UIC
ANNUAL REPORT
1998
UNITED INDUSTRIAL
CORPORATION
United Industrial Corporation
United Industrial Corporation is a high technology company focused on the design
and production of defense, training, transportation, and energy systems.
Its products include unmanned air vehicles, training and simulation systems,
automated aircraft test and maintenance equipment, and ordnance systems.
It also manufactures ground transportation components, combustion equipment for
biomass and refuse fuels, and specialized firefighter training installations.
Contents
1 Financial Highlights
2 Letter to Shareholders
6 Simulation and Test Systems
14 Unmanned Air Vehicles
16 Engineering and Maintenance Services
18 Transportation Systems
20 Energy Systems
22 Board of Directors
23 Management's Discussion
29 Consolidated Financial Statements
33 Notes to Financial Statements
48 Report of Independent Auditors
49 Five-Year Financial Data
50 Corporate Organization
Financial Highlights
(Dollars in thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------
Net sales $ 204,305 $ 235,183 $ 220,822
- ---------------------------------------------------------------------------------------
Net income 13,011 14,825 6,404
- ---------------------------------------------------------------------------------------
Earnings per share
basic 1.06 1.22 .53
diluted 1.03 1.19 .52
- ---------------------------------------------------------------------------------------
Earnings before special items(a) 10,343 6,981 5,850
- ---------------------------------------------------------------------------------------
Dividends paid per share .40 .29 .20
- ---------------------------------------------------------------------------------------
Shareholders equity 109,441 102,024 90,145
Shareholders equity per share 8.93 8.33 7.40
- ---------------------------------------------------------------------------------------
Sales backlog as of year end $ 210,000 $ 188,000 $ 159,000
- ---------------------------------------------------------------------------------------
Shares outstanding 12,250,000 12,249,000 12,174,000
- ---------------------------------------------------------------------------------------
Return on Shareholders' Earnings per Diluted Share Backlog(b)
Equity(a) before Special Items(a) As of December 31
For the Year For the Year Ending Dollars in millions
Ending December 31 December 31
Percent In dollars
'96 '97 '98 '96 '97 '98 '96 '97 '98
- --- --- --- --- --- --- --- --- ---
6.5 6.8 9.5 $.48 $.56 $.82 $128 $188 $210
- ------------------ ------------------- -------------------
'97-'98 40% '97-'98 46% '97-'98 12%
Defense
Transportation
Energy
(a)Excludes the effect of special items and income from divested businesses.
See pages 23-25 for further information.
(b)Excludes Weather Systems backlog in 1996.
1
To Our Shareholders
1998 was a year of great accomplishment for United Industrial Corporation. We
achieved growth in key business areas, generated a significant increase in
earnings, and delivered on our commitments to meet, if not exceed, our
customers expectations. At the same time, weve been laying the groundwork to
continue our momentum in the years ahead by building a healthy backlog of
work, by reinforcing our leadership positions in key markets, and by making
changes in our organization to further improve our performance. Above all, we
have remained firmly focused on the objectives laid out in our Strategic
Business Plan two years ago.
Under this program, we have been concentrating our resources and energies
on building our core defense and technology businesses, as well as improving
Transportation Systems and Energy Systems. Through targeted strategies that take
advantage of our strengths in niche markets, we have been successful in growing
many key businesses, expanding our customer base, and broadening our
international reach. As part of the Plan, we exited non-core business areas, and
we are making selected investments to enhance our existing competencies,
including strengthening our research and development efforts.
EARNINGS BEFORE SPECIAL ITEMS INCREASED 47%;
BALANCE SHEET REMAINS STRONG
The successful implementation of our business strategy led to a substantial
increase in earnings in 1998. Net income, before special items, increased 47% to
$10,343,000, or $.82 per diluted share,
compared to net income, before special items
Revenues by Segment and excluding income from operations divested
(Pie Chart Omitted) in Fall 1997, of $6,981,000, or $.56 per
diluted share, reported in 1997. The 1998
Transportation Systems $16.7m results include a $2,696,000 after-tax gain
Energy Systems $34.5m related to the sale of property and after-tax
Defense Systems $153.2m income of $2,920,000 related to the favorable
resolution of a tax matter, partially offset
by a $2,948,000 after-tax charge related to
the settlement of an environmental lawsuit in Arizona. Including these items,
net income for 1998 was $13,011,000 or $1.03 per diluted share, compared to net
income, including special items and income from divested businesses, of
$14,825,000, or $1.19 per diluted share,
2
in 1997. This excellent performance reflects the ongoing strength of our core
defense-related businesses, as well as significant growth in some of our newer
enterprises, including Engineering Support Inc., which provides engineering and
maintenance services to government customers; AAI/ACL Technologies, which
produces fluid test equipment; and Symtron
Systems, which manufactures firefighter training
systems. In addition, we have continued to control We are laying the
our costs very carefully, contributing to the groundwork to continue
strong earnings increase. our momentum
Net sales in 1998 reached $204.3 million, compared to net sales, excluding
businesses divested in Fall 1997, of $205.3 million last year. Including sales
from those divested businesses, net sales in 1997 were $235.2 million. While
1998 sales were affected by the timing of certain contracts, a key priority of
our management team in 1999 is to generate profitable revenue growth that will
continue in the years ahead. The solid 12% increase in our backlog to $210
million at year-end 1998 from $188 million at year-end 1997 gives us a head
start in meeting this goal.
The Companys excellent balance sheet Our excellent balance
continues to be a great strength and we have no sheet remains a great
borrowings. In fact, based on our sound financial strength
position, in August 1998 the Board of Directors
authorized the Company to repurchase up to $1.5
million of its common stock for cash, as a means to enhance value for our
shareholders. We continue to believe the repurchase of United Industrial common
stock is an excellent investment and will consider buying back additional shares
in the future.
STRATEGIC FOCUS ON CORE BUSINESSES
In line with our Strategic Business Plan, we have been building our presence in
the following primary areas:
o Simulation & Test Systems, including defense contracts for the U.S.
government, foreign governments, and other commercial customers, as
well as simulation systems for firefighter training;
o Unmanned Air Vehicles (UAVs), including the successful Pioneer and
Shadow UAV programs;
3
[Photo of Richard R.
Erkeneff Omitted]
Richard R. Erkeneff,
President and Chief
Executive Officer
o Engineering & Maintenance Services, a growing market due to customers
increased outsourcing of non-core, technical services;
o Transportation Systems, including the overhaul of rail passenger
transit vehicles, an emerging U.S. market;
o Energy Systems, a market with new opportunities in the production of
equipment for alternative energy sources.
We made important strides in each of these areas and are optimistic about
the contribution each will make to United Industrials future growth.
The transportation systems market has presented challenges and
opportunities during the last three years. In Fall 1998, we initiated a major
realignment of this business, to better focus our operations and achieve
profitability. While we have been very successful in recent years in winning new
contracts, we needed to do a better job on execution and, particularly, on
controlling costs. As a result, we brought on board a transportation industry
veteran, Raleigh L. Huntsman, with 40 years of experience. With his leadership,
we are now targeting specific segments of the transportation industry where we
see the most growth potential, particularly the vehicle overhaul business. In
addition, we are making additional changes in our organization to maximize
productivity and lower operating costs. We believe these steps will enable us to
build a stronger, profitable business in the transportation systems marketplace.
In conjunction with focusing on our key business areas, an important
element of our growth strategy has been to expand the international component of
our business. We have actively targeted new opportunities abroad, particularly
in Europe, the Far East, Egypt and Canada, and
have established a greater presence in markets
International sales where we see considerable potential. Due to our
rose in several of our efforts, we achieved increases in international
business areas sales in several of our business areas, most
significantly in our AAI/ACL Technologies
subsidiary. Among the programs underway are
contracts for British Airways, the Spanish Navy, the Republic of China Air
Force, and the Romanian Ministry of Defense.
4
[Photo of Harold S.
Gelb Omitted]
Harold S. Gelb,
Chairman of the Board
AWARDED DEFENSE DEPARTMENT'S HIGHEST CERTIFICATION
Beyond these initiatives, at the very core of our success in 1998 was the
continued commitment of each of our Associates to deliver a high-quality product
that meets - or exceeds - our customers needs. We were greatly honored when our
efforts were recognized by the Department of Defense in January 1999. Our AAI
Corporation subsidiary was awarded the Defense Department's highest level of
certification for design and manufacturing quality. In our view, there is no
greater compliment. Moreover, this award follows the ISO 9001 certifications
received by AAI and our Engineering and Maintenance Services business in 1995
and 1997, respectively. Issued by the International Standards Organization, the
ISO 9001 certification represents the highest level of certification and is
internationally recognized as a measure of quality.
We are confident that if we maintain this level of excellence, while
continuing to pursue the opportunities that lie ahead in each of our business
areas, United Industrial will achieve further growth and greater value for
shareholders in the years ahead. We have a strong, experienced management team
in place, a solid financial position, and a sound business strategy that is
producing results.
We thank all of our Associates for their hard work in 1998 and our
customers for their continued trust and support. To our shareholders, we
look forward to reporting on our progress in 1999 and beyond.
Sincerely,
/s/ Richard R. Erkeneff /s/ Harold S. Gelb
Richard R. Erkeneff Harold S. Gelb
President and Chief Executive Officer Chairman of the Board
5
Simulation and Test Systems
Simulation and Test
United Industrial continued to distinguish itself in the simulation and test
systems market in 1998. By drawing upon our historical strengths in this area
and by consistently developing new technologies and programs, we are
successfully expanding relationships with existing customers, while attracting
exciting new business. These efforts are highlighted by the 32% increase in
bookings achieved by our simulation and test systems businesses in 1998.
Our expertise in this highly specialized market has been developed, in
part, through our many years of collaboration with the U.S. government on its
defense programs. Our AAI Corporation subsidiary has been involved in some of
the militarys most important projects, and we continue to provide a range of
services. At the same time, we are taking advantage of our core competencies in
simulation and test systems and related areas to broaden our customer base and
expand into new markets.
In U.S. defense systems, we initiated work on two major contracts last
year for production of the Surveillance Radar Training Set and the Generic Navy
Stimulator/Simulator (GNSS). With a contract value of $22.5 million, the
Surveillance Radar Training Set will be used to train technicians in the
maintenance of sophisticated radar equipment for the AWACS E-3 aircraft fleet.
The Generic Navy Stimulator/Simulator is a critical component of the U.S. Navys
Battle Force Training System. By stimulating a warship's onboard radar, the GNSS
system will create a realistic combat environment in order to train shipboard
radar operators. This contract is initially valued at $12.7 million and, with
options, could reach $26 million.
The receipt of the GNSS contract, as well as our ongoing work on the Carry
On Combat Systems Trainer (COCST), has reinforced AAIs position as the worlds
leading supplier of shipboard training equipment. The COCST will incorporate the
advanced features of the GNSS system, while repackaging the design for
transportability. This contract is valued at
Our expertise has been approximately $8 million, with additional funding
developed through years of expected. Moreover, given increased international
collaboration on U.S. interest in On-Board Training Systems, we believe
defense programs this area offers significant growth potential.
Work continued during 1998 on our Joint
Service Electronic Combat Systems Tester (JSECST)
for the U.S. Air Force, with the award of $9.1 million in incremental funding,
bringing the total contract value to $22.7 million. In addition, we delivered
ahead of schedule to Robins Air Force Base training equipment under our program
for the JointSTARS Prime Mission Equipment Maintenance Trainer System, and
on-site testing has gone extremely well. Also for the U.S. Air Force, we
completed our $4.2 million contract to upgrade MHU-204/M-50 Munition Handling
Units for use with the B-2 and B-52 aircraft, and we expect an option valued at
$3.1 million for additional units to be exercised during 1999.
6
[Photo Omitted] AAI's Generic Navy Stimulator/
Simulator will be used to train
shipboard radar operators,
through the creation of a
realistic combat environment.
Here, engineers work on a
trainer in AAI's On-Board
Training Systems Lab.
7
[Photo Omitted]
8
Stimulation and Test Systems
An airborne Air Force technician
operates sophisticated radar
equipment on the AWACS E-3
aircraft. AAIs Surveillance
Radar Training Set is used
to train technicians in the
operation and maintenance of
this complex equipment.
[Photo Omitted]
We also completed long-running production programs for the San Antonio Air
Logistics Center in Texas, for Radar Beacon Test Sets, and for Northrop Grumman
Corporation, for a redesigned Antenna System Test Set.
Outside of the United States, we have moved forward on the $6.8 million
contract to produce a Moving Target Simulator for the Romanian Ministry of
Defense. In Japan, we completed the installation of our fifth Moving Target
Simulator system in Misawa. Based on the strength of our relationships to date,
we are well-positioned to win future business in Japan.
AAI/ACL Technologies, inc.
As part of our growth strategy, we have actively sought opportunities to apply
our technical skills to enter new market segments, and our AAI/ACL Technologies
(ACL) subsidiary has been very successful in this regard. Leveraging our
competencies in hydraulics and pneumatics, we have
targeted suitable areas for expansion and built an
increasing portfolio of business. The majority of Simulation and test systems
these contracts have come from commercial bookings grew 32%
customers with many from commercial airlines. In
addition, our efforts to expand internationally have
paid off, with 63% of our bookings now generated outside of the U.S.
For example, we have a significant contract underway for British Airways,
valued at $11 million, to provide a pneumatic test cell center and hydraulic
test equipment for its new facility in the United
Kingdom. In conjunction with this program, ACL won
a new ten-year contract, valued at $2.5 million, We're using our technical
to maintain and support its equipment for British skills to enter new markets
Airways at the new facility. We have also received
contracts from the Republic of China Air Force for
the design and
9
[Photo Omitted]
10
[Photo Omitted]
ACL engineers evaluate aircraft
components for British Airways'
new pneumatic test cell center
in the United Kingdom. The
valve skid, pictured here,
adjusts airflow, pressure, and
temperature in response to
flight conditions.
11
[Photo Omitted]
Symtrons advanced firefighter training
systems enable live firetraining in a safe
and controlled environment.
12
Simulation and Test Systems
construction of a turnkey pneumatic system and Mexicana Airlines for the
production of test stands. In addition, we are currently studying requirements
for an F-16 maintenance depot in Egypt and are optimistic these efforts will
lead to a multi-million dollar contract to provide fluid test equipment.
The receipt of a key contract award from Boeing last Fall marked another
important step in our expansion of this business. ACL will provide hydraulic and
pneumatic factory test equipment to support the Delta IV rocket manufacturing
facility, and we are currently bidding on a contract to provide similar
equipment for the rocket launch site. This contract, initially valued at $1.8
million, has the potential to reach $5 million.
We believe there are opportunities for our subsidiaries to work together
on programs as well, drawing upon their individual areas of expertise. In fact,
ACL was awarded a $6.7 million contract in November 1998 to relocate equipment
from the McClellan Air Force Base to Hill Air Force Base and to complete
installation and recertification of the equipment. ACL subcontracted a
significant portion of this effort to its affiliate, Engineering Support, Inc.
SYMTRON SYSTEMS
The manufacture of simulation systems for use in training firefighters is a
further offshoot of our simulation and test systems business and, like ACL, has
generated very strong results. Revenues for Symtron Systems, our firefighter
simulation subsidiary, reached record levels
in 1998. This performance was driven by solid Symtron Systems' revenues
demand for Symtrons state-of-the-art training reached record levels, driven
systems. by demand for firefighter
Symtrons customers primarily include the training systems
U.S. government, including various branches of
the Armed Forces, foreign governments, and
state and local municipalities. During 1998, we were awarded contracts from a
wide range of customers, including the U.S. Armys Simulation, Training and
Instrumentation Command; the Borough of Paramus, New Jersey; Collin County
Community College, Texas; Wayne Township, Indiana; and San Francisco,
Californias Treasure Island fire facility, among others. Internationally, we
and our Spanish partner Insimar were awarded a major contract from the Spanish
Navy to construct a multi-million dollar live firefighter training system, to be
installed in the second half of 1999. We also continue to build our business in
Germany, working with our partner Krantz-TKT.
During the year, Symtron achieved certification from Equipment Testing
Laboratories (ETL) for all major components of its firefighter training systems.
Receipt of certification from this nationally recognized test laboratory should
benefit future marketing efforts and reinforce Symtrons strong competitive
position.
13
UAVs
Unmanned Air Vehicles
The production of unmanned air vehicles (UAVs) continues to be an exciting area
for United Industrials AAI subsidiary. As the only U.S. company that
manufactures tactical UAVs for the U.S. military in significant volumes, we are
in a unique competitive position in a growing market.
Our record of leadership has been firmly established through our Pioneer
UAV program for the U.S. government over the past thirteen years. Through
ongoing innovations and technological advancements, we continue to enhance the
Pioneers capabilities and applications, providing a more effective and
versatile means of surveillance and reconnaissance.
For example, following a successful demonstration in 1998, we have moved
forward on the integration of the production Modular Integrated Avionics Group
into the Pioneer. This $2.5 million program will improve the Pioneers
capabilities and reliability, while lowering its operating costs. In addition,
we are working with the U.S. government, under a $2 million program, to develop
the Pioneer Datalink Control Module, which will allow the Pioneer to be operated
by the Governments new Tactical Control System.
At the same time, there continues to be steady demand for new UAVs and
replacement parts. Under a $3.8 million contract for the U.S. government, we are
producing 15 new Pioneer UAVs. We are also at work on a $2.4 million government
contract for additional spare parts to support the Pioneer system, following our
completion of a $9 million spare parts program in August 1998.
Significant tactical UAV program opportunities are also emerging from the
U.S. military. Both the Navy/Marine Corps and the Army are considering new
programs for the next generation of tactical UAVs. AAI is fully engaged in these
developments and working closely with both customers as these projects evolve.
There are considerable opportunities outside of the United States as well.
In April 1998, we delivered significantly ahead of schedule a Shadow 600 UAV
system to the Romanian Ministry of Defense, and the customer is very pleased
with the results of initial tests. Among our
programs currently underway is a $4 million
Our record of leadership contract for UAV upgrades from an Asian aerospace
in UAVs has been company. The program will involve upgrades to the
firmly established customers existing system using technologies
developed at AAI, and is expected to be completed
by September 1999.
The capabilities and cost efficiency of our UAVs, and particularly the
Shadow 600, have made AAI an attractive partner to a growing number of emerging
international customers interested in acquiring UAV capability. To reinforce our
competitive position in these markets, we are now revamping and broadening our
Shadow UAV product line, to make improvements and offer customers a greater
ability to customize UAVs to meet their individual needs. We expect our expanded
UAV line to play an important role in winning new international business.
14
[Photo Omitted] Technicians measure weight
and balance of a Shadow
200 UAV. The advanced
capabilities and cost efficiency
of the Shadow have made
AAI an attractive partner to
a growing number of
international customers.
15
Engineering and Maintenance Services
Engineering and Maintenance
Engineering and Maintenance Services (ESI) achieved outstanding results last
year. Sales jumped more than 30%, while earnings doubled. Moreover, with backlog
up 24%, we are poised for continued growth in 1999.
This strong performance has been driven by our ability to capitalize on
the increasing demand for responsive, high-quality outsourcing partners. With
our technical expertise and ongoing improvements in our organization including
the 1997 receipt of ISO 9001 Certification customers are increasingly turning
to us for engineering and maintenance support. Since very few service companies
in the world have received ISO 9001 Certification, an internationally recognized
quality measure, this has been a major competitive advantage in winning new
business.
One of our greatest successes has been our $35 million contract for the
U.S. Air Force, to upgrade Maintenance Training Devices for the C-17 Aircraft
and provide maintenance support services for a five-year period. Based on our
solid performance on this contract in 1998, further incremental bookings of $13
million have been received, and this program has the potential to reach a total
value of $75 million over the five-year period.
We also began work on a new $4.9 million contract, received in November
1998, to upgrade Gunnery Maintenance Trainers for the U.S. Armys Simulation,
Training and Instrumentation Command. A follow-on contract, valued at
$3.2 million, is anticipated for award in the third quarter of 1999.
Additional new contracts won in 1998 include a five-year contract, valued
at $2.1 million, from Raytheon Aircraft Services for operation and maintenance
support of their mission trainers for the Undergraduate Naval Flight Officer
program. In addition, ESI is collaborating with its affiliate, ACL Technologies,
on a $6.7 million contract to relocate equipment from the McClellan Air Force
Base in Sacramento, California to Hill Air Force Base in Ogden, Utah.
ESIs proven record in handling automated test equipment and government
depot move logistics made it a natural choice for this project.
Outside of the defense systems market, we have successfully entered the
area of firefighter training and maintenance support. To complement our Symtron
Systems subsidiary, which manufactures firefighter
training equipment, ESI is providing support
ESI's ISO 9001 Certification services to maintain the equipment, while also
is a major competitive conducting training. Toward that end, ESI
advantage completed and opened a firefighter training
facility in Kenai, Alaska in September 1998 and
has conducted training for British Petroleum
Firefighters, among others. We were also awarded a five-year contract to
maintain, operate, and upgrade the fire training facility at Treasure Island in
San Francisco, California, reinforcing our competitive position in this market
segment.
16
[Photo Omitted] Under a major contract, ESI
is upgrading maintenance
trainers for the C-17 Aircraft
engine. As shown here, the
trainers provide Air Force
technicians with realistic,
hands-on experience.
17
[Photo Omitted]
18
[Photo Omitted]
One of 14 airport transit
system vehicles overhauled
by United Industrial, shown
in service at Chicagos OHare
Airport. Vehicle overhaul
services is a growing area of
our Transportation Systems
business.
Under a strategic realignment, announced in November 1998, we are narrowing the
focus of our Transportation Systems business to take greater advantage of growth
opportunities, particularly in vehicle overhaul services. This is a very
promising segment of the transportation market that is growing steadily due to
the advanced age of U.S. rail passenger cars. Our objective is to establish
United Industrial as a significant competitor in this market. With a revamped
management team and a more streamlined organization, we are aggressively
pursuing this goal.
Our receipt of a major contract from the New Jersey Transit Corporation in
February 1999 represents an important step in this direction. Under this
contract, valued at $71 million, we will overhaul and upgrade 116
locomotive-hauled commuter cars.
Our successful work for the Chicago OHare Airport Transit System also
exemplifies the type of work we are now targeting. Under this contract, we have
overhauled eleven people mover vehicles used in the airport transit system and
have three additional cars to be completed under the initial contract.
We also have made significant headway on a range of contracts underway,
including programs for the Miami Valley Regional Transit Authority in Ohio and
the San Francisco Municipal Railway. Working with
our Czech partner Skoda through our joint venture,
Electric Transit, Inc. (ETI), we have completed We are narrowing our focus
and delivered 32 of the 54 electric trolley buses to take greater advantage
required under the contract for Miami Valley. We of growth opportunities
expect to deliver the remaining buses by mid-1999.
Under ETIs $172 million contract for San
Francisco to design, manufacture, and deliver 250 electric trolley buses, we
have delivered and are now testing a vehicle prototype. United Industrials
portion of the contract is valued at approximately $53 million, and the program
is scheduled for completion in the first quarter of 2001.
Transportation
Transportation Systems
19
Energy Systems
Energy Systems
Detroit Stoker, our energy systems subsidiary, turned in a solid performance in
1998, driven by successful international expansion initiatives as well as key
contracts in its U.S. business. The year also marked the celebration of Detroit
Stokers 100th anniversary, capping off a century of leadership in the
combustion industry. Moreover, as a leading supplier of equipment that utilizes
renewable energy sources, which do not contribute to the production of
"greenhouse gases" and are cost-effective, we are well-positioned at a time of
heightened environmental concern and rising fossil fuel prices.
Product innovation and our flexibility in meeting customer needs play
a vital role in our strategy. Nowhere is this more apparent than in our
international growth initiatives. By helping customers take advantage of a wide
range of renewable energy sources, which are more environmentally advanced and
less expensive than traditional fossil fuels, we are providing attractive new
energy sources market-by-market.
For example, in Argentina, we are constructing a Hydrograte(R) stoker that
will consume sunflower and peanut hulls as fuel, eliminating this natural waste
and producing power to be used by local food companies. In Canada, our
Hydrograte(R) stoker will consume wood waste from lumber and plywood mills to
generate electricity for a local power plant. These sorts of innovative
solutions have been an integral part of our success in entering new worldwide
markets, contributing to our substantial increase in international contract
bookings in 1998. Including new projects in Germany, Italy, Chile, Argentina,
and Canada, more than one-third of Detroit Stokers new contract orders are now
generated abroad.
At the same time, Detroit Stokers domestic business remains strong, led
by new contract orders and increased aftermarket sales of stoker upgrades and
retrofits. One of our most important wins during
1998 was a contract, valued at $2.6 million, for
Product innovation plays a the Central Wayne County Sanitation Authority,
vital role in our strategy located near Detroit, Michigan. Under the
contract, we will provide a new Detroit
Reciprograte(R) stoker and related combustion
equipment, as part of a larger effort to convert the existing municipal solid
waste incineration plant to a waste-to-energy facility.
In addition, our new product line for natural gas and oil burners has
registered steady growth. This line features an advanced burner technology,
recently honored by R&D magazine for its technological significance, that
greatly reduces emissions from stoker-fired boilers. Among the key contracts
received last year was a substantial order from Congentrix Energy for six
additional boilers, featuring the advanced burner technology, for its Richmond,
Virginia facility.
With a healthy backlog of work, increasing interest in alternative energy
sources and a successful strategy in place, Detroit Stoker is well-positioned
for growth in 1999. We plan to take advantage of new opportunities, both in the
U.S. and overseas, through ongoing product improvements and aggressive marketing
programs.
20
[Photo Omitted] This recently completed co-
generation plant uses Detroit
Hydrograte(R) stokers to convert
biomass and pulverized coal
to electricity and process steam
for a Southeastern U.S. pulp
and paper facility.
21
Board of Directors
President of JSA
Partners, Inc. and Chairman and
Co-Founder of JSA Research, Inc.
Director since 1998.
[photo omitted]
Joseph S. Schneider
Vice President
Corporate
Communications,
Associate General
Counsel and Secretary
of United Industrial
Corporation.
Director since 1995.
[photo omitted]
Susan Fein Zawel
President and Chief
Executive Officer
of the Aerospace
Corporation.
Director since 1995.
[photo omitted]
Edward C. Aldridge, Jr.
President of United
Industrial Corporation
and AAI Corporation.
Director since 1995.
[photo omitted]
Richard R. Erkeneff
President and CEO
Chairman of the
Board of United
Industrial Corporation.
Director since 1995.
[photo omitted]
Harold S. Gelb
Chairman of the Board
The Joseph Solomon
Distinguished
Professor of Law and
former Dean/Professor
of Law of New York
Law School.
Director since 1996.
[photo omitted]
E. Donald Shapiro
22
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997.
Net sales of $204,305,000 in 1998 decreased 13% from $235,183,000 in 1997.
The 1997 sales included $29,838,000 of sales from the Neo Products Co., the
operating assets of which were sold in August 1997 and the Weather Systems
business (together the "Disposed Businesses") sold in September 1997. Excluding
the sales from the Disposed Businesses, net sales decreased $1,040,000 or less
than 1% from 1997 to 1998.
Excluding the disposed Weather Systems business, the net sales in the
defense segment increased 2% or $2,770,000 to $153,201,000 in 1998 from
$150,431,000 in 1997. Sales in 1998 were negatively affected by the delayed
commencement of certain programs caused by procurement deferments. However,
these delays had a positive effect on the Company's 1998 backlog. Backlog in the
defense segment at December 31, 1998 was $146,634,000, which was an increase of
$24,743,000 or 20.3% from $121,891,000 at December 31, 1997. The defense
segment's business is heavily influenced by changes in the budgetary plans and
procurement policies of the U.S. Government. Reductions in defense spending and
program cancellations in recent years have adversely affected operating results.
Further, government contracts are subject to price redetermination under certain
circumstances and may be terminated for the convenience of the government. The
Company intends to maintain a strong focus on Department of Defense
opportunities and believes it is well positioned over the long term to benefit
from the demand for advanced technological systems by the U.S. and foreign
governments. Sales to agencies of the U.S. Government, primarily by the defense
segment, were $106,763,000 in 1998 and $128,423,000 in 1997. Included in these
figures are Weather Systems business sales of $25,233,000 in 1997. Export sales
by the defense segment were $31,117,000 in 1998 and $33,025,000 in 1997, a
decrease of $1,908,000, or 5.8%. This decrease reflected a $6,800,000 reduction
of shipments on an export contract of $1,600,000 in 1998 as compared to
$8,400,000 in 1997.
Net sales in the energy segment decreased 9%, or $3,473,000, to $34,454,000
in 1998 from $37,927,000 in 1997, due primarily to the reduction of replacement
parts sales. Backlog in the energy segment was $9,334,000 at December 31, 1998,
representing an increase of $318,000 or 3.5%, greater than the backlog of
$9,016,000 at the 1997 year-end.
Net sales in the transportation segment were $16,650,000 during 1998 as
compared to $16,987,000 during 1997. In addition, transportation's backlog
decreased by $3,449,000, or 6.0%, to $53,860,000 at year-end 1998 from
$57,309,000 at year-end 1997.
Gross profit decreased to $52,271,000 in 1998 from $58,628,000 in 1997. The
gross margin percentage increased to 25.6% in 1998 from 24.9% in 1997. Excluding
the Disposed Businesses, the gross profit was $52,697,000 in 1997. The gross
margin percentage decreased from 25.7% to 25.6%. In the defense segment, the
gross margin percentage decreased to 26.2% in 1998 from 26.9% in 1997. Excluding
the Weather Systems business from the defense segment, the gross margin
percentage decreased to 26.2% in 1998 from 27.7% in 1997. This reduction in
gross margin was primarily due to significant profitability recorded during 1997
regarding major contracts to deliver an unmanned air vehicle system and an air
defense training system. The 2.3% decrease in the gross margin percentage in the
energy segment to 36% in 1998 from 38.3% in 1997 was generally attributable to
decreased sales and competitive market conditions. The transportation segment
experienced negative gross margins of $347,000 in 1998 and $3,568,000 in 1997.
The transportation segment is experiencing high initial costs to establish
itself in the marketplace.
Selling and administrative expenses as a percentage of net sales were 20.6%
in 1998 and 18.3% in 1997. Excluding the Disposed Businesses, the selling and
administrative expenses as a percentage of net sales were 19.3% in 1997. Selling
and administrative expenses decreased $976,000 in 1998 compared to
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
1997. Excluding the Disposed Businesses, the selling and administrative expenses
increased $2,394,000, or 6%. The increase was generally attributable to
litigation expenses, partially offset by various operating efficiencies.
Interest expense was $170,000 in 1998 and $915,000 in 1997. The decrease was due
to reduced borrowings.
Other expense (income) - net amounted to a net expense of $2,783,000 in
1998 compared to income of $1,150,000 in 1997. The increase in net expenses of
$3,933,000 is due to an increase in the equity in the loss of investees of
$2,577,000 in 1998 and $764,000 in 1997. The Company's interest in Electric
Transit, Inc. ("ETI"), a company owned 35% by AAI and 65% by Skoda, a Czech
Republic firm, has resulted in losses of $3,060,000 and $1,020,000 recorded by
AAI during 1998 and 1997, respectively. The losses incurred by ETI were caused
by costs necessary to establish itself in the industry, cost growth on ETI's
scope of work regarding its contract to deliver electric trolley buses to the
Miami Valley Regional Transit Authority as well as increased selling, general
and administrative expenses. Also, 1997 other income included the proceeds from
a favorable litigation settlement, net of related legal expenses of
approximately $3,000,000, partially offset by an increase in a charge related to
a contingent payment of $664,000 to the sellers of an acquired subsidiary. In
1998 the contingent payment was $268,000.
Interest income increased $2,231,000 due to increased investments.
In 1998, net income decreased $1,814,000, or 12.2%, to $13,011,000, or
$1.03 per diluted share, from $14,825,000, or $1.19 per diluted share, in 1997.
The 1998 net income includes gains on sales of several buildings and related
land of $4,332,000 ($2,696,000, net of taxes, or $.22 per diluted share), a tax
contingency reduction of $4,458,000 ($2,920,000, net of taxes, or $.23 per
diluted share) partially offset by a litigation settlement expense of $4,500,000
($2,948,000, net of taxes, or $.24 per diluted share). Included in the 1997 net
income was income from a favorable litigation settlement, a net gain on the
sales of the Disposed Businesses of $8,470,000, net of taxes, or $.68 per
diluted share, partially offset by a reserve recorded in the third quarter
related to a local tax matter. For 1997, income, net of taxes, related to the
Disposed Businesses totaled $1,595,000, or $.13 per diluted share. Excluding the
above special items and income from divested businesses, net income increased to
$10,343,000, or $.82 per diluted share, for the year ended 1998 from $6,981,000,
or $.56 per diluted share, for 1997.
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996.
Net sales of $235,183,000 in 1997 rose by 7% from $220,822,000 in 1996. The
1997 sales included $29,838,000 of sales from the Disposed Businesses. In 1996
the sales from the Disposed Businesses amounted to $42,331,000. Excluding the
sales from the Disposed Businesses, net sales increased by $26,854,000, or 15%,
from 1996 to 1997.
Excluding the disposed Weather Systems business, net sales in the defense
segment increased 4%, or $5,847,000, to $150,431,000 in 1997 from $144,584,000
in 1996. The growth was attributable to a general increase in sales including a
major contract to deliver an Unmanned Air Vehicle System and an Air Defense
Training System to the Government of Romania. Sales to agencies of the U.S.
Government, primarily by the defense segment, were $128,423,000 in 1997 and
$142,782,000 in 1996. Included in these figures are Weather Systems business
sales of $25,233,000 in 1997 and $37,000,000 in 1996. Export sales by the
defense segment were $33,025,000 in 1997 and $24,367,000 in 1996, an increase of
$8,658,000, or 36%.
Net sales in the energy segment increased 26%, or $7,915,000, to
$37,927,000 in 1997 from $30,012,000 in 1996, due primarily to installations of
stoker equipment.
Net sales in the transportation segment increased 336%, or $13,092,000, to
$16,987,000 in 1997 from $3,895,000 in 1996, due primarily to orders for
electric trolley buses in Dayton, Ohio, under a subcontract from ETI, and for
light rail carshells in Baltimore, Maryland.
Gross profit and gross margin percentage increased to $58,628,000 and
24.9%, respectively, in 1997 from $54,209,000 and 24.5%, respectively, in 1996.
Excluding the Disposed Businesses, the gross profit and gross margin percentage
were $52,697,000 and 25.7%, respectively, in 1997 and $46,607,000 and 26.1%,
respectively, in 1996. In the defense segment, the gross margin percentage
increased to 26.9% in 1997 from 26.3% in 1996. Excluding the Weather Systems
business from the defense segment, the gross margin percentage decreased to
27.7% in 1997 from 28.1% in 1996. The 7.8% increase in the gross margin
percentage in the energy segment to 38.3% in 1997 from 30.5% in 1996 was
generally attributable to an improved pricing structure, a more favorable
product mix and improved operating efficiencies. The transportation segment
experienced negative gross margins of $3,568,000 in 1997 and $3,213,000 in 1996.
This was primarily due to the initial costs required to establish the
transportation segment in the marketplace.
Selling and administrative expenses as a percentage of net sales were 18.3%
in 1997 and 19.3% in 1996. Excluding the Disposed Businesses, selling and
administrative expenses as a percentage of sales were 19.3% in 1997 and 21.2% in
1996. Selling and administrative expenses increased $458,000 in 1997 compared to
1996. Excluding the Disposed Businesses, selling and administrative expenses
increased $1,781,000, or 4.7%. The increase was generally attributable to
expenses relating to increased sales in the transportation and energy segments.
Other income-net, increased $2,340,000 to $1,150,000 in 1997 from a net
expense of $1,190,000 in 1996. The increase in income was primarily due to a
favorable litigation settlement of approximately $3,000,000, net of legal
expenses, ($1,779,000, net of taxes, or $.14 per diluted share), partially
offset by an increase in a charge related to a contingent payment to the sellers
of a subsidiary. The Company's interest in ETI resulted in losses of $1,020,000
in 1997 and $1,235,000 in 1996.
Interest income increased $411,000, or 40%, due to increased investments.
Interest expense was $915,000 in 1997 and $1,997,000 in 1996. The decrease
was due to reduced borrowings.
In 1997, net income increased $8,421,000, or 131.5%, to $14,825,000, or
$1.19 per diluted share, from $6,404,000, or $.52 per diluted share, in 1996.
Included in the 1997 net income was the above-mentioned favorable litigation
settlement and a net gain on the sales of Disposed Businesses of $8,470,000, net
of taxes, or $.68 per diluted share, partially offset by a reserve recorded in
the third quarter related to a local tax matter. The 1996 year-end results
included charges of approximately $2,100,000, net of taxes, or $.17 per diluted
share, related to a contract dispute that was settled during 1996 and
approximately $573,000, net of taxes, or $.05 per diluted share, regarding
non-contract inventory reserves, partially offset by favorable contract
adjustments totaling approximately $1,400,000, net of taxes, or $.11 per diluted
share. For 1997, net income related to Disposed Businesses totaled $1,595,000,
or $.13 per diluted share, compared to $1,827,000, or $.15 per diluted share, in
1996. Excluding the above-mentioned special items and the operating results from
the Disposed Businesses in both years, net income for 1997 increased 19.3% to
$6,981,000, or $.56 per diluted share, from $5,850,000, or $.48 per diluted
share, in 1996.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $21,126,000 at the end of 1998 and
$23,098,000 at the end of 1997. In addition, the Company had invested $4,702,000
and $6,102,000 in marketable securities at December 31, 1998 and 1997,
respectively.
The Company expects to meet its cash requirements for 1999, including
amounts necessary to fund business ventures, from current cash and marketable
securities, operations and borrowings available under its existing line of
credit. Factors relating to the amounts of cash from operating, financing and
investing activities are presented in detail in the Consolidated Statements of
Cash Flows.
The Company paid cash dividends of $.40 per share in 1998, $.29 per share
in 1997 and $.20 per share in 1996. Aggregate payments amounted to $4,927,000 in
1998, $3,536,000 in 1997 and $2,434,000 in 1996.
The ratio of current assets to current liabilities was 2.4 at the end of
1998 and 3.0 at the end of 1997. During 1998, the Company repurchased 148,300
shares of stock in the open market at a cost of $1,475,000.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Capital expenditures were $14,032,000 in 1998 and $6,926,000 in 1997. The
$7,106,000 increase in capital expenditures was due primarily to a facilities
consolidation at the defense segment during 1998. There were no material
commitments for acquisition of capital assets as of December 31, 1998.
ETI, a company owned 35% by AAI and 65% by Skoda, intends to utilize
additional customer advances and is currently negotiating a credit facility with
a bank to meet its working capital requirements. At December 31, 1998, these
financing arrangements were not in place. If ETI is unable to secure such
financing, it could have a material adverse effect on the Company's results of
operations, liquidity or financial condition because contract performance by ETI
will depend on AAI and Skoda advancing working capital funds as required. In
addition, the Company understands that Skoda and its affiliates have experienced
and may continue to experience difficulties in obtaining financing. The Company
believes that ETI will be able to obtain sufficient financing and the contracts
will not be adversely affected. See Note 18.
On June 11, 1997, the Company and its subsidiaries entered into a Revolving
Line of Credit Loan Agreement, Term Loan Agreement and Security Agreement
("Agreements") (amending and restating a credit agreement, dated as of October
13, 1994) with an institutional lender. At December 31, 1998, the Company had no
outstanding borrowings under the Agreements. In July 1997, the Company borrowed
$6,250,000 under the Term Loan Agreement, at LIBOR plus a fluctuating margin.
The principal was payable in sixty consecutive monthly installments. At December
31, 1997, the outstanding borrowings were $5,729,000, none of which were
revolving credit borrowings. The amount available under the Revolving Line of
Credit Loan Agreement is $17,500,000 with various interest rate options, and is
reduced by the letter of credit obligations, which may not exceed $12,500,000.
The Agreement provides for restrictive covenants among which are debt service
coverage ratio, quick ratio, senior debt ratio and a tangible net worth
requirement, all as defined. All assets now owned or hereafter acquired by the
Company and its subsidiaries are pledged as collateral under the Agreement.
Qualitative and Quantitative Disclosures about Market Risk
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions, and some of these transactions are
denominated in foreign currencies. As a result, the Company's financial results
could be affected by changes in foreign exchange rates. To mitigate the effect
of changes in these rates, the Company has entered into two foreign exchange
forward contracts.
The following table presents firmly committed sales exposures and related
derivative contracts for each of the next five years, and thereafter:
Fair Market
Value
(In thousands, December
except average contract rate) 1999 2000 2001 2002 2003 Thereafter Total 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
Firmly committed sales contracts
Spanish Pesetas $2,593 $ 219 $ -- $ -- $ -- $ -- $2,812
British Sterling 1,136 386 473 203 234 1,173 3,605
Related forward contracts to
sell currencies for U.S. dollars
Spanish Peseta
Notional amount (USD) $2,224 $ 197 -- -- -- -- $2,421
Average contract rate (ESP/USD) 143.9 143.9 -- -- -- -- -- ($62)
British Sterling
Notional amount (USD) $1,926 -- -- -- -- -- $1,926
Average contract rate (USD/GBP) 1.582 -- -- -- -- -- -- ($90)
Environmental and Other Litigation
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 intends to vigorously contest
these actions and believes that the resolution of these actions will not be
material to the Company. The Company recently reached a written agreement in
principle to settle all of these matters with the plaintiffs for, among other
items, a cash payment of $4,250,000. The settlement is subject to formal
execution of a settlement agreement and approval by the Superior Court of
Maricopa County, Arizona. See Note 15.
Year 2000
The Year 2000 issue exists because many currently installed computer
systems and software programs were designed to use only a two-digit date field.
These date fields will need to accept four digits to distinguish 21st century
dates from 20th century dates. Until the date fields are revised, the systems
and programs could fail or give erroneous results when referencing dates
subsequent to December 31, 1999. Such failures or errors could occur prior to
the actual change in century.
The Company is currently implementing a six phase plan to address this
problem: Awareness, Assessment, Remediation, Validation/Test, Implementation,
and Contingency Planning. The Awareness phase is a communication phase to inform
employees, suppliers and customers of the Year 2000 issue. The Assessment phase
is an inventory and analysis of those systems which may have a problem. The
Remediation phase is the correction phase for the problem. The Validation/Test
phase is used to verify that corrections have been made properly and completely.
The Implementation phase is to actually put the changed systems into production
use. The Contingency planning phase is the development of a plan to detail the
Company's reactions to possible future scenarios concerning the Year 2000 issue.
These plans are being implemented on both the Information Technology (IT)
areas and the non-IT areas for the transition to the 21st century. IT areas
include all computer system hardware and software. Non-IT areas include systems
that have embedded computer chips or microprocessors.
The Awareness and Assessment phases are complete for the IT and non-IT
systems. The IT systems are estimated to be 95% complete in the Remediation
phase and are expected to be completed through the Implementation phase by April
1999. Non-IT systems are estimated to be 95% complete in the Remediation phase
and are expected to be completed through the Implementation phase by May 1999.
Many of the Company's products do not require computer systems or do not
perform any data processing. These products are currently compliant. Other
products have been remediated and are currently compliant. Still other products
cannot be remediated because they are based on obsolete computer systems. The
Company is working on a case by case basis with its customers to alleviate Year
2000 issues with these products. Although the Company's products continue to
undergo normal quality testing procedures, there can be no assurance that these
products will contain all necessary date code changes. Any system malfunctions
due to the onset of the Year 2000 and any disputes with customers relating to
Year 2000 compliance could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company has contacted its IT suppliers asking for Year 2000 compliance
statements and status. Each vendor has responded with information necessary to
ensure their products compliance. The Company is in the process of completing
the steps necessary to make these hardware and software systems compliant by May
1999.
Significant non-IT suppliers to the Company were contacted to determine
their compliance during the fourth quarter of 1998. This is necessary to ensure
that the Company's products are not delayed due to lack of parts or services.
Also, embedded chips in process control equipment, lighting controls, and
security systems are being inspected to assure that they will operate properly
in the Year 2000.
While the Company has not fully identified all the impacts of the Year 2000
issue or whether all related problems can be resolved without disrupting its
business and incurring significant expense, the Company's current estimate is
that the costs associated with the Year 2000 issue, and the consequences
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
of incomplete or untimely resolution of the Year 2000 issue, will not have a
material adverse effect on the Company's business, operating results or
financial condition. The current estimate of the costs of remediating Year 2000
issues is $700,000. Of the $700,000 approximately $435,000 is budgeted to
replace existing hardware and software and $265,000 is budgeted to fix or
upgrade existing hardware or software. Of these budgets $540,000 has been spent
to date. These costs are less than 10% of the normal IT budgets for the Company.
These costs are being budgeted through the normal operating budgets of the
Company and should not have a major impact on other IT projects or systems.
The Company is currently in the process of identifying potential
consequences to the Company if its IT and non-IT systems do not function
properly on account of the Year 2000 issue (i.e., most reasonably likely worst
case scenarios). Management expects to complete this process by mid-1999. If the
Company determines that such consequences could have a material adverse effect
on the business, operating results or financial condition, it intends to
establish a contingency plan to address the most reasonably likely worst case
scenarios. However, in cases beyond the control of the Company there could be
some adverse effects. This would be particularly true if major infrastructure
systems such as electric distribution grids or major telephone switching centers
are disrupted by the Year 2000 issue. Every reasonable effort will be made to
minimize these effects.
The costs of the Company's year 2000 project and dates on which the Company
believes it will complete such efforts are based on management's current best
estimates, which were derived using numerous assumptions regarding future
events. There can be no assurances that these estimates will prove to be
accurate, and therefore actual results could differ materially from those
anticipated. Specific factors that could cause material differences with actual
results include, but are not limited to, the results of testing and the
timeliness and effectiveness of remediation efforts of third parties.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Management does
not anticipate that the adoption of the new Statement will have a significant
effect on earnings or the financial position of the Company.
Forward Looking Information
This Annual Report contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates", and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; legal proceedings;
product demand and market acceptance risks; the effect of economic conditions;
the impact of competitive products and pricing; product development,
commercialization and technological difficulties; capacity and supply
constraints or difficulties; legislative or regulatory actions impacting the
Company's energy segment and transportation business; changing priorities or
reductions in the U.S. Government defense budget; contract continuation and
future contracting awards; U.S. and international military budget constraints
and determinations; and the ability of the Company and third parties to address
the Year 2000 issues adequately.
Consolidated Statements of Operations
United Industrial Corporation
Year ended December 31
(Dollars in thousands, except per share data) 1998 1997 1996
---- ---- ----
Net Sales $204,305 $235,183 $220,822
Operating costs and expenses:
Cost of sales 152,034 176,555 166,613
Selling and administrative 42,031 43,007 42,549
Gains on sale of assets - net (4,918) (13,306) (1,135)
Other expense (income) - net 2,783 (1,150) 1,190
Interest income (3,675) (1,444) (1,033)
Interest expense 170 915 1,997
- --------------------------------------------------------------------------------------
Total Operating Costs and Expenses 188,425 204,577 210,181
- --------------------------------------------------------------------------------------
Income Before Income Taxes 15,880 30,606 10,641
Provision (credit) for income taxes
Federal
Current 8,950 6,802 3,192
Deferred (3,109) 1,176 198
State (2,972) 7,803 847
- --------------------------------------------------------------------------------------
Income Taxes 2,869 15,781 4,237
- --------------------------------------------------------------------------------------
Net Income $13,011 $14,825 $ 6,404
- --------------------------------------------------------------------------------------
Earnings Per Share
Basic $ 1.06 $ 1.22 $ .53
Diluted $ 1.03 $ 1.19 $ .52
======================================================================================
See notes to financial statements
Consolidated Balance Sheets
United Industrial Corporation
December 31
(Dollars in thousands) 1998 1997
Assets
Current Assets
Cash and cash equivalents $21,126 $23,098
Marketable securities 4,702 6,102
Trade receivables
U.S. Government 13,294 11,238
Other 21,022 16,581
- ------------------------------------------------------------------------------------
34,316 27,819
Inventories 23,569 31,790
Prepaid expenses and other current assets 8,295 11,282
Deferred income taxes 5,451 4,982
Assets held for sale -- 12,516
- ------------------------------------------------------------------------------------
Total Current Assets 97,459 117,589
- ------------------------------------------------------------------------------------
Other Assets 56,421 40,126
Property and Equipment
Land 501 631
Buildings and improvements 36,277 28,404
Machinery and equipment 71,449 69,064
Furniture and fixtures 4,982 4,784
- ------------------------------------------------------------------------------------
113,209 102,883
Less allowances for depreciation and amortization 82,643 77,307
- ------------------------------------------------------------------------------------
30,566 25,576
- ------------------------------------------------------------------------------------
$184,446 $183,291
====================================================================================
December 31
(Dollars in thousands) 1998 1997
- ---------------------- ---- ----
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $12,235 $7,604
Accrued employee compensation and taxes 8,320 7,777
Customer advances 4,303 3,542
Provision for contract losses 4,558 5,776
Federal income taxes 2,973 630
Current portion of long-term debt -- 1,250
Other liabilities 8,255 13,134
- ------------------------------------------------------------------------------------
Total Current Liabilities 40,644 39,713
- ------------------------------------------------------------------------------------
Long-term Debt, Less Current Portion -- 4,479
Postretirement Benefits Other Than Pensions 23,136 22,356
Other Liabilities 4,175 5,029
Deferred Income Taxes 7,050 9,690
Shareholders' Equity
Common stock - par value $1.00 per share
Authorized shares - 30,000,000
Outstanding shares:
1998 - 12,250,063; 1997 - 12,249,309 14,374 14,374
Additional capital 89,583 89,929
Retained earnings 22,249 14,165
Cost of shares in treasury:
1998 - 2,124,085 shares; 1997 - 2,124,839 shares (16,765) (16,444)
- ------------------------------------------------------------------------------------
Total Shareholders' Equity 109,441 102,024
- ------------------------------------------------------------------------------------
$184,446 $183,291
=====================================================================================
See notes to financial statements
Consolidated Statements of Cash Flows
United Industrial Corporation
Year ended December 31
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------
Operating Activities
- ------------------------------------------------------------------------------------------
Net income $ 13,011 $(14,825) $(6,404)
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,816 9,559 8,306
Deferred income taxes (3,109) 1,176 198
Gains on sale of assets (4,918) (13,306) (1,135)
Changes in operating assets and liabilities - net
Increase (decrease) in current income taxes 2,343 (333) 1,024
(Increase) decrease in trade receivables (6,497) 7,855 (7,223)
Decrease in inventories 8,221 5,839 8,415
(Increase) decrease in prepaid expenses and
other current assets (425) (494) 544
(Decrease) increase in accounts payable, accruals,
advances and other current liabilities (162) (890) 2,218
Other - net (1,412) (96) (1,514)
- ------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 14,868 24,135 17,237
- ------------------------------------------------------------------------------------------
Investing Activities
- ------------------------------------------------------------------------------------------
Advances to investee (12,735) (9,639) --
Sale (purchase) of marketable securities 1,400 (6,102) --
Purchase of property and equipment (14,032) (6,926) (6,299)
Net proceeds from sale of assets 19,850 19,183 2,250
- ------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (5,517) (3,484) (4,049)
- ------------------------------------------------------------------------------------------
Financing Activities
- ------------------------------------------------------------------------------------------
Proceeds from borrowings -- 6,250 9,000
Payments on long-term debt and borrowings (5,729) (14,271) (18,250)
Dividends (4,927) (3,536) (2,434)
Purchase of treasury shares (1,475) -- --
Proceeds from exercise of stock options 808 577 8
- ------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (11,323) (10,980) (11,676)
- ------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (1,972) 9,671 1,512
- ------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 23,098 13,427 11,915
- ------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 21,126 $(23,098) $(13,427)
==========================================================================================
See notes to financial statements
Notes to Financial Statements
United Industrial Corporation
Note 1 Nature of Operations
United Industrial Corporation is a high technology company applying its
resources to the research, development, and production of military electronics
and aerospace systems and components under defense contracts. Resources are also
applied to other products including transportation systems, firefighter training
systems, and energy systems for industry and utilities.
The principal business segments are defense and related products, ground
transportation systems and energy generating systems.
Note 2 Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years have been
reclassified to conform to the current year's classifications. The Company
includes in income its proportionate share of the net earnings or losses of
unconsolidated investees, when the Companys ownership interest is between 20%
and 50%. See Note 18.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Marketable securities,
which generally mature within one year, consist primarily of investment grade
bonds, commercial paper and other short-term investment funds.
Inventories
Inventories are stated at the lower of cost or market. At December 31, 1998 and
1997, approximately 9% of total inventory was priced by the last-in, first-out
(LIFO) method with the remainder priced at actual, average, or standard cost. If
the first-in, first-out (FIFO) method of inventory pricing had been used,
inventories would have been approximately $2,117,000 higher than reported on
December 31, 1998 and $3,863,000 higher than reported on December 31, 1997.
Inventories include amounts principally related to long-term contracts of
the Company's defense segment, as determined by the percentage-of-completion
method of accounting. Sales and gross profit are principally recognized as work
is performed based on the relationship between actual costs incurred and total
estimated costs at completion. Alternatively, certain contracts provide for the
production of various units throughout the contract period and, sales and gross
profit on these contracts are accounted for based on the units delivered. See
Note 5.
Notes to Financial Statements (continued)
United Industrial Corporation
Property and Equipment
Property and equipment are stated at cost. The policy of the Company is to
provide for depreciation on the straight-line, sum-of-the-years digits, and
declining-balance methods, by annual charges to operations calculated to
amortize the cost over the estimated useful lives of the various classes of
property and equipment.
Earnings per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share". Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate restated, to conform to the Statement 128 requirements.
Stock-Based Compensation
The Company has elected to continue to account for its stock-based compensation
Plan in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), whereby compensation cost for stock
options is recognized in income based on the excess, if any, of the quoted
market price of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire the stock. See Note 8.
Foreign Currency Contracts
The Company enters into forward exchange contracts to manage its exposure
against foreign currency fluctuations on sales transactions denominated in
foreign currencies. The contract obligates the Company to exchange predetermined
amounts of the foreign currency at certain dates, or to make an equivalent U.S.
dollar payment equal to the value of such exchanges. The Company does not hold
or issue financial instruments for trading purposes. At December 31, 1998 the
Company had entered into foreign currency forward contracts with a large
financial institution for Spanish pesetas and British sterling with an aggregate
notional value of $4,348,000, and an aggregate loss of $152,000 based on fair
market value. The Company accounts for these contracts under the accrual method.
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Boards Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise." Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. See Note 12.
Note 3 Marketable Securities
At December 31, 1998 and 1997, the Company's short-term investments consist of
debt securities, whose carrying amounts of $4,702,000 and $6,102,000,
respectively, approximates market value and are classified as held-to-maturity
securities. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Note 4 Trade Receivables
Amounts due from the U.S. Government primarily related to long-term contracts of
the Company's defense segment were as follows:
================================================================================
(Dollars in thousands) December 31 1998 1997
- --------------------------------------------------------------------------------
Amounts billed $ 8,589 $9,221
Unbilled recoverable costs and earned fees 4,413 1,704
Retainage per contract provisions 292 313
- --------------------------------------------------------------------------------
$ 13,294 $11,238
================================================================================
Billed and unbilled amounts above include $1,738,000 and $2,176,000 at
December 31, 1998 and 1997, respectively, related to contracts for which a
subsidiary of the Company is a subcontractor to other government contractors.
Unbilled recoverable costs and earned fees represent amounts that will be
substantially collected within one year. Retainage amounts will generally be
billed over the next twelve months.
Note 5 Inventories
================================================================================
(Dollars in thousands) December 31 1998 1997
- --------------------------------------------------------------------------------
Finished goods and work in progress $ 5,173 $ 4,023
- --------------------------------------------------------------------------------
Costs and earnings relating to long-term contracts 29,094 45,537
Deduct progress payments related to long-term contracts (14,116) (21,009)
- --------------------------------------------------------------------------------
Costs and earnings in excess of billings 14,978 24,528
- --------------------------------------------------------------------------------
Total finished goods and work in progress 20,151 28,551
Materials and supplies 3,418 3,239
- --------------------------------------------------------------------------------
$ 23,569 $31,790
================================================================================
The inventoried costs associated with long-term contracts include costs and
earnings ($14,978,000 in 1998 and $24,528,000 in 1997) of incomplete contracts
not yet billable to the customer. These amounts represent the difference between
the percentage-of-completion method of accounting for long-term contracts used
to record operating results by the Company's defense segment and the amounts
billable to the customer under the terms of the specific contracts. Estimates of
final contract costs and earnings (including earnings subject to future
determination through negotiation or other procedures) are reviewed and revised
periodically throughout the lives of the contracts. Adjustments of earnings
resulting from the revisions are recorded on a current basis. The Company
recognized losses of $1,999,000 ($1,236,000 net of tax benefit, or $.10 per
diluted share) and $6,009,000 ($3,745,000 net of tax benefit, or $.30 per
diluted share) during 1998 and 1997, respectively, resulting primarily from
revision of cost estimates on certain major long-term contracts.
Included in the 1998 and 1997 costs and earnings in excess of billings were
$2,150,000 and $1,700,000, respectively, on certain government contracts in
excess of the negotiated contract values which are, or will be, the subject of
formal claims if not resolved by negotiation.
Notes to Financial Statements (continued)
United Industrial Corporation
In connection with certain of its contracts, the Company commits to certain
performance guarantees. The ability of the Company to perform under these
guarantees may, in part, be dependent on the performance of other parties,
including partners and subcontractors. If the Company is unable to meet these
performance obligations, the performance guarantees could amount to a
significant portion of the contract value and would have a material adverse
effect on product margins and the Company's results of operations, liquidity or
financial position. The Company monitors the progress of its partners and
subcontractors and does not believe that their performance will adversely affect
these contracts as of December 31, 1998.
Inventories do not include any significant amounts of unamortized tooling,
learning curve, and other deferred costs, claims, or other similar items whose
recovery is uncertain.
Note 6 Other Assets
============================================================================
(Dollars in thousands) December 31 1998 1997
- ----------------------------------------------------------------------------
Net pension asset $34,799 $31,070
Receivable from investee 16,147 --
Patents and other intangible assets 4,730 6,256
Other 745 2,800
- ----------------------------------------------------------------------------
$56,421 $40,126
============================================================================
Patents and other intangible assets represent assets acquired in connection
with purchased businesses and are being amortized primarily on a straight-line
basis over 5 to 10 years. Amortization expense amounted to $1,526,000 in 1998,
$1,543,000 in 1997, and $1,704,000 in 1996. Accumulated amortization amounted to
$9,085,000 and $7,559,000 at December 31, 1998 and 1997, respectively.
Intangible assets were decreased by $342,000 (net of accumulated amortization of
$690,000) in connection with the disposal of businesses in 1997. Receivables
from an investee in the amounts of $6,228,000 and $9,639,000 were classified as
other current assets as of December 31, 1998 and 1997, respectively.
Note 7 Long-Term Debt and Credit Arrangements
On June 11, 1997, the Company and its subsidiaries entered into a Revolving Line
of Credit Loan Agreement, Term Loan Agreement and Security Agreement
("Agreement") (amending and restating a credit agreement, dated as of October
13, 1994) with an institutional lender. In July 1997, the Company borrowed
$6,250,000 under the Term Loan Agreement, at LIBOR plus a fluctuating margin.
The principal was payable in sixty consecutive monthly installments. At December
31, 1998, there were no borrowings under the Agreement. At December 31, 1997,
the outstanding borrowings were $5,729,000, none of which were revolving credit
borrowings. The amount available under the Revolving Line of Credit Loan
Agreement is $17,500,000 with various interest rate options, and is reduced by
the letter of credit obligations which may not exceed $12,500,000. The Revolving
Line of Credit Loan Agreement expires June 11, 2001. The letter of credit
obligations outstanding at December 31, 1998 and 1997 under the Agreement were
$7,129,000, and $7,700,000, respectively. The Agreement provides for restrictive
covenants among which are debt service coverage ratio, quick ratio, senior debt
ratio and a tangible net worth requirement, all as defined. All assets now owned
or hereafter acquired are pledged as collateral under the Agreement.
Interest expense was $170,000 in 1998, $915,000 in 1997 and $1,997,000 in
1996. Interest paid was $494,000 in 1998, $1,290,000 in 1997 and $2,122,000 in
1996.
Note 8 Stock Options
In May 1994, the shareholders approved the 1994 Stock Option Plan (the "Plan"),
which provides for the granting of options with respect to the purchase of an
aggregate of up to 600,000 (increased in May 1996 to 1,200,000 and May 1998 to
1,800,000) shares of common stock of the Company from time to time to key
employees of the Company and its subsidiaries. Options granted may be either
"incentive stock options," within the meaning of Section 422A of the Internal
Revenue Code, or non-qualified options.
The options are granted at not less than market value at the date of grant,
and in accordance with APB 25 and related interpretations, no compensation cost
has been recognized for grants, made under the Plan. Options are exercisable
over a period determined by the Board of Directors, but no longer than ten years
after the date they are granted. Options generally vest one-third each year
after a one-year waiting period.
In May 1997, the shareholders approved the 1996 Stock Option Plan for
Non-employee Directors, which provides for the granting of options with respect
to the purchase of an aggregate of up to 300,000 shares of common stock of the
Company. Options may be exercised up to one-third as of the date of grant of an
option and up to an additional one-third may be exercised as of the date of each
subsequent annual meeting of shareholders, but no longer than ten years after
the date they are granted. The options are granted at not less than market value
at the date of grant.
Had compensation cost been determined consistent with the fair value method
set forth under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), for all awards during 1998, 1997 and 1996 under the
plans, net income and net income per common share would have decreased to the
pro forma amounts indicated below:
==================================================================================
(Dollars in thousands,
except per share amounts) Year ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------
Net Income:
As reported $13,011 $14,825 $6,404
Pro forma 12,406 14,536 6,248
Net income per common share:
As reported:
Basic 1.06 1.22 .53
Diluted 1.03 1.19 .52
Pro forma:
Basic 1.01 1.19 .52
Diluted .98 1.17 .52
==================================================================================
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend
yields of 3.5%, 3.7% and 4%; expected volatility of 31%, 37% and 36%; risk-free
interest rates of 5%, 6.2% and 6%; and expected lives of five years in all
periods. The weighted-average fair value of an option granted was $2.78, $2.19
and $1.51 for the years ended December 31, 1998, 1997 and 1996, respectively.
Notes to Financial Statements (continued)
United Industrial Corporation
A summary of stock option activity under all plans is as follows:
=============================================================================
Weighted-
Number Average
of Exercise
(Shares in thousands) shares Price
- -----------------------------------------------------------------------------
Balance at January 1, 1996 114 $4.94
Granted 368 5.30
Exercised (2) 4.75
Canceled (13) 4.75
- -----------------------------------------------------------------------------
Balance at December 31, 1996 467 5.23
- -----------------------------------------------------------------------------
Granted 483 7.35
Exercised (109) 5.31
Canceled (1) 4.75
- -----------------------------------------------------------------------------
Balance at December 31, 1997 840 6.44
- -----------------------------------------------------------------------------
Granted 538 12.01
Exercised (148) 5.38
Canceled (4) 7.50
- -----------------------------------------------------------------------------
Balance at December 31, 1998 1,226 9.01
=============================================================================
==================================================================================
(In thousands) December 31 1998 1997 1996
- ----------------------------------------------------------------------------------
Exercisable 411 155 57
Available for future grants 615 546 728
==================================================================================
The weighted-average remaining life for options outstanding as of December
31, 1998, is 7.7 years.
The following table summarizes information about stock options outstanding
at December 31, 1998:
===============================================================================
Shares (In thousands)
===============================================================================
Range of Exercise Prices Exercisable Outstanding
- -------------------------------------------------------------------------------
$4.50 to $7.00 203 360
$7.50 to $9.50 98 483
$10.25 to $13.00 110 383
--------------------------------
411 1,226
===============================================================================
Note 9 Leases
Total rental expense for all operating leases amounted to $2,178,000 in
1998, $1,543,000 in 1997, and $2,391,000 in 1996. Contingent rental payments
were not significant.
The future minimum rental commitments as of December 31, 1998, for all
noncancellable leases are $2,770,000 in 1999; $2,161,000 in 2000; $1,477,000 in
2001; $1,224,000 in 2002; and $815,000 in 2003.
Note 10 Changes in Shareholder's Equity
Common Retained Share-
Shares Common Additional Earnings Treasury holder's
(In thousands) Outstanding Stock Capital (Deficit) Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1996 12,171 $14,374 $91,421 $(2,311) $(17,324) $86,160
Net income -- -- -- 6,404 -- 6,404
Cash dividends declared ($.20 per share) -- -- (1,217) (1,217) -- (2,434)
Stock options 2 -- (8) -- 23 15
Employee awards 1 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 12,174 14,374 90,196 2,876 (17,301) 90,145
Net income -- -- -- 14,825 -- 14,825
Cash dividends declared ($.29 per share) -- -- -- (3,536) -- (3,536)
Stock options 109 -- (267) -- 857 590
Employee awards 1 -- -- -- -- --
Exchange of shares* (35) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 12,249 14,374 89,929 14,165 (16,444) 102,024
Net income -- -- -- 13,011 -- 13,011
Cash dividends declared ($.40 per share) -- -- -- (4,927) -- (4,927)
Shares repurchased (148) -- -- -- (1,475) (1,475)
Stock options 148 -- (346) -- 1,154 808
Employee awards 1 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 12,250 $14,374 $89,583 $22,249 $(16,765) $109,441
==============================================================================================================================
*Shareholder surrendered 565,444 common shares in exchange for 530,444 shares.
This transaction affected treasury shares.
Notes to Financial Statements (continued)
United Industrial Corporation
Note 11 Pensions and Other Postretirement Benefits
The Company sponsors several qualified and non-qualified pension plans and other
postretirement benefit plans for its employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 1998, and a statement of
the funded status as of December 31 of both years.
==========================================================================================================
Pension Benefits Other Benefits
------------------------------------------------
(Dollars in thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $144,370 $145,893 $ 22,476 $ 21,975
Service cost 1,377 912 612 555
Interest cost 10,618 10,388 1,662 1,568
Amendments 1,008 -- -- --
Actuarial loss 11,897 637 1,846 12
Administrative expenses (38) (12) -- --
Benefits paid (13,333) (13,448) (1,524) (1,634)
- ----------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $155,899 $144,370 $ 25,072 $ 22,476
- ----------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $184,120 $169,020 -- --
Actual return on plan assets 22,975 28,560 -- --
Administrative expenses (38) (12) -- --
Benefits paid (13,333) (13,448) -- --
- ----------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $193,724 $184,120 -- --
- ----------------------------------------------------------------------------------------------------------
Funded (underfunded) status of the plan $37,825 $39,750 $(25,072) $(22,476)
Unrecognized net transition (asset) obligation (357) (445) -- --
Unrecognized net actuarial loss (gain) 559 (3,586) 1,455 (406)
Unrecognized prior service cost (3,228) (4,649) 481 526
- ----------------------------------------------------------------------------------------------------------
Prepaid benefit (accrued cost) $ 34,799 $ 31,070 $(23,136) $(22,356)
- ----------------------------------------------------------------------------------------------------------
Weighted-average Assumptions
Discount rate 7% 7.5% 6.75% 7.25%
Expected return on plan assets 8.5% 8.5% -- --
Rate of compensation increase 4% 4% -- --
==========================================================================================================
For measurement purposes, an 8.1 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5.2 percent in 2001 and remain at that level
thereafter.
=======================================================================================================================
Pension Benefits Other Benefits
(Dollars in thousands) 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Components of Net Periodic
Benefit Cost
Service cost $ 1,377 $ 912 $ 903 $ 612 $ 555 $ 498
Interest cost 10,618 10,388 11,133 1,662 1,568 1,540
Expected return on plan assets (15,250) (13,928) (23,191) -- -- --
Net amortization and deferral -- -- 8,194 -- -- --
Amortization of prior service cost (413) (497) -- 46 43 40
Amortization of unrecognized
transition assets (88) (88) -- -- -- --
Recognized net actuarial loss (3) (5) -- -- -- --
Benefit (income) cost $ (3,759) $(3,218) $(2,961) $2,320 $2,166 $2,078
=======================================================================================================================
Two subsidiaries of the Company sponsor non-funded defined benefit health
care plans. Both plans are non-contributory for retirees and one is contributory
for spouses whose contributions increase periodically so that the entire cost
for spouses will be covered by January 2003.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
============================================================================================================
1-Percentage 1-Percentage
Point Point
(Dollars in thousands) Increase Decrease
- ------------------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components in 1998 $ 150 $ (143)
Effect on postretirement benefit obligation as of December 31, 1998 $1,453 $(1,401)
============================================================================================================
The Company sponsors a 401(k) plan with employee and employer matching
contributions based on specified formulas. The Company's contribution to the
401(k) plan was $1,309,000 in 1998, $1,304,000 in 1997, and $1,208,000 in 1996.
Note 12 Industry Segment Data
The Company has three reportable segments: defense, transportation and energy
systems. Other includes the corporate office and dormant corporations. The
defense segment's products include unmanned air vehicles, training and
simulation systems, automated aircraft test and maintenance equipment,
specialized firefighter training installations, and combat vehicles and
ordinance systems. The transportation segment manufactures and overhauls transit
systems and components. The energy segment manufactures combustion equipment for
biomass and refuse fuels.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
Intersegment sales and transfers are recorded at the Company's cost; there
is no intercompany profit or loss in intersegment sales or transfers.
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute products with different production processes.
Notes to Financial Statements (continued)
United Industrial Corporation
Sales to agencies of the United States Government, primarily by the defense
segment, were $106,763,000 in 1998, $128,423,000 in 1997, and $142,782,000 in
1996. No single customer, other than the United States Government, accounted for
10 percent or more of net sales in any year. Export sales were $40,994,000 in
1998, $41,832,000 in 1997, and $28,458,000 in 1996.
==========================================================================================================================
(Dollars in thousands) Defense Transportation Energy Other Reconciliations Totals
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $153,201 $16,650 $34,454 $ -- $ -- $204,305
Intersegment revenues 3,759 -- -- -- (3,759) --
Equity profit (loss) in ventures 483 (3,060) -- -- -- (2,577)
Interest income 4,637 -- 374 10,958 (12,294) 3,675
Interest expense 1,195 257 4 11,008 (12,294) 170
Depreciation expense 5,004 498 751 37 -- 6,290
Gain on sale of assets 4,332 -- -- 586 -- 4,918
Segment profit (loss) 23,239 (5,807) 6,160 (7,712) -- 15,880
Segment assets 140,089 27,285 33,399 218,779 (235,106) 184,446
Capital expenditures 11,593 928 1,075 436 -- 14,032
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $175,664 $16,987 $37,927 $4,605 $ -- $235,183
Intersegment revenues 1,402 -- -- -- (1,402) --
Equity profit (loss) in ventures 256 (1,020) -- -- -- (764)
Interest income 3,207 -- 166 9,668 (11,597) 1,444
Interest expense 2,876 180 20 9,436 (11,597) 915
Depreciation expense 6,492 526 815 183 -- 8,016
Gain (loss) on sale of assets 14,169 -- -- (863) -- 13,306
Segment profit (loss) 33,592 (6,767) 7,661 (3,880) -- 30,606
Segment assets 152,599 16,793 32,435 200,215 (218,751) 183,291
Capital expenditures 5,405 1,009 486 26 -- 6,926
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $181,584 $3,895 $30,012 $5,331 $ -- $220,822
Intersegment revenues 376 -- -- -- (376) --
Equity profit (loss) in ventures 452 (1,235) -- -- -- (783)
Interest income 2,388 -- 112 9,099 (10,566) 1,033
Interest expense 3,366 287 -- 8,910 (10,566) 1,997
Depreciation expense 5,222 179 805 214 -- 6,420
Gain on sale of assets 1,135 -- -- -- -- 1,135
Segment profit (loss) 15,216 (5,878) 3,710 (2,407) -- 10,641
Segment assets 158,908 12,570 27,748 194,812 (214,070) 179,968
Capital expenditures 3,824 1,009 959 507 -- 6,299
==========================================================================================================================
===============================================================================================
1998 1997 1996
- -----------------------------------------------------------------------------------------------
Revenues
Total external revenues for reportable segments $204,305 $235,183 $220,822
Intersegment revenues for reportable segments 3,759 1,402 376
Elimination of intersegment revenues (3,759) (1,402) (376)
- -----------------------------------------------------------------------------------------------
Total Consolidated Revenues $204,305 $235,183 $220,822
- -----------------------------------------------------------------------------------------------
Profit or Loss
Income before income taxes for reportable segments $15,880 $30,606 $10,641
- -----------------------------------------------------------------------------------------------
Assets
Total assets for reportable segments $419,552 $402,042 $394,038
Elimination of intercompany receivables (29,957) (35,103) (39,372)
Elimination of investment in consolidated subsidiaries (189,174) (170,901) (162,472)
Reclassification of deferred tax liabilities (15,975) (12,747) (12,226)
- -----------------------------------------------------------------------------------------------
Total Consolidated Assets $184,446 $183,291 $179,968
- -----------------------------------------------------------------------------------------------
Other significant items
Elimination of intercompany interest $12,294 $11,597 $10,566
===============================================================================================
Segment profit (loss) includes research and development costs amounting to
$989,000 in 1998, $2,067,000 in 1997, and $2,641,000 in 1996.
Note 13 Income Taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. In addition, the effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.
Following is a reconciliation of the difference between total tax expense
and the amount computed by applying the federal statutory income tax rate to
income from operations before income taxes:
====================================================================================================
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Federal income taxes at statutory rate $ 5,481 $10,712 $3,618
State and local income taxes, net of federal income
tax benefit (including a reduction of $2,920 in 1998
of a $4,000 tax contingency established in 1997 (1,961) 5,072 480
Provision for nondeductible expenses (including
$94, $238 and $86 related to contingent payments
in 1998, 1997 and 1996 on an acquisition) 378 537 119
Non-taxable income (651) (632) --
Other - net (378) 92 20
- ----------------------------------------------------------------------------------------------------
Income Taxes $ 2,869 $15,781 $4,237
====================================================================================================
Notes to Financial Statements (continued)
United Industrial Corporation
Income tax payments were $6,000,000 in 1998, $6,875,000 in 1997 and
$2,000,000 in 1996. Deferred income tax balances:
================================================================================================================
(Dollars in thousands) December 31 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Deferred Tax Assets
Losses on long-term contracts not currently deductible $ 1,571 $ 2,257
Postretirement benefits other than pensions and other employee benefits 9,989 9,945
Product warranty and other provisions 4,550 2,107
Vacation pay accruals 739 730
Basis differences for asset sales 3,925 2,092
Other 75 42
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 20,849 17,173
- ----------------------------------------------------------------------------------------------------------------
Deferred Tax Liability
Pension plans and other employee benefits (14,246) (12,902)
Excess tax depreciation (6,688) (7,314)
Patent amortization (1,156) (1,349)
Other (358) (316)
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Tax Liability (22,448) (21,881)
- ----------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liability $(1,599) $(4,708)
- ----------------------------------------------------------------------------------------------------------------
The net deferred tax liability is classified as follows:
Net current deferred income tax assets $ 5,451 $ 4,982
- ----------------------------------------------------------------------------------------------------------------
Net non-current deferred income tax liability $(7,050) $(9,690)
================================================================================================================
Note 14 Selected Quarterly Data (Unaudited)
====================================================================================================================================
(Dollars in thousands, 1998 1997
except per share data ---------------------------------------------------------------------------------------------
and stock prices) Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $57,159 $49,979 $49,940 $47,227 $69,001 $52,089 $55,649 $58,444
Gross profit 15,229 11,634 12,006 13,402 19,043 11,659 11,483 16,443
Net income 6,029(a) 2,361 2,298 2,323 4,714(c) 6,678(b) 1,670 1,763
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $ .49 $ .19 $ .19 $ .19 $.38 $.55 $.14 $.14
Diluted $ .48 $ .19 $ .18 $ .18 $.37 $.54 $.14 $.14
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared
per share $ .10 $ .10 $ .10 $ .10 $.08 $.07 $.07 $.07
- ------------------------------------------------------------------------------------------------------------------------------------
Stock prices:
High $ 11 3/4 $ 13 1/2 $13 15/16 $ 13 9/16 $11 3/8 $9 15/16 $9 1/8 $8
Low $8 7/16 $9 10/16 $ 1 11/16 $9 1/4 $9 3/4 $ 8 5/16 $6 7/8 $5 7/8
====================================================================================================================================
(a)Includes net gain on sale of assets of $4,332,000 ($2,696,000 net of taxes)
and a tax contingency reduction of $4,458,000 ($2,920,000 net of taxes) and a
litigation settlement expense of $4,500,000 ($2,948,000 net of taxes)
(b)Includes net gain on sale of assets of $13,306,000 ($8,470,000 net of taxes)
(c)Includes income from a favorable litigation settlement of $3,000,000
($1,779,000 net of taxes)
The Company's common stock is listed on the New York Stock Exchange. The
approximate number of shareholders of record as of February 16, 1999 was 2,400.
Note 15 Litigation
The Company, along with numerous other parties, has been named in five tort
actions in Maricopa County Superior Court 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 semi-conductors
between 1959 and 1960. All such operations of the Company were sold by 1961.
These tort actions seek recovery for personal injury and property damage among
other damages based on exposure to solvents allegedly released at the site.
These suits allege that the plaintiffs 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 Company recently reached a written agreement in principle to settle all
of these matters with the plaintiffs for, among other items, a cash payment of
$4,250,000. The settlement is subject to formal execution of a settlement
agreement and approval by the Superior Court of Maricopa County.
Detroit Stoker was notified in March 1992 by the Michigan Department of
Natural Resources ("MDNR") that it is a potentially responsible party in
connection with the clean-up of a former industrial landfill located in Port of
Monroe, Michigan. MDNR is treating the Port of Monroe landfill site as a
contaminated facility within the meaning of the Michigan Environmental Response
Act ("MERA"). Under MERA, if a release or a potential release of a discarded
hazardous substance is or may be injurious to the environment or to the public
health, safety, or welfare, MDNR is empowered to undertake or compel
investigation and response activities in order to alleviate any contamination
threat. Detroit Stoker intends to aggressively defend these claims. At this
time, no estimate can be made as to the amount or range of potential loss, if
any, to Detroit Stoker with respect to this action.
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.
Note 16 Disposed Businesses
In August 1997, the Company sold substantially all the operating assets of
Neo Products Co. for $587,000 in cash and promissory notes of $853,000 secured
by a mortgage on all fixed assets sold. The contract contains an "earn out"
provision based on net income earned through August 2002. The sale resulted in a
loss of $340,000, after taxes.
In September 1997, the Company sold all the capital stock of AAI Systems
Management, Inc., its Weather Systems Business, for $18,500,000 in cash and a
promissory note of $2,375,000. The sale resulted in a realized gain of
$14,169,000 ($8,810,000 net of taxes or $.71 per diluted share.)
Notes to Financial Statements (continued)
United Industrial Corporation
The Consolidated Statements of Operations include the combined net sales of
the two divested companies, totaling $29,838,000 and $42,331,000, and the
combined net income totaling $1,595,000 ($.13 per diluted share) and $1,827,000
($.15 per diluted share) for the years ended December 31, 1997 and 1996,
respectively.
Note 17 Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
====================================================================================================
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Net income $13,011,000 $14,825,000 $6,404,000
Basic earnings per share -
weighted-average shares 12,307,000 12,195,000 12,173,000
Effect of dilutive securities:
employee stock options 302,000 225,000 38,000
- ----------------------------------------------------------------------------------------------------
Diluted earnings per share
adjusted weighted-average
and assumed conversions 12,609,000 12,420,000 12,211,000
- ----------------------------------------------------------------------------------------------------
Basic earnings per share $1.06 $1.22 $.53
- ----------------------------------------------------------------------------------------------------
Diluted earnings per share $1.03 $1.19 $.52
====================================================================================================
Note 18 Investment in Unconsolidated Investees
In 1993, AAI Corporation, a wholly owned subsidiary of the Company ("AAI"),
organized a new subsidiary Electric Transit, Inc., to manufacture electric
trolley buses for the U.S. market. In 1994 and again in 1995, ETI conveyed
equity interests (in ETI) to Skoda, a Czech Republic firm. Consequently, ETI is
owned 35% by AAI, and 65% by Skoda. Accordingly, the Company records its equity
share of income or loss in ETI. ETI has won contracts in both Dayton, Ohio for
the Miami Valley Regional Transit Authority and the city and county of San
Francisco, California. Under these contracts, which are valued at $32,000,000
and $168,000,000, respectively, AAI has received subcontracts of $9,600,000 and
$53,000,000 respectively.
In connection with these contracts, AAI has guaranteed attainment of
certain performance criteria. The ability of ETI to perform under these
contracts may, in part, be dependent on the performance of other parties,
including AAI, Skoda and other subcontractors. Thus, the ability to timely
deliver such equipment may be outside AAI's control. If ETI is unable to meet
its performance obligations, these performance guarantees could amount to a
significant portion of the contract value and could have a material adverse
effect on product margins and the Company's results of operations, liquidity or
financial condition. AAI monitors the progress of Skoda and ETI's other
subcontractors and does not believe that their performance will adversely affect
these contracts.
Further, to meet its working capital requirements, ETI intends to utilize
additional customer advances and is currently negotiating a credit facility with
a bank. At December 31, 1998, these financing arrangements were not in place. If
ETI is unable to secure such financing, it could have a material adverse effect
on the Company's results of operations, liquidity or financial condition because
contract performance by ETI will depend on AAI and Skoda advancing working
capital funds as required. In addition, the Company understands that Skoda and
its affiliates have experienced and may continue to experience difficulties in
obtaining financing. The Company believes that ETI will be able to obtain
sufficient financing and the contracts will not be adversely affected. ETI is
owned 35% by the Company and is accounted for by the equity method.
Summary financial information of the Electric Transit Inc. entity is as
follows:
====================================================================================================
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
Current assets $23,123 $27,672 $ 4,720
Plant, property and equipment
and other assets 4,643 216 427
Current liabilities 40,058 35,200 7,027
Long-term debt -- -- 2,018
Net sales 20,922 1,655 1,582
Gross profit (loss) (7,357) (1,800) (2,359)
Net loss (7,981) (3,415) (3,897)
====================================================================================================
Report of Independent Auditors
United Industrial Corporation
Board of Directors and Shareholders
United Industrial Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Industrial Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
[Ernst & Young LLP signature]
New York, New York
March 2, 1999
Five-Year Financial Data
United Industrial Corporation
Year ended December 31
(Dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Operating Data
- -------------------------------------------------------------------------------------------------------------------
Net Sales $204,305 $235,183 $220,822 $227,398 $209,727
Operating costs 194,065 219,562 209,162 223,385 202,766
Interest (income) expense - net (3,505) (529) 964 1,159 1,362
Income before income taxes 15,880 30,606 10,641 2,645 8,427
Income taxes 2,869 15,781 4,237 1,757 3,215
Net income 13,011 14,825 6,404 888 5,212
Earnings per Share:(a)
Basic 1.06 1.22 .53 .07 .43
Diluted 1.03 1.19 .52 .07 .43
Cash dividends paid on
common stock 4,927 3,536 2,434 3,165 3,425
Cash dividends declared per
common share .40 .29 .20 .26 .21
Shares outstanding as of year end
(in thousands) 12,250 12,249 12,174 12,171 12,167
- -------------------------------------------------------------------------------------------------------------------
Financial Position
- -------------------------------------------------------------------------------------------------------------------
Total assets $184,446 $183,291 $179,968 $183,106 $188,794
Property and equipment 30,566 25,576 41,534 42,586 45,214
Long-term debt -- 4,479 -- 13,750 20,000
Shareholders' equity 109,441 102,024 90,145 86,160 88,421
Shareholders' equity per share 8.93 8.33 7.40 7.08 7.27
- -------------------------------------------------------------------------------------------------------------------
Financial Ratios
- -------------------------------------------------------------------------------------------------------------------
Return on shareholders - equity 11.9% 14.5% 7.1% 1.0% 6.0%
Net income as a percent of sales 6.4 6.3 2.9 .4 2.5
Long-term debt as a percent of
total capitalization -- 4.2 -- 13.8 18.4
- -------------------------------------------------------------------------------------------------------------------
Statistical Data
- -------------------------------------------------------------------------------------------------------------------
Sales backlog as of year end $210,000 $188,000 $159,000 $206,000 $218,000
Capital expenditures 14,032 6,926 6,299 5,705 4,146
Depreciation and amortization 7,816 9,559 8,306 8,300 8,291
Number of employees 1,800 1,800 1,900 2,000 1,900
===================================================================================================================
(a)The 1994 through 1996 earnings per share amounts have been restated to comply
with Statement of Financial Accounting Standards No. 128 "Earnings per Share."
Corporate Organization
United Industrial Corporation
BOARD OF DIRECTORS
Harold S. Gelb
Chairman of the Board
Richard R. Erkeneff
President and Chief Executive
Officer of the Company and
AAI Corporation
Edward C. Aldridge, Jr.
President and Chief
Executive Officer
The Aerospace Corporation
Joseph S. Schneider
President
JSA Partners, Inc.
E. Donald Shapiro
Professor of Law
New York Law School
Susan Fein Zawel
Vice President Corporate
Communications,
Associate General
Counsel and Secretary
Honorary Director (nonvoting)
Bernard Fein
Chairman Emeritus
Retired Chairman
and Chief Executive Officer
CORPORATE OFFICERS
Richard R. Erkeneff
President and
Chief Executive Officer
James H. Perry
Vice President,
Chief Financial Officer
and Treasurer
Robert W. Worthing
Vice President and
General Counsel
Susan Fein Zawel
Vice President Corporate
Communications, Associate General
Counsel and Secretary
Edward A. Smolinski
Assistant Treasurer and
Assistant Secretary
SENIOR MANAGEMENT
AAI CORPORATION
Richard R. Erkeneff
President and
Chief Executive Officer
Paul J. Michaud
Vice President, Chief Financial
Officer and Treasurer
Robert W. Worthing
Vice President, General Counsel
and Secretary
George J. Kersels
Vice President and General
Manager, Defense Systems
Maurice P. Ranc
Vice President and General
Manager, Engineering and
Maintenance Services
Thomas E. Wurzel
President
AAI/ACL Technologies, Inc.
Raleigh S. Huntsman
Executive Vice President
and General Manager,
Transportation Systems
John T. Merry
Vice President and General
Manager, Hunt Valley
Operations
G. Russell Zink
Vice President
Business Development
DETROIT STOKER COMPANY
Michael J. DiMonte
President and
Chief Executive Officer
Mark A. Eleniewski
Executive Vice President
Gary K. Ludwig
Vice President Finance
SYMTRON SYSTEMS, INC.
John J. Henning
President and Chief
Executive Officer
James W. Hanson
Vice President and
General Manager
Richard A. Brandt
Treasurer
Corporate and Shareholder Information
United Industrial Corporation
CORPORATE HEADQUARTERS
570 Lexington Avenue
New York, New York 10022
212.752.8787
SUBSIDIARIES
AAI CORPORATION
P.O. Box 126
Hunt Valley, Maryland 21030
410.666.1400
www.aaicorp.com
DETROIT STOKER COMPANY
1510 East First Street
Monroe, Michigan 48161
734.241.9500
www.detroitstoker.com
SYMTRON SYSTEMS, INC.
17-01 Pollitt Drive
Fair Lawn, New Jersey 07410
201.794.0200
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Shareholders may obtain information relating to their share position, dividends,
transfer requirements, lost certificates and other related matters by
contacting:
American Stock Transfer
and Trust Company
40 Wall Street
New York, New York 10005
800.937.5449
www.amstock.com
For information about the Company's Dividend Reinvestment and Share Purchase
Plan, contact:
American Stock Transfer and Trust Company
800.278.4353
www.amstock.com
SHAREHOLDER RELATIONS
Security analysts, investment professionals and shareholders should direct their
inquiries to:
Investor Relations
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10:00 a.m. on Tuesday, May
11, 1999, at:
The Park Lane Hotel
36 Central Park South
New York, New York
CORPORATE COUNSEL
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
FORM 10-K REPORT
A copy of the United Industrial Corporation Annual Report on Form 10-K as filed
with the Securities and Exchange Commission may be obtained without cost by
writing to:
Susan Fein Zawel, Secretary
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
STOCK LISTING
United Industrial Corporation common stock is traded on the New York Stock
Exchange
(Ticker Symbol: UIC)
INTERNET ADDRESS
http://www.unitedindustrial.com
United Industrial Corporation
570 Lexington Avenue
New York, NY 10022
212.752.8787
212.838.4629 fax
www.unitedindustrial.com