<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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.)
360 NORTH CRESCENT DRIVE 90210-4867
BEVERLY HILLS, CALIFORNIA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 888-2500
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 [ ]
On October 31, 1998 there were 54,726,667 shares of Common Stock outstanding.
Page 1 of 18
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UNOVA, INC.
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated and Combined Statements of Operations
Nine Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) 3
Consolidated and Combined Statements of Operations
Three Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) 4
Consolidated Balance Sheets
September 30, 1998 (unaudited) and December 31, 1997 5
Consolidated and Combined Statements of Cash Flows
Nine Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) 6
Notes to Consolidated and Combined Financial Statements 7
(unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ -----------
<S> <C> <C>
Sales and Service Revenues $ 1,084,315 $ 1,094,104
------------ -----------
Costs and Expenses
Cost of sales 705,496 753,329
Selling, general and administrative 269,283 234,942
Depreciation and amortization 41,982 30,517
Acquired in-process research and development
charge 203,300
Interest, net 16,345 12,771
------------ -----------
Total Costs and Expenses 1,033,106 1,234,859
------------ -----------
Earnings (Loss) before Taxes on Income 51,209 (140,755)
Taxes on Income (20,950) (25,018)
------------ -----------
Net Earnings (Loss) $ 30,259 $ (165,773)
------------ -----------
------------ -----------
Basic and Diluted Earnings (Loss) per Share $ 0.55 $(3.07)
------ ------
------ ------
Shares Used in Computing Basic
Earnings (Loss) per Share 54,583,884 53,920,058
Shares Used in Computing Diluted
Earnings (Loss) per Share 54,694,104 53,920,058
</TABLE>
See accompanying notes to consolidated and combined financial statements.
3
<PAGE>
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
Sales and Service Revenues $ 405,688 $ 361,761
---------- ----------
Costs and Expenses
Cost of sales 265,417 240,813
Selling, general and administrative 94,185 82,271
Depreciation and amortization 17,413 13,482
Interest, net 6,571 5,672
---------- ----------
Total Costs and Expenses 383,586 342,238
---------- ----------
Earnings before Taxes on Income 22,102 19,523
Taxes on Income (8,841) (7,810)
---------- ----------
Net Earnings $ 13,261 $ 11,713
---------- ----------
---------- ----------
Basic and Diluted Earnings per Share $0.24 $0.22
----- -----
----- -----
Shares Used in Computing Basic
Earnings per Share 54,726,511 53,962,845
Shares Used in Computing Diluted
Earnings per Share 54,734,899 53,962,845
</TABLE>
See accompanying notes to consolidated and combined financial statements.
4
<PAGE>
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 28,947 $ 13,685
Accounts receivable, net 497,468 448,079
Inventories, net of progress billings 218,744 150,537
Deferred tax assets 121,587 106,694
Other current assets 15,704 30,072
----------- -----------
Total Current Assets 882,450 749,067
----------- -----------
Property, Plant and Equipment, at cost 406,173 339,462
Less Accumulated Depreciation (193,158) (181,782)
----------- -----------
Property, Plant and Equipment, Net 213,015 157,680
----------- -----------
Goodwill and Other Intangibles, Net 398,858 366,098
----------- -----------
Other Assets 91,550 83,513
----------- -----------
Total Assets $ 1,585,873 $1,356,358
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 313,786 $ 311,759
Payrolls and related expenses 80,942 72,909
Notes payable and current portion of
long-term obligations 243,303 86,645
----------- -----------
Total Current Liabilities 638,031 471,313
----------- -----------
Long-term Obligations 215,993 216,938
----------- -----------
Deferred Tax Liabilities 22,918 22,918
----------- -----------
Other Long-term Liabilities 59,510 55,700
----------- -----------
Commitments and Contingencies
Shareholders' Investment
Common stock 547 545
Additional paid-in capital 631,720 603,743
Retained earnings (deficit) 22,218 (8,041)
Accumulated other comprehensive income -
cumulative currency translation adjustment (5,064) (6,758)
----------- -----------
Total Shareholders' Investment 649,421 589,489
----------- -----------
Total Liabilities and Shareholders' Investment $1,585,873 $1,356,358
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated and combined financial statements.
5
<PAGE>
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash and Cash Equivalents at Beginning of
Period $ 13,685 $ 149,467
---------- ----------
Cash Flows from Operating Activities:
Net earnings (loss) 30,259 (165,773)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities:
Acquired in-process research and
development charge 203,300
Depreciation and amortization 41,982 30,517
Deferred taxes (14,550) 1,165
Change in accounts receivable (24,093) (8,183)
Change in inventories (53,100) (1,068)
Change in other current assets 13,571 10,179
Change in accounts payable 7,927 (70,935)
Change in net prepaid pension costs (11,054) (8,412)
Other operating activities 7,823 3,205
---------- ----------
Net Cash Used in Operating Activities (1,235) (6,005)
---------- ----------
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash
acquired (92,854) (385,247)
Capital expenditures (56,075) (20,254)
Proceeds from sale of property, plant and
equipment 6,186 3,774
Proceeds from sale of investments 4,671
Other investing activities (4,399) (3,978)
---------- ----------
Net Cash Used in Investing Activities (142,471) (405,705)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from borrowings 426,779 18,587
Repayment of borrowings (271,066) (77,893)
Net transactions with Western Atlas Inc. 214,490
Due to Western Atlas Inc. 120,426
Other financing activities 3,255 1
---------- ----------
Net Cash Provided by Financing Activities 158,968 275,611
---------- ----------
Resulting in Increase (Decrease) in Cash and
Cash Equivalents 15,262 (136,099)
---------- ----------
Cash and Cash Equivalents at End of Period $ 28,947 $ 13,368
---------- ----------
---------- ----------
Supplemental disclosure of cash flow
information
Interest paid $ 16,958 $ 4,343
Income taxes paid (refunded) $ (5,034) $ 47,520
</TABLE>
See accompanying notes to consolidated and combined financial statements.
6
<PAGE>
UNOVA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. UNOVA, Inc. ("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. 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 of record.
The statement of operations and statement of cash flows for the nine and
three months ended September 30, 1997 contain the historical accounts and
operations of the former WAI businesses that now comprise the Company. The
amounts included in this report are unaudited; however in the opinion of
management, all adjustments necessary for a fair presentation of results of
operations, financial position and cash flows for the stated periods have
been included. These adjustments are of a normal recurring nature. It is
suggested that these consolidated and combined financial statements be read
in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. The results of operations for the interim periods
presented are not necessarily indicative of operating results for the
entire year.
2. General and administrative costs include allocated charges from WAI of
$12.9 million and $3.8 million for the nine and three months ended
September 30, 1997, respectively.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process $ 174,567 $ 124,501
Finished goods 56,098 38,074
Less progress billings (11,921) (12,038)
---------- -----------
Net inventories $ 218,744 $ 150,537
---------- -----------
---------- -----------
</TABLE>
4. Net interest expense is composed of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ---------- -----------
(THOUSANDS OF DOLLARS) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Interest Expense $ 18,289 $ 15,736 $ 7,267 $ 6,472
Interest Income (1,944) (2,965) (696) (800)
-------- -------- ------- -------
Net Interest Expense $ 16,345 $ 12,771 $ 6,571 $ 5,672
-------- -------- ------- -------
-------- -------- ------- -------
</TABLE>
Interest expense includes allocated charges from WAI Of $10.3 million and $4.0
million for the nine and three months ended September 30, 1997, respectively.
7
<PAGE>
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. For the nine and three months ended September 30, 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 effect of outstanding stock options using the "treasury stock" method.
Shares used for basic and diluted earnings per share were computed as
follows:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
------------- -------------
<S> <C> <C>
Weighted average common shares - Basic 54,583,884 54,726,511
Dilutive effect of stock options 110,220 8,388
---------- ----------
Weighted shares - Diluted 54,694,104 54,734,899
---------- ----------
---------- ----------
</TABLE>
For the nine and three months ended September 30, 1997, the Company used
the weighted average outstanding shares of WAI common stock at September
30, 1997 to calculate both basic and diluted earnings per share.
At September 30, 1998, Company employees and directors held options to
purchase 2,495,700 shares 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.
6. In January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130
states that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in the
financial statements.
The Company's comprehensive income amounts were computed as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- --------- -------- --------
(THOUSANDS OF DOLLARS) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 30,259 $(165,773) $ 13,261 $ 11,713
Foreign currency translation adjustments 1,694 (3,687) (698) (1,310)
Income tax benefit (expense) related to
foreign currency translation adjustments (695) 1,475 279 524
-------- --------- -------- --------
Comprehensive income (loss) $ 31,258 $(167,985) $ 12,842 $ 10,927
-------- --------- -------- --------
-------- --------- -------- --------
</TABLE>
7. In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt. The sale 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 entered into by the Company to hedge the interest
rates on the debt, the effective interest rates on the seven-year and
ten-year notes are 6.982% and 7.217%, respectively. The net proceeds of
approximately $198.0 million were used by the company to repay outstanding
debt.
8
<PAGE>
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. Subsequent to the end of the third quarter, UNOVA acquired the machine
tool business of Cincinnati Milacron for approximately $180.0 million in
cash, subject to post-closing adjustments. 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. Cincinnati Machine will become part of the
Company's Industrial Automation Systems ("IAS") segment. The
acquisition was funded using the Company's committed credit facility.
During the third quarter, UNOVA acquired R&B Machine Tool Company, 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
Transportation Systems Group ("Amtech TSG"). Amtech TSG 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 common stock which
was applied towards the purchase price of Amtech TSG.
9
<PAGE>
UNOVA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales and service revenues and segment operating profit for the nine and three
months ended September 30, 1998 and 1997 are summarized below. The $203.3
million second quarter charge for acquired in-process research and development
has been excluded from the operating profit of the Automated Data Systems
segment in the 1997 nine-month period presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ----------- -----------
(THOUSANDS OF DOLLARS) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
SALES AND SERVICE REVENUES
Industrial Automation Systems $ 485,357 $ 633,064 $ 188,713 $ 182,707
Automated Data Systems 598,958 461,040 216,975 179,054
---------- ---------- --------- ---------
Total Sales and Service Revenues $1,084,315 $1,094,104 $ 405,688 $ 361,761
---------- ---------- --------- ---------
---------- ---------- --------- ---------
SEGMENT OPERATING PROFIT
Industrial Automation Systems $ 46,608 $ 74,548 $ 20,505 $ 25,385
Automated Data Systems 37,722 16,322 12,183 4,815
---------- ---------- --------- ---------
Total Segment Operating Profit $ 84,330 $ 90,870 $ 32,688 $ 30,200
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
Total sales and service revenues decreased $9.8 million or 1% for the nine
months ended September 30, 1998 compared with the corresponding prior period.
Total segment operating profit decreased $6.5 million or 7% for the nine months
ended September 30, 1998 compared with the corresponding prior period.
Total sales and service revenues increased $43.9 million or 12% for the three
months ended September 30, 1998 compared with the corresponding prior period.
Total segment operating profit increased $2.5 million or 8% for the three months
ended September 30, 1998 compared with the corresponding prior period.
Cost of sales as a percentage of sales decreased from 69% to 65% from the nine
months ended September 30, 1997 to the nine months ended September 30, 1998,
while selling, general and administrative expense as a percentage of sales
increased from 21% to 25% for the comparable periods. These fluctuations are
attributable to the change in the business mix of the Company that resulted from
the acquisitions in the Automated Data Systems ("ADS") segment and a general
increase in the activity of this segment due to market growth, and a decrease of
activity in the Industrial Automation Systems ("IAS") segment. ADS sales
increased as a percentage of total sales from 42% to 55% from the nine months
ended September 30, 1997 to the nine months ended September 30, 1998, while IAS
sales decreased from 58% to 45% for the comparable periods. The ADS businesses
typically carry lower cost of sales ratios and higher selling, general and
administrative expense ratios compared to the IAS businesses.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Depreciation and amortization increased from $30.5 million to $42.0 million from
the nine months ended September 30, 1997 to the nine months ended September 30,
1998 and from $13.5 million to $17.4 million from the three months ended
September 30, 1997 to the three months ended September 30, 1998. This increase
is primarily due to a higher amount of goodwill and other intangibles resulting
from the Norand and UBI acquisitions, as well as additional depreciation from
these operations.
Net interest expense was $16.3 million and $12.8 million for the nine months
ended September 30, 1998 and 1997, respectively and $6.6 million and $5.7
million for the three months ended September 30, 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 Amtech TSG and R&B Machine Tool
in 1998.
INDUSTRIAL AUTOMATION SYSTEMS
IAS segment sales decreased $147.7 million or 23% and related operating profit
decreased $27.9 million or 37% for the nine months ended September 30, 1998
compared with the corresponding prior period. For the three months ended
September 30, 1998, segment sales increased $6.0 million or 3% while operating
profit decreased $4.9 or 19% compared with the corresponding prior period.
During the first several months of 1998, the IAS segment began several new
projects that are not expected to materially affect sales and profits until next
year. In addition, the IAS segment encountered delays in the engineering phase
of these projects, caused by unexpected customer changes. Conversely, during
the first several months of 1997, the integrated manufacturing systems
operations experienced a higher level of sales and profits from contracts in the
final delivery and installation phase. For the current three-month period, the
sales increase over the prior year resulted from the contribution of the R&B
Machine Tool activities, which was acquired at the beginning of the third
quarter. IAS backlog increased from $332.0 million at December 31, 1997 to
$582.7 million at September 30, 1998.
Shortly after the end of the third quarter, UNOVA acquired the machine tool
business of Cincinnati Milacron for approximately $180.0 million in cash,
subject to post-closing adjustments. 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.
Cincinnati Machine, which reported annual revenues of approximately
$458.0 million in 1997, will become part of the Company's IAS segment. The
acquisition was funded using the Company's committed credit facility.
During the third quarter, UNOVA acquired R&B Machine Tool Company, a specialty
machine and retooling company with annual revenues of approximately $60.0
million. This acquisition was funded using short-term uncommitted credit lines.
AUTOMATED DATA SYSTEMS
ADS segment sales increased $138.0 million or 30% while operating profit
increased $21.4 million or 131% for the nine months ended September 30, 1998
compared with the corresponding prior period. The sales and operating profit
increases are due primarily to the contribution of a full nine months of
operations and the beginning of the realization of improved profitability
from the integration of the Norand and UBI acquisitions, as well as internal
growth. For the three months ended September 30, 1998, segment sales
increased $37.9 million or 21% while operating profit increased $7.4 million
or 153% compared with the corresponding prior period. These increases were
due primarily to the continued internal growth of the combined activities as
well as the addition of the third quarter results of Amtech Transportation
Systems Group ("Amtech TSG"), offset by information system problems that
negatively impacted third quarter results. These problems, which were caused
by the larger volume of business that resulted from the integration, did not
allow the ADS segment to fully realize the benefits of its integration
activities. A new information system, designed to resolve these problems, is
expected to become operational by the end of 1998.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In June 1998, the Company acquired the radio frequency identification
("RFID") business unit of Amtech Corporation known as Amtech TSG. Amtech TSG
is a supplier of wireless data technologies for electronic toll collection,
rail and motor fleet tracking, and access control to parking and other
structures. Amtech TSG, which has been integrated into Intermec
Technologies, reported revenues of approximately $52.0 million in 1997. The
Company had previously purchased $10.0 million of Amtech common stock which
was applied towards the purchase price of Amtech TSG.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities increased from $13.7 million at December 31, 1997
to $28.9 million at September 30, 1998. Total debt increased from $303.6
million at December 31, 1997 to $459.3 million at September 30, 1998 due to the
acquisition of Amtech TSG and R&B Machine Tool and the normal capital
expenditures and working capital needs of the operations.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt. The sale 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 entered into by the Company to hedge the interest rates on the debt,
the effective interest rates on the seven-year and ten-year notes are 6.982% and
7.217%, respectively. The net proceeds of approximately $198.0 million were
used by the Company to repay outstanding debt.
At November 2, 1998, subsequent to the acquisition of Cincinnati Machine, the
Company had total additional borrowing capacity of approximately $182.5 million.
The Company expects that cash flow from operations, along with available
borrowing capacity, will be adequate to meet working capital and capital
expenditure requirements. The Company does not anticipate any material
adverse decline in cash flow from operations nor any significant changes in
capital expenditures required to support ongoing operations.
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 to address
the Year 2000 issue. The teams were monitored on an ongoing basis by executive
management. As a result of this review, the Company has identified its
significant information technology and non-information technology systems that
will require modification to ensure Year 2000 compliance. Internal and external
resources are being used to make the required modifications and test Year 2000
compliance. Although there can be no assurance that the Company will identify
and correct every Year 2000 problem, the Company believes that it has in place a
comprehensive program to identify and correct any such problems. The Company
plans to complete the internal modification and testing process prior to
December 31, 1999.
UNOVA is also actively working with its significant suppliers and customers to
assess their Year 2000 compliance efforts and the Company's exposure to them.
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 supplier or other third party will not occur.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has 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 and customer
satisfaction 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 transition 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.
In addition, the Company has begun internal discussions concerning contingency
planning to address potential problem areas with internal systems and third
parties. If deemed necessary, these contingency plans will be developed prior
to December 31, 1999.
The Company estimates that the total incremental cost of these Year 2000
compliance activities will be approximately $4.0 million. Of these costs, it
is estimated that approximately $1.0 million are expense items and the
remaining $3.0 million are capitalizable. As of September 30, 1998, the
Company has incurred approximately $2.0 million of Year 2000 costs of which
about $300 thousand was expensed and approximately $1.7 million was
capitalized. These costs and the date on which the Company plans to complete
the Year 2000 modification are based on management's best estimates, which
were derived utilizing numerous assumptions of future events. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ from those plans. Based on currently available information,
management does not believe that Year 2000 issues will have a material
adverse impact on the Company's financial condition or results of operations.
However, the Year 2000 problem has many aspects and potential consequences,
some of which are not reasonably foreseeable, and there can be no assurance
that unforeseen consequences will not arise.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is effective for fiscal years beginning after
June 15, 1999. The Company is currently evaluating the impact of adopting
this statement.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K: No reports on Form 8-K have been filed by the
Registrant during the quarter ended September 30, 1998.
(b) See Exhibit Index included herein on page 16.
14
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
(Registrant)
By /s/ Michael E. Keane
-------------------------
Michael E. Keane
Senior Vice President and
Chief Financial Officer
November 12, 1998
15
<PAGE>
UNOVA, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
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, 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 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.
4.3 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.
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 Amendment No.3 to the $400,000,000 Credit Agreement,
dated September 24, 1998. *
4.9 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.
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.
16
<PAGE>
INDEX TO EXHIBITS, (CONTINUED)
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 Change of Control Employment Agreements with Alton J.
Brann, Michael E. Keane, Norman L. Roberts and certain
other officers of the Company, dated as of October 31,
1997, 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 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 UNOVA, Inc. Executive Severance Plan, filed as Exhibit
10.13 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by
reference.
10.14 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.
17
<PAGE>
INDEX TO EXHIBITS, (CONTINUED)
10.15 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.
10.16 UNOVA, Inc. Management Incentive Compensation Plan,
filed as Exhibit 10.16 to the Company's 1997 Annual
Report on Form 10-K, and incorporated herein by
reference.
10.17 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.
10.18 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.
.
10.19 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.
10.20 Amendment 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.
10.21 Amendment No. 1 to Supplemental Retirement Agreement between
UNOVA, Inc. and Alton J. Brann, dated September 23, 1998.*
10.22 Amendment No. 1 to UNOVA, Inc. Supplemental Executive Retirement
Plan, dated September 23, 1998.*
27 Financial Data Schedule (filed only electronically with
the Securities and Exchange Commission).
</TABLE>
* Copies of these documents have been included in this
Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission.
18
<PAGE>
EXHIBIT 4.8
AMENDMENT NO. 3 TO CREDIT AGREEMENT
AMENDMENT dated as of September 24, 1998 to the Credit Agreement dated
as of September 24, 1997 (as heretofore amended, the "CREDIT AGREEMENT")
among UNOVA, INC. (the "BORROWER"), the BANKS party thereto (the "BANKS") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT").
The parties hereto agree as follows:
SECTION 1. DEFINED TERMS: REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other
similar reference contained in the Credit Agreement shall, after this
Amendment becomes effective, refer to the Credit Agreement as amended hereby.
SECTION 2. AMENDMENT. Section 5.05 is amended to read in its entirety as
set forth below:
SECTION 5.05. LEVERAGE RATIO. The Leverage Ratio will not exceed, at
any time during any period set forth below, the maximum ratio set forth
below for such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Effective Date-
March 30, 2000 3.5 to 1.0
March 31, 2000-
March 30, 2001 3.0 to 1.0
March 31, 2001 and
thereafter 2.75 to 1.0
</TABLE>
SECTION 3. REPRESENTATIONS OF BORROWER. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set
forth in Article 4 of the Credit Agreement are true on and as of the date
hereof and (ii) no Default has occurred and is continuing on and as of the
date hereof.
<PAGE>
SECTION 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 6. EFFECTIVENESS. This Amendment shall become effective as of
the date hereof when the Agent shall have received from each of the Borrower
and Banks comprising the Required Banks a counterpart hereof duly signed by
such party or facsimile or other written confirmation (in form satisfactory
to the Agent) that such party has signed a counterpart hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
UNOVA, INC.
By: /s/ Lori J. Segale
-----------------------------------
Name: Lori J. Segale
Title: Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Robert Bottamedi
-----------------------------------
Name: Robert Bottamedi
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION
By: /s/ Gina M. West
-----------------------------------
Name: Gina M. West
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Jonathan Rollins
-----------------------------------
Name: Jonathan Rollins
Title: Assistant Vice President
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Lenard Weiner
-----------------------------------
Name: Lenard Weiner
Title: Managing Director
CIBC INC.
By: /s/ Stephanie E. DeVane
-----------------------------------
Name: Stephanie E. DeVane
Title: Executive Director
CIBC Oppenheimer Corp.,
as Agent.
THE FIRST NATIONAL BANK
OF CHICAGO
By: /s/ Mark A. Isley
-----------------------------------
Name: Mark A. Isley
Title: First Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ George V. Hausler
-----------------------------------
Name: George V. Hausler
Title: Vice President
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert N. Finney
-----------------------------------
Name: Robert N. Finney
Title: Managing Director
By: /s/ Thomas G. Muoio
-----------------------------------
Name: Thomas G. Muoio
Title: Vice President
DRESDNER BANK A.G., NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By: /s/ Thomas A. Esposito
-----------------------------------
Name: Thomas Esposito
Title: Assistant Treasurer
By: /s/ B. Craig Erickson
-----------------------------------
Name: B. Craig Erickson
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Masahito Fukuda
-----------------------------------
Name: Masahito Fukuda
Title: Joint General Manager
<PAGE>
MELLON BANK, N.A.
By: /s/ L. C. Ivey
-----------------------------------
Name: L. C. Ivey
Title: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ David J. Mitchell
-----------------------------------
Name: David J. Mitchell
Title: Second Vice President
<PAGE>
EXHIBIT 10.21
AMENDMENT NO. 1 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amendment No. 1 to Supplemental Executive Retirement Agreement
(this "Amendment"), made and entered into as of this 23rd day of September
1998, by and between UNOVA, Inc., a Delaware corporation (the "Company"), and
Alton J. Brann, its Chairman and Chief Executive Officer (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into a
certain Supplemental Executive Retirement Agreement dated as of October 31,
1997 (the "Retirement Agreement"), and
WHEREAS, the Company and the Executive deem it desirable that the
Retirement Agreement be amended as hereinafter set forth;
NOW THEREFORE, the Company and the Executive hereby agree as follows:
1. Section 2.6 of the Retirement Agreement is hereby amended so that
said Section 2.6 shall read in its entirety as follows:
SECTION 2.6. "BONUS" or "BONUSES" shall mean the full amount of the
bonus or similar cash incentive determined and awarded to the Executive by
the Committee (or any other body or individual having authority to award such
Bonus) with respect to any given fiscal year or portion thereof and shall be
deemed, for purposes of the calculation of Average Earnings, to have been
paid by the Company to the Executive in equal monthly installments during the
fiscal year or portion thereof with respect to which the Bonus was awarded
under Company-sponsored, formal or informal, incentive compensation or bonus
plans, excluding, however, any payments under stock-based option or award
plans; provided, however, that, for purposes of calculating Average Earnings
any portion of a Bonus, the payment of which is deferred at the election of
the Executive, shall be treated as having been paid in equal monthly
installments during the fiscal year or portion thereof with respect to which
the Bonus was awarded, notwithstanding such elected deferral, and payment of
the deferred portion shall be disregarded for purposes of calculating Average
Earnings. "Bonus or Bonuses" shall not include any bonus, commission or fee
paid to the Executive for the accomplishment of a particular non-ordinary
course transaction or circumstance as determined by the Committee prior to or
at the time of the award thereof.
2. Except as specifically amended hereby, each and every term of the
Retirement Agreement is hereby ratified, approved, and confirmed.
3. This Amendment shall be deemed effective for all purposes on and as
of the date hereof.
<PAGE>
4. This Amendment shall be governed by the laws of Delaware.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
UNOVA, INC.
By: _____________________________________
Title: __________________________________
_________________________________________
Alton J. Brann
-2-
<PAGE>
EXHIBIT 10.22
AMENDMENT NO. 1 TO UNOVA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, UNOVA, Inc. (the "Company") has previously adopted the UNOVA, Inc.
Supplemental Executive Retirement Plan (the "Plan"); and
WHEREAS, the Board of Directors of the Company deems it desirable that
the Plan be amended in the manner set forth hereinafter;
NOW THEREFORE, this Amendment No. 1 to the Plan is hereby adopted by the
Company with the following effect:
1. Section 2.7 of the Plan is hereby amended so that such Section 2.7 shall
read in its entirety as follows:
SECTION 2.7 "BONUS" or "BONUSES" shall mean the full amount of the bonus
or similar cash incentive determined and awarded by the Committee (or any
other body or individual having authority to award such Bonus) to a
Participant with respect to any given fiscal year or portion thereof and
shall be deemed, for purposes of the calculation of Average Earnings, to have
been paid by the Company to the Participant in equal monthly installments
during the fiscal year or portion thereof with respect to which the Bonus was
awarded (except, for a Retired Participant receiving a Retirement Benefit as
of the Distribution Date, Bonus or Bonuses shall mean gross cash payments of
Bonuses), under Company-sponsored, formal or informal, incentive compensation
or bonus plans, excluding, however, any payments under stock-based option or
award plans; provided, however, that, for purposes of calculating Average
Earnings any portion of a Bonus, the payment of which is deferred at the
election of the Participant, shall be treated as paid in equal monthly
installments during the fiscal year or portion thereof with respect to which
the Bonus was awarded, notwithstanding such elected deferral, and payment of
the deferred portion shall be disregarded for purposes of calculating Average
Earnings. "Bonus or Bonuses" shall not include any bonus, commission or fee
paid to a Participant for the accomplishment of a particular non-ordinary
course transaction or circumstance as determined by the Committee prior to or
at the time of the award thereof.
2. Except as specifically provided in this Amendment No. 1, each and every
provision of the Plan is hereby ratified, approved, and confirmed.
3. This Amendment No. 1 shall be deemed effective for all purposes on and as
of the date hereof, except that this Amendment No. 1 shall not be effective
with respect to any Participant who retired from the Company subsequent to
the Distribution Date and commenced receiving a Retirement Benefit under the
Plan prior to the date hereof.
4. This Amendment No. 1 shall be governed by the laws of Delaware except to
the extent preempted by ERISA.
<PAGE>
5. Capitalized terms used in this Amendment No. 1 and not defined herein
shall have the meaning assigned to such terms in the Plan.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be
executed by its duly authorized officers this 23rd day of September 1998.
UNOVA, INC.
WITNESS: _____________________________ By: _____________________________
Michael E. Keane
WITNESS: _____________________________ By: _____________________________
Charles A. Cusumano
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 28,947
<SECURITIES> 0
<RECEIVABLES> 497,468
<ALLOWANCES> 0
<INVENTORY> 218,744
<CURRENT-ASSETS> 882,450
<PP&E> 406,173
<DEPRECIATION> 193,158
<TOTAL-ASSETS> 1,585,873
<CURRENT-LIABILITIES> 638,031
<BONDS> 459,296
0
0
<COMMON> 547
<OTHER-SE> 648,874
<TOTAL-LIABILITY-AND-EQUITY> 1,585,873
<SALES> 1,084,315
<TOTAL-REVENUES> 1,084,315
<CGS> 705,496
<TOTAL-COSTS> 705,496
<OTHER-EXPENSES> 311,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,289
<INCOME-PRETAX> 51,209
<INCOME-TAX> 20,950
<INCOME-CONTINUING> 30,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,259
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
