SPX Corporation History

Address:

2300 One Wachovia Center
301 South College Street
Charlotte, North Carolina 28202-6039
U.S.A.

Telephone: (704) 347-6800
Fax: (704) 347-6900

Public Company
Incorporated: 1911 as The Piston Ring Company
Employees: 14,000
Sales: $4.11 billion (2001)
Stock Exchanges: New York Pacific
Ticker Symbol: SPW

Company Perspectives:

We are a global multi-industry company that is focused on profitably growing our businesses that have scale and growth potential, enabling us to continue to grow sales, earnings and cash flow. Our strategy is to create market advantages through product and technology leadership, by expanding our service offerings to full customer solutions and by building critical mass through strategic acquisitions.

Key Dates:

1911:: The Piston Ring Company is founded in Muskegon, Michigan, to manufacture piston rings for automakers.
1931:: Acquisition of Accuralite Company, maker of pistons and cylinder sleeves, marks first diversification of product line; company changes its name to Sealed Power Corporation.
1955:: Company goes public.
1982:: Kent-Moore Corporation is acquired.
1988:: Company changes its name to SPX Corporation.
1989:: Major restructuring is launched involving the sale of a majority stake in all of SPX's original equipment operations.
1993:: Automotive replacement parts division is sold to Federal-Mogul; SPX regains full control of its original equipment operations.
1997:: The Sealed Power Division, the company's founding business, is sold to Dana Corporation.
1998:: General Signal Corporation, maker of products for the process control, electrical control, and industrial technology industries, is acquired for $2.3 billion.
2001:: United Dominion Industries Limited, a diversified manufacturer of engineered products, is acquired for about $1.9 billion.
2002:: Company headquarters are moved to Charlotte, North Carolina.

Company History:

With beginnings as an auto parts manufacturer, SPX Corporation has evolved over its 90-plus-year history into a wide-ranging maker of various industrial products and a provider of related services. The company's subsidiaries and units are divided into four segments: technical products and services, industrial products and services, service solutions, and vehicle components. The technical products and services segments includes networking and switching products for storage, data, and telecommunications networks; fire detection and building life-safety systems; television and radio transmission systems; and automated fare collection systems. The industrial products and services segments includes power transformers, industrial valves, industrial fluid mixers and agitators, laboratory and industrial ovens and freezers, hydraulic pumps, material handling systems, and electric motors for industrial chemical companies, pulp and paper makers, laboratories, and utilities. The service solutions segment includes diagnostic systems and service equipment, specialty service tools, and technical and training information, primarily for North American and European motor vehicle manufacturers. The vehicle components segment is a supplier of aluminum and magnesium die-castings, forgings, automatic transmission and small engine filters, and transmission kits to automotive original equipment manufacturers. SPX has operations in 19 countries, with 14 percent of revenues coming from outside the United States.

Piston Ring Beginnings

SPX's foundations were laid on December 20, 1911, when two friends, Charles E. Johnson and Paul R. Beardsley, each deposited $1,000 in the National Lumberman's Bank of Muskegon, Michigan. The money was to serve as the initial working capital of their new single product firm, The Piston Ring Company. Johnson, a mechanic, and Beardsley, a salesman, foresaw the need for automotive parts for the burgeoning automotive industry in Michigan. The two partners personally delivered the first piston rings manufactured in their rented 30-by-60-foot factory to the firm's first customer, Continental Motors Corporation. In its first years, the aptly named Piston Ring Company devoted itself entirely to the production of piston rings for leading engine builders. The advent of World War I brought a huge increase in the demand for engine parts for the war effort, and The Piston Ring Company responded by undertaking a major plant expansion.

In the years between the two world wars, The Piston Ring Company began a series of acquisitions and expansions, a pattern of growth for the company for the next 60 years. In 1923 they bought the No-Leak-O Piston Ring Company, which allowed the firm to further increase its production of the crucial engine component. By 1925, they were able to begin exporting their product and to enter the increasingly lucrative replacement parts market. The acquisition in 1931 of the Accuralite Company, a maker of pistons and cylinder sleeves, would mark a crucial step for the growing firm. This diversification of their product line would become a fundamental component of the company's strategy in later years. In order to reflect this new diversity, the company also changed its name from the simple "The Piston Ring Company" to the more evocative "Sealed Power Corporation."

The post-World War II years were a period of major expansion for Sealed Power. In 1946 the company opened its first plant outside Muskegon with the construction of a piston ring machining facility at St. John's, Michigan, closer to the huge Detroit automakers than were its primary customers. Two years later the company built a cylinder sleeve machining facility in Rochester, Indiana, and in 1957 it added a Replacement Distribution Center in LaGrange, Indiana. This distribution center, which serviced 33 smaller distribution outlets in key cities throughout the United States and Canada, was indicative of the growing role of replacement parts marketing in the company's business strategy. By 1959, replacement parts accounted for about 50 percent of Sealed Power sales and served as an important hedge against the highly cyclical original equipment market. The automotive aftermarket is not only relatively free from the sharp ups and downs of the original parts industry but actually tends to increase during downturns in the original automotive market. When people are not in a position to buy new cars they have their old ones repaired instead.

Sealed Power's relatively rapid expansion in the 1950s led to the company's first public offering of common stock in 1955. The company also increased exports, distributing their original and replacement parts in 78 countries by the end of the decade. Even more significantly for their global presence, by the dawn of the 1960s Sealed Power had opened plants in Stratford, Canada, and in Mexico City. This expansion in both production and market diversity was accompanied by a major product breakthrough in 1956 when Sealed Power introduced the first stainless steel piston ring. The ring quickly achieved 100 percent original and replacement market acceptance, according to company sources.

Steady Growth in the 1960s and 1970s

At the beginning of the 1960s, in spite of product diversification over the previous 50 years, the sale of piston rings for both the original and replacement markets still accounted for over 65 percent of Sealed Power's sales. These sales made up about one-quarter of the total U.S. market for piston rings and made Sealed Power the second largest manufacturer of piston rings in the country. Cylinder sleeves and pistons made up the bulk of the company's remaining sales, although by this time it was also producing a variety of small engine parts, such as valves and tappets. By the end of the decade, Sealed Power, determined to decrease its reliance on a single product, implemented a planned program of product diversification. In 1968 the company acquired another cylinder sleeve plant in Mexico as well as the Consolidated Die Cast Corporation (later renamed Contech), a Michigan firm that produced precision die castings. During the next six years it acquired a manufacturer of valve tappets (later renamed the Hy-Lift Division), a manufacturer of transmission fluid filters (later renamed the Filtran Division), and a manufacturer of small alloyed castings. It had also opened a sealing ring plant in Franklin, Kentucky, a tappet facility in Zeeland, Michigan, and a new piston ring plant in Liege, Belgium, to serve the European market.

Sales rose steadily during the 1960s and 1970s as Sealed Power expanded. From annual sales of $25 million in 1960, the company's sales had grown to over $200 million by 1977. Although sales grew, earnings remained heavily dependent on fluctuations in the auto industry. In 1974, for instance, a year in which American car and truck production plummeted, earnings fell to $1.46 per share from the previous year's $2.19. Diversification had meant that piston rings made up a smaller percentage of sales than it had in the early 1960s; nonetheless, Sealed Power's original engine parts group, which now included sealing rings, valve tappets, and transmission filters in addition to the company's longstanding engine products, still accounted for 42 percent of sales in 1975. With over three-quarters of these sales coming directly from the auto industry, Sealed Power's fortunes were inextricably tied to that of the major American automakers. In a 1980 press release, company President Edward I. Schalon stated that "as a supplier of engine parts to the motor vehicle industry we are adversely affected by the proliferation of cars and trucks imported into the United States. This situation is compounded by the growing number of vehicles which bear domestic nameplates, but are powered by engines manufactured overseas."

Continuing Acquisitions and Diversification in the 1980s

Diversification continued to dominate Sealed Power's long-term business strategy in the 1980s. In early 1982, the company acquired Kent-Moore Corporation in a cash and stock transaction valued at $70 million. Kent-Moore, headquartered in Warren, Michigan, was a major manufacturer of specialized service tools, equipment, and diagnostic instrumentation for the transportation industry. An important step in Sealed Power's campaign to diversify its product line, the acquisition of Kent-Moore provided a new direction for Sealed Power's relationship with the auto industry. Although Kent-Moore dealt directly with the same automakers that Sealed Power had supplied since its beginnings in 1911, the specialty tools that it produced relied on the introduction of new automotive models rather than on the volume of production. Each new car model required a set of specialized tools with which dealers could service the vehicles, and the Kent-Moore division worked directly with manufacturers before new vehicles were introduced. Kent-Moore also had significant overseas operations, including a partnership in Japan, that allowed Sealed Power to expand its foreign presence. In 1982, the first year of the acquisition, Kent-Moore contributed some $86 million to Sealed Power's $366 million sales total.

Sales continued to grow during the 1980s, topping $400 million in 1983 and placing Sealed Power on the Fortune 500. Earnings, however, continued to fluctuate. In 1983 and 1984, when domestic automobile production soared, Sealed Power's earnings rose an impressive 27 percent and 17 percent only to fall back again in 1985 and 1986 when both the original equipment and replacement markets flattened out. By 1985, as it became clear that the American auto industry would be unstable for at least the immediate future, stock analysts began to stress the advantages of the aftermarket. "At this point in the automobile cycle," a parts industry analyst for Merrill Lynch was quoted as saying in a 1985 New York Times article, "we believe that the aftermarket is more attractive than the original equipment segment." After the Kent-Moore purchase the proportion of sales contributed by each of Sealed Power's product groups began to shift. In 1982, the year of the Kent-Moore acquisition, aftermarket sales made up 39 percent of total sales, original equipment contributed 35 percent, and specialty service tools took over 22 percent of total revenues.

In 1985, Sealed Power further expanded its specialty tool product segment through the acquisition of the Owatonna Tool Company and its subsidiaries, later the Power Team and Truth divisions of SPX. Owatonna, a producer of specialty tools and electronic repair equipment, allowed Sealed Power to expand its market in this area. Power Team and Truth further diversified Sealed Power's product line with the addition of high-pressure hydraulic pumps and other equipment for industrial applications as well as window and door hardware for the home construction industry. Also acquired in 1985 was the V.L. Churchill Group of Daventry, England, a major supplier of specialty tools and service products in Europe, further expanding Sealed Power's overseas presence. In order to respond to the growing threat of Japanese automobile imports, Sealed Power also set up a joint agreement with the Riken Corp., Japan's largest manufacturer of piston rings, to allow Sealed Power to distribute Riken's engine parts for repair and maintenance of Japanese cars in the United States. Sealed Power continued its program of diversification and expansion through acquisitions into the late 1980s. In addition to a number of smaller businesses, the company purchased the piston ring operations of TRW in 1987, resulting in a reorganization and consolidation of Sealed Power's piston manufacturing plants and the laying off of some 400 employees.

The late 1980s were a critical period for Sealed Power. By 1988 Sealed Power's products ranged from piston rings to door hardware and were sold to a wide range of markets. Original equipment motor parts sales had fallen to only 28 percent of total company revenues, whereas replacement parts constituted 36 percent of sales, service products and specialty service remained steady at 22 percent of corporate volume, and window and door hardware now assumed 14 percent of total sales. In recognition of the changing nature of the company, the decision was reached to change the company name from the Sealed Power Corporation to the SPX Corporation. Robert D. Tuttle, then company chairman and CEO, stated in a press release that the name change was necessary because the Sealed Power name did not reflect the scope of the company's diversity in products and markets nor the range and depth of its vision of the company's future.

Acquisitions had greatly increased SPX's total sales, which rose from $250 million in 1980 to $632 million in 1989. Net income, however, failed to rise as consistently and the still considerable original equipment segment continued to be tied to the fluctuations in the automobile industry. The acquisition in 1988 of Bear Automotive Service Equipment Company increased SPX's presence in the specialty service equipment field. In 1989 the company reached a major crossroads--diversification had transformed it from an engine parts maker with some other interests, to a replacement parts and specialty service tool manufacturer that also made piston rings.

A rumor was reported in early 1989 that corporate raider Arthur Goldberg was making a move toward SPX and had actually purchased a 4 percent stake in the company. Whether or not these rumors were heeded by SPX management, they clearly thought that strong action was needed to maintain shareholder confidence in the now diffuse company. That action came in April 1989 when it was announced that the company would undergo a major restructuring. The key component of this restructuring would be the sale of a majority stake in all of SPX's original equipment operations.

A new partnership, to be called Sealed Power Technologies Limited Partnership, would be formed from four Sealed Power divisions specializing in original equipment manufacture. The partnership would be controlled by a joint agreement between Sealed Power, who would retain a 49 percent stake in the companies, and Goldman, Sachs & Co., a New York securities firm who would assume control of 49 percent of the partnership. The remaining 2 percent stake would be owned by company management. This partnership would operate independently of SPX's other operations and would leave SPX free to concentrate more heavily on its replacement and specialty service tools segments. In addition, SPX would establish an employee stock ownership plan, in an apparently defensive move, to make unfriendly takeovers more difficult. "The restructuring will allow SPX to concentrate fully on a market segment that has higher margins and is more resistant to recessions than the original equipment business," CEO Robert Tuttle was quoted as saying in an article in the Grand Rapids Business Journal.

Struggles in the Early 1990s

The resistance to recession that SPX believed it would gain from concentrating its resources on the automobile aftermarket and construction industries failed to materialize. Instead, 1990 proved a very poor year for all sectors of SPX, with the exception of such environmentally driven products as refrigerant recycling equipment from the Robinair division. Net income dropped from $23.6 million in 1989 to only $17.7 million in 1990 (not including income or losses from Sealed Power Technologies), mostly because of weak demand in the automotive replacement business and a major downturn in the housing industry. If 1990 was disappointing for the reorganized SPX, 1991 was disastrous. For the first time in over 50 years SPX recorded a net loss, totaling $19.4 million. Sales were down in all sectors, but continued losses in the Bear Automotive Service Equipment division were particularly worrisome.

Faced with increasing pressure to restabilize the company, Dale A. Johnson, SPX CEO since 1989, essentially reversed the restructuring that had taken place in the late 1980s. The first step in the repositioning of the company was the sale of the automotive replacement parts division to Federal-Mogul in September 1993. Then, in late 1993, the company decided to repurchase the outstanding 49 percent stake in the Sealed Power Technologies Partnership. With the reacquisition of the four divisions that had made up the partnership, in addition to the sale of SPX's door and window hardware division, SPX was firmly back into the original automotive equipment market. The restructuring itself, however, had demanded a substantial outlay, and SPX faced another substantial loss by the end of 1993. Johnson, commenting on the $40.6 million loss in a press release, maintained that "operating performance for 1993 was sharply impacted by steps taken to complete the strategy for transforming the company into a global market leader in specialty service tools and original equipment components for the motor vehicle industry."

As the new SPX emerged in 1994, its operations were tightly focused in two distinct arenas. Specialty Service Tools made up 54 percent of sales and were produced and distributed by the Automotive Diagnostics (created by the merging of Bear Automotive with the newly acquired Allen Testproducts), Dealer Equipment and Services, Kent-Moore, OTC, Power Team, and Robinair divisions of SPX. The Original Equipment Components Group, formed by the Acutex, Contech, Hy-Lift, and Sealed Power divisions, contributed 46 percent of revenues. A substantial recovery in the motor vehicle industry occurred in 1994, making SPX's re-entry into the original equipment market seem well timed. Sales surged past the $1 billion mark for the first time, registering at $1.09 billion, although net income was a fairly paltry $14.1 million.

Late 1990s and Beyond: Rapid Transformation into a Diversified Industrial Manufacturer

Midway through 1995, with the company again struggling to make a profit and in fact on its way to a net loss for the year of $5.3 million--and with the company stock price on the decline--Johnson was forced to resign from his position as chairman and CEO. Charles E. Johnson II, grandson of the company cofounder, was named interim leader (Dale A. Johnson was not related to the founding Johnson family). In December 1995 John B. Blystone was named SPX's new chairman, president, and CEO. Blystone was a longtime executive with General Electric Company with nearly 20 years of experience managing various businesses, most recently Nuovo Pignone SpA, a $2 billion conglomerate based in Florence, Italy.

Blystone had experience turning companies around, and he moved quickly to change SPX's fortunes. The company began to divest unprofitable or noncore operations and strengthen and grow the remaining core units. Among the first divestments, in a clear signal of a new era, was the company's Sealed Power Division, its founding business, which was sold to Dana Corporation in early 1997 for $223 million. Other early moves in the Blystone era were the consolidation of divisions to save costs and the elimination of 1,100 jobs by mid-1997. SPX posted a net loss of $62.3 million in 1996, but this resulted largely from the recording of unusual expenses, including a $67.8 million write-off of goodwill and $20 million in restructuring charges. The improved financial condition of the firm was evident from the operating profit of $24.6 million reported in 1996, a substantial gain over the $7.7 million figure of the preceding year.

Acquisitions, fueled by the firm's rich stock price, began to be sought to bolster the core units. During 1997 SPX acquired A.R. Brasch Marketing, producer of automotive owner's manuals and technical service and training materials, a company that fit perfectly alongside the specialty service equipment operations. In early 1998 SPX made a surprising $3 billion hostile takeover bid for Echlin Inc., a much larger auto parts supplier. SPX withdrew its bid after Dana Corporation stepped in with a richer offer. Undismayed, SPX succeeded later in 1998 with a $2.3 billion stock-and-cash takeover of General Signal Corporation, a firm with 1997 revenues of $1.95 billion, more than double the revenues of the acquirer. The acquisition, completed in October 1998, enabled SPX to substantially diversify its product portfolio beyond the automotive industry. Based in Stamford, Connecticut, General Signal was a leading maker of products for the process control, electrical control, and industrial technology industries, such as ultra-low-temperature laboratory freezers and industry valves and radio-frequency transmission equipment. Late in 1998 SPX announced a restructuring program. As part of its integration of General Signal, SPX closed 18 manufacturing, sales, and administrative facilities and eliminated about 1,200 jobs. Substantial special charges related to the restructuring led to a net loss for the year of $41.7 million, but the company's revenues nearly doubled to $1.83 billion. Only about 14 percent of the sales were generated by the firm's founding sector, automotive parts.

SPX continued to restructure, divest selected units, and complete acquisitions in 1999. Four more facilities were closed during the year, leading to the cut of more than 600 additional jobs and a special charge of $38.4 million. Divestments included Best Power, a maker of uninterruptible power supplies that had been acquired in 1995, which was sold to London-based Invensys plc for $240 million; and the Acutex division, which produced solenoid valves and transmission products and was sold to Hilite Industries, Inc. for $27 million. In September 1999 SPX paid $86 million in cash to Rockwell International Corporation for North American Transformer, Inc., manufacturer of large power transformers. Revenues surged to $2.71 billion in 1999, while net income was a strong $101.5 million.

The story was similar in 2000 although there were no major divestitures and the company's acquisitiveness increased. Restructuring efforts led to the closure of ten manufacturing plants and sales offices, job cuts of more than 700, and $90.9 million in special charges. SPX spent about $225 million during 2000 to complete 21 acquisitions, most of which were small, strategic purchases. The largest of the bunch included Copes-Vulcan, a maker of control valves and turbine bypass systems purchased for $35 million; Pittsburgh-based Computerm Corporation, a producer of channel extension products, bought for $30 million; Fairfax, Virginia-based Varcom Corporation, a specialist in network management hardware, software, and services, acquired for $25 million; and Fenner Fluid Power, a division of Fenner plc of Yorkshire, England, specializing in medium-pressure hydraulic power system components, which was bought for $64 million. Also during 2000 SPX completed an initial public offering of 10.5 percent of class B stock in Inrange Technologies Corporation, a subsidiary specializing in the design, manufacture, marketing, and service of networking and switching products for storage, data, and telecommunications networks; it was actually Inrange that made two of the key 2000 acquisitions: Computerm and Varcom. SPX retained 100 percent of the class A stock and the remaining 89.5 percent of the class B, giving it voting power of about 98 percent. Proceeds of $128.2 million were raised through the offering. Revenues actually declined slightly for the year, to $2.68 billion--with the company feeling the impact of the midyear decline in the global economy--but net income increased 86.7 percent, totaling $189.5 million, although this figure was inflated by a $98 million gain on the issuance of Inrange stock.

In May 2001 SPX completed the acquisition of United Dominion Industries Limited in an all-stock transaction valued at about $1.9 billion, including the assumption of $876 million in debt. Based in Charlotte, North Carolina, United Dominion was a diversified manufacturer of flow technology, engineered machinery, test instruments, and other products. The firm had annual sales of about $2.4 billion. This acquisition marked a significant and further diversification of the SPX product mix. In April 2001 SPX announced that it planned to purchase VSI Holdings Inc., a Bloomfield Hills, Michigan-based provider of integrated marketing services mainly to the automotive industry, for $197 million. SPX soon pulled out of the deal, however, leading VSI to file a class-action lawsuit on its own behalf and on behalf of the company's shareholders alleging breach of contract and requesting that the court require SPX to complete the acquisition. By early 2002 a court date for the trial had been scheduled for February 2003. Meanwhile, as the integration of United Dominion got underway, SPX announced in August 2001 that it would cut 2,000 jobs and close 49 manufacturing, sales, and administrative facilities by the end of 2002. That same month, the company announced that it would relocate its company headquarters from Muskegon to Charlotte, North Carolina. In a press release, Blystone explained the reasoning: "In choosing Charlotte, we considered total corporate costs, labor pool, access to metropolitan airports that offer better domestic and international flights, affordable housing, employment opportunities for dual income families and overall quality of life." The move was completed in early 2002.

The acquisition of United Dominion helped send SPX revenues soaring to $4.11 billion for 2001. Operating income of $420.3 million was a healthy increase over the $276.1 million figure of 2000 despite the special charges of $87.9 million taken during 2001, while net income for 2001 was $173 million. Through a continuous focus on cost-containment, efficiency, and the retention and acquisition of only those businesses with the highest value, Blystone had managed to maintain solid levels of profitability for SPX through the more uncertain economic times of the early 21st century. Since taking over leadership of the company in late 1995, Blystone had engineered both a remarkable financial turnaround and a major transformation in the mix of SPX operations, and had also laid the foundation for a bright future.

Principal Subsidiaries: A.R. Brasch Marketing Inc.; Aurora/Hydromatic Pumps Inc.; Edwards Systems Technology Inc.; Engineering Analysis Associates, Inc.; Fairbanks Morse Pump Corporation; Filtran Aftermarket Products; Fluid Technologies, Inc.; GCA International Corporation; General Farebox Service of Atlanta, Inc.; General Signal Corporation; Inrange Technologies Corporation; Kayex China Holdings, Inc.; Kodiak Partners Corp.; Kodiak Partners II Corp.; LDN, Ltd.; MF Development Corporation; Metal Forge Company, Inc.; New Signal, Inc.; The Potomac Group & Associates, Inc.; Revco Technologies, Inc.; SPX Minnesota Properties, Inc.; SPX Risk Management Co.; Toledo Trans-Kit, Inc.; United Dominion Industries Limited; Waukesha Electric Systems, Inc.; Data Switch Gmbh Elektronische Systeme Gmbh (Germany); Data Switch (UK) Limited; GCA Limited (U.K.); DeZurik International, Limited (U.K.); G.C. Evans (Holdings) Limited (U.K.); Hangzhou Kayex Zheda Electromechanical Co., Ltd (China); High Ridge Ireland Ltd.; IBS Filtran GmbH (Germany); JATEK, Limited (Japan) KK; Jurubatech (Brazil); Kent-Moore do Brasil Industria Commerce, Ltda. (Brazil); Leeds & Northrup Limited (U.K.); Lightnin Mixers Limited (U.K.); Lowener GmbH (Germany); Shenyang Stock Electric Power Equipment Company Limited (China); SPX Australia Pty., Ltd.; SPX Canada, Inc.; SPX (Europe) A.G. (Switzerland); SPX Europe GmbH (Germany); SPX France, S.A.; SPX Iberica, S.A. (Spain); SPX International, Ltd. (Barbados); SPX de Mexico S.A. de C.V.; SPX Netherlands, B.V.; SPX (Shanghai) Trading Co. Ltd. (China); SPX Singapore PTE LTD; SPX U.K. Ltd.; Stock Japan Ltd.; Tau-Tron (UK) Limited; Tecnotest Srl (Italy); Telenex Europe Limited (U.K.); Valley Forge Technical Information Services GmbH (Germany); Ziton Limited (U.K.).

Principal Competitors: Robert Bosch Corporation; Dana Corporation; United Technologies Corporation; ABB Ltd.

SPX Corporation History

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