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, 1996
( ) 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 25, 1996 -- 14,560,218
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000s omitted)
(Unaudited)
June 30 December 31
1996 1995
---------- ----------
ASSETS
Current assets:
Cash and temporary investments $ 30,561 $ 17,069
Receivables 168,305 130,171
Inventories 138,346 150,851
Deferred income tax asset and refunds 44,264 47,246
Prepaid and other current assets 24,347 18,191
---------- ----------
Total current assets $ 405,823 $ 363,528
Investments 19,845 18,885
Property, plant and equipment, at cost 425,610 425,636
Accumulated depreciation (224,109) (212,672)
Net property, plant and equipment $ 201,501 $ 212,964
Costs in excess of net assets of
businesses acquired 189,078 192,334
Other assets 29,719 43,647
---------- ----------
Total assets $ 845,966 $ 831,358
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 2,460 $ 893
Accounts payable 90,873 71,379
Accrued liabilities 143,296 135,387
Income taxes payable 4,232 3,352
---------- ----------
Total current liabilities $ 240,861 $ 211,011
Long-term liabilities 113,173 113,737
Deferred income taxes 25,659 25,489
Long-term debt 296,954 318,894
Shareholders' equity:
Common stock $ 162,009 $ 159,474
Paid in capital 57,812 57,668
Retained earnings 22,110 18,997
---------- ----------
Common stock held in treasury (50,000) (50,000)
Unearned compensation (23,239) (26,888)
Cumulative translation adjustments 627 2,976
Total shareholders' equity $ 169,319 $ 162,227
------------ ------------
Total liabilities and shareholders' equity $ 845,966 $ 831,358
============ ============
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands of dollars except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30 June 30
------------------- ----------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $310,623 $293,376 $602,931 $569,145
Costs and expenses
Cost of products sold 236,615 224,886 465,348 442,099
Selling, general and admin. 51,596 52,151 99,538 103,008
Goodwill/Intangible amort. 1,788 2,271 3,665 4,509
Minority interest (income) 0 (483) 0 (1,249)
Restructuring charge 7,693 0 8,817 0
Earnings from equity interests (1,690) (1,097) (2,583) (2,331)
-------- -------- -------- --------
Operating income from
continuing operations $ 14,621 $ 15,648 $ 28,146 $ 23,109
Other expense (income), net 640 475 745 (1,628)
Interest expense, net 8,292 9,123 17,106 18,353
-------- -------- -------- --------
Income before income taxes $ 5,689 $ 6,050 $ 10,295 $ 6,384
Provision for income taxes 2,162 2,478 4,004 2,611
-------- -------- -------- --------
Income from continuing
operations $ 3,527 $ 3,572 $ 6,291 $ 3,773
Income from discontinued
operation, net of tax $ - $ 63 $ - $ 184
-------- -------- -------- --------
Income before
extraordinary loss $ 3,527 $ 3,635 $ 6,291 $ 3,957
Extraordinary loss, net of tax (379) (206) (379) (278)
-------- -------- -------- --------
Net income $ 3,148 $ 3,429 $ 5,912 $ 3,679
======== ======== ======== ========
Income (loss) per share:
From continuing operations $ 0.26 $ 0.28 $ 0.46 $ 0.29
From discontinued operation - 0.00 - 0.01
Extraordinary loss, net of tax (0.03) (0.02) (0.03) (0.02)
======== ======== ======== ========
Net income $ 0.23 $ 0.26 $ 0.43 $ 0.28
======== ======== ======== ========
Dividends per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
Weighted average number of
common shares outstanding 13,829 13,142 13,686 13,087
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(000s omitted)
(Unaudited)
Six Months Ended
June 30
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 5,912 $ 3,679
Adjustments to reconcile net income to net
cash from operating activities -
Extraordinary loss 379 278
Depreciation and amortization 21,469 22,186
(Earnings) from equity interests (2,583) (2,331)
Income applicable to minority interest 0 (1,249)
Decrease (increase) in net deferred income tax assets,
refunds and liabilities 3,152 10,040
(Increase) in receivables (38,134) (8,410)
Decrease (increase) in inventories 12,505 (16,284)
Decrease (increase) in prepaid and other current asset (6,156) 1,828
Increase in net assets of discontinued operation 0 (2,259)
Increase (decrease) in accounts payable 19,494 720
Increase (decrease) in accrued liabilities 5,043 3,886
Increase (decrease) in income taxes payable 1,112 1,542
(Increase) decrease in other assets 8,394 3,697
Restructuring charge 7,380 0
Increase (decrease) in long-term liabilities (564) (1,368)
Compensation recognized under employee stock plan 2,256 1,496
Other, net 1,590 4,672
--------- ---------
Net cash provided by operating activities $ 41,249 $ 22,123
--------- ---------
Cash flows provided (used) by investing activities:
Capital expenditures $ (7,845) $(18,976)
--------- ---------
Net cash provided (used) by investing activities $ (7,845) $(18,976)
Cash flows provided (used) by financing activities:
Net borrowings (payments) under debt agreements $(12,073) $ 13,326
Purchase of senior subordinated notes (8,300) (9,500)
Payment of fees related to debt restructuring (611) (456)
Net shares sold under stock option plan 3,871 901
Dividends paid (2,799) (2,608)
--------- ---------
Net cash used by financing activities $(19,912) $ 1,663
--------- ---------
Net increase (decrease) in cash and temporary
investments $ 13,492 $ 4,810
Cash and temporary investments, beg. of period 17,069 9,859
--------- ---------
Cash and temporary investments, end of period $ 30,561 $ 14,669
========= =========
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 (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.
The preparation of the company's consolidated condensed financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated condensed
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Information regarding the company's segments was as follows:
Three months Six months
ended June 30 ended June 30
1996 1995 1996 1995
------- ------- ------- -------
(in millions)
Revenues:
Specialty Service Tools $ 174.1 $ 153.2 $ 330.7 $ 288.9
Original Equipment Components 136.5 140.2 272.2 280.2
------- ------- ------- -------
Total $ 310.6 $ 293.4 $ 602.9 $ 569.1
======= ======= ======= =======
Operating income (loss):
Specialty Service Tools $ 11.0 $ 10.8 $ 18.0 $ 13.9
Original Equipment Components 9.3 11.0 20.8 20.0
General Corporate (5.7) (6.2) (10.7) (10.8)
------- ------- ------- -------
Total $ 14.6 $ 15.6 $ 28.1 $ 23.1
======= ======= ======= =======
Capital Expenditures:
Specialty Service Tools $ 0.9 $ 0.9 $ 1.4 $ 3.9
Original Equipment Components 2.3 3.9 6.1 14.7
General Corporate 0.1 0.2 0.3 0.4
------- ------- ------- -------
Total $ 3.3 $ 5.0 $ 7.8 $ 19.0
======= ======= ======= =======
Depreciation and Amortization:
Specialty Service Tools $ 3.4 $ 3.9 $ 6.9 $ 7.7
Original Equipment Components 6.8 6.8 13.7 13.5
General Corporate 0.5 0.4 0.9 1.0
------- ------- ------- -------
Total $ 10.7 $ 11.1 $ 21.5 $ 22.2
======= ======= ======= =======
June 30 December 31
1996 1995
------- -------
Identifiable Assets:
Specialty Service Tools $ 406.1 $ 390.3
Original Equipment Components 366.3 361.8
General Corporate 73.6 79.3
------- -------
Total $ 846.0 $ 831.4
======= =======
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 (Unaudited)
3. Restructuring
During the fourth quarter of 1995, the company initiated two
significant restructurings. The first combines five Specialty Service Tool
divisions into two divisions and the second closes a foundry at SP Europe.
During the second quarter of 1996, the company initiated two
additional restructurings. The first includes realigning and downsizing the
Specialty Service Tool international operations, primarily in Europe. The second
involves an early retirement program at the Sealed Power division.
Specialty Service Tool Restructuring
As of June 30, 1996, the restructuring was progressing as planned. The
closing of one manufacturing facility occurred in the second quarter and the
closing of the other manufacturing facility will occur by year end. The closing
of the distribution facility is currently scheduled to occur by the end of the
third quarter. Approximately 300 positions of the net 310 employee positions
identified in this restructuring have been eliminated as of June 30, 1996. At
June 30, 1996, approximately $4.1 million of accruals recorded in the fourth
quarter of 1995 are available for the remaining severance periods.
As previously disclosed, the company estimates that approximately $11
million of incremental costs associated with this restructuring will be incurred
in 1996. These incremental costs did not qualify for accrual in 1995. During the
first six months of 1996, approximately $5.0 million of these incremental costs
were expensed. Of this amount, $1.1 million was recorded as a restructuring
charge to reflect the incremental cost of an early retirement program that was
accepted by approximately 60 people that were identified for termination in the
fourth quarter of 1995. The balance of this amount, $3.9 million, includes
inventory and equipment relocation costs, underabsorbed manufacturing costs,
costs to revise information systems, costs to retain employees and other
miscellaneous costs.
SP Europe Restructuring - German Plant
The restructuring is progressing on schedule and the foundry was closed
in July. As of June 30, 1996, approximately 75 of the 200 employee positions
planned to be reduced have been eliminated. Approximately $2.7 million of
accruals recorded during the fourth quarter of 1995 for severance remain at June
30, 1996.
Specialty Service Tools - International Restructuring
During the second quarter of 1996, the company recorded a $3.5 million
restructuring charge principally to recognize severance associated with the
termination of 113 international employees and the related operations downsizing
costs. As of June 30, 1996, approximately 60 of these employees had been
terminated and the balance will be terminated during the third quarter of 1996.
Sealed Power Division - Early Retirement Program
During the second quarter of 1996, the company recorded a $4.2 million
restructuring charge for an early retirement program at the Sealed Power
division. 94 employees elected to participate in this program.
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.
Update on Restructuring
Please refer to footnote 3 to the consolidated condensed financial
statements.
CONSOLIDATED - Results of Operations:
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in millions)
Revenues:
Specialty Service Tools............ $ 174.1 $ 153.2 $ 330.7 $ 288.9
Original Equipment Components...... 136.5 140.2 272.2 280.2
-------- --------- -------- --------
Total............................ $ 310.6 $ 293.4 $ 602.9 $ 569.1
======== ======== ======== ========
Operating income (loss):
Specialty Service Tools............ $ 11.0 $ 10.8 $ 18.0 $ 13.9
Original Equipment Components...... 9.3 11.0 20.8 20.0
General corporate expense.......... (5.7) (6.2) (10.7) (10.8)
-------- -------- -------- --------
Total............................ $ 14.6 $ 15.6 $ 28.1 $ 23.1
Other expense (income), net........ 0.6 0.4 0.7 (1.6)
Interest expense, net.............. 8.3 9.1 17.1 18.3
-------- -------- -------- --------
Income before income taxes......... $ 5.7 $ 6.1 $ 10.3 $ 6.4
Provision for income taxes......... 2.2 2.5 4.0 2.6
-------- -------- -------- --------
Income from continuing operations.. $ 3.5 $ 3.6 $ 6.3 $ 3.8
Income (loss) from discontinued
operation........................ - $ 0.0 - 0.2
Extraordinary loss, net of taxes... (0.4) $ (0.2) (0.4) (0.3)
-------- -------- ------- --------
Net income......................... $ 3.1 $ 3.4 $ 5.9 $ 3.7
======== ======== ======== ========
Capital expenditures............... $ 7.8 $ 19.0
Depreciation and amortization...... 21.5 22.2
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.
Second Quarter 1996 vs. Second Quarter 1995
General Corporate expense
These expenses represent general unallocated expenses. In the second
quarter of 1996, incentive compensation expense was greater than the second
quarter of 1995. The second quarter of 1995 included 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, 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
During the second quarter of 1995, a portion of interest expense was
allocated to the discontinued operation, SPX Credit Corporation. Second quarter
1996 interest expense was less than the second quarter 1995 interest expense due
to lower debt levels.
Provision for Income Taxes
The second quarter 1996 effective income tax rate was approximately 38%
which reflects the company's current estimated rate for the balance of the year.
Income from Discontinued Operation
The second quarter of 1995 reflects the results of SPX Credit
Corporation, net of allocated interest and income taxes, as a discontinued
operation. SPX Credit Corporation was sold at the end of the third quarter of
1995.
Extraordinary Loss, net of taxes
During the second quarter of 1996, the company purchased $8.3 million
of its 11 3/4 senior subordinated notes. These were purchased in the market at a
premium of $379, net of income taxes. During the second quarter of 1995, the
company purchased $6.0 million of these at a market premium of $206,000, net of
income taxes.
First Six Months of 1996 vs. First Six Months of 1995
General Corporate expense
In the first six months of 1996, incentive compensation expense was
greater than the first six months of 1995. The first six months of 1995 included
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
In the first quarter of 1995, a $1.5 million gain was recorded on the
sale of the company's export aftermarket component distribution business.
Interest Expense, net
During the first six months of 1995, a portion of interest expense was
allocated to the discontinued operation, SPX Credit Corporation. First six
months of 1996 interest expense was less than the first six months of 1995
interest expense due to lower debt levels.
Provision for Income Taxes
The first six months of 1995 effective income tax rate was
approximately 38%, which reflects the company's current estimated rate for the
year.
Income from Discontinued Operation
The first six months of 1995 reflects the results of SPX Credit
Corporation, net of allocated interest and income taxes, as a discontinued
operation. SPX Credit Corporation was sold at the end of the third quarter of
1995.
Extraordinary Loss, net of taxes
During the first six months of 1996, the company purchased $8.3 million
of its 11 3/4 senior subordinated notes. These were purchased in the market at a
premium of $379, net of income taxes. During the first six months of 1995, the
company purchased $9.5 million of these at a market premium of $278,000, net of
income taxes.
SPECIALTY SERVICE TOOLS - Results of Operations:
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues............................$ 174.1 $ 153.2 $ 330.7 $ 288.9
Gross Profit........................ 53.5 50.4 98.1 93.2
% of revenues...................... 30.7% 32.9% 29.7% 32.3%
Selling, general & administrative... 38.1 38.4 73.4 76.9
% of revenues...................... 21.9% 25.1% 22.2% 26.6%
Goodwill/intangible amortization.... 1.1 1.4 2.2 2.7
(Earnings) from equity interests.... (0.2) (0.2) (0.1) (0.3)
Restructuring charge................ 3.5 - 4.6 -
-------- -------- -------- --------
Operating income....................$ 11.0 $ 10.8 $ 18.0 $ 13.9
======== ======== ======== ========
Capital expenditures................ $ 1.4 $ 3.9
Depreciation and amortization....... 6.9 7.7
June 30, 1996 December 31, 1995
(in millions)
Identifiable assets.............$ 406.1 $ 390.3
Second Quarter 1996 vs. Second Quarter 1995
Revenues
Second quarter 1996 revenues increased $20.9 million, or 13.6%, over
the second quarter of 1995. The most significant increase in revenues was
approximately $12 million of dealer equipment sales. These sales were
principally to one customer and represent a large European equipment program
during the quarter. Sales of refrigerant recovery and recycling equipment were
above the second quarter of 1995. The balance of specialty service tool sales
were comparable to the second quarter of 1995.
Gross Profit
Second quarter 1996 gross profit as a percentage of revenues ("gross
margin") of 30.7% was lower than the 32.9% gross margin in 1995. The decrease in
the gross margin was a direct result of the significant increase in dealer
equipment sales in 1996. Dealer equipment sales have a relatively low (less than
15%) gross margin. Also affecting the second quarter of 1996 gross margin was
approximately $.9 million of incremental costs incurred as part of the
restructuring of five divisions into two divisions. These incremental costs
included inventory and equipment relocation costs and underabsorbed
manufacturing costs in a plant being closed.
Selling, General and Administrative ("SG&A")
Second quarter 1996 SG&A expense was $38.1 million, or 21.9% of
revenues, compared to $38.4 million, or 25.1% of revenues, in 1995. The
reduction in second quarter SG&A reflects the company's continuing cost
reduction efforts. The significant decrease in SG&A as a percentage of revenues
also reflects the effect of the higher dealer equipment sales which have a
relatively low SG&A as a percentage of revenues. Additionally, the second
quarter of 1996 SG&A included approximately $1.7 million of costs associated the
ongoing restructuring. These costs include costs to revise information systems,
costs to retain employees during the restructuring period and other
miscellaneous costs.
Goodwill/Intangible Amortization
Non-cash 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. The second quarter of 1996 results were comparable to the
second quarter of 1995.
Restructuring Charge
During the second quarter of 1996, the company recorded a $3.5 million
restructuring charge to recognize severance associated with the termination of
113 international employees and the related operations downsizing costs. As of
June 30, 1996, approximately 60 of these employees had been terminated and the
balance will be terminated during the third quarter of 1996.
Operating Income
Second quarter of 1996 operating income was $11.0 million and second
quarter 1995 operating income was $10.8 million. The increase was primarily
attributable to higher revenues and cost reductions in 1996. Second quarter 1996
was impacted by $6.1 million of incremental costs due to the domestic and
international restructurings.
First Six Months of 1996 vs. First Six Months of 1995
Revenues
First six months of 1996 revenues increased $41.8 million, or 14.5%,
over the first six months of 1995. The most significant explanation for the
increased revenues was an increase of approximately $32 million in dealer
equipment sales. These sales were principally to one customer and represent a
large domestic and international equipment program during the first six months.
The balance of specialty service tool sales were comparable to the first six
months of 1995.
Gross Profit
First six months of 1996 gross profit as a percentage of revenues
("gross margin") of 29.7% was lower than the 32.3% gross margin in 1995. The
decrease in the gross margin was a direct result of the significant increase in
dealer equipment sales in 1996. Dealer equipment sales have a relatively low
(less than 15%) gross margin. Also affecting the first six months of 1996 gross
margin was approximately $1.2 million of incremental costs incurred as part of
the restructuring of five divisions into two divisions. These incremental costs
included inventory and equipment relocation costs and underabsorbed
manufacturing costs in a plant being closed.
Selling, General and Administrative ("SG&A")
First six months of 1996 SG&A expense was $73.4 million, or 22.2% of
revenues, compared to $76.9 million, or 26.6% of revenues, in 1995. The
reduction in first six months SG&A reflects a $1.5 million decrease in research
and development costs which were high in 1995 due to the development of gas
emissions testing and hand-held diagnostic products and reflects a $1.1 million
decrease for severance costs associated with approximately 140 people in 1995.
However, the first six months of 1996 SG&A included approximately $2.7 million
of costs associated the ongoing restructurings. These costs include costs to
revise information systems, costs to retain employees during the restructuring
period and other miscellaneous costs.
Goodwill/Intangible Amortization
Non-cash 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. The first six months of 1996 reflects costs associated with an
inventory reduction and rationalization plan being implemented at JATEK.
Restructuring Charge
The company recorded $4.6 million of restructuring charges in the first
half of 1996. The charges included a second quarter $3.5 million restructuring
charge to recognize severance associated with the termination of 113
international employees and the related operations downsizing costs.
Additionally, the company recorded a first quarter $1.1 million restructuring
charge to reflect the incremental cost associated with 60 employees electing to
participate in an early retirement program. This early retirement program was
initiated during the fourth quarter of 1995 and the employees accepted during
the first quarter of 1996.
Operating Income
First six months of 1996 operating income was $18.0 million and first
six months of 1995 operating income was $13.9 million. The increase was
primarily attributable to higher revenues and cost reductions in 1996. First six
months of 1996 was impacted by $8.5 million of incremental costs due to the
restructurings and the first quarter 1995 was impacted by the higher R&D level
and the severance charge for 140 people.
Capital Expenditures
First six months of 1996 capital expenditures were $1.4 million
compared to first six months of 1995 capital expenditures of $3.9 million. The
company continues to invest in manufacturing capability and systems to better
support customers. Full year 1996 capital expenditures are expected to
approximate $10 million which will include approximately $2 million of
incremental spending to support the restructuring.
Identifiable Assets
Identifiable assets at June 30, 1996 increased approximately $16
million from year-end 1995. The increase was predominately accounts receivable.
The increase in accounts receivable was a result of higher revenues in May and
June of 1996 compared to November and December of 1995. Days sales outstanding
in accounts receivable are approximately 65 to 70 days for the segment.
ORIGINAL EQUIPMENT COMPONENTS - Results of Operations:
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues.................. .........$ 136.5 $ 140.2 $ 272.2 $ 280.2
Gross Profit........................ 20.4 18.1 39.4 33.8
% of revenues.............. ....... 14.9% 12.9% 14.5% 12.1%
Selling, general & administrative... 7.7 7.5 15.4 15.2
% of revenues...................... 5.6% 5.3% 5.7% 5.4%
Goodwill/intangible amortization.... 0.7 0.9 1.5 1.8
Minority interest (income).......... - (0.4) - (1.2)
(Earnings) from equity interests.... (1.5) (0.9) (2.5) (2.0)
Restructuring charge................ 4.2 - 4.2 -
-------- -------- -------- --------
Operating income....................$ 9.3 $ 11.0 $ 20.8 $ 20.0
======== ======== ======== ========
Capital expenditures................ $ 6.1 $ 14.7
Depreciation and amortization....... 13.7 13.5
June 30, 1996 December 31, 1995
(in millions)
Identifiable assets............ $ 366.3 $ 361.8
Second Quarter 1996 vs. Second Quarter 1995
Revenues
Second quarter 1996 revenues were down $3.7 million, or 2.6%, over
second quarter 1995 revenues. The reduction in revenues was principally a result
of softness in the demand by aftermarket customers, particularly for piston
rings. First six months of 1995 revenues were also greater due to higher
die-casting metal costs that are passed on to customers.
Gross Profit
Second quarter 1996 gross margin of 14.9% compares favorably to the
second quarter 1995 gross margin of 12.9%. Several factors that contributed to
relatively low gross margin in 1995 are (1) the previously mentioned die-casting
metal pricing pass through to customers reduced gross margins as the increase in
revenues equals the increase in costs, (2) SP Europe incurred additional costs
associated with the ongoing process to achieve profitability, and (3) a
die-casting facility incurred incremental costs associated with product change
over.
Selling, General and Administrative ("SG&A")
SG&A was $7.7 million, or 5.6% of revenues, in the second quarter of
1996 compared to $7.5 million, or 5.3% of revenues, in 1995. 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.
Minority interest (income)
The second quarter of 1995 reflects the 30% partner's minority interest
in the results of SP Europe. During the fourth quarter of 1995, the 30% partner
limited its participation by not fully funding its share of SP Europe. Starting
in the fourth quarter of 1995, the company records 100% of SP Europe's income or
loss due to this limited participation.
(Earnings) from equity interests
Earnings from equity interests include the company's share of earnings
or losses in Promec, IBS Filtran and Allied Ring Corporation ("ARC").
Restructuring charge
During the second quarter of 1996, the company recorded a $4.2 million
restructuring charge for an early retirement program at the Sealed Power
division. 94 employees elected to participate in this program.
Operating Income
Second quarter 1996 operating income was $9.3 million and second
quarter of 1995 operating income was $11.0 million. The $1.7 million decrease
reflects the impact of the $4.2 million restructuring charge for the early
retirement program.
First Six Months of 1996 vs. First Six Months of 1995
Revenues
First six months of 1996 revenues were down $8.0 million, or 2.9%, over
the first six months of 1995 revenues. A portion of the decrease was
attributable to lower March shipments to General Motors resulting from a strike
experienced by that customer. The decrease in revenues was mitigated somewhat by
strong demand for cylinder liners. Also, aftermarket demand weakened during the
second quarter of 1996. First six months of 1995 revenues were also higher due
to the effect of higher die-casting metal prices.
Gross Profit
First six months of 1996 gross margin of 14.5% compares favorably to
the first six months of 1995 gross margin of 12.1%. Several factors that
contributed to relatively low gross margin in 1995 are (1) the previously
mentioned die-casting metal pricing pass through to customers reduced gross
margins as the increase in revenues equals the increase in costs, (2) during the
first quarter of 1995, the company purchased approximately $6 million of
inventory from an aftermarket customer, began to package this inventory for the
customer and recorded a $1.2 million charge to state this inventory at the
company's standard inventory cost, (3) SP Europe recorded approximately $.8
million in severance charges and incurred additional costs associated with the
ongoing process to achieve profitability, and (4) a die-casting facility
incurred incremental costs associated with product change over.
Selling, General and Administrative ("SG&A")
SG&A was $15.4 million, or 5.7% of revenues, in the first six months of
1996 compared to $15.2 million, or 5.4% of revenues, in 1995. 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.
Minority interest (income)
The first six months of 1995 reflects the 30% partner's minority
interest in the results of SP Europe. During the fourth quarter of 1995, the 30%
partner limited its participation by not fully funding its share of SP Europe.
Starting in the fourth quarter of 1995, the company records 100% of SP Europe's
income or loss due to this limited participation.
(Earnings) from equity interests
Earnings from equity interests include the company's share of earnings
or losses in Promec, IBS Filtran and Allied Ring Corporation ("ARC").
Restructuring charge
During the second quarter of 1996, the company recorded a $4.2 million
restructuring charge for an early retirement program at the Sealed Power
division. 94 employees elected to participate in this program.
Operating Income
First six months of 1996 operating income was $20.8 million and first
six months of 1995 was $20.0 million. The $.8 million increase was reduced by
the impact of the $4.2 million restructuring charge for the early retirement
program in 1996. However, the first six months of 1995 included the $1.2 million
charge associated with the inventory purchase from the aftermarket customer and
the $.8 million of severance costs recorded at SP Europe.
Capital Expenditures
Capital expenditures in the first six months of 1996 were $6.1 million
and $14.7 million in the first six months of 1995. Significant capital
improvements were in process during late 1994 and carried over into the first
half 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
cylinder liners. Capital expenditures for 1996 are expected to approximate $20
million and will be focused upon cost reductions and maintenance of the
operations.
Identifiable Assets
Identifiable assets increased approximately $4.5 million from year-end
1995. The increase was attributable to higher accounts receivable ($14.7
million). The higher accounts receivable are due to higher revenue activity in
the second quarter compared to the fourth quarter of 1995. As the normal cycle
of business activity subsides later in the year, the accounts receivable should
decrease. Offsetting the effect of the increase in accounts receivable,
inventories decreased by $8.2 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Impact of the Clean Air Act and Other Environmental Regulations - During 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 gas emissions test equipment in 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.
Strategic Review of Operations - The company is currently performing a strategic
review of each of its operations. This review may result in the divestiture of
one or more of these operations. Additionally, the review may identify strategic
acquisitions. At this time, no divestitures or acquisitions have been made.
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.
The company is highly levered with indebtedness. This financial
leverage requires management to focus on cash flows to meet interest costs and
to maintain dividends. Management believes that operations and the credit
arrangements will be sufficient to supply funds needed by the company in 1996.
Cash Flow
Three months ended June 30,
1996 1995
(in millions)
Cash flow from:
Operating activities...... $ 41.3 $ 22.1
Investing activities...... (7.8) (19.0)
Financing activities...... (19.9) 1.7
--------- ---------
Net Cash Flow............ $ 13.5 $ 4.8
========= =========
Cash flow from operating activities in the first six months of 1996,
$41.3 million, compares favorably with the first six months of 1995, $22.1
million. The first six months of 1996 cash flow from operating activities
reflects improved working capital management, primarily inventory.
Cash flow from investing activities during the first six months of 1996
and 1995 represent capital expenditures of $7.8 million and $19.0 million,
respectively. Capital expenditures for 1996 should approximate $30 million for
the year.
Cash flow from financing activities during the first six months of 1996
reflects the company's quarterly dividend payment and an $20.4 million reduction
in borrowings. During the first six months of 1995, cash flow from financing
activities included the company's quarterly dividend payments and modest
borrowings.
Capitalization
June 30, December 31,
1996 1995
(in millions)
Notes payable and current maturities
of long-term debt..................... $ 2.5 $ 0.9
Long-term debt......................... 296.9 318.9
--------- ---------
Total debt........................... $ 299.4 $ 319.8
Shareholders' equity................... 169.3 162.2
--------- ---------
Total capitalization................... $ 468.7 $ 482.0
========= =========
Total debt to capitalization ratio..... 63.9% 66.3%
At June 30, 1996, the following summarizes the debt outstanding and
unused credit availability:
Total Amount Unused Credit
Commitment Outstanding Availability
(in millions)
Revolving credit............ $ 175.0 $ 50.0 $ 109.7(a)
Swingline loan facility..... 5.0 - 5.0
Senior subordinated notes... 220.0 220.0 -
Industrial revenues bonds... 15.1 15.1 -
Other....................... 17.7 14.3 3.4
---------- --------- ---------
Total debt................ $ 432.8 $ 299.4 $ 118.1
========= ========= =========
(a) Decreased by $15.3 million of facility letters of credit
outstanding at June 30, 1996 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 75% or less. The leverage ratio
at June 30, 1996 was 67%. Maintain an interest expense coverage ratio, as
defined, of 1.75:1 or greater. The interest expense
coverage ratio at June 30, 1996 was 2.32:1.
Maintain a fixed charge coverage ratio, as defined, of 1.50:1 or greater.
The company's fixed charge coverage ratio at June 30, 1996 was 1.85:1.
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,
1996 were $5.3 million and 10% of EBITDA for the period was $8.0 million.
Covenants also limit capital expenditures, investments and transactions
with affiliates.
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 1996. Aggregate future
maturities of total debt are not material for 1996 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.
--------------------
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements which reflect management's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including but not limited to those matters
discussed under the caption "Factors That may Affect Future Results" above. Due
to such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date
hereof.
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 25, 1996, filed Form 8-K which provided information
regarding the company's Rights Agreement and the declaration of a dividend of
one preferred share purchase right for each outstanding share of common stock of
the company.
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: August 6, 1996 By /s/ John B. Blystone
---------------------
John B. Blystone
Chairman, President and
Chief Executive Officer
Date: August 6, 1996 By /s/ William L. Trubeck
-----------------------
William L. Trubeck
Senior Vice President,
Finance, and Chief
Financial and Accounting
Officer
5
6-MOS
DEC-31-1996
JUN-30-1996
30,561
0
177,474
(9,169)
138,346
405,823
425,610
(224,109)
845,966
240,861
220,000
162,009
0
0
7,310
845,966
602,931
602,931
465,348
574,785
745
0
17,106
10,295
4,004
6,291
0
(379)
0
5,912
.43
.43
