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, 1996
-----------------------------------
[ ] 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
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UNITED INDUSTRIAL CORPORATION
- --------------------------------------------------------------------------------
(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)
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. 12,172,143 shares of common
stock as of May 1, 1996.
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UNITED INDUSTRIAL CORPORATION
INDEX
Page #
------
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
March 31, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1996 and 1995 2
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 3
Notes to Consolidated Condensed Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - Other Information 10
<PAGE>
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
MARCH 31 DECEMBER 31
1996 1995
---- ----
ASSETS (Unaudited)
- ------
Current Assets
Cash & cash equivalents $ 14,426 $ 11,915
Trade receivables 28,683 32,911
Inventories
Finished goods & work-in-process 48,527 43,185
Materials & supplies 5,058 4,737
-------- --------
53,585 47,922
Deferred income taxes 6,487 6,487
Prepaid expenses & other current assets 1,436 1,761
-------- --------
Total Current Assets 104,617 100,996
Other assets 38,983 39,524
Property & equipment - less allowances
for depreciation (1996-$87,995; 1995-$86,637) 42,366 42,586
-------- --------
$185,966 $183,106
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
- -------------------
Short-term borrowings $ 3,000 $ 3,000
Accounts payable 9,787 10,132
Accrued employee compensation & taxes 8,473 6,536
Customer advances 6,223 6,384
Federal income taxes 631 -
Current portion of long-term debt 6,250 6,250
Other liabilities 4,638 4,472
Provision for contract losses 10,237 10,751
-------- --------
Total Current Liabilities 49,239 47,525
Long-term liabilities (less current maturities) 18,310 18,279
Deferred income taxes 9,852 9,820
Postretirement benefits other than pensions 21,576 21,322
Shareholders' Equity
- --------------------
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,172,143 and 12,170,793 shares at
1996 and 1995 (net of shares in treasury) 14,374 14,374
Additional capital 90,809 91,421
Retained earnings (deficit) (880) (2,311)
Treasury stock, at cost, 2,202,005 and
2,203,355 shares at 1996 and 1995 (17,314) (17,324)
-------- --------
86,989 86,160
-------- --------
$185,966 $183,106
======== ========
See accompanying notes
1
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UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended March 31
------------------------------
1996 1995 *
------------ -----------
(Unaudited)
Net sales $ 54,501 $ 51,653
Operating costs & expenses
Cost of sales 40,749 38,593
Selling & administrative 10,904 11,068
Other expense (income) 193 (22)
Interest expense 563 588
Interest income (224) (445)
-------- --------
52,185 49,782
-------- --------
Income before income taxes 2,316 1,871
Income taxes 885 731
-------- --------
Net income $ 1,431 $ 1,140
======== ========
Net earnings per share $ .12 $ .09
===== =====
See accompanying notes
*Restated to conform to
current classifications
2
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UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
---------------------------
1996 1995
-------- ------
OPERATING ACTIVITIES (Unaudited)
- --------------------
Net income $ 1,431 $ 1,140
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,057 2,006
Deferred income taxes 32 (2,826)
(Decrease) increase in contract loss provision (514) 1,577
Changes in operating assets and liabilities 1,403 4,914
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,409 6,811
INVESTING ACTIVITIES
Decrease in note receivable - 8,540
Purchase of property and equipment (1,358) (1,773)
Increase (decrease) in other assets - net 37 (1,274)
-------- --------
NET CASH PROVIDED BY
INVESTING ACTIVITIES (1,321) 5,493
FINANCING ACTIVITIES
Increase in long-term liabilities 31 32
Proceeds from borrowings 3,000 3,000
Payments on long-term debt & borrowings (3,000) (4,200)
Dividends (608) (852)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (577) (2,020)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,511 10,284
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,915 6,132
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 14,426 $ 16,416
======== ========
See accompanying notes
3
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 1996
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, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
NOTE B - DIVIDENDS
A quarterly dividend of $.05 per share is payable May 31, 1996.
NOTE C - 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. One tort claim is a certified
property and medical class action.
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 litigation. In exchange for a full release from
liability by the State and the Arizona Department of Environmental Quality, the
Company, without admitting liability, has agreed to the following:
4
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o Undertake and pay for the costs of an RI/FS Work Plan, estimated at
$1,300,000.
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 total estimated clean-up cost not to exceed an additional
$1,120,000.
o The Company reserves all rights to seek contribution from other
responsible parties.
The Company and the State have signed a Consent Decree and Work Plan
incorporating these terms and conditions. The Consent Decree has been lodged
with the United States District Court for the District of Arizona for a 30- day
public comment period. Since the conclusion of that period, the parties have
moved jointly for court approval of the settlement. Resolution of this matter
will not have a materially adverse effect on the consolidated financial position
of the Company. The Company has provided approximately $1,900,000 based on
estimates of the total cost for the RI/FS, estimates of amounts specified for
past costs and estimates of future remediation and clean-up costs.
On February 11, 1992 a complaint was filed against the Company and ten other
named and ten unnamed entities in the Maricopa County Superior Court of Arizona
by seven individuals seeking to represent a class. A class in excess of 10,000
was originally alleged. The plaintiffs have amended their complaints to separate
the larger property damage and medical monitoring classes into smaller
subclasses based on geographic location and alleged exposure to solvents. In the
process of amendment, the overall sizes of the respective classes have been
significantly reduced. This suit alleges that the members of the class have been
exposed to contaminated groundwater in the Phoenix/Scottsdale, Arizona area and
suffer increased risk of disease and other physical effects. They also assert
property damages under various theories; seek to have certain scientific studies
performed concerning health risks, preventative measures and long-term effects;
and seek incidental and consequential damages, punitive damages and an
injunction against actions causing further exposures. The property and medical
classes recently were certified. The Company has joined with the other
defendants and appealed the class certification issue to the Arizona Supreme
Court. The Company intends to vigorously contest these actions and believes that
the resolution of these actions will not be material to the Company.
Four additional lawsuits were filed on April 7, 1993, December 20, 1993, June
10, 1994 and July 18, 1995 in the Maricopa County Superior Court of Arizona.
These matters allege personal injury and wrongful death by multiple plaintiffs
arising from the alleged contamination in the Phoenix/Scottsdale, Arizona area.
The Company intends to aggressively defend against these claims; however, at
this time, no estimate can be made as to the amount or range of potential loss,
if any, to the Company with respect to these matters. In comparison to the other
defendants, the operations of the Company were very limited in time and size.
Since January 1993, Detroit Stoker has been named a third-party defendant in
thirty-four asbestos lawsuits pending in the United States District Court for
5
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the Northern District of Ohio. The third-party plaintiffs in these actions are
ship owners who have been sued by Great Lakes maritime workers who seek damages
in unstated amounts for alleged personal injuries and disease as a result of
exposure to asbestos while working aboard the ships. The ship owners claim that
Detroit Stoker and numerous other suppliers furnished products, supplies or
components of the ships that contained asbestos. These cases are now
consolidated in the national multi-district asbestos litigation pending in the
United States District Court, Eastern District of Pennsylvania. Detroit Stoker
intends to aggressively defend these claims, however, at this time, no estimate
can be made as to the amount or range of potential loss, if any, to Detroit
Stoker with respect to these actions.
Detroit Stoker was notified in March 1992 by the Michigan Department of Natural
Resources (MDNR) that it is a potentially responsible party in connection with
the clean-up of a former industrial landfill located in Port of Monroe,
Michigan. MDNR is treating the Port of Monroe landfill site as a contaminated
facility within the meaning of the Michigan Environmental Response Act (MERA),
MCLA section 299.601 et seq. Under MERA, if a release or a potential release of
-- ---
a discarded hazardous substance is or may be injurious to the environment or to
the public health, safety, or welfare, MDNR is empowered to undertake or compel
investigation and response activities in order to alleviate any contamination
threat. Detroit Stoker intends to aggressively defend these claims, however, at
this time, no estimate can be made as to the amount or range of potential loss,
if any, to Detroit Stoker with respect to this action.
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. 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. While the Company believes that the
formal claims asserted against the customer are meritorious and the Company will
vigorously pursue recovery of the monies claimed, the customer has asserted
substantive defenses to these claims. Because the proceedings are currently in
the discovery phase, it is not possible at this time to determine the ultimate
amount of recovery of these costs.
The Company is involved in various other lawsuits 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 Company.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales increased 5.5% to $54,501,000 in 1996, as compared to $51,653,000 in
1995. This growth primarily resulted from improvements at the Company's Defense
segment business which increased 11.9% predominantly related to training
systems.
Gross profit margin remained essentially unchanged at approximately 25% in the
first quarter of 1996 compared to the corresponding period in 1995. The gross
profit margin in the Energy segment increased during the first three months of
1996 primarily due to the shift in sales volume from stokers to aftermarket
products. Included in the Defense segment's costs in 1996 is a pretax charge of
$900,000 related to the reduction of the estimated net realizable value of
certain non-contract inventories. At December 31, 1995, the Company indicated
that the net realizable value of these inventories was $7,700,000. Inasmuch as
the Company has not produced a buyer for such inventory at March 31, 1996, it
has reduced its estimated net realizable value at that date to $6,800,000. The
Company still identifies potential buyers for a substantial portion of such
inventory and has based the estimate of the net realizable value on its current
assessment of the salability of this inventory. However, the company faces
significant competition from other producers of similar products and therefore
the estimated net realizable value of this inventory may be further reduced
during the year.
Selling and Administrative expenses for the three months ended March 31, 1996
declined slightly from a year ago. However, as a percentage of sales, Selling
and Administrative expenses decreased 1.4% to 20.0% for the first quarter of
1996, as compared to 21.4% for the same period in 1995.
The reduction in other income resulted primarily from reduced royalty income in
the Energy segment.
Interest income was reduced due to reduced investments.
Net income increased by 25.5% to $1,431,000 or .12 per share in 1996, as
compared to net income of $1,140,000 or $.09 per share in 1995. The improvement
was primarily attributable to increased sales and slightly better profit margins
partially offset by the $900,000 pretax charge described above.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased $2,511,000 from December 31, 1995. The
principal cause of this increase was due to operating activities. The Company
currently has no significant fixed commitment for capital expenditures or for
investments. Its cash requirements consist primarily of its obligations to fund
operations and make interest and principal payments on indebtedness. The Company
expects that available cash and existing lines of credit will be sufficient to
meet its cash requirements for the remainder of the calendar year.
7
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Contingent Matters
- ------------------
Reference is made to Note C to the financial statements included herewith, which
Note is incorporated herein by reference.
8
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II -OTHER INFORMATION
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 March 31, 1996.
9
<PAGE>
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 10, 1996 By: /s/ James H. Perry
------------ ------------------------------
James H. Perry
Chief Financial Officer
and Treasurer
10
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Page
- ----------- ----
11 Computation of Earnings Per Share
27 Financial Data Schedule
11
EXHIBIT 11 - Computation of Earnings Per Share
Item 6(a)
Exhibit 11
Computation of Earnings per Share
United Industrial Corporation and Subsidiaries
THREE MONTHS ENDED MARCH 31
---------------------------
1996 1995
--------- ------
Primary:
Average shares outstanding 12,177,898 12,171,528
========== ==========
Net income $ 1,431,000 $ 1,140,000
============ ============
Earnings per share $ .12 $ .09
===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 14,426
<SECURITIES> 0
<RECEIVABLES> 28,683
<ALLOWANCES> 0
<INVENTORY> 53,585
<CURRENT-ASSETS> 104,617
<PP&E> 130,361
<DEPRECIATION> 87,995
<TOTAL-ASSETS> 185,966
<CURRENT-LIABILITIES> 49,239
<BONDS> 18,310
0
0
<COMMON> 14,374
<OTHER-SE> 72,615
<TOTAL-LIABILITY-AND-EQUITY> 185,966
<SALES> 54,501
<TOTAL-REVENUES> 54,725
<CGS> 40,749
<TOTAL-COSTS> 51,653
<OTHER-EXPENSES> 193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563
<INCOME-PRETAX> 2,316
<INCOME-TAX> 885
<INCOME-CONTINUING> 1,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,431
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
