10-Q 1 the-q.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ------------------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------- Commission file number #1-4252 ------- UNITED INDUSTRIAL CORPORATION -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2081809 -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Identification No.) of incorporation or organization) 570 Lexington Avenue, New York, NY 10022 -------------------------------------------------------------------------------- (Address of principal executive offices) Not Applicable -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,554,888 shares of common stock as of May 9, 2001. 78495.0001 UNITED INDUSTRIAL CORPORATION INDEX Page # ------ Part I - Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - Unaudited March 31, 2001 and December 31, 2000 1 Consolidated Condensed Statements of Operations - Three Months Ended March 31, 2001 and 2000 2 Consolidated Condensed Statements of Cash Flows Three Months Ended March 31, 2001 and 2000 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Qualitative and Quantitative Disclosures about Market Risk 8 PART II - Other Information 10 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands)
MARCH 31 DECEMBER 31 2001 2000 ------------ ----------- ASSETS (Unaudited) ------ Current Assets Cash and cash equivalents $ 5,989 $ 11,385 Restricted cash 7,119 - Trade receivables 41,973 61,341 Inventories Finished goods & work-in-process 94,844 76,908 Materials & supplies 2,224 2,334 -------- -------- 97,068 79,242 Deferred income taxes 9,587 9,587 Prepaid expenses & other current assets 2,857 3,030 -------- -------- Total Current Assets 164,593 164,585 Other assets 50,707 50,799 Property & equipment - less allowances for depreciation (2001-$92,914; 2000-$91,582) 32,829 33,001 -------- -------- $248,129 $248,385 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities ------------------- Accounts payable $ 14,041 $ 17,184 Accrued employee compensation & taxes 7,705 8,891 Customer advances 53,112 44,773 Federal income taxes 1,268 - Other liabilities 4,270 7,345 Provision for contract losses 13,725 17,485 -------- -------- Total Current Liabilities 94,121 95,678 Long-term liabilities 3,626 3,679 Deferred income taxes 9,035 9,182 Postretirement benefits other than pensions 24,503 24,953 Shareholders' Equity -------------------- Common stock $1.00 par value Authorized - 30,000,000 shares; outstanding 12,444,638 shares and 12,435,038 shares - March 31, 2001 and December 31, 2000 (net of shares in treasury) 14,374 14,374 Additional capital 89,392 89,384 Retained earnings 27,758 26,441 Other accumulated comprehensive income 230 - Treasury stock, at cost, 1,929,510 shares at March 31, 2001 and 1,939,110 shares at December 31, 2000 (14,910) (15,306) -------- -------- 116,844 114,893 -------- -------- $248,129 $248,385 ======== ========
See accompanying notes UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Ended March 31 --------------------------- 2001 2000* -------- -------- (Unaudited) Net sales $ 56,951 $ 49,936 Cost of sales 44,407 36,869 -------- -------- Gross profit 12,544 13,067 Selling & administrative expenses 10,109 10,480 Other operating expense - net 27 211 -------- -------- Total operating income 2,408 2,376 -------- -------- Non-operating income and (expense) Interest income 287 526 Other income 1,363 660 Interest expense - (2) Equity in net income (loss) of joint ventures 24 (2) Other expenses (107) (40) -------- -------- 1,567 1,142 -------- -------- Income before income taxes 3,975 3,518 Income taxes 1,414 1,289 -------- -------- Net income $ 2,561 $ 2,229 ======== ======== Net earnings per share: Basic $ .21 $ .18 ===== ===== Diluted $ .20 $ .18 ===== =====
See accompanying notes *Reclassified to conform to 2001 presentation 2 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
THREE MONTHS ENDED MARCH 31 --------------------------- 2001 2000* -------- -------- OPERATING ACTIVITIES (Unaudited) -------------------- Net income $ 2,561 $ 2,229 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,804 2,238 Deferred income taxes (147) (73) Decrease in provision for contract losses (3,760) (252) Changes in operating assets and liabilities 2,880 (5,375) Increase in federal income taxes payable 1,268 1,108 Equity in (income) loss of investee companies (24) 2 -------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,582 (123) INVESTING ACTIVITIES -------------------- Sale of marketable securities - 4,021 Purchase of marketable securities - (7,483) Purchase of property and equipment (1,552) (1,057) Decrease in other assets - net (1,201) (573) Advances to investees (68) (1,625) Repayment of advances by investees 1,305 7,326 -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,516) 609 FINANCING ACTIVITIES Restricted cash for letter of credit (7,119) - (Decrease) increase in long-term liabilities (503) 174 Proceeds from exercise of stock options 404 529 Dividends (1,244) (1,237) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (8,462) (534) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (5,396) (48) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,385 13,092 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,989 $ 13,044 ======== ========
See accompanying notes *Reclassified to conform to 2001 presentation 3 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements March 31, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. NOTE B - SEGMENT INFORMATION
Trans- Reconci- (dollars in thousands) Defense portation Energy Other liations Totals ------- --------- ------ ----- -------- ------ Three months ended March 31, 2001 --------------------------------- Revenues from external customers $47,277 $ 3,516 $ 6,158 $ - $ - $56,951 Intersegment revenues 448 - - - (448) - Equity profit (loss) in ventures 35 (11) - - - 24 Segment profit (loss) 3,813 (799) 303 658 - 3,975 Income before income taxes $ 3,975 ======= Assets in the Transportation segment increased $8,800. Inventory increased $15,300 offset by a decrease in receivables of $6,500. Three months ended March 31, 2000 --------------------------------- Revenues from external customers $41,126 $ 1,016 $ 7,794 $ - $ - $49,936 Intersegment revenues 219 - - - (219) - Equity profit (loss) in ventures 68 (70 - - - (2 Segment profit (loss) 3,562 (805) 1,226 (465) - 3,518 Income before income taxes $ 3,518 =======
The sales, costs of sales and gross profit recognized by the Transportation segment on subcontracts with ETI were as follows: 3 Months Ended March 31 -------- 2001 2000 ------ ----- Sales $1,034 $ 21 Cost of sales 1,034 21 ------ ----- Gross profit 0 0 ====== ===== 4 NOTE C - DIVIDENDS A quarterly dividend of 10 cents per share was paid on March 1, 2001. NOTE D - WEIGHTED AVERAGE SHARES Three Months Ended March 31 -------- 2001 2000 ---------- ---------- Weighted average shares 12,442,371 12,373,638 Dilutive effect of stock options 498,903 215,725 ---------- ---------- Diluted weighted average shares 12,941,274 12,589,363 ========== ========== NOTE E - OTHER OPERATING EXPENSES, OTHER INCOME, NET, OTHER EXPENSES
THREE MONTHS ENDED MARCH 31 --------------------------- (Dollars in Thousands) 2001 2000 -------- --------- OTHER OPERATING EXPENSES, NET ----------------------------- Reduction of deferred compensation liability (53) - Amortization of intangibles 80 211 ------- ------- Total other operating expenses, net $ 27 $ 211 ======= ======= OTHER INCOME ------------ Pension income 444 420 Settlement of lawsuits 842 Royalties and commissions 4 178 Insurance refund 18 50 Other 55 12 ------- ------- Total other income $ 1,363 $ 660 ======= ======= OTHER EXPENSES -------------- Miscellaneous items, none of which are material 107 40 ------- ------- Total other expenses $ 107 $ 40 ======= =======
5 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Information --------------------------- This report contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward looking statements which include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. These forward looking statements are subject to risks and uncertainties which could cause the Company's actual results or performance to differ materially from those expressed or implied in such statements. These risks and uncertainties include, but are not limited to, the following: the Company's successful execution of internal performance plans; performance issues with key suppliers, subcontractors and business partners; legal proceedings; product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; product development, commercialization and technological difficulties; capacity and supply constraints or difficulties; legislative or regulatory actions impacting the Company's energy segment and transportation business; changing priorities or reductions in the U.S. Government defense budget; contract continuation and future contract awards; and U.S. and international military budget constraints and determinations. The Company makes no commitment to update any forward looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward looking statement. Results of Operations --------------------- Three months ended March 31, 2001 compared to three months ended March 31, 2000: On September 29, 2000 the Company sold Symtron Systems, Inc. ("Symtron"), a wholly owned subsidiary included in the defense segment. The operations of Symtron are included in the three months ended March 31, 2000. Consolidated net sales increased by $7,015,000 or 14.0% to $56,951,000 in the first quarter of 2001 from $49,936,000 during the same period in 2000. Excluding Symtron's operations from 2000, sales would have increased by $10,179,000 or 21.8%. The Defense segment increased sales $6,151,000 or 15.0% to $47,277,000 in the first quarter of 2001 from $41,126,000 during the same period in 2000. Excluding Symtron's operations from 2000, the Defense segment would have increased sales by $9,315,000 or 24.5% primarily due to growth in unmanned aerial vehicle operations. The Energy segment's sales decreased $1,636,000 or 21.0% to $6,158,000 during the first quarter of 2001 from $7,794,000 in the first quarter of 2000 due to the timing of orders and shipments. Sales in the Transportation segment increased $2,500,000 or 246.1% to $3,516,000 during the 6 first quarter of 2001 from $1,016,000 during the 2000 first quarter due to increased production volume. Gross margin percentage decreased to 22.03% in the first quarter of 2001 from 26.2% in the first quarter of 2000. Excluding Symtron's operations from 2000 the gross margin percentage would have decreased 3.5% to 22.0% in 2001 from 25.5% in 2000. The gross margin percentage in the Defense segment for the first quarter of 2001 was 21.4% compared to 25.3% in the first quarter of 2000, a decrease of 3.9%, due to low gross profits on a large competitive program. Excluding Symtron's operations from the 2000 Defense segment, the gross margin percentage would have decreased 3.0%. The Energy segment gross margin was 31.2% in the first quarter of 2001 and 34.4% in the first quarter of 2000. This decrease of 3.2% was due to product mix and competitive market conditions. The gross margin in the Transportation segment was a profit of $507,000 compared to a loss of $17,000 in the first quarter of 2000. Selling and administrative expenses for the three months ended March 31, 2001 decreased $371,000 or 3.5% to $10,109,000 from $10,480,000 in the first quarter of 2000 primarily due to the inclusion of Symtron's operations in 2000. Excluding Symtron's operations from 2000 would have resulted in an increase of $685,000 or 7.3%. Selling and administrative expenses increased $447,000 in the Transportation segment due to increased volume and $48,000 in the Energy segment. Excluding Symtron's operations from the Defense segment in 2000, selling and administrative expense would have increased $534,000 or 8.5% due to increased bid and proposal costs. Other Operating Expenses was $184,000 lower in the three months ended March 31, 2001 compared to the same period last year primarily resulting from a reduction in amortization expense of $131,000 due to the sale of Symtron. Other Income increased $703,000 in the three months ended March 31, 2001 from the same period last year primarily due to income from the resolution of a legal action brought by the Company. Income before income taxes increased by $457,000 or 13.0% in the first quarter of 2001 from the same period in 2000. Excluding Symtron's operations the increase would have been $357,000 or 9.9%. Since December 31, 2000, the backlog decreased $2,700,000 to $411,293,000. The Energy segment backlog increased $2,500,000 and the Transportation segment backlog decreased $5,200,000. Liquidity and Capital Resources ------------------------------- Cash and cash equivalents decreased $5,396,000 to $5,989,000 at March 31, 2001 from $11,385,000 at December 31, 2000. Additionally the Company has $7,119,000 of restricted cash classified as a current asset. This restricted cash represents collateral for an irrevocable outstanding standby letter of credit related to an advance payment from an international customer obtained in the first quarter of 2001. The Company is required to cash collateralize letters of credit in excess of $16,500,000, the sublimit for such instruments under its 7 existing credit arrangement. The outstanding letters of credit at March 31, 2001 amounted to $23,602,000. Trade receivables decreased $19,368,000 at March 31, 2001 from December 31, 2000 resulting from collections and lower sales in the first quarter of 2001 compared to the fourth quarter of 2000. Inventories were $17,826,000 higher at March 31, 2001 than at December 31, 2000. The inventory increase was primarily in the Transportation segment and results from the procurement of significant amounts of material necessary to commence production on two major programs. Accounts payable decreased $3,143,000 at March 31, 2001 from December 31, 2000 due to the timing of the receipt and payment of invoices. Customer advances increased $8,339,000 at March 31, 2001 from December 31, 2000, in accordance with the contractual terms of certain transportation and defense contracts. The Company currently has no significant fixed commitment for capital expenditures. The Company expects that available cash and existing lines of credit will be sufficient to meet its cash requirements for the remainder of the calendar year. Its cash requirements consist primarily of its obligations to fund operations. On April 26, 2001, the Company accepted and agreed to a Commitment Letter, from a bank, for a Credit Facility (including Letters of Credit) of $32,000,000 in which all amounts borrowed over $25,000,000 shall be cash collateralized. The term is three years. The Company expects to execute the credit arrangement during the second quarter. Had this Credit Facility been in place prior to March 31, 2001, the Consolidated Condensed Balance Sheet at March 31, 2001 would have disclosed a cash and cash equivalents balance of $13,108,000 with no restricted cash. Contingent Matters ------------------ In connection with certain of its contracts, the Company commits to certain performance guarantees. The ability of the Company to perform under these guarantees may, in part, be dependent on the performance of other parties, including partners and subcontractors. If the Company is unable to meet these performance obligations, the performance guarantees could have a material adverse effect on product margins and the Company's results of operations, liquidity or financial position. The Company monitors the progress of its partners and subcontractors and does not believe that their performance will adversely affect these contracts as of March 31, 2001. The Company is involved in various lawsuits and claims, including various environmental matters. In the opinion of management, the ultimate amount of liability, if any, under the pending litigation will not have a materially adverse effect on the Company's financial position, results of operations or cash flows. There have been no material changes in this litigation from December 31, 2000. (See item 3 - Form 10-K for December 31, 2000). ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions, and some of these transactions are 8 denominated in foreign currencies. As a result, the Company's financial results could be affected by changes in foreign exchange rates. To mitigate the effect of changes in these rates, the Company has entered into foreign exchange contracts. There has been no material change in the firmly committed sales exposures and related derivative contracts from December 31, 2000. (See Item 7A - Form 10-K for December 31, 2000.) In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The adoption of Statement No. 133 did not have a material effect on earnings or the financial position of the Company. 9 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES PART II - Other Information ITEM 4 - Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Registrant was held on May 8, 2001. (b) Warren G. Lichtenstein and Joseph S. Schneider were elected directors at the meeting, for terms ending in 2004. The incumbent directors whose terms of office continued after the meeting are Richard R. Erkeneff, E. Donald Shapiro, Harold S. Gelb, and Susan Fein Zawel. (c) Voting for the election of directors of the Registrant: WITHHELD (including FOR broker non-votes) Warren G. Lichtenstein 10,347,224 65,581 Joseph S. Schneider 10,357,744 55,061 Other Matters: 10,340,147 shares were voted in favor of the proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the Registrant for 2001 with 34,884 shares voted against, 37,774 abstentions and no broker non-votes. ITEM 6 - Exhibits and Reports on Form 8-K (b) The Registrant did not file any reports on Form 8-K during the quarter ended March 31, 2001. 10 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INDUSTRIAL CORPORATION Date May 14, 2001 By: /s/ James H. Perry ------------ ----------------------------- James H. Perry Chief Financial Officer Vice President and Treasurer 11