<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 June 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
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(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 June 30, 2000: 39,122,355
shares.
Page 1 of 21
<PAGE> 2
UNITED DOMINION INDUSTRIES LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
Page No.
--------
<S> <C>
Item 1. Condensed Financial Statements
Unaudited Consolidated Statements of 3
Income for the Quarters and Six
Months Ended June 30, 2000 and 1999
Unaudited Consolidated Statements of Cash 4
Flows for the Six Months Ended
June 30, 2000 and 1999
Unaudited Consolidated Statements of 5
Financial Position as of June 30, 2000
and December 31, 1999
Unaudited Consolidated Statements of 6
Retained Earnings for the Six Months Ended
June 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 20
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
2
<PAGE> 3
United Dominion Industries Limited
Consolidated Statements of Income
-------------------------------------------------------------------------------
For the Quarters and Six Months Ended June 30, 2000 and 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
-----------------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
(Restated) (Restated)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 626,942 $ 549,272 $ 1,185,445 $ 1,027,676
-----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales 434,268 384,289 826,368 721,054
Restructuring charges - inventory 346 -- 916 --
-----------------------------------------------------------------------------------------------------------------------------
Total cost of sales 434,614 384,289 827,284 721,054
Selling, general and administrative expenses 123,987 106,278 252,642 212,178
Restructuring and other charges 25,816 1,362 29,216 1,362
-----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 584,417 491,929 1,109,142 934,594
-----------------------------------------------------------------------------------------------------------------------------
Operating income 42,525 57,343 76,303 93,082
Other expense
Interest -- net (13,298) (9,317) (25,651) (18,612)
Other (407) -- (4,055) --
-----------------------------------------------------------------------------------------------------------------------------
Income before goodwill charges and income taxes 28,820 48,026 46,597 74,470
Income tax provision (9,134) (16,663) (13,942) (25,135)
-----------------------------------------------------------------------------------------------------------------------------
Income before goodwill charges 19,686 31,363 32,655 49,335
Goodwill charges, net of applicable tax benefit (5,424) (4,661) (11,150) (9,291)
-----------------------------------------------------------------------------------------------------------------------------
Net income $ 14,262 $ 26,702 $ 21,505 $ 40,044
=============================================================================================================================
Earnings per common share
Income before goodwill charges $ 0.50 $ 0.79 $ 0.84 $ 1.23
=============================================================================================================================
Net income $ 0.36 $ 0.67 $ 0.55 $ 1.00
=============================================================================================================================
Average common shares outstanding (thousands) 39,122 39,753 39,106 40,041
=============================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
United Dominion Industries Limited
Consolidated Statements of Cash Flow
-------------------------------------------------------------------------------
For the Six Months Ended June 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 $ 21,505 $ 40,044
Add (deduct) items not affecting cash
Depreciation 25,739 23,504
Amortization 15,690 12,956
Deferred income taxes (2,273) (2,457)
Other 1,692 760
Net increase in working capital other than cash (62,515) (55,359)
Asset securitization 1,300 (2,900)
----------------------------------------------------------------------------------------
1,138 16,548
----------------------------------------------------------------------------------------
Cash used by investing activities
Additions to fixed assets (28,263) (26,525)
Acquisition of businesses, net of cash balances (77,456) (14,162)
Net proceeds from disposal of business 7,383 --
Proceeds from (investments in) other assets 1,070 (4,318)
Other (1,318) (241)
----------------------------------------------------------------------------------------
(98,584) (45,246)
----------------------------------------------------------------------------------------
Cash provided from financing activities
Additional borrowings 163,992 70,350
Repayments of borrowings (77,819) (28,072)
Issuance of common stock 160 1,473
Repurchase of common stock -- (24,955)
Dividends (7,823) (7,210)
----------------------------------------------------------------------------------------
78,510 11,586
----------------------------------------------------------------------------------------
Decrease in cash during the period (18,936) (17,112)
Cash at beginning of year 108,940 123,455
----------------------------------------------------------------------------------------
Cash at end of period $ 90,004 $ 106,343
========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 5
United Dominion Industries Limited
Consolidated Statements of Financial Position
-------------------------------------------------------------------------------
As of June 30, 2000 and December 31, 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
(Restated)
--------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 90,004 $ 108,940
Accounts and notes receivable 385,572 334,398
Inventories @ 414,846 390,654
Other current assets 59,978 64,136
--------------------------------------------------------------------------------------------
Total current assets 950,400 898,128
Fixed assets 356,800 350,901
Goodwill 891,058 836,497
Other intangible assets 42,289 43,547
Other assets 102,482 101,110
--------------------------------------------------------------------------------------------
$ 2,343,029 $ 2,230,183
============================================================================================
Current liabilities
Notes payable to banks $ 76,884 $ 103,544
Current portion of long-term debt 45,313 46,082
Accounts payable 193,989 169,362
Accrued liabilities 201,572 192,618
Customer advances 14,908 15,440
--------------------------------------------------------------------------------------------
Total current liabilities 532,666 527,046
Long-term debt 694,733 591,506
Other liabilities 217,798 209,299
--------------------------------------------------------------------------------------------
1,445,197 1,327,851
--------------------------------------------------------------------------------------------
Shareholders' equity
Common shares 538,921 537,355
Contributed surplus 4,310 4,283
Retained earnings 417,906 404,224
--------------------------------------------------------------------------------------------
961,137 945,862
Equity adjustment from foreign currency translation (63,305) (43,530)
--------------------------------------------------------------------------------------------
Total shareholders' equity 897,832 902,332
--------------------------------------------------------------------------------------------
$ 2,343,029 $ 2,230,183
============================================================================================
@ Inventories consist of:
Raw materials $ 136,379 $ 131,444
Work-in-process 111,789 101,122
Finished goods 166,678 158,088
--------------------------------------------------------------------------------------------
$ 414,846 $ 390,654
============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
United Dominion Industries Limited
Consolidated Statements of Retained Earnings
-------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 and the Year Ended December 31,1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
(Restated)
--------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 404,224 $ 346,467
Net income 21,505 86,326
Dividends (7,823) (14,158)
Buyback of common shares -- (14,411)
--------------------------------------------------------------------------------------------
Balance at end of period $ 417,906 $ 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 six months ended June 30, 1999, the adoption
resulted in a decrease in net income of $645 and $1,290, respectively,
or $.02 and $.03 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 $26,695 and $34,313 during the quarter and six months ended
June 30, 2000, respectively. This consisted principally of
restructuring costs ($22,449 and $26,419 for the quarter and six months
ended June 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 $4,246 for the quarter ended June 30,
2000 arose primarily from a product replacement program and a legal
matter. Other charges of $7,894 for the six months ended June 30, 2000
also includes a $3,648 one-time first quarter charge resulting from an
unfavorable tax ruling.
3. Information about the company's operating segments is as follows:
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
(Restated) (Restated)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales
Flow Technology $ 258,429 $ 229,433 $ 513,285 $ 457,402
Machinery 160,944 152,798 258,080 242,115
Specialty Engineered Products 124,736 83,220 244,689 165,427
Test Instrumentation 80,746 79,571 162,680 154,169
Divested business 2,087 4,250 6,711 8,563
----------- ----------- ----------- -----------
$ 626,942 $ 549,272 $ 1,185,445 $ 1,027,676
=========== =========== =========== ===========
Segment Profit
Flow Technology $ 7,747 $ 20,845 $ 20,744 $ 40,201
Machinery 26,508 23,565 33,320 27,614
Specialty Engineered Products 8,844 9,326 21,948 19,216
Test Instrumentation 930 6,185 3,263 11,587
Divested business (102) 152 5 (283)
----------- ----------- ----------- -----------
$ 43,927 $ 60,073 $ 79,280 $ 98,335
=========== =========== =========== ===========
Reconciliation of Segment Profit
to Net Income
Segment profit $ 43,927 $ 60,073 $ 79,280 $ 98,335
Corporate expenses (5,783) (6,228) (11,447) (11,697)
Interest - net (13,298) (9,317) (25,651) (18,612)
Other expense (1,843) (1,495) (7,497) (3,509)
----------- ----------- ----------- -----------
Income before income taxes 23,003 43,033 34,685 64,517
Income taxes (8,741) (16,331) (13,180) (24,473)
----------- ----------- ----------- -----------
Net income $ 14,262 $ 26,702 $ 21,505 $ 40,044
=========== =========== =========== ===========
</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 June 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 June 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income:
Canadian GAAP $ 14,262 $ 26,702 $ 21,505 $ 40,044
United States GAAP 14,338 26,778 21,657 39,194
Weighted average shares
outstanding (000's)
Canadian GAAP 39,122 39,753 39,106 40,041
Less restricted stock outstanding (199) (174) (199) (179)
-------- -------- -------- --------
United States GAAP - Basic 38,923 39,579 38,907 39,862
Effect of dilutive securities
Restricted stock 199 174 199 179
Employee stock options 37 260 59 192
-------- -------- -------- --------
United States GAAP - Diluted 39,159 40,013 39,165 40,233
======== ======== ======== ========
Net earnings per share:
Canadian GAAP $ 0.36 $ 0.67 $ 0.55 $ 1.00
======== ======== ======== ========
United States GAAP - Basic $ 0.37 $ 0.68 $ 0.56 $ 0.98
======== ======== ======== ========
United States GAAP - Diluted $ 0.37 $ 0.67 $ 0.55 $ 0.97
======== ======== ======== ========
</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 June 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 six months ended June 30, 2000,
comprehensive income totaled $3,508 and $1,882, respectively. For the
three and six months ended June 30, 1999, comprehensive income totaled
$23,060 and $36,713, respectively.
5. United Dominion Industries Limited and its wholly owned subsidiary,
United Dominion Holdings, Inc., are guarantors of certain senior debt
issued by United Dominion Industries, Inc. The following is summarized
condensed consolidating financial information segregating the parent
and guarantor subsidiaries from nonguarantor subsidiaries. The
guarantor subsidiaries are wholly owned subsidiaries of the company and
guarantees are full, unconditional and joint and several. 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 to Financial Statements
(Stated in Thousands of U.S. Dollars)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30, 2000
--------------------------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
RESULTS OF OPERATIONS Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries Eliminations Consolidated
---------------- -------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 9,734 $ -- $ 112,085 $ 513,905 $ (8,782) $ 626,942
Costs and expenses
Cost of sales 7,762 -- 79,276 356,358 (8,782) 434,614
Selling, general and administrative
expenses 1,759 -- 24,729 97,499 -- 123,987
Restructuring and other charges -- -- 6,168 19,648 -- 25,816
--------------------------------------------------------------------------------------------
Total costs and expenses 9,521 -- 110,173 473,505 (8,782) 584,417
--------------------------------------------------------------------------------------------
Operating income 213 -- 1,912 40,400 -- 42,525
Other income (expense)
Equity in earnings of subsidiaries 16,424 5,007 18,184 -- (39,615) --
Interest - net (2,180) -- (17,269) 6,151 -- (13,298)
Other -- -- 1,658 512 (2,577) (407)
--------------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 14,457 5,007 4,485 47,063 (42,192) 28,820
Income tax provision (106) -- 4,091 (14,150) 1,031 (9,134)
--------------------------------------------------------------------------------------------
Income before goodwill charges 14,351 5,007 8,576 32,913 (41,161) 19,686
Goodwill charges, net of income tax
benefit (89) -- (714) (4,621) -- (5,424)
--------------------------------------------------------------------------------------------
Net income $ 14,262 $ 5,007 $ 7,862 $ 28,292 $ (41,161) $ 14,262
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended June 30, 1999
--------------------------------------------------------------------------------------------
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 $ 4,835 $ -- $ 104,135 $ 446,484 $ (6,182) $ 549,272
Costs and expenses
Cost of sales 3,863 -- 72,548 314,060 (6,182) 384,289
Selling, general and administrative
expenses 949 -- 26,031 79,298 -- 106,278
Restructuring charges -- -- -- 1,362 -- 1,362
-------------------------------------------------------------------------------------------
Total costs and expenses 4,812 -- 98,579 394,720 (6,182) 491,929
-------------------------------------------------------------------------------------------
Operating income 23 -- 5,556 51,764 -- 57,343
Other income (expense)
Equity in earnings of subsidiaries 28,146 18,393 19,306 -- (65,845) --
Interest - net (2,298) -- (13,297) 6,278 -- (9,317)
Other -- -- 1,070 2 (1,072) --
-------------------------------------------------------------------------------------------
Income before income taxes
and goodwill charges 25,871 18,393 12,635 58,044 (66,917) 48,026
Income tax provision 834 -- 3,913 (21,839) 429 (16,663)
-------------------------------------------------------------------------------------------
Income before goodwill charges 26,705 18,393 16,548 36,205 (66,488) 31,363
Goodwill charges, net of income
tax benefit (3) -- (664) (3,994) -- (4,661)
-------------------------------------------------------------------------------------------
Net income $ 26,702 $ 18,393 $ 15,884 $ 32,211 $ (66,488) $ 26,702
============================================================================================
</TABLE>
10
<PAGE> 11
United Dominion Industries Limited
Notes to Financial Statements
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
----------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
RESULTS OF OPERATIONS Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Sales $ 20,468 $ -- $ 223,887 $ 958,385
Costs and expenses
Cost of sales 16,224 -- 160,132 668,223
Selling, general and administrative expenses 3,323 -- 50,336 198,983
Restructuring and other charges -- -- 6,168 23,048
---------------------------------------------------------------------
Total costs and expenses 19,547 -- 216,636 890,254
---------------------------------------------------------------------
Operating income 921 -- 7,251 68,131
Other income (expense)
Equity in earnings of subsidiaries 25,638 2,845 27,955 --
Interest - net (4,855) -- (33,143) 12,347
Other -- -- (806) 568
---------------------------------------------------------------------
Income before income taxes
and goodwill charges 21,704 2,845 1,257 81,046
Income tax provision (28) -- 4,742 (20,183)
---------------------------------------------------------------------
Income before goodwill charges 21,676 2,845 5,999 60,863
Goodwill charges, net of income tax benefit (171) -- (1,445) (9,534)
---------------------------------------------------------------------
Net income $ 21,505 $2,845 $ 4,554 $ 51,329
=====================================================================
<CAPTION>
Six Months Ended June 30, 2000
---------------------------------
RESULTS OF OPERATIONS Eliminations Consolidated
------------ ------------
<S> <C> <C>
Sales $(17,295) $ 1,185,445
Costs and expenses
Cost of sales (17,295) 827,284
Selling, general and administrative expenses -- 252,642
Restructuring and other charges -- 29,216
-------------------------------
Total costs and expenses (17,295) 1,109,142
-------------------------------
Operating income -- 76,303
Other income (expense)
Equity in earnings of subsidiaries (56,438) --
Interest - net -- (25,651)
Other (3,817) (4,055)
-------------------------------
Income before income taxes
and goodwill charges (60,255) 46,597
Income tax provision 1,527 (13,942)
-------------------------------
Income before goodwill charges (58,728) 32,655
Goodwill charges, net of income tax benefit -- (11,150)
-------------------------------
Net income $(58,728) $ 21,505
===============================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Sales $ 8,814 $ -- $ 199,502 $ 830,568
Costs and expenses
Cost of sales 7,079 -- 140,075 585,108
Selling, general and administrative expenses 1,862 -- 47,937 162,379
Restructuring charges -- -- -- 1,362
----------------------------------------------------------------------------
Total costs and expenses 8,941 -- 188,012 748,849
----------------------------------------------------------------------------
Operating income (loss) (127) -- 11,490 81,719
Other income (expense)
Equity in earnings of subsidiaries 43,697 23,991 24,123 --
Interest - net (4,815) -- (22,210) 8,413
Other -- -- 2,750 425
----------------------------------------------------------------------------
Income before income taxes
and goodwill charges 38,755 23,991 16,153 90,557
Income tax provision 1,294 -- 4,797 (32,496)
----------------------------------------------------------------------------
Income before goodwill charges 40,049 23,991 20,950 58,061
Goodwill charges, net of income tax benefit (5) -- (1,329) (7,957)
----------------------------------------------------------------------------
Net income $ 40,044 $23,991 $ 19,621 $ 50,104
============================================================================
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------
Eliminations Consolidated
------------ ------------
<S> <C> <C>
Sales $ (11,208) $ 1,027,676
Costs and expenses
Cost of sales (11,208) 721,054
Selling, general and administrative expenses 212,178
Restructuring charges 1,362
-------------------------------
Total costs and expenses (11,208) 934,594
-------------------------------
Operating income (loss) -- 93,082
Other income (expense)
Equity in earnings of subsidiaries (91,811) --
Interest - net (18,612)
Other (3,175) --
-------------------------------
Income before income taxes
and goodwill charges (94,986) 74,470
Income tax provision 1,270 (25,135)
-------------------------------
Income before goodwill charges (93,716) 49,335
Goodwill charges, net of income tax benefit -- (9,291)
-------------------------------
Net income $ (93,716) $ 40,044
===============================
</TABLE>
11
<PAGE> 12
United Dominion Industries Limited
Notes to Financial Statements
(Stated in Thousands of U.S. Dollars)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
----------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
CASH FLOWS Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (103) $ -- $ 9,155 $ (7,914)
---------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (1,300) -- (7,364) (19,599)
Acquisition of businesses, net of cash balances -- -- (79,689) 2,233
Net proceeds from disposal of business -- -- 7,383 --
Other, net (998) -- (115) 865
---------------------------------------------------------------------
(2,298) -- (79,785) (16,501)
---------------------------------------------------------------------
Net cash provided from financing activities
Additional borrowings (repayments) (29,130) -- 116,351 (1,048)
Increase (decrease) in net payable to affiliates (7,741) -- (42,196) 49,937
Dividends (to) from affiliates 21,871 -- -- (21,871)
Return of capital (to) from affiliates 23,876 -- -- (23,876)
Other, net (7,663) -- -- --
---------------------------------------------------------------------
1,213 -- 74,155 3,142
---------------------------------------------------------------------
Net increase (decrease) in cash during the period (1,188) -- 3,525 (21,273)
Cash at beginning of year 1,509 97 7,740 99,594
---------------------------------------------------------------------
Cash at end of period $ 321 $ 97 $ 11,265 $ 78,321
=====================================================================
<CAPTION>
Six Months Ended June 30, 2000
-----------------------------------
CASH FLOWS Eliminations Consolidated
------------ ------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ -- $ 1,138
------------------------------------
Net cash used by investing activities
Additions to fixed assets -- (28,263)
Acquisition of businesses, net of cash balances -- (77,456)
Net proceeds from disposal of business -- 7,383
Other, net -- (248)
------------------------------------
-- (98,584)
------------------------------------
Net cash provided from financing activities
Additional borrowings (repayments) -- 86,173
Increase (decrease) in net payable to affiliates -- --
Dividends (to) from affiliates -- --
Return of capital (to) from affiliates -- --
Other, net -- (7,663)
------------------------------------
-- 78,510
------------------------------------
Net increase (decrease) in cash during the period -- (18,936)
Cash at beginning of year 108,940
------------------------------------
Cash at end of period $ -- $ 90,004
====================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (2,628) $ -- $ (7,827) $ 27,003
---------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (162) -- (6,918) (19,445)
Acquisition of businesses, net of cash balances -- -- (12,366) (1,796)
Other, net 18 -- (1,747) (2,830)
---------------------------------------------------------------------
(144) -- (21,031) (24,071)
---------------------------------------------------------------------
Net cash provided from (used by) financing activities
Additional borrowings (repayments) (18,546) -- 67,619 (6,795)
Repurchase of common shares (24,955) -- -- --
Increase (decrease) in net payable to affiliates 5,475 -- (38,924) 33,449
Dividends (to) from affiliates 45,782 -- -- (45,782)
Other, net (5,737) -- -- --
---------------------------------------------------------------------
2,019 -- 28,695 (19,128)
---------------------------------------------------------------------
Net decrease in cash during the period (753) -- (163) (16,196)
Cash at beginning of year 107 97 12,958 110,293
---------------------------------------------------------------------
Cash at end of period $ (646) $ 97 $ 12,795 $ 94,097
=====================================================================
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------
Eliminations Consolidated
------------ -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ -- $ 16,548
-------------------------------
Net cash used by investing activities
Additions to fixed assets -- (26,525)
Acquisition of businesses, net of cash balances -- (14,162)
Other, net -- (4,559)
-------------------------------
-- (45,246)
-------------------------------
Net cash provided from (used by) financing activities
Additional borrowings (repayments) -- 42,278
Repurchase of common shares -- (24,955)
Increase (decrease) in net payable to affiliates -- --
Dividends (to) from affiliates -- --
Other, net -- (5,737)
-------------------------------
-- 11,586
-------------------------------
Net decrease in cash during the period -- (17,112)
Cash at beginning of year 123,455
-------------------------------
Cash at end of period $ -- $ 106,343
===============================
</TABLE>
12
<PAGE> 13
United Dominion Industries Limited
Notes to Financial Statements
(Stated in Thousands of U.S. Dollars)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of June 30, 2000
--------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Accounts and notes receivable $ 10,362 $ -- $ 35,207 $ 384,825
Inventories 3,671 -- 53,493 346,732
Other current assets 416 97 58,406 91,063
--------------------------------------------------------------------------
Total current assets 14,449 97 147,106 822,620
Fixed assets - net 3,888 -- 109,868 243,044
Goodwill 20,092 -- 130,410 740,556
Intercompany notes receivable -- -- 139,515 360,860
Other assets 1,050,332 363,589 1,377,101 486,625
--------------------------------------------------------------------------
$1,088,761 $ 363,686 $1,904,000 $ 2,653,705
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 8,651 $ 11,416 $ 161,993 $ 391,478
Long-term debt 170,492 -- 496,448 27,793
Intercompany notes payable -- -- 360,860 139,515
Other liabilities 11,786 -- 548,533 79,130
--------------------------------------------------------------------------
190,929 11,416 1,567,834 637,916
--------------------------------------------------------------------------
Total shareholders' equity 897,832 352,270 336,166 2,015,789
--------------------------------------------------------------------------
$1,088,761 $ 363,686 $1,904,000 $ 2,653,705
==========================================================================
<CAPTION>
As of June 30, 2000
--------------------------------
Eliminations Consolidated
------------ ------------
<S> <C> <C>
ASSETS
Accounts and notes receivable $ (44,822) $ 385,572
Inventories 10,950 414,846
Other current assets -- 149,982
--------------------------------
Total current assets (33,872) 950,400
Fixed assets - net -- 356,800
Goodwill -- 891,058
Intercompany notes receivable (500,375) --
Other assets (3,132,876) 144,771
--------------------------------
$(3,667,123) $2,343,029
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ (40,872) $ 532,666
Long-term debt -- 694,733
Intercompany notes payable (500,375) --
Other liabilities (421,651) 217,798
--------------------------------
(962,898) 1,445,197
--------------------------------
Total shareholders' equity (2,704,225) 897,832
--------------------------------
$(3,667,123) $2,343,029
================================
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------------------------------------
United United United Non-
Dominion Dominion Dominion Guarantor
Industries, Ltd. Holdings, Inc. Industries, Inc. Subsidiaries
---------------- -------------- ---------------- ------------
ASSETS
<S> <C> <C> <C> <C>
Accounts and notes receivable $ 8,836 $ -- $ 38,930 $ 329,538
Inventories 3,583 -- 49,161 326,600
Other current assets 4,026 97 66,575 102,378
------------------------------------------------------------------------
Total current assets 16,445 97 154,666 758,516
Fixed assets - net 2,926 -- 108,533 239,442
Goodwill 18,535 -- 132,292 685,670
Intercompany notes receivable -- -- 126,300 355,460
Other assets 1,095,495 365,113 1,285,111 528,721
------------------------------------------------------------------------
$1,133,401 $ 365,210 $1,806,902 $ 2,567,809
=======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 9,767 $ 11,416 $ 187,349 $ 357,469
Long-term debt 205,364 -- 346,852 39,290
Intercompany notes payable -- -- 355,460 126,300
Other liabilities 15,938 -- 569,118 76,534
------------------------------------------------------------------------
231,069 11,416 1,458,779 599,593
------------------------------------------------------------------------
Shareholders' equity 902,332 353,794 348,123 1,968,216
------------------------------------------------------------------------
$1,133,401 $ 365,210 $1,806,902 $ 2,567,809
========================================================================
<CAPTION>
As of December 31, 1999
--------------------------------
Eliminations Consolidated
------------ ------------
<S> <C> <C>
ASSETS
Accounts and notes receivable $ (42,906) $ 334,398
Inventories 11,310 390,654
Other current assets -- 173,076
--------------------------------
Total current assets (31,596) 898,128
Fixed assets - net -- 350,901
Goodwill -- 836,497
Intercompany notes receivable (481,760) --
Other assets (3,129,783) 144,657
--------------------------------
$(3,643,139) $2,230,183
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ (38,955) $ 527,046
Long-term debt -- 591,506
Intercompany notes payable (481,760) --
Other liabilities (452,291) 209,299
--------------------------------
(973,006) 1,327,851
--------------------------------
Shareholders' equity (2,670,133) 902,332
-------------------------------
$(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 six
months ended June 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 June 30, 2000 and 1999
Sales of $627 million for the quarter ended June 30, 2000 were 14%
higher than the $549 million reported in the comparable quarter of 1999. Net
income of $14.3 million in 2000 compared to $26.7 million in 1999 while per
share earnings were $.36 per share versus $.67 per share for 1999. Excluding
non-recurring items, second quarter net income would have been $30.8 million in
2000, or $.79 per share, compared to $27.5 million in 1999, or $.69 per share, a
12% year-over-year increase in net income and a 14% increase in earnings per
share. Earnings per share before goodwill charges and non-recurring items would
have been $.92 per share in 2000 compared to $.81 per share for 1999, an
increase of 14%. The increased earnings related primarily to an increase in
segment profit, excluding non-recurring items, and lower corporate expenses.
Segment profit for 2000 includes $26.3 million of non-recurring items.
These non-recurring costs consist of $22.4 million in restructuring charges to
support the company's operations improvement initiatives, UDXcellence, and $3.8
million of charges related to a product replacement program and a legal matter.
Segment profit for 1999 included $1.4 million of restructuring charges.
Excluding these costs, segment profit increased 14% from 1999 to 2000, while
segment operating margins increased slightly to 11.3% from 11.2% last year.
Excluding non-recurring items, corporate and other expenses declined 7% in the
second quarter reflecting the continuing benefits of cost reduction initiatives
previously implemented. Net interest increased 43% in 2000 to $13.3 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 both
2000 and 1999.
14
<PAGE> 15
The following is a summary of the factors that impacted operating
results for each segment.
Flow Technology - Sales of $258 million were 13% higher than the $229 million
reported in 1999. Despite the increase in sales, segment profit (excluding
non-recurring items of $13.4 million in 2000 and $1.2 million in 1999) declined
4% year over year to $21.1 million in 2000 from $22.0 million in 1999.
Accordingly, operating margins declined from 9.6% in 1999 to 8.2% in 2000.
Weil-McLain and Flair showed year-over-year improvement and the segment
benefited from the contribution of Bran+Luebbe which was acquired in the third
quarter of 1999. Weil-McLain has experienced strong markets due to pent-up
demand and oil to gas boiler conversions. Flair is also benefiting from higher
year-over-year volumes and lower selling, general and administrative expenses.
However, the results of Marley Cooling Tower and Marley Pump were particularly
disappointing in the quarter as both of these divisions were impacted by
softness in the petrochemical market and operating issues. Additionally, Marley
Pump suffered from the uncertainty surrounding the proposed joint venture with
Franklin Electric. Improvement at Mueller Steam was offset by a small shortfall
at Waukesha Cherry-Burrell while CMB's results were virtually unchanged from a
year ago.
Machinery - Sales, segment profit and operating margins were all up from the
prior year. Total sales of $161 million were 5% ahead of last year while segment
profit of $26.9 million (excluding non-recurring charges of $350 thousand) was
14% higher. Operating margins increased from 15.4% last year to 16.7% in 2000.
Compaction has continued to experience strong markets world-wide, especially in
Europe and the Far East, but there is some indication of softness in North
America. Despite this softness and the weakness of the Deutsche Mark versus the
U. S. dollar, this year's second quarter results were an all-time record for the
Compaction Division. Increased sales of new machines in almost all product lines
have contributed to the year-over-year improvement. The Agricultural Equipment
division also showed better results in 2000. There are indications that the weak
agricultural economy has hit bottom and that a recovery may have begun.
Specialty Engineered Products - Excluding non-recurring items totaling $5.3
million, segment profit of $14.1 million in 2000 was up 51% over 1999 while
sales of $125 million were 50% higher than the prior year. Operating margins
increased slightly to 11.3% in 2000 from 11.2% in 1999. Most of the
year-over-year increase in results was due to acquisitions. However, excluding
15
<PAGE> 16
the impact of acquisitions, sales and segment profit were still up 18% over last
year. Marley Engineered Products (formerly known as Marley Electric Heating)
benefited from strong demand for its heating related products. The Dock Products
division continued to experience strong markets and benefited from the
acquisition of the Kelley Company in January 2000 and TKO Doors in the third
quarter of 1999. Earnings from the Door Products division were basically flat
year over year despite higher sales. Pricing pressures and an unfavorable shift
in demand to lower margin products hurt results. C&M benefited from higher sales
and earnings, primarily due to growth in its international business. Fenn
reported lower sales and earnings primarily due to volume shortfalls in its
Machinery division.
Test Instrumentation - Sales of $81 million were up only 1% over 1999; however,
segment profit (excluding non-recurring items) of $8.2 million was 30% higher
than last year. Accordingly, operating margins improved from 8.0% in 1999 to
10.2% in 2000. All operations showed year-over-year improvement in earnings,
most notably the Test Measurement division and Lunaire/LDS. Radiodetection is
benefiting from recent acquisitions and strong telecommunication markets.
Lunaire/LDS has experienced very strong bookings and its backlog is at an
all-time high. The Atmospheric Air Division reported lower sales, primarily due
to weak automotive markets at TMI, but cost reduction initiatives enabled this
division to still increase year-over-year earnings.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Sales for the six months ended June 30, 2000 of $1.2 billion were 15%
higher than 1999's sales of $1.0 billion while net income of $21.5 million ($.55
per share) in 2000 compared to $40.0 million ($1.00 per share) in 1999.
Excluding non-recurring items, net income and earnings per share would have been
$42.8 million, or $1.09 per share, in 2000 compared to $40.9 million, or $1.02
per share, in 1999, a 5% and 7% increase in net income and earnings per share,
respectively.
The factors impacting the results during the six months were
substantially the same as those discussed for the second quarter. Excluding
non-recurring items, segment profit of $109.5 million in 2000 was 10% higher
than the $99.7 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 would have
increased 3% from a year ago. Corporate expenses have declined 2% from last year
while other expense increased by $4.0 million in 2000. The increase in other
expense
16
<PAGE> 17
was due entirely to non-recurring charges in 2000, primarily a one-time charge
resulting from an unfavorable tax ruling in the first quarter. Net interest
expense increased 38% in 2000 to $25.7 million due to higher debt levels which
were used to fund acquisitions and last year's common share repurchase program.
The Company's effective income tax rate was unchanged at 38% in 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated only $1 million of cash from operating activities
during the first six months of 2000 as the combination of net income,
depreciation and amortization were offset by a $63 million increase in working
capital. Total "operating" working capital balances (excluding cash and
borrowings) increased to $450 million at June 30, 2000 from $412 million at
December 31, 1999, but declined from $501 million at March 31, 2000. Free cash
flow totaled a negative $35 million during the first six months after factoring
in $28 million for capital and other expenditures and $8 million for common
share dividends. Free cash flow for the first six months of 1999 amounted to a
negative $24 million. The year-over-year decline in free cash flow is primarily
due to lower net income in 2000.
The Company's ratio of net debt (borrowings less cash on hand) to total
capital (net debt plus shareholders' equity) increased to 45% at June 30, 2000
from 41% at year-end. At June 30, 2000, the Company had available $172 million
of unused credit facilities. Management believes that the combination of cash
available, the remaining unused credit facilities and proceeds from the
previously announced divestitures (see "Other Items") and a possible debt
offering 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
17
<PAGE> 18
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 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
The Company has 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). In 1999, proforma full year
sales and earnings from these companies totaled approximately $300 million and
$31 million, respectively.
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
$5.1 million effect on the fair value of the Company's long-term debt as of June
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 $2.6 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 first 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: August 9, 2000 /s/ Richard L. Magee
---------------------------------
Richard L. Magee
Sr. Vice President, Secretary and
General Counsel
Date: August 9, 2000 /s/ C. Theodore Leinbach, III
---------------------------------
C. Theodore Leinbach, III
Vice President and Controller
21
