Test & Measurement Investor Presentation
September 26, 2007
Forward-Looking Statements
Certain statements contained in this presentation that are not historical facts, including any statements as to future market conditions, results of operations and financial projections, are forward-looking statements and are thus prospective. These forwardlooking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.
Particular risks facing SPX include economic, business and other risks stemming from our international operations, legal and regulatory risks, cost of raw materials, pricing pressures, pension funding requirements, integration of acquisitions and changes in the economy. More information regarding such risks can be found in SPX’s SEC filings
Although SPX believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. In addition, estimates of future operating results are based on the company’s current complement of businesses, which is subject to change.
All estimates of future performance are as of August 1, 2007. SPX’s inclusion of earlier estimates or targets in the presentation is not an update, confirmation, affirmation or disavowal of the estimates or targets.
This presentation includes non-GAAP financial measures. A copy of this presentation, including a reconciliation of the non-GAAP financial measures with the most comparable measures calculated and presented in accordance with GAAP, is available on our website at www.spx.com.
Agenda
Presentation
9:00 am – 10:30 am
Tech Suite
10:30 am – 11:30 pm
Lunch
12:00 pm – 1:00 pm
Bus Pick-Up
1:00 pm
Dealership Tour
1:15 pm – 2:15 pm
Introductions
Patrick O’Leary
EVP and Chief Financial Officer
Jeremy Smeltser
VP of Finance
David Kowalski
President, Test & Measurement
Scott Sproule
CFO, Test & Measurement
2006 SPX Revenue Breakdown Segment
End Markets
Global Infrastructure 59%
Other Industrial 14%
Note: Data from continuing operations
Tools and Diagnostic Equipment 27%
Thermal Equipment & Services 33%
Industrial Products 18%
Test & Measurement Revenue is About One-Fourth of SPX’s Consolidated Revenue
Test & Measurement 26%
Flow Technology 23%
Geographic Revenue Breakdown 2006 Revenue by Geography
2004 Revenue by Geography
North America
North America
70%
ROW China
6% 4%
57%
9% 20%
ROW
9%
25%
China Europe
Note: Data from continuing operations
Continued Globalization; 43% of 2006 Revenue Outside of North America
Europe
Test & Measurement Overview 2006 Revenue by Geography
Products
Europe 26% North America 65%
ROW 3% China 6%
2006 Revenue by End Market Electronics 2% Aerospace 4% Transportation 5% Utilities 8%
Note: Data from continuing operations
Leading Global Provider of Essential Tools and Diagnostic Systems for New Vehicle Platforms
Tools & Equipment 81%
Test & Measurement Key Characteristics
Long-Term Targets Revenue Growth
+3.0% to +5.0%
Segment Margin
13.0% - 15.0%
Capex
$10m to $15m
FCF Conversion Geographic Revenue: North America Rest of World
100% +
< 50% > 50%
A market leader with strong brands and global presence Strong customer relationships Project based business environment Strong cash flow generator Focused on new product innovation Increasing global presence
Solid Cash Generator With Global Growth Opportunities
David Kowalski, Test & Measurement President
Joined SPX Service Solutions in 1999 Promoted to President of Service Solutions in 2004 Promoted to Officer and Test & Measurement Segment President in 2005
Previous to SPX: VP of Manufacturing at American National Can (Pechiney) Case Corporation
Education: BSME: University of Notre Dame MSIE: Cleveland State University
Test and Measurement Introduction
Test & Measurement – Financial Trends
Revenue and Segment Margin
$1,138M
+1% to 3% GFI 4%
$1,060M
14.0%
11.5% 12.0%
2006
2007E
12.3%
2005
Revenue % of T&M 2007E
Radio 8%
LDS 7% Service Solutions 81%
Note: Data from continuing operations; Does not include impact of pending Matra-Werke acquisition
Expect Long-Term Revenue Growth of 3% to 5% and Target Margins of 13% to 15%
Introduction to SPX Test and Measurement Test Test& &Measurement Measurement Service ServiceSolutions Solutions
Mission Statement: “To be the premier supplier of diagnostic products, tools, equipment, technical information and services to vehicle manufacturers and service centers. We will be known for exceeding customer expectations for delivery, quality, innovation and value.”
12
Introduction to SPX Test and Measurement Test Test& &Measurement Measurement Service ServiceSolutions Solutions Radiodetection Radiodetection
An industry leading supplier of products which locate, identify and maintain buried pipes and cables. A global multi-technology company making construction projects safer, quicker and more cost effective.
13
Introduction to SPX Test and Measurement Test Test& &Measurement Measurement Service ServiceSolutions Solutions Radiodetection Radiodetection LDS LDS
A leading global supplier of Electro-Dynamic test systems. LDS provides manufacturers with vibration test and measurement systems that validate product designs.
14
Introduction to SPX Test and Measurement Test Test& &Measurement Measurement Service ServiceSolutions Solutions Radiodetection Radiodetection LDS LDS Genfare Genfare
An industry leader in the design of high security fare collection equipment for bus and subway transit operations. Supports over 200 North American transit systems with innovative expertise in fare collection technology. 15
Agenda
Service Solutions Review Presentation Test and Measurement “Tech Fair” Touch and feel SPX Test and Measurement product solutions Meet SPX Test and Measurement Business and Technical Leaders
Fields Infiniti Dealership Tour See SPX Service Solutions products and services in action
16
Service Solutions Vehicle Industry Trends
Trends in the Vehicle Industry Continued increase of vehicle complexity for safety, comfort, emissions and performance/fuel economy. Example:
Chrysler Minivan from Model Year ‘04 to ‘08 35% increase in total circuits 70% increase in control modules
Result:
Increased need for Technician Training, Technical Documentation, and Vehicle Diagnostics.
Increased focus by the OEMs on the global marketplace. Examples: GM and VW in China. BMW insistence that their customers share in the BMW premium experience, no matter the global location.
Result:
OEM expectations that key partners provide comparable support, world-wide. 18
North American Industry Trends
Detroit “Big Three” difficulties: Share loss continues
US credit squeeze impacting new car sales: Dealership profitability
Total vehicle population continues to grow Changing regulatory and market climate for fuel economy and emissions
19
North American Industry Trends Result: OEM emphasis on new product and vehicle platforms Timing erratic as OEMs drive financial results (Sources: Automotive News; B. Nardelli 9/10/07, A. Mulally 9/3/07.)
“Big Three” Dealer rationalization begins Dealer consolidation, Mega-Dealer creation, Dealer profitability concerns (Sources: Detroit Free Press; 6/17/07, WSJ 6/18/07)
Service bay count stable, dealers and aftermarket co-exist Increased warranties drive repairs to dealer networks Vehicles more reliable; lasting longer, 11+ age group growing rapidly (Polk) Vehicle population increasing at an estimated 5%/yr
(Polk)
Vehicle Aftermarket repair growth estimated at 2.8% (AAIA) Demand for Diagnostic Tools and Repair Information up 6% Total Tool and Equipment needs up 1.6% (AAIA and Freedonia Research)
20
European Industry Trends Europe registrations by make, 2006 VOLKSWAGEN AG
3,111,855
PEUGEOT-CITROEN (PSA)
2,019,540
RENAULT-NISSAN
1,637,626
FORD MOTOR CO.
1,623,532
GENERAL MOTORS
1,585,022
FIAT GROUP
1,156,152
TOYOTA MOTOR
896,831
DAIMLER (*)
829,102
BMW GROUP
793,077
HYUNDAI
299,308
TOTAL (Top 10 and other)
15,364,997
Source: ACEA (*) Proforma w ith Chrysler Group removed
21
European Industry Trends
Mature Western Europe marketplace, enhanced by Eastern Europe and Russian growth opportunities. Significant new product focus in a highly competitive environment. Result: Some Dealer rationalization in Western Europe, offset by Eastern European infrastructure growth. Strong global growth focus and expectations from European based OEMs. Carlos Ghosn, Renault CEO, when asked which growth markets next made sense for Renault, answered; “Russia, Morocco, Iran and India”. (Automotive News, 9/17/07)
22
Asian Industry Trends Dynamic market, led by China and India. Car population growth to nearly triple in China and better than double in India by 2015. (Polk) Japan, with a slower marketplace, remains the largest today with a car parc triple that of the next largest country, China. (Polk) Result: Global OEMs creating infrastructure to compete in this developing market. In addition, Chinese and Indian OEMs building expertise to export. In China, “traditional” 4S dealerships and aftermarket service franchises being established at a rapid rate, though dealer profitability remains an issue. Technician training, Technical Information (translated for each regional dialect) and Diagnostic Tools are in strong demand. 23
Asian Industry Trends
The Battle of the Chinese Big 3s:
Domestics: • Chery • Geely Auto • Tianjin FAW
302,478 205,123 199,323
Import JV Manufacturers: • Shanghai GM 872,271 • Shanghai VW 694,406 • FAW (VW, Toyota, Mazda) 553,553
Total 2006 Chinese Light Vehicle Production Approximately 4.2m Units
24
China Growth Prospects by Importers Increase in China Based Vehicle Production (000 units) 2005 vs. 2011 567
TOYOTA HYUNDAI
306
GM
262
SGM
281
VW GROUP
252
FORD
231 263
NISSAN
186
PSA
180
HONDA
154
SUZUKI DAIMLERCHRYSLER
111 0
100
200
300
400
500
600
Import and Import JVs: Light Vehicle Production to Increase 2.65 Million Units* in the Period 2005-2011 * SGM Wulin counted under Domestic Brand Total
Source: Global Insight 25
China Growth Prospects by Domestics Increase in China Based Vehicle Production (000 units) 2005 vs. 2011 410 379
CHERY CHANGAN SGM GEELY DONGFENG GREAT WALL BEIJING AUTOMOTIVE AVICHINA FAW ANHUI JIANGHUAI SAIC CHINA BRILLIANCE BYD AUTO NANJING AUTOMOTIVE LIFAN GROUP
281 270 163 157 144 144 143 131 90 111 84 56 24 0
100
200
300
400
500
Domestic Brands Light Vehicle Production to Increase 2.67 Million Units* in the Period 2005-2011 * SGM Wulin counted under Domestic Brand Total
Source: Global Insight 26
Service Solutions Business Overview
Service Solutions – Products and Key Brands
Specialty Tools and Dealer Equipment & Services
Diagnostic Systems and Service Equipment
Technical Information and Services & Training
Well Recognized Brands in Multiple Channels to Market; We Also Private Label in the Aftermarket
28
Service Solutions – Products and Services Defined
OEM Electronic Diagnostic Tools
Aftermarket Specialty Tools & Equipment
Tools
Aftermarket Electronic Diagnostic Tools
OEM Essential Service Tool Programs Dealer Equipment and Services Field Surveys, Investigations & Training Programs
Dealer Equipment
Repair Labor Time Studies & Warranty Reduction Initiatives
Vehicle Repair Manuals, Wiring Diagrams
Technical Information
Technology Based Applications for Content Creation Management & Delivery
Training Development & Delivery
Managed Program Provider to Support Customer Service Readiness
Dealer Facility Design
Only Global Provider with a Full Line of Products and Services for the Transportation Industry
29
Service Solutions – Evolving Product Mix
Total Revenue
~$950mm 22%
~$550mm
24% 19%
13% 10%
19%
77%
62%
27%
48%
39%
38%
E
Increased Vehicle Complexity is Driving Growth Opportunities for Diagnostic Platforms and Service Offerings
Service Solutions – Primary OEM customer base Allison Bombardier CNH Daewoo Detroit Diesel Fiat Freightliner General Motors Holden Hyundai Isuzu Jaguar Land Rover Maserati Mercury Marine Nissan/Renault Porsche Subaru Thomas Built Volvo Volvo Truck = TOOLS / DIAG (OTC, Kent-Moore)
= DEALER EQUIPMENT (DES)
BMW Caterpillar Cummins DaimlerChrysler Ferrari Ford GEM Harley-Davidson Honda International KIA John Deere Mack Trucks Mercedes-Benz Mitsubishi Polaris Saab Suzuki Toyota Volvo-Penta VW/Audi = INFORMATION / SERVICES (Valley Forge) 31
Service Solutions – Key Acquisitions 2004: US Aftermarket Retail Diagnostic Tools US Aftermarket Retail and Professional Diagnostic Tools
2005: European OEM Tool and Equipment provider Primary customer BMW
2007: Johnson Controls European Diagnostics
European OEM Diagnostic Information and Tool provider Primary customers Renault and Peugeot European based Global Tool and Equipment distributor Primary customer Volkswagen
Evaluating Active Pipeline of Opportunities to Increase Technical Capabilities and Expand Global Presence by Region or OEM
32
Service Solutions - Evolving Global Presence 2005 Europe 15%
APAC ROW 1% 6% North America 78%
2007 (PF*) APAC ROW 1% 7% Europe 33%
North America 59%
*Pro Forma assuming JCD & Matra
were SPX owned for all of 2007
We Expect Globalization To Continue
Service Solutions – Evolving Footprint Service Solutions Plant Locations
Service Solutions Sales per Employee
8
$0.40
6
$0.35
4
$0.30
2
$0.25
0
$0.20
2003
2006
North American locations European locations Asian locations
2003
2006
Sales per Employee ($M)
Continuing to Shift Resources to Global Regions Offering Best Growth Prospects, Low Cost to Operate and Highest Technical Abilities
34
Service Solutions - Locations
Kalamazoo Owatonna Cleveland Detroit Exton Los Angeles
UK France
Germany Korea
Italy
Japan China
Houston Mexico
India
Brazil
Australia
Sales Offices Engineering Locations Manufacturing Facilities Operations projected to launch 2007/2008 11 globally located call centers
Global Manufacturing and Engineering, Regional Customer Support 35
2007E Service Solutions Revenue by Market
OEMs 73%
Aftermarket 27%
27% Global Revenues from Aftermarket Sales
Largest Aftermarket Customers
Retailers:
National Accounts:
Mobile Distributors:
Independent Warehouse Distributors: 37
Service Solutions Diagnostics Products North American Professional Aftermarket Code Readers
Scan Tools
Diagnostic Solutions
Feature
OTC3408 ET1005 MD9000 OW-C3408 Enhanced Code Scanner
Solarity
OTC3494 ET105 CAN100 OW-C3494 Code Reader
Genisys Nemisys
KM9020 IM OBDII
OTC3409 ET2005 MD9001 OW-C3409 Enhanced Scan Tool
Cost
Chinese Nemisys Tool Scheduled to be Released 4Q07 Eventual Genisys Platform Replacement Expected 2008 38
Service Solutions Diagnostic Products North American Retail Aftermarket
Feature
Basic Code Readers
Mid-Range Scan Tools and Code Readers
AX700 CP9125 ET75 MC100 OW-C700
CP9175 OTC3407 ET105 CAN100 OW-C3407 CS1500 OTC3494 OW-C3494
Code Reader
Code Reader
OTC3498 ET1005A MD9000A OW-C3498 CS2500 Enhanced Code Scanner
High End Scan Tools
KM9020 IM OBDII
CP9185 AX5000
CP9180 AX4000
Enhanced Scan Tool
CP9190 AX7000 AX6000
OTC3499 ET2005A MD9001A OW-C3499 Enhanced Scan Tool
Enhanced Scan Tool
Generic Scan Tool
Cost
Common Platforms, Packaged for Unique Retail DIY Environments
39
Service Solutions in Action
Case Studies:
Nissan-Renault Diagnostic Solution
Chrysler Out-Source Support
40
Nissan – Renault Diagnostic System
Case Study: Nissan – Renault
Integrated OEM Diagnostic Solutions
Customers Can Select Complete Deployment or “Itemized Menu” of SPX Services
42
Nissan – Renault Solution
► GLO-CAL Approach: Global System with local requirements ◄ ► Over 8,200 diagnostic systems deployed and supported ◄ ► Over 170 countries in 20 languages ◄ 43
Software and Hardware Development
SPX Service Solutions France • • • •
Software & Hardware Development Diagnostic Authoring System Hardware Manufacturing On-Vehicle Testing
SPX Service Solutions Japan • Software Development • On-Vehicle Testing
Extensive vehicle coverage: Example: 3 brands (RENAULT, DACIA, SAMSUNG) / 77 vehicles / more than 900 ECUs covered for Renault alone! 44
Nissan CONSULT-III Global Deployment
26
45
Renault CLIP Global Deployment
29
46
Cooperative Plan in Place for Software Updates
Central Engineering
Dealer Workshop Network
Diagnostic Data Production Diagnostic Procedures ECU and vehicle Data
Authoring Tools Releases production
CLIP Application
Software & Data Integration Validation
Software Development 47
After Sales Support Provided by SPX Regional Entities
• Tech Support in over 15 languages • Loaner & Exchange System • Repair coordination • Warranty administration • Global customer support services • Regional uniqueness & adaptations
12
48
SPX Global After Sales & Call Center Support
49
Chrysler Total Out-Source Support
Case Study: Chrysler
Chrysler Total Out-Source Support
•Apprentice Training
• Vehicle repair manuals, diagnostic manuals, wiring diagrams, owner/operator manuals and parts information for OEM technicians
•Computer-based training • Web-based training
• Diagnostic strategy and diagnostic applications development for OEMs
• Instructor-led/classroom training • Skills assessment
• Systems engineering and systems design for OEM engineering activities
• Train-the-trainer
• Warranty reduction initiatives
• Instructional systems design
• Warranty/Labor time standards development
•LMS Integration
• Service Bulletins / Campaigns / Recalls
• OEM field support and warranty investigations • Technology-based applications using XML and
• Engineering-based investigations
SVG for content creation, management and delivery
• Vehicle diagnostics • Vehicle/Component inspections
• XML authoring environments
• Field data acquisitions
• Web-based publishing applications
• Surveys
• eProcess (workflow) solutions
• Service audits
• Government regulation compliance tools
• Warranty administration
• Data conversion services
• Warranty analysis 51
51
Chrysler Total Out-Source Support Valley Forge Global Resources
110 Developers
82 Developers 65 Developers 2 Developers
11 Developers
54 Developers 18 Developers
Contract Developers
50 Developers 22 Developers
17 offices, 6 countries, 600+ FTEs (413 development professionals) 52
Global 2006: 2,690 Projects across 400+ regional engagements
52
Chrysler Total Out-Source Support Customer looking for a NEW direction: • Chrysler “Recovery & Transformation Plan” driving new outsourcing initiatives • Demanding cost reductions, but also improved development efficiency and end deliverable quality • Shifting the authoring/publishing technology burden onto a partner that is “in the business” (Chrysler wants to build cars, period) • Focused on growing international market; requires supplier with global presence and increased translation capacity • Considered established supplier-experts and emerging offshore providers 25-Sep-07
53
Chrysler Total Out-Source Support SPX Well-Positioned to Step Up and Win •
Experience with Other Similar OEMs - Service, diagnostic and training info - Labor times and warranty reduction - Service tools and equipment
-Established new vision for an integrated diagnostic development and delivery solution -Outsourced all US Wiring Diagrams and US User Acceptance Lab activities - Proven track record for outsourcing large project teams and deliverables, particularly those comprised of existing contract labor
– 80 years of service tool development – 10 years of wiring diagram development – A vision to leverage the combined Service Solutions offerings
25-Sep-07
54
Chrysler Total Out-Source Support The Winning Solution • Establishing a new Service Research Facility within 2 miles of Chrysler Headquarters • Implementing xmlcompassTM (SPX proprietary software) publishing technology for all deliverables • Integrating the diagnostic procedure and wiring diagram development teams to provide fully linked solution for dealership technicians • Estimated $4 million annual cost reduction for our customer • Positioned to leverage facility and technology to provide additional outsourced service readiness activities from the Service Solutions portfolio
25-Sep-07
55
Service Solutions: What We Do
Specialty Tools
- OEM Essential Service Tools - Aftermarket Tools and Equip.
-Training content creation -Training delivery methodology -Apprenticeship training -Approved Dealer Equipment -Dealer Support Services -Dealer Layout and Design -Field Audits
Training
Dealer Equipment
Technical Information -Repair Procedures -Repair Labor Times -Wiring Diagrams -Unique information delivery tools
Diagnostics - Diagnostic Tools - Guided Diagnostics
Unique Products and Services Aimed at Improving Dealer Service Readiness by Helping Individual Technicians Perform
56
Service Solutions: How we go to market OEM: “Managed Program” in a Partnered Approach Complete, OEM approved, solutions addressing specific OEM vehicle service needs Often at dealer cost as part of dealer franchise agreements and/or needs Place adequate regional sales and engineering resources to support individual OEM program needs Example: SPX China Capabilities Aftermarket: SPX Proprietary products Product Design based on SPX OEM vehicle service experience Sold through distribution partners
57
Service Solutions: Key Business Drivers
Vehicle Re-Engineering, New Vehicle Platform Releases Example: Ford Edge (2006)
Vehicle Extended Warranty Programs Warranty Reduction Initiatives, Technician Productivity Aids Increasing Vehicle Complexity Dealer Count, Service Bay Count, Vehicle Population Globalization Opportunities Example: GMDAT Gamma Project – Global Vehicle
Aftermarket New Product Development
58
Test and Measurement Summary
Test & Measurement Financial Profile
Revenue Growth (CAGR) (1) Cumulative Segment Margin (1) Vitality Index Average Investment in Capital (1) (2) Cumulative FCF Conversion (1) (2) Geographical Footprint: (3) North Amerrica Rest of World
2005 - 2007E
Long-Term Targets
4.6%
3.0% - 5.0%
12.7%
13.0% - 15.0%
30%
30%
$9.1m
$10m - $15m
107.6%
100% +
57% 43%
< 50% > 50%
(1) see Appendix A for supporting calculations (2) Average Investment in C apital and C umulative FC F C onversion are based on 2005 - 2006 actuals (3) geographical footprint presented for 2005 - 2007E is the proforma 2007E with the full year impact of 2007 acquisitions 2007E targets as of August 1, 2007
Solid Cash Generator With Global Growth Opportunities
Test & Measurement Summary
Driving to be market leader with strong brands and global presence Continued emphasis on relationships with key global OEMs, developing relationships with emerging region vehicle manufacturers Well positioned to take advantage of opportunities afforded by increased technology and needed global support Global sourcing, manufacturing and engineering capability
Will continue to adjust North American footprint in the face of anticipated market conditions Early 2008 North American plant closure with related overhead adjustments, previously announced
Business comparisons can be “lumpy” due to a “project based” business environment Attractive financial characteristics, barriers to entry, and global growth opportunities 61
62
Appendix A
($ millions) Revenue
2005
2007E
Cumulative (1)
CAGR (1)
+ 1 - 3%
$3,357.4
4.6%
2006
$1,059.6 $1,137.5
Segment Income
$129.9
$159.1
--
$425.3
Segment Margin
12.3%
14.0%
11.5 - 12.0%
12.7%
2005
2006
Cumulative
Average
$164.1
$165.1
$329.2
$82.3
$7.7
$10.5
$18.1
$9.1
Free Cash Flow
$156.5
$154.6
$311.1
$77.8
FCF Conversion
120.5%
97.2%
107.6%
107.6%
Free Cash Flow (FCF) Reconciliation: (2)
Operating Cash Flow Less: Cash Capex
(1) the mid-point of our 2007 guidance range was utilized for illustrative purposes only (2) Free Cash Flow metrics are provided for 2005 - 2006 as SPX does not provide guidance on segment cash flows Targets as of August 1, 2007
