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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13279
UNOVA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4647021
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21900 BURBANK BOULEVARD 91367-7418
WOODLAND HILLS, CALIFORNIA (ZIP CODE)
WWW.UNOVA.COM
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 992-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A JUNIOR NEW YORK STOCK EXCHANGE
PARTICIPATING PREFERRED STOCK
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
[ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
On February 29, 2000, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $630.7 million.
On February 29, 2000, there were 55,551,929 shares of Common Stock outstanding,
exclusive of treasury shares.
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UNOVA, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
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PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 10
Item 3: Legal Proceedings........................................... 11
Item 4: Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6: Selected Financial Data..................................... 12
Item 7: Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 13
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk........................................................ 18
Item 8: Financial Statements and Supplementary Data................. 18
Item 9: Disagreements on Accounting and Financial Disclosure........ 18
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 19
Item 11: Executive Compensation...................................... 20
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 20
Item 13: Certain Relationships and Related Transactions.............. 20
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 20
Signatures.................................................. 23
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PART I:
ITEM 1. BUSINESS
GENERAL
UNOVA, Inc. and subsidiaries (the "Company" or "UNOVA") is an industrial
technologies company providing global customers with solutions for improving
their efficiency and productivity. The Company operates in two primary
businesses: Automated Data Systems ("ADS") and Industrial Automation Systems
("IAS"). The IAS businesses are further disaggregated into two reportable
segments based on their respective markets: Integrated Production Systems
("IPS") and Advanced Manufacturing Equipment ("AME"). For the year ended
December 31, 1999, UNOVA reported revenues and segment operating profits of
$2,108.7 million and $118.9 million, respectively.
The Automated Data Systems segment comprises wireless networking and mobile
computing products and services, and Internet-enabled automated data collection,
principally serving industrial and logistics/supply chain management markets.
Customers include logistics, distribution and transportation companies, food and
beverage operations, manufacturing industries, health care providers and
government agencies.
Within the IAS businesses, the Integrated Production Systems segment includes
integrated manufacturing systems, metal-cutting production systems, body welding
and assembly systems, and precision grinding and abrasive operations, primarily
serving the worldwide automotive, off-road vehicle, and diesel engine
industries. The Advanced Manufacturing Equipment segment provides stand-alone
machine tools, primarily for the aerospace and manufacturing industries.
UNOVA became an independent public company upon the distribution of its common
stock to the shareholders of Western Atlas Inc. ("WAI") on October 31, 1997. The
Company is a Delaware Corporation and its headquarters are located in Woodland
Hills, California.
See Note K to the consolidated and combined financial statements for financial
information by reportable segment and by geographical area. Information related
to business acquisitions, investments, and dispositions is set forth in Note B
to the consolidated and combined financial statements.
PRODUCTS AND SERVICES
AUTOMATED DATA SYSTEMS SEGMENT
The Automated Data Systems segment provides complete supply-chain management,
automated data collection ("ADC") and mobile computing systems solutions and is
operated by the Company's wholly owned subsidiary, Intermec Technologies
Corporation. Norand Corporation ("Norand") and United Barcode Industries, Inc.
("UBI") were acquired early in 1997 and merged into the existing Intermec
organization. In 1998, Intermec acquired the radio-frequency identification
("RFID") business unit of Amtech Corporation known as the Amtech Systems Group
("Amtech Systems"). Amtech Systems is a supplier of wireless data technologies
for intelligent item tracking and identification, electronic toll collection,
rail and motor fleet tracking, and access control to parking and other
structures.
ADS accounted for 41%, 50% and 44% of the Company's consolidated and combined
revenues in 1999, 1998 and 1997, respectively.
Major ADS offices and manufacturing facilities are located in the states of
Iowa, Ohio and Washington; and internationally in the United Kingdom, the
Netherlands, Sweden, and France.
Intermec is organized to deliver "solutions" involving customized combinations
of technology, services, and software to customers in the healthcare, retail,
industrial/manufacturing, transportation and utilities markets.
ADS products are primarily used by non-office workers such as field
representatives, warehouse and delivery personnel, manufacturing and other
employees who typically operate outside the traditional
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ITEM 1. BUSINESS (CONTINUED)
office environment. Product applications include sales order input, order
tracking, and order delivery; tracking of work-in-process and finished goods
through manufacturing, distribution and other commercial operations; and
real-time monitoring of inventory levels and order status to improve
productivity, quality and responsiveness. The data collected and exchanged by
workers in these applications is often the most critical, and is also the most
susceptible to errors or omissions due to illegible handwriting, inaccurate
keystrokes, or overlooked transactions.
Customers purchase ADC and data exchange technologies to improve the accuracy of
data transferred to and from these front-line workers. This access to better
overall information provides them with competitive advantages. In addition to
existing applications, ADC technologies are increasingly used for automating
information exchange within supply chains, and facilitating shipment and
fulfillment of Internet e-commerce orders.
Wireless Networks Products & Services: Intermec has market leadership in
developing wireless Local Area Network ("LAN") software and systems. It was the
first to provide a network architecture that allows customers to use multiple
radio technologies within one LAN system. This Radio Independent(TM) wireless
LAN solution supports all major radio technologies, including synthesized UHF,
900 MHz and 2.4 GHz direct sequence and frequency-hopping, spread-spectrum radio
technologies, and gives customers the ability to choose the most efficient radio
technology for their facilities to solve data rate, transmission speed and range
issues in order to create a reliable communications environment. To ensure
compatibility with customer host systems, all major industry standard networks
are supported. Most recently, Intermec has joined the Wireless Ethernet
Compatibility Alliance ("WECA") initiative which is a move to provide open
constructive standards for wireless networking.
Intermec has developed an extensive line of hand-held computers and
vehicle-mounted terminals that combine PC-type capability with scanning and data
transmission abilities. Intermec's family of products ranges from low-cost,
hand-held batch data collection devices to sophisticated and powerful terminals,
computers and network products. Its "open systems" design philosophy delivers
maximum product flexibility to customers with diverse application requirements.
Industrial Computing and Communications Terminals: The Company is a leader in
ruggedized mobile computing systems that provide front-line workers with
comprehensive data communications, wide-area networks, application software,
hand-held and truck-mounted PC-based products with peripherals and printer
solutions. In combination with wireless communications, mobile computing enables
remote workers to have access to centralized computer applications and databases
and to send and receive information through wireless networks for improved
productivity, efficiency and accuracy of data. Mobile computing applications
provide real-time automation of sales, distribution, electronic billing,
dispatching, routing and other customer information.
Identification Systems: Intermec's Identification Systems products, which
include wands, imagers, charge-couple devices (CCD), badge and laser scanners
and printers and media products, are able to read or collect data, and then
print the data on customized labels and tags.
The Company's line of flexible "on demand" bar code printers ranges from
low-cost, light to heavy-duty industrial models that accommodate a wide array of
printing widths, materials and label configurations. A variety of specialty
printers provides custom capabilities including color printing, a global
language enabler and high-resolution (400 DPI) printing that ensures sharp fonts
and precise graphics, even on extremely small labels such as those used by the
electronics industry. Intermec also supports its customers with a broad range of
label and tag solutions and other supplies for its printer product range.
Radio-Frequency Identification: Marketed under the Amtech brand name, the
Company designs, markets, manufactures, integrates and supports innovative RFID
products and services for electronic toll and traffic management; rail,
intermodal and fleets; and access control for parking, security, airports and
ground transportation. The Company is currently developing the next generation
of low-cost RFID products for supply chain applications such as shipping labels
and pallet tags with embedded electronic
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ITEM 1. BUSINESS (CONTINUED)
memory chips that can be reprogrammed via low-power radio signals. These
"intelligent" labels, and other examples of RFID technology, are being evaluated
by customers in the transportation, security, manufacturing and logistics
markets. Intermec plans to offer its new technology for integration with
existing automatic identification and data capture solutions such as bar code,
mobile computing and other enterprise-wide information systems.
Technologies/Trends. Intermec is consistently broadening the application of
wireless networking, ADC and mobile computing by developing or integrating new
technologies into its products. Recent examples include new high-speed wireless
networking products, new Windows CE data collection computers, and new devices
that use the Internet to simplify the management of wireless networks. The
Company is also developing a complete range of products based on its RFID
technology, comprising labels, printers, and scanners.
INDUSTRIAL AUTOMATION SYSTEMS
The Company is a leading developer of value-added manufacturing technologies and
products that span the production cycle from process engineering and design and
prototyping to systems integration. The Integrated Production Systems segment
primarily serves the global automotive, off-road vehicle and diesel engine
industries. The Advanced Manufacturing Equipment segment satisfies customer
needs in the aerospace, electronics, durable goods and general job shop markets.
IAS major offices and production facilities are located in Illinois, Kentucky,
Michigan, Ohio and Pennsylvania and internationally in Canada, the United
Kingdom and Germany.
INTEGRATED PRODUCTION SYSTEMS SEGMENT
To create an integrated manufacturing solution, many of the segment's products
and systems are sold in combination, including metal-cutting solutions,
precision grinding machines or assembly and testing systems. By working closely
with customers, especially in the product design and engineering phases, the
Company is able to design manufacturing processes that reduce capital
requirements, lower lifecycle costs, eliminate costly shop floor programming and
improve productivity by reducing downtime during operations.
Major industrial manufacturers use one or more of the Company's dedicated and
flexible/modular systems to make the following products: powertrain components
(engines, transmissions and connecting rods); chassis components (steering
knuckles, rear axle housings and brake calipers); automotive and truck bodies
(welding and assembly systems); engine components (precision camshafts and
crankshafts). The Integrated Production Systems Segment accounted for 45%, 43%
and 56% of the Company's consolidated and combined revenues in 1999, 1998 and
1997, respectively.
Metal-Cutting: Manufacturing solutions designed and integrated by the Company
range from stand-alone machines for light duty, general purpose metalworking, to
complete, turnkey manufacturing solutions for heavy-duty or high-volume
metal-cutting operations. Product lines include machining centers;
non-synchronous, ring- or dial-transfer systems for low-volume requirements;
modular, flexible systems for medium-volume production requirements; and
dedicated modular transfer lines for high-volume production. Through its
Assembly and Test Systems operations, the Company also designs and builds
specialized assembly and/or testing equipment and systems for a variety of
automotive manufacturing and other industries.
Precision Grinding and Abrasives: The Company is an innovator of cylindrical
grinding products and processes that improve accuracy and reliability in
critical mechanical parts. For example, precision-ground camshafts and cam lobes
for internal combustion engines translate into improved engine durability and
performance, with lower emissions and better fuel economies. Precision-ground
air compressor pistons result in lower friction and energy consumption in air
conditioning systems. Superabrasive grinding wheels, electronic controls,
high-precision, maintenance-free hydrostatic bear-
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ITEM 1. BUSINESS (CONTINUED)
ings and other state-of-the-art grinding technologies enable today's car
manufacturers to machine parts with precision measured in the sub-micron range.
Research into the processing of new materials also has resulted in the
development of ultra-high-precision grinding and finishing techniques. These
advances are being applied to requirements of the microelectronics, computer,
aerospace and optics industries for the manufacture of materials such as
composites, silicon, glass and ceramics.
Auto Body Assembly Systems: The Company designs and integrates automated systems
to form, assemble and weld high-quality auto and truck bodies as well as other
industrial products. Robotic systems are integrated with high-precision holding
and alignment fixtures and high-volume welding equipment to produce components
and subassemblies. Proprietary processes have been developed specifically to
assemble doors, hoods and trunk lids, which historically represent the most
critical "fit and finish" manufacturing parts of car bodies.
Using 3-D computer simulations, the Company has established one of the broadest
process and tool design capabilities in the industry. Tool design and
prototyping are now linked into the product engineering process, reducing costs
and risks for automotive and aerospace customers long before their programs move
into the capital investment stage.
ADVANCED MANUFACTURING EQUIPMENT SEGMENT
The Company's AME segment offers stand-alone equipment such as multi-axis
machines; profiling, tape-laying and fiber placement systems for composite
structures; vertical and horizontal metal-cutting machining centers; and test
and automation equipment for integration into production lines. The Company also
makes unique, CNC-controlled machinery that forms large-scale structures from
unidirectional composite tapes and fibers. These machines are used by defense,
commercial and general aviation aircraft manufacturers to make airframes,
rockets or spacecraft components (vertical stabilizers, missile casings,
fuselages). Acquired in October of 1998, Advanced Manufacturing Equipment
accounted for 14%, and 7% of the Company's consolidated and combined revenues in
1999 and 1998, respectively.
Technologies/Trends. IAS continues to develop manufacturing technologies to
broaden its product offerings and respond to automotive customers' needs to
lower costs, improve fuel consumption and decrease car emissions. New "agile"
machining centers and flexible fixturing systems have been introduced, or are
under development, to reduce fixed costs for high-volume machining. Advances in
grinding technologies may allow IAS to move into other markets, where the
Company's machines can be applied to finish ceramic and silicon materials with
extreme accuracy. The Company is also continuing to advance its capabilities for
processing advanced materials such as composites, aluminum alloys, titanium and
compacted graphite iron (CGI).
BUSINESS STRATEGY
The Company's strategy is to develop products, processes and services that help
improve productivity and efficiency in a variety of manufacturing and
distribution applications. Each of the Company's segments offers single products
as well as integrated solutions to its customers.
Future growth in these businesses is expected to result from expansion of the
Company's existing operations and customer base, and through selected
acquisitions. In seeking acquisitions, the Company will concentrate on
technologies, products and services that enhance customer productivity and
efficiency, and that can be characterized as growth drivers.
AUTOMATED DATA SYSTEMS SEGMENT
In the ADS market, the growth of Internet e-commerce has created increased
opportunities and demand for technologies that improve levels of service and
responsiveness.
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ITEM 1. BUSINESS (CONTINUED)
Warehouses and logistics operations already rely on wireless networks and
hand-held and mobile computers to transmit inventory data to central host
computers. When information is updated real time, customers have greater
visibility into their current business operations, and avoid inventory shortages
and improve customer service by providing more accurate shipping and delivery
information. That capability becomes more vital in e-commerce operations because
technologically savvy customers demand instant information about product
availability and rapid order delivery. As competition places more pressure on
customers for faster operational performance, they are upgrading their supply
chain "execution" technologies to improve financial measures such as inventory
and asset turnover, and customer satisfaction standards, such as delivery speed,
in-stock availability and order accuracy.
The Company plans to increase its product development and marketing activities
in the areas of e-commerce and supply-chain execution to capitalize on strong
demand and overall market growth.
INDUSTRIAL AUTOMATION SYSTEMS
For the IAS businesses, the Company plans to continue developing its existing
customer base by seeking a greater role in customer projects by continuing its
emphasis on product development and by expanding its international activities.
The ongoing development of the Company's systems and solutions activities will
depend primarily on the application of new technologies and products to maintain
its position in this technology-driven market. The Company believes it has the
necessary technical expertise to achieve this goal. Future geographic
opportunities have been identified outside North America, particularly in
Europe, South America and Asia. To capitalize on these markets, the Company has
recently changed the organizational structure of these segments to a more global
span of control. IAS now manages its marketing and operating resources on a
global, rather than regional basis.
In recent years, cost-cutting needs and quality requirements in the automotive
industry have strengthened the Company's relationships with its customers. The
carmakers' trend toward fewer suppliers has benefited the Company and allowed it
to expand its market participation. These market-driven changes also have forced
many smaller competitors to either withdraw from the market or to reduce their
role to that of second or third tier suppliers. The Company's strategy is to
maintain its extensive outsourcing network of qualified suppliers in North
America and overseas, thereby avoiding unnecessary vertical integration and
gaining flexibility in its market approach.
MARKETS AND CUSTOMERS
AUTOMATED DATA SYSTEMS SEGMENT
The Automated Data Systems market is extensive because its technologies,
including low-cost small systems, can be used by customers of any size.
Worldwide sales of automated data systems equipment reached over $8 billion in
1999, according to estimates from independent research sources. These sources
also predict that the overall market will continue to grow at an annual rate of
approximately 12% to 15% over the next several years.
Market growth is driven by the global need for technologies and solutions that
improve quality, productivity and cost-efficiency in business and government,
particularly through logistics automation, supply-chain management, ERP and
e-commerce solutions. Worldwide coverage is accomplished through a dedicated
sales and service organization, supplemented with indirect channel partners and
distributors.
Through its application of technologies in the manufacturing,
warehouse-distribution, transportation, health care, government, field service
and utilities markets, the Company maintains a strong position in the global ADC
market.
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ITEM 1. BUSINESS (CONTINUED)
The Company sells and services its products through multiple sales and
distribution channels; a direct field sales force that concentrates on large,
complex systems sales; value-added resellers who offer applications-specific
solutions; and alliances with major systems integrators and distributors. The
Company's direct sales organization serves customers from offices throughout
North America and Europe and in some selected countries outside these regions.
An indirect sales channel includes long-time exclusive relationships with
value-added distributors and master resellers.
Although the Company obtains a majority of its sales through indirect sales
channels, no individual value-added distributor or reseller is material to our
overall revenues. The Company also maintains contact with customers and
prospective users through user forums for automated data systems applications
and technologies.
The mobile computing systems market consists of several applications, such as
route accounting for the distribution and package/parcel delivery industries,
sales merchandising, remote delivery and field service. These applications are
generally used in the consumer products, food, beverage, wholesale, parcel
delivery, freight, field service, and home service industries.
Manufacturing applications include the collection and communication of
information related to receipt of materials, work-in-process, finished goods
inventory and other manufacturing functions. Warehousing and distribution center
applications involve the collection and communication of information related to
receiving materials to be stored, storage locations, materials retrieval and
shipping. Retail applications include the automation of shelf label maintenance
and product shipping and receiving functions.
The Company also designs, manufactures, markets, installs and supports equipment
and systems based on its RFID technology that are used extensively by railroads,
toll collection and parking operations. These customers are located in North and
South America, Europe and Asia.
Additional international sales opportunities exist in countries where mobile
computing systems market practices and other applications are similar to those
in the U.S. The extent of RF systems opportunities in any particular country is
based on the level of industrialization, the status of bar coding
implementation, and the RF regulatory environment. The major markets for
printers are manufacturing, distribution, warehousing, transportation, health
care, government and other services.
INDUSTRIAL AUTOMATION SYSTEMS
The Company participates in the automotive, aerospace and general manufacturing
markets. Investments by automotive customers are driven by model changes,
competitive pressures, government regulations such as emission standards and
gasoline consumption rates, and the customers' own internal spending cycles.
Investments in diesel engine manufacturing are influenced by the infrastructure
needs of emerging industrial nations and by the efficiency benefits diesel
engines offer for heavy and light trucks and utility vehicles.
Integrated Production Systems' customers are the major auto and diesel
manufacturers and their Tier One suppliers. Although the passenger car and light
truck industries continue to represent IPS' largest market, business from diesel
engine manufacturers also has grown in recent years.
The Company believes that future growth in the IPS and AME segments will be
dependent on their ability to market their full range of products and services
to their combined customer base and to expand into other industrial
manufacturing markets. This strategy is supported by a global IAS management
structure that provides for unified marketing and product support.
A substantial part of the IPS segment's total revenue is currently generated by
worldwide automotive and diesel engine industry purchases of automated
manufacturing systems, including integrated machining, body welding and assembly
and precision grinding systems. Among customers for such equipment, U.S. and
Canadian auto and auto-related manufacturers currently account for the majority
of IPS sales. The
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ITEM 1. BUSINESS (CONTINUED)
remainder of sales represents products manufactured and sold in Europe and those
exported from the Company's production facilities, mostly for installation in
Latin America and Asia.
Both IAS segments' revenues are influenced by the capital investment plans of
customers. These plans are typically strategic and long-range, driven by
customers' competitive product issues, as well as environmental issues related
to compliance with emissions. Short-term business cycles, such as monthly
product sales, typically do not delay or interrupt capital investment decisions
of major automotive customers.
Recent major customers include U.S.-based Boeing Corporation, Briggs & Stratton,
Cummins, DaimlerChrysler, Ford, General Motors, Navistar, and Raytheon; and
Western Europe-based BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot, Renault,
Volkswagen, Volvo and the European subsidiaries of the large U.S. manufacturers.
The Company also has won major systems contracts for the "transplant"
manufacturing facilities of foreign automakers, including both European and
Japanese, and also serves the automotive components manufacturing market.
COMPETITION
Strong competition exists both in the domestic and international markets for the
Company's products and services. Products are sold and projects are won in the
marketplace based on price, technology, and service.
AUTOMATED DATA SYSTEMS SEGMENT
The market for ADC/mobile computing systems is highly fragmented. Based on
independent market surveys, management believes that Intermec Technologies
Corporation is one of the largest participants in terms of revenues. The other
two major participants are Symbol Technologies and Telxon. The Company also
faces strong competition for single product lines from specialized suppliers,
like Zebra, for printers.
The market for mobile computing and RF products is highly competitive and
rapidly changing. Some firms manufacture and market hand-held systems for route
accounting applications, including Telxon and Fujitsu. In addition, a number of
firms manufacture and market radio-linked data communication products, including
LXE, Symbol, Teklogix and Telxon. On the printer side, the Company faces
competition from Zebra/Eltron, Datamax and many others, depending on the
geographic area.
The Company competes primarily on the basis of its technologies: open-systems
architecture, networking and communications expertise and applications software.
Other attributes, such as quality of support services, product functionality,
performance and ruggedness are important for market success.
INDUSTRIAL AUTOMATION SYSTEMS
While product quality and innovation are key competitive factors to win market
share, pricing is a major decision point in the global market for Integrated
Productions Systems and Advanced Manufacturing Equipment. IAS' strength is the
ability to design reliable and efficient manufacturing processes for its
customers and combine them with cost-effective machining solutions in order to
win orders against strong global competition.
The North American and European markets for high-volume production systems for
engines and transmissions is divided among approximately 10 major competitors
and numerous smaller participants. Major competitors are Thyssen, Ingersoll
Milling and Grob-Werke (Germany).
In the body welding and assembly systems market, the Company is faced with
competitors that are involved in a broad range of assembly equipment and other
competitors that provide "niche" machines. Primary competitors include DCT, PICO
(Comau), Valiant (Thyssen), and Utica in North America; Thyssen, FFT, Kuka and
Comau in Europe.
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ITEM 1. BUSINESS (CONTINUED)
In the worldwide market for high-precision grinding of engine parts, the Company
has achieved a strong market position through innovative products that improve
customer efficiency while reducing their capital costs. Major competitors are
the foreign companies Koyo and Toyoda in Japan; the Schleifring Group, Junker in
Germany; and Giustina in Italy.
Advanced Manufacturing Equipment faces separate competitors in its different
product markets such as Ingersoll Milling, DST (Germany) and Forrest Line
(France) in aerospace systems; Mazak, Okuma and Mori Seiki (all Japan) in
production systems; and Thyssen/Fadal and Haas (both North America) in the
market for stand-alone machines.
RESEARCH AND DEVELOPMENT
Company-wide expenditures on research and development activities amounted to
$74.1 million, $71.5 million and $53.1 million, substantially all of which was
sponsored by the Company, in the years ended December 31, 1999, 1998 and 1997,
respectively. The Company expensed a total of $211.5 million of acquired
in-process research and development in 1997. See further discussion in Note B to
the consolidated and combined financial statements.
PATENTS AND TRADEMARKS
The Company owns a large number of patents, trademarks and copyrights relating
to its manufactured products, which have been secured over a period of years.
These patents, trademarks and copyrights have contributed to the Company's
growth and may continue to be of value in the future. However, the Company
generally is not dependent upon the protection of any patent, patent application
or patent license agreement, or group thereof, and would not be materially
affected by expiration thereof.
SEASONALITY; BACKLOG
Sales backlog was $856 million, $831 million and $395 million at December 31,
1999, 1998 and 1997, respectively. The operations of the Company are not
seasonal to any appreciable degree. The majority of the Company's backlog is
concentrated in the IAS segments. The ADS market typically operates without a
significant backlog of firm orders and does not consider backlog to be a
relevant measure of future sales.
EMPLOYEES
At December 31, 1999, the Company had approximately 9,577 full-time employees,
of which approximately 3,740 are engaged in the ADS segment, approximately 4,130
in the IPS segment, approximately 1,601 in the AME segment, and approximately
106 in corporate and shared services.
ENVIRONMENTAL AND REGULATORY MATTERS
During 1999, the amounts incurred to comply with federal, state and local
legislation pertaining to environmental standards did not have a material effect
upon the capital expenditures or earnings of the Company.
Radio emissions are the subject of governmental regulation in all countries in
which the Company currently conducts business. In North America, both the
Canadian and the U.S. governments publish relevant regulations, and changes to
these regulations are made only after public discussion. In some countries
regulatory changes can be introduced with little or no grace period for
implementing the specified changes. Furthermore, there is little consistency
among the regulations of various countries outside North America, and future
regulatory changes in North America are possible. These conditions introduce
uncertainty into the product planning process and could have an adverse effect
on the ADC/ Mobile Computing business.
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ITEM 1. BUSINESS (CONTINUED)
The European Community ("EC") has passed a directive requiring its members to
adopt laws relating to electro-magnetic compatibility and emissions standards.
These standards will apply to ADC/Mobile Computing products sold in EC member
countries as those countries adopt the EC standards into law. Currently, the
Company believes that its products materially comply with the regulations in
force for each of the EC member countries.
RAW MATERIALS
The Company uses a wide variety of raw materials in the manufacture of its
products and obtains such raw materials from a variety of suppliers. No single
supplier provides 10% or more of the Company's raw materials, nor do raw
materials from any one supplier generate 10% or more of the Company's
consolidated revenues. The Company does not have any long-term supply agreements
relating to raw materials.
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ITEM 2. PROPERTIES
The Company's executive offices, in leased premises, are located at 21900
Burbank Boulevard, Woodland Hills, California. Its principal plants and offices
have an aggregate floor area of approximately 6,343,030 square feet, of which
5,213,020 square feet (82%) are located in the United States, and 1,130,010
square feet (18%) are located outside of the United States, primarily in the
United Kingdom, Germany and Canada.
These properties are used by the business segments as follows:
SQUARE
FEET
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Automated Data Systems...................................... 925,045
Integrated Production Systems............................... 3,445,594
Advanced Manufacturing Equipment............................ 1,933,472
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6,304,111
=========
Approximately 4,549,461 square feet (72%) of the principal plant, office and
commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's plants and offices in the United States are situated in 21
locations in the following states:
SQUARE
STATE FEET
- ----- ---------
Ohio........................................................ 1,791,258
Michigan.................................................... 1,614,478
Pennsylvania................................................ 495,662
Washington.................................................. 325,500
Illinois.................................................... 309,571
Iowa........................................................ 258,325
Kentucky.................................................... 152,483
Other states................................................ 265,743
---------
5,213,020
=========
The above-mentioned facilities are in satisfactory condition and suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company-held properties leased to others and
also excludes plants or offices which, when added to all other of the Company's
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
10
13
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, the Company believes
that the ultimate resolution of these proceedings will not have a material
adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PAGE
----
Quarterly Financial Information (unaudited)................. F-25
11
14
ITEM 6. SELECTED FINANCIAL DATA
UNOVA, INC.
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:(1)
Sales and Service Revenues............. $2,108.7 $1,662.7 $1,426.2 $1,164.7 $ 942.9
-------- -------- -------- -------- -------
Operating Costs and Expenses
Cost of sales and service............ 1,501.0 1,110.8 981.4 841.8 669.3
Selling, general and
administrative(2)................. 454.4 383.7 535.9 218.7 194.1
Depreciation and amortization........ 66.0 57.0 40.6 27.0 26.1
-------- -------- -------- -------- -------
Total........................ 2,021.4 1,551.5 1,557.9 1,087.5 889.5
-------- -------- -------- -------- -------
Other Income, Net...................... 31.5
--------
Earnings (Loss) before Interest and
Taxes................................ 87.3 142.7 (131.7) 77.2 53.4
Interest Expense, Net(3)............... (38.0) (25.7) (16.7) (7.1) (9.3)
Taxes on Income........................ (19.7) (47.3) (23.0) (28.1) (17.9)
-------- -------- -------- -------- -------
Net Earnings (Loss).................... $ 29.6 $ 69.7 $ (171.4) $ 42.0 $ 26.2
======== ======== ======== ======== =======
Basic Net Earnings (Loss) per Share.... $ 0.54 $ 1.28 $ (3.17) $ 0.78 $ 0.49
Diluted Net Earnings (Loss) per
Share................................ $ 0.54 $ 1.27 $ (3.17) $ 0.78 $ 0.49
Shares used for Basic Earnings (Loss)
per Share(4)......................... 55,111 54,620 54,056 53,892 53,892
Shares used for Diluted Earnings (Loss)
per Share(4)......................... 55,120 54,703 54,056 53,892 53,892
FINANCIAL POSITION (AT END OF YEAR):(1)
Total Assets........................... $1,903.5 $1,979.2 $1,356.4 $1,073.8 $ 919.0
Notes Payable and Current Portion of
Long-term Obligations................ $ 64.0 $ 237.3 $ 86.6 $ 27.5 $ 22.2
Long-term Obligations.................. $ 365.4 $ 366.5 $ 216.9 $ 14.5 $ 14.1
Allocated Portion of Western Atlas
Debt................................. $ 109.6 $ 112.4
Working Capital........................ $ 447.8 $ 392.2 $ 277.8 $ 266.0 $ 194.7
Current Ratio.......................... 1.7 1.5 1.6 1.6 1.6
Total Debt as a Percentage of Total
Capitalization....................... 37% 46% 34% 21% 23%
- ---------------
(1) Information related to business acquisitions, investments, and dispositions
is included in Note B to the consolidated and combined financial statements.
(2) Selling, general and administrative costs include allocated charges from
Western Atlas of $13.5 million, $22.2 million and $19.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The year ended
December 31, 1997 includes charges of $211.5 million, or $3.91 per share,
for the value of acquired in-process research and development activities
resulting from acquisitions made during the year.
(3) Interest expense includes allocated charges from Western Atlas of $12.0
million, $8.3 million and $8.4 million for the years ended December 31,
1997, 1996 and 1995, respectively.
(4) In thousands. The number of common shares used to calculate basic and
diluted earnings per share prior to 1997 is based on the number of shares of
Western Atlas common stock that was outstanding as of June 30, 1997.
12
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. Sales and
service revenues and segment operating profit for the years ended December 31,
1999, 1998 and 1997 (excluding the $211.5 million charges for acquired
in-process research and development), were as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
SALES AND SERVICE REVENUES
Automated Data Systems.................................... $ 877.2 $ 829.4 $ 636.4
Industrial Automation Systems:
Integrated Production Systems........................... 937.3 719.3 789.8
Advanced Manufacturing Equipment........................ 294.2 114.0
-------- -------- --------
Total Sales and Service Revenues................ $2,108.7 $1,662.7 $1,426.2
======== ======== ========
SEGMENT OPERATING PROFIT
Automated Data Systems.................................... $ 26.4 $ 55.4 $ 9.1
Industrial Automation Systems:
Integrated Production Systems........................... 86.8 73.2 94.6
Advanced Manufacturing Equipment........................ 5.7 3.7
-------- -------- --------
Total Segment Operating Profit.................. $ 118.9 $ 132.3 $ 103.7
======== ======== ========
Year Ended December 31, 1999 Compared to 1998
Total sales and service revenues increased $446.0 million, or 27%, for the year
ended December 31, 1999 compared with the corresponding prior year. Total
segment operating profit decreased $13.4 million, or 10%, for the year ended
December 31, 1999 compared to the corresponding prior year.
Automated Data Systems: ADS segment sales increased $47.8 million, or 6%, and
operating profit decreased $29.0 million, or 52%, for the year ended December
31, 1999 compared with the corresponding prior year. The increase in sales is
due primarily to the inclusion of a full year's results in 1999 from the
acquisition of Amtech Systems in May 1998, and an increase in intellectual
property ("IP") licensing revenues, offset partially by decreased sales of other
ADS products, primarily mobile computing. Mobile computing revenues were
impacted by customers' focus on internal Year 2000 issues. The decrease in
operating profit was the result of additional operating expenses and order
fulfillment costs related to the implementation of a new management information
system at Intermec's main production facility and decreased product sales,
offset partially by IP licensing margins.
Industrial Automation Systems: Integrated Production Systems revenues increased
$218.0 million, or 30%, and related operating profit increased $13.6 million, or
19%, for the year ended December 31, 1999 compared with the corresponding prior
year. The increase in revenues is primarily attributable to 1999 including the
full year's results of the 1998 acquisition of R&B Machine Tool and an increase
in activity for the domestic operations. The increase in operating profit was
due to the increase in activity for the domestic operations and operating
profits contributed by the 1998 acquisition, partially offset by costs
associated with product and operational process problems at Honsberg Lamb in
Germany. Operating profits as a percentage of sales decreased primarily due to
contract losses at Honsberg Lamb. Integrated Production Systems backlog
increased from $556.6 million at December 31, 1998 to $627.7 million at December
31, 1999.
13
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In October 1998, UNOVA acquired the machine tool business of Cincinnati
Milacron, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati
Machine") for approximately $187.3 million in cash. The division, which
comprises the Company's Advanced Manufacturing Equipment segment, is engaged in
the design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting.
Advanced Manufacturing Equipment revenues increased $180.2 million, or 158%,
while related operating profit increased $2.0 million, or 54%, for the year
ended December 31, 1999 compared with the corresponding prior year. The increase
in revenues and operating profit is attributable to 1999 including the full
year's results of the 1998 acquisition of Cincinnati Machine. Operating profit
as a percentage of sales decreased due to lower utilization levels. Backlog
decreased from $148.9 million at December 31, 1998 to $102.5 million at December
31, 1999.
Depreciation and amortization increased from $57.0 million to $66.0 million from
the year ended December 31, 1998 to the year ended December 31, 1999. This
increase is primarily due to additional depreciation from acquisitions and an
increase in the level of fixed assets over the prior year.
Selling, general and administrative ("SG&A") expense increased $70.8 million
from $383.7 million for the year ended December 31, 1998 to $454.5 million for
the year ended December 31, 1999. As a percentage of sales, SG&A decreased from
23% in 1998 to 22% in 1999. The percentage decrease is attributable to the
change in the business mix of the Company from 1998 to 1999 offset by amortized
costs and discounts in SG&A from the sale of undivided interests in UNOVA's
trade accounts receivable. The two IAS segments' sales increased as a percentage
of total company sales from 50% for the year ended December 31, 1998 to 58% for
the year ended December 31, 1999, while ADS sales decreased from 50% to 42% for
the same years. The IAS businesses carry lower SG&A ratios compared to the ADS
segment.
Net interest expense was $38.0 million and $25.7 million for the years ended
December 31, 1999 and 1998, respectively. The increase is attributable to higher
outstanding debt during 1999 that was incurred to finance the 1998 acquisitions
of Cincinnati Machine, R&B Machine and Amtech Systems and the normal capital
expenditures and working capital needs of the operations.
Year Ended December 31, 1998 Compared to 1997
Total sales and service revenues increased $236.5 million, or 17%, for the year
ended December 31, 1998 compared with the corresponding prior period. Total
segment operating profit increased $28.6 million, or 28%, for the year ended
December 31, 1998 compared to the corresponding prior period.
Automated Data Systems: ADS segment sales increased $193.0 million, or 30%, and
operating profit increased $46.3 million, or 509%, for the year ended December
31, 1998 compared with the corresponding prior year. The sales and operating
profit increases are due primarily to new IP licensing revenues, internal growth
and the contribution of a full year of operations and the realization of
improved profitability from the integration of the 1997 acquisitions of Norand
Corporation ("Norand") and United Barcode Industries ("UBI"), offset by
information system problems that negatively impacted the results of the third
and fourth quarter.
Industrial Automation Systems: Integrated Production Systems revenues decreased
$70.5 million, or 9%, while related operating profit decreased $21.4 million, or
23%, for the year ended December 31, 1998 compared with the corresponding prior
year. The Integrated Production Systems segment began several new projects in
1998 that did not materially impact sales and operating profits until 1999.
Delays caused by unexpected customer changes were encountered in the engineering
phase of these new
14
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
projects. Conversely, during the first half of 1997, the manufacturing systems
operations experienced a higher level of sales and profits from contracts in the
final delivery and installation phase. Startup issues on a new product line at
Honsberg Lamb also impacted operating profit in 1998. Backlog increased from
$332.0 million at December 31, 1997 to $556.6 million at December 31, 1998.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures.
Depreciation and amortization increased from $40.7 million to $57.0 million from
the year ended December 31, 1997 to the year ended December 31, 1998. This
increase is primarily due to higher amortization of goodwill and other
intangibles resulting from the Norand and UBI acquisitions, as well as
additional depreciation from capital expenditures and business acquisitions.
Selling, general and administrative expense increased $59.3 million from the
year ended December 31, 1997 to the year ended December 31, 1998. However, as a
percentage of sales, SG&A remained constant at 23% in both years. The increase
in the amount is due primarily to 1998 acquisitions as well as the increase in
the Company's sales and service revenues over the prior year.
Net interest expense was $25.7 million and $16.7 million for the years ended
December 31, 1998 and 1997, respectively. The increase is attributable to an
increase in outstanding debt due primarily to the acquisitions of Norand and UBI
in 1997 and Cincinnati Machine, R&B Machine and Amtech Systems in 1998.
Other income, net consists of a gain of $35.5 million recognized on the sale of
UNOVA's corporate headquarters building, offset by other non-operating expenses.
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations due
to the global nature of its operations. Currency transaction net losses for the
year ended December 31, 1999 were $3.0 million, net of taxes. Currency
transaction gains and losses for the years ended December 31, 1998 and 1997 were
not significant. It is not possible to predict the Company's exposure to foreign
currency fluctuations beyond the near term because revenues generated from
particular foreign jurisdictions vary widely over time.
For fiscal year 1999, the Company derived approximately 26% of its revenues and
10% of its operating profits (exclusive of corporate overhead) from non-U.S.
operations. At December 31, 1999, identifiable assets attributable to foreign
operations comprised 19% of total assets. As the largest components of these
foreign assets are attributable to European operations, the exposure of
identifiable assets to foreign currency fluctuations or expropriations is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities increased from $17.7 million at December 31, 1998
to $25.2 million at December 31, 1999. Total debt decreased from $603.8 million
at December 31, 1998 to $429.4 million at December 31, 1999. Improved working
capital management provided funds from operations that were utilized to repay
borrowings.
The Company has two unsecured committed credit facilities with banks from which
it may borrow up to $500.0 million. Under these credit facilities, the Company
may borrow at the prime rate or at rates based
15
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
on the London Inter Bank Offered Rate, rates borne by certificates of deposit or
other rates that are mutually acceptable to the banks and the Company. At
February 11, 2000, $300.0 million of these credit facilities was available for
the Company's general use.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding debt.
The Company expects that cash flow from operations, along with available
borrowing capacity, will be adequate to meet working capital requirements.
YEAR 2000
The Year 2000 issue is the result of computer programs designed to define a year
using two digits rather than four. As such, a date sensitive field using "00"
could be recognized as the year 1900 rather than the year 2000, potentially
causing a system failure or other business disruption.
The operating segments of the Company formed internal review teams that assessed
the Company's exposure to Year 2000 problems. As a result of these reviews,
non-Year 2000 compliant information technology and non-information technology
systems were identified. The Company completed modifications or replacements and
testing to achieve Year 2000 compliance utilizing both internal and external
resources. In addition, the Company actively worked with its significant
suppliers and customers to assess their Year 2000 compliance efforts and the
Company's exposure from them.
The Company also assessed the capability of its products to determine whether
they are Year 2000 compliant. The Company believes that all of its current
products are Year 2000 compliant. UNOVA has not tested products that are no
longer sold by the Company and the Company does not believe it is legally
responsible for costs incurred by customers related to ensuring their Year 2000
capability. However, the Company is providing customer support services related
to Year 2000 issues. UNOVA defines "Year 2000 compliant" as a product that, when
used properly and in conformity with the product information provided by the
Company, will accurately convey data between the twentieth and twenty-first
centuries, including leap year calculations, provided that all other technology
used in combination with the product properly exchanges data with the UNOVA
product.
Management is not aware of any significant adverse effects of Year 2000 on the
systems and operations of the Company. Through December 31, 1999, the total
cumulative cost of these Year 2000 compliance activities was approximately $10.1
million. Of these costs, approximately $1.5 million were expensed and the
remaining $8.6 million were capitalizable. Management does not anticipate
significant additional Year 2000 costs. Based on currently available
information, management does not believe that Year 2000 issues had or will have
a material adverse impact on the Company's financial condition or results of
16
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
operations. However, the Year 2000 problem has potential consequences, some of
which are not reasonably foreseeable, and there can be no assurance that
unforeseen consequences will not arise.
While management believes that no customer, vendor, or service provider is
individually significant to the Company's operations, we have no information
that indicates a significant customer may be unable to purchase from the
Company; a significant vendor may be unable to sell to the Company; or a
significant service provider may be unable to provide services to the Company,
in each case because of Year 2000 compliance problems. While the Company
currently does not anticipate problems related to third party Year 2000 issues,
the Company will continue to assess potential risk from third parties. However,
there can be no assurance that Year 2000 problems originating with a customer,
vendor, service provider or other third party will not occur.
INFLATION
In the opinion of management, inflation has not been a significant factor in the
markets in which the Company operates and has not had a significant impact upon
the results of its operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 (an amendment of FASB Statement No. 133). Under the provisions of this
statement, the effective date of Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"), is deferred to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact of adopting SFAS No. 133.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
covered in this discussion and analysis, included are certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These forward-looking
statements are based on management's beliefs as well as on assumptions made by
and information currently available to management. They include, but are not
limited to, statements about the demand for the Company's products and services,
the Company's ability to profitably exploit new technologies acquired or
developed, and the Company's ability to realize its intentions with respect to
the future performance of acquired operations. Such forward-looking statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which could cause the Company's future results to
differ materially from those expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. Such factors include, but are
not limited to, the following: fluctuations in the strength of the automotive
and aerospace markets; technological changes and developments, particularly in
the ADC/Mobile Computing System industry; the presence of competitors with
greater financial and other resources; the availability and cost of materials
and supplies; relations with the Company's employees; the Company's ability to
manage its operating costs and to integrate acquired businesses in an effective
manner; worldwide political stability and economic conditions; regulatory
uncertainties; operating risks associated with international operations; and the
risk that the Company's due diligence procedures may have failed to reveal
undisclosed material information concerning acquired operations. Any
forward-looking statements should be considered in light of these factors, many
of which are beyond the Company's ability to control or predict. Readers are
cautioned not to place undue reliance on forward-looking statements. The Company
disclaims any obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
17
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily from its short-term and
long-term borrowings and to exchange rate risk with respect to its foreign
operations and from foreign currency transactions.
Interest Rates: The information presented below summarizes the Company's cash
flows for its borrowings and related interest rates by dates of maturity.
Variable interest rates disclosed represent the weighted average rates of the
borrowings at December 31, 1999. Fair values for fixed rate borrowings have been
determined based on quoted market prices. The fair values for variable rate
borrowings approximate their carrying value. The information presented below
should be read in conjunction with Note C to the Consolidated and Combined
Financial Statements.
DEBT 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
---- ------- ----- -------- -------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
Fixed Rate $200,000 $200,000 $167,882
Average Interest Rate 6.94%
Variable Rate $64,002 $179 $150,003 $15,204 $229,388 $229,388
Average Interest Rate 4.56% 7.22% 7.18% 5.96%
Foreign Exchange Rates: Due to its global operations, the Company's cash flow
and earnings are exposed to foreign exchange rate fluctuations. When
appropriate, the Company may attempt to limit its exposure to changing foreign
exchange rates by entering into short-term foreign currency exchange contracts.
As of December 31, 1999, the Company held short-term contracts for the purpose
of hedging foreign currency cash flows with an aggregate notional amount of
$86.8 million. The Company does not enter into any foreign currency contracts
for speculative or trading purposes. Contracts that effectively meet risk
reduction and correlation criteria are accounted for as hedges and, accordingly,
gains and losses from mark-to-market are deferred in the cost basis of the
underlying transaction. In those circumstances when it is not appropriate to
account for contracts as hedges, gains and losses from mark-to-market are
recorded currently in earnings. A hypothetical 10% change in the relevant
currency rates at December 31, 1999 would not result in a material gain or loss.
Additionally, any change in the value of the contracts, real or hypothetical,
should be substantially offset by an inverse change in the value of the
underlying hedged item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Management's Responsibility for Financial Reporting......... F-1
Independent Auditors' Report................................ F-2
Consolidated and Combined Statements of Operations.......... F-3
Consolidated Balance Sheets................................. F-4
Consolidated and Combined Statements of Cash Flows.......... F-5
Consolidated and Combined Statements of Changes in
Shareholders' Investment.................................. F-6
Notes to Consolidated and Combined Financial Statements..... F-7
Quarterly Financial Information (unaudited)................. F-25
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
18
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under "Board of
Directors" in the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 11, 2000 (the "2000 Proxy Statement"),
which is incorporated herein by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the positions and
ages of the Company's executive officers at March 15, 2000 and their business
experience during the prior five years:
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS
NAME AGE DURING PAST FIVE YEARS
---- --- -------------------------------------------------------------
Daniel S. Bishop............... 50 Senior Vice President and General Counsel since October 1999.
Prior thereto, Vice President, General Counsel and Secretary
of Paxar Corporation from November 1997 to October 1999. Vice
President, Strategic Development, Human Resources, General
Counsel and Secretary of Monarch Marking Systems, Inc. from
March 1996 to November 1997. Vice President and Associate
General Counsel of Western Atlas from March 1993 to March
1996.
Larry D. Brady................. 57 President and Chief Operating Officer since August 1999. For
prior business experience, see the description of Directors
in "Board of Directors" in the 2000 Proxy Statement.
Alton J. Brann................. 58 Chairman of the Board and Chief Executive Officer since
October 1997. For prior business experience, see the
description of Directors in "Board of Directors" in the 2000
Proxy Statement.
Charles A. Cusumano............ 53 Vice President, Finance, and Controller since May 1999. Vice
President, Finance, from October 1997 to May 1999. Prior
thereto, Vice President, Finance, of Western Atlas from
October 1996 to October 1997. Vice President and Controller
of Western Atlas from March 1994 to September 1996.
Elmer C. Hull, Jr. ............ 43 Vice President and Treasurer since July 1999. Prior thereto,
Treasurer from October 1998 to July 1999. Vice President,
Finance, of the Company's Landis division from July 1995 to
October 1998. Held various positions with Landis beginning
with Chief Accountant in 1978.
Michael E. Keane............... 44 Senior Vice President and Chief Financial Officer since
October 1997. Prior thereto, Senior Vice President and Chief
Financial Officer of Western Atlas since October 1996. Vice
President and Treasurer of Western Atlas from March 1994 to
September 1996.
Robert G. O'Malley............. 54 Senior Vice President since July 1999 and President of
Intermec Technologies Corporation since June 1999. Prior
thereto, Chief Executive Officer from March 1998 to June 1999
and President from November 1996 to March 1998 of Pinacor,
Inc. Vice President -- Services Marketing of Pinacor from
January 1996 to November 1996. President, MicroAge Data
Services, MCCI, from May 1995 to December 1995. Prior
thereto, held various positions with IBM Corporation since
January 1976.
Charles E. Wolfbauer........... 61 Vice President since October 1997 and President of the
Company's Lamb Technicon Machining Systems division since May
1998 and previously President of the Company's Lamb Technicon
Body & Assembly Systems division from October 1997 to May
1998. Prior thereto, Vice President of Western Atlas Inc.
from May 1994 to October 1997 and President of its Lamb
Technicon, North American Operations from March 1994 to
October 1997.
19
22
ITEM 11. EXECUTIVE COMPENSATION
See the information relating to executive compensation under the captions
"Summary Compensation Table," "Stock Option Information," "Change of Control
Employment Arrangements" and "Retirement Benefits" of the Company's 2000 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information with respect to beneficial ownership of the Company's voting
securities by each director, certain executive officers and all executive
officers and directors as a group, and by any person known to beneficially own
more than 5% of any class of voting security of the Company, under the caption
"Security Ownership by Certain Beneficial Owners and Management" of the
Company's 2000 Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information with respect to certain relationships and related
transactions under the caption "Certain Relationships and Related Transactions"
of the Company's 2000 Proxy Statement, which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
----
(a)(1) Financial Statements
See Part II, Item 8
(a)(2) Financial Statement Schedules
All schedules and notes specified under Regulation S-X are
omitted because they are either not applicable, not required
or the information called for therein appears in the
consolidated and combined financial statements or notes
thereto.
(a)(3) Executive Compensation Plans and Arrangements 21
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended December 31, 1999
(c) Index to Exhibits E-1
20
23
UNOVA, INC.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
----------- ----------- -----------------
Employee Benefits Agreement dated October 31, 1997, 10.3 September 30, 1997
between Western Atlas Inc. and UNOVA, Inc. Form 10-Q
Form of Change of Control Employment Agreements with 10.5 September 30, 1997
Alton J. Brann, Michael E. Keane, Norman L. Roberts, Form 10-Q
Larry D. Brady, Robert G. O'Malley and certain other
officers of the Company.
Amendment to the Form of Change of Control Employment 10.6 December 31, 1999
Agreements with Alton J. Brann, Larry D. Brady, Michael Form 10-K
E. Keane, Robert G. O'Malley and certain other officers
of the Company.
Form of Change of Control Employment Agreement with 10.7 December 31, 1999
Charles E. Wolfbauer and certain other officers of the Form 10-K
Company.
Employment Agreement between Intermec Corporation and 10.8 Form 10
Michael Ohanian, dated May 18, 1995, as amended.
Amendment No. 1 to Employment Agreement between 10.9 December 31, 1997
Intermec Corporation and Michael Ohanian, dated Form 10-K
February 28, 1997.
Amendment No. 2 to Employment Agreement between 10.10 December 31, 1997
Intermec Technologies Corporation and Michael Ohanian, Form 10-K
dated February 28, 1998.
Amendment No. 3 to Employment Agreement between 10.11 December 31, 1998
Intermec Corporation and Michael Ohanian, dated May 20, Form 10-K
1998.
Amendment No. 4 to Employment Agreement between 10.12 December 31, 1998
Intermec Corporation and Michael Ohanian, dated Form 10-K
February 28, 1999.
Amendment No. 5 to Employment Agreement between 10.13 June 30, 1999
Intermec Corporation and Michael Ohanian, dated May 18, Form 10-Q
1999.
UNOVA, Inc. Restoration Plan. 10.16 Form 10
UNOVA, Inc. Supplemental Executive Retirement Plan. 10.17 Form 10 Amendment No. 1
Amendment No. 1 to UNOVA, Inc. Supplemental Executive 10.18 September 30, 1998
Retirement Plan, dated September 23, 1998. Form 10-Q
Amendment No. 2 to UNOVA, Inc. Supplemental Executive 10.19 December 31, 1998
Retirement Plan, dated March 11, 1999. Form 10-K
Amendment No. 3 to UNOVA, Inc. Supplemental Executive 10.20 December 31, 1999
Retirement Plan, dated March 15, 2000. Form 10-K
Supplemental Retirement Agreement between UNOVA, Inc. 10.21 Form 10 Amendment No. 1
and Alton J. Brann dated October 1997.
Amendment No. 1 to Supplemental Retirement Agreement 10.22 September 30, 1998
between UNOVA, Inc. and Alton J. Brann, dated September Form 10-Q
23, 1998.
21
24
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (CONTINUED)
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
----------- ----------- -----------------
Amendment No. 2 to Supplemental Executive Retirement 10.23 December 31, 1998
Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K
March 11, 1999.
Amendment No. 3 to Supplemental Executive Retirement 10.24 December 31, 1999
Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K
March 15, 2000.
Supplemental Executive Retirement Agreement between 10.25 December 31, 1999
UNOVA, Inc. and Larry D. Brady dated March 15, 2000. Form 10-K
Employment Agreement between UNOVA, Inc. and Clayton A. 10.26 Form 10 Amendment No. 1
Williams, dated August 1997.
Amendment No. 1 to Employment Agreement between UNOVA, 10.27 December 31, 1997
Inc. and Clayton A. Williams, dated March 24, 1998. Form 10-K
Amendment No. 2 to Employment Agreement between UNOVA, 10.28 December 31, 1998
Inc. and Clayton A. Williams, dated May 18, 1998. Form 10-K
UNOVA, Inc. 1997 Stock Incentive Plan. 10.29 September 30, 1997
Form 10-Q
UNOVA, Inc. Executive Severance Plan (As Amended 10.31 December 31, 1999
November 18, 1999). Form 10-K
Form of Promissory Notes in favor of the Company given 10.32 September 30, 1997
by certain officers and key employees. Form 10-Q
Board resolution dated September 24, 1997 establishing 10.33 September 30, 1997
the UNOVA, Inc. Incentive Loan Program. Form 10-Q
UNOVA, Inc. Group Executive Survivor Benefit Plan. 10.34 December 31, 1999
Form 10-K
UNOVA, Inc. 1999 Stock Incentive Plan. 10.35 1999 Proxy Statement
UNOVA, Inc. Management Incentive Compensation Plan. 10.36 1999 Proxy Statement
UNOVA, Inc. Executive Medical Benefit Plan. 10.37 December 31, 1998
Form 10-K
Letter Offering Employment to Larry Brady as President 10.38 June 30, 1999
and Chief Operating Officer of UNOVA, Inc., accepted by Form 10-Q
Mr. Brady on June 16, 1999.
Restricted Stock Agreement between UNOVA, Inc. and 10.39 September 30, 1999
Larry Brady. Form 10-Q
Letter Offering Employment to Robert O'Malley as 10.40 December 31, 1999
President of Intermec Technologies Corporation, as Form 10-K
accepted by Mr. O'Malley on May 26, 1999.
22
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNOVA, INC.
/s/ MICHAEL E. KEANE
--------------------------------------
Michael E. Keane
Senior Vice President and
Chief Financial Officer
March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ PAUL BANCROFT, III Director March 15, 2000
- --------------------------------------------------------
Paul Bancroft, III
/s/ LARRY D. BRADY Director, President, and March 15, 2000
- -------------------------------------------------------- Chief Operating Officer
Larry D. Brady
/s/ ALTON J. BRANN Director, Chairman of the March 15, 2000
- -------------------------------------------------------- Board, and Chief Executive
Alton J. Brann Officer
/s/ JOSEPH T. CASEY Director March 15, 2000
- --------------------------------------------------------
Joseph T. Casey
/s/ WILLIAM C. EDWARDS Director March 15, 2000
- --------------------------------------------------------
William C. Edwards
/s/ STEPHEN E. FRANK Director March 15, 2000
- --------------------------------------------------------
Stephen E. Frank
/s/ CLAIRE W. GARGALLI Director March 15, 2000
- --------------------------------------------------------
Claire W. Gargalli
/s/ ORION L. HOCH Director March 15, 2000
- --------------------------------------------------------
Orion L. Hoch
/s/ STEVEN B. SAMPLE Director March 15, 2000
- --------------------------------------------------------
Steven B. Sample
/s/ WILLIAM D. WALSH Director March 15, 2000
- --------------------------------------------------------
William D. Walsh
/s/ CHARLES A. CUSUMANO Vice President, Finance, March 15, 2000
- -------------------------------------------------------- and Controller (Chief
Charles A. Cusumano Accounting Officer)
23
26
UNOVA, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated and combined financial statements of UNOVA, Inc. and
subsidiaries and related financial information included in this Annual Report,
have been prepared by the Company, whose management is responsible for their
integrity. These statements, which necessarily reflect estimates and judgments,
have been prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor compliance with and the effectiveness of established procedures.
The consolidated and combined financial statements have been audited by Deloitte
& Touche LLP, independent auditors, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors and the Company's internal auditors to
review the scope of their activities and reports relating to internal controls
and financial reporting matters. The independent and internal auditors have full
and free access to the Audit and Compliance Committee and meet with the
Committee both with and without the presence of Company management.
/s/ Michael E. Keane
Senior Vice President and
Chief Financial Officer
February 11, 2000
F-1
27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
UNOVA, Inc.
Woodland Hills, California
We have audited the accompanying consolidated balance sheets of UNOVA, Inc. and
subsidiaries (as described in Note A) as of December 31, 1999 and 1998, and the
related consolidated and combined statements of operations, changes in
shareholders' investment, and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present
fairly, in all material respects, the financial position of UNOVA, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 11, 2000
F-2
28
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Sales and Service Revenues......................... $2,108,749 $1,662,663 $1,426,247
---------- ---------- ----------
Costs and Expenses
Cost of sales and service........................ 1,500,974 1,110,799 981,380
Selling, general and administrative.............. 454,473 383,663 324,405
Depreciation and amortization.................... 65,974 57,043 40,672
Acquired in-process research and development
charges....................................... 211,500
Interest, net.................................... 38,015 25,715 16,689
---------- ---------- ----------
Total Costs and Expenses................. 2,059,436 1,577,220 1,574,646
---------- ---------- ----------
Other Income, Net.................................. 31,523
----------
Earnings (Loss) before Taxes on Income............. 49,313 116,966 (148,399)
Taxes on Income.................................... (19,725) (47,253) (22,968)
---------- ---------- ----------
Net Earnings (Loss)................................ $ 29,588 $ 69,713 $ (171,367)
========== ========== ==========
Basic Earnings (Loss) per Share.................... $ 0.54 $ 1.28 $ (3.17)
========== ========== ==========
Diluted Earnings (Loss) per Share.................. $ 0.54 $ 1.27 $ (3.17)
========== ========== ==========
See accompanying notes to consolidated and combined financial statements.
F-3
29
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
------------------------
1999 1998
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents................................. $ 25,239 $ 17,708
Accounts receivable, net of allowance for doubtful
accounts of $20,375 (1999) and $24,021 (1998).......... 596,885 662,885
Inventories, net of progress billings..................... 310,175 336,005
Deferred tax assets....................................... 158,170 141,773
Other current assets...................................... 19,873 21,129
---------- ----------
Total Current Assets.............................. 1,110,342 1,179,500
Property, Plant and Equipment, Net.......................... 270,899 286,171
Goodwill and Other Intangibles, Net of Accumulated
Amortization
of $87,883 (1999) and $70,244 (1998)...................... 399,131 400,164
Other Assets................................................ 123,167 113,381
---------- ----------
Total Assets................................................ $1,903,539 $1,979,216
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable and accrued expenses..................... $ 509,188 $ 456,812
Payroll and related expenses.............................. 89,309 93,199
Notes payable and current portion of long-term
obligations............................................ 64,002 237,276
---------- ----------
Total Current Liabilities......................... 662,499 787,287
---------- ----------
Long-term Obligations....................................... 365,386 366,487
---------- ----------
Deferred Tax Liabilities.................................... 44,777 42,154
---------- ----------
Other Long-term Liabilities................................. 99,577 81,863
---------- ----------
Commitments and Contingencies...............................
Shareholders' Investment
Preferred stock; 50,000,000 shares authorized.............
Common stock; shares outstanding:
55,551,064 (1999) and 54,942,655 (1998)................ 556 549
Additional paid-in capital................................ 652,157 645,054
Retained earnings......................................... 91,260 61,672
Accumulated other comprehensive loss:
Cumulative currency translation adjustment............. (12,673) (5,850)
---------- ----------
Total Shareholders' Investment.................... 731,300 701,425
---------- ----------
Total Liabilities and Shareholders' Investment.............. $1,903,539 $1,979,216
========== ==========
See accompanying notes to consolidated and combined financial statements.
F-4
30
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
Cash and Cash Equivalents at Beginning of Year........... $ 17,708 $ 13,685 $ 149,467
--------- --------- ---------
Cash Flows from Operating Activities:
Net earnings (loss).................................... 29,588 69,713 (171,367)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities (net of
acquisitions):
Acquired in-process research and development charges... 211,500
Depreciation and amortization..................... 65,974 57,043 40,672
Change in prepaid pension costs, net.............. (15,246) (14,620) (11,217)
Deferred taxes.................................... (6,065) (437) 2,162
Gain on sale of property plant and equipment,
net............................................ (1,333) (35,043)
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable...... 100,000
Accounts receivable............................ (36,741) (109,096) 39,752
Inventories.................................... 24,287 (67,223) (9,167)
Other current assets........................... (1,019) 13,889 (12,540)
Accounts payable and accrued expenses.......... 39,898 69,922 (53,830)
Payroll and related expenses................... (12,587) 13,493 6,238
Other operating activities........................ 7,021 6,823 (1,247)
--------- --------- ---------
Net cash provided by operating activities...... 193,777 4,464 40,956
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures................................... (61,149) (83,776) (30,310)
Proceeds from sale of property, plant and equipment.... 30,356 71,118 7,198
Changes in other assets................................ 8,926 (3,402) (16,987)
Acquisition of businesses, net of cash acquired........ (287,350) (400,754)
Other investing activities............................. 3,914 (1,089) 206
--------- --------- ---------
Net cash used in investing activities.......... (17,953) (304,499) (440,647)
--------- --------- ---------
Cash Flows from Financing Activities:
Repayment of borrowings................................ (288,573) (457,271) (95,607)
Proceeds from borrowings............................... 114,029 754,780 276,698
Dividend paid to Western Atlas Inc. ................... (230,000)
Net transactions with Western Atlas Inc. .............. 190,338
Change in due to Western Atlas Inc. ................... 120,426
Other financing activities............................. 6,251 6,549 2,054
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (168,293) 304,058 263,909
--------- --------- ---------
Resulting Increase (Decrease) in Cash and Cash Equivalents... 7,531 4,023 (135,782)
--------- --------- ---------
Cash and Cash Equivalents at End of Year................. $ 25,239 $ 17,708 $ 13,685
========= ========= =========
See accompanying notes to consolidated and combined financial statements.
F-5
31
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDERS' INVESTMENT
(THOUSANDS OF DOLLARS)
ACCUMULATED NET
ADDITIONAL RETAINED OTHER INVESTMENT
COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN
TOTAL STOCK CAPITAL (DEFICIT) INCOME (LOSS) ATLAS
-------- ------- ---------- --------- ------------- ----------
BALANCE, JANUARY 1, 1997.............. $574,508 $ 574,508
--------
Comprehensive Loss before Distribution
Date:
Net loss to Distribution Date....... (163,326) (163,326)
Currency translation adjustment to
Distribution Date................. (3,699) (3,699)
--------
Comprehensive Loss before
Distribution Date............... (167,025)
--------
Net transactions with Western Atlas
Inc................................. 190,338 190,338
--------
Distribution of common stock to UNOVA
shareholders......................... $ 545 $601,689 $ (4,413) (597,821)
Comprehensive Loss from Distribution
Date to December 31, 1997:
Net loss from Distribution Date to
December 31, 1997................. (8,041) $(8,041)
Currency translation adjustment from
Distribution Date to December 31,
1997............................... (2,345) (2,345)
--------
Comprehensive Loss from
Distribution Date to December
31, 1997........................ (10,386)
--------
Other................................. 2,054 2,054
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1997............ 589,489 545 603,743 (8,041) (6,758) -
--------
Comprehensive Income:
Net earnings........................ 69,713 69,713
Currency translation adjustment..... 908 908
--------
Comprehensive Income.............. 70,621
--------
Distribution-related tax benefit...... 34,809 34,809
Issuances of common stock............. 6,506 4 6,502
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1998............ 701,425 549 645,054 61,672 (5,850) -
--------
Comprehensive Income:
Net earnings........................ 29,588 29,588
Currency translation adjustment..... (6,823) (6,823)
--------
Comprehensive Income.............. 22,765
--------
Issuances of common stock............. 7,110 7 7,103
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1999............ $731,300 $ 556 $652,157 $91,260 $(12,673) $ -
======== ======= ======== ======= ======== =========
See accompanying notes to consolidated and combined financial statements.
F-6
32
UNOVA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
General Information. UNOVA, Inc. and subsidiaries ("UNOVA" or the "Company")
became an independent public company on October 31, 1997 (the "Distribution
Date"), when all of the UNOVA common stock was distributed to holders of common
stock of Western Atlas Inc. ("WAI"), in the form of a dividend (the
"Distribution"). Every WAI shareholder of record on October 24, 1997 was
entitled to receive one share of UNOVA common stock for each WAI share of common
stock held.
Nature of Operations. UNOVA is an industrial technologies company providing
global customers with solutions for improving their efficiency and productivity.
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets
served: Integrated Production Systems ("IPS") and Advanced Manufacturing
Equipment ("AME"). The ADS business segment comprises mobile computing and
wireless communication systems products and services, principally serving the
industrial market. Customers are global distribution and transportation
companies, food and beverage operations, manufacturing industries, health care
providers and government agencies. The IPS segment includes integrated
manufacturing systems, body welding and assembly systems, and precision grinding
and abrasives operations, primarily serving the worldwide automotive, off-road
vehicle, and diesel engine industries. The AME segment comprises machining
systems and stand alone machine tools primarily serving the aerospace and
manufacturing industries.
Principles of Consolidation and Combination. The consolidated and combined
financial statements include the accounts of UNOVA, Inc. and its wholly owned
subsidiaries and companies in which UNOVA has a controlling interest.
Investments in companies over which UNOVA has influence but not a controlling
interest are accounted for using the equity method. Investments in other
companies are carried at cost. All material intercompany transactions have been
eliminated.
The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
WAI businesses that comprised the Company at the Distribution Date. They
include, at their historical amounts, the assets, liabilities, revenues and
expenses directly related and those allocated to these businesses. A pro-rata
share of certain general and administrative corporate costs incurred by WAI
prior to the Distribution Date have been allocated to the Company based on the
relative ratio of projected costs to be incurred by WAI and the Company
individually. Such costs include general management, legal, tax, treasury,
insurance, financial audit, financial reporting, human resources and real estate
services.
The Company's debt prior to the Distribution Date includes an allocation of a
portion of WAI's corporate debt, based on the Company's estimated past capital
requirements. Interest expense related thereto has been included in the
Company's statements of operations and cash flows at WAI's estimated blended
historical rate of interest on long-term borrowings of 7.5%.
Management believes the above stated allocations were made on a reasonable
basis; however, they do not necessarily reflect the results of operations which
would have occurred had the Company been an independent entity nor are they
necessarily indicative of future expenses or income (see Note J).
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reported period. Actual results could differ from
those estimates.
Cash Equivalents. The Company considers time deposits and commercial paper
purchased within three months of their date of maturity to be cash equivalents.
F-7
33
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out or last-in, first-out method.
Revenue Recognition. Revenues are generally recognized when products are shipped
or as services are performed. Revenues and profits on long-term contracts are
recorded under the percentage-of-completion, cost to cost method of accounting.
Any anticipated losses on contracts are charged to operations as soon as they
are determinable. General and administrative costs are expensed as incurred.
Research and Development. Research and development costs are charged to expense
as incurred. Total expenditures on research and development activities amounted
to $74.1 million, $71.5 million and $53.1 million, in the years ended December
31, 1999, 1998, and 1997, respectively. The Company expensed a total of $211.5
million of acquired in-process research and development in 1997. See further
discussion in Note B.
Other Income, Net. In the year ended December 31, 1998, other income, net
consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate
headquarters building, offset by other non-operating expenses.
Property, Plant and Equipment. Property, plant and equipment is stated at cost.
Depreciation, computed generally by the straight-line method for financial
reporting purposes, is provided for over the estimated useful lives of the
related assets.
Income Taxes. The Company accounts for income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. This
method also requires the recognition of future tax benefits such as net
operating loss carryforwards and other tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered. Valuation allowances are provided for deferred tax assets if it is
more likely than not that they will be realized.
The Company's domestic operations and their foreign branches were included in
WAI's consolidated tax returns (for periods prior to the Distribution Date). Any
tax benefits related to these operations have been recorded in these financial
statements if such were realizable by WAI on a consolidated basis. Foreign
entities included in these financial statements pay taxes in accordance with
local laws and regulations.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the credit risk. The Company evaluates the creditworthiness of its
customers and maintains an allowance for anticipated losses.
No customer was significant to the Company's revenues in 1999 and 1998. In 1997,
one automotive customer represented 13% of revenues.
Foreign Currencies. The currency effects of translating the financial statements
of the Company's foreign entities that operate in local currency environments
are included in the "cumulative currency translation adjustment" component of
accumulated other comprehensive income (loss). Currency transaction gains and
losses are included in the consolidated and combined statements of operations.
Currency transaction net losses for the year ended December 31, 1999 were $3.0
million, net of taxes. Currency transaction gains and losses for the years ended
December 31, 1998 and 1997 were not significant.
F-8
34
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments. When appropriate, the Company may attempt to limit its
exposure to changing foreign exchange rates by entering into short-term foreign
currency exchange contracts. As of December 31, 1999, the Company held
short-term contracts for the purpose of hedging foreign currency cash flows with
an aggregate notional amount of $86.8 million. The Company does not enter into
any foreign currency contracts for speculating or trading purposes. Contracts
that effectively meet risk reduction and correlation criteria are accounted for
as hedges and, accordingly, gains and losses from mark-to-market are deferred in
the cost basis of the underlying transaction. In those circumstances when it is
not appropriate to account for contracts as hedges, gains and losses from
mark-to-market are recorded currently in earnings.
Goodwill and Other Intangibles. Goodwill is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over periods ranging from 4 to 18 years.
Impairment of Long-Lived Assets and Goodwill. The Company assesses the
recoverability of long-lived assets and goodwill when circumstances indicate
that the carrying amount of an asset may not be fully recoverable. An impairment
is recorded to writedown long-lived assets and goodwill to their estimated fair
value if the undiscounted cash flows estimated to be generated by the asset are
less than its carrying amount.
Environmental Costs. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
New Accounting Pronouncements. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 (an amendment of FASB Statement No. 133). Under the
provisions of this statement, the effective date of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"), is deferred to fiscal years beginning after June
15, 2000. The Company is currently evaluating the impact of adopting SFAS No.
133.
Reclassifications. Certain prior year amounts have been reclassified to conform
to the current year presentation.
F-9
35
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS
ACQUISITIONS AND INVESTMENTS
In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron
for approximately $187.3 million in cash. The division, which was renamed
Cincinnati Machine, a UNOVA Company ("Cincinnati Machine"), is engaged in the
design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting. Accordingly, the acquisition cost has been
allocated to the net assets acquired based on their relative fair values. In
conjunction with the acquisition management began to formulate a plan to cease
domestic manufacturing of certain machines models, and to terminate employees at
domestic and foreign locations. During 1999, the Company adjusted the
preliminary allocation of the purchase price to include approximately $19.8
million of additional liabilities for costs to exit the manufacturing activities
and terminate employees, and $4.1 million for additional postretirement
obligations and pension liabilities. The acquisition resulted in $17.8 million
allocated to goodwill that is being amortized over 25 years using the
straight-line method. At December 31, 1999, the Company has substantially
completed the process of exiting these activities and terminating employees.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation common stock which was applied towards the purchase price of Amtech
Systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated
financial statements.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI, a European-based ADC company, manufactures bar
code on-demand printers with labels and ribbons as well as hand-held scanners.
These two companies were consolidated in Intermec Technologies Corporation, the
Company's Automated Data Systems segment. Both acquisitions were funded by
Western Atlas borrowings and cash on hand, and have been accounted for under the
purchase method of accounting. Accordingly, the acquisition costs (approximately
$280.0 million and $107.0 million for Norand and UBI, respectively) were
allocated to the net assets acquired based upon their relative fair values. Such
allocation resulted in $203.3 million assigned to acquired in-process research
and development activities; $154.1 million assigned to goodwill (amortized over
25 years using the straight-line method); and $29.0 million assigned to other
intangibles (amortized over periods ranging from four to 18 years using the
straight-line method). During the second quarter of 1997, the Company expensed
the amounts assigned to acquired in-process research and development projects
that had not yet achieved technological feasibility in accordance with Financial
Accounting Standards Board Interpretation No. 4 ("FIN 4").
The Company acquired the remaining 51% of Honsberg, a German machine tool maker,
in the second quarter of 1997. The initial 49% of Honsberg was acquired during
1995. The Company purchased the stamping, engineering and prototyping division
of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired
Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding
systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated and
combined financial statements.
In December 1997, the Company acquired radio frequency identification ("RFID")
technology from IBM Corporation. In connection with this acquisition, the
Company recorded a $13.0 million after-tax charge in 1997 to expense acquired
in-process research and development in accordance with FIN 4 and the
F-10
36
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS (CONTINUED)
anticipated loss on a related long-term contract. The Company is using this
acquired technology to further develop its own RFID technology.
CASH FLOW DISCLOSURE
The fair values of acquired assets and liabilities, at their respective
acquisition dates, are presented below for supplemental cash flow disclosure
purposes. The 1998 balances include the preliminary allocations to the acquired
assets and liabilities of Cincinnati Machine, R&B Machine and Amtech. The 1997
balances include Norand, UBI, Honsberg, Modern Prototype and Goldcrown
Machinery.
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ----------
(THOUSANDS OF DOLLARS)
Current assets.............................................. $263,266 $ 164,153
Property, plant and equipment............................... 111,593 29,093
Goodwill and intangibles.................................... 50,983 201,380
Other non-current assets.................................... 17,864 55,956
Total debt.................................................. (29,221) (84,163)
Other current liabilities................................... (85,049) (146,724)
Other non-current liabilities............................... (9,154) (11,642)
In-process research and development......................... 203,300
-------- ---------
Purchase price.............................................. 320,282 411,353
Less non-cash payment of Amtech common stock................ (10,000)
Less cash acquired.......................................... (22,932) (10,599)
-------- ---------
Cash paid for acquisitions, net of cash acquired............ $287,350 $ 400,754
======== =========
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $25.2 million and $17.7 million at
December 31, 1999 and December 31, 1998, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
DECEMBER 31,
-----------------------
1999 1998
--------- ----------
(THOUSANDS OF DOLLARS)
Borrowings under credit facility, with interest at 7.0%
(1999) and 5.4% (1998), due 2002.......................... $150,000 $ 200,000
Debentures, with interest at 6.875%, due 2005............... 100,000 100,000
Debentures, with interest at 7.00%, due 2008................ 100,000 100,000
Notes payable, with average interest at 4.5% (1999) and 5.3%
(1998), due 2000.......................................... 62,888 186,024
Industrial revenue bonds, with average interest at 5.3%
(1999) and 5.5% (1998), due July 2005..................... 13,500 13,500
Other, with average interest at 7.1% (1999) and 6.9% (1998),
due through 2002.......................................... 3,000 4,239
-------- ---------
429,388 603,763
Less notes payable and current portion of long-term
obligations............................................... (64,002) (237,276)
-------- ---------
Long-term obligations....................................... $365,386 $ 366,487
======== =========
F-11
37
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Notes payable and long-term obligations at December 31, 1999 mature as follows:
(THOUSANDS
YEAR ENDING DECEMBER 31, OF DOLLARS)
------------------------ ------------
2000........................................................ $ 64,002
2001........................................................ 179
2002........................................................ 150,003
2003........................................................
2004........................................................
Thereafter.................................................. 215,204
--------
$429,388
========
The Company maintains two unsecured committed credit facilities with a group of
banks from which it may borrow up to an aggregate of $500.0 million. Under these
facilities the Company may borrow at the Prime Rate, the London Inter Bank
Offered Rate, rates borne by certificates of deposit or other rates that are
mutually acceptable to the banks and the Company, plus a respective rate margin,
that varies based on outstanding borrowing levels and the Company's credit
rating. The $400 million credit facility expires in September 2002 and had
outstanding borrowings of $150.0 million at December 31, 1999. The $100 million
credit facility expires in November 2000 and had no outstanding borrowings at
December 31, 1999. At February 11, 2000, $300.0 million of these credit
facilities was available for the Company's general use. In addition, the Company
maintains other uncommitted credit facilities and lines of credit of which $35.4
million was available to the Company at February 11, 2000.
The Company is in compliance with its various debt covenants the most
restrictive of which relate to the Company's incurrence of debt, mergers,
consolidations and sale of assets and which require the Company to satisfy
certain leverage ratios.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding short-term debt.
Financial instruments on the Company's consolidated balance sheets include
accounts receivable, notes payable, and accounts payable which approximate their
market values due to their short maturity. The $365.4 million of long-term
obligations had an estimated fair market value of $333.3 million as of December
31, 1999, based primarily on quoted market prices. UNOVA also has
off-balance-sheet guarantees and letter-of-credit reimbursement agreements with
respect to liabilities totaling a maximum amount of $381.6 million at December
31, 1999. These agreements primarily relate to the guarantee of performance on
contracts.
F-12
38
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Net interest expense is composed of the following:
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
Interest expense........................................ $38,867 $28,182 $20,234
Interest income......................................... (852) (2,467) (3,545)
------- ------- -------
Net interest expense.................................... $38,015 $25,715 $16,689
======= ======= =======
The Company made interest payments to non-related parties of $39.5 million,
$25.3 million, and $6.6 million in the years ended December 31, 1999, 1998 and
1997, respectively. Capitalized interest costs in each of the periods presented
were not material. Interest expense for the year ended December 31, 1997
includes $12.0 million based on a rate of 7.5% on the allocated portion of WAI
corporate debt.
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable consists of the following:
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
Trade receivables, net...................................... $224,876 $365,232
Receivables related to long-term contracts
Amounts billed............................................ 104,356 125,920
Unbilled costs and accrued profit on progress completed
and retentions......................................... 267,653 171,733
-------- --------
Accounts receivable, net.................................... $596,885 $662,885
======== ========
The unbilled costs and retentions at December 31, 1999 are expected to be
entirely billed and collected during 2000.
Inventories consist of the following:
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
Raw materials and work in process........................... $237,822 $232,010
Finished goods.............................................. 44,336 82,434
Inventoried costs related to long-term contracts............ 51,834 56,823
Less progress billings...................................... (23,817) (35,262)
-------- --------
Inventories, net of progress billings....................... $310,175 $336,005
======== ========
F-13
39
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
Property, plant and equipment, at cost
Land..................................................... $ 20,186 $ 27,313
Buildings and improvements............................... 107,417 120,142
Machinery and equipment.................................. 344,626 316,932
Less accumulated depreciation.............................. (201,330) (178,216)
--------- ---------
Net property, plant and equipment.......................... $ 270,899 $ 286,171
========= =========
Depreciation expense was $47.9 million, $40.9 million and $27.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
The range of estimated useful lives of the major classes of assets are:
Buildings................................................... 10-45 years
Building improvements....................................... 2-20 years
Machinery and equipment..................................... 2-15 years
As of December 31, 1999, the Company deferred $13.3 million of gains related to
sale-leaseback transactions. These deferred gains are being amortized over the
terms of the related leases. Minimum rental commitments (including commitments
to a related party of $8.14 million, see Note J), net of deferred gain
amortization, under noncancellable operating leases were as follows at December
31, 1999:
YEAR ENDING OPERATING LEASES
----------- ----------------
(THOUSANDS OF DOLLARS)
2000........................................................ $ 21,406
2001........................................................ 14,914
2002........................................................ 11,036
2003........................................................ 8,413
2004........................................................ 7,283
Thereafter.................................................. 45,001
--------
$108,053
========
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $27.1 million, $20.5
million and $17.9 million, for the years ended December 31, 1999, 1998 and 1997,
respectively.
Proceeds totaling approximately $25.5 million were received in 1999 on the
sale-leaseback of an operating facility. In 1998, $71.1 million was received on
the sale of the Company's corporate headquarters building and two other
buildings, and the sale-leaseback of an operating facility.
F-14
40
NOTE F: SHAREHOLDERS' INVESTMENT
CAPITAL STOCK
At December 31, 1999, there were authorized 250 million shares of common stock,
par value $0.01, and 50 million shares of preferred stock, par value $0.01.
SHAREHOLDER RIGHTS PLAN
In September 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan (the "Plan") and, in accordance with such Plan, declared a dividend
of one preferred share purchase right (the "Right") for each outstanding share
of Company common stock, payable to shareholders of record on October 31, 1997.
The Plan will cause substantial dilution to a party that attempts to acquire the
Company in a manner or on terms not approved by the Board of Directors. Each
Right entitles the holder to purchase from the Company one one-hundredth of a
share of Series A Preferred Stock at a price of seventy dollars. The Rights
become exercisable if a person other than a person which presently holds more
than 15 percent of the Company's common stock acquires 15 percent or more, or
announces a tender offer for 15 percent or more, of the Company's outstanding
common stock. If a person acquires 15 percent or more of the Company's
outstanding common stock, each right will entitle the holder to purchase the
Company's common stock having a market value of twice the exercise price of the
Right. The Rights, which expire in September 2007, may be redeemed by UNOVA at a
price of one cent per Right at any time prior to a person acquiring 15 percent
or more of the outstanding common stock.
EARNINGS PER SHARE
For the years ended December 31, 1999 and 1998, basic earnings per share is
calculated using the weighted average number of common shares outstanding for
the period while diluted earnings per share is computed on the basis of the
weighted average number of common shares outstanding plus the dilutive effect of
outstanding stock options using the "treasury stock" method. For the year ended
December 31, 1997, basic earnings per share is calculated using the weighted
average of the number of shares outstanding for post-Distribution Date periods
and the outstanding shares of WAI common stock at June 30, 1997 for the period
prior to the Distribution Date, while diluted earnings per share is computed by
adding the dilutive effect of outstanding stock options using the "treasury
stock" method to the basic weighted average balance.
Shares used for basic and diluted earnings per share were computed as follows
for the years ended December 31:
1999 1998 1997
---------- ---------- ----------
Weighted average common shares -- Basic........ 55,110,655 54,620,208 54,056,243
Dilutive effect of stock options............... 8,863 82,859
---------- ---------- ----------
Weighted average shares -- Diluted............. 55,119,518 54,703,067 54,056,243
========== ========== ==========
At December 31, 1999 and 1998, Company employees and directors held options to
purchase 5,524,700 and 3,937,750 shares, respectively, of Company common stock
that were antidilutive to the diluted earnings per share computation. These
options could become dilutive in future periods if the average market price of
the Company's common stock exceeds the exercise price of the outstanding
options.
F-15
41
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
STOCK AWARDS
The UNOVA, Inc. 1999 and 1997 Stock Incentive Plans (the "Stock Incentive
Plans," collectively) provide for the grant of incentive awards to officers and
other key employees. Incentive awards may be granted in the form of stock
options, with or without related stock appreciation rights, or in the form of
restricted stock. Under the Stock Incentive Plans, stock options may not be
granted at a price less than the market value of the Company's common stock on
the date of grant. The Stock Incentive Plans options generally vest in equal
increments over five years. The Director Stock Option and Fee Plan (the
"Director Plan") provides for the grant of stock options to the Company's
non-employee directors. Under the Director Plan, stock options are granted
annually at the market value of the Company's common stock on the date of grant.
The number of options granted annually is fixed by the Director Plan. Such
options become fully exercisable on the first anniversary of their grant. Under
the Stock Incentive Plans and Director Plan, there were 1,570,002 options
exercisable and 2,534,811 options available for grant as of December 31, 1999.
The following table summarizes the activity of the Company's stock option plans:
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
1997
Granted.................................................. 2,504,500 $18.80
---------
Outstanding at December 31, 1997........................... 2,504,500 18.80
1998
Granted.................................................. 1,706,200 16.97
Canceled................................................. (255,950) 18.37
---------
Outstanding at December 31, 1998........................... 3,954,750 18.04
1999
Granted.................................................. 2,209,000 14.36
Canceled................................................. (190,050) 18.07
---------
Outstanding at December 31, 1999........................... 5,973,700 16.67
=========
Outstanding stock option data as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
---------------- ----------- ---------------- --------- ----------- ---------
$12.38 to
$16.59........ 3,622,200 9.38 $15.21 423,700 $16.52
17.19 to
22.00........ 2,351,500 7.90 18.92 1,146,302 18.81
--------- ---- ------ --------- ------
5,973,700 8.80 $16.67 1,570,002 $18.20
========= ==== ====== ========= ======
F-16
42
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 were $6.33, $7.10, and $7.76 per option, respectively. The fair value of
each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.88%, 4.63% and 5.80%; expected life of five years for each
year; and expected volatility of 40.07%, 39.60% and 36.00%. The 1999 and 1998
expected volatility was determined from historical UNOVA stock price
fluctuations, while the 1997 expected volatility was determined from historical
industry stock price fluctuations. There is no assurance that the assumptions
used in determining the fair values of stock options will prove true in the
future. The actual value of the options depends on several factors, including
the actual market price of the common stock on the date of exercise. Changes in
any of these factors as well as fluctuations in the market price of the
Company's common stock will cause the actual value of these options to vary from
the theoretical value indicated above.
In 1999, the Company granted 109,585 shares of restricted stock to an officer
under the provisions of the 1999 Stock Incentive Plan. The fair value at the
grant date of the restricted stock (without regard to restrictions on transfer),
which vests in installments in 2002, 2003, and 2004, was $12.84 per share. The
unearned portion of this grant is being amortized as compensation expense on a
straight-line basis over the vesting period and was not material for the year
ended December 31, 1999.
EMPLOYEE STOCK PURCHASE PLAN
In January 1998, UNOVA adopted an Employee Stock Purchase Plan under which the
Company is authorized to sell up to five million shares of common stock to its
eligible full-time employees. The purchase price of the stock is 85% of the
lower of the market price on the first day or last day of the applicable
offering period, which is normally six months in duration. In 1999 and 1998,
employees purchased 496,450 and 433,506 shares, respectively. The
weighted-average fair value of purchase rights granted in 1999 and 1998 was
$4.42 per share and $5.14 per share, respectively. The fair value of the stock
purchase rights were determined using the following weighted-average assumptions
in 1999 and 1998, respectively; risk-free interest rate of 4.63% for each year;
expected life equal to the applicable offering periods for each year; and
expected volatility of 40.07% in 1999 and 39.60% in 1998. As previously noted,
the actual value of purchase rights may vary from the theoretical value
determined using the Black-Scholes option pricing model.
PRO FORMA COMPENSATION COST DISCLOSURE
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, under which no compensation cost has been recognized at the grant of
stock options. Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income (loss) and diluted
earnings (loss) per share for 1999, 1998, and 1997 would have been $22.8 million
and $0.41, $64.6 million and $1.18, and $(173.6) million and $(3.21),
respectively.
F-17
43
NOTE G: TAXES ON INCOME
Earnings (loss) before taxes on income by geographic area are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
United States....................................... $44,113 $ 90,976 $(113,075)
Other nations....................................... 5,200 25,990 (35,324)
------- -------- ---------
$49,313 $116,966 $(148,399)
======= ======== =========
Taxes on income consist of the following provisions (benefits):
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
Currently Payable:
U.S. taxes........................................ $ 4,964 $ 20,416 $ 13,821
International taxes............................... 3,849 12,451 10,124
------- -------- ---------
8,813 32,867 23,945
------- -------- ---------
Deferred:
U.S. taxes........................................ 10,336 13,689 242
International taxes............................... 576 697 (1,219)
------- -------- ---------
10,912 14,386 (977)
------- -------- ---------
$19,725 $ 47,253 $ 22,968
======= ======== =========
Deferred taxes result from the effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- -------- ---------
(THOUSANDS OF DOLLARS)
Accrued liabilities................................. $ 40,355 $ 56,863
Receivables and inventories......................... 22,232 18,872
Retiree medical benefits............................ 12,680 10,176
Intangibles......................................... 13,473 12,963
Tax credit carryforwards............................ 23,419 6,395
Deferred income..................................... 9,244 2,718
Net operating loss carryforwards.................... 54,830 41,511
Pensions............................................ $28,048 $23,588
Accelerated depreciation............................ 16,729 18,566
Other items......................................... 1,327 1,220
-------- ------- -------- -------
Total before valuation allowance.................... 177,560 44,777 150,718 42,154
Valuation allowance................................. (19,390) (8,945)
-------- ------- -------- -------
$158,170 $44,777 $141,773 $42,154
======== ======= ======== =======
F-18
44
NOTE G: TAXES ON INCOME (CONTINUED)
The Company has available at December 31, 1999, a net operating tax loss
carryforward in the United States of approximately $67.8 million. Approximately
$7.7 million and $13.9 million of the net operating tax loss carryforwards will
expire in 2010 and 2011, respectively. Approximately $4.5 million, $25.1 million
and $16.6 million of the remaining net operating tax loss carryforwards will
expire in 2017, 2018 and 2019, respectively.
The Company has foreign tax credit carryforwards of $2.5 million at December 31,
1999 to offset future tax liability in the United States through 2004. The
Company also has general business credit and other tax credits carryforward of
approximately $20.9 million to offset future tax liability in the United States
through 2019.
At December 31, 1999, the Company has foreign net operating tax loss
carryforwards of $76.5 million. Valuation allowances of $19.4 million and $8.9
million, as of December 31, 1999 and 1998, respectively, have been provided for
deferred income tax benefits related to the foreign loss carryforwards that may
not be realized. The valuation allowance for each year includes $4.4 million
related to the acquired German net operating loss carryforwards; any tax
benefits subsequently recognized for the acquired German net operating loss
carryforwards will be allocated to goodwill.
The following is a reconciliation of income taxes at the U.S. statutory rate to
the provision for income taxes:
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- ------- --------
(THOUSANDS OF DOLLARS)
Tax at U.S. statutory rate................................ $ 17,260 $40,938 $(51,940)
Nondeductible acquired in-process research and
development............................................. 71,050
State income taxes net of federal benefit................. 2,998 3,055 1,625
Amortization of nondeductible goodwill.................... 4,852 4,272 4,431
Tax credits and FSC benefit............................... (13,870) (3,276) (1,250)
Foreign earnings (losses) taxed at other than U.S. statutory rate... 6,174 4,240 (223)
Other items............................................... 2,311 (1,976) (725)
-------- ------- --------
$ 19,725 $47,253 $ 22,968
======== ======= ========
The Company made net tax payments of $13.7 million, $4.5 million and $44.4
million in the years ended December 31, 1999, 1998 and 1997, respectively.
The Company has provided for federal income taxes and foreign withholding taxes
on the undistributed earnings of foreign subsidiaries.
F-19
45
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has retirement and pension plans which cover most of its employees.
Most of the Company's U.S. employees are covered by a contributory defined
benefit plan, under which annual contributions are made to the extent such
contributions are actuarially determined to adequately fund the plan. Certain of
the Company's non-U.S. subsidiaries also have retirement plans for employees.
There are also defined contribution voluntary savings programs generally
available for U.S. employees, which are intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code. These plans are designed to
enhance the retirement programs of participating employees. Under these plans,
the Company matches up to 50% of a certain portion of participants'
contributions.
U.S. PENSION PLANS
The following table sets forth the change in benefit obligations and plan assets
of the Company's U.S. pension plans and the amounts recognized in the Company's
balance sheets.
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
(THOUSANDS OF DOLLARS)
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 181,842 $151,649
Service cost.............................................. 9,948 6,140
Interest cost............................................. 12,989 10,982
Plan participants' contributions.......................... 621 431
Actuarial loss (gain)..................................... (1,604) 22,659
Benefits paid............................................. (10,440) (10,019)
--------- --------
Benefit obligation at end of year......................... 193,356 181,842
--------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 316,241 345,347
Actual return on plan assets.............................. 148,407 (11,858)
Plan participants' contributions.......................... 621 431
Benefits paid............................................. (9,975) (9,554)
Spin-off related adjustment............................... (8,125)
--------- --------
Fair value of plan assets at end of year.................. 455,294 316,241
--------- --------
Funded status............................................. 261,938 134,399
Unrecognized net actuarial gain........................... (190,750) (76,901)
Unrecognized prior service cost........................... 3,735 4,201
Unrecognized transition asset............................. (7,468) (9,381)
--------- --------
Prepaid pension cost...................................... $ 67,455 $ 52,318
========= ========
F-20
46
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The preceding table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1999 and 1998, these liabilities amounted to $21.2 million and
$17.1 million, respectively.
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 9.25% for fiscal years 1999
and 1998. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.50% and 7.00% at
December 31, 1999 and 1998, respectively. The rate of increase in future
compensation levels was 4.50% at December 31, 1999 and 1998.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
A summary of the components of net periodic pension income for the U.S. defined
benefit plans and defined contribution plans is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
COMPONENTS OF NET PERIODIC PENSION INCOME
Service cost...................................... $ 9,948 $ 6,140 $ 5,988
Interest cost..................................... 12,989 10,982 10,075
Expected return on plan assets.................... (32,179) (25,531) (20,784)
Amortization of prior service cost................ 466 461 406
Recognized net actuarial gain..................... (3,993) (4,313) (3,043)
Amortization of transition asset.................. (2,477) (2,477) (2,477)
-------- -------- --------
(15,246) (14,738) (9,835)
Defined contribution plans........................ 5,808 4,500 4,160
-------- -------- --------
Net periodic pension income....................... $ (9,438) $(10,238) $ (5,675)
======== ======== ========
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom and
Germany, the weighted-average discount rate used was approximately 6.49% at
December 31, 1999. The rate of increase in future compensation used was
approximately 3.35%, and the rate of return on assets was 8.50% at December 31,
1999.
Pension costs for non-U.S. pension plans were not material for any of the
periods presented herein. The actuarial present value of projected benefits at
December 31, 1999 was $111.1 million compared with net assets available for
benefits of $128.7 million.
F-21
47
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans provided
by UNOVA. These benefit plans are unfunded. The following table sets forth the
change in benefit obligation of the Company's other postretirement benefits and
amounts recognized in the Company's balance sheets.
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 40,408 $ 27,789
Service cost.............................................. 928 292
Interest cost............................................. 2,785 2,037
Acquisitions.............................................. 940 11,423
Actuarial (gain) loss..................................... (4,227) 104
Benefits paid............................................. (2,183) (1,237)
-------- --------
Benefits obligation at end of year........................ 38,651 40,408
-------- --------
Funded status............................................. (38,651) (40,408)
Unrecognized net actuarial loss........................... 3,772 8,198
Unrecognized transition obligation........................ 1,475 1,594
-------- --------
Accrued postretirement benefit obligation................. $(33,404) $(30,616)
======== ========
A summary of the Company's net periodic postretirement benefit cost is as
follows:
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(THOUSANDS OF DOLLARS)
COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST
Service cost............................................. $ 928 $ 292 $ 586
Interest cost............................................ 2,785 2,037 1,688
Recognized actuarial loss and transition obligation...... 318 328
------ ------ ------
Net periodic postretirement benefit cost................. $4,031 $2,657 $2,274
====== ====== ======
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7.50% and 7.00% at December 31, 1999 and 1998. The assumed
health care cost trend rate for fiscal year 1999 was 11.67% and is projected to
decrease over 17 years to 6.00%, where it is expected to remain thereafter. The
effect of a one-percentage-point increase or decrease in the assumed health care
cost trend rate on the service cost and interest cost components of the net
periodic postretirement benefit cost is not material. A one-percentage-point
increase in the assumed health care cost trend rate on the postretirement
benefit obligation results in an increase of approximately $3.0 million, while a
one-percentage point decrease results in a decrease of $2.7 million.
F-22
48
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's consolidated and combined
financial statements.
NOTE J: RELATED PARTY TRANSACTIONS
Included in other assets are amounts due from certain Company officers and other
related parties of $2.0 million and $1.9 million at December 31, 1999 and 1998,
respectively.
The Company leases executive offices that are located in a building owned by the
UNOVA Master Trust, an entity which holds the assets of the Company's primary
U.S. pension plans. The ten-year operating lease, which was approved by the
Department of Labor under the provisions of the Employee Retirement Income
Security Act of 1974, commenced on February 1, 1999. The lease provides for
fixed monthly rental payments subject to certain indexed escalation clauses.
Rental expense under the provisions of this lease was $0.7 million for the year
ended December 31, 1999.
Immediately prior to the Distribution in 1997, the Company paid a dividend of
$230.0 million to WAI with funds borrowed under the Company's revolving credit
facility.
Included in general and administrative expenses are allocated charges from WAI
of $13.5 million for the year ended December 31, 1997.
Included in interest expense are allocated charges from WAI of $12.0 million for
the year ended December 31, 1997.
NOTE K: SEGMENT REPORTING
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. The Company
uses operating profit, which is computed by adding net interest expense to
earnings before taxes on income, to evaluate performance.
Corporate and other amounts include corporate operating costs and currency
transaction gains and losses (see Notes A and J). Assets classified as corporate
and other amounts consist of cash and cash equivalents, retained interest in
securitized trade receivables, and other corporate assets. Activities are
primarily product sales oriented. Export sales are not material. All material
intercompany transactions have been excluded.
F-23
49
NOTE K: SEGMENT REPORTING (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT
(MILLIONS OF DOLLARS)
INDUSTRIAL AUTOMATION
SYSTEMS
-------------------------- CORPORATE
AUTOMATED INTEGRATED ADVANCED AND
YEAR ENDED DATA PRODUCTION MANUFACTURING OTHER
DECEMBER 31, SYSTEMS SYSTEMS EQUIPMENT AMOUNTS TOTAL
------------ --------- ---------- ------------- --------- ------
Revenues............................ 1999 $ 877 $ 937 $295 $2,109
1998 830 719 114 1,663
1997 636 790 1,426
Operating profit (loss)............. 1999 26 87 6 $(32) 87
1998 55 73 4 11(B) 143(B)
1997 (202)(A) 95 (25) (132)(A)
Capital expenditures................ 1999 37 14 5 5 61
1998 46 34 4 84
1997 16 14 30
Depreciation and amortization
expense........................... 1999 37 18 10 1 66
1998 38 17 2 57
1997 25 15 1 41
Total assets at year end............ 1999 665 838 253 148 1,904
1998 775 820 308 76 1,979
1997 642 650 64 1,356
(A) Includes the $211.5 million charges for acquired in-process research and
development.
(B) Includes gain of $35.5 million on sale of UNOVA's corporate headquarters
building.
OPERATIONS BY GEOGRAPHIC AREA
(MILLIONS OF DOLLARS)
CORPORATE
AND
YEAR ENDED UNITED OTHER
DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL
------------ ------ ------ ----- --------- ------
Revenues..................... 1999 $1,555 $392 $162 $2,109
1998 1,064 442 157 1,663
1997 989 363 74 1,426
Operating profit (loss)...... 1999 107 5 7 $(32) 87
1998 98 28 6 11 143
1997 (78) (35) 6 (25) (132)
Total assets at year end..... 1999 1,399 329 28 148 1,904
1998 1,470 388 45 76 1,979
1997 1,015 261 16 64 1,356
F-24
50
UNOVA, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
COMMON
BASIC DILUTED STOCK SALES
GROSS NET EARNINGS EARNINGS PRICE
SALES PROFIT EARNINGS PER SHARE PER SHARE HIGH/LOW
------ ------ -------- --------- --------- ------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1999
First Quarter............. $493.4 $134.4 $ 3.5 $0.06 $0.06 $20 11 7/8
Second Quarter............ 494.4 136.6 3.3 0.06 0.06 $18 12 3/4
Third Quarter............. 503.4 140.6 9.4 0.17 0.17 $15 5/8 11 7/8
Fourth Quarter............ 617.5 168.0 13.4 0.24 0.24 $15 1/16 12 1/16
YEAR ENDED DECEMBER 31, 1998
First Quarter............. $333.4 $110.1 $ 7.8 $0.14 $0.14 $20 9/16 13 7/8
Second Quarter............ 345.2 117.8 9.2 0.17 0.17 $24 19 15/16
Third Quarter............. 405.7 133.2 13.3 0.24 0.24 $22 15 1/2
Fourth Quarter............ 578.4 166.2 39.4(1) 0.72 0.72 $18 1/4 12 3/8
As of January 31, 2000 there were approximately 19,251 holders of record of the
Company's common stock.
(1) In December 1998, the Company recognized a gain of $35.5 million on the sale
of its corporate headquarters building.
F-25
51
UNOVA, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------------------------------------------------------------
2.1 Amended and Restated Purchase and Sale Agreement dated
August 20, 1998, between UNOVA, Inc., UNOVA Industrial
Automation Systems, Inc., and UNOVA UK Limited, on the one
hand, and Cincinnati Milacron Inc., on the other hand, filed
on October 2, 1998 as Exhibit 2 to the Company's Current
Report on Form 8-K, and incorporated herein by reference.
3.1 Certificate of Incorporation of UNOVA, Inc., filed on
October 22, 1997 as Exhibit 3A to Amendment No. 2 to the
Company's Registration Statement on Form 10 No. 001-13279,
and incorporated herein by reference.
3.2 By-laws of UNOVA, Inc., as amended on February 5, 1999,
filed as Exhibit 3.2 to the Company's 1998 Annual Report on
Form 10-K, and incorporated herein by reference.
4.1 $400,000,000 Credit Agreement dated September 24, 1997,
among UNOVA, Inc., the Banks listed therein, and Morgan
Guaranty Trust Company of New York, as Agent (the
"$400,000,000 Credit Agreement"), filed on October 1, 1997
as Exhibit 10M to Amendment No. 1 to the Company's
Registration Statement on Form 10 No. 001-13279, and
incorporated herein by reference.
4.2 Amendment No. 1 to the $400,000,000 Credit Agreement, dated
January 15, 1998, filed as Exhibit 4.4 to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by
reference.
4.3 Amendment No. 2 to the $400,000,000 Credit Agreement, dated
May 15, 1998, filed as Exhibit 4.7 to the Company's June 30,
1998 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.4 Amendment No. 3 to the $400,000,000 Credit Agreement, dated
September 24, 1998, filed as Exhibit 4.8 to the Company's
September 30, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.5 Amendment No. 4 to the $400,000,000 Credit Agreement, dated
November 24, 1999.*
4.6 Rights Agreement dated September 24, 1997, between UNOVA,
Inc. and The Chase Manhattan Bank, as Rights Agent, to which
is annexed the form of Right Certificate as Exhibit A, filed
on October 22, 1997 as Exhibit 3C to Amendment No. 2 to the
Company's Registration Statement on Form 10 No. 001-13279,
and incorporated herein by reference.
4.7 Indenture dated as of March 11, 1998 between the Company and
The First National Bank of Chicago, Trustee, providing for
the issuance of securities in series, filed as Exhibit 4.5
to the Company's 1997 Annual Report on Form 10-K, and
incorporated herein by reference.
4.8 Form of 6.875% Notes due March 15, 2005 issued by the
Company under such indenture, filed as Exhibit 4.6 to the
Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
4.9 Form of 7.00% Notes due March 15, 2008 issued by the Company
under such indenture, filed as Exhibit 4.7 to the Company's
1997 Annual Report on Form 10-K, and incorporated herein by
reference.
4.10 $100,000,000 Credit Agreement dated January 13, 1999, among
UNOVA, Inc., the Banks listed therein, and Morgan Guaranty
Trust Company of New York, as Agent, filed as Exhibit 4.9 to
the Company's 1998 Annual Report on Form 10-K, and
incorporated herein by reference.
4.11 Amended and Restated Credit Agreement (364 Day Agreement),
among UNOVA, Inc., the banks listed therein, and Morgan
Guaranty Trust Company of New York, as agent, dated December
1, 1999.*
E-1
52
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
Instruments defining the rights of holders of other
long-term debt of the Company are not filed as exhibits
because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the
Company and its consolidated subsidiaries. The Company
hereby undertakes to furnish a copy of any such instrument
to the Commission upon request.
4.12 Transfer and Administration Agreement dated June 18, 1999,
among Enterprise Funding Corporation, as Company, KCH
Funding, L.L.C., as Transferor, UNOVA, Inc., Individually
and as Servicer, and Nationsbank, N.A., as Lead Arranger,
Agent and Bank Investor (the "Transfer and Administration
Agreement"), filed as Exhibit 4.10 to the Company's June 30,
1999 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.13 Amendment No. 1 to the Transfer and Administration Agreement
dated September 15, 1999.*
4.14 Amendment No. 2 to the Transfer and Administration Agreement
dated December 15, 1999.*
4.15 Receivables Purchase Agreement dated June 18, 1999, between
UNOVA, Inc., as Seller, and KCH Funding, L.L.C., as
Purchaser (the "Receivables Purchase Agreement"), filed as
Exhibit 4.11 to the Company's June 30, 1999 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
4.16 Amendment No. 1 to the Receivable Purchase Agreement dated
December 15, 1999.*
4.17 Originator Receivables Purchase Agreement dated June 18,
1999, among UNOVA Industrial Automation Systems, Inc. and
Intermec Technologies Corporation, as Sellers, and UNOVA,
Inc., as Purchaser, filed as Exhibit 4.12 to the Company's
June 30, 1999 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.1 Distribution and Indemnity Agreement dated October 31, 1997,
between Western Atlas Inc. and UNOVA, Inc, filed as Exhibit
10.1 to the Company's September 30, 1997 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.2 Tax Sharing Agreement dated October 31, 1997, between
Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.2
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.3 Employee Benefits Agreement dated October 31, 1997, between
Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.3
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.4 Intellectual Property Agreement dated October 31, 1997,
between Western Atlas Inc., and UNOVA, Inc., filed as
Exhibit 10.4 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.5 Form of Change of Control Employment Agreements with Alton
J. Brann, Michael E. Keane, Norman, L. Roberts, Larry D.
Brady, Robert G. O'Malley and certain other officers of the
Company, filed as Exhibit 10.5 to the Company's September
30, 1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.6 Amendment to the Form of Change of Control Employment
Agreements with Alton J. Brann, Larry D. Brady, Michael E.
Keane, Robert G. O'Malley and certain other officers of the
Company.*
10.7 Form of Change of Control Employment Agreement with Charles
E. Wolfbauer and certain other officers of the Company.*
10.8 Employment Agreement between Intermec Corporation and
Michael Ohanian, dated May 18, 1995, as amended, filed on
August 18, 1997 as exhibit 10J to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein
by reference.
E-2
53
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
10.9 Amendment No. 1 to Employment Agreement between Intermec
Corporation and Michael Ohanian, dated February 28, 1997,
filed as Exhibit 10.18 to the Company's 1997 Annual Report
on Form 10-K, and incorporated herein by reference.
10.10 Amendment No. 2 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated February
28, 1998, filed as Exhibit 10.19 to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by
reference.
10.11 Amendment No. 3 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated May 20,
1998, filed as Exhibit 10.9 to the Company's 1998 Annual
Report on Form 10-K, and incorporated herein by reference.
10.12 Amendment No. 4 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated February
28, 1999, filed as Exhibit 10.10 to the Company's 1998
Annual Report on Form 10-K, and incorporated herein by
reference.
10.13 Amendment No. 5 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated May 18,
1999, filed as Exhibit 10.11 to the Company's June 30, 1999
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.14 UNOVA, Inc. Director Stock Option and Fee Plan, filed as
Exhibit 10.7 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.15 Amendment No. 1 to the UNOVA, Inc. Director Stock Option and
Fee Plan filed as Exhibit 10.13 to the Company's September
30, 1999 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.16 UNOVA, Inc. Restoration Plan, filed on August 18, 1997 as
Exhibit 10I to the Company's Registration Statement on Form
10 No. 001-13279 and incorporated herein by reference.
10.17 UNOVA, Inc. Supplemental Executive Retirement Plan, filed on
October 1, 1997 as Exhibit 10H to Amendment No. 1 to the
Company's Registration Statement on Form 10 No. 001-13279
and incorporated herein by reference.
10.18 Amendment No. 1 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated September 23, 1998, filed as Exhibit
10.22 to the Company's September 30, 1998 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.19 Amendment No. 2 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated March 11, 1999, filed as Exhibit
10.15 to the Company's 1998 Annual Report on Form 10-K, and
incorporated herein by reference.
10.20 Amendment No. 3 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated March 15, 2000.*
10.21 Supplemental Retirement Agreement between UNOVA, Inc. and
Alton J. Brann, filed on October 1, 1997 as Exhibit 10L to
Amendment No. 1 to the Company's Registration Statement on
Form 10 No. 001-13279 and incorporated herein by reference.
10.22 Amendment No. 1 to Supplemental Retirement Agreement between
UNOVA, Inc. and Alton J. Brann, dated September 23, 1998,
filed as Exhibit 10.21 to the Company's September 30, 1998
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.23 Amendment No. 2 to Supplemental Executive Retirement
Agreement between UNOVA, Inc. and Alton J. Brann, dated
March 11, 1999, filed as Exhibit 10.18 to the Company's 1998
Annual Report on Form 10-K, and incorporated herein by
reference .
10.24 Amendment No. 3 to Supplemental Executive Retirement
Agreement between UNOVA, Inc. and Alton J. Brann, dated
March 15, 2000.*
10.25 Supplemental Executive Retirement Agreement between UNOVA,
Inc. and Larry D. Brady, dated March 15, 2000.*
E-3
54
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
10.26 Employment Agreement dated August 1997, between UNOVA, Inc.,
and Clayton A. Williams, filed on October 1, 1997 as Exhibit
10K to Amendment No. 1 to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein
by reference.
10.27 Amendment No. 1 to Employment Agreement between UNOVA, Inc.
and Clayton A. Williams, dated March 24, 1998, filed as
Exhibit 10.20 to the Company's 1997 Annual Report on Form
10-K, and incorporated herein by reference.
10.28 Amendment No. 2 to Employment Agreement between UNOVA, Inc.
and Clayton A. Williams, dated May 18, 1998, filed as
Exhibit 10.21 to the Company's 1998 Annual Report on Form
10-K, and incorporated herein by reference.
10.29 UNOVA, Inc. 1997 Stock Incentive Plan, filed as Exhibit
10.12 to the Company's September 30, 1997 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.30 Removed and reserved.
10.31 UNOVA, Inc. Executive Severance Plan (As Amended November
18, 1999).*
10.32 Form of Promissory Notes in favor of the Company given by
certain officers and key employees, filed as Exhibit 10.14
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.33 Board resolution dated September 24, 1997 establishing the
UNOVA, Inc. Incentive Loan Program, filed as Exhibit 10.15
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.34 UNOVA, Inc. Executive Survivor Benefit Plan, filed as
Exhibit 10.17 to the Company's 1997 Annual Report on Form
10-K, and incorporated herein by reference.
10.35 UNOVA, Inc. 1999 Stock Incentive Plan, filed as Annex A to
the Company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 7, 1999
(the "1999 Proxy Statement"), and incorporated herein by
reference.
10.36 UNOVA, Inc. Management Incentive Compensation Plan, filed as
Annex B to the Company's 1999 Proxy Statement, and
incorporated herein by reference.
10.37 UNOVA, Inc. Group Executive Medical Benefit Plan.*
10.38 Letter Offering Employment to Larry D. Brady as President
and Chief Operating Officer of UNOVA, Inc., as accepted by
Mr. Brady on June 16, 1999, filed as Exhibit 10.32 to the
Company's June 30, 1999 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.39 Restricted Stock Agreement between UNOVA, Inc. and Larry D.
Brady, filed as Exhibit 10.34 to the Company's September 30,
1999 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
10.40 Letter of Offering Employment to Robert O'Malley as
President of Intermec Technologies Corporation, as accepted
by Mr. O'Malley on May 26, 1999.*
21 Subsidiaries of the Registrant included herein on page E-6.
23 Independent Auditors' Consent included herein on page E-7.
27 Financial Data Schedule (filed only electronically with the
Securities and Exchange Commission).*
* Copies of these documents have been included in this Annual Report on Form
10-K filed with the Securities and Exchange Commission.
E-4