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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-13279
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UNOVA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4647021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 NORTH CRESCENT DRIVE 90210-4867
BEVERLY HILLS, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 888-2500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $0.01 per share New York Stock Exchange
Rights to Purchase Series A Junior Participating
Preferred Stock New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes / / No /X/
On February 26, 1999, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $787.9 million.
On February 26, 1999, there were 54,943,391 shares of Common Stock outstanding,
exclusive of treasury shares.
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UNOVA, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
PAGE
-----
PART I
Item 1: Business...................................................................................... 1
Item 2: Properties.................................................................................... 10
Item 3: Legal Proceedings............................................................................. 11
Item 4: Submission of Matters to a Vote of Security Holders........................................... 11
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters..................... 11
Item 6: Selected Financial Data....................................................................... 12
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations......... 13
Item 7A: Quantitative and Qualitative Disclosures about Market Risk.................................... 18
Item 8: Financial Statements and Supplementary Data................................................... 19
Item 9: Disagreements on Accounting and Financial Disclosure.......................................... 19
PART III
Item 10: Directors and Executive Officers of the Registrant............................................ 19
Item 11: Executive Compensation........................................................................ 20
Item 12: Security Ownership of Certain Beneficial Owners and Management................................ 20
Item 13: Certain Relationships and Related Transactions................................................ 20
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 21
Signatures.................................................................................... 24
PART I
ITEM 1. BUSINESS
UNOVA, Inc. (the "Company" or "UNOVA") operates in two business segments:
Industrial Automation Systems ("IAS") and Automated Data Systems ("ADS"). For
the year ended December 31,1998, IAS generated revenues and operating profits of
$833.3 million and $76.9 million, respectively, and ADS produced revenues and
operating profits of $829.4 million and $55.4 million, respectively. The Company
became an independent public company upon the distribution of its common stock
to the shareholders of Western Atlas Inc. ("WAI") on October 31, 1997.
See Note K to the consolidated and combined financial statements for financial
information by industry segment and by geographical area.
Information related to business acquisitions, investments, and dispositions is
set forth in Note B to the consolidated and combined financial statements.
GENERAL
The Company is an industrial technologies company providing global customers
with solutions for improving their efficiency and productivity. The Industrial
Automation Systems business segment includes integrated manufacturing systems,
metal-cutting and composite production systems, body welding and assembly
systems, precision grinding and abrasive operations and stand-alone machine
tools, primarily serving the worldwide automotive, off-road vehicle, diesel
engine and aerospace manufacturing industries. The Automated Data Systems
business segment comprises automated data collection, network and mobile
computing products and services, principally serving the industrial market.
Customers include global distribution and transportation companies, food and
beverage operations, manufacturing industries, health care providers and
government agencies.
PRODUCTS AND SERVICES
INDUSTRIAL AUTOMATION SYSTEMS. The Company is a major designer, producer and
integrator of manufacturing technologies, primarily for the global automotive,
off-road vehicle and diesel engine industries, but it also operates in the
aerospace, electronics, durable goods and the general job shop markets. Products
include integrated manufacturing systems for the production of powertrain
components such as engines, transmissions and connecting rods, and chassis
components such as steering knuckles, rear axle housings and brake calipers;
body welding and assembly systems; test and automation equipment for integration
into production lines; precision grinding and abrasives; multi-axis
manufacturing systems; profiling systems for composite materials; stand-alone
vertical and horizontal metal-cutting machining centers; the redesign,
remanufacturing and retooling of installed equipment; and design/ engineering
services.
During the fourth quarter of 1998, UNOVA acquired the machine tool business of
Cincinnati Milacron for approximately $180.0 million in cash, subject to
post-closing adjustments. The division, which was renamed Cincinnati Machine, A
UNOVA Company ("Cincinnati Machine"), is engaged in the design, manufacture,
sale and servicing of standard and advanced computer numerically controlled
metal cutting machine tools for the industrial component, aerospace, job shop,
fluid power and automotive industries.
During the third quarter of 1998, UNOVA acquired R & B Machine Tool Company, a
specialty machine and retooling company.
The Company's IAS segment includes the following divisions: Lamb Technicon
Machining Systems, Cincinnati Machine, Lamb Technicon Body & Assembly Systems,
Lamb Assembly & Test Systems,
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ITEM 1. BUSINESS (CONTINUED)
Modern Prototype, Lamb UK, Honsberg Lamb, Landis Gardner, Landis Lund, R & B
Machine Tool Company, Citco and Cranfield Precision.
The IAS segment's major offices and production facilities are located in
Illinois, Kentucky, Michigan, Ohio and Pennsylvania and internationally in
Canada, the United Kingdom and Germany.
INTEGRATED MANUFACTURING SYSTEMS. Manufacturing solutions are being designed and
integrated by the Company for auto and diesel customers, primarily for
powertrain components. Product lines include computer numeric control (CNC)
machines for low-volume applications, modular, flexible systems for
medium-volume production and transfer lines for high-volume production.
Integrated manufacturing systems, which include the operations of Cincinnati
Machine subsequent to the acquisition, accounted for 29%, 27% and 39% of the
Company's consolidated and combined revenues in fiscal 1998, 1997 and 1996,
respectively.
Virtual design, prototyping and simultaneous engineering techniques are used to
optimize solutions for complex automotive manufacturing projects. By working
closely with customers, especially during their product design and engineering
phase, the Company is able to develop machining processes that reduce capital
requirements, lower lifecycle costs, eliminate costly shop floor programming and
improve productivity by reducing downtime during operations.
Through its Assembly and Test Systems operations, the Company also designs and
builds specialized assembly and/or testing equipment and systems for a variety
of automotive manufacturing and other industries.
BODY AND ASSEMBLY SYSTEMS. The Company designs and integrates automated systems
to form, assemble and weld high-quality auto and truck bodies as well as other
industrial products. Robotic systems are integrated with high-precision holding
and alignment fixtures and high-volume welding equipment to produce components
and subassemblies. Proprietary processes have been developed specifically to
assemble doors, hoods and trunk lids, which historically represent the most
critical "fit and finish" manufacturing parts of car bodies.
Using 3-D computer simulations, UNOVA has established one of the broadest
process and tool design capabilities in the industry. Tool design and
prototyping are now linked into the product engineering process, reducing costs
and risks for automotive customers long before their programs move into the
capital investment stage. Body and Assembly Systems accounted for 8%, 14% and
12% of the Company's consolidated and combined revenues in fiscal 1998, 1997 and
1996, respectively.
PRECISION GRINDING AND ABRASIVES. The Company is an innovator of cylindrical
grinding products and processes that improve accuracy and reliability in
critical engine parts. These processes ultimately result in lower emissions,
better fuel economies and reduced maintenance for car owners. Combined with the
centerless grinding activities from Cincinnati Machine, the Company has moved
into a leading position as a provider of advanced grinding applications in
non-automotive markets. Precision Grinding and Abrasives accounted for 13%, 15%
and 17% of the Company's consolidated and combined revenues in fiscal 1998, 1997
and 1996, respectively.
Superabrasive grinding wheels, electronic controls, high-precision,
maintenance-free hydrostatic bearings and state-of-the-art, value-engineered
double disc grinding technologies enable today's car manufacturers to machine
parts with precision measured in the sub-micron range. Research into the
processing of new materials also has resulted in the development of
ultra-high-precision grinding and finishing techniques. These advances are being
applied to requirements of the microelectronics, computer, aerospace and optics
industries for the manufacture of materials such as composites, silicon, glass
and ceramics.
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ITEM 1. BUSINESS (CONTINUED)
CINCINNATI MACHINE. The addition of the Cincinnati Machine operations (acquired
from Cincinnati Milacron) directly complements UNOVA's existing product range
and brings an established global distribution network in non-automotive markets.
The new division provides advanced systems such as multi-axis and composite
manufacturing systems for the aerospace industry; production systems, including
horizontal machining centers and flexible manufacturing cells, for the general
metalworking industry; and standard CNC machines such as vertical machining and
horizontal turning centers for job shops.
TECHNOLOGIES/TRENDS. UNOVA continues to develop manufacturing technologies to
broaden its product offerings and respond to automotive customers' needs to
lower costs, improve fuel consumption and decrease car emissions. New modular,
multi-spindle machining centers are reducing cycle time, and flexible fixturing
systems are under development to cut costs of high-volume machining. Advances in
grinding technologies are beginning to allow UNOVA to move into other markets,
where the Company's machines can be applied to finish non-metallic materials
with extreme accuracy.
AUTOMATED DATA SYSTEMS. The Company's automated data collection ("ADC") and
mobile computing systems business comprise the Intermec, Norand and UBI
activities. Intermec was acquired in 1991; Norand and UBI were acquired early in
1997. In 1997, these three companies were consolidated into one organization
called Intermec Technologies Corporation, serving the global bar code, data
collection and mobile computing market, which has grown approximately 12% to 15%
annually over the past five years. This organization is divided into three
global product divisions: Local Area Systems, Norand Mobile Systems and
Identification Systems. ADS, which included only Intermec's results until the
1997 acquisitions of Norand and UBI, accounted for 50%, 44% and 32% of the
Company's consolidated and combined revenues in 1998, 1997 and 1996,
respectively.
In 1998, the Company acquired the radio frequency identification ("RFID")
business unit of Amtech Corporation known as the Amtech Systems Group ("Amtech
Systems"), which became a division of Intermec Technologies Corporation. Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation's common stock which was applied towards the purchase price of
Amtech Systems. According to industry statistics, the U.S. RFID market grew over
20% in 1998 to $655 million.
This combination of companies and capabilities establishes the Company as a
leading participant in the growing ADC marketplace. Together, they offer a broad
range of products which are used to gather, organize, process, transmit and
exchange information between various field-based or in-premise locations and
central computers or information retrieval systems. By facilitating sales order
processes, and tracking parts, work-in-process, finished products and people
through manufacturing, distribution and other commercial operations, industrial
users are able to control inventory and to improve the productivity, quality and
responsiveness of their operations, from supply chain management and enterprise
resource planning ("ERP") to field sales and service.
Major offices and manufacturing facilities are located in the states of Iowa,
Ohio and Washington; and internationally in the United Kingdom, the Netherlands,
Sweden, France and Australia.
LOCAL AREA SYSTEMS. The Company has demonstrated market leadership in the
wireless Local Area Network (LAN) industry by being first to provide a network
architecture that allows customers to use multiple radio technologies within one
LAN system. This Radio Independent-TM- wireless LAN solution supports all major
radio technologies (including synthesized UHF, 900 MHz and 2.4 GHz direct
sequence and frequency-hopping, spread-spectrum radio technologies), giving
customers the ability to choose the most efficient radio technology for their
facilities to solve data rate, transmission speed and
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ITEM 1. BUSINESS (CONTINUED)
range issues in order to create a reliable communications environment. To ensure
compatibility with customer host systems, all major industry standard networks
are supported.
The Company has developed an extensive line of hand-held computers and
stationary and vehicle-mounted terminals that combine PC-type capability with
scanning and data transmission abilities. Intermec's family of products ranges
from low-cost, hand-held batch data collection devices to sophisticated and
powerful terminals, computers and network products. The Company's "open systems"
product design philosophy is to deliver maximum flexibility for customers with
diverse application requirements.
NORAND MOBILE SYSTEMS. As a leader in ruggedized mobile computing systems,
especially with its PEN*KEY-Registered Trademark- terminals, the Company
provides comprehensive data communications, wide-area networks, application
software, hand-held and truck-mounted PC-based products with peripherals and
printer solutions. These allow instant information exchange between companies'
field and central organizations, automating sales, distribution, electronic
billing, dispatching, routing and updating of customer information in real time.
Mobile computing refers to rugged PC-based devices for route accounting, meter
reading, field services and sales management, rather than general personal or
desktop computing applications. In combination with wireless communications,
mobile computing enables remote workers to have access to centralized computer
applications and databases and to send and receive information through wireless
networks for improved productivity, efficiency and accuracy of data.
IDENTIFICATION SYSTEMS. Intermec's Identification Systems products, which
include wands, imagers, charge-couple devices (CCD), badge and laser scanners,
as well as printers and media products, are able to read or collect data, and
then print the data on customized labels and tags.
The Company's line of flexible "on demand" bar code printers ranges from
low-cost, light- to heavy-duty industrial models that accommodate a wide array
of printing widths, materials and label configurations. A variety of specialty
printers provides custom capabilities including color printing, a global
language enabler and high-resolution (400 DPI) printing which ensures sharp
fonts and precise graphics, even on extremely small labels such as those used by
the electronics industry. The Company also supports its customers with a broad
range of label and tag solutions as well as other supplies for its printer
product range.
AMTECH SYSTEMS. Intermec's newest division, acquired in June 1998, is a leading
supplier of RFID solutions for intelligent transportation systems. Amtech
designs, manufactures, markets, integrates and supports innovative RFID products
and services for electronic toll and traffic management; rail, intermodal and
fleets; and access control for parking, security, airports and ground
transportation. Amtech formed a strategic business unit to develop the next
generation of low-cost RFID products for the transportation, security,
manufacturing and logistics markets. The division plans to offer its new
technology for integration with and to complement existing automatic
identification and data capture solutions such as bar code, mobile computing and
other enterprise-wide information systems.
TECHNOLOGIES/TRENDS. The Company is consistently broadening the application of
ADC and mobile computing by developing or integrating new technologies into its
product range. Recent examples include the Company's smart, vehicle-based
docking solution for pen-based computers as well as 2-D bar codes, smart cards
and RFID. Tags or labels based on RFID technology can be updated during their
use, making them an integral part of an electronic information network.
4
ITEM 1. BUSINESS (CONTINUED)
BUSINESS STRATEGY
The Company's strategy is to develop products, processes and services that help
improve productivity and efficiency in a variety of manufacturing and
distribution applications. Both of the Company's business segments offer single
products as well as integrated solutions to their customers.
Future growth in these businesses is expected to result from expansion of the
Company's existing operations and its customer base, and through acquisitions.
In seeking acquisitions, the Company will concentrate on technologies, products
and services that enhance customer productivity and efficiency, and those that
can be characterized as growth drivers.
In its IAS business segment, the Company plans to continue to develop its
existing customer base by seeking a greater role in customer projects, by
continuing its emphasis on product development and by expanding its
international activities. The ongoing development of the Company's ADC/mobile
computing activities will depend primarily on the application of new
technologies and products to maintain its position in this technology-driven
market. The Company believes it has the necessary technical expertise to achieve
this goal. Future geographic opportunities have been identified outside North
America, particularly in Europe, South America and Asia, where the use of data
collection technology is less developed. To capitalize on these emerging
markets, the Company is expanding its international marketing, distribution and
support network, and is engaged in an ongoing program to locate Company-owned
resources in key markets worldwide.
The Company continues to explore ways to increase its presence in market
segments where it presently holds a smaller market share, such as the
application of lower-volume flexible manufacturing systems and CNC machines. In
some areas the Company also has developed high-precision manufacturing
technologies that should allow it to establish a presence in growth markets such
as microelectronics with its new generation of ultra-high-precision wafer
grinders.
In recent years, cost-cutting needs and quality requirements in the automotive
industry have affected the Company's relationships with its customers. The
carmakers' trend toward fewer suppliers has benefited the Company and allowed it
to expand its market participation. These market-driven changes also have forced
many smaller competitors either to withdraw from the market or to reduce their
role to that of second or third tier suppliers. The Company's strategy has been
to establish an extensive outsourcing network of qualified suppliers in North
America and overseas, thereby avoiding unnecessary vertical integration and
gaining flexibility in its market approach.
MARKETS AND CUSTOMERS
INDUSTRIAL AUTOMATION SYSTEMS. The Company participates in the automotive
manufacturing and general manufacturing markets. Investments by automotive
customers are driven by model changes, competitive pressures, government
regulations such as emission standards and gasoline consumption rates, and by
the customers' own internal spending cycles. Investments in diesel engine
manufacturing are influenced by the infrastructure needs of emerging industrial
nations and by the efficiency benefits diesel engines offer for heavy and light
trucks and utility vehicles.
Customers for the Company's integrated manufacturing systems products are the
major auto and diesel manufacturers and their Tier One suppliers. Although the
passenger car and light truck industries continue to represent this division's
largest market, business from diesel engine manufacturers has grown in recent
years.
The Company believes that its future growth in this business segment will be
dependent on its ability to broaden the scope of products and services that it
markets to its current customer base, which allows
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ITEM 1. BUSINESS (CONTINUED)
the Company to expand into other industrial manufacturing markets. This strategy
was further supported by the acquisition of Cincinnati Machine, which is already
participating in markets such as the aerospace and general metalworking
industries as well as the broad job shop market. Cincinnati Machine also brings
flexible CNC machine technology to the other IAS divisions, allowing them to
market these products and systems to the automotive supplies industry, while
products developed by the auto-related divisions can be sold through Cincinnati
Machine's global distribution network to other, non-automotive markets.
A substantial part of the IAS segment's total revenues is currently generated by
worldwide automotive and diesel engine industry purchases of automated
manufacturing systems, including integrated machining, body welding and assembly
and precision grinding systems. Among customers for such equipment, U.S. and
Canadian auto and auto-related manufacturers currently account for the majority
of Industrial Automation Systems sales. The remainder of sales represents
products manufactured and sold in Europe and those exported from the Company's
production facilities, mostly for installation in Latin America and Asia.
Recent major customers include U.S.-based Cummins, DaimlerChrysler, Ford,
General Motors, Navistar and Detroit Diesel; and Western Europe-based BMW/Rover,
Fiat, Mercedes Benz, Jaguar, Peugeot, Renault, Volkswagen, and the European
subsidiaries of the large U.S. manufacturers, as well as Tata (Telco) in India.
The Company has also won major systems contracts for the "transplant"
manufacturing facilities of foreign auto makers, including both European and
Japanese, and also serves the automotive components manufacturing market.
AUTOMATED DATA SYSTEMS. Because automated data systems represents technologies
that can be utilized by a company of any size, and small systems can be
installed at very low cost, the market is extensive. Worldwide sales of
automated data systems equipment reached over $5 billion in 1998, according to
estimates from independent research sources. These sources also predict that the
overall market will continue to grow at an annual rate of approximately 12% to
15% over the next several years.
Market growth is driven by the global need for technologies and solutions that
improve quality, productivity and cost-efficiency in business and government,
particularly through logistics automation, supply chain management and ERP
solutions. Worldwide coverage with a dedicated sales organization is therefore a
major advantage.
Through its application of technologies in the manufacturing,
warehouse-distribution, transportation, health care, government and other
non-retail markets, the Company maintains a strong position in the global
non-retail ADC/mobile computing market.
The Company sells and services its products through multiple sales and
distribution channels: a direct field sales force which concentrates on large,
complex systems sales; value added resellers that offer applications-specific
solutions; and alliances with major systems integrators. The Company's direct
sales organization serves customers from offices throughout North America and
Europe and in some selected countries outside these regions. An indirect sales
channel includes long-time exclusive relationships with value-added distributors
and master resellers.
Although the Company obtains approximately 60% of its sales through indirect
sales channels, no individual value-added distributor or reseller is material to
overall Company results. The Company also maintains contact with customers and
prospective users by having established user forums for automated data systems
applications and technologies.
The mobile computing systems market consists of several applications, such as
route accounting for the distribution and package/parcel delivery industries,
sales merchandising, remote delivery and field
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ITEM 1. BUSINESS (CONTINUED)
service. These applications are generally used in the consumer products, food,
beverage, wholesale, parcel delivery, freight, field service and home service
industries.
Manufacturing applications include the collection and communication of
information related to receipt of materials, work-in-progress, finished goods
inventory and other functions throughout the manufacturing process. Warehousing
and distribution center applications involve the collection and communication of
information related to receiving materials to be stored, storage locations,
materials retrieval and shipping. Retail applications include the automation of
shelf label maintenance and product shipping and receiving functions.
International sales opportunities exist in countries where mobile computing
systems market practices and other applications are similar to those in the U.S.
The extent of RF systems opportunities in any particular country is based on the
level of industrialization, the status of bar coding implementation and the RF
regulatory environment. The major markets for printers are manufacturing,
distribution, warehousing, transportation, health care, government and other
services.
COMPETITION
Strong competition exists both in the domestic and international markets for the
Company's products and services. Products are sold and projects are won in the
marketplace based on price, technology and service.
INDUSTRIAL AUTOMATION SYSTEMS. While product quality is a key determinate in
the competition to win market share, pricing is also a major criterion in the
global market. Integrated Manufacturing Systems' strength is the ability to
design reliable and efficient manufacturing processes for its customers and
combine them with cost-effective machining solutions in order to win orders
against strong competition.
The North American and European market for high-volume production systems for
engines and transmissions is divided among approximately ten major competitors
and numerous smaller participants. Major competitors are Thyssen, Ingersoll
Milling and Grob-Werke (Germany).
In the body welding and assembly systems market, the Company is faced with
competitors that are involved in a broad range of assembly equipment and other
competitors that provide "niche" machines. Primary competitors include DCT,
Progressive Industries (PICO) and Valiant in North America; Thyssen, FFT and
Kuka in Germany and Comau in Italy.
In the worldwide market for high-precision grinding of engine parts, the Company
has achieved a strong market position through innovative products that improve
customer efficiency while reducing their capital costs. Major competitors are
the foreign companies Koyo and Toyoda in Japan; the Schleifring Group, Junker in
Germany; and Giustina in Italy.
Cincinnati Machine faces separate competitors in its different product markets
such as Ingersoll Milling, DST (Germany) and Forrest Line (France) in aerospace
systems; Mazak, Okuma and Mori Seiki (all Japan) in production systems; and
Fadal (Thyssen) and Haas (both North America) in the market for stand-alone
machines.
AUTOMATED DATA SYSTEMS. The market for ADC/mobile computing systems is highly
fragmented. Based on independent market surveys, management believes that
Intermec Technologies Corporation is one of the largest participants measured by
revenues. The other two major participants are Symbol and Telxon. The Company
also faces strong competition for single product lines from specialized
suppliers.
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ITEM 1. BUSINESS (CONTINUED)
The Company competes on the basis of its open modular systems approach, network
and communications expertise, applications software, level of sales and support
services, and product functionality, performance, ruggedness and overall
quality.
The market for mobile computing and RF products is highly competitive and
rapidly changing. Some firms manufacture and market hand-held systems for route
accounting applications, including Telxon and Fujitsu. In addition, a number of
firms manufacture and market radio-linked data communication products, including
LXE, Teklogix, Symbol, and Telxon. On the printer side, the Company faces
competition from Zebra/Eltron, Datamax and many others, depending on the
geographic area.
RESEARCH AND DEVELOPMENT
Companywide expenditures on research and development activities amounted to
$71.5 million, $53.1 million and $29.7 million, substantially all of which was
sponsored by the Company, in the years ended December 31, 1998, 1997 and 1996,
respectively. The Company expensed a total of $211.5 million of acquired
in-process research and development in 1997. See further discussion in Note B to
the consolidated and combined financial statements.
PATENTS AND TRADEMARKS
The Company owns a large number of patents, trademarks and copyrights relating
to its manufactured products, which have been secured over a period of years.
These patents, trademarks and copyrights have been of value in the growth of the
Company's business and may continue to be of value in the future. However, the
Company's business generally is not dependent upon the protection of any patent,
patent application or patent license agreement, or group thereof, and would not
be materially affected by expiration thereof.
The Company has approximately 40 patent licenses under which it paid out or
received income in the year ended December 31, 1998. During 1998, the aggregate
amount of license fees paid by the Company was approximately $6.2 million, and
the aggregate amount of license fees received was approximately $7.8 million.
SEASONALITY; BACKLOG
Sales backlog was $831 million, $395 million and $595 million at December 31,
1998, 1997 and 1996, respectively. The operations of the Company are not
seasonal to any appreciable degree. The majority of the Company's backlog is
concentrated in the IAS segment. The ADS market typically operates without a
significant backlog of firm orders and does not consider backlog to be a
relevant measure of future sales.
EMPLOYEES
At December 31, 1998, the Company had approximately 10,361 full-time employees,
of which approximately 6,477 are engaged in the IAS segment, approximately 3,761
in the ADS business and approximately 123 in corporate and shared services.
ENVIRONMENTAL AND REGULATORY MATTERS
During 1998, the amounts incurred to comply with federal, state and local
legislation pertaining to environmental standards did not have a material effect
upon the capital expenditures or earnings of the Company.
8
ITEM 1. BUSINESS (CONTINUED)
Radio emissions are the subject of governmental regulation in all countries in
which the Company currently conducts business. In North America, both the
Canadian and the U.S. governments publish relevant regulations, and changes to
these regulations are made only after public discussion. In some countries
regulatory changes can be introduced with little or no grace period for
implementing the specified changes. Furthermore, there is little consistency
among the regulations of various countries outside North America, and future
regulatory changes in North America are possible. These conditions introduce
uncertainty into the product planning process and could have an adverse effect
on the ADC/ Mobile Computing business.
The European Community ("EC") has passed a directive requiring its members to
adopt laws relating to electro-magnetic compatibility and emissions standards.
These standards will apply to ADC/Mobile Computing products sold in EC member
countries as those countries adopt the EC standards into law. Currently, the
Company believes that its products are in material compliance with the
regulations in force in each of the EC member countries.
RAW MATERIALS
The Company uses a wide variety of raw materials in the manufacture of its
products and obtains such raw materials from a variety of suppliers. No single
supplier provides 10% or more of the Company's raw materials, nor do raw
materials from any one supplier generate 10% or more of the Company's
consolidated revenues. The Company does not have any long-term supply agreements
relating to raw materials.
9
ITEM 2. PROPERTIES
UNOVA's corporate headquarters building at 360 North Crescent Drive, Beverly
Hills, California was sold in December 1998. The Company is currently leasing
office space in the Beverly Hills building but plans to move the corporate
headquarters to a leased facility at 21900 Burbank Boulevard, Woodland Hills,
California in 1999.
Its principal plants and offices have an aggregate floor area of approximately
8,238,239 square feet, of which 7,209,484 square feet (88%) are located in the
United States, and 1,028,755 square feet (12%) are located outside of the United
States, primarily in the United Kingdom, Germany and Canada.
These properties are used by the business segments as follows:
SQUARE FEET
------------
Industrial Automation Systems....................................................................... 7,042,646
Automated Data Systems.............................................................................. 863,043
------------
7,905,689
------------
------------
Approximately 6,635,492 square feet (81%) of the principal plant, office and
commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's plants and offices in the United States are situated in 21
locations in the following states:
STATE SQUARE FEET
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Ohio................................................................................................ 3,507,496
Michigan............................................................................................ 1,620,075
Pennsylvania........................................................................................ 495,662
California.......................................................................................... 332,550
Illinois............................................................................................ 306,158
Washington.......................................................................................... 312,000
Iowa................................................................................................ 259,820
Kentucky............................................................................................ 152,483
Other states........................................................................................ 223,240
------------
7,209,484
------------
------------
The above-mentioned facilities are in satisfactory condition and suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company-held properties leased to others and
also excludes plants or offices which, when added to all other of the Company's
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
10
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, the Company believes
that the ultimate resolution of these proceedings will not have a material
adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PAGE
---------
Quarterly Financial Information (unaudited) F-26
11
ITEM 6. SELECTED FINANCIAL DATA
UNOVA, INC.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA AND
RATIOS)
OPERATING RESULTS:
Sales and Service Revenues................... $ 1,662.7 $ 1,426.2 $ 1,164.7 $ 942.9 $ 971.1
--------- --------- --------- --------- ---------
Operating Costs and Expenses
Cost of sales.............................. 1,110.8 981.4 841.8 669.3 689.9
Selling, general and administrative (1).... 383.7 535.9 218.7 194.1 199.9
Depreciation and amortization.............. 57.0 40.6 27.0 26.1 28.7
--------- --------- --------- --------- ---------
Total.................................... 1,551.5 1,557.9 1,087.5 889.5 918.5
--------- --------- --------- --------- ---------
Other Income, Net............................ 31.5
---------
Earnings (Loss) before Interest and Taxes.... 142.7 (131.7) 77.2 53.4 52.6
Interest Expense, net (2).................... (25.7) (16.7) (7.1) (9.3) (15.7)
Taxes on Income.............................. (47.3) (23.0) (28.1) (17.9) (15.3)
--------- --------- --------- --------- ---------
Net Earnings (Loss).......................... $ 69.7 $ (171.4) $ 42.0 $ 26.2 $ 21.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic Net Earnings (Loss) per Share.......... $ 1.28 $ (3.17) $ 0.78 $ 0.49 $ 0.40
Diluted Net Earnings (Loss) per Share........ $ 1.27 $ (3.17) $ 0.78 $ 0.49 $ 0.40
Shares used for Basic Earnings (Loss) per
Share (3).................................. 54,620 54,056 53,892 53,892 53,892
Shares used for Diluted Earnings (Loss) per
Share (3).................................. 54,703 54,056 53,892 53,892 53,892
FINANCIAL POSITION (at end of year):
Total Assets................................. $ 1,979.2 $ 1,356.4 $ 1,073.8 $ 919.0 $ 860.8
Notes Payable and Current Portion of
Long-term Obligations...................... $ 237.3 $ 86.6 $ 27.5 $ 22.2 $ 41.7
Long-term Obligations........................ $ 366.5 $ 216.9 $ 14.5 $ 14.1 $ 9.0
Allocated Portion of Western Atlas Debt...... $ 109.6 $ 112.4 $ 112.8
Working Capital.............................. $ 392.2 $ 277.8 $ 266.0 $ 194.7 $ 115.2
Current Ratio................................ 1.5 1.6 1.6 1.6 1.3
Total Debt as a Percentage of Total
Capitalization............................. 46% 34% 21% 23% 27%
- ------------------------
(1) General and Administrative Costs include allocated charges from Western
Atlas of $13.5 million, $22.2 million, $19.9 million and $27.6 million for
the years ended December 31, 1997, 1996, 1995 and 1994, respectively. The
year ended December 31, 1997 includes charges of $211.5 million, or $3.91
per share, for the value of acquired in-process research and development
activities resulting from acquisitions made during the year.
(2) Interest expense includes allocated charges from Western Atlas of $12.0
million, $8.3 million, $8.4 million and $12.1 million for the years ended
December 31, 1997, 1996, 1995 and 1994, respectively.
(3) In thousands. The number of common shares used to calculate basic and
diluted earnings per share prior to 1997 is based on the number of shares of
Western Atlas Common Stock that was outstanding as of June 30, 1997.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales and service revenues and segment operating profit for the years ended
December 31, 1998, 1997 (excluding the $211.5 million charges for acquired
in-process research and development) and 1996, were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(MILLIONS OF DOLLARS)
SALES AND SERVICE REVENUES
Industrial Automation Systems................................ $ 833.3 $ 789.8 $ 797.4
Automated Data Systems....................................... 829.4 636.4 367.3
--------- --------- ---------
Total Sales and Service Revenues............................. $ 1,662.7 $ 1,426.2 $ 1,164.7
--------- --------- ---------
--------- --------- ---------
SEGMENT OPERATING PROFIT
Industrial Automation Systems................................ $ 76.9 $ 94.6 $ 69.5
Automated Data Systems....................................... 55.4 9.1 30.1
--------- --------- ---------
Total Segment Operating Profit............................... $ 132.3 $ 103.7 $ 99.6
--------- --------- ---------
--------- --------- ---------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997
Total sales and service revenues increased $236.5 million, or 17% for the year
ended December 31, 1998 compared with the corresponding prior period. Total
segment operating profit increased $28.6 million, or 28% for the year ended
December 31, 1998 compared to the corresponding prior period.
IAS revenues increased $43.5 million, or 6% while related operating profit
decreased $17.7 million, or 19% for the year ended December 31, 1998 compared
with the corresponding prior period. The increase in IAS revenues is primarily
attributable to the acquisitions of Cincinnati Machine and R&B Machine Tool,
which are discussed below. Startup issues on a new product line at Lamb Honsberg
in Germany impacted operating profit in 1998. In addition, the IAS segment began
several new projects in 1998 that are not expected to materially affect sales
and profits until next year. Delays caused by unexpected customer changes were
encountered in the engineering phase of these new projects. Conversely, during
the first half of 1997, the integrated manufacturing systems operations
experienced a higher level of sales and profits from contracts in the final
delivery and installation phase. IAS backlog increased from $332.0 million at
December 31, 1997 to $705.5 million at December 31, 1998.
ADS segment sales increased $193.0 million or 30% and operating profit increased
$46.3 or 509% for the year ended December 31, 1998 compared with the
corresponding prior period. The sales and operating profit increases are due
primarily to new licensing revenues, internal growth and the contribution of a
full year of operations and the realization of improved profitability from the
integration of the Norand and UBI acquisitions, offset by information system
problems that negatively impacted the results of the third and fourth quarter.
These problems, which were caused by the larger volume of business that resulted
from the integration, did not allow the ADS segment to fully realize the
benefits of its integration activities in 1998. A new information system,
designed to resolve these problems, will become operational during 1999.
In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron
for approximately $180.0 million in cash, subject to post-closing adjustments.
The division, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati
Machine"), is engaged in the design, manufacture, sale and servicing of standard
and advanced computer numerically controlled metal cutting machine tools for the
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
industrial component, aerospace, job shop, fluid power and automotive
industries. Cincinnati Machine has become part of the Company's Industrial
Automation Systems ("IAS") segment. The acquisition cost has been allocated on a
preliminary basis to the net assets acquired based on their relative fair
values. The acquisition was funded using the Company's committed credit facility
and was accounted for under the purchase method of accounting.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation common stock which was applied towards the purchase price of Amtech
Systems.
Depreciation and amortization increased from $40.7 million to $57.0 million from
the year ended December 31, 1997 to the year ended December 31, 1998. This
increase is primarily due to higher amortization of goodwill and other
intangibles resulting from the Norand and UBI acquisitions, as well as
additional depreciation from capital expenditures and business acquisitions.
Selling, general and administrative ("SG&A") expense increased $59.3 million
from the year ended December 31, 1997 to the year ended December 31, 1998.
However, as a percentage of sales, SG&A remained constant at 23% in both years.
The increase in the amount is due primarily to 1998 acquisitions as well as the
increase in the Company's sales and service revenues over the prior year.
Net interest expense was $25.7 million and $16.7 million for the years ended
December 31, 1998 and 1997, respectively. The increase is attributable to an
increase in outstanding debt due primarily to the acquisitions of Norand and UBI
in 1997 and Cincinnati Machine, R&B Machine and Amtech Systems in 1998.
Other income, net consists of a gain of $35.5 million recognized on the sale of
UNOVA's corporate headquarters building, offset by other non-operating expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
Total sales and service revenues increased $261.5 million, or 22% for the year
ended December 31, 1997 compared with the corresponding prior period. Total
segment operating profit, excluding the $211.5 million charges for acquired
in-process research and development, increased $4.1 million, or 4% for the year
ended December 31, 1997 compared to the corresponding prior period.
IAS revenues decreased $7.6 million, or 1% and related operating profit
increased $25.1 million, or 36% for the year ended December 31, 1997 compared
with the corresponding prior period. The decrease in IAS revenues is primarily
attributable to the sale of the Material Handling Systems ("MHS") division in
November 1996, which offsets an increase in integrated manufacturing systems
revenues. IAS experiences lower profit margins in the early stages of long-term
contracts until the development risks have been mitigated. During 1997 the
integrated manufacturing systems operations experienced a higher level of
revenues and profits from contracts in the final delivery and installation
phase. These projects contributed to an increase in operating margins for IAS
from 8.7% in 1996 to 12.0% in 1997. Accordingly, IAS backlog declined from
$545.0 million at December 31, 1996 to $332.0 million at December 31, 1997.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Also contributing to the increased operating profit are nonrecurring costs
recorded in 1996 associated with the MHS sale and the reorganization of the
Company's IAS European operations and domestic grinding businesses.
ADS revenues increased by $269.1 million, or 73% due to the acquisitions of
Norand Corporation ("Norand") and United Barcode Industries ("UBI"). However,
ADS operating profit declined by $21.0 million, or 70% due primarily to the
process of integrating the newly acquired companies with Intermec and the costs
of a long-term contract related to wireless RFID technology purchased from IBM
Corporation.
The Company acquired Norand on March 3, 1997, and UBI on April 4, 1997. Norand
designs, manufactures and markets mobile computing systems and wireless data
communications networks using radio frequency technology. UBI is a
European-based automated data collection company headquartered in Sweden. These
companies were integrated into Intermec Technologies Corporation. Both
transactions were funded by WAI borrowings and cash on hand, and have been
accounted for under the purchase method of accounting. Accordingly, the
acquisition costs (approximately $280.0 million and $107.0 million for Norand
and UBI, respectively) were allocated to the net assets acquired based upon
their relative fair values. Such allocation resulted in $203.3 million assigned
to in-process research and development activities; $154.1 million assigned to
goodwill (amortized over 25 years); and $29.0 million assigned to other
intangibles (amortized over periods ranging from 4 to 18 years). During the
second quarter of 1997, the Company expensed the amounts assigned to acquired
in-process research and development in accordance with Financial Accounting
Standards Board Interpretation No. 4.
The Company acquired the remaining 51% of Honsberg, a German machine tool maker,
in the second quarter of 1997. The original 49% of Honsberg was acquired during
1995. The Company acquired the stamping, engineering, and prototyping division
of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired
Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding
systems. Also, in November 1997, the Company acquired 13% of the common stock of
Amtech Corporation, which was applied toward the purchase price of Amtech's RFID
business in 1998.
SG&A expense as a percentage of sales and service revenues increased to 22.7%
for the year ended December 31, 1997, compared to 18.8% in 1996. This increase
is primarily due to a higher percentage of the Company's 1997 sales coming from
the ADS segment, where SG&A rates are historically higher than those experienced
in the IAS segment. ADS sales as a percentage of total Company sales increased
to 44.6% in 1997 from 31.5% in 1996.
Net interest expense was $16.7 million and $7.1 million for the years ended
December 31, 1997 and 1996, respectively. The increase is primarily due to an
increase in the level of Western Atlas allocated debt from $109.6 million at
December 31, 1996 to $230.0 million at October 31, 1997 (when the Company paid
this amount to WAI as an intercompany dividend). The increase in allocated debt
is primarily attributable to the 1997 acquisitions of Norand and UBI.
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations due
to the global nature of its operations. Currency fluctuations did not have a
significant impact on operations during fiscal years 1998, 1997 and 1996. It is
not possible to predict the Company's exposure to foreign currency fluctuations
beyond the near term because revenues generated from particular foreign
jurisdictions vary widely over time. The Company hedges transactions from time
to time, but the amount and volume of such transactions are not material.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
For fiscal year 1998, the Company derived approximately 36% of its revenues and
approximately 26% of its operating profits (exclusive of corporate overhead)
from non-U.S. operations. At December 31, 1998, identifiable assets attributable
to foreign operations comprised 22% of total assets. As the largest components
of these foreign assets are attributable to European operations, the exposure of
identifiable assets to foreign currency fluctuations or expropriations is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities increased from $13.7 million at December 31, 1997
to $17.7 million at December 31, 1998. Total debt increased from $303.6 million
at December 31, 1997 to $603.8 million at December 31, 1998 due to the
acquisitions of Cincinnati Machine, R&B Machine and Amtech Systems and the
normal capital expenditure and working capital needs of the operations.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt. The sale comprised $100.0 million of 6.875% seven-year notes, at
a price of 99.867 and $100.0 million of 7.00% ten-year notes, at a price of
99.856. Including underwriting fees, discounts and effects of forward rate
agreements entered into by the Company to hedge the interest rates on the debt,
the effective interest rates on the seven-year and ten-year notes are 7.125% and
7.175%, respectively. The net proceeds of approximately $198.0 million were used
by the Company to repay outstanding debt.
The Company has two unsecured committed credit facilities with a group of banks
from which it may borrow up to $500.0 million. Under these credit facilities,
the Company may borrow at the prime rate or at rates based on the London Inter
Bank Offered Rate, certificates of deposit or other rates that are mutually
acceptable to the banks and the Company. At February 12, 1999, $300.0 million of
these credit facilities was available for the Company's general use. In
addition, the Company maintains other uncommitted credit facilities and lines of
credit of which $89.3 million was available to the Company at February 12, 1999.
The Company expects that cash flow from operations, along with available
borrowing capacity, will be adequate to meet working capital requirements.
YEAR 2000
The Year 2000 issue is the result of computer programs designed to define a year
using two digits rather than four. As such, a date sensitive field using "00"
could be recognized as the year 1900 rather than the year 2000, potentially
causing the worst case scenario of a system failure or other business
disruption.
The operating segments of the Company formed internal review teams to address
the Year 2000 issue. The teams are monitored on an ongoing basis by executive
management. As a result of this review, the Company has identified its
significant information technology and non-information technology systems that
will require modification to ensure Year 2000 compliance. Internal and external
resources are being used to make the required modifications and test Year 2000
compliance. Although there can be no assurance that the Company will identify
and correct every Year 2000 problem, the Company believes that it has in place a
comprehensive program to identify and correct any such problems. The Company
plans to complete the internal modification and testing process prior to
December 31, 1999.
UNOVA is also actively working with its significant suppliers and customers to
assess their Year 2000 compliance efforts and the Company's exposure to them.
While the Company currently does not anticipate problems related to third party
Year 2000 issues, the Company will continue to assess potential risk from third
parties. However, there can be no assurance that Year 2000 problems originating
with a supplier or other third party will not occur.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has also assessed the capability of its products to determine
whether they are Year 2000 compliant. The Company believes that all of its
current products are Year 2000 compliant. UNOVA has not tested products that are
no longer sold by the Company and the Company does not believe it is legally
responsible for costs incurred by customers related to ensuring their Year 2000
capability. However, the Company is providing customer support and customer
satisfaction services related to Year 2000 issues. UNOVA defines "Year 2000
compliant" as a product that, when used properly and in conformity with the
product information provided by the Company, will accurately transition data
between the twentieth and twenty-first centuries, including leap year
calculations, provided that all other technology used in combination with the
product properly exchanges data with the UNOVA product.
In addition, the Company has begun internal discussions concerning contingency
planning to address potential problem areas with internal systems and third
parties. If deemed necessary, these contingency plans will be developed prior to
December 31, 1999.
The Company estimates that the total incremental cost of these Year 2000
compliance activities will be approximately $7.0 million. Of these costs, it is
estimated that approximately $1.5 million are expense items and the remaining
$5.5 million are capitalizable. As of December 31, 1998, the Company has
incurred approximately $3.3 million of Year 2000 costs of which about $500
thousand was expensed and approximately $2.8 million was capitalized. These
costs and the date on which the Company plans to complete the Year 2000
modification are based on management's best estimates, which were derived
utilizing numerous assumptions of future events. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those plans. Based on currently available information, management does not
believe that Year 2000 issues will have a material adverse impact on the
Company's financial condition or results of operations. However, the Year 2000
problem has many aspects and potential consequences, some of which are not
reasonably foreseeable, and there can be no assurance that unforeseen
consequences will not arise.
INFLATION
In the opinion of management, inflation has not been a significant factor in the
markets in which the Company operates and has not had a significant impact upon
the results of its operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, which is effective for fiscal years beginning after June
15, 1999. The Company is currently evaluating the impact of adopting this
statement.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
covered in this discussion and analysis, included are certain forward-looking
statements and information that are based on management's beliefs as well as on
assumptions made by and information currently available to management. They
include, but are not limited to, statements about the demand for the Company's
products and services, the Company's ability to profitably exploit new
technologies acquired or developed, and the Company's ability to realize its
intentions with respect to the future performance of operations being acquired.
Such forward-looking statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which could cause the
Company's future results to differ materially from those expressed or implied in
any forward-looking statements made by, or on behalf of, the
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Company. Such factors include, but are not limited to, the following which are
beyond the Company's control: fluctuations in the strength of the automotive and
aerospace markets; technological changes and developments, particularly in the
ADC/Mobile Computing System industry; the presence of competitors with greater
financial and other resources; the availability and cost of materials and
supplies; relations with the Company's employees; the Company's ability to
manage its operating costs and to integrate acquired businesses in an effective
manner; worldwide political stability and economic conditions; regulatory
uncertainties; operating risks associated with international operations; and the
risk that the Company's due diligence procedures may have failed to reveal
undisclosed material information concerning acquired operations. Any
forward-looking statements should be considered in light of these factors, many
of which are beyond the Company's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily from its short-term and
long-term borrowings and to exchange rate risk with respect to its foreign
operations and from foreign currency transactions. The information presented
below summarizes the Company's cash flows for its borrowings and related
interest rates by dates of maturity. Variable interest rates disclosed represent
the weighted average rates of the borrowings at December 31, 1998. Fair values
have been determined based on quoted market prices. The information presented
below should be read in conjunction with Note C to the Consolidated and Combined
Financial Statements.
DEBT 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- ---------------------- ---------- --------- --------- ---------- --------- ----------- ---------- -----------
(THOUSANDS OF DOLLARS)
Fixed Rate $ 200,000 $ 200,000 $ 196,871
Average Interest Rate 6.94%
Variable Rate $ 237,276 $ 1,266 $ 181 $ 150,005 $ 15,035 $ 403,763 $ 403,763
Average Interest Rate 5.36% 7.03% 7.24% 5.37% 5.52%
The Company from time to time enters into foreign currency exchange contracts to
hedge certain foreign currency transactions and commitments and to reduce its
exposure from investments in certain foreign operations. These contracts were
not significant at December 31, 1998. The Company does not enter into any
foreign currency contracts for trading purposes. A hypothetical 10% change in
the relevant currency rates at December 31, 1998 would not have a material
impact on the Company's results of operations or cash flows.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
---------
Management's Responsibility for Financial Reporting F-1
Independent Auditors' Report F-2
Consolidated and Combined Statements of Operations F-3
Years Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets F-4
December 31, 1998 and 1997
Consolidated and Combined Statements of Cash Flows F-5
Years Ended December 31, 1998, 1997 and 1996
Consolidated and Combined Statements of Changes in Shareholders' Investment F-6
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated and Combined Financial Statements F-7
Quarterly Financial Information (unaudited) F-26
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under "Item One.
Election of Directors" in the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on May 7, 1999 (the "1999 Proxy
Statement"), which is incorporated herein by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the positions and
ages of the Company's executive officers at February 13, 1999 and their business
experience during the prior five years:
POSITION WITH THE COMPANY AND
PRINCIPAL BUSINESS AFFILIATIONS DURING
NAME AGE PAST FIVE YEARS
- ------------------------- --- --------------------------------------------------------------------------
Alton J. Brann 57 Chairman of the Board and Chief Executive Officer since October 31, 1997;
for prior business experience see the description of Directors in "Item
One. Election of Directors" in the 1999 Proxy Statement.
Charles A. Cusumano 52 Vice President, Finance since October 31, 1997. Prior thereto, Vice
President, Finance, of Western Atlas since October 1996. Vice President
and Controller of Western Atlas from March 1994 to September 1996.
Michael E. Keane 43 Senior Vice President and Chief Financial Officer since October 31, 1997.
Prior thereto, Senior Vice President and Chief Financial Officer of
Western Atlas since October 1996. Vice President and Treasurer of Western
Atlas from March 1994 to September 1996.
19
Michael Ohanian 67 Senior Vice President and Group Executive, Automated Data Systems since
October 31, 1997. Prior thereto, Senior Vice President of Western Atlas
since July 1997, Vice President of Western Atlas from May 1996 to July
1997 and President of Intermec since May 1995. Independent consultant from
September 1994 to May 1995 and Vice President, Strategic and Government
Programs, of Intermec from April 1988 to September 1994.
Norman L. Roberts 64 Senior Vice President and General Counsel since October 31, 1997. Prior
thereto, Senior Vice President and General Counsel of Western Atlas since
March 1994.
Clayton A. Williams 65 Senior Vice President and Group Executive, Industrial Automation Systems
since October 31, 1997. Prior thereto, Senior Vice President of Western
Atlas since May 1996, and Group Executive of Western Atlas' Manufacturing
Systems Group since December 1995. Vice President of Western Atlas from
December 1995 to May 1996. Vice President of Litton from June 1992 to
December 1995 and President of its Applied Technology division from
January 1990 to December 1995.
ITEM 11. EXECUTIVE COMPENSATION
See the information relating to executive compensation under the captions
"Summary Compensation Table," "Stock Option Information," "Employment and Change
in Control Arrangements" and "Retirement Benefits" of the Company's 1999 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information with respect to beneficial ownership of the Company's voting
securities by each director, certain executive officers and all executive
officers and directors as a group, and by any person known to beneficially own
more than 5% of any class of voting security of the Company, under the caption
"Security Ownership by Certain Beneficial Owners and Management" of the
Company's 1999 Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information with respect to certain relationships and related
transactions under the caption "Certain Relationships and Related Transactions"
of the Company's 1999 Proxy Statement, which is incorporated herein by
reference.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
-----
(a)(1) Financial Statements
See Part II
(a)(2) Financial Statement Schedules *
(a)(3) Executive Compensation Plans and Arrangements 20
(b) Reports on Form 8-K
In a report filed on Form 8-K dated October 2, 1998, the Company reported the acquisition of the
Machine Tool Group of Cincinnati Milacron Inc. In a report filed on Form 8-K dated December 24,
1998, the Company reported the sale of its executive offices.
(c) Index to Exhibits E-1
* All schedules and notes specified under Regulation S-X are omitted because
they are either not applicable, not required or the information called for
therein appears in the consolidated and combined financial statements or notes
thereto.
21
UNOVA, INC.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
- ---------------------------------------------------------------------------- ------------- ----------------------
Employee Benefits Agreement dated October 31, 1997, between Western Atlas 10.3 September 30, 1997
Inc. and UNOVA, Inc. Form 10-Q
Change of Control Employment Agreements with Alton J. Brann, Michael E. 10.5 September 30, 1997
Keane, Norman L. Roberts and certain other officers of the Company, dated as Form 10-Q
of October 31, 1997.
Employment Agreement between Intermec Corporation and Michael Ohanian, dated 10.6 Form 10
May 18, 1995, as amended.
Amendment No. 1 to Employment Agreement between Intermec Corporation and 10.7 December 31, 1997 Form
Michael Ohanian, dated February 28, 1997. 10-K
Amendment No. 2 to Employment Agreement between Intermec Technologies 10.8 December 31, 1997 Form
Corporation and Michael Ohanian, dated February 28, 1998. 10-K
Amendment No. 3 to Employment Agreement between Intermec Corporation and 10.9 December 31, 1998 Form
Michael Ohanian, dated May 20, 1998. 10-K
Amendment No. 4 to Employment Agreement between Intermec Corporation and 10.10 December 31, 1998 Form
Michael Ohanian, dated February 28, 1999. 10-K
UNOVA, Inc. Restoration Plan. 10.12 Form 10
UNOVA, Inc. Supplemental Executive Retirement Plan. 10.13 Form 10 Amendment No.
1
Amendment No. 1 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated 10.14 September 30, 1998
September 23, 1998. Form 10-Q
Amendment No. 2 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated 10.15 December 31, 1998 Form
March 11, 1999. 10-K
Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. 10.16 Form 10 Amendment No.
Brann dated October 1997. 1
Amendment No. 1 to Supplemental Executive Retirement Agreement between 10.17 September 30, 1998
UNOVA, Inc. and Alton J. Brann, dated September 23, 1998 Form 10-Q
Amendment No. 2 to Supplemental Executive Retirement Agreement between 10.18 December 31, 1998 Form
UNOVA, Inc. and Alton J. Brann, dated March 11, 1999. 10-K
Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated 10.19 Form 10 Amendment No.
August 1997. 1
Amendment No. 1 to Employment Agreement between UNOVA, Inc. and Clayton A. 10.20 December 31, 1997 Form
Williams, dated March 24, 1998. 10-K
Amendment No. 2 to Employment Agreement between UNOVA, Inc. and Clayton A. 10.21 December 31, 1998 Form
Williams, dated May 18, 1998. 10-K
UNOVA, Inc. 1997 Stock Incentive Plan. 10.22 September 30, 1997
Form 10-Q
UNOVA, Inc. Executive Severance Plan. 10.23 September 30, 1997
Form 10-Q
Form of Promissory Notes in favor of the Company given by certain 10.24 September 30, 1997
22
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
- ---------------------------------------------------------------------------- ------------- ----------------------
officers and key employees. Form 10-Q
Board resolution dated September 24, 1997 establishing the UNOVA, Inc. 10.25 September 30, 1997
Incentive Loan Program. Form 10-Q
UNOVA, Inc. Management Incentive Compensation Plan. 10.26 December 31, 1997 Form
10-K
UNOVA, Inc. Executive Survivor Benefit Plan. 10.27 December 31, 1997 Form
10-K
UNOVA, Inc. 1999 Stock Incentive Plan. 10.28 1999 Proxy Statement
UNOVA, Inc. Management Incentive Compensation Plan. 10.29 1999 Proxy Statement
UNOVA, Inc. Executive Medical Benefit Plan. 10.30 December 31, 1998 Form
10-K
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNOVA, INC.
/s/ MICHAEL E. KEANE
------------------------------------------
Michael E. Keane
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
March 11, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ PAUL BANCROFT, III
- ------------------------------ Director March 11, 1999
Paul Bancroft, III
/s/ ALTON J. BRANN Director, Chairman of the
- ------------------------------ Board and Chief March 11, 1999
Alton J. Brann Executive Officer
/s/ JOSEPH T. CASEY
- ------------------------------ Director March 11, 1999
Joseph T. Casey
/s/ WILLIAM C. EDWARDS
- ------------------------------ Director March 11, 1999
William C. Edwards
/s/ STEPHEN E. FRANK
- ------------------------------ Director March 11, 1999
Stephen E. Frank
/s/ CLAIRE W. GARGALLI
- ------------------------------ Director March 11, 1999
Claire W. Gargalli
/s/ ORION L. HOCH
- ------------------------------ Director March 11, 1999
Orion L. Hoch
/s/ STEVEN B. SAMPLE
- ------------------------------ Director March 11, 1999
Steven B. Sample
/s/ WILLIAM D. WALSH
- ------------------------------ Director March 11, 1999
William D. Walsh
/s/ CHARLES A. CUSUMANO Vice President, Finance
- ------------------------------ (Chief Accounting March 11, 1999
Charles A. Cusumano Officer)
24
UNOVA, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated and combined financial statements of UNOVA, Inc. and
subsidiaries and related financial information included in this Annual Report,
have been prepared by the Company, whose management is responsible for their
integrity. These statements, which necessarily reflect estimates and judgments,
have been prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor compliance with and the effectiveness of established procedures.
The consolidated and combined financial statements have been audited by Deloitte
& Touche LLP, independent auditors, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors and the Company's internal auditors to
review the scope of their activities and reports relating to internal controls
and financial reporting matters. The independent and internal auditors have full
and free access to the Audit and Compliance Committee and meet with the
Committee both with and without the presence of Company management.
/s/ Michael E. Keane
Senior Vice President and
Chief Financial Officer
February 12, 1999
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
UNOVA, Inc.
Beverly Hills, California
We have audited the accompanying consolidated and combined balance sheets of
UNOVA, Inc. and subsidiaries (as described in Note A) as of December 31, 1998
and 1997, and the related consolidated and combined statements of operations,
changes in shareholders' investment, and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present
fairly, in all material respects, the financial position of UNOVA, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 12, 1999
F-2
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
Sales and Service Revenues............................. $1,662,663 $1,426,247 $1,164,682
---------- ---------- ----------
Costs and Expenses
Cost of sales........................................ 1,110,799 981,380 841,820
Selling, general and administrative.................. 383,663 324,405 218,672
Depreciation and amortization........................ 57,043 40,672 27,043
Acquired in-process research and development
charges............................................ 211,500
Interest, net........................................ 25,715 16,689 7,111
---------- ---------- ----------
Total Costs and Expenses........................... 1,577,220 1,574,646 1,094,646
---------- ---------- ----------
Other Income, Net...................................... 31,523
----------
Earnings (Loss) before Taxes on Income................. 116,966 (148,399) 70,036
Taxes on Income........................................ (47,253) (22,968) (28,014)
---------- ---------- ----------
Net Earnings (Loss).................................... $ 69,713 $ (171,367) $ 42,022
---------- ---------- ----------
---------- ---------- ----------
Basic Earnings (Loss) per Share........................ $ 1.28 $ (3.17) $ .78
---------- ---------- ----------
---------- ---------- ----------
Diluted Earnings (Loss) per Share...................... $ 1.27 $ (3.17) $ .78
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated and combined financial statements.
F-3
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
----------------------
1998 1997
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents........................................ $ 17,708 $ 13,685
Accounts receivable, net of allowance for doubtful accounts of
$24,021 (1998) and $19,719 (1997).............................. 662,885 448,079
Inventories, net of progress billings............................ 336,005 150,537
Deferred tax assets.............................................. 141,773 106,694
Other current assets............................................. 21,129 30,072
---------- ----------
Total Current Assets......................................... 1,179,500 749,067
Property, Plant and Equipment, Net................................. 286,171 157,680
Goodwill and Other Intangibles, Net of Accumulated Amortization of
$70,244 (1998) and $54,266 (1997)................................ 400,164 366,098
Other Assets....................................................... 113,381 83,513
---------- ----------
Total Assets....................................................... $1,979,216 $1,356,358
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable and accrued expenses............................ $ 456,812 $ 311,759
Payroll and related expenses..................................... 93,199 72,909
Notes payable and current portion of long-term obligations....... 237,276 86,645
---------- ----------
Total Current Liabilities.................................... 787,287 471,313
---------- ----------
Long-term Obligations.............................................. 366,487 216,938
---------- ----------
Deferred Tax Liabilities........................................... 42,154 22,918
---------- ----------
Other Long-term Liabilities........................................ 81,863 55,700
---------- ----------
Commitments and Contingencies......................................
Shareholders' Investment
Preferred stock; 50,000,000 shares authorized....................
Common stock; shares outstanding:
54,942,655 (1998) and 54,510,193 (1997)........................ 549 545
Additional paid-in capital....................................... 645,054 603,743
Retained earnings (deficit)...................................... 61,672 (8,041)
Accumulated other comprehensive income:
Cumulative currency translation adjustment..................... (5,850) (6,758)
---------- ----------
Total Shareholders' Investment............................... 701,425 589,489
---------- ----------
Total Liabilities and Shareholders' Investment..................... $1,979,216 $1,356,358
---------- ----------
---------- ----------
See accompanying notes to consolidated and combined financial statements.
F-4
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
Cash and Cash Equivalents at Beginning of Year............ $ 13,685 $ 149,467 $ 103,501
--------- --------- ---------
Cash Flows from Operating Activities:
Net earnings (loss)..................................... 69,713 (171,367) 42,022
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities (net of
acquisitions):
Acquired in-process research and development
charges........................................... 211,500
Depreciation and amortization....................... 57,043 40,672 27,043
Gain on sale of property plant and equipment, net... (35,043)
Deferred taxes...................................... (437) 2,162 (9,803)
Change in accounts receivable....................... (109,096) 39,752 (142,159)
Change in inventories............................... (67,223) (9,167) 21,986
Change in other current assets...................... 13,889 (12,540) (804)
Change in accounts payable and accrued expenses..... 69,922 (53,830) 73,701
Change in payroll and related expenses.............. 13,493 6,238 (2,382)
Change in prepaid pension costs, net................ (14,620) (11,217) (6,983)
Other operating activities.......................... 6,823 (1,247) 6,537
--------- --------- ---------
Net cash provided by operating activities........... 4,464 40,956 9,158
--------- --------- ---------
Cash Flows from Investing Activities:
Acquisition of businesses net of cash acquired.......... (287,350) (400,754)
Capital expenditures.................................... (83,776) (30,310) (22,541)
Proceeds from sale of property, plant and equipment..... 71,118 7,198
Investment in unconsolidated companies.................. (8,500)
Investment in radio frequency identification
technology............................................ (8,200)
Proceeds from sale of businesses and investments........ 4,671 31,100
Other investing activities.............................. (9,162) (81) 1,049
--------- --------- ---------
Net cash (used in) provided by investing
activities........................................ (304,499) (440,647) 9,608
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowings................................ 754,780 276,698 11,551
Repayment of borrowings................................. (457,271) (95,607) (7,243)
Dividend paid to Western Atlas Inc...................... (230,000)
Net transactions with Western Atlas Inc................. 190,338 25,747
Change in due to Western Atlas Inc...................... 120,426 (2,855)
Other financing activities.............................. 6,549 2,054
--------- --------- ---------
Net cash provided by financing activities........... 304,058 263,909 27,200
--------- --------- ---------
Resulting in Increase (Decrease) in Cash and Cash
Equivalents............................................. 4,023 (135,782) 45,966
--------- --------- ---------
Cash and Cash Equivalents at End of Year.................. $ 17,708 $ 13,685 $ 149,467
--------- --------- ---------
--------- --------- ---------
See accompanying notes to consolidated and combined financial statements.
F-5
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDERS' INVESTMENT
(THOUSANDS OF DOLLARS)
ADDITIONAL RETAINED ACCUMULATED OTHER NET INVESTMENT
COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN
TOTAL STOCK CAPITAL (DEFICIT) INCOME ATLAS
--------- ------------- ----------- ----------- ----------------- ---------------
BALANCE, JANUARY 1, 1996.............. $ 502,659 $ 502,659
---------
Comprehensive Income:
Net earnings........................ 42,022 42,022
Currency translation adjustment..... 4,080 4,080
---------
Comprehensive Income.............. 46,102
---------
Net transactions with Western Atlas
Inc................................. 25,747 25,747
--------- ---------------
BALANCE, DECEMBER 31, 1996............ 574,508 574,508
---------
Comprehensive Loss before Distribution
Date:
Net loss to Distribution Date....... (163,326) (163,326)
Currency translation adjustment to
Distribution Date................. (3,699) (3,699)
---------
Comprehensive Loss before
Distribution Date............... (167,025)
---------
Net transactions with Western Atlas
Inc................................. 190,338 190,338
---------
Distribution of common stock to UNOVA
shareholders........................ $ 545 $ 601,689 $ (4,413) (597,821)
Comprehensive Loss from Distribution
Date to December 31, 1997:
Net loss from Distribution Date to
December 31, 1997................. (8,041) $ (8,041)
Currency translation adjustment from
Distribution Date to December 31,
1997.............................. (2,345) (2,345)
---------
Comprehensive Loss from
Distribution Date to December
31, 1997........................ (10,386)
---------
Other................................. 2,054 2,054
--------- ----- ----------- ----------- ------- ---------------
BALANCE, DECEMBER 31, 1997............ 589,489 545 603,743 (8,041) (6,758)
---------
Comprehensive Income:
Net earnings........................ 69,713 69,713
Currency translation adjustment..... 908 908
---------
Comprehensive Income.............. 70,621
---------
Distribution-related tax benefit...... 34,809 34,809
Other................................. 6,506 4 6,502
--------- ----- ----------- ----------- ------- ---------------
BALANCE, DECEMBER 31, 1998............ $ 701,425 $ 549 $ 645,054 $ 61,672 $ (5,850) $ --
--------- ----- ----------- ----------- ------- ---------------
--------- ----- ----------- ----------- ------- ---------------
See accompanying notes to consolidated and combined financial statements.
F-6
UNOVA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION. UNOVA, Inc. ("UNOVA" or the "Company") became an
independent public company on October 31, 1997 (the "Distribution Date"), when
all of the UNOVA common stock was distributed to holders of common stock of
Western Atlas Inc. ("WAI"), in the form of a dividend (the "Distribution").
Every WAI shareholder of record on October 24, 1997 was entitled to receive one
share of UNOVA common stock for each WAI share of common stock held.
NATURE OF OPERATIONS. UNOVA is an industrial technologies company providing
global customers with solutions for improving their efficiency and productivity.
The Automated Data Systems business segment comprises automated data collection
("ADC") and mobile computing products and services, principally serving the
industrial market. Customers are global distribution and transportation
companies, food and beverage operations, manufacturing industries, health care
providers and government agencies. The Industrial Automation Systems business
segment includes integrated manufacturing systems, body welding and assembly
systems, precision grinding and abrasives operations, and machining systems and
stand-alone machine tools primarily serving the worldwide automotive, off-road
vehicle, diesel engine and aerospace manufacturing industries.
PRINCIPLES OF CONSOLIDATION AND COMBINATION. The consolidated and combined
financial statements include those of the Company, its subsidiaries and
companies in which UNOVA has a controlling interest. Investments in companies
over which UNOVA has influence but not a controlling interest are accounted for
using the equity method. Investments in other companies are carried at cost. All
material intercompany transactions have been eliminated.
The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
WAI businesses that now comprise the Company. They include, at their historical
amounts, the assets, liabilities, revenues and expenses directly related and
those allocated to the businesses that now comprise the Company's operations. A
pro rata share of certain general and administrative corporate costs incurred by
WAI prior to the Distribution Date have been allocated to the Company based on
the relative ratio of such projected costs to be incurred by WAI and the Company
individually. Such costs include general management, legal, tax, treasury,
insurance, financial audit, financial reporting, human resources and real estate
services.
The Company's debt prior to the Distribution Date includes an allocation of a
portion of WAI's corporate debt, based on the Company's estimated past capital
requirements. Interest expense related thereto has been included in the
Company's statements of operations at WAI's estimated blended historical rate of
interest on long-term borrowings of 7.5%.
Management believes the above stated allocations were made on a reasonable
basis; however, they do not necessarily reflect the results of operations which
would have occurred had the Company been an independent entity nor are they
necessarily indicative of future expenses or income (see Note J).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS. The Company considers time deposits and commercial paper
purchased within three months of their date of maturity to be cash equivalents.
F-7
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out or last-in, first-out method.
REVENUE RECOGNITION. Revenues are generally recognized when products are
shipped or as services are performed. Revenues and profits on long-term
contracts are recorded under the percentage-of-completion, cost to cost method
of accounting. Any anticipated losses on contracts are charged to operations as
soon as they are determinable. General and administrative costs are expensed as
incurred.
RESEARCH AND DEVELOPMENT. Research and development costs are charged to expense
as incurred. Total expenditures on research and development activities amounted
to $71.5 million, $53.1 million and $29.7 million, in the years ended December
31, 1998, 1997, and 1996, respectively. The Company expensed a total of $211.5
million of acquired in-process research and development in 1997. See further
discussion in Note B.
OTHER INCOME, NET. In the year ended December 31, 1998, other income, net
consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate
headquarters building, offset by other non-operating expenses.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at cost.
Depreciation, computed generally by the straight-line method for financial
reporting purposes, is provided over the estimated useful lives of the related
assets.
INCOME TAXES. The Company accounts for income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. See
further discussion in Note G.
The Company's domestic operations and their foreign branches were included in
WAI's consolidated tax returns (for periods prior to the Distribution Date). Any
tax benefits related to these operations have been recorded in these financial
statements if such were realizable by WAI on a consolidated basis. Foreign
entities included in these financial statements pay taxes in accordance with
local laws and regulations.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade receivables. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the trade credit risk. The Company evaluates the creditworthiness of
its customers and maintains an allowance for anticipated losses.
No customer was significant to the Company's revenues in 1998. In 1997, one
automotive customer represented 13% of revenues, while in 1996 another
automotive customer represented 15% of revenues.
FOREIGN CURRENCIES. The currency effects of translating the financial
statements of the Company's foreign entities that operate in local currency
environments are included in the "cumulative currency translation adjustment"
component of shareholders' investment. Currency transaction gains and losses are
included in the consolidated and combined statements of operations and were not
material for any periods presented herein.
FINANCIAL INSTRUMENTS. The Company from time to time enters into foreign
currency exchange contracts to hedge certain foreign currency transactions and
commitments and to reduce its exposure from
F-8
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investments in certain foreign operations. The amount and volume of such
transactions are not material. The Company does not enter into any foreign
currency contracts for trading purposes.
GOODWILL AND OTHER INTANGIBLES. Goodwill is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over periods ranging from four to 18 years.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL. The Company assesses the
recoverability of long-lived assets and goodwill at the end of each fiscal year
or as circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Factors considered in evaluating recoverability include
management's plans for the operations to which the asset relates and the
historical earnings and projected undiscounted cash flows of such operations. An
impairment is recorded to writedown long-lived assets and goodwill to their
estimated fair value if the undiscounted cash flows estimated to be generated by
the asset are less than its carrying amount.
ENVIRONMENTAL COSTS. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal
years beginning after June 15, 1999. The Company is currently evaluating the
impact of adopting this statement.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to the current year presentation.
F-9
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS
ACQUISITIONS AND INVESTMENTS
In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron
for approximately $180.0 million in cash, subject to post-closing adjustments.
The division, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati
Machine"), is engaged in the design, manufacture, sale and servicing of standard
and advanced computer numerically controlled metal cutting machine tools for the
industrial component, aerospace, job shop, fluid power and automotive
industries. Cincinnati Machine has become part of the Company's Industrial
Automation Systems ("IAS") segment. The acquisition cost has been allocated to
the net assets acquired based on the relative fair values. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting.
During the third quarter of 1998, UNOVA acquired R & B Machine Tool Company
("R&B Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation common stock which was applied towards the purchase price of Amtech
Systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated and
combined financial statements.
The allocation of the acquisition costs of Cincinnati Machine, R&B Machine and
Amtech Systems is preliminary and subject to revision upon receipt of pending
information, such as final assessment of certain legal and environmental
exposures and the completion of certain appraisals. Any such revisions are not
expected to have a material impact on the Company's consolidated and combined
financial statements.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI, a European-based ADC company, manufactures bar
code on-demand printers with labels and ribbons as well as hand-held scanners.
These two companies were consolidated in Intermec Technologies Corporation, the
Company's Automated Data Systems subsidiary. Both acquisitions were funded by
Western Atlas borrowings and cash on hand, and have been accounted for under the
purchase method of accounting. Accordingly, the acquisition costs (approximately
$280.0 million and $107.0 million for Norand and UBI, respectively) were
allocated to the net assets acquired based upon their relative fair values. Such
allocation resulted in $203.3 million assigned to acquired in-process research
and development activities; $154.1 million assigned to goodwill (amortized over
25 years using the straight-line method); and $29.0 million assigned to other
intangibles (amortized over periods ranging from four to 18 years using the
straight-line method). During the second quarter of 1997, the Company expensed
the amounts assigned to acquired in-process research and development projects
that had not yet achieved technological feasibility in accordance with Financial
Accounting Standards Board Interpretation No. 4 ("FIN 4").
The Company acquired the remaining 51% of Honsberg, a German machine tool maker,
in the second quarter of 1997. The original 49% of Honsberg was acquired during
1995. The Company purchased the stamping, engineering and prototyping division
of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired
Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding
systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated and
combined financial statements.
In December 1997, the Company acquired radio frequency identification ("RFID")
technology from IBM Corporation. In connection with this acquisition, the
Company recorded a $13.0 million after-tax charge
F-10
NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS (CONTINUED)
in 1997 to expense acquired in-process research and development in accordance
with FIN 4 and the anticipated loss on a related long-term contract. The Company
is using this acquired technology to further develop its own RFID technology.
CASH FLOW DISCLOSURE
The fair values of acquired assets and liabilities, at their respective
acquisition dates, are presented below for supplemental cash flow disclosure
purposes. The 1998 balances include the assets and liabilities of Cincinnati
Machine, R&B Machine and Amtech Systems while the 1997 balances include Norand,
UBI, Honsberg, Modern Prototype and Goldcrown Machinery.
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
-------- --------
(THOUSANDS OF DOLLARS)
Current assets............................................................................ $263,266 $164,153
Property, plant and equipment............................................................. 111,593 29,093
Goodwill and intangibles.................................................................. 50,983 201,380
Other non-current assets.................................................................. 17,864 55,956
Total debt................................................................................ (29,221) (84,163)
Other current liabilities................................................................. (85,049) (146,724)
Other non-current liabilities............................................................. (9,154) (11,642)
In-process research and development....................................................... 203,300
-------- --------
Purchase price............................................................................ 320,282 411,353
Less non-cash payment of Amtech common stock.............................................. (10,000)
Less cash acquired........................................................................ (22,932) (10,599)
-------- --------
Cash paid for acquisitions, net of cash acquired.......................................... $287,350 $400,754
-------- --------
-------- --------
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma information for the year ended December 31, 1998 in the following
paragraph gives effect to the acquisition of Cincinnati Machine as if it had
occurred on January 1, 1998. The pro forma information for the year ended
December 31, 1997 gives effect to the acquisitions of Cincinnati Machine and
Norand as if they had occurred on January 1, 1997. The financial information has
been prepared from the historical financial statements of the Company,
Cincinnati Machine and Norand after giving effect to certain pro forma
adjustments, including depreciation on the fair market value of the acquired
property, plant, and equipment and interest expense associated with the increase
in debt.
Unaudited pro forma sales and service revenues, net earnings and earnings per
diluted share for the year ended December 31, 1998 are $2,009.1 million, $68.2
million and $1.25, respectively, reflecting the Cincinnati Machine acquisition
as if it had occurred on January 1, 1998. Unaudited pro forma sales and service
revenues, net earnings and earnings per diluted share for the year ended
December 31, 1997 are $1,921.0 million, $27.4 million and $0.51, respectively,
reflecting the Cincinnati Machine and Norand acquisitions as if they had
occurred on January 1, 1997.
The unaudited pro forma financial information is not necessarily indicative of
what the results of operations would have been if the combination had occurred
on the above-mentioned dates. Additionally, such information may not be
predictive of future results of operations.
DISPOSITIONS
The Company sold its Material Handling Systems operations in November of 1996.
The activities of the division were not considered a core business of the
Company.
F-11
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $17.7 million and $13.7 million at
December 31, 1998 and December 31, 1997, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(THOUSANDS OF
DOLLARS)
Borrowings under revolving credit facility, with
average interest at 5.4% (1998) and 6.0% (1997), due
2002................................................ $ 200,000 $ 200,000
Debentures, with interest at 6.875%, due 2005......... 100,000
Debentures, with interest at 7.00%, due 2008.......... 100,000
Notes payable, with average interest at 5.3% (1998)
and 5.1% (1997), due 1999........................... 186,024 86,411
Industrial revenue bonds, with average interest at
5.5% (1998) and 5.6% (1997), due through 2005....... 13,500 13,500
Other, with average interest at 6.9% (1998) and 6.2%
(1997), due through 2002............................ 4,239 3,672
--------- ---------
603,763 303,583
Less notes payable and current portion of long-term
obligations......................................... (237,276) (86,645)
--------- ---------
Long-term obligations................................. $ 366,487 $ 216,938
--------- ---------
--------- ---------
At December 31, 1998 the Company classified $150.0 million of borrowings under
the revolving credit facility as long-term, as the Company intends to refinance
such obligations on a long-term basis. At December 31, 1997 the Company
classified $200.0 million of short-term debt as long-term to reflect the debt
offering that occurred in March 1998, which is described below.
Notes payable and long-term obligations at December 31, 1998 mature as follows:
YEAR ENDING DECEMBER 31, (THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------- ----------------------
1999.................................................................. $ 237,276
2000.................................................................. 1,266
2001.................................................................. 181
2002.................................................................. 150,005
2003.................................................................. --
Thereafter............................................................ 215,035
----------
$ 603,763
----------
----------
The Company has an unsecured committed credit facility with a group of banks
from which it may borrow up to $400.0 million. Under this credit facility, which
expires in September 2002, the Company may borrow at the prime rate or at rates
based on the London Inter Bank Offered Rate, certificates of deposit or other
rates that are mutually acceptable to the banks and the Company. At February 12,
1999, $200.0 million of the credit facility was available for the Company's
general use.
F-12
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
In January 1999, the Company entered into a new unsecured committed credit
facility with a group of banks from which it may borrow up to $100.0 million.
Under this credit facility, which expires in January 2000, the Company may
borrow at the prime rate or at rates based on the London Inter Bank Offered
Rate, certificates of deposit or other rates that are mutually acceptable to the
banks and the Company. At February 12, 1999, $100.0 million of the credit
facility was available for the Company's general use.
In addition, the Company maintains other uncommitted credit facilities and lines
of credit of which $89.3 million was available to the Company at February 12,
1999.
The Company is in compliance with its various debt covenants the most
restrictive of which relate to the Company's incurrence of debt, mergers,
consolidations and sale of assets and which require the Company to satisfy
certain leverage ratios.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt. The sale comprised $100.0 million of 6.875% seven-year notes, at
a price of 99.867 and $100.0 million of 7.00% ten-year notes, at a price of
99.856. Including underwriting fees, discounts and effects of forward rate
agreements entered into by the Company to hedge the interest rates on the debt,
the effective interest rates on the seven-year and ten-year notes are 7.125% and
7.175%, respectively. The net proceeds of approximately $198.0 million were used
by the Company to repay outstanding short-term debt.
Financial instruments on the Company's consolidated balance sheets include
accounts receivable, notes payable, and accounts payable which approximate their
market values due to their short maturity. The $366.5 million of long term
obligations had an estimated fair market value of $363.4 million as of December
31, 1998, based primarily on quoted market prices. UNOVA also has
off-balance-sheet guarantees and letter-of-credit reimbursement agreements with
respect to liabilities totaling a maximum amount of $228.8 million at December
31, 1998. These agreements primarily relate to the guarantee of performance on
contracts.
Net interest expense is composed of the following:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(THOUSANDS OF DOLLARS)
Interest expense..................................... $ 28,182 $ 20,234 $ 11,533
Interest income...................................... (2,467) (3,545) (4,422)
--------- --------- ---------
Net interest expense................................. $ 25,715 $ 16,689 $ 7,111
--------- --------- ---------
--------- --------- ---------
The Company made interest payments to non-related parties of $25.3 million, $6.6
million, and $2.6 million in the years ended December 31, 1998, 1997 and 1996,
respectively. Capitalized interest costs in each of the periods presented were
not material. Interest expense of $12.0 million and $8.3 million on the
allocated portion of WAI's corporate debt for the years ended December 31, 1997
and 1996, respectively, has been included in the Company's consolidated and
combined statements of operations at WAI's estimated blended historical rate of
interest on long-term borrowings of 7.5%.
F-13
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable consists of the following:
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(THOUSANDS OF
DOLLARS)
Trade receivables, net............................................ $ 365,232 $ 202,890
Receivables related to long-term contracts
Amounts billed.................................................. 125,920 116,865
Unbilled costs and accrued profit on progress completed and
retentions.................................................... 171,733 128,324
--------- ---------
Accounts receivable, net.......................................... $ 662,885 $ 448,079
--------- ---------
--------- ---------
The unbilled costs and retentions at December 31, 1998 are expected to be
entirely billed and collected during 1999.
Inventories consist of the following:
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(THOUSANDS OF
DOLLARS)
Raw materials and work in process................................. $ 232,010 $ 94,845
Finished goods.................................................... 82,434 38,074
Inventoried costs related to long-term contracts.................. 56,823 29,656
Less progress billings............................................ (35,262) (12,038)
--------- ---------
Inventories, net of progress billings............................. $ 336,005 $ 150,537
--------- ---------
--------- ---------
F-14
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(THOUSANDS OF
DOLLARS)
Property, plant and equipment, at cost
Land..................................................... $ 27,313 $ 23,418
Buildings and improvements............................... 120,142 102,462
Machinery and equipment.................................. 316,932 213,582
Less accumulated depreciation.............................. (178,216) (181,782)
--------- ---------
Net property, plant and equipment.......................... $ 286,171 $ 157,680
--------- ---------
--------- ---------
Depreciation expense was $40.9 million, $27.4 million and $20.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
The range of estimated useful lives of the major classes of assets are:
Buildings............................................................ 10-45 years
Building improvements................................................ 2-20 years
Machinery and equipment.............................................. 2-15 years
As of December 31, 1998, minimum rental commitments under noncancellable
operating leases were:
YEAR ENDING DECEMBER 31, OPERATING LEASES
- ------------------------------------------------------------------------------------------ ---------------------
(THOUSANDS OF DOLLARS)
1999...................................................................................... $17,517
2000...................................................................................... 12,904
2001...................................................................................... 7,793
2002...................................................................................... 5,191
2003...................................................................................... 3,781
Thereafter................................................................................ 15,468
--------
$62,654
--------
--------
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $20.5 million, $17.9
million and $10.4 million, for the years ended December 31, 1998, 1997 and 1996,
respectively.
In 1998, proceeds totaling approximately $71.1 million were received on the sale
of the Company's corporate headquarters building and three operations
facilities.
F-15
NOTE F: SHAREHOLDERS' INVESTMENT
CAPITAL STOCK
At December 31, 1998, there were authorized 250 million shares of common stock,
par value $0.01, and 50 million shares of preferred stock, par value $0.01.
SHAREHOLDER RIGHTS PLAN
On September 24, 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan (the "Plan") and, in accordance with such Plan, declared a dividend
of one preferred share purchase right (the "Right") for each outstanding share
of Company common stock, payable to shareholders of record on October 31, 1997.
The Plan will cause substantial dilution to a party that attempts to acquire the
Company in a manner or on terms not approved by the Board of Directors. Each
Right entitles the holder to purchase from the Company one one-hundredth of a
share of Series A Preferred Stock at a price of seventy dollars. The Rights
become exercisable if a person other than a person which presently holds more
than 15 percent of the Company's common stock acquires 15 percent or more, or
announces a tender offer for 15 percent or more, of the Company's outstanding
common stock. If a person acquires 15 percent or more of the Company's
outstanding common stock, each right will entitle the holder to purchase the
Company's common stock having a market value of twice the exercise price of the
Right. The Rights, which expire in September 2007, may be redeemed by UNOVA at a
price of one cent per Right at any time prior to a person acquiring 15 percent
or more of the outstanding common stock.
EARNINGS PER SHARE
For the year ended December 31, 1998, basic earnings per share is calculated
using the weighted average number of common shares outstanding for the period
while diluted earnings per share is computed on the basis of the weighted
average number of common shares outstanding plus the effect of outstanding stock
options using the "treasury stock" method. For the year ended December 31, 1997,
basic earnings per share is calculated using the weighted average balance of the
number of shares outstanding for post-Distribution Date periods and the
outstanding shares of WAI common stock at June 30, 1997 for periods prior to the
Distribution Date, while diluted earnings per share is computed by adding the
effect of outstanding stock options using the "treasury stock" method to the
basic weighted average balance.
Shares used for basic and diluted earnings per share were computed as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- -------------------
Weighted average common shares -- Basic 54,620,208 54,056,243
Dilutive effect of stock options 82,859 --
------------------- -------------------
Weighted shares--Diluted 54,703,067 54,056,243
------------------- -------------------
------------------- -------------------
The Company used 53,891,534 shares, the outstanding shares of WAI common stock
at June 30, 1997, to calculate both basic and diluted earnings per share in the
year ended December 31, 1996.
At December 31, 1998, Company employees and directors held options to purchase
3,937,750 shares of Company common stock that were antidilutive to the diluted
earnings per share computation. These options could become dilutive in future
periods if the average market price of the Company's common stock exceeds the
exercise price of the outstanding options.
F-16
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
STOCK OPTIONS
The UNOVA, Inc. 1997 Stock Incentive Plan (the "1997 Plan") provides for the
grant of incentive awards to officers and other key employees. Incentive awards
may be granted in the form of stock options, with or without related stock
appreciation rights, or in the form of restricted stock. Under the 1997 Plan,
stock options may not be granted at a price less than the market value of the
Company's common stock on the date of grant. The 1997 Plan options usually vest
in equal increments over five years. The Company also has a Director Stock
Option and Fee Plan (the "Director Plan") which provides for the grant of stock
options to the Company's non-employee directors. Under the Director Plan, stock
options are granted annually at the market value of the Company's common stock
on the date of grant. The number of options granted annually is fixed by the
plan. Such options become fully exercisable on the first anniversary of their
grant. Under the 1997 Plan and Director Plan, there were 582,700 options
exercisable and 2,045,250 options available for grant as of December 31, 1998.
No options were exercisable as of December 31, 1997.
The following table summarizes the activity of the Company's stock option
plans:
WEIGHTED-AVERAGE
EXERCISE PRICE
NUMBER OF SHARES PER SHARE
------------------ ------------------
1997
Granted 2,504,500 $ 18.80
----------
Outstanding at December 31, 1997 2,504,500 18.80
----------
1998
Granted 1,706,200 16.97
Canceled (255,950) 18.37
----------
Outstanding at December 31, 1998 3,954,750 18.04
----------
----------
Outstanding stock option data as of December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------------- ----------- ----------- -------------
$14.56 to $17.56 1,620,500 9.81 $ 16.62 103,000 $ 17.48
18.81 to 22.00 2,334,250 8.88 19.02 479,700 18.88
The weighted-average fair value of stock options granted during 1998 and 1997
were $7.10 per option and $7.76 per option, respectively. The fair value of each
stock option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1998 and 1997, respectively; risk-free interest rates of 4.63% and
5.80%, expected life of five years for both years; and expected volatility of
39.6%, determined from historical UNOVA stock price fluctuations, and 36.0%,
determined from historical industry stock price fluctuations. There is no
assurance that the assumptions used in determining the fair values of stock
options will prove true in the future. The actual value of the options depends
on several factors, including the actual market price of the common stock on the
date of exercise. Changes in any of these factors as well as fluctuations in the
market price of the Company's common stock will cause the actual value of these
options to vary from the theoretical value indicated above.
F-17
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1998, UNOVA adopted an Employee Stock Purchase Plan under
which the Company is authorized to sell up to five million shares of common
stock to its eligible full-time employees. Under the terms of the plan, which is
intended to qualify under Section 423 of the Internal Revenue Code, employees
can choose to have up to 8% of their annual earnings (up to a maximum amount of
$21,250 per calendar year) withheld to purchase the Company's common stock. The
purchase price of the stock is 85% of the lower of the market price on the first
day or last day of the applicable offering period, which is normally six months
in duration. The Company sold 433,506 shares under the Plan in 1998, with
approximately 30% of eligible employees participating. The weighted-average fair
value of purchase rights granted in 1998 was $5.14 per share. The fair value of
the stock purchase rights were determined using the same method and parameters
for stock option grants described above, except for the use of an expected life
equal to the applicable offering period. As previously noted, the actual value
of purchase rights may vary from the theoretical value determined using the
Black-Scholes option pricing model.
PRO FORMA COMPENSATION COST DISCLOSURE
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized at the grant of stock options. Had compensation cost for these
plans been determined consistent with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's pro
forma net income and diluted earnings per share for 1998 would have been $64.6
million and $1.18, respectively. In 1997 the Company's pro forma net loss and
diluted loss per share would have been $173.6 million and $3.21, respectively.
F-18
NOTE G: TAXES ON INCOME
Earnings (loss) before taxes on income by geographic area are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(THOUSANDS OF DOLLARS)
United States.......................................... $ 90,976 $(113,075) $ 47,470
Other nations.......................................... 25,990 (35,324) 22,566
--------- --------- ---------
$ 116,966 $(148,399) $ 70,036
--------- --------- ---------
--------- --------- ---------
Taxes on income consist of the following provisions (benefits):
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(THOUSANDS OF DOLLARS)
Currently Payable:
U.S. taxes.............................................. $ 20,416 $ 13,821 $ 31,619
International taxes..................................... 12,451 10,124 6,446
--------- --------- ---------
32,867 23,945 38,065
--------- --------- ---------
Deferred:
U.S. taxes.............................................. 13,689 242 (9,685)
International taxes..................................... 697 (1,219) (366)
--------- --------- ---------
14,386 (977) (10,051)
--------- --------- ---------
$ 47,253 $ 22,968 $ 28,014
--------- --------- ---------
--------- --------- ---------
Deferred taxes result from the effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
Accrued liabilities....................... $ 56,863 $ 49,194
Receivables and inventories............... 18,872 14,431
Retiree medical benefits.................. 10,176 6,255
Intangibles............................... 12,963 9,025
Tax credit carryforwards.................. 6,395 4,887
Deferred income........................... 2,718 10,195
Net operating loss carryforwards.......... 41,511 13,572
Pensions.................................. $ 23,588 $ 14,251
Accelerated depreciation.................. 18,566 6,123
Other items............................... 1,220 3,571 2,544
--------- --------- --------- ---------
Total before valuation allowance.......... 150,718 42,154 111,130 22,918
Valuation allowance....................... (8,945) (4,436)
--------- --------- --------- ---------
$ 141,773 $ 42,154 $ 106,694 $ 22,918
--------- --------- --------- ---------
--------- --------- --------- ---------
The Company has available at December 31, 1998, a net operating tax loss
carryforward in the United States of approximately $69.4 million. Approximately
$7.7 million, $13.9 million, $4.2 million and
F-19
NOTE G: TAXES ON INCOME (CONTINUED)
$43.6 million of the net operating tax loss carryforwards will expire in 2010,
2011, 2017 and 2018, respectively. The Company also has general business credit
and other tax credits of approximately $6.4 million to offset future tax
liability in the United States through 2018. The Company has foreign net
operating tax loss carryforwards of $17.9 million and $31.4 million in Germany
and the U.K. respectively.
Valuation allowances of $8.9 million and $4.4 million as of December 31, 1998
and 1997, respectively, were established for deferred income tax benefits
related to the German loss carryforwards that may not be realized. Included in
the valuation allowance is $4.4 million that relates to the acquired German net
operating loss carryforwards; any tax benefits subsequently recognized for the
acquired German net operating loss carryforwards will be allocated to goodwill.
With the exception of the German tax loss carryforward, the Company believes it
will utilize all other U.S. and foreign carryforward benefits.
The following is a reconciliation of income taxes at the U.S. statutory rate to
the provision for income taxes:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(THOUSANDS OF DOLLARS)
Tax at U.S. statutory rate........................... $ 40,938 $ (51,940) $ 24,513
Nondeductible acquired in-process research and
development........................................ 71,050
State income taxes net of federal benefit............ 3,055 1,625 1,382
Amortization of nondeductible goodwill............... 4,272 4,431 1,916
Foreign operating losses with no tax benefit
provided........................................... 4,556
Tax credits and FSC benefit.......................... (3,276) (1,250)
Foreign earnings taxed at other than U.S. statutory
rate............................................... (316) (223) 60
Other items.......................................... (1,976) (725) 143
--------- --------- ---------
$ 47,253 $ 22,968 $ 28,014
--------- --------- ---------
--------- --------- ---------
The Company made net tax payments of $4.5 million, $44.4 million and $26.1
million in the years ended December 31, 1998, 1997 and 1996, respectively.
The Company has provided for federal income taxes and foreign withholding taxes
on the undistributed earnings of foreign subsidiaries.
F-20
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has retirement and pension plans which cover most of its employees.
Most of the Company's U.S. employees are covered by a contributory defined
benefit plan, under which annual contributions are made to the extent such
contributions are actuarially determined to adequately fund the plan.
There are also defined contribution voluntary savings programs generally
available for U.S. employees, which are intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code. These plans are designed to
enhance the retirement programs of participating employees. Under these plans,
the Company matches up to 50% of a certain portion of participants'
contributions.
Certain of the Company's non-U.S. subsidiaries also have a retirement plan for
employees. The pension liabilities and their related costs are computed in
accordance with the laws of the individual nations and appropriate actuarial
practices.
U.S. PENSION PLANS
The following table sets forth the change in benefit obligations and plan assets
of the Company's U.S. pension plans and the amounts recognized in the Company's
balance sheets at December 31, 1998 and 1997.
DECEMBER 31,
--------------------
1998 1997
--------- ---------
(THOUSANDS OF
DOLLARS)
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year.................... $ 151,649 $ 139,026
Service cost............................................... 6,140 5,988
Interest cost.............................................. 10,982 10,075
Plan participants' contributions........................... 431 922
Actuarial loss............................................. 22,149 5,770
Benefits paid.............................................. (10,019) (10,132)
Other...................................................... 510
--------- ---------
Benefit obligation at end of year.......................... 181,842 151,649
--------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............. 345,347 267,956
Actual return on plan assets............................... (11,858) 88,571
Plan participants' contributions........................... 431 922
Benefits paid.............................................. (9,554) (9,739)
Spin-off adjustment........................................ (8,125) (2,363)
--------- ---------
Fair value of plan assets at end of year................... 316,241 345,347
--------- ---------
Funded status.............................................. 134,399 193,698
Unrecognized net actuarial gain............................ (76,901) (148,576)
Unrecognized prior service cost............................ 4,201 3,526
Unrecognized transition asset.............................. (9,381) (12,769)
--------- ---------
Prepaid pension cost....................................... $ 52,318 $ 35,879
--------- ---------
--------- ---------
F-21
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The preceding table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1998 and 1997, these liabilities amounted to $17.1 million and
$16.2 million, respectively.
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 9 1/4% for fiscal years 1998
and 1997. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7% and 7 1/2% at December
31, 1998 and 1997, respectively. The rate of increase in future compensation
levels was 4 1/2% and 5% at December 31, 1998 and 1997, respectively.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
A summary of the components of net periodic pension income for the U.S. defined
benefit plans and defined contribution plans for the years ended December 31,
1998, 1997 and 1996, is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
COMPONENTS OF NET PERIODIC PENSION INCOME 1998 1997 1996
- -------------------------------------------------------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
Service cost............................................ $ 6,140 $ 5,988 $ 6,507
Interest cost........................................... 10,982 10,075 10,107
Expected return on plan assets.......................... (24,203) (20,784) (18,518)
Amortization of prior service cost...................... 461 406 404
Recognized net actuarial gain........................... (5,641) (3,043) (1,765)
Amortization of transition asset........................ (2,477) (2,477) (2,477)
--------- --------- ---------
(14,738) (9,835) (5,742)
Defined contribution plans.............................. 4,500 4,160 2,983
--------- --------- ---------
Net periodic pension income............................. $ (10,238) $ (5,675) $ (2,759)
--------- --------- ---------
--------- --------- ---------
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom, the
weighted-average discount rate used was approximately 6% at December 31, 1998.
The rate of increase in future compensation used was approximately 3 1/2%, and
the rate of return on assets was 6 1/2% at December 31, 1998.
Pension costs for non-U.S. pension plans were not material for any of the
periods presented herein. The actuarial present value of projected benefits at
December 31, 1998 was $107.2 million compared with net assets available for
benefits of $111.6 million.
F-22
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans provided
by UNOVA. These benefit plans are unfunded. The following table sets forth the
change in benefit obligation of the Company's other postretirement benefits and
amounts recognized in the Company's balance sheets at December 31, 1998 and
1997.
DECEMBER 31,
--------------------
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS 1998 1997
- -------------------------------------------------------------- --------- ---------
(THOUSANDS OF
DOLLARS)
Benefit obligation at beginning of year....................... $ 27,789 $ 18,664
Service cost.................................................. 292 586
Interest cost................................................. 2,037 1,688
Acquisitions.................................................. 11,423
Actuarial loss................................................ 104 7,959
Benefits paid................................................. (1,237) (1,108)
--------- ---------
Benefits obligation at end of year............................ 40,408 27,789
--------- ---------
Funded status................................................. (40,408) (27,789)
Unrecognized net actuarial loss............................... 8,198 8,828
Unrecognized transition obligation............................ 2,316
Other......................................................... (2,187) (603)
--------- ---------
Accrued postretirement benefit obligation..................... $ (32,081) $ (19,564)
--------- ---------
--------- ---------
The following table sets forth the status of the Company's net periodic
postretirement benefit cost for the years ended December 31, 1998, 1997 and
1996.
YEAR ENDED DECEMBER 31,
-------------------------------
COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST 1998 1997 1996
- -------------------------------------------------------------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
Service cost.................................................. $ 620 $ 586 $ 212
Interest cost................................................. 2,037 1,688 1,576
--------- --------- ---------
Net periodic postretirement benefit cost...................... $ 2,657 $ 2,274 $ 1,788
--------- --------- ---------
--------- --------- ---------
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7% and 7 1/2% at December 31, 1998 and 1997. The assumed
health care cost trend rate for fiscal year 1998 was 12% and is projected to
decrease over 18 years to 6%, where it is expected to remain thereafter. The
effect of a one-percentage-point increase or decrease in the assumed health care
cost trend rate on the service cost and interest cost components of the net
periodic postretirement benefit cost is not material. A one-percentage-point
increase in the assumed health care cost trend rate on the accrued
postretirement benefit obligation results in an increase of approximately $1.9
million, while a one-percentage point decrease results in a decrease of $1.7
million.
F-23
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's consolidated and combined
financial statements.
NOTE J: RELATED PARTY TRANSACTIONS
Included in other assets are amounts due from certain Company officers and other
related parties of $1.9 million and $2.1 million at December 31, 1998 and 1997,
respectively.
In 1999, the Company intends to move its executive offices to a leased facility
that is owned by the UNOVA Master Trust, a vehicle which holds the assets of the
Company's major U.S. pension plans ("UNOVA Master Trust"). The Company is
currently awaiting Department of Labor approval of the transaction under
provisions of the Employment Retirement Income Security Act of 1974 governing
transactions between pension plans and related parties before it executes a
long-term lease with the UNOVA Master Trust, which is expected to be consummated
on terms equivalent to an arm's-length transaction.
Immediately prior to the Distribution in 1997, the Company paid a dividend of
$230.0 million to WAI with funds borrowed under the Company's revolving credit
facility.
Included in general and administrative expenses are allocated charges from WAI
of $13.5 million and $22.2 million, for the years ended December 31, 1997 and
1996, respectively.
Included in interest expense are allocated charges from WAI of $12.0 million and
$8.3 million, for the years ended December 31, 1997 and 1996, respectively.
F-24
NOTE K: BUSINESS SEGMENT REPORTING
The Company manages and reports its operations in two business segments: the
Automated Data Systems segment and the Industrial Automation Systems segment.
Material Handling Systems was sold during the fourth quarter of 1996. Figures
for this division were reported as part of the Industrial Automation Systems
segment. The Company uses operating profit, which is computed by adding net
interest expense to earnings before taxes on income, to evaluate performance.
Corporate and other amounts include corporate operating costs and currency
transaction gains and losses (see Notes A and J). Assets classified as corporate
and other amounts consist of cash and cash equivalents and other corporate
assets. Activities are primarily product sales oriented. Export sales are not
material. All material intercompany transactions have been excluded.
OPERATIONS BY BUSINESS SEGMENT
(MILLIONS OF DOLLARS)
INDUSTRIAL AUTOMATED CORPORATE
YEAR ENDED AUTOMATION DATA AND OTHER
DECEMBER 31, SYSTEMS SYSTEMS AMOUNTS TOTAL
------------ ---------- --------- --------- ------
Sales.................................................. 1998 $ 833 $ 830 $1,663
1997 790 636 1,426
1996 798 367 1,165
Operating profit (loss)................................ 1998 77 55 $ 11(B) 143(B)
1997 95 (202)(A) (25) (132)(A)
1996 70 30 (23) 77
Capital expenditures................................... 1998 38 46 84
1997 14 16 30
1996 14 9 23
Depreciation and amortization expense.................. 1998 19 38 57
1997 15 25 1 41
1996 15 11 1 27
Total assets at year end............................... 1998 1,128 775 76 1,979
1997 650 642 64 1,356
1996 620 277 177 1,074
(A) Includes the $211.5 million charges for acquired in-process research and
development.
(B) Includes gain of $35.5 million on sale of UNOVA's corporate headquarters
building.
OPERATIONS BY GEOGRAPHIC AREA
(MILLIONS OF DOLLARS)
CORPORATE
YEAR ENDED UNITED AND OTHER
DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL
----------------- --------- ----------- ----------- ------------- ---------
Sales......................................... 1998 $ 1,064 $ 442 $ 157 $ 1,663
1997 989 363 74 1,426
1996 950 193 22 1,165
Operating profit (loss)....................... 1998 98 28 6 $ 11 143
1997 (78) (35) 6 (25) (132)
1996 78 22 (23) 77
Total assets at year end...................... 1998 1,470 388 45 76 1,979
1997 1,015 261 16 64 1,356
1996 751 136 10 177 1,074
F-25
UNOVA, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
BASIC
EARNINGS DILUTED COMMON STOCK
GROSS NET PER EARNINGS SALES PRICE
SALES PROFIT EARNINGS SHARE PER SHARE HIGH/LOW (1)
------ ------ -------- -------- --------- ----------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1998
First Quarter..................................... $333.4 $110.1 $ 7.8 $ 0.14 $ 0.14 $20 9/16 13 7/8
Second Quarter.................................... 345.2 117.8 9.2 0.17 0.17 $24 19 15/16
Third Quarter..................................... 405.7 133.2 13.3 0.24 0.24 $22 15 1/2
Fourth Quarter.................................... 578.4 166.2 39.4(2) 0.72 0.72 $18 1/4 12 3/8
YEAR ENDED DECEMBER 31, 1997
First Quarter..................................... $323.1 $ 88.9 $ 11.6 $ 0.21 $ 0.21
Second Quarter.................................... 409.3 122.7 (189.1)(3) (3.51) (3.51)
Third Quarter..................................... 361.8 116.4 11.7 0.22 0.22
Fourth Quarter.................................... 332.0 99.9 (5.6)(4) (0.10) (0.10) $19 1/4 14 1/8
As of January 31, 1999 there were approximately 20,246 holders of record of the
Company's common stock.
(1) The common stock began trading on the New York Stock Exchange under the
symbol "UNA" on October 22, 1997 on a "when issued" basis, and "regular way"
on November 3, 1997. Prior to October 31, 1997, the Company was a wholly
owned subsidiary of Western Atlas Inc.
(2) In December 1998, the Company recognized a gain of $35.5 million on the sale
of its corporate headquarters building.
(3) In June 1997, the Company expensed $203.3 million of in-process research and
development activities in connection with the acquisitions of Norand and
UBI.
(4) In December 1997, the Company expensed $4.9 million (net of tax) of
in-process research and development activities in connection with the
acquisition of RFID technology.
F-26
UNOVA, INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
2.1 Amended and Restated Purchase and Sale Agreement dated August 20, 1998, between UNOVA, Inc., UNOVA
Industrial Automation Systems, Inc., and UNOVA UK Limited, on the one hand, and Cincinnati Milacron
Inc., on the other hand, filed on October 2, 1998 as Exhibit 2 to the Company's Current Report on
Form 8-K, and incorporated herein by reference.
3.1 Certificate of Incorporation of UNOVA, Inc., filed on October 22, 1997 as Exhibit 3A to Amendment No.
2 to the Company's Registration Statement on Form 10 No. 001-13279, and incorporated herein by
reference.
3.2 By-laws of UNOVA, Inc., as amended on February 5, 1999.*
4.1 $400,000,000 Credit Agreement dated September 24, 1997, among UNOVA, Inc., the Banks listed therein,
and Morgan Guaranty Trust Company of New York, as Agent, filed on October 1, 1997 as Exhibit 10M to
Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279, and incorporated
herein by reference.
4.2 Amendment No. 1 to the $400,000,000 Credit Agreement, dated January 15, 1998, filed as Exhibit 4.4 to
the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference.
4.3 Amendment No. 2 to the $400,000,000 Credit Agreement, dated May 15, 1998, filed as Exhibit 4.7 to the
Company's June 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by reference.
4.4 Amendment No. 3 to the $400,000,000 Credit Agreement, dated September 24, 1998, filed as Exhibit 4.8
to the Company's September 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by
reference.
4.5 Rights Agreement dated September 24, 1997, between UNOVA, Inc. and The Chase Manhattan Bank, as
Rights Agent, to which is annexed the form of Right Certificate as Exhibit A, filed on October 22,
1997 as Exhibit 3C to Amendment No. 2 to the Company's Registration Statement on Form 10 No.
001-13279, and incorporated herein by reference.
4.6 Indenture dated as of March 11, 1998 between the Company and The First National Bank of Chicago,
Trustee, providing for the issuance of securities in series, filed as Exhibit 4.5 to the Company's
1997 Annual Report on Form 10-K, and incorporated herein by reference.
4.7 Form of 6.875% Notes due March 15, 2005 issued by the Company under such indenture, filed as Exhibit
4.6 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference.
4.8 Form of 7.00% Notes due March 15, 2008 issued by the Company under such indenture, filed as Exhibit
4.7 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference.
4.9 $100,000,000 Credit Agreement dated January 13, 1999, among UNOVA, Inc., the Banks listed therein,
and Morgan Guaranty Trust Company of New York, as Agent.*
E-1
INDEX TO EXHIBITS (CONTINUED)
Instruments defining the rights of holders of other long-term debt of the Company are not filed as
exhibits because the amount of debt authorized under any such instrument does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company hereby undertakes to
furnish a copy of any such instrument to the Commission upon request.
10.1 Distribution and Indemnity Agreement dated October 31, 1997, between Western Atlas Inc. and UNOVA,
Inc, filed as Exhibit 10.1 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.2 Tax Sharing Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc., filed as
Exhibit 10.2 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.3 Employee Benefits Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc.,
filed as Exhibit 10.3 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.4 Intellectual Property Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc.,
filed as Exhibit 10.4 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.5 Change of Control Employment Agreements with Alton J. Brann, Michael E. Keane, Norman L. Roberts and
certain other officers of the Company, dated as of October 31, 1997, filed as Exhibit 10.5 to the
Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.6 Employment Agreement between Intermec Corporation and Michael Ohanian, dated May 18, 1995, as
amended, filed on August 18, 1997 as exhibit 10J to the Company's Registration Statement on Form 10
No. 001-13279 and incorporated herein by reference.
10.7 Amendment No. 1 to Employment Agreement between Intermec Corporation and Michael Ohanian, dated
February 28, 1997, filed as Exhibit 10.18 to the Company's 1997 Annual Report on Form 10-K, and
incorporated herein by reference.
10.8 Amendment No. 2 to Employment Agreement between Intermec Technologies Corporation and Michael
Ohanian, dated February 28, 1998, filed as Exhibit 10.19 to the Company's 1997 Annual Report on Form
10-K, and incorporated herein by reference.
10.9 Amendment No. 3 to Employment Agreement betweeen Intermec Technologies Corporation and Michael
Ohanian, dated May 20, 1998.*
10.10 Amendment No. 4 to Employment Agreement between Intermec Technologies Corporation and Michael
Ohanian, dated February 28, 1999.*
10.11 UNOVA, Inc. Director Stock Option and Fee Plan, filed as Exhibit 10.7 to the Company's September 30,
1997 Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.12 UNOVA, Inc. Restoration Plan, filed on August 18, 1997 as Exhibit 10I to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein by reference.
10.13 UNOVA, Inc. Supplemental Executive Retirement Plan, filed on October 1, 1997 as Exhibit 10H to
Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated
herein by reference.
E-2
INDEX TO EXHIBITS (CONTINUED)
10.14 Amendment No. 1 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated September 23, 1998,
filed as Exhibit 10.22 to the Company's September 30, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.15 Amendment No. 2 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated March 11, 1999.*
10.16 Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated October
1997, filed on October 1, 1997 as Exhibit 10L to Amendment No. 1 to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein by reference.
10.17 Amendment No. 1 to Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J.
Brann, dated September 23, 1998, filed as Exhibit 10.21 to the Company's September 30, 1998 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.18 Amendment No. 2 to Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J.
Brann, dated March 11, 1999.*
10.19 Employment Agreement dated August 1997, between UNOVA, Inc., and Clayton A. Williams, filed on
October 1, 1997 as Exhibit 10K to Amendment No. 1 to the Company's Registration Statement on Form 10
No. 001-13279 and incorporated herein by reference.
10.20 Amendment No. 1 to Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated March 24,
1998, filed as Exhibit 10.20 to the Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
10.21 Amendment No. 2 to Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated May 18,
1998.*
10.22 UNOVA, Inc. 1997 Stock Incentive Plan, filed as Exhibit 10.12 to the Company's September 30, 1997
Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.23 UNOVA, Inc. Executive Severance Plan, filed as Exhibit 10.13 to the Company's September 30, 1997
Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.24 Form of Promissory Notes in favor of the Company given by certain officers and key employees, filed
as Exhibit 10.14 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.25 Board resolution dated September 24, 1997 establishing the UNOVA, Inc. Incentive Loan Program, filed
as Exhibit 10.15 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.26 UNOVA, Inc. Management Incentive Compensation Plan, filed as Exhibit 10.16 to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by reference.
10.27 UNOVA, Inc. Executive Survivor Benefit Plan, filed as Exhibit 10.17 to the Company's 1997 Annual
Report on Form 10-K, and incorporated herein by reference.
10.28 UNOVA, Inc. 1999 Stock Incentive Plan, filed as Annex A to the Company's 1999 Proxy Statement, and
incorporated herein by reference.
10.29 UNOVA, Inc. Management Incentive Compensation Plan, filed as Annex B to the Company's 1999 Proxy
Statement, and incorporated herein by reference.
E-3
INDEX TO EXHIBITS (CONTINUED)
10.30 UNOVA, Inc. Executive Medical Benefit Plan.*
21 Subsidiaries of the Registrant included herein on page E-5.
23 Independent Auditors' Consent included herein on page E-6.
27 Financial Data Schedule (filed only electronically with the Securities and Exchange Commission).
- ------------------------
* Copies of these documents have been included in this Annual Report on Form
10-K filed with the Securities and Exchange Commission.
E-4