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, 1997
------------------
[ ] 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. Identification No.)
incorporaation 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. 12,218,643 shares of common
stock as of November 1, 1997.
<PAGE>
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
September 30, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations -
Three Months and Nine Months Ended
September 30, 1997 and 1996 2
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 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
<PAGE>
PART I - FINANCIAL INFORMATION
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ -----------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Current Assets
Cash & cash equivalents $ 16,588 $ 13,427
Trade receivables 26,617 40,134
Inventories
Finished goods & work-in-process 30,013 35,423
Materials & supplies 3,024 4,084
-------- --------
33,037 39,507
Deferred income taxes 6,303 6,131
Prepaid expenses & other current assets 20,440 1,217
-------- --------
Total Current Assets 102,985 100,416
Other assets 40,414 38,018
Property & equipment - less allowances
for depreciation (1997-$91,996; 1996-$89,256) 38,094 41,534
-------- --------
$181,493 $179,968
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
- -------------------
Accounts payable $ 5,617 $ 10,135
Accrued employee compensation & taxes 8,414 7,690
Customer advances 2,344 5,873
Federal income taxes 4,114 963
Current portion of long-term debt 1,250 13,750
Other liabilities 14,759 8,105
Provision for contract losses 4,882 9,166
-------- --------
Total Current Liabilities 41,380 55,682
Long-term liabilities (less current maturities) 9,821 2,654
Deferred income taxes 9,711 9,662
Postretirement benefits other than pensions 22,465 21,825
Shareholders' Equity
- --------------------
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,218,643 and 12,173,743 shares -
1997 and 1996 (net of shares in treasury) 14,374 14,374
Additional capital 89,994 90,196
Retained earnings 10,430 2,876
Treasury stock, at cost, 2,155,505 at 1997
and 2,200,405 shares at 1996 (16,682) (17,301)
-------- --------
98,116 90,145
-------- --------
$181,493 $179,968
======== ========
</TABLE>
See accompanying notes
1
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ---------------
(Unaudited)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 52,089 $ 54,159 $166,182 $163,925
Operating costs & expenses
Cost of sales 39,837 44,810 126,959 126,851
Selling & administrative 8,562 8,623 29,922 30,857
Other expense - net 356 331 368 472
Interest expense 238 523 829 1,738
Interest income (341) (348) (819) (905)
Gain on sale of assets (13,323) - (13,323) -
-------- -------- -------- --------
35,329 53,939 143,936 159,013
-------- -------- -------- --------
Income before income taxes 16,760 220 22,246 4,912
Income taxes 10,082 57 12,135 1,860
-------- -------- -------- --------
Net income $ 6,678 $ 163 $ 10,111 $ 3,052
======== ======== ======== ========
Net earnings per share $ .54 $ .01 $ .82 $ .25
===== ===== ===== =====
</TABLE>
See accompanying notes
2
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,111 $ 3,052
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 7,293 6,078
Increase in federal income taxes 3,151 (736)
Deferred income taxes (134) 304
Gain on sale of assets (13,323) -
Decrease in contract loss provision (4,284) (1,451)
Changes in operating assets and liabilities 15,075 7,229
-------- --------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 17,889 14,476
INVESTING ACTIVITIES
Proceeds from sale of assets 696 -
Purchase of property and equipment (3,964) (4,097)
Increase in other assets - net (3,976) (2,046)
-------- --------
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES (7,244) (6,143)
FINANCING ACTIVITIES
Increase (decrease) in long-term liabilities 2,375 (1,875)
Proceeds from borrowings 6,250 9,000
Payments on long-term debt & borrowings (13,958) (15,250)
Dividends (2,557) (1,825)
Proceeds from exercise of stock options 406 8
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,484) (9,942)
-------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,161 (1,609)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,427 11,915
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 16,588 $ 10,306
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 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 nine month period ended September 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 $.08 per share is payable November 28,1997.
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.
NOTE D - SALE OF ASSETS
In the third quarter of 1997, the Company sold the assets of its Neo Products
Company subsidiary (the Plastics business) and the capital stock of its AAI
Systems Management, Inc. subsidiary (the Weather Systems business) for a net
after tax gain of $8,549,000 or $.69 per share.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $2,257,000 or 1.4% to $166,182,000 for the nine months of
1997 compared to the same period last year. However, excluding United Industrial
Corporation's (the "Company") Weather Systems and Plastics Businesses ("Disposed
Businesses") which were sold during the third quarter of 1997, net sales
increased $3,948,000 or 3.0% to $136,344,000. The Energy segment experienced
increased sales of $6,272,000 or 29%, due to new installations of stoker
equipment. While this increase was partially offset by a $2,324,000 decrease in
the Defense segment, this segment's results in 1996 included nearly $3,000,000
in sales related to a program to upgrade the visual system of an SH-60
helicopter simulator which was completed in 1996. Net sales decreased $2,070,000
or 3.8% in the three month period compared to the same period last year. Aside
from the Company's Disposed Businesses, net sales during the third quarter of
1997 increased $1,814,000 or 4.3% over the same period in 1996. In the three
month period sales increased $2,666,000 or 40.8% in the Energy segment which
were offset by decreased sales in the Defense segment. The reductions in sales
in the Defense segment was due generally to the timing of contract awards.
The gross profit percentage increased 1% to 23.6% (.5% increase to 24.4%
excluding the Disposed Businesses) for the nine months 1997 compared to the same
period last year. The gross profit percentages increased in the Energy segment
and decreased in the Defense segment. The growth in the Energy segment was
generally attributable to an improved pricing structure as well as continued
operating efficiencies. The decreases in the Defense segment generally resulted
from a fluctuation in the mix of contracts from a "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. For the three months ended September
30, 1997 the gross profit percentage increased 6.3% to 23.5% (6.6% increase to
24% without the Disposed Businesses) compared to the same period last year. The
prior year's three month period gross profit was decreased by a $2.2 million
pretax charge regarding the SH-60 helicopter program.
Selling and administrative expenses as a percentage of net sales were 18.0% and
16.4% (19.6% and 17.4%, excluding the Disposed Businesses) for the nine and
three month periods, respectively, ended September 30, 1997. Selling and
administrative expenses were reduced $935,000 and $61,000 (reduced $820,000 and
increased $15,000, excluding the Disposed Businesses) for the nine and three
month periods, respectively, in 1997 compared to the same periods last year.
The Company earned net income of $10,111,000 or $.82 per share and $6,678,000 or
$.54 per share for the nine month and three month periods, respectively, in
1997. Both periods include the net after tax gain on the sale of assets of Neo
Products Company and the capital stock of AAI Systems Management of $8,549,000
or $.69 per share and a reserve for potential liabilities relating to prior year
tax examinations. 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 in the calculation of earnings per share is not expected to
be material.
5
<PAGE>
In August 1997, the Company sold substantially all the operating assets of Neo
Products Company, its Plastics Business. In September 1997, the Company sold all
of the capital stock of AAI Systems Management, Inc., its Weather Systems
Business. The net sales of Neo Products Company for the eight month periods in
1997 and 1996 were $4,605,000 and $3,707,000, respectively, and its net losses
were $83,000 and $3,000 during the like periods, respectively. The Company's
Weather Systems business posted net sales of $25,233,000 and $27,262,000 during
the first nine months of 1997 and 1996, respectively. In addition, its net
income during the like periods was $1,707,000 and $1,302,000, respectively.
Reference is made to the Company's Current Reports on Form 8-K filed on
September 3, 1997 and October 17, 1997.
Liquidity and Capital Resources
Cash increased $3,161,000 for the nine months of 1997 compared to a decrease of
$1,609,000 for the nine months of 1996. Cash provided by operations was
$17,889,000 for the nine-month period ended September 30, 1997, as compared to
cash provided by operations of $14,476,000 for the same period in the prior
year. In October 1997 the Company received $18,500,000 in cash for the
receivable from the sale of the Weather Systems Business. 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 borrowed $6,250,000 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
September 30, 1997, there were $6,042,000 of borrowings under the Agreement.
Contingent Matters
Reference is made to Item 3. Legal Proceedings, in the December 31, 1996 Form
10-K which is incorporated herein by reference.
6
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 2 - Changes in Securities and Use of Proceeds
(c) Pursuant to an Asset Acquisition Agreement and Plan of
Reorganization (the "Agreement") dated as of August 13, 1997 by
and between the Company and Fein Investing Properties, Inc.
("FIP"), on August 18, 1997 the Company issued 530,444 shares
of the Company's common stock, par value $1.00 per share
("Common Stock"), to FIP in exchange for 565,444 shares of
Common Stock owned by FIP that were transferred and assigned by
it to the Company. The exchange ratio resulted in the Company
reacquiring some of its shares at a below-market price.
The issuance of shares to FIP was exempt from registration
under the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 3(a)(9) of the Act. Section 3(a)(9) exempts
from registration securities issued by the Company to an
existing stockholder where no other remuneration was paid for
soliciting such exchange. Pursuant to the Agreement, the
Company issued shares of Common Stock in exchange for shares of
Common Stock held by an existing stockholder of the Company,
and no remuneration was paid for soliciting such exchange.
FIP is a New York corporation wholly-owned by the children,
certain grandchildren and a son-in-law of Bernard Fein,
Chairman Emeritus of the Company, including Susan Fein Zawel,
an officer and director of the Company.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of Earnings per share
27 - Financial Data Schedule
(b) Reports on Form 8-K
1. Relating to the sale of assets of
Neo Products Company - filed on
September 3, 1997.
2. Relating to the sale of the
Weather Systems Business - filed on October 17, 1997.
7
<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 November 13, 1997 By: /s/ James H. Perry
------------------------------
James H. Perry
Chief Financial Officer
and Treasurer
8
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
9
EXHIBIT 11 - Computation of Earnings Per Share
Item 6(a)
Exhibit 11
Computation of Earnings per Share
United Industrial Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 12,481,914 12,212,123 12,379,440 12,197,703
========== ========== ========== ==========
Net income $6,678,000 $163,000 $10,111,000 $3,052,000
========== ======== =========== ==========
Earnings per share $ .54 $ .01 $ .82 $ .25
====== ====== ====== ======
</TABLE>
<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> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 16,588
<SECURITIES> 0
<RECEIVABLES> 26,617
<ALLOWANCES> 0
<INVENTORY> 33,037
<CURRENT-ASSETS> 102,985
<PP&E> 130,090
<DEPRECIATION> 91,996
<TOTAL-ASSETS> 181,493
<CURRENT-LIABILITIES> 41,380
<BONDS> 4,792
0
0
<COMMON> 14,374
<OTHER-SE> 83,742
<TOTAL-LIABILITY-AND-EQUITY> 181,493
<SALES> 166,182
<TOTAL-REVENUES> 180,324
<CGS> 126,959
<TOTAL-COSTS> 156,881
<OTHER-EXPENSES> 368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829
<INCOME-PRETAX> 22,246
<INCOME-TAX> 12,135
<INCOME-CONTINUING> 10,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,111
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
