**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **ý**                                             | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                   |
| **For the  quarterly period ended September 30, 2004** |
|                                                   |
| **OR**                                                 |
|                                                   |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                   |
| **Commission  file number 001-13279**                  |

 

**UNOVA,INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | **95-4647021**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
|                                                             |                                  |
| **6001 36th  Avenue West  Everett, WA**www.unova.com             | **98203-1264**                        |
| (Address of  principal executive  offices and internet site)     | (Zip Code)                            |

 

# **Registrant’s telephone number, including area code:**  (425) 265-2400

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes ý  No o

 

On October 31, 2004 therewere 60,863,035 shares of Common Stock outstanding, exclusive of treasuryshares.

 

 

----

 

**UNOVA,INC.**

 

**INDEX**

 

**REPORT ONFORM 10-Q**

 

**FOR THEQUARTER ENDED SEPTEMBER 30, 2004**

 
| **PART I. FINANCIAL INFORMATION** |        |
|-----------------------------------|-------------|
|                              |        |   |   |
| ** **                        | **ITEM 1.** | Financial Statements |   |
| ** **                        | ** **  |   |   |
|                              |        | Consolidated  Statements of Operations  Nine Months Ended September 30, 2004 and 2003 (unaudited). |   |
|                              |        |   |   |
|                              |        | Consolidated  Statements of Operations  Three Months Ended September 30, 2004 and 2003 (unaudited). |   |
|                              |        |   |   |
|                              |        | Consolidated Balance Sheets  September 30, 2004 and December 31, 2003 (unaudited) |   |
|                              |        |   |   |
|                              |        | Consolidated  Statements of Cash Flows  Nine Months Ended September 30, 2004 and 2003 (unaudited) |   |
|                              |        |   |   |
|                              |        | Notes to Consolidated Financial Statements  (unaudited) |   |
|                              |        |   |   |
| ** **                        | **ITEM 2.** | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                              |        |   |   |
| ** **                        | **ITEM 3.** | Quantitative and Qualitative Disclosures about  Market Risk |   |
|                              |        |   |   |
| ** **                        | **ITEM 4.** | Controls and Procedures |   |
| ** **                        | ** **  |   |   |
| **PART II. OTHER INFORMATION**    |        |
|                              |        |   |   |
| ** **                        | **ITEM 2.** | Unregistered Sales of Equity Securities and Use  of Proceeds  |   |
|                              |        |   |   |
| ** **                        | **ITEM 6.** | Exhibits |   |
| ** **                        | ** **  |   |   |
| Signature                         |        |

 

----

 

**PART I****.  FINANCIALINFORMATION**

 

**ITEM 1****.FINANCIAL STATEMENTS**

 

**UNOVA,INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(amountsin thousands, except per share amounts)**

**(unaudited)**

 
| ** **                                                      | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                            |       |                                 |       |   |   |
| Sales and  Service Revenues:                                    |       |                                 |       |   |   |
| Sales revenues                                                  |       | $                                    | 834,531    |   | $ | 736,369 |   |
| Service revenues                                                |       | 84,085                               |       | 85,365 |   |
| Total Sales and  Service Revenues                               |       | 918,616                              |       | 821,734 |   |
|                                                            |       |                                 |       |   |   |
| Costs and  Expenses:                                            |       |                                 |       |   |   |
| Cost of sales                                                   |       | 568,719                              |       | 509,261 |   |
| Cost of service                                                 |       | 54,696                               |       | 55,156 |   |
| Selling, general  and administrative                            |       | 239,701                              |       | 226,033 |   |
| Depreciation and  amortization                                  |       | 13,693                               |       | 19,651 |   |
| Special charges                                                 |       | 1,569                                |       | 2,933 |   |
| Total Costs and  Expenses                                       |       | 878,378                              |       | 813,034 |   |
| Operating Profit  from Continuing Operations                    |       | 40,238                               |       | 8,700 |   |
| Interest, net                                                   |       | (9,443                               | )          | (10,172 | ) |
| Earnings (Loss)  from Continuing Operations before Income Taxes |       | 30,795                               |       | (1,472 | ) |
| Provision for  Income Taxes                                     |       | (7,979                               | )          | (6,200 | ) |
| Earnings (Loss)  from Continuing Operations, Net of Tax         |       | 22,816                               |       | (7,672 | ) |
| Loss from  Discontinued Operations, Net of Tax                  |       | (728                                 | )          | (9,346 | ) |
| Net Earnings  (Loss)                                            |       | $                                    | 22,088     |   | $ | (17,018 | ) |
|                                                            |       |                                 |       |   |   |
| Basic Earnings  (Loss) per Share                                |       |                                 |       |   |   |
| Continuing  Operations                                          |       | $                                    | 0.38       |   | $ | (0.13 | ) |
| Discontinued  Operations                                        |       | (0.01                                | )          | (0.16 | ) |
| Net Earnings  (Loss) per Share                                  |       | $                                    | 0.37       |   | $ | (0.29 | ) |
|                                                            |       |                                 |       |   |   |
| Diluted Earnings  (Loss) per Share                              |       |                                 |       |   |   |
| Continuing  Operations                                          |       | $                                    | 0.37       |   | $ | (0.13 | ) |
| Discontinued  Operations                                        |       | (0.01                                | )          | (0.16 | ) |
| Net Earnings  (Loss) per Share                                  |       | $                                    | 0.36       |   | $ | (0.29 | ) |
|                                                            |       |                                 |       |   |   |
| Shares Used in  Computing Basic Earnings (Loss) per Share       |       | 60,408                               |       | 58,621 |   |
|                                                            |       |                                 |       |   |   |
| Shares Used in  Computing Diluted Earnings (Loss) per Share     |       | 62,079                               |       | 58,621 |   |

 

See accompanyingnotes to consolidated financial statements.

 

1

----

 

**UNOVA,INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(amountsin thousands, except per share amounts)**

**(unaudited)**

 
| ** **                                                  | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                  | ** ** | **2004**                              | ** ** | **2003** | ** ** |
|                                                        |       |                                  |       |   |   |
| Sales and  Service Revenues:                                |       |                                  |       |   |   |
| Sales revenues                                              |       | $                                     | 287,941    |   | $ | 249,898 |   |
| Service revenues                                            |       | 28,792                                |       | 28,126 |   |
| Total Sales and  Service Revenues                           |       | 316,733                               |       | 278,024 |   |
|                                                        |       |                                  |       |   |   |
| Costs and  Expenses:                                        |       |                                  |       |   |   |
| Cost of sales                                               |       | 203,267                               |       | 167,269 |   |
| Cost of service                                             |       | 17,903                                |       | 17,767 |   |
| Selling, general  and administrative                        |       | 81,792                                |       | 76,479 |   |
| Depreciation and  amortization                              |       | 4,299                                 |       | 6,249 |   |
| Special charges                                             |       | 927                                   |       | 988 |   |
| Total Costs and  Expenses                                   |       | 308,188                               |       | 268,752 |   |
| Operating Profit  from Continuing Operations                |       | 8,545                                 |       | 9,272 |   |
| Interest, net                                               |       | (3,189                                | )          | (3,133 | ) |
| Earnings from  Continuing Operations before Income Taxes    |       | 5,356                                 |       | 6,139 |   |
| Benefit  (Provision) for Income Taxes                       |       | 1,163                                 |       | (2,000 | ) |
| Earnings from  Continuing Operations, Net of Tax            |       | 6,519                                 |       | 4,139 |   |
| Loss from  Discontinued Operations, Net of Tax              |       | (616                                  | )          | (5,474 | ) |
| Net Earnings  (Loss)                                        |       | $                                     | 5,903      |   | $ | (1,335 | ) |
|                                                        |       |                                  |       |   |   |
| Basic Earnings  (Loss) per Share                            |       |                                  |       |   |   |
| Continuing  Operations                                      |       | $                                     | 0.11       |   | $ | 0.07 |   |
| Discontinued  Operations                                    |       | (0.01                                 | )          | (0.09 | ) |
| Net Earnings  (Loss) per Share                              |       | $                                     | 0.10       |   | $ | (0.02 | ) |
|                                                        |       |                                  |       |   |   |
| Diluted Earnings  (Loss) per Share                          |       |                                  |       |   |   |
| Continuing  Operations                                      |       | $                                     | 0.11       |   | $ | 0.07 |   |
| Discontinued  Operations                                    |       | (0.01                                 | )          | (0.09 | ) |
| Net Earnings  (Loss) per Share                              |       | $                                     | 0.10       |   | $ | (0.02 | ) |
|                                                        |       |                                  |       |   |   |
| Shares Used in  Computing Basic Earnings (Loss) per Share   |       | 60,631                                |       | 58,970 |   |
|                                                        |       |                                  |       |   |   |
| Shares Used in  Computing Diluted Earnings (Loss) per Share |       | 62,098                                |       | 60,830 |   |

 

See accompanyingnotes to consolidated financial statements.

 

2

----

 

**UNOVA,INC.**

**CONSOLIDATED BALANCE SHEETS**

**(amountsin thousands)**

**(unaudited)**

 
| ** **                                                                               | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
|                                                                                     |       |                    |       |                   |       |
| **ASSETS**                                                                               | ** ** | ** **              | ** ** | ** **             | ** ** |
|                                                                                     |       |                    |       |                   |       |
| Current Assets:                                                                          |       |                    |       |                   |       |
| Cash and cash  equivalents                                                               |       | $                       | 161,379    |                   | $          | 238,447 |   |
| Restricted cash                                                                          |       | 50,000                  |       | —                 |       |
| Accounts  receivable, net of allowance for doubtful accounts of $15,566 and $21,964      |       | 326,774                 |       | 275,594                |       |
| Inventories, net  of progress billings                                                   |       | 146,734                 |       | 132,324                |       |
| Deferred tax  assets                                                                     |       | 67,199                  |       | 71,229                 |       |
| Assets held for  sale                                                                    |       | 19,639                  |       | 23,840                 |       |
| Other current  assets                                                                    |       | 12,530                  |       | 19,513                 |       |
| Total Current  Assets                                                                    |       | 784,255                 |       | 760,947                |       |
|                                                                                     |       |                    |       |                   |       |
| Property, Plant  and Equipment, Net of Accumulated Depreciation of $224,758 and $215,944 |       | 73,144                  |       | 77,292                 |       |
| Goodwill and  Other Intangibles, Net                                                     |       | 74,992                  |       | 75,639                 |       |
| Deferred Tax  Assets                                                                     |       | 123,730                 |       | 111,820                |       |
| Other Assets                                                                             |       | 56,197                  |       | 65,119                 |       |
| Total Assets                                                                             |       | $                       | 1,112,318  |                   | $          | 1,090,817 |   |
|                                                                                     |       |                    |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’ INVESTMENT**                                        | ** ** | ** **              | ** ** | ** **             | ** ** |
|                                                                                     |       |                    |       |                   |       |
| Current  Liabilities:                                                                    |       |                    |       |                   |       |
| Accounts payable  and accrued expenses                                                   |       | $                       | 253,246    |                   | $          | 265,626 |   |
| Payroll and  related expenses                                                            |       | 45,050                  |       | 54,893                 |       |
| Current portion  of long-term obligations                                                |       | 108,500                 |       | —                 |       |
| Total Current  Liabilities                                                               |       | 406,796                 |       | 320,519                |       |
|                                                                                     |       |                    |       |                   |       |
| Long-term  Obligations                                                                   |       | 100,000                 |       | 208,500                |       |
| Other Long-term  Liabilities                                                             |       | 143,310                 |       | 130,970                |       |
|                                                                                     |       |                    |       |                   |       |
| Shareholders’  Investment:                                                          |       |                    |       |                   |       |
| Common stock                                                                             |       | 610                     |       | 605                    |       |
| Additional  paid-in capital                                                              |       | 698,475                 |       | 690,745                |       |
| Accumulated  deficit                                                                     |       | (235,478                | )          | (257,566               | )          |
| Accumulated  other comprehensive loss                                                    |       | (1,395                  | )          | (2,956                 | )          |
| Total  Shareholders’ Investment                                                     |       | 462,212                 |       | 430,828                |       |
| Total  Liabilities and Shareholders’ Investment                                     |       | $                       | 1,112,318  |                   | $          | 1,090,817 |   |

 

See accompanyingnotes to consolidated financial statements.

 

3

----

 

**UNOVA,INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(amountsin thousands)**

**(unaudited)**

 
| ** **                                                                                             | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                             | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| ** **                                                                                             | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Cash and Cash  Equivalents at Beginning of Period                                                      |       | $                                    | 238,447    |   | $ | 178,269 |   |
|                                                                                                   |       |                                 |       |   |   |
| Cash Flows from  Operating Activities:                                                                 |       |                                 |       |   |   |
| Net earnings  (loss)                                                                                   |       | 22,088                               |       | (17,018 | ) |
| Adjustments to  reconcile net earnings (loss) to net cash provided by (used in) operating  activities: |       |                                 |       |   |   |
| Depreciation and  amortization                                                                         |       | 13,693                               |       | 20,618 |   |
| Change in  prepaid and accrued pension costs, net                                                      |       | 7,790                                |       | 4,697 |   |
| Deferred taxes                                                                                         |       | (4,421                               | )          | (3,499 | ) |
| Special charges  and other                                                                             |       | 1,075                                |       | 598 |   |
| Changes in  operating assets and liabilities:                                                          |       |                                 |       |   |   |
| Accounts  receivable                                                                                   |       | (45,763                              | )          | 84,972 |   |
| Inventories                                                                                            |       | (14,465                              | )          | 6,806 |   |
| Other current  assets                                                                                  |       | 6,927                                |       | 685 |   |
| Accounts payable  and accrued expenses                                                                 |       | (9,198                               | )          | (16,449 | ) |
| Payroll and  related expenses                                                                          |       | (9,783                               | )          | (13,475 | ) |
| Other long-term  liabilities                                                                           |       | 4,657                                |       | (1,331 | ) |
| Other                                                                                                  |       | 1,793                                |       | 484 |   |
| Net Cash  Provided by (Used in) Operating Activities                                                   |       | (25,607                              | )          | 67,088 |   |
|                                                                                                   |       |                                 |       |   |   |
| Cash Flows from  Investing Activities:                                                                 |       |                                 |       |   |   |
| Capital  expenditures                                                                                  |       | (9,229                               | )          | (14,072 | ) |
| Sale of  property, plant and equipment                                                                 |       | 4,532                                |       | 8,157 |   |
| Other investing  activities                                                                            |       | 108                                  |       | 585 |   |
| Net Cash Used in  Investing Activities                                                                 |       | (4,589                               | )          | (5,330 | ) |
|                                                                                                   |       |                                 |       |   |   |
| Cash Flows from  Financing Activities:                                                                 |       |                                 |       |   |   |
| Cash restricted  for repayment of debt                                                                 |       | (50,000                              | )          | — |   |
| Stock options  exercised                                                                               |       | 2,836                                |       | 1,226 |   |
| Repayment of  long-term obligations                                                                    |       | —                               |       | (16,200 | ) |
| Other financing  activities                                                                            |       | 292                                  |       | 1,211 |   |
| Net Cash Used in  Financing Activities                                                                 |       | (46,872                              | )          | (13,763 | ) |
| Resulting  Increase (Decrease) in Cash and Cash Equivalents                                            |       | (77,068                              | )          | 47,995 |   |
| Cash and Cash  Equivalents at End of Period                                                            |       | $                                    | 161,379    |   | $ | 226,264 |   |
|                                                                                                   |       |                                 |       |   |   |
| Supplemental  Disclosure of Cash Flow Information:                                                     |       |                                 |       |   |   |
| Interest paid                                                                                          |       | $                                    | (14,815    | ) | $ | (15,352 | ) |
| Income taxes  paid                                                                                     |       | $                                    | (5,709     | ) | $ | (5,477 | ) |

 

See accompanyingnotes to consolidated financial statements.

 

4

----

 

**UNOVA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

 

**1.****                                      Basisof Presentation**

 

UNOVA, Inc. andsubsidiaries (“UNOVA” or the “Company”) is a global supplier of mobilecomputing and wireless network products for non-office applications and ofmanufacturing systems technologies primarily for the automotive and aerospaceindustries. The Company is headquartered in Everett, Washington and incorporatedin the state of Delaware.

 

The amounts included inthis report are unaudited; however, in the opinion of management, alladjustments necessary for a fair presentation of results of operations,financial position and cash flows for the stated periods have been included.These adjustments are of a normal recurring nature. Certain prior-year amountshave been reclassified to conform to the current year presentation. Theseconsolidated financial statements should be read in conjunction with theaudited financial statements and notes thereto included in the Company’s annualreport on Form 10-K for the year ended December 31, 2003. The results ofoperations for the interim periods presented are not necessarily indicative ofoperating results for the entire year.

 

**2.****                                      Stock-BasedCompensation**

 

As permitted by Statementof Financial Accounting Standards (“SFAS”) No. 123, the Company accounts forits stock-based compensation plans in accordance with Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees,” under whichcompensation cost is recognized over the vesting period if the fair value isgreater than the exercise price (the intrinsic value method) at the grant ofstock options. Had compensation cost for these plans been determined consistentwith SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s netearnings (loss) and basic and diluted earnings (loss) per share for the threeand nine months ended September 30, 2004, and 2003, would have been reduced(increased) to the pro forma amounts indicated in the following table(thousands of dollars):

 
| ** **                                                                                           | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                           | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                           | ** ** | ** **                           | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net earnings  (loss) as reported                                                                     |       | $                                    | 22,088     |                                  | $          | (17,018 | ) | $ | 5,903 |   | $ | (1,335 | ) |
| Add: stock-based  compensation expense recorded under the intrinsic value method, net of tax  effect |       | 694                                  |       | 1,082                                 |       | 181 |   | 494 |   |
| Less: stock  compensation expense computed under the fair value method, net of tax effect            |       | (2,471                               | )          | (3,755                                | )          | (758 | ) | (1,463 | ) |
| Pro forma net  earnings (loss)                                                                       |       | $                                    | 20,311     |                                  | $          | (19,691 | ) | $ | 5,326 |   | $ | (2,304 | ) |
|                                                                                                 |       |                                 |       |                                  |       |   |   |   |   |
| Net earnings  (loss) per share as reported:                                                          |       |                                 |       |                                  |       |   |   |   |   |
| Basic                                                                                                |       | $                                    | 0.37       |                                  | $          | (0.29 | ) | $ | 0.10 |   | $ | (0.02 | ) |
| Diluted                                                                                              |       | $                                    | 0.36       |                                  | $          | (0.29 | ) | $ | 0.10 |   | $ | (0.02 | ) |
|                                                                                                 |       |                                 |       |                                  |       |   |   |   |   |
| Pro forma net  earnings (loss) per share:                                                            |       |                                 |       |                                  |       |   |   |   |   |
| Basic                                                                                                |       | $                                    | 0.34       |                                  | $          | (0.34 | ) | $ | 0.09 |   | $ | (0.04 | ) |
| Diluted                                                                                              |       | $                                    | 0.33       |                                  | $          | (0.34 | ) | $ | 0.09 |   | $ | (0.04 | ) |

 

During the nine monthsended September 30, 2004, the Company issued 698,417 shares of Common Stockunder its stock compensation plans, including 463,857 shares issued upon theexercise of options, 123,642 shares of restricted stock and 106,251 sharesissued under the Employee Stock Purchase Plan and Directors Stock Option andFee Plan. Also during the nine months ended September 30, 2004, 132,553 sharesof restricted stock vested due to completion of the vesting period.

 

5

----

 

 

**3.****                                      Inventories,Net of Progress Billings**

 

Inventories, net ofprogress billings, comprise the following (thousands of dollars):

 
| ** **                             | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------------------|------------|-------------------------|------------|------------------------|------------|
|                                   |       |                    |       |                   |       |
| Raw materials                          |       | $                       | 80,862     |                   | $          | 89,085 |   |
| Work in process                        |       | 57,449                  |       | 50,908                 |       |
| Finished goods                         |       | 26,382                  |       | 16,105                 |       |
| Less: progress  billings               |       | (17,959                 | )          | (23,774                | )          |
| Inventories, net  of progress billings |       | $                       | 146,734    |                   | $          | 132,324 |   |

 

**4.****                                      Long-termObligations and Interest, net**

 

As of September 30, 2004the Company maintained two secured long-term credit facilities: a $100 millionasset-based revolving credit facility (the “New Revolving Facility”) and a £15.0million ($27.0 million) revolving facility and related overdraft facility(collectively, the “UK Facility”).  OnSeptember 30, 2004, the Company terminated and replaced its previously existing$100 million revolving credit facility (the “Old Revolving Facility”) andreplaced it with the $100 million, three-year New Revolving Facility.

 

Net of outstandingletters of credit, the Company had borrowing capacity at September 30, 2004, of$38.4 million under the New Revolving Facility and £9.9 million ($17.8 million)under the UK Facility. The Company made no borrowings under the New RevolvingFacility, the UK Facility or the Old Revolving Facility at any time during thefirst nine months of 2004, and as of September 30, 2004, no borrowings wereoutstanding under either the New Revolving Facility or the UK Facility. As ofSeptember 30, 2004, the Company was in compliance with the financial covenantsof each of these agreements.

 

The key terms of the NewRevolving Facility are as follows:

 

•                  TheCompany’s obligations under the New Revolving Facility are secured bysubstantially all the U.S. assets of the Company and its U.S. subsidiaries anda pledge of 65% of the stock of certain of its foreign subsidiaries.

 

•                  Borrowingsunder the New Revolving Facility bear interest at a variable rate equal to (atthe Company’s option) (i) LIBOR plus an applicable margin ranging from 1.5% to2.5% based on consolidated leverage, or (ii) the greater of the federal fundsrate plus 0.50% or the Bank’s prime rate, plus an applicable margin rangingfrom 0.5% to 1.5% based on consolidated leverage.

 

•                  Ifthe Company sells subsidiaries within its Industrial Automation Systemssegment, the net proceeds, or a portion thereof, as defined in the agreement,must be applied to repay borrowings outstanding under the New RevolvingFacility.

 

•                  Untilit retires its 6.875% Notes due March 15, 2005, the Company must maintain aminimum balance of $50 million as restricted cash. This amount is classified asrestricted cash on the Company’s consolidated balance sheet as of September 30,2004.

 

•                  TheNew Revolving Facility places certain restrictions on the ability of theCompany and its subsidiaries to consolidate or merge, make acquisitions, createliens, incur additional indebtedness or dispose of assets.

 

•                  Financialcovenants include a Consolidated Leverage test, a Consolidated InterestCoverage test and a Consolidated Net Worth test, each as defined in theagreement.

 

6

----

 

In March 1998, theCompany sold $200.0 million principal amount of senior unsecured debt in anunderwritten offering. The debt comprised $100.0 million of 6.875% seven-yearnotes and $100.0 million of 7.00% ten-year notes. Interest payments are duesemi-annually. Including underwriting fees, discounts and other issuance costs,the effective interest rates on the seven-year and ten-year notes are 7.125%and 7.175%, respectively. As of September 30, 2004, the $100.0 millionseven-year notes, maturing in March 2005, are classified as current portion oflong-term obligations on the Company’s consolidated balance sheet.

 

The Company additionallyhas outstanding an $8.5 million industrial revenue bond, bearing interest at3.21%, maturing in July 2005, which is classified as current portion oflong-term obligations on the Company’s consolidated balance sheet.

 

Interest, net comprisesthe following (thousands of dollars):

 
| ** **       | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **       | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|             |       |                                 |       |                                  |       |   |   |   |   |
| Interest expense |       | $                                    | 12,251     |                                  | $          | 12,767 |   | $ | 4,112 |   | $ | 4,061 |   |
| Interest income  |       | (2,808                               | )          | (2,595                                | )          | (923 | ) | (928 | ) |
| Interest, net    |       | $                                    | 9,443      |                                  | $          | 10,172 |   | $ | 3,189 |   | $ | 3,133 |   |

 

The Company also hadletter-of-credit reimbursement agreements primarily related to the Company’sperformance on contracts with customers totaling $32.6 million at September 30,2004, compared to $35.9 million at December 31, 2003. The Company believes itis not practicable to estimate fair values of these instruments and considersthe risk of non-performance on the contracts to be remote.

 

**5.****                                      SpecialCharges and Restructuring Activities**

 

Special charges comprisethe following by reportable segment (thousands of dollars):

 
| ** **                                        | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| Industrial  Automation Systems (“IAS”): |       |                                 |       |                                  |       |   |   |   |   |
| Facility  consolidation                           |       | $                                    | 523        |                                  | $          | 1,161 |   | $ | 353 |   | $ | 500 |   |
| Impairment of  property, plant and equipment      |       | 83                                   |       |                                  |       |   |   |   |   |
| Severance                                         |       | (152                                 | )          | 959                                   |       | (152 | ) | 318 |   |
| Total IAS                                         |       | 454                                  |       | 2,120                                 |       | 201 |   | 818 |   |
|                                              |       |                                 |       |                                  |       |   |   |   |   |
| Corporate:                                        |       |                                 |       |                                  |       |   |   |   |   |
| Facility  consolidation                           |       | 1,115                                |       | 813                                   |       | 726 |   | 170 |   |
| Total Corporate                                   |       | 1,115                                |       | 813                                   |       | 726 |   | 170 |   |
| Special charges                                   |       | $                                    | 1,569      |                                  | $          | 2,933 |   | $ | 927 |   | $ | 988 |   |

 

7

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*IAS:*Thefollowing table summarizes IAS restructuring activities during the nine monthsended September 30, 2004 (thousands of dollars):

 
| ** **                             | ** ** | **Workforce  reduction** | ** ** | **Consolidation of  facilities** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|--------------------------|------------|----------------------------------|------------|-----------|------------|
|                                   |       |                     |       |                             |       |      |       |
| Accrual balance  at December 31, 2003  |       | $                        | 6,008      |                             | $          | 1,129     |       | $ | 7,137 |   |
| Total charges                          |       | (152                     | )          | 523                              |       | 371       |       |
| Cash payments                          |       | (4,278                   | )          | (1,330                           | )          | (5,608    | )          |
| Other                                  |       | (25                      | )          | 305                              |       | 280       |       |
| Accrual balance  at September 30, 2004 |       | $                        | 1,553      |                             | $          | 627       |       | $ | 2,180 |   |
|                                        |            |                          |            |                                  |            |           |            |  |  |  |  |

 

In the fourth quarter of2002, as a result of the continued economic downturn in the global automotive,aerospace and heavy equipment industries, the Company initiated a plan toconsolidate its Cincinnati Machine, Lamb Machining Systems and Lamb Body &Assembly Systems divisions into the new operating entity, Cincinnati Lamb. Theplan included the relocation of certain Cincinnati Machine operations,outsourcing of certain manufacturing activities, termination of employees, andthe sale of certain plant and equipment. This restructuring was substantiallycomplete by December 31, 2003.

 

During the nine monthsended September 30, 2004, IAS recorded additional charges of $0.5 million foradditional facility consolidation costs and $0.1 million for impairment ofproperty, plant and equipment and reduced severance accruals by $0.1 million inconjunction with this plan. As of September 30, 2004, the IAS segment hadterminated 795 employees and paid $20.6 million in severance, cumulatively, inconjunction with this plan. During the nine months ended September 30, 2004,111 employees were terminated and $4.3 million of severance was paid inconjunction with this plan. The number of employees terminated does not include228 employees of Lamb Body & Assembly that are no longer IAS employees as aresult of the divestiture of this operation in September 2003.

 

*Corporate:*During the third quarter of 2002, the Company initiated a plan to relocate itscorporate office to its existing Intermec Technologies Corporation facility inEverett, Washington. This relocation was substantially complete byJune 30, 2003. As of September 30, 2004, 22 employees had been terminatedand $0.7 million in severance costs had been paid, cumulatively, of which2 employee terminations and $0.3 million in severance payments occurred duringthe nine months ended September 30, 2004. In the first quarter of 2004, $1.4million of the workforce reduction accrual, relating to certain pensionobligations for certain individuals affected by the restructuring plan, wasreclassified to other long-term liabilities. The corporate restructuringaccrual as of September 30, 2004, of $2.4 million relates to ongoing leasedfacility obligations. During the nine months ended September 30, 2004, $1.4million in leased facility costs were paid and during the nine and three monthsended September 30, 2004, the Company recognized $1.1 million and $0.7 million,respectively, of expense related to ongoing leased facility obligations.

 

**6.****                                      Lossfrom Discontinued Operations, Net of Tax**

 

During the third quarterof 2003, in conjunction with the consolidation plan described in Note 5, theCompany sold substantially all the assets and existing backlog of its LambTechnicon Body & Assembly Systems division. The Company received $12.8million in 2003 and $2.5 million in April 2004, and retained $9.9 million inaccounts payable. The division meets the definition of a “component of anentity” and has been accounted for as a discontinued operation under Statementof Financial Accounting Standards No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” (“SFAS No. 144”).

 

8

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Sales and service revenuefrom discontinued operations was $0.9 million and $32.8 million for the ninemonth periods ended September 30, 2004 and 2003, respectively.  Sales and service revenue from discontinuedoperations was $10.8 million for the three months ended September 30, 2003.Losses from discontinued operations were $0.7 million and $0.6 million for thenine and three months ended September 30, 2004. The related tax effect fromdiscontinued operations was $0.5 million and $0.4 million for the nine andthree months ended September 30, 2004. Losses from discontinued operations were$9.3 million and $5.5 million for the nine and three months ended September 30,2003, including $3.1 million loss on disposal. Losses from discontinuedoperations did not have a tax effect for the nine and three months endedSeptember 30, 2003, as the Company’s domestic income tax benefit was offset bya corresponding valuation allowance.

 

The Company’sconsolidated balance sheet as of September 30, 2004, includes $2.2 million incurrent assets, including $1.8 million of net property, plant and equipmentclassified as assets held for sale, $2.4 million in current liabilities, and$4.7 million in other long-term liabilities pertaining to discontinuedoperations. The Company’s consolidated balance sheet as of December 31, 2003,includes $3.7 million in current assets, including $1.8 million of assets held forsale, $7.0 million in current liabilities and $5.1 million in other long-termliabilities pertaining to discontinued operations.

 

**7.****                                      Provisionfor Income Taxes**

 

The provision for incometaxes for the nine months ended September 30, 2004 is primarily related tofederal, state and foreign income taxes. The effective income tax rate for thenine months ended September 30, 2004 of 25% is lower than the normal effectiveincome tax rate of 38% to 40% due to the recognition of $4.0 million ofpreviously unrecognized domestic and foreign deferred tax assets, net ofadditional valuation allowance established for certain foreign net operatingloss carryforwards, approximately $3.0 million of which was recognized duringthe third quarter of 2004. The reduction in the effective tax rate to 25%resulted in a tax benefit from continuing operations of $1.2 million forthe three months ended September 30, 2004. The provision for income taxes forthe nine and three months ended September 30, 2003, is primarily related to foreignand state taxes, as the domestic tax benefit was offset by a correspondingvaluation allowance.

 

**8.****                                      Earnings(Loss) per Share and Shareholders’ Investment**

 

Basic earnings (loss) pershare is calculated using the weighted average number of common sharesoutstanding and issuable for the applicable period. Diluted earnings per shareis computed using basic weighted average shares plus the dilutive effect ofunvested restricted stock and outstanding stock options using the “treasurystock” method.

 
| ** **                                                      | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                                      | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                            |       |                                 |       |                                  |       |   |   |   |   |
| Weighted average  common shares - Basic                         |       | 60,408,219                           |       | 58,620,941                            |       | 60,631,341 |   | 58,969,540 |   |
| Dilutive effect  of unvested restricted stock and stock options |       | 1,671,055                            |       |                                  |       | 1,466,819 |   | 1,860,875 |   |
| Weighted average  shares - Diluted                              |       | 62,079,274                           |       | 58,620,941                            |       | 62,098,160 |   | 60,830,415 |   |

 

Because the Companyreported a net loss from continuing operations for the nine months endedSeptember 30, 2003, stock options and unvested restricted stock are excludedfrom the diluted earnings per share computation as their effect would have beenantidilutive. At September 30, 2003, Company employees and directors heldoptions to purchase 5,726,932 shares of Company common stock. Also, Companyemployees held a weighted average of 476,236 unvested restricted shares for thenine month period ended September 30, 2003. For the nine months ended September30, 2004, 830,620 of the Company’s stock options outstanding were excluded fromthe calculation of diluted earnings (loss) per share because the exerciseprices of the options exceeded the average share price for the quarter. For thethree months ended September 30, 2004, and 2003, 2,069,320 and 2,145,581,respectively, of the Company’s stock options were excluded from thecalculation.

 

9

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**9.****                                      ComprehensiveEarnings (Loss)**

 

The Company’scomprehensive earnings (loss) amounts comprise the following (thousands ofdollars):

 
| ** **                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                                        | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                              |       |                                 |       |                                  |       |   |   |   |   |
| Net earnings  (loss)                                              |       | $                                    | 22,088     |                                  | $          | (17,018 | ) | $ | 5,903 |   | $ | (1,335 | ) |
| Change in equity  due to foreign currency translation adjustments |       | 1,274                                |       | 9,813                                 |       | 2,916 |   | 1,119 |   |
| Unrealized gains  on cash flow hedges                             |       | 287                                  |       | —                                |       | 167 |   | — |   |
| Comprehensive  earnings (loss)                                    |       | $                                    | 23,649     |                                  | $          | (7,205 | ) | $ | 8,986 |   | $ | (216 | ) |

 

**10.****                               IntellectualProperty Settlements**

 

During the first quarterof 2004, the Company received compensation in relation to one settlementregarding certain of its intellectual property (“IP”). Additionally, theCompany received compensation in relation to three IP settlements during thenine months ended September 30, 2003, two during the second quarter and one duringthe third quarter. The terms of these settlements are confidential. Theoperating profit from IP settlements, net of legal fees, for the nine monthsended September 30, 2004, and 2003, was $15.7 million and $13.8 million,respectively. Operating profit from IP settlements was $9.2 million for thethree months ended September 30, 2003. IP settlement compensation is classifiedas sales revenues and the related legal costs are classified as cost of saleson the Company’s consolidated statements of operations.

 

10

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**11.****                               SegmentReporting**

 

The Company has tworeportable segments, Automated Data Systems (“ADS”) and Industrial AutomationSystems (“IAS”).  Segments are determinedprincipally on the basis of their products and services.  The ADS segment comprises the Company’swholly owned subsidiary Intermec Technologies Corporation (“Intermec”).Intermec products and services include rugged mobile computing solutions, wireless, radio frequency identification(RFID) and automated data collection systems for field workers,on-premises and site-based workers as well as wireless network systems foruntethered enablement of an enterprise, and barcode label and printingsolutions. ADS’s rugged and robust systems, solutions and services enableIntermec’s customers to more efficiently and effectively manage their supplychains and fulfillment activities. The IAS segment comprises the CincinnatiLamb division and the Landis Grinding Systems division. IAS is a leadingproducer of value-added manufacturing technologies, products and servicesspanning the production cycle from process engineering and design to systemsintegration including comprehensive life cycle support. IAS serves primarilythe global aerospace, automotive, off-road vehicle and diesel engine industriesas well as industrial components, heavy equipment and general job shop markets.

 

Corporate and otheramounts include corporate operating costs and foreign currency transactiongains and losses.  Intercompany transactionshave been eliminated. The following table sets forth the Company’s operationsby business segments (thousands dollars):

 
| ** **                                              | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                    |       |                                 |       |                                  |       |   |   |   |   |
| **Sales  and Service Revenues**                         |       |                                 |       |                                  |       |   |   |   |   |
| Automated Data  Systems                                 |       | $                                    | 574,398    |                                  | $          | 520,643 |   | $ | 194,814 |   | $ | 178,721 |   |
| Industrial  Automation Systems                          |       | 344,218                              |       | 301,091                               |       | 121,919 |   | 99,303 |   |
| Total Sales and  Service Revenues                       |       | $                                    | 918,616    |                                  | $          | 821,734 |   | $ | 316,733 |   | $ | 278,024 |   |
|                                                    |       |                                 |       |                                  |       |   |   |   |   |
| **Operating  Profit (Loss) from Continuing Operations** |       |                                 |       |                                  |       |   |   |   |   |
| Segment  Operating Profit (Loss)                        |       |                                 |       |                                  |       |   |   |   |   |
| Automated Data  Systems                                 |       | $                                    | 60,729     |                                  | $          | 52,674 |   | $ | 17,084 |   | $ | 22,177 |   |
| Industrial  Automation Systems                          |       | (1,819                               | )          | (22,850                               | )          | 277 |   | (6,419 | ) |
| Total Segment  Operating Profit                         |       | 58,910                               |       | 29,824                                |       | 17,361 |   | 15,758 |   |
| Corporate and  Other                                    |       | (17,103                              | )          | (18,191                               | )          | (7,889 | ) | (5,498 | ) |
| Special Charges                                         |       | (1,569                               | )          | (2,933                                | )          | (927 | ) | (988 | ) |
| Operating Profit  from Continuing Operations            |       | $                                    | 40,238     |                                  | $          | 8,700 |   | $ | 8,545 |   | $ | 9,272 |   |
|                                                         |            |                                      |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

**12.****                               RelatedParty Transactions**

 

An amount due from anon-executive officer of $0.2 million is included in other assets at September30, 2004, and December 31, 2003.

 

Unitrin, Inc., asignificant shareholder of the Company, owning approximately 21% of the Company’soutstanding common shares, and various of its subsidiaries (collectively, “Unitrin”)participated as a lender in a term loan. In January 2003, the Company paid offthe remaining $16.2 million balance of the term loan, of which Unitrin hadcommitted to and funded $6.8 million. Interest expense associated with amountsfunded by Unitrin was $0.1 million for the nine months ended September 30,2003.

 

11

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**13.****                               Commitmentsand Contingencies**

 

Provisions for estimatedexpenses related to product warranties are made at the time products are sold.These estimates are established using historical information on the nature,frequency, and average cost of warranty claims. Management actively studies trendsof warranty claims and takes action to improve product quality and minimizewarranty claims. The following table indicates the change in the Company’swarranty accrual included in current liabilities (thousands of dollars):

 
| ** **                                     | ** ** | **Product Warranty  Liabilities** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|
|                                           |       |                              |       |
| Beginning  balance as of January 1, 2004       |       | $                                 | 27,139     |   |
| Payments                                       |       | (13,342                           | )          |
| Increase in  liability (new warranties issued) |       | 10,336                            |       |
| Adjustments  (pre-existing warranties)         |       | 230                               |       |
| Currency  translation adjustment               |       | (160                              | )          |
| Ending balance  as of September 30, 2004       |       | $                                 | 24,203     |   |

 

The Company has enteredinto a variety of agreements with third parties that include indemnificationclauses, both in the ordinary course of business and in connection with ourdivestitures of certain product lines. These clauses require us to compensate these third parties for certainliabilities and damages incurred by them. FASB Interpretation No. 45, “Guarantors’Accounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” requires that the Company estimate andrecord the fair value of guarantees as a liability. The Company does notbelieve there is any significant exposure related to such guarantees andtherefore has not recorded a liability as of September 30, 2004, and December31, 2003. The Company has not made any significant indemnification payments asa result of these clauses, nor does it believe the fair value of any of theseguarantees has a material effect on the Company’s financial position or resultsof operations.

 

The Company is currently,and is from time to time, subject to claims and suits arising in the ordinarycourse of its business. In the opinion of the Company’s General Counsel, theultimate resolution of currently pending proceedings, with the potentialexception of one case discussed below, will not have a material adverse effecton the Company’s consolidated financial statements.

 

*TowerAutomotive Products Co. v. Lamb Technicon Body and Assembly*is a lawsuit filed on March 11, 2002 in the Kent County Circuit Court inMichigan, generally alleging a breach of contract and warranty involving aframe assembly production line. The Company has responded to the Complaint. Atrial date has been scheduled for the second quarter of 2005. Managementbelieves the lawsuit is without merit and is vigorously contesting the case. Asdiscussed in Note 6, substantially all of the assets of the Lamb Technicon Bodyand Assembly Systems division were sold in 2003 and the division is accountedfor as a discontinued operation under SFAS No. 144. The Company retained thecontingent liability related to this lawsuit; therefore, should there be anunfavorable result, it is possible that the Company’s financial position, cashflows or loss from discontinued operations could be materially affected in thatperiod or subsequent periods.

 

12

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**14.****                               Pensionand Other Postretirement Benefit Plans**

 

The following representsthe net periodic pension and post-retirement benefit costs and related componentsin accordance with SFAS 132(R) as described in Note 15:

 

Components of Net Pensionand Postretirement Periodic Benefit Cost for the nine and three months endedSeptember 30, 2004 and 2003 are as follows (thousands of dollars):

 
| ** **                          | ** ** | **U.S. Defined Benefit  Plans** | ** ** | **Non-U.S. Defined Benefit  Plans** | ** ** | **Other Postretirement  Benefit Plans** | ** ** |
|-------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|
| **Nine Months Ended September 30,** | ** ** | **2004**                        | ** ** | **2003**                            | ** ** | **2004**                                | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Service Cost                        |       | $                               | 7,252      |                                | $          | 6,521                                   |       | $ | 4,317 |   | $ | 3,826 |   | $ | 117 |   | $ | 356 |   |
| Interest Cost                       |       | 6,715                           |       | 5,568                               |       | 7,034                                   |       | 5,851 |   | 2,087 |   | 2,982 |   |
| Expected return  on plan assets     |       | (7,345                          | )          | (7,392                              | )          | (7,235                                  | )          | (7,097 | ) |   |   |   |   |
| Amortization and  deferrals:        |       |                            |       |                                |       |                                    |       |   |   |   |   |   |   |
| Transition  obligation (asset)      |       | (32                             | )          | (192                                | )          | (253                                    | )          | (223 | ) |   |   | 107 |   |
| Actuarial Loss                      |       | 2,360                           |       | 543                                 |       | 1,430                                   |       | 165 |   | 705 |   | 407 |   |
| Prior service  cost (benefit)       |       | 538                             |       | 481                                 |       |                                    |       |   |   | (897 | ) |   |   |
| Special  Termination Benefits       |       |                            |       | 71                                  |       |                                    |       |   |   |   |   |   |   |
|                                |       | $                               | 9,488      |                                | $          | 5,600                                   |       | $ | 5,293 |   | $ | 2,522 |   | $ | 2,012 |   | $ | 3,852 |   |

 
| ** **                           | ** ** | **U.S. Defined Benefit  Plans** | ** ** | **Non-U.S. Defined Benefit  Plans** | ** ** | **Other Postretirement  Benefit Plans** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|
| **Three Months Ended September 30,** | ** ** | **2004**                        | ** ** | **2003**                            | ** ** | **2004**                                | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Service Cost                         |       | $                               | 2,417      |                                | $          | 2,049                                   |       | $ | 1,440 |   | $ | 1,281 |   | $ | 39 |   | $ | 119 |   |
| Interest Cost                        |       | 2,238                           |       | 1,871                               |       | 2,347                                   |       | 1,958 |   | 671 |   | 994 |   |
| Expected return  on plan assets      |       | (2,448                          | )          | (2,501                              | )          | (2,414                                  | )          | (2,376 | ) |   |   |   |   |
| Amortization and  deferrals:         |       |                            |       |                                |       |                                    |       |   |   |   |   |   |   |
| Transition  obligation (asset)       |       | (11                             | )          | (64                                 | )          | (84                                     | )          | (75 | ) |   |   | 35 |   |
| Actuarial Loss                       |       | 785                             |       | 152                                 |       | 477                                     |       | 55 |   | 209 |   | 136 |   |
| Prior service  cost (benefit)        |       | 179                             |       | 150                                 |       |                                    |       |   |   | (299 | ) |   |   |
|                                 |       | $                               | 3,160      |                                | $          | 1,657                                   |       | $ | 1,766 |   | $ | 843 |   | $ | 620 |   | $ | 1,284 |   |

 

During the nine monthsended September 30, 2004, the Company contributed approximately $12.0 millionto its pension and other postretirement benefit plans, comprising $1.5 millionin benefits paid pertaining to unfunded U.S. defined benefit plans, $2.1million in matching contributions to its 401(k) plan, $4.8 million incontributions to its foreign pension plans, and $3.6 million in benefits paidpertaining to its other postretirement benefits plans. The Company presentlyanticipates contributing an additional $3.2 million to these plans during theremainder of 2004, of which $0.5 million relates to benefit payments on itsunfunded U.S. defined benefit plans, $0.6 million in matching contributions toits 401(k) plan, $1.2 million in contributions to its foreign pension plans and$0.9 million in benefit payments pertaining to its other postretirement benefitplans.

 

In December, 2003, theMedicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”)was passed into law. The Act introduces a prescription drug benefit underMedicare Part D and a federal subsidy to sponsors of postretirement health careplans that provide a prescription drug benefit that is at least actuariallyequivalent to Medicare Part D. In May 2004, the FASB issued FSP 106-2 whichprovides guidance on the

 

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accounting for theeffects of the Act. The Company adopted the provisions of FSP 106-2 in thethird quarter of 2004, retroactive to December 31, 2003. The retroactiveapplication of the Medicare subsidy reduced the Company’s previously reportedbenefit expense by $0.2 million in the quarter ended June 30, 2004. For thethree months ended September 30, 2004, the effect of the subsidy is a reductionin postretirement benefit expense of $0.2 million. The Company’s accumulatedpostretirement benefit obligation (APBO) was reduced by $4.9 million atDecember 31, 2003, for the subsidy related to benefits attributed to pastservice.

 

**15.****                               RecentAccounting Pronouncements**

 

In May 2004, theFinancial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)FAS 106-2, “Accounting and Disclosure Requirements Related to the MedicarePrescription Drug, Improvement and Modernization Act of 2003” (the “Act”). ThisFSP supercedes FSP FAS No. 106-1, “Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug, Improvement and Modernization Act of2003”and provides guidance on accounting for the effects of the Act foremployers that sponsor postretirement health care plans that provide drugbenefits. The FSP also requires those employers to provide certain disclosuresregarding the effect of the federal subsidy provided by the Act. Thedisclosures required by FSP 106-2 are included in Note 14.

 

In March 2004, theEmerging Issues Task Force (“EITF”) reached a consensus on Issue No. 03-1,“The Meaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments.” EITF 03-1 provides guidance on other-than-temporary impairmentmodels for marketable debt and equity securities accounted for under SFASNo. 115, “Accounting for Certain Investments in Debt and EquitySecurities,” and SFAS No. 124, “Accounting for Certain Investments Held byNot-for-Profit Organizations,” and non-marketable equity securities accountedfor under the cost method. The EITF developed a basic three-step model toevaluate whether an investment is other-than-temporarily impaired. Theprovisions of EITF 03-1 will be effective for the Company in the third quarterof fiscal 2004, except for those provisions covered by FSP EITF03-1-1, which delayed the effective date. Quantitative and qualitativedisclosures for investments accounted for under SFAS No. 115 are effective forthe Company’s year ending December 31, 2004. The Company does not expect theadoption of EITF 03-1 to have a material effect on its consolidated financialstatements.

 

In December 2003, theFASB issued SFAS No. 132 (revised 2003), “Employer’s Disclosures about Pensionsand Other Postretirement Benefits.” The revised statement retains thedisclosure requirements contained in SFAS No. 132, which it replaces, andrequires additional disclosures about the assets, obligations, cash flows andnet periodic benefit cost of defined benefit pension plans and other definedbenefit postretirement plans. Except as noted below, the provisions of thisstatement were effective for the Company’s financial statements for the yearended December 31, 2003. The interim period disclosure requirements of thestatement became effective for the Company’s interim financial statements forthe quarter ended March 31, 2004, and are included Note 14. The statement’sdisclosure requirements relating to estimated future benefit payments andrelating to foreign plans are effective for the Company’s financial statementsfor the year ending December 31, 2004.

 

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| **ITEM 2****.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-----------------|-------------------------------------------------------------------------------------------------|

 

**Overview**

 

UNOVA, Inc. (the “Company”)is a global technology company providing customers with integrated solutionsfor improving their efficiency and productivity. The Company earns revenuesfrom the sale of products, technologies, solutions and services to businesses.

 

The Company has tworeportable segments, Automated Data Systems (“ADS”) and Industrial AutomationSystems (“IAS”). The ADS segment comprises the Company’s wholly ownedsubsidiary Intermec Technologies Corporation. Intermec products and servicesinclude rugged mobile computing solutions, wireless, radio frequency identification (RFID) and automated datacollection systems for field, on-premises, and site-based workers as well aswireless network systems for untethered enablement of an enterprise, andbarcode label and printing solutions. ADS’s rugged and robust systems,solutions and services enable Intermec customers to more efficiently andeffectively manage their supply chains and fulfillment activities. The IASsegment, comprising the Cincinnati Lamb division and the Landis GrindingSystems division, is a leading producer of value-added manufacturing productsand services spanning the production cycle from process engineering and designto systems integration including comprehensive life cycle support. IAS servesthe global aerospace, automotive, off-road vehicle and diesel engine industriesas well as the industrial components, heavy equipment and general job shopmarkets.

 

The Company’s strategyrevolves around continued investment in technology, intellectual property,research and development and innovation; expanding and strengthening theproduct portfolio; providing integrated solutions; partnering with globalindustry leaders; delivering value to customers and working to reduce costs andimprove profitability, market share and strength.  The technology and innovation for which theCompany focuses its research and development efforts are related to developingproducts, processes and services that help improve productivity, efficiency,information and controls in a variety of manufacturing, distribution, retail,field service and logistics supply chain applications. All the Company’sbusinesses offer integrated solutions as well as single products to their customers.  Future growth in these businesses is expectedto primarily result from expansion of the Company’s existing operations andcustomer base. The Company’s financial strength and ability to adapt to thecurrent market and economic conditions are dependent in part on the generationof cash flow, effective management of working capital, funding commitments andother obligations, as well as the growth of the business.

 

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**Results of Operations**

 

The following discussioncompares the Company’s results of operations for the nine and three monthsended September 30, 2004 and 2003. Results from continuing operations excludethe operating results of Lamb Body & Assembly, which was sold in September2003 and is classified as discontinued operations. Results of operations and asa percentage of revenues were as follows (dollar amounts in millions):

 
| ** **                                                      | ** ** | **Nine Months Ended September 30,** | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|
| ** **                                                      | ** ** | **2004**                            | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales and Service  Revenues                                     |       | $                                   | 918.6      |                                 |       |   | $ | 821.7 |   |   |   | $ | 316.7 |   |   |   | $ | 278.0 |   |   |   |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs and  Expenses:                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales and  service                                      |       | 623.4                               |       | 67.8                                 | %          | 564.4 |   | 68.7 | % | 221.2 |   | 69.8 | % | 185.0 |   | 66.5 | % |
| Selling, general  and administrative                            |       | 239.7                               |       | 26.1                                 | %          | 226.0 |   | 27.5 | % | 81.8 |   | 25.8 | % | 76.4 |   | 27.5 | % |
| Depreciation and  amortization                                  |       | 13.7                                |       | 1.5                                  | %          | 19.7 |   | 2.4 | % | 4.3 |   | 1.4 | % | 6.3 |   | 2.3 | % |
| Special charges                                                 |       | 1.6                                 |       | 0.2                                  | %          | 2.9 |   | 0.3 | % | 0.9 |   | 0.3 | % | 1.0 |   | 0.4 | % |
| Total Costs and  Expenses                                       |       | 878.4                               |       | 95.6                                 | %          | 813.0 |   | 98.9 | % | 308.2 |   | 97.3 | % | 268.7 |   | 96.7 | % |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Profit  from Continuing Operations                    |       | 40.2                                |       | 4.4                                  | %          | 8.7 |   | 1.1 | % | 8.5 |   | 2.7 | % | 9.3 |   | 3.3 | % |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest, net                                                   |       | (9.4                                | )          | (1.0                                 | )%         | (10.2 | ) | (1.3 | )% | (3.1 | ) | (1.0 | )% | (3.2 | ) | (1.1 | )% |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (Loss)  from Continuing Operations before Income Taxes |       | 30.8                                |       | 3.4                                  | %          | (1.5 | ) | (0.2 | )% | 5.4 |   | 1.7 | % | 6.1 |   | 2.2 | % |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Benefit  (Provision) for Income Taxes                           |       | (8.0                                | )          | (0.9                                 | )%         | (6.2 | ) | (0.8 | )% | 1.1 |   | 0.4 | % | (2.0 | ) | (0.7 | )% |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (Loss)  from Continuing Operations, net of tax         |       | 22.8                                |       | 2.5                                  | %          | (7.7 | ) | (1.0 | )% | 6.5 |   | 2.1 | % | 4.1 |   | 1.5 | % |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss from  Discontinued Operations                              |       | (0.7                                | )          | (0.1                                 | )%         | (9.3 | ) | (1.1 | )% | (0.6 | ) | (0.2 | )% | (5.4 | ) | (2.0 | )% |
|                                                            |       |                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Earnings  (Loss)                                            |       | $                                   | 22.1       |                                 | 2.4        | % | $ | (17.0 | ) | (2.1 | )% | $ | 5.9 |   | 1.9 | % | $ | (1.3 | ) | (0.5 | )% |

 

*Salesand Service Revenues*

 

Total revenues for thenine months ended September 30, 2004, were $918.6 million, an increase of $96.9million, or 11.8%, compared with the corresponding prior year period. Totalrevenues for the three months ended September 30, 2004, were $316.7million, an increase of $38.7 million, or 13.9%, compared with the correspondingprior year period. During the first quarter of 2004, and the second and thirdquarters of 2003, the Company received compensation related to settlementsregarding certain of its intellectual property (“IP settlements”), whichresulted in a significant, positive impact on the Company’s revenues andresults of operations and cash flows for the nine months ended September 30,2004, and the nine and three months ended September 30, 2003.

 

For the nine months endedSeptember 30, 2004, products and service revenue increased $95.9 million, or11.9%, compared with the corresponding prior year period as a result of revenueincreases of 10.5% and 14.3% in the ADS and IAS segments, respectively. Therelated products and service operating profit increased $27.2 million forthe nine months ended September 30, 2004 compared to the corresponding prioryear period due to increases of $6.1 million and $21.0 million in the ADS andIAS segments, respectively. For the three months ended September 30, 2004,products and service revenues increased approximately $50.2 million, or 18.8%,compared with the corresponding prior year period as a result of revenueincreases of 16.5% and 22.8% in the ADS and IAS segments, respectively. Therelated product and service operating profit increased $10.9 million for thethree months ended September 30, 2004 compared to the corresponding prior yearperiod due to increases of $4.2 million and $6.7 million in the ADS and IASsegments, respectively.

 

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*Costs and Expenses*

 

Cost of sales and serviceincreased $59.0 million, or 10.5%, to $623.4 million for the nine months endedSeptember 30, 2004, from $564.4 million compared with the corresponding prioryear period. Cost of sales and service as a percentage of sales decreased to67.8% for the nine months ended September 30, 2004 compared with 68.7% for thecorresponding prior year period. The improvement in gross margin for the ninemonths ended September 30, 2004, was primarily due to a 1.2 percentage pointimprovement in ADS product and service gross margins, the impact ofintellectual property (“IP”) settlements and a 1.9 percentage point improvementin IAS gross margins in 2004.  For thethree months ended September 30, 2004, cost of sales and service increased$36.2 million, or 19.6%, to $221.2 million from $185.0 million for thecorresponding prior year period. Cost of sales and service as a percentage ofsales increased to 69.8% for the three months ended September 30, 2004,compared with 66.5% for the corresponding prior year period. The decrease ingross margin for the three months ended September 30, 2004, was primarily dueto the impact of the IP settlement in the corresponding prior year period and a1.0 percentage point decrease in ADS product and service gross marginspartially offset by a 0.4 percentage point improvement in IAS gross margins.

 

*Selling,General and Administrative*

 

Selling, general andadministrative (“SG&A”) expenses were $239.7 million and $81.8 million forthe nine and three months ended September 30, 2004, respectively, compared with$226.0 million and $76.4 million for the corresponding prior year periods.SG&A as a percentage of sales was 26.1% and 25.8% for the nine and three monthsended September 30 2004, compared to 27.5% for the nine and three months endedSeptember 30, 2003. The nine-month increase of $13.7 million from the prioryear period is primarily due to an increase of $13.1 million in ADS researchand development (“R&D”) expense and due to the growth in ADS products andservice revenues. The increase in SG&A expense within ADS was partiallyoffset by the efficiencies resulting from the IAS restructuring and a $1.1million reduction in corporate and other unallocated expenses. The majority ofreductions in corporate and other unallocated expense due to the absence ofloan termination expense, a favorable litigation outcome and the cost benefitsreceived from transitioning the corporate headquarters to Everett were offset byexpenses related to Sarbanes-Oxley section 404 compliance activities.  The $5.4 million increase in SG&A expensein the three months ended September 30, 2004 compared to the correspondingprior year period was primarily due to incremental R&D spending of $3.7million as well as increased spending corresponding to increased product andservice revenues at ADS and the cost of outside resources and independent auditfees related to compliance with the internal control provisions ofSarbanes-Oxley section 404, partially offset by lower SG&A expense for IASas a result of the restructuring.

 

*Depreciationand Amortization*

 

Depreciation andamortization expense for the nine and three months ended September 30, 2004 was$13.7 million and $4.3 million, respectively, compared with $19.7 million and$6.3 million for the corresponding prior year periods. The decrease indepreciation and amortization expense of $6.0 million and $2.0 million for thenine and three months ended September 30, 2004, respectively, from thecorresponding prior year periods is primarily due to the lower property, plantand equipment (“PP&E”) balance, primarily related to the IAS restructuring,which included the sale of assets, asset impairment and the reclassification ofPP&E to assets held for sale, eliminating depreciation of those assets.

 

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*SpecialCharges*

 

The following table setsforth the charges relating to the Company’s restructuring activities,comprising severance, facility consolidation, and impairment of PP&E, classifiedas special charges on the consolidated statements of operations (millions ofdollars):

 
| ** **                                   | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| IAS:                                         |       |                                 |       |                                  |       |   |   |   |   |
| Facility  consolidation                      |       | $                                    | 0.5        |                                  | $          | 1.2 |   | $ | 0.3 |   | $ | 0.5 |   |
| Impairment of  property, plant and equipment |       | 0.1                                  |       | —                                |       | — |   | — |   |
| Severance                                    |       | (0.1                                 | )          | 0.9                                   |       | (0.1 | ) | 0.3 |   |
| Total IAS                                    |       | 0.5                                  |       | 2.1                                   |       | 0.2 |   | 0.8 |   |
|                                         |       |                                 |       |                                  |       |   |   |   |   |
| Corporate:                                   |       |                                 |       |                                  |       |   |   |   |   |
| Facility  consolidation                      |       | 1.1                                  |       | 0.8                                   |       | 0.7 |   | 0.2 |   |
| Total Corporate                              |       | 1.1                                  |       | 0.8                                   |       | 0.7 |   | 0.2 |   |
| Special charges                              |       | $                                    | 1.6        |                                  | $          | 2.9 |   | $ | 0.9 |   | $ | 1.0 |   |

 

In the fourth quarter of 2002, as a result of thecontinued economic downturn in the global automotive, aerospace and heavyequipment industries, the Company initiated a plan to consolidate itsCincinnati Machine, Lamb Machining Systems and Lamb Body & Assembly Systemsdivisions into the new operating entity, Cincinnati Lamb. The plan included therelocation of certain Cincinnati Machine operations, outsourcing of certainmanufacturing activities, termination of employees, and the sale of certainplant and equipment. This restructuring was substantially complete byDecember 31, 2003.

 

During the nine months ended September 30, 2004, IASrecorded additional charges of $0.5 million for additional facilityconsolidation costs and $0.1 million for impairment of property, plant andequipment and reduced severance accruals by $0.1 million in conjunction withthis plan. As of September 30, 2004, the IAS segment had terminated 795employees and paid $20.6 million in severance, cumulatively, in conjunctionwith this plan. During the nine months ended September 30, 2004, 111 employeeswere terminated and $4.3 million of severance was paid in conjunction with thisplan. The number of employees terminated does not include 228 employees of LambBody & Assembly that are no longer IAS employees as a result of thedivestiture of this operation in September 2003.

 

*Corporate:*During the third quarter of 2002, the Company initiated a plan to relocate its corporateoffice to its existing Intermec Technologies Corporation facility in Everett,Washington. This relocation was substantially complete by June 30, 2003.As of September 30, 2004, 22 employees had been terminated and$0.7 million in severance costs had been paid, cumulatively, of which 2employee terminations and $0.3 million in severance payments occurred duringthe nine months ended September 30, 2004. In the first quarter of 2004, $1.4million of the workforce reduction accrual, relating to certain pensionobligations for certain individuals affected by the restructuring plan, wasreclassified to other long-term liabilities. The corporate restructuringaccrual as of September 30, 2004, of $2.4 million relates to ongoing facilitylease obligations. During the nine months ended September 30, 2004, $1.4million in net leased facility costs were paid and during the nine and threemonths ended September 30, 2004, the Company recognized $1.1 million and $0.7million, respectively, of expense related to ongoing facility leaseobligations.

 

*Interest,Net*

 

Net interest expense was$9.4 million for the nine months ended September 30, 2004, compared with $10.2million for the corresponding prior year period, reflecting lower average debtand higher average cash and cash equivalent balances during the nine monthsended September 30, 2004, compared to the corresponding prior year period. Net

 

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interest expense remainedconsistent at $3.1 million and $3.2 million for the three month periods endedSeptember 30, 2004 and 2003, respectively. In January 2003, the Company fullypaid down and terminated the remaining $16.2 million balance of a term loan.

 

*Provisionfor Income Taxes*

 

The provision for incometaxes for the nine months ended September 30, 2004 is primarily related tofederal, state and foreign income taxes. The effective income tax rate for thenine months ended September 30, 2004 of 25% is lower than the normal effectiveincome tax rate of 38% to 40% due to the recognition of $4.0 million ofpreviously unrecognized domestic and foreign deferred tax assets, net ofadditional valuation allowance established for certain foreign net operatingloss carryforwards, approximately $3.0 million of which was recognized duringthe third quarter of 2004. The reduction in the effective tax rate to 25%resulted in a tax benefit from continuing operations of $1.2 million forthe three months ended September 30, 2004. The provision for income taxes forthe nine and three months ended September 30, 2003, is primarily related toforeign and state taxes, as the domestic tax benefit was offset by acorresponding valuation allowance.

 

*Loss from Discontinued Operations*

 

During the third quarterof 2003, in conjunction with the consolidation plan described in Note 5, theCompany sold substantially all the assets and existing backlog of its Lamb TechniconBody & Assembly Systems division. The Company received $12.8 million in2003 and $2.5 million in April 2004, and retained $9.9 million in accountspayable. The division meets the definition of a “component of an entity” andhas been accounted for as a discontinued operation under Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets,” (“SFAS No. 144”).

 

Sales and servicerevenues from discontinued operations were $0.9 million and $32.8 million forthe nine month periods ended September 30, 2004 and 2003, respectively.  Sales and service revenues from discontinuedoperations were $10.8 million for the three months ended September 30, 2003.Losses from discontinued operations were $0.7 million and $0.6 million for thenine and three months ended September 30, 2004. The related tax effect fromdiscontinued operations was $0.5 million and $0.4 million for the nine andthree months ended September 30, 2004. Losses from discontinued operations were$9.3 million and $5.5 million for the nine and three months ended September 30,2003, including a $3.1 million loss on disposal. Losses from discontinuedoperations did not have a tax effect for the nine and three months endedSeptember 30, 2003, as the Company’s domestic income tax benefit was offset bya corresponding valuation allowance.

 

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**Segment Information**

 

The following table setsforth sales and service revenues, segment operating profit and operating profit(loss) from continuing operations for the nine and three month periods endedSeptember 30, 2004, and 2003 (millions of dollars):

 
| ** **                                              | ** ** | **Nine Months Ended  September 30,** | ** ** | **Three Months Ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **2004**                             | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                    |       |                                 |       |                                  |       |   |   |   |   |
| **Sales  and Service Revenues**                         |       |                                 |       |                                  |       |   |   |   |   |
| Automated Data  Systems                                 |       | $                                    | 574.4      |                                  | $          | 520.6 |   | $ | 194.8 |   | $ | 178.7 |   |
| Industrial  Automation Systems                          |       | 344.2                                |       | 301.1                                 |       | 121.9 |   | 99.3 |   |
| Total Sales and Service Revenues                        |       | $                                    | 918.6      |                                  | $          | 821.7 |   | $ | 316.7 |   | $ | 278.0 |   |
|                                                    |       |                                 |       |                                  |       |   |   |   |   |
| **Operating  Profit (Loss) from Continuing Operations** |       |                                 |       |                                  |       |   |   |   |   |
| Segment  Operating Profit (Loss)                        |       |                                 |       |                                  |       |   |   |   |   |
| Automated Data  Systems                                 |       | $                                    | 60.7       |                                  | $          | 52.7 |   | $ | 17.1 |   | $ | 22.2 |   |
| Industrial  Automation Systems                          |       | (1.8                                 | )          | (22.9                                 | )          | 0.3 |   | (6.4 | ) |
| Total Segment  Operating Profit                         |       | 58.9                                 |       | 29.8                                  |       | 17.4 |   | 15.8 |   |
|                                                    |       |                                 |       |                                  |       |   |   |   |   |
| Corporate and  Other                                    |       | (17.1                                | )          | (18.2                                 | )          | (7.9 | ) | (5.5 | ) |
| Special Charges                                         |       | (1.6                                 | )          | (2.9                                  | )          | (1.0 | ) | (1.0 | ) |
| Operating Profit  from Continuing Operations            |       | $                                    | 40.2       |                                  | $          | 8.7 |   | $ | 8.5 |   | $ | 9.3 |   |

 

*AutomatedData Systems*

 

ADS segment revenues forthe nine and three month periods ended September 30, 2004, were $574.4 millionand $194.8 million, respectively, representing increases of 10.3% and 9.0% fromrevenues of $520.6 million and $178.7 million for the same periods in 2003. Thenine months ended September 30, 2004, and 2003, include significant revenue andoperating profit related to IP settlements. The specific terms of thesettlements are confidential. For the nine months ended September 30, 2004, and2003, the IP settlements, net of legal fees, resulted in a favorable impact onsegment operating profit of $15.7 million and $13.8 million, respectively.  For the three months ended September 30,2003, IP settlements, net of legal fees provided $9.2 million in segmentoperating profit.

 

ADS product and servicerevenue for the nine and three months ended September 30, 2004, increased 10.5%and 16.5%, respectively, from the prior year comparable period. For the threemonths ended September 30, 2004, systems and solutions revenues increased by24.6%, printer/media increased by 3.4% and service increased by 11.1% over thecorresponding prior year period. Geographically, product and service revenuefor EMEA increased 8.7%, North America increased 13.5%, Asia Pacific increased48.4% and Latin America increased 68.3% compared to the corresponding prioryear period. The revenue increase in North America reflects improved performancein the region’s indirect sales channels and continued enhancement of productlines, which allow greater sales traction with existing and new partners. EMEArevenues comprise a broader customer base in contrast to the correspondingprior year period, which included significant large shipments. The revenueincrease in the Asia Pacific region is due to broader expansion throughout theregion. The revenue increase in Latin America was primarily due to direct storedelivery applications.  For the nine andthree months ended September 30, 2004, favorable foreign exchange ratescontributed approximately $19.7 million and $5.8 million of the revenueincrease compared to the corresponding prior year periods.

 

For the nine and threemonths ended September 30, 2004, ADS reported operating profit from product andservice revenue of $45.0 million and $17.1 million, respectively, compared withoperating profit of $38.9 million and $12.9 million in the corresponding prioryear periods. The 2004 results primarily reflect the impact of additional gross

 

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profits from theincreases in product and service revenues, as well as the effect of grossmargin improvement of 1.2 percentage points for the nine months ended September30, 2004, and a 1.0 percentage point decrease in gross margin for the threemonths ended September 30, 2004, from the prior year periods. The nine andthree months ended September 30, 2004, also include increased R&D spendingof $13.1 million and $3.7 million, respectively, and the incremental selling,marketing and other SG&A expenses.

 

An additional patentinfringement lawsuit regarding the Company’s battery power management patentsis pending and may result in future revenue. Settlements have been reached todate with companies that in the aggregate represent approximately ninetypercent of U.S. laptop sales. Management cannot predict the outcome, timing oramount of future settlements or judgments.

 

*IndustrialAutomation Systems*

 

IAS segment revenues fromcontinuing operations increased $43.1 million, or 14.3%, and $22.6 million, or22.8%, for the nine and three month periods ended September 30, 2004,respectively, compared with the corresponding prior year periods. IAS operatinglosses for the nine months ended September 30, 2004, and 2003, were $1.8million and $22.9 million, respectively. IAS operating income for the threemonths ended September 30, 2004, was $0.3 million, compared with operatinglosses of $6.4 million for the same period in 2003. The favorable comparisonsare primarily due to improvements in the Cincinnati Lamb business, the lowerbreakeven levels resulting from the merger of these divisions and a $0.7million gain on the sale of a facility, which had been classified as assetsheld for sale.

 

Backlog for the IASsegment was $237.6 million at September 30, 2004, compared with $266.1 millionat December 31, 2003, adjusted to exclude discontinued operations.

 

The nine and three monthsSeptember 30, 2004, and 2003, include special charges resulting from the IASsegment’s cost reduction actions including consolidation of plant facilities,sale or closure of certain underperforming operations and the consolidation ofthe Cincinnati Machine and the Lamb Machining Systems operations. See thediscussion above under the heading “Special Charges.”

 

*Corporate and Other*

 

Operating expenses fromCorporate and Other were $17.1 million and $18.2 million for the nine monthsended September 30, 2004 and 2003, respectively. The decrease in expense of $1.1million was primarily due to cost reductions from the relocation of corporateheadquarters to Everett, Washington in 2003, a favorable ruling in an IP legaldispute during the first quarter of 2004 and a $0.9 million reduction incurrency losses, compared to the comparable prior year period, partially offsetby $4.5 million in 2004 costs related to Sarbanes-Oxley section 404compliance activities. Operating expenses from Corporate and Other were $7.9million and $5.5 million for the three months ended September 30, 2004,respectively. The increase in expense of $2.4 million was primarily due to $3.2million in costs related to Sarbanes-Oxley section 404 complianceactivities offset by a $0.4 million reduction in currency losses.

 

**Expectations**

 

During its quarterlyconference call on November 2, 2004, the Company provided projections ofsegment revenues and operating profit for the fourth quarter of 2004, asdiscussed below. The Company cannot ensure that such projections will berealized as future results may be affected by numerous uncertainties, many ofwhich are described in the section below captioned “Forward-Looking Statementsand Risk Factors.”

 

ADS products and servicerevenues for the fourth quarter of 2004, are expected to be in the range of$214 to $222 million, reflecting a projected increase in the range of 15% to20% over the corresponding prior year quarter. The related operating profit isexpected to be in the range of $21 to $24 million. The IAS segment operatingloss is expected to be in the range of $1 to $3 million for the fourth quarter2004. Corporate and unallocated costs in the fourth quarter are expected to bein the range of $6 million to $7 million.

 

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**Liquidity and Capital Resources**

 

TheCompany’s cash and cash equivalent position as of September 30, 2004, was $211.4 million, including $50.0million classified as restricted cash, a decrease of $27.0 million compared tothe December 31, 2003 balance, primarily due to $25.6 million used in operatingactivities as discussed below. Long-term obligations decreased from $208.5million at December 31, 2003, to $100.0 million at September 30, 2004, due to the reclassification to currentportion of long-term obligations of $108.5 million, of which $100.0 millionmatures in March 2005 and $8.5 million matures in July 2005.

 

Cash used in operatingactivities of $25.6 million was due primarily to $13.9 million in bond interestpaid and $9.6 million used by operations. Cash provided by the ADS segment,primarily from IP settlement proceeds, was more than offset by cash used by theIAS segment of $39.3 million, primarily related to the working capitalrequirements in the early build cycle in certain long-term contracts. Theseworking capital requirements are evidenced by growth in the Company’s accountsreceivable and inventory levels. Accounts receivable increased $51.2 million,or 18.6%, to $326.8 million at September 30, 2004, reflecting the IAS segment’searly build-cycle in long-term contracts; and inventory increased $14.4million, or 10.9%, to $146.7 million at September 30 2004, compared to December31, 2003, reflecting the IAS early build cycle in long-term contracts and abuildup of ADS inventory levels due to new products. Investing activities used$4.6 million, primarily due to $9.2 million in capital expenditures, which wasoffset by $4.5 million in proceeds from sales of property and equipment andassets held for sale. Financing activities used $46.9 million, primarily due to$50.0 million of cash restricted for repayment of debt, which was offsetprimarily by $2.8 million of stock option exercises.

 

As of September 30, 2004the Company maintained two secured long-term credit facilities: a $100 millionasset-based revolving credit facility (the “New Revolving Facility”) and a £15.0million ($27.0 million) revolving facility and related overdraft facility(collectively, the “UK Facility”).  OnSeptember 30, 2004, the Company terminated and replaced its previously existing$100 million revolving credit facility (the “Old Revolving Facility”) andreplaced it with the $100 million, three-year New Revolving Facility.

 

Net of outstandingletters of credit, the Company had borrowing capacity at September 30, 2004, of$38.4 million under the New Revolving Facility and £9.9 million ($17.8 million)under the UK Facility. The Company made no borrowings under the New RevolvingFacility, the UK Facility or the Old Revolving Facility at any time during thefirst nine months of 2004, and as of September 30, 2004, no borrowings wereoutstanding under either the New Revolving Facility or the UK Facility. As ofSeptember 30, 2004, the Company was in compliance with the financial covenantsof each of these agreements.

 

The key terms of the NewRevolving Facility are as follows:

 

•             TheCompany’s obligations under the New Revolving Facility are secured bysubstantially all the U.S. assets of the Company and its U.S. subsidiaries anda pledge of 65% of the stock of certain of its foreign subsidiaries.

 

•             Borrowingsunder the New Revolving Facility bear interest at a variable rate equal to (atthe Company’s option) (i) LIBOR plus an applicable margin ranging from 1.5% to2.5% based on consolidated leverage, or (ii) the greater of the federal fundsrate plus 0.50% or the Bank’s prime rate, plus an applicable margin rangingfrom 0.5% to 1.5% based on consolidated leverage.

 

•             If theCompany sells subsidiaries within its Industrial Automation Systems segment,the net proceeds, or a portion thereof, as defined in the agreement, must beapplied to repay borrowings outstanding under the New Revolving Facility.

 

•             Until itretires its 6.875% Notes due March 15, 2005, the Company must maintain aminimum balance of $50 million as restricted cash. This amount is classified asrestricted cash on the Company’s consolidated balance sheet as of September 30,2004.

 

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•                  TheNew Revolving Facility places certain restrictions on the ability of theCompany and its subsidiaries to consolidate or merge, make acquisitions, createliens, incur additional indebtedness or dispose of assets.

 

•                  Financialcovenants include a Consolidated Leverage test, a Consolidated InterestCoverage test and a Consolidated Net Worth test, each as defined in the agreement.

 

In March 1998, theCompany sold $200.0 million principal amount of senior unsecured debt in anunderwritten offering. The debt comprised $100.0 million of 6.875% seven-yearnotes and $100.0 million of 7.00% ten-year notes. Interest payments are duesemi-annually. Including underwriting fees, discounts and other issuance costs,the effective interest rates on the seven-year and ten-year notes are 7.125%and 7.175%, respectively. As of September 30, 2004, the $100.0 millionseven-year notes, maturing in March 2005, are classified as current portion oflong-term obligations on the Company’s consolidated balance sheet.

 

The Company additionallyhas outstanding an $8.5 million industrial revenue bond, bearing interest at3.21%, maturing in July 2005, that is classified as current portion oflong-term obligations on the Company’s consolidated balance sheet.

 

Management believes thatcash and cash equivalents on hand combined with projected cash flow fromoperations will provide adequate funding to meet its expected working capitaland capital expenditure requirements for the next twelve months and therepayment of $100 million in bonds, maturing in March 2005. Projected cashflows from operations are largely based on the Company’s revenue estimates,cost estimates, and the related timing of cash receipts and cash disbursements.If actual performance differs from estimated performance, cash flow fromoperations could be positively or negatively impacted. Additional sources ofliquidity for the Company include the Revolving Facility and the UK Facility.

 

**ContractualObligations**

 

TheCompany’s contractual commitments as of September 30, 2004, have not changed materially from those disclosed in Item 7 ofthe Company’s annual report on Form 10-K for the year ended December 31, 2003.

 

**CriticalAccounting Policies**

 

“Management’sDiscussion and Analysis of Financial Condition and Results of Operations”discusses the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilities,and the reported amounts of revenues and expenses. Actual amounts could differfrom those estimates under different assumptions or conditions. Management’sbeliefs regarding significant accounting policies have not changedsignificantly from those disclosed in Item 7 of the Company’s annual report onForm 10-K for the year ended December 31, 2003.

 

**NewAccounting Pronouncements**

 

In May 2004, theFinancial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)FAS 106-2, “Accounting and Disclosure Requirements Related to the MedicarePrescription Drug, Improvement and Modernization Act of 2003” (the “Act”). ThisFSP supercedes FSP FAS No. 106-1, “Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug, Improvement and Modernization Act of2003”and provides guidance on accounting for the effects of the Act foremployers that sponsor postretirement health care plans that provide drugbenefits. The FSP also requires those employers to provide certain disclosuresregarding the effect of the federal subsidy provided by the Act. Thedisclosures required by FSP 106-2 are included in Note 14.

 

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InMarch 2004, the Emerging Issues Task Force (“EITF”) reached a consensus onIssue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments.” EITF 03-1 provides guidance onother-than-temporary impairment models for marketable debt and equitysecurities accounted for under SFAS No. 115, “Accounting for CertainInvestments in Debt and Equity Securities,” and SFAS No. 124, “Accountingfor Certain Investments Held by Not-for-Profit Organizations,” andnon-marketable equity securities accounted for under the cost method. The EITFdeveloped a basic three-step model to evaluate whether an investment isother-than-temporarily impaired. The provisions of EITF 03-1 will be effectivefor the Company in the third quarter of fiscal 2004, except for thoseprovisions covered by FSP EITF 03-1-1, which delayed the effective date.Quantitative and qualitative disclosures for investments accounted for underSFAS No. 115 are effective for the Company’s year ending December 31, 2004. TheCompany does not expect the adoption of EITF 03-1 to have a material effect onits consolidated financial statements.

 

InDecember 2003, the FASB issued SFAS No. 132 (revised 2003), “Employer’sDisclosures about Pensions and Other Postretirement Benefits.” The revisedstatement retains the disclosure requirements contained in SFAS No. 132, whichit replaces, and requires additional disclosures about the assets, obligations,cash flows and net periodic benefit cost of defined benefit pension plans andother defined benefit postretirement plans. Except as noted below, the provisionsof this statement were effective for the Company’s financial statements for theyear ended December 31, 2003. The interim period disclosure requirements of thestatement became effective for the Company’s interim financial statements forthe quarter ending March 31, 2004, and are included Note 14. The statement’sdisclosure requirements relating to estimated future benefit payments andrelating to foreign plans are effective for the Company’s financial statementsfor the year ending December 31, 2004.

 

**Forward-Looking Statements and Risk Factors**

 

All statements in this report that are not historicalfacts or that include such words as “expect,” “project,” “estimate,” “believe,” “could,” “may” or “plan” or othersimilar words are forward-looking statements that the Company deems to becovered by and to qualify for the safe harbor protection of the PrivateSecurities Litigation Reform Act of 1995 (alternatively: Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934). Forward-looking statements include, but are not limited to,statements about the following:

 

•                  TheCompany’s anticipated segment revenues and operating profit;

 

•                  Theanticipated demand for the Company’s products and services;

 

•                  Anticipatedimprovements of existing products and development of new products in theCompany’s ADS segment;

 

•                  TheCompany’s view of the short- and long-term outlook for and trends in themarkets for the Company’s products and services;

 

•                  TheCompany’s anticipated contributions to its pension and other postretirementbenefit plans;

 

•                  TheCompany’s belief regarding the outcome of pending litigation;

 

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•                  TheCompany’s ability to

 

•                  meet its debt obligations, as well asworking capital and capital expenditure requirements;

 

•                  achieveits goals with respect to revenues and cost savings in each of its segments;

 

•                  successfullymanage and complete large-scale industrial automation systems contracts forcustomers;

 

•                  successfullyobtain critical components for its products;

 

•                  completelarge-scale mobile computing installations.

 

Forward-looking statements are not guarantees offuture performance. Several factors govern whether the Company will or canachieve any forward-looking statement made in this report. Any one of thesefactors could cause the Company’s actual results to differ materially fromthose discussed in a forward-looking statement. The Company outlines these riskfactors in reports that it files with the SEC, in press releases and on itswebsite, www.unova.com. Such risk factors include, but are not limited to:

 

•                  Weakness in theautomotive and aerospace markets could lead to reduced demand for the Company’sproducts.

 

•                  Technologicalchanges and consequent market shifts could adversely impact demand for theCompany’s products and systems.

 

•                  Approval ofnational and international standards applicable to the Company’s products andsystems could adversely impact demand for the Company’s products and systems.

 

•                  Someof the Company’s competitors have greater financial and other resources thanthe Company and, as a result, may be able to adapt more quickly to markettrends or price declines.

 

•                  Ifthe Company is unable to obtain key components of its products from its currentsuppliers, the cost of manufacturing the Company’s products could increase, theCompany might have to re-engineer some products, and delivery times of some ofthe Company’s products could be delayed.

 

•                  Politicalinstability outside of the U.S. and hostility against U.S. companies in foreignjurisdictions could adversely affect the Company’s international operations.

 

•                  Changesin U.S. and foreign government regulations regarding radio emissions couldadversely affect the Company’s ability to sell its ADS products or completedevelopment of anticipated new products.

 

•                  Ifpending litigation results in an unfavorable outcome, the Company’s financialposition, results of operations or cash flows could be adversely affected.

 

•                  If the Companyis unable to obtain licenses under third party intellectual property, or isenjoined based on third party intellectual property, the Company could beprevented from selling a particular product or family of products, which couldadversely affect the Company’s results of operations.

 

•                  Other companiesmay infringe on the Company’s intellectual property.  If the Company is unable to enforce itsintellectual property through appropriate licensing agreements, litigation orother means, demand for the Company’s products, royalty revenues and results ofoperations could be adversely affected.

 

Readers should consider the foregoing risk factors inevaluating the Company’s ability to achieve expected results or objectives setforth in any forward-looking statement. In addition, readers should not placeundue reliance on forward-looking statements in making investment decisionsregarding the Company. The Company disclaims any obligation to update publiclyany forward-looking statement, whether as a result of new information, futureevents or otherwise.

 

**ITEM 3****.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

The Company is exposed tointerest rate risk primarily from its short-term and long-term borrowings andto foreign exchange rate risk with respect to its foreign operations and fromforeign currency transactions.

 

Due to its globaloperations, the Company’s cash flows and earnings are exposed to foreignexchange rate fluctuations. When appropriate, the Company may attempt to limitits exposure to changing foreign exchange rates by entering into short-termforeign currency exchange contracts. As of September 30, 2004, the Company heldshort-term contracts for the purpose of hedging foreign currency cash flowswith an aggregate notional amount of $131.1 million.

 

Except as noted in thepreceding paragraphs, as of September 30, 2004, there have been no materialchanges in information provided in Item 7A of the Company’s annual report onForm 10-K for the year ended December 31, 2003, which contains a completediscussion of the Company’s material exposures to interest rate and foreignexchange rate risks.

 

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**ITEM 4****. CONTROLS AND PROCEDURES**

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the Company’s Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission (“SEC”) rules and forms, and that suchinformation is accumulated and communicated to the Company’s management,including the Chief Executive Officer and the Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, managementrecognized that such controls and procedures, by their nature, can provide onlyreasonable, not absolute, assurance of achieving the desired controlobjectives, and management necessarily is required to apply its judgment inevaluating the cost-benefit relationship of possible controls and procedures.There are inherent limitations in all control systems, including the realitiesthat judgments in decision-making can be flawed, and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts of one or more persons. The design of any system ofcontrols also is based in part upon certain assumptions about the likelihood offuture events, and, while our disclosure controls and procedures are designedto be effective under circumstances where they should reasonably be expected tooperate effectively, there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions. Because ofthe inherent limitations in any control system, misstatements due to error orfraud may occur and not be detected.

 

The Company’s disclosurecontrols system is based upon a global chain of financial, staff and generalbusiness reporting lines that converge in the world-wide headquarters of theCompany in Everett, Washington. The reporting process is designed to ensurethat information required to be disclosed by the Company in the reports that itfiles or submits with the SEC is recorded, processed, summarized and reportedwithin the time periods specified in the SEC rules and forms. Consistent withSEC suggestion, the Company has a Disclosure Committee consisting of keyCompany personnel designed to review the accuracy and completeness of alldisclosures made by the Company.

 

As of the end of theperiod covered by this report (the “Evaluation Date”), the Company’smanagement, including the Chief Executive Officer and the Chief FinancialOfficer, supervised and participated in an evaluation of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures,as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended. Based on this evaluation, the Chief Executive Officer andthe Chief Financial Officer concluded as of the Evaluation Date that theCompany’s disclosure controls and procedures were effective such that theinformation required to be disclosed in the Company’s SEC reports is recorded,processed, summarized and reported within the time periods specified in SECrules and forms and is accumulated and communicated to Company management,including the Chief Executive Officer and the Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

 

Management routinelyreviews the Company’s system of internal controls over financial reporting andmakes changes to the Company’s processes and systems to improve controls andincrease efficiency, while ensuring that it maintains an effective internalcontrol environment. Changes may include such activities as implementing new,more efficient systems and consolidating the activities of two or more businessunits. 

 

In connection with theevaluation described above, no changes in our internal controls over financialreporting occurred during the Company’s most recently completed fiscal quarterthat materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**PART II****.  OTHER INFORMATION**

 

**ITEM 2****.****          UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

(c)               IssuerPurchases of Equity Securities

 
| ** **                         | ** ** | **(a) Total  Number of  Shares  Purchased** | ** ** | **(b) Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **(d) Maximum Number  of Shares (or  Approximate Dollar  Value) that May Yet  Be Purchased Under  the Plans or Programs** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| July 1 to July  31, 2004           |       | 16,886                                      |       | $                                      | 18.07      |                                                                                            | —     |                                                                                                                      | —     |   |
| August 1 to  August 31, 2004       |       | —                                      |       | —                                 |       | —                                                                                          |       | —                                                                                                                    |       |
| September 1 to  September 30, 2004 |       | —                                      |       | —                                 |       | —                                                                                          |       | —                                                                                                                    |       |
| Total                              |       | 16,886                                      |       | $                                      | 18.07      |                                                                                            | —     |                                                                                                                      | —     |   |

 

The purchased sharesindicated in the above table were surrendered to the Company to satisfy taxwithholding obligations in connection with the vesting of restricted stock.

 

**ITEM 6****.****     EXHIBITS**

 
| 4.1  |   | Credit Agreement among  UNOVA, Inc., UNOVA Industrial Automation Systems, Inc., Intermec Technologies  Corporation, Intermec International Inc., Intermec Technologies  Manufacturing, LLC, Intermec IP Corp. and UNOVA IP Corp. as Borrowers, the  lenders which are parties hereto and Keybank National Association as  Administrative agent, Lead Arranger and Book Manager and Keybank National  Association as LC Issuer, dated as of September 30, 2004.* |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2  |   | Security Agreement  among UNOVA, Inc., UNOVA Industrial Automation Systems, Inc., Intermec  Technologies Corporation, Intermec Technologies Manufacturing, LLC, Intermec  IP Corp. and UNOVA IP Corp. and Keybank National Association as  Administrative agent, dated as of September 30, 2004.*                                                                                                                                                               |
| 10.1 |   | 2004 Long-Term  Performance Share Program (the “Long-Term Program”), a sub-plan under the  UNOVA, Inc. 2004 Omnibus Incentive Compensation Plan (the “2004 Plan”).*                                                                                                                                                                                                                                                                         |
| 10.2 |   | Form of Incentive Stock  Option Agreement for awards under the UNOVA, Inc. 2001 Stock Incentive Plan  (the “2001 Plan”).*                                                                                                                                                                                                                                                                                                                             |
| 10.3 |   | Form of Non-Qualified  Stock Option Agreement for awards under the 2001 Plan.*                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.4 |   | Form of Restricted  Stock Agreement for awards under the 2001 Plan and the 2004 Plan.*                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5 |   | Form of Restricted  Stock Unit Agreement for awards under the 2004 Plan.*                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.6 |   | Restricted Stock Unit  Agreement with Thomas O. Miller, under the 2004 Plan, dated as of May 6,  2004.*                                                                                                                                                                                                                                                                                                                                                         |
| 10.7 |   | Form of Performance  Share Unit Agreement under the Long-Term Program.*                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1 |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  dated as of November 9, 2004.                                                                                                                                                                                                                                                                                                                             |
| 31.2 |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,  dated as of November 9, 2004.                                                                                                                                                                                                                                                                                                                             |
| 32.1 |   | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,  dated as of November 9, 2004.                                                                                                                                                                                                                                                                                                                             |
| 32.2 |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,  dated as of November 9, 2004.                                                                                                                                                                                                                                                                                                                             |

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*                                         Copiesof these exhibits are included in this Quarterly Report on Form 10-Q filedwith the Securities Exchange Commission.

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|     | UNOVA, INC.  |
|----------|--------------|
|     | (Registrant) |
|     |         |
|     |         |
|     | By           | /s/ Michael E. Keane |   |
|     |         |   |
|     |         | Michael  E. Keane |
| * * | * *     | *Senior  Vice President and  Chief Financial Officer* |
| * * | * *     |   |
|     |         | November  9, 2004 |

 

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