SPX Corporation (requested company: SPX Technologies) — Q3 2009 Form 10-Q
Reporting period: Quarter ended September 26, 2009; comparable period ended September 27, 2008. The filing identifies the registrant as SPX Corporation.
Business context
SPX was a global industrial company with four reportable segments: Flow Technology, Test and Measurement, Thermal Equipment and Services, and Industrial Products and Services. Management attributed weaker results primarily to the global recession, customer project delays, and reduced demand across key end markets.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Revenue | $1,173.6 million | $1,481.9 million | $3,526.7 million | $4,331.8 million |
| Operating income | $102.3 million | $154.6 million | $252.7 million | $420.1 million |
| Continuing operations income | $50.8 million | $111.1 million | $128.2 million | $265.7 million |
| Net income attributable to SPX common shareholders | $46.0 million | $117.0 million | $103.8 million | $273.2 million |
| Diluted EPS attributable to common shareholders | $0.93 | $2.12 | $2.09 | $5.00 |
| Gross margin | 30.2% | 29.8% | 29.3% | 30.1% |
Q3 revenue fell 20.8% year over year, including an 18.6% organic decline and a 2.3% foreign-currency impact. Nine-month revenue fell 18.6%, with a 13.8% organic decline and 5.0% currency impact. Q3 operating income declined 33.8%; nine-month operating income declined 39.8%. Q3 diluted EPS included a $0.05 loss per share from discontinued operations.
- Segment trends, Q3: Flow Technology revenue declined 17.6% and segment income 11.1%; Test and Measurement revenue declined 27.8% and income 57.4%; Thermal Equipment and Services revenue declined 8.1% while income rose 13.0%; Industrial Products and Services revenue declined 38.9% and income 49.9%.
- Cash flow: Nine-month operating cash flow was $245.4 million, including $235.7 million from continuing operations, versus $152.9 million and $149.3 million, respectively, in 2008. Capital expenditures were $59.7 million; cash used in investing activities was $29.7 million. Cash and equivalents decreased $37.8 million to $438.1 million.
- Liquidity and debt: Total debt was $1,246.4 million, down from $1,344.7 million at year-end 2008; cash was $438.1 million. Current assets were $2,393.9 million and current liabilities $1,637.9 million. The company reported $483.3 million of available revolving-credit capacity after letters of credit and stated it was in compliance with debt covenants.
Material changes, outlook and risks
- Restructuring and integration special charges were $19.3 million in Q3 and $54.5 million for nine months, versus $4.8 million and $9.7 million in 2008. Management expected about $70 million of 2009 special charges and headcount reductions approaching 2,000; about 1,700 reductions had occurred through the first nine months.
- Management expected difficult conditions through at least the first half of 2010. For Q4 2009, it anticipated continued organic revenue declines in Flow Technology and Industrial Products and Services, a significant decline in Test and Measurement, and a double-digit decline in Thermal Equipment and Services. The filing provides no specific full-year earnings or EPS guidance.
- Backlog at September 26 was $615.7 million in Flow Technology, $2,096.4 million in Thermal Equipment and Services, and $380.5 million in Industrial Products and Services; Test and Measurement backlog was described as not material. Thermal backlog included long-term work extending through 2015.
- Discontinued operations produced a $18.8 million net loss in Q3 and a $38.8 million net loss for nine months. Filtran was sold in October 2009 for approximately $15 million; the final gain or loss was to be recorded in Q4. Another Industrial Products and Services business remained for sale, with completion anticipated within 12 months. Divestiture proceeds and retained-liability estimates remained subject to adjustment.
- Goodwill and net intangible assets totaled approximately $2.47 billion. The Service Solutions reporting unit’s estimated fair value exceeded carrying value by less than 2%, creating impairment sensitivity to weaker earnings or changed assumptions.
- Contingencies included $336.5 million of recorded accruals for claims and risk-management matters, including $259.4 million for risk management. Environmental liabilities involved 99 owned or controlled sites; the company said it could not reasonably estimate possible additional losses beyond recorded amounts.
- Gross unrecognized tax benefits were $108.7 million, with $24.9 million of gross accrued interest. Management considered a $25–$30 million decrease in unrecognized benefits reasonably possible within 12 months; it also expected approximately $12.3 million of tax benefits in Q4 2009 following statute expirations.
Most important facts to verify
- Confirm the intended issuer: this source filing is for SPX Corporation, not an entity named SPX Technologies.
- Assess whether the anticipated Q4 and 2010 demand declines, especially in automotive-related businesses, were reflected in subsequent results and guidance.
- Track restructuring cash costs and whether expected cost savings and headcount reductions were achieved.
- Review the final accounting for the Filtran sale and the other planned divestiture, including working-capital and retained-liability adjustments.
- Monitor Service Solutions impairment assumptions, tax-audit outcomes, environmental and other contingencies, and compliance with credit-facility covenants.