SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
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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 --------------------
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
incorporation or organization) (I.R.S. Identification No.)
18 East 48th Street, New York, NY 10017
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(Address of 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 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. 12,180,943
shares of common stock as of August 1, 1997.
UNITED INDUSTRIAL CORPORATION
INDEX
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Page #
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
June 30, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended
June 30, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 7
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
JUNE 30 DECEMBER 31
1997 1996
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ASSETS (Unaudited)
Current Assets
Cash & cash equivalents $ 7,863 $ 13,427
Trade receivables 35,127 40,134
Inventories
Finished goods & work-in-process 26,529 35,423
Materials & supplies 4,174 4,084
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30,703 39,507
Deferred income taxes 6,262 6,131
Prepaid expenses & other current assets 1,133 1,217
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Total Current Assets 81,088 100,416
Other assets 37,836 38,018
Property & equipment - less allowances
for depreciation (1997-$93,360; 1996-$89,256) 40,787 41,534
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$159,711 $179,968
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,932 $ 10,135
Accrued employee compensation & taxes 8,190 7,690
Customer advances 3,748 5,873
Federal income taxes 638 963
Current portion of long-term debt - 13,750
Other liabilities 6,098 8,105
Provision for contract losses 7,549 9,166
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Total Current Liabilities 33,155 55,682
Long-term liabilities (less current maturities) 2,654 2,654
Deferred income taxes 9,753 9,662
Postretirement benefits other than pensions 22,250 21,825
Shareholders' Equity
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,178,243 and 12,173,743 shares -
1997 and 1996 (net of shares in treasury) 14,374 14,374
Additional capital 90,186 90,196
Retained earnings 4,605 2,876
Treasury stock, at cost, 2,195,905 at 1997
and 2,200,405 shares at 1996 (17,266) (17,301)
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91,899 90,145
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$159,711 $179,968
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See accompanying notes
1
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
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(Unaudited)
1997 1996* 1997 1996*
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Net sales $ 55,649 $ 55,265 $114,093 $109,766
Operating costs & expenses
Cost of sales 41,854 42,050 87,122 82,041
Selling & administrative 11,549 10,572 21,360 22,234
Other expense (income) (359) (52) 12 141
Interest expense 81 652 591 1,215
Interest income (143) (333) (478) (557)
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52,982 52,889 108,607 105,074
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Income before income taxes 2,667 2,376 5,486 4,692
Income taxes 997 918 2,053 1,803
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Net income $ 1,670 $ 1,458 $ 3,433 $ 2,889
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Net earnings per share $ .14 $ .12 $ .28 $ .24
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See accompanying notes
*Restated to conform to
current year classifications
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
SIX MONTHS ENDED JUNE 30
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(Unaudited)
1997 1996
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OPERATING ACTIVITIES
Net income $ 3,434 $ 2,889
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 4,998 4,055
Deferred income taxes (40) 110
Federal income tax changes (325) 619
Decrease in contract loss provision (1,617) (3,724)
Changes in operating assets and liabilities 7,060 2,850
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 13,510 6,799
INVESTING ACTIVITIES
Purchase of property and equipment (3,357) (2,262)
Increase in other assets - net (700) (535)
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NET CASH (USED IN) INVESTING ACTIVITIES (4,057) (2,797)
FINANCING ACTIVITIES
Increase in long-term liabilities 425 -
Proceeds from borrowings - 7,956
Payments on long-term debt & borrowings (13,750) (6,000)
Dividends (1,705) (1,216)
Proceeds from exercise of stock options 13 -
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NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (15,017) 740
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENT (5,564) 4,742
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,427 11,915
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 7,863 $ 16,657
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See accompanying notes
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 1997
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, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
NOTE B - DIVIDENDS
A quarterly dividend of $.07 per share is payable August 29, 1997.
NOTE C - LEGAL PROCEEDINGS
Reference is made to Item 3. Legal Proceedings in the December 31, 1996 Form
10-K which is incorporated herein by reference.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
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During the second quarter ended June 30, 1997, net sales increased to
$55,649,000 from $55,265,000 in the second quarter of 1996. For the first six
months of 1997, net sales of $114,093,000 were $4,327,000, or 3.9%, higher than
net sales of $109,766,000 during the same period in 1996. Although net sales in
the Defense segment decreased $2,267,000, or 4.9%, during the second quarter,
this decline was generally due to the timing of contract awards. In addition,
while the Defense segment's net sales increased less than 1% during the
six-month period in 1997, the 1996 period included nearly $3,000,000 in sales
related to a program to upgrade the visual system of an SH-60 helicopter
simulator that had no recurring sales in 1997. In the Company's Energy segment,
higher prices and volumes have produced net sales increases of $2,243,000, or
30.3%, and $3,606,000, or 23.9%, in the current year's three and six month
periods, respectively, as compared to the like periods in 1996.
Gross profit percentages increased .9% to 24.8% during the 1997 second quarter
and decreased 1.6% to 23.6% during the six-month period in 1997, as compared to
the like periods in 1996. In the Defense segment, gross profit percentages
slipped .9% and 3.9% during the second quarter and year-to-date periods,
respectively, as compared to the prior year. These decreases in the Defense
segment generally resulted from a fluctuation in the mix of contracts from
"fixed price production" to "cost plus development." However, the current
contract mix includes lower financial risk programs that offer opportunities for
follow-on higher-margin, long-term, sole source production awards. The gross
profit in the Energy segment increased 9.2% to 37% for the three months ended
June 30, 1997, compared to the 1996 second quarter, and 9.5% to 37% for the
six-month period in 1997, compared to the like period in 1996. This growth was
generally attributable to an improved pricing structure as well as continued
operating efficiencies.
Selling and administrative expenses for the three months ended June 30, 1997
were $11,549,000, which was 9.2% greater than in the like period in 1996. During
the six-month period in 1997, selling and administrative expenses decreased
$874,000, or 3.9%, compared to the same period in 1996. The increase in the
second quarter of 1997 was due to greater marketing and contract procurement
costs in the Defense segment. These higher costs were partially offset, in the
six-month period, by lower marketing and contract procurement costs in the first
quarter of 1997, due to the timing of new program activity. Also, additional
savings were generated in the Defense segment in the first quarter of 1997 from
facilities consolidation and headcount reductions, which more than offset the
added costs in the second quarter. As a percentage of sales, selling and
administrative expenses increased 1.6% to 20.8% and decreased 1.5% to 18.7% for
the three and six
5
month periods ended June 30, 1997, respectively, as compared to the same periods
in 1996.
Net income increased 14.5% and 18.8% for the three and six month periods ending
June 30, 1997, respectively, primarily due to reduced interest expense resulting
from decreased borrowings. Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings Per Share," is effective in the fourth quarter of 1997. The
impact of this FASB Statement on the calculation of earnings per share is not
expected to be material.
Liquidity and Capital Resources
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Cash flows from operations were $13,510,000 for the six-month period ended June
30, 1997, as compared to $6,799,000 for the same period in the prior year. The
change was principally attributable to changes in operating assets and
liabilities. Funds from operations were sufficient for dividends and capital
expenditures. 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 principal and interest
payments on indebtedness. The Company expects that available cash and existing
lines of credit will be sufficient to finance operations through December 31,
1997. On June 11, 1997, the Company and its subsidiaries entered into a
Revolving Line of Credit Agreement, Term Loan Agreement and Security Agreement,
("Agreement") (amending and restating Credit Agreement, dated as of October 13,
1994) with an institutional lender. In July 1997, the Company signed a
$6,250,000 term note, under the Agreement, at LIBOR plus a fluctuating margin.
The principal is payable in sixty consecutive monthly installments. The amount
available under the Revolving Line of the Credit Agreement is $17,500,000 with
various interest rate options, and is reduced by the Letter of Credit
obligations, which may not exceed $12,500,000. The Agreement provides for
restrictive covenants among which are debt service coverage ratio, quick ratio,
service debt ratio and a tangible net worth requirement, all as defined. All
assets now owned or hereafter acquired by the Company and its subsidiaries are
pledged as collateral under the Agreement. At June 30, 1997, there were no
borrowings under the Agreement.
Contingent Matters
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Reference is made to Item 3. Legal Proceedings, in the December 31, 1996 Form
10-K which is incorporated herein by reference.
6
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 4 - Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Registrant was
held on May 13, 1997.
(b) Harold S. Gelb and Susan Fein Zawel were elected directors
at the meeting, for terms ending in 2000. The incumbent
directors whose terms of office continued after the
meeting are Edward C. Aldridge, Jr., Howard M. Bloch,
Richard R. Erkeneff and E. Donald Shapiro.
(c) Voting for the election of directors of the Registrant:
WITHHELD(including
FOR broker non-votes)
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Harold S. Gelb 9,998,259 1,326,416
Susan Fein Zawel 10,025,918 1,285,357
Other Matters:
11,042,063 shares were voted in favor of the proposal to
ratify the appointment of Ernst & Young LLP as independent
auditors of the Registrant for 1997 with 217,723 shares
voted against, 54,989 abstentions and no broker non-votes.
9,833,531 shares were voted in favor of the 1996 Stock
Option Plan for Non-employee Directors with 1,338,555
shares voted against, 145,889 abstentions and no broker
non-votes. 4,393,457 shares were voted in favor of the
stockholder proposal concerning elimination of a
classified Board of Directors with 4,872,649 voted
against, 214,611 abstentions and 1,834,058 broker
non-votes. 1,984,708 shares were voted in favor of a
stockholder proposal for the engagement of an investment
banker with 7,300,631 voted against, 194,452 abstentions
and 1,834,984 broker non- votes. Accordingly, neither
stockholder proposal was approved. Reference is made to
the Registrant's Proxy Statement dated March 27, 1997 for
its 1997 Annual Meeting for additional information
concerning the matters voted on at the meeting.
ITEM 5 - Other Information
On May 6, 1997, the Company entered into a non-binding Letter
of Intent for the sale of its subsidiary Neo Products Co.
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ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10(q) - Revolving Line of Credit Loan Agreement, Term
Loan Agreement and Security Agreement dated as of June
11, 1997 (amending and restating Credit Agreement dated
as of October 13, 1994) and related documents.
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, 1997.
8
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 August 14, 1997 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer
and Treasurer
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
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10(q) Revolving Line of Credit Loan Agreement,
Term Loan Agreement and Security Agreement
dated as of June 11, 1997 (amending and
restating Credit Agreement dated as of October
13, 1994) and related dcouments.
11 Computation of Earnings Per Share
27 Financial Data Schedule
10