UNITED INDUSTRIAL
2001 ANNUAL REPORT
UNITED
INDUSTRIAL
IS A COMPANY FOCUSED ON
THE DESIGN AND PRODUCTION
OF DEFENSE, TRAINING, AND
ENERGY SYSTEMS. o ITS PRODUCTS
INCLUDE UNMANNED AERIAL
VEHICLES, TRAINING AND
SIMULATION SYSTEMS,
AUTOMATED AIRCRAFT TEST
AND MAINTENANCE EQUIPMENT.
o THE COMPANY ALSO OFFERS
LOGISTICAL/ENGINEERING
SERVICES FOR GOVERNMENT-OWNED
EQUIPMENT AND MANUFACTURES
COMBUSTION EQUIPMENT FOR
BIOMASS AND REFUSE FUELS.
CONTENTS
01 LETTER TO SHAREHOLDERS
03 FINANCIAL HIGHLIGHTS
06 TWO DECADES OF UAV LEADERSHIP
AND INNOVATION
08 UNMANNED AERIAL VEHICLES
14 SIMULATION AND TEST SYSTEMS
20 ENGINEERING AND
MAINTENANCE SERVICES
23 FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 2001 2000 1999
NET SALES-CONTINUING OPERATIONS $ 238,495 $ 236,283 $ 207,683
NET INCOME 5,363 7,779 6,277
EARNINGS PER SHARE
BASIC .42 .63 .51
DILUTED .40 .62 .50
DIVIDENDS PER SHARE .40 .40 .40
SHAREHOLDERS' EQUITY 120,344 114,893 111,055
SHAREHOLDERS' EQUITY PER SHARE 9.35 9.24 9.03
SALES BACKLOG- CONTINUING OPERATIONS $ 207,000 $ 195,000 $ 158,000
SHARES OUTSTANDING 12,872,000 12,435,000 12,294,000
[BAR CHART]
DEFENSE SALES* DEFENSE BACKLOG* STOCK PRICE
$159,276 $149,952 9.1875
$193,080 $190,161 11.1250
$208,575 $201,221 16.7500
* FOR THE YEAR ENDING DECEMBER 31
Excludes divested business
UNITED INDUSTRIAL CORPORATION 01
CONSISTENT WITH OUR LONG-TERM STRATEGY, WE CONTINUED UNITED INDUSTRIAL'S
EVOLUTION IN 2001 AS A MORE HIGHLY FOCUSED DEFENSE/ AEROSPACE COMPANY.
TO OUR SHAREHOLDERS
During 2001, United Industrial continued its strategic growth and progress.
While earnings for the year were lower, we achieved key operating milestones,
particularly in our Unmanned Aerial Vehicle (UAV) business, and took important
steps to provide for the Company's future growth. Moreover, with the
announcement of our plans to sell our transportation overhaul contracts, we are
in an even better position to invest in and grow our core defense and aerospace
businesses going forward, and we will do so in a favorable industry environment
marked by increased defense spending.
For the year, revenues from continuing operations, including the Company's
defense and energy businesses, increased to $238.5 million from $236.3 million
in 2000. Excluding the year-ago revenues of Symtron Systems, a non-core business
that was divested on September 29, 2000, revenues from continuing operations for
2001 increased 4.3%. Results from the Company's transportation business are now
being reported as discontinued operations, due to the planned sale of the
overhaul contracts.
Income from continuing operations for 2001 was $15.8 million, or $1.19 per
diluted share, compared to income from continuing operations, excluding special
items, of $15.0 million, or $1.19 per diluted share, last year. The 2000 results
include a gain on the sale of Symtron Systems of $3.9 million, or $0.31 per
diluted share and an insurance recovery of $2.3 million, or $0.18 per diluted
share. Including these items, income from continuing operations for 2000 was
$21.2 million, or $1.68 per diluted share.
The earnings for 2001 primarily reflect weaker results in the fluid test
systems business. However, these results were in part a consequence of a higher
cost structure we have maintained in our fluid test systems business in
anticipation of significant upcoming aircraft depot maintenance opportunities.
We are confident that this investment will pay off in 2002 and beyond.
United Industrial's common stock generated a total return to shareholders
of 54% in 2001, compared to a return of 14% for the Russell 2000 Value Index.
This excellent return is particularly gratifying given the challenging overall
market environment last year. In addition, it comes on the heels of a strong
performance in 2000, when United Industrial stock delivered a total return of
25%, compared to 23% for the Russell 2000 Value Index.
STRATEGIC FOCUS ON DEFENSE/AEROSPACE
Consistent with our long-term strategy, we continued United Industrial's
evolution in 2001 as a more highly focused defense/aerospace company. Our
defense and aerospace operations offer the greatest potential for future growth,
and we have continued to take steps to differentiate our products and services
in this marketplace. By leveraging our technological expertise
02 LETTER TO SHAREHOLDERS
and specialized skills, we have been able to attract an increasing portfolio of
business and reinforce our leadership in certain niche areas. As a result,
defense/ aerospace backlog increased 5.8% to $201.2 million at December 31, 2001
from $190.2 million a year earlier.
OUR LEADERSHIP IN TUAVs
Our UAV operations had a solid 2001. We continue to build upon our position as
the leading provider of Tactical Unmanned Aerial Vehicles (TUAVs) to the U.S.
military, expanding the scope, scale and profitability of this business. The
centerpiece of our efforts is our program to develop the U.S. Army's next
generation TUAV system, under a contract currently valued at $135 million.
During 2001, we made excellent progress on this program, initiating TUAV
production activities which we expect will lead to the first fielding of the
system in 2002.
UNITED INDUSTRIAL HAS PROVEN ITSELF TO BE A VALUED PARTNER TO THE U.S. MILITARY,
AND WE STAND READY TO ASSIST IN ANY WAY WE CAN.
This effort, key to the Army's Transformation Modernization Program,
represents its goal to source UAVs in significant quantities, and, we believe,
is a harbinger of programs to come. Based on the increasing reliability and
flexibility of today's UAV systems and the valuable benefit they offer in
protecting soldiers' lives and as a force multiplier, UAVs are widely expected
to play an expanding role in the U.S. military's arsenal, with the Department of
Defense recently increasing UAV funding and prioritizing development efforts.
OTHER KEY PLATFORMS FOR GROWTH
Just as our UAV capabilities are providing a powerful platform for future
growth, we anticipate our work on the Joint Service Electronic Combat Systems
Tester (JSECST) program will deliver meaningful opportunities for our Simulation
and Test business. Under the JSECST contract, now valued at $65.5 million, we
are partnering with the U.S. Navy and U.S. Air Force to develop a
state-of-the-art test system that will evaluate radio frequency electronic
warfare systems to assure mission readiness. Now in production phase, this
program should be a major contributor to our results in 2002 as well as in
future years. In addition, we expect there will be exciting additional
applications for this testing technology, providing us with avenues for further
expansion.
In Engineering Support Inc. (ESI), our engineering and maintenance
services business, we are taking steps to leverage and build upon our successful
track record with the C-17 Aircraft. Since 1997, we have provided upgrade and
support services for the U.S. Air Force's C-17 Maintenance Training Systems,
under a contract now valued at $186.4 million. While this program continues to
provide a consistent revenue stream for our Company, we have actively sought out
opportunities to broaden our customer base. Among the most promising new
contracts underway is our program for the Mississippi National Guard to develop,
install and support a C-17 Maintenance Training Facility in Jackson,
Mississippi. Currently valued at $13.4 million, this contract is expected to be
a significant source of growth in upcoming years. In addition, our role as
subcontractor on the Boeing team for the C-130 Avionics Modernization Program
positions us well for future C-130 maintenance training work.
UNITED INDUSTRIAL CORPORATION 03
[PHOTO OMITTED] [PHOTO OMITTED]
LEFT: RICHARD R. ERKENEFF, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
RIGHT: HAROLD S. GELB, CHAIRMAN OF THE
BOARD
DEVELOPMENTS IN TRANSPORTATION
For some time now, we have struggled to turn around the performance of our
transportation operations and make this business productive for shareholders.
Following a thorough analysis of various alternatives, we announced, on March
28, 2002, a definitive agreement to sell our transportation overhaul contracts
with the New Jersey Transit Authority and the Maryland Mass Transit Authority to
Alstom Transportation Inc. for approximately $21.4 million, subject to certain
agreed upon adjustments.
This will leave us with essentially one contract, for the San Francisco
Municipal Railway, which is being executed through our joint venture with the
Czech firm Skoda, Electric Transit Inc. (ETI). This program is well into its
production phase and is scheduled for completion this year. By allowing us to
better focus our resources and attention, this exit from the transportation
business is an important step forward in our ongoing strategy to increase
shareholder value by leveraging our unique strengths in the defense and
aerospace marketplace.
From an operating perspective, the discontinued transportation business
narrowed its loss significantly for the year to $10.4 million, or a loss of
$0.79 per diluted share, including a fourth quarter charge of $4.1 million, or
$.31 per diluted share, associated with the wind-down of the business. This
compares to a loss of $13.4 million, or a loss of $1.06 per diluted share, in
2000. Under the leadership of a new transportation chief executive, steps were
taken to streamline our transportation organization, which contributed to the
improvement, particularly on the San Francisco Municipal Railway program.
Looking forward, our priority is to effectively and efficiently complete our
obligations to our customers.
04 LETTER TO SHAREHOLDERS
ENHANCING PROFITABILITY AT DETROIT STOKER
Detroit Stoker, our energy systems subsidiary, continued its strategy to
capitalize on growing demand for alternative energy sources, offering a range of
innovative products and superior customer service. During 2001, we launched a
series of initiatives to improve our cost structure and enhance profitability.
And, these efforts have continued into 2002, with the recent announcement of our
plan to outsource necessary castings to lower-cost producers and close our
foundry operations in Michigan. These actions should enable a greater percentage
of future sales to drop to the bottom line.
While results for the year were lower, in part due to the timing of orders
and the completion of two major contracts in 2000, underlying trends remain very
positive, and we are optimistic about future prospects. Our aftermarket renewal
parts business continues to have solid momentum, and there is steady interest in
new stokers and related combustion equipment from customers around the world.
A BRIGHT FUTURE
We are confident that United Industrial has a bright future ahead. With the
divestiture of our transportation overhaul contracts, we are embarking on our
next stage of growth with a heightened focus, greater resources and a reaffirmed
commitment to build our presence in the defense and aerospace industry. In doing
so, we have the benefit of a very talented and experienced management team as
well as a very solid financial position and balance sheet.
In response to the War on Terrorism, defense spending by the U.S.
Government is expected to increase substantially, with certain programs, such as
UAVs, now receiving priority attention. Over the years, United Industrial has
proven itself to be a valued partner to the U.S. military, and we stand ready to
assist in any way we can in the future.
In achieving this year's results, our 1,500 employees again did a superb
job. We thank all of you for your hard work and dedication. To our customers, we
value your continued business and will continue to strive to exceed your
expectations through innovative products, attentive service and our unwavering
commitment to quality. To you, our shareholders, we appreciate your continued
confidence and support of the Company, and we remain determined in our efforts
to enhance the value of your investment.
Sincerely,
/s/ Richard R. Erkeneff
Richard R. Erkeneff
President and Chief Executive Officer
/s/ Harold S. Gelb
Harold S. Gelb
Chairman of the Board
UNITED INDUSTRIAL CORPORATION 05
TWO DECADES OF UAV LEADERSHIP AND INNOVATION
[GRAPHIC OMITTED]
Unmanned Aerial Vehicles (UAVs) -- powered, aerial vehicles that do not carry
human operators onboard and which are used for surveillance, reconnaissance and
target acquisition -- have become an increasingly valuable component of the U.S.
military arsenal over the past twenty years, with recent global events
highlighting the importance and effectiveness of using UAVs in combat. As the
leading Tactical UAV (TUAV) supplier to the U.S. Army and the prime contractor
for the Army's next-generation TUAV program now underway, we at United
Industrial feel proud and privileged to be a part of the UAV's continued
evolution. The overarching reason for this pride is simple, yet crucial: the
military's use of UAVs helps to save soldiers' lives.
By utilizing UAVs to perform fly-over surveillance, reconnaissance and
target acquisition, frequently over dangerous territory, our soldiers are kept
from harm's way. Recognizing this tremendous benefit, the U.S. military has
sought to expand the range of applications for UAVs, which today fall into three
primary categories. These include strategic UAVs, which typically fly at high
altitudes and are used to look deep into enemy territory to support deep strike
by manned aircraft and cruise missiles; Mini UAVs, which can be carried and
employed by individual soldiers and used in an urban warfare environment to see
around corners, on top of buildings and into windows to decrease the opportunity
for an enemy ambush; and Tactical UAVs, which are used by tactical commanders in
combat to scout out and observe enemy forces in order to decide how and when to
engage them, and once engaged, how to direct fire support from artillery, tanks,
missiles and aircraft to maneuver forces.
It is the Tactical UAV area in which United Industrial has distinguished
itself. We got our start in 1983, by providing engineering services to the U.S.
Navy's first UAV system. Used to identify targets for the Battleship New Jersey,
the system enabled the Navy to fire at inland targets without having to send
manned aircraft flying at low altitude within hostile territory.
We went on to deliver our first-generation UAV, the Pioneer System, for
the U.S. Navy and Marine Corps in 1985. This was the first Tactical UAV adopted
by the U.S. military and was critically important to joint forces in Operations
Desert Shield and Desert Storm. Its unique contribution to the successful
integration of UAVs into the U.S. military was recognized when the Smithsonian
Institution inducted the Pioneer UAV into its National Air and Space Museum in
2000.
Since the Pioneer's introduction, our TUAVs have played a key role in
supporting various U.S. military objectives and have seen action in numerous
military theaters around the globe. From artillery tracking and target
acquisition in the Gulf War, to surveillance and reconnaissance in peacekeeping
missions across the
06 UNITED INDUSTRIAL CORPORATION
[GRAPHIC OMITTED]
world, such as in Bosnia, Kosovo, Haiti and Somalia, the use of our UAVs for
surveillance and reconnaissance has meant that servicemen and women were spared
the risks inherent in these operations.
To support a more full range of military applications, we have continued
to refine and upgrade our UAV product lines, utilizing new technologies and
materials to enhance performance. Our highly successful series of Shadow UAVs,
initially introduced in 1991, now encompasses a family of models that can be
configured to meet a wide range of purposes. They carry payloads from less than
a pound to 125 pounds to points over 100 nautical miles from a controlling
ground station, and can remain over an area of interest from 5 to 15 hours after
being launched from land- or sea-based sites. Among the payloads they carry, or
in development, are color television cameras with electronic zoom, infrared
sensors that can see at night, special radar packages that can penetrate clouds,
fog, dust and smoke to illuminate targets normally invisible to aircraft in such
conditions, specialized sensors that listen to and accurately locate signals
emitted from enemy radars, and communication equipment.
President Bush and Secretary Rumsfeld have indicated the requirement of an
ever-expanding role for UAVs to support our military operations, and we intend
to build on our technology and experience in this field to continue in our
position as the U.S. military's primary supplier of Tactical UAVs. While the
missions flown by UAVs have become increasingly diverse, what has remained
constant is our dedication to providing UAVs capable of preserving the lives of
our soldiers.
UNITED INDUSTRIAL CORPORATION 07
UNMANNED AERIAL VEHICLES
JOSEPH G. THOMAS
VICE PRESIDENT AND DEPUTY GENERAL MANAGER, UAV SYSTEMS
"FROM A SEASONED TEAM WITH A PROVEN TRACK RECORD FOR OUTSTANDING PERFORMANCE, TO
THE LATEST IN TECHNOLOGIES AND QUALITY CONTROL, AAI OVER THE PAST 16 YEARS HAS
BUILT THE FINEST TACTICAL UAV BUSINESS IN THE COUNTRY, WITH ALL OF THE ELEMENTS
NECESSARY FOR SUCCESS, A DISTINGUISHED RECORD OF ACCOMPLISHMENTS, AND ENORMOUS
POTENTIAL FOR FURTHER ACHIEVEMENT."
LEFT: U.S. ARMY SOLDIERS PREPARE FOR A
[PHOTO OMITTED] SHADOW 200 TACTICAL UAV TRAINING FLIGHT
AT FT. HUACHUCA, ARIZONA.
08 UNITED INDUSTRIAL CORPORATION
OUR SUCCESS ON THE TUAV PROGRAM HAS RESULTED IN INCREASED CUSTOMER INTEREST
...AS WELL AS GREATER RECOGNITION OF OUR STRONG LEADERSHIP POSITION WITHIN THE
SECTOR.
A combination of factors has made 2001 another exceptional year for our AAI
subsidiary's Unmanned Aerial Vehicle (UAV) business. First and foremost, we have
made enormous progress on the U.S. Army's Tactical Unmanned Aerial Vehicle
(TUAV) program, a primary growth driver for our UAV business. In addition, our
success on the TUAV program has resulted in increased customer interest from
home and abroad in our UAV product offerings, as well as greater recognition of
our strong leadership position within the sector. We are delighted that our UAV
business continues to demonstrate such great promise, and we are proud of the
critical role that our Company has had in developing the UAV industry over the
past two decades.
THE TUAV PROGRAM:
PROGRESS, SUCCESS AND INNOVATION
Under the U.S. Army Shadow TUAV program, first awarded to our AAI subsidiary in
December 1999, we have made substantial strides in our development of a new
generation of UAVs to be used in future operations by the U.S. Army. Over the
course of this year and the first quarter of 2002, we have achieved a number of
key milestones in this program, which, in turn, has resulted in sizeable new
bookings, bringing the total value of our contract to $135 million. Moreover,
the progress and success that we have enjoyed with this program continues to
pave the way for further opportunities.
One of the key highlights of the year was the successful
government-conducted test of the Operational Tempo (OPTEMPO) requirements of the
TUAV system, which evaluated the TUAV's ability to conduct surveillance over a
specific target for a required period of time. Based on the outstanding results
of three OPTEMPO events conducted entirely by soldiers at Ft. Hood, Texas at the
end of 2001, we recently received an additional $22.3million to extend
production on the TUAV program, which included five additional Shadow TUAV
systems.
In addition, during the year, we completed the production and delivery of
the first four TUAV limited-rate initial production (LRIP) systems previously
ordered by the Army. Importantly, all four of these TUAV systems have been
delivered and accepted by the customer, and are now in regular use by the Army.
We are confident that production and delivery of future orders will continue to
proceed very smoothly.
UNITED INDUSTRIAL CORPORATION 09
WE REMAIN COMMITTED TO REGULARLY UPGRADING AND ENHANCING OUR UAV PLATFORMS AND
TECHNOLOGIES IN ORDER TO ENSURE A MAXIMUM RANGE OF CAPABILITIES.
RIGHT: U.S. ARMY TECHNICIANS MAKE FINAL
PREPARATIONS FOR A SHADOW 200 TACTICAL [PHOTO OMITTED]
UAV MISSION FLIGHT.
BELOW: AAI TECHNICIANS ASSEMBLING NEW
SHADOW 200 TACTICAL UAVS FOR THE U.S. [PHOTO OMITTED]
ARMY.
In developing the Army Shadow TUAV, one of our primary objectives has been
to create an operating platform with maximum flexibility and the capability to
operate with systems from other branches of the Armed Forces.
Towards this end, we completed a successful flight demonstration in which
a Tactical Control Station (TCS), a system being developed by the U.S. Navy to
control the Navy UAVs, was able to control an Army Shadow TUAV and its payload,
through all phases of flight including takeoff and landing. This was a
remarkable demonstration of our TUAV's ability to interoperate with other U.S.
military UAV systems. This proven flexibility of our TUAV system will help
create other opportunities for AAI to integrate future UAV platforms and
technologies for the Army.
Of course, we also remain committed to regularly upgrading and enhancing
our UAV platforms and technologies in order to ensure a maximum range of
capabilities. Among the significant awards last year was a modification to our
Army TUAV contract, valued at $3.2 million, to incorporate various enhancements
into the TUAV system. This gives us the opportunity to further demonstrate our
proven track record of innovation through constant technological enhancements
and upgrades of our UAV systems.
Another example of our commitment to innovation can be found in our
development, in conjunction with the Defense Advanced Research Projects Agency
(DARPA),
10 UNMANNED AERIAL VEHICLES
[PHOTO OMITTED]
UNITED INDUSTRIAL CORPORATION 11
WE ARE CONTINUING TO BUILD ON THE MOMENTUM THAT WE HAVE ATTAINED IN KEY
INTERNATIONAL MARKETS.
U.S. ARMY SOLDIERS CHECKING THE PAYLOAD
OF THE SHADOW 200 TACTICAL UAV INCLUDING [PHOTO OMITTED]
AN INFRARED SENSOR AND SPECIAL RADAR
PACKAGE.
of a unique Airborne Video Surveillance (AVS) capability for UAVs. This AVS
capability, already successfully tested, will allow UAV mission operators to
more accurately locate tactical targets transmitted in real time. This exciting
advancement has a broad range of potential applications. Going forward, we
remain committed to constantly exploring ways to enhance our UAV offerings
across the board.
In short, we remain very optimistic about the great potential of the TUAV
program. Current plans call for the Army to purchase as many as 36 additional
TUAV systems in the next four years, valued at more than $300 million. However,
there is strong evidence that the U.S. Army may buy a significant number of
additional systems in the coming years to provide more Army units with the
capabilities of the TUAV.
STEPS TOWARD A GLOBAL UAV BUSINESS
In addition to growing our UAV business domestically, we are continuing to build
on the momentum that we have attained in key international markets. The
outstanding work that we have accomplished on the U.S. Army's TUAV program, the
increased sales of our UAV systems overseas, as well as our recognized
leadership position within the UAV industry, continue to fuel interest in our
UAV offerings among many potential customers worldwide. Among the overseas
contracts we won in 2001 was a $25.4 million UAV program for a foreign customer,
under which we will provide ground support equipment and provide integration
assistance. Contracts such as this one are enabling us to achieve further
penetration of the foreign defense and aerospace marketplace, and move us closer
towards our goal of establishing a global UAV franchise.
12 UNMANNED AERIAL VEHICLES
A CONTINUING TRADITION OF LEADERSHIP
We at United Industrial have a distinguished history of leadership within the
UAV industry, and we are committed to continuing this tradition. Our two-decade
involvement in UAV development, our commitment to constant technological
innovation, our world-class quality control standards, and the wealth of
experience and expertise that we possess constitute a strong foundation for
future growth. Demand for UAVs is clearly on the rise throughout the world, and
we are well positioned to continue to grow our share of this increasingly
pivotal niche market.
LEFT: AAI TECHNICIANS PERFORMING FINAL
[PHOTO OMITTED] INTEGRATION TESTING DURING THE
PRODUCTION PHASE OF THE SHADOW 200
TACTICAL UAV.
BELOW: U.S. ARMY LAUNCH AND RECOVERY
[PHOTO OMITTED] PERSONNEL READY A SHADOW 200 TACTICAL
UAV FOR A MISSION LAUNCH.
UNITED INDUSTRIAL CORPORATION 13
SIMULATION AND TEST SYSTEMS
MICHAEL F. BROWN
DIRECTOR, TEST AND ELECTRONIC WARFARE SYSTEMS
"CONSTANT INNOVATION AND A COMMITMENT TO EXCELLENCE ARE THE TWO DEFINING
ATTRIBUTES THAT EXPLAIN OUR SUCCESSFUL TRACK RECORD IN APPLYING HIGH TECHNOLOGY
SOLUTIONS TO SATISFY COMPLEX MILITARY NEEDS. OUR CULTURE OF INNOVATION AND
EXCELLENCE HAS SPAWNED AN ENTIRE NEW GENERATION OF CUTTING-EDGE PRODUCTS THAT
BOTH REFLECTS THE TREMENDOUS VALUE-ADDED THAT WE OFFER CUSTOMERS AND GENERATES
VAST OPPORTUNITIES IN MARKETPLACES THROUGHOUT THE WORLD."
LEFT: MEMBERS OF THE 33RD FIGHTER WING
[PHOTO OMITTED] AT EGLIN AIR FORCE BASE WORK WITH AAI TO
TEST THE JSECST SYSTEM FOR THE F-15C AIR
SUPERIORITY AIRCRAFT.
14 UNITED INDUSTRIAL CORPORATION
Our AAI subsidiary again demonstrated its leadership in the production and
support of simulation and test systems in 2001. Our work now encompasses a
number of the U.S. military's most important programs, and we continue to
attract exciting new business, both within the U.S. and overseas, by leveraging
our proven capabilities and experience in this niche area of the defense systems
marketplace. Moreover, based on our track record and steady interest in our
simulation and test products, we are well positioned for considerable growth
going forward.
OUR WORK NOW ENCOMPASSES A NUMBER OF THE U.S. MILITARY'S MOST IMPORTANT
PROGRAMS, AND WE CONTINUE TO ATTRACT EXCITING NEW BUSINESS.
SHOWCASING OUR SKILLS ON THE JSESCT
We are particularly proud of the excellent progress on one of our key contracts
underway, the Joint Service Electronic Combat Systems Tester (JSECST). The
JSECST has been designated by the U.S. Defense Department as the standard
flight-line electronic warfare test system, supporting all branches of the
military, and our role on this critical program represents a strong endorsement
of our technological skills and expertise.
Under this contract, currently valued at $65.5 million, we have been working
with the U.S. Navy and the U.S. Air Force on the development of a
state-of-the-art test system that stimulates electronic warfare radar detection
devices to assure mission readiness. Now in its production phase, the program is
expected to contribute significantly to our results in 2002 and beyond.
Our ongoing work on the JSECST contract has provided a number of
additional opportunities. For example, we are now involved with the development
of Test Program Sets aimed to support the electronic combat systems on all U.S.
fighter aircraft including the F-15, F-16, A-10, F-14, AV-8B, and F/A-18E/F.
These development contracts, currently valued at over $10 million, are planned
for completion by June 2003. Further, we have already received funding to begin
production of the Test Program Sets that will be fielded with the initial
production deliveries of the JSECST system. Included in our development efforts
is the flight-line test for the Airborne Self-Protection Jammer that is
installed on the Navy's F/A-18E/F aircraft.
Importantly, we are making significant inroads in providing JSECST-related
services in key international markets as well. Australia is the first foreign
country to purchase the JSECST tester, and has awarded us a $1.46 million
contract to provide the Royal Australian Air Force with seven JSECST Core Test
Sets to support the electronic warfare systems onboard its F/A-18 aircraft.
Australia, a major supporter of the JSECST system, has also contributed funds
for the development of on-aircraft testing of the AN/APX-111 Identification
Friend or Foe cable set, the first non-electronic warfare application of the
JSECST system. Production of these units will be concurrent with our joint U.S.
Navy and U.S. Air Force JSECST contract.
UNITED INDUSTRIAL CORPORATION 15
STEADY DEMAND IN SHIPBOARD TRAINING
In shipboard training systems, a sector where we have unparalleled strength, we
continue to experience steady demand for our industry-leading products. During
2001, we were awarded a new contract, valued at up to $29 million, by the U.S.
Naval Sea Systems Command, which allows the U.S. Navy to order various
quantities of Generic Navy Stimulator/Simulators (GNSS) units, navigation
simulators and engineering services in support of the U.S. Navy's Battle Force
Tactical Training Program over the next five years. We are delighted that our
high-technology shipboard training systems have become such valuable components
in training Navy radar operators, and we look forward to continuing our close
relationship with the Navy.
IN SHIPBOARD TRAINING SYSTEMS, A SECTOR WHERE WE HAVE UNPARALLELED STRENGTH, WE
CONTINUE TO EXPERIENCE STEADY DEMAND FOR OUR INDUSTRY-LEADING PRODUCTS.
We also continue to successfully pursue partnerships with other leading
U.S. military contractors on key programs. For example, in 2001 BAE Systems
awarded us an $18 million contract to provide a Compass Call Mission Crew
Simulator (CCMCS) for the U.S. Air Force, to be used for the training and
mission rehearsal of Compass Call aircraft crews. This contract continues our
relationship with the U.S. Air Force that began when we initially designed and
delivered the first Compass Call mission simulator as far back as 1981. During
2001, AAI was also awarded a $500,000 contract from Northrop Grumman to provide
support on the JointSTARS Prime Mission Equipment Maintenance Trainer project
for the U.S. Air Force.
16 SIMULATION AND TEST SYSTEMS
Other highlights last year included the successful completion of our
upgrade to the O'Hare Airport Transit System (OATS) Control Center; an award
from the U.S. Army to integrate our PDCue Mobile Counter Fire system on a Highly
Mobile Multi-Wheeled Vehicle (HMMWV) to support counter sniper activites; a
contract from NLX Corporation for $1.4 million to provide modeling and
simulation of aircraft systems as part of NLX's work on the F-16C Modular
Simulated Aircraft Maintenance Trainer (MSAMT); a $500,000 order from Boeing for
an additional Advanced Boresighting Equipment (ABE) system, which features
state-of-the-art technology for the precision alignment of parts, for use in
Apache helicopter production; and $4.5 million in additional funding from the
U.S. Navy to upgrade the AN/USM-449 test system used to support the P3-C
aircraft.
ABOVE: AAI'S COMPASS CALL MISSION CREW
SIMULATOR (CCMCS) PROVIDES REALISTIC,
[PHOTO OMITTED] INTERACTIVE MISSION SIMULATIONS FOR
AIRCRAFT CREW MEMBERS ENGAGED IN
TACTICAL COMMAND, CONTROL AND
COUNTERMEASURES MISSIONS.
LEFT: AAI'S JOINTSERVICE ELECTRONIC
COMBAT SYSTEMS TESTER (JSECST) COMBINES
[PHOTO OMITTED] INNOVATIVE DESIGN AND EFFICIENT
MANUFACTURING PROCESSES TO PRODUCE
SOPHISTICATED ELECTRONIC COMBAT SYSTEMS
ON BOARD ALL U.S. FIGHTER AIRCRAFT.
UNITED INDUSTRIAL CORPORATION 17
ROBERT E. WILHITE
DIRECTOR, ONBOARD TRAINING SYSTEMS
"WE HAVE BEEN PROVIDING ON BOARD TRAINING SYSTEMS TO THE U.S. NAVY AND
INTERNATIONAL CUSTOMERS SINCE 1978. MOST OF OUR KEY PERSONNEL HAVE BEEN MEMBERS
OF THE ON BOARD TRAINING SYSTEMS TEAM SINCE THEN. WE PRIDE OURSELVES IN KNOWING
WHAT NEEDS TO BE DONE, HOW IT SHOULD BE DONE AND WHEN IT SHOULD BE DONE. OUR
EXPERIENCE IN THE ON BOARD TRAINING MARKET PLACE IS UNPARALLELED."
CONTINUED GLOBAL EXPANSION
A key element of our strategy is to supplement our strong base of business in
the United States with expansion in foreign markets, and during 2001, we made
continued progress in this area. In Australia, we successfully completed the
installation and testing of a land-based software support and training system in
support of the Royal Australian Navy's guided missile frigate upgrade program.
This is the initial delivery as part of our ongoing $24.0 million program to
provide onboard training systems for these ships. In addition, we received a
$3.6 million order for 87 Test Program Sets (TPSs) for Japan's Maritime
Self-Defense Force, with delivery scheduled for the first quarter of 2003.
Our Advanced Boresighting Equipment (ABE) system continues to be favorably
received in foreign markets as well. We were awarded a contract valued at
$920,000 for an ABE system from the Republic of Singapore for its fleet of
Apache helicopters, and we have also received an additional $4.7 million order
for several ABE production units to support the Eurofighter aircraft, planned
for deployment by the Air Forces of the United Kingdom, German, Italy, and
Spain.
ACL TECHNOLOGIES
At ACL Technologies, our hydraulic, fuel and pneumatic testing business, we
continue to focus on building our presence in both the military and commercial
aviation marketplaces, through the expansion of existing programs and the
creation of new customer relationships. Internationally, we were successful last
year in winning a new $6 million subcontract on our ongoing program to construct
an F-16 Maintenance Depot in Egypt. With the new subcontract, which is for
training services, the total value of this program is now $39 million. In
addition, in Europe, we were selected for the decommissioning/
18 SIMULATION AND TEST SYSTEMS
re-commissioning of 66 test stands for TRW in the United Kingdom, under a $1.0
million contract, and, in Asia, we continue to move forward on our program for
Singapore Technologies Aerospace.
Domestically, ACL Technologies remains a leader in its field as well. In
the commercial market, we have received orders from an expanding base of airline
industry customers, such as Boeing and American Airlines, as well as from such
industrial customers as Honeywell and Ultramare. We have also generated
additional contracts with the U.S. Army, including new contracts for the
production of 13 hydraulic test stands, and with the U.S. Air Force, including a
new contract for the manufacture of interface kits for a fuel control test stand
that is intended for the Korean Air Force.
Looking ahead, we are optimistic about ACL's prospects, particularly since
certain key contracts that had been initially expected for 2001 are now expected
to be awarded in 2002. These provide significant opportunities for future
growth.
WELL POSITIONED FOR THE FUTURE
With multiple lines of business, an expanding and worldwide customer base,
highly experienced employees, and a track record of success, we have every
reason to be confident that our Simulation and Test businesses are well
positioned for the future. Our strategy is to continue to capitalize on our core
competencies in this specialized area to generate sustained momentum and
superior results.
LEFT: AAI'S NEW GENERIC NAVY
[PHOTO OMITTED] STIMULATOR/SIMULATOR PROVIDES A
REALISTIC COMBAT ENVIRONMENT FOR
TRAINING AT SEA.
LEFT: A TECHNICIAN ADJUSTS A PNEUMATIC
[PHOTO OMITTED] ACTUATOR ON ACL EQUIPMENT USED TO
TEST F-16 FUEL COMPONENTS.
THOMAS E. WURZEL
PRESIDENT, AAI/ACL TECHNOLOGIES, INC.
"ACL IS WELL POSITIONED TO CONTINUE ITS EXPANSION IN THE MILITARY MAINTENANCE
DEPOT BUSINESS AND RESPOND QUICKLY TO NEW OPPORTUNITIES EMERGING FROM THE
COMMERCIAL AEROSPACE INDUSTRY."
UNITED INDUSTRIAL CORPORATION 19
ENGINEERING AND MAINTENANCE SERVICES
FREDERICK M. STRADER
EXECUTIVE VICE PRESIDENT, AAI CORPORATION
VICE PRESIDENT AND GENERAL MANAGER, DEFENSE SYSTEMS AND ENGINEERING AND
MAINTENANCE SERVICES
"ESI HAS STRONG GROWTH POTENTIAL BASED ON OUR SOLID PERFORMANCE ON THE IMPORTANT
C-17 PROGRAM, OUR WIDE RANGE OF LOGISTICS CAPABILITIES, AND THE RESPONSIVENESS
OF OUR LOCAL, CUSTOMER-FOCUSED, TECHNICAL CENTERS."
LEFT: THE USE OF AN ACTUAL C-17 ENGINE
IN THE AIRCRAFT ENGINE COWLING TRAINER,
[PHOTO OMITTED] BEING CHECKED HERE BY ESI TECHNICIANS,
FURTHER ENHANCES THE TRAINING
EXPERIENCE.
20 UNITED INDUSTRIAL CORPORATION
OUR REPUTATION AS A MARKET LEADER IS PRIMARILY DRIVEN BY THE OUTSTANDING WORK
THAT WE HAVE ACCOMPLISHED ON OUR FLAGSHIP C-17 AIRCRAFT PROGRAM.
Engineering Support Inc. (ESI), our engineering and maintenance services
business, turned in another solid performance for 2001 by continuing its
strategy of providing a range of specialized engineering and logistics support
services for defense and aerospace industry customers. Our reputation as a
market leader in this area is primarily driven by the outstanding work that we
have accomplished on our flagship C-17 aircraft program with the U.S. Air Force,
a program that also continues to generate new opportunities for our Company.
ESI'S FLAGSHIP C-17 PROGRAM AND NEW GROWTH OPPORTUNITIES
Our U.S. Air Force contract to upgrade Maintenance Training Systems for the C-17
Aircraft continues to serve as the foundation of our successful ESI business.
Over the years, we have established our role as a valued and integral part of
the Air Force's engineering support team, and our contributions have been
recognized through the significant expansion of this contract over time. We have
consistently won additional funding awards for a range of services, including
modifications and upgrades, and, in fact, since 1997, this contract has grown to
a current $186.4 million.
Importantly, our work with the Air Force has also opened up multiple new
avenues of growth. Key among these is our contract with the Mississippi Air
National Guard, awarded in 2001, for C-17 maintenance training systems,
following the Air National Guard's acquisition of C-17 aircraft. The contract,
currently valued at $14.3 million, is expected to grow significantly over the
next few years and we look forward to demonstrating to this new customer our
proven capabilities in the C-17 maintenance training area.
Other key opportunities include our role as a prime contractor on the Air
Force's Training Systems Acquisition Two (TSA II) program, and our role as
subcontractor on the Boeing team for the C-130 Avionics Modernization Program.
Under this latter contract, valued at $2.1 million, we are conducting a training
systems requirements analysis for C-130 maintenance training. This effort, in
turn, positions us well for future C-130 maintenance work, which has been
estimated to reach as much as $200 million. With the substantial growth of our
workload for the Air Force C-17 program, we expanded ESI's Summerville, SC
facility in 2001.
ACHIEVEMENTS IN INTERNATIONAL MARKETS
Additionally, we continue to make progress in key international markets. ESI is
increasingly recognized abroad for the high quality and excellence of its
products and services. For example, our C-17 maintenance program for the United
Kingdom Royal Air Force (RAF) won two prestigious awards from the British
government in 2001: The Chief of Defence Procurement Excellence Award and the
Minister of Defence Procurement Recognition Award. ESI also received additional
funding on its contract for the RAF's C-17 program. We anticipate this area will
grow as additional foreign customers rely on the C-17 to meet their airlift
needs. Going forward, we will continue to aggressively pursue opportunities to
increase ESI's presence in key foreign markets as additional international
customers rely on the C-17 to meet their aircraft needs.
UNITED INDUSTRIAL CORPORATION 21
ESI'S MAINTENANCE TRAINER CONTRACTS [PHOTO OMITTED]
SUPPORT THE C-17 AIRCRAFTS SHOWN HERE.
OPERATION/MAINTENANCE AND TRAINING
ESI's work in operation and maintenance services provides after-market support
of AAI and other OEM equipment. Our offerings cover a wide variety of technical
solutions, including overhaul and repair to the component level, equipment
installation and relocation, system and facility operations, and supply chain
management. This business area continues to proceed smoothly on various
programs, including contractor logistics support of the T-25 Simulator for
Electronic Combat Training, Pioneer Unmanned Aerial Vehicle, and Undergraduate
Naval Flight Officer training. In 2001, ESI opened the Utah Technical Center
(UTC) in Ogden, Utah. Located only five minutes from the Ogden Air Logistics
Center, the UTC booked $1.1 million in work during its first year of operation.
In 2002, ESI plans to select sites for future technical centers.
Moreover, we are very pleased with the performance of the Pacific Rim
Institute of Safety and Management (PRISM), located in Kenai, Alaska and
co-owned by ESI and the City of Kenai. PRISM, which provides realistic, safe
training for aircraft, industrial, structural, EMS, HazMat and other emergency
response situations, achieved 2001 bookings that were more than double bookings
in 2000.
AN EXPANDING PRESENCE
Surveying the scale and scope of projects that ESI has engaged in over the
course of 2001, we are delighted with the steady growth and development of this
line of business. Going forward, we are continuing to explore multiple pathways
towards greater growth, including capitalizing on increased interest among both
government and private sector organizations in outsourcing specialized
engineering and maintenance needs. In an era of government acquisition
streamlining, ESI has adapted by securing contracts for Professional Engineering
Services and Logistics Worldwide on Federal Service Schedules. These contracts
provide all federal agencies with rapid access to ESI services. We plan to
position ourselves on the Management (MOBIS) schedule which specifically
addresses support services of government outsourcing and privatization
initiatives. ESI has demonstrated that it can deliver such services with great
expertise and in a cost-effective manner. In summary, we remain excited about
the significant potential that this market segment holds for us, and we are
committed to actively expanding our presence in this area.
22 ENGINEERING AND MAINTENANCE SERVICES
CORPORATE AND SHAREHOLDER INFORMATION
UNITED INDUSTRIAL CORPORATION
CORPORATE HEADQUARTERS
570 Lexington Avenue
New York, New York 10022
212.752.8787
SUBSIDIARIES
AAI Corporation
P.O. Box 126
Hunt Valley, Maryland 21030
410.666.1400
www.aaicorp.com
Detroit Stoker Company
1510 East First Street
Monroe, Michigan 48161
734.241.9500
www.detroitstoker.com
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Shareholders may obtain information relating to their share position, dividends,
transfer requirements, lost certificates and other related matters by
contacting:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
800.937.5449
www.amstock.com
For information about the Company's Dividend Reinvestment and Share Purchase
Plan, contact:
American Stock Transfer and Trust Company
800.278.4353
www.amstock.com
SHAREHOLDER RELATIONS
Security analysts, investment professionals and shareholders should direct their
inquiries to:
Investor Relations
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
CORPRATE COUNSEL
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
FORM 10-K REPORT
A copy of the United Industrial Corporation Annual Report on Form 10-K as filed
with the Securities and Exchange Commission may be obtained without cost by
writing to:
Susan Fein Zawel, Secretary
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
Or by e-mail to:
invest@unitedindustrial.com
STOCK LISTING
United Industrial Corporation common stock is traded on the New York Stock
Exchange (Ticker Symbol: UIC)
INTERNET ADDRESS
www.unitedindustrial.com
UNITED INDUSTRIAL CORPORATION 23
FINANCIAL INFORMATION
24 MANAGEMENT'S DISCUSSION AND ANALYSIS
30 CONSOLIDATED BALANCESHEETS
32 CONSOLIDATED STATEMENTS OF OPERATIONS
33 CONSOLIDATED STATEMENTS OF CASH FLOWS
34 NOTES TO FINANCIAL STATEMENTS
52 REPORT OF INDEPENDENT AUDITORS
53 FIVE-YEARFINANCIAL DATA
54 CORPORATE ORGANIZATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
financial statements as of and for the year ended December 31, 2001. In
addition, the Consolidated Statements of Operations and Consolidated Statements
of Cash Flows for 2000 and 1999 and the Consolidated Balance Sheet for 2000 have
been restated to conform to the 2001 discontinued operations presentation. See
Notes 2 and 16.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000
On September 29, 2000, the Company sold Symtron Systems, Inc. ("Symtron"), a
wholly owned subsidiary included in the defense segment. The operations of
Symtron for the nine months of 2000 are included in the results of operations in
the year 2000.
Net sales of $238,495,000 in 2001 increased $2,212,000 or 0.9% from
$236,283,000 in 2000. Excluding Symtron's sales from 2000, sales would have
increased $9,875,000 or 4.3%. The defense segment sales increased $7,832,000 or
3.9% to $208,575,000 in 2001 from $200,743,000 in 2000. Excluding Symtron's
sales from 2000, the defense segment sales would have increased $15,495,000 or
8.0%. The sales growth in the defense segment was primarily in the unmanned
aerial vehicles line of business partially offset by a decrease in simulation
and test systems sales. Sales to agencies of the U.S. Government, by the defense
segment, were $148,732,000 in 2001 and $132,930,000 in 2000. Export sales by the
defense segment were $50,455,000 in 2001 and $51,161,000 in 2000, a decrease of
$706,000 or 0.1%. The defense segment's business is heavily influenced by
changes in the budgetary plans and procurement policies of the U.S. and foreign
governments. Government contracts are subject to price redeter-mination under
certain circumstances and may be terminated for convenience of the government.
The Company intends to maintain a strong focus on Department of Defense
opportunities and believes it is well positioned over the long term to benefit
from the demand for advanced technological systems by the U.S. and foreign
governments.
Net sales in the energy segment were $29,920,000 in 2001, a decrease of
$5,620,000 or 15.8% from $35,540,000 in 2000, due to the completion of two large
contracts totalling approximately $6,335,000 in 2000.
Gross profit decreased $6,924,000 to $53,965,000 in 2001 from $60,889,000
in 2000. Excluding Symtron's gross profit from 2000, the gross profit would have
decreased $4,641,000 or 7.9%. The gross margin percentage was 22.6% in 2001 and
25.8% in 2000. Excluding Symtron's operations, the gross margin percentage would
have been 25.6% in 2000. The defense segment gross margin percentage decreased
to 21.1% in 2001 from 24.7% in 2000, due to low gross margin percentage on a
large competitively awarded program as well as the volume, product mix and cost
structure in the fluid test systems line of business. A higher cost structure
has been maintained in pursuit of significant aircraft depot maintenance
opportunities. Excluding Symtron's operations from the defense segment, the 2000
defense segment gross margin percentage would have been 24.5%. The pension plan
income related to the defense segment is included in the cost of sales and
amounted to $566,000 in 2001 and $3,151,000 in 2000. The energy segment gross
margin percentage increased to 33.4% in 2001 from 31.2% in 2000 due to product
mix.
Selling and administrative expenses decreased $5,264,000 or 13.2% to
$34,699,000 from $39,963,000 in 2000, primarily due to the inclusion of
Symtron's selling and administrative expenses of $3,384,000 in 2000. Selling and
administrative expenses as a percentage of net sales was 14.6% in 2001 and 16.9%
in 2000. Excluding Symtron's operations from 2000, selling and administrative
expenses as a percentage of net sales would have been 16.1%. The defense
segment's selling and administrative expenses decreased $4,631,000 or 15.3% to
$25,650,000, primarily due to the inclusion of Symtron's selling and
administrative expenses in 2000. Excluding Symtron's selling and administrative
expenses from the defense segment in 2000 would have resulted in a decrease of
$1,247,000 or 4.6%. The decrease in the defense segment is due to lower bid and
proposal costs and lower marketing expenses during 2001.
24 MANAGEMENT'S DISCUSSION AND ANALYSIS
Other operating expenses, net decreased $563,000 to $106,000 in 2001 from
$669,000 in 2000. The decrease was primarily due to a reduction in the
amortization of intangible assets due to the disposition of Symtron in September
2000.
Other income, net decreased $2,949,000 to $2,904,000 in 2001 from
$5,853,000 in 2000. The decrease was primarily due to an insurance recovery of
$3,483,000 in 2000. Pension plan income decreased $307,000 to $1,819,000 in 2001
from $2,126,000 in 2000 in the energy segment.
Other expenses increased $39,000 to $740,000 in 2001 from $701,000 in
2000. The increase was primarily due to a foreign currency exchange rate
fluctuations and a write-off of proposed acquisition costs included in 2001. In
2000 other expenses included legal fees of $271,000 related to a potential
disposition.
Interest expense decreased to $17,000 in 2001 from $28,000 in 2000.
Interest income increased $240,000 in 2001 from $1,556,000 in 2000 due to
increased investments.
Income from continuing operations before income taxes decreased $9,731,000
to $23,189,000 in 2001 from $32,920,000 in 2000. Excluding the Symtron loss of
$1,688,000 in 2000, the income from continuing operations would have decreased
$11,419,000 or 33.0%. The defense segment income from continuing operations
before income taxes decreased $1,028,000 to $19,600,000 in 2001 from $20,628,000
in 2000. Excluding the Symtron loss in 2000, the defense segment income before
income taxes would have decreased $2,716,000 or 12.2%.
The energy segment income from continuing operations before income taxes
was $3,042,000 in 2001 and $4,718,000 in 2000.
The other segment income from continuing operations before income taxes
decreased $7,027,000 to $547,000 in 2001 from $7,574,000 in 2000. Included in
2001 is a reduction of a reserve for local taxes of $1,000,000 related to the
favorable settlement of a tax issue. Included in 2000 was a gain on the sale of
Symtron of $5,539,000 and income from an insurance recovery which increased
income by $3,483,000.
Sales in the transportation segment increased $27,364,000 to $47,439,000
in 2001 from $20,075,000 in 2000. The loss before taxes decreased $5,378,000 to
$16,064,000 in 2001 from $21,442,000 in 2000. The year 2000 pretax loss included
a charge of $19,700,000 to establish a reserve for estimated increased contract
costs on several programs. In the fourth quarter of 2001, the loss includes a
charge of $6,339,000 for increased contract costs due to anticipated severance
and accelerated depreciation resulting from the discontinuance of operations.
The Company's backlog related to continuing operations was $207,343,000 at
December 31, 2001 compared to $194,794,000 at December 31, 2000.
Backlog in the defense segment increased $11,060,000 or 5.8% to
$201,221,000 at December 31, 2001 from $190,161,000 at December 31, 2000.
Backlog in the energy segment increased $1,489,000 or 32.0% to $6,122,000
at December 31, 2001 compared to $4,633,000 at December 31, 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
Net sales of $236,283,000 in 2000 increased $28,600,000 or 13.8% from
$207,683,000 in 1999. In all segments a general increase in volume caused the
increase in sales. Excluding Symtron's operations for the two years, sales would
have increased $37,155,000 or 19.4%. The defense segment increased sales
$25,250,000 or 14.4% to $200,743,000 in 2000 from $175,493,000 in 1999.
Excluding Symtron's operations for the two years from the defense segment, sales
would have increased $33,805,000 or 21.2%. Sales to agencies of the U.S.
Government by the defense segment were $132,930,000 in 2000 and $133,328,000 in
1999. Export sales by the defense segment were $51,161,000 in 2000 and
$34,182,000 in 1999, an increase of $16,979,000 or 49.7%.
Net sales in the energy segment were $35,540,000 in 2000, an increase of
$3,350,000 or 10.4% from $32,190,000 in 1999.
Gross profit increased $662,000 to $60,889,000 in 2000 from $60,227,000 in
1999. The gross margin percentage was 25.8% in 2000 and 29.0% in 1999. Excluding
Symtron's operations for the two years, the gross profit would have increased
$3,453,000 and the gross margin percentage would have been 25.6% in 2000 and
29.0% in 1999. The defense segment gross margin percentage decreased to 24.7% in
2000 from 28.2% in 1999 due to low gross profits on
UNITED INDUSTRIAL CORPORATION 25
a large competitive program. Excluding Symtron's operations for the two years
from the defense segment, the gross margin percentage would have decreased to
24.5% in 2000 from 27.9% in 1999. The pension plan income related to the defense
segment is included in the cost of sales and amounted to $3,151,000 in 2000 and
$2,709,000 in 1999.
Selling and administrative expenses decreased $1,073,000 or 2.6% to
$39,963,000 in 2000 from $41,036,000 in 1999. Excluding Symtron's operations for
the two years, selling and administrative expenses would have been $739,000 or
2.0% lower than in 1999.
Selling and administrative expenses as a percentage of net sales was 16.9%
in 2000 and 19.8% in 1999. Excluding Symtron's operations for the two years,
selling and administrative expenses as a percentage of net sales would have been
16.0% in 2000 and 19.5% in 1999. The defense segment experienced a decrease in
expenses of $1,655,000 or 5.2% primarily due to higher research and development
and bid and proposal costs during 1999 resulting in the receipt of a particular
contract. Excluding Symtron's operations for the two years from the defense
segment, the decrease in expenses would have been $1,322,000 or 4.7%. The energy
segment experienced an increase in expenses of $1,111,000 or 14.1%, primarily
due to international sales efforts, increased research and development and
insurance expenses.
Other income, net in 2000 includes income of $2,126,000 in the energy
segment generated by the Company's pension plan compared to $1,754,000 in 1999.
The year 2000 also includes $3,483,000 resulting from an insurance recovery
related to a previously settled matter.
Interest expense decreased to $28,000 in 2000 from $160,000 in 1999.
Interest income decreased to $1,556,000 in 2000 from $2,063,000 in 1999
due to reduced investments.
The Company's defense segment recorded pretax income from continuing
operations of $20,628,000 in 2000 and $19,278,000 in 1999. The change is due
primarily to a reduction in general and administrative expenses of $1,655,000.
The transportation segment had an increase in sales of $10,779,000 to
$20,075,000 in 2000 from $9,296,000 in 1999. The loss before taxes increased
$8,330,000 to $21,442,000 in 2000 from $13,112,000 in 1999. The year 2000 loss
before taxes included a charge of $19,700,000 to establish a reserve for
estimated increased contract costs on several programs. In 1999 the loss before
taxes included a charge of $5,000,000 for anticipated warranty work on a
previously completed program.
Included in income from continuing operations in the other segment during
2000 was a gain on the sale of Symtron of $5,539,000. Income from an insurance
recovery increased income by $3,483,000.
In 2000, income after taxes from continuing operations increased
$6,725,000 or 46.4% to $21,223,000 or $1.68 per diluted share from $14,498,000
or $1.16 per diluted share in 1999.
The Company's backlog related to continuing operations was $194,794,000 at
December 31, 2000 compared to $157,798,000 at December 31, 1999.
Backlog in the defense segment increased $37,113,000 or 24% to
$190,161,000 at December 31, 2000 from $153,048,000 at December 31, 1999
generally due to the overall increase in the volume of business. Excluding
Symtron, the defense segment backlog increased 26%.
Backlog in the energy segment decreased $117,000 or 2.5% to $4,633,000 at
December 31, 2000 compared to $4,750,000 at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $5,889,000 to $5,496,000 at the end of 2001
from $11,385,000 at the end of 2000.
The cash used in 2001 from operating activities of the discontinued
operations was $41,257,000 or $7,982,000 more than the cash used in 2000 of
$33,275,000. Net cash provided in 2001 from operating activities by the
continuing operations was $38,968,000 or $10,049,000 more than cash provided in
2000 of $28,919,000. Capital expenditures of the discontinued operations were
$2,610,000 and $2,187,000 in 2001 and 2000, respectively. Capital expenditures
for continuing operations were $2,028,000 and $4,921,000 in 2001 and 2000,
respectively. There were no material commitments for the acquisition of capital
assets as of December 31, 2001.
26 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following analysis relates only to continuing operations. Trade
receivables decreased $12,443,000 at December 31, 2001 from December 31, 2000.
The decrease resulted from higher sales during the fourth quarter of 2000
compared to the fourth quarter of 2001 in the defense segment. Included in trade
receivables are U.S. Government receivables which decreased $8,335,000.
Inventories were $11,792,000 lower at December 31, 2001 than at December 31,
2000. The inventory decrease was primarily in the defense segment and resulted
from the procurement of significant amounts of material necessary for production
on major programs in the previous year. Accounts payable decreased $1,602,000.
Customer advances decreased $2,329,000 at December 31, 2001 from December 31,
2000, in accordance with the contractual terms of certain defense contracts.
The Company paid cash dividends of $.40 per share in 2001, 2000 and 1999.
Aggregate payments amounted to $5,069,000 in 2001, $4,954,000 in 2000 and
$4,910,000 in 1999.
The ratio of current assets to current liabilities was 1.84 at the end of
2001 and 1.76 at the end of 2000.
In March 2002, the Company entered into an agreement to sell two
transportation overhaul contracts. The Company expects the proceeds of this sale
to be approximately $21,400,000 subject to certain agreed upon adjustments. The
transaction is expected to close before May 31, 2002. See Note 16.
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 $25,000,000, 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. In March 2002, 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. 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. At December 31, 2001, there were no cash borrowings under
the Agreement. The letter of credit obligations outstanding at December 31, 2001
were $20,858,000.
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
expires April 18, 2002. At December 31, 2001, the subsidiary had no cash
borrowings and $140,000 letters of credit outstanding.
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 next twelve months. The cash requirements
consist primarily of obligations to fund operations.
The Company conducts a significant amount of business with the United
States Government. Sales to agencies of the U.S. Government were $149,047,000,
$132,975,000 and $133,328,000 for 2001, 2000 and 1999, respectively. Although
there are currently no indications of a significant change in the status of
government funding of certain programs, should this occur, our results of
operations, financial position and liquidity could be materially affected. Such
a change could have a significant impact on our profitability and our stock
price. This could affect our ability to acquire additional funds from our
revolving facility or from other sources.
At December 31, 2001, the Company has outstanding commitments under
advance payment and performance bonds. The Company has a commitment on a
progress payment bond totaling approximately $47,000,000 at December 31, 2001,
which is expected to be eliminated when the customer accepts certain deliveries
in 2002. Further, the Company is obligated to indemnify certain sureties under
various performance bonds in the event of non-performance on
UNITED INDUSTRIAL CORPORATION 27
particular contracts up to approximately $234,000,000. 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 $154,000,000 of performance bonding related to those divested
programs. In addition, the Company has operating leases. The minimum rental
commitments as of December 31, 2001 for non-cancellable leases are: 2002 -
$3,853,000; 2003 - $3,235,000; 2004 - $1,685,000; 2005 - $1,211,000; 2006 -
$969,000 and $2,091,000 thereafter.
ENVIRONMENTAL AND OTHER LITIGATION
Detroit Stoker Company, a wholly owned subsidiary of the Company, was notified
in March 1992 by the Michigan Department of Natural Resources that it is a
potentially responsible party in connection with the cleanup of a former
industrial landfill located in Port of Monroe, Michigan. The Company is involved
in other environmental and litigation matters. See Note 15.
CRITICAL ACCOUNTING POLICIES
The Company generally follows the percentage-of-completion method of accounting
for its long-term contracts. Sales and gross profit are principally recognized
as work is performed based on the relationship between actual costs incurred and
total estimated costs, including warranties, at completion. Alternatively,
certain contracts provide for the production of various units throughout the
contract period, and sales and gross profit on these contracts are accounted for
based on the units delivered. Amounts representing contract change orders,
claims or other items are included in sales only when they can be reliably
estimated and realization is probable. Incentives or penalties, estimated
warranty costs and awards applicable to performance on contracts are considered
in estimating sales and profit rates, and are recorded when there is sufficient
information to assess anticipated contract performance. When adjustments in
contract value or estimated costs are determined, any changes from prior
estimates are reflected in earnings in the current period. Anticipated losses on
contracts or programs in progress are charged to earnings when identified.
Although management believes that the profits are fairly stated and that
adequate provisions for losses on certain of the fixed price contracts have been
recorded in the financial statements, revisions to such estimates do occur and
at times are material to our results of operations and financial position.
Inventory is recorded at the lower of cost or market. Inventoried costs
associated with long-term contracts include costs and earnings of incomplete
contracts not yet billable to the customer. These amounts represent the
difference between the percentage-of-completion method of accounting for
long-term contracts used to record operating results by the Company's defense
segment and the amounts billable to the customer under the terms of the specific
contracts. Estimates of final contract costs and earnings (including earnings
subject to future determination through negotiation or other procedures) are
reviewed and revised periodically throughout the lives of the contracts. See
Note 4.
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 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. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company adopted FAS
144 during the fourth quarter of 2001. The impact on the Company's financial
position and results of operations is reported in Notes 2 and 16, "Discontinued
Operations."
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
28 MANAGEMENT'S DISCUSSION AND ANALYSIS
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 Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The adoption of
Statement 142 is not expected to have a material effect on the Company's
financial position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement
No. 143, Accounting for Asset Retirement Obligations (FAS 143). The standard
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 new statement is not expected to have a material
impact on the Company's financial statements.
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 a foreign exchange
forward contract. At December 31, 2001, the Company had a foreign exchange
contract for delivery of Australian dollars between 2003 and 2005 with notional
values totaling $964,000, with an aggregate gain of $190,000 based on fair
market value.
FORWARD LOOKING INFORMATION
This Annual 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; the ability to
consummate the sale of New Jersey Transit Authority and Maryland Mass
Transportation Authority contracts; the ability to negotiate financing
arrangements with lenders; 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 contracting 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
UNITED INDUSTRIAL CORPORATION 29
CONSOLIDATED BALANCE SHEETS
December 31
Dollars in thousands 2001 2000
================================================================================
Assets
Current Assets
Cash and cash equivalents $ 5,496 $ 11,385
Trade receivables
U.S. Government 21,542 29,877
Other 16,233 20,341
================================================================================
37,775 50,218
Inventories 16,188 27,980
Prepaid expenses and other current assets 1,755 2,978
Deferred income taxes 5,436 3,128
Assets of discontinued operations 106,856 72,678
================================================================================
Total Current Assets 173,506 168,367
Other Assets 54,505 51,437
Property and Equipment
Land 501 501
Buildings and improvements 36,166 35,170
Machinery and equipment 71,298 70,370
Furniture and fixtures 5,109 5,148
================================================================================
113,074 111,189
Less allowances for depreciation and amortization 88,560 82,608
- --------------------------------------------------------------------------------
24,514 28,581
$252,525 $248,385
================================================================================
30 UNITED INDUSTRIAL CORPORATION
December 31
Dollars in thousands 2001 2000
===============================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 11,401 $ 13,003
Accrued employee compensation and taxes 7,724 7,402
Customer advances 7,042 9,371
Provision for contract losses 2,398 1,881
Federal income taxes 3,003 --
Other liabilities 5,038 6,993
Liabilities of discontinued operations 57,527 57,028
===============================================================================
Total Current Liabilities 94,133 95,678
- -------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions 22,939 24,953
Other Liabilities 3,467 3,679
Deferred Income Taxes 11,642 9,182
Shareholders' Equity
Common stock - par value $1.00 per share
Authorized shares - 30,000,000
Outstanding shares:
2001 - 12,871,868; 2000 - 12,435,038 14,374 14,374
Additional capital 91,094 89,384
Retained earnings 26,735 26,441
Cost of shares in treasury:
2001 - 1,502,280 shares; 2000 - 1,939,110 shares (11,859) (15,306)
===============================================================================
Total Shareholders' Equity 120,344 114,893
$252,525 $248,385
===============================================================================
See notes to financial statements
UNITED INDUSTRIAL CORPORATION 31
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
Dollars in thousands 2001 2000 1999
================================================================================================================
Net sales $238,495 $236,283 $207,683
Cost of sales 184,530 175,394 147,456
================================================================================================================
Gross Profit 53,965 60,889 60,227
Selling and administrative expenses 34,699 39,963 41,036
Other operating expenses - net 106 669 1,011
================================================================================================================
Total Operating Income 19,160 20,257 18,180
- ----------------------------------------------------------------------------------------------------------------
Non-operating Income and (Expenses)
Interest income 1,796 1,556 2,063
Gains on sale of assets - net -- 5,511 --
Other income - net 2,904 5,853 2,068
Interest expense (17) (28) (160)
Equity in net income of joint ventures 86 472 483
Other expenses (740) (701) (424)
================================================================================================================
4,029 12,663 4,030
- ----------------------------------------------------------------------------------------------------------------
Income From Continuing Operations Before Income 23,189 32,920 22,210
Taxes
Provision (credit) for income taxes
Federal
Current 8,145 10,327 7,416
Deferred (152) 82 (1,165)
State (610) 1,288 1,461
================================================================================================================
Income Taxes 7,383 11,697 7,712
- ----------------------------------------------------------------------------------------------------------------
Income From Continuing Operations 15,806 21,223 14,498
Loss from discontinued operations net of income
taxes of $5,621, $7,998 and $4,891 for 2001,
2000 and 1999, respectively (10,443) (13,444) (8,221)
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 5,363 $ 7,779 $ 6,277
================================================================================================================
Earnings Per Common Share
Net Income
Basic $ .42 $ .63 $ .51
Diluted .40 .62 .50
Income From Continuing Operations
Basic 1.24 1.71 1.18
Diluted 1.19 1.68 1.16
================================================================================================================
See notes to financial statements
32 UNITED INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
Dollars in thousands 2001 2000 1999
===================================================================================================================================
Operating Activities
Net income $ 5,363 $ 7,779 $ 6,277
Adjustment to reconcile net income to net cash
(used for) provided by continuing operating activities:
Loss from discontinued operations, net of income taxes 10,443 13,444 8,221
Depreciation and amortization 6,413 8,086 6,780
Noncash compensation charge 346 -- --
Deferred income taxes 152 1,088 2,032
Gains on sale of assets -- (5,511) --
Equity in income of investee companies (86) (472) (483)
Changes in operating assets and liabilities - net
Increase (decrease) in income taxes 3,003 (636) (2,337)
Decrease (increase) in trade receivables 12,443 (5,882) (11,109)
Decrease (increase) in inventories 11,792 474 (6,242)
Decrease (increase) in prepaid expenses and other
current assets 1,223 246 (1,189)
(Decrease) increase in customer advances (2,329) 7,185 (172)
(Decrease) increase in accounts payable, accruals, and
other current liabilities (2,718) 4,836 (8,166)
Other - net (7,077) (1,718) (3,101)
===================================================================================================================================
Net Cash Provided By (Used For) Continuing Operations 38,968 28,919 (9,489)
Net Cash (Used For) Provided By Discontinued Operations (41,257) (33,275) 10,261
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used For) Provided By Operating Activities (2,289) (4,356) 772
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Advances to investee by discontinued operations (2,986) (4,544) (7,131)
Repayment of advances by investee to discontinued operations 2,730 12,978 10,834
Repayment of advances by investee 2,300 -- --
Purchase of marketable securities -- -- (2,200)
Sale of marketable securities -- -- 6,902
Purchase of property and equipment (2,028) (4,921) (10,563)
Capital expenditures of discontinued operations (2,610) (2,187) (1,967)
Net proceeds from sale of assets -- 5,277 --
===================================================================================================================================
Net Cash (Used For) Provided By Investing Activities (2,594) 6,603 (4,125)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Payments on long-term debt and borrowings (6,300) (2,300) (12,943)
Proceeds from borrowings 6,300 2,300 12,943
Dividends (5,069) (4,954) (4,910)
Proceeds from exercise of stock options 4,063 1,000 229
===================================================================================================================================
Net Cash Used for Financing Activities (1,006) (3,954) (4,681)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (5,889) (1,707) (8,034)
Cash and Cash Equivalents at Beginning of Year 11,385 13,092 21,126
===================================================================================================================================
Cash and Cash Equivalents at End of Year $ 5,496 $ 11,385 $ 13,092
===================================================================================================================================
See notes to financial statements
UNITED INDUSTRIAL CORPORATION 33
NOTES TO FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS
United Industrial Corporation is a high technology company applying its
resources to the research, development, and production of military electronics
and aerospace systems and components under defense contracts. Resources are also
applied to energy systems for industry and utilities.
The principal business segments are defense and related products, and
energy generating systems. Ground transportation systems is included as a
discontinued operation. See Notes 2, 16 and 19.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
DISCONTINUED OPERATIONS
In the fourth quarter of 2001, the Company made substantial progress in
negotiations for the sale of its transportation overhaul contracts with the New
Jersey Transit Authority and Maryland Mass Transportation Authority. Following
the sale, the Company's transportation operations will primarily include one
ongoing program to deliver 273 electric trolley buses to the San Francisco
Municipal Railway. This program, which is well into its production phase, is
being performed by Electric Transit, Inc. (ETI), a joint venture between the
Company's AAI subsidiary and the Czech Republic firm, Skoda a.s. ("Skoda"), and,
is expected to be substantially completed during 2002. The overhaul contracts,
along with the remaining transportation business, are accounted for as
discontinued operations. 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. Payment will be made in cash at closing. The
agreement provides for the Company to be released under all performance bonds
and obligations under the conveyed contracts. The Company received a cost plus a
fee contract to perform work on the conveyed contracts for the purchaser during
a transition period not to exceed six months. See Note 16.
Summary results of the transportation segment prior to its
discontinuation, which have been classified separately, are disclosed in Note
16.
The Consolidated Statements of Operations and Consolidated Statements of
Cash Flows for 2000 and 1999 and Consolidated Balance Sheet for 2000 have been
restated to conform to the 2001 discontinued operations presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years have been
reclassified to conform to the current year's classifications. The Company
includes in income its proportionate share of the net earnings or losses of
unconsolidated investees, when the Company's ownership interest is between 20%
and 50%.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Marketable securities,
which generally mature within one year, consist primarily of short-term
investment funds.
INVENTORIES
Inventories are stated at the lower of cost or market. At December 31, 2001 and
2000, approximately 15% and 10%, respectively, of total inventory were priced by
the last-in, first-out (LIFO) method with the remainder priced at actual or
average cost. If the first-in, first-out (FIFO) method of inventory pricing had
been used, inventories would have been approximately $3,285,000 higher than
34 NOTES TO FINANCIAL STATEMENTS
reported on December 31, 2001 and $3,572,000 higher than reported on December
31, 2000.
REVENUE AND GROSS PROFIT RECOGNITION
The Company generally follows the percentage-of-completion method of accounting
for its long-term contracts. Sales and gross profit are principally recognized
as work is performed based on the relationship between actual costs incurred and
total estimated costs, including warranties, at completion. Alternatively,
certain contracts provide for the production of various units throughout the
contract period, and sales and gross profit on these contracts are accounted for
based on the units delivered. See Note 4. Amounts representing contract change
orders, claims or other items are included in sales only when they can be
reliably estimated and realization is probable. Incentives or penalties,
estimated warranty costs and awards applicable to performance on contracts are
considered in estimating sales and profit rates, and are recorded when there is
sufficient information to assess anticipated contract performance. When
adjustments in contract value or estimated costs are determined, any changes
from prior estimates are reflected in earnings in the current period.
Anticipated losses on contracts or programs in progress are charged to earnings
when identified.
Noncontract revenue is recorded when the product is shipped or when the
services are provided.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The policy of the Company is to
provide for depreciation on the straight-line and declining-balance methods, by
annual charges to operations calculated to amortize the cost over the estimated
useful lives of the various classes of property and equipment.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted-average-number of common
shares outstanding. Diluted earnings per share gives effect to the assumed
exercise of dilutive options, using, where appropriate, the treasury stock
method. See Note 17.
STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock-based compensation
plan in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), whereby compensation cost for stock
options is recognized in income based on the excess, if any, of the quoted
market price of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire the stock. See Note 7.
FOREIGN CURRENCY CONTRACTS
At times, the Company enters into forward exchange contracts to manage its
exposure against foreign currency fluctuations on sales transactions denominated
in foreign currencies. The contract obligates the Company to exchange
predetermined amounts of the foreign currency at certain dates, or to make an
equivalent U.S. dollar payment equal to the value of such exchanges. The purpose
of the Company's foreign exchange currency activities is to protect the Company
from the risk that the eventual U.S. dollar cash flows resulting from the sale
of products to international customers will be adversely affected by changes in
exchange rates. Deferred gains and losses for hedging activities are included in
other assets and liabilities and recognized in earnings when the future sales
occur. Gains and losses for ineffective hedges are recorded in income. At
December 31, 2001, the Company has a foreign currency forward contract with a
large financial institution for Australian dollars having maturities of four
years to hedge contract payments scheduled to be received within four years. The
aggregate notional value of this contract was $964,000, with an aggregate gain
of $190,000 based on fair market value.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on foreign exchange contracts. The amount of such exposure is
generally the unrealized gain or loss on such contracts. The Company does not
hold or issue financial instruments for trading purposes.
UNITED INDUSTRIAL CORPORATION 35
NOTES TO FINANCIAL STATEMENTS CONTINUED
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 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. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company adopted FAS
144 during the fourth quarter of 2001. The impact on the Company's financial
position and results of operations is reported in "Discontinued Operations." See
Note 16.
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 Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The adoption of
Statement 142 is not expected to have a material effect on the Company's
financial position or results of operations.
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 new statement is not expected to have a material
impact on the Company's financial statements.
NOTE 3 TRADE RECEIVABLES
Amounts due from the U.S. Government primarily related to long-term contracts of
the Company's defense segment were as follows:
December 31
Dollars in thousands 2001 2000
================================================================================
Amounts billed $12,645 $25,773
Unbilled recoverable costs and earned fees 4,668 2,650
Retainage per contract provisions 4,229 1,454
- --------------------------------------------------------------------------------
$21,542 $29,877
================================================================================
Billed and unbilled amounts include $5,016,000 and $2,979,000 at Decem-ber
31, 2001 and 2000, respectively, related to contracts for which a subsidiary of
the Company is a subcontractor to other government contractors. Unbilled
recoverable costs and earned fees represent amounts that will be substantially
collected within one year. Retainage amounts will generally be billed over the
next twelve months.
NOTE 4 INVENTORIES
December 31
Dollars in thousands 2001 2000
===============================================================================
Finished goods and work in progress $ 2,660 $ 4,194
- -------------------------------------------------------------------------------
Costs and earnings relating to long-term contracts 47,166 57,134
Deduct progress payments related to long-term contracts (35,210) (35,682)
- -------------------------------------------------------------------------------
Costs and earnings in excess of billings 11,956 21,452
- -------------------------------------------------------------------------------
Total finished goods and work in progress 14,616 25,646
Materials and supplies 1,572 2,334
- -------------------------------------------------------------------------------
$ 16,188 $ 27,980
===============================================================================
36 NOTES TO FINANCIAL STATEMENTS
The inventoried costs associated with long-term contracts include costs and
earnings of $11,956,000 in 2001 and $21,452,000 in 2000 of incomplete contracts
not yet billable to the customer. These amounts represent the difference between
the percentage-of-completion method of accounting for long-term contracts used
to record operating results by the Company's defense segment and the amounts
billable to the customer under the terms of the specific contracts. Estimates of
final contract costs and earnings (including earnings subject to future
determination through negotiation or other procedures) are reviewed and revised
periodically throughout the lives of the contracts. Adjustments of earnings
resulting from the revisions are recorded on a current basis. The Company
recognized losses of $2,081,000 ($1,305,000, net of tax benefit) and $1,604,000
($1,028,000, net of tax benefit) during 2002 and 2001, respectively, resulting
primarily from revision of cost estimates on certain major long-term contracts.
Inventories do not include any significant amounts of unamortized tooling,
learning curve, and other deferred costs, claims, or other similar items whose
recovery is uncertain.
NOTE 5 OTHER ASSETS
December 31
Dollars in thousands 2001 2000
================================================================================
Net pension asset $46,901 $44,516
Patents and other intangible assets, net 1,166 1,484
Other 6,438 5,437
- --------------------------------------------------------------------------------
$54,505 $51,437
================================================================================
Patents and other intangible assets represent assets acquired in connection with
purchased businesses and are being amortized primarily on a straight-line basis
over 5 to 10 years. Amortization expense amounted to $318,000 in 2001, $715,000
in 2000 and $885,000 in 1999. Accumulated amortization amounted to $4,440,000
and $4,122,000 at December 31, 2001 and 2000, respectively. Other includes the
investment in Pioneer UAV, Inc. Industries which increased during 2001 by
$86,000, the Company's share of profits.
NOTE 6 LONG-TERM DEBT AND CREDIT ARRANGEMENTS
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 $25,000,000, 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. In March 2002, 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. 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. At
December 31, 2001, there were no cash borrowings under the Agreement. The letter
of credit obligations outstanding at December 31, 2001 and 2000 were $20,858,000
and $16,113,000, respectively. 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. The agreement expires April 18, 2002. At December 31, 2001, the
subsidiary had no cash borrowings and $140,000 of letters of credit outstanding.
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 next twelve months. Cash requirements consist
primarily of obligations to fund operations.
Interest expense was $17,000 in 2001, $28,000 in 2000 and $160,000 in
1999. Interest paid was $36,000 in 2001, $64,000 in 2000 and $166,000 in 1999.
UNITED INDUSTRIAL CORPORATION 37
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 7 STOCK OPTIONS
In May 1994, the shareholders approved the 1994 Stock Option Plan (the "Plan"),
which provides for the granting of options with respect to the purchase of an
aggregate of up to 600,000 (increased in May 1996 to 1,200,000, May 1998 to
1,800,000 and May 1999 to 2,400,000) shares of common stock of the Company from
time to time to key employees of the Company and its subsidiaries. Options
granted may be either "incentive stock options," within the meaning of Section
422A of the Internal Revenue Code, or non-qualified options.
The options are granted at not less than market value at the date of
grant, and in accordance with APB 25 and related interpretations, no
compensation cost has been recognized for grants made under the Plan at the time
of grant. Options are exercisable over a period determined by the Board of
Directors, but no longer than ten years after the date they are granted. Options
generally vest one-third each year after a one-year waiting period.
In May 1997, the shareholders approved the 1996 Stock Option Plan for
Non-employee Directors, which provides for the granting of options with respect
to the purchase of an aggregate of up to 300,000 shares of common stock of the
Company. Options may be exercised up to one-third as of the date of grant of an
option and up to an additional one-third may be exercised as of the date of each
subsequent annual meeting of shareholders, but no longer than ten years after
the date they are granted. The options are granted at not less than market value
at the date of grant.
During 2001, upon the termination of certain individuals the Board of
Directors accelerated the vesting of certain of their grants and extended
certain exercise periods. These modifications resulted in a noncash compensation
charge to continuing operations of $346,000 in 2001.
Had compensation cost been determined consistent with the fair value
method set forth under FASB Statement No. 123, Accounting for Stock-Based
Compensation ("FAS 123"), for all awards during 2001, 2000 and 1999 under the
plans, income and income per common share from continuing operations would have
decreased to the pro forma amounts indicated below:
Year Ended December 31
Dollars in thousands, except per share amounts 2001 2000 1999
================================================================================
Income from continuing operations:
As reported $15,806 $21,223 $14,498
Pro forma 15,060 20,467 13,787
Income per common share from
continuing operations:
As reported:
Basic 1.24 1.71 1.18
Diluted 1.19 1.68 1.16
Pro forma:
Basic 1.19 1.65 1.12
Diluted 1.13 1.62 1.10
================================================================================
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: dividend
yields of 3.0%, 4.7% and 3.9%; expected volatility of 29%, 46% and 39%;
risk-free interest rates of 5.2%, 6.4% and 4.7%; and expected lives of 10 years
in 2001, eight years in 2000 and three to five years in 1999. The
weighted-average fair value of an option granted was $4.09, $2.97 and $2.64 for
the years ended December 31, 2001, 2000 and 1999, respectively.
38 NOTES TO FINANCIAL STATEMENTS
A summary of stock option activity under all plans is as follows:
Number Weighted-Average
Shares in thousands of Shares Exercise Price
================================================================================
Balance at January 1, 1999 1,226 $ 9.01
Granted 489 9.36
Exercised (42) 5.47
- --------------------------------------------------------------------------------
Balance at December 31, 1999 1,673 9.20
- --------------------------------------------------------------------------------
Granted 320 8.56
Exercised (139) 7.17
Canceled (90) 10.65
- --------------------------------------------------------------------------------
Balance at December 31, 2000 1,764 9.17
- --------------------------------------------------------------------------------
Granted 349 13.37
Exercised (436) 9.31
Canceled (128) 8.88
- --------------------------------------------------------------------------------
Balance at December 31, 2001 1,549 $10.10
================================================================================
December 31
Shares in thousands 2001 2000 1999
================================================================================
Exercisable 977 1,125 833
Available for future grants 274 496 727
================================================================================
The weighted-average remaining life for options outstanding as of December
31, 2001 is eight years.
The following table summarizes information about stock options outstanding
at December 31, 2001:
Shares
Shares in thousands ----------------------------------
Range of Exercise Prices Exercisable Outstanding
================================================================================
$4.50 to $7.00 208 208
$7.50 to $9.81 435 674
$10.25 to $13.00 324 562
$13.99 to $15.66 10 105
- --------------------------------------------------------------------------------
977 1,549
================================================================================
NOTE 8 LEASES
Total rental expense for all operating leases amounted to $3,566,000 in 2001,
$3,612,000 in 2000 and $2,883,000 in 1999. Contingent rental payments were not
significant.
The future minimum rental commitments as of December 31, 2001 for all
noncancellable leases are $3,853,000 in 2002; $3,235,000 in 2003; $1,685,000 in
2004; $1,211,000 in 2005; $969,000 in 2006; and $2,091,000 thereafter.
UNITED INDUSTRIAL CORPORATION 39
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 9 CHANGES IN SHAREHOLDERS' EQUITY
Common Shares Common Additional Retained Treasury Shareholders'
In thousands Outstanding Stock Capital Earnings Stock Equity
===================================================================================================================================
Balance, January 1, 1999 12,250 $14,374 $89,583 $22,249 $(16,765) $109,441
Net income -- -- 6,277 -- 6,277
Cash dividends declared ($.40 per share) -- -- (4,910) -- (4,910)
Stock options exercised 42 -- (102) -- 331 229
Employee awards 2 -- 2 -- 16 18
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 12,294 14,374 89,483 23,616 (16,418) 111,055
Net income -- -- 7,779 -- 7,779
Cash dividends declared ($.40 per share) -- -- (4,954) -- (4,954)
Stock options exercised 139 -- (100) -- 1,100 1,000
Employee awards 2 -- 1 -- 12 13
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 12,435 14,374 89,384 26,441 (15,306) 114,893
Net income -- -- 5,363 -- 5,363
Cash dividends declared ($.40 per share) -- -- (5,069) -- (5,069)
Stock options exercised 436 -- 624 -- 3,439 4,063
Noncash compensation -- 638 -- -- 638
Tax benefit arising from early dispositions of
stock issued upon exercise of stock options -- 448 -- -- 448
Employee awards 1 -- -- -- 8 8
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 12,872 $14,374 $91,094 $26,735 $(11,859) $120,344
===================================================================================================================================
The exercise of stock options which have been granted under the Company's
various stock option plans and the vesting of restricted stock give rise to
compensation which is includable in the taxable income of the applicable
employees and deductible by the Company for federal and state income tax
purposes. Such compensation results from increases in the fair market value of
the Company's common stock subsequent to the date of grant of the applicable
exercised stock options and restricted stock and, accordingly, in accordance
with Accounting Principles Board Opinion No. 25, such compensation is not
recognized as an expense for financial accounting purposes and the related tax
benefits are taken directly to Additional Capital.
40 NOTES TO FINANCIAL STATEMENTS
NOTE 10 PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several qualified and non-qualified pension plans and other
postretirement benefit plans for its employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 2001, and a statement of
the funded status as of December 31 of both years.
Pension Benefits Other Postretirement Benefits
------------------------------- -------------------------------
Dollars in thousands 2001 2000 2001 2000
==================================================================================================================================
Change in Benefit Obligation
Benefit obligation at beginning of year $144,024 $129,834 $ 26,095 $ 23,550
Service cost 1,981 1,229 360 550
Interest cost 10,361 9,988 1,651 1,915
Amendments 250 6,129 -- 549
Curtailments -- -- (2,621) --
Actuarial loss 4,770 9,160 213 1,747
Administrative expenses (2) (26) -- --
Benefits paid (12,520) (12,290) (2,143) (2,216)
- ----------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $148,864 $144,024 $ 23,555 $ 26,095
- ----------------------------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $177,147 $191,816
Actual return on plan assets (3,357) (2,353)
Administrative expenses (2) (26)
Benefits paid (12,520) (12,290)
- ----------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $161,268 $177,147
- ----------------------------------------------------------------------------------------------------------------------------------
Funded (underfunded) status of the plan $ 12,404 $ 33,123 $(23,555) $(26,095)
Unrecognized net transition obligation (asset) 748 (181) -- --
Unrecognized net actuarial loss 29,317 13,326 544 360
Unrecognized prior service cost 4,432 (1,752) 83 782
- ----------------------------------------------------------------------------------------------------------------------------------
Prepaid benefit (accrued cost) $ 46,901 $ 44,516 $(22,928) $(24,953)
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted-average Assumptions
Discount rate 7.25% 7.5% 7.5% 7.5%
Expected return on plan assets 8.5% 8.5% -- --
Rate of compensation increase 4% 4% -- --
==================================================================================================================================
For the purpose of measuring the other postretirement benefit obligations,
a 7.9 percent annual rate of increase in the per capita cost of covered health
care benefits was assumed for 2001. The rate was assumed to decrease to 5
percent in 2005 and remain at that level thereafter.
UNITED INDUSTRIAL CORPORATION 41
NOTES TO FINANCIAL STATEMENTS CONTINUED
Pension Benefits Other Postretirement Benefits
------------------------------------- ---------------------------------
Dollars in thousands 2001 2000 1999 2001 2000 1999
===================================================================================================================================
Components of Net Periodic Benefit Cost
Service cost $ 1,981 $ 1,229 $ 1,608 $ 360 $ 550 $ 590
Interest cost 10,361 9,988 10,370 1,651 1,915 1,595
Expected return on plan assets (14,689) (16,029) (16,003) -- -- --
Amortization of prior service cost 196 (357) (413) 18 76 44
Amortization of unrecognized transition assets (88) (88) (88) -- -- --
Settlement - curtailment -- -- 25 (1,933) -- 760
Recognized net actuarial loss -- (31) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit (income) cost $(2,239) $(5,288) $(4,501) $ 96 $2,541 $2,989
===================================================================================================================================
Net periodic benefit costs for the defense segment are considered contract
costs and are included in cost of sales in the Statements of Operations. Net
periodic benefit costs for other segments are classified as other income.
During 2000, the pension plan was amended to provide enhancements in the
accrual rates and interest-crediting rate.
During 1999, in order to induce a workforce reduction at the Company's AAI
Corporation subsidiary, additional benefits were offered to eligible employees
under an early retirement program. Those employees electing early retirement
were paid benefits in lump sums. The early retirement program increased the
pension plan's projected benefit obligation; however, this was completely offset
by an accumulated actuarial gain as of December 31, 1999. Accordingly, there was
no impact on plan expense for 1999. The enhanced benefits offered under the
early retirement program regarding postretirement medical benefits resulted in
an increase in that liability and such cost was recognized in 1999.
Two subsidiaries of the Company sponsor non-funded defined benefit health
care plans. Both plans are non-contributory for retirees and one is contributory
for spouses whose contributions increase periodically so that the entire cost
for spouses will be covered by January 2003. One of these plans was amended
effective January 1, 2000 to provide benefits to employees not previously
covered. In addition one plan was amended effective January 1, 2001 so that
employees hired after December 31, 2000 will not be eligible for retiree medical
benefits. Employees on December 31, 2000, who do not meet the grandfathered
requirements, may purchase retiree medical benefits if they meet certain other
requirements. The effect of these changes was a decrease in the 2001 net
periodic benefit cost of $531,000 and an additional curtailment gain of
$1,933,000.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
1-Percentage Point 1-Percentage Point
Dollars in thousands Increase Decrease
===============================================================================
Effect on total of service and
interest cost components in 2001 $ 61 $ (60)
Effect on postretirement benefit
obligation as of December 31, 2001 $640 $(641)
===============================================================================
The Company sponsors a 401(k) plan with employee and employer matching
contributions based on specified formulas. The Company's contribution to the
401(k) plan was $3,488,000 in 2001, $1,377,000 in 2000 and $1,303,000 in 1999.
The increased Company contributions in 2001 was due to a change in the Company
contribution formula.
42 NOTES TO FINANCIAL STATEMENTS
NOTE 11 INDUSTRY SEGMENT DATA
The Company has two reportable segments: defense and energy systems. Other
includes the corporate office and dormant corporations. The defense segment's
products include unmanned aerial vehicles, training and simulation systems,
automated aircraft test and maintenance equipment, and combat vehicles and
ordnance systems. The defense segment also included specialized firefighting
training installations until the sale of Symtron Systems, Inc. in September
2000. The energy segment manufactures combustion equipment for biomass and
refuse fuels. The transportation segment is reflected as a discontinued
operation in the Company's consolidated financial statements. See Note 16.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute products with different production processes.
Sales to agencies of the United States Government, primarily by the
defense segment, were $149,047,000 in 2001, $132,975,000 in 2000 and
$133,328,000 in 1999. No single customer, other than the United States
Government, accounted for 10 percent or more of net sales in any year. Export
sales were $54,670,000 in 2001, $57,110,000 in 2000 and $42,120,000 in 1999.
UNITED INDUSTRIAL CORPORATION 43
NOTES TO FINANCIAL STATEMENTS CONTINUED
Dollars in thousands Defense Energy Other Reconciliations Totals
========================================================================================================================
Year Ended December 31, 2001
- ------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $208,575 $29,920 $ -- $ -- $238,495
Equity profit in ventures 86 -- -- -- 86
Interest income 2,401 107 265 (977) 1,796
Interest expense 232 -- 762 (977) 17
Depreciation and amortization expense 5,589 755 69 -- 6,413
Segment profit 19,600 3,042 547 -- 23,189
Segment assets 120,735 32,379 128,251 (28,840) 252,525
Capital expenditures 1,601 426 1 -- 2,028
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $200,743 $35,540 $ -- $ -- $236,283
Equity profit in ventures 472 -- -- -- 472
Interest income 2,504 354 193 (1,495) 1,556
Interest expense 458 11 1,054 (1,495) 28
Depreciation and amortization expense 7,270 746 70 -- 8,086
Gain (loss) on sale of assets -- (28) 5,539 -- 5,511
Segment profit 20,628 4,718 7,574 -- 32,920
Segment assets 144,083 36,247 136,286 (68,231) 248,385
Capital expenditures 4,237 673 11 -- 4,921
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $175,493 $32,190 $ -- $ -- $207,683
Equity profit in ventures 483 -- -- -- 483
Interest income 3,129 263 4,900 (6,229) 2,063
Interest expense 730 1 5,658 (6,229) 160
Depreciation and amortization expense 5,951 760 69 -- 6,780
Segment profit (loss) 19,278 4,586 (1,654) -- 22,210
Segment assets 153,099 35,083 129,976 (116,366) 201,792
Capital expenditures 9,578 971 14 -- 10,563
========================================================================================================================
44 NOTES TO FINANCIAL STATEMENTS
Dollars in thousands 2001 2000 1999
===============================================================================
Assets
Total assets for reportable segments $ 281,365 $ 316,616 $ 318,158
Elimination of intercompany receivables -- -- (7,886)
Assets of discontinued operations 106,856 72,678 33,573
Elimination of investment in
consolidated subsidiaries (125,786) (127,822) (125,345)
Reclassification of deferred tax (9,910) (13,087) (16,708)
liabilities
- -------------------------------------------------------------------------------
Total Consolidated Assets $ 252,525 $ 248,385 $ 201,792
- -------------------------------------------------------------------------------
Other Significant Items
Elimination of intercompany interest $ 977 $ 1,495 $ 6,229
===============================================================================
Segment profit (loss) includes research and development costs amounting to
$3,582,000 in 2001, $2,661,000 in 2000 and $2,630,000 in 1999, principally in
the defense segment.
NOTE 12 INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. In addition, the effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.
Following is a reconciliation of the difference between total tax expense
and the amount computed by applying the federal statutory income tax rate to
income from continuing operations before income taxes for the years ended
December 31:
Dollars in thousands 2001 2000 1999
===============================================================================
Federal income taxes at statutory rate $ 7,884 $ 11,193 $ 7,551
State and local income taxes, net of
federal income tax benefit
(including a reduction of
$651 in 2001 of a $1,000 tax
reserve established in 1997) (519) 850 965
Provision for nondeductible expenses -- -- 296
Non-taxable income -- (576) (548)
Other - net 18 230 (552)
- -------------------------------------------------------------------------------
Income Taxes - Continuing Operations $ 7,383 $ 11,697 $ 7,712
===============================================================================
As discussed in Note 16, the Company recorded income tax benefits for its
discontinued operations during 2001, 2000 and 1999.
No income tax payments were made in 2001 based on the Company's tax
estimate offset by an overpayment of $1,810,000 in 2000. Income tax payments
were $4,000,000 in 2000 and $4,600,000 in 1999.
UNITED INDUSTRIAL CORPORATION 45
NOTES TO FINANCIAL STATEMENTS CONTINUED
Deferred income tax balances:
December 31
Dollars in thousands 2001 2000
===============================================================================
Deferred Tax Asset
Losses on long-term contracts not currently deductible $ 2,631 $ 2,631
Postretirement benefits and other employee benefits
other than pensions 8,716 10,549
Product warranty and other provisions 962 1,156
Vacation pay accruals 879 745
Other 120 131
- -------------------------------------------------------------------------------
Total Deferred Tax Asset 13,308 15,212
===============================================================================
Deferred Tax Liability
Pension plans (17,220) (17,747)
Excess tax depreciation (1,823) (1,995)
Insurance recovery -- (861)
Other (471) (663)
- -------------------------------------------------------------------------------
Total Deferred Tax Liability (19,514) (21,266)
- -------------------------------------------------------------------------------
Net Deferred Tax Liability $ (6,206) $ (6,054)
===============================================================================
The net deferred tax liability is classified as
follows:
Net current deferred income tax asset $ 5,436 $ 3,128
- -------------------------------------------------------------------------------
Net non-current deferred income tax liability $(11,642) $ (9,182)
===============================================================================
NOTE 13 OTHER OPERATING EXPENSES, NET, OTHER INCOME, NET, AND OTHER EXPENSES
Year Ended December 31
Dollars in thousands 2001 2000 1999
===============================================================================
Other Operating Expenses, Net
Reduction of deferred compensation liability $ (212) $ (208) $ (288)
Amortization of intangibles 318 715 874
Write-off of receivable -- 162 --
Write-off of assets -- -- 425
- -------------------------------------------------------------------------------
Total other operating expenses, net $ 106 $ 669 $1,011
===============================================================================
Other Income, Net
Pension income $1,819 $2,126 $1,754
Insurance recovery - net 842 3,183 --
Royalties and commissions 127 408 314
Insurance refund -- 68 --
Other 116 68 --
- -------------------------------------------------------------------------------
Total other income, net $2,904 $5,853 $2,068
===============================================================================
Other Expenses
Exchange rate fluctuations $ 182 $ -- $ --
Write-off of proposed acquisition costs 159 -- --
Professional fees - potential disposition -- 271 --
Miscellaneous items 399 430 424
- -------------------------------------------------------------------------------
Total other expenses $ 740 $ 701 $ 424
===============================================================================
46 NOTES TO FINANCIAL STATEMENTS
NOTE 14 SELECTED QUARTERLY DATA (UNAUDITED)
Dollars in thousands, except per share 2001 2000
data and stock prices Fourth Third Second First Fourth Third Second First
=================================================================================================================================
Net sales from continuing operations $62,052 $66,103 $56,457 $53,883 $ 73,447 $57,026 $56,890 $ 48,920
Gross profit from continuing operations 15,752 13,806 12,370 12,037 20,371 13,495 14,030 12,993
Income from continuing operations 5,208 3,782 3,754 3,062 8,344 7,297 2,848 2,734
Loss from discontinued operations (6,326) (1,756) (1,860) (501) (7,506) (5,151) (282) (505)
Net (loss) income (1,118) 2,026 1,894 2,561 838 2,146 2,566 2,229
=================================================================================================================================
Basic earnings (loss) per share
Continuing Operations $ .40 $ .30 $ .30 $ .25 $ .67 $ .59 $ .23 $ .22
Discontinued Operations (.49) (.14) (.15) (.04) (.60) (.42) (.02) (.04)
Net (loss) Income (.09) .16 .15 .21 .07 .17 .21 .18
Diluted earnings (loss) per share
Continuing Operations .39 .28 .30 .24 .65 .58 .23 .22
Discontinued Operations (.47) (.13) (.15) (.04) (.58) (.41) (.02) (.04)
Net (loss) Income (.08) .15 .14 .20 .07 .17 .20 .18
Dividends declared per share .10 .10 .10 .10 .10 .10 .10 .10
- ---------------------------------------------------------------------------------------------------------------------------------
Stock prices:
High $ 19.90 $ 16.73 $ 17.77 $ 14.00 $11.5625 $11.625 $ 10.00 $10.3125
Low $ 14.85 $ 12.95 $ 12.40 $ 11.00 $ 10.00 $8.9375 $8.1875 $ 8.125
=================================================================================================================================
The Company's common stock is listed on the New York Stock Exchange. The
approximate number of shareholders of record as of February 15, 2002 was 2,000.
NOTE 15 COMMITMENTS AND CONTINGENCIES
Detroit Stoker Company ("Detroit Stoker"), a wholly owned subsidiary of the
Company, was notified in March 1992 by the Michigan Department of Natural
Resources ("MDNR") that it is a potentially responsible party in connection with
the cleanup of a former industrial landfill located in Port of Monroe, Michigan.
MDNR is treating the Port of Monroe landfill site as a contaminated facility
within the meaning of the Michigan Environmental Response Act ("MERA"). Under
MERA, if a release or a potential release of a discarded hazardous substance is
or may be injurious to the environment or to the public health, safety, or
welfare, MDNR is empowered to undertake or compel investigation and response
activities in order to alleviate any contamination threat. Detroit Stoker
intends to aggressively defend these claims. At this time, no estimate can be
made as to the amount or range of potential loss, if any, to Detroit Stoker with
respect to this action.
The Company is involved in various other lawsuits and claims, including
certain other environmental matters, arising out of the normal course of its
business. In the opinion of management, the ultimate amount of liability, if
any, under pending litigation, including claims described above, will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
UNITED INDUSTRIAL CORPORATION 47
NOTES TO FINANCIAL STATEMENTS CONTINUED
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 December 31, 2001.
In connection with the discontinued transportation operations, AAI
Corporation ("AAI"), a wholly owned subsidiary of the Company, has guaranteed
certain performance criteria associated with the contractual obligations of ETI,
a company owned 35% by AAI and 65% by Skoda, a.s. ("Skoda"), a Czech Republic
holding company. The ability of ETI to perform under these contracts may, in
part, be dependent on the performance of other parties, including AAI, Skoda and
other subcontractors. Thus, the ability to timely deliver such equipment may be
outside AAI's control. In addition, while its operating affiliates performed
under their contracts during the year, during 2001 Skoda declared bankruptcy. If
Skoda is required to provide additional funds to ETI, and if it fails to do so
or if ETI is unable to meet its performance obligations, the additional funding
requirements or the performance guarantees by AAI could have a material adverse
effect on the Company's results of operations, liquidity or financial condition.
AAI monitors the progress of Skoda and ETI's other subcontractors.
In February 2000, the Czech Export Bank ("CEB") approved credit facilities
to ETI and two Skoda subsidiaries in order to finance the design and manufacture
of electric trolley buses for the city and county of San Francisco ("MUNI").
These credit facilities are partially guaranteed by the Czech Government's
Export Guarantee and Insurance Corporation ("EGAP"). In addition, the Company
has agreed to assume joint and several liability on progress payment bonds
totaling approximately $47,000,000 at December 31, 2001. These progress payment
bonds are expected to be eliminated when the MUNI customer accepts certain
deliveries during 2002. Although the Company has accepted full responsibility
under these progress payment bonds, Skoda retains its 65% obligation that is
partially guaranteed by EGAP. In addition, a previously existing bond that
guarantees performance under the MUNI contract obligates the Company to
indemnify the surety, if necessary, for up to approximately $16,000,000. It is
expected that there will be sufficient working capital to complete the MUNI
program.
NOTE 16 DISPOSED BUSINESS
On September 29, 2000, the Company sold all its capital stock of Symtron
Systems, Inc. ("Symtron"). The sale resulted in a pretax gain of $5,539,000.
The Consolidated Statements of Operations include Symtron's net sales of
$7,663,000 and $16,217,000 in 2000 and 1999, respectively. Symtron had a net
loss of $950,000 in 2000 and a net profit of $712,000 in 1999.
In the fourth quarter of 2001, the Company made substantial progress in
the sale of its transportation overhaul contracts with the New Jersey Transit
Authority and Maryland Mass Transportation Authority. 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
transaction is expected to close before May 31, 2002. Following the sale, the
Company's transportation operations will include primarily one ongoing program
to deliver 273 electric trolley buses to the San Francisco Municipal Railway.
This program, which is well into its production phase and expected to be
substantially completed during 2002, is being performed by ETI. The overhaul
contracts, along with the remaining transportation business, are accounted for
as discontinued operations. Payment will be made in cash at closing. The
agreement releases the Company under all performance bonds and obligations under
the conveyed contracts. The agreement also includes a cost plus a fee contract
to perform work on the conveyed contracts for the buyer during a transition
period not to exceed six months.
48 NOTES TO FINANCIAL STATEMENTS
DISCONTINUED OPERATIONS
The designation of the transportation business as a discontinued operation
has increased the estimates to complete its current programs at December 31,
2001. These increases recognize anticipated severance costs and accelerated
depreciation reflective of the shortened useful lives of certain fixed assets.
The pretax loss from discontinued operations recognized during the fourth
quarter of 2001 includes approximately $6,339,000 of such costs.
Summary results of the transportation segment prior to its
discontinuation, which have been classified separately, were as follows:
Year Ended December 31
Dollars in thousands 2001 2000 1999
===============================================================================
Revenue $ 47,439 $ 20,075 $ 9,296
- -------------------------------------------------------------------------------
Loss before income taxes $ 16,064 $ 21,442 $ 13,112
Credit for income taxes 5,621 7,998 4,891
- -------------------------------------------------------------------------------
Net Loss from discontinued operations $ 10,443 $ 13,444 $ 8,221
===============================================================================
Year Ended December 31
Dollars in thousands 2001 2000 1999
===============================================================================
Net Cash (Used for) Provided by
Discontinued Operations
Net Loss $(10,443) $(13,444) $ (8,221)
(Increase) Decrease in Trade Receivable (9,772) (7,064) 3,257
Increase in Inventories (21,974) (37,529) (12,376)
Increase in Customer Advances 491 11,883 21,574
Increase in Accounts Payable &
Other Current Liabilities 141 2,706 7,289
Other 427 173 (1,262)
- -------------------------------------------------------------------------------
Net Cash (Used for) Provided by
Discontinued Operations $(41,257) $(33,275) $ 10,261
===============================================================================
Assets and liabilities of the discontinued operations reclassified as
current were as follows:
Year Ended December 31
Dollars in thousands 2001 2000 1999
================================================================================
Assets
Current Assets
Trade receivables $ 20,895 $11,123 $ 4,059
Inventories 73,236 51,262 13,733
Prepaid expenses and other current assets 51 52 15
Deferred taxes 6,460 6,459 2,985
- --------------------------------------------------------------------------------
Total Current Assets 100,642 68,896 20,792
Non-current Assets
Deferred taxes 1,037 -- 2,468
Other assets (623) (638) 6,797
Property and equipment 5,800 4,420 3,516
- --------------------------------------------------------------------------------
Total Assets $106,856 $72,678 $33,573
================================================================================
Liabilities
Current Liabilities
Accounts payable $ 7,118 $ 4,181 $ 2,246
Accrued employee compensation and taxes 1,393 1,489 546
Customer advances 35,983 35,402 23,519
Provision for contract losses 12,861 15,604 5,185
Other 172 352 --
- --------------------------------------------------------------------------------
Total Liabilities $ 57,527 $57,028 $31,496
================================================================================
At December 31, 2001 and 2000, the transportation segment's advances to
ETI were $525,000 and $539,000, respectively, which were less than the Company's
investment and cumulative losses in ETI. In addition, the transportation segment
has accounts receivable from ETI for work performed of $14,133,000 and
$1,314,000 at December 31, 2001 and 2000, respectively.
UNITED INDUSTRIAL CORPORATION 49
NOTES TO FINANCIAL STATEMENTS CONTINUED
Amounts in the Consolidated Statements of Operations and the Consolidated
Statements of Cash Flows for 2000 and 1999 and the Consolidated Balance Sheet
for 2000 have been restated to conform to the 2001 discontinued operations
presentation.
NOTE 17 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Year Ended December 31
2001 2000 1999
===============================================================================
Basic earnings per share -
weighted-average shares 12,697,000 12,384,000 12,275,000
Effect of dilutive securities:
employee and non-employee
director stock options 592,000 225,000 234,000
- -------------------------------------------------------------------------------
Diluted earnings per share -
adjusted weighted-average
and assumed conversions 13,289,000 12,609,000 12,509,000
- -------------------------------------------------------------------------------
Basic earnings (loss) per share:
Income from Continuing Operations $ 1.24 $ 1.71 $ 1.18
Loss from Discontinued Operations (.82) (1.08) (.67)
- -------------------------------------------------------------------------------
Net Income .42 .63 .51
===============================================================================
Diluted earnings (loss) per share:
Income from Continuing Operations 1.19 1.68 1.16
Loss from Discontinued Operations (.79) (1.06) (.66)
- -------------------------------------------------------------------------------
Net Income $ .40 $ .62 $ .50
===============================================================================
NOTE 18 INVESTMENT IN UNCONSOLIDATED INVESTEES
In 1993, AAI organized a new subsidiary, Electric Transit, Inc., to manufacture
electric trolley buses for the U.S. market. In 1994 and again in 1995, ETI
conveyed equity interests (in ETI) to Skoda, a Czech Republic firm. ETI is owned
35% by AAI, and 65% by Skoda. ETI has won contracts in both Dayton, Ohio for the
Miami Valley Regional Transit Authority and the city and county of San
Francisco, California ("MUNI"). Under these contracts, which are valued at
$32,444,000 and $192,000,000, respectively, AAI has received subcontracts of
$9,350,000 and $62,500,000, respectively.
During the years ended December 31, 2001, 2000 and 1999, the sales, cost
of sales and gross profit recognized by AAI on subcontracts with ETI are as
follows:
Dollars in thousands 2001 2000 1999
===============================================================================
Sales $ 29,975 $ 2,360 $ 1,728
Cost of sales 31,351 4,082 1,852
- -------------------------------------------------------------------------------
Gross loss $ (1,376) $(1,722) $ (124)
===============================================================================
Due to Skoda's inability to fund ETI during 1999 as required by ETI's
shareholder agreement, AAI assumed that responsibility in its entirety. While
Skoda still had the obligation to provide funding, during 1999, AAI recorded
100% of ETI's loss which totalled $3,362,000 ($2,108,000, net of taxes). The
loss in excess of AAI's 35% equity interest in ETI totalled $2,185,000
($1,370,000, net of taxes).
During 2000 ETI repaid to AAI $3,605,000 that was previously advanced to
ETI by AAI on behalf of Skoda. The transportation segment included in income
$1,334,000 ($836,000, net of taxes) of the losses in excess of 35% recorded
during 1999. Excluding the adjustment to reduce previously recorded losses, the
Company recorded a loss of $180,000 and $335,000 in 2001 and 2000, respectively,
related to its equity interest in the net loss of ETI during 2000. The losses
during 2000 and 1999 were primarily caused by warranty cost growth on the
50 NOTES TO FINANCIAL STATEMENTS
Dayton program. All the trolley buses for Dayton were delivered to and accepted
by the customer and the program is substantially completed. In 2000, the Dayton
electric trolley buses were removed from service for repairs. Such costs are
expected to be funded by Skoda's warranty under its subcontract with ETI.
AAI's advances to ETI were $525,000 and $539,000 less than its investment
and cumulative losses in ETI at December 31, 2001 and 2000, respectively. At
December 31, 1999, AAI advanced to ETI, net of its investment and cumulative
losses in ETI, $6,797,000. In addition, AAI has accounts receivable from ETI for
work performed on both its Dayton and San Francisco contracts of $14,133,000,
$1,314,000 and $2,152,000 at December 31, 2001, 2000 and 1999, respectively.
Summary financial information of the Electric Transit, Inc. entity is as
follows:
Dollars in thousands 2001 2000 1999
===============================================================================
Current assets $ 131,794 $ 43,008 $ 33,984
Plant, property and equipment
and other assets 3,058 8,118 4,819
Current liabilities 152,070 68,015 54,550
Net sales 14,580 4,673 18,615
Gross loss (698) (637) (2,853)
Net loss $ (514) $ (956) $ (3,362)
===============================================================================
The Company also has a 50% interest in Pioneer UAV, Inc. Industries. The
Company's investment was $2,724,000 and $2,638,000 in 2001 and 2000,
respectively. The Company had no advances to the investee at December 31, 2001
and $2,300,000 at December 31, 2000. The Company's share of the venture's
profits were $86,000, $472,000 and $483,000 in 2001, 2000 and 1999,
respectively.
NOTE 19 SUBSEQUENT EVENTS
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 before 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. See Note 16.
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
projected that this decision 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 will write off the net book value of the assets related to its foundry
facility of approximately $3,500,000 during the foundry's operating period in
2002.
UNITED INDUSTRIAL CORPORATION 51
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
United Industrial Corporation New York,
New York
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Industrial Corporation and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, in 2001 the Company
adopted the provisions of FAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
/s/ Ernst & Young LLP
March 8, 2002
52 NOTES TO FINANCIAL STATEMENTS
FIVE-YEAR FINANCIAL DATA
Year Ended December 31
Dollars in thousands, except per share data 2001 2000 1999 1998 1997
==============================================================================================================================
Operating Data
Continuing Operations
Net sales $ 238,495 $ 236,283 $ 207,683 $ 187,655 $ 218,196
Operating costs 219,335 216,026 189,503 176,968 199,424
Interest (income) expense - net (1,779) (1,528) (1,903) (3,762) (709)
Income before income taxes 23,189 32,920 22,210 21,687 37,373
Income taxes 7,383 11,697 7,712 5,134 18,420
Income from continuing operations 15,806 21,223 14,498 16,553 18,953
Loss from discontinued operations (10,443) (13,444) (8,221) (3,542) (4,128)
Net income 5,363 7,779 6,277 13,011 14,825
Basic Earnings (Loss) per Share:
Income from continuing operations 1.24 1.71 1.18 1.35 1.55
Loss from discontinued operations (.82) (1.08) (.67) (.29) (.33)
Net income .42 .63 .51 1.06 1.22
Diluted Earnings (Loss) per Share:
Income from continuing operations 1.19 1.68 1.16 1.31 1.53
Loss from discontinued operations (.79) (1.06) (.66) (.28) (.34)
Net income .40 .62 .50 1.03 1.19
Cash dividends paid on common stock 5,069 4,954 4,910 4,927 3,536
Cash dividends declared per common share $ .40 $ .40 $ .40 $ .40 $ .29
Shares outstanding as of year end (in thousands) 12,872 12,435 12,294 12,250 12,249
Financial Position
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 252,525 $ 248,385 $ 201,792 $ 180,521 $ 181,199
Property and equipment - continuing operations 24,514 28,581 32,329 28,115 23,523
Long-term debt -- -- -- -- 4,479
Shareholders' equity 120,344 114,893 111,055 109,441 102,024
Shareholders' equity per share 9.35 9.24 9.03 8.93 8.33
Financial Ratios
- ------------------------------------------------------------------------------------------------------------------------------
Return on shareholders' equity (net income) 4.5% 6.8% 5.7% 11.9% 14.5%
Income from continuing operations as a percentage of sales 6.6 9.0 7.0 8.8 8.7
Long-term debt as a percentage of total capitalization -- -- -- -- 4.2
Statistical Data - continuing operations
- ------------------------------------------------------------------------------------------------------------------------------
Sales backlog as of year end $ 207,000 $ 195,000 $ 158,000 $ 156,000 $ 131,000
Capital expenditures 2,028 4,921 10,563 13,534 5,737
Depreciation and amortization 6,413 8,086 6,780 7,318 9,501
Number of employees 1,500 1,400 1,500 1,600 1,600
==============================================================================================================================
UNITED INDUSTRIAL CORPORATION 53
CORPORATE ORGANIZATION
BOARD OF DIRECTORS
Harold S. Gelb
Chairman of the Board
Richard R. Erkeneff
President and Chief Executive
Officer of the Company and
AAI Corporation
Warren G. Lichtenstein
Managing Partner
Steel Partners LLC
Joseph S. Schneider
President
JSA Partners, Inc.
E. Donald Shapiro
Dean Emeritus
The Joseph Solomon
Distinguished Professor of Law
New York Law School
Susan Fein Zawel
Vice President Corporate
Communications, Associate
General Counsel and Secretary
CORPORATE OFFICERS
Richard R. Erkeneff
President and
Chief Executive Officer
James H. Perry
Vice President,
Chief Financial Officer and
Treasurer
Robert W. Worthing
Vice President and
General Counsel
Susan Fein Zawel
Vice President Corporate
Communications, Associate General
Counsel and Secretary
Edward A. Smolinski
Assistant Treasurer and
Assistant Secretary
SENIOR MANAGEMENT
AAI Corporation
Richard R. Erkeneff
President and
Chief Executive Officer
James H. Perry
Vice President,
Chief Financial Officer and
Treasurer
Robert W. Worthing
Vice President, General Counsel
and Secretary
Frederick M. Strader
Executive Vice President
AAI Corp.
Vice President and General
Manager, Defense Systems
and Engineering and
Maintenance Services
Joseph G. Thomas
Vice President and
Deputy General Manager,
UAV Systems
Thomas E. Wurzel
President
AAI/ACL Technologies, Inc.
David A. Gray
Vice President
and General Manager,
Transportation Systems
Detroit Stoker Company
Mark A. Eleniewski
President and
Chief Executive Officer
Gary K. Ludwig
Vice President, Finance and
Treasurer
C O R P O R A T I O N
570 LEXINGTON AVE., NEW YORK, NY 10022
212.752.8787
WWW.UNITEDINDUSTRIAL.COM