0000088205-18-000015.txt : 20181106 0000088205-18-000015.hdr.sgml : 20181106 20181106090734 ACCESSION NUMBER: 0000088205-18-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 83 CONFORMED PERIOD OF REPORT: 20180929 FILED AS OF DATE: 20181106 DATE AS OF CHANGE: 20181106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPX CORP CENTRAL INDEX KEY: 0000088205 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 381016240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06948 FILM NUMBER: 181161694 BUSINESS ADDRESS: STREET 1: 13320-A BALLANTYNE CORPORATE PLACE CITY: CHARLOTTE STATE: NC ZIP: 28277 BUSINESS PHONE: 980-474-3700 MAIL ADDRESS: STREET 1: 13320-A BALLANTYNE CORPORATE PLACE CITY: CHARLOTTE STATE: NC ZIP: 28277 FORMER COMPANY: FORMER CONFORMED NAME: SEALED POWER CORP DATE OF NAME CHANGE: 19880515 10-Q 1 spx-20180929x10q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2018
¨
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
 
38-1016240
(State or Other Jurisdiction of Incorporation or
Organization)
 
(I.R.S. Employer Identification No.)
 
13320-A Ballantyne Corporate Place, Charlotte, North Carolina 28277
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s Telephone Number, Including Area Code (980) 474-3700
 
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
 
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to used the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No.
 
Common shares outstanding November 2, 2018, 43,392,063
 




SPX CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART I—FINANCIAL INFORMATION
 
ITEM 1. Financial Statements
 
SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited; in millions, except per share amounts)
 
Three months ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Revenues
$
362.5

 
$
348.5

 
$
1,093.6

 
$
1,038.8

Costs and expenses:
 
 
 

 
 

 
 

Cost of products sold
274.8

 
263.4

 
818.1

 
789.5

Selling, general and administrative
71.6

 
64.4

 
212.8

 
203.0

Intangible amortization
1.7

 
0.2

 
2.7

 
0.5

Special charges, net
1.0

 
1.0

 
4.6

 
2.0

Gain on contract settlement

 
10.2

 

 
10.2

Operating income
13.4

 
29.7

 
55.4

 
54.0

 
 
 
 
 
 
 
 
Other income (expense), net
0.7

 
1.2

 
3.9

 
(4.0
)
Interest expense
(5.9
)
 
(4.3
)
 
(15.3
)
 
(12.9
)
Interest income
0.3

 
0.2

 
1.1

 
0.9

Income from continuing operations before income taxes
8.5

 
26.8

 
45.1

 
38.0

Income tax provision
(1.7
)
 
(4.8
)
 
(6.2
)
 
(14.0
)
Income from continuing operations
6.8

 
22.0

 
38.9

 
24.0

 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax

 

 

 

Gain (loss) on disposition of discontinued operations, net of tax
(0.2
)
 
0.3

 
3.1

 
6.7

Income (loss) from discontinued operations, net of tax
(0.2
)
 
0.3

 
3.1

 
6.7

 
 
 
 
 
 
 
 
Net income
$
6.6

 
$
22.3

 
$
42.0

 
$
30.7

 
 
 
 
 
 
 
 
Basic income per share of common stock:
 
 
 

 
 

 
 

Income from continuing operations
$
0.16

 
$
0.51

 
$
0.91

 
$
0.56

Income (loss) from discontinued operations
(0.01
)
 
0.01

 
0.07

 
0.16

Net income per share
$
0.15

 
$
0.52

 
$
0.98

 
$
0.72

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — basic
43.080

 
42.540

 
42.948

 
42.347

 
 
 
 
 
 
 
 
Diluted income per share of common stock:
 
 
 

 
 

 
 

Income from continuing operations
$
0.15

 
$
0.50

 
$
0.87

 
$
0.55

Income from discontinued operations

 
0.01

 
0.07

 
0.15

Net income per share
$
0.15

 
$
0.51

 
$
0.94

 
$
0.70

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — diluted
44.904

 
44.064

 
44.648

 
43.728

 
 
 
 
 
 
 
 
Comprehensive income
$
5.6

 
$
41.4

 
$
42.4

 
$
48.9


The accompanying notes are an integral part of these statements.

3



SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share data)
 
September 29,
2018
 
December 31,
2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and equivalents
$
61.9

 
$
124.3

Accounts receivable, net
256.2

 
267.5

Contract assets
90.2

 

Inventories, net
143.5

 
143.0

Other current assets (includes income taxes receivable of $47.1 and $62.4 at September 29, 2018 and December 31, 2017, respectively)
71.3

 
97.7

Total current assets
623.1

 
632.5

Property, plant and equipment:
 

 
 

Land
19.4

 
15.8

Buildings and leasehold improvements
124.9

 
120.5

Machinery and equipment
334.7

 
330.4

 
479.0

 
466.7

Accumulated depreciation
(294.0
)
 
(280.1
)
Property, plant and equipment, net
185.0

 
186.6

Goodwill
393.8

 
345.9

Intangibles, net
200.3

 
117.6

Other assets
671.3

 
706.9

Deferred income taxes
32.9

 
50.9

TOTAL ASSETS
$
2,106.4

 
$
2,040.4

LIABILITIES AND EQUITY
 
 
 

Current liabilities:
 
 
 

Accounts payable
$
141.2

 
$
159.7

Contract liabilities
75.3

 

Accrued expenses
186.4

 
292.6

Income taxes payable
1.7

 
1.2

Short-term debt
113.1

 
7.0

Current maturities of long-term debt
9.3

 
0.5

Total current liabilities
527.0

 
461.0

Long-term debt
340.6

 
349.3

Deferred and other income taxes
33.4

 
29.6

Other long-term liabilities
835.7

 
885.8

Total long-term liabilities
1,209.7

 
1,264.7

Commitments and contingent liabilities (Note 14)


 


Equity:
 
 
 

Common stock (51,442,953 and 43,127,026 issued and outstanding at September 29, 2018, respectively, and 51,186,064 and 42,650,599 issued and outstanding at December 31, 2017, respectively)
0.5

 
0.5

Paid-in capital
1,310.2

 
1,309.8

Retained deficit
(701.3
)
 
(742.3
)
Accumulated other comprehensive income
250.5

 
250.1

Common stock in treasury (8,315,927 and 8,535,465 shares at September 29, 2018 and December 31, 2017, respectively)
(490.2
)
 
(503.4
)
Total equity
369.7

 
314.7

TOTAL LIABILITIES AND EQUITY
$
2,106.4

 
$
2,040.4

 
The accompanying notes are an integral part of these statements.

4



SPX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
Cash flows from (used in) operating activities:
 

 
 

Net income
$
42.0

 
$
30.7

Less: Income from discontinued operations, net of tax
3.1

 
6.7

Income from continuing operations
38.9

 
24.0

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

Special charges, net
4.6

 
2.0

Deferred and other income taxes
6.6

 
(0.7
)
Depreciation and amortization
21.3

 
18.9

Pension and other employee benefits
5.1

 
8.3

Long-term incentive compensation
12.4

 
10.4

Other, net
1.5

 
2.9

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


Accounts receivable and other assets
19.9

 
(18.9
)
Inventories
(6.2
)
 
(17.2
)
Accounts payable, accrued expenses and other
(86.7
)
 
(31.6
)
Cash spending on restructuring actions
(2.4
)
 
(1.4
)
Net cash from (used in) continuing operations
15.0

 
(3.3
)
Net cash used in discontinued operations
(1.7
)
 
(6.1
)
Net cash from (used in) operating activities
13.3

 
(9.4
)
Cash flows used in investing activities:
 
 
 
Proceeds from company-owned life insurance policies, net
0.2

 
0.9

Business acquisitions, net of cash acquired
(182.6
)
 

Net proceeds from sales of assets
9.5

 

Decrease in restricted cash
0.3

 

Capital expenditures
(8.0
)
 
(8.4
)
Net cash used in continuing operations
(180.6
)
 
(7.5
)
Net cash from discontinued operations
3.6

 

Net cash used in investing activities
(177.0
)
 
(7.5
)
Cash flows from financing activities:
 
 
 
Borrowings under senior credit facilities
157.4

 
46.4

Repayments under senior credit facilities
(76.6
)
 
(59.5
)
Borrowings under trade receivables financing arrangement
60.0

 
70.0

Repayments under trade receivables financing arrangement
(33.0
)
 
(39.0
)
Net repayments under other financing arrangements
(2.0
)
 
(7.8
)
Minimum withholdings paid on behalf of employees for net share settlements, net of proceeds from the exercise of employee stock options and other
(3.0
)
 
(1.1
)
Net cash from continuing operations
102.8

 
9.0

Net cash used in discontinued operations

 

Net cash from financing activities
102.8

 
9.0

Change in cash and equivalents due to changes in foreign currency exchange rates
(1.5
)
 
(4.5
)
Net change in cash and equivalents
(62.4
)
 
(12.4
)
Consolidated cash and equivalents, beginning of period
124.3

 
99.6

Consolidated cash and equivalents, end of period
$
61.9

 
$
87.2

 
The accompanying notes are an integral part of these statements.

5



SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions, except per share data)
 
     (1) 
BASIS OF PRESENTATION
Unless otherwise indicated, “we,” “us” and “our” mean SPX Corporation and its consolidated subsidiaries (“SPX”).
We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States (“GAAP”) can be condensed or omitted. The financial statements represent our accounts after the elimination of intercompany transactions and, in our opinion, include the adjustments (consisting only of normal and recurring items) necessary for their fair presentation.
We account for investments in unconsolidated companies where we exercise significant influence but do not have control using the equity method. In determining whether we are the primary beneficiary of a variable interest entity (“VIE”), we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties to determine which party has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and which party has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We have an interest in a VIE, in which we are not the primary beneficiary, as a result of the sale of Balcke Dürr. See below and in Notes 3 and 16 for further discussion of the sale of Balcke Dürr. All other VIEs are considered immaterial, individually and in aggregate, to our condensed consolidated financial statements.
Planned Wind-Down of SPX Heat Transfer Business
During the second quarter of 2018, as a continuation of our strategic shift away from power generation end markets, we initiated a plan to wind-down the SPX Heat Transfer (“Heat Transfer”) business within our Engineered Solutions reportable segment. In connection with the planned wind-down, we recorded charges of $2.0 in our second quarter 2018 operating results, with $0.9 related to the write-down of inventories (included in “Cost of products sold”), $0.6 related to the impairment of machinery and equipment, and $0.5 related to severance costs (both included in “Special charges, net”). Additional severance costs were recorded to “Special charges, net” during the three months ended September 29, 2018 of $0.8. In addition, and as part of the wind-down, we sold certain intangible assets of the Heat Transfer business for net cash proceeds of $4.8, which resulted in a gain of less than $0.1 within our second quarter 2018 operating results. We anticipate completing the wind-down by the end of the first quarter of 2019.
Acquisition of Cues
On June 7, 2018, we completed the acquisition of Cues, Inc. (“Cues”), a manufacturer of pipeline inspection and rehabilitation equipment, which significantly increases our presence in the pipeline inspection market. The acquisition was completed through the purchase of all of the issued and outstanding shares of Cues’ parent company for a purchase price of $166.2, net of cash acquired of $20.6. Cues had revenues of approximately $84.0 for the twelve months prior to the acquisition. The assets acquired and liabilities assumed have been recorded at preliminary estimates of fair value as determined by management, based on information currently available and on current assumptions as to future operations and are subject to change upon completion of acquisition accounting. The post-acquisition operating results of Cues are reflected within our Detection and Measurement reportable segment. See Note 3 for additional details on the Cues acquisition.
Acquisition of Schonstedt
On March 1, 2018, we completed the acquisition of Schonstedt Instrument Company (“Schonstedt”), a manufacturer and distributor of magnetic locator products used for locating underground utilities and other buried objects, for a purchase price of $16.4, net of cash acquired of $0.3. Schonstedt had revenues of approximately $9.0 for the twelve months prior to the acquisition. The assets acquired and liabilities assumed have been recorded at preliminary estimates of fair value as determined by management, based on information currently available and on current assumptions as to future operations, and are subject to change upon completion of acquisition accounting. The post-acquisition operating results of Schonstedt are reflected within our Detection and Measurement reportable segment.
Sale of Balcke Dürr
On December 30, 2016, we completed the sale of Balcke Dürr to a subsidiary of mutares AG (the “Buyer”). During the first quarter of 2017, we reduced the net loss associated with the sale of Balcke Dürr by $7.2, with such amount recorded to “Gain on disposition of discontinued operations, net of tax.” The reduction was comprised of an additional income tax benefit recorded for the sale of $8.4, partially offset by adjustments to liabilities retained in connection with the sale, net of tax, of $1.2. During the

6



second quarter of 2017, we increased the net loss associated with the sale of Balcke Dürr by $0.4, with the increase resulting from adjustments to liabilities retained in connection with the sale.
On April 30, 2018, we reached a settlement with the Buyer on the amount of cash and working capital at the closing date, as well as on various other matters, for a net payment from the Buyer in the amount of Euro 3.0 (with Euro 2.0 received in May 2018 and Euro 1.0 in July 2018). The settlement resulted in a gain, net of tax, of $3.8, which was recorded to “Gain (loss) on disposition of discontinued operations, net of tax” during the second quarter of 2018. See Note 3 for information on discontinued operations.
Other
Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017. Interim results are not necessarily indicative of full year results. We have reclassified certain prior year amounts to conform to the current year presentation. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only. See Note 3 for information on discontinued operations.
We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2018 are March 31, June 30 and September 29, compared to the respective April 1, July 1 and September 30, 2017 dates. We had one less day in the first quarter of 2018 and will have one more day in the fourth quarter of 2018 than in the respective 2017 periods. We do not believe the one less day during the first quarter of 2018 had a material impact on our consolidated operating results for the first nine months of 2018, when compared to the consolidated operating results for the first nine months of 2017.
(2)                                NEW ACCOUNTING PRONOUNCEMENTS
The following is a summary of new accounting pronouncements that apply or may apply to our business.
ASC Topic 606
In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard on revenue recognition (Accounting Standards Codification “ASC” 606) that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASC 606 contains a five-step approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing revenue when (or as) each performance obligation is satisfied. ASC 606 also requires a number of quantitative and qualitative disclosures intended to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue, and the related cash flows. Effective January 1, 2018, we adopted ASC 606 using the modified retrospective transition approach for all contracts not completed as of the date of adoption. The modified retrospective transition approach recognizes any changes as of the beginning of the year of initial application (i.e., as of January 1, 2018) through retained earnings, with no restatement of comparative periods.

The only significant change in revenue recognition as a result of the adoption of ASC 606 relates to our power transformer business. Under ASC 606, revenues for our power transformer business are being recognized over time, while under previous revenue recognition guidance (ASC 605), revenues for power transformers were recognized at a point in time. See Note 4 for further discussion of our revenue recognition principles and the post adoption impact of ASC 606.

    

7




Summarized below is the impact of the initial application of ASC 606 on our January 1, 2018 condensed consolidated balance sheet:
 
December 31,
2017
 
Impact of Adoption of ASC 606
 
January 1,
2018

 

 
 
 
 
Assets
 
 
 
 
 
Accounts receivable, net
$
267.5

 
$
(36.0
)
 
$
231.5

Inventories, net
143.0

 
(40.2
)
 
102.8

Contract assets

 
70.7

 
70.7

Other current assets
97.7

 
(3.6
)
 
94.1

Deferred income taxes
50.9

 
(0.9
)
 
50.0

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Contract liabilities

 
86.9

 
86.9

Accrued expenses
292.6

 
(99.0
)
 
193.6

Other long-term liabilities
885.8

 
(1.6
)
 
884.2

 
 
 
 
 
 
Equity
 
 
 
 
 
Accumulated other comprehensive income
250.1

 
(0.3
)
 
249.8

Retained deficit
$
(742.3
)
 
$
4.0

 
$
(738.3
)

Other Accounting Pronouncements
In February 2016, the FASB issued an amendment to existing guidance that requires lessees to recognize assets and liabilities for the rights and obligations created by long-term leases. In addition, this amendment requires new qualitative and quantitative disclosures about leasing arrangements. This standard is effective for annual reporting periods beginning on or after December 15, 2018 for public business entities, and interim periods within those annual reporting periods. Early adoption is permitted, and adoption must be applied on a modified retrospective basis. We are executing an implementation plan and are analyzing data to further assess the impact of this amendment on our consolidated financial statements. It is anticipated that the adoption will result in additional assets and liabilities on our consolidated balance sheet due to the recognition of lease rights and obligations. However, we do not expect the adoption to have a material impact to our consolidated statement of operations and comprehensive income or consolidated statement of cash flows.
In August 2016, the FASB issued an amendment to existing guidance to reduce diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows. This amendment provides clarification on eight specific cash flow presentation issues. The issues include, but are not limited to, debt prepayment or extinguishment costs, settlement of zero-coupon debt, proceeds from the settlement of insurance claims, and cash receipts from payments on beneficial interests in securitization transactions. This amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, and is to be applied retrospectively. We adopted this guidance during the first quarter of 2018, with such adoption having no material impact to our condensed consolidated financial statements.
In October 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The requirements of ASU 2016-16 are to be applied on a modified retrospective basis, which entails recognizing the initial effect of adoption in retained earnings. We adopted ASU 2016-16 as of January 1, 2018, which resulted in an increase of our retained deficit of $0.2.
In January 2017, the FASB issued an amendment to simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires that an entity recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This amendment is effective for annual reporting periods beginning after December 31, 2019, including interim periods within those annual reporting periods. Early adoption is permitted. The impact of this amendment on our consolidated financial statements will depend on the results of future goodwill impairment tests.
In March 2017, the FASB issued an amendment to revise the presentation of net periodic pension and postretirement benefit cost. The amendment requires the service cost component to be presented separately from the other components of net periodic pension and postretirement benefit cost. Service cost is required to be presented with other employee compensation costs within operating income. The other components of net periodic pension and postretirement benefit cost, such as interest cost, expected return on plan assets, amortization of prior service cost/credits, and gains or losses, are required to be separately presented outside of operating income. This amendment is effective for annual reporting periods beginning after December 15, 2017, including

8



interim periods within those annual reporting periods, with the financial statement presentation requirements of the amendment applied retrospectively. We adopted this guidance during the first quarter of 2018, resulting in non-service pension and postretirement costs being presented outside of operating income within the accompanying condensed consolidated statements of operations. In connection with the adoption of this guidance, we reclassified $1.5 and $(0.9) of net periodic pension and postretirement benefit income (expense) from “Selling, general and administrative” expenses to “Other income (expense), net” within the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2017, respectively. See Note 10 for details of our pension and postretirement expense.
In August 2017, the FASB issued significant amendments to hedge accounting. The FASB’s new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The amendments can be adopted immediately in any interim or annual period (including the current period). The mandatory effective date for calendar year-end public companies is January 1, 2019. We are currently evaluating the effect this amendment will have on our consolidated financial statements.
In February 2018, the FASB amended its guidance for reporting comprehensive income to reflect the potential impacts of the reduction in the corporate tax rate resulting from the Tax Cuts and Jobs Act (the “Act”). The amendment gives the option of reclassifying the stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings during the fiscal year or quarter in which the effect of the lower tax rate is recorded. The amendment is effective for years beginning after December 15, 2018, with early adoption permitted. We adopted this guidance as of January 1, 2018, which resulted in an increase of our retained deficit of $4.8.

     (3) 
ACQUISITIONS AND DISCONTINUED OPERATIONS
Acquisition of Cues
As indicated in Note 1, on June 7, 2018, we completed the acquisition of Cues for $166.2, net of cash acquired of $20.6. We financed the acquisition with available cash and borrowings under our senior credit and trade receivables financing arrangements. The assets acquired and liabilities assumed have been recorded at preliminary estimates of fair value as determined by management, based on information currently available and on current assumptions as to future operations and are subject to change upon completion of the acquisition method of accounting. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the acquisition date, as permitted under GAAP. The following is a summary of the recorded preliminary fair values of the assets acquired and liabilities assumed for Cues as of June 7, 2018:
Assets acquired:
 
 
Current assets, including cash and equivalents of $20.6
 
$
72.8

Property, plant and equipment
 
7.4

Goodwill
 
46.6

Intangible assets
 
79.5

Other assets
 
2.7

Total assets acquired
 
209.0

 
 
 
Current liabilities assumed
 
8.4

Non-current liabilities assumed
 
13.8

 
 
 
Net assets acquired
 
$
186.8

The identifiable intangible assets acquired consist of a trademark, customer backlog, customer relationships, and technology of $27.6, $0.8, $42.6, and $8.5, respectively, with such amounts based on a preliminary assessment of the related fair values. We expect to amortize the customer backlog, customer relationships, and technology assets over 0.5, 12.0, and 11.0 years, respectively.
We acquired gross receivables of $13.6, which had a fair value at the acquisition date of $13.2 based on our estimates of cash flows expected to be recovered.

9



The qualitative factors that comprise the recorded goodwill include expected synergies from combining our existing inspection equipment operations with those of Cues, expected market growth for Cues’ existing operations, and various other factors. We expect none of this goodwill or the intangible assets described above to be deductible for tax purposes.
We recognized revenues and net losses for Cues of $24.2 and $0.0, and $31.1 and $0.8, respectively, for the three and nine months ended September 29, 2018 with the net loss driven by charges of $2.5 and $4.1 for the three and nine months ended September 29, 2018, respectively, associated with the excess fair value (over historical cost) of inventory acquired which has been subsequently sold. During the three and nine months ended September 29, 2018, we incurred acquisition related costs for Cues of $0.5 and $2.2, respectively, which have been recorded to “Selling, general and administrative” within our condensed consolidated statements of operations.
The following unaudited pro forma information presents our results of operations for the three and nine months ended September 29, 2018 and September 30, 2017, respectively, as if the acquisition of Cues had taken place on January 1, 2017. The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations that would have been reported had the acquisition been completed as of the date presented, and should not be taken as representative of our future consolidated results of operations. The pro forma results include estimates and assumptions that management believes are reasonable; however, these results do not include any anticipated cost savings or expenses of the planned integration of Cues. These pro forma results of operations have been prepared for comparative purposes only and include additional interest expense on the borrowings required to finance the acquisition, additional depreciation and amortization expense associated with fair value adjustments to the acquired property, plant and equipment and intangible assets, the removal of charges associated with the excess fair value (over historical cost) of inventory acquired and subsequently sold, the removal of professional fees incurred in connection with the transaction, and the related income tax effects.
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Revenues
$
362.5

 
$
369.9

 
$
1,127.7

 
$
1,102.2

Income from continuing operations
9.4

 
22.5

 
45.4

 
26.8

Net income
9.2

 
22.8

 
48.5

 
33.5

 
 
 
 
 
 
 
 
Income from continuing operations per share of common stock:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.53

 
$
1.06

 
$
0.63

Diluted
$
0.21

 
$
0.51

 
$
1.02

 
$
0.61

 
 
 
 
 
 
 
 
Net income per share of common stock:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.54

 
$
1.13

 
$
0.79

Diluted
$
0.20

 
$
0.52

 
$
1.09

 
$
0.77


Acquisition of Schonstedt
As indicated in Note 1, on March 1, 2018, we completed the acquisition of Schonstedt for $16.4, net of cash acquired of $0.3. The pro forma effects of the Schonstedt acquisition are not material to our consolidated results of operations.
Discontinued Operations
During the first quarter of 2017, we reduced the net loss associated with the sale of Balcke Dürr by $7.2. The reduction in the net loss was comprised of an additional income tax benefit recorded for the sale of $8.4, partially offset by the impact of adjustments to liabilities retained in connection with the sale, net of tax, of $1.2. During the second quarter of 2017, we increased the net loss associated with the sale of Balcke Dürr by $0.4, with the increase resulting from adjustments to liabilities retained in connection with the sale.
As indicated in Note 1, during the second quarter of 2018, we reached a settlement with the Buyer on the amount of cash and working capital at the closing date, as well as on various other matters. The settlement resulted in a gain, net of tax, of $3.8, which was recorded to “Gain (loss) on disposition of discontinued operations, net of tax” during the second quarter of 2018.

10



In addition to the adjustments to the net loss related to the Balcke Dürr sale, we recognized a net loss of $0.2 and $0.7 during the three and nine months ended September 29, 2018, respectively, and net income (losses) of $0.3 and $(0.1) during the three and nine months ended September 30, 2017, respectively, resulting primarily from revisions to liabilities retained from businesses discontinued prior to 2016.
For the three and nine months ended September 29, 2018 and September 30, 2017, the table below presents a reconciliation of discontinued operations activity to the related amounts in the condensed consolidated statements of operations:
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Balcke Dürr
 
 
 
 
 
 
 
Income (loss) from discontinued operations
$

 
$

 
$
6.3

 
$
(2.6
)
Income tax (provision) benefit

 

 
(2.5
)
 
9.4

Income from discontinued operations, net

 

 
3.8

 
6.8

 
 
 
 
 
 
 
 
All other
 
 
 
 
 
 
 
Loss from discontinued operations
(0.3
)
 
(0.1
)
 
(1.0
)
 
(1.0
)
Income tax benefit
0.1

 
0.4

 
0.3

 
0.9

Income (loss) from discontinued operations, net
(0.2
)
 
0.3

 
(0.7
)
 
(0.1
)
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
Income (loss) from discontinued operations
(0.3
)
 
(0.1
)
 
5.3

 
(3.6
)
Income tax (provision) benefit
0.1

 
0.4

 
(2.2
)
 
10.3

Income (loss) from discontinued operations, net
$
(0.2
)
 
$
0.3

 
$
3.1

 
$
6.7

(4)    REVENUES FROM CONTRACTS
As indicated in Note 2, effective January 1, 2018, we adopted ASC 606 under the modified retrospective transition approach. As a result, for periods prior to 2018, revenue continues to be presented based on prior guidance. Summarized below is our policy for recognizing revenue, as well as the various other disclosures required by ASC 606.

ASC 606 Policy

Performance Obligations - Certain of our contracts are comprised of multiple deliverables, which can include hardware and software components, installation, maintenance, and extended warranties. For these contracts, we evaluate whether these deliverables represent separate performance obligations as defined by ASC 606. In some cases, a customer contracts with us to integrate a complex set of tasks and components into a single project or capability (even if the single project results in the delivery of multiple units). Hence, the entire contract is treated as a single performance obligation. In contrast, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. In cases where we sell standard products with observable standalone selling prices, these selling prices are used to determine the standalone selling price. In cases where we sell a customized customer specific solution, we typically use the expected cost plus margin approach to estimate the standalone selling price of each performance obligation. Sales taxes and other usage-based taxes are excluded from revenue.

Remaining performance obligations represent performance obligations that have yet to be satisfied. As a practical expedient, we do not disclose performance obligations that are (i) part of a contract that has an original expected duration of less than one year (this encompasses substantially all contracts with customers in the HVAC and Detection and Measurement reportable segments) and/or (ii) satisfied in a manner consistent with our right to consideration from the customer (i.e., revenue is recognized as value is transferred). Performance obligations for contracts with an original duration in excess of one year that have yet to be satisfied as of the end of a period primarily relate to our large process cooling systems and large South African projects, as well as certain of our bus fare collection systems. As of September 29, 2018, the aggregate amount allocated to remaining performance

11



obligations after the effect of practical expedients was $53.9. We expect to recognize revenue on approximately 70% and 91% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remaining recognized thereafter.

Options - We offer options within certain of our contracts to purchase future goods or services. To the extent the option provides a material right to a future benefit (i.e., future goods and services at a discount from the relative standalone selling price), we separate the material right as a performance obligation and adjust the standalone selling price of the other performance obligations within the contract. When determining the relative standalone selling price of the option, we first determine the incremental discount that the customer would receive by exercising the option and then adjust that value based on the probability of option exercise (based, where possible, on historical experience). Revenue is recognized for the option as either the option is exercised or when it expires.

Contract Combination and Modification - We assess each contract at its inception to determine whether it should be combined with other contracts for revenue recognition purposes. When making this determination, we consider factors such as whether two or more contracts with a customer were negotiated at or near the same time or were negotiated with an overall profit objective. Contracts are sometimes modified for changes in contract specifications, scope, or price (or a combination of these). Contract modifications for goods or services that are not distinct within the context of the contract (generally associated with specification changes in our engineered solutions product lines) are accounted for as part of the existing contract. Contract modifications for goods or services that are distinct (i.e., adding or subtracting distinct goods or services) are accounted for as either a termination of the existing contract and the creation of a new contract (where the goods or services are not priced at their standalone selling price), or the creation of separate contract (where the goods or services are priced at their standalone selling price).

Variable Consideration - We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. For contracts where a portion of the price may vary, we estimate the variable consideration at the amount to which we expect to be entitled, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant revenue reversal and, if necessary, constrain the amount of variable consideration recognized in order to mitigate this risk. Variable consideration primarily pertains to late delivery penalties, unapproved change orders and claims (levied by us and /or against us), and index-based pricing. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary from our estimates, we will adjust these estimates, which would affect revenue and earnings in the period such variances become known.

As noted above, the nature of our contracts gives rise to several types of variable consideration, including unapproved change orders and claims. We include in our contract estimates additional revenue for unapproved change orders or claims against the customer when we believe we have an enforceable right to the unapproved change order or claim, the amount can be reliably estimated, and the above criteria have been met. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs, and the objective evidence available to support the claim. These estimates are also based on historical award experience. At September 29, 2018, the aggregate revenues related to our large power projects in South Africa included approximately $38.4 related to claims and unapproved change orders. See Note 14 for additional details on our large power projects in South Africa.

Returns, Customer Sales Incentives and Warranties - We have certain arrangements that require us to estimate, at the time of sale, the amounts of variable consideration that should be excluded from revenue as (i) certain amounts are not expected to be collected from customers and/or (ii) the product may be returned. We principally rely on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include volume rebates, which are estimated using the most likely amount method, as well as early payment discounts and promotional and advertising allowances, which are estimated using the expected value method. We primarily offer assurance-type standard warranties that the product will conform to published specifications for a defined period of time after delivery. These types of warranties do not represent separate performance obligations. We establish provisions for estimated returns and warranties primarily based on contract terms and historical experience, using the expected value method. Certain businesses separately offer extended warranties, which are considered separate performance obligations.
 
Contract Costs - We have elected to apply the practical expedient provided under ASC 606 which allows an entity to expense incremental costs of obtaining or fulfilling a contract when incurred if the amortization period of the asset that the entity otherwise would have recorded is one year or less. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of products sold. The net asset recorded for incremental costs incurred to obtain or fulfill contracts, after consideration of the practical expedient mentioned above, is not material to our condensed consolidated financial statements.
       



12



Nature of Goods and Services, Satisfaction of Performance Obligations, and Payment Terms

Our HVAC product lines include package cooling towers, residential and commercial boilers, and comfort heating and ventilation products. Performance obligations for our HVAC product lines relate primarily to the delivery of equipment and components, with satisfaction of these performance obligations occurring at the time of shipment or delivery (i.e., control is transferred at a point in time). The typical length of a contract is one to three months and payment terms are generally 15-60 days after shipment to the customer.
Our detection and measurement product lines include underground pipe and cable locators, inspection and rehabilitation equipment, bus fare collection systems, signal monitoring, and obstruction lighting. Performance obligations for these product lines relate to delivery of equipment and components, installation and other short-term services, long-term maintenance and software subscription services. Performance obligations for equipment and components are satisfied at the time of shipment or delivery (i.e., control is transferred at a point in time). Performance obligations for installation and other short-term services are satisfied over time as the installation or service is performed. Performance obligations for maintenance and software subscription services are satisfied over time, with the related revenue recorded evenly throughout the contract service period as this method best depicts how control of the service is transferred. Payment terms for equipment and components are typically 30 to 60 days after shipment or delivery, while payment for services typically occurs at completion for shorter-term engagements (less than three months in duration) and throughout the service period for longer-term engagements (generally greater than three months in duration). These product lines have varying contract lengths ranging from one to eighteen months (with the longer term contracts generally associated with our bus fare collection systems and signal monitoring products lines), with the typical duration being one to three months.
Our engineered solutions product lines include medium and large power transformers, process cooling equipment and heat exchangers, as well as two large power plant contracts in our South African business. Performance obligations for these product lines relate to delivery of equipment and components, construction and reconstruction of cooling towers and other components, and providing installation, replacement/spare parts, and various other services. For these product lines, our customers typically contract with us to provide a customer-specific solution. The customer typically controls the work in process due to contractual termination clauses whereby we have an enforceable right to recovery of cost incurred including a reasonable profit for work performed to date on products or services that do not have an alternative use to us. Additionally, certain projects are performed on customer sites such that the customer controls the asset as it is created or enhanced. As such, performance obligations for these product lines are generally satisfied over time, with the related revenue recorded based on the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion, as this method best depicts how control of the product or service is being transferred. Revenue for sales of certain engineered components and all replacement/spare parts is recognized upon shipment or delivery (i.e., at a point in time). The length of customer contract is generally 6-12 months for our power transformers business and 6-18 months for our process cooling and heat exchanger businesses. The large contracts in our South African business relate to the construction of two large power plants that have a length in excess of 10 years. Payments on longer-term contracts are generally commensurate with milestones defined in the related contract, while payments for the replacement/spare parts contracts typically occur 30 to 60 days after delivery.
Customer prepayments, progress billings, and retention payments are customary in certain of our project-based businesses, generally for our engineered solutions product lines and, to a lesser extent, our detection and measurement product lines. Customer prepayments, progress billings, and retention payments are not considered a significant financing component because they are intended to protect either the customer or ourselves in the event that some or all of the obligations under the contract are not completed. Additionally, most contract assets are expected to convert to accounts receivable, and contract liabilities are expected to convert to revenue, within one year. As such, after applying the practical expedient to exclude potential significant financing components that are less than one year in duration, we do not have any such financing components.

13



Disaggregated Revenues

We disaggregate revenue from contracts with customers by major product line and based on the timing of recognition for each of our reportable segments, as we believe such disaggregation best depicts how the nature, amount, timing, and uncertainty of our revenues and cash flows are effected by economic factors, with such disaggregation presented below for the three and nine months ended September 29, 2018:
 
 
Three Months Ended September 29, 2018
Reportable Segments
 
HVAC
 
Detection and Measurement
 
Engineered Solutions
 
Total
 
 
 
 
 
 
 
 
 
Major product lines
 
 
 
 
 
 
 
 
Cooling
 
$
65.1

 
$

 
$

 
$
65.1

Boilers, comfort heating, and ventilation
 
66.9

 

 

 
66.9

Underground locators and inspection and rehabilitation
 equipment
 

 
49.8

 

 
49.8

Signal monitoring, obstruction lighting, and bus fare collection systems
 

 
34.5

 

 
34.5

Power transformers
 

 

 
89.4

 
89.4

Process cooling equipment and services, and heat exchangers
 

 

 
47.0

 
47.0

South African projects
 

 

 
9.8

 
9.8

 
 
$
132.0

 
$
84.3

 
$
146.2

 
$
362.5

 
 
 
 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
 
 
 
Revenues recognized at a point in time

 
$
132.0

 
$
79.5

 
$
17.1

 
$
228.6

Revenues recognized over time

 

 
4.8

 
129.1

 
133.9

 
 
$
132.0

 
$
84.3

 
$
146.2

 
$
362.5


 
 
Nine Months Ended September 29, 2018
Reportable Segments
 
HVAC
 
Detection and Measurement
 
Engineered Solutions
 
Total
 
 
 
 
 
 
 
 
 
Major product lines
 
 
 
 
 
 
 
 
Cooling
 
$
201.6

 
$

 
$

 
$
201.6

Boilers, comfort heating, and ventilation
 
197.8

 

 

 
197.8

Underground locators and inspection and rehabilitation
 equipment
 

 
110.7

 

 
110.7

Signal monitoring, obstruction lighting, and bus fare collection systems
 

 
113.8

 

 
113.8

Power transformers
 

 

 
274.9

 
274.9

Process cooling equipment and services, and heat exchangers
 

 

 
156.0

 
156.0

South African projects
 

 

 
38.8

 
38.8

 
 
$
399.4

 
$
224.5

 
$
469.7

 
$
1,093.6

 
 
 
 
 
 
 
 
 
Timing of Revenue Recognition
 
 
 
 
 
 
 
 
Revenues recognized at a point in time

 
$
399.4

 
$
215.6

 
$
48.1

 
$
663.1

Revenues recognized over time

 

 
8.9

 
421.6

 
430.5

 
 
$
399.4

 
$
224.5

 
$
469.7

 
$
1,093.6


Contract Balances

Our customers are invoiced for products and services at the time of delivery or based on contractual milestones, resulting in outstanding receivables with payment terms from these customers (“Contract Accounts Receivable”). In some cases, the timing of revenue recognition, particularly for revenue recognized over time, differs from when such amounts are invoiced to customers, resulting in a contract asset (revenue recognition precedes the invoicing of the related revenue amount) or a contract liability (payment from the customer precedes recognition of the related revenue amount). Contract assets and liabilities are generally

14



classified as current. On a contract-by-contract basis, the contract assets and contract liabilities are reported net within our condensed consolidated balance sheet. Our contract balances consisted of the following as of September 29, 2018 and January 1, 2018:
Contract Balances
September 29, 2018
 
January 1, 2018 (1)
 
Change
Contract Accounts Receivable (2)
$
249.0

 
$
222.9

 
$
26.1

Contract Assets
90.2

 
70.7

 
19.5

Contract Liabilities - current
(75.3
)
 
(86.9
)
 
11.6

Contract Liabilities - non-current (3)
(2.0
)
 

 
(2.0
)
Net contract balance
$
261.9

 
$
206.7

 
$
55.2

_____________________
(1) See Note 2 for the impact of the change at January 1, 2018 as a result of the adoption of ASC 606.
(2) Included in “Accounts receivable, net” within the accompanying condensed consolidated balance sheet.
(3) Included in “Other long-term liabilities” within the accompanying condensed consolidated balance sheet.
The $55.2 increase in our net contract balance from January 1, 2018 to September 29, 2018 was due primarily to revenue recognized during the period, partially offset by cash payments received from customers during the period.
During 2018, we recognized revenues of $6.8 and $56.7 during the three and nine months ended September 29, 2018, respectively, related to our contract liabilities at January 1, 2018.
Impact of ASC 606 Adoption
Summarized below and on the following page is a comparison of our condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 29, 2018 and condensed consolidated balance sheet as of September 29, 2018 as prepared under the provisions of ASC 606 to a presentation of these financial statements under the prior revenue recognition guidance. As previously discussed, the most significant impact of adopting ASC 606 relates to our power transformer business where, under ASC 606, revenues for power transformers are now being recorded over time versus at a point in time under the prior revenue recognition guidance. The initial transition to ASC 606 resulted in a reduction of inventory and deferred revenue (previously presented within “Accrued expenses”) and an increase to contract assets, as indicated in Note 2. Contract assets and contract liabilities are now separately presented within our condensed consolidated balance sheet (previously included in “Accounts receivable, net” and “Accrued expenses”, respectively). Additionally, and as noted below, the difference in revenue and earnings under prior revenue recognition guidance during the three and nine months ended September 29, 2018 is due primarily to the timing of power transformer deliveries. 
 
Three months ended September 29, 2018
Condensed consolidated statement of operations and comprehensive income
Reported
 
Effect of ASC 606 Adoption
 
Under Prior Revenue Recognition Guidance
Revenues
$
362.5

 
$
(0.6
)
 
$
361.9

Cost of products sold
274.8

 
0.6

 
275.4

Selling, general and administrative
71.6

 
0.1

 
71.7

Operating income
13.4

 
(1.3
)
 
12.1

Income from continuing operations before income taxes
8.5

 
(1.3
)
 
7.2

Income tax provision
(1.7
)
 
0.4

 
(1.3
)
Income from continuing operations
6.8

 
(0.9
)
 
5.9

Net income
$
6.6

 
$
(0.9
)
 
$
5.7

 
 
 
 
 
 
Comprehensive income
$
5.6

 
$
(0.3
)
 
$
5.3

 
 
 
 

 
 

Basic income per share of common stock:
 
 
 
 
 
Income from continuing operations
$
0.16

 
$
(0.02
)
 
$
0.14

Net income per share
$
0.15

 
$
(0.02
)
 
$
0.13

 
 
 
 
 
 
Diluted income per share of common stock:
 
 
 
 
 
Income from continuing operations
$
0.15

 
$
(0.02
)
 
$
0.13

Net income per share
$
0.15

 
$
(0.02
)
 
$
0.13


15



 
Nine months ended September 29, 2018
Condensed consolidated statement of operations and comprehensive income
Reported
 
Effect of ASC 606 Adoption
 
Under Prior Revenue Recognition Guidance
Revenues
$
1,093.6

 
$
(20.2
)
 
$
1,073.4

Cost of products sold
818.1

 
(15.9
)
 
802.2

Selling, general and administrative
212.8

 
(0.5
)
 
212.3

Operating income
55.4

 
(3.8
)
 
51.6

Income from continuing operations before income taxes
45.1

 
(3.8
)
 
41.3

Income tax provision
(6.2
)
 
1.0

 
(5.2
)
Income from continuing operations
38.9

 
(2.8
)
 
36.1

Net income
$
42.0

 
$
(2.8
)
 
$
39.2

 
 
 
 
 
 
Comprehensive income
$
42.4

 
$
(1.5
)
 
$
40.9

 
 
 
 

 
 

Basic income per share of common stock:
 
 
 
 
 
Income from continuing operations
$
0.91

 
$
(0.07
)
 
$
0.84

Net income per share
$
0.98

 
$
(0.07
)
 
$
0.91

 
 
 
 
 
 
Diluted income per share of common stock:
 
 
 
 
 
Income from continuing operations
$
0.87

 
$
(0.06
)
 
$
0.81

Net income per share
$
0.94

 
$
(0.06
)
 
$
0.88

 
As of September 29, 2018
Condensed consolidated balance sheet
Reported
 
Effect of ASC 606 Adoption
 
Under Prior Revenue Recognition Guidance
Accounts receivable, net
$
256.2

 
$
34.2

 
$
290.4

Contract assets
90.2

 
(90.2
)
 

Inventories, net
143.5

 
56.6

 
200.1

Other current assets
71.3

 
4.1

 
75.4

Total current assets
623.1

 
4.7

 
627.8

Deferred income taxes
32.9

 
1.9

 
34.8

TOTAL ASSETS
$
2,106.4

 
$
6.6

 
$
2,113.0

Contract liabilities
$
75.3

 
$
(75.3
)
 
$

Accrued expenses
186.4

 
85.9

 
272.3

Total current liabilities
527.0

 
10.6

 
537.6

Other long-term liabilities
835.7

 
1.5

 
837.2

Total long-term liabilities
1,209.7

 
1.5

 
1,211.2

 


 
 
 


Retained deficit
(701.3
)
 
(6.8
)
 
(708.1
)
Accumulated other comprehensive income
250.5

 
1.3

 
251.8

Total equity
369.7

 
(5.5
)
 
364.2

TOTAL LIABILITIES AND EQUITY
$
2,106.4

 
$
6.6

 
$
2,113.0

Condensed consolidated statement of cash flows - The impact of ASC 606 on our condensed consolidated statement of cash flows for the nine months ended September 29, 2018 is not presented, as the only impact to operating cash flows related to changes to net income and certain working capital amounts (no change to total operating cash flows) and there is no impact to investing or financing cash flows.

(5)                              INFORMATION ON REPORTABLE SEGMENTS
We are a global supplier of highly specialized, engineered solutions with operations in 14 countries and sales in over 100 countries around the world.
We have aggregated our operating segments into the following three reportable segments: HVAC, Detection and Measurement, and Engineered Solutions. The factors considered in determining our aggregated segments are the economic similarity of the businesses, the nature of products sold or services provided, production processes, types of customers, distribution methods, and regulatory environment. In determining our segments, we apply the threshold criteria of the Segment Reporting Topic of the Codification. Operating income or loss for each of our segments is determined before considering impairment and special charges, long-term incentive compensation and other indirect corporate expenses. This is consistent with the way our chief operating decision maker evaluates the results of each segment.

16



HVAC Reportable Segment
Our HVAC reportable segment engineers, designs, manufactures, installs and services cooling products for the HVAC and industrial markets, as well as boilers and comfort heating and ventilation products for the residential and commercial markets. The primary distribution channels for the segment’s products are direct to customers, independent manufacturing representatives, third-party distributors, and retailers. The segment serves a customer base in North America, Europe, and Asia Pacific.
Detection and Measurement Reportable Segment
Our Detection and Measurement reportable segment engineers, designs, manufactures and installs underground pipe and cable locators, inspection and rehabilitation equipment, bus fare collection systems, signal monitoring equipment, and obstruction lighting. The primary distribution channels for the segment’s products are direct to customers and third-party distributors. The segment serves a global customer base, with a strong presence in North America, Europe, and Asia Pacific.
Engineered Solutions Reportable Segment
Our Engineered Solutions reportable segment engineers, designs, manufactures, installs and services transformers for the power transmission and distribution market and process cooling equipment and heat exchangers for the industrial and power generation markets. The primary distribution channels for the segment’s products are direct to customers and third-party representatives. The segment has a strong presence in North America and South Africa.
Corporate Expense
Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters.
Financial data for our reportable segments for the three and nine months ended September 29, 2018 and September 30, 2017 are presented below:
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Revenues:
 

 
 

 
 

 
 

HVAC segment
$
132.0

 
$
119.4

 
$
399.4

 
$
349.8

Detection and Measurement segment
84.3

 
66.9

 
224.5

 
185.0

Engineered Solutions segment (1)
146.2

 
162.2

 
469.7

 
504.0

Consolidated revenues
$
362.5

 
$
348.5

 
$
1,093.6

 
$
1,038.8

 
 
 
 
 
 
 
 
Income (loss):
 

 
 

 
 

 
 

HVAC segment
$
15.6

 
$
15.6

 
$
52.7

 
$
47.5

Detection and Measurement segment
15.5

 
16.5

 
47.7

 
45.0

Engineered Solutions segment (1)(2)
(1.5
)
 
13.3

 
7.2

 
7.9

Total income for segments
29.6

 
45.4

 
107.6

 
100.4

 
 
 
 
 
 
 
 
Corporate expense
(10.5
)
 
(11.0
)
 
(34.8
)
 
(33.7
)
Long-term incentive compensation expense
(4.3
)
 
(3.6
)
 
(12.4
)
 
(10.4
)
Pension and postretirement income

 
(0.1
)
 

 
(0.3
)
Special charges, net
(1.0
)
 
(1.0
)
 
(4.6
)
 
(2.0
)
Loss on sale of dry cooling business
(0.4
)
 

 
(0.4
)
 

Consolidated operating income
$
13.4

 
$
29.7

 
$
55.4

 
$
54.0

_________________________
(1) As further discussed in Note 14, during the third quarter of 2018 and second quarter of 2017, we made revisions to our expected revenues and profits on our large power projects in South Africa. As a result of these revisions, we reduced revenue and segment income by $2.7 and $4.7, respectively, for the three and nine months ended September 29, 2018 and $13.5 and $22.9, respectively, for the nine months ended September 30, 2017.

(2) During the third quarter of 2017, we settled a contract that had been suspended and then ultimately canceled by a customer for cash proceeds of $9.0 and other consideration. In connection with the settlement, we recorded a gain of $10.2 during the quarter within our Engineered Solutions reportable segment.


17



(6)    SPECIAL CHARGES, NET
Special charges, net, for the three and nine months ended September 29, 2018 and September 30, 2017 are described in more detail below:
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
HVAC segment
$
0.2

 
$

 
$
0.2

 
$
0.4

Detection and Measurement segment

 

 

 
0.3

Engineered Solutions segment
0.8

 
1.0

 
4.0

 
1.2

Corporate

 

 
0.4

 
0.1

Total
$
1.0

 
$
1.0

 
$
4.6

 
$
2.0


HVAC Segment — Charges for the three and nine months ended September 29, 2018 related primarily to severance costs associated with a restructuring action at the segment’s boiler business. Charges for the nine months ended September 30, 2017 related primarily to severance costs associated with a restructuring action at the segment’s Cooling Americas business.
Detection and Measurement Segment — Charges for the nine months ended September 30, 2017 related to severance costs associated with a restructuring action at the segment’s communications technologies business during the first quarter of 2017.
Engineered Solutions Segment — Charges for the three and nine months ended September 29, 2018 related to severance and other costs associated with the planned wind-down of our Heat Transfer business. Additionally, charges for the nine months ended September 29, 2018 included severance costs associated with a restructuring action at the segment’s South African business. Charges for the three and nine months ended September 30, 2017 related primarily to severance costs associated with restructuring actions at the segment’s process cooling and South African businesses.
Corporate Charges for the nine months ended September 29, 2018 related to severance costs incurred in connection with the rationalization of certain administrative functions, while charges for the nine months ended September 30, 2017 related to severance costs incurred in connection with the sale of Balcke Dürr.
Expected charges still to be incurred under actions approved as of September 29, 2018 are approximately $0.7 and relate primarily to the planned wind-down of our Heat Transfer business.
The following is an analysis of our restructuring liabilities for the nine months ended September 29, 2018 and September 30, 2017:
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
Balance at beginning of year
$
0.6

 
$
0.9

Special charges (1)
4.0

 
2.0

Utilization — cash
(2.4
)
 
(1.4
)
Balance at end of period
$
2.2

 
$
1.5

____________________
(1) 
For the nine months ended September 29, 2018, excludes $0.6 of non-cash charges that impacted “Special charges” but not the restructuring liabilities.

18



(7)
INVENTORIES, NET
Inventories at September 29, 2018 and December 31, 2017 comprised the following:
 
September 29,
2018
 
December 31,
2017
Finished goods
$
53.1

 
$
33.0

Work in process
23.6

 
56.0

Raw materials and purchased parts
78.1

 
66.4

Total FIFO cost
154.8

 
155.4

Excess of FIFO cost over LIFO inventory value
(11.3
)
 
(12.4
)
Total inventories, net
$
143.5

 
$
143.0


As indicated in Note 2, in connection with the adoption of ASC 606, effective January 1, 2018, inventories were reduced by $40.2. In connection with the Cues transaction, we acquired $33.1 of inventories.

Inventories include material, labor and factory overhead costs and are reduced, when necessary, to estimated net realizable values. Certain inventories are valued using the last-in, first-out (“LIFO”) method. These inventories were approximately 45% and 56% of total inventory at September 29, 2018 and December 31, 2017, respectively. Other inventories are valued using the first-in, first-out (“FIFO”) method.
 
(8)    GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill, by reportable segment, for the nine months ended September 29, 2018, were as follows:
 
December 31,
2017
 
Goodwill
Resulting from
Business
Combinations (1)
 
Impairments
 
Foreign
Currency
Translation
 
September 29,
2018
HVAC segment
 

 
 
 
 

 
 

 
 

Gross goodwill
$
263.7

 
$

 
$

 
$
(0.6
)
 
$
263.1

Accumulated impairments
(144.7
)
 

 

 
0.1

 
(144.6
)
Goodwill
119.0

 

 

 
(0.5
)
 
118.5

 
 
 
 
 
 
 
 
 
 
Detection and Measurement segment
 

 
 

 
 

 
 

 
 

Gross goodwill
216.6

 
48.4

 

 
(0.5
)
 
264.5

Accumulated impairments
(136.0
)
 

 

 
0.5

 
(135.5
)
Goodwill
80.6

 
48.4

 

 

 
129.0

 
 
 
 
 
 
 
 
 
 
Engineered Solutions segment
 

 
 

 
 

 
 

 
 

Gross goodwill
358.3

 

 

 
(0.7
)
 
357.6

Accumulated impairments
(212.0
)
 

 

 
0.7

 
(211.3
)
Goodwill
146.3

 

 

 

 
146.3

 
 
 
 
 
 
 
 
 
 
Total
 

 
 

 
 

 
 

 
 

Gross goodwill
838.6

 
48.4

 

 
(1.8
)
 
885.2

Accumulated impairments
(492.7
)
 

 

 
1.3

 
(491.4
)
Goodwill
$
345.9

 
$
48.4

 
$

 
$
(0.5
)
 
$
393.8

___________________________
(1) 
Reflects amounts acquired in connection with the Schonstedt and Cues acquisitions of $1.8 and $46.6, respectively.

19



Other Intangibles, Net
Identifiable intangible assets at September 29, 2018 and December 31, 2017 comprised the following:
 
September 29, 2018
 
December 31, 2017
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Intangible assets with determinable lives:(1)
 

 
 

 
 

 
 

 
 

 
 

Customer relationships
$
44.8

 
$
(2.6
)
 
$
42.2

 
$
1.4

 
$
(1.4
)
 
$

Technology
17.1

 
(0.8
)
 
16.3

 
2.1

 
(0.5
)
 
1.6

Patents
4.5

 
(4.5
)
 

 
4.5

 
(4.5
)
 

Other
11.3

 
(7.6
)
 
3.7

 
11.7

 
(7.9
)
 
3.8

 
77.7

 
(15.5
)
 
62.2

 
19.7

 
(14.3
)
 
5.4

Trademarks with indefinite lives(2)
138.1

 

 
138.1

 
112.2

 

 
112.2

Total
$
215.8

 
$
(15.5
)
 
$
200.3

 
$
131.9

 
$
(14.3
)
 
$
117.6

___________________________
(1) 
The identifiable intangible assets associated with the Schonstedt acquisition consist of customer relationships and technology of $0.8 and $8.3, respectively. The identifiable intangible assets associated with the Cues acquisition consist of customer backlog, customer relationships, and technology of $0.8, $42.6, and $8.5, respectively. Additionally, the technology associated with Heat Transfer of $1.5 was sold during the second quarter of 2018 in connection with the planned wind-down of the business.
(2) 
Changes during the nine months ended September 29, 2018 related primarily to the acquisition of the Schonstedt and Cues trademarks of $1.8 and $27.6, respectively, and the sale of the trademarks associated with Heat Transfer of $3.3 in connection with the planned wind-down of the business.
At September 29, 2018, the net carrying value of intangible assets with determinable lives consisted of $3.4 in the HVAC reportable segment and $58.8 in the Detection and Measurement reportable segment. At September 29, 2018, trademarks with indefinite lives consisted of $89.5 in the HVAC reportable segment, $39.5 in the Detection and Measurement reportable segment, and $9.1 in the Engineered Solutions reportable segment.
We perform our annual goodwill impairment testing during the fourth quarter in conjunction with our annual financial planning process, with such testing based primarily on events and circumstances existing as of the end of the third quarter. In addition, we test goodwill for impairment on a more frequent basis if there are indications of potential impairment. A significant amount of judgment is involved in determining if an indication of impairment has occurred between annual testing dates. Such indication may include: a significant decline in expected future cash flows; a significant adverse change in legal factors or the business climate; unanticipated competition; and a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit.
We perform our annual trademarks impairment testing during the fourth quarter, or on a more frequent basis, if there are indications of potential impairment. The fair values of our trademarks are determined by applying estimated royalty rates to projected revenues, with the resulting cash flows discounted at a rate of return that reflects current market conditions (fair value based on unobservable inputs - Level 3, as defined in Note 16). The primary basis for these projected revenues is the annual operating plan for each of the related businesses, which is prepared in the fourth quarter of each year.
(9)     WARRANTY
The following is an analysis of our product warranty accrual for the periods presented:
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
Balance at beginning of year
$
33.9

 
$
35.8

Acquisitions
1.3

 

Impact of initial adoption of ASC 606
0.4

 

Provisions
7.6

 
9.7

Usage
(9.8
)
 
(11.5
)
Currency translation adjustment
0.1

 
0.2

Balance at end of period
33.5

 
34.2

Less: Current portion of warranty
14.6

 
14.2

Non-current portion of warranty
$
18.9

 
$
20.0


20



(10)    EMPLOYEE BENEFIT PLANS
In July 2014, we discontinued our sponsorship of post-65 age healthcare plans, effective January 1, 2015, which resulted in eligible retirees being transitioned to coverage in the individual healthcare insurance market that we subsidize through health reimbursement accounts. In November 2014, a lawsuit was filed challenging certain aspects of this action. In September 2017, we received a favorable ruling related to the lawsuit. During the third quarter of 2017, in connection with the favorable ruling, we reduced our unfunded liability related to postretirement benefits by $26.8. The offset for the reduction of the unfunded liability was recorded to accumulated other comprehensive income and represents unrecognized prior service credits. These unrecognized prior service credits are being recorded to net periodic postretirement benefit (income) expense over a period of approximately eight years. In addition, we remeasured our unfunded liability related to postretirement benefits, which resulted in a gain within net periodic postretirement benefit expense and a reduction of the unfunded liability of $2.6 during the third quarter of 2017.

Net periodic benefit expense (income) for our pension and postretirement plans include the following components:

Domestic Pension Plans
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Service cost
$

 
$
0.1

 
$

 
$
0.3

Interest cost
3.1

 
3.4

 
9.2

 
10.0

Expected return on plan assets
(2.6
)
 
(2.5
)
 
(7.8
)
 
(7.5
)
Amortization of unrecognized prior service credits

 
(0.1
)
 

 
(0.1
)
Net periodic pension benefit expense
$
0.5

 
$
0.9

 
$
1.4

 
$
2.7


Foreign Pension Plans
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Service cost
$

 
$

 
$

 
$

Interest cost
1.2

 
1.2

 
3.6

 
3.6

Expected return on plan assets
(2.0
)
 
(1.6
)
 
(5.8
)
 
(4.7
)
Net periodic pension benefit income
$
(0.8
)
 
$
(0.4
)
 
$
(2.2
)
 
$
(1.1
)

Postretirement Plans
 
Three months ended
 
Nine months ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Service cost
$

 
$

 
$

 
$

Interest cost
0.6

 
0.9

 
1.7

 
2.8

Recognized net actuarial gain

 
(2.6
)
 


 
(2.6
)
Amortization of unrecognized prior service credits
(1.0
)
 
(0.2
)
 
(3.0
)
 
(0.6
)
Net periodic postretirement benefit income
$
(0.4
)
 
$
(1.9
)
 
$
(1.3
)
 
$
(0.4
)
 
(11)
INDEBTEDNESS
The following summarizes our debt activity (both current and non-current) for the nine months ended September 29, 2018:

December 31,
2017
 
Borrowings
 
Repayments
 
Other(4)
 
September 29,
2018
Revolving loans
$

 
$
157.4

 
$
(76.6
)
 
$

 
$
80.8

Term loan(1)
347.7

 

 

 
0.3

 
348.0

Trade receivables financing arrangement(2)

 
60.0

 
(33.0
)
 

 
27.0

Other indebtedness(3)
9.1

 
14.1

 
(16.1
)
 
0.1

 
7.2

Total debt
356.8

 
$
231.5

 
$
(125.7
)
 
$
0.4

 
463.0

Less: short-term debt
7.0

 
 
 
 
 
 
 
113.1

Less: current maturities of long-term debt
0.5

 
 
 
 
 
 
 
9.3

Total long-term debt
$
349.3

 
 
 
 
 
 
 
$
340.6

___________________________

21



(1) 
The term loan is repayable in quarterly installments of 1.25% of the initial loan amount of $350.0, beginning in the first quarter of 2019, with the remaining balance payable in full on December 19, 2022. Balances are net of unamortized debt issuance costs of $2.0 and $2.3 at September 29, 2018 and December 31, 2017, respectively.
(2) 
Under this arrangement, we can borrow, on a continuous basis, up to $50.0, as available. At September 29, 2018, we had $17.4 of available borrowing capacity under this facility after giving effect to outstanding borrowings of $27.0. Borrowings under this arrangement are collateralized by eligible trade receivables of certain of our businesses.
(3) 
Primarily includes balances under a purchase card program of $2.4 and $2.8, capital lease obligations of $1.9 and $2.1, and borrowings under a line of credit in China totaling $2.9 and $4.1 at September 29, 2018 and December 31, 2017, respectively. The purchase card program allows for payment beyond the normal payment terms for goods and services acquired under the program. As this arrangement extends the payment of these purchases beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt. 
(4) 
“Other” primarily includes debt assumed, foreign currency translation on any debt instruments denominated in currencies other than the U.S. dollar, and the impact of amortization of debt issuance costs associated with the term loan.
Senior Credit Facilities
A detailed description of our senior credit facilities is included in our 2017 Annual Report on Form 10-K.
At September 29, 2018, we had $32.0 and $135.0 of outstanding letters of credit issued under our revolving credit and our foreign credit instrument facilities of our senior credit agreement, respectively.
The weighted-average interest rate of outstanding borrowings under our senior credit agreement was approximately 3.93% at September 29, 2018.
At September 29, 2018, we were in compliance with all covenants of our senior credit agreement.

(12)
DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps
During the second quarter of 2016, we entered into an interest rate swap agreement to hedge the interest rate risk on our then existing variable rate term loan. As a result of amending our senior credit agreement on December 19, 2017, these swaps (“Old Swaps”) no longer qualified for hedge accounting. On March 8, 2018, we extinguished the Old Swaps and entered into a new interest rate swap agreement (the “New Swaps”) to hedge the interest rate risk on the variable interest rate borrowings under our senior credit agreement. The New Swaps, which we have designated and are accounting for as cash flow hedges, have an initial notional amount of $260.0 and maturities through December 2021 and effectively convert a portion of the borrowings under our senior credit agreement to a fixed rate of 2.535%, plus the applicable margin. As of September 29, 2018, the aggregate notional amounts of the New Swaps was $260.0 and the unrealized gain, net of tax, recorded in AOCI was $0.2. In addition, as of September 29, 2018, we recorded a long-term asset of $0.3 to recognize the fair value of the New Swaps. Changes in fair value for the New Swaps are reclassified into earnings as a component of interest expense, when the forecasted transaction impacts earnings.

Currency Forward Contracts and Currency Forward Embedded Derivatives
From time to time, we enter into forward contracts to manage the exposure on contracts with forecasted transactions denominated in non-functional currencies and to manage the risk of transaction gains and losses associated with assets/liabilities denominated in currencies other than the functional currency of certain subsidiaries (“FX forward contracts”). In addition, some of our contracts contain currency forward embedded derivatives (“FX embedded derivatives”), because the currency of exchange is not “clearly and closely” related to the functional currency of either party to the transaction. Certain of our FX forward contracts are designated as cash flow hedges. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value are not included in current earnings, but are included in AOCI. These changes in fair value are reclassified into earnings as a component of revenues or cost of products sold, as applicable, when the forecasted transaction impacts earnings. In addition, if the forecasted transaction is no longer probable, the cumulative change in the derivatives’ fair value is recorded as a component of “Other income (expense), net” in the period in which the transaction is no longer considered probable of occurring. To the extent a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded in earnings in the period in which it occurs.

22



We had FX forward contracts with an aggregate notional amount of $14.2 and $9.0 outstanding as of September 29, 2018 and December 31, 2017, respectively, with all of the $14.2 scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $0.6 and $1.1 at September 29, 2018 and December 31, 2017, respectively, with all of the $0.6 scheduled to mature within one year. There were no unrealized gains or losses recorded in AOCI related to FX forward contracts as of September 29, 2018 and December 31, 2017.
The fair value of our FX forward contracts and FX embedded derivative instruments were not material in relation to our condensed consolidated balance sheets as of September 29, 2018 and December 31, 2017.
Commodity Contracts
From time to time, we enter into commodity contracts to manage the exposure on forecasted purchases of commodity raw materials. At September 29, 2018 and December 31, 2017, the outstanding notional amount of commodity contracts was 3.9 and 3.6 pounds of copper, respectively. We designate and account for these contracts as cash flow hedges and, to the extent these commodity contracts are effective in offsetting the variability of the forecasted purchases, the change in fair value is included in AOCI. We reclassify AOCI associated with our commodity contracts to cost of products sold when the forecasted transaction impacts earnings. As of September 29, 2018 and December 31, 2017, the fair value of these contracts were $0.7 (current liability) and $1.1 (current asset), respectively. The unrealized gains (losses), net of taxes, recorded in AOCI were $(0.5) and $0.8 as of September 29, 2018 and December 31, 2017, respectively. We anticipate reclassifying the unrealized losses as of September 29, 2018 to earnings over the next 12 months.

23



(13)    EQUITY AND LONG-TERM INCENTIVE COMPENSATION
Income Per Share
The following table sets forth the number of weighted-average shares outstanding used in the computation of basic and diluted income per share:

 
Three months ended
 
Nine months ended