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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994, 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: 1-6948
SPX CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 38-1016240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 TERRACE POINT DRIVE, MUSKEGON, MICHIGAN 49443-3301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616-724-5000
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
11 3/4% SENIOR SUBORDINATED NOTES, DUE NEW YORK STOCK EXCHANGE
2002
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 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
REQUIREMENT FOR THE PAST 90 DAYS. /X/
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
$214,703,000 AS OF MARCH 1, 1995
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
14,078,896 SHARES AS OF MARCH 1, 1995
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DOCUMENTS INCORPORATED BY REFERENCE: REGISTRANT'S PROXY STATEMENT FOR ITS
ANNUAL MEETING ON APRIL 26, 1995 IS INCORPORATED BY REFERENCE INTO PART III.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
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PART I
ITEM 1. BUSINESS
SPX Corporation ("SPX" or the "company") is a global participant in the
design, manufacture and marketing of products for the motor vehicle industry.
Its operations are focused on the markets for specialty service tools and
equipment used in vehicular repair and maintenance, and original equipment
components for the manufacture and repair of motor vehicles.
The company was organized in 1911 under the laws of Michigan, and
reincorporated in Delaware in 1968. It was known as The Piston Ring Company
until 1931, when it changed its name to Sealed Power Corporation. The name was
changed again in 1988, when it became SPX Corporation. Today, SPX Corporation is
a multi-national corporation with operations in 14 nations. The corporate
headquarters is located in Muskegon, Michigan.
BUSINESS SEGMENTS
The company is comprised of three business segments. Specialty Service
Tools includes operations that design, manufacture and market a wide range of
specialty service tools and diagnostic equipment primarily to the global motor
vehicle industry. Original Equipment Components includes operations that design,
manufacture and market component parts for light and heavy duty vehicle markets.
SPX Credit Corporation, a lease financing operation, provides Specialty Service
Tool customers with a leasing option for purchasing higher dollar value
diagnostic testing, emission testing and wheel service equipment.
The following table summarizes revenue by segment for the last three years.
Revenues for 1994 are actual revenues for the company and its consolidated
subsidiaries. Unaudited proforma revenues for 1993 and 1992 reflect the
acquisition of Allen Testproducts and Allen Group Leasing, the divestiture of
the Sealed Power Replacement and Truth divisions, the acquisition of Sealed
Power Technologies Limited Partnership "SPT") and the consolidation of Sealed
Power Technologies (Europe) Limited Partnership ("SP Europe") as if they had
occurred at the beginning of the respective periods. Please refer to footnote 7
to the consolidated financial statements for further explanation of the 1993 and
1992 proforma revenues.
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PROFORMA
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1994 1993 1992
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(MILLIONS OF DOLLARS)
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Specialty Service Tools.................. $ 550.6 50% $ 529.2 52% $ 606.2 58%
Original Equipment Components............ 529.3 49 458.8 46 420.0 40
SPX Credit Corporation................... 12.8 1 15.7 2 16.7 2
-------- --- -------- --- -------- ---
$1,092.7 100% $1,003.7 100% $1,042.9 100%
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SPECIALTY SERVICE TOOLS
Over the past 12 years, the company has made significant investments in the
specialty service tool market. The company acquired Kent-Moore and Robinair in
1982, acquired OTC and Power Team in 1985, acquired VL Churchill (United
Kingdom) in 1985, acquired Bear Automotive in 1988, created Dealer Equipment and
Services in 1989, acquired Miller Special Tools in 1991 and acquired Allen
Testproducts and Lowener (Germany) in 1993. The specialty service tool market
continues to be a source of opportunity due to the increasing complexity of
repairing motor vehicles. The company's acquisition of Allen Testproducts has
enhanced its offering of electronic diagnostic products. Closely related to
Specialty Service Tools, particularly electronic diagnostic and wheel service
equipment, the company also acquired Allen Group Leasing in June of 1993. Now
named SPX Credit Corporation, this lease financing operation provides customers
with a leasing option when purchasing higher dollar specialty service equipment.
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The Specialty Service Tools segment includes six operating divisions that
design, manufacture and market a wide range of specialty service tools and
diagnostic equipment primarily to the worldwide motor vehicle industry.
Approximately one-fourth of sales are to non-North American customers.
The company competes with numerous companies which specialize in certain
lines of its Specialty Service Tools. The company believes it is the world
leader in offering specialty tool programs for automotive original equipment
manufacturers' franchised dealer networks. The company is a major producer of
electronic engine diagnostic equipment, emission testing equipment and wheel
service equipment in North America and Europe. The key competitive factors
influencing the sale of Specialty Service Tools are design expertise, timeliness
of delivery, quality, service and price. Sales of specialty service tools
essential to franchised dealers tend to vary with changes in vehicle design and
the number of franchised dealers and are not directly dependent on the volume of
vehicles that are produced by the original equipment manufacturers.
Design of specialty service tools is critical to their functionality and
generally requires close coordination with either the automotive original
equipment manufacturers or with the ultimate users of the tools or instruments.
These products are marketed as solutions to service problems and as aids to
performance improvements. After the design is completed, the company
manufactures, assembles or outsources these products. The company also markets a
broad line of equipment of other manufacturers through franchised dealer
equipment programs coordinated with certain motor vehicle original equipment
manufacturers.
Automotive Diagnostics -- This division is the combination of the
company's Bear Automotive unit and Allen Testproducts, which was acquired
in June of 1993. The division manufactures and markets performance test,
emission test, and wheel service equipment, including related software, to
the global automotive service industry. Products are marketed under both
the Bear and Allen Testproducts brand names.
These products are marketed to both the dealership and aftermarket
channels through a direct sales force, OEM distribution and through
independent distributorships, primarily in foreign countries. In North
America, sales are supported by a network of company owned distribution and
service centers. The division has operations located in Australia, Canada,
the United Kingdom, Switzerland, Germany, Italy, France and the United
States.
Dealer Equipment and Services -- This division administers dealer
equipment programs in North America and Europe for fourteen motor vehicle
manufacturers, including General Motors, Saturn, Opel, Nissan, Toyota and
Hyundai. Under the motor vehicle manufacturer's identity, the division
supplies service equipment and support material to franchised dealers,
develops and distributes equipment catalogues, and helps franchised dealers
assess and meet their service equipment needs.
The division's operations, which primarily distribute purchased
products to customers, are located in the United States and Canada, the
United Kingdom, Switzerland, Germany and Spain.
Kent-Moore -- This division designs and markets specialty service
tools and hand-held diagnostic products for the world's motor vehicle
manufacturers.
Franchised dealers use its products to do essential warranty and
service work. Examples of products include specialty hand-held mechanical
tools and specialty hand-held electronic diagnostic instruments.
The division's technical product development and sales staff works
closely with the original equipment manufacturers to design tools to meet
the exacting needs of specialty repair work. Products are sold to
franchised dealerships under both essential and general programs. Essential
programs are those in which the OEM requires its franchised dealers to
purchase and maintain the tools for warranty and service work.
The division has manufacturing operations in the United States and
Spain. Sales and marketing operations exist in the United States,
Switzerland, the United Kingdom, Australia, Spain, and Brazil. The division
also manages the company's 50% interest in JATEK, a Japanese company that
markets specialty service tools and equipment in the Asia Pacific Rim.
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OTC -- The division designs, manufactures and markets a variety of
specialty service tools and equipment that range from gear pullers to
complex, hand-held electronic diagnostic equipment and related software.
These products are based on customer needs and are marketed globally
through automotive, agricultural, and construction equipment manufacturers
to their franchised dealers. The division also has a strong aftermarket
distribution system around the world. Products are marketed under brand
names including OTC, VL Churchill, Lowener, and Miller Special Tools.
The division's technical product development and sales staff works
closely with original equipment manufacturers to design tools that meet the
exacting needs of specialty repair and maintenance work. Products are sold
to franchised dealerships under both essential and general programs.
The division's aftermarket distribution is primarily through warehouse
distributors and jobbers who are supported by an in-house sales and
technical support staff.
The division has manufacturing operations located in the United States
and sales and marketing operations located in the United States, the United
Kingdom, Germany, and Australia.
Power Team -- The division is a leading producer and marketer of
precision quality high-pressure hydraulic pumps, rams, valves, pullers and
other equipment. The division markets these products through industrial
distributors, its own sales force and independent agents. The sales and
marketing effort is supported by a strong technical support staff as
products must be designed to exacting specifications to meet the multitude
of applications for these products. Approximately three-fourths of the
division's sales are related to the motor vehicle service industry, while
the balance of sales are made in non-transportation markets such as
construction, aerospace and industrial maintenance.
The division has sales, marketing and manufacturing operations in the
United States. Additionally, sales and marketing offices are located in
Australia, The Netherlands, and Singapore.
The company is one of two major producers in this marketplace, which
is also supplied by many niche companies.
Robinair -- The division is a leading designer, manufacturer, and
marketer of specialty tools and equipment for the service of stationary and
mobile air conditioning and refrigeration systems. These specialty tools
range from mechanical hand-held tools, vacuum pumps and recharging
equipment and leak detection equipment to refrigerant recovery and
recycling equipment. The division also manufactures and markets engine
coolant recycling systems.
Approximately one-third of the division's sales are to the stationary,
or non-transportation, market which includes appliance, refrigeration, and
non-vehicular air conditioning repair. The division's manufacturing
facilities are located in the United States. Sales and marketing operations
exist in the United States, Canada, the United Kingdom, Switzerland, Spain,
and Australia.
ORIGINAL EQUIPMENT COMPONENTS
During 1993, the company implemented its strategy to focus on its position
as an original equipment component supplier. As of December 31, 1993, the
purchase of Riken Corporation's 49% interest in SPT provided the company with
control and ownership of SPT's four original equipment divisions. Combined with
the company's Acutex division and its majority stake in SP Europe, the company
has a broad range of products for both original equipment manufacturers and
aftermarket customers. Each of the Original Equipment Components segment's
operating divisions has achieved various OEM customer quality awards.
The Original Equipment Components segment includes five operating divisions
that design, manufacture and market component parts for light and heavy duty
vehicle markets. The component parts for the light and heavy duty vehicle market
are composed of two primary sectors: (i) the OEM sector and (ii) the vehicle
maintenance and repair sector, the so-called replacement market or aftermarket.
The U.S. -- Canadian -- European OEM sector is composed primarily of four
classes of customers: (a) U.S. manufacturers, dominated by General Motors, Ford
and Chrysler, but including other vehicle manufacturers such as Navistar
International, John Deere and Mack Trucks; (b) foreign companies producing
vehicles in North America and
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Europe ("transplants"); (c) European vehicle manufacturers, sometimes sourcing
the company's products through assemblies; and (d) vehicle manufacturers
producing vehicles outside the U.S., Canada and Europe. Aftermarket customers
include the service organizations of OEMs, automotive parts manufacturers and
distributors and private brand distributors such as Federal-Mogul and Allied
Signal.
OEM contracts typically are from one to five years in length with the one
year contracts typically being renewed or renegotiated, depending on part
changes, in the ordinary course of business and the longer term contracts
typically containing material cost pass-through and productivity improvement
clauses. Sales of products to OEMs are affected, to a large extent, by vehicle
production which, in turn, is dependent on general economic conditions.
Historically, global vehicle production has been cyclical.
Aftermarket sales are tied to the age of vehicles in service and the need
for replacement parts. Sales of products to the aftermarket historically have
been less affected by general economic conditions than OEM sales since vehicle
owners are more likely to repair vehicles than purchase new ones during
recessionary periods.
In its main product areas, the company competes with a small number of
principal competitors (including the OEMs in certain product categories), some
of which are larger in size and have greater financial resources than the
company. Competitive factors influencing sales include quality, technology,
service and price.
Acutex -- This division produces solenoid valves and related
assemblies for major vehicle and transmission manufacturers around the
world. Acutex's proprietary solenoid valve products interface between the
electronic signals of a vehicle's on-board computer and the vehicle's
hydraulic systems. The company is using this technology in designing and
manufacturing solenoid valves for electronically controlled automatic
transmissions. The continued growth of electronically controlled automatic
transmissions should increase the company's sales of solenoid valves.
This division is also responsible for managing the company's 50%
investment in RSV, a Japanese company that utilizes the company's
technology to develop and manufacture solenoid valves for the Asia Pacific
Rim.
Contech -- This division produces precision aluminum, magnesium, and
zinc die cast parts for automotive steering and air conditioning systems,
and other assorted automotive/light truck uses. Primary products in this
area include steering column parts, rack-and-pinion components and other
castings such as components for air conditioning compressors, fuel systems,
clutches, and transmissions. Approximately one-half of the castings are
machined by the division prior to delivery to customers.
Products are sold almost exclusively to automotive OEMs through the
division's marketing and sales personnel who are assisted by an outside
sales organization. The market is driven primarily by major OEM model and
assembly programs.
The division has recently completed a major investment in magnesium
die casting. The benefits of magnesium, including less weight and higher
strength-to-weight ratio, will increase the division's proportion of future
sales that are magnesium die castings.
Filtran -- This division is a leading producer of automatic
transmission filters and other filter products and has a leading position
in the U.S. and Canadian OEM market and aftermarket. A typical transmission
filter product consists of a composite plastic/metal or all metal housing
which contains a highly specialized non-woven felt, polymesh, or metal
screen filter element designed to capture foreign particles.
The division sells filters directly to the worldwide OEM market and
aftermarket. Approximately two-thirds of sales are to the aftermarket which
includes the OEM parts and service organizations as well as private brand
manufacturers and assorted transmission rebuilders, repackagers, and "quick
lube" shops.
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The division participates in the worldwide OEM market in two different
methods. In Europe, the company's 50% owned joint venture, IBS Filtran,
manufactures and distributes filters to OEM customers. In the Asian Pacific
Rim, the division exports filters to OEM manufacturers in Japan, Korea and
Australia.
Hy-Lift -- This division is a domestic supplier of a variety of valve
train components, including tappets, lash adjusters and roller rocker arms.
Sales are made to both the domestic OEM market and the domestic
aftermarket. Sales to the aftermarket, comprising approximately one-third
of total sales, are made through several channels, including direct sales
to the OEM parts and service organizations and sales to private brand
customers.
Sealed Power Division -- The division is the leading North American
producer of automotive piston rings and among the largest independent
producers of cylinder sleeves for automotive and heavy duty engines. The
division also produces sealing rings for automatic transmissions.
There is a continuing trend in the automotive industry to reduce the
weight of vehicles, which increases gas mileage. This trend has resulted in
the development of aluminum engine blocks which require cast iron cylinder
sleeves. Automotive engine blocks made of cast iron do not require a
cylinder sleeve. The division has been successful in obtaining contracts
from the OEMs for these high volume automotive cylinder sleeve
applications. In 1994, the division invested heavily in cylinder sleeve
automated casting equipment and machining cells to support increases in
customer demand for cylinder sleeves. The level of investment will continue
into 1995.
The division's products are purchased by both automotive/light truck
and heavy duty engine OEMs. The division utilizes a technical sales force
that works with OEM engine and transmission designers to provide high
quality rings and cylinder sleeves.
Approximately one-fourth of the division's sales are to the
aftermarket. In addition to OEM parts and service organizations, the
division supplies the aftermarket through private brand organizations,
which sell the products under various private labels.
SP Europe, like its North American counterpart, Sealed Power division,
is a designer, producer and distributor of automotive piston rings and
cylinder sleeves. Its sales are predominately to European OEMs and to the
European aftermarket. SP Europe's primary European customers are VW,
Federal-Mogul, Mahle, Kolbenschmidt, Alcan, Audi, Volvo and Mercedes Benz.
SP Europe was created by the company in June of 1991 after acquiring the
European piston ring and cylinder sleeve manufacturing business of TRW,
Inc. In October of 1992, Mahle GmbH contributed its Spanish piston ring
operation to SP Europe in exchange for a 30% ownership interest in SP
Europe. The Sealed Power division has managed SP Europe since its
inception.
The division manages a 50% owned investment in Allied Ring
Corporation, a U.S. joint venture with Riken, which manufactures and
distributes piston rings primarily to foreign companies producing engines
in North America ("transplants").
The division is also responsible for managing the company's 40% equity
investment in Promec, a Mexican company that manufactures and distributes
piston rings and cylinder sleeves in Mexico.
SPX CREDIT CORPORATION
This unit was created through the acquisition of Allen Group Leasing from
the Allen Group in June of 1993. This business provides U.S. and Canadian
customers, primarily of the Automotive Diagnostic division, with lease financing
as an alternative for purchasing electronic diagnostic, emissions testing and
wheel service equipment. Essentially all of the direct financing leases are with
companies or individuals operating within the automotive repair industry and
leases are five years in length or less.
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INTERNATIONAL OPERATIONS
The company has wholly owned operations located in Australia, Brazil,
Canada, France, Germany, Italy, The Netherlands, Singapore, Spain, Switzerland
and the United Kingdom. The company also has a 70% ownership in SP Europe,
located in France, Germany and Spain.
Additionally, the company has the following non U.S. equity investments:
JATEK (50%). A Japanese company that sells various products into the
Asia Pacific Rim market, including many of the company's specialty service
tool products.
RSV (50%). A Japanese company that utilizes the company's technology
to develop and manufacture solenoid valves for the Asia Pacific Rim.
Promec (40%). A Mexican company which, through its subsidiaries,
manufactures and distributes piston ring and cylinder sleeve products in
Mexico.
IBS Filtran (50%). A German company that manufacturers and distributes
automotive transmission filters to the European market.
The company has a cross-licensing agreement for piston rings with Riken
Corporation.
The company's international operations are subject to the risk of possible
currency devaluation and blockage, nationalization or restrictive legislation
regulating foreign investments and other risks attendant to the countries in
which they are located.
The company's total export sales, to both affiliated and unaffiliated
customers, from the United States, were as follows (historical basis):
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1994 1993 1992
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(IN MILLIONS)
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Export sales:
To unaffiliated customers.................................. $ 95.7 $ 74.4 $64.0
To affiliated customers.................................... 26.9 34.9 33.8
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Total.............................................. $122.6 $109.3 $97.8
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1993 and 1992 export sales do not include export sales of SPT as it was not
consolidated until December 31, 1993. Historically, SPT's export sales were less
than 10% of their total sales.
RESEARCH AND DEVELOPMENT
The company is actively engaged in research and development programs
designed to improve existing products and manufacturing methods and to develop
new products. These engineering efforts encompass all of the company's products
with divisional engineering teams coordinating their resources.
Particular emphasis has been placed on the development of new products that
are compatible with, and build upon, the manufacturing and marketing
capabilities of the company. To assist the company in meeting customer
requirements, computer aided design (CAD) systems, that provide rapid
integration of computers in mechanical design, model testing and manufacturing
control, are used extensively.
The company expended approximately $26.4 million on research activities
relating to the development and improvement of its products in 1994, $17.6
million in 1993 and $14.7 million in 1992. There was no customer sponsored
research activity in these years. Research and development expenditures for 1993
and 1992 do not include SPT as it was not consolidated until December 31, 1993.
SPT's research and development expenditures were $3.4 million in 1993 and $3.8
million in 1992.
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PATENTS/TRADEMARKS
The company owns numerous domestic and foreign patents covering a variety
of its products and methods of manufacture and owns a number of registered
trademarks. Although in the aggregate its patents and trademarks are of
considerable importance in the operation of its businesses, the company does not
consider any single patent or trademark to be of such material importance that
its absence would adversely affect the company's ability to conduct its
businesses as presently constituted.
RAW MATERIALS
The company's manufactured products are made predominately from iron,
steel, zinc, aluminum, magnesium, plastics and electronic components. These raw
materials are generally purchased from multiple sources of supply and the
company has not experienced any significant disruptions in its businesses due to
shortages.
OTHER MATTERS
At the end of 1994, the company's employment was 8,200 persons.
Approximately one-third of the company's 4,700 U.S. production and maintenance
employees are covered by collective bargaining agreements with various unions,
which agreements expire at different times over the next several years. The
company's collective bargaining agreement with Local 2074 of the International
Brotherhood of Electrical Workers covering approximately 235 employees expires
in May 1995. Management believes it has generally good relations with its
employees and anticipates that all of its collective bargaining agreements will
be extended or renegotiated in the ordinary course of business. Certain
contracts with OEM customers require the company to build inventories of
critical components prior to the expiration of collective bargaining agreements.
Approximately 16% in 1994, 9% in 1993 and 13% in 1992 of the company's
consolidated sales were made to General Motors Corporation and its various
divisions, dealers and distributors. Approximately 12% in 1994, 2% in 1993 and
1% in 1992 of the company's consolidated sales were made to Ford Motor Company
and its various divisions, dealers and distributors. Approximately 7% in 1994,
6% in 1993 and 2% in 1992 of the company's consolidated sales were made to
Chrysler Corporation and its various divisions, dealers and distributors. No
other customer or group of customers under common control accounted for more
than 10% of consolidated sales for any of these years.
On a proforma basis, approximately 17%, 10% and 8% of consolidated sales
were to General Motors, Ford and Chrysler in 1993, respectively, and were
approximately 19%, 8% and 4% of consolidated sales in 1992.
The company does not believe that order backlog is a significant factor in
the specialty service tools segment. Within the original equipment components
segment, long term contracts and the related level of new vehicle production are
significant to future sales.
All of the company's businesses are required to maintain sufficient levels
of working capital to support customer requirements, particularly inventory.
Sales terms and payment terms are in line with the practices of the industries
in which they compete, none of which are unusual.
The majority of the company's businesses tend to be nonseasonal and closely
follow changes in vehicle design, vehicle production, and general economic
conditions. However, specific markets such as air conditioning service and
repair follow the seasonal trends associated with the weather (sales are
typically higher in spring and summer). Government regulations, such as the
Clean Air Act, can also impact the timing and level of certain specialty service
tool sales.
ITEM 2. PROPERTIES
UNITED STATES -- The principal properties used by the company for
manufacturing, administration and warehousing consist of 49 separate facilities
totaling approximately 3.9 million square feet. These facilities are located in
Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio, and
Pennsylvania. All
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facilities are owned, except for 12, which are leased (all non manufacturing).
These leased facilities aggregate 523,000 square feet and have an average lease
term of 6 years.
The company also has 36 distribution and service centers located throughout
the United States for distribution and servicing of its Specialty Service Tools.
These distribution and service centers aggregate 154,000 square feet and all are
leased. No single distribution and service center is of material significance to
the company's business.
INTERNATIONAL -- The company owns approximately 157,000 square feet and
leases approximately 735,000 square feet of manufacturing, administration and
distribution facilities in Australia, Brazil, Canada, France, Germany, Italy,
The Netherlands, Singapore, Spain, Switzerland and the United Kingdom.
The company's properties used for manufacturing, administration and
warehousing are adequate to meet its needs as of December 31, 1994. The company
configures and maintains these facilities as required by their business use. At
December 31, 1994, the company believes that it does not have significant excess
capacity at any of its major facilities.
ITEM 3. LEGAL PROCEEDINGS
Certain claims, including environmental matters, suits and complaints
arising in the ordinary course of business, have been filed or are pending
against the company. In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a
significant effect on the financial position or results of operations of the
company if disposed of unfavorably. Additionally, the company has insurance to
minimize its exposures of this nature.
During the first quarter of 1995, the company reached agreement to settle a
dispute involving a non-core business sold in 1989. As of December 31, 1994, the
company recorded a $2.1 million charge for this pending settlement. The company
expects this agreement to resolve all issues pertaining to the sale of this
business.
The company's operations and properties are subject to federal, state and
local regulatory requirements relating to environmental protection. It is the
company's policy to comply fully with all such applicable requirements. As part
of its effort to comply, management has established an ongoing internal
compliance auditing program which has been in place since 1989. Based on current
information, management believes that the company's operations are in
substantial compliance with applicable environmental laws and regulations and
the company is not aware of any violation that could have a material adverse
effect on the business, financial conditions, results of operations, or cash
flows of the company. There can be no assurance, however, that currently unknown
matters, new laws and regulations, or stricter interpretations of existing laws
and regulations will not materially affect the company's business or operations
in the future.
In addition, it is the company's practice to reduce use of environmentally
sensitive materials as much as possible. First, it reduces the risk to the
environment in that such use could result in adverse environmental affects
either from operations or utilization of the end product. Second, a reduction in
environmentally sensitive materials reduces the ongoing burden and resulting
cost of handling, controlling emissions, and disposing of wastes that may be
generated from such materials.
The company is also subject to potential liability for the costs of
environmental remediation. This liability may be based upon the ownership or
operation of industrial facilities where contamination may be found as well as
contribution to contamination existing at offsite, non-owned facilities. These
offsite remediation costs cannot be quantified with any degree of certainty. At
this time, management can estimate the environmental remediation costs only in
terms of possibilities and probabilities based on available information.
The company is involved as a potentially responsible party ("PRP") under
the Comprehensive, Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended, or similar state superfund statutes in eleven
proceedings involving off-site waste disposal facilities. At six of these sites
it has been established that the company is a de minimis contributor. A
determination has not been made with respect to the remaining five sites, but
the company believes that it will be found to be a de minimis contributor at two
of them. Of the three remaining sites, remediation at one is nearing completion
with
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minimal additional cost, another is approaching settlement with the
Environmental Protection Agency with an expected cost to the company of
approximately $150,000, and the final site is under investigation with an
expected cost of approximately $200,000. Based on information available to the
company, which in most cases includes estimates from PRPs and/or federal or
state regulatory agencies for the investigation, clean up costs at those sites,
and data related to the quantities and characteristics of materials generated at
or shipped to each site, the company believes that the costs for each site are
not material and in total the anticipated clean up costs of current PRP actions
would not have material adverse effect on the company's business, financial
condition, results of operations, or cash flows.
In the case of contamination existing upon properties owned or controlled
by the company, the company has established reserves which it deems adequate to
meet its current remediation obligations.
There can be no assurance that the company will not be required to pay
environmental compliance costs or incur liabilities that may be material in
amount due to matters which arise in the future or are not currently known to
the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
<PAGE> 11
ITEM -- EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth with respect to each executive officer or
other significant employee of the company, his name, age, all positions and
offices with the company held by him, the term during which he has been an
officer of the company and, if he has been an officer of the company for less
than five years, his business experience during the past five years.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AND AGE OFFICE SINCE
- ----------------------------------- ------------------------------------------ ---------
<S> <C> <C>
Curtis T. Atkisson, Jr. (61)....... President, Chief Operating Officer 1991(1)
Roland Gerber (57)................. Group Vice President 1989
Robert C. Huff (45)................ Treasurer 1994(2)
Dale A. Johnson (57)............... Chairman, Chief Executive Officer 1985
Stephen A. Lison (54).............. Vice President, Human Resources 1989
James M. Sheridan (54)............. Vice President, Administration and General
Counsel 1976
William L. Trubeck (48)............ Senior Vice President, Finance and Chief
Financial Officer 1994(3)
John D. Tyson (57)................. Vice President, Corporate Relations 1988
R. Budd Werner (63)................ Senior Vice President, Planning and
Development 1981(4)
Albert A. Zagotta (60)............. Executive Vice President 1994(5)
</TABLE>
- ---------------
See page 58 for a complete list of all executive compensation plans and
arrangements.
(1) Effective October 1991, Mr. Atkisson was elected President, Chief Operating
Officer. From May 1989 through September 1991, Mr. Atkisson was President,
Chief Executive Officer of SPT. Prior to 1989, Mr. Atkisson was a Group Vice
President of the company.
(2) Effective February 1994, Mr. Huff was elected Treasurer. From April 1989
through February of 1994, he was Vice President, Finance of SPT.
(3) Effective November 1994, Mr. Trubeck was elected Senior Vice President
Finance, Chief Financial Officer. From June 1993 through October 1994, he
served as Senior Vice President and Chief Financial Officer at Honeywell,
Inc. From February 1991 through May 1993 he served as Chief Financial
Officer at White & Case, a New York law firm. From March 1989 through
October 1990 he served as Executive Vice President, Finance and Chief
Financial Officer of NWA, Inc. and Northwest Airlines.
(4) Effective November 1994, Mr. Werner was elected Senior Vice President,
Planning and Development. Prior to November 1994, he served as Vice
President, Finance and Chief Financial Officer.
(5) Effective February 1994, Mr. Zagotta was elected Executive Vice President.
From October 1991 through February 1994, he served as President and Chief
Executive Officer of SPT. Prior to October 1991, he served as Vice
President, General Manager of the Sealed Power Division.
10
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The company's common stock is traded on the New York Stock Exchange and
Pacific Stock Exchange under the symbol "SPW".
Set forth below are the high and low sales prices for the company's common
stock as reported on the New York Stock Exchange composite transaction reporting
system and dividends paid per share for each quarterly period during the past
two years:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
----- ----- ---------
<S> <C> <C> <C>
1994
4th Quarter......................................... $18 1/2 $14 1/8 $ .10
3rd Quarter......................................... 18 15 1/8 .10
2nd Quarter......................................... 16 3/4 13 7/8 .10
1st Quarter......................................... 18 15 1/4 .10
1993
4th Quarter......................................... $18 1/2 $15 1/4 $ .10
3rd Quarter......................................... 18 7/8 15 3/8 .10
2nd Quarter......................................... 17 7/8 15 .10
1st Quarter......................................... 18 1/2 16 3/4 .10
</TABLE>
The approximate number of record holders of the company's Common Stock as
of December 31, 1994 was 7,875.
The company is subject to a number of restrictive covenants under various
debt agreements. Please see Note 18 to the consolidated financial statements for
further discussion.
Future dividends will depend upon the earnings and financial condition of
the company and other relevant factors. The revolving credit agreement includes
a covenant that limits dividends. Please see Note 18 to the consolidated
financial statements for further explanation. The company has no present
intention to discontinue its dividend policy and believes that dividends will
continue at current levels during 1995.
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $1,092.7 $ 756.1 $801.2 $673.5 $708.2
Operating income (loss)................. 64.8 (42.8)(1) 49.1 (11.9)(4) 40.8
Interest expense, net................... (40.9) (17.9) (15.1) (16.9) (17.7)
Gain on sale of businesses.............. -- 105.4 -- -- --
-------- -------- ------ ------ ------
Income (loss) before income taxes....... 23.9 44.7 34.0 (28.8) 23.1
Income taxes............................ (9.8) (29.5) (13.4) 7.2 (8.8)
-------- -------- ------ ------ ------
Income (loss) before cumulative effect
of change in accounting methods and
extraordinary loss.................... $ 14.1 $ 15.2 $ 20.6 $(21.6) $ 14.3
Cumulative effect of change in
accounting methods, net of taxes...... -- (31.8)(2) (5.7)(2) -- --
Extraordinary loss, net of taxes........ -- (24.0)(3) -- -- --
-------- -------- ------ ------ ------
Net income (loss)....................... $ 14.1 $ (40.6) $ 14.9 $(21.6) $ 14.3
======== ======== ====== ====== ======
Per share of common stock:
Income (loss) before cumulative effect
of change in accounting methods and
extraordinary loss.................... $ 1.10 $ 1.20 $ 1.48 $(1.56) $ 1.04
Cumulative effect of change in
accounting methods, net of taxes...... -- (2.52) (0.41) -- --
Extraordinary loss, net of taxes........ -- (1.90) -- -- --
-------- -------- ------ ------ ------
Net income (loss)....................... $ 1.10 $ (3.22) $ 1.07 $(1.56) $ 1.04
======== ======== ====== ====== ======
Weighted average number of common shares
outstanding........................... 12.8 12.6 13.9 13.8 13.8
Dividends paid..................... $ 0.40 $ 0.40 $ 0.40 $ 0.70 $ 1.00
Other Financial Data:
Working capital....................... $ 184.4 $ 119.4 $182.2 $195.1 $249.8
Total assets.......................... 931.7 1,024.4 560.3 579.3 624.1
Long-term debt........................ 414.1 336.2 160.3 199.7 226.2
Shareholders' equity.................. 158.7 145.4 185.5 180.7 210.1
Capital expenditures.................. 48.5 15.1 20.4 19.4 26.7
Depreciation and amortization......... 38.5 24.4 25.3 23.8 19.9
</TABLE>
- ---------------
(1) Includes restructuring charge of $27.5 million; $18.5 million aftertax or
$1.47 per share. Refer to Note 4 to the consolidated financial statements
for explanation.
(2) Refer to Note 2 to the consolidated financial statements for explanation.
(3) Refer to Note 8 to the consolidated financial statements for explanation.
(4) Includes special charge of $18.2 million; $14.7 million aftertax or $1.06
per share.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the company's consolidated
financial statements and the related footnotes.
OVERVIEW
During 1993, the company initiated several major transactions which
increased its focus upon two primary core markets, specialty service tools and
original equipment components for the motor vehicle industry. These transactions
were as follows:
-- Acquired the Allen Testproducts division and its related leasing
subsidiary, Allen Group Leasing, from the Allen Group in June.
-- Obtained full control of Sealed Power Technologies Limited
Partnership ("SPT") and merged its operations into the company's
Original Equipment Components segment.
-- Divested two divisions, Sealed Power Replacement ("SPR") and Truth,
which were no longer strategic in the company's core markets.
As a result of these changes, the company's business is categorized into
two primary segments, Specialty Service Tools and Original Equipment Components.
Additionally, a lease financing segment, SPX Credit Corporation, supports the
Specialty Service Tool segment. In the following discussion, references to
"historical" information represent actual financial information derived from the
company's audited consolidated financial statements. References to 1993 and 1992
"proforma" information are included in certain instances to enhance the
comparative discussion. This proforma information refers to unaudited 1993 and
1992 proforma financial information and is based upon the assumption that the
above transactions occurred as of the beginning of 1993 and 1992. Please refer
to footnote 7 to the consolidated financial statements for further explanation
of the unaudited proforma financial information.
During the first half of 1994, the company completed its refinancing of
virtually all debt that existed at the end of 1993. In March, the first portion
of the refinancing was completed when the company closed a revolving credit
facility with The First National Bank of Chicago, as agent for a syndication of
banks. The revolving credit facility provides $225 million of borrowing
capacity. At December 31, 1994, the company had available $90.6 million of
unused borrowing capacity under its revolving credit facility. In May, the
second portion of the refinancing was completed when the company issued $260
million of 11 3/4% senior subordinated notes, due 2002. Borrowings from the
revolving credit facility and proceeds from the issuance of the senior
subordinated notes were used to extinguish approximately $400 million (principal
amount at December 31, 1993) of existing debt, pay early extinguishment costs on
the old debt, and pay issuance costs on the revolving credit facility and the
senior subordinated notes.
13
<PAGE> 15
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CONSOLIDATED
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
1994 1993 1992
-------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues:
Specialty Service Tools................................. $ 550.6 $ 503.6 $539.6
Original Equipment Components........................... 529.3 26.6 15.2
SPX Credit Corporation.................................. 12.8 9.0 --
Businesses sold in 1993................................. -- 216.9 246.4
-------- -------- ------
Total........................................... $1,092.7 $ 756.1 $801.2
======== ======== ======
Operating income (loss):
Specialty Service Tools................................. $ 29.4 $ (10.9) $ 51.8
Original Equipment Components........................... 48.0 (46.8) (7.1)
SPX Credit Corporation.................................. 7.4 5.5 --
Businesses sold in 1993................................. -- 25.2 22.4
General Corporate expenses.............................. (20.0) (13.3) (16.8)
-------- -------- ------
Total........................................... $ 64.8 $ (40.3) $ 50.3
Other expense (income), net............................... 0.0 2.5 1.3
Interest expense, net..................................... 40.9 17.9 15.0
(Gain) on sale of businesses.............................. -- (105.4) --
-------- -------- ------
Income before income taxes................................ $ 23.9 $ 44.7 $ 34.0
Provision for income taxes................................ 9.8 29.5 13.4
-------- -------- ------
Income before cumulative effect of change in accounting
methods and extraordinary loss.......................... $ 14.1 $ 15.2 $ 20.6
Cumulative effect of change in accounting methods, net of
taxes................................................... -- (31.8) (5.7)
Extraordinary loss, net of taxes.......................... -- (24.0) --
-------- -------- ------
Net income (loss)......................................... $ 14.1 $ (40.6) $ 14.9
======== ======== ======
Capital expenditures...................................... $ 48.5 $ 15.1 $ 20.4
Depreciation and amortization............................. 38.5 24.4 25.3
Identifiable assets....................................... 931.7 1,024.4 560.3
</TABLE>
On pages 15 through 20, revenues, operating income (loss) and related items
are discussed by segment. The following provides explanation of general
corporate expenses and other consolidated items that are not allocated to the
segments.
General Corporate expense (SG&A) -- These expenses represent general
unallocated expenses. Historical 1994 expenses increased over historical 1993
and 1992 primarily as a result of additional corporate expenses resulting from
the consolidation of SPT. Historical 1993 also included favorable long term
employee benefit adjustments.
Other expense (income), net -- Represents expenses not included in the
determination of operating results, including gains or losses on currency
exchange, translation gains or losses due to translation of financial statements
in highly inflationary countries, the fees incurred on the sale of accounts
receivable under the company's accounts receivable securitization program, gains
or losses on the sale of fixed assets and unusual non-operational gains or
losses.
1994 other expense (income), net included a $2.1 million charge for the
pending settlement of a dispute regarding the sale of a non-core business in
1989. The impact of this charge was offset by favorable exchange gains, fixed
asset disposals and royalties received from the previous sale of a business.
14
<PAGE> 16
Interest expense, net -- Historical 1994 interest expense, net was
substantially higher than historical 1993 and 1992 due to the higher debt levels
associated with the purchase of SPT and Allen Testproducts in 1993. The increase
in debt levels was partially offset by the proceeds from the sales of the Sealed
Power Replacement and Truth divisions in 1993.
Gain on Sale of Businesses -- A $105.4 million pretax gain of the sale on
the Sealed Power Replacement ($52.4 million) and the Truth ($53.0 million)
divisions was recorded during the fourth quarter of 1993. The results of these
units were included through their dates of divestiture, October 22, 1993 for
Sealed Power Replacement and November 5, 1993 for Truth. The combined aftertax
gain was $64.2 million.
Provision (benefit) for income taxes -- The company's 1994 effective income
rate of 41.0% exceeds the 35% U.S. federal income tax rate due primarily to (1)
the effect of non deductible goodwill and intangibles amortization and (2) the
net effect of not being able to tax benefit certain foreign losses because
certain foreign operations are in net operating loss carryforward positions,
utilizing certain foreign net operating loss carryforwards and differences in
foreign tax rates. The 1993 effective income tax rate of 66% was high due to the
inability to tax benefit the $21.5 million of SP Europe's equity losses as its
foreign subsidiaries were in net operating loss carryforward positions, because
certain items within the Automotive Diagnostics restructuring charge were not
tax benefited, and because of the cumulative effect of adjusting net deferred
tax liabilities for the change in the U.S. federal income tax rate from 34% to
35% in 1993. The 1992 rate of 39.5% reflected a normal effective income tax
rate.
Cumulative effect of change in accounting methods, net of taxes -- In 1993
and 1992, the company adopted three new accounting methods relating to its ESOP,
postretirement benefits other than pensions, and income taxes. See Note 2 to the
Consolidated Financial Statements for a detailed explanation of these changes.
Extraordinary loss, net of taxes -- During the fourth quarter of 1993, the
company decided to refinance both SPX and SPT debt. As a result, the company
recorded an extraordinary charge of $37.0 million ($24.0 million aftertax) for
costs associated with the early retirement of approximately $400 million
(principal amount) of debt.
SPECIALTY SERVICE TOOLS
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
---------------------------- -----------------
1994 1993 1992 1993 1992
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $550.6 $503.6 $539.6 $529.2 $606.2
Gross Profit.......................... 181.3 165.1 190.3 183.4 231.3
% of Revenues....................... 32.9% 32.8% 35.3% 34.7% 38.2%
Selling, general & administrative .... 146.8 144.4 134.4 151.5 169.7
% of Revenues....................... 26.7% 28.7% 24.9% 28.6% 28.0%
Goodwill/intangible amortization ..... 5.2 5.0 4.8 5.3 5.4
(Earnings) from equity interests...... (.1) (.9) (.7) (.9) (.7)
Restructuring charge.................. 27.5 -- 27.5 --
------ ------ ------ ------ ------
Operating income (loss)............... $ 29.4 $(10.9) $ 51.8 $ -- $ 56.9
====== ====== ====== ====== ======
Capital expenditures.................. $ 10.6 $ 7.5 $ 6.8 $ 7.5 N/A
Depreciation and amort. .............. $ 15.0 $ 14.5 $ 15.0 $ 14.8 N/A
Identifiable assets................... $397.9 $409.2 $347.8 N/A N/A
</TABLE>
Revenues
Historical 1994 revenues of Specialty Service Tools were up $47 million or
9.3% over historical 1993 revenues, principally due the inclusion of a full year
of Allen Testproducts' revenues in 1994, whereas, 1993 included only seven
months of revenues. Allen Testproducts was acquired in June of 1993. Historical
1994 revenues also increased over historical 1993 revenues due to overall
improved revenues of specialty service
15
<PAGE> 17
tools, particularly dealer equipment programs and high pressure hydraulics.
Historical 1992 revenues benefited from approximately $60 million of incremental
sales of HFC134a refrigerant recovery and recycling systems to franchised
automotive dealerships as many original equipment manufacturers required their
dealerships to purchase this equipment.
Historical 1994 revenues show general improvements over proforma 1993 and
1992 revenues (excluding the incremental $60 million of HFC134a recovery and
recycling system sales from proforma 1992) due to the improvement in sales of
essential tools, electronic hand-held diagnostics, mechanical tools, and
hydraulic tools. These improved sales have been offset, however, by gradually
declining sales of higher priced electronic diagnostic equipment.
Gross Profit
Historical 1994 gross profit as a percentage of revenues ("gross margin")
of 32.9% was comparable to historical 1993 gross margin of 32.8%. The effect of
stronger 1994 sales of dealer equipment programs (which carry gross margins of
less than 15%) was offset by gross margin improvements in electronic diagnostic,
gas emissions and wheel service equipment resulting from cost reductions
associated with the 1993 combination of Bear Automotive and Allen Testproducts.
Gross margin decreased from 35.3% in historical 1992 to 32.8% in historical 1993
primarily due to the higher margin refrigerant recovery and recycling equipment
sold in 1992.
Historical 1994 gross margin of 32.9% was less than proforma 1993 and 1992
gross margins of 34.7% and 38.2%. The decrease in 1994 was principally due to
the higher portion of revenues represented by dealer equipment programs than in
1993 and 1992. Proforma 1992 gross margin was also significantly impacted by the
higher margin refrigerant recovery and recycling system sales. Note that the
proforma 1993 and 1992 gross margins include estimates of cost reductions from
the combination of Bear Automotive and Allen Testproducts.
Selling, General and Administrative Expense
Historical SG&A was 26.7% of revenues in 1994 compared to 28.7% in 1993 and
24.9% in 1992. Historical 1994 SG&A as a percentage of revenues decreased from
historical 1993 primarily as a result of increased dealer equipment program
sales which have lower SG&A as a percentage of revenues and due to the impact of
cost reductions achieved through the combination of Bear Automotive and Allen
Testproducts. Historical 1993 SG&A as a percentage of revenues increased over
historical 1992 SG&A due to the effect of the incremental refrigerant recovery
and recycling system sales in 1992. Also, historical 1994 SG&A included a full
year of Allen Testproducts' SG&A, whereas 1993 only included seven months and
1992 did not include any of Allen Testproducts SG&A. Allen Testproducts' SG&A as
a percentage of revenues was higher than overall historical percentages.
Historical 1994 SG&A as a percentage of revenues compares favorably to
proforma 1993 and 1992 due to higher dealer equipment revenues in 1994 and due
to general cost reductions. Note that the proforma 1993 and 1992 SG&A include
estimates of cost reductions from the combination of Bear Automotive and Allen
Testproducts.
Goodwill/Intangible amortization
Noncash goodwill and intangible amortization generally results from excess
purchase price over fair value of assets in acquisition. The increase in 1994
amortization over historical 1993 and 1992 was the effect of additional goodwill
recorded to acquire Allen Testproducts in June 1993.
Earnings from Equity Interests
Included in this segment are the equity earnings of JATEK, a 50% owned
joint venture in Japan. JATEK's 1994 earnings were negatively impacted by
economic conditions in the Far East, particularly Japan.
16
<PAGE> 18
Restructuring Charge
In the third quarter of 1993, the company recorded a $27.5 million
restructuring charge to combine the existing Bear Automotive division with Allen
Testproducts into the new Automotive Diagnostics division. The restructuring
charge included approximately $16.0 million for work force reductions and
related costs. The combined businesses started with approximately 2,200
employees which was reduced to approximately 1,600 employees at the end of the
reduction program (second quarter of 1994). The restructuring charge also
included approximately $9.3 million of facility duplication and shutdown costs,
including the writedown of excess assets of $4.2 million (non-cash). The
remaining balance of the restructuring reserve at December 31, 1994 was $2.0
million and was principally required for payments to former employees and
facility closing costs.
Operating Income (Loss)
Historical 1994 operating income of $29.4 million was up significantly over
historical 1993 operating income of $16.6 million (excluding the $27.5 million
restructuring charge). This improvement was attributable to increased revenues
and associated gross profit levels, while holding SG&A at comparable levels to
1993. The cost reductions associated with the combination of Bear Automotive and
Allen Testproducts contributed to achieving the SG&A levels in 1994. Historical
1993 operating income decreased from historical 1992 operating income primarily
due to the incremental sales of refrigerant recovery and recycling systems in
1992.
Historical 1994 operating income of $29.4 million was comparable to
proforma 1993 operating income of $27.5 million (excluding the $27.5 million
restructuring charge). Proforma 1992 operating income benefited significantly
from the incremental sales of refrigerant recovery and recycling systems.
Capital Expenditures
Capital expenditures for 1994 of $10.6 million were approximately $3
million higher than in 1993 and 1992 due to incremental spending to improve
manufacturing capability and systems to better support customers. Management
estimates that annual capital expenditures of approximately $5 million are
required to maintain the company's specialty service tool operations. 1995
capital expenditures are expected to approximate $10 million and will continue
to improve the segments' productivity and customer support.
Identifiable Assets
Identifiable assets decreased in 1994 from 1993 levels as a result of
inventory reductions and capital expenditures being less than depreciation and
amortization. The company believes that additional working capital reductions,
particularly inventory, are available and will continue to pursue programs to
enhance working capital utilization.
17
<PAGE> 19
ORIGINAL EQUIPMENT COMPONENTS:
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
-------------------------- ----------------
1994 1993 1992 1993 1992
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $529.3 $ 26.6 $ 15.2 $458.8 $420.0
Gross Profit........................................ 81.1 4.2 (2.1) 51.9 48.5
% of Revenues..................................... 15.3% 15.8% (13.5)% 11.3% 11.5%
Selling, general & administrative................... 35.3 1.9 1.7 36.9 31.7
% of Revenues..................................... 6.7% 7.1% 11.2% 8.0% 7.5%
Goodwill/intangible amortization.................... 2.6 -- -- 1.5 1.5
Minority interest (income).......................... (2.2) -- -- (4.3) (2.7)
(Earnings) from equity interests.................... (2.6) .7 .9 .4 .2
SPT equity losses................................... -- 26.9 2.4 -- --
SP Europe equity losses............................. -- 21.5 -- -- --
------ ------ ------ ------ ------
Operating income (loss)............................. $ 48.0 $(46.8) $ (7.1) $ 17.4 $ 17.8
====== ====== ====== ====== ======
Capital expenditures................................ $ 35.9 $ 1.0 $ 3.9 $ 23.0 N/A
Depreciation and amort.............................. $ 23.0 $ 1.8 $ 1.5 $ 23.1 N/A
Identifiable assets................................. $367.9 $343.8 $ 21.8 N/A N/A
</TABLE>
Revenues
Revenues for historical 1994 were up significantly over historical 1993 and
1992 revenues due to the inclusion of SPT and SP Europe revenues in 1994 (SPT
and SP Europe were consolidated as of December 31, 1993). Historical 1993 and
1992 revenues include the company's solenoid valve operation which has been
expanding as more automotive transmissions are incorporating the company's
solenoid valve.
Historical 1994 revenues were up significantly over proforma 1993 and 1992
revenues (which include SPT and SP Europe). The significant increase was
attributable to strong increases in sales to original equipment manufacturers as
vehicle production increased significantly in 1993 and 1994. Revenues from sales
to aftermarket customers also increased in 1993 and 1994.
Gross Profit
Historical 1994 gross profit as a percentage of revenues ("gross margin")
was not comparable to historical 1993 and 1992 gross margins as 1994 includes
SPT and SP Europe while historical 1993 and 1992 do not include SPT and SP
Europe.
Historical 1994 gross margin of 15.3% was significantly higher than
proforma 1993 and 1992 gross margins of 11.3% and 11.5%. The primary reason for
this increase was the significant increase in production volumes and
productivity associated with the higher revenues. Proforma 1993 gross margin was
negatively impacted by $5 million or 1.1% of revenues due to costs relating to a
strike at a foundry, costs associated with closing that foundry and an
adjustment to writedown manufacturing assets used in the production of a product
line that was discontinued. Proforma 1992 gross margin was negatively impacted
by start-up expenses at a new die-casting facility.
Selling, General, & Administrative Expense
Historical 1994 selling, general and administrative expense was not
comparable to historical 1993 and 1992 SG&A as 1994 includes SPT and SP Europe
while historical 1993 and 1992 do not include SPT and SP Europe.
Historical 1994 SG&A as a percentage of revenues decreased from proforma
1993 and 1992 levels due primarily to the increased revenues. Proforma 1993 SG&A
was also higher due to costs incurred to downsize and reconfigure operations of
SP Europe.
18
<PAGE> 20
Goodwill and Intangible Amortization
Historical 1994 goodwill and intangible amortization was a result of the
excess purchase price over fair value of the assets recorded upon the
acquisition of 51% of SPT at the end of 1993.
Minority Interest (Income)
Historical 1994 results reflect the 30% partners' minority interest in SP
Europe. SP Europe incurred a significant loss in 1994 and proforma 1993 and
1992. The company has substantially reconfigured SP Europe's operations by
implementing many cost reductions and productivity enhancements. Management
believes that the recovering European vehicle production market, when combined
with these cost reductions and productivity enhancements, will reduce operating
losses in the next few years.
Earnings from Equity Interests
Earnings from equity interests include the company's equity share of
earnings or losses in RSV, Promec, IBS Filtran and Allied Ring Corporation
("ARC"). Promec, IBS Filtran and ARC interests were acquired as part of the
company's purchase of 51% of SPT at the end of 1993. Through the end of 1993,
RSV, IBS Filtran and ARC were in various stages of development and were
incurring losses. In 1994, IBS Filtran and ARC generated operating profits. RSV
continues in the development phase of operations.
SPT Equity Losses and SP Europe Equity Losses
SPT and SP Europe were consolidated as of December 31, 1993. These amounts
reflect the company's equity losses in these units prior to the consolidation.
Operating Income (Loss)
Historical 1994 operating income was not comparable to historical 1993 and
1992 operating income (loss) as 1994 includes SPT and SP Europe while historical
1993 and 1992 do not include SPT and SP Europe.
Historical 1994 operating income exceeds proforma 1993 and 1992 operating
income principally from the significant increase in revenues. Additionally, cost
reduction efforts, including the charges in proforma 1993 to writeoff
nonproductive capacity, have benefited 1994. Cost reductions and revenue
improvements continued at SP Europe which reduced the losses from proforma 1993
and 1992 levels.
Capital Expenditures
Capital expenditures for 1994 of $35.9 million were approximately $12
million higher than in proforma 1993 due to the purchase of an additional
solenoid valve assembly line, additional die-casting capacity for high strength
heat treated aluminum die-castings for air bag steering columns, additional
hydraulic lash adjuster capacity, significant additional automated cylinder
sleeve casting and machining capacity to meet the demand for aluminum block
engines and productivity enhancing equipment. Management estimates that annual
capital expenditures of approximately $15 million are required to maintain the
company's original equipment component operations. 1995 capital expenditures are
expected to approximate $30 million and will be focused upon new business
opportunities and productivity enhancements.
Identifiable Assets
Identifiable assets increased approximately $24 million over 1993 due to
increases in accounts receivable and property, plant and equipment. The increase
in accounts receivable was due to much higher revenue activity in the fourth
quarter of 1994 when compared to the fourth quarter of 1993. The increase in
property, plant and equipment was the result of significant capital expenditures
in 1994 as discussed above.
19
<PAGE> 21
SPX CREDIT CORPORATION:
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
---------------------- ------------
1994 1993 1992 1993 1992
----- ----- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $12.8 $ 9.0 $ -- $15.7 $16.7
Operating income................................ 7.4 5.5 -- 9.7 12.0
Identifiable assets............................. 84.0 85.2 -- N/A N/A
</TABLE>
SPX Credit Corporation provides leasing alternatives to customers
purchasing higher dollar electronic diagnostic, gas emissions and wheel service
equipment. This operation was formed as a part of the acquisition of Allen Group
Leasing in June of 1993. Revenues represent lease finance income using the
direct financing method of accounting for leases. 1994 revenues are higher than
1993 as 1993 reflects only seven months of activity. 1994 revenues are lower
than proforma 1993 and 1992 as those years included higher leasing levels and
included gains on the sale of portions of the lease portfolio to third parties.
Since the acquisition of Allen Group Leasing in June 1993, the company has not
sold any leases to third parties.
Operating income does not include any interest expense. The comparative
level of operating income is reflective of the size of the lease portfolio and
operating expenses have been relatively constant between years.
BUSINESSES SOLD IN 1993:
<TABLE>
<CAPTION>
HISTORICAL
------------------------
1994 1993 1992
---- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues..................................................... $ -- $216.9 $246.4
Operating income............................................. -- 25.2 22.4
Capital expenditures......................................... -- 6.4 9.6
Depreciation and amort....................................... -- 7.5 8.4
Identifiable assets.......................................... -- -- 110.5
</TABLE>
Businesses sold in the fourth quarter of 1993, SPR and Truth, are
summarized here. During the fourth quarter of 1993, the company recorded a
$105.4 million pretax gain on the sale of these businesses. The results of these
operations are included in the consolidated results of operations through their
dates of divestiture.
FACTORS THAT MAY AFFECT FUTURE RESULTS
General Business Conditions -- The company operates within the motor
vehicle industry and future results may be affected by a number of factors
including industry conditions, economic conditions in principally the U.S. and
Europe, and the economic strength of motor vehicle dealerships. The majority of
the company's revenues are not subject to seasonal variation. Revenues within
the Original Equipment Component segment are predominantly dependent upon
domestic and foreign motor vehicle production which is cyclical and dependent on
general economic conditions and other factors. Revenues within the Specialty
Service Tool segment are dependent upon new vehicle introductions and the
general economic status of motor vehicle dealerships and aftermarket maintenance
facilities. These factors can, therefore, affect the company's working capital
requirements. However, as the company receives production forecasts from
original equipment manufacturers and is knowledgeable about new vehicle
introductions, it is able to anticipate and manage these requirements.
Impact of the Clean Air Act and Other Environmental Regulations -- Recent
laws to limit the discharge of environmentally harmful substances from motor
vehicles have brought many new opportunities for the company. For example, the
company has been a leader in the production of equipment for recycling and
recovery of refrigerants. The requirement of the Federal Clean Air Act for
enhanced testing of motor vehicle emissions within certain states has also
provided the company with an excellent opportunity for sales of equipment used
to repair vehicles that fail a state emissions inspection. Anticipated demand
for those products must, however, be tempered by the possibility of substantial
delays in implementation of individual state
20
<PAGE> 22
inspection programs. Additionally, should the U.S. Congress choose to amend the
applicable provisions of the Clean Air Act, or the states choose to revoke plans
for vehicle emissions inspections, the incremental benefit of these sales of
emissions testing equipment could be significantly impacted.
Historically, the company has obtained significant sales from refrigerant
recovery and recycling systems, electronic diagnostic equipment and gas
emissions equipment that were generally driven by such regulations. The company
believes that recent delays in implementing Federally mandated emissions testing
programs could represent a threat to the future incremental profitability or
growth of the business. However, assuming the programs proceed as currently
announced, the company believes it will share in this market, the total value of
which is estimated to be approximately $1 billion over the next four to five
years.
Equity Offering -- The company continuously reviews its capital structure
and is considering accessing the equity market for additional capital stock when
financial market conditions are appropriate. This would favorably impact the
company's capital structure and enhance financial flexibility. As of this
filing, no date or number of shares has been established for such action.
Financial Leverage of the Company -- As a result of the 1993 acquisition
activity and the refinancing completed in 1994, the company is highly leveraged
with indebtedness. Should economic and general business conditions deteriorate
and impact the company's business activity, thereby creating increased borrowing
costs, the company might not be able to adequately service its indebtedness or
maintain current dividend levels.
Impact of Inflation -- The company believes that inflation has not had a
significant impact on operations during the period 1992 through 1994 in any of
the countries in which the company operates.
Acquisitions and Divestitures -- After the acquisition and divestiture
activity in 1993, management does not foresee any significant acquisitions at
this time. Flexibility is available under the company's new revolving credit
facility to allow for strategically oriented acquisitions to directly complement
the company's existing businesses. The company does continue to review such
opportunities.
SP Europe -- SP Europe has sustained significant operating losses since its
creation in 1991. The company has invested in productivity enhancements and cost
reductions and believes that the business is positioned to generate profits in
the future. The European motor vehicle industry has also been depressed over the
past several years, but is now recovering. Additionally, the company's 30%
partner in SP Europe is currently studying its future participation in the
business and will decide its extent of participation by the third quarter of
1995. Should the partner choose to limit its participation, the company could be
required to recognize a portion of losses previously attributed to the partner.
These losses are currently included as "Minority Interest" in the equity section
of the consolidated balance sheets.
Automotive Diagnostics Goodwill -- At December 31, 1994, $71.3 million of
goodwill relates to the Automotive Diagnostics division (which is composed of
Bear Automotive and Allen Testproducts, which was acquired in 1993). This
division has incurred significant operating losses in 1994 and in prior years.
The company projects that, in the near future, the cost savings, market
synergies and other factors which, in part, will be realized from the Bear
Automotive and Allen Testproducts combination will result in non-discounted
operating income sufficient to exceed goodwill amortization. However, should
such projections require downward revision based on changed events or
circumstances, this division's goodwill may require writedown. Although having
no cash flow impact, the resulting charge, if any, could materially reduce the
company's future reported results of operations and shareholders' equity. At
this time, based upon present information, projections and strategic plans, the
company has concluded that there has been no permanent impairment of the
Automotive Diagnostic division's tangible or intangible assets.
Environmental -- The company's operations and properties are subject to
federal, state and local regulatory requirements relating to environmental
protection. It is the company's policy to comply fully with all such applicable
requirements. As part of its effort to comply, management has established an
ongoing internal compliance auditing program which has been in place since 1989.
Based on current information, management believes that the company's operations
are in substantial compliance with applicable environmental laws and regulations
and the company is not aware of any violation that could have a material adverse
effect on the business, financial conditions, or results of operations of the
company. There can be no assurance,
21
<PAGE> 23
however, that currently unknown matters, new laws and regulations, or stricter
interpretations of existing laws and regulations will not materially affect the
company's business or operations in the future. See Note 17 of the consolidated
financial statements for further discussion.
Actuarial Discount Rate -- At year end 1994, the company increased the
discount rate used for computation of pension and other postretirement benefits
to 8.25% from the previous 7.5%. This assumption change had no effect on 1994
results of operations, but will decrease expense in the future. The company does
not expect the decrease to be material as certain other actuarial assumptions,
including salary growth and medical trend rates, were also modified to reflect
current experience. The future discount rate is subject to change as long term
interest rates and other factors warrant.
Foreign Net Operating Loss Carryforwards -- The company has foreign net
operating loss carryforwards ("NOLs") of approximately $37.1 million as of
December 31, 1994. These NOLs are available to offset applicable future foreign
taxable income and predominately expire in years after 1996. These NOLs have
been fully reserved in the valuation allowance due to uncertainty regarding the
ability to utilize these tax assets.
Accounting Pronouncements -- As of the beginning of 1994, the company
adopted Statement of Financial Accounting Standards, No. 112, "Employers'
Accounting for Postemployment Benefits". This standard requires that the cost of
benefits provided to former or inactive employees be recognized on the accrual
basis of accounting. The company's analysis is that the provisions of this
statement are not material to its financial position or results of operations.
LIQUIDITY AND FINANCIAL CONDITION
The company's liquidity needs arise primarily from capital investment in
new equipment, funding working capital requirements and to meet interest costs.
As a result of the acquisition and divestiture activity in 1993, the
company is highly leveraged. This financial leverage will require management to
focus on cash flows to meet higher interest costs and to maintain dividends.
Management believes that operations and the credit arrangements established in
1994 will be sufficient to supply 1995 funds needed by the company.
Management believes that improvements to operations accomplished in 1993,
coupled with completion of other cost reduction activities begun in 1993 and
continuing into 1994 and thereafter, will significantly improve the cash flows
of the company.
Cash Flow
<TABLE>
<CAPTION>
YEAR
---------------------------
1994 1993 1992
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities....................... $ 35.8 $ 25.3 $ 67.5
Cash flows from investing activities....................... (85.0) 44.3 (24.9)
Cash flows from financing activities....................... (55.8) 38.9 (43.2)
Effect of exchange rate changes............................ (3.0) (.4) (.8)
------- ------ ------
Net cash flow......................................... $(108.0) $108.1 $ (1.4)
======= ====== ======
</TABLE>
1994 operating cash flow was positively impacted by the improved operating
income, inventory reductions of $10.7 million principally from inventory
consolidation at Automotive Diagnostics, and significantly higher accounts
payable levels due to year-end purchasing activity (particularly capital
expenditures). 1994 operating cash flow was reduced due to the $7 million
(including interest) settlement with the U.S. Internal Revenue Service to
resolve a dispute regarding the company's tax deferred treatment of the 1989
transaction in which several operating units were contributed to SPT. 1994
operating cash flow was also reduced due to cash outflows related to the
restructuring combination of Bear Automotive and Allen Testproducts ($12.5
million).
1994 cash flows from investing activities reflect high capital expenditures
and the payment to Riken to purchase the additional ownership of SPT. The
capital expenditure level was anticipated as significant
22
<PAGE> 24
investments were made to expand manufacturing capacity, including cylinder
sleeves, die-casting, and other new business opportunities. 1995 capital
expenditures are planned to approximate $40 million as the company continues its
capacity expansion and productivity improvements. 1993 cash flows from investing
activities reflect the net proceeds from the divestiture of SPR and Truth of
approximately $189 million and purchase of Allen Testproducts and Allen Group
Leasing for approximately $102 million. In addition, 1993 includes $19.9 million
of advances to SP Europe prior to it being consolidated into the balance sheet.
1994 cash flows from financing activities reflect the changes in the
company's debt structure resulting from the debt refinancing that occurred in
the first half of 1994. The overall net reduction of debt, $16.5 million, as
well as the payments made for the costs of debt restructuring, were accomplished
utilizing December 31, 1993 cash balances.
The resulting $108 million in 1994 cash outflow is reflected by the
reduction of the year-end cash and temporary investment balance.
Capitalization
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
ACTUAL
---------------- PROFORMA
1994 1993 1993
------ ------ ---------
(IN MILLIONS)
<S> <C> <C> <C>
Notes payable and current maturities of long-term debt.... $ 1.1 $ 94.0 $ 0.0
Long-term debt............................................ 414.1 336.2 410.2
------ ------ --------
Total Debt...................................... $415.2 $430.2 $ 410.2
Shareholders' equity...................................... 158.7 145.4 145.4
------ ------ --------
Total Capitalization...................................... $573.9 $575.6 $ 555.6
====== ====== =======
Total debt to capitalization ratio........................ 72.3% 74.7% 73.8%
</TABLE>
At December 31, 1994, the company's total debt was comprised primarily of
borrowings on its $225 million revolving credit facility obtained in March of
1994 and its $260 million of 11 3/4% senior subordinated notes issued during the
second quarter of 1994. Virtually all debt outstanding at the end of 1993 was
extinguished during the first six months of 1994. At December 31, 1994, the
weighted average interest rate on outstanding revolving credit borrowing was
6.89%. The company has two interest rate cap agreements which limit the interest
rate to 8.0% on $75 million of revolving credit borrowings. These agreements
expire in 1996.
As of December 31, 1994, the following summarizes the debt outstanding and
unused credit availability:
<TABLE>
<CAPTION>
TOTAL AMOUNT UNUSED CREDIT
COMMITMENT OUTSTANDING AVAILABILITY
---------- ----------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Revolving credit................................. $225.0 $ 125.0 $83.9(a)
Swingline loan facility.......................... 5.0 -- 5.0
Senior Subordinated Notes........................ 260.0 260.0 --
Industrial Revenue Bonds......................... 15.1 15.1 --
Other............................................ 16.8 15.1 1.7
------ ------- -----
Total.................................. $521.9 $ 415.2 $90.6
====== ======= =====
</TABLE>
- ---------------
(a) Decreased by $16.1 million of facility letters of credit outstanding at
December 31, 1994 which reduce the unused credit availability.
23
<PAGE> 25
At December 31, 1994, the company was in compliance with all restrictive
covenants contained in the revolving credit agreement and the senior
subordinated note indenture. Under the most restrictive of these covenants, the
company is required to:
- Maintain a leverage ratio, as defined, of 78% in 1994, declining on a
graduated scale to 65% in 1999. The leverage ratio at December 31, 1994
was 74%.
- Maintain an interest expense coverage ratio, as defined, of 2:1 or
greater in 1994 rising on a graduated scale to 3.5:1 or greater in 1998
and thereafter. The interest expense coverage ratio at December 31, 1994
was 2.5:1.
- Maintain a fixed charge coverage ratio, as defined, of 1.75:1 or greater
in 1994 and 1995, and 2:1 or greater thereafter. The fixed charge coverage
ratio at December 31, 1994 was 1.84:1.
- Limit dividends to $8 million for the five quarters starting with the
first quarter of 1994, and 10% of operating income plus depreciation and
amortization (EBITDA) thereafter. Dividends for the four quarters ending
December 31, 1994 were $5.1 million.
Covenants also limit capital expenditures, investments and transactions
with affiliates.
Management believes that the unused credit availability is sufficient to
meet operating cash needs including working capital requirements and capital
expenditures planned for 1995. Aggregate future maturities of total debt are not
material for 1995 through 1998 (see Note 18 to the consolidated financial
statements). In 1999, the revolving credit agreement expires and borrowings on
the revolver would become due, however, management believes that the revolving
credit agreement would likely be extended or that alternate financing will be
available to the company.
24
<PAGE> 26
ITEM 8.
SPX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. 26
Consolidated Financial Statements --
Consolidated Balance Sheets -- December 31, 1994 and 1993........................... 27
Consolidated Statements of Income for the three years ended December 31, 1994....... 28
Consolidated Statements of Shareholders' Equity for the three years ended December
31, 1994......................................................................... 29
Consolidated Statements of Cash Flows for the three years ended December 31, 1994... 30
Notes to Consolidated Financial Statements.......................................... 31
Schedules omitted
No schedules are submitted because they are not applicable or not required or
because the required information is included in the consolidated financial
statements or notes thereto.
</TABLE>
25
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
SPX Corporation:
We have audited the accompanying consolidated balance sheets of SPX
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1994
and 1993, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SPX Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, effective
January 1, 1993, the company changed its method of Employee Stock Ownership Plan
(ESOP) accounting and Sealed Power Technologies Limited Partnership changed its
method of accounting for postretirement benefits other than pensions and
effective January 1, 1992, the company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 8, 1995.
26
<PAGE> 28
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments...................................... $ 9,859 $ 117,843
Receivables (Note 10)............................................... 128,544 123,081
Lease finance receivables -- current portion (Note 22).............. 35,026 33,834
Inventories (Note 11)............................................... 151,821 159,223
Deferred income tax asset and refunds (Note 12)..................... 55,843 54,489
Prepaid and other current assets.................................... 25,188 29,726
-------- ----------
Total current assets........................................... $406,281 $ 518,196
INVESTMENTS (Note 13)................................................. 16,363 13,446
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 14)...................... $408,365 $ 367,832
Less: Accumulated depreciation...................................... 193,512 169,687
-------- ----------
Net property, plant and equipment................................ $214,853 $ 198,145
OTHER ASSETS.......................................................... 47,979 39,452
LEASE FINANCE RECEIVABLES -- LONG-TERM (Note 22)...................... 47,042 51,013
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED (Note 15)........ 199,145 204,149
-------- ----------
TOTAL ASSETS.......................................................... $931,663 $1,024,401
======== ==========
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt (Note 18).... $ 1,133 $ 93,975
Accounts payable.................................................... 83,278 62,968
Accrued liabilities (Note 16)....................................... 134,361 229,998
Income taxes payable (Note 12)...................................... 3,100 11,864
-------- ----------
Total current liabilities...................................... $221,872 $ 398,805
LONG-TERM LIABILITIES (Note 9)........................................ 120,641 123,235
DEFERRED INCOME TAXES (Note 12)....................................... 16,376 20,787
COMMITMENTS AND CONTINGENCIES (Note 17)............................... -- --
LONG-TERM DEBT (Note 18).............................................. 414,082 336,187
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, authorized 3,000,000 shares; no
shares issued (Note 21).......................................... -- --
Common stock, $10 par value, authorized 50,000,000 shares; issued
15,647,799 in 1994 and 15,555,835 in 1993 (Note 21).............. 156,478 155,558
Paid in capital..................................................... 58,072 58,926
Retained earnings................................................... 29,411 20,282
-------- ----------
$243,961 $ 234,766
Less: Common stock held in treasury (Note 21)....................... 50,000 50,000
Unearned compensation -- ESOP (Note 9)...................... 31,073 35,900
Minority interest (Note 13)................................. 3,278 1,080
Cumulative translation adjustments.......................... 918 2,399
-------- ----------
Total shareholders' equity..................................... $158,692 $ 145,387
-------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $931,663 $1,024,401
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 29
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
---------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES (Note 3)....................................... $1,092,747 $ 756,145 $801,169
COSTS AND EXPENSES:
Cost of products sold................................. 817,505 508,032 533,169
Selling, general and administrative................... 207,548 207,607 209,945
Goodwill/intangibles amortization..................... 7,767 5,168 5,149
Minority interest (income)............................ (2,198) -- --
Earnings from equity interests........................ (2,692) (178) 162
Restructuring charge (Note 4)......................... -- 27,500 --
SPT equity losses (Note 5)............................ -- 26,845 2,407
SP Europe equity loss (Note 13)....................... -- 21,500 --
---------- --------- --------
OPERATING INCOME (LOSS)................................. $ 64,817 $ (40,329) $ 50,337
Other expense (income), net........................... 32 2,534 1,283
Interest expense, net................................. 40,885 17,882 15,061
(Gain) on sale of businesses (Note 6)................. -- (105,400) --
---------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING METHODS AND EXTRAORDINARY
LOSS.................................................. $ 23,900 $ 44,655 $ 33,993
PROVISION FOR INCOME TAXES (Note 12).................... 9,800 29,455 13,433
---------- --------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHODS AND EXTRAORDINARY LOSS............. $ 14,100 $ 15,200 $ 20,560
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHODS, NET
OF TAXES (Note 2)..................................... -- (31,800) (5,700)
EXTRAORDINARY LOSS, NET OF TAXES (Note 8)............... -- (24,000) --
---------- --------- --------
NET INCOME (LOSS)....................................... $ 14,100 $ (40,600) $ 14,860
========== ========= ========
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Before cumulative effect of change in accounting
methods and extraordinary loss..................... $ 1.10 $ 1.20 $ 1.48
Cumulative effect of change in accounting methods, net
of taxes........................................... -- (2.52) (0.41)
Extraordinary loss, net of taxes...................... -- (1.90) --
---------- --------- --------
Net income (loss)..................................... $ 1.10 $ (3.22) $ 1.07
========== ========= ========
Weighted average number of common shares outstanding
(Notes 1 and 21)...................................... 12,805 12,604 13,856
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 30
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK $10 PAID IN RETAINED
PAR VALUE CAPITAL EARNINGS OTHER
--------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991........................... $ 154,705 $60,008 $ 56,214 $(90,238)
Net income......................................... -- -- 14,860 --
Cash dividends ($.40 per share).................... -- -- (5,541) --
Net shares sold under stock option plans........... 655 191 -- --
Earned ESOP shares................................. -- -- -- 2,044
Tax benefit on dividends paid to ESOP trust........ -- -- 199 --
Translation adjustment............................. -- -- -- (7,742)
Vesting of restricted stock........................ -- -- -- 135
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1992........................... $ 155,360 $60,199 $ 65,732 $(95,801)
Net loss........................................... -- -- (40,600) --
Cash dividends ($.40 per share).................... -- -- (5,040) --
Net shares sold under stock option plans........... 198 82 -- --
Earned ESOP shares................................. -- (1,355) -- 3,046
Tax benefit on dividends paid to ESOP trust........ -- -- 190 --
Minority interest in SP Europe..................... -- -- -- (1,080)
Translation adjustment............................. -- -- -- (779)
Cumulative effect of change in ESOP accounting
method, net of taxes (Note 2)................... -- -- -- 5,100
Vesting of restricted stock........................ -- -- -- 135
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1993........................... $ 155,558 $58,926 $ 20,282 $(89,379)
Net income......................................... -- -- 14,100 --
Cash dividends ($.40 per share).................... -- -- (5,131) --
Net shares sold under stock option plans........... 920 390 -- --
Earned ESOP shares................................. -- (1,244) -- 4,692
Tax benefit on dividends paid to ESOP trust........ -- -- 160 --
Minority interest in SP Europe..................... -- -- -- (2,198)
Translation adjustment............................. -- -- -- 1,481
Vesting of restricted stock........................ -- -- -- 135
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1994........................... $ 156,478 $58,072 $ 29,411 $(85,269)
========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 31
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operating activities................. $ 14,100 $ (40,600) $ 14,860
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities --
Cumulative effect of change in accounting methods......... -- 31,800 5,700
Extraordinary loss........................................ -- 24,000 --
Depreciation and amortization............................. 38,515 24,370 25,277
(Earnings) loss from equity interests..................... (2,692) 48,167 2,569
Increase (decrease) in deferred income taxes.............. (5,765) (15,306) 7,644
Increase in receivables................................... (2,561) (15,523) (1,061)
Decrease in inventories................................... 10,743 11,609 2,560
(Increase) decrease in prepaid assets..................... 4,836 2,136 (1,380)
Increase (decrease) in accounts payable................... 19,509 (1,623) 3,945
Decrease in accrued liabilities........................... (28,164) (7,238) (787)
Increase (decrease) in income taxes payable............... (9,247) 4,529 4,457
(Increase) decrease in lease finance receivables.......... 2,725 (9,154) --
Gain on sale of businesses, net of taxes.................. -- (64,200) --
Restructuring and special charges......................... -- 27,500 --
Increase (decrease) in long-term liabilities.............. (2,594) 6,803 2,131
Other, net................................................ (3,612) (1,985) 1,574
--------- --------- --------
Net cash provided by operating activities................. $ 35,793 $ 25,285 $ 67,489
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliates.................................. $ -- $ (19,900) $ (5,735)
Payments for purchase of businesses....................... (39,000) (108,971) --
Net proceeds from sale of businesses...................... -- 189,078 --
Capital expenditures...................................... (48,451) (15,116) (20,351)
Sale of property, plant and equipment, net................ 2,422 (797) 1,169
--------- --------- --------
Net cash provided (used) for investing activities......... $ (85,029) $ 44,294 $(24,917)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings -- revolving credit agreement... $ 95,000 $ (17,000) $(19,000)
Long-term borrowings...................................... 260,000 19,937 --
Payment of debt........................................... (278,272) (12,207) (16,544)
Increase (decrease) in notes payable and current
maturities
of long-term debt...................................... (93,214) 53,283 (2,141)
Payment of fees related to debt restructuring............. (34,170) -- --
Dividends paid............................................ (5,131) (5,040) (5,541)
--------- --------- --------
Net cash provided (used) for financing activities......... $ (55,787) $ 38,973 $(43,226)
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (2,961) (438) (757)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS... $(107,984) $ 108,114 $ (1,411)
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD......... $ 117,843 $ 9,729 $ 11,140
--------- --------- --------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD............... $ 9,859 $ 117,843 $ 9,729
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash payments for interest................................ $ 40,260 $ 18,347 $ 16,124
Cash payments, net, for income taxes...................... $ 23,992 $ 40,454 $ 110
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 32
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The accounting and financial policies which affect significant elements of
the consolidated financial statements of SPX Corporation (the "company") and
which are not apparent on the face of the statements, or in other notes to the
consolidated financial statements, are described below.
Consolidation -- The consolidated financial statements include the accounts
of the company and all of its majority-owned subsidiaries after the
elimination of all significant intercompany accounts and transactions.
Amounts representing the company's percentage interest in the underlying
net assets of less than majority-owned companies in which a significant
equity ownership interest is held are included in "Investments".
Foreign Currency Translation -- Translation of significant subsidiaries
results in unrealized translation adjustments being reflected as cumulative
translation adjustment in shareholders' equity.
Revenue Recognition -- The company recognizes revenues from product sales
upon shipment to the customer. Revenue from service contracts and long-term
maintenance arrangements is deferred and is recognized as revenue on a pro
rata basis over the agreement periods. The company's lease financing
operation, SPX Credit Corporation, uses the direct financing method of
accounting for leases. Under this method, the excess of future lease
payments and estimated residual value over the purchase price of equipment
leased is recorded as unearned income and is recognized over the life of
the lease by the effective interest method.
Research and Development Costs -- The company expenses currently all costs
for development of products. Research and development costs were $26.4
million in 1994, $17.6 million in 1993, and $14.7 million in 1992.
Environmental Remediation Costs -- Costs incurred to investigate and
remediate environmental conservation issues are expensed unless the costs
incurred extend the economic useful life of related assets employed by the
company. Liabilities are recorded and expenses are reported when it is
probable that an obligation has been incurred and the amounts can be
reasonably estimated.
Earnings Per Share -- Primary earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding.
Common shares outstanding includes issued shares less shares held in
treasury and unallocated and uncommitted shares held by the ESOP trust. The
exclusion of unallocated and uncommitted shares held by the ESOP trust in
1994 and 1993 is due to the company's adoption of Statement of Position
93-06 (see Note 2). Prior to 1993, unallocated and uncommitted shares held
by the ESOP trust were included in weighted average number of common shares
outstanding used for calculating earnings per share. Average weighted
unallocated and uncommitted shares in the ESOP trust were 1,361,000 shares
at the end of 1992. The potential dilutive effect from the exercise of
stock options is not material.
Property, Plant and Equipment -- The company uses principally the straight
line method for computing depreciation expense over the useful lives of the
property, plant and equipment. For income tax purposes, the company uses
accelerated methods where permitted. Asset additions and improvements are
added to the property accounts while maintenance and repairs, which do not
renew or extend the lives of the respective assets, are expensed currently.
Upon sale or retirement of depreciable properties, the related cost and
accumulated depreciation are removed from the property accounts. The net
gain or loss on disposition of property is reflected in income.
Derivatives -- Premiums paid for purchased interest rate cap agreements are
amortized to interest expense over the terms of the caps. Unamortized
premiums are included in other assets in the
31
<PAGE> 33
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
consolidated balance sheets. Amounts receivable under cap agreements, if
any, are accrued as a reduction of interest expense. Gains and losses
related to qualifying hedges of firm commitments or anticipated
transactions are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs.
Reclassifications -- Certain 1993 and 1992 amounts have been reclassified
to conform to the 1994 presentation.
(2) CHANGES IN ACCOUNTING METHODS
In 1993 and 1992, the company adopted three new accounting methods relating
to its Employee Stock Ownership Plan ("ESOP"), postretirement benefits, and
income taxes. The effect of the change to these new accounting methods have been
reflected in the consolidated statements of income as "Cumulative effect of
change in accounting methods".
Effective January 1, 1993, the company elected to adopt new accounting for
its ESOP in accordance with Statement of Position 93-6 of the Accounting
Standards Division of the American Institute of Certified Public Accountants,
issued in November of 1993. As part of this change, the company recorded a one
time cumulative charge of $5.1 million pretax, or $3.3 million aftertax. This
charge recognizes the cumulative difference of expense since the inception of
the ESOP until January 1, 1993 to reflect the shares allocated method of
accounting for ESOPs.
Effective January 1, 1993, SPT adopted Statement of Financial Accounting
Standards (SFAS) No. 106 -- "Employers' Accounting for Postretirement Benefits
Other Than Pensions", using the immediate recognition transition option. SFAS
No. 106 requires recognition, during the employees' service with the company, of
the cost of their retiree health and life insurance benefits. At that date, the
full accumulated postretirement benefit obligation was $89.5 million pretax. The
company recorded its 49% share of this transition obligation, $28.5 million, net
of deferred taxes of $15.4 million in the first quarter.
Effective January 1, 1992, the company adopted SFAS No. 106 using the
immediate recognition transition option. At January 1, 1992, the accumulated
postretirement benefit obligation was $16.8 million and was recorded as a pretax
transition obligation. The decrease in net earnings and shareholders' equity was
$10.7 million after a deferred tax benefit of $6.1 million.
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes". Under SFAS
No. 109, deferred tax balances are stated at tax rates expected to be in effect
when taxes are actually paid or recovered. The cumulative effect of adoption as
of January 1, 1992 was a $5.0 million aftertax benefit.
As of the beginning of 1994, the company adopted Statement of Financial
Accounting Standards, No. 112, "Employers' Accounting for Postemployment
Benefits". This standard requires that the cost of benefits provided to former
or inactive employees be recognized on the accrual basis of accounting. The
company's analysis is that the provisions of this statement are not material to
its financial position or results of operations.
(3) SEGMENT AND GEOGRAPHIC INFORMATION
The company is comprised of three business segments. Specialty Service
Tools includes operations that design, manufacture and market a wide range of
specialty service tools and diagnostic equipment primarily to the global motor
vehicle industry. Original Equipment Components includes operations that design,
manufacture and market component parts for light and heavy duty vehicle markets.
SPX Credit Corporation, a lease
32
<PAGE> 34
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
financing operation, provides Specialty Service Tool customers with a leasing
option for purchasing more expensive diagnostic testing, emission testing, and
wheel service equipment.
<TABLE>
<CAPTION>
BUSINESS SEGMENTS 1994 1993 1992
- ----------------------------------------------------------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Specialty Service Tools.................................. $ 550,557 $ 503,600 $539,619
Original Equipment Components............................ 529,313 26,657 15,154
SPX Credit Corporation................................... 12,877 8,974 --
Businesses sold in 1993.................................. -- 216,914 246,396
---------- ---------- --------
Total............................................ $1,092,747 $ 756,145 $801,169
========== ========== ========
Operating income (loss):
Specialty Service Tools (a).............................. $ 29,408 $ (10,913) $ 51,804
Original Equipment Components (b)........................ 48,038 (46,816) (7,053)
SPX Credit Corporation................................... 7,361 5,483 --
Businesses sold in 1993.................................. -- 25,249 22,360
General Corporate expenses............................... (19,990) (13,332) (16,774)
---------- ---------- --------
Total............................................ $ 64,817 $ (40,329) $ 50,337
========== ========== ========
Capital expenditures:
Specialty Service Tools.................................. $ 10,616 $ 7,479 $ 6,823
Original Equipment Components............................ 35,856 1,014 3,944
SPX Credit Corporation................................... 53 -- --
Businesses sold in 1993.................................. -- 6,439 9,584
General Corporate........................................ 1,926 184 --
---------- ---------- --------
Total............................................ $ 48,451 $ 15,116 $ 20,351
========== ========== ========
Depreciation and amortization:
Specialty Service Tools.................................. $ 14,420 $ 14,485 $ 14,960
Original Equipment Components............................ 22,760 1,796 1,487
SPX Credit Corporation................................... 38 -- --
Businesses sold in 1993.................................. -- 7,462 8,383
General Corporate........................................ 1,297 627 447
---------- ---------- --------
Total............................................ $ 38,515 $ 24,370 $ 25,277
========== ========== ========
Identifiable assets:
Specialty Service Tools.................................. $ 397,920 $ 409,237 $347,763
Original Equipment Components............................ 367,871 343,816 21,771
SPX Credit Corporation................................... 84,048 85,165 --
Businesses sold in 1993.................................. -- -- 110,450
General Corporate (c).................................... 81,824 186,183 80,344
---------- ---------- --------
Total............................................ $ 931,663 $1,024,401 $560,328
========== ========== ========
</TABLE>
- ---------------
(a) 1993 includes a $27.5 million restructuring charge to merge Allen
Testproducts and Bear Automotive into Automotive Diagnostics.
(b) 1993 includes $26.9 million of SPT equity losses and $21.5 million of SP
Europe equity losses.
(c) Decrease in 1994 was primarily due to the use of $108.1 million in cash to
purchase SPT and to complete the debt refinancing in 1994.
33
<PAGE> 35
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Revenues by business segment represent sales to unconsolidated customers.
Intercompany sales between segments are not significant. Operating income (loss)
by segment does not include general unallocated corporate expense, other expense
(income), net, interest expense, income taxes and extraordinary items.
Identifiable assets by business segment are those used in company
operations in each segment. General corporate assets are principally cash,
deferred tax assets, and certain prepaid expenses.
Information about the company's operations in different geographic areas is
as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS 1994 1993 1992
- ------------------------------------------------------------ --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues -- Unaffiliated customers:
United States (a)......................................... $ 927,948 $ 637,143 $679,875
Other North America....................................... 11,444 21,719 24,593
Other..................................................... 153,355 97,283 96,701
--------- ---------- --------
Total............................................. $1,092,747 $ 756,145 $801,169
========= ========== ========
Revenues -- Between affiliated customers:
United States............................................. $ 26,903 $ 34,934 $ 33,757
Other North America....................................... 134 -- --
Other..................................................... 817 1,708 312
Eliminations.............................................. (27,854) (36,642) (34,069)
--------- ---------- --------
Total............................................. $ -- $ -- $ --
========= ========== ========
Operating income (loss):
United States (b)......................................... $ 65,108 $ (17,015) $ 48,587
Other North America....................................... 545 (192) 1,878
Other (c)................................................. (836) (23,122) (128)
--------- ---------- --------
Total............................................. $ 64,817 $ (40,329) $ 50,337
========= ========== ========
Total assets:
United States............................................. $ 786,065 $ 893,172 $466,995
Other North America....................................... 7,875 8,591 10,121
Other (d)................................................. 137,723 122,638 83,212
--------- ---------- --------
Total............................................. $ 931,663 $1,024,401 $560,328
========= ========== ========
</TABLE>
- ---------------
(a) Included in the United States revenues are export sales to unconsolidated
customers of $95.7 million in 1994, $74.4 million in 1993 and $64.0 million
in 1992.
(b) 1993 includes a $27.5 million restructuring charge to merge Allen
Testproducts and Bear Automotive into Automotive Diagnostics and $26.9
million of SPT equity losses.
(c) 1993 includes $21.5 million of SP Europe equity losses.
(d) 1993 includes assets resulting from the consolidation of SP Europe and
assets acquired in the Lowener purchase.
Approximately 16% in 1994, 9% in 1993 and 13% in 1992 of the company's
consolidated sales were made to General Motors Corporation and its various
divisions, dealers and distributors. Approximately 12% in 1994, 2% in 1993 and
1% in 1992 of the company's consolidated sales were made to Ford Motor Company
and its various divisions, dealers and distributors. Approximately 7% in 1994,
6% in 1993 and 2% in 1992 of the
34
<PAGE> 36
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
company's consolidated sales were made to Chrysler Corporation and its various
divisions, dealers and distributors. No other customer or group of customers
under common control accounted for more than 10% of consolidated sales for any
of these years.
On a proforma basis, approximately 17%, 10% and 8% of consolidated sales
were to General Motors, Ford and Chrysler in 1993, respectively, and were
approximately 19%, 8% and 4% of consolidated sales in 1992.
(4) ACQUISITION OF ALLEN TESTPRODUCTS AND ALLEN GROUP LEASING AND
RELATED RESTRUCTURING
On June 10, 1993, the company acquired the Allen Testproducts division
("ATP") and its related leasing company, Allen Group Leasing ("AGL"), from the
Allen Group, Inc. for $102 million. ATP is a manufacturer and marketer of
vehicular test and service equipment. This acquisition has been recorded using
the purchase method of accounting, and the results of ATP and AGL have been
included in the company's consolidated statement of income since June 10, 1993.
The purchase price has been allocated to the fair values of the net assets of
ATP and AGL. The excess of the purchase price over the estimated fair value of
the net assets acquired of $16.3 million has been recorded as costs in excess of
net assets acquired and is being amortized over the remaining life of goodwill
from the 1988 acquisition of Bear Automotive (approximately 35 years). The
purchase price allocation was as follows (in millions of dollars):
<TABLE>
<S> <C>
Current assets......................................................... $ 37.7
Property, plant & equipment............................................ 7.5
Leasing assets......................................................... 75.8
Cost in excess of net assets acquired.................................. 16.3
Liabilities............................................................ (35.3)
------
Total........................................................ $102.0
======
</TABLE>
The acquired businesses have been merged with the company's Bear Automotive
division to form a single business unit called Automotive Diagnostics. In the
third quarter of 1993, the company recorded a pretax $27.5 million restructuring
charge ($18.5 million aftertax) to provide for substantial reduction in
workforce and facilities related to the merger. Of the $27.5 million
restructuring charge, approximately $16 million relates to workforce reductions
and associated costs. The combined businesses started with approximately 2,200
employees which was reduced to approximately 1,600 employees at the end of the
reduction program (second quarter of 1994). The charge also included $9.3
million of facility duplication and shutdown costs, including the writedown of
excess assets of $4.2 million (non-cash). The remaining balance of the
restructuring reserve at December 31, 1994 was $2.0 and was principally required
for payments to former employees and facility closing costs.
(5) ACQUISITION -- SEALED POWER TECHNOLOGIES LIMITED PARTNERSHIP ("SPT")
Effective December 31, 1993, the company acquired Riken Corporation's 49%
and management's 2% interests in SPT for $39 million and $2.7 million,
respectively. The company previously owned 49% of SPT. Accordingly, the net
assets of SPT have been included in the accompanying consolidated balance sheet
as of December 31, 1993. Prior to this acquisition, the company accounted for
its investment using the equity method. Beginning in the first quarter of 1994,
results of operations of SPT are reflected in the consolidated statements of
income and cash flows.
SPT was created in 1989 when the company contributed the Sealed Power,
Contech, Filtran and Hy-Lift divisions to the newly created limited partnership.
SPT obtained nonrecourse financing through a combination of bank debt and a
public offering of subordinated debentures. In exchange for the net assets of
the divisions
35
<PAGE> 37
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
contributed, the company received $245 million from the partnership and a 49%
interest in the partnership. As the debt incurred by SPT to fund this
transaction was nonrecourse to the company, the company previously recorded a
pretax $91 million gain in 1989, in accordance with guidance prescribed by
Emerging Issues Task Force pronouncement 89-7. The cash distribution to the
company resulted in an initial partnership capital deficit. SPT had cumulative
losses since its inception and, up to December 31, 1993, the company had carried
its investment in SPT at zero. Because the SPT debt was nonrecourse, the company
properly did not reflect its share of the equity losses of SPT and did not
amortize the difference between its investment balance and its share of SPT's
initial partnership capital deficit in its previously reported financial
statements.
As a result of the acquisition of the remaining 51% of SPT, as of December
31, 1993, the company accounted for this transaction as follows:
1. The company recorded this acquisition using step acquisition accounting.
Step acquisition accounting requires that when the company previously
did not record its share of SPT's losses because the company's
investment was zero and now, as a result of additional ownership,
consolidates SPT, the company must retroactively reflect its share of
SPT losses not previously recorded. Accordingly, the financial
statements for the 1993 quarters and prior years were restated to record
the company's previous 49% share of SPT's income or losses, the effect
of amortizing the difference between its investment balance and its
share of SPT's initial partnership capital deficit and an adjustment
required to record the company's previous investment in SPT at
historical cost.
2. The 51% of SPT's net assets acquired has been included in the
accompanying consolidated balance sheet at December 31, 1993 at
estimated fair values. The excess of the purchase price (including the
acquired equity deficit of $87.9 million) over the estimated fair values
of the net assets acquired was $97.1 million and has been recorded as
costs in excess of net assets acquired and will be amortized over 40
years.
A summary of the purchase price allocation is as follows:
<TABLE>
<CAPTION>
EXISTING ACQUIRED
49% 51% TOTAL
-------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Current assets...................................... $ 37.5 $ 39.2 $ 76.7
Property, plant and equipment....................... 44.8 66.6 111.4
Other assets........................................ 6.7 7.0 13.7
Cost in excess of net assets acquired............... -- 97.1 97.1
Current liabilities................................. (26.2) (27.2) (53.4)
Deferred income taxes............................... -- 16.0 16.0
Long term liabilities............................... (47.7) (49.8) (97.5)
Debt................................................ (103.0) (107.2) (210.2)
-------- -------- -------
Subtotal....................................... (87.9) 41.7 (46.2)
SPT equity losses in excess of investment*.......... -- 87.9
-------- -------
Purchase Price................................. $ 41.7 $ 41.7
======== =======
</TABLE>
- ---------------
* Represents the cumulative restatement of equity losses, including the
company's 49% share of the 1993 SPT adoption of SFAS No. 106, recorded by the
company prior to the consolidation of the net assets of SPT at December 31,
1993.
(6) DIVESTITURES
Sealed Power Replacement ("SPR") -- On October 22, 1993, the company sold
SPR to Federal-Mogul Corporation for approximately $141 million in cash. SPR
distributed engine and undervehicle parts into the U.S. and Canadian
aftermarket. Net proceeds, after income taxes, were approximately $117.5
million. The
36
<PAGE> 38
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
company recorded a pretax gain of $52.4 million after transaction and facility
reduction expenses, or $32.4 million aftertax.
Truth -- On November 5, 1993, the company sold Truth to Danks America
Corporation, an affiliate of FKI Industries, Inc. for approximately $92.5
million in cash. In addition, the company will receive an annual royalty ranging
from 1.0% to 1.5% of Truth's annual sales for a five year period following the
closing (cumulatively not to exceed $7.5 million) which will be recorded as
income as received. Truth manufactures and markets window and door hardware
primarily in the U.S. and Canada. Net proceeds, after income taxes, were
approximately $71.6 million. The company recorded a pretax gain of $53.0 million
after transaction expenses, or $31.8 million aftertax.
(7) PROFORMA RESULTS OF OPERATIONS (UNAUDITED)
The accompanying consolidated statements of income include the results of
operations of Allen Testproducts ("ATP") and Allen Group Leasing ("AGL") from
the date of acquisition, June 10, 1993, the results of the Sealed Power
Replacement ("SPR") division through the date of disposition, October 22, 1993,
the results of the Truth division through the date of disposition, November 5,
1993, the company's 49% share of the earnings or losses of SPT, and the equity
losses of SP Europe. The following 1993 unaudited proforma selected financial
data reflects the acquisition of ATP and AGL and related restructuring, the
divestiture of the SPR and Truth divisions, the acquisition of 51% of SPT, and
the consolidation of SP Europe as if they had occurred as of January 1, 1993.
The 1992 unaudited proforma assumes that these transactions occurred as of
January 1, 1992.
<TABLE>
<CAPTION>
PROFORMA (UNAUDITED)
----------------------
1993 1992
-------- --------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues...................................................... $1,003.7 $1,042.9
Costs and expenses
Cost of products............................................ 752.7 746.4
SG&A........................................................ 210.7 223.6
Goodwill/intangibles amortization........................... 6.8 6.9
Minority interest (income).................................. (4.3) (2.7)
Earnings from equity interest............................... (.5) (.5)
Restructuring charge........................................ 27.5 --
-------- --------
Operating income.............................................. $ 10.8 69.2
Other expense (income), net................................... 2.2 (2.0)
Interest, net................................................. 41.6 45.8
-------- --------
Income before income taxes.................................... $ (33.0) $ 25.4
Provision (benefit) for income taxes.......................... (6.3) 13.6
-------- --------
Income (loss)................................................. $ (26.7) $ 11.8
======== ========
Income (loss) per share....................................... $ (2.12) $ .85
Weighted average number of common shares outstanding.......... 12.6 13.9
</TABLE>
The unaudited proforma selected results of operations does not purport to
represent what the company's results of operations would actually have been had
the above transactions in fact occurred as of January 1, 1993, or January 1,
1992 or project the results of operations for any future date or period.
(8) EXTRAORDINARY LOSS
In the fourth quarter of 1993, the company recorded an extraordinary charge
of $37.0 million ($24.0 million aftertax) for early retirement extinguishment
costs associated with debt refinanced in 1994. During the
37
<PAGE> 39
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
first half of 1994, approximately $400 million (December 31, 1993 principal
amount) of debt was refinanced. As of the end of the second quarter of 1994, the
refinancing was completed and all costs to extinguish this debt were charged to
the reserve established at the end of 1993.
(9) EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The company has defined benefit pension plans which cover substantially all
domestic employees. These plans provide pension benefits that are principally
based on the employees' years of credited service and levels of earnings.
Contributions in excess of pension expense are considered prepayments for
financial accounting purposes. The company has determined that foreign defined
pension plans are immaterial to the consolidated financial statements.
Net periodic pension cost (benefit) included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period......... $ 7,906 $ 4,585 $ 3,973
Interest cost on projected benefit obligation.......... 14,920 6,852 6,088
Actual (gain) loss on assets........................... 1,069 (19,633) (9,363)
Net amortization and deferral.......................... (23,973) 8,440 (1,136)
-------- -------- -------
Net periodic pension cost (benefit).................... $ (78) $ 244 $ (438)
======== ======== =======
Actuarial assumptions used:
Discount rates......................................... 8.25% 7.5% 8.25%
Rates of increase in compensation levels............... 5.5 5.0 5.5
Expected long-term rate of return on assets............ 9.5 9.5 9.5
</TABLE>
38
<PAGE> 40
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Plan assets principally consist of equity and fixed income security
investments. The following table sets forth the plans' funded status and amounts
recognized in the company's consolidated balance sheets as Other Assets for its
U.S. pension plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................... $ 147,551 $ 6,866 $ 151,217 $ 6,750
========= ======= ========= =======
Accumulated benefit obligation............... $ 162,811 $ 7,476 $ 172,068 $ 7,395
========= ======= ========= =======
Projected benefit obligation................. $ 193,562 $ 7,476 $ 200,249 $ 7,395
Plan assets at fair value.................... 227,137 6,552 242,429 6,297
--------- ------- --------- -------
Projected benefit obligation less (greater)
than plan assets.......................... $ 33,575 $ (924) $ 42,180 $(1,098)
Unrecognized net (gain) loss................. (16,248) (5) (28,331) 34
Prior service cost not yet recognized in net
periodic pension cost..................... 6,421 556 10,183 607
Remaining unamortized net (asset) liability
at transition............................. (3,220) 28 (3,782) 34
--------- ------- ---------- -------
Prepaid pension cost recognized in the
consolidated balance sheets............... $ 20,528 $ (345) $ 20,250 $ (423)
========= ======= ========= =======
</TABLE>
As part of the 1993 divestitures of the SPR and Truth divisions, the
company recorded curtailment gains of $4.1 million. These gains have been
included in the gain recognized on the sale of these divisions.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
Postretirement health and life insurance expense was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefit cost for service during the year -- net of
employee contributions................................. $ 1,472 $ 317 $ 315
Net amortization and deferral............................ (2,057) (64) --
Interest cost on accumulated postretirement benefit
obligation............................................. 6,674 1,338 1,306
------- ------ ------
Postretirement benefit cost.............................. $ 6,089 $1,591 $1,621
======= ====== ======
</TABLE>
The accumulated postretirement benefit obligation was actuarially
determined based on assumptions regarding the discount rate and health care
trend rates. The health care trend assumption applies to postretirement medical
and dental benefits. Different trend rates are used for pre-age 65 and post-age
65 medical claims and for expected dental claims. The trend rate used for the
medical plan was 14% in 1994, grading to a 6% ultimate rate by 1% each year for
pre-65 claims; and 10% in 1994 grading to 6% by .5% each year for post-age 65
claims. The trend rate for the dental plan was 6% each year. The liability was
discounted using a 8.25% interest rate. Increasing the health care trend rate by
one percentage point would increase the
39
<PAGE> 41
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
accumulated postretirement benefit obligation by $6.5 million and would increase
the 1994 postretirement benefit cost by $.6 million.
The following table summarizes the accumulated benefit obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefits obligation ("APBO")
Retirees...................................................... $ 52,314 $ 56,084
Actives fully eligible........................................ 10,871 9,399
-------- --------
APBO fully eligible........................................... 63,185 65,483
Actives not fully eligible.................................... 22,049 24,112
-------- --------
Total APBO.................................................... $ 85,234 $ 89,595
Assets.......................................................... (943) (845)
-------- --------
Unfunded status................................................. $ 84,291 $ 88,750
Unrecognized:
Net reduction in prior service costs.......................... 26,075 27,498
Net gain (loss)............................................... 3,902 (2,492)
-------- --------
Accrued APBO included in long-term liabilities.................. $114,268 $113,756
======== ========
</TABLE>
RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN ("KSOP")
Beginning in 1994, the company combined its former Retirement Savings Plan
and its Employee Stock Ownership Plan ("ESOP") into a single plan, the KSOP. The
plan provides benefits to approximately 3,800 domestic employees. These
employees can contribute up to 15% of their earnings. The company matches a
portion of the employee's contribution with shares from the plan's trust. In
1994, 163,908 shares were allocated to employees under the plan. Prior to 1994,
114,588 and 114,735 shares were allocated to eligible employees under the ESOP
plan in 1993 and 1992, respectively, and cash contributions to the participants
of the former Retirement Savings Plan were $875,000 in 1993 and $715,000 in
1992.
The ESOP was established in 1989 when the ESOP borrowed $50 million, which
was guaranteed by the company, and used the proceeds to purchase 1,746,725
shares of common stock issued directly by the company. Beginning in 1994,
employees are allocated these shares based upon their contribution to the
company's KSOP. Prior to 1994, employees were allocated shares based upon a
predetermined formula without regard to their contribution. Employees may vote
allocated shares directly, while the ESOP trustee will vote the unallocated
shares proportionally on the same basis as the allocated shares were voted. At
December 31, 1994, there were 1,082,433 unallocated shares in the ESOP trust.
The fair market value of the unallocated shares was $18.0 million at December
31, 1994.
Prior to 1993, the company's accounting method used for its ESOP was to
charge expense based upon the 80% shares allocated method or $5,548,000 in 1992.
Starting in 1993, the company adopted a new accounting method in which
compensation expense is recorded based upon the market value of shares as the
shares are allocated to the employees. In 1994 and 1993, $2,778,000 and
$1,925,000 were recorded as compensation expense. Also, the company recorded
interest expense equal to the interest expense incurred by the ESOP trust for
third party borrowings of $950,000 in 1994 and $3,902,000 in 1993. The third
party borrowings of the ESOP trust were extinguished during the first half of
1994 and replaced by a loan from the company to the ESOP trust.
40
<PAGE> 42
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
OTHER
The company provides defined contribution pension plans for substantially
all employees not covered by defined benefit pension plans. Collectively, the
company's contributions to these plans were $1,308,000 in 1994, $683,000 in 1993
and $848,000 in 1992.
The company provides a Retirement Savings Plan for certain eligible
domestic employees that are not included in the KSOP. These employees can
contribute up to 15% of their earnings. The company matches a portion of the
employee's contribution with cash. The company's cash contribution to this plan
was $1,019,000 in 1994.
(10) RECEIVABLES
Changes in the reserve for losses on receivables were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................. $ 9,177 $10,789 $ 9,541
Recorded in acquisition of SPT and due to consolidation
of SP Europe........................................... -- 747 --
Amount charged to income................................. 3,358 3,609 3,788
Accounts written off, net of recoveries.................. (2,000) (2,398) (2,495)
Reduction resulting from sale of SPR and Truth
divisions.............................................. -- (3,588) --
Reclassifications and other.............................. (2,567) 18 (45)
------- ------- -------
Balance at end of year................................... $ 7,968 $ 9,177 $10,789
======= ======= =======
</TABLE>
The company has a three year agreement, expiring in April 1997, with a
financial institution whereby the company agreed to sell undivided fractional
interests in designated pools of domestic trade accounts receivable, in an
amount not to exceed $30 million. In order to maintain the balance in the
designated pools of trade accounts receivable sold, the company sells
participating interests in new receivables as existing receivables are
collected. At December 31, 1994 and 1993, the company had sold $26.0 million and
$25.9 million of trade accounts receivable under this and previous programs.
Under the terms of this agreement, the company is obligated to pay fees which
approximate the purchasers' cost of issuing a like amount in commercial paper
plus certain administrative costs. The amount of such fees in 1994, 1993 and
1992 were $1,390,000, $1,215,000 and $1,465,000 respectively. These fees are
included in other expense, net.
(11) INVENTORIES
Domestic inventories, amounting to $116.1 and $122.6 million at December
31, 1994 and 1993, respectively, are based on the last-in, first-out (LIFO)
method. Such inventories, if priced on the first-in, first-out (FIFO) method,
would have been approximately $18.2 and $17.7 million greater at December 31,
1994 and 1993, respectively. During 1994, 1993 and 1992, certain inventory
quantities were reduced resulting in liquidations of LIFO inventory quantities
carried at lower costs prevailing in prior years. The effect was to increase net
income in 1994 by $223,000, in 1993 by $455,000 and in 1992 by $1,800,000.
Substantially all foreign inventories are valued at FIFO costs. Inventories
include material, labor and factory overhead costs. None of the inventories
exceed realizable values.
41
<PAGE> 43
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
The components of inventory at year-end were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Finished products............................................... $ 83,332 $ 94,478
Work in process................................................. 32,820 29,324
Raw materials and supplies...................................... 35,669 35,421
-------- --------
$151,821 $159,223
======== ========
</TABLE>
(12) INCOME TAXES
Income (loss) before income taxes and the related provision (benefit) for
income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic............................................... $26,831 $68,254 $34,286
Foreign................................................ (2,931) (23,599) (293)
------- ------- -------
Total........................................ $23,900 $44,655 $33,993
======= ======= =======
Provision (benefit) for income taxes
U.S. Federal:
Current.............................................. $11,214 $32,817 $ 8,180
Deferred............................................. (2,981) (9,521) 2,217
State.................................................. 1,967 4,411 1,363
Foreign................................................ (400) 1,748 1,673
------- ------- -------
Total........................................ $ 9,800 $29,455 $13,433
======= ======= =======
</TABLE>
A reconciliation of the effective rate for income taxes shown in the
consolidated statements of income with the U.S. statutory rate of 35% in 1994
and 1993 and, 34% in 1992 is shown below:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Amount computed at statutory rate............................... 35.0% 35.0% 34.0%
Increase (decrease) in taxes resulting from:
U.S. rate change on net deferred taxes........................ -- 2.0 --
Tax credits and incentives.................................... (1.0) (0.5) (0.6)
Net effect of foreign operations.............................. 2.6 21.0 5.0
State income taxes, net of federal income tax benefit......... 5.3 5.8 2.5
Amortization of goodwill and other acquisition costs.......... 6.4 3.6 3.2
Tax benefit of the Foreign Sales Corporation.................. (2.1) (2.0) (3.1)
Earnings from equity interests................................ (2.8) (0.1) 0.2
Other, net.................................................... (2.4) 1.2 (1.7)
---- ---- ----
41.0% 66.0% 39.5%
==== ==== ====
</TABLE>
No provision has been made for income and withholding taxes which would
become payable upon distribution of the undistributed earnings of foreign
subsidiaries and affiliates. It is the company's present intention to
permanently reinvest these earnings in its foreign operations. The amount of
undistributed
42
<PAGE> 44
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
earnings which have been reinvested in foreign subsidiaries and affiliates at
December 31, 1994, was $28.0 million. It is not practical to determine the
hypothetical U.S. federal income tax liability if all such earnings were
remitted, but distribution as dividends at the end of 1994 would have resulted
in payment of withholding taxes of approximately $1.6 million.
The components of the net deferred income tax assets (liabilities) were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1993
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax asset:
Receivables reserve............................... $ 6,883 $ 6,736
Inventory......................................... 5,938 5,835
Debt extinguishment reserves...................... -- 13,000
Compensation and benefit-related.................. 10,362 4,712
Restructuring reserves............................ 627 4,226
Warranty reserve.................................. 1,916 2,216
Other liabilities................................. 11,108 12,164
--------- ---------
Current deferred tax asset.......................... $ 36,834 $ 48,889
--------- ---------
Non-current deferred tax:
Depreciation...................................... $ (27,670) $ (24,300)
Postretirement health and life.................... 40,436 38,900
Book basis investment greater than tax basis
investment in affiliates....................... (30,195) (31,400)
Other............................................. 1,053 (3,987)
Net operating loss carryforwards.................. 17,400 14,700
Valuation allowance............................... (17,400) (14,700)
--------- ---------
Non-current deferred tax liability.................. $ (16,376) $ (20,787)
--------- ---------
Net deferred tax asset.............................. $ 20,458 $ 28,102
========= =========
</TABLE>
Included on the consolidated balance sheets are U.S. federal income tax
refunds and receivables of $19.0 million in 1994 and $5.6 million in 1993.
At December 31, 1994, the company has net operating loss carryforwards
attributable to foreign operations of approximately $37.1 million that are
available to offset future taxable income. These loss carryforwards expire as
follows: $0 in 1995, $0 in 1996, $1.0 million in 1997, $1.5 million in 1998, $.5
million in 1999 and $34.1 million thereafter. During 1994, the company utilized
$2.6 million of net operating loss carryforwards attributable to foreign
operations, resulting in tax benefits of $.9 million. The deferred tax asset
related to the net operating loss carryforwards have been reserved in the
valuation allowance.
During the fourth quarter of 1993, the company settled a dispute with the
Internal Revenue Service regarding the company's tax deferred treatment of the
1989 transaction in which several operating units were contributed to SPT. The
settlement of approximately $7 million, including interest, eliminates the IRS
contention that one-half of the 1989 transaction was currently taxable. The
settlement and interest was paid during 1994 and was adequately provided for in
the company's accounts.
43
<PAGE> 45
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(13) INVESTMENTS
As of December 31, 1994, investments, as shown on the consolidated balance
sheet, include equity investments in non-majority owned subsidiaries. These
investments include the company's 50% owned interest in a U.S. joint venture,
two 50% owned interests in joint ventures in Japan, a 40% interest in a Mexican
company and a 50% interest in a German company. All of these investments are
accounted for using the equity method. These investments, both individually and
collectively, are not material to the company's consolidated financial
statements.
Until December 31, 1993, the company held a 49% interest in SPT. The pro
rata share of earnings or losses and the amortization of the company's
investment in SPT is reflected as "SPT equity losses" on the consolidated
statements of income (see Note 5).
Until December 31, 1993, the company reported that it held a 50% interest
in SP Europe. As of December 31, 1993, Riken's pending 20% participation in SP
Europe reverted to the company in connection with the transaction to acquire
Riken's 49% in SPT. SP Europe had not been previously consolidated due to the
company's deemed temporary control and because nonrecourse (to the partners)
financing was being pursued. Up to December 31, 1993, the company carried its
investment in SP Europe at zero. Due to the resulting 70% ownership, the company
recorded its share of cumulative losses since the partnership formation in
mid-1991 of $21.5 million. As of December 31, 1993, the balance sheet of this
partnership is included in the consolidated financial statements, reflecting the
company's 70% ownership and Mahle GmbH's 30% minority interest. Beginning in the
first quarter of 1994, results of operations of SP Europe are reflected in the
consolidated statements of income and cash flows. Additionally, the company's
30% partner in SP Europe is currently studying its future participation in the
business and will decide its extent of participation by the third quarter of
1995. Should the partner choose to limit its participation, the company could be
required to recognize a portion of losses previously attributed to the partner.
These losses are currently included as "Minority Interest" in the equity section
of the consolidated balance sheets.
(14) PROPERTY, PLANT AND EQUIPMENT
The major classes are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land.......................................................... $ 9,715 $ 9,763
Buildings..................................................... 86,740 83,198
Machinery and Equipment....................................... 286,427 255,059
Construction in Progress...................................... 25,483 19,812
--------- ---------
Total............................................... $ 408,365 $ 367,832
Less: Accumulated Depreciation................................ (193,512) (169,687)
--------- ---------
Net........................................................... $ 214,853 $ 198,145
========= =========
</TABLE>
(15) COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
At December 31, 1994 and 1993, total costs in excess of net assets of
businesses acquired was $224.3 and $223.3 million, respectively, and accumulated
amortization of costs in excess of net assets of businesses acquired was $25.2
and $19.2 million, respectively. Amortization was $6.0 million in 1994, $3.4
million in 1993 and $3.4 million in 1992.
44
<PAGE> 46
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
The company amortizes costs in excess of the net assets of businesses
acquired ("goodwill") on a straight-line method over the estimated periods
benefited, not to exceed 40 years. After an acquisition, the company continually
reviews whether subsequent events and circumstances have occurred that indicate
the remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. If events and
circumstances indicate that goodwill related to a particular business should be
reviewed for possible impairment, the company uses projections to assess whether
future operating income on a non-discounted basis (before goodwill amortization)
of the unit is likely to exceed the goodwill amortization over the remaining
life of the goodwill, to determine whether a writedown of goodwill to
recoverable value is appropriate.
At December 31, 1994, $71.3 million of goodwill relates to the Automotive
Diagnostics division (which is composed of Bear Automotive and Allen
Testproducts, which was acquired in 1993). This division has incurred
significant operating losses in 1994 and in prior years. The company projects
that, in the near future, the cost savings, market synergies and other factors
which, in part, will be realized from the Bear Automotive and Allen Testproducts
combination will result in non-discounted operating income sufficient to exceed
goodwill amortization. However, should such projections require downward
revision based on changed events or circumstances, this division's goodwill may
require writedown. Although having no cash flow impact, the resulting charge, if
any, could materially reduce the company's future reported results of operations
and shareholders' equity. At this time, based upon present information,
projections and strategic plans, the company has concluded that there has been
no permanent impairment of the Automotive Diagnostic division's tangible or
intangible assets.
(16) ACCRUED LIABILITIES
Details of accrued liabilities are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll & benefits.................................... $ 53,234 $ 43,954
Warranty reserves............................................. 5,218 7,060
Restructuring reserve......................................... 1,992 14,533
Debt extinguishment reserve................................... -- 32,000
Amount payable for SPT acquisition............................ -- 41,700
Interest payable.............................................. 3,836 7,802
Deferred revenue - service contracts.......................... 9,028 10,401
Repossession reserves......................................... 6,475 7,494
Other......................................................... 54,578 65,054
-------- --------
$134,361 $229,998
======== ========
</TABLE>
(17) COMMITMENTS AND CONTINGENT LIABILITIES
OPERATING LEASES:
The company leases certain offices, warehouses and equipment under lease
agreements which expire at various dates through 2006. Future minimum rental
commitments under non-cancelable operating leases are $9.4 million for 1995,
$8.4 million for 1996, $6.1 million for 1997, $5.1 million for 1998, $4.1
million for 1999 and aggregate $9.7 million thereafter. Rentals on these leases
were approximately $11.4 million in 1994, $12.9 million in 1993 and $9.3 million
in 1992.
45
<PAGE> 47
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
GENERAL:
Certain claims, including environmental matters, suits and complaints
arising in the ordinary course of business, have been filed or are pending
against the company. In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a
significant effect on the financial position or results of operations of the
company if disposed of unfavorably. Additionally, the company has insurance to
minimize its exposures of this nature.
During the first quarter of 1995, the company reached agreement to settle a
dispute involving a non-core business sold in 1989. As of December 31, 1994, the
company recorded a $2.1 million charge for this pending settlement. The company
expects this agreement to resolve all issues pertaining to the sale of this
business.
ENVIRONMENTAL:
The company's operations and properties are subject to federal, state and
local regulatory requirements relating to environmental protection. It is the
company's policy to comply fully with all such applicable requirements. As part
of its effort to comply, management has established an ongoing internal
compliance auditing program which has been in place since 1989. Based on current
information, management believes that the company's operations are in
substantial compliance with applicable environmental laws and regulations and
the company is not aware of any violation that could have a material adverse
effect on the business, financial conditions, results of operations, or cash
flows of the company. There can be no assurance, however, that currently unknown
matters, new laws and regulations, or stricter interpretations of existing laws
and regulations will not materially affect the company's business or operations
in the future.
The company is also subject to potential liability for the costs of
environmental remediation. This liability may be based upon the ownership or
operation of industrial facilities where contamination may be found as well as
contribution to contamination existing at offsite, non-owned facilities. These
offsite remediation costs cannot be quantified with any degree of certainty. At
this time, management can estimate the environmental remediation costs only in
terms of possibilities and probabilities based on available information.
The company is involved as a potentially responsible party ("PRP") under
the Comprehensive, Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended, or similar state superfund statutes in eleven
proceedings involving off-site waste disposal facilities. At six of these sites
it has been established that the company is a de minimis contributor. A
determination has not been made with respect to the remaining five sites, but
the company believes that it will be found to be a de minimis contributor at two
of them. Of the three remaining sites, remediation at one is nearing completion
with minimal additional cost, another is approaching settlement with the
Environmental Protection Agency with an expected cost to the company of
approximately $150,000, and the final site is under investigation with an
expected cost of approximately $200,000. Based on information available to the
company, which in most cases includes estimates from PRPs and/or federal or
state regulatory agencies for the investigation, clean up costs at those sites,
and data related to the quantities and characteristics of materials generated at
or shipped to each site, the company believes that the costs for each site are
not material and in total the anticipated clean up costs of current PRP actions
would not have material adverse effect on the company's business, financial
conditions, results of operations, or cash flows.
In the case of contamination existing upon properties owned or controlled
by the company, the company has established reserves which it deems adequate to
meet its current remediation obligations.
There can be no assurance that the company will not be required to pay
environmental compliance costs or incur liabilities that may be material in
amount due to matters which arise in the future or are not currently known to
the company.
46
<PAGE> 48
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
EXECUTIVE SEVERANCE AGREEMENTS:
During 1988, the company's Board of Directors adopted executive severance
agreements which create certain liabilities in the event of the termination of
the covered executives following a change of control of the company. The
aggregate commitment under these executive severance agreements should all 10
covered employees be terminated is approximately $15 million. Additionally,
should a change in control occur, restrictions on any outstanding restricted
stock and stock options granted under the 1992 Stock Compensation Plan would
lapse.
(18) NOTES PAYABLE AND DEBT
The following table summarizes the company's current and long-term debt
obligations as they existed at December 31, 1994 and 1993. During the first half
of 1994, the company significantly restructured its debt.
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SPX Revolving Credit Agreement........................................ $125,000 $ --
SPT Revolving Credit Loans............................................ -- 30,000
SPX Senior Subordinated Notes, 11.75%................................. 260,000 --
SPX Industrial Revenue Bonds, with interest rates established monthly
based on an index of short-term municipal bond interest rates, due
2010 to 2025........................................................ 15,100 15,200
SPX Long-Term Debt -- ESOP Guarantee.................................. -- 42,062
SPX Senior Notes, 9.72%, due in annual installments from 1994 through
2000................................................................ -- 53,000
SPX Senior Notes, 9.58%, $5 million due in 1993, the remainder due in
1995................................................................ -- 22,000
SPX Note to Allen Group, 8.0% due in annual installments from 1994
through 1996........................................................ -- 19,737
SPX Bank loans, LIBOR plus 7/8%, due May 1994......................... -- 50,000
SPX Other............................................................. 15,115 17,957
SPT Term bank loan, with interest rates established periodically based
on prime or LIBOR rates, due in varying quarterly installments
through September 30, 1996.......................................... -- 78,863
SPT Senior Subordinated Debentures, 14.5%, due May 15, 1999, with
mandatory sinking fund payment of $50,000 on May 15, 1998........... -- 100,000
SPT Other............................................................. -- 1,343
-------- --------
Total Consolidated debt..................................... $415,215 $430,162
Less -- Notes payable and current maturities of long-term debt........ 1,133 93,975
-------- --------
Total Long-Term Debt........................................ $414,082 $336,187
======== ========
</TABLE>
Aggregate maturities of total debt are $1.1 million in 1995, $2.4 million
in 1996, $2.3 million in 1997, $2.0 million 1998, $125.1 million in 1999 and
$282.3 million thereafter.
REVOLVING CREDIT AGREEMENT -- The company has a credit agreement with a
syndicate of banks which provides unsecured revolving credit commitments in an
aggregate amount not to exceed $225 million. The agreement, dated March 24,
1994, has a termination date of March 15, 1999 with mandatory revolving credit
commitment reductions of $12.5 million in June and December of 1997 and 1998,
respectively. At the option of the company, revolving credit advances may be
Floating rate advances or Eurodollar advances. Floating rate advances bear
interest at the prime rate, and Eurodollar advances bear interest at LIBOR plus
1.0% for an interest period of one, two, three or six months, selected by the
company prior to each Eurodollar advance. At December 31, 1994, the weighted
average interest rate on outstanding revolving credit borrowings was 6.89%.
47
<PAGE> 49
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
The agreement also provides a letter of credit facility, which is available
for the issuance of standby letters of credit in an aggregate amount of $35
million. Standby letters of credit issued under this facility reduce the
aggregate amount available under the revolving credit commitment.
The company must pay a commitment fee of .375% per annum on the aggregate
revolving credit commitment, minus the sum of the outstanding balance of the
revolving credit loans and the letter of credit facility obligations.
The company utilized cash and this facility in the first half of 1994 to
extinguish most of the SPX debt outstanding at December 31, 1993 including the
senior notes aggregating $75 million, the $19.7 million note to the Allen Group,
the company's ESOP trust's note of $42.1 million, $50 million of bank loans and
$18 million of other debt.
At December 31, 1994, the company was party to two interest rate cap
agreements which expire in 1996. The agreements entitle the company to receive
from the counterparty on a quarterly basis the amounts, if any, by which the
company's interest payments on $75 million of outstanding revolving credit
facility borrowings exceed 8.0 percent. No amounts have been received by the
company related to these agreements.
The company also has a $5 million swingline loan facility to assist in
managing daily cash requirements. Loans under the swingline bear interest at the
prime rate and are due in 90 days. No swingline loans were outstanding at
December 31, 1994.
SENIOR SUBORDINATED NOTES -- In May 1994, the company issued $260 million
of senior subordinated notes which bear interest of 11.75%, payable
semi-annually and are due June 1, 2002. The notes are redeemable at the option
of the company after June 1, 1998 at a premium which declines to par in the year
2000. In addition, up to $78 million of the notes are redeemable prior to June
1, 1996, at the option of the company, within 45 days of the sale of capital
stock in a public equity offering from the net proceeds of such sale at a
redemption price equal to 110.75% of the principal amount to be redeemed,
together with accrued and unpaid interest, if any, thereon to the date of
redemption.
The proceeds from these notes were used to retire SPT's senior subordinated
debentures, term bank loan and revolving credit loans. The balance of the
proceeds were used to pay related debt restructuring costs and to reduce
borrowings on the company's revolving credit facility.
RESTRICTIVE COVENANTS -- The company's revolving credit agreement and
senior subordinated note indenture contain covenants. At December 31, 1994, the
company was in compliance with such covenants. Under the most restrictive of
these covenants, the company is required to:
- Maintain a leverage ratio, as defined, of 78% in 1994, declining on a
graduated scale to 65% in 1999. The leverage ratio at December 31, 1994
was 74%.
- Maintain an interest expense coverage ratio, as defined, of 2:1 or
greater in 1994 rising on a graduated scale to 3.5:1 or greater in 1998
and thereafter. The interest expense coverage ratio at December 31, 1994
was 2.5:1.
- Maintain a fixed charge coverage ratio, as defined, of 1.75:1 or greater
in 1994 and 1995, and 2:1 or greater thereafter. The fixed charge
coverage ratio at December 31, 1994 was 1.84:1.
- Limit dividends to $8 million for the five quarters starting with the
first quarter of 1994, and 10% of operating income plus depreciation and
amortization (EBITDA) thereafter. Dividends for the four quarters ending
December 31, 1994 were $5.1 million.
Covenants also limit capital expenditures, investments and transactions
with affiliates.
48
<PAGE> 50
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(19) DERIVATIVE FINANCIAL INSTRUMENTS
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate and transaction specific foreign exchange risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on $75 million of floating rate long-term debt. At
December 31, 1994, the company was party to two interest rate cap agreements
which expire in 1996. The agreements entitle the company to receive from the
counterparty on a quarterly basis the amounts, if any, by which the company's
interest payments on $75 million of outstanding revolving credit facility
borrowings exceed 8.0 percent.
The company enters into foreign exchange contracts to hedge specific
purchase and sale transactions involving more than one currency. The company's
forward exchange contracts and futures hedge transactions are principally
denominated in pound sterling, French francs, Swiss francs, Deutch marks, lira
and pesetas. Some of the contracts involve the exchange of two foreign
currencies, according to local needs in foreign subsidiaries. The term of the
currency derivatives is rarely more than six months. The purpose of the
company's foreign currency hedging activities is to protect the company from the
risk that the eventual total dollar net cash inflows resulting from transactions
will be adversely affected by changes in exchange rates.
The table below summarizes by major currency the contractual amounts of the
company's forward exchange and futures contracts in U.S. dollars. Foreign
currency amounts are translated at rates current at the reporting date. The
"buy" amounts represent the U.S. dollar equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the U.S. dollar equivalent
of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
BUY SELL
---- ----
(IN THOUSANDS)
<S> <C> <C>
Lira.............................................................. $259 $256
Swiss francs...................................................... 459 462
---- ----
$718 $718
==== ====
</TABLE>
The company is exposed to credit losses in the event of nonperformance by
counterparties to its interest rate cap and nonderivative financial assets but
has no off-balance-sheet credit risk of accounting loss. The company
anticipates, however, that counterparties will be able to fully satisfy their
obligations under the contracts. The company does not obtain collateral or other
security to support financial instruments subject to credit risk but monitors
the credit standing of counterparties.
49
<PAGE> 51
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" requires disclosure of an estimate of the fair
value of certain financial instruments. The carrying amounts and fair values of
the company's financial instruments at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and temporary investments................................. $ 9,859 $ 9,859
Receivables.................................................... 128,544 128,544
Lease finance receivables...................................... 82,068 82,068
Other assets (derivative)...................................... 431 950
Notes payable and current maturities of long-term
debt and Long-term debt...................................... (415,215) (413,915)
Off-Balance Sheet Financial Instruments:
Letters of Credit............................................ -- (42,260)
</TABLE>
The following methods and assumptions were used by the company in
estimating its fair value disclosures:
- Cash and temporary investments, and receivables: The carrying amount
reported on the consolidated balance sheet approximates its fair value
because of the short maturity of those instruments.
- Lease finance receivables: The carrying amount, which is net of deferred
future lease finance income and reserves for credit losses, approximates
fair value.
- Other assets (derivatives): The amount reported relates to the interest
rate cap agreement described in Note 18. The carrying amount comprises the
unamortized premiums paid for the contract. The fair value is estimated
using option pricing models and essentially values the potential for the
cap to become in-the-money through changes in interest rates during the
remaining term.
- Notes payable and current maturities of long-term debt and Long-term
debt: The fair value of the company's debt either approximates its
carrying value or is estimated based on quoted market prices.
- Letters of credit: The company utilizes letters of credit to back certain
financing instruments and insurance policies. The letters of credit
reflect fair value as a condition of their underlying purpose and are
subject to fees competitively determined in the marketplace.
Concentrations of credit risk arise due to the company operating in the
motor vehicle industry, particularly in the United States. Except for lease
finance receivables (see Note 22), the company does not obtain collateral or
other security to support financial instruments subject to credit risk but
monitors the credit standing of counterparties.
50
<PAGE> 52
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(21) CAPITAL STOCK
Authorized shares of common stock (par value $10.00) total 50,000,000
shares. Common shares issued and outstanding are summarized in the table below.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Shares of Common Stock
Issued............................................................ 15,648 15,556 15,536
In treasury....................................................... (1,633) (1,633) (1,633)
------ ------ ------
Outstanding....................................................... 14,015 13,923 13,903
====== ====== ======
ESOP trust -- unallocated......................................... 1,082 1,246 1,361
</TABLE>
The company's treasury stock was purchased in 1989 at an average cost of
$30 5/8 per share. The company has 3,000,000 shares of preferred stock, no par
value, authorized, but no shares have been issued.
In June 1989, the company established an employee stock ownership plan
(ESOP). 1,746,725 shares of common stock were issued to the ESOP trust in
exchange for $50 million. These shares were issued at market value ($28 5/8 per
share) and the appropriate amounts are included in common stock and paid in
capital.
The company restated, amended and renamed its 1982 Stock Option Plan to the
1992 Stock Compensation Plan, effective December 15, 1992. Under the new Stock
Compensation Plan, up to 700,000 shares of the company's common stock may be
granted to key employees with those shares still available for use under the
1982 Stock Option Plan being carried forward and forming a part of the 700,000
shares. Awards of incentive stock options, nonqualified stock options, stock
appreciation rights (SAR's), performance units and restricted stock may be made
under the Plan although no more than 200,000 shares may be granted in the form
of restricted stock. The Plan also authorizes the granting of stock options to
directors.
Stock options may be granted to key employees in the form of incentive
stock options or nonqualified stock options at an option price per share of no
less than the fair market value of the common stock of the company on the date
of grant. The options become exercisable six months after the date of the grant
and expire no later than 10 years from the date of grant (or 10 years and 1 day
with respect to nonqualified stock options).
SAR's may be granted to key employees either in conjunction with the
awarding of nonqualified stock options or on a stand-alone basis. The SAR's
entitle the holder to receive a cash payment equal to the excess of the fair
market value of a share of common stock of the company over the exercise price
of the right at the date of exercise of the right.
Performance units, which are equivalent to a share of common stock, may be
granted to key employees and may be earned, in whole or in part, dependent upon
the attainment of performance goals established at the time of grant.
Restricted stock may be granted to key individuals to recognize or foster
extraordinary performance, promotion, recruitment or retention. At the time of
the grant, restrictions are placed on ownership of the shares for a stated
period of time during which a participant will not be able to dispose of the
restricted shares. Upon lapse of the restriction period, complete ownership is
vested in the participant and the shares become freely transferable.
51
<PAGE> 53
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
A summary of common stock options and restricted stock issued under the
company's stock compensation plans are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------- -------
<S> <C> <C> <C>
Stock Options:
Outstanding at beginning of year.......................... 924,300 877,140 735,818
Granted................................................... 258,600 148,400 215,750
Exercised................................................. (93,850) (21,903) (74,428)
Surrendered/canceled...................................... (8,825) (79,337) --
--------- ------- -------
Outstanding at end of year................................ 1,080,225 924,300 877,140
========= ======= =======
Price of options exercised and outstanding per share...... $11.38- $11.38- $11.38-
28.00 28.00 28.00
Restricted stock granted during year........................ -- -- --
Shares reserved and available for future grants............. 192,612 442,387 511,450
</TABLE>
All options outstanding at December 31, 1994 can be exercised except for
options granted in 1994 which cannot be exercised until June 1995.
Preferred stock is issuable in series with the Board of Directors having
the authority to determine, among other things, the stated value of each series,
dividend rate, conversion rights and preferences in liquidation or redemption.
On June 25, 1986, the company entered into a Rights Agreement which was
amended and restated as of October 20, 1988. Pursuant to the Rights Agreement,
in July 1986, the company issued a dividend of one preferred stock purchase
right on each outstanding share of common stock. Each right entitles the holder,
upon the occurrence of certain events, to purchase one one-hundredth of a share
of a new series of junior participating preferred stock for $100. Furthermore,
if the company is involved in a merger or other business combination at any time
after the rights become exercisable, the rights will entitle the holder to buy
the number of shares of common stock of the acquiring company having a market
value of twice the then current exercise price of each right. Alternatively, if
a 20% or more shareholder acquires the company by means of a reverse merger in
which the company and its stock survive, or engages in self-dealing transactions
with the company, or if any person acquires 20% or more of the company's common
stock, then each right not owned by a 20% or more shareholder will become
exercisable for the number of shares of common stock of the company having a
market value of twice the then current exercise price of each right. The rights,
which do not have voting rights, expire on July 15, 1996, and may be redeemed by
the company at a price of $.05 per right at any time prior to their expiration.
(22) SPX CREDIT CORPORATION
SPX Credit Corporation ("SPX CC") provides direct financing leasing
alternatives primarily to electronic diagnostic, emissions testing, and wheel
service equipment customers in the United States and Canada. These leases are
collateralized by the equipment. SPX CC purchases equipment for lease to others
from the company's Specialty Service Tool divisions, its sole supplier, at
prices comparable to those to third parties. The aggregate cost of equipment
purchased from Specialty Service Tool divisions amounted to approximately $24.6
million in 1994 and $16.0 million in 1993. The company's Specialty Service Tool
divisions charge a commission representing an origination fee for providing
leases and for the cost of services provided to SPX CC with respect to the
negotiation and consummation of new leases in the amount of $996,000 for 1994
and $521,000 for 1993 (since the acquisition of Allen Group Leasing). SPX CC has
an agreement with Specialty Service Tool divisions for the repurchase of
repossessed equipment at amounts
52
<PAGE> 54
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
determined to approximate realizable value by the Specialty Service Tool
division. Approximately $12.7 million of equipment in 1994 and $5.8 million of
equipment in 1993 (since the acquisition) was repurchased under this agreement.
Information regarding lease receivables included in the consolidated
balance sheets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 CURRENT LONG-TERM TOTAL
--------------------------------------------------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct financing lease receivables................. $ 36,945 $ 51,608 $ 88,553
Residual value of lease equipment.................. 775 2,264 3,039
Other leasing assets............................... 7,875 3,917 11,792
Unearned lease finance income...................... (8,884) (9,513) (18,397)
Allowance for credit losses........................ (1,685) (1,234) (2,919)
-------- --------- --------
$ 35,026 $ 47,042 $ 82,068
======== ======== ========
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------
<S> <C> <C> <C>
Direct financing lease receivables................. $ 36,661 $ 60,263 $ 96,924
Residual value of lease equipment.................. 469 2,862 3,331
Other leasing assets............................... 9,159 192 9,351
Unearned lease finance income...................... (10,427) (10,825) (21,252)
Allowance for credit losses........................ (2,028) (1,479) (3,507)
-------- --------- --------
$ 33,834 $ 51,013 $ 84,847
======== ========= ========
</TABLE>
The aggregate maturities of direct financing lease receivables as of
December 31, 1994 were $36.9 million in 1995, $23.6 million in 1996, $15.6
million in 1997, $8.7 million in 1998 and $3.8 million in 1999.
Essentially all of SPX CC's direct financing lease receivables are with
companies or individuals operating within the automotive repair industry,
including automotive dealerships, garages and similar repair and inspection
facilities, and approximately 30% of lease receivables are with lessees located
in the state of California.
The company has a program whereby certain lease receivables are sold to
financial institutions with limited recourse. In the event of default by a
lessee, the financial institution has recourse equal to their net lease
receivable. In return, the company receives the collateralized lease equipment.
In 1994, no lease receivables were sold under this program. In 1993 and 1992,
$5,613,000 and $21,390,000 of gross lease receivables were sold to financial
institutions generating revenues of $846,000 and $1,386,000. At December 31,
1994 and 1993, financial institutions held lease receivables, which are subject
to limited recourse, of $20,365,000 and $42,766,000. Correspondingly, allowances
for recourse liabilities, net of recoverable value, were $1,470,000 and
$3,743,000 at December 31, 1994 and 1993.
53
<PAGE> 55
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(23) SEALED POWER TECHNOLOGIES -- SELECTED FINANCIAL INFORMATION
As discussed in Note 5, the company consolidated SPT's balance sheet at
December 31, 1993. The company's 49% share of SPT's 1993 and 1992 results of
operations was recognized on the equity method of accounting. Selected financial
information on SPT was as follows:
<TABLE>
<CAPTION>
1993 1992
------- ------
(IN MILLIONS)
<S> <C> <C>
Revenues........................................................ $ 391.6 $355.2
Gross profit.................................................... 53.8 56.9
Selling, general and administrative expense..................... 28.2 26.7
Other (income), net............................................. (2.0) (2.8)
------- ------
Earnings before interest........................................ $ 27.6 $ 33.0
Interest expense, net........................................... 27.1 29.3
------- ------
Income (loss) before cumulative effect of
change in accounting method................................... $ .5 $ 3.7
Cumulative effect of change in
accounting method*............................................ (89.5) --
------- ------
Income (loss)................................................... $ (89.0) $ 3.7
======= ======
Depreciation and amortization................................... 20.4 19.1
Capital expenditures, net....................................... 17.8 12.9
Research and development........................................ 3.4 3.8
Pension expense................................................. .1 --
Lease rental expense............................................ .9 .9
Incremental SFAS No. 106 expense................................ 6.1 --
Current assets.................................................. $ 76.7 $ 74.6
Net property, plant and equipment............................... 91.4 91.1
Other assets.................................................... 13.7 15.1
------- ------
$ 181.8 $180.8
======= ======
Current liabilities............................................. $ 80.0 $ 66.6
Long-term liabilities*.......................................... 97.5 3.0
Long-term debt.................................................. 183.5 199.1
Partners' capital (deficit)..................................... (179.2) (87.9)
------- ------
$ 181.8 $180.8
======= ======
</TABLE>
- ---------------
* In 1993, SPT adopted SFAS No. 106, "Employers Accounting for Postretirement
Benefits other than Pensions."
The company's former Sealed Power Replacement division purchased
replacement engine parts, principally piston rings, cylinder sleeves and valve
lifters from SPT at arm's-length prices. Purchases from the partnership during
1993 through October 22 (date of sale of SPR) and 1992 were $21.5 million and
$27.8 million respectively.
54
<PAGE> 56
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
(24) SP EUROPE -- SELECTED FINANCIAL INFORMATION (UNAUDITED)
As discussed in Note 13, the company consolidated SP Europe at December 31,
1993. Selected historical unaudited financial information on SP Europe was as
follows:
<TABLE>
<CAPTION>
1993 1992
------ -----
(IN MILLIONS)
<S> <C> <C>
Revenues............................................................. $ 40.6 $49.6
Gross profit......................................................... (4.0) (5.4)
Selling, general and administrative expense.......................... 9.1 5.8
Other (income), net.................................................. .5 (2.4)
------ -----
Earnings before interest............................................. $(13.6) $(8.8)
Interest expense, net................................................ 0.9 0.1
------ -----
Income (loss)........................................................ $(14.5) $(8.9)
====== =====
Depreciation and amortization........................................ (1.0) (2.0)
Capital expenditures, net............................................ 4.2 1.1
Current assets....................................................... $ 15.7 $16.1
Net property, plant and equipment.................................... 5.1 1.5
Other assets......................................................... 0.7 (0.6)
------ -----
$ 21.5 $17.0
====== =====
Current liabilities.................................................. $ 10.4 $19.0
Long-term liabilities................................................ 2.2 3.1
Long-term debt....................................................... 19.6 1.6
Partners' capital (deficit).......................................... (10.7) (6.7)
------ -----
$ 21.5 $17.0
====== =====
</TABLE>
(25) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $277,451 $289,054 $252,967 $273,275 $1,092,747
Gross profit....................... 70,094 74,334 65,468 65,346 275,242
Net income......................... 3,100 6,900 3,200 900 14,100
Net income per share............... $ .24 $ .54 $ .25 $ .07 $ 1.10
</TABLE>
55
<PAGE> 57
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
1993
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $179,164 $212,548 $195,079 $169,354 $756,145
Gross profit........................ 57,388 70,848 65,265 54,612 248,113
Income (loss) before cumulative
effect of change in accounting
methods and extraordinary loss.... 357 5,428 (20,256)* 29,671** 15,200
Cumulative effect of change in
accounting methods................ (31,800) -- -- -- (31,800)
Extraordinary loss.................. -- -- -- (24,000) (24,000)
Net income (loss)................... (31,443) 5,428 (20,256) 5,671 (40,600)
Income (loss) per share:
Before cumulative effect change in
accounting methods and
extraordinary loss............. $ 0.02 $ 0.43 $ (1.61)* $ 2.34** $ 1.20
Cumulative effect of change in
accounting methods............. (2.52) -- -- -- (2.52)
Extraordinary loss................ -- -- -- (1.90) (1.90)
Net income (loss)................. $ (2.50) $ 0.43 $ (1.61) $ 0.44 $ (3.22)
</TABLE>
- ---------------
* Includes a pretax restructuring charge of $27.5 million, $18.5 million
aftertax and $1.47 per share.
** Includes SP Europe equity losses, $21.5 million aftertax and $1.71 per share.
Also includes a pretax gain on the sale of businesses of $105.4 million,
$64.2 million aftertax and $5.07 per share.
<TABLE>
<CAPTION>
1992
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $175,230 $217,627 $237,262 $171,050 $801,169
Gross profit........................ 58,716 75,166 76,365 57,753 268,000
Income before cumulative effect of
change in accounting methods...... 948 8,366 9,289 1,957 20,560
Cumulative effect of change in
accounting methods................ (5,700) -- -- -- (5,700)
Net income (loss)................... (4,752) 8,366 9,289 1,957 14,860
Income (loss) per share:
Income before cumulative effect of
change in accounting methods... $ .07 $ .60 $ .67 $ .14 $ 1.48
Cumulative effect of change in
accounting methods............. (.41) -- -- -- (.41)
Net income (loss)................. $ (.34) $ .60 $ .67 $ .14 $ 1.07
</TABLE>
56
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors of the company.
See the company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the caption "Election of Directors".
(b) Executive Officers of the company.
See Part I of this Form 10-K at page 10.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
See the company's Proxy Statement, incorporated by reference as Part III of
this Form 10-K, under the headings "Compensation of Executive Officers" and
"Directors' Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the company's Proxy Statement, incorporated by reference as Part III of
this Form 10-K, under the caption "Stock Ownership of Management and Certain
Beneficial Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Peter H. Merlin, a Director of the company, is a Partner and Chairman --
International Department of the law firm of Gardner, Carton & Douglas which the
company has retained in 1994 and many prior years and anticipates retaining in
1995 and thereafter.
Albert A. Zagotta and Robert C. Huff were elected executive officers of the
company in 1994 as part of the transactions in which the company acquired full
ownership of Sealed Power Technologies Limited Partnership ("SPT") from Riken
Corporation. In April 1995, the company will make payments for the shares of SPT
owned by Mr. Zagotta and Mr. Huff, who were formerly executive officers of SPT,
as well as four other managers of the former SPT businesses all as part of the
reacquisition transactions. Mr. Zagotta will receive $242,760.00, and Mr. Huff
will receive $277,440.00. The amounts were determined on the same basis per
share as was paid to Riken Corporation for its interests in SPT (See footnote
5).
57
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed, or incorporated by reference, as
part of this Form 10-K:
1. All financial statements. See Index to Consolidated Financial
Statements on page 25 of this Form 10-K.
2. Financial Statement Schedules. None required. See page 25 of this
Form 10-K.
3. Exhibits
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- ----------------------------------------------------------------------
<S> <C>
2 Acquisition Agreement between SPX Corporation and Riken Corporation,
incorporated herein by reference from the company's Annual Report on
Form 10-K, file No. 1-6948, for the year ended December 31, 1993.
3(i) Restated Certificate of Incorporation, incorporated herein by
reference from the company's Annual Report on Form 10-K, file No.
1-6948, for the year ended December 31, 1987.
(ii) Certificate of Ownership and Merger dated April 25, 1988, incorporated
herein by reference from the company's Annual Report on Form 10-K,
file No. 1-6948, for the year ended December 31, 1988.
(iii) By-Laws as amended through April 24, 1985, incorporated herein by
reference from the company's Annual Report on Form 10-K, file No.
1-6948, for the year ended December 31, 1987.
4(i) Credit Agreement between SPX Corporation and The First National Bank
of Chicago, as agent for the banks named therein, dated as of March
24, 1994, incorporated herein by reference from the company's Annual
Report on Form 10-K, file No. 1-6948, for the year ended December 31,
1993.
(ii) 11 3/4% Senior Subordinated Notes due 2002, incorporated herein by
reference from the company's Amendment No. 2 to Form S-3 Registration
Statement 33-52833, filed on May 27, 1994.
(iii) Indenture, dated as of June 6, 1994, between the company and The Bank
of New York, as trustee, relating to the 11 3/4% Senior Subordinated
Notes due 2002, incorporated herein by reference from the company's
Amendment No. 2 to Form S-3 Registration Statement 33-52833, filed on
May 27, 1994.
10(i) Sealed Power Corporation Executive Performance Unit Plan, incorporated
herein by reference from the company's Amendment No. 1 on Form 8 to
the Annual Report on Form 10-K, file No. 1-6948, for the year ended
December 31, 1988.
(ii) SPX Corporation Retirement Plan for Directors, as amended and
restated, incorporated herein by reference from the company's
Amendment No. 1 on Form 8 to the Annual Report on Form 10-K, file No.
1-6948, for the year ended December 31, 1988.
(iii) SPX Corporation Supplemental Retirement Plan for Top Management, as
amended and restated, incorporated herein by reference from the
company's Amendment No. 1 on Form 8 to the Annual Report on Form 10-K,
file No. 1-6948, for the year ended December 31, 1988.
(iv) SPX Corporation Excess benefit Plan No. 3, as amended and restated,
incorporated herein by reference from the company's Amendment No. 1 on
Form 8 to the Annual Report on Form 10-K, file No. 1-6948, for the
year ended December 31, 1988.
(v) SPX Corporation Executive Severance Agreement, incorporated herein by
reference from the company's Amendment No. 1 on Form 8 to the Annual
Report on Form 10-K, file No. 1-6948, for the year ended December 31,
1988.
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- ----------------------------------------------------------------------
<S> <C>
(vi) SPX Corporation Trust Agreement for Supplemental Retirement Plan for
Top Management, Excess Benefit Plan No. 3, and Retirement Plan for
Directors, incorporated herein by reference from the company's
Amendment No. 1 on Form 8 to the Annual Report on Form 10-K, file No.
1-6948, for the year ended December 31, 1988.
(vii) SPX Corporation Trust Agreement for Participants in Executive
Severance Agreements, Special Separation Pay Plan for Corporate Staff
Executive Personnel Agreements and Special Separation Pay Plan for
Corporate Staff Management and Administrative Personnel Agreements,
incorporated herein by reference from the company's Amendment No. 1 on
Form 8 to the Annual Report on Form 10-K, file No. 1-6948, for the
year ended December 31, 1988.
(viii) SPX Corporation Stock Compensation Plan Limited Stock Appreciation
Rights Award, incorporated herein by reference from the company's
Amendment No. 1 on Form 8 to the Annual Report on Form 10-K, file No.
1-6948, for the year ended December 31, 1988.
(ix) SPX Corporation Stock Ownership Plan, incorporated herein by reference
from the company's Current Report on Form 8-K, file No. 1-6948, filed
on July 26, 1989.
(x) SPX Corporation Stock Ownership Trust, incorporated herein by
reference from the company's Current Report on Form 8-K, file No.
1-6948, filed on July 26, 1989.
(xi) SPX Corporation 1992 Stock Compensation Plan, incorporated herein by
reference from Exhibit 10(iii)(n) to the company's Annual Report on
Form 10-K, file No. 1-6948, for the year ended December 31, 1992.
(xii) SPX Corporation Supplemental Employee Stock Ownership Plan,
incorporated herein by reference from the company's Annual Report on
Form 10-K, file No. 1-6948, for the year ended December 31, 1990.
(xiii) Sealed Power Technologies L.P. Retirement Fund, incorporated herein by
reference from Exhibit 10(viii) to SPT's and SPT Corp.'s Annual Report
on Form 10-K, file No. 33-27994, for the year ended December 31, 1989.
(xiv) Sealed Power Technologies L.P. Pension Plan No. 302, incorporated
herein by reference from Exhibit 4(ix) to SPT's and SPT Corp.'s Annual
Report on Form 10-K, file No. 33-27994, for the year ended December
31, 1989.
11 Statement regarding computation of earnings per share. See
Consolidated Statements of Income, page 28 of this Form 10-K.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
27 Financial data schedule.
99 Consolidated Financial Statements of SPT and SPT Corp., incorporated
herein by reference from SPT's and SPT Corp.'s Annual Report on Form
10-K, file No. 33-27994, for the year ended December 31, 1993.
</TABLE>
(b) Reports on Form 8-K.
None.
59
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 22, 1995
SPX CORPORATION
(Registrant)
By WILLIAM L. TRUBECK
--------------------------------------
William L. Trubeck
Senior Vice President, Finance,
Chief Financial and
Accounting Officer
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the 22nd day of
March, 1995.
POWER OF ATTORNEY
The undersigned officers and directors of SPX Corporation hereby severally
constitute Dale A. Johnson, William L. Trubeck or James M. Sheridan and each of
them singly our true and lawful attorneys, with full power to them and each of
them singly, to sign for us in our names in the capacities indicated below any
and all amendments to this Annual Report, and generally to do all such things in
our name and on our behalf in our capacities as officers and directors to enable
SPX Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any one of them, to any said amendments to this Annual
Report.
<TABLE>
<S> <C>
DALE A. JOHNSON CURTIS T. ATKISSON, JR.
- --------------------------------------- -----------------------------------------
Dale A. Johnson, Chairman Curtis T. Atkisson, Jr.
and Chief Executive Officer; President and Chief
Director Operating Officer;
Director
WILLIAM L. TRUBECK J. KERMIT CAMPBELL
- --------------------------------------- -----------------------------------------
William L. Trubeck J. Kermit Campbell
Senior Vice President, Finance, Director
Chief Financial and
Accounting Officer
SARAH R. COFFIN FRANK A. EHMANN
- --------------------------------------- -----------------------------------------
Sarah R. Coffin Frank A. Ehmann
Director Director
EDWARD D. HOPKINS CHARLES E. JOHNSON II
- --------------------------------------- -----------------------------------------
Edward D. Hopkins Charles E. Johnson II
Director Director
RONALD L. KERBER PETER H. MERLIN
- --------------------------------------- -----------------------------------------
Ronald L. Kerber Peter H. Merlin
Director Director
DAVID P. WILLIAMS
- ---------------------------------------
David P. Williams
Director
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF SPX CORPORATION
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OR PERCENTAGE
AND NAME UNDER WHICH JURISDICTION OWNED
IT DOES BUSINESS OF INCORPORATION BY REGISTRANT
- -------------------------------------------------------------- ---------------- -------------
<S> <C> <C>
SPX Canada, Inc............................................... Canada-Dominion 100%
SPX Australia Pty. Ltd........................................ Australia 100%
SPX Europe AG................................................. Switzerland 100%
SPX U.K. Ltd.................................................. United Kingdom 100%
SPX Deutschland GmbH.......................................... Germany 100%
SPX Italiana, S.R.L........................................... Italy 100%
Bear Automotive, S.A.......................................... Switzerland 100%
Bear France S.A............................................... France 100%
SPX Netherlands, B.V.......................................... The Netherlands 100%
Kent-Moore Do Brasil Industria & Commerce, Ltda............... Brazil 100%
Sealed Power Technologies (Europe) Limited Partnership........ Delaware 70%
Sealed Power Technologies Limited Partnership................. Delaware 98%
Bear Automotive Equipment Leasing L.P......................... Delaware 75%
JATEK, Limited................................................ Japan 50%
RSV Corporation............................................... Japan 50%
SPX Credit Corporation........................................ Delaware 100%
SPX Iberica, S.A. ............................................ Spain 100%
Lowener GmbH.................................................. Germany 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
[ARTHUR ANDERSEN LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 8, 1995, included in this Form 10-K for the year
ended December 31, 1994, into the Company's previously filed registration
statement on Form S-8 (File No. 33-24043).
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPX CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,859
<SECURITIES> 0
<RECEIVABLES> 136,512
<ALLOWANCES> (7,968)
<INVENTORY> 151,821
<CURRENT-ASSETS> 406,281
<PP&E> 408,365
<DEPRECIATION> (193,512)
<TOTAL-ASSETS> 931,663
<CURRENT-LIABILITIES> 221,872
<BONDS> 260,000
<COMMON> 156,478
0
0
<OTHER-SE> 2,214
<TOTAL-LIABILITY-AND-EQUITY> 931,663
<SALES> 1,079,870
<TOTAL-REVENUES> 1,092,747
<CGS> 817,505
<TOTAL-COSTS> 1,027,930
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,885
<INCOME-PRETAX> 23,900
<INCOME-TAX> 9,800
<INCOME-CONTINUING> 14,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,100
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
