SPX Corporation — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a standalone fourth-quarter report. Unless otherwise noted, amounts are in millions of U.S. dollars. The filing identifies the registrant as SPX Corporation.
Business context
SPX was a global engineered-products and services company operating in more than 35 countries, with sales in more than 150. Its businesses were Flow Technology, Thermal Equipment and Services, and Industrial Products and Services. Approximately 30% of 2012 revenue came from emerging markets; over 50% came from outside the United States.
Key financial results
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $5,100.2 | $4,536.9 |
| Gross profit / gross margin | $1,375.0 / 27.0% | $1,274.7 / 28.1% |
| Operating income | $9.0 | $286.5 |
| Income from continuing operations | Loss of $78.4 | Income of $155.6 |
| Net income attributable to SPX shareholders | $259.2 | $180.6 |
| Diluted earnings per share | $5.18 | $3.54 |
| Cash from continuing operating activities | $84.7 | $252.5 |
| Capital expenditures | $84.3 | $147.0 |
| Cash and equivalents at year-end | $984.1 | $551.0 |
| Total debt at year-end | $1,692.0 | $2,001.1 |
Revenue rose 12.4%; management attributed the increase chiefly to acquisitions (12.6 percentage points), with 2.5% organic growth offset by a 2.7% currency impact. Gross margin declined 1.1 percentage points. Net income included a $313.4 after-tax gain on the sale of Service Solutions; continuing operations were loss-making. The filing does not provide a single consolidated adjusted-profit measure that removes the major unusual items.
- Flow Technology: Revenue increased 31.4% to $2,682.2, largely reflecting Clyde Union and other acquisitions; segment income increased 6.2% to $285.1, while margin declined to 10.6% from 13.1%.
- Thermal Equipment and Services: Revenue declined 8.9% to $1,490.9 and segment income fell 25.1% to $106.7, reflecting weak power-generation demand, competition and lower higher-margin dry-cooling work.
- Industrial Products and Services: Revenue rose 8.0% to $927.1 and segment income rose 4.0% to $114.1, supported chiefly by power-transformer volumes.
Liquidity, debt and capital allocation
Year-end cash was $984.1. Management reported available liquidity of $1,564.0, including cash and committed borrowing capacity. Available borrowing capacity was $533.6 under revolving facilities and $46.3 under the receivables financing arrangement; foreign credit-facility issuance capacity was $414.3. SPX reported compliance with its debt covenants and no scheduled senior-credit-facility principal payments until 2014. Its $475.0 Term Loan 2 balance and senior notes of $600.0 at 6.875% due 2017 and $500.0 at 7.625% due 2014 were significant obligations.
Cash from continuing operations fell to $84.7 from $252.5. Management cited approximately $140.0 of Clyde Union working-capital investment, timing of project milestone receipts, higher pension contributions and benefit payments, and $59.3 of net tax payments. The Service Solutions sale generated $1,134.9 in proceeds; SPX used $325.0 to repay term loans and repurchased $245.6 of its shares during 2012. The quarterly dividend was $0.25 per share, or $1.00 for the year.
Material changes, outlook and notable items
- SPX recorded $285.9 of goodwill and other long-term-asset impairment charges, including $281.4 for the Cooling reporting unit, following sustained weakness in its markets. The charge substantially reduced reported operating income.
- Service Solutions was sold to Robert Bosch GmbH in December 2012. The sale contributed the $313.4 after-tax gain; total discontinued-operations income was $340.4.
- SPX formed a 45%-owned Shanghai Electric joint venture for dry-cooling and related products and recorded a $20.5 pretax gain on deconsolidating the China business. It also acquired Seital for $28.8.
- For 2013, management projected Flow Technology revenue growth of 2%–7% and margins of 11.9%–12.4%; Thermal Equipment and Services revenue decline of 4%–9% and margins of 6.5%–7.0%; and Industrial Products and Services revenue growth of 7%–12% and margins of 13.3%–13.8%. These are segment projections, not consolidated guidance.
- Management expected 2013 capital expenditures of approximately $90.0. It also announced an intention to make approximately $250.0 in voluntary qualified-pension contributions, in addition to expected minimum required funding and benefit payments of $69.2.
- Important risks include cyclical power-generation and other end markets, fixed-price contract estimation and cost overruns, foreign-exchange and raw-material exposure, acquisition integration, goodwill impairment, debt and covenant constraints, pension funding, and environmental, litigation and insurance exposures. Pension and postretirement plans were underfunded by $603.7 at year-end. Accrued claims and contingencies were $548.6, partly offset by $430.6 of insurance recovery assets.
Important facts for investors to verify
- How much of the reported earnings increase is attributable to the Service Solutions disposal gain versus recurring continuing operations.
- Whether Flow Technology can deliver its projected margin recovery, particularly at Clyde Union, and whether the Cooling outlook or goodwill assumptions deteriorate further.
- Whether operating cash flow recovers after Clyde Union working-capital investment and the timing of project receipts, while supporting planned pension contributions and capital spending.
- The timing and refinancing or repayment plan for the $500.0 senior notes due 2014, alongside other debt maturities and covenant headroom.
- Potential changes in pension assumptions and funding needs, tax audits and uncertain tax positions, retained divestiture liabilities, and environmental or other claims.
Deloitte & Touche issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2012.