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
=================================================================================
<FN>
(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
---------------------------------------------------------------------------------------------------------------
<FN>
(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
============================================================================================================================
<FN>
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
============================================================================================================================
<FN>
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