SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30,
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1994
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or
[_] 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
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UNITED INDUSTRIAL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-2081809
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
18 East 48th Street, New York, NY 10017
(212) 752-8787
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(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
Not Applicable
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(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 Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 12,216,593 shares of
common stock as of November 1, 1994.
UNITED INDUSTRIAL CORPORATION
INDEX
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Page #
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - Unaudited
September 30, 1994 and December 31, 1993 1
Consolidated Condensed Statement of Operations -
Three Months and Nine Months Ended
September 30, 1994 and 1993 2
Consolidated Condensed Statement of Cash Flows
Nine Months Ended September 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)
September 30 December 31
1994 1993
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ASSETS
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Current Assets
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Cash & cash equivalents $ 14,035 $ 3,906
Note receivable 8,540 8,540
Trade receivables 27,876 45,233
Inventories
Finished goods & work-in-process 47,684 46,087
Materials & supplies 4,234 3,776
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51,918 49,863
Recoverable federal income taxes - 3,618
Deferred income taxes 6,919 8,796
Prepaid expenses & other current assets 1,873 2,480
Assets held for sale - 5,439
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Total Current Assets 111,161 127,875
Other assets 32,612 23,096
Note receivable - 8,540
Deferred income taxes 10,168 10,365
Property & equipment - less allowances
for depreciation ($80,115 & $75,714) 45,608 46,635
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$199,549 $216,511
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
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Notes payable to banks $ 3,000 $ 20,700
Accounts payable 10,708 9,634
Accrued employee compensation & taxes 7,720 7,598
Customer advances 5,338 5,725
Other liabilities 5,099 6,370
Provision for contract losses 8,715 10,232
Deferred income taxes 3,395 3,493
Estimated restructuring liability 475 750
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Total Current Liabilities 44,450 64,502
Long-term liabilities (less current maturities) 30,300 27,851
Deferred income taxes 16,540 18,645
Accumulated postretirement benefit obligation 20,776 20,159
Shareholders' Equity
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Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,230,593 shares (net of shares in treasury) 14,374 14,374
Additional capital 95,451 97,167
Retained earnings (deficit) (4,411) (8,411)
Treasury stock, at cost, 2,143,555 and 2,115,455 shares (17,030) (16,875)
Minimum pension liability adjustment (901) (901)
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87,483 85,354
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$199,549 $216,511
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See accompanying notes
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
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1994 1993 1994 1993
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Net Sales $ 59,710 $ 67,440 $152,002 $187,834
Operating costs & expenses
Cost of sales 46,800 57,617 115,418 154,938
Selling & administrative 9,948 9,411 30,950 33,832
Gain on sale of assets - (1,726) - (1,726)
Other expenses (income) - net 128 (274) (204) (587)
Interest expense 739 701 2,210 2,094
Interest income (383) (921) (1,309) (2,445)
Provision for restructuring charge - - (1,554) 23,000
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57,232 64,808 145,511 209,106
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Income (loss) before income taxes and
cumulative effect of accounting changes 2,478 2,632 6,491 (21,272)
Income taxes (benefit) 940 804 2,491 (7,374)
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Income (loss) before cumulative
effect of accounting changes 1,538 1,828 4,000 (13,898)
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
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Net income (loss) $ 1,538 $ 1,828 $ 4,000 $(12,904)
======== ======== ======== ========
Earnings (loss) per share:
Earnings (loss) per share before
cumulative effect of accounting changes $ .13 $ .15 $ .33 $(1.13)
Cumulative effect of accounting
changes for:
Postretirement benefits other than pensions - - - (1.05)
Income taxes - - - 1.13
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Net earnings (loss) per share $ .13 $ .15 $ .33 $(1.05)
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See accompanying notes
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
NINE MONTHS ENDED SEPTEMBER 30
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1994 1993*
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OPERATING ACTIVITIES
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Net income (loss) $ 4,000 $ (12,904)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of changes in accounting for:
Postretirement benefits - 20,054
Income taxes - (13,884)
Depreciation and amortization 5,318 5,608
Deferred income taxes (129) (8,625)
Restructuring charge - 23,000
Expenses charged to restructuring reserve - (6,839)
Increase (decrease) in contract loss provision (1,517) 12,965
Changes in operating assets and liabilities:
Decrease in accounts receivable 14,329 12,670
Increase in inventories (1,335) (8,715)
Decrease (increase) in prepaid expenses and
other current assets 6,593 (1,501)
Decreases in accounts payable,
accruals, advances and other (2,932) (7,011)
Increase (decrease) in federal income taxes 3,998 (10,163)
Increase (decrease) in long-term liabilities (283) 1,289
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NET CASH PROVIDED BY OPERATING ACTIVITIES 28,042 5,944
INVESTING ACTIVITIES
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Decrease in note receivable 8,540 8,540
Purchase of property and equipment (3,260) (3,310)
Increase in other assets - net (3,375) (2,799)
Acquisition of business - net of
cash received (2,446) -
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (541) 2,431
FINANCING ACTIVITIES
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Increase in long-term liabilities 2,199 1,608
Proceeds from borrowings 9,000 9,000
Payments on long-term debt & borrowings (26,700) (16,510)
Dividends (1,716) (3,432)
Purchase of treasury shares (155) -
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NET CASH USED IN FINANCING ACTIVITIES (17,372) (9,334)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,129 (959)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,906 2,608
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,035 $ 1,649
========= ========
See accompanying notes
* Restated to conform to current classifications
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 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 nine month period ended
September 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 nine months
ended September 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 nine months
ended September 30, 1993, AAI/MICROFLITE sales amounted to $646,000,
and losses were $1,581,000 or $.13 per share. At September 30, 1994,
the restructuring program was substantially completed and only
$475,000 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 November 30, 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 $3,900,000 and a net loss of
$386,000 for the nine months ending September 30, 1994.
NOTE H - CREDIT ARRANGEMENTS
At September 30, 1994 AAI Corporation (a wholly owned subsidiary) had
no short term borrowings. On October 13, 1994 AAI entered into a two
year revolving credit arrangement with two banks for $20 million,
including a commitment for up to $10 million of commercial letters of
credit. The revolving credit is limited to a percentage of the
eligible accounts receivable, as defined.
Immediately prior to entering into this credit facility, AAI prepaid
$5 million of the $25 million notes with certain insurance companies,
thereby reducing the outstanding principal balance to an aggregate of
$20 million. The agreement provides that AAI may select among several
interest rate options. The agreement provides for restrictive
covenants among which are; the maintenance of a certain capital base,
as defined, leverage and cash flow coverage ratios, limitations on
indebtedness, and limitations on transfers of funds, and use of such
funds by, the company and its wholly owned subsidiaries. The loan and
the outstanding notes with the insurance companies are collateralized
by the capital stock and assets of AAI and its wholly owned
subsidiaries and certain wholly owned subsidiaries of the company.
The loan and the outstanding notes with the insurance companies are
guaranteed by the company, certain of its wholly owned subsidiaries
and all AAI wholly owned subsidiaries.
The note agreements and guarantee agreements with the insurance
companies have been amended to permit the granting of the security
interest and liens under the credit agreement and the related
guarantees.
NOTE I
In June 1994, the Board of Directors authorized the purchase of up to
100,000 shares of the company's common stock, from time to time, in
the open market. Under this authorization the company purchased
42,100 shares through October 31, 1994 at an average price of $5.47.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales for the first nine months of 1994 were $35,832,000 lower
than for the prior year and $7,730,000 lower for the three months
period ending September 30, 1994 than the prior period. Sales
decreased in the defense and energy systems segments in the nine month
period and decreased in the defense segment in the three months
period. The major decrease in the defense segment was due to a lack
of new government orders caused by the Government's reduced budget.
Symtron (acquired in 1994) sales of $3,900,000 and $1,300,000 are
included for the nine and three months, respectively.
The net loss for the first nine 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 $1,581,000
($.13 per share), from operations of AAI/MICROFLITE, in the first nine
months of 1993.
In the nine month period the cost of sales as a percent of sales
decreased from 82.4 in 1993 to 75.9 in 1994, primarily due to the
recognition of losses of approximately $21.2 million in 1993 on
certain long-term contracts and from 85.4 in 1993 to 78.4 in 1994 for
the three month period.
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.
Income for the three and nine month periods in 1993 includes profit of
$1,726,000 on the sale of land and land improvements.
Cash and cash equivalents increased by $10,129,000 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.
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.
At September 30, 1994 AAI Corporation (a wholly owned subsidiary) had
no short term borrowings. On October 13, 1994 AAI entered into a two
year revolving credit arrangement with two banks for
10
$20 million, including a commitment for up to $10 million of
commercial letters of credit. The revolving credit is limited to a
percentage of the eligible accounts receivable, as defined.
Immediately prior to entering into this credit facility, AAI prepaid
$5 million of the $25 million notes with certain insurance companies,
thereby reducing the outstanding principal balance to an aggregate of
$20 million. The agreement provides that AAI may select among several
interest rate options. The agreement provides for restrictive
covenants among which are; the maintenance of a certain capital base,
as defined, leverage and cash flow coverage ratios, limitations on
indebtedness, and limitations on transfers of funds, and use of such
funds by, the company and its wholly owned subsidiaries. The loan and
the outstanding notes with the insurance companies are collateralized
by the capital stock and assets of AAI and its wholly owned
subsidiaries and certain wholly owned subsidiaries of the company.
The loan and the outstanding notes with the insurance companies are
guaranteed by the company, certain of its wholly owned subsidiaries
and all AAI wholly owned subsidiaries.
The note agreements and guarantee agreements with the insurance
companies have been amended to permit the granting of the security
interest and liens under the credit agreement and the related
guarantees.
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Credit Agreement dated as of October 13, 1994 among
AAI Corporation ("AAI"), the Lenders parties thereto
and First Fidelity Bank, National Association as Agent
(the "Agent") and Issuing Bank
10.2 - Pledge and Security Agreement dated as of October 13,
1994 by AAI in favor of the Agent
10.3 - Pledge and Security Agreement dated as of October 13,
1994 by the Company in favor of the Agent
10.4 - Security Agreement dated as of October 13, 1994
between AAI and the Agent
10.5 - Security Agreement dated as of October 13, 1994
between each subsidiary of AAI, certain subsidiaries
of the Company and the Agent
10.6 - Guaranty dated as of October 13, 1994 by the Company
and certain of its subsidiaries and by each subsidiary
of AAI in favor of the Agent
10.7 - Amendment No. 3 to Note Purchase Agreement dated as of
October 13, 1994 among AAI, Principal Mutual Life
Insurance Company and The Travelers Insurance Company
(collectively, the "Purchasers")
10.8 - Amendment No. 2 to Guaranty Agreement dated as of
October 13, ,1994 among the Company and the Purchasers
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 September 30, 1994.
SIGNATURE
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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 November 14, 1994 By: /s/ Howard M. Bloch
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Howard M. Bloch, Treasurer and
Chief Financial Officer
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Page
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10.1 - Credit Agreement dated as of October 13, 1994
among AAI Corporation ("AAI"), the Lenders parties
thereto and First Fidelity Bank, National
Association as Agent (the "Agent") and Issuing
Bank
10.2 - Pledge and Security Agreement dated as of October
13, 1994 by AAI in favor of the Agent
10.3 - Pledge and Security Agreement dated as of October
13, 1994 by the Company in favor of the Agent
10.4 - Security Agreement dated as of October 13, 1994
between AAI and the Agent
10.5 - Security Agreement dated as of October 13, 1994
between each subsidiary of AAI, certain
subsidiaries of the Company and the Agent
10.6 - Guaranty dated as of October 13, 1994 by the
Company and certain of its subsidiaries and by
each subsidiary of AAI in favor of the Agent
10.7 - Amendment No. 3 to Note Purchase Agreement dated
as of October 13, 1994 among AAI, Principal Mutual
Life Insurance Company and The Travelers Insurance
Company (collectively, the "Purchasers")
10.8 - Amendment No. 2 to Guaranty Agreement dated as of
October 13, ,1994 among the Company and the
Purchasers
11 - Computation of Earnings per share
27 - Financial Data Schedule