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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2013
Summary of Significant Accounting Policies |
Summary of Significant Accounting Policies | (1) Summary of Significant Accounting Policies Our significant accounting policies are described below, as well as in other Notes that follow. Basis of Presentation — The consolidated financial statements include SPX Corporation's ("SPX," "our" or "we") accounts prepared in conformity with accounting principles generally accepted in the United States ("GAAP") after the elimination of intercompany transactions. Investments in unconsolidated companies where we exercise significant influence but do not have control are accounted for using the equity method. In determining whether we are the primary beneficiary of a variable interest entity ("VIE"), we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties to determine which party has the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and which party has the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the VIE. We have interests in VIEs, primarily joint ventures, in which we are the primary beneficiary and others in which we are not. Our VIEs are considered immaterial, individually and in aggregate, to our consolidated financial statements. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations only (see Note 4 for information on discontinued operations). Restatement of Previously Reported Financial Information — Primarily during 2007 and 2008, in connection with a reorganization of certain foreign subsidiaries, an SPX foreign subsidiary (a deemed branch of SPX for U.S. income tax purposes) assumed a loan that was guaranteed by various foreign subsidiaries of SPX. In December 2013, we identified these loans and determined that they represented a deemed distribution (i.e., additional taxable income) subject to U.S. income taxes under Internal Revenue Code Section 956. In addition, we concluded that the previously unrecorded income tax liabilities associated with these intercompany loans represented misstatements in our consolidated financial statements for the years ended December 31, 2012, 2011, 2010, 2009, 2008, and 2007. Specifically, we determined that income tax expense for these years was overstated (understated) by $(1.4), $10.7, $(4.9), $(6.1), $(18.0), and $(24.8), respectively. We have evaluated the effects of these misstatements on the consolidated financial statements for each of these years in accordance with the guidance provided by SEC Staff Accounting Bulletin No. 108, codified as SAB Topic 1.N, "Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year Financial Statements," and concluded that none of these years are materially misstated. To correct these misstatements, and as permitted by SAB No. 108, we have reduced retained earnings, SPX's shareholders' equity, and total equity by $53.8 as of December 31, 2010, with an offsetting increase primarily to income taxes payable. In addition, we have decreased the income tax benefit for 2012 by $1.4 and increased the income tax benefit for 2011 by $10.7, with the offset primarily to income taxes payable, in the respective accompanying consolidated financial statements. See Note 18 for the impact of these corrections on previously reported amounts for the years ended December 31, 2012 and 2011. There are no corrections required to the results for the first three quarters of 2013. Pension and Postretirement — In the fourth quarter of 2013, we elected to change our accounting methods for recognizing expense associated with all of our pension and postretirement benefit plans. Historically, actuarial gains and losses in excess of 10% of the greater of the market-related value of plan assets or the plans' projected benefit obligations (the "corridor") were recognized as a component of accumulated other comprehensive income ("AOCI") within our consolidated balance sheet and, depending on the benefit plan, we amortized these gains and losses to earnings either over the remaining average service period for the active participants or the average remaining life expectancy of the inactive participants. Additionally, for our domestic qualified pension plan, we used a calculated value of plan assets reflecting changes in the fair value of plan assets over a five-year period and we applied a fair value method for our foreign pension plans. Under our new accounting methods, we recognize changes in the fair value of plan assets and actuarial gains and losses in earnings during the fourth quarter of each year as a component of net periodic benefit expense (and we no longer apply a corridor and, therefore, no longer defer any gains or losses). These new accounting methods result in changes in the fair value of plan assets and actuarial gains and losses being recognized in earnings faster than under our previous methods of accounting. We believe the new methods of accounting are preferable as these methods recognize the effects of plan investment performance, interest rate changes, and changes in actuarial assumptions as a component of earnings in the year in which they occur. These changes have been reported through retrospective application of the new accounting methods to all periods presented. The remaining components of pension/postretirement expense, primarily service and interest costs and expected return on plan assets, will continue to be recorded on a quarterly basis. See Note 10 for further discussion of our pension and postretirement benefits and Note 19 for the impact of the above changes on our consolidated financial statements for the years ended December 31, 2013, 2012 and 2011. Foreign Currency Translation and Transactions — The financial statements of our foreign subsidiaries are translated into U.S. dollars in accordance with the Foreign Currency Matters Topic of the Financial Accounting Standards Board Codification ("Codification" or "ASC"). Balance sheet accounts are translated at the current rate at the end of each period and income statement accounts are translated at the average rate for each period. Gains and losses on foreign currency translations are reflected as a separate component of shareholders' equity and other comprehensive income (loss). Foreign currency transaction gains and losses, as well as gains and losses related to foreign currency protection contracts and currency forward embedded derivatives, are included in "Other income (expense), net," with the related net losses totaling $15.6, $12.4 and $41.4 in 2013, 2012 and 2011, respectively. Cash Equivalents — We consider highly liquid money market investments with original maturities of three months or less at the date of purchase to be cash equivalents. Revenue Recognition — We recognize revenues from product sales upon shipment to the customer (e.g., FOB shipping point) or upon receipt by the customer (e.g., FOB destination), in accordance with the agreed upon customer terms. Revenues from service contracts and long-term maintenance arrangements are recognized on a straight-line basis over the agreement period. Sales with FOB destination terms are primarily to power transformer industry customers. Sales to distributors with return rights are recognized upon shipment to the distributor with expected returns estimated and accrued at the time of sale. The accrual considers restocking charges for returns and in some cases the distributor must issue a replacement order before the return is authorized. Actual return experience may vary from our estimates. We recognize revenues separately for arrangements with multiple deliverables that meet the criteria for separate units of accounting as defined by the Revenue Recognition Topic of the Codification. The deliverables under these arrangements typically include hardware and software components, installation, maintenance, extended warranties and software upgrades. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price of the product or service when it is sold separately, competitor prices for similar products or our best estimate. The hardware and software components are usually recognized as revenue contemporaneously, as both are required for essential functionality of the products, with the installation being recognized upon completion. Revenues related to maintenance, extended warranties and software upgrades are recognized on a pro-rata basis over the coverage period. We offer sales incentive programs primarily to effect volume rebates and promotional and advertising allowances. These programs are only significant to one of our business units. The liability for these programs, and the resulting reduction to reported revenues, is determined primarily through trend analysis, historical experience and expectations regarding customer participation. Amounts billed for shipping and handling are included in revenues. Costs incurred for shipping and handling are recorded in cost of products sold. Taxes assessed by governmental authorities that are directly imposed on a revenue-producing transaction between a seller and a customer are presented on a net basis (excluded from revenues) in our consolidated statements of operations. In addition, certain of our businesses, primarily within the Flow Technology and Thermal Equipment and Services reportable segments, also recognize revenues from long-term construction/installation contracts under the percentage-of-completion method of accounting. The percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. We recognize revenues for similar short-term contracts using the completed-contract method of accounting. Provisions for any estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined. In the case of customer change orders for uncompleted long-term contracts, estimated recoveries are included for work performed in forecasting ultimate profitability on certain contracts. Due to uncertainties inherent in the estimation process, it is possible that completion costs, including those arising from contract penalty provisions and final contract settlements, may be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined. Costs and estimated earnings in excess of billings arise when revenues have been recorded but the amounts have not been billed under the terms of the contracts. These amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Claims related to long-term contracts are recognized as revenue only after we have determined that collection is probable and the amount can be reliably estimated. Claims made by us 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, such 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. We recognized $1,343.8, $1,594.7 and $1,457.5 in revenues under the percentage-of-completion method for the years ended December 31, 2013, 2012 and 2011, respectively. Costs and estimated earnings on uncompleted contracts, from their inception, and related amounts billed as of December 31, 2013 and 2012 were as follows:
|  | 2013 |  | 2012 |
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Costs incurred on uncompleted contracts |  | $ | 3,767.4 |  | $ | 3,363.0 |
Estimated earnings to date |  |  | 813.2 |  |  | 804.8 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
|  |  | 4,580.6 |  |  | 4,167.8 |
Less: Billings to date |  |  | (4,517.9 | ) |  | (4,066.7 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
|  |  | 62.7 |  |  | 101.1 |
Net costs and estimated earnings in excess of billings assumed in the acquisition of Clyde Union (Holdings) S.A.R.L. ("Clyde Union") |  |  | 4.2 |  |  | 10.0 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net costs and estimated earnings in excess of billings |  | $ | 66.9 |  | $ | 111.1 |
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These amounts are included in the accompanying consolidated balance sheets at December 31, 2013 and 2012 as shown below. Amounts for billed retainages and receivables to be collected in excess of one year are not significant for the periods presented.
|  | 2013 |  | 2012 |
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Costs and estimated earnings in excess of billings(1) |  | $ | 285.3 |  | $ | 359.7 |
Billings in excess of costs and estimated earnings on uncompleted contracts(2) |  |  | (218.4 | ) |  | (248.6 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net costs and estimated earnings in excess of billings |  | $ | 66.9 |  | $ | 111.1 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(1) The December 31, 2013 and 2012 balances are reported as a component of "Accounts receivable, net." (2) The December 31, 2013 and 2012 balances are reported as a component of "Accrued expenses." Research and Development Costs — We expense research and development costs as incurred. We charge costs incurred in the research and development of new software included in products to expense until technological feasibility is established. After technological feasibility is established, additional eligible costs are capitalized until the product is available for general release. We amortize these costs over the economic lives of the related products and include the amortization in cost of products sold. We perform periodic reviews of the recoverability of these capitalized software costs. At the time we determine that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the applicable software, we write off any unrecoverable capitalized amounts. We expensed research activities relating to the development and improvement of our products of $44.7, $46.0 and $41.1 in 2013, 2012 and 2011, respectively. Property, Plant and Equipment — Property, plant and equipment ("PP&E") is stated at cost, less accumulated depreciation. We use the straight-line method for computing depreciation expense over the useful lives of PP&E, which do not exceed 40 years for buildings and range from 3 to 15 years for machinery and equipment. Depreciation expense, including amortization of capital leases, was $81.8, $73.5 and $59.9 for the years ended December 31, 2013, 2012 and 2011, respectively. Leasehold improvements are amortized over the life of the related asset or the life of the lease, whichever is shorter. Interest is capitalized on significant construction or installation projects. Interest capitalized during 2012 and 2011 totaled $0.5 and $1.3, respectively. No interest was capitalized during 2013. Income Taxes — We account for our income taxes based on the requirements of the Income Taxes Topic of the Codification, which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used. Derivative Financial Instruments — We use foreign currency forward contracts ("FX forward contracts") to manage our exposures to fluctuating currency exchange rates, and forward contracts to manage the exposure on forecasted purchases of commodity raw materials ("commodity contracts"). We have used interest rate protection agreements ("Swaps") to manage our exposures to fluctuating interest rate risk on variable rate debt. Derivatives are recorded on the balance sheet and measured at fair value. For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives is recorded in AOCI and subsequently recognized in earnings when the hedged items impact earnings. Changes in the fair value of derivatives not designated as hedges, and the ineffective portion of cash flow hedges, are recorded in current earnings. We do not enter into financial instruments for speculative or trading purposes. For those transactions that are designated as cash flow hedges, on the date the derivative contract is entered into, we document our hedge relationship, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transaction. We also assess, both at inception and quarterly thereafter, whether such derivatives are highly effective in offsetting changes in the fair value of the hedged item. See Notes 13 and 16 for further information. Cash flows from hedging activities are included in the same category as the items being hedged, which is primarily operating activities.

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