================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996. or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from ___________ to ___________ Commission file number: 1-4252 UNITED INDUSTRIAL CORPORATION - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 95-2081809 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 18 EAST 48TH STREET NEW YORK, NEW YORK 10017 (212) 752-8787 - -------------------------------------------------------------------------------- (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in 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 26, 1997, 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: $73,086,734. On March 26, 1997, the registrant had outstanding 12,175,543 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, 1996 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 13, 1997 are incorporated by reference into Part III of this report. ================================================================================ PART I 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 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 1996 approximately 62% of the sales volume of AAI consisted of research, development and production of military items under defense contracts compared to 64% in 1995. 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 1996 for 159 additional systems. In 1996, 142 weather systems were installed bringing total systems installed since inception of the contract to 819. 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 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. 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. Additionally, contingent amounts are payable if certain pretax profits, as defined in the purchase agreement, are earned for each of the years in the three year period ending December 31, 1998. In 1996 and 1995, the Company made contingent payments of $254,000 and $1,000,000, respectively, which were classified as selling and administrative expense in the 1996 and 1995 financial statements. Funds generated from operations and an existing line of credit were utilized to finance the purchase of Symtron. Symtron's 1996 sales consisted of production for the Navy and commercial customers. The main office and plant of Symtron are located in Fair Lawn, New Jersey. In January 1997 Symtron and its principal direct competitor agreed to settle litigation regarding the use of Symtron tectechnology, which included the competitor's withdrawal from the firefighter training marketplace for at least five years. This agreement, however, is currently under review by the United States District Court for the State of New Jersey. Other competitors are small foreign firms who Symtron believes have not yet delivered a computer control system for live firefighter training to the United States market. Energy Systems 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 3 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. 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. All of the sales of Midwest are to Detroit Stoker. Midwest's plant and offices are located in Marshall, Michigan. Plastic Products 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 24% of sales in 1996. These sales principally consisted of display racks and trays. Sales of consumer end use items represented 63% of sales in 1996. These sales primarily included carrier cradles, chairs and waste baskets. Sales to the auto industry represented approximately 6% of sales in 1996. The largest customer of Neo accounted for approximately 63% of sales in 1996 compared to 54% and 39% in 1995 and 1994, 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. 4 For additional information concerning United's subsidiaries reference is made to information set forth in the Letter to Shareholders contained in United's 1996 Annual Report to Shareholders (the "Annual Report"), which letter is incorporated herein by reference. General Employees As of March 1, 1997 United and its subsidiaries had approximately 1,900 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 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 1996, 1995 and 1994 the subsidiaries of United (exclusive of AAI) expended approximately $639,000, $194,000 and $98,031, 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 engaged in research and development primarily for the U.S. Government. Backlog The backlog of orders by industry segment at December 31, 1996 and 1995 was as follows: 1996 1995 ---- ---- Defense 150,888,000 $198,788,000 Energy Systems 6,871,000 5,070,000 Plastic Products 941,000 2,349,000 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 5 level of new contracts being awarded. Except for approximately $23,000,000 of research and development backlog, substantially all of the backlog orders at December 31, 1996 are expected to be filled in 1997. Government Contracts No single customer other than the U.S. Government, principally the Department of Defense, accounted for 10% or more of net sales during the year. Sales to the Government normally carry a lesser margin of profit than commercial sales and may be subject to price redetermination under certain circumstances. Contracts for such sales can be terminated for the convenience of the Government. Financial Information Relating to Industry Segments For financial information with respect to industry segments of United, reference is made to the information set forth in Note 12 of the Notes to Financial Statements included in Item 8 of this Report, which Note is incorporated herein by reference. Foreign Operations and Export Sales United and its subsidiaries have no significant foreign operations. During 1996 export sales by United and its subsidiaries amounted to approximately $26,491,000. 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 3, 1997. 6 Approximate Area Owned Location Principal Use in Square Feet or Leased - -------- ------------- -------------- --------- 1510 East First Street Machine shop, steel 194,910 floor Owned in fee Monroe, MI fabrication, engineering and space on 14.4 sales facilities of Detroit acres of land Stoker (East Building) 1426 East First Street Assembly, shipping and 101,000 floor Owned in fee Monroe, MI administrative facilities of space on 2.2 Detroit Stoker acres of land (West Building) 15290 Fifteen Mile Road Foundry, 59,386 floor Owned in fee Marshall, MI Midwest Metallurgical space on 28.4 acres of land Industry Lane Manufacturing, engineering 740,208 floor Owned in fee Cockeysville, MD and administrative space on 87 facilities of AAI acres of land 1701 Pollitt Drive Administrative, engineering 30,000 Leased to June Fair Lawn, NJ and manufacturing facilities 30, 2001 of Symtron 1505 East Warner Avenue Manufacturing, engineering 103,200 Leased to Santa Ana, CA and administrative facilities Sept. 30, 1999 of ACL Technologies 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 fee Chicago, IL administrative facilities of Neo For information with respect to obligations for lease rentals, see Note 8 of the Notes to Financial Statements in the Annual Report, which Note is incorporated herein by reference. United considers its properties to be suitable and adequate for its present needs. The properties are being substantially utilized. 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 operation of a small facility at a site in the State of Arizona that manufactured semiconductors between 1959 and 1960. All such operations of the Company were sold by 1961. 7 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. 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. 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 ss. 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 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. On or about November 15, 1996, AAI Systems Management, Inc. (the "subsidiary"), an indirect subsidiary of the Company, signed a settlement agreement with the U.S. Navy (the "customer"), concluding a dispute with the customer over a contract to deliver helicopter 8 simulator training devices. The agreement provided for an orderly conclusion of the contract and a limitation on the Company's liability, precluding the possibility of additional losses for the subsidiary under the contract. Settlement of the dispute and the abbreviated completion of the contract required an additional charge of $2.2 million ($1.4 million net of taxes) against earnings for the third quarter. 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. 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. 9 Age at Name Position, Office December 31, 1996 ---- ---------------- ----------------- Richard R. Erkeneff* -- President of the Company (since October 1995) 61 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 Counsel of the 51 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 Communications and 42 Associate General Counsel (since June 1995), Secretary (since May 1994) and Counsel (1992 to 1995) of the Company. James H. Perry -- Chief Financial Officer (since October 25, 35 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. Ballentine, Jr. -- Acting President of Detroit Stoker (since April 63 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). 55 Michael A. Schillaci -- President of Neo (since 1987). 49 - -------------------- * Member of the Company's Board of Directors 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Reference is made to the information set forth in Note 14 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. 11 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 13, 1997 (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, 1996, 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. 12 PART IV 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 (2). (10)(a)- United Industrial Corporation 1994 Stock Option Plan, as amended (3). (10)(b)- Purchase Agreement, dated January 18, 1994, between United and Symtron Systems, Inc. (1). (10)(c)- 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 (4). (10)(d)- Pledge and Security Agreement dated as of October 13, 1994 by AAI in favor of the Agent (4). (10)(e)- Pledge and Security Agreement dated as of October 13, 1994 by the Company in favor of the Agent (4). (10)(f)- Security Agreement dated as of October 13, 1994 between AAI and the Agent (4). (10)(g)- Security Agreement dated as of October 13, 1994 between each subsidiary of AAI, certain subsidiaries of the Company and the Agent (4). (10)(h)- Guaranty dated as of October 13, 1994 by the Company and certain of its subsidiaries and by each subsidiary of AAI in favor of the Agent (4). (10)(i)- First Amendment made as of October 18, 1995 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation (as successor to the Agent) and AAI, and AAI Subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors. (10)(j)- Second Amendment made as of September 20, 1996 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation and AAI and AAI subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors (5). 13 (10)(k)- Third Amendment made as of January 17, 1997 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation and AAI and AAI subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors. (10)(l)- Employment Agreement dated March 26, 1996, between United and Richard R. Erkeneff (2). (10)(m)- Employment Agreement, dated January 8, 1996, between United and Susan Fein Zawel (2). (10)(n)- Employment Agreement, dated February 9, 1996, between United and James H. Perry (2). (10)(o)- Amendment dated as of September 29, 1996, by and between United and James H. Perry to the Employment Agreement dated February 29, 1996 between United and James H. Perry (5). (11)- Computation of Earnings Per Share. (13)- United's 1996 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 Annual Report on Form 10-K for the year ended December 31, 1995. (3) Incorporated by reference to United's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on January 10, 1997. (4) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (5) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (b) - Reports on Form 8-K - United did not file any reports on Form 8-K during the quarter ended December 31, 1996. 14 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, 1997 --------------------------- 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 - ------------------------------- Harold S. Gelb, Chairman of the Board and Director March 26, 1997 /s/Howard M. Bloch - ------------------------------- Howard M. Bloch, Vice-Chairman of the Board and Director March 26, 1997 /s/Richard R. Erkeneff - ------------------------------- Richard R. Erkeneff, President and Chief Executive Officer and Director March 26, 1997 /s/Edward C. Aldridge, Jr. - ------------------------------- Edward C. Aldridge, Jr., Director March 26, 1997 /s/E. Donald Shapiro - ------------------------------- E. Donald Shapiro, Director March 26, 1997 /s/Susan Fein Zawel - ------------------------------- Susan Fein Zawel, Vice President and Director March 26, 1997 /s/James H. Perry - ------------------------------- James H. Perry, Treasurer (Principal Financial and Accounting Officer) March 26, 1997 15 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, 1996 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, 1996, are incorporated by reference in Item 8: Consolidated Balance Sheets--December 31, 1996 and 1995 Consolidated Statements of Operations-- Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 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. 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, 1996 and 1995, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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. /s/ Ernst & Young LLP ERNST & YOUNG LLP New York, New York February 26, 1997 3 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Balance Sheets (Dollars in thousands) DECEMBER 31 1996 1995 ------ ----- ASSETS Current Assets: Cash and cash equivalents $ 447 $ 4,453 Prepaid expenses and other current assets 326 205 Deferred income taxes 6,131 6,487 ------ ------ Total current assets 6,904 11,145 Equipment 356 342 Less allowances for depreciation (251) (235) -------- -------- 105 107 Other assets (principally investments in and amounts due from wholly-owned subsidiaries) 173,930 163,552 -------- -------- $180,939 $174,804 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 3,211 $ 7,220 Income taxes 963 - ------- ----- Total current liabilities 4,174 7,220 Deferred income taxes 9,662 9,820 Other liabilities (principally amounts due to wholly-owned subsidiaries) 76,958 71,604 Shareholders' equity: Common stock 14,374 14,374 Other shareholders' equity 75,771 71,786 ------- -------- 90,145 86,160 -------- -------- $180,939 $174,804 ======== ======== See notes to condensed financial statements of registrant. 4 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Statements of Operations YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS) 1996 1995 1994 ------ ------ ------ Management fees from wholly-owned subsidiaries $ 2,251 $ 2,310 $2,064 Other (expense) revenue - net (20) (15) 150 -------- ------- ------ 2,231 2,295 2,214 Other (income) and expenses: Administrative expenses 4,688 5,558 3,247 Interest income (1,997) (2,277) (1,292) Interest expense 7,025 7,174 4,708 ------- ------- ------ 9,716 10,455 6,663 ------- ------- ------ Loss before income taxes and equity in net income of subsidiaries (7,485) (8,160) (4,449) Income tax benefit 2,542 2,526 1,639 ------ ------- ----- Loss before equity in net income of subsidiaries (4,943) (5,634) (2,810) Equity in net income of subsidiaries 11,347 6,522 8,022 -------- ------- ------ Net income $6,404 $ 888 $5,212 ------ ------- ------ Dividends paid by subsidiaries to Parent $ 1,000 $ 1,000 $ - ======= ======= ==== See notes to condensed financial statements of registrant. 5 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INDUSTRIAL CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31 1996 1995 1994 ------ ------ ------ Operating activities: Net income $6,404 $ 888 $5,212 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16 17 9 Deferred income taxes 356 (126) (441) Undistributed earnings of subsidiaries (10,347) (5,522) (8,022) Changes in operating assets and liabilities: Income taxes 963 (3,333) 6,951 Prepaid expenses and other current assets (121) 3 732 Current liabilities (1,009) 321 (616) Accounts with wholly-owned subsidiaries 5,165 9,785 3,037 ----- ------- ----- Net cash provided by operating activities: 1,427 2,033 6,862 ----- ----- ----- Investing activities: Purchase of property and equipment (14) (39) (69) Decrease (increase) in intercompany receivables due to transfer of deferred taxes from wholly-owned subsidiaries 158 2,600 (3,523) (Decrease) increase in deferred taxes resulting from transfer from wholly owned subsidiaries (158) (2,600) 3,523 Other, net 7 (27) (53) ------ ------ -------- Net cash used in investing activities $ (7) $ (66) $ (122) ------- ------ ------- (Condensed Statements of Cash Flows - continued on next page) 6 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Statements of Cash Flows (continued) (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31 1996 1995 1994 ------ ------ ------ Financing activities: Proceeds from borrowings $ 9,000 $9,000 $12,000 Payments on borrowings (12,000) (9,000) (12,000) Dividends paid (2,434) (3,165) (2,571) Purchase of treasury shares - - (475) Proceeds from exercise of stock options 8 16 - ------- ------ ------ Net cash used in financing activities (5,426) (3,149) (3,046) ------- ------ ------- (Decrease) increase in cash and cash equivalents (4006) (1,182) 3,694 Cash and cash equivalents at beginning of year 4,453 5,635 1,941 --------- ------ ------- Cash and cash equivalents at end of year $ 447 $4,453 $ 5,635 ======= ====== ======= See notes to condensed financial statements of registrant. 7 Schedule I - Notes to Condensed Financial Statements of Registrant 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. 8 Schedule II - Valuation and Qualifying Accounts United Industrial Corporation and Subsidiaries December 31, 1996 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, 1996: Deducted from asset accounts: Allowance for doubtful accounts $ 310,000 $ 65,000 (A) $ 245,000 ========= ============ ========= Product warranty liability $ 650,000 $ 71,000 (B) $ 579,000 ========= ============ ========= 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 ========= ============= ========= <FN> (A) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF, NET OF RECOVERIES. (B) REDUCTION OF VALUATION ACCOUNT. </FN> EXHIBIT INDEX EXHIBIT NO. PAGE (3)(a)- Restated Certificate of Incorporation of United (1). (3)(b)- Amended and Restated By-Laws of United (2). (10)(a)- United Industrial Corporation 1994 Stock Option Plan, as amended (3). (10)(b)- Purchase Agreement, dated January 18, 1994, between United and Symtron Systems, Inc. (1). (10)(c)- 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 (4). (10)(d)- Pledge and Security Agreement dated as of October 13, 1994 by AAI in favor of the Agent (4). (10)(e)- Pledge and Security Agreement dated as of October 13, 1994 by the Company in favor of the Agent (4). (10)(f)- Security Agreement dated as of October 13, 1994 between AAI and the Agent (4). (10)(g)- Security Agreement dated as of October 13, 1994 between each subsidiary of AAI, certain subsidiaries of the Company and the Agent (4). (10)(h)- Guaranty dated as of October 13, 1994 by the Company and certain of its subsidiaries and by each subsidiary of AAI in favor of the Agent (4). (10)(i)- First Amendment made as of October 18, 1995 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation (as successor to the Agent) and AAI, and AAI subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors. (10)(j)- Second Amendment made as of September 20, 1996 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation and AAI and AAI subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors (5). (10)(k)- Third Amendment made as of January 17, 1997 to Credit Agreement dated October 13, 1994 between First Union Commercial Corporation and AAI and AAI subsidiaries, UIC-DEL Corporation, Symtron and United as guarantors. (10)(l)- Employment Agreement dated March 26, 1996, between United and Richard R. Erkeneff (2). (10)(m)- Employment Agreement, dated January 8, 1996, between United and Susan Fein Zawel (2). (10)(n)- Employment Agreement, dated February 9, 1996, between United and James H. Perry (2). (10)(o)- Amendment dated as of September 29, 1996, by and between United and James H. Perry to the Employment Agreement dated February 29, 1996 between United and James H. Perry (5). (11)- Computation of Earnings Per Share. (13)- United's 1996 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 ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995. (3) INCORPORATED BY REFERENCE TO UNITED'S REGISTRATION STATEMENT ON FORM S-8, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997. (4) INCORPORATED BY REFERENCE TO UNITED'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994. (5) INCORPORATED BY REFERENCE TO UNITED'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996. NYFS11...:\95\78495\0001\6678\FRM3067U.00C