UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2021

☐ 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.)

6325 Ardrey Kell Road, Suite 400, Charlotte, North Carolina 28277

(Address of principal executive offices) (Zip Code)

(980) 474-3700

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address, and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common Stock, par value $0.01	SPXC	New York Stock Exchange

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.  ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ 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.

Large accelerated filer	☒	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 use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

Common shares outstanding April 30, 2021, 45,253,465

SPX CORPORATION AND SUBSIDIARIES

FORM 10-Q INDEX

PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Income	3
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	37
Item 4 – Controls and Procedures	37
PART 2 – OTHER INFORMATION
Item 1 – Legal Proceedings	38
Item 1A – Risk Factors	38
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6 – Exhibits	38
SIGNATURES	39

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
	April 3, 2021		March 28, 2020
Revenues	$	398.5	$	367.4
Costs and expenses:
Cost of products sold	273.3		253.7
Selling, general and administrative	88.8		78.9
Intangible amortization	4.0		2.6
Special charges, net	0.7		0.3
Other operating income	—		(0.4)
Operating income	31.7		32.3
Other income, net	7.0		0.7
Interest expense	(4.2)		(4.7)
Interest income	0.1		—
Income from continuing operations before income taxes	34.6		28.3
Income tax provision	(7.0)		(6.0)
Income from continuing operations	27.6		22.3
Income from discontinued operations, net of tax	—		0.4
Loss on disposition of discontinued operations, net of tax	(0.8)		—
Income (loss) from discontinued operations, net of tax	(0.8)		0.4
Net income	$	26.8	$	22.7
Basic income per share of common stock:
Income from continuing operations	$	0.61	$	0.50
Income (loss) from discontinued operations	(0.02)		0.01
Net income per share	$	0.59	$	0.51
Weighted-average number of common shares outstanding — basic	45.132		44.309
Diluted income per share of common stock:
Income from continuing operations	$	0.60	$	0.49
Income (loss) from discontinued operations	(0.02)		0.01
Net income per share	$	0.58	$	0.50
Weighted-average number of common shares outstanding — diluted	46.319		45.527
Comprehensive income	$	29.5	$	9.8

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)

	April 3, 2021		December 31, 2020
ASSETS
Current assets:
Cash and equivalents	$	106.9	$	68.3
Accounts receivable, net	237.6		271.9
Contract assets	75.8		81.1
Inventories, net	169.7		162.0
Other current assets (includes income taxes receivable of $29.3 and $27.3 at April 3, 2021 and December 31, 2020, respectively)	105.5		99.3
Total current assets	695.5		682.6
Property, plant and equipment:
Land	19.4		19.4
Buildings and leasehold improvements	129.0		128.0
Machinery and equipment	358.9		356.7
	507.3		504.1
Accumulated depreciation	(320.7)		(314.4)
Property, plant and equipment, net	186.6		189.7
Goodwill	500.2		499.9
Intangibles, net	300.3		305.0
Other assets	613.0		616.6
Deferred income taxes	1.4		3.9
TOTAL ASSETS	$	2,297.0	$	2,297.7
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	135.0	$	138.7
Contract liabilities	106.7		103.5
Accrued expenses	234.6		233.9
Income taxes payable	1.6		0.4
Short-term debt	100.0		101.2
Current maturities of long-term debt	8.9		7.2
Total current liabilities	586.8		584.9
Long-term debt	282.6		304.0
Deferred and other income taxes	29.0		23.8
Other long-term liabilities	737.8		755.8
Total long-term liabilities	1,049.4		1,083.6
Commitments and contingent liabilities (Note 15)
Equity:
Common stock (52,806,597 and 45,237,949 issued and outstanding at April 3, 2021, respectively, and 52,704,973 and 45,032,325 issued and outstanding at December 31, 2020, respectively)	0.5		0.5
Paid-in capital	1,315.8		1,319.9
Retained deficit	(461.3)		(488.1)
Accumulated other comprehensive income	251.2		248.5
Common stock in treasury (7,568,648 and 7,672,648 shares at April 3, 2021 and December 31, 2020, respectively)	(445.4)		(451.6)
Total equity	660.8		629.2
TOTAL LIABILITIES AND EQUITY	$	2,297.0	$	2,297.7

The accompanying notes are an integral part of these statements.

4

SPX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited; in millions)

	Three months ended April 3, 2021
	Common Stock		Paid-In Capital		Retained Deficit		Accum. Other Comprehensive Income		Common Stock In Treasury		SPX Corporation Shareholders’ Equity
Balance at December 31, 2020	$	0.5	$	1,319.9	$	(488.1)	$	248.5	$	(451.6)	$	629.2
Net income	—		—		26.8		—		—		26.8
Other comprehensive income, net	—		—		—		2.7		—		2.7
Incentive plan activity	—		3.8		—		—		—		3.8
Long-term incentive compensation expense	—		3.0		—		—		—		3.0
Restricted stock unit vesting	—		(10.9)		—		—		6.2		(4.7)
Balance at April 3, 2021	$	0.5	$	1,315.8	$	(461.3)	$	251.2	$	(445.4)	$	660.8

	Three months ended March 28, 2020
	Common Stock		Paid-In Capital		Retained Deficit		Accum. Other Comprehensive Income		Common Stock In Treasury		SPX Corporation Shareholders’ Equity
Balance at December 31, 2019	$	0.5	$	1,302.4	$	(584.8)	$	244.3	$	(460.0)	$	502.4
Impact of adoption of ASU 2016-13 - See Note 2	—		—		(0.5)		—		—		(0.5)
Net income	—		—		22.7		—		—		22.7
Other comprehensive loss, net	—		—		—		(12.9)		—		(12.9)
Incentive plan activity	—		4.7		—		—		—		4.7
Long-term incentive compensation expense	—		3.0		—		—		—		3.0
Restricted stock unit vesting	—		(11.6)		—		—		7.3		(4.3)
Balance at March 28, 2020	$	0.5	$	1,298.5	$	(562.6)	$	231.4	$	(452.7)	$	515.1

The accompanying notes are an integral part of these statements.

5

SPX CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)

	Three months ended
	April 3, 2021		March 28, 2020
Cash flows from (used in) operating activities:
Net income	$	26.8	$	22.7
Less: Income (loss) from discontinued operations, net of tax	(0.8)		0.4
Income from continuing operations	27.6		22.3
Adjustments to reconcile income from continuing operations to net cash from (used in) operating activities:
Special charges, net	0.7		0.3
Gain on change in fair value of equity security	(5.2)		—
Deferred and other income taxes	8.3		3.9
Depreciation and amortization	11.1		9.2
Pension and other employee benefits	1.7		2.2
Long-term incentive compensation	3.0		3.5
Other, net	—		0.7
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable and other assets	41.2		24.4
Inventories	(7.5)		(22.8)
Accounts payable, accrued expenses and other	(16.7)		(40.7)
Cash spending on restructuring actions	(0.5)		(0.5)
Net cash from continuing operations	63.7		2.5
Net cash used in discontinued operations	(3.5)		(2.9)
Net cash from (used in) operating activities	60.2		(0.4)
Cash flows from (used in) investing activities:
Proceeds from company-owned life insurance policies, net	3.5		1.1
Capital expenditures	(2.6)		(3.6)
Net cash from (used in) continuing operations	0.9		(2.5)
Net cash from discontinued operations	—		—
Net cash from (used in) investing activities	0.9		(2.5)
Cash flows from (used in) financing activities:
Borrowings under senior credit facilities	54.0		178.7
Repayments under senior credit facilities	(81.6)		(88.7)
Borrowings under trade receivables financing arrangement	54.0		55.0
Repayments under trade receivables financing arrangement	(48.0)		(27.0)
Net borrowings (repayments) under other financing arrangements	0.2		(0.7)
Payment of contingent consideration	—		(1.5)
Minimum withholdings paid on behalf of employees for net share settlements, net of proceeds from the exercise of employee stock options	(4.2)		(2.8)
Net cash from (used in) continuing operations	(25.6)		113.0
Net cash from discontinued operations	—		—
Net cash from (used in) financing activities	(25.6)		113.0
Change in cash and equivalents due to changes in foreign currency exchange rates	3.1		(1.7)
Net change in cash and equivalents	38.6		108.4
Consolidated cash and equivalents, beginning of period	68.3		54.7
Consolidated cash and equivalents, end of period	$	106.9	$	163.1

The accompanying notes are an integral part of these statements.

6

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. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only (see Note 3 for information on discontinued operations).

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. All of our VIEs are considered immaterial, individually and in aggregate, to our condensed consolidated financial statements.

Wind-Down of the SPX Heat Transfer Business

As a continuation of our strategic shift away from power-generation markets, during the fourth quarter of 2020, we completed the wind-down of the SPX Heat Transfer (“Heat Transfer“) business, which included providing all products and services on the business’s remaining contracts with customers. As a result, we are reporting Heat Transfer as a discontinued operation in the accompanying condensed consolidated financial statements. See Note 3 for additional details.

Acquisition of ULC

On September 2, 2020, we completed the acquisition of ULC Robotics (“ULC”), a leading developer of robotic systems, machine learning applications, and inspection technology for the energy, utility, and industrial markets, for cash proceeds of $89.2, net of cash acquired of $4.0. Under the terms of the purchase and sales agreement, the seller is eligible for additional cash consideration of up to $45.0, with payments scheduled to be made in 2021 and 2022 upon successful achievement of certain operational and financial performance milestones. The estimated fair value of such contingent consideration is $24.3, which is reflected as a liability in our condensed consolidated balance sheets as of April 3, 2021 and December 31, 2020. The post-acquisition operating results of ULC are reflected in our Detection and Measurement reportable segment.

Acquisition of Sensors & Software

On November 11, 2020, we completed the acquisition of Sensors & Software Inc. (“Sensors & Software”), a leading manufacturer and distributor of ground penetrating radar products used for locating underground utilities, detecting unexploded ordinances, and geotechnical and geological investigations, for cash proceeds of $15.2, net of cash acquired of $0.3. Under the terms of the purchase and sales agreement, the seller is eligible for additional cash consideration of up to $4.0, with payment scheduled to be made in 2021 upon successful achievement of a financial performance milestone during the twelve months following the date of acquisition. The estimated fair value of such contingent consideration is $0.7, which is reflected as a liability in the accompanying condensed consolidated balance sheets as of April 3, 2021 and December 31, 2020. The post-acquisition operating results of Sensors & Software are reflected within our Detection and Measurement reportable segment.

The assets acquired and liabilities assumed in the ULC and Sensors & Software transactions have been recorded at estimates of fair value as determined by management, based on information available and assumptions as to future operations and are subject to change, primarily for the final assessment and valuation of certain income tax amounts.

7

Impact of the Coronavirus Disease (the “COVID-19 pandemic”)

We experienced adverse impacts of the COVID-19 pandemic during the first half of 2020 with a diminishing impact in the second half of 2020 and into the first quarter of 2021. Despite the adverse impacts, there are no indications that the COVID-19 pandemic has resulted in a material decline in the carrying value of any assets, or a material change in the estimate of any contingent amounts, recorded in our condensed consolidated balance sheet as of April 3, 2021. However, there is uncertainty as to the duration and overall impact of the COVID-19 pandemic, which could result in an adverse material change in a future period to the estimates we have made for the valuation of assets and contingent amounts.

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, 2020. Interim results are not necessarily indicative of full year results. 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 2021 are April 3, July 3 and October 2, compared to the respective March 28, June 27 and September 26, 2020 dates. We had five more days in the first quarter of 2021 and will have six fewer days in the fourth quarter of 2021 than in the respective 2020 periods. It is not practicable to estimate the impact of the five additional days on our consolidated operating results for the three months ended April 3, 2021, when compared to the consolidated operating results for the 2020 respective period.

Reclassification of Prior Year Amounts

Certain prior year amounts have been reclassified to conform to the current year presentation, with the amounts related to the inclusion of Heat Transfer within discontinued operations.

(2)    NEW ACCOUNTING PRONOUNCEMENTS

The following is a summary of new accounting pronouncements that apply or may apply to our business.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13. ASU 2016-13 changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, based on historical experience, current conditions and reasonable and supportable forecasts. The requirements of ASU 2016-13 are to be applied on a modified retrospective basis, which entails recognizing the initial effect of adoption in retained earnings. We adopted ASU 2016-13 on January 1, 2020, which resulted in an increase of our retained deficit of $0.5.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for the step-up in the tax basis of goodwill. The transition requirements are primarily prospective and the effective date is for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. We adopted this guidance on January 1, 2021, with no material impact on our condensed consolidated financial statements.

The London Interbank Offered Rate (“LIBOR”) is scheduled to be discontinued on June 30, 2023, with some tenors ceasing on December 31, 2021. In an effort to address the various challenges created by such discontinuance, the FASB issued two amendments to existing guidance, ASU No. 2020-04 and No. 2021-01, Reference Rate Reform. The amended guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, etc.) necessitated by the reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by the reference rate reform. Application of the guidance in the amendments is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. We are currently evaluating the impacts of reference rate reform and the new guidance on our condensed consolidated financial statements.

8

(3)    ACQUISITIONS AND DISCONTINUED OPERATIONS

As indicated in Note 1, on September 2, 2020 and November 11, 2020, we completed the acquisitions of ULC and Sensors & Software, respectively. The pro forma effects of these acquisitions are not material to the condensed consolidated results of operations for the three months ended March 28, 2020.

Wind-Down of the Heat Transfer Business

As discussed in Note 1, we completed the wind-down of our Heat Transfer business in the fourth quarter of 2020. As a result of completing the wind-down plan, we are now reporting Heat Transfer as a discontinued operation for all prior periods presented.

Major line items constituting pre-tax income and after-tax income of Heat Transfer for the period ended March 28, 2020 is shown below:

	Three months ended
	March 28, 2020
Revenues	$	1.9
Cost of product sold	1.5
Income before income tax	0.4
Income tax provision	—
Income from discontinued operations, net of tax	$	0.4

During the three months ended April 3, 2021, we recorded $0.8 within “Loss on disposition of discontinued operations, net of tax” resulting primarily from revisions to liabilities retained in connection with businesses classified as discontinued operations.

(4)    REVENUES FROM CONTRACTS

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 and our other operating segment, as we believe such disaggregation best depicts how the nature, amount, timing, and uncertainty of our revenues and cash flows are affected by economic factors, with such disaggregation presented below for the three months ended April 3, 2021 and March 28, 2020:

	Three months ended April 3, 2021
Reportable Segments and Other	HVAC		Detection and Measurement		Engineered Solutions		Other		Total
Major product lines
Cooling	$	72.6	$	—	$	—	$	—	$	72.6
Boilers, comfort heating, and ventilation	73.9		—		—		—		73.9
Underground locators, inspection and rehabilitation  equipment, and robotic systems	—		67.4		—		—		67.4
Signal monitoring, obstruction lighting, and bus fare collection systems	—		44.2		—		—		44.2
Power transformers	—		—		110.6		—		110.6
Process cooling equipment and services	—		—		29.1		0.2		29.3
South African projects	—		—		—		0.5		0.5
	$	146.5	$	111.6	$	139.7	$	0.7	$	398.5
Timing of Revenue Recognition
Revenues recognized at a point in time	$	146.5	$	96.5	$	10.9	$	—	$	253.9
Revenues recognized over time	—		15.1		128.8		0.7		144.6
	$	146.5	$	111.6	$	139.7	$	0.7	$	398.5

9

	Three months ended March 28, 2020
Reportable Segments and Other	HVAC		Detection and Measurement		Engineered Solutions		Other		Total
Major product lines
Cooling	$	57.9	$	—	$	—	$	—	$	57.9
Boilers, comfort heating, and ventilation	60.6		—		—		—		60.6
Underground locators and inspection and rehabilitation  equipment	—		48.7		—		—		48.7
Signal monitoring, obstruction lighting, and bus fare collection systems	—		43.2		—		—		43.2
Power transformers	—		—		110.6		—		110.6
Process cooling equipment and services	—		—		44.3		—		44.3
South African projects	—		—		—		2.1		2.1
	$	118.5	$	91.9	$	154.9	$	2.1	$	367.4
Timing of Revenue Recognition
Revenues recognized at a point in time	$	118.5	$	83.5	$	11.6	$	—	$	213.6
Revenues recognized over time	—		8.4		143.3		2.1		153.8
	$	118.5	$	91.9	$	154.9	$	2.1	$	367.4

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 classified as current. On a contract-by-contract basis, the contract assets and contract liabilities are reported net within our condensed consolidated balance sheets. Our contract balances consisted of the following as of April 3, 2021 and December 31, 2020:

Contract Balances	April 3, 2021		December 31, 2020		Change
Contract Accounts Receivable(1)	$	226.6	$	260.7	$	(34.1)
Contract Assets	75.8		81.1		(5.3)
Contract Liabilities - current	(106.7)		(103.5)		(3.2)
Contract Liabilities - non-current(2)	(3.2)		(3.4)		0.2
Net contract balance	$	192.5	$	234.9	$	(42.4)

___________________________

(1) Included in “Accounts receivable, net” within the accompanying condensed consolidated balance sheets.

(2) Included in “Other long-term liabilities” within the accompanying condensed consolidated balance sheets.

The $42.4 decrease in our net contract balance from December 31, 2020 to April 3, 2021 was due primarily to cash payments received from customers during the period, partially offset by revenue recognized during the period.

During the three months ended April 3, 2021, we recognized revenues of $46.3 related to our contract liabilities at December 31, 2020.

Performance Obligations

As of April 3, 2021, the aggregate amount allocated to remaining performance obligations was $100.7. We expect to recognize revenue on approximately 54% and 72% of remaining performance obligations over the next 12 and 24 months, respectively, with the remaining recognized thereafter.

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(5)    LEASES

There have been no material changes to our operating and finance leases during the three months ended April 3, 2021.

(6)    INFORMATION ON REPORTABLE SEGMENTS AND “OTHER” OPERATING SEGMENT

We are a global supplier of highly specialized, engineered solutions with operations in over 15 countries and sales in over 100 countries around the world.

Our DBT Technologies (PTY) LTD (“DBT”) operating segment is reported within an “Other” category outside of our reportable segments. We have aggregated our other 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 reportable segments, we apply the threshold criteria of the Segment Reporting Topic of the Codification. Operating income or loss for each of our operating segments is determined before considering impairment and special charges, long-term incentive compensation, certain other operating expenses, and other indirect corporate expenses. This is consistent with the way our Chief Operating Decision Maker evaluates the results of each segment.

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.

Detection and Measurement Reportable Segment

Our Detection and Measurement reportable segment engineers, designs, manufactures, services, and installs underground pipe and cable locators, inspection and rehabilitation equipment, robotic systems, bus fare collection systems, communication technologies, 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, Africa and Asia.

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 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.

Other

As noted above, “Other” consists of our South African operating segment, DBT. Our DBT operating segment engineers, designs, manufactures, installs, and services equipment for the industrial and power generation markets, with its efforts focused primarily on two large power projects in South Africa that are in the final stages of completion (see Note 15 for additional details).

Corporate Expense

Corporate expense generally relates to the cost of our Charlotte, North Carolina corporate headquarters.

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Financial data for our reportable segments and our other operating segment for the three months ended April 3, 2021 and March 28, 2020 are presented below:

	Three months ended
	April 3, 2021		March 28, 2020
Revenues:
HVAC reportable segment	$	146.5	$	118.5
Detection and Measurement reportable segment	111.6		91.9
Engineered Solutions reportable segment	139.7		154.9
Other	0.7		2.1
Consolidated revenues	$	398.5	$	367.4
Income (loss):
HVAC reportable segment	$	24.2	$	15.0
Detection and Measurement reportable segment	20.0		18.2
Engineered Solutions reportable segment	10.0		17.9
Other	(4.6)		(4.3)
Total income for segments	49.6		46.8
Corporate expense	(14.2)		(11.1)
Long-term incentive compensation expense	(3.0)		(3.5)
Special charges, net	(0.7)		(0.3)
Other operating income(1)	—		0.4
Consolidated operating income	$	31.7	$	32.3

___________________________________________________________________

(1) For the three months ended March 28, 2020, includes a gain of $0.4 related to revisions to estimates of certain liabilities retained in connection with the 2016 sale of the dry cooling business.

(7)    SPECIAL CHARGES, NET

Special charges, net, for the three months ended April 3, 2021 and March 28, 2020 are described in more detail below:

	Three months ended
	April 3, 2021		March 28, 2020
HVAC reportable segment	$	—	$	0.1
Detection and Measurement reportable segment	0.2		—
Engineered Solutions reportable segment	—		—
Other	0.5		0.2
Corporate	—		—
Total	$	0.7	$	0.3

HVAC — Charges for the three months ended March 28, 2020 related primarily to severance costs associated with a restructuring action at the segment's Cooling Americas business.

Detection and Measurement — Charges for the three months ended April 3, 2021 related primarily to severance costs associated with a restructuring action at the segment's pipeline inspection and rehabilitation business.

Other — Charges for the three months ended April 3, 2021 and March 28, 2020 related primarily to severance costs incurred in connection with the wind-down activities at DBT, our South African subsidiary.

No significant future charges are expected to be incurred under actions approved as of April 3, 2021.

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The following is an analysis of our restructuring liabilities for the three months ended April 3, 2021 and March 28, 2020:

	Three months ended
	April 3, 2021		March 28, 2020
Balance at beginning of year	$	1.5	$	1.7
Special charges	0.7		0.3
Utilization — cash	(0.5)		(0.5)
Currency translation adjustment and other	(0.1)		(0.2)
Balance at end of period	$	1.6	$	1.3

(8)    INVENTORIES, NET

Inventories at April 3, 2021 and December 31, 2020 comprised the following:

	April 3, 2021		December 31, 2020
Finished goods	$	57.1	$	52.9
Work in process	22.2		22.3
Raw materials and purchased parts	105.1		101.5
Total FIFO cost	184.4		176.7
Excess of FIFO cost over LIFO inventory value	(14.7)		(14.7)
Total inventories, net	$	169.7	$	162.0

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 36% and 38% of total inventory at April 3, 2021 and December 31, 2020, respectively. Other inventories are valued using the first-in, first-out (“FIFO”) method.

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(9)    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the three months ended April 3, 2021 were as follows:

	December 31, 2020		Goodwill Resulting from Business Combinations (1)		Impairments		Foreign Currency Translation		April 3, 2021
HVAC reportable segment
Gross goodwill	$	281.4	$	—	$	—	$	(1.4)	$	280.0
Accumulated impairments	(144.8)		—		—		(0.1)		(144.9)
Goodwill	136.6		—		—		(1.5)		135.1
Detection and Measurement reportable segment
Gross goodwill	351.5		2.8		—		(0.4)		353.9
Accumulated impairments	(134.5)		—		—		(0.6)		(135.1)
Goodwill	217.0		2.8		—		(1.0)		218.8
Engineered Solutions reportable segment
Gross goodwill	342.1		—		—		(3.6)		338.5
Accumulated impairments	(195.8)		—		—		3.6		(192.2)
Goodwill	146.3		—		—		—		146.3
Other
Gross goodwill	—		—		—		—		—
Accumulated impairments	—		—		—		—		—
Goodwill	—		—		—		—		—
Total
Gross goodwill	975.0		2.8		—		(5.4)		972.4
Accumulated impairments	(475.1)		—		—		2.9		(472.2)
Goodwill	$	499.9	$	2.8	$	—	$	(2.5)	$	500.2

___________________________

(1)Reflects a net increase in ULC's goodwill during 2021 of $0.8 resulting from revisions to the valuation of certain assets and liabilities and an increase in Sensors & Software's goodwill of $2.0 resulting from revisions to the valuation of certain income tax accounts. As indicated in Note 1, the acquired assets, including goodwill, and liabilities assumed in the ULC and Sensors & Software acquisitions have been recorded at estimates of fair value and are subject to change upon completion of acquisition accounting.

Other Intangibles, Net

Identifiable intangible assets at April 3, 2021 and December 31, 2020 comprised the following:

	April 3, 2021						December 31, 2020
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Intangible assets with determinable lives:
Customer relationships	$	103.2	$	(18.4)	$	84.8	$	103.4	$	(16.2)	$	87.2
Technology	54.2		(7.9)		46.3		54.4		(6.8)		47.6
Patents	4.5		(4.5)		—		4.5		(4.5)		—
Other	18.9		(13.1)		5.8		18.8		(12.5)		6.3
	180.8		(43.9)		136.9		181.1		(40.0)		141.1
Trademarks with indefinite lives	163.4		—		163.4		163.9		—		163.9
Total	$	344.2	$	(43.9)	$	300.3	$	345.0	$	(40.0)	$	305.0

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At April 3, 2021, the net carrying value of intangible assets with determinable lives consisted of $23.8 in the HVAC reportable segment and $113.1 in the Detection and Measurement reportable segment. At April 3, 2021, trademarks with indefinite lives consisted of $96.4 in the HVAC reportable segment, $57.9 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.

Based on our annual goodwill impairment testing during the fourth quarter of 2020, we concluded that the estimated fair value of each of our reporting units, exclusive of Cues, Inc. (“Cues”) and Patterson-Kelley, LLC (“Patterson-Kelley”), exceeded the carrying value of their respective net assets by over 75%. The estimated fair values of Cues and Patterson-Kelley exceeded the carrying value of their respective net assets by approximately 12% and 3%, while given the recent acquisition of ULC, its fair value approximated the carrying value of its net assets. The total goodwill for Cues, Patterson-Kelley and ULC was $47.9, $