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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 30, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number #1-4252
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UNITED INDUSTRIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2081809
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(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization
570 Lexington Avenue, New York, NY 10022
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(Address of principal executive offices)
Not Applicable
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
Indicate by check mark whether the registrant (1)has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of
1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 12,375,638
shares of common stock as of August 3, 2000.
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UNITED INDUSTRIAL CORPORATION
INDEX
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Page #
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Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - Unaudited
June 30, 2000 and December 31, 1999 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended
June 30, 2000 and 1999 2
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 8
PART II - Other Information 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31*
2000 1999
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ASSETS (Unaudited)
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<S> <C> <C>
Current Assets
Cash & cash equivalents $ 18,282 $ 13,092
Trade receivables 45,692 48,395
Inventories
Finished goods & work-in-process 52,074 38,902
Materials & supplies 3,349 3,285
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55,423 42,187
Deferred income taxes 6,914 6,949
Prepaid expenses & other current assets 2,676 3,239
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Total Current Assets 128,987 113,862
Other assets 50,565 56,005
Property & equipment - less allowances
for depreciation (2000-$89,979; 1999-$86,248) 34,142 35,833
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$213,694 $205,700
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
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Accounts payable $ 12,922 $ 9,837
Accrued employee compensation & taxes 8,683 7,710
Customer advances 32,092 25,705
Federal income taxes (53) 636
Other liabilities 3,765 7,847
Provision for contract losses 6,359 7,026
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Total Current Liabilities 63,768 58,761
Long-term liabilities 3,783 3,887
Deferred income taxes 7,256 7,383
Postretirement benefits other than pensions 24,964 24,614
Shareholders' Equity
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Common stock $1.00 par value
Authorized - 30,000,000 shares; outstanding
12,374,638 shares and 12,294,138 shares -
June 30, 2000 and December 31, 1999 (net of
shares in treasury) 14,374 14,374
Additional capital 89,395 89,483
Retained earnings 25,936 23,616
Treasury stock, at cost, 1,999,510 shares at
June 30, 2000 and 2,080,010 shares at
December 31, 1999 (15,782) (16,418)
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113,923 111,055
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$213,694 $205,700
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</TABLE>
See accompanying notes
* Reclassified to conform to 2000 presentation
1
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UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
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(Unaudited)
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 60,925 $ 54,032 $ 110,861 $ 101,102
Operating costs & expenses
Cost of sales 46,403 39,927 83,363 71,942
Selling & administrative 11,451 12,687 21,931 23,676
Other (income) expense - net (527) 333 (1,025) 1,343
Interest expense 15 1 17 24
Interest income (375) (467) (901) (1,086)
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Total operating costs and expenses 56,967 52,481 103,385 95,899
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Income before income taxes 3,958 1,551 7,476 5,203
Income taxes 1,392 127 2,681 1,465
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Net income $ 2,566 $ 1,424 $ 4,795 $ 3,738
========= ========= ========= =========
Net earnings per share:
Basic $ .21 $ .12 $ .39 $ .30
========= ========= ========= =========
Diluted $ .20 $ .11 $ .38 $ .30
========= ========= ========= =========
</TABLE>
See accompanying notes
2
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UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
SIX MONTHS ENDED JUNE 30
2000 1999
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OPERATING ACTIVITIES (Unaudited)
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Net income $ 4,795 $ 3,738
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 4,597 3,790
Deferred income taxes (92) (182)
Decrease in federal income taxes payable (689) (3,300)
Decrease in provision for contract losses (667) (75)
Changes in operating assets and liabilities (3,607) (10,765)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,337 (6,794)
INVESTING ACTIVITIES
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Decrease in marketable securities -- 1,510
Purchase of property and equipment - net (2,484) (6,109)
Decrease (increase) in other assets - net 5,033 (1,530)
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,549 (6,129)
FINANCING ACTIVITIES
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Increase in long-term liabilities 246 245
Proceeds from exercise of stock options 533 133
Dividends (2,475) (2,453)
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NET CASH USED IN FINANCING ACTIVITIES (1,696) (2,075)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,190 (14,998)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 13,092 21,126
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 18,282 $ 6,128
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See accompanying notes
3
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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 six month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
NOTE B - SEGMENT INFORMATION
<TABLE>
<CAPTION>
Trans- Reconci-
(Dollars in thousands) Defense portation Energy Other liations Totals
------- --------- ------ ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Three Months ended June 30, 2000
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Revenues from external customers $45,257 $ 4,035 $11,633 $ - $ - $ 60,925
Intersegment revenues 315 (315) -
Equity profit (loss) in ventures 198 (97) 101
Segment profit (loss) 2,986 (449) 1,949 (528) - 3,958
Income before income taxes $ 3,958
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Six months ended June 30, 2000
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Revenue from external customers $86,383 $ 5,051 $19,427 $ - $ - $110,861
Intersegment revenues 534 (534) -
Equity profit (loss) in ventures 266 (167) 99
Segment profit (loss) 6,549 (1,254) 3,175 (994) - 7,476
Income before income taxes $ 7,476
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Three months ended June 30, 1999
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Revenues from external customers $42,930 $ 3,166 $ 7,936 $ - $ - $ 54,032
Intersegment revenues 468 - - - (468) -
Equity profit (loss) in ventures 131 (809) - - - (678)
Segment profit (loss) 4,736 (4,062) 1,371 (494) - 1,551
Income before income taxes $ 1,551
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Six months ended June 30, 1999
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<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $78,910 $ 5,816 $16,376 $ - $ - $101,102
Intersegment revenues 608 - - - (608) -
Equity profit (loss) in ventures 215 (2,145) - - - (1,930)
Segment profit (loss) 8,773 (5,205) 2,554 (919) - 5,203
Income before income taxes $ 5,203
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At June 30, 2000 assets in the Transportation segment increased approximately
$9,700,000 from December 31, 1999. Inventory increased $15,300,000 and
receivables decreased $5,800,000.
Note C - Dividends
A quarterly dividend of $.10 per share is payable August 31, 2000.
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Six Months Ended
June 30 June 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Weighted average shares 12,374,638 12,270,713 12,374,138 12,264,713
Dilutive effect of stock options 153,693 337,416 150,570 281,857
---------- ---------- ---------- ----------
Diluted weighted average shares 12,528,331 12,608,129 12,524,708 12,546,570
========== ========== ========== ==========
</TABLE>
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.
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Results of Operations
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Consolidated net sales during the second quarter of 2000 increased $6,893,000 or
12.8% to $60,925,000 from $54,032,000 in the second quarter of 1999. The Defense
segment experienced growth of $2,327,000 or 5.4% due to a general increase in
volume. Sales in the Transportation segment increased $869,000 or 27.5% to
$4,035,000 during the second quarter of 2000 from $3,166,000 during the 1999
second quarter. Sales in the Energy segment increased $3,697,000 or 46.6% to
$11,633,000 during the second quarter of 2000 from $7,936,000 during the second
quarter of 1999. The increase in energy segment sales was primarily due to
subsequent capture of customer orders that were delayed during 1999.
For the six months ended June 30, 2000, net sales totaled $110,861,000 which was
$9,759,000 or 9.7% higher than the $101,102,000 recorded during the like period
in 1999. An increase in sales of $7,473,000 or 9.5% to $86,383,000 was generated
by the Defense segment. The Transportation segment's sales decreased $765,000 or
13.2% to $5,051,000 in the first six months in 2000 from $5,816,000 in the same
period in 1999. The decrease was generally due to delays in the electric trolley
bus production. This delay was caused by the failure of certain subsidiaries of
Skoda a.s. that are major subcontractors to Electric Transit, Inc. (ETI) to
deliver bus frames and other major components to the Company due to their
working capital financing difficulties. ETI is owned 65% by Skoda a.s. and 35%
by the Company. Financing arrangements finalized with the Czech Export Bank in
February 2000 are expected to provide the necessary working capital to the Skoda
a.s. subsidiaries and ETI to execute the San Francisco electric trolley bus
program. Consequently, production has begun in the Czech Republic, and
production commenced at the Company's facility during the latter part of the
second quarter of 2000. Sales in the Energy segment during the first six months
of 2000 increased $3,051,000 or 18.6% to $19,427,000 from $16,376,000 in the
first six months of 1999. Sales in the first six months of 1999 in the Energy
segment were adversely affected by delays in expected customer procurement for
new equipment.
The backlog at June 30, 2000 was $392,000,000, an increase of $99,000,000 or 34%
from $293,000,000 at December 31, 1999. The increases were $80,000,000 in the
Transportation segment resulting essentially from an order to refurbish railcars
for the Metropolitan Transit Authority in Baltimore, Maryland, $17,000,000 in
the Defense segment and $2,000,000 in the Energy segment.
The gross margin percentage decreased for the three months ended June 30, 2000
to 23.8% compared to 26.1% for the same period in 1999. The Defense segment
gross margin decreased to 23.1% from 28.5% in the same period last year due to
the timing of gross margin recognition on several programs. The Energy segment
gross margin percentage decreased to 30.1% in the second quarter of 2000 from
37.1% in the same period last year due to a large amount of subcontracting which
generates lower gross margin percentages. The Transportation segment experienced
a 12.2% gross margin profit in the second quarter of 2000 compared to a gross
margin loss in the second quarter of 1999.
The gross margin percentage decreased for the six months ended June 30, 2000 to
24.8% compared to 28.8% for the same period in 1999. The Defense segment gross
margin decreased to 24.0% from 29.6% in the same period last year due to the
timing of gross margin recognition on several programs. The Energy segment had a
decrease in gross margin percentage to 32.3% in
6
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the first six months of 2000 from 35.9% the same period last year due to a lower
gross margin percentage in the second quarter of 2000. (See above paragraph.)
The Transportation segment experienced a 9.4% gross margin profit in the first
six months of 2000 compared to a gross margin loss in the same period of 1999.
Selling and administrative expenses for the three months ended June 30, 2000
decreased $1,236,000 or 9.7% to $11,451,000 from $12,687,000 during the same
period in 1999. The Defense segment's selling and administrative expenses
decreased $130,000 or 1.6%. The Transportation segment's selling and
administrative expenses decreased $1,314,000 to $844,000 in the second quarter
of 2000 from $2,158,000 in the same period of 1999. The Transportation segment's
selling and administrative expenses in the second three months of 1999 included
$700,000 of expenses related to the acquisition of a Skoda a.s. subsidiary which
the Company did not pursue.
Selling and administrative expenses for the six months ended June 30, 2000
decreased $1,745,000 or 7.4% to $21,931,000 from $23,676,000 during the same
period in 1999. The Defense segment's selling and administrative expenses
decreased $574,000 or 3.6%. The Energy segment's selling and administrative
expenses for the first six months of 2000 increased $218,000 or 5.3% to
$4,332,000 from $4,114,000 in the same period of 1999 primarily due to efforts
to increase international market share. The Transportation segment's general and
administrative expense in the first six months of 2000 decreased 45.7% to
$1,562,000 from $2,877,000 in the same period of 1999. The Transportation
segment's selling and administrative expenses in the first six months of 1999
included $700,000 of expenses related to the acquisition noted above which the
Company did not pursue.
Other income, net increased $860,000 to $527,000 income during the first three
months of 2000 compared to other expense, net of $333,000 for the same period in
1999. The Transportation segment's other expenses decreased by $712,000 in the
first three months of 2000 from the same period in 1999. The ETI equity loss
(which was recorded at 35%) in the Transportation segment was $97,000 in the
second quarter of 2000 compared to an ETI equity loss (which was recorded at
100%) of $809,000 in the same period of 1999.
Other income, net increased $2,368,000 to $1,025,000 in the first six months of
2000 from an expense, net of $1,343,000 in the same period in 1999. The major
increases were $397,000 in the Energy segment and $1,978,000 in the
Transportation segment. The equity loss in the Transportation segment's ETI
venture was $167,000, (which was recorded at 35%) in the first six months of
2000 compared to $2,145,000 (which was recorded at 100%) in the first six months
of 1999.
Income before taxes increased $2,407,000 or 155.2% to $3,958,000 in the second
quarter of 2000 from $1,551,000 in the second quarter of 1999. Earnings per
share were $.20 per diluted share in the second quarter of 2000 compared to $.11
per diluted share in the second quarter of 1999. The increase was primarily due
to a reduction in the Transportation segment's loss of $3,613,000 resulting from
increased gross profit and reduced expenses. The Energy segment's income before
taxes increased $578,000 to $1,949,000 in the second quarter of 2000 from
$1,371,000 in the second quarter of 1999, due to increased sales. These
increases in income before taxes were partially offset by a reduction in the
Defense segment of $1,750,000 to $2,986,000 in the second quarter of 2000 from
$4,736,000 in the second quarter of 1999 primarily due to the decrease in gross
margin.
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Income before taxes increased $2,273,000 or 43.7% to $7,476,000 in the first six
months of 2000 from $5,203,000 in the same period in 1999. Earnings per share
were $.38 per diluted share in the first six months of 2000 compared to $.30 per
diluted share in the first six months of 1999. The Transportation segment
reduced the loss before taxes by $3,951,000. The Energy segment increased income
before taxes $621,000. The Defense segment decreased income before taxes
$2,224,000, primarily due to reduced gross margin in the Defense segment.
Liquidity and Capital Resources
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Cash and cash equivalents increased $5,190,000 to $18,282,000 from $13,092,000
at December 31, 1999. Net income, depreciation and amortization were nearly
offset by purchases of property and equipment, dividends, and changes in
operating assets and liabilities. During the first quarter of 2000, the Company
received cash of $5,702,000 in payment of a note receivable from ETI, a joint
venture in which the Transportation segment owns a 35% equity interest. 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 through December 31, 2000. The
Company's current loan agreement expires on January 11, 2001. Management
believes it will be able to secure a replacement financing arrangement prior to
January 11, 2001. The Company's cash requirements consist primarily of its
obligations to fund operations.
Contingent Matters
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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 June 30, 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 two foreign exchange
contracts. There has been no material change in the firmly committed sales
exposures and related derivative contracts from December 31, 1999. For
additional information, see Item 7A in the annual report on Form 10-K for the
year ended December 31, 1999.
8
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
PART II - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the
quarter ended June 30, 2000.
9
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SIGNATURE
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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 August 11, 2000 By: /s/ James H. Perry
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James H. Perry
Chief Financial Officer
Vice President and
Treasurer
10
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UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Page
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27 Financial Data Schedule 12
11
