begin marketing the business or asset group, and when the sale of the business
or asset group is deemed probable of occurrence within the next twelve months.
                                       27
--------------------------------------------------------------------------------

The following table provides selected financial information of our discontinued
operations for the years ended December 31, 2019, 2018 and 2017, including the
reconciliation of organic revenue growth (decline) to net revenue growth
(decline):
                                                 Year ended December 31,
                                           2019              2018             2017          2019 vs. 2018 %            2018 vs. 2017 %
Backlog                                 $  382.6          $ 375.4          $ 359.7                       1.9                     4.4
Orders                                     496.7            519.8            503.4                      (4.4)                    3.3

Revenues                                $  489.7          $ 496.2          $ 468.3                      (1.3)                    6.0
Operating income (loss)                   (171.6)            56.4             40.2                         *                    40.3
% of revenues                              (35.0) %          11.4  %           8.6  %
Other income (expense), net                 (1.6)             0.4             (2.6)                        *                  (115.4)
Interest expense, net                      (11.8)           (12.8)           (16.3)                     (7.8)                  (21.5)
Income tax benefit (provision)              35.3             (9.8)            (8.5)                        *                    15.3
Income (loss) from discontinued           (149.7)            34.2             12.8                         *                   167.2
operations, net of tax
Components of consolidated revenue
growth (decline):
Organic growth                                                                                           0.7                     1.9
Foreign currency                                                                                        (2.0)                    0.8
Impact of new revenue recognition                                                                          -                     3.3

standard

Net revenue growth (decline)                                                                            (1.3)                    6.0

*Not meaningful for comparison purposes

Revenues of Discontinued Operations - For 2019, the decrease in revenues,
compared to 2018, was due primarily to a strengthening of the U.S. dollar
against various foreign currencies during the period, partially offset by modest
organic growth. The increase in organic revenue reflects increased shipments of
values in the North American midstream oil market, partially offset by declines
in shipments of pumps and related aftermarket revenues.
For 2018, the increase in revenues, compared to 2017, was due primarily to
increases in (i) the impact of our application of a new revenue recognition
standard in 2018, (ii) organic growth and (iii) a weakening of the U.S. dollar
against various foreign currencies during the period. The increase in organic
revenue reflects increased aftermarket sales and, to a lesser extent, shipments
of pumps into North American midstream pipeline oil applications.
Operating Income (Loss) of Discontinued Operations - For 2019, the decrease in
income and margin, compared to 2018, was primarily due to the recognition of a
loss on discontinued operations of $201.0 to reduce the carrying value of the
discontinued operations business to our estimate of fair value (the net proceeds
expected to be realized at closing), less estimated costs to sell. This loss was
attributable primarily to our observation of challenging credit markets
associated with transactions for businesses similar to our former Power and
Energy segment, and the market for cyclical assets in the oil, gas and power
industries, during the fourth quarter of 2019. In addition, income and margin
declined, compared to 2018, due to (i) a $17.0 pre-tax charge related to the
settlement of a customer claim (see Note 16 to our consolidated financial
statements for further information regarding this settlement and the customer's
demand and, to a lesser extent, (ii) a $5.0 pre-tax charge related to a
procurement agreement to be entered into with the buyer of the discontinued
operations business at closing, and (iii) costs incurred in 2019 to sell the
discontinued operations business. An improvement in operational execution and
cost absorption in various manufacturing facilities partially offset these
pre-tax losses and charges.
For 2018, the increase in income and margin, compared to 2017, was primarily due
to the revenue growth noted above and savings from restructuring actions and
other cost reduction initiatives. The favorable effect of these items was
partially offset by the effects of increased costs on oil and gas related
projects, noted primarily during the second half of 2018, compared to the
respective 2017 period.
Other Income (Expense), net, of Discontinued Operations - Other expense, net,
for 2019 was composed of FX losses of $1.5 and non-service-related pension and
postretirement costs of $0.1.
Other income, net, for 2018 was composed of FX gains of $0.3 and
non-service-related pension and postretirement benefits of $0.1.
Other expense, net, for 2017 was composed of FX losses.
                                       28
--------------------------------------------------------------------------------

Interest Expense, net, of Discontinued Operations - In addition to any
business-specific interest expense and income, the interest expense, net, of
discontinued operations reflects an allocation of interest expense, including
the amortization of deferred financing fees, related to the Company's senior
notes, senior credit facilities and former trade receivables financing
arrangement. Interest expense related to such debt instruments and allocated to
discontinued operations was $11.7, $13.1 and $16.3 for 2019, 2018 and 2017,
respectively. See   Note     4   to the accompanying consolidated financial
statements for further information about the allocation of such interest expense
to discontinued operations.
Income Tax Benefit (Provision) of Discontinued Operations - During 2019, we
recorded an income tax benefit of $35.3 on $185.0 of losses before income taxes,
resulting in an effective tax rate of 19.1%. The effective tax rate for 2019 was
impacted by (i) a benefit of $30.2 resulting from basis differences that will be
realized through the disposition of the held-for-sale assets and (ii) the effect
that the majority of the $201.0 pre-tax loss to reduce the carrying value of the
discontinued operations business to our estimate of fair value, less estimated
costs to sell, and $5.0 pre-tax charge related to a procurement agreement to be
entered into at the closing of the sale of the discontinued operations will not
result in a tax benefit, such that only $9.7 of tax benefit was recognized on
those pre-tax charges.
During 2018, we recorded an income tax provision of $9.8 on $44.0 of income
before income taxes, resulting in an effective tax rate of 22.3%.
During 2017, we recorded an income tax provision of $8.5 on $21.3 of income
before income taxes, resulting in an effective tax rate of 39.9%. The effective
tax rate for 2017 was impacted by an expense of $0.8 resulting from losses
occurring in certain jurisdictions for which the tax benefit of those losses is
not expected to be recognized.
Backlog of Discontinued Operations - The segment had backlog of $382.6 and
$375.4 as of December 31, 2019 and 2018, respectively. Of the
$7.2 year-over-year growth in backlog, $3.7 was attributable to organic growth
and $3.5 was attributable to the impact of fluctuations in foreign currencies
relative to the U.S. dollar. Approximately 83% of the discontinued operations
business backlog as of December 31, 2019 is expected to be recognized as revenue
during 2020.
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 years ended December 31, 2019, 2018 and 2017.
Cash Flow
                                                                            

Year ended December 31,

                                                                     2019             2018             2017
Cash flows from (used in) continuing operations:
Cash flows from operating activities                              $ 130.1          $  28.0          $ 115.0
Cash flows from (used in) investing activities                      (23.5)           (19.2)            21.2
Cash flows used in financing activities                             (55.2)          (135.8)          (218.4)
Cash flows from discontinued operations                              35.1             70.8             86.6

Change in cash, cash equivalents and restricted cash due to changes in foreign currency exchange rates

                            2.6              5.6             44.4

Net change in cash, cash equivalents and restricted cash $ 89.1

$ (50.6) $ 48.8

Years Ended December 31, 2019 and 2018
Operating Activities-During 2019, the increase in cash flows from operating
activities, compared to 2018, was primarily attributable to (i) a reduced
investment in inventories and other components of working capital, reflective of
lower order intake in 2019, compared to 2018, and lower backlog levels as of
December 31, 2019, compared to December 31, 2018 and (ii) reduced payments for
incentive compensation.
Investing Activities-During 2019, cash flows used in investing activities were
comprised of capital expenditures associated generally with the upgrades of
manufacturing facilities and information technology, as well as certain
corporate assets, partially offset by proceeds from the sale of a corporate
asset during the fourth quarter of 2019. During 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 2019, cash flows used in financing activities
related primarily to (i) net repayments under our former senior credit
facilities of $140.0, including the extinguishment of those former facilities in
June 2019, (ii) payments of minimum withholdings on behalf of employees in
connection with net share settlements of $5.4, (iii) net
                                       29
--------------------------------------------------------------------------------

repayments under other financing arrangements of $5.3 and (iv) financing fees
paid in connection with entering into our amended and restated senior credit
facilities of $3.3, partially offset by net borrowings under our amended and
restated senior credit facilities of $100.0. During 2018, cash flows used in
financing activities related primarily to net repayments under our former term
loan facility of $130.0, including voluntary prepayments of $110.0.
Discontinued Operations-During 2019, the decrease in cash flows from
discontinued operations, compared to 2018, was primarily attributable to a
decrease in cash flows from operating activities of $34.4, due primarily to
changes in working capital driven by the timing of project execution and
associated milestone payments as well as the payment, during the fourth quarter
of 2019, of $17.0 in connection with a settlement agreement related to a payment
demand made by a customer (see   Note 16   to our consolidated financial
statements for further information regarding the payment demand and related
settlement).
Change in Cash, Cash Equivalents and Restricted Cash due to Changes in Foreign
Currency Exchange Rates-The increases in cash, cash equivalents and restricted
cash due to foreign currency exchange rates of $2.6 and $5.6 during 2019 and
2018, respectively, reflected primarily an increase in U.S. dollar equivalent
balances of foreign-denominated cash, cash equivalents and restricted cash due
to the modest weakening of the U.S. dollar against certain foreign currencies
during the period, partially offset by the strengthening of the U.S. dollar
against the Angolan Kwanza.
Years Ended December 31, 2018 and 2017
Operating Activities-During 2018, the decrease in cash flows from operating
activities, compared to 2017, was primarily attributable to (i) increases in
working capital driven by the timing of project execution and associated
milestone payments and (ii) increased payments for incentive compensation,
partially offset by (iii) increased cash flows generated by the improved
operating results of our segments during the period and (iv) reduced spending on
restructuring actions.
Investing Activities-During 2018, cash flows used in investing activities were
comprised of capital expenditures associated generally with the upgrades of
manufacturing facilities and information technology. During 2017, cash flows
from investing activities were comprised of proceeds from asset sales and other
of $37.4, partially offset by capital expenditures of $16.2, associated
generally with the upgrades of manufacturing facilities and information
technology. Proceeds from asset sales and other of $37.4 in 2017 related
primarily to the sale of certain corporate assets, certain facilities in the
EMEA and Asia Pacific regions, and our former investment in an equity security.
Financing Activities -During 2018, cash flows used in financing activities
related primarily to repayments under our former term loan facility of $130.0,
including voluntary prepayments of $110.0. During 2017, cash flows used in
financing activities related primarily to net repayments of our senior credit
facilities of $188.0 and of our former trade receivables financing arrangement
of $21.2.
Discontinued Operations-During 2018, the decrease in cash flows from
discontinued operations, compared to 2017, was primarily attributable to a
decrease in cash flows from operating activities of $12.4, due primarily to
changes in working capital driven by the timing of project execution and
associated milestone payments.
Change in Cash, Cash Equivalents and Restricted Cash due to Changes in Foreign
Currency Exchange Rates-The increase in cash, cash equivalents and restricted
cash due to foreign currency exchange rates of $5.6 during 2018, reflected
primarily an increase in U.S. dollar equivalent balances of foreign-denominated
cash, cash equivalents and restricted cash due to the modest weakening of the
U.S. dollar against certain other foreign currencies during the period,
partially offset by the strengthening of the U.S. dollar against the Angolan
Kwanza. The increase in cash, cash equivalents and restricted cash due to
foreign currency exchange rates of $44.4 during 2017, 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.
                                       30
--------------------------------------------------------------------------------

Borrowings and Availability
Borrowings -Debt at December 31, 2019 and 2018 was comprised of the following:
                                                   December 31,
                                                2019          2018

Term loan, due in June 2022                  $ 100.0       $     -
Former term loan(1)                                -         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)                           21.3          33.1
Less: deferred financing fees(3)                (6.8)         (8.0)
Total debt                                     714.5         765.1
Less: short-term debt                           20.7          26.0

Less: current maturities of long-term debt 0.1 20.8 Total long-term debt

$ 693.7       $ 718.3


(1)This formerly outstanding term loan was fully repaid during the second
quarter of 2019. See further discussion under "Senior Credit Facilities."
(2)Primarily includes finance lease obligations (previously "capital lease
obligations" in 2018 under prior accounting guidance) of $0.6 and $7.2 and
balances under a purchase card program of $20.4 and $23.0 as of December 31,
2019 and 2018, respectively. The purchase card program allows for payment beyond
the normal payment terms for goods and services acquired under the program. As
this arrangement extends the payment of these purchases beyond their normal
payment terms through third-party lending institutions, we have classified these
amounts as short-term debt. See   Note     3   and   Note     7   to our
accompanying consolidated financial statements for further discussion regarding
our adoption of a new lease accounting standard during the first quarter of 2019
and the impact of such adoption on our capital lease obligations.
(3)Deferred financing fees were comprised of fees related to the term loans and
senior notes. As described further below under "Senior Credit Facilities," we
amended and restated our senior credit facilities in June 2019. In connection
with this amendment, we recognized $1.0 of expense, classified as a component of
"Interest expense, net" in our accompanying consolidated statement of operations
during the year ended December 31, 2019, related to the write-off of deferred
financing fees resulting from the extinguishment of the term loan and other
facilities of our former senior credit facility.
Senior Credit Facilities
On June 27, 2019, we amended and restated our senior credit facilities with a
syndicate of lenders that provide for committed senior secured financing in the
aggregate initial principal amount of $750.0, consisting of the following:
•A term loan facility in an aggregate initial principal amount of $100.0, with a
final maturity of June 27, 2022;
•A domestic revolving credit facility, available for loans and letters of
credit, in an aggregate principal amount up to $200.0, with a final maturity of
June 27, 2024;
•A global revolving credit facility, available for loans in Euros, British Pound
and other currencies, in an aggregate principal amount up to the equivalent of
$300.0, with a final maturity of June 27, 2024; and
•A bilateral foreign credit instrument facility, available for performance
letters of credit and guarantees in Euros, British Pound and other currencies,
in an aggregate principal amount up to the equivalent of $150.0, with a final
maturity of June 27, 2024.
Our senior credit facilities also contain covenants that, among other things,
restrict our ability to incur additional indebtedness, grant liens, make
investments, loans, guarantees, or advances, make restricted junior payments,
including dividends, redemptions of capital stock, and voluntary prepayments or
repurchase of certain other indebtedness, engage in mergers, acquisitions or
sales of assets, or engage in certain transactions with affiliates, and
otherwise restrict certain corporate activities. Our senior credit facilities
contain customary representations, warranties, affirmative covenants and events
of default.
At December 31, 2019, we were in compliance with these covenants.
Senior Notes
In August 2016, the Company completed its issuance of $600.0 in aggregate
principal amount of senior unsecured notes comprised of one tranche of $300.0
aggregate principal amount of 5.625% senior notes due in August 2024 (the "2024
Notes") and one tranche of $300.0 aggregate principal amount of 5.875% senior
notes due in August 2026 (the "2026 Notes" and, together with the 2024 Notes,
the "Notes"). The interest payment dates for the Notes are February 15 and
August 15 of each year, with interest payable in arrears. The proceeds of the
Notes, together with borrowings under our domestic revolving
                                       31
--------------------------------------------------------------------------------

loan facility, were used to complete the tender offer and repurchase/redemption
of the $600.0 outstanding aggregate principal amount of our 6.875% senior notes
due in August 2017, including $36.4 of premiums paid. The indentures governing
the Notes contain covenants that limit the Company's (and its subsidiaries')
ability to, among other things, grant liens on its assets, enter into sale and
leaseback transactions and consummate mergers or transfer certain of its assets.
Availability
At December 31, 2019, we had $494.9 of borrowing capacity under our revolving
credit facilities after giving effect to $5.1 reserved for outstanding letters
of credit. In addition, at December 31, 2019, we had $69.6 of available issuance
capacity under our foreign credit instrument facilities after giving effect to
$80.4 reserved for outstanding bank guarantees. In addition, we had $9.6 of bank
guarantees outstanding under the senior credit facilities that, once satisfied,
cannot be reissued.
Refer to   Note     13   to our consolidated financial statements for further
information on our borrowings as of December 31, 2019.
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 December 31, 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     14   to our 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 $83.3 and $65.3
outstanding as of December 31, 2019 and 2018, respectively, with all such
contracts scheduled to mature within one year. We also had FX embedded
derivatives with an aggregate notional amount of $0.9 and $3.1 at December 31,
2019 and 2018, respectively, with all such contracts scheduled to mature within
one year. There were unrealized losses of $0.2 and $0.3, net of taxes, recorded
in "Accumulated Other Comprehensive Loss" related to FX forward contracts as of
December 31, 2019 and 2018, respectively. The net losses recorded in "Other
income (expense), net" related to FX losses totaled $3.1, $7.4, and $2.3 for the
years ended December 31, 2019, 2018 and 2017, respectively.
The net fair values of our FX forward contracts and FX embedded derivatives were
$0.3 (asset) and $0.5 (asset) at December 31, 2019 and 2018, respectively.
Other Fair Value Financial Assets and Liabilities
The carrying amounts of cash and equivalents, receivables and contract assets
reported in our consolidated balance sheets approximate fair value due to the
short-term nature of those instruments.
                                       32
--------------------------------------------------------------------------------

The fair value of our debt instruments (excluding finance leases and deferred
financing fees), based on borrowing rates available to us at December 31, 2019
for similar debt, was $749.2, compared to our carrying value of $720.7.
As of December 31, 2018, the fair value of our debt instruments (excluding
capital leases and deferred financing fees), based on borrowing rates available
to us at December 31, 2018 for similar debt, was $728.8, compared to our
carrying value of $765.9.
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. Except as is provided for in our accompanying consolidated
balance sheets through an allowance for uncollectible accounts for certain
accounts receivable, 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 the fiscal years ended December 31, 2019, 2018 and 2017.
Cash and Other Commitments
We use operating leases to finance certain properties, equipment and vehicles.
At December 31, 2019, we had $55.8 of operating lease liabilities recognized on
our consolidated balance sheet related to leases with initial non-cancelable
terms in excess of one year. See   Note 7   to our accompanying consolidated
financial statements for further information regarding our operating leases.
Capital expenditures for 2019 totaled $28.5, compared to $19.2 and $16.2 in 2018
and 2017, respectively. Capital expenditures in 2019 related primarily to
upgrades of manufacturing facilities and information technology, as well as
certain corporate assets. We expect 2020 capital expenditures to approximate
$40, with a significant portion related to additional upgrades of manufacturing
facilities and information technology, as well as for manufacturing equipment to
support productivity initiatives. While the impact of continued market
volatility cannot be predicted, we believe we have sufficient operating
flexibility, cash reserves and funding sources to maintain adequate amounts of
liquidity and to meet our future operating cash needs and internal growth
opportunities.
In 2019, we made contributions and direct benefit payments of $9.0 to our
defined benefit pension and postretirement plans. We expect to make $2.6 of
minimum required funding contributions and direct benefit payments in 2020. Our
pension plans have not experienced any liquidity difficulties or counterparty
defaults due to the volatility in the credit markets. See   No    te     11 

to

our consolidated financial statements for further disclosure of expected future
contributions and benefit payments.
On a net basis, from both continuing and discontinued operations, we paid $33.6,
$23.8 and $12.2 in income taxes in 2019, 2018 and 2017, respectively. The amount
of income taxes we pay annually is dependent on various factors, including the
timing of certain deductions. Deductions and the amount of income taxes can and
do vary from year to year. See   Note     12   to our consolidated financial
statements for further disclosure of earnings held by foreign subsidiaries,
amounts considered permanently reinvested, and our intentions with respect to
repatriation of earnings.
As of December 31, 2019, except as discussed in   Note     16   to our
consolidated financial statements and in the contractual obligations table
below, we did not have any material guarantees, off-balance sheet arrangements
or purchase commitments.
                                       33
--------------------------------------------------------------------------------

We periodically review each of our businesses in order to determine their
long-term strategic fit. These reviews could result in selected acquisitions to
expand an existing business or result in the disposition of an existing
business. See "  Risk Factors  ," "  Results of Reportable Segments  " included
in this "  MD&A  ," and "  Business  " for an understanding of the risks,
uncertainties and trends facing our businesses.
As discussed in   Note 4   to our accompanying consolidated financial
statements, we entered into an agreement during the fourth quarter of 2019 to
sell the businesses which comprise our discontinued operations, and we expect
the sale to close in the first half of 2020. Upon closing of the sale, we expect
to receive a significant amount of net cash proceeds. The gross purchase price
of the sale is $475.0, subject to (i) reductions based upon the level of certain
deductions of the discontinued operations at the closing date (as defined in the
sale agreement), and (ii) certain adjustments based upon the level of net
working capital, cash and debt of the discontinued operations at the closing
date. The deductions include, for example, components of the Contract
Liabilities and certain other current and long-term liabilities of the
discontinued operations, as well as deductions for budgeted but un-incurred
capital expenditures and other business infrastructure costs measured over
periods defined in the sale agreement, but in all cases expiring at the closing
date. The amount of net cash proceeds is subject to change, based on these and
other factors.
Contractual Obligations
The following is a summary of our primary contractual obligations as of December
31, 2019:
                                                                  Due Within 1        Due in 1-3         Due in 3-5        Due After 5
                                                  Total               Year              Years              Years              Years
Short-term debt obligations                    $    20.7          $    20.7          $      -           $      -           $       -
Long-term debt obligations (excluding deferred
financing fees)                                    700.6                0.1             100.3              300.2               300.0
Pension and postretirement benefit plan
contributions and payments(1)                       69.7                3.1               6.4                6.0                54.2
Purchase and other contractual obligations(2)      121.5              116.6               4.9                  -                   -
Future minimum operating lease payments(3)          63.7               16.5              20.8               15.9                10.5
Interest payments                                  204.1               37.7              73.6               63.4                29.4

Total contractual cash obligations(4) $ 1,180.3 $ 194.7

$  206.0           $  385.5           $   394.1


(1) Estimated minimum required pension contributions and pension and
postretirement benefit payments are based on actuarial estimates using current
assumptions for, among other things, discount rates, expected long-term rates of
return on plan assets (where applicable), rates of compensation increases, and
health care cost trend rates. See   Note     11   to our consolidated financial
statements for additional information on expected future contributions and
benefit payments.
(2) Represents contractual commitments to purchase goods and services at
specified dates.
(3) Represents rental payments under operating leases with initial
non-cancelable terms in excess of one year.
(4) Contingent obligations, such as environmental accruals and those relating to
uncertain tax positions, generally do not have specific payment dates and
accordingly have been excluded from the above table. 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 $1.0 to $2.0. In addition, the above table does not include potential
payments under our derivative financial instruments.
We believe that our cash flows, together with cash and equivalents on hand, and
availability under revolving credit facilities, provide us with the ability to
fund our operations and make planned capital expenditure payments for at least
the next twelve months. However, such cash flows are dependent upon our future
operating performance which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors, including the
conditions of our markets, some of which are beyond our control. If, in the
future, we cannot generate sufficient cash from operations to meet any future
debt service obligations, we would need to refinance such debt obligations,
obtain additional financing or sell assets. We cannot assure you that our
business will generate cash from operations, or that we will be able to obtain
financing from other sources, sufficient to satisfy any such debt service or
other requirements.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities. The accounting policies that we believe are most critical to the
portrayal of our financial condition and results of operations and that require
our most difficult, subjective or complex judgments in estimating the effect of
inherent uncertainties are listed below. This section should be read in
conjunction with   Note         1   and   Note     2   to our consolidated
financial statements, which include a detailed discussion of these and other
accounting policies.
                                       34
--------------------------------------------------------------------------------

Contract Revenues Recognized Over Time
Effective January 1, 2018, we adopted the FASB's new standard on revenue
recognition, which outlines a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers and supersedes most
revenue recognition guidance, including industry-specific guidance. This
guidance requires revenues to be recognized either over time or at a point in
time.
Certain of our businesses recognize revenues and profits from long-term
construction/installation contracts over time (2019 and 2018) or, under previous
revenue recognition guidance, under the percentage-of-completion method of
accounting (2017). Such methods require estimates of future revenues and costs
over the full term of product delivery. We measure our performance, or
percentage-of-completion, principally by the contract costs incurred to date as
a percentage of the estimated total costs for that contract at completion. Under
such methods, we recognized revenues of $343.7, $403.3 and $234.8 during the
years ended December 31, 2019, 2018 and 2017, respectively.
We record any provision for estimated losses on relevant uncompleted contracts
in the period in which the losses are determined. In the case of customer change
orders for such contracts, we include estimated recoveries for work performed in
forecasting ultimate profitability on these contracts. Due to uncertainties
inherent in the estimation process, it is reasonably possible that completion
costs, including those arising from contract penalty provisions and final
contract settlements, will be revised during the duration of a contract. These
revisions to costs and income are recognized in the period in which the
revisions are determined.
Our estimation process for determining revenues and costs for contracts
accounted for over time (2019 and 2018) or, under previous revenue recognition
guidance, under the percentage-of-completion method (2017), is based upon
(i) our historical experience, (ii) the professional judgment and knowledge of
our engineers, project managers, and operations and financial professionals, and
(iii) an assessment of the key underlying factors (see below) that impact the
revenues and costs of the relevant contracts. Each such contract is unique, but
typically similar enough to other contracts that we can effectively leverage our
experience. As these contracts generally range from six to eighteen months in
duration, we typically reassess the estimated revenues and costs of these
contracts on a quarterly basis, but may reassess more often as situations
warrant. We record changes in estimates of revenues and costs when identified
using the cumulative catch-up method prescribed by the applicable revenue
recognition guidance.
We believe the underlying factors used to estimate our costs to complete and
percentage-of-completion are sufficiently reliable to provide a reasonable
estimate of revenue and profit; however, due to the length of time over which
revenue streams are generated and costs are incurred, along with the judgment
required in developing the underlying factors, the variability of revenue and
cost can be significant. Factors that may affect revenue and costs relating to
contracts accounted for over time (2019 and 2018) or under the
percentage-of-completion method (2017) include, but are not limited to, the
following:
•Sales Price Incentives and Sales Price Escalation Clauses-Sales price
incentives and sales price escalations that are reasonably assured and
reasonably estimable are recorded over the performance period of the contract.
Otherwise, these amounts are recorded when awarded.
•Cost Recovery for Product Design Changes and Claims-On occasion, design
specifications may change during the course of the contract. Any additional
costs arising from these changes may be supported by change orders, or we may
submit a claim to the customer. Change orders are accounted for as described
above. See below for our accounting policies related to claims.
•Material Availability and Costs-Our estimates of material costs generally are
based on existing supplier relationships, adequate availability of materials,
prevailing market prices for materials and, in some cases, long-term supplier
contracts. Changes in our supplier relationships, delays in obtaining materials,
or changes in material prices can have an impact on our cost and profitability
estimates.
•Use of Sub-Contractors-Our arrangements with sub-contractors are generally
based on fixed prices; however, our estimates of the cost and profitability can
be impacted by sub-contractor delays, customer claims arising from
sub-contractor performance issues, or a sub-contractor's inability to fulfill
its obligations.
•Labor Costs and Anticipated Productivity Levels-Where applicable, we include
the impact of labor improvements in our estimation of costs, such as in cases
where we expect a favorable learning curve over the duration of the contract. In
these cases, if the improvements do not materialize, costs and profitability
could be adversely impacted.
                                       35
--------------------------------------------------------------------------------

Additionally, to the extent we are more or less productive than originally
anticipated, estimated costs and profitability may also be impacted.
•Effect of Foreign Currency Fluctuations-Fluctuations between currencies in
which our long-term contracts are denominated and the currencies under which
contract costs are incurred can have an impact on profitability. When the impact
on profitability is potentially significant, we may (but generally do not) enter
into FX forward contracts or prepay certain vendors for raw materials to manage
the potential exposure. See   Note     14   to our consolidated financial
statements for additional details on our FX forward contracts.
Contract assets arise when revenues have been recorded but the amounts have not
been billed under the terms of the contracts. These amounts are recoverable from
customers upon various measures of performance, including achievement of certain
milestones, completion of specified units or completion of the contract.
We periodically make claims against customers, suppliers and sub-contractors
associated with alleged non-performance and other disputes over contractual
terms. Claims related to contracts accounted for over time (2019 and 2018) or
under the percentage-of-completion method (2017) are recognized as additional
revenues or as a reduction of costs only after we have determined that
collection is probable and the amount is reasonably estimable. Claims made by us
may involve negotiation and, in certain cases, litigation or other
dispute-resolution processes. In the event we incur litigation or other
dispute-resolution costs in connection with claims, these costs are expensed as
incurred, although we may seek to recover these costs. Claims against us are
recognized when a loss is considered probable and amounts are reasonably
estimable.
See   Note     1   to our consolidated financial statements for further
information regarding estimates and assumptions associated with our accounting
for contracts over time (2019 and 2018) and under the percentage-of-completion
method (2017).
Impairment of Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but instead
are subject to annual impairment testing. We monitor the results of each of our
reporting units as a means of identifying trends and/or matters that may impact
their financial results and, thus, be an indicator of a potential impairment.
The trends and/or matters that we specifically monitor for each of our reporting
units are as follows:
•Significant variances in financial performance (e.g., revenues, earnings and
cash flows) in relation to expectations and historical performance;
•Significant changes in end markets or other economic factors;
•Significant changes or planned changes in our use of a reporting unit's assets;
and
•Significant changes in customer relationships and competitive conditions.
The identification and measurement of goodwill impairment involves the
estimation of the fair value of reporting units. We consider a number of factors
in conducting the impairment testing of our reporting units. We perform our
impairment testing by comparing the estimated fair value of the reporting unit
to the carrying value of the reported net assets, with such testing occurring
during the fourth quarter of each year in conjunction with our annual financial
planning process (or more frequently if impairment indicators arise), based
primarily on events and circumstances existing as of the end of the third
quarter. Fair value is generally based on the income approach using a
calculation of discounted cash flows, based on the most recent financial
projections for the reporting units, market participant discount rates, and
EBITDA multiples observed of peer companies and in recent transactions in the
industries we serve. The revenue growth rates included in the financial
projections are our best estimates based on current and forecasted market
conditions, and the profit margin assumptions are projected by each reporting
unit based on current cost structure and, when applicable, anticipated net cost
reductions.
The calculation of fair value for our reporting units incorporates many
assumptions including future growth rates, profit margin and discount factors.
Changes in economic and operating conditions impacting these assumptions could
result in impairment charges in future periods.
Consistent with our accounting policy as stated above, we performed our annual
goodwill impairment test as of the first day of our fiscal fourth quarter of
2019 and 2018, which indicated the estimated fair value of each of our reporting
units significantly exceeded its respective book value.
                                       36
--------------------------------------------------------------------------------

Additionally, we perform our annual trademarks impairment testing during the
fourth quarter, or on a more frequent basis if there are indications of
potential impairment. The fair values of our trademarks are determined by
applying estimated royalty rates to projected revenues, with the resulting cash
flows discounted at a rate of return that reflects current market conditions.
During 2018, we recorded impairment charges of $1.4 related to trademarks of a
business. In addition, we recorded impairment charges of $8.3 related to certain
technology assets of that business during 2018. We determined the impairment for
technology assets by comparing the future expected cash flows associated with
the technology assets, discounted at a rate of return that reflects current
market conditions, to its carrying value. Other changes in the gross values of
trademarks and other identifiable intangible assets related primarily to foreign
currency translation.
Refer to   Note     10   to our consolidated financial statements for further
information regarding our goodwill and indefinite-lived intangible assets as of
and during the year ended December 31, 2019.
Income Taxes
Deferred tax assets and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. We periodically
assess whether deferred tax assets will be realized and the adequacy of deferred
tax liabilities, including the results of tax audits or estimates and judgments
used.
Realization of deferred tax assets involves estimates regarding (1) the timing
and amount of the reversal of taxable temporary differences, (2) expected future
taxable income, and (3) the impact of tax planning strategies. We believe that
it is more likely than not that we may not realize the benefit of certain
deferred tax assets and, accordingly, have established a valuation allowance
against them. In assessing the need for a valuation allowance, we consider all
available positive and negative evidence, including past operating results,
projections of future taxable income and the feasibility of and potential
changes to ongoing tax planning strategies. The projections of future taxable
income include a number of estimates and assumptions regarding our volume,
pricing and costs. Although realization is not assured for the remaining
deferred tax assets, we believe it is more likely than not that the remaining
deferred tax assets will be realized through future taxable earnings or
alternative tax strategies. However, deferred tax assets could be reduced in the
near term if our estimates of taxable income are significantly reduced or tax
strategies are no longer viable.
We review our income tax positions on a continuous basis and record unrecognized
tax benefits for potential uncertain tax positions when we determine that an
uncertain position meets the criteria of the Income Taxes Topic of the Financial
Accounting Standards Board Codification. As events change or resolutions occur,
adjustments are made to amounts previously provided, such as in the case of
audit settlements with taxing authorities. We believe we have adequately
provided for any reasonably foreseeable outcome related to these matters.
Our future results may include favorable or unfavorable adjustments to our
estimated tax liabilities due to closure of income tax examinations, statute
expirations, new regulatory or judicial pronouncements, changes in tax laws,
changes in projected levels of taxable income, future tax planning strategies,
or other relevant events.
See   Note     12   to our consolidated financial statements for additional
details regarding our uncertain tax positions.
Discontinued Operations
During the year ended December 31, 2019, we recorded a pre-tax loss of $201.0 to
reduce the carrying value of the net assets of our discontinued operations, and
including relevant foreign currency translation adjustment balances recorded
within "Accumulated Other Comprehensive Loss", to our estimate of fair value
(the net proceeds expected to be realized upon closing of the sale of the
discontinued operations in the first half of 2020), less estimated costs to
sell. Our determination of the net proceeds expected to be realized at closing
involves certain estimates and judgments based on, among other items: (i) our
interpretation and application of key terms of the sale agreement reached with
the buyer during the fourth quarter of 2019, (ii) certain balance sheet amounts
of the discontinued operations as of December 31, 2019, and (iii) certain
projections of future business infrastructure costs to be incurred through an
estimated future closing date. The balances of net working capital, cash and
debt, and deductions defined in the sale agreement are subject to future change
based on the operations of the discontinued operations from December 31, 2019
through the closing date, and future spending on business infrastructure and
estimated costs to sell the business could differ from our estimates. As such, a
change in the loss on disposal associated with the divestiture of the business
could occur in a future period, including upon closing of the Transaction or
thereafter.
                                       37
--------------------------------------------------------------------------------

In addition to calculating an estimate of net proceeds expected to be realized
at closing, as described above, certain additional judgments and estimates, and
other reporting matters related to discontinued operations, included matters
discussed in the following paragraphs.
Certain businesses of our former Power and Energy reportable segment, primarily
related to the Bran+Luebbe product line, are being retained by SPX FLOW, and
have been reclassified for all periods presented into the Industrial reportable
segment. Based on our assessment of the estimated relative fair values of the
discontinued operations and the Bran+Luebbe product line, we performed a
re-allocation during 2019 of our former Power and Energy goodwill balance
between the Disposal Group and the business being retained, which resulted in
net increases in Industrial reportable segment goodwill of $70.0 and $70.6 as of
December 31, 2018 and 2017, respectively, and corresponding reductions in the
goodwill of the former Power and Energy reportable segment.
Based on provisions contained in a procurement agreement to be executed at
closing of the sale, certain SPX FLOW businesses will continue to purchase
filtration elements from a business unit of the discontinued operations on a
post-closing basis. Such product purchases will be made at agreed-upon prices,
based on provisions contained in the agreement, which exceed current estimated
market prices. Accordingly, based on expected future purchase volumes, including
anticipated minimum purchase volumes required through the term of the agreement,
and the differential between market and future contractual prices, we have
estimated the incremental cost of such future purchases as an unfavorable
purchase commitment and recorded a pre-tax loss of $5.0 as a component of the
results of discontinued operations. The liability associated with such future
purchase commitments is recorded within "Accrued Expenses" and "Other Long-Term
Liabilities" of continuing operations.
See   Note 5   to our consolidated financial statements for disclosure of costs
for certain centralized functions and services provided and/or administered by
SPX FLOW that were previously charged to business units within the discontinued
operations and which have been reclassified to Corporate Expense for all periods
presented. We have reclassified such amounts as the costs generally represent
the costs of employees who provided such centralized functions and services to
the discontinued operations but who are expected to remain employees of SPX FLOW
upon the disposition of the discontinued operations.
In addition to any business-specific interest expense and income, the interest
expense, net, of discontinued operations reflects an allocation of interest
expense, including the amortization of deferred financing fees, related to the
Company's senior notes, senior credit facilities and former trade receivables
financing arrangement. Interest expense related to such debt instruments and
allocated to discontinued operations was $11.7, $13.1 and $16.3 for the years
ended December 31, 2019, 2018 and 2017, respectively. The allocation of the
Company's interest expense of these debt instruments was determined based on the
proportional amount of average net assets of the discontinued operations to the
Company's average net assets during each period, with the Company's average net
assets determined excluding the average outstanding borrowings under such debt
instruments during each period.
Leases
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 3   and   Note 7   to our consolidated financial statements for
further information regarding estimates and assumptions associated with our
adoption of the new standard on accounting for leases.
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.
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.
                                       38
--------------------------------------------------------------------------------

Refer to   Note     16   to our consolidated financial statements for discussion
regarding amounts reported in "Mezzanine equity" on the consolidated balance
sheets as of December 31, 2019 and 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.
New Accounting Pronouncements
See   Note     3   to our consolidated financial statements for a discussion of
recent accounting pronouncements.
                                       39

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses