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EQUITY AND LONG-TERM INCENTIVE COMPENSATION | 3 Months Ended
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Apr. 01, 2017
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION |
EQUITY AND LONG-TERM INCENTIVE COMPENSATION | EQUITY AND LONG-TERM INCENTIVE COMPENSATION Income Per Share The following table sets forth the number of weighted-average shares outstanding used in the computation of basic and diluted income per share:
| Three months ended
| April 1, 2017 |  | April 2, 2016
Weighted-average number of common shares used in basic income per share | 42.108 |  |  | 41.293 |
Dilutive securities — Employee stock options, restricted stock shares and restricted stock units | 1.346 |  |  | 0.260 |
Weighted-average number of common shares and dilutive securities used in diluted income per share | 43.454 |  |  | 41.553 |
The weighted-average number of restricted stock shares/units and stock options excluded from the computation of diluted income per share because the assumed proceeds for these instruments exceed the average market value of the underlying common stock for the related period was 0.395 and 0.983, respectively, for the three months ended April 1, 2017 and 1.169 and 1.085, respectively, for the three months ended April 2, 2016. Long-Term Incentive Compensation Long-term incentive compensation awards may be granted to certain eligible employees or non-employee directors. A detailed description of the awards granted prior to 2017 is included in our 2016 Annual Report on Form 10-K. Effective March 1, 2017, we granted long-term incentive awards to our executive officers, certain other members of senior management, and other eligible employees. Awards to executive officers and other members of senior management were comprised of performance stock units (“PSU’s”), stock options, time-based restricted stock units (“RSU’s”), and long-term cash awards, while other eligible employees were granted RSU’s and long-term cash awards. The PSU’s are eligible to vest at the end of a three-year performance period, with performance based on the total return of our stock over the three-year performance period against the S&P 600 Capital Goods Index. Stock options and RSU’s vest ratably over the three-year period subsequent to the date of grant. Long-term cash awards are eligible to vest at the end of a three-year performance measurement period, with performance based on our achieving a target segment income amount over the three-year measurement period. Non-employee directors receive annual long-term incentive awards at the time of our annual meeting of stockholders, with the 2017 meeting scheduled for May 8, 2017. Compensation expense within income from continuing operations related to long-term incentive awards totaled $3.2 and $2.7 for the three months ended April 1, 2017 and April 2, 2016, respectively. The related tax benefit was $1.2 and $1.0 for the three months ended April 1, 2017 and April 2, 2016, respectively. PSU’s and RSU’s We use the Monte Carlo simulation model valuation technique to determine fair value of our restricted stock shares and restricted stock units that contain a market condition (i.e., the PSU’s). The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair value of each PSU. The following table summarizes the PSU and RSU activity from December 31, 2016 through April 1, 2017:
| Unvested Restricted Stock Shares and Restricted Stock Units |  | Weighted-Average Grant-Date Fair Value Per Share
Outstanding at December 31, 2016 | 1.702 |  |  | $ | 16.47 |
Granted | 0.220 |  |  | 28.40 |
Vested | (0.417 | ) |  | 18.61 |
Forfeited | (0.202 | ) |  | 21.24 |
Outstanding at April 1, 2017 | 1.303 |  |  | 16.96 |
As of April 1, 2017, there was $14.8 of unrecognized compensation cost related to PSU’s and RSU’s. We expect this cost to be recognized over a weighted-average period of 1.8 years. Stock Options On March 1, 2017, we granted 0.207 stock options, all of which were outstanding (but not exercisable) as of April 1, 2017. The exercise price per share of these options is $27.40 and the maximum contractual term of these options is 10 years. The fair value per share of the stock options granted on March 1, 2017 was $9.60. The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:
Annual expected stock price volatility | 32.00 | %
Annual expected dividend yield | — | %
Risk-free interest rate | 2.14 | %
Expected life of stock option (in years) | 6.0 |
Annual expected stock price volatility is based on a weighted average of SPX’s stock volatility since the spin-off of SPX FLOW, Inc. on September 26, 2015, and an average of the most recent six-year historical volatility of a peer company group. There is no annual expected dividend yield as we discontinued dividend payments in 2015 and do not expect to pay dividends for the foreseeable future. The average risk-free interest rate is based on the five-year and seven-year treasury constant maturity rates. The expected option life is based on a three-year pro-rata vesting schedule and represents the period of time that awards are expected to be outstanding. As of April 1, 2017, there was $4.5 of unrecognized compensation cost related to stock options. We expect this cost to be recognized over a weighted-average period of 1.7 years. Accumulated Other Comprehensive Income The changes in the components of accumulated other comprehensive income, net of tax, for the three months ended April 1, 2017 were as follows:
| Foreign Currency Translation Adjustment |  | Net Unrealized Gains on Qualifying Cash Flow Hedges(1) |  | Pension and Postretirement Liability Adjustment(2) |  | Total
Balance at beginning of period | $ | 229.7 |  |  | $ | 1.5 |  |  | $ | 3.9 |  |  | $ | 235.1 |
Other comprehensive income (loss) before reclassifications | (1.5 | ) |  | 1.1 |  |  | — |  |  | (0.4 | )
Amounts reclassified from accumulated other comprehensive income | — |  |  | (0.4 | ) |  | (0.2 | ) |  | (0.6 | )
Current-period other comprehensive income (loss) | (1.5 | ) |  | 0.7 |  |  | (0.2 | ) |  | (1.0 | )
Balance at end of period | $ | 228.2 |  |  | $ | 2.2 |  |  | $ | 3.7 |  |  | $ | 234.1 |
__________________________
(1) | Net of tax provision of $1.3 and $0.9 as of April 1, 2017 and December 31, 2016, respectively.
(2) | Net of tax provision of $2.7 as of April 1, 2017 and December 31, 2016. The balances as of April 1, 2017 and December 31, 2016 represent net unamortized prior service credits.
The changes in the components of accumulated other comprehensive income, net of tax, for the three months ended April 2, 2016 were as follows:
| Foreign Currency Translation Adjustment |  | Net Unrealized Losses on Qualifying Cash Flow Hedges(2) |  | Pension and Postretirement Liability Adjustment(3) |  | Total
Balance at beginning of period | $ | 280.6 |  |  | $ | (1.8 | ) |  | $ | 4.5 |  |  | $ | 283.3 |
Other comprehensive income (loss) before reclassifications | 1.7 |  |  | (0.2 | ) |  | — |  |  | 1.5 |
Amounts reclassified from accumulated other comprehensive income (1) | (40.4 | ) |  | 1.4 |  |  | (0.2 | ) |  | (39.2 | )
Current-period other comprehensive income (loss) | (38.7 | ) |  | 1.2 |  |  | (0.2 | ) |  | (37.7 | )
Balance at end of period | $ | 241.9 |  |  | $ | (0.6 | ) |  | $ | 4.3 |  |  | $ | 245.6 |
___________________________
(1) | In connection with the sale of our dry cooling business, we reclassified $40.4 of other comprehensive income related to foreign currency translation to “Gain on sale of dry cooling business.”
(2) | Net of tax benefit of $0.4 and $0.8 as of April 2, 2016 and December 31, 2015, respectively.
(3) | Net of tax provision of $3.1 as of April 2, 2016 and December 31, 2015. The balances as of April 2, 2016 and December 31, 2015 represent net unamortized prior service credits.
The following summarizes amounts reclassified from each component of accumulated comprehensive income for the three months ended April 1, 2017 and April 2, 2016:
| Amount Reclassified from AOCI |  |
| Three months ended |  |
| April 1, 2017 |  | April 2, 2016 |  | Affected Line Item in the Condensed Consolidated Statements of Operations
(Gains) losses on qualifying cash flow hedges: |  |  |  |  |  |  |
FX forward contracts | $ | — |  |  | $ | 1.0 |  |  | Revenues
Commodity contracts | (0.7 | ) |  | 0.7 |  |  | Cost of products sold
Swaps | 0.1 |  |  | — |  |  | Interest expense
Pre-tax | (0.6 | ) |  | 1.7 |  |  |
Income taxes | 0.2 |  |  | (0.3 | ) |  |
| $ | (0.4 | ) |  | $ | 1.4 |  |  |
Gains on pension and postretirement items: |  |  |  |  |  |  |
Amortization of unrecognized prior service credits - Pre-tax | $ | (0.2 | ) |  | $ | (0.2 | ) |  | Selling, general and administrative
Income taxes | — |  |  | — |  |  |
| $ | (0.2 | ) |  | $ | (0.2 | ) |  |
Gain on sale of dry cooling business: |  |  |  |  |
Recognition of foreign currency translation adjustment associated with the sale of our dry cooling business | $ | — |  |  | $ | (40.4 | ) |  | Gain on sale of dry cooling business
Common Stock in Treasury During the three months ended April 1, 2017 and April 2, 2016, “Common stock in treasury” was decreased by the settlement of restricted stock units issued from treasury stock of $15.9 and $17.8, respectively. Changes in Equity A summary of the changes in equity for the three months ended April 1, 2017 and April 2, 2016 is provided below:
| April 1, 2017 |  | April 2, 2016
| SPX Corporation Shareholders’ Equity |  | Noncontrolling Interests |  | Total Equity |  | SPX Corporation Shareholders’ Equity |  | Noncontrolling Interests |  | Total Equity
Equity, beginning of period | $ | 191.6 |  |  | $ | — |  |  | $ | 191.6 |  |  | $ | 345.4 |  |  | $ | (37.1 | ) |  | $ | 308.3 |
Net income | 17.4 |  |  | — |  |  | 17.4 |  |  | 13.0 |  |  | 0.6 |  |  | 13.6 |
Net unrealized gains on qualifying cash flow hedges, net of tax provision of $0.4 for the three months ended April 1, 2017 and April 2, 2016 | 0.7 |  |  | — |  |  | 0.7 |  |  | 1.2 |  |  | — |  |  | 1.2 |
Pension and postretirement liability adjustment, net of tax benefit of $0.0 for the three months ended April 1, 2017 and April 2, 2016 | (0.2 | ) |  | — |  |  | (0.2 | ) |  | (0.2 | ) |  | — |  |  | (0.2 | )
Foreign currency translation adjustments | (1.5 | ) |  | — |  |  | (1.5 | ) |  | (38.7 | ) |  | (1.0 | ) |  | (39.7 | )
Total comprehensive income (loss), net | 16.4 |  |  | — |  |  | 16.4 |  |  | (24.7 | ) |  | (0.4 | ) |  | (25.1 | )
Incentive plan activity | 3.8 |  |  | — |  |  | 3.8 |  |  | 2.7 |  |  | — |  |  | 2.7 |
Long-term incentive compensation expense | 2.8 |  |  | — |  |  | 2.8 |  |  | 2.7 |  |  | — |  |  | 2.7 |
Restricted stock and restricted stock unit vesting, net of tax withholdings, and related tax benefit of $0.0 for the three months ended April 1, 2017 and April 2, 2016 | (3.6 | ) |  | — |  |  | (3.6 | ) |  | (3.3 | ) |  | — |  |  | (3.3 | )
Equity, end of period | $ | 211.0 |  |  | $ | — |  |  | $ | 211.0 |  |  | $ | 322.8 |  |  | $ | (37.5 | ) |  | $ | 285.3 |

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