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, 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
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)
570 Lexington Avenue, New York, NY 10022
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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. 12,288,959
shares of common stock as of May 1, 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
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1998 and 1997 2
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 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 7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash & cash equivalents $ 24,192 $ 23,098
Marketable securities 2,031 6,102
Trade receivables 27,132 27,819
Inventories
Finished goods & work-in-process 31,499 28,551
Materials & supplies 3,267 3,239
-------- --------
34,766 31,790
Assets held for sale 12,309 12,516
Deferred income taxes 4,945 4,982
Prepaid expenses & other current assets 10,561 11,282
-------- --------
Total Current Assets 115,936 117,589
Other assets 40,095 40,126
Property & equipment - less allowances
for depreciation (1998-$78,941; 1997-$77,307) $ 26,454 25,576
-------- --------
$182,485 $183,291
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,914 $ 7,604
Accrued employee compensation & taxes 8,222 7,777
Customer advances 3,763 3,542
Federal income taxes 1,573 630
Current portion of long-term debt 1,250 1,250
Other liabilities 10,952 13,134
Provision for contract losses 5,583 5,776
-------- --------
Total Current Liabilities 38,257 39,713
Long-term liabilities (less current maturities) 8,746 9,508
Deferred income taxes 9,671 9,690
Postretirement benefits other than pensions 22,506 22,356
Shareholders' Equity
Common stock $1.00 par value
Authorized - 15,000,000 shares; outstanding
12,284,059 and 12,249,309 shares -
1998 and 1997 (net of shares in treasury) 14,374 14,374
Additional capital 89,844 89,929
Retained earnings 15,262 14,165
Treasury stock, at cost, 2,090,089 at 1998
and 2,124,839 shares at 1997 (16,175) (16,444)
-------- --------
103,305 102,024
-------- --------
$182,485 $183,291
======== ========
</TABLE>
See accompanying notes
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
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(Unaudited)
<S> <C> <C>
Net sales $ 47,227 $ 58,444
Operating costs & expenses
Cost of sales 33,653 45,268
Selling & administrative 10,375 9,811
Other (income) expense - net (91) 371
Interest expense 108 510
Interest income (575) (335)
-------- --------
43,470 55,625
-------- --------
Income before income taxes 3,757 2,819
Income taxes 1,434 1,056
-------- --------
Net income $ 2,323 $ 1,763
======== ========
Earnings per share:
Basic $ .19 $ .14
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Diluted $ .18 $ .14
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</TABLE>
See accompanying notes
2
<PAGE>
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
-------- ------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,323 $ 1,763
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,223 2,514
Deferred income taxes 18 137
(Decrease) increase in contract loss provision (193) (1,239)
Changes in operating assets and liabilities (3,774) 5,346
Increase in federal income taxes 943 768
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,540 9,289
INVESTING ACTIVITIES
Decrease in marketable securities 4,071 -
Purchase of property and equipment (2,513) (1,783)
(Increase) decrease in other assets - net (254) 413
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,304 (1,370)
FINANCING ACTIVITIES
(Decrease) increase in long-term liabilities (404) 200
Proceeds from exercise of stock options 87 -
Payments on long-term debt & borrowings (208) (13,750)
Dividends (1,225) (852)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,750) (14,402)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,094 (6,483)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 23,098 13,427
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 24,192 $ 6,944
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 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 three month period ended March 31, 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 May 29, 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
- ---------------------
Three months ended March 31, 1998 compared to three months ended March 31, 1997:
4
<PAGE>
Consolidated net sales decreased by $11,217,000, or 19%, to $47,227,000 in the
first quarter of 1998, as compared to $58,444,000 in the same period in 1997. In
the Defense segment, sales decreased $10,575,000, or 22%. This decrease in the
Defense segment is primarily due to timing related to the level of work effort
on certain contracts. The commencement of work on new programs did not coincide
with the completion of other programs. The Weather Systems Business, which was
sold in September 1997, accounted for net sales of $7,952,000 during the first
three months of 1997. In the Company's Energy segment, increased prices and
volume accounted for its $1,014,000, or 11%, rise in sales. Excluding net sales
of Neo Products Co. (the operating assets of which were substantially sold in
August 1997) and the net sales of the Weather Systems Business (which was sold
in September 1997) (together the "Disposed Businesses") during 1997, net sales
in the first quarter of 1998 decreased $1,609,000 or 3% from the same period in
1997. However, the Company booked $73.6 million of new orders during the first
quarter of 1998 which increased the backlog at March 31, 1998 by 63% to $214
million from $131 million (excluding $24 million from the "Disposed Businesses")
at March 31, 1997.
Gross margin increased to 28.7% in the first quarter of 1998 from 22.5% in the
first quarter of 1997, primarily due to the Defense segment and partially by
increases in the Energy segment. The gross margin percentage in the Defense
segment increased 6.1% to 26.2% for the three months ended March 31, 1998 from
20.1% for the same period in 1997. Excluding the Disposed Businesses in 1997 the
gross margin increased 5.8% to 28.7% and by $2,368,000 to $13,574,000, in the
first quarter of 1998 from the same period in 1997. The increase in margin
basically resulted from a shift in the mix of Defense segment contracts.
Selling and administrative expenses for the three months ended March 31, 1998
increased $564,000, or 5.8%, to $10,375,000 from $9,811,000 during the three
months ended March 31, 1997. Excluding the Disposed Businesses in 1997, the
selling and administrative expenses increased by $1,738,000, or 20.1%, in the
first three months of 1998 compared to the same period in 1997. This increase
occurred primarily in the Defense segment and was due to increased research and
development as well as bid and proposal expenses.
Other (income) expense-net was $91,000 income in the first quarter of 1998 and
an expense of $371,000 in the first quarter of 1997. The increase in income of
$462,000 was primarily due to the collection of profits on assets previously
sold and a reduction in losses of a joint venture.
Interest expense decreased by $402,000 due to reduced borrowings.
Interest income increased by $240,000 due to increased investments.
Net income increased by 31.8% to $2,323,000 or $.18 per diluted share, in the
first three months of 1998, compared to net income of $1,763,000, or $.14 per
diluted share, in the same period of 1997. Excluding net income generated by the
Disposed Businesses of $498,000, or $.04 per diluted share, in the first quarter
of 1997, net income increased by $1,058,000, or 84%, in the first quarter of
1998. The improvement was primarily attributable to greater gross margin and
lower interest expense.
5
<PAGE>
Liquidity and Capital Resources
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Cash and cash equivalents increased by $1,094,000, and marketable securities
decreased by $4,071,000 from December 31, 1997. The increase in inventories and
reduction of other liabilities were the major classifications in the change in
operating assets and liabilities. 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 and to make interest and
principal payments on debt, if necessary.
Subsequent Events
- -----------------
In April 1998, the Company sold $12,516,000 of the assets held for sale (see
Consolidated Condensed Balance Sheets, page 1) for cash in excess of their
carrying value and paid off the term loan debt due the bank of $5,516,000.
Contingent Matters
- ------------------
Reference is made to Item 3. Legal Proceedings, in the December 31, 1997 Form
10-K which is incorporated herein by reference.
6
<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, 1998.
7
<PAGE>
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 May 14, 1998 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 MARCH 31
1998 1997
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<S> <C> <C>
Net income $2,323,000 $1,763,000
========== ==========
Basic earnings per share:
Weighted average shares 12,254,363 12,174,943
========== ==========
Effect of dilutive securities:
Employee and non-employee
director stock options 344,542 109,152
========== ==========
Diluted earnings per share:
Adjusted weighted-average
and assumed conversions 12,598,905 12,284,095
========== ==========
Basic earnings per share $ .19 $ .14
===== =====
Diluted earnings per share $ .18 $ .14
===== =====
</TABLE>
10
<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-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 24,192
<SECURITIES> 2,031
<RECEIVABLES> 27,132
<ALLOWANCES> 0
<INVENTORY> 34,766
<CURRENT-ASSETS> 115,936
<PP&E> 105,395
<DEPRECIATION> 78,941
<TOTAL-ASSETS> 182,485
<CURRENT-LIABILITIES> 38,257
<BONDS> 8,746
0
0
<COMMON> 14,374
<OTHER-SE> 88,931
<TOTAL-LIABILITY-AND-EQUITY> 182,485
<SALES> 47,227
<TOTAL-REVENUES> 47,893
<CGS> 33,653
<TOTAL-COSTS> 44,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 3,757
<INCOME-TAX> 1,434
<INCOME-CONTINUING> 2,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,323
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
