<PAGE>
<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period ended September 30, 1995
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)
Registrant's 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 November 7,
1995: 18,393,868 (excluding 700,000 treasury shares held by a subsidiary).
<PAGE>
<PAGE> 2
UNC Incorporated, and Subsidiaries
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Statements of Earnings 3
Three Months and Nine Months Ended
September 30, 1995 and 1994
Consolidated Balance Sheets 4
September 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows 6
Nine Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial 18
Condition and Results of Operations
Part II. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
Exhibit Index 25
<PAGE>
<PAGE> 3
UNC Incorporated and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales and operating revenues $ 137,437 $ 129,721 $ 394,482 $ 390,459
Costs and expenses:
Cost and operating expenses 116,010 108,629 334,009 326,787
Selling, general and
administrative expenses 15,026 15,914 42,474 55,084
Restructuring charge 58,706
--------- --------- --------- ---------
131,036 124,543 376,483 440,577
--------- --------- --------- ---------
Operating income (loss) 6,401 5,178 17,999 (50,118)
Other income (expense):
Interest expense (5,189) (4,649) (15,412) (13,796)
Other 78 (492) 254 (1,264)
--------- --------- --------- ---------
(5,111) (5,141) (15,158) (15,060)
--------- --------- --------- ---------
Earnings (loss) before income taxes 1,290 37 2,841 (65,178)
Income tax benefit (provision) (451) (7) (994) 13,036
--------- --------- --------- ---------
Net earnings (loss) $ 839 $ 30 $ 1,847 $ (52,142)
========= ========= ========= =========
Net earnings (loss) per share $ .05 $ $ .10 $ (2.99)
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 4
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
--------- ---------
<S> <C> <C>
Assets
- ------
Current assets:
Cash $ 1,269 $ 2,619
Accounts receivable, less allowance for
doubtful accounts of $3,292 and $3,706,
respectively 89,835 89,279
Unbilled costs and accrued profits on
contracts in progress 12,115 14,097
Inventories 86,264 85,110
Assets held for sale 23,036 49,174
Other 8,751 8,168
--------- ---------
Total current assets 221,270 248,447
--------- ---------
Assets held for sale - noncurrent 2,300 2,300
--------- ---------
Property, plant and equipment, at cost 77,832 73,478
Less accumulated depreciation 32,576 28,789
--------- ---------
Net property, plant and equipment 45,256 44,689
--------- ---------
Cost in excess of net assets of acquired
companies, less accumulated amortization of
$26,969 and $23,397, respectively. 137,504 140,128
Other assets 33,115 32,470
--------- ---------
170,619 172,598
--------- ---------
Total assets $ 439,445 $ 468,034
========= =========
</TABLE>
<PAGE>
<PAGE> 5
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
--------- ---------
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Revolving Senior Bank Debt, prime plus 1/2%
due 1995 $ $ 40,000
Current portion of other long-term debt 5,607 2,971
Accounts payable 30,165 38,918
Income taxes 1,187 3,521
Accruals and other current liabilities 55,897 62,863
--------- ---------
Total current liabilities 92,856 148,273
Long-term debt, less current portion:
Revolving Senior Bank Debt, interest rate
at September 30, 1995 8 5/8% 25,902
9 1/8% Senior Notes due 2003 100,000 100,000
7 1/2% Convertible Subordinated Debentures
due 2006 64,800 69,000
Other 1,352 2,352
--------- ---------
Total long-term debt, less current portion 192,054 171,352
--------- ---------
Other noncurrent liabilities 53,292 49,512
--------- ---------
Total liabilities 338,202 369,137
--------- ---------
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 18,393,868 and
18,242,134 shares, respectively 3,679 3,648
Additional paid-in capital 123,717 122,940
Retained earnings (deficit) (15,526) (17,373)
--------- ---------
111,870 109,215
Less:
Treasury stock, at cost (700,000 shares) 8,750 8,750
Minimum pension liability adjustment 540 540
Unearned compensation-restricted stock 1,337 1,028
--------- ---------
Total shareholders' equity 101,243 98,897
--------- ---------
Total liabilities and shareholders' equity $ 439,445 $ 468,034
========= =========
</TABLE>
<PAGE>
<PAGE> 6
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,847 $ (52,142)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 9,426 9,860
Provision for restructuring 58,706
Provision for losses on accounts receivable 1,492 3,568
Deferred income taxes (benefit) 491 (16,701)
Income from leveraged lease (1,955)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,583) 4,929
Decrease in unbilled costs & accrued
profits on contracts in progress 1,982 6,160
(Increase) in inventories (1,154) (14,096)
(Increase) decrease in other current assets (442) 7,178
(Increase) in other noncurrent assets (5,186) (142)
Increase (decrease) in accounts payable (8,740) 7,990
(Decrease) in accruals and other current
liabilities (6,309) (7,966)
Increase in income taxes payable 419 491
Increase (decrease) in other noncurrent
liabilities 610 (156)
(Decrease) in discontinued operations
liabilities (3,932) (3,434)
--------- ---------
Total adjustments (13,926) 54,432
--------- ---------
Net cash and short-term investments
provided (used) by operating activities (12,079) 2,290
--------- ---------
/TABLE
<PAGE>
<PAGE> 7
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from investing activities:
Net proceeds from sale of assets 33,279 6,237
Additions to property, plant and equipment (5,161) (8,912)
Acquisition of subsidiaries, net of cash acquired (947) (1,785)
--------- ---------
Net cash and short-term investments provided
(used) by investing activities 27,171 (4,460)
--------- ---------
Cash flows from financing activities:
Additions to debt 262,827 149,245
Reductions in debt (279,489) (147,024)
Other transactions 220 102
--------- ---------
Net cash and short-term investments provided
(used) by financing activities (16,442) 2,323
--------- ---------
Net increase (decrease) in cash and short-term
investments (1,350) 153
Cash and short-term investments at beginning
of year 2,619 1,494
--------- ---------
Cash and short-term investments at end of period $ 1,269 $ 1,647
========= =========
</TABLE>
<PAGE>
<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, 1994,
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
(none of which were other than normal recurring accruals) 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 1995 presentation.
2. Inventories at September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1994
-------- --------
<S> <C> <C>
Component parts and materials $ 64,376 $ 61,282
Work in process 20,314 21,161
Supplies 1,574 2,667
-------- --------
$ 86,264 $ 85,110
======== ========
</TABLE>
3. In May 1995, the Company entered into a new revolving credit agreement,
which provides for a five-year credit line through May 2000 with a
borrowing capacity of up to $90 million, subject to borrowing base
limitations as defined in the agreement, reduced by outstanding letters
of credit. Interest is payable on the borrowings at a base rate, as
defined in the agreement, or the LIBOR rate plus, in each case, an
applicable margin based upon the Company's performance under certain
financial ratios. The Company has agreed to pay an annual commitment
fee on the unused portion of the line at rates ranging from 1/2 of 1% to
1/4 of 1% dependent on meeting certain financial ratios. The revolving
credit is collateralized by the Company's accounts receivable and
inventories. The agreement contains covenants which, among other
things, include provisions for the maintenance of certain financial
ratios and prohibits the payment of cash dividends.
4. The Internal Revenue Service has recently completed an examination of
the Company's federal income tax returns for the years 1990 through
1992, and the revenue agent has proposed certain tax adjustments that
could result in an additional tax liability. The Company disagrees with
a large majority of the proposed adjustments and has asserted certain
offsetting tax adjustments in its favor. The Company is currently in
the process of preparing a written protest challenging the proposed
adjustments and supporting its right to the offsetting adjustments.
Management and its tax counsel are of the opinion that a large majority
of the adjustments proposed by the IRS are without merit and that the
Company's offsetting adjustments are meritorious. Furthermore, it is
outside tax counsel's opinion that an unfavorable outcome on significant
<PAGE>
<PAGE> 9
adjustments proposed by the revenue agent is remote. In addition,
management is of the opinion that any additional net tax liability that
might ultimately result from the IRS audit would not have a material
adverse effect on the Company's consolidated financial statements.
5. In October 1995, the Company reached an agreement with Gildea Investment
Company ("Gildea") and other investors to provide up to $25 million of
equity financing on an as needed basis to help finance future
acquisitions. The equity investment will be in the form of a senior
cumulative convertible preferred stock ("the Preferred") issued by the
Company. The Preferred will be purchased at $100 per share with an
annual dividend rate of 8.5%, with no mandatory redemption, and will be
convertible into common stock at a price of $7 per share. The Company
will have the option to pay dividends in the form of a pay-in-kind
cumulative preferred stock. Under the terms reached with Gildea, the
Company will only issue the new equity on an as needed basis for
acquisitions.
6. Net sales of tangible products for the nine months ended September 30,
1995 amounted to $229.5 million, and cost and operating expenses related
to tangible goods sold amounted to $183.2 million.
7. 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 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 September 30, 1995 and December
31, 1994 and for the nine months ended September 30, 1995 and 1994 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
September 30, 1995 Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash $ 177 $ 1,092 $ 1,269
Accounts receivable, net 413 89,422 89,835
Unbilled costs and accrued profits
on contracts in progress 12,115 12,115
Inventories 86,264 86,264
Assets held for sale 2,996 20,040 23,036
Other 876 7,875 8,751
--------- --------- ---------
Total current assets 4,462 216,808 221,270
--------- --------- ---------
Assets held for sale nonrecurrent 2,300 2,300
Property, plant & equipment,net 762 44,494 45,256
Cost in excess of net assets
of acquired companies, net 137,504 137,504
Other noncurrent assets 13,193 19,922 33,115
Investments in and advances to
subsidiaries $ 330,892 $(330,892)
--------- --------- --------- ---------
Total assets $ 349,309 $ 421,028 $(330,892) $ 439,445
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 11
September 30, 1995 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 $ 5,292 $ 315 $ 5,607
Accounts payable 2,067 28,098 30,165
Accruals and other current
liabilities 19,348 37,736 57,084
--------- --------- ---------
Total current liabilities 26,707 66,149 92,856
--------- --------- ---------
Long-term debt 191,702 352 192,054
Other noncurrent liabilities 20,907 32,385 53,292
--------- --------- ---------
Total liabilities 239,316 98,886 338,202
--------- --------- ---------
Common stock and additional paid
in capital 127,396 127,396
Retained earnings (deficit) (15,526) (15,526)
Equity of subsidiaries and advances
of parent 330,892 $(330,892
--------- --------- --------- ---------
111,870 330,892 (330,892) 111,870
Less:
Treasury stock at cost
(700,000 shares) 8,750 8,750
Minimum pension liability adjustment 540 540
Unearned compensation-restricted
stock 1,337 1,337
--------- --------- --------- ---------
Total shareholders' equity 109,993 322,142 (330,892) 101,243
--------- --------- --------- ---------
Total liabilities and shareholders'
equity $ 349,309 $ 421,028 $(330,892) $ 439,445
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 12
December 31, 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 $ 1,519 $ 1,100 $ 2,619
Accounts receivable, net 640 88,639 89,279
Unbilled costs and accrued
profits on contracts in progress 14,097 14,097
Inventories 85,110 85,110
Assets held for sale 18,449 30,725 49,174
Other 1,168 7,000 8,168
--------- --------- ---------
Total current assets 21,776 226,671 248,447
--------- --------- ---------
Assets held for sale nonrecurrent 2,300 2,300
Property, plant & equipment, net 790 43,899 44,689
Cost in excess of net assets of
acquired companies, net 140,128 140,128
Other noncurrent assets 10,011 22,459 32,470
Investments in and advances
to subsidiaries 304,392 $(304,392)
--------- --------- --------- ---------
Total assets $ 336,969 $ 435,457 $(304,392) $ 468,034
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 13
December 31, 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 $ 14,400 $ 28,571 $ 42,971
Accounts payable 1,387 37,531 38,918
Accruals and other current
liabilities 25,643 40,741 66,384
--------- --------- ---------
Total current liabilities 41,430 106,843 148,273
--------- --------- ---------
Long-term debt 171,000 352 171,352
Other noncurrent liabilities 16,892 32,620 49,512
--------- --------- ---------
Total liabilities 229,322 139,815 369,137
--------- --------- ---------
Common stock and additional paid
in capital 126,588 126,588
Retained earnings (deficit) (17,373) (17,373)
Equity of subsidiaries and
advances of parent 304,392 $(304,392)
--------- --------- --------- ---------
109,215 304,392 (304,392) 109,215
Less:
Treasury stock at cost
(700,000 shares) 8,750 8,750
Minimum pension liability adjustment 540 540
Unearned compensation-restricted
stock 1,028 1,028
--------- --------- --------- ---------
Total shareholders' equity 107,647 295,642 (304,392) 98,897
--------- --------- --------- ---------
Total liabilities and shareholders'
equity $ 336,969 $ 435,457 $(304,392) $ 468,034
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 14
Nine Months Ended September 30, 1995 Condensed Consolidating Statement of
Earnings
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Sales and operating review $ $ 394,482 $ 394,482
Costs and expenses
Costs and operating expenses 334,009 334,009
Selling, general and administrative
expenses 9,554 32,920 42,474
Allocated expenses (3,300) 3,300
--------- --------- ---------
6,254 370,229 376,483
--------- --------- ---------
Operating income (6,254) 24,253 17,999
Other income (expense)
Interest expense (10,591) (4,821) (15,412)
Other 275 (21) 254
Equity in earnings of subsidiaries 19,411 $ (19,411)
--------- --------- --------- ---------
9,095 (4,842) (19,411) (15,158)
--------- --------- --------- ---------
Earnings before income taxes 2,841 19,411 (19,411) 2,841
Income tax benefit (provision) (994) (6,793) 6,793 (994)
--------- --------- --------- ---------
Net Earnings $ 1,847 $ 12,618 $ (12,618) $ 1,847
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 15
Nine Months Ended September 30, 1995 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 $ (21,623) $ 9,544 $ (12,079)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sales of assets 22,553 10,726 33,279
Additions to property, plant and equipment (204) (4,957) (5,161)
Acquisition of subsidiaries,
net of cash acquired
Net cash provided (used) by (947) (947)
--------- --------- ---------
investing activities 22,349 4,822 27,171
--------- --------- ---------
Cash flows from financing activities:
Additions to debt 262,827 262,827
Reductions in debt (251,233) (28,256) (279,489)
Other transactions, net 220 220
Net cash transfers to (from) parent (13,882) 13,882
Net cash provided (used) by --------- --------- ---------
financing activities (2,068) (14,374) (16,442)
--------- --------- ---------
Net increase (decrease) in cash (1,342) (8) (1,350)
Cash at beginning of year 1,519 1,100 2,619
--------- --------- ---------
Cash at end of period $ 177 $ 1,092 $ 1,269
========= ========= =========
</TABLE>
<PAGE>
<PAGE> 16
Nine Months Ended September 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 $ $ 390,459 $ 390,459
Costs and expenses:
Costs and operating expenses 326,787 326,787
Selling, general and administrative
expenses 14,413 40,671 55,084
Restructuring charge 4,800 53,906 58,706
Allocated expenses (5,328) 5,328
--------- --------- ---------
13,885 426,692 440,577
--------- --------- ---------
Operating income (loss) (13,885) (36,233) (50,118)
Other income (expense):
Interest expense (10,777) (3,019) (13,796)
Other (1,293) 29 (1,264)
Equity in income (loss) of
subsidiaries (39,223) $ 39,223
--------- --------- --------- ---------
(51,293) (2,990) 39,223 (15,060)
--------- --------- --------- ---------
Earnings (loss) before income taxes (65,178) (39,223) 39,223 (65,178)
Income tax benefit 13,036 7,335 (7,335) 13,036
--------- --------- --------- ---------
New earnings (loss) $ (52,142) $ (31,888) $ 31,888 $ (52,142)
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 17
Nine Months Ended September 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 $ (10,110) $ 12,400 $ 2,290
Cash flows from investing activities: --------- --------- ---------
Additions to property, plant and
equipment (304) (8,608) (8,912)
Acquisition of subsidiaries (1,785) (1,785)
Net proceeds from sale of assets 6,237 6,237
Net cash and short-term investments --------- --------- ---------
provided (used) by investing
activities (304) (4,156) (4,460)
Cash flows from financing activities: --------- --------- ---------
Addition to debt 111,085 38,160 149,245
Reductions in debt (119,425) (27,599) (147,024)
Other transactions, net 102 102
Net cash transfers to (from) parent 18,148 (18,148)
Net cash and short-term investments --------- --------- ---------
provided (used) by financing
activities 9,910 (7,587) 2,323
Net increase (decrease) in cash and --------- --------- ---------
short-term investments (504) 657 153
Cash and short-term investments at
beginning of year 857 637 1,494
Cash and short-term investments at --------- --------- ---------
end of period $ 353 $ 1,294 $ 1,647
========= ========= =========
</TABLE>
<PAGE>
<PAGE> 18
UNC Incorporated and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company's operations are conducted in one business segment which
includes: The overhaul of aircraft engines, industrial gas turbine engines
and aircraft accessories, the manufacture and remanufacture of jet engine
and aircraft components and providing maintenance and training, repair and
logistical contract services.
Quarter Ended September 30, 1995 Compared with Quarter Ended September 30,
- --------------------------------------------------------------------------
1994
- ----
Revenues were $137.4 million in the third quarter of 1995 compared with
$129.7 million in the 1994 quarter, an increase of $7.7 million (6%).
Operating income in the 1995 quarter was $6.4 million compared with $5.2
million in the 1994 quarter, an increase of $1.2 million (23%).
Revenues for the Engine Overhaul Division in the 1995 quarter decreased
$2.2 million (6.5%) to $31.8 million. The reduction in revenues is due in
part to the closing of the engine overhaul facility in Burbank, California
at the end of 1994, which was part of the Company's restructuring program.
Also, the 1994 quarter included revenues from an aircraft leveraged lease
transaction which were non-recurring due to the sale of the asset in
December 1994. These reductions were partially offset by higher revenues
from the overhaul and repair of industrial turbine engines and in the sale
of jet engine and aircraft components. Operating income decreased $0.8
million (32%) to $1.6 million in the 1995 quarter principally due to non-
recurring leveraged lease income included in the 1994 quarter.
Revenues from the Component Services Division in the 1995 quarter increased
$2.6 million (19%) to $16.3 million, on increased volume from both domestic
and international customers. Operating income increased $0.8 million to
$1.0 million on higher volume.
The Company's Manufacturing Division revenues for the 1995 third quarter
were $21.6 million, a decrease of $2.1 million (9%) compared with the 1994
quarter. The decrease in revenues is due to lower volume at the Company's
engine components manufacturing facility in Indiana and from no volume at
the chemical milled aircraft and engine components facility in Texas, which
was sold in June 1995 in line with the Company's restructuring strategy.
These decreases were partially offset by higher volume at the Company's
Michigan engine components manufacturing facility due to increased
activities on U.S. government and OEM programs and at the aerostructures
manufacturing facility in Washington due to activities on new contracts.
Operating income decreased $0.9 million (39%) to $1.5 million in the 1995
quarter, due to lower volume offset by activities on lower margin orders.
Aviation Services Division revenues of $65.7 million increased $7.4
million (12.8%) due to increased international revenues principally from
activities on a contract awarded in 1994 to provide training and services
to the Royal Saudi Navy. These increases were partially offset by reduced
levels of contract flight training and aircraft maintenance activities on
U.S. government contracts and the sale of UNC Helicopter in December 1994,
as part of the Company's restructuring strategy. Operating income
increased $0.2 million (7%) to $2.9 million on higher volume.
<PAGE>
<PAGE> 19
The 1995 quarter includes $2.0 million in revenues and operating income
from management fees for services provided to the Mohegan Indians in
connection with the sale of property in Connecticut.
Interest expense increased $0.5 million in the 1995 quarter due to higher
average debt levels and higher interest rates.
Nine Months Ended September 30, 1995, Compared with Nine Months Ended
- ---------------------------------------------------------------------
September 30, 1994
- ------------------
Revenues were $394.5 million in the nine months period in 1995 compared with
$390.5 in the 1994 period, an increase of $4.0 million (1.0%). Operating
income in the 1995 period was $18.0 million compared with an operating loss
of $50.1 million in the 1994 period. The 1994 period included a
restructuring charge of $58.7 million and a one-time charge of $9.6 million
for various adjustments described below. Adjusting for these charges
operating income would have been $18.2 million in the 1994 period. On an
adjusted basis operating income in the 1995 period of $18.0 million decreased
$0.2 million (1.0%) compared with the 1994 period.
Revenues for the Engine Overhaul Division in the 1995 period decreased $1.1
million (1%) to $96.3 million. The reduction in revenues is principally due
to the closing of the engine overhaul facility in Burbank, California at the
end of 1994, which was part of the Company's restructuring program. This
decrease was partially offset by a higher level of small engine overhauls,
and increases in the overhaul and repair of industrial turbine engines.
Operating income was $6.6 million in the 1995 period and $6.3 million in
1994. The 1994 period included a one-time charge of $1.0 million for an
increase in the allowance for doubtful accounts.
Revenues from the Component Services Division in the 1995 period increased
$6.0 million (14%) to $47.6 million on increased domestic and international
volume. Operating income was $4.1 million in the 1995 period and 3.6 million
in 1994. The 1994 period included one-time charges of approximately $0.2
million for an increase in the allowance for doubtful accounts.
The Company's Manufacturing Division revenues in the 1995 period of $63.4
million decreased $8.5 million (12%) compared with the 1994 period. The
reduction in revenues is principally due to lower volume at the Company's
engine component manufacturing facility in Indiana and to a reduction in
revenues generated by the Company's chemical milled aircraft and engine
components facility in Texas, which was sold in June 1995 as part of the
Company's restructuring strategy. These decreases were partially offset by
increased volume at the aerostructures manufacturing facility in Washington.
Operating income was $5.1 million in the 1995 period compared with $4.1
million in the 1994 period. The 1994 period included a one-time charge of
$3.5 million for an adjustment to cost estimates on long-term manufacturing
contracts.
Aviation Services Division revenues of $185.2 million increased $5.6 million
(3%) principally due to activities on the Royal Saudi Naval Forces contract,
which was awarded in 1994. This increase was partially offset by lower
flight hours on U.S. military maintenance contracts and the sale of UNC
Helicopter in December 1994, which was part of the Company's restructuring
strategy. Operating income decreased $2.2 million (25%) to $6.5 million in
the 1995 period principally due to lower maintenance activities as a result
of reduced flight hours.
<PAGE>
<PAGE> 20
The nine months period in 1995 includes $2.0 million in revenues and
operating income from management fees for services provided the Mohegan
Indians in connection with the sale of property in Connecticut.
Selling, general and administrative expenses in the nine months period of
1995 were $42.5 million or 10.8% of sales compared with $55.1 million or
14.1% of sales in the 1994 period. The decrease in selling, general and
administrative expenses in the 1995 period is due to the closing of the
Burbank engine overhaul facility, the sale of UNC Helicopter in December
1994, the sale of the Texas chemical milled aircraft and engine components
facility in June 1995, and other cost savings resulting from the
restructuring program initiated in the second half of 1994. Also, the 1994
period included a one-time charge of approximately $5.7 million for an
increase in the allowance of doubtful notes and accounts (included in this
amount are the allowance adjustments described above) and the write-off of
expenses incurred in connection with an acquisition that was not consummated.
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 cost providers such as the Company. 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 is represented. For example, the
employees of the U.S. Air Force's 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 is in
competition for the Air Force "privatization-in-place" contract which is
scheduled to begin in conjunction with that base closure in December 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 May 1995 the Company was awarded a major delivery
order under its Contract Field Teams contract to develop the plans,
procedures and processes to implement the U.S. Army's Brigade Afloat program.
Also in May, the Company was awarded a one year contract, with four one year
options, by the U.S. Army's Communications and Electronics Command at Ft.
Monmouth, N.J. with a potential value of approximately $105 million. In July
1995 the Company was awarded a $38 million seven-year subcontract for
maintenance and supply support of the Air Force's world-wide C-20 Gulfstream
VIP aircraft 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. This trend is being offset by the Defense Department placing
orders directly with subcontractors like the Company for replacement spare
parts. Recently the Company has been awarded contracts to produce T56, F110
and F404 High Pressure Turbine Nozzle Segments valued at $16 million, $9
million and $7 million, respectively. The Company's manufacturing operations
are continuing to focus their marketing efforts on commercial contracts to
continue to build that market segment in order to decrease long-term
dependence on military contracts. The Company's OEM customers continue to
<PAGE>
<PAGE 21>
significantly reduce the number of suppliers and their own procurement
staffs. The Company remains a part of the reduced subcontractor base and as
such has obtained new contracts that may not have been available 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
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 the effect of the
price concessions. Furthermore, during the second half of 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 financially pressured
competitors. The work-in-process of these contracts was transferred to
existing Company facilities, along with the required tooling and inventories.
Interest expense increased $1.6 million in the nine months period of 1995 due
to higher average debt levels and higher interest rates.
Liquidity and Capital Resources
- -------------------------------
In September 1995 the Company received approximately $28.4 million in cash
for the sale of its Connecticut property to the Mohegan Indian Tribe which
included $3.5 million to cover the cost of money and management fees for
services provided by the Company. With the completion of this transaction
the Company has now completed approximately $53 million of asset sales since
establishing its restructuring asset sales program in the third quarter of
1994. The proceeds from the Mohegan transaction were applied to reduce
borrowings under the Company's revolving credit facility.
In October 1995, the Company reached an agreement with Gildea Investment
Company ("Gildea") and other investors to provide up to $25 million of equity
financing on an as needed basis to help finance future acquisitions. The
equity investment will be in the form of a senior cumulative convertible
preferred stock ("the Preferred") issued by the Company. The Preferred will
be purchased at $100 per share with an annual dividend rate of 8.5%, with no
mandatory redemption, and will be convertible in common stock at a price of
$7 per share. The Company will have the option to pay dividends in the form
of a pay-in-kind cumulative preferred stock. Under the terms reached with
Gildea, the Company will only issue the new equity on an as needed basis for
prospective acquisitions. Gildea has the option to invest $10 million if a
like amount has not been issued by the Company by April 1996.
Long-term debt, including current portion, was $197.7 million at September
30, 1995 compared with $214.3 million at December 31, 1994. In May 1995 the
Company entered into a new revolving credit agreement which provides for a
five-year credit line through May 2000, with a borrowing capacity of up to
$90 million, subject to borrowing base limitations as defined in the
agreement, reduced by outstanding letters of credit.
The Company's unused availability under the facility was $38.6 million at
September 30, 1995. The Company's working capital was $128.4 million with a
current ratio of 2.4 to 1 compared with $100.2 million with a current ratio
of 1.7 to 1 at December 31, 1994.
<PAGE>
<PAGE> 22
Capital expenditures for the nine months period in 1995 amounted to $5.2
million compared with $8.9 million in the 1994 period. It is anticipated
that capital expenditures for the remainder of 1995 will be less than
depreciation and amortization expense and will be financed from internally
generated funds, lease arrangements and revolving credit borrowings.
<PAGE>
<PAGE> 23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits Description
Exhibit 11 Computation of Earning Per Common Share
Exhibit 27 Financial Data Schedule (electronically filed)
(b) Reports on Form 8-K:
- ------------------------
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1995.
<PAGE>
<PAGE> 24
UNC Incorporated and Subsidiaries
SIGNATURE
Pursuant to requirement 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: November 13, 1995 By: /s/ Robert L. Pevenstein
------------------------
Robert L. Pevenstein
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
<PAGE> 25
UNC Incorporated and Subsidiaries
SEQUENTIAL EXHIBIT INDEX
Exhibit Sequential
Number Description Page
- ------- --------------------------------- ----------
Exhibit 11 Computation of Earnings Per Common Share 26
Exhibit 27 Financial Data Schedule (electronically
filed)
<PAGE>
<PAGE> 26
EXHIBIT 11
UNC INCORPORATED AND SUBSIDIARIES
Earnings Per Share
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 839 $ 30 $ 1,847 $ (52,142)
========= ========= ========= =========
Calculation of primary earnings
per share:
Average common shares outstanding
during the period primary (1) 17,679 17,503 17,656 17,461
--------- --------- --------- ---------
Earnings (loss) per share, primary:
Net earnings (loss) $ .05 $ $ .10 $ (2.99)
========= ========= ========= =========
Calculation of fully diluted earnings
per share:
Average common shares outstanding
for the period (1) 17,679 17,503 17,656 17,461
Increase in common stock equivalents:
Stock options under treasure stock
method 263 300 263 429
--------- --------- --------- ---------
Adjusted average shares outstanding
for the period fully diluted 17,942 17,803 17,919 17,890
--------- --------- --------- ---------
Earnings (loss) per share, fully
diluted:
Net earnings (loss) $ .05 $ $ .10 $ (2.91)
========= ========= ========= =========
</TABLE>
(1) Exclusive of 700,000 treasury shares for all years presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of 9/30/95 and the related consolidated
statement of earnings, cash flows and notes to consolidated financial
statements for the nine months ended 9/30/95 and is qualified in its
entirety by reference to such financial statements and notes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,269
<SECURITIES> 0
<RECEIVABLES> 93,127
<ALLOWANCES> 3,292
<INVENTORY> 86,264
<CURRENT-ASSETS> 221,270
<PP&E> 77,832
<DEPRECIATION> 32,576
<TOTAL-ASSETS> 439,445
<CURRENT-LIABILITIES> 92,856
<BONDS> 192,054
<COMMON> 3,679
0
0
<OTHER-SE> 97,564
<TOTAL-LIABILITY-AND-EQUITY> 439,445
<SALES> 229,485<F1>
<TOTAL-REVENUES> 394,482
<CGS> 183,219<F1>
<TOTAL-COSTS> 334,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,492<F2><F3>
<INTEREST-EXPENSE> 15,412
<INCOME-PRETAX> 2,841
<INCOME-TAX> 994
<INCOME-CONTINUING> 1,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,847
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<PAGE>
<FN>
<F1>See 6 of Notes to Consolidated Financial Statements
<F2>The provision for doubtful accounts is included with Selling, General and
Administrative Expenses in the Consolidated Statement of Earnings.
<F3>It also appears in the Consolidated Statement of Cash Flows under the title
"Provision for losses on accounts receivables."
</FN>
</TABLE>
