FAIR VALUE

9 Months Ended

Oct. 01, 2011

FAIR VALUE

FAIR VALUE

(15)         FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

· Level 1 — Quoted prices for identical instruments in active markets.

· Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

· Level 3 — Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.

Derivative Financial Instruments

Our financial derivative assets and liabilities include FX forward contracts, FX embedded derivatives and commodity contracts, which are valued using valuation models that measure fair value using observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. We have not made any adjustments to the inputs obtained from the independent sources. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments to be active. We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount.

As of October 1, 2011, there has been no significant impact to the fair value of our derivative liabilities due to our own credit risk as the related instruments are collateralized under our senior credit facilities. Similarly, there has been no significant impact to the fair value of our derivative assets based on our evaluation of our counterparties’ credit risk.

Investments in Equity Securities

Our available-for-sale securities include equity investments that are traded in active international markets. They are measured at fair value using closing stock prices from active markets and are classified within Level 1 of the valuation hierarchy.

Certain of our investments in equity securities that are not readily marketable are accounted for under the fair value option, with such values determined by multidimensional pricing models. These models consider market activity based on modeling of securities with similar credit quality, duration, yield and structure. A variety of inputs are used, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spread and reference data including market research publications. Market indicators, industry and economic events are also considered. We have not made any adjustments to the inputs obtained from the independent sources. At October 1, 2011 and December 31, 2010, these assets had a fair value of $7.2 and $8.5, respectively, which are estimated using various valuation models, including the Monte-Carlo simulation model.

Assets and liabilities measured at fair value on a recurring basis include the following as of October 1, 2011:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Current assets — FX embedded derivatives and FX forward contracts	$	—	$	1.9	$	—
Noncurrent assets — Investment in equity securities and available-for-sale securities	5.1		—		7.2
Current liabilities — FX forward contracts, FX embedded derivatives, and commodity contracts	—		33.7		—
Long-term liabilities — FX embedded derivatives	—		16.6		—

Assets and liabilities measured at fair value on a recurring basis include the following as of December 31, 2010:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3
Current assets — FX embedded derivatives, FX forward contracts and commodity contracts	$	—	$	4.1	$	—
Noncurrent assets — Investment in equity securities and available-for-sale securities	12.8		—		8.5
Current liabilities — FX forward contracts and FX embedded derivatives	—		6.1		—
Long-term liabilities — FX embedded derivatives	—		33.2		—

The table below presents a reconciliation of our investment in equity securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended October 1, 2011, including net unrealized losses included in earnings.

	Nine months ended October 1, 2011
Balance at beginning of year	$	8.5
Purchases	—
Losses included in earnings	(1.3		)
Balance at October 1, 2011	$	7.2

During the nine months ended October 1, 2011, we determined that the fair value of our SPX Heat Transfer Inc. reporting unit was less than the carrying value of its net assets (see Note 7). The fair value of SPX Heat Transfer Inc. was based upon weighting the income and market approaches, utilizing estimated cash flows and a terminal value discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly-traded companies that are applied to the historical and projected operating results of SPX Heat Transfer Inc. (unobservable inputs — Level 3). We estimated the implied fair value of SPX Heat Transfer Inc.’s goodwill, which resulted in an impairment charge related to such goodwill of $17.2 during the second quarter of 2011.  In addition, we recorded an impairment charge in the second quarter of 2011 of $7.5 related to the indefinite-lived intangible assets of SPX Heat Transfer Inc., with the fair value of these intangible assets determined based on a projection of cash flows for the assets discounted at a rate of return that reflects the relative risk of the cash flows (unobservable inputs — Level 3).

During the nine months ended October 1, 2011, we recorded an impairment charge of $3.7 to “Special charges, net” related to the rationalization of certain software assets that occurred as a result of the integration of the DS acquisition (see Note 3). The fair value of these assets ($16.2) was determined by obtaining information in the specific markets being evaluated, including the costs incurred to produce similar assets and assumptions about demand in the market for these assets (unobservable inputs — Level 3).

During the nine months ended October 1, 2011, we determined that a trademark held by a business within our Industrial Products and Services segment was impaired and, thus, we recorded an impairment charge of $0.8 to “Special charges, net” during 2011. We determined the fair value of $1.2 by applying an estimated royalty rate to projected revenues, with the resulting cash flows discounted at a rate of return that reflects current market conditions (unobservable inputs — Level 3).

During the nine months ended October 2, 2010, we recorded impairment charges of $4.3 to “Special charges, net” related to idle facilities and certain machinery and equipment (see Note 5). The fair values of these assets ($5.5 and $0.4, respectively) were based on the estimated selling prices. We determined the estimated selling prices by obtaining information in the specific markets being evaluated, including comparable sales of similar assets and assumptions about demand in the market for these assets (unobservable inputs — Level 3).

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

The fair value of our debt instruments, based on borrowing rates available to us at October 1, 2011 for similar debt, was $1,246.4 at October 1, 2011, compared to our carrying value of $1,201.6.