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, 1998
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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
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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)
570 Lexington Avenue, New York, NY 10022
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(Address of principal executive offices)
Not Applicable
------------------------------------------------
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. 12,372,963
shares of common stock as of August 3, 1998.
<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
June 30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
PART II - Other Information 8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
JUNE 30 DECEMBER 31
1998 1997
--------- -----------
(Unaudited)
ASSETS
- ------
Current Assets
Cash & cash equivalents $ 30,281 $ 23,098
Marketable securities 5,471 6,102
Trade receivables 36,687 27,819
Inventories
Finished goods & work-in-process 19,592 28,551
Materials & supplies 3,689 3,239
-------- --------
23,281 31,790
Assets held for sale - 12,516
Deferred income taxes 4,942 4,982
Prepaid expenses & other current assets 12,473 11,282
-------- --------
Total Current Assets 113,135 117,589
Other assets 40,994 40,126
Property & equipment - less allowances
for depreciation (1998-$80,289; 1997-$77,307) 27,670 25,576
-------- --------
$181,799 $183,291
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable $ 5,568 $ 7,604
Accrued employee compensation & taxes 7,831 7,777
Customer advances 5,099 3,542
Federal income taxes (1,606) 630
Current portion of long-term debt - 1,250
Other liabilities 17,576 13,134
Provision for contract losses 5,833 5,776
-------- --------
Total Current Liabilities 40,301 39,713
Long-term liabilities (less current maturities) 4,235 9,508
Deferred income taxes 9,874 9,690
Postretirement benefits other than pensions 22,656 22,356
Shareholders' Equity
Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding
12,352,859 and 12,249,309 shares -
1998 and 1997 (net of shares in treasury) 14,374 14,374
Additional capital 89,677 89,929
Retained earnings 16,325 14,165
Treasury stock, at cost, 2,021,289 shares at
1998 and 2,124,839 shares at 1997 (15,643) (16,444)
-------- --------
104,733 102,024
-------- --------
$181,799 $183,291
======== ========
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 Six Months Ended
June 30 June 30
------------------ ----------------
(Unaudited)
1998 1997 1998 1997
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 49,940 $ 55,649 $ 97,167 $114,093
Operating costs & expenses
Cost of sales 37,578 41,854 71,231 87,122
Selling & administrative 9,584 11,549 19,959 21,360
Other (income) expense (222) (359) (313) 12
Interest expense 11 81 119 591
Interest income (870) (143) (1,445) (478)
-------- -------- -------- --------
46,081 52,982 89,551 108,607
-------- -------- -------- --------
Income before income taxes 3,859 2,667 7,616 5,486
Income taxes 1,561 997 2,995 2,053
-------- -------- -------- --------
Net income $ 2,298 $ 1,670 $ 4,621 $ 3,433
======== ======== ======== ========
Net earnings per share
Basic $ .19 $ .14 $ .38 $ .28
===== ===== ===== =====
Diluted $ .18 $ .14 $ .36 $ .28
===== ===== ===== =====
</TABLE>
See accompanying notes
2
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
(Unaudited)
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net income $ 4,621 $ 3,434
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 4,207 4,998
Deferred income taxes 224 (40)
Decrease in Federal income tax (2,236) (325)
Increase (decrease) in contract loss provision 57 (1,617)
Changes in operating assets and liabilities (3,700) 7,060
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,173 13,510
INVESTING ACTIVITIES
- --------------------
Decrease in marketable securities 631 -
Purchase of property and equipment (5,538) (3,357)
Proceeds from sale of assets 18,683 -
Increase in other assets - net (1,631) (700)
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 12,145 (4,057)
FINANCING ACTIVITIES
- --------------------
(Decrease) increase in long-term liabilities (494) 425
Payments on long-term debt & borrowings (5,729) (13,750)
Dividends (2,460) (1,705)
Proceeds from exercise of stock options 548 13
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (8,135) (15,017)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,183 (5,564)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 23,098 13,427
-------- -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 30,281 $ 7,863
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 1998
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, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
NOTE B - DIVIDENDS
A quarterly dividend of $.10 per share is payable August 31, 1998.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Information
- ---------------------------
Except for the historical information contained herein, information set forth in
this quarterly report may contain forward looking statements subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. Such
forward looking statements, including, but not limited to, projections of
revenues, earnings, segment performance, cash flows and contract awards, are
based on management's expectations, estimates, projections and assumptions. For
additional information about the Company and its various risk factors, reference
is made to the Company's most recent Annual Report on Form 10-K as filed with
the Securities and Exchange Commission.
Results of Operations
- ---------------------
Consolidated net sales during the second quarter of 1998 decreased $5,709,000 or
10% to $49,940,000 from $55,649,000 in the second quarter of 1997. However, the
Company's Weather Systems and Plastics businesses (together the "Disposed
Businesses") which were sold in the third quarter of 1997 accounted for sales of
$11,776,000 during the 1997 second quarter. Excluding the 1997
4
<PAGE>
sales related to the Disposed Businesses, net sales increased $6,067,000 or 14%.
The Defense segment (excluding $10,111,000 of second quarter 1997 sales from the
Disposed Weather business) accounted for an increase of $7,708,000 which was
partially offset by a $1,641,000 decrease in sales in the Company's Energy
segment. The increase in the Defense segment was attributable to a general
increase in volume. In the Energy segment, a reduction in renewal parts orders
primarily caused that decrease.
For the six months ended June 30, 1998 net sales totaled $97,167,000 which was
$16,926,000 or 15% less than the $114,093,000 recorded during the like period in
1997. However, the Disposed Businesses accounted for $21,384,000 in net sales
during the first half of 1997. Excluding the 1997 sales related to the Disposed
Businesses, net sales increased $4,458,000 or 5%. The Defense segment (excluding
$18,063,000 of first half 1997 sales from the Disposed Weather business)
accounted for an increase of $5,085,000 which was partially offset by a $627,000
decrease in sales in the Company's Energy segment. The increase in the Defense
segment was attributable to a general increase in volume, but was partially
offset by the timing of work effort on certain contracts during the first
quarter of 1998. During that period, the commencement of work on new contracts
did not coincide with the completion of other programs. In the Energy segment, a
reduction in renewal parts orders primarily caused that decrease.
The backlog at June 30, 1998 was $216,000,000, an increase of $20,000,000 or 10%
from the June 30, 1997 backlog of $196,000,000 (excluding $18,000,000 related to
the Disposed Businesses) and an increase of $28,000,000 or 15% from the December
31, 1997 backlog of $188,000,000.
The gross margin percentage for the three months ended June 30, 1998 was 24.8%
and was essentially unchanged from the second quarter of 1997. Excluding the
Disposed Businesses, the 1997 gross margin percentage would have been 26.5% or
1.7% greater than the corresponding period in 1998. The decrease during 1998 was
due to a 0.7% reduction from 23.5% to 22.8% in the Defense segment resulting
from product mix and a 2.3% reduction from 37.0% to 34.7% in the Energy segment
generally caused by lower volume.
The gross margin percentage during the first half of 1998 increased 3.1% to
26.7% from 23.6% during the first six months of 1997. Excluding the Disposed
Businesses, the 1997 gross margin percentage would have been 24.6% or 2.1% less
than the corresponding period in 1998. The Defense segment's contribution was a
2.9% increase in gross margin percentage from 21.5% in 1997 to 24.4% in 1998
primarily due to the product mix. The Energy segment experienced a 0.4% decline
in gross margin percentage due to its reduced volume.
Selling and administrative expenses for the three months ended June 30, 1998
decreased $1,965,000 or 17% to $9,584,000 from $11,549,000 during the same
period in 1997. The Disposed Businesses accounted for $1,242,000 of the decline.
The balance of the decline was substantially generated in the Defense segment,
but partially offset by the timing of certain corporate costs. The Defense
segment benefitted from lower research and development costs generally due to
timing and other cost savings measures.
During the first half of 1998 selling and administrative expenses decreased
$1,401,000 or nearly 7% to $19,959,000 from $21,360,000 during the like period
in 1997. The Disposed Businesses produced a reduction of $2,416,000, however
this was partially offset by the higher corporate costs incurred during the
second quarter and higher Defense segment research and
5
<PAGE>
development, and bid and proposal costs incurred during the first three months
of 1998.
Other expense (income), net was income of $313,000 in the first six months of
1998 and expense of $12,000 in the same period in 1997. The increase in income
of $325,000 was primarily due to the recognition of profits on assets previously
sold and an increase in performance of joint ventures.
For the first six months of 1998 compared to the same period in 1997, interest
expense decreased by $472,000 due to reduced borrowings and partially offset by
interest payments on prior years taxes. Interest income increased by $967,000
due to increased investments.
Net income increased by 37.6% to $2,298,000 or $.18 per diluted share, in the
second quarter of 1998, compared to net income of $1,670,000, or $.14 per
diluted share, in the same period of 1997. The improvement was primarily
attributable to lower selling and administrative expenses and increased interest
income. Excluding the net income generated by the Disposed Businesses of
$572,000, or $.05 per diluted share, in the second quarter of 1997, net income
increased by $1,200,000, or 109.3%, in the second quarter of 1998.
Net income increased by 34.6% to $4,621,000 or $.36 per diluted share, in the
six month period ended June 30, 1998, compared to net income of $3,433,000, or
$.28 per diluted share, in the same period in 1997. The improvement was
primarily attributable to increased gross margin, lower interest expense,
increased other income, and increased interest income. Excluding net income
generated by the Disposed Businesses of $1,070,000, or $.09 per diluted share,
in the first six months of 1997, net income increased by $2,258,000, or 95.6%,
in the first six months of 1998.
Below is a proforma statement of operations for June 30, 1997 excluding the
three month and six month operations of the Disposed Businesses (Dollars in
thousands, except per share data):
Proforma
June 30, 1997
-------------------------
3 Months 6 Months
-------- --------
Net sales $43,873 $92,709
Operating costs and expenses
Cost of sales 32,247 69,877
Selling and administrative 10,307 18,944
Other (income) expense (346) 37
Interest expense 75 579
Interest income (143) (478)
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42,140 88,959
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Income before income taxes 1,733 3,750
Income taxes 635 1,387
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Net income $ 1,098 $ 2,363
======= =======
Diluted earnings per share - proforma $ .09 $ .19
===== =====
6
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased by $7,183,000, and marketable securities
decreased by $631,000 from December 31, 1997. The sale of assets net of related
facilities improvements, offset by payment of debt of $5,729,000, principally
contributed to the increase in cash. The Company currently has no significant
fixed commitment for capital expenditures or for investments. 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. Its cash
requirements consist primarily of its obligations to fund operations.
Year 2000
- ---------
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has begun converting critical data processing
systems. The Company currently expects the project to be substantially complete
by early 1999. The Company does not expect this project to have a material
effect on its operations or financial condition.
Contingent Matters
- ------------------
Reference is made to Item 3. Legal Proceedings, in the Annual Report on Form
10-K for the year ended December 31, 1997 which is incorporated herein by
reference.
7
<PAGE>
PART II - OTHER INFORMATION
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the
Registrant was held on May 12, 1998.
(b) Edward C. Aldridge, Jr. and Joseph S. Schneider
were elected directors at the meeting, for terms
ending in 2001. The incumbent directors whose
terms of office continued after the meeting are
Richard R. Erkeneff, E. Donald Shapiro, Harold S.
Gelb, and Susan Fein Zawel.
(c) Voting for the election of directors of the
Registrant:
WITHHELD(including
FOR broker non-votes)
--- -----------------
Edward C. Aldridge, Jr. 10,739,517 489,315
Joseph S. Schneider 10,741,189 487,643
Other Matters:
10,821,201 shares were voted in favor of the
proposal to ratify the appointment of Ernst &
Young LLP as independent auditors of the
Registrant for 1998 with 343,232 shares voted
against, 64,399 abstentions and no broker
non-votes. 9,617,036 shares were voted in favor of
amending the 1994 Stock Option Plan with 1,434,017
shares voted against, 177,779 abstentions and no
broker non-votes. 10,347,410 shares were voted in
favor of amending the Company's Restated
Certificate of Incorporation with 545,790 shares
voted against, 335,632 abstentions and no broker
non-votes. Reference is made to the Registrant's
Proxy Statement dated March 26, 1998 for its 1998
Annual Meeting for additional information
concerning the matters voted on at the meeting.
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 June 30, 1998.
8
<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 August 13, 1998 By: /s/ James H. Perry
--------------------------------
James H. Perry
Chief Financial Officer
Vice President and Treasurer
9
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Page
- ----------- ----
11 Computation of Earnings Per Share 10
27 Financial Data Schedule 12
10
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 Six Months Ended
June 30 June 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $2,298,000 $1,670,000 $4,621,000 $3,433,000
========== ========== ========== ==========
Basic earnings per share:
Weighted average shares 12,325,530 12,176,443 12,289,947 12,175,693
========== ========== ========== ==========
Effect of dilutive securities:
Employee and non-employee
director stock options 338,837 193,469 388,980 151,311
======= ======= ======= =======
Diluted earnings per share:
Adjusted weighted-average
and assumed conversions 12,664,367 12,369,912 12,678,927 12,327,004
========== ========== ========== ==========
Basic earnings per share $ .19 $ .14 $ .38 $ .28
====== ====== ====== ======
Diluted earnings per share $ .18 $ .14 $ .36 $ .28
====== ====== ====== ======
- ---------------------------------------------------------------------------------------
</TABLE>
11
<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 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 30,281
<SECURITIES> 5,471
<RECEIVABLES> 36,687
<ALLOWANCES> 0
<INVENTORY> 23,281
<CURRENT-ASSETS> 113,135
<PP&E> 107,959
<DEPRECIATION> 80,289
<TOTAL-ASSETS> 181,799
<CURRENT-LIABILITIES> 40,301
<BONDS> 4,235
0
0
<COMMON> 14,374
<OTHER-SE> 90,359
<TOTAL-LIABILITY-AND-EQUITY> 181,799
<SALES> 97,167
<TOTAL-REVENUES> 98,925
<CGS> 71,231
<TOTAL-COSTS> 91,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> 7,616
<INCOME-TAX> 2,995
<INCOME-CONTINUING> 4,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,621
<EPS-PRIMARY> .38
<EPS-DILUTED> .36
</TABLE>
