FORM 10-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, 1997
( ) 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 49443-3301
(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 28, 1997 - 15,077,719
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(Unaudited)
June 30 December 31
1997 1996
---------- ----------
ASSETS
Current assets:
Cash and temporary investments $ 15,833 $ 12,312
Receivables 146,951 96,495
Inventories 128,806 109,258
Deferred income tax asset and refunds 39,708 42,208
Net assets under agreement for sale - 133,795
Prepaid and other current assets 18,086 14,073
---------- ----------
Total current assets $ 349,384 $ 408,141
Investments $ - $ 3,464
Property, plant and equipment, at cost 261,999 251,310
Accumulated depreciation (138,865) (127,445)
Net property, plant and equipment 123,134 123,865
Goodwill 61,400 58,665
Other assets 17,622 21,908
---------- ----------
Total assets $ 551,540 $ 616,043
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3,878 $ 1,430
Accounts payable 74,949 53,011
Accrued liabilities 108,730 115,016
Income taxes payable 38,041 4,973
---------- ----------
Total current liabilities $ 225,598 $ 174,430
Long-term liabilities 91,391 92,618
Deferred income taxes 15,067 15,219
Minority interest 1,501 -
Long-term debt 193,564 227,859
Shareholders' equity:
Common stock 166,698 163,969
Paid in capital 65,206 60,756
Retained deficit (13,772) (48,688)
Common stock held in treasury (170,207) (50,000)
Unearned compensation (20,254) (20,797)
Cumulative translation adjustments (3,252) 677
---------- ----------
Total shareholders' equity $ 24,419 $ 105,917
---------- ----------
Total liabilities and shareholders' equity $ 551,540 $ 616,043
========== ==========
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30 June 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues $230,263 $310,623 $466,925 $602,931
Costs and expenses:
Cost of products sold 166,079 235,715 340,246 464,148
Selling, general and administrative 41,841 49,934 87,230 96,876
Goodwill/Intangible amortization 818 1,788 1,780 3,665
Minority and equity interests 67 (1,690) 97 (2,583)
Restructuring charge - 10,255 - 12,679
-------- -------- -------- --------
Operating income $ 21,458 $ 14,621 $ 37,572 $ 28,146
Other expense (income), net (458) 640 (66,194) 745
Interest expense, net 2,924 8,292 7,252 17,106
-------- -------- -------- --------
Income before income taxes $ 18,992 $ 5,689 $ 96,514 $ 10,295
Provision for income taxes 7,027 2,162 49,844 4,004
-------- -------- -------- --------
Income before extraordinary item $ 11,965 $ 3,527 $ 46,670 $ 6,291
Extraordinary item, net of tax - (379) (10,330) (379)
-------- -------- -------- --------
Net income $ 11,965 $ 3,148 $ 36,340 $ 5,912
======== ======== ======== ========
Income (loss) per share:
Before extraordinary item $ 0.88 $ 0.26 $ 3.33 $ 0.46
Extraordinary item, net of tax - (0.03) (0.74) (0.03)
-------- -------- -------- --------
Net income $ 0.88 $ 0.23 $ 2.59 $ 0.43
======== ======== ======== ========
Dividends per share $ - $ 0.10 $ 0.10 $ 0.20
Weighted average number of
common shares outstanding 13,670 13,829 14,040 13,686
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30
1997 1996
---------- ---------
Cash flows from operating activities:
Net income from operating activities $ 36,340 $ 5,912
Adjustments to reconcile net income to net
cash from operating activities -
Extraordinary loss 10,330 379
Depreciation and amortization 13,325 21,469
Minority and equity interests 97 (2,583)
Restructuring charge - 12,679
Gain on sale of business, net of taxes (31,160) -
Compensation recognized under employee stock plan 2,033 2,256
Deferred taxes 8,078 3,152
Change in operating assets and liabilities
(net of effect of acquired businesses):
Receivables (41,120) (38,134)
Inventories (12,904) 12,505
Prepaid and other assets (5,060) 2,238
Accounts payable and accrued liabilities (7,714) 24,537
Income taxes payable (7,326) 1,112
Long-term liabilities 292 (564)
Other, net 1,165 (3,709)
---------- ---------
Net cash provided by (used by) operating activities $ (33,624) $ 41,249
Cash flows from investing activities:
Proceeds from sale of business $ 223,000 $ -
Investments in businesses (5,109) -
Capital expenditures (10,575) (7,845)
---------- ---------
Net cash provided by (used by) investing activities $ 207,316 $ (7,845)
Cash flows from financing activities:
Net payments under debt agreements $ (36,358) $(20,373)
Payment of costs related to debt extinguishment (16,397) (611)
Shares purchased in tender offer (120,207) -
Net shares sold under stock option plan 3,728 3,871
Dividends paid (1,424) (2,799)
---------- ---------
Net cash used by financing activities $(170,658) $(19,912)
Effect of exchange rate changes on cash 487 -
---------- ---------
Net increase in cash and temporary investments $ 3,521 $ 13,492
Cash and temporary investments, beg. of period 12,312 17,069
---------- ---------
Cash and temporary investments, end of period $ 15,833 $ 30,561
========== =========
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 (Unaudited)
1. The interim financial statements reflect the adjustments, which are, in the
opinion of management, necessary for a fair presentation of the results of
the interim periods. 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
1997 1996 1997 1996
------- ------- ------- -------
(in millions)
Revenues:
Service Solutions $ 162.1 $ 174.1 $ 305.9 $ 330.7
Original Equipment Components 68.1 136.5 161.0 272.2
------- ------- ------- -------
Total $ 230.2 $ 310.6 $ 466.9 $ 602.9
======= ======= ======= =======
Operating income (loss):
Service Solutions $ 17.6 $ 11.0 $ 27.7 $ 18.0
Original Equipment Components 9.6 9.3 21.2 20.8
General Corporate (5.7) (5.7) (11.3) (10.7)
------- ------- ------- -------
Total $ 21.5 $ 14.6 $ 37.6 $ 28.1
======= ======= ======= =======
Capital expenditures:
Service Solutions $ 1.4 $ 0.9 $ 2.9 $ 1.4
Original Equipment Components 4.2 2.3 7.4 6.1
General Corporate 0.1 0.1 0.3 0.3
------- ------- ------- -------
Total $ 5.7 $ 3.3 $ 10.6 $ 7.8
======= ======= ======= =======
Depreciation and amortization:
Service Solutions $ 2.8 $ 3.4 $ 5.5 $ 6.9
Original Equipment Components 3.2 6.8 7.3 13.7
General Corporate 0.1 0.5 0.5 0.9
------- ------- ------- -------
Total $ 6.1 $ 10.7 $ 13.3 $ 21.5
======= ======= ======= =======
June 30 December 31
1997 1996
------- -------
Identifiable Assets:
Service Solutions $ 334.5 $ 291.5
Original Equipment Components 145.9 271.5
General Corporate 71.1 53.0
------- -------
Total $ 551.5 $ 616.0
======= =======
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 (Unaudited)
3. On February 7, 1997, the company completed the sale of substantially all of
the assets and rights used in the manufacture and distribution of piston
rings and cylinder liners, known as the Sealed Power Division ("SPD"). The
sale to Dana Corporation was for $223 million gross cash proceeds. SPD
included the accounts of Sealed Power, a U.S. division, SP Europe Limited
Partnership, 70% owned, Allied Ring Corporation, 50% owned, and Promec, 40%
owned. In addition, the buyer assumed substantially all of the liabilities
and obligations of the business, excluding liabilities relating to income
and other taxes, certain liabilities arising outside the ordinary course of
business, debt, and certain employee related liabilities. The transaction
includes a ten-year noncompetition agreement precluding the company from
competing with SPD. The company recorded a pretax gain of $71.9 million
(included in other expense (income), net), or $31.2 million after-tax on
the transaction.
The accompanying consolidated condensed financial statements include the
results of SPD through February 7, 1997, and the results of the Hy-Lift
division through November 1, 1996, their dates of disposition. The
following unaudited proforma first six months 1997 and 1996 selected
financial data reflects the disposition of these divisions as if they had
occurred as beginning of the periods, respectively. The unaudited proforma
selected results of operations do not purport to represent what the
company's results of operations would actually have been had the
dispositions in fact occurred as of January 1, 1997, or January 1, 1996, or
project the results for any future date or period.
Six months ending June 30,
1997 Proforma Adj. 1997 1996
---------------
Reported Divested Other Proforma Proforma
(in millions, except per share)
Revenues $ 466.9 $(23.5) $ 443.4 $ 457.9
Cost of products sold 340.2 (19.6) 320.6 334.4
------- ------- ------- -------
Gross margin $ 126.7 $ (3.9) $ 122.8 $ 123.5
SG&A 87.2 (1.0) 86.2 89.0
Goodwill/intangible amort. 1.8 (0.2) 1.6 2.8
Minority and equity 0.1 - 0.1 (0.5)
Restructuring charges - - - 8.5
------- ------- ------- -------
Operating income $ 37.6 $ (2.7) $ 34.9 $ 23.7
Other (income) expense (66.2) - (71.9)(a) 5.7 .7
Interest expense, net 7.3 - 1.0 (b) 6.3 13.9
------- ------- ------- ------- -------
Income before income taxes $ 96.5 $ (2.7) $(70.9) $ 22.9 $ 9.1
Provision for income taxes 49.8 (1.0) (40.3)(c) 8.5 3.4
------- ------- ------- ------- -------
Income (d) $ 46.7 $ (1.7) $(30.6) $ 14.4 $ 5.7
======= ======= ====== ======= =======
Income per share $ 3.33 $ 1.03 $ 0.42
Weighted average number
of shares 14.0 14.0 13.7
(a) Adjustment to exclude the gain on the sale of SPD.
(b) Adjustment to interest expense, net, assuming the use of net
proceeds to reduce revolving credit and other debt.
(c) Adjustment to income tax expense to reflect an effective tax rate of
37% in 1997 and 38% in 1996.
(d) Income excludes extraordinary item, net of taxes.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 (Unaudited)
4. During the first quarter of 1997, the company recorded a $6.5 million
charge ($4.1 million after-tax) in other expense (income), net. This charge
reflects anticipated future legal costs associated with the ongoing
litigation with Snap-on Incorporated.
5. On March 11, 1997, the company commenced a cash tender offer for all
$128,415,000 (principal amount) of its outstanding 11 3/4% Senior
Subordinated Notes, due 2002 (the "Notes"), at a purchase price determined
by reference to a fixed spread of 35 basis points over the yield to
maturity of the United States Treasury 5 3/8% Notes due May 31, 1998, on
March 25, 1997, of which an amount equal to 1% of principal amount of each
Note purchased constituted a consent payment that was paid for Notes
tendered on or prior to March 25, 1997.
The tender offer expired on April 9, 1997 and $126,734,000 of the Notes
were tendered. The company paid for these Notes on April 14, 1997. As a
result of the company's irrevocable agreement with note holders tendering
as of March 25 1997, the company recorded an extraordinary first quarter
pretax charge of $16.4 million, or $10.3 million after-tax, for the cost to
repurchase the notes.
6. On April 10, 1997, a Dutch Auction self-tender offer was announced for the
purchase of up to 2.7 million common shares of the company at a price
ranging from $48 to $56 per share. This tender offer expired on May 8, 1997
and 2.147 million shares were purchased at $56 per share. The purchase of
common stock tendered was financed with the revolving credit agreement. Had
the self-tender offer and related financing been completed as of the
beginning of the applicable year, six months 1997 net income would have
been approximately $34.6 million, or $2.70 per share and six months 1996
net income would have been approximately $3.6 million, or $.31 per share.
7. During the first quarter of 1997, the company terminated its practice of
selling undivided fractional interests in domestic trade accounts
receivable. At December 31, 1996, approximately $26 million of accounts
receivable had been sold under this practice.
8. During the first quarter of 1997, the company made three strategic
investments totaling $5.1 million. Effective the beginning of 1997, the
company acquired an additional 30% of JATEK which raised the company's
ownership in this Japanese company to 80%. Also effective the beginning of
1997, the company purchased an additional 10% of IBS Filtran which raised
the company's ownership to 60% in this German company. Effective March 1,
1997, the company acquired A.R. Brasch Marketing Inc., which provides
technical service and training materials for vehicle manufacturers. A.R.
Brasch has annual sales approaching $10 million. Had these acquisitions
taken place on January 1 of the respective years, consolidated revenues and
income would not have been significantly different from reported results.
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
Consolidated:
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in millions)
Revenues:
Service Solutions $ 162.1 $ 174.1 $ 305.9 $ 330.7
Original Equipment Components 68.1 136.5 161.0 272.2
------- ------- ------- -------
Total $ 230.2 $ 310.6 $ 466.9 $ 602.9
======= ======= ======= =======
Operating income (loss):
Service Solutions $ 17.6 $ 11.0 $ 27.7 $ 18.0
Original Equipment Components 9.6 9.3 21.2 20.8
General corporate expense (5.7) (5.7) (11.3) (10.7)
------- ------- ------- -------
Total $ 21.5 $ 14.6 $ 37.6 $ 28.1
Other expense (income), net (0.5) 0.6 (66.2) 0.7
Interest expense, net 3.0 8.3 7.3 17.1
------- ------- ------- -------
Income before income taxes $ 19.0 $ 5.7 $ 96.5 $ 10.3
Provision for income taxes 7.0 2.2 49.8 4.0
------- ------- ------- -------
Income before extraordinary item $ 12.0 $ 3.5 $ 46.7 $ 6.3
Extraordinary item, net of tax - (0.4) (10.3) (0.4)
------- ------- ------- -------
Net income $ 12.0 $ 3.1 $ 36.4 $ 5.9
======= ======= ======= =======
Capital expenditures $ 10.6 $ 7.8
Depreciation and amortization 13.3 21.5
June 30, 1997 December 31, 1996
(in millions)
Identifiable assets $ 551.5 $ 616.0
General corporate expenses and other consolidated items that are not
allocated to the segments are explained below, followed by segment
information.
Second Quarter 1997 vs. Second Quarter 1996
General Corporate expense
The second quarter of 1997 expense was comparable to the second quarter
of 1996.
Other expense (income), net
These expense and income items represent expenses and income not included
in the determination of operating results and include gains or losses on
currency exchange, translation gains or losses of financial statements in highly
inflationary countries, fees incurred on the sale of accounts receivable under
the company's accounts receivable securitization program (discontinued during
the first quarter of 1997), gains or losses on the sale of fixed assets, and
unusual non-operational gains or losses.
Interest Expense, net
Second quarter 1997 interest expense was less than the second quarter 1996
interest expense due to lower debt levels and interest rates.
Provision for Income Taxes
The effective income tax rate for the second quarter of 1997 was 37% which
represents the company's current estimated rate for the year.
Extraordinary item, net of taxes
In the second quarter of 1996, the company recorded a pretax charge of $0.6
million, $0.4 million after-tax, to reflect the costs to repurchase $8.3 million
of its 11 3/4% Senior Subordinated Notes.
First Six Months of 1997 vs. First Six Months of 1996
General Corporate expense
The first six months of 1997 expense was comparable to the first six months
of 1996.
Other expense (income), net
In the first quarter of 1997, the company completed the sale of the Sealed
Power division to Dana Corporation for $223 million in cash. The company
recorded a $71.9 million gain on the sale ($31.2 million after-tax). The results
of operations of Sealed Power are included in the company's consolidated results
through the date of divestiture, February 7, 1997.
First six months 1997 includes a $6.5 million charge for estimated costs of
pending litigation with Snap-on Incorporated. These costs reflect future legal
costs to defend this litigation through its conclusion.
Interest Expense, net
First six months 1997 interest expense was less than the first six months
1996 interest expense due to lower debt levels.
Provision for Income Taxes
The overall income tax provision includes $40.7 million provided on the
sale of the Sealed Power division. Without this item, the effective income tax
rate for the first six months of 1997 was 37% which represents the company's
current estimated rate for the year.
Extraordinary item, net of taxes
In the first six months of 1997, the company recorded a pretax charge of
$16.4 million, $10.3 million after-tax, to reflect the costs to repurchase
$126.7 million of its 11 3/4% Senior Subordinated Notes tendered pursuant to the
company's irrevocable tender offer for these notes.
Service Solutions (formerly Specialty Service Tools):
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in millions)
Revenues......................... $ 162.1 $ 174.1 $ 305.9 $ 330.7
Gross Profit..................... 50.8 54.4 96.3 99.3
% of revenues.................. 31.3% 31.2% 31.5% 30.0%
Selling, general & administrative 32.6 36.4 67.5 70.7
% of revenues.................. 20.1% 20.9% 22.1% 21.4%
Goodwill/intangible amortization. 0.6 1.1 1.1 2.2
Minority and equity interests.... - (0.2) - (0.1)
Restructuring charge............. - 6.1 - 8.5
------- ------- ------- -------
Operating income................. $ 17.6 $ 11.0 $ 27.7 $ 18.0
======= ======= ======= =======
Capital expenditures............. $ 2.9 $ 1.4
Depreciation and amortization.... 5.5 6.9
June 30, 1997 December 31, 1996
(in millions)
Identifiable assets.............. $ 334.5 $ 291.5
Second Quarter 1997 vs. Second Quarter 1996
Revenues
Second quarter 1997 revenues decreased $12.0 million, or 6.9%, from the
second quarter of 1996. The most significant reason for the lower revenues was
that 1996 included approximately $12 million in dealer equipment sales to one
customer. Second quarter 1997 revenues included approximately $12 million of
sales due to the consolidation of JATEK and the purchase of A.R. Brasch.
Offsetting these incremental 1997 sales, were lower sales of essential program
tools and diagnostic and wheel service equipment.
Gross margin
Second quarter 1997 gross margin of 31.3% was comparable to the 31.2% gross
margin in 1996. Second quarter 1997 gross margin was impacted by general revenue
mix towards lower margin product sold during the quarter. Second quarter 1996
gross margin was low due to the significant dealer equipment sales which have a
relatively low (less than 15%) gross margin. Also, productivity improvements and
cost reductions from the 1996 restructuring increased the 1997 gross margin.
Selling, General and Administrative ("SG&A")
Second quarter 1997 SG&A expense was $32.6 million, or 20.1% of revenues,
compared to $36.4 million, or 20.9% of revenues, in 1996. The lower SG&A
spending was primarily due to lower revenues and reduced incentive compensation
expense.
Goodwill/Intangible Amortization
Second quarter of 1997 expense was lower than 1996 primarily due the
company's recording of an impairment of certain goodwill during the fourth
quarter of 1996.
Minority and equity interests
In 1996, this line represented the equity (earnings) or losses of JATEK,
previously 50% owned. Effective the beginning of 1997, the company acquired an
additional 30% of JATEK and its results are now consolidated. Beginning in 1997,
the 20% minority interest in JATEK's results is reflected in this line.
Restructuring Charge
During 1996, the company incurred $6.1 million of restructuring costs to
consolidate five Specialty Service Tool divisions into two divisions.
Operating Income
1997 second quarter operating income of $17.6 million compares to second
quarter 1996 operating income of $17.1 million, excluding the $6.1 million
restructuring charge in 1996. The increase was primarily attributable to cost
reductions and reduced goodwill amortization.
First Six Months of 1997 vs. First Six Months of 1996
Revenues
First six months 1997 revenues decreased $24.8 million, or 7.5%, from the
first six months of 1996. The most significant reason for the lower revenues was
that 1996 included approximately $32 million in dealer equipment sales to one
customer. First six months 1997 revenues include approximately $19 million of
sales due to the consolidation of JATEK and the purchase of A.R. Brasch.
Offsetting these incremental 1997 sales, were lower sales of essential program
tools and diagnostic and wheel service equipment.
Gross margin
First six months 1997 gross margin of 31.5% was higher than the 30.0% gross
margin in 1996. The increase in the gross margin was a direct result of the
significant dealer equipment sales in 1996, which have a relatively low gross
margin. Also, productivity improvements and cost reductions from the 1996
restructuring increased the 1997 gross margin.
Selling, General and Administrative ("SG&A")
First six months 1997 SG&A expense was $67.5 million, or 22.1% of revenues,
compared to $70.7 million, or 21.4% of revenues, in 1996. The lower SG&A
spending was primarily due to lower revenues and reduced incentive compensation
expense. Additionally, the significant dealer equipment sales in the first six
months of 1996 had relatively low SG&A costs, which lowered the 1996 SG&A
percent to revenues.
Goodwill/Intangible Amortization
First six months of 1997 expense was lower than 1996 primarily due the
company's recording of an impairment of certain goodwill during the fourth
quarter of 1996.
Minority and equity interests
In 1996, this line represented the equity (earnings) or losses of JATEK,
previously 50% owned. Effective the beginning of 1997, the company acquired an
additional 30% of JATEK and its results are now consolidated. Beginning in 1997,
the 20% minority interest in JATEK's results is reflected in this line.
Restructuring Charge
During 1996, the company incurred $8.5 million of restructuring costs to
consolidate five Specialty Service Tool divisions into two divisions.
Operating Income
1997 first six months operating income of $27.7 million compares to
first six months 1996 operating income of $26.5 million, excluding the $8.5
million restructuring charge in 1996. The increase was primarily attributable to
cost reductions and reduced goodwill amortization.
Capital Expenditures
First six months 1997 capital expenditures were $2.9 million compared
to first six months of 1996 capital expenditures of $1.4 million. Capital
expenditures for 1997 are expected to approximate $12 million. Starting in 1997,
the company has begun implementation of a new business system designed to
improve systems capabilities at its worldwide Service Solutions businesses.
Identifiable Assets
Identifiable assets at June 30, 1997 increased approximately $43
million from year-end 1996 and included the increase due to the purchase of A.R.
Brasch and the consolidation of JATEK. The balance of the increase was
predominately in receivables and inventories. The increase in receivables was a
result of higher revenues in May and June of 1997 compared to November and
December of 1996. The increase in inventories was a result of a buildup of
inventory to support third quarter business activity.
Original Equipment Components:
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in millions)
Revenues......................... $ 68.1 $ 136.5 $ 161.0 $ 272.2
Gross Profit..................... 13.4 20.4 30.4 39.4
% of revenues.................. 19.7% 14.9% 18.9% 14.5%
Selling, general & administrative 3.5 7.7 8.4 15.4
% of revenues.................. 5.1% 5.6% 5.2% 5.7%
Goodwill/intangible amortization. 0.3 0.7 0.7 1.5
Minority and equity interests.... 0.0 (1.5) 0.1 (2.5)
Restructuring charge ............ - 4.2 - 4.2
------- ------- ------- -------
Operating income................. $ 9.6 $ 9.3 $ 21.2 $ 20.8
======= ======= ======= =======
Capital expenditures............. $ 7.4 $ 6.1
Depreciation and amortization.... 7.3 13.7
June 30, 1997 December 31, 1996
(in millions)
Identifiable assets.............. $ 145.9 $ 271.5
Second Quarter 1997 vs. Second Quarter 1996
Revenues
Second quarter 1997 revenues were down $68.4 million from the second
quarter 1996 revenues due to the divestitures of the Sealed Power and Hy-Lift
divisions. The second quarter of 1996 includes $70.5 million of revenues from
Sealed Power and Hy-Lift.
Gross Profit
Second quarter 1997 gross margin of 19.7% compares favorably to the second
quarter 1996 gross margin of 14.9%. The increase was due to the disposal of
Hy-Lift and Sealed Power, both lower margin businesses.
Selling, General and Administrative ("SG&A")
SG&A was $3.5 million, or 5.1% of revenues, in the second quarter of 1997
compared to $7.7 million, or 5.6% of revenues, in 1996, reflecting continuing
cost containment efforts and the effect of the divestitures.
Goodwill/Intangible Amortization
Goodwill and intangible amortization expense was lower in 1997 due to the
sale of Sealed Power.
Minority and equity interests
In 1996, minority and equity interests reflected the equity earnings of
Promec and Allied Ring Corporation (both sold as part of the Sealed Power
divestiture in February 1997) and IBS Filtran, 50% owned during 1996. In 1997,
this amount represents the 40% minority interest in IBS Filtran's results. The
company acquired an additional 10% of IBS Filtran as of the beginning of 1997
and is now consolidating its results.
Operating Income
Second quarter 1997 operating income was $9.6 million compared to $9.3
million in the second quarter of 1996. The second quarter of 1996 included a
$4.2 million restructuring charge for an early retirement program at the Sealed
Power division.
First Six Months of 1997 vs. First Six Months of 1996
Revenues
First six months 1997 revenues were down $111.2 million from the first six
months of 1996 due to the divestitures of the Sealed Power and Hy-Lift
divisions. The first six months of 1997 includes $23.5 million of revenues from
Sealed Power and the first six months of 1996 includes $145.0 million of
revenues from Sealed Power and Hy-Lift.
Gross Profit
First six months 1997 gross margin of 18.9% compares favorably to the first
six months 1996 gross margin of 14.5%. The increase was due to the disposal of
Hy-Lift and Sealed Power, both lower margin businesses.
Selling, General and Administrative ("SG&A")
SG&A was $8.4 million, or 5.2% of revenues, in the first six months of 1997
compared to $15.4 million, or 5.7% of revenues, in 1996, reflecting continuing
cost containment efforts and the effect of the divestitures.
Goodwill/Intangible Amortization
Goodwill and intangible amortization expense was lower in 1997 due to the
sale of Sealed Power.
Minority and equity interests
In 1996, minority and equity interests reflected the equity earnings of
Promec and Allied Ring Corporation (both sold as part of the Sealed Power
divestiture in February 1997) and IBS Filtran, 50% owned during 1996. In 1997,
this amount represents the 40% minority interest in IBS Filtran's results. The
company acquired an additional 10% of IBS Filtran as of the beginning of 1997
and is now consolidating its results.
Operating Income
First six months 1997 operating income was $21.2 million compared to $20.8
million in the first six months of 1996.
Capital Expenditures
Capital expenditures in the first six months of 1997 were $7.4 million and
$6.1 million in the first six months of 1996. Capital expenditures for 1997 are
expected to approximate $15 million and will be focused upon certain capacity
expansions, cost reductions and maintenance of the operations.
Identifiable Assets
Identifiable assets decreased approximately $126 million from year-end 1996
reflecting the sale of Sealed Power.
Liquidity and Financial Condition
The company's liquidity needs arise primarily from capital investment in
equipment, working capital requirements to support business growth initiatives
and to meet debt service obligations. Management believes that operations and
the credit arrangements will be sufficient to supply funds needed by the company
in 1997.
Cash Flow
Six months ended June 30,
1997 1996
(in millions)
Cash flow from:
Operating activities...... $ (33.6) $ 41.2
Investing activities...... 207.3 (7.8)
Financing activities...... (170.2) (19.9)
--------- ---------
Net Cash Flow............ $ 3.5 $ 13.5
========= =========
Cash flow from operating activities in the first six months of 1997 was an
outflow of $33.6 million. The 1997 cash outflow includes the $26 million effect
of terminating the accounts receivable securitization program during the first
quarter. The 1997 outflow also includes additional increases in accounts
receivable and increases in inventory totaling $28 million. The company has
accelerated its efforts to reduce current inventory levels of engine diagnostic
and wheel service equipment within Service Solutions. Such inventory has a
carrying value of approximately $45 million at June 30, 1997. The success of
this inventory reduction effort is dependent upon the timing of many factors,
including new product technology, migration to lower priced hand-held equipment,
new product introductions (including product developed with Hewlett-Packard
Company), and competition for customer demand given various gas emissions
programs.
Cash flow from investing activities during the first six months of 1997
includes the $223 of cash received on the sale of Sealed Power, offset by $5.1
million invested in A.R. Brasch, and in IBS Filtran (acquired additional 10%
ownership) and capital expenditures of $10.6 million. Capital expenditures of
$7.8 million were made in 1996. Capital expenditures for 1997 should approximate
$27 million for the year.
Cash flow from financing activities during the first six months of 1997
reflects the company's first quarter dividend payment (now discontinued), shares
sold under the stock option plan, $16.4 million of extinguishment costs paid in
the second quarter to repurchase $126.7 million of 11 3/4% senior subordinated
notes, $120.2 million to purchase 2.147 million shares in the "Dutch" auction,
and a $36.4 million reduction in borrowings.
Total Debt
During the first six months of 1997, the company completed a new
financial capital plan. This plan included:
1. A tender offer, dated March 11, 1997, to purchase all outstanding 11
3/4% Senior Subordinated Notes. This tender offer expired April 9, 1997
and $126.7 million of the notes were purchased. The company used
existing cash and cash equivalents and its revolving credit facility to
fund the purchase of the notes.
2. Obtained a new $400 million unsecured revolving credit agreement on May
7, 1997 with a syndicate of banks. The agreement provides debt capacity
for business operations, acquisitions, and the repurchase of common
stock.
3. Announced, on April 10, 1997, a Dutch Auction self-tender offer for up
to 2.7 million common shares of the company at a price ranging from $48
to $56 per share. This tender offer expired on May 8, 1997 and 2.147
million shares were repurchased at $56 per share. The purchase of the
common stock tendered was financed with the new revolving credit
agreement.
4. Concurrent with the announcement of the Dutch Auction, the company
announced the elimination of the quarterly cash dividend. The company
has authorized up to 750,000 shares of common stock to be prospectively
purchased in the open market if future distributions to shareholders
are deemed appropriate by management.
At June 30, 1997, the following summarizes the debt outstanding and unused
credit availability:
Total Amount Unused Credit
Commitment Outstanding Availability
(in millions)
New revolving credit........ $ 400.0 $ 168.1 $ 215.5(a)
Swingline loan facility..... 5.0 - 5.0
Senior subordinated notes... 1.7 1.7 -
Industrial revenues bonds... 15.1 15.1 -
Other....................... 14.7 12.5 2.2
---------- ----------- ------------
Total debt................ $ 436.5 $ 197.4 $ 222.7
========== ============ ============
(a) Decreased by $16.4 million of facility letters of credit
outstanding at June 30, 1997, which reduce the unused credit
availability.
The company is required to maintain compliance with restrictive covenants
contained in the revolving credit agreement. Under the most restrictive
financial covenants, the company is required to maintain the following ratios:
(1) Maintain a Debt - EBITDA Ratio less than 3.75 to 1.0 for fiscal
quarters ending June, September and December of 1997, a ratio
less than 3.5 to 1.0 for fiscal quarters ending March, June and
September of 1998, and a ratio less than 3.0 to 1.0 less
thereafter. At June 30,1997, the ratio was 2.16 to 1.0.
(2) Maintain a Fixed Charge Coverage Ratio greater than 1.5 to 1.0
for fiscal quarters ending in June and September of 1997, a ratio
greater than 1.75 to 1.0 for fiscal quarters ending December 1997
and March, June, and September of 1998, and a ratio greater than
2.0 to 1.0 thereafter. At June 30, 1997, the ratio was 2.61 to
1.0.
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 1997. Aggregate future
maturities of total debt are not material for the next five years. The revolving
credit agreement will expire in 2002 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.
Other Matters
The company continues to review and assess potential acquisition
candidates. The objective to grow the company includes acquisitions within
Service Solutions to expand service and product offerings, and, potentially,
complementary acquisitions within Original Equipment Components. Additionally,
the company could consider an acquisition not directly related to either
segment. At this time, the company is not in a position to comment on the status
of any specific acquisition investigation.
As of the end of 1997, the company must adopt Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." This standard will require
presentation of basic and diluted earnings per share information instead of the
current primary and fully diluted earnings per share required by APB Opinion
No.15. The company's review indicates that the new basic earnings per share
would have been insignificantly higher than the reported primary earnings per
share for the first six months of 1997 and 1996. This is due to the exclusion of
the effect of outstanding options in the basic earnings per share computation
versus the primary earnings per share computation. The company estimates that
the diluted earnings per share for the first six months of 1997 and 1996 would
have been virtually the same as the reported primary earnings per share for
these periods.
Beginning in 1998, the company must adopt Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." No. 130 will require
the company to report comprehensive income as part of the consolidated financial
statements. The company expects that foreign currency translation adjustments
will be the principal additional item to present comprehensive income. No. 131
will require the company to report certain information about operating segments
in the consolidated financials statements. The company is currently evaluating
the provisions of this statement to determine its impact upon current segment
disclosures.
--------------------
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 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. Reference is made to the company's 1996 Annual Report on
Form 10-K for additional cautionary statements and discussion of certain
important factors as they relate to forward looking statements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On May 20, 1997, the company filed with the Securities and Exchange
Commission Amendment No. 1 to its Issuer Tender Offer Statement on
Schedule 13E-4 which contains information with respect to the
company's completion of the self-tender offer purchasing 2.147 million
common shares of the company at a price of $56 per share.
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
None.
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 14, 1997 By /s/ John B. Blystone
---------------------
John B. Blystone
Chairman, President and
Chief Executive Officer
Date: August 14, 1997 By /s/ Patrick J. O'Leary
-----------------------
Patrick J. O'Leary
Vice President, Finance,
Treasurer and Chief
Financial and Accounting
Officer
5
6-MOS
DEC-31-1997
JUN-30-1997
15,833
0
156,259
(9,308)
128,806
349,384
261,999
(138,865)
551,540
225,598
1,681
0
0
166,698
(142,279)
551,540
466,925
466,925
340,246
429,353
(66,194)
0
7,252
96,514
49,844
46,670
0
(10,330)
0
36,340
3.33
3.33
