SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1995.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-4252
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UNITED INDUSTRIAL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-2081809
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
18 East 48th Street
New York, New York 10017
(212) 752-8787
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
Aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of March 1,
1996, computed by reference to the closing sale price of the registrant's
Common Stock on the New York Stock Exchange Stock Exchange on such date:
$51,477,821.
On March 1, 1996, the registrant had outstanding 12,172,143 shares of
Common Stock, par value $1.00 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Certain portions of the registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1995 are incorporated by reference
into Parts I and II of this report.
2. Certain portions of the registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, in connection with the Annual Meeting of
Stockholders of the registrant to be held on May 14, 1996 are
incorporated by reference into Part III of this report.
PART I
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ITEM 1. BUSINESS
United Industrial Corporation ("United" or the "Company") was
incorporated under the laws of the State of Delaware on September 14,
1959 under the name Topp Industries Corporation. On December 31,
1959, the name of the corporation was changed to United Industrial
Corporation.
The operations of United consist of three principal industry segments:
defense, energy systems and plastic products, conducted through four
wholly-owned subsidiaries.
Defense
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AAI Corporation
AAI Corporation ("AAI") is engaged in research, development and
manufacture in the following major areas: (1) training and simulation
systems; (2) automatic test equipment for electronic systems and
components; (3) ordnance systems; (4) mechanical support systems for
industrial, military, and marine applications; (5) unmanned air
vehicle systems; (6) automated weather monitoring systems; and (7)
transportation systems. Since its inception, AAI's business has been
primarily in support of the U.S. Department of Defense ("DOD"). Since
1990, the Company has emphasized diversification into other markets to
reduce its dependence on the DOD. The United States defense budget
has been significantly reduced in recent years and this trend is
expected to continue. In 1995 approximately 64% of the sales volume
of AAI consisted of research, development and production of military
items under defense contracts compared to 74% in 1994. Certain of the
contracts currently being worked on by AAI involve testing systems for
U.S. Navy aircraft, training equipment for the U.S. Air Force and U.S.
Navy, and weapons handling systems for the U.S. Army.
The balance of AAI's business consists of work performed in the non-
Department of Defense markets. These areas include hydraulic test
equipment, transportation equipment and weather systems. AAI was
awarded a contract for 1,096 weather systems to be installed in
certain government airports throughout the country. This contract was
recently restructured and extended through 1997. New orders were
received in 1995 for 53 additional systems. In 1995, 144 weather
systems were installed bringing total systems installed since
inception of the contract to 677.
Because of the variety of its activities, it is not possible to state
precisely the competitive position of AAI with respect to each of its
product lines. In the area of training and simulation systems, AAI is
one of approximately ten leading organizations developing equipment
for the U.S. Government. AAI's ability to obtain orders for training
and simulation systems is dependent principally on the ability,
expertise and training of its
2
NYFS11...:\95\78495\0001\1196\FRM3196L.18B
employees and the level of funding by the DOD and foreign military
users. A number of large and small companies produce automatic test
equipment that compete with AAI for market share. In the area of
weapons and munitions, AAI ranks among approximately ten leading
companies engaged in development work. However, AAI's production
activity in this field is less significant. AAI began development in
the Unmanned Air Vehicle business in 1986. The Company produced the
highly successful Pioneer Unmanned Air Vehicle employed by the United
States during Operation Desert Storm, and presently is pursuing
contracts with foreign countries. AAI is one of several large and
small competitors in this field.
On January 16, 1992, AAI acquired, through a newly-formed subsidiary
AAI/ACL Technologies, Inc. ("AAI/ACL"), substantially all of the
assets and business of ACL Technologies, Inc., a manufacturer of
hydraulic test equipment for the commercial airline and defense
markets. Business results of AAI/ACL have been less than anticipated
because of the continued unfavorable economic situation of the
commercial airline industry in the U.S. and worldwide. However,
activity in this market is beginning to recover.
On March 29, 1993, the Company's Board of Directors approved a plan of
reorganization and restructuring whereby, in light of existing
circumstances such as the declining Department of Defense budget and
the continuing financial problems of the airline industry and in order
to position itself for both short and long-term growth, it took a one-
time restructuring charge. The charge covered the anticipated cost of
organizational and product-line changes, the consolidation of
facilities, and work force reductions of approximately 300 in AAI and
its four subsidiaries. The non-recurring charge of $22.5 million
($14,370,000 or $1.17 per share, net of tax benefit) was taken during
1993. As at December 31, 1993, the restructuring program was
substantially completed. During 1994, $750,000 was expended. A major
portion of the charge resulted from the discontinuance of operations
of AAI/MICROFLITE. AAI/MICROFLITE, acquired in 1991, was formerly the
commercial division of Singer-Link Corporation, a manufacturer of
flight simulators and training devices for commercial aircraft. All
of the remaining assets of AAI/MICROFLITE were sold in 1994.
AAI's administrative offices and the major part of its manufacturing
and engineering facilities are located in Hunt Valley, Maryland.
Symtron Systems, Inc.
On January 18, 1994, the Company acquired all of the outstanding
shares of Symtron Systems, Inc. ("Symtron"), a producer of firefighter
training simulators for the government, military and commercial
markets. The purchase price consisted of initial cash payments of
$2,000,000, assumption of certain liabilities of approximately
$5,900,000 and a contingent payment, not to exceed $1,000,000, based
on the profits on contracts existing at the acquisition date. In
1995, the Company made the contingent payment of $1,000,000 which was
classified as selling and administrative expense in the 1995 financial
statements.
3
Additionally, contingent amounts are payable if certain pretax
profits, as defined in the purchase agreement, are earned for each of
the years in the four 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. In 1995 approximately
$11,500,000 of the sales volume of Symtron consisted of production
for the Navy and commercial customers. The main office and plant of
Symtron are located in Fair Lawn, New Jersey.
Energy Systems
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Detroit Stoker Company
Detroit Stoker Company ("Detroit Stoker") is engaged in the design,
manufacture and sale of industrial stokers, gas/oil burners, municipal
solid waste combustion systems for waste to energy plants, rotary seal
feeders for the metering of granular materials, replacement parts and
aftermarket services. Its products are used for the generation of
process steam and electric power in a wide range of industrial and
municipal applications. Principal customers include public utilities,
industrial manufacturing plants, universities, pulp and paper mills,
sugar mills and independent power producers (non-utility generators).
Its waste to energy technology is used extensively in both public and
private plants which generate steam and power from municipal waste.
Its solid fuel combustion technologies are particularly well suited to
the burning of biomass fuels. The primary raw materials used by
Detroit Stoker are iron and steel which are available from many
sources. The main office and plant of Detroit Stoker are located in
Monroe, Michigan.
The products of Detroit Stoker compete with those of several other
manufacturers. Detroit Stoker is presently marketing a liquid and
gaseous fuel burning product line with low emissions for the power
industry, primarily for boiler applications. Potential customers for
these products consist of original boiler manufacturers as well as all
major industrial and institutional energy consumers. Competition is
based on several factors including price, features and performance.
In 1995, Detroit Stoker withdrew from the bulk material handling
systems business in a strategic move to allow better use of resources
in more profitable areas.
Midwest Metallurgical Laboratory, Inc. ("Midwest"), a subsidiary of
Detroit Stoker, is a foundry engaged in the manufacture of grey and
ductile iron, stainless steel and special alloy iron castings.
Approximately 85% of the sales of Midwest are to Detroit Stoker.
Midwest's plant and offices are located in Marshall, Michigan.
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Plastic Products
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Neo Products Co.
Neo Products Co. ("Neo") engineers and fabricates thermoplastic
products to the specifications submitted by its customers. Neo also
manufactures items for point of purchase display advertising and
consumer products related primarily to infants, food service equipment
for a major airline and fuel tank reservoirs for the auto industry.
Sales to customers of items for point of purchase display advertising
represented approximately 30% of sales in 1995. These sales
principally consisted of display racks and trays. Sales of consumer
end use items represented 63% of sales in 1995. These sales primarily
included carrier cradles, chairs and waste baskets. Sales to the auto
industry represented approximately 7% of sales in 1995. The largest
customer of Neo accounted for approximately 54% of sales in 1995
compared to 39% and 32% in 1994 and 1993, respectively. Neo's main
office and plant are located in Chicago, Illinois.
Neo is engaged in the highly competitive field of thermoplastic
fabrication. Neo's operations are in potential and actual competition
with fabrication facilities of some of its own customers as well as
other thermoplastic fabricators. Neo has improved its competitive
position by increasing the size of its larger injection molding
presses to accommodate larger size molded parts. Although it is not
possible to estimate the position of Neo among competitors in this
field, it is believed to hold less than 1% market share. The primary
raw material used by Neo is plastic resin, which is available from
many sources.
For additional information concerning United's subsidiaries reference
is made to information set forth in the sections entitled "AAI
Corporation", "Symtron Systems, Inc.", "Detroit Stoker Company" and
"Neo Products Company" commencing on page 5 of United's 1995 Annual
Report to Shareholders (the "Annual Report"), which sections are
incorporated herein by reference.
General
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Employees
As of March 1, 1996 United and its subsidiaries had approximately
2,000 employees. Approximately 200 of these employees are represented
by several unions under contracts expiring between July 1997 and March
1999. United considers its employee relationships to be satisfactory.
Patents
United and its subsidiaries own more than 100 United States patents
relating to various products, including stokers, marine equipment,
ordnance and electronic equipment, and
5
firefighter trainers. In addition, United has numerous pending
applications for patents. There is no assurance as to how many
patents will be issued pursuant to these pending applications. The
applications relate to a wide variety of fields, including automation
control systems, ordnance devices, and electronic developments. No
patent is considered to be of material importance to United.
Research and Development
During 1995, 1994 and 1993, the subsidiaries of United (exclusive of
AAI) expended approximately $194,000, $98,031, and $126,300,
respectively, on the development of new products and the improvement
of existing products. All of the programs and the funds to support
such programs are sponsored by the subsidiary involved. In addition
to the above amount, AAI is substantially engaged in research and
development for the U.S. Government.
Backlog
The backlog of orders by industry segment at December 31, 1995 and
1994 was as follows:
1995 1994
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Defense $198,788,000 $211,751,000
Energy Systems 5,070,000 4,627,000
Plastic Products 2,349,000 1,281,000
The defense contract backlog decrease more than offsets the increase
in commercial backlog of the defense segment. The increase in backlog
for energy systems was due to the increased level of new contracts
being awarded. Except for approximately $66,000,000 of research and
development backlog, substantially all of the backlog orders at
December 31, 1995 are expected to be filled in 1996.
Government Contracts
No single customer other than the U.S. Government, principally the
Department of Defense, accounted for 10% or more of net sales during
the year. Sales to the Government normally carry a lesser margin of
profit than commercial sales and may be subject to price
redetermination under certain circumstances. Contracts for such sales
can be terminated for the convenience of the Government.
Financial Information Relating to Industry Segments
For financial information with respect to industry segments of United,
reference is made to the information set forth in Note 13 of the Notes
to Financial Statements included in Item 8 of this Report, which Note
is incorporated herein by reference.
6
Foreign Operations and Export Sales
United and its subsidiaries have no significant foreign operations.
During 1993 export sales by United and its subsidiaries amounted to
approximately $31,258,000. Export sales in 1995 and 1994 amounted
to less than 10% of net sales for these years.
ITEM 2. PROPERTIES
United maintains executive and administrative offices at leased
premises at 18 East 48th Street, New York, N.Y., which lease expires
in December 1997. The following is a tabulation of the principal
properties owned or leased by United's subsidiaries as at March 1,
1996.
7
Approximate
Area
in Square Owned
Location Principal Use Feet or Leased
-------- ------------- ---- ---------
1510 East First Street Machine shop, steel 194,910 Owned in
Monroe, MI fabrication, floor space fee
engineering and sales on 14.4
facilities of Detroit acres of
Stoker land (East
Building)
1426 East First Street Assembly, shipping 101,000 Owned in
Monroe, MI and administrative floor space fee
facilities of Detroit on 2.2
Stoker acres of
land (West
Building)
15290 Fifteen Mile Road Foundry, 59,386 Owned in
Marshall, MI Midwest Metallurgical floor space fee
on 28.4
acres of
land
Industry Lane Manufacturing, 770,918 Owned in
Cockeysville, MD engineering floor space fee
and administrative on 92 acres
facilities of AAI of land
Gilroy Road Additional 66,400 Leased to
Hunt Valley, MD manufacturing and (Building April 22,
engineering 200) 1999
facilities of AAI
1701 Pollitt Drive Administrative, 30,000 Leased to
Fair Lawn, NJ engineering and June 30,
manufacturing 2001
facilities
of Symtron
1505 East Warner Avenue Manufacturing, 145,000 Leased to
Santa Ana, CA engineering and January
administrative 31, 1997
facilities
of ACL Technologies
2801 Professional Parkway Manufacturing, 71,142 Leased to
Ocoee, FL engineering and July 31,
administrative 1996
facilities of AAI
1035 Semoran Boulevard Sales office 900 Leased to
Winter Park, FL for Symtron April 30,
1997
5400 S. Kilbourn Avenue Manufacturing and 45,000 Owned in
Chicago, IL administrative fee
facilities of Neo
For information with respect to obligations for lease rentals, see
Note 9 of the Notes to Financial Statements in the Annual Report,
which Note is incorporated herein by reference. United considers its
properties to be suitable and adequate for its present needs. The
properties are being fully utilized.
8
ITEM 3. LEGAL PROCEEDINGS
The Company, along with numerous other parties, has been named in five
tort actions relating to environmental matters based on allegations
partially related to a predecessor's operations. These tort actions
seek recovery for personal injury and property damage among other
damages. One tort claim is a certified property and medical class
action.
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 by 1961. Although this
facility may have used trichloroethylene ("TCE") in small quantities,
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 ("RI/FS"), 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.
On June 20, 1995 the Company and the State of Arizona executed an
agreement in principle to settle the litigation. In exchange for a
full release from liability by the State and the Arizona Department of
Environmental Quality, the Company, without admitting liability, has
agreed to the following:
* Undertake and pay for the costs of an RI/FS Work Plan, estimated
at $1,300,000.
* Pay $125,000 towards past costs incurred by the State of Arizona
and the Department of Environmental Quality.
* Pay $125,000 towards costs of future remediation and clean-up of
the site. In addition, at the time the State selects a remedy,
the Company agrees to an additional contribution in the amount of
a percentage of the total estimated clean-up cost not to exceed
an additional $1,120,000.
* The Company reserves all rights to seek contribution from other
responsible parties.
The Company and the State have signed a Consent Decree and Work Plan
incorporating these terms and conditions. The Consent Decree has been
lodged with the United States District Court for the District of
Arizona for a 30-day public comment period, at the conclusion of which
the parties will seek court approval of the settlement. Resolution of
this matter will not have a materially adverse effect on the
consolidated financial position of the Company. The Company has
provided approximately $1,900,000 based on estimates of the total cost
for the RI/FS, estimates of amounts specified for past costs and
estimates of future remediation and clean-up costs.
9
On February 11, 1992 a complaint was filed against the Company and ten
other named and ten unnamed entities in the Maricopa County Superior
Court of Arizona by seven individuals seeking to represent a class. A
class in excess of 10,000 was originally alleged. The plaintiffs have
amended their complaint to separate the larger property damage and
medical monitoring classes into smaller subclasses based on geographic
location and alleged exposure to solvents. In the process of
amendment, the overall sizes of the respective classes have been
significantly reduced. This suit alleges that the members of the
class have been exposed to contaminated groundwater in the Phoenix/
Scottsdale, Arizona area and suffer increased risk of disease and
other physical effects. They also assert property damages under
various theories; seek to have certain scientific studies performed
concerning health risks, preventative measures and long-term effects;
and seek incidental and consequential damages, punitive damages and an
injunction against actions causing further exposures. The property
and medical classes recently were certified. The Company has joined
with the other defendants and appealed the class certification issue
to the Arizona Supreme Court. The Company intends to vigorously
contest these actions and believes that the resolution of these
actions will not be material to the Company.
Four additional lawsuits were filed on April 7, 1993, December 20,
1993, June 10, 1994 and July 18, 1995 in the Maricopa County Superior
Court of Arizona. These matters allege personal injury and wrongful
death by multiple plaintiffs arising from the alleged contamination in
the Phoenix/Scottsdale, Arizona area. The Company intends to
aggressively defend against these claims; however, at this time, no
estimate can be made as to the amount or range of potential loss, if
any, to the Company with respect to these matters. In comparison to
the other defendants, the operations of the Company were very limited
in time and size.
In January 1993, Detroit Stoker was named a third-party defendant in
four lawsuits pending in the United States District Court for the
Northern District of Ohio. The third-party plaintiffs are ship owners
who have been sued by Great Lakes maritime workers who allege personal
injuries and disease as a result of exposure to asbestos while working
aboard the ships. The ship owners claim that Detroit Stoker and other
suppliers to the ship owners furnished products, supplies or
components of the ships that contained asbestos. These cases are now
consolidated in the multi-district litigation proceeding currently
pending in the United States District Court in Philadelphia. Detroit
Stoker intends to aggressively defend these claims, however, at this
time, no estimate can be made as to the amount or range of potential
loss, if any, to Detroit Stoker with respect to this action.
Detroit Stoker was notified in March 1992 by the Michigan Department of
Natural Resources (MDNR) that it is a potentially responsible party in
connection with the clean-up of a former industrial landfill located in
Port of Monroe, Michigan. MDNR is treating the Port of Monroe landfill site
as a contaminated facility within the meaning of the Michigan Environmental
Response Act (MERA), MCLA Section 299.601 et seq. Under MERA, if a
-- ---
release or a potential release of a discarded hazardous substance is or may
be injurious to the environment or to the public health, safety, or
welfare, MDNR is empowered to undertake or
10
compel investigation and response activities in order to alleviate any
contamination threat. Detroit Stoker intends to aggressively defend
these claims, however, at this time, no estimate can be made as to the
amount or range of potential loss, if any, to Detroit Stoker with
respect to this action.
In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an
indirect subsidiary of the Company, submitted to the U.S. Government
(the "customer") a Request for Equitable Adjustment ("REA") totaling
approximately $11,800,000 in connection with a certain contract with
the subsidiary. The REA seeks monetary damages based on costs
incurred by the subsidiary arising out of or in connection with
customer directed suspension of work and resulting schedule delays,
additional work directives, and other actions by the customer in
connection with the contract for which contractors are allowed
recovery under the Federal Acquisition Regulations. On July 14, 1995,
the subsidiary received the final decision of the customer rejecting
the REA in its entirety. To fully protect the Company's interest, on
October 10, 1995, a Notice of Appeal of the final decision was filed
with the Armed Services Board of Contract Appeals seeking monetary
damages plus interest. While the Company believes that the formal
claims asserted against the customer are meritorious and the Company
will vigorously pursue recovery of the monies claimed, the customer
has asserted substantive defenses to these claims. Because the
proceedings are currently in the discovery phase, it is not possible
at this time to determine the ultimate amount of recovery of these
costs.
The Company is involved in various other lawsuits and claims,
including certain other environmental matters, arising out of the
normal course of its business. In the opinion of management, the
ultimate amount of liability, if any, under pending litigation,
including claims described above, will not have a materially adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in May to elect officers for the ensuing
year. Interim elections are held as required. Except as otherwise
indicated, each executive officer has held his current position for
the past five years.
Age at
December 31,
------------
Name Position, Office 1995
---- ---------------- ----
Richard R. Erkeneff* -- President of the Company (since 60
October 1995) and AAI (since
November 1993); Senior Vice
President of the Aerospace
Group at McDonnell Douglas
Corporation, an aerospace firm
(October 1992 to November
1993); and President (March
1992 to October 1992) and
Executive Vice President (1988
to 1992) of McDonnell Douglas
Electronics Systems Company.
Robert Worthing -- Vice President and General 50
Counsel of the Company (since
July 18, 1995); General Counsel
of AAI (since April, 1992); and
Vice President and Senior
Counsel of TRW's Space and
Defense Sector (October 1979-
January 1992).
Susan Fein Zawel* -- Vice President, Corporate 41
Communications and Associate
General Counsel (since June
1995), Secretary (since May
1994) and Counsel (1992 to
1995) of the Company; and part-
time practice of law in public
service sector (1990-1991)
James H. Perry -- Chief Financial Officer (since 34
October 25, 1995) and Treasurer
(since December 1994) of the
Company; and Senior Manager
(October 1992-November 1994)
and Manager (1988-September
1992) at Ernst & Young LLP.
James M. Ballantine, Jr.-- Acting President of Detroit 62
Stoker (since April 1995);
President of Saddle River
Partners, a consulting and
investment company (since
August 1992); and President of
Hydrotherm, Inc., a multiplant
manufacturer of boilers and air
conditioning equipment (1979 to
August 1992).
John J. Henning -- President of Symtron (since 1988). 54
Michael A. Schillaci -- President of Neo (since 1987). 48
____________________
* Member of the Company's Board of Directors
12
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Reference is made to the information set forth in Note 15 of the Notes
to Financial Statements included in Item 8 of this Report concerning
dividends, stock prices, stock listing and record holders, which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth in the sections
entitled "Five-Year Financial Data" on page 38 of the Annual Report,
which section is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the information set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 17 of the Annual Report,
which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial
statements included on pages 20 through 37 of the Annual Report are
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
13
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement
involving the election of directors in connection with the Annual
Meeting of Stockholders of United to be held on May 14, 1996 (the
"Proxy Statement"), which section (other than the Compensation
Committee Report and Performance Graph) is incorporated herein by
reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1995,
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
The information required with respect to executive officers is set
forth in Part I of this report under the heading "Executive Officers
of the Registrant," pursuant to instruction 3 to paragraph (b) of Item
401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the information to be set forth in the section
entitled "Voting Rights" and "Security Ownership of Management" in the
Proxy Statement, which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
14
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report
entitled "List of Financial Statements and
Financial Statement Schedules".
(3) Exhibits:
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- Amended and Restated By-Laws of United.
(10)(a)- United Industrial Corporation 1994 Stock Option Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between United and
Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement") dated as of
July 15, 1992 among AAI Corporation ("AAI") and Principal
Mutual Life Insurance Company, The Travelers Insurance Company
and The Travelers Indemnity Company of Rhode Island (the
"Purchasers") (2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated as of July 15,
1992 by United in favor of the Purchasers (2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of December 20,
1993 among AAI and the Purchasers (4).
(10)(h)- Amendment No. 3 to Note Agreement dated as of October 13, 1994
among AAI and the Purchasers (5).
(10)(i)- Amendment No. 2 to the Note Guaranty dated as of October 13,
1994 (5).
(10)(j)- Credit Agreement dated as of October 13, 1994 among AAI, the
Lenders parties thereto and First Fidelity Bank, National
Association, as Agent (the "Agent") and Issuing Bank (5).
(10)(k)- Pledge and Security Agreement dated as of October 13, 1994 by
AAI in favor of the Agent (5).
(10)(l)- Pledge and Security Agreement dated as of October 13, 1994 by
the Company in favor of the Agent (5).
15
(10)(m)- Security Agreement dated as of October 13, 1994 between AAI
and the Agent (5).
(10)(n)- Security Agreement dated as of October 13, 1994 between each
subsidiary of AAI, certain subsidiaries of the Company and the
Agent (5).
(10)(o)- Guaranty dated as of October 13, 1994 by the Company and
certain of its subsidiaries and by each subsidiary of AAI in
favor of the Agent (5).
(10)(p)- Employment Agreement dated March 26, 1996, between United and
Richard R. Erkeneff.
(10)(q)- Employment Agreement, dated January 8, 1996, between United
and Susan Fein Zawel.
(10)(r)- Employment Agreement, dated February 9, 1996, between United
and James H. Perry.
(10)(s)- Severance Agreement, dated October 10, 1995, between United
and P. David Bocksch.
(11)- Computation of Earnings Per Share.
(13)- United's 1995 Annual Report to Shareholders
(21)- Subsidiaries of United.
(23)- Consent of Independent Auditors.
(27)- Financial Data Schedule.
--------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1994.
(5) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
(b) - Reports on Form 8-K - United did not file any reports on
Form 8-K during the quarter ended December 31, 1995.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED INDUSTRIAL CORPORATION
(Registrant)
By: /s/ Richard R. Erkeneff
-------------------------------------
Richard R. Erkeneff, President
Date: March 26, 1996
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
Name Date
---- ----
/s/Harold S. Gelb March 26, 1996
---------------------------------------
Harold S. Gelb,
Chairman of the Board and Director
/s/Howard M. Bloch March 26, 1996
---------------------------------------
Howard M. Bloch,
Vice-Chairman of the Board and Director
/s/Richard R. Erkeneff March 26, 1996
---------------------------------------
Richard R. Erkeneff, President and
Chief Executive Officer and Director
/s/Myron Simons March 26, 1996
----------------------------------------
Myron Simons, Director
/s/Susan Fein Zawel March 26, 1996
----------------------------------------
Susan Fein Zawel,
Vice President and Director
/s/Edward C. Aldridge, Jr. March 26, 1996
----------------------------------------
Edward C. Aldridge, Jr., Director
/s/James H. Perry March 26, 1996
----------------------------------------
James H. Perry,
Treasurer (Principal Financial and
Accounting Officer)
17
Annual Report on Form 10-K
Item 14(a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year ended December 31, 1995
United Industrial Corporation
New York, New York
Form 10-K Item 14(a) (1) and (2)
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of United Industrial
Corporation and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended December 31, 1995,
are incorporated by reference in Item 8:
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Operations --
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
The following consolidated financial statement schedules of United
Industrial Corporation and subsidiaries are included in Item 14(d):
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-2
Report of Independent Auditors
BOARD OF DIRECTORS AND SHAREHOLDERS
UNITED INDUSTRIAL CORPORATION
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations and cash
flows for each of the three years in the period ended December 31,
1995. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of United Industrial Corporation and subsidiaries
at December 31, 1995 and 1994 and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Notes 12 and 14 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 21, 1996
F-3
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Balance Sheets
(Dollars in thousands) December 31
1995 1994
------ ------
ASSETS
Current Assets:
Cash and cash equivalents $4,453 $5,635
Prepaid expenses and other
current assets 205 208
Deferred income taxes 6,487 3,169
------ -----
Total current assets 11,145 9,012
Equipment 342 325
Less allowances for depreciation (235) (240)
-------- --------
107 85
Other assets (principally investments
in and amounts due from
wholly-owned subsidiaries) 163,552 165,370
-------- --------
$174,804 $174,467
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities, including notes
payable of $3,000 $7,220 $ 6,899
Income taxes - 3,333
----- ------
Total current liabilities 7,220 10,232
Deferred income taxes $9,820 9,228
Other liabilities (principally
amounts due to wholly-owned
subsidiaries) 71,604 66,586
Shareholders' equity:
Common Stock 14,374 14,374
Other shareholders' equity 71,786 74,047
-------- --------
86,160 88,421
-------- --------
$174,804 $174,467
======== ========
See notes to condensed financial statements of registrant.
F-4
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Statements of Operations
Year ended December 31
(DOLLARS IN THOUSANDS) 1995 1994 1993
------- ------ ------
Management fees from
wholly-owned subsidiaries $ 2,310 $2,064 $ 2,571
Other revenue (expense) - net (15) 150 41
------- ------ -------
2,295 2,214 2,612
Other (income) and
expenses:
Administrative Expenses 5,558 3,247 4,590
Interest income (2,277) (1,292) (364)
Interest expense 7,174 4,708 2,110
------- ------ -------
10,455 6,663 6,336
======= ====== =======
Loss before income taxes and
equity in net income of
subsidiaries (8,160) (4,449) (3,724)
Income tax benefit 2,526 1,639 933
------- ----- ------
Loss before equity in net
income of subsidiaries (5,634) (2,810) (2,791)
Equity in net income (loss)
of subsidiaries 6,522 8,022 (8,232)
------- ------ -------
Net income (loss) $ 888 $5,212 $(11,023)
======= ====== =======
Dividends paid by
subsidiaries to Parent $ 1,000 $ - $ 1,500
======= ====== =======
See notes to condensed financial statements of registrant.
F-5
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INDUSTRIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) Year ended December 31
1995 1994 1993
------ ------ ------
Operating activities:
Net income (loss) $ 888 $5,212 $(11,023)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 17 9 33
Deferred income taxes (126) (441) (680)
Undistributed (earnings)
loss of subsidiaries (5,522) (8,022) 9,732
Changes in operating assets
and liabilities:
Income taxes (3,333) 6,951 (3,618)
Prepaid expenses and other
current assets 3 732 (939)
Current liabilities 321 (616) (2,912)
Accounts with wholly-owned
subsidiaries 9,785 3,037 21,874
-------- ----- ------
Net cash provided by operating
activities: 2,033 6,862 12,467
-------- ----- ------
Investing activities:
Purchase of property and
equipment (39) (69) -
Decrease (increase) in
intercompany receivables
due to transfer of
deferred taxes from wholly-
owned subsidiaries 2,600 (3,523) 24,109
(Decrease) increase in
deferred taxes resulting
from transfer from wholly
owned subsidiaries (2,600) 3,523 (24,109)
Other, net (27) (53) -
------ -------- -------
Net cash used in investing
activities $ (66) $ (122) $ -
------ ------- -------
(Condensed Statements of Cash Flows - continued on next page)
F-6
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Statements of Cash Flows (continued)
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31
1995 1994 1993
------ ------ ------
Financing activities:
Proceeds from borrowings $9,000 $12,000 $ 9,000
Payments on borrowings (9,000) (12,000) (16,000)
Dividends paid (3,165) (2,571) (4,290)
Purchase of treasury shares - (475) -
Proceeds from exercise of
stock options 16 - -
------ ------- -------
Net cash used in financing
activities (3,149) (3,046) (11,290)
------ ------- -------
(Decrease) increase in cash and
cash equivalents (1,182) 3,694 1,177
Cash and cash equivalents at
beginning of year 5,635 1,941 764
------ ------- -------
Cash and cash equivalents at
end of year $4,453 $ 5,635 $ 1,941
====== ======= =======
See notes to condensed financial statements of registrant.
F-7
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the parent-company-only financial statements, the Company's
investment in subsidiaries is stated at cost plus equity
in undistributed earnings of subsidiaries since the date of
acquisition. The Company's share of the net income of its
unconsolidated subsidiaries is reflected using the equity method.
Parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
B. EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES
In 1993, included in the equity in net loss of subsidiaries is a
restructuring charge of $22,500,000 ($14,370,000, net of tax benefit)
regarding the Company's defense industry subsidiary. A major portion
of the charge resulted from the termination of the operations of
AAI/MICROFLITE, a manufacturer of flight simulators and training
devices, due to a lack of new orders. Also, in 1993 the Company
changed its method of accounting for postretirement benefits other
than pensions and income taxes. The implementation of these accounting
changes resulted in a cumulative effect charge against income of
$12,890,000, net of tax benefit and a cumulative effect of $13,884,000
which reduced the 1993 net loss, respectively. Consequently, the net
cumulative effect of these accounting changes resulted in a $994,000
reduction of the net loss in 1993.
F-8
Schedule II -- Valuation and Qualifying Accounts
United Industrial Corporation and Subsidiaries
December 31, 1995
COL. A COL. B COL. C COL. D COL. E
(1) (2)
CHARGED TO CHARGED TO BALANCE AT
BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
----------- --------- -------- ---------- ---------- -------
YEAR ENDED DECEMBER 31, 1995:
Deducted from asset account:
Allowance for doubtful accounts $ 368,000 $ 43,000 $ 101,000 (A) $ 310,000
========== ========= ============== ==========
Product warranty liability $ 525,000 $ 125,000 $ 650,000
========== ========== ==========
Year ended December 31, 1994:
Deducted from asset account:
Allowance for doubtful account $ 418,000 $ 50,000 (B) $ 368,000
========== ============== ==========
Product warranty liability $ 800,000 $ 275,000 (B) $ 525,000
========== ============== ==========
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $ 476,000 $ 41,000 $ 99,000 (A) $ 418,000
========== ========= ============== ==========
Product warranty liability $ 950,000 $ 150,000 (B) $ 800,000
========== ============== ==========
<FN>
(A) Uncollectible accounts written off, net of recoveries.
(B) Reduction of valuation account.
</FN>
F-9
EXHIBIT INDEX
-------------
Exhibit No. Page
----------- ----
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- Amended and Restated By-Laws of United.
(10)(a)- United Industrial Corporation 1994 Stock Option
Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between
United and Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement")
dated as of July 15, 1992 among AAI Corporation
("AAI") and Principal Mutual Life Insurance Company,
The Travelers Insurance Company and The Travelers
Indemnity Company of Rhode Island (the "Purchasers")
(2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated as
of July 15, 1992 by United in favor of the Purchasers
(2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note
Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note
Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of
December 20, 1993 among AAI and the Purchasers (4).
(10)(h)- Amendment No. 3 to Note Agreement dated as of
October 13, 1994 among AAI and the Purchasers (5).
(10)(i)- Amendment No. 2 to the Note Guaranty dated as of
October 13, 1994 (5).
(10)(j)- Credit Agreement dated as of October 13, 1994
among AAI, the Lenders parties thereto and First
Fidelity Bank, National Association, as Agent
(the "Agent") and Issuing Bank (5).
(10)(k)- Pledge and Security Agreement dated as of October 13,
1994 by AAI in favor of the Agent (5).
(10)(l)- Pledge and Security Agreement dated as of October 13,
1994 by the Company in favor of the Agent (5).
(10)(m)- Security Agreement dated as of October 13, 1994
between AAI and the Agent (5).
(10)(n)- Security Agreement dated as of October 13, 1994
between each subsidiary of AAI, certain subsidiaries
of the Company and the Agent (5).
(10)(o)- Guaranty dated as of October 13, 1994 by the
Company and certain of its subsidiaries and by each
subsidiary of AAI in favor of the Agent (5).
(10)(p)- Employment Agreement dated March 26, 1996,
between United and Richard R. Erkeneff.
(10)(q)- Employment Agreement, dated January 8, 1996, between
United and Susan Fein Zawel.
(10)(r)- Employment Agreement, dated February 9, 1996,
between United and James H. Perry.
(10)(s)- Severance Agreement, dated October 10, 1995, between
United and P. David Bocksch.
(11)- Computation of Earnings Per Share.
(13)- United's 1995 Annual Report to Shareholders
(21)- Subsidiaries of United.
(23)- Consent of Independent Auditors.
(27)- Financial Data Schedule.
--------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1994.
(5) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.