SPX FLOW, Inc.
10-K on 02/19/2021   Download
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020, or
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 1-37393
SPX FLOW, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware47-3110748
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
13320 Ballantyne Corporate Place28277
Charlotte, NC(Zip Code)
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code (704752-4400
Securities registered pursuant to Section 12(b) of the Act:

Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, Par Value $0.01FLOWNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 26, 2020 was approximately $1,485 million. The determination of affiliate status for purposes of the foregoing calculation is not necessarily a conclusive determination for other purposes.
Common shares outstanding as of February 17, 2021 were 42,149,444.



Documents incorporated by reference: Portions of the registrant’s definitive proxy statement to be filed within 120 days of the close of the registrant’s fiscal year in connection with the registrant’s Annual Meeting to be held on May 12, 2021 (the Proxy Statement) are incorporated by reference into Part III of this Annual Report on Form 10-K.



SPX FLOW, INC. AND SUBSIDIARIES
FORM 10-K INDEX





SPX FLOW, INC. AND SUBSIDIARIES
FORM 10-K INDEX (CONTINUED)




PART I
ITEM 1. Business
(All currency and share amounts are in millions, unless otherwise noted)
FORWARD-LOOKING STATEMENTS
Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, or changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or similar expressions. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets.
All the forward-looking statements in this document are qualified in their entirety by reference to the factors discussed in this document, including under the heading “Risk Factors” and in any documents incorporated by reference herein that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We undertake no obligation to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document.
BUSINESS
Our Business
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in two business segments. Based in Charlotte, North Carolina, SPX FLOW innovates with customers to help feed and enhance the world by designing, delivering and servicing high-value process solutions at the heart of growing and sustaining our diverse communities. The product offering of the Company's continuing operations is concentrated in process technologies that perform mixing, blending, fluid handling, separation, thermal heat transfer and other activities that are integral to processes performed across a wide variety of sanitary and industrial markets. In 2020, SPX FLOW had approximately $1.4 billion in annual revenues, with approximately 36%, 37%, and 27% from sales into the Americas, EMEA, and Asia Pacific regions, respectively, and has continuing operations in more than 30 countries and sales in more than 140 countries.
Our product portfolio of pumps, valves, mixers, filters, air dryers, hydraulic tools, homogenizers, separators and heat exchangers, along with the related aftermarket parts and services, supports global industries, including food and beverage, chemical processing, compressed air and mining. From an end-market perspective, in 2020, approximately 47% of our revenues were from sales into the food and beverage end markets and approximately 53% were from sales into the industrial end markets. Our core strengths include expertise in rotating, actuating and hydraulic equipment, a highly skilled workforce, global capabilities, product breadth, and a deep application knowledge that enables us to optimize configuration and create custom-engineered solutions for diverse processes.
Impact of the COVID-19 Pandemic
As further discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" (or "MD&A") below, the novel coronavirus pandemic ("COVID-19" or "COVID-19 pandemic") had an adverse
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impact on our consolidated financial results for the year ended December 31, 2020. These adverse impacts began in the first quarter of 2020, continued through the fourth quarter of 2020, and are expected to continue in 2021, but we are unable to determine the extent, duration, or nature of further impacts at this time. Although certain of our product lines (e.g., shorter-cycle product lines within our Industrial reportable segment) have been impacted more than others in our portfolio, we believe that our diverse set of products, along with our strong balance sheet position and available liquidity, position us well to mitigate further potential adverse impacts of the COVID-19 pandemic. For example, because we serve customers which produce food, beverages, personal care items, cleaning products, pharmaceuticals, and specialty chemicals, and serve critical infrastructure and industrial enablement functions, a majority, but not all, of our products, services and operations have been classified as “essential” under various governmental orders restricting business activities implemented in response to the COVID-19 pandemic. While we temporarily closed certain of our offices and engineering, service and manufacturing centers during 2020, and may be required to close additional facilities in the future in response to governmental orders, other COVID-19 pandemic safety-related concerns or in response to market conditions affected by COVID-19, our manufacturing facilities have not experienced significant interruptions in operations to date.
In terms of liquidity, as of December 31, 2020, we had over $440 of cash and equivalents on hand and, as discussed in Note 13 to the accompanying consolidated financial statements, approximately $490 of borrowing capacity under our revolving credit facilities. As noted below, we received net proceeds of approximately $401.1 from the sale of our discontinued operations during 2020. On August 15, 2020 we redeemed our $300.0 aggregate principal amount 5.625% senior notes, as discussed further in Note 13 to our consolidated financial statements, and there are no debt repayments due under other primary debt obligations until June 2022. We also have taken actions to manage near-term costs and cash flows, including reducing discretionary spending, and will continue to assess the actual and expected impacts of the COVID-19 pandemic and any requirements for further actions.
REPORTABLE SEGMENTS
Our continuing operations are organized into two reportable segments — the Food and Beverage segment and the Industrial segment. The following summary describes the products and services offered by our reportable segments:
Food and Beverage:  The Food and Beverage reportable segment operates in a regulated, global industry with customers who demand highly engineered, process solutions. Key demand drivers include dairy consumption, emerging market capacity expansion, sustainability and productivity initiatives, customer product innovation and food safety. Key products for the segment include homogenizers, pumps, valves, separators and heat exchangers. We also design and assemble process systems that integrate many of these products for our customers. Key brands include APV, Gerstenberg Schroeder, Seital and Waukesha Cherry-Burrell. The segment's primary competitors are Alfa Laval AB, Fristam Pumps, GEA Group AG, Krones AG, Südmo, Tetra Pak International S.A. and various regional companies.
Industrial: The Industrial reportable segment primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, infrastructure construction, general industrial and water treatment industries. Key demand drivers of this segment are tied to macroeconomic conditions and growth in the respective end markets we serve. Key products for the segment are air dryers, filtration equipment, mixers, pumps, hydraulic technologies and heat exchangers. Key brands include Airpel, APV, Bolting Systems, Bran+Luebbe, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, POSI LOCK, Power Team and Stone. The segment's primary competitors are Alfa Laval AB, Chemineer Inc., EKATO, Enerpac, IDEX Viking Pump, KSB AG, Lewa, Milton Roy, Parker Domnick Hunter, Prominent and various regional companies.
Divestitures
We periodically review and negotiate potential divestitures in the ordinary course of business, some of which are or may be material. As a result of this continuous review, we initiated a process in 2019 to divest a substantial portion of our former Power and Energy reportable segment, excluding the Bran+Luebbe product line (collectively, the “Disposal Group”). In connection with this initiative, we narrowed our strategic focus by separating our process solutions technologies, comprised of our Food and Beverage and our Industrial reportable segments, plus the Bran+Luebbe product line, from our flow control application technologies, comprised of the Disposal Group. Given the specific capabilities that are unique to each category of technologies and businesses, our further intent was that each business would, through a process of separation, be positioned to improve its respective service to customers through the narrowing of such strategic focus.
In connection with the May 2019 announcement and the continued development of the divestiture process thereafter, we reported the Disposal Group as “held-for-sale”, and as discontinued operations, initially as of the end of our second quarter of 2019. As the operations and organizational structure of the remaining business of the former Power and Energy segment (primarily the Bran+Luebbe product line as noted above) have been absorbed into the Industrial reportable segment,
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and the operating results of the Industrial reportable segment (now including the Bran+Luebbe product line) are regularly reviewed by the Company’s chief operating decision maker, we have reclassified the results of that remaining business into the Industrial reportable segment. The results of operations, cash flows, and assets and liabilities of our discontinued operations and our Industrial segment, for all periods presented in the accompanying consolidated financial statements, reflect this presentation.
In November 2019, we entered into a Purchase and Sale Agreement (the “Sale Agreement”) with an affiliate of Apollo Global Management, LLC (the “Buyer”), pursuant to which we agreed, indirectly through certain of our subsidiaries, to sell the Disposal Group to the Buyer for a gross purchase price of $475.0 (the “Transaction”). The gross purchase price of $475.0 was subject to (i) reductions based upon the level of certain deductions of the Disposal Group at the closing date, and (ii) certain adjustments based upon the level of net working capital, cash and debt of the Disposal Group at the closing date. The deductions include, for example, components of the Contract Liabilities and certain other current and long-term liabilities of the Disposal Group, as well as deductions for budgeted but un-incurred capital expenditures and other business infrastructure costs measured over periods defined in the Sale Agreement, but in all cases which expired at the closing date.
On March 30, 2020, we completed the sale of substantially all Disposal Group businesses and received proceeds from the Buyer of $406.2, based on an estimate of certain adjustments to the gross purchase price as of the closing date and as discussed further above and, to a lesser extent, certain fees. During the fourth quarter of 2020 and upon receiving relevant regulatory approvals, we completed the sale of the remaining net assets of the Disposal Group, based in India, to the Buyer for total proceeds of $6.3. Considering proceeds received from the Buyer of $406.2 in the second quarter of 2020, net of cash and restricted cash of $7.3 included in the net assets of the Disposal Group which were sold at that time, proceeds of $6.3 received related to consummation of the sale of the India business less cash paid of $4.1 for a net working capital settlement during the fourth quarter of 2020, cash flows from investing activities for the year ended December 31, 2020, reflect net proceeds of $401.1 from disposition of the Disposal Group.
See Note 4 to our consolidated financial statements for additional information regarding the divestiture process, as well as further details regarding the results, major classes of assets and liabilities, and significant non-cash operating items and capital expenditures of discontinued operations. See also Note 4 for information regarding a less significant disposal of a business in the Industrial reportable segment, based in our Asia Pacific region, which occurred during the fourth quarter of 2020.
Unless otherwise indicated, amounts reported in Part I of this Form 10-K pertain to continuing operations only.
Acquisitions
As part of our long-term strategy, we plan to evaluate potential acquisitions that (a) are complementary to our existing products and services, (b) increase our relevance to customers and our capabilities to serve them, (c) expand our global capabilities and accelerate our localization strategy and (d) expand our end market reach.
On August 1, 2020, we completed the acquisition of POSI LOCK, Inc ("POSI LOCK"), a manufacturer of hydraulic and mechanical pullers used to remove certain parts from equipment in a variety of industries ranging from power transmission and light to heavy industrial applications. We purchased substantially all of the assets, including net working capital, long-term and intangible assets, and assumed certain liabilities of the business, for a cash payment of $10.0. The pro forma effects of the acquisition of POSI LOCK are not material to our consolidated results of operations for the year ended December 31, 2020.
On January 18, 2021, the Company completed the purchase of approximately 98% of the issued and outstanding shares of Plc Uutechnic Group Oyj ("UTG Mixing Group"), a public company, listed on the Nasdaq Helsinki, for approximately $41.0. The Company has initiated a squeeze-out process prescribed by Finnish law pursuant to which the Company will (a) acquire the remaining outstanding shares in UTG Mixing Group and (b) delist the shares of UTG Mixing Group from the Nasdaq Helsinki. UTG Mixing Group is the maker of Stelzer, Uutechnic, and Jamix mixing solutions for the chemical, food, metallurgical and fertilizer, environmental technology, water treatment and pharmaceuticals markets. The addition of UTG Mixing Group's operations, based in Finland and Germany, adds technology, manufacturing capacity and technical expertise to SPX FLOW's global portfolio of mixing and blending solutions and will be included in the Industrial reportable segment.
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Research and Development
We are engaged in research and development programs designed to improve existing products and manufacturing methods and to develop new products to better serve our current and future customers. We place particular emphasis on the development of new products that are compatible with, and build upon, our manufacturing and marketing capabilities.
Intellectual Property
We own approximately 139 domestic and 314 foreign patents, including 25 patents that were issued in n 2020, covering a variety of our products and manufacturing methods. We also own a number of registered trademarks. Although in the aggregate our patents and trademarks are of considerable importance in the operation of our business, we do not consider any single patent or trademark to be of such importance that its absence would adversely affect our ability to conduct business as presently constituted. We are both a licensor and licensee of patents. For more information, please refer to “Risk Factors—Our technology is important to our success, and failure to develop new products may result in a significant competitive disadvantage.”
Human Capital
As of December 31, 2020, we had approximately 4,800 employees in 34 countries. While none of our approximately 1,400 U.S. employees are subject to a collective bargaining agreement, certain of our non-U.S. employee groups are covered by various collective labor arrangements. While we generally have experienced satisfactory labor relations, we are subject to potential collective labor campaigns, work stoppages, collective labor negotiations and other potential labor disputes.

Our “Focus on People and Culture” initiative prioritizes ensuring the safety of our employees, fostering a culture of belonging, supporting open communication channels with our team members, surveying employee engagement and giving back to the communities in which we live.

We seek employees who share our commitment to hard work, ingenuity and doing what it takes to best serve our customers. Our priorities are to provide competitive compensation and benefits packages, support the ongoing personal and professional development of our employees and provide a safe and inclusive work environment.

We also prioritize the importance of diversity, equity and inclusion through initiatives undertaken to increase diversity (through recruitment and hiring), equity (through investments in targeted development programs and flexible work options) and inclusion (through employee resource groups and inclusive management).

As part of our oversight with respect to our human capital resources, our Board of Directors periodically receives reports from management regarding the status of our Strategic People and Culture Plan, which focuses on three critical themes:

Building Growth Capabilities—through supporting and enabling our Growth Teams to drive profitable growth;
Building Leadership—through improving manager effectiveness and promoting internal talent for critical roles; and
Building Belonging—through improved engagement survey results and diversity representation in people leadership roles.

Our compensation programs are market-driven and performance-based, allowing us to recognize and reward employees who display the values and leadership practices we embrace. In addition to offering competitive compensation packages (including salary, incentive bonus and stock compensation), we also provide a benefits package that provides employees with options in managing their well-being (including health insurance, paid time off, an employee assistance program, paid parental leave and retirement savings plans).

We offer a work environment with opportunities for personal development, challenges, career growth and recognition. Through our development and career growth programs, employees have opportunities to enhance skills, develop competencies and pursue career goals.
Raw Materials
We purchase a wide variety of raw materials, including steel, titanium, nickel and petroleum-based products. Where appropriate, we may enter into long-term supply arrangements or fixed-cost contracts to lower the overall cost of raw materials. In addition, due to our diverse product and service offering, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the raw materials needed in our operations. However, we are not dependent on any one supplier or a limited number of suppliers. Lastly, we continue to centralize certain aspects of supply
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chain management in an effort to ensure adequate materials are available for production at low cost. For more information, please refer to “Risk Factors—The price and availability of raw materials may adversely affect our business.”
Competition
The markets we serve are highly competitive and fragmented. Our competitors are diverse, ranging from large multi-nationals to regional and local companies. Our principal global competitors include Alfa Laval AB, GEA Group AG, IDEX Corporation, and Tetra Pak International S.A. We do not have any one competitor with all the same product offerings, nor do we have any one competitor which serves all the same end markets.
Our ability to compete effectively depends on a variety of factors including breadth of product offering, product quality, engineering strength, brand reputation, lead times, global capabilities, service capabilities, and cost. As many of our products are sold through distributors and independent representatives, our success also depends on building and partnering with a strong channel network.
Backlog
Information with respect to the backlog of the Company's segments at December 31, 2020 is presented in “MD&A—Results of Reportable Segments.”
Environmental Matters
See “MD&A—Critical Accounting Policies and Use of Estimates—Contingent Liabilities,” “Risk Factors—We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to environmental and other matters” and Note 16 to our consolidated financial statements for information regarding environmental matters.
Executive Officers
See Part III, Item 10 of this report for information about our executive officers.
Other Matters
No customer or group of customers that, to our knowledge, are under common control, accounted for more than 10% of our consolidated revenues for any of the years ended December 31, 2020, 2019 and 2018.
Our businesses maintain sufficient levels of working capital to support customer requirements, particularly inventory. We believe our businesses' sales and payment terms are generally similar to those of our competitors.
The financial results of many of our businesses closely follow changes in the industries and end markets they serve. In addition, certain of our businesses have seasonal fluctuations. In aggregate, our businesses tend to be stronger in the second half of the calendar year. Additionally, timing of revenue recognition on large Food and Beverage systems projects and large Industrial original equipment orders may cause significant fluctuations in financial performance from period to period.
Our website address is www.spxflow.com. Information on our website is not incorporated by reference herein. We file reports with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and certain amendments to these reports. Copies of these reports are available free of charge on our website as soon as reasonably practicable after we file the reports with the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
ITEM 1A. Risk Factors
You should consider the risks described below and elsewhere in our documents filed with the SEC before investing in any of our securities. We may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.
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Risks related to COVID-19
We have been and continue to be negatively impacted by the COVID-19 pandemic and its related impacts to our employees, operations, customers and suppliers.
The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and we have experienced and expect to continue to experience reductions in both the demand for certain of our products and services and the ability of our global teams and our suppliers to produce and deliver those products and services. Because we serve customers who produce food, beverages, personal care items, cleaning products, pharmaceuticals, and specialty chemicals and serve critical infrastructure and industrial enablement functions, a majority, but not all, of our products, services and operations have been classified as “essential” under various governmental orders restricting business activities implemented in response to the COVID-19 outbreak. However, we cannot predict whether these products, services and operations will continue to be classified as “essential” or, even if so treated, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of our facilities to be halted for some period of time. In addition, in view of uncertainties with respect to the further spread of COVID-19 and the duration and terms of related governmental orders restricting activities, we cannot predict whether demand for our products and services will persist at current levels or decrease along with broader slowdowns in industrial and sanitary markets on a global or regional basis.

Public health officials around the world have recommended, and local, state, and national governments have mandated, precautions to mitigate the spread of COVID-19, including prohibitions on congregating in groups, shelter-in-place orders or similar measures. As a result, we temporarily closed certain of our offices and engineering, service and manufacturing centers during 2020, and may be required to close additional facilities in the future in response to governmental orders, other COVID-19-related safety concerns or in response to market conditions affected by COVID-19. These restrictions have also impacted certain of our suppliers and we have been and will continue to be impacted by the supply of certain materials and sub-components utilized by our manufacturing and service operations. While we continue to develop new sources of supply and analyze alternative solutions, we cannot ensure that the scope or duration of supply chain interruptions will not adversely impact our operations. In addition, we have restricted travel for our employees, limited new hiring to critical and replacement roles and implemented additional cash management protocols. Our results will be adversely impacted by these closures and other actions taken to contain or treat the impact of COVID-19, although the extent of such impact on our financial and operating results will depend on future developments, which are highly uncertain and cannot be predicted, but which could be significant.

Due to the extent of our sales generated outside the United States (as noted in the risk factor below), including in emerging markets, demand for our products and services may not coincide with any recovery in general economic conditions experienced in the United States, including as a result of differing timing with respect to the implementation of vaccination programs, and our operations in other jurisdictions may continue to be subject to governmental orders restricting activities. Accordingly, to the extent that general economic conditions in the United States may improve over time, results of operations may continue to be adversely affected by COVID-19 impacts in other areas of the world.

Risks related to our business
Many of the markets in which we operate are cyclical or are subject to industry events, and our results have been and could be affected as a result.
Many of the markets in which we operate are subject to general economic cycles or industry events. Certain of our markets, including food and beverage, chemical, mining, and petrochemical, particularly chemical companies and general industrial companies, are to varying degrees cyclical and have experienced, and may continue to experience, periodic downturns. Cyclical changes and specific industry events could also affect sales of products in our other businesses. Downturns in the business cycles of our different operations may occur at the same time, which could exacerbate any adverse effects on our business. See “MD&A—Results of Reportable Segments.”
Contract timing on large construction projects, including food and beverage systems, may cause significant fluctuations in revenues and profits from period to period.
In addition, certain of our businesses have seasonal fluctuations. Historically, some of our key businesses tend to be stronger in the second half of the year.
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Our business depends on capital investment and maintenance expenditures by our customers.
Demand for most of our products and services depends on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers fluctuates based on planned expansions, new builds and repairs, general economic conditions, availability of credit, and expectations of future market behavior. Any of these factors, individually or in the aggregate, could have a material adverse effect on our customers and, in turn, our business, financial condition, results of operations and cash flows.
Our customers could be impacted by commodity availability and price fluctuations.
A number of factors outside our control, including fluctuating commodity prices, impact the demand for our products. Increased commodity prices may increase our customers' cost of doing business, thus causing them to delay or cancel large capital projects.
On the other hand, declining commodity prices may cause mines and other customers to delay or cancel projects relating to the production of such commodities. Also, oversupply could cause manufacturers to cut back on expenditures. Reduced demand for our products and services could result in the delay or cancellation of existing orders or lead to excess manufacturing capacity, which unfavorably impacts our absorption of fixed manufacturing costs. This reduced demand may also erode average selling prices in the relevant market.
Our future restructuring activities could result in additional costs and operational difficulties which may affect our business.
We face risks relating to our efforts to reduce global costs, including those that are designed to reduce headcount and consolidate our manufacturing footprint. Consequently, charges to earnings as a result of these activities can vary significantly from period to period and, as a result, we may experience fluctuations in our reported cash flows, results of operations or earnings per share due to the timing of any restructuring actions. We risk the loss of valuable employees, operational difficulties, product quality, higher than expected restructuring costs, and difficulties arising from negotiations with work councils and other labor groups. We also risk disruption to our customer relationships if we are unable to meet our commitments to them. Further, these actions may take longer than anticipated, prove more costly than expected and distract management from other activities. Finally, we may not fully realize the expected benefits of these activities.
The price and availability of raw materials may adversely affect our business.
We are exposed to a variety of risks relating to the price and availability of raw materials. In recent years, we have faced volatility in the prices of many of our key raw materials, including petroleum-based products, steel and copper. Increases in the prices of raw materials, including as the result of the imposition or increase of tariffs, or shortages or allocations of materials may have a material adverse effect on our financial position, results of operations or cash flows, as we may not be able to pass cost increases on to our customers, or our sales may be reduced. We are subject to long-term supplier contracts that may increase our exposure to pricing fluctuations.
Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to long-term fixed-price contracts.
Substantially all our revenues are recorded and earned under fixed-price arrangements. A portion of our revenues and earnings is generated through long-term contracts. We recognize revenues for the majority of these long-term contracts over time, whereby revenues and expenses, and thereby profit, in a given period are determined based on our estimates as to the project status and the costs remaining to complete a particular project. During 2020, 2019 and 2018, approximately 21.4%, 22.8% and 25.3%, respectively, of our total revenues were recognized over time.
Estimates of total revenues and cost at completion are subject to many variables, including the length of time to complete a contract. In addition, contract delays may negatively impact these estimates and our revenues and earnings results for affected periods.
To the extent that we underestimate the remaining cost or time to complete a project, we may overstate the revenues and profit in a particular period. Further, certain of these contracts provide for penalties or liquidated damages for failure to timely perform our obligations under the contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because substantially all of our long-term contracts are at a fixed price, we face the risk that cost overruns, delays, penalties or liquidated damages may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on our projects.
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The loss of key personnel and an inability to attract and retain qualified employees could have a material adverse effect on our operations.
We are dependent on the continued services of our leadership team. The loss of these personnel without adequate replacement could have a material adverse effect on our operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience in many locations in order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we were unable to attract and retain sufficient numbers of qualified individuals or our costs to do so were to increase significantly, our operations could be materially adversely affected.
We operate in highly competitive markets. Our failure to compete effectively could harm our business.
We sell our products in highly competitive markets, which could result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products. We compete on a number of fronts, including on the basis of product offerings, technical capabilities, quality, service and pricing. We have a number of competitors with substantial technological and financial resources, brand recognition and established relationships with global service providers. Some of our competitors have low cost structures, support from local governments, or both. In addition, new competitors may enter the markets in which we participate. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or incentives that we cannot or will not match. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, and make more attractive offers to potential customers, employees and strategic partners. In addition, competitive environments in slow-growth markets, to which some of our businesses have exposure, have been inherently more influenced by pricing and domestic and global economic conditions. To remain competitive, we must invest in manufacturing, marketing, customer service and support and our distribution networks. We cannot assure you that we will have sufficient resources to continue to make the investment required to maintain or increase our market share or that our investments will be successful. If we do not compete successfully, our business, financial condition, results of operations and cash flows could be materially adversely affected.
Our strategy to outsource various elements of the products and services we sell subjects us to the business risks of our suppliers and subcontractors, which could have a material adverse impact on our operations.
In areas where we depend on third-party suppliers and subcontractors for outsourced products, components or services, we are subject to the risk of customer dissatisfaction with the quality or performance of the products or services we sell due to supplier or subcontractor failure. In addition, business difficulties experienced by a third-party supplier or subcontractor can lead to the interruption of our ability to obtain outsourced products or services and ultimately our inability to supply products or services to our customers. Third-party supplier and subcontractor business interruptions can include, but are not limited to, work stoppages, collective labor negotiations and other labor disputes. Current or future economic conditions could also impact the ability of suppliers and subcontractors to access credit and, thus, impair their ability to provide us quality products or services in a timely manner, or at all.
Credit and counterparty risks could harm our business.
The financial condition of our customers could affect our ability to market our products or collect receivables. In addition, financial difficulties faced by our customers may lead to cancellation or delay of orders.
Our customers may suffer financial difficulties that make them unable to pay for a project when completed or as payment milestones become due, or they may decide not to pay us, either as a matter of corporate decision-making or in response to changes in local laws and regulations. We cannot assure you that expenses or losses for uncollectible amounts will not have a material adverse effect on our revenues, earnings and cash flows.
Failure to protect or unauthorized use of our intellectual property may harm our business.
Despite our efforts to protect our proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. The steps we have taken may not prevent unauthorized use of our technology or knowledge, particularly in foreign countries where the laws may not protect our proprietary rights to the same extent as in the United States. Costs incurred to defend our rights may be material.
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If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.
We are increasingly dependent on information technology (“IT”) networks and systems, including the Internet, to process, transmit and store electronic information. In particular, we depend on such IT infrastructure for electronic communications among our locations around the world and between our personnel and suppliers and customers, and we rely on the systems and services of a variety of vendors to meet our data processing and communication needs. Despite our implementation of security measures, cybersecurity threats, such as malicious software, phishing attacks, computer viruses and attempts to gain unauthorized access, cannot be completely mitigated. Security breaches of our, our customers' and our vendors' IT infrastructure can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including our intellectual property, trade secrets, customer information, other confidential business information or other information subject to data privacy laws. If we are unable to prevent, detect or adequately respond to such breaches, our operations could be disrupted, our competitiveness could be adversely affected or we may suffer financial damage or loss because of lost or misappropriated information or regulatory penalties. Such incidents also could require significant management attention and resources and result in increased costs. In addition, we must comply with increasingly complex regulatory standards enacted to protect business and personal information in the U.S. and elsewhere. For example, the E.U. adopted the General Data Protection Regulation (the “GDPR”), which became effective in 2018. The GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with proposed and enacted laws, including GDPR, can be costly and any failure to comply with these regulatory standards could subject us to legal, financial and reputational risks.
We are subject to potential labor disputes, extreme weather conditions and natural and other disasters, which may adversely impact our operations and cause us to incur incremental costs.
We have various collective labor arrangements covering certain non-U.S. employee groups. We are subject to potential work stoppages and other potential labor disputes. Further, we may be subject to work stoppages, which are beyond our control, at our suppliers or customers. In addition, extreme weather conditions in the areas in which our manufacturing facilities, service centers, distribution centers, suppliers and/or customers are located could adversely affect our operating results and financial condition. Moreover, natural disasters such as the hurricanes that damaged our U.S. facilities in 2017 and 2018, whether occurring in the U.S. or elsewhere, and the related consequences such as energy shortages and public health issues, could disrupt our operations, the operations of our suppliers and customers, or result in economic instability. Other global or local events, such as terrorist attacks, political insurgencies, electrical grid disruptions and outages, and pandemics (in addition to the COVID-19 pandemic) could also disrupt our operations, the operations of our suppliers and customers, or result in economic instability.
Our technology is important to our success, and failure to develop new products may result in a significant competitive disadvantage.
We believe the development of our intellectual property rights is critical to the success of our business. In order to maintain our market positions and margins, we need to continually develop and introduce high quality, technologically advanced and cost-effective products on a timely basis, in many cases in multiple jurisdictions around the world. The failure to do so could result in a significant competitive disadvantage.
Our current and planned products may contain defects or errors that are detected only after delivery to customers. If that occurs, our reputation may be harmed and we may face additional costs.
We cannot assure you that our product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us with regard to our products. As a result, we may have, and from time to time have had, to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by our customers or our customers' end users and other losses to us or to any of our customers or end users, and could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.
Risks related to the international scope of our business
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Difficulties presented by international economic, political, legal, accounting and business factors could negatively affect our business.
In 2020, approximately 65% of our revenues were generated outside the United States, and approximately 25% of our revenues were generated from sales into emerging markets. We manage businesses with manufacturing facilities worldwide. Our reliance on non-U.S. revenues and non-U.S. manufacturing bases exposes us to a number of risks, including:
Significant competition could come from local or long-term participants in non-U.S. markets who may have significantly greater market knowledge and substantially greater resources than we do;
Local customers may have a preference for locally-produced products;
Credit risk or financial condition of local customers and distributors could affect our ability to market our products or collect receivables;
Regulatory or political systems or barriers may make it difficult or impossible to enter or remain in new markets. In addition, these barriers may impact our existing businesses, including making it more difficult for them to grow;
Local political, economic and social conditions, including the possibility of hyperinflationary conditions, political instability, nationalization of private enterprises, or unexpected changes relating to currency could adversely impact our operations;
Customs and tariffs may make it difficult or impossible for us to move our products or assets across borders in a cost-effective manner;
Complications related to shipping, including delays due to weather, labor action, or customs, may impact our profit margins or lead to lost business;
Government embargoes or foreign trade restrictions such as anti-dumping duties, as well as the imposition of trade sanctions by the United States or the European Union against a class of products imported from or sold and exported to, or the loss of “normal trade relations” status with, countries in which we conduct business, could significantly increase our cost of products imported into the United States or Europe or reduce our sales and harm our business;
Environmental and other laws and regulations could increase our costs or limit our ability to run our business;
Our ability to obtain supplies from foreign vendors and ship products internationally may be impaired during times of crisis or otherwise;
Local, regional or worldwide hostilities could impact our operations; and
Distance, language and cultural differences may make it more difficult to manage our business and employees and to effectively market our products and services.
Any of the above factors or other factors affecting social and economic activity in emerging markets or affecting the movement of people and products into and from these countries to our major markets, including North America and Europe, could have a significant negative effect on our operations.
Our global operations could be negatively impacted by the economic and political instability caused by the exit of the United Kingdom (“U.K.”) from the European Union (“E.U.”).
On January 31, 2020, the U.K. separated from the E.U. (“Brexit”), culminating a process first approved by U.K. voters in a referendum held on June 23, 2016. Brexit has created instability and volatility in the global markets and could adversely affect European or worldwide economic or market conditions. Although it is unknown what the terms of exit will be, which are subject to negotiation during a transition period, they may impair the ability of our operations in the E.U. to transact business in the future in the U.K., and similarly the ability of our U.K. operations to transact business in the future in the E.U. Specifically, it is possible that there will be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may adversely affect our operations and financial results. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Further, among other things, Brexit could reduce capital spending in the U.K. and the E.U., which could result in decreased demand for our products. Any of these effects of Brexit, and others we cannot
10


anticipate, could adversely affect our business, business opportunities, financial condition, results of operations and cash flows.
Currency conversion risk could have a material impact on our reported results of business operations.
Our non-U.S. operating results are translated into U.S. dollars for reporting purposes. The strengthening or weakening of the U.S. dollar against other currencies in which we conduct business could result in unfavorable translation effects as the results of transactions in foreign countries are translated into U.S. dollars. Increased strength of the U.S. dollar will increase the effective price of our products sold in U.S. dollars into other countries, which may have a material adverse effect on sales or require us to lower our prices, and also decrease our reported revenues or margins related to sales conducted in foreign currencies to the extent we are unable or determine not to increase local currency prices. Likewise, decreased strength of the U.S. dollar could have a material adverse effect stemming from the cost of materials and products purchased overseas.
Failure to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other applicable anti-bribery laws could have an adverse effect on our business.
The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with anti-bribery laws. However, we operate in certain countries that are recognized as having governmental and commercial corruption. Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. Violations of these anti-bribery laws may result in criminal or civil sanctions, which could have a material adverse effect on our business, financial condition and results of operations.
Risks related to M&A activity and intangible assets
Acquisitions involve a number of risks and present financial, managerial and operational challenges.

Our long-term strategy to evaluate and pursue acquisitions and our recently completed acquisition transactions involve a number of risks and present financial, managerial and operational challenges, including:

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

Diversion of management attention from core business operations;

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

Increased expenses;

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

Assumption of known and unknown liabilities and exposure to litigation;

Increased levels of debt or dilution to existing stockholders; and

Potential disputes with the sellers of acquired businesses.

We conduct operational, financial, tax, and legal due diligence on all acquisitions; however, we cannot assure that all potential risks or liabilities are adequately discovered, disclosed, or understood in each instance. In addition, internal controls over financial reporting of acquired companies may not be compliant with required standards. Issues may exist that could rise to the level of significant deficiencies or, in some cases, material weaknesses, particularly with respect to foreign companies or non-public U.S. companies.
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Our integration activities may place substantial demands on our management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on our reputation and business.

Our failure to successfully complete acquisitions could negatively affect us.

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

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

We intend to strive for and achieve cost savings in connection with acquisitions, which may include: (i) manufacturing process and supply chain rationalization, (ii) streamlining redundant administrative overhead and support activities, (iii) restructuring and repositioning sales and marketing organizations to eliminate redundancies, and (iv) achieving anticipated revenue synergies. Cost savings expectations are estimates that are inherently difficult to predict and are necessarily speculative in nature, and we cannot assure you that we will achieve expected, or any, cost savings in connection with an acquisition. In addition, we cannot assure you that unforeseen factors will not offset the estimated cost savings or other benefits from our acquisitions. As a result, anticipated benefits could be delayed, differ significantly from our estimates and the other information contained in this report, or not be realized.
Dispositions or liabilities retained in connection with dispositions could negatively affect us.
Our dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the disposed businesses and a potential dilutive effect on our earnings per share. In addition, we have agreed to retain certain liabilities in connection with the disposition of the Disposal Group.
If dispositions are not completed in a timely manner, there may be a negative effect on our cash flows and/or our ability to execute our strategy. In addition, we may not realize some or all of the anticipated benefits of our dispositions. See “Business,” “MD&A—Results of Discontinued Operations,” and Note 4 to our consolidated financial statements for the status of our divestitures.
If the fair value of any of our reporting units is insufficient to recover the carrying value of the goodwill and other intangibles of the respective reporting unit, a material non-cash charge to earnings could result.
At December 31, 2020, we had goodwill and other intangible assets, net, of $775.7. We conduct annual impairment testing to determine if we will be able to recover all or a portion of the carrying value of goodwill and indefinite-lived intangibles. In addition, we review goodwill and indefinite-lived intangible assets for impairment more frequently if impairment indicators arise. If the fair value is insufficient to recover the carrying value of our reporting units and indefinite-lived intangibles, we may be required to record a material non-cash charge to earnings.
The fair values of our reporting units generally are based on discounted cash flow projections that are believed to be reasonable under current and forecasted circumstances, the results of which form the basis for making judgments about the recoverability of carrying values of the reported net assets of our reporting units. Other considerations are also incorporated, including comparable price multiples. The financial results of many of our businesses closely follow changes in the industries and end markets that they serve. We consider estimates and judgments that affect future cash flow projections, including principal methods of competition such as volume, price, service, product performance and technical innovations and estimates associated with cost reduction initiatives, capacity utilization, and assumptions for inflation and foreign currency changes. We monitor impairment indicators across all of our businesses. Significant changes in market conditions and estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairments in the period that the change becomes known.
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Risks related to tax, regulatory and environmental matters
Changes in tax laws and regulations or other factors could cause our income tax rate to increase, potentially reducing our earnings and adversely affecting our cash flows.
As a global manufacturing company, we are subject to taxation in various jurisdictions around the world. In preparing our financial statements, we calculate our effective income tax rate based on current tax laws and regulations and the estimated taxable income within each of these jurisdictions. Our future effective income tax rate, however, may be higher due to numerous factors, including changes in tax laws or regulations. Additionally, our effective tax rate could be adversely affected if there is a change in international operations, our global footprint and how our operations are managed and conducted. An effective income tax rate significantly higher than our expectations could have an adverse effect on our business, results of operations and liquidity.
We seek to optimize our tax footprint across all operations in U.S. and non-U.S. jurisdictions alike. These benefits are contingent upon existing tax laws and regulations in the U.S. and in the countries in which our international operations are located. Future changes in domestic or international tax laws and regulations could adversely affect our ability to continue to realize these tax benefits.
We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to environmental and other matters.
We are subject to various laws, ordinances, regulations and other requirements of government authorities in the United States and other nations. With respect to acquisitions, divestitures and continuing operations, we may acquire or retain liabilities of which we are not aware, or which are of a different character or magnitude than expected. Additionally, changes in laws, ordinances, regulations or other governmental policies may significantly increase our expenses and liabilities.
We are subject to domestic and international environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. We cannot assure you that our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, will not have a material adverse effect on our financial position, results of operations or cash flows.
Numerous claims, complaints and proceedings arising in the ordinary course of business, including those relating to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims), environmental matters, and risk management matters (e.g., product and general liability, automobile, and workers' compensation claims), have been filed or are pending against us and certain of our subsidiaries. From time to time, we face actions by governmental authorities, both in and outside the United States. Additionally, we may become subject to significant claims of which we are currently unaware or the claims of which we are aware may result in our incurring a significantly greater liability than we anticipate. Our insurance may be insufficient or unavailable (e.g., because of insurer insolvency, a significant adverse change in claim experience, or insurance coverage is not available in applicable insured periods) to protect us against potential loss exposures.
We devote significant time and expense to defend against the various claims, complaints and proceedings brought against us, and we cannot assure you that the expenses or distractions from operating our businesses arising from these defenses will not increase materially, or that any of our current or future claims or other matters will not have a material adverse effect on our financial position, results of operations or cash flows.
See “MD&A—Critical Accounting Policies and Use of Estimates-Contingent Liabilities” and Note 16 to our consolidated financial statements for further discussion.
Risks related to our capital structure
Our indebtedness may affect our business and may restrict our operating flexibility.
At December 31, 2020, we had $409.9 in total indebtedness. On that same date, we had $494.7 of borrowing capacity under our revolving credit facilities, after giving effect to $5.3 reserved for outstanding letters of credit. In addition, at December 31, 2020, we had $95.7 of available issuance capacity under our foreign credit instrument facilities after giving effect to $54.3 reserved for outstanding bank guarantees. At December 31, 2020, our cash and equivalents balance was $441.5. See “MD&A—Liquidity and Financial Condition - Borrowings and Availability” and Note 13 to our consolidated financial statements for further discussion. We may incur additional indebtedness in the future, including indebtedness
13


incurred to finance, or assumed in connection with, acquisitions. We may renegotiate or refinance our senior credit facilities, senior notes or other debt facilities, or enter into additional agreements that have different or more stringent terms. The level of our indebtedness could:
Impact our ability to obtain new, or refinance existing, indebtedness on favorable terms or at all;
Limit our ability to obtain, or obtain on favorable terms, additional debt financing for working capital, capital expenditures or acquisitions;
Limit our flexibility in reacting to competitive and other changes in the industry and economic conditions;
Limit our ability to pay dividends on our common stock;
Coupled with a substantial decrease in net operating cash flows due to economic developments or adverse developments in our business, make it difficult to meet debt service requirements; and
Expose us to interest rate fluctuations to the extent existing borrowings are, and any new borrowings may be, at variable rates of interest, which could result in higher interest expense and interest payments in the event of increases in interest rates.
Our ability to make scheduled payments of principal or pay interest on, or to refinance, our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which may be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, whether in the ordinary course of business or upon an acceleration of such indebtedness, we may pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures, revising implementation of or delaying strategic plans or seeking additional equity capital. Any of these actions could have a material adverse effect on our business, financial condition, results of operations and stock price. In addition, we cannot assure that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements, or that these actions would be permitted under the terms of our various debt agreements.
Numerous banks in many countries are syndicate members in our credit facility. Failure of one or more of our larger lenders, or several of our smaller lenders, could significantly reduce availability of our credit, which could harm our liquidity.
We may not be able to finance future needs or adapt our business plan to react to changes in economic or business conditions because of restrictions placed on us by our senior credit facilities and any existing or future instruments governing our other indebtedness.
Our senior credit facilities, the indenture governing our senior notes and agreements governing our other indebtedness contain, or future or revised instruments may contain, various restrictions and covenants that limit our ability to make distributions or other payments to our investors and creditors unless certain financial tests or other criteria are satisfied. We also must comply with certain specified financial ratios and tests. Our subsidiaries may also be subject to restrictions on their ability to make distributions to us. In addition, our senior credit facilities, the indenture governing our senior notes and agreements governing our other indebtedness contain or may contain additional affirmative and negative covenants. Material existing restrictions are described more fully in the “MD&A—Liquidity and Financial Condition—Borrowings and Availability” and Note 13 to our consolidated financial statements. Each of these restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions.
If we do not comply with the covenants and restrictions contained in our senior credit facilities, indenture governing our senior notes and agreements governing our other indebtedness, we could default under those agreements, and the debt, together with accrued interest, could be declared due and payable. If we default under our senior credit facilities, the lenders could cause all our outstanding debt obligations under our senior credit facilities to become due and payable or require us to repay the indebtedness under these facilities. If our debt is accelerated, we may not be able to repay or refinance our debt. In addition, any default under our senior credit facilities, indenture governing our senior notes or agreements governing our other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross-acceleration or cross-default provisions. If the indebtedness under our senior credit facilities is accelerated, we may not have sufficient assets to repay amounts due under our senior credit facilities, senior notes or other debt securities then outstanding. Our ability to comply with these provisions of our senior credit facilities, the indenture governing our senior notes and agreements
14


governing our other indebtedness will be affected by changes in the economic or business conditions or other events beyond our control. Complying with our covenants may also cause us to take actions that are not favorable to us and may make it more difficult for us to successfully execute our business strategy and compete, including against companies that are not subject to such restrictions.
Risks related to ownership of our common stock
Increases in the number of shares of our outstanding common stock could adversely affect our common stock price or dilute our earnings per share.
Sales of a substantial number of shares of common stock into the public market, or the perception that these sales could occur, could have a material adverse effect on our stock price. As of December 31, 2020, we had the ability to issue up to an additional 2.3 shares as restricted stock shares, restricted stock units, or stock options under our SPX FLOW Stock Compensation Plan. Additionally, we may issue a significant number of additional shares, in connection with acquisitions or otherwise. We also may issue a significant number of additional shares through other mechanisms. Additional shares granted and/or issued would have a dilutive effect on our earnings per share.
Provisions in our corporate documents and Delaware law may delay or prevent a change in control of our company, and accordingly, we may not consummate a transaction that our shareholders consider favorable.
Provisions of our Certificate of Incorporation and By-laws may inhibit changes in control of our company not approved by our Board. These provisions include, for example: a prohibition on shareholder action by written consent; a requirement that special shareholder meetings be called only by our Chairman, President or Board; advance notice requirements for shareholder proposals and nominations; and the authority of our Board to issue, without shareholder approval, preferred stock with terms determined in its discretion. In addition, we are afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects. In general, Section 203 prohibits us from engaging in a “business combination” with an “interested shareholder” (each as defined in Section 203) for at least three years after the time the person became an interested shareholder unless certain conditions are met. These protective provisions could result in our not consummating a transaction that our shareholders consider favorable or discourage entities from attempting to acquire us, potentially at a significant premium to our then-existing stock price.
Risks related to our spin-off from SPX Corporation in 2015
The Company was wholly-owned by SPX Corporation (the “former Parent”) until September 26, 2015, at which time the former Parent distributed 100% of our outstanding common stock to its shareholders through a tax-free spin-off transaction (the “Spin-Off”).
In connection with our Spin-Off, our former Parent agreed to indemnify us for certain liabilities and we agreed to indemnify our former Parent for certain liabilities. If we are required to act on these indemnities to our former Parent, we may need to divert cash to meet those obligations and our financial results could be negatively impacted. The indemnity from our former Parent may not be sufficient to insure us against the full amount of liabilities for which we will be allocated responsibility, and our former Parent may not be able to satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement, the Employee Matters Agreement and the Tax Matters Agreement between us and our former Parent entered into in connection with the Spin-Off, it has agreed to indemnify us for certain liabilities, and we have agreed to indemnify our former Parent for certain liabilities, in each case for uncapped amounts. Such indemnities may be significant and could negatively impact our business, particularly our indemnity to our former Parent regarding the intended tax-free treatment of the Spin-Off. Third parties could also seek to hold us responsible for any of the liabilities that our former Parent has agreed to retain. Further, the indemnity from our former Parent may not be sufficient to protect us against the full amount of such liabilities, and our former Parent may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from our former Parent any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations and cash flows.
The Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements.
The Spin-Off is subject to review under various state and federal fraudulent conveyance laws. Fraudulent conveyance laws generally provide that an entity engages in a constructive fraudulent conveyance when (1) the entity
15


transfers assets and does not receive fair consideration or reasonably equivalent value in return, and (2) the entity (a) is insolvent at the time of the transfer or is rendered insolvent by the transfer, (b) has unreasonably small capital with which to carry on its business, or (c) intends to incur or believes it will incur debts beyond its ability to repay its debts as they mature. An unpaid creditor or an entity acting on behalf of a creditor (including, without limitation, a trustee or debtor-in-possession in a bankruptcy by us or our former Parent or any of our respective subsidiaries) may bring a lawsuit alleging that the Spin-Off or any of the related transactions constituted a constructive fraudulent conveyance. If a court accepts these allegations, it could impose a number of remedies, including, without limitation, voiding our claims against our former Parent, requiring our shareholders to return to our former Parent some or all of the shares of our common stock issued in the Spin-Off, or providing our former Parent with a claim for monetary damages against us in an amount equal to the difference between the consideration received by our former Parent and the fair market value of our company at the time of the Spin-Off.
The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction's law is applied. Generally, an entity would be considered insolvent if (1) the present fair saleable value of its assets is less than the amount of its liabilities (including contingent liabilities); (2) the present fair saleable value of its assets is less than its probable liabilities on its debts as such debts become absolute and matured; (3) it cannot pay its debts and other liabilities (including contingent liabilities and other commitments) as they mature; or (4) it has unreasonably small capital for the business in which it is engaged. We cannot assure you what standard a court would apply to determine insolvency or that a court would determine that we, our former Parent or any of our respective subsidiaries were solvent at the time of or after giving effect to the Spin-Off.
The distribution of our common stock is also subject to review under state corporate distribution statutes. Under the General Corporation Law of the State of Delaware (the “DGCL”), a corporation may only pay dividends to its shareholders either (1) out of its surplus (net assets minus capital) or (2) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Although we believe that we and our former Parent were each solvent at the time of the Spin-Off (including immediately after the distribution of shares of SPX FLOW common stock), that we are able to repay our debts as they mature and have sufficient capital to carry on our businesses, and that the distribution was made entirely out of surplus in accordance with Section 170 of the DGCL, we cannot assure you that a court would reach the same conclusions in determining whether our former Parent or we were insolvent at the time of, or after giving effect to, the Spin-Off, or whether lawful funds were available for the separation and the distribution to our former Parent's shareholders.
A court could require that we assume responsibility for obligations allocated to our former Parent under the Separation and Distribution Agreement.
Under the Separation and Distribution Agreement with our former Parent, both we and our former Parent are responsible for the debts, liabilities and other obligations related to the business or businesses which it owns and operates. Although we do not expect to be liable for any obligations that are not allocated to us under the Separation and Distribution Agreement, a court could disregard the allocation agreed to between the parties, and require that we assume responsibility for obligations allocated to our former Parent (including, for example, environmental liabilities), particularly if our former Parent were to refuse or were unable to pay or perform the allocated obligations.
We are subject to continuing contingent tax liabilities of our former Parent.
Under the Internal Revenue Code and U.S. Treasury Regulations, each corporation that was a member of our former Parent's consolidated group for U.S. federal income tax purposes during any taxable period (or portion thereof) ending on or before the effective time of the Spin-Off is jointly and severally liable for the entire U.S. federal income tax liability of our former Parent's consolidated group for that taxable period subsequent to the year ended December 31, 2013. Our Tax Matters Agreement with our former Parent generally allocates economic responsibility for taxes of our former Parent's consolidated group to our former Parent. However, if our former Parent is unable to pay any such taxes, we could be liable for the entire amount of such taxes, which would include taxes arising out of the Spin-Off if our former Parent were to take an action (over which we may have no control) that causes the Spin-Off to be taxable to our former Parent.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
The following is a summary of our principal properties, including manufacturing, engineering, and sales offices as of December 31, 2020:
Approximate Square Footage (in millions)
LocationNo. of FacilitiesOwnedLeased
Food and Beverage2 U.S. states and 14 foreign countries230.8 1.0 
Industrial9 U.S. states and 15 foreign countries381.3 0.4 
Total61 2.1 1.4 
In addition to manufacturing plants, we own our corporate office in Charlotte, NC, and lease our Asia Pacific center in Shanghai, China, our European shared service center in Manchester, United Kingdom and various sales, service and other locations throughout the world. We consider these properties, as well as the related machinery and equipment, to be well maintained and suitable and adequate for their intended purposes.
The following table lists the locations of our primary manufacturing facilities as of December 31, 2020:
AmericasEMEAAsia Pacific
Cooperstown, NDAssen, NetherlandsAhmedabad, India
Delavan, WIBudapest, HungaryBusan, South Korea
Goldsboro, NCBydgoszcz, PolandNew Delhi, India
Ocala, FLEkero, SwedenXidu, China
Rochester, NYErpe-Mere, Belgium
Rockford, ILEtten-Leur, Netherlands
Eygelshoven, Netherlands
Moers, Germany
Norderstedt, Germany
Santorso, Italy
Silkeborg, Denmark

ITEM 3. Legal Proceedings
Various claims, complaints and proceedings arising in the ordinary course of business, including those relating to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims, and claims to certain indemnification obligations arising from previous acquisitions/dispositions), have been filed or are pending against us and certain of our subsidiaries. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.
See “Risk Factors—We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to environmental and other matters,” “MD&A—Critical Accounting Policies and Estimates—Contingent Liabilities,” and Note 16 to our consolidated financial statements for further discussion of legal proceedings.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “FLOW.”
The number of shareholders of record of our common stock as of February 17, 2021 was 2,539.
Any dividends in future periods, including declaration, record and payment dates, will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, ongoing capital needs, financial condition and other factors that the Board of Directors may deem relevant, as well as our ability to declare and pay dividends.
Issuer Purchases of Equity Securities
The following table summarizes our repurchase of common stock during the three months ended December 31, 2020:

Shares Purchased asMaximum Approximate
Part of a PubliclyDollar Value of Shares That
Total Number of Average PriceAnnounced Plan orMay Yet be Purchased
Period
Shares Purchased (1)
Per Share
Program (2)
Under the Plan or Program (2)
9/27/20 - 10/31/202,501 $45.09— $133.1
11/1/20 - 11/28/2034,800$52.9934,800$131.3
11/29/20 - 12/31/2021,800$54.3221,800$130.1
Total59,10156,600$130.1

(1)     Includes the surrender to us of shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock shares and restricted units of 2,501 shares for the period from September 27, 2020 to October 31, 2020.
(2)     Amount presented in millions. On March 30, 2020, we announced that our Board of Directors had authorized the Company to repurchase shares of our common stock up to $150 million over a period expiring at the earlier of December 31, 2021 or such earlier time determined by our Board of Directors in its sole discretion.
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Company Performance 
This graph shows a comparison of cumulative total returns for SPX FLOW, the S&P 500 Index and the S&P Composite 1500 Industrials Index beginning on September 28, 2015, the date that our common stock began open trading, assuming an initial investment of $100.
spxf-20201231_g1.jpg
SPX FLOWS&P 500S&P 1500 Industrials
9/26/2015$100.00 $100.00 $100.00 
12/31/2015$82.10 $109.20 $109.60 
4/2/2016$70.88 $109.80 $112.92 
7/2/2016$70.79 $110.99 $114.10 
10/1/2016$90.03 $114.85 $119.48 
12/31/2016$94.29 $118.97 $128.34 
4/1/2017$102.09 $125.56 $133.10 
7/1/2017$108.47 $128.78 $138.31 
9/30/2017$113.41 $133.88 $144.02 
12/31/2017$139.85 $142.08 $152.41 
3/31/2018$144.68 $140.34 $149.36 
6/30/2018$128.74 $144.46 $145.01 
9/29/2018$152.94 $154.85 $158.41 
12/31/2018$89.47 $133.22 $129.61 
3/30/2019$93.82 $150.62 $150.72 
6/29/2019$123.12 $156.33 $156.15 
9/28/2019$117.41 $157.39 $156.27 
12/31/2019$143.74 $171.69 $165.15 
3/28/2020$73.32 $135.06 $118.34 
6/27/2020$101.85 $159.91 $134.35 
9/26/2020$121.65 $175.28 $154.33 
12/31/2020$170.47 $199.60 $181.26 

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ITEM 6. Selected Financial Data
The following table presents our selected historical consolidated financial data as of and for each of the years in the five-year period ended December 31, 2020. The results of discontinued operations presented below reflect those of our former Power and Energy reportable segment, excluding the Bran+Luebbe product line (collectively, the “Disposal Group”). As noted previously, the sale of such discontinued operations was substantially completed on March 30, 2020.
The selected historical consolidated financial data presented below should be read in conjunction with our audited consolidated financial statements and accompanying notes and “MD&A” included elsewhere in this Annual Report on Form 10-K.
(in millions, except per share amounts)
As of and for the year ended December 31,
Summary of operations:20202019201820172016
Revenues$1,350.6 $1,506.6 $1,593.9 $1,483.2 $1,520.6 
Operating income(1)(2)
80.9 115.7 112.0 78.9 0.6 
Other income (expense), net(3)
9.5 (0.5)(5.9)3.9 (0.2)
Interest expense, net(29.9)(29.7)(34.3)(46.2)(37.6)
Loss on early extinguishment of debt(4)
(11.0)— — — (38.9)
Income (loss) from continuing operations before income taxes49.5 85.5 71.8 36.6 (76.1)
Income tax benefit (provision)(5)
(6.2)(28.9)(61.3)(2.6)50.0 
Income (loss) from continuing operations43.3 56.6 10.5 34.0 (26.1)
Income (loss) from discontinued operations, net of tax(6)
(36.8)(149.7)34.2 12.8 (354.9)
Net income (loss)6.5 (93.1)44.7 46.8 (381.0)
Less: Net income attributable to noncontrolling interests0.6 2.0 0.7 0.4 0.8 
Net income (loss) attributable to SPX FLOW, Inc.$5.9 $(95.1)$44.0 $46.4 $(381.8)
Basic income (loss) per share of common stock:
Income (loss) per share from continuing operations$1.01 $1.29 $0.23 $0.79 $(0.67)
Income (loss) per share from discontinued operations(0.87)(3.53)0.82 0.32 (8.57)
Net income (loss) per share attributable to SPX FLOW, Inc.0.14 (2.24)1.04 1.11 (9.23)
Diluted income (loss) per share of common stock:
Income (loss) per share from continuing operations$1.00 $1.29 $0.22 $0.78 $(0.67)
Income (loss) per share from discontinued operations(0.86)(3.51)0.81 0.32 (8.57)
Net income (loss) per share attributable to SPX FLOW, Inc.0.14 (2.23)1.03 1.10 (9.23)
Other financial data:
Total assets$2,098.5 $2,437.4 $2,551.8 $2,689.0 $2,603.2 
Total debt(7)
409.9 714.5 765.1 891.4 1,104.4 
Other long-term obligations(8)
154.1 142.9 139.0 126.2 121.9 
Mezzanine equity(9)
3.4 20.3 21.5 22.2 20.1 
SPX FLOW, Inc. shareholders' equity1,061.4 862.4 952.8 942.1 740.6 
Noncontrolling interests(9)
(0.6)10.7 10.3 9.7 1.5 
Capital expenditures22.4 28.5 19.2 16.2 40.3 
Depreciation and amortization41.1 38.3 41.7 43.7 44.5 
(1)During 2020, we recognized restructuring and other related charges of $11.7 which included, among other actions, the consolidation and relocation of the operations of a U.S. manufacturing facility to existing facilities in the U.S. as well as in our EMEA and Asia Pacific regions and, more broadly, reductions in force of certain engineering, commercial, operations and other functional support employees within our segments, across all regions in which the segments operate, and the rationalization and outsourcing of certain corporate support functions.
During 2019 and 2018, we recognized restructuring and other related charges of $9.3 and $7.6, respectively, which included, among other actions, severance and other costs associated with the rationalization of a business primarily associated with the execution of large dry-dairy systems projects in the Food and Beverage segment, initiated during the fourth quarter of 2018 and then subsequently broadened during 2019. As discussed further below, certain intangible and tangible long-lived asset impairment charges were recognized during the fourth quarter of 2018 which also resulted from management’s conclusion to rationalize this business and reduce the Company’s exposure to this market.
During 2017, we recognized restructuring and other related charges totaling $12.9 related to our global realignment program, which included, among other costs, charges associated with (i) the consolidation and relocation of various manufacturing operations primarily within the EMEA region into an existing facility in Poland, (ii) severance and other costs associated with the reorganization and consolidation of certain commercial, operational and administrative functions across both segments and all regions and (iii) severance and other costs associated with the relocation of certain engineering functions to lower-cost countries.
During 2016, we recognized restructuring and other related charges totaling $48.7 related to our global realignment program, which included (i) charges of $16.5 associated with the continued consolidation and relocation of manufacturing facilities in Germany and Denmark to an existing facility in Poland, (ii) various other global restructuring initiatives across our business and corporate support functions, and, to a lesser extent, (iii) a reorganization of the Company's segment management structures.
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See Note 8 to our consolidated financial statements for further discussion of restructuring and other related charges.
(2)During 2020, we recorded asset impairment charges of $3.2, of which (i) $1.9 resulted from management’s decision during the first quarter of 2020 to discontinue a product line within the Industrial reportable segment, and (ii) $1.3 resulted from management’s decision during the second quarter of 2020 to consolidate and relocate the operations of a U.S. manufacturing facility within the Industrial reportable segment to existing facilities in the U.S. as well as in our EMEA and Asia Pacific regions.
During 2019, we recorded asset impairment charges of $10.8 incurred in connection with the decision to market certain corporate assets for sale and, to a lesser extent, of $0.4 related to impairments of a right-of-use asset and a tangible long-lived asset in our Industrial reportable segment.
During 2018, we recorded asset impairment charges of $8.3, $4.5 and $1.4 related to the technology assets, tangible long-lived assets and trademarks, respectively, of a business associated with the execution of large dry-dairy systems projects within our Food and Beverage reportable segment and, to a lesser extent, $0.2 related to tangible long-lived assets in our Industrial segment.
During 2017, we recorded asset impairment charges of $3.6 in connection with the sale of certain corporate assets during the year, $0.8 related to certain corporate-based information technology assets, and $0.5 related to a Food and Beverage segment product line which was exited and formerly based primarily in the EMEA region.
During 2016, we recorded asset impairment charges of $21.5 related to the trademarks and $4.2 related to the goodwill of a business associated with the Bran+Luebbe product line, which was formerly in the Power and Energy segment and has been reclassified into the Industrial segment in connection with our reclassification of the Disposal Group into discontinued operations for all periods presented. In addition, we recorded asset impairment charges of $18.2 incurred primarily in connection with the decision to market certain corporate assets for sale and $5.5 related to a certain technology asset of a business within our Food and Beverage reportable segment.
See Note 10 to our consolidated financial statements for further discussion of asset impairment charges.
(3)During 2020, 2019, 2018, 2017 and 2016, we recognized expense (benefit) related to changes in the fair value of plan assets, actuarial gains/losses, and settlement/curtailment gains/losses of $2.2, $5.5, $(2.3), $(2.0) and $1.7, respectively, associated with our and our former Parent's pension and postretirement benefit plans. See Note 11 to our consolidated financial statements for further discussion of employee benefit plans sponsored by us and sponsored by our former Parent. During 2017, we also recognized a benefit of $3.5 related to the remeasurement of an indemnification receivable from a third party related to certain of our foreign defined benefit pension obligations.
(4)During 2020, we completed the redemption of all of our 5.625% senior notes due in August 2024 for a total redemption price of $308.4. As a result of the redemption, we recorded a charge of $11.0, which related to premiums paid to redeem the 2024 Notes of $8.4, the write-off of unamortized deferred financing fees of $2.5, and other costs associated with the extinguishment of the 2024 Notes of $0.1.
During 2016, we completed the redemption of all of our 6.875% senior notes due in August 2017 for a total redemption price of $636.4. As a result of the redemption, we recorded a charge of $38.9, which related to premiums paid to redeem the senior notes of $36.4, the write-off of unamortized deferred financing fees of $1.9, and other costs associated with the extinguishment of the senior notes of $0.6.
See Note 13 to our consolidated financial statements for further discussion of our indebtedness.
(5)During 2020, the income tax provision was impacted by income tax benefits of (i) $7.2 resulting from adjustments to the deemed repatriation tax and certain additional foreign tax credits from the re-characterization of a prior outbound transfer of an affiliate to non-U.S. entities, (ii) $3.0 related to an intercompany transfer of a business between certain of the Company’s non-U.S. subsidiaries, (iii) $1.9 related to a reduction in valuation allowance in a jurisdiction where the full benefit of the incentive carryforward is now expected to be realized, and (iv) $1.2 resulting from tax return adjustments for certain of the Company’s subsidiaries, which were partially offset by income tax charges of $1.6 related to an increase in valuation allowance related to certain jurisdictions where the benefit of losses are no longer expected to be realized.
During 2019, the income tax provision was impacted by income tax charges of (i) $6.9 resulting from the addition of a valuation allowance for certain subsidiaries for which the benefit of previously incurred losses or credits is not expected to be realized, (ii) $3.1 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized and (iii) $6.0 resulting from the outbound transfer of an affiliate to non-U.S. entities, partially offset by income tax benefits of (1) $1.8 resulting from an outside basis difference from continuing operations that will be realized through the disposition of held-for-sale assets and (2) $3.9 resulting from the net impact of the cancellation of certain intercompany indebtedness.
During 2018, the income tax provision was impacted by income tax charges of (i) $22.2 for adjustments to the deemed repatriation tax and related elections and (ii) $9.0 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized.
During 2017, the income tax provision was impacted by an income tax benefit of $71.2 related to revaluation of our net deferred tax liabilities resulting from the change in the U.S. federal tax rate, including the reduction for earnings that were not indefinitely reinvested, and income tax charges of (i) $50.4 for the deemed repatriation tax and (ii) $10.4 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized.
During 2016, the income tax benefit was impacted by a tax benefit of $23.8 resulting from a tax incentive realized in Poland related to the expansion of our manufacturing facility in that country.
See Note 12 to our consolidated financial statements for further discussion regarding our income tax provision and related tax balances.
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(6)During 2020, we recorded a pre-tax loss of $9.3 related to discontinued operations which included: (i) a loss to reduce the carrying value of the Disposal Group to our estimate of its fair value (the net proceeds expected to be realized at closing of the sale of the Disposal Group), less estimated costs to sell and, to a lesser extent, (ii) a loss related to the related to the settlement of net working capital and related deductions with the buyer of the Disposal Group and (iii) Operating results of the Disposal Group. Additionally, we recorded an income tax provision of $27.5 from discontinued operations. The effective tax rate for 2020 was impacted by income tax charges of (i) $32.1 composed of the U.S. tax expense on the tax gain on sale of Disposal Group entities sold by the U.S. parent, (ii) $0.9 in reduction of the benefit to be realized through the disposition of held-for-sale assets and (iii) $0.4 resulting from adjustments to the U.S. tax liability for prior years, which were partially offset by an income tax benefit of $5.8 related to a loss for global intangible low-taxed income purposes on the sale of certain non-U.S. entities. The significant non-U.S. sales of Disposal Group entities were in locations where local law did not require any gain to be taxed or permit any loss to result in a future benefit and on a net basis these significant non-U.S. sales resulted in a loss without a corresponding tax benefit.

During 2019, we recorded a pre-tax loss of $185.0 related to discontinued operations including: (i) a loss on disposal of $201.0 to reduce the carrying value of the Disposal Group to our estimate of its fair value (the net proceeds expected to be realized at closing of the sale of the Disposal Group, expected to occur in the first half of 2020), less estimated costs to sell and, to a lesser extent, (ii) a charge of $17.0 related to the settlement and payment of a demand from a customer related to a project of the Disposal Group, and (iii) a charge of $5.0 related to recognition of an unfavorable purchase commitment entered into with the buyer of the Disposal Group. Additionally, we recorded an income tax benefit of $35.3 from discontinued operations, resulting in an effective tax rate of 19.1%. The effective tax rate for 2019 was impacted by (i) a benefit of $30.2 resulting from basis differences that were subsequently realized through the disposition of the held-for-sale assets and (ii) the effect that the majority of the pre-tax loss on Disposal Group and pre-tax charge related to the purchase commitment entered into with the buyer of the Disposal Group will not result in a tax benefit, such that only $9.7 of tax benefit was recognized on those pre-tax charges.

During 2016, we recorded asset impairment charges of $248.6, $115.9, $15.6 and $30.9 related to goodwill, customer relationships, trademarks and certain technology assets, respectively, of certain businesses within the Disposal Group.
See Note 4 to our consolidated financial statements for further discussion regarding discontinued operations.
(7)During 2020, we completed the redemption of all of our 5.625% senior notes due in August 2024 for a total redemption price of $308.4 (including premiums paid of $8.4).
During 2018 and 2017, we made voluntary principal prepayments in the amounts of $110.0 and $100.0, respectively, under our former term loan facility.
Included in total debt as of December 31, 2020, 2019, 2018, 2017 and 2016 are deferred financing fees of $3.1, $6.8, $8.0, $10.2 and $12.8, respectively, incurred in connection with our senior notes and term loans.
(8)Other long-term obligations exclude “Liabilities of discontinued operations – long-term” as of December 31, 2018, 2017 and 2016.
(9)Mezzanine equity as of December 31, 2020, 2019, 2018, 2017 and 2016 represents the current exercise value of certain put options that independent noncontrolling shareholders in certain foreign subsidiaries of the Company have under their respective joint venture operating agreements that allow them to sell their common stock to the controlling shareholders (wholly-owned subsidiaries of SPX Flow, Inc.) upon the satisfaction of certain conditions, including the passage of time. During 2020, the noncontrolling interest shareholder of a joint venture exercised certain put options and the Company and such shareholder reached an agreement for the Company to purchase all noncontrolling interest shares in that joint venture at an agreed-upon price. In accordance with the agreement, we paid $15.0 to purchase the shares during the year ended December 31, 2020. After consideration of the preceding purchase of noncontrolling interest shares during 2020, we have $3.4 of current exercise value of put options outstanding as of December 31, 2020, related to a different foreign subsidiary than that discussed above and all of which became exercisable during 2020. The carrying value of such put options is recorded based on our best estimate of the ultimate redemption value of those put options. If and when such options are exercised, we expect to settle the option value in cash. See Note 16 and Note 17 for further discussion regarding our "Mezzanine equity" balances.
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All currency and share amounts are in millions, unless otherwise noted)
The following should be read in conjunction with the other sections of this Annual Report on Form 10-K, including our audited consolidated financial statements and the related notes and “Business.” The following discussion contains certain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors including, but not limited to, those discussed under the heading “Risk Factors.”
Our audited consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations and cash flows. The financial information discussed below and included in this Annual Report on Form 10-K, however, may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future.
We experienced the adverse impacts of the novel coronavirus pandemic (“COVID-19” or the “COVID-19 pandemic”) beginning in the first quarter of 2020 and these adverse impacts continued through the fourth quarter of 2020. 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 consolidated balance sheet as of December 31, 2020. 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 related to the valuation of assets and contingent amounts, which could result in the impairment of certain assets or the recognition of costs due to increases in contingent amounts.
Prior to 2019, we aggregated our operating segments into three reportable segments. In connection with the sale of a substantial portion of our former Power and Energy reportable segment and its reclassification as a discontinued operation in 2019, we are no longer reporting the remaining business of Power and Energy as a separate reportable segment, as the operations and organizational structure of that remaining business (primarily the Bran+Luebbe product line) have been absorbed into the Industrial reportable segment, and the operating results of the Industrial reportable segment (now including that product line) are regularly reviewed by the Company’s chief operating decision maker. The results of that remaining business have been reclassified into the Industrial reportable segment in all periods presented. See Note 4 to our accompanying consolidated financial statements for further information regarding discontinued operations.
Unless otherwise indicated, amounts reported in this MD&A pertain to continuing operations only.
EXECUTIVE OVERVIEW
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in two business segments. In 2020, SPX FLOW had approximately $1.4 billion in annual revenues with approximately 36%, 37%, and 27% from sales into the Americas, EMEA, and Asia Pacific regions, respectively, and with operations in more than 30 countries and sales in more than 140 countries.
Summary of Results from Continuing Operations
The following summary is intended to provide a few highlights of the discussion and analysis that follows (all comparisons are to the related period in the prior year):
Revenues
In 2020, decreased 10.4% to $1,350.6, due primarily to decreases in organic revenue in both business segments. The decreases in organic revenue were due primarily to (i) a lower level of revenue from Food and Beverage systems projects, including large dry-dairy projects, and (ii) broad-based weakness across most Industrial segment product lines, attributable primarily to reduced demand due to the effects of the COVID-19 pandemic.
In 2019, decreased 5.5% to $1,506.6, as a result of a decrease in organic revenue and a strengthening of the U.S. dollar against various foreign currencies. The decrease in organic revenue was due primarily to (i) a decline in revenue from large dry-dairy systems projects in the Food and Beverage segment, consistent with the Company’s strategy to methodically reduce its exposure to that market and (ii) a lower level of capital project revenue in our Industrial segment and, reflective of a broad, global slowdown in the demand for industrial products, reductions in shipments of dehydration equipment and industrial pumps. Partially offsetting these
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declines were organic growth in process component shipments and aftermarket sales in the Food and Beverage segment as well as an increase in shipments of mixers in the Industrial segment.
Income before Income Taxes
In 2020, decreased from $85.5 to $49.5. Among other items, the decline in pre-tax income was due to (i) a reduction in segment income, resulting from the lower levels of organic revenue discussed above and (ii) the recognition of a loss on the early extinguishment of our senior notes due August 2024 during the third quarter of 2020. Such reductions in pre-tax income were partially offset by the effect of a reduction in asset impairment charges, as the third quarter of 2019 included a charge related to the marketing of corporate asset for sale which did not recur in 2020.
In 2019, increased from $71.8 to $85.5. Among other items, the improvement in pre-tax income was due to (i) an increase in segment profitability, (ii) investment-related gains related to an increase in the net asset value of an investment in an equity security, (iii) reduced foreign currency exchange losses, and (iv) reduced interest expense due primarily to voluntary principal prepayments on our former term loan facility of $110.0 during 2018. Such improvements in pre-tax income were partially offset by an increase in professional fees related to the development of the Company’s enterprise strategy and long-term growth plans and non-service-related pension and postretirement costs resulting from mark-to-market adjustments recognized in the fourth quarter.
Cash Flows from Operations
In 2020, decreased to $120.3 (from $130.1 in 2019), primarily as a result of reduced cash flows from lower segment income, due partially to the effects of the COVID-19 pandemic as previously noted.
In 2019, increased to $130.1 (from $28.0 in 2018), primarily as a result of (i) a reduced investment in inventories and other components of working capital, reflective of lower order intake in 2019, compared to 2018, and lower backlog levels as of December 31, 2019, compared to December 31, 2018 and (ii) reduced payments for incentive compensation.
RESULTS OF CONTINUING OPERATIONS
Cyclicality of End Markets, Seasonality and Competition - The financial results of many of our businesses closely follow changes in the industries and end markets they serve.
In our Food and Beverage reportable segment, system revenues are highly correlated to timing on capital projects, which may cause significant fluctuations in our financial performance from period to period. Fluctuations in dairy commodity prices and production of dairy related products, particularly those aimed at serving the China market, can influence the timing of capital spending by many end customers in our Food and Beverage reportable segment.
Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since our competitors do not offer all the same product lines or serve all the same markets. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. See “Business” for a discussion of our competitors.
Non-GAAP Measures - Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, a business acquisition which occurred in the third quarter of 2020, and a business disposal which occurred in the fourth quarter of 2020. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as, when read in conjunction with our revenues, it presents a tool to evaluate our ongoing operations and provides investors with a metric they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.
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Years Ended December 31, 2020, 2019 and 2018
The following table provides selected financial information for the years ended December 31, 2020, 2019 and 2018, including the reconciliation of organic revenue decline to net revenue decline:
Year ended December 31,
2020201920182020 vs. 2019 %2019 vs. 2018 %
Revenues$1,350.6 $1,506.6 $1,593.9 (10.4)(5.5)
Gross profit468.9 520.4 513.2 (9.9)1.4 
% of revenues34.7 %34.5 %32.2 %
Selling, general and administrative357.2 372.8 366.0 (4.2)1.9 
% of revenues26.4 %24.7 %23.0 %
Intangible amortization11.7 11.4 13.2 2.6 (13.6)
Asset impairment charges3.2 11.2 14.4 (71.4)(22.2)
Restructuring and other related charges11.7 9.3 7.6 25.8 22.4 
Loss on sale of business4.2 — — *— 
Other income (expense), net9.5 (0.5)(5.9)*(91.5)
Interest expense, net(29.9)(29.7)(34.3)0.7 (13.4)
Loss on early extinguishment of debt(11.0)— — *— 
Income from continuing operations before income taxes49.5 85.5 71.8 (42.1)19.1 
Income tax provision(6.2)(28.9)(61.3)(78.5)(52.9)
Income from continuing operations43.3 56.6 10.5 (23.5)*
Income (loss) from discontinued operations, net of tax(36.8)(149.7)34.2 (75.4)*
Net income (loss) 6.5 (93.1)44.7 107.0 *
Less: Net income attributable to noncontrolling interests0.6 2.0 0.7 (70.0)185.7 
Net income (loss) attributable to SPX FLOW, Inc.$5.9 $(95.1)$44.0 106.2 *
Components of consolidated revenue decline:
Organic decline(10.3)(2.8)
Foreign currency and other (0.1)(2.7)
Net revenue decline(10.4)(5.5)
*    Not meaningful for comparison purposes.
Revenues - For 2020, the decrease in revenues, compared to 2019, was primarily due to a decrease in organic revenue and, to a modest extent, a strengthening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was due to (i) a lower level of systems revenue in our Food and Beverage segment, including large dry-dairy systems revenues, as anticipated, as well as lower components and aftermarket service revenues, and (ii) reduced demand and shipments across the majority of our short-cycle Industrial segment product lines and end markets, primarily associated with global macroeconomic conditions resulting from the effects of the COVID-19 pandemic. Additionally, the Industrial segment had lower opening shippable backlog in 2020 than in 2019.
For 2019, the decrease in revenues, compared to 2018, was due to an organic decline and a strengthening of the U.S. dollar against various foreign currencies during the period. The decrease in organic revenue was due primarily to (i) a decline in revenue from large dry-dairy systems projects in the Food and Beverage segment, consistent with the Company's strategy to methodically reduce its exposure to that market and (ii) a lower level of capital project revenue in our Industrial segment and, reflective of a broad, global slowdown in the demand for industrial products, reductions in shipments of dehydration equipment and industrial pumps which experienced such declines primarily in the fourth quarter of 2019 relative to the comparable period of 2018. Partially offsetting these declines were organic growth in process component shipments and aftermarket sales in the Food and Beverage segment as well as an increase in shipments of mixers in the Industrial segment.
See “Results of Reportable Segments” for additional details.
Gross Profit - For 2020, the decrease in gross profit, compared to 2019, was due primarily to the decrease in organic revenue discussed above. The effects of the reduction in volumes in both segments on margin in 2020, compared to 2019, were more than offset by strong operational and project execution on an improved mix of revenue, savings from cost reduction actions and net price benefits.
The increase in gross profit and margin for 2019, compared to 2018, was attributable primarily to a higher margin mix of revenue as well as net pricing benefits, improved operational execution, savings from cost reduction initiatives and costs
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associated with the repair of a large mixer incurred in our Industrial segment in the 2018 period that did not recur in the current period.
See “Results of Reportable Segments” for additional details.
Selling, General and Administrative (“SG&A”) Expense - For 2020, the decrease in SG&A expense, compared to 2019, was due primarily to lower variable selling costs, resulting from the decline in organic revenue volumes discussed above, as well as savings from cost reduction actions and reductions in discretionary spending. Such reductions in SG&A expense were partially offset by an increase in variable incentive compensation.
For 2019, the increase in SG&A expense, compared to 2018, was due primarily to (i) an increase in professional fees related to the further development of the Company's enterprise strategy and long-term growth plans, partially offset by (i) savings from cost reduction initiatives within the Food and Beverage segment and (ii) the effects of a strengthening of the U.S. dollar during the period against various currencies.
Intangible Amortization - For 2020, the increase in intangible amortization, compared to 2019, was primarily due to the effects of amortization recognized on intangibles acquired in connection with the POSI-LOCK acquisition, which occurred in the third quarter of 2020.
For 2019, the decrease in intangible amortization, compared to 2018, was due primarily to (i) a reduction in intangible assets subject to amortization that resulted from the impairment of certain such assets of a business associated with the execution of large dry-dairy systems projects within our Food and Beverage reportable segment during the fourth quarter of 2018 and (ii) a strengthening of the U.S. dollar during the periods against various foreign currencies.
Asset Impairment Charges - During 2020, we recorded an asset impairment charge of $3.2, of which (i) $1.9 resulted from management’s decision during the first quarter of 2020 to discontinue a product line within the Industrial reportable segment, and (ii) $1.3 resulted from management’s decision during the second quarter of 2020 to consolidate and relocate the operations of a U.S. manufacturing facility within the Industrial reportable segment to existing facilities in the U.S. as well as in our EMEA and Asia Pacific regions.

During 2019, we recorded an asset impairment charge of $10.8 that resulted from management’s decision to market a corporate asset for sale. To a lesser extent, we recorded charges in our Industrial reportable segment of $0.2 related to the impairment of a right-of-use lease asset, resulting from the decision to close a sales and service facility, and of $0.2 related to the impairment of a tangible long-lived asset.
During 2018, we recorded an impairment charge of $9.7 related to certain intangible assets of a business associated with the execution of large dry-dairy systems projects within our Food and Beverage reportable segment in conjunction with our annual intangible asset impairment test and, concurrently during the fourth quarter of 2018, with management’s decision to rationalize this business and reduce the Company’s exposure to this market. In addition, we recorded tangible long-lived asset impairment charges of (i) $4.5 associated with the rationalization of the business and (ii) $0.2 related to certain assets of the Industrial segment.
See Note 10 to our consolidated financial statements for further discussion of asset impairment charges.
Restructuring and Other Related Charges - Restructuring and other related charges for 2020 related primarily to the consolidation and relocation of the operations of a U.S. manufacturing facility to existing facilities in the U.S. as well as in our EMEA and Asia Pacific regions and, more broadly, reductions in force of certain engineering, commercial, operations and other functional support employees within our segments, across all regions in which the segments operate, and the rationalization and outsourcing of certain corporate support functions.

Restructuring and other related charges for 2019 and 2018 included severance and other costs associated with the rationalization of a business primarily associated with the execution of large dry-dairy systems projects in the Food and Beverage segment, initiated during the fourth quarter of 2018 and then subsequently broadened during 2019, in order to reduce the Company’s exposure to this market.
Restructuring and other related charges for 2019 also included severance and other costs associated primarily with (i) the closure of a Food and Beverage segment facility in South America, (ii) the closure of an Industrial segment manufacturing facility in the U.S. and consolidation and relocation of that facility into an existing manufacturing facility in the U.S., (iii) certain Industrial segment operations personnel in the EMEA region, and (iv) the closure of an Industrial segment sales office and service center in North America.
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Restructuring and other related charges for 2018 also included costs associated primarily with other employee terminations and, to a lesser extent, facility consolidation, across both segments.
See Note 8 to our consolidated financial statements for the details of restructuring actions taken in 2020, 2019 and 2018. The components of restructuring and other related charges were as follows:
Year ended December 31,
202020192018
Employee termination costs$9.8 $9.3 $6.6 
Facility consolidation costs1.9 — 1.0 
Total
$11.7 $9.3 $7.6 
Loss on Sale of Business - In November 2020, we completed the sale of a business in our Industrial segment in the Asia Pacific region to a third-party buyer for total proceeds of $4.7, net of cash disposed, which resulted in a pre-tax loss of $4.2 during the fourth quarter of 2020. Prior to its sale, this business recognized revenues of $6.7 during 2020. See Note 4 to our consolidated financial statements for further details regarding the disposal.
Other Income (Expense), net - Other income, net, for 2020 was composed of investment-related gains of $8.6, income from a transition services agreement entered into in connection with the sale of our former Power and Energy segment of $4.2, net gains on asset sales and other of $2.5, partially offset by non-service-related pension and postretirement costs of $2.4 and foreign currency (“FX”) losses of $3.4. The investment-related gains related to an increase in the net asset value of our investment in an equity security.
Other expense, net, for 2019 was composed of non-service-related pension and postretirement costs of $5.7 and FX losses of $3.1, partially offset by investment-related gains of $7.8, net gains on asset sales of $0.3 and other items of $0.2. Of the $3.1 of FX losses, $1.9 related to the effect of the devaluation of the Angolan Kwanza against the U.S. dollar during 2019 and the impact of that devaluation on certain Kwanza-denominated cash and cash equivalents held by the Company. The investment-related gains related to an increase in the net asset value of our investment in an equity security.
Other expense, net, for 2018 was composed of FX losses of $7.4 and net losses on asset sales and other of $0.3, partially offset by non-service-related pension and postretirement benefits of $1.2 and gains of $0.6 related to the remeasurement of indemnification receivables from and obligations to third parties related to certain of the Company’s domestic and foreign defined benefit pension and postretirement obligations. Of the $7.4 of FX losses, $5.8 related to the effect of the devaluation of the Angolan Kwanza against the U.S. dollar during 2018 and the impact of that devaluation on certain Kwanza-denominated cash and cash equivalents held by the Company.
Interest Expense, net - Interest expense, net, is comprised primarily of interest expense related to our senior notes and senior credit facilities and, to a lesser extent, interest expense related to our former trade receivables financing arrangement, finance lease obligations and miscellaneous lines of credit, partially offset by interest income on cash and cash equivalents.
Interest expense, net, included interest expense of $33.9, $36.6 and $41.2, and interest income of $4.0, $6.9 and $6.9, during 2020, 2019 and 2018, respectively. The decrease in interest expense in 2020, compared to 2019, was due primarily to the early redemption of our 5.625% senior notes in August 2020, and to a lower level of average outstanding borrowings under our term loan facilities. The decrease in interest expense in 2019, compared to 2018, was due primarily to a lower level of average outstanding borrowings under our term loan facilities, partially offset by a $1.0 charge related to the write-off of deferred financing fees resulting from the extinguishment of the term loan and other facilities of our former senior credit facility during 2019, related to the amendment and restatement of our senior credit facilities in June 2019. The reduction in our term loan borrowings was due primarily to voluntary principal repayments of $110.0 during 2018.
See Note 13 to our consolidated financial statements for additional details on our third-party debt, including further discussion of (i) the early redemption of our 5.625% senior notes during the third quarter of 2020 and (ii) amendment and restatement of our senior credit facilities during the second quarter of 2019, and Note 4 for additional details regarding our allocation of certain interest expense to discontinued operations.
Loss on Early Extinguishment of Debt - On August 15, 2020, with a cash payment, we redeemed our 5.625% senior notes due in August 2024 (the “2024 Notes”) in full, pursuant to the redemption provisions of the indenture governing the 2024 Notes. As a result of the redemption, we recorded a charge of $11.0 during 2020, which related to premiums paid to redeem the 2024 Notes of $8.4, the write-off of unamortized deferred financing fees of $2.5, and other costs associated with the extinguishment of $0.1.
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Income Tax Provision - During 2020, we recorded an income tax provision of $6.2 on $49.5 of income before income taxes, resulting in an effective tax rate of 12.5 %. The effective tax rate for 2020 was impacted by income tax benefits of (i) $7.2 resulting from adjustments to the deemed repatriation tax and certain additional foreign tax credits from the re-characterization of a prior outbound transfer of an affiliate to non-U.S. entities, (ii) $3.0 related to an intercompany transfer of a business between certain of the Company’s non-U.S. subsidiaries, (iii) $1.9 related to a reduction in valuation allowance in a jurisdiction where the full benefit of the incentive carryforward is now expected to be realized, and (iv) $1.2 resulting from tax return adjustments for certain of the Company’s subsidiaries, which were partially offset by income tax charges of $1.6 related to an increase in valuation allowance related to certain jurisdictions where the benefit of losses are no longer expected to be realized.
During 2019, we recorded an income tax provision of $28.9 on $85.5 of income before income taxes, resulting in an effective tax rate of 33.8%. The effective tax rate for 2019 was impacted by income tax charges of (i) $6.9 resulting from the addition of a valuation allowance for certain subsidiaries for which the benefit of previously incurred losses or credits is not expected to be realized, (ii) $3.1 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized and (iii) $6.0 resulting from the outbound transfer of an affiliate to non-U.S. entities, partially offset by income tax benefits of (1) $1.8 resulting from an outside basis difference from continuing operations that will be realized through the disposition of held-for-sale assets and (2) $3.9 resulting from the net impact of the cancellation of certain intercompany indebtedness.
During 2018, we recorded an income tax provision of $61.3 on $71.8 of income before income taxes, resulting in an effective tax rate of 85.4%. The effective tax rate for 2018 was impacted by income tax charges of (i) $22.2 for adjustments to the deemed repatriation tax and related elections and (ii) $9.0 resulting from losses occurring in certain jurisdictions where the tax benefit of those losses is not expected to be realized.
Income (Loss) from Discontinued Operations, Net of Tax – See “Results of Discontinued Operations” below for additional details.
RESULTS OF REPORTABLE SEGMENTS
The following information should be read in conjunction with our consolidated financial statements and related notes.
Non-GAAP Measures - Throughout the following discussion of reportable segments, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our reportable segments. Organic revenue growth (decline) is a non-GAAP financial measure and is not a substitute for net revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Continuing Operations-Non-GAAP Measures.”
Food and Beverage
Year ended December 31,2020 vs. 2019 %2019 vs. 2018 %
202020192018
Backlog$291.6 $275.3 $317.2 5.9 (13.2)
Orders635.1 669.0 703.0 (5.1)(4.8)
Revenues$630.8 $702.9 $743.9 (10.3)(5.5)
Income88.2 90.5 87.7 (2.5)3.2 
% of revenues14.0 %12.9 %11.8 %
Components of revenue decline:
Organic decline(10.1)(2.7)
Foreign currency(0.2)(2.8)
Net revenue decline(10.3)(5.5)
Revenues - For 2020, the decrease in revenues, compared to 2019, was due to a decrease in organic revenue and, to a lesser extent, a strengthening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was primarily due to a lower level of systems revenue, including large dry-dairy systems revenues, as anticipated, as well as lower components and aftermarket service revenues.
For 2019, the decrease in revenues, compared to 2018, was due to a strengthening of the U.S. dollar during the period against various foreign currencies and a decrease in organic revenue. The decrease in organic revenue was due primarily to a
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lower level of revenue from large dry-dairy systems, consistent with the Company’s strategy to methodically reduce its exposure to that market, partially offset by organic growth in process component shipments and aftermarket sales.
Income - For 2020, the moderate decrease in income, compared to 2019, was primarily due to the decrease in organic revenue described above. The effect of the reduction in volume on margin in 2020, compared to 2019, was more than offset by strong operational and project execution on an improved mix of revenue, savings from cost reduction actions and net price benefits.
For 2019, the increase in income and margin, compared to 2018, was primarily due to a higher margin mix of revenue (from a lower level of revenue from large dry-dairy systems, as noted above) and improved execution on the delivery of process systems to customers, savings from cost reduction initiatives and realization of net pricing benefits, partially offset by charges recognized during the second quarter of 2019 associated with rationalization of the reportable segment’s geographical presence in South America and related closure of a facility in that region.
Backlog - The segment had backlog of $291.6 and $275.3 as of December 31, 2020 and 2019, respectively. Of the $16.3 year-over-year increase in backlog, $16.6 was attributable to the impact of fluctuations in foreign currencies relative to the U.S. dollar, which was partially offset by a $0.3 reduction attributable to organic decline. Approximately 89% of the segment's backlog as of December 31, 2020 is expected to be recognized as revenue during 2021.
Industrial
Year ended December 31,2020 vs. 2019 %2019 vs. 2018 %
202020192018
Backlog$254.2 $243.9 $260.3 4.2 (6.3)
Orders723.6 790.5 862.3 (8.5)(8.3)
Revenues$719.8 $803.7 $850.0 (10.4)(5.4)
Income80.5 110.5 103.5 (27.1)6.8 
% of revenues11.2 %13.7 %12.2 %
Components of revenue decline:
Organic decline(10.5)(2.8)
Foreign currency and other0.1 (2.6)
Net revenue decline(10.4)(5.4)
Revenues - For 2020, the decrease in revenues, compared to 2019, was primarily due to a decrease in organic revenue, partially offset by the modest effect of a weakening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was due to reduced demand and shipments across the majority of our short-cycle Industrial segment product lines and end markets, primarily associated with global macroeconomic conditions resulting from the effects of the COVID-19 pandemic. Additionally, the segment had lower opening shippable backlog in 2020 than in 2019.
For 2019, the decrease in revenues, compared to 2018, was due to a decrease in organic revenue and a strengthening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was due primarily to a lower level of capital project revenue and, reflective of a broad, global slowdown in the demand for industrial products, due to reductions in shipments of dehydration equipment and industrial pumps which experienced such declines primarily in the fourth quarter of 2019 relative to the comparable period of 2018. Such declines were partially offset by increased shipments of mixers.
Income - For 2020, income and margin decreased, compared to 2019, primarily due to volume declines in high margin product lines. The income and margin decline was partially offset by cost reduction efforts.
For 2019, income and margin increased, compared to 2018, primarily due to the effects of (i) a higher margin-mix of revenue (from increased shipments of mixers and lower levels of capital project revenue), (ii) improved operational execution in our factories, and (iii) costs associated with the repair of a large mixer incurred in 2018 that did not recur in 2019.
Backlog - The segment had backlog of $254.2 and $243.9 as of December 31, 2020 and 2019, respectively. Of the $10.3 year-over-year increase in backlog, $8.3 was attributable to the impact of fluctuations in foreign currencies relative to the U.S. dollar and $2.0 was attributable to organic increase. Approximately 90% of the segment's backlog as of December 31, 2020 is expected to be recognized as revenue during 2021.
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CORPORATE EXPENSE AND PENSION AND POSTRETIREMENT SERVICE COSTS
Year ended December 31,2020 vs. 2019 %2019 vs. 2018 %
202020192018
Total consolidated revenues$1,350.6 $1,506.6 $1,593.9 (10.4)(5.5)
Corporate expense67.8 63.9 55.5 6.1 15.1 
% of revenues5.0 %4.2 %3.5 %
Pension and postretirement service costs0.9 0.9 1.7 — (47.1)
Corporate Expense - Corporate expense generally relates to the cost of our Charlotte, NC corporate headquarters and our Asia Pacific center in Shanghai, China. Corporate expense also reflects stock-based compensation costs associated with corporate employees.
The increase in corporate expense during 2020, compared to 2019, was due primarily to (i) an increase in variable incentive compensation and (ii) merger and acquisition activities, partially offset by a reduction in professional fees associated with the further development of the Company’s enterprise strategy and long-term value creation planning.
The increase in corporate expense during 2019, compared to 2018, was due primarily to an increase in professional fees associated with the further development of the Company's enterprise strategy and long-term growth plans, partially offset by a decrease in the number of executive employees whose stock-based compensation awards became fully vested and were fully recognized as compensation expense based on early retirement provisions during the first quarter of 2019 compared to the first quarter of 2018.
See Note 15 to our consolidated financial statements for further details regarding our stock-based compensation awards.
Pension and Postretirement Service Costs - SPX FLOW sponsors a number of defined benefit pension plans and a postretirement plan. For all of these plans, changes in the fair value of plan assets and actuarial gains and losses are recognized to earnings in the fourth quarter of each year as a component of net periodic benefit expense, unless earlier remeasurement is required. The remaining components of pension and postretirement expense, primarily service and interest costs and expected return on plan assets, are recorded on a quarterly basis. Non-service-related pension and postretirement costs (benefits) are recorded in “Other income (expense), net.”
During 2020, pension and postretirement service cost remained consistent with 2019 as there were no significant changes to plans, plan participation or vesting.
During 2019, pension and postretirement service costs decreased, compared to 2018, partially due to the effect on such costs of an accelerated vesting of a year of service credit related to the resignation of a former participant in our domestic pension plan during the fourth quarter of 2018.
See Note 11 to our consolidated financial statements for further details on our pension and postretirement plans.
RESULTS OF DISCONTINUED OPERATIONS
We report business or asset groups as discontinued operations when, among other things, we commit to a plan to divest the business or asset group, we actively begin marketing the business or asset group, and when the sale of the business or asset group is deemed probable of occurrence within the next twelve months.
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The following table provides selected financial information of our discontinued operations for the years ended December 31, 2020, 2019 and 2018, including the reconciliation of organic revenue growth (decline) to net revenue growth (decline):
Year ended December 31,
2020201920182020 vs. 2019 %2019 vs. 2018 %
Backlog$— $382.6 $375.4 *1.9 
Orders102.9 496.7 519.8 *(4.4)
Revenues$112.7 $489.7 $496.2 *(1.3)
Operating income (loss)(7.4)(171.6)56.4 **
% of revenues(6.6)%(35.0)%11.4 %
Other income (expense), net(0.3)(1.6)0.4 **
Interest expense, net(1.6)(11.8)(12.8)*(7.8)
Income tax benefit (provision)(27.5)35.3 (9.8)**
Income (loss) from discontinued operations, net of tax(36.8)(149.7)34.2 **
Components of consolidated revenue growth (decline):
Organic growth*0.7 
Foreign currency*(2.0)
Net revenue decline— (1.3)
*Not meaningful for comparison purposes, note that the 2020 results represent results of discontinued operations substantially through the closing of the sale in March 2020.
Revenues of Discontinued Operations - For 2020, the decrease in revenues, compared to 2019, is a result of the timing within the year of the closing of the sale with the Buyer, substantially as of March 30, 2020. See Note 4 for additional information regarding discontinued operations.
For 2019, the decrease in revenues, compared to 2018, was due primarily to a strengthening of the U.S. dollar against various foreign currencies during the period, partially offset by modest organic growth. The increase in organic revenue reflects increased shipments of values in the North American midstream oil market, partially offset by declines in shipments of pumps and related aftermarket revenues.
Operating Income (Loss) of Discontinued Operations - For 2020, the operating loss was primarily due to (i) the recognition of a loss on discontinued operations of $12.1 to reduce the carrying value of the discontinued operations business to our estimate of fair value (the net proceeds expected to realized at closing), less estimated costs to sell and, to a lesser extent, to reflect the results of subsequent negotiations with the Buyer related to the settlement of net working capital and related deductions, as well as (ii) the timing within the year of the closing of the sale with the Buyer, substantially as of March 30, 2020. See Note 4 for additional information regarding discontinued operations.
For 2019, the decrease in income and margin, compared to 2018, was primarily due to the recognition of a loss on discontinued operations of $201.0 to reduce the carrying value of the discontinued operations business to our estimate of fair value (the net proceeds expected to be realized at closing), less estimated costs to sell. This loss was attributable primarily to our observation of challenging credit markets associated with transactions for businesses similar to our former Power and Energy segment, and the market for cyclical assets in the oil, gas and power industries, during the fourth quarter of 2019. In addition, income and margin declined, compared to 2018, due to (i) a $17.0 pre-tax charge related to the settlement of a customer claim (see Note 4 to our consolidated financial statements for further information regarding this settlement and the customer’s demand) and, to a lesser extent, (ii) a $5.0 pre-tax charge related to a procurement agreement entered into with the buyer of the discontinued operations business at closing, and (iii) costs incurred in 2019 to sell the discontinued operations business. An improvement in operational execution and cost absorption in various manufacturing facilities partially offset these pre-tax losses and charges.
Other Income (Expense), net, of Discontinued Operations - Other expense, net, for 2020 was composed of FX losses.
Other expense, net, for 2019 was composed of FX losses of $1.5 and non-service-related pension and postretirement costs of $0.1.
Other income, net, for 2018 was composed of FX gains of $0.3 and non-service-related pension and postretirement benefits of $0.1.
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Interest Expense, net, of Discontinued Operations - In addition to any business-specific interest expense and income, the interest expense, net, of discontinued operations reflects an allocation of interest expense, including the amortization of deferred financing fees, related to the Company’s senior notes, senior credit facilities and former trade receivables financing arrangement. Interest expense related to such debt instruments and allocated to discontinued operations was $1.6, $11.7 and $13.1 for 2020, 2019 and 2018, respectively. See Note 4 to the accompanying consolidated financial statements for further information about the allocation of such interest expense to discontinued operations.
Income Tax Benefit (Provision) of Discontinued Operations - During the year ended December 31, 2020, we recorded an income tax provision of $27.5 on $9.3 of pre-tax loss from discontinued operations. The effective tax rate for 2020 was impacted by income tax charges of (i) $32.1 composed of the U.S. tax expense on the tax gain on sale of discontinued operations entities sold by the U.S. parent, (ii) $0.9 in reduction of the benefit to be realized through the disposition of held-for-sale assets and (iii) $0.4 resulting from adjustments to the U.S. tax liability for prior years, which were partially offset by an income tax benefit of $5.8 related to a loss for global intangible low-taxed income purposes on the sale of certain non-U.S. entities. The significant non-U.S. sales of discontinued operations entities were in locations where local law did not require any gain to be taxed or permit any loss to result in a future benefit and on a net basis these significant non-U.S. sales resulted in a loss without a corresponding tax benefit.
During the year ended December 31, 2019, we recorded an income tax benefit of $35.3 on $185.0 of pre-tax loss from discontinued operations, resulting in an effective tax rate of 19.1%. The effective tax rate for 2019 was impacted by (i) a benefit of $30.2 resulting from basis differences that were subsequently realized through the disposition of the held-for-sale assets and (ii) the effect that the majority of the $201.0 pre-tax loss to reduce the carrying value of the discontinued operations business to our estimate of fair value, less estimated costs to sell, and $5.0 pre-tax charge related to a procurement agreement entered into at the closing of the sale of the discontinued operations, will not result in a tax benefit, such that only $9.7 of tax benefit was recognized on those pre-tax charges.
During the year ended December 31, 2018, we recorded an income tax provision of $9.8 on $44.0 of pre-tax income from discontinued operations, resulting in an effective tax rate of 22.3%.
LIQUIDITY AND FINANCIAL CONDITION
Listed below are the cash flows from (used in) operating, investing, and financing activities, as well as the net change in cash, cash equivalents and restricted cash, for the years ended December 31, 2020, 2019 and 2018.
Cash Flow
Year ended December 31,
202020192018
Cash flows from (used in) continuing operations:
Cash flows from operating activities$120.3 $130.1 $28.0 
Cash flows used in investing activities(21.9)(23.5)(19.2)
Cash flows used in financing activities(361.4)(55.2)(135.8)
Cash flows from discontinued operations387.7 35.1 70.8 
Change in cash, cash equivalents and restricted cash due to changes in foreign currency exchange rates13.5 2.6 5.6 
Net change in cash, cash equivalents and restricted cash$138.2 $89.1 $(50.6)
Years Ended December 31, 2020 and 2019
Operating Activities—During 2020, the decrease in cash flows from operating activities, compared to 2019, was primarily attributable to reduced cash flows from lower segment income, due partially to the effects of the COVID-19 pandemic as previously noted.
Investing Activities—During 2020, cash flows used in investing activities were comprised of capital expenditures of $22.4 associated generally with the upgrades of manufacturing facilities and information technology, as well as cash paid for a business acquisition of $10.0, partially offset by proceeds from asset sales and other of $5.8, primarily related to the sales of certain real properties previously owned by the Company, and proceeds from the sale of a business based in our Asia Pacific region of $4.7, which closed during the fourth quarter of 2020. During 2019, cash flows used in investing activities were comprised of capital expenditures of $28.5 associated generally with the upgrades of manufacturing facilities and information technology, as well as certain corporate assets, partially offset by proceeds of $5.0 from the sale of a corporate asset during the fourth quarter of 2019.
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Financing Activities—During 2020, cash flows used in financing activities related primarily to (i) the redemption of the 2024 Notes, including premiums, of $308.4, (ii) purchases of common stock of $19.9 associated with a written trading plan under Rule 10b5-1(c) of the Securities and Exchange Act of 1934, as amended, (iii) the purchase of certain noncontrolling interests in a subsidiary of $15.0, (iv) repayments of purchase card program debt of $7.9, and (v) payments of minimum withholdings on behalf of employees in connection with net share settlements of $7.0. During 2019, cash flows used in financing activities related primarily to (i) net repayments under our former senior credit facilities of $140.0, including the extinguishment of those former facilities in June 2019, (ii) payments of minimum withholdings on behalf of employees in connection with net share settlements of $5.4, (iii) net repayments under other financing arrangements of $5.3 and (iv) financing fees paid in connection with entering into our amended and restated senior credit facilities of $3.3, partially offset by net borrowings under our amended and restated senior credit facilities of $100.0.
Discontinued Operations—During 2020, cash flows from discontinued operations were comprised primarily of net proceeds received from the disposition of the Disposal Group of $401.1, net cash used in operating activities of discontinued operations of $7.6 primarily related to the payment of professional fees associated with the disposition of the Disposal Group on the first business day of the second quarter of 2020, and capital expenditures during the first quarter of 2020 of $5.5 related to the Disposal Group. During 2019, cash flows from discontinued operations were comprised primarily of cash flows from operating activities of $43.2, partially offset by $7.5 of capital expenditures paid.
Change in Cash, Cash Equivalents and Restricted Cash due to Changes in Foreign Currency Exchange Rates—The increases in cash, cash equivalents and restricted cash due to foreign currency exchange rates of $13.5 and $2.6 during 2020 and 2019, respectively, reflected primarily an increase in U.S. dollar equivalent balances of foreign-denominated cash, cash equivalents and restricted cash as a result of changes in the U.S. dollar against various foreign currencies during the periods.
Years Ended December 31, 2019 and 2018
Operating Activities—During 2019, the increase in cash flows from operating activities, compared to 2018, was primarily attributable to (i) a reduced investment in inventories and other components of working capital, reflective of lower order intake in 2019, compared to 2018, and lower backlog levels as of December 31, 2019, compared to December 31, 2018 and (ii) reduced payments for incentive compensation
Investing Activities—During 2019, cash flows used in investing activities were comprised of capital expenditures associated generally with the upgrades of manufacturing facilities and information technology, as well as certain corporate assets, partially offset by proceeds from the sale of a corporate asset during the fourth quarter of 2019. During 2018, cash flows used in investing activities were comprised of capital expenditures associated generally with the upgrades of manufacturing facilities and information technology.
Financing Activities —During 2019, cash flows used in financing activities related primarily to (i) net repayments under our former senior credit facilities of $140.0, including the extinguishment of those former facilities in June 2019, (ii) payments of minimum withholdings on behalf of employees in connection with net share settlements of $5.4, (iii) net repayments under other financing arrangements of $5.3 and (iv) financing fees paid in connection with entering into our amended and restated senior credit facilities of $3.3, partially offset by net borrowings under our amended and restated senior credit facilities of $100.0. During 2018, cash flows used in financing activities related primarily to net repayments under our former term loan facility of $130.0, including voluntary prepayments of $100.0.
Discontinued Operations—During 2019, the decrease in cash flows from discontinued operations, compared to 2018, was primarily attributable to a decrease in cash flows from operating activities of $34.4, due primarily to changes in working capital driven by the timing of project execution and associated milestone payments as well as the payment, during the fourth quarter of 2019, of $17.0 in connection with a settlement agreement related to a payment demand made by a customer (see Note 4 to our consolidated financial statements for further information regarding discontinued operations).
Change in Cash, Cash Equivalents and Restricted Cash due to Changes in Foreign Currency Exchange RatesThe increases in cash, cash equivalents and restricted cash due to foreign currency exchange rates of $2.6 and $5.6 during 2019 and 2018, respectively, reflected primarily an increase in U.S. dollar equivalent balances of foreign-denominated cash, cash equivalents and restricted cash due to the modest weakening of the U.S. dollar against certain foreign currencies during the period, partially offset by the strengthening of the U.S. dollar against the Angolan Kwanza.
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Borrowings and Availability
Borrowings —Debt at December 31, 2020 and 2019 was comprised of the following:
December 31,
20202019
Term loan, due in June 2022$100.0 $100.0 
5.625% senior notes(1)
— 300.0 
5.875% senior notes, due in August 2026300.0 300.0 
Other indebtedness(2)
13.0 21.3 
Less: deferred financing fees(3)
(3.1)(6.8)
Total debt409.9 714.5 
Less: short-term debt12.5 20.7 
Less: current maturities of long-term debt0.1 0.1 
Total long-term debt$397.3 $693.7 
(1)On August 15, 2020, with a cash payment, we redeemed the 2024 Notes in full pursuant to the redemption provisions of the indenture governing the 2024 Notes for a total redemption price of $308.4, plus accrued and unpaid interest. See "Senior Notes" section below for further detail.
(2)Primarily includes finance lease obligations of $0.5 and $0.6 and balances under a purchase card program of $12.5 and $20.4 as of December 31, 2020 and 2019, 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.
(3)Deferred financing fees were comprised of fees related to the term loans and senior notes. As described further below under “Senior Credit Facilities,” we amended and restated our senior credit facilities in June 2019. In connection with this amendment, we recognized $1.0 of expense, classified as a component of “Interest expense, net” in our accompanying consolidated statement of operations during the year ended December 31, 2019, related to the write-off of deferred financing fees resulting from the extinguishment of the term loan and other facilities of our former senior credit facility.
Senior Credit Facilities
On June 27, 2019, we amended and restated our senior credit facilities with a syndicate of lenders that provide for committed senior secured financing in the aggregate initial principal amount of $750.0, consisting of the following:
A term loan facility in an aggregate initial principal amount of $100.0, with a final maturity of June 27, 2022;
A domestic revolving credit facility, available for loans and letters of credit, in an aggregate principal amount up to $200.0, with a final maturity of June 27, 2024;
A global revolving credit facility, available for loans in Euros, British Pound and other currencies, in an aggregate principal amount up to the equivalent of $300.0, with a final maturity of June 27, 2024; and
A bilateral foreign credit instrument facility, available for performance letters of credit and guarantees in Euros, British Pound and other currencies, in an aggregate principal amount up to the equivalent of $150.0, with a final maturity of June 27, 2024.
Our senior credit facilities also contain covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make investments, loans, guarantees, or advances, make restricted junior payments, including dividends, redemptions of capital stock, and voluntary prepayments or repurchase of certain other indebtedness, engage in mergers, acquisitions or sales of assets, or engage in certain transactions with affiliates, and otherwise restrict certain corporate activities. Our senior credit facilities contain customary representations, warranties, affirmative covenants and events of default.
At December 31, 2020, we were in compliance with these covenants.
Senior Notes
In August 2016, the Company completed its issuance of $600.0 in aggregate principal amount of senior unsecured notes comprised of one tranche of $300.0 aggregate principal amount of the 2024 Notes and one tranche of $300.0 aggregate principal amount of 5.875% senior notes due in August 2026 (the “2026 Notes” and, together with the 2024 Notes, the “Notes”). The interest payment dates for the Notes are February 15 and August 15 of each year, with interest payable in arrears. The proceeds of the Notes, together with borrowings under our domestic revolving loan facility, were used to complete the tender offer and repurchase/redemption of the $600.0 outstanding aggregate principal amount of our 6.875% senior notes due in August 2017, including $36.4 of premiums paid.
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On August 15, 2020, with a cash payment, we redeemed the 2024 Notes in full pursuant to the redemption provisions of the indenture governing the 2024 Notes for a total redemption price of $308.4, plus accrued and unpaid interest. As a result of the redemption, we recorded a charge of $11.0 to "Loss on early extinguishment of debt" during the year ended December 31, 2020, which related to premiums paid to redeem the 2024 Notes of $8.4, the write-off of unamortized deferred financing fees of $2.5, and other costs associated with the extinguishment of the 2024 Notes of $0.1.
The indenture governing the 2026 Notes contains covenants that limit the Company's (and its subsidiaries') ability to, among other things, grant liens on its assets, enter into sale and leaseback transactions and consummate mergers or transfer certain of its assets.
Availability
At December 31, 2020, we had $494.7 of borrowing capacity under our revolving credit facilities after giving effect to $5.3 reserved for outstanding letters of credit. In addition, at December 31, 2020, we had $95.7 of available issuance capacity under our foreign credit instrument facilities after giving effect to $54.3 reserved for outstanding bank guarantees. In addition, we had $5.4 of bank guarantees outstanding under the senior credit facilities that, once satisfied, cannot be reissued.
Refer to Note 13 to our consolidated financial statements for further information on our borrowings as of December 31, 2020.
Financial Instruments
We measure our financial assets and liabilities on a recurring basis, and nonfinancial assets and liabilities on a non-recurring basis, at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2) or significant unobservable inputs (Level 3).
Our derivative financial assets and liabilities include FX forward contracts and FX embedded derivatives measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties' credit risks. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments active.
As of December 31, 2020, there had been no significant impact to the fair value of our derivative liabilities due to our own credit risk as the related instruments were collateralized under our senior credit facilities. Similarly, there had been no significant impact to the fair value of our derivative assets based on our evaluation of our counterparties' credit risks.
We primarily use the income approach, market approach, or both approaches, as appropriate. The income approach uses valuation techniques to convert future amounts to a single present amount. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including the sale of a business). Assets and liabilities measured at fair value on a recurring basis are further discussed below.
Currency Forward Contracts and Currency Forward Embedded Derivatives
We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations (see Note 14 to our consolidated financial statements). Our principal currency exposures relate to the Euro, Chinese Yuan and British Pound.
We had FX forward contracts with an aggregate notional amount of $40.7 and $83.3 outstanding as of December 31, 2020 and 2019, respectively, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $5.5 and $0.9 at December 31, 2020 and 2019, respectively, with all such contracts scheduled to mature within one year. There were unrealized losses of $0.0 and $0.2, net of taxes, recorded in “Accumulated Other Comprehensive Loss” related to FX forward contracts as of December 31, 2020 and 2019, respectively. The net losses recorded in “Other income (expense), net” related to FX losses totaled $3.4, $3.1, and $7.4 for the years ended December 31, 2020, 2019 and 2018, respectively.
The net fair values of our FX forward contracts and FX embedded derivatives were $0.2 and $0.3 (assets) at December 31, 2020 and 2019, respectively.
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Other Fair Value Financial Assets and Liabilities
The carrying amounts of cash and equivalents, receivables and contract assets reported in our consolidated balance sheets approximate fair value due to the short-term nature of those instruments.
The fair value of our debt instruments (excluding finance leases and deferred financing fees), based on borrowing rates available to us at December 31, 2020 for similar debt, was $426.0, compared to our carrying value of $412.5.
As of December 31, 2019, the fair value of our debt instruments (excluding capital leases and deferred financing fees), based on borrowing rates available to us at December 31, 2019 for similar debt, was $749.2, compared to our carrying value of $720.7.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist of cash and equivalents, trade accounts receivable, contract assets and FX forward contracts. These financial instruments, other than trade accounts receivable and contract assets, are placed with high-quality financial institutions throughout the world. We periodically evaluate the credit standing of these financial institutions.
We maintain cash levels in bank accounts that, at times, may exceed federally-insured limits. We have not experienced, and believe we are not exposed to significant risk of, loss in these accounts.
We have credit loss exposure in the event of nonperformance by counterparties to the above financial instruments, but have no other off-balance-sheet credit risk of accounting loss. Except as is provided for in our accompanying consolidated balance sheets through an allowance for uncollectible accounts for certain accounts receivable, we anticipate that counterparties will be able to fully satisfy their obligations under the contracts. We do not obtain collateral or other security to support financial instruments subject to credit risk, but we do monitor the credit standing of counterparties.
Concentrations of credit risk arising from trade accounts receivable and contract assets are due to selling to customers in a particular industry. Credit risks are mitigated by performing ongoing credit evaluations of our customers' financial conditions and obtaining collateral, advance payments, or other security when appropriate. No one customer, or group of customers that, to our knowledge, are under common control, accounted for more than 10% of our revenues for the fiscal years ended December 31, 2020, 2019 and 2018.
Cash and Other Commitments 
We use operating leases to finance certain properties, equipment and vehicles. At December 31, 2020, we had $50.2 of operating lease liabilities recognized on our consolidated balance sheet related to leases with initial non-cancelable terms in excess of one year. See Note 7 to our accompanying consolidated financial statements for further information regarding our operating leases.
Capital expenditures for 2020 totaled $22.4, compared to $28.5 and $19.2 in 2019 and 2018, respectively. Capital expenditures in 2020 related primarily to upgrades of manufacturing facilities and information technology, as well as certain corporate assets. We expect 2021 capital expenditures to approximate $40, with a significant portion related to additional upgrades of manufacturing facilities and information technology, as well as for manufacturing equipment to support productivity initiatives. While the impact of continued market volatility cannot be predicted, we believe we have sufficient operating flexibility, cash reserves and funding sources to maintain adequate amounts of liquidity and to meet our future operating cash needs and internal growth opportunities.
In 2020, we made contributions and direct benefit payments of $2.9 to our defined benefit pension and postretirement plans. We expect to make $3.1 of minimum required funding contributions and direct benefit payments in 2021. Our pension plans have not experienced any liquidity difficulties or counterparty defaults due to the volatility in the credit markets. See Note 11 to our consolidated financial statements for further disclosure of expected future contributions and benefit payments.
On a net basis, from both continuing and discontinued operations, we paid $28.1, $33.6 and $23.8 in income taxes in 2020, 2019 and 2018, respectively. The amount of income taxes we pay annually is dependent on various factors, including the timing of certain deductions. Deductions and the amount of income taxes can and do vary from year to year. See Note 12 to our consolidated financial statements for further disclosure of earnings held by foreign subsidiaries, amounts considered permanently reinvested, and our intentions with respect to repatriation of earnings.
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As of December 31, 2020, except as discussed in Note 16 to our consolidated financial statements and in the contractual obligations table below, we did not have any material guarantees, off-balance sheet arrangements or purchase commitments.
We periodically review each of our businesses in order to determine their long-term strategic fit. These reviews could result in selected acquisitions to expand an existing business or result in the disposition of an existing business. See “Risk Factors,” “Results of Reportable Segments” included in this “MD&A,” and “Business” for an understanding of the risks, uncertainties and trends facing our businesses.
Contractual Obligations 
The following is a summary of our primary contractual obligations as of December 31, 2020:
TotalDue Within 1 YearDue in 1-3 YearsDue in 3-5 YearsDue After 5 Years
Short-term debt obligations$12.5 $12.5 $— $— $— 
Long-term debt obligations (excluding deferred financing fees)400.6 0.1 100.3 0.2 300.0 
Pension and postretirement benefit plan contributions and payments(1)
36.1 3.1 6.1 5.6 21.3 
Purchase and other contractual obligations(2)
94.9 93.6 1.3 — — 
Future minimum operating lease payments(3)
59.8 13.2 22.3 12.8 11.5 
Interest payments121.3 19.1 37.5 35.2 29.5 
Total contractual cash obligations(4)
$725.2 $141.6 $167.5 $53.8 $362.3 
(1)    Estimated minimum required pension contributions and pension and postretirement benefit payments are based on actuarial estimates using current assumptions for, among other things, discount rates, expected long-term rates of return on plan assets (where applicable), rates of compensation increases, and health care cost trend rates. See Note 11 to our consolidated financial statements for additional information on expected future contributions and benefit payments. 
(2)    Represents contractual commitments to purchase goods and services at specified dates. 
(3)    Represents rental payments under operating leases with initial non-cancelable terms in excess of one year.
(4)    Contingent obligations, such as environmental accruals and those relating to uncertain tax positions, generally do not have specific payment dates and accordingly have been excluded from the above table. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by $0.5 to $1.0. In addition, the above table does not include potential payments under our derivative financial instruments.
We believe that our cash flows, together with cash and equivalents on hand, and availability under revolving credit facilities, provide us with the ability to fund our operations and make planned capital expenditure payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance which, in turn, is subject to prevailing economic conditions, the effects of the COVID-19 pandemic, and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet any future debt service obligations, we would need to refinance such debt obligations, obtain additional financing or sell assets. We cannot assure you that our business will generate cash from operations, or that we will be able to obtain financing from other sources, sufficient to satisfy any such debt service or other requirements.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations and that require our most difficult, subjective or complex judgments in estimating the effect of inherent uncertainties are listed below. This section should be read in conjunction with Note 1 and Note 2 to our consolidated financial statements, which include a detailed discussion of these and other accounting policies.
Contract Revenues Recognized Over Time
Certain of our businesses recognize revenues and profits from long-term construction/installation contracts over time. Such method requires estimates of future revenues and costs over the full term of product delivery. We measure our performance, or percentage-of-completion, principally by the contract costs incurred to date as a percentage of the estimated total costs for that contract at completion. Under such methods, we recognized revenues of $289.7, $343.7 and $403.3 during the years ended December 31, 2020, 2019 and 2018, respectively.
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We record any provision for estimated losses on relevant uncompleted contracts in the period in which the losses are determined. In the case of customer change orders for such contracts, we include estimated recoveries for work performed in forecasting ultimate profitability on these contracts. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised during the duration of a contract. These revisions to costs and income are recognized in the period in which the revisions are determined.
Our estimation process for determining revenues and costs for contracts accounted for over time is based upon (i) our historical experience, (ii) the professional judgment and knowledge of our engineers, project managers, and operations and financial professionals, and (iii) an assessment of the key underlying factors (see below) that impact the revenues and costs of the relevant contracts. Each such contract is unique, but typically similar enough to other contracts that we can effectively leverage our experience. As these contracts generally range from six to eighteen months in duration, we typically reassess the estimated revenues and costs of these contracts on a quarterly basis, but may reassess more often as situations warrant. We record changes in estimates of revenues and costs when identified using the cumulative catch-up method prescribed by the applicable revenue recognition guidance.
We believe the underlying factors used to estimate our costs to complete and percentage-of-completion are sufficiently reliable to provide a reasonable estimate of revenue and profit; however, due to the length of time over which revenue streams are generated and costs are incurred, along with the judgment required in developing the underlying factors, the variability of revenue and cost can be significant. Factors that may affect revenue and costs relating to contracts accounted for over time include, but are not limited to, the following:
Sales Price Incentives and Sales Price Escalation Clauses—Sales price incentives and sales price escalations that are reasonably assured and reasonably estimable are recorded over the performance period of the contract. Otherwise, these amounts are recorded when awarded.
Cost Recovery for Product Design Changes and Claims—On occasion, design specifications may change during the course of the contract. Any additional costs arising from these changes may be supported by change orders, or we may submit a claim to the customer. Change orders are accounted for as described above. See below for our accounting policies related to claims.
Material Availability and Costs—Our estimates of material costs generally are based on existing supplier relationships, adequate availability of materials, prevailing market prices for materials and, in some cases, long-term supplier contracts. Changes in our supplier relationships, delays in obtaining materials, or changes in material prices can have an impact on our cost and profitability estimates.
Use of Sub-Contractors—Our arrangements with sub-contractors are generally based on fixed prices; however, our estimates of the cost and profitability can be impacted by sub-contractor delays, customer claims arising from sub-contractor performance issues, or a sub-contractor's inability to fulfill its obligations.
Labor Costs and Anticipated Productivity Levels—Where applicable, we include the impact of labor improvements in our estimation of costs, such as in cases where we expect a favorable learning curve over the duration of the contract. In these cases, if the improvements do not materialize, costs and profitability could be adversely impacted. Additionally, to the extent we are more or less productive than originally anticipated, estimated costs and profitability may also be impacted.
Effect of Foreign Currency Fluctuations—Fluctuations between currencies in which our long-term contracts are denominated and the currencies under which contract costs are incurred can have an impact on profitability. When the impact on profitability is potentially significant, we may (but generally do not) enter into FX forward contracts or prepay certain vendors for raw materials to manage the potential exposure. See Note 14 to our consolidated financial statements for additional details on our FX forward contracts.
Contract assets arise when revenues have been recorded but the amounts have not been billed under the terms of the contracts. These amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract.
We periodically make claims against customers, suppliers and sub-contractors associated with alleged non-performance and other disputes over contractual terms. Claims related to contracts accounted for over time are recognized as additional revenues or as a reduction of costs only after we have determined that collection is probable and the amount is
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reasonably estimable. Claims made by us may involve negotiation and, in certain cases, litigation or other dispute-resolution processes. In the event we incur litigation or other dispute-resolution costs in connection with claims, these costs are expensed as incurred, although we may seek to recover these costs. Claims against us are recognized when a loss is considered probable and amounts are reasonably estimable.
See Note 1 to our consolidated financial statements for further information regarding estimates and assumptions associated with our accounting for contracts over time.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized, but instead are subject to annual impairment testing. We monitor the results of each of our reporting units as a means of identifying trends and/or matters that may impact their financial results and, thus, be an indicator of a potential impairment. The trends and/or matters that we specifically monitor for each of our reporting units are as follows:
Significant variances in financial performance (e.g., revenues, earnings and cash flows) in relation to expectations and historical performance; 
Significant changes in end markets or other economic factors; 
Significant changes or planned changes in our use of a reporting unit's assets; and 
Significant changes in customer relationships and competitive conditions.
The identification and measurement of goodwill impairment involves the estimation of the fair value of reporting units. We consider a number of factors in conducting the impairment testing of our reporting units. We perform our impairment testing by comparing the estimated fair value of the reporting unit to the carrying value of the reported net assets, with such testing occurring during the fourth quarter of each year in conjunction with our annual financial planning process (or more frequently if impairment indicators arise), based primarily on events and circumstances existing as of the end of the third quarter. Fair value is generally based on the income approach using a calculation of discounted cash flows, based on the most recent financial projections for the reporting units, market participant discount rates, and EBITDA multiples observed of peer companies and in recent transactions in the industries we serve. The revenue growth rates included in the financial projections are our best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each reporting unit based on current cost structure and, when applicable, anticipated net cost reductions.
The calculation of fair value for our reporting units incorporates many assumptions including future growth rates, profit margin and discount factors. Changes in economic and operating conditions impacting these assumptions, including the effects of the COVID-19 pandemic, could result in impairment charges in future periods.
Consistent with our accounting policy as stated above, we performed our annual goodwill impairment test as of the first day of our fiscal fourth quarter of 2020, 2019 and 2018, which indicated the estimated fair value of each of our reporting units significantly exceeded its respective book value.
Additionally, we perform our annual trademarks impairment testing during the fourth quarter, or on a more frequent basis if there are indications of potential impairment. The fair values of our trademarks are determined by applying estimated royalty rates to projected revenues, with the resulting cash flows discounted at a rate of return that reflects current market conditions. During 2018, we recorded impairment charges of $1.4 related to trademarks of a business. In addition, we recorded impairment charges of $8.3 related to certain technology assets of that business during 2018. We determined the impairment for technology assets by comparing the future expected cash flows associated with the technology assets, discounted at a rate of return that reflects current market conditions, to its carrying value. In 2020, changes in the gross values of trademarks and other identifiable intangible assets related primarily to foreign currency translation, as well as the effects of the POSI-LOCK acquisition and the disposal of a business based in our Asia Pacific region.
Refer to Note 10 to our consolidated financial statements for further information regarding our goodwill and indefinite-lived intangible assets as of and during the year ended December 31, 2020.
Income Taxes
Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess
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whether deferred tax assets will be realized and the adequacy of deferred tax liabilities, including the results of tax audits or estimates and judgments used.
Realization of deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies. We believe that it is more likely than not that we may not realize the benefit of certain deferred tax assets and, accordingly, have established a valuation allowance against them. In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of and potential changes to ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that the remaining deferred tax assets will be realized through future taxable earnings or alternative tax strategies. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or tax strategies are no longer viable.
We review our income tax positions on a continuous basis and record unrecognized tax benefits for potential uncertain tax positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Financial Accounting Standards Board Codification. As events change or resolutions occur, adjustments are made to amounts previously provided, such as in the case of audit settlements with taxing authorities. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters.
Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, statute expirations, new regulatory or judicial pronouncements, changes in tax laws, changes in projected levels of taxable income, future tax planning strategies, or other relevant events.
See Note 12 to our consolidated financial statements for additional details regarding our uncertain tax positions.
Leases
Effective January 1, 2019, we adopted the FASB's new standard on accounting for leases, which requires a lessee to recognize on its balance sheet the assets and liabilities associated with the rights and obligations created by leases. Refer to Note 7 to our consolidated financial statements for further information regarding estimates and assumptions associated with our accounting for leases under the new standard.
Contingent Liabilities and Other Matters
Various claims, complaints and proceedings arising in the ordinary course of business, including those relating to litigation matters (e.g., class actions, derivative lawsuits and contracts, intellectual property and competitive claims, and claims to certain indemnification obligations arising from previous acquisitions/dispositions), have been filed or are pending against us and certain of our subsidiaries. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.
We are subject to domestic and international environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our financial position, results of operations or cash flows.
Refer to Note 16 to our consolidated financial statements for discussion regarding amounts reported in “Mezzanine equity” on the consolidated balance sheets as of December 31, 2020 and 2019, including discussion regarding the exercise of certain put options by a noncontrolling interest shareholder during 2020 and the related accounting effects on "Mezzanine equity", "Noncontrolling interests" and "Paid-in capital" in connection with the purchase of the noncontrolling interests in that joint venture by the Company. Subsequent changes, if any, in amounts reported are not expected to have a material adverse effect on our financial position, results of operations or cash flows.
New Accounting Pronouncements 
See Note 3 to our consolidated financial statements for a discussion of recent accounting pronouncements.
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ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity raw material prices, and we selectively use financial instruments to manage certain of these risks. We do not enter into financial instruments for speculative or trading purposes; however, these instruments may be deemed speculative if the future cash flows originally hedged are no longer probable of occurring as anticipated. Our currency exposures vary, but are primarily concentrated in the Euro, Chinese Yuan and British Pound. We generally do not hedge currency translation exposures. Our exposures for commodity raw materials vary, with the highest concentration relating to steel. See Note 14 to our consolidated financial statements for further details.
The following table provides information, as of December 31, 2020, about our primary outstanding debt obligations and presents principal cash flows by expected maturity dates, weighted-average interest rates and fair values.
Expected Maturity Date Through December 31,
20212022202320242025ThereafterTotalFair Value
Term loan— $100.0 — — — — $100.0 $100.0 
Average interest rate1.529 %
5.875% senior notes— — — — — $