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 September 30, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number #1-4252
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. Identification No.)
incorporation or organization)
18 East 48th Street, New York, NY 10017
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(Address of principal executive offices)
Registrant's telephone number, including area code (212) 752-8787
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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 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. 12,170,793
shares of common stock as of November 1, 1995.
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
Part I - Financial Information ------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
September 30, 1995 and December 31, 1994 1
Consolidated Condensed Statements of Operations -
Three Months and Nine Months Ended September 30,
1995 and 1994 2
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 3
Notes to Consolidated Condensed Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 6 - 7
PART II - Other Information 8
NYFS11...:\95\78495\0001\6678\FRMN105S.140
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
September 30 December 31
1995 1994
---- ----
(UNAUDITED)
ASSETS
Current assets
Cash & cash equivalents $ 8,622 $ 6,132
Note receivable -- 8,540
Trade receivables 28,798 33,564
Inventories
Finished goods & work-in-process 49,046 49,034
Materials & supplies 4,829 4,452
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53,875 53,486
Deferred income taxes 6,142 3,169
Prepaid expenses & other current assets 1,430 1,667
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Total Current Assets 98,867 106,558
Other assets 39,738 37,022
Property & equipment - less allowances
for depreciation (1995 - $84,930 & 1994 - $81,767) 44,278 45,214
--------- ---------
$ 182,883 $ 188,794
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term borrowings $ 3,000 $ 4,200
Accounts payable 8,724 8,769
Accrued employee compensation & taxes 7,659 6,526
Customer advances 4,369 6,981
Current portion of long-term debt 6,250
Federal income taxes 382 3,333
Other liabilities 3,095 5,664
Reserve for contract losses 11,189 10,474
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Total Current Liabilities 44,668 45,947
Long-term liabilities (less current maturities) 18,657 24,580
Deferred income taxes 9,420 9,228
Postretirement benefits other than pensions 21,370 20,618
Shareholders' Equity
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
1995 - 12,170,793 and 1994 - 12,167,493 shares
(net of shares in treasury) 14,374 14,374
Additional capital 92,030 94,596
Retained earnings (deficit) (312) (3,199)
Treasury stock, at cost, 1995 - 2,203,355 shares
1994 - 2,206,655 shares (17,324) (17,350)
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88,768 88,421
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$ 182,883 $ 188,794
========= =========
<FN>
See accompanying notes
1
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
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(UNAUDITED)
1995 1994* 1995 1994*
---- ----- ---- -----
Net Sales $ 53,568 $ 59,710 $ 163,090 $ 152,002
Operating costs & expenses
Cost of sales 42,833 46,800 126,890 115,418
Selling & administrative 9,115 9,948 29,606 30,950
Other expenses (income) - net 241 128 664 (204)
Interest expense-net 388 356 785 901
Provision for restructuring charge -- -- -- (1,554)
--------- --------- --------- ---------
52,577 57,232 157,945 145,511
--------- --------- --------- ---------
Income before income taxes 991 2,478 5,145 6,491
Income taxes 568 940 2,258 2,491
--------- --------- --------- ---------
Net income $ 423 $ 1,538 $ 2,887 $ 4,000
========= ========= ========= =========
Net earnings per share $ .04 $ .13 $ .24 $ .33
========= ========= ========= =========
<FN>
See accompanying notes
* Restated to conform to current classifications.
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
(UNAUDITED)
1995 1994 *
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OPERATING ACTIVITIES
Net income $ 2,887 $ 4,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 6,402 5,318
Deferred income taxes (2,781) (129)
Increase (decrease) in contract loss provision 715 (1,517)
Changes in operating assets and liabilities (2,135) 20,370
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,088 28,042
INVESTING ACTIVITIES
Decrease in note receivable 8,540 8,540
Purchase of property and equipment (4,011) (3,260)
Increase in other assets - net (4,171) (3,375)
Acquisition of business - net of
cash received -- (2,446)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 358 (541)
FINANCING ACTIVITIES
Increase (decrease) in long-term liabilities (5,467) 2,199
Increase in current portion of long term liabilities 6,250
Proceeds from borrowings 9,000 9,000
Payments on long-term debt & borrowings (10,200) (26,700)
Dividends (2,555) (1,716)
Proceeds from exercise of Stock options 16 (155)
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NET CASH USED IN FINANCING ACTIVITIES (2,956) (17,372)
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INCREASE IN CASH AND CASH EQUIVALENTS 2,490 10,129
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,132 3,906
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,622 $ 14,035
========= =========
<FN>
See accompanying notes
* Restated to conform to current classifications
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
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,
1995 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1995. 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, 1994.
NOTE B - DIVIDENDS
A quarterly dividend of $.05 per share is payable November 30, 1995 and
additional capital has been reduced in October 1995.
NOTE C - SUNDRY
In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an indirect
subsidiary of the Company, submitted to the U.S. Government (the "customer") a
Request for Equitable Adjustment ("REA") totaling approximately $11,800,000 in
connection with a certain contract with the subsidiary. The REA seeks monetary
damages based on costs incurred by the subsidiary arising out of or in
connection with customer directed suspension of work and resulting schedule
delays, additional work directives, and other actions by the customer in
connection with the contract for which contractors are allowed recovery under
the Federal Acquisition Regulations. On July 14, 1995, the subsidiary received
the final decision of the customer rejecting the REA in its entirety. Subsequent
correspondence from the customer offered certain economic relief not offered in
its July 14 rejection, a willingness to discuss the claim and a request that
work continue on this project. The subsidiary believes that the claims made in
the REA are meritorious and will vigorously pursue recovery of the monies
claimed. To fully protect the Company's interest, on October 10, 1995, a Notice
of Appeal of the final decision was filed with the Armed Services Board of
Contract Appeals seeking monetary damages plus interest.
The Company provides for costs related to contingencies such as this after its
possible exposure is reasonably determined. It is the opinion of management that
the ultimate resolution of this contingency will not have a material adverse
effect on the financial condition of the Company.
NOTE D - LEGAL PROCEEDINGS
The Company, along with numerous other parties, has been named in five tort
actions 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. In one tort claim, class
certification was granted as to both property damage and medical monitoring
classes. The Company has joined the other defendants in appealing the class
certification issue to the Arizona Supreme Court.
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 by 1961. Although this facility may have
used trichloroethylene ("TCE") in small quantities, 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
4
relief to require the Company to perform a Remedial Investigation and
Feasibility Study ("RI/FS"), and ultimately to require the remediation of
alleged soil and groundwater contamination at and near a certain industrial
site. Since then the State has brought in co-defendants whose operations at the
site were substantially larger than those of the Company.
On June 20, 1995 the Company and the State of Arizona executed an agreement in
principle to settle the clean-up litigation. In exchange for a full release from
liability by the State and the Arizona Department of Environmental Quality, the
Company has agreed to the following:
o Undertake and pay for the costs of an RI/FS based upon a draft
March 1993 work plan.
o Pay $125,000 towards past costs incurred by the State of
Arizona and the Department of Environmental Quality.
o Pay $125,000 towards costs of future remediation and clean-up
of the site. In addition, at the time the State selects a
remedy, the Company agrees to an additional contribution in
the amount of a percentage of the estimated clean-up cost.
The Company and the State have begun negotiations on drafting a Consent Decree
incorporating these terms and conditions. Resolution of this matter will not
have a materially adverse effect on the consolidated financial position of 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.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Results of Operations
Net sales in the first nine months of 1995 increased $11,088,000 or 7% compared
to the same period in 1994. Sales increased in all segments for the nine month
period. Net sales decreased $6,142,000 or 10% in the third quarter of 1995
compared to the third quarter of 1994 due primarily to results in the Defense
segment.
Gross profit percentages in the three and nine month periods decreased from 22%
to 20% and 24% to 22%, respectively, due to the Defense segment's operations.
Margins decreased due to lower sales activity and increased contract costs.
Gross profit margins increased in Plastics and Energy segments in the three and
nine month periods.
The benefits of the spending reduction program implemented in 1994 continue to
be reflected in lower selling and administrative expenses in the Defense segment
resulting in lower total selling and administrative expenses. Higher costs at
UIC corporate, as a result of recent organization changes and reserves taken to
settle an environmental suit partially offset these savings. Selling and
Administrative expenses as a percentage of net sales were approximately 17% and
18% for the three and nine month periods ended September 30, 1995, compared to
17% and 20% for the same periods in 1994.
The Company recorded net income of $423,000 and $2,887,000 for the three and
nine months ended September 30, 1995, respectively. The decrease in net income
in the 1995 third quarter as compared to the corresponding period in 1994 is
primarily due to increased costs on a contract with the U.S. Government
discussed under Contingent Matters below. A current estimate of the costs to
complete this contract, which is an ongoing process, is expected to be completed
during the fourth quarter. The net income for the nine months ended 1995 would
approach that of the corresponding period in the prior year if not impacted by
these increased contract costs. In addition, the nine month period in 1994
included, net of tax, profits of approximately $950,000 related to the sale of
assets associated with the Company's restructuring in 1993.
The increase in the income tax rate from 37.9% and 38.4% in prior three and nine
month periods to 57.3% and 43.9% in the current three and nine month periods was
due to the payment to the IRS of obligations related to prior years.
Liquidity and Capital Resources
Cash flows from operations were $5,088,000 for the nine month period ended
September 30, 1995, as compared to $28,042,000 for the same period in the prior
year. The major items accounting for the difference include changes in accounts
receivable, assets held for sale and federal income taxes payable. Funds from
operations were sufficient for dividends, capital expenditures, and repayment of
borrowings. Additionally, the Company received the final installment payment of
$8,540,000 on its note receivable in February 1995. The Company currently has no
significant fixed commitments for capital expenditures or for investments. Its
capital requirements consist primarily of its obligation to fund operations and
interest payments on indebtedness. The Company expects that available cash and
existing lines of credit will be sufficient to finance operations.
Contingent Matters
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 by 1961. Although this facility may have
used trichloroethylene ("TCE") in small quantities, 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 ("RI/FS"), and ultimately
to require the remediation of alleged soil and groundwater contamination at and
near a certain industrial site. Since then the State has brought in
co-defendants whose operations at the site were substantially larger than those
of the Company.
On June 20, 1995 the Company and the State of Arizona executed an agreement in
principle to settle the clean-up litigation. In exchange for a full release from
liability by the State and the Arizona Department of Environmental Quality, the
Company has agreed to the following:
6
o Undertake and pay for the costs of an RI/FS based upon a draft
March 1993 work plan.
o Pay $125,000 towards past costs incurred by the State of
Arizona and the Department of Environmental Quality.
o Pay $125,000 towards costs of future remediation and clean-up
of the site. In addition, at the time the State selects a
remedy, the Company agrees to an additional contribution in
the amount of a percentage of the estimated clean-up cost.
The Company and the State have begun negotiations on drafting a Consent Decree
incorporating these terms and conditions. Resolution of this matter will not
have a materially adverse effect on the consolidated financial position of the
Company.
In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an indirect
subsidiary of the Company, submitted to the U.S. Government (the "customer") a
Request for Equitable Adjustment ("REA") totaling approximately $11,800,000 in
connection with a certain contract with the subsidiary. The REA seeks monetary
damages based on costs incurred by the subsidiary arising out of or in
connection with customer directed suspension of work and resulting schedule
delays, additional work directives, and other actions by the customer in
connection with the contract for which contractors are allowed recovery under
the Federal Acquisition Regulations. On July 14, 1995, the subsidiary received
the final decision of the customer rejecting the REA in its entirety. Subsequent
correspondence from the customer offered certain economic relief not offered in
its July 14 rejection, a willingness to discuss the claim and a request that
work continue on this project. The subsidiary believes that the claims made in
the REA are meritorious and will vigorously pursue recovery of the monies
claimed. To fully protect the Company's interest, on October 10, 1995, a Notice
of Appeal of the final decision was filed with the Armed Services Board of
Contract Appeals seeking monetary damages plus interest.
The Company provides for costs related to contingencies such as this after its
possible exposure is reasonably determined. It is the opinion of management that
the ultimate resolution of this contingency will not have a material adverse
effect on the financial condition of the Company.
7
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Bernard Fein retired as Chairman of the Board of Directors effective
October 25, 1995 and will continue as a director until the Company's
next annual meeting in 1996 at which time he will resign as a director.
On November 3, 1995, Mr. Fein was named Chairman Emeritus.
Harold S. Gelb was elected a member of the Board of Directors on
October 25, 1995 and appointed Chairman of the Board of Directors on
November 3, 1995.
Richard R. Erkeneff, who will continue as President and CEO of AAI
Corporation, the Company's largest subsidiary, was appointed the
Company's acting President effective October 20, 1995. Mr. Erkeneff
replaced P. David Bocksch, who has resigned. Mr. Erkeneff was elected a
member of the Board of Directors on November 6, 1995. He replaces
Maurice Rosenthal who resigned from the Board of Directors effective
November 6, 1995.
Howard M. Bloch was appointed Vice Chairman of the Board of Directors
on November 3, 1995. Mr. Bloch was formerly Treasurer and Vice
President of the Company.
James H. Perry, who will continue as the Company's Treasurer, was
appointed Chief Financial Officer, effective October 23, 1995. Mr.
Perry replaces Thomas J. Carmody who is no longer with the Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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, 1995.
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 November 14, 1995 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer and Treasurer
9