<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 March 31, 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 March 31, 2000: 39,122,355
shares.
Page 1 of 19
<PAGE> 2
UNITED DOMINION INDUSTRIES LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements
Unaudited Consolidated Statements of 3
Income for the Quarters Ended
March 31, 2000 and 1999
Unaudited Consolidated Statements of Cash 4
Flows for the Quarters Ended
March 31, 2000 and 1999
Unaudited Consolidated Statements of 5
Financial Position as of March
31, 2000 and December 31, 1999
Unaudited Consolidated Statements of 6
Retained Earnings for the Quarter Ended
March 31, 2000 and the Year Ended
December 31, 1999
Notes to Financial Statements 7-12
Item 2. Management's Discussion and Analysis of 13-16
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of 18
Security Holders
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
For the Quarters Ended March 31, 2000 and 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Quarters Ended
- -------------------------------------------------------------------------------------------------
Mar. 31, Mar. 31,
2000 1999
(Restated)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 558,503 $ 478,404
- -------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales 392,100 336,765
Restructuring charges - inventory 570 --
- -------------------------------------------------------------------------------------------------
Total cost of sales 392,670 336,765
Selling, general and administrative expenses 128,655 105,900
Restructuring charges - other 3,400 --
- -------------------------------------------------------------------------------------------------
Total costs and expenses 524,725 442,665
- -------------------------------------------------------------------------------------------------
Operating income 33,778 35,739
Other expense
Interest -- net (12,353) (9,295)
Other (3,648) --
- -------------------------------------------------------------------------------------------------
Income before income taxes and goodwill amortization 17,777 26,444
Income tax provision (4,808) (8,472)
- -------------------------------------------------------------------------------------------------
Income before goodwill amortization 12,969 17,972
Goodwill amortization, net of applicable tax benefit of
$369 in 2000 and $330 in 1999 (5,726) (4,630)
- -------------------------------------------------------------------------------------------------
Net income $ 7,243 $ 13,342
=================================================================================================
Earnings per common share
Income before goodwill amortization $ 0.33 $ 0.45
=================================================================================================
Net income $ 0.19 $ 0.33
=================================================================================================
Average common shares outstanding (thousands) 39,091 40,331
=================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Quarters Ended March 31, 2000 and 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
2000 1999
(Restated)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided from (used by) operating activities
Net income $ 7,243 $ 13,342
Add (deduct) items not affecting cash
Depreciation 12,739 11,755
Amortization 8,049 6,227
Deferred income taxes (547) 407
Other 346 345
Net increase in working capital other than cash (85,927) (22,672)
Asset securitization (4,200) 3,900
- -------------------------------------------------------------------------------------------------
(62,297) 13,304
- -------------------------------------------------------------------------------------------------
Cash used by investing activities
Additions to fixed assets (12,458) (9,572)
Acquisition of businesses (77,989) (12,052)
Proceeds from other assets 3,800 1,076
Other (640) (455)
- -------------------------------------------------------------------------------------------------
(87,287) (21,003)
- -------------------------------------------------------------------------------------------------
Cash provided from (used by) financing activities
Additional borrowings 163,249 42,998
Repayments of borrowings (54,585) (26,577)
Issuance of common stock 160 175
Repurchase of common stock -- (16,477)
Dividends (3,519) (3,615)
- -------------------------------------------------------------------------------------------------
105,305 (3,496)
- -------------------------------------------------------------------------------------------------
Decrease in cash during the period (44,279) (11,195)
Cash at beginning of year 108,940 123,455
- -------------------------------------------------------------------------------------------------
Cash at end of period $ 64,661 $ 112,260
=================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 5
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------
As of March 31, 2000 and December 31, 1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
(Restated)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 64,661 $ 108,940
Accounts and notes receivable 363,419 334,398
Inventories @ 423,131 390,654
Other current assets 68,735 64,136
- -----------------------------------------------------------------------------------------------------
Total current assets 919,946 898,128
Fixed assets 354,907 350,901
Goodwill 890,007 836,497
Other intangible assets 43,307 43,547
Other assets 99,564 101,110
- -----------------------------------------------------------------------------------------------------
$ 2,307,731 $ 2,230,183
=====================================================================================================
Current liabilities
Notes payable to banks $ 86,490 $ 103,544
Current portion of long-term debt 45,893 46,082
Accounts payable 181,062 169,362
Accrued liabilities 158,857 192,618
Customer advances 13,902 15,440
- -----------------------------------------------------------------------------------------------------
Total current liabilities 486,204 527,046
Long-term debt 713,303 591,506
Other liabilities 209,870 209,299
- -----------------------------------------------------------------------------------------------------
1,409,377 1,327,851
- -----------------------------------------------------------------------------------------------------
Shareholders' equity
Common shares 538,571 537,355
Contributed surplus 4,310 4,283
Retained earnings 407,948 404,224
- -----------------------------------------------------------------------------------------------------
950,829 945,862
Equity adjustment from foreign currency translation (52,475) (43,530)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 898,354 902,332
- -----------------------------------------------------------------------------------------------------
$ 2,307,731 $ 2,230,183
=====================================================================================================
@ Inventories consist of:
Raw materials $ 134,958 $ 131,444
Work-in-process 115,211 101,122
Finished goods 172,962 158,088
- -----------------------------------------------------------------------------------------------------
$ 423,131 $ 390,654
=====================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
UNITED DOMINION INDUSTRIES LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- --------------------------------------------------------------------------------
For the Quarter Ended March 31, 2000 and the Year Ended December 31,1999
(Stated in Thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
(Restated)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 404,224 $ 346,467
Net income 7,243 86,326
Dividends (3,519) (14,158)
Buyback of common shares -- (14,411)
- -------------------------------------------------------------------------------------------------
Balance at end of period $ 407,948 $ 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 ended March 31, 1999, the adoption resulted in a
decrease in net income of $645, or $.02 per share. 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 restructuring charges totaling $3,970 during the
quarter ended March 31, 2000 as part of its initiative to improve
operations. This initiative included consolidating operations and plant
moves. Other expense included a $3,648 charge resulting from an
unfavorable tax ruling.
3. Information about the company's operating segments is as follows:
<TABLE>
<CAPTION>
Quarters Ended
March 31,
------------------------
2000 1999
(Restated)
-------- ----------
<S> <C> <C>
Sales
Flow Technology $254,856 $227,969
Machinery 97,136 89,317
Specialty Engineered Products 124,577 86,520
Test Instrumentation 81,934 74,598
-------- --------
$558,503 $478,404
======== ========
Segment Profit
Flow Technology $ 12,997 $ 19,356
Machinery 6,812 4,049
Specialty Engineered Products 13,211 9,455
Test Instrumentation 2,333 5,402
-------- --------
$ 35,353 $ 38,262
======== ========
Reconciliation of Segment Profit
to Net Income
Segment profit $ 35,353 $ 38,262
Corporate expenses (5,664) (5,469)
Interest - net (12,353) (9,295)
Other expense (5,654) (2,014)
-------- --------
Income before income taxes 11,682 21,484
Income taxes (4,439) (8,142)
-------- --------
Net income $ 7,243 $ 13,342
======== ========
</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 March 31, 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 March 31, 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
March 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Net income:
Canadian GAAP $ 7,243 $ 13,342
United States GAAP 7,319 12,416
Weighted average shares
outstanding (000's)
Canadian GAAP 39,091 40,331
Less restricted stock outstanding (199) (184)
-------- --------
United States GAAP - Basic 38,892 40,147
Effect of dilutive securities
Restricted stock 199 184
Employee stock options 81 120
-------- --------
United States GAAP - Diluted 39,172 40,451
======== ========
Net earnings per share:
Canadian GAAP $ 0.19 $ 0.33
======== ========
United States GAAP - Basic $ 0.19 $ 0.31
======== ========
United States GAAP - Diluted $ 0.19 $ 0.31
======== ========
</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 March 31, 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 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 months ended March 31, 2000 and 1999, comprehensive
income (loss) totaled ($1,626) and $13,653, 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 March 31, 2000
-----------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
RESULTS OF OPERATIONS Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 10,734 $ -- $ 111,802 $ 444,480 $ (8,513) $ 558,503
Costs and expenses
Cost of sales 8,462 -- 80,856 311,865 (8,513) 392,670
Selling, general and administrative expenses 1,564 -- 25,607 101,484 -- 128,655
Restructuring charges -- -- -- 3,400 -- 3,400
-----------------------------------------------------------------------------
Total costs and expenses 10,026 -- 106,463 416,749 (8,513) 524,725
-----------------------------------------------------------------------------
Operating income 708 -- 5,339 27,731 -- 33,778
Other income (expense)
Equity in earnings of subsidiaries 9,214 (2,162) 9,771 -- (16,823) --
Interest - net (2,675) -- (15,874) 6,196 -- (12,353)
Other -- -- (2,464) 56 (1,240) (3,648)
-----------------------------------------------------------------------------
Income (loss) before income taxes
and goodwill amortization 7,247 (2,162) (3,228) 33,983 (18,063) 17,777
Income tax provision 78 -- 651 (6,033) 496 (4,808)
-----------------------------------------------------------------------------
Income (loss) before goodwill amortization 7,325 (2,162) (2,577) 27,950 (17,567) 12,969
Goodwill amortization, net of income tax benefit (82) -- (731) (4,913) -- (5,726)
-----------------------------------------------------------------------------
Net income (loss) $ 7,243 $(2,162) $ (3,308) $ 23,037 $(17,567) $ 7,243
=============================================================================
<CAPTION>
Quarter Ended March 31, 1999
-----------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 3,979 $ -- $ 95,367 $ 384,084 $ (5,026) $ 478,404
Costs and expenses
Cost of sales 3,216 -- 67,527 271,048 (5,026) 336,765
Selling, general and administrative expenses 913 -- 21,906 83,081 105,900
-----------------------------------------------------------------------------
Total costs and expenses 4,129 -- 89,433 354,129 (5,026) 442,665
-----------------------------------------------------------------------------
Operating income (loss) (150) -- 5,934 29,955 -- 35,739
Other income (expense)
Equity in earnings of subsidiaries 15,551 5,598 4,817 -- (25,966) --
Interest - net (2,517) -- (8,913) 2,135 (9,295)
Other -- -- 1,680 423 (2,103) --
-----------------------------------------------------------------------------
Income before income taxes
and goodwill amortization 12,884 5,598 3,518 32,513 (28,069) 26,444
Income tax provision 460 -- 884 (10,657) 841 (8,472)
-----------------------------------------------------------------------------
Income before goodwill amortization 13,344 5,598 4,402 21,856 (27,228) 17,972
Goodwill amortization, net of income tax benefit (2) -- (665) (3,963) -- (4,630)
-----------------------------------------------------------------------------
Net income $ 13,342 $ 5,598 $ 3,737 $ 17,893 $(27,228) $ 13,342
=============================================================================
</TABLE>
10
<PAGE> 11
United Dominion Industries Limited
Notes to Financial Statements
(Stated in Thousands of U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31, 2000
-----------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
CASH FLOWS Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ 258 $ -- $ 10,316 $ (72,871) $ -- $ (62,297)
-----------------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (1,074) -- (4,104) (7,280) -- (12,458)
Acquisition of businesses -- -- (77,989) -- -- (77,989)
Other, net (401) -- (111) 3,672 -- 3,160
-----------------------------------------------------------------------------
(1,475) -- (82,204) (3,608) -- (87,287)
-----------------------------------------------------------------------------
Net cash provided from financing activities
Additional borrowings (repayments) (20,012) -- 127,493 1,183 -- 108,664
Increase (decrease) in net payable to affiliates (7,600) -- (61,429) 69,029 -- --
Dividends (to) from affiliates 34,289 -- -- (34,289) -- --
Other, net (3,359) -- -- -- -- (3,359)
-----------------------------------------------------------------------------
3,318 -- 66,064 35,923 -- 105,305
-----------------------------------------------------------------------------
Net increase (decrease) in cash during the period 2,101 -- (5,824) (40,556) -- (44,279)
Cash at beginning of period 1,509 97 7,740 99,594 108,940
-----------------------------------------------------------------------------
Cash at end of period $ 3,610 $ 97 $ 1,916 $ 59,038 $ -- $ 64,661
=============================================================================
<CAPTION>
Quarter Ended March 31, 1999
-----------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ 564 $ -- $ 24,252 $ (11,512) $ -- $ 13,304
-----------------------------------------------------------------------------
Net cash used by investing activities
Additions to fixed assets (75) -- (2,982) (6,515) -- (9,572)
Acquisition of businesses -- -- (10,256) (1,796) -- (12,052)
Other, net -- -- -- 621 -- 621
-----------------------------------------------------------------------------
(75) -- (13,238) (7,690) -- (21,003)
-----------------------------------------------------------------------------
Net cash provided from (used by) financing activities
Additional borrowings (repayments) (15,845) -- 35,754 (3,488) -- 16,421
Repurchase of common shares (16,477) -- -- -- -- (16,477)
Increase (decrease) in net payable to affiliates 5,190 -- (41,157) 35,967 -- --
Dividends (to) from affiliates 34,300 -- -- (34,300) -- --
Other, net (3,440) -- -- -- -- (3,440)
-----------------------------------------------------------------------------
3,728 -- (5,403) (1,821) -- (3,496)
-----------------------------------------------------------------------------
Net increase (decrease) in cash during the period 4,217 -- 5,611 (21,023) -- (11,195)
Cash at beginning of period 107 97 12,958 110,293 123,455
-----------------------------------------------------------------------------
Cash at end of period $ 4,324 $ 97 $ 18,569 $ 89,270 $ -- $ 112,260
=============================================================================
</TABLE>
11
<PAGE> 12
United Dominion Industries Limited
Notes to Financial Statements
(Stated in Thousands of U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of March 31, 2000
--------------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Inventories $ 3,984 $ -- $ 53,622 $ 354,385 $ 11,140 $ 423,131
Accounts and notes receivable 10,792 -- 41,830 356,300 (45,503) 363,419
Other current assets 4,068 97 46,541 82,690 -- 133,396
--------------------------------------------------------------------------------
Total current assets 18,844 97 141,993 793,375 (34,363) 919,946
Fixed assets - net 3,893 -- 109,723 241,291 -- 354,907
Goodwill 19,662 -- 131,414 738,931 -- 890,007
Intercompany notes receivable -- -- 136,017 361,384 (497,401) --
Other assets 1,060,264 358,582 1,366,079 462,777 (3,104,831) 142,871
--------------------------------------------------------------------------------
$1,102,663 $ 358,679 $1,885,226 $ 2,597,758 $(3,636,595) $2,307,731
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 8,348 $ 11,416 $ 170,003 $ 337,989 $ (41,552) $ 486,204
Long-term debt 184,058 -- 497,762 31,483 -- 713,303
Intercompany notes payable -- -- 361,384 136,017 (497,401) --
Other liabilities 11,903 -- 521,609 66,381 (390,023) 209,870
--------------------------------------------------------------------------------
204,309 11,416 1,550,758 571,870 (928,976) 1,409,377
--------------------------------------------------------------------------------
Shareholders' equity 898,354 347,263 334,468 2,025,888 (2,707,619) 898,354
--------------------------------------------------------------------------------
$1,102,663 $ 358,679 $1,885,226 $ 2,597,758 $(3,636,595) $2,307,731
================================================================================
<CAPTION>
As of December 31, 1999
--------------------------------------------------------------------------------
United United United
Dominion Dominion Dominion Non-
Industries Holdings, Industries, Guarantor
Limited Inc. Inc. Subsidiaries Eliminations Consolidated
---------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Inventories $ 3,583 $ -- $ 49,161 $ 326,600 $ 11,310 $ 390,654
Accounts and notes receivable 8,836 -- 38,930 329,538 (42,906) 334,398
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>
12
<PAGE> 13
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 ended
March 31, 2000. All amounts are stated in U. S. dollars.
As described in Note 1 to the accompanying condensed 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 MARCH 31, 2000 AND 1999
Sales of $559 million for the quarter ended March 31, 2000 were 17%
higher than the $478 million reported in the first quarter of 1999. Net income
of $7.2 million in 2000 compared to $13.3 million in 1999, a decrease of 46%,
while per share earnings were $.19, a 42% decrease from $.33 per share for 1999.
Earnings per share before goodwill amortization were $.33 per share compared to
$.45 per share in 1999, a decrease of 27%. Excluding non-recurring items, first
quarter net income would have been $12.0 million in 2000, or $.31 per share, a
decrease of 10% and 6%, respectively, from 1999 while earnings per share before
goodwill amortization would have been $.45 per share, unchanged from 1999.
Segment profit for 2000 includes $4.0 million of restructuring costs.
Excluding these costs, segment profit increased 3% while operating margins
declined from 8.0% in 1999 to 7.0% in 2000. Other expenses increased
significantly in 2000 due to a $3.6 million one-time charge resulting from an
unfavorable tax ruling. Interest expense increased 33% over last year as average
borrowings were higher in 2000 due to acquisitions and the Company's 1999 share
buyback program. The Company's overall effective tax rate was 38% in both 2000
and 1999.
The following is a summary of the factors that impacted operating
results for each segment:
Flow Technology - Sales of $255 million were 12% higher than the $228 million
reported in 1999. However, segment profit of $13.0 million in 2000 was 33% lower
than 1999's segment profit of $19.4 million. Excluding restructuring charges,
segment profit declined 28% year over year as operating margins declined from
8.5% in 1999 to 5.5% in 2000. These comparisons are adversely
13
<PAGE> 14
impacted by a first quarter loss at Bran+Luebbe, a company acquired in the third
quarter of 1999. Bran+Luebbe's business is seasonally low in the first quarter
and its first quarter loss was expected. In addition to the acquisition of
Bran+Luebbe, Marley Cooling Tower and Marley Pump reported sizeable year over
year declines in profits as they experienced operating issues and weak
petrochemical markets. Smaller shortfalls at Flair and Mueller Steam were offset
by strong results at Weil-McLain, CMB and Waukesha Cherry-Burrell. Weil-McLain
increased its volume 19% over last year while a combination of increased volume,
better pricing, and improved productivity enabled CMB to increase its operating
margins almost 300%. All but one of Waukesha Cherry-Burrell's units reported
year over year earnings improvement.
Machinery - Sales, segment profit and operating margins were all up
significantly from the prior year. Total sales of $97 million were 9% higher
than last year while profits of $6.8 million were 68% ahead of last year.
Accordingly, operating margins improved from 4.5% in 1999 to 7.0% in 2000.
Compaction has continued to experience strong markets world-wide, especially in
Europe and the Far East. Increased sales of new machines, primarily light
equipment, and expanded business in the used and rental markets have contributed
to 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 - Sales of $125 million and segment profit of
$13.2 million were up 44% and 40%, respectively, in 2000. Operating margins
declined slightly from 10.9% in 1999 to 10.6% in 2000. The increased sales and
segment profit were primarily due to the recent acquisition of the Kelley
Company and strong results at Marley Electric Heating. Acquired in January 2000,
the Kelley Company has been added to the Dock Products division, making the
division the largest supplier of dock equipment in North America. The Dock
Products division also benefited from strong organic sales growth and improved
margins. Marley Electric Heating benefited from favorable year over year weather
conditions for its heating related products. Strong profit improvement was
reported by Fenn on flat sales. The Door Products division reported lower
earnings despite the benefit of acquisitions. Pricing pressures and an
unfavorable shift in demand to lower margin products hurt results.
Test Instrumentation - Sales of $81 million were up 10% in 2000, while segment
profit declined 57% due to restructuring charges. Excluding restructuring
charges, segment profit was basically unchanged from last year but operating
margins declined from 7.2% in 1999 to 6.4% in 2000. The Advanced Industrial
Technologies and Test Measurement divisions both reported year over year
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increases in profits. Advanced Industrial Technologies benefited from the record
first quarter performance of its Advanced Assembly Group unit while Test
Measurement continued to experience strong markets for Radiodetection.
Lunaire/LDS experienced a decline in profits in 2000 on flat sales. The
Atmospheric Air division also reported lower profits as cost and performance
issues have significantly impacted gross margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $62 million of cash for operating activities during
the quarter, primarily due to an $86 million increase in working capital. Most
units start gearing up production early in the year in anticipation of increased
activity during the second and third quarters with a commensurate increase in
working capital levels. Total "operating" working capital balances (excluding
cash and borrowings) increased to $501 million at March 31, 2000 from $412
million at December 31, 1999. After providing $9 million for capital and other
operating expenditures and $4 million for common share dividends, free cash flow
amounted to negative $75 million in the first quarter of 2000. Free cash flow in
the comparable quarter of 1999 amounted to a negative $2 million due to
significantly lower working capital requirements.
The Company spent approximately $78 million during the quarter on the
acquisition of the Kelley Company. The acquisition was funded primarily through
long-term borrowings. The Company's ratio of net debt (borrowings less cash on
hand) to total capital (net debt plus shareholders' equity) increased to 47% at
March 31 from 41% at year-end.
At March 31, 2000, the Company had available approximately $140 million
of unused credit facilities. In addition, the Company has filed a registration
statement for the issuance of up to $200 million in public debt. Management
believes that the combination of cash available, the remaining unused credit
facilities and the proceeds from the anticipated 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
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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.
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.
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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
$5.3 million effect on the fair value of the Company's long-term debt as of
March 31, 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 $2.9 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.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual and Special Meeting of Shareholders was held on Tuesday,
April 25, 2000.
(b) There was no solicitation in opposition to management's nominees for
director and all such nominees (D.N. Boyce, H. Buerger, J.E. Courtney,
P.A. Crossgrove, J.A. Drummond, J.A. Grant, W.R. Holland, R.C. King,
Jr., J.T. Mayberry, H.A. Nurkin, W.W. Stinson, G.S. Taylor) were
elected. All nominees were elected unanimously by show of hands at the
meeting pursuant to Section 141(1) of the Canada Business Corporations
Act.
(c) By show of hands in accordance with Section 141(1) of the Canada
Business Corporations Act, shareholders unanimously approved the
appointment of KPMG to serve as independent auditors of the registrant
until the close of the next annual meeting of shareholders.
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.
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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: May 12, 2000 /s/ Richard L. Magee
-------------------------------------------------
Richard L. Magee
Sr. Vice President, General Counsel and Secretary
Date: May 12, 2000 /s/ C. Theodore Leinbach, III
-------------------------------------------------
C. Theodore Leinbach, III
Vice President and Chief Accounting Officer
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