1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993, 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: 0-419
SPX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-1016340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 TERRACE POINT DRIVE, MUSKEGON, MICHIGAN 49443-3301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616-724-5000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------- -------------------------
COMMON NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
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
REQUIRED 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 REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
$219,160,000 AS OF MARCH 15, 1994
------------------------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
13,940,306 SHARES AS OF MARCH 15, 1994
------------------------
DOCUMENTS INCORPORATED BY REFERENCE: REGISTRANT'S PROXY STATEMENT FOR ITS
ANNUAL MEETING ON APRIL 27, 1994 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/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART I
ITEM 1. BUSINESS
SPX Corporation ("SPX" or the "company") is a global leader in the design,
manufacture and marketing of products for the motor vehicle industry. Its
operations are focused on the markets for specialty service tools and equipment
used in vehicular repair and maintenance, and original equipment components for
the manufacture and repair of motor vehicles.
The company was organized in 1911 under the laws of Michigan, and
reincorporated in Delaware in 1968. It was known as The Piston Ring Company
until 1931, when it changed its name to Sealed Power Corporation. The name was
changed again in 1988, when it became SPX Corporation. Today, SPX Corporation is
a multi-national corporation with operations in 14 nations. The corporate
headquarters is located in Muskegon, Michigan.
Recent Developments
During 1993 the company completed several significant transactions that are
designed to increase its focus upon two primary core markets, specialty service
tools and original equipment components for the motor vehicle industry.
-- On June 10, 1993, the company purchased the Allen Testproducts division
and its related leasing company, Allen Group Leasing, from The Allen
Group, Inc. These businesses are being merged with the company's Bear
Automotive division to create the Automotive Diagnostics division to
enhance the company's engine diagnostics, emissions testing and wheel
service equipment capabilities. Allen Group Leasing was renamed SPX
Credit Corporation and was combined with the company's existing leasing
operation and provides customers with a leasing option when purchasing
higher dollar specialty service equipment.
-- On October 22, 1993, the company divested its Sealed Power Replacement
division, which markets and distributes replacement engine and under
vehicle parts.
-- On November 5, 1993, the company divested its Truth division, which
designs and manufactures window and door hardware products.
-- Effective December 31, 1993, the company acquired Riken Corporation's
49% ownership interest in Sealed Power Technologies Limited Partnership
("SPT"). SPT represents substantially all of the company's original
equipment components segment.
-- Sealed Power Technologies Limited Partnership Europe ("SP Europe"),
which has not previously been consolidated in the financial statements
of SPX, has been consolidated as of December 31, 1993. While SPX now
owns 70% of SP Europe, the partnership had not previously been
consolidated due to a pending participation of a 20% ownership interest
by Riken. The Riken participation was not consummated. SP Europe is
managed by the Sealed Power division of SPT. The remaining 30% interest
in SP Europe is held by Mahle Gmbh, a German corporation.
Refinancing
Late in the fourth quarter of 1993, the company determined that virtually
all existing SPX and SPT debt should be refinanced in connection with the
purchase of Riken's 49% interest in SPT, due to favorable prevailing interest
rates, scheduled and accelerated existing debt maturities, and to maintain the
flexibility of the company to grow through internal investments and through
acquisitions. The plan of refinancing (the "Refinancing") includes two elements,
a new $225 million revolving bank credit facility and the issuance of $260
million of senior subordinated notes. The Refinancing is expected to be
completed by the end of the second quarter of 1994.
In March, the first portion of the Refinancing was completed when the
company closed a $250 million revolving credit facility with The First National
Bank of Chicago, as agent for a syndication of banks. This
1
3
revolving credit facility bears interest at LIBOR plus 1.0% or the prime rate
(at the company's option) and expires in 1999. Upon completion of the senior
subordinated note offering, this revolving credit facility will be reduced to
$225 million of maximum availability. Proceeds from this revolving credit
facility were used to extinguish approximately $205 million of SPX debt, much of
which was technically in default of covenant provisions. At December 31, 1993,
SPT was in compliance with its debt covenants.
By June 30, 1994, the company expects to have completed its $260 million
offering of senior subordinated notes. These notes are anticipated to bear
interest at a rate of approximately 10% and will be due in or after the year
2002. The proceeds from the notes will be used to retire existing SPT borrowings
which totaled $210.2 million at December 31, 1993. Excess proceeds will be used
to pay down the company's revolving credit facility.
If the company does not issue the senior subordinated notes, provisions
have been made so that the revolving credit facility will remain at $250 million
and the rate of interest would become LIBOR plus 1.5% or the prime rate plus .5%
(at the company's option) and the facility would be secured by substantially all
of SPX's assets. The existing SPT debt would remain outstanding in its current
form, including security interests in SPT's assets.
BUSINESS SEGMENTS
The result of these transactions is to increase the company's focus upon
two primary business segments, Specialty Service Tools and Original Equipment
Components. Additionally, a lease financing segment supports the Specialty
Service Tool segment. The following unaudited pro forma information summarizes
the company's revenues as if the above transactions had occurred as of the
beginning of 1991. Please refer to footnote 7 to the consolidated financial
statements for further explanation of the 1993 pro forma results.
1993 1992 1991
------------- ------------- ------------
(MILLIONS OF DOLLARS)
Specialty Service Tools................... $ 529.2 52% $ 606.2 58% $525.3 58%
Original Equipment Components............. 458.8 46 420.0 40 366.1 40
SPX Credit Corporation Lease Finance
Revenue................................. 15.7 2 16.7 2 15.2 2
------- --- ------- --- ------ ---
$1,003.7 100% $1,042.9 100% $906.6 100%
------- --- ------- --- ------ ---
------- --- ------- --- ------ ---
SPECIALTY SERVICE TOOLS
This segment includes six operating divisions that design, manufacture and
market a wide range of specialty service tools and diagnostic equipment
primarily to the worldwide motor vehicle industry. Approximately one-fourth of
sales are to customers outside of North America.
The company competes with numerous companies which specialize in certain
lines of its Specialty Service Tools. The company believes it is the world
leader in offering specialty tool programs for motor vehicle original equipment
manufacturers' franchised dealer networks. The company is a major producer of
electronic engine diagnostic equipment, emission testing equipment and wheel
service equipment in North America and Europe. The key competitive factors
influencing the sale of Specialty Service Tools are design expertise, timeliness
of delivery, quality, service and price. Sales of specialty service tools
essential to franchised dealers tend to vary with changes in vehicle design and
the number of dealerships and are not directly dependent on the volume of
vehicles that are produced by the original equipment manufacturers.
Design of specialty service tools is critical to their functionality and
generally requires close coordination with either the motor vehicle original
equipment manufacturers or with the ultimate users of the tools or instruments.
These products are marketed as solutions to service problems and as aids to
performance improvements. After the design is completed, the company
manufactures, assembles or outsources these products. The company also markets a
broad line of equipment of other manufacturers through franchised dealer
equipment programs coordinated with certain motor vehicle original equipment
manufacturers.
2
4
Automotive Diagnostics -- This division is the combination of the
company's Bear Automotive unit and Allen Testproducts, which was acquired
in June of 1993. The division manufactures and markets performance test,
emission test, and wheel service equipment, including related software, to
the global automotive service industry. Products are marketed under both
the Bear and Allen Testproducts brand names.
These products are marketed to both the dealership and aftermarket
channels through a direct sales force, OEM distribution and through
independent distributorships, primarily in foreign countries. In North
America, sales are supported by a network of company owned distribution and
service centers. The division has operations located in Australia, Canada,
the United Kingdom, Switzerland, Germany, Italy, France and the United
States.
Dealer Equipment and Services (formerly Kent-Moore Tool &
Equipment). -- This division administers dealer equipment programs in North
America and Europe for fourteen motor vehicle manufacturers, including
General Motors, Saturn, Opel, Nissan, Toyota and Hyundai. Under the motor
vehicle manufacturer's identity, the division supplies service equipment
and support material to franchised dealers, develops and distributes
equipment catalogues, and helps franchised dealers assess and meet their
service equipment needs.
The division's operations, which consist primarily of distribution of
purchased products to customers, are located in the United States and
Canada, the United Kingdom, Switzerland, Germany and Spain.
Kent-Moore -- This division designs and markets specialty service
tools and hand-held diagnostic products for the world's motor vehicle
manufacturers.
Franchised dealers use its products to do essential warranty and
service work. Examples of products include specialty hand-held mechanical
tools and specialty hand-held electronic diagnostic instruments.
The division's technical product development and sales staffs work
closely with the original equipment manufacturers to design tools to meet
the exacting needs of specialty repair work. Products are sold to
franchised dealerships under both essential and general programs. Essential
programs are those in which the OEM requires its franchised dealers to
purchase and maintain the tools for warranty and service work.
The division has manufacturing operations in the United States and
Spain. Sales and marketing operations exist in the United States,
Switzerland, the United Kingdom, Australia, Spain, and Brazil. The division
also manages the company's 50% interest in JATEK, a Japanese company that
markets specialty service tools and equipment in the Asia Pacific Rim.
OTC -- The division designs, manufactures and markets a variety of
specialty service tools and equipment that range from gear pullers to
complex, hand held diagnostic equipment. These products are based on
customer needs and are marketed globally through automotive, agricultural,
and construction equipment manufacturers to their franchised dealers. The
division also has a strong aftermarket distribution system around the
world. Products are marketed under brand names including OTC, V.L.
Churchill, Lowener, and Miller Special Tools.
The division's technical product development and sales staff works
closely with original equipment manufacturers to design tools that meet the
exacting needs of specialty repair and maintenance work. Products are sold
to franchised dealerships under both essential and general programs.
Essential programs are those in which the OEM requires its franchised
dealers to purchase and maintain the tools for warranty and service work.
The division's aftermarket distribution is primarily through warehouse
distributors and jobbers who are supported by an in-house sales and
technical support staff.
The division has manufacturing operations located in the United States
and sales and marketing operations located in the United States, the United
Kingdom, Germany, and Australia.
3
5
Power Team -- The division is a world leader in producing and
marketing precision quality high-pressure hydraulic pumps, rams, valves,
pullers and other equipment. The division markets these products through
industrial distributors, its own sales force and independent agents. The
sales and marketing effort is supported by a strong technical support staff
as products must be designed to exacting specifications to meet the
multitude of applications for these products. Approximately three-fourths
of the division's sales are related to the motor vehicle service industry,
while the balance of sales are made in non-transportation markets such as
construction, aerospace and industrial maintenance.
The division has sales, marketing and manufacturing operations in the
United States. Additionally, sales and marketing offices are located in
Australia, The Netherlands, and Singapore.
The company is one of two major producers in this marketplace, which
is also supplied by many niche companies.
Robinair -- The division is a global leader in the design,
manufacture, and marketing of specialty tools and equipment for the service
of stationary and mobile air conditioning and refrigeration systems. These
specialty tools range from mechanical hand-held tools, vacuum pumps and
recharging equipment and leak detection equipment to refrigerant recovery
and recycling equipment. The division also manufactures and markets engine
coolant recycling systems.
Approximately one-third of the division's sales are to the stationary,
or non-transportation, market which includes appliance, refrigeration, and
non-vehicular air conditioning repair. The division's manufacturing
facilities are located in the United States. Sales and marketing operations
exist in the United States, Canada, the United Kingdom, Switzerland, Spain,
and Australia.
ORIGINAL EQUIPMENT COMPONENTS
This segment includes five operating divisions that design, manufacture and
market component parts for light and heavy duty vehicle markets. The component
parts for the light and heavy duty vehicle market are composed of two primary
sectors: (i) the OEM sector and (ii) the vehicle maintenance and repair sector,
the so-called replacement market or aftermarket. The
U.S. -- Canadian -- European OEM sector is composed primarily of four classes of
customers: (a) U.S. manufacturers, dominated by General Motors, Ford and
Chrysler, but including other vehicle manufacturers such as Navistar
International and Mack Trucks; (b) foreign companies producing vehicles in North
America and Europe ("transplants"); (c) European vehicle manufacturers,
sometimes sourcing the company's products through assemblies; and (d) vehicle
manufacturers producing vehicles outside the U.S., Canada and Europe.
Aftermarket customers include the service organizations of OEMs, automotive
parts manufacturers and distributors, private brand distributors, and export
customers.
OEM contracts typically are from one to five years in length with the one
year contracts typically being renewed or renegotiated, depending on part
changes, in the ordinary course of business and the longer term contracts
typically containing material cost pass-through and productivity improvement
clauses. Sales of products to OEMs are affected, to a large extent, by vehicle
production which, in turn, is dependent on general economic conditions.
Historically, global vehicle production has been cyclical.
Aftermarket sales are tied to the age of vehicles in service and the need
for replacement parts. Sales of products to the aftermarket historically have
been less adversely affected by general economic conditions since vehicle owners
are more likely to repair vehicles than purchase new ones during recessionary
periods.
In its main product areas, the company competes with a small number of
principal competitors (including the OEMs in certain product categories), some
of which are larger in size and have greater financial resources than the
company. Competitive factors influencing sales include quality, technology,
service and price.
Acutex -- This division produces solenoid valves and related
assemblies for major vehicle and transmission manufacturers around the
world. Acutex's proprietary solenoid valve products are devices that
interface between the electronic signals of a vehicle's on-board computer
and the vehicle's hydraulic
4
6
systems. The company is using this technology in designing and
manufacturing solenoid valves for electronically controlled automatic
transmissions. The continued growth of electronically controlled automatic
transmissions should increase the company's sales of solenoid valves.
This division is also responsible for managing the company's 50%
investment in RSV, a Japanese company that utilizes the company's
technology to develop and manufacture solenoid valves for the Asia Pacific
Rim.
Contech -- This division produces precision aluminum, magnesium, and
zinc die cast parts for automotive steering and air conditioning systems,
and other assorted automotive/light truck uses. Primary products in this
area include steering column parts, rack-and-pinion components and other
castings such as components for air conditioning compressors, fuel systems,
clutches, and transmissions. Approximately one half of the castings are
machined by the division prior to delivery to customers.
Products are sold almost exclusively to automotive OEMs through the
division's marketing and sales personnel who are assisted by an outside
sales organization. The market is driven primarily by major OEM model and
assembly programs.
The division has recently completed a major investment in magnesium
die casting. The benefits of magnesium, including less weight and higher
strength-to-weight ratio, will increase the division's proportion of future
sales that are magnesium die castings.
Filtran -- This division is a leading global producer of automatic
transmission filters and other filter products and has a leading position
in the U.S. and Canadian OEM market and aftermarket. A typical transmission
filter product consists of a composite plastic/metal or all metal housing
which contains a highly specialized needled felt, polymesh, or metal filter
element designed to capture foreign particles.
The division sells filters directly to the worldwide OEM market and
aftermarket. Approximately two thirds of sales are to the aftermarket which
includes the OEM parts and service organizations as well as private brand
manufacturers and assorted transmission rebuilders, repackagers, and "quick
lube" shops.
The division participates in the worldwide OEM market in two different
methods. In Europe, the company's 50% owned joint venture, IBS Filtran,
manufactures and distributes filters to OEM customers. In the Asia Pacific
Rim, the division exports filters to OEM manufacturers in Japan, Korea and
Australia.
Hy-Lift -- This division is a major domestic supplier of a variety of
valve train components, including tappets, lash adjusters and roller rocker
arms. Sales are made to both the domestic OEM market and the domestic
aftermarket. Sales to the aftermarket, comprising approximately one third
of total sales, are made through several channels, including direct sales
to the OEM parts and service organizations and sales to private brand and
export customers.
Sealed Power Division -- The division is the leading North American
producer of automotive piston rings and among the largest independent
producers of cylinder sleeves for automotive and heavy duty engines. The
division also produces sealing rings for automatic transmissions.
There is a continuing trend in the automotive industry to reduce the
weight of vehicles, which increases gas mileage. This trend has resulted in
the development of aluminum engine blocks which require cast iron cylinder
sleeves. Engine blocks made of cast iron do not require a cylinder sleeve.
The division has been successful in obtaining contracts from the OEMs for
these high volume automotive cylinder sleeve applications.
The division's products are purchased by both automotive/light truck
and heavy duty engine OEMs. The division utilizes a technical sales force
that works with OEM engine and transmission designers to provide
high-quality rings and cylinder sleeves.
5
7
Approximately one-fourth of the division's sales are to the
aftermarket. In addition to OEM parts and service organizations, the
division supplies the aftermarket through two main distribution channels:
private brand organizations, which sell the products under their own labels
and a special export sales organization.
Sealed Power Technologies (Europe) Limited Partnership ("SP Europe"),
like its North American counterpart, Sealed Power division, is a leading
designer, producer and distributor of automotive piston rings and cylinder
sleeves. Its sales are predominately to European OEMs and to the European
aftermarket. SP Europe's primary European customers are VW, Federal Mogul,
Mahle, Kolbenschmidt, Alcan, Avdi, Volvo and Mercedes Benz. SP Europe was
created in June of 1991 after acquiring the European piston ring and
cylinder sleeve manufacturing business of TRW, Inc. In October of 1992,
Mahle GmbH contributed its Spanish piston ring operation to SP Europe in
exchange for a 30% ownership interest in SP Europe. The Sealed Power
division has managed SP Europe since its inception.
The division manages a 50% owned investment in Allied Ring
Corporation, a U.S. joint venture with Riken, which manufactures and
distributes piston rings to foreign companies producing vehicles in North
America ("transplants").
The division is also responsible for managing the company's 40% equity
investment in Promec, a Mexican company that manufactures and distributes
rings and sleeves in Mexico.
SPX CREDIT CORPORATION
This unit was created through the acquisition of Allen Group Leasing from
the Allen Group in June of 1993. This business provides U.S. and Canadian
customers, primarily of the Automotive Diagnostics division, with lease
financing as an alternative for purchasing electronic diagnostic, emissions
testing and wheel service equipment. Essentially all of the direct financing
leases are with companies or individuals operating within the automotive repair
industry and leases are five years in length or less.
INTERNATIONAL OPERATIONS
The company has wholly owned operations located in Australia, Brazil,
Canada, France, Germany, Italy, The Netherlands, Singapore, Spain, Switzerland
and the United Kingdom. The company also has a 70% ownership in SP Europe,
located in France, Germany and Spain.
Additionally, the company has the following non U.S. equity investments:
JATEK (50%). A Japanese company that sells various products into the
Asia Pacific Rim market, including many of the company's service products.
RSV (50%). A Japanese company that utilizes the company's technology
to develop and manufacture solenoid valves for the Asia Pacific Rim.
Promec (40%). A Mexican company which, through its subsidiaries,
manufactures and distributes piston ring and cylinder sleeve products in
Mexico.
IBS Filtran (50%). A German company that manufactures and distributes
automotive transmission filters to the European market.
The company licenses its piston ring technology to a Brazilian automotive
parts manufacturer and has a cross-licensing agreement for piston rings with
Riken Corporation.
The company's international operations are subject to the risk of possible
currency devaluation and blockage, nationalization or restrictive legislation
regulating foreign investments and other risks attendant to the countries in
which they are located.
6
8
The company's total export sales (for the three year period ending December
31, 1993), to both affiliated and unaffiliated customers, from the United
States, were as follows (historical basis):
1993 1992 1991
------ ----- -----
(IN MILLIONS)
Export sales:
To unaffiliated customers........................... $ 74.4 $64.0 $55.4
To affiliated customers............................. 34.9 33.8 34.4
------ ----- -----
Total....................................... $109.3 $97.8 $89.8
------ ----- -----
------ ----- -----
SPT's export sales have historically been less than 10% of its total sales.
RESEARCH AND DEVELOPMENT
The company is actively engaged in research and development programs
designed to improve existing products and manufacturing methods and to develop
new products. These engineering efforts encompass all of the company's products
with divisional engineering teams coordinating their resources.
Particular emphasis has been placed on the development of new products that
are compatible with, and build upon, the manufacturing and marketing
capabilities of the company. To assist the company in meeting customer
requirements, computer aided design (CAD) systems, that provide rapid
integration of computers in mechanical design, model testing and manufacturing
control, are used extensively.
The company expended approximately $17.6 million on research activities
relating to the development and improvement of its products in 1993, $14.7
million in 1992 and $13.1 million in 1991. There was no customer sponsored
research activity in these years. With the addition of SPT, research and
development expenditures will increase. SPT's research and development
expenditures were $3.4 million in 1993, $3.8 million in 1992 and $3.6 million in
1991.
PATENTS/TRADEMARKS
The company owns numerous domestic and foreign patents covering a variety
of its products and methods of manufacture and also owns a number of registered
trademarks. Although in the aggregate its patents and trademarks are of
considerable importance in the operation of its businesses, the company does not
consider any single patent or trademark to be of such material importance that
its absence would adversely affect the company's ability to conduct its
businesses as presently constituted.
RAW MATERIALS
The company's manufactured products are made predominately from iron,
steel, zinc, aluminum, magnesium, plastics and electronic components. These raw
materials are generally purchased from multiple sources of supply and the
company has not experienced any significant disruptions in its businesses due to
shortages.
OTHER MATTERS
At the end of 1993, the company's employment was 8600 persons, which
includes the employees of SPT and SP Europe. Approximately one-third of the
company's 5000 production and maintenance employees are covered by collective
bargaining agreements with various unions. The company has collective bargaining
agreements with Locals 637, 221, and 1071, International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America (UAW);
Shopmen's Local Union No. 473 of the International Association of Bridge,
Structural and Ornamental Iron Workers; District No. 9, International
Association of Machinists and Aerospace Workers (MAW); International Molders and
Allied Workers Union, AFL-CIO, Local No. 120; Local 7629 of the United Paper
International Union; Local 2492 International Association of Machinists &
Aerospace Workers (MAW); and Local 2074 of the International Brotherhood of
Electrical Workers. The collective bargaining agreements with UAW Locals 637,
221, and 1071 will expire on July 24,
7
9
1998, August 15, 1997, and March 3, 1995, respectively. The collective
bargaining agreement with MAW District 9 will expire on May 13, 1995; the
Molders Local 120 on May 15, 1995; the Shopmen's Local 473 on April 30, 1996.
The collective bargaining agreement with Local 7629 of the United Paper
International Union expires July 1, 1996. The collective bargaining agreement
with Local 2492 of MAW expires September 13, 1996. The collective bargaining
agreement with Local 2074 of the International Brotherhood of Electrical Workers
expires May 4, 1995. Management believes it has generally good relations with
its employees and anticipates that all of its collective bargaining agreements
will be extended or renegotiated in the ordinary course of business. Certain
contracts with OEM customers require the company to stockpile critical
components prior to the expiration of collective bargaining agreements.
Approximately 9% in 1993, 13% in 1992 and 9% in 1991 of the company's
consolidated sales were made to General Motors Corporation and its various
divisions, dealers and distributors. No other customer or group of customers
under common control accounted for more than 10% of consolidated sales for any
of these years. With the effect of the consolidation of SPT, the percentage
sales to General Motors will increase in the future. SPT's sales to General
Motors were 25% in 1993, 27% in 1992 and 31% in 1991. SPT's sales to Ford Motor
Company and its various divisions, dealers and distributors were 23% in 1993,
20% in 1992 and 15% in 1991. With the consolidation of SPT, sales to Ford should
exceed 10% of consolidated sales in the future.
The company does not believe that order backlog is a significant factor in
the specialty service tools and equipment sector. Within the original equipment
components sector, long term contracts and the related level of new vehicle
production are significant to future sales.
All of the company's businesses are required to maintain sufficient levels
of working capital to support customer requirements, particularly inventory.
Sales terms and payment terms are in line with the practices of the industries
in which they compete, none of which are unusual.
The majority of the company's businesses tend to be nonseasonal and closely
follow changes in vehicle design, vehicle production, and general economic
conditions. However, specific markets such as air conditioning service and
repair follow the seasonal trends associated with the weather (sales are
typically higher in spring and summer). Government regulations, such as the
Clean Air Act, can also impact the timing and level of certain specialty service
tool sales.
ITEM 2. PROPERTIES
UNITED STATES -- The principal properties used by the company for
manufacturing, administration and warehousing consist of 42 separate facilities
totaling approximately 3.8 million square feet. These facilities are located in
Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Ohio, and
Pennsylvania. All facilities are owned, except for 11, which are leased (all non
manufacturing). These leased facilities aggregate 442,000 square feet and have
an average lease term of 6 years.
The company also has 33 distribution and service centers located throughout
the United States for distribution and servicing of its Specialty Service Tools.
These distribution and service centers aggregate 190,000 square feet and all are
leased. No single distribution and service center is of material significance to
the company's business.
INTERNATIONAL -- The company owns approximately 150,000 square feet and
leases approximately 600,000 square feet of manufacturing, administration and
distribution facilities in Australia, Brazil, Canada, France, Germany, Italy,
The Netherlands, Singapore, Spain, Switzerland and the United Kingdom.
The company's properties used for manufacturing, administration and
warehousing are adequate to meet its needs as of December 31, 1993. The company
configures and maintains these facilities as required by their business use. At
December 31, 1993, the company does not have significant excess capacity at any
of its major utilized facilities, and utilized its manufacturing facilities,
taken as a whole, at approximately 75% of three shift capacity in 1993. A
vacated manufacturing facility in Arkansas was sold in early 1994. A vacated
administrative facility in Wisconsin (with three years remaining on its lease),
is currently being marketed for a sub-lease. Plans were announced during the
fourth quarter to close a small casting facility in Michigan. Products
manufactured at this facility will be produced in other facilities or
outsourced.
8
10
ITEM 3. LEGAL PROCEEDINGS
Certain claims, including environmental matters, suits and complaints
arising in the ordinary course of business, have been filed or are pending
against the company. In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a
significant effect on the financial position or results of operations of the
company if disposed of unfavorably. Additionally, the company has insurance to
minimize its exposures of this nature.
The company's operations and products are subject to federal, state and
local regulatory requirements relating to environmental protection. It is the
company's policy to comply fully with all such applicable requirements. As part
of its effort to comply, management has established an ongoing internal
compliance auditing program which has been in place since 1989. Based on current
information, management believes that the company's operations are in
substantial compliance with applicable environmental laws and regulations and
the company is not aware of any violation that could have a material adverse
effect on the business, financial condition or results of operations of the
company. There can be no assurance, however, that currently unknown matters, new
laws and regulations, or stricter interpretations of existing laws and
regulations will not materially affect the company's business or operations in
the future.
In addition, it is the company's practice to reduce use of environmentally
sensitive materials as much as possible. First, it reduces the risk to the
environment in that such use could result in adverse environmental effects
either from operations or utilization of the end product. Second, a reduction in
environmentally sensitive materials reduces the ongoing burden and resulting
cost of handling, controlling emissions, and disposing of wastes that may be
generated from such materials.
The company is also subject to potential liability for the costs of
environmental remediation. This liability may be based upon the ownership or
operation of industrial facilities where contamination may be found as well as
contribution to contamination existing at offsite, non-owned facilities. These
offsite remediation costs cannot be quantified with any degree of certainty. At
this time, management can estimate the environmental remediation costs only in
terms of possibilities and probabilities based on available information.
The company is involved as a potentially responsible party ("PRP") under
the Comprehensive, Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended, or similar state superfund statutes in eight active
proceedings involving off-site waste disposal facilities. At three of these
sites it has been established that the company is a de minimis contributor. A
determination has not been made with respect to the remaining five sites, but
the company believes that it will be found to be a de minimis contributor at
three of them. Based on information available to the Company, which in most
cases includes estimates from PRPs and/or federal or state regulatory agencies
for the investigation, clean up costs at those sites, data related to the
quantities and characteristics of materials generated at or shipped to each
site, the company believes that the costs for each site are not material and in
total the anticipated clean up costs of current PRP actions would not have a
material adverse effect on the Company's financial condition or operations.
In the case of contamination existing upon properties owned or controlled
by the company, the company has established reserves which it deems adequate to
meet its current remediation obligations.
There can be no assurance that the company will not be required to pay
environmental compliance costs or incur liabilities that may be material in
amount due to matters which arise in the future or are not currently known to
the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
9
11
ITEM -- EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth with respect to each executive officer or
other significant employee of the company, his name, age, all positions and
offices with the company held by him, the term during which he has been an
officer of the company and, if he has been an officer of the company for less
than five years, his business experience during the past five years.
EXECUTIVE
OFFICER
NAME AND AGE OFFICE SINCE
- ----------------------------------- -------------------------------------------- ---------
Dale A. Johnson (56)............... Chairman, Chief Executive Officer 1985
Curtis T. Atkisson, Jr. (60)....... President, Chief Operating Officer 1991(1)
Albert A. Zagotta (59)............. Executive Vice President 1994(2)
Roland Gerber (55)................. Group Vice President 1989
Robert C. Huff (44)................ Treasurer 1994(3)
Stephen A. Lison (53).............. Vice President, Human Resources 1989
James M. Sheridan (53)............. Vice President, Administration and General
Counsel 1976
John D. Tyson (56)................. Vice President, Corporate Relations 1988
R. Budd Werner (62)................ Vice President, Finance, Chief Financial
Officer 1981
- ---------------
See page 59 for a complete list of all executive compensation plans and
arrangements.
(1) Effective October 1991, Mr. Atkisson was elected President, Chief Operating
Officer. From May 1989 through September 1991, Mr. Atkisson was President,
Chief Executive Officer of SPT. Prior to 1989, Mr. Atkisson was a Group
Vice President of the company.
(2) Effective February 1994, Mr. Zagotta was elected Executive Vice President.
From October 1991 through February 1994, he served as President and Chief
Executive Officer of SPT. Prior to October 1991, he served as Vice
President, General Manager of the Sealed Power division.
(3) Effective February 1994, Mr. Huff was elected Treasurer. From April 1989
through February of 1994, he was Vice President, Finance of SPT.
10
12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The company's common stock is traded on the New York Stock Exchange and
Pacific Stock Exchange under the symbol "SPW".
Set forth below are the high and low sales prices for the company's common
stock as reported on the New York Stock Exchange composite transaction reporting
system and dividends paid per share for each quarterly period during the past
two years:
DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
1993
4th Quarter.................................... $18 1/2 $15 1/4 $ .10
3rd Quarter.................................... 18 7/8 15 3/8 .10
2nd Quarter.................................... 17 7/8 15 .10
1st Quarter.................................... 18 1/2 16 3/4 .10
1992
4th Quarter.................................... $21 $15 1/2 $ .10
3rd Quarter.................................... 23 15 .10
2nd Quarter.................................... 22 7/8 15 1/2 .10
1st Quarter.................................... 18 5/8 12 1/8 .10
The approximate number of record holders of the company's Common Stock as
of December 31, 1993 was 7,500.
The company is subject to a number of restrictive covenants under various
debt agreements. Please see Note 19 to the consolidated financial statements for
further discussion.
Future dividends will depend upon the earnings and financial condition of
the company and other relevant factors. The new revolving credit agreement
includes a covenant that limits dividends. Please see Note 23 to the
consolidated financial statements for further explanation. The company has no
present intention to discontinue its dividend policy and believes that dividends
will continue at current levels during 1994.
11
13
ITEM 6. SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues............................ $ 756.1 $801.2 $673.5 $708.2 $632.0
Operating income (loss)............. (42.9)(1) 49.1 (11.9)(4) 40.8 34.3
Interest expense, net............... (17.9) (15.1) (16.9) (17.7) (9.9)
Gain on sale of businesses.......... 105.4 -- -- -- 8.9(5)
Income (loss) before income taxes... 44.7 34.0 (28.8) 23.1 33.3
Income taxes........................ (29.5) (13.4) 7.2 (8.8) (12.7)
Income (loss) before cumulative
effect of change in accounting
methods and extraordinary loss.... $ 15.2 $ 20.6 $(21.6) $ 14.3 $ 20.6
Cumulative effect of change in
accounting methods, net of
taxes............................. (31.8)(2) (5.7)(2) -- -- --
Extraordinary loss, net of taxes.... (24.0)(3) -- -- -- --
Income (loss) from continuing
operations........................ $ (40.6) $ 14.9 $(21.6) $ 14.3 $ 20.6
Income from discontinued operations,
net of taxes...................... -- -- -- -- 57.7(6)
Net income (loss)................... $ (40.6) $ 14.9 $(21.6) $ 14.3 $ 78.3
Per share of common stock:
Income (loss) before cumulative
effect of change in accounting
methods and extraordinary loss.... $ 1.20 $ 1.48 $(1.56) $ 1.04 $ 1.45
Cumulative effect of change in
accounting methods, net of
taxes............................. (2.52) (0.41) -- -- --
Extraordinary loss, net of taxes.... (1.90) -- -- -- --
Income (loss) from continuing
operations, net of taxes.......... $ (3.22) $ 1.07 $(1.56) $ 1.04 $ 1.45
Income from discontinued operations,
net of taxes...................... -- -- -- -- 4.04
Net income (loss)................... $ (3.22) $ 1.07 $(1.56) $ 1.04 $ 5.49
Dividends paid...................... $ .40 $ .40 $ .70 $ 1.00 $14.10(7)
Other Financial Data:
Working Capital..................... $ 119.4 $182.2 $195.1 $249.8 $186.1
Total assets........................ 1,024.4 560.3 579.3 624.1 574.6
Long-term debt...................... 336.2 160.3 199.7 226.2 152.7
Shareholders' equity................ 145.4 185.5 180.7 210.1 202.1
Capital expenditures................ 15.1 20.4 19.4 26.7 41.0
Depreciation and amortization....... 24.4 25.3 23.8 19.9 19.7
- ---------------
(1) Includes restructuring charge of $27.5 million, $18.5 million aftertax and
$1.47 per share. Refer to Note 9 to the consolidated financial statements
for explanation.
(2) Refer to Note 2 to the consolidated financial statements for explanation.
(3) Refer to Note 8 to the consolidated financial statements for explanation.
(4) Includes special charge of $18.2 million, $14.7 million aftertax and $1.06
per share. Refer to Note 9 to the consolidated financial statements for
explanation.
(5) Represents gain on sale of five small non-core businesses.
(6) Includes a $50.7 million gain, net of income taxes, from the contribution of
operations to SPT.
(7) Includes special dividend of $13.00 per share.
12
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the company's consolidated
financial statements and the related footnotes.
OVERVIEW
Strategic Change -- The company completed several major transactions in
1993 which were designed to increase its focus upon two primary core markets,
specialty service tools and original equipment components for the motor vehicle
industry. These transactions were as follows:
-- Acquired the Allen Testproducts division and its related leasing
subsidiary, Allen Group Leasing, from The Allen Group in June.
-- Acquired Riken's 49% interest in SPT. SPT represents substantially
all of the company's Original Equipment Component segment.
-- Divested two divisions, SPR and Truth, that are no longer strategic
to the company's core markets.
As a result of these changes, the company's business is categorized into
two primary segments, Specialty Service Tools and Original Equipment Components.
Additionally, a lease financing segment, SPX Credit Corporation, supports the
Specialty Service Tools segment.
Specialty Service Tools -- Over the past 11 years, the company has made
significant investments in the specialty service tool market. The company
acquired Kent-Moore and Robinair in 1982, acquired OTC and Power Team in 1985,
acquired V.L. Churchill (United Kingdom) in 1985, acquired Bear Automotive in
1988, created Dealer Equipment and Services in 1989, acquired Miller Special
Tools in 1991 and acquired Allen Testproducts and Lowener (Germany) in 1993. The
specialty service tool market continues to be a source of opportunity as
customers' needs for products and services continue to expand due to the
increasing complexity of repairing motor vehicles. The company's acquisition of
Allen Testproducts has enhanced its offering of electronic diagnostic products.
Closely related to Specialty Service Tools, particularly electronic diagnostic
and wheel service equipment, the company also acquired Allen Group Leasing in
June. Now named SPX Credit Corporation, this lease financing operation provides
customers with a leasing option when purchasing higher dollar specialty service
equipment.
Revenues of Specialty Service Tools were $503.6 million in 1993, which
included seven months of Allen Testproducts. The 1993 operating loss of $11.7
million for Specialty Service Tools was significantly affected by the third
quarter $27.5 million pretax restructuring charge associated with the
acquisition of Allen Testproducts. The integration of Bear Automotive and Allen
Testproducts began with the acquisition in June and was approximately 75%
complete as of year-end 1993. In addition to the restructuring charge, which
covered facility and work force reduction expenses, other incremental costs have
been incurred during this transitional period. Management believes the
annualized cost savings will be in excess of $20 million once the integration is
completed by mid-1994.
Original Equipment Components -- During 1993, the company determined to
focus its position as an original equipment component supplier. As of December
31, 1993, the purchase of the other half of SPT enabled the company to increase
its focus on original equipment components. Combined with the company's majority
stake in SP Europe and its Acutex division, the company has a broad range of
products for both original equipment manufacturers and aftermarket customers.
Each of the Original Equipment Component segment's operating divisions have
achieved various OEM customer quality awards.
Pro forma 1993 sales of this segment are $458.8 million. Current U.S. motor
vehicle manufacturers' production forecasts for the next few years show
increased volumes, and signs of some economic recovery in Europe are
encouraging. Finally, the continued growth of electronically controlled
automatic transmissions should increase the company's sales of solenoid valves.
13
15
Pro forma operating income for the Original Equipment Components segment
was $18.1 million in 1993. In addition, it should be noted that in 1993; (a) a
$4.5 million charge for the closure of a manufacturing plant and the write down
of equipment was recorded; (b) substantial work force reductions and efficiency
improvements were completed at SP Europe; (c) negotiations were completed
limiting a significant portion of retirement health care costs; and (d) volume
increases at the solenoid valve facility improved fixed cost recovery at that
plant. Management believes that these actions will benefit future results of
operations.
SPX Credit Corporation -- Formed as a part of the acquisition of Allen
Group Leasing in June, this lease financing operation provides leasing
alternatives primarily to Automotive Diagnostics' customers. Pro forma 1993
leasing revenues were $15.7 million and operating income was $9.7 million.
Management believes that SPX Credit Corporation will continue to be a positive
factor in the sale of its electronic diagnostic and wheel service equipment.
Divestitures and Refinancing Plan -- The divestitures of the SPR and Truth
divisions were based on the belief that these operations were not strategically
related to either the Specialty Service Tools or Original Equipment Components
segments. The sale of these units provided proceeds of approximately $189
million, net of tax.
The company also established a new revolving credit facility of $250
million in March 1994 with a syndicate of banks. The bank credit facility,
coupled with the planned $260 million offering of senior subordinated notes
during the second quarter of 1994, will provide the company with a more
favorable debt maturity schedule. Management believes this debt capacity will
provide flexibility for future acquisitions and internal growth opportunities.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1992
Revenues
The following are revenues by business segment:
INCREASE
YEAR (DECREASE)
----------------- ------------------
1993 1992 AMOUNT PERCENT
------ ------ ------ -------
(DOLLARS IN MILLIONS)
Specialty Service Tools......................... $503.6 $539.6 $(36.0) (6.7)%
Original Equipment Components................... 26.6 15.2 11.4 75.0
SPX Credit Corporation.......................... 9.0 -- 9.0 --
Businesses Sold in 1993......................... 216.9 246.4 (29.5) (12.0)
------ ------ ------
Total................................. $756.1 $801.2 $(45.1) (5.6)
------ ------ ------
------ ------ ------
Total revenues for 1993 were lower than 1992 due primarily to lower
Specialty Service Tools revenues and reduced revenues from businesses which were
sold in the fourth quarter of 1993. These declines in revenues were offset by
increased revenues in the Original Equipment Components segment and the
inclusion of lease financing revenues since June 1993 when the SPX Credit
Corporation was formed.
Revenues of Specialty Service Tools were down $36.0 million principally
from reduced sales of refrigerant recovery and recycling systems. In 1992,
revenues benefited from approximately $60.0 million of incremental sales of
HFC134a refrigerant recovery and recycling systems to franchised automotive
dealerships as many original equipment manufacturers required their dealerships
to purchase this equipment. The balance of Specialty Service Tools revenues was
up in 1993 due to higher essential tool programs, improved general U.S. economic
conditions, increased sales of electronic hand-held diagnostic equipment and the
June 1993 acquisition of Allen Testproducts.
Revenues of Original Equipment Components were up significantly from 1992
as more automatic transmissions incorporated the company's electronic solenoid
valve. Management believes that revenues from these valves will continue to
increase as more automatic transmissions begin to incorporate these valves.
Beginning in 1994, revenues of SPT and SP Europe will be included in this
segment.
14
16
Gross Profit
Gross profit was $248.1 million, or 32.8% of revenues, in 1993 compared to
$268.0 million, or 33.5% of revenues, in 1992. The decrease in gross margin in
1993 relates to the reduction in higher margin refrigerant recovery and
recycling equipment sales and the related higher manufacturing volumes, certain
costs and redundancies incurred during the integration of Bear Automotive and
Allen Testproducts and increased sales of solenoid valves which carry a lower
gross margin. Inclusion of lease financing revenues increased the gross margin
in 1993, as such revenues do not have a related cost of sales. In 1992, the
effect of inventory reductions resulted in a $1.8 million decrease in costs
related to LIFO inventory liquidations compared to $0.5 million in 1993.
Selling, General and Administrative Expense
Selling, general and administrative expense ("SG&A") was $207.6 million, or
27.5% of revenues, in 1993 compared to $209.9 million, or 26.2% of revenues, in
1992. In 1993, expense was down from 1992 primarily due to the divestitures of
SPR and Truth in the fourth quarter and the impact of the new ESOP accounting
method. In 1993, the interest on the ESOP debt was classified as "interest
expense, net" ($3.9 million), whereas, in 1992, the majority of this amount was
included in SG&A. Offsetting these reductions was the acquisition of Allen
Testproducts in June, a business with relatively high SG&A as a percentage of
revenues.
Operating Income (Loss)
The following is operating income (loss) by business segment:
YEAR
----------------- INCREASE
1993 1992 (DECREASE)
------ ------ ----------
(DOLLARS IN MILLIONS)
Specialty Service Tools................................ $(11.7) $ 51.7 $(63.4)
Original Equipment Components.......................... (46.5) (7.0) (39.5)
SPX Credit Corporation................................. 5.5 -- 5.5
Businesses Sold in 1993................................ 25.2 21.5 3.7
General Corporate...................................... (15.4) (17.1) 1.7
------ ------ ----------
Total........................................ $(42.9) $ 49.1 $(92.0)
------ ------ ----------
------ ------ ----------
Overall operating income (loss) was significantly reduced by the $27.5
million restructuring charge recorded in 1993. Excluding this restructuring
charge, 1993 operating loss would have been $15.4 million compared to $49.1
million of income in 1992. This decrease is associated with lower sales of
refrigerant recovery and recycling systems and integration costs at Automotive
Diagnostics and SPT and SP Europe equity losses.
Specialty Service Tools incurred an $11.7 million loss in 1993, which
includes a $27.5 million restructuring charge for the combination of Bear
Automotive and Allen Testproducts into the new Automotive Diagnostics division
(see following paragraph). Excluding the restructuring charge, 1993 operating
income would have been $15.8 million compared to $51.7 million of income in
1992. This decrease is associated with lower sales of refrigerant recovery and
recycling systems and other integration costs at Automotive Diagnostics.
The $27.5 million restructuring charge to combine the businesses into the
Automotive Diagnostics division was recorded in the third quarter of 1993. Of
the $27.5 million restructuring charge, approximately $16.0 million relates to
work force reductions and associated costs. The combined businesses started with
approximately 2,200 employees. That number was reduced to 1,800 at December 31,
1993 and will be at approximately 1,700 by the end of the second quarter of
1994. The charge also included $9.3 million of facility duplication and shutdown
costs, including the write down of excess assets of $4.2 million (non-cash). The
balance of the reserves at December 31, 1993 was approximately $14.5 million,
which is principally required for remaining work force reduction and facility
closing costs.
15
17
Original Equipment Components' 1993 operating loss includes SPT equity
losses of $26.9 million and SP Europe equity losses of $21.5 million. Offsetting
these losses, to some extent, were the improved results of the Company's
electronic solenoid valve operation.
Interest Expense, net
Interest expense, net, was $17.8 million in 1993 compared to $15.1 million
in 1992. Interest costs have been decreasing since 1991 due to favorable rates
and overall lower average borrowing levels. In 1993, interest expense increased
by $3.9 million when compared to 1992 and 1991 levels as new accounting for the
company's ESOP now recognizes the interest element on the ESOP debt. Prior to
1993, this expense was classified as administrative expense. The interest
element on ESOP debt in 1992 and 1991, which was included in administrative
expense, was $4.1 million and $4.0 million, respectively.
Gain on Sale of Businesses
A $105.4 million pretax gain on the sales of the Sealed Power Replacement
division ($52.4 million) and the Truth division ($53 million) was recorded
during the fourth quarter. The operating results of these units were included
through their dates of divestiture, October 22, 1993 for SPR and November 5,
1993 for Truth. The combined aftertax gain was $64.2 million or $5.09 per share.
Provision (Benefit) for Income Taxes
The company's 1993 effective income tax rate for 1993 was 66% compared to
39.5% in 1992. The primary item affecting the 1993 rate was the inability to tax
benefit the $21.5 million of SP Europe's equity losses as its foreign
subsidiaries are in net operating loss carryforward positions. Also affecting
the 1993 rate were certain items within the Automotive Diagnostics restructuring
charge not being tax benefited and the cumulative effect of adjusting net
deferred tax liabilities for the 1993 change in the U.S. federal income tax rate
from 34% to 35%. The 1992 rate reflects a normal effective income tax rate.
Cumulative Effect of Change in Accounting Methods, net of Taxes
In 1993 and 1992, the company adopted three new accounting methods relating
to its ESOP, postretirement benefits other than pensions, and income taxes. See
Note 2 to the consolidated financial statements for a detailed explanation of
these changes.
Extraordinary Loss, net of Taxes
During the fourth quarter of 1993, the company determined to refinance both
SPX and SPT debt. As a result, the company recorded an extraordinary charge of
$37.0 million ($24.0 million aftertax) for costs associated with the early
retirement of $415.0 million (principal amount) of debt expected to be
refinanced. The aggregate amount to retire this indebtedness, including existing
unamortized debt placement fees, will be $452.0 million.
FISCAL YEAR ENDED DECEMBER 31, 1992 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1991
Revenues
The following are revenues by business segment:
INCREASE
YEAR (DECREASE)
----------------- ------------------
1992 1991 AMOUNT PERCENT
------ ------ ------ -------
(DOLLARS IN MILLIONS)
Specialty Service Tools.......................... $539.6 $430.1 $109.5 25.5%
Original Equipment Components.................... 15.2 7.8 7.4 94.9
Businesses Sold in 1993.......................... 246.4 235.6 10.8 4.6
------ ------ ------
Total.................................. $801.2 $673.5 $127.7 19.0
------ ------ ------
------ ------ ------
16
18
Overall revenues increased principally from increases within the Specialty
Service Tools segment.
Specialty Service Tools revenues increased over 1991 due to an increase of
approximately $100 million in sales of refrigerant recovery and recycling
systems. The segment also benefited from higher sales to franchised vehicle
dealerships, the result of new model vehicle introductions and improved general
economic conditions.
Revenues of Original Equipment Components were up significantly from 1991
as more automatic transmissions incorporated the company's electronic solenoid
valve.
Gross Profit
Gross profit was $268.0 million, or 33.5% of revenues, in 1992 compared to
$211.8 million, or 31.5% of revenues, in 1991. This improvement as a percentage
of revenues was primarily attributable to higher production activity and related
cost absorption, previous cost reduction programs (including the closure of a
plant in Arkansas), and general sales mix shift towards higher margin products
than in 1991. In 1992, the effect of inventory reductions resulted in a $1.8
million decrease in costs related to LIFO inventory liquidation.
Selling, General and Administrative Expense
Selling, general and administrative expense was $209.9 million, or 26.2% of
revenues, in 1992 compared to $194.0 million, or 28.8% of revenues, in 1991. The
primary reason for the increase was the variable selling costs associated with
the higher revenues. However, several other factors also contributed to the
increase, including increases in health care costs, costs associated with an
unsuccessful acquisition effort and the higher current year costs associated
with adoption of SFAS No. 106 -- "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
Operating Income (Loss)
The following is operating income (loss) by business segment:
YEAR
----------------- INCREASE
1992 1991 (DECREASE)
------ ------ ----------
(DOLLARS IN MILLIONS)
Specialty Service Tools................................ $ 51.7 $ 3.3 $ 48.4
Original Equipment Components.......................... (7.0) (15.0) 8.0
Businesses Sold in 1993................................ 21.5 20.0 1.5
General Corporate...................................... (17.1) (20.2) 3.1
------ ------ ----------
Total........................................ $ 49.1 $(11.9) $ 61.0
------ ------ ----------
------ ------ ----------
Operating losses in 1991 were impacted by a $18.2 million special charge
(discussed below). Excluding this special charge, 1991 operating income would
have been $6.3 million compared to $49.1 million in 1992. The significant
increase was principally due to income related to the incremental sales of
refrigerant recovery and recycling systems as well as generally improved sales
of specialty service tools.
Specialty Service Tools' 1991 operating income was impacted by a special
charge of $12.5 million related to organizational and facility consolidation of
two operating units and the writeoff of certain capitalized computer software
development costs due to conceptual changes in future product offerings. Without
the special charge, 1991 operating income would have been $15.9 million compared
to $51.7 million in 1992. In 1992, operating income increased primarily from
approximately $100 million of incremental sales of refrigerant recovery and
recycling systems as well as generally improved sales of specialty service
tools.
Original Equipment Components' operating losses decreased due to
improvements at the company's solenoid valve operation and due to reduced SPT
equity losses (a $2.4 million loss in 1992 compared to an $8.5 million loss in
1991). Also, 1991 operating losses included a $2.6 million special charge for
the start-up related reduced value of RSV, a joint venture with Riken, which
produces solenoid valves for the Asia Pacific Rim market.
17
19
General corporate expenses in 1991 included a $3.0 million special charge
related to losses on certain project development investments and notes
receivable related to previous business unit sales.
Interest Expense, net
Interest expense, net, was $15.1 million in 1992 and $16.8 million in 1991
due primarily to lower short-term interest rates.
Provision (Benefit) for Income Taxes
The company's 1992 effective income tax rate was 39.5% compared to a 25.0%
benefit in 1991. The 1992 rate represents a normal effective income tax rate.
The 1991 rate of benefit was the result of the company not recognizing a
deferred tax benefit on some cost elements included in the special charge
recorded that year, as future tax realization was uncertain.
Cumulative Effect of Change in Accounting Methods, net of Taxes
In 1992, the company adopted two new accounting methods relating to
postretirement benefits other than pensions, and income taxes. See Note 2 to the
consolidated financial statements for a detailed explanation of these changes.
LIQUIDITY AND FINANCIAL CONDITION
The company's liquidity needs arise primarily from capital investment in
new equipment, funding working capital requirements and meeting interest costs.
As a result of the company's acquisition activity in 1993, the company will
be more leveraged than in the past. This financial leverage will require
management to focus on cash flows to meet higher interest costs and to maintain
dividends. Management believes that operations and the credit arrangements
established will be sufficient to supply the future funds needed by the company.
Management also believes that improvements in operations accomplished in
1993, coupled with completion of other cost reduction activities begun in 1993,
will improve the cash flows of the company.
Cash Flow
YEAR
----------------------------
1993 1992 1991
------ ------ ------
(IN MILLIONS)
Cash flows from operating activities..................... $ 25.3 $ 67.5 $ 67.4
Cash flows from investing activities..................... 44.3 (24.9) (34.9)
Cash flows from financing activities..................... 38.5 (44.0) (33.9)
------ ------ ------
Net cash flow.................................. $108.1 $ (1.4) $ (1.4)
------ ------ ------
------ ------ ------
Operating cash flow was significantly lower in 1993 than in 1992 due to
lower operating earnings, the cash utilization of the Automotive Diagnostics
division restructuring reserve, higher tax payments and increases in the amount
of lease receivables.
Cash flows from investing activities in 1993 reflected the net proceeds
from the divestiture of SPR and Truth of approximately $189 million and the
purchase of Allen Testproducts and Allen Group Leasing for approximately $102
million. In addition, 1993 included $19.9 million of advances to SP Europe prior
to it being consolidated into the company's balance sheet compared to $3.1
million in 1992. In 1991, the $12.1 million purchase of Miller Special Tools and
$5.0 million invested in SPT were included.
Cash flows from financing activities reflected $37.7 million of debt
reduction in 1992 compared to $44.0 million of additional borrowings in 1993. In
1991 a $24.2 million debt reduction was achieved.
18
20
The resulting $108.1 million in 1993 cash flow was reflected in the
year-end cash and temporary cash investment balance. A significant portion of
this cash balance was utilized during the first quarter of 1994 to complete the
acquisition of SPT and to refinance certain SPX debt.
Capitalization
DECEMBER 31
-----------------
1993 1992
------ ------
(IN MILLIONS)
Notes payable and current maturities of long-term debt............. $ 94.0 $ 14.0
Long-term debt..................................................... 336.2 160.3
------ ------
Total Debt............................................... $430.2 $174.3
Shareholders' equity............................................... 145.4 185.5
------ ------
Total Capitalization............................................... $575.6 $359.8
------ ------
------ ------
Total debt to capitalization ratio................................. 74.7% 48.4%
At December 31, 1993, the company's total debt was composed of existing SPX
debt of $220.0 million and of SPT debt of $210.2 million. In March 1994, the
company extinguished approximately $205 million of the SPX debt by utilizing its
existing cash balance and a portion of the new $250 million revolving credit
facility. As of March 1994, the SPT debt remains outstanding.
In March 1994, the company initiated the process to issue $260 million in
senior subordinated notes. The issuance is expected to be completed before the
end of the second quarter of 1994. At that time, the outstanding SPT debt will
be extinguished using the proceeds from this offering. The December 31, 1993
unaudited pro forma presentation that follows assumes that both the revolving
credit facility and the senior subordinated notes were available (in millions):
CASH DEBT
------ -------
Actual at December 31, 1993...................................... $117.8 $ 430.2
Payment to purchase 49% of SPT................................. (39.0) --
Transaction and early extinguishment fees...................... (26.6) --
Use of existing cash to pay SPX debt........................... (39.5) (39.5)
Payment of SPX debt with new revolver.......................... -- (165.3)
Borrowings under new revolver.................................. -- 165.3
------ -------
Pro forma December 31, 1993 after Bank borrowings................ $ 12.7 $ 390.7
Transaction and early extinguishment fees paid using new
revolver.................................................... -- 19.5
Payment of SPT debt............................................ -- (210.2)
Reduction of new revolver...................................... -- (49.8)
Proceeds from sale of senior subordinated notes................ -- 260.0
------ -------
Pro forma December 31, 1993 after senior subordinated notes...... $ 12.7 $ 410.2
------ -------
------ -------
On an unaudited pro forma basis, the following summarizes the debt
outstanding and unused credit availability:
UNUSED
TOTAL AMOUNT CREDIT
COMMITMENT OUTSTANDING AVAILABILITY
---------- ----------- ------------
(IN MILLIONS)
Revolving Credit.................................... $225.0 $ 135.0 $ 90.0
Senior Subordinated Notes........................... 260.0 260.0 --
Industrial Revenue Bonds............................ 15.2 15.2 --
---------- ----------- ------
Total..................................... $500.2 $ 410.2 $ 90.0
---------- ----------- ------
---------- ----------- ------
19
21
After completion of this refinancing, management believes that the
additional availability of borrowings is sufficient to meet operational cash
requirements, working capital requirements and capital expenditures planned for
1994.
If the notes are not issued, the revolving credit facility commitment will
remain at $250 million and be secured by the company's assets (excluding SPT)
and the SPT debt will remain outstanding. The combination of the unused SPX
revolver availability of $85 million and SPT unused credit availability of $46
million at December 31, 1993, would be sufficient to cover the company's 1994
operational cash requirements, working capital requirements and capital
expenditures.
Capital Expenditures
Capital expenditures were $15.1 million in 1993, $20.4 million in 1992 and
$19.4 million in 1991. Management expects to continue to incur incremental
capital expenditures to develop new products, improve product and service
quality, and expand the business. With the consummation of the purchase of SPT,
capital expenditures will increase due to SPT's capital intensity. SPT's capital
expenditures, net were $17.8 million in 1993, $12.9 million in 1992 and $13.1
million in 1991. Capital expenditures planned in 1994 for the company (including
SPT) are approximately $45 million. Significant projects include expanded
cylinder sleeve manufacturing capabilities, an additional solenoid valve
production line and a facility expansion at a major manufacturing plant.
Management estimates that annual capital expenditures of approximately $15
million are required to maintain the company's (including SPT) current
operations.
Acquisitions and Divestitures
After the acquisition and divestiture activity in 1993, management does not
foresee any significant acquisitions or divestitures. Flexibility is available
under the company's new revolving credit agreement to allow for strategically
oriented acquisitions that directly complement the company's existing
businesses.
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
The majority of the company's revenues are not subject to seasonal
variation. Revenues of the Original Equipment Components segment are
predominantly dependent upon domestic and foreign vehicle production which is
cyclical and dependent on general economic conditions and other factors.
Revenues of the Specialty Service Tools segment are dependent upon the frequency
of new vehicle introductions and the general economic status of vehicle
dealerships and aftermarket maintenance facilities. These factors can,
therefore, affect the company's working capital requirements. However, because
the company receives production forecasts and new vehicle introduction
information from original equipment manufacturers, the company is able to
anticipate and manage these requirements.
IMPACT OF INFLATION
The company believes that inflation has not had a significant impact on
operations during the period 1991 through 1993 in any of the countries in which
the company operates.
OTHER MATTERS
Accounting Pronouncements -- As of the beginning of 1994, the company must
adopt Statement of Financial Accounting Standards, No. 112, "Employers'
Accounting for Postemployment Benefits." This standard requires that the cost of
benefits provided to former or inactive employees be recognized on the accrual
basis of accounting. The company does not anticipate that this standard will
materially impact its financial position or results of operations upon adoption.
Automotive Diagnostics -- At December 31, 1993, $74 million of goodwill
relates to the Automotive Diagnostics division (which is composed of Bear
Automotive and Allen Testproducts, which was acquired in 1993). This division
has incurred significant operating losses in 1993 and in prior years. The
company projects that, in the near future, the cost savings, market synergies
and other factors which, in part, will be realized
20
22
from the Bear Automotive and Allen Testproducts combination will result in
non-discounted operating income sufficient to exceed goodwill amortization.
However, should such projections require downward revision based on changed
events or circumstances, this division's goodwill may require writedown.
Although having no cash flow impact, the resulting charge, if any, could
materially reduce the company's future reported results of operations and
shareholders' equity. At this time, based upon present information, projections
and strategic plans, the company has concluded that there has been no permanent
impairment of the Automotive Diagnostic division's tangible or intangible
assets.
Tax Settlement -- During the fourth quarter of 1993, the company settled a
dispute with the Internal Revenue Service regarding the company's tax deferred
treatment of the 1989 transaction in which several operating units were
contributed to SPT. The settlement of approximately $5 million in tax eliminates
the IRS contention that one-half of the 1989 transaction was currently taxable.
The settlement and interest will be paid during the second quarter of 1994 and
is adequately provided for in the company's deferred income tax accounts.
Actuarial Discount Rate -- At year-end 1993, the company (and SPT) reduced
the discount rate used for computation of pension and other postretirement
benefits to 7.5% from the previous 8.25%. This assumption change had no effect
on 1993 results of operations, but will increase expense in the future. The
company does not expect the increase to be material as certain other actuarial
assumptions, including salary growth and medical trend rates, were also modified
to reflect current experience. The future discount rate is subject to change as
long-term interest rates and other such factors warrant.
Environmental -- The company's operations and products are subject to
federal, state and local regulatory requirements relating to environmental
protection. It is the company's policy to comply fully with all such applicable
requirements. As part of its effort to comply, management has established an
ongoing internal compliance auditing program which has been in place since 1989.
Based on current information, management believes that the company's operations
are in substantial compliance with applicable environmental laws and regulations
and the company is not aware of any violation that could have a material adverse
effect on the business, financial condition or results of operations of the
company. There can be no assurance, however, that currently unknown matters, new
laws and regulations, or stricter interpretations of existing laws and
regulations will not materially affect the company's business or operations in
the future. See Note 18 to the consolidated financial statements for further
discussion.
Foreign Net Operating Loss Carryforwards -- The company has foreign net
operating loss carryforwards ("NOLs") of approximately $32.5 million as of
December 31, 1993. These NOLs are available to offset applicable future foreign
taxable income and, for the most part, expire in years after 1996. These NOLs
have been fully reserved through the valuation allowance due to uncertainty
regarding the ability to realize these tax assets.
21
23
SPX CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
Report of Independent Public Accountants.............................................. 23
Consolidated Financial Statements --
Consolidated Balance Sheets -- December 31, 1993 and 1992........................... 24
Consolidated Statements of Income for the three years ended December 31, 1993....... 25
Consolidated Statements of Shareholders' Equity for the three years ended December
31, 1993......................................................................... 26
Consolidated Statements of Cash Flows for the three years ended December 31, 1993... 27
Notes to Consolidated Financial Statements.......................................... 28
Schedules omitted
No schedules are submitted because they are not applicable or not required or
because the required information is included in the consolidated financial
statements or notes thereto.
22
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, 1993
and 1992, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SPX Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1993, the company changed its method of accounting for its Employee
Stock Ownership Plan and Sealed Power Technologies Limited Partnership changed
its method of accounting for postretirement benefits other than pensions and
effective January 1, 1992, the company changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
March 25, 1994.
23
25
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
1993 1992
--------- --------
(DOLLARS IN THOUSANDS)
CURRENT ASSETS:
Cash and temporary cash investments................................ $ 117,843 $ 9,729
Receivables (Note 12).............................................. 123,081 84,931
Lease finance receivables -- current portion (Note 21)............. 33,834 --
Inventories (Note 13).............................................. 159,223 171,622
Deferred income tax asset and refunds (Note 14).................... 54,489 18,601
Prepaid and other current assets................................... 29,726 22,796
--------- --------
Total current assets....................................... $ 518,196 $307,679
INVESTMENTS (Note 15)................................................ 13,446 2,156
PROPERTY, PLANT, AND EQUIPMENT, at cost (Note 16).................... $ 367,832 $218,105
Less: Accumulated depreciation..................................... 169,687 101,310
--------- --------
Net property, plant, and equipment.............................. $ 198,145 $116,795
OTHER ASSETS......................................................... 39,452 38,835
LEASE FINANCE RECEIVABLES -- LONG-TERM (Note 21)..................... 51,013 --
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED (Note 17)....... 204,149 94,863
--------- --------
TOTAL ASSETS......................................................... $1,024,401 $560,328
--------- --------
--------- --------
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt (Note 19)... $ 93,975 $ 13,999
Accounts payable................................................... 62,968 49,956
Accrued liabilities (Note 27)...................................... 229,998 54,177
Income taxes payable (Note 14)..................................... 11,864 7,375
--------- --------
Total current liabilities.................................. $ 398,805 $125,507
LONG-TERM LIABILITIES (Note 10)...................................... 123,235 18,931
SPT EQUITY LOSSES IN EXCESS OF INVESTMENT (Note 5)................... -- 15,904
DEFERRED INCOME TAXES (Note 14)...................................... 20,787 54,176
COMMITMENTS AND CONTINGENCIES (Note 18)..............................
LONG-TERM DEBT (Note 19)............................................. 336,187 160,320
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, authorized 3,000,000 shares; no
shares issued (Note 20)......................................... -- --
Common stock, $10 par value, authorized 50,000,000 shares; issued
15,555,835 in 1993 and 15,535,978 in 1992 (Note 20)............. 155,558 155,360
Paid in capital.................................................... 58,926 60,199
Retained earnings.................................................. 20,282 65,732
--------- --------
$ 234,766 $281,291
LESS: Common stock held in treasury (Note 20)...................... 50,000 50,000
Unearned compensation -- ESOP (Note 10).................... 35,900 44,181
Minority interest (Note 9)................................. 1,080 --
Cumulative translation adjustments......................... 2,399 1,620
--------- --------
Total shareholders' equity................................. $ 145,387 $185,490
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $1,024,401 $560,328
--------- --------
--------- --------
The accompanying notes are an integral part of these statements.
24
26
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
REVENUES (Note 3)......................................... $ 756,145 $801,169 $673,468
COSTS AND EXPENSES:
Cost of products sold................................... 508,032 533,169 461,626
Selling, general, and administrative expense............ 207,607 209,945 193,943
Other expense, net...................................... 7,524 6,594 3,046
Restructuring and special charges (Note 9).............. 27,500 -- 18,200
SPT equity losses (Note 5).............................. 26,845 2,407 8,532
SP Europe equity losses (Note 15)....................... 21,500 -- --
--------- -------- --------
OPERATING INCOME (LOSS)................................... $ (42,863) $ 49,054 $(11,879)
Interest expense, net................................... 17,882 15,061 16,853
(Gain) on sale of businesses (Note 6)................... (105,400) -- --
--------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHODS AND EXTRAORDINARY LOSS..... $ 44,655 $ 33,993 $(28,732)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 14)............ $ 29,455 $ 13,433 $ (7,172)
--------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHODS AND EXTRAORDINARY LOSS............... $ 15,200 $ 20,560 $(21,560)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHODS, NET
OF TAXES (Note 2).................................... $ (31,800) $ (5,700) $ --
EXTRAORDINARY LOSS, NET OF TAXES (Note 8)............... $ (24,000) $ -- $ --
--------- -------- --------
NET INCOME (LOSS)......................................... $ (40,600) $ 14,860 $(21,560)
--------- -------- --------
--------- -------- --------
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Before cumulative effect of change in accounting methods
and extraordinary loss............................... $ 1.20 $ 1.48 $ (1.56)
Cumulative effect of change in accounting methods,
net of taxes......................................... (2.52) (0.41) --
Extraordinary loss, net of taxes........................ (1.90) -- --
--------- -------- --------
Net income (loss)....................................... $ (3.22) $ 1.07 $ (1.56)
--------- -------- --------
--------- -------- --------
Weighted average number of common shares outstanding (Note
1)...................................................... 12,604,000 13,856,000 13,828,000
The accompanying notes are an integral part of these statements.
25
27
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON
STOCK $10 PAID IN RETAINED
PAR VALUE CAPITAL EARNINGS OTHER
--------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREVIOUSLY REPORTED BALANCE, DECEMBER 31, 1990... $ 154,585 $59,976 $ 93,453 $(91,530)
1989 and 1990 restatement (Note 5)............. -- -- (6,378) --
--------- ------- -------- --------
RESTATED BALANCE, DECEMBER 31, 1990.............. $ 154,585 $59,976 $ 87,075 $(91,530)
Net loss....................................... -- -- (21,560) --
Cash dividends ($.70 per share)................ -- -- (9,679) --
Earned ESOP shares............................. -- -- -- 1,823
Tax benefit on dividends paid to ESOP trust.... -- -- 378 --
Translation adjustment......................... -- -- -- (492)
Vesting of restricted stock.................... -- -- -- 113
Issuance of restricted stock................... 120 32 -- (152)
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1991....................... $ 154,705 $60,008 $ 56,214 $(90,238)
Net income..................................... -- -- 14,860 --
Cash dividends ($.40 per share)................ -- -- (5,541) --
Net shares sold under stock option plans....... 655 191 -- --
Earned ESOP shares............................. -- -- -- 2,044
Tax benefit on dividends paid to ESOP trust.... -- -- 199 --
Translation adjustment......................... -- -- -- (7,742)
Vesting of restricted stock.................... -- -- -- 135
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1992....................... $ 155,360 $60,199 $ 65,732 $(95,801)
Net loss....................................... -- -- (40,600) --
Cash dividends ($.40 per share)................ -- -- (5,040) --
Net shares sold under stock option plans....... 198 82 -- --
Earned ESOP shares............................. -- (1,355) -- 3,046
Tax benefit on dividends paid to ESOP trust.... -- -- 190 --
Minority interest in SP Europe................. -- -- -- (1,080)
Translation adjustment......................... -- -- -- (779)
Cumulative effect of change in ESOP accounting
method, net of taxes (Note 2)............... -- -- -- 5,100
Vesting of restricted stock.................... -- -- -- 135
--------- ------- -------- --------
BALANCE, DECEMBER 31, 1993....................... $ 155,558 $58,926 $ 20,282 $(89,379)
--------- ------- -------- --------
--------- ------- -------- --------
The accompanying notes are an integral part of these statements.
26
28
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
---------------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES: (Note 22)............. $ 25,285 $ 67,489 $ 67,449
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of Miller Tools....................... $ -- $ -- $(12,100)
Investment in SPT........................................... -- -- (5,000)
Investment in SP Europe..................................... (19,900) (3,117) (1,272)
Investment in RSV........................................... -- (2,618) --
Payments for purchase of ATP and AGL........................ (101,957) -- --
Payments for purchase of Lowener GmbH....................... (7,014) -- --
Net proceeds from sale of SPR division...................... 117,516 -- --
Net proceeds from sale of Truth division.................... 71,562 -- --
Capital expenditures........................................ (15,116) (20,351) (19,428)
Sale of property, plant and equipment, net.................. (797) 1,169 2,874
--------- -------- --------
Net cash provided (used) for investing activities........... $ 44,294 $(24,917) $(34,926)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of credit agreement.... $ (17,000) $(19,000) $(20,000)
Long-term borrowings........................................ 19,937 -- --
Payments of long-term debt.................................. (12,207) (16,544) (4,493)
Increase (decrease) in notes payable and current maturities
of long-term debt......................................... 53,283 (2,141) 244
Dividends paid.............................................. (5,040) (5,541) (9,679)
--------- -------- --------
Net cash provided (used) for financing activities........... $ 38,973 $(43,226) $(33,928)
--------- -------- --------
Net cash provided (used).................................... $ 108,552 $ (654) $ (1,405)
--------- -------- --------
Effect of exchange rate changes on cash..................... $ (438) $ (757) $ --
--------- -------- --------
Net increase (decrease) in cash and temporary cash
investments............................................... $ 108,114 $ (1,411) $ (1,405)
Cash and temporary cash investments, beginning of period.... 9,729 11,140 12,545
--------- -------- --------
Cash and temporary cash investments, end of period.......... $ 117,843 $ 9,729 $ 11,140
--------- -------- --------
--------- -------- --------
Supplemental disclosure of cash flows information:
Cash payments for interest................................ $ 18,347 $ 16,124 $ 16,425
Cash payments (refunds), net for income taxes............. $ 40,454 $ 110 $ (2,040)
The accompanying notes are an integral part of these statements.
27
29
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The accounting and financial policies which affect significant elements of
the consolidated financial statements of SPX Corporation (the "company") and
which are not apparent on the face of the statements, or in other notes to the
consolidated financial statements, are described below.
Restatement -- As a result of the company's purchase of Riken Corporation's
interest in Sealed Power Technologies Limited Partnership ("SPT") as of
December 31, 1993, prior years' consolidated financial statements have been
restated to reflect the company's 49% share of SPT's earnings or losses for
prior years (see Note 5).
Consolidation -- The consolidated financial statements include the accounts
of the company and all of its majority-owned subsidiaries after the
elimination of all significant intercompany accounts and transactions.
Foreign Currency Translation -- Translation of significant subsidiaries
results in unrealized translation adjustments being reflected as cumulative
translation adjustment in shareholders' equity.
Lease Finance Income Recognition -- The company's lease financing
operation, SPX Credit Corporation, uses the direct financing method of
accounting for leases. Under this method, the excess of future lease
payments and estimated residual value over the cost of equipment leased is
recorded as unearned income and is recognized over the life of the lease by
the effective interest method.
Deferred Service Revenue -- Revenue from service contracts and long-term
maintenance arrangements has been deferred and will be recognized as
revenue on a pro rata basis over the agreement periods.
Research and Development Costs -- The company expenses currently all costs
for development of products. Research and developments costs were $17.6
million in 1993, $14.7 million in 1992, and $13.1 million in 1991.
Earnings Per Share -- Primary earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding.
Common shares outstanding includes issued shares less shares held in
treasury and, in 1993, unallocated and uncommitted shares held by the ESOP
trust. The exclusion of unallocated and uncommitted shares held by the ESOP
trust in 1993 is due to the company's adoption of Statement of Position
93-6 (see Note 2). Prior to 1993, unallocated and uncommitted shares held
by the ESOP trust were included in weighted average number of common shares
outstanding used for calculating earnings per share. Average weighted
unallocated and uncommitted shares in the ESOP trust were 1,361,000 shares
at the end of 1992 and 1,476,000 shares at the end of 1991. The potential
dilutive effect from the exercise of stock options is not material.
(2) CHANGES IN ACCOUNTING METHODS
In 1993 and 1992, the company adopted three new accounting methods relating
to its Employee Stock Ownership Plan ("ESOP"), postretirement benefits, and
income taxes. The effect of the change to these new accounting methods has been
reflected in the consolidated statements of income as "Cumulative effect of
change in accounting methods, net of taxes."
Effective January 1, 1993, the company elected to adopt new accounting for
its ESOP in accordance with Statement of Position 93-6 of the Accounting
Standards Division of the American Institute of Certified Public Accountants,
issued in November of 1993. As part of this change, the company recorded a one
time cumulative charge of $5.1 million pretax, or $3.3 million aftertax. This
charge recognizes the cumulative difference of expense since the inception of
the ESOP until January 1, 1993 to reflect the shares allocated
28
30
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
method of accounting for ESOPs. As the company adopted this accounting change in
the fourth quarter of 1993, previously reported 1993 quarterly information has
been restated to reflect the change effective January 1, 1993. See Note 10 for
further discussion of the effect of this change.
Effective January 1, 1993, SPT adopted Statement of Financial Accounting
Standards (SFAS) No. 106 -- "Employers' Accounting for Postretirement Benefits
Other Than Pensions", using the immediate recognition transition option. SFAS
No. 106 requires recognition, during the employees' service with the company, of
the cost of their retiree health and life insurance benefits. At that date, the
full accumulated postretirement benefit obligation was $89.5 million pretax. The
company recorded its 49% share of this transition obligation, $28.5 million, net
of deferred taxes of $15.4 million in the first quarter.
Effective January 1, 1992, the company adopted SFAS No. 106 using the
immediate recognition transition option. At January 1, 1992, the accumulated
postretirement benefit obligation was $16.8 million and was recorded as a pretax
transition obligation. The decrease in net earnings and shareholders' equity was
$10.7 million after a deferred tax benefit of $6.1 million.
Effective January 1, 1992, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax balances are stated at tax rates expected to be in effect
when taxes are actually paid or recovered. The cumulative effect of adoption as
of January 1, 1992 was a $5.0 million aftertax benefit.
As of the beginning of 1994, the company must adopt Statement of Financial
Accounting Standards, No. 112, "Employers' Accounting for Postemployment
Benefits." This standard requires that the cost of benefits provided to former
or inactive employees be recognized on the accrual basis of accounting. The
company does not anticipate that this standard will materially impact its
financial position or results of operations upon adoption.
29
31
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(3) SEGMENT AND GEOGRAPHIC INFORMATION
The company is comprised of three business segments. Specialty Service
Tools includes operations that design, manufacture and market a wide range of
specialty service tools and diagnostic equipment primarily to the global motor
vehicle industry. Original Equipment Components includes operations that design,
manufacture and market component parts for light and heavy duty vehicle markets.
SPX Credit Corporation, a lease financing operation, provides Specialty Service
Tools customers with a leasing option for purchasing more expensive diagnostic
testing, emission testing, and wheel service equipment. SPX Credit Corporation
was created with the purchase of Allen Group Leasing in June of 1993.
BUSINESS SEGMENTS 1993 1992 1991
- -------------------------------------------------------------- --------- -------- --------
(IN THOUSANDS)
Revenues:
Specialty Service Tools..................................... $ 503,600 $539,619 $430,074
Original Equipment Components............................... 26,657 15,154 7,764
SPX Credit Corporation...................................... 8,974 -- --
Businesses sold in 1993..................................... 216,914 246,396 235,630
--------- -------- --------
Total............................................... $ 756,145 $801,169 $673,468
--------- -------- --------
--------- -------- --------
Operating income (loss):
Specialty Service Tools (a)................................. $ (11,748) $ 51,680 $ 3,302
Original Equipment Components (b)........................... (46,477) (7,053) (14,946)
SPX Credit Corporation...................................... 5,483 -- --
Businesses sold in 1993..................................... 25,249 21,531 20,005
General corporate expenses.................................. (15,370) (17,104) (20,240)
--------- -------- --------
Total............................................... (42,863) $ 49,054 $(11,879)
--------- -------- --------
--------- -------- --------
Identifiable Assets:
Specialty Service Tools..................................... $ 383,295 $347,763 $355,736
Original Equipment Components (Note 5)...................... 343,816 21,771 19,301
SPX Credit Corporation...................................... 85,165 -- --
Businesses sold in 1993..................................... -- 110,450 124,157
General corporate (c)....................................... 212,125 80,344 80,149
--------- -------- --------
Total............................................... $1,024,401 $560,328 $579,343
--------- -------- --------
--------- -------- --------
Capital expenditures:
Specialty Service Tools..................................... $ 7,479 $ 6,823 $ 10,515
Original Equipment Components............................... 1,014 3,944 3,477
SPX Credit Corporation...................................... -- -- --
Businesses sold in 1993..................................... 6,439 9,584 4,975
General corporate........................................... 184 -- 461
--------- -------- --------
Total............................................... $ 15,116 $ 20,351 $ 19,428
--------- -------- --------
--------- -------- --------
Depreciation and amortization:
Specialty Service Tools..................................... $ 14,485 $ 14,960 $ 15,312
Original Equipment Components............................... 1,796 1,487 1,160
SPX Credit Corporation...................................... -- -- --
Businesses sold in 1993..................................... 7,462 8,383 6,966
General corporate........................................... 627 447 333
--------- -------- --------
Total............................................... $ 24,370 $ 25,277 $ 23,771
--------- -------- --------
--------- -------- --------
30
32
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
- ---------------
(a) 1993 includes a $27.5 million restructuring charge to merge Allen
Testproducts and Bear Automotive into Automotive Diagnostics.
(b) 1993 includes $26.9 million of SPT equity losses and $21.5 million of SP
Europe equity losses.
(c) Increase in 1993 was primarily the additional $108.1 million in cash
resulting from the SPR and Truth divestitures.
Revenues by business segment represent sales to unconsolidated customers.
Intercompany sales between segments are not significant. Operating income (loss)
by segment does not include general unallocated corporate expense, interest
expense, income taxes and extraordinary items.
Identifiable assets by business segment are those used in company
operations in each segment. General corporate assets are principally cash,
deferred tax assets, prepaid pension and prepaid health care expenses.
Information about the company's operations in different geographic areas is
as follows:
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
Geographic Areas:
Revenues -- Unaffiliated customers:
United States (a)........................................... $ 637,143 $679,875 $544,103
Other North America......................................... 21,719 24,593 25,623
Other....................................................... 97,283 96,701 103,742
--------- -------- --------
Total............................................... $ 756,145 $801,169 $673,468
--------- -------- --------
--------- -------- --------
Revenues -- Between affiliated customers:
United States............................................... $ 34,934 $ 33,757 $ 34,406
Other North America......................................... -- -- 36
Other....................................................... 1,708 312 229
Eliminations................................................ (36,642) (34,069) (34,671)
--------- -------- --------
Total............................................... $ -- $ -- $ --
--------- -------- --------
--------- -------- --------
Operating income (loss):
United States (b)........................................... $ (19,549) $ 47,304 $(17,084)
Other North America......................................... (192) 1,878 531
Other (c)................................................... (23,122) (128) 4,674
--------- -------- --------
Total............................................... $ (42,863) $ 49,054 $(11,879)
--------- -------- --------
--------- -------- --------
Total assets:
United States (Note 5)...................................... $ 893,172 $466,995 $479,458
Other North America......................................... 8,591 10,121 11,423
Other (d)................................................... 122,638 83,212 88,462
--------- -------- --------
Total............................................... $1,024,401 $560,328 $579,343
--------- -------- --------
--------- -------- --------
31
33
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
- ---------------
(a) Included in the United States revenues are export sales to unconsolidated
customers of $74.4 million in 1993, $64.0 million in 1992 and $55.4 million
in 1991.
(b) 1993 includes a $27.5 million restructuring charge to merge Allen
Testproducts and Bear Automotive into Automotive Diagnostics and $26.9
million of SPT equity losses.
(c) 1993 includes $21.5 million of SP Europe equity losses.
(d) 1993 includes assets resulting from the consolidation of SP Europe and
assets acquired in the Lowener purchase during the third quarter.
Approximately 9% in 1993, 13% in 1992 and 9% in 1991 of the company's
consolidated sales were made to General Motors Corporation and its various
divisions, dealers and distributors. No other customer or group of customers
under common control accounted for more than 10% of consolidated sales for any
of these years. With the effect of the consolidation of SPT, the percentage
sales to General Motors will increase in the future. SPT's sales to General
Motors were 25% in 1993, 27% in 1992 and 31% in 1991. SPT's sales to Ford Motor
Company and its various divisions, dealers and distributors were 23% in 1993,
20% in 1992 and 15% in 1991. With the consolidation of SPT, sales to Ford should
exceed 10% of consolidated sales in the future.
(4) ACQUISITION -- ALLEN TESTPRODUCTS AND ALLEN GROUP LEASING
On June 10, 1993, the company acquired the Allen Testproducts division
("ATP") and its related leasing company, Allen Group Leasing ("AGL"), from the
Allen Group, Inc. for $102 million. ATP is a manufacturer and marketer of
vehicular test and service equipment. This acquisition has been recorded using
the purchase method of accounting, and the results of ATP and AGL have been
included in the company's consolidated statement of income since June 10, 1993.
The purchase price has been allocated to the fair values of the net assets of
ATP and AGL. The purchase price allocations recorded are based upon estimates
available and may be revised at a later date. The excess of the purchase price
over the estimated fair value of the net assets acquired of $16.3 million has
been recorded as costs in excess of net assets acquired and is being amortized
over the remaining life of goodwill from the 1988 acquisition of Bear Automotive
(approximately 35 years). The purchase price allocation was as follows (in
millions of dollars):
Current assets............................................................... $ 37.7
Property, plant & equipment.................................................. 7.5
Leasing assets............................................................... 75.8
Cost in excess of net assets acquired........................................ 16.3
Liabilities.................................................................. (35.3)
------
Total.............................................................. $102.0
------
------
Financing was obtained by a $50 million note with two banks, a $19.7
million, three year, 8%, note from the seller and the balance by utilizing the
company's existing revolving credit line.
The acquired businesses have been combined with the company's Bear
Automotive division to form a single business unit called Automotive
Diagnostics. In the third quarter of 1993, the company recorded a pretax $27.5
million restructuring charge to provide for substantial reduction in work force
and facilities related to the combination. The restructuring charge was $18.5
million aftertax.
32
34
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(5) ACQUISITION -- SEALED POWER TECHNOLOGIES LIMITED PARTNERSHIP ("SPT")
Effective December 31, 1993, the company acquired Riken Corporation's 49%
interest in SPT for $39 million. Additionally, SPT will redeem the 2% management
interest in SPT for $2.7 million. The company previously owned 49% of SPT.
Accordingly, the net assets of SPT have been included in the accompanying
consolidated balance sheet as of December 31, 1993. Prior to this acquisition,
the company accounted for its investment using the equity method. Beginning in
the first quarter of 1994, the results of operations of SPT will be reflected in
the company's consolidated statements of income and cash flows.
SPT designs and manufactures engine parts, castings and filters for the
automotive and heavy duty original equipment manufacturers ("OEM") and the
aftermarket. SPT was created in 1989 when the company contributed the Sealed
Power, Contech, Filtran and Hy-Lift divisions to the newly created limited
partnership. SPT obtained nonrecourse financing through a combination of bank
debt and a public offering of subordinated debentures. In exchange for the net
assets of the divisions contributed, the company received $245 million in cash
from the partnership and a 49% interest in the partnership. As the debt incurred
by SPT to fund this transaction was nonrecourse to the company, the company
previously recorded a pretax $91 million gain in 1989, in accordance with
guidance prescribed in Emerging Issues Task Force pronouncement 89-7. The cash
distribution to the company resulted in an initial partnership capital deficit.
SPT has had cumulative losses since its inception and, up to December 31, 1993,
the company had carried its investment in SPT at zero. Because the SPT debt was
nonrecourse, the company properly did not reflect its share of the equity losses
of SPT and did not amortize the difference between its investment balance and
its share of SPT's initial partnership capital deficit in its previously
reported financial statements.
As a result of the acquisition of the remaining 51% of SPT, as of December
31, 1993, the company accounted for this transaction as follows:
1. The company recorded this acquisition using step acquisition accounting.
Step acquisition accounting requires that when the company previously
did not record its share of SPT's losses because the company's
investment was zero and now, as a result of additional ownership,
consolidates SPT, the company must retroactively reflect its share of
SPT losses not previously recorded. Accordingly, the financial
statements for the 1993 quarters and prior years were restated to record
the company's previous 49% share of SPT's income or losses, the effect
of amortizing the difference between its investment balance and its
share of SPT's initial partnership capital deficit and an adjustment
required to record the company's previous investment in SPT at
historical cost.
2. The 51% of SPT's net assets acquired has been included in the
accompanying consolidated balance sheet at December 31, 1993 at
estimated fair value based upon preliminary information which may be
revised at a later date. The excess of the purchase price (including the
acquired equity deficit of $87.9 million) over the estimated fair values
of the net assets acquired was $97.1 million and has been recorded as
costs in excess of net assets acquired and will be amortized over 40
years.
33
35
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
A summary of the purchase price allocation is as follows (in millions of
dollars):
EXISTING ACQUIRED
49% 51% TOTAL
-------- -------- -------
Current assets......................................... $ 37.5 $ 39.2 $ 76.7
Property, plant and equipment.......................... 44.8 66.6 111.4
Other assets........................................... 6.7 7.0 13.7
Cost in excess of net assets acquired.................. -- 97.1 97.1
Current liabilities.................................... (26.2) (27.2) (53.4)
Deferred income taxes.................................. -- 16.0 16.0
Long term liabilities.................................. (47.7) (49.8) (97.5)
Debt................................................... (103.0) (107.2) (210.2)
-------- -------- -------
Subtotal..................................... (87.9) 41.7 (46.2)
SPT equity losses in excess of investment*............. -- 87.9
-------- -------
Purchase Price............................... $ 41.7 $ 41.7
-------- -------
-------- -------
- ---------------
* Represents the cumulative restatement of equity losses, including the
company's 49% share of the 1993 SPT adoption of SFAS No. 106, recorded by the
company prior to the consolidation of the net assets of SPT at December 31,
1993.
(6) DIVESTITURES
During 1993, the company sold its Sealed Power Replacement and Truth
divisions.
Sealed Power Replacement ("SPR") -- On October 22, 1993, the company
sold SPR to Federal-Mogul Corporation for approximately $141 million in
cash. SPR distributes engine and undervehicle parts into the U.S. and
Canadian aftermarket. Net proceeds, after income taxes, were approximately
$117.5 million. The company recorded a pretax gain of $52.4 million after
transaction and facility reduction expenses, or $32.4 million aftertax. The
proceeds were used to reduce a portion of the company's debt and the excess
invested in short term investments.
Truth -- On November 5, 1993, the company sold Truth to Danks America
Corporation, an affiliate of FKI Industries, Inc. for approximately $92.5
million in cash. In addition, the company will receive an annual royalty
ranging from 1.0% to 1.5% of Truth's annual sales for a five year period
following the closing (cumulatively not to exceed $7.5 million) which will
be recorded as income as received. Truth manufactures and markets window
and door hardware primarily in the U.S. and Canada. Net proceeds, after
income taxes, were approximately $71.6 million. The company recorded a
pretax gain of $53.0 million after transaction expenses, or $31.8 million
aftertax. The proceeds were invested in short term investments.
The final proceeds for these divestitures are based upon the closing
balance sheet of each business. Any changes in proceeds as a result of
adjustments to the closing balance sheets are not expected to be material.
34
36
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(7) PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The accompanying consolidated statements of income include the results of
operations of Allen Testproducts ("ATP") and Allen Group Leasing ("AGL") from
the date of acquisition, June 10, 1993, the results of the Sealed Power
Replacement ("SPR") division through the date of disposition, October 22, 1993,
the results of the Truth division through the date of disposition, November 5,
1993, the company's 49% share of the earnings or losses of SPT, and the equity
losses of SP Europe. The following 1993 unaudited pro forma selected financial
data reflects the acquisition of ATP and AGL and related restructuring, the
divestiture of the SPR and Truth divisions, the acquisition of 51% of SPT, and
the consolidation of SP Europe as if they had occurred as of January 1, 1993.
Pro forma adjustments are described below. The 1992 pro forma assumes that these
transactions occurred as of January 1, 1992 and comparable pro forma adjustments
were made.
1993 1992
1993 ATP & SPT PRO FORMA PRO PRO
HISTORICAL AGL(A) DIVESTITURES(B) SP EUROPE(C) (D) ADJUST FORMA FORMA
---------- ------ --------------- ------------ ------ --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues...................... $ 756.1 $32.4 $(217.0) $ 40.6 $391.6 $ -- $ 1,003.7 $ 1,042.9
Cost and expenses:
Cost of products............ 508.0 14.1 (147.0) 44.6 337.8 (6.8)(a) 752.7 746.4
2.0(d)
SG&A........................ 207.6 20.5 (44.5) 9.1 28.2 (10.2)(a) 210.7 223.6
Other, net.................. 7.5 -- (.2) .5 (2.0) .3(a) 4.2 1.7
(4.3)(c)
2.4(d)
Restructuring charge........ 27.5 -- -- -- -- -- 27.5 --
SPT equity losses........... 26.9 -- -- -- -- (26.9)(d) --
SP Europe equity losses..... 21.5 -- -- -- -- (21.5)(c) -- --
---------- ------ ------- ------ ------ --------- --------- ---------
Operating income (loss)....... (42.9) (2.2 ) (25.3) (13.6) 27.6 65.0 8.6 71.2
Interest, net................. 17.8 1.6 -- .9 27.1 (5.8)(e) 41.6 45.8
(Gain) on sale of business
units....................... (105.4) -- -- -- -- 105.4(f) --
---------- ------ ------- ------ ------ --------- --------- ---------
Income before income taxes.... 44.7 (3.8 ) (25.3) (14.5) .5 (34.6) (33.0) 25.4
Provision (benefit) for income
taxes....................... 29.5 -- -- -- -- (35.8)(g) (6.3) 13.6
---------- ------ ------- ------ ------ --------- --------- ---------
Income (loss)(h).............. $ 15.2 $(3.8 ) $ (25.3) $(14.5) $ .5 $ 1.2 $ (26.7) $ 11.8
---------- ------ ------- ------ ------ --------- --------- ---------
---------- ------ ------- ------ ------ --------- --------- ---------
Income (loss) per share....... $ 1.20 $ (2.12) $ 0.85
Weight average number of
common shares outstanding... 12.6 12.6 13.9
- ---------------
(a) Historical results of ATP and AGL through June 10, 1993, the date of
acquisition. Pro forma adjustments include a $6.8 million reduction in cost
of products sold resulting from primarily work force reductions; a $10.2
million reduction in SG&A resulting from primarily work force reductions:
and $0.3 million of additional goodwill amortization.
(b) SPR and Truth were divested during the fourth quarter of 1993. This
represents the results of operations through the date of divestiture.
(c) SP Europe was consolidated as of December 31, 1993. This pro forma adds the
results of operations for the full year. Pro forma adjustments include
reflecting the minority owner's share of losses, $4.3 million, and $21.5
million to reverse the company's share of equity losses as SP Europe is
consolidated in the pro forma.
(d) SPT was consolidated as of December 31, 1993. This pro forma adds the
results of operations for the full year. Pro forma adjustments include $2.0
million of additional depreciation expense resulting from purchase
accounting; $26.9 million to reverse the company's share of equity losses
as SPT is consolidated in the pro forma; and $2.4 million to reflect
goodwill amortization resulting from purchase accounting.
35
37
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(e) Adjustment to interest expense, net to reflect the financing to purchase ATP
and AGL and 51% of SPT and to reflect the net proceeds from the sale of SPR
and Truth. Proceeds in excess of expenditures are assumed to have reduced
outstanding revolving credit, short-term notes and notes payable to The
Allen Group. Any excess was then assumed to be invested in short-term
investments.
(f) Reversal of gain on the sale of the SPR and Truth divisions.
(g) Adjustment to income tax expense to reflect a consolidated effective rate of
39%, which was then adjusted for the inability to tax benefit SP Europe
losses and the effect of the change in U.S. federal income tax rate to 35%
from 34% on deferred tax assets and liabilities.
(h) Income (loss) excludes cumulative effect of changes in accounting methods
for ESOP accounting and SPT's 1993 SFAS No. 106 adoption and the 1993
extraordinary loss recorded for the early retirement of indebtedness.
The unaudited pro forma selected results of operations does not purport to
represent what the company's results of operations would actually have been had
the above transactions in fact occurred as of January 1, 1993, or January 1,
1992 or project the results of operations for any future date or period.
(8) EXTRAORDINARY LOSS
During the fourth quarter of 1993, the company determined to refinance both
SPX and SPT debt. As a result, the company recorded an extraordinary charge of
$37.0 million ($24.0 million after taxes) for extinguishment costs associated
with the early retirement of $415 million (principal amount) of debt expected to
be refinanced. The aggregate amount to retire this debt, including existing
unamortized debt placement fees, will be $452 million. See Note 23 for further
discussion of the refinancing.
(9) RESTRUCTURING AND SPECIAL CHARGES
1993 -- During 1993, the company recorded a $27.5 million restructuring
charge for the costs required to merge the Bear Automotive division with Allen
Testproducts, acquired in June of 1993. This charge was recorded in the third
quarter. Of the $27.5 million restructuring charge, approximately $16 million
relates to work force reductions and associated costs. The combined businesses
started with approximately 2,200 employees. That number was reduced to
approximately 1,800 employees at December 31, 1993 and will be at approximately
1,700 employees by the end of the second quarter of 1994. The charge also
included $9.3 million of facility duplication and shutdown costs, including the
write down of excess assets of $4.2 million (non-cash). The balance of the
reserves at December 31, 1993 is approximately $14.5 million, which is
principally required for remaining work force reduction and facility closing
costs.
1991 -- In the third quarter of 1991, the company recorded a pretax special
charge of $18.2 million which included; a $6.0 million charge associated with
organizational and facility consolidation of two operating units which included
employment reductions and facility closings; a $6.5 million charge-off of
certain capitalized computer software development costs due to conceptual
changes in future product offerings whereby these costs are more appropriately
characterized as general software development; a $1.4 million net charge
associated with consummation of two transactions with an overseas partner that
relate to further globalization of the company's automotive original equipment
affiliated businesses; and a $4.3 million charge for losses, resulting
principally from recessionary conditions, on certain project development
investments and notes receivable related to previous sales of certain business
units.
36
38
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(10) EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The company has defined benefit pension plans which cover substantially all
domestic employees. These plans provide pension benefits that are principally
based on the employees' years of credited service and levels of earnings.
Contributions in excess of pension expense are considered prepayments for
financial accounting purposes. The company has determined that foreign defined
pension plans are immaterial to the consolidated financial statements.
Net periodic pension cost (benefit) included the following components:
1993 1992 1991
-------- ------- --------
(IN THOUSANDS)
Service cost-benefits earned during the period...... $ 4,585 $ 3,973 $ 3,577
Interest cost on projected benefit obligation....... 6,852 6,088 5,743
Actual gain on assets............................... (19,633) (9,363) (27,778)
Net amortization and deferral....................... 8,440 (1,136) 18,320
-------- ------- --------
Net periodic pension cost (benefit)................. $ 244 $ (438) $ (138)
-------- ------- --------
-------- ------- --------
Actuarial assumptions used:
Discount rates...................................... 7.5% 8.25% 8.25%
Rates of increase in compensation levels............ 5.0 5.5 5.5
Expected long-term rate of return on assets......... 9.5 9.5 9.5
Plan assets principally consist of equity and fixed income security
investments. The following table sets forth the plans' funded status and amounts
recognized in the company's consolidated balance sheets as Other Assets for its
U.S. pension plans (in thousands):
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- ---------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
Actuarial present value of benefit
obligations:
Vested benefit obligation............... $ 151,217 $ 6,570 $ 67,876 $ --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Accumulated benefit obligation.......... $ 172,068 $ 7,395 $ 70,661 $ --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit obligation............ $ 200,249 $ 7,395 $ 87,604 $ --
Plan assets at fair value............... 242,429 6,297 118,939 --
----------- ----------- ----------- -----------
Projected benefit obligation less
(greater) than plan assets........... $ 42,180 $(1,098) $ 31,335 $ --
Unrecognized net (gain) loss............ (31,893) 34 (19,031) --
Prior service cost not yet recognized in
net periodic pension cost............ 10,183 607 1,909 --
Unrecognized net asset at January 1,
1985................................. (220) 34 (407) --
----------- ----------- ----------- -----------
Prepaid pension cost recognized in the
consolidated balance sheets.......... $ 20,250 $ (423) $ 13,806 $ --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The significant increase in pension benefit obligations, assets and prepaid
pension cost was due to the consolidation of SPT as of December 31, 1993.
As part of the divestitures of the SPR and Truth divisions, the company
recorded curtailment gains of $4.1 million. These gains have been included in
the gain recognized on the sale of these divisions.
37
39
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
Prior to 1992, postretirement health care and life insurance benefits were
recognized as expense when claims or premiums were paid. In 1992, the company
adopted SFAS No. 106. These costs totaled $958,000 in 1991. The following
summarizes the 1993 and 1992 expense for postretirement health and life
insurance (in thousands):
1993 1992
------ -------
Recognition of transition obligation................................ $ -- $16,829
Benefit cost for service during the the year --
net of employee contributions..................................... 317 315
Net amortization and deferral....................................... (64) --
Interest cost on accumulated post-retirement
benefit obligation................................................ 1,338 1,306
------ -------
Postretirement benefit cost......................................... $1,591 $18,450
------ -------
------ -------
The accumulated postretirement benefit obligation was actuarially
determined based on assumptions regarding the discount rate and health care
trend rates. The health care trend assumption applies to postretirement medical
and dental benefits. Different trend rates are used for pre-age 65 and post-age
65 medical claims and for expected dental claims. The trend rate used for the
medical plan was 15% initially, grading to a 6% ultimate rate by 1% each year
for pre-65 claims; and 10.5% grading to 6% by .5% each year for post-age 65
claims. The trend rate for the dental plan was 6% each year. The liability was
discounted using a 7.5% interest rate. Increasing the health care trend rate by
one percentage point would increase the accumulated postretirement benefit
obligation by $.7 million and would increase the 1993 postretirement benefit
cost by $.1 million.
The following table summarizes the accumulated benefit obligation (in
thousands):
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
Accumulated postretirement benefits obligation
("APBO")
Retirees........................................... $ 56,084 $11,708
Actives fully eligible............................. 9,399 1,463
----------------- -----------------
APBO fully eligible................................ 65,483 13,171
Actives not fully eligible......................... 24,112 3,271
----------------- -----------------
Total APBO......................................... $ 89,595 $16,442
Assets............................................... (845) --
----------------- -----------------
Unfunded status...................................... $ 88,750 $16,442
Unrecognized:
Prior service cost................................. 27,498 1,000
Net gain (loss).................................... (2,492) --
----------------- -----------------
Accrued APBO included in long-term liabilities....... $ 113,756 $17,442
----------------- -----------------
----------------- -----------------
The significant increase in accumulated postretirement benefits obligation
was due to the consolidation of SPT as of December 31, 1993. SPT adopted SFAS
No. 106 in 1993.
38
40
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
In June 1989, the company established an ESOP, which includes substantially
all domestic employees not covered by collective bargaining agreements. The ESOP
borrowed $50 million, which is guaranteed by the company, and used the proceeds
to purchase 1,746,725 shares of common stock issued directly by the company.
Employees vest in these shares based upon a predetermined formula. Employees may
vote allocated shares directly, while the ESOP trustee will vote the unallocated
shares proportionally on the same basis as the allocated shares were voted.
During 1993, 1992 and 1991, 114,588, 114,735 and 114,870 shares were allocated
to the employees, leaving 1,246,346 unallocated shares in the ESOP trust at
December 31, 1993. The fair market value of these unallocated shares was $22.1
million at December 31, 1993. The company's contributions to the ESOP trust were
as follows (in thousands of dollars):
1993 1992 1991
------ ------ ------
Compensation expense......................................... $1,925 $5,548 $4,840
Interest expense............................................. 3,902 -- --
Dividends.................................................... -- 590 1,113
Principal payment............................................ 288 -- --
------ ------ ------
Total.............................................. $6,115 $6,138 $5,953
------ ------ ------
------ ------ ------
With the change in ESOP accounting in 1993, compensation expense is now
measured using the fair market value when the shares are committed to the
employee. Interest expense represents the actual interest paid by the ESOP trust
and any dividends paid on unallocated shares in the trust are recorded as direct
debt principal payments rather than as dividends.
OTHER
The company provides defined contribution pension plans for substantially
all employees not covered by defined benefit pension plans. Collectively, the
company's contributions to these plans were $683,000 in 1993, $848,000 in 1992
and $580,000 in 1991.
The company provides a Retirement Savings Plan for eligible employees.
Employees can contribute up to 15% of their earnings with the company matching a
portion of the amount up to 6% of their earnings. The company's contribution to
this plan was $875,000 in 1993, $715,000 in 1992 and $725,000 in 1991. Starting
in 1994, the company matching contribution will consist of unallocated ESOP
shares.
(11) RELATED PARTY TRANSACTIONS
Since the creation of SPT on May 30, 1989, the company has continued to
provide certain administrative and insurance services to SPT. The costs
associated with these services are identified and recovered from the
partnership.
In addition, the company's former Sealed Power Replacement division
purchased replacement engine parts, principally piston rings, cylinder sleeves
and valve lifters from SPT at arm's-length prices. Purchases from the
partnership during 1993 through October 22 (date of sale of SPR), 1992 and 1991
were $21.5 million, $27.8 million and $27.0 million, respectively.
39
41
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(12) RECEIVABLES
Changes in the reserve for losses on receivables were as follows:
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Balance at beginning of year.............................. $10,789 $ 9,541 $ 9,521
Recorded in acquisition of SPT and due to consolidation of
SP Europe............................................... 747 -- --
Amount charged to income.................................. 3,609 3,788 2,876
------- ------- -------
$15,145 $13,329 $12,397
Accounts written off, net of recoveries................... (2,398) (2,495) (2,878)
Reduction resulting from sale of SPR and Truth
divisions............................................... (3,588) -- --
Reclassifications and other............................... 18 (45) 22
------- ------- -------
Balance at end of year.................................... $ 9,177 $10,789 $ 9,541
------- ------- -------
------- ------- -------
The company has a three year agreement, expiring in April 1994, with a
financial institution whereby the company agreed to sell undivided fractional
interests in designated pools of domestic trade accounts receivable, in an
amount not to exceed $30 million. In order to maintain the balance in the
designated pools of trade accounts receivable sold, the company sells
participating interests in new receivables as existing receivables are
collected. At December 31, 1993 and 1992, the company had sold $25.9 million and
$30 million of trade accounts receivable under this program. Under the terms of
this agreement, the company is obligated to pay fees which approximate the
purchasers' cost of issuing a like amount in commercial paper plus certain
administrative costs. The amount of such fees in 1993 and 1992 were $1,215,000
and $1,465,000 respectively. These fees are included in other expense, net.
(13) INVENTORIES
Domestic inventories, amounting to $122.6 and $141.3 million at December
31, 1993 and 1992, respectively, are based on the last-in, first-out (LIFO)
method. Such inventories, if priced on the first-in, first-out (FIFO) method,
would have been approximately $17.7 and $34.8 million greater at December 31,
1993 and 1992, respectively. During 1993 and 1992, certain inventory quantities
were reduced resulting in liquidations of LIFO inventory quantities carried at
lower costs prevailing in prior years. The effect was to increase net income in
1993 by $455,000 and in 1992 by $1.8 million. Foreign inventories are valued at
FIFO costs. None of the inventories exceed realizable values.
The components of inventory at year-end were as follows:
1993 1992
-------- --------
(IN THOUSANDS)
Finished products............................................... $ 94,478 $128,043
Work in process................................................. 29,324 16,835
Raw materials and supplies...................................... 35,421 26,744
-------- --------
$159,223.. $171,622
-------- --------
-------- --------
40
42
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(14) INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
1993 1992 1991
------- ------- -------
U.S. Federal:
Current.............................................. $32,817 $ 8,180 $(4,925)
Deferred............................................. (9,521) 2,217 (4,842)
State.................................................. 4,411 1,363 1,060
Foreign................................................ 1,748 1,673 1,535
------- ------- -------
Total........................................ $29,455 $13,433 $(7,172)
------- ------- -------
------- ------- -------
A reconciliation of the effective rate for income taxes shown in the
consolidated statements of income with the U.S. statutory rate of 35% in 1993
and 34% in 1992 and 1991 is shown below:
1993 1992 1991
---- ---- -----
Amount computed at statutory rate.............................. 35.0% 34.0% (34.0)%
Increase (decrease) in taxes resulting from:
U.S. rate change on net deferred taxes....................... 2.0 -- --
Tax credits and incentives................................... (0.5) (0.6) (1.6)
Foreign losses not tax benefitted............................ 22.8 6.1 3.1
Foreign tax rates less than the statutory rate............... (1.8) (1.1) (1.9)
State income taxes, net of federal income tax benefit........ 5.8 2.5 2.8
Amortization of goodwill and other acquisition costs......... 3.6 3.2 4.0
Tax benefit of the Foreign Sales Corporation................. (2.0) (3.1) (3.4)
Special charge items not tax benefitted...................... -- -- 8.6
Other, net................................................... 1.1 (1.5) (2.6)
---- ---- -----
66.0% 39.5% (25.0)%
---- ---- -----
---- ---- -----
No provision has been made for income and withholding taxes which would
become payable upon distribution of the undistributed earnings of foreign
subsidiaries and affiliates. It is the company's present intention to
permanently reinvest these earnings in its foreign operations. The amount of
undistributed earnings which have been reinvested in foreign subsidiaries and
affiliates at December 31, 1993, was $26.7 million. It is not practical to
determine the hypothetical U.S. federal income tax liability if all such
earnings were remitted, but distribution as dividends at the end of 1993 would
have resulted in payment of withholding taxes of approximately $1.4 million.
41
43
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
The following summarizes the detail of the deferred income tax provision
(benefit) for 1991, which has not been restated in accordance with SFAS No. 109:
1991
--------------
(IN THOUSANDS)
Receivable reserves..................................................... $ (110)
Inventories............................................................. (568)
Depreciation............................................................ 306
Health and medical costs................................................ (170)
Pension................................................................. 146
Employee benefit programs............................................... (342)
Special charge.......................................................... (3,191)
Other, net.............................................................. 459
--------------
$ (3,470)
--------------
--------------
The components of the net deferred income tax assets (liabilities) were as
follows:
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
(IN THOUSANDS)
Deferred income tax asset:
Receivables reserve...................................... $ 6,736 $ 3,088
Inventory................................................ 5,835 7,505
Debt extinguishment reserves............................. 13,000 --
Compensation and benefit-related......................... 3,004 1,100
Restructuring reserves................................... 4,226 --
Divestiture-related reserves............................. 5,580 --
Workers' compensation.................................... 1,708 1,270
Warranty reserve......................................... 2,216 2,786
Other liabilities........................................ 6,584 (175)
------------ ------------
Current deferred tax asset................................. $ 48,889 $ 15,574
------------ ------------
Non-current deferred tax:
Depreciation............................................. $(24,300) $(13,570)
Postretirement health and life........................... 38,900 6,300
Book basis investment greater than tax basis investment
in affiliates......................................... (31,400) (46,906)
Other.................................................... (3,987) --
Net operating loss carryforwards......................... 14,700 4,800
Capital loss carryforwards............................... -- 8,900
Valuation allowance...................................... (14,700) (13,700)
------------ ------------
Non-current deferred tax liability......................... $(20,787) $(54,176)
------------ ------------
Net deferred tax asset (liability)......................... $ 28,102 $(38,602)
------------ ------------
------------ ------------
Included on the consolidated balance sheets are U.S. federal income tax
refunds of $5.6 million in 1993 and $3.0 million in 1992.
At December 31, 1993, the company has net operating loss carryforwards
attributable to foreign operations of approximately $32.5 million that are
available to offset future taxable income. These loss
42
44
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
carryforwards expire as follows: $.6 million in 1994, $0 in 1995, $0 in 1996,
$2.4 million in 1997, $1.5 million in 1998 and $28.0 million thereafter. During
1993, the company utilized $2.8 million of net operating loss carryforwards
attributable to foreign operations, resulting in tax benefits of $1.2 million.
The deferred tax asset related to the net operating loss carryforwards have been
reserved in the valuation allowance.
During the fourth quarter of 1993, the company settled a dispute with the
Internal Revenue Service regarding the company's tax deferred treatment of the
1989 transaction in which several operating units were contributed to SPT. The
settlement of approximately $5 million in tax eliminates the IRS contention that
one half of the 1989 transaction was currently taxable. The settlement and
interest will be paid during the second quarter of 1994 and is adequately
provided for in the company's deferred income tax accounts.
(15) INVESTMENTS
As of December 31, 1993, investments, as shown on the consolidated balance
sheet, include equity investments in non-majority owned subsidiaries. These
investments include the company's 50% owned interest in a U.S. joint venture,
two 50% owned interests in joint ventures in Japan, a 40% interest in a Mexican
company and a 50% interest in a German company. All of these investments are
accounted for using the equity method. These investments, both individually and
collectively, are not material to the company's consolidated financial
statements.
Until December 31, 1993, the company held a 49% interest in SPT. The pro
rata share of earnings or losses and the amortization of the company's
investment in SPT is reflected as "SPT equity losses" on the consolidated
statements of income (see Note 5).
Until December 31, 1993, the company reported that it held a 50% interest
in SP Europe. As of December 31, 1993, Riken's pending 20% participation in SP
Europe reverted to the company in connection with the transaction to acquire
Riken's 49% interest in SPT. SP Europe had not been previously consolidated due
to the company's deemed temporary control and because nonrecourse (to the
partners) financing was being pursued. Up to December 31, 1993, the company
carried its investment in SP Europe at zero. Due to the resulting 70% ownership,
the company is recording its share of cumulative losses since the partnership
formation in mid-1991 of $21.5 million. As of December 31, 1993, the balance
sheet of this partnership is included in the consolidated financial statements,
reflecting the company's 70% ownership and Mahle GmbH's 30% minority interest.
Beginning in the first quarter of 1994, results of operations of SP Europe will
be reflected in the consolidated statements of income and cash flows.
(16) PROPERTY, PLANT, AND EQUIPMENT AND RELATED ACCUMULATED
DEPRECIATION
The company uses principally the straight line method for computing
depreciation expense over the useful lives of the property, plant and equipment.
For income tax purposes, the company uses accelerated methods where permitted.
Asset additions and improvements are added to the property accounts while
maintenance and repairs, which do not renew or extend the lives of the
respective assets, are expensed currently. Upon sale or retirement of
depreciable properties, the related cost and accumulated depreciation are
removed from the property accounts. The net gain or loss on disposition of
property is reflected in income.
43
45
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
Changes in property, plant, and equipment accounts and in related
accumulated depreciation for the three years ended December 31, 1993 were as
follows:
MACHINERY
AND CONSTRUCTION
LAND BLDGS. EQUIPMENT IN PROGRESS TOTAL
------- -------- --------- ------------ --------
(IN THOUSANDS)
PROPERTY, PLANT & EQUIPMENT, AT COST:
BALANCE AT DECEMBER 31, 1990................ $ 6,586 $ 50,378 $ 123,392 $ 6,398 $186,754
Additions, at cost........................ 245 4,362 14,788 33 19,428
Retirements, at cost...................... (1,283) (699) (2,380) -- (4,362)
Reclassifications and other............... 699 63 (454) -- 308
------- -------- --------- ------------ --------
BALANCE AT DECEMBER 31, 1991................ $ 6,247 $ 54,104 $ 135,346 $ 6,431 $202,128
Additions, at cost........................ 18 2,314 18,415 (396) 20,351
Retirements, at cost...................... (48) (515) (5,376) -- (5,939)
Reclassifications and other............... 280 2,417 (1,132) -- 1,565
------- -------- --------- ------------ --------
BALANCE AT DECEMBER 31, 1992................ $ 6,497 $ 58,320 $ 147,253 $ 6,035 $218,105
Additions, at cost........................ 840 1,920 10,998 1,358 15,116
Recorded in acquisitions of ATP and SPT
and due to consolidation of SP
Europe................................. 4,551 40,552 169,903 1,253 216,259
Assets sold in connection with divestiture
of units............................... (1,174) (15,280) (55,241) (3,325) (75,020)
Retirements, at cost...................... (15) (502) (5,541) -- (6,058)
Reclassifications and other............... 81 (474) 448 (625) (570)
------- -------- --------- ------------ --------
BALANCE AT DECEMBER 31, 1993................ $10,780 $ 84,536 $ 267,820 $ 4,696 $367,832
------- -------- --------- ------------ --------
------- -------- --------- ------------ --------
MACHINERY
AND
BLDGS. EQUIPMENT TOTAL
------- --------- --------
(IN THOUSANDS)
ACCUMULATED DEPRECIATION:
BALANCE AT DECEMBER 31, 1990.................................... $10,797 $ 58,045 $ 68,842
Additions-charged to income................................... 2,443 16,449 18,892
Deductions-retirements, renewals,transfers, dispositions and
replacements............................................... (43) (2,086) (2,129)
Reclassifications and other................................... 226 (22) 204
------- --------- --------
BALANCE AT DECEMBER 31, 1991.................................... $13,423 $ 72,386 $ 85,809
Additions-charged to income................................... 3,196 16,393 19,589
Deductions-retirements, renewals, transfers, dispositions and
replacements............................................... (201) (4,549) (4,750)
Reclassifications and other................................... 1,156 (494) 662
------- --------- --------
BALANCE AT DECEMBER 31, 1992.................................... $17,574 $ 83,736 $101,310
------- --------- --------
Additions-charged to income................................... 2,611 16,476 19,087
Additions-carryover basis in SPT.............................. 15,810 75,661 91,471
Deductions-retirements, renewals, transfers, dispositions and
replacements............................................... (245) (2,782) (3,027)
Deductions-assets sold in connection with divestitures of
units...................................................... (4,499) (34,508) (39,007)
Reclassifications and other................................... -- (147) (147)
------- --------- --------
BALANCE AT DECEMBER 31, 1993.................................... $31,251 $ 138,436 $169,687
------- --------- --------
------- --------- --------
44
46
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(17) COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
At December 31, 1993 and 1992, total costs in excess of net assets of
businesses acquired were $223.3 and $113.2 million, respectively, and
accumulated amortization of costs in excess of net assets of businesses acquired
was $19.2 and $18.3 million, respectively. The increase is attributable to the
acquisition of ATP and AGL, $16.3 million, and the acquisition of 51% of SPT,
$97.1 million. Amortization was $3.4 million in 1993, $3.4 million in 1992 and
$3.1 million in 1991.
The company amortizes costs in excess of the net assets of businesses
("goodwill") acquired on a straight-line method over the estimated periods
benefitted, not to exceed 40 years. After an acquisition, the company
periodically reviews whether subsequent events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. If
events and circumstances indicate that goodwill related to a particular business
should be reviewed for possible impairment, the company uses projections to
assess whether future operating income on a non-discounted basis (before
goodwill amortization) of the unit is likely to exceed the goodwill amortization
over the remaining life of the goodwill, to determine whether a write down of
goodwill to recoverable value is appropriate.
At December 31, 1993, $74 million of goodwill relates to the Automotive
Diagnostics division (which is composed of Bear Automotive and Allen
Testproducts, which was acquired in 1993). This division has incurred
significant operating losses in 1993 and in prior years. The company projects
that, in the near future, the cost savings, market synergies and other factors
which, in part, will be realized from the Bear Automotive and Allen Testproducts
combination will result in non-discounted operating income sufficient to exceed
goodwill amortization. However, should such projections require downward
revision based on changed events or circumstances, this division's goodwill may
require writedown. Although having no cash flow impact, the resulting charge, if
any, could materially reduce the company's future reported results of operations
and shareholders' equity. At this time, based upon present information,
projections and strategic plans, the company has concluded that there has been
no permanent impairment of the Automotive Diagnostics division's tangible or
intangible assets.
(18) COMMITMENTS AND CONTINGENT LIABILITIES
The company leases certain offices, warehouses and equipment under lease
agreements which expire at various dates through 2006. Future minimum rental
commitments under non-cancelable operating leases are $10.9 million for 1994,
$8.8 million for 1995, $6.3 million for 1996, $4.0 million for 1997, $2.9
million for 1998 and aggregate $14.5 million thereafter. Rentals on these leases
were approximately $12.9 million in 1993, $9.3 million in 1992 and $10.8 million
in 1991.
Certain claims, including environmental matters, suits and complaints
arising in the ordinary course of business, have been filed or are pending
against the company. In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a
significant effect on the financial position or results of operations of the
company if disposed of unfavorably. Additionally, the company has insurance to
minimize its exposures of this nature.
The company's operations and products are subject to federal, state and
local regulatory requirements relating to environmental protection. It is the
company's policy to comply fully with all such applicable requirements. As part
of its effort to comply, management has established an ongoing internal
compliance auditing program which has been in place since 1989. Based on current
information, management believes that the company's operations are in
substantial compliance with applicable environmental laws and regulations and
the company is not aware of any violation that could have a material adverse
effect on the business, financial condition or results of operations of the
company. There can be no assurance, however, that
45
47
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
currently unknown matters, new laws and regulations, or stricter interpretations
of existing laws and regulations will not materially affect the company's
business or operations in the future.
The company is also subject to potential liability for the costs of
environmental remediation. This liability may be based upon the ownership or
operation of industrial facilities where contamination may be found as well as
contribution to contamination existing at offsite, non-owned facilities. These
offsite remediation costs cannot be quantified with any degree of certainty. At
this time, management can estimate the environmental remediation costs only in
terms of possibilities and probabilities based on available information.
The company is involved as a potentially responsible party ("PRP") under
the Comprehensive, Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), as amended, or similar state superfund statutes in eight active
proceedings involving off-site waste disposal facilities. At three of these
sites it has been established that the company is a de minimis contributor. A
determination has not been made with respect to the remaining five sites, but
the company believes that it will be found to be a de minimis contributor at
three of them. Based on information available to the company, which in most
cases includes estimates from PRPs and/or federal or state regulatory agencies
for the investigation, clean up costs at these sites, data related to the
quantities and characteristics of materials generated at or shipped to each
site, the company believes that the costs for each site are not material and in
total the anticipated clean up costs of current PRP actions would not have a
material adverse effect on the company's financial condition or operations.
In the case of contamination existing upon properties owned or controlled
by the company, the company has established reserves which it deems adequate to
meet its current remediation obligations.
There can be no assurance that the company will not be required to pay
environmental compliance costs or incur liabilities that may be material in
amount due to matters which arise in the future or are not currently known to
the company.
During 1988, the company's Board of Directors adopted executive severance
agreements which create certain liabilities in the event of the termination of
the covered executives following a change of control of the company. The
aggregate commitment under these executive severance agreements should all 7
covered employees be terminated is approximately $10 million.
46
48
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(19) NOTES PAYABLE AND DEBT
The following table summarizes the company's current and long-term debt
obligations as they existed at December 31, 1993 and 1992. During the first
quarter of 1994, the company significantly restructured this debt. Refer to Note
23 for further explanation of this subsequent refinancing.
1993 1992
-------- --------
(IN THOUSANDS)
SPX
Senior Notes, 9.72%, due in annual installments from 1994 through
2000............................................................. $ 53,000 $ 53,000
Senior Notes, 9.58%, $5 million due in 1993, the remainder due in
1995............................................................. 22,000 27,000
Revolving Credit Loans.............................................. -- 17,000
Industrial Revenue Bonds, with interest rates established monthly
based on an index of short-term municipal bond interest rates,
due 2010 to 2025................................................. 15,200 15,200
Note to Allen Group, 8.0%, due in annual installments from 1994
through 1996..................................................... 19,737 --
Bank loans, LIBOR plus 7/8%, due May 1994.......................... 50,000 --
Long-Term Debt -- ESOP Guarantee.................................... 42,062 44,275
Other............................................................... 17,957 17,844
-------- --------
Total SPX debt.............................................. $219,956 $174,319
-------- --------
SPT
Senior subordinated debentures, 14.5%, due May 15, 1999, with
mandatory sinking fund payment of $50 million on May 15, 1998.... $100,000 $ --
Term bank loan, with interest rates established periodically based
on prime or LIBOR rates, due in varying quarterly installments
through September 30, 1996....................................... 78,863 --
Revolving Credit Loans.............................................. 30,000 --
Other............................................................... 1,343 --
-------- --------
Total SPT debt.............................................. $210,206 $ --
-------- --------
Total Consolidated debt..................................... $430,162 $174,319
Less current maturities............................................. 93,975 13,999
-------- --------
Total Long-Term Debt........................................ $336,187 $160,320
-------- --------
-------- --------
Aggregate maturities of total debt are as follows before the debt
refinancing described in Note 23:
SPX SPT TOTAL
------- ------- --------
(IN THOUSANDS)
1994.................................................. $67,275 $26,700 $ 93,975
1995.................................................. 43,700 28,900 72,600
1996.................................................. 9,500 54,600 64,100
1997.................................................. 11,200 -- 11,200
1998.................................................. 3,400 50,000 53,400
Thereafter............................................ 84,881 50,006 134,887
SPX
Revolving credit loans, under revolving credit agreements dated July 1,
1991 as amended, aggregating $75 million with five banks, have terms of one
year. During the period of the revolving credit loans, the borrowings will bear
interest at negotiated rates not to exceed prime. The company has agreed to pay
the
47
49
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
banks commitment fees of 3/8% per annum of the unused portion of the credit
commitments. The credit agreements do not require the company to maintain any
additional balances at the participating banks, and the agreements can be
reduced in amount or terminated at any time at the option of the company. At
December 31, 1993, the company had unused lines of revolving credit of $75
million. This facility was replaced by a new revolving credit agreement dated
March 1994 (see Note 23).
The company has guaranteed a note purchase agreement with certain insurance
companies under its ESOP. This loan bears interest at 9.04%. Principal is
payable in fifteen annual installments commencing June 1990. The company's
semiannual contributions to the ESOP trust enable the trust to make interest and
principal payments. Additionally, dividends on the ESOP's unallocated shares are
used to make interest and principal payments and are deductible for income tax
purposes. Dividends on unallocated shares were $545,000 in 1993, $590,000 in
1992 and $1,113,000 in 1991. Beginning in 1993, as a result of new ESOP
accounting, these dividends are no longer reflected as dividends in the
consolidated financial statements and are accounted for as direct principal
payments. This facility will be terminated by the end of March 1994 and will be
replaced by the new revolving credit agreement.
The company is subject to a number of restrictive covenants under the
various debt agreements. At December 31, 1993 without consideration of the
availability of the new revolving credit agreement, the company is in default on
the following restrictive covenants due to the consolidation of SP Europe and
the purchase of Riken's 49% ownership interest in SPT; (a) the company is
required to maintain a consolidated fixed charge ratio of 1.5 to 1.0, at
December 31, 1993 it is .54 to 1.0, (b) the company is required to maintain
consolidated net tangible assets of at least 160% of consolidated funded
indebtedness, at December 31, 1993 it is 122%, (c) the company will not declare
dividends that exceed the sum of $40 million plus cumulative consolidated net
income since May 31, 1989, at December 31, 1993, cumulative dividends exceeded
the limitation by $32 million, and (d) the company is required to maintain
consolidated current assets of at least 150% of current liabilities, at December
31, 1993 it was 130%. These restrictive covenant defaults pertain to the $53
million of senior notes, the $22 million of senior notes, the $75 million
revolving credit line, the $19.7 million note to the Allen Group, Inc. and the
guaranteed $42.1 million ESOP note and make the debt payable on demand should
the conditions of default continue after notification. However, in March 1994,
the company obtained a new revolving credit facility of $250 million and will
utilize this facility to repay this defaulted debt (see Note 23). As the new
credit facility expires in 1999, the debt existing at December 31, 1993 has been
classified as long-term.
Included in interest expense, net, was $1.5 million in 1993, $0.5 million
in 1992 and $0.5 million in 1991 of interest income.
SPT
The Term Bank Loan and the Revolving Credit Loans are provided by a
syndicate of ten banks. SPT has unused available credit of up to $25 million on
the revolving credit agreement as of December 31, 1993, subject to receivable
and inventory balances. Additionally, $16 million of financing is available
through the Deferred Term Loan Facility under the Bank Credit Agreement to make
payments on borrowings under the Term Loan Facility should funds not be
sufficient to make scheduled amortization payments due under the Term Loan
Facility. SPT also has $5 million available on a swingline loan facility used to
manage daily cash receipts and disbursements. Loans under this facility are
payable in 5 days. Management believes the facilities are adequate to cover the
1994 financing requirements of SPT.
SPT has entered into hedging arrangements which fix the interest rate of
approximately $70 million of the bank borrowings at 11 1/2% for a period ranging
from one to three years. The unhedged bank loans bear interest at 1 1/4% over
the prime rate or 2 1/4% over the LIBOR rate. The rates are set, at SPT's
option, for various
48
50
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
periods up to one year in length. Substantially all of SPT's assets are pledged
as collateral for loans under the Bank Credit Agreement.
SPT is subject to a number of restrictive covenants under the Bank Credit
Agreement, as amended, and the Indenture related to the subordinated debentures.
Under the most restrictive of these covenants as of year-end, SPT must: (a) meet
a fixed charge coverage ratio of 1.10 to 1; (b) meet a cash interest expense
coverage ratio of 1.90 to 1; (c) meet a current ratio of 1.5 to 1; and (d) limit
capital expenditures for the year ended December 31, 1993 to $18 million. At
year-end, SPT's actual fixed charge ratio was 1.12 to 1; its cash interest
expense coverage ratio was 2.04 to 1; its current ratio was 1.5 to 1 and net
capital expenditures were approximately $17.8 million. The cash interest expense
coverage ratio becomes more restrictive in future periods. The covenants also
restrict distributions to the partners.
Financing costs incurred by SPT were being amortized over the life of the
respective borrowings. Amortization of $1.2 million was recorded in 1993, 1992
and 1991 with the remaining $3.9 million written off as part of the debt
extinguishment charge (see Note 8).
At December 31, 1993, substantially all of SPT's assets are pledged as
collateral under SPT's bank credit agreements. The distribution of these assets,
as well as partnership distributions, to the company from SPT are restricted.
The company's planned second quarter issuance of $260 million of senior
subordinated notes and concurrent payment of the SPT lenders will remove this
restriction. Should the notes not be issued, the SPT indebtedness will remain in
place, including the restrictions.
(20) CAPITAL STOCK
Authorized shares of common stock (par value $10.00) total 50,000,000
shares. Common shares issued and outstanding are summarized in the table below.
DECEMBER 31
----------------------------
1993 1992 1991
------ ------ ------
(IN THOUSANDS)
Shares of Common Stock
Issued.......................................................... 15,556 15,536 15,471
In treasury..................................................... (1,633) (1,633) (1,633)
------ ------ ------
Outstanding..................................................... 13,923 13,903 13,838
------ ------ ------
------ ------ ------
ESOP trust -- unallocated....................................... 1,246 1,361 1,476
The company's treasury stock was purchased in the last half of 1989 at an
average cost of $30 5/8 per share using $50 million of proceeds from the
creation of the company's leveraged ESOP.
The company has 3,000,000 shares of preferred stock, no par value,
authorized, but no shares have been issued.
In June 1989, the company established an employee stock ownership plan
(ESOP). 1,746,725 shares of common stock were issued to the ESOP trust in
exchange for $50 million. These shares were issued at market value ($28 5/8 per
share) and the appropriate amounts are included in common stock and paid in
capital.
The company restated, amended and renamed its 1982 Stock Option Plan to the
1992 Stock Compensation Plan, effective December 15, 1992. Under the new Stock
Compensation Plan, up to 700,000 shares of the company's common stock may be
granted to key employees with those shares still available for use under the
1982 Stock Option Plan being carried forward and forming a part of the 700,000
shares. Awards of incentive stock options, nonqualified stock options, stock
appreciation rights (SAR's), performance units and restricted
49
51
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
stock may be made under the Plan although no more than 200,000 shares may be
granted in the form of restricted stock. The Plan also authorizes the granting
of stock options to directors.
Stock options may be granted to key employees in the form of incentive
stock options or nonqualified stock options at an option price per share of no
less than the fair market value of the common stock of the company on the date
of grant. The options become exercisable six months after the date of the grant
and expire no later than 10 years from the date of grant (or 10 years and 1 day
with respect to nonqualified stock options).
SAR's may be granted to key employees either in conjunction with the
awarding of nonqualified stock options or on a stand-alone basis. The SAR's
entitle the holder to receive a cash payment equal to the excess of the fair
market value of a share of common stock of the company over the exercise price
of the right at the date of exercise of the right.
Performance units, which are equivalent to a share of common stock, may be
granted to key employees and may be earned, in whole or in part, dependent upon
the attainment of performance goals established at the time of grant.
Restricted stock may be granted to key individuals to recognize or foster
extraordinary performance, promotion, recruitment or retention. At the time of
the grant, restrictions are placed on ownership of the shares for a stated
period of time during which a participant will not be able to dispose of the
restricted shares. Upon lapse of the restriction period, complete ownership is
vested in the participant and the shares become freely transferable.
A summary of common stock options, SAR's, and restricted stock issued under
the company's Stock Compensation Plan is as follows:
1993 1992 1991
------- ------- --------
Stock Options:
Outstanding at beginning of year............................ 877,140 735,818 634,729
Granted..................................................... 148,400 215,750 281,350
Exercised................................................... (21,903) (74,428) --
Surrendered/canceled........................................ (79,337) -- (180,261)
------- ------- --------
Outstanding at end of year.................................. 924,300 877,140 735,818
------- ------- --------
------- ------- --------
Price of options exercised and outstanding.................. $11.38- $11.38- $11.38-
28.00 28.00 28.00
Restricted stock granted during year.......................... -- -- 12,000
Shares reserved and available for future grants............... 442,387 511,450 74,375
Stock Appreciation Rights:
Outstanding at beginning of year............................ -- -- 171,100
Granted..................................................... -- -- --
Exercised................................................... -- -- --
Surrendered/canceled........................................ -- -- (171,100)
------- ------- --------
Outstanding at end of year.................................. -- -- --
------- ------- --------
------- ------- --------
Preferred stock is issuable in series with the Board of Directors having
the authority to determine, among other things, the stated value of each series,
dividend rate, conversion rights and preferences in liquidation or redemption.
On June 25, 1986, the company entered into a Rights Agreement which was
amended and restated as of October 20, 1988. Pursuant to the Rights Agreement,
in July 1986, the company issued a dividend of one
50
52
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
preferred stock purchase right on each outstanding share of common stock. Each
right entitles the holder, upon the occurrence of certain events, to purchase
one one-hundredth of a share of a new series of junior participating preferred
stock for $100. Furthermore, if the company is involved in a merger or other
business combination at any time after the rights become exercisable, the rights
will entitle the holder to buy the number of shares of common stock of the
acquiring company having a market value of twice the then current exercise price
of each right. Alternatively, if a 20% or more shareholder acquires the company
by means of a reverse merger in which the company and its stock survive, or
engages in self-dealing transactions with the company, or if any person acquires
20% or more of the company's common stock, then each right not owned by a 20% or
more shareholder will become exercisable for the number of shares of common
stock of the company having a market value of twice the then current exercise
price of each right. The rights, which do not have voting rights, expire on July
15, 1996, and may be redeemed by the company at a price of $.05 per right at any
time prior to their expiration.
(21) SPX CREDIT CORPORATION
In June of 1993, the company acquired Allen Group Leasing from The Allen
Group, Inc. (see Note 4). The company's SP Financial division was merged with
this lease financing unit and has been renamed SPX Credit Corporation ("SPX
CC"). SPX CC provides direct financing leasing alternatives to primarily
electronic diagnostic, emissions testing, and wheel service equipment customers
in the United States and Canada.
SPX CC purchases equipment for lease to others from the company's Specialty
Service Tools divisions, its sole supplier, at prices comparable to those to
third parties. The aggregate cost of equipment purchased from Specialty Service
Tool divisions amounted to approximately $16.0 million in 1993. The company's
Specialty Service Tools divisions charge a commission representing an
origination fee for providing leases and for the cost of services provided to
SPX CC with respect to the negotiation and consummation of new leases in the
amount of $521,000 for 1993 (since the acquisition). SPX CC has an agreement
with Specialty Service Tools divisions for the repurchase of repossessed
equipment at amounts determined to approximate realizable value by the Specialty
Service Tools division. In 1993 (since the acquisition), approximately $5.8
million of equipment was repurchased under this agreement.
Information regarding lease receivables included in the consolidated
balance sheets is as follows (amounts in thousands):
DECEMBER 31, 1993 CURRENT LONG-TERM TOTAL
--------------------------------------------------- -------- -------- --------
Direct financing lease receivables................. $ 36,661 $ 60,263 $ 96,924
Residual value of lease equipment.................. 469 2,862 3,331
Other leasing assets............................... 9,159 192 9,351
Unearned lease finance income...................... (10,427) (10,825) (21,252)
Allowance for credit losses........................ (2,028) (1,479) (3,507)
-------- -------- --------
$ 33,834 $ 51,013 $ 84,847
-------- -------- --------
-------- -------- --------
The aggregate maturities of direct financing lease receivables as of
December 31, 1993 were $36.7 million in 1994, $28.4 million in 1995, $18.0
million in 1996, $10.3 million in 1997 and $3.5 million in 1998.
Essentially all of SPX CC's direct financing lease receivables are with
companies or individuals operating within the automotive repair industry,
including automotive dealerships, garages and similar repair and inspection
facilities, and approximately one-third of lease receivables are with lessees
located in the state of California.
51
53
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
The company has a program whereby certain lease receivables are sold to
financial institutions with limited recourse. In the event of default by a
lessee, the financial institution has recourse equal to their net lease
receivable. In return, the company receives the collateralized lease equipment.
In 1993, 1992 and 1991, $5,613,000, $21,390,000 and $18,705,000 of gross lease
receivables were sold to financial institutions generating revenues of $846,000,
$1,386,000 and $2,936,000. At December 31, 1993 and 1992, financial institutions
held lease receivables, which are subject to limited recourse, of $42,766,000
and $49,235,000. Correspondingly, allowances for recourse liabilities, net of
recoverable value, were $3,743,000 and $2,225,000 at December 31, 1993 and 1992.
(22) CASH FLOWS FROM OPERATING ACTIVITIES
The following provides supplementary information comprising the company's
cash flows from operating activities:
YEARS ENDED DECEMBER 31
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) from operating activities........ $(40,600) $ 14,860 $(21,560)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities --
Cumulative effect of change in accounting
methods....................................... 31,800 5,700 --
Extraordinary loss............................... 24,000 -- --
Depreciation and amortization.................... 24,370 25,277 23,771
SPT equity losses................................ 26,845 2,407 8,532
SP Europe equity losses.......................... 21,500 -- --
Increase (decrease) in deferred income taxes..... (15,306) 7,644 (5,286)
(Increase) decrease in receivables............... (15,523) (1,061) 30,842
Decrease in inventories.......................... 11,609 2,560 22,800
(Increase) decrease in prepaid and other
current assets................................ 2,136 (1,380) (848)
Increase (decrease) in accounts payable.......... (1,623) 3,945 307
Decrease in accrued liabilities.................. (7,238) (787) (6,172)
Increase in income taxes payable................. 4,529 4,457 52
Increase in lease finance receivables............ (9,154) -- --
Gain on sale of businesses, net of taxes......... (64,200) -- --
Restructuring and special charges................ 27,500 -- 18,200
Increase in long-term liabilities................ 6,803 2,131 --
Other, net....................................... (2,163) 1,736 (3,189)
-------- -------- --------
Net cash provided by operating activities.......... $ 25,285 $ 67,489 $ 67,449
-------- -------- --------
-------- -------- --------
(23) SUBSEQUENT EVENT -- REFINANCING
Late in the fourth quarter of 1993, the company determined that virtually
all existing SPX and SPT debt should be refinanced in anticipation of the
purchase of Riken's 49% interest in SPT, due to favorable prevailing interest
rates, scheduled and accelerated debt maturities, and to maintain the
flexibility of the company to grow through internal investments and
acquisitions. The plan of refinancing (the "Refinancing") includes two elements,
a new $225 million revolving bank facility and the issuance of $260 million of
senior subordinated notes. The Refinancing is expected to be completed by the
end of the second quarter of 1994.
52
54
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
In March of 1994, the first portion of the Refinancing was completed when
the company closed a $250 million revolving credit facility with First National
Bank of Chicago, as agent for a syndicate of banks. This revolving credit
facility bears interest at LIBOR plus 1.0% or the prime rate (at the company's
option) and expires in 1999. Upon completion of the senior subordinated note
offering, this revolving credit facility is to be reduced to $225 million of
maximum availability. Proceeds from this revolving credit facility will be used
to extinguish SPX debt as follows: Senior Notes aggregating $75 million, the
$19.7 million note to the Allen Group, the company's ESOP trust's note of $42.1
million and $68 million of miscellaneous debt, much of which was technically in
default of covenant provisions. Also, $15.2 million of letters of credit
securing the Industrial Revenue Bonds were renegotiated.
By June 30, 1994, the company expects to have completed its $260 million
offering of senior subordinated notes. These notes are anticipated to bear
interest at a rate of approximately 10% and will be due in or after the year
2002. At that time, the proceeds will be used to retire existing SPT borrowings,
including the $100 million of 14.5% senior subordinated debentures, the Term
Bank Loan, and the Revolving Credit Loans. Excess proceeds will be used to pay
down the company's new revolving credit facility at that time.
The revolving credit agreement contains covenants, the most restrictive of
which are as follows: (a) maintain a leverage ratio of 78% in 1994, declining on
a graduated scale to 65% in 1999, (b) maintain an interest expense coverage
ratio of 2.0 to 1.0 in 1994 rising on a graduated scale to 3.5 to 1.0 in 1998
and thereafter, (c) maintenance of a fixed charge coverage ratio, as defined in
the revolving credit agreement, of 1.75 to 1.0 in 1994 and 1995, and 2.0 to 1.0
thereafter, and (d) dividends are limited to $8 million for the five quarters
starting with the first quarter of 1994, and are limited to 10% of operating
income plus depreciation and amortization (EBITDA) thereafter. The revolving
credit agreement also limits capital expenditures, investments, and transactions
with affiliates.
If the company does not issue senior subordinated notes, provisions have
been made so that the revolving credit facility will remain at $250 million and
the rate of interest would become LIBOR plus 1.5% or the prime rate plus .5% (at
the company's option) and the facility would be secured by substantially all of
SPX's assets. Also, the existing SPT debt would remain outstanding in its
current form, including security interests in SPT's assets. The financial
covenants, the most restrictive of which, will require the company (excluding
SPT) to: (a) maintain a leverage ratio of 55% in 1994 and 1995, and 50%
thereafter, (b) maintain an interest expense coverage ratio of 3.0 to 1.0 in
1994, 4.0 to 1.0 in 1995 and 5.0 to 1.0 thereafter, (c) maintenance of a fixed
charge coverage ratio, as defined in the revolving credit agreement, of 2.0 to
1.0 in 1994, 1995 and 1996 and 2.25 to 1.0 thereafter, and (d) dividends
declared before March 31, 1995 and paid before June 30, 1995 are limited to $8
million, and thereafter are limited to 10% of operating income plus depreciation
and amortization (EBITDA) during the preceding twelve months. The revolving
credit agreement also limits capital expenditures, investments, transactions
with affiliates, and transactions with SPT.
53
55
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(24) SEALED POWER TECHNOLOGIES -- SELECTED FINANCIAL INFORMATION
As discussed in Note 5, the company consolidated SPT's balance sheet at
December 31, 1993. The company's 49% share of SPT's results of operations has
been recognized on the equity method of accounting. Selected historical
financial information on SPT is as follows:
1993 1992 1991
------- ------ ------
(IN MILLIONS)
OPERATING DATA:
Revenues.................................................... $ 391.6 $355.2 $319.8
Gross profit................................................ 53.8 56.9 45.3
Selling, distribution, & administrative
expenses.................................................. 28.2 26.7 24.0
Other (income), net......................................... (2.0) (2.8) (2.0)
------- ------ ------
Earnings before interest.................................... $ 27.6 $ 33.0 $ 23.3
Interest expense, net....................................... 27.1 29.3 32.1
------- ------ ------
Income (loss) before cumulative effect of
change in accounting method............................... $ .5 $ 3.7 $ (8.8)
Cumulative effect of change in
accounting method*........................................ (89.5) -- --
------- ------ ------
Income (loss)............................................... $ (89.0) $ 3.7 $ (8.8)
------- ------ ------
------- ------ ------
Depreciation and amortization............................... 20.4 19.1 18.7
Capital expenditures, net................................... 17.8 12.9 13.1
Research and development.................................... 3.4 3.8 3.6
Pension expense............................................. .1 -- .2
Lease rental expense........................................ .9 .9 .9
Incremental SFAS No. 106 expense............................ 6.1 -- --
BALANCE SHEET DATA (AT PERIOD END):
Current assets.............................................. $ 76.7 $ 74.6 $ 73.0
Net property, plant and equipment........................... 91.4 91.1 94.4
Other assets................................................ 13.7 15.1 17.3
------- ------ ------
$ 181.8 $180.8 $184.7
------- ------ ------
------- ------ ------
Current liabilities......................................... $ 80.0 $ 66.6 $ 57.6
Long-term liabilities*...................................... 97.5 3.0 --
Long-term debt.............................................. 183.5 199.1 218.7
Partners' capital (deficit)................................. (179.2) (87.9) (91.6)
------- ------ ------
$ 181.8 $180.8 $184.7
------- ------ ------
------- ------ ------
- ---------------
* In 1993, SPT adopted SFAS No. 106, "Employers Accounting for Postretirement
Benefits other than Pensions."
(25) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" requires disclosure of an estimate of the fair
value of certain financial instruments. The following methods and assumptions
were used by the company in estimating its fair value disclosures:
Cash and temporary cash investments: The carrying amount reported on the
consolidated balance sheet approximates its fair value.
54
56
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
Lease Finance Receivables: The carrying amount, which is net of deferred
future lease finance income and reserves for credit losses, approximates fair
value.
Notes payable and current maturities of long-term debt and long-term debt:
The fair value of the company's debt either approximates its carrying value or
represents the carrying value plus the early extinguishment costs to be paid in
the first quarter of 1994 or to be paid during the second quarter of 1994.
Interest rate swaps: The fair value represents the early extinguishment
costs required to terminate the arrangement in 1994.
Letters of Credit: The company utilizes letters of credit to back certain
financing instruments and insurance policies. The Letters of Credit reflect fair
value as a condition of their underlying purpose and are subject to fees
competitively determined in the marketplace.
The carrying amounts and fair values of the company's financial instruments
at December 31, 1993 are as follows (amounts in thousands):
CARRYING FAIR
AMOUNT VALUE
--------- ---------
Cash and temporary cash investments............................ $ 117,843 $ 117,843
Lease finance receivables...................................... 84,847 84,847
Notes payable and current maturities of long-term
debt and long-term debt...................................... (430,162) (457,662)
Off-Balance Sheet Financial Instruments:
Interest rate swaps.......................................... -- (4,500)
Letters of Credit............................................ -- (44,700)
55
57
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(26) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The first three quarters of 1993 and each quarter of the years 1992 and
1991 have been restated to reflect the company's previous 49% share of SPT
income or losses and the effect of amortizing the difference between its
investment balance and its share of SPT's initial partnership capital deficit.
The first three quarters of 1993 have also been restated to reflect new
accounting for the company's ESOP.
1993
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues............................ $179,164 $212,548 $195,079 $169,354 $756,145
Gross profit........................ 57,388 70,848 65,265 54,612 248,113
Income (loss) before cumulative
effect of change in accounting
methods and extraordinary loss.... 357 5,428 (20,256)* 29,671** 15,200
Cumulative effect of change in
accounting method, net of taxes... (31,800) -- -- -- (31,800)
Extraordinary loss, net of taxes.... -- -- -- (24,000) (24,000)
Net income (loss)................... (31,443) 5,428 (20,256) 5,671 (40,600)
Income (loss) per share:
Before cumulative effect of change
in accounting method and
extraordinary loss............. $ 0.02 $ 0.43 $ (1.61)* $ 2.34** $ 1.20
Cumulative effect of change in
accounting method, net of
taxes.......................... (2.52) -- -- -- (2.52)
Extraordinary loss, net of
taxes.......................... -- -- -- (1.90) (1.90)
Net income (loss)................. $ (2.50) $ 0.43 $ (1.61) $ 0.44 $ (3.22)
- ---------------
* Includes a pretax restructuring charge of $27.5 million, $18.5 million
aftertax and $1.47 per share.
** Includes SP Europe equity losses, $21.5 million after tax and $1.71 per
share. Also includes a pretax gain on the sale of businesses of $105.4
million, $64.2 million aftertax and $5.07 per share.
1992
---------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues................................ $175,230 $217,627 $237,262 $171,050 $801,169
Gross profit............................ 58,716 75,166 76,365 57,753 268,000
Income before cumulative effect of
change in accounting methods.......... 948 8,366 9,289 1,957 20,560
Cumulative effect of change in
accounting methods, net of taxes...... (5,700) -- -- -- (5,700)
Net income (loss)....................... (4,752) 8,366 9,289 1,957 14,860
Income (loss) per share:
Before cumulative effect of change
in accounting methods.............. $ .07 $ .60 $ .67 $ .14 $ 1.48
Cumulative effect of change in
accounting methods, net of taxes... (.41) -- -- -- (.41)
Net income (loss)..................... $ (.34) $ .60 $ .67 $ .14 $ 1.07
56
58
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
1991
---------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenues................................ $156,731 $177,513 $172,000 $167,224 $673,468
Gross profit............................ 51,570 59,117 52,275 48,880 211,842
Net income (loss)....................... (4,460) 2,769 (16,539)* (3,327) (21,557)
Net income (loss) per share............. $ (.32) $ .20 $ (1.20)* $ (.24) $ (1.56)
- ---------------
* Includes a pretax special charge of $18.2 million, $14.7 million aftertax and
$1.06 per share.
(27) SUPPLEMENTARY FINANCIAL INFORMATION
PROFIT AND LOSS
CHARGED TO COSTS AND EXPENSES
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Maintenance and repairs....................................... $ 7,539 $ 9,643 $ 6,254
Depreciation and amortization................................. 24,370 25,277 23,771
Payroll taxes................................................. 14,705 12,039 10,244
Advertising................................................... 5,821 6,151 6,278
Research and development costs................................ 17,569 14,718 13,113
BALANCE SHEET
1993 1992
------- -------
(IN THOUSANDS)
Accrued payrolls......................................................... $27,554 $12,200
Warranty reserve......................................................... 7,060 8,300
Automotive Diagnostics' restructuring reserve............................ 14,533 --
Debt extinguishment reserves............................................. 32,000 --
Amount payable for SPT acquisition....................................... 41,700 --
57
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors of the company.
See the company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the caption "Election of Directors".
(b) Executive Officers of the company.
See Part I of this Form 10-K at page 10.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
See the company's Proxy Statement, incorporated by reference as Part III of
this Form 10-K, under the headings "Compensation of Executive Officers" and
"Directors' Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the company's Proxy Statement, incorporated by reference as Part III of
this Form 10-K, under the caption "Stock Ownership of Management and Certain
Beneficial Owners".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Peter H. Merlin, a Director of the company, is a Partner and
Chairman -- International Department of the law firm of Gardner, Carton &
Douglas which the company has retained in 1993 and many prior years and
anticipates retaining in 1994 and thereafter.
58
60
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
ITEM NO. DESCRIPTION
-------- ----------------------------------------------------------------------
2 Acquisition Agreement between SPX Corporation and Riken Corporation.
3(i) Restated Certificate of Incorporation, incorporated herein by
reference from the company's Annual Report on Form 10-K, file No.
0-419, for the year ended December 31, 1987.
(ii) Certificate of Ownership and Merger dated April 25, 1988, incorporated
herein by reference from the company's Annual Report on Form 10-K,
file No. 0-419, for the year ended December 31, 1988.
(iii) By-Laws as amended through April 24, 1985, incorporated herein by
reference from the company's Annual Report on Form 10-K, file No.
0-419, for the year ended December 31, 1987.
4(i) Credit Agreement between SPX Corporation and The First National Bank
of Chicago, as agent for the banks named therein, dated as of March
24, 1994.
(ii) 14 1/2% Senior Subordinated Debentures due May 15, 1999 of Sealed
Power Technologies Limited Partnership ("SPT") and SPT Corp.,
incorporated herein by reference from Exhibit 4(i) to SPT's and SPT
Corp.'s Annual Report on Form 10-K, file No. 33-27994, for the year
ended December 31, 1989, as amended by Amendment No. 1 on Form 8 dated
July 24, 1990.
(iii) Indenture dated as of May 30, 1989 between SPT, SPT Corp. and Norwest
Bank Minnesota, National Association, incorporated herein by reference
from Exhibit 4.1 to Post-Effective Amendment No. 1 to Registration
Statement 33-27994, filed by SPT and SPT Corp. on August 7, 1989.
(iv) Bank Credit Agreement (the "SPT Credit Agreement") dated as of May 30,
1989, between SPT and Chemical Bank, as agent for the banks indicated
therein, incorporated herein by reference from Exhibit 4.2 to
Post-Effective Amendment No. 1 to Registration Statement 33-27994,
filed by SPT and SPT Corp. on August 7, 1989.
(v) First Amendment and Second Amendment to the SPT Credit Agreement dated
as of November 30, 1989 and December 22, 1989, respectively,
incorporated herein by reference from Exhibits 4(iv) and 4(v) to SPT's
and SPT Corp.'s Annual Report on Form 10-K, file No. 33-27994, for the
year ended December 31, 1989, as amended by Amendment No. 1 on Form 8
dated July 24, 1990.
(vi) Waiver dated as of March 30, 1990, under the SPT Credit Agreement,
incorporated herein by reference from Exhibit 4(vi) to SPT's and SPT
Corp.'s Annual Report on Form 10-K, file No. 33-27994, for the year
ended December 31, 1989, as amended by Amendment No. 1 on Form 8 dated
July 24, 1990.
59
61
ITEM NO. DESCRIPTION
-------- ----------------------------------------------------------------------
(vii) Third Amendment dated as of April 19, 1991, to the SPT Credit
Agreement, incorporated herein by reference from Exhibit 4(vii) to
SPT's and SPT Corp.'s Quarterly Report on Form 10-Q, file No.
33-27994, for the quarter ended March 31, 1991.
(viii) Fourth Amendment dated as of October 23, 1991, to the SPT Credit
Agreement, incorporated herein by reference from Exhibit 4(viii) to
SPT's and SPT Corp.'s Quarterly Report on Form 10-Q, file No.
33-27994, for the quarter ended September 30, 1991.
10(i) SPX Corporation Executive Share Unit Plan, 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. 0-419, for the year
ended December 31, 1988.
(ii) 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. 0-419, for the year ended
December 31, 1988.
(iii) SPX Corporation Deferred Compensation 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.
0-419, for the year ended December 31, 1988.
(iv) 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.
0-419, for the year ended December 31, 1988.
(v) 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. 0-419, for the year ended December 31, 1988.
(vi) 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. 0-419, for the year
ended December 31, 1988.
(vii) 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. 0-419, for the year ended December 31,
1988.
(viii) 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.
0-419, for the year ended December 31, 1988.
(ix) 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. 0-419, for the year
ended December 31, 1988.
(x) 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.
0-419, for the year ended December 31, 1988.
60
62
ITEM NO. DESCRIPTION
-------- ----------------------------------------------------------------------
(xi) SPX Corporation Stock Ownership Plan, incorporated herein by reference
from the company's Current Report on Form 8-K, file No. 0-419, filed
on July 26, 1989.
(xii) SPX Corporation Stock Ownership Trust, incorporated herein by
reference from the company's Current Report on Form 8-K, file No.
0-419, filed on July 26, 1989.
(xiii) 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. 0-419, for the year ended December 31, 1992.
(xiv) SPX Corporation Supplemental Employee Stock Ownership Plan,
incorporated herein by reference from the company's Annual Report on
Form 10-K, file No. 0-419, for the year ended December 31, 1990.
(xv) Sealed Power Technologies L.P. Retirement Savings Fund, incorporated
herein by reference from Exhibit 10(viii) to SPT's and SPT Corp.'s
Annual Report on Form 10-K, file No. 33-27994, for the year ended
December 31, 1989.
(xvi) Sealed Power Technologies L.P. Pension Plan No. 302, incorporated
herein by reference from Exhibit 4(ix) to SPT's and SPT Corp.'s Annual
Report on Form 10-K, file No. 33-27994, for the year ended December
31, 1989.
(xvii) Sealed Power Technologies Limited Partnership Employee Option Plan,
incorporated herein by reference from Exhibit 4(i) to SPT's Form S-8
Registration Statement No. 33-35993, filed by SPT and SPT Corp. on
July 23, 1990.
11 Statement re computation of earnings per share. See Consolidated
Statement of Income included in this Form 10-K.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
99 Consolidated Financial Statements of SPT and SPT Corp., incorporated
herein by reference from SPT's and SPT Corp.'s Annual Report on Form
10-K, file No. 33-27994, for the year ended December 31, 1993.
(b) Reports on Form 8-K.
The company, on October 26, 1993, filed Form 8-K which provided the
information regarding the divestiture of its Sealed Power Replacement
division.
The company, on November 5, 1993, filed Form 8-K which provided the
information regarding the divestiture of its Truth division.
61
63
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on the 25th day of
March, 1994.
DALE A. JOHNSON CURTIS T. ATKISSON, JR.
Dale A. Johnson, Chairman Curtis T. Atkisson, Jr.
and Chief Executive Officer; President and Chief
Director Operating Officer;
Director
R. BUDD WERNER J. KERMIT CAMPBELL
R. Budd Werner J. Kermit Campbell
Vice President, Finance, Director
Chief Financial and
Accounting Officer
FRANK A. EHMANN EDWARD D. HOPKINS
Frank A. Ehmann Edward D. Hopkins
Director Director
CHARLES E. JOHNSON II REUBEN W. KAPLAN
Charles E. Johnson II Reuben W. Kaplan
Director Director
RONALD L. KERBER PETER H. MERLIN
Ronald L. Kerber Peter H. Merlin
Director Director
DAVID P. WILLIAMS
David P. Williams
Director
62
64
EXHIBIT INDEX
ITEM NO. DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------- ----
2 Acquisition Agreement between SPX Corporation and Riken Corporation.
3(i) Restated Certificate of Incorporation, incorporated herein by reference from
the company's Annual Report on Form 10-K, file No. 0-419, for the year ended
December 31, 1987.
(ii) Certificate of Ownership and Merger dated April 25, 1988, incorporated
herein by reference from the company's Annual Report on Form 10-K, file No.
0-419, for the year ended December 31, 1988.
(iii) By-Laws as amended through April 24, 1985, incorporated herein by reference
from the company's Annual Report on Form 10-K, file No. 0-419, for the year
ended December 31, 1987.
4(i) Credit Agreement between SPX Corporation and The First National Bank of
Chicago, as agent for the banks named therein, dated as of March 24, 1994.
(ii) 14 1/2% Senior Subordinated Debentures due May 15, 1999 of Sealed Power
Technologies Limited Partnership ("SPT") and SPT Corp., incorporated herein
by reference from Exhibit 4(i) to SPT's and SPT Corp.'s Annual Report on
Form 10-K, file No. 33-27994, for the year ended December 31, 1989, as
amended by Amendment No. 1 on Form 8 dated July 24, 1990.
(iii) Indenture dated as of May 30, 1989 between SPT, SPT Corp. and Norwest Bank
Minnesota, National Association, incorporated herein by reference from
Exhibit 4.1 to Post-Effective Amendment No. 1 to Registration Statement
33-27994, filed by SPT and SPT Corp. on August 7, 1989.
(iv) Bank Credit Agreement (the "SPT Credit Agreement") dated as of May 30, 1989,
between SPT and Chemical Bank, as agent for the banks indicated therein,
incorporated herein by reference from Exhibit 4.2 to Post-Effective
Amendment No. 1 to Registration Statement 33-27994, filed by SPT and SPT
Corp. on August 7, 1989.
(v) First Amendment and Second Amendment to the SPT Credit Agreement dated as of
November 30, 1989 and December 22, 1989, respectively, incorporated herein
by reference from Exhibits 4(iv) and 4(v) to SPT's and SPT Corp.'s Annual
Report on Form 10-K, file No. 33-27994, for the year ended December 31,
1989, as amended by Amendment No. 1 on Form 8 dated July 24, 1990.
(vi) Waiver dated as of March 30, 1990, under the SPT Credit Agreement,
incorporated herein by reference from Exhibit 4(vi) to SPT's and SPT Corp.'s
Annual Report on Form 10-K, file No. 33-27994, for the year ended December
31, 1989, as amended by Amendment No. 1 on Form 8 dated July 24, 1990.
(vii) Third Amendment dated as of April 19, 1991, to the SPT Credit Agreement,
incorporated herein by reference from Exhibit 4(vii) to SPT's and SPT
Corp.'s Quarterly Report on Form 10-Q, file No. 33-27994, for the quarter
ended March 31, 1991.
(viii) Fourth Amendment dated as of October 23, 1991, to the SPT Credit Agreement,
incorporated herein by reference from Exhibit 4(viii) to SPT's and SPT
Corp.'s Quarterly Report on Form 10-Q, file No. 33-27994, for the quarter
ended September 30, 1991.
10(i) SPX Corporation Executive Share Unit Plan, 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. 0-419, for the year ended
December 31, 1988.
(ii) 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. 0-419, for the year ended December 31,
1988.
(iii) SPX Corporation Deferred Compensation 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. 0-419, for the year
ended December 31, 1988.
65
ITEM NO. DESCRIPTION PAGE
- -------- ---------------------------------------------------------------------------- ----
(iv) 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. 0-419, for the year ended
December 31, 1988.
(v) 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 Annual Report, file No.
0-419, for the year ended December 31, 1988.
(vi) 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. 0-419, for the year ended
December 31, 1988.
(vii) 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. 0-419, for the year ended December 31, 1988.
(viii) 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. 0-419, for the year ended
December 31, 1988.
(ix) 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. 0-419, for the year ended December 31, 1988.
(x) 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. 0-419, for the year
ended December 31, 1988.
(xi) SPX Corporation Stock Ownership Plan, incorporated herein by reference from
the company's Current Report on Form 8-K, file No. 0-419, filed on July 26,
1989.
(xii) SPX Corporation Stock Ownership Trust, incorporated herein by reference from
the company's Current Report on Form 8-K, file No. 0-419, filed on July 26,
1989.
(xiii) SPX Corporation 1992 Stock Compensation Plan, incorporated herein by
reference from Exhibit 10(iii)(n) to the the company's Annual Report on Form
10-K, file No. 0-419, for the year ended December 31, 1992.
(xiv) SPX Corporation Supplemental Employee Stock Ownership Plan, incorporated
herein by reference from the company's Annual Report on Form 10-K, file No.
0-419, for the year ended December 31, 1990.
(xv) Sealed Power Technologies L.P. Retirement Savings Fund, incorporated herein
by reference from Exhibit 10(viii) to SPT's and SPT Corp.'s Annual Report on
Form 10-K, file No. 33-27994, for the year ended December 31, 1989.
(xvi) Sealed Power Technologies L.P. Pension Plan No. 302, incorporated herein by
reference from Exhibit 4(ix) to SPT's and SPT Corp.'s Annual Report on Form
10-K, file No. 33-27994, for the year ended December 31, 1989.
(xvii) Sealed Power Technologies Limited Partnership Employee Option Plan,
incorporated herein by reference from Exhibit 4(i) to SPT's Form S-8
Registration Statement No. 33-35993, filed by SPT and SPT Corp. on July 23,
1990.
11 Statement re computation of earnings per share. See Consolidated Statement
of Income included in this Form 10-K.
21 Subsidiaries.
23 Consent of Independent Public Accountants.
99 Consolidated Financial Statements of SPT and SPT Corp., incorporated herein
by reference from SPT's and SPT Corp.'s Annual Report on Form 10-K, file No.
33-27994, for the year ended December 31, 1993.