SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission file number #1-4252 ------- UNITED INDUSTRIAL CORPORATION ------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2081809 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Identification No.) incorporation or organization) 570 Lexington Avenue, New York, NY 10022 ------------------------------------------------------------ (Address of principal executive offices) Not Applicable ------------------------------------------------------------ FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT. Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,374,638 shares of common stock as of May 3, 2000. 78495.0001 UNITED INDUSTRIAL CORPORATION INDEX Page # ------ Part I - Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - Unaudited March 31, 2000 and December 31, 1999 1 Consolidated Condensed Statements of Operations - Three Months Ended March 31, 2000 and 1999 2 Consolidated Condensed Statements of Cash Flows Three Months Ended March 31, 2000 and 1999 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 3. Qualitative and Quantitative Disclosures about Market Risk 7 PART II - Other Information 9 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) MARCH 31 DECEMBER 31* 2000 1999 ------------ ------------ ASSETS (Unaudited) - ------ Current Assets Cash & cash equivalents $ 13,044 $ 13,092 Marketable securities 3,462 - Trade receivables 48,915 48,395 Inventories Finished goods & work-in-process 49,375 38,902 Materials & supplies 3,054 3,285 -------- -------- 52,429 42,187 Deferred income taxes 6,949 6,949 Prepaid expenses & other current assets 3,002 3,239 -------- -------- Total Current Assets 127,801 113,862 Other assets 50,706 56,005 Property & equipment - less allowances for depreciation (2000-$87,971; 1999-$86,248) 34,835 35,833 -------- -------- $213,342 $205,700 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 8,701 $ 9,837 Accrued employee compensation & taxes 7,286 7,710 Customer advances 34,507 25,705 Federal income taxes 1,744 636 Other liabilities 5,755 7,847 Provision for contract losses 6,774 7,026 -------- -------- Total Current Liabilities 64,767 58,761 Long-term liabilities 3,887 3,887 Deferred income taxes 7,310 7,383 Postretirement benefits other than pensions 24,788 24,614 Shareholders' Equity - -------------------- Common stock $1.00 par value Authorized - 30,000,000 shares; outstanding 12,373,638 shares and 12,294,138 shares - March 31, 2000 and December 31, 1999 (net of shares in treasury) 14,374 14,374 Additional capital 89,398 89,483 Retained earnings 24,608 23,616 Treasury stock, at cost, 2,000,510 shares at March 31, 2000 and 2,080,010 shares at December 31, 1999 (15,790) (16,418) -------- -------- 112,590 111,055 -------- -------- $213,342 $205,700 ======== ======== See accompanying notes * Reclassified to conform to 2000 presentation 1 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended March 31 --------------------------- 2000 1999 ----------- ---------- (Unaudited) Net sales $ 49,936 $ 47,070 Operating costs & expenses Cost of sales 36,960 32,015 Selling & administrative 10,480 10,989 Other (income) expense - net (498) 1,010 Interest expense 2 23 Interest income (526) (619) -------- -------- 46,418 43,418 -------- -------- Income before income taxes 3,518 3,652 Income taxes 1,289 1,338 -------- -------- Net income $ 2,229 $ 2,314 ======== ======== Net earnings per share: Basic $ .18 $ .19 ===== ===== Diluted $ .18 $ .19 ===== ===== See accompanying notes 2 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) THREE MONTHS ENDED MARCH 31 --------------------------- 2000 1999 -------- -------- OPERATING ACTIVITIES (Unaudited) - -------------------- Net income $ 2,229 $ 2,314 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,238 1,846 Deferred income taxes (73) (118) Decrease in provision for contract losses (252) (705) Changes in operating assets and liabilities (5,375) (2,570) Increase (decrease) in federal income taxes payable 1,108 (715) -------- ------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (125) 52 INVESTING ACTIVITIES Increase in marketable securities (3,462) (1,182) Purchase of property and equipment (1,057) (1,946) Decrease (increase) in other assets - net 5,130 (389) -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 611 (3,517) FINANCING ACTIVITIES Increase in long-term liabilities 174 80 Proceeds from exercise of stock options 529 43 Dividends (1,237) (1,226) -------- -------- NET CASH USED IN FINANCING ACTIVITIES ( 534) (1,103) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (48) (4,568) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,092 21,126 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,044 $ 16,558 ======== ======== See accompanying notes 3 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements March 31, 2000 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. NOTE B - SEGMENT INFORMATION Trans- Reconci- (dollars in thousands) Defense portation Energy Other liations Totals ------- --------- ------ ----- -------- ------ Three months ended March 31, 2000 - --------------------------------- Revenues from external customers $41,126 $ 1,016 $ 7,794 $ - $ - $49,936 Intersegment revenues 219 - - - (219) - Equity profit (loss) in ventures 68 (70) - - - (2) Segment profit (loss) 3,562 (805) 1,226 (465) - 3,518 Income before income taxes $ 3,518 ======= Three months ended March 31, 1999 Revenues from external customers $35,980 $ 2,650 $ 8,440 $ - $ - $47,070 Intersegment revenues 140 - - - (140) - Equity profit (loss) in ventures 84 (1,336) - - - (1,252) Segment profit (loss) 4,038 (1,143) 1,183 (426) - 3,652 Income before income taxes $ 3,652 ======= NOTE C - DIVIDENDS A quarterly dividend of $.10 per share is payable May 31, 2000. 4 NOTE D - WEIGHTED AVERAGE SHARES Three Months Ended March 31 2000 1999 ---------- ---------- Weighted average shares 12,373,638 12,258,713 Dilutive effect of stock options 215,725 226,297 ---------- ---------- Diluted weighted average shares 12,589,363 12,485,010 ========== ========== ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Information This report contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward looking statements which include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. These forward looking statements are subject to risks and uncertainties which could cause the Company's actual results or performance to differ materially from those expressed or implied in such statements. These risks and uncertainties include, but are not limited to, the following: the Company's successful execution of internal performance plans; performance issues with key suppliers, subcontractors and business partners; legal proceedings; product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; product development, commercialization and technological difficulties; capacity and supply constraints or difficulties; legislative or regulatory actions impacting the Company's energy segment and transportation business; changing priorities or reductions in the U.S. Government defense budget; contract continuation and future contract awards; and U.S. and international military budget constraints and determinations. Results of Operations Three months ended March 31, 2000 compared to three months ended March 31, 1999: Consolidated net sales increased by $2,866,000 or 6.1% to $49,936,000 in the first quarter of 2000 from $47,070,000 during the same period in 1999. Sales in the Defense segment increased $5,146,000 or 14% to $41,126,000 from $35,980,000 during the same period in 1999. The Energy segment's sales decreased $646,000 or 8% in the first quarter of 2000 to $7,794,000 from $8,440,000 in the first quarter of 1999. Sales in the Transportation segment decreased $1,634,000 or 61.7% to $1,016,000 during the first quarter of 2000 from $2,650,000 during the 1999 first quarter generally due to delays in electric trolley bus production. This delay was caused by the failure of certain subsidiaries of Skoda a.s that are major subcontractors 5 to Electric Transit, Inc. (ETI) to deliver bus frames and other major components to the Company due to their working capital financing difficulties. ETI is owned 65% by Skoda a.s. and 35% by the Company. Financing arrangements finalized with the Czech Export Bank in February 2000 are expected to provide the necessary working capital to the Skoda a.s. subsidiaries and ETI to execute the San Francisco electric trolley bus program. Consequently, production has begun in the Czech Republic, which should result in production commencing at the Company's facility at the end of the second quarter. Since December 31, 1999 the backlog increased $42,000,000 to $335,000,000; the increases were $33,000,000 in the Defense segment, $7,000,000 in the Energy segment and $2,000,000 in the Transportation segment. Gross margin decreased to 26% in the first quarter of 2000 from 32% in the first quarter of 1999. The gross margin in the Defense segment for the first quarter of 2000 was 25.1% compared to 30.9% in the first quarter of 1999. The 1999 gross margin in the Defense segment included accumulated production efficiencies achieved on certain contracts but not previously determinable. The Energy segment gross margin was 34.4% in the first quarter of 2000 and 34.7% in the first quarter of 1999. The gross margin in the Transportation segment was a loss of $17,000 in the first quarter of 2000 compared to a profit of $995,000 in the first quarter of 1999, primarily due to a rail vehicle overhaul contract completed in 1999. Selling and administrative expenses for the three months ended March 31, 2000 decreased $509,000 or 4.6% to $10,480,000 from $10,989,000 in the first quarter of 1999. Selling and administrative expenses decreased in all segments. Other income/expense increased $1,508,000 to income of $498,000 in the first quarter of 2000 from expenses of $1,010,000 in the first quarter of 1999. The increase was primarily due a to a reduction in the equity loss in ETI. During 1999 the Transportation segment recorded 100% of the ETI loss because of Skoda's inability to meet its financial obligations under ETI's shareholder agreement. Beginning in 2000, in view of Skoda's financing arrangements with the Czech Export Bank, the Company has returned to recording its equity interest in the earnings of ETI at 35%. In the first quarter of 1999, 100% of the loss or $1,336,000 was recorded compared to a loss of $70,000, or 35% of the loss, in the first quarter of 2000. Income before taxes decreased by $134,000 or 37% in the first quarter of 2000 from the same period in 1999. Net income decreased $85,000 in the first quarter of 2000 compared to the same period in 1999. Earnings per share were $.18 per diluted share in the first quarter of 2000 compared to $.19 per diluted share in the first quarter of 1999. Liquidity and Capital Resources Cash and cash equivalents decreased $48,000 to $13,044,000 at March 31, 2000 from $13,092,000 at December 31, 1999. However, the Company's investments in marketable securities increased $3,462,000 from December 31, 1999. During the first three months of 2000 changes in operating assets and liabilities of $5,375,000 were partially offset by a decrease in other assets of $5,130,000. Other assets decreased from the receipt of cash of $5,702,000 for the payment of a note receivable from ETI. The Company currently has no significant fixed commitment for capital expenditures. 6 The Company expects that available cash and existing lines of credit will be sufficient to meet its cash requirements for the remainder of the calendar year. Its cash requirements consist primarily of its obligation to fund operations. In March 2000, the existing loan agreements were amended, among other things, to extend the expiration date to January 11, 2001, increase the sublimit on letter of credit obligations to $16,500,000 and to limit the aggregate amount of advances to be made to a borrowing base, as defined. Contingent Matters Reference is made to Item 3. Legal Proceedings, in the annual report on Form 10-K for the year ended December 31, 1999, which is incorporated herein by reference except as set forth below. As indicated in the Annual Report on Form 10-K for the year ended December 31, 1999, the Company, along with numerous other parties, has been named in five tort actions in Maricopa County Superior Court relating to environmental matters based on allegations partially related to a predecessor's operation of a small facility at a site in the State of Arizona that manufactured semi-conductors between 1959 and 1960. All such operations of the Company were sold by 1961. These tort actions seek recovery for personal injury and property damage among other damages based on exposure to solvents allegedly released at the site. These suits allege that the plaintiffs have been exposed to contaminated groundwater in the Phoenix/Scottsdale, Arizona area and suffer increased risk of disease and other physical effects. They also assert property damages under various theories; seek to have certain scientific studies performed concerning health risks, preventive measures and long-term effects; and seek incidental and consequential damages, punitive damages, and an injunction against actions causing further exposures. The Company reached an agreement to settle all of these matters with the plaintiffs for, among other items, a cash payment of $4,250,000. The Superior Court of Maricopa County has scheduled a hearing for final approval of the settlement for March 14, 2000. The settlement has been approved by the Superior Court of Maricopa County. In connection with certain of its contracts, the Company commits to certain performance guarantees. The ability of the Company to perform under these guarantees may, in part, be dependent on the performance of other parties, including partners and subcontractors. If the Company is unable to meet these performance obligations, the performance guarantees could have a material adverse effect on product margins and the Company's results of operations, liquidity or financial position. The Company monitors the progress of its partners and subcontractors and does not believe that their performance will adversely affect these contracts as of March 31, 2000. ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions, and some of these transactions are denominated in foreign currencies. As a result, the Company's financial results could be affected by changes in foreign exchange rates. To 7 mitigate the effect of changes in these rates, the Company has entered into two foreign exchange contracts. There has been no material change in the firmly committed sales exposures and related derivative contracts from December 31, 1999. (See Item 7A - Form 10-K for December 31, 1999.) 8 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES PART II - Other Information ITEM 4 - Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Registrant was held on May 9, 2000. (b) Harold S. Gelb and Susan Fein Zawel were elected directors at the meeting, for terms ending in 2003. The incumbent directors whose terms of office continued after the meeting are Richard R. Erkeneff, E. Donald Shapiro, Edward C. Aldridge, Jr., and Joseph S. Schneider. (c) Voting for the election of directors of the Registrant: WITHHELD (including FOR broker non-votes) Harold S. Gelb 11,048,407 531,569 Susan Fein Zawel 10,192,200 1,387,776 Other Matters: 11,351,668 shares were voted in favor of the proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the Registrant for 2000 with 170,730 shares voted against, 57,578 abstentions and no broker non-votes. 9,705,275 shares were voted in favor of the proposed amendment to the Amended and Restated Bylaws of the Corporation with 1,797,886 shares voted against, 76,815 abstentions and no broker non-votes. Since at least 80% of the outstanding shares did not vote for the amendment, the amendment was not approved. Reference is made to the Registrant's Proxy Statement dated April 7, 2000 for its 2000 Annual Meeting for additional information concerning the matters voted on at the meeting. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10(a) - Third Amendment to Revolving Line of Credit Loan Agreement, Term Loan Agreement and Security Agreement 10(b) - First Amendment to Revolving Note 27 - Financial Data Schedule (b) The Registrant did not file any reports on Form 8-K during the quarter ended March 31, 2000. 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INDUSTRIAL CORPORATION Date May 11, 2000 By: /s/ James H. Perry ------------ -------------------------------- James H. Perry Chief Financial Officer Vice President and Treasurer 10 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES INDEX OF EXHIBITS FILED HEREWITH Exhibit No. - ----------- 10(a) Third Amendment to Revolving Line of Credit Loan Agreement, Term Loan Agreement and Security Agreement 10(b) First Amendment to Revolving Note 27 Financial Data Schedule 11