UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number: 1-6948

SPX Corporation

(Exact Name of Registrant as Specified in Its Charter)

13515 Ballantyne Corporate Place

Charlotte, NC 28277

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: 704-752-4400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x  No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

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 requirement for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer x Accelerated Filer o Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2006 was $3,266,584,185. The determination of affiliate status for purposes of the foregoing calculation is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of each of the registrant’s classes of common stock, as of February 23, 2007, was 59,705,680.

Documents incorporated by reference: Portions of the Registrant’s Proxy Statement for its Annual Meeting to be held on May 4, 2007 are incorporated by reference into Part III of this Annual Report on Form 10-K.

P A R T   I

ITEM 1. Business

(All dollar and share amounts are in millions, except per share data)

Forward-Looking Information

Some of the statements in this document and any documents incorporated by reference constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements include statements about our plans, strategies, prospects, changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). In some cases, you can identify forward-looking statements by terminology such as “may,”  “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change. All the forward-looking statements are qualified in their entirety by reference to the factors discussed in this document under the heading “Risk Factors” and in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements. We undertake no obligation to update or publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this Report.

Business

We were incorporated in Muskegon, Michigan in 1912 as the Piston Ring Company and adopted our current name in 1988. Since 1968, we have been incorporated under the laws of Delaware and we have been listed on the New York Stock Exchange since 1972.

We are a global multi-industry manufacturing company with operations in over 20 countries and sales in over 100 countries around the world. The majority of our revenues, approximately 60% in 2006, are driven by global infrastructure development. Our infrastructure-related products and services include wet and dry cooling systems, thermal service and repair work, heat exchangers and power transformers into the global power market. We also provide pumps, metering systems and valves into the global oil and gas, chemical and petrochemical exploration, refinement and distribution markets. Our infrastructure-related products also include packaged cooling towers, boilers, heating and ventilation equipment and filters. We continue to focus on developing and acquiring products and services to serve global infrastructure development, as we believe that future investments in these end markets in both emerging and developed economies around the world provide significant opportunities for growth.

The other major component of our revenues is test and measurement products and services, representing 26% of our 2006 revenues. In this area, we provide, among other things, electronic diagnostic systems, specialty service tools, service equipment, and technical information services with a primary focus on the global transportation market. Our strategy includes partnering with manufacturers of automobiles, agricultural and construction equipment and recreational vehicles, among others, to provide solutions for maintaining and servicing these vehicles after sale. With the expanding global population and demand for vehicles, we believe there are significant future growth opportunities in this market.

Our operating strategy is focused on an integrated leadership process that aligns performance measurement, decision support, compensation and communication. This process includes:

·       a demanding set of leadership standards to drive achievement of results with integrity;

·       expanding our technological leadership and service offerings with a market focus on providing innovative, critical solutions to our customers;

·       growing through internal development and strategic, financially compelling acquisitions;

·       Increased globalization with a focus on emerging economies and markets;

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·       right-sizing our businesses to market and economic conditions to protect against economic downturns and take advantage of strong economic cycles;

·       focusing on continuous improvements to drive results and create shareholder value; and

·       strategically analyzing our businesses to determine their long-term fit.

Unless otherwise indicated, amounts provided throughout this Annual Report on Form 10-K relate to continuing operations only.

Segments

Our strategy is to have a centralized approach to continuous improvement, including lean manufacturing, supply chain management, organizational development, and global expansion, with the intent of capturing synergies that exist within our businesses and, ultimately, on driving revenue, profit margin, and cash flow growth. We believe that our businesses are well positioned for growth in these metrics based on our current continuous improvement initiatives, the potential within the current markets they serve, as well as the potential for expansion into additional markets. Beginning in the first quarter of 2005, we aggregated our global platforms into three segments, identified as Flow Technology, Test and Measurement, and Thermal Equipment and Services. Each of the remaining businesses within our portfolio generally represent North American focused industrial operations that lack global scale and are not currently projected to be the focus of acquisition growth. We have aggregated these businesses into a fourth segment identified as Industrial Products and Services.

We aggregate our operating segments into four reportable segments in accordance with the criteria defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). The factors considered in determining our aggregated segments are the economic similarity of the businesses, the nature of products sold or services provided, production processes, types of customers and distribution methods. In determining our segments, we apply the threshold criteria of SFAS No. 131 to operating income or loss of each segment before considering impairment and special charges, pensions and postretirement expenses, stock based compensation and other indirect corporate expenses. This is consistent with the way our chief operating decision maker evaluates the results of each segment. For more information on the results of our segments, see Note 5 to our consolidated financial statements.

Flow Technology

Our Flow Technology segment had revenues of $960.2, $878.1, and $810.9 in 2006, 2005, and 2004, respectively. This segment designs, manufactures and markets products and solutions that are used to process or transport fluids, as well as solutions and products that are used in heat transfer applications and airflow treatment systems. Our focus is on innovative, highly-engineered new product introductions and expansion from products to systems and services to create total customer solutions. Our primary products include high-integrity pumps, valves, fluid mixers, agitators, metering systems, filters and dehydration equipment. Our primary global end markets, in order of relevance, are sanitary food, beverage and pharmaceutical processing, general industrial, chemical processing, oil and gas processing, power generation, and mining. We sell to these end markets under the brand names of Waukesha Cherry-Burrell, DeZurik, Lightnin, Copes-Vulcan, M&J Valves, and Bran & Luebbe. Competitors in these fragmented markets include Alfa Laval, GEA, Fisher, Haywood, Chemineer, EKATO, Lewa, Fristam, and Sudmo. The segment continues to focus on initiatives such as a global ERP system implementation and lean manufacturing improvements. The primary distribution channels for the Flow Technology segment are independent manufacturing representatives and direct to customers.

Test and Measurement

Our Test and Measurement segment had revenues of $1,137.5, $1,059.6, and $1,092.6 in 2006, 2005, and 2004, respectively. This segment engineers and manufactures branded, technologically advanced test and measurement products on a global basis across the transportation, defense, telecommunications, and utility industries. Our technology supports the introduction of new systems, expanded services, and sophisticated testing and validation. Products for the segment include specialty diagnostic service tools, fare collection boxes, portable cable and pipe locators, and vibration testing equipment. Our diagnostic service tools product line includes diagnostic systems and service equipment as well as specialty tools. We sell diagnostic systems and service equipment to the franchised vehicle dealers of original equipment manufacturers (“OEMs”), aftermarket national accounts, and independent repair facilities. We sell diagnostic systems under the OTC, Actron, AutoXray, Tecnotest, and Robinair brand names. These products compete with brands such as Snap-on and ESP. We intend to grow this business by developing new service capabilities and strengthening alliances in diagnostic platforms. We sell our specialty tools to franchised vehicle dealers, aftermarket national accounts, and independent repair facilities. We

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are a primary global provider of specialty tools for motor vehicle manufacturers’ dealership networks to General Motors, Ford, Daimler Chrysler, BMW, Harley Davidson and John Deere, and a primary domestic provider to Toyota and Nissan. Sales of specialty service tools essential to dealerships tend to vary with changes in vehicle systems design and the number of dealerships and are not directly correlated with the volume of vehicles produced by the motor vehicle manufacturers. The segment sells automated fare collection boxes to municipal bus and rail transit systems, as well as postal vending systems, primarily within the North American market. Our portable cable and pipe locator line is composed of electronic testing, monitoring, and inspection equipment for locating and identifying metallic sheathed fiber optic cable, horizontal boring guidance systems, and inspection cameras. The segment sells this product line to a wide customer base, including utility and construction companies, municipalities, and telecommunication companies. We sell our vibration testing equipment primarily to the aerospace, automotive, and electronics industries, with our main competitors being IMV and Upholtz Dickie. The segment continues to focus on initiatives such as lean manufacturing and expanding its commercialization of the China market. The primary distribution channels for the Test and Measurement segment are direct to OEMs and OEM dealers, aftermarket tool and equipment providers, and retailers.

Thermal Equipment and Services

Our Thermal Equipment and Services segment had revenues of $1,378.9, $1,204.3, and $1,065.3 in 2006, 2005, and 2004, respectively. This segment engineers, manufactures, and services cooling, heating, and ventilation products for markets throughout the world. Products for the segment include dry, wet, and hybrid cooling systems, cooling towers, and air-cooled condensers for the power generation, refrigeration, HVAC, and industrial markets, as well as hydronic and heating and ventilation products for the commercial and residential markets. This segment also provides thermal components for power and steam generation plants and engineered services to maintain, refurbish, upgrade, and modernize power stations. We sell our cooling products and services under the brand names of Marley, Balcke, Ceramic, and Hamon Dry Cooling, with the major competitors to these product and service lines being Baltimore Aircoil, Evapco, and GEA. Our hydronic products include a complete line of gas and oil fired cast iron boilers for space heating in residential and commercial applications, as well as ancillary equipment. The segment’s hydronic products compete mainly with Burnham and Buderus. Our heating and ventilation product line includes i) baseboard, wall unit, and portable heaters, ii) commercial cabinet and infrared heaters, iii) thermostats and controls, iv) air curtains, and v) circulating fans. The segment sells heating and ventilation products under the Berko, Qmark, Farenheat, Aztec, Patton, and Leading Edge brand names, with the principal competitors being TPI, Quellet, and Dimplex for heating products, and Lenexa, TPI, and Air Master for ventilation products. The segment continues to focus on expanding its global reach, including expanding its dry cooling, heating, and ventilation presence in Asia, as well as increasing thermal components and service offerings, particularly in Asia and Europe. The primary distribution channels for the Thermal Equipment and Services segment are direct to customers, independent manufacturing representatives, third party distributors and retailers.

Industrial Products and Services

Our Industrial Products and Services segment had revenues of $836.7, $716.0 and $670.3 in 2006, 2005, and 2004, respectively. The segment includes operating units that design, manufacture, and market power systems, industrial tools and hydraulic units, filters primarily for the automotive industry, precision machine components for the aerospace industry and television broadcast antenna systems. The primary distribution channels for the Industrial Products and Services segment are direct to customers, independent manufacturing representatives and third party distributors.

Acquisitions

We regularly review and negotiate potential acquisitions in the ordinary course of business, some of which are or may be material. We will continue to pursue acquisitions and we may consider acquisitions of businesses with more than $1,000.0 annual revenues. In December 2006, we completed the acquisition of Aktiebolaget Custos (“Custos”) within our Flow Technology segment for a purchase price of $184.0, which was net of cash acquired of $4.4 and included debt assumed of $23.2 and a provision of $5.5 for shares of Custos that had yet to be tendered as of December 31, 2006. Custos had revenues of approximately $107.0 in the twelve months prior to its acquisition.

Divestitures

As part of our operating strategy, we regularly review and negotiate potential divestitures in the ordinary course of business, some of which are or may be material. As a result of this continuous review, we determined that certain of our businesses would be better strategic fits with other companies or investors. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we report

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businesses or asset groups as discontinued operations when the operations and cash flows of the business or asset group have been or are expected to be eliminated, when we do not expect to have any continuing involvement with the business or asset group after the disposal transaction, and when we have met these additional six criteria:

·       management has approved a plan to sell the business or asset group;

·       the business or asset group is available for immediate sale;

·       an active program to sell the business or asset group has been initiated;

·       the sale of the business or asset group is probable within one year;

·       the marketed sales value of the business or asset group is reasonable in relation to its current fair value; and

·       it is unlikely that the plan to divest the business or asset group will be significantly altered or withdrawn.

The following businesses, which have been sold, met the above requirements and therefore have been reported as discontinued operations for all periods presented:

In addition to the completed transactions described above, we committed to a plan to divest an automotive components business within our Industrial Products and Services segment in the third quarter of 2006. We are actively pursuing the sale of this business and anticipate that the sale will be completed in the first half of 2007. Accordingly, we have reported, for all periods presented, the financial condition, results of operations, and cash flows of this business as a discontinued operation in our consolidated financial statements. As a result of the planned divestiture of the automotive components business, we recorded a charge of $102.7 during 2006 to “loss on disposition of discontinued operations, net of tax” in order to reduce the net assets to be sold to their estimated net realizable value.

Joint Venture

We have one significant joint venture, EGS Electrical Group, LLC and Subsidiaries (“EGS”), with Emerson Electric Co., in which we hold a 44.5% interest. Emerson Electric Co. controls and operates the joint venture. EGS operates primarily in the United States, Canada and France and is engaged in the manufacture of electrical fittings, hazardous location lighting and power conditioning products. We account for our investment under the equity method of accounting, on a three-month lag basis. We typically receive our share of this joint venture’s earnings in cash dividends.

See Note 9 to our consolidated financials statements and the financial statements of EGS included herein for more information on EGS.

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International Operations

We are a multinational corporation with operations in over 20 countries. Our international operations are subject to the risks of possible currency devaluation and blockage, nationalization or restrictive legislation regulating foreign investments, as well as other risks attendant to the countries in which they are located. Our export sales from the United States were $335.2 in 2006, $290.2 in 2005, and $293.0 in 2004.

See Note 5 to our consolidated financial statements for more information on our international operations.

Research and Development

We are actively engaged in research and development programs designed to improve existing products and manufacturing methods and to develop new products to better serve our current and future customers. These efforts encompass all our products with divisional engineering teams coordinating their resources. We place particular emphasis on the development of new products that are compatible with, and build upon, our manufacturing and marketing capabilities.

We spent $62.6 on research activities relating to the development and improvement of our products in 2006, $57.7 in 2005, and $55.6 in 2004.

Patents/Trademarks

We own over 650 domestic patents and 150 foreign patents, including approximately 100 patents that were issued in 2006, covering a variety of our products and manufacturing methods. We also own a number of registered trademarks. Although in the aggregate our patents and trademarks are of considerable importance in the operation of our business, we do not consider any single patent or trademark to be of such importance that its absence would adversely affect our ability to conduct business as presently constituted to a significant extent. We are both a licensor and licensee of patents. For more information, please refer to “Risk Factors.”

Outsourcing and Raw Materials

We manufacture many of the components used in our products; however, our strategy includes outsourcing some components and sub-assemblies to other companies where strategically and economically feasible. In instances where we depend on third-party suppliers for outsourced products or components, we are subject to the risk of customer dissatisfaction with the quality or performance of the products we sell because of supplier failure. In addition, business difficulties experienced by a third-party supplier can lead to the interruption of our ability to obtain the outsourced product and ultimately to our inability to supply products to our customers. We believe that we generally will be able to continue to obtain adequate supplies of major items or appropriate substitutes at reasonable costs.

In the last three years we have faced significant increases in the prices of many of our key raw materials, including petroleum-based products, steel, and copper. Over the past two years we have been able to generally offset increases in raw material costs across our segments mainly through effective price increases.

Because of our diverse products and services, as well as the wide geographic dispersion of our production facilities, we use numerous sources for the raw materials needed for our operations. We are not significantly dependent on any one or a limited number of suppliers, and we have been able to obtain suitable quantities of all necessary raw materials at competitive prices.

Competition

Although our businesses are in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since our competitors do not offer all of the same product lines or serve all of the same markets as we do. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are price, service, product performance and technical innovation. These methods vary with the type of product sold. We believe that we can compete effectively on the basis of each of these factors as they apply to the various products offered. See “Segments” above for a discussion of our competitors.

Environmental Matters

See “MD&A — Critical Accounting Policies and Use of Estimates — Contingent Liabilities,” “Risk Factors” and Note 14 of our consolidated financial statements for information regarding environmental matters.

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Employment

At December 31, 2006, we had approximately 14,300 employees associated with businesses that have been classified in our consolidated financial statements as continuing operations. Additionally, we had approximately 1,100 employees associated with a business that we intend to sell in 2007 and have classified in our consolidated financial statements as a discontinued operation. Eleven domestic collective bargaining agreements cover approximately 1,200 employees, none of which relate to the business classified in our consolidated financial statements as a discontinued operation. We also have various collective labor arrangements covering certain non-U.S. employee groups. While we generally have experienced satisfactory labor relations, we are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes.

Executive Officers

See Part III, Item 10 of this report for information about our executive officers.

Other Matters

No customer or group of customers that, to our knowledge, are under common control, accounted for more than 10% of our consolidated revenues for all periods presented.

Our businesses maintain sufficient levels of working capital to support customer requirements, particularly inventory. We believe that our businesses’ sales and payment terms are generally similar to those of our competitors.

Many of our businesses closely follow changes in the industries and end-markets that they serve. In addition, certain businesses have seasonal fluctuations. Revenues for our Test and Measurement segment primarily follow customer-specified program launch timing for diagnostic systems and service equipment. Demand for products in our Thermal Equipment and Services segment is correlated to contract timing on large construction contracts and is also driven by seasonal weather patterns, both of which may cause significant fluctuations from period to period. Historically, our businesses generally tend to be stronger in the second half of the year.

Our website address is www.spx.com. Information on our website is not incorporated by reference herein. We file reports with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports. Copies of these reports are available free of charge on our website as soon as reasonably practicable after we file the reports with the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. Additionally, you may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 1A. Risk Factors

(All amounts are in millions, except per share data)

You should consider the risks described below and elsewhere in our documents filed with the SEC before investing in any of our securities. Though we undertake no obligation to do so, we may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.

Difficulties presented by international economic, political, legal, accounting, and business factors could negatively affect our interests and business effort.

In 2006, approximately 40% of our revenues were generated outside the United States. Revenues originating from business units in Germany and the United Kingdom in 2006 were $624.2 and $243.4, respectively. We continue to increase our sales outside the United States, with a particular emphasis on expanding our presence in emerging markets, most notably China. As part of our strategy, we manage businesses with manufacturing facilities worldwide, many of which are located outside the United States. Our international operations require us to comply with the legal requirements of foreign jurisdictions and expose us to the political consequences of operating in foreign jurisdictions. Our foreign business operations also are subject to the following risks:

·       difficulty in managing, operating and marketing our international operations because of distance, as well as language and cultural differences;

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·       difficulty entering new international markets due to differing regulatory barriers, political systems or other barriers to business;

·       increased costs due to domestic and foreign customs and tariffs, potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries, and transportation and shipping expenses;

·       credit risk or financial condition of local customers and distributors;

·       difficulties in staffing and labor disputes;

·       nationalization of private enterprises;

·       government embargos or foreign trade restrictions such as anti-dumping duties;

·       increased costs of transportation or shipping;

·       environmental and other laws and regulations;

·       ability to obtain supplies from foreign vendors and ship products internationally during times of crisis or otherwise;

·       difficulties in protecting intellectual property;

·       local, regional or worldwide hostilities;

·       potential imposition of restrictions on investments; and

·       local political, economic and social conditions, including the possibility of hyperinflationary conditions and political instability.

A significant and growing portion of our products are manufactured in lower-cost locations and sold in various countries. Cross border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. Increased strength of the U.S. dollar will increase the effective price of our products sold in U.S. dollars, which may have a material adverse effect on sales or require us to lower our prices and also decrease our reported revenues or margins in respect of sales conducted in foreign currencies to the extent we are unable or determine not to increase local currency prices. Likewise, decreased strength of the U.S. dollar could have a material adverse effect on the cost of materials and products purchased overseas. In addition, our sales are translated into U.S. dollars for reporting purposes. In particular, a revaluation of the Chinese Yuan could result in an increase in the cost of producing products in China, or increases in labor costs. The strengthening or weakening of the U.S. dollar could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars.

As we continue to expand our international operations, these and other risks associated with international operations are likely to increase. In addition, as we enter new geographic markets, we may encounter significant competition from the primary participants in those markets who may have significantly greater market knowledge and substantially greater resources than we do. In particular, as an increasing percentage of our products are manufactured in China, health conditions and other factors affecting social and economic activity in China and affecting the movement of people and products into and from China to our major markets, including North America and Europe, could have a significant negative affect on our operations. Also, the imposition of trade sanctions by the United States or the European Union against a class of products imported by us from, or the loss of “normal trade relations” status with, China or other countries in which we conduct business could significantly increase our cost of products imported into the United States or Europe and harm our business. Because of the importance of our international sales and international sourcing of manufacturing to our business, if any of the risks described above were to occur it could have a material adverse effect on our financial position, results of operations or cash flows.

We are subject to laws, regulations and potential liability relating to claims, complaints and proceedings, including those relating to environmental and other matters.

We are subject to various laws, ordinances, regulations and other requirements of government authorities in the United States and other nations. With respect to acquisitions, divestitures and continuing operations, we may acquire or retain liabilities of which we are not aware, or of a different character or magnitude than expected. Additionally, changes in laws, ordinances, regulations or other governmental policies may significantly increase our expenses and liabilities.

We face environmental exposures including, for example, those relating to discharges from and materials handled as part of our operations, the remediation of soil and groundwater contaminated by petroleum products or hazardous

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substances or wastes, and the health and safety of our employees. We may be liable for the costs of investigation, removal or remediation of certain hazardous substances or petroleum products on, under, or in our current or formerly owned property, or from a third-party disposal facility which we may have used, without regard to whether we knew of, or caused, the presence of the contaminants. The presence of, or failure to remediate properly, these substances may have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on the ability to sell or rent affected property or to borrow funds using affected property as collateral. New or existing environmental matters or changes in environmental laws or policies could lead to material costs for environmental compliance or cleanup. There can be no assurance that these liabilities and costs will not have a material adverse effect on our financial position, results of operations or cash flows. See Note 14 to our consolidated financial statements for further discussion.

We face numerous claims, complaints and proceedings. Class actions, derivative lawsuits and contract, intellectual property, competitive, personal injury, product liability, workers’ compensation and other claims have been filed or are pending against us and certain of our subsidiaries. In addition we from time to time face actions by governmental authorities, both in and outside the United States. Additionally, we may become subject to significant claims of which we are currently unaware or the claims of which we are aware may result in our incurring a significantly greater liability than we anticipate. Our insurance may be insufficient or unavailable to protect us against potential loss exposures. In addition, we have been increasing our self-insurance limits over the past several years, which has increased our uninsured exposure.

We devote significant time and expense to defense against the various claims, complaints and proceedings brought against us, and we cannot assure you that the expenses or distractions from operating our businesses arising from these defenses will not increase materially.

We cannot assure you that our accruals and right to indemnity and insurance will be sufficient, that recoveries from insurance or indemnification claims will be available or that any of our current or future claims or other matters will not have a material adverse effect on our financial position, results of operations or cash flows. See “MD&A — Critical Accounting Policies and Use of Estimates — Contingent Liabilities.”

The price of raw materials may adversely affect our results.

We are exposed to a variety of market risks, including inflation in the prices of raw materials. In the last three years, we have faced significant changes in the prices of many of our key raw materials, including petroleum-based products, steel, and copper. Increases in the prices of raw materials may have a material adverse effect on our financial position, results of operations or cash flows, as we may not be able to pass cost increases on to our customers.

We operate in highly competitive industries. Our failure to compete effectively could harm our business.

We operate in a highly competitive environment, competing on the basis of product offerings, technical capabilities, quality, service and pricing. We have a number of competitors, some of which are large, with substantial technological and financial resources, brand recognition and established relationships with global service providers. Some of our competitors have low cost structures, support from governments in their home countries, or both. In addition, new competitors may enter the industry. We cannot assure you that we will be able to compete successfully against existing or future competitors. Competitors may be able to offer lower prices, additional products or services or a more attractive mix of products or services, or services or other incentives that we cannot or will not match or do not offer. These competitors may be in a stronger position to respond quickly to new or emerging technologies and may be able to undertake more extensive marketing campaigns, and make more attractive offers to potential customers, employees and strategic partners.

Our strategy to outsource various elements of the products we sell subjects us to the business risks of our suppliers, which could have a material adverse impact on our operations.

In areas where we depend on third-party suppliers for outsourced products or components, we are subject to the risk of customer dissatisfaction with the quality or performance of the products we sell because of supplier failure. In addition, business difficulties experienced by a third-party supplier can lead to the interruption of our ability to obtain the outsourced product and ultimately our inability to supply products to our customers. Third-party supplier business interruptions can include, but are not limited to, work stoppages, union negotiations and other labor disputes, as well as financial and credit difficulties.

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A portion of our revenues is generated through long-term fixed-price contracts, which could expose us to various risks including the risks of cost overruns, inflation and credit and other counterparty risks.

A portion of our revenues and earnings is generated through long-term fixed-price contracts. We recognize revenues from certain of these contracts using the percentage-of-completion method of accounting whereby revenue and expenses, and thereby profit, in a given period are determined based on our estimates as to the project status and the costs remaining to complete a particular project. Estimates of total revenues and cost at completion are subject to many variables, including the length of time to complete a contract. To the extent that we under-estimate the remaining cost to complete a project, we may overstate the revenues and profit in a particular period. Further, certain of these contracts provide for penalties for failure to timely perform our obligations under a contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because some of our long-term contracts are at a fixed price, we face the risk that cost overruns or inflation may erode, eliminate or exceed our expected profit margin, or cause us to take a loss on our projects. Additionally, even though we perform credit checks and conduct other due diligence on those with whom we do business, customers of our long-term contracts may suffer financial difficulties that make them unable to pay for a project when completed or they may decide, either as a matter of corporate decision-making or in response to changes in local laws and regulations, not to pay us. We cannot assure you that expenses or losses for uncollectible billings relating to our long-term fixed-price contracts will not have a material adverse effect on our revenues and earnings.

Changes in both the funding of and accounting for pension and postretirement benefit plans may affect our results of operations and cash flows.

As of December 31, 2006, our defined benefit pension and postretirement plans, including both qualified and non-qualified plans, were underfunded by $380.9. Of this amount, $42.8 related to our domestic qualified defined benefit pension plans. During 2006, the United States government passed into law the Pension Protection Act of 2006 (“PPA”). Among other things, the PPA requires plan sponsors to fund toward 100% of the underfunded status of domestic qualified defined benefit pension plans (with contributions phased in through 2011) and increased the annual premiums we pay to the Pension Benefit Guaranty Corporation. Additionally, during 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement required us to recognize the underfunded status of our defined benefit pension and postretirement plans in our consolidated balance sheet as of December 31, 2006. SFAS No. 158 represents the culmination of phase one of the FASB’s project to re-address the accounting for defined benefit pension and postretirement plans, with the second phase of the project focused on the recognition of expense in the financial statements. As the specific annual funding requirements resulting from the PPA are not yet known, and the FASB’s project is ongoing, we are currently unable to accurately predict their impact on our future results of operations or cash flows. See “MD&A — Critical Accounting Policies and Use of Estimates” for the impact that changes in certain assumptions used in the calculation of our costs and obligations associated with these plans could have on our results of operations and financial position. Furthermore, future changes in the funding of, accounting for, or other regulatory changes could have adverse impacts on our results of operation and cash flows. See Note 10 to our consolidated financial statements for the impact of adopting SFAS No. 158 as of December 31, 2006.

Our failure to successfully complete acquisitions could negatively affect us.

We may not be able to consummate desired acquisitions, which could materially impact our growth rate, results of operations, cash flows and stock price. Our ability to achieve our goals depends upon, among other things, our ability to identify and successfully acquire companies, businesses and product lines, to effectively integrate them and to achieve cost effectiveness. We may also be unable to raise any additional funds necessary to consummate these acquisitions. In addition, changes in our stock price may adversely affect our ability to consummate acquisitions. Competition for acquisitions in our business areas has been significant, and has in many cases resulted in higher prices for businesses, including businesses that we may target, which may also affect our acquisition rate or benefits achieved from our acquisitions.

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Our failure to successfully integrate acquisitions could have a negative effect on our operations; our acquisitions could cause financial difficulties.

As part of our business strategy, we evaluate potential acquisitions in the ordinary course, some of which could be and have been material. Our acquisitions involve a number of risks and present financial, managerial and operational challenges, including:

·       adverse effects on our reported operating results due to charges to earnings, including impairment charges associated with goodwill and other intangibles;

·       diversion of management attention from running our businesses;

·       integration of technology, operations, personnel and financial and other systems;

·       increased expenses, including compensation expenses resulting from newly hired employees;

·       increased foreign operations, often with unique issues relating to corporate culture, compliance with legal and regulatory requirements and other challenges;

·       assumption of known and unknown liabilities and exposure to litigation;

·       increased levels of debt or dilution to existing shareholders; and

·       potential disputes with the sellers of acquired businesses, technology, services or products.

In addition, internal controls over financial reporting of acquired companies may not be up to required standards. Issues may exist that could rise to the level of significant deficiencies or, in some cases, material weaknesses, particularly with respect to foreign companies or non-public United States companies.

Our integration activities may place substantial demands on our management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on our reputation and business. In addition, any acquired business, technology, service or product could under-perform relative to our expectations.

We may not achieve the expected cost savings and other benefits of our acquisitions.

We strive for and expect to achieve cost savings in connection with our acquisitions, including: (i) manufacturing process and supply chain rationalization, including plant closings in some cases; (ii) streamlining redundant administrative overhead and support activities; and (iii) restructuring and repositioning sales and marketing organizations to eliminate redundancies. Cost savings expectations are inherently estimates that are difficult to predict and are necessarily speculative in nature, and we cannot assure you that we will achieve expected, or any, cost savings. In addition, we cannot assure you that unforeseen factors will not offset the estimated cost savings or other benefits from our acquisitions. As a result, our actual cost savings, if any, and other anticipated benefits could be delayed and could significantly differ from our estimates and the other information contained in this report.

Our failure to successfully complete dispositions could negatively us.

We continually review each of our businesses in order to determine their long term strategic fit. As part of this strategy, we dispose of certain of our businesses in the ordinary course, some of which dispositions could be and have been material. Our dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions and potential disputes with the acquirers of the disposed assets or businesses. If dispositions are not completed in a timely manner there may be a negative effect on our cash flows and/or our ability to execute our strategy. See Item 1. Business and Note 4 to our consolidated financial statements for the status of our divestitures.

Increases in the number of shares of our outstanding common stock could adversely affect our common stock price or dilute our earnings per share.

Sales of a substantial number of shares of common stock into the public market, or the perception that these sales could occur, could have a material adverse effect on our stock price. As of December 31, 2006, approximately 4.8 shares of our common stock were issuable upon exercise of outstanding stock options by employees and non-employee directors and we had the ability to issue up to an additional 6.5 shares as restricted stock, restricted stock units, or stock options under our 2002 Stock Compensation Plan. Additionally, we may issue a significant number of additional shares, in

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connection with acquisitions or otherwise. We also have a shelf registration statement for 4.3 shares of common stock that may be issued in connection with acquisitions, and we have a shelf registration statement for a total of $1,000.0, which may be used in connection with an offering of debt securities, preferred securities and/or common stock for general corporate purposes. Additional shares issued will have a dilutive effect on our earnings per share.

Our indebtedness may affect our business and may restrict our operating flexibility.

At December 31, 2006, we had $964.6 in total indebtedness. On that same date, we had $255.4 of available borrowing capacity under our revolving credit facilities after giving effect to borrowings under our global revolving loan facility of $82.8 and to $111.8 reserved for outstanding letters of credit. In addition, we had $143.0 of available issuance capacity under our foreign trade facility after giving effect to $332.0 reserved for outstanding letters of credit. At December 31, 2006, our cash and equivalents balance was $477.2. See MD&A and Note 12 to our consolidated financial statements for further discussion. We may incur additional indebtedness in the future, including indebtedness incurred to finance, or which is assumed in connection with, acquisitions. We may in the future renegotiate or refinance our senior credit facilities, or enter into additional agreements that have different or more stringent terms. The level of our indebtedness could:

·       limit cash flow available for general corporate purposes, such as acquisitions and capital expenditures, due to the ongoing cash flow requirements for debt service;

·       limit our ability to obtain, or obtain on favorable terms, additional debt financing in the future for working capital, capital expenditures or acquisitions;

·       limit our flexibility in reacting to competitive and other changes in the industry and economic conditions;

·       expose us to a risk that a substantial decrease in net operating cash flows due to economic developments or adverse developments in our business could make it difficult to meet debt service requirements; and

·       expose us to risks inherent in interest rate fluctuations to the extent existing borrowings are, and any new borrowings may be at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.

Our ability to make scheduled payments of principal, to pay interest on, or to refinance our indebtedness and to satisfy our other debt obligations will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we cannot assure you that future borrowings or equity financing will be available for the payment or refinancing of our indebtedness. If we are unable to service our indebtedness, whether in the ordinary course of business or upon acceleration of such indebtedness, we may pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures, revising implementation of or delaying strategic plans or seeking additional equity capital. Any of these actions could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us continue to satisfy our capital requirements, or that these actions would be permitted under the terms of our various debt agreements.

We may not be able to finance future needs or adapt our business plan to react to changes in economic or business conditions because of restrictions placed on us by our senior credit facilities and any existing or future instruments governing our other indebtedness.

Our senior credit facilities and other agreements governing our other indebtedness contain, or may contain, a number of significant restrictions and covenants that limit our ability to make distributions or other payments to our investors and creditors unless certain financial tests or other criteria are satisfied. We also must comply with certain specified financial ratios and tests. Our subsidiaries may also be subject to restrictions on their ability to make distributions to us. In addition, our senior credit facilities and any other agreements contain or may contain additional affirmative and negative covenants. Existing restrictions are described more fully under MD&A. Each of these restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions.

If we do not comply with the covenants and restrictions contained in our senior credit facilities and other agreements governing our indebtedness, we could be in default under those agreements, and the debt, together with accrued interest, could then be declared immediately due and payable. If we default under our senior credit facilities, the lenders could cause all our outstanding debt obligations under our senior credit facilities to become due and payable or require us to apply all of our cash to repay the indebtedness we owe. If our debt is accelerated, we may not be able to repay our debt or refinance it.

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Even if we are able to obtain new financing, we may not be able to repay our debt or borrow sufficient funds to refinance it. In addition, any default under our senior credit facilities or agreements governing our other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross-acceleration or cross-default provisions. If the indebtedness under our senior credit facilities is accelerated, we may not have sufficient assets to repay amounts due under our senior credit facilities, senior notes or other debt securities then outstanding. Our ability to comply with these provisions of our senior credit facilities and other agreements governing our other indebtedness will be affected by changes in the economic or business conditions or other events beyond our control. Complying with our covenants may also cause us to take actions that are not favorable to us and may make it more difficult for us to successfully execute our business strategy and compete, including against companies that are not subject to such restrictions.

The loss of key personnel and any inability to attract and retain qualified employees could have a material adverse effect on our operations.

We are dependent on the continued services of our leadership team. The loss of these personnel without adequate replacement could have a material adverse effect on our operations. Additionally, we need qualified managers and skilled employees with technical and manufacturing industry experience in order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we were unable to attract and retain sufficient numbers of qualified individuals or our costs to do so were to increase significantly, our operations could be materially adversely affected.

Many of the industries in which we operate are cyclical, and our results will be and have been affected as a result.

Many of the business areas in which we operate are subject to specific industry and general economic cycles. Certain businesses are subject to industry cycles, including, but not limited to:

·       The electric power and infrastructure markets, which influence our Thermal Equipment and Services and Industrial Products and Services segments.

·       Demand for cooling systems and towers within our Thermal Equipment and Services segment is correlated to contract timing on large construction contracts, which may cause significant fluctuations from period to period. Accordingly, any downturn or competitive pricing pressures in those or other markets in which we participate could adversely affect us.

·       The chemical and petrochemical markets, which influence our Flow Technology segment.

Cyclical changes could also affect sales of products in our other businesses. The downturns in the business cycles of our different operations may occur at the same time, which could exacerbate any material adverse effects to our business. See “MD&A — Segment Results of Operations.” In addition, certain of our businesses have seasonal fluctuations. Historically, our businesses generally tend to be stronger in the second half of the year.

Our business is subject to changes in the economy.

Certain of our businesses have been affected in various years by difficult economic conditions. There can be no assurance that the economy will not worsen or that we will be able to sustain existing cost structures or create additional cost reductions to offset economic conditions, or that the unpredictability and changes in the markets in which we participate will not adversely impact our results. Cost reduction actions often result in charges against earnings. We expect to take charges against earnings in 2007 in connection with implementing additional cost reduction actions at certain of our businesses. These charges can vary significantly from period to period and, as a result, we may experience fluctuations in our reported net income and earnings per share due to the timing of restructuring actions, which in turn can have a material adverse effect on our financial position, results of operations or cash flows.

If the fair value of any of our reporting units is insufficient to recover the carrying value of the goodwill and other intangibles of the respective reporting unit, a material non-cash charge to earnings could result.

In two of the past three years we have recorded material non-cash charges to earnings to impair the carrying value of our goodwill and other intangible assets. At December 31, 2006, we had goodwill and other intangible assets of $2,250.2. We account for goodwill and indefinite lived intangibles in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 states that goodwill and indefinite lived intangible assets are not amortized, but are instead reviewed for impairment annually (or more frequently if impairment indicators arise). We conduct annual impairment testing to determine if we will be able to recover all or a portion of the carrying value of goodwill and indefinite lived

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intangibles. In addition, we review goodwill and indefinite lived intangible assets for impairment more frequently if impairment indicators arise. If the fair value is insufficient to recover the carrying value of our goodwill and indefinite lived intangibles, we may be required to record a material non-cash charge to earnings.

Consistent with the requirements of SFAS No. 142, the fair values of our reporting units generally are based on discounted cash flow projections that are believed to be reasonable under current and forecasted circumstances, the results of which form the basis for making judgments about carrying values of the reported net assets of our reporting units. Other considerations are also incorporated, including comparable industry price multiples. Many of our businesses closely follow changes in the industries and end-markets that they serve. Accordingly, we consider estimates and judgments that affect the future cash flow projections, including principal methods of competition such as volume, price, service, product performance and technical innovations and estimates associated with cost improvement initiatives, capacity utilization, and assumptions for inflation and foreign currency changes. We monitor impairment indicators across all of our businesses. Any significant change in market conditions and estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known.

We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.

At December 31, 2006, we had approximately 14,300 employees associated with businesses that have been classified in our consolidated financial statements as continuing operations. Additionally, we had approximately 1,100 employees associated with a business that we intend to sell in 2007 and have classified in our consolidated financial statements as a discontinued operation. Eleven domestic collective bargaining agreements cover approximately 1,200 employees, none of which relate to the business classified in our consolidated financial statements as a discontinued operation. We also have various collective labor arrangements covering certain non-U.S. employee groups. We are subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes. Further, we may be subject to work stoppages, which are beyond our control, at our suppliers or customers.

Our technology is important to our success, and failure to develop new products may result in a significant competitive disadvantage.

Because many of our products rely on proprietary technology, we believe that the development and protection of our intellectual property rights is critical to the success of our business. In order to maintain our market positions and margins, we need to continually develop and introduce high quality, technologically advanced and cost effective products on a timely basis. The failure to do so could result in a significant competitive disadvantage.

Additionally, despite our efforts to protect our proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use our products or technology. The steps we have taken may not prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Expenses in connection with defending our rights may be material.

Our current and planned products may contain defects or errors that are detected only after delivery to customers. If that occurs, our reputation may be harmed and we may face additional costs.

There is no assurance that our product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues that could impact customer satisfaction or result in claims against us with regard to our products. As a result, we may have to replace certain components and/or provide remediation in response to the discovery of defects in products that are shipped. The occurrence of any defects, errors, failures or quality issues could result in cancellation of orders, product returns, diversion of our resources, legal actions by our customers or our customers’ end users and other losses to us or to our customers or end users, and could also result in the loss of or delay in market acceptance of our products and loss of sales, which would harm our business and adversely affect our revenues and profitability.

Provisions in our corporate documents and Delaware law may delay or prevent a change in control of our company, and, accordingly, we may not consummate a transaction that our shareholders consider favorable.

Provisions of our Certificate of Incorporation and By-laws may inhibit changes in our control not approved by our Board. These provisions include, for example: a staggered board of directors; a prohibition on shareholder action by written consent; a requirement that special shareholder meetings be called only by our Chairman, President or our Board; advance notice requirements for shareholder proposals and nominations; limitations on shareholders’ ability to amend, alter or repeal

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the By-laws; enhanced voting requirements for certain business combinations involving substantial shareholders; the authority of our Board to issue, without shareholder approval, preferred stock with terms determined in its discretion; and limitations on shareholders ability to remove directors. In addition, we are afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects. In general, Section 203 prohibits us from engaging in a “business combination” with an “interested shareholder” (each as defined in Section 203) for at least three years after the time the person became an interested shareholder unless certain conditions are met. These protective provisions could result in our not consummating a transaction that our shareholders consider favorable or discourage entities from attempting to acquire us, potentially at a significant premium to our then-existing stock price.

ITEM 1B. Unresolved Staff Comments

Not applicable.

ITEM 2. Properties

The following is a summary of our principal properties, as of December 31, 2006, classified by segment:

In addition to manufacturing plants, we lease our corporate office in Charlotte, NC, our information technology data center in Horsham, PA, and various sales and service locations throughout the world. We consider these properties, as well as the related machinery and equipment, to be well maintained and suitable and adequate for their intended purposes.

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ITEM 3. Legal Proceedings

(All amounts are in millions)

Beginning in March 2004, multiple class action complaints seeking unspecified monetary damages, were filed or announced by certain law firms representing or seeking to represent purchasers of our common stock during a specified period against us and certain of our current and former executive officers in the United States District Court for the Western District of North Carolina alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Securities Class Action”). The plaintiffs generally allege that we made false and misleading statements regarding the forecast of our 2003 fiscal year business and operating results in order to artificially inflate the price of our stock. These complaints were consolidated into a single amended complaint against us and our former Chairman, Chief Executive Officer and President. On September 20, 2004, we filed a motion to dismiss the consolidated action in its entirety.

On April 23, 2004, an additional class complaint seeking unspecified monetary damages was filed in the same court on behalf of participants in our employee benefit plans, alleging breaches of the Employee Retirement Income Security Act of 1974 (“ERISA”) by us, our then general counsel and the Administrative Committee regarding one of our 401(k) defined contribution benefit plans arising from the plan’s holding of our stock. On June 10, 2005, a first amended complaint was filed in the ERISA suit, adding as defendants certain current and former directors and Administrative Committee members. The first amended complaint generally tracks the factual allegations in the Securities Class Action. On July 25, 2005, we filed a motion to dismiss the amended ERISA complaint in its entirety. On September 8, 2005, the plaintiffs moved the Court to certify the proposed class in the ERISA suit. We opposed that motion.

On October 9, 2006, we reached an agreement in principle to settle both the Securities Class Action and the tag-along ERISA action. The settlement is subject to court approval. On December 22, 2006, the court granted preliminary approval of the settlement and scheduled a settlement hearing on April 10, 2007. Under the terms of the pending settlement, both actions will be dismissed with prejudice and our aggregate net settlement payment, after reimbursement by our insurer, will be $5.1. We recorded a charge of $4.1 in the third quarter of 2006 relating to this pending settlement. The charge has been included in “Selling, general and administrative” within our 2006 consolidated statement of operations.

In October of 2004, one of our Italian subsidiaries, SPX Cooling Technologies Italia, S.p.A., formerly Balcke Marley Italia, S.p.A., was notified that it was the subject of an investigation by the Milan Public Prosecutor’s Office. The investigation related to the business practices of several individuals and different companies in securing contracts from an Italian power generation company. On August 24, 2006, the Public Prosecutor served on SPX Cooling Technologies Italia, S.p.A., a Notice of End of the Preliminary Investigations. This Notice, which also identified numerous other individual and corporate defendants, sets forth an allegation that SPX Cooling Technologies Italia, S.p.A. is responsible under Italian Legislative Decree No. 231 for failing to adopt and effectively implement a proper organization and management model suitable for the prevention of alleged acts of bribery by the former general manager of Hamon-Research Cottrell Italia, S.p.A. and the former director of Marley Cooling Tower Europe, S.p.A. Our subsidiary has previously taken actions to address Italian Legislative Decree No. 231, including the appointment of a compliance program supervisor at the cooling equipment business, and is evaluating these charges and potential defenses in advance of a preliminary hearing, which has not yet been scheduled. We do not believe that the outcome of these proceedings will have a material adverse effect on our financial condition, results of operations, or cash flows.

On or about October 29, 2001, we were served with a complaint by VSI Holdings, Inc., or VSI, in the 6th Judicial Circuit Court of the State of Michigan seeking enforcement of a merger agreement that we had terminated. In its complaint, VSI asked the court to require us to complete the $197.0 acquisition of VSI, and/or award damages to VSI and its shareholders. On December 26, 2001, we filed our answer denying VSI’s allegations, raising affirmative defenses and asserting a counterclaim against VSI for breach of contract. On June 8, 2006, we reached a settlement with VSI resolving this litigation. Under the terms of the settlement, the lawsuit was dismissed with prejudice, neither party admitted any liability or wrongdoing, and we made a payment in the amount of $20.0 to VSI. The charge associated with this payment was recorded in the second quarter of 2006 and has been included in “Other expense, net” within our 2006 consolidated statement of operations.

We are subject to other legal proceedings and claims that arise in the normal course of business. In our opinion, these matters are either without merit or of a kind that should not have a material adverse effect individually or in the aggregate on our financial position, results of operations, or cash flows. However, we cannot assure you that these proceedings or claims will not have a material adverse effect on our financial position, results of operations, or cash flows.

See “Contingent Liabilities,” “MD&A — Factors That May Affect Future Results” and Note 14 to our consolidated financial statements for further discussion of legal proceedings.

ITEM 4. Submission Of Matters To A Vote Of Security Holders

Not applicable.

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P A R T   I I

ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

(All amounts are in millions, except number of shares, share price, shareholders and per share information)

Our common stock is traded on the New York Stock Exchange under the symbol “SPW.”

Set forth below are the high and low sales prices for our common stock as reported on the New York Stock Exchange composite transaction reporting system for each quarterly period during the years 2006 and 2005, together with dividend information.

The actual amount of each quarterly dividend, as well as each declaration date, record date and payment date is subject to the discretion of the Board of Directors, and the target dividend level may be adjusted during the year at the discretion of the Board of Directors. The factors the Board of Directors consider in determining the actual amount of each quarterly dividend includes our financial performance and on-going capital needs, our ability to declare and pay dividends under the terms of our credit facilities and any other debt instruments, and other factors deemed relevant.

There were no repurchases of common stock during the three months ended December 31, 2006.

The number of shareholders of record of our common stock as of February 23, 2007 was 4,791.

Company Performance

This graph shows a five year comparison of cumulative total returns for the SPX, the S&P Composite Index and the S&P Capital Goods Index. The graph assumes an initial investment of $100 on December 31, 2001 and the reinvestment of dividends.

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ITEM 6. Selected Financial Data

(1)                 During 2005, revenues for our Test and Measurement segment were reduced for program incentives and rebates earned by certain customers throughout the year. Prior to 2005, these incentives and rebates were classified as cost of products sold and selling, general and administrative expenses. Had these amounts been classified as a reduction to revenues prior to 2005, revenues for 2004, 2003, and 2002 would have been lower by $14.6, $13.3, and $11.2, respectively.

(2)                 In 2006, we incurred net special charges of $4.4 associated with restructuring initiatives to consolidate manufacturing and other facilities, as well as asset impairments.

In 2005, we recorded charges of $36.2 related to the impairment of goodwill and other intangible assets for our Air Filtration business (See Note 8 to our consolidated financial statements for further discussion of this impairment charge). In addition, we incurred net special charges of $9.1 associated with restructuring initiatives to consolidate manufacturing and other facilities, as well as asset impairments. These charges were net of a credit of $7.9 relating to a gain on the sale of land in Milpitas, CA, resulting in the finalization of a previously initiated restructuring action. See Note 6 to our consolidated financial statements for further details.

In 2004, we recorded charges of $175.3 related to the impairment of goodwill and other intangible assets for our Fluid Power, Radiodetection, and TPS businesses (See Note 8 to our consolidated financial statements for further discussion of these impairment charges). In addition, we incurred net special charges of $37.8 related to other asset impairments

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and cash costs associated with work force reductions, initiatives to divest or consolidate manufacturing facilities, asset divestures, and the exit of certain operations. Approximately $8.8 of these net special charges related to non-disposal, asset impairments at our Fluid Power business that was recorded in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” See Note 6 to our consolidated financial statements for further details.

In 2003, we recorded $34.3 of net special charges associated primarily with the restructuring initiatives to consolidate manufacturing facilities and rationalize certain product lines, along with any related asset impairments.

In 2002, we recorded $88.3 of net special charges, of which $12.6 was recorded in cost of products sold, associated primarily with the restructuring initiatives to consolidate manufacturing facilities and rationalize certain product lines, along with any related asset impairments.

(3)                 In 2006, we recorded a charge of $20.0 relating to the settlement of the lawsuit with VSI Holdings, Inc.

In 2003, we recorded a $41.9 net gain on the favorable settlement of a patent infringement suit against Microsoft Corporation.

In 2002, we recorded a loss of $10.3 related to the sale of substantially all of the assets and liabilities of a non-strategic machinery equipment product line and a material handling product line, which was partially offset by a gain on the settlement of a contract dispute.

(4)                 Interest expense, net included losses on early extinguishment of debt of $113.6 in 2005, $2.6 in 2004 and $2.2 in 2003 related to the write-off of unamortized deferred financing fees, premiums/fees paid to redeem the senior notes, and other costs associated with the extinguishment of the term loans and revolving credit loan.

(5)                 Income from discontinued operations included an allocation of interest expense of $10.2 in 2004, 2003 and 2002 associated with the provision under our credit agreement then in effect that required that the first $150.0 of proceeds from business dispositions be applied to outstanding balances under the credit agreement, including the term loans. No other corporate costs have been allocated to discontinued operations.

(6)                 In 2002, we recorded a charge of $148.6 for a change in accounting principle as a result of adopting the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets.”

ITEM 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations

The following should be read in conjunction with our consolidated financial statements and the related notes. All dollar and share amounts are in millions.

Executive Overview

Overall, 2006 was a successful year for SPX. In our 2005 Annual Report on Form 10-K, we outlined six key operating initiatives designed to improve revenues and operating income and margins. A summary of these key initiatives and our progress to-date, along with what we expect in the future, follows:

·       Emerging Markets — The primary focus of our emerging markets efforts has been in China, as the current and expected growth in China is significant. In each of the past two years, our revenues from sales into China have increased by over $100.0. Our Thermal Equipment and Services segment, which generates approximately 70% of our total China revenues, has tripled its revenues from sales into China since the end of 2004, with the primary driver being cooling systems in support of power plant construction. As infrastructure in China continues to develop, the need for vehicles is also increasing. We anticipate that this will increase demand for electronic diagnostic equipment, specialty tools, and dealer services, which we believe provides us with an opportunity to expand our Test and Measurement segment in China. In China, we now have 12 plants and over 3,000 employees, representing approximately 21% of our total global workforce. We recently opened the SPX Asia-Pacific center in Shanghai and we are in the process of consolidating many of the back office support functions for our Asian operations into the Shanghai center. In addition, a centralized research and development function will be based in this center and focused on new product introductions designed specifically for the China markets. Our vision for this center is that it will (i) elevate SPX’s stature in China, (ii) create an environment to maximize synergies, and (iii) enhance our ability to drive growth in the China markets.

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While the significant growth in China has been the primary focus of our emerging markets initiative, we are increasing our efforts in other regions as well.  Specifically, Africa and the Middle East present significant opportunities, principally for our Flow Technology and Thermal Equipment and Services segments, as a result of the expected continued investments being made by the oil and gas and power industries.

·       New Product Development — We are committed to developing new, innovative solutions to meet our customers’ needs and, in some cases, regulatory standards. We have a centralized team of technology and marketing leaders to support this initiative. From the start of 2006 through 2008, we are projecting over 60 new product launches for our Flow Technology segment. Within our Test and Measurement segment, new product development is critical to keeping pace with increasing vehicle complexity and new model launches. We are projecting that approximately 27% of this segment’s 2007 revenues will come from new product introductions. Our Thermal Equipment and Services segment is a global leader in developing new cooling technologies. We believe that the segment’s technological advances give it a competitive advantage, particularly as power industry investment in Europe and the United States increases.

·       Lean Manufacturing — We have leaders in all our businesses that are driving lean principles throughout our global organization. These principles are being applied to manufacturing, support and back office processes around the world. For any given process, our employees are (i) identifying areas to eliminate waste, (ii) finding bottlenecks by performing a value stream mapping process, (iii) diagnosing problems, and (iv) identifying solutions. We believe that our investment in lean principles is helping to foster a culture focused on continuous improvement.

·       Supply Chain Management — Our supply chain initiative is focused on driving cost reductions and working capital improvement, along with quality and on-time delivery through partnering with a strategic global supply base. In Asia, we are focused on consolidating and expanding our capabilities to pursue additional low cost country opportunities. Across all our businesses, we are effectively managing challenging material markets (e.g., steel and copper) by (i) making strategic material purchases, (ii) consolidating our vendor base, and (iii) implementing hedging strategies where market opportunities exist.

·       Information Technology (“IT”) Centralization — We continue to invest in and make progress on the IT front. The global expansion of SAP within our Flow Technology and Thermal Equipment and Services segments is underway. In 2006, we consolidated 16 IT systems and we have plans to consolidate 25 or more in 2007. During 2006, we spent approximately $20.0 on capital to support our IT initiative and we expect to spend an additional $25.0 in 2007. This initiative is supporting global expansion in our businesses and improving our data analysis capabilities.

·       Organizational Development — Our employees are the backbone of the company. We are providing leadership and managerial training to further develop the skills of our employees. We have launched development programs for engineering, finance, and human resources and we continue to focus on recruiting top talent to strengthen our bench. Our compensation structure is designed to align with long-term investor interests, as employee bonuses are linked to both operating results and cash flow improvement, and equity incentive awards generally only vest if our total shareholder return exceeds that of the S&P 500. In summary, our organizational development efforts are focused on improving SPX for the long-term.

During 2006, our focus on these initiatives contributed to improvement in revenues and operating income and margins as described in the pages that follow. For 2007, we will continue to focus on and anticipate continued progress across all these key initiatives, which we expect will result in additional improvement in revenue and operating income and margins.

Other Significant 2006 Items

There were a number of other significant items that impacted our 2006 operating results, including:

·       The outstanding LYONs notes were repurchased for $660.3, their accreted value. We financed the repurchase and the payment of the related tax recapture of $90.9 with amounts borrowed against our $750.0 delayed draw term loan under our senior credit facilities.

·       We repurchased 8.7 shares of our common stock for $436.3.

·       We sold our Vance, Tower, and Dock Products businesses within our Industrial Products and Services segment for combined cash proceeds of $121.0.

·       We settled the lawsuit with VSI Holdings, Inc. (“VSI”) for $20.0, eliminating a significant contingent liability and the distraction of a prolonged trial.

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·       We recognized an income tax benefit of $34.7 resulting principally from the settlement of certain matters relating to our 1998 to 2002 Federal income tax returns.

·       We reached an agreement in principle to settle both the Securities Class Action and the tag-along ERISA action. On December 22, 2006, the court granted preliminary approval of the settlement and scheduled a settlement hearing on April 10, 2007. Under the terms of the pending settlement, both actions will be dismissed with prejudice and our aggregate net settlement payment, after reimbursement by our insurer, will be $5.1. We recorded a charge of $4.1 in 2006 relating to the pending settlement.

·       We committed to a plan to divest an automotive components business within our Industrial Products and Services segment. We have reported the business as a discontinued operation for all periods presented. As a result of the planned divestiture, we recorded a charge during 2006 of $102.7 to “loss on disposition of discontinued operations, net of tax” in order to reduce the net assets to be sold to their estimated net realizable value.

·       We completed the acquisition of Aktiebolaget Custos (“Custos”) within our Flow Technology segment for a purchase price of $184.0, which was net of cash acquired of $4.4 and included debt assumed of $23.2 and a provision of $5.5 for shares of Custos that had yet to be tendered as of December 31, 2006.

·       We made an advance payment of $66.6 associated with certain proposed adjustments by the Internal Revenue Service that we are currently appealing.

Results of Continuing Operations

Seasonality and Competition — Many of our businesses follow changes in the industries and end markets that they serve. In addition, certain businesses have seasonal fluctuations. Our heating and ventilation products businesses tend to be stronger during the third and fourth quarters, as customer-buying habits are driven largely by seasonal weather patterns. Demand for cooling towers and related services is highly correlated to contract timing on large construction contracts, which may cause significant fluctuations from period to period. Revenues for our service solutions business typically follow program launch timing for diagnostic systems and service equipment. In aggregate, our businesses generally tend to be stronger in the second half of the year.

Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since our competitors do not offer all the same product lines or serve all the same markets. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are price, service, product performance and technical innovations. These methods vary with the type of product sold. We believe we can compete effectively on the basis of each of these factors as they apply to the various products we offer.

Non-GAAP Measures — Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations, acquisitions and divestitures and a change in accounting classifications of certain sales program costs for periods in 2005. We believe that this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as when read in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a tool they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”) and should not be considered a substitute for revenue growth (decline) as determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.

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The following table provides selected financial information for the years ended December 31, 2006, 2005, and 2004, including the reconciliation of organic revenue growth to net revenue growth, as defined herein:

*  Not meaningful for comparison purposes.

Revenues — For 2006, the increase in revenues was driven primarily by organic revenue growth. We continued to experience strong demand for thermal services and repairs in Europe and dry cooling products in China within our Thermal Equipment and Services segment, as well as within the power, mining, and oil and gas markets serviced by businesses in our Flow Technology segment. Growth in our Industrial Products and Services segment was led by strong demand for power transformers, crystal growing and laboratory equipment, machined components for aircrafts, and industrial and hydraulic tools. Revenues also benefited from the fourth quarter of 2005 acquisition of CarTool GmbH (“Cartool”) in our Test and Measurement segment.

For 2005, the increase in revenues was driven primarily by organic revenue growth within our Thermal Equipment and Services segment, where we experienced strong demand for dry cooling products in China and for thermal services and repairs in Europe, and within the mining, petro-chemical and sanitary markets serviced by our Flow Technology segment. The organic growth in these segments was partially offset by an organic decline in our Test and Measurement segment, mostly attributable to a decrease in revenues from fare-collection systems. Beyond organic growth, revenues for 2005 were favorably impacted by the acquisitions of Actron and Auto X-ray in the Test and Measurement segment that occurred during the second half of 2004.

Gross profit — The increase in gross profit in 2006 primarily was due to the revenue performance described above. The following items favorably impacted gross profit as a percentage of revenues in 2006 when compared to 2005:

·       Improved pricing and lean manufacturing initiatives within the Flow Technology segment.

·       New product introductions, improved pricing, and favorable product mix associated with the specialty tools and portable cable and pipe locator product lines of our Test and Measurement segment.

·       Improved pricing and favorable product mix associated with the power transformer and industrial and hydraulic tools businesses within our Industrial Products and Services segment.

The following items partially offset the 2006 increases in gross profit described above:

·       Higher pension and postretirement costs, primarily relating to our domestic pension plans.

·       Lower profit margins for our boiler products business within our Thermal Equipment and Services segment as a result of lower overall demand in the domestic heating markets, unfavorable product mix and higher manufacturing costs in 2006.

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The increase in gross profit in 2005, when compared to 2004, was due primarily to the revenue performance described above. The following items impacted gross profit as a percentage of revenues in 2005 when compared to 2004:

·       Gross profit increased from the improved revenue performance of our Flow Technology segment. However, these additional profits were partially offset by the impact of operating inefficiencies at the segment’s Dehydration and Air Filtration businesses.

·       Gross profit increased from the improved revenue performance of our Thermal Equipment and Services segment described above. However, these revenues came at lower margins, reflecting the competitive bidding environment within the related markets.

·       Our boiler products business within our Thermal Equipment and Services segment incurred start-up costs relating to its new Eden, NC facility.

·       We experienced an increase in self-insurance costs during 2005 of approximately $15.3, associated with workers’ compensation, product and general liability claims.

·       Gross profit for 2004 was negatively impacted by inventory write-downs of $17.7 in our Flow Technology and Test and Measurement segments.

Selling, general and administrative (“SG&A”) expense — For 2006, the increase in SG&A expense of $88.6 was due primarily to increases in headcount and associated costs to support the organic growth of our segments. Additionally, 2006 SG&A expense was higher due to the following:

·       Higher pension and postretirement costs, primarily relating to our domestic pension plans.

·       Higher stock based compensation expense of $9.3, resulting primarily from 2006 being the third year of our restricted stock/restricted stock unit awards (i.e. three years of awards being amortized to earnings in 2006 compared to two years of awards in 2005).

·       Charges of $4.1 in 2006 relating to the agreement in principle to settle both the Securities Class Action and the tag-along ERISA action. See Note 14 to our consolidated financial statements for the details associated with this matter.

·       Charges of $6.7 relating to legacy legal matters.

·       Higher incentive compensation costs as a result of improved operating results in 2006.

·       Incremental costs associated with the Cartool and Custos acquisitions.

For 2005, the increase in SG&A expense of $36.6 was due to the following:

·       Higher stock based compensation expense of $19.2, resulting primarily from 2005 being the second year of our restricted stock/restricted stock unit awards (i.e. two years of awards being amortized to earnings in 2005 compared to one year of awards in 2004). In addition, 2004 stock based compensation expense included a credit of $8.2 associated with compensation previously recorded for restricted stock that was forfeited in connection with the December 2004 retirement and resignation of our then Chairman, Chief Executive Officer and President.

·       Increases in headcount and associated costs within our Thermal Equipment and Services segment in support of our expansion in China and Europe.

·       Higher costs associated with moving additional corporate functions to our Charlotte, NC headquarters and increased pension costs.

·       Incremental costs associated with acquisitions completed in 2004 (e.g., Actron and Auto X-ray).

·       Higher incentive compensation costs as a result of improved operating results in 2005. In addition, the 2004 expense also was lower due to the fact that ten members of our senior management team agreed to forego payment of their 2004 incentive compensation.

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Special charges, net — Special charges related primarily to restructuring initiatives to consolidate manufacturing, sales, and administrative facilities, reduce workforce, and rationalize certain product lines. See Note 6 to our consolidated financial statements for the details of actions taken in 2006, 2005, and 2004. The components of special charges, net, follow:

Impairment of goodwill and other intangible assets — For 2005, the impairment charge of $36.2 related to our Air Filtration reporting unit, a component of the Flow Technology segment. For 2004, the impairment charge of $175.3 related to our Fluid Power and TPS reporting units (both components of our Industrial Products and Services segment), as well as our Radiodetection reporting unit (a component of our Test and Measurement segment). See Note 8 to our consolidated financial statements for additional details.

Other expense, net — For 2006, other expense, net, was composed primarily of $20.0 in costs to settle the litigation with VSI (see Note 14 to our consolidated financial statements) and $7.1 of currency transaction losses, while 2005 was composed primarily of currency transaction losses of $15.6 and legal charges of $6.7, partially offset by a $2.8 gain associated with a reduction of liabilities related to an environmental remediation site and gains of $1.2 associated with the sale of assets.

For 2005, the increase in other expense, net, versus 2004, was due primarily to an increase in currency transaction losses, as 2005 included currency transaction losses of $15.6 compared to $6.7 in 2004.

Interest expense, net — During 2006, interest expense, net, was impacted negatively by the fact that during the first half of 2006 we redeemed the LYONs, which carried an interest rate of 2.75%, and simultaneously became a borrower under our delayed draw term facility, which currently carries a higher interest rate than the LYONs. In addition, interest income for 2006 was $4.5 lower as a result of lower average cash balances during the year. These increases to interest expense, net, in 2006 were more than offset by the impact of the debt retirement activity in 2005. See Liquidity and Financial Condition and Note 12 of our consolidated financial statements for details pertaining to our 2005 debt retirement activity.

The reduction in interest expense for 2005 was primarily the result of the debt retirement activity during 2005 and 2004. Additionally, interest income increased to $17.1 in 2005 from $4.8 in 2004. The increase in interest income was the result of higher average cash balances associated with the cash proceeds from business dispositions during 2005 and higher prevailing interest rates.

Loss on early extinguishment of debt — We incurred losses on the early extinguishment of debt in 2005 and 2004, which were comprised of the following: (i) premiums and fees paid for, and the write-off of deferred financing costs associated with, the redemption of the senior notes, (ii) the write-off of deferred financing costs relating to the redemption of the term loans, and (iii) the termination of the remaining interest rate protection agreements in connection with the early repayment of the term loans. Refer to Note 12 of our consolidated financial statements for additional details.

Equity earnings in joint ventures — The increase in equity earnings in joint ventures for 2006 was attributable to strong operational performance at our EGS Electrical Group, LLC and Subsidiaries (“EGS”) joint venture. Additionally, in 2005, we recognized a charge of $7.5 representing our portion of the estimated costs of a legal settlement at EGS.

The decrease in equity earnings in joint ventures for 2005 was primarily the result of the charge noted above related to EGS. These charges more than offset the year-over-year business growth at EGS. In addition, equity earnings for 2004 were impacted by a legal charge at EGS, with our portion of the charge totaling $3.8.

Income taxes — For 2006, we recorded an income tax provision of $56.3 on $276.8 of pre-tax income, resulting in an effective tax rate of 20.3%. The effective tax rate for 2006 was impacted favorably by income tax benefits of $34.7 and $8.3, principally associated with the settlement of certain matters relating to our 1998 to 2002 Federal income tax returns and various state income tax returns, respectively.

For 2005, we recorded an income tax provision of $66.9 on $68.1 of pre-tax income, resulting in an effective tax rate of 98.2%. The high effective tax rate in 2005 primarily was the result of approximately $44.5 in income taxes that had been provided for the repatriation of foreign earnings. Additionally, in 2005, we recorded impairment charges of $36.2 relating to

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goodwill and other intangible assets, for which the associated income tax benefit was only $4.0. These increases in the 2005 income tax provision were offset partially by the closure of certain domestic and international tax matters, resulting in a reduction to the 2005 tax provision of $15.1.

For 2004, we recorded an income tax benefit of $24.8 on a pre-tax loss of $82.8, resulting in an effective tax rate of 30.0%. The low effective tax rate in 2004 primarily was the result of impairment charges of $175.3, which generated an income tax benefit of only $9.8, partially offset by an increase to the income tax benefit of $48.0 associated with changes in estimates of income tax liabilities. These changes in estimate resulted from the closure of certain matters relating to the 1995 to 1997 income tax returns of General Signal Corporation and SPX Corporation and the 2000 income tax return of United Dominioin Industries Limited (“UDI”). General Signal Corporation was acquired through a reverse merger in 1998 and UDI was acquired in 2001.

Results of Discontinued Operations

For 2006, 2005, and 2004, income (loss) from discontinued operations and the related income taxes are shown below:

For 2006, 2005 and 2004, results of operations from our businesses reported as discontinued operations were as follows:

We report discontinued operations in accordance with the guidance of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, we report businesses or asset groups as discontinued operations when, among other things, we commit to a plan to divest the business or asset group, actively begin marketing the business or asset group, and when the sale of the business and asset group is deemed probable within the next 12 months. The following businesses, which have been sold, met these requirements and therefore have been reported as discontinued operations for the periods presented.

Dock — Sold for $43.5 in cash. In 2006, we recorded a gain on the sale of $29.0. This gain was primarily related to a tax benefit recorded of $33.2, partially offset by expenses that were contingent primarily upon the consummation of the sale, which included $0.3 due to the modification of the vesting period of restricted stock units that had been issued to Dock employees (see Note 15 to our consolidated financial statements for further information).

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Tower — Sold for $6.9 in cash, including additional cash proceeds of $4.4 that related to the settlement of the working capital associated with the transaction. In 2005, we recorded a charge, net of taxes, of $11.3 in order to reduce the net assets to be sold to their estimated net realized value. During 2006, we reduced the net loss by $0.9 primarily as a result of the working capital settlement noted above.

Vance — Sold for $70.6 in cash. In 2005, we recorded a net charge of $26.8 in order to reduce the net assets to be sold to their estimated net realizable value. During 2006, we increased the net loss by $3.1, primarily for expenses that were contingent upon the consummation of the sale, which included $1.6 due to the modification of the vesting period of restricted stock units that had been issued to Vance employees (see Note 15 to our consolidated financial statements for further information).

Mueller Steam, Febco and Polyjet — Sold for $44.7 in cash. In 2005, we recorded a gain on the sale of $50.7, which included a tax benefit of $71.8.

Carfel — Sold for $12.0 in cash. In 2005, we recorded a loss on the sale, net of taxes and transaction fees, of $21.9.

Kendro — Sold to Thermo Electron Corporation for $828.8 in cash. In 2005, we recorded a gain on the sale, net of taxes and transaction fees, of $326.5.

Brookstone telecommunication services business — Sold for $0.9 in cash. In 2005, we recorded a loss on the sale, net of taxes and transaction fees, of $12.1.

EST — Sold to General Electric Company (“GE”) for $1,393.2 in cash, net of cash balances assumed by GE of $1.5. In 2005, we recorded a gain on the sale, net of taxes and transaction fees, of $662.5.

Specialty tool business — Sold for $24.2 in cash, with $21.8 received at the closing and $2.4 deposited in an escrow account. In 2005, we recorded a loss on the sale, net of taxes and transaction fees, of $3.7. We received $1.7 of the escrow amount in 2006.

Bomag — Sold to Fayat SA (“Fayat”) for $447.3 in cash, net of cash balances assumed by Fayat of $2.7. In 2005, we recorded a gain on the sale, net of taxes and transaction fees, of $137.4.

Axial fan, inspection gauging system and municipal water valve businesses — Sold for aggregate proceeds of $49.9 during 2004. We recorded a combined loss, net of taxes and transaction fees, on the sales of these businesses of $23.6 in 2004. During 2005, we increased the loss on the sales of these businesses by $1.6 due primarily to working capital adjustments in connection with final purchase price settlements with the respective buyers. In addition, we received $2.5 in the fourth quarter of 2005 relating to a final payment on a promissory note received in connection with the sale of the Axial fan business.

The final purchase price for certain of the divested businesses is subject to adjustment based on working capital existing at the respective closing dates. The working capital figures are subject to agreement with the buyers or if we cannot come to agreement with the buyers, an arbitration process. Finalization of the working capital figures for certain of these transactions has yet to occur and, accordingly, it is possible that the purchase price and resulting gains (losses) on these transactions may be materially adjusted in subsequent periods.

In the third quarter of 2006, we committed to a plan to divest an automotive components business within our Industrial Products and Services segment. We are actively pursuing the sale of this business and anticipate that the sale will be completed in the first half of 2007. Accordingly, we have reported, for all periods presented, the financial condition, results of operations, and cash flows of this business as discontinued operations in our consolidated financial statements. As a result of the planned divestiture of the automotive components business, we recorded a charge of $102.7 during 2006 to “loss on disposition of discontinued operations, net of tax” in order to reduce the net assets to be sold to their estimated net realizable value.

In addition to the gains/losses recorded in 2006 relating to the Dock, Tower, Vance, and the automotive components businesses discussed above, we recognized a net gain in 2006 of $20.1 resulting from adjustments to gains/losses on sales of businesses that were previously discontinued, with such adjustments primarily related to reductions in income tax liabilities.

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Segment Results of Operations

The following information should be read in conjunction with our consolidated financial statements and related notes. The segment results exclude the operating results of discontinued operations for all periods presented. See Note 5 to our consolidated financial statements for a description of each of our reportable operating segments.

Non-GAAP Measures — Throughout the following discussion of segment results, we use “organic revenue” growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth is a non-GAAP financial measure, and is not a substitute for revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under Results of Continuing Operations.

Flow Technology

Revenues — For 2006, the increase in revenues was due primarily to organic revenue growth resulting from strong demand within the power, mining, oil and gas and dehydration markets, pricing improvements, and new product introductions. For 2005, the increase in revenues was due primarily to organic revenue growth within the mining, petro- chemical, and sanitary markets.

Segment Income — For 2006, segment income and margin were favorably impacted by the items noted above, improved operating leverage on organic revenue growth, lean manufacturing initiatives and a reduction in operating expenses in 2006 as a result of the favorable impact of 2005 restructuring initiatives. In addition, during 2005, charges of $4.0 were incurred in connection with operating inefficiencies at a Canadian operation.

For 2005, segment income was essentially flat compared to 2004. The 2005 segment income was impacted favorably by the organic revenue growth noted above. However, the incremental 2005 segment income effects of this growth were offset by operating inefficiencies at the segment’s Dehydration and Air Filtration businesses, higher self-insurance costs of $3.9 associated with workers compensation, product and general liability claims and, as noted above, a charge of $4.0 due to operating inefficiencies within an operation in Canada.

Test and Measurement

Revenues — For 2006, the increase in revenues was due primarily to the impact of the fourth quarter 2005 acquisition of Cartool, as well as organic revenue growth associated with increased European OEM volumes.

For 2005, the decline in revenues compared to 2004 was primarily from the decline in organic revenues, partially offset by the impact of 2004 acquisitions (Actron and Auto X-Ray) and the fourth quarter 2005 acquisition of CarTool. The decline in organic revenues was primarily the result of a decrease in revenues from fare-collection systems. Revenues from fare-collection systems are affected by the timing of large contracts with municipalities and Federal funding of transportation

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initiatives, which can cause fluctuations in revenues from period to period. The comparison to the prior year was also impacted by unusually strong 2004 European OEM programs.

Segment Income — For 2006, segment income and margin increased primarily due to the organic revenue growth noted above, as well as the result of new product introductions, improved pricing, favorable product mix, and lean manufacturing initiatives, primarily within the segment’s portable cable and pipe locator product lines. Additionally, the acquisition of CarTool, as noted above, contributed to the increase in segment income. These increases were partially offset by a 2005 benefit of $2.6 relating to the reimbursement of excess charges by a freight company.

For 2005, the increase in segment income was due to improved product mix due to a decrease in low margin dealer equipment services’ revenues in 2005, a 2005 benefit of $2.6 relating to the reimbursement of excess charges by a freight company, and inventory write-downs in 2004 of $7.5 associated with the discontinuance of certain utility and telecommunications products lines. These increases were mostly offset by lower sales volumes of fare-collection systems as noted above, an increase in self-insurance costs of $3.4 associated with workers’ compensation, product and general liability claims, and lower sales volumes from European OEM programs as noted above.

Thermal Equipment and Services

Revenues — For 2006, the increase in revenues was due primarily to organic revenue growth derived from the strong demand for thermal services and repairs in Europe and dry cooling products in China, offset partially by softness in the domestic heating market.

For 2005, the increase in revenues was due to organic revenue growth. The organic revenue growth related to strong demand for dry cooling products in China, and thermal services and repairs in Europe.

Segment Income — For 2006, segment income declined despite the increase in organic revenue. The favorable impact of organic revenue growth on segment income was more than offset by a decline in profitability at the segment’s boiler products business primarily due to softness in the domestic heating market, unfavorable product mix, and higher manufacturing costs. The following items also impacted comparability of segment income:

·    A $2.8 write-down of accounts receivable in 2006 relating to an ongoing customer issue.

·    Charges of $3.3 during 2005 associated with an operation in France.

For 2005, segment income benefited from the increase in revenues generated from dry cooling contracts in China and thermal service and repair contracts in Europe, although at lower margins. This decline in margin reflects a change in global product mix. In addition, segment income also benefited from a reduction in warranty costs at the segment’s boiler products business as a result of a change in the related warranty program. However, these favorable effects were more than offset by the impact of additional SG&A costs to support the segment’s expansion in China and Europe, start-up costs relating to the boiler products business new Eden, NC facility, higher self-insurance costs of $3.0 associated with workers’ compensation, product and general liability claims, and the $3.3 charge noted above for an operation in France.

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Industrial Products and Services

Revenues — For 2006, the increase in revenues was due to organic revenue growth in the segment. A large part of the organic growth was driven by strong demand for power transformers, crystal growing and laboratory equipment, machined components for aircraft, and industrial and hydraulic tools.

For 2005, the increase in revenues was due to organic revenue growth associated with increased pricing and demand for the segment’s power transformers, laboratory equipment, and broadcast products.

Segment Income — For 2006, the increase in segment income and margin was due primarily to the organic revenue growth described above, improved pricing and favorable mix associated with the power transformer and industrial and hydraulic tools business and efficiencies achieved from lean manufacturing initiatives.

For 2005, segment income increased due to the organic growth noted above, as well as a result of manufacturing efficiencies at certain of the segment’s businesses. The comparability of segment income between 2005 and 2004 was impacted by a credit of $2.0 in 2005 for operational cost improvements at an environmental remediation site and an increase in self-insurance costs in 2005 of $5.0 associated with workers’ compensation, product and general liability claims.

Corporate Expenses and Other Expenses

Corporate Expense — Corporate expenses generally relate to the cost of our Charlotte, NC corporate headquarters and our Horsham, PA information technology data center. For 2006, the increase in corporate expenses was due primarily to charges of $4.1 associated with the agreement in principle to settle both the Securities Class Action and the tag-along ERISA action, charges of $6.7 relating to legacy legal matters, and additional incentive compensation resulting from higher consolidated operating profits in 2006. These increases were partially mitigated by one-time relocation and other costs in 2005 associated with moving certain corporate functions to our Charlotte, NC headquarters as well as higher professional fees in 2005 primarily associated with the continued implementation of the regulatory requirements of the Sarbanes-Oxley Act of 2002.

For 2005, the decline in corporate expenses was due primarily to the fact that 2004 corporate expenses included $15.5 of separation costs associated with the retirement and resignation of our then Chairman, Chief Executive Officer and President. This decline was offset partially by higher incentive compensation expense in 2005 as a result of improved operating results for the year and the one-time relocation and other costs for 2005 mentioned above.

Stock based Compensation — The 2006 increase in stock based compensation expense was primarily the result of 2006 being the third year of our restricted stock/restricted stock unit awards (i.e. three years of awards being amortized to earnings in 2006 compared to two years in 2005), partially offset by the effect of adopting SFAS No. 123(R) in the first quarter of 2006. Had our stock based compensation been calculated on the same basis as in 2005, our expense for the year would have been $14.2 higher (see Note 15 to our consolidated financial statements for details regarding our adoption of SFAS No. 123(R)). The 2005 increase in stock based compensation expense was primarily the result of 2005 being the second year of our restricted stock/restricted stock unit awards (i.e., two years of awards being amortized to earnings in

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2005 compared to one year of awards in 2004). In addition, 2004 stock based compensation expense included a credit of $8.2 associated with compensation previously recorded for restricted stock that was forfeited in connection with the December 2004 retirement and resignation of our then Chairman, Chief Executive Officer and President.

Pension and Postretirement Expense — Pension and postretirement expense represents our consolidated expense, which we do not allocate for segment reporting purposes. The increase in pension and postretirement benefit expense for 2006 versus 2005 and for 2005 versus 2004 was due primarily to the amortization of deferred losses within our domestic pension plans associated with lower than projected returns on plan assets and lower interest rates.

Outlook

The following table highlights our segment expectations for 2007 based on information available at the time of this report. We define forecasted trends as follows: “Growth” — Future end market performance is expected to be above the prior year; “Flat” — Future end market performance is expected to be flat compared to the prior year; “Decline” — Future end market performance is expected to be below the prior year.