UNOVA Announces 1998 Results, Record Fourth Quarter
28 January 1999
UNOVA Announces 1998 Results, Record Fourth Quarter; Net Earnings Include $0.35-Per-Share Non-Operating Income
BEVERLY HILLS, Calif.--Jan. 28, 1999--UNOVA Inc. Thursday announced record fourth-quarter earnings which also resulted in positive earnings comparisons for all of 1998.
The quarterly improvement came from both of the company's business segments -- Industrial Automation Systems (IAS) and Automated Data Systems (ADS).
Revenues for the year grew to $1.663 billion, a 17 percent increase over the $1.426 billion reported for 1997. Net earnings in 1998 amounted to $69.7 million, or $1.27 per diluted share. Non-operating income provided $0.35 per share, which includes a one-time, after-tax gain on the sale of the company's headquarters building.
In 1997 UNOVA had reported a net loss of $171.4 million, or $3.17 per share, after one-time charges for acquired in-process research and development (R&D), and a contract loss on the purchase of radio frequency identification (RFID) technology. Excluding these one-time charges, earnings per share for 1997 would have been $0.83.
"1998 was an important year for establishing UNOVA as a leading, global industrial technologies company," said Alton J. Brann, chairman and CEO. "We achieved solid internal growth in our ADS segment, while targeted acquisitions in both our business areas during the year provided us with important technologies and capabilities for future expansion, opened new markets, balanced our product portfolio and expanded our presence in major new industries.
"We added more than $500 million in annualized revenues from acquired businesses that have the potential to accelerate our earnings growth in coming years," Brann continued. "More importantly, these acquisitions allowed UNOVA to quickly add the skills of hundreds of highly experienced engineers, specialists and workers in an unusually tight labor market. This can create a considerable competitive advantage in a knowledge-intensive business such as ours.
"While our acquisitions created short-term burdens on our existing operations and our balance sheet, they left UNOVA in a much stronger and more competitive position in all its markets. I believe that, in retrospect, 1998 will end up being a very good year for our long-term development," he said.
Fourth Quarter Events
Revenues in the fourth quarter were positively impacted by the inclusion of the Cincinnati Machine operations in the company's IAS segment. The acquisition closed in the first week of October 1998.
The strong quarterly earnings improvement over the comparable period in 1997 was the result of substantially higher revenues in both business segments and performance improvements in the company's ADS segment. However, customer-driven project delays in the IAS segment prevented even stronger results in the fourth quarter.
Revenues in the fourth quarter were $578.3 million, up from $332.1 million reported in the same period a year ago, while segment operating profit in the final 1998 quarter amounted to $47.9 million. In the 1997 fourth quarter the company reported segment operating profit of $12.8 million, which included a one-time contract loss associated with the purchase of RFID technology in the ADS segment.
Industrial Automation Systems (IAS)
The IAS segment reported revenues of $833.3 million and operating profits of $76.9 million for 1998. This compares to $789.8 million in revenues and $94.6 million of operating profit in the previous year. The higher revenues were attributed to acquisitions made during the year.
The decline in 1998 operating profit margins, compared with 1997, was the result of startup issues on a new product line at the segment's German operations, now largely resolved, and the timing of major programs. In 1997 the segment had benefited from a business mix where many projects moved into the more profitable installation and delivery stages, while in 1998 most of the large contracts were still in their start-up and engineering phases.
IAS revenues in the fourth quarter of 1998 were $347.9 million, compared with $156.7 million in the same period a year ago. Operating profits for the same quarters were $30.3 million and $20.1 million, respectively. The 1998 three-month period included the results of the Cincinnati Machine operations.
"The year reaffirmed our strong competitive position in the market for major manufacturing systems projects in the automotive industry," said Brann. "We finished 1998 with record bookings in excess of $1 billion and a backlog of $705 million, compared to the $332 million backlog at the end of 1997. Even without Cincinnati Machine, our yearend backlog would have been almost 70 percent higher than at the end of 1997."
During the fourth quarter, Cincinnati Machine won a multi-year contract from Boeing to install advanced manufacturing systems to produce major parts for the aerospace company's Delta IV launch vehicle program. This contract, which could reach a value of $34 million, represents one of the largest single projects ever received by the new UNOVA division and validates its leadership position in manufacturing technologies for the commercial and military aerospace industries.
Cincinnati Machine is continuing its internal performance improvement program, which has the objective of stabilizing this year's operating margins at last year's level despite slightly lower revenue expectations.
UNOVA's automotive-oriented divisions continued to extend their bookings success throughout all of 1998, and the outlook for the company's systems divisions remains positive as a result of several engineering projects awarded by customers. These should translate into large powertrain manufacturing systems contracts during 1999, supporting segment results in 2000.
"Our automotive manufacturing systems divisions should have a year of strong internal growth in 1999 as several major projects are scheduled to move from engineering into integration and installation. The full-year inclusion of R & B Machine Tool, which we acquired in mid-1998, further supports this outlook," remarked Brann.
Automated Data Systems (ADS)
The company's Automated Data Systems segment, represented by Intermec Technologies, finished 1998 with revenues of $829.4 million and operating income of $55.4 million. A year earlier, the segment had revenues of $636.5 million and operating income of $9.1 million, which included the previously mentioned one-time contract loss for purchased RFID technology.
In the fourth quarter of 1998, the ADS segment reported revenues of $230.4 million, compared with $175.4 million in the last quarter of 1997. The 1998 quarter included results of the Amtech Transportation Systems Group (TSG), which was acquired in mid-1998. Operating profits for the ADS segment amounted to $17.7 million in the fourth quarter of 1998, compared with a loss of $7.2 million in the same period a year earlier.
Segment profitability in the last quarter of 1998 benefited from licensing payments for the company's technology which were received before year end, while the 1997 fourth quarter was impacted by one-time charges related to the acquisition of RFID technology.
Intermec achieved major performance improvements over the previous year as the company continued to integrate the operations of Norand and UBI (acquired in 1997) and Amtech's TSG activities (added in 1998).
While the related integration projects were built into the division's plan for 1998, Intermec's internal information system experienced capacity problems during the year as the business volume of the combined entity continues to grow. Additional personnel and an interim increase in inventory at the manufacturing facilities helped to solve these problems but resulted in higher costs during the second half of 1998.
Intermec's primary operations in Everett, Wash., had switched to a newly developed enterprise-resource-planning (ERP) solution by yearend 1998, replacing the interim, labor-intensive system.
The integration of global sales, logistics and financial reporting activities, which are scheduled to be automated over time, will then provide the segment with a real-time information and control network on a global basis and should add to Intermec's performance and competitiveness.
During 1998 Intermec further emphasized its strategy to offer the broadest product and technology range in the growing automated data collection, mobile computing and RFID markets.
The division introduced 26 products, more than the previously separate companies did in any single year on a combined basis. Most of these new products follow the company's strategy to speed up product development and create economies of scale in sourcing and manufacturing by emphasizing designs with common architecture and components.
Intermec finished the year with a major shift in its sales channel mix. Two years ago it generated almost 70 percent of revenues through direct sales. By the end of 1998 the majority of its sales came through indirect channels. As this strategy is fine-tuned, Intermec should be able to accelerate sales growth while reducing sales expenses.
Financial Position
UNOVA had a debt-to-capital ratio of 46 percent at the end of 1998, which included $180 million of debt financing for the acquisition of Cincinnati Machine in the fourth quarter. Also during the last quarter, the company sold its Beverly Hills, Calif., headquarters, resulting in a one-time gain. In spring 1999, the company will relocate its corporate staff to offices in the West San Fernando Valley of Southern California.
Based on the company's business positions, earnings and cash flow outlook, all three rating agencies maintained investment grade ratings on UNOVA's senior debt.
Outlook for 1999
The IAS segment is expected to achieve major revenue growth based on its backlog of large systems contracts. While the first quarter will still represent a build-up phase from the engineering stages of these systems projects and Cincinnati Machine usually experiences a slower quarter at the beginning of the year, IAS revenues should reach their peak in the third and fourth quarters of the year.
Cincinnati Machine should be accretive to earnings in its first full year as part of UNOVA and strong overall revenue expansion in the segment should result in favorable earnings comparisons at IAS for 1999. However, the new division is expected to reach its full earnings potential only over a period of time.
The large systems contracts, currently in their early production stages, will require an increase in working capital during the first half of 1999. This should be reversed during the second half of the year as these projects move into the delivery stages.
The ADS segment will concentrate primarily on improving its internal performance with the objective of further margin expansion. Supported by its product, technology and distribution strengths, the segment's commercial revenues are expected to grow at least at the rate of the continuously expanding ADC market, which industry research studies estimate at 12 percent to 15 percent.
At the same time, Intermec expects a decline in its U.S. Government business as a five-year supply contract concludes in 1999. Any contract renewal with the Federal Government would result in revenues and profits only from 2000 on.
While the new automated ERP solution at the ADS headquarters replaced the outdated information system at year end as scheduled, the 1999 first quarter still will be impacted by the cost of back-up systems and higher inventory levels to safeguard against systems disruptions. Profit margins should continue to improve for the remainder of the year as these expenses are eliminated and the full benefits of the new system are realized.
To further strengthen Intermec's competitive position in the expanding ADC and enterprise networking market, the segment plans to introduce major new products by this summer, resulting in higher R&D and market introduction costs early in 1999.
The company expects that its consolidated 1999 earnings and revenues will continue to grow, driven by improved internal performance and the inherent strengths of its two businesses.
With headquarters in Southern California, UNOVA is a $2 billion industrial technologies company. It has global leadership positions in manufacturing systems and machine tools for the automotive, aerospace and general metalworking industries and for automated data collection, mobile computing, bar code and radio frequency identification systems for industrial, distribution, transportation, logistics and government applications.
Certain forward-looking statements in this release (as defined by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934) relate to matters that are not historical facts. 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 involve and are dependent upon certain risks and uncertainties. These include, but are not limited to, the following which are beyond the company's control: the presence of competitors with greater financial and other resources; technological changes and developments; regulatory uncertainties; worldwide political stability and economic conditions; operating risks associated with international activities; the risk that the company's due diligence procedures may have failed to reveal undisclosed material information concerning acquired operations; and other risks and uncertainties described more fully in the company's filings with the Securities and Exchange Commission.
UNOVA Inc. 1998 Yearend
Earnings Conference Call
Thursday, January 28, 1999
10:00 a.m. EST, 7:00 a.m. PST
To participate in the conference call,
phone or fax UNOVA Investor Relations at:
Phone: 310/888-2575/2583
Fax: 310/888-2908
UNOVA Inc.
Consolidated and Combined Statements of Operations (Preliminary)
Three Months and Year Ended Dec. 31, 1998 and 1997
(thousands of dollars, except per share amounts)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Sales and
Service Revenues $ 578,348 $ 332,143 $ 1,662,663 $ 1,426,247
------- ------- --------- ---------
Costs and Expenses
Cost of sales 405,303 228,051 1,110,799 981,380
Selling, general
and administrative 114,380 89,463 383,663 324,405
Acquired in-process
R&D charges -- 8,200 -- 211,500
Depreciation and
amortization 15,061 10,155 57,043 40,672
Interest, net 9,370 3,918 25,715 16,689
------ ------ ------ ------
Total Costs
and Expenses 544,114 339,787 1,577,220 1,574,646
------- ------- --------- ---------
Other Income, Net 31,523 -- 31,523 --
------ ------- --------- ---------
Earnings (Loss)
before Taxes on
Income 65,757 (7,644) 116,966 (148,399)
Taxes on Income (26,303) 2,050 (47,253) (22,968)
------ ----- ------ ------
Net Earnings
(Loss) $ 39,454 $ (5,594) $ 69,713 $ (171,367)
====== ===== ====== =======
Basic Earnings
(Loss) per Share $ 0.72 $ (0.10) $ 1.28 $ (3.17)
==== ==== ==== ====
Diluted Earnings
(Loss) per Share $ 0.72 $ (0.10) $ 1.27 $ (3.17)
==== ==== ==== ====
Shares Used in
Computing Basic
Earnings per
Share 54,727,998 54,395,396 54,620,208 54,056,243
Shares Used in
Computing Diluted
Earnings per
Share 54,728,773 54,395,396 54,703,067 54,056,243
UNOVA Inc.
Consolidated Balance Sheets (Preliminary)
(thousands of dollars)
Dec. 31,
1998 1997
Assets ---- ----
Current Assets
Cash and cash equivalents $ 17,708 $ 13,685
Accounts receivable, net 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 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 $ 456,812 $ 311,759
Payrolls 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 Taxes and Other
Long-term Liabilities 124,017 78,618
------- -------
Shareholders' Investment
Common stock 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
========= =========
UNOVA Inc.
Consolidated Statement of Cash Flows (Preliminary)
Year Ended Dec. 31, 1998
(thousands of dollars)
Cash and Cash Equivalents at Beginning of Year $ 13,685
------
Cash Flows from Operating Activities:
Net earnings 69,713
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 57,043
Gain on sale of property, plant
and equipment, net (35,043)
Changes in working capital and other
operating activities (87,249)
------
Net Cash Provided by Operating Activities 4,464
------
Cash Flows from Investing Activities:
Acquisition of businesses net of cash acquired (287,350)
Capital expenditures (83,776)
Sale of property, plant and equipment 71,118
Other investing activities (4,491)
-----
Net Cash Used in Investing Activities (304,499)
-------
Cash Flows from Financing Activities:
Net increase in borrowings 297,509
Other financing activities 6,549
-------
Net Cash Provided by Financing Activities 304,058
-------
Resulting in Increase in Cash and Cash Equivalents 4,023
-------
Cash and Cash Equivalents at End of Year $ 17,708
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