<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
UNOVA, INC.
----------
(Name of Registrant as Specified In Its Charter)
----------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
And 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[UNOVA LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 2000
The Annual Meeting of Shareholders of UNOVA, Inc., a Delaware corporation, will
be held at 1:00 p.m. on Thursday, May 11, 2000, at the Woodland Hills Hilton and
Towers at Warner Center, 6360 Canoga Avenue, Woodland Hills, California, for the
following purposes:
- - To elect three Class II directors for a three-year term; and
- - To transact such other business as may properly come before the meeting or any
postponement or adjournment thereof.
Shareholders of record at the close of business on March 13, 2000, are entitled
to receive notice of and to vote at the meeting. A complete list of such
shareholders will be open for examination by any shareholder for any purpose
germane to the meeting during normal business hours at the offices of UNOVA at
21900 Burbank Boulevard, Third Floor, Woodland Hills, California, for a period
of ten days prior to the meeting.
Shareholders are urged to vote their proxies promptly, whether or not they
expect to attend the meeting in person. Unless the enclosed form of proxy
provides otherwise, each UNOVA shareholder can vote (1) on the Internet, (2) by
a toll-free telephone call to 1.800.840.1208 from the U.S. or Canada, or (3) by
signing and mailing the proxy in the enclosed envelope. Specific instructions to
be followed by any registered shareholder interested in voting on the Internet
or by telephone are set forth on the enclosed proxy.
By order of the Board of Directors,
Virginia S. Young
Vice President and Secretary
March 29, 2000
Woodland Hills, California
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 1
Voting at the Meeting....................................... 1
Proxies and Proxy Solicitation.............................. 1
Board of Directors.......................................... 2
Meetings and Committees of the Board................... 4
Directors' Compensation and Retirement Policies........ 5
Director Stock Option and Fee Plan..................... 5
Information Regarding Compensation and Certain 7
Transactions..............................................
Summary Compensation Table............................. 7
Stock Option Information............................... 10
Change of Control Employment Agreements................ 12
Retirement Benefits.................................... 12
Certain Relationships and Related Transactions......... 17
Report of the Compensation Committee on Executive 17
Compensation..............................................
Stock Performance Graph..................................... 22
Security Ownership by Certain Beneficial Owners and 23
Management................................................
By Management.......................................... 23
By Others.............................................. 24
Filing of Reports Under Section 16(a) of the Exchange Act... 25
Shareholder Proposals for 2001 Annual Meeting............... 25
Supplement to the Proxy Statement
Consolidated and Combined Financial Statements;
Management's Discussion and Analysis; Selected F-i
Financial Data........................................
Directors and Officers of UNOVA, Inc.................. back cover
</TABLE>
i
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UNOVA, INC.
21900 BURBANK BOULEVARD, WOODLAND HILLS, CA 91367-7418
-------------------------------------
PROXY STATEMENT
-------------------------------------
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of UNOVA, Inc. ("UNOVA") to be used at the Annual
Meeting of Shareholders of UNOVA to be held on May 11, 2000, and at any
postponement or adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting. This proxy statement is first being
mailed to shareholders of UNOVA on or about March 29, 2000.
UNOVA was incorporated in Delaware on August 13, 1997, and operated as a
subsidiary of Western Atlas Inc. ("Western Atlas"), until October 31, 1997, when
Western Atlas effected a pro rata distribution of all of UNOVA's outstanding
shares of common stock as a dividend to the holders of Western Atlas common
stock on a one-for-one basis (the "Distribution"). UNOVA has operated as an
independent, publicly held entity since the Distribution.
VOTING AT THE MEETING
The record date for voting at the Annual Meeting is the close of business on
March 13, 2000. As of the record date, UNOVA had outstanding 55,551,929 shares
of its common stock, par value $.01 per share ("Common Stock" or "UNOVA Common
Stock"), not including treasury shares, which may not be voted. The holders of
the outstanding Common Stock, which is UNOVA's only outstanding class of voting
security, will be voting on all matters currently scheduled to be acted upon at
the 2000 Annual Meeting, with each share entitled to one vote.
The holders of a majority of the issued and outstanding shares of Common Stock
represented in person or by proxy at the Annual Meeting of Shareholders will
constitute a quorum for the transaction of business at the meeting. The
inspector of election appointed for the meeting will determine the existence of
a quorum and will tabulate the votes cast at the meeting. Shareholders may
withhold authority to vote for one or more of the nominees for director and may
abstain on one or more of any other matters that may come before the meeting.
Shares for which authority is withheld or for which abstentions are indicated
will be counted as present for purposes of determining whether a quorum is
present. Directors are elected by a plurality of the shares represented in
person or by proxy at the meeting; votes withheld will be excluded entirely from
the vote and will have no effect. If a broker indicates on a proxy that such
broker does not have discretionary authority to vote on a particular matter,
under applicable Delaware law those shares will be counted as present for
purposes of determining the presence of a quorum, but will not be counted as
votes cast on the matter and will have no effect on the outcome of the vote on
such matter.
PROXIES AND PROXY SOLICITATION
All shares of Common Stock represented by properly executed proxies will be
voted at the Annual Meeting in accordance with the directions marked on the
proxies, unless such proxies previously have been revoked. If no directions are
indicated on such proxies, they will be voted FOR the election of the three
nominees named below under "BOARD OF DIRECTORS." If any other matters, not
presently anticipated, are properly presented at the meeting for action, the
proxy holders will vote the proxies (which confer discretionary authority upon
such holders to vote on such matters) in accordance with their best judgment.
Each proxy executed and returned by a shareholder may be revoked at any time
before it is voted by the timely submission of a written notice of revocation or
by the submission of a duly executed proxy bearing a later date, in either case
directed to ChaseMellon Shareholder Services, L.L.C.,
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Attention: Norma Cianfaglione, 600 Willowtree Road, Leonia, New Jersey 07605,
or, if a shareholder is present at the meeting, he or she may elect to revoke
his or her proxy and vote his or her shares personally.
In addition to solicitation by mail, certain directors, officers, and other
employees of UNOVA, not specially employed for this purpose, may solicit
proxies, without additional remuneration therefor, by personal interview, mail,
telephone, telegram, facsimile transmission, or electronic mail. UNOVA will
reimburse brokerage firms, banks, and other holders of record for their
reasonable out-of-pocket expenses in forwarding proxy material to the beneficial
owners of Common Stock or otherwise in connection with this solicitation of
proxies. UNOVA has retained Georgeson Shareholder Communications Inc. to assist
in the solicitation for a fee of $6,500, in addition to reimbursement by UNOVA
of the expenses and disbursements of that firm.
BOARD OF DIRECTORS
The Board of Directors currently has ten members. The Board is divided into
three classes, with each director normally elected to serve a three-year term
and one full class of directors to be elected at each Annual Meeting.
Paul Bancroft, III, Steven B. Sample, and William D. Walsh, incumbent Class II
directors whose terms are currently scheduled to expire at the 2000 Annual
Meeting, have been nominated for reelection as Class II directors for three-year
terms.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF MESSRS.
BANCROFT AND WALSH AND DR. SAMPLE TO THE UNOVA BOARD OF DIRECTORS.
Set forth below is information regarding the age, business experience, and Board
Committee membership as of March 15, 2000, of the nominees for election, as well
as information about the directors whose terms of office do not expire this
year. Each nominee has consented to being named as such in this proxy statement
and has agreed to serve if elected. If, as a result of circumstances not
presently known, any of such nominees shall be unable to serve as a director,
proxies will be voted for the election of such other person or persons as the
Board of Directors may select, or the number of authorized directors may be
reduced.
- --------------------------------------------------------------------------------
NOMINEES FOR DIRECTORS WITH TERMS TO EXPIRE IN 2003
- --------------------------------------------------------------------------------
PAUL BANCROFT, III, age 70. Mr. Bancroft is an independent venture capitalist
and a consultant. He has been a director of UNOVA since September 23, 1998, and
is a member of the Compensation Committee.
Mr. Bancroft was President, Chief Executive Officer, and a director of Bessemer
Securities Corporation from 1976 until 1988.
STEVEN B. SAMPLE, age 59. Dr. Sample has been President of the University of
Southern California since 1991. He has been a director of UNOVA since October
31, 1997, and is a member of the Audit and Compliance Committee.
From 1982 to 1991, Dr. Sample was President of the State University of New York
at Buffalo. He is a director of Advanced Bionics Corporation, the Wm. Wrigley
Jr. Company, the Santa Catalina Island Company, the AMCAP Fund, Inc., and the
American Mutual Fund, Inc. Dr. Sample is also Chairman of the Association of
Pacific Rim Universities and is a trustee of the University of Southern
California and of the Regenstreif Medical Foundation and Institute.
WILLIAM D. WALSH, age 69. Mr. Walsh has been Chairman of Sequoia Associates LLC,
a private investment firm, since 1998. He has been a director of UNOVA since
October 31, 1997, and is a member of the Compensation Committee.
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Mr. Walsh was previously a General Partner of Sequoia Associates since 1982. He
is Chairman of Clayton Group, Inc., Consolidated Freightways Corporation, Newell
Industrial Corporation, and Newell Manufacturing Corporation. He is a director
of Basic Vegetable Products, L.P., Crown Vantage, Inc., URS Corporation, Bemiss
Jason Inc., Ameriscape, Inc., and the American Ireland Fund. Mr. Walsh is also
Chairman of the Neurosciences Research Foundation, Inc., Co-Chair of the Dean's
Advisory Board of Harvard Law School, a trustee of Fordham University, and a
member of the Board of Overseers, Hoover Institution at Stanford University.
- --------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 2002
- --------------------------------------------------------------------------------
STEPHEN E. FRANK, age 58. Mr. Frank is Chairman, President, and Chief Executive
Officer of Southern California Edison Company, a subsidiary of Edison
International. He has been a director of UNOVA since October 31, 1997, and is
Chair of the Audit and Compliance Committee.
Mr. Frank was President and Chief Operating Officer of Southern California
Edison from 1995 to January 2000, when he assumed his present position. Mr.
Frank is also a director of Edison International, Southern California Edison,
Washington Mutual, Inc., and Associated Electric & Gas Insurance Services
Limited. He is also a member of the Board of the Los Angeles Area Chamber of
Commerce, the Los Angeles Philharmonic Association, the United Way of Greater
Los Angeles, and the California Chamber of Commerce. Mr. Frank is Chairman of
the Business Industry Political Action Committee.
CLAIRE W. GARGALLI, age 57. Ms. Gargalli was Vice Chairman of Diversified Search
Companies (executive search consultants) from 1990 until her retirement from
that position in 1998. She has been a director of UNOVA since September 23,
1998, and is a member of the Audit and Compliance Committee.
Ms. Gargalli is a director of Praxair, Inc. and Baker Hughes Incorporated. She
is also a trustee of Carnegie Mellon University and of Middlebury College.
ORION L. HOCH, age 71. Dr. Hoch has been Chairman Emeritus of Litton Industries,
Inc. since 1994. He has been a director of UNOVA since October 31, 1997, and is
Chair of the Compensation Committee. Dr. Hoch was Chairman of the Board of
Litton Industries, Inc. from 1988 until 1994. He is a director of Litton, The
Bessemer Group, Inc., and Bessemer Trust Companies. He is also an emeritus life
trustee of Carnegie Mellon University.
- --------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE WHOSE TERMS EXPIRE IN 2001
- --------------------------------------------------------------------------------
LARRY D. BRADY, age 57. Mr. Brady has been President and Chief Operating Officer
of UNOVA since August 2, 1999, and was elected a director on September 29, 1999.
Mr. Brady previously served as President of FMC Corporation. He joined FMC in
1978 and held a variety of positions with that company. Mr. Brady served as
General Manager of FMC's Agricultural Chemical Group from 1983 to 1988, became
head of Corporate Development in 1988, and assumed responsibility for the
company's FoodTech, Transportation Equipment, and Energy Systems Groups in 1989.
He was elected a Vice President of FMC in 1984, an Executive Vice President and
a director in 1989, and President in 1993.
Mr. Brady is a director of Pactiv Corporation and is a member of the Advisory
Board of Northwestern University's Kellogg School of Management, the Board of
Trustees of the National Merit Scholarship Corporation, and the Executive
Committee of the National Association of Manufacturers.
ALTON J. BRANN, age 58. Mr. Brann has been Chairman of the Board and Chief
Executive Officer and a director of UNOVA since August 13, 1997.
Mr. Brann served as Chairman of the Board and Chief Executive Officer of Western
Atlas Inc. from 1994 until 1997, when he assumed the same positions with UNOVA.
Prior thereto, Mr. Brann was President and Chief Executive Officer of Litton
Industries, Inc.
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Mr. Brann is presently a director of Litton Industries, Inc., where he also
serves as Chairman of the Executive Committee. He is a member of the Board of
Overseers of the Executive Council on Diplomacy and of the President's Cabinet
of California Polytechnic State University at San Luis Obispo. Mr. Brann is also
Chairman of the Board of Governors of Town Hall Los Angeles, a director of the
Los Angeles World Affairs Council, a board member and past Chairman of the Los
Angeles Area Council of the Boy Scouts of America, a senior member of the
Institute of Electrical and Electronics Engineers, and a trustee and member of
the Executive Committee of the Manufacturers Alliance.
JOSEPH T. CASEY, age 68. Mr. Casey is retired Vice Chairman and Chief Financial
Officer of Western Atlas Inc. Mr. Casey has been a director of UNOVA since
September 23, 1998, and is a member of the Audit and Compliance Committee.
Mr. Casey served as Vice Chairman and Chief Financial Officer of Western Atlas
Inc. from 1994 until his retirement in September 1996. Previously he held the
same positions at Litton Industries, Inc. He is a director of Baker Hughes
Incorporated, Litton Industries, Inc., and Pressure Systems, Inc. Mr. Casey is a
member of the Board of Trustees of Claremont McKenna College and of the Don
Bosco Technical Institute. He is also a member of the Board of Overseers of the
Center for Russia and Asia of the Rand Corporation.
WILLIAM C. EDWARDS, age 71. Mr. Edwards is a partner of Bryan and Edwards, a
venture capital investment firm, and a general partner of Banner Partners and
Ritter Partners. He has been a director of UNOVA since November 19, 1998, and is
a member of the Compensation Committee.
Mr. Edwards is Chairman of Xeruca Corporation and a director of Trust Company of
the West and CellNet Data Systems. He is a member of the Board of Overseers and
Executive Committee of the Hoover Institution at Stanford University, a member
of the Advisory Committee of the Stanford Institute for Economic Policy
Research, an associate of the Stanford Center for International Security and
Arms Control, and a member of the Board of Governors of the San Francisco
Symphony. Mr. Edwards is also an emeritus trustee of Scripps College and
Deerfield Academy.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of UNOVA met eight times during 1999 (one of these
meetings was by telephone) with an average attendance record of 94.5%. The Board
also acted on two occasions by unanimous written consent in 1999. Each director
attended more than 75% of the aggregate number of (1) Board meetings and (2)
meetings of committees of the Board on which such directors served. The Board
has two standing committees as described below. Membership on these committees
is indicated in the preceding biographical information. The Board of Directors
does not have a standing Nominating Committee.
AUDIT AND COMPLIANCE COMMITTEE. The Audit and Compliance Committee consists of
four directors, none of whom is an employee of UNOVA. The Committee, which met
three times in 1999, reviews and discusses with the outside auditors and with
management the scope and results of the audit by UNOVA's outside auditors,
including the audited financial statements, the activities of UNOVA's internal
auditors, and the adequacy of UNOVA's system of internal controls and
procedures. The Committee proposes the appointment of the outside auditors,
subject to approval by the Board, approves fees paid for services (including any
nonaudit services) rendered by such auditors, and in connection with such
function considers the independence of such auditors. The Audit and Compliance
Committee reviews the implementation of and monitors compliance with UNOVA's
Standards of Conduct and evaluates the Reportable Transactions and Conflicts of
Interest Questionnaires completed by certain employees to determine if possible
conflicts of interest exist or possible violations of corporate policy have
occurred. The Committee also considers other possible conflict of interest
situations brought to its attention and makes appropriate recommendations
concerning these situations.
COMPENSATION COMMITTEE. The Compensation Committee is composed of four
nonemployee directors. The Committee establishes policies for executive
compensation and approves the remuneration of all
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officers of UNOVA. The Committee administers UNOVA's employee stock option
plans, Management Incentive Compensation Plan (including the establishment of
the individual performance goals thereunder), incentive loan program, Employee
Stock Purchase Plan, and certain other compensation and retirement arrangements.
The Committee, which met five times and acted on four occasions by unanimous
written consent in 1999, also reviews and makes recommendations with respect to
other compensation plans and policies of UNOVA.
DIRECTORS' COMPENSATION AND RETIREMENT POLICIES
Messrs. Brady and Brann are the only directors who are also employees of UNOVA.
They are not paid any fee or additional remuneration for service as members of
the Board and they are not members of any Board committee.
Directors who are not employees of UNOVA are paid an annual fee for Board
service of $30,000, payable in quarterly installments, and an attendance fee of
$2,000 for each meeting of the Board and for each meeting of a Committee of the
Board attended. Each nonemployee director who serves as Chair of a Board
committee is paid an additional annual fee of $4,000, payable in quarterly
installments. Directors are reimbursed for travel and other expenses incurred
for the purpose of attending meetings of the Board and its committees.
The Board of Directors has adopted a policy establishing the mandatory
retirement date of each director as the date of the next annual meeting of UNOVA
shareholders following his or her 72nd birthday.
DIRECTOR STOCK OPTION AND FEE PLAN
OPTIONS. Under the terms of the UNOVA, Inc. Director Stock Option and Fee Plan
(the "Director Plan"), any person who joins the Board as a nonemployee director
will receive options to purchase 25,000 shares of UNOVA Common Stock at the fair
market value of such stock, provided such person neither received options under
a UNOVA plan allowing for the grant of stock-based awards during the two-year
period preceding the date of commencement of Board membership nor was an
employee of UNOVA or a subsidiary of UNOVA during such two-year period. On the
first business day following the UNOVA annual shareholders' meeting for each
year while the Director Plan is in effect, each nonemployee director
automatically will receive a grant of an option for 2,500 shares. All options
granted under the Director Plan become fully exercisable on the first
anniversary of the grant thereof; however, if a director dies or becomes
permanently disabled while serving on the Board, or if the director retires
pursuant to the policy for mandatory retirement of directors described above,
then all options held by such director become exercisable in full. In addition,
if a change of control of UNOVA (as defined in the Change of Control Agreements
with certain officers described below) occurs, then all options granted under
the Director Plan become fully exercisable. An aggregate of 500,000 shares of
UNOVA Common Stock, subject to adjustment for certain events affecting UNOVA's
capitalization, has been authorized for issuance under the Director Plan.
Options granted under the Director Plan shall remain exercisable until three
years following the first to occur of the retirement or resignation of the
director from the Board (or the director's failure to be reelected to the
Board), the total and permanent disability of the director, or the death of the
director.
RECEIPT OF FEES IN STOCK. Pursuant to the Director Plan, directors may elect to
receive all or a portion of their fees described above under the caption
"Directors' Compensation and Retirement Policies" on a current basis in shares
of UNOVA Common Stock with a fair market value equivalent to the applicable
fees. Directors electing to receive payment of fees in shares of UNOVA Common
Stock on a current basis receive shares quarterly.
DEFERRAL OF DIRECTOR FEES. Participating directors may also elect to defer all
or a portion of such fees to either a deferred stock account or cash account.
The deferred stock account will enable directors to defer their fees into UNOVA
Common Stock, and the cash account will provide a deferral into an
interest-based account.
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The deferred stock account is a bookkeeping account credited with share units
representing shares of UNOVA Common Stock. The cash account accrues interest at
a rate equal to the prime rate. Credits to the deferred stock and cash accounts
are made on the first business day following the end of each quarter. A
director's stock account will be credited with the number of shares of UNOVA
Common Stock paid in lieu of cash fees which are the subject of a deferral
election. Transfers between the stock account and the cash account are not
permitted.
Deferred amounts will be paid to each director commencing in the January
following the director's termination of service with the Board. Such payments
may be made in a single installment or in two to fifteen annual installments as
stipulated by the director at the time of the deferral election. Notwithstanding
the foregoing, upon a change of control of UNOVA, all deferred accounts will be
paid out immediately. Share units in the deferred stock account will be
converted into the number of shares of UNOVA Common Stock equal to the number of
such share units and payment will be made in shares of UNOVA Common Stock. The
cash account will be paid in cash.
ADMINISTRATION; AMENDMENT. The Director Plan is administered by the Board, which
has authority to interpret and make rules and regulations relating to the
Director Plan and to determine the provisions of the individual option
agreements to be entered into under the Director Plan. The Director Plan will
terminate on December 15, 2007 (unless earlier discontinued by the Board), but
such termination will not affect the rights of the holder of any option or
participant in a deferred stock or cash account outstanding on such date of
termination. The Board may suspend or discontinue the Director Plan or amend it
in any respect whatsoever; provided, however, that no such amendment shall
adversely affect the rights of any director without such director's consent or
shall be made without stockholder approval if such approval is required by any
regulation, law, or stock exchange rule.
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INFORMATION REGARDING COMPENSATION AND CERTAIN TRANSACTIONS
SUMMARY COMPENSATION TABLE
For the chief executive and the four other executive officers of UNOVA as of
December 31, 1999, who received the highest compensation for services rendered
to UNOVA with respect to 1999, the following table sets forth information
concerning compensation paid to these individuals for the periods indicated. The
principal positions listed in the table are those held by the individuals named
in the table at the end of 1999, except for Norman L. Roberts, who retired as
General Counsel of UNOVA on September 29, 1999, and at that time ceased to be an
executive officer. Information concerning the compensation of Mr. Roberts is
included in the table since, but for the fact that he was not an executive
officer on December 31, 1999, his compensation for 1999 would have caused him to
be one of the four most highly compensated executive officers at year-end. The
six individuals named in the table are sometimes referred to in this proxy
statement as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES
---------------------- RESTRICTED UNDERLYING ALL OTHER
STOCK AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (#) ($)(A)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Larry D. Brady 1999 242,308(b) 600,000(c) 1,407,488(d) 430,000(e) 53,301
President and Chief
Operating Officer
- ---------------------------------------------------------------------------------------------------------
Alton J. Brann 1999 735,020 323,409 100,000(e) 8,704
Chairman of the Board 1998 717,522 680,750 125,000(e) 17,892
and Chief Executive 1997 713,486 875,000 500,000(e) 17,996
Officer 61,601(f)
- ---------------------------------------------------------------------------------------------------------
Michael E. Keane 1999 307,500 108,240 60,000(e) 8,108
Senior Vice President and 1998 287,500 213,950 80,000(e) 15,673
Chief Financial Officer 1997 267,308 267,308 125,000(e) 6,570
36,961(f)
- ---------------------------------------------------------------------------------------------------------
Robert G. O'Malley 1999 200,005(g) 400,000(h) 226,000(e) 30,004
Senior Vice President of
UNOVA and President of
Intermec Technologies
Corporation ("Intermec")
- ---------------------------------------------------------------------------------------------------------
Norman L. Roberts 1999 300,000 95,040 -0- 8,684
Senior Vice President; 1998 300,000 210,060 48,000(e) 10,846
General Counsel until 1997 305,769 275,192 100,000(e) 9,060
September 29, 1999 18,480(f)
- ---------------------------------------------------------------------------------------------------------
Charles E. Wolfbauer 1999 229,543 141,487 30,000(e) 5,374
Vice President of UNOVA 1998 218,500 202,771 50,000(e) 6,297
and President of Lamb 1997 212,000 212,000 60,000(e) 5,099
Technicon Machining 9,856(f)
Systems
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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(a) Included in this column for 1999 are the following: (i) present value costs
of UNOVA's portion of the 1999 premium for split-dollar life insurance for
Mr. Brann of $2,970, for Mr. Keane of $935, and for Mr. Wolfbauer of
$2,070; (ii) the following amounts representing premiums paid by UNOVA with
respect to the participation in UNOVA's Executive Medical Plan of each of
the following Named Executive Officers and their dependents: Mr.
Brann - $3,934, Mr. Keane - $2,788, and Mr. Roberts - $4,487; (iii) the
following amounts representing interest imputed and taxable to the holder
of loans from UNOVA: Mr. Keane - $2,585, Mr. Roberts - $2,397, and Mr.
Wolfbauer - $1,504; (iv) UNOVA's matching contributions of $1,800 made to
the respective accounts of Messrs. Brann, Keane, Roberts, and Wolfbauer
under UNOVA's 401(k) plan; (v) the amount of $10,000 paid to Mr. O'Malley
by Intermec pursuant to an executive flexible benefits plan; and (vi) the
amounts of $53,301 and $20,004 paid to Mr. Brady and Mr. O'Malley,
respectively, in connection with their relocations to accept employment
with UNOVA, including provision for income taxes on these relocation
allowances.
(b) Represents salary paid for the period from August 2, 1999, when Mr. Brady
commenced employment with UNOVA, through December 31, 1999.
(c) Represents a bonus paid to Mr. Brady upon commencement of his employment by
UNOVA to serve as an inducement to Mr. Brady to accept such employment. The
amount represents the target bonus for the full calendar year 1999 which
Mr. Brady could have earned under the UNOVA, Inc. Management Incentive
Compensation Plan described below if performance goals had been prescribed
for him and had been achieved.
(d) The amount shown in the table is the market value of the Restricted Stock
(without regard to the restrictions on transfer) on the date of its grant
to Mr. Brady, August 2, 1999. At December 31, 1999, Mr. Brady held 109,585
shares of Restricted Stock having a market value on that date of
$1,424,605. Mr. Brady is entitled to vote these shares of Restricted Stock
and to receive any dividends declared and paid thereon. The amount of this
award in UNOVA Restricted Stock was determined on the basis of equivalency
to the value of unvested restricted stock of FMC Corporation which Mr.
Brady forfeited upon his retirement from FMC. The restrictions on these
shares will expire as to one-third of the shares on each of the third,
fourth, and fifth anniversaries of the date of grant. However, such
restrictions will lapse immediately upon termination of Mr. Brady's
employment by reason of his death or disability, upon the occurrence of a
change of control of UNOVA, or upon termination of such employment by
either UNOVA or Mr. Brady (other than a termination for cause) during the
period from September 1, 2000, to October 1, 2000, if Mr. Brady shall not
have been elected or appointed Chief Executive Officer of UNOVA on or prior
to September 1, 2000.
(e) Represents options to purchase UNOVA Common Stock.
(f) Represents options to purchase Western Atlas common stock. Certain of the
Named Executive Officers were employed by Western Atlas until October 31,
1997, when UNOVA Common Stock was distributed to the shareholders of
Western Atlas as a dividend. During the period prior to the Distribution,
the Named Executive Officers received options to purchase Western Atlas
common stock as indicated in the table above. On October 31, 1997, the
Named Executive Officers became employees of UNOVA and thereafter received
options to purchase UNOVA Common Stock. Upon the Distribution each then
outstanding Western Atlas option was adjusted by increasing the number of
shares subject to the option and decreasing the exercise price per share so
as to preserve the difference between the aggregate exercise price of the
options and the aggregate market value of the shares subject to the
options. The number of shares subject to options to purchase Western Atlas
common stock shown in the table have been adjusted as described in the
preceding sentence, but have not been adjusted to reflect the subsequent
conversion of these options into options to purchase common stock of Baker
Hughes Incorporated in connection with the 1998 merger of Western Atlas and
Baker Hughes.
8
<PAGE> 12
(g) Represents salary paid for the period from June 28, 1999, when Mr. O'Malley
commenced employment with Intermec, through December 31, 1999.
(h) Represents a bonus paid to Mr. O'Malley upon commencement of his employment
with Intermec to serve as an inducement for Mr. O'Malley to accept such
employment. The amount represents the target bonus for calendar year 1999
which Mr. O'Malley could have earned under the UNOVA, Inc. Management
Incentive Compensation Plan if performance goals had been prescribed for
him under this plan and had been achieved. If Mr. O'Malley does not remain
employed by Intermec for a period of twelve months from his date of
employment, he must repay a pro rata portion of this bonus based on the
percentage of such twelve-month period during which he was employed by
Intermec.
9
<PAGE> 13
STOCK OPTION INFORMATION
The following table shows stock option grants with respect to shares of UNOVA
Common Stock under the UNOVA, Inc. 1999 Stock Incentive Plan to the Named
Executive Officers during the 1999 fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED(#)(A) FISCAL YEAR ($/SH) DATE ($)(B)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Larry D. Brady 38,925(c) 1.7621% 12.8438 8/2/2009 310,505
361,075(d) 16.3456% 12.8438 8/2/2009 2,880,298
30,000(d) 1.3581% 14.75 11/18/2009 275,732
- ---------------------------------------------------------------------------------------------------
Alton J. Brann 100,000(e) 4.5269% 14.75 11/18/2009 919,108
- ---------------------------------------------------------------------------------------------------
Michael E. Keane 6,779(f) 0.3069% 14.75 11/18/2009 62,306
53,221(g) 2.4093% 14.75 11/18/2009 489,158
- ---------------------------------------------------------------------------------------------------
Robert G. O'Malley 34,330(c) 1.5541% 14.5625 6/28/2009 310,041
165,670(d) 7.4998% 14.5625 6/28/2009 1,496,197
26,000(d) 1.1770% 14.75 11/18/2009 238,968
- ---------------------------------------------------------------------------------------------------
Norman L. Roberts -0- -0- -0- -0- -0-
- ---------------------------------------------------------------------------------------------------
Charles E. Wolfbauer 6,000(f) 0.2716% 14.75 11/18/2009 55,146
24,000(h) 1.0865% 14.75 11/18/2009 220,586
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) All options granted to the Named Executive Officers were granted at the
prevailing market price of UNOVA Common Stock on the date of the grant.
These options permit payment of the exercise price and any withholding tax
due upon exercise by the surrender of already owned shares of UNOVA Common
Stock having a fair market value equal to the exercise price or the amount
of withholding tax and also permit payment of withholding tax by applying
shares otherwise issuable upon exercise. All such options become
immediately exercisable upon the occurrence of certain events resulting in
a change of control of UNOVA, and accelerated vesting schedules become
applicable in the event of the death of the optionee while in the employ
of UNOVA. Change of control has the meaning described on page 12.
(b) The Black-Scholes model was used to determine the grant date value of
UNOVA stock options. This method requires the use of assumptions that
affect the computation of the option's grant date value. The following
assumptions were used to value the options in this table: a volatility
factor of 40.07% for UNOVA Common Stock, determined from historical stock
price fluctuations, a 5.96% risk-free interest rate determined from market
information prevailing on the grant date, an expected option life of ten
years, and a zero cash dividend rate. No adjustments were made for the
nontransferability or risk of forfeiture of the stock options. This model
allocates the valuation evenly over the vesting schedule. There is no
assurance that these assumptions will prove true in the future. The actual
value of the options depends on the market price of the UNOVA Common Stock
at the date of exercise, which may vary from the theoretical value
indicated in the table.
(c) Incentive Stock Options. These options become exercisable in five equal
installments of the shares subject thereto on the first through the fifth
anniversaries of the date of grant.
10
<PAGE> 14
(d) Nonqualified Stock Options. These options become exercisable in five equal
installments of the shares subject thereto on the first through the fifth
anniversaries of the date of grant.
(e) Nonqualified Stock Options. These options become exercisable in one
installment of the shares subject thereto on December 1, 2001.
(f) Incentive Stock Options. These options become exercisable in one
installment of the shares subject thereto on November 18, 2004.
(g) Nonqualified Stock Options. These options become exercisable in four equal
installments of 12,000 shares each on the first through the fourth
anniversaries of the date of grant, and one installment of 5,221 shares on
the fifth anniversary of the date of grant.
(h) Nonqualified Stock Options. These options become exercisable in four equal
installments of the shares subject thereto on the first through the fourth
anniversaries of the date of grant.
The following table provides information with respect to options to purchase
UNOVA Common Stock exercised by the Named Executive Officers during 1999 and
year-end option values:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
ACQUIRED ON REALIZED -------------------- --------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry D. Brady -0- -0- -0- 430,000 -0- 62,480
- -----------------------------------------------------------------------------------------------------------
Alton J. Brann -0- -0- 319,702 405,298 -0- -0-
- -----------------------------------------------------------------------------------------------------------
Michael E. Keane -0- -0- 66,000 199,000 -0- -0-
- -----------------------------------------------------------------------------------------------------------
Robert G. O'Malley -0- -0- -0- 226,000 -0- -0-
- -----------------------------------------------------------------------------------------------------------
Norman L. Roberts -0- -0- 66,000 82,000 -0- -0-
- -----------------------------------------------------------------------------------------------------------
Charles E. Wolfbauer -0- -0- 34,000 106,000 -0- -0-
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In November 1999 the Compensation Committee exercised its authority under the
1999 Stock Incentive Plan to accelerate the vesting of certain options
previously granted to three executive officers, including Mr. Brann and Mr.
Roberts. It was determined that unvested options held by Mr. Roberts at that
time to purchase 82,000 shares and by another executive officer whose retirement
was imminent would become exercisable on the respective retirement dates of
these individuals, January 28, 2000, and December 31, 1999, and that unvested
options held by Mr. Brann to purchase 150,000 shares would become exercisable on
December 1, 2001. Mr. Brann has advised the Compensation Committee that he
presently wishes to retire at about age 60, and the Committee deemed the
acceleration of his options to be consistent with its contemplated succession
plans for senior officers.
In addition to options to purchase UNOVA Common Stock, certain of the Named
Executive Officers held at the end of 1999 options ("Litton Options") to
purchase shares of the common stock of Litton Industries, Inc. ("Litton")
granted to them prior to the spinoff of Western Atlas by Litton in 1994 (the
"Litton Spinoff") and adjusted in accordance with a formula into options to
purchase shares of both Western Atlas and Litton at the time of the Litton
Spinoff. For purposes of vesting and exercisability of these options, service
with UNOVA is regarded as service with Litton.
During 1999 none of the Named Executive Officers exercised any of these Litton
Options. At December 31, 1999, certain of the Named Executive Officers held
exercisable but unexercised Litton Options as follows: Michael E. Keane, options
having a value of $484,391 to purchase 14,000 shares, and Norman L.
11
<PAGE> 15
Roberts, options having a value of $511,398 to purchase 16,000 shares. These
values represent the difference between the exercise price and the fair market
value of the Litton Common Stock on December 31, 1999.
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
Messrs. Brady, Brann, Keane, O'Malley, Wolfbauer, and certain additional
officers of UNOVA have entered into change of control employment agreements with
UNOVA (collectively, the "Agreements"). The Agreements are operative only upon
the occurrence of a change of control, which includes substantially those events
described below. Absent a change of control, the Agreements do not require UNOVA
to retain the executives or to pay them any specified level of compensation or
benefits.
Generally, under the Agreements, a change of control is deemed to have occurred
if: (a) a majority of the Board becomes composed of persons other than persons
for whose election proxies have been solicited by the Board, or other than
persons who are then serving as directors appointed by the Board to fill
vacancies caused by death or resignation (but not removal) of a director or to
fill newly created directorships; (b) another party becomes the beneficial owner
of at least 30% of UNOVA's outstanding voting stock, other than as a result of a
repurchase by UNOVA of its voting stock; (c) the approval by the shareholders of
UNOVA of a merger, reorganization, consolidation with another party (other than
certain limited types of mergers), or sale or other disposition of all or
substantially all of UNOVA's assets; or (d) the shareholders approve the
liquidation or dissolution of UNOVA.
The Agreements generally provide that for three years after a change of control,
there will be no adverse change in the executive's salary, bonus opportunity,
benefits, or location of employment. If, during this period following a change,
the executive's employment is terminated by UNOVA other than for cause, or if
the executive terminates his or her employment for good reason, as such terms
are defined in the Agreements (including compensation reductions, demotions,
relocation, and requiring excessive travel), or voluntarily during the 30-day
period following the first anniversary of a change of control which results in a
change in the composition of a majority of UNOVA's Board of Directors (or, if
later, the first anniversary of such change in the composition of the Board) the
executive is entitled to receive an accrued salary and annual incentive payment
through the date of the termination and, except in the event of death or
disability, a lump-sum severance payment equal to three times the sum of the
executive's base salary and annual bonus (and certain pension, insurance, and
other welfare plan benefits). Further, an additional payment is required in such
amount that after the payment of all taxes, income and excise, the executive
will be in the same after-tax position as if no Federal excise tax had been
imposed. In the event of termination of employment by reason of death or
disability or for cause, the Agreements terminate and the sole obligation of
UNOVA is to pay any amounts previously accrued under the Agreements.
Change of control employment agreements with Mr. Wolfbauer and certain other
officers at the level of Vice President have terms not as favorable as those
described above; for example, the term of employment following a change of
control is two, rather than three, years.
RETIREMENT BENEFITS
THE FSSP AND RELATED RETIREMENT PLAN. The Named Executive Officers participate
in UNOVA's Financial Security and Savings Program (the "FSSP"), a defined
contribution plan intended to qualify under Sections 401(a) and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Participation in the
FSSP is generally available to employees of UNOVA located in the United States.
A participant in the FSSP may elect to defer from 2% to 18% of his or her
covered compensation for investment in the trust established under the FSSP, but
the maximum amount which the employee may contribute to the FSSP for any
calendar year is limited by provisions of the Code including a limit on the
maximum amount, as adjusted for inflation, which may be contributed to plans
qualified under Section 401(k) of the Code (the "401(k) Maximum Amount"), which
was $10,000 for 1999 and is $10,500
12
<PAGE> 16
for 2000. Deposits of 2% to 4% of the participant's compensation are considered
to be the FSSP Retirement Fund and are invested by the FSSP Investment
Committee, while deposits in excess of 4% are invested in one or more investment
funds, as designated by the participant.
UNOVA adds to the investment fund account of an FSSP participant an amount (not
to exceed 2% of the participant's compensation) equal to 50% of the
participant's deposits in excess of 4% of his or her covered compensation. In
the case of employees who are classified as highly compensated pursuant to
applicable Treasury releases (those earning over $80,000 for 1999 and over
$85,000 for 2000), such employees' permissible contributions may be reduced
further and the amount of the employer's matching contributions may be limited
if certain nondiscrimination tests set forth in the Code are not achieved. A
participant is entitled to receive his or her entire FSSP account, to the extent
it has become vested, upon retirement or earlier termination of employment with
UNOVA.
Benefits under the FSSP are intended to supplement benefits under the UNOVA
Pension Plan ("UPP"), which is a defined benefit plan. Although deposits to the
FSSP do not comprise part of the pension plan trust (except for transfers of
assets made at the request of a participant in connection with a distribution,
as described below), the extent of an employee's participation in the Retirement
Fund of the FSSP will affect the amount of such employee's benefit under the
UPP. The employee's contribution to the FSSP of 2% to 4% of his or her covered
compensation causes the employee (if eligible to participate in the UPP) to
become eligible to accrue benefits under the UPP. Covered compensation for
purposes of both the UPP and the FSSP Retirement Fund is aggregate cash
compensation including bonuses and commissions. In the case of the Named
Executive Officers, contributions to the FSSP Retirement Fund are limited to
$160,000 for 1999 and $170,000 for 2000 pursuant to provisions of the Code.
The amount of a participant's annual pension benefit at his or her normal
retirement date (generally age 65) under the UPP is the higher of (i) 60% of the
participant's deposits to the Retirement Fund of the FSSP (during the entire
period of his or her employment) or (ii) 85% of such deposits minus 75% of the
participant's estimated Social Security primary benefit at age 65 with
adjustments in the amount of the benefit to take into account factors such as
age at retirement, degree of vesting, and form of benefit selected. In the case
of UNOVA employees who transferred directly from Western Atlas to UNOVA,
contributions to the Retirement Fund or the similar plan sponsored by Western
Atlas will be included in the computation of a participant's total deposits for
purposes of the formula set forth above. The annual pension benefit at normal
retirement age is reduced by the actuarial equivalent of lump sum distributions
made (at the request of the participant) of the participant's Retirement Fund
account in the FSSP. Should a participant wish to receive the entire benefit
described in the formula set forth above, the participant may direct that his or
her Retirement Fund balance, consisting of deposits with earnings, be
transferred to the pension plan trust.
RESTORATION PLAN. The limitations in the Code establishing the 401(k) Maximum
Amount cause certain participants in the FSSP to lose employer-provided benefits
which they could otherwise have derived from the deposit of a full 8% of their
covered compensation to the FSSP. Consequently, UNOVA has adopted a
noncontributory and unfunded plan (the "Restoration Plan") designed to restore
the approximate amount of lost employer-provided benefits to those employees who
participate in the FSSP to the fullest extent permitted by the applicable Code
provisions but who are unable (as a result of the 401(k) Maximum Amount
limitation) to contribute 8% of their compensation to the FSSP. Such lost
employer-provided benefits which are restored under this plan consist of (i) all
or part of the 50% matching contribution to the investment fund account of the
FSSP participant and (ii) except in the case of Messrs. Brady and Brann, who
have supplemental retirement agreements with UNOVA (as described below), a
portion of the full benefit under the UPP if the participant's contributions to
the FSSP Retirement Fund are limited to less than 4% of his or her compensation.
Amounts that would have been deposited to the employee's Retirement Fund account
by the employee and to his or her investment fund account by UNOVA are projected
with interest to the participant's normal retirement date. Based upon these
amounts, the participant's lost benefits from the UPP and lost employer
contributions to the investment fund are determined and converted to, and
payable upon the participant's retirement as, a single life annuity if the
participant is unmarried at such time or as a 100% joint and survivor annuity if
the
13
<PAGE> 17
participant is then married. No retirement benefit is payable under the
Restoration Plan until the retired employee has reached the age of 62.
CERTAIN SUPPLEMENTAL RETIREMENT ARRANGEMENTS. In addition to the FSSP, the UPP,
and the Restoration Plan, UNOVA provides certain noncontributory and unfunded
supplemental arrangements designed to provide additional retirement benefits to
officers and other key employees. These supplemental retirement arrangements
comprise the following: the Supplemental Executive Retirement Plan, a
Supplemental Executive Retirement Agreement between UNOVA and Mr. Brann (the
"Brann Supplemental Agreement"), and a Supplemental Executive Retirement
Agreement between UNOVA and Mr. Brady (the "Brady Supplemental Agreement"). As
explained below, the benefit formulas and vesting schedules under each of these
arrangements are different, but all of the supplemental retirement arrangements
have the following features in common:
- - Each such arrangement is noncontributory and unfunded.
- - Covered compensation under each of these supplemental arrangements is cash
compensation (including salary deferred under Section 125 or Section 401(k)
of the Code and under any deferred compensation plan sponsored by UNOVA) and
bonuses, which are deemed to have been paid in equal monthly installments
during the fiscal year or other period for which the bonuses were awarded.
Covered compensation does not include, for purposes of the supplemental
retirement arrangements, the amount of bonuses deposited to the Bonus Bank
under the terms of the Management Incentive Compensation Plan but does
include normal periodic payments from the Bonus Bank. Covered compensation
does not include extraordinary items such as compensation recognized upon
exercise of employee stock options or bonuses paid for the accomplishment of
a particular non-ordinary course transaction or circumstance designated as
such by the Compensation Committee. Covered compensation for the Named
Executive Officers would generally be the sum of the amounts shown in the
first two columns of the Summary Compensation Table.
- - All supplemental arrangements provide certain benefits in the event of the
death or disability of the participant as well as special survivors' benefits
payable to specified beneficiaries upon the occurrence of the death of the
participant while employed by UNOVA prior to age 62.
- - All supplemental retirement arrangements provide that in the event of a
change of control of UNOVA, the participant will be entitled to a lump sum
payment of the retirement benefit which would have been payable to the
participant at the later of the age of 62 or the actual age of the
participant at the time of the change of control, unless the Committee which
administers such arrangement determines to defer the payment of this amount.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (THE "SERP"). Messrs. Keane, O'Malley,
Roberts, and Wolfbauer participate in the SERP. Additional participants are
designated by the Compensation Committee upon recommendation by the Chief
Executive Officer. A participant in the SERP does not ordinarily vest in a
retirement benefit until the participant has reached the age of 60 and has
completed 15 years of service following the participant's 40th birthday, and the
participant may not ordinarily begin receiving a retirement benefit until the
participant has reached age 62. Under this plan a participant's annual
retirement benefit is the actuarial equivalent, as of the age of the participant
at retirement, of the following computation: (a) 1.6% of "average earnings" of
the participant up to $125,000 (which amount is adjusted annually for inflation
and was $142,473 at January 1, 2000) plus (b) 2.2% of "average earnings" in
excess of such amount, the sum of (a) plus (b) then being multiplied by the
participant's number of years of service (not to exceed 25) following the
participant's 40th birthday. Average earnings for purposes of this plan is the
average amount of covered compensation received or deemed to have been received
by the participant in the 3 periods of 12 consecutive months in which the
participant's compensation was highest during the final 120 months of the
participant's employment. In March 2000 the SERP was amended to refer to such
final 120 months; previously the relevant period had been 60 months.
14
<PAGE> 18
There will be offset from the retirement benefit computed in accordance with the
previous paragraph the amount of benefits which the participant earned or could
have earned under other retirement plans sponsored by UNOVA (the "Offset
Amount") calculated as follows: the annual benefit payable under the UPP which
represents the portion of the benefits under this plan deemed to have been
provided by the employer's (as opposed to the employee's) contributions and any
annual benefit under the Restoration Plan. The Offset Amount is based on the
benefits which would have been received by the employee if he or she was
eligible to participate and had participated at all times in the UPP to the
maximum extent permitted (regardless of the degree of actual participation). For
participants in the SERP who previously were eligible to participate in
retirement plans sponsored by Litton or Western Atlas, the Offset Amount would
include any benefits which would have been earned as an employer-paid benefit if
they had fully participated in such Litton and Western Atlas plans. The amount
of the participant's Social Security primary benefit at age 65 is also included
in the Offset Amount.
For purposes of the SERP, as of March 15, 2000, Mr. Keane had 4 credited years
of service, Mr. O'Malley had not yet been credited with a year of service, and
Mr. Roberts had 25 credited years of service.
The following table indicates the approximate combined annual retirement benefit
which would be received by a participant in the SERP representing the sum of (a)
the employer-provided benefit under the UPP; (b) the benefit under the
Restoration Plan; and (c) the benefit under the SERP based on retirement at age
65, full participation at all relevant times in the UPP, and election of a
benefit in the form of a single life annuity. The table does not give effect to
the offset of the participant's Social Security benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------
REMUNERATION 15 20 25 OR MORE
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 600,000 $185,633 $247,510 $309,388
- -------------------------------------------------------------
800,000 251,633 335,510 419,388
- -------------------------------------------------------------
1,000,000 317,633 423,510 529,388
- -------------------------------------------------------------
1,200,000 383,633 511,510 639,388
- -------------------------------------------------------------
</TABLE>
THE BRANN SUPPLEMENTAL AGREEMENT. If Mr. Brann retires on or after age 65
following 25 years of service, his annual benefit is 55% of his final average
compensation, less the Offset Amount.
If Mr. Brann's employment terminates before he has attained the age of 65, then
the factor of 55% referred to in the preceding paragraph is reduced in
accordance with a schedule relating to age and length of service; however,
payment of retirement benefits to Mr. Brann under the Brann Supplemental
Agreement ordinarily may not commence until he reaches age 60. Any payments made
before Mr. Brann attains the age of 62 will be reduced further from the amounts
indicated on the benefit schedule at a rate of 6% per year. The term "final
average compensation" for purposes of the Brann Supplemental Agreement has the
same meaning as the term "average earnings" for purposes of the SERP as a result
of an amendment to the Brann Supplemental Agreement similar to the amendment to
the SERP described above.
15
<PAGE> 19
The following table indicates the approximate annual combined benefit which
would be received by Mr. Brann representing the sum of (a) the benefit under the
UPP deemed to have been provided by the employer's contributions, and (b) the
benefit under the Brann Supplemental Agreement, based on the following
assumptions: (i) participation in the UPP (and predecessor plans) to the maximum
extent permitted during the entire period of Mr. Brann's employment by UNOVA,
Western Atlas, and Litton, (ii) retirement at age 65, and (iii) election of the
benefit in the form of a single life annuity.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------
REMUNERATION 15 20 25 OR MORE
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,200,000 $420,000 $570,000 $ 660,000
- -------------------------------------------------------------
1,400,000 490,000 665,000 770,000
- -------------------------------------------------------------
1,600,000 560,000 760,000 880,000
- -------------------------------------------------------------
1,800,000 630,000 855,000 990,000
- -------------------------------------------------------------
2,000,000 700,000 950,000 1,100,000
- -------------------------------------------------------------
</TABLE>
Although the amount of such combined benefit would be reduced by Mr. Brann's
Social Security primary benefit, the foregoing table does not give effect to
such offset. Mr. Brann had 26 years of credited service under the Brann
Supplemental Agreement as of March 15, 2000.
THE BRADY SUPPLEMENTAL AGREEMENT. The intent of the Brady Supplemental Agreement
is that Mr. Brady will receive substantially the same retirement benefit he
would have received had he remained in the employ of FMC Corporation, of which
he was President until he retired from that position in 1999 to join UNOVA. Mr.
Brady is fully vested in his benefits under the Brady Supplemental Agreement. At
retirement, his aggregate benefit from the FMC Corporation retirement plans, any
employer-provided benefit Mr. Brady may earn under the UPP, any benefit he may
receive from the UNOVA Restoration Plan, and his benefit under the Brady
Supplemental Agreement is intended to be substantially identical to the benefit
provided by the formula set forth in the relevant FMC plans. There will be no
offset of any Social Security benefit from Mr. Brady's retirement benefit under
the Brady Supplemental Agreement.
This formula provides that a retiree is entitled to receive an annual benefit of
(x) 1% of the retiree's Average Earnings up to the Social Security Covered
Compensation Base plus (y) 1 1/2 % of the retiree's Average Earnings in excess
of the Social Security Covered Compensation Base multiplied by the retiree's
years of service at age 65 up to 35 years of service plus (z) 1 1/2% of the
retiree's Average Earnings multiplied by the retiree's expected years of service
at age 65 in excess of 35 years of service, with the sum of (x), (y), and (z)
being multiplied by the ratio of actual years of service to expected years of
service at age 65. Years of service include the period of Mr. Brady's service
with FMC Corporation. Average earnings means highest earnings for the 60
consecutive months during the 120-month period prior to the calculation of a
retirement benefit. Social Security Covered Compensation Base means the average
of the compensation and benefit bases under Section 320 of the Social Security
Act for each year in the 35-year period ending with the year in which Mr. Brady
attains Social Security retirement age as defined in the Code. If payment of Mr.
Brady's retirement benefit under the Brady Supplemental Agreement commences
before he has attained the age of 62, the benefit calculated on the basis of the
formula set forth above will be reduced at the rate of 4% per year. Mr. Brady
had 22 credited years of service at March 15, 2000.
16
<PAGE> 20
The following table indicates the approximate combined annual benefit which
would be received by Mr. Brady representing his aggregate retirement benefits
under the FMC Corporation and UNOVA plans as described above assuming his
retirement and commencement of benefits under these plans at age 65 and election
of a benefit in the form of a single life annuity.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 20 25 30 35
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 550,000 $161,490 $201,863 $242,235 $282,608
- ------------------------------------------------------------------------
650,000 191,490 239,363 287,235 335,108
- ------------------------------------------------------------------------
900,000 266,490 333,113 399,735 466,358
- ------------------------------------------------------------------------
1,150,000 341,490 426,863 512,235 597,608
- ------------------------------------------------------------------------
1,300,000 386,490 483,113 579,735 676,358
- ------------------------------------------------------------------------
1,450,000 431,490 539,363 647,235 755,108
- ------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT. As a form of additional incentive for its key
employees, UNOVA provides loans to certain such employees located in the United
States. Under such program, loans in the aggregate principal amount of $660,000
were outstanding at March 15, 2000, to three executive officers of UNOVA, as
follows: Charles A. Cusumano, $225,000; Michael E. Keane, $275,000; and Charles
E. Wolfbauer, $160,000. These loans are unsecured, currently bear interest at
the rate of 4% per annum, and are payable on UNOVA's demand, but, in any event,
not later than the earlier of (i) termination of the borrower's employment with
UNOVA or any subsidiary thereof, or (ii) December 31, 2002. The foregoing
amounts represent the largest amount of indebtedness of each such executive
officer under such loan program outstanding since December 31, 1998. In
addition, two retired executive officers, Norman L. Roberts and Clayton A.
Williams, held loans during the 1999 fiscal year in the following amounts:
$255,000 and $280,000, respectively, which have been repaid.
CERTAIN TRANSACTIONS. The agreement by which Mr. Brady was offered employment by
UNOVA provides that if for any reason other than a termination for cause, Mr.
Brady has not become Chief Executive Officer of UNOVA by September 1, 2000, and
his employment is thereafter terminated by either party during the period from
September 1, 2000 to October 1, 2000, Mr. Brady will be paid the sum of
$2,500,000 and, as described on page 8 above, all shares of UNOVA Restricted
Stock awarded to him upon commencement of employment will vest.
In connection with the retirement of Mr. Roberts on January 28, 2000, UNOVA
entered into a two-year consulting contract with Mr. Roberts whereby Mr. Roberts
agrees to make himself available to render consulting services to UNOVA as
requested by UNOVA for an hourly rate of $250 with a maximum of $2,000 per day.
Two other executive officers who retired in 1999 entered into one-year
consulting contracts whereby they agreed to render consulting services to UNOVA
for a daily rate set forth in such contracts, subject to respective minimum
annual payments of $90,000 and $60,000. These three executives agree not to
compete with UNOVA. They will continue to receive certain employee benefits
during the respective terms of these agreements.
17
<PAGE> 21
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of UNOVA, Inc., is composed
of outside directors of UNOVA and is responsible for, among other duties,
developing the policies and procedures regarding executive compensation and
setting the amounts of such compensation.
The compensation program presently in effect at UNOVA has three principal
elements: (1) base annual salary; (2) potential annual cash incentive bonuses
which are based primarily on the level of "cash value added" (as described
below) achieved by the Company or its relevant operating unit; and (3) long-term
incentives in the form of stock-based awards. The Committee believes that a
significant portion of the total compensation of the Company's officers and
other key employees should remain "at risk" and its payment should be contingent
upon the achievement of preestablished performance goals.
In early 1999 the Committee retained a firm of independent compensation
consultants to review the Company's overall compensation arrangements for senior
officers and to make recommendations. The consultants prepared an extensive
report which compared the Company's base compensation, bonus arrangements, and
long-term incentives with those of two groups of peer companies selected to
reflect both the Automated Data Systems and the Industrial Automation Systems
businesses of UNOVA. In general, the compensation consultants' report concluded
that base salaries of the top executives of UNOVA were above the average of
salaries paid to comparable executives of peer companies and that UNOVA's
bonuses for 1998 were slightly below the average comparable bonuses of peer
companies. The Committee reviewed these data with the consultants and concluded
that these levels were reasonable given UNOVA's relative size and performance.
The Committee agreed with the consultants that the emphasis on long-term
incentives was a good practice in that it aligned executive compensation with
shareholder value.
The compensation consultants' report was updated and expanded several times
since its initial presentation and served as a basis for the Committee's
consideration of proper levels of base pay, bonuses, and stock options for 1999.
BASE ANNUAL SALARY
In considering appropriate adjustments to be made to base annual salaries for
executive officers during the 1999 fiscal year, the Committee carefully
considered the executive salary analysis of peer companies and the
recommendations of Alton J. Brann, the Company's Chairman and Chief Executive
Officer.
In his report to the Committee at its July 1999 meeting, Mr. Brann recommended
that neither he nor the majority of the executive officers under salary review
at that time receive any increase in base salary. Mr. Brann's recommendation was
based on the following factors: (1) the conclusion that present salary levels of
the executive officers were reasonable in comparison with those of the peer
companies; and (2) the circumstance that portions of the Company's business,
particularly in the Automation Data Systems segment, were not achieving their
business plans for the year. He recommended that only two executive officers be
granted increases in the amounts of 4.9% and 5%, respectively.
The Committee discussed Mr. Brann's recommendations and the conclusions of the
compensation consultants' report in considerable detail and decided to implement
the recommendations. Accordingly, Mr. Brann's annual salary remained at
$735,000. The increases granted to two executive officers became effective as of
July 1, 1999. In connection with a promotion during 1999, one executive officer
had previously been granted a salary increase of 23%.
During 1999 the Board of Directors decided to fill the position of President and
Chief Operating Officer of the Company with a candidate from outside UNOVA. The
Committee approved the hiring packages of the President and Chief Operating
Officer and of two additional senior executives recruited from outside the
Company and set their base annual salaries at levels which the Committee
believed appropriate to attract qualified personnel.
18
<PAGE> 22
ANNUAL BONUSES FOR 1999
All of the executive officers are participants in the Company's Management
Incentive Compensation Plan (the "Incentive Plan"), which permits the payment of
annual cash bonuses if certain performance goals of the Company or its
applicable operating units are achieved. The Incentive Plan and potential
performance goals were approved by the Company's shareholders at the 1999 Annual
Meeting of Shareholders. The Company's tax counsel believes that awards made
under the Incentive Plan should qualify for exemption from the $1 million limit
on the deductibility of executive compensation prescribed by Section 162(m) of
the Internal Revenue Code.
The performance goals established by the Committee for 1999 were based on the
achievement of levels of Cash Value Added (or CVA) and target sales levels for
the Company and its applicable business units. CVA is a performance measure
which reflects cash flow and costs of capital invested. Managers create value
when they use capital to generate a return that exceeds a risk-adjusted capital
charge on their business unit's gross investment of capital. The difference
between adjusted business operating profit (gross cash flow) and the total
capital charge is CVA.
Each participant in the Incentive Plan is assigned a "Target Bonus" at the
beginning of each fiscal year, determined by multiplying the amount of a
participant's base salary paid during the fiscal year by a percentage designated
by the Committee. The percentage designated for Mr. Brann was 100% of base
salary.
In establishing performance goals for 1999, the Committee further stipulated
that the bonus determined by applying the CVA multiple achieved during the year
would be reduced if sales of the Company (or its applicable business units) did
not reach at least 90% of the established sales target.
For fiscal 1999 the level at which CVA was achieved, in the case of Mr. Brann
and the other executive officers who are members of the Corporate staff, would
have permitted bonuses to be paid at a level of 50% of each participant's Target
Bonus. Since sales of the Company were less than 90% of the prescribed sales
target, the factor of 50% was reduced, in accordance with the formula prescribed
by the Committee, to 44% of the Target Bonus for participants in the Incentive
Plan who are in the Corporate management.
The Committee has the discretion to reduce the bonus of any participant below
the maximum permitted amount when it deems such action warranted.
The Committee awarded Mr. Brann the amount permitted by the operation of these
formulas relating to performance goals, which resulted in a bonus for Mr. Brann
of $323,409 for 1999, compared to $680,750 for 1998. The 1999 bonus amounts paid
to Mr. Keane and Mr. Roberts, as shown in the Summary Compensation Table in the
proxy statement, were determined by applying the same methodology.
The bonuses paid to Mr. Brady and Mr. O'Malley, as shown in such table, were
established by the terms of the agreements under which they were employed by
UNOVA during 1999. These bonuses were paid upon hiring as an incentive to induce
the individuals to accept high-level positions at UNOVA and were unrelated to
their subsequent performance at UNOVA. The amounts of such hiring bonuses were
set generally at the level of bonuses these executives would have earned at
UNOVA for 1999 if 100% of their respective target bonuses had been paid.
One executive officer, Mr. Wolfbauer, received a bonus of 77% of his Target
Bonus, while five other executive officers (other than the three newly hired
executives) were paid bonuses at the rate of 44% of their applicable Target
Bonus. Two executive officers received no bonus for 1999, based on the negative
CVA results of the business unit of UNOVA with which they were associated.
Since no bonus paid to an executive officer exceeded the Target Bonus, no amount
was allocated to the Incentive Plan's Bonus Bank account of any executive
officer.
19
<PAGE> 23
STOCK OPTION AND RESTRICTED STOCK GRANTS
In connection with the Company's previously adopted policy of annual grants of
stock options at fair market value to executive officers and other key
employees, the Committee deliberated extensively with respect to the following
issues, taking into consideration materials provided by the outside compensation
consultants that were based upon the experience of other companies.
- - All stock options granted to executive officers prior to the 1999 fiscal year
were "underwater" -- that is, the exercise price of these options was higher
than the prevailing market price of the Company's Common Stock. As such, the
stock options program was not effective as the Company's principal form of
holding power on executives.
- - The Committee studied a report of the consultants on the "overhang" situation
at other companies. The overhang is the number of outstanding options
compared to the total number of shares outstanding. Alternatives to the
annual stock option grant which could possibly lessen any adverse effect of
the overhang situation were discussed. Following this discussion, the
Committee concluded that the overhang situation was not dissimilar to that
which existed at other midsized companies and decided to adhere to the annual
grant policy for 1999.
- - The use of options and other long-term incentives as a principal means of
compensation is more widespread among the peer group companies similar to the
Company's Automated Data Systems businesses. Salaries and cash bonuses tend
to be higher for executives of the peer group companies similar to the
Company's Industrial Automation Systems Group businesses. In keeping with
prior practice the Committee allocated the shares of Common Stock available
for options between executives of the two types of business of the Company in
a manner which the Committee believed would best serve the requirements of
each.
The management and the consultants made specific recommendations with respect to
the number of shares to comprise the 1999 annual grant of stock options to each
executive officer. These recommendations were generally followed by the
Committee.
The Committee determined that options to purchase an aggregate of 298,000 shares
would be granted to executive officers as a group, which included options to
purchase 100,000 shares granted to Mr. Brann. The exercise price of those
options was $14.75 per share, the fair market value of UNOVA Common Stock on the
date of grant. The Committee determined that the options would become
cumulatively exercisable at the rate of 20% on the first through fifth
anniversaries of the date of grant, with the exception of options granted to
certain individuals expected to retire in less than five years which would
become fully exercisable over a shorter period of time. Mr. Brann had advised
the Board of his intention to retire as an employee of the Company on or about
December 1, 2001, and accordingly the Committee determined that his options
should vest in a single installment on that date.
Earlier in the year, the three newly hired executive officers were granted
options to purchase an aggregate of 700,000 shares at exercise prices ranging
from $12.8438 to $15.0938 in fulfillment of the terms of their respective
employment offers.
In addition, in fulfillment of the terms of his hiring contract, Mr. Brady was
also granted Restricted Stock of the Company having a market value on the date
of grant of $1,407,488. The amount of this Restricted Stock award was equivalent
to the value of unvested restricted stock of Mr. Brady's former employer, FMC
Corporation, which Mr. Brady forfeited upon his retirement from FMC to join
UNOVA. The material terms relating to the vesting of such Restricted Stock are
set forth in note (d) to the Summary Compensation Table which appears on page 8
of the proxy statement in which this report is included.
20
<PAGE> 24
SECTION 162(m) POLICY
In general, the Committee believes that executive compensation should be
designed to qualify for exemption from the limitation on deductibility
prescribed by Section 162(m) of the Internal Revenue Code. However, the
Committee believes there may in the future be instances when the interests of
the Company and its shareholders may be best served by awarding compensation
based on factors other than, or in addition to, achievement of the
shareholder-approved performance goals. In such cases the Committee may
determine to award compensation which would not be deductible for Federal income
tax purposes from the Company's gross income.
DATED: February 10, 2000
THE COMPENSATION COMMITTEE
Orion L. Hoch, Chair
Paul Bancroft, III
William C. Edwards
William D. Walsh
21
<PAGE> 25
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on UNOVA Common Stock with the cumulative
total return of the Standard & Poor's Midcap 400 Index and a composite
line-of-business index designed to reflect the mix of UNOVA's business segments
for the period beginning October 22, 1997, which was the date "when issued"
trading commenced in UNOVA Common Stock on the New York Stock Exchange, and
ending December 31, 1999. The composite line-of-business index was prepared by
combining the Standard & Poor's 400 Electrical Equipment Index, believed by
management to comprise companies reasonably comparable to UNOVA's Automated Data
Systems businesses, and the Standard & Poor's 400 Manufacturing (Specialized)
Index, believed by management to comprise companies reasonably comparable to
UNOVA's Industrial Automation Systems businesses. Each of these two indexes was
weighted based on relative sales and asset levels of UNOVA's businesses. The
graph assumes the investment of $100 on October 22, 1997, in UNOVA Common Stock,
in the S&P Midcap 400 Index, and in the composite line-of-business index
prepared as described above. Total shareholder return was calculated on the
basis that in each case all dividends were reinvested.
<TABLE>
<S> <C> <C> <C>
S&P Composite S&P MIDCAP
UNOVA, Inc. Index 400 Index
----------- ------------- ----------
10/22/97 ................... 100 100 100
12/31/97 ................... 87.08 93.19 98.83
12/31/98 ................... 96.02 104.22 117.71
12/31/99 ................... 68.87 127.13 135.04
</TABLE>
22
<PAGE> 26
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BY MANAGEMENT
The following table sets forth the number of shares of UNOVA Common Stock
beneficially owned, directly or indirectly, by each director, each Named
Executive Officer, and all directors and executive officers as a group as of
March 15, 2000. Except as otherwise indicated, each individual named (1) has
sole investment and voting power with respect to the securities shown or (2)
shares investment and/or dispositive power with the individual's spouse.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (A) PERCENT OF CLASS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paul Bancroft, III 61,895 *
- -------------------------------------------------------------------------------------------------------
Larry D. Brady 138,585 *
- -------------------------------------------------------------------------------------------------------
Alton J. Brann 657,590 1.18%
- -------------------------------------------------------------------------------------------------------
Joseph T. Casey 107,664(b) *
- -------------------------------------------------------------------------------------------------------
William C. Edwards 71,050(c) *
- -------------------------------------------------------------------------------------------------------
Stephen E. Frank 42,782(d) *
- -------------------------------------------------------------------------------------------------------
Claire W. Gargalli 29,500 *
- -------------------------------------------------------------------------------------------------------
Orion L. Hoch 133,217(e) *
- -------------------------------------------------------------------------------------------------------
Michael E. Keane 105,673 *
- -------------------------------------------------------------------------------------------------------
Robert G. O'Malley 5,000 *
- -------------------------------------------------------------------------------------------------------
Norman L. Roberts 161,159 *
- -------------------------------------------------------------------------------------------------------
Steven B. Sample 35,852(f) *
- -------------------------------------------------------------------------------------------------------
William D. Walsh 124,964(g) *
- -------------------------------------------------------------------------------------------------------
Charles E. Wolfbauer 54,000 *
- -------------------------------------------------------------------------------------------------------
All directors and executive officers (17 persons) 1,872,255(h) 3.32%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(a) Includes shares of UNOVA's Common Stock subject to options which were
exercisable on March 15, 2000, or become exercisable within 60 days
thereafter, as follows: Mr. Bancroft, 27,500 shares; Mr. Brann, 319,702
shares; Mr. Casey, 27,500 shares; Mr. Edwards, 27,500 shares; Mr. Frank,
27,500 shares; Ms. Gargalli, 27,500 shares; Dr. Hoch, 27,500 shares; Dr.
Sample, 27,500 shares; Mr. Walsh, 27,500 shares; Mr. Keane, 66,000 shares;
Mr. Roberts, 148,000 shares; Mr. Wolfbauer, 34,000 shares; and such group,
834,102 shares.
(b) Includes 4,901 shares of Common Stock credited as a bookkeeping entry to
Mr. Casey's deferred account under the Director Stock Option and Fee Plan.
Also, includes 10,000 shares held by a charitable corporation of which Mr.
Casey serves as trustee. Mr. Casey has voting and investment power with
respect to such 10,000 shares and may thus be deemed to have incidents of
beneficial ownership thereof for certain purposes within the meaning of
applicable regulations of the Securities and Exchange Commission ("SEC").
(c) Includes 4,250 shares of Common Stock credited to Mr. Edwards' deferred
account as a bookkeeping entry under the Director Stock Option and Fee
Plan.
23
<PAGE> 27
(d) Includes 8,282 shares of Common Stock credited to Mr. Frank's deferred
account as a bookkeeping entry under the Director Stock Option and Fee
Plan.
(e) Includes 4,260 shares of Common Stock credited to Dr. Hoch's deferred
account as a bookkeeping entry under the Director Stock Option and Fee
Plan. Also includes 1,080 shares owned by Dr. Hoch's wife, as to which
shares Dr. Hoch disclaims beneficial ownership.
(f) Includes 7,852 shares of Common Stock credited to Dr. Sample's deferred
account as a bookkeeping entry under the Director Stock Option and Fee
Plan.
(g) Includes 3,664 shares of Common Stock credited to Mr. Walsh's deferred
account as a bookkeeping entry under the Director Stock Option and Fee
Plan.
(h) Includes 48,500 shares of Common Stock held by The UNOVA Foundation (the
"Foundation"). Voting power and investment power with respect to these
shares are exercised by the Foundation's officers, who are elected by the
directors of the Foundation. The Foundation's directors are elected by, and
may be removed by, the Board of Directors of UNOVA. The officers of the
Foundation, who are also officers or employees of UNOVA, have sole voting
and investment power with respect to such shares of Common Stock held by
the Foundation. Thus, such officers may be deemed to have incidents of
beneficial ownership thereof for certain purposes within the meaning of the
SEC regulations referred to above. Also includes 31,475 shares of Common
Stock held by the UNOVA Master Pension Trust, a trust organized to hold the
assets of certain qualified U.S. pension plans. Voting and investment power
with respect to these shares is exercised by a committee appointed by the
Board of Directors comprising four officers of UNOVA.
BY OTHERS
The following table sets forth each person or entity that as of December 31,
1999, reported beneficial ownership of more than 5% of UNOVA's outstanding
Common Stock:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unitrin, Inc. 12,657,764(a) 22.79%
One East Wacker Drive
Chicago, Il 60601
- -----------------------------------------------------------------------------------------------------
FMR Corp. 8,265,900(b) 14.88%
82 Devonshire Street
Boston, MA 02109
- -----------------------------------------------------------------------------------------------------
Perry Corp. and Richard C. Perry 4,623,300(c) 8.32%
599 Lexington Avenue
New York, NY 10022
- -----------------------------------------------------------------------------------------------------
Dodge & Cox 3,330,283(d) 5.99%
One Sansome Street, 35th Floor
San Francisco, CA 94104
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Unitrin, Inc. ("Unitrin"), has reported in a filing on Schedule 13D under
the Exchange Act that these shares are owned by two of its subsidiaries,
Trinity Universal Insurance Company (5,711,449 shares) and United Insurance
Company of America (6,946,315 shares). Unitrin and each of such
subsidiaries reported that each such subsidiary shared voting power and
dispositive power with Unitrin with respect to the shares so owned. Based
upon the foregoing, Unitrin may be deemed to be the indirect beneficial
owner of such 12,657,764 shares.
(b) In a filing on Schedule 13G under the Exchange Act, FMR Corp. stated that
it held sole dispositive power with respect to 8,265,900 shares. The filing
further disclosed that its subsidiary Fidelity
24
<PAGE> 28
Management & Research Company is the beneficial owner of 7,444,400 shares
as a result of acting as investment advisor to various registered
investment companies. Fa Equity Port: Income Fund owned 3,200,000 of such
shares and Fid Value Fund owned 4,244,400 of such shares.
(c) In filing on Schedule 13G under the Exchange Act by Richard C. Perry and
Perry Corp., Perry Corp. is described as a private investment firm of which
Richard C. Perry is the president and sole stockholder. The joint filers
state that they have sole voting and dispositive power with respect to
4,623,300 shares.
(d) In a filing on Schedule 13G under the Exchange Act, Dodge & Cox stated that
it held sole voting power with respect to 3,084,783 shares, shared voting
power with respect to 37,100 shares, and sole dispositive power with
respect to 3,330,283 shares. Dodge & Cox has reported that such shares are
beneficially owned by clients of such firm, including investment companies,
pension funds, and other institutional holders.
FILING OF REPORTS UNDER SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires that UNOVA's executive officers,
directors, and persons who own more than 10% of a registered class of UNOVA's
equity securities file reports of ownership and changes in ownership with the
SEC and the New York Stock Exchange. Executive officers, directors, and greater
than 10% shareholders are required by SEC regulations to furnish UNOVA with
copies of all Section 16(a) forms they file.
Based solely on an examination of the copies of such forms furnished to UNOVA
and upon written representations that no other reports were required during
1999, all Section 16(a) filing requirements applicable to UNOVA's executive
officers and directors were satisfied in 1999.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder action
at UNOVA's annual meetings consistent with regulations adopted by the SEC and
the By-laws of UNOVA. For such proposals to be considered for inclusion in
UNOVA's proxy statement and form of proxy relating to the 2001 Annual Meeting,
they must be received by UNOVA not later than November 29, 2000. Shareholder
proposals for business matters to be conducted at the meeting, including
nominations of persons to serve as directors of UNOVA, but not to be considered
for inclusion in UNOVA's proxy statement and form of proxy relating to the 2001
Annual Meeting, must be received not earlier than January 11, 2001, or later
than February 9, 2001. Such proposals should be directed to the attention of the
Secretary of UNOVA at 21900 Burbank Boulevard, Suite 300, Woodland Hills,
California 91367-7418.
THE BOARD OF DIRECTORS
UNOVA, INC.
Woodland Hills, California
March 29, 2000
25
<PAGE> 29
[UNOVA LOGO]
SUPPLEMENT
TO THE
PROXY STATEMENT
<PAGE> 30
------------------------
INDEX
------------------------
SUPPLEMENT TO THE PROXY STATEMENT
UNOVA, INC.
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Responsibility for Financial Reporting......... F-1
Independent Auditors' Report................................ F-2
Consolidated and Combined Statements of Operations Years
Ended December 31, 1999, 1998 and 1997.................... F-3
Consolidated Balance Sheets December 31, 1999 and 1998...... F-4
Consolidated and Combined Statements of Cash Flows Years
Ended December 31, 1999, 1998 and 1997.................... F-5
Consolidated and Combined Statements of Changes in
Shareholders' Investment Years Ended December 31, 1999,
1998 and 1997............................................. F-6
Notes to Consolidated and Combined Financial Statements..... F-7
Quarterly Financial Information............................. F-25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. F-26
Quantitative and Qualitative Disclosures About Market
Risk...................................................... F-31
Selected Financial Data..................................... F-32
</TABLE>
F-i
<PAGE> 31
UNOVA, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated and combined financial statements of UNOVA, Inc. and
subsidiaries and related financial information included in this Annual Report,
have been prepared by the Company, whose management is responsible for their
integrity. These statements, which necessarily reflect estimates and judgments,
have been prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor compliance with and the effectiveness of established procedures.
The consolidated and combined financial statements have been audited by Deloitte
& Touche LLP, independent auditors, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors and the Company's internal auditors to
review the scope of their activities and reports relating to internal controls
and financial reporting matters. The independent and internal auditors have full
and free access to the Audit and Compliance Committee and meet with the
Committee both with and without the presence of Company management.
/s/ Michael E. Keane
Senior Vice President and
Chief Financial Officer
February 11, 2000
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
UNOVA, Inc.
Woodland Hills, California
We have audited the accompanying consolidated balance sheets of UNOVA, Inc. and
subsidiaries (as described in Note A) as of December 31, 1999 and 1998, and the
related consolidated and combined statements of operations, changes in
shareholders' investment, and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present
fairly, in all material respects, the financial position of UNOVA, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 11, 2000
F-2
<PAGE> 33
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales and Service Revenues......................... $2,108,749 $1,662,663 $1,426,247
---------- ---------- ----------
Costs and Expenses
Cost of sales and service........................ 1,500,974 1,110,799 981,380
Selling, general and administrative.............. 454,473 383,663 324,405
Depreciation and amortization.................... 65,974 57,043 40,672
Acquired in-process research and development
charges....................................... 211,500
Interest, net.................................... 38,015 25,715 16,689
---------- ---------- ----------
Total Costs and Expenses................. 2,059,436 1,577,220 1,574,646
---------- ---------- ----------
Other Income, Net.................................. 31,523
----------
Earnings (Loss) before Taxes on Income............. 49,313 116,966 (148,399)
Taxes on Income.................................... (19,725) (47,253) (22,968)
---------- ---------- ----------
Net Earnings (Loss)................................ $ 29,588 $ 69,713 $ (171,367)
========== ========== ==========
Basic Earnings (Loss) per Share.................... $ 0.54 $ 1.28 $ (3.17)
========== ========== ==========
Diluted Earnings (Loss) per Share.................. $ 0.54 $ 1.27 $ (3.17)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE> 34
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 25,239 $ 17,708
Accounts receivable, net of allowance for doubtful
accounts of $20,375 (1999) and $24,021 (1998).......... 596,885 662,885
Inventories, net of progress billings..................... 310,175 336,005
Deferred tax assets....................................... 158,170 141,773
Other current assets...................................... 19,873 21,129
---------- ----------
Total Current Assets.............................. 1,110,342 1,179,500
Property, Plant and Equipment, Net.......................... 270,899 286,171
Goodwill and Other Intangibles, Net of Accumulated
Amortization
of $87,883 (1999) and $70,244 (1998)...................... 399,131 400,164
Other Assets................................................ 123,167 113,381
---------- ----------
Total Assets................................................ $1,903,539 $1,979,216
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable and accrued expenses..................... $ 509,188 $ 456,812
Payroll and related expenses.............................. 89,309 93,199
Notes payable and current portion of long-term
obligations............................................ 64,002 237,276
---------- ----------
Total Current Liabilities......................... 662,499 787,287
---------- ----------
Long-term Obligations....................................... 365,386 366,487
---------- ----------
Deferred Tax Liabilities.................................... 44,777 42,154
---------- ----------
Other Long-term Liabilities................................. 99,577 81,863
---------- ----------
Commitments and Contingencies...............................
Shareholders' Investment
Preferred stock; 50,000,000 shares authorized.............
Common stock; shares outstanding:
55,551,064 (1999) and 54,942,655 (1998)................ 556 549
Additional paid-in capital................................ 652,157 645,054
Retained earnings......................................... 91,260 61,672
Accumulated other comprehensive loss:
Cumulative currency translation adjustment............. (12,673) (5,850)
---------- ----------
Total Shareholders' Investment.................... 731,300 701,425
---------- ----------
Total Liabilities and Shareholders' Investment.............. $1,903,539 $1,979,216
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE> 35
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year........... $ 17,708 $ 13,685 $ 149,467
--------- --------- ---------
Cash Flows from Operating Activities:
Net earnings (loss).................................... 29,588 69,713 (171,367)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities (net of
acquisitions):
Acquired in-process research and development charges... 211,500
Depreciation and amortization..................... 65,974 57,043 40,672
Change in prepaid pension costs, net.............. (15,246) (14,620) (11,217)
Deferred taxes.................................... (6,065) (437) 2,162
Gain on sale of property plant and equipment,
net............................................ (1,333) (35,043)
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable...... 100,000
Accounts receivable............................ (36,741) (109,096) 39,752
Inventories.................................... 24,287 (67,223) (9,167)
Other current assets........................... (1,019) 13,889 (12,540)
Accounts payable and accrued expenses.......... 39,898 69,922 (53,830)
Payroll and related expenses................... (12,587) 13,493 6,238
Other operating activities........................ 7,021 6,823 (1,247)
--------- --------- ---------
Net cash provided by operating activities...... 193,777 4,464 40,956
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures................................... (61,149) (83,776) (30,310)
Proceeds from sale of property, plant and equipment.... 30,356 71,118 7,198
Changes in other assets................................ 8,926 (3,402) (16,987)
Acquisition of businesses, net of cash acquired........ (287,350) (400,754)
Other investing activities............................. 3,914 (1,089) 206
--------- --------- ---------
Net cash used in investing activities.......... (17,953) (304,499) (440,647)
--------- --------- ---------
Cash Flows from Financing Activities:
Repayment of borrowings................................ (288,573) (457,271) (95,607)
Proceeds from borrowings............................... 114,029 754,780 276,698
Dividend paid to Western Atlas Inc. ................... (230,000)
Net transactions with Western Atlas Inc. .............. 190,338
Change in due to Western Atlas Inc. ................... 120,426
Other financing activities............................. 6,251 6,549 2,054
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (168,293) 304,058 263,909
--------- --------- ---------
Resulting Increase (Decrease) in Cash and Cash Equivalents... 7,531 4,023 (135,782)
--------- --------- ---------
Cash and Cash Equivalents at End of Year................. $ 25,239 $ 17,708 $ 13,685
========= ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE> 36
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDERS' INVESTMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED NET
ADDITIONAL RETAINED OTHER INVESTMENT
COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN
TOTAL STOCK CAPITAL (DEFICIT) INCOME (LOSS) ATLAS
-------- ------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997.............. $574,508 $ 574,508
--------
Comprehensive Loss before Distribution
Date:
Net loss to Distribution Date....... (163,326) (163,326)
Currency translation adjustment to
Distribution Date................. (3,699) (3,699)
--------
Comprehensive Loss before
Distribution Date............... (167,025)
--------
Net transactions with Western Atlas
Inc................................. 190,338 190,338
--------
Distribution of common stock to UNOVA
shareholders......................... $ 545 $601,689 $ (4,413) (597,821)
Comprehensive Loss from Distribution
Date to December 31, 1997:
Net loss from Distribution Date to
December 31, 1997................. (8,041) $(8,041)
Currency translation adjustment from
Distribution Date to December 31,
1997............................... (2,345) (2,345)
--------
Comprehensive Loss from
Distribution Date to December
31, 1997........................ (10,386)
--------
Other................................. 2,054 2,054
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1997............ 589,489 545 603,743 (8,041) (6,758) -
--------
Comprehensive Income:
Net earnings........................ 69,713 69,713
Currency translation adjustment..... 908 908
--------
Comprehensive Income.............. 70,621
--------
Distribution-related tax benefit...... 34,809 34,809
Issuances of common stock............. 6,506 4 6,502
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1998............ 701,425 549 645,054 61,672 (5,850) -
--------
Comprehensive Income:
Net earnings........................ 29,588 29,588
Currency translation adjustment..... (6,823) (6,823)
--------
Comprehensive Income.............. 22,765
--------
Issuances of common stock............. 7,110 7 7,103
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1999............ $731,300 $ 556 $652,157 $91,260 $(12,673) $ -
======== ======= ======== ======= ======== =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE> 37
UNOVA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
General Information. UNOVA, Inc. and subsidiaries ("UNOVA" or the "Company")
became an independent public company on October 31, 1997 (the "Distribution
Date"), when all of the UNOVA common stock was distributed to holders of common
stock of Western Atlas Inc. ("WAI"), in the form of a dividend (the
"Distribution"). Every WAI shareholder of record on October 24, 1997 was
entitled to receive one share of UNOVA common stock for each WAI share of common
stock held.
Nature of Operations. UNOVA is an industrial technologies company providing
global customers with solutions for improving their efficiency and productivity.
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets
served: Integrated Production Systems ("IPS") and Advanced Manufacturing
Equipment ("AME"). The ADS business segment comprises mobile computing and
wireless communication systems products and services, principally serving the
industrial market. Customers are global distribution and transportation
companies, food and beverage operations, manufacturing industries, health care
providers and government agencies. The IPS segment includes integrated
manufacturing systems, body welding and assembly systems, and precision grinding
and abrasives operations, primarily serving the worldwide automotive, off-road
vehicle, and diesel engine industries. The AME segment comprises machining
systems and stand alone machine tools primarily serving the aerospace and
manufacturing industries.
Principles of Consolidation and Combination. The consolidated and combined
financial statements include the accounts of UNOVA, Inc. and its wholly owned
subsidiaries and companies in which UNOVA has a controlling interest.
Investments in companies over which UNOVA has influence but not a controlling
interest are accounted for using the equity method. Investments in other
companies are carried at cost. All material intercompany transactions have been
eliminated.
The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
WAI businesses that comprised the Company at the Distribution Date. They
include, at their historical amounts, the assets, liabilities, revenues and
expenses directly related and those allocated to these businesses. A pro-rata
share of certain general and administrative corporate costs incurred by WAI
prior to the Distribution Date have been allocated to the Company based on the
relative ratio of projected costs to be incurred by WAI and the Company
individually. Such costs include general management, legal, tax, treasury,
insurance, financial audit, financial reporting, human resources and real estate
services.
The Company's debt prior to the Distribution Date includes an allocation of a
portion of WAI's corporate debt, based on the Company's estimated past capital
requirements. Interest expense related thereto has been included in the
Company's statements of operations and cash flows at WAI's estimated blended
historical rate of interest on long-term borrowings of 7.5%.
Management believes the above stated allocations were made on a reasonable
basis; however, they do not necessarily reflect the results of operations which
would have occurred had the Company been an independent entity nor are they
necessarily indicative of future expenses or income (see Note J).
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reported period. Actual results could differ from
those estimates.
Cash Equivalents. The Company considers time deposits and commercial paper
purchased within three months of their date of maturity to be cash equivalents.
F-7
<PAGE> 38
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out or last-in, first-out method.
Revenue Recognition. Revenues are generally recognized when products are shipped
or as services are performed. Revenues and profits on long-term contracts are
recorded under the percentage-of-completion, cost to cost method of accounting.
Any anticipated losses on contracts are charged to operations as soon as they
are determinable. General and administrative costs are expensed as incurred.
Research and Development. Research and development costs are charged to expense
as incurred. Total expenditures on research and development activities amounted
to $74.1 million, $71.5 million and $53.1 million, in the years ended December
31, 1999, 1998, and 1997, respectively. The Company expensed a total of $211.5
million of acquired in-process research and development in 1997. See further
discussion in Note B.
Other Income, Net. In the year ended December 31, 1998, other income, net
consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate
headquarters building, offset by other non-operating expenses.
Property, Plant and Equipment. Property, plant and equipment is stated at cost.
Depreciation, computed generally by the straight-line method for financial
reporting purposes, is provided for over the estimated useful lives of the
related assets.
Income Taxes. The Company accounts for income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. This
method also requires the recognition of future tax benefits such as net
operating loss carryforwards and other tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered. Valuation allowances are provided for deferred tax assets if it is
more likely than not that they will be realized.
The Company's domestic operations and their foreign branches were included in
WAI's consolidated tax returns (for periods prior to the Distribution Date). Any
tax benefits related to these operations have been recorded in these financial
statements if such were realizable by WAI on a consolidated basis. Foreign
entities included in these financial statements pay taxes in accordance with
local laws and regulations.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the credit risk. The Company evaluates the creditworthiness of its
customers and maintains an allowance for anticipated losses.
No customer was significant to the Company's revenues in 1999 and 1998. In 1997,
one automotive customer represented 13% of revenues.
Foreign Currencies. The currency effects of translating the financial statements
of the Company's foreign entities that operate in local currency environments
are included in the "cumulative currency translation adjustment" component of
accumulated other comprehensive income (loss). Currency transaction gains and
losses are included in the consolidated and combined statements of operations.
Currency transaction net losses for the year ended December 31, 1999 were $3.0
million, net of taxes. Currency transaction gains and losses for the years ended
December 31, 1998 and 1997 were not significant.
F-8
<PAGE> 39
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments. When appropriate, the Company may attempt to limit its
exposure to changing foreign exchange rates by entering into short-term foreign
currency exchange contracts. As of December 31, 1999, the Company held
short-term contracts for the purpose of hedging foreign currency cash flows with
an aggregate notional amount of $86.8 million. The Company does not enter into
any foreign currency contracts for speculating or trading purposes. Contracts
that effectively meet risk reduction and correlation criteria are accounted for
as hedges and, accordingly, gains and losses from mark-to-market are deferred in
the cost basis of the underlying transaction. In those circumstances when it is
not appropriate to account for contracts as hedges, gains and losses from
mark-to-market are recorded currently in earnings.
Goodwill and Other Intangibles. Goodwill is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over periods ranging from 4 to 18 years.
Impairment of Long-Lived Assets and Goodwill. The Company assesses the
recoverability of long-lived assets and goodwill when circumstances indicate
that the carrying amount of an asset may not be fully recoverable. An impairment
is recorded to writedown long-lived assets and goodwill to their estimated fair
value if the undiscounted cash flows estimated to be generated by the asset are
less than its carrying amount.
Environmental Costs. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
New Accounting Pronouncements. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 (an amendment of FASB Statement No. 133). Under the
provisions of this statement, the effective date of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"), is deferred to fiscal years beginning after June
15, 2000. The Company is currently evaluating the impact of adopting SFAS No.
133.
Reclassifications. Certain prior year amounts have been reclassified to conform
to the current year presentation.
F-9
<PAGE> 40
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS
ACQUISITIONS AND INVESTMENTS
In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron
for approximately $187.3 million in cash. The division, which was renamed
Cincinnati Machine, a UNOVA Company ("Cincinnati Machine"), is engaged in the
design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting. Accordingly, the acquisition cost has been
allocated to the net assets acquired based on their relative fair values. In
conjunction with the acquisition management began to formulate a plan to cease
domestic manufacturing of certain machines models, and to terminate employees at
domestic and foreign locations. During 1999, the Company adjusted the
preliminary allocation of the purchase price to include approximately $19.8
million of additional liabilities for costs to exit the manufacturing activities
and terminate employees, and $4.1 million for additional postretirement
obligations and pension liabilities. The acquisition resulted in $17.8 million
allocated to goodwill that is being amortized over 25 years using the
straight-line method. At December 31, 1999, the Company has substantially
completed the process of exiting these activities and terminating employees.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation common stock which was applied towards the purchase price of Amtech
Systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated
financial statements.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI, a European-based ADC company, manufactures bar
code on-demand printers with labels and ribbons as well as hand-held scanners.
These two companies were consolidated in Intermec Technologies Corporation, the
Company's Automated Data Systems segment. Both acquisitions were funded by
Western Atlas borrowings and cash on hand, and have been accounted for under the
purchase method of accounting. Accordingly, the acquisition costs (approximately
$280.0 million and $107.0 million for Norand and UBI, respectively) were
allocated to the net assets acquired based upon their relative fair values. Such
allocation resulted in $203.3 million assigned to acquired in-process research
and development activities; $154.1 million assigned to goodwill (amortized over
25 years using the straight-line method); and $29.0 million assigned to other
intangibles (amortized over periods ranging from four to 18 years using the
straight-line method). During the second quarter of 1997, the Company expensed
the amounts assigned to acquired in-process research and development projects
that had not yet achieved technological feasibility in accordance with Financial
Accounting Standards Board Interpretation No. 4 ("FIN 4").
The Company acquired the remaining 51% of Honsberg, a German machine tool maker,
in the second quarter of 1997. The initial 49% of Honsberg was acquired during
1995. The Company purchased the stamping, engineering and prototyping division
of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired
Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding
systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated and
combined financial statements.
In December 1997, the Company acquired radio frequency identification ("RFID")
technology from IBM Corporation. In connection with this acquisition, the
Company recorded a $13.0 million after-tax charge in 1997 to expense acquired
in-process research and development in accordance with FIN 4 and the
F-10
<PAGE> 41
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS (CONTINUED)
anticipated loss on a related long-term contract. The Company is using this
acquired technology to further develop its own RFID technology.
CASH FLOW DISCLOSURE
The fair values of acquired assets and liabilities, at their respective
acquisition dates, are presented below for supplemental cash flow disclosure
purposes. The 1998 balances include the preliminary allocations to the acquired
assets and liabilities of Cincinnati Machine, R&B Machine and Amtech. The 1997
balances include Norand, UBI, Honsberg, Modern Prototype and Goldcrown
Machinery.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets.............................................. $263,266 $ 164,153
Property, plant and equipment............................... 111,593 29,093
Goodwill and intangibles.................................... 50,983 201,380
Other non-current assets.................................... 17,864 55,956
Total debt.................................................. (29,221) (84,163)
Other current liabilities................................... (85,049) (146,724)
Other non-current liabilities............................... (9,154) (11,642)
In-process research and development......................... 203,300
-------- ---------
Purchase price.............................................. 320,282 411,353
Less non-cash payment of Amtech common stock................ (10,000)
Less cash acquired.......................................... (22,932) (10,599)
-------- ---------
Cash paid for acquisitions, net of cash acquired............ $287,350 $ 400,754
======== =========
</TABLE>
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $25.2 million and $17.7 million at
December 31, 1999 and December 31, 1998, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Borrowings under credit facility, with interest at 7.0%
(1999) and 5.4% (1998), due 2002.......................... $150,000 $ 200,000
Debentures, with interest at 6.875%, due 2005............... 100,000 100,000
Debentures, with interest at 7.00%, due 2008................ 100,000 100,000
Notes payable, with average interest at 4.5% (1999) and 5.3%
(1998), due 2000.......................................... 62,888 186,024
Industrial revenue bonds, with average interest at 5.3%
(1999) and 5.5% (1998), due July 2005..................... 13,500 13,500
Other, with average interest at 7.1% (1999) and 6.9% (1998),
due through 2002.......................................... 3,000 4,239
-------- ---------
429,388 603,763
Less notes payable and current portion of long-term
obligations............................................... (64,002) (237,276)
-------- ---------
Long-term obligations....................................... $365,386 $ 366,487
======== =========
</TABLE>
F-11
<PAGE> 42
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Notes payable and long-term obligations at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>
(THOUSANDS
YEAR ENDING DECEMBER 31, OF DOLLARS)
------------------------ ------------
<S> <C>
2000........................................................ $ 64,002
2001........................................................ 179
2002........................................................ 150,003
2003........................................................
2004........................................................
Thereafter.................................................. 215,204
--------
$429,388
========
</TABLE>
The Company maintains two unsecured committed credit facilities with a group of
banks from which it may borrow up to an aggregate of $500.0 million. Under these
facilities the Company may borrow at the Prime Rate, the London Inter Bank
Offered Rate, rates borne by certificates of deposit or other rates that are
mutually acceptable to the banks and the Company, plus a respective rate margin,
that varies based on outstanding borrowing levels and the Company's credit
rating. The $400 million credit facility expires in September 2002 and had
outstanding borrowings of $150.0 million at December 31, 1999. The $100 million
credit facility expires in November 2000 and had no outstanding borrowings at
December 31, 1999. At February 11, 2000, $300.0 million of these credit
facilities was available for the Company's general use. In addition, the Company
maintains other uncommitted credit facilities and lines of credit of which $35.4
million was available to the Company at February 11, 2000.
The Company is in compliance with its various debt covenants the most
restrictive of which relate to the Company's incurrence of debt, mergers,
consolidations and sale of assets and which require the Company to satisfy
certain leverage ratios.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding short-term debt.
Financial instruments on the Company's consolidated balance sheets include
accounts receivable, notes payable, and accounts payable which approximate their
market values due to their short maturity. The $365.4 million of long-term
obligations had an estimated fair market value of $333.3 million as of December
31, 1999, based primarily on quoted market prices. UNOVA also has
off-balance-sheet guarantees and letter-of-credit reimbursement agreements with
respect to liabilities totaling a maximum amount of $381.6 million at December
31, 1999. These agreements primarily relate to the guarantee of performance on
contracts.
F-12
<PAGE> 43
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest expense........................................ $38,867 $28,182 $20,234
Interest income......................................... (852) (2,467) (3,545)
------- ------- -------
Net interest expense.................................... $38,015 $25,715 $16,689
======= ======= =======
</TABLE>
The Company made interest payments to non-related parties of $39.5 million,
$25.3 million, and $6.6 million in the years ended December 31, 1999, 1998 and
1997, respectively. Capitalized interest costs in each of the periods presented
were not material. Interest expense for the year ended December 31, 1997
includes $12.0 million based on a rate of 7.5% on the allocated portion of WAI
corporate debt.
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade receivables, net...................................... $224,876 $365,232
Receivables related to long-term contracts
Amounts billed............................................ 104,356 125,920
Unbilled costs and accrued profit on progress completed
and retentions......................................... 267,653 171,733
-------- --------
Accounts receivable, net.................................... $596,885 $662,885
======== ========
</TABLE>
The unbilled costs and retentions at December 31, 1999 are expected to be
entirely billed and collected during 2000.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process........................... $237,822 $232,010
Finished goods.............................................. 44,336 82,434
Inventoried costs related to long-term contracts............ 51,834 56,823
Less progress billings...................................... (23,817) (35,262)
-------- --------
Inventories, net of progress billings....................... $310,175 $336,005
======== ========
</TABLE>
F-13
<PAGE> 44
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment, at cost
Land..................................................... $ 20,186 $ 27,313
Buildings and improvements............................... 107,417 120,142
Machinery and equipment.................................. 344,626 316,932
Less accumulated depreciation.............................. (201,330) (178,216)
--------- ---------
Net property, plant and equipment.......................... $ 270,899 $ 286,171
========= =========
</TABLE>
Depreciation expense was $47.9 million, $40.9 million and $27.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
The range of estimated useful lives of the major classes of assets are:
<TABLE>
<S> <C>
Buildings................................................... 10-45 years
Building improvements....................................... 2-20 years
Machinery and equipment..................................... 2-15 years
</TABLE>
As of December 31, 1999, the Company deferred $13.3 million of gains related to
sale-leaseback transactions. These deferred gains are being amortized over the
terms of the related leases. Minimum rental commitments (including commitments
to a related party of $8.14 million, see Note J), net of deferred gain
amortization, under noncancellable operating leases were as follows at December
31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING LEASES
----------- ----------------
(THOUSANDS OF DOLLARS)
<S> <C>
2000........................................................ $ 21,406
2001........................................................ 14,914
2002........................................................ 11,036
2003........................................................ 8,413
2004........................................................ 7,283
Thereafter.................................................. 45,001
--------
$108,053
========
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $27.1 million, $20.5
million and $17.9 million, for the years ended December 31, 1999, 1998 and 1997,
respectively.
Proceeds totaling approximately $25.5 million were received in 1999 on the
sale-leaseback of an operating facility. In 1998, $71.1 million was received on
the sale of the Company's corporate headquarters building and two other
buildings, and the sale-leaseback of an operating facility.
F-14
<PAGE> 45
NOTE F: SHAREHOLDERS' INVESTMENT
CAPITAL STOCK
At December 31, 1999, there were authorized 250 million shares of common stock,
par value $0.01, and 50 million shares of preferred stock, par value $0.01.
SHAREHOLDER RIGHTS PLAN
In September 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan (the "Plan") and, in accordance with such Plan, declared a dividend
of one preferred share purchase right (the "Right") for each outstanding share
of Company common stock, payable to shareholders of record on October 31, 1997.
The Plan will cause substantial dilution to a party that attempts to acquire the
Company in a manner or on terms not approved by the Board of Directors. Each
Right entitles the holder to purchase from the Company one one-hundredth of a
share of Series A Preferred Stock at a price of seventy dollars. The Rights
become exercisable if a person other than a person which presently holds more
than 15 percent of the Company's common stock acquires 15 percent or more, or
announces a tender offer for 15 percent or more, of the Company's outstanding
common stock. If a person acquires 15 percent or more of the Company's
outstanding common stock, each right will entitle the holder to purchase the
Company's common stock having a market value of twice the exercise price of the
Right. The Rights, which expire in September 2007, may be redeemed by UNOVA at a
price of one cent per Right at any time prior to a person acquiring 15 percent
or more of the outstanding common stock.
EARNINGS PER SHARE
For the years ended December 31, 1999 and 1998, basic earnings per share is
calculated using the weighted average number of common shares outstanding for
the period while diluted earnings per share is computed on the basis of the
weighted average number of common shares outstanding plus the dilutive effect of
outstanding stock options using the "treasury stock" method. For the year ended
December 31, 1997, basic earnings per share is calculated using the weighted
average of the number of shares outstanding for post-Distribution Date periods
and the outstanding shares of WAI common stock at June 30, 1997 for the period
prior to the Distribution Date, while diluted earnings per share is computed by
adding the dilutive effect of outstanding stock options using the "treasury
stock" method to the basic weighted average balance.
Shares used for basic and diluted earnings per share were computed as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares -- Basic........ 55,110,655 54,620,208 54,056,243
Dilutive effect of stock options............... 8,863 82,859
---------- ---------- ----------
Weighted average shares -- Diluted............. 55,119,518 54,703,067 54,056,243
========== ========== ==========
</TABLE>
At December 31, 1999 and 1998, Company employees and directors held options to
purchase 5,524,700 and 3,937,750 shares, respectively, of Company common stock
that were antidilutive to the diluted earnings per share computation. These
options could become dilutive in future periods if the average market price of
the Company's common stock exceeds the exercise price of the outstanding
options.
F-15
<PAGE> 46
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
STOCK AWARDS
The UNOVA, Inc. 1999 and 1997 Stock Incentive Plans (the "Stock Incentive
Plans," collectively) provide for the grant of incentive awards to officers and
other key employees. Incentive awards may be granted in the form of stock
options, with or without related stock appreciation rights, or in the form of
restricted stock. Under the Stock Incentive Plans, stock options may not be
granted at a price less than the market value of the Company's common stock on
the date of grant. The Stock Incentive Plans options generally vest in equal
increments over five years. The Director Stock Option and Fee Plan (the
"Director Plan") provides for the grant of stock options to the Company's
non-employee directors. Under the Director Plan, stock options are granted
annually at the market value of the Company's common stock on the date of grant.
The number of options granted annually is fixed by the Director Plan. Such
options become fully exercisable on the first anniversary of their grant. Under
the Stock Incentive Plans and Director Plan, there were 1,570,002 options
exercisable and 2,534,811 options available for grant as of December 31, 1999.
The following table summarizes the activity of the Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
1997
Granted.................................................. 2,504,500 $18.80
---------
Outstanding at December 31, 1997........................... 2,504,500 18.80
1998
Granted.................................................. 1,706,200 16.97
Canceled................................................. (255,950) 18.37
---------
Outstanding at December 31, 1998........................... 3,954,750 18.04
1999
Granted.................................................. 2,209,000 14.36
Canceled................................................. (190,050) 18.07
---------
Outstanding at December 31, 1999........................... 5,973,700 16.67
=========
</TABLE>
Outstanding stock option data as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
---------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.38 to
$16.59........ 3,622,200 9.38 $15.21 423,700 $16.52
17.19 to
22.00........ 2,351,500 7.90 18.92 1,146,302 18.81
--------- ---- ------ --------- ------
5,973,700 8.80 $16.67 1,570,002 $18.20
========= ==== ====== ========= ======
</TABLE>
F-16
<PAGE> 47
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 were $6.33, $7.10, and $7.76 per option, respectively. The fair value of
each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.88%, 4.63% and 5.80%; expected life of five years for each
year; and expected volatility of 40.07%, 39.60% and 36.00%. The 1999 and 1998
expected volatility was determined from historical UNOVA stock price
fluctuations, while the 1997 expected volatility was determined from historical
industry stock price fluctuations. There is no assurance that the assumptions
used in determining the fair values of stock options will prove true in the
future. The actual value of the options depends on several factors, including
the actual market price of the common stock on the date of exercise. Changes in
any of these factors as well as fluctuations in the market price of the
Company's common stock will cause the actual value of these options to vary from
the theoretical value indicated above.
In 1999, the Company granted 109,585 shares of restricted stock to an officer
under the provisions of the 1999 Stock Incentive Plan. The fair value at the
grant date of the restricted stock (without regard to restrictions on transfer),
which vests in installments in 2002, 2003, and 2004, was $12.84 per share. The
unearned portion of this grant is being amortized as compensation expense on a
straight-line basis over the vesting period and was not material for the year
ended December 31, 1999.
EMPLOYEE STOCK PURCHASE PLAN
In January 1998, UNOVA adopted an Employee Stock Purchase Plan under which the
Company is authorized to sell up to five million shares of common stock to its
eligible full-time employees. The purchase price of the stock is 85% of the
lower of the market price on the first day or last day of the applicable
offering period, which is normally six months in duration. In 1999 and 1998,
employees purchased 496,450 and 433,506 shares, respectively. The
weighted-average fair value of purchase rights granted in 1999 and 1998 was
$4.42 per share and $5.14 per share, respectively. The fair value of the stock
purchase rights were determined using the following weighted-average assumptions
in 1999 and 1998, respectively; risk-free interest rate of 4.63% for each year;
expected life equal to the applicable offering periods for each year; and
expected volatility of 40.07% in 1999 and 39.60% in 1998. As previously noted,
the actual value of purchase rights may vary from the theoretical value
determined using the Black-Scholes option pricing model.
PRO FORMA COMPENSATION COST DISCLOSURE
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, under which no compensation cost has been recognized at the grant of
stock options. Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income (loss) and diluted
earnings (loss) per share for 1999, 1998, and 1997 would have been $22.8 million
and $0.41, $64.6 million and $1.18, and $(173.6) million and $(3.21),
respectively.
F-17
<PAGE> 48
NOTE G: TAXES ON INCOME
Earnings (loss) before taxes on income by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States....................................... $44,113 $ 90,976 $(113,075)
Other nations....................................... 5,200 25,990 (35,324)
------- -------- ---------
$49,313 $116,966 $(148,399)
======= ======== =========
</TABLE>
Taxes on income consist of the following provisions (benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Currently Payable:
U.S. taxes........................................ $ 4,964 $ 20,416 $ 13,821
International taxes............................... 3,849 12,451 10,124
------- -------- ---------
8,813 32,867 23,945
------- -------- ---------
Deferred:
U.S. taxes........................................ 10,336 13,689 242
International taxes............................... 576 697 (1,219)
------- -------- ---------
10,912 14,386 (977)
------- -------- ---------
$19,725 $ 47,253 $ 22,968
======= ======== =========
</TABLE>
Deferred taxes result from the effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accrued liabilities................................. $ 40,355 $ 56,863
Receivables and inventories......................... 22,232 18,872
Retiree medical benefits............................ 12,680 10,176
Intangibles......................................... 13,473 12,963
Tax credit carryforwards............................ 23,419 6,395
Deferred income..................................... 9,244 2,718
Net operating loss carryforwards.................... 54,830 41,511
Pensions............................................ $28,048 $23,588
Accelerated depreciation............................ 16,729 18,566
Other items......................................... 1,327 1,220
-------- ------- -------- -------
Total before valuation allowance.................... 177,560 44,777 150,718 42,154
Valuation allowance................................. (19,390) (8,945)
-------- ------- -------- -------
$158,170 $44,777 $141,773 $42,154
======== ======= ======== =======
</TABLE>
F-18
<PAGE> 49
NOTE G: TAXES ON INCOME (CONTINUED)
The Company has available at December 31, 1999, a net operating tax loss
carryforward in the United States of approximately $67.8 million. Approximately
$7.7 million and $13.9 million of the net operating tax loss carryforwards will
expire in 2010 and 2011, respectively. Approximately $4.5 million, $25.1 million
and $16.6 million of the remaining net operating tax loss carryforwards will
expire in 2017, 2018 and 2019, respectively.
The Company has foreign tax credit carryforwards of $2.5 million at December 31,
1999 to offset future tax liability in the United States through 2004. The
Company also has general business credit and other tax credits carryforward of
approximately $20.9 million to offset future tax liability in the United States
through 2019.
At December 31, 1999, the Company has foreign net operating tax loss
carryforwards of $76.5 million. Valuation allowances of $19.4 million and $8.9
million, as of December 31, 1999 and 1998, respectively, have been provided for
deferred income tax benefits related to the foreign loss carryforwards that may
not be realized. The valuation allowance for each year includes $4.4 million
related to the acquired German net operating loss carryforwards; any tax
benefits subsequently recognized for the acquired German net operating loss
carryforwards will be allocated to goodwill.
The following is a reconciliation of income taxes at the U.S. statutory rate to
the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- ------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate............................................ $ 17,260 $40,938 $(51,940)
Nondeductible acquired in-process research and development............ 71,050
State income taxes net of federal benefit............................. 2,998 3,055 1,625
Amortization of nondeductible goodwill................................ 4,852 4,272 4,431
Tax credits and FSC benefit........................................... (13,870) (3,276) (1,250)
Foreign earnings (losses) taxed at other than U.S. statutory rate..... 6,174 4,240 (223)
Other items........................................................... 2,311 (1,976) (725)
-------- ------- --------
$ 19,725 $47,253 $ 22,968
======== ======= ========
</TABLE>
The Company made net tax payments of $13.7 million, $4.5 million and $44.4
million in the years ended December 31, 1999, 1998 and 1997, respectively.
The Company has provided for federal income taxes and foreign withholding taxes
on the undistributed earnings of foreign subsidiaries.
F-19
<PAGE> 50
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has retirement and pension plans which cover most of its employees.
Most of the Company's U.S. employees are covered by a contributory defined
benefit plan, under which annual contributions are made to the extent such
contributions are actuarially determined to adequately fund the plan. Certain of
the Company's non-U.S. subsidiaries also have retirement plans for employees.
There are also defined contribution voluntary savings programs generally
available for U.S. employees, which are intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code. These plans are designed to
enhance the retirement programs of participating employees. Under these plans,
the Company matches up to 50% of a certain portion of participants'
contributions.
U.S. PENSION PLANS
The following table sets forth the change in benefit obligations and plan assets
of the Company's U.S. pension plans and the amounts recognized in the Company's
balance sheets.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 181,842 $151,649
Service cost.............................................. 9,948 6,140
Interest cost............................................. 12,989 10,982
Plan participants' contributions.......................... 621 431
Actuarial loss (gain)..................................... (1,604) 22,659
Benefits paid............................................. (10,440) (10,019)
--------- --------
Benefit obligation at end of year......................... 193,356 181,842
--------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 316,241 345,347
Actual return on plan assets.............................. 148,407 (11,858)
Plan participants' contributions.......................... 621 431
Benefits paid............................................. (9,975) (9,554)
Spin-off related adjustment............................... (8,125)
--------- --------
Fair value of plan assets at end of year.................. 455,294 316,241
--------- --------
Funded status............................................. 261,938 134,399
Unrecognized net actuarial gain........................... (190,750) (76,901)
Unrecognized prior service cost........................... 3,735 4,201
Unrecognized transition asset............................. (7,468) (9,381)
--------- --------
Prepaid pension cost...................................... $ 67,455 $ 52,318
========= ========
</TABLE>
F-20
<PAGE> 51
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The preceding table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1999 and 1998, these liabilities amounted to $21.2 million and
$17.1 million, respectively.
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 9.25% for fiscal years 1999
and 1998. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.50% and 7.00% at
December 31, 1999 and 1998, respectively. The rate of increase in future
compensation levels was 4.50% at December 31, 1999 and 1998.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
A summary of the components of net periodic pension income for the U.S. defined
benefit plans and defined contribution plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION INCOME
Service cost...................................... $ 9,948 $ 6,140 $ 5,988
Interest cost..................................... 12,989 10,982 10,075
Expected return on plan assets.................... (32,179) (25,531) (20,784)
Amortization of prior service cost................ 466 461 406
Recognized net actuarial gain..................... (3,993) (4,313) (3,043)
Amortization of transition asset.................. (2,477) (2,477) (2,477)
-------- -------- --------
(15,246) (14,738) (9,835)
Defined contribution plans........................ 5,808 4,500 4,160
-------- -------- --------
Net periodic pension income....................... $ (9,438) $(10,238) $ (5,675)
======== ======== ========
</TABLE>
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom and
Germany, the weighted-average discount rate used was approximately 6.49% at
December 31, 1999. The rate of increase in future compensation used was
approximately 3.35%, and the rate of return on assets was 8.50% at December 31,
1999.
Pension costs for non-U.S. pension plans were not material for any of the
periods presented herein. The actuarial present value of projected benefits at
December 31, 1999 was $111.1 million compared with net assets available for
benefits of $128.7 million.
F-21
<PAGE> 52
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans provided
by UNOVA. These benefit plans are unfunded. The following table sets forth the
change in benefit obligation of the Company's other postretirement benefits and
amounts recognized in the Company's balance sheets.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 40,408 $ 27,789
Service cost.............................................. 928 292
Interest cost............................................. 2,785 2,037
Acquisitions.............................................. 940 11,423
Actuarial (gain) loss..................................... (4,227) 104
Benefits paid............................................. (2,183) (1,237)
-------- --------
Benefits obligation at end of year........................ 38,651 40,408
-------- --------
Funded status............................................. (38,651) (40,408)
Unrecognized net actuarial loss........................... 3,772 8,198
Unrecognized transition obligation........................ 1,475 1,594
-------- --------
Accrued postretirement benefit obligation................. $(33,404) $(30,616)
======== ========
</TABLE>
A summary of the Company's net periodic postretirement benefit cost is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST
Service cost............................................. $ 928 $ 292 $ 586
Interest cost............................................ 2,785 2,037 1,688
Recognized actuarial loss and transition obligation...... 318 328
------ ------ ------
Net periodic postretirement benefit cost................. $4,031 $2,657 $2,274
====== ====== ======
</TABLE>
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7.50% and 7.00% at December 31, 1999 and 1998. The assumed
health care cost trend rate for fiscal year 1999 was 11.67% and is projected to
decrease over 17 years to 6.00%, where it is expected to remain thereafter. The
effect of a one-percentage-point increase or decrease in the assumed health care
cost trend rate on the service cost and interest cost components of the net
periodic postretirement benefit cost is not material. A one-percentage-point
increase in the assumed health care cost trend rate on the postretirement
benefit obligation results in an increase of approximately $3.0 million, while a
one-percentage point decrease results in a decrease of $2.7 million.
F-22
<PAGE> 53
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's consolidated and combined
financial statements.
NOTE J: RELATED PARTY TRANSACTIONS
Included in other assets are amounts due from certain Company officers and other
related parties of $2.0 million and $1.9 million at December 31, 1999 and 1998,
respectively.
The Company leases executive offices that are located in a building owned by the
UNOVA Master Trust, an entity which holds the assets of the Company's primary
U.S. pension plans. The ten-year operating lease, which was approved by the
Department of Labor under the provisions of the Employee Retirement Income
Security Act of 1974, commenced on February 1, 1999. The lease provides for
fixed monthly rental payments subject to certain indexed escalation clauses.
Rental expense under the provisions of this lease was $0.7 million for the year
ended December 31, 1999.
Immediately prior to the Distribution in 1997, the Company paid a dividend of
$230.0 million to WAI with funds borrowed under the Company's revolving credit
facility.
Included in general and administrative expenses are allocated charges from WAI
of $13.5 million for the year ended December 31, 1997.
Included in interest expense are allocated charges from WAI of $12.0 million for
the year ended December 31, 1997.
NOTE K: SEGMENT REPORTING
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. The Company
uses operating profit, which is computed by adding net interest expense to
earnings before taxes on income, to evaluate performance.
Corporate and other amounts include corporate operating costs and currency
transaction gains and losses (see Notes A and J). Assets classified as corporate
and other amounts consist of cash and cash equivalents, retained interest in
securitized trade receivables, and other corporate assets. Activities are
primarily product sales oriented. Export sales are not material. All material
intercompany transactions have been excluded.
F-23
<PAGE> 54
NOTE K: SEGMENT REPORTING (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
INDUSTRIAL AUTOMATION
SYSTEMS
-------------------------- CORPORATE
AUTOMATED INTEGRATED ADVANCED AND
YEAR ENDED DATA PRODUCTION MANUFACTURING OTHER
DECEMBER 31, SYSTEMS SYSTEMS EQUIPMENT AMOUNTS TOTAL
------------ --------- ---------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ 1999 $ 877 $ 937 $295 $2,109
1998 830 719 114 1,663
1997 636 790 1,426
Operating profit (loss)............. 1999 26 87 6 $(32) 87
1998 55 73 4 11(B) 143(B)
1997 (202)(A) 95 (25) (132)(A)
Capital expenditures................ 1999 37 14 5 5 61
1998 46 34 4 84
1997 16 14 30
Depreciation and amortization
expense........................... 1999 37 18 10 1 66
1998 38 17 2 57
1997 25 15 1 41
Total assets at year end............ 1999 665 838 253 148 1,904
1998 775 820 308 76 1,979
1997 642 650 64 1,356
</TABLE>
(A) Includes the $211.5 million charges for acquired in-process research and
development.
(B) Includes gain of $35.5 million on sale of UNOVA's corporate headquarters
building.
OPERATIONS BY GEOGRAPHIC AREA
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
CORPORATE
AND
YEAR ENDED UNITED OTHER
DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL
------------ ------ ------ ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... 1999 $1,555 $392 $162 $2,109
1998 1,064 442 157 1,663
1997 989 363 74 1,426
Operating profit (loss)...... 1999 107 5 7 $(32) 87
1998 98 28 6 11 143
1997 (78) (35) 6 (25) (132)
Total assets at year end..... 1999 1,399 329 28 148 1,904
1998 1,470 388 45 76 1,979
1997 1,015 261 16 64 1,356
</TABLE>
F-24
<PAGE> 55
UNOVA, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
COMMON
BASIC DILUTED STOCK SALES
GROSS NET EARNINGS EARNINGS PRICE
SALES PROFIT EARNINGS PER SHARE PER SHARE HIGH/LOW
------ ------ -------- --------- --------- ------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
First Quarter............. $493.4 $134.4 $ 3.5 $0.06 $0.06 $20 11 7/8
Second Quarter............ 494.4 136.6 3.3 0.06 0.06 $18 12 3/4
Third Quarter............. 503.4 140.6 9.4 0.17 0.17 $15 5/8 11 7/8
Fourth Quarter............ 617.5 168.0 13.4 0.24 0.24 $15 1/16 12 1/16
YEAR ENDED DECEMBER 31, 1998
First Quarter............. $333.4 $110.1 $ 7.8 $0.14 $0.14 $20 9/16 13 7/8
Second Quarter............ 345.2 117.8 9.2 0.17 0.17 $24 19 15/16
Third Quarter............. 405.7 133.2 13.3 0.24 0.24 $22 15 1/2
Fourth Quarter............ 578.4 166.2 39.4(1) 0.72 0.72 $18 1/4 12 3/8
</TABLE>
As of January 31, 2000 there were approximately 19,251 holders of record of the
Company's common stock.
(1) In December 1998, the Company recognized a gain of $35.5 million on the sale
of its corporate headquarters building.
F-25
<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. Sales and
service revenues and segment operating profit for the years ended December 31,
1999, 1998 and 1997 (excluding the $211.5 million charges for acquired
in-process research and development), were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
SALES AND SERVICE REVENUES
Automated Data Systems.................................... $ 877.2 $ 829.4 $ 636.4
Industrial Automation Systems:
Integrated Production Systems........................... 937.3 719.3 789.8
Advanced Manufacturing Equipment........................ 294.2 114.0
-------- -------- --------
Total Sales and Service Revenues................ $2,108.7 $1,662.7 $1,426.2
======== ======== ========
SEGMENT OPERATING PROFIT
Automated Data Systems.................................... $ 26.4 $ 55.4 $ 9.1
Industrial Automation Systems:
Integrated Production Systems........................... 86.8 73.2 94.6
Advanced Manufacturing Equipment........................ 5.7 3.7
-------- -------- --------
Total Segment Operating Profit.................. $ 118.9 $ 132.3 $ 103.7
======== ======== ========
</TABLE>
Year Ended December 31, 1999 Compared to 1998
Total sales and service revenues increased $446.0 million, or 27%, for the year
ended December 31, 1999 compared with the corresponding prior year. Total
segment operating profit decreased $13.4 million, or 10%, for the year ended
December 31, 1999 compared to the corresponding prior year.
Automated Data Systems: ADS segment sales increased $47.8 million, or 6%, and
operating profit decreased $29.0 million, or 52%, for the year ended December
31, 1999 compared with the corresponding prior year. The increase in sales is
due primarily to the inclusion of a full year's results in 1999 from the
acquisition of Amtech Systems in May 1998, and an increase in intellectual
property ("IP") licensing revenues, offset partially by decreased sales of other
ADS products, primarily mobile computing. Mobile computing revenues were
impacted by customers' focus on internal Year 2000 issues. The decrease in
operating profit was the result of additional operating expenses and order
fulfillment costs related to the implementation of a new management information
system at Intermec's main production facility and decreased product sales,
offset partially by IP licensing margins.
Industrial Automation Systems: Integrated Production Systems revenues increased
$218.0 million, or 30%, and related operating profit increased $13.6 million, or
19%, for the year ended December 31, 1999 compared with the corresponding prior
year. The increase in revenues is primarily attributable to 1999 including the
full year's results of the 1998 acquisition of R&B Machine Tool and an increase
in activity for the domestic operations. The increase in operating profit was
due to the increase in activity for the domestic operations and operating
profits contributed by the 1998 acquisition, partially offset by costs
associated with product and operational process problems at Honsberg Lamb in
Germany. Operating profits as a percentage of sales decreased primarily due to
contract losses at Honsberg Lamb. Integrated Production Systems backlog
increased from $556.6 million at December 31, 1998 to $627.7 million at December
31, 1999.
F-26
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In October 1998, UNOVA acquired the machine tool business of Cincinnati
Milacron, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati
Machine") for approximately $187.3 million in cash. The division, which
comprises the Company's Advanced Manufacturing Equipment segment, is engaged in
the design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting.
Advanced Manufacturing Equipment revenues increased $180.2 million, or 158%,
while related operating profit increased $2.0 million, or 54%, for the year
ended December 31, 1999 compared with the corresponding prior year. The increase
in revenues and operating profit is attributable to 1999 including the full
year's results of the 1998 acquisition of Cincinnati Machine. Operating profit
as a percentage of sales decreased due to lower utilization levels. Backlog
decreased from $148.9 million at December 31, 1998 to $102.5 million at December
31, 1999.
Depreciation and amortization increased from $57.0 million to $66.0 million from
the year ended December 31, 1998 to the year ended December 31, 1999. This
increase is primarily due to additional depreciation from acquisitions and an
increase in the level of fixed assets over the prior year.
Selling, general and administrative ("SG&A") expense increased $70.8 million
from $383.7 million for the year ended December 31, 1998 to $454.5 million for
the year ended December 31, 1999. As a percentage of sales, SG&A decreased from
23% in 1998 to 22% in 1999. The percentage decrease is attributable to the
change in the business mix of the Company from 1998 to 1999 offset by amortized
costs and discounts in SG&A from the sale of undivided interests in UNOVA's
trade accounts receivable. The two IAS segments' sales increased as a percentage
of total company sales from 50% for the year ended December 31, 1998 to 58% for
the year ended December 31, 1999, while ADS sales decreased from 50% to 42% for
the same years. The IAS businesses carry lower SG&A ratios compared to the ADS
segment.
Net interest expense was $38.0 million and $25.7 million for the years ended
December 31, 1999 and 1998, respectively. The increase is attributable to higher
outstanding debt during 1999 that was incurred to finance the 1998 acquisitions
of Cincinnati Machine, R&B Machine and Amtech Systems and the normal capital
expenditures and working capital needs of the operations.
Year Ended December 31, 1998 Compared to 1997
Total sales and service revenues increased $236.5 million, or 17%, for the year
ended December 31, 1998 compared with the corresponding prior period. Total
segment operating profit increased $28.6 million, or 28%, for the year ended
December 31, 1998 compared to the corresponding prior period.
Automated Data Systems: ADS segment sales increased $193.0 million, or 30%, and
operating profit increased $46.3 million, or 509%, for the year ended December
31, 1998 compared with the corresponding prior year. The sales and operating
profit increases are due primarily to new IP licensing revenues, internal growth
and the contribution of a full year of operations and the realization of
improved profitability from the integration of the 1997 acquisitions of Norand
Corporation ("Norand") and United Barcode Industries ("UBI"), offset by
information system problems that negatively impacted the results of the third
and fourth quarter.
Industrial Automation Systems: Integrated Production Systems revenues decreased
$70.5 million, or 9%, while related operating profit decreased $21.4 million, or
23%, for the year ended December 31, 1998 compared with the corresponding prior
year. The Integrated Production Systems segment began several new projects in
1998 that did not materially impact sales and operating profits until 1999.
Delays caused by unexpected customer changes were encountered in the engineering
phase of these new
F-27
<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
projects. Conversely, during the first half of 1997, the manufacturing systems
operations experienced a higher level of sales and profits from contracts in the
final delivery and installation phase. Startup issues on a new product line at
Honsberg Lamb also impacted operating profit in 1998. Backlog increased from
$332.0 million at December 31, 1997 to $556.6 million at December 31, 1998.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures.
Depreciation and amortization increased from $40.7 million to $57.0 million from
the year ended December 31, 1997 to the year ended December 31, 1998. This
increase is primarily due to higher amortization of goodwill and other
intangibles resulting from the Norand and UBI acquisitions, as well as
additional depreciation from capital expenditures and business acquisitions.
Selling, general and administrative expense increased $59.3 million from the
year ended December 31, 1997 to the year ended December 31, 1998. However, as a
percentage of sales, SG&A remained constant at 23% in both years. The increase
in the amount is due primarily to 1998 acquisitions as well as the increase in
the Company's sales and service revenues over the prior year.
Net interest expense was $25.7 million and $16.7 million for the years ended
December 31, 1998 and 1997, respectively. The increase is attributable to an
increase in outstanding debt due primarily to the acquisitions of Norand and UBI
in 1997 and Cincinnati Machine, R&B Machine and Amtech Systems in 1998.
Other income, net consists of a gain of $35.5 million recognized on the sale of
UNOVA's corporate headquarters building, offset by other non-operating expenses.
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations due
to the global nature of its operations. Currency transaction net losses for the
year ended December 31, 1999 were $3.0 million, net of taxes. Currency
transaction gains and losses for the years ended December 31, 1998 and 1997 were
not significant. It is not possible to predict the Company's exposure to foreign
currency fluctuations beyond the near term because revenues generated from
particular foreign jurisdictions vary widely over time.
For fiscal year 1999, the Company derived approximately 26% of its revenues and
10% of its operating profits (exclusive of corporate overhead) from non-U.S.
operations. At December 31, 1999, identifiable assets attributable to foreign
operations comprised 19% of total assets. As the largest components of these
foreign assets are attributable to European operations, the exposure of
identifiable assets to foreign currency fluctuations or expropriations is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities increased from $17.7 million at December 31, 1998
to $25.2 million at December 31, 1999. Total debt decreased from $603.8 million
at December 31, 1998 to $429.4 million at December 31, 1999. Improved working
capital management provided funds from operations that were utilized to repay
borrowings.
The Company has two unsecured committed credit facilities with banks from which
it may borrow up to $500.0 million. Under these credit facilities, the Company
may borrow at the prime rate or at rates based
F-28
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
on the London Inter Bank Offered Rate, rates borne by certificates of deposit or
other rates that are mutually acceptable to the banks and the Company. At
February 11, 2000, $300.0 million of these credit facilities was available for
the Company's general use.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding debt.
The Company expects that cash flow from operations, along with available
borrowing capacity, will be adequate to meet working capital requirements.
YEAR 2000
The Year 2000 issue is the result of computer programs designed to define a year
using two digits rather than four. As such, a date sensitive field using "00"
could be recognized as the year 1900 rather than the year 2000, potentially
causing a system failure or other business disruption.
The operating segments of the Company formed internal review teams that assessed
the Company's exposure to Year 2000 problems. As a result of these reviews,
non-Year 2000 compliant information technology and non-information technology
systems were identified. The Company completed modifications or replacements and
testing to achieve Year 2000 compliance utilizing both internal and external
resources. In addition, the Company actively worked with its significant
suppliers and customers to assess their Year 2000 compliance efforts and the
Company's exposure from them.
The Company also assessed the capability of its products to determine whether
they are Year 2000 compliant. The Company believes that all of its current
products are Year 2000 compliant. UNOVA has not tested products that are no
longer sold by the Company and the Company does not believe it is legally
responsible for costs incurred by customers related to ensuring their Year 2000
capability. However, the Company is providing customer support services related
to Year 2000 issues. UNOVA defines "Year 2000 compliant" as a product that, when
used properly and in conformity with the product information provided by the
Company, will accurately convey data between the twentieth and twenty-first
centuries, including leap year calculations, provided that all other technology
used in combination with the product properly exchanges data with the UNOVA
product.
Management is not aware of any significant adverse effects of Year 2000 on the
systems and operations of the Company. Through December 31, 1999, the total
cumulative cost of these Year 2000 compliance activities was approximately $10.1
million. Of these costs, approximately $1.5 million were expensed and the
remaining $8.6 million were capitalizable. Management does not anticipate
significant additional Year 2000 costs. Based on currently available
information, management does not believe that Year 2000 issues had or will have
a material adverse impact on the Company's financial condition or results of
F-29
<PAGE> 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
operations. However, the Year 2000 problem has potential consequences, some of
which are not reasonably foreseeable, and there can be no assurance that
unforeseen consequences will not arise.
While management believes that no customer, vendor, or service provider is
individually significant to the Company's operations, we have no information
that indicates a significant customer may be unable to purchase from the
Company; a significant vendor may be unable to sell to the Company; or a
significant service provider may be unable to provide services to the Company,
in each case because of Year 2000 compliance problems. While the Company
currently does not anticipate problems related to third party Year 2000 issues,
the Company will continue to assess potential risk from third parties. However,
there can be no assurance that Year 2000 problems originating with a customer,
vendor, service provider or other third party will not occur.
INFLATION
In the opinion of management, inflation has not been a significant factor in the
markets in which the Company operates and has not had a significant impact upon
the results of its operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 (an amendment of FASB Statement No. 133). Under the provisions of this
statement, the effective date of Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"), is deferred to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact of adopting SFAS No. 133.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
covered in this discussion and analysis, included are certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These forward-looking
statements are based on management's beliefs as well as on assumptions made by
and information currently available to management. They include, but are not
limited to, statements about the demand for the Company's products and services,
the Company's ability to profitably exploit new technologies acquired or
developed, and the Company's ability to realize its intentions with respect to
the future performance of acquired operations. Such forward-looking statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which could cause the Company's future results to
differ materially from those expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. Such factors include, but are
not limited to, the following: fluctuations in the strength of the automotive
and aerospace markets; technological changes and developments, particularly in
the ADC/Mobile Computing System industry; the presence of competitors with
greater financial and other resources; the availability and cost of materials
and supplies; relations with the Company's employees; the Company's ability to
manage its operating costs and to integrate acquired businesses in an effective
manner; worldwide political stability and economic conditions; regulatory
uncertainties; operating risks associated with international operations; and the
risk that the Company's due diligence procedures may have failed to reveal
undisclosed material information concerning acquired operations. Any
forward-looking statements should be considered in light of these factors, many
of which are beyond the Company's ability to control or predict. Readers are
cautioned not to place undue reliance on forward-looking statements. The Company
disclaims any obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
F-30
<PAGE> 61
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily from its short-term and
long-term borrowings and to exchange rate risk with respect to its foreign
operations and from foreign currency transactions.
Interest Rates: The information presented below summarizes the Company's cash
flows for its borrowings and related interest rates by dates of maturity.
Variable interest rates disclosed represent the weighted average rates of the
borrowings at December 31, 1999. Fair values for fixed rate borrowings have been
determined based on quoted market prices. The fair values for variable rate
borrowings approximate their carrying value. The information presented below
should be read in conjunction with Note C to the Consolidated and Combined
Financial Statements.
<TABLE>
<CAPTION>
DEBT 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
---- ------- ----- -------- -------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $200,000 $200,000 $167,882
Average Interest Rate 6.94%
Variable Rate $64,002 $179 $150,003 $15,204 $229,388 $229,388
Average Interest Rate 4.56% 7.22% 7.18% 5.96%
</TABLE>
Foreign Exchange Rates: Due to its global operations, the Company's cash flow
and earnings are exposed to foreign exchange rate fluctuations. When
appropriate, the Company may attempt to limit its exposure to changing foreign
exchange rates by entering into short-term foreign currency exchange contracts.
As of December 31, 1999, the Company held short-term contracts for the purpose
of hedging foreign currency cash flows with an aggregate notional amount of
$86.8 million. The Company does not enter into any foreign currency contracts
for speculative or trading purposes. Contracts that effectively meet risk
reduction and correlation criteria are accounted for as hedges and, accordingly,
gains and losses from mark-to-market are deferred in the cost basis of the
underlying transaction. In those circumstances when it is not appropriate to
account for contracts as hedges, gains and losses from mark-to-market are
recorded currently in earnings. A hypothetical 10% change in the relevant
currency rates at December 31, 1999 would not result in a material gain or loss.
Additionally, any change in the value of the contracts, real or hypothetical,
should be substantially offset by an inverse change in the value of the
underlying hedged item.
F-31
<PAGE> 62
SELECTED FINANCIAL DATA
UNOVA, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:(1)
Sales and Service Revenues............. $2,108.7 $1,662.7 $1,426.2 $1,164.7 $ 942.9
-------- -------- -------- -------- -------
Operating Costs and Expenses
Cost of sales and service............ 1,501.0 1,110.8 981.4 841.8 669.3
Selling, general and
administrative(2)................. 454.4 383.7 535.9 218.7 194.1
Depreciation and amortization........ 66.0 57.0 40.6 27.0 26.1
-------- -------- -------- -------- -------
Total........................ 2,021.4 1,551.5 1,557.9 1,087.5 889.5
-------- -------- -------- -------- -------
Other Income, Net...................... 31.5
--------
Earnings (Loss) before Interest and
Taxes................................ 87.3 142.7 (131.7) 77.2 53.4
Interest Expense, Net(3)............... (38.0) (25.7) (16.7) (7.1) (9.3)
Taxes on Income........................ (19.7) (47.3) (23.0) (28.1) (17.9)
-------- -------- -------- -------- -------
Net Earnings (Loss).................... $ 29.6 $ 69.7 $ (171.4) $ 42.0 $ 26.2
======== ======== ======== ======== =======
Basic Net Earnings (Loss) per Share.... $ 0.54 $ 1.28 $ (3.17) $ 0.78 $ 0.49
Diluted Net Earnings (Loss) per
Share................................ $ 0.54 $ 1.27 $ (3.17) $ 0.78 $ 0.49
Shares used for Basic Earnings (Loss)
per Share(4)......................... 55,111 54,620 54,056 53,892 53,892
Shares used for Diluted Earnings (Loss)
per Share(4)......................... 55,120 54,703 54,056 53,892 53,892
FINANCIAL POSITION (AT END OF YEAR):(1)
Total Assets........................... $1,903.5 $1,979.2 $1,356.4 $1,073.8 $ 919.0
Notes Payable and Current Portion of
Long-term Obligations................ $ 64.0 $ 237.3 $ 86.6 $ 27.5 $ 22.2
Long-term Obligations.................. $ 365.4 $ 366.5 $ 216.9 $ 14.5 $ 14.1
Allocated Portion of Western Atlas
Debt................................. $ 109.6 $ 112.4
Working Capital........................ $ 447.8 $ 392.2 $ 277.8 $ 266.0 $ 194.7
Current Ratio.......................... 1.7 1.5 1.6 1.6 1.6
Total Debt as a Percentage of Total
Capitalization....................... 37% 46% 34% 21% 23%
</TABLE>
- ---------------
(1) Information related to business acquisitions, investments, and dispositions
is included in Note B to the consolidated and combined financial statements.
(2) Selling, general and administrative costs include allocated charges from
Western Atlas of $13.5 million, $22.2 million and $19.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The year ended
December 31, 1997 includes charges of $211.5 million, or $3.91 per share,
for the value of acquired in-process research and development activities
resulting from acquisitions made during the year.
(3) Interest expense includes allocated charges from Western Atlas of $12.0
million, $8.3 million and $8.4 million for the years ended December 31,
1997, 1996 and 1995, respectively.
(4) In thousands. The number of common shares used to calculate basic and
diluted earnings per share prior to 1997 is based on the number of shares of
Western Atlas common stock that was outstanding as of June 30, 1997.
F-32
<PAGE> 63
DIRECTORS AND OFFICERS OF UNOVA, INC.
BOARD OF DIRECTORS OFFICERS
PAUL BANCROFT, III
Independent Venture Capitalist
and Consultant; Retired
President and
Chief Executive Officer,
Bessemer Securities Corporation
LARRY D. BRADY
President and
Chief Operating Officer,
UNOVA, Inc.
ALTON J. BRANN
Chairman of the Board and
Chief Executive Officer,
UNOVA, Inc.
JOSEPH T. CASEY
Retired Vice Chairman and
Chief Financial Officer,
Western Atlas Inc. and Litton
Industries, Inc.
WILLIAM C. EDWARDS
Venture Capital Investor;
Partner, Bryan and Edwards and
General Partner, Banner Partners
and Ritter Partners
STEPHEN E. FRANK
Chairman, President and
Chief Executive Officer, Southern
California Edison Company
CLAIRE W. GARGALLI
Retired Vice Chairman,
Diversified Search Companies;
Former President and
Chief Operating Officer,
Equimark
ORION L. HOCH
Chairman Emeritus,
Litton Industries, Inc.
STEVEN B. SAMPLE
President,
University of Southern California
WILLIAM D. WALSH
Chairman,
Sequoia Associates, LLC
ALTON J. BRANN
Chairman of the Board and
Chief Executive Officer
LARRY D. BRADY
President and
Chief Operating Officer
DANIEL S. BISHOP
Senior Vice President and
General Counsel
MICHAEL E. KEANE
Senior Vice President and
Chief Financial Officer
ROBERT G. O'MALLEY
Senior Vice President and
Group Executive of
Automated Data Systems
NEREO V. BAGATTO
Vice President of UNOVA and
President of Lamb Technicon
Machining Systems --
North America
LARRY N. COLSON
Vice President,
Human Resources
CHARLES A. CUSUMANO
Vice President, Finance, and
Controller
JAMES A. HERRMAN
Vice President of UNOVA and
President of Landis Grinding
Systems
ELMER C. HULL, JR.
Vice President and Treasurer
DIRK KOERBER
Vice President of Corporate
Communications and Investor
Relations
THOMAS O. MILLER
Vice President of UNOVA and
Senior Vice President of
Intermec Systems and
Solutions
DAVID A. MILLS
Vice President of UNOVA
and Senior Vice President of
Intermec Worldwide Sales
and Service
KYLE H. SEYMOUR
Vice President of UNOVA
and President of Cincinnati
Machine -- A UNOVA
Company
STEVEN J. WINTER
Vice President of UNOVA
and Senior Vice President of
Intermec Strategy and
Business Development
CHARLES E. WOLFBAUER
Vice President of UNOVA
and President of Lamb
Technicon Machining
Systems
VIRGINIA S. YOUNG
Vice President and Secretary
[UNOVA LOGO]
- --------------------------------------------------------------------------------
<PAGE> 64
UNOVA
UNOVA, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 11, 2000
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Alton J. Brann and Larry D. Brady, and each of them, with full power of
substitution, are hereby appointed by the undersigned as proxies to vote all
shares of UNOVA, Inc. Common Stock entitled to be voted by the undersigned at
the Annual Meeting of Shareholders to be held on May 11, 2000, or at any
adjournment thereof, on the matter set forth on the reverse side in accordance
with any directions given by the undersigned and, at the discretion of such
proxies, on all other matters that may properly come before the Annual Meeting
or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS.
(continued, and to be dated and signed, on the reverse side)
- --------------------------------------------------------------------------------
-- If voting by mail, fold and detach Proxy Card here and
mail in envelope provided --
YOUR VOTE IS IMPORTANT TO THE COMPANY
YOU CAN VOTE IN ANY OF THE FOLLOWING WAYS:
You can access our voting website on the Internet at http://www.eproxy.com/una
and follow the voting instructions (24 hours a day, 7 days a week).
OR
You can call our toll-free telephone number 1-800-840-1208 on a touch-tone
telephone and follow the instructions on the reverse side (24 hours a day, 7
days a week). There is no charge to you for this call.
OR
You can mark, date, sign, and return your proxy in the enclosed envelope.
YOUR PROMPT RESPONSE WILL HELP US ACHIEVE AN EARLY QUORUM FOR THIS MEETING,
SAVING THE COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION.
<PAGE> 65
UNOVA, INC. ANNUAL MEETING OF SHAREHOLDERS
Please mark ---
your votes [X]
like this ---
<TABLE>
<CAPTION>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS I agree to access the Company's Annual
Reports and Proxy Materials electronically
FOR ALL NOMINEES WITHHOLD AUTHORITY via the Internet in the future. I understand
listed below (except as to vote for all nominees that the Company may no longer distribute
marked to the contrary) listed below printed materials to me for any future
[ ] [ ] shareholder meeting until such consent is
revoked. I understand that I may revoke
01 PAUL BANCROFT, III 02 STEVEN B. SAMPLE 03 WILLIAM D. WALSH my consent at any time. [ ]
FOR SHAREHOLDERS WITH MULTIPLE ACCOUNTS ONLY:
INSTRUCTIONS: To withhold authority to vote for an individual nominee, Mark this box to discontinue receipt of an
make a line through the nominee's name above. Annual Report for this account [ ]
[ ] I (We) plan to attend the Annual Meeting of
Shareholders on Thursday, May 11, 2000.
Voting by telephone on our toll-free number or
over the Internet will expedite the tally of the
votes. Please see the instructions below.
SIGNATURE:____________________________________________ SIGNATURE:________________________________________ DATE:____________________
Fill in date; Please sign your name as it appears hereon. Joint owners should sign. When signing as attorney, administrator,
trustee, or guardian, please give full title as such.
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-- IF VOTING BY MAIL, FOLD AND DETACH PROXY CARD HERE AND MAIL IN ENVELOPE PROVIDED --
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VOTE BY INTERNET OR TELEPHONE TO EXPEDITE YOUR VOTE
BY INTERNET
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o You may cast your vote at any time (24 hours a day, 7 days a week).
o Access our voting website at http://www.eproxy.com/una and follow the
instructions to cast your vote.
BY TELEPHONE
- ------------
o You may cast your vote at any time (24 hours a day, 7 days a week).
o Call our toll-free number 1-800-840-1208 on a touch-tone telephone.
o You will be asked to enter the 11-digit Control Number located in the
box in the lower right-hand corner of this form.
o TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS FOR ALL NOMINEES FOR
DIRECTORS, PRESS 1.
o To withhold authority for all nominees, press 9.
o To withhold authority for individual nominee(s), press 0 and listen
to the instructions.
o When asked, please confirm your vote by pressing 1.
PLEASE DO NOT RETURN THE ABOVE PROXY CARD
IF YOU HAVE VOTED BY INTERNET OR TELEPHONE.
