10-K405
1
FORM 10-K FOR FISCAL YEAR ENDED DEC 31 1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1994
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
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. Employer Identification
Incorporation or Organization) No.)
18 East 48th Street, New York, N.Y. 10017
(212) 752-8787
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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 Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [x].
Aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of March 1,
1995, computed by reference to the closing sale price of the registrant's
Common Stock on the New York Stock Exchange on such date: $52,364,460.
Number of shares of the registrant's Common Stock outstanding
as of March 1, 1995: 12,167,493.
DOCUMENTS INCORPORATED BY REFERENCE:
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1. Certain portions of the registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1994 are incorporated by reference into
Parts I and II of this report.
2. Certain portions of the registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, in connection with the Annual Meeting of Stockholders of the
registrant to be held on May 8, 1995 are incorporated by reference into
Part III of this report.
PART I
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ITEM 1. BUSINESS
United Industrial Corporation ("United" or the "Company") was
incorporated under the laws of the State of Delaware on September 14,
1959 under the name Topp Industries Corporation. On December 31,
1959, the name of the corporation was changed to United Industrial
Corporation.
The operations of United consist of three principal industry segments:
defense, energy systems and plastic products, conducted through four
wholly-owned subsidiaries.
Defense
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AAI Corporation
AAI Corporation ("AAI") is engaged in research, development and
manufacture in the following major areas: (1) training and simulation
systems; (2) automatic test equipment for electronic systems and
components; (3) ordnance systems; (4) mechanical support systems for
industrial, military, and marine applications; (5) unmanned air
vehicle systems; (6) automated weather monitoring systems; and (7)
transportation systems. Since its inception, AAI's business has been
primarily in support of the U.S. Department of Defense ("DOD"). Since
1990, the Company has emphasized diversification into other markets to
reduce its dependence on the DOD. The United States defense budget
has been significantly reduced in recent years and this trend is
expected to continue. While 1993 sales were similar to 1992, the 1994
sales decreased $46 million from 1993, primarily in DOD. In 1994
approximately 74% of the sales volume of AAI consisted of research,
development and production of military items under defense contracts.
Certain of the contracts currently being worked on by AAI involve
testing systems for U.S. Navy aircraft, training equipment for the
U.S. Air Force and U.S. Navy, and weapons handling systems for the
U.S. Army.
The balance of AAI's business consists of work performed in the non-
Department of Defense markets. These areas include hydraulic test
equipment, transportation equipment and weather systems. AAI was
awarded a contract for 1,096 weather systems to be installed in
certain government airports throughout the country. In 1994, 145
weather systems were installed bringing total systems installed since
inception of the contract to 530.
Because of the variety of its activities, it is not possible to state
precisely the competitive position of AAI with respect to each of its
product lines. In the area of training and simulation systems, AAI is
one of approximately ten leading organizations developing equipment
for the U.S. Government. AAI's ability to obtain orders for training
and simulation systems is dependent principally on the ability,
expertise and training of its employees and the level of funding by
the DOD and foreign military users. A number of large and small
companies produce automatic test equipment. In the area of weapons and
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munitions, AAI ranks high among approximately ten companies
engaged in development work. However, AAI's production activity in
this field is less significant. AAI began working in the Unmanned Air
Vehicle business in 1986. The Company produced the highly successful
Pioneer Unmanned Air Vehicle employed by the United States during
Operation Desert Storm, and presently is pursuing contracts with
foreign countries. AAI is one of several large and small competitors
in this field.
On January 16, 1992, AAI acquired, through a newly-formed subsidiary
AAI/ACL Technologies, Inc. ("AAI/ACL"), substantially all of the
assets and business of ACL Technologies, Inc., a manufacturer of
hydraulic test equipment principally for the commercial airline
market. Business results of AAI/ACL have been less than anticipated
because of the continued unfavorable economic situation of the
commercial airline industry in the U.S. and worldwide.
On March 29, 1993, the Company's Board of Directors approved a plan of
reorganization and restructuring whereby, in light of existing
circumstances such as the declining Department of Defense budget and
the continuing financial problems of the airline industry and in order
to position itself for both short and long-term growth, it took a one-
time restructuring charge. The charge covered the anticipated cost of
organizational and product-line changes, the consolidation of
facilities, and work force reductions of approximately 300
in AAI and its four subsidiaries. The non-recurring charge of $22.5
million ($14,370,00 or $1.17 per share, net of tax benefit) was taken
during 1993. As at December 31, 1993, the restructuring program was
substantially completed. During 1994, $750,000 was expended. A major
portion of the charge resulted from the discontinuance of operations
of AAI/MICROFLITE. AAI/MICROFLITE, acquired in 1991, was formerly the
commercial division of Singer-Link Corporation, a manufacturer of
flight simulators and training devices for commercial aircraft. All
of the remaining assets of AAI/MICROFLITE were sold in 1994.
AAI's administrative offices and the major part of its manufacturing
and engineering facilities are located in Hunt Valley, Maryland.
Symtron Systems, Inc.
On January 18, 1994, the Company acquired all of the outstanding
shares of Symtron Systems, Inc. ("Symtron"), a producer of fire
fighter training simulators for the government, military and
commercial markets. The purchase price consisted of initial cash
payments of $2,000,000, assumption of certain liabilities of
approximately $5,900,000 and contingent payments, not to exceed
$1,000,000, based on the net worth at specified dates and future
profits on contracts existing at the acquisition date. The maximum of
such payments were earned and payable to the sellers at March 31,
1995. Additionally, contingent amounts are payable if certain pretax
profits, as defined in the purchase agreement, are earned for each of
the years in the five year period ending December 31, 1998. Funds
generated from operations and an existing line of credit were utilized
to finance the purchase of Symtron.
The acquisition was accounted for as a purchase, and accordingly,
the operations of Symtron are included in the Company's 1994 financial
statements. In 1994 approximately 71% of the sales volume of Symtron
consisted of production for commercial customers. The main office and
plant of Symtron are located in Fair Lawn, New Jersey.
Energy Systems
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Detroit Stoker Company
Detroit Stoker Company ("Detroit Stoker") is engaged in the
manufacture and sale of industrial stokers, combustion systems,
pneumatic and hydraulic conveying systems, waste to energy incinerator
equipment, rotary seal feeders, shredders, grapples, and replacement
parts. Its products are used for industrial power and municipal power
plants, utility plants, heating of hospitals, universities and other
types of public buildings and municipal and industrial incineration
plants. Principal customers include public utilities, manufacturing
and industrial plants, universities, pulp and paper mills and sugar
mills. Its waste to energy equipment is used extensively for public
and private plants burning municipal solid waste as fuel. The primary
raw materials used by Detroit Stoker are iron and steel, which are
available from many sources. The main office and plant of Detroit
Stoker are located in Monroe, Michigan.
The products of Detroit Stoker compete with those of several other
manufacturers. Detroit Stoker is presently marketing a liquid and
gaseous fuel burning product line with low emissions for the power
industry, primarily for boiler applications. Potential customers
would consist of original boiler manufacturers and institutions as
well as all major industrial manufacturers. Competition is based upon
many factors including price, service and performance and competitive
bidding.
Its Material Handling division is engaged in the manufacture and sale
of mechanical conveyors and miscellaneous auxiliary equipment. Its
conveyor products are used by industrial, utility and processing
plants to mechanically convey bulk materials. The primary raw
materials used are iron and steel, which are available from many
sources. This division competes with several other manufacturers of
similar equipment.
Midwest Metallurgical Laboratory, Inc. ("Midwest"), a subsidiary of
Detroit Stoker, is a foundry engaged in the manufacture of grey and
ductile iron, stainless steel and special alloyed iron castings.
Approximately 85% of the sales of Midwest are to Detroit Stoker.
Midwest's plant is located in Marshall, Michigan.
Plastic Products
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Neo Products Co.
Neo Products Co. ("Neo") engineers and fabricates thermoplastic
products to the specifications submitted by its customers. Neo also
manufactures items for point of purchase display advertising and
consumer products related primarily to infants, food service equipment
for a major airline and fuel tank reservoirs for the auto industry.
Sales to customers of items for point of purchase display advertising
represented approximately 28% of sales in 1994. These sales
principally consisted of display racks and trays. Sales of consumer
end use items represented 57% of sales in 1994. These sales primarily
included infant seats, carrier cradles, chairs and waste baskets.
Sales to the auto industry represented approximately 11% of sales in
1994. The largest customer of Neo accounted for approximately 39% of
sales in 1994 compared to 32% and 19% in 1993 and 1992, respectively.
Neo's main office and plant are located in Chicago, Illinois.
Neo is engaged in the highly competitive field of thermoplastic
fabrication. Neo's operations are in potential and actual competition
with fabrication facilities of some of its own customers as well as
other thermoplastic fabricators. Neo has improved its competitive
position by increasing the size of its larger injection molding
presses to accommodate larger size molded parts. Although it is not
possible to estimate the position of Neo among competitors in this
field, it is believed to hold less than 1% market share. The primary
raw material used by Neo is plastic resin, which is available from
many sources.
For additional information concerning United's subsidiaries reference
is made to information set forth in the sections entitled "AAI
Corporation", "Symtron Systems, Inc.", "Detroit Stoker Company" and
"Neo Products Company" commencing on page 5, of United's 1994 Annual
Report to Shareholders (the "Annual Report"), which sections are
incorporated herein by reference.
General
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Employees
As of March 1, 1995 United and its subsidiaries had approximately
1,900 employees. Approximately 220 of these employees are represented
by several unions under contracts expiring between March 1996 and
January 1998. United considers its employee relationships to be
satisfactory.
Patents
United and its subsidiaries own more than 100 United States patents
relating to various products, including stokers, marine equipment,
ordnance and electronic equipment, and fire
fighter trainers. In addition, United has numerous pending applications
for patents. There is no assurance as to how many patents will be issued
pursuant to these pending applications. The applications relate to a wide
variety of fields, including automation control systems, ordnance devices,
and electronic developments. No patent is considered to be of material
importance to United.
Research and Development
During 1994, 1993 and 1992, the subsidiaries of United (exclusive of
AAI) expended approximately $ 98,031, $126,300 and $90,400,
respectively, on the development of new products and the improvement
of existing products. All of the programs and the funds to support
such programs are sponsored by the subsidiary involved. In addition
to the above amount, AAI is substantially engaged in research and
development for the U.S. Government.
Backlog
The backlog of orders by industry segment at December 31, 1993 and
1994 was as follows:
1993 1994
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Defense $204,225,000 $211,751,000
Energy Systems 2,711,000 4,627,000
Plastic Products 1,331,000 1,281,000
The increase in the backlog for the defense segment was primarily due
to increased orders in the non-defense markets. The increase in
backlog for energy systems was due to the increased level of new
contracts being awarded. Except for approximately $90,951,000 of
research and development backlog, substantially all of the backlog
orders at December 31, 1994 are expected to be filled in 1995.
Government Contracts
No single customer other than the U.S. Government, principally the
Department of Defense, accounted for 10% or more of net sales during
the year. Sales to the Government normally carry a lesser margin of
profit than commercial sales and may be subject to price
redetermination under certain circumstances. Contracts for such sales
can be terminated for the convenience of the Government.
Financial Information Relating to Industry Segments
For financial information with respect to industry segments of United,
reference is made to the information set forth in Note 12 of the Notes
to Financial Statements included in Item 8 of this Report, which Note
is incorporated herein by reference.
Foreign Operations and Export Sales
United and its subsidiaries have no significant foreign operations.
During 1993 export sales by United and its subsidiaries amounted to
approximately $31,258,000. Export sales in 1994 and 1992 amounted
to less than 10% of net sales for these years.
ITEM 2. PROPERTIES
United maintains executive and administrative offices at leased
premises at 18 East 48th Street, New York, N.Y., which lease expires
in December 1996. The following is a tabulation of the principal
properties owned or leased by United's subsidiaries as at March 1,
1995.
Approximate
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Principal Area Owned
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Location Use In Square Feet or Leased
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1510 East First Machine 194,910 Owned in fee
Street shop, steel floor space
Monroe, MI fabrication, on 14.4
engineering acres of
and sales land (East
facilities Building)
of Detroit
Stoker
1426 East First Assembly, 101,000 Owned in fee
St. shipping and floor space
Monroe, MI administrative on 2.2
facilities acres of
of Detroit land (West
Stoker Building)
15290 Fifteen Foundry, 59,386 Owned in fee
Mile Road Midwest floor space
Marshall, MI Metallurgical on 28.4
acres of
land
Industry Lane Manufacturing, 770,918 Owned in fee
Cockeysville, MD engineering floor space
and on 92 acres
administrative of land
facilities
of AAI
Approximate
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Principal Area Owned
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Location Use In Square Feet or Leased
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Gilroy Road Additional 66,400 Leased to
Hunt Valley, MD manufacturing (Building 200) April 22,
and 1999
engineering
facilities
of AAI
1701 Pollitt Administrative, 60,000 Leased to
Drive engineering June 30,
Fair Lawn, NJ and 2001
manufacturing
facilities
of Symtrom
1505 E. Warner Manufacturing, 145,000 Leased to
Avenue engineering Jan. 31,
Santa Ana, CA and 1997
administrative
facilities
of ACL
Technologies
2801 Manufacturing, 71,142 Leased to
Professional engineering July 31,
Parkway and 1996
Ocoee, FL administrative
facilities
of AAI
1035 Semoran Sales office 400 Leased to
Blvd. for Feb. 28,
Winter Park, FL Symtron 1997
5400 S. Kilbourn Manufacturing 45,000 Owned in fee
Avenue and
Chicago, IL administrative
facilities
of Neo
For information with respect to obligations for lease rentals, see
Note 8 of the Notes to Financial Statements in the Annual Report,
which Note is incorporated herein by reference. United considers
its properties to be suitable and adequate for its present needs.
The properties are being fully utilized.
ITEM 3. LEGAL PROCEEDINGS
On December 27, 1989, the Company was named in an administrative order
filed by the Arizona Attorney General's Office seeking the Company's
response to alleged environmental
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contamination at property located on West Osborn Street in Phoenix,
Arizona (the "West Osborn property"), that the State alleges formerly was
owned by the Company. The Arizona Attorney General's Office and the
Arizona Department of Environmental Quality have contended that
contamination from the West Osborn property, as well as other properties
nearby, has contributed to a groundwater contamination. In 1990, the
Company challenged the administrative order and it was withdrawn.
Subsequently, the Arizona Attorney General's Office and the Arizona
Department of Environmental Quality named the Company and several other
parties on a draft consent order holding the Company and the parties
jointly and severally liable for the costs of investigating alleged
environment contamination at the West Osborn property and for the payment
of certain additional past and future investigative costs. During 1991,
the Company negotiated with Arizona officials over the scope of the
consent decree, although the Company does not presently believe nor has it
conceded to the State or to any other party that it bears any
liability for the costs of responding to any contamination at the West
Osborn property. These negotiations were not producing results and
thus were terminated. The draft consent order seeks work and payments
totalling approximately $1 to $2 million from all of the allegedly
involved parties. On May 18, 1993, the State of Arizona filed suit
against the Company in the U.S. District Court of Arizona seeking the
recovery of investigative costs, injunctive relief to require the
Company to perform a Remedial Investigation and Feasibility Study, and
ultimately to require the remediation of alleged soil and ground-water
contamination. The State has since brought in co-defendants whose
operations at the site were substantially larger than those of the
Company. This case is the subject of active discovery by the Company.
The Company intends to vigorously contest these actions and believes
that the resolution of these actions will not be material to the
Company.
On February 11, 1992 a complaint was filed against the Company and ten
other named and ten unnamed entities in the Maricopa County Superior
Court of Arizona by seven individuals seeking to represent a class. A
class in excess of 10,000 was originally alleged. The plaintiffs have
amended their complaint to separate the larger property damage and
medical monitoring classes into smaller subclasses based on geographic
location and alleged exposure to solvents. In the process of
amendment, the overall sizes of the respective classes have been
significantly reduced. This suit alleges that the members of the
class have been exposed to contaminated groundwater in the
Phoenix/Scottsdale, Arizona area and suffer increased risk of disease
and other physical effects. They also assert property damages under
various theories; seek to have certain scientific studies performed
concerning health risks, preventative measures and long-term effects;
and seek incidental and consequential damages, punitive damages and an
injunction against actions causing further exposures. The property
and medical classes recently were certified. The Company has joined
with the other defendants and appealed the class certification issue
to the Arizona Supreme Court. The Company intends to vigorously
contest these actions and believes that the resolution of these
actions will not be material to the Company.
Three additional lawsuits were filed on April 7, 1993, December 20,
1993, and June 10, 1994 in the Maricopa County Superior Court of
Arizona. These matters allege personal
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injury and wrongful death by multiple plaintiffs arising from the
alleged contamination in the Phoenix/Scottsdale, Arizona area.
The Company intends to aggressively defend against these claims,
however, at this time, no estimate can be made as to the amount or
range of potential loss, if any, to the Company with respect to these
matters. In comparison to the other defendants, the operations of
the Company were very limited in time and size.
In January 1993, Detroit Stoker was named as a third-party defendant
in four lawsuits pending in the United States District Court for the
Northern District of Ohio. The third-party plaintiffs that have sued
Detroit Stoker are ship owners that have in turn been sued by Great Lakes
maritime workers who claim to have suffered injuries and disease as a
result of alleged exposure to asbestos while working aboard the ships.
The ship owners claim that Detroit Stoker and other suppliers to the ship
owners furnished products, supplies or components of the ships that
contained asbestos. These cases are currently inactive pending their
transfer to the national multi-district asbestos docket in the United
States District Court in Philadelphia. Detroit Stoker intends to
aggressively defend these claims, however, 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.
Detroit Stoker was notified in March 1992 by the Michigan Department
of Natural Resources ("MDNR") that it is a potentially responsible
party in connection with the clean-up 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"), MCLA section 299.601
et seq. Under MERA, if a release or a potential release of a
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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, however, 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.
Turpin Wachter Associates, Inc. ("TWAI") commenced an action against
AAI Systems Management, Inc. ("SMI") before the American Arbitration
Association in December 1993 alleging that SMI was required to
exercise options awarding TWAI further work under a subcontract
relating to the Navy fire fighter. In December 1994, TWAI was awarded
$117,000.
Peak Oilfield Service Corp. ("Peak") sued SMI in the United States
District Court for the District of Alaska in December, 1993, alleging
that SMI interfered with an implied contract between SMI's
subcontractor and Peak. In March 1994, full settlement was reached in
this matter which consisted of the payment of $170,000 to the
plaintiff.
There are various other lawsuits and claims, including other
environmental matters, pending against United. In the opinion of
United's management based in part on advice of counsel,
none of these other actions will have a materially adverse effect on
the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in May to elect officers for the ensuing
year. Interim elections are held as required. Except as otherwise
indicated, each executive officer has held his current position for
the past five years.
Age at
Name Position, Office December 31, 1994
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Bernard Fein* -- Chairman of the Board (since 1961) and President 86
(1961 - March 26, 1995) of the Company
P. David Bocksch** -- President and Chief Executive Officer of the Company 51
(effective March 27, 1995); Managing Partner of
Dalexis Partners, Inc., a management consulting
firm (1987 - March 26, 1995); President and Chief
Executive Officer of MicroFrame, Inc., a data
communications security firm (October 1993 to
December 1994); President and Chief Executive
Officer of Monroe System for Business, Inc., an
office equipment and contract services company
(June 1991 to September 1993); Senior Vice President
of Alliance Capital Management, L.P., a pension
fund manager and investment advisor (1989 to May 1991)
Howard M. Bloch* -- Vice President of the Company (since May 1993); 67
Treasurer of the Company (1972 - November 1994);
Secretary of the Company (1987 - April 1994)
James H. Perry -- Treasurer of the Company (since December 1994); 33
Senior Manager at Ernst & Young LLP (October 1992 -
November 1994); Manager at Ernst & Young LLP
(1988 - September 1992)
Susan Fein Zawel -- General Counsel (January 1992 - May 1994) and 40
Secretary (since May 1994) of the Company;
Part-time practice of law in public service sector
(1989 - 1991)
Richard R. Erkeneff -- President of AAI (since October 1993); Senior Vice 59
President of the Aerospace Group at McDonnell
Douglas Corporation (December 1992 - November 1993);
President and Chief Executive Vice President of
McDonnell Douglas Electronic Systems Company
(1988 - October 1992)
Michael A. Schillaci -- President, Neo Plastics (since 1987) 47
* Member of the Company's Board of Directors
** Nominee to the Company's Board of Directors
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Reference is made to the information set forth in Note 15 of the Notes
to Financial Statements included in Item 8 of this Report concerning
dividends, stock prices, stock listing and record holders, which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth in the sections
entitled "Ten-Year Financial Data" on pages 37 and 38 of the Annual
Report and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" commencing on page 39 of the
Annual Report, which sections are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to the information set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 39 of the Annual Report,
which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial
statements included on pages 13 through 36 of the Annual Report are
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement
involving the election of directors in connection with the Annual
Meeting of Stockholders of United to be held on May 8, 1995 (the
"Proxy Statement"), which section (other than the Compensation
Committee Report and Performance Graph) is incorporated herein by
reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1994,
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
The information required with respect to executive officers is set
forth in Part I of this report under the heading "Executive Officers
of the Registrant," pursuant to instruction 3 to paragraph (b) of Item
401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the information to be set forth in the section
entitled "Voting Rights" and "Security Ownership of Management" in the
Proxy Statement, which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
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PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements:
See Financial Statements Index included in Item 8 of this
Report.
(2) Financial Statement Schedules:
FINANCIAL STATEMENT SCHEDULES
INDEX
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Page No.
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Independent Auditors Report F-3
Schedule I Condensed Financial Information of Registrant F-4
Schedule II Valuation and Qualifying Accounts F-9
(3) Exhibits:
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- By-Laws of United (incorporated by reference to
United's Annual Report on Form 10-K for the year ended
December 31, 1989).
(3)(c)- Amendment to By-Laws of United as of September 19, 1994.
(10)(a)- United Industrial Corporation 1994 Stock Option Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between
United and Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement") dated as
of July 15, 1992 among AAI Corporation ("AAI") and
Principal Mutual Life Insurance Company, The Travelers
Insurance Company and The Travelers Indemnity Company of
Rhode Island (the "Purchasers") (2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated as of
July 15, 1992 by United in favor of the Purchasers (2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note
Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note
Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of December
20, 1993 among AAI and the Purchasers.
(10)(h)- Amendment No. 3 to Note Agreement dated as of October
13, 1994 among AAI and the Purchasers (4).
(10)(i)- Amendment No. 2 to the Note Guaranty (4).
(10)(j)- Credit Agreement dated as of October 13, 1994 among AAI
Corporation, the Lenders parties thereto and First
Fidelity Bank, National Association as Agent (the
"Agent") and Issuing Bank (4).
(10)(k)- Pledge and Security Agreement dated as of October 13,
1994 by AAI in favor of the Agent (4).
(10)(l)- Pledge and Security Agreement dated as of October 13,
1994 by the Company in favor of the Agent (4).
(10)(m)- Security Agreement dated as of October 13, 1994 between
AAI and the Agent (4).
(10)(n)- Security Agreement dated as of October 13, 1994 between
each subsidiary of AAI, certain subsidiaries of the
Company and the Agent (4).
(10)(o)- Guaranty dated as of October 13, 1994 by the Company
and certain of its subsidiaries and by each subsidiary
of AAI in favor of the Agent(4).
(10)(p)- Employment Agreement, dated September 20, 1993, between
AAI and Richard R. Erkeneff (1).
(10)(q)- Employment Agreement, dated March 16, 1995, between
United and P. David Bocksch.
(11) - Computation of Earnings Per Share.
(13) - United's 1994 Annual Report to Shareholders.
(21) - Subsidiaries of United.
(23) - Consent of Independent Auditors
(27) - Financial Data Schedule
-----------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31,1994.
(b)- Reports on Form 8-K - United did not file any reports on Form 8-K
during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By: /s/ Bernard Fein
-------------------------------
Bernard Fein, President
Date: March 24, 1995
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
Name Date
---- ----
/s/ Bernard Fein March 24, 1995
---------------------------------
Bernard Fein, President, Chairman
of the Board and Director
(Principal Executive Officer)
/s/ Howard M. Bloch March 24, 1995
--------------------------------
Howard M. Bloch, Vice President,
and Director (Principal Financial and
Accounting Officer)
/s/ Maurice Rosenthal March 24, 1995
--------------------------------
Maurice L. Rosenthal, Director
/s/ Myron Simons March 24, 1995
--------------------------------
Myron Simons, Director
/s/ Rick S. Bierman March 24, 1995
--------------------------------
Rick S. Bierman, Director
Annual Report on Form 10-K
Item 14(a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year ended December 31, 1994
United Industrial Corporation
New York, New York
NYFS11...:\95\78495\0001\1196\LST3285W.45B
Form 10-K Item 14(a) (1) and (2)
United Industrial Corporation and Subsidiaries
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of United Industrial
Corporation and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended December 31, 1994,
are incorporated by reference in Item 8:
Consolidated Balance Sheets December 31, 1994 and 1993
Consolidated Statements of Operations
Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
The following consolidated financial statement schedules of United
Industrial Corporation and subsidiaries are included in Item 14(d):
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-2
Report of Independent Auditors
Board of Directors and Shareholders
United Industrial Corporation
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations and cash
flows for each of the three years in the period ended December 31,
1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the company s management. Our
responsibility is to express an opinion on these financial statements
and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of United Industrial Corporation and subsidiaries
at December 31, 1994 and 1993 and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 28, 1995
F-3
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INDUSTRIAL CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS) DECEMBER 31
1994 1993
------ ------
ASSETS
Current assets:
Cash and cash equivalents $ 5,635 $ 1,941
Recoverable income taxes - 3,618
Prepaid expenses and other
current assets 208 940
Deferred income taxes 3,169 5,303
---------- ---------
Total current assets $ 9,012 $ 11,802
Equipment 325 256
Less allowances for
depreciation (240) (231)
--------- --------
85 25
Other assets (principally
investments in and amounts
due from wholly-owned
subsidiaries) 165,370 125,834
--------- ---------
$ 174,467 $ 137,661
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities, including
notes payable of $3,000 $ 6,899 $ 7,515
Income taxes 3,333 -
--------- ---------
Total current liabilities 10,232 7,515
Deferred income taxes 9,228 8,280
Other liabilities (principally
amount due to wholly-owned
subsidiaries) 66,586 36,512
Shareholders' equity:
Common Stock 14,374 14,374
Other shareholders'
equity 74,047 70,980
--------- ---------
88,421 85,354
--------- ---------
$ 174,467 $ 137,661
========= =========
See notes to condensed financial statements of registrant.
F-4
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INDUSTRIAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31
1994 1993 1992
-------- -------- --------
Management fees from
wholly-owned
subsidiaries $ 2,064 $ 2,571 $ 2,485
Other revenue (expense)-
net 150 41 (21)
-------- --------- --------
2,214 2,612 2,464
Expenses:
Administrative expenses 3,247 4,590 1,571
Interest income (1,292) (364) (926)
Interest expense 4,708 2,110 2,460
-------- --------- --------
6,663 6,336 3,105
======== ========= ========
Loss before income taxes
and equity in net income
of subsidiaries (4,449) (3,724) (641)
Income tax (benefit) (1,639) (933) (195)
-------- --------- --------
Loss before equity in net
income of subsidiaries (2,810) (2,791) (446)
Equity in net income
(loss) of subsidiaries 8,022 (8,232) 6,839
-------- --------- --------
Net income (loss) $ (5,212) $ (11,023) $ 6,393
======== ========= ========
Dividends paid by
subsidiaries to Parent $ - $ 1,500 $ -
======== ========= ========
See notes to condensed financial statements of registrant.
F-5
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Statements of Cash Flows
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31
1994 1993 1992
------ ------ ------
Operating activities:
Net income (loss) $ 5,212 $ (11,023) $ 6,393
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 9 33 34
Deferred income taxes (441) (680) -
Undistributed (earnings) loss of
subsidiaries (8,022) 9,732 (6,839)
Changes in operating assets and
liabilities:
Income taxes 6,951 (3,618) -
Prepaid expenses and other
current assets 732 (939) 662
Current liabilities (616) (2,912) 1,613
Accounts with wholly-owned
subsidiaries 3,037 21,874 6,542
-------- --------- --------
Net cash provided by operating
activities 6,862 12,467 8,405
-------- --------- --------
Investing activities:
Purchase of property and equipment (69) - -
(Increase) decrease in intercompany
receivables due to transfer of
deferred taxes from wholly-owned
subsidiaries (3,523) 24,109 5,328
Increase (decrease) in deferred
taxes resulting from transfer
from wholly-owned subsidiaries 3,523 (24,109) (5,328)
Other, net (53) - -
-------- --------- --------
Net cash used in investing
activities (122) - -
-------- --------- --------
F-6
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INDUSTRIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (continued)
(DOLLARS IN THOUSANDS) Year Ended December 31
1994 1993 1992
------ ------ ------
Financing activities:
Proceeds from borrowings $ 12,000 $ 9,000 $ 23,000
Payments on borrowings (12,000) (16,000) (24,000)
Dividends paid (2,571) (4,290) (7,845)
Purchase of treasury shares (475) - -
Proceeds from exercise of stock
options - - 57
-------- -------- --------
Net cash used in financing activities
(3,046) (11,290) (8,788)
Increase (decrease) in cash and cash -------- -------- ---------
equivalents
Cash and cash equivalents at 3,694 1,177 (383)
beginning of year
1,941 764 1,147
Cash and cash equivalents at end of -------- -------- ---------
year
$ 5,635 $ 1,941 $ 764
======== ======== =========
See notes to condensed financial statements of registrant.
F-7
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the parent-company-only financial statements, the Company's
investment in subsidiaries is stated at cost plus equity
in undistributed earnings of subsidiaries since date of acquisition.
The Company's share of net income of its unconsolidated subsidiaries
is reflected using the equity method. Parent-company-only financial
statements should be read in conjunction with the Company's
consolidated financial statements.
Certain amounts in the prior years have been reclassified to conform
to the current year's classification.
B. EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES
In 1993, included in the equity in net loss of subsidiaries is a
restructuring charge of $22,500,000 ($14,370,000, net of tax benefit)
regarding the Company s defense industry subsidiary. A major portion
of the charge resulted from the termination of the operations of
AAI/MICROFLITE, a manufacturer of flight simulators and training
devices, due to a lack of new orders. Also, in 1993 the Company
changed its method of accounting for postretirement benefits other
than pensions and income taxes. The implementation of these accounting
changes resulted in a cumulative effect charge against income of
$12,890,000, net of tax benefit and a cumulative effect of $13,884,000
which reduced the 1993 net loss, respectively. Consequently, the net
cumulative effect of these accounting changes resulted in a $994,000
reduction of the net loss in 1993.
F-8
Schedule II Valuation and Qualifying Accounts
United Industrial Corporation and Subsidiaries
December 31, 1994
COL. A COL. B COL. C COL. D COL. E
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE (DESCRIBE) PERIOD
----------- ------ -------- -------- ---------- ------
Year ended December 31, 1994:
Deducted from asset account:
Allowance for doubtful accounts $ 418,000 $ 50,000 (B) $ 368,000
========== =============== ==========
Product warranty liability $ 800,000 $ 275,000 (B) $ 525,000
========== =============== ==========
Year ended December 31, 1993:
Deducted from asset account:
Allowance for doubtful accounts $ 476,000 $ 41,000 $ 99,000 (A) $ 418,000
========== =========== =============== ==========
Product warranty liability $ 950,000 $ 150,000 (B) $ 800,000
========== =========== =============== ==========
Year ended December 31, 1992:
Deducted from asset account:
Allowance for doubtful accounts $ 560,000 $ 13,000 $ 141,000 (C) $ 238,000 (B) $ 476,000
========== =========== =============== =============== ==========
Product warranty liability $ 850,000 $ 100,000 $ 950,000
========== =========== ==========
(A) -- Uncollectible accounts written off, net of recoveries.
(B) -- Reduction of valuation account.
(C) -- Applicable to acquired business.
F-9
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE
----------- ------- ----
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- By-Laws of United (incorporated by reference to
United's Annual Report on Form 10-K for the year
ended December 31, 1989).
(3)(c)- Amendment to By-Laws of United as of September 19,
1994.
(10)(a)- United Industrial Corporation 1994 Stock Option
Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between
United and Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement")
dated as of July 15, 1992 among AAI Corporation
("AAI") and Principal Mutual Life Insurance Company,
The Travelers Insurance Company and The Travelers
Indemnity Company of Rhode Island (the
"Purchasers") (2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated
as of July 15, 1992 by United in favor of the
Purchasers (2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note
Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note
Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of
December 20, 1993 among AAI and the Purchasers.
(10)(h)- Amendment No. 3 to Note Agreement dated as of
October 13, 1994 among AAI and the Purchasers (4).
(10)(i)- Amendment No. 2 to the Note Guaranty (4).
(10)(j)- Credit Agreement dated as of October 13, 1994
among AAI Corporation, the Lenders parties thereto
and First Fidelity Bank, National Association as
Agent (the "Agent") and Issuing Bank (4).
(10)(k)- Pledge and Security Agreement dated as of
October 13, 1994 by AAI in favor of the Agent (4).
(10)(l)- Pledge and Security Agreement dated as of
October 13, 1994 by the Company in favor of the
Agent (4).
(10)(m)- Security Agreement dated as of October 13, 1994
between AAI and the Agent (4).
(10)(n)- Security Agreement dated as of October 13, 1994
between each subsidiary of AAI, certain
subsidiaries of the Company and the Agent (4).
(10)(o)- Guaranty dated as of October 13, 1994 by the
Company and certain of its subsidiaries and by
each subsidiary of AAI in favor of the Agent (4).
(10)(p)- Employment Agreement, dated September 20, 1993,
between AAI and Richard R. Erkeneff (1).
(10)(q)- Employment Agreement, dated March 16, 1995,
between United and P. David Bocksch.
(11) - Computation of Earnings Per Share.
(13) - United's 1994 Annual Report to Shareholders.
(21) - Subsidiaries of United.
(23) - Consent of Independent Auditors
(27) - Financial Data Schedule
-----------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31,1994.
EX-3
2
AMENDMENT TO BY-LAWS
EXHIBIT 3(b)(ii)
Article II, Section 2 of the Company's By-Laws was restated
in its entirety as follows:
Article II, Section 2. Annual Meetings. An annual meeting of the
stockholders for the election of Directors and for the transaction of
any other business that may come before the meeting shall be held on
such day or time as may be set from time to time by the Board of
Directors. Such annual meetings shall be general meetings, that is to
say, open for transaction of any business within the power of the
Corporation without special notice of such business, except in any
case in which special notice is required by law, by the Certificate of
Incorporation, or these By-Laws.
NYFS11...:\95\78495\0001\1196\ART3285U.570
EX-10.(G)
3
AMEND 2 TO NOTE PURCHASE AGREEMENT
EXHIBIT 10(g)
AMENDMENT TO NOTE PURCHASE AGREEMENT
------------------------------------
This AMENDMENT to the Note Purchase Agreement (the "Amendment") is
made and entered into as of December 20, 1993, by and among AAI
CORPORATION, a Maryland corporation (the "Company"), and PRINCIPAL
MUTUAL LIFE INSURANCE COMPANY ("Principal Mutual"), an Iowa
Corporation, and amends that certain Note Purchase Agreement, dated as
of July 15, 1992, (the "Note Purchase Agreement"), by and among the
Company and Principal Mutual, The Travelers Insurance Company and The
Travelers Indemnity Company of Rhode Island, (collectively, the
"Purchasers"), relating to the issuance and sale by the Company to the
Purchasers of $25,000,000 aggregate principal amount of its 8.65%
Senior Notes Due 1999 (the "Notes"). Principal Mutual owns in the
aggregate $13,000,000 principal amount of the total issue of
$25,000,000. United Industrial Corporation ("UIC"), the parent of
AAI, guaranteed the payment of the Notes pursuant to the Guaranty
Agreement, dated as of July 15, 1992.
The Company has requested that Principal Mutual modify the Note
Purchase Agreement by amending Section 6.8 dealing with "Restriction
on Liens" so that the Company may be allowed to incur liens to secure
a guarantee to Bank Leumi Trust Company of New York (the "Bank") to
induce the Bank to provide a line of credit to Pioneer UAV, Inc., a
joint venture, in which the Company is a 50% participant. Principal
Mutual has agreed to the Company's request, provided, the Company
agrees to covenant that under no circumstances will the Notes be
subordinate to the Company's indebtedness to the Bank.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned do hereby covenant and agree as
follows:
1. Definitions
-----------
Terms used and not defined herein shall have the respective
meanings ascribed to such terms in the Note Purchase Agreement.
2. Addition of Section 5.11 to the Note Purchase Agreement
-------------------------------------------------------
A new Section 5.11 (Affirmative Covenant) is added by inserting
the following language:
NYFS11...:\95\78495\0001\1196\AMD3285V.240
"Section 5.11 Ranking All obligations of the Company under this
-------
Agreement and the Notes constitute direct, unconditional and
general obligations of the Company and under no circumstances
will the obligations of the Company under this Agreement and the
Notes rank in right of payment subordinate to the indebtedness of
the Company to Bank Leumi Trust Company of New York."
3. Amendments to Section 6.8 of the Note Purchase Agreement
--------------------------------------------------------
3.1 The last sentence of subsection (v) of Section 6.8 of the
Note Purchase Agreement is amended by deleting the period at
the end thereof and inserting ";" and " in lieu thereof.
3.2 A new subsection (vi) is added after subsection (v) by
inserting the following language:
"(vi) liens securing the guarantee provided by the Company
up to a maximum of $750,000 to Bank Leumi Trust Company of
New York to provide a line of credit to Pioneer UAV, Inc."
4. Representations and Warranties
------------------------------
In order to induce Principal Mutual to enter into this Amendment,
the Company represents and warrants as follows:
4.1 The above covenant is hereby incorporated in this Amendment.
4.2 There exists no Event of Default on the date hereof.
4.3 The execution and delivery by the Company of this Amendment
has been duly authorized by all necessary corporate action,
and this Amendment constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms.
4.4 No dissolution proceedings with respect to the Company have
been commenced or are contemplated, and there has been no
material adverse change in the business, conditions, or
operations (financial or otherwise) of the Company and its
Subsidiaries taken as a whole, except as previously
disclosed to Principal Mutual.
NYFS11...:\95\78495\0001\1196\AMD3285V.240
4.5 Neither the execution and delivery by the Company of this
Amendment nor compliance with the provisions hereof will
violate any law, rule, regulation, ordinance, order, writ,
judgment, injunction, decree or award binding on the Company
or any charter, instrument or by-law of the Company or the
provisions of any loan, indenture, instrument or agreement
to which the Company is a party or is subject, or by which
it or its property is bound, or conflicts with or
constitutes a default hereunder.
5. Miscellaneous
-------------
5.1 The terms of this Amendment shall not operate as a waiver by
Principal Mutual of any of the provisions of, or otherwise
prejudice, remedies or powers under the Note Purchase
Agreement, the Notes or applicable law and shall not operate
as a waiver or otherwise prejudice any rights Principal
Mutual may have against any other Person. Except as set
forth herein, none of the terms or provisions of either the
Note Purchase Agreement or the Notes shall be deemed to be
modified hereby, and each of the Note Purchase Agreement and
the Notes, as modified herein, shall continue in full force
and effect.
5.2 All headings and captions preceding the text of the Sections
of this Amendment are intended solely for convenience or
reference and shall not constitute a part of this Amendment,
nor shall they affect its meaning, construction or effect.
5.3 This Amendment may be executed by the parties hereto in
separate counterparts, each of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their authorized officers as of the date first
written above.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
-------------------------------------
By:
-------------------------------------
NYFS11...:\95\78495\0001\1196\AMD3285V.240
AAI Corporation
By:
-------------------------------------
Its:
------------------------------------
NYFS11...:\95\78495\0001\1196\AMD3285V.240
EX-10.(Q)
4
EMPLOYMENT AGREEMENT
EXHIBIT 10(q)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 16th day of March, 1995, by and between
UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an
address at 18 East 48th Street, New York, New York 10017 (hereinafter
called "Employer"), and P. DAVID BOCKSCH, having an address at 90
Ardmore Road, Ho-Ho-Kus, New Jersey 07423 (hereinafter called
"Employee").
W I T N E S S E T H :
-------------------
In consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and
----------
Employee agrees to serve Employer upon the terms and conditions
hereinafter set forth.
2. Term. The employment of Employee hereunder shall be
----
effective and shall commence on March 27, 1995 (the "Effective Date")
and shall terminate as of the close of business on the date three (3)
years after the Effective Date (the "Termination Date"). The period
from the Effective Date through the Termination Date is referred to as
the term of this Agreement.
3. Duties and Extent of Services. Employee agrees to serve
-----------------------------
Employer and its subsidiary companies faithfully and to the best of
his ability under the direction of the Board of Directors of Employer,
devoting his entire business time, energy and skill
to his duties hereunder. The principal place of employment of
Employee shall be at the offices of Employer located in New York, New
York. Employee understands and agrees, however, that in connection
with his employment hereunder, he may be required from time to time to
travel on behalf of Employer.
The principal duties of Employee shall be to serve as
President and Chief Executive Officer of Employer and, in such
capacity, to render such managerial, administrative and other services
to Employer and its subsidiaries as normally are associated with and
incident to such position as Employer from time to time may require of
him. If, during the term of this Agreement, the Board of Directors of
Employer so determines, in its absolute discretion, to elect Employee
to any additional office of Employer or its subsidiary companies
consistent with his position, or a director of Employer or its
subsidiary companies, Employee agrees to accept and serve in such
office or capacity for no additional compensation or remuneration. It
is the intention of the parties that Employee shall be elected a
director of Employer.
NYFS11...:\95\78495\0001\1196\AGR3285U.490
4. Compensation.
------------
(a) Salary. Employer agrees to pay to Employee, as
------
compensation for all of the services to be rendered by Employee under
or pursuant to this Agreement, a salary at the rate of three hundred
thousand dollars ($300,000) per annum, commencing as of the Effective
Date, payable in accordance with Employer's normal payroll practices.
Such salary shall be subject to annual review by Employer's Board of
Directors and, at the discretion of the Board, may be increased, but
not decreased below such amount. Employee shall also be eligible to
receive annual discretionary bonuses as may be granted by Employer's
Board of Directors, not to exceed fifty percent (50%) of his then
annual base salary. Employee shall receive a guaranteed minimum bonus
of fifty thousand dollars ($50,000) for 1995, payable no later than
April 1, 1996.
(b) Employee Benefit Plans. During the term of this
----------------------
Agreement, Employee shall be eligible to participate in any life
insurance, medical, retirement, pension or profit-sharing, disability
or other benefit plans or arrangements now or hereafter generally made
available by Employer to executive employees of Employer to the extent
Employee qualifies under the provisions of any such plans. Subject to
the foregoing, Employer shall have the right to change insurance
companies and modify insurance policies covering employees of
Employer. For purposes
of Employee's participation in the AAI Pension Plan (the "Plan"),
Employee shall be deemed vested in the Plan as of the Effective Date,
provided, however, if he is not vested under the terms of the Plan,
Employer shall make the payments to him that he otherwise would have
received under the Plan had he been vested under the terms of the
Plan. This provision shall have no impact, however, on the Plan and
shall not be deemed an amendment of the Plan. This provision shall
not apply, however, if Employee's employment by Employer is terminated
prior to the third anniversary of the Effective Date either
voluntarily by him or by Employer for cause as provided in Section 12
hereof.
(c) Automobile Allowance. Employer shall pay to
--------------------
Employee an automobile allowance of fifteen thousand dollars ($15,000)
per annum, commencing as of the Effective Date, payable in accordance
with Employer's normal payroll practices.
(d) Stock Options. Employer shall grant to Employee
-------------
on the Effective Date options to acquire 100,000 shares of common
stock of Employer pursuant to the terms of Employer's 1994 Stock
Option Plan and the grant letter in the form annexed hereto as Exhibit
A. The exercise price of such options shall be equal to the fair
market value of such common stock as of the grant date.
(e) Vacation. Employee shall be entitled to three (3)
--------
weeks vacation with pay per year.
(f) Taxes. Employee understands that any and all
-----
payments described in this Agreement will be subject to such tax
treatment as applies thereto, and to such withholding as may be
required under applicable tax laws.
(g) Attorney's Fees. Employer shall reimburse
---------------
Employee for his reasonable attorney's fees incurred in connection
with his entering into this Agreement, up to a maximum amount of
$2,500, to be paid following the submission to Employer of an
appropriate statement or invoice therefor.
5. No Competition. Employee agrees that during the term of
--------------
this Agreement he will not, within the continental United States,
directly or indirectly, engage or participate or make any financial
investments in or become employed by or render advisory or other
services to or for any person, firm or corporation, or in connection
with any business activity, other than that of Employer and its
subsidiary companies, directly or indirectly in competition with any
of the business operations or activities of Employer and its
subsidiary companies. Nothing herein contained, however, shall
restrict Employee from making any investments in any company whose
stock is listed on a national securities exchange or actively traded
in the over-the-counter market, so long as such investment does not
give him the right to control or influence the policy decisions of any
such business or enterprise which is or might be directly or
indirectly in competition with
any of such business operations or activities of Employer or any of
its subsidiary companies.
6. Confidentiality; etc.
---------------------
(a) Employee will not divulge, furnish or make
accessible to anyone (other than in the regular course of business of
Employer or any of its subsidiary companies) any knowledge or
information with respect to confidential or secret methods, processes,
plans or materials of Employer or any of its subsidiary companies, or
with respect to any other confidential or secret aspects of the
business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known
to Employer all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable which concerns in any way the business of
Employer or any of its subsidiary companies or the general industry of
which they are a part, from the time of entering upon employment until
the termination thereof, and whether acquired by Employee before or
during the term of his employment; provided, however, that nothing
-------- -------
herein shall be construed as requiring any such communication where
the method, development, invention and/or improvement is lawfully
protected from disclosure as the trade secret of a third party,
including,
without limitation, any former employer of Employee or by any other
lawful bar to such communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of
the business of Employer or any of its subsidiary companies, which
Employee may conceive of or make while in the employ of Employer,
shall be and remain the property of Employer. Employee agrees
promptly to communicate and disclose all such methods, developments,
inventions and/or improvements to Employer and to execute and deliver
to Employer any instruments deemed necessary by Employer to effect
disclosure and assignment thereof to it. Employee further agrees, on
request of Employer, to execute patent applications based on such
methods, developments, inventions and/or improvements, including any
other instruments deemed necessary by Employer for the prosecution of
such patent applications or the acquisition of Letters Patent in the
United States and/or any foreign countries.
(d) Employee agrees that for a period of three (3)
years from and after the termination or expiration of his employment
by Employer, whether pursuant to the terms of this Agreement or
otherwise, he will not:
(i) directly or indirectly solicit, raid, entice
or induce any employee of Employer or of any of its subsidiary
companies to be employed by any person, firm or
corporation which is, directly or indirectly, in competition with the
business or activities of Employer or any of its subsidiary companies;
or
(ii) directly or indirectly approach any such
employee for these purposes; or
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice
or induce any person, firm or corporation (other than the U.S.
Government or its agencies) who or which on the date hereof is, or at
any time during the period of employment hereunder shall be, a
customer of Employer or of any of its subsidiary companies to become a
customer for the same or similar products which it purchased from
Employer or any of its subsidiary companies, of any other person, firm
or corporation, and Employee shall not approach any such customer for
such purpose or authorize or knowingly approve the taking of such
actions by any other person.
(e) Employee agrees that during the term of his
employment by Employer, whether under this Agreement or otherwise, he
will not at any time enter into, on behalf of Employer or any of its
subsidiary companies, or cause Employer or
any of its subsidiary companies to enter into, directly or indirectly,
any transactions with any business organization in which he or any
member of his immediate family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or
guarantor.
7. Injunctive Relief. Employee acknowledges that the
-----------------
services to be rendered by him hereunder are of a special, unique and
extraordinary character and that it would be very difficult or
impossible to replace such services and further that irreparable
injury would be sustained by Employer and its subsidiary companies in
the event of a violation by Employee of any of the provisions of this
Agreement, and by reason thereof Employee consents and agrees that if
he violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction to be issued by any court of competent
jurisdiction restraining him from committing or continuing any
violation of this Agreement.
8. Survival of Provisions. The provisions of Sections 5, 6
----------------------
and 7 hereof shall survive the termination or expiration of this
Agreement, irrespective of the reason therefor.
9. Expenses. Employer shall reimburse Employee for all
--------
reasonable expenses properly incurred by him on behalf of Employer in
the performance of his duties hereunder, provided that proper vouchers
are submitted to Employer by Employee
evidencing such expenses and the purposes for which the same were
incurred.
10. Disability. If Employee shall be incapacitated by
----------
reason of mental or physical disability or otherwise during the term
of this Agreement so that he is prevented from performing his
principal duties and services hereunder for a period of three (3)
consecutive months or one or more periods aggregating three (3) months
during any twelve (12) month period, Employer shall have the right to
terminate this Agreement by sending written notice of termination to
Employee, and thereupon his employment pursuant to this Agreement
shall terminate and Employee shall be entitled to no further payments
hereunder, other than (i) for any compensation due pursuant to Section
4 hereof through the date of such termination, (ii) the reimbursement,
pursuant to Section 9 hereof, of any expenses incurred prior to the
date of such termination, and (iii) the continuation of Employee's
base salary pursuant to Section 4(a) hereof for a period of six (6)
months from the date of such termination, but not beyond the
Termination Date or the date on which Employee shall commence to
receive benefits pursuant to Employer's long term disability plan, as
then in effect.
11. Death. In the event of the death of Employee during
-----
the term hereof, this Agreement shall automatically terminate and
Employer shall have no further obligations
hereunder, other than to pay to Employee's estate any compensation due
pursuant to Section 4 hereof through the date of such termination and
to reimburse, pursuant to Section 9 hereof, any expenses incurred by
Employee through the date of such termination.
12. Termination by Employer for Cause. Employer shall have
---------------------------------
the right to terminate the employment of Employee under this Agreement
as well as any and all payments to be made hereunder, other than for
any compensation due pursuant to Section 4 hereof through the date of
such termination and any reimbursement, pursuant to Section 9 hereof,
of expenses incurred by Employee through the date of such termination,
if Employee shall commit any of the following acts of default:
(i) Employee shall have committed any material
breach of any of the provisions or covenants set forth herein; or
(ii) Employee shall have committed any act of
gross negligence in the performance of his duties or obligations
hereunder; or
(iii) Employee shall have committed any material
act of dishonesty or breach of trust against Employer or any of its
subsidiary companies; or
(iv) Employee's conviction of, or plea of nolo
----
contendere to, a felony.
----------
If Employer elects to terminate this Agreement as set forth
above, Employer shall send written notice to Employee terminating this
Agreement and describing the action of Employee constituting the act
of default, and thereupon no further payments of any type shall be
made or shall be payable to Employee hereunder notwithstanding any
other provisions of this Agreement, except as set forth in the first
sentence of this Section 12.
13. No Conflicting Agreements. Employee represents and
-------------------------
warrants that he is not a party to any agreement, contract or
understanding, whether employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
14. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties with respect to the subject matter
hereof, and no statement, representation, warranty or covenant has
been made by either party except as expressly set forth herein. This
Agreement shall not be changed or terminated orally. This Agreement
supersedes and cancels all prior agreements between the parties,
whether written or oral, relating to the employment of Employee.
15. Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of the
State of New York, without regard to its conflict of laws principles.
16. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered, telecopied or mailed,
first class, postage prepaid, certified mail, return receipt
requested, to each of the parties at its or his address above written
or as set forth beneath their signatures below or at such other
address or telecopy number as either of the parties may designate in
conformity with the foregoing.
17. Section Headings. The section headings set forth in
----------------
this Agreement are for convenience only and shall not be considered as
part of this Agreement in any respect nor shall they in any way affect
the substance of any provisions contained in this Agreement.
18. Successors and Assigns. This Agreement shall not be
----------------------
assignable by Employee. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs and personal representatives of
Employee and the successors and assigns of Employer.
19. Severability. If, at any time subsequent to the date
------------
hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect
upon and shall not impair the enforceability of any other provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION
By:
--------------------------
Name: Howard M. Bloch
Title: Vice President
Telecopy No: (212) 838-4629
------------------------------
P. DAVID BOCKSCH
Telecopy No: (201) 444-6355
EXHIBIT A
United Industrial Corporation
18 East 48th Street
New York, New York 10017
(212) 752-8787
Fax: (212) 838-4629
March 27, 1995
Mr. P. David Bocksch
90 Ardmore Road
Ho-Ho-Kus, New Jersey 07423
Re: Grant of Incentive Stock Option
Dear Mr. Bocksch:
On May 10, 1994, the Stockholders of United Industrial
Corporation (the "Company") authorized and approved the 1994 Stock
Option Plan, which was previously adopted by the Board of Directors.
The 1994 Stock Option Plan (the "Plan") provides for the grant of
options to certain key employees of the Company and its subsidiaries.
A copy of the Plan is annexed hereto and shall be deemed a part hereof
as if fully set forth herein. Unless the context otherwise requires,
all terms defined in the Plan shall have the same meaning when used
herein.
The Company hereby grants to you, as a matter of separate
inducement and not in lieu of any salary or other compensation for
your services, the option (the "Option") to purchase, in accordance
with the terms and conditions set forth in the Plan, but subject to
the limitations set forth herein and in the Plan, an aggregate of
100,000 Shares of Common Stock, $1.00 par value per share, of the
Company at a price of $ per share, such option price being, in the
judgment of the Option Committee, not less than one hundred percent
(100%) of the fair market value of such share at the date hereof. The
Option is intended to qualify as an "incentive stock option" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, but it is specifically understood that no warranty is made to
you as to such qualification.
Subject to the provisions and limitations of Sections 6 and 7 of
the Plan, this Option may be exercised by you, on a cumulative basis,
during a period often (10) years commencing on the date of grant of
this Option and terminating at the close of business on March 27,
2005, as follows:
(a) up to one third (1/3) of the total number of shares subject
to this Option may be purchased by you commencing one year after the
date hereof;
(b) up to an additional one third (1/3) of the total number of
shares subject to this Option may be purchased by you commencing two
years after the date hereof; and
(c) the balance of the total number of shares subject to this
Option may be purchased by you commencing three years after the date
hereof.
NYFS11...:\95\78495\0001\1196\EXH3285W.080
The unexercised portion of the Option granted herein will
automatically and without notice terminate and become null and void
upon the expiration of ten (10) years from the date of the grant of
this Option. If, however, prior to the expiration of ten (10) years
from the date of grant of this Option, your employment with the
Company and any parent or subsidiary corporation terminates this
Option will terminate on the applicable date as described below;
provided, however, that none of the events described below shall
-------- -------
extend the period of exercisability of this option beyond ten (10)
years from the date of grant of this Option;
(a) the date of termination, if your employment is terminated
other than by reason of death, disability, retirement, good reason or
dismissal other than for cause (as such terms are defined in the
Plan);
(b) the expiration of one (1) year after your death if your
death occurs either during your employment or within the one-year or
three-month period after the termination of your employment specified
in clauses (c) and (d) below, except that your Option will be
exercisable during such one-year period only to the extent that it
would have been exercisable on the date of your death;
(c) the expiration of one (1) year after the termination of your
employment by reason of your disability (as defIned in the Plan),
except that your Option will be exercisable during such one-year
period only to the extent that it would have been exercisable
immediately prior to the termination of your employment; and
(d) the expiration of three (3) months from the date of
termination of your employment by reason of your retirement, good
reason (as defined in the Plan) or dismissal other than for cause (as
defined in the Plan), except that your Option will be exercisable
during such three-month period only to the extent that it would have
been exercisable immediately prior to the termination of your
employment.
In no event shall you exercise this Option for a fraction of a
share or for less than one hundred (100) shares (unless the number
purchased is the total balance for which the Option is then
exercisable).
This Option is not transferable by you otherwise than by will or
the laws of descent and distribution, and is exercisable, during your
lifetime, only by you. This Option may not be assigned, transferred
(except by will or the laws of descent and distribution), pledged or
hypothecated in any way (whether by operation of law or otherwise) and
shall not be subject to execution, attachment or similar proceeding.
Any attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof, and the
levy of any attachment or similar proceeding upon the Option, shall be
null and void and without effect.
Any exercise of this Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal place of business
of the Company, shall be substantially in the form attached hereto and
shall be accompanied by a certified or bank cashier's check to the
order of the Company in the full amount of the purchase price of the
shares so purchased.
If the Company, in its sole discretion, shall determine that it
is necessary, to comply with applicable securities laws, the
certificate or certificates representing the shares purchased pursuant
to the exercise of this Option shall bear an appropriate legend in
form and substance, as determined by the Company, giving notice of
applicable restrictions on transfer under or in respect of such laws.
You hereby covenant and agree with the Company that if, at the
time of exercise of this Option, there does not exist a Registration
Statement on an appropriate form under the Securities Act of 1933, as
amended (the "Act"), which Registration Statement shall have become
effective and shall include a prospectus which is current with respect
to the shares subject to this Option (i) that you are purchasing the
shares for your own
account and not with a view to the resale or distribution thereof and
(ii) that any subsequent offer for sale or sale of any such shares
shall be made either pursuant to (x) a Registration Statement on an
appropriate form under the Act, which Registration Statement shall
have become effective and shall be current with respect to the shares
being offered and sold, or (y) a specific exemption from the
registration requirements of the Act, but in claiming such exemption,
you shall, prior to any offer for sale or sale of such shares, obtain
a favorable written opinion from counsel for or approved by the
Company as to the applicability of such exemption.
As provided in the Plan, the Company may withhold from sums due
or to become due to you from the Company an amount necessary to
satisfy its obligation to withhold taxes incurred by reason of the
disposition of the shares acquired by exercise of this Option in a
disqualifying disposition (within the meaning of Section 421(b) of the
Code), or may require you to reimburse the Company in such amount.
The Company may hold the stock certificate to which you are entitled
upon the exercise of this Option as security for the payment of
withholding tax liability, until cash sufficient to pay such liability
has been accumulated.
You agree that for a period of three (3) years from and after the
termination or expiration of your employment by the Company, you will
not:
(i) directly or indirectly solicit, entice or induce any
employee of the Company or of any of its subsidiary or affiliated
companies to be employed by any person, firm or corporation which is,
directly or indirectly, in competition with the business or activities
of the Company or any of its subsidiary or affiliated companies; or
(ii) directly or indirectly approach any such employee for these
purposes; or
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice or induce any
person, firm or corporation (other than the US Government or its
agencies) who or which on the date hereof is, or at any time during
the period hereunder shall be, a customer of the Company or of any of
its subsidiary or affiliated companies to become a customer for the
same or similar products which it purchased from the Company or any of
its subsidiary or affiliated companies, of any other person, firm or
corporation, and you shall not approach any such customer for such
purpose or authorize or knowingly approve the taking of such actions
by any other person.
You further agree that you will not divulge, furnish or make
available to anyone at anytime, except as part of your employment by
the Company or any of its subsidiary or affiliated Companies either
during or subsequent to much employment, any knowledge or information
with respect to confidential or proprietary information, methods,
processes, plans or materials of the Company or any of its subsidiary
or affiliated companies, or with respect to any other confidential or
proprietary aspects of the business of the Company or any of its
subsidiary or affiliated companies.
This agreement is subject to all terms, conditions, limitations
and restrictions contained in the Plan, which shall be controlling in
the event of any conflicting or inconsistent provisions.
Please indicate your acceptance of all the terms and conditions
of this Option and the Plan by signing and returning a copy of this
letter.
Very truly yours,
UNITED INDUSTRIAL CORPORATION
By:
-------------------------------------
Howard M. Bloch, Vice President
ACCEPTED:
-------------------------
Signature of Employee
P David Bocksch
-------------------------
Name of Employee
Date: March 27, 1995
HMB/dc
EX-11
5
COMP OF EARNINGS PER SHARE
EXHIBIT 11
Computation of Earnings Per Share
United Industrial Corporation and Subsidiaries
Year Ended December 31
1994 1993 1992
---- ---- ----
Primary:
Weighted average shares outstanding 12,237,468 12,258,693 12,257,850
Equivalent shares-dilutive stock
options-based on treasury stock
method using average market price 4,035 - (A)
----------- ------------ ------------
12,241,503 12,258,693 12,257,850
=========== ============ ============
Income (loss) before cumulative
effect of accounting changes $ 5,212,000 $(12,017,000) $ 6,393,000
Cumulative effect as of January 1,
1993 of changes in method of
accounting for:
Postretirement benefits other
than pensions, net of taxes - (12,890,000) -
Income taxes - 13,884,000 -
----------- ------------ ------------
Net income (loss) $ 5,212,000 $(11,023,000) $ 6,393,000
=========== ============ ============
Earnings (loss) per share
Earnings (loss) per share before
cumulative effect of accounting
changes for: $ .43 $ (.98) $ .52
Postretirement benefits other
than pensions - (1.05) -
Income taxes - 1.13 -
----------- ------------ ------------
Earnings (loss) per share $ .43 $ (.90) $ .52
=========== ============ ============
(A) The effect of equivalent shares of dilutive stock options is not
significant to earnings per share.
There is no significant difference between primary and fully diluted
earnings per share.
NYFS11...:\95\78495\0001\1196\EXH3285X.150
EX-13
6
1994 ANNUAL REPORT TO SHAREHOLDERS
EXHIBIT 13
TO OUR SHAREHOLDERS
United Industrial Corporation's net income in 1994 was $5,212,000
($.43 per share) compared with a loss of $11,023,000 ($.90 per share) in
1993. The net loss in 1993 included a restructuring charge at the
Company's defense subsidiary, AAI Corporation, of $22.5 million ($14.4
million, or $1.17 per share, net of tax benefit). Sales were $210
million in 1994 compared with $253 million in 1993.
During the year quarterly cash dividends of $.07 each were paid,
totaling $.28 a share.
AAI CORPORATION
Last year I informed you that AAI had taken the steps required to
restore profitability in 1994. That this has now occurred is
gratifying for us all. The next challenge for the company is to reach
improved earnings levels. I am pleased to report to shareholders that
great progress has already been made in reducing overhead, increasing
efficiency, and tightening asset management. In the face of a
shrinking defense market, costly excess capacity is being eliminated,
and obsolete Cold War business strategies are being discarded. AAI's
president and CEO, Richard R. Erkeneff, is introducing a new,
customer-centered corporate culture throughout the company.
AAI's strengths are impressive and reassuring. It is a leader in
the design and production of computer-driven training simulators,
which provide a cost-effective way to teach troops how to operate
sophisticated weapons systems. Such simulators will remain essential
to all the armed forces for the foreseeable future. During 1994 AAI's
Defense Systems division booked orders for its improved Moving Target
Simulator, delivered an HH-60 helicopter flight simulator to the Coast
Guard, and won the contract to develop a simulator for training Air
Force technicians to service the
NYFS11...:\95\78495\0001\1196\RPT3285U.400
Joint Surveillance Target Attack Radar System. Another program for
which AAI can count on long-term demand is the Pioneer unmanned
reconnaissance air vehicle. Production of the battle-tested Pioneer
is being increased in 1995 to fill orders received by Pioneer UAV,
Inc., a joint venture between AAI and Israel Aircraft Industries.
AAI's strengths also stem from its growing diversification. Our
Automated Surface Observing System (ASOS) is presently installed at
hundreds of large airports. In 1995 the Weather Systems division is
launching a sister product, Next Generation Weather Observation System
(NEXWOS), priced to compete for a market of thousands of smaller
airports. The Transportation Systems division continues its rapid
advance. AAI's latest transportation subsidiary, Electric Transit,
Inc., a joint venture with a Czech Republic firm, Skoda, is building
an electric trolley bus fleet for Dayton, Ohio.
SYMTRON SYSTEMS, INC.
Symtron's first year as one of our subsidiaries was marked by
important sales of its computer-based simulation systems for training
fire fighters, including a prestigious contract from New York City's
JFK International Airport. Under the direction of Symtron's
president, John J. Henning, the company is designing systems that help
to save lives and are environmentally friendly. Increased sales are
anticipated in 1995.
DETROIT STOKER COMPANY
We are all saddened by the sudden death on February 10, 1995, of
Daniel E. McCoy, 58, president and CEO of Detroit Stoker Company. Dan
came to Detroit in 1992, and the company has benefited greatly from
his leadership and vision. One of the legacies of his creative
management is a
product line of low-pollution industrial burners. We are seeking a
successor who will keep the company on the course he set.
During 1994 Detroit reorganized its foundry, incurring costs that
adversely affected income. However, year-end bookings are up and the
outlook for 1995 earnings is good.
NEO PRODUCTS COMPANY
Neo Products Company, maker of custom plastic parts, expanded
capacity this past year with new production equipment. To adjust for
rising raw material costs that reduced 1994 profits, Neo has increased
prices. Michael A. Schillaci, Neo's president is looking forward to
higher sales and earnings in 1995.
CORPORATE OFFICERS
I am delighted to announce the appointment of two new corporate
officers, James H. Perry as Treasurer and Susan Fein Zawel as
Secretary. Jim, 33, was formerly a senior manager at Ernst & Young.
Susan, 41, an attorney who for several years has served ably on our
UIC management team and as General Counsel of the Company, is also my
daughter. I am contemplating one other key executive change in the
near future about which I will keep shareholders closely advised.
PROSPECTS FOR 1995
Business backlog at the end of 1994 was $218 million compared
with $208 million at the end of 1993. Shareholders' equity per share
was $7.27, up from the 1993 low of $ 6.96. We expect additional
improvement in earnings in 1995.
Bernard Fein
President and Chairman of the Board
March 3, 1995
THE YEAR IN REVIEW
AAI CORPORATION
In 1994 a leaner AAI returned to profitability and prepared
itself for further gains. Management focused attention on achieving
the competitive edge needed to prosper in the present business
climate.
The decisive changes of the past two years--downsizing the
workforce, restructuring operations, consolidating facilities--have
succeeded in strengthening AAI. But much remains to be done to attain
higher earnings. AAI's president and CEO, Richard R. Erkeneff, is
orienting the company more firmly towards satisfying the needs of its
customers and upholding its long tradition of technological
excellence. His senior management team, along with rank and file AAI
employees, have demonstrated the ability to overcome powerful
competition, winning a number of hotly contested contracts during 1994
against strong contenders.
AAI is striving aggressively to capture market share of its core
Department of Defense (DOD) business. Its R&D is aimed at several
potentially profitable new products for both military and commercial
use. In the non-DOD marketplace, the company is moving innovatively
to enhance its leadership in automated surface weather monitoring
while widening its position in the vital area of mass transit systems.
DEFENSE SYSTEMS
For military planners in the U.S. and other advanced
industrialized nations, the procurement of computerized training
simulators is a top priority. AAI plays a leading role in the
creation of such digital simulators, with which troops responsible for
the operation of complex weapons systems can be trained safely,
effectively, and economically. Teaching troops how to aim
antiaircraft weapons,
for example, is the mission of AAI's highly successful Moving Target
Simulator (MTS II), a computer-based air defense training system that
generates realistic air combat scenarios within a 40-foot-diameter
dome. AAI currently has eleven systems set up in five countries and
contracts outstanding for seven additional installations. New orders
during 1994 included a $6 million sale to Japan and also one to the
U.S. Army Missile Command to furnish an MTS II for the North Dakota
National Guard.
Another major AAI digital simulator project is the HH-60, a
helicopter flight trainer that provides instruction in flying the
widely used Blackhawk helicopter. Purchased by the Naval Air Warfare
Center, the HH-60 flight simulator was delivered by AAI this year to
the Coast Guard facility in Mobile, Alabama. The company is proud of
this quality product, which is receiving high marks from pilots and
holds the promise of significant international sales.
In addition, this year the company gained a hard-fought contract
against vigorous competition to build the computerized maintenance
trainer for the Joint Surveillance Target Attack Radar System (Joint
STARS). An important U.S. Air Force/U.S. Army airborne ground-
surveillance system, tested under fire during Operation Desert Storm,
Joint STARS monitors troop and equipment movement via radar and
transmits activity directly to a command center. Under the $12
million contract, AAI will design, develop, and install the
maintenance trainer used for teaching Air Force technicians to service
the sophisticated radar sensors and computers in the E-8C Joint STARS
aircraft. The contract positions AAI for other maintenance trainer
opportunities.
AAI markets on-site logistical support of its simulation
equipment for customers in the U.S., Germany, Australia, and The
Republic of Korea through Engineering Support, Inc. (ESI), a wholly
owned AAI subsidiary with nearly 300 employees. ESI has over 25
active programs with a total anticipated sales value of about $40
million.
Potentially profitable R&D programs now under way with DOD
funding include the Advanced Boresight Equipment (ABE), a patented
state-of-the-art coupling of computer, laser, and gyroscopic
technology that could transform the costly process for precision
alignment of parts. A prototype was successfully demonstrated during
1994 on aircraft in France, Germany, and Great Britain. The company
is presently building the first preproduction demonstration units of
ABE for boresighting of military aircraft. During 1995 AAI will
formulate plans for a commercial version of ABE, which could have an
even larger market. Another promising product with both military and
commercial applications is AAI's patented PDCue system that utilizes
the supersonic sound waves coming off a projectile to detect its
direction, distance, and class of round.
AAI has expanded its production of Pioneer unmanned air vehicles
as a result of two new U.S. Navy, Naval Air Systems Command orders for
the pilotless reconnaissance drones that won extensive praise during
the Persian Gulf War. Pioneer UAV, Inc., a joint venture between AAI
and Israel Aircraft Industries, received the order for 30 air
vehicles, payloads, and spares worth nearly $27 million. Deliveries
will begin in the latter part of 1995. Now in service with the U.S.
Army, Navy, and Marine Corps, the Pioneer is capable of flying for
more than five hours at altitudes of up to 15,000 feet, performing
battlefield missions under adverse environments.
ACL TECHNOLOGIES
A leading producer of test equipment for aviation fluid power
components, this growing AAI subsidiary has already captured 30
percent of a $40 million market. Overcoming heavy competition, ACL in
1994 won a $4 million order from Hamilton Standard Division of United
Technologies.
ACL's goal is to establish its automated equipment as the industry
standard endorsed by all component manufacturers.
WEATHER SYSTEMS
In 1994 AAI signed a restructured contract with the National
Oceanographic and Atmospheric Administration (NOAA), which has funded
installation of the company's highly regarded Automated Surface
Observing System (ASOS) at hundreds of airports. Extended to run
beyond 1997, the revised contract sets future ASOS deployment at 12
systems per month, raising the value of the $200 million program by
$10 million and increasing the company's profits. The extension
allows AAI more time to tap the military market for ASOS, valued at
$60 to $80 million. As a harbinger of future business, the U.S. Air
Force purchased its first three ASOS, for Vandenberg Air Force Base in
California, and has already ordered five more systems for fiscal year
1995.
The cost of ASOS exceeds the budgets of thousands of smaller
general aviation airports, hospital heliports, and off-shore oil
platforms--all of which could use automated weather monitoring
equipment. This past year AAI undertook an ambitious R&D effort to
accommodate the requirements of this lucrative market by building a
lower-priced, quality product. The result is the Next Generation
Weather Observation System (NEXWOS), a completely new hardware design
that retains the software capabilities of the higher-priced ASOS and
offers customers technical and price advantages over competing
systems. An advertising campaign will launch NEXWOS in early 1995.
In an effort to open additional markets for the data acquisition
technology created for ASOS, AAI is developing an instrumented package
for the automated monitoring of water quality, funded by the National
Institute for Environmental Renewal. This $504,000 contract calls for
a system to detect and measure contaminants in Pennsylvania's heavily
polluted Lackawanna River, a part of the
Chesapeake Bay watershed that passes through an anthracite mining
region. AAI will retain full rights to any product design.
TRANSPORTATION SYSTEMS
AAI made substantial progress in 1994 towards its goal of
becoming a leading American producer of transit systems. At year-end,
three major AAI mass transportation projects were under way -- in
Ohio, California, and Maryland.
In Ohio, AAI emerged the winner of a competition to build a fleet
of 63 electric trolley buses (ETBs) for the Dayton area. Total value
of the contract, with the exercise of an option for up to 91 coaches,
is about $ 43 million. Eighty percent of the cost of the non-
polluting vehicles will come from Federal Transit Administration clean
air grants. The trolleys will be produced by AAI's latest
transportation subsidiary, Electric Transit, Inc. (ETI).
Headquartered in Dayton, ETI is a joint venture between AAI and a
Czech Republic firm, Skoda, one of the world's foremost ETB
manufacturers. ETI, the first electric trolley bus company set up in
the U.S. since 1955, will sell buses to Dayton now and, eventually,
throughout the U.S. market.
ETBs are more expensive than diesel or alternate fuel buses, but
those vehicles have twelve-year life expectancies, whereas electrics
last 20 years or more. ETI will deliver three prototype buses to
Dayton late in 1995. Delivery of production models will begin in mid-
1996 and continue through late 1997.
In California, AAI's subsidiary, California Car Shell, Inc., has
established in the City of Carson the only plant in the U.S.
manufacturing light-rail car shells. The plant will become
operational early in 1995 and is expected to turn out its first units
by the end of the year. The shells will be produced by California Car
Shell under a licensing agreement with its teaming partner,
Siemens Duewag Corporation, the recipient of a large contract from the
Los Angeles Metropolitan Transit Authority for 74 light rail vehicles,
with an option for 13 more. After completing the Los Angeles
contract, California Car Shell will furnish shells for other Siemens
ventures in North America.
In Maryland, AAI was awarded a contract to renovate a fleet of
heavy rail cars. The contract, from the Maryland Department of
Transportation, Mass Transit Administration, entails the refurbishing
of 28 rail cars used on the Maryland Commuter Rail Service. The
expertise AAI employees are acquiring in the specialized field of rail
car assembly is positioning the company for expansion into the transit
overhaul business.
SYMTRON SYSTEMS, INC.
A noteworthy event for United Industrial this past year was the
acquisition in January 1994 of a wholly owned subsidiary, Symtron
Systems, Inc., of Fair Lawn, New Jersey, a developer and producer of
patented fire fighter trainers. Symtron provides customers with safe,
practical, and ecologically acceptable systems that simulate real
conditions encountered in a wide variety of fires.
During 1994 Symtron received a $1.5 million contract to install
its state-of-the-art Aircraft Rescue Fire Fighter Trainer (ARFFT) at
Salt Lake City International Airport, and another contract, worth $2.1
million, for an ARFFT at New York City's JFK International Airport.
The latter ARFFT facility will also serve as a training center for
fire safety personnel from La Guardia and Newark airports.
The JFK project includes a mock-up of a 72-foot-long crashed
aircraft fuselage, situated in a 125-foot-diameter burn area. To
reduce risk to trainees practicing the rapid rescue of passengers,
ARFFT's computer-controlled, liquid propane fire can be extinguished
rapidly. The propane fire is
intense, with flames up to 40 feet high, but compared to burning
aviation fuel, it does not significantly contaminate the air and
ground.
Training systems for fighting structural fires in homes garnered
orders totaling $2.4 million in 1994 from municipal fire departments,
a college, and Goodfellow Air Force Base in San Angelo, Texas. In
addition, Symtron's Military Fire Fighting Trainer Program won U.S.
Navy contracts worth $2.77 million for an ARFFT that simulates a
carrier conflagration and for an Advanced Shipboard Fire Trainer for
the Great Lakes Naval Station.
With a number of sizable bids and proposals presently
outstanding, Symtron's president, John J. Henning, looks forward to
increased sales in 1995.
DETROIT STOKER COMPANY
United Industrial's energy systems subsidiary saw a decline in
1994 earnings due to one-time costs associated with the reorganization
of its foundry, Midwest Metallurgical Laboratories, Inc. However,
Detroit's core business was stronger in 1994 than in 1993 and bookings
climbed 12 percent. This upward trend is expected to continue in
1995.
At Midwest, a wholly owned subsidiary of Detroit, lead times for
casting have now been shortened, enabling the company to meet
customers' requirements for faster deliveries of stoker replacement
parts and retrofits. This improvement will allow Detroit to compete
for a bigger share of the profitable aftermarket business.
Orders for Hydrograte(registered trademark) stokers accounted
for over 40 percent of Detroit's total contracts in 1994. Designed
originally for the pulp and paper industry, these durable waste-to-
energy stokers are finding favor also in other businesses. A Hydrograte
ordered this past year by the Genesee Power Station in Michigan will
generate electricity by burning urban demolition waste from razed
buildings.
At another facility under construction in Florida, Hydrogrates are
being installed for that state's largest sugar company. Five giant
boilers fueled with bagasse, a cane residue, will produce steam for
the refinery and sufficient electricity to power an American city of
50,000.
Looking to the future, Detroit's new product line of oil and gas
burners that emit low levels of nitrous oxides is providing industrial
users with a cost-effective way of meeting federal and state air
quality standards. Detroit is also participating in two funded
environmental research projects to develop other combustion systems
that reduce pollutants. Both research agreements give Detroit
exclusive marketing rights.
NEO PRODUCTS COMPANY
United Industrial's Chicago-based producer of custom
thermoplastic parts enjoyed good sales in 1994. But Neo's president,
Michael A. Schillaci, reported that increases in the price of the
firm's basic raw material, plastic resin, trimmed earnings. With a
recently purchased 610-ton injection molding machine that expands
capacity and provides customers with faster turnaround, and with
prices raises to compensate for climbing costs, Neo anticipates an
excellent business year in 1995.
# # # # #
United Industrial Corporation
(Dollars in thousands, except per-share data) 1994 1993
Net sales $209,727 $252,993
Net income (loss) $5,212 $(11,023)
Earnings (loss) per share before cumulative effect
accounting changes $.43 $(.98)
Cumulative effect of accounting changes for:
Postretirement benefits other than pensions - (1.05)
Income taxes - 1.13
-----------------------------------------------------------------------------------
Earnings (loss) per share $.43 $(.90)
===================================================================================
Dividends paid per share $.28 $.44
Shareholders' equity $88,421 $85,354
Shareholders' equity per share $7.27 $6.96
Sales backlog as of year end $218,000 $208,000
Shares outstanding 12,167,000 12,259,000
CONSOLIDATED BALANCE SHEETS
United Industrial Corporation
------------------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
ASSETS
CURRENT ASSETS $6,132 $3,906
Cash and cash equivalents
Trade receivables:
U.S. Government 24,613 31,011
Other 8,951 14,222
-------------------------------------------------------------------------------------
33,564 45,233
Inventories 53,486 49,863
Note receivable - current portion 8,540 8,540
Recoverable income taxes - 3,618
Prepaid expenses and other current assets 1,667 2,480
Deferred income taxes 6,521 8,796
Assets held for sale - 5,439
-------------------------------------------------------------------------------------
Total Current Assets 109,910 127,875
-------------------------------------------------------------------------------------
OTHER ASSETS 37,022 31,636
DEFERRED INCOME TAXES 11,161 10,365
PROPERTY AND EQUIPMENT
Land 2,471 2,471
Buildings and improvements 46,993 47,005
Machinery and equipment 72,157 67,772
Furniture and fixtures 5,360 5,101
-------------------------------------------------------------------------------------
126,981 122,349
Less allowances for depreciation
and amortization 81,767 75,714
-------------------------------------------------------------------------------------
45,214 46,635
-------------------------------------------------------------------------------------
$203,307 $216,511
=====================================================================================
CONSOLIDATED BALANCE SHEET
United Industrial Corporation
(Dollars in thousands) December 31 1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings $ 4,200 $ 20,700
Accounts payable 8,769 9,634
Accrued employee compensation and taxes 6,526 7,598
Customer advances 6,981 5,725
Provision for contract losses 10,474 10,232
Federal income taxes 3,333 -
Other liabilities 5,664 6,370
Estimated restructuring liability - 750
Deferred income taxes 3,352 3,493
------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 49,299 64,502
------------------------------------------------------------------------------------
LONG-TERM DEBT 20,000 25,000
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 20,618 20,159
OTHER LIABILITIES 4,580 2,851
DEFERRED INCOME TAXES 20,389 18,645
SHAREHOLDERS' EQUITY
Common stock-par value $1.00 per share
Authorized shares - 15,000,000
Outstanding shares:
1994 - 12,167,493; 1993 - 12,258,693 14,374 14,374
Additional capital 94,596 97,167
Retained earnings (deficit) (3,199) (8,411)
Cost of shares in treasury:
1994 - 2,206,655 shares; 1993 - 2,115,455 shares (17,350) (16,875)
Minimum pension liability adjustment - (901)
------------------------------------------------------------------------------------
88,421 85,354
------------------------------------------------------------------------------------
$203,307 $216,511
====================================================================================
See notes to financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
United Industrial Corporation
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Year ended December 31 1994 1993 1992
---------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 5,212 $(11,023) $ 6,393
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Cumulative effect of changes in accounting for:
Postretirement benefits other than pensions - 19,531 -
Income taxes - (13,884) -
Depreciation and amortization 8,291 7,430 9,200
Termination benefits payable - - 816
Deferred income taxes 1,223 (10,905) (5,329)
Restructuring charge, net of expenditures of $7,928 - 14,572 -
Contract loss provision - net 242 1,997 4,551
Loss (gain) on disposal of property and equipment (1,166) (1,595) 192
Changes in operating assets and liabilities, net:
Increase (decrease) in current income taxes 6,951 (6,602) -
(Increase) decrease in trade receivables 12,611 4,313 (6,231)
(Increase) decrease in inventories (6,218) 8,791 (9,820)
(Increase) decrease in prepaid expenses and other
current assets 1,019 (964) 985
Decrease in accounts payable, accruals, advances and
other current liabilities (6,323) (11,219) (604)
Other - net (7,495) 536 (1,209)
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 14,347 12,001 (1,056)
---------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (4,146) (5,931) (5,547)
Acquisition of business-net of cash received (2,291) - (2,482)
Net proceeds from disposals of property and equipment 7,264 2,374 377
Other - net 590 (2,165) (1,716)
Decrease in note receivable 8,540 8,540 8,540
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 9,957 2,818 (828)
---------------------------------------------------
FINANCING ACTIVITIES
Increase on long-term liabilities 2,468 1,951 -
Proceeds from borrowings 12,000 12,721 40,993
Payments on long-term debt and borrowings (33,500) (12,880) (30,868)
Dividends (2,571) (4,290) (7,845)
Purchase of treasury shares (475) - -
Proceeds from exercise of stock options - - 57
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,078) (2,498) 2,337
--------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,226 1,298 453
Cash and cash equivalents at beginning of year 3,906 2,608 2,155
--------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,132 $ 3,906 $ 2,608
==========================================================================================================================
See notes to financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
United Industrial Corporation
-----------------------------
---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Year ended December 31 1994 1993 1992
NET SALES $209,727 $252,993 $251,315
Operating costs and expenses:
Cost of sales 161,219 208,189 189,004
Selling and administrative 41,547 44,730 52,109
Special termination benefits - - 1,191
Pension plan curtailment income - net (928) - -
Gain on sale of assets - net (1,166) (1,595) -
Other income - net (734) (41) (374)
Interest income (1,840) (3,650) (3,879)
Interest expense 3,202 3,011 3,193
Restructuring charge - 22,500 -
---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 201,300 273,144 241,244
---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF 8,427 (20,151) 10,071
ACCOUNTING CHANGES
Provision (credit) for income taxes
Federal:
Current 2,232 (3,705) 8,249
Deferred 522 (4,405) (5,329)
State 461 (24) 758
---------------------------------------------------------------------------------------------------------------------------
INCOME TAXES (CREDIT) 3,215 (8,134) 3,678
---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES $ 5,212 $ (12,017) $ 6,393
---------------------------------------------------------------------------------------------------------------------------
Cumulative effect as of January 1, 1993 of changes
in method of accounting for:
Postretirement benefits other than pensions, net of taxes - (12,890) -
Income taxes - 13,884 -
---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 5,212 $ (11,023) $ 6,393
===========================================================================================================================
Earnings (Loss) Per Share:
Earnings (loss) per share before cumulative effect $.43 $(.98) $.52
of accounting changes
Cumulative effect of accounting changes for:
Postretirement benefits other than pensions - (1.05) -
Income taxes - 1.13 -
---------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE $.43 $(.90) $.52
===========================================================================================================================
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION
----------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the prior years have been
reclassified to conform to the current year's classifications.
CASH EQUIVALENTS: The Company considers all highly liquid investments
-----------------
with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of these investments reported in the
balance sheet approximates their fair value.
INVENTORIES: Inventories are stated at the lower of cost or market.
------------
At December 31, 1994 and 1993, approximately 7% and 9%, respectively,
of total inventory was priced by the last-in, first-out (LIFO) method
with the remainder priced at actual, average, or standard. If the
first-in, first-out (FIFO) method of inventory pricing had been used,
inventories would have been approximately $4,174,000 higher than
reported on December 31, 1994 and $4,198,000 higher than reported on
December 31, 1993. In 1994 and 1992 certain inventory quantities
were reduced, resulting in liquidations of LIFO inventory quantities
carried at lower costs prevailing in prior years. The effect was to
increase net income by $159,000 ($.01 per share) and $534,000 ($.04
per share) in 1994 and 1992, respectively.
Inventories include amounts related to long-term contracts of the
Company's defense subsidiary, as determined by the percentage-of-
completion method of accounting. Sales and gross profit are
principally recognized as work is performed based on the relationship
between actual costs incurred and total estimated costs at completion.
Additionally, certain contracts provide for the production of various
units throughout the contract period and these contracts are accounted
for based on the units delivered. See Note 3.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
-----------------------
The policy of the Company is to provide for depreciation on the
straight-line, sum-of-the-years digits, 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.
EARNINGS PER SHARE: Earnings per share has been computed using the
-------------------
weighted average number of the common and common equivalent shares
outstanding, and assuming exercise of all stock options having
exercise prices less than the average market price of the common stock
using the treasury stock method: 12,241,503 in 1994, 12,258,693 in
1993, and 12,257,850 in 1992.
NEW ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1993, the Company
------------------------------
adopted the Statement of Financial Accounting Standards (SFAS) No.
106,"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (See Note 11). In addition, effective January 1, 1993, the
Company
changed its method of accounting for income taxes from the deferred
method to the liability method required by No. 109, "Accounting for
Income Taxes" (See Note 13).
-----------------------------------------------------------------
NOTE 2: TRADE RECEIVABLES
----------------------------------------------------------------------
Amounts due from the U.S. Government primarily related to long-
term contracts of the Company's defense subsidiary were as follows:
-----------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
Amounts billed $18,741 $22,665
Unbilled recoverable costs and
earned fees 5,500 7,448
Retainage per contract provisions 372 898
-----------------------------------------------------------------------------
$24,613 $31,011
=============================================================================
Billed and unbilled amounts above include $4,415,000 and $5,940,000 at
December 31, 1994 and 1993, respectively, related to contracts for
which the Company's defense subsidiary is a subcontractor to other
government contractors. Unbilled recoverable costs and earned fees
substantially represent amounts that will be collected within one
year. Retainage amounts will generally be billed over the next twelve
months.
-----------------------------------------------------------------
NOTE 3: INVENTORIES
------------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
Finished goods and works in progress $16,537 $ 6,583
------------------------------------------------------------------------------
Costs and earnings relating to long-
term contracts 67,105 117,156
Deduct progress payments related to
long-term contracts (34,608) (77,652)
------------------------------------------------------------------------------
Costs and earnings in excess of
billings 32,497 39,504
------------------------------------------------------------------------------
Total finished goods and work in
progress 49,034 46,087
Materials and supplies 4,452 3,776
------------------------------------------------------------------------------
$53,486 $49,863
==============================================================================
The inventoried costs associated with long-term contracts include
costs and earnings ($32,497,000 in 1994 and $39,504,000 in 1993) 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 subsidiary 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 $5,600,000 ($3,461,000 net of tax benefit, or $.28 per
share) during 1994 and $28,000,000 ($17,833,000 net of tax benefit,
or $1.45 per share) during 1993, resulting primarily from revision of
cost estimates on certain major long-term contracts.
Included in costs and earnings relating to long-term contracts at
December 31, 1994 and 1993, are amounts related to estimated
reimbursable costs applicable to certain government contracts. Such
estimated reimbursable costs approximate $16,538,000 and $3,400,000,
respectively, and such amounts are subject to negotiation with the
government. The Company has provided reserves which it believes are
adequate to cover any exposure related to these 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 4: OTHER ASSETS
-------------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
Note receivable, net of current
portion - $ 8,540
Net pension asset $22,337 16,143
Patents and other intangible
assets 11,464 4,929
Other 3,221 2,024
-------------------------------------------------------------------------------
$37,022 $31,636
===============================================================================
The note receivable is due from a British manufacturing company and
relates to the sale of a subsidiary in 1985. The note, which is
payable in one remaining annual installment of $8,540,000, bears
annual interest at 14% and was paid in February 1995.
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 15 years. Amortization expense
amounted to $1,683,000 in 1994, $538,000 in 1993, and $900,000 in
1992. Accumulated amortization amounted to $3,309,000 and $1,626,000
at December 31, 1994 and 1993, respectively.
During 1993, the unamortized amount ($1,202,000) of certain
intangible assets primarily related to an acquired business were
charged off in connection with the restructuring charge as disclosed
in Note 17.
During 1994, the Company acquired approximately $7 million of
patents and other intangible assets related to the purchase of Symtron
Systems, Inc.
-----------------------------------------------------------------
NOTE 5: LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
-------------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
Senior notes payable to insurance $20,000 $25,000
companies
===============================================================================
Interest expense was $3,202,000 in 1994, $3,011,000 in 1993, and
$3,193,000 in 1992. Interest paid was $3,323,000 in 1994, $2,950,000
in 1993, and $2,680,000 in 1992.
In 1992, AAI Corporation (a wholly owned subsidiary) entered into
a note purchase agreement with certain insurance companies for
$25,000,000. The proceeds of the note were principally used to repay
the then outstanding borrowings of AAI. Interest is payable semi-
annually. The note purchase agreement was amended in July 1993
whereby certain debt covenants were modified and the interest rate was
increased from 8.65% to 9.15% at such date, but reverted to 8.65%
effective January 1, 1994. AAI prepaid $5,000,000 of the notes in
1994. The remaining principal is to be repaid in three equal annual
payments of $6,250,000 commencing July 31, 1996, and a final payment
of $1,250,000 in 1999.
The Company is a guarantor of the agreement and together with AAI
must comply with certain covenants including, but not limited to,
provisions related to dividends, indebtedness, working capital, net
worth, interest coverage and debt to equity ratios.
On October 13, 1994, AAI entered into a two year revolving credit
agreement with two banks for $20,000,000, including a commitment for
up to $10,000,000 of commercial letters of credit. The revolving
credit is limited to a percentage of the eligible accounts receivable,
as defined. The agreement provides that AAI may select among several
interest rate options. The agreement provides for restrictive
covenants among which are the maintenance of a certain capital base,
as defined; leverage and cash flow coverage ratios; limitations on
indebtedness; and limitations on transfers of funds and use of such
funds by the Company or its wholly owned subsidiaries. Borrowings
under the credit agreement and the outstanding notes with the
insurance companies are collateralized by the capital stock and assets
of AAI and its wholly owned subsidiaries and certain wholly owned
subsidiaries of the Company. Such borrowings are guaranteed by the
Company, certain of its wholly owned subsidiaries and all AAI wholly
owned subsidiaries. There was $1,200,000 outstanding under the credit
agreement at December 31, 1994.
At December 31, 1994 and 1993, AAI's net assets of approximately
$66,000,000 and $45,000,000, respectively, were restricted under debt
agreements.
Under an additional line-of-credit agreement with a bank, the
Company may borrow up to $4,000,000 including a commitment for up to
$2,000,000 of commercial letters of credit. At
December 31, 1994, the unused portion of this credit line was
$1,000,000. The credit agreement expires November 30, 1995, and
requires commitment fees which are not material. The agreement
incorporates the covenants of the note purchase guaranty agreement and
is guaranteed by two subsidiaries of the Company.
The carrying amounts of the Company's borrowings under its short-
term revolving credit agreements and long-term debt approximate their
fair value.
The weighted average interest rate on short-term borrowings
outstanding at December 31, 1994 and 1993, was 7.67% and 4.88%,
respectively.
----------------------------------------------------------------------
NOTE 6: ACQUISITIONS
On January 18, 1994, the Company purchased all the outstanding
shares of Symtron Systems, Inc. (Symtron), a producer of fire fighter
training simulators for government and commercial markets. The
purchase price consisted of cash payments of $2,000,000, assumption of
certain liabilities of approximately $5,900,000, and contingent
payments not to exceed $1,000,000, based on the net worth at specified
dates and future profits on contracts existing at the acquisition
date. Additionally, contingent amounts are payable if certain pretax
profits, as defined in the purchase agreement, are earned for each of
the years in the five year period ending December 31, 1998. Funds
generated from operations and an existing line of credit were utilized
to finance the purchase of Symtron.
The acquisition was accounted for as a purchase, accordingly, the
operations of Symtron are included in the Company's 1994 financial
statements from the date of acquisition. Total revenues of Symtron in
1993 and 1992 were less than 3% of the consolidated sales of the
Company and total assets were less than 2% of consolidated assets.
----------------------------------------------------------------------
NOTE 7: STOCK OPTIONS
The Incentive Stock Option Plan adopted in 1982 provided for the
issuance of options to key employees to purchase common stock of the
Company. Options expired 10 years from the date of grant. The plan
terminated in February 1992, and all outstanding options (7,408 with
exercise prices of $14.65) expired in May 1993. During 1992, options
to acquire 6,560 shares were exercised at $8.765.
In May 1994, the shareholders approved the 1994 Stock Option
Plan, which provides for the granting of options with respect to the
purchase of an aggregate of up to 600,000 share 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 are exercisable over a period determined by the Board of
Directors, but no longer than ten years after the date they are
granted. During 1994, options were granted for 94,000 shares at
exercise prices of $4.50 and $4.75 per share.
----------------------------------------------------------------------
NOTE 8: LEASES
Total rental expense for all operating leases amounted to $2,714,000
in 1994, $2,803,000 in 1993, and $2,994,000 in 1992. Contingent
rental payments were not significant.
The future minimum rental commitments as of December 31, 1994, for all
noncancelable leases were
$2,000,000 in 1995; $1,500,000 in 1996; $617,000 in 1997; $418,000 in
1998; $305,000 in 1999; and $360,000 thereafter.
-----------------------------------------------------------------
NOTE 9: CHANGES IN SHAREHOLDERS' EQUITY
Retained
Common Additional Earnings Treasury Minimum Pension Shareholders'
(Dollars in thousands) Stock Capital (Deficit) Stock Liability Adjustment Equity
BALANCE, DECEMBER 31, 1991 $14,368 $99,445 $ 6,025 $(16,875) - $102,963
Net income - - 6,393 - - 6,393
Cash dividends declared
($.64 per share) - - (7,845) - - (7,845)
Stock Options 6 51 - - - 57
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 14,374 99,496 4,573 (16,875) - 101,568
Net loss - - (11,023) - - (11,023)
Cash dividends declared
($.35 per share) - (2,329) (1,961) - - (4,290)
Adjustment for minimum
pension liability - - - - $(901) (901)
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 14,374 97,167 (8,411) (16,875) (901) 85,354
Net income - - 5,212 - - 5,212
Cash dividends declared
($.21 per share) - (2,571) - - - (2,571)
Purchase of 91,200 shares - - - (475) - (475)
Adjustment for minimum
pension liability - - - - 901 901
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $14,374 $94,596 $ (3,199) $(17,350) $ - $ 88,421
========================================================================================================================
----------------------------------------------------------------------
NOTE 10: PENSION ARRANGEMENTS AND SPECIAL TERMINATION BENEFITS
The Company and its subsidiaries have a number of noncontributory
defined benefit pension plans covering substantially all employees.
Plans covering salaried and management employees provide pension
benefits that are based on the employee's average compensation for the
highest five consecutive years before retirement and years of service.
Plans covering hourly employees and union members generally provide
benefits of stated amounts for each year of service. The Company's
funding policy for the plans is to make the minimum annual
contributions required by applicable regulations.
A summary of the components of net periodic pension cost for the plans
is as follows:
------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
Service cost--benefits earned during
the period $ 3,238 $ 3,045 $ 3,431
Interest cost on projected benefit
obligation 10,507 10,388 9,756
Actual return on plan assets (1,891) (12,671) (7,283)
Net amortization and deferral (8,898) 2,168 (2,831)
Curtailment (gain) expense (928) 698 -
------------------------------------------------------------------------------
Total pension costs $ 2,028 $ 3,628 $ 3,073
==============================================================================
Assumptions primarily used in the accounting for the plans were:
---------------------------------------------------------------------------------
1994 1993 1992
Weighted-average discount rates 8.5% 7.5% 8.5%
Rates of increase in compensation levels 4% 4% 4%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
---------------------------------------------------------------------------------
The following table sets forth the funded status and amounts
recognized in the Consolidated Balance Sheets at December 31, 1994 and
1993, for the Company's pension plans:
Plans with assets in excess of accumulated benefit obligation:
------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993
Actuarial present value of benefit obligations:
Vested benefit obligation $118,900 $112,781
------------------------------------------------------------------------------
Accumulated benefit obligation $122,407 $116,591
------------------------------------------------------------------------------
Projected benefit obligation $122,469 $131,012
Plan assets at fair value 135,511 127,571
------------------------------------------------------------------------------
Projected benefit obligation less
(greater) than plan assets 13,042 (3,441)
Unrecognized net loss including prior
service cost 9,861 21,511
Unrecognized net asset at beginning of year,
net of amortization (566) (169)
------------------------------------------------------------------------------
Net pension asset recognized in the
Consolidated Balance Sheets $ 22,337 $ 17,901
===============================================================================
Plans with accumulated benefit obligations in excess of assets:
------------------------------------------------------------------------------
(Dollars in thousands) 1993
Actuarial present value of benefit obligations:
Vested benefit obligation $12,741
------------------------------------------------------------------------------
Accumulated benefit obligation $13,280
------------------------------------------------------------------------------
Projected benefit obligation $13,280
Plan assets at fair value 10,102
------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (3,178)
Unrecognized net loss including prior service cost 3,273
Unrecognized net asset at beginning of year, net of
amortization (416)
Adjustment to recognize minimum liability (2,857)
------------------------------------------------------------------------------
Net pension liability recognized in the Consolidated
Balance Sheets $(3,178)
==============================================================================
Intangible Asset $ 1,420
==============================================================================
The plans' assets are invested in listed stocks and bonds and
interest-bearing cash equivalents.
The discount rates assumptions were reduced in 1993 to give
consideration to declining interest rates. This change resulted in an
increase to the accumulated benefit obligation and the projected
benefit obligation at December 31, 1993 by $13,561,000 and
$16,242,000, respectively.
As required by Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions," the Company recorded an
additional pension liability of $2,857,000 at December 31, 1993 to
reflect the excess of the accumulated benefit obligation over the fair
value of plan assets for one of its defined benefit plans. Since the
additional liability may not exceed the related unrecognized prior
service costs, a reduction in shareholders' equity ($901,000 net of
tax benefit) was separately reported at December 31, 1993.
On November 30, 1994, the energy systems segment suspended
future benefit accruals by freezing the non-union employees' defined
benefit plan. This resulted in a pension curtailment gain of
$1,092,000 ($675,000 net of taxes or $.06 per share). The Company
replaced the defined benefit plan with a defined contribution benefit
plan. Employee contributions and employer matching are based on
specified formulas. In addition, a curtailment loss of $164,000
($101,000 net of tax benefit or $.01 per share) was recognized for
another plan due to reductions of staffing levels at the Company's
defense segment. On December 31, 1994, the defense segment merged its
two defined benefit plans, and subsequent to year-end converted them
into a single cash balance plan. In accordance with the Cash Balance
Plan, a participant's benefit includes the actuarial equivalent of the
participant's accrued benefit under the applicable predecessor plan,
annual allocations based upon a percentage of salary, and interest
earned on such participant's account. The defense segment also
amended its 401 (k) plan subsequent to year-end to provide for
employer matching contributions based on specified formulas. The
effect of the changes in the plans' status has been reflected as of
December 31, 1994.
During 1993, the curtailment expense was included in the
restructuring charge (see Note 17). During 1992, the Company's
energy systems segment offered an early retirement program to
employees meeting specified conditions. This early retirement program
principally included up to five years of credited service in the
subsidiary's pension plans and the payment of certain medical benefits
for defined periods. This offer was accepted by 17 employees. The
present value of the associated costs of these special termination
benefits amounted to approximately $1,191,000, of which $816,000 will
be paid by the pension plans. It is expected that the Company will
fund the pension plans for these costs over a thirty-year period.
----------------------------------------------------------------------
NOTE 11: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the Company's defined benefit pension plans, a
subsidiary of the Company sponsors a defined benefit health care plan
that provides postretirement medical benefits to full-time employees
who have worked 10 years and attained age 62 or 30 years of service
with the Company. The plan is non-contributory for retirees and
contributory for spouses. The retiree spousal contributions are
adjusted annually. Both the retiree and spouse plan contain cost-
sharing features such as deductibles and coinsurance. The accounting
for the plan anticipates future cost sharing changes to the written
plan that are consistent with the Company's expressed intent to
increase the spousal contribution to the point that the entire cost
for spouses will be contributory at the end of 10
years commencing from January 1, 1993 and limit the amount it will
contribute for retiree insurance costs, as well as each active
employee who later becomes a retiree, to no more than double the
amount which the Company paid for coverage on January 1, 1993. The
actuarial and recorded liabilities for these benefits have not been
funded. The accumulated benefit obligation was determined using the
unit credit method and an assumed discount rate of 8.5% in 1994 and
1993. The assumed health care cost trend rate used was 12% for
medical and 6.4% for dental decreasing to 6% and 5%, respectively, in
the year 2003. An increase of 1% in the health care trend rate would
not materially increase the cost or accumulated postretirement benefit
due to the limit of the Company not being obligated to pay more than
double the amount which the Company was paying for coverage on January
1, 1993.
Another subsidiary also sponsors a defined benefit health care
plan that provides postretirement medical and dental benefits to full-
time employees who have worked 10 years and attained age 60. Dental
benefits cease for both retiree and spouse once the retiree reaches
age 65. Surviving spouses are eligible for pre-retirement death
benefits. Employees aged 55, but less than 60, with at least 20 years
of service receive only medical benefits commencing when the retiree
reaches age 65. No dental benefit is provided. The accumulated
benefit obligation was determined using the unit credit method and an
assumed discount rate of 8.5% in 1994 and 8% in 1993. The assumed
health care cost trend rate was 12% decreasing to 7% in 11 years. The
health care cost trend rate assumption has a significant effect on the
amounts reported. A 1% increase in the health care trend rate would
increase the accumulated postretirement benefit obligation at December
31, 1994 by $431,000 at year-end 1995. The effect of a 1% increase in
the health care trend rate would not materially increase the net
periodic cost.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires that the
projected future cost of providing postretirement benefits, such as
health and life insurance, be recognized as an expense as employees
render service instead of when the benefits are paid. The effect of
adopting the new rules increased the 1993 loss before the cumulative
effect of accounting changes by $693,000 ($441,000, or $.04 per share
net of tax benefit). The cumulative effect of this change in
accounting increased the 1993 net loss by $12,890,000 or $1.05 per
share net of tax benefit. Postretirement benefit cost for 1992,
which was recorded on a cash basis, has not been restated.
The costs of certain health care provided by the Company for
eligible retired employees were $1,719,000 and $1,177,000 in 1994 and
1993, respectively. In 1992 such benefits were recognized as incurred
and amounted to $1,335,000.
The following table shows the two plans' combined funded status
reconciled with the amounts recognized in the Company's statements of
financial position:
------------------------------------------------------------------------------
(Dollars in thousands) December 31 1994 1993
Accumulated postretirement benefit obligation:
Retirees $12,516 $12,768
Fully eligible active plan participants 1,345 1,189
Other active plan participants 6,949 6,822
------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 20,810 20,779
Unrecognized net loss (192) (620)
------------------------------------------------------------------------------
Accrued postretirement benefit obligation $20,618 $20,159
==============================================================================
Net periodic postretirement benefit cost included the following
components:
------------------------------------------------------------------------------
(Dollars in thousands) Year ended December 31 1994 1993
Service Cost $ 516 $ 522
Interest Cost 1,615 1,613
Curtailment gain - (265)
------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,131 $1,870
==============================================================================
----------------------------------------------------------------------
NOTE 12: INDUSTRY SEGMENTS DATA
The Company is engaged in the design, development, manufacture, and
sale of products in three principal industries: electronics,
aerospace, fire fighter training, and ordnance systems for defense and
other government agencies in the United States and abroad; energy
systems for industries and utilities; and specialty plastic products.
---------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
NET SALES
Defense $175,535 $216,436 $215,251
Energy Systems 27,835 30,394 30,557
Plastic Products 6,357 6,163 5,507
---------------------------------------------------------------------------------
Total Net Sales $209,727 $252,993 $251,315
=================================================================================
OPERATING INCOME (LOSS)
Defense $10,831 $(20,396)(a)(b) $ 9,493
Energy Systems 1,884 3,720 1,297(c)
Plastic Products 219 474 201
Corporate (4,507) (3,949)(b) (920)
---------------------------------------------------------------------------------
Total Operating Income (Loss) $ 8,427 $(20,151)(a) $ 10,071(c)
=================================================================================
IDENTIFIABLE ASSETS
Defense $160,963 $164,897 $179,177
Energy Systems 23,405 22,541 18,673
Plastic Products 2,915 2,657 2,278
Corporate 16,024 26,416 26,830
---------------------------------------------------------------------------------
Total Assets $203,307 $216,511 $226,958
=================================================================================
CAPITAL EXPENDITURES
Defense $3,304(d)(e) $4,395 $4,394(d)
Energy Systems 624 1,387 1,112
Plastic Products 149 149 41
Corporate 69 - -
---------------------------------------------------------------------------------
Total Capital Expenditures $4,146(d)(e) $5,931 $5,547(d)
=================================================================================
DEPRECIATION EXPENSE
Defense $5,470 $4,999 $6,104
Energy Systems 917 840 776
Plastic Products 101 90 82
Corporate 8 7 7
---------------------------------------------------------------------------------
Total Depreciation $6,496 $5,936 $6,969
=================================================================================
(a) Includes restructuring charge of $22,500,000 as described in Note 17.
(b) In 1993, the allocation of certain costs to the defense segment were modified
and included in the operating loss of corporate. These costs aggregated
$900,000, thereby, increasing corporate's operating loss by such amount, and
resulting in a reduction of the defense's segment operating loss.
(c) See Note 10 for specific items affecting Operating Income.
(d) Excludes assets acquired in the ACL acquisition of $723,000 in 1992 and the
Symtron acquisition of $8,761,000 in 1994.
(e) Excludes $1,322,000 of assets transferred from inventory.
Sales to agencies of the United States Government, primarily by the
defense segment, were $159,766,000 in 1994, $172,169,000 in 1993, and
$180,695,000 in 1992. No single customer, other than the United
States Government, accounted for 10 percent or more of net sales in
any year. In 1993, export sales which amounted to $31,258,000 and
were composed primarily of sales to Asia and Europe. Export sales in
1994 and 1992 amounted to less than 10% of net sales in those years.
Identifiable assets -- Plastic products includes cost in excess
of net assets of the acquired company of $410,000 in 1994, $436,000 in
1993, and $466,000 in 1992. Operating income for each segment is
total revenue less operating expenses, excluding interest and
corporate management fees. Corporate income includes net interest
(expense) income of ($1,362,000) in 1994, $639,000 in 1993, and
$686,000 in 1992. Corporate assets consist primarily of cash and cash
equivalents and a note receivable referred to in Note 4.
----------------------------------------------------------------------
NOTE 13: INCOME TAXES
Effective January 1, 1993, the Company adopted the Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, 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. Prior to the adoption of this
statement, income tax expense was determined using the deferred method
whereby deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year
the difference originated and reversed.
The Company elected to adopt SFAS No. 109 by reporting the
cumulative effect of the change in the method for accounting for
income taxes as of the beginning of 1993. The cumulative effect of
this accounting change amounted to $13,884,000 ($1.13 per share),
which reduced the 1993 net loss. The effect of the change in
accounting for the years ended December 31, 1994 and 1993 was not
material. Prior years' financial statements have not been restated to
apply the provision of SFAS No. 109.
Following is a reconciliation of the difference between total tax
expense (benefit) and the amount computed by applying the federal
statutory income tax rate (34%) to income or (loss) from operations
before income taxes:
------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
Federal income taxes (benefit)
at statutory rate $2,865 $(6,851) $3,424
State income taxes, net of
federal income tax benefit 304 (16) 500
Research credit - (1,288) (430)
Other-net 46 21 184
------------------------------------------------------------------------------
Income Taxes (Credit) $3,215 $(8,134) $3,678
==============================================================================
In 1993, credits for research and experimental expenditures (research
credit) of $1,288,000 were recognized, thereby increasing the current
federal income tax credit. Approximately $726,000 of this research
credit resulted from payments received in 1993 related to amended
returns of prior years and $562,000 principally resulting from the
extension of the research credit which had previously expired in June
1992. No research or experimental credits were recognized in the
provision for income taxes in 1994.
Deferred income tax expense (credit), resulting primarily from
differences in accounting methods used for financial and tax purposes,
consists of:
------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
Excess of estimated contract cost
over sales price not currently
deductible for income taxes $ (384) $ 846 $ 2,084
Revenue recognition on long-term
contracts 1,362 (1,098) (5,189)
Vacation pay accruals 79 139 (267)
Excess of pension plan costs for tax
purposes 470 1,016 923
Disposition of assets 1,599 (2,335) -
Depreciation 64 200
Installment gain (2,568) (2,568) (2,568)
Early retirement provision - - (231)
Other-net (36) (469) (281)
------------------------------------------------------------------------------
$ 522 $(4,405) $(5,329)
==============================================================================
Income tax payments were $3,609,000 in 1993, $9,062,000 in 1992 and a
refund of $2,879,000 in 1994. Deferred income tax balances at
December 31, 1994, consists of:
------------------------------------------------------------------------------
Deferred Tax Assets 1994 1993
Losses on long-term contracts not
currently deductible $ 3,575 $ 4,760
Postretirement benefits other than
pensions and other employee benefits 10,231 9,247
Product warranty and other provisions 1,463 1,355
Vacation pay accruals 468 555
Basis differences for asset sales 1,697 3,225
Other 248 19
------------------------------------------------------------------------------
Total Deferred Tax Assets 17,682 19,161
------------------------------------------------------------------------------
Deferred Tax Liability
Pension plans and other employee benefits (11,380) (9,368)
Excess tax depreciation (9,716) (7,313)
Installment gain (2,643) (5,288)
Other (2) (169)
------------------------------------------------------------------------------
Total Deferred Tax Liabilities (23,741) (22,138)
------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $ (6,059) $ (2,977)
==============================================================================
The acquisition of Symtron had the effect of increasing deferred tax
liabilities by approximately $1,859,000 for the difference between the
book and tax basis of assets and liabilities assumed on the date of
acquisition.
----------------------------------------------------------------------
NOTE 14: SUNDRY
Research and development costs included in costs and expenses amounted
to $1,839,000 in 1994, $1,518,000 in 1993, and $2,613,000 in 1992.
----------------------------------------------------------------------
NOTE 15: SELECTED QUARTERLY DATA (UNAUDITED)
(Dollars in
thousands,
except per
share data
and stock
prices) 1994 1993
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
--------------------------------------------------------------------------------------------
Net sales $57,725 $59,710 $42,216 $50,076 $65,159 $67,440 $62,995 $ 57,399
Gross profit 11,924 12,910 11,685 11,989 11,908 9,823 15,281 7,792
Net income
(loss) 1,212 1,538 1,408 1,054 1,881(a) 1,828 1,725 (16,457)(b)
===============================================================================================================
Earnings
(loss)
per share $ .10 $ .13 $ .11 $ .09 $ .15(a) $ .15 $ .14 $ (1.34)(b)
===============================================================================================================
Dividends
declared
per share - (c) $ .07 $ .07 $ .07 $ .07 $ .07 $ .05 $ .16
Stock prices:
High $ 5 7/8 $ 6 $ 6 1/8 $ 6 5/8 $ 6 7/8 $ 7 $ 8 7/8 $ 10 5/8
Low $ 4 1/2 $ 4 1/4 $ 4 1/8 $ 5 1/8 $ 5 $ 4 1/2 $ 4 $ 8 3/8
---------------------------------------------------------------------------------------------------------------
(a) Includes tax credit for research and experimental expenditures of $1,091,000 ($.09 per share) and an
adjustment reducing the restructuring charge referred to in Note 17 by $330,000 ($.03 per share).
(b) Includes restructuring charge of $14,700,000, net of tax benefit ($1.20 per share) and the net
cumulative effect of changes in accounting of $994,000 ($.08 per share).
(c) Customary fourth quarter dividend was declared February 1, 1995 ($.07 per share)
The Company's common stock is listed on the New York Stock Exchange.
The approximate number of shareholders of record as of February 28,
1995, was 5,000.
The debt covenants recited in Note 5 have certain restrictions on
the payment of dividends.
----------------------------------------------------------------------
NOTE 16: LITIGATION
The Company, along with various other parties, has been named in
five claims (including four tort claims) relating to environmental
matters based on allegations principally related to a predecessor's
operations. These tort actions seek recovery for personal injury and
property damage among other damages. In one tort claim, class
certification was granted as to both property damage and medical
monitoring classes. The Company has joined the other defendants in
appealing the class certification issue to the Arizona Supreme Court.
The Company owned and operated a small facility at a site in the
State of Arizona that manufactured semi-conductors between 1959 and
1960. All such operations of the Company were sold prior to 1962.
This facility may have used trichloroethylene ("TCE") in small
quantities. However, to date, there is no evidence that this facility
released or disposed of TCE at this site.
On May 18, 1993, the State of Arizona filed suit against the
Company seeking the recovery of investigative costs, injunctive relief
to require the Company to perform a Remedial Investigation and
Feasibility Study, and ultimately to require the remediation of
alleged soil and groundwater contamination at and near a certain
industrial site. Since then the State has brought in co-defendants
whose operations at the site were substantially larger than those of
the Company. The parties are engaged in active discovery.
Management intends to vigorously contest these actions and
believes that the resolution of these actions will not be material to
the Company.
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 materially adverse
effect on the consolidated financial position of the Company.
----------------------------------------------------------------------
NOTE 17: RESTRUCTURING
On March 29, 1993, the Company's Board of Directors approved a
plan of reorganization and restructuring of the operations of its
defense industry subsidiary, AAI Corporation. The Company estimated
and recorded in the first quarter a restructuring charge of
$23,000,000 ($14,700,000 or $1.20 per share net of tax benefit). The
plan of reorganization and restructuring, which was considered
necessary due to the declining Department of Defense budget and
continuing financial problems of the airline industry, included costs
of organizational and product-line changes, consolidation of
facilities and work force reductions of approximately 300 at AAI and
its four subsidiaries. A major portion of the charge resulted from
the termination of the operations of AAI/MICROFLITE, a manufacturer of
flight simulators and training devices, due to a lack of significant
new orders. AAI/MICROFLITE was acquired in 1991. Net sales related
to the AAI/MICROFLITE operations amounted to $646,000, $2,600,000 and
$7,700,000 in 1993, 1992 and 1991, respectively. AAI/MICROFLITE
incurred pretax losses of $2,561,000 ($1,690,000 or $.14 per share,
net of tax benefit) in 1993, $8,800,000 ($5,800,000 or $.47 per share
net of tax benefit) in 1992 and an immaterial loss in 1991.
As of December 31, 1993, the restructuring program was
substantially completed. During 1994, $750,000, related to the
consolidation and discontinuation of certain manufacturing activities
was expended. The net loss for 1993 includes $22,500,000 of pretax
charges ($14,370,000 or $1.17 per share net of tax benefit) which
consisted of $13,822,000 of write-downs to reduce the carrying value
of affected assets, including certain inventories, intangibles and an
office/manufacturing complex at AAI/MICROFLITE, to net realizable
value, $6,683,000 of employee-related expenses associated with the
consolidation, relocation, and termination of certain operations, and
$1,995,000 of other expenses.
Assets held for sale of $5,439,000 included on the Consolidated
Balance Sheet at December 31, 1993, relate to the remaining assets of
AAI/MICROFLITE, including the office/manufacturing complex. The
Company sold these assets in 1994, which resulted in a gain of
$1,304,000. The restructuring program was completed in 1994.
REPORT OF ERNST & YOUNG LLP, 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, 1994
and 1993, and the related consolidated statements of operations and
cash flows for each of the three years in the period ended
December 31, 1994. 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 generally accepted
auditing standards. 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, 1994 and 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 11 and 13 to the consolidated financial
statements, effective January 1, 1993 the Company changed its method
of accounting for postretirement benefits other than pensions and
income taxes.
ERNST & YOUNG LLP
New York, New York
February 28, 1995
TEN YEAR-FINANCIAL DATA
United Industrial Corporation
-----------------------------------------------------------------------------------------------------------------------------
(dollars in Year ended
thousand, December 31 1994 1993 1992 1991 1990
except per
share data)
OPERATING DATA
Net Sales $209,727 $252,993 $251,315 $258,012 $253,820
Operating costs 202,766 252,919 242,304 238,767* 238,003
Interest (income)
expense-net 1,362 (639) (686) (1,587) (146)
Income (loss)
before income
taxes 8,427 (20,151)(a) 10,071(b) 21,276* 15,960
Income taxes (credit) 3,215 (8,134) 3,678 11,817(c) 3,869(d)
Income (loss) from con-
tinuing operations before
cumulative effect of
accounting changes 5,212 (12,017)(a) 6,393(b) 9,459(c)* 12,091(d)
Cumulative effect of
accounting changes - 994 - - -
Income (loss) from
continuing operations 5,212 (11,023)(a) 6,393(b) 9,459(c)* 12,091(d)
Earnings (loss) per
share:
Income (loss) before
cumulative effect of
accounting changes 0.43 (0.98)(a) 0.52(b) 0.77(c)* 0.96(d)
Cumulative effect of
accounting changes - 0.08 - - -
Earnings (loss) 0.43 (0.90)(a) 0.52(b) 0.77(c)* 0.96(d)
Cash dividends paid
on common stock 3,425 5,381 7,845 7,840 7,925
Cash dividends declared
per common share 0.21(f) 0.35 0.64 0.64 0.64
Stock dividends - - - - -
Shares outstanding as of
year end (in thousands) 12,167 12,259 12,259 12,252 12,243
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $203,307 $216,511 $226,958 $208,885 $235,228
Property and equipment 45,214 46,635 57,074 61,789 56,656
Long-term debt 20,000 25,000 25,880 7,365 12,479
Shareholders' equity 88,421 85,354 101,568 102,963 101,267
Shareholders' equity per
share 7.27 6.96 8.29 8.40 8.27
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on shareholders'
equity 6.0% - 6.3% 9.2% 11.9%
Net income as a percent
of sales 2.5 - 2.5 3.7 4.8
Long-term debt as a percent
of total capitalization 18.4 22.6 20.3 6.7 11.0
-----------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA
Sales backlog as of year end $218,000 $208,000 $239,000 $235,000 $251,000
Capital expenditures 4,146 5,931 5,547 4,885 5,188
Depreciation and
amortization 8,291 7,430 9,200 8,416 9,496
Number of employees 1,900 2,300 2,600 2,700 2,900
============================================================================================================================
Per-share amounts and common shares outstanding have been restated to reflect stock distributions.
(a) Includes restructuring charge of $22,500,000 ($14,400,000 or $1.17 per share net of income tax benefit).
(b) Includes special termination benefits cost of $1,191,000 ($786,000 or $.06 per share).
(c) Includes a charge for prior years' federal income tax and interest of $2,670,000 or $.22 per share.
(d) Includes a claim for federal income tax refund and interest of $2,660,000 or $.21 per share.
(e) Includes noncash charge of $9,992,000 ($6,595,000 or $.50 per share, net of income tax benefit) related to write-off claim
receivable.
(f) Customary fourth quarter dividend was declared February 1, 1995 ($.07 per share).
* Includes income of $4,556,000 ($3,007,000 or $.25 per share, net of taxes) related to a claim settlement and special
termination benefits cost of $3,638,000 ($2,401,000 or $.20 per share, net of tax benefit).
/TABLE
TEN YEAR-FINANCIAL DATA
United Industrial Corporation
-----------------------------------------------------------------------------------------------------------------------------
(dollars in Year ended
thousand, December 31 1989 1988 1987 1986 1985
except per
share data)
OPERATING DATA
Net Sales $280,783 $314,986 $297,501 $272,508 $296,378
Operating costs 268,585 290,206 277,263 292,928 246,172
Interest (income)
expense-net 14 (1,128) (2,895) (3,264) (5,012)
Income (loss)
before income
taxes 12,931(e) 26,174 24,108 (16,914) 29,589
Income taxes (credit) 4,927 (9,305) 9,806 (7,740) 10,477
Income (loss) from con-
tinuing operations
before cumulative
effect of accounting
changes 8,004(e) 16,869 14,302 (9,174) 19,112
Cumulative effect of
accounting changes - - - - -
Income (loss) from
continuing operations 8,004(e) 16,869 14,302 (9,174) 19,112
Earnings (loss) per
share:
Income (loss) before
cumulative effect of
accounting changes 0.61(e) 1.29 1.07 (0.69) 1.43
Cumulative effect of
accounting changes - - - - -
Earnings (loss) 0.61(e) 1.29 1.07 (0.69) 1.43
Cash dividends paid
on common stock 8,362 8,379 8,507 7,776 6,513
Cash dividends
declared
per common share 0.64 0.64 0.64 0.58 0.49
Stock dividends - - - 10% 10%
Shares outstanding as of
year end (in thousands) 13,009 13,093 13,186 13,325 13,303
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $245,848 $259,384 $232,287 $211,725 $237,544
Property and equipment 62,159 65,390 60,849 60,498 59,174
Long-term debt 12,662 13,073 13,456 13,822 14,783
Shareholders' equity 103,491 104,868 97,569 93,267 109,954
Shareholders' equity per
share 7.96 8.01 7.40 7.00 8.27
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on shareholders'
equity 7.7% 16.7% 15.0% - 29.5%
Net income as a percent
of sales 2.9 5.4 4.8 - 7.1
Long-term debt as a percent
of total capitalization 10.9 11.1 12.1 13.0 11.9
-----------------------------------------------------------------------------------------------------------------------------
STATISTICAL DATA
Sales backlog as of year end $268,000 $271,000 $314,000 $310,000 $293,000
Capital expenditures 6,642 13,613 8,880 9,292 18,654
Depreciation and
amortization 10,050 9,237 8,157 7,616 6,352
Number of employees 3,400 4,200 4,660 4,050 3,740
============================================================================================================================
Per-share amounts and common shares outstanding have been restated to reflect stock distributions.
(a) Includes restructuring charge of $22,500,000 ($14,400,000 or $1.17 per share net of income tax benefit).
(b) Includes special termination benefits cost of $1,191,000 ($786,000 or $.06 per share).
(c) Includes a charge for prior years' federal income tax and interest of $2,670,000 or $.22 per share.
(d) Includes a claim for federal income tax refund and interest of $2,660,000 or $.21 per share.
(e) Includes noncash charge of $9,992,000 ($6,595,000 or $.50 per share, net of income tax benefit) related to write-off claim
receivable.
(f) Customary fourth quarter dividend was declared February 1, 1995 ($.07 per share).
* Includes income of $4,556,000 ($3,007,000 or $.25 per share, net of taxes) related to a claim settlement and special
termination benefits cost of $3,638,000 ($2,401,000 or $.20 per share, net of tax benefit).
/TABLE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the year 1994 were $209,727,000. This was 17% less
than 1993 net sales of $252,993,000, which in turn, was 1% greater
than 1992 sales of $251,315,000. In general, the overall reduction
in defense spending has adversely impacted the Company's sales.
The Company had net income of $5,212,000 in 1994 compared to a
loss, before the effect of changes in accounting, of $12,017,000 in
1993 and net income of $6,393,000 in 1992. Net income in 1994
includes a net pension curtailment gain of $928,000 ($574,000 net of
taxes or $.05 per share). See Note 10. The net loss in 1993 included
a restructuring charge at the Company's defense subsidiary, AAI
Corporation, of $22.5 million ($14.4 million, or $1.17 per share, net
of tax benefit). See Note 17. A major portion of the charge resulted
from the termination of operations of AAI/MICROFLITE, a business
acquired in 1991. Also, in 1993, the net loss was reduced by
$1,288,000 ($.11 per share) for tax credits for research and
experimental expenditures and $994,000 ($.08 per share) resulting from
a net cumulative effect of changes in accounting principles. In 1992,
net income included charges for special termination benefits of
$786,000, related to early retirement programs, net of taxes.
Gross profit amounted to $48,508,000 or 23.1% in 1994,
$44,804,000 or 17.7% in 1993, and $62,311,000 or 24.8% in 1992. The
increase in gross profit in 1994 compared to 1993 represents improved
profit performance by the defense subsidiary, including continued
progress in the Company's efforts to control costs on certain major
long-term contracts. In 1992, the decrease in net sales affected the
overall absorption of overhead costs on existing contracts of the
Company's
defense subsidiary. As a result, overhead costs as a percent of net
sales increased in 1992, due principally to AAI/MICROFLITE. In
addition, cost overruns on certain defense contracts negatively
impacted gross profit in 1992.
The return to profitability from operations in 1994 was due to not
only successful performance on most contracts and the containment of
costs on certain long-term contracts, but also the elimination of
certain selling and administration expenses resulting from the
Company's organizational changes in 1994 and 1993. The effects of
these matters were a decrease in selling and administrative expenses
of approximately $3,200,000 in 1994 and $7,400,000 in 1993 due to work
force reductions at the defense subsidiary and the termination of
operations at AAI/MICROFLITE. Interest income was $1,840,000 in 1994,
$3,650,000 in 1993, and $3,879,000 in 1992. The decrease in interest
income was principally due to the reduced note receivable balance
resulting from the installment payments on such note receivable which
has a 14% interest rate. However, in 1993, the decrease was partially
offset by interest on tax refunds and other tax related items.
Interest expense was $3,202,000 in 1994, $3,011,000 in 1993 and
$3,193,000 in 1992. Decreased average borrowings were offset by
higher interest rates in 1994, resulting in increased interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents amounted to $6,132,000 at the end of
1994, $3,906,000 at the end of 1993 and $2,608,000 at the end of 1992.
The Company s principal uses of capital during the past several years
relate to acquisitions, new projects and the repayment of long term
debt. The Company intends to continue growing its diversification
into non-DOD markets. In January 1994, the Company acquired Symtron
Systems, Inc., a business engaged in the development and production of
patented fire fighter trainers, and in January 1992 acquired ACL
Technologies, Inc., a business engaged in the design and manufacture
of fluid test systems (see Note 6). Both of these businesses serve
government and commercial markets. Net advances of $4,557,000 and
$13,236,000 have been made to Symtron and ACL, respectively , since
their acquisition. The Company anticipates that the receipt of new
contracts will enable both Symtron and ACL to become self-financing.
Other commercial ventures include AAI's entry into the transit systems
market and the launching of the Next Generation Weather Observing
System (NEXWOS). Currently, AAI is teamed with Siemens Duewag
Corporation to produce light rail vehicles for the Los Angeles area
and other Siemens' North American undertakings in the future. Also in
1994, AAI's new transportation subsidiary, Electric Transit, Inc., a
joint venture between AAI and a Czech Republic firm, Skoda, emerged
the winner of a competition to build a fleet of 63 electric trolley
buses for the Dayton, Ohio area.
The Company expects to meet its cash requirements for 1995 from
operations, payments on its note receivable and borrowings under its
existing lines of credit. The Company's defense subsidiary has a
revolving credit arrangement and note agreement that contain
restrictive covenants with respect to payment of dividends or advances
and loans to the Company. These restrictions have
not materially affected the Company's ability to meet its cash
requirements. Annual installment payments of $8,540,000 on the
Company's note receivable (see Note 4) concluded in February 1995;
interest income related to this note decreased by approximately
$1,196,000 in 1994. Factors relating to the amounts of cash and cash
equivalents are explained in detail in the Consolidated Statement of
Cash Flows. The Company declared cash dividends of $.21 per share in
1994, $.44 per share in 1993 and $.64 per share in 1992, and amounted
to payments of $2,571,000 in 1994, $5,381,000 in 1993, and $7,845,000
in 1992. In 1994, the Company's customary fourth quarter dividend was
declared in February 1995 ($.07 per share). The ratio of current
assets to current liabilities was 2.2 at the end of 1994, compared to
2.0 at the end of 1993 and 1.5 at the end of 1992. The current ratio
continued to increase in 1994, principally due to reductions in
accounts receivable from the U.S. Government and short-term
borrowings.
Capital expenditures were $4,146,000 in 1994, $5,931,000 in 1993,
and $5,547,000 in 1992. There are no material commitments for
acquisition of capital assets as of December 31, 1994.
On October 13, 1994, AAI entered into a two-year revolving credit
agreement with two banks for $20,000,000, including a commitment for
up to $10,000,000 for commercial letters of credit. The revolving
credit is limited to a percentage of the eligible accounts receivable,
as defined. Immediately prior to entering into this credit facility,
AAI prepaid $5,000,000 of the $25,000,000 notes payable with certain
insurance companies, thereby reducing the outstanding principal
balance to an aggregate of $20,000,000. The agreement provides for
restrictive covenants among which are: the maintenance of a certain
capital base, as defined, leverage and cash flow coverage ratios,
limitations on indebtedness, and limitations on transfers of funds,
and use of such funds by the
Company and its wholly owned subsidiaries. Borrowings under the
credit agreement and the outstanding notes with the insurance
companies are collateralized by the capital stock and assets of AAI
and its wholly owned subsidiaries and certain wholly owned
subsidiaries of the Company. Such borrowings are guaranteed by the
Company, certain of its wholly owned subsidiaries and all AAI wholly
owned subsidiaries.
At December 31, 1994 and 1993, AAI's net assets of approximately
$66,000,000 and $45,000,000, respectively, were restricted under debt
agreements.
Under an additional line-of-credit agreement with a bank, which
expires November 30, 1995, the Company may borrow up to $4,000,000
including a commitment for up to $2,000,000 of commercial letters of
credit. At December 31, 1994, the unused portion of this credit line
was $1,000,000. This agreement incorporates the covenants of the note
purchase guarantee agreement and is guaranteed by two subsidiaries of
the Company.
Long-term debt at December 31, 1994 amounted to $20,000,000, or
18.4% of total capitalization, compared with $25,000,000 or 22.6% of
total capitalization at end of 1993 (See Note 5).
Earnings per share has been computed using the weighted average
number of the common and common equivalent shares outstanding and the
assumed exercise of all stock options having exercise prices less than
the average market price of the common stock using the treasury stock
method.
UNITED INDUSTRIAL CORPORATION
CORPORATE ORGANIZATION
--------------------------------------------------------------------------
BOARD OF DIRECTORS
Bernard Fein, President and Chairman Rick S. Bierman, Attorney at Law
of the Board.
Howard M. Bloch, Vice President Maurice L. Rosenthal, President,
Robeco, Inc.
Myron Simons, Business Consultant
--------------------------------------------------------------------------
OFFICERS
Bernard Fein, President and Chairman Susan Fein Zawel, Corporate
of the Board Secretary and General Counsel
Howard M. Bloch, Vice President Edward A. Smolinski, Assistant
Secretary
James H. Perry, Treasurer
--------------------------------------------------------------------------
SENIOR MANAGEMENT
DETROIT STOKER COMPANY
AAI CORPORATION Mark A. Eleniewski,
Executive Vice President
Irwin R. Barr, Chairman of Gary K. Ludwig, Vice
the Board Emeritus President, Finance
Richard R. Erkeneff, James W. Doyon, Vice
President and Chief President
Executive Officer Alan H. Miller, Director,
Howard M. Bloch, Vice Human Resources
President
Paul J. Michaud, Vice NEO PRODUCTS COMPANY
President, Chief Financial
Officer and Treasurer Michael A. Schillaci,
Robert W. Worthing, Vice President and Chief
President General Counsel Executive Officer
and Secretary Leonard M. Peznowski,
Maurice P. Ranc, Vice Controller
President and General
Manager, Defense Systems SYMTRON SYSTEMS, INC.
Lawrence J. Rytter, Vice
President and General John J. Henning, President
Manager, Weather Systems and Chief Executive
James A. Talley, Vice Officer
President and General James W. Hanson, Vice
Manager, Transportation President and General
Systems Manager
Thomas E. Wurzel, Vice J. Thomas Roeder, Vice
President and General President of Marketing
Manager, Fluid Test and Sales
Systems Howard M. Bloch, Secretary
Joseph F. Burger, Vice Richard A. Brandt,
President and General Treasurer
Manager, Operations
Howard E. Butz, Director,
Total Quality
UNITED INDUSTRIAL CORPORATION
CORPORATE AND SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS SHARES LISTED
New York Stock Exchange
18 East 48th Street Trading Symbol: UIC
New York, New York 10017
(212) 752-8787 INVESTOR RELATIONS
Security analysts, investment
SUBSIDIARIES professionals and shareholders
should direct their business
AAI Corporation related inquiries to:
P.O. Box 126
Hunt Valley, MD 21030 Investor Relations Department
(410) 666-1400 United Industrial Corporation
Detroit Stoker Company INDEPENDENT AUDITORS
1510 East First Street Ernst & Young LLP
Monroe, Michigan 48161 787 Seventh Avenue
(313) 241-9500 New York, NY 10019
Symtron Systems, Inc. ANNUAL MEETING
17-01 Pollitt Drive
Fair Lawn, NJ 07410 The Annual Meeting of
(201) 794-0200 Shareholders will be held on
Monday, May 8, 1995, at The
Neo Products Company Park Lane Hotel, 36 Central
5400 South Kilbourn Avenue Park South, New York City.
Chicago, Illinois 60632
(312) 585-2500 FORM 10-K REPORT
TRANSFER AGENT REGISTRAR AND A copy of the United
DIVIDEND DISBURSING AGENT Industrial Annual Report on
Shareholders may obtain Form 10-K as filed with the
information relating to their Securities and Exchange
share position, dividends, Commission may be obtained
transfer requirements, lost without cost by writing to:
certificates and other related
matters by telephone or by Susan Fein Zawel, Corporate
writing to: Secretary
and General Counsel
American Stock Transfer and
Trust Company
40 Wall Street
New York, NY 10005
(718) 234-2700
EX-21
7
LIST OF SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF UNITED INDUSTRIAL CORPORATION
MARCH 1, 1994
Approximate
State Percentage of
(or Jurisdiction) Voting Securities
in which Owned by
Name Incorporated Immediate Parent
------------------------------------------------------------------------------------
AAI Corporation Maryland 100% (a)
A.A.I. Engineering Support, Inc. Maryland 100 (b)
A.A.I. International, Inc. Delaware 100 (b)
Seti, Inc. Pennsylvania 100 (b)
AAI Systems Management, Inc. Maryland 100 (b)
AAI Medical, Inc. Maryland 100 (b)
AAI MICROFLITE Simulation Maryland 100 (b)
International Corporation
AAI/ACL Technologies, Inc. Maryland 100 (b)
AAI California Carshells, Inc. Maryland 100 (b)
Electric Transit, Inc. Ohio 53 (b)
Detroit Stoker Company Michigan 100 (a)
Midwest Metallurgical Laboratory, Inc. Michigan 100 (c)
Neo Products Co. Illinois 100 (a)
Symtron Systems, Inc. New Jersey 100 (a)
U.I.C. -Del. Corporation Delaware 100 (a)
(a)--Percentage owned by United Industrial Corporation ("United").
(b)--Percentage owned by AAI Corporation.
(c)--Percentage owned by Detroit Stoker Company.
All of the subsidiaries listed above are included in the consolidated
financial statements of United.
NYFS11...:\95\78495\0001\1196\EXH3295V.420
EX-23
8
CONSENT OF AUDITORS
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by refence in the Registration
Statement (Form S-8, No. 33-57065) pertaining to the United Industrial
Corporation 401(K) Retirement Savings Plan, and in the Registration
Statement (Form S-8, No. 33-53911) pertaining to the United Industrial
Corporation 1994 Stock Option Plan, of our report dated February 28,
1995, with respect to the consolidated financial statments and
schedules included in the Annual Report (Form 10-K) for the year ended
December 31, 1994.
ERNST & YOUNG LLP
New York, New York
March 24, 1995
NYFS11...:\95\78495\0001\1196\CON3295K.400
EX-27
9
FINANCIAL DATA SCHEDULE
5
1000
YEAR
DEC-31-1994
DEC-31-1994
6,132
0
33,564
0
53,486
109,910
126,981
81,767
203,307
49,299
20,000
0
0
14,374
74,047
203,307
209,727
209,727
161,219
201,300
0
0
0
8,427
3,215
5,212
0
0
0
5,212
.43
.43