-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B0A6DkT8QaHzISOOdetVpg4c8yjlJLWIHytKvHBgef8PlAPmkWXHCzGn30NuWITQ CugWbHWH1ewPkAO/VYesmQ== 0000909518-01-500432.txt : 20020410 0000909518-01-500432.hdr.sgml : 20020410 ACCESSION NUMBER: 0000909518-01-500432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIAL CORP /DE/ CENTRAL INDEX KEY: 0000101271 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 952081809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04252 FILM NUMBER: 1789479 BUSINESS ADDRESS: STREET 1: 570 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2127528787 MAIL ADDRESS: STREET 1: 570 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: HAYES MANUFACTURING CORP DATE OF NAME CHANGE: 19660911 FORMER COMPANY: FORMER CONFORMED NAME: TOPP INDUSTRIES CORP DATE OF NAME CHANGE: 19710510 10-Q 1 uicq.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 September 30, 2001 ------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ----------------- Commission file number #1-4252 ------- UNITED INDUSTRIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2081809 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Identification No.) incorporation or organization) 570 Lexington Avenue, New York, NY 10022 - -------------------------------------------------------------------------------- (Address of principal executive offices) Not Applicable - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,859,868 shares of common stock as of November 2, 2001. UNITED INDUSTRIAL CORPORATION INDEX ----- Page # ------ Part I - Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - Unaudited September 30, 2001 and December 31, 2000 1 Consolidated Condensed Statements of Operations - Three Months and Nine Months Ended September 30, 2001 and 2000 2 Consolidated Condensed Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Qualitative and Quantitative Disclosures about Market Risk 12 PART II - Other Information 13 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
SEPTEMBER 30 DECEMBER 31 2001 2000 ------------ ----------- ASSETS Current Assets Cash and cash equivalents $ 8,663 $ 11,385 Restricted cash 222 - Trade receivables 58,159 61,341 Inventories Finished goods & work-in-progress 93,961 76,908 Materials & supplies 2,171 2,334 -------- -------- 96,132 79,242 Deferred income taxes 9,237 9,587 Prepaid expenses & other current assets 2,402 3,030 -------- -------- Total Current Assets 174,815 164,585 Other assets52,726 50,799 Property & equipment - less allowances for depreciation (2001-$95,991; 2000-$91,582) 31,924 33,001 -------- -------- $259,465 $248,385 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 29,382 $ 17,184 Accrued employee compensation & taxes 7,440 8,891 Customer advances 47,432 44,773 Federal income taxes 3,240 - Other liabilities 4,541 7,345 Provision for contract losses 10,326 17,485 -------- -------- Total Current Liabilities 102,361 95,678 Long-term liabilities 3,520 3,679 Deferred income taxes 8,682 9,182 Postretirement benefits other than pensions 23,603 24,953 Shareholders' Equity - -------------------- Common stock $1.00 par value Authorized - 30,000,000 shares; outstanding 12,811,568 shares and 12,435,038 shares - September 30, 2001 and December 31, 2000 (net of shares in treasury) 14,374 14,374 Additional capital 89,898 89,384 Retained earnings 29,140 26,441 Other accumulated comprehensive income 222 - Treasury stock, at cost, 1,562,580 shares at September 30, 2001 and 1,939,110 shares at December 31, 2000 (12,335) (15,306) -------- -------- 121,299 114,893 -------- -------- $259,465 $248,385 ======== ========
See accompanying notes 1 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 2001 2000* 2001 2000* -------- -------- -------- -------- Net sales $ 80,737 $ 65,797 $207,622 $176,658 Cost of sales 68,252 59,875 171,863 143,052 -------- -------- -------- -------- Gross profit 12,485 5,922 35,759 33,606 Selling & administrative expenses 9,387 11,015 28,765 32,946 Other operating expenses - net 27 161 80 538 -------- -------- -------- -------- Total operating income 3,071 (5,254) 6,914 122 -------- -------- -------- -------- Non-operating income and (expenses) Interest income 93 197 545 1,095 Other income - net 113 1,493 1,839 2,716 Interest expense - - - (14) Equity in net income (loss) of joint ventures (6) 536 42 635 Gain on sale of assets, net - 5,976 - 5,976 Other expenses (72) (227) (281) (333) -------- -------- -------- -------- 128 7,975 2,145 10,075 -------- -------- -------- -------- Income before income taxes 3,199 2,721 9,059 10,197 Income taxes 1,173 575 2,578 3,256 -------- -------- -------- -------- Net income $ 2,026 $ 2,146 $ 6,481 $ 6,941 ======= ======== ======= ======== Net earnings per share: Basic $ .16 $ .17 $ .51 $ .56 ===== ===== ===== ===== Diluted $ .15 $ .17 $ .49 $ .55 ===== ===== ===== =====
See accompanying notes *Reclassified to conform to 2001 presentation 2 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 2001 2000 * -------- -------- OPERATING ACTIVITIES Net income $ 6,481 $ 6,941 Adjustment to reconcile net income to net cash provided by (used for) operating activities: Gain on sale of assets - (5,976) Depreciation and amortization 5,579 7,059 Deferred income taxes (150) (4,287) (Decrease) increase in provision for contract losses (7,159) 7,487 Changes in operating assets and liabilities-net (6,367) (19,264) Increase in federal income taxes payable 3,240 3,197 Equity in (loss) income of investee companies (42) 635 -------- ------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 1,582 (4,208) INVESTING ACTIVITIES Purchase of property and equipment (4,263) (4,621) Advances to investees (2,423) (1,231) Repayment of advances by investees 2,914 6,872 -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,772) 1,020 FINANCING ACTIVITIES Restricted cash for letter of credit (222) - Proceeds from exercise of stock options 3,472 575 Dividends (3,782) (3,712) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (532) (3,137) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (2,722) (6,325) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,385 13,092 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,663 $ 6,767 ======== ========
See accompanying notes *Reclassified to conform to 2001 presentation 3 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements September 30, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. NOTE B - SEGMENT INFORMATION
Trans- Reconci- (dollars in thousands) Defense portation Energy Other liations Totals ------- --------- ------ ----- -------- ------ Three months ended September 30, 2001 - ------------------------------------- Revenues from external customers $ 58,682 $14,634 $ 7,421 $ - $ - $ 80,737 Intersegment revenues 309 - - - (309) - Equity profit (loss) in ventures 1 (7) - - - (6) Segment profit (loss) 5,696 (2,800) 344 (41) - 3,199 Income before income taxes $ 3,199 ======== Nine months ended September 30, 2001 - ------------------------------------ Revenues from external customers $153,869 $31,179 $22,574 $ - $ - $207,622 Intersegment revenues 1,102 - - - (1,102) - Equity profit (loss) in ventures 71 (29) - - - 42 Segment profit (loss) 13,294 (6,566) 1,761 570 - 9,059 Income before income taxes $ 9,059 ======== Three months ended September 30, 2000 - ------------------------------------- Revenues from external customers $ 47,823 $ 8,771 $ 9,203 $ - $ - $65,797 Intersegment revenues 351 - - - (351) - Equity profit (loss) in ventures - 536 - - - 536 Segment profit (loss) 3,608 (8,215) 790 6,538 - 2,721 Income before income taxes $ 2,721 ======== Nine months ended September 30, 2000 - ------------------------------------ Revenues from external customers $134,206 $13,822 $28,630 $ - $ - $176,658 Intersegment revenues 885 - - - (885) - 4 Equity profit (loss) in ventures 266 369 - - - 635 Segment profit (loss) 10,157 (9,469) 3,965 5,544 - 10,197 Income before income taxes $ 10,197 ========
Assets in the Transportation segment increased $23,706 to $94,573 at September 30, 2001 from $70,867 at December 31, 2000. The increase was primarily in inventory, which increased $19,014 to $70,276 at September 30, 2001 from $51,262 at December 31, 2000. The sales, costs of sales and gross profit recognized by the Transportation segment on subcontracts with ETI were as follows: 3 Months Ended 9 Months Ended September 30 September 30 ---------------- ---------------- 2001 2000 2001 2000 ------ ----- ------ ------ Sales $10,716 $ 4 $19,499 $1,549 Cost of sales 12,056 4 20,839 1,332 ------- ------ ------- ------ Gross profit $(1,340) 0 $(1,340) $ 217 ======= ====== ======= ====== NOTE C - DIVIDENDS A quarterly dividend of $.10 per share is payable on December 4, 2001. NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Nine Months Ended September 30 September 30 ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Weighted average shares 12,811,568 12,381,338 12,648,519 12,376,538 Dilutive effect of stock options 573,512 263,824 570,032 188,321 ---------- ---------- ---------- ---------- Diluted weighted average shares 13,385,080 12,645,162 13,218,551 12,564,859 ========== ========== ========== ==========
NOTE E - OTHER OPERATING EXPENSES, NET, OTHER INCOME, OTHER EXPENSES
Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- (Dollars in Thousands) 2001 2000 2001 2000 ------ ------ ------ ------ OTHER OPERATING EXPENSES, NET - ----------------------------- Reduction of deferred compensation liability $ (53) $ (52) $ (159) $ (156) Amortization of intangibles 80 211 239 633 Write off of receivables - 2 - 61 ------- ------- ------ ------- Total other operating expenses, net $ 27 $ 161 $ 80 $ 538 ======= ======= ======= ======= OTHER INCOME, NET - ----------------- Pension income $ 148 $ 420 $ 1,036 $ 1,260 Settlement of lawsuits - 950 842 950 Royalties and commissions 51 116 59 403 Insurance refund - - - 50 Foreign exchange loss (182) - (182) - Other 96 7 84 53 ------- ------- ------- ------- 5 Total other income, net $ 113 $ 1,493 $ 1,839 $ 2,716 ======= ======= ======= ======= OTHER EXPENSES - -------------- Miscellaneous items, none of which are material 72 $ 227 281 333 ------- ------- ------- ------- Total other expenses $ 72 $ 227 $ 281 $ 333 ======= ======= ======= =======
NOTE F - COMPREHENSIVE INCOME For the Company, the components of comprehensive income are as follows (in thousands): For the Three For the Nine Months Ended Months Ended September 30, 2001 September 30, 2001 ------------------ ------------------ Net income $ 2,026 $ 6,481 Unrealized gain on foreign currency contracts 6 222 ------- ------- Comprehensive income $ 2,032 $ 6,703 ======= ======= NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and intangible assets beginning the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The adoption of these new rules is not anticipated to have a material impact on the Company's earnings or financial position. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting model, based upon the framework established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", for long-lived assets to be disposed of by sale and addresses significant implementation issues. The Company is required to adopt this statement effective January 1, 2002. The Company is in the process of assessing the impact of the adoption of this statement on its financial position, results of operations and cash flow. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6 Forward Looking Information This report contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward looking statements which include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. These forward looking statements are subject to risks and uncertainties which could cause the Company's actual results or performance to differ materially from those expressed or implied in such statements. These risks and uncertainties include, but are not limited to, the following: the Company's successful execution of internal performance plans; performance issues with key suppliers, subcontractors and business partners; legal proceedings; product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; product development, commercialization and technological difficulties; capacity and supply constraints or difficulties; legislative or regulatory actions impacting the Company's energy segment and transportation business; changing priorities or reductions in the U.S. Government defense budget; contract continuation and future contract awards; and U.S. and international military budget constraints and determinations. The Company makes no commitment to update any forward looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward looking statement. Results of Operations On September 29, 2000 the Company sold Symtron Systems, Inc. ("Symtron"), a wholly owned subsidiary included in the defense segment. The operations of Symtron are included in the three months and nine months ended September 30, 2000. Consolidated net sales during the third quarter of 2001 increased $14,940,000 or 22.7% to $80,737,000 from $65,797,000 in the third quarter of 2000. Excluding Symtron's operations from the third quarter of 2000, sales would have increased $16,217,000 or 25.1%. The Defense segment increased sales $10,859,000 or 22.7% to $58,682,000 in the third quarter of 2001 from $47,823,000 in the same period of 2000 primarily due to the growth in the unmanned aerial vehicles line of business. Excluding Symtron's operations from the third quarter of 2000, the Defense segment would have increased sales $12,135,000 or 26.1%. Sales in the Transportation segment increased $5,863,000 or 66.8% to $14,634,000 in the third quarter of 2001 from $8,771,000 during the same quarter of 2000 due to increased production and delivery volume. The Energy segment's sales decreased $1,782,000 or 19.4% to $7,421,000 in the third quarter of 2001 from $9,203,000 in the third quarter of 2000 due to the timing of orders and shipments. For the nine months ended September 30, 2001, consolidated net sales totaled $207,622,000 which was $30,964,000 or 17.5% higher than the 7 $176,658,000 of sales recorded during the same period in 2000. Excluding Symtron's operations for the nine months ended September 30, 2000, sales would have increased $38,715,000 or 22.9%. The Defense segment sales increased $19,663,000 or 14.7% to $153,869,000 in the first nine months in 2001 from $134,206,000 in the same period in 2000 primarily due to the sales growth in unmanned aerial vehicles line of business. If the Symtron operations were excluded in the year 2000 period, the increase in the Defense segment would have been $27,414,000 or 21.7%. The Transportation segment's sales increased $17,357,000 or 125.6% to $31,179,000 in the nine months ended September 30, 2001 from $13,822,000 in the same period in 2000 due to increased production and delivery volume. The Energy segment's sales decreased $6,056,000 or 21.2% to $22,574,000 in the nine months ended September 30, 2001 from $28,630,000 in the same period last year due to the completion of a large contract of approximately $6,300,000 during the nine months ended September 30, 2000. The consolidated gross profit margin percentage increased 6.5% for the three months ended September 30, 2001 to 15.5% from 9.0% for the three months ended September 30, 2000. Excluding Symtron's operations for the three months ended September 30, 2000, would not alter the effect on the consolidated gross profit margin percentage for the three months of 2000. The Defense segment gross profit margin percentage decreased to 19.6% from 23.3% in the same period last year. This decrease was due to the low gross profit margin percentage on a large competitively awarded program. Excluding Symtron's operations from the Defense segment in the third quarter of 2000, the gross profit margin percentage would have decreased 4.2%. The Defense segment gross profit margin was increased $700,000 by a reduction of $700,000 in the cost of sales. This amount also included in trade receivables is for an equitable adjustment claim on a U.S. Navy contract. Symtron was the prime contractor and the Company's wholly owned subsidiary AAI was a subcontractor. In October 2001, the Company received a payment of $400,000 from Symtron. The Transportation segment gross margin loss of $1,321,000 in the third quarter of 2001 compared to a gross margin loss in the same period in 2000 of $7,668,000. The three months ended September 30, 2001 and 2000, respectively, include $1,340,000 and $8,400,000 of charges to cost of sales in the Transportation segment for anticipated increased contract costs. The Energy segment gross profit margin percentage increased to 30.9% in the third quarter of 2001 from 25.7% in the same period last year due to product mix. The consolidated gross profit margin percentage decreased for the nine months ended September 30, 2001 to 17.2% compared to 19.0% for the same period in 2000. Excluding Symtron's operations for the nine months ended September 30, 2000, the gross profit margin percentage would have decreased 1.3%. The Defense segment gross profit margin decreased to 20.3% from 24.0% in the same period last year primarily due to low gross profit margin percentage on a large competitively awarded program. Excluding Symtron's operations from the 2000 Defense segment, the gross profit margin percentage would have decreased 3.4%. The Transportation segment gross margin loss of $2,454,000 in the first nine months of 2001 compared to a gross margin loss of $7,193,000 in the first nine months of 2000 which resulted primarily from anticipated labor cost growth on a certain program as well as general overhead increases and partially offset by earnings related to services previously rendered to a strategic partner. The Energy 8 segment gross profit margin percentage increased to 31.3% in the first nine months of 2001 from 30.2% in the same period last year due to product mix. The consolidated selling and administrative expenses for the three months ended September 30, 2001 decreased $1,628,000 or 14.8% to $9,387,000 from $11,015,000 in the same period last year primarily due to the inclusion of Symtron's operations in 2000. Excluding Symtron's operations in 2000 would have resulted in a decrease of $322,000 or 3.3%. The Defense segment's selling and administrative expenses decreased $1,604,000 or 20.1% to $6,073,000. Excluding Symtron's operations from the Defense segment in 2000, selling and administrative expenses would have decreased $297,000 or 4.7% due to lower bid and proposal costs during the current period. Selling and administrative expenses increased $54,000 to $1,137,000 in the Transportation segment due to increased production activity. The selling and administrative expenses increased $77,000 to $2,179,000 in the Energy segment due to increased bid and proposal efforts. The Other segment experienced decreased selling and administrative expenses of $156,000 due to increased income of administrative fees received from operating segments. The consolidated selling and administrative expenses for the nine months ended September 30, 2001 decreased $4,181,000 or 12.7% to $28,765,000 from $32,946,000 in the same period of 2000, primarily due to the inclusion of Symtron's operations in 2000. Excluding Symtron's operations in 2000 would have resulted in a decrease of $797,000 or 2.7%. The Defense segment's selling and administrative expenses decreased $4,106,000 or 17.9% to $18,877,000, primarily due to the inclusion of Symtron's operations in 2000. Excluding Symtron's operations from the Defense segment in 2000 would have resulted in a decrease of $722,000 or 3.7% due to lower bid and proposal costs and lower marketing expenses during the current period. The Transportation's general and administrative expenses in the first nine months of 2001 increased $708,000 or 26.8% to $3,353,000 due to increased production activity. The Energy segment's selling and administrative expenses for the first nine months of 2001 increased $101,000 to $6,536,000 from $6,434,000 in the same period of 2000. The Other segment decreased selling and administrative expenses by $884,000 due to increased income of administrative fees received from operating segments. The consolidated other operating expenses were $134,000 and $458,000 lower in the three and nine months periods ended September 30, 2001, respectively, compared to the same periods last year. These decreases primarily resulted from a reduction in amortization expense related to Symtron of $131,000 and $394,000 during the three and nine months ended September 30, 2001, respectively, compared to the same periods last year. The consolidated other income decreased $1,380,000 in the three months ended September 30, 2001 from the same period last year primarily due to income of $950,000 from the settlement of lawsuits in the three months ended September 30, 2000. Pension income was reduced by $272,000 and the Company experienced a foreign exchange loss of $182,000 in the current three month period. The consolidated other income decreased $877,000 in the nine months ended September 30, 2001 from the same period last year primarily due to the 9 reductions of pension income of $224,000 and royalties and commissions of $344,000 and the foreign exchange loss $182,000. The consolidated income before income taxes increased $478,000 or 17.6% in the three months ended September 30, 2001 from the same period in 2000. Excluding Symtron's operations, the decrease would have been $911,000 or 22.2%. During the three month period ended September 30, 2001 as compared to the quarter ended September 30, 2000 the Defense segment profit increased $2,088,000 or 57.9% to $5,696,000. Excluding the Symtron loss from the Defense segment from the three month period in 2000, the increase would have been $700,000 or 14.0%. The Energy segment profit decreased $446,000 or 56.5% to $344,000 and the Transportation segment loss decreased $5,415,000 to $2,800,000. The Other segment loss increased to $41,000 in the third quarter of 2001 from a profit of $6,538,000 during the third quarter of 2000, which included a gain on the sale of assets of $5,976,000 ($4,166,000 net of taxes or $.33 per diluted share). The consolidated income before income taxes decreased by $1,138,000 or 11.2% in the nine months ended September 30, 2001 from the same period in 2000. Excluding Symtron's operations from the nine months of 2000, the decrease would have been $2,826,000 or 23.8%. During the nine month period ended September 30, 2001 as compared to the like period in 2000 the Defense segment profit increased by $3,137,000 or 30.9% to $13,294,000. Excluding Symtron's operations, the increase would have been $1,450,000 or 12.2%. The Energy segment profit decreased by $2,204,000 or 55.6% to $1,761,000 and the Transportation segment loss decreased by $2,903,000 to $6,566,000. The Other segment profit was $570,000 during the nine months of 2001 as compared to $5,544,000 during the first nine months of 2000 which included a profit on the sale of assets of $5,976,000 ($4,166,000 net of taxes or $.33 per diluted share). The Company's effective tax rates for federal and local taxes were 36.7% and 21.1% for the three months ended September 30, 2001 and 2000, respectively. The lower tax rate in 2000 is related to the profit on the sale of Symtron which had a higher tax basis than book basis. The Company's effective tax rates for federal and local taxes were 28.5% and 31.9% for the nine months ended September 30, 2001 and 2000, respectively. The lower than statutory tax rates are due to a local income tax benefit of $1,000,000 or $660,000 net of federal taxes in 2001 and the lower tax rate on the sale of Symtron (see preceding paragraph) in 2000. The Company reported net income of $2,026,000, or $.15 per diluted share, for the third quarter of 2001 compared to net income of $2,146,000, or $.17 per diluted share, in the third quarter of 2000. Excluding the results of Symtron's operations, and the gain on the sale of Symtron the net loss for the third quarter of 2000 would have been $1,189,000 or $.10 per diluted share. For the first nine months of 2001, net income was $6,481,000, or $.49 per diluted share, compared to $6,941,000, or $.55 per diluted share, for the first nine months of 2000. Excluding the results of Symtron's operations and the gain on the sale of Symtron from the nine months of 2000, net income for the nine-month period of 2000 would have been $3,725,000 or $.30 per diluted share. 10 Since December 31, 2000 the Company's backlog decreased by $5,685,000 or 1.37% in the first nine months of 2001. The Energy segment backlog increased $2,258,000; the Transportation segment backlog decreased $4,009,000 and the Defense segment backlog decreased $3,934,000. Liquidity and Capital Resources On June 28, 2001, the Company and certain of its subsidiaries (the "Borrowers") entered into a Loan and Security Agreement (the "Agreement") with Fleet Capital Corporation, which replaced the Company's loan agreement with First Union Commercial Corporation. The Agreement has a term of three years and provides for letters of credit and cash borrowings of up to $25 million, with a sublimit of $10 million for cash borrowings, subject to a borrowing base. Credit advances may increase to $32 million, provided that amounts in excess of $25 million are cash-collateralized. The Agreement contains certain restrictive covenants, among which are a minimum fixed charge coverage ratio and a maximum balance sheet leverage ratio, all as defined. All assets of the Borrowers are pledged as collateral under the Agreement. The stock of the Borrowers (other than the Company) and AAI's Hunt Valley property are also pledged as collateral pursuant to a pledge agreement and a deed of trust. During the first nine months of 2001, cash decreased $2,722,000 to $8,663,000 at September 30, 2001 from $11,385,000 at December 31, 2000. Also at September 30, 2001 there was $222,000 of restricted cash. Changes in operating assets and liabilities, net resulted in a net use of cash of $6,367,000. The major items were an increase in inventory of $17,775,000 offset by an increase in accounts payable of $12,198,000. Dividends paid of $3,782,000 were partially offset by proceeds from the exercise of stock options of $3,472,000. At September 30, 2001 there were no cash borrowings under the Agreement. The letter of credit obligations outstanding at September 30, 2001 were $24,140,000. The Company currently has no significant fixed commitment for capital expenditures. The Company expects that available cash and existing lines of credit will be sufficient to meet its cash requirements for the next twelve months. Its cash requirements consist primarily of its obligations to fund operations. Contingent Matters In connection with certain of its contracts, the Company commits to certain performance guarantees. The ability of the Company to perform under these guarantees may, in part, be dependent on the performance of other parties, including partners and subcontractors. If the Company is unable to meet these performance obligations, the performance guarantees could have a material adverse effect on product margins and the Company's results of operations, liquidity or financial position. The Company monitors the progress of its partners and subcontractors and does not believe that their performance will adversely affect these contracts as of September 30, 2001. 11 The Company is involved in various lawsuits and claims, including various environmental matters. In the opinion of management, the ultimate amount of liability, if any, under the pending litigation will not have a materially adverse effect on the Company's financial position, results of operations or cash flows. There have been no material changes in this litigation from December 31, 2000. (See item 3 - Form 10-K for December 31, 2000). ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's operations consists of manufacturing and sales activities in foreign jurisdictions, and some of these transactions are denominated in foreign currencies. As a result, the Company's financial results could be affected by changes in foreign exchange rates. To mitigate the effect of changes in these rates, the Company has entered into foreign exchange contracts. There has been no material change in the firmly committed sales exposures and related derivative contracts from December 31, 2000. (See Item 7A - - Form 10-K for December 31, 2000.) At September 28, 2001, the average national value of these contracts was $1,500,000, with an aggregate profit of $222,000 based on fair market value. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The adoption of Statement No. 133 did not have a material effect on earnings or the financial position of the Company. 12 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES PART II - Other Information ITEM 6 - Exhibits and Reports on Form 8-K (b) The Registrant did not file any reports on Form 8-K during the quarter ended September 30, 2001. 13 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INDUSTRIAL CORPORATION Date November 13, 2001 By: /s/ James H. Perry ----------------- ------------------------------ James H. Perry Chief Financial Officer, Vice President and Treasurer 14 -----END PRIVACY-ENHANCED MESSAGE-----