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 June 30, 2001
---------------------
[ ] 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. 12,767,868 shares of common
stock as of August 1, 2001.
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
------
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
June 30, 2001 and December 31, 2000 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended
June 30, 2001 and 2000 2
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 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 11
PART II - Other Information 12
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
JUNE 30 DECEMBER 31
2001 2000
---------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 8,833 $ 11,385
Restricted cash 224 -
Trade receivables 41,800 61,341
Inventories
Finished goods & work-in-process 99,600 76,908
Materials & supplies 2,146 2,334
-------- --------
101,746 79,242
Deferred income taxes 9,237 9,587
Prepaid expenses & other current assets 2,265 3,030
-------- --------
Total Current Assets 164,105 164,585
Other assets52,326 50,799
Property & equipment - less allowances
for depreciation (2001-$94,419; 2000-$91,582) 32,611 33,001
-------- --------
$249,042 $248,385
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 17,988 $ 17,184
Accrued employee compensation & taxes 8,655 8,891
Customer advances 48,148 44,773
Federal income taxes 2,014 -
Other liabilities 3,949 7,345
Provision for contract losses 12,429 17,485
-------- --------
Total Current Liabilities 93,183 95,678
Long-term liabilities 3,573 3,679
Deferred income taxes 8,886 9,182
Postretirement benefits other than pensions 24,053 24,953
Shareholders' Equity
- --------------------
Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding 12,691,618 shares and
12,435,038 shares - June 30, 2001 and December 31, 2000 (net of
shares in treasury) 14,374 14,374
Additional capital 89,647 89,384
Retained earnings 28,391 26,441
Other accumulated comprehensive income 216 -
Treasury stock, at cost, 1,682,530 shares at
June 30, 2001 and 1,939,110 shares at
December 31, 2000 (13,281) (15,306)
-------- --------
119,347 114,893
-------- --------
$249,042 $248,385
======== ========
See accompanying notes
1
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
2001 2000* 2001 2000*
-------- -------- -------- --------
Net sales $ 69,934 $ 60,925 $126,885 $110,861
Cost of sales 59,204 46,308 103,611 83,177
-------- -------- -------- --------
Gross profit 10,730 14,617 23,274 27,684
Selling & administrative expenses 9,269 11,451 19,378 21,931
Other operating expense - net 26 166 53 377
-------- -------- -------- --------
Total operating income 1,435 3,000 3,843 5,376
-------- -------- -------- --------
Non-operating income and (expense)
Interest income 165 375 436 901
Other income 363 563 1,726 1,223
Interest expense - (15) 16 (17)
Equity in net income (loss)
of joint ventures 24 101 48 99
Other expenses (102) (66) (209) (106)
-------- -------- -------- --------
450 958 2,017 2,100
-------- -------- -------- --------
Income before income taxes 1,885 3,958 5,860 7,476
Income taxes (credit) (9) 1,392 1,405 2,681
-------- -------- -------- --------
Net income $ 1,894 $ 2,566 $ 4,455 $ 4,795
======== ======= ======== =======
Net earnings per share:
Basic $ .15 $ .21 $ .35 $ .39
===== ===== ===== =====
Diluted $ .14 $ .20 $ .34 $ .38
===== ===== ===== =====
See accompanying notes
*Reclassified to conform to 2001 presentation
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30
------------------------
2001 2000 *
-------- --------
OPERATING ACTIVITIES
Net income $ 4,455 $ 4,795
Adjustments to reconcile net income
to net cash (Used for) provided by
operating activities:
Depreciation and amortization 3,640 4,597
Deferred income taxes 54 (92)
Decrease in provision for contract losses (5,056) (667)
Changes in operating assets and liabilities (6,871) (5,883)
Increase (decrease) in federal income
taxes payable 2,014 (689)
Equity in income of investee companies (48) (99)
-------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (1,812) 1,962
INVESTING ACTIVITIES
Purchase of property and equipment (3,092) (2,484)
Advances to investees (1,502) (2,529)
Repayment of advances by investees 4,309 10,183
-------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (285) 5,170
FINANCING ACTIVITIES
Restricted cash for letter of credit (224) -
Proceeds from exercise of stock options 2,274 533
Dividends (2,505) (2,475)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (455) (1,942)
-------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (2,552) 5,190
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,385 13,092
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 8,833 $ 18,282
======== ========
See accompanying notes
*Reclassified to conform to 2001 presentation
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 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 June 30, 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
------- --------- ------ ----- -------- ------
Three months ended June 30, 2001
- --------------------------------
Revenues from external customers $47,461 $13,477 $ 8,996 $ - $ - $ 69,934
Intersegment revenues
Equity profit (loss) in ventures 35 (11) 24
Segment profit (loss) 3,785 (2,967) 1,114 (47) - 1,885
Income before income taxes $ 1,885
========
Six months ended June 30, 2001
- ------------------------------
Revenues from external customers $95,187 $16,545 $15,153 $ - $ - $126,885
Intersegment revenues
Equity profit (loss) in ventures 70 (22) - - - 48
Segment profit (loss) 7,598 (3,766) 1,417 611 - 5,860
Income before income taxes $ 5,860
========
Three months ended June 30, 2000
- --------------------------------
Revenues from external customers $45,257 $ 4,035 $11,633 $ - $ - $60,925
Intersegment revenues 315 - - - (315) -
Equity profit (loss) in ventures 198 (97) - - - 101
Segment profit (loss) 2,986 (449) 1,949 (528) - 3,958
Income before income taxes $ 3,958
========
Six months ended June 30, 2000
- ------------------------------
Revenues from external customers $86,383 $ 5,051 $19,427 $ - $ - $110,861
Intersegment revenues 534 - - - (534) -
Equity profit (loss) in ventures 266 (167) - - - 99
Segment profit (loss) 6,549 (1,254) 3,175 (994) - 7,476
Income before income taxes $ 7,476
========
4
At June 30, 2001 assets in the Transportation segment increased approximately
$17,000,000 from December 31, 2000. The most significant changes were; inventory
increased $19,000,000 and receivables decreased $6,000,000.
The sales, costs of sales and gross profit recognized by the Transportation
segment on subcontracts with ETI were as follows:
3 Months Ended 6 Months Ended
June 30 June 30,
--------------- ---------------
2001 2000 2001 2000
------ ----- ------ ------
Sales $7,749 $1,524 $8,783 $1,545
Cost of sales 7,749 1,307 8,783 1,328
------ ------ ------ ------
Gross profit 0 217 0 $ 217
====== ====== ====== ======
NOTE C - DIVIDENDS
A quarterly dividend of $.10 per share is payable on August 31, 2001.
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average shares 12,691,618 12,374,638 12,566,995 12,374,138
Dilutive effect of stock options 637,680 153,693 568,292 150,570
---------- ---------- ---------- ----------
Diluted weighted average shares 13,329,298 12,528,331 13,135,287 12,524,708
========== ========== ========== ==========
NOTE E - OTHER OPERATING EXPENSES, NET, OTHER INCOME, OTHER EXPENSES
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ---------------------------
(Dollars in Thousands) 2001 2000 2001 2000
------ ------ ------ ------
OTHER OPERATING EXPENSES, NET
- -----------------------------
Reduction of deferred
compensation liability $ (53) $ (104) $ (106) $ (104)
Amortization of intangibles 79 211 159 422
Write off of receivables - 59 - 59
------- ------- ------- -------
Total other operating expenses, net $ 26 $ 166 $ 53 $ 377
======= ======= ======= =======
OTHER INCOME
- ------------
Pension income $ 444 $ 420 $ 888 $ 840
Settlement of lawsuits - - 842 -
Royalties and commissions 4 109 8 287
Insurance refund - - - 50
Other (85) 34 (12) 46
------- ------- ------- -------
Total other income $ 363 $ 563 $ 1,726 $ 1,223
======= ======= ======= =======
5
OTHER EXPENSES
- --------------
Miscellaneous items,
none of which are material 102 $ 66 209 106
------- ------- ------- -------
Total other expenses $ 102 $ 66 $ 209 $ 106
======= ======= ======= =======
NOTE F - RECENT ACCOUNTING PRONOUNCEMENT
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives.
The Company will apply the new rules on accounting for goodwill and intangible
assets beginning the first quarter of 2002. During 2002, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002. The adoption of these new rules
is not anticipated to have a material impact on the Company's earnings or
financial position.
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
6
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
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 and six months ended June 30, 2000.
Consolidated net sales during the second quarter of 2001 increased $9,009,000 or
14.8% to $69,934,000 from $60,925,000 in the second quarter of 2000. Excluding
Symtron's operations from the second quarter of 2000, sales would have increased
$12,207,000 or 21.2%. The Defense segment increased sales $2,204,000 or 4.9% to
$47,461,000 in the second quarter of 2001 from $45,257,000 in the same period of
2000. Excluding Symtron's operations from the second quarter of 2000, the
Defense segment would have increased sales $5,402,000 or 12.8% primarily due to
the growth in the unmanned aerial vehicles line of business. Sales in the
Transportation segment increased $9,442,000 or 234.0% to $13,477,000 in the
second quarter of 2001 from $4,035,000 during the same quarter of 2000 due to
increased production and delivery volume. The Energy segment's sales decreased
$2,637,000 or 22.7% to $8,996,000 in the second quarter of 2001 from $11,633,000
in the second quarter of 2000 due to the timing of orders and shipments.
For the six months ended June 30, 2001, consolidated net sales totaled
$126,885,000 which was $16,024,000 or 14.5% higher than the $110,861,000 of
sales recorded during the same period in 2000. Excluding Symtron's operations
for the six months ended June 30, 2000, sales would have increased $22,462,000
or 21.5%. The Defense segment sales increased $8,804,000 or 10.2% to $95,187,000
in the first six months in 2001 from $86,383,000 in the same period in 2000. If
the Symtron operations were excluded in the year 2000 period, the increase in
the Defense segment would have been $15,242,000 or 19.1% primarily due to the
sales growth in unmanned aerial vehicles. The Transportation segment's sales
increased $11,494,000 or 227.6% to $16,545,000 in the six months ended June 30,
2001 from $5,051,000 in the same period in 2000 due to increased production and
delivery volume. The Energy segment's sales decreased $4,274,000 or 22.0% to
$15,153,000 in the six months ended June 30, 2001 from $19,427,000 in the same
period last year due to the timing of orders and shipments.
The consolidated gross profit margin percentage decreased 8.7% for the three
months ended June 30, 2001 to 15.3% from 24.0% for the three months ended June
30, 2000. Excluding Symtron's operations for the three months ended June 30,
2000, the gross profit margin percentage would have decreased 8.2% from 23.5% in
the same period in 2000. The Defense segment gross profit margin percentage
decreased to 20.1% from 23.3% in the same period last year. Excluding Symtron's
operations from the Defense segment in the first six months of 2000, the gross
profit margin percentage would have decreased 2.5%. This decrease was due to low
gross profit margin percentage on a large competitively awarded program. The
Transportation
7
segment gross margin loss percentage of 12.2% in the second quarter of 2001
compared to a gross profit margin percentage of 12.2% in the same period in
2000. This resulted primarily from anticipated labor cost growth on a certain
program and partially offset by earnings related to services previously rendered
to a strategic partner. The Energy segment gross profit margin percentage
increased to 31.7% in the second quarter of 2001 from 30.1% in the same period
last year due to product mix.
The consolidated gross profit margin percentage decreased 6.7% for the six
months ended June 30, 2001 to 18.3% compared to 25.0% for the same period in
2000. Excluding Symtron's operations for the six months ended June 30, 2000, the
gross profit margin percentage would have decreased 6.1%. The Defense segment
gross profit margin decreased to 20.6% from 24.2% in the same period last year.
Excluding Symtron's operations from the 2000 Defense segment, the gross profit
margin percentage would have decreased 2.9% primarily due to low gross profit
margin percentage on a large competitively awarded program. The Transportation
segment gross margin loss percentage of 6.8% in the first six months of 2001
compared to a gross profit margin percentage of 9.4% in the first six months of
2000. This resulted primarily from anticipated labor cost growth on a certain
program and partially offset by earnings related to services previously rendered
to a strategic partner. The Energy segment gross profit margin percentage
decreased to 31.5% in the first six months of 2001 from 32.3% in the same period
last year due to product mix and competitive market conditions.
The consolidated selling and administrative expenses for the three months ended
June 30, 2001 decreased $2,182,000 or 19.1% to $9,269,000 from $11,451,000 in
the same period last year primarily due to the inclusion of Symtron's operations
in 2000. Excluding Symtron's operations in 2000 would have resulted in a
decrease of $1,160,000 or 11.1%. Selling and administrative expenses increased
$207,000 to $1,051,000 in the Transportation segment due to increased production
activity and decreased $23,000 to $2,207,000 in the Energy segment. The Defense
segment's selling and administrative expenses decreased $1,980,000 or 24.8% to
6,017,000. Excluding Symtron's operations from the Defense segment in 2000,
selling and administrative expenses would have decreased $958,000 or 13.7% due
to increased bid and proposal costs during the prior year period. The Other
segment experienced decreased selling and administrative expenses by $383,000
due to increased administrative fees received from operating segments.
The consolidated selling and administrative expenses for the six months ended
June 30, 2001 decreased $2,553,000 or 11.6% to $19,378,000 from $21,931,000 in
the same period of 2000, primarily due to the inclusion of Symtron's operations
in 2000. Excluding Symtron's operations in 2000 would have resulted in a
decrease of $475,000 or 2.4%. The Defense segment's selling and administrative
expenses decreased $2,502,000 or 16.4% to $12,804,000, primarily due to the
inclusion of Symtron's operations in 2000. Excluding Symtron's operations in
2000 would have resulted in a decrease of $424,000 or 3.2%. The Transportation's
general and administrative expenses in the first six months of 2001 increased
$654,000 or 41.9% to $2,216,000 due to increased production activity. The Energy
segment's selling and administrative expenses for the first six months of 2001
8
increased $25,000 to $4,357,000 from $4,332,000 in the same period of 2000. The
Other segment decreased selling and administrative expenses by $728,000 due to
increased administrative fees received from operating segments.
The consolidated other operating expenses were $140,000 and $324,000 lower in
the three and six months periods ended June 30, 2001, respectively, compared to
the same periods last year. These decreases primarily resulted from a reduction
in amortization expense related to Symtron of $132,000 and $324,000 during the
three and six months ended June 30, 2001, respectively, compared to the same
periods last year.
The consolidated other income decreased $200,000 in the three months ended June
30, 2001 from the same period last year primarily due to a reduction in
royalties and commissions of $105,000 and a reduction in other of $119,000.
The consolidated other income increased $503,000 in the six months ended June
30, 2001 from the same period last year primarily due to the resolution of an
insurance recovery of $842,000.
The consolidated income before income taxes decreased $2,073,000 or 52.4% in the
three months ended June 30, 2001 from the same period in 2000. Excluding
Symtron's operations, the decrease would have been $2,273,000 or 54.7%. During
the three month period ended June 30, 2001 as compared to the quarter ended June
30, 2000 the Defense segment profit increased $799,000 or 26.8% to $3,785,000
while the Energy segment profit decreased $835,000 or 42.8% to $1,114,000 and
the Transportation segment loss increased $2,518,000 to $2,967,000. The Other
segment loss decreased to $47,000 in the second quarter from $528,000 during the
second quarter of 2000.
The consolidated income before income taxes decreased by $1,614,000 or 21.6% in
the six months ended June 30, 2001 from the same period in 2000. Excluding
Symtron's operations, the decrease would have been $1,915,000 or 24.6%. During
the six month period ended June 30, 2001 as compared to the like period in 2000
the Defense segment profit increased by $1,049,000 or 16.0% to $7,598,000 while
the Energy segment profit decreased by $1,758,000 or 55.4% to $1,417,000 and the
Transportation segment loss increased by $2,512,000 to $3,766,000. The Other
segment profit was $611,000 during the first half of 2001 as compared to a loss
of $994,000 during the first half of 2000.
The Company reported net income of $1,900,000, or $.14 per diluted share, for
the second quarter of 2001 compared to net income of $2,600,000, or $.20 per
diluted share, in the second quarter of 2000. The Transportation segment had a
net loss of $1,900,000, or $.14 per diluted share, in the second quarter of 2001
compared to a net loss of $300,000, or $.02 per diluted share, in the second
quarter of 2000. The 2001 results include a local income tax benefit of
$1,000,000 ($660,000, net of taxes or $.05 per diluted share), recorded in the
second quarter. Excluding the results of Symtron Systems, net income for the
second quarter of 2000 was $2,600,000, or $.21 per diluted share.
For the first six months of 2001, net income, including the above-mentioned
9
tax benefit, was $4,500,000, or $.34 per diluted share, compared to $4,800,000,
or $.38 per diluted share, for the first half of 2000. The Transportation
segment had a net loss of $2,400,000, or $.18 per diluted share, in the first
six months of 2001 compared to a net loss of $800,000, or $.06 per diluted
share, in the first six months of 2000. Excluding the results of Symtron
Systems, net income for the six-month period of 2000 was $4,900,000, or $.39 per
diluted share.
Since December 31, 2000 the Company's backlog increased by $19,650,000 or 4.7%
in the first six months of 2001. The Energy segment backlog increased
$2,133,000; the Transportation segment backlog decreased $14,343,000 and the
Defense segment backlog increased $31,860,000.
Liquidity and Capital Resources
On June 28, 2001, the Company and certain of its subsidiaries (the "Borrowers")
entered into a Loan and Security Agreement (the "Agreement") with Fleet Capital
Corporation, which replaced the Company's loan agreement with First Union
Commercial Corporation. The Agreement has a term of three years and provides for
letters of credit and cash borrowings of up to $25 million, with a sublimit of
$10 million for cash borrowings, subject to a borrowing base. Credit advances
may increase to $32 million, provided that amounts in excess of $25 million are
cash-collateralized. The Agreement contains certain restrictive covenants, among
which are a minimum fixed charge coverage ratio and a maximum balance sheet
leverage ratio. All assets of the Borrowers are pledged as collateral under the
Agreement. The stock of the Borrowers (other than the Company) and AAI's Hunt
Valley property are also pledged as collateral pursuant to a pledge agreement
and a deed of trust.
During the first six months of 2001, cash decreased $2,552,000 to $8,833,000 at
June 30, 2001 from $11,385,000 at December 31, 2000. Also at June 30, 2001 there
was $224,000 of restricted cash. Trade receivables decreased $19,541,000 and
inventory increased $22,504,000 or a net use of cash of $2,963,000. Dividends
paid of $2,505,000 were partially offset by proceeds from the exercise of stock
options of $2,274,000.
At June 30, 2001 there were no cash borrowings under the Agreement. The letter
of credit obligations outstanding at June 30, 2001 were $22,137,000. 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 for the next twelve months. Its cash
requirements consist primarily of its obligations to fund operations.
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
10
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 June 30, 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
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.
11
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10(a)- Loan and Security Agreement dated as of June 28, 2001 among
United Industrial Corporation and certain of its subsidiaries,
as Borrowers, and Fleet Capital Corporation, as Lender.
10(b)- Pledge Agreement dated as of June 28, 2001 among United
Industrial Corporation and certain of its subsidiaries, as
Pledgors, and Fleet Capital Corporation, as Lender.
10(c)- Amendment No. 1 dated as of June 1, 2001 to the Employment
Agreement dated as of December 8, 1998 by and between United
Industrial Corporation and Richard R. Erkeneff.
(b) The Registrant did not file any reports on Form 8-K during the quarter ended
June 30, 2001.
12
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 August 13, 2001 By: /s/ James H. Perry
---------------- -----------------------------
James H. Perry
Chief Financial Officer
Vice President and
Treasurer
13
EXHIBIT INDEX
-------------
10(a)- Loan and Security Agreement dated as of June 28, 2001 among
United Industrial Corporation and certain of its subsidiaries,
as Borrowers, and Fleet Capital Corporation, as Lender.
10(b)- Pledge Agreement dated as of June 28, 2001 among United
Industrial Corporation and certain of its subsidiaries, as
Pledgors, and Fleet Capital Corporation, as Lender.
10(c)- Amendment No. 1 dated as of June 1, 2001 to the Employment
Agreement dated as of December 8, 1998 by and between United
Industrial Corporation and Richard R. Erkeneff.