SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number #1-4252
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UNITED INDUSTRIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2081809
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(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
570 Lexington Avenue, New York, NY 10022
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(Address of principal executive offices)
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 13,007,318 shares of common
stock as of May 9, 2002.
UNITED INDUSTRIAL CORPORATION
INDEX
Page #
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
March 31, 2002 and December 31, 2001 2
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2002 and 2001 3
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 13
PART II - Other Information 14
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
MARCH 31 DECEMBER 31
2002 2001 *
------------ -----------
ASSETS (Unaudited)
- ------
Current Assets
Cash and cash equivalents $ 2,136 $ 5,496
Trade receivables 38,523 37,775
Inventories
Finished goods & work-in-process 18,306 14,616
Materials & supplies 1,627 1,572
-------- --------
19,933 16,188
Deferred income taxes 5,436 5,436
Prepaid expenses & other current assets 1,919 1,755
Assets of discontinued operations 120,543 108,684
-------- --------
Total Current Assets 188,490 175,334
Other assets 54,112 54,505
Property & equipment - less allowances
for depreciation (2002-$84,200; 2001-$88,560) 21,159 24,514
-------- --------
$263,761 $254,353
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
- -------------------
Notes payable $ 1,300 $ -
Accounts payable 15,070 11,401
Accrued employee compensation & taxes 7,523 7,724
Customer advances 6,478 7,042
Federal income taxes 416 3,003
Provision for contract losses 2,400 2,398
Other current liabilities 6,263 5,038
Liabilities of discontinued operations 78,315 59,355
-------- --------
Total Current Liabilities 117,765 95,961
Other long-term liabilities 3,467 3,467
Deferred income taxes 10,739 11,642
Postretirement benefits other than pensions 22,914 22,939
Shareholders' Equity
- --------------------
Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding
12,986,318 shares and 12,871,868 shares -
March 31, 2002 and December 31, 2001 (net of
shares in treasury) 14,374 14,374
Additional capital 91,250 91,094
Retained earnings 14,208 26,735
Treasury stock, at cost, 1,387,830 shares at
March 31, 2002 and 1,502,280 shares at
December 31, 2001 (10,956) (11,859)
-------- --------
108,876 120,344
-------- --------
$263,761 $254,353
======== ========
See accompanying notes
*Reclassified to conform to 2002 presentation
2
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended March 31
2002 2001*
--------- ---------
(Unaudited)
Net sales $56,867 $53,883
Cost of sales 46,062 41,846
-------- -------
Gross profit 10,805 12,037
Selling & administrative expenses 8,545 8,944
Other operating expense - net 428 27
-------- -------
Total operating income 1,832 3,066
-------- -------
Non-operating income and (expense)
Interest income 16 287
Other income 98 1,363
Interest expense (301) -
Equity in net income of joint ventures 58 35
Other expenses (115) (107)
-------- -------
(244) 1,578
-------- -------
Income from continuing operations
before income taxes 1,588 4,644
Income taxes 557 1,664
-------- -------
Income from continuing operations 1,031 2,980
Loss from discontinued operations - net of income tax
credit $6,598 and $250 for
the three months ended March 31, 2002
and 2001, respectively (12,260) (419)
-------- --------
Net (loss) income $(11,229) $ 2,561
======== ========
Basic earnings per share:
Income from continuing operations $ .08 $ .24
===== =====
Loss from discontinued operations $(.95) $(.03)
===== =====
Net loss $(.87) $ .21
===== =====
Diluted earnings per share:
Income from continuing operations $ .08 $ .23
===== =====
Loss from discontinued operations $(.90) $(.03)
===== =====
Net (loss) income $(.82) $ .20
===== =====
See accompanying notes
*Reclassified to conform to 2002 presentation
3
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
2002 2001 *
-------- --------
OPERATING ACTIVITIES (Unaudited)
- --------------------
Net (loss) income $(11,229) $ 2,561
Adjustments to reconcile net (loss) income
to net cash (used for) provided by
operating activities:
Loss from discontinued operations,
net of income taxes 12,260 419
Depreciation and amortization 3,662 1,542
Deferred income taxes (903) (147)
Increase (decrease) in provision for
contract losses 2 (24)
Changes in operating assets and liabilities (528) 11,887
Increase in other assets - net (35) (971)
Decrease in long-term liabilities (25) (503)
(Decrease)increase in federal income
taxes payable (2,587) 1,268
Equity in income of investee company (58) (35)
Restructuring charge 369 -
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NET CASH PROVIDED BY CONTINUING OPERATIONS 928 15,997
NET CASH USED FOR DISCONTINUED OPERATIONS (5,203) (13,120)
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NET CASH (USED FOR)PROVIDED BY
OPERATING ACTIVITIES (4,275) 2,877
INVESTING ACTIVITIES
Purchase of property and equipment (248) (657)
Capital expenditures for discontinued operations (38) (895)
Advances to investee of discontinued operations (724) (68)
Repayment of advances by investee of discontinued
operations 806 1,006
Repayment of advances by investee 153 300
Advances to investee (96) -
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (147) (314)
FINANCING ACTIVITIES
Restricted cash for letter of credit - (7,119)
Proceeds from exercise of stock options 1,060 404
Dividends (1,298) (1,244)
Proceeds from borrowings 1,300 -
------- -------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 1,062 (7,959)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (3,360) (5,396)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,496 11,385
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,136 $ 5,989
======= =======
See accompanying notes
*Reclassified to conform to 2002 presentation
4
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
March 31, 2002
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, 2002 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. 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, 2001.
NOTE B - SEGMENT INFORMATION - CONTINUING OPERATIONS
Reconci-
(dollars in thousands) Defense Energy Other liations Totals
------- ------ ----- -------- ------
Three months ended March 31, 2002
- ---------------------------------
Revenues from external customers $49,241 $ 7,626 $ - $ - $56,867
Equity profit in ventures 58 - - - 58
Segment profit (loss) 3,630 (1,880) (162) - 1,588
Income before income taxes $ 1,588
=======
Three months ended March 31, 2001
- ---------------------------------
Revenues from external customers $47,725 $ 6,158 $ - $ - $53,883
Equity profit in ventures 35 - - - 35
Segment profit 3,683 303 658 - 4,644
Income before income taxes $ 4,644
=======
NOTE C - DIVIDENDS
A quarterly dividend of 10(cent) per share was paid on April 22, 2002.
5
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended
March 31
2002 2001
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Weighted average shares 12,971,101 12,442,371
Dilutive effect of stock options 650,090 498,903
---------- ----------
Diluted weighted average shares 13,621,191 12,941,274
========== ==========
NOTE E - OTHER OPERATING EXPENSES, OTHER INCOME, NET, OTHER EXPENSES
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands) 2002 2001
-------- ---------
OTHER OPERATING EXPENSES, NET
- -----------------------------
Expenses related to closing of subsidiary $ 369 $ -
Reduction of deferred compensation liability - (53)
Amortization of intangibles 59 80
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Total other operating expenses, net $ 428 $ 27
======= =======
OTHER INCOME
- ------------
Pension income $ 99 $ 444
Settlement of lawsuits - 842
Royalties and commissions - 4
Insurance refund - 18
Other (1) 55
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Total other income $ 98 $ 1,363
======= =======
OTHER EXPENSES
- --------------
Expenses relating to a previously
disposed subsidiary $ 32 $ -
Miscellaneous items, none of which are material 83 107
------- -------
Total other expenses $ 115 $ 107
======= =======
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
6
and for Long-Lived Assets to be Disposed of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations, for a
disposal of a segment of a business. The Company adopted FAS 144 during the
fourth quarter of 2001 and accordingly, the assets, liabilities and results of
operations of the transportation business has been reclassified to discontinued
operations in the accompanying consolidated condensed financial statements.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and 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 useful 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 adoption of
Statement No. 142 did not affect the Company's results of operations or
financial position.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
Accounting for Asset Retirement Obligations (FAS 143). The statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company will adopt the provisions of FAS 143 effective January 1,
2003. The adoption of this statement is not expected to have a material impact
on the Company's financial statements.
NOTE G - DISCONTINUED OPERATIONS
Assets and liabilities of the discontinued operations reclassified as current
were as follows:
Dollars in thousands March 31 December 31
2002 2001
-------------------------------------
Assets
- ------
Current Assets
Trade receivables $ 25,652 $ 20,895
Inventories 78,417 73,236
Prepaid expenses and other current assets 51 51
Deferred taxes 6,460 6,460
-------- --------
Total Current Assets 110,580 100,642
Non Current Assets
Deferred taxes 3,337 1,037
Receivable from investee 1,122 1,205
Property and equipment 5,504 5,800
-------- --------
Total Assets $120,543 $108,684
======== ========
7
Liabilities
- -----------
Current Liabilities
Accounts payable $ 8,099 $ 7,118
Accrued employee compensation and taxes 1,096 1,393
Customer advances 35,165 35,983
Provision for contract losses 25,837 12,861
Investment and equity losses in investee 8,454 1,828
Other (336) 172
-------- --------
Total Liabilities $ 78,315 $ 59,355
======== ========
Summary results of the transportation segment which have been classified
separately, were as follows:
Three Months Ended March 31
2002 2001
-------- --------
Revenue $ 12,385 $ 3,516
======== ========
Loss before income taxes $(18,858) $ (669)
Credit for income taxes (6,598) (250)
-------- --------
Net Loss from discontinued operations $(12,260) $ (419)
======== ========
Net Cash (Used for) Provided by
Discontinued Operations
Net Loss $(12,260) $ (419)
Changes in operating assets and liabilities (10,580) (9,238)
Increase (decrease) in provision for
impairment and contract losses 17,637 (3,736)
Other - 273
-------- --------
Net Cash (Used for) Provided by
Discontinued Operations $ (5,203) $(13,120)
======== ========
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; the
ability to consummate the sale of New Jersey
8
Transit Authority and Maryland Mass Transportation Authority contracts; 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
The following information primarily relates to the continuing operations of
United Industrial Corporation and consolidated subsidiaries. The transportation
segment is reflected as a discontinued operation in the Company's consolidated
condensed financial statements as of and for the period ended March 31, 2002. In
addition all prior periods have been restated to conform to the March 31, 2002
discontinued operations presentation.
Three months ended March 31, 2002 compared to three months ended March 31, 2001.
Consolidated net sales from continuing operations increased by $2,984,000 or
5.5% to $56,867,000 in the first quarter of 2002 from $53,883,000 during the
same period in 2001. The Defense segment increased sales by $1,516,000 or 3.2%
to $49,241,000 in the first quarter of 2002 from $47,725,000 during the same
period in 2001. The increase was generally in all product categories. The Energy
segment's sales increased $1,468,000 or 23.8% to $7,626,000 during the first
quarter of 2002 from $6,158,000 in the first quarter of 2001.
Gross margin percentage for continuing operations decreased to 19.0% in the
first quarter of 2002 from 22.3% in the first quarter of 2001. The Defense
segment gross margin percentage was 21.2% in the first three months of 2002 and
21.2% in the first quarter of 2001. The Defense segment cost of sales for the
first quarter of 2001 was reduced by $450,000 compared to $25,000 in the first
quarter of 2002 as a result of an amendment to a healthcare plan in 2001. Also,
cost of sales for the March 31, 2002 quarter in the Defense segment was reduced
by a $271,000 insurance recovery. The related expense was charged to cost of
sales in a previous period. The pension income which is included in cost of
sales in the Defense segment for the first three months of 2002 was $125,000
compared to $350,000 in the first quarter of 2001. This decrease was due
primarily to the downward trend in the securities markets. Included in the first
quarter of 2002 is a charge of $2,300,000 for accelerated depreciation of assets
related to the closing of the Midwest Metallurgical Laboratory, Inc., a wholly
owned indirect subsidiary of the Company in the Energy segment. (See
"Restructuring Charge," below.) Excluding the charge, the gross margin
9
percentage in 2002 was 35.2% or 4.0% greater than the like period in 2001. This
increase was generally due to price increases.
Selling and administrative expenses for continuing operations for the three
months ended March 31,2002 decreased $399,000 or 4.5% to $8,545,000 from
$8,944,000 in the first quarter of 2001. The decrease was in the Defense and
Energy segments. Selling and administrative expenses in the Defense segment
decreased $309,000 or 4.6% to $6,478,000 in the first three months of 2002 from
$6,787,000 in the first quarter of 2001 due to reduced bid and proposal costs.
Selling and administrative expenses in the Energy segment decreased 5.4% to
$2,035,000 in the first three months of 2002 from $2,150,000 in the first three
months of 2001, due to personnel reductions.
Other operating expenses increased $401,000 primarily due to the expenses of
$369,000 associated with the Midwest Metallurgical Laboratory closing.
Other income from continuing operations decreased $1,265,000 in the three months
ended March 31, 2002 from the same period last year primarily due to a reduction
of pension income in the Energy segment of $345,000 and the income from the
settlement of lawsuits in 2001 quarter of $842,000.
Income before income taxes for continuing operations decreased $3,056,000 or
65.8% to $1,588,000 in the three months ended March 31, 2002 from $4,644,000 for
the same period last year. The decrease was primarily due to a charge of
$2,669,000 for the accelerated depreciation of assets and expenses related to
the closing of the Energy segment's Midwest Metallurgical Laboratory, Inc. which
will cease operations, effective May 17, 2002. In addition, the first quarter of
2001 included income from a litigation settlement of $842,000 and pension plan
income of $570,000 higher than the 2002 first quarter.
Since December 31, 2001, the backlog related to continuing operations increased
$21,450,000 or 10.3%. The Defense segment backlog was $221,888,000 at March 31,
2002 compared to $201,221,000 at December 31, 2001. The Energy segment backlog
was $6,905,000 at March 31, 2002 compared to $6,122,000 at December 31, 2001.
Sales in the discontinued transportation operations increased $8,869,000 to
$12,385,000 in the three months ended March 31, 2002 from $3,516,000 in the same
period last year. This increase was due to the production levels on contracts to
be sold or essentially completed during 2002. The loss before taxes increased to
$18,858,000 in the three months ended March 31, 2002 from $669,000 in the same
period last year.
The three months ended March 31, 2002 loss in the discontinued operations
includes an increase in provision for estimated losses of $1,000,000 on the MUNI
electric trolley bus sub contract from Electric Transit, Inc. ("ETI"), the
Company's joint venture with Skoda, a Czech Republic firm. In addition, the
Company recorded a $6,600,000 provision for estimated losses by ETI. This
provision represents 100% of the estimated losses ETI will incur primarily in
executing its scope of work on the MUNI contract since it is unlikely that Skoda
will have the financial capability to fund its 65% share of such losses.
10
Further, in March 2002, the Company entered into an agreement to sell its two
overhaul contracts with the New Jersey Transit Authority and Maryland Mass
Transportation Authority, as well as related assets. During March 2002 the
Company recorded a $10,200,000 provision for the impairment of transportation
assets associated with the sale and close out of these contracts.
After the sale of the two overhaul contracts in 2002 the Company expects that
the amount of overhead to be absorbed by the remaining contract will not be
sufficient to cover the total overhead incurred. The Company will expense the
unabsorbed overhead as incurred. These charges are expected to be in the range
of $2,500,000 to $3,000,000. In addition, upon cessation of transportation's
operations, expected in the fourth quarter of 2002, the Company contemplates a
charge associated with the idle facility, primarily future operating lease
costs, in the range of $2,700,000 to $3,200,000.
Liquidity and Capital Resources
Cash and cash equivalents decreased $3,360,000 to $2,136,000 at March 31, 2002
from $5,496,000 at December 31, 2001. Net cash used for operating activities of
discontinued operations was $5,203,000 in the first quarter of 2002. Net cash
provided from operating activities by the continuing operations was $928,000 in
the first three months of 2002. Changes in operating assets and liabilities
generated a negative cash flow of $528,000 primarily caused by an increase in
inventory of $3,745,000, a decrease in customer advances of $564,000, offset by
an increase in accounts payable of $3,668,000. The net cash used for operating
activities in the first quarter of 2002 was $4,275,000.
In March 2002, the Company entered into an agreement to sell two transportation
overhaul contracts and related assets. The Company expects the proceeds of this
sale to be approximately $21,400,000, subject to certain agreed upon
adjustments. The agreement provides for the Company to be released under all
performance bonds and obligations under the conveyed contracts. In addition, the
Company will receive a cost plus fee contract to perform work on the conveyed
contracts for the purchaser during a transition period not to exceed six months.
The transaction is expected to close by May 31, 2002. The transaction is subject
to customary closing conditions, including obtaining certain third party
consents, governmental approvals and the purchaser obtaining the requisite
performance bonds.
The anticipated net cash flow from the discontinued transportation operations
including the proceeds from the sale of the two overhaul contracts, the business
closure costs and the net proceeds from the completion of programs is expected
to be in the range of $25,000,000 to $30,000,000 primarily during the last three
quarters of 2002 and during 2003. This net cash flow does not consider the tax
benefit to be realized from the losses generated by the discontinued
transportation business during 2002.
On June 28, 2001, the Company and certain of its subsidiaries entered into a
Loan and Security Agreement (the "Agreement") with Fleet Capital Corporation.
11
The Agreement has a term of three years and provides for letters of credit and
cash borrowings of up to $25,000,000 with a sublimit of $10,000,000 for cash
borrowings, subject to a borrowing base. Credit advances may increase to
$32,000,000 provided that amounts in excess of $25,000,000 are
cash-collateralized. On March 6, 2002, a Waiver, Amendment and Consent Agreement
was entered into whereby the cash collateral requirement was waived by the
lender through June 30, 2002, which will be extended to September 30, 2002 if
the sale of the transportation contracts is consummated on or before June 30,
2002. At March 31, 2002 there were cash borrowings of $1,300,000 under the
Agreement. The letter of credit obligations outstanding at March 31, 2002 were
$20,549,000.
A subsidiary of the Company also has a $2,000,000 line of credit with a bank
which may be used for cash borrowings or letters of credit. This agreement
renewed the previous agreement until April 18, 2003. At March 31, 2002, the
subsidiary had no cash borrowings and $140,000 of letters of credit outstanding.
The Company currently has no significant fixed commitment for capital
expenditures. The Company expects that available cash, existing lines of credit
and the proceeds from the sale of the transportation contracts will be
sufficient to meet its cash requirements for the remainder of the year.
Restructuring Charge
On March 15, 2002, Detroit Stoker, a wholly owned subsidiary of the Company in
the Energy segment, announced that it will cease the foundry operation conducted
by its wholly owned subsidiary, Midwest Metallurgical Laboratory, Inc.,
effective May 17, 2002.
Detroit Stoker will purchase its castings from lower cost sources. It is
anticipated that this action will significantly improve operating margins.
The Company estimates that during 2002 Detroit Stoker will incur severance and
other cash charges totaling approximately $1,000,000. In addition, the Company
has accelerated depreciation of its foundry facility during the foundry's
operating period in 2002. Depreciation of this facility was approximately
$2,300,000 during the first quarter of 2002 and is expected to be approximately
$1,200,000 during the second quarter. Other related closing expenses in the
first quarter were $368,700.
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 March 31, 2002. The Company has assumed
joint and several liability on progress payment bonds, relating to ETI,
12
totaling approximately $47,000,000 as of March 31, 2002. These bonds are
expected to be eliminated when the customer accepts certain deliveries during
2002. Further, the Company is obligated to indemnify certain sureties under
various performance bonds in the event of non-performance on particular
contracts up to approximately $205,000,000, of which approximately $33,000,000
relates to ETI contracts. The Company expects to perform under each of these
contracts. The sale of the two transportation contracts, when consummated,
includes the release of the Company on the approximately $156,000,000 of
performance bonds related to those divested programs.
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, 2001. (See Item 3 - Form 10-K for December 31, 2001).
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, 2001. (See Item 7A
- - Form 10-K for December 31, 2001.)
13
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Success Bonus Agreement dated as of April 10, 2002 between the
Company and James Perry.
10.2 Success Bonus Agreement dated as of April 10, 2002 between the
Company and Robert Worthing.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2002.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED INDUSTRIAL CORPORATION
Date May 15, 2002 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer
Vice President and
Treasurer
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No.
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10.1 Success Bonus Agreement dated as of April 10,2002
between the Company and James Perry.
10.2 Success Bonus Agreement dated as of April 10, 2002
between the Company and Robert Worthing.
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