10-K 1 s15-3474_10k.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002. 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 UNITED INDUSTRIAL CORPORATION ------------------------------ (Exact Name of Registrant as Specified in its Charter) DELAWARE 95-2081809 ----------------------------------- ------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 570 LEXINGTON AVENUE NEW YORK, NEW YORK 10022 (212) 752-8787 --- --------------------------------------------------------------------- (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 ------------------------------------ ------------------------------------ COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE --------------------------- (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] Indicate 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 a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [_]. [Cover page 1 of 2 pages] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes [x] No [_] Aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of June 28, 2002, computed by reference to the closing sale price of the registrant's Common Stock on the New York Stock Exchange on such date: $273,546,639. On March 10, 2003, the registrant had outstanding 13,067,918 shares of Common Stock, par value $1.00 per share, which is the registrant's only class of common stock. DOCUMENTS INCORPORATED BY REFERENCE: 1. Certain portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2002 are incorporated by reference into Parts I and II of this report. [Cover page 2 of 2 pages] PART I Forward Looking Information This Annual Report contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," and variations of such words and similar expressions are intended to identify such forward looking statements which include, but are not limited to, projections of revenues, earnings, segment performance, cash flows and contract awards. These forward looking statements are subject to risks and uncertainties which could cause the Company's actual results or performance to differ materially from those expressed or implied in such statements. These risks and uncertainties include, but are not limited to, the following: the Company's successful execution of internal performance plans; performance issues with key suppliers, subcontractors and business partners; the ability to negotiate financing arrangements with lenders; legal proceedings; outcome of current and future litigation; the accuracy of the Company's analysis of its potential asbestos related exposure and insurance coverage; product demand and market acceptance risks; the effect of economic conditions; the impact of competitive products and pricing; product development, commercialization and technological difficulties; capacity and supply constraints or difficulties; legislative or regulatory actions impacting the Company's energy segment and discontinued transportation operation; changing priorities or reductions in the U.S. government defense budget; contract continuation and future contract awards; and U.S. and international military budget constraints and determinations. The Company makes no commitment to update any forward looking statement or to disclose any facts, events or circumstances after the date hereof that may affect the accuracy of any forward looking statements. ITEM 1. BUSINESS At December 31, 2002, the operations of United Industrial Corporation ("United" or the "Company") consist of two business segments: defense and energy, principally conducted through two wholly-owned subsidiaries. The transportation operation is treated as a discontinued operation and complete cessation of production operations is scheduled during 2003. The Company will continue to have warranty obligations thereafter. Defense AAI Corporation AAI Corporation ("AAI") is engaged in engineering, development and manufacturing of Unmanned Aerial Vehicle ("UAV") platforms, Electronic Warfare ("EW") test and training systems, military and commercial simulators, automated test systems, and advanced boresight equipment. In addition, AAI provides sophisticated engineering, logistics, and maintenance services, which complement its key product platforms, as well as those of other original equipment manufacturers. AAI's advanced products designed for military customers include such high profile programs as the Shadow UAV system, recently selected as the U.S. Army's Tactical Unmanned Aerial Vehicle platform, and the Joint Services Electronic Combat Systems Tester, employed by all U.S. military branches to ensure optimal airborne EW operations. AAI's aerospace products, utilized by numerous military and commercial customers worldwide, offer superior test and maintenance capabilities for the F-16, many Boeing airframes, various General Electric and Pratt & Whitney aircraft engines, and other aviation equipment. AAI supplies its high quality aerospace test equipment to provide depot maintenance services to foreign and domestic military aviation customers. In 2002 and 2001 approximately 77% of the sales volume of AAI consisted of research, development and production of military items under domestic defense contracts. International defense contracts including foreign military sales through the U.S. government, accounted for 19.7% of company sales in 2002 as compared to 18.2% in 2001. These contracts generally related to unmanned aerial vehicle systems and weapon test and training systems for foreign governments. 1 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 UAV business area, AAI is one of the few companies to have successfully fielded an operational UAV system for the U.S. Department of Defense. AAI first began development work in the UAV business in 1986, producing the highly successful RQ-2 Pioneer UAV through a joint venture with Israel Aircraft Industries. The Pioneer has been employed by the United States in Operation Desert Storm and in the conflicts in Somalia and Bosnia. In 1999, AAI was awarded a contract to provide the next generation of tactical UAV's to the U.S. Army, the RQ-7 Shadow 200. In addition, AAI has other UAV systems and products which it markets internationally. Competitors include Northrop-Grumman Corporation, General Atomics and Israel Aircraft Industries. In the area of training and simulation systems, AAI competes with many large and small organizations developing equipment for the U.S. Government. AAI has a leading position in the development of aircraft maintenance simulators for the U.S. Air Force, having produced trainers for the Boeing E-3 Airborne Warning and Control System (AWACS); Northrop-Grumman E-8 Joint Stars wide-area surveillance aircraft and Boeing C-17 Globemaster cargo aircraft. AAI is also a leader in shipboard training and simulation systems, having produced its first systems, the 20B4 and 20B5 "Pierside" trainers, in the 1970's time frame. AAI currently provides the permanently installed radar stimulator/simulators for all ships that are part of the U.S. Navy's Battle Force Tactical Training (BFTT) System and the portable Carry-on Combat Systems Trainers (COCST) that are configurable to any combat ship and are fully BFTT compatible. Major competitors include: Northrop-Grumman Corporation, L-3 Communications and CAE Inc. AAI also develops and manufactures a variety of automated test systems to support military aviation requirements. These include the AN/USM-670 Joint Service Electronic Combat Systems Tester (JSECST), an organizational level (O-level) test system that assures aircraft electronic warfare systems are ready for use, and Advanced Boresight Equipment (ABE), a gyro-stabilized, electro-optical, angular measurement system that is used to align avionics and weapon systems on-board military aircraft and helicopters. Major competitors in the military test market include: BAE Systems PLC, DRS Technologies, Inc. and EDO Corporation. AAI's administrative offices and its principal manufacturing and engineering facilities are located in Hunt Valley, Maryland. Energy Systems Detroit Stoker Company Detroit Stoker Company ("Detroit Stoker") is a leading supplier of stokers and related combustion equipment for the production of steam used in heating, industrial processing and electric power generation around the world. Detroit Stoker offers a full line of stokers for burning bituminous and lignite coals as well as biomass, municipal solid waste and industrial by-products. Detroit Stoker also provides auxiliary equipment and services including fuel feed and ash removal systems, gas/oil burners and complete aftermarket services for its products. Principal markets include Pulp and Paper, Public Utilities, Independent Power Producers, Industrial manufacturing, Institutional and Cogeneration facilities. The products of Detroit Stoker compete with those of several other manufacturers. Competition is based on several factors including price, features and performance. 2 Detroit Stoker's waste to energy technology is used extensively in both public and private plants that generate steam and power from municipal waste. Its solid fuel combustion technologies are particularly well suited for biomass fuels that generate power from waste products such as bark, sugar cane husks, sawdust, sunflower hulls, and poultry litter. The combustion of biomass fuels is gaining worldwide popularity, as it does not contribute to global warming. Detroit Stoker exports its products to Europe, Asia, South America and Australia, and is a market leader in North America. Detroit Stoker's globalization strategy is to further expand both its customer and supplier base in each of these regions. Detroit Stoker's administrative offices and its principal manufacturing operations are located in Monroe, Michigan. On May 17, 2002 Detroit Stoker ceased its foundry operation and is purchasing its necessary castings from lower cost sources. This decision has improved operating margins. During 2002 Detroit Stoker incurred severance and other cash charges totaling approximately $1,286,721. In addition, the Company wrote off the net book value of the assets related to its foundry facility of $3,420,245 during the foundry's operating period in 2002. Transportation On July 26, 2002 the Company closed a transaction in which it sold two rail car overhaul contracts, as well as related assets and liabilities, with the New Jersey Transit Corporation and the Maryland Mass Transit Administration to Alstom Transportation Inc. Complete cessation of transportation's production operations is scheduled during 2003. The Company will continue to have warranty obligations thereafter. AAI Transportation Systems is being accounted for as discontinued operations. See Note 16 to the Financial Statements included in Item 8 of this Report. For additional information concerning the Company, reference is made to the information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2002 Annual Report to Shareholders (the "Annual Report"), which section is incorporated herein by reference. General Employees As of March 1, 2003 United and its subsidiaries had approximately 1,600 employees. Approximately 50 of these employees are represented by two unions under contracts expiring between July 2003 and January 2004. 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 electronic, ordnance and marine equipment and stokers. In addition, United has 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 ordnance devices, ground support equipment and electronic developments. No patent is considered to be of material importance to United. 3 Research and Development During 2002, 2001 and 2000, the defense segment expended approximately $4,431,000, $5,041,000 and $3,835,000, respectively, on the independent research and development of new products and improvements of existing products. In addition to the above amounts, the defense segment has contracts, primarily with the U.S. government, to conduct research and development. During 2002, 2001 and 2000, the energy segment expended approximately $157,000, $479,000 and $166,000, respectively, on research and development of new products and improvements of existing products. All of the programs and funds to support such programs are sponsored by the subsidiary involved. Backlog The backlog of orders by industry segment at December 31, 2002 and 2001 was as follows: 2002 2001 ---- ---- Defense $296,117,000 $201,221,000 Energy Systems 5,299,000 6,122,000 The backlog in the discontinued transportation operations was $17,811,000 and $164,891,000 at December 31, 2002 and 2001, respectively. The year 2001 transportation backlog includes $137,923,000 of backlog in respect of the two overhaul contracts that the Company sold. Except for about $100,000,000, substantially all of the backlog orders at December 31, 2002 are expected to be filled in 2003. During 2002 and 2001, respectively, the defense sales were comprised of 69% and 67% fixed price contracts and 31% and 33% cost type contracts. 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 U.S. 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 U.S. 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 11 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 2002, 2001 and 2000, export sales by United and its subsidiaries amounted to approximately $66,366,000, $54,670,000 and $57,110,000, respectively. 4 Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports, are available free of charge on our internet website at http://www.unitedindustrial.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission. ITEM 2. PROPERTIES United maintains executive and administrative offices at leased premises at 570 Lexington Avenue, New York, N.Y., which lease expires in August 2008. The following is a tabulation of the principal properties owned or leased by United's subsidiaries as at March 23, 2003.
Approximate Area Owned Location Principal Use in Square Feet or Leased 1510 East First Street Machine shop, steel fabrication, 194,910 floor space Owned in fee Monroe, MI engineering and sales facilities of on 14.4 acres of land Detroit Stoker (East Building) 1426 East First Street Assembly, shipping and administrative 101,000 floor space Owned in fee Monroe, MI facilities of Detroit Stoker on 2.2 acres of land (West Building) 15290 Fifteen Mile Road Foundry, 59,386 floor space Owned in fee Marshall, MI Midwest Metallurgical on 28.4 acres of land Industry Lane Manufacturing, engineering and 429,750 floor space Owned in fee Hunt Valley, MD administrative facilities of AAI on 64 acres of land Clubhouse Road Manufacturing, engineering and Leased to: Hunt Valley, MD administrative facilities of AAI 153,727 October 31, 2003 82,430 April 30, 2005 22,410 November 30, 2003 55,987 February 29, 2004 28,827 October 31, 2003 3200 Enterprise Street Manufacturing, engineering and 131,544 Leased to April 2009 Brea, CA administrative facilities of ACL Technologies 1213 Jefferson Davis Highway Office Space 2,211 Leased to February 28, Arlington, VA 22202 2006 1601 Paseo San Luis Office Space 3,408 Leased to June 30, 2007 Sienna Vista, AZ 13501 Ingenuity Drive Office Space 2,000 Leased to February 28, Orlando, FL 2005
5
Approximate Area Owned Location Principal Use in Square Feet or Leased 4141 Colonel Glenn Hwy Office Space 1,454 Leased to July 31, 2004 Beavercreek, OH 555 Sparkman Drive Office Space 2,650 Leased to January 14, Huntsville, AL 2004 Kenia, AK Training School Approximately 1 acre Leased to November 6, of land 2027 2850 West 5th North Street Office Space 15,105 Leased to October 31, Summerville, SC 2004 2745 West 5th North Street Warehouse 12,000 Leased to November 30, Summerville, SC 2003 2735 W Fifth Assembly and Administrative Facility 59,000 Leased to December 31, North Street of AAI 2006 Summerville, SC
For information with respect to obligations for lease rentals, see Note 8 to the 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 substantially utilized. ITEM 3. LEGAL PROCEEDINGS 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"). Under MERA, if a release or a potential release of a discarded hazardous substance is or may be injurious to the environment or to the public health, safety, or welfare, MDNR is empowered to undertake or compel investigation and response activities in order to alleviate any contamination threat. Detroit Stoker intends to aggressively defend these claims. At this time, no estimate can be made as to the amount or range of potential loss, if any, to Detroit Stoker with respect to this action. Reference is made to the information concerning asbestos litigation set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report, which information is incorporated herein by reference. 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 Company's financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Reference is made to Item 4 of Part II to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, which information is hereby incorporated by reference. 6 EXECUTIVE OFFICERS OF THE REGISTRANT Annual elections are held following the annual meeting of shareholders 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, 2002 ---- ---------------- ----------------- Richard R. Erkeneff* -- President and Chief Executive Officer of the Company 67 (since October 1995); President (from November 1993 to January 2003) and Chief Executive Officer (since November 1993) of AAI Corporation, a wholly-owned subsidiary of the Company. Robert Worthing -- Vice President and General Counsel of the Company (since 57 July 1995); General Counsel of AAI Corporation, a wholly-owned subsidiary of the Company (since April 1992). Susan Fein Zawel -- Vice President, Corporate Communications and Associate 48 General Counsel (since June 1995), Secretary (since May 1994) and Counsel (1992 to 1995) of the Company. James H. Perry -- Vice President (since May 1998), Chief Financial Officer 41 (since October 1995) and Treasurer (since December 1994) of the Company; Vice President, Chief Financial Officer and Treasurer of AAI Corporation, a wholly-owned subsidiary of the Company (since July 2000). Frederick M. Strader -- President and Chief Operating Officer of AAI Corporation, 49 a wholly-owned subsidiary of the Company (since January 2003); Executive Vice President of AAI, and Vice President and General Manager of AAI's Defense Systems unit and Engineering Services unit (May 2001 to December 2002); Vice President of United Defense LP, Armament Systems Division (1994 to April 2001) (responsible for all aspects of the division in designing, producing and supporting large caliber armament for the Navy, Army and Marine Corp, with a $500 million budget and 1,800 employees). -------------------- * Member of the Company's Board of Directors
7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS Reference is made to the information set forth in Note 14 to the Financial Statements included in Item 8 of this Report concerning dividends, stock prices, stock listing and number of record holders, which information is incorporated herein by reference. Reference is made to the section entitled Equity Compensation Plan Information in Item 12 to this Form 10-K, which information is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the information set forth in the section entitled "Five-Year Financial Data" in the Annual Report, which section is 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" in the Annual Report, which section is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to the information regarding Quantitative and Qualitative Disclosures About Market Risk contained in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in 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 in the Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to each director of the Company. Except as otherwise indicated, each director has held his or her present principal occupation for the past five years.
Age (at Became Name December 31, 2002) Principal Occupation Director --------- ------------------ ----------------------- ---------- Richard R. Erkeneff 67 President of the Company (since October 1995); President 1995 (from November 1993 to January 2003) and Chief Executive Officer (since November 1993) of AAI Corporation, a wholly-owned subsidiary of the Company ("AAI"); Senior Vice President of the Aerospace Group at McDonnell Douglas Corporation, an aerospace firm (January to November 1993); and President (March 1992 to October 1992) and Executive Vice President (1988 to 1992) of McDonnell Douglas Electronics Systems Company. Harold S. Gelb 82 Chairman of the Board of the Company (since November 1995); private 1995 investor (since 1985); and retired senior partner of Ernst & Young LLP, an accounting firm. Paul J. Hoeper 56 Business consultant (since February 2001); Assistant Secretary of the Army 2002 for Acquisition, Logistics and Technology (May 1998 to January 2001); Deputy Under Secretary of Defense, International and Commercial Programs (May 1996 to May 1998); Director of AAI Corporation, a wholly-owned subsidiary of the Company (since June 2001); Director of Versar Inc. Glen M. Kassan 59 Executive Vice President of Steel Partners, Ltd. ("SPL"), a management and 2002 advisory company that provides management services to Steel Partners II, L.P. ("Steel") and other affiliates of Steel (since March 2002); Executive Vice President (June 2001 to March 2002) and Vice President (October 1999 to May 2001) of Steel Partners Services, Ltd. ("SPS"), a management and advisory company (which provided management services to Steel and other affiliates of Steel until March 2002, when SPL acquired the rights to provide certain management services from SPS); Vice President, Chief Financial Officer and Secretary of WebFinancial Corporation, a consumer and commercial lender (since June 2000); director (since January 2002) and President (since February 2002) of SL Industries, Inc., a designer and producer of proprietary advanced systems and equipment for the power and data quality industry; Vice Chairman of the Board of Directors of Caribbean Fertilizer Group Ltd., a private company engaged in the production of agricultural products in Puerto Rico and Jamaica (since June 2000); Chairman and Chief Executive Officer of Long Term Care Services, Inc., a privately owned healthcare services company which Mr. Kassan co-founded in 1994 and initially served as Vice Chairman and Chief Financial Officer (1997 to 1998); director of Puroflow Incorporated, a designer and manufacturer of precision filtration devices (since August 2001).
9 Warren G. Lichtenstein 37 Chairman of the Board, Secretary and the Managing Member 2001 of Steel Partners, L.L.C. ("Steel LLC"), the general partner of Steel Partners II, L.P. ("Steel") (since January 1, 1996); Chairman and a director of Steel Partners, Ltd., the general partner of Steel Partners Associates, L.P., which was the general partner of Steel (1993 to January 1996); acquisition/risk arbitrage analyst at Ballantrae Partners, L.P., a private investment partnership formed to invest in risk arbitrage, special situations and undervalued companies (1988 to 1990). Mr. Lichtenstein is a director of Gateway Industries, Inc., WebFinancial Corporation, Puroflow Incorporated, ECC International Corp. and CPX Corp. Joseph S. Schneider 52 President of JSA Partners, Inc., a consulting firm in the 1998 aerospace and defense industry (since September 1997); Consultant with A.T. Kearney, a subsidiary of Electronic Data Systems Corporation (September 1995 to March 1997); President of EDS/JSA International, Inc., a management consulting firm (August 1994 to September 1995) and successor company to JSA International, Inc. of which he was President (1981-1994); Chairman and Co-founder of JSA Research, Inc., an independent aerospace and defense research firm serving institutional investors (since 1993). Mr. Schneider is a director of Signal Technology Corporation.
None of the directors is a director of any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, except as set forth above. 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. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors and any persons who own more than ten percent of the Company's Common Stock to file reports of initial ownership of the Company's Common Stock and subsequent changes in that ownership with the Securities and Exchange Commission and the New York Stock Exchange. Such persons are also required to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons that no Form 5's were required, the Company believes that during 2002 all Section 16(a) filing requirements were complied with, except that a report for one transaction occurring during 2002 was or will be filed late by each of Harold S. Gelb, Susan Fein Zawel, James H. Perry and Robert W. Worthing, and a report for one transaction occurring during 2001 was or will be filed late by Joseph S. Schneider. There are no family relationships between any director or executive officer of the Company. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth information concerning the annual compensation for services in all capacities to the Company for the fiscal years ended December 31, 2002, 2001 and 2000 of the chief executive officer and each of the other executive officers of the Company whose annual compensation exceeded $100,000. 10
Long-Term Compensation Annual Compensation Awards ----------------------------------------------- ------------------------------- Securities Other Annual Underlying All Other Name and Principal Position Year Salary ($) Bonus ($)(1) Compensation ($)(2) Options Compensation ($)(3) --------------------------- ---- ---------- ------------ ------------------- ------- ------------------- Richard R. Erkeneff 2002 528,000 369,116 -- 30,618 President and Chief 2001 484,000 96,871 -- 27,300 Executive Officer of the 2000 440,000 -- -- 21,238 Company and AAI James H. Perry 2002 262,600 246,021 10,000 23,045 Vice President, Chief 2001 250,120 10,468 10,000 20,157 Financial Officer and 2000 200,720 -- 21,000 14,652 Treasurer of the Company and AAI Robert W. Worthing 2002 275,558 259,033 10,000 32,309 Vice President and General 2001 265,158 11,097 10,000 27,316 Counsel of the Company 2000 220,043 -- 21,000 20,821 and AAI Susan Fein Zawel 2002 200,000 190,444 5,000 25,837 Vice President Corporate 2001 200,000 8,370 5,000 21,066 Communications, Secretary 2000 170,512 -- 9,000 15,063 and Associate General Counsel of the Company ------------------------------------------------------------------------------- (1) Included in amounts under this heading are bonus awards of $80,796, $85,655 and $64,606 for Mr. Perry, Mr. Worthing and Ms. Zawel, respectively, related to the sale of two rail car overhaul contracts described under Part I, Item 1 above. (2) The aggregate amount of other compensation represents perquisites that exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for such executive officer. (3) All amounts under this heading represent employer match contributions made to the Company's 401(k) plan and contributions to the Company's Retirement Plan.
Options Granted in Last Fiscal Year The following table sets forth certain information concerning options granted during 2002 to the named executives.
Potential Realizable Individual Grants Value at Assumed ------------------------------------------------------ Annual Rates of Number of % of Total Stock Price Securities Options Appreciation for Underlying Granted to Exercise or Option Term Options Employees in Base Price -------------------- Name Granted Fiscal Year ($/Share) Expiration Date 5% ($) 10% ($) ---- ------- ----------- --------- --------------- ------ ------- James H. Perry 10,000 8 19.05 March 1, 2012(1) 119,825 303,657 Robert W. Worthing 10,000 8 19.05 March 1, 2012(1) 119,825 303,657 Susan Fein Zawel 5,000 4 19.05 March 1, 2012(1) 59,912 151,829 -------------------------------------------------------------------------------- (1) One-third of the options are exercisable upon the first anniversary of the date of grant, which was March 1, 2002, an additional one-third of the options are exercisable upon the second anniversary of the date of grant and the balance of the options are exercisable upon the third anniversary of the date of grant.
11 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised Underlying In-the-Money Unexercised Options Options at Shares at Fiscal Year-End Fiscal Year-End ($) Acquired on Value Exercisable (E)/ Exercisable (E)/ Name Exercise # Realized ($) Unexercisable (U) Unexercisable (U) ------------------------------------------------------------------------ Richard R. Erkeneff 0 0 510,000(E) 3,385,000(E) -0-(U) -0-(U) James H. Perry 0 0 77,000(E) 522,450(E) 32,000(U) 102,900(U) Robert W. Worthing 0 0 71,000(E) 508,200(E) 32,000(U) 102,900(U) Susan Fein Zawel 0 0 55,000(E) 393,550(E) 15,000(U) 48,350(U)
Employment Agreements Mr. Erkeneff is employed as President and Chief Executive Officer of the Company and Chief Executive Officer of AAI pursuant to an employment agreement dated December 8, 1998 and amended as of June 1, 2001 and as of December 20, 2002 that provides he be paid a salary at the annual rate of $792,000 commencing January 1, 2003 (increased from an annual rate of $528,000 for 2002), and participate in all life insurance, medical, retirement, pension, disability and other employee benefit plans generally made available to other executive officers of the Company or AAI. The employment agreement terminates on July 31, 2003, unless Mr. Erkeneff's employment is terminated prior thereto by the Company for cause or Mr. Erkeneff resigns prior thereto with good reason, subject to the Company's right to extend the term of the agreement for up to five months upon 60 days prior written notice. Pursuant to the employment agreement, Mr. Erkeneff received a cash bonus of $369,116 for 2002 pursuant to the Company's Performance Sharing Plan. Mr. Erkeneff will not be eligible to receive a bonus for 2003. On January 4, 1999, in accordance with his employment agreement, Mr. Erkeneff received an option to acquire 100,000 shares of the Company's common stock pursuant to the terms of the Company's 1994 Stock Option Plan, at $913/16 per share, at an exercise price equal to the fair market value of the common stock as of the grant date, terminating on June 30, 2003. The 100,000 shares subject to this option are vested. In the event that the Company terminates the employment of Mr. Erkeneff without cause (as such term is defined in the employment agreement) or Mr. Erkeneff terminates his employment for good reason (as such term is defined in the employment agreement), Mr. Erkeneff will be entitled to continue to receive his salary through July 31, 2003. Mr. Erkeneff has agreed to resign as a director of the Company upon the request of the Board at any time after the termination of his employment. Mr. Perry is employed by the Company pursuant to an employment agreement, amended as of January 2, 2003, that provides he be paid a salary at the annual rate of $200,720, adjusted as of January 1, 2002 to $262,600, and participate in all life insurance, medical, retirement, pension or profit sharing, disability or other employee benefit plans generally made available to other executive officers of the Company (and at least equivalent to those provided to Mr. Perry during 2002). The employment agreement terminates on February 28, 2004, unless Mr. Perry's employment is terminated prior thereto by the Company for cause. Pursuant to the employment agreement, Mr. Perry is eligible to receive annual discretionary salary increases and cash bonuses as may be granted by the Company's Board of Directors. In the event that the Company terminates the employment of Mr. Perry without cause (as such term is defined in the employment agreement), or if Mr. Perry terminates his employment for Good Reason (as such term is defined in the employment agreement), Mr. Perry will be entitled to (a) 150% of his annualized base salary, plus (b) an incentive compensation award equal to 35% of the amount specified in (a) above, payable over a period of 18 months following cessation of employment. This provision survives the expiration of the employment agreement. Pursuant to an agreement dated as of April 10, 2002, Mr. Perry will be entitled to receive on the closing date of a Change of Control of the Company (as defined in the agreement) an amount equal to 50% of his base salary. 12 Mr. Worthing is employed by the Company pursuant to an employment agreement, amended as of January 2, 2003, that provides he be paid a salary at the annual rate of $220,043, adjusted as of January 1, 2002 to $275,558, and participate in all life insurance, medical, retirement, pension or profit sharing, disability or other employee benefit plans generally made available to other executive officers of the Company (and at least equal to those provided to Mr. Worthing in 2002). The employment agreement terminates on February 28, 2004 unless Mr. Worthing's employment is terminated prior thereto by the Company for cause. Pursuant to the employment agreement, Mr. Worthing is eligible to receive annual discretionary salary increases and cash bonuses as may be granted by the Company's Board of Directors. In the event that the Company terminates the employment of Mr. Worthing without cause (as such term is defined in the employment agreement), or if Mr. Worthing terminates his employment for Good Reason (as such term is defined in the employment agreement), Mr. Worthing will be entitled to (a) 150% of his annualized base salary, plus (b) an incentive compensation award equal to 42% of the amount specified in (a) above, payable over a period of 18 months following cessation of employment. This provision survives the expiration of the employment agreement. Pursuant to an agreement dated as of April 10, 2002, Mr. Worthing will be entitled to receive on the closing date of a Change of Control of the Company (as defined in the agreement) an amount equal to 50% of his base salary. Ms. Fein Zawel is employed by the Company pursuant to an employment agreement, amended as of January 2, 2003, that provides she be paid a salary at the annual rate of $170,512, adjusted as of January 1, 2001 to $200,000, and participate in all life insurance, medical, retirement, pension or profit sharing, disability or other employee benefit plans generally made available to other executive officers of the Company (and at least equivalent to those provided to Ms. Fein Zawel during 2002). The employment agreement terminates on February 28, 2004, unless Ms. Fein Zawel's employment is terminated prior thereto by the Company for cause. Pursuant to the employment agreement, Ms. Fein Zawel is eligible to receive annual discretionary salary increases and cash bonuses as may be granted by the Company's Board of Directors. In the event that the Company terminates the employment of Ms. Fein Zawel without cause (as such term is defined in the employment agreement), or if Ms. Fein Zawel terminates her employment for Good Reason (as such term is defined in the employment agreement), Ms. Fein Zawel will be entitled to (a) 150% of her annualized base salary, plus (b) an incentive compensation award equal to 34% of the amount specified in (a) above, payable over a period of 18 months following cessation of employment. This provision survives the expiration of the employment agreement. Retirement Benefits All employees of the Company and its subsidiaries are eligible to participate in the UIC Retirement Plan, a cash balance plan (the "Retirement Plan") upon commencement of employment. In accordance with the Retirement Plan, a participant's accrued benefit includes the actuarial equivalent of the participant's accrued benefit under the applicable predecessor defined benefit plan as of December 31, 1994 plus annual allocations based upon a percentage of salary and interest earned on such participant's account thereafter. The Retirement Plan also has options for early retirement and alternative forms of payment, including lump sum benefits and benefits for surviving spouses. The estimated annual benefit to be provided by the UIC Retirement Plan and payable to Messrs. Erkeneff, Perry and Worthing and Ms. Fein Zawel, commencing at normal retirement age, are $15,061, $22,512, $21,456 and $18,813, respectively. United Industrial Corporation Health-Care Plan for Retired Directors The Company has implemented the United Industrial Corporation Health-Care Plan for Retired Directors (the "Plan"), which was adopted by the Company's Board of Directors on December 18, 1995. The Board may, in its sole discretion, amend, suspend or terminate the Plan, at any time, with or without prior notice. A director of the Company is eligible to participate in the Plan if he or she: (i) ceases to be a member of the Board; (ii) has served as a member of the Board for 15 full years; (iii) has attained the age of 65; (iv) is eligible for Medicare Part A; and (v) has enrolled in both Medicare Part A and Medicare Part B and any other available supplemental medical or hospitalization coverage by reason of entitlement under any government entitlement, including, without limitation, that provided under Title XVIII of the Social Security Act. A director who participates in the Plan is entitled to coverage under the group medical plan available to the executive officers of the Company on the same terms and 13 conditions as such coverage is available to such executive officers and their spouses and dependents. If a director who participates in the Plan resides outside the service area of the Company's group medical plan, such director and his or her spouse and dependents will receive medical benefit coverage under a medical plan or health insurance policy which provides benefits that are reasonably comparable to the benefits under the Company's group medical plan; however, if no such coverage is reasonably available (whether due to geography or the physical condition of the director or his or her spouse or dependents), then the Company will reimburse such director for any reasonable expense that would have been covered under the Company's group medical plan. Benefits provided under the Plan will be secondary to any benefits under any other hospitalization or major medical plan or arrangement provided to such director under government entitlements or provided to such director (either directly or indirectly through such director's spouse) by any other personal or employer-provided health-care plan or health insurance policy. Director Compensation Directors received $20,000 per year and $1,000 for each meeting attended, and a fee of $500 for each committee meeting attended. In lieu of such fees, Mr. Gelb, Chairman of the Board, received $12,500 per month and a $10,000 per year automobile allowance. In addition, Mr. Schneider and Mr. Hoeper also served as directors of AAI, for which each received compensation of $2,000 per meeting. Effective January 1, 2003, directors (other than Mr. Gelb, whose compensation as indicated above will remain the same) will receive $23,000 per year and $1,150 for each meeting attended and a fee of $575 for each committee meeting attended. Mr. Schneider and Mr. Hoeper will receive a $5,000 fee as Chairman of the Audit and Compensation/Stock Option Committees, respectively. All current directors are eligible to participate in the medical plan available to the executive officers of the Company. The Company also has a medical plan for retired directors as described above. Nonemployee directors also participate in the Company's 1996 Stock Option Plan for Nonemployee Directors (the "1996 Plan"). Pursuant to the 1996 Plan, each Eligible Director (as defined in the 1996 Plan) is granted an option to purchase 15,000 shares of Common Stock upon their initial appointment to the Board of Directors, exercisable at the market price of the Company's Common Stock on the date of grant. The options granted under the 1996 Plan expire ten years after the date of grant and become exercisable (i) as to one-third of the total number of shares subject to the grant on the date of grant (the "First Vesting Date"), (ii) as to an additional one-third of the total number of shares subject to the grant on the date of the next annual shareholders' meeting after the First Vesting Date (the "Second Vesting Date"), and (iii) as to the remaining one-third of the total number of shares subject to the grant on the date of the next annual shareholders' meeting after the Second Vesting Date (the "Final Vesting Date"). On the date of the annual shareholders' meeting which takes place during the calendar year in which the first anniversary of the Final Vesting Date occurs, each Eligible Director shall automatically be granted an option to purchase 15,000 shares of Common Stock, provided such grantee is an Eligible Director in office immediately following such annual meeting. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security Ownership of Certain Beneficial Owners On March 10, 2003, there were outstanding and entitled to vote 13,067,918 shares of Common Stock. At March 10, 2003, more than 5% of the Company's outstanding voting securities was beneficially owned by each of the persons named in the following table, except that the information as to Kennedy Capital Management, Inc. is as of December 31, 2002 and is based upon information furnished to the Company by such person in a Schedule 13G, and the information as to Steel Partners II, L.P. is based upon information furnished by such entity in a Schedule 13D. 14
Name and Address of Amount and Nature of Percent Title of Class Beneficial Owner Beneficial Ownership of Class -------------------------------------------------------------------------------------------------------- Common Stock Kennedy Capital Management, Inc. 1,595,450(1) 12.2% 10829 Olive Boulevard St. Louis, Missouri 63141 Common Stock Steel Partners II, L.P. 1,582,050 12.2% 150 East 52 Street New York, New York 10022 -------------------------------------------------------------------------------------------------------- (1) Kennedy Capital Management, Inc., a registered investment advisor, has sole voting power as to 1,550,650 shares of Common Stock and sole dispositive power as to 1,595,450 shares.
Security Ownership of Management The following table sets forth, as of March 1, 2003, the number of shares of Common Stock of the Company beneficially owned by each director of the Company, each executive officer named in the Summary Compensation Table above, and by all directors and executive officers of the Company as a group. Except as otherwise indicated all shares are owned directly. Amount and Nature of Beneficial Percent Name or Group Ownership(1)(2) of Class ------------------ ------------------------------------ Richard R. Erkeneff 646,000 4.76% Harold S. Gelb 40,000 (3) Paul J. Hoeper 7,000 (3) Glen M. Kassan 5,000 (3) Warren G. Lichtenstein 1,592,050(4) 12.17% James H. Perry 101,338 (3) Joseph S. Schneider 30,000 (3) Robert W. Worthing 98,922(5) (3) Susan Fein Zawel 406,122(6) 3.09% All directors and executive officers as a group, consisting of 10 persons 2,981,432 21.36% ----------------------------------------------------------------------------- (1) The information as to securities owned by directors and executive officers was furnished to the Company by such directors and executive officers. Includes units in the Company's 401(k) plan, which consist of shares of Common Stock and cash. (2) Includes shares which the following persons have the right to acquire within 60 days through the exercise of stock options: Mr. Erkeneff, 510,000 shares; Mr. Gelb, 35,000 shares; Mr. Lichtenstein, 10,000 shares; Mr. Perry, 95,333; Mr. Schneider, 25,000 shares; Mr. Worthing, 89,333 shares; Ms. Fein Zawel, 63,666 shares; Mr. Kassan, 5,000 shares; Mr. Hoeper, 5,000 shares; and all directors and executives as a group, 893,332 shares. (3) Less than 1%. (4) All of such shares are owned by Steel Partners II, L.P. ("Steel") (other than Mr. Lichtenstein's stock options). Mr. Lichtenstein is the Chairman of the Board, Secretary and Managing Member of the general partner of Steel. Mr. Lichtenstein disclaims beneficial ownership of the shares owned by Steel, except to the extent of his pecuniary interest therein. (5) Does not include 500 shares of Common Stock owned by Mr. Worthing's spouse, as to which he disclaims beneficial ownership. (6) Includes 11,440 shares of Common Stock owned by Ms. Fein Zawel's spouse, 4,772 shares of Common Stock owned by Ms. Fein Zawel jointly with her spouse, and 32,634 shares of Common Stock held in trust for her minor children. 15 Equity Compensation Plan Information
Number of securities Number of securities remaining available to be issued upon for future issuance exercise of Weighted-Average under equity outstanding options, exercise price of compensation plans warrants outstanding (excluding securities and options, warrants reflected in Plan Category rights and rights column (a)) ------------- -------------------- ----------------- -------------------- (a) (b) (c) Equity compensation plans approved by security holders ..................... 1,523,000 $11.22 105,000
The Company has no equity compensation plans not approved by security holders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. CONTROLS AND PROCEDURES (a) The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's management, including its principal executive officer and principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this annual report on Form 10-K, the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's principal executive officer and the Company's principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on such evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective. (b) There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this annual report on Form 10-K. 16 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) - The response to this portion of Item 15 is submitted as a separate section of this report entitled "List of Financial Statements and Financial Statement Schedules". (3) Exhibits (3)(a)- Restated Certificate of Incorporation of United (1). (3)(b)- Amended and Restated By-Laws of United (2). (10)(a)- United Industrial Corporation 1994 Stock Option Plan, as amended (3). (10)(b)- United Industrial Corporation 1996 Stock Option Plan for Nonemployee Directors (4). (10)(c)- Loan and Security Agreement dated as of June 28, 2001 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (5). (10)(d)- Pledge Agreement dated as of June 28, 2001 among United and certain of its subsidiaries, as Pledgors, and Fleet Capital Corporation, as Lender (5). (10)(e)- Waiver, Amendment and Consent Agreement dated as of March 6, 2002 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (9). (10)(f)- Second Amendment and Consent Agreement dated as of June 28, 2002 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (8). (10)(g)- Third Amendment and Waiver Agreement dated as of March 21, 2003 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender. (10)(h)- Employment Agreement, dated December 8, 1998, between United and Richard R. Erkeneff (1). (10)(i)- Amendment No. 1 dated as of June 1, 2001 to the Employment Agreement dated as of December 8, 1998 by and between United and Richard R. Erkeneff (5). (10)(j)- Amendment No. 2 and Amendment No. 3 dated as of December 20, 2002 to the Employment Agreement dated as of December 8, 1998 by and between United and Richard R. Erkeneff. (10)(k)- Employment Agreement, dated March 3, 2000, between United and Susan Fein Zawel (6). (10)(l)- Amendment to Employment Agreement, dated January 2, 2003, between United and Susan Fein Zawel. (10)(m)- Employment Agreement, dated March 3, 2000, between United and Robert Worthing (6). 17 (10)(n)- Success Bonus Agreement, dated April 10, 2002, between United and Robert Worthing (7). (10)(o)- Amendment to Employment Agreement, dated January 2, 2003, between United and Robert Worthing. (10)(p)- Employment Agreement, dated March 3, 2000, between United and James H. Perry (6). (10)(q)- Success Bonus Agreement, dated April 10, 2002, between United and James H. Perry (7). (10)(r)- Amendment to Employment Agreement, dated January 2, 2003, between United and James H. Perry. (10)(s)- Master Agreement, dated as of March 27, 2002, between ALSTOM Transportation Inc. and AAI Corporation (9). (10)(t)- Amendment to Master Agreement, dated as of July 26, 2002, between ALSTOM Transportation Inc. and AAI Corporation (10). (13)- United's 2002 Annual Report to Shareholders. (21)- Subsidiaries of United. (23)- Consent of Independent Auditors. (99)(a)- Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. (99)(b)- Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. ---------------------- (1) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1998. (2) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1995. (3) Incorporated by reference to United's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on January 10, 1997. (4) Incorporated by reference to United's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 26, 1997. (5) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. (6) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1999. (7) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. (8) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. (9) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 2001. (10) Incorporated by reference to United's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 12, 2002. (b) Reports on Form 8-K On October 7, 2002, the Company filed a Current Report on Form 8-K relating to its Annual Meeting. 18 Annual Report on Form 10-K Item 15(a) (1) and (2), (c) and (d) List of Financial Statements and Financial Statement Schedules Certain Exhibits Financial Statement Schedules Year ended December 31, 2002 United Industrial Corporation New York, New York Form 10-K--Item 15(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, 2002, are incorporated by reference in Item 8: Consolidated Balance Sheets--December 31, 2002 and 2001 Consolidated Statements of Operations-- Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows Years Ended December 31, 2002, 2001 and 2000 Notes to Financial Statements The following consolidated financial statement schedule of United Industrial Corporation and subsidiaries is included in Item 15(d): 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 We have audited the consolidated financial statements of United Industrial Corporation and subsidiaries as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated March 10, 2003. Our audits also included the financial statement schedule listed in Item 15(d) of this Annual Report (Form 10-K). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP New York, New York March 10, 2003 F-3 Schedule II -- Valuation and Qualifying Accounts United Industrial Corporation and Subsidiaries December 31, 2002
COL. A COL. B COL. C COL. D COL. E (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD ----------- ---------- ---------- -------------- ---------- ---------- Year ended December 31, 2002: Deducted from asset accounts: Allowance for doubtful accounts $235,000 $235,000 ======== ======== Product warranty liability $1,650,000 $306,000 $1,256,000(A) $700,000 ========== ======== ========== ======== Year ended December 31, 2001: Deducted from asset account: Allowance for doubtful accounts $235,000 $235,000 ======== ======== Product warranty liability $5,154,000 $3,504,000(A) $1,650,000 ========== ========== ========== Year ended December 31, 2000: Deducted from asset account: Allowance for doubtful accounts $235,000 $235,000 ======== ======== Product warranty liability $5,600,000 $1,300,000 $1,746,000(A) $5,154,000 ========== ========== ========== ========== (A) Product warranty expenditures.
F-4 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/ Richard R. Erkeneff ----------------------------------- Richard R. Erkeneff, President Date: March 28, 2003 ----------------------------- 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/ Harold S. Gelb March 28, 2003 -------------------------------------------- Harold S. Gelb, Chairman of the Board and Director /s/ Joseph S. Schneider March 28, 2003 -------------------------------------------- Joseph S. Schneider, Director /s/ Richard R. Erkeneff March 28, 2003 --------------------------------------------- Richard R. Erkeneff, President and Chief Executive Officer and Director March 28, 2003 -------------------------------------------- Warren G. Lichtenstein, Director /s/ Paul J. Hoeper March 28, 2003 -------------------------------------------- Paul J. Hoeper, Director March 28, 2003 -------------------------------------------- Glen M. Kassan, Director /s/ James H. Perry March 28, 2003 -------------------------------------------- James H. Perry, Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)
CERTIFICATIONS I, Richard R. Erkeneff, certify that: 1. I have reviewed this annual report on Form 10-K of United Industrial Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ Richard R. Erkeneff ----------------------- Richard R. Erkeneff Chief Executive Officer I, James H. Perry, certify that: 1. I have reviewed this annual report on Form 10-K of United Industrial Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ James H. Perry ------------------------ James H. Perry Chief Financial Officer EXHIBIT INDEX (3)(a)- Restated Certificate of Incorporation of United (1). (3)(b)- Amended and Restated By-Laws of United (2). (10)(a)- United Industrial Corporation 1994 Stock Option Plan, as amended (3). (10)(b)- United Industrial Corporation 1996 Stock Option Plan for Nonemployee Directors (4). (10)(c)- Loan and Security Agreement dated as of June 28, 2001 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (5). (10)(d)- Pledge Agreement dated as of June 28, 2001 among United and certain of its subsidiaries, as Pledgors, and Fleet Capital Corporation, as Lender (5). (10)(e)- Waiver, Amendment and Consent Agreement dated as of March 6, 2002 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (9). (10)(f)- Second Amendment and Consent Agreement dated as of June 28, 2002 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender (8). (10)(g)- Third Amendment and Waiver Agreement dated as of March 21, 2003 among United and certain of its subsidiaries, as Borrowers, and Fleet Capital Corporation, as Lender. (10)(h)- Employment Agreement, dated December 8, 1998, between United and Richard R. Erkeneff (1). (10)(i)- Amendment No. 1 dated as of June 1, 2001 to the Employment Agreement dated as of December 8, 1998 by and between United and Richard R. Erkeneff (5). (10)(j)- Amendment No. 2 and Amendment No. 3 dated as of December 20, 2002 to the Employment Agreement dated as of December 8, 1998 by and between United and Richard R. Erkeneff. (10)(k)- Employment Agreement, dated March 3, 2000, between United and Susan Fein Zawel (6). (10)(l)- Amendment to Employment Agreement, dated January 2, 2003, between United and Susan Fein Zawel. (10)(m)- Employment Agreement, dated March 3, 2000, between United and Robert Worthing (6). (10)(n)- Success Bonus Agreement, dated April 10, 2002, between United and Robert Worthing (7). (10)(o)- Amendment to Employment Agreement, dated January 2, 2003, between United and Robert Worthing. (10)(p)- Employment Agreement, dated March 3, 2000, between United and James H. Perry (6). (10)(q)- Success Bonus Agreement, dated April 10, 2002, between United and James H. Perry (7). (10)(r)- Amendment to Employment Agreement, dated January 2, 2003, between United and James H. Perry. (10)(s)- Master Agreement, dated as of March 27, 2002, between ALSTOM Transportation Inc. and AAI Corporation (9). (10)(t)- Amendment to Master Agreement, dated as of July 26, 2002, between ALSTOM Transportation Inc. and AAI Corporation (10). (13)- United's 2002 Annual Report to Shareholders. (21)- Subsidiaries of United. (23)- Consent of Independent Auditors. (99)(a)- Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. (99)(b)- Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002. ---------------------- (1) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1998. (2) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1995. (3) Incorporated by reference to United's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on January 10, 1997. (4) Incorporated by reference to United's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 26, 1997. (5) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. (6) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1999. (7) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. (8) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002. (9) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 2001. (10) Incorporated by reference to United's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 12, 2002.