UNITED INDUSTRIAL 2000 Annual Report
CORPORATION
[COVER GRAPHIC]
United Industrial Corporation is a company focused on the design and production
of defense, training, transportation, and energy systems.
Its products include unmanned aerial vehicles, training and simulation systems,
automated aircraft test and maintenance equipment, and ground transportation
components.
The Company also offers logistical/engineering services for government-owned
equipment and manufactures combustion equipment for biomass and refuse fuels.
1 Financial Highlights
2 To Our Shareholders
8 Unmanned Aerial
Vehicles
12 Simulation and
Test Systems
18 Engineering and
Maintenance Services
22 Board of Directors
23 Management's
Discussion
29 Consolidated Statements
of Operations
30 Consolidated
Balance Sheets
32 Consolidated Statements
of Cash Flows
33 Notes to Financial
Statements
51 Report of Independent
Auditors
52 Five-Year Financial Data
53 Corporate Organization
54 Corporate and Shareholder
Information
Financial Highlights
YEAR ENDED DECEMBER 31
--------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998
=======================================================================================
Net sales $256,358 $216,979 $204,305
- ---------------------------------------------------------------------------------------
Net income 7,779 6,277 13,011
- ---------------------------------------------------------------------------------------
Earnings per share
basic .63 .51 1.06
diluted .62 .50 1.03
- ---------------------------------------------------------------------------------------
Dividends paid per share .40 .40 .40
- ---------------------------------------------------------------------------------------
Shareholders' equity 114,893 111,055 109,441
- ---------------------------------------------------------------------------------------
Shareholders' equity per share 9.24 9.03 8.93
- ---------------------------------------------------------------------------------------
Sales backlog as of year end $414,000 $293,000 $210,000
- ---------------------------------------------------------------------------------------
Shares outstanding 12,435,000 12,294,000 12,250,000
=======================================================================================
To Our Shareholders
Several years ago we outlined a strategy to leverage and build upon the
competitive strengths of our core defense businesses, in order to position
United Industrial for long-term growth and create greater value for our
shareholders. During 2000, we again made significant strides in implementing
this strategy, furthering our transformation from a diversified industrial
conglomerate to a more highly focused defense and aerospace company. Our efforts
translated into a banner year for our defense-related businesses, with revenues
increasing 14%, operating income up 12%, and backlog advancing 24%. We
solidified our role as a leader in our core markets, and we seized new
opportunities that will allow us to continue this strong performance.
These achievements - and the terrific progress we are making in executing
our strategy - have made the recent difficulties in our transportation segment
that much more disappointing. We experienced higher than anticipated costs in
our transportation business this year, costs that were primarily related to
design and prototype development work. Now that these costs are behind us, and
with production underway, we expect results going forward to be more in line
with our expectations. Above all, we are committed to alleviating the negative
impact the transportation segment has had on our overall returns, and we
continue to take steps to turn this business around. We have restructured this
segment's operations, instituted new cost and oversight programs in order to
keep a closer eye on expenses, and, in February 2001, recruited an experienced
transportation executive to lead this business. We expect these actions to make
an impact beginning in the first quarter of 2001. At the same time, we continue
to actively evaluate strategic alternatives for our transportation operations,
and are hopeful that we will soon reach a resolution that is in the best
interests of the Company and its stakeholders, so that we can concentrate our
full attention on capitalizing on the potential of our core businesses.
For the Company as a whole, net revenues for 2000 reached $256.4 million,
an increase of 18.1% from $217.0 million in 1999. Our results include the
divestiture of our non-core Symtron Systems firefighter training systems
business, which generated a net gain of $3.9 million, or $0.31 per diluted
share, a transportation loss of $13.4 million, or $1.07 per diluted share, and
an insurance recovery of $2.3 million, or $0.18 per diluted share.
[SIDEBAR]
Our efforts translated into a banner year for our defense-related businesses,
with revenues increasing 14%, operating income up 12%, and backlog advancing
24%.
[END SIDEBAR]
02 To Our Shareholders
[PHOTO]
left Richard R. Erkeneff,
President and Chief Executive Officer
right Harold S. Gelb,
Chairman of the Board
Including these items, net income for the year rose 24% to $7.8 million, or
$0.62 per diluted share. In 1999, the Company reported net income of $6.3
million, or $0.50 per diluted share, including a transportation loss of $8.2
million, or $0.66 per diluted share.
The Company achieved a return to shareholders, including dividends, of
25.44% for the year, outperforming our peers. In comparison, the Russell 2000
Value Index generated a return of 22.83% in 2000. We view return to investors as
a key benchmark of our progress, and our team continues to strive to create
maximum value for our shareholders through the execution of our long-term
strategy.
Driving Growth in Our Core Businesses. This strategy has focused on driving
growth in our core operations through key initiatives including:
o Strengthening and further developing our capabilities in our chosen
markets to better differentiate our products and services from our
competitors';
o Pursuing opportunities in new, but related, markets where we can apply our
technological expertise and technical skills;
o Expanding into foreign markets.
United Industrial Corporation 03
To Our Shareholders
Our team's ability to deliver on these strategic initiatives has been
critical to our success. Constant innovation and product development have
enabled us to enhance the value we bring to customers and capture exciting new
contracts. Our expansion into promising areas such as engineering and logistics
support has provided us with new revenue streams within growing sectors, while
increased penetration of foreign markets has further accelerated our momentum.
Our $63 million program to develop the U.S Army's next generation of
Tactical Unmanned Aerial Vehicles (TUAV) is a clear example of our strategy at
work. Our participation in this vital program, brought about by our rigorous UAV
development program, has further reinforced our leadership role in the UAV
industry. It is generating heightened visibility for our capabilities and has
led to increased interest from international customers. Based on our continued
involvement in the program and strong international prospects, we expect our UAV
business to be a major driver of United Industrial's growth going forward.
Within simulation and test systems, we have taken advantage of our
unparalleled experience to enhance our value to the U.S. Government on some of
its most important military programs, including the Joint Service Electronic
Combat Systems Tester (JSECST). During 2000, our efforts on this $37.7 million
program earned us the Department of Defense Standardization Program Award. With
the JSECST entering its production stage in 2001, this program will continue to
be a significant contributor to our results. Furthermore, by showcasing our
simulation and test capabilities through a state-of-the art, high-profile
platform, the JSECST program should serve as a catalyst for further growth.
ACL Technologies, our hydraulic, fuel and pneumatic testing business, had
a phenomenal year in 2000, driven in part by its highly successful F-16 military
depot work and a growing base of military and commercial airline customers.
Moreover, ACL's prospects remain excellent.
In the international arena, United Industrial continues to make vital
inroads in key regions, with the percentage of international defense revenues
increasing from 19.5% to 25.5% of our total defense sales in 2000. Among the
highlights are our Australian Navy contract, which was expanded to $22 million
last year, and $31 million in new international UAV bookings. In addition, we
have generated increased sales of our advanced boresighting equipment in Europe,
where we are building upon the work we are doing on the Eurofighter. These and
other global contracts have expanded our geographic
[SIDEBAR]
Our $63 million program to develop the U.S. Army's next generation of Tactical
Unmanned Aerial Vehicles is a clear example of our strategy at work.
[END SIDEBAR]
04 To Our Shareholders
[SIDEBAR]
The actions we have taken to focus our resources on our core businesses are
bearing fruit and offer the promise of continued growth.
[END SIDEBAR]
reach within our core markets and lay the foundation for continued international
growth.
Solid Results at Detroit Stoker. The excellent results at our core defense and
aerospace businesses were complemented by a solid performance at Detroit Stoker,
our energy systems subsidiary. A growing international business, including
significant new contracts in Australia, New Zealand, Canada and Spain, as well
as steady demand for our products in the U.S., contributed to revenue and
earnings gains for the year. With increasing interest in alternative energy
sources, spurred by rising fuel prices and the threat of power shortages, the
landscape remains favorable for Detroit Stoker's continued success. We have
demonstrated our ability to deliver innovative energy solutions, and we believe
our flexible approach and superior customer service will continue to distinguish
us in the marketplace and provide new opportunities.
Strong Outlook. As we look to the future, we are excited about United
Industrial's potential, as an increasing force in the defense/aerospace industry
and as an investment for our shareholders. The actions we have taken over the
past several years to focus our resources on our core businesses are bearing
fruit and offer the promise of continued growth in the years to come. At the
same time, we recognize there is work still to be done, including resolving the
issues in our transportation segment and assuring our progress continues even as
the economy slows. To complement our top-line growth initiatives, we have
launched a significant cost-cutting program to improve profitability, and we
plan to take full advantage of positive trends in military spending and
investment.
United Industrial's success in 2000 was once again attributable to the
hard work and dedication of our 1,700 associates. We thank you for your
contributions. We also appreciate the loyal support of our customers. To you,
our shareholders, we value your investment in the Company and remain resolute in
our objective to maximize your return. We look forward to reporting on our
future progress.
Sincerely,
/s/ Richard R. Erkeneff
Richard R. Erkeneff, President and Chief Executive Officer
/s/ Harold S. Gelb
Harold S. Gelb, Chairman of the Board
United Industrial Corporation 05
[PHOTO] [PHOTO]
Unmanned Aerial Vehicles Simulation and Test Systems
[PHOTO]
Engineering and Maintenance Services
Unmanned Aerial Vehicles
[PHOTO]
Joseph G. Thomas
Vice President and Deputy General Manager,
UAV Systems
"From a seasoned team with a proven track record for outstanding performance, to
the latest in technologies and quality control, AAI over the past 16 years has
built the finest Tactical UAV business in the country, with all of the elements
necessary for success, a distinguished record of accomplishments, and enormous
potential for further achievement."
- --------------------------------------------------------------------------------
2000 was a spectacular year for our AAI subsidiary's Unmanned Aerial Vehicle
(UAV) business. Driven by the ongoing success of a major Tactical UAV program
(TUAV) for the U.S. Army and strong prospects in the international market, this
business has performed very well, further reinforcing our leadership position in
the industry. Moreover, based on continued customer interest in our UAV
offerings and increasing recognition of our capabilities in this area, we expect
our momentum to continue in 2001.
Key Milestones Met on Major TUAV Program. Under the TUAV contract, first awarded
to AAI in December 1999, we are fielding a new generation of Shadow Tactical UAV
Systems for the U.S. Army. Our system will give Army Brigade Commanders
unprecedented capability to conduct reconnaissance missions at long ranges for
hours at a time, day or night, without putting a single soldier in harm's way.
Moreover, the Army leadership designated the TUAV System as one of eight systems
identified as critical to the Army's Transformation Modernization Program. Over
the course of the year, we successfully completed a flight demonstration program
at the Army's Aberdeen Proving Grounds, Maryland, and delivered our first TUAV
[SIDEBAR]
We are fielding a new generation of Shadow Tactical UAV Systems for the U.S.
Army.
[END SIDEBAR]
08 Unmanned Aerial Vehicles
[PHOTO]
AAI technicians assembling new Shadow 200 Tactical UAVs for the U.S. Army.
System to the Electronic Proving Grounds, Arizona, for flight-testing and
soldier training on schedule. As a result, the Army intends to accelerate the
TUAV Systems production program and has increased our current program value to
$63 million. The Army has also announced plans to award a contract for four
additional Systems early in 2001, in addition to the full rate production
contract award planned for the fall of 2001. The total contract value for
production of 44 TUAV Systems, the Army's current inventory objective, is
expected to exceed $400 million.
Clearly, we are excited about the potential of this major program for AAI.
Furthermore, we are gratified by the Army's decision to accelerate the program's
timetable, as a tacit recognition of our success in meeting or exceeding the
Army's expectations to date. We look forward to our ongoing role as prime
contractor on this project, as we continue to put our years of UAV experience to
work for the Army.
Further Penetration of International Markets. In addition to the solid growth in
our domestic UAV business, we achieved strong results in international
United Industrial Corporation 09
Unmanned Aerial Vehicles
markets in 2000. In fact, we have found our involvement in the TUAV program has
helped to underscore our unparalleled capabilities in the production and
maintenance of UAVs and fuelled interest from potential overseas customers.
Among the key international contracts we won last year were a new $22 million
program for a Shadow 400 UAV system and a $7.1 million program for a Shadow 600
system. We intend to continue to build on this momentum to further expand UAV
sales to additional markets.
Contributing to our success has been our commitment to constantly upgrade
and develop the technology and systems behind our UAV offerings. This commitment
has already yielded considerable results. For example, the Shadow 400, now among
our most advanced UAV systems, is a direct product of our rigorous and ongoing
development program for our Shadow family of UAVs. In addition, we have also
succeeded in the continued
[SIDEBAR]
The TUAV program has helped to underscore our unparalleled capabilities in the
production and maintenance of UAVs.
[END SIDEBAR]
[PHOTO]
U.S. Army soldiers prepare for a Shadow 200 Tactical UAV training flight at Ft.
Huachuca, Arizona.
10 Unmanned Aerial Vehicles
[PHOTO]
Shadow 200 Tactical UAV in flight over the Farmville, Virginia test flight
facility.
evolution of our Pioneer product, including our recent introduction of a new "B"
model Pioneer, featuring more advanced flight equipment and an improved payload.
Building on our Industry Leadership. Our leadership position within the UAV
industry has earned the respect and recognition of the aviation industry. We are
particularly gratified that, in October 2000, the Pioneer UAV was inducted into
the Smithsonian Institute's National Air and Space Museum, in recognition of our
aircraft's historic role as the first UAV adopted by the U.S. military for use
in both combat and peacekeeping missions sixteen years ago.
Going forward, we see our UAV business as a key vehicle for growth and an
important component of United Industrial's revenues and earnings. Demand for
UAVs continues to increase, and we continue to extend our successful track
record as an innovator in this market. With key U.S. military programs underway,
such as the TUAV, as well as exciting prospects in international markets, we are
well positioned to continue to build our share of the robust and dynamic UAV
market.
[PHOTO]
U.S. Army operators ready a Shadow 200 Tactical UAV for a mission launch.
United Industrial Corporation 11
Simulation and Test Systems
[PHOTO]
Michael F. Browne
Director, Test and Electronic Warfare Systems
"Constant innovation and a commitment to excellence are the two defining
attributes that explain our successful track record in applying high technology
solutions to satisfy complex military needs. Our culture of innovation and
excellence has spawned an entire new generation of cutting-edge products that
both reflects the tremendous value-added that we offer customers and generates
vast opportunities in marketplaces throughout the world."
- --------------------------------------------------------------------------------
During 2000, our AAI subsidiary again demonstrated its ability to successfully
leverage and build upon its outstanding capabilities in the production and
support of simulation and test systems. Through a strategy that has focused on
reinforcing our leadership in core markets while pursuing new opportunities,
particularly in the international arena, our simulation and test operations
generated another strong performance with solid increases
[SIDEBAR]
Our performance and commitment to excellence on the JSECST program earned
official recognition from the U.S. Government.
[END SIDEBAR]
[PHOTO]
Our Advanced Boresighting Equipment aligns the Army's AH-64 Apache's mission
control weapons systems to exacting standards.
12 Simulation and Test Systems
[PHOTO]
Members of the 33rd Fighter Wing at Eglin Air Force Base work with AAI to test
the JSECST system for the F-15C Air Superiority Aircraft.
in sales, profits and new bookings. Among our most significant contracts now
underway is the Joint Service Electronic Combat Systems Tester (JSECST). Under
this $37.7 million program, we are partnering with the U.S. Navy and the U.S.
Air Force on the development of a state-of-the-art test system that verifies the
operation of electronic warfare receivers and jammers to assure mission
readiness. Following successful operational trials in 2000, we are now entering
the production phase of this program. Our performance and commitment to
excellence on the JSECST program earned official recognition from the U.S.
Government, when the AAI/Government Team received the Department of Defense
Standardization Program Award for 2000 for creating a common support equipment
solution serving multiple ends.
The development of shipboard training systems also continues to be an
important business for AAI. This is an area in which we have established a clear
market leadership position and which continues to offer considerable growth
potential. Domestically, we have achieved great success with our Generic Navy
Simulator/Stimulator (GNSS) and Carry-on-Combat Systems Trainer (COCST)
programs, both for the U.S. Navy. Under these contracts, valued at
United Industrial Corporation 13
Simulation and Test Systems
$24 million and $13 million, respectively, we have developed new high-technology
systems to train shipboard radar operators by simulating a combat environment.
We are also at work on 11 Navigation Stimulators for the Navy's Battle
Force Tactical Training program, under a $1 million contract. Our Navigation
Stimulators will constitute an integral part of the Navy's program to allow
shipboard radar operators to train at sea. With our new equipment, the Battle
Force Tactical Training program will be able to support more than 18 different
radars, including those used for fire control, search, navigation and traffic
control.
Our experience in shipboard training systems has provided us with exciting
opportunities in overseas markets as well. During 2000, we initiated work on a
new contract to assist in developing the United Kingdom's Future Command Team
Trainer, a system similar to the U.S. Navy's Battle Force Tactical Trainer. In
addition, we have made excellent progress on our $22 million program to provide
six On-Board Training Systems and two land-based Software Support Centers for
the Royal Australian Navy. Going forward, we expect international sales to
represent an increasing component of AAI's business mix.
Other major highlights of the year included a new $2 million contract from
L-3 Communications Link Simulation and Training for computer control kits and
simulated ammunition sets for the Fire Support Combined Arms Tactical Trainer as
well as new bookings of $5.8 million for software systems for the O'Hare Airport
Transit Control System. In addition, we completed deliveries ahead of schedule
of two Surveillance Radar
[PHOTO]
AAI's new Generic Navy Stimulator/ Simulator provides a realistic combat
environment for training at sea.
[PHOTO]
The U.S.S. Porter, an Aegis guided missile destroyer, features AAI's on-board
training products.
Maintenance Training Sets (SRTS) in support of the U.S. Air Force's E-3A
Airborne Warning and Control Systems (AWACS) aircraft, under a $21 million
contract, and delivered our PDCueTM (Projectile Detection and Cuing) system to
the U.S. Army Research Laboratory (ARL) in Adelphia, Maryland, under a $2.3
million contract.
Awards continued on our AN/USM-499 Automatic Test Equipment Program which
supports the U.S. Navy's P-3 Orion aircraft. The system is used in our
customer's intermediate and depot maintenance facilities to repair the avionics
on the P-3s. New orders totaling $8.4 million were received in 2000 bringing
total awards on this long standing program to over $360 million. Our new orders
will extend the life of the system through at least 2015.
Advanced Boresighting Equipment. We also continue to be very pleased with the
reception of our Advanced Boresighting Equipment (ABE), featuring
state-of-the-art technology for the precision alignment of parts. During 2000,
we made great strides in broadening our business base and increasing our
penetration of this marketplace, both domestically and abroad. Significant
contracts won in this area last year include a $1 million program to provide ABE
harmonization equipment for GKN Westland's production of the Apache helicopter
for the British Army Air Corps and a $1.4 million project for a United Kingdom
aircraft program. With these contracts, we have expanded beyond our current work
on the Eurofighter 2000 Typhoon Aircraft.
[SIDEBAR]
Our experience in shipboard training systems has provided us with exciting
opportunities in overseas markets.
[END SIDEBAR]
United Industrial Corporation 15
Simulation and Test Systems
[PHOTO]
Thomas E. Wurzel
President, AAI/ACL Technologies
"Our record-level orders and earnings, our growing portfolio of customers around
the world, and the success that we have achieved on the Egyptian F-16 Depot
program, all clearly demonstrate how our consistent commitment to service and
product quality continue to propel ACL Technologies to new heights while
simultaneously opening new doors of opportunity."
- --------------------------------------------------------------------------------
Our ACL Technologies subsidiary achieved a banner year in 2000, posting record
results. Specializing in equipment for hydraulic, fuel and pneumatic testing,
this business continues to reach new heights, serving a growing portfolio of
defense and aerospace industry customers around the globe.
At the core of this business is our work as an F-16 Depot Integration and
Training Contractor for the U.S. Air Force. We are currently engaged in a major
program to develop an F-16 Maintenance Depot in Egypt, under a $30 million
contract. ACL is manufacturing and purchasing much of the required test
equipment and tooling, and we will be responsible for the full installation and
integration of all necessary systems. In addition, under a separate $6.7 million
contract, we will provide on-site training.
Our expertise with the F-16 was further recognized when we were awarded,
in February 2000, a contract from an Asian customer for F-16 Depot Test
Equipment, Fixtures and Training. Valued at $6.1 million, this contract
leverages our hands-on experience to expand in a key geographic market. Going
forward, we willto seek out opportunities to apply our military depot expertise
to drive further growth.
[SIDEBAR]
Our ACL Technologies subsidiary achieved a banner year in 2000.
[END SIDEBAR]
16 Simulation and Test Systems
[PHOTO]
ACL engineers evaluate aircraft components for British Airways' pneumatic test
cell center in the United Kingdom.
Other key defense-related contracts underway include a $2.6 million
program for the U.S. Air Force for the next generation of Intermediate Level
Aircraft Electrical Generator Test Stand, called the MC-2000. ACL will install
this test stand in many Air Force bases in the continental U.S., Europe and the
Pacific Rim. In addition, under a separate $2.7 million contract, we installed
the first four in a series of Intermediate Level Electro-Mechanical Stands used
to test utility actuators on cargo and transport aircraft and are under contract
to fulfill component technical orders for this new test stand.
In addition to the military, the commercial airline industry remains an
important market for us. We now count among our customers many of the world's
largest airlines, including British Airways, American Airlines, United Airlines,
Iberia, Lan Chile, Varig and El Al. Orders from these customers, including
automated and manual test systems for hydraulics, engine mounted fuel and
pneumatic components, represented a growing segment of ACL's business last year.
In addition, our expansion into the "space business," initiated last year,
is proceeding on plan. Our $1 million contract to provide launch pad support
equipment for Lockheed Martin's Atlas V program is underway, and, during 2000,
we received additional bookings of $1.2 million on this contract. Our work with
Boeing to provide support equipment for its Delta IV EELB program is also
progressing, under a $1.2 million contract.
Looking ahead, ACL enjoys exceptional prospects for further growth. Our
military depot related experience, our expanding presence within the commercial
airline industry and emerging opportunities in overseas markets are all expected
to contribute to another strong year in 2001.
[PHOTO]
A technician adjusts a pneumatic actuator on ACL equipment used to test F-16
fuel components.
United Industrial Corporation 17
Engineering and Maintenance Services
[PHOTO]
Maurice P. Ranc
Vice President and General Manager,
Defense Systems and Engineering and
Maintenance Services
"Whether we're developing superior maintenance trainers at lower costs, or
logistically supporting major base relocations from start to finish, the broad
range of specialized engineering and logistics services that we offer has served
to generate strong business for us with major customers such as the U.S. Air
Force and the British Royal Air Force, and position us for many further
opportunities at home and abroad."
- --------------------------------------------------------------------------------
Engineering Support Inc. (ESI), our engineering and maintenance services
business, has carved out a successful niche providing a range of specialized
engineering and logistics support services for our defense and aerospace
industry customers. This business turned in a solid performance in 2000, winning
significant new contracts, building its base of customers, and establishing
itself as a market leader.
Our U.S. Air Force contract to upgrade Maintenance Training Systems for
the C-17 Aircraft, now valued at $143 million, continues to be an outstanding
program for ESI. Since the inception of this contract in 1997, we have
consistently demonstrated our value and commitment to this important program.
Last year, we again expanded the scope of our work on this project, with a $22
million award, and we believe we are well positioned for further opportunities
in 2001.
Our work for the U.S. Air Force on this program has also led to
opportunities serving other customers with similar needs. For example, during
2000, we commenced a $4 million C-17 aircraft maintenance trainer contract with
the United Kingdom Royal Air Force. This program has extended our reach into the
European market, and we are hopeful that our international bookings will
continue to grow as overseas customers become increasingly aware of the in-depth
expertise that ESI can bring to meeting their engineering and maintenance needs.
[SIDEBAR]
Our U.S. Air Force contract to upgrade Maintenance Trainers for the C-17
Aircraft is now valued at $143 million.
[END SIDEBAR]
18 Engineering and Maintenance Services
[PHOTO]
ESI maintenance trainers for the C-17 aircraft engine, shown here, provide Air
Force technicians with realistic, hands-on experience.
We have also received initial funding of $14 million to develop, install and
support a C-17 Maintenance Training Facility in Jackson, Mississippi to support
the acquisition of the C-17 Aircraft by the Mississippi National Guard. This
program is expected to grow to $40 million in 2001 with further growth in future
years.
We also continue to build our partnership serving the U.S. Army's
Simulation, Training and Instrumentation Command. Following our execution of a
$44 million contract to upgrade Gunnery Maintenance Trainers for this customer,
ESI was awarded a new $4.9 million contract to develop additional test kits for
use with these trainers. We expect that there will be additional follow-on
opportunities in the future.
Growing Logistic Support Business. Among the fastest-growing segments of
ESI's business has been logistics support. Designed as a complement to our core
engineering and maintenance capabilities, this business has generated a strong
response from customers seeking to outsource a greater amount of their
logistics-related work. We have experienced steady interest in our services
United Industrial Corporation 19
Engineering and Maintenance Services
[PHOTO]
The use of an actual C-17 engine in the Aircraft Engine Cowling Trainer, being
checked here by ESI technicians, further enhances the training experience.
and believe there is great potential for us in this market. Among the key
projects we have underway are a $5.4 million contract to maintain the T-25
Simulator for Electronic Combat Training equipment at Randolph Air Force Base
and a significant relocation program involving the transport of a C-17 Training
Evaluation Performance Training Set from Charleston Air Force Base in South
Carolina to McChord Air Force Base in Washington. In addition, during 2000, we
successfully completed the expansion of the Kenai, Alaska Fire Training Facility
which provides realistic outdoor fire-fighting training, as well as Aircraft
Fire Rescue Training. Primary users of the facility are the oil/gas pipeline
workers in Alaska, Western Canada and Russia.
From engineering and maintenance to logistics services, and from U.S. to
foreign customers, ESI continues to actively develop and seek out new avenues to
expand its presence in this growing defense market segment.
[SIDEBAR]
Among the fastest growing segments of ESI's business has been logistics support.
[END SIDEBAR]
[PHOTO]
ESI's maintenance trainer contract supports the C-17 Aircraft shown in flight
here.
20 Engineering and Maintenance Services
[PHOTO]
- --------------------------------------------------------------------------------
Board of Directors
Joseph S. Schneider
- ---------------------------------
President of JSA
Partners, Inc. and
Chairman and
Co-Founder of JSA
Research, Inc.
Director since 1998.
Susan Fein Zawel
- ---------------------------------
Vice President
Corporate
Communications,
Associate General
Counsel and
Secretary of
United Industrial
Corporation. Director
since 1995.
Edward C. Aldridge, Jr.
- ---------------------------------
President and Chief
Executive Officer
of The Aerospace
Corporation. Director
since 1995.
Richard R. Erkeneff
President and CEO
- ---------------------------------
President of
United Industrial
Corporation and
AAI Corporation.
Director since 1995.
Harold S. Gelb
Chairman
of the Board
- ---------------------------------
Chairman of
the Board of
United Industrial
Corporation.
Director since
1995.
E. Donald Shapiro
- ---------------------------------
The Joseph
Solomon Distinguished
Professor of Law
and former Dean/
Professor of Law
of New York Law
School. Director
since 1996.
22 Board of Directors
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Results of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 2000 Compared With Year Ended December 31, 1999.
On September 29, 2000 the Company sold Symtron Systems, Inc. ("Symtron"), a
wholly owned subsidiary included in the defense segment. The operations of
Symtron for the nine months in the year 2000 and the twelve months in the years
1999 and 1998 are included in the results of operations for the respective
periods.
Net sales of $256,358,000 in 2000 increased $39,379,000 or 18% from
$216,979,000 in 1999. In all segments a general increase in volume caused the
increase in sales. Excluding Symtron's operations for the two years, sales would
have increased $47,933,000 or 24%. The defense segment increased sales
$25,250,000 or 14% to $200,743,000 in 2000 from $175,493,000 in 1999. Excluding
Symtron's operations for the two years from the defense segment, sales would
have increased $33,805,000 or 21%. Sales to agencies of the U.S. Government, by
the defense segment, were $132,930,000 in 2000 and $133,328,000 in 1999. Export
sales by the defense segment were $51,161,000 in 2000 and $34,182,000 in 1999,
an increase of $16,979,000 or 50%. The defense segment's business is heavily
influenced by changes in the budgetary plans and procurement policies of the
U.S. and foreign governments. 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.
Net sales in the energy segment were $35,540,000 in 2000, an increase of
$3,350,000 or 10% from $32,190,000 in 1999.
Net sales in the transportation segment were $20,075,000 in 2000, an
increase of $10,779,000 or 116% from $9,296,000 in 1999. The increased volume
was due to deliveries under an overhaul contract.
Gross profit decreased $13,393,000 to $42,032,000 in 2000 from $55,425,000
in 1999. The gross margin percentage was 16.4% in 2000 and 25.6% in 1999.
Excluding Symtron's operations for the two years the gross profit would have
decreased $10,602,000 and the gross margin percentage would have been 16% in
2000 and 25.1% in 1999. The defense segment gross margin percentage decreased to
24.7% in 2000 from 28.2% in 1999 due to low gross profits on a large competitive
program. Excluding Symtron's operations for the two years from the defense
segment, the gross margin percentage would have decreased to 24.5% in 2000 from
27.9% in 1999. The transportation segment gross margin loss was $18,857,000 in
2000 and $4,802,000 in 1999. The year 2000 gross margin loss in the
transportation segment included a charge of $19,700,000 to establish a reserve
for increased contract costs on several programs. The higher anticipated costs
on certain contracts are primarily related to design and prototype development
activities that are now completed. The 1999 gross margin loss included a charge
of $5,000,000 for anticipated warranty work on a previously completed program.
Selling and administrative expenses decreased $2,341,000 or 5.1% to
$43,488,000 in 2000 from $45,829,000 in 1999. Excluding Symtron's operations for
the two years, selling and administrative expenses would have been $2,007,000 or
4.8% lower than in 1999.
Selling and administrative expenses as a percentage of net sales were 17%
in 2000 and 21.1% in 1999. Excluding Symtron's operations for the two years,
selling
United Industrial Corporation 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations -- (continued)
- --------------------------------------------------------------------------------
and administrative expenses as a percentage of net sales would have been 16.1%
in 2000 and 21% in 1999. The defense segment experienced a decrease in expenses
of 5.2% or $1,655,000 primarily due to higher research and development and bid
and proposal costs during 1999 resulting in the receipt of a particular
contract. Excluding Symtron's operations for the two years from the defense
segment the decrease in expenses would have been 4.7% or $1,322,000. The energy
segment experienced an increase in expenses of 14.1% or $1,111,000, primarily
due to international sales efforts, increased research and development and
insurance expenses.
Equity in net income of joint ventures includes income of $999,000
($626,000, net of taxes or $.05 per diluted share) and a loss of $3,362,000
($2,108,000, net of taxes or $.17 per diluted share) related to the Company's
interest in Electric Transit, Inc. ("ETI") during 2000 and 1999, respectively.
Although ETI is owned 35% by AAI Corporation ("AAI"), a wholly owned subsidiary
of the Company, and 65% by Skoda a.s. ("Skoda"), during 1999 the transportation
segment recorded 100% of the ETI loss because of Skoda's inability to meet its
financial obligations under ETI's shareholder agreement. In April 2000, the
Company facilitated a credit arrangement between the Czech Export Bank ("CEB"),
Skoda, and ETI. This arrangement is expected to provide Skoda the financial
capability to satisfy its obligations to ETI and the Company, and the Company
has returned to recording its equity share of ETI's earnings or losses at 35%.
During 2000 Skoda repaid to AAI $3,605,000 that was previously advanced to ETI
by AAI on behalf of Skoda. Consequently, the transportation segment reversed
$1,334,000 of the $2,185,000 of losses in excess of 35% recorded during 1999. In
order to fund previously recorded losses in ETI, the Company subordinated
$3,000,000 and $2,275,000 of accounts receivable from ETI during 2000 and 1999,
respectively, and thereby increased its investment in ETI by such amounts.
Other income, net in 2000 includes income of $2,126,000 in the energy
segment generated by the Company's pension plan and $3,483,000 in the other
segment from an insurance recovery related to a previously settled matter. In
1999, other income included pension plan income for the energy segment of
$1,754,000.
Interest expense decreased to $28,000 in 2000 from $160,000 in 1999.
Interest income decreased to $1,497,000 in 2000 from $1,908,000 in 1999
due to reduced investments.
The Company's defense segment recorded pretax income of $20,628,000 in
2000 ($13,094,000, net of taxes or $1.04 per diluted share) in 2000 and
$19,278,000 ($12,718,000, net of taxes or $1.02 per diluted share) in 1999.
The Company's transportation segment recorded a loss of $21,442,000 in
2000 ($13,444,000, net of taxes or $1.07 per diluted share) in 2000 and
$13,112,000 ($8,221,000, net of taxes or $.66 per diluted share) in 1999.
In 2000, net income increased $1,502,000 or 24% to $7,779,000 or $.62 per
diluted share from $6,277,000 or $.50 per diluted share in 1999. Included in the
other segment during 2000 is a net gain on the sale of Symtron of $3,878,000 or
$.31 per diluted share. Income from an insurance recovery increased net income
by $2,299,000 or $.18 per diluted share.
The Company's backlog was $413,970,000 at December 31, 2000 compared to
$292,816,000 at December 31, 1999.
Backlog in the defense segment increased $37,113,000 or 24% to
$190,161,000 at December 31, 2000 from $153,048,000 at December 31, 1999
generally due to the overall increase in the volume of business. Excluding
Symtron, the defense segment backlog increased 26%.
24 United Industrial Corporation
- --------------------------------------------------------------------------------
Backlog in the energy segment decreased $117,000 or 2.5% to $4,633,000 at
December 31, 2000 compared to $4,750,000 at December 31, 1999.
Backlog in the transportation segment increased to $219,176,000 or 62% at
December 31, 2000 from $135,018,000 at December 31, 1999 primarily resulting
from a contract award to overhaul railcars for the Maryland Metropolitan Transit
Authority.
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998. Net
sales of $216,979,000 in 1999 increased 6% from $204,305,000 in 1998. This
increase was attributable to an expansion in the Company's defense segment,
partially offset by lower sales volume in the energy and transportation
segments. The defense segment experienced sales growth of $22,292,000 or 15% to
$175,493,000 in 1999 from $153,201,000 in 1998 due to a general increase in
volume. Sales in 1998 were negatively affected by the delayed commencement of
certain programs caused by procurement deferments. Sales to agencies of the U.S.
Government, primarily by the defense segment, were $133,328,000 in 1999 and
$106,763,000 in 1998. Export sales by the defense segment were $34,182,000 in
1999 and $31,117,000 in 1998, an increase of $3,065,000 or 9.8%.
Net sales in the energy segment were $32,190,000 in 1999, a decrease of
$2,264,000 or 7.0% from $34,454,000 in 1998.
Net sales in the transportation segment were $9,296,000 in 1999, a
decrease of $7,354,000 from $16,650,000 in 1998. The sales volume decreased
during 1999 primarily because production on the San Francisco ("MUNI") electric
trolley bus ("ETB") contract had not commenced. The transportation segment was
hindered in performing its subcontract effort on the MUNI ETB contract due to
financing difficulties, at Skoda a.s., a Czech Republic firm and certain of its
subsidiaries that are major subcontractors of ETI. These difficulties were
alleviated in early 2000 through successful negotiations for MUNI program
related credit facilities.
Gross profit increased to $55,425,000 in 1999 from $52,271,000 in 1998.
The gross margin percentage was 25.6% in 1999 and 1998. The defense segment
gross margin percentage increased to 28.2% in 1999 from 26.2% in 1998 due to
improved profitability on certain contracts. The energy segment had a 2.5%
decrease in gross margin percentage from the same period in the previous year
generally attributable to competitive market conditions. The loss in the
transportation segment gross margin was caused primarily by delays at ETI which
resulted in inadequate production volume for the levels of overhead expenses as
well as a reserve for anticipated warranty work on a previously completed
program. In early February 2000, the Company discovered that a program completed
during 1998 required a significant warranty effort. Consequently, the Company
recorded a $5,000,000 reserve for this effort in the fourth quarter of 1999.
Selling and administrative expenses as a percentage of net sales were
21.1% in 1999 and 20.6% in 1998. Selling and administrative expenses increased
9% in 1999. The increase was generally attributable to increased research and
development and marketing efforts in the defense segment. However, another
factor contributing to this increase was due diligence costs of $700,000 related
to the Company's proposal in May 1999 to purchase Skoda's electric trolley bus
manufacturing subsidiary and its interests in the ETI joint venture, which was
later withdrawn.
Equity in net loss of joint ventures include $3,362,000 ($2,108,000, net
of taxes or $.17 per diluted share) and $3,060,000 ($1,919,000, net of taxes or
$.15 per diluted share) related to the Company's interest in ETI during 1999 and
1998, respectively.
ETI's Dayton electric trolley bus program experienced cost growth that
resulted in a $2,853,000 loss ($1,789,000, net of taxes) during 1999. All the
trolley buses for
United Industrial Corporation 25
Management's Discussion and Analysis of
Financial Condition and Results of Operations -- (continued)
- --------------------------------------------------------------------------------
Dayton have been delivered to and accepted by the customer and the program has
now been substantially completed. Although ETI is owned 35% by AAI Corporation
and 65% by Skoda a.s., during 1999 the transportation segment recorded 100% of
the ETI loss because of Skoda's inability to meet its financial obligations
under ETI's shareholder agreement.
During 1999, Skoda had difficulty in obtaining sufficient capital to
finance its equity share of ETI's working capital as well as its MUNI
subcontract from ETI. The Company had been working with ETI and Skoda to obtain
the financing for the contract. The Czech Export Bank executed credit facility
documents with ETI and two Skoda subsidiaries in February 2000. As a result it
is expected that there will now be sufficient working capital for ETI to perform
the MUNI contract. With the completion of these financing arrangements the
Company continued to explore strategic alternatives for the transportation
business.
Other operating expenses, net decreased $1,032,000. In 1999, the
amortization expense of intangibles decreased $637,000 and the contingent payout
to sellers decreased $265,000.
Interest expense decreased to $160,000 in 1999 from $170,000 in 1998.
Interest income decreased to $1,908,000 in 1999 from $3,675,000 in 1998
due to reduced investments.
In 1999, net income decreased $6,734,000 or 52% to $6,277,000 or $.50 per
diluted share from $13,011,000 or $1.03 per diluted share, in 1998.
The Company's transportation segment recorded a loss of $13,112,000
($8,221,000, net of taxes or $.66 per diluted share) in 1999 and $5,807,000
($3,640,000, net of taxes or $.29 per diluted share) in 1998.
The 1998 net income included gains on sales of real estate 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).
Backlog in the defense segment increased $6,414,000 or 4.4% to
$153,048,000 at December 31, 1999 from $146,634,000 at December 31, 1998.
Backlog in the energy segment decreased $4,584,000 or 49% to $4,750,000 at
December 31, 1999 compared to $9,334,000 at December 31, 1998.
Backlog in the transportation segment increased to $135,018,000 at
December 31, 1999 from $53,860,000 at December 31, 1998 generally due
to a contract award to over haul railcars for New Jersey Transit.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1,707,000 to $11,385,000 at the end of 2000
from $13,092,000 at the end of 1999.
Trade receivables increased $12,946,000 at December 31, 2000 from December
31, 1999. The increase resulted from increased sales in the fourth quarter of
2000 compared to the fourth quarter of 1999 in the defense and transportation
segments. Included in trade receivables are U.S. Government receivables which
increased $8,114,000. Inventories were $37,055,000 higher at December 31, 2000
than at December 31, 1999. The inventory increase was primarily in the
transportation segment and results from the procurement of significant amounts
of material necessary to commence production on two major programs. Accounts
payable increased $7,347,000 due to increased procurement volume in the
transportation segment and
26 United Industrial Corporation
- --------------------------------------------------------------------------------
for a large contract in the defense segment. Customer advances increased
$19,068,000 at December 31, 2000 from December 31, 1999, in accordance with the
contractual terms of certain transportation and defense contracts.
The Company paid cash dividends of $.40 per share in 2000, 1999 and 1998.
Aggregate payments amounted to $4,954,000 in 2000, $4,910,000 in 1999 and
$4,927,000 in 1998.
The ratio of current assets to current liabilities was 1.7 at the end of
2000 and 1.9 at the end of 1999.
Capital expenditures were $7,108,000 in 2000 and $12,530,000 in 1999.
There were no material commitments for the acquisition of capital assets as of
December 31, 2000.
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, 2000, the
Company had no outstanding borrowings under the Agreements. The amount available
under the Revolving Line of Credit Agreement is $17,500,000 with various
interest rate options, and is reduced by the letter of credit obligations, which
may not exceed $16,500,000. The letter of credit obligations outstanding at
December 31, 2000 and 1999 under the Agreement were $16,113,000 and $9,779,000,
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 by
the Company and its subsidiaries are pledged as collateral under the Agreement.
The Company expects to meet its cash requirements for 2001, including
amounts necessary to fund business ventures, from current cash, operations and
borrowings available under its existing line of credit, which expires on June
30, 2001, and believes that during the next twelve months it will have adequate
funding to meet its obligations as they come due. The Company is currently
negotiating a replacement line of credit or extension agreement and expects such
negotiation to be successful. Factors relating to the amounts of cash from
operating, financing and investing activities are presented in detail in the
Consolidated Statements of Cash Flows.
Environmental and Other Litigation
Detroit Stoker Company, a wholly owned subsidiary of the Company, was notified
in March 1992 by the Michigan Department of Natural Resources that it is a
potentially responsible party in connection with the clean-up of a former
industrial landfill located in Port of Monroe, Michigan. The Company is involved
in other environmental matters. See Note 15. New Accounting Pronouncements In
June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which the
Company is required to adopt effective January 1, 2001. The adoption of the new
Statement will not have a significant effect on earnings or the financial
position of the Company.
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 foreign exchange forward
contracts.
United Industrial Corporation 27
Management's Discussion and Analysis of
Financial Condition and Results of Operations -- (continued)
- --------------------------------------------------------------------------------
The following table presents firmly committed sales exposures and related
derivative contracts.
- ----------------------------------------------------------------------------------------------------------------------------------
Fair
Market Value
(In thousands, except December 31,
average contract rate) 2001 2002 2003 2004 2005 Total 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Firmly committed sales contracts
Australian Dollars $ -- $ -- $ 501 $ 380 $ 190 $1,071
Related forward contracts to sell currencies for U.S. dollars
Australian Dollars
Notional amount (USD) $ -- $ -- $ 502 $ 462 $ -- $ 964
Average contract rate (AUD/USD) -- -- .6429 .6429 -- -- $ (121)
==================================================================================================================================
Forward Looking Information
This Annual Report contains "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; the ability to
negotiate financing arrangements with lenders; legal proceedings; 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;
and U.S. and international military budget constraints and determinations.
28 United Industrial Corporation
Consolidated Statements of Operations
United Industrial Corporation
Year Ended December 31
- --------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998
- --------------------------------------------------------------------------------------------
Net sales $256,358 $216,979 $204,305
Cost of sales 214,326 161,554 152,034
============================================================================================
Gross Profit 42,032 55,425 52,271
Selling and administrative expenses 43,488 45,829 42,031
Other operating expenses-- net 669 1,011 2,043
============================================================================================
Total Operating (Loss) Income (2,125) 8,585 8,197
- --------------------------------------------------------------------------------------------
Non-operating Income and (Expenses)
Interest income 1,497 1,908 3,675
Gains on sale of assets-- net 5,511 -- 4,918
Other income 5,853 2,068 1,899
Interest expense (28) (160) (170)
Equity in net income (loss) of joint ventures 1,471 (2,879) (2,577)
Other expenses (701) (424) (62)
============================================================================================
13,603 513 7,683
Income Before Income Taxes 11,478 9,098 15,880
Provision (credit) for income taxes
Federal
Current 3,401 3,181 8,950
Deferred 82 (1,165) (3,109)
State 216 805 (2,972)
============================================================================================
Income Taxes 3,699 2,821 2,869
- --------------------------------------------------------------------------------------------
Net Income $ 7,779 $ 6,277 $ 13,011
============================================================================================
Basic Earnings Per Common Share $ .63 $ .51 $ 1.06
Diluted Earnings Per Common Share $ .62 $ .50 $ 1.03
============================================================================================
See notes to financial statements
United Industrial Corporation 29
Consolidated Balance Sheets
United Industrial Corporation
December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 11,385 $ 13,092
Trade receivables
U.S. Government 29,877 21,763
Other 31,464 26,632
================================================================================
61,341 48,395
Inventories 79,242 42,187
Prepaid expenses and other current assets 3,030 3,239
Deferred income taxes 9,587 3,041
================================================================================
Total Current Assets 164,585 109,954
- --------------------------------------------------------------------------------
Other Assets 50,799 56,005
Property and Equipment
Land 501 501
Buildings and improvements 40,403 40,065
Machinery and equipment 78,531 76,256
Furniture and fixtures 5,148 5,259
================================================================================
124,583 122,081
Less allowances for depreciation and amortization 91,582 86,248
- --------------------------------------------------------------------------------
33,001 35,833
- --------------------------------------------------------------------------------
$248,385 $201,792
================================================================================
30 United Industrial Corporation
December 31
- -------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 17,184 $ 9,837
Accrued employee compensation and taxes 8,891 7,710
Customer advances 44,773 25,705
Provision for contract losses 17,485 7,026
Federal income taxes -- 636
Other liabilities 7,345 7,847
===============================================================================
Total Current Liabilities 95,678 58,761
- -------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions 24,953 24,614
Other Liabilities 3,679 3,887
Deferred Income Taxes 9,182 3,475
Shareholders' Equity
Common stock -- par value $1.00 per share
Authorized shares -- 30,000,000
Outstanding shares:
2000 -- 12,435,038; 1999 -- 12,294,138 14,374 14,374
Additional capital 89,384 89,483
Retained earnings 26,441 23,616
Cost of shares in treasury:
2000 -- 1,939,110 shares; 1999 -- 2,080,010 shares (15,306) (16,418)
===============================================================================
Total Shareholders' Equity 114,893 111,055
- -------------------------------------------------------------------------------
$248,385 $201,792
===============================================================================
See notes to financial statements
United Industrial Corporation 31
Consolidated Statements of Cash Flows
United Industrial Corporation
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 7,779 $ 6,277 $ 13,011
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,357 7,682 7,816
Deferred income taxes 82 (1,165) (3,109)
Gains on sale of assets (5,511) -- (4,918)
Equity in income (loss) of investee companies 1,471 (2,879) (2,577)
Changes in operating assets and liabilities -- net
(Decrease) increase in current income taxes (636) (2,337) 2,343
Increase in trade receivables (12,946) (7,851) (6,497)
(Increase) decrease in inventories (37,055) (18,618) 8,221
Decrease (increase) in prepaid expenses and other current assets 209 (1,172) (425)
Increase in customer advances 19,068 21,402 761
Increase (decrease) in accounts payable, accruals
and other current liabilities 18,485 (948) (923)
Other -- net (4,659) 381 1,165
============================================================================================================================
Net Cash (Used For) Provided By Operating Activities (4,356) 772 14,868
- ----------------------------------------------------------------------------------------------------------------------------
Investing Activities
Advances to investees (4,544) (7,131) (17,169)
Repayment of advances by investees 12,978 10,834 4,434
Purchase of marketable securities -- (2,200) (5,693)
Sale of marketable securities -- 6,902 7,093
Purchase of property and equipment (7,108) (12,530) (14,032)
Net proceeds from sale of assets 5,277 -- 19,850
============================================================================================================================
Net Cash Provided By (Used For) Investing Activities 6,603 (4,125) (5,517)
- ----------------------------------------------------------------------------------------------------------------------------
Financing Activities
Payments on long-term debt and borrowings (2,300) (12,943) (5,729)
Proceeds from borrowings 2,300 12,943 --
Dividends (4,954) (4,910) (4,927)
Purchase of treasury shares -- -- (1,475)
Proceeds from exercise of stock options 1,000 229 808
============================================================================================================================
Net Cash Used for Financing Activities (3,954) (4,681) (11,323)
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (1,707) (8,034) (1,972)
Cash and Cash Equivalents at Beginning of Year 13,092 21,126 23,098
============================================================================================================================
Cash and Cash Equivalents at End of Year $ 11,385 $ 13,092 $ 21,126
============================================================================================================================
See notes to financial statements
32 United Industrial Corporation
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 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 accounting principles
generally accepted in the United States 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 Company's 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 short-term
investment funds.
Inventories
Inventories are stated at the lower of cost or market. At December 31, 2000 and
1999, approximately 4% and 6%, respectively, of total inventory was priced by
the last-in, first-out (LIFO) method with the remainder priced at actual or
average cost. If the first-in, first-out (FIFO) method of inventory pricing had
been used, inventories would have been approximately $3,572,000 higher than
reported on December 31, 2000 and $3,691,000 higher than reported on December
31, 1999.
Revenue and Gross Profit Recognition
The Company generally follows the percentage-of-completion method of accounting
for its long-term contracts. Sales and gross profit are principally recognized
as work is performed based on the relationship between actual costs incurred and
total estimated costs, including warranties, at completion. Amounts representing
contract change orders, claims or other items are included in sales only when
they can be reliably estimated and realization is probable. Incentives or
penalties, estimated warranty costs and awards applicable to performance on
contracts are considered in estimating sales and profit rates, and are recorded
when there is sufficient information to assess anticipated contract performance.
When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are reflected
United Industrial Corporation 33
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
in earnings in the current period. Anticipated losses on contracts or programs
in progress are charged to earnings when identified.
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 4.
Noncontract revenue is recorded when the product is shipped or when the
services are provided.
Property and Equipment
Property and equipment are stated at cost. The policy of the Company is to
provide for depreciation on the straight-line 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
Basic earnings per share is based on the weighted-average-number of common
shares outstanding. Diluted earnings per share gives effect to the assumed
exercise of dilutive options using, where appropriate, the treasury stock
method.
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 7.
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 purpose of the
Company's foreign exchange currency hedging activities is to protect the Company
from the risk that the eventual U.S. dollar cash flows resulting from the sale
of products to international customers will be adversely affected by changes in
exchange rates. Deferred gains and losses are included in other assets and
liabilities and recognized in earnings when the future sales occur. At December
31, 2000 the Company has foreign currency forward contracts with a large
financial institution for Australian dollars having maturities of four years to
hedge contract payments scheduled to be received within four years. The
aggregate notional value of these contracts was $964,000, with an aggregate loss
of $121,000 based on fair market value.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on foreign exchange contracts. The amount of such exposure is
generally the unrealized gain or loss on such contracts. The Company does not
hold or issue financial instruments for trading purposes.
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 on January 1, 2001. The adoption of the new Statement
will not have a significant effect on earnings or the financial position of the
Company.
34 United Industrial Corporation
- --------------------------------------------------------------------------------
Note 3 Trade Receivables
- --------------------------------------------------------------------------------
Amounts due from the U.S. Government primarily related to long-term contracts of
the Company's defense segment were as follows:
December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Amounts billed $25,773 $16,592
Unbilled recoverable costs and earned fees 2,650 4,979
Retainage per contract provisions 1,454 192
================================================================================
$29,877 $21,763
================================================================================
Billed and unbilled amounts include $2,979,000 and $3,727,000 at December 31,
2000 and 1999, 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 4 Inventories
- --------------------------------------------------------------------------------
December 31
- -------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------
Finished goods and work in progress $ 4,194 $ 6,448
- -------------------------------------------------------------------------------
Costs and earnings relating to long-term contracts 108,396 43,642
Deduct progress payments related to long-term contracts (35,682) (11,188)
- -------------------------------------------------------------------------------
Costs and earnings in excess of billings 72,714 32,454
- -------------------------------------------------------------------------------
Total finished goods and work in progress 76,908 38,902
Materials and supplies 2,334 3,285
===============================================================================
$ 79,242 $ 42,187
===============================================================================
The inventoried costs associated with long-term contracts include costs
and earnings of $72,714,000 in 2000 and $32,454,000 in 1999 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
and transportation segments 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
United Industrial Corporation 35
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
throughout the lives of the contracts. Adjustments of earnings resulting from
the revisions are recorded on a current basis. The Company recognized losses of
$21,333,000 ($13,376,000 net of tax benefit) and $7,680,000 ($4,815,000 net of
tax benefit) during 2000 and 1999, respectively, resulting primarily from
revision of cost estimates on certain major long-term transportation contracts.
Included in the costs and earnings in excess of billings for 1999 was
$2,284,000 on certain government contracts of the subsidiary sold in 2000.
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 5 Other Assets
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Net pension asset $44,516 $39,262
Advances to investee 1,010 12,444
Patents and other intangible assets, net 1,484 3,855
Other 3,789 444
================================================================================
$50,799 $56,005
================================================================================
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
$715,000 in 2000, $885,000 in 1999 and $1,526,000 in 1998. Accumulated
amortization amounted to $4,122,000 and $9,970,000 at December 31, 2000 and
1999, respectively. The sale of Symtron Systems, Inc. reduced the December 31,
1999 intangible assets by $2,038,000. Other includes the investment in Electric
Transit, Inc. ("ETI") which was increased $3,999,000 during 2000. The increase
was due to the Company's recovery of $1,334,000 of losses recorded during 1999
in excess of its 35% equity interest and the capitalization of $3,000,000 of
certain accounts receivable from ETI to fund previously recorded losses by the
venture, less its equity share of losses during 2000 totaling $335,000.
Receivables of $4,603,000 and $7,701,000 from investees under subcontracts were
classified as accounts receivable at December 31, 2000 and 1999, respectively.
- --------------------------------------------------------------------------------
Note 6 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. At December 31, 2000 and 1999, there
were no borrowings under the Agreement. 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
$16,500,000. The Revolving Line of Credit Loan Agreement expires June 30, 2001.
The Company is currently negotiating a
36 United Industrial Corporation
- --------------------------------------------------------------------------------
replacement line of credit or extension agreement and expects such negotiation
to be successful. The letter of credit obligations outstanding at December 31,
2000 and 1999 under the Agreement were $16,113,000 and $9,779,000, 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 $28,000 in 2000, $160,000 in 1999 and $170,000 in 1998.
Interest paid was $64,000 in 2000, $166,000 in 1999 and $494,000 in 1998.
- --------------------------------------------------------------------------------
Note 7 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, May 1998 to
1,800,000 and May 1999 to 2,400,000) 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 2000, 1999 and 1998 under the
plans, net income and net income per common share would have decreased to the
pro forma amounts indicated below:
Year ended December 31
- --------------------------------------------------------------------------------
(Dollars in thousands,
except per share amounts) 2000 1999 1998
- --------------------------------------------------------------------------------
Net Income:
As reported $ 7,779 $ 6,277 $13,011
Pro forma 7,023 5,566 12,406
Net income per common share:
As reported:
Basic .63 .51 1.06
Diluted .62 .50 1.03
Pro forma:
Basic .57 .45 1.01
Diluted .56 .44 .98
================================================================================
United Industrial Corporation 37
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
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 2000, 1999 and 1998, respectively: dividend
yields of 4.7%, 3.9% and 3.5%; expected volatility of 46%, 39% and 31%;
risk-free interest rates of 6.4%, 4.7% and 5%; and expected lives of eight years
in 2000, three to five years in 1999 and five years in 1998. The
weighted-average fair value of an option granted was $2.97, $2.64 and $2.78 for
the years ended December 31, 2000, 1999 and 1998, respectively.
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, 1998 840 $ 6.44
Granted 538 12.01
Exercised (148) 5.38
Canceled (4) 7.50
- --------------------------------------------------------------------------------
Balance at December 31, 1998 1,226 9.01
- --------------------------------------------------------------------------------
Granted 489 9.36
Exercised (42) 5.47
- --------------------------------------------------------------------------------
Balance at December 31, 1999 1,673 9.20
- --------------------------------------------------------------------------------
Granted 320 8.56
Exercised (139) 7.17
Canceled (90) 10.65
- --------------------------------------------------------------------------------
Balance at December 31, 2000 1,764 9.17
- --------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------
(Shares in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Exercisable 1,125 833 411
Available for future grants 496 727 615
================================================================================
The weighted-average remaining life for options outstanding as of December
31, 2000, is 7 years.
The following table summarizes information about stock options outstanding
at December 31, 2000:
- --------------------------------------------------------------------------------
(Shares in thousands) Shares
- --------------------------------------------------------------------------------
Range of Exercise Prices Exercisable Outstanding
- --------------------------------------------------------------------------------
$4.50 to $7.00 274 274
$7.50 to $9.81 484 1,009
$10.25 to $13.00 367 481
- --------------------------------------------------------------------------------
1,125 1,764
================================================================================
38 United Industrial Corporation
- --------------------------------------------------------------------------------
Note 8 Leases
- --------------------------------------------------------------------------------
Total rental expense for all operating leases amounted to $3,612,000 in 2000,
$2,883,000 in 1999 and $2,178,000 in 1998. Contingent rental payments were not
significant.
The future minimum rental commitments as of December 31, 2000, for all
noncancellable leases are $3,762,000 in 2001; $3,487,000 in 2002; $2,695,000 in
2003; $1,095,000 in 2004; $961,000 in 2005; and $3,027,000 thereafter.
- --------------------------------------------------------------------------------
Note 9 Changes in Shareholders' Equity
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common Share-
Shares Common Additional Retained Treasury holders'
(In thousands) Outstanding Stock Capital Earnings Stock Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 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
Net income -- -- 6,277 -- 6,277
Cash dividends declared ($.40 per share) -- -- (4,910) -- (4,910)
Stock options 42 -- (102) -- 331 229
Employee awards 2 -- 2 -- 16 18
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 12,294 14,374 89,483 23,616 (16,418) 111,055
Net income -- -- 7,779 -- 7,779
Cash dividends declared ($.40 per share) -- -- (4,954) -- (4,954)
Stock options 139 -- (100) -- 1,100 1,000
Employee awards 2 -- 1 -- 12 13
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 12,435 $ 14,374 $ 89,384 $ 26,441 $(15,306) $114,893
==================================================================================================================================
United Industrial Corporation 39
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
Note 10 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, 2000, and a statement of
the funded status as of December 31 of both years.
- -------------------------------------------------------------------------------------------------------------------------
Pension Benefits Other Postretirement Benefits
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $129,834 $155,899 $ 23,550 $ 25,072
Service cost 1,229 1,608 550 590
Interest cost 9,988 10,370 1,915 1,595
Amendments 6,129 -- 549 --
Curtailments -- 2,134 -- 1,328
Actuarial loss (gain) 9,160 (14,379) 1,747 (3,515)
Administrative expenses (26) (30) -- --
Settlements -- (14,674) -- --
Benefits paid (12,290) (14,054) (2,216) (1,520)
Special termination benefits -- 2,960 -- --
- -------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $144,024 $129,834 $ 26,095 $ 23,550
- -------------------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $191,816 $193,724
Actual return on plan assets (2,353) 26,850
Administrative expenses (26) (30)
Settlements -- (14,674)
Benefits paid (12,290) (14,054)
- -------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $177,147 $191,816
- -------------------------------------------------------------------------------------------------------------------------
Funded (underfunded) status of the plan $ 33,123 $ 61,982 $(26,095) $(23,550)
Unrecognized net transition asset (181) (269) -- (549)
Unrecognized net actuarial (gain) loss 13,326 (20,343) 360 (822)
Unrecognized prior service cost (1,752) (2,108) 782 307
- -------------------------------------------------------------------------------------------------------------------------
Prepaid benefit (accrued cost) $ 44,516 $ 39,262 $(24,953) $(24,614)
- -------------------------------------------------------------------------------------------------------------------------
Weighted-average Assumptions
Discount rate 7.5% 8% 7.5% 8%
Expected return on plan assets 8.5% 8.5% -- --
Rate of compensation increase 4% 4% -- --
=========================================================================================================================
40 United Industrial Corporation
- --------------------------------------------------------------------------------
For the purpose of measuring the other postretirement obligations a 6.8
percent annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2000. The rate was assumed to decrease to 5.5 percent
in 2005 and remain at that level thereafter.
- ----------------------------------------------------------------------------------------------------------------------------
Pension Benefits Other Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
Service cost $ 1,229 $ 1,608 $ 1,377 $ 550 $ 590 $ 612
Interest cost 9,988 10,370 10,618 1,915 1,595 1,662
Expected return on plan assets (16,029) (16,003) (15,250) -- -- --
Amortization of prior service cost (357) (413) (413) 76 44 46
Amortization of unrecognized transition assets (88) (88) (88) -- -- --
Settlement-- curtailment -- 25 -- -- 760 --
Recognized net actuarial loss (31) -- (3) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Benefit (income) cost $ (5,288) $ (4,501) $ (3,759) $2,541 $2,989 $2,320
============================================================================================================================
Net periodic benefit costs for the defense segment are considered contract
costs and are included in Cost of sales in the Statements of Operations. Net
periodic benefit costs for other segments are classified as other income.
During 2000 the Pension Plan was amended to provide improvements in the
accrual rates and interest-crediting rate.
During 1999, in order to induce a workforce reduction at the Company's AAI
Corporation subsidiary, additional benefits were offered to eligible employees
under an Early Retirement Program. Those employees electing early retirement
were paid benefits in lump sums. The Early Retirement Program increased the
pension plan's Projected Benefit Obligation, however, this was completely offset
by an accumulated actuarial gain as of December 31, 1999. Accordingly, there was
no impact on plan expense for 1999. The enhanced benefits offered under the
Early Retirement Program regarding post-retirement medical benefits resulted in
an increase in that liability and such cost was recognized in 1999.
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.
One of these plans was amended effective January 1, 2000 to provide
benefits to employees not previously covered.
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:
United Industrial Corporation 41
Notes to Financial Statements -- (continued)
- -------------------------------------------------------------------------------------------------
1-Percentage 1-Percentage
Point Point
(Dollars in thousands) Increase Decrease
- -------------------------------------------------------------------------------------------------
Effect on total of service and interest cost components in 2000 $ 128 $ (121)
Effect on postretirement benefit obligation as of
December 31, 2000 $1,152 $(1,106)
=================================================================================================
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 $1,377,000 in 2000, $1,303,000 in 1999 and $1,309,000 in 1998.
- --------------------------------------------------------------------------------
Note 11 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 aerial vehicles, training and
simulation systems, automated aircraft test and maintenance equipment, and
combat vehicles and ordnance systems. The defense segment also included
specialized firefighting training installations until the sale of Symtron
Systems, Inc. in September 2000. See Note 16. 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.
Sales to agencies of the United States Government, primarily by the
defense segment, were $132,975,000 in 2000, $133,328,000 in 1999 and
$106,763,000 in 1998. No single customer, other than the United States
Government, accounted for 10 percent or more of net sales in any year. Export
sales were $57,110,000 in 2000, $42,120,000 in 1999 and $40,994,000 in 1998.
42 United Industrial Corporation
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Defense Transportation Energy Other Reconciliations Totals
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000
- --------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $200,743 $ 20,075 $35,540 $ -- $ -- $256,358
Intersegment revenues 1,291 -- -- -- (1,291) --
Equity profit in ventures 472 999 -- -- -- 1,471
Interest income 2,504 -- 354 193 (1,554) 1,497
Interest expense 458 59 11 1,054 (1,554) 28
Depreciation and amortization expense 7,270 1,271 746 70 -- 9,357
Gain (loss) on sale of assets -- -- (28) 5,539 -- 5,511
Segment profit (loss) 20,628 (21,442) 4,718 7,574 -- 11,478
Segment assets 145,894 70,867 36,247 136,286 (140,909) 248,385
Capital expenditures 4,369 2,055 673 11 -- 7,108
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $175,493 $ 9,296 $32,190 $ -- $ -- $216,979
Intersegment revenues 2,103 -- -- -- (2,103) --
Equity profit (loss) in ventures 483 (3,362) -- -- -- (2,879)
Interest income 3,129 -- 263 4,900 (6,384) 1,908
Interest expense 730 155 1 5,658 (6,384) 160
Depreciation and amortization expense 5,951 902 760 69 -- 7,682
Segment profit (loss) 19,278 (13,112) 4,586 (1,654) -- 9,098
Segment assets 152,917 33,755 35,083 129,976 (149,939) 201,792
Capital expenditures 9,922 1,623 971 14 -- 12,530
- --------------------------------------------------------------------------------------------------------------------------
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 and amortization expense 6,530 498 751 37 -- 7,816
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 136,164 27,285 33,399 218,779 (235,106) 180,521
Capital expenditures 11,593 928 1,075 436 -- 14,032
==========================================================================================================================
United Industrial Corporation 43
Notes to Financial Statements -- (continued)
- ------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------
Revenues
Total external revenues for
reportable segments $ 256,358 $ 216,979 $ 204,305
Intersegment revenues for
reportable segments 1,291 2,103 3,759
Elimination of intersegment revenues (1,291) (2,103) (3,759)
- ------------------------------------------------------------------------------------
Total Consolidated Revenues $ 256,358 $ 216,979 $ 204,305
- ------------------------------------------------------------------------------------
Profit or Loss
Income before income taxes
for reportable segments $ 11,478 $ 9,098 $ 15,880
- ------------------------------------------------------------------------------------
Assets
Total assets for reportable segments $ 389,294 $ 351,731 $ 415,627
Elimination of intercompany receivables -- (7,886) (29,957)
Elimination of investment in
consolidated subsidiaries (127,822) (125,345) (189,174)
Reclassification of deferred tax liabilities (13,087) (16,708) (15,975)
- ------------------------------------------------------------------------------------
Total Consolidated Assets $ 248,385 $ 201,792 $ 180,521
- ------------------------------------------------------------------------------------
Other Significant Items
Elimination of intercompany interest $ 1,554 $ 6,384 $ 12,294
====================================================================================
Segment profit (loss) includes research and development costs amounting to
$2,661,000 in 2000, $2,630,000 in 1999 and $989,000 in 1998, principally in the
defense segment.
44 United Industrial Corporation
- --------------------------------------------------------------------------------
Note 12 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) 2000 1999 1998
- -------------------------------------------------------------------------------
Federal income taxes at statutory rate $3,902 $3,094 $5,481
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) 48 531 (1,961)
Provision for nondeductible expenses
(including $94 related to contingent
payments in 1998 on an acquisition) -- 296 378
Non-taxable income (576) (548) (651)
Other -- net 325 (552) (378)
- -------------------------------------------------------------------------------
Income Taxes $3,699 $2,821 $2,869
================================================================================
Income tax payments were $4,000,000 in 2000, $4,600,000 in 1999 and
$6,000,000 in 1998.
Deferred income tax balances:
December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Deferred Tax Assets
Losses on long-term contracts not currently deductible $ 7,767 $ 4,330
Postretirement benefits other than pensions
and other employee benefits 10,549 10,307
Product warranty and other provisions 2,480 3,827
Vacation pay accruals 745 733
Other 129 99
- --------------------------------------------------------------------------------
Total Deferred Tax Assets 21,670 19,296
================================================================================
Deferred Tax Liability
Pension plans and other employee benefits (17,747) (15,852)
Excess tax depreciation (1,995) (2,349)
Insurance recovery (861) --
Patent amortization -- (938)
Other (662) (591)
- --------------------------------------------------------------------------------
Total Deferred Tax Liability (21,265) (19,730)
- --------------------------------------------------------------------------------
Net Deferred Tax Asset (Liability) $ 405 $ (434)
================================================================================
The net deferred tax liability is classified as follows:
Net current deferred income tax assets $ 9,587 $ 3,041
- --------------------------------------------------------------------------------
Net non-current deferred income tax liability $ (9,182) $ (3,475)
================================================================================
The deferred tax liability was reduced by $921,000 in connection with the
disposed business. See Note 16.
United Industrial Corporation 45
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
Note 13 Other Operating Expenses, Net, Other Income, Net, and Other Expenses
- --------------------------------------------------------------------------------
Year ended December 31
- --------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Other Operating Expenses, Net
Reduction of deferred compensation liability $ (208) $ (288) $ --
Amortization of intangibles 715 874 1,511
Write off of receivable 162 -- --
Write off of assets -- 425 267
Contingent payout to sellers of acquired business -- -- 265
- --------------------------------------------------------------------------------
Total other operating expenses, net $ 669 $1,011 $2,043
================================================================================
Other Income, Net
Pension income $2,126 $1,754 $1,565
Settlements of lawsuits-- net 3,183 -- --
Royalties and commissions 408 314 64
Insurance refund 68 -- --
Government contract refund -- -- 270
Other 68 -- --
- --------------------------------------------------------------------------------
Total other income $5,853 $2,068 $1,899
================================================================================
Other Expenses
Professional fees-- potential disposition $ 271 $ -- $ --
Miscellaneous items, none of which are material 430 424 62
- --------------------------------------------------------------------------------
Total other expenses $ 701 $ 424 $ 62
================================================================================
46 United Industrial Corporation
- --------------------------------------------------------------------------------
Note 14 Selected Quarterly Data (Unaudited)
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data 2000 1999
and stock prices) Fourth Third Second First Fourth Third Second First
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 79,700 $ 65,797 $60,925 $ 49,936 $ 63,783 $52,094 $ 54,032 $47,070
Gross profit 8,707 5,827 14,522 12,976 11,693 14,572 14,105 15,055
Net income 838 2,146 2,566 2,229 443 2,096 1,424 2,314
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $ .07 $ .17 $ .21 $ .18 $ .03 $ .17 $ .12 $ .19
Diluted $ .07 $ .17 $ .20 $ .18 $ .03 $ .17 $ .11 $ .19
===================================================================================================================================
Dividends declared per share $ .10 $ .10 $ .10 $ .10 $ .10 $ .10 $ .10 $ .10
- -----------------------------------------------------------------------------------------------------------------------------------
Stock prices:
High $11 9/16 $11 10/16 $ 10 $10 5/16 $ 9 3/4 $11 3/8 $ 12 1/2 $11 7/8
Low $ 10 $ 8 15/16 $8 3/16 $ 8 2/16 $7 15/16 $ 7 3/8 $9 11/16 $8 9/16
===================================================================================================================================
The Company's common stock is listed on the New York Stock Exchange. The
approximate number of shareholders of record as of February 15, 2001 was 2,200.
- --------------------------------------------------------------------------------
Note 15 Commitments and Contingencies
- --------------------------------------------------------------------------------
In prior years, the Company, along with numerous other parties, was named in
five tort actions in Maricopa County Superior Court relating to certain
environmental matters. The Company reached an agreement to settle all of these
matters with the plaintiffs for, among other items, a cash payment of
$4,250,000, which was paid in May 1999. This amount was accrued for as of and
for the year ended December 31, 1998. The Superior Court of Maricopa County
approved the settlement during 2000.
In addition, during 2000 the Company reached an agreement with two
insurance carriers for recovery of certain of its costs related to these
environmental matters. The settlement has been included in Other income in the
accompanying Consolidated Statements of Operations.
Detroit Stoker, a wholly owned subsidiary of the Company, 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
United Industrial Corporation 47
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
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's financial position, results of
operations or cash flows.
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 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, 2000.
In connection with the contractual obligations of ETI, a company owned 35%
by AAI Corporation ("AAI"), a wholly owned subsidiary of the Company, and 65% by
Skoda a.s., a Czech Republic firm, AAI has guaranteed 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 have a material adverse effect on product
margins and the Company's results of operations, liquidity or financial
condition.
In February 2000, the Czech Export Bank ("CEB") approved credit facilities
to ETI and two Skoda subsidiaries in order to finance the design and manufacture
of electric trolley buses for the city and county of San Francisco ("MUNI").
These credit facilities are partially guaranteed by the Czech government's
Export Guarantee and Insurance Corporation ("EGAP"). In addition, the Company
has agreed to assume joint and several liability on progress payment bonds
totaling approximately $47,000,000 at December 31, 2000. These progress payment
bonds are expected to be eliminated when the MUNI customer accepts certain
deliveries. Although the Company has accepted full responsibility under these
progress payment bonds, Skoda retains its 65% obligation that is partially
guaranteed by EGAP. In addition, a previously existing bond that guarantees
performance under the MUNI contract obligates the Company to indemnify the
surety, if necessary, for up to approximately $16,000,000. It is expected that
there will be sufficient working capital to complete the MUNI program.
In February 2000, the Company was informed of a warranty issue by one of
its customers. Based upon this information, in the fourth quarter of 1999, the
Company recorded a $5,000,000 provision for the estimate of the future warranty
costs to be incurred. In 2000 the provision was increased by $1,300,000.
48 United Industrial Corporation
- --------------------------------------------------------------------------------
Note 16 Disposed Business
- --------------------------------------------------------------------------------
On September 29, 2000, the Company sold all its capital stock of Symtron
Systems, Inc. ("Symtron"). The sale resulted in a gain of $5,539,000.
The Consolidated Statements of Operations include Symtron's net sales of
$7,663,000, $16,217,000 and $16,842,000 in 2000, 1999 and 1998, respectively.
Symtron had a net loss of $950,000 in 2000 and net profits of $712,000 and
$159,000 in 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
Note 17 Earnings per Share
- --------------------------------------------------------------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,779,000 $ 6,277,000 $13,011,000
Basic earnings per share -- weighted-average shares 12,384,000 12,275,000 12,307,000
Effect of dilutive securities: employee and non-employee director stock options 225,000 234,000 302,000
- ------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share -- adjusted weighted-average and assumed conversions 12,609,000 12,509,000 12,609,000
- ------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $.63 $.51 $1.06
- ------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $.62 $.50 $1.03
==============================================================================================================================
- --------------------------------------------------------------------------------
Note 18 Investment in Unconsolidated Investees
- --------------------------------------------------------------------------------
In 1993, 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. Presently,
ETI is owned 35% by AAI, and 65% by Skoda. ETI has won contracts in both Dayton,
Ohio for the Miami Valley Regional Transit Authority and the city and county of
San Francisco, California ("MUNI"). Under these contracts, which are valued at
$32,444,000 and $187,568,000, respectively, AAI has received subcontracts of
$9,350,000 and $63,617,000, respectively.
United Industrial Corporation 49
Notes to Financial Statements -- (continued)
- --------------------------------------------------------------------------------
During the years ended December 31, 2000, 1999 and 1998, the sales, cost
of sales and gross profit recognized by AAI on subcontracts with ETI are as
follows:
- -------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- -------------------------------------------------------------------
Sales $ 2,360 $1,728 $6,286
Cost of sales 4,082 1,852 5,951
- -------------------------------------------------------------------
Gross (loss) profit $(1,722) $ (124) $ 335
===================================================================
Due to Skoda's inability to fund ETI during 1999 as required by ETI's
shareholder agreement, AAI assumed that responsibility in its entirety. While
Skoda still had the obligation to provide funding, during 1999, AAI recorded
100% of ETI's loss which totalled $3,362,000 ($2,108,000, net of taxes). The
loss in excess of AAI's 35% equity interest in ETI totalled $2,185,000
($1,370,000, net of taxes).
During 2000 ETI repaid to AAI $3,605,000 that was previously advanced to
ETI by AAI on behalf of Skoda. The transportation segment included in income
$1,334,000 ($836,000, net of taxes) of the losses in excess of 35% recorded
during 1999. Excluding the adjustment to reduce previously recorded losses, the
Company recorded a loss of $335,000 related to its equity interest in the net
loss of ETI during 2000. The losses during 2000 and 1999 were primarily caused
by warranty cost growth on the Dayton program. All the trolley buses for Dayton
were delivered to and accepted by the customer and the program is substantially
completed. In 2000, the Dayton electric trolley buses were removed from service
for repairs. Such costs are expected to be funded by Skoda's warranty under its
subcontract with ETI.
At December 31, 2000, AAI's advances to ETI were $539,000 less than its
investment and cumulative losses in ETI. At December 31, 1999, AAI advanced to
ETI, net of its investment and cumulative losses in ETI, $6,797,000. In
addition, AAI has accounts receivable from ETI for work performed on both its
Dayton and San Francisco contracts of $1,314,000 and $2,152,000 at December 31,
2000 and 1999, respectively.
Summary financial information of the Electric Transit, Inc. entity is as
follows:
- -------------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
- -------------------------------------------------------------------
Current assets $43,008 $33,984 23,123
Plant, property and equipment
and other assets 8,118 4,819 4,643
Current liabilities 68,015 54,550 40,058
Net sales 4,673 18,615 20,922
Gross profit (loss) (637) (2,853) (7,357)
Net loss (956) (3,362) (7,981)
===================================================================
50 United Industrial Corporation
Report of Independent Auditors
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
United Industrial Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 28, 2001
United Industrial Corporation 51
Five-Year Financial Data
United Industrial Corporation
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Operating Data
Net Sales $ 256,358 $ 216,979 $ 204,305 $ 235,183 $ 220,822
Operating costs 258,483 208,394 196,108 221,978 211,120
Interest (income) expense -- net (1,469) (1,748) (3,505) (529) 964
Income before income taxes 11,478 9,098 15,880 30,606 10,641
Income taxes 3,699 2,821 2,869 15,781 4,237
Net income 7,779 6,277 13,011 14,825 6,404
Earnings per Share:(a)
Basic .63 .51 1.06 1.22 .53
Diluted .62 .50 1.03 1.19 .52
Cash dividends paid on common stock 4,954 4,910 4,927 3,536 2,434
Cash dividends declared per common share .40 .40 .40 .29 20
Shares outstanding as of year end (in thousands) 12,435 12,294 12,250 12,249 12,174
Financial Position
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 248,385 $ 201,792 $ 180,521 $ 181,199 $ 177,780
Property and equipment 33,001 35,833 30,566 25,576 41,534
Long-term debt -- -- -- 4,479 --
Shareholders' equity 114,893 111,055 109,441 102,024 90,145
Shareholders' equity per share 9.24 9.03 8.93 8.33 7.40
Financial Ratios
- -----------------------------------------------------------------------------------------------------------------------------
Return on shareholders' equity 6.8% 5.7% 11.9% 14.5% 7.1%
Net income as a percent of sales 3.0 2.9 6.4 6.3 2.9
Long-term debt as a percent of total capitalization -- -- -- 4.2 --
Statistical Data
- -----------------------------------------------------------------------------------------------------------------------------
Sales backlog as of year end $ 414,000 $ 293,000 $ 210,000 $ 188,000 $ 159,000
Capital expenditures 7,108 12,530 14,032 6,926 6,299
Depreciation and amortization 9,357 7,682 7,816 9,559 8,306
Number of employees 1,700 1,600 1,800 1,800 1,900
=============================================================================================================================
(a) The 1996 earnings per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128 "Earnings per Share."
52 United Industrial Corporation
Corporate Organization
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Harold S. Gelb
Chairman of the Board
Edward C. Aldridge, Jr.
President and
Chief Executive Officer
The Aerospace Corporation
Richard R. Erkeneff
President and Chief Executive
Officer of the Company and
AAI 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
James H. Perry
Vice President, Chief Financial
Officer and Treasurer
Robert W. Worthing
Vice President, General Counsel
and Secretary
Maurice P. Ranc
Vice President and General
Manager, Defense Systems
and Engineering and
Maintenance Services
Joseph G. Thomas
Vice President and
Deputy General Manager,
UAV Systems
Thomas E. Wurzel
President
AAI/ACL Technologies, Inc.
David A. Gray
Vice President
and General Manager,
Transportation Systems
Detroit Stoker Company
Michael J. DiMonte
President and
Chief Executive Officer
Mark A. Eleniewski
Executive Vice President
Gary K. Ludwig
Vice President, Finance
United Industrial Corporation 53
Corporate and Shareholder Information
- --------------------------------------------------------------------------------
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
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
59 Maiden Lane
New York, New York 10007
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, NY 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 8, 2001, at:
The Park Lane Hotel
36 Central Park South
New York, New York 10019
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, NY 10022
Or by e-mail to:
invest@unitedindustrial.com
STOCK LISTING
United Industrial Corporation
common stock is traded on
[UIC Logo] the New York Stock Exchange
(Ticker Symbol: UIC)
INTERNET ADDRESS
http://www.unitedindustrial.com
54 United Industrial Corporation
DESIGNED AND PRODUCED BY TAYLOR & IVES, INC., NYC PHOTOGRAPHY: TED HOROWITZ
United Industrial Corporation
570 Lexington Avenue
New York, NY 10022
212.752.8787
www.unitedindustrial.com
[PHOTO]