SPX Corporation (SPXC) — FY 2015 Form 10-K
Period and context: Fiscal year ended December 31, 2015. The filing identifies the registrant as SPX Corporation; after the September 26, 2015 spin-off, its shares traded as SPXC. Unless noted, financial results below are for continuing operations. SPX FLOW is presented as discontinued operations, so 2015 comparisons reflect a substantially changed business.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $1,719.3 million | $1,952.7 million |
| Gross profit / margin | $292.4 million / 17.0% | $426.2 million / 21.8% |
| Operating income (loss) | $(170.0) million | $(179.5) million |
| Continuing-operations income (loss), net | $(191.2) million | $116.1 million |
| Net income (loss) attributable to SPX common shareholders | $(82.7) million | $393.4 million |
| Continuing-operations operating cash flow | $(82.0) million | $(323.3) million |
| Cash and equivalents at year-end | $101.4 million | $237.2 million |
| Total debt at year-end | $373.8 million | $733.1 million |
- 2015 operating margin was approximately negative 9.9%. Continuing-operations cash flows were also negative after investing and financing activities; cash declined by $326.2 million during the year.
- Liquidity at December 31, 2015 included $301.9 million available under revolving facilities after letters of credit, and $40.1 million available under the receivables financing arrangement. Foreign credit-instrument issuance capacity was $224.1 million. SPX reported compliance with credit-agreement covenants.
- Segment revenue and operating income (loss): HVAC, $529.1 million and $80.2 million; Detection and Measurement, $232.3 million and $46.0 million; Power, $957.9 million and $(110.5) million.
Changes and significant items
- Revenue fell 12.0% year over year: organic revenue declined 6.5%, currency reduced revenue by $76.0 million, and South Africa project revisions reduced revenue by $57.2 million. The project revisions reduced operating profit by $95.0 million.
- Power segment revenue declined 18.3%; its South Africa projects recorded a $120.5 million operating loss in 2015, versus $33.6 million in 2014. HVAC income improved, while Detection and Measurement revenue and income declined.
- The operating loss included pension and postretirement charges of $18.9 million, impairment charges of $13.7 million, and special charges of $17.8 million. Corporate expense was $100.8 million; management expected ongoing corporate costs to be materially lower after the spin-off.
- 2014 results included a $491.2 million pretax gain on the sale of SPX’s EGS joint-venture interest, making reported year-over-year earnings comparisons unusually affected by that transaction.
- Prior-period financial information was corrected for software-cost capitalization, trademark impairment, and tax-liability errors. The company said no prior year was materially misstated; continuing-operations income was reduced by $4.5 million for 2014 and $0.3 million for 2013.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is provided in the supplied filing text. Management expected 2016 capital expenditures of approximately $18–$20 million and minimum pension funding contributions and direct benefit payments of $24.6 million, including amounts relating to discontinued operations. Dividends were discontinued after the second-quarter 2015 payment, with no resumption expected for the foreseeable future.
- A sale of the dry cooling business was agreed in November 2015 for estimated proceeds of $48.0 million, subject to working-capital adjustment and regulatory approvals; closing was expected in the first half of 2016. Management did not expect a material gain or loss.
- South Africa power projects remain exposed to delay, cost overruns, disputed claims, subcontractor issues, and estimation uncertainty. Approximately $25.0 million of projected project revenue related to claims and unapproved change orders that management considered recoverable; further estimate changes could materially affect results.
- Recorded liabilities for claims and risk matters were $591.1 million, including $534.4 million for asbestos matters; related insurance-recovery assets were $493.3 million and depend partly on insurer solvency and recovery assumptions. Environmental, product-liability, legal, pension-funding, foreign-exchange, commodity-cost, cyclical-demand, and post-spin-off execution risks remain.
- The spin-off reduced business diversification and involved uncapped reciprocal indemnities and potential tax, fraudulent-conveyance, and liability-allocation risks. Deloitte issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of year-end.
Investor verification priorities
- Track South Africa project costs, completion schedules, claims recoverability, and any further contract-estimate revisions.
- Reconcile post-spin-off cash generation, liquidity, debt maturities, covenant headroom, and the expected reduction in corporate overhead.
- Verify the dry cooling divestiture’s closing, final proceeds, and any effect on Power segment results or impairment assumptions.
- Assess asbestos insurance recoveries and pension funding needs against updated claims, asset returns, and actuarial assumptions.
- Compare future segment revenue, margins, backlog conversion, and the absence of dividends with the post-spin-off outlook.