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 September 30, 2001
------------------
[ ] 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
- --------------------------------------------------------------------------------
(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. 12,859,868 shares of common
stock as of November 2, 2001.
UNITED INDUSTRIAL CORPORATION
INDEX
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Page #
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
September 30, 2001 and December 31, 2000 1
Consolidated Condensed Statements of Operations -
Three Months and Nine Months Ended
September 30, 2001 and 2000 2
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 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 12
PART II - Other Information 13
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
SEPTEMBER 30 DECEMBER 31
2001 2000
------------ -----------
ASSETS
Current Assets
Cash and cash equivalents $ 8,663 $ 11,385
Restricted cash 222 -
Trade receivables 58,159 61,341
Inventories
Finished goods & work-in-progress 93,961 76,908
Materials & supplies 2,171 2,334
-------- --------
96,132 79,242
Deferred income taxes 9,237 9,587
Prepaid expenses & other current assets 2,402 3,030
-------- --------
Total Current Assets 174,815 164,585
Other assets52,726 50,799
Property & equipment - less allowances
for depreciation (2001-$95,991; 2000-$91,582) 31,924 33,001
-------- --------
$259,465 $248,385
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 29,382 $ 17,184
Accrued employee compensation & taxes 7,440 8,891
Customer advances 47,432 44,773
Federal income taxes 3,240 -
Other liabilities 4,541 7,345
Provision for contract losses 10,326 17,485
-------- --------
Total Current Liabilities 102,361 95,678
Long-term liabilities 3,520 3,679
Deferred income taxes 8,682 9,182
Postretirement benefits other than pensions 23,603 24,953
Shareholders' Equity
- --------------------
Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding 12,811,568 shares and
12,435,038 shares - September 30, 2001 and December 31, 2000
(net of shares in treasury) 14,374 14,374
Additional capital 89,898 89,384
Retained earnings 29,140 26,441
Other accumulated comprehensive income 222 -
Treasury stock, at cost, 1,562,580 shares
at September 30, 2001 and 1,939,110 shares
at December 31, 2000 (12,335) (15,306)
-------- --------
121,299 114,893
-------- --------
$259,465 $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 Nine Months Ended
September 30 September 30
------------------- -------------------
2001 2000* 2001 2000*
-------- -------- -------- --------
Net sales $ 80,737 $ 65,797 $207,622 $176,658
Cost of sales 68,252 59,875 171,863 143,052
-------- -------- -------- --------
Gross profit 12,485 5,922 35,759 33,606
Selling & administrative expenses 9,387 11,015 28,765 32,946
Other operating expenses - net 27 161 80 538
-------- -------- -------- --------
Total operating income 3,071 (5,254) 6,914 122
-------- -------- -------- --------
Non-operating income and (expenses)
Interest income 93 197 545 1,095
Other income - net 113 1,493 1,839 2,716
Interest expense - - - (14)
Equity in net income (loss)
of joint ventures (6) 536 42 635
Gain on sale of assets, net - 5,976 - 5,976
Other expenses (72) (227) (281) (333)
-------- -------- -------- --------
128 7,975 2,145 10,075
-------- -------- -------- --------
Income before income taxes 3,199 2,721 9,059 10,197
Income taxes 1,173 575 2,578 3,256
-------- -------- -------- --------
Net income $ 2,026 $ 2,146 $ 6,481 $ 6,941
======= ======== ======= ========
Net earnings per share:
Basic $ .16 $ .17 $ .51 $ .56
===== ===== ===== =====
Diluted $ .15 $ .17 $ .49 $ .55
===== ===== ===== =====
See accompanying notes
*Reclassified to conform to 2001 presentation
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2001 2000 *
-------- --------
OPERATING ACTIVITIES
Net income $ 6,481 $ 6,941
Adjustment to reconcile net income
to net cash provided by (used for)
operating activities:
Gain on sale of assets - (5,976)
Depreciation and amortization 5,579 7,059
Deferred income taxes (150) (4,287)
(Decrease) increase in provision for
contract losses (7,159) 7,487
Changes in operating assets and liabilities-net (6,367) (19,264)
Increase in federal income taxes payable 3,240 3,197
Equity in (loss) income of investee companies (42) 635
-------- -------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 1,582 (4,208)
INVESTING ACTIVITIES
Purchase of property and equipment (4,263) (4,621)
Advances to investees (2,423) (1,231)
Repayment of advances by investees 2,914 6,872
-------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (3,772) 1,020
FINANCING ACTIVITIES
Restricted cash for letter of credit (222) -
Proceeds from exercise of stock options 3,472 575
Dividends (3,782) (3,712)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (532) (3,137)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (2,722) (6,325)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,385 13,092
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 8,663 $ 6,767
======== ========
See accompanying notes
*Reclassified to conform to 2001 presentation
3
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 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 and nine month periods ended September 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 September 30, 2001
- -------------------------------------
Revenues from external customers $ 58,682 $14,634 $ 7,421 $ - $ - $ 80,737
Intersegment revenues 309 - - - (309) -
Equity profit (loss) in ventures 1 (7) - - - (6)
Segment profit (loss) 5,696 (2,800) 344 (41) - 3,199
Income before income taxes $ 3,199
========
Nine months ended September 30, 2001
- ------------------------------------
Revenues from external customers $153,869 $31,179 $22,574 $ - $ - $207,622
Intersegment revenues 1,102 - - - (1,102) -
Equity profit (loss) in ventures 71 (29) - - - 42
Segment profit (loss) 13,294 (6,566) 1,761 570 - 9,059
Income before income taxes $ 9,059
========
Three months ended September 30, 2000
- -------------------------------------
Revenues from external customers $ 47,823 $ 8,771 $ 9,203 $ - $ - $65,797
Intersegment revenues 351 - - - (351) -
Equity profit (loss) in ventures - 536 - - - 536
Segment profit (loss) 3,608 (8,215) 790 6,538 - 2,721
Income before income taxes $ 2,721
========
Nine months ended September 30, 2000
- ------------------------------------
Revenues from external customers $134,206 $13,822 $28,630 $ - $ - $176,658
Intersegment revenues 885 - - - (885) -
4
Equity profit (loss) in ventures 266 369 - - - 635
Segment profit (loss) 10,157 (9,469) 3,965 5,544 - 10,197
Income before income taxes $ 10,197
========
Assets in the Transportation segment increased $23,706 to $94,573 at September
30, 2001 from $70,867 at December 31, 2000. The increase was primarily in
inventory, which increased $19,014 to $70,276 at September 30, 2001 from $51,262
at December 31, 2000.
The sales, costs of sales and gross profit recognized by the Transportation
segment on subcontracts with ETI were as follows:
3 Months Ended 9 Months Ended
September 30 September 30
---------------- ----------------
2001 2000 2001 2000
------ ----- ------ ------
Sales $10,716 $ 4 $19,499 $1,549
Cost of sales 12,056 4 20,839 1,332
------- ------ ------- ------
Gross profit $(1,340) 0 $(1,340) $ 217
======= ====== ======= ======
NOTE C - DIVIDENDS
A quarterly dividend of $.10 per share is payable on December 4, 2001.
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average shares 12,811,568 12,381,338 12,648,519 12,376,538
Dilutive effect of stock options 573,512 263,824 570,032 188,321
---------- ---------- ---------- ----------
Diluted weighted average shares 13,385,080 12,645,162 13,218,551 12,564,859
========== ========== ========== ==========
NOTE E - OTHER OPERATING EXPENSES, NET, OTHER INCOME, OTHER EXPENSES
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(Dollars in Thousands) 2001 2000 2001 2000
------ ------ ------ ------
OTHER OPERATING EXPENSES, NET
- -----------------------------
Reduction of deferred
compensation liability $ (53) $ (52) $ (159) $ (156)
Amortization of intangibles 80 211 239 633
Write off of receivables - 2 - 61
------- ------- ------ -------
Total other operating expenses, net $ 27 $ 161 $ 80 $ 538
======= ======= ======= =======
OTHER INCOME, NET
- -----------------
Pension income $ 148 $ 420 $ 1,036 $ 1,260
Settlement of lawsuits - 950 842 950
Royalties and commissions 51 116 59 403
Insurance refund - - - 50
Foreign exchange loss (182) - (182) -
Other 96 7 84 53
------- ------- ------- -------
5
Total other income, net $ 113 $ 1,493 $ 1,839 $ 2,716
======= ======= ======= =======
OTHER EXPENSES
- --------------
Miscellaneous items,
none of which are material 72 $ 227 281 333
------- ------- ------- -------
Total other expenses $ 72 $ 227 $ 281 $ 333
======= ======= ======= =======
NOTE F - COMPREHENSIVE INCOME
For the Company, the components of comprehensive income are as follows (in
thousands):
For the Three For the Nine
Months Ended Months Ended
September 30, 2001 September 30, 2001
------------------ ------------------
Net income $ 2,026 $ 6,481
Unrealized gain on foreign
currency contracts 6 222
------- -------
Comprehensive income $ 2,032 $ 6,703
======= =======
NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS
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.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting
model, based upon the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
for long-lived assets to be disposed of by sale and addresses significant
implementation issues. The Company is required to adopt this statement effective
January 1, 2002. The Company is in the process of assessing the impact of the
adoption of this statement on its financial position, results of operations and
cash flow.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
6
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. 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 nine months ended September 30,
2000.
Consolidated net sales during the third quarter of 2001 increased $14,940,000 or
22.7% to $80,737,000 from $65,797,000 in the third quarter of 2000. Excluding
Symtron's operations from the third quarter of 2000, sales would have increased
$16,217,000 or 25.1%. The Defense segment increased sales $10,859,000 or 22.7%
to $58,682,000 in the third quarter of 2001 from $47,823,000 in the same period
of 2000 primarily due to the growth in the unmanned aerial vehicles line of
business. Excluding Symtron's operations from the third quarter of 2000, the
Defense segment would have increased sales $12,135,000 or 26.1%. Sales in the
Transportation segment increased $5,863,000 or 66.8% to $14,634,000 in the third
quarter of 2001 from $8,771,000 during the same quarter of 2000 due to increased
production and delivery volume. The Energy segment's sales decreased $1,782,000
or 19.4% to $7,421,000 in the third quarter of 2001 from $9,203,000 in the third
quarter of 2000 due to the timing of orders and shipments.
For the nine months ended September 30, 2001, consolidated net sales totaled
$207,622,000 which was $30,964,000 or 17.5% higher than the
7
$176,658,000 of sales recorded during the same period in 2000. Excluding
Symtron's operations for the nine months ended September 30, 2000, sales would
have increased $38,715,000 or 22.9%. The Defense segment sales increased
$19,663,000 or 14.7% to $153,869,000 in the first nine months in 2001 from
$134,206,000 in the same period in 2000 primarily due to the sales growth in
unmanned aerial vehicles line of business. If the Symtron operations were
excluded in the year 2000 period, the increase in the Defense segment would have
been $27,414,000 or 21.7%. The Transportation segment's sales increased
$17,357,000 or 125.6% to $31,179,000 in the nine months ended September 30, 2001
from $13,822,000 in the same period in 2000 due to increased production and
delivery volume. The Energy segment's sales decreased $6,056,000 or 21.2% to
$22,574,000 in the nine months ended September 30, 2001 from $28,630,000 in the
same period last year due to the completion of a large contract of approximately
$6,300,000 during the nine months ended September 30, 2000.
The consolidated gross profit margin percentage increased 6.5% for the three
months ended September 30, 2001 to 15.5% from 9.0% for the three months ended
September 30, 2000. Excluding Symtron's operations for the three months ended
September 30, 2000, would not alter the effect on the consolidated gross profit
margin percentage for the three months of 2000. The Defense segment gross profit
margin percentage decreased to 19.6% from 23.3% in the same period last year.
This decrease was due to the low gross profit margin percentage on a large
competitively awarded program. Excluding Symtron's operations from the Defense
segment in the third quarter of 2000, the gross profit margin percentage would
have decreased 4.2%. The Defense segment gross profit margin was increased
$700,000 by a reduction of $700,000 in the cost of sales. This amount also
included in trade receivables is for an equitable adjustment claim on a U.S.
Navy contract. Symtron was the prime contractor and the Company's wholly owned
subsidiary AAI was a subcontractor. In October 2001, the Company received a
payment of $400,000 from Symtron. The Transportation segment gross margin loss
of $1,321,000 in the third quarter of 2001 compared to a gross margin loss in
the same period in 2000 of $7,668,000. The three months ended September 30, 2001
and 2000, respectively, include $1,340,000 and $8,400,000 of charges to cost of
sales in the Transportation segment for anticipated increased contract costs.
The Energy segment gross profit margin percentage increased to 30.9% in the
third quarter of 2001 from 25.7% in the same period last year due to product
mix.
The consolidated gross profit margin percentage decreased for the nine months
ended September 30, 2001 to 17.2% compared to 19.0% for the same period in 2000.
Excluding Symtron's operations for the nine months ended September 30, 2000, the
gross profit margin percentage would have decreased 1.3%. The Defense segment
gross profit margin decreased to 20.3% from 24.0% in the same period last year
primarily due to low gross profit margin percentage on a large competitively
awarded program. Excluding Symtron's operations from the 2000 Defense segment,
the gross profit margin percentage would have decreased 3.4%. The Transportation
segment gross margin loss of $2,454,000 in the first nine months of 2001
compared to a gross margin loss of $7,193,000 in the first nine months of 2000
which resulted primarily from anticipated labor cost growth on a certain program
as well as general overhead increases and partially offset by earnings related
to services previously rendered to a strategic partner. The Energy
8
segment gross profit margin percentage increased to 31.3% in the first nine
months of 2001 from 30.2% in the same period last year due to product mix.
The consolidated selling and administrative expenses for the three months ended
September 30, 2001 decreased $1,628,000 or 14.8% to $9,387,000 from $11,015,000
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 $322,000 or 3.3%. The Defense segment's selling and
administrative expenses decreased $1,604,000 or 20.1% to $6,073,000. Excluding
Symtron's operations from the Defense segment in 2000, selling and
administrative expenses would have decreased $297,000 or 4.7% due to lower bid
and proposal costs during the current period. Selling and administrative
expenses increased $54,000 to $1,137,000 in the Transportation segment due to
increased production activity. The selling and administrative expenses increased
$77,000 to $2,179,000 in the Energy segment due to increased bid and proposal
efforts. The Other segment experienced decreased selling and administrative
expenses of $156,000 due to increased income of administrative fees received
from operating segments.
The consolidated selling and administrative expenses for the nine months ended
September 30, 2001 decreased $4,181,000 or 12.7% to $28,765,000 from $32,946,000
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 $797,000 or 2.7%. The Defense segment's selling and
administrative expenses decreased $4,106,000 or 17.9% to $18,877,000, primarily
due to the inclusion of Symtron's operations in 2000. Excluding Symtron's
operations from the Defense segment in 2000 would have resulted in a decrease of
$722,000 or 3.7% due to lower bid and proposal costs and lower marketing
expenses during the current period. The Transportation's general and
administrative expenses in the first nine months of 2001 increased $708,000 or
26.8% to $3,353,000 due to increased production activity. The Energy segment's
selling and administrative expenses for the first nine months of 2001 increased
$101,000 to $6,536,000 from $6,434,000 in the same period of 2000. The Other
segment decreased selling and administrative expenses by $884,000 due to
increased income of administrative fees received from operating segments.
The consolidated other operating expenses were $134,000 and $458,000 lower in
the three and nine months periods ended September 30, 2001, respectively,
compared to the same periods last year. These decreases primarily resulted from
a reduction in amortization expense related to Symtron of $131,000 and $394,000
during the three and nine months ended September 30, 2001, respectively,
compared to the same periods last year.
The consolidated other income decreased $1,380,000 in the three months ended
September 30, 2001 from the same period last year primarily due to income of
$950,000 from the settlement of lawsuits in the three months ended September 30,
2000. Pension income was reduced by $272,000 and the Company experienced a
foreign exchange loss of $182,000 in the current three month period.
The consolidated other income decreased $877,000 in the nine months ended
September 30, 2001 from the same period last year primarily due to the
9
reductions of pension income of $224,000 and royalties and commissions of
$344,000 and the foreign exchange loss $182,000.
The consolidated income before income taxes increased $478,000 or 17.6% in the
three months ended September 30, 2001 from the same period in 2000. Excluding
Symtron's operations, the decrease would have been $911,000 or 22.2%. During the
three month period ended September 30, 2001 as compared to the quarter ended
September 30, 2000 the Defense segment profit increased $2,088,000 or 57.9% to
$5,696,000. Excluding the Symtron loss from the Defense segment from the three
month period in 2000, the increase would have been $700,000 or 14.0%. The Energy
segment profit decreased $446,000 or 56.5% to $344,000 and the Transportation
segment loss decreased $5,415,000 to $2,800,000. The Other segment loss
increased to $41,000 in the third quarter of 2001 from a profit of $6,538,000
during the third quarter of 2000, which included a gain on the sale of assets of
$5,976,000 ($4,166,000 net of taxes or $.33 per diluted share).
The consolidated income before income taxes decreased by $1,138,000 or 11.2% in
the nine months ended September 30, 2001 from the same period in 2000. Excluding
Symtron's operations from the nine months of 2000, the decrease would have been
$2,826,000 or 23.8%. During the nine month period ended September 30, 2001 as
compared to the like period in 2000 the Defense segment profit increased by
$3,137,000 or 30.9% to $13,294,000. Excluding Symtron's operations, the increase
would have been $1,450,000 or 12.2%. The Energy segment profit decreased by
$2,204,000 or 55.6% to $1,761,000 and the Transportation segment loss decreased
by $2,903,000 to $6,566,000. The Other segment profit was $570,000 during the
nine months of 2001 as compared to $5,544,000 during the first nine months of
2000 which included a profit on the sale of assets of $5,976,000 ($4,166,000 net
of taxes or $.33 per diluted share).
The Company's effective tax rates for federal and local taxes were 36.7% and
21.1% for the three months ended September 30, 2001 and 2000, respectively. The
lower tax rate in 2000 is related to the profit on the sale of Symtron which had
a higher tax basis than book basis.
The Company's effective tax rates for federal and local taxes were 28.5% and
31.9% for the nine months ended September 30, 2001 and 2000, respectively. The
lower than statutory tax rates are due to a local income tax benefit of
$1,000,000 or $660,000 net of federal taxes in 2001 and the lower tax rate on
the sale of Symtron (see preceding paragraph) in 2000.
The Company reported net income of $2,026,000, or $.15 per diluted share, for
the third quarter of 2001 compared to net income of $2,146,000, or $.17 per
diluted share, in the third quarter of 2000. Excluding the results of Symtron's
operations, and the gain on the sale of Symtron the net loss for the third
quarter of 2000 would have been $1,189,000 or $.10 per diluted share.
For the first nine months of 2001, net income was $6,481,000, or $.49 per
diluted share, compared to $6,941,000, or $.55 per diluted share, for the first
nine months of 2000. Excluding the results of Symtron's operations and the gain
on the sale of Symtron from the nine months of 2000, net income for the
nine-month period of 2000 would have been $3,725,000 or $.30 per diluted share.
10
Since December 31, 2000 the Company's backlog decreased by $5,685,000 or 1.37%
in the first nine months of 2001. The Energy segment backlog increased
$2,258,000; the Transportation segment backlog decreased $4,009,000 and the
Defense segment backlog decreased $3,934,000.
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 as defined. 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 nine months of 2001, cash decreased $2,722,000 to $8,663,000 at
September 30, 2001 from $11,385,000 at December 31, 2000. Also at September 30,
2001 there was $222,000 of restricted cash. Changes in operating assets and
liabilities, net resulted in a net use of cash of $6,367,000. The major items
were an increase in inventory of $17,775,000 offset by an increase in accounts
payable of $12,198,000. Dividends paid of $3,782,000 were partially offset by
proceeds from the exercise of stock options of $3,472,000.
At September 30, 2001 there were no cash borrowings under the Agreement. The
letter of credit obligations outstanding at September 30, 2001 were $24,140,000.
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
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, 2001.
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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.) At September 28, 2001, the average national
value of these contracts was $1,500,000, with an aggregate profit of $222,000
based on fair market value.
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 6 - Exhibits and Reports on Form 8-K
(b) The Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 2001.
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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, 2001 By: /s/ James H. Perry
----------------- ------------------------------
James H. Perry
Chief Financial Officer,
Vice President and
Treasurer
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