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
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number #1-4252
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UNITED INDUSTRIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2081809
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(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
570 Lexington Avenue, New York, NY 10022
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(Address of principal executive offices)
Not Applicable
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 12,374,638 shares of common
stock as of May 3, 2000.
78495.0001
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
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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
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ASSETS (Unaudited)
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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
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52,429 42,187
Deferred income taxes 6,949 6,949
Prepaid expenses & other current assets 3,002 3,239
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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
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$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
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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
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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)
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112,590 111,055
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$213,342 $205,700
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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
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2000 1999
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(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)
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46,418 43,418
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Income before income taxes 3,518 3,652
Income taxes 1,289 1,338
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Net income $ 2,229 $ 2,314
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Net earnings per share:
Basic $ .18 $ .19
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Diluted $ .18 $ .19
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See accompanying notes
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
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2000 1999
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OPERATING ACTIVITIES (Unaudited)
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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)
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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)
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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)
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NET CASH USED IN FINANCING ACTIVITIES ( 534) (1,103)
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DECREASE IN CASH AND CASH EQUIVALENTS (48) (4,568)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,092 21,126
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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
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Three months ended March 31, 2000
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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
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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
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Weighted average shares 12,373,638 12,258,713
Dilutive effect of stock options 215,725 226,297
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Diluted weighted average shares 12,589,363 12,485,010
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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
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James H. Perry
Chief Financial Officer
Vice President and
Treasurer
10
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
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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