SPX CORP, 10-K405, 1998-03-31

SPX CORP
10-K405, 1998-03-31
CUTLERY, HANDTOOLS & GENERAL HARDWARE

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<PAGE> 1

================================================================================

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, 1997, 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)

<TABLE>
<S> <C>
DELAWARE (State or other jurisdiction of 38-1016240 (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:
</TABLE>

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C> <C> <C>
COMMON NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
11 3/4% SENIOR SUBORDINATED NOTES, DUE 2002 NEW YORK STOCK EXCHANGE
</TABLE>

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.

$916,664,000 AS OF FEBRUARY 27, 1998
------------------------

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

12,633,493 SHARES AS OF FEBRUARY 27, 1998
------------------------

DOCUMENTS INCORPORATED BY REFERENCE: REGISTRANT'S PROXY STATEMENT FOR ITS
1998 ANNUAL MEETING 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]
================================================================================
<PAGE> 2

PART I

ITEM 1. BUSINESS

SPX Corporation ("SPX" or the "Company") is a global participant in the
design, manufacture and marketing of products and services for the motor vehicle
industry. Its operations are focused on the markets for specialty service tools,
equipment, and services used in vehicular repair and maintenance, and 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 is a multi-
national corporation with operations in 14 countries. The corporate office is
located in Muskegon, Michigan.

RECENT DEVELOPMENTS

The following significant events and initiatives were undertaken since
January 1, 1997:

-On February 17, 1998, the Company announced that it had made an offer to
acquire Echlin Inc. ("Echlin") for cash and Company common stock valued at
approximately $48.00 per Echlin share (based upon the Company's February
13, 1998 closing stock price of $75 1/16). The market value of the offer
price per Echlin share will vary with the Company's actual stock price.
The offer consists of $12.00 in cash and 0.4796 Company share per Echlin
share. At February 17, 1998, the Company owned approximately 1.15 million
Echlin shares, or approximately 1.8% of its outstanding shares. Echlin,
with annual sales of $3.6 billion, manufactures a wide scope of safety-
and efficiency-related products for the world's 650 million motor
vehicles. It employs 30,000 associates in over 150 operations spread
across six continents.

-During 1997, the Company recorded special charges of $116.5 million pretax
($74.6 million after-tax). The special charges primarily included costs to
combine its OE Tool and Equipment and Aftermarket Tool and Equipment
groups into a single Service Solutions Group and to reorganize its Service
Solutions field sales and service organization. The charges included the
closing of several facilities and sales offices with a commensurate
reduction in work force, in order to reposition the Service Solutions
Group in response to changing market dynamics. The Company estimates that
the pretax savings from these actions will be $3.0 million in 1998 and
$10.0 million in 1999.

-In November 1997, the Company announced the formation of the Enterprise
Alliance which is developing technical standards for the integration of
computer based equipment in vehicle repair shops.

-In May 1997, the Company completed a Dutch auction self-tender offer for
2.147 million shares of the Company's common stock at $56.00 per share.
During the last half of 1997, 390,200 additional shares of common stock
were purchased in the open market. Concurrent with the Dutch auction, the
Company announced the elimination of quarterly cash dividends in favor of
open market purchases of common stock as the preferred method of
distributing cash to shareholders. At December 31, 1997, the Company was
authorized to purchase approximately 625,000 additional shares in the open
market.

-In May 1997, the Company obtained a new $400.0 million unsecured revolving
credit agreement with a syndicate of banks to provide debt capacity for
business operations, acquisitions, and the repurchase of common stock.

-In April 1997, the Company announced plans to build a 45,000 square foot,
$8.4 million die-casting facility in Pierceton, Indiana. During the first
quarter of 1998, the plant began production.

-In April 1997, the Company purchased $126.7 million of its 11 3/4% Senior
Subordinated Notes in a tender offer at a $16.4 million premium.
Approximately $1.7 million of these notes remain outstanding.

-In March 1997, the Company acquired A.R. Brasch Marketing Inc., which
provides technical service and training materials, as well as owners'
manuals, for vehicle manufacturers and has annual sales approaching $10.0
million.

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<PAGE> 3

-In February 1997, the Company completed the sale of its Sealed Power
division for $223.0 million in cash and recorded an after-tax gain of
$31.2 million.

-In January 1997, the Company acquired an additional 30% interest in JATEK,
a joint venture in Japan, and an additional 10% interest in IBS Filtran, a
joint venture in Germany. The Company now owns 80% of JATEK and 60% of IBS
Filtran and began consolidating these entities in 1997.

BUSINESS SEGMENTS

The Company is comprised of two business segments. Service Solutions
includes operations that design, manufacture and market a wide range of
specialty service tools, equipment and services, primarily to the global motor
vehicle industry. Vehicle Components includes operations that design,
manufacture and market component parts for light and heavy-duty vehicle markets.
Segment and geographic information for the three years ended December 31, 1997
is incorporated by reference from Note 2 to the Consolidated Financial
Statements in this report.

SERVICE SOLUTIONS

The Service Solutions segment includes two operating divisions that design,
manufacture and market a wide range of specialty service tools, equipment and
services primarily to the worldwide motor vehicle industry. Approximately 24% of
revenues are to non-North American customers.

The Company competes with numerous companies that specialize in certain
lines of its products and services. The Company believes it is the world leader
in offering specialty service tools and equipment for motor vehicle
manufacturers' dealership networks. The Company is a major producer of
electronic engine diagnostic equipment and emissions testing 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 dealerships
tend to vary with changes in vehicle design and the number of dealerships and
are not directly dependent on the volume of vehicles that are produced by the
motor vehicle manufacturers.

Design of specialty service tools is critical to their functionality and
generally requires close coordination with the motor vehicle manufacturer and
the ultimate users of the tools. These products are marketed as solutions to
service problems and as aids to productivity 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
dealership equipment programs coordinated with certain motor vehicle
manufacturers and aftermarket service organizations.

The Company's Service Solutions Segment manufacturers and sells certain
products that have implications related to the transition to the year 2000. The
year 2000 problem refers to the inability of certain computer systems and
products with embedded logic to recognize the date change from 1999 to 2000. The
Company has a program in place to address the year 2000 problem, the status of
which is discussed further in the Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Service Solutions Group -- This division provides customers with
essential program and general specialty service tools, dealer equipment,
technical service and training materials, and other services. Customers
include automotive, heavy-duty, agricultural and construction vehicle
dealerships of motor vehicle manufacturers. These products and services are
sold or provided using the brands and trade names of Kent-Moore, OTC, V.L.
Churchill, Lowener OTC Tool, Dieseltune, Miller Special Tools, Jurubatech,
Brasch Tech Data, Dealer Equipment and Services, and, in some cases, the
motor vehicle manufacturer's identity. Essential program and general
specialty service tools include specialty hand-held mechanical tools and
specialty hand-held electronic diagnostic instruments and related software.
These products are based on customer needs, primarily to perform warranty
and other service work at franchised dealers. 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 dealers under both
essential and general programs. Essential programs are those in which the

2
<PAGE> 4

motor vehicle manufacturer requires its dealers to purchase and maintain
the tools for warranty and service work.

This division also provides the motor vehicle service aftermarket with
a wide range of specialty service tools and equipment. These products are
marketed under the brand names of Allen Testproducts, Bear, OTC, Robinair,
Wheelforce, and V.L. Churchill. Certain of the division's aftermarket
products are marketed to dealers of motor vehicle manufacturers. The
division also markets a portion of its products to the refrigeration and
non-vehicular service repair market. Products include specialized
mechanical, electronic, and hydraulic service tools, electronic diagnostic
equipment, refrigeration vacuum pumps, refrigerant recovery, recharging and
recycling equipment and leak detection equipment, refrigerant and engine
coolant recovery and recycling equipment, vehicle emissions testing
equipment, wheel service equipment and shop equipment. The division
distributes its products through warehouse distributors and jobbers, a
direct salesforce, OEM distribution, and independent distributorships
(primarily in foreign countries). In-house sales and technical staffs
support these various types of distribution. In North America, the division
is supported by a network of distribution and service centers.

The division also administers 21 dealer equipment programs in North
America. Included are programs for General Motors, Chrysler, Ford, Saturn,
Mercedes-Benz, Mobil Oil, Michelin, Nissan Motor, Hyundai and others. Under
the motor vehicle manufacturer's identity, the division supplies service
equipment and support material to dealerships, develops and distributes
equipment catalogues, and helps dealerships assess and meet their service
equipment needs.

The division's manufacturing operations are located in the United
States. Sales and marketing, and engineering operations exist in the United
States, Canada, Switzerland, Germany, the United Kingdom, Italy, France,
Australia, Mexico, Spain and Brazil. The division also manages the
Company's 80% interest in JATEK, a Japanese company that markets specialty
service tools and equipment in the Pacific Rim.

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 one-third 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 United Kingdom, The Netherlands and Singapore.

The division is one of two major producers in this marketplace, which
is also supplied by many niche companies.

VEHICLE COMPONENTS

The Company has a range of products for both original equipment
manufacturers and aftermarket customers. Each of the Vehicle Components
segment's operating divisions has achieved various OEM customer quality
recognition and awards.

The Vehicle Components segment includes three 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 markets are
composed of two primary sectors: (i) the OEM sector and (ii) the vehicle
maintenance and repair sector; the so-called 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; (b) foreign companies
producing vehicles in North America and Europe; (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.

3
<PAGE> 5

Aftermarket customers include the service organizations of OEMs, automotive
parts manufacturers, and distributors and private brand distributors.

OEM contracts typically range from one to five years in length. The one
year contracts typically are renewed or renegotiated, depending on part changes,
in the ordinary course of business. The longer term contracts typically contain
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 has 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 uses this technology to design and
manufacture solenoid valves for electronically controlled automatic
transmissions.

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.

Contech -- This division produces precision aluminum and magnesium
die-cast parts for automotive steering 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 fuel systems, clutches, and transmissions. Approximately
one-half of the castings are machined by the division prior to delivery to
customers.

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 and repackagers.

The division also participates in the worldwide OEM market. In Europe,
the Company's 60% owned joint venture, IBS Filtran, manufactures and
distributes filters to OEM customers. Additionally, the division exports
filters to OEM manufacturers in Japan, Korea and Australia.

INTERNATIONAL OPERATIONS

The Company has wholly-owned operations located in Australia, Brazil,
Canada, France, Germany, Italy, Mexico, The Netherlands, Singapore, Spain,
Switzerland and the United Kingdom. The Company has an 80%

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interest in JATEK, a Japanese company that sells various products into the
Pacific Rim market, including many of the Company's specialty service tool
products, and a 60% interest in IBS Filtran, a German company that manufacturers
and distributes automotive transmission filters to the European market.

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:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Export sales:
To unaffiliated customers............................... $ 87.0 $118.6 $ 83.0
To affiliated customers................................. 27.2 24.4 27.9
------ ------ ------
Total................................................ $114.2 $143.0 $110.9
====== ====== ======
</TABLE>

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.

The Company spent approximately $24.1 million on research activities
relating to the development and improvement of its products in 1997, $24.6
million in 1996 and $26.3 million in 1995. There was no customer sponsored
research activity in 1997, 1996 or 1995.

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, aluminum, magnesium, plastic and electronic components. These raw
materials and components 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 1997, the Company's employment was 4,593. Approximately 286
of the Company's 2,216 U.S. production and maintenance employees are covered by
collective bargaining agreements with various unions. These agreements expire at
different times over the next several years. 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.

5
<PAGE> 7

Ford Motor Company and its various divisions, dealers and distributors were
approximately 12%, 11%, and 12% of the Company's consolidated sales in 1997,
1996, and 1995, respectively. Sales to Chrysler Corporation and its various
divisions, dealers and distributors were approximately 3%, 6%, and 5% of the
Company's consolidated sales in 1997, 1996, and 1995, respectively. No other
customer or group of customers under common control accounted for more than 10%
of consolidated sales for any of these years.

The Company does not believe that order backlog is a significant factor in
the Service Solutions segment. Within the Vehicle 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 Service Solutions
revenues.

ITEM 2. PROPERTIES

UNITED STATES -- The principal properties used by the Company for
manufacturing, administration and distribution consist of 26 separate facilities
totaling approximately 2.1 million square feet. These facilities are located in
Georgia, Illinois, Indiana, Michigan, Minnesota, and Ohio. All facilities are
owned, except for 8, which are leased (all non-manufacturing). These leased
facilities aggregate 393,000 square feet and have an average lease term of 5
years.

The Company also has 21 facilities located throughout the United States for
distribution and servicing of its Service Solutions business. These distribution
and service centers aggregate 93,000 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 156,000 square feet and
leases approximately 149,000 square feet of manufacturing, administration and
distribution facilities in Australia, Brazil, Canada, Germany, Italy, Japan, 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, 1997. The Company
configures and maintains these facilities as required by their business use. At
December 31, 1997, the Company believes that it does not have significant excess
capacity at any of its major facilities. As part of restructuring actions, a
141,000 square foot owned manufacturing facility, a 95,000 square foot leased
distribution facility, and a 74,000 square foot owned administrative facility in
North America will be closed during 1998. The Company plans to sell or sublease
the facilities once they are vacated. Additionally, several smaller leased
facilities for distribution and servicing will be closed during 1998, none of
material significance to the Company's business.

ITEM 3. LEGAL PROCEEDINGS

Note 13, Commitments and Contingent Liabilities to the Consolidated
Financial Statements is hereby incorporated by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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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>
John B. Blystone (44)......... Chairman, President and Chief Executive Officer 1995(1)
Christopher J. Kearney (42)... Vice President, Secretary and General Counsel 1997(2)
Drew T. Ladau (38)............ Vice President, Business Development 1998(3)
Stephen A. Lison (57)......... Vice President, Human Resources 1989
Patrick J. O'Leary (40)....... Vice President, Finance, Treasurer and Chief 1996(4)
Financial Officer
Thomas J. Riordan (41)........ President, Service Solutions 1997(5)
</TABLE>

- ---------------

See page 53 for a complete list of all executive compensation plans and
arrangements.

(1) Effective November 1995, Mr. Blystone was elected Chairman, President and
Chief Executive Officer. From September 1994 through November 1995, he
served as President and Chief Executive Officer, Nuovo Pignone, an 80% owned
subsidiary of General Electric Company. From November 1991 through August
1994 he served as Vice President, General Manager, GE Superabrasives of
General Electric Company.

(2) Effective February 1997, Mr. Kearney was appointed Vice President, Secretary
and General Counsel. From April 1995 through January 1997, he served as
Senior Vice President and General Counsel of Grimes Aerospace Company. From
September 1988 through April 1995, he was Senior Counsel at the GE Plastics
business group of General Electric Company.

(3) Effective February 1998, Mr. Ladau was appointed Vice President, Business
Development. From July 1996 through January 1998, he served as Director of
Business Development of the Company. From April 1995 through June 1996, he
served as General Manager, Emhart Powers division of Black & Decker
Corporation. From February 1992 through March 1995, he served as Manager,
Business Development, GE Superabrasives of General Electric Company.

(4) Effective October 1996, Mr. O'Leary was appointed Vice President, Finance,
Treasurer, and Chief Financial Officer. From 1994 through September 1996, he
served as Chief Financial Officer and a director of Carlisle Plastics, Inc.
From 1982 through 1994, he served in various managerial capacities at
Deloitte & Touche LLP, becoming Partner in 1988.

(5) Effective October 1997, Mr. Riordan was appointed President, Service
Solutions Business. From February 1996 through September 1997, he served as
President OE Tool & Equipment division of the Company. From 1994 through
January 1996, he served as President of Consolidated Sawmill Machinery
International, Inc. From 1991 through 1994, he was Vice President of
Manufacturing at IVEX Corporation.

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<PAGE> 9

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 selling 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> <C>
1997
4th Quarter................................... $70 3/8 $58 7/16 $.00
3rd Quarter................................... 65 3/4 49 .00
2nd Quarter................................... 70 5/8 41 7/8 .00
1st Quarter................................... 49 3/4 37 3/8 .10

1996
4th Quarter................................... $40 1/2 $26 7/8 $.10
3rd Quarter................................... 31 5/8 21 5/8 .10
2nd Quarter................................... 27 1/8 18 .10
1st Quarter................................... 18 1/8 13 5/8 .10
</TABLE>

The Company discontinued quarterly cash dividends beginning in the second
quarter of 1997. The Company announced that open market purchases of common
stock will be the preferred method of distributing cash to shareholders.

The approximate number of shareholders of the Company's Common Stock as of
December 31, 1997 was 6,612.

The Company is subject to a number of restrictive covenants under various
debt agreements. Please see Note 14 to the consolidated financial statements for
further discussion.

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<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $922.3(1) $1,109.4 $1,098.1 $1,079.9 $ 747.2(6)
Operating income (loss)............ (42.4)(2) (17.0)(4) 31.1(5) 57.4 (45.8)(7)
Other expense, (income), net....... (74.2)(1) (0.7) (3.0) -- 102.9(8)
Interest expense, net.............. 13.9 31.8 35.7 35.2 15.9
------ -------- -------- -------- --------
Income (loss) before income
taxes............................ 17.9 (48.1) (1.6) 22.2 41.2
Income taxes....................... 21.3 (7.6) 0.2 (9.1) (28.1)
------ -------- -------- -------- --------
Income (loss) from continuing
operations....................... $ (3.4) $ (55.7) $ (1.4) $ 13.1 $ 13.1
------ -------- -------- -------- --------
Diluted income (loss) per share.... $(0.27) $ (4.04) $ (0.10) $ 1.02 $ 1.04
Weighted average number of common
shares outstanding............... 12.8 13.8 13.2 12.8 12.6
Dividends paid..................... $ 0.10 $ 0.40 $ 0.40 $ 0.40 $ 0.40
Other Financial Data:
Working capital.................. $ 97.0 $ 233.7 $ 152.5 $ 151.9 $ 119.4
Total assets..................... 583.8 616.0 831.4 929.0 1,024.4
Total debt....................... 205.3 229.3 319.8 415.2 430.2
Shareholders' equity............. (43.3)(3) 105.9 162.2 158.7 145.4
Capital expenditures............. 22.6 20.2 31.0 48.5 15.1
Depreciation and amort........... 25.0 40.8 43.5 38.5 24.4
</TABLE>

- ---------------

(1) In late 1996 and early 1997, the Company divested the Hy-Lift and Sealed
Power divisions, respectively. 1997 includes a $71.9 million gain on the
sale of the Sealed Power division. Refer to Note 4 to the consolidated
financial statements for explanation.

(2) Includes special charges of $116.5 million. Refer to Note 5 to the
consolidated financial statements for explanation.

(3) During 1997, the Company purchased $141.4 million of its common stock.

(4) Includes special charges of $20 million and a write-off of goodwill of
$67.8 million. Refer to Notes 5 and 12 to the consolidated financial
statements for explanation.

(5) Includes special charges of $10.7 million. Refer to Note 5 to the
consolidated financial statements for explanation.

(6) In 1993, the Company acquired Allen Testproducts and Sealed Power
Technologies Limited Partnership and divested the Sealed Power Replacement
and Truth divisions.

(7) Includes special charges of $27.5 million.

(8) Includes a $105.4 million gain on the divestitures of the Sealed Power
Replacement and Truth divisions.

9
<PAGE> 11

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.

Significant Events and Initiatives

The following significant events and initiatives were undertaken since
January 1, 1997:

- On February 17, 1998, the Company announced that it had made an offer to
acquire Echlin Inc. ("Echlin") for cash and Company common stock valued
at approximately $48.00 per Echlin share (based upon the Company's
February 13, 1998 closing stock price of $75 1/16). The market value of
the offer price per Echlin share will vary with the Company's actual
stock price. The offer consists of $12.00 in cash and 0.4796 Company
share per Echlin share. At February 17, 1998, the Company owned
approximately 1.15 million Echlin shares, or approximately 1.8% of its
outstanding shares. Echlin, with annual sales of $3.6 billion,
manufactures a wide scope of safety- and efficiency-related products for
the world's 650 million motor vehicles. It employs 30,000 associates in
over 150 operations spread across six continents.

- During 1997, the Company recorded special charges of $116.5 million
pretax ($74.6 million after-tax). The special charges primarily included
costs to combine its OE Tool and Equipment and Aftermarket Tool and
Equipment groups into a single Service Solutions Group and to reorganize
its Service Solutions field sales and service organization. The charges
included the closing of several facilities and sales offices with a
commensurate reduction in work force, in order to reposition the Service
Solutions Group in response to changing market dynamics. The Company
estimates that the pretax savings from these actions will be $3.0 million
in 1998 and $10.0 million in 1999.

- In November 1997, the Company announced the formation of the Enterprise
Alliance which is developing technical standards for the integration of
computer based equipment in vehicle repair shops.

- In May 1997, the Company completed a Dutch auction self-tender offer for
2.147 million shares of the Company's common stock at $56.00 per share.
During the last half of 1997, 390,200 additional shares of common stock
were purchased in the open market. Concurrent with the Dutch auction, the
Company announced the elimination of quarterly cash dividends in favor of
open market purchases of common stock as the preferred method of
distributing cash to shareholders. At December 31, 1997, the Company was
authorized to purchase approximately 625,000 additional shares in the
open market.

- In May 1997, the Company obtained a new $400.0 million unsecured
revolving credit agreement with a syndicate of banks to provide debt
capacity for business operations, acquisitions, and the repurchase of
common stock.

- In April 1997, the Company announced plans to build a 45,000 square foot,
$8.4 million die-casting facility in Pierceton, Indiana. During the first
quarter of 1998, the plant began production.

- In April 1997, the Company purchased $126.7 million of its 11 3/4% Senior
Subordinated Notes in a tender offer at a $16.4 million premium.
Approximately $1.7 million of these notes remain outstanding.

- In March 1997, the Company acquired A.R. Brasch Marketing Inc., which
provides technical service and training materials, as well as owners'
manuals, for vehicle manufacturers and has annual sales approaching $10.0
million.

- In February 1997, the Company completed the sale of its Sealed Power
division for $223.0 million in cash and recorded an after-tax gain of
$31.2 million.

- In January 1997, the Company acquired an additional 30% interest in
JATEK, a joint venture in Japan, and an additional 10% interest in IBS
Filtran, a joint venture in Germany. The Company now owns 80% of JATEK
and 60% of IBS Filtran and began consolidating these entities in 1997.

10
<PAGE> 12

Overview of 1997

Consolidated Revenues -- Revenues for 1997 were down $187.1 million,
principally due to the sale of the Sealed Power division in February 1997 and
the sale of the Hy-Lift division in November 1996. On a pro forma basis, 1997
revenues were $898.8 million, up 7% over 1996 pro forma revenues of $839.9
million. The market was stronger for essential program tools, dealer equipment,
gas emissions testing equipment (principally state programs in Pennsylvania,
California and New York), vehicle components and high-pressure hydraulic tools.
Sales of PC based engine diagnostic and wheel service products did not reach
expectations. Revenues for 1996 included a one time $32.0 million dealer
equipment sale to one customer. Pro forma 1997 revenues included approximately
$40.0 million of revenues from JATEK, IBS Filtran and A.R. Brasch. The $32.0
million of dealer equipment sales in 1996 included the distribution of a new
model diagnostic unit to all dealers of a major vehicle manufacturer. These
units are not expected to be replaced by the vehicle manufacturer for several
years.

Current prospects for 1998 are positive for most of the Company's business
lines. Program tool sales levels are expected to increase from 1997 levels. U.S.
vehicle production forecasts anticipate levels similar to 1997, presuming a
continuing stable U.S. economy. Increases in 1998 revenues are expected to
include the realization of additional dealer equipment business from new
customers. The sales volume of emissions-related equipment remains a major
uncertainty. While several states and regions still indicate initiation of
enhanced gas emissions testing programs in 1998, previous experience indicates
that these assertions could change. Also, due to the restructuring actions
announced in the fourth quarter of 1997, sales of PC based engine diagnostic and
wheel service products will be lower in 1998 than in 1997.

Consolidated Operating Income (Loss) -- Operating losses in 1997 and 1996
were $42.4 million and $17.0 million, respectively. The 1997 operating loss was
significantly impacted by special charges of $116.5 million, primarily to
combine two Service Solutions businesses into a single Service Solutions Group
and to reorganize its Service Solutions field sales and service organization
(see Note 5 to the consolidated financial statements for further discussion).
The 1996 operating loss included special charges of $20.0 to consolidate five
Service Solutions divisions into two divisions and a write-off of goodwill
related to Automotive Diagnostics of $67.8 million (see Notes 5 and 12 to the
consolidated financial statements for further discussion). The 1996 operating
results also included the Sealed Power and Hy-Lift divisions, whereas, the 1997
operating results only included the Sealed Power division through February 7,
1997, its date of disposition. On a pro forma basis, this reduced 1997 operating
income by approximately $13.8 million when compared to 1996.

Operating income in 1998 will be positively impacted by overall increased
revenues and by cost reductions associated with the fourth quarter 1997
restructuring. The Company has estimated that approximately $3.0 million and
$10.0 million of pretax savings will be realized in 1998 and 1999, respectively,
as the combination of the OE Tool and Equipment and Aftermarket Tool and
Equipment businesses is implemented.

Consolidated Cash Flow and Debt Levels -- During 1997, the Company reduced
its total debt by $28.5 million. This reduction was principally a net result of
the $223.0 million received on the sale of the Sealed Power division, offset
principally by $141.4 million of common stock purchased during the year, capital
expenditures of $22.6 million and $5.1 million invested in businesses. Cash flow
from operations was strong, but was reduced by the $14.9 million investment in
common stock of Echlin Inc., the $26.0 million effect of terminating an accounts
receivable securitization program and higher accounts receivable levels at
year-end due to strong fourth quarter 1997 revenues of $241.7 million when
compared to pro forma fourth quarter 1996 revenues of $191.1 million.

Cash flow in 1998 will be negatively impacted by the cash spending on the
1997 fourth quarter special actions, estimated to be $49.0 million.
Additionally, management believes that further improvements in working capital
management (particularly accounts receivable) are available for 1998. Capital
expenditures in 1998 are expected to be approximately $30.0 million.

11
<PAGE> 13

RESULTS OF OPERATIONS -- COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995

CONSOLIDATED

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues:
Service Solutions..................................... $633.4 $ 594.2 $ 572.3
Vehicle Components.................................... 288.9 515.2 525.8
------ -------- --------
Total......................................... $922.3 $1,109.4 $1,098.1
====== ======== ========
Operating income (loss):
Service Solutions..................................... $(53.2) $ (37.2) $ 24.4
Vehicle Components.................................... 38.8 41.9 26.2
General corporate expenses............................ (28.0) (21.7) (19.5)
------ -------- --------
Total......................................... $(42.4) $ (17.0) $ 31.1
Other expense (income), net............................. (74.2) (0.7) (3.0)
Interest expense, net................................... 13.9 31.8 35.7
------ -------- --------
Income (loss) before income taxes....................... $ 17.9 $ (48.1) $ (1.6)
Provision (benefit) for income taxes.................... 21.3 7.6 (0.2)
------ -------- --------
Income (loss) from continuing operations................ $ (3.4) $ (55.7) $ (1.4)
Income (loss) from discontinued operation............... -- -- (2.8)
------ -------- --------
Income (loss) before extraordinary item................. $ (3.4) $ (55.7) $ (4.2)
Extraordinary item, net of taxes........................ (10.3) (6.6) (1.1)
------ -------- --------
Net income (loss)....................................... $(13.7) $ (62.3) $ (5.3)
====== ======== ========
Capital expenditures.................................... $ 22.6 $ 20.2 $ 31.0
Depreciation and amortization........................... 25.0 40.8 43.5
Total assets............................................ 583.8 616.0 831.4
</TABLE>

General corporate expenses and other consolidated items that are not
allocated to the segments are explained below, followed by segment information.

General corporate expenses represent general unallocated expenses -- 1997
expenses included a $4.1 million special charge for corporate executive staff
reductions and higher incentive compensation than 1996. 1996 expenses included
higher incentive compensation than 1995. 1995 expenses included a $1.8 million
charge related to early retirement and severance costs at the corporate office.

Other expense (income), net represents expenses not included in the
determination of operating results, including gains or losses on currency
exchange, fees incurred on the Company's accounts receivable securitization
program (terminated in early 1997), gains or losses on the sale of fixed assets,
and unusual nonoperational gains or losses. 1997 includes a $71.9 gain on the
sale of the Sealed Power division. 1996 includes a $1.0 million gain on the sale
of a closed manufacturing facility. 1995 reflects a $1.5 million gain on the
sale of the Company's aftermarket export distribution business, a $0.9 million
gain on the sale of the Company's 50% investment in RSV, and a $0.6 million gain
on the sale of a Company airplane.

Interest expense, net for 1997 was down $17.9 million from 1996. The
Company's level of debt in 1997 was lower than 1996 due to strong cash flows in
1996 and the $223.0 million of proceeds from the sale of the Sealed Power
division. 1997 interest expense, net, was also down due to the lower rates on
the new revolving credit facility in 1997, whereas, much of 1996 borrowings were
the 11 3/4% Senior Subordinated Notes. Interest expense, net, for 1996 was lower
than 1995 because of reduced debt levels.

Provision (benefit) for income taxes -- The 1997 effective income tax rate
was 119.1%. This rate reflects the effect of the write-off of non-deductible
goodwill included in the gain on the sale of the Sealed Power division. Without
the effect of the sale of the Sealed Power division, the Company's effective
income tax rate

12
<PAGE> 14

would have been 36% in 1997. The 1996 effective income tax rate was also
unusual, principally because the write-off of $67.8 million of goodwill was not
tax deductible. The 1996 effective tax rate would have been approximately 39%,
excluding the impact of the goodwill write-off. The 1995 effective income tax
rate of 14.4% was impacted by a $1.3 million benefit recorded on the sale of the
Company's 50% interest in RSV, and by not being able to tax benefit the minority
interest charge of $4.8 million. Without these unusual items, the 1995 effective
income tax rate would have been approximately 41%. See Note 10 to the
consolidated financial statements for further information.

Income (loss) from discontinued operations for 1995 includes the results of
operations of SPX Credit Corporation, net of allocated interest and income
taxes. In 1995, the Company recorded a $4.8 million pretax loss on the sale and
on costs related to closing the operation.

Extraordinary item, net of taxes -- During 1997, the Company purchased
$126.7 million of its 11 3/4% Senior Subordinated Notes in a tender offer at a
premium of $10.3 million, net of income taxes. During 1996, the Company
purchased $100.0 million of these notes in the open market at a premium of $6.6
million, net of income taxes. During 1995, the Company purchased $31.7 million
of these notes in the open market at a premium of $1.1 million, net of income
taxes.

SERVICE SOLUTIONS

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $633.4 $594.2 $572.3
Gross profit............................................... 197.7 186.2 183.6
% of revenues............................................ 31.2% 31.3% 32.1%
Selling, general & administrative.......................... 136.1 135.5 147.1
% of revenues............................................ 21.5% 22.8% 25.7%
Goodwill/intangible amortization........................... 2.3 4.3 5.3
Minority and equity interests.............................. 0.1 (0.1) (0.2)
Special charges and write-off of goodwill.................. 112.4 83.7 7.0
------ ------ ------
Operating income (loss).................................... $(53.2) $(37.2) $ 24.4
====== ====== ======
Capital expenditures....................................... $ 7.4 $ 5.8 $ 7.4
Depreciation and amortization.............................. 10.7 13.0 14.9
Identifiable assets........................................ 320.0 291.5 390.3
</TABLE>

Revenues for 1997 were up $39.2 million, or 6.6% over 1996. This increase
was due to increased essential program tools and gas emission testing equipment
sales. 1996 revenues included one time sales of $32 million of dealer equipment.
Additionally, the consolidation of JATEK and the acquisition of A.R. Brasch
contributed approximately $33.0 million to revenues in 1997. Revenues for 1996
were up $21.9 million, or 3.8% over 1995. This increase was primarily a result
of a $32.0 million dealer equipment sale to one customer during the first half
of 1996. Essential program tool sales were lower than 1995 due to fewer new
vehicle platform introductions during 1996 and reduced sales of engine
diagnostic and wheel service equipment.

Gross margin (gross profit as a percentage of revenues) in 1997 was
comparable with the gross margin in 1996. The decrease in gross margin from 1995
was principally a result of higher dealer equipment sales which have a lower
gross margin (less than 15%).

Selling, General and Administrative Expense ("SG&A") as a percentage of
revenues have declined from 25.7% in 1995 to 22.8% in 1996, and 21.5% in 1997.
The trend reflects the overall cost reduction associated with previous
restructuring actions and other cost reduction initiatives. Research and
development costs in 1995 included higher costs to develop gas emissions and
hand-held diagnostic equipment.

Minority and equity interests -- The 1997 amount represents the 20%
minority owner's share of JATEK's results. In 1996 and 1995, the amount included
equity earnings of JATEK which was 50% owned in those years. During the first
quarter of 1997, the Company acquired an additional 30% of JATEK.

13
<PAGE> 15

Special Charges and Write-off of Goodwill -- In 1997, the Company recorded
$112.4 million of special charges to combine two divisions and to record costs
associated with various legal matters. The special charges in 1996 and 1995
reflected the consolidation of five Service Solutions divisions into two
divisions, a related early retirement program, and downsizing at several
international Service Solutions locations. See Note 5 to the consolidated
financial statements for further discussion.

In 1996, the Company recognized a $67.8 million goodwill write-off, with no
associated tax benefit, related to the 1988 acquisition of Bear Automotive
Company and the 1993 acquisition of Allen Testproducts, collectively referred to
as Automotive Diagnostics. This goodwill represented the Company's intangible
business investment in PC based engine diagnostic equipment, wheel service
equipment and gas emissions testing equipment. See Note 12 to the consolidated
financial statements for further information.

Operating Income (Loss) in 1997 was a $53.2 million loss compared to a
$37.2 million operating loss in 1996. If special charges and write-off of
goodwill were excluded, 1997, 1996 and 1995 operating income would have been
$59.2 million, $46.5 million, and $31.4 million, respectively. The improvement,
excluding the impact of special charges and goodwill write-off, reflects the
impact of increased revenues and the cost reduction initiatives.

Capital Expenditures for 1997 of $7.4 million were up from 1996,
principally due to investments in new information systems. Capital expenditures
for 1996 of $5.8 million were $1.6 million lower than in 1995. Capital
expenditures for 1998 are estimated to be $12 million, and include further
expenditures for new information systems.

Identifiable Assets increased $28.5 million in 1997 due to higher accounts
receivable levels and the effect of terminating the previous $26.0 million
accounts receivable securitization program. The higher accounts receivable also
resulted from significantly higher fourth quarter 1997 revenues than the fourth
quarter of 1996. Identifiable assets decreased in 1996 from 1995 levels as a
result of inventory reductions, the $67.8 million write-off of goodwill, and
capital expenditures that were lower than depreciation and amortization. The
Company will continue to pursue working capital reductions, particularly
accounts receivable and inventory.

VEHICLE COMPONENTS

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................. $288.9 $515.2 $525.8
Gross profit............................................. 55.6 73.1 61.0
% of revenues.......................................... 19.2% 14.2% 11.6%
Selling, general & administrative........................ 15.3 29.3 27.8
% of revenues.......................................... 5.3% 5.7% 5.3%
Goodwill/intangible amortization......................... 1.2 2.9 3.6
Minority and equity interests............................ 0.3 (5.2) (0.3)
Special charges.......................................... -- 4.2 3.7
------ ------ ------
Operating income......................................... $ 38.8 $ 41.9 $ 26.2
====== ====== ======
Capital expenditures..................................... $ 14.4 $ 13.7 $ 23.2
Depreciation and amortization............................ 13.2 26.2 26.3
Identifiable assets...................................... 147.6 271.6 361.8
</TABLE>

Revenues for 1997 were down $226.3 million from 1996 due to the sale of the
Sealed Power division in February 1997 and the sale of the Hy-Lift division in
November 1996. Revenues for 1996 were down $10.6 million, or 2%, from 1995 due
to the sale of the Hy-Lift division in November 1996, and from lower sales to
the aftermarket.

Gross margin in 1997 was 19.2% compared to 14.2% in 1996. The increase was
primarily due to the disposal of Hy-lift and Sealed Power, both lower margin
businesses. Gross margin in 1996 was 14.2% compared to 11.6% in 1995. The
improvement was attributable to overall cost reduction initiatives, mainly at
the piston ring plant in Germany.
14
<PAGE> 16

Selling, General, & Administrative Expense for 1997 of $15.3 million, or
5.3% of revenues, reflected continuing cost containment efforts and the effect
of the divestitures. SG&A for 1996 of $29.3 million, or 5.7% of revenues,
compares to 1995 SG&A of $27.8 million, or 5.3% of revenues. The increase
reflected higher incentive compensation associated with improved performance.

Minority and equity interests -- 1997 reflected the elimination of the 40%
minority ownership in IBS Filtran. 1996 and 1995 reflect the Company's equity
share of earnings or losses in RSV, Promec, IBS Filtran and Allied Ring
Corporation and the impact of earnings and losses of SP Europe. The interest in
RSV was sold in late 1995, the interests in Promec and Allied Ring Corporation
were sold in early 1997 as part of the sale of the Sealed Power division, and
the Company's ownership in IBS Filtran was increased to 60% in early 1997.

Special charges -- During the second quarter of 1996, the Company offered
an early retirement program at the Sealed Power division and recorded a $4.2
million special charge. During 1995, the Company recorded a $3.7 million special
charge for severance costs associated with closing a foundry in Europe.

Operating Income in 1997 of $38.8 million was down $3.1 million from 1996
as a result of the sale of the Sealed Power division. Operating income in 1996
of $41.9 million was up from $26.2 million in 1995 due to the significant impact
of cost reduction initiatives.

Capital Expenditures in 1997 were $14.4 million and included the
construction and start up of a new die-casting facility in Indiana. Capital
expenditures for 1996 of $13.7 million were $9.5 million lower than in 1995 as
efforts were focused upon cost reduction initiatives and process improvements.
1998 capital expenditures are estimated at $18 million.

Identifiable Assets in 1997 decreased significantly to $147.6 million,
reflecting the sale of the Sealed Power division. Identifiable assets in 1996
decreased approximately $90 million over 1995 due to the sale of Hy-Lift
division and because approximately $49 million of liabilities of Sealed Power
division were included in "Net assets under agreement for sale." See Note 4 to
the consolidated financial statements for further information.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Offer to Purchase Echlin Inc. -- On February 17, 1998, the Company
announced that it had made an offer to acquire Echlin Inc. ("Echlin") for cash
and Company common stock valued at approximately $48.00 per Echlin share (based
upon the Company's February 13, 1998 closing stock price of $75 1/16). The
market value of the offer price per Echlin share will vary with the Company's
actual stock price. The offer consists of $12.00 in cash and 0.4796 Company
share per Echlin share. At February 17, 1998, the Company owned approximately
1.15 million Echlin shares, or approximately 1.8% of its shares outstanding.
Immediately following the consummation of the transaction, Echlin shareholders
would own approximately 70% of the outstanding shares of the combined company.

The Company is soliciting demands from Echlin shareholders to call a
special meeting of Echlin shareholders for the purpose of removing and replacing
the Board of Directors of Eclin with the Company's nominees. If elected, the
Company's nominees will take all action needed to facilitate consummation of the
Company's offer, subject to their fiduciary and statutory duties as Echlin
directors. If the Company is successful in having the special meeting called, it
must be held within 90 days of delivery of the written demands to call the
meeting.

The Company's offer is subject to, among other things, approval by Company
and Echlin shareholders, redemption or inapplicability of Echlin's poison pill,
inapplicability of certain provisions of the Connecticut Business Corporation
Act placing restrictions on business combinations, and completion of financing
arrangements. The Company has received a "highly confident" letter from Canadian
Imperial Bank of Commerce and its affiliate, CIBC Oppenheimer Corp., to finance
the cash portion of the offer, refinance existing debt and provide working
capital. The Company estimates that the financing required would be
approximately $2.4 billion.

15
<PAGE> 17

The transaction would be accounted for as a reverse acquisition as the
shareholders of Echlin would own a majority of the shares of the combined
company upon completion of the transaction. Accordingly, for accounting
purposes, the Company would be treated as the acquired company and Echlin would
be considered to be the acquiring company. The purchase price will be allocated
to the assets and liabilities assumed of the Company based on their estimated
fair market values at the acquisition date. Under reverse acquisition
accounting, the purchase price of the Company would be based on the fair market
value of the Company's common stock at the date of acquisition. The cash portion
of the offer would be accounted for as a dividend by the combined company.

Echlin, with annual sales of $3.6 billion, manufactures a wide scope of
safety- and efficiency-related products for the world's 650 million motor
vehicles. It employs 30,000 associates in over 150 operations spread across six
continents.

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 principally in 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 Vehicle Components segment are predominantly dependent upon domestic and
foreign motor vehicle production which can be cyclical and dependent on general
economic conditions and other factors. Revenues within the Service Solutions
segment are dependent upon new vehicle introductions, environmental regulations,
and the general economic status of motor vehicle dealerships and aftermarket
repair 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 usually able to anticipate and manage these requirements.

Impact of Inflation -- The Company believes that inflation has not had a
significant impact on operations during the period 1995 through 1997.

Significance of Goodwill -- The Company had goodwill of $60.2 million and
shareholders' deficit of $43.3 million at December 31, 1997. The Company
amortizes its goodwill on a straight-line method over the estimated periods
benefited, not to exceed 40 years. In determining the estimated useful life,
management considers the nature, competitive position, life cycle position, and
historical and expected future operating income of each acquired company, as
well as the Company's commitment to support these acquired companies through
continued investment in capital expenditures, operational improvements, and
research and development. 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 write-down of goodwill to
recoverable value is appropriate. There can be no assurance that circumstances
will not change in the future that will effect the useful life or carrying value
of goodwill.

EVA Incentive Compensation -- The Company utilizes a measure known as
Economic Value Added ("EVA") for its incentive compensation plans for a majority
of employees. EVA is internally computed by the Company based upon Net Operating
Profit aftertax less a charge on the capital invested in the Company. These
computations use certain assumptions that vary from generally accepted
accounting principles. EVA is not a measure under generally accepted accounting
principles and is not intended to be used as an alternative to net income and
measuring operating performance presented in accordance with generally accepted
accounting principles. The Company believes that EVA, as internally computed,
does represent a strong correlation to the ultimate returns of the Company's
shareholders. Annual incentive compensation expense is dependent upon the annual
change in EVA, relative to preestablished improvement targets and the expense
can vary significantly.

Environmental -- The Company's operations and properties are subject to
federal, state, local, and foreign regulatory requirements relating to
environmental protection. It is the Company's policy to comply fully with
applicable environmental requirements. Management established an ongoing
environmental compliance auditing program in 1989. Based on current information,
management believes that the

16
<PAGE> 18

Company's operations are in substantial compliance with applicable environmental
laws and regulations, and the Company is not aware of any violation that will
have a material adverse effect on the business, the financial condition, or the
results of operations 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. See Note 13 to the consolidated financial
statements for further discussion.

Accounting Pronouncements -- Beginning in 1998, the Company must adopt
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" and Statement No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." Statement No. 130 will require the
Company to report comprehensive income as part of the consolidated financial
statements. The Company expects that foreign currency translation adjustments
will be the principal additional item to present comprehensive income. Statement
No. 131 will require the Company to report certain information about operating
segments in the consolidated financials statements. The Company is currently
evaluating the provisions of this statement to determine its impact upon current
segment disclosures. Statement No. 132 will require the Company to standardize
its disclosures and other information for pensions and other postretirement
benefits.

Year 2000 Issue -- The Company utilizes software and related computer
technologies essential to its operations and to certain products that use two
digits rather than four to specify the year, which could result in a date
recognition problem with the transition to the year 2000. The Company has
established a plan, utilizing both internal and external resources, to assess
the potential impact of the year 2000 problem on the Company's systems and
operations and to implement solutions to address this issue.

The Company is presently in the assessment phase of its year 2000 plan
which includes conducting an inventory of potentially date-sensitive systems and
is also surveying its suppliers and service providers for year 2000 compliance.
The Company's target completion date for correction of critical systems is
December 31, 1998 and its plan is to conduct testing of corrected systems in
1999. Third party compliance and other factors, could adversely affect these
goals.

The Company does not believe that the costs to remediate software and
computer technologies for the year 2000 problem will exceed $5 million over the
next two years, which does not include the costs to replace certain existing
systems. The Company is in the process of implementing a new enterprise resource
planning system across its Service Solutions business. Management estimates that
it will spend approximately $10 million to acquire and install this new system
over the next two years.

As the Company is presently in the assessment phase of its year 2000 plan,
there can be no assurances that the costs of remediation will not be material.
Moreover, there can be no assurances that the Company will not experience
material unanticipated costs and/or business interruption due to year 2000
problems in its internal systems, its supply chain or from customer product
migration issues.

LIQUIDITY AND FINANCIAL CONDITION

The Company's liquidity needs arise from capital investment in equipment,
funding working capital requirements to support business growth initiatives, and
to meet interest costs. Management believes cash flow from operations and credit
arrangements, including any new or additional credit arrangements entered into
in connection with the proposed acquisition of Echlin, will be sufficient to
supply funds needed in 1998.

Cash Flow

<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Net cash provided (used) by operating activities............ $ (15.9) $ 93.3
Net cash provided by investing activities................... 197.4 1.7
Net cash used by financing activities....................... (181.1) (100.3)
Effect of exchange rate changes on cash..................... (0.6) 0.5
------- -------
Net increase (decrease) in cash and cash equivalents........ $ (0.2) $ 4.8
======= =======
</TABLE>

17
<PAGE> 19

Operating activities -- 1997 was significantly impacted by a $73.1 million
increase in accounts receivable. This increase was due to the termination of the
previous accounts receivable program of $26.0 million and the higher fourth
quarter revenues of $241.7 million compared to pro forma 1996 fourth quarter
revenues of $191.1 million. Days sales outstanding of accounts receivable were
64 days at December 31, 1997 which was within normal expected ranges. At
December 31, 1996, days sales outstanding of accounts receivable were 45 days,
but was significantly reduced by the accounts receivable securitization program.
The increase in prepaid and other current assets also reduced 1997 cash from
operating activities due to the $14.9 million investment in the common stock of
Echlin Inc. Ending 1997 inventory levels increased $3.5 million (before the
effect of fourth quarter write-offs) despite the strong fourth quarter revenues
and the incremental inventory associated with the purchases of businesses. This
reflects continued progress in the Company's inventory reduction efforts. At
December 31, 1997, days sales outstanding of inventory was 35 days compared to
51 days at December 31, 1996.

During the fourth quarter of 1997, the inventory levels of engine
diagnostic and wheel service equipment were reduced from approximately $41.0
million at September 30, 1997 to approximately $14.0 million at December 31,
1997. This decrease reflects the reduced value of this inventory of $25.8
million recorded in the fourth quarter of 1997 in connection with management's
strategic decision to exit certain product lines (see Note 5 to the consolidated
financial statements for further discussion). The remaining inventory is
expected to be sold during 1998.

In 1996, cash flow from operating activities was strong and included a
$39.0 million reduction in net operating assets and liabilities, including
accounts receivable and inventory. Cash flows in 1996 included approximately
$20.0 million of spending related to the 1996 and 1995 restructuring actions.

Investing activities -- 1997 cash flow from investing activities included
$223.0 of gross cash proceeds from the sale of the Sealed Power division. Cash
outflows included $20.5 million of capital expenditures, net of proceeds from
the sale of fixed assets, and $5.1 million of investments in A.R. Brasch, JATEK,
and IBS Filtran. 1996 cash flow from investing activities included $15.0 million
of gross cash proceeds from the sale of the Hy-Lift division and capital
expenditures, net of proceeds from the sale of fixed assets, of $13.3 million.

Financing activities -- The primary items in the 1997 cash flow from
financing activities were the purchase of $141.4 million of common stock through
a Dutch auction self-tender offer and open market purchases, paying $16.4
million of costs associated with tendering for $126.7 million of the Company's
11 3/4% Senior Subordinated Notes, and reducing debt by $28.5 million. In 1996,
cash flow from financing activities included $10.7 million of costs associated
with tendering for $100.0 million of the Notes and reducing debt by $90.9
million.

Total Debt -- At December 31, 1997, total debt was comprised primarily of
borrowings on the $400 million revolving credit facility. The weighted average
interest rate on outstanding revolving credit borrowing was 6.7%, at December
31, 1997. The Company has three interest rate cap agreements which entitle it to
receive the amounts, if any, by which LIBOR exceeds 6.5% on $100 million and
9.0% on $37.5 million. These agreements expire in 1998. The following summarizes
the debt outstanding and unused credit availability, as of December 31, 1997:

<TABLE>
<CAPTION>
TOTAL AMOUNT UNUSED CREDIT
COMMITMENT OUTSTANDING AVAILABILITY
---------- ----------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Revolving credit................................. $400.0 $180.0 $202.9(a)
Swingline loan facility.......................... 5.0 0.0 5.0
Senior Subordinated Notes........................ 1.7 1.7 --
Industrial Revenue Bonds......................... 15.1 15.1 --
Other............................................ 13.4 8.5 4.9
------ ------ ------
Total.................................. $435.2 $205.3 $212.8
====== ====== ======
</TABLE>

- ---------------

(a) Decreased by $17.1 million of facility letters of credit outstanding at
December 31, 1997.

The Company is required to maintain compliance with restrictive covenants
contained in the revolving credit agreement, as amended. At December 31, 1997,
the Company was in compliance with all restrictive

18
<PAGE> 20

covenants contained in the revolving credit agreement. Under the most
restrictive of these covenants, the Company was required to:

- Maintain a Debt/EBITDA Ratio less than 3.75/1.0 as of December 31, 1997,
a ratio less than 3.5/1.0 for fiscal quarters ending March, June and
September of 1998, and a ratio less than 3.0/1.0 thereafter. At December
31, 1997, the ratio was 2.34/1.0.

- Maintain a Fixed Charge Coverage Ratio greater than 1.75/1.0 through
September of 1998, and a ratio greater than 2.0/1.0 thereafter. At
December 31, 1997, the ratio was 3.47/1.0.

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 associated
with growth initiatives, and capital expenditures planned for 1998. Aggregate
future maturities of total debt are not material through 2001 (see Note 14 to
the consolidated financial statements). In 2002, 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. If the proposed
transaction to acquire Echlin is consummated, it is anticipated that this debt
will be refinanced.

ADDITIONAL ITEM. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

The Company or its representatives from time to time may make or may have
made certain forward-looking statements, orally or in writing, including without
limitation any such statements made or to be made in the Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in
various SEC filings. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the fullest
extent possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995 (although to the extent these
statements refer to the exchange offer contemplated in connection with the
proposed acquisition of Echlin Inc., the safe harbor provisions do not apply).
Accordingly, such statements are qualified in their entirety by reference to
factors discussed under the caption "Factors That May Effect Future Results" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this filing and by the following discussion of certain important
factors that could cause results to differ materially from those projected in
such forward-looking statements.

The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a continually changing business environment,
and new risk factors emerge from time to time. Management cannot predict such
risk factors, nor can it assess the impact, if any, of such risk factors on the
Company's business or the extent to which any factors, or combination of
factors, may cause actual results to differ materially from those projected in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.

POTENTIAL VOLATILITY OF STOCK PRICE

The market price of the Company's common stock has been, and could be
subject to wide fluctuations in response to, among other things, quarterly
fluctuations in operating results, failure to achieve published estimates of, or
changes in earnings estimates by securities analysts, announcements of new
products or services by competitors, sales of common stock by existing holders,
loss of key personnel or market conditions in the motor vehicle industry.

RELIANCE ON MAJOR CUSTOMERS

Sales to GM, Ford and Chrysler accounted for approximately 22%, 12% and 3%
respectively of the Company's revenues for the year ended December 31, 1997. The
loss of GM, Ford or Chrysler or of any of the Company's other significant
customers could have a material adverse effect on the Company. There is
substantial and continuing pressure from the major OEMs to reduce costs,
including the cost of products and services purchased from outside suppliers
such as the Company. If in the future the Company were unable to
19
<PAGE> 21

generate sufficient cost savings to offset price reductions, the Company's gross
margins could be adversely affected.

REGULATIONS AFFECTING CERTAIN PRODUCT SALES

Sales of certain of the Company's products, namely refrigerant recovery and
recycling systems, and gas emissions testing equipment, are driven primarily by
governmental regulations and laws such as the Federal Clean Air Act. The future
sales of these products can be significantly impacted by changes or amendments
to these regulations and laws or by the level of enforcement efforts to ensure
compliance with these regulations and laws. There is no assurance that changes
in these regulations and laws could not have a material adverse affect on the
Company's results of operations or financial position in the future.

LEGAL EXPOSURE

From time to time, the Company becomes involved in lawsuits arising from
various commercial matters, including but not limited to competitive issues,
contract issues, intellectual property matters, distributor agreements, workers'
compensation and product liability. Litigation tends to be unpredictable and
costly. While litigation costs have historically not been significant, there can
be no assurance that such costs could not have a material adverse affect on the
Company's results of operations or financial position in the future.

The Company maintains property, cargo, auto, product, general liability and
directors' and officers' liability insurance to protect itself against potential
loss exposures. To the extent that losses occur, there could be a material
adverse effect on the Company's financial results depending on the nature of the
loss and the lever of coverage maintained by the Company. From time to time, the
Company reevaluates and may change the types and levels of insurance coverage
that it purchases.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the continued services of its management team,
including John B. Blystone, Chairman of the Board, President and Chief Executive
Officer. Although the Company believes it could replace key employees in an
orderly fashion should the need arise, the loss of such personnel could have a
material adverse effect on the Company.

INTERNATIONAL OPERATIONS

The Company is increasing its sales outside the United States which exposes
the Company to a number of risks including unexpected changes in regulatory
requirements and tariffs, possible difficulties in enforcing agreements, longer
payment cycles, exchange rate fluctuations, difficulties obtaining export
licenses, and the possible imposition of withholding or other taxes, embargoes,
exchange controls and the adoption of other restrictions on foreign trade.
Should any of these risks occur, they may have a material adverse impact on the
operating results of the Company.

FLUCTUATION IN QUARTERLY RESULTS

The Company's quarterly operating results depend on a variety of factors
including the number of and timing of new vehicle platform introductions by
customers and the cyclical vehicle production. Accordingly, the Company may be
subject to significant quarter to quarter fluctuations.

INTEREST RATE CHANGES

The Company's revolving credit borrowing facility provides for variable
interest rates, subject to certain interest rate caps. The interest rates are
established at the time of borrowing based upon the prime rate or LIBOR, plus a
factor. Accordingly, interest expense is subject to variation due to the
variability of these rates.

20
<PAGE> 22

TAX RATE CHANGES

Income tax rate changes by government and changes in the tax jurisdictions
in which the Company operates could influence the effective tax rates in future
years. The anticipated growth of the Company's international business increases
the likelihood of such fluctuation occurring.

SERVICE SOLUTIONS RESTRUCTURING PLAN

The Company has indicated that approximately $3.0 million and $10.0 million
of pretax savings will be realized in 1998 and 1999, respectively, as the
combination of the OE Tool and Equipment and Aftermarket Tool and Equipment
businesses is implemented. The realization of these savings is dependent to a
large extent on the planned reduction of headcount and the reductions in
facilities in the combined business. The integration of businesses involves a
number of risks, including the diversion of management's attention to the
assimilation of the operations, delays or difficulties in the actual integration
of operations or systems, and challenges in retaining customers and key
personnel during the transition. There can be no assurance that future
consolidated results will improve as a result of the restructuring, or that the
timing or extent to which cost savings and efficiencies will be achieved.

ADDITIONALLY, THE FOLLOWING FACTORS ARE RELEVANT TO THE PENDING OFFER TO
PURCHASE ECHLIN INC.:

LEVERAGE

After consummation of the offer and the merger, the Company will be more
highly leveraged than are either the Company or Echlin, or both of the companies
combined, at present, with substantial debt service obligations, including
principal and interest obligations, with respect to indebtedness of as much as
$2.4 billion. As such, the Company may be particularly susceptible to adverse
changes in its industry, the economy and the financial markets generally.
Moreover, the Company's conduct of its business may be more circumscribed, and
its ability to incur additional debt may be more limited, than at present by
restrictive covenants which will be contained in agreements evidencing new
financing. In particular, any debt incurrence restrictions may limit the
Company's ability to service its existing debt obligations through additional
debt financing if cash flow from operations is insufficient to service such
obligations. The new financing will bear interest at floating rates, and an
increase in interest rates could adversely affect the Company's ability to
service its debt obligations.

UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST SAVINGS

The success of the proposed business combination will in large part be
dependent on the ability, following the offer and the merger, to realize cost
savings and, to a lesser extent, to consolidate operations and integrate
processes. While the Company believes that it can obtain cost savings, the
realization of such savings is dependent to a large extent on the planned
reduction of headcount at Echlin. There can be no assurance that the timing and
magnitude of headcount reductions will occur as planned. The integration of
businesses, moreover, involves a number of risks, including the diversion of
management's attention to the assimilation of the operations from other business
concerns, delays or difficulties in the actual integration of operations or
systems, and challenges in retaining customers and key personnel of the acquired
company. There can be no assurance that future consolidated results will improve
as a result of the proposed business combination or that the timing or extent to
which cost savings and efficiencies anticipated by the Company will be achieved.
The anticipated cost savings have been developed solely by the management of the
Company and are based on the Company's best judgments and knowledge of Echlin's
operations derived from publicly available information, and in reliance on that
information being accurate and complete, together with the Company's knowledge
and experience in the vehicle components industry.

21
<PAGE> 23

ITEM 8.

SPX CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... 23
Consolidated Financial Statements...........................
Consolidated Balance Sheets -- December 31, 1997 and 1996... 24
Consolidated Statements of Income for the three years ended
December 31, 1997......................................... 25
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1997....................... 26
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997................................... 27
Notes to Consolidated Financial Statements.................. 28
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>

22
<PAGE> 24

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, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 5, 1998 (except with respect to
the matter discussed in Note 17, as to
which the date is February 17, 1998).

23
<PAGE> 25

SPX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
--------- --------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,113 $ 12,312
Receivables (Note 8)...................................... 172,783 96,495
Inventories (Note 9)...................................... 92,875 109,258
Deferred income tax assets and refunds (Note 10).......... 72,021 42,208
Net assets under agreement for sale (Note 4).............. -- 133,795
Prepaid and other current assets.......................... 33,753 14,073
--------- --------
Total current assets................................... $ 383,545 $408,141
INVESTMENTS (Note 11)....................................... -- 3,464
PROPERTY, PLANT AND EQUIPMENT, at cost
Land...................................................... $ 5,717 $ 5,710
Buildings................................................. 70,469 65,304
Machinery and equipment................................... 177,318 175,828
Construction in progress.................................. 10,317 4,468
--------- --------
Total property, plant and equipment....................... $ 263,821 $251,310
Less: Accumulated depreciation............................ 141,703 127,445
--------- --------
Net property, plant and equipment...................... $ 122,118 $123,865
OTHER ASSETS................................................ 17,988 21,908
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED (Note
12)....................................................... 60,156 58,665
--------- --------
TOTAL ASSETS................................................ $ 583,807 $616,043
========= ========
CURRENT LIABILITIES:
Notes payable and current maturities of
long-term debt (Note 14)............................... $ 2,774 $ 1,430
Accounts payable.......................................... 91,491 53,011
Accrued compensation and benefits......................... 45,826 54,471
Income taxes payable (Note 10)............................ 9,516 4,973
Other accrued liabilities (Note 5)........................ 136,947 60,545
--------- --------
Total current liabilities.............................. $ 286,554 $174,430
LONG-TERM LIABILITIES (Note 7).............................. 90,205 92,618
DEFERRED INCOME TAXES (Note 10)............................. 46,142 15,219
MINORITY INTEREST........................................... 1,764 --
COMMITMENTS AND CONTINGENCIES (Note 13)
LONG-TERM DEBT (Note 14).................................... 202,490 227,859
SHAREHOLDERS' EQUITY (Note 16):
Preferred stock, no par value, authorized 3,000,000
shares; no shares issued............................... $ -- $ --
Common stock, $10 par value, authorized 50,000,000 shares;
issued 16,700,373 in 1997 and 16,397,314 in 1996....... 166,999 163,969
Paid in capital........................................... 68,400 60,756
Retained deficit.......................................... (63,837) (48,688)
Common stock held in treasury............................. (191,413) (50,000)
Unearned compensation..................................... (17,704) (20,797)
Cumulative translation adjustments........................ (5,793) 677
--------- --------
Total shareholders' equity (deficit)................... $ (43,348) $105,917
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 583,807 $616,043
========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

24
<PAGE> 26

SPX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES (Note 2)....................................... $922,316 $1,109,422 $1,098,103
COSTS AND EXPENSES:
Cost of products sold................................. 669,048 850,160 853,537
Selling, general and administrative................... 175,314 186,477 194,485
Goodwill/intangible amortization...................... 3,449 7,179 8,824
Minority and equity interests......................... 360 (5,288) (558)
Special charges and write-off of goodwill (Notes 5 and
12)................................................ 116,500 87,863 10,724
-------- ---------- ----------
OPERATING INCOME (LOSS)................................. $(42,355) $ (16,969) $ 31,091
Other expense (income), net........................... (74,190) (702) (3,060)
Interest expense, net................................. 13,966 31,767 35,729
-------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....................... $ 17,869 $ (48,034) $ (1,578)
PROVISION (BENEFIT) FOR INCOME TAXES
(Note 10)............................................. 21,287 7,610 (227)
-------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS................ $ (3,418) $ (55,644) $ (1,351)
DISCONTINUED OPERATION, NET OF TAXES
(Note 3).............................................. -- -- (2,847)
-------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. $ (3,418) $ (55,644) $ (4,198)
EXTRAORDINARY ITEM, NET OF TAXES (Note 6)............... (10,330) (6,627) (1,078)
-------- ---------- ----------
NET INCOME (LOSS)....................................... $(13,748) $ (62,271) $ (5,276)
======== ========== ==========
BASIC INCOME (LOSS) PER SHARE:
From continuing operations............................ $ (0.27) $ (4.04) $ (0.10)
From discontinued operation........................... -- -- (0.22)
Extraordinary item, net of taxes...................... (0.81) (0.48) (0.08)
-------- ---------- ----------
Net income (loss)..................................... $ (1.08) $ (4.52) $ (0.40)
======== ========== ==========
Weighted average number of common shares outstanding
(Note 16).......................................... 12,754 13,785 13,173
DILUTED INCOME (LOSS) PER SHARE:
From continuing operations............................ $ (0.27) $ (4.04) $ (0.10)
From discontinued operation........................... -- -- (0.22)
Extraordinary item, net of taxes...................... (0.81) (0.48) (0.08)
-------- ---------- ----------
Net income (loss)..................................... $ (1.08) $ (4.52) $ (0.40)
======== ========== ==========
Weighted average number of common shares outstanding
(Note 16).......................................... 12,754 13,785 13,173
</TABLE>

The accompanying notes are an integral part of these statements.

25
<PAGE> 27

SPX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
RETAINED
COMMON PAID IN EARNINGS UNEARNED OTHER
STOCK CAPITAL (DEFICIT) COMPENSATION ACCOUNTS
-------- ------- --------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................ $156,478 $58,072 $ 29,411 $(31,073) $ (54,196)
Net loss................................ -- -- (5,276) -- --
Cash dividends.......................... -- -- (5,274) -- --
Net shares sold under stock option
plans................................ 1,061 374 -- -- --
Earned KSOP shares...................... -- (1,977) -- 6,065 --
Tax benefit on dividends paid to KSOP
trust................................ -- -- 136 -- --
Minority interest in SP Europe.......... -- -- -- -- 3,278
Translation adjustment.................. -- -- -- -- 3,894
Issuance of stock under incentive
program.............................. 685 480 -- -- --
Issuance of restricted stock............ 1,250 719 -- (1,969) --
Vesting of restricted stock............. -- -- -- 89 --
-------- ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1995................ $159,474 $57,668 $ 18,997 $(26,888) $ (47,024)
Net loss................................ -- -- (62,271) -- --
Cash dividends.......................... -- -- (5,518) -- --
Net shares sold under stock option
plans................................ 4,495 2,322 -- -- --
Earned KSOP shares...................... -- (726) -- 5,691 --
Tax benefit on dividends paid to KSOP
trust................................ -- -- 104 -- --
Translation adjustment.................. -- -- -- -- (2,299)
Tax benefit of stock options............ -- 1,492 -- -- --
Vesting of restricted stock............. -- -- -- 400 --
-------- ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1996................ $163,969 $60,756 $(48,688) $(20,797) $ (49,323)
Net loss................................ -- -- (13,748) -- --
Cash dividends.......................... -- -- (1,424) -- --
Net shares sold under stock option
plans................................ 2,968 3,662 -- -- --
Earned KSOP shares...................... -- 852 -- 2,693 --
Tax benefit on dividends paid to KSOP
trust................................ -- -- 23 -- --
Purchase of common stock................ -- -- -- -- (141,413)
Translation adjustment.................. -- -- -- -- (6,470)
Tax benefit of stock options............ -- 2,958 -- -- --
Issuance of restricted stock............ 62 172 -- (234) --
Vesting of restricted stock............. -- -- -- 634 --
-------- ------- -------- -------- ---------
BALANCE, DECEMBER 31, 1997................ $166,999 $68,400 $(63,837) $(17,704) $(197,206)
======== ======= ======== ======== =========
</TABLE>

The accompanying notes are an integral part of these statements.

26
<PAGE> 28

SPX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operating activities................. $ (13,748) $ (62,271) $ (5,276)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Extraordinary loss........................................ 10,330 6,627 1,078
Depreciation and amortization............................. 24,977 40,764 43,522
Minority and equity interests............................. 360 (5,288) (558)
Special charges........................................... 116,500 -- 10,724
Gain on sale of business.................................. (71,895) -- --
Noncash write-off of goodwill............................. -- 67,817 --
Compensation recognized under employee stock plan......... 4,238 4,421 3,026
Deferred taxes............................................ 6,812 (5,240) 18,773
Change in operating assets and liabilities (net of effect
of acquired and disposed businesses):
Receivables............................................ (73,116) 4,338 5,303
Inventories............................................ (3,556) 18,218 2,761
Prepaid and other assets............................... (23,369) 17,089 9,353
Accounts payable and accrued liabilities............... 2,057 (2,420) (19,477)
Income taxes payable................................... 7,336 5,763 (58)
Long-term liabilities.................................. (894) 1,941 (6,904)
Other, net................................................ (1,955) 1,542 4,105
--------- --------- ---------
Net cash provided (used) by operating activities.......... $ (15,923) $ 93,301 $ 66,372
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in businesses.................................. $ (5,109) -- --
Proceeds from sale of businesses.......................... 223,000 15,000 73,183
Capital expenditures...................................... (22,550) (20,220) (31,009)
Sale of property, plant and equipment, net................ 2,092 6,931 801
--------- --------- ---------
Net cash provided by investing activities................. $ 197,433 $ 1,711 $ 42,975
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings -- revolving credit agreement... $ 101,554 $ 8,421 $ (63,000)
Long-term debt payments................................... (130,007) (99,295) (32,887)
Payment of costs related to debt extinguishment........... (16,397) (10,688) (1,797)
Purchases of common stock................................. (141,413) -- --
Net shares sold under stock option plans.................. 6,630 6,817 1,435
Dividends paid............................................ (1,424) (5,518) (5,274)
--------- --------- ---------
Net cash used by financing activities..................... $(181,057) $(100,263) $(101,523)
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (652) 494 (614)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ (199) $ (4,757) $ 7,210
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 12,312 17,069 9,859
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 12,113 $ 12,312 $ 17,069
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash payments for interest................................ $ 16,438 $ 32,602 $ 40,237
Cash payments (refunds), net, for income taxes............ $ 4,749 $ 4,901 $ (21,631)
</TABLE>

The accompanying notes are an integral part of these statements.

27
<PAGE> 29

SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997

(1) SUMMARY OF ACCOUNTING POLICIES

Dollar amounts in the Notes to Consolidated Financial Statements are in
thousands, except per share amounts.

The significant accounting and financial policies of SPX Corporation (the
"Company") are described below.

Basis of Presentation -- The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and
liabilities, affect the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Consolidation -- The consolidated financial statements include the accounts
of the Company and its majority owned subsidiaries after the elimination of
significant intercompany accounts and transactions.

Amounts representing the Company's percentage interest in the underlying
net assets of less than majority owned companies are included in
"Investments."

Foreign Currency Translation -- The cumulative translation adjustment in
shareholders' equity reflects the unrealized translation gains and losses
of the Company's foreign subsidiaries.

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 recognized on a pro rata basis
over the agreement period.

Research and Development Costs -- Research and development costs are
expensed as incurred and were $24,100 in 1997, $24,600 in 1996, and $26,300
in 1995.

Litigation Costs -- The Company accrues for material litigation costs,
including anticipated future legal costs to be incurred, when the costs are
probable and reasonably estimatable in accordance with SFAS No. 5.

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.

Property, Plant and Equipment -- The Company uses the straight-line method
for computing depreciation expense over the useful lives of property, plant
and equipment. 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. 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 -- The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. These
instruments are used to manage well-defined interest rate and transaction
specific foreign exchange risks. 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. Amounts receivable
under interest rate 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

28
<PAGE> 30
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

hedged transaction occurs. If a financial derivative instrument is
terminated before maturity, the Company recognizes any gain or loss in the
period of termination.

Costs in Excess of the Net Assets of Businesses Acquired -- The Company
amortizes its goodwill on a straight-line method over the estimated periods
benefited, not to exceed 40 years. In determining the estimated useful
life, management considers the nature, competitive position, life cycle
position, and historical and expected future operating income of each
acquired company, as well as the Company's commitment to support these
acquired companies through continued investment in capital expenditures,
operational improvements, and research and development. 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 write-down of goodwill to recoverable
value is appropriate.

(2) BUSINESS DESCRIPTION

The Company is comprised of two business segments. Service Solutions
includes operations that design, manufacture and market a wide range of
specialty service tools, equipment and services to the worldwide motor vehicle
industry. Major customers are franchised dealers of motor vehicle manufacturers,
aftermarket vehicle service facilities, and independent distributors. Vehicle
Components includes operations that design, manufacture and market transmission
and steering components for light and heavy-duty vehicle markets, principally in
North America and Europe. Major customers of this segment are vehicle
manufacturers and aftermarket private brand distributors.

29
<PAGE> 31
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

Revenues by business segment represent sales to unaffiliated 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, net; income taxes; extraordinary items; or
discontinued operation. 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.

<TABLE>
<CAPTION>
BUSINESS SEGMENTS 1997 1996 1995
----------------- -------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service Solutions....................................... $633,439 $ 594,244 $ 572,270
Vehicle Components(a)................................... 288,877 515,178 525,833
-------- ---------- ----------
Total........................................... $922,316 $1,109,422 $1,098,103
======== ========== ==========
Operating income (loss):
Service Solutions(b).................................... $(53,155) $ (37,160) $ 24,364
Vehicle Components(c)................................... 38,797 41,891 26,158
General Corporate expenses(d)........................... (27,997) (21,700) (19,431)
-------- ---------- ----------
Total........................................... $(42,355) $ (16,969) $ 31,091
======== ========== ==========
Capital expenditures:
Service Solutions....................................... $ 7,388 $ 5,754 $ 7,385
Vehicle Components...................................... 14,369 13,698 23,193
General Corporate....................................... 793 768 431
-------- ---------- ----------
Total........................................... $ 22,550 $ 20,220 $ 31,009
======== ========== ==========
Depreciation and amortization:
Service Solutions....................................... $ 10,732 $ 13,007 $ 14,884
Vehicle Components...................................... 13,235 26,202 26,336
General Corporate....................................... 1,010 1,555 2,302
-------- ---------- ----------
Total........................................... $ 24,977 $ 40,764 $ 43,522
======== ========== ==========
Identifiable assets:
Service Solutions....................................... $320,011 $ 291,463 $ 390,332
Vehicle Components...................................... 147,563 271,553 361,782
General Corporate....................................... 116,233 53,027 79,244
-------- ---------- ----------
Total........................................... $583,807 $ 616,043 $ 831,358
======== ========== ==========
</TABLE>

- ---------------

(a) The Company sold its Sealed Power division in February 1997 and its Hy-Lift
division in November 1996. See Note 4.

(b) 1997 includes $112,400 of special charges. 1996 includes a $67,817
write-off of goodwill and $15,802 of special charges. 1995 includes $7,000
of special charges. See Notes 5 and 12.

(d) 1997 includes $4,100 of special charges. See Note 5.

30
<PAGE> 32
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
GEOGRAPHIC AREAS 1997 1996 1995
---------------- -------- ---------- ----------
<S> <C> <C> <C>
REVENUES -- UNAFFILIATED CUSTOMERS:
United States(a)...................................... $784,477 $ 943,901 $ 915,717
Europe................................................ 79,119 133,155 150,991
Other................................................. 58,720 32,366 31,395
-------- ---------- ----------
Total......................................... $922,316 $1,109,422 $1,098,103
======== ========== ==========
REVENUES -- BETWEEN AFFILIATED CUSTOMERS:
United States......................................... $ 27,161 $ 24,458 $ 28,102
Europe................................................ 3,491 1,545 1,479
Other................................................. 696 -- 128
Eliminations.......................................... (31,348) (26,003) (29,709)
-------- ---------- ----------
Total......................................... $ -- $ -- $ --
======== ========== ==========
OPERATING INCOME (LOSS):
United States(b)...................................... $(21,938) $ (11,452) $ 39,409
Europe(c)............................................. (16,545) (6,105) (9,767)
Other................................................. (3,872) 588 1,449
-------- ---------- ----------
Total......................................... $(42,355) $ (16,969) $ 31,091
======== ========== ==========
TOTAL ASSETS:
United States......................................... $462,744 $ 519,497 $ 702,980
Europe................................................ 86,970 77,635 107,586
Other................................................. 34,093 18,911 20,792
-------- ---------- ----------
Total......................................... $583,807 $ 616,043 $ 831,358
======== ========== ==========
</TABLE>

- ---------------

(a) Included in the United States revenues were export sales of $87,007 in
1997, $118,600 in 1996 and $83,000 in 1995.

(b) 1997 includes a $99,500 special charge. 1996 includes a $67,817 write-off
of goodwill and a $16,597 special charge, and 1995 includes a $7,000
special charge. See Notes 5 and 12.

(c) 1997 includes a $17,000 special charge. 1996 and 1995 include special
charges of $3,449 and $3,724, respectively. See Note 5.

Sales to General Motors Corporation and its various divisions, dealers and
distributors were approximately 22%, 20%, and 20% of the Company's consolidated
sales in 1997, 1996, and 1995, respectively. Sales to Ford Motor Company and its
various divisions, dealers and distributors were approximately 12%, 11%, and 12%
of the Company's consolidated sales in 1997, 1996, and 1995, respectively. Sales
to Chrysler Corporation and its various divisions, dealers and distributors were
approximately 3%, 6%, and 5% of the Company's consolidated sales in 1997, 1996,
and 1995, respectively. No other customer or group of customers under common
control accounted for more than 10% of consolidated sales for any of these
years.

(3) DISCONTINUED OPERATION

On September 29, 1995, the Company sold its SPX Credit Corporation
operation and lease financing receivables. The sale proceeds were $73,183. The
Company recorded a $2,987 after-tax loss ($4,817 pretax) on the sale.

The results of operations, net of taxes, are presented in the accompanying
consolidated financial statements as a discontinued operation through the third
quarter of 1995. The results of the discontinued

31
<PAGE> 33
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

operation are not necessarily indicative of the results of operations which may
have been obtained had continuing and discontinued operations been operating
independently. The results of operations for the nine months ended September 29,
1995 were not material to the consolidated results of operations.

(4) SALE OF BUSINESSES

On February 7, 1997, the Company completed the sale of substantially all of
the assets and rights used in the manufacture and distribution of piston rings
and cylinder liners, known as the Sealed Power division ("SPD"). The sale to
Dana Corporation was for $223,000 gross cash proceeds. SPD included the accounts
of Sealed Power, a U.S. division, SP Europe Limited Partnership, 70% owned,
Allied Ring Corporation, 50% owned, and Promec, 40% owned. In addition, the
buyer assumed substantially all of the liabilities and obligations of the
business, excluding liabilities relating to income and other taxes, certain
liabilities arising outside the ordinary course of business, debt, and certain
employee related liabilities. The transaction includes a ten-year noncompetition
agreement precluding the Company from competing with SPD. The gain on the sale
of SPD, $71,895, reflects the gross cash proceeds of $223,000, less the net
assets of the business at February 7, 1997 and transaction related costs. The
change in net assets under agreement for sale did not significantly change
between December 31, 1996 and the date of sale. Transaction related costs
include legal, accounting and other selling fees, certain employee benefits
arising from the sale, and other contractual obligations of the Company arising
from the sale. On an after-tax basis, the gain was $31,160, which reflects the
effect of the write-off of non-deductible goodwill attributable to SPD of
$59,365.

The accompanying Consolidated Statements of Income and Cash Flows include
the results of operations and cash flows of SPD through February 7, 1997. The
accompanying Consolidated Balance Sheet as of December 31, 1996 presents the
assets and liabilities which were sold to or assumed by the buyer as "Net assets
under agreement for sale," which included the following:

<TABLE>
<S> <C>
Receivables................................................. $ 24,057
Inventories................................................. 19,655
Investments................................................. 18,496
Property, plant and equipment, net.......................... 55,330
Goodwill.................................................... 59,519
All other assets............................................ 5,392
--------
Total assets................................................ $182,449
Less:
Accounts payable.......................................... $ 14,412
Accrued liabilities....................................... 18,470
Long-term liabilities -- postretirement health care and
life insurance......................................... 15,772
--------
Net assets under agreement for sale......................... $133,795
========
</TABLE>

Additionally, effective November 1, 1996, the Company sold its Hy-Lift
division to W.A. Thomas Company. Hy-Lift manufactures and distributes engine
valve train components to both the original equipment market and the
aftermarket. The sale proceeds were $15,000 and were received in cash at the
closing. The resulting gain was not material.

The accompanying consolidated financial statements include the results of
SPD through February 7, 1997 and the results of Hy-Lift through November 1,
1996, their dates of disposition. The following unaudited 1997, 1996 and 1995
pro forma selected financial data reflect the disposition of these divisions as
if they had occurred as of beginning of periods, respectively. The unaudited pro
forma selected results of operations do not

32
<PAGE> 34
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

purport to represent what the Company's results of continuing operations would
actually have been had the transactions in fact occurred as of an earlier date,
or project the results for any future date or period.

<TABLE>
<CAPTION>
1997 1996 1995
PRO FORMA PRO FORMA PRO FORMA
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Revenues............................................... $898.8 $839.9 $824.6
Cost of products....................................... 649.4 609.5 592.7
Selling, general and administrative.................... 174.3 171.5 179.5
Goodwill/intangible.................................... 3.3 5.4 6.4
Minority and equity interests.......................... 0.4 (0.9) (0.3)
Special charges and write-off of goodwill.............. 116.5 83.7 7.0
------ ------ ------
Operating income (loss)................................ $(45.1) $(29.3) $ 39.3
Other expense (income)................................. (2.3) (0.8) (1.2)
Interest expense, net.................................. 12.9 25.4 29.7
------ ------ ------
Income (loss) before income taxes...................... $(55.7) $(53.9) $ 10.8
Provision (benefit) for income taxes................... (20.0) 5.3 3.1
------ ------ ------
Income (loss) before extraordinary item................ $(35.7) $(59.2) $ 7.7
====== ====== ======
Diluted income (loss) per share........................ $(2.80) $(4.29) 0.58
Weighted average number of shares...................... 12.8 13.8 13.2
</TABLE>

(5) SPECIAL CHARGES

1997 SPECIAL CHARGES

These charges included a $99,000 restructuring charge, a $4,100 charge for
five corporate executive staff reductions, and $13,400 of costs associated with
various legal matters, including $6,500 of anticipated future legal costs
associated with the ongoing litigation with Snap-on Incorporated, legal costs
associated with a settled case in California, and certain other matters. See
Note 13 for further discussion of legal matters.

The Company recorded the $99,000 restructuring charge to combine two
divisions within the Service Solution segment and to recognize reduced carrying
value of certain assets resulting from the decision to combine the divisions and
exit certain manufactured diagnostic equipment product lines. The restructuring
of the two Service Solutions businesses was in response to changing market
dynamics and changing needs of customers. The Company decided to combine its OE
Tool and Equipment business with its Aftermarket Tool and Equipment business to
provide a single business focused on the combined market and customer needs.
Additionally, the Company decided to exit certain products to focus upon new
generation products that will better meet customer needs. The decision results
in a reduction of workforce and closing of certain facilities. The components of
the charge have been computed based on management's estimate of the realizable
value of the affected tangible and intangible assets and estimated exit costs
including severance and other employee benefits based on existing severance
policies and local laws.

The $99,000 charge included $63,700 of restructuring costs, $25,800 of
reduced inventory value and $9,500 of reduced value of other tangible and
intangible assets related to exiting certain product lines. These restructuring
costs included $13,700 of severance related costs for approximately 800 people,
$20,300 for incremental repossession and distribution exit costs (including the
termination of lease financing and distributor agreements), $21,200 for
incremental service and software update obligations resulting from the decision
to exit these product lines, and $8,500 of costs associated with idled
facilities. The implementation of this restructuring is expected to be
substantially complete by the end of 1998.

33
<PAGE> 35
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

Of the total special charges of $116,500, the components of the charge that
will require the future payment of cash are $80,900. Cash payments in 1997
related to the special charges were $1,500. The expected future cash payments
include an estimated $49,000 in 1998 with the remainder over the following two
years. As there is some uncertainty associated with the timing of the cash
payments, the remaining accrual at December 31, 1997 of $79,400 has been
classified in other current accrued liabilities. Management estimates that
savings from the restructuring will increase operating income by $3,000 in 1998
and $10,000 in 1999.

1996 AND 1995 SPECIAL CHARGES

During the fourth quarter of 1995, management authorized and committed the
Company to undertake two significant restructuring plans. The first plan
consolidated five Service Solutions divisions into two divisions. The second
plan closed Sealed Power division's German foundry operation and transferred
certain piston ring operations to other facilities. In 1996, three additional
restructuring actions were initiated including an early retirement program at
the Service Solutions divisions, a cost reduction initiative at several Service
Solutions international locations, and an early retirement program at the Sealed
Power division. A summary of these restructurings follows:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Service Solutions -- Five divisions consolidated into two
divisions................................................. $11,229 $ 7,000
Service Solutions -- Early retirement....................... 1,124 --
Service Solutions -- International.......................... 3,449 --
SPD -- Closing foundry at SP Europe......................... -- 3,724
SPD early retirement........................................ 4,244 --
------- -------
Total.................................................. $20,046 $10,724
======= =======
</TABLE>

Service Solutions Restructuring -- In order to improve customer service,
reduce costs and improve productivity and asset utilization, the Company decided
to consolidate five existing Service Solutions divisions into two. This
restructuring plan involved closing two Company owned manufacturing facilities,
a Company owned distribution facility, several leased service centers and a
leased sales facility in France. The plan also included combining sales,
engineering and administrative functions, and was completed at the end of 1996.
The plan included the termination of approximately 570 employees resulting in a
net reduction of approximately 310 employee positions after considering staffing
requirements at remaining facilities.

The Company recorded a $7,000 charge in 1995 and an $11,299 charge in 1996
to complete this restructuring. These charges recognized severance and benefits
for employees to be terminated, holding costs of vacated facilities, the
adjustment to fair market value of one manufacturing facility to be closed, and
other costs to complete the consolidation of the divisions. The distribution
facility was sold during the fourth quarter of 1996 and the manufacturing
facilities were sold during 1997.

Service Solutions -- Early Retirement -- Closely associated with the
consolidation of five divisions into two, an early retirement program was
accepted by approximately 60 people and the Company recorded a $1,124 charge in
the first quarter of 1996.

Service Solutions -- International -- During the second quarter of 1996,
the Company recorded a $3,449 restructuring charge principally to recognized
severance associated with the termination of 113 international employees and
related operating downsizing costs.

SPD -- Closing Foundry at SP Europe -- The Company closed its unprofitable
foundry operations at SP Europe and transferred certain piston ring operations
to other facilities. This closing resulted in the elimination

34
<PAGE> 36
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

of approximately 200 positions and was completed at the end of the third quarter
of 1996. In 1995, the Company recorded a $3,724 restructuring charge to accrue
severance that was paid to these employees.

Sealed Power Division Early Retirement -- During the second quarter of
1996, the Company recorded a $4,244 restructuring charge for the early
retirement of 94 employees at the Sealed Power division.

The actual savings associated with the 1995 and 1996 restructuring actions
relate primary to the Service Solutions restructuring actions. The actual
savings achieved in 1996 and 1997 have been consistent with the estimated full
year savings of $23,000 by the year 1998. The actions increased operating income
by an estimated $7,000 in 1996 and an estimated $12,000 in 1997.

These charges were recorded in the appropriate periods in accordance with
the requirements of Emerging Issues Task Force Pronouncement 94-3. Certain costs
incurred in connection with management's planned actions not qualifying for
accrual in 1995 were recorded in 1996, based on employee acceptance of voluntary
termination benefits and the satisfaction of other requirements to recognize
these costs. At December 31, 1997, the restructuring actions initiated in 1995
and 1996 were complete and the actual costs to implement the actions did not
differ materially from the estimates used to record these accruals.

(6) EXTRAORDINARY ITEM

During 1997, the Company purchased $126,734 of its 11 3/4% Senior
Subordinated Notes at a premium of $16,397. During 1996, the Company purchased
$99,895 of these notes at a premium of $10,688. During 1995, the Company
purchased $31,690 of these notes at a premium of $1,797. These premiums, net of
income taxes, have been recorded as an extraordinary item.

(7) EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

The Company has defined benefit pension plans covering substantially all
domestic employees. These plans provide pension benefits that are 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. Foreign defined benefit pension plans are immaterial to the
consolidated financial statements. Net periodic pension cost (benefit) included
the following components:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period....... $ 4,807 $ 6,991 $ 7,711
Interest cost on projected benefit obligation........ 18,317 18,002 16,738
Actual gain on assets................................ (56,262) (43,365) (64,439)
Net amortization and deferral........................ 30,390 20,996 42,294
-------- -------- --------
Net periodic pension cost (benefit).................. $ (2,748) $ 2,624 $ 2,304
======== ======== ========
Actuarial assumptions used:
Discount rate...................................... 7.5% 7.5% 7.5%
Rate of increase in compensation levels............ 5.0 5.5 5.0
Expected long-term rate of return on assets........ 9.5 9.0 9.0
</TABLE>

Plan assets principally consist of equity and fixed income security
investments, including 222,000 shares of the Company's common stock. Plans with
accumulated benefit obligations in excess of plan assets were not

35
<PAGE> 37
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

material. The following table shows the plans' funded status and amounts
recognized in the Company's consolidated balance sheets as Other Assets:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $217,031 $191,389
======== ========
Accumulated benefit obligation............................ $231,128 $206,655
======== ========
Projected benefit obligation.............................. $248,066 $244,493
Plan assets at fair value................................... 338,021 295,542
-------- --------
Projected benefit obligation less than plan assets.......... $ 89,955 $ 51,049
Unrecognized net gain....................................... (80,686) (44,830)
Unrecognized prior service cost............................. 2,251 5,354
Remaining unamortized net asset at transition............... (1,939) (1,906)
-------- --------
Prepaid pension cost recognized in the consolidated balance
sheets.................................................... $ 9,581 $ 9,667
======== ========
</TABLE>

In 1997, the Company recorded a curtailment gain of $600 in the Service
Solutions' restructuring charge, and curtailment and settlement losses of $5,462
in the gain on the sale of the Sealed Power division. In 1995, the Company
recorded a curtailment gain of $1,853 in the Service Solutions' restructuring
charge.

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE

Postretirement health care and life insurance expense was as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Benefit cost for service during the year -- net of
employee contributions................................. $ 175 $ 1,123 $ 1,096
Interest cost on accumulated postretirement benefit
obligation............................................. 5,100 6,400 6,261
Actual gain on assets.................................... (318) (161) (148)
Net amortization and deferral............................ (1,053) (2,314) (2,709)
------- ------- -------
Postretirement benefit cost.............................. $ 3,904 $ 5,048 $ 4,500
======= ======= =======
</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 11% in 1997, grading to a 6% ultimate rate by 1% each year for
pre-65 claims; and 8.5% in 1997 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 the pension rates. Increasing the health care trend rate by one
percentage point would increase the accumulated postretirement benefit
obligation by $1,644 and would increase the 1997 postretirement benefit cost by
$225. During 1997, the Company eliminated retiree health care benefits for all
future employees.

36
<PAGE> 38
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

The following table summarizes the accumulated benefit obligation (1996
excludes the liability assumed by the purchaser of SPD):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefits obligation ("APBO")
Retirees.................................................. $63,245 $55,674
Actives fully eligible.................................... 1,153 9,108
Actives not fully eligible................................ 1,110 4,345
------- -------
Total APBO................................................ $65,508 $69,127
Plan assets at fair value................................... 867 857
------- -------
APBO greater than plan assets............................... $64,641 $68,270
Unrecognized net gain....................................... 2,563 1,009
Unrecognized prior service cost............................. 16,883 22,790
------- -------
Accrued APBO included in long-term liabilities.............. $84,087 $92,069
======= =======
</TABLE>

During 1997, the Company recorded curtailment and settlement gains of
$6,520 in the gain on the sale of the Sealed Power division. During 1996, the
Company recorded curtailment and settlement gains of $5,418 from the Sealed
Power division early retirement program and the sale of the Hy-Lift division.
During 1995, the Company recorded a curtailment gain of $1,274 from employee
terminations included in the Service Solutions restructuring.

RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN

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 2,668 domestic employees. These employees can
contribute up to 15% of their annual earnings. The Company matches a portion of
the employee's contribution with shares from the plan's trust. In 1997 and 1996,
86,339 and 198,822 shares, respectively, were allocated to employees under the
plan. Compensation expense is recorded based upon the market value of shares
when the shares are allocated to employees. In 1997, 1996 and 1995, $4,238,
$4,421, and $3,026 were recorded as compensation expense, respectively.
Employees may vote their allocated shares directly, while the KSOP trustee votes
the unallocated shares in the trust proportionally on the same basis as the
allocated shares vote. At December 31, 1997, there were 582,861 unallocated
shares in the trust with a fair market value of approximately $40,000.

OTHER

The Company provides defined contribution retirement plans for
substantially all employees not covered by defined benefit pension plans.
Collectively, the Company's contributions to these plans were $651 in 1997,
$1,629 in 1996, and $1,519 in 1995.

The Company provided a Retirement Savings Plan for certain eligible
domestic employees that were not included in the KSOP until 1996. These
employees could contribute up to 15% of their annual earnings. The Company
matched a portion of the employee's contribution with cash. The Company's cash
contribution to this plan was $1,033 in 1995.

37
<PAGE> 39
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

(8) RECEIVABLES

Changes in the allowance for losses on receivables were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year................. $ 8,070 $ 8,358 $ 7,968
Amount charged to income..................... 7,284 5,619 1,614
Accounts written off, net of recoveries...... (6,250) (6,047) (1,981)
Reduction resulting from sale of Hy-Lift and
reclass of SPD amounts to "Net assets under
contract for sale"......................... -- (912) --
Reclassifications and other.................. (318) 1,052 757
------- ------- -------
Balance at end of year....................... $ 8,786 $ 8,070 $ 8,358
======= ======= =======
</TABLE>

The increase in amounts charged to income and in the amounts written off,
net of recoveries, in 1997 and 1996 over 1995 was attributable to payment
problems primarily related to the declining marketplace for certain diagnostic
products.

(9) INVENTORIES

Domestic inventories, amounting to $67,400 and $85,200 at December 31, 1997
and 1996, 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 $10,300 and $12,100 greater at December 31, 1997 and 1996,
respectively. During 1997, 1996 and 1995, certain inventory quantities were
reduced resulting in liquidations of LIFO inventory quantities carried at lower
costs prevailing in prior years. The effect of these liquidations was not
material. All foreign inventories are valued at FIFO costs. Inventories include
material, labor and factory overhead costs, and are reduced, when necessary, to
estimated realizable values.

The components of inventory at year-end were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- --------
<S> <C> <C>
Finished products........................................ $35,968 $ 67,978
Work in process.......................................... 29,616 18,664
Raw materials and supplies............................... 27,291 22,616
------- --------
$92,875 $109,258
======= ========
</TABLE>

38
<PAGE> 40
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

(10) INCOME TAXES

Income (loss) from continuing operations before income taxes and
extraordinary item and the related provision (benefit) for income taxes
consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes
Domestic..................................... $ 39,406 $(42,637) $ 10,136
Foreign...................................... (21,537) (5,397) (11,714)
-------- -------- --------
Total.............................. $ 17,869 $(48,034) $ (1,578)
======== ======== ========
Provision (benefit) for income taxes
U.S. Federal:
Current.................................... $ 11,879 $ 5,198 $ 4,329
Deferred................................... 13,504 4,284 (1,896)
State........................................ 3,153 270 290
Foreign...................................... (7,249) (2,142) (2,950)
-------- -------- --------
Total.............................. $ 21,287 $ 7,610 $ (227)
======== ======== ========
</TABLE>

A reconciliation of the effective rate for income taxes from the U.S.
statutory rate of 35% is shown below:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate.................................. 35.0% (35.0)% (35.0)%
Increase (decrease) in taxes resulting from:
Net effect of foreign operations................ 11.0 1.9 72.9
State income taxes, net of federal income tax
benefit....................................... 11.5 0.4 11.9
Amortization and write-off of goodwill and other
acquisition costs............................. 62.1 52.6 99.0
Capital loss on sale of investment in RSV....... -- -- (82.1)
Tax benefit of the Foreign Sales Corporation.... (5.8) (3.6) (32.3)
Earnings from equity interests.................. -- (3.3) (70.4)
Other, net...................................... 5.3 2.8 21.6
----- ----- -----
119.1% 15.8% (14.4)%
===== ===== =====
</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 earnings which have been reinvested in foreign subsidiaries and
affiliates at December 31, 1997, was $26,100. 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 1997 would have resulted
in payment of withholding taxes of approximately $1,900.

39
<PAGE> 41
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

The components of the net deferred income tax assets (liabilities) were as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred income tax asset:
Receivables allowance................................ $ 3,953 $ 7,338
Inventories allowance................................ 9,639 6,361
Compensation and benefit-related..................... 10,581 12,220
Restructuring accruals............................... 25,934 1,323
Warranty accruals.................................... 1,341 948
Other accrued liabilities............................ 13,634 10,208
-------- --------
Current deferred income tax asset...................... $ 65,082 $ 38,398
-------- --------
Non-current deferred tax:
Depreciation......................................... $(21,580) $(26,077)
Postretirement health and life......................... 29,449 37,872
Book basis investment greater than tax basis
investment in affiliates.......................... (55,548) (28,733)
Net operating loss carryforwards..................... 4,500 10,400
Valuation allowance.................................. (4,500) (10,400)
Other................................................ 1,537 1,719
-------- --------
Non-current deferred income tax liability.............. $(46,142) $(15,219)
-------- --------
Net deferred income tax asset.......................... $ 18,940 $ 23,179
======== ========
</TABLE>

Included on the consolidated balance sheets are U.S. federal income tax
refunds and receivables of $6,939 as of December 31, 1997 and $3,810 as of
December 31, 1996.

At December 31, 1997, the Company had net operating loss carryforwards
attributable to foreign operations of $11,800 available to offset future taxable
income. These loss carryforwards expire as follows: $300 in 1998, $800 in 2001,
$2,400 in 2002 and $8,300 thereafter. During 1997, the Company utilized net
operating loss carryforwards attributable to foreign operations, resulting in
net tax benefits of $900. The deferred tax asset related to the net operating
loss carryforwards has been fully reserved in the valuation allowance.

(11) INVESTMENTS

As of December 31, 1996, investments, as shown on the consolidated balance
sheet, include equity investments in non-majority owned subsidiaries. These
investments included the Company's 50% owned interest in JATEK, a joint venture
in Japan, a 50% interest in IBS Filtran, a German company, a 50% owned interest
in Allied Ring Corporation, a U.S. joint venture, and a 40% interest in Promec,
a Mexican company. These investments were accounted for using the equity method.
These investments, both individually and collectively, were not material to the
Company's consolidated financial statements. The Company's interest in Allied
Ring Corporation and its interest in Promec, aggregating $18,496, related to SPD
which was sold on February 7, 1997, and were included in "Net assets under
agreement for sale" as of December 31, 1996. During the first quarter of 1997,
the Company acquired an additional 30% of JATEK and an additional 10% of IBS
Filtran. The purchase price of the additional ownership in these entities, along
with the Company's March 1997 acquisition of A.R. Brasch, aggregated $5,109.

In 1995, the Company's partner in SP Europe announced its decision to limit
its participation by not fully funding its 30% share of this partnership. The
Company had accounted for this minority partner's 30% share of SP Europe's
losses as minority interest income and recorded the cumulative losses attributed
to the partner as
40
<PAGE> 42
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

"minority interest" in the equity section of the consolidated balance sheets.
Due to the partner's decision to not fully fund its 30% share, the Company
recorded a $3,278 charge to minority interest (income) loss for the cumulative
losses previously attributed to this partner.

(12) COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED

At December 31, 1997 and 1996, total costs in excess of net assets of
businesses acquired was $81,166 and $76,983, and accumulated amortization of
costs in excess of net assets of businesses acquired was $21,009 and $18,319,
respectively. Amortization was $2,971 in 1997, $6,334 in 1996 and $6,811 in
1995. At December 31, 1996, $64,322 of gross goodwill and $4,803 of accumulated
amortization related to SPD, which was sold on February 7, 1997, was included in
"Net assets under agreement for sale."

At December 31, 1996, the Company recognized a $67,817 goodwill write-off
($82,986 gross and $15,169 of accumulated amortization), with no associated tax
benefit. The goodwill was related to the 1988 acquisition of Bear Automotive
Company and the 1993 acquisition of Allen Testproducts, collectively referred to
as Automotive Diagnostics. This goodwill represented the Company's intangible
business investment in PC based engine diagnostic equipment, wheel service
equipment and gas emissions testing equipment. The decision to write-off the
goodwill resulted from conclusions drawn from the Company's strategic review
process that was completed in December of 1996. The strategic review process
indicated that the business, as originally acquired, would not be able to
generate operating income sufficient to offset the annual goodwill amortization.
The strategic review process found accelerating technological changes had
significantly reduced the remaining life of PC based diagnostic equipment. The
process also found significant uncertainties about the future opportunities
related to gas emissions testing equipment, and a decline in the Company's wheel
service equipment market share. Assessing the impact of these factors on the
business, as originally acquired, management concluded that Automotive
Diagnostics' goodwill was impaired.

(13) COMMITMENTS AND CONTINGENT LIABILITIES

OPERATING LEASES

The Company leases certain offices, warehouses and equipment under lease
agreements expiring at various dates through 2004. Future minimum rental
commitments under noncancelable operating leases are $9,948 for 1998, $8,083 for
1999, $5,974 for 2000, $4,236 for 2001, $2,585 for 2002 and aggregate $5,239
thereafter. Rent on these leases was $11,046 in 1997, $11,684 in 1996 and
$14,800 in 1995.

GENERAL

On April 11, 1996, the Company was named as a defendant in an action filed
in Federal Court for the Northern District of Illinois. Snap-on Incorporated,
Snap-on Tools Company and Snap-on Technologies, Inc. v. Ronald J. Ortiz and SPX
Corporation, No. 96C2138, U.S. District Court for the Northern District of
Illinois. The Complaint contained seventeen counts, fifteen of which were
directed to the Company. Of the fifteen counts directed to the Company, seven
were related to the hiring in 1992 of a former officer of Sun Electric
Corporation, five contained allegations of patent infringement and three sought
a declaration of invalidity of patents owned by the Company. On June 28, 1996,
the Company filed an eight count counterclaim, containing three counts of patent
infringement and five counts for declaration of invalidity of patents held by
the Plaintiffs. These patents pertain to certain features related to performance
test equipment manufactured by Sun, Snap-on and the Company. At that time, the
Company also filed a motion to dismiss five of the counts of the Complaint
related to the hiring of the former Sun executive. On October 23, 1996, four of
those counts were dismissed, three with prejudice and one with leave to amend.
Since that time, a further motion to dismiss one of those counts was filed and
granted. Document discovery has proceeded and depositions have been initiated.
Neither the complaint nor the counterclaim contain specific allegations of

41
<PAGE> 43
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

damages, however, the products affected by the patents at issue are significant
for Sun, Snap-on and the Company. Management expects that the value of the
claims against the Company and those brought by the Company could be in the
multiple millions of dollars. The Company believes it has meritorious defenses
to the allegations directed against it and intends to vigorously prosecute the
claims it has raised. It is not, however, possible to assess the ultimate
outcome of the claims at this point.

In 1993, the Company terminated a business relationship with Robert Metzler
and his company, Allstate's of America, Inc. In October 1993, plaintiffs Metzler
and Allstate's filed a complaint against the Company and others alleging breach
of contract, intentional infliction of emotional distress, and certain federal
and state law antitrust actions. Several of plaintiffs' claims have been
dismissed or disposed of by summary judgment with the Plaintiffs' surviving
claims consisting of federal and state antitrust and related tortious
interference counts. The Company has moved for summary judgment on each of the
remaining antitrust and related tortious interference counts. Those motions for
summary judgment are currently pending before the magistrate. The case currently
is not set for trial. The complaint does not specifically assert the amount of
damages, however, the value of the claims asserted against the Company, if
proven, could be in the multiple millions of dollars. The Company vigorously
contests plaintiffs' claims both as a matter of law and fact, and believes that
it has meritorious defenses against plaintiffs' claims. On the issue of
potential damages, the Company's damages expert has opined that, even if
liability is assumed, plaintiffs' damages are significantly lower than those
projected by plaintiffs. It is not, however, possible to assess the ultimate
outcome of the claims at this point.

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, results of operations, or cash
flows of the Company if disposed of unfavorably.

ENVIRONMENTAL

The Company's operations and properties are subject to federal, state,
local, and foreign 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 established an ongoing
environmental compliance auditing program in 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 will 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. 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.

The Company feels it may become 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 two proceedings involving off-site waste disposal facilities. At
both of these sites it has been established that the Company is a de minimis
contributor. Amounts have been accrued in the consolidated financial statements.
Information available to the Company 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.
42
<PAGE> 44
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

Based on this information, 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.

EXECUTIVE SEVERANCE AGREEMENTS

The Company's Board of Directors has 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 six covered
employees be terminated is approximately $15,000 as of December 31, 1997.
Additionally, should a change in control occur, restrictions on any outstanding
restricted stock, any outstanding stock options, and the EVA Incentive
Compensation Plan bonus bank would lapse.

(14) NOTES PAYABLE AND DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Revolving Credit Agreement.................................. $180,000 $ 73,000
Senior Subordinated Notes, 11 3/4%.......................... 1,681 128,415
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 15,100
Other....................................................... 8,483 12,774
-------- --------
Total consolidated debt..................................... $205,264 $229,289
Less -- Notes payable and current maturities of long-term
debt................................................... 2,774 1,430
-------- --------
Total long-term debt........................................ $202,490 $227,859
======== ========
</TABLE>

Aggregate maturities of total debt are $2,774 in 1998, $2,902 in 1999, $298
in 2000, $298 in 2001, $181,979 in 2002 and $17,013 thereafter.

REVOLVING CREDIT AGREEMENT -- The Company has a credit agreement, as
amended, with a syndicate of banks providing unsecured revolving credit
commitments in an aggregate amount not to exceed $400,000. The agreement, dated
May 7, 1997, has a termination date of May 7, 2002. 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. Eurodollar
advances bear interest at LIBOR plus 0.375% to 1.0% for an interest period of
one, two, three or six months, selected by the Company prior to each Eurodollar
advance. The interest premium above LIBOR is dependant upon the ratio of debt to
EBITDA. At December 31, 1997, the weighted average interest rate on outstanding
revolving credit borrowings was 6.7%.

The agreement also provides a letter of credit facility, which is available
for the issuance of standby letters of credit in an aggregate amount up to
$35,000. Standby letters of credit issued under this facility, $17,100 at
December 31, 1997, reduce the aggregate amount available under the revolving
credit commitment.

The Company must pay a commitment fee of 0.15% to 0.25% 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 also has a $5,000 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. At December 31, 1997 and 1996, there were no
borrowings outstanding under this swingline loan facility.

43
<PAGE> 45
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

SENIOR SUBORDINATED NOTES -- In May 1994, the Company issued $260,000 of
Senior Subordinated Notes which bear interest of 11 3/4%, payable semiannually
and are due June 1, 2002. The Company completed a tender offer to purchase for
cash all of its outstanding 11 3/4% Senior Subordinated Notes in 1997. Through
the tender offer and previous open market purchases, the Company has purchased
$258,319 of the Senior Subordinated Notes. The remaining notes are redeemable at
the option of the Company after June 1, 1998 at a premium which declines to par
in the year 2000.

RESTRICTIVE COVENANTS -- The Company is required to maintain compliance
with restrictive covenants contained in the revolving credit agreement, as
amended. At December 31, 1997, the Company was in compliance with all
restrictive covenants contained in the revolving credit agreement. Under the
most restrictive of these covenants, the Company was required to:

-Maintain a Debt/EBITDA Ratio less than 3.75/1.0 as of December 31, 1997, a
ratio less than 3.5/1.0 for fiscal quarters ending March, June and
September of 1998, and a ratio less than 3.0/1.0 thereafter. At December
31, 1997, the ratio was 2.34/1.0.

-Maintain a Fixed Charge Coverage Ratio greater than 1.75/1.0 through
September of 1998, and a ratio greater than 2.0/1.0 thereafter. At
December 31, 1997, the ratio was 3.47/1.0.

Covenants also limit capital expenditures, investments, and transactions
with affiliates.

(15) FINANCIAL INSTRUMENTS

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 floating rate long-term debt. At December 31,
1997, the Company was party to three interest rate cap agreements which expire
in 1998. The agreements entitle the Company to receive from the counterparties
on a quarterly basis the amounts, if any, by which LIBOR exceeds 6.5% on
$100,000 and 9.0% on $37,500.

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 European currencies. 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. At
December 31, 1997 and 1996, the Company had no significant foreign exchange
contracts outstanding.

OFF-BALANCE SHEET RISK

As collateral for performance on contracts and as credit guarantees to
banks and insurers, the Company is contingently liable under standby letters of
credit in the amount of $17,100 and $15,960 at December 31, 1997 and 1996,
respectively. These standby letters of credit are generally in force for one
year, for which the Company pays fees to various banks that generally range from
.625 to 1.25 percent per annum of their face value. If the Company was required
to obtain replacement standby letters of credit as of December 31, 1997 for
those currently outstanding, it is the Company's opinion that the replacement
costs would not significantly vary from the present fee structure.

44
<PAGE> 46
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and temporary investments.............. $ 12,113 $ 12,113 $ 12,312 $ 12,312
Receivables................................. 172,783 172,783 96,495 96,495
Investment in Echlin Inc. .................. 14,868 14,868 -- --
Other assets (derivative)................... 24 -- 40 --
Notes payable and current maturities of
long-term debt and long-term debt......... (205,264) (205,369) (227,859) (244,057)
Off-Balance Sheet Financial Instruments:
Letters of credit......................... -- (17,100) -- (15,960)
</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 sheets approximates its fair value
because of the short maturity of those instruments.

- Investment in Echlin Inc.: The carrying amount represents the fair value
based upon Echlin's quoted market share price at December 31, 1997.

- Other assets (derivatives): The amount reported relates to the interest
rate cap agreements. The carrying amount comprises the unamortized
premiums paid for the contracts. 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.

RECEIVABLES SOLD

The Company retained certain repurchase and recourse liability related to
lease receivables sold to third party leasing companies. As of December 31,
1997, approximately $8,100 of lease receivables held by these leasing companies
was subject to recourse equal to their net lease balance. Additionally, as of
December 31, 1997, third party leasing companies hold approximately $37,400 of
net lease receivables that provide for limited repurchase liability to the
Company. The Company maintains valuation allowances for its estimated ultimate
cost of recourse and repurchase liabilities, net of the estimated recoverable
value.

The Company had a three-year agreement, which expired 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 $30,000. In order to maintain the balance in the designated
pools of trade accounts receivable sold, the Company sold participating
interests in new receivables as existing receivables were collected. At December
31, 1996, the Company had sold $25,950 of trade accounts

45
<PAGE> 47
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

receivable under this program. Under the terms of that agreement, the Company
was obligated to pay fees which approximated the purchasers' cost of issuing a
like amount in commercial paper plus certain administrative costs. Such fees
were $268 in 1997, $1,690 in 1996, and $1,860 in 1995 and are included in other
expense, net.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and temporary investments, trade
accounts receivable and interest rate cap agreements.

Cash and temporary investments are placed with various high quality
financial institutions throughout the world and exposure is limited at any one
institution. The Company periodically evaluates the credit standing of these
financial institutions.

Concentrations of credit risk arising from trade accounts receivable are
due to the Company selling to a large number of customers operating in the motor
vehicle industry, particularly in the United States. The Company performs
ongoing credit evaluations of its customers' financial conditions and does
obtain collateral or other security when appropriate. The Company's three
largest customers, General Motors Corporation, Ford Motor Company and Chrysler
Corporation, including their divisions, dealers and distributors, accounted for
approximately 37% of sales in 1997.

The Company is exposed to credit losses in the event of nonperformance by
counterparties to its interest rate cap agreements, 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.

(16) CAPITAL STOCK

COMMON 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,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Issued shares.................................. 16,700,373 16,397,314 15,947,893
Treasury shares................................ (4,169,873) (1,633,125) (1,633,125)
---------- ---------- ----------
Outstanding shares............................. 12,530,500 14,764,189 14,314,768
KSOP trust -- unallocated...................... (582,861) (671,733) (870,555)
---------- ---------- ----------
End of year shares used to compute earnings per
share........................................ 11,947,639 14,092,456 13,444,213
========== ========== ==========
</TABLE>

In computing weighted average shares outstanding for diluted earnings per
share for the years ended December 31, 1997, 1996, and 1995, common stock
equivalents resulting from stock options outstanding were not included as they
would have been anti-dilutive to the earnings per share calculation. Common
stock equivalents were 620,901, 336,380, and 22,405 at December 31, 1997, 1996,
and 1995, respectively.

Treasury shares average cost was $45.90 per share at December 31, 1997, and
$30.625 per share at December 31, 1996 and 1995. In May 1997, the Company
completed a Dutch auction self-tender offer for 2,146,548 shares of the
Company's common stock at $56.00 per share. During the last half of 1997,
390,200 additional shares of common stock were purchased in the open market.
Concurrent with the Dutch auction,

46
<PAGE> 48
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

the Company announced the elimination of quarterly cash dividends in favor of
open market purchases of common stock as the preferred method of distributing
cash to shareholders. At December 31, 1997, the Company was authorized to
purchase approximately 625,000 additional shares in the open market.

1992 STOCK COMPENSATION PLAN

Under the 1992 Stock Compensation Plan, as amended in December 1996, up to
1,900,000 shares of the Company's common stock may be granted to key employees.
Those shares still available for use under the 1982 Stock Option Plan carried
forward and form a part of the 1,900,000 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.

Stock options may be granted to key employees in the form of incentive
stock options or nonqualified stock options. The option price per share may be
no less than the fair market value of the common stock of the Company on the
date of grant. Beginning in 1996, fifty percent of the options issued to key
employees after December 31, 1995 become exercisable two years after the date of
grant. The remaining options vest three years after the date of grant. Prior to
1996, options became exercisable six months after the date of the grant. Key
employee options expire no later than 10 years and one day from the date of
grant. Upon exercise, the employee has the option to surrender shares at current
value in payment of the exercise price and for withholding tax obligations, or
to surrender by attestation already owned mature shares in payment of the
exercise price and/or withholding tax obligations and to receive a reload option
having an exercise price equal to the current market value for the number of
shares so surrendered. The reload option expires at the same time that the
exercised option would have expired.

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.

OTHER STOCK OPTION AND RESTRICTED STOCK GRANTS

Under the 1997 Non-employee Directors Compensation Plan, up to 75,000
shares of common stock have been reserved for issuance, and options to purchase
12,000 shares at $45.75 were awarded in 1997.

In 1995, the Company issued 125,000 shares of restricted common stock and
granted an option to acquire 125,000 shares of common stock to the Chairman,
President, and Chief Executive Officer, as part of his employment agreement. The
shares and options are not a part of the 1992 Stock Compensation Plan.

During 1997, 1,300,000 stock options were awarded to three executives of
the Company. The options vest after five years and have exercise prices as
follows; 250,000 options have an exercise price of $45.75, 320,000 options have
an exercise price of $60.00, 365,000 options have an exercise price of $75.00,
and

47
<PAGE> 49
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

365,000 options have an exercise price of $90.00. No portion of the option
awards shall vest prior to the end of five years from the date of grant, unless
certain circumstances exist. The options are not part of the 1992 Stock
Compensation Plan. All of these exercise prices exceeded the market price at the
date of grant, except for those granted with an exercise price of $45.75 which
was the market price.

STOCK OPTION AND RESTRICTED STOCK SUMMARY

The following table includes stock options and restricted stock granted
under the 1992 Stock Compensation Plan, stock options granted under the 1997
Non-employee Directors Compensation Plan, and stock options and restricted stock
granted outside of these plans. The table also includes shares available for
grant under the 1992 Stock Compensation Plan, and shares available for grant
under the 1997 Non-employee Directors Compensation Plan:

<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
SHARES WTD AVE SHARES WTD AVE SHARES WTD AVE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Options:
Outstanding at beginning of
year........................ 863,475 $15.62 1,011,200 $15.48 1,080,225 $15.32
Options granted................ 1,629,000 55.59 300,500 15.94 138,800 15.73
Options exercised.............. (283,725) 18.48 (449,975) 14.92 (111,025) 12.53
Surrendered/canceled........... (41,500) 1,750 (96,800)
--------- --------- ---------
Outstanding at end of year....... 2,167,250 57.97 863,475 15.62 1,011,200 15.48
========= ========= =========
Exercisable at end of year..... 504,250 16.10 658,975 15.91 886,200 15.45
Restricted Stock issued.......... 19,630 -- 68,835
Shares available for grant under:
1992 Stock Compensation Plan... 884,027 1,159,529 206,777
1997 Non-employee Directors
Compensation Plan........... 63,000 -- --
</TABLE>

Stock options outstanding at December 31, 1997 and related weighted average
price and life information follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
---------------------------------- -------------------
REMAINING EXERCISE EXERCISE
RANGE OF LIFE-YEARS PRICE PRICE
EXERCISE PRICES SHARES (WTD AVE) (WTD AVE) SHARES (WTD AVE)
--------------- --------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$11.375-$20.125......................... 517,950 6 $15.39 454,450 $15.65
$23.625-$65.625......................... 349,300 9 $41.63 49,800 $32.20
$45.75 -$90.00.......................... 1,300,000 9 $68.29 -- $ --
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) and, accordingly, no compensation cost has been
recognized for stock option grants. Had compensation cost for the Company's
stock options been determined based on the fair value at the grant date for
awards in 1997, 1996 and 1995

48
<PAGE> 50
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

consistent with the provisions of SFAS No. 123, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Net loss -- as reported......................... $(13,748) $(62,271) $(5,276)
Net loss -- pro forma........................... $(25,966) $(63,034) $(5,638)
Basic per Share:
As reported................................... $ (1.08) $ (4.52) $ (0.40)
Pro forma..................................... $ (2.04) $ (4.57) $ (0.43)
Average shares (in thousands)................. 12,754 13,785 13,173
Diluted per Share:
As reported................................... $ (1.08) $ (4.52) $ (0.40)
Pro forma..................................... $ (2.04) $ (4.57) $ (0.43)
Average shares (in thousands)................. 12,754 13,785 13,173
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
YEAR OF DIVIDEND EXPECTED RISK FREE EXPECTED EXPECTED
GRANT YIELD VOLATILITY INTEREST RATE VESTING % OPTION LIFE
------- -------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
1997......................... 0.0% .306 6.30% 75% 6 Years
1996......................... 3.2% .344 5.80% 75% 6 Years
1995......................... 3.3% .332 5.76% 100% 6 Years
</TABLE>

SHAREHOLDER RIGHTS PLAN

On June 25, 1996, the Company entered into a Rights Agreement (amended on
October 23, 1997), pursuant to which 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-thousandth of a share of a new series of junior participating preferred
stock for $200. 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 June
25, 2006, and may be redeemed by the Company at a price of $.01 per right at any
time prior to any person or affiliated group of persons acquires 20% or more of
the Company's common stock.

(17) SUBSEQUENT EVENT -- OFFER TO PURCHASE ECHLIN INC.

On February 17, 1998, the Company announced that it had made an offer to
acquire Echlin Inc. ("Echlin") for cash and Company common stock valued at
approximately $48.00 per Echlin share (based upon the Company's February 13,
1998 closing stock price of $75 1/16). The market value of the offer price per
Echlin share will vary with the Company's actual stock price. The offer consists
of $12.00 in cash and 0.4796 Company share per Echlin share. At February 17,
1998, the Company owned approximately 1.15 million Echlin shares, or
approximately 1.8% of its shares outstanding. Immediately following the
consummation of

49
<PAGE> 51
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

the transaction, Echlin shareholders would own approximately 70% of the
outstanding shares of the combined company.

The Company is soliciting demands from Echlin shareholders' to call a
special meeting of Echlin shareholders for the purpose of removing and replacing
the Board of Directors of Echlin with the Company's nominees. If elected, the
Company's nominees will take all action needed to facilitate consummation of the
Company's offer, subject to their fiduciary and statutory duties as Echlin
directors. If the Company is successful in having the special meeting called, it
must be held within 90 days of delivery of the written demands to call the
meeting.

As of December 31, 1997, the Company had recorded an investment of $14,868
in the common stock of Echlin Inc. This investment represents 416,000 shares, or
approximately 0.7% ownership, of Echlin Inc. The shares are considered to be
trading securities and are carried on the consolidated balance sheet in Prepaid
and other current assets at market value.

(18) QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
1997
--------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $236,662 $230,263 $213,672 $241,719 $922,316
Gross profit........................ 62,495 64,184 61,336 65,256 253,268
Income (loss) from continuing
operations........................ 34,705* 11,965 9,899 (59,987)** (3,418)
Extraordinary item.................. (10,330) -- -- -- (10,330)
Net income (loss)................... 24,375 11,965 9,899 (59,987) (13,748)
Basic income (loss) per share:
Continuing operations............. $ 2.44 $ 0.90 $ 0.83 $ (5.02) $ (0.27)
Extraordinary item................ (0.73) -- -- -- (0.81)
Net income (loss)................. 1.71 0.90 0.83 (5.02) (1.08)
Diluted income (loss) per share:
Continuing operations............. $ 2.39 $ 0.88 $ 0.80 $ (5.02) $ (0.27)
Extraordinary item................ (0.71) -- -- -- (0.81)
Net income (loss)................. 1.68 0.88 0.80 (5.02) (1.08)
</TABLE>

- ---------------

* Includes a $31,160 after-tax gain on the sale of a business.

** Includes a pretax special charge of $116,500 ($74,560 after-tax).

50
<PAGE> 52
SPX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997

<TABLE>
<CAPTION>
1996
----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $292,308 $310,623 $254,979 $251,512 $1,109,422
Gross profit....................... 63,875 74,908 63,332 57,147 259,262
Income (loss) from continuing
operations....................... 2,764 3,527 3,837 (65,772)* (55,644)
Extraordinary item................. -- (379) (774) (5,474) (6,627)
Net income (loss).................. 2,764 3,148 3,063 (71,246) (62,271)
Basic income (loss) per share:
Continuing operations............ $ 0.20 $ 0.26 $ 0.28 $ (4.69) $ (4.04)
Extraordinary item............... -- (0.03) (0.06) (0.39) (0.48)
Net income (loss)................ 0.20 0.23 0.22 (5.08) (4.52)
Diluted income (loss) per share:
Continuing operations............ $ 0.20 $ 0.26 $ 0.27 $ (4.69) $ (4.04)
Extraordinary item............... -- (0.03) (0.05) (0.39) (0.48)
Net income (loss)................ 0.20 0.23 0.22 (5.08) (4.52)
</TABLE>

- ---------------

* Includes an after-tax goodwill write-off of $67,817.

<TABLE>
<CAPTION>
1995
----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $275,769 $293,376 $268,790 $260,168 $1,098,103
Gross profit....................... 58,556 68,490 63,752 53,768 244,566
Income (loss) from continuing
operations....................... 201 3,572 4,204 (9,328)* (1,351)
Income (loss) from discontinued
operation........................ 121 63 (3,031) -- (2,847)
Extraordinary item................. (72) (206) (471) (329) (1,078)
Net income (loss).................. 250 3,429 702 (9,657) (5,276)
Basic income (loss) per share:
Continuing operations............ $ 0.01 $ 0.28 $ 0.32 $ (0.70) $ (0.10)
Discontinued operation........... 0.01 0.00 (0.23) 0.00 (0.22)
Extraordinary item............... 0.00 (0.02) (0.04) (0.03) (0.08)
Net income (loss)................ 0.02 0.26 0.05 (0.73) (0.40)
Diluted income (loss) per share:
Continuing operations............ $ 0.01 $ 0.28 $ 0.32 $ (0.70) $ (0.10)
Discontinued operation........... 0.01 0.00 (0.23) -- (0.22)
Extraordinary item............... 0.00 (0.02) (0.04) (0.03) (0.08)
Net income (loss)................ 0.02 0.26 0.05 (0.73) (0.40)
</TABLE>

- ---------------

* Includes a pretax special charge of $10,724 ($6,972 after-tax).

51
<PAGE> 53

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 7.

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 in the law firm of
Gardner, Carton & Douglas which the Company had retained in 1997 and many prior
years and anticipates retaining in 1998.

52
<PAGE> 54

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 22 of this Form 10-K.

2. Financial Statement Schedules. None required. See page 22 of this
Form 10-K.

3. Exhibits

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- -----------
<C> <S>
2 Registration Statement on Form S-4 (which as of the date
hereof has not been declared effective), file No. 333-46381,
in connection with Offer to Exchange each Outstanding Share
of Common Stock of Echlin Inc. for $12.00 Net Per Share in
Cash and 0.4796 Share of Common Stock of SPX Corporation
filed on February 17, 1998.
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 October 25, 1995, incorporated
herein by reference from the Company's Quarterly Report on
Form 10-Q, file No. 1-6948, for the quarter ended September
30, 1995.
4(i) 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.
(ii) 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.
(iii) Rights Agreement, dated as of June 25, 1996 between SPX
Corporation and The Bank of New York, as Rights Agent,
relating to Rights to purchase preferred stock under certain
circumstances, incorporated herein by reference from the
Company's Registration Statement on Form 8-A filed on June
26, 1996.
(iv) Amendment No. 1 to Rights Agreement, effective October 22,
1997, between SPX Corporation and The Bank of New York,
incorporated herein by reference from the Company's
Registration Statement on Form 8-A filed on January 9, 1998.
(v) Credit Agreement between SPX Corporation and The First
National Bank of Chicago, as agent for the banks named
therein, dated as of May 7, 1997, incorporated herein by
reference from the Company's Quarterly Report on Form 10-Q,
file No. 1-6948, for the quarter ended March 31, 1997.
(vi) Amendment No. 1 and Waiver to Credit Agreement between SPX
Corporation and The First National Bank of Chicago, as agent
for the banks named therein, dated as of December 19, 1997.
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.
</TABLE>

53
<PAGE> 55

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- -----------
<C> <S>
(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.
(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) Employment agreement, and related Nonqualified Stock Option
Agreement and Restricted Shares Agreement, between SPX
Corporation and John B. Blystone dated as November 24, 1995,
incorporated herein by reference to the Company's Annual
Report on Form 10-K, file 6948, for the year ended December
31, 1995.
(xiv) Employment agreement between SPX Corporation and John B.
Blystone dated as January 1, 1997, incorporated herein by
reference to the Company's Annual Report on Form 10-K, file
6948, for the year ended December 31, 1996.
11 Statement regarding computation of earnings per share. See
Consolidated Statements of Income, page 25 of this Form
10-K.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
27 Financial data schedule.
</TABLE>

(b) Reports on Form 8-K.

None.
54
<PAGE> 56

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, on this 31st day of
March, 1998.

SPX CORPORATION
(Registrant)

By /s/ PATRICK J. O'LEARY
-----------------------------------
Patrick J. O'Leary
Vice President Finance,
Treasurer and Chief Financial
Officer and Accounting Officer

POWER OF ATTORNEY

The undersigned officers and directors of SPX Corporation hereby severally
constitute John B. Blystone, Christopher J. Kearney Patrick J. O'Leary 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
the Annual Report on Form 10-K filed herewith and any and all amendment thereto,
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, on the Annual Report on Form 10-K and any and all amendments
thereto.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned have signed this report on this 31st day
of March, 1998.

<TABLE>
<S> <C>
/s/ JOHN B. BLYSTONE /s/ PATRICK J. O'LEARY
- ----------------------------------------------------- -----------------------------------------------------
John B. Blystone Patrick J. O'Leary
Chairman, President and Vice Vice President Finance,
Chief Executive Officer Treasurer and Chief Financial
Director Officer and Accounting Officer

/s/ J. KERMIT CAMPBELL /s/ SARAH R. COFFIN
- ----------------------------------------------------- -----------------------------------------------------
J. Kermit Campbell Sarah R. Coffin
Director Director

/s/ FRANK A. EHMANN /s/ EDWARD D. HOPKINS
- ----------------------------------------------------- -----------------------------------------------------
Frank A. Ehmann Edward D. Hopkins
Director Director

/s/ CHARLES E. JOHNSON II /s/ RONALD L. KERBER
- ----------------------------------------------------- -----------------------------------------------------
Charles E. Johnson II Ronald L. Kerber
Director Director

/s/ PETER H. MERLIN /s/ DAVID P. WILLIAMS
- ----------------------------------------------------- -----------------------------------------------------
Peter H. Merlin David P. Williams
Director Director
</TABLE>

<PAGE> 1
EXHIBIT 4.(vi)

AMENDMENT NO. 1 AND WAIVER TO CREDIT AGREEMENT

This Amendment and Waiver (this "Amendment") is entered into as of
December 19, 1997 by and among SPX Corporation, a Delaware corporation (the
"Borrower"), The First National Bank of Chicago, individually and as agent
("Agent"), and the other financial institutions signatory hereto.

RECITALS

A. The Borrower, the Agent and the Lenders are party to that
certain credit agreement dated as of May 7, 1997 (the "Credit Agreement").
Unless otherwise specified herein, capitalized terms used in this Amendment
shall have the meanings ascribed to them by the Credit Agreement.

B. The Borrower proposes to create a risk management subsidiary
to better control the costs associated with certain post-retirement benefit
obligations, workmen's compensation claims and keyman life insurance reserves
and, in connection therewith, plans to enter into a series of related
transactions. Such transactions, as set forth on Exhibit A hereto, are
collectively referred to as the "Transaction".

C. The Borrower, the Agent and the undersigned Lenders wish to
amend the Credit Agreement and waive certain provisions thereof on the terms
and conditions set forth below to, among other things, facilitate the
Transaction.

Now, therefore, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:

1. Amendment to Credit Agreement. Upon the "Effective
Date" (as defined below), the Credit Agreement shall be amended as follows:

(a) The definition of "Net Available Proceeds" in
Article I of the Credit Agreement is amended by adding the following at the
conclusion thereof after the phrase "Asset Disposition":

"; provided, however, that in no event shall amounts received
from the Borrower or any Wholly-Owned Subsidiary constitute
"Net Available Proceeds.""

(b) The definition of "EBITDA" in Article I of
the Credit Agreement is amended by adding the following at the end of the first
sentence of such definition after the word "securitizations":

"and (v) restructuring charges of up to $125,000,000
recorded in the fourth quarter of 1997 in connection
with the restructuring of the SPX Service Solutions
Group".
<PAGE> 2
(c) Section 6.13(b) of the Credit Agreement is
amended in its entirety to read as follows:

"(b) (i) any other sale, transfer or disposition
excluded from the definition of Asset Disposition or
permitted by Section 6.14 and (ii) the sales of real
estate and Class B Shares of SPX Risk Management Co.
described on Exhibit A to Amendment No. 1 to the
Credit Agreement dated as of December 19, 1997 and"

(d) Section 6.14 of the Credit Agreement is
amended in its entirety to read as follows:

"Sales of Accounts. Except with respect to any
Receivables Financings permitted hereunder, the
Borrower will not, nor will it permit any Subsidiary
to, sell or otherwise dispose of any notes receivable
or accounts receivable, with or without recourse;
provided, however, that for so long as Kodiak
Partners II Corp. remains a Wholly-Owned Subsidiary
and a Subsidiary Guarantor, the Borrower may from
time to time sell accounts receivable to Kodiak
Partners II Corp. pursuant to a revolving
receivables purchase agreement which has an advance
rate of not less than 90% and is in an amount not in
excess of $65,000,000 at any time outstanding."

(e) Section 6.15(h) of the Credit Agreement is
amended by deleting the reference to "$25,000,000" in the last line thereof and
substituting therefor "$50,000,000."

(f) A new Section 6.15(i) is added as follows:

"(i) (A) an Investment in the form of a cash
capital contribution of up to $75,000,000 made by the
Borrower to SPX Risk Management Co., the proceeds of
which are used by SPX Risk Management Co. to make a
loan (which shall also be permitted hereby) to Kodiak
Partners II Corp. (the "Kodiak Loan"), (B) an
Investment in the form of a cash capital contribution
by SPX Netherlands B.V. to SPX Risk Management Co. of
up to $37,000, in each case as more fully described
on Exhibit A to Amendment No. 1 to the Credit
Agreement dated as of December 19, 1997, (C) any
non-cash Investment of the Borrower in Kodiak
Partners II Corp. which arises out of the
transactions described on such Exhibit A and (D)
demand loans (collectively, the "Demand Loan") by the
Borrower to SPX Risk Management Co. at no time
exceeding $25,000,000 in aggregate outstanding
principal amount, as described on such Exhibit A;
provided, however, that within one Business Day after
receipt by SPX Risk Management Co. of any payment of
principal or interest in respect of the Kodiak Loan,
the Borrower shall cause SPX Risk Management Co. to
use the proceeds of such payment (less any portion
thereof reasonably required to meet the cash needs of
SPX Risk Management Co.) to repay any outstanding
principal and interest then owing in respect of the
Demand Loan."

-2-
<PAGE> 3
(g) Part II of Schedule 5.9 of the Credit Agreement is
amended by deleting the word "None" and replacing it with the
following:

"SPX Risk Management Co.'s Class B Shares are
redeemable as described on Exhibit A to Amendment No.
1 to the Credit Agreement dated as of December 19,
1997."

(h) A new Section 7.14 is added to the Credit Agreement
as follows:

"7.14 The Borrower shall at any time fail to own
directly or indirectly at least 85% of the
outstanding capital stock of SPX Risk Management Co."

2. Waiver. The Lenders hereby waive any breach of
Section 6.17 of the Credit Agreement arising solely out of the Transaction.

3. Representations and Warranties of the Borrower. The
Borrower represents and warrants that:

(a) The execution, delivery and performance by
the Borrower of this Amendment have been duly authorized by all
necessary corporate action and that this Amendment is a legal, valid
and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by general principles
of equity;

(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
and

4. Effective Date. Sections 1 and 2 of this Amendment
shall become effective upon:

(a) The execution and delivery hereof by the
Borrower, the Agent and the Required Lenders (without respect to
whether it has been executed by all the Lenders);

(b) The execution and delivery by each of the
Subsidiary Guarantors of an Affirmation of Guaranty in the form of
Exhibit B hereto;

(c) The execution and delivery by SPX Risk
Management Co. of a Joinder Agreement in the form attached to the
Subsidiary Guaranty; and

(d) Payment by the Borrower to the Agent for the
pro-rata account of the Lenders of an amendment fee equal to .04% of
the Aggregate Commitment.

-3-
<PAGE> 4
The date upon which such events have occurred is the "Effective Date". In the
event the Effective Date has not occurred on or before December 31, 1997,
Sections 1 and 2 hereof shall not become operative and shall be of no force or
effect.

5. Reference to and Effect Upon the Credit Agreement.

(a) Except as specifically amended above, the
Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or
remedy of the Agent or any Lender under the Credit Agreement or any
Loan Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of similar import shall mean and be a reference to
the Credit Agreement as amended hereby.

6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF
LAWS PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

7. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purposes.

8. Counterparts. This Amendment may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original but all such counterparts shall constitute one and the same
instrument.

[signature pages follow]

-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date and year first above written.

SPX Corporation The First National Bank of Chicago,
individually and as Agent

By: Patrick J. O'Leary By: Robert F. Barnett III
-------------------------------------- -------------------------------

Its: Vice President Finance, Treasurer Its: Senior Vice President
------------------------------------- -----------------------------
And Chief Financial Officer
-------------------------------------

The Sumitomo Bank, Limited, Chicago
Branch

By: Ken-Ichiro Kobayashi
------------------------------

Its: Joint General Manager
-------------------------------

Michigan National Bank

By: Joseph M. Redoutey
--------------------------------

Its: Commercial Relationship
-------------------------------
Manager
-------------------------------

The Sanwa Bank, Limited, Chicago
Branch

By: Richard H. Ault
--------------------------------

Its: Vice President
-------------------------------

The Fuji Bank, Limited

By:
--------------------------------

Its:
-------------------------------

-5-
<PAGE> 6
Yasuda Trust and Banking Company,
Limited

By: Rohn Laudenschlager
-------------------------------

Its: Senior Vice President
-------------------------------

CIBC, Inc.

By: William J. Koslo
--------------------------------

Its: Executive Director
-------------------------------

Dresdner Bank AG, New York and
Grand Cayman Branches

By: John W. Sweeney &
Beverly G. Cason
--------------------------------

Its: Assistant Vice President &
-------------------------------
Vice President
-------------------------------

Bank of Tokyo-Mitsubishi Trust
Company

By:
--------------------------------

Its:
-------------------------------

Credit Lyonnais, Chicago Branch

By: Kent S. Davis
--------------------------------

Its: Vice President
-------------------------------

-6-
<PAGE> 7
The Long-Term Credit Bank of Japan,
Ltd.

By: Mark A. Thompson
-------------------------------

Its: Senior Vice President
-------------------------------

Comerica Bank

By: Lana Anderson
--------------------------------

Its: Vice President
-------------------------------

The Bank of Nova Scotia

By: F. C. H. Ashby
--------------------------------

Its: Senior Manager Loan Operations
-------------------------------

The Bank of New York

By: John M. Lokay, Jr.
--------------------------------

Its: Vice President
-------------------------------

The Mitsubishi Trust and Banking
Corporation, Chicago Branch

By: Mr. Nobuo Tominaga
--------------------------------

Its: Chief Manager
-------------------------------

-7-

<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%
SPX France S.A. ......................................... France 100%
IBS Filtran GmbH ........................................ Germany 60%
SPX Netherlands. B.V. ................................... The Netherlands 100%
Kent-Moore Do Brazil Industria & Commerce, Ltda. ........ Brazil 100%
Sealed Power Technologies Limited Partnership ........... Delaware 100%
JATEK, Limited .......................................... Japan 80%
SPX Credit Corporation .................................. Delaware 100%
SPX Sales and Service Corporation ....................... Delaware 100%
SPX Iberica, S.A. ....................................... Spain 100%
Lowener GmbH ............................................ Germany 100%
SPX de Mexico, S.A. de C.V. ............................. Mexico 100%
AR Brasch Marketing Inc ................................. Michigan 100%
Kodiak Partners Corporation ............................. Delaware 100%
Kodiak Partners II Corporation .......................... Delaware 100%
SPX Risk Management Company ............................. Delaware 85%
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPX CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1997.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,113
<SECURITIES> 0
<RECEIVABLES> 181,569
<ALLOWANCES> (8,786)
<INVENTORY> 92,875
<CURRENT-ASSETS> 383,545
<PP&E> 263,821
<DEPRECIATION> (141,703)
<TOTAL-ASSETS> 583,807
<CURRENT-LIABILITIES> 286,554
<BONDS> 1,681
0
0
<COMMON> 166,999
<OTHER-SE> (210,347)
<TOTAL-LIABILITY-AND-EQUITY> 583,807
<SALES> 922,316
<TOTAL-REVENUES> 922,316
<CGS> 669,048
<TOTAL-COSTS> 964,671
<OTHER-EXPENSES> (74,190)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,966
<INCOME-PRETAX> 17,869
<INCOME-TAX> 21,287
<INCOME-CONTINUING> (3,418)
<DISCONTINUED> 0
<EXTRAORDINARY> (10,330)
<CHANGES> 0
<NET-INCOME> (13,748)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)

</TABLE>