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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
12,413,638 shares of common stock as of November 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
September 30, 2000 and December 31, 1999 1
Consolidated Condensed Statements of Operations -
Three Months and Nine Months Ended
September 30, 2000 and 1999 2
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 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 9
PART II - Other Information 10
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
SEPTEMBER 30 DECEMBER 31*
2000 1999
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ASSETS (Unaudited)
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Current Assets
Cash & cash equivalents $ 6,767 $ 13,092
Trade receivables 41,481 48,395
Other receivables 15,354
Inventories
Finished goods & work-in-process 61,012 38,902
Materials & supplies 2,166 3,285
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63,178 42,187
Deferred income taxes 9,899 6,949
Prepaid expenses & other current assets 3,078 3,239
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Total Current Assets 139,757 113,862
Other assets 51,153 56,005
Property & equipment - less allowances
for depreciation (2000-$89,982; 1999-$86,248) 34,028 35,833
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$224,938 $205,700
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,434 $ 9,837
Accrued employee compensation & taxes 7,810 7,710
Customer advances 31,245 25,705
Federal income taxes 3,833 636
Other liabilities 6,317 7,847
Provision for contract losses 14,513 7,026
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Total Current Liabilities 75,152 58,761
Long-term liabilities 3,731 3,887
Deferred income taxes 6,046 7,383
Postretirement benefits other than pensions 25,138 24,614
Shareholders' Equity
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Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding 12,381,338 shares and
12,294,138 shares - September 30, 2000 and December 31, 1999
(net of shares in treasury) 14,374 14,374
Additional capital 89,383 89,483
Retained earnings 26,844 23,616
Treasury stock, at cost, 1,992,810 shares at
September 30, 2000 and 2,080,010 shares at
December 31, 1999 (15,730) (16,418)
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114,871 111,055
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$224,938 $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 Nine Months Ended
September 30 September 30
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(Unaudited)
2000 1999 2000 1999
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Net sales $ 65,797 $ 52,094 $176,658 $153,196
Operating costs & expenses
Cost of sales 59,970 37,522 143,333 109,464
Selling & administrative 11,015 11,218 32,946 34,894
Other (income) expense - net (1,736) 343 (2,761) 1,686
Interest expense (3) 25 14 49
Interest income (194) (415) (1,095) (1,501)
Gain on sale of assets (5,976) - (5,976) -
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Total operating costs and expenses 63,076 48,693 166,461 144,592
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Income before income taxes 2,721 3,401 10,197 8,604
Income taxes 575 1,305 3,256 2,770
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Net income $ 2,146 $ 2,096 $ 6,941 $ 5,834
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Earnings per share:
Basic $ .17 $ .17 $ .56 $ .48
Diluted $ .17 $ .17 $ .55 $ .47
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See accompanying notes
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
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OPERATING ACTIVITIES (Unaudited)
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Net income $ 6,941 $ 5,834
Adjustments to reconcile net income
to net cash provided by
operating activities:
Profit on sale of assets (4,166) -
Depreciation and amortization 7,059 6,099
Increase (decrease) in federal income taxes 3,197 (2,389)
Deferred income taxes (4,287) (214)
Increase (decrease) in contract loss provision 7,487 (2,152)
Changes in operating assets and liabilities (23,562) (13,498)
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NET CASH USED IN OPERATING ACTIVITIES (7,331) (6,320)
INVESTING ACTIVITIES
Decrease in marketable securities - 4,702
Purchase of property and equipment - net (4,621) (8,283)
Decrease in other assets - net 8,396 861
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NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 3,775 (2,720)
FINANCING ACTIVITIES
Increase in long-term liabilities 368 411
Dividends (3,712) (3,681)
Proceeds from exercise of stock options 575 139
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NET CASH USED IN FINANCING ACTIVITIES (2,769) (3,131)
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DECREASE IN CASH AND CASH EQUIVALENTS (6,325) (12,171)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,092 21,126
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 6,767 $ 8,955
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See accompanying notes
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 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 and nine month periods ended
September 30, 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.
Changes in estimates for sales and profits are recognized in the period in which
they are determinable using the cumulative catch up method. Change orders or
claims are considered in the estimated contract performance at such time as they
can be reasonably estimated and their realization is probable.
NOTE B - SEGMENT INFORMATION
Trans- Reconci-
(Dollars in thousands) Defense Energy portation Other liations Totals
------- ------ --------- ----- -------- ------
Three Months ended September 30, 2000
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Revenues from external customers $47,823 $ 9,203 $ 8,771 $ - $ - $65,797
Intersegment revenues 351 - - - (351) -
Equity profit (loss) in ventures - - 536 - - 536
Segment profit (loss) 3,608 790 (8,215) 6,538 - 2,721
Income before income taxes $ 2,721
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Nine months ended September 30, 2000
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Revenue from external customers $134,206 $28,630 $ 13,822 $ - $ - $176,658
Intersegment revenues 885 - - - (885) -
Equity profit (loss) in ventures 266 - 369 - - 635
Segment profit (loss) 10,157 3,965 (9,469) 5,544 - 10,197
Income before income taxes $10,197
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Three months ended September 30, 1999
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Revenues from external customers $41,398 $ 9,011 $ 1,685 $ - $ - $52,094
Intersegment revenues 807 - - - (807) -
Equity profit (loss) in ventures 94 - (661) - - (567)
Segment profit (loss) 4,926 1,334 (2,264) (595) - 3,401
Income before income taxes $ 3,401
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4
Nine months ended September 30, 1999
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Revenues from external customers $120,308 $25,387 $ 7,501 $ - $ - $153,196
Intersegment revenues 1,415 - - - (1,415) -
Equity profit (loss) in ventures 309 - (2,806) - - (2,497)
Segment profit (loss) 13,700 3,888 (7,469) (1,515) - 8,604
Income before income taxes $ 8,604
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At September 30, 2000 assets in the Transportation segment increased
approximately $27,600,000 from December 31, 1999. Inventory increased
$27,000,000.
NOTE C - DIVIDENDS
A quarterly dividend of $.10 per share is payable November 28, 2000.
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Nine Months Ended
September 30 September 30
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2000 1999 2000 1999
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Weighted average shares 12,381,338 12,277,097 12,376,538 12,268,841
Dilutive effect of stock options 263,824 260,408 188,321 274,707
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Diluted weighted average shares 12,645,162 12,537,505 12,564,859 12,543,548
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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.
5
Results of Operations
On September 29, 2000, the Company sold Symtron Systems, Inc. (Symtron), a
wholly owned subsidiary, a part of the Defense segment. The operations of
Symtron and the profit on the sale are included in the three and nine months
financial results.
Consolidated net sales during the three months ended September 30, 2000
increased $13,703,000 or 26.3% to $65,797,000 from $52,094,000 in the same
period in 1999. In all segments a general increase in volume was responsible for
the increase in sales. Symtron, included in the Defense segment, experienced
decreased sales of $2,338,000. If Symtron's operations were excluded from the
current period and the same period in 1999, sales would have increased
$16,041,000 or 33.1%. Defense segment sales increased $6,425,000 or 15.5%.
Excluding Symtron's operations, the Defense segment sales would have increased
$8,764,000 or 23.2%. Transportation segment sales increased to $8,771,000 in the
quarter ended September 30, 2000 from $1,685,000 in the same period in 1999.
Consolidated net sales during the nine months ended September 30, 2000 increased
$23,462,000 or 15.3% to $176,658,000 from $153,196,000 in the same period in
1999. In all segments a general increase in volume was responsible for the
increase in sales. Symtron experienced decreased sales of $4,131,000. If
Symtron's operations were excluded from the current period and the same period
last year, sales would have increased $27,593,000 or 19.5%. Defense segment
sales increased $13,898,000 or 11.6%. Excluding Symtron's operating results, the
Defense segment sales would have increased $18,029,000 or 16.6%. Energy segment
sales increased $3,243,000 or 12.8% to $28,630,000 in the first nine months of
2000 from $25,387,000 in the same period in 1999. Transportation segment sales
increased $6,321,000 or 84.3% to $13,822,000 in the first nine months of 2000
from $7,501,000 in the same period in 1999.
The sales backlog, excluding the Symtron backlog of $6,000,000 at September 30,
2000 was $388,000,000, an increase of $110,000,000 or 39.6% from the September
30, 1999 backlog of $278,000,000 which includes the Symtron backlog of
$8,000,000. Excluding Symtron, the backlog would have increased $118,000,000.
The Transportation segment backlog increased by $90,000,000, primarily due to
the addition of a contract to overhaul rail cars for the Maryland Mass Transit
Administration. The Defense segment, excluding Symtron, increased its backlog by
$30,000,000 primarily due to contracts from the U.S. Army for the Tactical
Unmanned Aerial Vehicle (TUAV). The Energy segment backlog was reduced by
$2,000,000.
The gross margin percentage for the three months ended September 30, 2000
decreased to 8.9% compared to 28.0% for the same period in 1999. Excluding
Symtron's operations, the gross margin percentage would have decreased to 8.8%
from 27.4% in the same period in 1999. The major cause in the gross margin
reduction was the $8,400,000 charge to cost of sales to establish a reserve for
increased costs associated with a Transportation segment contract. This contract
includes an option provision, on terms to be negotiated, for the customer to
expand the scope of the program. If the terms of the option are agreed upon and
the customer exercises the option, then the overall financial performance of the
contract should improve. The Defense segment gross margin percentage decreased
to 23.3% from 30.0% in the same period in 1999 due to the timing of gross margin
recognition on several programs. Excluding Symtron's operations, the
6
Defense segment gross margin percentage would have decreased to 23.6% from 29.4%
in the same period in 1999. The gross margin percentage in the Energy segment
decreased 4.6% from 30.3% in the September 1999 quarter to 25.7% in the
September 2000 quarter due to product mix.
The gross margin percentage for the nine months ended September 30, 2000
decreased to 18.9% compared to 28.6% for the same period in 1999. Excluding
Symtron's operations, the gross margin percentage would have decreased to 18.4%
from 28.5% in the same period in 1999. The major cause in the gross margin
reduction was the $8,400,000 charge to cost of sales to establish a reserve for
increased costs associated with a Transportation segment contract. This contract
includes an option provision, on terms to be negotiated, for the customer to
expand the scope of the program. If the terms of the option are agreed upon and
the customer exercises the option, then the overall financial performance of the
contract should improve. The gross margin percentage in the Energy segment
decreased 3.7% to 30.2% in the first nine months of 2000 from 33.9% in the same
period in 1999 due to product mix. The Defense segment gross margin percentage
decreased to 23.8% from 29.8% in the previous year's first nine months due to
the timing of gross margin recognition on several programs. Excluding Symtron's
operations from the Defense segment, the gross margin percentage would have
decreased to 23.4% from 29.8% in the same period last year.
Selling and administrative expenses for the three months ended September 30,
2000 decreased $203,000 or 1.8% to $11,015,000 from $11,218,000 during the same
period in 1999. Excluding Symtron, the decrease would have been $529,000 or 5.2%
to $9,708,000 from $10,237,000 in the same period of 1999. The Defense segment,
excluding Symtron, experienced a decrease of 8.0% or $557,000.
Selling and administrative expenses for the nine months ended September 30, 2000
decreased $1,948,000 or 5.6% to $32,946,000 from $34,894,000 during the same
period in 1999. Excluding Symtron, the decrease would have been $2,681,000 or
8.3% to $29,562,000 from $32,243,000 in the same period of 1999. Selling and
administrative expenses decreased in the Defense and Transportation segments.
The Energy segment experienced an increase of 6.1% or $371,000, primarily due to
international sales efforts.
Other income - expense in the third quarter of 2000 was income of $1,736,000
compared to expense of $343,000 for the same period in the prior year. The
income increase of $2,079,000 resulted from a partial insurance recovery of
$950,000 in the Other segment and an equity income in ventures of $536,000 in
the Transportation segment compared to an equity loss in ventures of $661,000 in
the same period of 1999.
Other income - expense in the first nine months of 2000 was income of $2,761,000
compared to expense of $1,686,000 for the same period in the prior year. The
income increase of $4,447,000 resulted from a partial insurance recovery of
$950,000 in the Other segment and an equity income in ventures of $369,000 in
the Transportation segment compared to an equity loss in ventures of $2,806,000
in the same period of 1999. The Energy segment had an increased income of
$344,000.
For the first nine months of 2000 compared to the same period in 1999 interest
expense decreased $35,000.
7
Interest income for the first nine months of 2000 compared to the same period in
1999, decreased $406,000 due to decreased investments.
Income before income taxes decreased $680,000 or 20.0% to $2,721,000 in the
third quarter of 2000 compared to $3,401,000 in the same period of 1999.
Excluding the Symtron operating results, the increase would have been 22.9% or
$765,000. The profit on the sale of Symtron on September 29, 2000 increased the
income before income taxes by $5,976,000 in the Other segment. The
Transportation segment experienced decreased income before taxes by $5,951,000.
The major cause in the gross margin reduction was the $8,400,000 charge to cost
of sales to establish a reserve for increased costs associated with a
Transportation segment contract. This was partially offset by the increase in
equity income in ventures of $1,197,000. Offsetting the increases was decreased
income before taxes in the Energy segment of $544,000.
Income before income taxes increased $1,593,000 or 18.5% to $10,197,000 in the
first nine months of 2000 compared to $8,604,000 in the same period in 1999.
Excluding the Symtron results of operations, the increase would be $3,575,000 or
43.0%. The profit on the sale of Symtron on September 29, 2000 increased income
before income taxes by $5,976,000 in the Other segment. The Transportation
segment experienced decreased income before taxes by $2,000,000. The major cause
in the gross margin reduction was the $8,400,000 charge to cost of sales to
establish a reserve for increased costs associated with a Transportation segment
contract. This was partially offset by an increase in equity income in ventures
of $3,175,000. Offsetting the increases were decreased income before taxes in
the Defense segment, excluding Symtron, of $1,562,000.
Net income increased $50,000 in the three months ended September 30, 2000
compared to the same period in 1999. The sale of Symtron resulted in an increase
in Net income of $4,166,000 or $.33 per diluted share.
Net income increased $1,107,000 or $.08 per diluted share in the nine months
ended September 30, 2000 compared to the same period in 1999. The gain on the
sale of Symtron resulted in an increase in Net income of $4,166,000 or $.33 per
diluted share.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $6,325,000 from $13,092,000 at December
31, 1999 primarily due to changes in operating assets of $23,562,000, offset by:
net income of $6,941,000, depreciation and amortization of $7,059,000 and an
increase in federal income taxes of $3,197,000. Major items accounting for the
$23,562,000 increase in operating assets and liabilities were: increases in
trade receivables of $8,440,000 including a receivable from the sale of Symtron
of $15,354,000 (received the first week of October 2000) and increased
inventories of $21,000,000 primarily in the Transportation segment. These
increases were offset by an increase in customer advances of $5,540,000. The
sale of Symtron reduced current assets by $10,242,000 and current liabilities by
$704,000. The Company currently has no significant fixed commitment for capital
expenditures. The Company expects that available cash and existing lines of
credit will be sufficient to meet its cash requirements through December 31,
2000. The Company's current loan agreement expires on June 30, 2001. Management
believes it will be able to secure a replacement financing arrangement prior to
June 30, 2001. The Company's cash requirements consist primarily of its
obligations to fund operations.
8
Contingent Matters
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 September 30, 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 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. For
additional information, see Item 7A in the annual report on Form 10-K for the
year ended December 31, 1999.
9
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10 - Fourth Amendment to Revolving Line of Credit
Agreement, Term Loan Agreement and Security Agreement
27 - Financial Data Schedule
(b) The Registrant filed three reports on Form 8-K during the
quarter ended September 30, 2000.
(1) August 1, 2000, relating to the signing of a
definitive agreement to sell its Symtron Systems,
Inc. subsidiary.
(2) September 7, 2000, relating to the signing of a
definitive agreement to sell its Transportation
Systems business.
(3) September 27, 2000, relating to the termination of
the definitive agreement to sell its Transportation
Systems business.
10
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: November 13, 2000 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer
Vice President and
Treasurer
11
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
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10 Fourth Amendment to Revolving Line of Credit
Agreement, Term Loan Agreement and Security
Agreement
27 Financial Data Schedule
12