<PAGE> 1
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, 2000
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
WOODLAND HILLS, CALIFORNIA 91367-7418
WWW.UNOVA.COM (Zip Code)
(Address of principal executive
offices and internet site)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 992-3000
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, 2000 there were 56,240,199 shares of Common Stock outstanding,
exclusive of treasury shares.
Page of 1 of 15
<PAGE> 2
UNOVA, INC.
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations (unaudited)
Nine Months ended September 30, 2000 and 1999 .............. 3
Consolidated Statements of Operations (unaudited)
Three Months Ended September 30, 2000 and 1999 ............. 4
Consolidated Balance Sheets (unaudited)
September 30, 2000 and December 31, 1999 .................. 5
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 2000 and 1999 .............. 6
Notes to Consolidated Financial Statements (unaudited) ....... 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ..... 13
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K ............................... 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNOVA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales and Service Revenues ............... $ 1,404,519 $ 1,491,198
------------ ------------
Costs and Expenses
Cost of sales and service ............ 1,065,295 1,058,809
Selling, general and administrative .. 309,102 327,753
Depreciation and amortization ........ 50,966 49,717
Interest, net ........................ 22,498 27,872
------------ ------------
Total Costs and Expenses ........... 1,447,861 1,464,151
------------ ------------
Other Income, Net ........................ 40,186
------------
Earnings (Loss) before Income Taxes ...... (3,156) 27,047
Benefit (Provision) for Income Taxes ..... 11,648 (10,819)
------------ ------------
Net Earnings ............................. $ 8,492 $ 16,228
============ ============
Basic and Diluted Earnings per Share ..... $ 0.15 $ 0.29
============ ============
Shares Used in Computing Basic
Earnings per Share ................... 55,659,915 55,048,453
Shares Used in Computing Diluted
Earnings per Share ................... 55,758,433 55,056,428
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
UNOVA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales and Service Revenues ..................... $ 439,460 $ 503,367
------------ ------------
Costs and Expenses
Cost of sales and service .................. 332,024 355,474
Selling, general and administrative ........ 104,698 106,317
Depreciation and amortization .............. 16,134 17,003
Interest, net .............................. 6,717 8,867
------------ ------------
Total Costs and Expenses ................. 459,573 487,661
------------ ------------
Earnings (Loss) before Income Taxes ............ (20,113) 15,706
Benefit (Provision) for Income Taxes ........... 12,835 (6,283)
------------ ------------
Net Earnings (Loss) ............................ $ (7,278) $ 9,423
============ ============
Basic and Diluted Earnings (Loss) per Share .... $ (0.13) $ 0.17
============ ============
Shares Used in Computing Basic
Earnings (Loss) per Share .................. 55,866,622 55,253,246
Shares Used in Computing Diluted
Earnings (Loss) per Share .................. 55,866,622 55,271,824
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ....................................... $ 11,709 $ 25,239
Accounts receivable, net ........................................ 501,023 596,885
Inventories, net of progress billings ........................... 261,948 310,175
Deferred tax assets ............................................. 71,483 158,170
Other current assets ............................................ 18,032 19,873
----------- -----------
Total Current Assets ......................................... 864,195 1,110,342
----------- -----------
Property, Plant and Equipment, at Cost ............................... 458,880 472,229
Less Accumulated Depreciation ........................................ (220,207) (201,330)
----------- -----------
Property, Plant and Equipment, Net .............................. 238,673 270,899
----------- -----------
Goodwill and Other Intangibles, Net .................................. 373,626 399,131
----------- -----------
Deferred Tax Assets .................................................. 62,487
-----------
Other Assets ......................................................... 135,734 123,167
----------- -----------
Total Assets ......................................................... $ 1,674,715 $ 1,903,539
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable and accrued expenses ........................... $ 329,118 $ 509,188
Payroll and related expenses .................................... 89,636 89,309
Notes payable and current portion of long-term obligations ...... 13,510 64,002
----------- -----------
Total Current Liabilities .................................... 432,264 662,499
----------- -----------
Long-term Obligations ................................................ 414,013 365,386
----------- -----------
Deferred Tax Liabilities ............................................. 44,777
-----------
Other Long-term Liabilities .......................................... 98,945 99,577
----------- -----------
Commitments and Contingencies ........................................
Shareholders' Investment
Common stock .................................................... 562 556
Additional paid-in capital ...................................... 657,021 652,157
Retained earnings ............................................... 99,752 91,260
Accumulated other comprehensive loss -
cumulative currency translation adjustment ................... (27,842) (12,673)
----------- -----------
Total Shareholders' Investment ............................... 729,493 731,300
----------- -----------
Total Liabilities and Shareholders' Investment ....................... $ 1,674,715 $ 1,903,539
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
UNOVA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash and Cash Equivalents at Beginning of Period .......................... $ 25,239 $ 17,708
--------- ---------
Cash Flows from Operating Activities:
Net earnings ......................................................... 8,492 16,228
Adjustments to reconcile net earnings to net
cash used in operating activities:
Gain on sale of business .......................................... (44,686)
Depreciation and amortization ..................................... 50,966 49,717
Change in prepaid pension costs, net .............................. (12,626) (11,901)
Deferred taxes .................................................... (19,950) 1,727
Proceeds from the sale of accounts receivable ..................... 84,000
Changes in operating assets and liabilities:
Accounts receivable ............................................. 79,271 (54,451)
Inventories ..................................................... 34,520 16,616
Other current assets ............................................ 1,671 (5,767)
Accounts payable and accrued expenses ........................... (170,664) (107,658)
Payroll and related expenses .................................... (3,086) (5,696)
Other operating activities ........................................ (13,612) 9,714
--------- ---------
Net Cash Used in Operating Activities ........................... (89,704) (7,471)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of business ....................................... 88,000
Capital expenditures ................................................. (27,298) (46,936)
Proceeds from sale of property, plant and equipment .................. 8,897 2,869
Changes in other assets .............................................. 1,225 9,395
Other investing activities ........................................... 3,920 3,784
--------- ---------
Net Cash Provided by (Used in) Investing Activities ............. 74,744 (30,888)
--------- ---------
Cash Flows from Financing Activities:
Net increase (decrease) in notes payable and credit facilities ....... (1,927) 20,588
Other financing activities ........................................... 3,357 3,300
--------- ---------
Net Cash Provided by Financing Activities ....................... 1,430 23,888
--------- ---------
Resulting Decrease in Cash and Cash Equivalents ........................... (13,530) (14,471)
--------- ---------
Cash and Cash Equivalents at End of Period ................................ $ 11,709 $ 3,237
========= =========
Supplemental disclosure of cash flow information:
Interest paid ........................................................ $ 27,286 $ 30,508
Income taxes paid .................................................... $ 9,412 $ 3,408
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
UNOVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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.
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 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, 1999. The results of operations for the interim periods
presented are not necessarily indicative of operating results for the
entire year.
2. Inventories, net of progress billings consisted of the following
(thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials and work in process ........... $ 270,671 $ 289,656
Finished goods .............................. 27,333 44,336
Less progress billings ...................... (36,056) (23,817)
--------- ---------
Inventories, net of progress billings ....... $ 261,948 $ 310,175
========= =========
</TABLE>
3. Interest, net was composed of the following (thousands of dollars):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense ...... $ 24,540 $ 28,571 $ 7,563 $ 9,052
Interest income ....... (2,042) (699) (846) (185)
-------- -------- -------- --------
Interest, net ......... $ 22,498 $ 27,872 $ 6,717 $ 8,867
======== ======== ======== ========
</TABLE>
4. Basic earnings (loss) per share is calculated using the weighted average
number of common shares outstanding and issuable for the applicable
period. Diluted earnings (loss) per share is computed using basic weighted
average shares plus the dilutive effect of unvested restricted shares and
outstanding stock options using the "treasury stock" method.
7
<PAGE> 8
UNOVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. (continued)
Shares used for basic and diluted earnings (loss) per share were computed
as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average shares ............... 55,659,915 55,048,453 55,866,622 55,253,246
Dilutive effect of unvested restricted
shares and stock options .................. 98,518 7,975 18,578
---------- ---------- ---------- ----------
Diluted weighted average shares ............. 55,758,433 55,056,428 55,866,622 55,271,824
========== ========== ========== ==========
</TABLE>
At September 30, 2000 and 1999, Company employees and directors held
options to purchase 5,396,500 and 4,203,000 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. For the three months ended
September 30, 2000, diluted weighted average shares exclude 294,796
weighted average unvested restricted shares due to the Company reporting a
net loss.
5. The Company's comprehensive income (loss) amounts were computed as
follows (thousands of dollars):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) ...................... $ 8,492 $ 16,228 $ (7,278) $ 9,423
Change in equity due to foreign
currency translation adjustments ...... (15,169) (4,647) (6,876) 3,318
-------- -------- -------- --------
Comprehensive income (loss) .............. $ (6,677) $ 11,581 $(14,154) $ 12,741
======== ======== ======== ========
</TABLE>
6. 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 or loss, which
is defined as earnings or loss before income taxes and net interest
expense, to evaluate performance.
Corporate and other amounts include corporate operating costs and currency
transaction gains and losses. There were no material intersegment
transactions.
8
<PAGE> 9
UNOVA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. (continued)
Operations by Segment
(millions of dollars)
<TABLE>
<CAPTION>
Integrated Advanced
Automated Production Manufacturing Corporate
Data Systems Systems Equipment and Other Total
------------- ------------ ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30:
Sales and service revenues ........... 2000 $ 560.9 $ 643.3 $ 200.3 $1,404.5
1999 630.8 637.4 223.0 1,491.2
Operating profit (loss) .............. 2000 0.5(a) 40.1 2.2 $ (23.5) 19.3
1999 15.2 57.3 4.6 (22.2) 54.9
Three Months Ended September 30:
Sales and service revenues ........... 2000 161.9 213.7 63.9 439.5
1999 212.3 223.9 67.1 503.3
Operating profit (loss) .............. 2000 (21.9) 16.6 (1.2) (6.9) (13.4)
1999 4.9 24.6 3.1 (8.0) 24.6
</TABLE>
(a) Includes net other income of $40.2 million.
7. 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. Rental expense under the provisions
of this lease was $0.8 million and $0.3 million for the nine and three
month periods ended September 30, 2000, respectively. Rental expense for
the nine and three month periods ended September 30, 1999 was $0.6 million
and $0.2 million, respectively.
8. Net other income of $40.2 million is comprised of a one-time gain from the
sale of the ADS segment's Amtech transportation systems operations
("Amtech"), partially offset by severance charges related to the ADS
segment's North American manufacturing activities.
In June 2000, the Company sold Amtech and received preliminary cash
proceeds of approximately $88 million. The net assets and results of
operations of Amtech are not material to the Company's consolidated
financial statements for all periods presented.
9. During the third quarter of 2000, the Company significantly increased its
annual effective tax rate to reflect its expectation of additional net
operating losses for the fiscal year.
9
<PAGE> 10
ITEM 2. 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 ("IPS") and Advanced Manufacturing Equipment
("AME"). Sales and service revenues and segment operating profit (loss) for the
nine and three months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS) (THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
SALES AND SERVICE REVENUES
Automated Data Systems $ 560,881 $ 630,761 $ 161,863 $ 212,335
Industrial Automation Systems:
Integrated Production Systems 643,351 637,470 213,665 223,909
Advanced Manufacturing Equipment 200,287 222,967 63,932 67,123
----------- ----------- ----------- -----------
Total Sales and Service Revenues $ 1,404,519 $ 1,491,198 $ 439,460 $ 503,367
=========== =========== =========== ===========
SEGMENT OPERATING PROFIT (LOSS)
Automated Data Systems $ (39,693)(a) $ 15,170 $ (21,905) $ 4,855
Industrial Automation Systems:
Integrated Production Systems 40,064 57,361 16,639 24,645
Advanced Manufacturing Equipment 2,257 4,571 (1,253) 3,109
----------- ----------- ----------- -----------
Segment Operating Profit (Loss) $ 2,628 $ 77,102 $ (6,519) $ 32,609
=========== =========== =========== ===========
</TABLE>
(a) excludes net other income of $40,186
Sales and Service Revenues and Segment Operating Profit (Loss)
Total sales and service revenues for the nine months ended September 30, 2000
were $1,404.5 million, a decrease of $86.7 million, or 6%, from the
corresponding prior year period. Total segment operating profit of $2.6 million
for the nine months ended September 30, 2000 represents a decrease of $74.5
million, or 97%, compared to the corresponding prior year period.
For the three months ended September 30, 2000, total sales and service revenues
of $439.5 million represents a decrease of $63.9 million, or 13%, compared with
the corresponding prior year quarter. For the three months ended September 30,
2000, the Company reported a total segment operating loss of $6.5 million,
compared to total segment operating profit of $32.6 million for the
corresponding prior year quarter.
Automated Data Systems: ADS segment revenues decreased $69.9 million, or 11%,
for the nine months ended September 30, 2000, and $50.5 million, or 24%, for the
three months ended September 30, 2000, compared to the corresponding prior year
periods. The decrease in sales reflects the sale of the segment's Amtech
transportation systems operations ("Amtech") in June 2000 and lower sales volume
for the Company's Intermec subsidiary. Average quarterly revenue for Amtech was
$20 million. The Intermec sales decline was caused primarily by continuing
weakness in the Direct Store Delivery (DSD) market and sales force disruption as
the Company's Intermec subsidiary shifts from a geographic sales orientation to
a named-account/vertical marketing structure. As a result of its 1999 ERP system
issues and sales force disruption, Intermec has not participated in its overall
market growth.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
For the nine and three months ended September 30, 2000, ADS reported segment
operating losses of $39.7 million and $21.9 million, respectively, compared to
segment operating profit of $15.2 million and $4.9 million in the corresponding
prior year periods. The significant operating losses during 2000 result from
lower Intermec sales volume which contributed insufficient margin to cover
overhead and selling, general and administrative expenses.
Integrated Production Systems: IPS segment revenues increased $5.9 million, or
1%, and decreased $10.2 million, or 5%, for the nine and three months ended
September 30, 2000, respectively, compared to the corresponding prior year
periods. The year-to-date revenue comparison reflects strong domestic activity
for the segment's body and assembly and precision grinding operations during the
first half of the year, substantially offset by declines in foreign sales due to
weakness in UK markets. Third quarter 2000 revenues also reflect lower revenues
for the body and assembly operations as customer contracts are in their early
stages of completion. Related operating profit decreased $17.3 million, or 30%,
for the nine months ended September 30, 2000, and $8.0 million, or 32%, for the
three months ended September 30, 2000 compared with the corresponding prior year
periods. The IPS operating profit decline was attributed to higher installation
and integration costs during the third quarter 2000 for the segment's machining
systems operations and foreign losses incurred during the first half of 2000 due
to unabsorbed costs. IPS backlog decreased from $627.7 million at December 31,
1999 to $539.1 million at September 30, 2000 due to an increase in project
delays by automotive customers. The Company believes that the bookings trend for
large machining systems will not improve for the remainder of this year, leading
to lower sales in 2001.
Advanced Manufacturing Equipment: AME segment revenues decreased $22.7 million,
or 10%, and $3.2 million, or 5%, for the nine and three months ended September
30, 2000, compared to the corresponding prior year periods, respectively. The
decrease in revenues reflects continued weakness in the aerospace-related
general machine tool market. AME reported operating profit of $2.2 million for
the nine months ended September 30, 2000, compared to $4.6 million for the
corresponding prior year period. For the 2000 third quarter, AME reported an
operating loss of $1.2 million compared to an operating profit of $3.1 million
for the third quarter of 1999. The loss for the third quarter of 2000 is due
primarily to lower sales and backlog levels and the corresponding impact on
margins due to unabsorbed fixed costs and costs related to a significant trade
show held this quarter. AME backlog decreased from $102.5 million at December
31, 1999 to $66.1 million at September 30, 2000.
Costs and Expenses
Cost of sales increased $6.5 million to $1,065.3 million for the nine months
ended September 30, 2000 from $1,058.8 million for the nine months ended
September 30, 1999. Cost of sales decreased $23.5 million to $332.0 million for
the three months ended September 30, 2000 from $355.5 million for the three
months ended September 30, 1999. Cost of sales as a percentage of sales
increased to 76% for each of the nine and three month periods ended September
30, 2000, respectively, from 71% in each of the corresponding periods in the
prior year. The increase in costs of sales as a percentage of sales is due to
the above-mentioned factors contributing to fluctuations in segment operating
profit and IPS comprising a greater percentage of the Company's total operations
in 2000.
Selling, general and administrative expenses ("SG&A") decreased $18.7 million to
$309.1 million for the nine months ended September 30, 2000, from $327.8 million
for the nine months ended September 30, 1999. SG&A decreased $1.6 million to
$104.7 million for the three months ended September 30, 1999, from $106.3
million for the three months ended September 30, 1999. The decrease in SG&A
represents lower commission and selling expenses due primarily to the decline in
sales from the prior year. SG&A as a percentage of sales was 22% and 24% for the
nine and three months periods ended September 30, 2000, respectively. For the
nine and three months periods ended September 30, 1999, SG&A as a percentage of
sales was 22% and 21%, respectively.
Depreciation and amortization expense increased to $51.0 million for the nine
months ended September 30, 2000 from $49.7 million for the corresponding period
in the prior year due to an increase in the machinery and equipment component of
fixed assets. Depreciation and amortization expense decreased to $16.1 million
for the three months ended September 30, 2000 from $17.0 million for the
corresponding period in the prior year due to the sale of Amtech.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net interest expense was $22.5 million and $27.9 million for the nine months
ended September 30, 2000 and 1999, respectively, and $6.7 million and $8.9
million for the three months ended September 30, 2000 and 1999, respectively.
The decrease was attributable to lower outstanding debt during the nine months
and three months ended September 30, 2000 as compared to the same periods in
1999, partially offset by the effect of increased interest rates.
Other Income, Net
Net other income of $40.2 million is comprised of a one-time gain from the sale
of Amtech, partially offset by severance charges related to the ADS segment's
North American manufacturing activities.
In June 2000, the Company sold Amtech and received preliminary cash proceeds of
approximately $88 million which were used to repay outstanding borrowings. The
net assets and results of operations of Amtech are not material to the Company's
consolidated financial statements for all periods presented.
Provision for Income Taxes
During the third quarter of 2000, the Company significantly increased its annual
effective tax rate to reflect its expectation of additional net operating losses
for the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities decreased to $11.7 million at September 30, 2000
from $25.2 million at December 31, 1999.
Total debt decreased to $427.5 million at September 30, 2000 from $429.4 million
at December 31, 1999. The total debt balance at September 30, 2000 includes
$198.7 million outstanding under the Company's unsecured credit facility. The
repayment of debt with the proceeds from the sale of Amtech was substantially
offset by additional borrowings for normal capital expenditures and working
capital needs of the Company.
The Company sells interests in a revolving pool of its trade accounts receivable
to a financial institution which issues short-term debt backed by receivables
acquired in similar transactions. At September 30, 2000 and December 31, 1999
net proceeds of $90.5 million and $100.0 million, respectively, have been
reflected as a reduction of accounts receivable on the consolidated balance
sheets. Costs associated with the asset securitization agreements are classified
as selling, general and administrative expenses. For the nine and three month
periods ended September 30, 2000, such costs were $5.1 million and $1.7 million,
respectively, and for the nine and three month periods ended September 30, 1999,
costs were $1.1 million and $1.0 million, respectively.
As of September 30, 2000, the Company was in compliance with the restrictive
covenants of its financing agreements. However, to provide ongoing financial
flexibility under these covenants, the Company has begun discussions with banks
to amend or replace its financing agreements prior to year end. While no
assurances can be given as to the ultimate outcome of these negotiations, it is
expected that any new financing arrangement will carry higher financing costs
and be secured by certain of the Company's assets.
Management believes that the Company's operations and current and anticipated
financing agreements will provide adequate liquidity to meet expected working
capital and capital expenditure requirements for the next 12 months.
During the second quarter of 2000, the Company engaged Credit Suisse First
Boston to analyze and advise management on strategic alternatives to accelerate
value generation for the Company's stakeholders.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities (a replacement of FASB
Statement No. 125). This statement revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of Statement 125's
provisions without reconsideration. The Company is currently evaluating the
impact of adopting SFAS No. 140.
In June 2000, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101B, Second Amendment - Revenue Recognition in Financial
Statements, that defers the effective date of Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
believes the adoption of SAB 101 will not have a material impact on its revenue
recognition practices.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7 of the Company's annual report on Form 10-K for the year ended December
31, 1999 contains a complete discussion of the Company's material exposures to
interest rate and foreign exchange rate risks.
At September 30, 2000, the fair value of the Company's $200 million fixed
interest rate debentures was approximately $90 million compared to $168 million
at December 31, 1999. The decrease in fair value reflects recent credit agency
ratings.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that included in this quarterly report are certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities 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 market outlook, the Company's
ability to meet its working capital and capital expenditure requirements, the
outcome of financing negotiations, the impact of new accounting pronouncements,
and the Company's ability to implement any strategic alternatives that
accelerate value generation for its stakeholders. 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. This report should be read in
conjunction with the Company's Annual Report on Form 10-K which contains a
fuller discussion of such risks, uncertainties, and assumptions. 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.
13
<PAGE> 14
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, 2000.
(b) See Exhibit Index included herein on page E-1.
14
<PAGE> 15
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 13, 2000
15
<PAGE> 16
UNOVA, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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<S> <C>
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, filed as Exhibit 4.5 to the Company's 1999
Annual Report on Form 10-K, and incorporated herein by reference.
4.6 Amendment No. 5 and Waiver to the $400,000,000 Credit Agreement
dated October 20, 2000.*
4.7 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.
4.8 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.
4.9 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.
</TABLE>
E-1
<PAGE> 17
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
4.10 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.
4.11 $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.
4.12 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, filed as
Exhibit 4.11 to the Company's 1999 Annual Report on Form 10-K,
and incorporated herein by reference.
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.
4.13 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.
4.14 Amendment No. 1 to the Transfer and Administration Agreement
dated September 15, 1999, filed as Exhibit 4.13 to the Company's
1999 Annual Report on Form 10-K, and incorporated herein by
reference.
4.15 Amendment No. 2 to the Transfer and Administration Agreement
dated December 15, 1999, filed as Exhibit 4.14 to the Company's
1999 Annual Report on Form 10-K, and incorporated herein by
reference.
4.16 Amendment No. 3 to the Transfer and Administration Agreement
dated June 16, 2000, filed as Exhibit 4.15 to the Company's June
30, 2000 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.17 Amendment No. 4 and Waiver to the Transfer and Administration
Agreement dated August 30, 2000.*
4.18 Amendment No. 5 and Waiver to the Transfer and Administration
Agreement dated October 20, 2000.*
4.19 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.
4.20 Amendment No.1 to the Receivable Purchase Agreement dated
December 15, 1999, filed as exhibit 4.16 to the Company's 1999
Annual Report on Form 10-K, and incorporated herein by reference.
</TABLE>
E-2
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INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
4.21 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, Larry D. Brady 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 and certain
other officers of the Company, filed as Exhibit 10.6 to the
Company's 1999 Annual Report on Form 10-K, and incorporated
herein by reference.
10.7 Form of Change of Control Employment Agreement with certain
officers of the Company, filed as Exhibit 10.7 to the Company's
1999 Annual Report on Form 10-K, and incorporated herein by
reference.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
</TABLE>
E-3
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INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
10.13 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.
10.14 Amendment No. 3 to UNOVA, Inc. Supplemental Executive Retirement
Plan, dated March 15, 2000, filed as Exhibit 10.20 to the
Company's 1999 Annual Report on Form 10-K, and incorporated
herein by reference.
10.15 Amendment No. 4 to UNOVA, Inc. Supplemental Executive Retirement
Plan, dated July 11, 2000, filed as Exhibit 10.15 to the
Company's June 30, 2000 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.16 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.
10.17 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.
10.18 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.
10.19 Amendment No. 3 to Supplemental Executive Retirement Agreement
between UNOVA, Inc. and Alton J. Brann, dated March 15, 2000,
filed as Exhibit 10.24 to the Company's March 31, 2000 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.20 Supplemental Executive Retirement Plan between UNOVA, Inc. and
Larry D. Brady dated March 15, 2000, filed as Exhibit 10.25 to
the Company's 1999 Annual Report on Form 10-K, and incorporated
herein by reference.
10.21 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.
10.22 UNOVA, Inc. Executive Severance Plan (As Amended November 18,
1999), filed as Exhibit 10.31 to the Company's 1999 Annual Report
on Form 10-K, and incorporated herein by reference.
10.23 Board resolution dated July 25, 2000 amending the UNOVA, Inc.
Executive Severance Plan, filed as Exhibit 10.23 to the Company's
June 30, 2000 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.24 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.
10.25 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.
10.26 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.
</TABLE>
E-4
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INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<S> <C>
10.27 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.
10.28 UNOVA, Inc. Management Incentive Compensation Plan, filed as
Annex B to the Company's 1999 Proxy Statement, and incorporated
herein by reference.
10.29 UNOVA, Inc. Group Executive Medical Benefit Plan, filed as
Exhibit 10.37 to the Company's 1999 Annual Report on Form 10-K,
and incorporated herein by reference.
10.30 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 ("Brady Employment Offer"), filed as Exhibit
10.32 to the Company's June 30, 1999 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.31 Agreement of Amendment dated June 22, 2000, to Brady Employment
Offer, filed as Exhibit 10.31 to the Company's June 30, 2000
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.32 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.
10.33 Amendment No. 1 to the Restricted Stock Agreement between UNOVA,
Inc. and Larry D. Brady, dated June 22, 2000, filed as Exhibit
10.33 to the Company's June 30, 2000 Quarterly Report on Form
10-Q, and incorporated herein by reference.
27 Financial Data Schedule (filed only electronically with the
Securities and Exchange Commission). *
</TABLE>
* Copies of these documents are included in this Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission.
E-5
