<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, 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 38-1016240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 TERRACE POINT DRIVE, MUSKEGON, MICHIGAN 49443-3301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 231-724-5000
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
</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.
$3,767,901,000 AS OF MARCH 9, 2000
------------------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
31,399,172 SHARES AS OF MARCH 9, 2000
------------------------
DOCUMENTS INCORPORATED BY REFERENCE: REGISTRANT'S PROXY STATEMENT FOR ITS
ANNUAL MEETING ON APRIL 26, 2000 IS INCORPORATED BY REFERENCE INTO PART III.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
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<PAGE> 2
PART I.
ITEM 1. BUSINESS
(dollar amounts in millions, except per share data)
SPX Corporation ("SPX" or the "company") is a global provider of technical
products and systems, industrial products and services, service solutions and
vehicle components. The company was organized in 1911 under the laws of
Michigan, and reincorporated in Delaware in 1968. SPX has operations in 19
countries with the worldwide headquarters located in Muskegon, Michigan.
1999 was a year of dynamic change for SPX Corporation. Significant
accomplishments in 1999 follow:
-Improved revenues by 7.7% and operating profit by 470 basis points
compared to pro forma 1998 through the implementation of growth strategies
and restructuring initiatives.
-Improved Economic Value Added ("EVA") by $70.6 in 1999. The company
expects to be EVA positive in 2000, two years ahead of its original
commitment of 2002.
-Reduced net debt by $409.4 with cash generated from operations and
proceeds from the divestiture of Best Power, Dual-Lite, and Acutex.
-Continued to expand the businesses through strategic acquisitions, the
largest of which was North American Transformer for $86.0. NAT's expertise
in large-power transformers will broaden the Industrial Products and
Services product line.
-Completed the restructuring plan announced in 1998 that improved
profitability, streamlined operations, reduced costs, and improved
efficiency. The restructuring was related primarily to the merger
("Merger") of General Signal and SPX Corporation that occurred on October
6, 1998.
-Implemented the SPX Value Improvement Process(R) throughout the
businesses. The SPX Value Improvement Process represents an integrated,
transferable approach to doing business that consists of six components
executed concurrently. These include: (1) implementation of Economic Value
Added ("EVA") in its full form; (2) infusion of the SPX leadership
standards throughout the organization; (3) completion of the strategic
review process to determine which businesses to fix, sell or grow; (4)
rightsize and consolidate; (5) development of growth strategies; (6)
driving the results expected by shareholders.
BUSINESS SEGMENTS
The company is comprised of four business segments. The Technical Products
and Systems segment primarily includes operations that design, manufacture and
market fire detection systems, data networking equipment, broadcast antennas and
automated fare collection systems. Major customers are computer manufacturers
and users, construction contractors, municipalities and TV and radio
broadcasters. The Industrial Products and Services segment includes operations
that design, manufacture and market power transformers, industrial valves,
mixers, electric motors, laboratory freezers and ovens, high-pressure
hydraulics, industrial furnaces and coal feeders. Major customers include
industrial chemical companies, pulp and paper manufacturers, laboratories, and
utilities. The Service Solutions segment includes operations that design,
manufacture and market a wide range of specialty service tools, equipment and
services primarily to the motor vehicle industry in North America and Europe.
Major customers are franchised dealers of motor vehicle manufacturers,
aftermarket vehicle service facilities, and independent distributors. The
Vehicle Components segment 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 are vehicle
manufacturers and aftermarket private brand distributors.
1
<PAGE> 3
Actual revenues for 1999 and pro forma revenues by segment for 1998 and
1997 are presented below. The pro forma results reflect the General Signal
Merger.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Technical Products and Systems...................... $ 781.1 $ 718.8 $ 681.7
Industrial Products and Services.................... 844.9 819.8 855.7
Service Solutions................................... 699.6 611.3 567.8
Vehicle Components.................................. 386.7 369.5 395.1
-------- -------- --------
$2,712.3 $2,519.4 $2,500.3
======== ======== ========
</TABLE>
TECHNICAL PRODUCTS AND SYSTEMS
The operations in the Technical Products and Systems segment are focused on
solving customer problems with complete technology-based systems. The emphasis
is on growth through investment in new technology, new product introduction, and
alliances and acquisitions.
The Technical Products and Systems segment includes operations that design,
manufacture and market fire detection systems, data networking equipment,
broadcast antennas, and automated fare collection systems.
Fire Detection Systems -- The company produces fire detection and
building life-safety products, systems and services for commercial,
industrial and institutional facilities under the EST, Mirtone and Edwards
brand names. This business is one of the leading manufacturers in the
domestic fire detection, service and monitoring market. Sales outside the
United States represent approximately 32% of sales. These sales are
generated through a network of domestic and international distributors and
Original Equipment Manufacturers ("OEM's").
Data Networking Systems -- The company produces storage networking,
data networking and telephone-networking systems and sells these products
under the Inrange brand name. Sales outside the United States represent
approximately 39% of sales. The company uses a direct sales force and
independent distributors worldwide. Principal customers include corporate
data centers, mission critical processing environments and storage area
network users.
Broadcast Antennas -- The company produces radio frequency
transmission equipment and broadcast antenna systems for television and FM
broadcasters and cable pressurization equipment to telecommunications
providers under the Dielectric brand name. Sales outside the United States
represent approximately 7% of sales. The company currently has a leading
share of the antenna systems required for digital TV ("DTV") and is
positioned to capitalize on the industry conversion to the DTV format.
Automated Fare Collection Systems -- The company produces automated
fare collection systems, electronic fareboxes and faregates, magnetic
ticket processing systems, high-security vending equipment, stamp vending
equipment and audio products. These products are marketed to the bus and
rail transportation industry and to the U.S. Postal Service under the brand
name GFI Genfare. Sales outside the United States represent approximately
7% of sales. The company uses both a direct sales force and independent
sales representatives.
INDUSTRIAL PRODUCTS AND SERVICES
The strategy of the Industrial Products and Services segment is to provide
"Productivity Solutions for Industry." The growth emphasis is on introducing new
related services and products, as well as to focus on the replacement parts and
service elements of the business. This segment includes operations that design,
manufacture and market power transformers, industrial valves, mixers, electric
motors, high-pressure hydraulics, laboratory freezers and ovens, industrial
furnaces and coal feeders for industrial chemical companies, pulp and paper
manufacturers, laboratories and utilities.
2
<PAGE> 4
Power Transformers -- The company is the leading North American producer of
medium and large-power transformers and substations sold to investor-owned
utilities, rural electric cooperatives, municipal utilities and the industrial
and commercial sector under the Waukesha Electric and North American
Transformer brand names. Sales are predominately in the United States.
Industrial Valves -- The company is a leading producer of industrial valves
for gases, liquid, slurries and dry solids. These products are sold primarily
to water supply and wastewater treatment plants, pulp and paper manufacturing
and chemical processing industries under the DeZurik, PowerRac, Maxum and
Intelliseal brand names. Approximately 17% of sales are outside the United
States.
Industrial Fluid Mixers and Agitators -- The company is a global producer of
industrial fluid mixers and agitators, that are sold to the water and
wastewater treatment, chemical processing and minerals processing industries
under the Lightnin brand name. Approximately 33% of sales are outside the
United States. Products are sold through a network of representative offices,
direct sales force, distributors and licensees.
Electric Motors -- The company produces universal, blower and permanent magnet
fractional horsepower electric motors under the GS Electric brand name. These
motors are sold primarily to home appliance manufacturers. Sales are
predominately in the United States.
High-Pressure Hydraulic Equipment -- The company is a leading producer and
marketer of precision quality high-pressure hydraulic pumps, rams, valves,
pullers and other equipment. These products are marketed under the Power Team
and Hytec brand names through industrial distributors, an internal sales force
and independent agents. Approximately 26% of sales are outside the United
States. Customers include the motor vehicle service industry, construction,
aerospace and industrial maintenance markets.
Ultra-Low Temperature Freezers -- The company is a leading manufacturer of
ultra-low temperature laboratory freezers for life science research and
clinical laboratories, and CO(2) incubators for industrial research
laboratories. These products are sold under the REVCO, Puffer and Hubbard
brand names. The company also produces freezers for dealers under private
labels. Approximately 26% of total sales are outside of the United States. The
domestic market is serviced through a network of manufacturers'
representatives, distributors and a direct sales force.
Industrial Laboratory Ovens and Heat Treating Equipment -- The company is a
manufacturer of industrial ovens, furnaces and environmental chambers. This
equipment is used primarily in transportation, electronics equipment,
component manufacturing and laboratories. Approximately 16% of total sales are
outside of the United States. Products are sold under the Lindberg and Blue M
brand names, through a direct sales force and representatives in North
America, Asia and Europe.
Coal Feed Systems -- The company manufactures and sells coal feed systems
primarily to electric utilities, paper manufacturers as well as feed systems
and flow measurement devices for water and wastewater treatment. Approximately
37% of total sales are outside the United States. The products are sold under
the Stock Equipment and BIF brand names. Products are sold through a network
of domestic sales persons, domestic distributors and international
distributors.
SERVICE SOLUTIONS
The Service Solutions segment includes operations that design, manufacture
and market a wide range of specialty service tools, equipment and services
primarily to the worldwide motor vehicle industry. Approximately 29% of sales
are outside of the United States.
Specialty Service Tools -- The company is the world's leading supplier of
specialty service tools required to perform warranty work on vehicles. Sales
tend to vary with changes in the design of vehicle systems, and the number of
dealerships, rather than the number of vehicles manufactured. Customers include
the manufacturers of motor vehicles and their dealership networks. These
products are sold under the brand names of Kent-Moore, Miller Special Tools,
OTC, VL Churchill, and Lowener OTC Tools.
Technical Information and Other Services -- The company provides integrated
service, technical and training information for the manufacturers of motor
vehicles. In addition, the company is the administrator of
3
<PAGE> 5
dealer equipment programs for various motor vehicle manufacturers, primarily in
North America. Under the motor vehicle manufacturer's identity, the company
supplies service equipment and support material to dealerships, develops and
distributes equipment catalogues, and helps dealerships assess and meet their
service equipment needs. These services are provided under the brand names of
Valley Forge, and Dealer Equipment and Services "DES".
Diagnostic Systems and Service Equipment -- Under the OTC, Tecnotest,
Robinair, Bear and Allen Testproducts brand names, the company provides
hand-held diagnostic systems and service equipment to vehicle manufacturers,
national accounts and independent repair facilities. The company also markets a
portion of its products to the appliance, refrigeration, and non-vehicular
service repair market. Products include specialized repair tools, refrigerant
recovery and recycling equipment, refrigeration vacuum pumps, and leak detection
equipment.
VEHICLE COMPONENTS
In the Vehicle Components segment, the company supplies high integrity
aluminum and magnesium die-castings and forgings, as well as automatic
transmission and small engine filters and transmission kits for both the
original equipment manufacturers and aftermarket customers.
Precision Die-Castings and Forgings -- The company produces precision
aluminum and magnesium die-cast parts for automotive steering and suspension
systems, and other assorted automotive 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. Products are
sold almost exclusively to automotive OEM's through marketing and sales
personnel who are assisted by an outside sales organization. The market is
driven primarily by major OEM model and assembly programs. Sales are
predominately based in the United States, and are provided under the brand names
of Contech and Metal Forge.
Filtration Products -- The company is a leading producer of automatic
transmission and small engine filters, transmission kits and other filtration
products and has a leading position in the U.S. and Canadian OEM market and
aftermarket. The company sells filters directly to the worldwide OEM market and
the aftermarket. Sales to the aftermarket include the OEM parts and service
organizations as well as private brand manufacturers and assorted transmission
rebuilders and repackagers. Approximately 13% of total sales are outside the
United States.
EGS ELECTRICAL GROUP LLC
The company owns 44.5% of EGS, a company which produces electrical
fittings, hazardous location lighting, emergency lighting, power conditioning
products and signaling products. (See Note 10 to the consolidated financial
statements.)
INTERNATIONAL OPERATIONS
The company has wholly owned operations located in Australia, Austria,
Brazil, Canada, China, France, Germany, Italy, Japan, Mexico, The Netherlands,
Singapore, Spain, Switzerland, Taiwan and the United Kingdom.
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.
4
<PAGE> 6
The company's total export sales, to both affiliated and unaffiliated
customers, from the United States, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Export sales:
To unaffiliated customers............................ $247.5 $181.9 $176.8
To affiliated customers.............................. 80.1 77.0 63.5
------ ------ ------
Total........................................... $327.6 $258.9 $240.3
====== ====== ======
</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 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 expensed approximately $76.0 million on research activities
relating to the development and improvement of its products in 1999, $73.4
million in 1998 and $45.7 million in 1997.
PATENTS/TRADEMARKS
The company owns numerous domestic and foreign patents covering a variety
of its products and manufacturing methods 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. The company is both a licensor and licensee
of patents. See Note 16 to the consolidated financial statements for further
discussion.
RAW MATERIALS
The company manufactures many of the components used in its products. It
also purchases a variety of basic materials and component parts. The company
believes that it will generally be able to obtain adequate supplies of major
items or reasonable substitutes at reasonable costs.
COMPETITION
Although the businesses of the company are in highly competitive markets,
the competitive position cannot be determined accurately in the aggregate or by
segment since none of its competitors offer all of the same product lines or
serve all of the same markets, nor are reliable comparative figures available
for many of its competitors. In most product groups, competition comes from
numerous concerns, both large and small. The principal methods of competition
are price, service, product performance and technical innovation. These methods
vary with the type of product sold. The company believes that it can compete
effectively on the basis of each of these factors as they apply to the various
products offered.
ENVIRONMENTAL MATTERS
Note 16 - Commitments and Contingent Liabilities, to the Consolidated
Financial Statements is hereby incorporated by reference.
EMPLOYMENT
At December 31, 1999, the company had approximately 13,100 employees.
Approximately 1,750 employees are represented by 7 different collective
bargaining units. The company has generally experienced satisfactory labor
relations at its various locations.
5
<PAGE> 7
OTHER MATTERS
No customer or group of customers under common control accounted for more
than 10% of consolidated sales.
No single line of business or product line accounted for more than 10% of
consolidated sales.
All of the company's businesses are required to maintain sufficient levels
of working capital to support customer requirements, particularly inventory. The
businesses' sales terms and payment terms are generally similar to their
competitors within the markets in which they compete.
The majority of the company's businesses tend to be nonseasonal and closely
follow changes in the industrial and motor vehicle markets, and in general
economic conditions.
ITEM 2. PROPERTIES
The following is a list of the company's principal properties, classified
by segment:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT
NO. OF SQUARE ---------------
LOCATION FACILITIES FOOTAGE OWNED LEASED
------------------- ---------- ------------- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Technical Products and 5 states and 12 0.6 66% 34%
Systems...................... 3 foreign countries
Industrial Products and 12 states and 35 2.6 78% 22%
Services..................... 7 foreign countries
Service Solutions.............. 5 states and 28 0.1 40% 60%
9 foreign countries
Vehicle Components............. 8 states and 15 1.0 89% 11%
1 foreign country
-- --- --- ---
Total.......................... 90 4.3 76% 24%
== === === ===
</TABLE>
In addition to manufacturing plants, the company, as lessee, occupies
executive offices in Muskegon, Michigan, and various sales and service locations
throughout the world. All of these properties, as well as the related machinery
and equipment, are considered to be well maintained and suitable and adequate
for their intended purposes. Virtually all of these assets are collateral in the
company's debt agreements. See Note 14 to the consolidated financial statements
for further discussion.
ITEM 3. LEGAL PROCEEDINGS
Note 16 - 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
6
<PAGE> 8
ADDITIONAL 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 (46)......... Chairman, President and Chief Executive Officer 1995(1)
Christopher J. Kearney (44)... Vice President, Secretary and General Counsel 1997(2)
Drew T. Ladau (40)............ Vice President, Business Development 1998(3)
Patrick J. O'Leary (42)....... Vice President, Finance, Treasurer and Chief 1996(4)
Financial Officer
Robert B. Foreman (42)........ Vice President, Human Resources 1999(5)
Thomas J. Riordan (43)........ President, Service Solutions 1997(6)
Lewis M. Kling (54)........... President, Communications and Technology Systems 1999(7)
</TABLE>
- ---------------
See page 66 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 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 September 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 director at Carlisle Plastics, Inc.
From 1982 through 1994, he served at various managerial capacities at
Deloitte & Touche LLP, becoming a Partner in 1988.
(5) Effective May 1999, Mr. Foreman was appointed Vice President, Human
Resources. From 1992 through April 1999, he served as Vice President, Human
Resources at PepsiCo International, based in Asia Pacific where he worked
for both the Pepsi and Frito-Lay International businesses. From 1986 through
1992, he served at various managerial capacities in PepsiCo's domestic
operations.
(6) Effective October 1997, Mr. Riordan was appointed President, Service
Solutions. From February 1996 through September 1997, he served as President
OE Tool & Equipment division of the company. From September 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.
(7) Effective December 1999, Mr. Kling was elected as an officer of the company.
Effective December 1998, Mr. Kling was appointed President, Communications
and Technology Systems. From June 1997 through October 1998, he served as
President, Dielectric Communications. From December 1994 to June 1997, he
served as Senior Vice President and General Manager of Commercial Avionic
Systems business of Allied Signal Corporation. From June 1990 through
December 1994, he was Vice President & General Manager of the Electronic
Systems Division of Harris Corporation.
7
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The company's common stock is traded on the New York Stock Exchange and
Pacific Stock Exchange under the symbol "SPW."
Set forth below are the high and low sales prices for SPX 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> <C>
1999
4th Quarter.................................. $92 3/4 $73 $.00
3rd Quarter.................................. 94 80 3/16 .00
2nd Quarter.................................. 87 1/8 50 11/16 .00
1st Quarter.................................. 71 3/4 48 3/4 .00
1998
4th Quarter.................................. $67 3/8 $36 1/16 $.00
3rd Quarter.................................. 66 3/4 38 5/8 .00
2nd Quarter.................................. 77 15/16 63 5/8 .00
1st Quarter.................................. 79 1/4 65 3/16 .00
</TABLE>
Set forth below are the high and low sales prices of GSX common stock as
reported on the New York Stock Exchange composite transaction reporting system
and dividends declared per share for each quarterly period ended before the
Merger during the past two years and the SPX equivalent amounts based on the
.4186 exchange ratio used in the Merger:
<TABLE>
<CAPTION>
EQUIVALENT
---------------------------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
--------------- -------------- --------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
3rd Quarter........... $42 13/16 $35 9/16 $.00 $102 1/4 $84 15/16 $.00
2nd Quarter........... 46 15/16 35 13/16 .27 112 1/8 85 1/2 .65
1st Quarter........... 47 1/4 37 9/16 .27 112 7/8 89 11/16 .65
1997
4th Quarter........... $44 7/8 $36 5/8 $.27 $107 3/16 $87 1/2 $.65
3rd Quarter........... 53 37 3/16 .25 126 9/16 88 13/16 .61
2nd Quarter........... 46 3/4 36 1/8 .25 111 11/16 86 1/4 .61
1st Quarter........... 46 3/4 38 1/2 .25 111 11/16 91 15/16 .61
</TABLE>
During the second quarter of 1997, SPX eliminated quarterly cash dividends
and stated that future distributions to shareholders would be in the form of
open market purchases of common stock, when deemed appropriate by management.
GSX discontinued paying dividends as of the Merger announcement in July 1998.
The approximate number of shareholders of the company's common stock as of
December 31, 1999 was 5,854.
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.
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues....................... $2,712.3 $1,825.4(3) $1,954.6(8) $2,065.0 $1,863.2(13)
Operating income (loss)........ 313.4(1) (39.5)(4) 181.5(9) 223.1(11) 180.7
Other (expense) income, net.... 64.3(2) (0.5) 72.7(10) 20.8(12) --
Equity in earnings of EGS...... 34.7(5) 40.2(5) 11.8(5) -- --
Interest expense, net.......... (117.6)(6) (45.1)(6) (13.2) (21.5) (24.3)
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ 294.8 (44.9) 252.8 222.4 156.4
Income taxes................... (187.3) 3.2 (121.8) (89.0) (56.3)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations................... 107.5 (41.7) $ 131.0 133.4 100.1
Discontinued operations, net of
tax.......................... -- -- 2.3 -- (64.0)
Cumulative effect of accounting
change, net of tax........... -- -- (3.7) -- --
Extraordinary item, net of
tax.......................... (6.0) -- -- -- --
-------- -------- -------- -------- --------
Net income..................... $ 101.5 $ (41.7) $ 129.6 $ 133.4 $ 36.1
======== ======== ======== ======== ========
Income (loss) per share from
continuing operation:
Basic........................ $ 3.50 $ (1.94) $ 6.23 $ 6.41 $ 4.87
Diluted...................... 3.46 (1.94) 6.22 6.25 4.80
Weighted average number of
common shares outstanding:
Basic........................ 30.8 21.5 21.0 20.8 20.6
Diluted...................... 31.1 21.5 21.1 21.9 21.7
Dividends paid(7).............. $ -- $ 820.7 $ 51.7 $ 47.6 $ 45.6
Other Financial Data:
Total assets................. $2,846.0 $2,968.3 $1,388.0 $1,551.0 $ 1,613
Total debt................... 1,114.7 1,515.6 216.4 206.9 437.6
Other long-term
obligations............... 521.8 431.9 174.4 166.7 174.4
Shareholders' equity......... 552.3 390.5 629.7 743.8 578.1
Capital expenditures......... 102.0 69.2 56.5 59.3 49.0
Depreciation and
amortization.............. 105.4 69.4 65.3 69.2 62.8
</TABLE>
- ---------------
(1) In 1999, the company recorded special charges of $38.4 associated with
restructuring actions initiated throughout the businesses. See Note 4 to
the consolidated financial statements for further discussion.
(2) In 1999, the company recorded pretax gains on the divestiture of Best Power
of $23.8 and Dual-Lite of $20.3. Additionally, in 1999 the company recorded
a gain on the sale of marketable securities of $13.9.
(3) On October 6, 1998 the company completed the Merger of SPX and GSX which
was accounted for as a reverse acquisition of SPX by GSX. See Notes 2 and
19 to the consolidated financial statements for further discussion.
(4) In the fourth quarter of 1998, the company recorded special charges of
$101.7, which included $69.3 of costs associated with closing the former
GSX corporate office and $32.4 of restructuring costs related to GSX
operations. See Note 4 to the consolidated financial statements for further
discussion. Additionally, recorded $102.7 of other one-time charges related
to the Merger and the restructuring. See Note 19 to the consolidated
financial statements for further discussion.
(5) These amounts represent the company's share of earnings of EGS, formed
during the third quarter of 1997. See Note 10 to the consolidated financial
statements for further discussion.
9
<PAGE> 11
(6) The increase interest expense in 1999 and 1998 relates to the Merger. See
Notes 2 and 14 to the consolidated financial statements for further
discussion.
(7) Includes the special dividend of $784.2 related to the Merger for 1998.
(8) During the third quarter of 1997, the company sold General Signal Power
Group (GSPG) and contributed substantially all of the assets of General
Signal Electrical Group (GSEG) to EGS. See Notes 5 and 10 to the
consolidated financial statements for further discussion.
(9) Includes $27.9 of charges for asset valuations, restructuring charges,
lease termination costs and other matters, offset by a $10.0 gain on the
settlement of patent litigation and sale of related patents. See Note 19 to
the consolidated financial statements for further discussion.
(10) Represents the $63.7 gain on the sale of GSPG (see (8) above) and a $9.0
gain on the sale of an equity interest in a Mexican company.
(11) Includes a net charge of $13.7 for asset write-downs, lease termination
costs, severance, warranty repairs, environmental matters, insurance
recovery of destroyed assets, and a royalty settlement.
(12) Represents the gain on the sale of Kinney during 1996.
(13) During 1995, the company acquired Best Power Technology, Inc. and Waukesha
Electric Inc. for $280.2, which were recorded under the purchase method of
accounting. Also, the company exchanged 1.8 shares of common stock to
acquire Data Switch Corporation in a pooling of interests.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE DATA)
The following should be read in conjunction with the company's consolidated
financial statements and the related notes.
Significant Events and Initiatives
1999 was a year of dynamic change for SPX Corporation ("SPX" or the
"company"). Significant accomplishments in 1999 follow:
- Improved revenues by 7.7% and operating profit by 470 basis points
compared to pro forma 1998 through implementation of growth strategies
and restructuring initiatives.
- Improved Economic Value Added "EVA" by $70.6 in 1999. The company expects
to be EVA positive in 2000, two years ahead of its original commitment of
2002.
- Reduced net debt by $409.4 through cash generated from operations and
proceeds from the divestitures of Best Power, Dual-Lite, and Acutex.
- Continued to expand its businesses through strategic acquisitions, the
largest of which was North American Transformer ("NAT") for $86.0. NAT's
expertise in large-power transformers will broaden the Industrial
Products and Services product line.
- Completed the restructuring plan announced in 1998 which improved
profitability, streamlined operations, reduced costs, and improved
efficiency. The restructuring was related primarily to the merger
("Merger") of General Signal and SPX Corporation that occurred on October
6, 1998.
- Implemented the SPX Value Improvement Process(R) throughout the
businesses. The SPX Value Improvement Process(R) represents an
integrated, transferable approach to doing business that consists of six
components executed concurrently. These include: (1) implementation of
Economic Value Added ("EVA") in its full form; (2) infusion of the SPX
leadership standards throughout the organization; (3) completion of the
strategic review process to determine which businesses to fix, sell or
grow; (4) rightsize and consolidate; (5) development of growth
strategies; (6) driving the results expected by shareholders.
Special Charges
The company recorded special charges of $38.4 and $101.7 in 1999 and 1998,
respectively, for Merger and restructuring initiatives. The components of the
charges have been computed based on actual cash payouts, 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 purpose of these restructuring
initiatives was to improve profitability, streamline operations, reduce costs
and improve efficiency.
1999 Special Charges
During 1999, the company committed to and announced that it would close
four manufacturing, sales and administrative facilities primarily to consolidate
certain operations. As a result of these actions, the company recorded charges
of $16.6 for cash severance payments to approximately 209 hourly and 392
salaried employees (remaining employee terminations are expected to be concluded
during 2000). The company also recorded a charge of $13.4 for facility closing
costs (including cash holding costs of $3.0 and non-cash asset write-downs of
$10.4).
The four affected facilities included three Industrial Products and
Services facilities located in Ireland, Tennessee, and Minnesota, and a Vehicle
Components manufacturing facility located in Ohio.
11
<PAGE> 13
An additional $8.4 of charges related to the non-cash write-off of
abandoned system costs ($4.9) and other cash costs incurred during 1999 related
to the various restructuring initiatives ($3.5) primarily for employee stay
bonuses and the relocation of employees and equipment.
1998 Special Charges
Closing of GSX Corporate Headquarters
These charges included $65.3 of cash costs related to change of control
agreements, option and restricted stock payments and other employee termination
costs for 88 GSX corporate employees. Substantially all scheduled terminations
and payments were completed by December 31, 1998. Additionally, a $4.0 charge
was recorded for the GSX corporate headquarters building, which was closed in
late 1998. The charge principally represents cash rental costs until the lease
termination in early 2000 ($2.4) and non-cash property write-downs ($1.6). The
termination of corporate employees and closure of the headquarters building were
necessary to eliminate duplicative corporate personnel and facilities created by
the Merger.
Restructuring Charge
As part of its plan to reduce operating costs of the combined company, the
company offered an early retirement program to employees at most of the GSX
operations. Approximately 325 hourly and salaried employees accepted the offer
during the fourth quarter of 1998, at a cash cost of $14.2, which represents
incremental salary paid upon their early retirement. Additionally, during the
fourth quarter of 1998, the company committed to and announced that it would
close 18 manufacturing, sales and administrative facilities primarily to
consolidate various GSX operations. As a result of these actions, the company
recorded charges of $10.1 for cash severance payments to approximately 800
hourly and salaried employees (approximately 330 of which were terminated by
December 31, 1998 with the remaining terminated in 1999) and $8.1 for facility
closing costs (including cash holding costs of $3.5 and non-cash property
write-downs of $4.6). The restructuring of these operations was to improve
efficiency and to eliminate duplicative functions.
The 18 affected facilities included 4 manufacturing facilities in Illinois,
Alabama, Pennsylvania and New York and 5 sales facilities in California,
Missouri, and Canada and 2 in the United Kingdom within the Industrial Products
and Services segment; 3 manufacturing facilities in Connecticut, Massachusetts,
and Florida and 5 sales facilities in Texas, Switzerland, France, Italy and the
United Kingdom within the Technical Products and Systems segment; and 1
manufacturing facility in Michigan within the Vehicle Components segment.
Other Charges and Gains
During 1998 and 1997, the company recorded certain other charges and gains.
In 1998, $5.5 of charges was recorded in the third quarter and $102.7 of charges
was recorded in the fourth quarter (the "1998 Charges"). In 1997, $17.9 of
charges, net of gains, was recorded during the third and fourth quarters (the
"1997 Charges").
1998 Charges
During the third quarter of 1998, the company expensed $5.5 of professional
fees associated with the termination of a plan to spin off Inrange Technologies
and dispose of three other units that had been announced by the former GSX
management team.
In the fourth quarter of 1998, the company expensed $9.0 of in-process
technology included in the valuation of SPX (see Note 2 for further discussion
of the purchase accounting for SPX). The company recorded $19.5 to write down
goodwill of a business held for sale to net realizable value. The business held
for sale had net assets of $24.4 as of December 31, 1998 and was sold in 1999.
Operating results of this business for 1998 were not material. The company
recorded additional environmental accruals of $36.5 in response to new
information and data obtained as a result of the Merger (see Note 16 for
additional information regarding environmental accruals). The company also
recorded charges totaling $37.7 in that quarter including Merger
12
<PAGE> 14
integration costs ($5.8) and inventory write-downs ($11.4), asset impairments
($6.3), and customer settlements ($3.1) primarily related to older generation
products that current management has decided to phase out in favor of recently
developed upgraded products, primarily in the Technical Products and Systems
segment. These charges primarily resulted from information obtained as a result
of the Merger, operating actions initiated during the quarter, and new
management's review of the former GSX businesses' assets and liabilities.
Of the 1998 charges, $60.4 was included in cost of products sold and the
remaining $47.8 was included in selling, general and administrative expense.
1997 Charges and Gains
In the fourth quarter of 1997, the company settled patent litigation and
sold related patents for a gain of $10.0. The company also recorded charges of
$13.8 in that quarter for asset valuations, lease termination costs and other
individually insignificant matters. In the third quarter of 1997, the company
recorded charges for inventory and accounts receivable reserve policy changes,
as well as professional fees in connection with the formation of EGS. The
company also wrote off assets related to a discontinued product line and
recorded a charge for cancellation of a facility lease. Additionally, the
company reversed an accrual that was no longer needed due to the formation of
EGS. The net of these matters totaled $14.1.
Of the 1997 charges, $11.2 was included in cost of products sold and the
remaining $6.7 was included in selling, general and administrative expense.
RESULTS OF OPERATIONS -- COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999,
1998 AND 1997
CONSOLIDATED
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................. $2,712.3 $1,825.4 $1,954.6
Gross margin......................................... 902.5 553.5 641.0
% of revenues........................................ 33.3% 30.3% 32.8%
Selling, general and administrative expense.......... 508.3 471.8 444.9
% of revenues........................................ 18.7% 25.8% 22.8%
Goodwill/intangible amortization..................... 42.4 19.5 14.6
Special charges...................................... 38.4 101.7 --
-------- -------- --------
Operating income (loss).............................. 313.4 (39.5) 181.5
Other income (expense), net.......................... 64.3 (0.5) 72.7
Equity in earnings of EGS............................ 34.7 40.2 11.8
Interest expense, net................................ (117.6) (45.1) (13.2)
-------- -------- --------
Income (loss) before income taxes.................... 294.8 (44.9) 252.8
Income taxes......................................... (187.3) 3.2 (121.8)
-------- -------- --------
Income (loss) from continuing operations............. $ 107.5 $ (41.7) $ 131.0
======== ======== ========
Capital expenditures................................. $ 102.0 $ 69.2 $ 56.5
Depreciation and amortization........................ 105.4 69.4 65.3
Total assets......................................... 2,846.0 2,968.3 1,388.0
</TABLE>
The comparison of the 1999 results of operations was significantly affected
by the Merger. See Note 2 to the consolidated financial statements. The
following pro forma results are presented to facilitate more meaningful analysis
for shareholders. The pro forma results reflect the General Signal merger.
13
<PAGE> 15
CONSOLIDATED
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................. $2,712.3 $2,519.4 $2,500.3
Gross margin......................................... 902.5 746.6 781.6
% of revenues........................................ 33.3% 29.6% 31.3%
Selling, general and administrative expense.......... 508.3 597.6 550.7
% of revenues........................................ 18.7% 23.7% 22.0%
Goodwill/intangible amortization..................... 42.4 41.9 41.3
Special charges...................................... 38.4 101.7 116.5
-------- -------- --------
Operating income..................................... 313.4 5.4 73.1
Other income, net.................................... 64.3 8.1 2.3
Equity in earnings of EGS............................ 34.7 40.2 38.8
Interest expense, net................................ (117.6) (122.2) (94.2)
-------- -------- --------
Income (loss) before income taxes.................... 294.8 (68.5) 20.0
Income taxes......................................... (187.3) 10.5 (16.1)
-------- -------- --------
Income (loss) from continuing operations............. $ 107.5 $ (58.0) $ 3.9
======== ======== ========
</TABLE>
Revenues -- 1999 revenues increased $192.9 or 7.7%, from pro forma 1998
primarily due to internal growth in all four business segments. 1998 pro forma
revenues compared to 1997 pro forma revenues increased approximately 1%.
Gross margin -- In 1999, gross margin increased to 33.3% compared to 29.6%
in pro forma 1998. The 1999 gross margin increase was primarily due to
restructuring actions initiated throughout the business. Pro forma 1998 gross
margin decreased to 29.6% from 31.3% in pro forma 1997. This decrease was the
result of other charges incurred in 1998 (see Notes 4 and 19).
Selling, general and administrative expense ("SG&A") -- SG&A in 1999
decreased $89.3 to 18.7% of revenues. The decrease was primarily a result of
restructuring actions initiated throughout the business. Pro forma 1998 SG&A
increased $46.9 to 23.7% of revenues primarily due to other charges incurred in
1998 (see Notes 4 and 19).
Goodwill/intangible amortization -- 1999 amortization was slightly higher
than pro forma 1998 and 1997 primarily due to acquisitions throughout the
businesses.
Special charges -- During 1999, the company committed to and announced that
it would close four manufacturing, sales and administrative facilities primarily
to consolidate certain operations. As a result of these actions, the company
recorded charges of $16.6 for cash severance payments to approximately 209
hourly and 392 salaried employees (remaining employee terminations are expected
to be concluded during 2000). The company also recorded a charge of $13.4 for
facility closing costs (including cash holding costs of $3.0 and non-cash asset
write-downs of $10.4).
The four affected facilities include three Industrial Products and Services
facilities located in Ireland, Tennessee, and Minnesota, and a Vehicle
Components manufacturing facility located in Ohio.
An additional $8.4 of charges relate to the non-cash write-off of abandoned
system costs ($4.9) and other cash costs incurred during 1999 related to the
various restructuring initiatives ($3.5) primarily for employee stay bonuses and
the relocation of employees and equipment.
1998 pro forma special charges relate to restructuring actions initiated as
a result of the Merger. 1997 special charges were a result of restructuring
actions initiated within the Service Solutions Segment. (See Note 4 of the
consolidated financial statements for further discussion.)
Other income, net -- 1999 primarily included a $23.8 pretax gain on the
sale of Best Power, a $29.0 gain on the sale of Dual-Lite and the company's 50%
investment in a Japanese joint venture, and a $13.9 gain on the sale of
marketable securities obtained in a recent technology acquisition, 1998 pro
forma included a gain
14
<PAGE> 16
on the sale of an investment in Echlin. 1997 included a $9.0 gain on the sale of
an equity interest in a Mexican company.
Interest expense, net -- Interest expense, net decreased in 1999 compared
to pro forma 1998 primarily due to operating cash flow improvements resulting
from restructuring actions initiated throughout the businesses.
Income taxes -- The company's effective tax rate from continuing operations
was 63.5% in 1999. The relatively high rate in 1999 was due to a low tax basis
of operations divested during the year. Excluding the impact of these
divestitures, the effective income tax rate was 40.5%. The company anticipates
that its effective income tax rate for 2000 will be approximately 41%.
Capital expenditures -- Capital expenditures in 1999 were higher than 1998
and 1997 primarily due to the Merger and significant expenditures for new
business information systems.
Total assets -- Total assets decreased in 1999 primarily due to the
divestiture of Best Power and Dual-Lite. Total assets in 1998 increased from
1997 as a result of the Merger. Approximately $1,500 of total assets was
acquired in the Merger.
SEGMENT REVIEW HISTORICAL
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Technical Products and Systems....................... $ 781.1 $ 718.6 $ 681.7
Industrial Products and Services..................... 844.9 768.3 1,143.2
Service Solutions.................................... 699.6 157.0 --
Vehicle Components................................... 386.7 181.3 129.7
-------- -------- --------
Total........................................ $2,712.3 $1,825.4 $1,954.6
======== ======== ========
Operating income (loss):
Technical Products and Systems....................... $ 108.1 $ 24.0 $ 40.9
Industrial Products and Services..................... 134.3 80.3 147.7
Service Solutions.................................... 61.7 12.8 --
Vehicle Components................................... 46.7 25.6 28.3
General corporate expenses........................... (37.4) (182.2) (35.4)
-------- -------- --------
Total........................................ $ 313.4 $ (39.5) $ 181.5
======== ======== ========
</TABLE>
The comparison of the 1999 results of operations was significantly affected
by the Merger. See Note 2 to the consolidated financial statements. The
following pro forma results reflect the General Signal merger. The information
is presented to facilitate more meaningful analysis for shareholders.
15
<PAGE> 17
SEGMENT REVIEW PRO FORMA
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Technical Products and Systems....................... $ 781.1 $ 718.8 $ 681.7
Industrial Products and Services..................... 844.9 819.8 855.7
Service Solutions.................................... 699.6 611.3 567.8
Vehicle Components................................... 386.7 369.5 395.1
-------- -------- --------
Total........................................ $2,712.3 $2,519.4 $2,500.3
======== ======== ========
Operating income (loss):
Technical Products and Systems....................... $ 108.1 $ 38.5 $ 41.5
Industrial Products and Services..................... 134.3 105.7 124.0
Service Solutions.................................... 61.7 44.8 (87.9)
Vehicle Components................................... 46.7 46.0 54.8
General corporate expenses........................... (37.4) (229.6) (59.3)
-------- -------- --------
Total........................................ $ 313.4 $ 5.4 $ 73.1
======== ======== ========
</TABLE>
TECHNICAL PRODUCTS AND SYSTEMS
Revenues for 1999 were up $62.3, or 8.7%, over pro forma 1998. This
increase was a result of strength in sales of building life-safety systems,
digital TV transmission systems and automated fare collection systems. Revenues
in this segment included $217.7 of revenues from Best Power, which was sold on
December 30, 1999. Revenues for pro forma 1998 were up $37.1 or 5.4% over pro
forma 1997. This increase was due to higher revenues in data networking
equipment, digital TV transmission systems and building life-safety systems
offset by lower sales of uninterruptible power systems.
Operating income in 1999 increased $69.6 or 180.8% compared to pro forma
1998 due to increased revenue growth and cost savings realized from
restructuring actions. 1999 operating income included $13.1 of special charges
related to restructuring initiatives in pro forma 1998, operating income
decreased $3.0 or 7.3% primarily due to special charges and other 1998 charges.
(See Notes 4 and 19.)
INDUSTRIAL PRODUCTS AND SERVICES
Revenues for 1999 increased $25.1 or 3.1% over pro forma 1998. This
increase was attributed to internal growth of power transformers, laboratory
equipment and electric motors. The decrease in 1998 revenues compared to pro
forma 1997 was primarily due to the divestiture of General Signal Power Group
("GSPG") and General Signal Electrical Group ("GSEG").
Operating income increased $28.6 or 27.1% compared to pro forma 1998
primarily due to restructuring actions initiated in late 1998. 1999 operating
income included $17.9 of special charges related to restructuring initiatives.
1998 pro forma operating income decreased $18.3 or 14.8% primarily due to
special charges and other 1998 charges. (See Notes 4 and 19.)
SERVICE SOLUTIONS
Revenues in 1999 increased $88.3 or 14.4% compared to pro forma 1998. The
increase in revenues was primarily a result of several new specialty tool
programs. 1998 revenues increased $43.5 or 7.7% compared to pro forma 1997
primarily due to increased demand for specialty tools.
Operating income in 1999 increased $16.9 or 37.7% compared to pro forma
1998 due to revenue growth and restructuring actions initiated in 1998. Pro
forma 1998 operating income increased $132.7 due to $116.5 of restructuring
charges incurred in 1997.
16
<PAGE> 18
VEHICLE COMPONENTS
Revenues for 1999 were up $17.2 or 4.7% compared to pro forma 1998 as a
result of increased sales to European manufacturers. 1998 pro forma revenues
were down $25.6 or 6.5% from pro forma 1997 primarily due to the midyear strike
at General Motors.
Operating income in 1999 increased $0.7 or 1.5% from 1998 primarily due to
restructuring actions initiated in 1998. 1999 operating income included $7.4 of
special charges related to restructuring initiatives. Pro forma 1998 operating
profit decreased $8.8 or 16.1% from pro forma 1997 primarily due to the midyear
strike at General Motors and special charges and other 1998 charges. (See Note 4
and 19.)
GENERAL CORPORATE EXPENSES
Corporate expenses decreased $192.2, or 83.7% from pro forma 1998 primarily
due to $172.5 of special and other 1998 costs incurred in 1998. Additionally,
1998 reflects the closing of the former General Signal headquarters. The 1998
pro forma corporate expenses are comparable to 1997 pro forma corporate expenses
before the special and other 1998 costs.(See Notes 4 and 19).
LIQUIDITY AND FINANCIAL CONDITION
Cash Flow
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Cash flow from operating activities......................... $ 211.8 $ 60.7
Cash flow from investing activities......................... 148.5 (67.9)
Cash flow from financing activities......................... (351.8) 27.5
------- ------
Net changes in cash and equivalents......................... $ 8.5 $ 20.3
======= ======
</TABLE>
Cash flow from operating activities in 1999 increased $151.1 due to
increased earnings offset by an increase in net operating receivable and
inventories, resulting primarily from increased revenues.
Cash flow from investing activities in 1999 reflected $331.2 of proceeds
from the divestitures of Best Power, Dual-Lite, and Acutex. Capital expenditures
of $102.0 were higher than previous years due to major Baan and Peoplesoft
systems installations. 1999 business acquisitions included the $86.0 purchase of
North American Transformer and the $10.4 purchase of Engineering Analysis
Associates. Cash flow from investing activities during 1998 primarily reflected
$69.2 of capital expenditures and a small acquisition.
Cash flow from financing activities in 1999 consisted primarily of net debt
repayments of $400.9 offset by proceeds from the issuance of treasury stock.
Cash flow from financing activities in 1998 principally reflected the
refinancing of the company to accomplish the Merger and the related special
dividend payment of $784.2. Additionally, the company purchased $160.2 of common
stock in 1998 and paid $36.5 in quarterly dividends. As of July 1998, the date
the Merger was announced, GSX discontinued quarterly dividend payments.
17
<PAGE> 19
Debt
The following summarizes the debt outstanding and unused credit
availability, as of December 31, 1999:
<TABLE>
<CAPTION>
UNUSED
TOTAL AMOUNT CREDIT
COMMITMENT OUTSTANDING AVAILABILITY
---------- ----------- ------------
<S> <C> <C> <C>
Revolving Loan................................. $ 250.0 $ 65.0 $152.0(1)
Tranche A Loan................................. 562.5 562.5 --
Tranche B Loan................................. 412.5 412.5 --
Medium Term Loans.............................. 50.0 50.0 --
Industrial Revenue Bonds....................... 16.1 16.1 --
Other.......................................... 8.6 8.6 --
-------- -------- ------
Total................................ $1,229.7 $1,114.7 $152.0
======== ======== ======
</TABLE>
- ---------------
(1) Decreased by $33.0 of letters of credit outstanding under the facility at
December 31, 1999, which reduced the unused credit availability.
The Credit Facility is secured by substantially all of the assets of the
company (excluding EGS) and requires the company to maintain certain leverage
and interest coverage ratios. The Credit Facility also requires compliance with
certain operating covenants which limit, among other things, the incurrence of
additional indebtedness by the company and its subsidiaries, the sale of assets,
the distribution of dividends, capital expenditures, mergers, acquisitions and
dissolutions. Under the most restrictive of the financial covenants, the company
is required to maintain (as defined) a maximum debt to earnings before income
taxes, depreciation and amortization ratio and a minimum interest coverage
ratio.
Management believes that cash flow from operations will be sufficient to
meet operating cash needs, including working capital requirements and capital
expenditures in 2000. Aggregate future maturities of total debt are $97.7 in
2000.
On February 10, 2000 the company replaced its existing debt facility with a
new $1,500.0 Credit Facility, which bears interest at variable rates using an
Alternate Base rate ("ABR") or Eurodollar rate, plus the applicable margin. The
Tranche A Loan, revolving loan and swingline loans have variable margins between
0.5% and 1.5% for ABR loans and 1.5% and 2.5% for Eurodollar loans. The
revolving loan is subject to annual commitment fees of .25% to .5% on the unused
portion of the facility. Certain interest rates in the new facility are lower
than the previous one and covenant restrictions are reduced.
Stock Buyback
On February 10, 2000 the company announced that its Board of Directors
authorized an increase in its share repurchase program for up to $250 effective
immediately.
FACTORS THAT MAY AFFECT FUTURE RESULTS
General business conditions -- The company operates within the industrial
and motor vehicle industries and future results may be affected by a number of
factors including industry conditions and economic conditions principally in the
U.S. and Europe. The majority of the company's revenues are not subject to
seasonal variation. Revenues within the Technical Products and Systems segment
depend upon several markets, principally the nonresidential construction,
computer equipment and telecommunication industries. Revenues within the
Industrial Products and Services segment generally follow the demand for capital
goods orders. Revenues within the Service Solutions segment are dependent upon
the introduction of new vehicle systems, environmental regulations, and the
general economic status of motor vehicle dealerships and aftermarket repair
facilities. Revenues within the Vehicle Components segment are predominantly
dependent upon domestic and foreign motor vehicle production.
18
<PAGE> 20
Special Charges -- The company's management may consider future
restructuring initiatives. The purpose of these restructuring initiatives is to
improve profitability, streamline operations, reduce costs and improve
efficiency.
Acquisitions and Divestitures -- The company continually reviews each of
its businesses pursuant to its "fix, sell or grow" strategy. These reviews could
result in selected acquisitions to expand an existing business or result in the
disposition of an existing business. Additionally, management has stated that it
would consider a larger acquisition, more than $1 billion in revenues, if
certain criteria are met.
Readiness for Year 2000 -- The company utilizes software and related
computer technology 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. In 1997, the company
established a plan, utilizing both internal and external resources, to assess
the potential impact of the year 2000 problem on its systems, including embedded
technology, and operations and to implement solutions to address this issue.
There can be no assurance that the company will not experience material
unanticipated costs or business interruptions due to the year 2000 problems in
its supply chain, from customer product migration issues, or other unanticipated
considerations. The company believes it has successfully completed its year 2000
project. Through 1999 the cost to remediate software and computer technologies
for the year 2000 problem was $6.5, which does not include costs to replace
certain existing enterprise resource planning systems. The statements set forth
in this paragraph are year 2000 readiness disclosures (as defined under the Year
2000 Information and Readiness Disclosure Act) and shall be treated as such for
all purposes permissible under such Act.
Potential Volatility of Stock Price -- The market price of SPX's common
stock has been, and could be, subject to wide fluctuations in response to, among
other things, quarterly fluctuations in operating results, acquisitions and
divestitures, 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
and market conditions in its industries.
Environmental and Legal Exposure -- The company's operations and properties
are subject to various regulatory requirements relating to environmental
protection. It is the company's policy to comply fully with applicable
environmental requirements. Also 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, workers'
compensation and product liability.
The company maintains property, cargo, auto, product, general liability and
directors' and officers' liability insurance to protect itself against potential
loss exposures. There can be no assurance that such costs for environmental and
legal exposures could not have a material adverse effect on the company's
results of operations or financial position in the future.
Pending Patent Litigation -- The company has two significant patent
litigations pending. Management intends to vigorously prosecute its claims. For
a complete discussion see Note 16.
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 in obtaining export licenses, the possible imposition or changing
of income, 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.
Impact of Inflation -- The company believes that inflation has not had a
significant impact on operations during the period 1997 through 1999.
Significance of Goodwill -- The company had intangible assets of $1,103.6
and shareholders' equity of $552.3 at December 31, 1999. There can be no
assurance that circumstances will not change in the future that will affect the
useful life or carrying value of the company's goodwill. See Note 1 to the
consolidated financial statements for further discussion.
19
<PAGE> 21
EVA Incentive Compensation -- The company utilizes a measure known as
Economic Value Added ("EVA") for its incentive compensation plans. EVA is
internally computed by the company as net operating profit after-tax less a
charge on the capital invested in the company. These computations use certain
assumptions that vary from generally accepted accounting principles ("GAAP").
EVA is not a measure under GAAP and is not intended to be used as an alternative
to net income and measuring operating performance presented in accordance with
GAAP. 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 pre-established improvement targets and the expense can vary
significantly.
Accounting pronouncements -- Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which will become effective January 2001, establishes accounting and reporting
standards for derivative instruments and hedging contracts. It also requires all
derivatives to be recognized as either assets or liabilities in the balance
sheet at fair value and changes in fair value to be recognized in income.
Management is currently analyzing the impact of this statement, but does not
anticipate that the effect on the company's results of operations and financial
position will be material.
Pension income/expense -- During 1999, 1998 and 1997, the company recorded
net pension income of $31.6, $19.7 and $14.7, respectively. The company's
pension plans have plan assets in excess of plan obligations of approximately
$234.0 as of December 31, 1999. It is this significant overfunded position that
primarily results in the recorded pension income as the increases in market
value of the plans assets exceed the service, interest and other elements
associated with annual employee service. Future net pension expense or income is
dependent upon many factors including the level of employee participation in the
plans, plan amendments, discount rates and the changes in market value of the
plans' assets, which, in turn depends on a variety of economic conditions.
Accordingly, there can be no assurance that future periods will include
significant amounts of net pension income.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
The company and its representative 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. Accordingly, such statements are
qualified in their entirety by reference to factors discussed under the caption
"Factors That May Affect Future Results" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which could cause
results to differ materially from those projected in such forward looking
statements.
The company cautions the reader that these risk 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 factor, 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. In addition, management's
estimates of future operating results are based on the current complement of
businesses, which is constantly subject to change as management implements its
fix, sell or grow strategy.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates, and selectively uses financial instruments
to manage these risks. The company does not use financial instruments for
speculative or trading purposes. The company has interest rate protection
agreements with financial institutions to limit exposure to interest rate
volatility. Additionally, the company enters into foreign
20
<PAGE> 22
currency forward or option contracts to mitigate the risks of doing business in
foreign currencies. The company hedges currency exposures of firm commitments
and specific assets and liabilities denominated in non-functional currencies to
protect against the possibility of diminished cash flow and adverse impact on
earnings. The company's currency exposures vary, but are primarily concentrated
in the Canadian dollar, British pound, German mark, Japanese yen, Italian lira
and Singapore dollar. Translation exposures generally are not specifically
hedged.
The following table provides information, as of December 31, 1999 and
before considering the new February 10, 2000 Credit Agreement, about the
company's outstanding debt obligations and presents principal cash flows,
weighted-average interest rates by expected maturity dates and fair values. The
weighted-average interest rates used for variable rate obligations are based on
the rates in effect as December 31, 1999.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
----- ------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt-Fixed
rate..................... $25.0 -- $ 26.0 -- -- -- $ 51.0 $ 51.0
Average interest rate...... 7.0% -- 7.0% -- -- -- 7.0%
Variable rate.............. $72.7 $110.4 $135.5 $154.2 $229.8 $361.1 $1,063.7 $1,063.7
Average interest rate...... 7.5% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
</TABLE>
In 1998, the company entered into four interest rate swap agreements that
cover $800.0 of variable rate outstanding obligations and terminate in 2001.
These agreements provide for fixed LIBOR rates of approximately 4.8% and receive
variable floating rates of approximately 6.125% as of December 31, 1999. At
December 31, 1999, the company had a $27.5 unrealized gain related to these
agreements.
There were no significant foreign currency exchange agreements as of
December 31, 1999.
21
<PAGE> 23
SPX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPX Corporation and Subsidiaries
Report of Independent Auditors............................ 23
Consolidated Financial Statements:
Consolidated Statements of Income and Comprehensive
Income for the years ended December 31, 1999, 1998 and
1997.................................................. 25
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................. 26
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.......... 27
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................ 28
Notes to Consolidated Financial Statements............. 29
All schedules are omitted because they are not applicable,
not required or because the required information is
included in the consolidated financial statements or
notes thereto.
EGS Electrical Group, LLC and Subsidiaries
Report of Independent Public Accountants.................. 53
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended
September 30, 1999 and 1998........................... 55
Consolidated Balance Sheet as of September 30, 1999 and
1998.................................................. 56
Consolidated Statement of Members' Equity for the year
ended September 30, 1999 and 1998..................... 58
Consolidated Statement of Cash Flows for the year ended
September 30, 1999.................................... 59
Notes to Consolidated Financial Statements............. 60
</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, 1999
and 1998, and the related statements of income and comprehensive income,
shareholders' equity, and cash flows for the years then ended. 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 did not audit the financial statements of EGS, the investment in
which is reflected in the accompanying financial statements using the equity
method of accounting (see Note 10) as of and for the year ended September 30,
1998. The statements of EGS, as of and for the year ended September 30, 1998,
were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for EGS for 1998, is
based solely on the report of the other auditors. The financial statements of
the company for the year ended December 31, 1997 were audited by other auditors
whose report dated January 23, 1998 (updated for certain matters as to which the
date is February 15, 1999) included an explanatory paragraph with respect to the
change in the company's method of accounting for business process reengineering
costs.
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, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 8, 2000
23
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
SPX Corporation:
We have audited the consolidated statements of income and comprehensive
income, shareholders' equity, and cash flows of SPX Corporation (formerly
General Signal Corporation) and consolidated subsidiaries for the year 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of SPX Corporation and consolidated subsidiaries for the year
ended December 31, 1997, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Stamford, Connecticut
January 23, 1998, except for the
"other comprehensive income (loss)"
reported in the consolidated
statements of income and
comprehensive income, the reference
to reclassifications in Note 1, and
Notes 3, 7, and 17 as to which the
date is February 15, 1999.
24
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $2,712.3 $1,825.4 $1,954.6
Costs and expenses:
Cost of products sold..................................... 1,809.8 1,271.9 1,313.6
Selling, general and administrative....................... 508.3 471.8 444.9
Goodwill/intangible amortization.......................... 42.4 19.5 14.6
Special charges........................................... 38.4 101.7 --
-------- -------- --------
Operating income (loss)..................................... 313.4 (39.5) 181.5
Other income (expense), net............................... 64.3 (0.5) 72.7
Equity in earnings of EGS................................. 34.7 40.2 11.8
Interest expense, net..................................... (117.6) (45.1) (13.2)
-------- -------- --------
Income (loss) before income taxes........................... 294.8 (44.9) 252.8
Income taxes................................................ (187.3) 3.2 (121.8)
-------- -------- --------
Income (loss) from continuing operations.................... 107.5 (41.7) 131.0
Discontinued operations, net of income taxes................ -- -- 2.3
-------- -------- --------
Income (loss) before cumulative effect of accounting change
and extraordinary item.................................... 107.5 (41.7) 133.3
Cumulative effect of accounting change, net of income
taxes..................................................... -- -- (3.7)
Loss on early extinguishment of debt, net of income taxes... (6.0) -- --
-------- -------- --------
Net income (loss)........................................... 101.5 (41.7) 129.6
Other comprehensive income (loss):
Foreign currency translation adjustment................... (1.9) 1.4 (8.7)
Minimum pension liability adjustment...................... -- (0.7) (1.7)
-------- -------- --------
Comprehensive income (loss)................................. $ 99.6 $ (41.0) $ 119.2
======== ======== ========
Basic income (loss) per share of common stock:
From continuing operations................................ $ 3.50 $ (1.94) $ 6.23
From discontinued operations.............................. -- -- 0.11
Cumulative effect of accounting change.................... -- -- (0.18)
Loss on early extinguishment of debt...................... (0.20) -- --
-------- -------- --------
Net income (loss) per share............................... $ 3.30 $ (1.94) $ 6.16
-------- -------- --------
Weighted average number of common shares outstanding...... 30.765 21.546 21.028
======== ======== ========
Diluted earnings (loss) per share of common stock:
From continuing operations................................ $ 3.46 $ (1.94) $ 6.22
From discontinued operations.............................. -- -- 0.11
Cumulative effect of accounting change.................... -- -- (0.18)
Loss on early extinguishment of debt...................... (0.19) -- --
-------- -------- --------
Net income (loss) per share............................... $ 3.27 $ (1.94) $ 6.15
-------- -------- --------
Weighted average number of common shares outstanding...... 31.055 21.546 21.095
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE> 27
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 78.8 $ 70.3
Accounts receivable....................................... 473.7 458.7
Inventories............................................... 274.0 282.1
Prepaid expenses and other current assets................. 39.2 40.5
Deferred income taxes and refunds......................... 110.8 124.1
-------- --------
Total current assets................................... 976.5 975.7
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 26.7 17.3
Buildings and leasehold improvements...................... 237.3 231.6
Machinery and equipment................................... 535.8 542.2
-------- --------
799.8 791.1
Accumulated depreciation and amortization................. (355.1) (358.0)
-------- --------
444.7 433.1
Goodwill and intangible assets, net......................... 1,103.6 1,219.5
Investment in EGS........................................... 82.6 81.5
Other assets................................................ 238.6 258.5
-------- --------
TOTAL ASSETS........................................... $2,846.0 $2,968.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of long-term
debt................................................... $ 97.7 $ 49.1
Accounts payable.......................................... 238.3 226.6
Accrued expenses.......................................... 343.5 396.0
Income taxes payable...................................... 75.4 7.7
-------- --------
Total current liabilities.............................. 754.9 679.4
Long-term debt, less current maturities..................... 1,017.0 1,466.5
Deferred income taxes....................................... 322.4 217.4
Other long-term liabilities................................. 199.4 214.5
-------- --------
Total long-term liabilities............................ 1,538.8 1,898.4
Commitments and contingencies
Shareholders' equity:
Preferred stock........................................... -- --
Common stock.............................................. 354.9 351.7
Paid-in capital........................................... 489.7 481.7
Retained earnings (deficit)............................... (11.7) (113.2)
Unearned compensation..................................... (19.1) (32.2)
Accumulated other comprehensive income.................... (13.0) (11.1)
Common stock in treasury.................................. (248.5) (286.4)
-------- --------
Total shareholders' equity............................. 552.3 390.5
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $2,846.0 $2,968.3
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE> 28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER COMMON
COMMON PAID-IN EARNINGS UNEARNED COMPREHENSIVE STOCK IN
STOCK CAPITAL (DEFICIT) COMPENSATION INCOME TREASURY
------- ------- --------- ------------ ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... $270.3 $ 145.0 $ 667.4 $ -- $ (1.4) $(337.5)
Net income...................... -- -- 129.6 -- -- --
Cash dividends declared......... -- -- (50.3) -- -- --
Purchase of common stock........ -- -- -- -- -- (240.4)
Exercise of stock options and
other incentive plan
activities................... 1.6 14.8 -- -- -- 1.5
Conversion of 5.75% convertible
subordinate notes............ -- 14.0 -- -- -- 25.5
Minimum pension liability
adjustment, net of taxes of
$1.1......................... -- -- -- -- (1.7) --
Currency translation
adjustments.................. -- -- -- -- (8.7) --
------ ------- ------- ------ ------ -------
Balance at December 31, 1997...... 271.9 173.8 746.7 -- (11.8) (550.9)
Net loss........................ -- -- (41.7) -- -- --
Cash dividends declared......... -- -- (24.4) -- -- --
Purchase of common stock before
Merger....................... -- -- -- -- -- (159.6)
Exercise of stock options and
other incentive plan
activities................... 0.6 1.6 -- 1.0 -- 0.6
Retire GSX treasury stock....... (90.0) (619.9) -- -- -- 709.9
Merger of SPX and GSX........... 169.2 926.2 (784.2) (33.2) -- (285.8)
Purchase of common stock after
Merger....................... -- -- -- -- -- (0.6)
EGS adjustment.................. -- -- (9.6) -- -- --
Minimum pension liability
adjustment, net of taxes of
$0.4......................... -- -- -- -- (0.7) --
Currency translation
adjustments.................. -- -- -- -- 1.4 --
------ ------- ------- ------ ------ -------
Balance at December 31, 1998...... 351.7 481.7 (113.2) (32.2) (11.1) (286.4)
Net income...................... -- -- 101.5 -- -- --
Exercise of stock options and
other incentive plan
activities................... 3.2 6.9 -- 13.1 -- --
Treasury stock issued........... -- 1.1 -- -- -- 37.9
Currency translation
adjustments.................. -- -- -- -- (1.9) --
------ ------- ------- ------ ------ -------
Balance at December 31, 1999...... $354.9 $ 489.7 $ (11.7) $(19.1) $(13.0) $(248.5)
====== ======= ======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 101.5 $ (41.7) $ 129.6
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Cumulative effect of accounting change, net of tax........ -- -- 3.7
Special charges........................................... 38.4 101.7 --
Equity in earnings of EGS, net of distributions........... (3.2) (24.7) (11.8)
Gains on divestitures of businesses....................... (55.5) -- (75.0)
In-process technology charge and goodwill write-off of a
business held for sale................................. -- 28.5 --
Extraordinary item, net of tax............................ 6.0 -- --
Deferred income taxes..................................... 68.1 (19.5) 22.2
Depreciation.............................................. 63.0 49.9 50.7
Amortization of goodwill and intangibles.................. 42.4 19.5 14.6
Employee benefits......................................... (27.2) (10.3) (10.6)
Other, net................................................ (2.9) (2.2) (5.1)
Changes in assets and liabilities, net of effects from
acquisitions and divestitures:
Accounts receivable.................................... (54.2) 1.9 (13.6)
Inventories............................................ (28.6) 14.6 18.4
Accounts payable, accrued expenses and other........... 64.0 (57.0) (17.4)
------- -------- -------
Net cash from operating activities.......................... 211.8 60.7 105.7
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (102.0) (69.2) (56.5)
Business acquisitions, net of cash acquired................. (96.4) (10.9) (11.0)
Proceeds from business divestitures......................... 331.2 -- 216.9
Cash acquired in Merger..................................... -- 10.5 --
Other, net.................................................. 15.7 1.7 5.5
------- -------- -------
Net cash from (used in) investing activities................ 148.5 (67.9) 154.9
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreement............. 30.0 27.4 --
Issuance of long-term debt.................................. -- 1,582.1 170.5
Payment of long-term debt................................... (430.9) (566.0) (118.1)
Debt issuance fees paid..................................... -- (38.2) --
Issuance of Treasury stock.................................. 39.0 -- --
Purchases of common stock................................... -- (160.2) (240.4)
Common stock issued under stock incentive programs.......... 10.1 3.1 11.4
Merger dividend paid........................................ -- (784.2) --
Other dividends paid........................................ -- (36.5) (51.7)
------- -------- -------
Net cash from (used in) financing activities................ (351.8) 27.5 (228.3)
------- -------- -------
Net changes in cash and equivalents......................... 8.5 20.3 32.3
Cash and equivalents at beginning of year................... 70.3 50.0 17.7
------- -------- -------
Cash and equivalents at end of year......................... $ 78.8 $ 70.3 $ 50.0
======= ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid............................................... $ 120.6 $ 33.0 $ 11.6
Income taxes paid........................................... 51.3 59.4 87.0
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible debt into common stock............ $ -- $ -- $ 39.3
Net assets contributed to (returned from) EGS............... -- (64.6) 119.4
Fair value of shares issued to acquire SPX.................. -- (766.1) --
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF ACCOUNTING POLICIES
The significant accounting and financial policies of SPX Corporation ("SPX"
or 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, the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and 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 elimination of
intercompany accounts and transactions. Investments in unconsolidated
companies where the company exercises significant influence are accounted
for using the equity method.
Cash Equivalents -- The company considers its highly liquid money market
investments with original maturities of three months or less to be cash
equivalents.
Revenue Recognition -- The company recognizes revenues from product sales
upon shipment to the customer, except for revenues from service contracts
and long-term maintenance arrangements which are deferred and recognized on
a pro rata basis over the agreement period. Revenues from certain long-term
contracts are recognized using the percentage-of-completion method of
accounting. Under the percentage-of-completion method, earnings accrue
based on the percentage of total costs incurred or total units of products
delivered as contracts progress toward completion. Certain sales to
distributors made with return rights and/or price protection features are
recognized upon shipment to the customer, with appropriate recognition to
reflect returns based on current market conditions and historical actual
returns and allowances as a percentage of sales.
Sales returns and allowances are recognized on an estimated basis as a
charge against revenue in the period in which the related revenues are
recognized.
Research and Development Costs -- The company expensed approximately $76.0
on research activities relating to the development and improvement of its
products in 1999, $73.4 in 1998 and $45.7 in 1997.
Environmental Remediation Costs -- Costs incurred to investigate and
remediate environmental issues are expensed unless 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. The company's environmental accruals cover anticipated costs,
including investigation, remediation, and operation and maintenance of
clean up sites. Environmental obligations are not discounted and are not
reduced by anticipated insurance recoveries.
Property, Plant and Equipment -- Property, plant and equipment ("PP&E") are
stated at cost, less accumulated depreciation and amortization. The company
uses the straight-line method for computing depreciation expense over the
useful lives of PP&E, which do not exceed 40 years for buildings and range
from 3 to 15 years for machinery and equipment. Leasehold improvements are
amortized over the life of the related asset or the life of the lease,
whichever is shorter.
Financial Instruments -- The company does not enter into financial
instruments for speculative or trading purposes. The company records the
net amount to be paid or received under interest rate protection agreements
over the life of the agreement as a component of interest expense. On
forward foreign exchange and option contracts which specifically hedge an
underlying transaction, gains or losses are
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
deferred and are recorded when the underlying transaction occurs. While it
is not the practice of the company to enter into contracts to hedge
anticipatory transactions, any gains or losses on forward foreign exchange
and option contracts that do not hedge a specific transaction are
recognized currently.
Goodwill and Intangible Assets -- The company amortizes its goodwill and
intangible assets on a straight-line basis over lives ranging from 10 to 40
years. In determining the estimated useful lives, 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.
Impairment of Long-Lived Assets -- The company continually reviews whether
events and circumstances subsequent to the acquisition of any long-lived
assets, including goodwill and other intangible assets, have occurred that
indicate the remaining estimated usefully lives of those assets may warrant
revision or that the remaining balance of those assets may not be
recoverable. If events and circumstances indicate that the long-lived
assets should be reviewed for possible impairment, the company uses
projections to assess whether future cash flows or operating income (before
amortization) on a non-discounted basis related to the tested assets is
likely to exceed the Recorded carrying amount of those assets, to determine
if a write-down is appropriate. Should an impairment be identified, a loss
would be reported to the extent that the carrying value of the impaired
assets exceeds their fair values as determined by valuation techniques
appropriate in the circumstances which could include the use of similar
projections on a discounted basis.
Accounting Pronouncements -- Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which will become effective January 2001, establishes
accounting and reporting standards for derivative instruments and hedging
contracts. It also requires all derivatives to be recognized as either
assets or liabilities in the balance sheet at fair value and changes in
fair value to be recognized in income. Management is currently analyzing
the impact of this statement, but does not anticipate that the effect or
the company's results of operations and financial position will be
material.
Reclassifications -- Certain reclassifications were made to conform prior
years' data to the current presentation. Unless otherwise noted, pre-Merger
share and earnings per share disclosures have been adjusted to reflect the
0.4186 shares of SPX common stock ("Exchange Ratio") that General Signal
Corporation ("GSX") shareholders received for each share of GSX common
stock upon the merger of SPX and GSX (see Note 2).
(2) MERGER OF SPX AND GSX
On October 6, 1998 (the "Merger Date"), GSX merged into a subsidiary of SPX
Corporation (the "Merger"). On an aggregate basis, GSX shareholders received
0.4186 share of SPX common stock and $18.00 in cash for each share owned of GSX
common stock. In total, approximately 18.236 million shares of SPX common stock
and $784.2 in cash were exchanged for the outstanding common stock of GSX.
Outstanding restricted stock and stock options of GSX were either redeemed
through change of control payments or terminated.
The Merger was accounted for as a reverse acquisition whereby GSX was
treated as the acquirer and SPX as the acquiree, because GSX shareholders owned
a majority of the company as of the Merger Date and GSX was approximately twice
the size of SPX. Purchase accounting was performed on SPX based upon its fair
market value at the transaction date. The cash portion of the consideration was
accounted for as a dividend by the company.
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The fair market value of SPX was based on the average per share value of
SPX's common stock near July 17, 1998 -- the date that the Merger agreement was
signed. Additionally, since the company assumed the stock options outstanding of
SPX, the fair value of these options was included in determining the valuation
of SPX.
The valuation of SPX, including transaction fees of $15.6, was $776.6. A
summary of assets and liabilities acquired, at estimated fair market value, was
as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 357.2
PP&E........................................................ 174.3
In-process technology....................................... 9.0
Goodwill.................................................... 679.0
Intangibles................................................. 276.8
Other assets................................................ 13.0
--------
Total assets................................................ 1,509.3
Current liabilities......................................... (240.0)
Long-term liabilities....................................... (240.8)
Long-term debt.............................................. (251.9)
--------
Fair market value of SPX.................................... $ 776.6
========
</TABLE>
The intangibles, including customer lists of $118.0, developed technologies
of $85.8, trademarks and work force of $73.0, and goodwill will be amortized
over 10 to 40 years. The valuations of identifiable intangibles and in-process
technology were based upon independent external appraisals. The valuation
included in-process technology of $9.0, which was expensed in the fourth quarter
of 1998. This charge was included as a component of selling, general and
administrative expenses in the accompanying statement of income. In-process
technology represented research and development projects of SPX that were
commenced but not yet completed at the Merger Date, had not reached
technological feasibility and which had no future use in research and
development activities or otherwise.
(3) BUSINESS SEGMENT INFORMATION
The company is comprised of four business segments. The Technical Products
and Systems segment primarily includes operations that design, manufacture and
market primarily fire detection systems, data networking equipment, broadcast
antennas and automated fare collection systems. Major customers are computer
manufacturers and users, construction contractors, municipalities and TV and
radio broadcasters. Industrial Products and Services includes operations that
design, manufacture and market power transformers, industrial valves, mixers,
electric motors, laboratory freezers and ovens, high pressure hydraulics,
industrial furnaces and coal feeders. Major customers include industrial
chemical companies, pulp and paper manufacturers, laboratories and utilities.
Service Solutions includes operations that design, manufacture and market a wide
range of specialty service tools, equipment and services primarily to the motor
vehicle industry in North America and Europe. 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 are vehicle manufacturers and aftermarket private brand distributors.
Revenues by business segment represent sales to unaffiliated customers, no
one or group of which accounted for more than 10% of consolidated sales.
Intercompany sales among segments are not significant. Operating income by
segment does not include general corporate expenses. 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.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Financial data for the company's business segments are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Technical Products and Systems............................ $ 781.1 $ 718.8 $ 681.7
Industrial Products and Services (1)...................... 844.9 768.3 1,143.2
Service Solutions (2)..................................... 699.6 157.0 --
Vehicle Components (2).................................... 386.7 181.3 129.7
-------- -------- --------
$2,712.3 $1,825.4 $1,954.6
-------- -------- --------
OPERATING INCOME:
Technical Products and Systems (3)........................ $ 108.1 $ 24.0 $ 40.9
Industrial Products and Services (4)...................... 134.3 80.3 147.7
Service Solutions......................................... 61.7 12.8 --
Vehicle Components (5).................................... 46.7 25.6 28.3
General Corporate (6)..................................... (37.4) (182.2) (35.4)
-------- -------- --------
$ 313.4 $ (39.5) $ 181.5
-------- -------- --------
CAPITAL EXPENDITURES:
Technical Products and Systems............................ $ 21.8 $ 19.3 $ 16.0
Industrial Products and Services.......................... 18.9 26.6 29.3
Service Solutions......................................... 25.1 6.3 --
Vehicle Components........................................ 29.8 8.0 5.5
General Corporate......................................... 6.4 9.0 5.7
-------- -------- --------
$ 102.0 $ 69.2 $ 56.5
-------- -------- --------
DEPRECIATION AND AMORTIZATION:
Technical Products and Systems............................ $ 24.9 $ 23.1 $ 22.2
Industrial Products and Services.......................... 32.0 27.7 34.8
Service Solutions......................................... 23.7 5.2 --
Vehicle Components........................................ 23.4 10.3 5.4
General Corporate......................................... 1.4 3.1 2.9
-------- -------- --------
$ 105.4 $ 69.4 $ 65.3
-------- -------- --------
IDENTIFIABLE ASSETS:
Technical Products and Systems............................ $ 452.9 $ 577.9 $ 527.4
Industrial Products and Services.......................... 777.3 616.8 429.8
Service Solutions......................................... 889.5 882.7 --
Vehicle Components........................................ 512.9 505.9 66.0
General Corporate......................................... 213.4 385.0 364.8
-------- -------- --------
$2,946.0 $2,968.3 $1,388.0
-------- -------- --------
EQUITY IN EARNINGS OF EGS: ................................. $ 34.7 $ 40.2 $ 11.8
======== ======== ========
</TABLE>
- ---------------
(1) The 1997 results included GSPG through its divestiture on August 23, 1997
(see Note 5) and GSEG through September 15, 1997, its date of contribution
to EGS (see Note 10).
(2) Included the results of businesses of SPX from the Merger Date.
(3) Included special charges of $13.1 and $14.5 in 1999 and 1998 respectively,
(see Note 4) and other charges of $2.6 in 1998 and $20.0 in 1997 (see Note
19).
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(4) Included special charges of $17.9 in 1999 and $16.3 in 1998 (see Note 4) and
other charges of $10.5 in 1998 and $1.9 in 1997 (see Note 19).
(5) Included special charges of $7.4 and $1.6 in 1999 and 1998, respectively,
(see Note 4) and other charges of $2.6 in 1998 (see Note 19).
(6) In the fourth quarter of 1998, the company recorded special charges of $69.3
associated with closing the GSX corporate headquarters, other 1998 charges
of $5.8 associated with the integration of SPX and GSX, $36.5 of
environmental charges related to the Merger, a $9.0 in-process technology
charge from the valuation of SPX for purchase accounting, and $19.5 to write
down goodwill of a business held for sale to net realizable value. The
business held for sale had net assets of $24.4 as of December 31, 1998. 1998
operating results were not material. In 1997, unusual gains of $4.0, net
were related to patent litigation and the sale of related patents and other
matters.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS: 1999 1998 1997
----------------- -------- -------- --------
<S> <C> <C> <C>
REVENUES -- UNAFFILIATED CUSTOMERS:
United States (1)......................................... $2,060.8 $1,521.4 $1,700.8
Europe.................................................... 271.9 155.8 119.4
Other..................................................... 379.6 148.2 134.4
-------- -------- --------
$2,712.3 $1,825.4 $1,954.6
======== ======== ========
LONG-LIVED ASSETS:
United States............................................. $1,830.2 $1,948.2 $ 800.2
Europe.................................................... 22.1 26.6 6.1
Other..................................................... 17.2 17.8 13.6
-------- -------- --------
$1,869.5 $1,992.6 $ 819.9
======== ======== ========
</TABLE>
- ---------------
(1) Included export sales of $247.5 in 1999, $181.9 in 1998, and $176.8 in 1997.
No individual foreign country in which the company operates accounted for
more than 5% of consolidated revenues in 1999, 1998 or 1997.
(4) SPECIAL CHARGES
The company recorded special charges of $38.4 and $101.7 in 1999 and 1998,
respectively, for Merger and restructuring initiatives. The components of the
charges have been computed based on actual cash payouts, 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 purpose of these restructuring
initiatives was to improve profitability, streamline operations, reduce costs
and improve efficiency.
1999 SPECIAL CHARGES
During 1999, the company committed to and announced that it would close
four manufacturing, sale and administrative facilities primarily to consolidate
certain operations. As a result of these actions, the company recorded charges
of $16.6 for cash severance payments to approximately 209 hourly and 392
salaried employees (remaining employee terminations are expected to be concluded
during 2000). The company also recorded a charge of $13.4 for facility closing
costs (including cash holding costs of $3.0 and non-cash asset write-downs of
$10.4).
The four affected facilities included three Industrial Products and
Services facilities located in Ireland, Tennessee and Minnesota, and a Vehicle
Components manufacturing facility located in Ohio.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
An additional $8.4 of charges related to the non-cash write-off of
abandoned system costs ($4.9) and other cash costs incurred during 1999 related
to the various restructuring initiatives ($3.5) primarily for employee stay
bonuses and the relocation of employees and equipment.
1998 SPECIAL CHARGES
CLOSING OF GSX CORPORATE HEADQUARTERS
These charges include $65.3 of cash costs related to change of control
agreements, option and restricted stock payments, and other employee termination
costs for 88 GSX corporate employees. Substantially all scheduled terminations
and payments were completed by December 31, 1998. Additionally, a $4.0 charge
was recorded for the GSX corporate headquarters building, which was closed in
late 1998. The charge principally represents cash rental costs until the lease
termination in early 2000 ($2.4) and non-cash property write-downs ($1.6). The
termination of corporate employees and closure of the headquarters building were
necessary to eliminate duplicative corporate personnel and facilities created by
the Merger.
RESTRUCTURING CHARGE
As part of its plan to reduce operating costs of the combined company, the
company offered an early retirement program to employees at most of the GSX
operations. Approximately 325 hourly and salaried employees accepted the offer
during the fourth quarter of 1998, at a cash cost of $14.2, which represents
incremental salary paid upon their early retirement. Additionally, during the
fourth quarter of 1998, the company committed to and announced that it would
close 18 manufacturing, sales and administrative facilities primarily to
consolidate various GSX operations. As a result of these actions, the company
recorded charges of $10.1 for cash severance payments to approximately 800
hourly and salaried employees (approximately 330 of which were terminated by
December 31, 1998 with the remaining terminated in 1999) and $8.1 for facility
closing costs (including cash holding costs of $3.5 and non-cash property
write-downs of $4.6). The restructuring of these operations was to improve
efficiency and to eliminate duplicate functions.
The 18 affected facilities included 4 manufacturing facilities in Illinois,
Alabama, Pennsylvania, and New York and 5 sales facilities in California,
Missouri, and Canada and 2 in the United Kingdom within the Industrial Products
and Services segment; 3 manufacturing facilities in Connecticut, Massachusetts,
and Florida and 5 sales facilities in Texas, Switzerland, France, Italy and the
United Kingdom within the Technical Products and Systems segment; and 1
manufacturing facility in Michigan within the Vehicle Components segment.
Refer also to Notes 6 and 12.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes activity through December 31, 1999 and 1998
regarding these restructuring actions:
<TABLE>
<CAPTION>
EMPLOYEE FACILITY
TERMINATION HOLDING PROPERTY OTHER
COSTS COSTS WRITE-OFFS CASH COSTS TOTAL
----------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997........ $ -- $ -- $ -- $ -- $ --
Special charge...................... 89.6 5.9 6.2 101.7
Non-cash asset write-offs........... -- -- (6.2) -- (6.2)
Payments............................ (58.3) (0.3) -- -- (58.6)
Reclassified to pension
liability(1)...................... (14.2) -- -- -- (14.2)
------ ----- ------ ----- ------
Balance at December 31, 1998........ 17.1 5.6 -- -- 22.7
Special charge...................... 16.6 3.0 15.3 3.5 38.4
Non-cash asset write-offs........... -- -- (15.3) -- (15.3)
Payments............................ (27.2) (2.3) -- (3.5) (33.0)
------ ----- ------ ----- ------
Balance at December 31, 1999........ $ 6.5 $ 6.3 $ -- $ -- $ 12.8
====== ===== ====== ===== ======
</TABLE>
- ---------------
(1) Included in the special charge was incremental pension costs related to the
severed employees. The company reclassified the pension component to its
other pension accounts.
(5) BUSINESS DIVESTITURES AND ACQUISITIONS
In the fourth quarter of 1999, the company sold Best Power to Invensys for
$240.0 and recognized a pretax gain of $23.8 and an after-tax loss of $45.2. The
large tax expense from this sale was caused by $132.2 on nondeductible goodwill
from the GSX acquisition of Best Power in 1995.
In the first quarter of 1999, the company completed the sale of its
Dual-Lite business, which it received from EGS Electrical Group LLC ("EGS") on
October 6, 1998 in a partial rescission of the original EGS venture. Also during
the year, the company completed the sale of Acutex and a 50% interest in a
Japanese joint venture. The company received combined proceeds of $91.2 and
recognized a pretax gain of $31.7 ($10.4 after-tax). The effective tax rate
differs from the U.S. statutory rate due to a difference in the book and tax
basis of the operations divested.
In August 1997, the company sold substantially all of the assets of GSPG to
Pentair, Inc. for approximately $200.0 and recognized a pretax gain of $63.7
($17.2 after-tax). The effective tax rate differs from the U.S. statutory tax
rate due to a difference in the book and tax basis of GSPG. Annual 1996 revenues
of GSPG were approximately $201.0.
In the fourth quarter of 1997, the company sold its equity interest in a
company in Mexico for a pretax gain of $9.0 ($2.3 after-tax). The effective tax
rate on the Mexico gain differs from the U.S. statutory tax rate due to a
difference in the book and tax basis of the equity investment sold.
During 1999, the company acquired businesses for an aggregate purchase
price of $96.4. The most significant of such acquisitions was the $86.0 purchase
of North American Transformer. All of the acquisitions were accounted for as
purchases and, accordingly, the purchase prices were allocated to the related
assets acquired and liabilities assumed based on their estimated fair values at
the date of acquisition. Further adjustments, if any, based on finalization of
related analysis, will be made prior to the one-year anniversary of the related
acquisition and are not expected to be material. Operating results of the
acquired businesses have been included in the consolidated financial statements
from date of acquisition.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(6) VALUATION ACCOUNTS AND DISPOSITION-RELATED ACCRUALS
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance beginning of year.............................. $ 18.3 $12.3 $ 10.0
Provisions............................................. 11.3 3.9 8.6
Charges................................................ (12.7) (4.9) (6.3)
Established in Merger.................................. -- 7.0 --
------ ----- ------
Balance end of year.................................... $ 16.9 $18.3 $ 12.3
====== ===== ======
Disposition-related accruals:
Balance beginning of year.............................. $ 17.2 $ 5.5(1) $ 18.2
Established in Merger(2)............................... -- 18.4 --
Provisions............................................. -- -- 1.0
Charges against accruals(3)............................ (10.9) (6.7) (13.7)
------ ----- ------
Balance end of year...................................... $ 6.3 $17.2 $ 5.5
====== ===== ======
</TABLE>
- ---------------
(1) These accruals were primarily related to business divestitures announced
prior to December 31, 1996.
(2) The $18.4 accrual established in connection with the Merger was related to
obligations from existing certain SPX diagnostic equipment product lines in
1997. This was primarily related to continued cash severance and lease
obligations and cash service and software update obligations related to the
discontinued products. Since the Merger, there have been no significant
changes to the estimate of costs or timing of these obligations.
(3) Charges in each year were primarily related to cash payments in settlement
of obligations and operating losses related to discontinued businesses and
product lines. In 1997, $3.8 of the original accrual related to discontinued
operations was no longer required and accordingly, was reversed.
Refer also to Notes 4 and 12.
(7) EMPLOYEE BENEFIT PLANS
BENEFIT PENSION AND POSTRETIREMENT PLANS
The company has defined benefit pension plans that cover substantially all
salaried and hourly paid employees, including certain employees in foreign
countries. These plans provided pension benefits that were based on the
employees' years of credited service and levels of earnings. In 1998 and 1999,
the company amended its plan formula to provide benefits using a cash balance
program. Under the new cash balance program, participants receive benefits based
on a percentage of current salary and interest credits. The company funds U.S.
pension plans in amounts equal to the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, plus additional amounts that
may be approved from time to time. Substantially all plan assets are invested in
listed stocks, bonds, real estate or cash and short-term investments. Plan
assets include 0.909 shares of the company's common stock. Plan assets and
obligations of non-North American subsidiaries are not material and are not
included below.
The company has domestic postretirement plans that provide health and life
insurance benefits for retirees. Some of these plans require employee
contributions at varying rates. Not all employees are eligible to receive these
benefits, with eligibility governed by the plan(s) in effect at a particular
location. Certain of the company's non-North American subsidiaries have similar
plans for retirees. The company's obligations for such plans are not material
and are not included below.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table shows the plans' funded status and amounts recognized
in the company's consolidated balance sheets:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------------- ------------------
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation - beginning of year........... $ 805.8 $488.0 $ 158.5 $ 84.0
Service cost..................................... 16.5 13.5 0.6 0.4
Interest cost.................................... 53.3 37.4 10.4 7.1
Actuarial (gain) loss............................ 9.1 6.3 (1.3) 5.1
Plan amendments.................................. (33.7) -- -- --
Merger with SPX.................................. -- 279.8 -- 69.0
Special termination benefits..................... -- 14.2 -- --
Curtailment...................................... 1.5 -- -- --
Benefits paid.................................... (105.6) (33.4) (21.7) (7.1)
------- ------ ------- -------
Benefit obligation - end of year................. $ 746.9 $805.8 $ 146.5 $ 158.5
------- ------ ------- -------
Change in plan assets:
Fair value of plan assets - beginning of year.... $ 918.9 $633.8 $ -- $ --
Actual return on plan assets..................... 160.8 19.6 -- --
Contributions.................................... 6.8 2.2 21.7 7.1
Merger with SPX.................................. -- 296.7 -- --
Benefits paid.................................... (105.6) (33.4) (21.7) (7.1)
------- ------ ------- -------
Fair value of plan assets - end of year.......... $ 980.9 $918.9 $ -- $ --
======= ====== ======= =======
Funded status at year-end.......................... $ 234.0 $113.1 $(146.5) $(158.5)
Unamortized prior service cost................... (26.9) 4.6 (7.4) (10.0)
Unrecognized net (gain) loss..................... (16.6) 44.3 (10.3) (9.1)
Unrecognized transition asset.................... (6.2) (12.8) -- --
Other............................................ (0.2) 1.1 -- 1.9
------- ------ ------- -------
Prepaid (accrued) benefit cost..................... $ 184.1 $150.3 $(164.2) $(175.7)
======= ====== ======= =======
Amount recognized in the balance sheet consists of:
Other assets..................................... $ 201.6 $168.6 $ -- $ --
Accrued expenses and other liabilities........... (21.4) (22.2) (164.2) (175.7)
Accumulated other comprehensive income........... 3.9 3.9 -- --
------- ------ ------- -------
Net amount recognized.............................. $ 184.1 $150.3 $(164.2) $(175.7)
======= ====== ======= =======
</TABLE>
A minimum pension liability adjustment is required when the actuarial
present value of accumulated benefits exceeds plan assets and accrued pension
liabilities. The minimum liability adjustment, less allowable intangible assets,
net of tax benefit, was reported as other comprehensive income and accumulated
to $2.4 as of December 31, 1999 and 1998.
The pension benefit obligation ("PBO") and unfunded accumulated pension
obligation ("ABO") for pension plans with ABO's in excess of plan assets were
$26.5 and $20.5 as of December 31, 1999, and $24.2 and $21.8 as of December 31,
1998.
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net periodic pension benefit cost related to continuing operations included
the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $ 16.5 $ 13.5 $ 11.7
Interest cost............................................ 53.3 37.4 32.8
Expected gain on assets.................................. (93.7) (66.0) (54.6)
Amortization of transition asset......................... (6.4) (6.4) (6.6)
Amortization of unrecognized losses...................... 0.2 0.4 0.2
Amortization of unrecognized prior service cost.......... (1.5) 1.4 1.8
------ ------ ------
Net periodic pension benefit............................. $(31.6) $(19.7) $(14.7)
====== ====== ======
Actuarial assumptions used were:
Discount rate.......................................... 7.50% 6.75% 7.60%
Rate of increase in compensation levels................ 5.00% 5.00% 5.00%
Expected long-term rate of return on assets............ 9.50% 9.50% 9.50%
</TABLE>
The net periodic postretirement benefit cost related to continuing
operations included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost................................................ $ 0.6 $ 0.4 $ 0.4
Interest cost............................................... 10.4 7.1 6.2
Amortization of unrecognized losses......................... (0.1) (0.7) (1.3)
Amortization of unrecognized prior service cost............. (2.6) (2.6) (3.0)
----- ----- -----
Net periodic postretirement costs........................... $ 8.3 $ 4.2 $ 2.3
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation was determined using the
terms of the company's various plans, together with relevant actuarial
assumptions and health care cost trend rates. The estimated annual rates ranged
from 6.1% in 1999 and 5.8% in 2000, to 5.0% through the year 2004, and
thereafter.
The assumed discount rate was 7.5% and 6.75% for 1999 and 1998
respectively. Assumed health care cost trend rates have a significant effect on
the amounts reported for the other postretirement benefit plans. A one
percentage point change in assumed health care cost trend rates would have the
following effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest costs............... $0.3 $(0.3)
Effect on postretirement benefit obligation................. $3.8 $(3.3)
</TABLE>
RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN
Concurrent with the Merger, the company assumed the SPX KSOP plan ("Plan"),
which provides benefits to a majority of domestic employees. These employees can
contribute up to 17% of their earnings to the Plan, subject to certain
limitations. The company matches a portion of the employee's contribution with
shares from the Plan's trust. During 1999 and the fourth quarter of 1998, .211
and .015 shares respectively, were allocated to employees under the Plan.
Compensation expense is recorded based upon the market value of shares as the
shares are allocated to employees. In 1999 and 1998, $15.9 and $0.8 were
recorded as compensation expense. 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 voted. At December 31,
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999, there were 0.296 unallocated shares in the trust with a fair market value
of $23.9. In January 1999, the GSX Savings and Stock Ownership Plan ("GSX Plan")
was merged with the Plan.
The company matched employee contributions to the SPX KSOP Plan and other
supplemental plans in cash and common stock equal to a percentage of certain
amounts contributed by employees. The company's contributions under these plans
amounted to $15.9 in 1999, $23.7 in 1998 and $13.2 in 1997.
(8) INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Finished goods.............................................. $132.4 $115.5
Work in process............................................. 58.4 66.2
Raw material and purchased parts............................ 96.2 112.1
------ ------
Total FIFO cost............................................. 287.0 293.8
Excess of FIFO cost over LIFO inventory value............... (13.0) (11.7)
------ ------
$274.0 $282.1
====== ======
</TABLE>
Inventories included material, labor and factory overhead costs, and were
reduced, when necessary, to estimated realizable values. Certain domestic
inventories were valued using the last-in, first-out ("LIFO") method. Such
inventories were $143.9 and $127.1 at December 31, 1999 and 1998, respectively.
All other inventories were valued using the first-in, first-out ("FIFO") method.
Progress payments, netted against work in process at year-end, were $11.1 in
1999 and $15.2 in 1998.
(9) CONTRACTS IN PROGRESS
Prepaid expenses and other current assets included contracts in progress of
$5.0 and $3.1 at December 31, 1999 and 1998, respectively. Contracts in progress
represented revenue recognized on a percentage-of-completion basis over related
progress billings of $3.2 and $2.3 at December 31, 1999 and 1998, respectively.
Substantially all contracts in progress at year-end are billed during the
subsequent year.
(10) INVESTMENT IN EGS
In the third quarter of 1997, the company and Emerson Electric Co. formed
EGS, a venture combining Emerson's Appleton Electric operations and the
company's GSEG. The company contributed substantially all of the operating
assets of General Signal Electric Group ("GSEG") in exchange for a 47.5%
ownership in EGS. Annual 1996 revenues for GSEG were approximately $294.0. In
October 1998, the company's ownership in EGS was reduced to 44.5% when the
company received two businesses of EGS in a partial rescission of the original
formation of EGS. Annual 1998 sales of these two businesses were approximately
$75.0. The company recorded the original contribution and partial rescission at
historical cost.
The company accounts for its investment in EGS under the equity method of
accounting. Effective January 1, 1998, the company began accounting for its
investment in EGS on a three-month lag basis and, net of the effect of the
returned businesses, recorded a $9.6 adjustment through retained earnings to
reverse the
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
fourth quarter 1997 equity earnings from this venture. EGS operates primarily in
the United States, Canada and Mexico. EGS's results of operations for its fiscal
year ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net sales................................................... $462.6 $542.1
Gross margin................................................ 188.1 214.4
Net income.................................................. 67.0 81.7
</TABLE>
EGS' pre-tax income for the quarter ended December 31, 1999 and 1998 was
not materially different than the pretax income earned the previous quarter.
The company's equity in earnings of EGS was $34.7 and $40.2 for the years
ended December 31, 1999 and 1998, respectively. The company's recorded
investment in EGS was approximately $96.9 and $122.00 less than its ownership in
EGS's net assets at December 31, 1999 and 1998, respectively. This difference is
being amortized on a straight-line basis over an estimated economic life of 40
years.
Condensed balance sheet information of EGS as of September 30, 1999 and
1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Current assets.............................................. $170.7 $200.4
Noncurrent assets........................................... 328.2 364.0
Current liabilities......................................... 67.7 72.7
Noncurrent liabilities...................................... 33.5 34.3
</TABLE>
EGS had sales of $26.5, gross margin of $9.6 and net income of $4.3 for the
period from September 15, 1997 (its inception) to September 30, 1997. Current
assets, noncurrent assets, current liabilities, and noncurrent liabilities of
EGS as of September 30, 1997 were $150.8, $322.2, $65.0, and $15.6,
respectively.
(11) GOODWILL AND INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill.................................................... $ 893.9 $1,004.4
Intangibles................................................. 304.4 306.9
-------- --------
1,198.3 1,311.3
Accumulated amortization.................................... (94.7) (91.8)
-------- --------
$1,103.6 $1,219.5
======== ========
</TABLE>
Amortization of goodwill and intangibles was $42.4 in 1999, $19.5 in 1998
and $14.6 in 1997.
(12) ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Payroll and compensation.................................... $116.8 $105.3
Environmental and legal..................................... 44.5 31.3
Special charges and disposition-related accruals............ 19.1 39.9
Other....................................................... 163.1 219.5
------ ------
$343.5 $396.0
====== ======
</TABLE>
Refer also to Note 4 and 6.
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(13) INCOME TAXES
Income (loss) from continuing operations before income taxes and the
provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States........................................ $274.0 $(53.7) $236.0
Foreign.............................................. 20.8 8.8 16.8
------ ------ ------
$294.8 $(44.9) $252.8
------ ------ ------
Provision (benefit) for income taxes:
Current:
Federal........................................... $113.3 $ 3.3 $ 74.3
Foreign........................................... 15.0 7.8 8.5
State............................................. 17.5 5.2 16.0
------ ------ ------
Total current.......................................... 145.8 16.3 98.8
------ ------ ------
Deferred:
Federal........................................... 37.1 (12.0) 17.5
Foreign........................................... 0.1 (5.4) 0.5
State............................................. 8.3 (2.1) 4.2
------ ------ ------
Total deferred......................................... 45.5 (19.5) 22.2
------ ------ ------
Total provision (benefit).............................. 191.3 (3.2) 121.0
Included in discontinued operation..................... -- -- (1.5)
Included in cumulative effect of accounting change..... -- -- 2.3
Included in early extinguishment of debt............... (4.0) -- --
------ ------ ------
From continuing operations............................. $187.3 $ (3.2) $121.8
====== ====== ======
</TABLE>
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the company's effective income tax rate was
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.......................... 35.0% (35.0)% 35.0%
State and local taxes, net of U.S. federal benefit.......... 3.4 3.5 5.3
Foreign sales corporation................................... (0.8) (14.0) (1.8)
Goodwill amortization....................................... 3.1 11.1 1.6
Income from Puerto Rican operations......................... -- (2.0) (0.2)
Foreign rates and foreign dividends......................... 2.5 (1.2) 0.6
Change in valuation allowance............................... 1.7 3.3 (0.9)
Disposition basis differences............................... 20.9 22.2 8.6
Other....................................................... (2.3) 5.0 --
---- ----- ----
63.5% (7.1)% 48.2%
==== ===== ====
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Deferred income taxes reflected the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Deferred tax assets:
Acquired tax benefits and basis differences........ $ 8.3 $ 17.1 $ 21.0
Other postretirement and postemployment benefits... 71.6 72.1 53.7
Losses on dispositions and restructuring........... 10.2 17.4 4.0
Inventories........................................ 10.0 20.9 16.2
NOL and credit carryforwards....................... 17.2 9.4 21.2
Other.............................................. 74.8 62.0 38.9
------- ------- ------
Total deferred tax assets....................... 192.1 198.9 155.0
Valuation allowance................................ (16.9) (11.4) (16.7)
------- ------- ------
Net deferred tax assets......................... $ 175.2 $ 187.5 $138.3
------- ------- ------
Deferred tax liabilities:
Accelerated depreciation........................... $ 45.7 $ 74.6 $ 27.9
Pension credits.................................... 72.5 60.8 49.1
Basis difference in affiliates..................... 141.6 75.0 43.0
Intangibles recorded in Merger..................... 102.6 104.0 --
Other.............................................. 24.2 16.6 15.9
------- ------- ------
Total deferred tax liabilities.................. $ 386.6 $ 331.0 $135.9
------- ------- ------
$(211.4) $(143.5) $ 2.4
======= ======= ======
</TABLE>
Realization of deferred tax assets associated with the net operating loss
("NOL") and credit carryforwards is dependent upon generating sufficient taxable
income prior to their expiration. Management believes that there is a risk that
certain of these NOL and credit carryforwards may expire unused and,
accordingly, has established a valuation allowance against them. Although
realization is not assured for the remaining deferred tax assets, management
believes it is more likely than not that the deferred tax assets will be
realized through future taxable earnings or alternative tax strategies. However,
deferred tax assets could be reduced in the near term if management's estimates
of taxable income during the carryforward period are significantly reduced or
alternative tax strategies are no longer viable.
Undistributed earnings of the company's foreign subsidiaries amounted to
approximately $134.4 at December 31, 1999. Those earnings were considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes or foreign withholding taxes has been made. If these earnings
were distributed, the company would be subject to U.S. income taxes (subject to
a reduction for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability was not practicable; however, unrecognized foreign tax
credit carryovers would be available to reduce some portion of the U.S.
liability. Withholding taxes of approximately $10.3 would be payable upon
remittance of all previously unremitted earnings at December 31, 1999.
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(14) NOTES PAYABLE AND DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Revolving Loan.............................................. $ 65.0 $ 35.0
Tranche A Loan.............................................. 562.5 593.7
Tranche B Loan.............................................. 412.5 598.5
Interim Loan................................................ -- 200.0
Medium-term Notes: $25.0 at 7.0% due 2000, $25.0 at 7.1% due
2002...................................................... 50.0 50.0
Industrial Revenue Bonds due 2000-2025...................... 16.1 17.1
Other borrowings............................................ 8.6 21.3
-------- --------
1,114.7 1,515.6
Less: Short-term borrowings and current maturities.......... 97.7 49.1
-------- --------
$1,017.0 $1,466.5
======== ========
</TABLE>
Aggregate maturities of total debt are $97.7 in 2000, $110.4 in 2001,
$161.5 in 2002, $154.2 in 2003, $229.8 in 2004 and $361.1 thereafter.
In 1998, the company obtained a $1,650.0 credit facility consisting of a
six year, $600.0 Tranche A Loan ("Tranche A Loan"), an eight year, $600.0
Tranche B Loan ("Tranche B Loan"), an eighteen month, $200.0 Interim Term Loan
("Interim Loan") and a six year, $250.0 Revolving Facility ("Revolving Loan")
collectively hereinafter referred to as the "Credit Facility."
The Credit Facility bears interest at variable rates using a calculated
base borrowing rate ("Base Rate") or a Eurodollar Rate, plus the applicable
margin. The applicable margin for the Tranche B Loan is 2.5% for Base Rate
borrowings and 3.5% for Eurodollar Rate borrowings. The Tranche A Loan, Interim
Loan and Revolving Loan have variable margins between 0.5% and 1.75% for Base
Rate loans and 1.5% and 2.75% for Eurodollar Rate borrowings. The Revolving Loan
also is subject to annual commitment fees of 0.25% to 0.5% on the unused portion
of the facility. The variable margins and commitment fees are based on certain
financial measurements of the company as defined in the Credit Facility.
Interest and principal are payable quarterly. The company has effectively fixed
the underlying Eurodollar rate at approximately 4.8% on $800.0 of indebtedness
through interest rate protection agreements over the next three years. At
December 31, 1999, the weighted average interest rate on outstanding debt under
the Credit Facility was 7.6%, reflecting the 4.8% fixed Eurodollar rate on
$800.0.
Proceeds from the December 1999 sale of Best Power were used to prepay
outstanding indebtedness under the Credit Facility resulting in a $10.0 pretax
($6.0 after-tax) extraordinary charge representing prepayment penalties and the
non-cash write-off of related unamortized deferred financing costs.
The Credit Facility is secured by substantially all of the assets of the
company (excluding EGS) and requires the company to maintain certain leverage
and interest coverage ratios. The Credit Facility also requires compliance with
certain operating covenants which limit, among other things, the incurrence of
additional indebtedness by the company and its subsidiaries, sales of assets,
the distribution of dividends, capital expenditures, mergers, acquisitions and
dissolutions. Under the most restrictive of the financial covenants, the company
is required to maintain (as defined) a maximum debt to earnings before income
taxes, depreciation and amortization ratio and a minimum interest coverage
ratio.
The agreement also provides a letter of credit facility, which is available
for the issuance of standby letters of credit in an aggregate amount of $150.0.
Standby letters of credit issued under this facility, $33.0 at December 31,
1999, reduce the aggregate amount available under the Revolving Loan commitment.
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(15) FINANCIAL INSTRUMENTS
FINANCIAL DERIVATIVES
The company conducts its business in various foreign currencies.
Accordingly, the company is subject to the typical currency risks and exposures
that arise as a result of changes in the relative value of currencies. The risks
are often referred to as transactional, commitment, translational and economic
currency exposures. The company's risk management policy (the "Policy") stresses
risk reduction and specifically prohibits speculation. The Policy's three basic
objectives are to reduce currency risk on a consolidated basis, to protect the
functional currency value of foreign currency-denominated cash flows and to
reduce the volatility that changes in foreign exchange rates may present to
operating income.
The company utilizes natural hedges and offsets to reduce exposures and
also combines positions to reduce the cost of hedging. The company entered into
forward foreign exchange contracts to hedge net consolidated currency
transaction exposure for periods consistent with the terms of the underlying
transactions, extending into 2000. At December 31, 1999, the company had a
notional amount of approximately $0.2 of such contracts outstanding.
From time to time the company enters into various interest rate protection
agreements to reduce the potential impact of increases in interest rates on
floating rate long-term debt. At December 31, 1999, the company was a party to
four interest rate swap agreements ("Swaps"), covering $800.0 of outstanding
debt obligations and expiring in October 2001. The Swaps entitle the company to
receive from or require the company to pay to counterparties, on a quarterly
basis, the amounts, if any, by which LIBOR varies from approximately 4.8%.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents and receivables reported on the
consolidated balance sheets approximates their fair value because of the short
maturity of those instruments.
The fair value of the company's debt instruments, based on borrowing rates
available to the company at each year-end for similar debt, is not materially
different than its carrying value.
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 $33.0 and $56.3 and December 31, 1999 and 1998,
respectively. The company pays fees to various banks for these letters of credit
that were 1.95% per annum of their face value at December 31, 1999. If the
company was required to obtain replacement standby letters of credit as of
December 31, 1999 for those currently outstanding, it is the company's opinion
that the replacement costs would not significantly vary from the present fee
structure.
At December 31, 1999, the company had a $27.5 unrealized gain related to
the Swaps.
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 protection 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 in the industrial and
motor vehicle industries, particularly in the United States. The company
performs ongoing credit evaluations of its customers' financial conditions and
does obtain
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
collateral or other security when appropriate. No one customer accounts for more
than 10% of the company's revenues.
The company is exposed to credit losses in the event of nonperformance by
counterparties to its interest rate protection agreements, but has no other
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) COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The future minimum rental payments under leases with remaining
non-cancelable terms in excess of one year are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $17.8
2001........................................................ 14.3
2002........................................................ 11.6
2003........................................................ 8.1
2004........................................................ 4.6
Subsequent to 2004.......................................... 13.7
-----
Total minimum payments...................................... $70.1
=====
</TABLE>
Total lease expense in 1999, 1998 and 1997 was $25.2, $17.7 and $19.2,
respectively.
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 held 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 of the Complaint 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 conducted. In 1995 and 1997, the Plaintiffs initiated reexamination of the
three company patents. The U.S. patent office has upheld the validity of the
three company patents by issuing reexamination certificates on one of the
patents in late 1998 and on the other two in early 1999. Neither the Complaint
nor the counterclaim contain specific allegations of damages, however, the
products affected by the patents at issue are significant for Sun, Snap-on and
the company. Management believes that the claims against the company are without
merit. Based on management's understanding of Sun and Snap-on products sold
during the alleged infringement period, management believes that a reasonable
value of the company's claims brought against Sun and Snap-on could be material
to the future results of operations, cash flows and
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
financial position of the company. Management intends to vigorously prosecute
its claims. The company believes it should ultimately prevail in this
litigation. However, since the amount of the damages cannot be fully quantified
until the legal discovery process proceeds further and no assurances can be made
as to the final timing and outcome of any litigation, no gain has been recorded.
General Signal Power Systems, Inc., ("Best Power"), an indirect subsidiary
of SPX Corporation, filed suit against American Power Conversion Corporation
("APC") in the United States District Court for the Western District of
Wisconsin alleging five counts of patent infringement and three counts of false
advertising. Best Power is seeking to enjoin further manufacture, sale and
distribution of certain models of APC's MATRIX, SMART-UPS and BACKUPS products
and further publication of false advertising along with an award of damages
(which may be trebled based on an allegation of willful infringement) and
attorneys fees and costs for APC's alleged patent infringements and false
advertising. The company sold its Best Power business to Invensys, plc., but
retained its ownership of the Best Power patents and control of the litigation.
Based on management's understanding of APC's products sold during the alleged
infringement period, management believes that a reasonable value of the
company's claims brought against APC could be material to the future results of
operations, cash flows and financial position of the company. Management intends
to vigorously prosecute its claims. The company believes it should ultimately
prevail in this litigation. However, since the amount of the damages cannot be
fully quantified until the legal discovery process proceeds further and no
assurances can be made as to the final timing and outcome of any litigation, no
gain has been recorded.
Certain claims, including environmental matters, suits and complaints
arising in the ordinary course of business, have been filed or are pending
against the company and certain of its subsidiaries. In the opinion of
management, such matters are without merit or are of such kind, or involve such
amounts, as would not have a material effect on the financial position, results
of operations, or cash flows of the company if disposed of unfavorably.
ENVIRONMENTAL MATTERS
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, the company has a comprehensive
environmental compliance program, which includes environmental audits conducted
by internal and external independent professionals and regular communications
with the company's operating units regarding environmental compliance
requirements and anticipated regulations. Based on current information,
management believes that the company's operations are in substantial compliance
with applicable environmental laws and regulations, and the company is not aware
of any violation that could have a material adverse effect on the business,
financial condition, results of operations, or cash flows of the company. The
company is engaged or expects to be engaged in site investigation and/or
remediation at 43 company sites and estimates, based upon currently available
information, that its aggregate remaining liability at these sites is
approximately $54.7. There can be no assurance, however, that currently unknown
matters, new laws and regulations, or stricter interpretations of existing laws
and regulations will not materially affect the company's business or operations
in the future.
In the case of contamination at offsite, non-owned facilities, the company
has been notified that it is a potentially responsible party and has received
other notices of potential liability pursuant to various environmental laws at
22 sites. Such laws may impose liability on certain persons that are considered
jointly and severally liable for the costs of investigation and remediation of
hazardous substances present at these sites, regardless of fault or legality of
the original disposal. The persons include the present or former owner or
operator of the site and companies that generated, disposed of, or arranged for
the disposal of, hazardous substances at the site. The company is considered a
"de minimis" potentially responsible party at most of the sites and estimates
the aggregate probable remaining liability at these sites is approximately $2.9.
46
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The potential costs related to these environmental matters and the possible
impact on future operations are uncertain due in part to the complexity of
government laws and regulations and their interpretations, the varying costs and
effectiveness of cleanup technologies, the uncertain level of insurance or other
types of recovery, and the questionable level of the company's responsibility.
The company has estimated that costs of investigation and remediation for these
matters will be approximately $57.6 overall and has included this amount in
accrued liabilities in the accompanying balance sheet. It is at least reasonably
possible, however, that a change in this estimate will occur. In management's
opinion, after considering reserves established for such purposes, remedial
actions for compliance with present laws and regulations governing the
protection of the environment are not expected to have a material adverse impact
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 seven covered
employees be terminated is approximately $31.4. Additionally, should a change in
control occur, restrictions on any outstanding restricted stock, any outstanding
stock options, unvested pension entitlements and the EVA Incentive Compensation
Plan bonus bank would lapse.
(17) SHAREHOLDERS' EQUITY
PREFERRED STOCK
None of the company's 3.0 shares of authorized no par value preferred stock
was outstanding at December 31, 1998 and 1999.
COMMON STOCK, TREASURY STOCK AND UNALLOCATED KSOP
At December 31, 1999, authorized shares of common stock (par value $10.00)
total 50.0 shares. Common shares issued, treasury shares, shares held in the
KSOP trust and outstanding shares are summarized in the table below.
<TABLE>
<CAPTION>
COMMON UNALLOCATED
STOCK TREASURY KSOP SHARES
ISSUED STOCK TRUST OUTSTANDING
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997....................... 27.192 (7.483) -- 19.709
Common stock reacquired(1)....................... -- (1.480) -- (1.480)
Stock options exercised.......................... 0.057 0.013 -- 0.070
Merger of SPX and GSX(2)......................... 7.986 4.371 (0.531) 11.826
Other activity................................... (0.065) -- 0.015 (0.050)
------ ------ ------ ------
BALANCE AT DECEMBER 31, 1998....................... 35.170 (4.579) (0.516) 30.075
Issuance of Treasury stock(1).................... -- 0.562 -- 0.562
Stock options exercise........................... 0.320 -- -- 0.320
Other activity................................... -- -- 0.211 0.211
------ ------ ------ ------
BALANCE AT DECEMBER 31, 1999....................... 35.490 (4.017) 0.305 31.168
------ ------ ------ ------
</TABLE>
- ---------------
(1) In 1997 and 1998, the company repurchased shares in the market to offset
shares issued in the redemption of the 5.75% convertible notes (1996 and
1997) and to use a portion of the cash proceeds from the sale of GSPG in
1997.
(2) Included treasury stock and unallocated KSOP shares valued at $62.57 per
share as of the Merger Date.
47
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SPX STOCK COMPENSATION PLANS
At the time of the Merger, the company adopted SPX's preexisting stock
compensation plans.
Under the 1992 Stock Compensation Plan, as amended in October 1998, up to
5.0 shares of the company's common stock may be granted to key employees and 2.2
such shares were available for grant at December 31, 1999. Awards of stock
options, stock appreciation rights ("SARs"), performance units and restricted
stock may be made under the Plan although no more than 0.2 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, vest 50% after two years and 100%
after three years, and expire no later than 10 years from the date of grant. 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. Upon exercise, the employee has the
option to surrender shares at current value in payment of the exercise price
and/or for withholding tax obligations, and, subject to certain restrictions,
may 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.
No SARs or performance units have been granted under this plan.
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.
STOCK INCENTIVE PROGRAM
Prior to the Merger, GSX had a stock incentive program whereby executive
officers and designated employees were granted restricted stock and options to
purchase shares of company common stock. The only compensation expense recorded
under this program was related to restricted stock awards and aggregated $1.0 in
both 1998 and 1997.
48
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
As of the Merger and due to the change of control, all outstanding unvested
restricted stock and outstanding options were settled for $45, except options
with exercise prices greater than $45. Such options were canceled. The following
table shows activity from 1997 through 1999:
<TABLE>
<CAPTION>
OPTIONS
-------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ ---------
<S> <C> <C>
Outstanding at December 31, 1997............................ 2.419 $36.70
Granted..................................................... .482 38.86
Exercised................................................... (.119) 32.19
Terminated.................................................. (.492) 45.04
Settlement of GSX options................................... (2.290) 35.60
SPX options outstanding at Merger date...................... 2.581 63.08
Options granted............................................. .222 40.07
------ ------
Options outstanding at December 31, 1998.................... 2.803 $61.26
Granted..................................................... .873 64.88
Exercised................................................... (.320) 38.66
Terminated.................................................. (.038) --
------ ------
Options outstanding at December 31, 1999.................... 3.318 $66.83
====== ======
Exercisable at December 31, 1999............................ .953 $69.06
Exercisable at December 31, 1998............................ .369 $45.12
Exercisable at December 31, 1997............................ 1.300 $32.91
</TABLE>
Stock options outstanding and exercisable at December 31, 1999 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>
$14.13-$30.00................................ 0.040 5.17 $16.93 0.040 $16.93
$30.13-$45.00................................ 0.343 8.56 $39.44 0.076 $40.30
$45.75-$59.19................................ 0.310 8.24 $47.63 0.128 $45.75
$60.00-$90.00................................ 2.265 8.88 $71.33 0.709 $79.31
</TABLE>
PRO FORMA RESULTS -- "ACCOUNTING FOR STOCK-BASED COMPENSATION" (SFAS NO. 123)
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for stock options issued. Had compensation cost for the company's
stock options been determined based on the fair value at the grant date for
awards in 1999, 1998 and 1997 consistent with
49
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
the accounting provisions of SFAS No. 123, the company's net income (loss) and
income (loss) per share would have resulted in the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income (loss) -- as reported.................... $ 101.5 $ (41.7) $ 129.6
Net income (loss) -- pro forma...................... 99.8 (39.0) 128.0
Basic:
Income (loss) per share -- as reported............ $ 3.30 $ (1.94) $ 6.16
Income (loss) per share -- pro forma.............. 3.24 (1.81) 6.09
Diluted:
Income (loss) per share -- as reported............ $ 3.27 $ (1.94) $ 6.15
Income (loss) per share -- pro forma.............. 3.21 (1.81) 6.07
</TABLE>
The application of SFAS No. 123 resulted in a lower pro forma net loss in
1998, because some of the expense recorded when the GSX options were repurchased
upon the Merger had, on a pro forma basis, been recognized prior to 1998.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
DIVIDEND EXPECTED RISK FREE EXPECTED EXPECTED
YEAR OF GRANT YIELD VOLATILITY INTEREST RATE VESTING % OPTION LIFE
- ------------- -------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
1999............................... 0.00% 0.335 5.67% 75% 6 Years
1998............................... 0.00% 0.322 5.60% 75% 6 Years
1997............................... 2.40% 0.233 5.71% 100% 5 Years
</TABLE>
The weighted-average fair value of options granted during 1999, 1998 and
1997 was $27.95, $17.46 and $10.85, respectively. The fair value of options
granted in 1998 was subsequent to the Merger.
SHAREHOLDER RIGHTS PLAN
Subsequent to the Merger, and pursuant to a pre-existing Shareholder Rights
Agreement, each share of common stock carries one preferred stock purchase
right. 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 per share. 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 acquiring 20% or more of the company's common stock. The prior GSX
Shareholder Rights Plan was discontinued upon the Merger.
50
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
EARNINGS PER SHARE
The following table sets forth the computation of diluted earnings per
share from continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations...... $101.5 $(41.7) $131.0
Effect of dilutive securities:
5.75% convertible subordinated notes....... -- -- 0.2
------ ------ ------
Income available to common shareholders....... $101.5 $(41.7) $131.2
====== ====== ======
Denominator (shares in millions):
Weighted-average shares outstanding........... 30.765 21.546 21.028
Effect of dilutive securities:
Employee stock options..................... 0.290 -- 0.101
5.75% convertible subordinated notes.......... -- -- 0.002
Restricted stock compensation.............. -- -- (0.036)
------ ------ ------
0.290 -- 0.067
------ ------ ------
Adjusted weighted-average shares and
assumed conversions...................... 31.055 21.546 21.095
------ ------ ------
</TABLE>
(18) QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------------- ---------------- --------------- -----------------
1999 1998 1999 1998 1999 1998 1999 1998
------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $646.9 $374.4 $671.4 $401.7 $668.9 $409.9 $725.1 $ 639.4
Gross margin............. 214.0 125.6 224.9 144.7 224.6 138.4 239.0 144.8
Income (loss) from
continuing
operations............. 30.9(1) 23.4 41.6(2) 30.8 44.1(3) 24.1(5) (9.1)(4) (120.0)(6)
Extraordinary item, net
of tax................. -- -- -- -- -- -- (6.0) --
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)........ $ 30.9 $ 23.4 $ 41.6 $ 30.8 $ 44.1 $ 24.1 $(15.1) $(120.0)
Basic income (loss) per
share of common stock
(7):
Continuing
operations.......... $ 1.01 $ 1.20 $ 1.35 $ 1.68 $ 1.43 $ 1.32 $ (.29) $ (3.99)
Extraordinary item..... -- -- -- -- -- -- (.20) --
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)...... $ 1.01 $ 1.20 $ 1.35 $ 1.68 $ 1.43 $ 1.32 $ (.49) $ (3.99)
Diluted income (loss) per
share of common stock
(7):
Continuing
operations.......... $ 1.01 $ 1.19 $ 1.34 $ 1.67 $ 1.40 $ 1.32 $ (.29) $ (3.99)
Extraordinary item..... -- -- -- -- -- -- .(20) --
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)...... $ 1.01 $ 1.19 $ 1.34 $ 1.67 $ 1.40 $ 1.32 $ (.49) $ (3.99)
</TABLE>
- ---------------
Note: The sum of the quarters' earnings per share may not equal the full year
per share amounts.
(1) Included special charges of $14.1 related to restructuring initiatives.
(2) Included special charges of $6.0 related to restructuring initiatives.
51
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(DOLLAR AMOUNTS AND SHARES IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(3) Included special charges of $6.1 related to restructuring initiatives.
(4) Included special charges of $12.2 related to restructuring initiatives and
$45.2 after-tax loss on sale of Best Power.
(5) Included a $5.5 write-off of professional fees associated with the
termination of a plan to spin off Inrange Technologies and dispose of three
other units that had been announced by the former GSX management team. (See
Note 19).
(6) Included a $101.7 special charge (See Note 4) and $102.7 of other one-time
charges. (See Note 19).
(7) Earnings per share prior to the Merger Date have been adjusted by the Merger
Exchange Ratio of 0.4186.
(19) OTHER CHARGES AND GAINS
During 1998 and 1997, the company recorded certain other charges and gains.
In 1998, $5.5 of charges was recorded in the third quarter and $102.7 of charges
was recorded in the fourth quarter (the "1998 Charges"). In 1997, $17.9 of
charges, net of gains, was recorded during the third and fourth quarters (the
"1997 Changes").
1998 CHARGES
During the third quarter of 1998, the company expensed $5.5 of professional
fees associated with the termination of a plan to spin off Inrange Technologies
and dispose of three other units that had been announced by the former GSX
management team.
In the fourth quarter of 1998, the company expensed $9.0 of in-process
technology included in the valuation of SPX (see Note 2 for further discussion
of the purchase accounting for SPX). The company recorded $19.5 to write down
goodwill of a business held for sale to net realizable value. The business held
for sale had net assets of $24.4 as of December 31, 1998 and was sold in 1999.
Operating results of this business for 1998 were not material. The company
recorded additional environmental accruals of $36.5 in response to new
information and data obtained as a result of the Merger (see Note 16 for
additional information regarding environmental accruals). The company also
recorded charges totaling $37.7 in that quarter including Merger integration
costs ($5.8) and inventory write-downs ($11.4), asset impairments ($6.3), and
customer settlements ($3.1) primarily related to older generation products that
current management has decided to phase out in favor of recently developed
upgraded products, primarily in the Technical Products and Systems segment.
These charges primarily resulted from information obtained as a result of the
Merger, operating actions initiated during the quarter, and new management's
review of the former GSX businesses' assets and liabilities.
Of the 1998 charges, $60.4 was included in cost of products sold and the
remaining $47.8 was included in selling, general and administrative expense.
1997 CHARGES AND GAINS
In the fourth quarter of 1997, the company settled patent litigation and
sold related patents for a gain of $10.0. The company also recorded charges of
$13.8 in that quarter for asset valuations, lease termination costs and other
individually insignificant matters. In the third quarter of 1997, the company
recorded charges for inventory and accounts receivable reserve policy changes,
as well as professional fees in connection with the formation of EGS. The
company also wrote off assets related to a discontinued product line and
recorded a charge for cancellation of a facility lease. Additionally, the
company reversed an accrual that was no longer needed due to the formation of
EGS. The net of these matters totaled $14.1.
Of the 1997 charges, $11.2 was included in cost of products sold and the
remaining $6.7 was included in selling, general and administrative expense.
52
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Members
EGS Electrical Group, LLC:
We have audited the accompanying consolidated balance sheet of EGS
Electrical Group, LLC and subsidiaries as of September 30, 1999 and the related
consolidated statements of income, members' equity, and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of EGS
Electrical Group, LLC and subsidiaries as of September 30, 1998 were audited by
other auditors whose report dated November 10, 1998, expressed an unqualified
opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EGS
Electrical Group, LLC and subsidiaries as of September 30, 1999, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 29, 1999
53
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
The Board of Members
EGS Electrical Group, LLC:
We have audited the accompanying consolidated balance sheet of EGS
Electrical Group, LLC and subsidiaries as of September 30, 1998, and the related
consolidated statements of income, members' equity, and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EGS
Electrical Group, LLC and subsidiaries as of September 30, 1998, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
St. Louis, Missouri
November 10, 1998
54
<PAGE> 56
EGS ELECTRICAL GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net sales................................................... $ 462,581 $ 542,066
Cost of goods sold.......................................... (274,486) (327,693)
Selling, general, and administrative expenses............... (106,034) (120,734)
--------- ---------
Operating earnings................................ 82,061 93,639
Other expenses, net......................................... (10,216) (8,928)
--------- ---------
Income before income tax expense.................. 71,845 84,711
Income tax expense.......................................... (4,795) (3,054)
--------- ---------
Net earnings...................................... $ 67,050 $ 81,657
========= =========
</TABLE>
The accompanying notes to the financials are an integral part of these
consolidated statements.
55
<PAGE> 57
EGS ELECTRICAL GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,276 $ --
Accounts receivable, less allowances of $8,159 and $8,813,
respectively........................................... 80,261 83,377
Due from affiliated companies............................. 15,386 32,264
Inventories
Finished goods......................................... 36,062 41,641
Work in process........................................ 18,893 21,274
Raw material........................................... 15,497 20,097
-------- --------
Total inventories................................. 70,452 83,012
-------- --------
Other current assets...................................... 2,289 1,789
-------- --------
Total current assets.............................. 170,664 200,442
-------- --------
Property, plant, and equipment:
Land...................................................... 4,943 2,139
Buildings and improvements................................ 37,290 23,123
Machinery and equipment................................... 103,707 101,402
Construction in progress.................................. 4,936 16,607
-------- --------
Total property, plant, and equipment.............. 150,876 143,271
Less accumulated depreciation............................. 72,777 62,461
-------- --------
Net property, plant, and equipment................ 78,099 80,810
-------- --------
Goodwill, less accumulated amortization of $14,235 and
$9,605, respectively...................................... 248,844 282,768
Other assets................................................ 1,329 471
-------- --------
Total assets...................................... $498,936 $564,491
======== ========
</TABLE>
The accompanying notes to the financials are an integral part of these
consolidated statements.
56
<PAGE> 58
EGS ELECTRICAL GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
LIABILITIES AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current liabilities:
Trade accounts payable.................................... $ 24,180 $ 24,182
Income tax payable........................................ 1,214 808
Due to affiliated companies............................... 6,772 4,433
Accrued employee compensation............................. 6,158 7,649
Accrued sales rebates..................................... 5,714 6,270
Accrued expenses.......................................... 13,916 19,594
Deferred income taxes..................................... 176 104
Short-term borrowings -- affiliate........................ 9,618 9,693
-------- --------
Total current liabilities......................... 67,748 72,733
Interest-bearing obligation................................. 16,409 16,580
Long-term debt.............................................. 3,560 3,500
Other liabilities........................................... 13,536 14,229
-------- --------
Total liabilities................................. 101,253 107,042
-------- --------
Members' equity:
Additional paid-in-capital................................ 388,554 388,554
Retained earnings......................................... 9,660 71,358
Accumulated other comprehensive income.................... (531) (2,463)
-------- --------
Total members' equity............................. 397,683 457,449
-------- --------
Total liabilities and members' equity............. $498,936 $564,491
======== ========
</TABLE>
The accompanying notes to the financials are an integral part of these
consolidated statements.
57
<PAGE> 59
EGS ELECTRICAL GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
ADDITIONAL ACCUMULATED
PAID-IN RETAINED COMPREHENSIVE
CAPITAL EARNINGS INCOME TOTAL
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Balance at September 30, 1997................. $388,554 $ 4,251 $ (486) $ 392,319
-------- --------- ------- ---------
Comprehensive income
Net earnings................................ -- 81,657 -- 81,657
Cumulative translation adjustment........... -- -- (1,977) (1,977)
-------- --------- ------- ---------
Total comprehensive income -- 1998............ -- 81,657 (1,977) 79,680
Distribution to members....................... -- (14,550) -- (14,550)
-------- --------- ------- ---------
Balance at September 30, 1998 $388,554 $ 71,358 $(2,463) $ 457,449
-------- --------- ------- ---------
Comprehensive income
Net earnings................................ -- 67,050 -- 67,050
Cumulative translation adjustment........... -- -- 1,932 1,932
-------- --------- ------- ---------
Total comprehensive income -- 1999............ -- 67,050 1,932 68,982
Distribution to members....................... -- (128,748) -- (128,748)
-------- --------- ------- ---------
Balance at September 30, 1999................. $388,554 $ 9,660 $ (531) $ 397,683
======== ========= ======= =========
</TABLE>
The accompanying notes to the financials are an integral part of these
consolidated statements.
58
<PAGE> 60
EGS ELECTRICAL GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 67,050 $81,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sales of equipment............................. (318) (90)
Depreciation and amortization.......................... 17,168 17,464
Changes in operating working capital, net of acquired
businesses:
Decrease (increase) in receivables, net of
reserves............................................ 19,995 (38,785)
Decrease in inventories.............................. 12,560 2,280
(Increase) decrease in other current assets.......... (500) 3,039
(Increase) in other assets........................... (858) --
Increase (decrease) in payables...................... 2,743 (10,605)
(Decrease) increase in accrued expenses.............. (7,728) 582
Decrease in other liabilities........................ (693) --
-------- -------
Net cash provided by operating activities......... 109,419 56,082
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (11,709) (18,292)
Disposition of fixed assets............................... 650 --
Dual Lite and Edwards divestiture......................... 30,844 --
Purchase of businesses, net of cash....................... -- (32,946)
-------- -------
Net cash used in investing activities............. 19,785 (51,238)
-------- -------
Cash flows from financing activities:
Increase in short-term borrowings......................... -- 9,693
Decrease in long-term borrowings.......................... (111) --
Distribution to members................................... (128,748) (14,550)
-------- -------
Net cash used in financing activities............. (128,859) (4,857)
-------- -------
Net decrease in cash and cash equivalents......... 345 (13)
Effect of exchange rate changes on cash and cash
equivalents............................................... 1,931 (13)
Cash and cash equivalents at beginning of year.............. -- --
-------- -------
Cash and cash equivalents at end of year.................... $ 2,276 $ --
======== =======
</TABLE>
The accompanying notes to the financials are an integral part of these
consolidated statements.
59
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
EGS Electrical Group, LLC (EGS) was created on September 15, 1997 by
combining the electrical groups of Emerson Electric Co. (Emerson) and General
Signal, Inc. (General Signal). Emerson originally held 52.5% of equity and
General Signal originally held 47.5%. General Signal subsequently merged with
SPX Corporation (SPX), with SPX becoming the minority member.
EGS and subsidiaries (the Company) operates offices, plants, and warehouses
in fourteen states and three foreign countries and is engaged in the manufacture
of electrical fittings, enclosures, controls and industrial lighting;
transformers, power conditioning, power protection and power supplies;
resistance wire electrical heating cable, and pipe tracing cable; and a variety
of electrical heating products. Approximately 12% of the Company's assets are
located outside the United States, primarily in Canada and France.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EGS and its
controlled affiliates. All significant intercompany transactions, profits, and
balances are eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's non-U.S. subsidiaries is the local
currency. Adjustments resulting from the translation of financial statements are
reflected as a separate component of members' equity.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the "first in, first out" method for all inventories.
PROPERTY, PLANT, AND EQUIPMENT
The Company records investments in land, buildings, and machinery and
equipment at cost. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. Useful lives
are 12 years for machinery and equipment, and 40 years for buildings and
improvements.
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES
Assets and liabilities related to business combinations accounted for as
purchase transactions are recorded at their respective fair value. The excess of
cost over net assets of purchased businesses is amortized on a straight-line
basis over the expected periods of benefit, not exceeding 40 years. Long-lived
assets are reviewed for impairment whenever events and changes in business
circumstances indicate the carrying value of the assets may not be recoverable.
Impairment losses are recognized if expected future undiscounted cash flows of
the related assets are less than their carrying values.
INCOME TAXES
The Company does not pay United States federal income taxes. Federal taxes
are paid at the member level. The Company does pay some state income taxes in
those states that do not follow the federal treatment
60
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
of Limited Liability Corporations (LLC) and foreign taxes are paid on income
attributable to the foreign entity. Income taxes paid during the years ended
September 30, 1999 and 1998 were $3,341 and $2,243, respectively.
REVENUE RECOGNITION
The Company recognizes nearly all of its revenues through the sale of
manufactured products as shipped.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The adoption of this
Statement had no effect on the Company's net earnings or members' equity.
Accumulated other comprehensive income includes currency translation
adjustments.
DERIVATIVES
The Company uses derivative financial instruments to manage its risk
associated with movements in foreign currency exchange rates, interest rates and
commodity prices. These instruments are used in accordance with guidelines
established by the Company's management and are not used for trading or
speculative purposes.
Forward exchange contracts generally are not accounted for as hedges, and
as such, unrealized gains and losses are recognized and included in other
income. When realized, gains and losses are reclassified from other income and
recognized primarily as a component of cost of sales. Under commodity swap
agreements, which are accounted for as hedges, the Company receives or makes
payments based on the differential between a specified price and the market
price of the commodity. The Company records the payments when received or made
against cost of sales and does not have a carrying value recorded.
If, subsequent to entering into a forward contract the underlying
transaction is no longer likely to occur, the Company may terminate the forward
contract and any gain or loss on the terminated contract is included in net
earnings. Gains and losses on commodity swaps that are terminated prior to the
execution of the inventory purchase are recorded in the inventory until the
inventory is sold.
SEGMENT REPORTING
In 1999, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
Adoption of this Statement had no impact on the Company's disclosures as the
Company reports as one operating segment.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually reviews whether events and circumstances subsequent
to the acquisition of any long-lived assets, including goodwill and other
intangible assets, have occurred that indicate the remaining estimated useful
lives of those assets may warrant revision or that the remaining balance of
those assets may not be recoverable. If events and circumstances indicate that
the long-lived assets should be reviewed for possible impairment, the Company
uses projections to assess whether future cash flows or operating income
61
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(before amortization) on a non-discounted basis related to the tested assets is
likely to exceed the recorded carrying amount of those assets, to determine if a
write down is appropriate. Should an impairment be identified, a loss would be
reported to the extent that the carrying value of the impaired assets exceeds
their fair values as determined by valuation techniques appropriate in the
circumstances which could include the use of similar projections on a discounted
basis.
(2) ACQUISITIONS
On June 1, 1998, the Company acquired Easy Heat, Inc., a company that
designs and manufactures freeze protection and electrical heating products,
(Easy Heat) for approximately $23,800 in cash. Easy Heat has plants in Indiana
and Canada and sales offices in Holland. The fair value of assets acquired and
liabilities assumed were $21,222 and $7,341, respectively, with $9,950 of
goodwill recorded.
On July 1, 1998, the Company acquired ATX, SA, a French manufacturer of IEC
hazardous location lighting and related products, for approximately $25,680,
$16,580 of which was deferred and is payable in 2001. The fair value of assets
acquired and liabilities assumed were $8,805 and $1,503, respectively, with
$18,235 of goodwill recorded.
(3) RELATED PARTY TRANSACTIONS
During the regular course of business, the Company enters into arms-length
purchase and sales transaction with other companies affiliated with Emerson and
SPX and participates in cash pooling with certain of these affiliated companies.
At September 30, 1999 and 1998, the Company had payables to such related parties
totaling $6,773 and $4,433, respectively and held $15,385 and $25,245 in cash at
a related party earning interest of 4.9% annually. In addition at September 30,
1999 and 1998, the Company was indebted to an affiliated company in the amount
of $9,618 and $9,693, respectively, for a promissory note, payable upon demand.
The promissory note was issued in connection with the acquisition of Easy Heat.
The interest is payable quarterly at the Canadian Dollar Bankers' Acceptance
rate plus 5 basis points and resets every 90 days. As of September 30, 1999, the
interest rate was 5.05%. Net interest income from affiliated companies for the
fiscal years ended September 30, 1999 and 1998 were $947 and $1,223,
respectively.
The Company has entered into a service agreement with Emerson for Corporate
management services. For the years ended September 30, 1999 and 1998, the
management fee for such services was a percentage of revenue and was $4,857 and
$5,692, respectively. In addition the Company participates in Emerson sponsored
programs for such things as insurance, freight, 401(k) administration, legal,
workers compensation, tax consultation and other administrative expenses. The
amount paid for these services for the years ended September 30, 1999 and 1998
was approximately $32,000 and $36,000, respectively.
(4) DEBT
The Company's only short-term debt is the $9,618 due to an affiliated
Company as discussed above. The Company had long-term debt of $19,969 at
September 30, 1999. Included in this total is an Industrial Revenue Bond (IRB)
for $3,560 with an interest rate of 5.625% due December 1, 2002. The balance of
the long-term debt, $16,409, represents a deferred payment on the acquisition of
ATX, S.A. The $16,409 is payable in December 2001 and carries an interest rate
tied to LIBOR currently 3.6%. Total interest paid related to long-term debt was
$197 during the years ended September 30, 1999 and 1998.
(5) FINANCIAL INSTRUMENTS
The carrying values of the Company's short-term financial instruments,
including cash and cash equivalents, accounts and notes receivable and
short-term debt, approximate their fair values because of the short maturity of
these instruments. At September 30, 1999 and 1998, the fair value of the
Company's long-
62
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
term debt approximated its carrying value, as the interest rate was materially
consistent with the rate that could be obtained at that time.
The Company enters into financial and commodity instruments to manage
foreign currency exchange exposure related to transactions, assets and
liabilities that are subject to risk from foreign currency exchange rates and to
manage its exposure to commodity price risk. Commodity instruments outstanding
at September 30, 1999 and 1998, had contract values of $2,824 and $9,936,
respectively and fair values of $3,027 and $9,574, respectively. Financial
instruments outstanding at September 30, 1999 and 1998 had contract values of
$1,993 and $0, respectively and fair values of $1,968 and $0, respectively. The
commodity and financial instruments outstanding at September 30, 1999 mature
during 2000 and relate primarily to aluminum and zinc commodities and to the
German mark.
(6) RETIREMENT PLANS
The Company has pension plans and other postretirement benefit plans
covering substantially all of its employees. The Company's pension and retiree
health care and life insurance benefit plans are discussed below.
Pension and other post retirement benefit costs included the following
components for 1999 and 1998:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
1999 1998 1999 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Service cost.......................................... $2,190 $2,170 $211 $199
Interest cost......................................... 590 400 395 368
Expected return on plan assets........................ (105) -- -- --
Amortization of prior service cost.................... 150 -- -- --
Amortization of net loss (gain)....................... (5) -- -- --
Amortization of transition asset...................... (280) -- -- --
------ ------ ---- ----
Net pension and other benefit costs................... $2,540 $2,570 $606 $567
</TABLE>
63
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
A reconciliation of the changes in the plans' benefit obligations and fair
value of assets over the two-year period ending September 30, 1999, and a
statement of the funded status at September 30 for these years for the Company's
domestic pension plans follows.
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------------
1999 1998 1999 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATION
Benefit obligation previous Sept. 30................... $ 8,390 $ 5,020 $ 5,482 $ 4,782
Service cost........................................... 2,190 2,170 211 199
Interest cost.......................................... 590 400 395 368
Participant contributions.............................. 20 -- 18 17
Plan amendments........................................ -- 555 -- --
Actuarial loss (gain).................................. (115) 245 (120) 193
Acquisitions........................................... (280) -- -- --
Benefit payments....................................... (470) -- (80) (77)
------- ------- ------- -------
Benefit obligation at Sept. 30......................... 10,325 8,390 5,906 5,482
------- ------- ------- -------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at Oct. 1.................... 190 -- -- --
Actual return on plan assets........................... 40 -- -- --
Employer contributions................................. 2,765 190 -- --
Participant contributions.............................. 20 -- -- --
Benefit payments....................................... (470) -- -- --
------- ------- ------- -------
Fair value of plan assets at Sept. 30 2,545 190 -- --
------- ------- ------- -------
FUNDED STATUS
Funded status at Sept. 30.............................. (7,785) (8,200) (5,906) (5,482)
Unrecognized prior service cost........................ 180 555 73 193
Unrecognized actuarial loss (gain)..................... 400 245 -- --
------- ------- ------- -------
Prepaid (accrued) benefit cost......................... (7,205) (7,400) (5,833) (5,289)
</TABLE>
The amounts recognized in the Company's balance sheets as of September 30
were as follows:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------------
1999 1998 1999 1998
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Accrued benefit cost................................... $(7,585) $(8,000) $(5,906) $(5,482)
Intangible asset....................................... 355 555 -- --
Accumulated other comprehensive income................. 25 45 73 193
------- ------- ------- -------
Net amount recognized.................................. $(7,205) $(7,400) $(5,833) $(5,289)
======= ======= ======= =======
</TABLE>
Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Accumulated gains and losses in
excess of 10.0% of the greater of the benefit obligation or the market-related
value of assets are amortized over the remaining service period of active plan
participants. The Company's benefit obligations were determined using assumed
discount rates of 7.8 percent in 1999 and 7.5 percent in 1998 and an assumed
compensation increase of 4.5 percent in 1999 and 4.0 percent in 1998. The
assumed long-term rate of return on plan assets was 10.5 percent in 1999 and 9.0
percent in 1998.
The health care cost trend rate for 1999 for pre-65 benefits was assumed to
be 6.5 percent gradually declining to 4.5 percent in 2004 and to remain at that
level thereafter. The trend rate for post-65 benefits was
64
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
assumed to be 4.5 percent level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. A one percent
increase in the assumed health care trend rate would increase the service and
interest cost components of net postretirement health care benefit obligation by
$138 at September 30, 1999. A one percent decrease in the assumed health care
trend rate would decrease the service and interest cost components of net
postretirement health care benefit obligation by $138 at September 30, 1999. The
Company monitors the cost of health care and life insurance benefit plans and
reserves the right to make additional changes or terminate these benefits in the
future.
(7) DISCONTINUED OPERATIONS
On October 5, 1998, the Company distributed two units (Edwards and Dual
Lite) to SPX, which increased Emerson's ownership interest by 3 percentage
points. The units had combined 1998 annual sales of approximately $83,500 and
income before income tax of approximately $4,500.
(8) LEASES
The Company has various lease agreements for offices, distribution and
manufacturing centers. These obligations extend through 2005. Rent expense for
the year was $2,669.
Future minimum lease payments at September 30, 1999, under agreements
classified as operating leases with noncancelable terms in excess of one year
for the years 2000 through 2004 were $2,414, $1,991, $1,597, $1,516 and $1,405,
respectively.
65
<PAGE> 67
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 9.
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".
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(i) -- Agreement and Plan of Merger among SPX Corporation, SAC
Corp. and General Signal Corporation, dated as of July
19, 1998, incorporated herein by reference from the
company's Form S-4 Registration Statement 333-60853,
filed on July 20, 1998.
3(i) -- Restated Certificate of Incorporation, as amended, dated
June 12, 1998, incorporated herein by reference from the
company's Quarterly Report on Form 10-Q, file No. 1-6948,
for the quarter ended June 30, 1998.
(ii) -- Certificate of Ownership and Merger dated April 25, 1998,
incorporated herein by reference from the company's
Annual Report on Form 10-K, file No. 1-6948, for the year
ended December 31, 1998.
(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.
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- -----------
<C> <S>
4(i) -- Credit Agreement between SPX Corporation and Chase
Manhattan Bank, as agent for the banks named therein,
dated as of October 6, 1998, incorporated herein by
reference from the company's Quarterly Report on Form
10-Q, file No. 1-6948, for the quarter ended September
30, 1998.
(ii) -- Copies of the instruments with respect to the company's
other long-term debt are available to the Securities and
Exchange Commission upon request.
(iii) -- Rights Agreement, dated as of June 25, 1996 between the
company 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
file 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.
*10(i) -- Sealed Power Corporation Executive Performance Unit Plan,
incorporated herein by reference from the company's
Amendment No. 1 on Form 8 to the Annual Report on Form
10-K, file No. 1-6948, for the year ended December 31,
1988.
(ii) -- SPX Corporation Retirement Plan for Directors, as amended
and restated, incorporated herein by reference from the
company's Amendment No. 1 on Form 8 to the Annual Report
on Form 10-K, file No. 1-6948, for the year ended
December 31, 1988.
(iii) -- SPX Corporation Supplemental Retirement Plan for Top
Management, as amended and restated, incorporated herein
by reference from the company's Amendment No. 1 on Form 8
to the Annual Report on Form 10-K, file No. 1-6948, for
the year ended December 31, 1988.
(iv) -- SPX Corporation Excess benefit Plan No. 3, as amended and
restated, incorporated herein by reference from the
company's Amendment No. 1 on Form 8 to the Annual Report
on Form 10-K, file No. 1-6948, for the year ended
December 31, 1988.
(v) -- SPX Corporation Executive Severance Agreement,
incorporated herein by reference from the company's
Amendment No. 1 on Form 8 to the Annual Report on Form
10-K, file No. 1-6948, for the year ended December 31,
1988.
(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.
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- -----------
<C> <S>
(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 No. 1-6948, for the year ended December 31, 1996.
(xv) -- SPX Corporation 1997 Non-Employee Director's Compensation
Plan, incorporated herein by reference from Exhibit A to
the Proxy Statement contained in the company's Schedule
14A, file No. 1-6948, filed on March 25, 1997.
(xvi) -- SPX Corporation Supplemental Retirement Savings Plan for
Top Management, incorporated herein by reference from the
company's Form S-4 Registration Statement 333-60853,
filed on July 20, 1998.
11 -- Statement regarding computation of earnings per share.
See Consolidated Statements of Income, page of this
Form 10-K.
21 -- Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of KPMG LLP.
27 -- Financial data schedule.
</TABLE>
- ---------------
* Item 10(i) through 10(xvi) all related to compensatory plans.
(b) Reports on Form 8-K.
None.
68
<PAGE> 70
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 .
SPX CORPORATION
(Registrant)
By /s/ Patrick J. O'Leary
-----------------------------------
Patrick J. O'Leary
Vice President Finance, Treasurer
and
Chief Financial 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 amendments
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
.
<TABLE>
<S> <C>
/s/ JOHN B. BLYSTONE /s/ PATRICK J. O'LEARY
- ----------------------------------------------------- -----------------------------------------------------
John B. Blystone Patrick J. O'Leary
Chairman, President and Chief Executive Officer Vice President Finance, Treasurer and Chief Financial
Officer
/s/ SARAH R. COFFIN /s/ J. KERMIT CAMPBELL
- ----------------------------------------------------- -----------------------------------------------------
Sarah R. Coffin J. Kermit Campbell
Director Director
/s/ EMERSON U. FULLWOOD /s/ FRANK A. EHMANN
- ----------------------------------------------------- -----------------------------------------------------
Emerson U. Fullwood Frank A. Ehmann
Director Director
/s/ H. KENT BOWEN /s/ CHARLES E. JOHNSON II
- ----------------------------------------------------- -----------------------------------------------------
H. Kent Bowen Charles E. Johnson II
Director Director
/s/ DAVID P. WILLIAMS
- -----------------------------------------------------
David P. Williams
Director
</TABLE>
69
<PAGE> 1
EXHIBIT (21)
SPX CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY JURISDICTION OF
INCORPORATION
A. R. Brasch Marketing Inc. Michigan
Kodiak Partners Corp. Delaware
Kodiak Partners II Corp. Delaware
SPX Development Corporation Michigan
SPX Minnesota Properties, Inc. Michigan
SPX Risk Management Co. Delaware
Toledo Trans-Kit, Inc. Ohio
Aurora/Hydromatic Pumps Inc. Delaware
Data Switch Intellectual Property, Inc. Delaware
Data Switch Subsidiary Stock Corporation Delaware
Fairbanks Morse Pump Corporation Kansas
GCA International Corporation New Jersey
General Farebox Service of Atlanta, Inc. Delaware
General Signal Corporation Delaware
General Signal Healthcare Management, Inc. Delaware
General Signal Holdings Company Delaware
General Signal International Corporation Delaware
General Signal Laboratory Equipment, Inc. Delaware
General Signal Power Systems, Inc. Wisconsin
Edwards Systems Technology Inc. Connecticut
<PAGE> 2
SUBSIDIARY JURISDICTION OF
INCORPORATION
General Signal GmbH & Co. KG Germany
General Signal India Private Limited India
General Signal Ireland, B.V. Netherlands
General Signal Limited Ontario
General Signal Mauritius, Inc. Mauritius
General Signal Networks (Germany) GmbH Germany
General Signal (S.E.G.) Asia Limited Hong Kong
General Signal SEG Limited UK
General Signal (UK) Limited UK
General Signal Verwaltungsgesellschaft mbH Germany
Hangzhou Kayex Zheda Electromechanical Co., Ltd China
High Ridge Company Ltd. Bermuda
High Ridge Ireland Ltd. Ireland
Inrange Technologies GmbH Germany
Inrange Technologies Italia Srl Italy
Inrange Technologies Limited UK
L&N Products Pty Limited Australia
Leeds & Northrup (France) SARL France
Leeds & Northrup GmbH Germany
Leeds & Northrup Italy, S.p.A. Italy
Leeds & Northrup Limited UK
Leeds & Northrup Mexicana, S.A. Mexico
Leeds & Northrup (New Zealand) Limited New Zealand
Leeds & Northrup, S.A. Spain
Leeds & Northrup Singapore Pte. Limited Singapore
<PAGE> 3
SUBSIDIARY JURISDICTION OF
INCORPORATION
Best Power Taiwan Trading Co. Ltd. Taiwan
Best Power Technology Limited Taiwan
Data Switch Gmbh Elektronische Systeme Gmbh Germany
Data Switch (UK) Limited UK
DeZurik of Australia Proprietary Limited Australia
DeZurik International, Limited UK
DeZurik Japan Co., Ltd. Japan
DeZurik Mexico, S.A. de C.V. Mexico
DeZurik Vertriebs GmbH Austria
Fairbanks Morse India Limited India
GCA Limited UK
GS International (Barbados) Ltd. Barbados
G.S. Iona Limited UK
General Signal (Barbados) Ltd. Barbados
General Signal (China) Co., Ltd. China
General Signal Enterprises Ireland
General Signal Europe Limited UK
General Signal FSC, Inc. Virgin Islands
General Signal Technology Corporation Delaware
GSR Merger Sub, Inc. Delaware
Inrange Technologies Corporation Delaware
Kayex China Holdings, Inc. Delaware
LDN, Ltd. Delaware
Leeds & Northrup Company Delaware
Metal Forge Company, Inc. Delaware
New Signal, Inc. Delaware
<PAGE> 4
SUBSIDIARY JURISDICTION OF
INCORPORATION
IBS Filtran GmbH Germany
JATEK, Limited (Japan) KK Japan
Jurubatech Technologia Brazil
Kent-Moore do Brasil Industria Commerce, Ltda. Brazil
Lowener GmbH Germany
SPX Australia Pty., Ltd. Australia
SPX Canada, Inc. Canada
SPX de Mexico S.A. de C.V. Mexico
SPX Europe AG Switzerland
SPX France, S.A. France
SPX Iberica, S.A. Spain
SPX International, Ltd. Barbados
SPX Netherlands, B.V. Netherlands
SPX U.K. Ltd. UK
Tecnotest Srl Italy
Valley Forge Technical Information Services GmbH Germany
Lightnin Europe Limited UK
Lightnin Mixers Limited UK
Lightnin Mixers Pty. Ltd. Australia
Shenyang Stock Electric Power Equipment Company Limited China
Stock Japan Ltd. Japan
Tau-Tron (UK) Limited UK
Telenex Europe Limited UK
GS Development Corporation Delaware
GSBS Development Corporation Delaware
GSLE Development Corporation Delaware
GSPS Development Corporation Delaware
SPX Europe GmbH Germany
SPX Singapore PTE LTD Singapore
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 8, 2000, on the Company's financial statements as of
and for the years ended December 31, 1999 and 1998 and our report dated October
29, 1999, on EGS Electrical Group, LLC's financial statements as of and for the
year ended September 30, 1999 included in this Form 10-K for the year ended.
December 31, 1999, into the Company's previously filed registration statements
on Form S-8 (File Nos. 33-24043, 333-29843, 333-29851, 333-29857, 333-29855,
333-38443, 333-70245, 333-82645 and 333-82647).
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 13, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements: (i) Form S-8 (no. 333-82647) pertaining to SPX Options Granted
Pursuant to individual Non-qualified Option Agreements; (ii) Form S-8 (No.
333-82645) pertaining to SPX Corporation 1992 Stock Compensation Plan (formerly
The Stock Compensation Plan); (iii) Form S-8 (No. 333-29843) pertaining to the
SPX Corporation Retirement Savings and Stock Ownership Plan; (iv) Form S-8 (No.
333-29851) pertaining to SPX Corporation 1997 Non-employee Directors'
Compensation Plan; (v) Form S-8 (No. 333-29857) pertaining to Options Granted
Pursuant to Individual Non-qualified Option Agreements and Restricted Stock
Granted Pursuant to Individual Restricted Shares Agreements of SPX Corporation;
(vi) Form S-8 (No. 333-38443) pertaining to SPX Corporation Employee Stock
Purchase Plan; (vii) Form S-8 (No. 333-70245) pertaining to SPX Corporation
Retirement Savings and Stock Ownership Plan; (viii) Form S-8 (No. 333-29855)
pertaining to the SPX Corporation 1992 Stock Compensation Plan and (ix) Form
S-8 (No. 33-24043) pertaining to the Stock Compensation Plan Stock Incentive
Plan (1981) of SPX Corporation, of our report dated January 23, 1998, except
for the "other comprehensive income (loss)" reported in the consolidated
statements of income and comprehensive income, the reference to
reclassification in Note 1 and Notes 3, 7 and 17 as to which date is February
15, 1999, with respect to the financial statements of SPX Corporation (formerly
General Signal Corporation) for the year ended December 31, 1997, included in
this Form 10-K for the year ended December 31, 1999.
/s/ Ernst & Young LLP
-------------------------------
Stamford, Connecticut
March 13, 2000
<PAGE> 1
Exhibit 23.3
The Board of Members
EGS Electrical Group LLC:
We consent to the incorporation by reference in the registration statements on
Form S-8 of SPX Corporation of our report dated November 10, 1998, with respect
to the consolidated balance sheet of EGS Electrical Group LLC (and
subsidiaries) as of September 30, 1998, and the related consolidated statements
of income, members' equity, and cash flows for the year ended September 30,
1998, which report appears in the Form 10-K of SPX Corporation for the fiscal
year ended December 31, 1999.
/s/ KPMG LLP
---------------------------------
St. Louis, Missouri
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SPX CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1999,
1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 78 70 50
<SECURITIES> 0 0 0
<RECEIVABLES> 491 477 297
<ALLOWANCES> (17) (18) (12)
<INVENTORY> 474 282 157
<CURRENT-ASSETS> 977 976 568
<PP&E> 800 791 576
<DEPRECIATION> (355) (368) (335)
<TOTAL-ASSETS> 2,846 2,968 1,388
<CURRENT-LIABILITIES> 755 679 377
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 355 352 272
<OTHER-SE> 197 39 358
<TOTAL-LIABILITY-AND-EQUITY> 2,846 2,968 1,388
<SALES> 2,712 1,825 1,955
<TOTAL-REVENUES> 2,712 1,825 1,955
<CGS> 1,810 1,272 1,314
<TOTAL-COSTS> 2,399 1,865 1,773
<OTHER-EXPENSES> (64) 1 (73)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 118 45 13
<INCOME-PRETAX> 295 (45) 253
<INCOME-TAX> 187 (3) 122
<INCOME-CONTINUING> 108 (42) 131
<DISCONTINUED> 0 0 2
<EXTRAORDINARY> 6 0 0
<CHANGES> 0 0 4
<NET-INCOME> 102 (42) 130
<EPS-BASIC> 3.30 (1.94) 6.16
<EPS-DILUTED> 3.27 (1.94) 6.15
</TABLE>
