<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period ended June 30, 1994
Commission File Number: 1-7795
UNC INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 54-1078297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Admiral Cochrane Drive
Annapolis, MD 21401
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (410) 266-7333
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 Exchange 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.
__X__ Yes ____ No
Number of shares of Common Stock, par $0.20, outstanding as of
August 5, 1994: 17,503,134 (excluding 700,000 treasury shares held by a
subsidiary).
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UNC Incorporated, and Subsidiaries
INDEX
Page No.
Part I. Financial Information
Consolidated Statements of Earnings
Three Months and Six Months Ended June 30, 1994 and 1993 3
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II. Other Information
Item 4. Submission of Matters to a vote of Security
Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
Exhibit Index 23
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UNC Incorporated and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Sales and operating revenues $122,326 $ 94,742 $260,738 $177,713
Costs and expenses:
Cost and operating expenses 104,462 75,096 218,158 139,936
Selling, general and
administrative expenses 22,744 12,526 38,710 24,628
Restructuring charge 58,706 58,706
-------- -------- -------- --------
185,912 87,622 315,574 164,564
-------- -------- -------- --------
Operating income (loss) (63,586) 7,120 (54,836) 13,149
Other income (expense):
Interest income 7 19 14 50
Interest expense (4,902) (3,140) (9,856) (6,102)
Other (251) (348) (537) (677)
-------- -------- -------- --------
(5,146) (3,469) (10,379) (6,729)
-------- -------- -------- --------
Earnings (loss) before income taxes (68,732) 3,651 (65,215) 6,420
Income tax benefit (provision) 14,098 (730) 13,043 (1,284)
-------- -------- -------- --------
Net earnings (loss) $(54,634) $ 2,921 $(52,172) $ 5,136
======== ======== ======== ========
Net earnings (loss) per share $ (3.12) $ .17 $ (2.99) $ .30
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 4
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Assets
- - ------
Current assets:
Cash and short-term investments $ 2,947 $ 1,494
Accounts receivable, less allowance for
doubtful accounts of $9,381 and $6,366,
respectively 89,600 91,058
Unbilled costs and accrued profits on
contracts in progress 24,556 28,384
Inventories 69,084 109,766
Assets held for sale 44,890
Other 22,052 18,378
-------- --------
Total current assets 253,129 249,080
Assets held for sale-noncurrent 18,704 25,910
Property, plant and equipment, at cost 77,113 99,068
Less accumulated depreciation 26,937 32,037
-------- --------
Net property, plant and equipment 50,176 67,031
Cost in excess of net assets of acquired com-
panies, less accumulated amortization of $21,134
and $19,257, respectively. 136,700 141,718
Other assets 22,981 22,394
-------- --------
Total assets $481,690 $506,133
======== ========
</TABLE>
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<PAGE> 5
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
- - ------------------------------------
Current liabilities:
Current portion of long-term debt $ 3,203 $ 6,529
Accounts payable 30,801 38,625
Income taxes 431 2,062
Accruals related to restructuring 18,073
Accruals and other current liabilities 49,954 51,664
-------- --------
Total current liabilities 102,462 98,880
Long-term debt, less current portion:
Revolving Senior Bank Debt, prime plus 1/2% due 1995 41,500 16,500
9 1/8% Senior Notes due 2003 100,000 100,000
7 1/2% Convertible Subordinated Debentures due 2006 69,000 69,000
Other 4,309 5,254
-------- --------
Total long-term debt, less current portion 214,809 190,754
Other long-term liabilities 50,917 51,013
-------- --------
Total liabilities 368,188 340,647
Shareholders' equity:
Series preferred stock, par value $1.00 per share;
Authorized 12,000,000 shares; 250,000 designated
Series A Junior Participating Preferred Stock,
none issued
Common stock, par value $0.20 per share; authorized
50,000,000 shares; issued 18,203,134 and
18,085,334 shares, respectively 3,641 3,617
Additional paid-in capital 122,769 121,746
Retained earnings (deficit) (1,613) 50,559
-------- --------
124,797 175,922
Less:
Treasury stock, at cost (700,000 shares) 8,750 8,750
Minimum pension liability adjustment 1,345 1,345
Unearned compensation-restricted stock 1,200 341
-------- --------
Total shareholders' equity 113,502 165,486
-------- --------
Total liabilities and shareholders' equity $481,690 $506,133
======== ========
</TABLE>
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<PAGE> 6
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(52,172) $ 5,136
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 6,887 5,098
Provision for restructuring 58,706
Provision for losses on accounts receivable 3,751 798
Provision for deferred income taxes (benefit) (13,561) (5,150)
Income from leveraged lease (1,303)
Changes in assets and liabilities:
(Increase) in accounts receivable (3,123) (8,710)
(Increase) decrease in unbilled costs & accrued
profits on contracts in progress 3,828 (1,732)
(Increase) in inventories (7,943) (7,270)
(Increase) decrease in other current assets 5,836 (769)
Decrease in other noncurrent assets 2,988 140
Increase (decrease) in accounts payable (7,824) 1,587
(Decrease) in accruals and other current
liabilities (2,535) (3,528)
(Decrease) in income taxes payable (1,631) (500)
Increase in other noncurrent liabilities 837 3,428
(Decrease) in discontinued operations
liabilities (1,932) (1,081)
-------- --------
Total adjustments 42,981 (17,689)
-------- --------
Net cash and short-term investments
provided (used) by operating activities (9,191) (12,553)
-------- --------
</TABLE>
<PAGE>
<PAGE> 7
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from investing activities:
Net proceeds from sale of assets 25 4,805
Additions to property, plant and equipment (9,469) (2,262)
Acquisition of subsidiaries, net of cash acquired (742) (5,865)
Naval Products phase out 1,698
Other transactions (27)
-------- --------
Net cash and short-term investments
provided (used ) by investing activities (10,186) (1,651)
-------- --------
Cash flows from financing activities:
Additions to debt 107,585 75,500
Reductions in debt (86,856) (61,077)
Other transactions 101 48
-------- --------
Net cash and short-term investments
provided (used) by financing activities 20,830 14,471
-------- --------
Net increase in cash and short-term investments 1,453 267
Cash and short-term investments at beginning of year 1,494 1,968
-------- --------
Cash and short-term investments at end of period $ 2,947 $ 2,235
======== ========
</TABLE>
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<PAGE> 8
UNC Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. The accompanying financial statements, which should be read in
conjunction with the Consolidated Financial Statements included in the
Annual Report filed on Form 10-K for the year ended December 31, 1993,
are unaudited. The statements have been prepared in the ordinary
course of business for the purpose of providing information with
respect to the interim periods, and are subject to audit at the close
of the year. It is the opinion of the management of the Company that
all adjustments necessary for a fair presentation of such periods have
been included. Results of interim periods are not necessarily
indicative of results to be expected for the full year. Certain prior
period amounts have been reclassified to conform to the 1994
presentations.
2. Inventories at June 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
1994 1993
-------- --------
<S> <C> <C>
Component parts and materials $ 47,712 $ 84,016
Work in process 18,797 23,429
Supplies 2,575 2,321
-------- --------
$ 69,084 $109,766
======== ========
</TABLE>
3. In the second quarter of 1994, the Company recorded a $58.7 million
($47.0 million after-tax) charge for restructuring which includes the
shutting down or sale and disposal of marginal operations, the
consolidation and downsizing of other operations, and the write down
of excess inventory and under utilized property, plant and equipment
that has been identified for sale to third parties to generate
additional free cash flow. As a result of restructuring, the Company was
out of compliance under certain loan covenants of its Revolving Credit
Agreement which were waived by the lending banks.
4. In July 1993, the Company issued $100 million principal amount of 9-
1/8% Senior Notes due 2003. The notes are guaranteed by all of the
Company's subsidiaries in the manner described below. The combined
guarantors are jointly and severally liable under the subsidiary
guarantees.
The Company's obligations under the Notes are unconditionally
guaranteed by each of the Company's subsidiaries (the "Guarantees").
Each Guarantee is a senior unsecured obligation of the subsidiary
providing such Guarantee and ranks pari passu with all senior unsecured
indebtedness of such subsidiary. The subsidiaries also have guaranteed
the indebtedness outstanding under the Company's revolving credit
facility (the "Subsidiary Bank Guarantees"). The Subsidiary Bank
Guarantees are collateralized, in general, by the accounts receivable
and inventory of the subsidiaries and therefore effectively rank senior
to the Guarantees. The Guarantees are in effect only for as long as
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<PAGE> 9
the Subsidiary Bank Guarantees remain in effect. If the Guarantees are
terminated the Notes will be obligations solely of the Company and will
be effectively subordinated to all existing and future indebtedness of
the subsidiaries.
The following condensed consolidating information presents:
(1) Condensed financial statements as of June 30, 1994 and for the six
months ended June 30, 1994 and 1993 of (a) the Company on a parent
company only basis (Parent Company), (b) the Combined Guarantors,
and (c) the Company on a consolidated basis.
(2) The Parent Company with its investments in subsidiaries accounted
for on the equity method.
(3) Elimination entries necessary to consolidate the Parent Company and
its subsidiaries.
<PAGE>
<PAGE> 10
June 30, 1994 Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
- - ------
Current assets:
Cash & short-term investments $ 2,359 $ 588 $ 2,947
Accounts receivable, net 558 89,042 89,600
Unbilled costs and accrued
profits on contracts in progress 24,556 24,556
Inventories 69,084 69,084
Assets held for sale 4,470 40,420 44,890
Other 487 21,565 22,052
-------- -------- ---------
Total current assets 7,874 245,255 253,129
-------- -------- ---------
Assets held for sale-noncurrent 18,000 704 18,704
Property, plant & equipment, net 872 49,304 50,176
Cost in excess of net assets
of acquired companies, net 136,700 136,700
Other noncurrent assets 9,461 13,520 22,981
Investments in and advances
to subsidiaries 303,651 $(303,651)
-------- -------- --------- ---------
Total assets $339,858 $445,483 $(303,651) $ 481,690
======== ======== ========= =========
</TABLE>
<PAGE>
<PAGE> 11
June 30, 1994 Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
- - ------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,051 $ 1,152 $ 3,203
Accounts payable 150 30,651 30,801
Accruals and other current liabilities 14,168 54,290 68,458
-------- -------- ---------
Total current liabilities 16,369 86,093 102,462
-------- -------- ---------
Long-term debt 188,365 26,444 214,809
Other noncurrent liabilities 12,872 38,045 50,917
-------- -------- ---------
Total liabilities 217,606 150,582 368,188
-------- -------- ---------
Common stock and additional paid
in capital 126,410 126,410
Retained earnings (deficit) (1,613) (1,613)
Equity of subsidiaries and
advances of parent 303,651 (303,651)
-------- -------- --------- ---------
124,797 303,651 (303,651) 124,797
Less:
Treasury stock at cost
(700,000 shares) 8,750 8,750
Minimum pension liability adjustment 1,345 1,345
Unearned compensation-restricted
stock 1,200 1,200
-------- -------- --------- ---------
Total shareholders' equity 122,252 294,901 (303,651) 113,502
-------- -------- --------- ---------
Total liabilities and
shareholders' equity $339,858 $445,483 $(303,651) $ 481,690
======== ======== ========= =========
</TABLE>
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<PAGE> 12
Six Months Ended June 30, 1994 Condensed Consolidating Statement of Earnings
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Sales and operating revenues $ $ 260,738 $ 260,738
Costs and expenses:
Costs and operating expenses 218,158 218,158
Selling, general and administrative
expenses 9,661 29,049 38,710
Restructuring charge 4,800 53,906 58,706
Allocated expenses (3,552) 3,552
--------- --------- ---------
10,909 304,665 315,574
--------- --------- ---------
Operating income (loss) (10,909) (43,927) (54,836)
Other income (expense):
Interest income 7 7 14
Interest expense (7,447) (2,409) (9,856)
Other (558) 21 (537)
Equity in income (loss) of
subsidiaries (37,046) $ 37,046
--------- --------- --------- ---------
(45,044) (2,381) 37,046 (10,379)
--------- --------- --------- ---------
Earnings (loss) before income taxes (55,953) (46,308) 37,046 (65,215)
Income tax benefit 3,781 9,262 13,043
--------- --------- --------- ---------
Net earnings (loss) $ (52,172) $ (37,046) $ 37,046 $ (52,172)
========= ========= ========= =========
</TABLE>
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<PAGE> 13
Six Months Ended June 30, 1994 Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Consolidated
------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Net cash flow from (used by) operations $ (2,920) $ (6,271) $ (9,191)
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and
equipment (275) (9,194) (9,469)
Acquisition of subsidiaries (742) (742)
Net proceeds from sale of assets 25 25
--------- --------- ---------
Net cash and short-term investments
provided (used) by investing
activities (275) (9,911) (10,186)
--------- --------- ---------
Cash flows from financing activities:
Additions to debt 80,585 27,000 107,585
Reductions in debt (71,669) (15,187) (86,856)
Other transactions, net 101 101
Net cash transfers to (from) parent (4,320) 4,320
--------- --------- ---------
Net cash and short-term investments
provided (used) by financing
activities 4,697 16,133 20,830
--------- --------- ---------
Net increase (decrease) in cash and
short-term investments 1,502 (49) 1,453
Cash and short-term investments at
beginning of year 857 637 1,494
--------- --------- ---------
Cash and short-term investments at
end of period $ 2,359 $ 588 $ 2,947
========= ========= =========
</TABLE>
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<PAGE> 14
Six Months Ended June 30, 1993 Condensed Consolidating Statement of Earnings
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Sales and operating revenues $ $ 177,713 $ $ 177,713
Costs and expenses
Costs and operating expenses 139,936 139,936
Selling, general and administrative
expenses 6,732 17,896 24,628
Allocated expenses (6,732) 6,732
--------- --------- --------- ---------
164,564 164,564
--------- --------- --------- ---------
Operating income 13,149 13,149
Other income (expense)
Interest income 43 7 50
Interest expense (4,872) (1,230) (6,102)
Other (684) 7 (677)
Equity in income of subsidiaries 9,497 (9,497)
--------- --------- --------- ---------
3,984 (1,216) (9,497) (6,729)
--------- --------- --------- ---------
Earnings before income taxes 3,984 11,933 (9,497) 6,420
Income tax benefit (provision) 1,152 (2,436) (1,284)
--------- --------- --------- ---------
Net earnings $ 5,136 $ 9,497 $ (9,497) $ 5,136
========= ========= ========= =========
</TABLE>
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Six Months Ended June 30, 1993 Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Consolidated
------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Net cash flow from operations $ (3,577) $ (8,976) $ (12,553)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets 4,805 4,805
Additions to property, plant and
equipment (13) (2,249) (2,262)
Acquisition of subsidiaries, net of
cash acquired (5,865) (5,865)
Naval Products phase out 1,698 1,698
Other transactions, net (27) (27)
--------- --------- ---------
Net cash and short-term investments
provided (used) by investing
activities 1,685 (3,336) (1,651)
--------- --------- ---------
Cash flows from financing activities:
Additions to debt 75,500 75,500
Reductions in debt (60,938) (139) (61,077)
Other transactions, net 48 48
Net cash transfers to (from) parent (12,933) 12,933
--------- --------- ---------
Net cash and short-term investments
provided by financing activities 1,677 12,794 14,471
--------- --------- ---------
Net increase (decrease) in cash and
short-term investments (215) 482 267
Cash and short-term investments at
beginning of year 1,646 322 1,968
--------- --------- ---------
Cash and short-term investments at
end of period $ 1,431 $ 804 $ 2,235
========= ========= =========
</TABLE>
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UNC Incorporated and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Continuing Operations
Overview
The Company's operations are conducted in one business segment which
includes: the manufacture and remanufacture of jet engines and aircraft
components, the overhaul of aircraft accessories, aircraft engines, and
providing maintenance and training, repair and logistical contract
services.
The Company has taken steps to reduce its cost structure and asset base in
light of the continuing depressed economic conditions in the aviation
industry. In the second quarter of 1994 the Company recorded a $58.7
million provision for restructuring which includes the shutting down of a
marginal operation, an allowance for the sale and disposition of two other
businesses, the consolidation and downsizing of other operations, and the
write down of excess inventory and under utilized property, plant and
equipment that has been identified for sale to third parties to generate
additional free cash flow. The provision for restructuring consists of
$42.3 million to cover the closing of a facility, the sale and disposition
of two other businesses, the consolidation of two plants and the
downsizing of other facilities. The Company will close its engine
overhaul facility in Burbank, California and concentrate its engine
overhaul business at its facilities in Millville, New Jersey. The Company
will position for sale and disposition its chemical milled aircraft and
engine components facility in Weatherford, Texas, and its helicopter
overhaul and refurbishment facility in Ozark, Alabama. These actions are
being taken due to the under utilization of the Weatherford facility
caused by the depressed market condition being experienced by OEM's in
connection with the construction of new aircraft and due to a sharp
reduction in the number of overhauls that can be expected in the
foreseeable future at the Ozark facility. The Company will also
consolidate two of its accessory overhaul plants in Long Island, New York
into one location in Bayshore, New York. The balance of the provision of
$16.4 million relates principally to the write down to estimated
realizable value of certain excess inventory and under utilized property,
plant and equipment that has been identified for sale on the open market.
When fully implemented the restructuring program is expected to generate
$85.0 million of cash, net of restructuring expenses, through asset sales
over the next twenty-four months and result in annual cost savings of
approximately $15.0 million including operating expense reductions of $9.0
million and interest expense of $6.0 million.
Quarter Ended June 30, 1994 Compared with Quarter Ended June 30, 1993.
Revenues were $122.3 million for the second quarter of 1994 compared with
$94.7 million in the 1993 quarter, an increase of $27.6 million (29%) and
operating income for the current quarter reflects a loss of $63.6 million
compared with income of $7.1 million in the 1993 quarter. Adjusting for
the $58.7 million restructuring provision and a one-time charge of $9.6
million for adjustments related to the carrying value of certain long term
manufacturing contracts, increases in allowance for doubtful accounts as
well as other operating items described below, operating income would have
been $4.7 million in the 1994 quarter.
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<PAGE> 17
The Company's Manufacturing Division revenues for the 1994 quarter of
$24.0 million increased $6.2 million (35%) compared with the 1993 quarter.
The increase in revenue in the 1994 quarter is principally due to revenues
generated by UNC Johnson Technology and UNC Aerostructures - Washington
acquired in 1993, partially offset by lower volume at the Company's other
manufacturing facilities. Operating income reflects a loss of $0.7
million in the 1994 quarter compared with income of $2.4 million in the
1993 quarter. The 1994 quarter includes a one-time charge of $3.5 million
for an adjustment to cost estimates on long term manufacturing contracts.
In response to the continued weakness in the aviation industry, OEM
customers continue to increase market competition among suppliers by
reducing the number of their approved suppliers and demanding price
concessions from suppliers on existing orders, although the drive for
price reductions has recently eased, especially on future orders. This
increased market competition, coupled with significant extensions to
scheduled delivery dates for parts, has resulted in reduced profitability
on existing long term manufacturing contracts. The adjustment of $3.5
million reflects the impact of this lower estimated profitability on
existing long term manufacturing contracts. Without this adjustment
operating income would have been $2.8 million in the 1994 quarter.
Revenues of $39.3 million in the 1994 quarter from the Overhaul Division
decreased $13.1 million (25%) compared with the 1993 quarter. The
reduction in revenues is principally due to decreases in JT8 overhauls
resulting from the Company's decision to withdraw from the JT8 overhaul
business in late 1993 and to reductions in small engine and accessory
overhauls due to increased pricing pressures from existing competition.
Operating income was $0.8 million in the 1994 quarter compared with $5.1
million in the 1993 period. The 1994 quarter includes a one time charge
of $2.0 million for increases in allowances for doubtful accounts for
receivables related to ongoing litigation with a customer and to the
settlement of certain other receivables in order to expedite the
collection of cash. Without this adjustment operating income would have
been $2.8 million in the 1994 quarter.
Aviation Services Division revenues of $59.0 million increased $34.5
million in the 1994 quarter. The increase in revenues is principally due
to revenues contributed by Lear Siegler which was acquired in October 1993
and consolidated into the Aviation Services Division. Operating income
increased $.9 million principally due to earnings from the acquisition of
Lear Siegler.
Selling, general and administrative expenses in the 1994 quarter were
$22.7 million or 18.6% of sales compared with $12.5 million or 13.2 % of
sales in the 1993 quarter. The increase in selling, general and
administrative expenses in the 1994 quarter is due to expenses of the
companies acquired during 1993 and increased international marketing
efforts. Also included in the 1994 quarter is a one-time charge of
approximately $5.7 million for increases in allowances for doubtful notes
and accounts (included in this amount are the allowance adjustments
mentioned above) and the write-off of expenses incurred in the
unsuccessful Aviall acquisition. Without this one-time charge selling and
administrative expenses would have been approximately 13.9% of sales.
<PAGE>
<PAGE> 18
Six Months Ended June 30, 1994 Compared with Six Months Ended June 30,
1993.
Revenues were $260.7 million in the first half of 1994 compared with
$177.7 million in the 1993 period, an increase of $83.0 million (47%) and
operating income for the 1994 period reflects a loss of $54.8 million
compared with income of $13.1 million in the 1993 period. Adjusting for
the $58.7 million restructuring provision and a one-time charge of
$9.6 million for adjustments related to the carrying value of certain long
term manufacturing contracts, increases in allowance for doubtful accounts
as well as other operating items described below, operating income would
have been $13.5 million in the 1994 period.
The Company's Manufacturing revenues for the 1994 period of $54.4 million
increased $22.9 million (72%) compared with the 1993 period. The increase
in revenues in the 1994 period is principally due to revenues generated by
UNC Johnson Technology and UNC Aerostructures - Washington acquired in
1993, offset by lower volume at the Company's other manufacturing
facilities. Operating income was $2.5 million in the 1994 period compared
with $3.9 million in the 1993 period. The 1994 period includes a one-time
charge of $3.5 million for an adjustment to cost estimate on long term
manufacturing contracts. Without this adjustment operating income would
have been $6.1 million in the 1994 period.
Revenues of $84.9 million in the 1994 period from the Overhaul Division
decreased $12.4 million (12.7%) compared with the 1993 period. The
reduction in revenues is principally due to decreases in JT8 overhauls
resulting from the Company's decision to withdraw from the JT8 overhaul
business in late 1993 and accessory overhauls due to increased pricing
pressures from existing competition. These reductions were partially
offset by revenues of $2.2 million generated by UNC Metcalf acquired in
1993 and $1.3 million from a leveraged lease transaction. Operating
income was $5.6 million in the 1994 period. The 1994 period includes a
one-time charge of $2.0 million for increases in allowances for doubtful
accounts for receivables related to ongoing litigation with a customer and
to the settlement of certain other receivables in order to expedite the
collection of cash. Without this adjustment income would have been $7.6
million in the 1994 period.
Aviation Services Division revenues of $121.3 million increased $72.5
million in the 1994 period. The increase in revenues is principally due
to revenues contributed by UNC Lear Siegler which was acquired in October
1993 and consolidated into the Aviation Services Division. Operating
income increased $3.0 million after adjusting for a $2.0 million
nonrecurring claim against the U.S. government (for costs incurred prior
to 1993) which was recorded in the first quarter of 1993. The increase in
operating income is principally due to earnings contributed by UNC Lear
Siegler.
Selling, general and administrative expenses in the 1994 period were $38.7
million or 14.8% of sales compared with $24.6 million or 13.9% of sales in
the 1993 period. The increase in selling, general and administrative
expense in the 1994 period is due to expenses of the companies acquired
during 1993 and increased international marketing efforts. Additionally
<PAGE>
<PAGE> 19
the 1994 period includes a one-time charge of approximately $5.7 million
related to increases in allowances for doubtful notes and accounts
(included in this amount are the allowance adjustments mentioned above)
and the write-off of expenses incurred in the unsuccessful Aviall
acquisition. Without this one-time charge selling and administrative
expenses would have been approximately 12.7% of sales.
Activity under the Company's contract service operations, which
principally involve basic aviation training and maintenances of aircraft,
appears to have stabilized in the short term after having declined in
recent years as a result of reduction in defense spending. Continuation
of this trend, however, cannot be assured as the Defense Department is
continuing to close various military bases where the Company provides
contract services. A portion of the workload of these bases is being
relocated to bases where the Company already performs aircraft maintenance
functions. Further consolidation of military training and maintenance
contracts is expected as bases are eliminated and other defense cuts
reduce the value of individual contracts. However, the Company expects
that continued pressures on defense spending could increase the
outsourcing of services currently being provided by military and other
government personnel to lower costs contractors. Additional opportunities
for work from Army, Air Force and Navy depots may result from the
recommendations made by the Congressionally-mandated DoD-Industry Depot
Maintenance Task Force on which UNC was represented. For example, the
employees of the Newark Aerospace Guidance and Metrology Depot in Ohio
selected the Company in open competition and the Company has formed an
alliance named UNC Newark with these employees. UNC Newark will compete
for the Air Force "privatization-in-place" contract which is scheduled to
begin in conjunction with that base closure in October 1995.
"Privatization-in-place" is a concept under which facilities will be
transferred to local jurisdictions and the depot work will be performed by
commercial companies. In February, the Company was low bidder on a
contract to provide maintenance and logistic support to the Royal Saudi
Naval Forces. This contract with total potential revenues over a three
year period of approximately $20 million, will expand the Company's
presence in Saudi Arabia and offset possible additional future reductions
in defense spending. In June, the Company was awarded for the fourth time
a five year $102 million contract by the U.S. Navy Air Training Command to
provided complete maintenance and logistic support for the Navy's TH-57
helicopter fleet.
Continued effort on the part of the U.S. government to further reduce
defense spending is affecting the demand for aircraft engines used in
military applications and could have an impact on the Company's
manufacturing operations. In an effort to reduce the potential effect of
these reduction, the Company's manufacturing operation have focused their
marketing efforts for the past several years more on commercial rather
than military products. The Company's original equipment manufacturer
customers continue to reduce significantly their number of suppliers and
their own procurement staffs. The Company's manufacturing operations
remain a part of the reduced subcontractor base and as such have obtained
new contracts that the Company believes may have not been available to the
Company in the past when the base of suppliers was much larger. Although
the Company's Manufacturing Division provided its principal customers with
price concessions during 1992, 1993, and 1994 in anticipation of receiving
<PAGE>
<PAGE> 20
additional future orders, the Company believes that increased volume from
these anticipated additional orders, together with on-going productivity
enhancement and cost reduction programs should mitigate for the effect of
the price concession. Furthermore, during the second half of the 1993 and
the first quarter of 1994 the Company expanded its backlog as well as its
customer base, by acquiring the contract backlog of two distressed or
financially pressured competitors. The work-in-process of these contracts
has been transferred to existing Company facilities along with the
required tooling and inventories. The Company is continuing its efforts
to acquire additional backlog from "carve-out" situations.
The Company's backlog of orders was $742 million at June 30, 1994 and $703
million at March 31, 1994.
Interest expense increased $3.8 million in the first half of 1994
principally due to higher average debt levels resulting from acquisitions
made in 1993 and higher interest rates.
Liquidity and Capital Resources
- - -------------------------------
As previously discussed, the Company expects that its restructuring
program will generate approximately $85.0 million in cash, net of
restructuring expenses, from the sale of excess assets over the next
twenty-four months and result in annual cost savings of approximately
$15.0 million including operating expense reductions of $9.0 million and
interest expense of $6.0 million. The cash generated will be used first
to reduce debt.
Long-term debt, including current portion, was $218.0 million at June 30,
1994 compared to $197.3 million at December 31, 1993. The increase in
long-term debt of $20.7 million was a result of operating cash
requirements of the first half, equipment acquired in connection with the
acquisition of the Anadite contract backlog, completion of the expansion
of facilities in connection with the award of the contract backlog
previously performed by the Heintz Corporation, equipment purchases to
implement new and improved manufacturing techniques and the purchase of
tooling in accordance with a prior agreement. The Company's debt-to-
capitalization ratio at June 30, 1994 was 65.8% compared with 54.4% at
December 31, 1993. The Company has a Revolving Credit Facility which
provides for the availability of $65 million, reduced by outstanding
letters of credit which aggregated $9.9 million at June 30, 1994. The
unused availability under the facility was $13.6 million at June 30, 1994.
In August 1994 the Company's Revolving Credit capacity was increased from
$65 million to $75 million. At June 30, 1994, the Company's working
capital was $150.7 million with a current ratio of 2.5 to 1 compared with
$150.2 million with a current ratio of 2.5 to 1 at December 31, 1993.
Capital expenditures in the first half of 1994 amounted to $9.5 million
compared with $2.3 million in the first half of 1993. The expenditures in
the 1994 period include one-time payments of $2.1 million for tooling
purchased in accordance with a prior agreement, this tooling is being held
for sale, and $1.0 million for machinery and equipment acquired in
connection with the Anadite carve out. It is anticipated that capital
expenditures for the remainder of 1994 will be less than depreciation and
amortization expense and will be financed from internally generated funds,
lease arrangements and revolving credit borrowings.
<PAGE>
<PAGE> 21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
The 1994 Annual Meeting of Stockholder was held on April 29, 1994, for the
election of directors and to ratify the selection of Coopers & Lybrand as
independent public accountants for the Corporation for fiscal year 1994.
A total 15,906,551 of the 17,388,334 votes entitled to be cast at the
meeting were present in person or by proxy. At the meeting, the
stockholders:
(1) Elected the following directors:
Number of Number of
Shares -- Shares --
Voted AUTHORITY
Directors FOR WITHHELD
---------------- ------------ ---------
Berl Bernhard 15,830,556 75,995
Beverly B. Byron 15,827,038 79,513
John K. Castle 15,830,225 76,326
Dan A. Colussy 15,829,654 76,897
William C. Hittinger 15,828,182 78,369
James L. Holloway, III 15,828,181 78,370
George V. McGowan 15,828,197 78,354
Jack Moseley 15,830,306 76,245
Lawrence A. Skantze 15,828,406 78,145
(2) Ratified the selection of Coopers & Lybrand as independent public
accountants for the Corporation for fiscal year 1994 by an
affirmative vote of 15,861,774; shares voted against ratification
were 11,824 and shares abstained were 32,953.
No other matters were submitted to a vote of the stockholders at the
meeting.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits Description
- - ------------ -----------------------------------------------
Exhibit 10.30 Amendment, dated as of February 7, 1994, among
the UNC Incorporated, Airwork Corporation; the
several banks and other financial institutions
from time to time parties to the Credit Agreement
and Chemical Bank, a New York banking
corporation; as agent for the Banks.
Exhibit 11 Computation of Earnings Per Common Share
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1994.
<PAGE>
<PAGE> 22
UNC Incorporated and Subsidiaries
SIGNATURE
Pursuant to requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNC Incorporated
Date: August 15, 1994 By: /s/ Robert L. Pevenstein
-----------------------------
Robert L. Pevenstein
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
<PAGE> 23
UNC Incorporated and Subsidiaries
SEQUENTIAL EXHIBIT INDEX
Exhibit
Sequential
Number Description Page
- - ---------- -------------------------------------------------- ------
Exhibit 10.30 Amendment, dated as of February 7, 1994, among
the UNC Incorporated, Airwork Corporation; the
several banks and other financial institutions
from time to time parties to the Credit Agreement
and Chemical Bank, a New York banking corporation;
as agent for the Banks. 24
Exhibit 11 Computation of Earnings Per Common Share 28
<PAGE>
<PAGE> 24
EXHIBIT 10.30
CONFORMED COPY
AMENDMENT, dated as of February 7, 1994 (this "Amendment"),
among UNC INCORPORATED, a Delaware corporation (the "Company"), AIRWORK
CORPORATION, a Delaware corporation ("Airwork"; together with the Company,
the "Borrowers"), the several banks and other financial institutions from
time to time parties to the Credit Agreement described below (the "Banks")
and CHEMICAL BANK, a New York banking corporation, as agent for the Banks
(in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks and the Agent are parties to
a certain Second Amended and Restated Credit Agreement, dated as of July
24, 1992 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"); and
WHEREAS, the Borrowers have requested that the Credit
Agreement be amended and that certain provisions of the Credit Agreement
be waived, all as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined. Unless otherwise
indicated, all Section and subsection references are to the Credit
Agreement.
2. Amendment of Subsection 6.1. Subsection 6.1 of the Credit
Agreement is hereby amended as follows:
(a) by deleting from subsection (b) thereof the columns designated
"Period" and "Interest Coverage" and the time periods and ratios
appearing in such subsection below such columns and inserting in
lieu thereof the following:
"Period Interest Coverage
-------- -----------------
Effective Date through
September 30, 1992 1.60 to 1.00
October 1, 1992 through
September 30, 1993 2.00 to 1.00
October 1, 1993 through
June 30, 1994 1.50 to 1.00
<PAGE>
<PAGE> 25
July 1, 1994 through
September 30, 1994 1.85 to 1.00
October 1, 1994 and
thereafter 2.00 to 1.00";
(b) by deleting from subsection (c) thereof the columns designated
"Period" and "Operating Profit" and the time periods and ratios
appearing in such subsection below such columns and inserting in
lieu thereof the following:
"Period Operating Profit
-------- ----------------
Effective Date through
September 30, 1992 1.50 to 1.00
October 1, 1992 through
September 30, 1993 1.75 to 1.00
October 1, 1993 through
December 31, 1993 1.50 to 1.00
January 1, 1994 through
March 31, 1994 1.40 to 1.00
April 1, 1994 through
June 30, 1994 1.35 to 1.00
July 1, 1994 and
thereafter 1.75 to 1.00"; and
(c) by deleting subsection (d) thereof in its entirety and inserting
in lieu thereof the following:
"(d) Funded Debt to Tangible Net Worth. Permit the ratio of Funded
Debt to Consolidated Tangible Net Worth at the end of any fiscal
quarter ending during any period set forth below to be greater than
the ratio set forth below as "Debt to Net Worth" opposite the period
during which such fiscal quarter shall end:
"Period Debt to Net Worth
-------- -----------------
October 1, 1992 through
September 30, 1993 1.50 to 1.00
October 1, 1993 through
December 31, 1993 1.75 to 1.00
January 1, 1994 through
March 31, 1994 1.95 to 1.00
April 1, 1994 through
June 30, 1994 1.85 to 1.00
<PAGE>
<PAGE> 26
July 1, 1994 through
September 30, 1994 1.80 to 1.00
October 1, 1994 and
thereafter 1.60 to 1.00".
3. Limited Effect. Except as expressly amended hereby, the Credit
Agreement shall continue to be, and shall remain, in full force and effect
in accordance with its terms.
4. Effectiveness. This Amendment shall be deemed to be effective on
the date on which the following conditions precedent have been satisfied:
(a) The Agent shall have received counterparts of this Amendment,
duly executed and delivered by the Borrowers and the Required Banks;
and
(b) The Agent shall have received, for the account of each Bank, a
fee, payable in immediately available funds, in an amount equal to
3/16 of 1% times such Bank's Commitment.
5. Counterparts. This Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THE AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
7. Expenses. The Borrowers jointly and severally agree to pay or
reimburse the Agent for (i) all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and
execution of this Amendment and any other documents prepared in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent and (ii) all its reasonable out-of-
pocket costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Amendment and any other such
documents.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed and delivered by their properly and duly authorized
officers as of the day and year first above written.
UNC INCORPORATED
AIRWORK CORPORATION
By: /s/ Greg Bubb
-----------------------------
Title: Vice President
<PAGE>
<PAGE> 27
CHEMICAL BANK
as Agent and as a Bank
By: /s/ Peter Eckstein
-----------------------------
Title: Vice President
CONTINENTAL BANK, N.A.
By: /s/ Adam Balbach
----------------------------
Title: Vice President
NATIONSBANK OF NORTH CAROLINA, N.A.
By: /s/ Robert Gillison
----------------------------
Title: Vice President
<PAGE>
<PAGE> 28
Exhibit 11
UNC Incorporated and Subsidiaries
Computation of Earnings Per Common Share
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1994 1993 1994 1993
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) $(54,634) $ 2,921 $(52,172) $ 5,136
======== ======== ======== ========
Calculation of primary earnings
per share:
Average common shares outstanding
during the year primary (1) 17,490 17,354 17,440 17,329
-------- -------- -------- --------
Earnings (loss) per share, primary (2):
Net earnings (loss) $ (3.12) $ .17 $ (2.99) $ .30
======== ======== ======== ========
</TABLE>
(1) Exclusive of 700,000 shares of treasury stock for all periods
presented.
(2) For all periods presented the earnings (loss) per share assuming
full dilution is the same as primary.
