SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number #1-4252
UNITED INDUSTRIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2081809
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or organization)
18 East 48th Street, New York, NY 10017
(Address of principal executive offices)
Registrant's telephone number, including area code (212) 752-8787
Not Applicable
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1)has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,258,693 shares of common stock as of May 1, 1994.
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - Unaudited
March 31, 1994 and December 31, 1993 1
Consolidated Condensed Statement of Operations -
Three Months Ended March 31, 1994 and 1993 2
Consolidated Condensed Statement of Cash Flows
Three Months Ended March 31, 1994 and 1993 3
Notes to Consolidated Condensed Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 7
PART II - Other Information 8
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET - UNAUDITED
(Dollars in Thousands)
MARCH 31 DECEMBER 31
1994 1993
ASSETS
Current Assets
Cash & cash equivalents $ 1,700 $ 3,906
Note receivable 8,540 8,540
Trade receivables 40,244 45,233
Inventories
Finished goods & work-in-process 48,508 46,087
Materials & supplies 3,826 3,776
52,334 49,863
Recoverable federal income taxes 552 3,618
Deferred income taxes 8,739 8,796
Prepaid expenses & other current assets 3,341 2,480
Assets held for sale 4,014 5,439
Total Current Assets 119,464 127,875
Other assets 28,621 23,096
Note receivable 113 8,540
Deferred income taxes 10,359 10,365
Property & equipment - less allowances
for depreciation ($78,342
& $75,714) 46,079 46,635
$204,636 $216,511
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 7,000 $ 20,700
Accounts payable 10,890 9,634
Accrued employee compensation & taxes 9,852 7,598
Customer advances 9,621 5,725
Other liabilities 3,256 6,370
Provision for contract losses 9,607 10,232
Deferred income taxes 3,402 3,493
Estimated restructuring liability 750 750
Total Current Liabilities 54,378 64,502
Long-term liabilities (less current maturities) 28,089 27,851
Deferred income taxes 16,238 18,645
Accumulated postretirement benefit obligation 20,381 20,159
Shareholders' Equity
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,258,693 shares (net of shares in treasury) 14,374 14,374
Additional capital 96,309 97,167
Retained earnings (deficit) (7,357) (8,411)
Treasury stock, at cost, 2,115,455 shares (16,875) (16,875)
Minimum pension liability adjustment (901) (901)
85,550 85,354
$204,636 $216,511
1
See accompanying notes
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended March 31
1994 1993
Net Sales $ 50,076 $ 57,399
Operating costs & expenses
Cost of sales 38,087 49,607
Selling & administrative 10,281 11,330
Other expenses - (income) (205) (233)
Interest expense 596 668
Interest income (389) (815)
Provision for restructuring charge - 23,000
48,370 83,557
Income (loss) before income taxes and
cumulative effect of accounting changes 1,706 (26,158)
Income taxes (benefit) 652 (8,707)
Income (loss) before cumulative
effect of accounting changes 1,054 (17,451)
Cumulative effect as of December
31, 1992 of changes in method of
accounting for:
Post retirement benefits other
than pensions, net of taxes - (12,890)
Income taxes - 13,884
Net income (loss) $ 1,054 $(16,457)
Earnings (loss) per share:
Earnings (loss) per share before cumulative
effect of accounting changes $ 0.09 $(1.42)
Cumulative effect of accounting
changes for:
Postretirement benefits other
than pensions - (1.05)
Income taxes - 1.13
Net earnings (loss) per share $ 0.09 $ (1.34)
See accompanying notes
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
1994 1993<F1>
OPERATING ACTIVITIES
Net income (loss) $ 1,054 $ (16,457)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Cumulative effect of changes in accounting for:
Postretirement benefits - 20,054
Income taxes - (13,884)
Depreciation and amortization 1,636 1,747
Deferred income taxes (2,435) (9,348)
Restructuring charge - 23,000
Increase (decrease) in contract loss provision (625) 2,519
Changes in operating assets and liabilities:
Decrease in accounts receivable 5,067 14,910
Decrease (increase) in inventories (231) 4,910
Increase in prepaid expenses
and other current assets (127) (974)
Decreases in accounts payable,
accruals, advances and other (1,039) (8,567)
Decrease (increase) in recoverable
federal income taxes 2,963 (9,667)
Increase (decrease) in long-term liabilities (678) 1,432
Net Cash Provided by (Used in)
Operating Activities 5,585 9,675
INVESTING ACTIVITIES
Decrease in note receivable 8,540 8,540
Purchase of property and equipment (628) (106)
Increase in other assets - net (794) (505)
Acquisition of business - net of
cash received (1,489) -
Net Cash Provided by
Investing Activities 5,629 7,929
FINANCING ACTIVITIES
Increase in long-term liabilities 1,138 1,551
Proceeds from borrowings - 6,000
Payments on long-term debt & borrowings (13,700) (19,991)
Dividends (858) (1,961)
Net Cash Used in Financing Activities (13,420) (14,401)
Increase (Decrease) in Cash
and Cash Equivalents (2,206) 3,203
Cash and cash equivalents at beginning
of period 3,906 2,608
Cash and cash equivalents at end
of period $ 1,700 $ 5,811
<FN>
<F1>Restated to conform to current classifications
3
See accompanying notes
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 1994
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1994 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1994. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1993.
Note B - Restructuring Charge
The Consolidated Condensed Statement of Operations for the three months
ended March 31, 1993 includes a restructuring charge of $23 million ($14.7
million or $1.20 per share, net of income tax benefit). The charge covers
the anticipated cost of organizational and product line changes,
consolidation of facilities, and work force reductions of approximately 300
at AAI and its four subsidiaries. A major portion of the charge will
result from the curtailment of operations of AAI/MICROFLITE in Binghamton,
New York, due to lack of significant new orders. AAI/MICROFLITE was
acquired in 1991. During the three months ended March 31, 1993,
AAI/MICROFLITE sales amounted to $132,000, and losses were $1,492,000 or
$.12 per share. At March 31, 1994, the restructuring program was
substantially completed and only $750,000 related to the consolidation and
discontinuation of certain manufacturing activities, had not been expended.
Note C - Assets Held for Sale
Assets held for sale of $4,014,000 and $5,439,000 included on the
consolidated balance sheet at March 31, 1994 and December 31, 1993,
respectively, relate to the remaining assets of AAI/MICROFLITE, including
the office/manufacturing complex. The company has entered into agreements
to sell these assets and such transactions are expected to be consummated
in 1994.
Note D - Dividends
A quarterly dividend of $.07 per share is payable May 27, 1994.
4
Note E - Change in Method of Accounting for Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
decreasing net loss by $13.9 million or $1.13 per share. Deferred federal
income taxes - current was reduced $16.4 million and non-current was
increased $2.5 million. The effect of the change of net income for the
three months ending March 31, 1993 was not material. Deferred income tax
balance at March 31, 1994, consists of:
(Dollars in thousands)
Deferred Tax Assets
Losses on long-term contracts not currently deductible $ 4,760
Postretirement benefits other than pensions and other
employee benefits 9,247
Product warranty and other provisions 1,277
Vacation pay accruals 555
Basis differences for asset sales 3,225
Other 34
Total Deferred Tax Assets 19,098
Deferred Tax Liability
Pension plans and other employee benefits (9,590)
Excess tax depreciation (7,313)
Installment gain (2,644)
Other (93)
Total Deferred Tax Liabilities (19,640)
Net Deferred Tax Liability $ (542)
Note F - Change in Method of Accounting for Postretirement Benefits Other
Than Pensions
Effective January 1, 1993 the Company adopted FASB Statement No. 106
increasing net loss by $12.9 million or $1.05 per share. The liability for
accumulated postretirement benefit obligation is $20 million. The cost of
providing postretirement benefits under the new accrual method amounted to
$204,000 ($.02 per share) and $408,000 ($.03 per share) for the three
months ended March 31, 1994 and 1993, respectively.
Note G - Legal Proceedings
The Company, along with various other parties, has been named in three
claims (including two tort claims, one of which alleges class action)
relating to environmental matters based on allegations partially related to
a predecessor's operations. These tort actions seek recovery for personal
injury and property damage among other damages.
The company owned and operated a small facility at a site in the State of
Arizona that manufactured semi-conductors between 1959 and 1960. All such
operations of the Company were sold prior to 1962. This facility may have
used trichloroethylene ("TCE") in small quantities. However, to date,
there is no evidence that this facility released or disposed of TCE at this
site.
5
On May 18, 1993, the State of Arizona filed suit against the Company
seeking the recovery of investigative costs, injunctive relief to require
the company to perform a Remedial Investigation and Feasibility Study, and
ultimately to require the remediation of alleged soil and groundwater
contamination at and near a certain industrial site. In response to the
State's claim the Company filed a third party complaint that seeks
contribution from seventy-five identified possible responsible parties that
are believed to have used solvents on and around the company's former site.
Management intends to vigorously contest these actions and believes that
the resolution of these actions will not be material to the Company.
The Company is involved in various other law suits and claims, including
certain other environmental matters, arising out of the normal course of
its business. In the opinion of management, the ultimate amount of
liability, if any, under pending litigation, including claims described
above, will not have a materially adverse effect on the consolidated
financial position of the Company.
Note H - Acquisitions
On January 18, 1994, the Company purchased all the outstanding shares of
Symtron Systems, Inc. (Symtron), a producer of fire training simulators for
the military and commercial markets. The purchase price consists of an
initial payment of $1,500,000, assumption of certain liabilities of
approximately $5,900,000 and contingent payments, not to exceed $1,500,000,
based on the net worth at specified dates and future profits on contracts
existing at the acquisition date. Additionally, contingent amounts are
payable if certain pretax profits, as defined in the purchase agreement,
are earned for each of the years in the five year period ending December
31, 1998. As of December 31, 1993, the company had deposited $500,000 in
an escrow account in anticipation of this acquisition. Funds generated
from operations and an existing line of credit were utilized to finance the
purchase of Symtron.
The acquisition is to be accounted for as a purchase, accordingly, the
operations of Symtron will be included in the company's 1994 financial
statements.
The balance sheet of Symtron has been included in the Consolidated
Condensed Balance Sheet.
NOTE I - Credit Arrangements
AAI has borrowed $4,000,000 under $30 million credit facility at March 31,
1994 and has letters of credit outstanding of approximately $6,838,000.
This credit facility, which expired April 30, 1994, has been renewed for
$5,000,000 and an additional 60 days. Management expects to refinance this
facility with other lenders. The terms of such financing, including
interest rates, guarantees and covenants, may differ from those provided
for under this credit facility.
6
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Net sales for the first quarter of 1994 were $7,323,000 lower than for the
prior year. Sales decreased in all segments. Symtron sales of $1,100,000
are included.
The net loss for the prior period quarter includes a restructuring charge
at the AAI Corporation subsidiary of $23 million ($14.7 million, or $1.20
per share net of income tax benefit). The charge covers the anticipated
cost of organizational and product-line changes, the consolidation of
facilities, and work force reductions of approximately 300 in AAI and its
four subsidiaries. A major portion of the charge will result from the
curtailment of operations of AAI/MICROFLITE in Binghamton, New York due to
lack of significant new orders. AAI/MICROFLITE was acquired in 1991.
Predominately a defense contractor, AAI is in the process of realigning its
business to become more competitive in the marketplace with its current
customers and to enter new non-DOD markets. Net income included a loss of
$1,492,000 ($.12 per share), from operations of AAI/MICROFLITE, in the
first quarter of 1993.
The cost of sales as a percent of sales decreased from 86.4 in 1993 to 76.1
in 1994, primarily due to the recognition of losses of approximately $5.7
million on certain long-term contracts in the prior year.
Cash and cash equivalents decreased by $2,217,000 from December 31, 1993.
See Consolidated Condensed Statement of Cash Flows. The restructuring
charge ($23 million), the accumulated postretirement benefit obligation
($20 million) and the change in the deferred federal income taxes due to a
change in accounting method ($13.9 million) are non-cash items in the first
quarter of 1993 and are included in the Consolidated Condensed Statement of
Cash Flows as adjustments to reconcile net income to net cash provided or
used in operating activities.
AAI has borrowed $4,000,000 under $30 million credit facility at March 31,
1994 and has letters of credit outstanding of approximately $6,838,000.
This credit facility, which expired April 30, 1994, has been renewed for
$5,000,000 and an additional 60 days. Management expects to refinance this
facility with other lenders. The terms of such financing, including
interest rates, guarantees and covenants, may differ from those provided
for under this credit facility.
Effective January 1, 1993 the Company adopted FASB Statement No. 109 (see
Note B of the Condensed Financial Statement) decreasing net loss by $13.9
million or $1.13 per share. Deferred federal income taxes - current was
reduced $16.4 million and non-current was increased $2.5 million.
Effective January 1, 1993 the Company adopted FASB Statement No. 106 (see
Note B of the Condensed Financial Statement) increasing net loss by $12.9
million or $1.05 per share. The liability for accumulated postretirement
benefit obligation is $20.4 million and $20 million, for the periods ending
March 31, 1994 and 1993, respectively.
7
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
Item 4 - Submission of Matter to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Registrant was
held on May 10, 1994.
(b) Bernard Fein was elected a director at the meeting, for a
term ending in 1997. The incumbent directors whose terms of
office continued after the meeting are Rick S. Bierman,
Howard M. Bloch, Maurice Rosenthal, and Myron Simons.
(c) 8,900,723 shares were voted in favor of the election of
Bernard Fein as a director of the Registrant, with 889,415
votes withheld, no abstentions or broker non-votes.
8,547,129 shares were voted in favor of the proposal to
adopt the United Industrial Corporation 1994 Stock Option
Plan, with 1,122,838 shares voted against, 120,170 votes
abstained, and no broker non-votes. 9,694,218 shares were
voted in favor of the proposal to ratify the appointment of
Ernst & Young as independent auditors of the Registrant for
1994, with 54,062 shares voted against, 41,857 shares
abstained and no broker non-votes. Reference is made to the
Registrant's Proxy Statement dated March 30, 1994 for its
1994 Annual Meeting for additional information concerning
the matters voted on at the meeting.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings per share
20 - The Registrant's Proxy Statement dated March 30, 1994 for
its 1994 Annual Meeting, which is incorporated herein by
reference.
27 - Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the
quarter ended March 31, 1994.
8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED INDUSTRIAL CORPORATION
Date May 12, 1994 By: /s/ Howard M. Bloch
Howard M. Bloch, Treasurer and
Chief Financial Officer
9
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
11 Computation of Earnings Per Share
20 The Registrant's Proxy Statement dated March 30, 1994 for its
1994 Annual Meeting, which is incorporated herein by reference
27 Financial Data Schedule