F O R M 1 0 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to_________
Commission File Number 1-6948
SPX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-1016240
(State of Incorporation) (I.R.S. Employer Identification No.)
700 Terrace Point Drive, Muskegon, Michigan 49443
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code (616) 724-5000
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
Common shares outstanding July 24, 1995 -- 14,147,731
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000s omitted)
(Unaudited)
June 30 December 31
1995 1994
ASSETS
Current assets:
Cash and temporary investments $ 14,669 $ 9,859
Receivables 136,939 128,529
Inventories 168,105 151,821
Deferred income tax asset and refunds 46,094 55,843
Prepaid and other current assets 23,320 25,148
Total current assets $ 389,127 $ 371,200
Net assets of discontinued operation 81,855 79,596
Investments 17,665 16,363
Property, plant and equipment, at cost 427,537 408,236
Accumulated depreciation (209,327) (193,450)
Net property, plant and equipment $ 218,210 $ 214,786
Costs in excess of net assets of
businesses acquired 195,764 199,145
Other assets 42,760 47,954
Total assets $ 945,381 $ 929,044
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 1,812 $ 1,133
Accounts payable 83,667 82,947
Accrued liabilities 135,959 132,073
Income taxes payable 4,464 3,100
Total current liabilities $ 225,902 $ 219,253
Long-term liabilities 119,273 120,641
Deferred income taxes 16,667 16,376
Long-term debt 417,229 414,082
Shareholders' equity:
Common stock $ 157,801 $ 156,478
Paid in capital 57,390 58,072
Retained earnings 30,482 29,411
$ 245,673 $ 243,961
Common stock held in treasury (50,000) (50,000)
Unearned compensation (28,085) (31,073)
Minority interest (4,527) (3,278)
Cumulative translation adjustments 3,249 (918)
Total shareholders' equity $ 166,310 $ 158,692
Total liabilities and shareholders' $ 945,381 $ 929,044
equity
3
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands of dollars except per share amounts)
(Unaudited)
Three Six
months months
ended ended
June 30 June 30
1995 1994 1995 1994
Revenues $293,376 $285,807 $569,145 $559,891
Costs and expenses
Cost of products sold 224,886 215,794 442,099 425,129
Selling, general and 52,151 50,077 103,008 101,052
admin.
Goodwill/Intangible 2,271 1,766 4,509 3,392
amort.
Minority interest (income) (483) (210) (1,249) (450)
Earnings from equity (1,097) (513) (2,331) (1,051)
interests
Operating income from
continuing operations $ 15,648 $ 18,893 $ 23,109 $ 31,819
Other expense (income),net 475 (185) (1,628) (427)
Interest expense, net 9,123 8,193 18,353 16,970
Income before income taxes $ 6,050 $ 10,885 $ 6,384 $ 15,276
Provision for income taxes 2,478 4,234 2,611 5,950
Income from continuing
operations $ 3,572 $ 6,651 $ 3,773 $ 9,326
Income from discontinued
operation, net of tax $ 63 $ 249 $ 184 $ 674
Income before
extraordinary loss $ 3,635 $ 6,900 $ 3,957 $ 10,000
Extraordinary loss, net of (206) 0 (278) 0
tax
Net income $ 3,429 $ 6,900 $ 3,679 $ 10,000
Income (loss) per share:
From continuing operations $ 0.28 $ 0.52 $ 0.29 $ 0.73
From discontinued
operation 0.00 0.02 0.01 0.05
Extraordinary loss, net of
tax (0.02) - (0.02) -
Net income $ 0.26 $ 0.54 $ 0.28 $ 0.78
Dividends per share $ 0.10 $ $0.10 $ 0.20 $ 0.20
Weighted average number of
common shares outstanding 13,142 12,759 13,087 12,740
4
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(000s omitted)
(Unaudited)
Six Months Ended
June 30
1995 1994
Cash flows from operating activities:
Income from continuing operations $ 3,773 $ 9,326
Adjustments to reconcile net income (loss) to net
cash from continuing operating activities -
Depreciation and amortization 22,186 19,838
(Earnings) from equity interests (2,331) (1,051)
Decrease in net deferred income tax assets,
refunds and liabilities 10,040 (1,549)
Increase in receivables (8,410) (30,224)
Increase in inventories (16,284) (5,313)
Decrease in prepaid and other current assets 1,828 8,426
Increase in accounts payable 720 7,302
Increase (decrease) in accrued liabilities 3,886 (8,162)
Increase (decrease) in income taxes payable 1,542 (8,023)
(Increase) decrease in other assets 3,697 (4,012)
Increase (decrease) in long-term liabilities (1,368) 724
Other, net 5,820 1,577
Net cash provided (used) by continuing
operating activities $ 25,099 $ (11,141)
Income from discontinued operation $ 184 $ 674
Adjustments to reconcile net income to net
cash from discontinued operating activities -
Net (increase) decrease in net assets
of discontinued operation (2,259) 1,688
Net cash provided (used) by discontinued
operating activities $ (2,075) $ 2,362
Net cash provided (used) by operating activities $ 23,024 $ (8,779)
Cash flows used by investing activities:
Capital expenditures $ (18,976) $ (20,466)
Payments for purchase of business - (39,000)
Net cash used by investing activities $ (18,976) $ (59,466)
Cash flows provided (used) by financing
activities:
Net borrowings (payments) under debt agreements $ 13,326 $ 3,042
Purchase of senior subordinated notes $ (9,500) -
Payment of fees related to debt restructuring (456) (33,219)
Dividends paid (2,608) (2,549)
Net cash provided (used) by financing activities $ 762 $ (32,726)
Net increase (decrease) in cash and temporary
investments $ 4,810 $(100,971)
Cash and temporary investments, beg. of period 9,859 117,843
Cash and temporary investments, end of period $ 14,669 $ 16,872
5
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995 (Unaudited)
1. The interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair
statement of the results of the interim periods presented.
All adjustments are of a normal recurring nature.
Certain amounts in the 1994 consolidated financial
statements have been reclassified to conform with the 1995
presentation. This reclassification had no effect on net
income for any period.
2. Information regarding the company's segments was as follows:
Three months Six months
ended June 30 ended June 30
1995 1994 1995 1994
(in millions)
Revenues:
Specialty Service Tools $ 153.2 $ 146.9 $ 288.9 $ 286.6
Original Equipment
Components 140.2 138.9 280.2 273.3
Total $ 293.4 $ 285.8 $ 569.1 $ 559.9
Operating income (loss):
Specialty Service Tools $ 10.8 $ 10.1 $ 13.9 $ 16.1
Original Equipment
Components 11.0 13.6 20.0 25.1
General Corporate (6.2) (4.8) (10.8) (9.4)
Total $ 15.6 $ 18.9 $ 23.1 $ 31.8
Capital Expenditures:
Specialty Service Tools $ 0.9 $ 1.4 $ 3.9 $ 4.2
Original Equipment
Components 3.9 8.6 14.7 14.6
General Corporate 0.2 0.2 0.4 1.7
Total $ 5.0 $ 10.2 $ 19.0 $ 20.5
Depreciation and
Amortization:
Specialty Service Tools $ 3.9 $ 3.7 $ 7.7 $ 7.7
Original Equipment
Components 6.8 5.8 13.5 11.5
General Corporate 0.4 0.5 1.0 0.6
Total $ 11.1 $ 10.0 $ 22.2 $ 19.8
June 30 December 31
1995 1994
Identifiable Assets:
Specialty Service Tools $ 412.1 $ 397.9
Original Equipment
Components 384.1 367.9
General Corporate 149.2 163.2
Total $ 945.4 $ 929.0
6
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995 (Unaudited)
3. In April, the company announced its intention to sell SPX
Credit Corporation. This sale is anticipated to occur
during the third quarter. Negotiations with interested
parties are currently proceeding. These negotiations have
not progressed sufficiently to determine whether a gain or
loss will be realized on this sale. The company does not
believe that the gain or loss on this sale will be material.
Proceeds from this sale will be used to reduce debt.
The results of operations, net of taxes, and the net assets
of SPX Credit Corporation are presented in the accompanying
consolidated financial statements as a discontinued
operation. Consolidated interest expense has been allocated
based upon the ratio of the net assets of the discontinued
operation to the consolidated capitalization of the company.
Income taxes have been allocated to the discontinued
operation at approximately 41% of pretax income. No general
corporate expenses have been allocated to the discontinued
operation. The results of operation of the discontinued
operation are not necessarily indicative of the results of
operations which may have been obtained had continuing and
discontinued operations been operating independently.
The following summarizes the results of operations and net
assets of SPX Credit Corporation for the periods indicated:
Three months Six months
ended June 30 ended June 30
1995 1994 1995 1994
(in millions)
Revenues $ 3.0 $ 3.3 $ 6.1 $ 6.6
Operating income 1.6 1.7 3.2 3.9
Interest expense 1.4 1.3 2.9 2.8
Pretax income $ 0.2 $ 0.4 $ 0.3 $ 1.1
Provision for income taxes 0.1 0.2 0.1 0.4
Net income $ 0.1 $ 0.2 $ 0.2 $ 0.7
June 30 Dec. 31
1995 1994
Lease finance receivables-current $35.7 $35.0
Other current assets 0.2 0.1
Lease finance receivables-long term 48.1 47.0
Other noncurrent assets 0.1 0.1
Current liabilities (2.2) (2.6)
Net assets $81.9 $79.6
7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The following unaudited information should be read in
conjunction with the company's unaudited consolidated financial
statements and the related footnotes.
Results of Operations - Second Quarter 1995 vs. Second Quarter
1994
Consolidated:
Three months ended
June 30,
1995 1994
(in millions)
Revenues:
Specialty Service Tools............ $ 153.2 $ 146.9
Original Equipment Components...... 140.2 138.9
Total............................ $ 293.4 $ 285.8
Operating income (loss):
Specialty Service Tools............ $ 10.8 $ 10.1
Original Equipment Components...... 11.0 13.6
General corporate expense.......... (6.2) (4.8)
Total............................ $ 15.6 $ 18.9
Other expense(income),net.......... .4 (0.2)
Interest expense,net............... 9.1 8.2
Income before income taxes......... $ 6.1 $ 10.9
Provision for income taxes......... 2.5 4.2
Income from continuing operations.. $ 3.6 $ 6.7
Income from discontinued operation. 0.0 .2
Extraordinary loss, net oftaxes.... (0.2) $ -
Net income......................... $ 3.4 $ 6.9
On the following pages, revenues, operating income and
related items are discussed by segment. The following provides
explanation of general corporate expenses and other consolidated
items that are not allocated to the segments.
General Corporate expense
These expenses represent general unallocated expenses.
Second quarter of 1995 includes a $1.8 million charge related to
early retirement of three officers and severance costs associated
with six employees at the corporate office.
Other expense (income), net
Represents expenses not included in the determination of
operating results, including gains or losses on currency
exchange, translation gains or losses due to translation of
financial statements in highly inflationary countries, the fees
incurred on the sale of accounts receivable under the company's
accounts receivable securitization program, gains or losses on
the sale of fixed assets and unusual non-operational gains or
losses.
Interest Expense, net
The second quarter 1995 interest expense, net reflects the
debt structure in place after the 1994 refinancing. The level of
interest expense, $9.1 million, was comparable with interest
expense of the third and fourth quarters of 1994. The
refinancing was completed during the second quarter of 1994 and
included obtaining the $225 million revolving credit facility and
issuance of $260 million of senior subordinated notes.
8
Provision for Income Taxes
The second quarter 1995 effective income tax rate was
approximately 41%, which reflects the company's current estimated
rate for the year.
Income from discontinued operations
During the first quarter of 1995, the company announced its
intention to sell SPX Credit Corporation. This action is
progressing and is expected to be completed during the third
quarter of 1995. As a result, the results of operations of SPX
Credit Corporation, net of allocated interest and income taxes,
are presented as a discontinued operation.
Extraordinary loss, net of taxes
Late in the first quarter of 1995, the company began to
repurchase some of its 11 3/4% senior subordinated notes. These
notes have been purchased in the market at a premium and this
premium, net of income taxes, is included as the extraordinary
loss. During the second quarter of 1995, $6 million of notes
were purchased at a premium of $338,000.
Specialty Service Tools:
Three months ended
June 30,
1995 1994
(in millions)
Revenues............................. $ 153.2 $ 146.9
Gross Profit......................... 50.4 49.0
% of revenues...................... 32.9% 33.3%
Selling, general & administrative.... 38.4 37.5
% of revenues...................... 25.1% 25.5%
Goodwill/intangible amortization..... 1.4 1.4
(Earnings) from equity interests..... (0.2) 0.0
Operating income..................... $ 10.8 $ 10.1
Revenues
Second quarter 1995 revenues increased $6.3 million, or
4.3%, from the second quarter of 1994. The primary reasons for
the increase were continued strength in the base specialty
service tool sales including electronic and mechanical program
tools and dealer equipment. Additionally, sales of hydraulic
tools continue to be strong and are up significantly over last
year.
The above increases in revenue levels were offset somewhat
by lower European revenues and lower revenues from refrigerant
recycling and recovery equipment. Also negatively impacting sales
of engine diagnostic equipment in the first six months of 1995
was the effect of market uncertainties associated with delays in
state emission testing programs. Sales of engine diagnostic and
gas emission testing equipment are closely related.
Gross Profit
Second quarter 1995 gross profit as a percentage of revenues
("gross margin") of 32.9% was lower than the 33.3% gross margin
in 1994. The decrease in the gross margin was primarily a result
of product mix. In addition, refrigerant recycling and recovery
equipment sales, which have higher gross margins, were lower in
the second quarter of 1995.
9
Selling, General and Administrative ("SG&A")
Second quarter 1995 SG&A expense was $38.4 million, or 25.1%
of revenues, compared to $37.5 million, or 25.5% of revenues, in
1994. Second quarter 1995 SG&A compares favorably to last year
as a percentage of revenues as benefits of cost reduction
programs are being realized. Some additional administrative
costs are being incurred to facilitate further cost reductions.
Goodwill/Intangible Amortization
Noncash goodwill and intangible amortization results
primarily from excess purchase price over fair value of assets in
acquisitions.
(Earnings) from equity interests
Represents the equity earnings of JATEK, a 50% owned joint
venture in Japan. JATEK's business was very slow in the first
half of 1994 reflecting economic conditions in Japan. The second
quarter of 1995 reflects the continued improvement in results
that began in the last half of 1994.
Operating Income
1995 second quarter operating income of $10.8 million was
higher than second quarter 1994 operating income of $10.1
million. This increase was due to the increased revenue level
mitigated by the lower gross margins that were due, principally,
to product mix.
Original Equipment Components:
Three months ended
June 30,
1995 1994
(in millions)
Revenues........................... $ 140.2 $ 138.9
Gross Profit....................... 18.1 20.9
% of revenues.................... 12.9% 15.0%
Selling, general & administrative.. 7.5 7.5
% of revenues.................... 5.3% 5.4%
Goodwill/intangible amortization... 0.9 0.5
Minority interest (income)......... (0.4) (0.2)
(Earnings) from equity interests... (0.9) (0.5)
Operating income................... $ 11.0 $ 13.6
Revenues
Second quarter 1995 revenues were up $1.3 million, or 1.0%,
over second quarter 1994 revenues. The increase was attributable
to continued increases in solenoid valve sales, higher European
revenues principally resulting from the translation effect of the
weaker U.S. dollar, and increased die-casting metal costs passed
on to customers. The increased die-casting metal prices are tied
to the market prices for the metal and do not effect
profitability as the company's cost rises by the same amount.
The second quarter revenues were reduced by the loss of hydraulic
valve train business with a major customer and by the loss of
sales associated with the January sale of the company's export
aftermarket distribution business.
The domestic original equipment automotive and light truck
market and the automotive aftermarket continued to be strong,
which contributed to the continuing strong overall revenue level.
Europe's automotive industry continues to improve.
10
Gross Profit
Second quarter 1995 gross margin of 12.9% compares to the
second quarter 1994 gross margin of 15.0%. Several factors
contributed to this decrease as follows:
The previously mentioned metal cost and pricing pass through
to customers reduced gross margins as the increase in revenues
equals the increase in costs.
The valve train business has incurred lost production and
downsizing costs due to the loss of hydraulic valve train
business with a major customer. Replacement business demand has
been slower than originally anticipated, resulting in additional
unabsorbed manufacturing costs.
SP Europe incurred additional costs associated with the
ongoing process to achieve profitability.
The die-casting facilities incurred incremental costs
associated with product changeovers at one its manufacturing
facilities.
Selling, General and Administrative ("SG&A")
SG&A was $7.5 million, or 5.3% of revenues, in the second
quarter of 1995 compared to $7.5 million, or 5.4% of revenues, in
1994. This reflects the segment's continuing cost containment
efforts as the dollar amounts of SG&A in the comparative quarters
are essentially the same.
Goodwill/Intangible Amortization
Goodwill and intangible amortization was a result of the
excess purchase price over the fair value of assets recorded upon
the acquisition of 51% of SPT at the end of 1993. Second quarter
1994 goodwill and intangible amortization was lower than the
second quarter of 1995 as the company was recording income
related to negative goodwill associated with SP Europe. This
reversal of negative goodwill was completed at the end of the
second quarter of 1994. The second quarter 1995 expense was
comparable with the third and fourth quarters of 1994.
Minority interest (income)
This reflects the 30% partner's minority interest in the
results of SP Europe. SP Europe continued to incur significant
losses in the second quarter of 1995. The company continues to
reconfigure SP Europe's operations in order to achieve
profitability. The second quarter of 1995 results of SP Europe
include additional costs to change manufacturing processes to
improve operating results.
(Earnings) from equity interests
Earnings from equity interests include the company's share
of earnings or losses in RSV, Promec, IBS Filtran and Allied Ring
Corporation ("ARC"). The increase in second quarter 1995
earnings from equity interests over the second quarter of 1994
was due to continued profitability at Promec and improved
profitability at IBS Filtran and ARC. RSV's losses were
comparable to the second quarter of 1994 as this unit continues
through its development phase.
11
Operating Income
Second quarter 1995 operating income was $11.0 million
compared to $13.6 million in the second quarter of 1994. The
$2.6 million decrease was attributable to the die-casting product
changeovers, the impact of the loss of hydraulic valve train
business with a major customer and incremental process costs
incurred at SP Europe.
Results of Operations - First Six Months of 1995 vs. First Six
Months of 1994
Consolidated:
Six months ended
June 30,
1995 1994
(in millions)
Revenues:
Specialty Service Tools............ $ 288.9 $ 286.6
Original Equipment Components...... 280.2 273.3
Total............................ $ 569.1 $ 559.9
Operating income (loss):
Specialty Service Tools............ $ 13.9 $ 16.1
Original Equipment Components...... 20.0 25.1
General corporate expense.......... (10.8) (9.4)
Total............................ $ 23.1 $ 31.8
Other expense (income), net........ (1.6) (0.4)
Interest expense, net.............. 18.3 16.9
Income before income taxes......... $ 6.4 $ 15.3
Provision for income taxes......... 2.6 6.0
Income from continuing operations.. $ 3.8 $ 9.3
Income from discontinued operation. 0.2 .7
Extraordinary loss, net of taxes... (0.3) -
Net income......................... $ 3.7 $ 10.0
Capital expenditures............... $ 19.0 $ 20.5
Depreciation and amortization...... 22.2 19.8
On the following pages, revenues, operating income and
related items are discussed by segment. The following provides
explanation of general corporate expenses and other consolidated
items that are not allocated to the segments.
General Corporate expense
These expenses represent general unallocated expenses. The
first six months of 1995 includes a $1.8 million charge related
to early retirement of three officers and severance costs
associated with six employees at the corporate office.
Other expense (income), net
Represents expenses not included in the determination of
operating results, including gains or losses on currency
exchange, translation gains or losses due to translation of
financial statements in highly inflationary countries, the fees
incurred on the sale of accounts receivable under the company's
accounts receivable securitization program, gains or losses on
the sale of fixed assets and unusual non-operational gains or
losses. In the first quarter of 1995, a $1.5 million gain was
recorded on the sale of the company's aftermarket export
distribution business. 1994 annual revenues of this business
were approximately $14 million. Prospectively, the company will
sell the products previously sold through this business to the
buyer rather than directly to the aftermarket.
12
Interest Expense, net
The first six months of 1995 interest expense, net reflects
the debt structure in place after the 1994 refinancing. The
level of interest expense, $18.3 million, was comparable with
interest expense of the third and fourth quarters of 1994. The
refinancing was completed during the second quarter of 1994 and
included obtaining the $225 million revolving credit facility and
issuance of $260 million of senior subordinated notes.
Provision for Income Taxes
The first six months 1995 effective income tax rate was
approximately 41%, which reflects the company's current estimated
rate for the year.
Income from Discontinued Operation
During the first quarter of 1995, the company announced its
intention to sell SPX Credit Corporation. This action is
progressing and is expected to be completed during the third
quarter of 1995. As a result, the results of operations of SPX
Credit Corporation, net of allocated interest and income taxes,
are presented as a discontinued operation. The first six months
of 1995 results are lower than 1994 due to higher costs
associated with repossessed leases.
Extraordinary loss, net of taxes
Late in the first quarter of 1995, the company began to
repurchase some of its 11 3/4% senior subordinated notes. These
notes have been purchased in the market at a premium and this
premium, net of income taxes, is included as the extraordinary
loss. During the first six months of 1995, $9.5 million of notes
were purchased at a premium of $456,000.
Specialty Service Tools:
Six months ended
June 30,
1995 1994
(in millions)
Revenues............................. $ 288.9 $ 286.6
Gross Profit......................... 93.2 94.9
% of revenues...................... 32.3% 33.1%
Selling, general & administrative.... 76.9 76.1
% of revenues...................... 26.6% 26.6%
Goodwill/intangible amortization..... 2.7 2.6
(Earnings) from equity interests..... (0.3) 0.1
Operating income..................... $ 13.9 $ 16.1
Capital expenditures................. $ 3.9 $ 4.2
Depreciation and amortization........ 7.7 7.7
June 30, 1995 December 31,1994
(in millions)
Identifiable assets.................. $ 412.1 $ 397.9
Revenues
First six months 1995 revenues increased $2.3 million, or
1.0%, from the first six months of 1994. The primary reasons for
the increase were continued strength in the base specialty
service tool sales including electronic and mechanical program
tools and dealer equipment. Additionally, sales of hydraulic
tools continue to be strong and are up significantly over last
year.
13
The above reasons for the increased revenue levels were
mitigated by lower European revenues, particularly gas emission
equipment in Germany, and lower revenues from refrigerant
recycling and recovery equipment. Also negatively impacting
sales of engine diagnostic equipment in the first six months of
1995 was the effect of market uncertainties associated with
delays in state emission testing programs. Sales of engine
diagnostic and gas emission testing equipment are closely
related.
Gross Profit
First six months of 1995 gross profit as a percentage of
revenues ("gross margin") of 32.3% was lower than the 33.1% gross
margin in 1994. The decrease in the gross margin was primarily a
result of product mix. First six months of 1995 sales of
electronic service tools consisted of a greater percentage of
purchased product which carry a lower gross margins than
manufactured product. In addition, refrigerant recycling and
recovery equipment sales, which have higher gross margins, were
lower in the first six months of 1995.
Selling, General and Administrative ("SG&A")
First six months of 1995 SG&A expense was $76.9 million, or
26.6% of revenues, compared to $76.1 million, or 26.6% of
revenues, in 1994. 1995 SG&A compares favorably to 1994 after
noting that 1995 research and development costs in 1995 exceeded
1994 by $1.7 million and that 1995 SG&A included a $1.1 million
charge for downsizing severance costs at the Automotive
Diagnostics division during the first quarter. The additional
$1.7 million in R&D spending was attributable to development of
the newer gas emissions testing products and hand-held diagnostic
equipment which are planned to be sold over the balance of the
year. The downsizing at Automotive Diagnostics involved
approximately 140 people and addressed delays in the state
vehicle emissions testing programs as well as additional cost
reductions to improve future profitability at the unit.
Goodwill/Intangible Amortization
Noncash goodwill and intangible amortization results
primarily from excess purchase price over fair value of assets in
acquisitions.
(Earnings) from equity interests
Represents the equity (earnings) or losses of JATEK, a 50%
owned joint venture in Japan. JATEK's business was very slow in
the first half of 1994 reflecting economic conditions in Japan.
The first six months of 1995 reflects the continued improvement
in results that began in the last half of 1994.
Operating Income
1995 first six months operating income of $13.9 million was
lower than first six months of 1994 operating income of $16.1
million. Before the effect of the increased research and
development spending and the Automotive Diagnostics' severance
charge ($2.8 million combined), the lower gross margins were
virtually offset by reduced SG&A expenses.
Capital Expenditures
First six months of 1995 capital expenditures were
comparable to the first six months of 1994 capital expenditures.
The company continues to invest in manufacturing capability and
systems to better support customers. Full year 1995 capital
expenditures are expected to approximate $8 million.
14
Identifiable Assets
Identifiable assets at June 30, 1995 increased approximately
$14 million from year-end 1994. The increase was predominately
accounts receivable and inventories. The increase in accounts
receivable was a result of higher revenues in the second quarter
1995 compared to the fourth quarter of 1994. Days sales
outstanding in accounts receivable are approximately 65 to 70
days for the segment. The increase in inventories was a result
of delays in state emissions testing programs and the normal
buildup of inventory to support higher business activity.
Original Equipment Components:
Six months ended
June 30,
1995 1994
(in millions)
Revenues........................... $ 280.2 $ 273.3
Gross Profit....................... 33.8 39.7
% of revenues.................... 12.1% 14.5%
Selling, general & administrative.. 15.2 15.3
% of revenues.................... 5.4% 5.6%
Goodwill/intangible amortization... 1.8 0.8
Minority interest (income)......... (1.2) (0.4)
(Earnings) from equity interests... (2.0) (1.1)
Operating income................... $ 20.0 $ 25.1
Capital expenditures............... $ 14.7 $ 14.6
Depreciation and amortization...... 13.5 11.5
June 30, 1995 December 31,1994
(in millions)
Identifiable assets................ $ 384.1 $ 367.9
Revenues
First six months of 1995 revenues were up $6.9 million, or
2.5%, over first six months of 1994 revenues. The increase was
attributable to continued increases in solenoid valve sales,
higher European revenues principally resulting from the
translation effect of the weaker U.S. dollar, and increased die-
casting metal costs passed on to customers. The increased die-
casting metal prices are tied to the market prices for the metal
and do not effect profitability as the company's cost rises by
the same amount. The first six months of 1995 revenues were
reduced by the loss of hydraulic valve train business with a
major customer and by the loss of sales associated with the
January sale of the company's export aftermarket distribution
business.
The domestic original equipment automotive and light truck
market and the automotive aftermarket continued to be strong,
which contributed to the continuing strong overall revenue level.
Europe's automotive industry continues to improve. The company
expects overall revenues to continue at relatively high levels
for the balance of 1995.
Gross Profit
First six months of 1995 gross margin of 12.1% compares to
the first six months of 1994 gross margin of 14.5%. Several
factors contributed to this decrease as follows:
15
The previously mentioned metal cost and pricing pass through
to customers reduced gross margins as the increase in revenues
equals the increase in costs.
During the first quarter, the company purchased
approximately $6 million of inventory from an aftermarket
customer and began to package this inventory for the customer.
The inventory is anticipated to be resold over the next twelve
months at normal margins. A $1.2 million charge was taken to
record this inventory at the company's standard inventory cost.
The valve train business has incurred lost production and
downsizing costs due to the loss of hydraulic valve train
business with a major customer. Replacement business demand has
been slower than originally anticipated, resulting in additional
unabsorbed manufacturing costs.
SP Europe recorded approximately $1.0 million in severance
charges during the first six months and incurred additional costs
associated with the ongoing process to achieve profitability.
The die-casting facilities incurred incremental costs
associated with product changeovers at one its manufacturing
facilities.
Selling, General and Administrative ("SG&A")
SG&A was $15.2 million, or 5.4% of revenues, in the first
six months of 1995 compared to $15.3 million, or 5.6% of
revenues, in 1994. This reflects the segment's continuing cost
containment efforts as the dollar amounts of SG&A in the
comparative quarters are essentially the same.
Goodwill/Intangible Amortization
Goodwill and intangible amortization was a result of the
excess purchase price over the fair value of assets recorded upon
the acquisition of 51% of SPT at the end of 1993. First six
months of 1994 goodwill and intangible amortization is lower than
the first six months of 1995 as the company was recording income
related to negative goodwill associated with SP Europe. This
reversal of negative goodwill was completed at the end of the
second quarter of 1994. The first six months of 1995 expense was
comparable with the third and fourth quarters of 1994.
Minority interest (income)
This reflects the 30% partner's minority interest in the
results of SP Europe. SP Europe continued to incur significant
losses in the first half of 1995. The company continues to
reconfigure SP Europe's operations in order to achieve
profitability. SP Europe's first six months of 1995 included a
$1.0 million severance charge and additional costs necessary to
change manufacturing processes to improve operating results.
(Earnings) from equity interests
Earnings from equity interests include the company's share
of earnings or losses in RSV, Promec, IBS Filtran and Allied Ring
Corporation ("ARC"). The increase in first six months of 1995
earnings from equity interests over the first six months of 1994
was due to continued profitability at Promec and improved
profitability at IBS Filtran and ARC. RSV's losses were
comparable to the first half of 1994 as RSV continues through its
development phase.
16
Operating Income
First six months 1995 operating income was $20.0 million
compared to $25.1 million in the first six months of 1994. The
$5.1 million decrease includes the $1.2 million charge associated
with the inventory purchase from the aftermarket customer and the
$1.0 million of severance costs recorded at SP Europe. The
balance of the reduction in operating profit was attributable to
the die-casting product changeovers, the impact of the loss of
hydraulic valve train business with a major customer and
incremental process costs incurred at SP Europe.
Capital Expenditures
Capital expenditures in the first six months of 1995 were
$14.7 million and $14.6 million in the first six months of 1994.
Significant capital improvements were in process during late 1994
and carried over into the first six months of 1995. These
projects include an additional solenoid valve assembly line,
additional die-casting capacity for high strength heat treated
aluminum die-castings for air bag steering columns and additional
automated cylinder sleeve casting and machining capacity to meet
the demand for aluminum block engine liners. Capital
expenditures for 1995 are expected to approximate $22 million,
and as such, will be significantly lower during the last half of
1995.
Identifiable Assets
Identifiable assets increased approximately $16 million from
year-end 1994. The increase was attributable to higher inventory
($6 million), higher accounts receivable ($7 million), and the
significant capital expenditures for the first half. The higher
inventory was attributable to anticipated third quarter demand as
well as the purchase of inventory from an aftermarket customer
for packaging to be performed by the company in the future. The
higher accounts receivable are due to higher revenue activity in
the second quarter compared to the fourth quarter of 1994. As
the normal cycle of business activity subsides later in the year,
the accounts receivable and inventory levels should decrease.
Factors That May Affect Future Results
Impact of the Clean Air Act and Other Environmental Regulations -
During the first half of 1995, many delays by states in
implementing Federally mandated emissions testing programs
occurred. These delays or modifications in the state programs
reduced the company's expected revenues from vehicle emissions
testing equipment in the first half of 1995. While uncertainties
still exist as to when the states will proceed with these
emissions testing programs, the company believes that the states
will begin implementation within the next few quarters. At that
time, the company should share in a significant portion of this
substantial market.
Equity Offering - During April of 1995, the company announced its
intention to file a Shelf Registration Statement with the U.S.
Securities and Exchange Commission to offer additional equity
when the company believes that market conditions are appropriate.
At this time, due to the current market valuation, the company
has delayed this filing. Should the equity offering occur, it is
intended that the proceeds from the offering would be used to
reduce the company's debt. At this time, no date, number of
shares or targeted share price has been established for such
action.
17
SP Europe - The company's 30% partner in SP Europe is currently
studying its future participation in the business and has
informed the company that its extent of participation will be
decided by the third quarter of 1995. Should the partner choose
to limit its participation, the company could be required to
recognize a portion of losses previously attributed to the
partner. These losses are currently included as "Minority
Interest" in the equity section of the consolidated balance
sheets.
Liquidity and Financial Condition
The company's liquidity needs arise primarily from capital
investment in new equipment, funding working capital requirements
and to meet interest costs.
As a result of the company's acquisition activity in 1993,
the company is highly leveraged. This financial leverage
requires management to focus on cash flows to meet higher
interest costs and to maintain dividends. Management believes
that operations and the borrowing arrangements established in
1994 will be sufficient to supply the near term funds needed by
the company.
Cash Flow
Six months ended June 30,
1995 1994
(in millions)
Cash flow from:
Operating activities...... $ 23.0 $ (8.8)
Investing activities...... (19.0) (59.5)
Financing activities...... 0.8 (32.7)
Net Cash Flow............ $ 4.8 $ (101.0)
Cash flow from operating activities in the first half of
1995, $23.0 million, compares favorably with the first half of
1994, an $8.8 million outflow. The first half 1995 cash flow
from operating activities reflects the seasonal increase in
working capital, offset by a $9.7 million tax refund received.
Accounts receivable and inventory levels tend to be high at the
end of the second quarter due to increased business activity.
Cash flow from investing activities during the first half of
1995 represents the significant capital expenditures, $19.0
million, to expand production capacity, particularly within the
Original Equipment Components segment. Capital expenditures will
be lower during the remaining half of 1995 and should approximate
$30 million for the year. During the first half of 1994, the
company paid Riken Corporation $39 million for the 1993
acquisition of 49% of SPT.
Cash flow from financing activities during the first half of
1995 reflects the company's quarterly dividend payment and modest
borrowings. During the first half of 1994, cash flow from
financing activities included the payment of approximately $33
million of fees related to the debt refinancing.
18
Capitalization June 30, December 31,
1995 1994
(in millions)
Notes payable and current maturities
of long-term debt..................... $ 1.8 $ 1.1
Long-term debt......................... 417.2 414.1
Total debt........................... $ 419.0 $ 415.2
Shareholders'equity.................... 166.3 158.7
Total capitalization................... $ 585.3 $ 573.9
Total debt to capitalization ratio..... 71.6% 72.3%
At June 30, 1995, the following summarizes the debt
outstanding and unused credit availability:
Total Amount Unused Credit
Commitment Outstanding Availability
(in millions)
Revolving credit............ $ 225.0 $ 137.0 $ 71.6(a)
Swingline loan facility..... 5.0 - 5.0
Senior subordinated notes... 250.5 250.5 -
Industrial revenues bonds... 15.1 15.1 -
Other....................... 19.0 16.4 2.6
Total debt................ $ 514.6 $ 419.0 $ 79.2
(a) Decreased by $16.4 million of facility letters of credit
outstanding at June 30, 1995 which reduce the unused credit
availability.
The company is required to maintain compliance with
restrictive covenants contained in the revolving credit
agreement, as amended, and the senior subordinated note
indenture. Under the most restrictive of these covenants, the
company is required to:
Maintain a leverage ratio, as defined, of 78% or less. The
leverage ratio at June 30, 1995 was 73%.
Maintain an interest expense coverage ratio, as defined, of
2.25:1 or greater. The interest expense coverage ratio as of June
30, 1995 was 2.29:1.
Maintain a fixed charge coverage ratio, as defined, of
1.75:1 or greater. The company's fixed charge coverage ratio as
of June 30, 1995 was 1.80:1.
Starting with the second quarter of 1995, limit dividends
paid during the preceding twelve months to 10% of operating
income plus depreciation and amortization (EBITDA) for the twelve
month period. Dividends paid for the twelve month period ended
June 30, 1995 were $5.6 million and 10% of EBITDA for the period
was $9.7 million.
At March 31, 1995, the company obtained an amendment to the
revolving credit agreement to adjust the interest expense
coverage ratio covenant from 2.5:1 to 2.25:1 at June 30, 1995 and
September 30, 1995.
Management believes that the unused credit availability on
the revolving credit facility is sufficient to meet operational
cash requirements, working capital requirements and capital
expenditures for 1995. Aggregate future maturities of total debt
are not material for 1995 through 1998. In 1999, the revolving
credit agreement expires and borrowings on the revolver would
become due, however, management believes that the revolving
credit agreement would likely be extended or that alternate
financing will be available to the company.
19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) None.
(4) None.
(10) None.
(11) Statement regarding computation of earnings
per share.
See Consolidated Condensed Statements of Income.
(15) None.
(18) None.
(19) None.
(20) None.
(22) None.
(23) None.
(24) None.
(27) Financial data schedule.
(99) None.
(b) Reports on Form 8-K
The company, on June 28, 1995, filed Form 8-K which
provided the information regarding the resignation of its Chief
Executive Officer.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPX CORPORATION
(Registrant)
Date: July 26, 1995 By /s/ Charles E.Johnson II
Chairman and
Chief Executive Officer
Date: July 26, 1995 By /s/ William L. Trubeck
Senior Vice President,
Finance, and Chief
Financial and Accounting
Officer
5
3-MOS
DEC-31-1995
JUN-30-1995
14,669
0
144,936
(7,997)
168,105
389,127
427,537
(209,327)
945,381
225,902
250,500
157,801
0
0
8,509
945,381
293,376
293,376
224,886
277,728
475
15,173
9,123
6,050
2,478
3,572
63
(206)
0
3,429
.26
.26
