<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 March 31, 1996
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 (Zip Code)
offices)
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 May 7, 1996:
17,808,981 (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
Three Months Ended March 31, 1996 and 1995
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
<PAGE> 3
UNC Incorporated and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Sales and operating revenues $ 141,509 $ 125,703
Costs and expenses:
Cost and operating expenses 120,936 106,385
Selling, general and
administrative expenses 14,708 14,085
--------- ---------
135,644 120,470
--------- ---------
Operating income 5,865 5,233
Other income (expense):
Interest expense (4,864) (5,138)
Other (324) (20)
--------- ---------
(5,188) (5,158)
--------- ---------
Earnings before income taxes 677 75
Income tax provision (203) (26)
--------- ---------
Net Earnings $ 474 $ 49
========= =========
Net earnings per share $ .03 $
========= =========
/TABLE
<PAGE>
<PAGE> 4
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
Assets
- ------
Current assets:
Cash $ 2,129 $ 1,671
Accounts receivable, less allowance for
doubtful accounts of $3,363 and $3,186,
respectively 108,916 102,462
Unbilled costs and accrued profits on
contracts in progress 10,385 11,128
Inventories 100,664 91,130
Assets held for sale 4,858 5,099
Other 9,715 10,156
--------- ---------
Total current assets 236,667 221,646
--------- ---------
Assets held for sale - noncurrent 12,243 12,796
Property, plant and equipment, at cost 84,824 82,449
Less accumulated depreciation 35,862 34,381
--------- ---------
Net property, plant and equipment 48,962 48,068
Cost in excess of net assets of acquired
companies, less accumulated amortization of
$29,371 and $28,175, respectively. 135,101 136,298
Other assets 28,579 27,453
--------- ---------
Total assets $ 461,552 $ 446,261
========= =========
</TABLE>
<PAGE>
<PAGE> 5
UNC Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 5,317 $ 1,748
Accounts payable 40,135 39,614
Income taxes 1,412 1,392
Accruals and other current liabilities 57,280 54,794
--------- ---------
Total current liabilities 104,144 97,548
Long-term debt, less current portion:
Revolving Senior Bank Debt, interest rate
at March 31, 1996, 8.38% due 2000 52,722 37,181
9 1/8% Senior Notes due 2003 100,000 100,000
7 1/2% Convertible Subordinated Debentures
due 2006 60,600 64,800
Other 1,235 1,352
--------- ---------
Total long-term debt, less current portion 214,557 203,333
--------- ---------
Other noncurrent liabilities 41,450 45,228
--------- ---------
Total liabilities 360,151 346,109
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 18,499,868 and
18,393,868 shares, respectively 3,700 3,679
Additional paid-in capital 124,344 123,717
Retained earnings (deficit) (14,976) (15,450)
--------- ---------
113,068 111,946
Less:
Treasury stock, at cost (700,000 shares) 8,750 8,750
Minimum pension liability adjustment 1,801 1,801
Unearned compensation-restricted stock 1,116 1,243
--------- ---------
Total shareholders' equity 101,401 100,152
--------- ---------
Total liabilities and shareholders' equity $ 461,552 $ 446,261
========= =========
/TABLE
<PAGE>
<PAGE> 6
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 474 $ 49
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 3,223 3,090
Provision for losses on accounts receivable 265 289
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (6,719) 5,639
Decrease in unbilled costs & accrued
profits on contracts in progress 743 564
(Increase) in inventories (9,534) (1,682)
Decrease in other current assets 441 121
(Increase) in other noncurrent assets (1,639) (1,287)
Increase (decrease) in accounts payable 521 (14,044)
(Decrease) in accruals and other current
liabilities (58) (5,692)
Increase in income taxes payable 20 26
Increase (decrease) in other noncurrent
liabilities 4 (79)
(Decrease) in discontinued operations
liabilities (1,238) (1,114)
--------- ---------
Total adjustments (13,971) (14,169)
--------- ---------
Net cash provided (used) by operating
activities (13,497) (14,120)
--------- ---------
</TABLE>
<PAGE>
<PAGE> 7
UNC Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from investing activities:
Net proceeds from sale of assets 740 5,953
Additions to property, plant and equipment (2,226) (1,259)
--------- ---------
Net cash provided (used) by investing
activities (1,486) 4,694
--------- ---------
Cash flows from financing activities:
Additions to debt 156,277 52,000
Reductions in debt (141,484) (43,958)
Other transactions 648 65
--------- ---------
Net cash provided (used) by financing
activities 15,441 8,107
--------- ---------
Net increase (decrease) in cash 458 (1,319)
Cash at beginning of year 1,671 2,619
--------- ---------
Cash at end of period $ 2,129 $ 1,300
========= =========
/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, 1995,
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.
2. Inventories at March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
-------- --------
<S> <C> <C>
Component parts and materials $ 75,448 $ 70,317
Work in process 20,560 17,436
Supplies 4,656 3,377
-------- --------
$100,664 $ 91,130
======== ========
</TABLE>
3. Net sales of tangible products in the quarter ended March 31, 1996
amounted to $85.5 million and cost and operating expenses related to
tangible goods sold amounted to $68.2 million.
4. In July 1993, the Company issued $100 million principal amount of 9-
1/8% Senior Notes due 2003. The notes are guaranteed by the Company's
domestic operating 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 domestic operating subsidiaries
(the "Guarantees"). Each Guarantee is a senior unsecured obligation of
the domestic operating subsidiary providing such Guarantee and ranks
pari passu with all senior unsecured indebtedness of such subsidiary.
The domestic operating 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 domestic operating 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.
<PAGE>
<PAGE> 9
The following condensed consolidating information presents:
(1) Condensed financial statements as of March 31, 1996 and for the
three months ended March 31, 1996 and 1995 of (a) the Company on
a parent company only basis (Parent Company), 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
UNC INCORPORATED
Condensed Consolidating Balance Sheet
March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash $ 176 $ 1,953 $ 2,129
Accounts receivable, net 385 108,531 108,916
Unbilled costs and accrued
profits on contracts in progress 10,385 10,385
Inventories 100,664 100,664
Assets held for sale 114 4,744 4,858
Other 1,005 8,710 9,715
-------- -------- ---------
Total current assets 1,680 234,987 236,667
-------- -------- ---------
Assets held for sale-noncurrent 1,223 11,020 12,243
Property, plant & equipment, net 649 48,313 48,962
Cost in excess of net assets
of acquired companies, net 135,101 135,101
Other noncurrent assets 10,156 18,423 28,579
Investments in and advances
to subsidiaries 352,284 $(352,284)
-------- -------- --------- ---------
Total assets $365,992 $447,844 $(352,284) $ 461,552
======== ======== ========= =========
</TABLE>
<PAGE>
<PAGE> 11
UNC INCORPORATED
Condensed Consolidating Balance Sheet
March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 5,200 $ 117 $ 5,317
Accounts payable 882 39,253 40,135
Accruals and other current liabilities 21,553 37,139 58,692
-------- -------- ---------
Total current liabilities 27,635 76,509 104,144
-------- -------- ---------
Long-term debt 214,322 235 214,557
Other noncurrent liabilities 13,884 27,566 41,450
-------- -------- ---------
Total liabilities 255,841 104,310 360,151
-------- -------- ---------
Common stock and additional paid
in capital 128,044 128,044
Retained earnings (deficit) (14,976) (14,976)
Equity of subsidiaries and
advances of parent 352,284 $(352,284)
-------- -------- --------- ---------
113,068 352,284 (352,284) 113,068
Less:
Treasury stock, at cost 8,750 8,750
Minimum pension liability adjustment 1,801 1,801
Unearned compensation-restricted
stock 1,116 1,116
-------- -------- --------- ---------
Total shareholders' equity 110,151 343,534 (352,284) 101,401
-------- -------- --------- ---------
Total liabilities and
shareholders' equity $365,992 $447,844 $(352,284) $ 461,552
======== ======== ========= =========
/TABLE
<PAGE>
<PAGE> 12
UNC INCORPORATED
Condensed Consolidating Balance Sheet
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash $ 123 $ 1,548 $ 1,671
Accounts receivable, net 410 102,052 102,462
Unbilled costs and accrued
profits on contracts in progress 11,128 11,128
Inventories 91,130 91,130
Assets held for sale 114 4,985 5,099
Other 1,125 9,031 10,156
-------- -------- ---------
Total current assets 1,772 219,874 221,646
-------- -------- ---------
Assets held for sale noncurrent 2,834 9,962 12,796
Property, plant & equipment, net 706 47,362 48,068
Cost in excess of net assets
of acquired companies, net 136,298 136,298
Other noncurrent assets 9,748 17,705 27,453
Investments in and advances
to subsidiaries 343,366 $(343,366)
-------- -------- --------- ---------
Total assets $358,426 $431,201 $(343,366) $ 446,261
======== ======== ========= =========
</TABLE>
<PAGE>
<PAGE> 13
UNC INCORPORATED
Condensed Consolidating Balance Sheet
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,631 $ 117 $ 1,748
Accounts payable 2,784 36,830 39,614
Accruals and other current liabilities 21,253 34,933 56,186
-------- -------- ---------
Total current liabilities 25,668 71,880 97,548
-------- -------- ---------
Long-term debt 202,981 352 203,333
Other noncurrent liabilities 20,875 24,353 45,228
-------- -------- ---------
Total liabilities 249,524 96,585 346,109
-------- -------- ---------
Common stock and additional paid
in capital 127,396 127,396
Retained earnings (deficit) (15,450) (15,450)
Equity of subsidiaries and
advances of parent 343,366 $(343,366)
-------- -------- --------- ---------
111,946 343,366 (343,366) 111,946
Less:
Treasury stock, at cost 8,750 8,750
Minimum pension liability adjustment 1,801 1,801
Unearned compensation-restricted
stock 1,243 1,243
-------- -------- --------- ---------
Total shareholders' equity 108,902 334,616 (343,366) 100,152
-------- -------- --------- ---------
Total liabilities and
shareholders' equity $358,426 $431,201 $(343,366) $ 446,261
======== ======== ========= =========
/TABLE
<PAGE>
<PAGE> 14
UNC INCORPORATED
Condensed Consolidating Statement of Earnings
Three Months Ended March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues $ $ 141,509 $ 141,509
Costs and expenses
Costs and operating expenses 120,936 120,936
Selling, general and
administrative expenses 3,319 11,389 14,708
Allocated expenses (1,251) 1,251
--------- --------- ---------
2,068 133,576 135,644
--------- --------- ---------
Operating income (2,068) 7,933 5,865
Other income (expense)
Interest expense (4,855) (9) (4,864)
Other (333) 9 (324)
Equity in income of
subsidiaries 5,553 $ (5,553)
--------- --------- --------- ---------
365 (5,553) (5,188)
--------- --------- --------- ---------
Earnings (loss) before income taxes (1,703) 7,933 (5,553) 677
Income tax benefit (provision) 2,177 (2,380) (203)
--------- --------- --------- ---------
Net earnings $ 474 $ 5,553 $ (5,553) $ 474
========= ========= ========= =========
/TABLE
<PAGE>
<PAGE> 15
UNC INCORPORATED
Condensed Consolidating Statement of Earnings
Three Months Ended March 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Eliminations Consolidated
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales and operating revenues $ $ 125,703 $ 125,703
Costs and expenses
Costs and operating expenses 106,385 106,385
Selling, general and administrative
expenses 3,273 10,812 14,085
Allocated expenses (1,107) 1,107
--------- --------- ---------
2,166 118,304 120,470
--------- --------- ---------
Operating income (2,166) 7,399 5,233
Other income (expense)
Interest expense (4,078) (1,060) (5,138)
Other 6 (26) (20)
Equity in income of subsidiaries 4,103 $ (4,103)
--------- --------- --------- ---------
31 (1,086) (4,103) (5,158)
--------- --------- --------- ---------
Earnings before income taxes (2,135) 6,313 (4,103) 75
Income tax benefit (provision) 2,184 (2,210) (26)
--------- --------- --------- ---------
Net earnings $ 49 $ 4,103 $ (4,103) $ 49
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE> 16
UNC INCORPORATED
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Consolidated
------- ---------- ------------
<S> <C> <C> <C>
Net cash flow provided (used) by
operations $ (12,161) $ (1,336) $ (13,497)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets 48 692 740
Additions to property, plant and
equipment (27) (2,199) (2,226)
Net cash provided (used) by --------- --------- ---------
investing activities 21 (1,507) (1,486)
--------- --------- ---------
Cash flows from financing activities:
Additions to debt 156,277 156,277
Reductions in debt (141,367) (117) (141,484)
Other transactions, net 648 648
Net cash transfers to (from) parent (3,547) 3,547
Net cash provided (used) by --------- --------- ---------
financing activities 12,011 3,430 15,441
--------- --------- ---------
Net decrease in cash (129) 587 458
Cash at beginning of year 123 1,548 1,671
--------- --------- ---------
Cash at end of period $ (6) $ 2,135 $ 2,129
========= ========= =========
/TABLE
<PAGE>
<PAGE> 17
UNC INCORPORATED
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Parent Combined
Company Guarantors Consolidated
------- ---------- ------------
<S> <C> <C> <C>
Net cash flow provided (used) by
operations activities $ (9,463) $ (4,657) $ (14,120)
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sale of assets 865 5,088 5,953
Additions to property, plant and
equipment (118) (1,141) (1,259)
Net cash provided (used) by --------- --------- ---------
investing activities 747 3,947 4,694
--------- --------- ---------
Cash flows from financing activities:
Additions to debt 52,000 52,000
Reductions in debt (43,765) (193) (43,958)
Other transactions, net 65 65
Net cash transfers to (from) parent 851 (851)
Net cash provided (used) by --------- --------- ---------
financing activities 9,151 (1,044) 8,107
--------- --------- ---------
Net increase (decrease) in cash 435 (1,754) (1,319)
Cash at beginning of year 1,519 1,100 2,619
--------- --------- ---------
Cash at end of period $ 1,954 $ (654) $ 1,300
========= ========= =========
/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 the providing of maintenance and training, repair and
logistical contract services.
Quarter Ended March 31, 1996 Compared with Quarter Ended March 31, 1995
- -----------------------------------------------------------------------
Revenues were $141.5 million in the 1996 quarter compared with $125.7 million
in the 1995 quarter, an increase of $15.8 million (13%). Contributing to the
higher revenues was an increase of $6.2 million in international revenues and
increased activities on Aviation Services Division Contracts that were
awarded towards the end of 1995. Operating income increased $0.6 million to
$5.9 million principally due to increased volume.
Revenues for the Engine Overhaul Division in the 1996 quarter increased $2.5
million (8%) to $32.2 million. The higher revenues are due to an increase in
small engine overhauls for both domestic and international customers and to
increased overhaul and repair of industrial turbine engines. These increases
were partially offset by a decrease in revenues from the sale of engine parts
and accessory support for small gas turbine engines principally due to
competitive conditions in the marketplace. Operating income in the first
quarter of 1996 increased $0.2 million (7%) to $2.4 million principally due
to higher volume.
Revenues of the Accessory Services Division in the 1996 quarter decreased
$2.8 million (23%) to $9.5 million due to lower volume on domestic business
which was partially offset by a moderate increase in international revenues.
Operating income in the 1996 quarter decreased $1.1 million (92%) to $0.1
million due to lower volume.
The Company's Manufacturing Division revenues in the 1996 quarter increased
$2.9 million (12%) to $27.6 million compared with the 1995 quarter. The
increase in revenues is principally due to higher volume on U.S. government
spares programs at the Company's Michigan components manufacturing facility
and higher volume at other manufacturing facilities, principally due to
activities on a Canadian contract awarded late in 1995 at the Aerostructures
manufacturing facility in the State of Washington and an increase in volume
at UNC Artex from specialized repairs of engine gearboxes and cases for
commercial airlines. These increases were partially offset by the loss of
revenues attributable to the Company's chemical milled aircraft and engine
component business, which was sold in June 1995. Operating income increased
$1.3 million (55%) to $3.6 million principally due to higher volume.
Aviation Services Division revenues of $71.6 million increased $12.6 million
(21%) in the 1996 quarter. The increase in the 1996 quarter is due in part
to higher revenues generated on U.S. government contracts for pilot training
and contract field teams services and activities on international contracts.
<PAGE>
<PAGE> 19
These increases in revenues were partially offset by a reduction in aircraft
maintenance activities on U.S. government contracts. Operating income
increased $0.1 million (7%) to $1.7 million in the 1996 quarter due to
increased volume.
Revenues in the first quarter of 1996 of $0.6 million and operating income of
$0.1 million were generated from the sale of aircraft parts by the Company's
Trading Division which commenced parts sales activities in the second quarter
of 1995.
Selling, general and administrative expenses in the 1996 quarter were $14.7
million or 10.4% of sales compared with $14.1 million or 11.2% of sales in
the 1995 quarter. The increase in selling, general and administrative
expenses in the 1996 quarter of $0.6 million is principally due to an
increase in domestic sales and marketing activities and also includes an
investment for increased international marketing efforts by the Company's
international offices located in Singapore, The Netherlands and Miami,
Florida, serving Latin America. International revenues increased $6.2
million (25%) to $30.7 million in the 1996 quarter.
Interest expense decreased $0.3 million in the 1996 quarter principally due
to lower interest rates.
The effective income tax rate as a percent of earnings before income taxes
was 30% and 35% for the three-month period ended March 31, 1996 and 1995,
respectively. The decrease in the effective rate for 1996 compared with 1995
is due to the expected realization of certain deferred tax assets not
previously realized.
The Defense Department is continuing to close various military bases. 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 Department of Defense Industry Depot Maintenance Task Force on which
UNC is represented. 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 Strategic Mobility
Logistics Program at Charleston, South Carolina. 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 worldwide C-20 Gulfstream VIP aircraft fleet, and in August,
the Company was awarded a one year contract with four one-year options
aggregating approximately $38 million to provide flight simulator instruction
at six Air Education and Training Command bases.
The Company's Manufacturing Division continues to receive pricing pressure
from certain customers, principally OEMs, as these OEMs continue to
<PAGE>
<PAGE> 20
significantly reduce the number of suppliers and their own procurement
staffs. The Company remains a part of the reduced OEM supplier base and has
obtained new contracts that may not have been available when the base of
suppliers was larger. The Division has provided price concessions to its
principal OEM customers during each of the past four years in anticipation of
continuing to receive future orders and to maintain OEM business
relationships. As a result of the depressed conditions in the industry over
the past several years, the additional orders have not been sufficient to
offset the declining volume of business. The Company has instituted on-going
productivity enhancements and cost reduction programs, in an effort to
mitigate the effect of these price concessions and reduced volumes. The OEM
customers continue to apply pricing pressure on all suppliers, and the
Company expects continuing pressures from these OEM customers on future
pricing.
Continued effort on the part of the U.S. government to reduce defense
spending is affecting the demand for military aircraft engines and could also
have an impact on the Company's manufacturing operations. This trend is
being offset by the Defense Department bypassing OEMs and placing orders
directly with subcontractors such as the Company. Recently, the Company has
been awarded contracts to produce T56, F10 and F404 High Pressure Turbine
Nozzle Segments valued at $16 million, $9 million and $7 million,
respectively. The Company's manufacturing operations will capitalize on the
opportunities in the military market while focussing its efforts on building
the commercial market.
Liquidity and Capital Resources
- -------------------------------
Net cash flows from operating activities used $13.5 million in the first
quarter of 1996, which consisted of $4.0 million generated by earnings after
adjusting for non-cash items, offset by a $14.6 million investment in
additional working capital and $2.9 million related to changes in noncurrent
assets and liabilities. Net cash flows from investing activities used $2.2
million for capital expenditures, which was partially funded by $0.7 million
generated from the sale of assets identified in the restructuring program.
Net cash provided by financing activities of $15.4 million includes a $14.8
million net increase in debt, which was used to finance the $15.0 million in
net funds used by operating and investing activities.
Many of the Company's restructuring goals have been achieved since the
program was implemented in June 1994. The Company has generated $48.6
million from the sale of assets, including $25.0 million from the sale of the
Company's Connecticut property, $12.8 million from the sale of other under
utilized property and equipment, $10.8 million from the sale of other assets,
including its helicopter overhaul and refurbishing business in Ozark, Alabama
and its chemical milled aircraft and engine component business in
Weatherford, Texas. In addition, the Company has closed its JT8 engine
overhaul facility in Burbank, California and consolidated the engine overhaul
business at its facilities in Millville, New Jersey, and Miami, Florida. Two
accessory services facilities in Long Island, New York, have also been
consolidated. The disposal of these assets and consolidation of operations,
along with implementation of productivity enhancements and staff reductions,
have resulted in a reduced cost structure for the Company.
<PAGE>
<PAGE> 21
In addition to the cash described above, since June 30, 1994 the Company
generated approximately $8.4 million of proceeds from the collection of
certain disputed receivables and notes that were written down at the time of
the restructuring in connection with efforts made by the Company to
accelerate the collection of these troubled receivables and generate
additional cash.
Since the restructuring program was implemented, the Company has incurred
$17.2 million of cash expenditures against its restructuring accrual. These
cash expenditures include employee severance and related costs of $2.5
million, $14.7 million of costs associated with the sale, closing and
consolidations of businesses and operations, including $3.8 million of third-
party costs associated with the shutdowns, consolidations and sales programs.
The Company believes that the remaining restructuring accrual of $3.3 million
should be adequate to complete the program.
Capital expenditures in the 1996 quarter amounted to $2.2 million compared
with $1.3 million in the 1995 quarter. It is anticipated that capital
expenditures for the full year 1996 will approximate $11 million, excluding
the impact of the acquisition of Garrett Aviation Services (see below), and
that expenditures for the balance of 1996 will be financed from internally
generated funds, lease arrangements and, if necessary, revolving credit
borrowings.
The Company's revolving credit agreement provides for a credit line through
May 2000, with a borrowing capacity of up to $90 million, subject to
borrowing base limitations as defined in the agreement and reduced by
outstanding letters of credit. The Company's unused availability under the
facility was $28.2 million at March 31, 1996. In January 1996 the Company
purchased in the open market $0.6 million of the 7 1/2% Convertible
Subordinated Debentures to satisfy the remaining balance of the March 1996
sinking fund requirement. The Company's debt-to-capitalization ratio at
March 31, 1996, was 68.4% compared with 67.2% at December 31, 1995. At March
31, 1996, the Company's working capital was $132.5 million, with a current
ratio of 2.3 to 1 compared with $124.1 million with a current ratio of 2.3 to
1 at December 31, 1995.
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 assist in financing future acquisitions.
The equity investment will be in the form of senior cumulative convertible
preferred stock ("the Preferred") issued by the Company. The Preferred will
be issued at $100 per share with an annual cumulative dividend rate of 8.5%,
with no mandatory redemption, and will be convertible to 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.
On January 15, 1996, the Company entered into an agreement to acquire
substantially all of the assets and certain liabilities of Garrett Aviation
Services ("Garrett"), a leading provider of aviation services in the business
aviation aftermarket. The purchase price is approximately $145 million which
the Company intends to finance through the issuance of $125 million of long-
<PAGE>
<PAGE> 22
term senior subordinated notes and $25 million of 8.5% cumulative convertible
Preferred Stock (see above). In addition, borrowings under the Company's
Revolving Senior Bank Debt will be necessary to the extent the purchase price
plus transaction costs exceeds the amount of funds generated from the
issuance of the notes and Preferred Stock described above. As of February
23, 1996, the Company had received consent from the required majority of 9
1/8% Senior Notes holders to amend certain covenants in order to permit
additional borrowings and amend the restrictions on the payment of cash
dividends. The Company will pay the holders a fee of approximately $2.0
million for granting these consents if the acquisition is consummated.
<PAGE>
<PAGE> 23
PART 11 - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits Description
- ------------- ----------------------------------
Exhibit 11 Computation of Earnings Per Common
Share
(b) Reports on Form 8-K
- ------------------------
On February 7, 1996, the Company filed a Form 8-K covering the announcement
on February 5, 1996, that it had commenced a solicitation of consents with
respect to certain amendments it proposes to make to the Indenture covering
its 9 1/8% Senior Notes due 2003. The Company is soliciting the consents to
the proposed amendments to, among other things, enable the Company to finance
its previously announced acquisition of Garrett Aviation Services.
<PAGE>
<PAGE> 24
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: May 15, 1996 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
Exhibit 27 Financial Data Schedule (electronically filed)
<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 11
UNC INCORPORATED AND SUBSIDIARIES
Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Net earnings - primary earnings per share $ 474 $ 49
Adjustments - fully diluted earnings per share:
Decrease in interest expense related to
convertible debt, net of income tax effect (1),(3) 851 845
Adjusted net earnings - fully diluted
-------- --------
earnings per share $ 1,325 $ 894
======== ========
Calculation of primary net earnings per share:
Average common shares outstanding during
the period (2) 17,769 17,632
Increase for common stock equivalents:
Stock options under treasury stock method 306 226
Adjusted average shares outstanding for the
-------- --------
period - primary 18,075 17,858
======== ========
Primary earnings per share $ .03
======== ========
Calculation of fully diluted earning per share
Average common shares outstanding during the
period (2) 17,769 17,632
Increase for common stock equivalents:
Stock options under treasury stock method 332 228
Dilutive shares issuable upon conversion of
convertible debt(1) 4,208 4,480
Adjusted average shares outstanding for the
-------- --------
period - fully diluted 22,309 22,340
======== ========
Fully diluted earnings per share $ .06 $ .04
======== ========
</TABLE>
<PAGE>
<PAGE> 2
(1) The convertible subordinated debentures were anti-dilutive for all
years presented.
(2) Exclusive of 700,000 treasury shares for all years presented.
(3) The convertible subordinated debentures are not common stock
equivalents in the calculation of primary net earnings per share.
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of 3/31/96 and the related consolidated
statement of earnings, cash flows and notes to consolidated financial
statements for the quarter ended 3/31/96 and is qualified in its entirety
by reference to such financial statements and notes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,129
<SECURITIES> 0
<RECEIVABLES> 112,279
<ALLOWANCES> 3,363
<INVENTORY> 100,664
<CURRENT-ASSETS> 236,667
<PP&E> 84,824
<DEPRECIATION> 35,862
<TOTAL-ASSETS> 461,552
<CURRENT-LIABILITIES> 104,144
<BONDS> 214,557
0
0
<COMMON> 3,700
<OTHER-SE> 97,701
<TOTAL-LIABILITY-AND-EQUITY> 461,552
<SALES> 85,480<F1>
<TOTAL-REVENUES> 141,509
<CGS> 68,220<F1>
<TOTAL-COSTS> 120,936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 265<F2><F3>
<INTEREST-EXPENSE> 4,864
<INCOME-PRETAX> 677
<INCOME-TAX> 203
<INCOME-CONTINUING> 474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 474
<EPS-PRIMARY> .03
<EPS-DILUTED> .06
<PAGE>
<FN>
<F1>See Note 3 of Notes to Consolidated Financial Statements
<F2>The provision for doubtful accounts and notes 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>
