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 June 30, 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 of (I.R.S. Identification No.)
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.
12,256,693 shares of common stock as of August 1, 1994.
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - Unaudited
June 30, 1994 and December 31, 1993 1
Consolidated Condensed Statement of Operations -
Three Months and Six Months Ended June 30, 1994 and 1993 2
Consolidated Condensed Statement of Cash Flows
Six Months Ended June 30, 1994 and 1993 3
Notes to Consolidated Condensed Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 6
PART II - Other Information 7
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET - UNAUDITED
(Dollars in Thousands)
June 30 December 31
1994 1993
ASSETS
Current Assets
Cash & cash equivalents $ 2,638 $ 3,906
Note receivable 8,540 8,540
Trade receivables 39,007 45,233
Inventories
Finished goods & work-in-process 47,178 46,087
Materials & supplies 3,697 3,776
50,875 49,863
Recoverable federal income taxes (83) 3,618
Deferred income taxes 8,650 8,796
Prepaid expenses & other current assets 2,541 2,480
Assets held for sale - 5,439
Total Current Assets 112,168 127,875
Other assets 31,615 23,096
Note receivable - 8,540
Deferred income taxes 10,365 10,365
Property & equipment - less allowances
for depreciation ($80,480 & $75,714) 44,865 46,635
$199,013 $216,511
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 3,000 $ 20,700
Accounts payable 9,182 9,634
Accrued employee compensation & taxes 8,757 7,598
Customer advances 8,087 5,725
Other liabilities 4,545 6,370
Provision for contract losses 9,387 10,232
Deferred income taxes 3,398 3,493
Estimated restructuring liability 500 750
Total Current Liabilities 46,856 64,502
Long-term liabilities (less current maturities) 28,897 27,851
Deferred income taxes 16,584 18,645
Accumulated postretirement benefit obligation 20,576 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 95,451 97,167
Retained earnings (deficit) (5,949) (8,411)
Treasury stock, at cost, 2,115,455 shares (16,875) (16,875)
Minimum pension liability adjustment (901) (901)
86,100 85,354
$199,013 $216,511
See accompanying notes
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Net Sales $ 42,216 $ 62,995 $ 92,292 $120,394
Operating costs & expenses
Cost of sales 30,531 47,714 68,618 97,321
Selling & administrative 10,721 13,092 21,002 24,422
Other income - net (127) (80) (332) (313)
Interest expense 875 725 1,471 1,393
Interest income (537) (709) (926) (1,524)
Provision for restructuring charge (1,554) - (1,554) 23,000
39,909 60,742 88,279 144,299
Income (loss) before income taxes and
cumulative effect of accounting changes 2,307 2,253 4,013 (23,905)
Income taxes (benefit) 899 528 1,551 (8,179)
Income (loss) before cumulative
effect of accounting changes 1,408 1,725 2,462 (15,726)
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) $ 1,408 $ 1,725 $ 2,462 $(14,732)
Earnings (loss) per share:
Earnings (loss) per share before
cumulative effect of accounting changes $ .11 $ .14 $ .20 $(1.28)
Cumulative effect of accounting
changes for:
Postretirement benefits other than pensions - - - (1.05)
Income taxes - - - 1.13
Net earnings (loss) per share $ .11 $ .14 $ .20 $(1.20)
See accompanying notes
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
SIX MONTHS ENDED JUNE 30
1994 1993*
OPERATING ACTIVITIES
Net income (loss) $ 2,462 $ (14,732)
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 2,815 3,878
Deferred income taxes (2,010) (9,043)
Restructuring charge - 23,000
Expenses charged to restructuring reserve - (4,638)
Increase (decrease) in contract loss provision (845) 6,092
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,859 13,822
Decrease (increase) in inventories (1,175) 10,460
Decrease (increase) in prepaid expenses and
other current assets 6,003 (84)
Decreases in accounts payable,
accruals, advances and other (2,217) (14,524)
Increase (decrease) in federal income taxes 3,697 (10,230)
Increase (decrease) in long-term liabilities (483) 1,657
Net Cash Provided by Operating Activities 13,106 11,828
INVESTING ACTIVITIES
Decrease in note receivable 8,540 8,541
Purchase of property and equipment (535) (1,979)
Increase in other assets - net (2,691) (6,817)
Acquisition of business - net of
cash received (2,218) -
Net Cash Provided by (used in) Investing Activities 3,096 (255)
FINANCING ACTIVITIES
Increase in long-term liabilities 1,946 1,580
Proceeds from borrowings 6,000 6,000
Payments on long-term debt & borrowings (23,700) (16,579)
Dividends (1,716) (2,574)
Net Cash Used in Financing Activities (17,470) (11,573)
Decrease in Cash and Cash Equivalents (1,268) -
Cash and cash equivalents at beginning of period 3,906 2,608
Cash and cash equivalents at end of period $ 2,638 $ 2,608
See accompanying notes
<FN>
* Restated to conform to current classifications
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 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 six month period ended June
30, 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 six months
ended June 30, 1993 includes a restructuring charge of $23 million
($14.7 million or $1.20 per share, net of income tax benefit). The
charge covered 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 covered 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 six months ended June
30, 1993, AAI/MICROFLITE sales amounted to $646,000, and losses were
$1,604,000 or $.13 per share. At June 30, 1994, the restructuring
program was substantially completed and only $500,000 related to the
consolidation and discontinuation of certain manufacturing activities,
had not been expended. At December 31, 1993 the restructuring charge
was reduced from $23 million to $22.5 million.
Note C - Assets Held for Sale
Assets held for sale of $5,439,000 included on the consolidated
balance sheet at December 31, 1993, relate to the remaining assets of
AAI/MICROFLITE, including the office/manufacturing complex. The
company sold these assets in 1994. The profit of $1,304,000 is
included in the provision for restructuring in the Consolidated
Condensed Statement of Operations.
Note D - Dividends
A quarterly dividend of $.07 per share is payable August 31, 1994 and
additional capital has been reduced.
Note E - Stock Options
In May 1994, the shareholders approved the 1994 Stock Option Plan,
which provides for the granting of 600,000 stock options to key
employees. Options granted may be either "incentive stock options,"
within the meaning of Section 422A of the Internal Revenue Code, or
non-qualified options.
The options are granted at market value at the date of grant and are
exercisable over a period determined by the Board of Directors, but no
longer than ten years after the date they are granted.
On June 21, 1994 options were granted for 91,000 shares at an option
price per share of $4.75.
Note F - 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.
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 G - 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, a subsequent
payment of $500,000, assumption of certain liabilities of
approximately $5,900,000 and contingent payments, not to exceed
$1,000,000, 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. Funds generated from
operations and an existing line of credit were utilized to finance the
purchase of Symtron.
The acquisition is accounted for as a purchase, accordingly, the
operations of Symtron are included in the company's 1994 financial
statements. Symtron had sales of $2,600,000 and the profit was not
material in the six months ending June 30, 1994.
NOTE H - Credit Arrangements
AAI has not borrowed under the $7,500,000 credit facility at June 30,
1994 and has letters of credit outstanding of approximately $678,000.
This credit facility, expires August 20, 1994. Management expects to
refinance this facility with other lenders. The terms of such
financing, including security, interest rates, guarantees and
covenants, may differ from those provided for under this credit
facility.
As part of the credit facility, AAI granted to the lender a first
priority security interest in all accounts receivable of AAI. UIC-
Del. Corporation, a subsidiary of UIC, was added as an additional
guarantor of any AAI bank debt. In addition to the lender, the
security interests are subject to the rights of the present insurance
company noteholders.
Management's Discussion and Analysis of Financial Condition
Net sales for the first six months of 1994 were $28,102,000 lower than
for the prior year and $20,779,000 lower for the three months period
ending June 30, 1994 than the prior period. Sales decreased in all
segments in both periods, except for the 3 months ending June 30, 1994
the plastic products segment increased slightly. The major decrease
was in the defense segment due to a lack of new government orders
caused by the Government's reduced budget. Symtron sales of
$2,600,000 are included.
The net loss for the first six months of 1993 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
covered 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 covered 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 loss included a loss of $1,604,000
($.13 per share), from operations of AAI/MICROFLITE, in the first six
months of 1993.
In the six month period the cost of sales as a percent of sales
decreased from 80.8 in 1993 to 74.4 in 1994 and from 75.7 in 1993 to
72.3 in 1994 for the three months period primarily due to the
recognition of losses of approximately $10 million and $4 million on
certain long-term contracts for the six and three month periods in
1993, respectively.
The company sold $5,439,000 of the remaining AAI/MICROFLITE assets in
1994. The profit of $1,304,000 is included in the provision for
restructuring in the Consolidated Condensed Statement of Operations.
Cash and cash equivalents decreased by $1,268,000 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 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. At December 31, 1993 the restructuring charge was reduced
from $23 million to $22.5 million.
AAI has not borrowed under the $7,500,000 credit facility at June 30,
1994 and has letters of credit outstanding of approximately $678,000.
This credit facility expires August 20, 1994. Management expects to
refinance this facility with other lenders. The terms of such
financing, including security, interest rates, guarantees and
covenants, may differ from those provided for under this credit
facility.
As part of the credit facility, AAI granted to the lender a first
priority security interest in all accounts receivable of AAI. UIC-
Del. Corporation, a subsidiary of UIC, was added as an additional
guarantor of any AAI bank debt. In addition to the lender, the
security interests are subject to the rights of the present insurance
company noteholders.
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.
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10 a - Signet Bank/Maryland letter, dated May 13, 1994,
re: Credit Facilities to AAI
10 b - Security Agreement dated May 27, 1994
by AAI Corporation and Signet Bank/Maryland
10 c - Guaranty Agreement dated May 27, 1994 by UIC-Del.
Corporation and Signet Bank/Maryland.
11 - Computation of Earnings per share
27 - Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during
the quarter ended June 30, 1994.
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 August 12, 1994 By:/s/ Howard M. Bloch
Howard M. Bloch, Treasurer and
Chief Financial Officer
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
10 a - Signet Bank/Maryland letter, dated May 13, 1994,
re: Credit Facilities to AAI
10 b - Security Agreement dated May 27, 1994 by
AAI Corporation and Signet Bank/Maryland
10 c - Guaranty Agreement dated May 27, 1994 by UIC-Del.
Corporation and Signet Bank/Maryland
11 - Computation of Earnings per share
27 - Financial Data Schedule