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 March 31, 2001
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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 (I.R.S. Identification No.)
of 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. 12,554,888 shares of common
stock as of May 9, 2001.
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, 2001 and December 31, 2000 1
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2001 and 2000 2
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 8
PART II - Other Information 10
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
MARCH 31 DECEMBER 31
2001 2000
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ASSETS (Unaudited)
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Current Assets
Cash and cash equivalents $ 5,989 $ 11,385
Restricted cash 7,119 -
Trade receivables 41,973 61,341
Inventories
Finished goods & work-in-process 94,844 76,908
Materials & supplies 2,224 2,334
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97,068 79,242
Deferred income taxes 9,587 9,587
Prepaid expenses & other current assets 2,857 3,030
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Total Current Assets 164,593 164,585
Other assets 50,707 50,799
Property & equipment - less allowances
for depreciation (2001-$92,914; 2000-$91,582) 32,829 33,001
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$248,129 $248,385
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
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Accounts payable $ 14,041 $ 17,184
Accrued employee compensation & taxes 7,705 8,891
Customer advances 53,112 44,773
Federal income taxes 1,268 -
Other liabilities 4,270 7,345
Provision for contract losses 13,725 17,485
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Total Current Liabilities 94,121 95,678
Long-term liabilities 3,626 3,679
Deferred income taxes 9,035 9,182
Postretirement benefits other than pensions 24,503 24,953
Shareholders' Equity
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Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding 12,444,638 shares and
12,435,038 shares - March 31, 2001 and December 31, 2000 (net of
shares in treasury) 14,374 14,374
Additional capital 89,392 89,384
Retained earnings 27,758 26,441
Other accumulated comprehensive income 230 -
Treasury stock, at cost, 1,929,510 shares at
March 31, 2001 and 1,939,110 shares at
December 31, 2000 (14,910) (15,306)
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116,844 114,893
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$248,129 $248,385
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See accompanying notes
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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2001 2000*
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(Unaudited)
Net sales $ 56,951 $ 49,936
Cost of sales 44,407 36,869
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Gross profit 12,544 13,067
Selling & administrative expenses 10,109 10,480
Other operating expense - net 27 211
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Total operating income 2,408 2,376
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Non-operating income and (expense)
Interest income 287 526
Other income 1,363 660
Interest expense - (2)
Equity in net income (loss) of joint ventures 24 (2)
Other expenses (107) (40)
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1,567 1,142
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Income before income taxes 3,975 3,518
Income taxes 1,414 1,289
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Net income $ 2,561 $ 2,229
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Net earnings per share:
Basic $ .21 $ .18
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Diluted $ .20 $ .18
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See accompanying notes
*Reclassified to conform to 2001 presentation
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
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2001 2000*
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OPERATING ACTIVITIES (Unaudited)
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Net income $ 2,561 $ 2,229
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,804 2,238
Deferred income taxes (147) (73)
Decrease in provision for contract losses (3,760) (252)
Changes in operating assets and liabilities 2,880 (5,375)
Increase in federal income taxes
payable 1,268 1,108
Equity in (income) loss of investee companies (24) 2
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,582 (123)
INVESTING ACTIVITIES
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Sale of marketable securities - 4,021
Purchase of marketable securities - (7,483)
Purchase of property and equipment (1,552) (1,057)
Decrease in other assets - net (1,201) (573)
Advances to investees (68) (1,625)
Repayment of advances by investees 1,305 7,326
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NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (1,516) 609
FINANCING ACTIVITIES
Restricted cash for letter of credit (7,119) -
(Decrease) increase in long-term liabilities (503) 174
Proceeds from exercise of stock options 404 529
Dividends (1,244) (1,237)
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NET CASH USED IN FINANCING ACTIVITIES (8,462) (534)
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DECREASE IN CASH AND CASH EQUIVALENTS (5,396) (48)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,385 13,092
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 5,989 $ 13,044
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See accompanying notes
*Reclassified to conform to 2001 presentation
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000.
NOTE B - SEGMENT INFORMATION
Trans- Reconci-
(dollars in thousands) Defense portation Energy Other liations Totals
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Three months ended March 31, 2001
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Revenues from external customers $47,277 $ 3,516 $ 6,158 $ - $ - $56,951
Intersegment revenues 448 - - - (448) -
Equity profit (loss) in ventures 35 (11) - - - 24
Segment profit (loss) 3,813 (799) 303 658 - 3,975
Income before income taxes $ 3,975
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Assets in the Transportation segment increased $8,800. Inventory increased
$15,300 offset by a decrease in receivables of $6,500.
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
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The sales, costs of sales and gross profit recognized by the Transportation
segment on subcontracts with ETI were as follows:
3 Months Ended
March 31
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2001 2000
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Sales $1,034 $ 21
Cost of sales 1,034 21
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Gross profit 0 0
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NOTE C - DIVIDENDS
A quarterly dividend of 10 cents per share was paid on March 1, 2001.
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended
March 31
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2001 2000
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Weighted average shares 12,442,371 12,373,638
Dilutive effect of stock options 498,903 215,725
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Diluted weighted average shares 12,941,274 12,589,363
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NOTE E - OTHER OPERATING EXPENSES, OTHER INCOME, NET, OTHER EXPENSES
THREE MONTHS ENDED MARCH 31
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(Dollars in Thousands) 2001 2000
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OTHER OPERATING EXPENSES, NET
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Reduction of deferred compensation liability (53) -
Amortization of intangibles 80 211
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Total other operating expenses, net $ 27 $ 211
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OTHER INCOME
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Pension income 444 420
Settlement of lawsuits 842
Royalties and commissions 4 178
Insurance refund 18 50
Other 55 12
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Total other income $ 1,363 $ 660
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OTHER EXPENSES
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Miscellaneous items, none of which are material 107 40
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Total other expenses $ 107 $ 40
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Information
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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. The Company makes no commitment to update any forward
looking statement or to disclose any facts, events, or circumstances after the
date hereof that may affect the accuracy of any forward looking statement.
Results of Operations
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Three months ended March 31, 2001 compared to three months ended March 31, 2000:
On September 29, 2000 the Company sold Symtron Systems, Inc. ("Symtron"), a
wholly owned subsidiary included in the defense segment. The operations of
Symtron are included in the three months ended March 31, 2000.
Consolidated net sales increased by $7,015,000 or 14.0% to $56,951,000 in the
first quarter of 2001 from $49,936,000 during the same period in 2000. Excluding
Symtron's operations from 2000, sales would have increased by $10,179,000 or
21.8%. The Defense segment increased sales $6,151,000 or 15.0% to $47,277,000 in
the first quarter of 2001 from $41,126,000 during the same period in 2000.
Excluding Symtron's operations from 2000, the Defense segment would have
increased sales by $9,315,000 or 24.5% primarily due to growth in unmanned
aerial vehicle operations. The Energy segment's sales decreased $1,636,000 or
21.0% to $6,158,000 during the first quarter of 2001 from $7,794,000 in the
first quarter of 2000 due to the timing of orders and shipments. Sales in the
Transportation segment increased $2,500,000 or 246.1% to $3,516,000 during the
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first quarter of 2001 from $1,016,000 during the 2000 first quarter due to
increased production volume.
Gross margin percentage decreased to 22.03% in the first quarter of 2001 from
26.2% in the first quarter of 2000. Excluding Symtron's operations from 2000 the
gross margin percentage would have decreased 3.5% to 22.0% in 2001 from 25.5% in
2000. The gross margin percentage in the Defense segment for the first quarter
of 2001 was 21.4% compared to 25.3% in the first quarter of 2000, a decrease of
3.9%, due to low gross profits on a large competitive program. Excluding
Symtron's operations from the 2000 Defense segment, the gross margin percentage
would have decreased 3.0%. The Energy segment gross margin was 31.2% in the
first quarter of 2001 and 34.4% in the first quarter of 2000. This decrease of
3.2% was due to product mix and competitive market conditions. The gross margin
in the Transportation segment was a profit of $507,000 compared to a loss of
$17,000 in the first quarter of 2000.
Selling and administrative expenses for the three months ended March 31, 2001
decreased $371,000 or 3.5% to $10,109,000 from $10,480,000 in the first quarter
of 2000 primarily due to the inclusion of Symtron's operations in 2000.
Excluding Symtron's operations from 2000 would have resulted in an increase of
$685,000 or 7.3%. Selling and administrative expenses increased $447,000 in the
Transportation segment due to increased volume and $48,000 in the Energy
segment. Excluding Symtron's operations from the Defense segment in 2000,
selling and administrative expense would have increased $534,000 or 8.5% due to
increased bid and proposal costs.
Other Operating Expenses was $184,000 lower in the three months ended March 31,
2001 compared to the same period last year primarily resulting from a reduction
in amortization expense of $131,000 due to the sale of Symtron.
Other Income increased $703,000 in the three months ended March 31, 2001 from
the same period last year primarily due to income from the resolution of a legal
action brought by the Company.
Income before income taxes increased by $457,000 or 13.0% in the first quarter
of 2001 from the same period in 2000. Excluding Symtron's operations the
increase would have been $357,000 or 9.9%.
Since December 31, 2000, the backlog decreased $2,700,000 to $411,293,000. The
Energy segment backlog increased $2,500,000 and the Transportation segment
backlog decreased $5,200,000.
Liquidity and Capital Resources
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Cash and cash equivalents decreased $5,396,000 to $5,989,000 at March 31, 2001
from $11,385,000 at December 31, 2000. Additionally the Company has $7,119,000
of restricted cash classified as a current asset. This restricted cash
represents collateral for an irrevocable outstanding standby letter of credit
related to an advance payment from an international customer obtained in the
first quarter of 2001. The Company is required to cash collateralize letters of
credit in excess of $16,500,000, the sublimit for such instruments under its
7
existing credit arrangement. The outstanding letters of credit at March 31, 2001
amounted to $23,602,000. Trade receivables decreased $19,368,000 at March 31,
2001 from December 31, 2000 resulting from collections and lower sales in the
first quarter of 2001 compared to the fourth quarter of 2000. Inventories were
$17,826,000 higher at March 31, 2001 than at December 31, 2000. The inventory
increase was primarily in the Transportation segment and results from the
procurement of significant amounts of material necessary to commence production
on two major programs. Accounts payable decreased $3,143,000 at March 31, 2001
from December 31, 2000 due to the timing of the receipt and payment of invoices.
Customer advances increased $8,339,000 at March 31, 2001 from December 31, 2000,
in accordance with the contractual terms of certain transportation and defense
contracts.
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 for the remainder of the
calendar year. Its cash requirements consist primarily of its obligations to
fund operations.
On April 26, 2001, the Company accepted and agreed to a Commitment Letter, from
a bank, for a Credit Facility (including Letters of Credit) of $32,000,000 in
which all amounts borrowed over $25,000,000 shall be cash collateralized. The
term is three years. The Company expects to execute the credit arrangement
during the second quarter. Had this Credit Facility been in place prior to March
31, 2001, the Consolidated Condensed Balance Sheet at March 31, 2001 would have
disclosed a cash and cash equivalents balance of $13,108,000 with no restricted
cash.
Contingent Matters
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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, 2001.
The Company is involved in various lawsuits and claims, including various
environmental matters. In the opinion of management, the ultimate amount of
liability, if any, under the pending litigation will not have a materially
adverse effect on the Company's financial position, results of operations or
cash flows. There have been no material changes in this litigation from December
31, 2000. (See item 3 - Form 10-K for December 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
8
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 foreign exchange
contracts. There has been no material change in the firmly committed sales
exposures and related derivative contracts from December 31, 2000. (See Item 7A
- - Form 10-K for December 31, 2000.)
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, and its amendments
Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivatives are either offset against the
change in fair value of assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The adoption of Statement No. 133 did not have a
material effect on earnings or the financial position of the Company.
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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
8, 2001.
(b) Warren G. Lichtenstein and Joseph S. Schneider were elected directors
at the meeting, for terms ending in 2004. The incumbent directors
whose terms of office continued after the meeting are Richard R.
Erkeneff, E. Donald Shapiro, Harold S. Gelb, and Susan Fein Zawel.
(c) Voting for the election of directors of the Registrant:
WITHHELD (including
FOR broker non-votes)
Warren G. Lichtenstein 10,347,224 65,581
Joseph S. Schneider 10,357,744 55,061
Other Matters:
10,340,147 shares were voted in favor of the proposal to ratify the
appointment of Ernst & Young LLP as independent auditors of the
Registrant for 2001 with 34,884 shares voted against, 37,774
abstentions and no broker non-votes.
ITEM 6 - Exhibits and Reports on Form 8-K
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 2001.
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SIGNATURE
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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 14, 2001 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer
Vice President and
Treasurer
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