10-K 1 a2196651z10-k.htm FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended December 31, 2009, or

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                     to                      .

Commission file number: 1-6948

SPX Corporation
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  38-1016240
(I.R.S. Employer Identification No.)

13515 Ballantyne Corporate Place
Charlotte, NC 28277
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: 704-752-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, Par Value $10.00   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes    o No

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 27, 2009 was $2,268,347,523. The determination of affiliate status for purposes of the foregoing calculation is not necessarily a conclusive determination for other purposes.



        The number of shares outstanding of each of the registrant's classes of common stock as of February 22, 2010 was 49,816,120.



        Documents incorporated by reference: Portions of the Registrant's Proxy Statement for its Annual Meeting to be held on May 6, 2010 are incorporated by reference into Part III of this Annual Report on Form 10-K.





P A R T    I

ITEM 1. Business

(All dollar and share amounts are in millions, except per share data)

Forward-Looking Information

        Some of the statements in this document and any documents incorporated by reference constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses' or our industries' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements include statements about our plans, strategies, prospects, changes and trends in our business and the markets in which we operate under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"). In some cases, you can identify forward-looking statements by terminology such as "may," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or "continue" or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management's estimates of future operating results are based on our current complement of businesses, which is subject to change. All the forward-looking statements are qualified in their entirety by reference to the factors discussed in this document under the heading "Risk Factors" and in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements. We undertake no obligation to update or publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this document.


Business

        We were incorporated in Muskegon, Michigan in 1912 as the Piston Ring Company and adopted our current name in 1988. Since 1968, we have been incorporated under the laws of Delaware, and we have been listed on the New York Stock Exchange since 1972.

        We are a global, multi-industry manufacturer of highly specialized, engineered solutions with operations in over 35 countries and sales in over 150 countries around the world. A large portion of our revenues, approximately 55% in 2009, are driven by global infrastructure development. Our infrastructure-related products and services include wet and dry cooling systems, thermal service and repair work, heat exchangers and power transformers that we sell into the global power market. In addition, we provide pumps, metering systems and valves for the global oil and gas, chemical and petrochemical exploration, refinement and distribution markets. Our infrastructure-related products also include packaged cooling towers, boilers, heating and ventilation equipment and filters. We continue to focus on developing and acquiring products and services to serve global infrastructure development, as we believe that future investments in these end markets in both developing and developed economies around the world provide significant opportunities for growth.

        Our other two key global end markets are food and beverage and tools and diagnostics. During 2009, approximately 29% of our revenues were generated from serving these two end markets.

        Our acquisition of APV at the end of 2007 significantly increased our presence in the global food and beverage market. The products we provide to the food and beverage market include a variety of process equipment used to control flow and temperature during manufacturing, including pumps, heat exchangers, valves and mixers. We expect growth for the food and beverage market to continue throughout the globe, with the highest growth targeted for Asia Pacific and Latin America.

        Our primary offerings to the tools and diagnostics end market include electronic diagnostic systems, specialty service tools, service equipment and technical information services with a primary focus on the global transportation market. Our strategy includes partnering with manufacturers of automobiles, agricultural and construction equipment and recreational vehicles, among others, to provide solutions for maintaining and servicing these vehicles after sale, with a continued focus on global expansion. For 2009, we estimate that we generated over 40% of our tools and diagnostic revenue outside North America. With the expanding global population and demand for vehicles, we believe there are significant international opportunities in this market, particularly in China and India.

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        Our operating strategy is focused on an integrated leadership process that aligns performance measurement, decision support, compensation and communication. This process includes:

    A demanding set of corporate values to drive achievement of results with integrity;

    Expanding our technological leadership and service offerings with a market focus on providing innovative, critical solutions to our customers;

    Growing through internal development and strategic, financially compelling acquisitions;

    Increased globalization with a focus on developing economies and markets;

    Right-sizing our businesses to market and economic conditions to protect against economic downturns and take advantage of strong economic cycles;

    Focusing on continuous improvement to drive results and create shareholder value; and

    Strategically analyzing our businesses to determine their long-term fit.

        Unless otherwise indicated, amounts provided throughout this Annual Report on Form 10-K relate to continuing operations only.


Segments

        Over the last few years, we have implemented a number of operating initiatives, including a focus on developing markets, new product development, continuous improvement driven by lean methodologies, supply chain management, information technology infrastructure improvement, and organizational and talent development. These initiatives have been implemented with the intent, among other things, of capturing synergies that exist within our businesses to ultimately drive revenue, profit margin and cash flow growth. We believe that our businesses are well positioned for long-term growth in these financial metrics based on our current continuous improvement initiatives, the potential within the current markets they serve and the potential for expansion into additional markets.

        We aggregate our operating segments into four reportable segments: Flow Technology, Test and Measurement, Thermal Equipment and Services and Industrial Products and Services. The factors considered in determining our aggregated segments are the economic similarity of the businesses, the nature of products sold or services provided, production processes, types of customers and distribution methods. In determining our segments, we apply the threshold criteria of the Segment Reporting Topic of the Accounting Standards Codification ("Codification") to operating income or loss of each segment before considering impairment and special charges, pensions and postretirement expense, stock-based compensation and other indirect corporate expense. This is consistent with the way our chief operating decision maker evaluates the results of each segment. For more information on the results of our segments, including revenues by geographic area, see Note 5 to our consolidated financial statements.

Flow Technology

        Our Flow Technology segment had revenues of $1,634.1, $1,998.7 and $1,070.0 in 2009, 2008 and 2007, respectively. APV, a global manufacturer of process equipment and engineering solutions primarily for the food and beverage market, had revenue of approximately $876.0 in 2007, which was not included in our results of operations for 2007, as we acquired APV on December 31, 2007. The Flow Technology segment designs, manufactures and markets products and solutions that are used to blend, meter and transport fluids, as well as air and gas filtration and dehydration products. Our focus is on innovative, highly engineered new products and expansion from products to systems and services in order to create total customer solutions. Our primary products include high-integrity pumps, valves, heat exchangers, fluid mixers, agitators, metering systems, filters and dehydration equipment. Our primary global end markets are food and beverage, oil and gas, power generation, chemical, mining, and general industrial. We sell to these end markets under the brand names of Waukesha Cherry-Burrell, Lightnin, Copes-Vulcan, M&J Valves, Bran & Luebbe, APV, APV Gaulin, APV Rannie, Pneumatic Products, Delair, Dollinger Filtration, Jemaco, Kemp, Vokes, Deltech and Hankinson, among others. Competitors in these fragmented markets include Alfa Laval AB, GEA Group AG, Fisher Controls International LLC, Hayward Filtration, Chemineer, Inc., EKATO Group, LEWA, Inc., Fristam Pumpen F. Stamp KG (GmbH & Co.) and Südmo North America, Inc.. Channels to market include stocking distributors, manufacturers' representatives and direct sales. Approximately 65% of the segment's 2009 revenues were outside the Americas. Historically, we managed this segment by business unit, however, in 2010, we are reorganizing the segment on a regional basis, with the regions being Americas, EMEA, and Asia Pacific. We expect this new structure will allow us to optimize our global footprint and take advantage of cross-product integration opportunities.

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Test and Measurement

        Our Test and Measurement segment had revenues of $810.4, $1,100.3 and $1,079.8 in 2009, 2008 and 2007, respectively. This segment engineers and manufactures branded, technologically advanced test and measurement products used on a global basis across the transportation, telecommunications and utility industries. Our technology supports the introduction of new systems, expanded services and sophisticated testing and validation. Products for the segment include specialty diagnostic service tools, fare-collection systems and portable cable and pipe locators. Our specialty diagnostic service tool products include diagnostic systems and service equipment, as well as specialty tools. We sell specialty diagnostic service tools to the franchised vehicle dealers of original equipment manufacturers ("OEM"s), as well as aftermarket franchised and independent repair facilities, under the OTC, Actron, AutoXray, Tecnotest, Autoboss and Robinair brand names, among others. The major competitors to these product lines are Snap-on Incorporated and the Bosch Group. We are a primary global provider of diagnostic service tools for motor vehicle manufacturers' dealership networks such as those associated with General Motors, Ford, Chrysler Group LLC, BMW, Volkswagen, Renault, Nissan, Harley Davidson and John Deere. Sales of specialty service tools essential to dealerships tend to vary with changes in vehicle systems design and the number of dealerships. The past 12 to 18 months have been quite challenging for the vehicle service market due to the economic stress on the global OEMs and the lack of demand within the global aftermarket. The changes that have occurred in the automotive industry are leading to increased global competition among OEMs. In response, we continue to optimize our global footprint by reducing our North American cost structure and integrating our overseas operations. We also have transitioned key internal resources to Europe and Asia Pacific to focus on our expansion in these regions. Over 40% of our total 2009 vehicle service solutions revenue related to sales outside North America. Over time, we expect the percentage to increase as we expand our relationships with OEMs globally. Specifically, we see significant opportunities in China and India as data suggests that the number of vehicles in these countries will increase greatly over the next decade. The segment also sells automated fare-collection systems to municipal bus and rail transit systems, as well as ride ticket vending systems, primarily within the North American market. Our portable cable and pipe locator line is composed of electronic testing, monitoring and inspection equipment for locating and identifying metallic sheathed fiber optic cable, horizontal boring guidance systems and inspection cameras. The segment sells this product line globally to a wide customer base, including utility and construction companies, municipalities and telecommunication companies. The primary distribution channels for the Test and Measurement segment are direct to OEMs and OEM dealers, aftermarket tool and equipment providers and retailers.

Thermal Equipment and Services

        Our Thermal Equipment and Services segment had revenues of $1,600.7, $1,690.1 and $1,560.5 in 2009, 2008 and 2007, respectively. This segment engineers, manufactures and services cooling, heating and ventilation products for markets throughout the world. Products for the segment include dry, wet and hybrid cooling systems for the power generation, refrigeration, HVAC and industrial markets, as well as hydronic and heating and ventilation products for the commercial and residential markets. This segment also provides thermal components for power and steam generation plants and engineered services to maintain, refurbish, upgrade and modernize power stations. Approximately two-thirds of the segment's 2009 revenues were from sales to the power generation market. The segment has a balanced presence geographically, with a strong presence in North America, Europe, China, and South Africa. The segment continues to seek opportunities to expand its product offerings from a geographic perspective. In December 2009, the segment's SPX Heat Transfer Inc. subsidiary acquired substantially all of the assets and certain liabilities of Yuba Heat Transfer, LLC ("Yuba"), a leading supplier of heat transfer technology to the U.S. power generation market. In addition, during 2009 we entered into a joint venture with Thermax Limited to market certain of our thermal components to India's rapidly growing power sector and selected regions in Southeast Asia. Thermax Limited is a leader in energy and environmental management, and is highly respected in the Indian market. The segment's products and services are sold under the brand names of Marley, Balcke-Duerr, Ceramic, Yuba, Ecolaire and Recold, among others, with the major competitors to these product and service lines being Evapco, Inc., GEA Group AG, Alstom SA, Siemens AG, Hamon & Cie, Baltimore Aircoil Company, and Thermal Engineering International. Our hydronic products include a complete line of gas and oil fired cast iron boilers for space heating in residential and commercial applications, as well as ancillary equipment. The segment's primary hydronic products competitors are Burnham Holdings, Inc. and Buderus. Our heating and ventilation product line includes i) baseboard, wall unit and portable heaters, ii) commercial cabinet and infrared heaters, iii) thermostats and controls, iv) air curtains and v) circulating fans. The segment sells heating and ventilation products under the Berko, Qmark, Farenheat and Leading Edge brand names, with the principal competitors being TPI Corporation, Ouellet, King Electric, Systemair MFG. LLC, Cadet Manufacturing Company and Dimplex North America Ltd. for heating products and TPI Corporation, Broan-NuTone LLC and Airmaster Fan Company for ventilation products. The segment's South African subsidiary has a Black Economic Empowerment minority interest shareholder, which holds a 25.1% interest. The primary distribution channels for the Thermal Equipment and Services segment are direct to customers, independent manufacturing representatives, third-party distributors and retailers.

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Industrial Products and Services

        Our Industrial Products and Services segment had revenues of $805.6, $1,048.5 and $831.9 in 2009, 2008 and 2007, respectively. Of the segment's 2009 revenue, approximately 47% was from the sale of power transformers into the U.S. transmission and distribution market. We are a leading provider of medium sized transformers (Megavolt-Amphere between 10 and 60 mega-watts) in the United States. Our transformers are sold under the Waukesha Electric brand name. Typical customers for this product line are public and privately held utilities. Our key competitors in this market include ABB Ltd (Kuhlman Electric Corporation) and GE-Prolec.

        Additionally, this segment includes operating units that design and manufacture industrial tools and hydraulic units, precision machine components for the aerospace industry, crystal growing machines for the solar power generation market, television, radio, cell phone and data antenna systems, communications and signal monitoring systems, and precision controlled industrial ovens and chambers. The primary distribution channels for the Industrial Products and Services segment are direct to customers, independent manufacturing representatives and third-party distributors.


Acquisitions

        We regularly review and negotiate potential acquisitions in the ordinary course of business, some of which are or may be material. We will continue to pursue acquisitions and we may consider acquisitions of businesses with more than $1,000.0 in annual revenues.

        In December 2009, in the Thermal Equipment and Services segment, our SPX Heat Transfer Inc. subsidiary completed the acquisition of substantially all the assets and certain liabilities of Yuba, a leading global supplier of heat transfer equipment utilized by nuclear, solar, geothermal, gas and coal power generation facilities for a purchase price of $129.2. Yuba had revenues of approximately $128.8 in the twelve months prior to the date of acquisition. The pro forma effect of the acquisition was not material to our results of operations.


Divestitures

        As part of our operating strategy, we regularly review and negotiate potential divestitures in the ordinary course of business, some of which are or may be material. As a result of this continuous review, we determined that certain of our businesses would be better strategic fits with other companies or investors. We report businesses or asset groups as discontinued operations when the operations and cash flows of the business or asset group have been or are expected to be eliminated, when we do not expect to have any continuing involvement with the business or asset group after the disposal transaction, and when we have met these additional six criteria:

    Management has approved a plan to sell the business or asset group;

    The business or asset group is available for immediate sale;

    An active program to sell the business or asset group has been initiated;

    The sale of the business or asset group is probable within one year;

    The marketed sales value of the business or asset group is reasonable in relation to its current fair value; and

    It is unlikely that the plan to divest the business or asset group will be significantly altered or withdrawn.

        The following businesses, all of which have been sold by December 31, 2009, met the above requirements and therefore have been reported as discontinued operations for all periods presented:

Business
  Quarter
Discontinued
  Actual Closing
Quarter of Sale
 

Automotive Filtration Solutions business ("Filtran")

    Q4 2008     Q4 2009  

Dezurik

    Q3 2008     Q1 2009  

Scales and Counting Systems business ("Scales")

    Q3 2008     Q4 2008  

Vibration Testing and Data Acquisition Equipment business ("LDS")

    Q1 2008     Q4 2008  

Air Filtration

    Q3 2007     Q3 2008  

Balcke-Duerr Austria GmbH ("BD Austria")

    Q4 2007     Q4 2007  

Nema AirFin GmbH ("Nema")

    Q4 2007     Q4 2007  

Contech ("Contech")

    Q3 2006     Q2 2007  

        During the second quarter of 2009, we committed to a plan to divest P.S.D., Inc., a business within our Industrial Products and Services segment. In February 2010, we completed the sale of P.S.D., Inc. for total consideration of approximately $3.0.

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Joint Venture

        We have a joint venture, EGS Electrical Group, LLC and Subsidiaries ("EGS"), with Emerson Electric Co., in which we hold a 44.5% interest. Emerson Electric Co. controls and operates the joint venture. EGS operates primarily in the United States, Canada and France and is engaged in the manufacture of electrical fittings, hazardous location lighting and power conditioning products. We account for our investment under the equity method of accounting, on a three-month lag basis. We typically receive our share of this joint venture's earnings in cash dividends paid quarterly.

        See Note 9 to our consolidated financial statements for more information on EGS.


International Operations

        We are a multinational corporation with operations in over 35 countries. Our export sales from the United States were $289.6 in 2009, $553.5 in 2008, $332.5 in 2007.

        See Note 5 to our consolidated financial statements for more information on our international operations.


Research and Development

        We are actively engaged in research and development programs designed to improve existing products and manufacturing methods and to develop new products to better serve our current and future customers. These efforts encompass all our products with divisional engineering teams coordinating their resources. We place particular emphasis on the development of new products that are compatible with, and build upon, our manufacturing and marketing capabilities.

        We spent $58.7, $67.2 and $60.4 in 2009, 2008 and 2007, respectively, on research activities relating to the development and improvement of our products.


Patents/Trademarks

        We own over 700 domestic patents and 200 foreign patents, including approximately 30 patents that were issued in 2009, covering a variety of our products and manufacturing methods. We also own a number of registered trademarks. Although in the aggregate our patents and trademarks are of considerable importance in the operation of our business, we do not consider any single patent or trademark to be of such importance that its absence would adversely affect our ability to conduct business as presently constituted to a significant extent. We are both a licensor and licensee of patents. For more information, please refer to "Risk Factors."


Outsourcing and Raw Materials

        We manufacture many of the components used in our products; however, our strategy includes outsourcing some components and sub-assemblies to other companies where strategically and economically beneficial. In instances where we depend on third-party suppliers for outsourced products or components, we are subject to the risk of customer dissatisfaction with the quality or performance of the products we sell due to supplier failure. In addition, business difficulties experienced by a third-party supplier can lead to the interruption of our ability to obtain the outsourced product and ultimately to our inability to supply products to our customers. We believe that we generally will be able to continue to obtain adequate supplies of key products or appropriate substitutes at reasonable costs.

        We are subject to potential increases in the prices of many of our key raw materials, including petroleum-based products, steel and copper. In recent years we have generally been able to offset increases in raw material costs across our segments mainly through effective price increases. Occasionally we are subject to long-term supplier contracts which may increase our exposure to pricing fluctuations.

        Because of our diverse products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the raw materials needed in our operations. We are not significantly dependent on any one or a limited number of suppliers, and we have been able to obtain suitable quantities of necessary raw materials at competitive prices.


Competition

        Although our businesses are 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 as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are price, service,

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product performance and technical innovation. These methods vary with the type of product sold. We believe that we can compete effectively on the basis of each of these factors as they apply to the various products and services offered. See "Segments" above for a discussion of our competitors.


Environmental Matters

        See "MD&A — Critical Accounting Policies and Use of Estimates — Contingent Liabilities," "Risk Factors" and Note 14 to our consolidated financial statements for information regarding environmental matters.


Employment

        At December 31, 2009, we had approximately 15,000 employees. Nine domestic collective bargaining agreements cover approximately 1,000 employees. We also have various collective labor arrangements covering certain non-U.S. employee groups. While we generally have experienced satisfactory labor relations, we are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes.


Executive Officers

        See Part III, Item 10 of this report for information about our executive officers.


Other Matters

        No customer or group of customers that, to our knowledge, are under common control accounted for more than 10% of our consolidated revenues for any period presented.

        Our businesses maintain sufficient levels of working capital to support customer requirements, particularly inventory. We believe that our businesses' sales and payment terms are generally similar to those of our competitors.

        Many of our businesses closely follow changes in the industries and end-markets that they serve. In addition, certain businesses have seasonal fluctuations. Revenues for our Test and Measurement segment primarily follow customer-specified program launch timing for diagnostic systems and service equipment. Demand for products in our Thermal Equipment and Services segment is correlated to contract timing on large construction contracts and is also driven by seasonal weather patterns, both of which may cause significant fluctuations from period to period. Historically, our businesses generally tend to be stronger in the second half of the year.

        Our website address is www.spx.com. Information on our website is not incorporated by reference herein. We file reports with the Securities and Exchange Commission ("SEC"), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports. Copies of these reports are available free of charge on our website as soon as reasonably practicable after we file the reports with the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov. Additionally, you may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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ITEM 1A. Risk Factors

        (All amounts are in millions, except per share data)

        You should consider the risks described below and elsewhere in our documents filed with the SEC before investing in any of our securities. We may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.

Worldwide economic conditions could negatively impact our businesses.

        The general worldwide deterioration of economic conditions and tightening of credit markets which began in 2008 continue to affect many industries, including industries in which we or our customers operate. These conditions could negatively impact our businesses by adversely affecting, among other things, our:

    Revenues;

    Profits;

    Margins;

    Cash flows;

    Suppliers' and distributors' ability to perform and the availability and costs of materials and subcontracted services;

    Customers' orders;

    Order cancellation activity or delays on existing orders;

    Customers' ability to access credit; and

    Customers' ability to pay amounts due to us.

        We cannot predict the duration or severity of these conditions, but, if they worsen or continue for an extended time, the negative impact on our businesses could increase. See MD&A for further discussion of how these conditions have affected our businesses to date and how they may affect it in the future.

Many of the industries in which we operate are cyclical or are subject to industry events, and our results have been and could be affected as a result.

        Many of the business areas in which we operate are subject to general economic cycles or industry events. Certain of our businesses are subject to specific industry cycles or events, including, but not limited to:

    The oil and gas, chemical and petrochemical markets, which influence our Flow Technology segment;

    The electric power and infrastructure markets and events, such as blackouts and brownouts, which influence our Thermal Equipment and Services and Industrial Products and Services segments; and

    The correlation between demand for cooling systems and towers within our Thermal Equipment and Services segment and contract timing on large construction contracts, which could cause significant fluctuations in revenues and profits from period to period.

        Cyclical changes and specific market events could also affect sales of products in our other businesses. The downturns in the business cycles of our different operations may occur at the same time, which could exacerbate any adverse effects on our business. See "MD&A — Segment Results of Operations." In addition, certain of our businesses have seasonal fluctuations. Historically, our businesses generally tend to be stronger in the second half of the year.

Difficulties presented by international economic, political, legal, accounting and business factors could negatively affect our interests and business effort.

        We are an increasingly global company, with a significant portion of our sales taking place outside the United States. In 2009, approximately 53% of our revenues were generated outside the United States, and we expect that over 50% of our revenues will be generated outside the United States in 2010. We have placed a particular emphasis on expanding our presence in developing markets.

        As part of our strategy, we manage businesses with manufacturing facilities worldwide, many of which are located outside the United States.

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        Our reliance on non-U.S. revenues and non-U.S. manufacturing bases exposes us to a number of risks, including:

    Possible significant competition from local or long-time participants in non-U.S. markets who may have significantly greater market knowledge and substantially greater resources than we do;

    Local customers may have a preference for locally-produced products. For example, we continue to face significant competition from local suppliers in China;

    Failure to comply with U.S. or other laws regulating trade, such as the U.S. Foreign Corrupt Practices Act, could result in adverse consequences, including fines, criminal sanctions, or loss of access to markets;

    Regulatory or political systems or barriers may make it difficult or impossible to enter and remain in new markets. In addition, these barriers may impact our existing businesses, including making it more difficult for them to grow;

    Domestic and foreign customs and tariffs may make it difficult or impossible for us to move our products or profits across borders in a cost-effective manner;

    Transportation and shipping expenses add cost to our products. Complications related to shipping, including delays due to weather, labor action, or customs, may impact our profit margins or lead to lost business;

    Credit risk or financial condition of local customers and distributors;

    Nationalization of private enterprises;

    Government embargos or foreign trade restrictions such as anti-dumping duties. Also, the imposition of trade sanctions by the United States or the European Union against a class of products imported by us from, sold by us and exported to, or the loss of "normal trade relations" status with, countries in which we conduct business could significantly increase our cost of products imported into the United States or Europe or reduce our sales and harm our business;

    Environmental and other laws and regulations;

    Our ability to obtain supplies from foreign vendors and ship products internationally may be impaired during times of crisis or otherwise;

    Difficulties in protecting intellectual property;

    Local, regional or worldwide hostilities;

    Distance, language and cultural differences may make it more difficult to manage the business and employees, and to effectively market our products and services;

    Potential imposition of restrictions on investments; and

    Local political, economic and social conditions, including the possibility of hyperinflationary conditions and political instability.

        As an increasing percentage of our products is manufactured in China, South Africa and other developing countries, health conditions and other factors affecting social and economic activity in these countries or affecting the movement of people and products into and from these countries to our major markets, including North America and Europe, could have a significant negative effect on our operations.

        Given the importance of our international sales and sourcing of manufacturing, the occurrence of any risk described above could have a material adverse effect on our financial position, results of operations or cash flows.

Currency conversion risk could have a material impact on our reported results of business operations.

        Our sales are translated into U.S. dollars for reporting purposes. The strengthening or weakening of the U.S. dollar could result in unfavorable translation effects as the results of transactions in foreign countries are translated into U.S. dollars. In addition, sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar. Increased strength of the U.S. dollar will increase the effective price of our products sold in U.S. dollars into other countries, which may have a material adverse effect on sales or require us to lower our prices, and also decrease our reported revenues or margins in respect of sales conducted in foreign currencies to the extent we are unable or determine not to increase local currency prices. Likewise, decreased strength of the U.S. dollar could have a material adverse effect on the cost of materials and products purchased overseas.

8



A portion of our revenues is generated through long-term fixed-price contracts, which entail risks including cost overruns, inflation, delays and credit and other counterparty risks.

        A portion of our revenues and earnings is generated through long-term fixed-price contracts, particularly in our Thermal Equipment and Services segment. We recognize revenues from certain of these contracts using the percentage-of-completion method of accounting whereby revenues and expenses, and thereby profit, in a given period are determined based on our estimates as to the project status and the costs remaining to complete a particular project.

        Estimates of total revenues and cost at completion are subject to many variables, including the length of time to complete a contract. In addition, contract delays may negatively impact these estimates and our revenues and earnings results for affected periods.

        To the extent that we underestimate the remaining cost to complete a project, we may overstate the revenues and profit in a particular period. Further, certain of these contracts provide for penalties or liquidated damages for failure to timely perform our obligations under the contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because some of our long-term contracts are at a fixed price, we face the risk that cost overruns or inflation may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on our projects. Additionally, customers of our long-term contracts may suffer financial difficulties that make them unable to pay for a project when completed or they may decide not to pay us, either as a matter of corporate decision-making or in response to changes in local laws and regulations. We cannot assure you that expenses or losses for uncollectible billings relating to our long-term fixed-price contracts will not have a material adverse effect on our revenues and earnings.

Our indebtedness may affect our business and may restrict our operating flexibility.

        At December 31, 2009, we had $1,279.0 in total indebtedness. On that same date, we had $411.0 of available borrowing capacity under our revolving credit facilities after giving effect to borrowings under our domestic revolving loan facility of $61.5 and to $127.5 reserved for outstanding letters of credit. In addition, we had $216.3 of available issuance capacity under our foreign trade facility after giving effect to $733.7 reserved for outstanding letters of credit. At December 31, 2009, our cash and equivalents balance was $522.9. See MD&A and Note 12 to our consolidated financial statements for further discussion. We may incur additional indebtedness in the future, including indebtedness incurred to finance, or which is assumed in connection with, acquisitions. We may in the future renegotiate or refinance our senior credit facilities, senior notes or other debt facilities, or enter into additional agreements that have different or more stringent terms. The level of our indebtedness could:

    Limit our ability to obtain, or obtain on favorable terms, additional debt financing for working capital, capital expenditures or acquisitions;

    Limit our flexibility in reacting to competitive and other changes in the industry and economic conditions;

    Limit our ability to pay dividends on our common stock;

    Coupled with a substantial decrease in net operating cash flows due to economic developments or adverse developments in our business, make it difficult to meet debt service requirements; and

    Expose us to interest rate fluctuations to the extent existing borrowings are, and any new borrowings may be, at variable rates of interest, which could result in higher interest expense and interest payments in the event of increases in interest rates.

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

        Numerous banks in many countries are syndicate members in our credit facility. Failure of one or more of our larger lenders, or several of our smaller lenders, could reduce availability of our credit, which could harm our liquidity.

9



We may not be able to finance future needs or adapt our business plan to react to changes in economic or business conditions because of restrictions placed on us by our senior credit facilities and any existing or future instruments governing our other indebtedness.

        Our senior credit facilities, the indentures governing our senior notes and agreements governing our other indebtedness contain, or may contain, a number of restrictions and covenants that limit our ability to make distributions or other payments to our investors and creditors unless certain financial tests or other criteria are satisfied. We also must comply with certain specified financial ratios and tests. Our subsidiaries may also be subject to restrictions on their ability to make distributions to us. In addition, our senior credit facilities, indentures governing our senior notes and any other agreements contain or may contain additional affirmative and negative covenants. Existing restrictions are described more fully in the MD&A. Each of these restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions.

        If we do not comply with the covenants and restrictions contained in our senior credit facilities, indentures governing our senior notes and agreements governing our other indebtedness, we could be in default under those agreements, and the debt, together with accrued interest, could then be declared immediately due and payable. If we default under our senior credit facilities, the lenders could cause all our outstanding debt obligations under our senior credit facilities to become due and payable or require us to apply all of our cash to repay the indebtedness we owe. If our debt is accelerated, we may not be able to repay or refinance our debt. Even if we are able to obtain new financing, we may not be able to repay our debt or borrow sufficient funds to refinance it. In addition, any default under our senior credit facilities, indentures governing our senior notes or agreements governing our other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross-acceleration or cross-default provisions. If the indebtedness under our senior credit facilities is accelerated, we may not have sufficient assets to repay amounts due under our senior credit facilities, senior notes or other debt securities then outstanding. Our ability to comply with these provisions of our senior credit facilities, indentures governing our senior notes and agreements governing our other indebtedness will be affected by changes in the economic or business conditions or other events beyond our control. Complying with our covenants may also cause us to take actions that are not favorable to us and may make it more difficult for us to successfully execute our business strategy and compete, including against companies that are not subject to such restrictions.

We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to environmental and other matters.

        We are subject to various laws, ordinances, regulations and other requirements of government authorities in the United States and other nations. With respect to acquisitions, divestitures and continuing operations, we may acquire or retain liabilities of which we are not aware, or of a different character or magnitude than expected. Additionally, changes in laws, ordinances, regulations or other governmental policies may significantly increase our expenses and liabilities.

        We face environmental exposures including, for example, those relating to discharges from and materials handled as part of our operations, the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes, and the health and safety of our employees. We may be liable for the costs of investigation, removal or remediation of hazardous substances or petroleum products on, under, or in our current or formerly owned or leased property, or from a third-party disposal facility that we may have used, without regard to whether we knew of, or caused, the presence of the contaminants. The presence of, or failure to properly remediate, these substances may have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on the ability to sell or rent affected property or to borrow funds using affected property as collateral. New or existing environmental matters or changes in environmental laws or policies could lead to material costs for environmental compliance or cleanup. There can be no assurance that these liabilities and costs will not have a material adverse effect on our financial position, results of operations or cash flows. See Note 14 to our consolidated financial statements for further discussion.

        We face numerous claims, complaints and proceedings. Class actions, derivative lawsuits and contract, intellectual property, competitive, personal injury, product liability, workers' compensation, safety regulatory, and other claims have been filed against us and certain of our subsidiaries and some of these remain pending. From time to time, we face actions by governmental authorities, both in and outside the United States. Additionally, we may become subject to significant claims, of which we are currently unaware, or the claims, of which we are aware, may result in our incurring a significantly greater liability than we anticipate. Our insurance may be insufficient or unavailable to protect us against potential loss exposures. We have increased our self-insurance limits over the past several years, which has increased our uninsured exposure.

        We devote significant time and expense to defense against the various claims, complaints and proceedings brought against us, and we cannot assure that the expenses or distractions from operating our businesses arising from these defenses will not increase materially.

10


        We cannot assure you that our accruals and right to indemnity and insurance will be sufficient, that recoveries from insurance or indemnification claims will be available or that any of our current or future claims or other matters will not have a material adverse effect on our financial position, results of operations or cash flows. See "MD&A — Critical Accounting Policies and Use of Estimates — Contingent Liabilities."

Changes in tax laws and regulations or other factors could cause our income tax rate to increase, potentially reducing our net income and adversely affecting our cash flows.

        As a global manufacturing company, we are subject to taxation in various jurisdictions around the world. In preparing our financial statements, we calculate our effective income tax rate based on current tax laws and regulations and the estimated taxable income within each of these jurisdictions. Our effective income tax rate, however, may be higher due to numerous factors, including changes in tax laws or regulations. An effective income tax rate significantly higher than our expectations could have an adverse effect on our business, results of operations, and liquidity.

        Officials in some of the jurisdictions in which we do business, including the United States, have proposed, or announced that they are reviewing, tax increases and other revenue raising laws and regulations. For example, over the last year, the United States government has proposed several initiatives that would have the effect of increasing U.S. tax rates for companies with unrepatriated foreign earnings. Any resulting changes in tax laws or regulations could impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows.

The price and availability of raw materials may adversely affect our results.

        We are exposed to a variety of market risks, including inflation in the prices and shortages of raw materials. In recent years, we have faced significant volatility in the prices of many of our key raw materials, including petroleum-based products, steel and copper. Increases in the prices of raw materials or shortages or allocations of materials may have a material adverse effect on our financial position, results of operations or cash flows, as we may not be able to pass cost increases on to our customers, or our sales may be reduced. Occasionally we are subject to long-term supplier contracts which may increase our exposure to pricing fluctuations.

Our failure to successfully integrate acquisitions could have a negative effect on our operations; our acquisitions could cause financial difficulties.

        Our acquisitions involve a number of risks and present financial, managerial and operational challenges, including:

    Adverse effects on our reported operating results due to charges to earnings, including impairment charges associated with goodwill and other intangibles;

    Diversion of management attention from running our businesses;

    Integration of technology, operations, personnel and financial and other systems;

    Increased expenses;

    Increased foreign operations, often with unique issues relating to corporate culture, compliance with legal and regulatory requirements and other challenges;

    Assumption of known and unknown liabilities and exposure to litigation;

    Increased levels of debt or dilution to existing shareholders; and

    Potential disputes with the sellers of acquired businesses, technology, services or products.

        In addition, internal controls over financial reporting of acquired companies may not be up to required standards. Issues may exist that could rise to the level of significant deficiencies or, in some cases, material weaknesses, particularly with respect to foreign companies or non-public U.S. companies.

        Our integration activities may place substantial demands on our management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on our reputation and business.

We may not achieve the expected cost savings and other benefits of our acquisitions.

        We strive for and expect to achieve cost savings in connection with our acquisitions, including: (i) manufacturing process and supply chain rationalization; (ii) streamlining redundant administrative overhead and support activities; and (iii) restructuring and repositioning sales and marketing organizations to eliminate redundancies. Cost savings expectations

11



are estimates that are inherently difficult to predict and are necessarily speculative in nature, and we cannot assure you that we will achieve expected, or any, cost savings. In addition, we cannot assure you that unforeseen factors will not offset the estimated cost savings or other benefits from our acquisitions. As a result, anticipated benefits could be delayed, differ significantly from our estimates and the other information contained in this report, or not be realized.

Our failure to successfully complete acquisitions could negatively affect us.

        We may not be able to consummate desired acquisitions, which could materially impact our growth rate, results of operations, future cash flows and stock price. Our ability to achieve our goals depends upon, among other things, our ability to identify and successfully acquire companies, businesses and product lines, to effectively integrate them and to achieve cost effectiveness. We may also be unable to raise any additional funds necessary to consummate these acquisitions. In addition, decreases in our stock price may adversely affect our ability to consummate acquisitions. Competition for acquisitions in our business areas may be significant and result in higher prices for businesses, including businesses that we may target, which may also affect our acquisition rate or benefits achieved from our acquisitions.

We operate in highly competitive industries. Our failure to compete effectively could harm our business.

        We operate in a highly competitive environment, competing on the basis of product offerings, technical capabilities, quality, service and pricing. We have a number of competitors, some of which are large, with substantial technological and financial resources, brand recognition and established relationships with global service providers. Some of our competitors have low cost structures, support from governments in their home countries, or both. In addition, new competitors may enter the industry. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that we cannot or will not match. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, and make more attractive offers to potential customers, employees and strategic partners.

Our strategy to outsource various elements of the products we sell subjects us to the business risks of our suppliers, which could have a material adverse impact on our operations.

        In areas where we depend on third-party suppliers for outsourced products or components, we are subject to the risk of customer dissatisfaction with the quality or performance of the products we sell due to supplier failure. In addition, business difficulties experienced by a third-party supplier can lead to the interruption of our ability to obtain the outsourced product and ultimately our inability to supply products to our customers. Third-party supplier business interruptions can include, but are not limited to, work stoppages and union negotiations and other labor disputes. Current economic conditions could impact the ability of suppliers to access credit and, thus, impair their ability to provide us quality product in a timely manner, or at all.

Changes in key estimates and assumptions, such as discount rates, assumed long-term return on assets, assumed long-term trends of future cost, and accounting and legislative changes as well as actual investment returns on our pension plan assets and other actuarial factors, could affect our results of operations and cash flows.

        We have defined benefit pension and postretirement plans, including both qualified and non-qualified plans, that cover a portion of our salaried and hourly employees and retirees including a portion of our employees and retirees in foreign countries. As of December 31, 2009, these plans were underfunded by $594.0. The determination of funding requirements and pension expense or income associated with these plans involves significant judgment, particularly with respect to discount rates, long-term returns on assets, long-term trends of future costs and other actuarial assumptions. If our assumptions change significantly due to changes in economic, legislative and/or demographic experience or circumstances, our pension and other benefit plans' expense, funded status and our cash contributions to such plans could be negatively impacted. In addition, the difference between our actual investment returns and our long-term return on assets assumptions could result in a change to our pension plans' expense, funded status and our required contributions to the plans. Changes in regulations or law could also significantly impact our obligations. For example, See "MD&A — Critical Accounting Policies and Use of Estimates" for the impact that changes in certain assumptions used in the calculation of our costs and obligations associated with these plans could have on our results of operations and financial position.

Dispositions or our failure to successfully complete dispositions could negatively affect us.

        Our dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the

12



disposed businesses and a potential dilutive effect on our earnings per share. If dispositions are not completed in a timely manner there may be a negative effect on our cash flows and/or our ability to execute our strategy. See "Business", "MD&A — Results of Discontinued Operations", and Note 4 to our consolidated financial statements for the status of our divestitures.

Increases in the number of shares of our outstanding common stock could adversely affect our common stock price or dilute our earnings per share.

        Sales of a substantial number of shares of common stock into the public market, or the perception that these sales could occur, could have a material adverse effect on our stock price. As of December 31, 2009, approximately 0.881 shares of our common stock were issuable upon exercise of outstanding stock options by employees and non-employee directors and we had the ability to issue up to an additional 5.555 shares as restricted stock, restricted stock units, or stock options under our 2002 Stock Compensation Plan, as amended in 2006. Additionally, we may issue a significant number of additional shares, in connection with acquisitions or otherwise. We also have a shelf registration statement for 8.3 shares of common stock that may be issued in connection with acquisitions. Additional shares issued will have a dilutive effect on our earnings per share.

The loss of key personnel and any inability to attract and retain qualified employees could have a material adverse effect on our operations.

        We are dependent on the continued services of our leadership team. The loss of these personnel without adequate replacement could have a material adverse effect on our operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience in many locations, in order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we were unable to attract and retain sufficient numbers of qualified individuals or our costs to do so were to increase significantly, our operations could be materially adversely affected.

Cost reduction actions may affect our business.

        Cost reduction actions often result in charges against earnings. We expect to take charges against earnings in 2010 in connection with implementing additional cost reduction actions at certain of our businesses. These charges can vary significantly from period to period and, as a result, we may experience fluctuations in our reported net income and earnings per share due to the timing of restructuring actions, which in turn can have a material adverse effect on our financial position, results of operations or cash flows.

If the fair value of any of our reporting units is insufficient to recover the carrying value of the goodwill and other intangibles of the respective reporting unit, a material non-cash charge to earnings could result.

        At December 31, 2009, we had goodwill and other intangible assets, net of $2,308.3. We conduct annual impairment testing to determine if we will be able to recover all or a portion of the carrying value of goodwill and indefinite-lived intangibles. In addition, we review goodwill and indefinite-lived intangible assets for impairment more frequently if impairment indicators arise. If the fair value is insufficient to recover the carrying value of our goodwill and indefinite-lived intangibles, we may be required to record a material non-cash charge to earnings.

        The fair values of our reporting units generally are based on discounted cash flow projections that are believed to be reasonable under current and forecasted circumstances, the results of which form the basis for making judgments about carrying values of the reported net assets of our reporting units. Other considerations are also incorporated, including comparable industry price multiples. Many of our businesses closely follow changes in the industries and end-markets that they serve. Accordingly, we consider estimates and judgments that affect the future cash flow projections, including principal methods of competition such as volume, price, service, product performance and technical innovations and estimates associated with cost improvement initiatives, capacity utilization, and assumptions for inflation and foreign currency changes. We monitor impairment indicators across all of our businesses. Significant changes in market conditions and estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give, and have given, rise to impairments in the period that the change becomes known.

We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.

        At December 31, 2009, we had approximately 15,000 employees. Nine domestic collective bargaining agreements cover approximately 1,000 employees. We also have various collective labor arrangements covering certain non-U.S. employee groups. We are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes. Further, we may be subject to work stoppages, which are beyond our control, at our suppliers or customers.

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We could be affected by laws or regulations enacted in response to concerns regarding climate change.

        Changes in laws or regulations enacted in response to concerns over potential climate change could increase our costs or impact markets for our products. However, we cannot currently estimate the effects, if any, of changes in climate change-related laws or regulations on our business.

Our technology is important to our success, and failure to develop new products may result in a significant competitive disadvantage.

        We believe that the development and protection of our intellectual property rights is critical to the success of our business. In order to maintain our market positions and margins, we need to continually develop and introduce high quality, technologically advanced and cost effective products on a timely basis, in many cases in multiple jurisdictions around the world. The failure to do so could result in a significant competitive disadvantage.

        Additionally, despite our efforts to protect our proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. The steps we have taken may not prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Expenses in connection with defending our rights may be material.

If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.

        We are increasingly dependent on information technology networks and systems, including the Internet, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for electronic communications among our locations around the world and between our personnel and suppliers and customers. Security breaches of this infrastructure can create system disruptions, shutdowns or unauthorized disclosure of confidential information. If we are unable to prevent such breaches, our operations could be disrupted or we may suffer financial damage or loss because of lost or misappropriated information.

Our current and planned products may contain defects or errors that are detected only after delivery to customers. If that occurs, our reputation may be harmed and we may face additional costs.

        We cannot assure you that our product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us with regard to our products. As a result, we may have, and from time to time have had, to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by our customers or our customers' end users and other losses to us or to our customers or end users, and could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.

Provisions in our corporate documents and Delaware law may delay or prevent a change in control of our company, and accordingly, we may not consummate a transaction that our shareholders consider favorable.

        Provisions of our Certificate of Incorporation and By-laws may inhibit changes in control of our company not approved by our Board. These provisions include, for example: a staggered board of directors; a prohibition on shareholder action by written consent; a requirement that special shareholder meetings be called only by our Chairman, President or Board; advance notice requirements for shareholder proposals and nominations; limitations on shareholders' ability to amend, alter or repeal the By-laws; enhanced voting requirements for certain business combinations involving substantial shareholders; the authority of our Board to issue, without shareholder approval, preferred stock with terms determined in its discretion; and limitations on shareholders ability to remove directors. In addition, we are afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects. In general, Section 203 prohibits us from engaging in a "business combination" with an "interested shareholder" (each as defined in Section 203) for at least three years after the time the person became an interested shareholder unless certain conditions are met. These protective provisions could result in our not consummating a transaction that our shareholders consider favorable or discourage entities from attempting to acquire us, potentially at a significant premium to our then-existing stock price.

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ITEM 1B. Unresolved Staff Comments

        Not applicable.


ITEM 2. Properties

        The following is a summary of our principal properties, as of December 31, 2009, classified by segment:

 
   
   
  Approximate Square Footage  
 
   
  No. of
Facilities
 
 
  Location   Owned   Leased  
 
   
   
  (in millions)
 

Flow Technology

  9 states and 27 foreign countries     66     2.1     1.5  

Test and Measurement

  7 states and 5 foreign countries     28     0.6     1.0  

Thermal Equipment and Services

  10 states and 8 foreign countries     33     4.2     3.2  

Industrial Products and Services

  13 states and 5 foreign countries     28     1.3     0.6  
                   

Total

        155     8.2     6.3  
                   

        In addition to manufacturing plants, we lease our corporate office in Charlotte, NC, our Asia Pacific center in Shanghai, China, and various sales, service and other locations throughout the world. We consider these properties, as well as the related machinery and equipment, to be well maintained and suitable and adequate for their intended purposes.


ITEM 3. Legal Proceedings

(All amounts are in millions)

        We are subject to legal proceedings and claims that arise in the normal course of business. In our opinion, these matters are either without merit or of a kind that should not have a material adverse effect individually or in the aggregate on our financial position, results of operations, or cash flows. However, we cannot assure you that these proceedings or claims will not have a material adverse effect on our financial position, results of operations, or cash flows.

        See "Risk Factors," "MD&A — Critical Accounting Policies and Estimates — Contingent Liabilities," and Note 14 to our consolidated financial statements for further discussion of legal proceedings.


ITEM 4. Submission Of Matters To A Vote Of Security Holders

        Not applicable.

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ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock is traded on the New York Stock Exchange under the symbol "SPW."

        Set forth below are the high and low sales prices for our common stock as reported on the New York Stock Exchange composite transaction reporting system for each quarterly period during the years 2009 and 2008, together with dividend information.

 
  High   Low   Dividends
per Share
 

2009

                   
 

4th Quarter

  $ 61.94   $ 52.78   $ 0.25  
 

3rd Quarter

    64.72     46.86     0.25  
 

2nd Quarter

    53.63     41.20     0.25  
 

1st Quarter

    52.67     38.75     0.25  

 

 
  High   Low   Dividends
per Share
 

2008

                   
 

4th Quarter

  $ 77.00   $ 26.32   $ 0.25  
 

3rd Quarter

    133.52     81.97     0.25  
 

2nd Quarter

    139.72     104.55     0.25  
 

1st Quarter

    114.04     92.03     0.25  

        The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date is subject to the discretion of the Board of Directors, and the target dividend level may be adjusted during the year at the discretion of the Board of Directors. The factors the Board of Directors consider in determining the actual amount of each quarterly dividend includes our financial performance and on-going capital needs, our ability to declare and pay dividends under the terms of our credit facilities and any other debt instruments, and other factors deemed relevant.

        There were no repurchases of common stock during the three months ended December 31, 2009. The approximate number of shareholders of record of our common stock as of February 22, 2010 was 4,019.

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Company Performance

        This graph shows a five year comparison of cumulative total returns for SPX, the S&P Composite Index and the S&P Capital Goods Index. The graph assumes an initial investment of $100 on December 31, 2004 and the reinvestment of dividends.

GRAPHIC

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ITEM 6. Selected Financial Data

 
  As of and for the year ended December 31,  
 
  2009   2008   2007   2006   2005  
 
  (In millions, except per share amounts)
 

Summary of Operations

                               

Revenues(1)(2)

  $ 4,850.8   $ 5,837.6   $ 4,542.2   $ 3,925.6   $ 3,493.5  

Operating income(2)(3)

    170.3     472.1     408.4     300.1     246.0  

Other expense, net(4)

    (19.7 )   (1.2 )   (2.3 )   (26.5 )   (17.0 )

Interest expense, net(5)

    (84.6 )   (105.1 )   (71.1 )   (50.2 )   (163.9 )

Equity earnings in joint ventures

    29.4     45.5     39.9     40.8     23.5  
                       

Income from continuing operations before income taxes

    95.4     411.3     374.9     264.2     88.6  

Provision for income taxes(6)

    (47.2 )   (152.4 )   (83.5 )   (51.0 )   (64.9 )
                       

Income from continuing operations

    48.2     258.9     291.4     213.2     23.7  

Income (loss) from discontinued operations, net of tax

    (32.0 )   13.9     4.7     (41.8 )   1,066.3  
                       

Net income

    16.2     272.8     296.1     171.4     1,090.0  

Less: Net income (loss) attributable to noncontrolling interests

    (15.5 )   24.9     1.9     0.7      
                       

Net income attributable to SPX Corporation common shareholders

  $ 31.7   $ 247.9   $ 294.2   $ 170.7   $ 1,090.0  
                       

Basic income per share of common stock:

                               
 

Income from continuing operations

  $ 0.94   $ 4.71   $ 5.25   $ 3.64   $ 0.33  
 

Income (loss) from discontinued operations

    (0.30 )   (0.08 )   0.06     (0.73 )   14.92  
                       
 

Net income per share

  $ 0.64   $ 4.63   $ 5.31   $ 2.91   $ 15.25  
                       

Diluted income (loss) per share of common stock:

                               
 

Income from continuing operations

  $ 0.93   $ 4.64   $ 5.16   $ 3.57   $ 0.33  
 

Income (loss) from discontinued operations

    (0.29 )   (0.08 )   0.05     (0.72 )   14.74  
                       
 

Net income per share

  $ 0.64   $ 4.56   $ 5.21   $ 2.85   $ 15.07  
                       
 

Dividends declared per share

  $ 1.00   $ 1.00   $ 1.00   $ 1.00   $ 1.00  

Other financial data:

                               
 

Total assets

  $ 5,724.4   $ 6,138.1   $ 6,237.4   $ 5,437.1   $ 5,306.4  
 

Total debt

    1,279.0     1,344.7     1,567.8     962.5     780.7  
 

Other long-term obligations

    1,055.0     912.9     813.3     831.5     986.4  
 

SPX shareholders' equity

    1,890.8     2,010.8     2,006.0     2,109.4     2,111.2  
 

Noncontrolling interests

    10.7     34.0     10.4     3.5     1.9  
 

Capital expenditures

    92.8     116.4     82.6     49.1     37.8  
 

Depreciation and amortization

    105.9     104.5     73.4     67.6     61.6  

(1)
On December 31, 2007, we completed the acquisition of APV within our Flow Technology segment. Revenues for APV in 2007, 2006, and 2005, which are not included above, totaled approximately $876.0, $753.0, and $653.0, respectively.

(2)
During 2009, operating income was reduced by $9.5 related to the settlement of two product liability matters.

During 2007, an internal audit of an operation in Japan uncovered employee misconduct and improper accounting entries. Correction of these matters resulted in a charge of $7.4 during 2007, with a reduction of $2.3 to revenues, $4.5 recorded to cost of products sold and $0.6 recorded to selling, general and administrative expense. See Note 1 to our consolidated financial statements for further information.

During 2007, we recorded charges related to the settlement of a legacy product liability matter within our Industrial Products and Services segment of $8.5. We also recorded a benefit of $5.0 during 2007 within our Thermal Equipment and Services segment as a result of cost improvements associated with a state-approved environmental remediation plan at a site in California.

(3)
In 2009, 2008, 2007, 2006 and 2005, we incurred net special charges of $73.1, $17.2, $5.2, $3.8 and $7.4, respectively, associated with restructuring initiatives to consolidate manufacturing and other facilities, as well as asset impairments. In 2005, these charges were net of a credit of $7.9 relating to a gain on the sale of land in Milpitas, CA, resulting in the finalization of a previously initiated restructuring action. See Note 6 to our consolidated financial statements for further details.

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    In 2009, we recorded a charge of $187.7 related to the impairment of goodwill and $1.0 related to the impairment of other intangible assets for our Service Solutions reporting unit. Additionally, we recorded a charge of $6.1 related to the impairment of trademarks at one of our Thermal Equipment and Services businesses.

    In 2008, we recorded $123.0 of charges related to the impairment of goodwill $(114.1) and other intangible assets $(8.9) for our Weil McLain subsidiary.

    In 2007, we recorded charges of $5.0 within corporate expense related to legacy legal matters.

    In 2007, we recorded an impairment charge of $4.0 associated with other intangible assets held by a business within our Thermal Equipment and Services segment.

    See Note 8 to our consolidated financial statements for further discussion of impairment charges associated with goodwill and intangible assets.

(4)
In 2008, we recorded a charge of $9.5 relating to the settlement of a lawsuit arising out of a 1997 business disposition. In 2006, we recorded a charge of $20.0 relating to the settlement of a lawsuit with VSI Holdings, Inc.

(5)
Interest expense, net included losses on early extinguishment of debt of $3.3 in 2007 and $113.6 in 2005.

(6)
During 2009, we recorded income tax benefit of $4.9 associated with the loss on an investment in a foreign subsidiary. In addition, we recorded income tax benefits of $7.9 during 2009 related to a reduction in liabilities for uncertain tax positions associated with statute expirations and audit settlements in certain tax jurisdictions. Lastly, the tax benefit associated with the aggregate impairment charges of $194.8 noted above was only $25.6.

During 2008, we recorded an income tax benefit of $25.6 associated with the audit settlement of our federal income tax returns for 2003 through 2005. In addition, the tax benefit associated with the $123.0 of impairment charges was only $3.6.

During 2007, in connection with the resolution of certain matters related to our federal income tax returns for the years 1995 through 2002, we recorded an income tax benefit of $16.8. In addition, during 2007, we recorded an income tax benefit of $11.5 associated with a reduction in the statutory tax rates in Germany and the United Kingdom. Lastly, during 2007, we recorded an income tax benefit of $3.5 associated with the settlement of certain income tax matters in the United Kingdom, a $4.9 benefit for the reduction of taxes accrued in prior years, and a $3.7 refund in China related to an earnings reinvestment plan.

During 2006, we recorded an income tax benefit of $34.7 principally associated with the settlement of certain matters relating to our 1998 to 2002 Federal income tax returns.


ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

(All dollar and share amounts are in millions)

        The following should be read in conjunction with our consolidated financial statements and the related notes.

Executive Overview

        Unlike 2008, when our annual financial performance was among the best in the history of the company, our 2009 financial performance was severely challenged by the global economic recession. Specifically, revenues for 2009 were down 16.9%, with three of our four segments experiencing a double-digit decline in organic revenue. The decrease in revenue resulted in a significant reduction in operating income during 2009; an overall decrease of $301.8, or 63.9%. Operating income for 2009 also was negatively impacted by incremental impairment charges for goodwill and other intangible assets, primarily associated with an impairment charge of $187.7 related to the goodwill at our Service Solutions reporting unit, and incremental special charges of $55.9, with the majority of such charges related to the integration efforts at APV and initiatives to reduce our global cost structure in response to the recent decline in revenues. Despite the decline in revenues and operating income, cash flows from continuing operations increased by $54.6, or 13.4%, during 2009 as we converted the strong operating earnings from the fourth quarter of 2008 into cash in 2009 and were able to make other reductions in working capital.

        We believe there have been some recent indications of a global economic recovery. However, we remain cautious with regard to our 2010 financial performance, as many of our businesses are mid-to-late-cycle in nature and, thus, we believe that our recovery will lag the broader economy. Although our 2009 performance was disappointing and we are not expecting an improvement in our financial performance during 2010, particularly during the first half of the year, we continued to effect our overall strategy that we believe positions us for long-term success.

19


        Other matters of note, including significant items that impacted our 2009 financial performance, are as follows:

    Significant Items that Impacted 2009 Financial Results

        Acquisitions — In December 2009, in the Thermal Equipment and Services segment, our SPX Heat Transfer Inc. subsidiary completed the acquisition of substantially all the assets and certain liabilities of Yuba, a leading global supplier of heat transfer equipment utilized by nuclear, solar, geothermal, gas and coal power generation facilities, for a purchase price of $129.2.

    Dispositions and Discontinued Operations:

    In Q1 2009, we sold our Dezurik business unit for total consideration of $23.5, including $18.8 in cash and a promissory note of $4.7, resulting in a loss, net of taxes, of $1.6 during 2009.

    In October 2009, we sold our Filtran business unit for total consideration of $15.0, including $10.0 in cash.

    During the second quarter of 2009, we committed to a plan to divest P.S.D., Inc., a business within our Industrial Products and Services segment. As a result of this planned divestiture, we recorded a net charge of $7.3 in 2009 to "Gain (loss) on disposition of discontinued operations, net of tax" in order to reduce the carrying value of the net assets to be sold to their estimated net realizable value. In February 2010, we completed the sale of P.S.D., Inc. for total consideration of approximately $3.0.

        Common Stock Repurchases — During 2009, we repurchased 2.625 shares of our common stock, pursuant to a written trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934, for total cash consideration of $113.2.

        Income Taxes — During 2009, we recorded an income tax benefit of $4.9 associated with the loss on an investment in a foreign subsidiary. In addition, we recorded tax benefits of $18.0 during 2009 related to a reduction in liabilities for uncertain tax positions associated with statute expirations and audit settlements in certain tax jurisdictions, with $7.9 attributable to continuing operations and the remainder with discontinued operations.

    Other Items of Note

    Globalization:

    Over 50% of our 2009 revenues were generated outside North America, compared to only 30% in 2004.

    In developing regions, our revenues have grown from $425.0 in 2004 to $1,045.0 in 2009.

    In South Africa, we are working on two long-term projects (Kusile and Medupi) that generated revenues of approximately $93.0 in 2009 and represent approximately $805.0 of our backlog as of December 31, 2009.

    In 2009, we entered into a new strategic joint venture with Thermax Limited to market certain of our thermal components to India's rapidly growing power sector and selected regions in Southeast Asia.

    Continued Migration to Regional Support Centers:

    In 2007, we opened our Asia Pacific center in Shanghai, China. The center is the focal point for global research and development, training, customer service, and financial support services to our businesses in Asia Pacific.

    Our next stage of development in China is a centralized manufacturing center.

    In Europe, we are in the initial stages of centralizing key financial and human resource services in Manchester, United Kingdom.

    Liquidity:

    Inclusive of cash on hand and committed credit lines, our available liquidity was approaching $1,000.0 at December 31, 2009.

    Scheduled debt payments for 2010 under our senior credit facilities and senior notes are $75.0.

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Results of Continuing Operations

        Seasonality and Competition — Many of our businesses follow changes in the industries and end markets that they serve. In addition, certain businesses have seasonal fluctuations. Our heating and ventilation products businesses tend to be stronger during the third and fourth quarters, as customer buying habits are driven largely by seasonal weather patterns. Demand for cooling towers and related services is highly correlated to contract timing on large construction contracts, which may cause significant fluctuations from period to period. Revenues for our Service Solutions business typically follow program launch timing for diagnostic systems and service equipment. In aggregate, our businesses generally tend to be stronger in the second half of the year.

        Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since 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 price, service, product performance and technical innovations. These methods vary with the type of product sold. We believe we can compete effectively on the basis of each of these factors as they apply to the various products and services we offer. See "Business — Segments" for a discussion of our competitors.

        Non-GAAP Measures — Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions and divestitures. We believe that this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as when read in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered a substitute for revenue growth (decline) as determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.

        The following table provides selected financial information for the years ended December 31, 2009, 2008 and 2007, including the reconciliation of organic revenue growth (decline) to net revenue growth (decline), as defined herein:

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Revenues

  $ 4,850.8   $ 5,837.6   $ 4,542.2     (16.9 )   28.5  

Gross profit

    1,421.0     1,768.3     1,319.9     (19.6 )   34.0  
 

% of revenues

    29.3 %   30.3 %   29.1 %            

Selling, general and administrative expense

    961.3     1,130.3     884.5     (15.0 )   27.8  
 

% of revenues

    19.8 %   19.4 %   19.5 %            

Intangible amortization

    21.5     25.7     17.8     (16.3 )   44.4  

Impairment of goodwill and other intangible assets

    194.8     123.0     4.0     *     *  

Special charges, net

    73.1     17.2     5.2     *     *  

Other expense, net

    (19.7 )   (1.2 )   (2.3 )   1,541.7     (47.8 )

Interest expense, net

    (84.6 )   (105.1 )   (67.8 )   (19.5 )   55.0  

Loss on early extinguishment of debt

            (3.3 )        

Equity earnings in joint ventures

    29.4     45.5     39.9     (35.4 )   14.0  

Income from continuing operations before income taxes

    95.4     411.3     374.9     (76.8 )   9.7  

Income tax provision

    (47.2 )   (152.4 )   (83.5 )   (69.0 )   82.5  

Income from continuing operations

    48.2     258.9     291.4     (81.4 )   (11.2 )

Components of consolidated revenue growth:

                               
 

Organic growth (decline)

                      (14.5 )   6.6  
 

Foreign currency

                      (2.6 )   1.5  
 

Acquisitions, net

                      0.2     20.4  
                             
 

Net revenue growth (decline)

                      (16.9 )   28.5  

*
Not meaningful for comparison purposes.

21


        Revenues — For 2009, the decrease in revenues was the result of organic revenue declines and a stronger U.S. dollar against most foreign currencies (e.g., the Euro and British Pound) in 2009 when compared to 2008. The decline in organic revenue was directly attributable to the substantial changes in the global economic environment, which have significantly impacted many of the end markets in which we participate, with the most significant impact on our automotive, food and beverage, general industrial, power transformers, and solar power product lines.

        For 2008, the increase in revenues was driven primarily by the fourth quarter 2007 acquisition of APV by our Flow Technology segment and the acquisitions of a division of Johnson Controls ("JCD") and Matra-Werke GmbH ("Matra") by our Test and Measurement segment during the third and fourth quarters of 2007, respectively. Additionally, we experienced strong demand for 1) power transformers, crystal growing machines for the solar power market, and television and radio broadcast antenna systems within our Industrial Products and Services segment, 2) products sold in the power, oil and gas, and food and beverage markets serviced by businesses within our Flow Technology segment, and 3) cooling systems and products and thermal services and equipment within our Thermal Equipment and Services segment. Revenues for 2008 also benefited from the favorable impact of foreign currencies (i.e., relative weakening during the first half of 2008 of the U.S. dollar against many foreign currencies, primarily the Euro), partially offset by declines in organic revenue in our Test and Measurement segment due to the difficult conditions that existed within the domestic automotive market.

        Gross Profit — The decrease in gross profit for 2009 (compared to 2008) was due primarily to the revenue performance described above. Gross profit as a percentage of revenues for 2009 was impacted negatively by:

    Unfavorable project mix at the cooling systems and products and thermal services and equipment businesses within our Thermal Equipment and Services segment;

    Lower absorption of fixed costs due to the declines in revenue;

    A decrease in sales prices for power transformers due to the recent decline in demand; and

    Charges of $9.5 related to the settlement of two product liability matters.

        The decline in gross profit as a percentage of revenues for 2009 (compared to 2008) was offset partially by an increase in gross profit at APV as a result of cost reductions associated with integration efforts and improved project execution. In addition, APV's gross profit for the first quarter of 2008 included an incremental charge of $7.5 for the excess fair value (over historical value) of inventory acquired in the APV transaction that was subsequently sold in the first quarter of 2008.

        The increase in gross profit in 2008 (compared to 2007) was due primarily to the revenue performance described above. The following items favorably impacted gross profit as a percentage of revenues in 2008 when compared to 2007:

    Improved pricing, favorable product mix and productivity associated with the power transformer business within our Industrial Products and Services segment;

    Improved execution and favorable project mix at the cooling systems and products business within our Thermal Equipment and Services segment;

    Improved pricing and lean manufacturing initiatives within the Flow Technology segment; and

    Leverage on the organic revenue growth noted above.

        These increases in gross profit were offset partially by the incremental charge of $7.5 at APV mentioned above.

        Selling, General and Administrative ("SG&A") Expense — For 2009, the decrease in SG&A expense of $169.0 was due primarily to:

    A decrease in variable (e.g., commissions and incentive compensation) and discretionary (e.g., travel, promotions, and professional fees) expenses as a result of a decline in revenues and profitability;

    Cost reductions associated with integration efforts at APV and restructuring initiatives at a number of our businesses, including Service Solutions;

    A lower amount of stock compensation expense attributable to a lower fair value for the 2009 stock compensation awards resulting from a decline in our share price; and

    A stronger U.S. dollar against most foreign currencies in 2009 when compared to 2008, which resulted in a decrease in SG&A of approximately $30.0.

22


        For 2008, the increase in SG&A expense of $245.8 was due primarily to incremental costs associated with the acquisitions of APV, JCD and Matra, additional costs in support of organic revenue growth, the impact of foreign currency exchange rates, and increased corporate expense. The change in foreign currency exchange rates in comparison to the U.S. dollar resulted in an increase in SG&A during 2008 of approximately $11.0. The increase in corporate expense resulted primarily from the following:

    Additional salaries and incentive compensation relating to headcount increases in support of certain key operating initiatives;

    Higher professional fees associated with various income tax related projects; and

    Costs associated with the settlement of a legacy legal matter.

        Intangible Amortization — For 2009, the decrease in intangible amortization, as compared to 2008, was due to the stronger U.S. dollar in 2009 and certain intangible assets becoming fully amortized in 2008. The increase in intangible amortization in 2008, as compared to 2007, was due primarily to the impact of amortization of intangibles associated with the acquisition of APV.

        Impairment of Goodwill and Other Intangible Assets — In connection with our annual 2009 impairment testing of goodwill and other indefinite-lived intangible assets, we determined that the fair value of our Service Solutions reporting unit was less than the carrying value of its net assets. As a result of this determination, we recorded an impairment charge of $187.7 to reduce the goodwill of the reporting unit to its implied fair value. We also recorded an additional impairment charge of $1.0 relating to certain intangible assets at our Service Solutions reporting unit. Lastly, we recorded an impairment charge of $6.1 related to trademarks at one of our Thermal Equipment and Services businesses. See Note 8 to our consolidated financial statements for further discussion.

        In connection with our 2008 impairment testing of goodwill and other indefinite-lived intangibles, we determined that the fair value of our Weil McLain subsidiary was less than the carrying value of its net assets. As a result, we recorded $123.0 of charges related to the impairment of goodwill $(114.1) and other intangible assets $(8.9). See Note 8 to our consolidated financial statements for further discussion.

        Special Charges, Net — Special charges related primarily to restructuring initiatives to consolidate manufacturing, distribution, sales and administrative facilities, reduce workforce and rationalize certain product lines. See Note 6 to our consolidated financial statements for the details of actions taken in 2009, 2008 and 2007. The components of special charges, net, follow:

 
  2009   2008   2007  

Employee termination costs

  $ 48.0   $ 5.5   $ 2.8  

Facility consolidation costs

    5.6     2.5     0.3  

Other cash costs

    8.4     4.9     1.3  

Non-cash asset write-downs

    11.1     4.3     0.8  
               

Total special charges, net

  $ 73.1   $ 17.2   $ 5.2  
               

        Other Expense, Net — For 2009, other expense, net, was composed primarily of foreign currency transaction losses of $13.3 and a net charge associated with the net decline in fair value of our foreign exchange ("FX") forward contracts and FX embedded derivatives of $7.7 (see Note 13 to our consolidated financial statements), partially offset by a $1.4 gain associated with the final settlement of a product line sale that occurred in 2006.

        For 2008, other expense, net, was composed primarily of a charge of $9.5 relating to the settlement of a lawsuit arising out of a 1997 business disposition, partially offset by the impact of a net increase in the fair value of our foreign exchange forward contracts and FX embedded derivatives of $4.5 and foreign currency transaction gains of $1.2.

        For 2007, other expense, net, was composed primarily of foreign currency transaction losses of $8.9, partially offset by the impact of a net increase in the fair value of our foreign exchange forward contracts and FX embedded derivatives of $6.2 and $1.1 of life insurance death benefits that were received during 2007.

        Interest Expense, Net — Interest expense, net, includes both interest expense and interest income. The decrease in interest expense, net, for 2009 was the result of lower average debt balances and a lower average interest rate on the variable rate portion of our senior credit facilities. The increase in interest expense, net, during 2008 was the result of higher average debt

23


balances. The average debt balances in 2008 were higher than 2007 primarily as a result of the issuance of the $500.0 of 7.625% senior unsecured notes in December 2007, the proceeds of which were used primarily to fund the APV acquisition.

        Loss on Early Extinguishment of Debt — During 2007, we incurred $3.3 of costs in connection with the termination of our then-existing senior credit facilities (see Note 12 to our consolidated financial statements), including $2.3 for the write-off of deferred financing costs, $0.2 for an early termination fee and $0.8 for costs associated with the early termination of our then-existing interest rate protection agreements.

        Equity Earnings in Joint Ventures — Our equity earnings in joint ventures are attributable primarily to our investment in EGS, as earnings from this investment totaled $28.0, $43.7, and $39.3 in 2009, 2008 and 2007, respectively. The decline in operational performance at our EGS joint venture was primarily attributable to the challenging global economic environment.

        Income Taxes — For 2009, we recorded an income tax provision of $47.2 on $95.4 of pre-tax income from continuing operations, resulting in an effective tax rate of 49.5%. The effective tax rate for 2009 was negatively impacted by the impairment charges of $194.8 (see above), which generated an income tax benefit of only $25.6. The increase in the 2009 effective tax rate was offset partially by an income tax benefit of $4.9 associated with the loss on an investment in a foreign subsidiary. In addition, we recorded tax benefits of $7.9 during 2009 related to a reduction in liabilities for uncertain tax positions associated with statute expirations and audit settlements in certain tax jurisdictions.

        For 2008, we recorded an income tax provision of $152.4 on $411.3 of pre-tax income from continuing operations, resulting in an effective tax rate of 37.1%. The effective tax rate for 2008 was negatively impacted by the impairment charges of $123.0 (see above), which generated an income tax benefit of only $3.6. The increase in the 2008 effective tax rate was offset partially by a tax benefit of $25.6 that was recorded in connection with the finalization of the audits of our 2003 through 2005 federal income tax returns.

        For 2007, we recorded an income tax provision of $83.5 on $374.9 of pre-tax income from continuing operations, resulting in an effective rate of 22.3%. The 2007 effective tax rate was favorably impacted by several items. The primary sources of benefit were: a $16.8 benefit related to the settlement of the 1995 to 2002 Federal income tax returns; an $11.5 benefit related to the reduction in the statutory tax rates in Germany and the United Kingdom; a $3.5 benefit associated with settlement of certain income tax return matters in the United Kingdom; a $4.9 benefit for the reduction of taxes accrued in prior years; and a $3.7 reinvestment credit in China.


Results of Discontinued Operations

        For 2009, 2008 and 2007, income (loss) from discontinued operations and the related income taxes are shown below:

 
  Year ended December 31,  
 
  2009   2008   2007  

Income (loss) from discontinued operations

  $ (53.0 ) $ 24.7   $ (20.6 )

Income tax (provision) benefit

    21.0     (10.8 )   25.3  
               
 

Income (loss) from discontinued operations, net

  $ (32.0 ) $ 13.9   $ 4.7  
               

        For 2009, 2008 and 2007, results of operations from our businesses reported as discontinued operations were as follows:

 
  Year ended December 31,  
 
  2009   2008   2007  

Revenues

  $ 85.1   $ 306.4   $ 575.9  

Pre-tax income (loss)

    (4.0 )   12.2     16.0  

Discontinued Operations

        We report businesses or asset groups as discontinued operations when, among other things, we commit to a plan to divest the business or asset group, actively begin marketing the business or asset group, and when the sale of the business or asset

24



group is deemed probable within the next 12 months. The following businesses, which have been sold, met these requirements and therefore have been reported as discontinued operations for the periods presented.

Business
  Quarter
Discontinued
  Actual Closing
Quarter of Sale
 

Automotive Filtration Solutions business ("Filtran")

    Q4 2008     Q4 2009  

Dezurik

    Q3 2008     Q1 2009  

Scales and Counting Systems business ("Scales")

    Q3 2008     Q4 2008  

Vibration Testing and Data Acquisition Equipment business ("LDS")

    Q1 2008     Q4 2008  

Air Filtration

    Q3 2007     Q3 2008  

Balcke-Duerr Austria GmbH ("BD Austria")

    Q4 2007     Q4 2007  

Nema AirFin GmbH ("Nema")

    Q4 2007     Q4 2007  

Contech ("Contech")

    Q3 2006     Q2 2007  

        Filtran — Our original plan for disposition contemplated the buyout of the minority interest shareholder in order to allow us to sell 100% of the Filtran business. As a result of this planned divestiture, and in consideration of the contemplated buyout of the minority interest shareholder, we recorded a total impairment charge of $23.0 during 2008 in order to reduce the carrying value of the Filtran net assets to be sold to their estimated net realizable value. Of the $23.0 charge, $16.5 related to the premium we were expecting to pay the minority interest shareholder, while the remaining of $6.5 represented the loss we were anticipating upon the sale of 100% of the Filtran business. The $23.0 charge was recorded to "Gain (loss) on disposition of discontinued operations, net of tax" within our 2008 consolidated statement of operations as presented in our 2008 Form 10-K.

        As indicated in Note 3 to our consolidated financial statements, in December 2007, the Financial Accounting Standards Board ("FASB") issued guidance which established new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. We adopted this guidance, which required retroactive application, on January 1, 2009. Accordingly, we reclassified, within our 2008 consolidated statement of operations, $16.5 of the 2008 impairment charge from "Gain (loss) on disposition of discontinued operations, net of tax" to "Net income (loss) attributable to noncontrolling interest". This reclassification had no impact on net income attributable to SPX common shareholders.

        In October 2009, we completed the sale of the Filtran business for total consideration of approximately $15.0, including $10.0 in cash. In connection with the sale, we did not buy out the minority interest shareholder and, thus, sold only our share of the Filtran business. As a result, we reclassified $16.5 of the impairment charge noted above from "Net income (loss) attributable to noncontrolling interest" to "Gain (loss) on disposition of discontinued operations, net of tax" within our consolidated statements of operations in 2009. This reclassification had no impact on net income attributable to SPX common shareholders. In addition, based on the amount of consideration received, we recorded an additional charge of $7.7 during 2009 to "Gain (Loss) on disposition of discontinued operations, net of tax."

        Dezurik — Sold for total consideration of $23.5, including $18.8 in cash and a promissory note of $4.7, resulting in a loss, net of taxes, of $1.6 during 2009. During 2008, we recorded a net charge of $6.0 to "Gain (loss) on disposition of discontinued operations, net of tax" in order to reduce the carrying value of the net assets to be sold to their estimated net realizable value.

        Scales — Sold for cash consideration of $16.8, resulting in a loss, net of taxes, of $4.7 during 2008.

        LDS — Sold for cash consideration of $82.5, resulting in a gain, net of taxes, of $17.1 during 2008. During 2009, we recorded a net charge of $5.1 in connection with an adjustment to certain liabilities that we retained and additional income tax expense related to the disposition.

        Air Filtration — Sold for cash consideration of $35.7, resulting in a loss, net of taxes, of $0.8 during 2008. During 2007, we recorded a net charge of $11.0 to "Gain (loss) on disposition of discontinued operations, net of tax" in order to reduce the carrying value of the net assets to be sold to their estimated net realizable value.

        BD Austria — Sold for cash consideration of $11.6, exclusive of cash balances assumed by the buyer of $30.0, resulting in a net gain of $17.2 during 2007.

        Nema — Sold for $6.8 in cash, net of cash balances assumed by the buyer of $0.4, for a net loss of $2.3 during 2007.

        Contech — Sold to Marathon Automotive Group, LLC for net cash proceeds of $134.3. During 2007, we recorded a net loss on the sale of $13.6, including $7.0 of expenses that were contingent upon the consummation of the sale, which included $1.1 due to the modification of the vesting period of restricted stock units that had been issued to Contech employees (see Note 15 to our consolidated financial statements for further information), and a $6.6 charge, recorded during the first quarter of 2007, to

25



reduce the carrying value of the net assets sold to the net proceeds received from the sale. During 2006, we recorded a charge of $102.7 to "Gain (loss) on disposition of discontinued operations, net of tax" in order to reduce the carrying value of the net assets to be sold to their estimated net realizable value.

        During the second quarter of 2009, we committed to a plan to divest P.S.D., Inc., a business within our Industrial Products and Services segment. As a result of this planned divestiture, we recorded a net charge of $7.3 during 2009 to "Gain (loss) on disposition of discontinued operations, net of tax" in order to reduce the carrying value of the net assets to be sold to their estimated net realizable value. In February 2010, we completed the sale of P.S.D., Inc. for total consideration of approximately $3.0. We have reported, for all periods presented, the financial condition, results of operations, and cash flows of this business as discontinued operations in our consolidated financial statements.

        During the third quarter of 2008, we reached an agreement with the Internal Revenue Service ("IRS") regarding audits of our 2003 through 2005 Federal income tax returns. Upon the resolution of the examinations, we reduced our liability for uncertain tax positions and recognized an income tax benefit of $5.0 to "Gain (loss) on disposition of discontinued operations, net of tax" associated with a business previously disposed of and reported as a discontinued operation.

        During the third quarter of 2007, we recognized an income tax benefit of $13.5 to "Gain (loss) on disposition of discontinued operations, net of tax" relating to the reversal of certain deferred tax liabilities associated with businesses previously disposed of and reported as discontinued operations, primarily during 2005. See Note 1 to our consolidated financial statements for further details.

        In addition to the businesses discussed above, we recognized a net gain of $11.8 during 2009 from businesses that were previously discontinued, resulting primarily from the reduction of liabilities for uncertain tax positions associated with statute expirations in certain tax jurisdictions. Along with the gains/(losses) recorded in 2008 relating to the Filtran, Dezurik, Scales, LDS and Air Filtration businesses, we recognized a net gain in 2008 of $0.5 resulting from adjustments to gains/(losses) on sales of businesses that were previously discontinued. Lastly, in addition to the gains/(losses) recorded in 2007 relating to the BD Austria, Nema, Contech and Air Filtration businesses discussed above, we recognized a net loss in 2007 of $7.3 resulting from adjustments to the gains/(losses) on sales of businesses that were previously discontinued, with such adjustments related primarily to a reduction in income tax liabilities.

        The final purchase price for certain of the divested businesses is subject to adjustment based on working capital existing at the respective closing dates. The working capital figures are subject to agreement with the buyers or if we cannot come to agreement with the buyers, an arbitration process. Final agreement of the working capital figures with the buyers for some of these transactions has yet to occur. In addition, changes in estimates associated with liabilities retained in connection with a business divestiture (e.g., income taxes) may occur. It is possible that the purchase price and resulting gains/(losses) on these and other previous divestitures may be materially adjusted in subsequent periods. Refer to Note 11 to our consolidated financial statements for the tax implications associated with our dispositions.


Segment Results of Operations

        The following information should be read in conjunction with our consolidated financial statements and related notes. The segment results exclude the operating results of discontinued operations for all periods presented. See Note 5 to our consolidated financial statements for a description of each of our reportable segments.

        Non-GAAP Measures — Throughout the following discussion of segment results, we use "organic revenue" growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure, and is not a substitute for revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under "Results of Continuing Operations — Non-GAAP Measures."

26


Flow Technology

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Revenues

  $ 1,634.1   $ 1,998.7   $ 1,070.0     (18.2 )   86.8  

Segment income

    210.9     243.4     175.4     (13.4 )   38.8  
 

% of revenues

    12.9 %   12.2 %   16.4 %            

Components of segment revenue growth (decline):

                               

Organic growth (decline)

                      (13.9 )   8.0  

Foreign currency

                      (4.3 )   (0.1 )

Acquisitions, net

                          78.9  
                             
 

Net segment revenue growth (decline)

                      (18.2 )   86.8  

        Revenues — For 2009, the decrease in revenues was due to the decline in organic revenue and a stronger U.S. dollar. Specifically, the challenging global economic environment has negatively impacted the food and beverage, general industrial, dehydration, mining, and oil and gas markets served by the segment, resulting in the decline in organic revenue.

        For 2008, the increase in revenues was due primarily to the fourth quarter 2007 acquisition of APV, which contributed $838.5 of revenues during 2008. Additionally, revenues were impacted favorably by organic revenue growth resulting from strong demand within the power, oil and gas, mining and food and beverage markets.

        Segment Income — For 2009, segment income decreased primarily as a result of the decline in organic revenues noted above. In addition, segment income for 2009 included a charge of $4.3 related to the settlement of a product liability matter. Despite the decline in organic revenues, segment margins for 2009 increased over the prior year as a result of the impact of cost reductions associated with the APV integration activities and various restructuring actions and favorable project mix within the segment's oil and gas product lines. In addition, segment income for 2008 included a charge of $7.5, representing the excess fair value (over historical cost) of inventory acquired in the APV transaction that was subsequently sold during the first quarter of 2008.

        For 2008, segment income was favorably impacted by organic revenue growth, as well as improved pricing and lean manufacturing initiatives. Segment margins were negatively impacted by lower operating margins at APV, which reduced segment margins by approximately 520 basis points during 2008, and included the $7.5 charge noted above.

Test and Measurement

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Revenues

  $ 810.4   $ 1,100.3   $ 1,079.8     (26.3 )   1.9  

Segment income

    51.4     108.8     118.3     (52.8 )   (8.0 )
 

% of revenues

    6.3 %   9.9 %   11.0 %            

Components of segment revenue growth (decline):

                               

Organic decline

                      (23.8 )   (7.2 )

Foreign currency

                      (3.1 )   1.4  

Acquisitions, net

                      0.6     7.7  
                             
 

Net segment revenue growth (decline)

                      (26.3 )   1.9  

        Revenues — For 2009, the decrease in revenues was due primarily to an organic revenue decline and the impact of the stronger U.S. dollar. The decline in organic revenues related primarily to the continued difficulties being experienced by global vehicle manufacturers and their dealer service networks as a result of the challenging economic environment.

        For 2008, the increase in revenues was due to the impact of the acquisitions of JCD in the third quarter of 2007 and Matra in the fourth quarter of 2007, which contributed $56.2 of incremental revenues to 2008, as well as the impact of foreign currency exchange rates. These increases were offset partially by a decline in organic revenues resulting from lower aftermarket, domestic OEM, and dealer equipment revenues associated with the difficult conditions within the domestic automotive market.

        Segment Income — For 2009, segment income and margin decreased compared to 2008 primarily as a result of a decline in organic revenues and lower absorption of fixed costs as a result of the revenue decline, partially offset by cost reductions associated with restructuring initiatives.

27


        For 2008, segment income and margin decreased primarily as a result of the organic revenue decline noted above associated with the difficult conditions within the domestic automotive market, lower absorption of fixed manufacturing costs resulting from the aforementioned decline in revenues, and investments in Asia Pacific. Segment income and margins for 2008 were impacted favorably by the acquisitions and foreign currency fluctuations noted above.

Thermal Equipment and Services

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Revenues

  $ 1,600.7   $ 1,690.1   $ 1,560.5     (5.3 )   8.3  

Segment income

    171.1     204.4     162.7     (16.3 )   25.6  
 

% of revenues

    10.7 %   12.1 %   10.4 %            

Components of segment revenue growth (decline):

                               

Organic growth (decline)

                      (4.1 )   4.8  

Foreign currency

                      (1.5 )   3.5  

Acquisitions, net

                      0.3      
                             
 

Net segment revenue growth (decline)

                      (5.3 )   8.3  

        Revenues — For 2009, the decrease in revenues was primarily due to a decline in organic revenues and a stronger U.S. dollar. The decline in organic revenues was due primarily to the impact of the global economic recession, which has resulted in delays of certain projects and a decrease in demand for the segment's heating and ventilation products.

        For 2008, the increase in revenues was due primarily to organic revenue growth associated with global demand for the segment's cooling systems and products and thermal services and equipment, as well as to the impact of foreign currencies.

        Segment Income — For 2009, segment income and margin decreased as a result of the decline in organic revenues noted above. In addition, segment margins for 2009 were impacted negatively by lower margin project mix at our cooling systems and products and thermal services and equipment businesses.

        For 2008, segment income and margin increased as a result of favorable project mix and improved operating performance across the segment's product lines. In addition, the foreign currency fluctuations noted above also favorably impacted segment income in 2008.

Industrial Products and Services

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Revenues

  $ 805.6   $ 1,048.5   $ 831.9     (23.2 )   26.0  

Segment income

    153.7     243.7     144.5     (36.9 )   68.7  
 

% of revenues

    19.1 %   23.2 %   17.4 %            

Components of segment revenue growth (decline):

                               

Organic growth (decline)

                      (22.7 )   26.0  

Foreign currency

                      (0.5 )    

Acquisitions, net

                           
                             
 

Net segment revenue growth (decline)

                      (23.2 )   26.0  

        Revenues — For 2009, the decrease in revenues was due primarily to a decline in organic revenues associated with lower demand for the majority of the segment's product lines, driven by the challenging economic environment, with the most significant impact to our power transformers, hydraulic tool, and solar power product lines.

        For 2008, the increase in revenues was due primarily to organic revenue growth driven by strong demand for power transformers, crystal growing machines for the solar power market, and television and radio broadcast antenna systems.

        Segment Income — For 2009, the decrease in segment income was due to the organic revenue decline described above, while the decline in segment margins resulted from lower absorption of fixed costs associated with the revenue decline and a reduction in sales prices for power transformers. In addition, segment income for 2009 included a charge of $5.2 related to the settlement of a product liability matter.

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        For 2008, the increase in segment income and margin was due to the organic revenue growth described above and manufacturing efficiencies achieved from lean and supply chain initiatives.

Corporate Expense and Other Expense

 
  2009   2008   2007   2009 vs.
2008%
  2008 vs.
2007%
 

Total consolidated revenues

  $ 4,850.8   $ 5,837.6   $ 4,542.2     (16.9 )   28.5  

Corporate expense

    83.8     107.7     100.3     (22.2 )   7.4  
 

% of revenues

    1.7 %   1.8 %   2.2 %            

Stock-based compensation expense

    27.6     41.5     39.5     (33.5 )   5.1  

Pension and postretirement expense

    37.5     38.8     43.5     (3.4 )   (10.8 )

        Corporate Expense — Corporate expense generally relates to the cost of our Charlotte, NC corporate headquarters and our Asia Pacific center in Shanghai, China. For 2009, the decrease in corporate expense was due primarily to lower incentive compensation relating to a decline in company performance during 2009 (in comparison to 2008). In addition, 2008 included higher professional fees relating to various income tax related projects and costs relating to the settlement of a legacy legal matter. The increase in corporate expense during 2008 (compared to 2007) was due primarily to increased professional fees noted above and higher salaries and incentive compensation relating to the impact of headcount increases in support of certain key operating initiatives, including the expansion of our Asia Pacific center. Lastly, 2007 corporate expense included charges of $5.0 relating to legacy legal matters.

        Stock-based Compensation Expense — The decrease in stock-based compensation expense for 2009 compared to 2008 was due primarily to a decrease in the fair value of our 2009 restricted stock and restricted stock unit awards. The weighted-average fair value of our 2009 stock-based compensation awards, which is directly correlated to changes in our share price (see Note 15 to the consolidated financial statement for a discussion of our valuation technique), decreased approximately 55% compared to the weighted-average fair value of our 2008 awards.

        The increase in stock-based compensation for 2008 compared to 2007 was due primarily to an increase in the fair value of our 2008 restricted stock and restricted stock unit awards, partially offset by the reversal of previously recorded stock compensation associated with restricted stock awards that were forfeited during 2008. The weighted-average fair value of our 2008 stock-based compensation awards increased approximately 16% compared to the weighted-average fair value of our 2007 awards.

        Pension and Postretirement Expense — Pension and postretirement expense represents our consolidated expense, which we do not allocate for segment reporting purposes. The decrease in pension and postretirement expense for 2009 versus 2008 was due primarily to a charge of $7.1 that we recorded during 2008 in connection with lump-sum payments that were made in August 2008 to settle all remaining pension obligations of our non-qualified domestic pension plans to our former Chief Executive Officer. These decreases were offset partially by lower expected returns on plan assets in 2009 driven by lower plan asset values.

        The decrease in pension and postretirement expense for 2008 versus 2007 was due primarily to a reduction in the amortization of unrecognized losses. In addition, during 2008 we changed the amortization period for unrecognized losses under one of our qualified U.S. pension plans. Actuarial gains/(losses) for our pension plans generally are amortized over the approximate average service period of active employees expected to receive benefits under the plans. Based on a decrease in the number of active participants covered under one of our qualified U.S. pension plans, effective January 1, 2008, we began amortizing losses under the plan over the average remaining life expectancy of inactive participants receiving benefits under the plan. The effect of this change to the amortization period decreased net periodic pension expense by approximately $2.4 in 2008. The decreases in pension expense were offset partially by the settlement charge of $7.1 mentioned above.

29



Outlook

        The following table highlights our backlog as of December 31, 2009 and 2008, and the revenue expectations for our segments during 2010 based on information available at the time of this report.

Segment
  Comments
Flow Technology   We are projecting 2010 revenues to be relatively flat compared to 2009, with modest growth from acquisitions and foreign currencies to be offset by organic declines in our end markets. We expect declines in the oil and gas and mining markets to more than offset the modest growth we expect in the filtration and general industrial markets. We expect that the food and beverage market will be relatively stable in 2010. The segment had backlog of $578.9 and $645.6 as of December 31, 2009 and 2008, respectively. We expect to convert approximately 70% of the segment's year-end 2009 backlog to revenue in 2010.

Test and Measurement

 

We are projecting a mid single digit increase in 2010 revenue driven primarily by organic growth, as we are expecting a recovery in our aftermarket business and, in the second half of 2010, we expect OEM programs to increase modestly in advance of the 2011 model year introductions. Backlog for the segment is not material, as the related businesses are primarily short-cycle in nature.

Thermal Equipment and Services

 

We are projecting revenues to increase by mid single digits. Revenue in South Africa, as a result of the Kusile and Medupi projects, and in China is expected to increase during 2010. Additionally, revenues in 2010 are expected to increase as a result of the acquisition of assets from Yuba in December of 2009. However, we project these increases will be partially offset by declines in the United States and Europe as the uncertain regulatory environment continues to impact the timing of order placement. We had backlog of $1,973.4 and $2,083.6 as of December 31, 2009 and 2008, respectively, across the segment, with the majority in our cooling systems and products and thermal services and equipment businesses. Portions of this backlog are long-term in nature, with the related revenue expected to be recorded through 2014. We expect large contracts to continue to be significant for this segment, which may contribute to large fluctuations in revenues and profits from period to period. We expect to convert approximately 45% of the segment's year-end 2009 backlog to revenue in 2010.

Industrial Products and Services

 

We are projecting a decline in revenue of over 10% driven primarily by volume and price declines in our power transformer business, partially offset by organic growth for the early-cycle businesses within the segment. Backlog for the segment totaled $393.3 and $541.7 as of December 31, 2009 and 2008, respectively. We expect to convert approximately 80% of the segment's year-end 2009 backlog to revenue in 2010.


Liquidity and Financial Condition

        Listed below are the cash flows from (used in) operating, investing and financing activities, and discontinued operations, and the net change in cash and equivalents for the years ended December 31, 2009, 2008 and 2007.

 
  2009   2008   2007  

Continuing operations:

                   
 

Cash flows from operating activities

  $ 461.6   $ 407.0   $ 405.9  
 

Cash flows used in investing activities

    (212.2 )   (144.1 )   (646.5 )
 

Cash flows used in financing activities

    (239.4 )   (312.6 )   (61.9 )

Cash flows from discontinued operations

    33.7     129.0     166.6  

Increase in cash and equivalents due to changes in foreign currency exchange rates

    3.3     42.5     12.8  
               
   

Net change in cash and equivalents

  $ 47.0   $ 121.8   $ (123.1 )
               

30


2009 Compared to 2008

        Operating Activities — The increase in cash flows from operating activities during 2009 as compared to 2008 was due primarily to the following:

    An decrease in net income tax payments of $60.0 in 2009;

    Pension and other payments of $39.8 that were made in August 2008 to our former Chief Executive Officer; and

    Other reductions in working capital during 2009.

        These increases in operating cash flows were offset partially by lower operating earnings in 2009 and cash outflows in 2009 associated with the integration of APV and our various restructuring actions.

        Investing Activities — The increase in cash used in investing activities during 2009 as compared to 2008 was due to an increase in cash used for business acquisitions ($131.4 in 2009 compared to $15.0 in 2008), with $129.2 related to the December 2009 acquisition of assets from Yuba. This increase in cash used in investing activities was offset partially by the following:

    A decrease in capital expenditures of $23.6 (2009 — $92.8 and 2008 — $116.4); and

    A decrease in restricted cash of $8.4 in 2009, compared to an increase in 2008 of $14.0.

        Financing Activities — The decrease in cash flows used in financing activities during 2009 as compared to 2008 was due primarily to net repayments on our various debt facilities of $74.1 during 2009, compared to $223.3 during 2008, partially offset by cash receipts from the exercise of stock options and other of only $1.2 in 2009, compared to $81.5 in 2008.

        Discontinued Operations — Cash flows from discontinued operations in 2009 were comprised primarily of cash proceeds received on the sale of the Dezurik and Filtran of $28.8 and an income tax refund of $17.4 received in 2009 that related to the disposition of the Air Filtration business, partially offset by operating cash outflows associated with discontinued operations. Cash flows from discontinued operations during 2008 were composed primarily of cash proceeds from the sale of Air Filtration, LDS and Scales of $135.0, partially offset by operating cash outflows associated with discontinued operations.

2008 Compared to 2007:

        Operating Activities — The increase in cash flows from operating activities during 2008 primarily was the result of the increase in operating earnings during 2008, partially offset by the following:

    Pension and other payments of $39.8 that were made in August 2008 to our former Chief Executive Officer;

    Payments associated with the integration of the APV business; and

    Increases in working capital associated with organic growth.

        Investing Activities — The decrease in cash flows used in investing activities during 2008 as compared to 2007 was due primarily to a decline in business acquisitions and investments ($15.0 in 2008 compared to $567.2 in 2007), relating primarily to the acquisitions of APV, JCD and Matra during 2007. This decrease was partially offset by an increase in capital expenditures relating primarily to the implementation of new ERP software systems in connection with our ERP rationalization initiative and investment in our infrastructure ($116.4 in 2008 compared to $82.6 in 2007).

        Financing Activities — The primary factors contributing to the increase in cash used in financing activities during 2008 as compared to 2007 were as follows:

    Borrowings under the 7.625% senior notes of $500.0 in 2007;

    Net repayments on our other debt facilities of $223.3 in 2008, compared to borrowings of $93.0 in 2007; and

    A decrease in proceeds from the exercise of stock options and other ($81.5 in 2008 compared to $133.0 in 2007).

        The above increases were offset partially by a decrease in repurchases of our common stock ($115.2 in 2008 versus $715.9 in 2007).

        Discontinued Operations — The decrease in cash flows from discontinued operations during 2008 as compared to 2007 was due primarily to an income tax refund of $45.4 received in 2007 associated with capital losses generated from the sale of discontinued operations. Cash flows from discontinued operations included cash proceeds from business dispositions of $135.0 and $129.2 in 2008 and 2007, respectively.

31


Borrowings

        The following summarizes our outstanding debt as of, and debt activity for the year ended, December 31, 2009. See Note 12 to our consolidated financial statements for the details regarding our 2009 debt activity.

 
  December 31,
2008
  Borrowings   Repayments   Other(3)   December 31,
2009
 

Term loan

  $ 675.0   $   $ (75.0 ) $   $ 600.0  

Domestic revolving loan facility

    65.0     424.5     (428.0 )       61.5  

7.625% senior notes

    500.0                 500.0  

7.50% senior notes

    28.2                 28.2  

6.25% senior notes

    21.3                 21.3  

Trade receivables financing arrangement(1)

        138.0     (116.0 )       22.0  

Other indebtedness(2)

    55.2         (17.6 )   8.4     46.0  
                       
 

Total debt

    1,344.7   $ 562.5   $ (636.6 ) $ 8.4     1,279.0  
                           

Less: short-term debt

    112.9                       74.4  

Less: current maturities of long-term debt

    76.4                       76.0  
                             
 

Total long-term debt

  $ 1,155.4                     $ 1,128.6  
                             

(1)
Under this arrangement, we can borrow, on a continuous basis, up to $130.0, as available.

(2)
Includes aggregate balances under extended accounts payable programs, a travel card program and a purchase card program of $31.5 and $47.9 at December 31, 2009 and 2008, respectively.

(3)
"Other" includes debt assumed and foreign currency translation on any debt instruments denominated in currencies other than the U.S. dollar.

Credit Facilities

        On September 21, 2007, we entered into senior credit facilities with a syndicate of lenders that replaced our then-existing senior credit facilities, which were simultaneously terminated. These senior credit facilities provided for committed senior secured financing of $2,300.0, consisting of the following:

    A term loan facility in an aggregate principal amount of $750.0 (balance of $600.0 at December 31, 2009) with a final maturity of September 2012;

    A domestic revolving credit facility, available for loans and letters of credit, in an aggregate principal amount of up to $400.0 with a final maturity of September 2012;

    A global revolving credit facility, available for loans in Euros, British Pounds and other currencies in an aggregate principal amount up to the equivalent of $200.0 with a final maturity of September 2012; and

    A foreign credit instrument facility, available for performance letters of credit and guarantees, in an aggregate principal amount in various currencies up to the equivalent of $950.0 with a final maturity of September 2012.

        In connection with the termination of our then-existing senior credit facilities, we incurred $3.3 of costs, including $2.3 for the write-off of deferred financing costs, $0.2 for an early termination fee and $0.8 for costs associated with the early termination of our then-existing interest rate protection agreements (see Note 13 to our consolidated financial statements).

        The weighted-average interest rate of our outstanding borrowings, including the impact of our interest rate protection agreements ("Swaps"), under the senior credit facilities was 4.48% at December 31, 2009.

        We also may seek additional commitments for incremental term loan facilities or increases in commitments in respect of the domestic revolving credit facility, the global revolving credit facility and/or the foreign credit instrument facility by up to an aggregate principal amount of $400.0 without the need for consent from the existing lenders.

        We are the borrower under the term and revolving loan facilities, and certain of our foreign subsidiaries are (and others may in the future become) borrowers under the global revolving credit facility and the foreign credit instrument facility.

32


        All borrowings and other extensions of credit under our senior credit facilities are subject to the satisfaction of customary conditions, including absence of defaults and accuracy in material respects of representations and warranties.

        The letters of credit under the domestic revolving credit facility are stand-by letters of credit requested by any borrower on behalf of itself or any of its subsidiaries. The foreign credit instrument facility is used to issue foreign credit instruments, including bank undertakings to support our foreign operations.

        The interest rates applicable to loans under our senior credit facilities are, at our option, equal to either an alternate base rate (the higher of (a) the federal funds effective rate plus 0.5% and (b) the prime rate of Bank of America) or a reserve adjusted LIBOR rate for dollars (Eurodollar) plus, in each case, an applicable margin percentage, which varies based on our Consolidated Leverage Ratio (as defined in the credit agreement generally as the ratio of consolidated total debt (net of cash equivalents in excess of $50.0) at the date of determination to consolidated adjusted EBITDA for the four fiscal quarters ended on such date). We may elect interest periods of one, two, three or six months for Eurodollar borrowings. The fees charged and the interest rate margins applicable to Eurodollar and base rate loans are (all on a per annum basis) as follows:

Consolidated Leverage Ratio
  Domestic
Revolving
Commitment
Fee
  Global
Revolving
Commitment
Fee
  Letter of
Credit
Fee
  Foreign
Credit
Commitment
Fee
  Foreign
Credit
Instrument
Fee
  LIBOR Rate
Loans
  ABR Loans  

Greater than or equal to 3.00 to 1.0

    0.35 %   0.35 %   1.75 %   0.35 %   1.3125 %   1.75 %   0.75 %

Between 2.00 to 1.0 and 3.00 to 1.0

    0.30 %   0.30 %   1.50 %   0.30 %   1.125 %   1.50 %   0.50 %

Between 1.50 to 1.0 and 2.00 to 1.0

    0.25 %   0.25 %   1.25 %   0.25 %   0.9375 %   1.25 %   0.25 %

Between 1.00 to 1.0 and 1.50 to 1.0

    0.20 %   0.20 %   1.00 %   0.20 %   0.75 %   1.00 %   0.00 %

Less than 1.00 to 1.0

    0.175 %   0.175 %   0.875 %   0.175 %   0.65625 %   0.875 %   0.00 %

        The term loan is repayable in quarterly installments of $18.75 for each quarter ending through September 30, 2011, and $112.5 for the quarters ending December 31, 2011 through June 30, 2012, with the balance due in September 2012.

        Our senior credit facilities require mandatory prepayments in amounts equal to the net proceeds from the sale or other disposition of, including from any casualty to, or governmental taking of, property in excess of specified values (other than in the ordinary course of business and subject to other exceptions) by us or our subsidiaries. Mandatory prepayments will be applied first to prepay the term loan and then to repay amounts (or cash collateralize letters of credit) outstanding under the global revolving credit facility or the domestic revolving credit facility (without reducing the commitments thereunder). No prepayment is required to the extent the net proceeds are reinvested in permitted acquisitions, permitted investments or assets to be used in our business within 360 days of the receipt of such proceeds.

        We may voluntarily prepay loans under our senior credit facilities, in whole or in part, without premium or penalty. Any voluntary prepayment of loans will be subject to reimbursement of the lenders' breakage costs in the case of a prepayment of Eurodollar rate borrowings other than on the last day of the relevant interest period.

        Indebtedness under our senior credit facilities is guaranteed by:

    Each existing and subsequently acquired or organized domestic material subsidiary with specified exceptions; and

    Us with respect to the obligations of our foreign borrower subsidiaries under the global revolving credit facility and the foreign credit instrument facility.

        Indebtedness under our senior credit facilities is secured by a first priority pledge and security interest in 100% of the capital stock of our domestic subsidiaries (with certain exceptions) and 65% of the capital stock of our material first tier foreign subsidiaries. If our corporate credit rating is "Ba2" or less by Moody's and "BB" or less by S&P, then we and our domestic subsidiary guarantors are required to grant security interests, mortgages and other liens on substantially all our and their assets.

        Our senior credit facilities require that we maintain:

    A Consolidated Interest Coverage Ratio (as defined in the credit agreement generally as the ratio of consolidated adjusted EBITDA for the four fiscal quarters ended on such date to consolidated interest expense for such period) as of the last day of any fiscal quarter of at least 3.50 to 1.00; and

    A Consolidated Leverage Ratio as of the last day of any fiscal quarter of not more than 3.25 to 1.00.

        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

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dividends, redemptions of capital stock and voluntary prepayments or repurchase of certain other indebtedness, engage in mergers, acquisitions or sales of assets, enter into sale and leaseback transactions or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. We do not expect these covenants to restrict our liquidity, financial condition or access to capital resources in the foreseeable future. Lastly, our senior credit facilities contain customary representations, warranties, affirmative covenants and events of default.

        We are permitted under our senior credit facilities to repurchase our capital stock and pay cash dividends in an unlimited amount if our gross Consolidated Leverage Ratio is less than 2.50 to 1.00. If our gross Consolidated Leverage Ratio is greater than or equal to 2.50 to 1.00, the aggregate amount of such repurchases and dividend declarations cannot exceed (A) $100.0 in any fiscal year plus (B) an additional amount for all such repurchases and dividend declarations made after September 21, 2007 equal to the sum of (i) $300.0 and (ii) a positive amount equal to 50% of cumulative consolidated net income during the period from July 1, 2007 to the end of the most recent fiscal quarter for which financial information is available preceding the date of such repurchase or dividend declaration (or, in case such consolidated net income is a deficit, minus 100% of such deficit).

        At December 31, 2009, we were in compliance with all covenant provisions of our senior credit facilities, and the senior credit facilities did not impose any restrictions on our ability to repurchase shares or pay dividends, other than those inherent in the credit agreement. While the impact of continued market volatility cannot be predicted, we do not expect an impact on our ability to comply with the covenant provisions of our senior credit facilities in the near or long-term.

Senior Notes

        In December 2007, we issued in a private placement $500.0 aggregate principal amount of 7.625% senior unsecured notes that mature in 2014. We used the net proceeds from the offering for general corporate purposes, including the financing of our acquisition of APV (see Note 4 to our consolidated financial statements for further information). The interest payment dates for these notes are June 15 and December 15 of each year. The notes are redeemable, in whole, or in part, at any time prior to maturity at a price equal to 100% of the principal amount thereof plus a premium, plus accrued and unpaid interest. In addition, at any time prior to December 15, 2010, we may redeem up to 35% of the aggregate principal amount of the notes with the net cash proceeds of certain equity offerings at a redemption price of 107.625%, plus accrued and unpaid interest. If we experience certain types of change of control transactions, we must offer to repurchase the notes at 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest. These notes are unsecured and rank equally with all our existing and future unsecured senior indebtedness, but are effectively junior to our senior credit facilities. The indenture governing these notes contains covenants that, among other things, limit our ability to incur liens, enter into sale and leaseback transactions and consummate some mergers. During the first quarter of 2009, these senior notes became freely tradable. At December 31, 2009, we were in compliance with all covenant provisions of these senior notes.

        In June 2003, we issued $300.0 of non-callable 6.25% senior notes that mature on June 15, 2011. The interest payment dates for these notes are June 15 and December 15 of each year. At December 31, 2009, $21.3 of these notes were outstanding. In December 2002, we issued $500.0 of callable 7.50% senior notes that mature on January 1, 2013. The interest payment dates for these notes are January 1 and July 1 of each year. At December 31, 2009, $28.2 of these notes were outstanding. Both of these note issuances are unsecured and rank equally with all of our existing and future unsecured senior indebtedness, but are effectively junior to our senior credit facilities.

Other Borrowings and Financing Activities

        Some of our businesses participate in extended accounts payable programs through agreements with lending institutions. Under the arrangements, our businesses are provided extended payment terms. As of December 31, 2009, there were no amounts outstanding under these arrangements. As of December 31, 2008, the participating businesses had $7.3 outstanding under these arrangements. Additionally, certain of our businesses purchase goods and services under a purchasing card program and travel card program allowing for payment beyond normal payment terms. As of December 31, 2009 and 2008, the participating businesses had $31.5 and $40.6, respectively, outstanding under these arrangements. As these arrangements extend the payment of our businesses' payables beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt.

        We are party to a trade receivables financing agreement, whereby we can borrow, on a continuous basis, up to $130.0. Availability of funds may fluctuate over time given changes in eligible receivable balances, but will not exceed the $130.0 program limit. The facility contains representations, warranties, covenants and indemnities customary for facilities of this type. The facility does not contain any covenants that we view as materially constraining to the activities of our business. As of December 31, 2009, we had $22.0 outstanding under this financing agreement, while there were no amounts outstanding at December 31, 2008.

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Availability

        At December 31, 2009, we had $411.0 of available borrowing capacity under our revolving credit facilities after giving effect to borrowings under the domestic revolving loan facility of $61.5 and to $127.5 reserved for outstanding letters of credit. In addition, at December 31, 2009, we had $216.3 of available issuance capacity under our foreign credit instrument facility after giving effect to $733.7 reserved for outstanding letters of credit. Lastly, at December 31, 2009, we had $10.8 of available borrowing capacity under our trade receivables financing agreement.

        Additionally, we have a shelf registration statement for 8.3 shares of common stock that may be issued for acquisitions. In addition, other financing instruments may be used from time to time, including, but not limited to, private placement instruments, operating leases, capital leases and securitizations. We expect that we will continue to access these markets as appropriate to maintain liquidity and to provide sources of funds for general corporate purposes or to refinance existing debt.

        Recent distress in the financial markets has had an adverse impact on financial market activities around the world including, among other things, extreme volatility in security prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. We have assessed the implications of these factors on our business, are closely monitoring the impact on our customers and suppliers, and have determined that there has not been a significant impact on our liquidity during 2009 and do not currently expect a significant impact in the foreseeable future. While the impact of continued market volatility cannot be predicted, we believe that cash and equivalents, which totaled $522.9 at December 31, 2009, cash flows from operations and our availability under our revolving credit facilities and existing trade receivables financing agreement will be sufficient to fund working capital needs, planned capital expenditures, equity repurchases, dividend payments, other operational cash requirements and required debt service obligations for the foreseeable future.

Derivative Financial Instruments

        Effective January 1, 2009, we adopted fair value measurements, as required by the Fair Value Measurement and Disclosures Topic of the Codification, for our nonfinancial assets and nonfinancial liabilities measured on a non-recurring basis. We adopted these fair value measurements for measuring the fair value of our financial assets and liabilities during 2008. 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 Swaps, foreign currency protection agreements ("FX forward contracts"), currency forward embedded derivatives ("FX embedded derivatives"), and forward contracts that manage the exposure on forecasted purchases of commodity raw materials ("commodity contracts") are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risk. 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 to be active.

        As of December 31, 2009, there has been no significant impact to the fair value of our derivative liabilities due to our own credit risk, as the related agreements are collateralized under our senior credit facilities. Similarly, there has been no significant impact to the valuation of our derivative assets based on our evaluation of our counterparties' credit risk.

        We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount. Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2009:

 
  Fair Value Measurements Using  
 
  Level 1   Level 2   Level 3  

Current assets — FX embedded derivatives, FX forward contracts and commodity contracts

  $   $ 1.3   $  

Noncurrent assets — FX embedded derivatives

        0.9      

Current liabilities — FX forward contracts and FX embedded derivatives

        1.7      

Long-term liabilities — FX embedded derivatives and Swaps

        38.1      

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        Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2008:

 
  Fair Value Measurements Using  
 
  Level 1   Level 2   Level 3  

Current assets — FX forward contracts and FX embedded derivatives

  $   $ 0.6   $  

Noncurrent assets — FX embedded derivatives

        8.9      

Current liabilities — FX forward contracts and commodity contracts

        10.1      

Long-term liabilities — Swaps

        42.0      

Interest Rate Swaps

        We maintain Swaps to hedge interest rate risk on our variable rate term loan. These Swaps, which we designate and account for as cash flow hedges, have maturities through September 2012 and effectively convert the majority of our borrowing under our variable rate term loan to a fixed rate of 4.795% plus the applicable margin. These are amortizing Swaps; therefore, the outstanding notional value is scheduled to decline commensurate with the scheduled maturities of the term loan. As of December 31, 2009, the aggregate notional amount of the Swaps was $480.0.

        In connection with the termination of our previously held swaps, on September 21, 2007, we made a net cash payment of $0.4. In addition, we reclassified $0.8 from accumulated other comprehensive income (loss) ("AOCI") to "Loss on early extinguishment of debt."

        The unrealized loss, net of taxes, recorded in AOCI was $16.8 and $25.8, as of December 31, 2009 and 2008, respectively. In addition, as of December 31, 2009 and 2008, we recorded a long-term liability of $28.0 and $42.0, respectively, to recognize the fair value of our Swaps.

Currency Forward Contracts

        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 their impact. Our principal currency exposures relate to the Euro, British Pound, South African Rand and Chinese Yuan.

        From time to time, we enter into FX forward contracts to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries. In addition, some of our contracts contain FX embedded derivatives, as the currency of exchange is not "clearly and closely" related to the functional currency of either party to the transaction. Certain of these FX embedded derivatives are designated as cash flow hedges, as deemed appropriate. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives' fair value are not included in current earnings, but are included in AOCI. These changes in fair value will subsequently be reclassified into earnings as a component of revenues or cost of goods sold, as applicable, when the forecasted transaction impacts earnings. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period it occurs. We had FX forward contracts with an aggregate notional amount of $100.2 and $129.8 outstanding as of December 31, 2009 and 2008, respectively, with scheduled maturities of $71.8 and $28.4 in 2010 and 2011, respectively. The unrealized loss, net of taxes, recorded in AOCI was $3.1 and $1.3 related to FX embedded derivatives and FX forward contracts, respectively,as of December 31, 2009. The net gain (loss) recorded in "Other income (expense), net" from the change in the fair value of FX forward contracts and embedded derivatives totaled ($7.7) for 2009, $4.5 for 2008 and $6.2 for 2007, respectively.

        The fair values of our FX forward contracts and embedded derivatives were as follows:

 
  December 31, 2009   December 31, 2008  
 
  Current
Assets
  Noncurrent
Assets
  Current
Liabilities
  Long-Term
Liabilities
  Current
Assets
  Noncurrent
Assets
  Current
Liabilities
 

FX forward contracts

  $ 0.2   $   $ 1.4   $   $ 0.5   $   $ 2.9  

FX embedded derivatives

    0.2     0.9     0.3     10.1     0.1     8.9      

Commodity Contracts

        From time to time, we enter into commodity contracts. We designate and account for these contracts as cash flow hedges. At December 31, 2009, the outstanding notional amount of commodity contracts was 1.3 million pounds of copper. We reclassify the unrealized gains/(losses) associated with our commodity contracts to cost of products sold when the forecasted

36



transaction impacts earnings. As of December 31, 2009 and 2008, the fair values of these contracts were $0.9 and $(7.2) (recorded as a current asset and a current liability, respectively). The unrealized gain, net of taxes, recorded in AOCI was $0.5 as of December 31, 2009, compared to an unrealized loss, net of taxes, of $5.8 as of December 31, 2008. We anticipate reclassifying the unrealized gain to income over the next 12 months. The amount of gain (loss) recognized during the years ended December 31, 2009, 2008 and 2007 related to the ineffectiveness of the hedges was not material.

Other Fair Value Financial Assets and Liabilities

        The carrying amount of cash and equivalents and receivables reported in the consolidated balance sheets approximates fair value because of the short maturity of those instruments.

        The fair value of our debt instruments, based on borrowing rates available to us at each year-end for similar debt, was $1,283.9 at December 31, 2009, compared to our carrying value of $1,279.0.

Concentrations of Credit Risk

        Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and temporary investments, trade accounts receivable, Swaps, and foreign currency forward and forward commodity contracts. These financial instruments, other than trade accounts receivable, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions.

        We are exposed to credit losses in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. We anticipate, however, that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.

        Concentrations of credit risk arising from trade accounts receivable are due to selling to a large number of customers in a particular industry. We perform ongoing credit evaluations of our customers' financial conditions and obtain collateral or other security when appropriate. No one customer, or group of customers that to our knowledge are under common control, accounted for more than 10% of our revenues for any period presented.

Cash and Other Commitments

        Balances, if any, under the revolving credit and foreign credit instrument facilities of our senior credit facilities are payable in full in September 2012, the maturity date of the facilities. The term loan is repayable in quarterly installments of $18.75 for each quarter ending through September 30, 2011, and $112.5 for the quarters ending December 31, 2011 through June 30, 2012, with the balance due in September 2012.

        We use operating leases to finance certain equipment and other purchases. At December 31, 2009, we had $175.4 of future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year.

        In 2003, our Board of Directors approved the implementation of a quarterly dividend program. The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date is subject to the discretion of the Board of Directors, and the target dividend level may be adjusted during the year at the discretion of the Board of Directors. The factors that the Board of Directors considers in determining the actual amount of each quarterly dividend include our financial performance and on-going capital needs, our ability to declare and pay dividends under the terms of our credit facilities and any other debt instruments, and other factors deemed relevant. During 2009, we declared and paid dividends of $49.2 and $49.9, respectively, while in 2008 we declared and paid dividends of $53.3 and $53.5, respectively.

        Capital expenditures for 2009 totaled $92.8, compared to $116.4 and $82.6 in 2008 and 2007, respectively. Capital expenditures in 2009 related primarily to the implementation of new ERP software systems across our company in connection with our ERP rationalization initiative, as well as upgrades of manufacturing facilities and replacement of equipment. We expect 2010 capital expenditures to approximate $90.0. 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 2009, we made contributions and direct benefit payments of $39.0 to our defined benefit pension and postretirement benefit plans, which included $2.2 of contributions that related to businesses that have been classified as discontinued operations, and we expect to make $48.5 of contributions and direct benefit payments in 2010, including $1.6 of contributions that relate to businesses that have been classified as discontinued operations. Our pension plans have not experienced any significant impact on liquidity or counterparty exposure due to the volatility in the credit markets. Our domestic pension funds experienced a positive return on assets of approximately 9.2% in 2009. See Note 10 to our consolidated financial statements for further disclosure of expected future contributions and benefit payments.

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        On a net basis, both from continuing and discontinued operations, we paid $35.7, $95.7 and $80.5 in cash taxes for 2009, 2008 and 2007, respectively. In 2009, we made payments of $102.1 associated with the actual and estimated tax liability for federal, state and foreign tax obligations and received refunds of $66.4. The amount of income taxes that 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.

        As of December 31, 2009, except as discussed in Note 14 to our consolidated financial statements, we did not have any material guarantees, off-balance sheet arrangements or purchase commitments other than the following: (1) $127.5 of certain standby letters of credit outstanding, all of which reduce the available borrowing capacity on our revolving credit facility; and (2) approximately $293.7 of surety bonds. In addition, $59.7 of our standby letters of credit relate to self-insurance matters and originate from workers' compensation, auto, or general liability claims made against us. We account for each of these claims as part of our self-insurance accruals.

        Our Certificate of Incorporation provides that we indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law for any personal liability in connection with their employment or service with us, subject to limited exceptions. While we maintain insurance for this type of liability, the liability could exceed the amount of the insurance coverage.

        We continually review each of our businesses in order to determine their long-term strategic fit. These reviews could result in selected acquisitions to expand an existing business or result in the disposition of an existing business. Additionally, we have stated that we may consider a larger acquisition, more than $1,000.0 in revenues, if certain criteria were met. In addition, you should read "Risk Factors," "Segment Results of Operations" included in this MD&A, and "Business" for an understanding of the risks, uncertainties and trends facing our businesses.

Contractual Obligations:

        The following is a summary of our primary contractual obligations:

 
  Total   Due
within
1 year
  Due in
1-3 years
  Due in
3-5 years
  Due after
5 years
 

Short-term debt obligations

  $ 74.4   $ 74.4   $   $   $  

Long-term debt obligations

    1,204.6     76.0     599.3     529.3      

Pension and postretirement benefit plan contributions and payments(1)

    952.8     46.4     205.9     164.8     535.7  

Purchase and other contractual obligations(2)

    1,129.9     552.6     447.4     124.6     5.3  

Future minimum lease payments(3)

    175.4     41.1     57.3     32.2     44.8  

Interest payments(4)

    285.3     75.7     131.7     77.9      
                       

Total contractual cash obligations(5)

  $ 3,822.4   $ 866.2   $ 1,441.6   $ 928.8   $ 585.8  
                       

(1)
Estimated minimum required pension funding and pension and postretirement benefit payments are based on actuarial estimates using current assumptions for, among other things, discount rates, expected long-term rates of return on plan assets (where applicable), rate of compensation increases, and health care cost trend rates. The expected pension contributions in 2010 and thereafter reflect the minimum required contributions under the Pension Protection Act of 2006 and the Worker, Retiree, and Employer Recovery Act of 2008. See Note 10 to our consolidated financial statements for additional information on expected future contributions and benefit payments.

(2)
Represents contractual commitments to purchase goods and services at specified dates.

(3)
Represents rental payments under operating leases with remaining non-cancelable terms in excess of one year.

(4)
Includes interest payments at variable rates based on interest rates at December 31, 2009.

(5)
Contingent obligations, such as environmental accruals and those relating to uncertain tax positions generally do not have specific payment dates and accordingly have been excluded from the above table. We believe that within the next 12 months it is reasonably possible that we could pay approximately $20.0 to $25.0 relating to uncertain tax positions, which includes an estimate for interest and penalties. In addition, the above table does not include potential payments under our derivative financial instruments.

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Critical Accounting Policies and Use of Estimates

        The preparation of financial statements in accordance with GAAP requires management 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 management's most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties, are listed below. This section should be read in conjunction with Notes 1 and 2 to our consolidated financial statements, which include a detailed discussion of these and other accounting policies.

Long-Term Contract Accounting

        Certain of our businesses, primarily within the Flow Technology, Test and Measurement and Thermal Equipment and Services segments, recognize revenues and profits from long-term contracts under the percentage-of-completion method of accounting. The percentage-of-completion method requires estimates of future revenues and costs over the full term of product delivery. In 2009, 2008 and 2007, we recognized $1,343.6, $1,367.2 and $1,039.1 of revenues under the percentage-of-completion method, respectively.

        Provisions for losses, if any, on uncompleted long-term contracts are made in the period in which such losses are determined. In the case of customer change orders for uncompleted long-term contracts, estimated recoveries are included for work performed in forecasting ultimate profitability on certain 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 in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined.

        Costs and estimated earnings in excess of billings on uncompleted contracts 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.

        Claims related to long-term contracts are recognized as revenue only after management has determined that collection is probable and the amount can be reliably estimated. Claims made by us may involve negotiation and, in certain cases, litigation. In the event we incur litigation costs in connection with claims, such litigation 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 determinable.

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, including the input of an independent appraisal firm, 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. The revenue growth rates included in the financial projections are management's 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 anticipated net cost reductions.

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        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.

        In connection with our annual goodwill impairment testing in 2008, we determined that the fair value of our Service Solutions reporting unit exceeded the carrying value of its net assets by less than 10%, as its projected, near-term cash flows were being negatively impacted by the challenging conditions within the automotive market. As the challenging conditions continued into 2009, we updated our Service Solutions goodwill impairment analysis during each of the first three quarters of the year. For each of these quarters, our analysis indicated that the fair value of Service Solutions exceeded the carrying value of its net assets. Our annual goodwill impairment analysis for 2008 and the analyses during each of the first three quarters of 2009 reflected our view that the automotive market would begin to experience a recovery in 2010. By the fourth quarter of 2009, it became apparent that the recovery would not occur as quickly as originally anticipated. In response, we adjusted our future cash flow projections for Service Solutions in connection with our 2009 annual goodwill impairment analysis. Such analysis indicated that the fair value of our Service Solutions reporting unit was less than the carrying value of its net assets. We then estimated the implied fair value of Service Solutions' goodwill, which resulted in an impairment charge related to such goodwill of $187.7. The impairment charge of $187.7 was composed of (i) a $78.1 difference between the estimated fair value of Service Solutions compared to the carrying value of its net assets, and (ii) an allocation to certain tangible and intangible assets of $109.6 for the estimated increases in fair value for these assets solely for purposes of applying the impairment provisions of the Intangible — Goodwill and Other Topic of the Codification. After the impairment charge, goodwill for the Service Solutions reporting unit totaled $155.0 as of December 31, 2009.

        The estimated fair value for each of our other reporting units exceeds the carrying value of their respective net assets by at least 10.0%. We will continue to monitor impairment indicators across all of our reporting units.

        As a result of the global economic downturn, further changes in our forecasts or decreases in the value of our common stock could cause book values of certain operations to exceed their fair values which may result in goodwill impairment charges in future periods.

Employee Benefit Plans

        We have defined benefit pension plans that cover a portion of our salaried and hourly paid employees, including certain employees in foreign countries. Additionally, we have domestic postretirement plans that provide health and life insurance benefits for certain retirees and their dependents. The costs and obligations associated with these plans are calculated based on actuarial valuations. The critical assumptions used in determining these obligations and related expenses are discount rates, the expected long-term rate of return on plan assets and healthcare cost projections. These critical assumptions are determined based on company data and appropriate market indicators, and are evaluated at least annually by management in consultation with outside actuaries and investment advisors. Other assumptions involving demographic factors such as retirement patterns, mortality, turnover and the rate of compensation increases are evaluated periodically and are updated to reflect our experience and expectations for the future. While management believes that the assumptions used are appropriate, actual results may differ.

        To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. A lower expected rate of return on plan assets would increase pension expense. Our domestic qualified pension plans accounted for approximately 66.0% of our total projected benefit obligations at December 31, 2009. A 50 basis point change in the expected long-term rate of return for our domestic qualified pension plans would impact our estimated 2010 pension expense by approximately $4.2. Our pension plans have not experienced any significant impact on liquidity or counterparty exposure due to the volatility in the credit markets. Our domestic pension funds experienced a positive return on assets of approximately 9.2% in 2009.

        The discount rate enables us to state expected future cash flows at a present value on the measurement date. This rate is the yield on high-quality fixed income investments at the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension expense. A 50 basis point change in the discount rate for our domestic plans would impact our estimated 2010 pension expense by approximately $3.1.

        The trend in healthcare costs is difficult to estimate, and it has an important effect on postretirement liabilities. The 2009 healthcare cost trend rate, which is the weighted-average annual projected rate of increase in the per capita cost of covered benefits, was 8.2%. This rate is assumed to decrease to 5.0% by 2019 and then remain at that level. A one-percentage point increase in the healthcare cost trend rate would increase our estimated 2010 postretirement expense by $1.5.

        See Note 10 to our consolidated financial statements for further information on our pension and postretirement benefit plans.

40


Income Taxes

        We record our income taxes based on the Income Taxes Topic of the Codification, which includes an estimate of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

        Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.

        Realization of deferred tax assets associated with net operating loss and credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration by tax jurisdiction. We believe that it is more likely than not that certain of these net operating loss and credit carryforwards may expire unused and, accordingly, have established a valuation allowance against them. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that the 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 during the carryforward period are significantly reduced or alternative tax strategies are no longer viable.

        The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions and ongoing audits by federal, state and foreign tax authorities, which may result in proposed adjustments. We perform reviews of our income tax positions on a quarterly basis and accrue for potential contingencies. Accruals for these contingencies are recorded based on an expectation as to the timing of when the contingency will be resolved. As events change or resolution occurs, these accruals are adjusted, such as in the case of audit settlements with taxing authorities. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters.

        Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, 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 11 to our consolidated financial statements for additional details regarding our tax contingencies.

Product Warranty

        In the normal course of business, we issue product warranties for specific product lines and provide for the estimated future warranty cost in the period in which the sale is recorded. We provide for the estimate of warranty cost based on contract terms and historical warranty loss experience. Because warranty estimates are forecasts that are based on the best available information, claims costs may differ from amounts provided. In addition, due to the seasonal fluctuations at certain of our businesses, the timing of warranty provisions and the usage of warranty accruals can vary period to period. We make adjustments to warranty liabilities as changes in the obligations become reasonably estimable.

Contingent Liabilities

        Numerous claims, complaints and proceedings arising in the ordinary course of business, including but not limited to those relating to litigation matters (e.g., class actions, derivative lawsuits and contract, intellectual property, and competitive claims), environmental matters, and risk management matters (e.g., product and general liability, automobile, and workers' compensation claims) have been filed or are pending against us and certain of our subsidiaries. Additionally, we may become subject to significant claims, of which we are unaware currently, or the claims, of which we are aware, may result in us incurring a significantly greater liability than we anticipate. This may also be true in connection with past or future acquisitions. While we maintain property, cargo, auto, product, general liability, and directors' and officers' liability insurance and have acquired rights under similar policies in connection with our acquisitions that we believe cover a portion of these claims, this insurance may be insufficient or unavailable to protect us against potential loss exposures. In addition, we have increased our self-insurance limits over the past several years. While we believe we are entitled to indemnification from third parties for some of these claims, these rights may be insufficient or unavailable to protect us against potential loss exposures. However, we believe that our accruals related to these items are sufficient and that these items and our rights to available insurance and indemnity will be resolved without a material adverse effect, individually or in the aggregate, on our financial position, results of operations and cash flows. These accruals totaled $308.5 (including $231.8 for risk management matters) and $340.9 (including $260.7 for risk management matters) at December 31, 2009 and 2008, respectively.

        It is our policy to comply fully with applicable environmental requirements. We are currently involved in various investigatory and remedial actions at our facilities and at third-party waste disposal sites. It is our policy to accrue for estimated losses from legal actions or claims when events exist that make the realization of the losses or expenses probable and they can

41



be reasonably estimated. Our environmental accruals cover anticipated costs, including investigation, remediation, and operation and maintenance of clean-up sites. Accordingly, our estimates may change based on future developments, including new or changes in existing environmental laws or policies, differences in costs required to complete anticipated actions from estimates provided, future findings of investigation or remediation actions, or alteration to the expected remediation plans. We expense costs incurred to investigate and remediate environmental issues unless they extend the economic useful life of related assets. We record liabilities and report expenses when it is probable that an obligation has been incurred and the amounts can be reasonably estimated. Our estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. It is our policy to realize a change in estimates once it becomes probable and can be reasonably estimated. In determining our accruals, we do not discount environmental or other legal accruals and do not reduce them by anticipated insurance, litigation and other recoveries. We do take into account third-party indemnification from financially viable parties in determining our accruals where there is no dispute regarding the right to indemnification.

        We are self-insured for certain of our workers' compensation, automobile, product and general liability, disability and health costs, and we believe that we maintain adequate accruals to cover our retained liability. Our accruals for self-insurance liabilities are determined by management, are based on claims filed and an estimate of claims incurred but not yet reported, and generally are not discounted. Management considers a number of factors, including third-party actuarial valuations, when making these determinations. We maintain third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts; however, this insurance may be insufficient or unavailable to protect us against potential loss exposures. The key assumptions considered in estimating the ultimate cost to settle reported claims and the estimated costs associated with incurred but not yet reported claims include, among other things, our historical and industry claims experience, trends in health care and administrative costs, our current and future risk management programs, and historical lag studies with regard to the timing between when a claim is incurred versus when it is reported.


New Accounting Pronouncements

        See Note 3 to our consolidated financial statements for a complete discussion of recent accounting pronouncements. The following summarizes only those pronouncements that could have a material impact on our financial condition or results of operations in future periods.

        In December 2007, the FASB issued guidance that requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. In addition, the guidance requires acquisition costs to be expensed as incurred, acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies, in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. The guidance also includes a substantial number of new disclosure requirements and was effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the guidance on January 1, 2009 and we expect it will have (and has had with the acquisition of Yuba) an impact on our consolidated financial statements for acquisitions consummated after January 1, 2009, but the nature and magnitude of the specific effects will depend upon the terms and size of the acquisitions we consummate.

        In April 2009, the FASB issued guidance clarifying the requirements for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The guidance reiterates an asset acquired or a liability assumed in a business combination that arises from a contingency shall be recognized at fair value at the acquisition date during the measurement period. However, in the event the fair value cannot be determined during the measurement period, the Contingencies Topic of the Codification shall be applied. Contingent consideration arrangements of an acquiree assumed by the acquirer shall be recognized initially at fair value, and the acquirer shall develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. In addition, the disclosed information should enable users of the financial statements to evaluate the nature and financial effects of a business combination that occurs either during the current reporting period or after the reporting period but before the financial statements are issued. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted the guidance on January 1, 2009 and we expect it will have an impact on our consolidated financial statements for acquisitions consummated after January 1, 2009, but the nature and magnitude of the specific effects will depend upon the terms and size of the acquisitions we consummate.

42



ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

(All dollar amounts are in millions)

        We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity raw material prices, and we selectively use financial instruments to manage these risks. We do not enter into financial instruments for speculative or trading purposes; however, such instruments may become speculative if the future cash flows originally hedged are no longer probable of occurring as anticipated. We have interest rate protection agreements with financial institutions to limit exposure to interest rate volatility. Our currency exposures vary, but are primarily concentrated in the Euro, British Pound, South African Rand and Chinese Yuan. We generally do not hedge translation exposures. Our exposures for commodity raw materials vary, with the highest concentration relating to steel, copper and oil. See Note 13 to our consolidated financial statements for further details.

        The following table provides information, as of December 31, 2009, about our primary outstanding debt obligations and presents principal cash flows by expected maturity dates, weighted-average interest rates and fair values.

 
  Expected Maturity Date  
 
  2010   2011   2012   2013   2014   After   Total   Fair Value  

Long-term debt:

                                                 

7.625% senior notes

  $   $   $   $   $ 500.0       $ 500.0   $ 515.8  

Average interest rate

                                        7.625 %      

7.50% senior notes

                28.2             28.2     28.6  

Average interest rate

                                        7.50 %      

6.25% senior notes

        21.3                     21.3     22.2  

Average interest rate

                                        6.25 %      

Term loan

    75.0     168.8     356.2                 600.0     587.8  

Average interest rate

                                        4.89 %      

Domestic revolving loan facility

    61.5                         61.5     61.5  

Average interest rate

                                        1.25 %      

Trade receivable financing arrangement

    22.0                         22.0     22.0  

Average interest rate

                                        2.70 %      

        We believe that current cash and equivalents, cash flows from operations, availability under revolving credit facilities and availability under our trade receivables financing agreement will be sufficient to fund working capital needs, planned capital expenditures, equity repurchases, dividend payments, other operational cash requirements and required debt service obligations for the foreseeable future.

        We had foreign currency forward contracts with an aggregate notional amount of $100.2 outstanding as of December 31, 2009, with scheduled maturity of $71.8 and $28.4 in 2010 and 2011, respectively. The net fair value of our open contracts was $(1.2), with $0.2 recorded as a current asset and $1.4 as a current liability as of December 31, 2009. The fair value of the associated embedded derivatives was $(9.3), with $0.2 recorded as a current asset, $0.9 recorded as a noncurrent asset, $0.3 recorded as a current liability and $10.1 recorded as a noncurrent liability, as of December 31, 2009.

        We also had Swaps with a notional amount of $480.0 outstanding at December 31, 2009. These are amortizing Swaps; therefore, the outstanding notional value is scheduled to decline commensurate with the maturities of our term loan. As of December 31, 2009, we recorded an unrealized loss, net of tax, of $16.8 to accumulated other comprehensive income (loss) and a long-term liability of $28.0 to recognize the fair value of our Swaps.

        Lastly, we had commodity contracts with an unrealized gain, net of tax, recorded in accumulated other comprehensive income (loss) of $0.5 at December 31, 2009. We expect to reclassify the 2009 unrealized gain to cost of products sold over the next 12 months as the hedged transactions impact earnings. The fair value of these contracts was $0.9 (recorded as a current asset) as of December 31, 2009.

43



ITEM 8. Financial Statements And Supplementary Data

SPX Corporation and Subsidiaries
Index To Consolidated Financial Statements

December 31, 2009

        All schedules are omitted because they are not applicable, not required or because the required information is included in our consolidated financial statements or notes thereto.

44


Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of SPX Corporation:

        We have audited the accompanying Consolidated Balance Sheets of SPX CORPORATION AND SUBSIDIARIES (the "Company") as of December 31, 2009 and 2008, and the related Consolidated Statements of Operations, Shareholders' Equity and Comprehensive Income, and of Cash Flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of EGS Electrical Group, LLC and Subsidiaries ("EGS") for the years ended September 30, 2009, 2008 and 2007, the Company's investment in which is accounted for by use of the equity method (see Note 9 to the consolidated financial statements). The Company's equity in income of EGS for the years ended September 30, 2009, 2008 and 2007 was $28.0 million, $43.7 million and $39.3 million, respectively. The financial statements of EGS were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such company, is based solely on the report of such auditors.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of SPX CORPORATION AND SUBSIDIARIES at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 1 to the consolidated financial statements, beginning January 1, 2009, the Company changed its method of accounting for assets acquired and liabilities assumed in a business combination. Also, as discussed in Note 11, beginning January 1, 2007, the Company changed its method for measuring and recognizing tax benefits associated with uncertain tax positions.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina
February 25, 2010

45


SPX Corporation and Subsidiaries
Consolidated Statements of Operations
($ and shares in millions, except per share amounts)

 
  Year ended December 31,  
 
  2009   2008   2007  

Revenues

  $ 4,850.8   $ 5,837.6   $ 4,542.2  

Costs and expenses:

                   
 

Cost of products sold

    3,429.8     4,069.3     3,222.3  
 

Selling, general and administrative

    961.3     1,130.3     884.5  
 

Intangible amortization

    21.5     25.7     17.8  
 

Impairment of goodwill and other intangible assets

    194.8     123.0     4.0  
 

Special charges, net

    73.1     17.2     5.2  
               
   

Operating income

    170.3     472.1     408.4  

Other expense, net

    (19.7 )   (1.2 )   (2.3 )

Interest expense

    (92.1 )   (116.0 )   (76.9 )

Interest income

    7.5     10.9     9.1  

Loss on early extinguishment of debt

            (3.3 )

Equity earnings in joint ventures

    29.4     45.5     39.9  
               
 

Income from continuing operations before income taxes

    95.4     411.3     374.9  

Income tax provision

    (47.2 )   (152.4 )   (83.5 )
               
 

Income from continuing operations

    48.2     258.9     291.4  
               

Income (loss) from discontinued operations, net of tax

    (5.6 )   9.3     8.2  

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

    (26.4 )   4.6     (3.5 )
               
 

Income (loss) from discontinued operations

    (32.0 )   13.9     4.7  
               

Net income

    16.2     272.8     296.1  
 

Less: Net income (loss) attributable to noncontrolling interests

    (15.5 )   24.9     1.9  
               

Net income attributable to SPX Corporation common shareholders

  $ 31.7   $ 247.9   $ 294.2  
               

Amounts attributable to SPX Corporation common shareholders

                   
 

Income from continuing operations, net of tax

    46.4     252.3     291.0  
 

Income (loss) from discontinued operations, net of tax

    (14.7 )   (4.4 )   3.2  
               
 

Net income

  $ 31.7   $ 247.9   $ 294.2  
               

Basic income per share of common stock

                   
 

Income from continuing operations attributable to SPX Corporation common shareholders

  $ 0.94   $ 4.71   $ 5.25  
 

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

    (0.30 )   (0.08 )   0.06  
               
   

Net income per share attributable to SPX Corporation common shareholders

  $ 0.64   $ 4.63   $ 5.31  
               

Weighted-average number of common shares outstanding — basic

    49.363     53.596     55.425  

Diluted income per share of common stock

                   
 

Income from continuing operations attributable to SPX Corporation common shareholders

  $ 0.93   $ 4.64   $ 5.16  
 

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

    (0.29 )   (0.08 )   0.05  
               
   

Net income per share attributable to SPX Corporation common shareholders

  $ 0.64   $ 4.56   $ 5.21  
               

Weighted-average number of common shares outstanding — diluted

    49.797     54.359     56.437  

The accompanying notes are an integral part of these statements.

46


SPX Corporation and Subsidiaries
Consolidated Balance Sheets
($ in millions)

 
  December 31,
2009
  December 31,
2008
 

ASSETS

             

Current assets:

             
 

Cash and equivalents

  $ 522.9   $ 475.9  
 

Accounts receivable, net

    1,046.3     1,306.0  
 

Inventories

    560.3     666.8  
 

Other current assets

    121.2     180.6  
 

Deferred income taxes

    56.1     101.3  
 

Assets of discontinued operations

    5.7     108.2  
           
   

Total current assets

    2,312.5     2,838.8  

Property, plant and equipment:

             
 

Land

    39.1     36.3  
 

Buildings and leasehold improvements

    250.4     223.5  
 

Machinery and equipment

    712.2     677.9  
           

    1,001.7     937.7  
 

Accumulated depreciation

    (455.3 )   (437.3 )
           
 

Property, plant and equipment, net

    546.4     500.4  

Goodwill

    1,600.0     1,769.8  

Intangibles, net

    708.3     646.8  

Deferred income taxes

    114.7      

Other assets

    442.5     382.3  
           

TOTAL ASSETS

  $ 5,724.4   $ 6,138.1  
           

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 475.8   $ 633.7  
 

Accrued expenses

    987.5     1,153.6  
 

Income taxes payable

    20.3     24.5  
 

Short-term debt

    74.4     112.9  
 

Current maturities of long-term debt

    76.0     76.4  
 

Liabilities of discontinued operations

    5.3     23.9  
           
   

Total current liabilities

    1,639.3     2,025.0  

Long-term debt

    1,128.6     1,155.4  

Deferred and other income taxes

    92.1     124.0  

Other long-term liabilities

    962.9     788.9  
           
   

Total long-term liabilities

    2,183.6     2,068.3  

Commitments and contingent liabilities (Note 14)

             

Equity:

             
 

SPX Corporation shareholders' equity

             
   

Common stock (97,283,521 and 49,367,689 issued and outstanding at December 31, 2009, respectively, and 96,523,058 and 51,128,448 issued and outstanding at December 31, 2008, respectively)

    979.0     972.3  
   

Paid-in capital

    1,425.7     1,393.9  
   

Retained earnings

    2,223.0     2,240.5  
   

Accumulated other comprehensive loss

    (213.6 )   (179.9 )
   

Common stock in treasury (47,915,832 and 45,394,610 shares at December 31, 2009 and 2008, respectively)

    (2,523.3 )   (2,416.0 )
           
   

Total SPX Corporation shareholders' equity

    1,890.8     2,010.8  
 

Noncontrolling interests

    10.7     34.0  
           
   

Total equity

    1,901.5     2,044.8  
           

TOTAL LIABILITIES AND EQUITY

  $ 5,724.4   $ 6,138.1  
           

The accompanying notes are an integral part of these statements.

47


SPX Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
($ in millions, except per share amounts)

 
  Common
Stock
  Paid-In
Capital
  Retained
Earnings
  Accum. Other
Comprehensive
Income (Loss)
  Common
Stock In
Treasury
  SPX
Corporation
Shareholders'
Equity
  Noncontrolling
Interests
  Total
Equity
 

Balance at December 31, 2006

  $ 937.4   $ 1,134.5   $ 1,754.2   $ (86.6 ) $ (1,630.1 ) $ 2,109.4   $ 3.5   $ 2,112.9  
 

Net income

            294.2             294.2     1.9     296.1  
 

Net unrealized loss on qualifying cash flow hedges, net of tax of $7.4

                (11.9 )       (11.9 )       (11.9 )
 

Pension liability adjustment, net of tax of $35.5

                46.1         46.1         46.1  
 

Foreign currency translation adjustments, including $0.1 of translation gains recognized upon sale of discontinued operations

                90.5         90.5     1.4     91.9  
                                                 
 

Total comprehensive income

                                422.2  
 

Dividends declared ($1.00 per share)

            (55.0 )           (55.0 )       (55.0 )
 

Cumulative effect adjustment due to the adoption of new accounting guidance related to uncertain tax positions

            52.5             52.5         52.5  
 

Exercise of stock options and other incentive plan activity, including related tax benefit of $32.2

    21.3     137.8             15.5     174.6         174.6  
 

Amortization of restricted stock and restricted stock unit grants (includes $4.2 recorded to discontinued operations)

        42.3                 42.3         42.3  
 

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

    4.8     (18.6 )           (7.0 )   (20.8 )       (20.8 )

Treasury stock repurchased

                    (715.9 )   (715.9 )       (715.9 )

Purchase of noncontrolling interest shares

                            3.9     3.9  

Dividends attributable to noncontrolling interests

                            (0.4 )   (0.4 )

Other changes in noncontrolling interests

                            0.1     0.1  
                                   

Balance at December 31, 2007

    963.5     1,296.0     2,045.9     38.1     (2,337.5 )   2,006.0     10.4     2,016.4  
 

Net income

            247.9             247.9     24.9     272.8  
 

Net unrealized loss on qualifying cash flow hedges, net of tax of $13.7

                (21.9 )       (21.9 )       (21.9 )
 

Pension liability adjustment, net of tax of $62.2

                (101.7 )       (101.7 )       (101.7 )
 

Foreign currency translation adjustments, including $6.3 of translation gains recognized upon sale of discontinued operations

                (94.4 )       (94.4 )   (1.8 )   (96.2 )
                                                 
 

Total comprehensive income

                                53.0  
 

Dividends declared ($1.00 per share)

            (53.3 )           (53.3 )       (53.3 )
 

Exercise of stock options and other incentive plan activity, including related tax benefit of $36.0

    5.4     81.0             42.3     128.7         128.7  
 

Amortization of restricted stock and restricted stock unit grants (includes $0.7 recorded to discontinued operations)

        42.2                 42.2         42.2  
 

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

    3.4     (25.3 )           (5.6 )   (27.5 )       (27.5 )
 

Treasury stock repurchased

                    (115.2 )   (115.2 )       (115.2 )
 

Purchase of noncontrolling interest shares

                            1.5     1.5  
 

Dividends attributable to noncontrolling interests

                            (0.9 )   (0.9 )
 

Other changes in noncontrolling interests

                            (0.1 )   (0.1 )
                                   

Balance at December 31, 2008

    972.3     1,393.9     2,240.5     (179.9 )   (2,416.0 )   2,010.8     34.0     2,044.8  

48


 

 
  Common
Stock
  Paid-In
Capital
  Retained
Earnings
  Accum. Other
Comprehensive
Income (Loss)
  Common
Stock In
Treasury
  SPX
Corporation
Shareholders'
Equity
  Noncontrolling
Interests
  Total
Equity
 
 

Net income

            31.7             31.7     (15.5 )   16.2  
 

Net unrealized gain on qualifying cash flow hedges, net of tax of $6.7

                10.9         10.9         10.9  
 

Pension liability adjustment, net of tax of $56.5

                (95.2 )       (95.2 )       (95.2 )
 

Foreign currency translation adjustments, including $5.7 of translation gains recognized upon sale of discontinued operations

                50.6         50.6     0.8     51.4  
                                                 
 

Total comprehensive loss

                                (16.7 )
 

Dividends declared ($1.00 per share)

            (49.2 )           (49.2 )       (49.2 )
 

Exercise of stock options and other incentive plan activity, including related tax benefit of $1.7

    5.0     20.2                 25.2         25.2  
 

Amortization of restricted stock and restricted stock unit grants (includes $0.1 recorded to discontinued operations)

        27.7                 27.7         27.7  
 

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

    1.7     (14.3 )           5.9     (6.7 )       (6.7 )

Treasury stock repurchased

                    (113.2 )   (113.2 )       (113.2 )

Dividends attributable to noncontrolling interests

                            (0.4 )   (0.4 )

Liquidation of noncontrolling interest due to disposition of Filtran (See Note 4)

                            (5.1 )   (5.1 )

Purchase of subsidiary shares from noncontrolling interest

        (1.8 )               (1.8 )   (1.2 )   (3.0 )

Other changes in noncontrolling interests

                            (1.9 )   (1.9 )
                                   

Balance at December 31, 2009

  $ 979.0   $ 1,425.7   $ 2,223.0   $ (213.6 ) $ (2,523.3 ) $ 1,890.8   $ 10.7   $ 1,901.5  
                                   

The accompanying notes are an integral part of these statements

49


SPX Corporation and Subsidiaries
Consolidated Statements of Cash Flows
($ in millions)

 
  Year Ended December 31,  
 
  2009   2008   2007  

Cash flows from (used in) operating activities:

                   

Net income

  $ 16.2   $ 272.8   $ 296.1  

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

    (32.0 )   13.9     4.7  
               

Income from continuing operations

    48.2     258.9     291.4  

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

                   
 

Special charges, net

    73.1     17.2     5.2  
 

Gain on sale of product line

    (1.1 )        
 

Impairment of goodwill and other intangible assets

    194.8     123.0     4.0  
 

Loss on early extinguishment of debt

            3.3  
 

Deferred and other income taxes

    (21.0 )   49.4     (9.5 )
 

Depreciation and amortization

    105.9     104.5     73.4  
 

Pension and other employee benefits

    53.5     58.0     58.0  
 

Stock-based compensation

    27.6     41.5     39.5  
 

Other, net

    16.3     25.9     5.1  
 

Cash spending on restructuring actions

    (67.1 )   (28.1 )   (4.9 )

Changes in operating assets and liabilities, net of effects from acquisitions and divestitures

                   
 

Accounts receivable and other assets

    316.3     (252.8 )   17.1  
 

Inventories

    159.8     (48.0 )   (33.8 )
 

Accounts payable, accrued expenses and other

    (444.7 )   57.5     (42.9 )
               

Net cash from continuing operations

    461.6     407.0     405.9  

Net cash from (used in) discontinued operations

    9.5     (1.1 )   54.8  
               

Net cash from operating activities

    471.1     405.9     460.7  

Cash flows from (used in) investing activities:

                   

Proceeds from asset sales and other

    3.6     1.3     3.3  

Business acquisitions, net of cash acquired

    (131.4 )   (15.0 )   (567.2 )

(Increase) decrease in restricted cash

    8.4     (14.0 )    

Capital expenditures

    (92.8 )   (116.4 )   (82.6 )
               

Net cash used in continuing operations

    (212.2 )   (144.1 )   (646.5 )

Net cash from discontinued operations (includes net cash proceeds from dispositions of $28.8, $135.0 and $129.2 in 2009, 2008 and 2007, respectively)

    24.0     130.5     117.8  
               

Net cash used in investing activities

    (188.2 )   (13.6 )   (528.7 )

Cash flows from (used in) financing activities:

                   

Borrowings under senior credit facilities

    424.5     585.5     1,606.3  

Repayments under senior credit facilities

    (503.0 )   (710.5 )   (1,560.6 )

Borrowings under senior notes

            500.0  

Borrowing under trade receivables agreement

    138.0     261.0     586.0  

Repayments under trade receivables agreement

    (116.0 )   (331.0 )   (517.0 )

Net repayments under other financing arrangements

    (17.6 )   (28.3 )   (21.7 )

Purchases of common stock

    (113.2 )   (115.2 )   (715.9 )

Proceeds from the exercise of employee stock options and other, net of minimum tax withholdings paid on behalf of employees for net share settlements

    1.2     81.5     133.0  

Purchase of noncontrolling interest in subsidiary

    (3.0 )        

Dividends paid (includes noncontrolling interest distributions of $0.4, $0.9 and $0.4 in 2009, 2008 and 2007, respectively)

    (50.3 )   (54.4 )   (56.9 )

Financing fees paid

        (1.2 )   (15.1 )
               

Net cash used in continuing operations

    (239.4 )   (312.6 )   (61.9 )

Net cash from (used in) discontinued operations

    0.2     (0.4 )   (6.0 )
               

Net cash used in financing activities

    (239.2 )   (313.0 )   (67.9 )
               

Increase in cash and equivalents due to changes in foreign exchange rates

    3.3     42.5     12.8  

Net change in cash and equivalents

    47.0     121.8     (123.1 )

Consolidated cash and equivalents, beginning of period

    475.9     354.1     477.2  
               

Consolidated cash and equivalents, end of period

  $ 522.9   $ 475.9   $ 354.1  
               

Cash and equivalents of continuing operations

  $ 522.9   $ 475.9   $ 354.1  

Cash and equivalents of discontinued operations

  $   $   $  

Supplemental disclosure of cash flow information:

                   

Interest paid

  $ 94.2   $ 113.3   $ 77.1  

Income taxes paid, net of refunds of $66.4, $17.6 and $59.1 in 2009, 2008 and 2007, respectively

  $ 35.7   $ 95.7   $ 80.5  

Non-cash investing and financing activity:

                   

Debt assumed

  $   $ 1.2   $ 4.7  

The accompanying notes are an integral part of these statements.

50



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)

(1)   Summary of Significant Accounting Policies

        Our significant accounting policies are described below as well as in other Notes that follow.

        Basis of Presentation — The consolidated financial statements include SPX Corporation's ("our" or "we") accounts after the elimination of intercompany transactions. Investments in unconsolidated companies where we exercise significant influence, but do not have control, are accounted for using the equity method. We have reclassified certain prior year amounts to conform to the current year presentation, including the results of discontinued operations, the impact of the adoption of the noncontrolling interest guidance described in the Consolidation Topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("Codification"), and the impact of the adoption of the guidance described in the Earnings Per Share Topic of the Codification that requires certain unvested share-based payment awards to be included in basic and diluted earnings per share calculations. See Note 3 for further discussion of the impact of adopting new accounting pronouncements. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only (see Note 4 for information on discontinued operations).

        During 2007, we recognized an income tax benefit of $13.5 to "Gain (loss) on disposition of discontinued operations, net of tax" relating to the reversal of certain deferred tax liabilities associated with businesses previously disposed of and reported as discontinued operations, primarily during 2005. These additional gains should have been recorded in the period in which such businesses were disposed. In addition, an internal audit of a Japanese operation within our Test and Measurement segment uncovered employee misconduct and inappropriate accounting entries. Correction of this matter, substantially all of which related to periods prior to 2007, resulted in a reduction of "Income from continuing operations" (before and after taxes) of $7.4 during 2007. These entries included $2.4 of inventory write-downs, $2.0 of accounts receivable write-offs, and $3.0 in other adjustments. We have evaluated the effects of these corrections on prior periods' consolidated financial statements and concluded that no prior period is materially misstated. In addition, we have considered the effects of these corrections on our annual results of operations for the year ended December 31, 2007 and concluded that the impact is not material.

        We evaluated subsequent events (see Note 3) through February 25, 2010, the issuance date of our consolidated financial statements for the period ended December 31, 2009, as this is the date on which we filed such financial statements on Form 10-K with the Securities and Exchange Commission ("SEC").

        Foreign Currency Translation — The financial statements of our foreign subsidiaries are translated into U.S. dollars in accordance with the Foreign Currency Matters Topic of the Codification. Balance sheet accounts are translated at the current rate at the end of each period and income statement accounts are translated at the average rate for each period. Gains and losses on foreign currency translations are reflected as a separate component of shareholders' equity and other comprehensive income (loss). Foreign currency transaction gains and losses are included in other expense, net, with the related net gains/(losses) totaling $(21.0), $5.7 and $(2.7) in 2009, 2008 and 2007, respectively.

        Cash Equivalents — We consider highly liquid money market investments with original maturities of three months or less at the date of purchase to be cash equivalents.

        Revenue Recognition — We recognize revenues from product sales upon shipment to the customer (FOB shipping point) or upon receipt by the customer (FOB destination), in accordance with the agreed upon customer terms. Revenues from service contracts and long-term maintenance arrangements are deferred and recognized on a straight-line basis over the agreement period. Revenues from certain long-term construction/installation contracts are recognized using the percentage-of-completion method of accounting. Sales with FOB destination terms are primarily to automotive and power transformer industry customers. Sales to distributors with return rights are recognized upon shipment to the distributor with expected returns estimated and accrued at the time of sale. The accrual considers restocking charges for returns and in some cases the distributor must issue a replacement order before the return is authorized. Actual return experience may vary from our estimates. Amounts billed for shipping and handling are included in revenue. Costs incurred for shipping and handling are recorded in cost of products sold. We recognize revenue separately for arrangements with multiple deliverables that meet the criteria for separate units of accounting as defined by the Revenue Recognition Topic of the Codification.

        Sales incentive programs offered to our customers relate primarily to volume rebates and promotional and advertising allowances and are only significant to two of our business units. The liability for these programs, and the resulting reduction to reported revenues, is determined primarily through trend analysis, historical experience and expectations regarding customer participation. Taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction

51



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)


between a seller and a customer are presented on a net basis (excluded from revenue) in our consolidated statement of operations.

        Certain of our businesses, primarily within the Flow Technology, Test and Measurement and Thermal Equipment and Services segments, recognize revenues from long-term contracts under the percentage-of-completion method of accounting. The percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion.

        Provisions for estimated losses, if any, on uncompleted long-term contracts, are made in the period in which such losses are determined. In the case of customer change orders for uncompleted long-term contracts, estimated recoveries are included for work performed in forecasting ultimate profitability on certain contracts. Due to uncertainties inherent in the estimation process, it is possible that completion costs, including those arising from contract penalty provisions and final contract settlements, may be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined.

        Costs and estimated earnings in excess of billings 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. Claims related to long-term contracts are recognized as revenue only after management has determined that collection is probable and the amount can be reliably estimated. Claims made by us involve negotiation and, in certain cases, litigation. In the event we incur litigation costs in connection with claims, such litigation 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 determinable.

        We recognized $1,343.6, $1,367.2 and $1,039.1 in revenues under the percentage-of-completion method for the years ended December 31, 2009, 2008 and 2007, respectively. Costs and estimated earnings on uncompleted contracts, from their inception, and related amounts billed as of December 31, 2009 and 2008 were as follows:

 
  2009   2008  

Costs incurred on uncompleted contracts

  $ 2,176.1   $ 2,070.1  

Estimated earnings to date

    460.6     543.3  
           

    2,636.7     2,613.4  

Less: Billings to date

    (2,811.1 )   (2,755.3 )
           

Net billings in excess of costs and estimated earnings

  $ (174.4 ) $ (141.9 )
           

        These amounts are included in the accompanying consolidated balance sheets at December 31, 2009 and 2008 as shown below. Amounts for billed retainages and receivables to be collected in excess of one year are not significant for the periods presented.

 
  2009   2008  

Costs and estimated earnings in excess of billings(1)

  $ 193.6   $ 195.7  

Billings in excess of costs and estimated earnings on uncompleted contracts(2)

    (368.0 )   (337.6 )
           

Net billings in excess of costs and estimated earnings

  $ (174.4 ) $ (141.9 )
           

(1)
The December 31, 2009 and 2008 balances include $191.8 and 195.7 reported as a component of "Accounts receivable, net", respectively, and $1.8 and $0.0 as a component of "Other long-term assets", respectively, in the consolidated balance sheets.

(2)
The December 31, 2009 and 2008 balances include $357.0 and $323.4 reported as a component of "Accrued expenses", respectively, and $11.0 and $14.2 as a component of "Other long-term liabilities", respectively, in the consolidated balance sheets.

52



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)

        Research and Development Costs — We expense research and development costs as incurred. We charge costs incurred in the research and development of new software included in products to expense until technological feasibility is established. After technological feasibility is established, additional costs are capitalized until the product is available for general release. These costs are amortized over the economic life of the related products and we include the amortization in cost of products sold. We perform periodic reviews of the recoverability of these capitalized software costs. At the time we determine that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, we write off any unrecoverable capitalized amounts. We expensed $58.7 of research activities relating to the development and improvement of our products in 2009, $67.2 in 2008 and $60.4 in 2007. In addition, we expensed purchased in-process research and development of $0.9 during 2007 related to the APV acquisition.

        Property, Plant and Equipment — Property, plant and equipment ("PP&E") is stated at cost, less accumulated depreciation. We use the straight-line method for computing depreciation expense over the useful lives of PP&E, which do not exceed 40 years for buildings and range from 3 to 15 years for machinery and equipment. Depreciation expense was $69.7, $67.3 and $53.8 for the years ended December 31, 2009, 2008 and 2007, respectively. Leasehold improvements are amortized over the life of the related asset or the life of the lease, whichever is shorter. Interest is capitalized on significant construction or installation projects. There was no interest capitalized during 2009, 2008 and 2007.

        Income Taxes — We account for our income taxes based on the requirements of the Income Taxes Topic of the Codification, which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.

        Derivative Financial Instruments — We use interest rate protection agreements ("Swaps") to manage our exposures to fluctuating interest rate risk on our variable rate debt, foreign currency forward contracts to manage our exposures to fluctuating currency exchange rates, and forward commodity contracts to manage our exposures to fluctuation in certain raw material costs. Derivatives are recorded on the balance sheet and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives is recorded in other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings. Changes in the fair value of derivatives not designated as hedges, and the ineffective portion of cash flow hedges, are recorded in current earnings. We do not enter into financial instruments for speculative or trading purposes.

        For those transactions that are designated as cash flow hedges, on the date the derivative contract is entered into, we document our hedge relationship, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transaction. We also assess, both at inception and quarterly thereafter, whether such derivatives are highly effective in offsetting changes in the fair value of the hedged item.

        Fair value estimates are based on relevant market information. Changes in fair value are estimated by management quarterly based, in part, on quotes provided by third-party financial institutions.

(2)   Use Of Estimates

        The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues (e.g., our percentage-of-completion estimates described above) and expenses during the reporting period. We evaluate these estimates and judgments on an ongoing basis and base our estimates on experience, current and expected future conditions, third-party evaluations and various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from the estimates and assumptions used in the financial statements and related notes.

53



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)

        Listed below are certain significant estimates and assumptions used in the preparation of our consolidated financial statements. Certain other estimates and assumptions are further explained in the related notes.

        Accounts Receivable Allowances — We provide allowances for estimated losses on uncollectible accounts based on our historical experience and the evaluation of the likelihood of success in collecting specific customer receivables. In addition, we maintain allowances for customer returns, discounts and invoice pricing discrepancies, with such allowances primarily based on historical experience. Summarized below is the activity for these allowance accounts.

 
  Year ended December 31,  
 
  2009   2008   2007  

Balance at beginning of year

  $ 62.4   $ 55.4   $ 41.6  

Acquisitions

    0.2     5.0     8.8  

Allowances provided

    14.4     20.6     22.2  

Write-offs, net of recoveries and credits issued

    (16.8 )   (18.6 )   (17.2 )
               

Balance at end of year

  $ 60.2   $ 62.4   $ 55.4  
               

        Inventory — We estimate losses for excess and/or obsolete inventory and the net realizable value of inventory based on the aging of the inventory and the evaluation of the likelihood of recovering the inventory costs based on anticipated demand and selling price.

        Impairment of Long-Lived Assets and Intangibles Subject to Amortization — We continually review whether events and circumstances subsequent to the acquisition of any long-lived assets, or intangible assets subject to amortization, have occurred that indicate the remaining estimated useful lives of those assets may warrant revision or that the remaining balance of those assets may not be recoverable. If events and circumstances indicate that the long-lived assets should be reviewed for possible impairment, we use projections to assess whether future cash flows on an undiscounted basis related to the assets are likely to exceed the related carrying amount to determine if a write-down is appropriate. We will record an impairment charge to the extent that the carrying value of the assets exceed their fair values as determined by valuation techniques appropriate in the circumstances, which could include the use of similar projections on a discounted basis.

        In determining the estimated useful lives of definite-lived intangibles, we consider the nature, competitive position, life cycle position, and historical and expected future operating cash flows of each acquired asset, as well as our commitment to support these assets through continued investment and legal infringement protection.

        Goodwill and Indefinite-Lived Intangible Assets — We test goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter and continually review whether a triggering event has occurred to determine whether the carrying value exceeds the implied value. The fair value of reporting units is based generally on discounted projected cash flows, but we also consider factors such as comparable industry price multiples. We employ cash flow projections that we believe to be reasonable under current and forecasted circumstances, the results of which form the basis for making judgments about the carrying values of the reported net assets of our reporting units. Many of our businesses closely follow changes in the industries and end-markets that they serve. Accordingly, we consider estimates and judgments that affect the future cash flow projections, including principal methods of competition, such as volume, price, service, product performance and technical innovations, as well as estimates associated with cost improvement initiatives, capacity utilization and assumptions for inflation and foreign currency changes. Actual results may differ from these estimates under different assumptions or conditions. See Note 8 for further information, including discussion of impairment charges recorded in 2009 for our Service Solutions reporting unit and in 2008 for our Weil McLain subsidiary.

54



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)

        Accrued Expenses — We make estimates and judgments in establishing accruals as required under GAAP. Summarized in the table below are accrued expenses at December 31, 2009 and 2008.

 
  December 31,  
 
  2009   2008  

Employee benefits

  $ 199.6   $ 241.8  

Unearned revenue(1)

    462.0     524.5  

Warranty

    43.7     44.0  

Other(2)

    282.2     343.3  
           

Total

  $ 987.5   $ 1,153.6  
           

(1)
Unearned revenue includes billings in excess of costs and estimated earnings on uncompleted contracts accounted for under the percentage-of-completion method of revenue recognition, customer deposits and unearned amounts on service contracts.

(2)
Other consists of various items, including legal, interest, restructuring and dividends payable, none of which individually require separate disclosure.

        Legal — It is our policy to accrue for estimated losses from legal actions or claims when events exist that make the realization of the losses probable and they can be reasonably estimated. We do not discount legal obligations or reduce them by anticipated insurance recoveries.

        Environmental Remediation Costs — We expense costs incurred to investigate and remediate environmental issues unless they extend the economic useful life of related assets. We record liabilities and report expenses when it is probable that an obligation has been incurred and the amounts can be reasonably estimated. Our environmental accruals cover anticipated costs, including investigation, remediation and operation and maintenance of clean-up sites. Our estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. We do not discount environmental obligations or reduce them by anticipated insurance recoveries.

        Self-Insurance — We are self-insured for certain of our workers' compensation, automobile, product, general liability, disability and health costs, and we believe that we maintain adequate accruals to cover our retained liabilities. Our accruals for self-insurance liabilities are determined by management, are based on claims filed and an estimate of claims incurred but not yet reported, and generally are not discounted. Management considers a number of factors, including third-party actuarial valuations, when making these determinations. We maintain third-party stop-loss insurance policies to cover certain liability costs in excess of predetermined retained amounts; however, this insurance may be insufficient or unavailable to protect us against potential loss exposures. The key assumptions considered in estimating the ultimate cost to settle reported claims and the estimated costs associated with incurred but not yet reported claims includes among other things, our historical and industry claims experience, trends in health care and administrative costs, our current and future risk management programs, and historical lag studies with regard to the timing between when a claim is incurred and reported.

        Warranty — In the normal course of business, we issue product warranties for specific products and provide for the estimated future warranty cost in the period in which the sale is recorded. We provide for the estimate of warranty cost based on contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on the best available information, claims costs may differ from amounts provided. In addition, due to the seasonal fluctuations at certain of our businesses, the timing of warranty provisions and the usage of warranty accruals can vary period to period. We make adjustments to initial obligations for warranties as changes in

55



Notes to Consolidated Financial Statements
December 31, 2009
(All dollar and share amounts in millions, except per share data)


the obligations become reasonably estimable. The following is an analysis of our product warranty accrual for the periods presented:

 
  Year ended December 31,  
 
  2009   2008   2007  

Balance at beginning of year

  $ 58.8   $ 60.0   $ 53.0  

Acquisitions

    3.6     2.9     4.8  

Provisions

    24.0     20.2     26.9  

Usage

    (29.7 )   (24.3 )   (24.7 )
               
 

Balance at end of year

    56.7     58.8     60.0