<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8585
UNITED DOMINION INDUSTRIES LIMITED
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada 98-0125322
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2300 One First Union Center, Charlotte, North Carolina 28202
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
704-347-6800
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] No [ ]
Common Shares without par value outstanding as of September 30, 2000: 39,122,355
shares.
Page 1 of 21
<PAGE> 2
UNITED DOMINION INDUSTRIES LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information
Page No.
--------
Item 1. Condensed Financial Statements
Unaudited Consolidated Statements of Income for the Quarters 3
and Nine Months Ended September 30, 2000 and 1999
Unaudited Consolidated Statements of Cash 4
Flows for the Nine Months Ended
September 30, 2000 and 1999
Unaudited Consolidated Statements of Financial Position as 5
of September 30, 2000 and December 31, 1999
Unaudited Consolidated Statements of 6
Retained Earnings for the Nine Months Ended
September 30, 2000 and the Year Ended December 31, 1999
Notes to Financial Statements 7-13
Item 2. Management's Discussion and Analysis of 14-18
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 19
About Market Risk
Part II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
<PAGE> 3
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
For the Quarters and Nine Months Ended September 30, 2000 and 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
--------------------------------------------------------------------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
(Restated) (Restated)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 588,287 $ 546,998 $ 1,773,732 $ 1,574,674
--------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales 407,461 377,161 1,233,829 1,098,215
Restructuring charges - inventory 650 -- 1,566 --
--------------------------------------------------------------------------------------------------------------------
Total cost of sales 408,111 377,161 1,235,395 1,098,215
Selling, general and administrative expenses 119,921 113,302 372,563 325,480
Restructuring and other charges 2,858 3,239 32,074 4,601
--------------------------------------------------------------------------------------------------------------------
Total costs and expenses 530,890 493,702 1,640,032 1,428,296
--------------------------------------------------------------------------------------------------------------------
Operating income 57,397 53,296 133,700 146,378
Other expense
Interest -- net (11,780) (9,384) (37,431) (27,996)
Other -- (1,500) (4,055) (1,500)
--------------------------------------------------------------------------------------------------------------------
Income before goodwill charges and income taxes 45,617 42,412 92,214 116,882
Income tax provision (15,046) (10,262) (28,988) (35,397)
--------------------------------------------------------------------------------------------------------------------
Income before goodwill charges 30,571 32,150 63,226 81,485
Goodwill charges, net of applicable tax benefit (5,691) (4,841) (16,841) (14,132)
--------------------------------------------------------------------------------------------------------------------
Net income $ 24,880 $ 27,309 $ 46,385 $ 67,353
====================================================================================================================
Earnings per common share
Income before goodwill charges $ 0.78 $ 0.81 $ 1.62 $ 2.05
====================================================================================================================
Net income $ 0.64 $ 0.69 $ 1.19 $ 1.69
====================================================================================================================
Average common shares outstanding (thousands) 39,122 39,454 39,112 39,843
====================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000 and 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
2000 1999
(Restated)
-------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided from operating activities
Net income $ 46,385 $ 67,353
Add (deduct) items not affecting cash
Depreciation 36,975 35,612
Amortization 23,489 19,466
Deferred income taxes (5,203) 2,906
Other (467) 1,174
Net increase in working capital other than cash (75,306) (28,534)
Asset securitization 2,100 (300)
-------------------------------------------------------------------------------------
27,973 97,677
-------------------------------------------------------------------------------------
Cash used by investing activities
Additions to fixed assets (37,049) (45,388)
Acquisition of businesses, net of cash balances (96,145) (136,146)
Net proceeds from disposal of business 7,383 -
Proceeds from (investments in) other assets 717 (4,414)
Other (1,575) (259)
-------------------------------------------------------------------------------------
(126,669) (186,207)
-------------------------------------------------------------------------------------
Cash provided from financing activities
Additional borrowings 169,271 111,275
Repayments of borrowings (70,229) (17,250)
Issuance of common stock 160 1,537
Repurchase of common stock - (38,476)
Dividends (12,125) (10,770)
-------------------------------------------------------------------------------------
87,077 46,316
-------------------------------------------------------------------------------------
Decrease in cash during the period (11,619) (42,214)
Cash at beginning of year 108,940 123,455
-------------------------------------------------------------------------------------
Cash at end of period $ 97,321 $ 81,241
=====================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 5
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
--------------------------------------------------------------------------------
As of September 30, 2000 and December 31, 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Restated)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 97,321 $ 108,940
Accounts and notes receivable 382,605 334,398
Inventories @ 418,677 390,654
Other current assets 59,057 64,136
-----------------------------------------------------------------------------------------------
Total current assets 957,660 898,128
Fixed assets 354,594 350,901
Goodwill 877,417 836,497
Other intangible assets 41,692 43,547
Other assets 109,194 101,110
-----------------------------------------------------------------------------------------------
$ 2,340,557 $ 2,230,183
===============================================================================================
Current liabilities
Notes payable to banks $ 91,247 $ 103,544
Current portion of long-term debt 45,367 46,082
Accounts payable 176,980 169,362
Accrued liabilities 194,631 192,618
Customer advances 12,968 15,440
-----------------------------------------------------------------------------------------------
Total current liabilities 521,193 527,046
Long-term debt 686,870 591,506
Other liabilities 214,073 209,299
-----------------------------------------------------------------------------------------------
1,422,136 1,327,851
-----------------------------------------------------------------------------------------------
Shareholders' equity
Common shares 539,262 537,355
Contributed surplus 4,310 4,283
Retained earnings 438,484 404,224
-----------------------------------------------------------------------------------------------
982,056 945,862
Equity adjustment from foreign currency translation (63,635) (43,530)
-----------------------------------------------------------------------------------------------
Total shareholders' equity 918,421 902,332
-----------------------------------------------------------------------------------------------
$ 2,340,557 $ 2,230,183
===============================================================================================
@ Inventories consist of:
Raw materials $138,331 $131,444
Work-in-process 109,606 101,122
Finished goods 170,740 158,088
-----------------------------------------------------------------------------------------------
$418,677 $390,654
===============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000 and the Year Ended December 31,1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
2000 1999
(Restated)
--------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 404,224 $ 346,467
Net income 46,385 86,326
Dividends (12,125) (14,158)
Buyback of common shares - (14,411)
--------------------------------------------------------------------------------
Balance at end of period $ 438,484 $ 404,224
================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
UNITED DOMINION INDUSTRIES LIMITED
NOTES TO FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
1. New accounting guidelines issued in Canada require accruing the cost of
providing postretirement health care benefits during the years that the
employee renders the necessary service. The company had previously recorded
health care benefits on a "pay-as-you-go" basis. Additionally, the new
guidelines require that for purposes of determining the pension liability,
the discount rate must be based on current bond market yields rather than
management's best estimate of the plan's long-term returns. The company has
elected to retroactively adopt this new standard. The 1999 consolidated
statements of income, cash flows and financial position and the
accompanying 1999 segment results have been restated to reflect the
retroactive application of the new rules.
For the quarter and nine months ended September 30, 1999, the adoption
resulted in a decrease in net income of $647 and $1,937, respectively, or
$.02 and $.05 per share, respectively. At December 31, 1999 the adoption
resulted in increases in other current assets of $2,750 and accrued
liabilities of $6,876 and decreases in other (non-current) assets of
$14,142, other (non-current) liabilities of $1,355 and retained earnings of
$16,913.
2. The company recorded pre-tax restructuring and other one-time charges
totaling $3,508 and $37,821 during the quarter and nine months ended
September 30, 2000, respectively. This consisted principally of
restructuring costs ($3,508 and $29,927 for the quarter and nine months
ended September 30, 2000, respectively) as part of the company's continuing
initiative to improve operations. This initiative included plant
consolidations, reductions in force, process improvements and asset
write-downs. Other charges of $7,894 for the nine months ended September
30, 2000 includes $4,246 arising primarily from a product replacement
program and a legal matter and a $3,648 one-time charge resulting from an
unfavorable tax ruling.
3. Information about the company's operating segments is as follows:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
2000 1999 2000 1999
(Restated) (Restated)
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales
Flow Technology $ 260,115 $ 250,612 $ 773,400 $ 708,014
Machinery 122,069 120,391 380,149 362,506
Specialty Engineered Products 131,506 96,053 376,195 261,480
Test Instrumentation 74,597 76,181 237,277 230,350
Divested business - 3,761 6,711 12,324
--------------- --------------- --------------- ----------------
$ 588,287 $ 546,998 $ 1,773,732 $1,574,674
=============== =============== =============== ================
Segment Profit
Flow Technology $ 21,126 $ 22,882 $ 41,870 $ 63,083
Machinery 14,839 16,953 48,159 44,567
Specialty Engineered Products 15,499 10,478 37,447 29,694
Test Instrumentation 6,091 6,126 9,354 17,713
Divested business - (280) 5 (563)
--------------- --------------- --------------- ----------------
$ 57,555 $ 56,159 $ 136,835 $ 154,494
=============== =============== =============== ================
Reconciliation of Segment Profit
to Net Income
Segment profit $ 57,555 $ 56,159 $ 136,835 $ 154,494
Corporate expenses (5,683) (6,528) (17,130) (18,225)
Interest - net (11,780) (9,384) (37,431) (27,996)
Other expense (561) (3,008) (8,058) (6,517)
--------------- --------------- --------------- ----------------
Income before income taxes 39,531 37,239 74,216 101,756
Income taxes (14,651) (9,930) (27,831) (34,403)
--------------- --------------- --------------- ----------------
Net income $ 24,880 $ 27,309 $ 46,385 $ 67,353
=============== =============== =============== ================
</TABLE>
7
<PAGE> 8
UNITED DOMINION INDUSTRIES LIMITED
NOTES TO FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
4. In the opinion of management, these financial statements reflect all
adjustments necessary for the fair statement of results of the interim
periods presented. Certain prior year amounts have been reclassified to
conform with current year presentation.
Generally accepted accounting principles (GAAP) in Canada allow for the
reduction of stated capital of outstanding common shares with a
corresponding offset to retained earnings. This reclassification, which the
company made in 1990, is not permitted by United States GAAP and would
result in an increase in capital stock and a reduction in retained earnings
of $128,093 at September 30, 2000 and December 31, 1999. Canadian GAAP also
permits expenses related to the issuance of capital stock, net of income
taxes, to be deducted from retained earnings while United States GAAP
requires such expenses to be deducted from the proceeds of stock issuances
credited to capital stock. This reclassification would reduce capital stock
and increase retained earnings by $20,905 at September 30, 2000 and
December 31, 1999.
Canadian GAAP allows for the capitalization and subsequent amortization of
start-up costs for new facilities and joint ventures. United States GAAP
requires the expensing of these costs as incurred.
United States GAAP requires the dual presentation of basic and diluted
earnings per share. Diluted earnings per share reflects the assumed
exercise of dilutive securities such as the company's stock options.
The following table reflects the impact on net income, weighted average
shares outstanding and net earnings per share of complying with United
States GAAP as it pertains to the items noted above.
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income:
Canadian GAAP $ 24,880 $ 27,309 $ 46,385 $ 67,353
United States GAAP 24,956 27,385 46,613 66,579
Weighted average shares
outstanding (000's)
Canadian GAAP 39,122 39,454 39,112 39,843
Less restricted stock outstanding (199) (174) (199) (177)
--------------- --------------- --------------- ----------------
United States GAAP - Basic 38,923 39,280 38,913 39,666
Effect of dilutive securities
Restricted stock 199 174 199 177
Employee stock options 180 219 100 201
--------------- --------------- --------------- ----------------
United States GAAP - Diluted 39,302 39,673 39,212 40,044
=============== =============== =============== ================
Net earnings per share:
Canadian GAAP $ 0.64 $ 0.69 $ 1.19 $ 1.69
=============== =============== =============== ================
United States GAAP - Basic $ 0.64 $ 0.70 $ 1.20 $ 1.68
=============== =============== =============== ================
United States GAAP - Diluted $ 0.63 $ 0.69 $ 1.19 $ 1.66
=============== =============== =============== ================
</TABLE>
8
<PAGE> 9
UNITED DOMINION INDUSTRIES LIMITED
NOTES TO FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
The application of United States GAAP discussed above would result in an
increase in common shares of approximately $107,000 and decreases in
accrued liabilities of approximately $1,000, goodwill of approximately
$2,000, other (non-current) assets of approximately $1,000 and retained
earnings of approximately $109,000 as of September 30, 2000.
United States GAAP requires reporting on comprehensive income which is
defined as the change in equity of a company from transactions and other
events from nonowner sources. The difference between net income and
comprehensive income for the company arises principally from currency
translation adjustments. Income taxes have not been provided on currency
translation adjustments because the net assets invested in the company's
foreign operations are considered to be permanently invested. For the three
and nine months ended September 30, 2000, comprehensive income totaled
$24,626 and $26,508, respectively. For the three and nine months ended
September 30, 1999, comprehensive income totaled $23,247 and $59,960,
respectively.
Effective January 1, 2001, United States GAAP will standardize the
accounting for all derivative instruments. Under the new rules, entities
are required to carry all derivative instruments in the statement of
financial position at fair value. The accounting for changes in the fair
value of a derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, on the reason
for holding it. The company does not trade in financial instruments and
does not engage in speculation. However, it does enter into a limited range
and number of derivative financial instrument contracts. The company has a
program in place to manage foreign currency risk. As part of that program,
the company has entered into a limited number of foreign currency forward
exchange contracts to act as an economic hedge of foreign currency
transactions or intercompany loan payments. The forward exchange contracts
generally have maturities which do not exceed one year and exchange rates
are agreed to at the inception of the contracts. The company anticipates
that the adoption of the United States GAAP rules will not have a material
impact in the company's financial statements.
5. The company has a stock option plan under which options for a term not
exceeding 10 years may be granted to key employees and directors to
purchase common shares of the company at a price not less than 100% of
their fair market value at the date of grant. As of September 30, 2000,
3,050,020 options were outstanding under this plan.
6. United Dominion Industries Limited (Limited) and its wholly owned
subsidiary, United Dominion Holdings, Inc. (Holdings), are guarantors of
certain senior debt issued by United Dominion Industries, Inc. (Issuer).
The following is summarized condensed consolidating financial information
segregating the parent and guarantor subsidiaries from non-guarantor
subsidiaries. The guarantor subsidiaries are wholly owned subsidiaries of
the company and guarantees are full, unconditional and joint and several.
Holdings, the Issuer and the non-guarantor subsidiaries constitute all of
Limited's direct and indirect subsidiaries. Separate financial statements
and other disclosures of the guarantor subsidiaries are not presented
because management believes these financial statements would not provide
relevant material additional information to users.
9
<PAGE> 10
UNITED DOMINION INDUSTRIES LIMITED
NOTES OF FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended September 30, 2000
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 11,141 $ - $ 112,272 $ 471,965 $ (7,091) $ 588,287
Costs and expenses
Cost of sales 8,231 - 81,527 325,444 (7,091) 408,111
Selling, general and
administrative expenses 1,771 - 23,220 94,930 - 119,921
Restructuring charges 324 - (133) 2,667 - 2,858
----------------------------------------------------------------------------------------
Total costs and expenses 10,326 - 104,614 423,041 (7,091) 530,890
----------------------------------------------------------------------------------------
Operating income 815 - 7,658 48,924 - 57,397
Other income (expense)
Equity in earnings of
subsidiaries 26,361 16,360 15,972 - (58,693) -
Interest - net (2,382) - (17,426) 8,028 - (11,780)
Other - - 2,411 690 (3,101) -
----------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 24,794 16,360 8,615 57,642 (61,794) 45,617
Income tax provision 176 - 6,895 (23,356) 1,239 (15,046)
----------------------------------------------------------------------------------------
Income before goodwill charges 24,970 16,360 15,510 34,286 (60,555) 30,571
Goodwill charges, net of income
tax benefit (90) - (677) (4,924) - (5,691)
----------------------------------------------------------------------------------------
Net income $ 24,880 $ 16,360 $ 14,833 $ 29,362 $ (60,555) $ 24,880
========================================================================================
Quarter Ended September 30, 1999
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
Sales $ 6,440 $ - $ 102,936 $ 443,068 $ (5,446) $ 546,998
Costs and expenses
Cost of sales 4,999 - 75,706 301,902 (5,446) 377,161
Selling, general and
administrative expenses 966 - 24,738 87,598 - 113,302
Restructuring charges - - - 3,239 - 3,239
----------------------------------------------------------------------------------------
Total costs and expenses 5,965 - 100,444 392,739 (5,446) 493,702
----------------------------------------------------------------------------------------
Operating income 475 - 2,492 50,329 - 53,296
Other income (expense)
Equity in earnings of subsidiaries 25,245 16,074 17,960 - (59,279) -
Interest - net (2,232) - (13,918) 6,766 - (9,384)
Other - - 1,433 (1,248) (1,685) (1,500)
----------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 23,488 16,074 7,967 55,847 (60,964) 42,412
Income tax provision 3,823 - 5,619 (20,378) 674 (10,262)
----------------------------------------------------------------------------------------
Income before goodwill charges 27,311 16,074 13,586 35,469 (60,290) 32,150
Goodwill charges, net of income
tax benefit (2) - (850) (3,989) - (4,841)
----------------------------------------------------------------------------------------
Net income $ 27,309 $ 16,074 $ 12,736 $ 31,480 $ (60,290) $ 27,309
========================================================================================
</TABLE>
10
<PAGE> 11
UNITED DOMINION INDUSTRIES LIMITED
NOTES OF FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 31,609 $ - $ 336,159 $ 1,430,350 $ (24,386) $ 1,773,732
Costs and expenses
Cost of sales 24,455 - 241,659 993,667 (24,386) 1,235,395
Selling, general and
administrative expenses 5,094 - 73,556 293,913 - 372,563
Restructuring charges 324 - 6,035 25,715 - 32,074
----------------------------------------------------------------------------------------
Total costs and expenses 29,873 - 321,250 1,313,295 (24,386) 1,640,032
----------------------------------------------------------------------------------------
Operating income 1,736 - 14,909 117,055 - 133,700
Other income (expense)
Equity in earnings of subsidiaries 51,999 19,205 43,927 - (115,131) -
Interest - net (7,237) - (50,569) 20,375 - (37,431)
Other - - 1,605 1,258 (6,918) (4,055)
----------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 46,498 19,205 9,872 138,688 (122,049) 92,214
Income tax provision 148 - 11,637 (43,539) 2,766 (28,988)
----------------------------------------------------------------------------------------
Income before goodwill charges 46,646 19,205 21,509 95,149 (119,283) 63,226
Goodwill charges, net of income
tax benefit (261) - (2,122) (14,458) - (16,841)
----------------------------------------------------------------------------------------
Net income $ 46,385 $ 19,205 $ 19,387 $ 80,691 $ (119,283) $ 46,385
========================================================================================
Nine Months Ended September 30, 1999
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
Sales $ 15,254 $ - $ 302,438 $ 1,273,636 $ (16,654) $ 1,574,674
Costs and expenses
Cost of sales 12,078 - 215,781 887,010 (16,654) 1,098,215
Selling, general and
administrative expenses 2,828 - 72,675 249,977 325,480
Restructuring charges - - - 4,601 4,601
----------------------------------------------------------------------------------------
Total costs and expenses 14,906 - 288,456 1,141,588 (16,654) 1,428,296
----------------------------------------------------------------------------------------
Operating income 348 - 13,982 132,048 - 146,378
Other income (expense)
Equity in earnings of subsidiaries 68,942 40,065 42,083 - (151,090) -
Interest - net (7,047) - (36,128) 15,179 (27,996)
Other - - 4,183 (823) (4,860) (1,500)
----------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 62,243 40,065 24,120 146,404 (155,950) 116,882
Income tax provision 5,117 - 10,416 (52,874) 1,944 (35,397)
----------------------------------------------------------------------------------------
Income before goodwill charges 67,360 40,065 34,536 93,530 (154,006) 81,485
Goodwill charges, net of income
tax benefit (7) - (2,179) (11,946) - (14,132)
----------------------------------------------------------------------------------------
Net income $ 67,353 $ 40,065 $ 32,357 $ 81,584 $(154,006) $ 67,353
========================================================================================
</TABLE>
11
<PAGE> 12
UNITED DOMINION INDUSTRIES LIMITED
NOTES OF FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
CASH FLOWS Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (1,401) $ - $ (2,021) $ 31,395 $ - $ 27,973
----------------------------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (1,853) - (9,465) (25,731) - (37,049)
Acquisition of businesses - - (79,862) (16,283) - (96,145)
Net proceeds from disposal of business - - 7,383 - - 7,383
Other, net (947) - (2,300) 2,389 - (858)
----------------------------------------------------------------------------------------
(2,800) - (84,244) (39,625) - (126,669)
----------------------------------------------------------------------------------------
Net cash provided from (used by)
financing activities
Additional borrowings (repayments) (17,504) - 112,845 3,701 - 99,042
Increase (decrease) in net payable
to affiliates (3,653) - (27,121) 30,774 - -
Dividends (to) from affiliates 21,871 - - (21,871) - -
Return of capital (to) from affiliates 17,274 - - (17,274) - -
Other, net (11,965) - - - - (11,965)
----------------------------------------------------------------------------------------
6,023 - 85,724 (4,670) - 87,077
----------------------------------------------------------------------------------------
Net increase (decrease) in cash during
the period 1,822 - (541) (12,900) - (11,619)
Cash at beginning of year 1,509 97 7,740 99,594 108,940
----------------------------------------------------------------------------------------
Cash at end of period $ 3,331 $ 97 $ 7,199 $ 86,694 $ - $ 97,321
========================================================================================
Nine Months Ended September 30, 1999
----------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
Net cash provided by (used in)
operating activities $ (5,997) $ - $ (17,360) $ 121,034 $ - $ 97,677
----------------------------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (332) - (11,056) (34,000) - (45,388)
Acquisition of businesses (22,038) - (22,042) (92,066) - (136,146)
Other, net 15 - (1,160) (3,528) - (4,673)
----------------------------------------------------------------------------------------
(22,355) - (34,258) (129,594) - (186,207)
----------------------------------------------------------------------------------------
Net cash provided from (used by)
financing activities
Additional borrowings (repayments) 23,969 - 74,741 (4,685) - 94,025
Repurchase of common shares (38,476) - - - - (38,476)
Increase (decrease) in net payable
to affiliates 6,151 - (24,122) 17,971 - -
Dividends (to) from affiliates 45,782 - - (45,782) - -
Other, net (9,233) - - - - (9,233)
----------------------------------------------------------------------------------------
28,193 - 50,619 (32,496) - 46,316
----------------------------------------------------------------------------------------
Net decrease in cash during the period (159) - (999) (41,056) - (42,214)
Cash at beginning of year 107 97 12,958 110,293 123,455
----------------------------------------------------------------------------------------
Cash at end of period $ (52) $ 97 $ 11,959 $ 69,237 $ - $ 81,241
========================================================================================
</TABLE>
12
<PAGE> 13
UNITED DOMINION INDUSTRIES LIMITED
NOTES OF FINANCIAL STATEMENTS
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of September 30, 2000
----------------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Accounts and notes receivable $ 9,178 $ - $ 38,200 $ 379,905 $ (44,678) $ 382,605
Inventories 3,693 - 52,781 351,253 10,950 418,677
Other current assets 3,396 97 47,478 105,407 - 156,378
----------------------------------------------------------------------------------------------
Total current assets 16,267 97 138,459 836,565 (33,728) 957,660
Fixed assets - net 4,226 - 109,058 241,310 - 354,594
Goodwill 19,909 - 129,418 728,090 - 877,417
Intercompany notes receivable - - 136,662 362,765 (499,427) -
Other assets 1,081,061 379,949 1,397,635 499,112 (3,206,871) 150,886
----------------------------------------------------------------------------------------------
$ 1,121,463 $ 380,046 $ 1,911,232 $ 2,667,842 $ (3,740,026) $ 2,340,557
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 9,765 $ 11,416 $ 154,050 $ 386,690 $ (40,728) $ 521,193
Long-term debt 179,393 - 480,080 27,397 - 686,870
Intercompany notes payable - - 362,765 136,662 (499,427) -
Other liabilities 13,884 - 562,180 78,332 (440,323) 214,073
----------------------------------------------------------------------------------------------
203,042 11,416 1,559,075 629,081 (980,478) 1,422,136
----------------------------------------------------------------------------------------------
Shareholders' equity 918,421 368,630 352,157 2,038,761 (2,759,548) 918,421
----------------------------------------------------------------------------------------------
$ 1,121,463 $ 380,046 $ 1,911,232 $ 2,667,842 $ (3,740,026) $ 2,340,557
==============================================================================================
As of December 31, 1999
---------------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
ASSETS
Accounts and notes receivable $ 8,836 $ - $ 38,930 $ 329,538 $ (42,906) $ 334,398
Inventories 3,583 - 49,161 326,600 11,310 390,654
Other current assets 4,026 97 66,575 102,378 - 173,076
---------------------------------------------------------------------------------------------
Total current assets 16,445 97 154,666 758,516 (31,596) 898,128
Fixed assets - net 2,926 - 108,533 239,442 - 350,901
Goodwill 18,535 - 132,292 685,670 - 836,497
Intercompany notes receivable - - 126,300 355,460 (481,760) -
Other assets 1,095,495 365,113 1,285,111 528,721 (3,129,783) 144,657
---------------------------------------------------------------------------------------------
$ 1,133,401 $ 365,210 $ 1,806,902 $ 2,567,809 $ (3,643,139) $ 2,230,183
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 9,767 $ 11,416 $ 187,349 $ 357,469 $ (38,955) $ 527,046
Long-term debt 205,364 - 346,852 39,290 - 591,506
Intercompany notes payable - - 355,460 126,300 (481,760) -
Other liabilities 15,938 - 569,118 76,534 (452,291) 209,299
---------------------------------------------------------------------------------------------
231,069 11,416 1,458,779 599,593 (973,006) 1,327,851
---------------------------------------------------------------------------------------------
Shareholders' equity 902,332 353,794 348,123 1,968,216 (2,670,133) 902,332
---------------------------------------------------------------------------------------------
$ 1,133,401 $ 365,210 $ 1,806,902 $ 2,567,809 $ (3,643,139) $ 2,230,183
=============================================================================================
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of significant
factors that have affected the results of operations and financial condition of
United Dominion Industries Limited (the "Company") during the quarter and nine
months ended September 30, 2000. All amounts are stated in U. S. dollars.
As described in Note 1 to the accompanying financial statements, the
Company's financial statements for 1999 have been restated due to the
retroactive adoption of new accounting rules.
Results of Operations - Quarters Ended September 30, 2000 and 1999
Sales of $588 million for the quarter ended September 30, 2000 were 8%
higher than the $547 million reported in the comparable quarter of 1999. Net
income of $24.9 million in 2000 compared to $27.3 million in 1999 while per
share earnings were $.64 per share in 2000 versus $.69 per share for 1999.
Excluding non-recurring items, third quarter net income was $27.2 million in
2000, or $.70 per share, compared to $26.0 million in 1999, or $.66 per share, a
5% year-over-year increase in net income and a 6% increase in earnings per
share. Earnings per share before goodwill charges and non-recurring items were
$.84 per share in 2000 compared to $.78 per share for 1999, an increase of 8%.
Segment profit for 2000 of $57.6 million includes $3.5 million of
non-recurring items. These non-recurring costs consist primarily of a $3.8
million pre-tax charge to restructure the Company's Marley Pump division after a
federal court ruling blocked a planned joint venture that would have combined
the division's petroleum pump business with another company. Segment profit for
1999 of $56.2 million included $3.2 million of restructuring charges. Excluding
these costs, segment profit increased 2% from $59.7 million in 1999 to $61.1
million in 2000, while segment operating margins declined from 11.0% last year
to 10.4% in 2000. Excluding non-recurring items, corporate and other expenses
declined 22% in the third quarter. Net interest increased 26% in 2000 to $11.8
million due to increased interest rates and higher debt levels which were used
to fund acquisitions. The Company's effective tax rate was approximately 38% in
1999 and 37% in 2000.
The following is a summary of the factors that impacted operating
results for each segment.
Flow Technology - Sales of $260 million were 4% higher than the $251 million
reported in 1999. Segment profit (excluding non-
14
<PAGE> 15
recurring items of $4.2 million in 2000 and $100 thousand in 1999) increased 10%
year over year to $25.4 million in 2000 from $23.0 million in 1999. Accordingly,
operating margins increased from 9.2% in 1999 to 9.7% in 2000. The
year-over-year improvement in segment profit and operating margins came despite
a significant decline at Marley Pump. Depressed petroleum equipment markets,
coupled with uncertainties surrounding the outcome of the court case mentioned
above, hampered its results. All of the other units showed year-over-year
improvement, producing a 19% gain in segment profit and a 125-basis-point
improvement in operating margins. Weil-McLain continues to show strong
improvement. It is benefiting from the trend toward conversion from oil to gas
boilers due to the uncertainty regarding heating oil prices and availability.
Marley Cooling Tower showed significant improvement, driven by growth in its
North American markets. Waukesha Cherry-Burrell also reported double-digit
earnings growth. Each of its divisions experienced increased volumes and better
pricing but it was also impacted by higher material costs and an unfavorable
shift in mix. Flair continues to show improvement and results at Mueller Steam
and CMB were up as well. Bran+Luebbe showed strong improvement when measured in
local currencies; however, the translation of its results into U.S. dollars is
being negatively impacted by the weakness of the Euro.
Machinery - Segment profit and operating margins were down from the prior year
on flat sales. Segment profit of $14.8 million in 2000 was 12% below last year
while operating margins decreased from 14.1% in 1999 to 12.2% in 2000. The
year-over-year declines are all attributable to Compaction. While Compaction
continues to experience strong markets in Europe and the Far East, there has
been a clear weakening in its U.S. market. Also, comparisons to last year have
been significantly impacted by the weakness of European currencies. The
Agricultural Equipment division is showing improved results in 2000. The weak
agricultural economy has stabilized and backlogs are up almost 30% from a year
ago.
Specialty Engineered Products - Sales of $132 million were 37% higher than the
$96 million reported in 1999. Excluding non-recurring items of $2.0 million in
1999, segment profit of $15.5 million in 2000 was up 24% over 1999. Most of the
increased sales and segment profit relates to acquisitions. Operating margins
declined from 13.0% in 1999 to 11.8% in 2000. Marley Engineered Products
(formerly known as Marley Electric Heating) continued to benefit from strong
demand for its heating related products, better pricing and improved
manufacturing efficiencies. The Dock Products division continued to experience
strong markets and benefited from the acquisition of the Kelley Company in
January 2000. Earnings from the Door Products division were basically flat year
over year despite higher sales. Prices and margins are under increasing pressure
in that unit due to
15
<PAGE> 16
consolidation in the industry and a poor market for detention doors. C&M
benefited from higher sales and earnings despite the continued consolidation
within its markets. Fenn reported higher sales but lower earnings. A significant
year-over-year improvement in its Machinery division was more than offset by
shortfalls within Critical Parts.
Test Instrumentation - Sales of $75 million in 2000 were down slightly from
1999; however, segment profit (excluding non-recurring items) of $5.4 million in
2000 was down 26% from last year. Accordingly, operating margins declined from
9.5% in 1999 to 7.2% in 2000. All of the decline can be attributed to project
delays and performance issues at TMI. This division was sold in October 2000.
The Test Measurement Division showed significant year-over-year growth as
Radiodetection continues to benefit from strong telecommunication markets. While
reporting higher sales, Advanced Industrial Technologies and Lunaire/LDS both
experienced lower earnings due to higher manufacturing costs and various
operating issues. The King Company has completed its relocation to South
Carolina and is working to improve the productivity of a new work force.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Sales for the nine months ended September 30, 2000 of $1.8 billion were
13% higher than 1999's sales of $1.6 billion while net income of $46.4 million
($1.19 per share) in 2000 compared to $67.4 million ($1.69 per share) in 1999.
Excluding non-recurring items, net income and earnings per share were $70.0
million, or $1.79 per share, in 2000 compared to $66.9 million, or $1.68 per
share, in 1999, a 5% and 7% increase in net income and earnings per share,
respectively. Earnings per share before goodwill charges and non-recurring items
were $2.22 per share in 2000 compared to $2.03 per share in 1999, an increase of
9%.
The factors impacting the results during the nine months were
substantially the same as those discussed for the second quarter. Excluding
non-recurring items, segment profit of $170.6 in 2000 was 7% higher than the
$159.1 million reported in 1999. The increase in sales and segment profit was
primarily attributable to acquisitions. Excluding the results of businesses
acquired during the last year, sales and segment profit were basically unchanged
from a year ago. Corporate expenses declined by $1.1 million, or 6%, from last
year while other expense increased by $1.5 million in 2000. Excluding
non-recurring charges, other expense declined by $1.0 million from 1999 to 2000.
Net interest expense increased 34% in 2000 to $37.4 million primarily due to
increased interest rates and higher debt levels which were used to fund
acquisitions. The
16
<PAGE> 17
Company's effective income tax rate was basically unchanged at 38% in 2000 and
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $28 million of cash from operating activities
during the first nine months of 2000 compared to $98 million in 1999. The $70
million year-over-year decline is primarily due to increased restructuring
charges and higher segment working capital requirements in 2000 and the
collection, in 1999, of a $32 million tax refund. Total "operating" working
capital balances (excluding cash and borrowings) increased to $476 million at
September 30, 2000 from $412 million at December 31, 1999. Free cash flow
totaled a negative $19 million during the first nine months after factoring in
$35 million for capital and other expenditures and $12 million for common share
dividends. Free cash flow for the first nine months of 1999 amounted to $33
million. The $52 million year-over-year decline in free cash flow is primarily
due to the same factors mentioned above, partially offset by a $19 million
reduction in capital and other expenditures.
The Company's ratio of net debt (borrowings less cash on hand) to total
capital (net debt plus shareholders' equity) increased to 44% at September 30,
2000 from 41% at year-end. At September 30, 2000, the Company had available $137
million of unused credit facilities. Management believes that the combination of
cash available, the remaining unused credit facilities and future proceeds from
the previously announced divestitures (see "Other Items") will be adequate to
provide for short-term cash needs and to support internal growth and future
acquisitions.
The Company's operating plants from time to time make changes or
modifications to comply with current regulatory provisions governing the
discharge of materials into the environment. The Company believes that capital
expenditures for environmental control facilities in 2000 will not be material.
The Company maintains an environmental policy that requires the performance of
environmental audits, the conducting of seminars and other actions necessary to
ensure compliance with environmental laws. Management believes that compliance
with regulatory requirements and its environmental policy will have no material
adverse effect on the business or the consolidated financial position of the
Company.
YEAR 2000 INFORMATION
In 1997, the Company initiated a comprehensive review of its computer
systems, equipment and facilities to identify any Year 2000 problems. By the end
of 1999, all of the Company's
17
<PAGE> 18
essential computer applications and systems were Year 2000 compliant and, to
date, the Company has not experienced, nor does it expect to experience, any
significant Year 2000 consequences. However, there can be no assurance that all
aspects of the Year 2000 issue that may yet affect the Company, including those
related to vendors, customers or other companies with which the Company deals,
have been fully resolved.
OTHER ITEMS
In late September, the Company announced that it had entered into
discussions with several parties regarding the possible sale of the Company.
Although no definitive agreement has been reached, these discussions are
continuing.
The Company had also previously announced that it intends to divest
several non-core businesses, including the Door Products division and Fenn
Manufacturing (which are part of the Specialty Engineered Products segment), TMI
(which is part of the Test Instrumentation segment), and the Company's
Agricultural Equipment division (which is part of the Machinery segment). As
noted previously, the sale of TMI was completed in October 2000.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis contains "forward-looking
statements" within the meaning of Section 27A of the United States Securities
Exchange Act of 1934, as amended, that represent the Company's current
expectations or beliefs concerning future events. Such forward-looking
statements are about matters that are inherently subject to risks and
uncertainties. Factors that could influence the matters discussed in such
forward-looking statements include global economic conditions, the current
business environment, both in North America and abroad, including interest rates
and consumer and capital spending, competitive factors, pricing pressures, new
product development, changes in laws and regulations, and the continuation of
the favorable environment in which to make acquisitions, in North America and
internationally, including regulatory requirements and the availability of
acquisition candidates at affordable prices. Such factors, and other factors,
could cause actual results or events to differ materially from expectations.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risks from changes in interest rates
relates primarily to the fair value of its long-term fixed interest rate debt
and the effects that changes in interest rates have on floating rate debt and
short-term investments and cash equivalents. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. A 50 basis point increase in interest rates would have a
$5.0 million effect on the fair value of the Company's long-term debt as of
September 30, 2000. A 50 basis point movement in the interest rate on the
Company's floating rate debt and short-term investments and cash equivalents
would result in an approximate $2.7 million annualized increase or decrease in
net interest expense and cash flows. The Company does not trade in derivative
financial instruments for trading or speculative purposes. However, it does
enter into a limited range and number of derivative financial instrument
contracts.
The Company has operations in several foreign countries and conducts
business in numerous foreign currencies. Changes in foreign currency exchange
rates affect the Company's translation of its foreign companies' results into
United States dollars and can impact the transaction costs of specific
transactions denominated in foreign currencies. The Company has a program in
place to manage foreign currency risk and as part of that program enters into a
limited number of foreign currency foreign exchange contracts to hedge
anticipated or specific foreign currency transactions. These foreign exchange
contracts do not subject the Company to market risk due to exchange rate
movement because gains and losses on these contracts offset losses and gains on
the transactions being hedged. The Company has also mitigated its exposure to
changes in foreign currency exchange rates by denominating certain long-term
borrowings in foreign currencies. A 10% change in the value of all foreign
currencies would not have a material effect on the Company's financial position,
liquidity or results of operations.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Although the registrant and its subsidiaries are involved in a number
of pending legal proceedings in which damages and other relief are sought,
management is of the opinion, based upon information presently available to it,
that it is unlikely that any liability, to the extent not provided for through
insurance or otherwise, would be material in relation to the registrant's
consolidated financial position.
The registrant has been named along with several other parties in a
number of administrative proceedings maintained by federal and state agencies
arising out of alleged releases or contributions of hazardous substances into
the environment. None of the proceedings is, in the opinion of management,
either individually or viewed in connection with all the proceedings, material
to the business or consolidated financial condition of the registrant. While the
registrant has participated and in the future will participate in the funding of
clean up costs in connection with certain of the proceedings, it does not
believe that monetary sanctions exceeding $100,000 will be imposed on it as a
result of any of the proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed in the third quarter.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED DOMINION INDUSTRIES LIMITED
Date: November 6, 2000 /s/ Richard L. Magee
-------------------------------------
Richard L. Magee
Sr. Vice President, General Counsel
and Secretary
Date: November 6, 2000 /s/ C Theodore Leinbach, III
-------------------------------------
C. Theodore Leinbach, III
Vice President and Controller
21
