<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-K
----------------
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999.
</TABLE>
or
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE
TRANSITION
PERIOD FROM TO
</TABLE>
Commission file number: 1-4252
UNITED INDUSTRIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 95-2081809
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
</TABLE>
570 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
____(212) 752-8787____
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
<S> <C>
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/.
Aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of March 6, 2000,
computed by reference to the closing sale price of the registrant's Common Stock
on the New York Stock Exchange on such date: $93,047,518.
On March 6, 2000, the registrant had outstanding 12,373,638 shares of Common
Stock, par value $1.00 per share, which is the registrant's only class of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Certain portions of the registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1999 are incorporated by reference into Parts
I and II of this report.
2. Certain portions of the registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, in connection with the Annual Meeting of Shareholders of the
registrant to be held on May 9, 2000 are incorporated by reference into Part
III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
FORWARD LOOKING INFORMATION
This Annual Report contains "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; legal proceedings;
product demand and market acceptance risks; the effect of economic conditions;
the impact of competitive products and pricing; product development,
commercialization and technological difficulties; capacity and supply
constraints or difficulties; legislative or regulatory actions impacting the
Company's energy segment and transportation business; changing priorities or
reductions in the U.S. government defense budget; contract continuation and
future contract awards; and U.S. and international military budget constraints
and determinations.
ITEM 1. BUSINESS
At December 31, 1999, the operations of United consist of three principal
business segments: defense, transportation and energy systems, principally
conducted through three wholly-owned subsidiaries.
DEFENSE
AAI CORPORATION
AAI Corporation ("AAI") is engaged in engineering, development and
manufacture in the following major areas: (1) training and simulation systems;
(2) automatic test equipment for electronic systems and components;
(3) unmanned aerial vehicle systems; (4) ordnance systems; and (5) mechanical
support systems for industrial, military, and marine applications. Since its
inception, AAI's business has been primarily in support of the U.S. Department
of Defense ("DOD"). Since 1990, the Company has emphasized diversification into
other markets to reduce its dependence on the DOD. The United States defense
budget has been significantly reduced in recent years and this trend is expected
to continue. In 1999 approximately 79% of the sales volume of AAI consisted of
research, development and production of military items under domestic defense
contracts compared to 70% in 1998. Certain of the contracts currently being
worked on by AAI involve testing systems for U.S. Navy aircraft, training
equipment for the U.S. Air Force and U.S. Navy, and weapons handling systems for
the U.S. Army. International defense contracts accounted for 5.6% of sales in
1999 as compared to 14% in 1998. These contracts generally related to unmanned
aerial vehicle systems and weapon training systems for foreign governments. The
balance of AAI's non-transportation business consists of work performed in the
non-defense markets, principally hydraulic test equipment.
Because of the variety of its activities, it is not possible to state
precisely the competitive position of AAI with respect to each of its product
lines. In the area of training and simulation systems, AAI is one of
approximately ten leading organizations developing equipment for the U.S.
Government. AAI's ability to obtain orders for training and simulation systems
is dependent principally on the ability, expertise and training of its employees
and the level of funding by the DOD and foreign military users. A number of
large and small companies produce automatic test equipment that compete with AAI
for
2
<PAGE>
market share. In the area of weapons and munitions, AAI ranks among
approximately ten leading companies engaged in development work. However, AAI's
production activity in this field is less significant. AAI began development in
the Unmanned Aerial Vehicle ("UAV") business in 1986. The Company produces the
highly successful Pioneer Unmanned Aerial Vehicle employed by the United States
during Operation Desert Storm and in the conflicts in Somalia and Bosnia. In
addition, AAI has other UAV systems and products which it markets
internationally. AAI is one of several large and small competitors in this
field.
AAI's administrative offices and its principal manufacturing and engineering
facilities are located in Hunt Valley, Maryland.
SYMTRON SYSTEMS, INC.
Symtron Systems, Inc. ("Symtron") is a world leader in the development and
sale of advanced, computer controlled, gas-fueled, live-fire firefighter
training systems for public and private industry. Symtron started development of
these systems under an initial contract with the U.S. Army in 1978. Contingent
purchase price amounts were payable if certain pretax profits, as defined in the
purchase agreement, were earned for each of the years in the five year period
ended December 31, 1998. Included in general and administrative expenses in 1998
and 1997 are such contingent payments totaling $265,000 and $723,000,
respectively. The 1999 general and administrative expense includes $107,000 as
an adjustment of 1998 contingent payments. Symtron's 1999 sales consisted of
production for military and commercial customers. The main office and plant of
Symtron are located in Fair Lawn, New Jersey. In the international markets,
Symtron is faced with significant competition from several small firms.
ENERGY SYSTEMS
DETROIT STOKER COMPANY
Detroit Stoker Company ("Detroit Stoker") is a leading supplier of stokers
and related combustion equipment for the production of steam used in heating,
industrial processing and electric power generation around the world. Detroit
Stoker offers a full line of stokers for burning bituminous and lignite coals as
well as biomass, municipal solid waste and industrial by-products. Detroit
Stoker also provides auxiliary equipment and services including fuel feed and
ash removal systems, gas/oil burners and complete aftermarket services for its
products. Principal markets include Pulp and Paper, Public Utilities,
Independent Power Producers, Industrial manufacturing, Institutional and
Cogeneration facilities. The products of Detroit Stoker compete with those of
several other manufacturers. Competition is based on several factors including
price, features and performance.
Detroit Stoker's waste to energy technology is used extensively in both
public and private plants that generate steam and power from municipal waste.
Its solid fuel combustion technologies are particularly well suited for biomass
fuels that generate power from waste products such as bark, sugar cane, sawdust,
sunflower hulls, and poultry litter. The combustion of biomass fuels is gaining
worldwide popularity, as it does not contribute to global warming.
Detroit Stoker exports its products to Europe, Asia, South America and
Australia, and is a market leader in North America. Detroit Stoker's
globalization strategy is to further expand both its customer and supplier base
in each of these regions.
Detroit Stoker's administrative offices and its principal manufacturing
operations are located in Monroe, Michigan. Detroit Stoker also operates a
foundry through a subsidiary (Midwest Metallurgical Laboratory, Inc.) in
Marshall, Michigan. The foundry is engaged in the manufacture of grey and
ductile iron, stainless steel and special alloy iron castings that are
principally used in Detroit Stoker's products.
3
<PAGE>
TRANSPORTATION
AAI Transportation Systems, a division of AAI, is engaged in the
manufacturing and integration of transit systems primarily for municipal
customers within the United States. Its products and services are focused in
overhaul, fabrication, assembly and systems integration.
Electric Transit, Inc. (ETI), a corporation owned 35% by AAI and 65% by
Skoda, a Czech Republic firm, has become one of the domestic market leaders in
manufacturing electric trolley buses. It has won contracts in both Dayton, Ohio
for the Miami Valley Regional Transit Authority and the city and county of San
Francisco, the only such contracts awarded in the United States since 1994. ETI
is an unconsolidated affiliate of AAI and accordingly, AAI records its equity
share of income or loss in ETI. Under these contracts which are valued at
$32 million and $174 million, respectively, AAI has received subcontracts of
$9.4 million and $54.4 million, respectively.
In addition to its electric trolley bus business, AAI performs overhaul and
remanufacturing work for a variety of transit customers and produces an
assortment of transit equipment including fabricated trucks for both heavy and
light railcars.
The products and services of Transportation Systems compete with those of
several other larger as well as smaller manufacturers. The main office and
operating facilities are located in Hunt Valley, Maryland.
For additional information concerning United's subsidiaries reference is
made to information set forth in the Letter to Shareholders contained in
United's 1999 Annual Report to Shareholders (the "Annual Report"), which letter
is incorporated herein by reference. Reference is also made to the information
set forth in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report, which
section is incorporated herein by reference.
GENERAL
EMPLOYEES
As of March 1, 2000 United and its subsidiaries had approximately 1,600
employees. Approximately 113 of these employees are represented by several
unions under contracts expiring between July 2000 and January 2001. United
considers its employee relationships to be satisfactory.
PATENTS
United and its subsidiaries own more than 100 United States patents relating
to various products, including stokers, marine equipment, ordnance and
electronic equipment and firefighter trainers. In addition, United has numerous
pending applications for patents. There is no assurance as to how many patents
will be issued pursuant to these pending applications. The applications relate
to a wide variety of fields, including automation control systems, ordnance
devices, and electronic developments. No patent is considered to be of material
importance to United.
RESEARCH AND DEVELOPMENT
During 1999, 1998 and 1997, the subsidiaries of United (exclusive of AAI)
expended approximately $117,000, $201,000 and $144,000, respectively, on the
development of new products and the improvement of existing products. All of the
programs and the funds to support such programs are sponsored by the subsidiary
involved. In addition to the above amount, AAI is engaged in research and
development primarily for the U.S. Government.
4
<PAGE>
BACKLOG
The backlog of orders by industry segment at December 31, 1999 and 1998 was
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Defense.......................................... $153,048,000 $146,634,000
Energy Systems................................... 4,750,000 9,334,000
Transportation................................... 135,018,000 53,860,000
</TABLE>
Except for approximately $93,000,000, substantially all of the backlog
orders at December 31, 1999 are expected to be filled in 2000.
GOVERNMENT CONTRACTS
No single customer other than the U.S. Government, principally the
Department of Defense, accounted for 10% or more of net sales during the year.
Sales to the U.S. Government normally carry a lesser margin of profit than
commercial sales and may be subject to price redetermination under certain
circumstances. Contracts for such sales can be terminated for the convenience of
the U.S. Government.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
For financial information with respect to industry segments of United,
reference is made to the information set forth in Note 12 of the Notes to
Financial Statements included in Item 8 of this Report, which Note is
incorporated herein by reference.
FOREIGN OPERATIONS AND EXPORT SALES
United and its subsidiaries have no significant foreign operations. During
1999, 1998 and 1997, export sales by United and its subsidiaries amounted to
approximately $42,120,000, $40,994,000 and $41,832,000, respectively.
5
<PAGE>
ITEM 2. PROPERTIES
United maintains executive and administrative offices at leased premises at
570 Lexington Avenue, New York, N.Y., which lease expires in August 2008. The
following is a tabulation of the principal properties owned or leased by
United's subsidiaries as at March 24, 2000.
<TABLE>
<CAPTION>
APPROXIMATE
AREA OWNED
LOCATION PRINCIPAL USE IN SQUARE FEET OR LEASED
- -------- ------------- -------------- ---------
<S> <C> <C> <C>
1510 East First Street Machine shop, steel 194,910 floor Owned in fee
Monroe, MI fabrication, engineering and space on 14.4
sales facilities of Detroit acres of land
Stoker (East
Building)
1426 East First Street Assembly, shipping and 101,000 floor Owned in fee
Monroe, MI administrative facilities of space on 2.2
Detroit Stoker acres of land
(West
Building)
15290 Fifteen Mile Road Foundry, Midwest 59,386 floor Owned in fee
Marshall, MI Metallurgical space on 28.4
acres of land
2735 W Fifth Assembly and Administrative 59,000 Leased to
North Street Facility of AAI November 30, 2002
Summerville, SC
21945 Three Noch Road Office Space of AAI 1,100 Leased to
Lexington Park, MD May 31, 2000
562 A&B North Dixie Blvd. Office Space of AAI 6,000 Leased to
Radcliffe, KY July 31, 2000
Industry Lane Manufacturing, engineering 429,750 floor Owned in fee
Hunt Valley, MD and administrative space on 64
facilities of AAI acres of land
Clubhouse Road Manufacturing, engineering Leased to:
Hunt Valley, MD and administrative 153,727 10/31/2003
facilities of AAI 29,600 4/30/2005
48,090 4/30/2005
55,987 2/29/2005
1701 Pollitt Drive Administrative, engineering 30,000 Leased to
Fair Lawn, NJ and manufacturing facilities June 30, 2001
of Symtron
3200 Enterprise Street Manufacturing, engineering 131,544 Leased to
Brea, CA and administrative April 2009
facilities of ACL
Technologies
1213 Jefferson Davis Highway Office Space 2,200 Leased to
Arlington, VA 22202 February 28, 2001
</TABLE>
6
<PAGE>
For information with respect to obligations for lease rentals, see Note 9 to
the Financial Statements in the Annual Report, which Note is incorporated herein
by reference. United considers its properties to be suitable and adequate for
its present needs. The properties are being substantially utilized.
ITEM 3. LEGAL PROCEEDINGS
The Company, along with numerous other parties, has been named in five tort
actions in Maricopa County Superior Court relating to environmental matters
based on allegations partially related to a predecessor's operation of a small
facility at a site in the State of Arizona that manufactured semi-conductors
between 1959 and 1960. All such operations of the Company were sold by 1961.
These tort actions seek recovery for personal injury and property damage among
other damages based on exposure to solvents allegedly released at the site.
These suits allege that the plaintiffs have been exposed to contaminated
groundwater in the Phoenix/Scottsdale, Arizona area and suffer increased risk of
disease and other physical effects. They also assert property damages under
various theories; seek to have certain scientific studies performed concerning
health risks, preventative measures and long-term effects; and seek incidental
and consequential damages, punitive damages, and an injunction against actions
causing further exposures.
The Company reached an agreement to settle all of these matters with the
plaintiffs for, among other items, a cash payment of $4,250,000. The Superior
Court of Maricopa County has scheduled a hearing for final approval of the
settlement for March 14, 2000.
Detroit Stoker was notified in March 1992 by the Michigan Department of
Natural Resources ("MDNR") that it is a potentially responsible party in
connection with the clean-up of a former industrial landfill located in Port of
Monroe, Michigan. MDNR is treating the Port of Monroe landfill site as a
contaminated facility within the meaning of the Michigan Environmental Response
Act ("MERA"). Under MERA, if a release or a potential release of a discarded
hazardous substance is or may be injurious to the environment or to the public
health, safety, or welfare, MDNR is empowered to undertake or compel
investigation and response activities in order to alleviate any contamination
threat. Detroit Stoker intends to aggressively defend these claims. At this
time, no estimate can be made as to the amount or range of potential loss, if
any, to Detroit Stoker with respect to this action.
The Company is involved in various other lawsuits and claims, including
certain other environmental matters, arising out of the normal course of its
business. In the opinion of management, the ultimate amount of liability, if
any, under pending litigation, including claims described above, will not have a
materially adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in May to elect officers for the ensuing year.
Interim elections are held as required. Except as otherwise indicated, each
executive officer has held his current position for the past five years.
<TABLE>
<CAPTION>
AGE AT
DECEMBER
NAME POSITION, OFFICE 31, 1999
- ---- --------------------------------------------------------------- --------------
<S> <C> <C> <C>
Richard R. Erkeneff* -- President of the Company (since October 1995) and 64
AAI (since November 1993).
Robert Worthing -- Vice President and General Counsel of the Company 54
(since July, 1995); General Counsel of AAI (since
April, 1992).
Susan Fein Zawel* -- Vice President, Corporate Communications and 45
Associate General Counsel (since June 1995),
Secretary (since May 1994) and Counsel (1992 to
1995) of the Company.
James H. Perry -- Vice President (since May 1998), Chief Financial 38
Officer (since October, 1995) and Treasurer (since
December 1994) of the Company.
</TABLE>
- ------------------------
* Member of the Company's Board of Directors
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Reference is made to the information set forth in Note 14 to the Financial
Statements included in Item 8 of this Report concerning dividends, stock prices,
stock listing and number of record holders, which information is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth in the sections entitled
"Five-Year Financial Data" in the Annual Report, which section is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the information set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report, which section is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information regarding Quantitative and Qualitative
Disclosures About Market Risk contained in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report, which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included in the Annual Report are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the definitive proxy statement involving the election
of directors in connection with the Annual Meeting of Shareholders of United to
be held on May 9, 2000 (the "Proxy Statement"), which section (other than the
Compensation Committee Report and Performance Graph) is incorporated herein by
reference. The Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1999, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
The information required with respect to executive officers is set forth in
Part I of this report under the heading "Executive Officers of the Registrant,"
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report and Performance Graph) is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information to be set forth in the section entitled
"Voting Rights" and "Security Ownership of Management" in the Proxy Statement,
which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report and Performance Graph) is incorporated herein by
reference.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this report entitled "List of
Financial Statements and Financial Statement Schedules".
<TABLE>
<S> <C>
(3) Exhibits:
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- Amended and Restated By-Laws of United (3).
(10)(a)- United Industrial Corporation 1994 Stock Option Plan, as
amended (4).
(10)(b) United Industrial Corporation 1996 Stock Option Plan for
Nonemployee Directors (5).
(10)(c)- Purchase Agreement, dated January 18, 1994, between United
and Symtron Systems, Inc. (2).
(10)(d)- Revolving Line of Credit Loan Agreement, Term Loan Agreement
and Security Agreement dated as of June 11, 1997 (amending
and restating Credit Agreement dated as of October 13, 1994)
by and among First Union Commercial Corporation and the
Company, AAI Corporation, AAI Engineering Support, Inc., AAI
Systems Management, Inc., AAI/ACL Technologies, Inc.,
Detroit Stoker Company, Midwest Metallurgical Laboratory,
Inc., Neo Products Co., Symtron Systems, Inc., UIC-Del.
Corporation and AAI MICROFLITE Simulation International
Corporation (6).
(10)(e)- Pledge and Security Agreement dated as of October 13, 1994
by AAI in favor of the Agent (7).
(10)(f)- Pledge and Security Agreement dated as of October 13, 1994
by the Company in favor of the Agent (7).
(10)(g)- Security Agreement dated as of October 13, 1994 between AAI
and the Agent (7).
(10)(h)- Security Agreement dated as of October 13, 1994 between each
subsidiary of AAI, certain subsidiaries of the Company and
the Agent (7).
(10)(i)- Guaranty dated as of October 13, 1994 by the Company and
certain of its subsidiaries and by each subsidiary of AAI in
favor of the Agent (7).
(10)(j)- Employment Agreement, dated December 8, 1998, between United
and Richard R. Erkeneff (1).
(10)(k)- Employment Agreement, dated March 3, 2000, between United
and Susan Fein Zawel.
(10)(l)- Employment Agreement, dated March 3, 2000, between United
and Robert Worthing.
(10)(m)- Employment Agreement, dated March 3, 2000, between United
and James H. Perry.
(13)- United's 1999 Annual Report to Shareholders.
(21)- Subsidiaries of United.
(23)- Consent of Independent Auditors.
(27)- Financial Data Schedule.
</TABLE>
11
<PAGE>
- ------------------------
(1) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1998.
(2) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1993, filed with the Securities and Exchange
Commission on March 31, 1994, File No. 1-4252.
(3) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1995.
(4) Incorporated by reference to United's Registration Statement on Form S-8,
filed with the Securities and Exchange Commission on January 10, 1997.
(5) Incorporated by reference to United's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on June 26, 1997.
(6) Incorporated by reference to United's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
(7) Incorporated by reference to United's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
(b) - Reports on Form 8-K--United did not file any reports on Form 8-K
during the quarter ended December 31, 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
UNITED INDUSTRIAL CORPORATION
(Registrant)
By: /s/ RICHARD R. ERKENEFF
------------------------------------------
Richard R. Erkeneff, President
Date: March 29, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME
----
<S> <C>
/s/ HAROLD S. GELB
------------------------------------------------
Harold S. Gelb March 29, 2000
Chairman of the Board and Director
/s/ JOSEPH S. SCHNEIDER
------------------------------------------------
Joseph S. Schneider March 29, 2000
Director
/s/ RICHARD R. ERKENEFF
------------------------------------------------
Richard R. Erkeneff March 29, 2000
President and
Chief Executive Officer and Director
/s/ EDWARD C. ALDRIDGE, JR.
------------------------------------------------
Edward C. Aldridge, Jr. March 29, 2000
Director
/s/ E. DONALD SHAPIRO
------------------------------------------------
E. Donald Shapiro March 29, 2000
Director
/s/ SUSAN FEIN ZAWEL
------------------------------------------------
Susan Fein Zawel March 29, 2000
Vice President and Director
/s/ JAMES H. PERRY
------------------------------------------------
James H. Perry
Vice President, Treasurer and March 29, 2000
Chief Financial Officer (Principal
Financial and Accounting Officer)
</TABLE>
13
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(A) (1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1999
UNITED INDUSTRIAL CORPORATION
NEW YORK, NEW YORK
<PAGE>
Form 10-K--Item 14(a) (1) and (2)
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of United Industrial
Corporation and subsidiaries, included in the annual report of the registrant to
its shareholders for the year ended December 31, 1999, are incorporated by
reference in Item 8:
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Operations--Years Ended December 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows--Years Ended December 31, 1999, 1998
and 1997
Notes to Financial Statements
The following consolidated financial statement schedule of United Industrial
Corporation and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of United Industrial
Corporation and subsidiaries as of December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, and have issued our
report thereon dated February 29, 2000. Our audits also included the financial
statement schedule listed in Item 14(d) of this Annual Report (Form 10-K). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 29, 2000
F-3
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------- ---------- --------------------------- ----------- ----------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
- ------------------------------- ---------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $ 235,000 $ 235,000
========== ==========
Product warranty liability..... $ 640,000 $5,000,000 $ 40,000 (A) $5,600,000
========== ========== =========== ==========
Year ended December 31, 1998:
Deducted from asset account:
Allowance for doubtful
accounts..................... $ 240,000 $ 5,000 (A) $ 235,000
========== =========== ==========
Product warranty liability..... $1,072,000 $432,000 (A) $ 640,000
========== =========== ==========
Year ended December 31, 1997:
Deducted from asset account:
Allowance for doubtful
accounts..................... $ 245,000 $ 5,000(A) $ 240,000
========== =========== ==========
Product warranty liability..... $ 579,000 $ 493,000 $1,072,000
========== ========== ==========
</TABLE>
- ------------------------
(A) Reduction of valuation account.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- --------
<S> <C> <C> <C>
(3)(a) -- Restated Certificate of Incorporation of United (1).
(3)(b) -- Amended and Restated By-Laws of United (3).
(10)(a) -- United Industrial Corporation 1994 Stock Option Plan, as
amended (4).
(10)(b) -- United Industrial Corporation 1996 Stock Option Plan for
Nonemployee
Directors (5).
(10)(c) -- Purchase Agreement, dated January 18, 1994, between United
and Symtron Systems, Inc. (2).
(10)(d) -- Revolving Line of Credit Loan Agreement, Term Loan Agreement
and Security Agreement dated as of June 11, 1997 (amending
and restating Credit Agreement dated as of October 13, 1994)
by and among First Union Commercial Corporation and the
Company, AAI Corporation, AAI Engineering Support, Inc., AAI
Systems Management, Inc., AAI/ACL Technologies, Inc.,
Detroit Stoker Company, Midwest Metallurgical Laboratory,
Inc., Neo Products Co., Symtron Systems, Inc., UIC-Del.
Corporation and AAI MICROFLITE Simulation International
Corporation (6).
(10)(e) -- Pledge and Security Agreement dated as of October 13, 1994
by AAI in favor of the Agent (7).
(10)(f) -- Pledge and Security Agreement dated as of October 13, 1994
by the Company in favor of the Agent (7).
(10)(g) -- Security Agreement dated as of October 13, 1994 between AAI
and the Agent (7).
(10)(h) -- Security Agreement dated as of October 13, 1994 between each
subsidiary of AAI, certain subsidiaries of the Company and
the Agent (7).
(10)(i) -- Guaranty dated as of October 13, 1994 by the Company and
certain of its subsidiaries and by each subsidiary of AAI in
favor of the Agent (7).
(10)(j) -- Employment Agreement dated December 8, 1998, between United
and Richard R. Erkeneff (1).
(10)(k) -- Employment Agreement, dated March 3, 2000, between United
and Susan Fein Zawel.
(10)(l) -- Employment Agreement, dated March 3, 2000, between United
and Robert Worthing.
(10)(m) -- Employment Agreement, dated March 3, 2000, between United
and James H. Perry.
(13) -- United's 1999 Annual Report to Shareholders.
(21) -- Subsidiaries of United.
(23) -- Consent of Independent Auditors.
(27) -- Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT INDEX
- ------------------------
(1) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1998.
(2) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1993, filed with the Securities and Exchange
Commission on March 31, 1994, File No. 1-4252.
(3) Incorporated by reference to United's Annual Report on Form 10-K for the
year ended December 31, 1995.
(4) Incorporated by reference to United's Registration Statement on Form S-8,
filed with the Securities and Exchange Commission on January 10, 1997.
(5) Incorporated by reference to United's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on June 26, 1997.
(6) Incorporated by reference to United's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.
(7) Incorporated by reference to United's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
<PAGE>
EXHIBIT 10(K)
UNITED INDUSTRIAL CORPORATION
EMPLOYMENT AGREEMENT
S. FEIN ZAWEL
AGREEMENT made this 3rd day of March 2000, by and between UNITED
INDUSTRIAL CORPORATION, a Delaware corporation having an address 570 Lexington
Avenue, New York, New York 10022 (hereinafter called "Employer"), and SUSAN FEIN
ZAWEL, having an address at 31 Harrows Lane, Purchase, NY 10577 (hereinafter
called "Employee").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee
agrees to serve Employer upon the terms and conditions hereinafter set forth.
2. TERM. The term of this Agreement shall commence January 3,
2000, (the "Effective Date") and subject to the provisions of Sections 3,4, and
10 hereof, terminate as of the close of business at the date three (3) years
after the Effective Date (the "Termination Date"). The period from the Effective
Date through the Termination Date is referred to as the term of this Agreement.
3. DUTIES AND EXTENT OF SERVICES. Employee agrees to serve
Employer and its subsidiary companies faithfully and to the best of her ability
under the direction of the Board of Directors and President of Employer,
devoting her entire business time, energy and skill to her duties hereunder. The
principal place of employment of Employee shall be at the offices of Employer
currently located at 570 Lexington Avenue, New York, New York. Employee
understands and agrees, however, that in connection with her employment
hereunder, she may be required from time to time to travel on behalf of
Employer. If the principal place of employment of the Employee shall change
prior to the Termination Date because of a change in Employer's offices to a
location which is more than 50 miles from the office presently located at 570
Lexington Avenue, New York, New York, the Employee shall have the option within
30 days after such change to terminate this Agreement by sending written notice
of termination to Employer, and thereupon her employment pursuant to this
Agreement shall terminate and Employee shall be entitled to no further payments
hereunder, other than (i) for any compensation due pursuant to Sections 4 and
(ii) the reimbursements pursuant to Section 9 hereof, of any expenses incurred
prior to the date of such termination.
<PAGE>
The principal duties of Employee shall be to serve as Vice
President, Corporate Communications, Associate General Counsel, and Secretary
and, in such capacity, to render such managerial, administrative and other
services to Employer and its subsidiaries as normally are associated with and
incident to such positions as Employer from time to time may require of her. If,
during the term of this Agreement, the Board of Directors of Employer so
determines, in its absolute discretion, to elect Employee to any additional
office of Employer or its subsidiary companies consistent with her position, or
a director of its subsidiary companies, Employee agrees to accept and serve in
such office or capacity for no additional compensation or remuneration.
4. COMPENSATION.
(a) CASH COMPENSATION. Employer agrees to pay to Employee,
as compensation for all of the services to be rendered by Employee under or
pursuant to this Agreement, compensation as follows.
(i) Employee shall receive as compensation for her
services hereunder an annual salary ("Base Compensation") of $170,512.00, which
sum shall be payable in accordance with the normal payroll practices of
Employer. Employee shall be reviewed annually and shall be entitled to such
increases in her Base Compensation as the Board of Directors may determine,
considering the recommendation of the President and Chief Executive Officer.
(ii) Employee shall also be entitled to participate
in Employer's Performance Sharing Plan ("PSP"; or such other similar bonus or
incentive plan approved by Employer's Board of Directors and its Compensation
Committee), that will afford Employee an opportunity to earn incentive
compensation equivalent to a sum derived using at least the same target
incentive percentage (40%) as used under the 1999 plan). The plan shall be based
upon meeting certain goals and benchmarks. In its discretion, the Board of
Directors may award Employee such greater sum as it may determine.
(iii) Such salary and incentive shall be subject to
annual review by Employer's Board of Directors and, at the discretion of the
Board, may be increased, but not decreased below such amount and the incentive
shall be not less than the sum resulting under the PSP process.
(iv) If Employee's employment terminates due to any
reason other than "for cause," including Employee's voluntary termination, prior
to the end of the Compensation Year, Employee shall be entitled to an incentive
compensation award at least equal to the sum calculated for her base salary in
accordance with the PSP, but pro rata to the number of days employed
2
<PAGE>
during the Compensation Year. If Employee's employment is terminated "for cause"
prior to the time that the Earned Incentive Compensation is approved by the
Employer's Board of Directors for employees of Employer generally, Employee
shall not be entitled to any incentive compensation.
(v) If during the term of this Agreement, or if
this Agreement is not renewed or superceded, after the term of this Agreement,
Employee's employment ceases for any reason other than "for cause," death, or
Employee's voluntary departure (other than for "Good Reason" as defined below),
the Employee shall be entitled, in addition to the compensation provided for
above, to a sum equivalent to not less than her "Base Severance Compensation"
that is a sum equal to one hundred fifty percent (150%) of Employee's annualized
salary plus an Incentive Compensation Award equal to thirty-four percent (34%)
of the 150% annualized salary, payable in accordance with the normal payroll
practices of Employer over a period of eighteen months following cessation of
employment. If the date employment ceases is prior to the last eighteen (18)
months of the term of this Agreement, the Employee shall be compensated for the
remainder of this Agreement at her annualized salary plus an Incentive
Compensation Award equal to the sum calculated for her base salary in accordance
with the PSP or, if more, the amount provided for under the "Base Severance
Compensation." Under the circumstances above, any and all stock options awarded
to Employee that have not expired by the terms of each grant shall fully vest
for purposes of each such grant.
For purposes hereof, "Good Reason" shall mean
any of the following, unless consented to by Employee in writing:
(a) a termination by Employee pursuant to
Section 3 hereof;
(b) the assignment to Employee of any
duties materially inconsistent with Employee's position as set forth in Section
3 hereof, Employee's removal from such position or a substantial diminution in
such position, duties or responsibilities, which is not remedied by Employer
within ten days after receipt of written notice thereof from Employee;
(c) a reduction in Employer's compensation
pursuant to Sections 4(a) (i) and (ii) hereof as in effect on the date hereof or
as increased from time to time; or
(d) a failure of Employer to continue to
provide Employee with benefits substantially as contemplated by Section 4(b)
hereof.
3
<PAGE>
(b) EMPLOYEE BENEFIT PLANS. During the term of this
Agreement, Employee shall be eligible to participate in any life insurance,
medical, retirement, pension or profit-sharing, disability or other benefit
plans or arrangements now or hereafter generally made available by Employer to
executive employees of Employer to the extent Employee qualifies under the
provisions of any such plans. Subject to the foregoing, Employer shall have the
right to change insurance companies and modify insurance policies covering
employees of Employer. In addition, notwithstanding any provision herein to the
contrary, Employee shall be entitled to continuation of the same or equivalent
benefits during the months following cessation of employment so long as Employee
is entitled to payments pursuant to Sections 4 hereof.
(c) AUTOMOBILE ALLOWANCE. Employer shall pay to Employee an
automobile allowance of ten thousand dollars ($10,000) per annum, commencing as
of the Effective Date, payable in accordance with Employer's normal payroll
practices.
(d) VACATION. Employee shall be entitled to four (4) weeks
vacation with pay per year.
(e) TAXES. Employee understands that any and all payments
described in this Agreement will be subject to such tax treatment as applies
thereto, and to such withholding as may be required under applicable tax laws.
5. NO COMPETITION. Employee agrees that during the term of this
Agreement she will not, within the continental United States, directly or
indirectly, engage or participate or make any financial investments in or become
employed by or render advisory or other services to or for any person, firm or
corporation, or in connection with any business activity, other than that of
Employer and its subsidiary companies, directly or indirectly in competition
with any of the business operations or activities of Employer and its subsidiary
companies. Nothing herein contained, however, shall restrict Employee from
making any investments in any company whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market, so long
as such investment does not give her the right to control or influence the
policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of Employer or any of its subsidiary companies.
4
<PAGE>
6. CONFIDENTIALITY; ETC.
(a) Employee will not divulge, furnish or make accessible to
anyone (other than in the regular course of business of Employer or any of its
subsidiary companies) any knowledge or information with respect to confidential
or secret methods, processes, plans or materials of Employer or any of its
subsidiary companies, or with respect to any other confidential or secret
aspects of the business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known to
Employer all knowledge possessed by her relating to any methods, developments,
inventions and/or improvements, whether patented, patentable or unpatentable
which concerns in any way the business of Employer or any of its subsidiary
companies or the general industry of which they are a part, from the time of
entering upon employment until the termination thereof, and whether acquired by
Employee before or during the term of his employment; PROVIDED, HOWEVER, that
nothing herein shall be construed as requiring any such communication where the
method, development, invention and/or improvement is lawfully protected from
disclosure as the trade secret of a third party, including, without limitation,
any former employer of Employee or by any other lawful bar to such
communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of the
business of Employer or any of its subsidiary companies, which Employee may
conceive of or make while in the employ of Employer, shall be and remain the
property of Employer. Employee agrees promptly to communicate and disclose all
such methods, developments, inventions and/or improvements to Employer and to
execute and deliver to Employer any instruments deemed necessary by Employer to
effect disclosure and assignment thereof to it. Employee further agrees, on
request of Employer, to execute patent applications based on such methods,
developments, inventions and/or improvements, including any other instruments
deemed necessary by Employer for the prosecution of such patent applications or
the acquisition of Letters Patent in the United States and/or any foreign
countries.
(d) Employee agrees that for a period of two (2) years from
and after the termination or expiration of his employment by Employer, whether
pursuant to the terms of this Agreement or otherwise, she will not:
(i) directly or indirectly solicit, raid, entice or
induce any employee of Employer or of any of its subsidiary companies to be
employed
5
<PAGE>
by any person, firm or corporation which is, directly or indirectly, in
competition with the business or activities of Employer or any of its subsidiary
companies; or
(ii) directly or indirectly approach any such
employee for these purposes; or
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person, firm or corporation,
or assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or
induce any person, firm or corporation (other than the U.S. Government or its
agencies) who or which on the date hereof is, or at any time during the period
of employment hereunder shall be, a customer of Employer or of any of its
subsidiary companies to become a customer for the same or similar products which
it purchased from Employer or any of its subsidiary companies, of any other
person, firm or corporation, and Employee shall not approach any such customer
for such purpose or authorize or knowingly approve the taking of such actions by
any other person.
(e) Employee agrees that during the term of her employment
by Employer, whether under this Agreement or otherwise, she will not at any time
enter into, on behalf of Employer or any of its subsidiary companies, or cause
Employer or any of its subsidiary companies to enter into, directly or
indirectly, any transactions with any business organization in which she or any
member of her immediate family may be interested as a partner, trustee,
director, officer, employee, shareholder, lender of money or guarantor.
7. INJUNCTIVE RELIEF. Employee acknowledges that the services to
be rendered by her hereunder are of a special, unique and extraordinary
character and that it would be very difficult or impossible to replace such
services and further that irreparable injury would be sustained by Employer and
its subsidiary companies in the event of a violation by Employee of any of the
provisions of this Agreement, and by reason thereof Employee consents and agrees
that if she violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction to be issued by any court of competent jurisdiction
restraining her from committing or continuing any violation of this Agreement.
8. SURVIVAL OF PROVISIONS. The provisions of Sections 4, 5, 6, 7,
and 10 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reason therefor.
6
<PAGE>
9. EXPENSES. Employer shall reimburse Employee for all reasonable
expenses incurred by her on behalf of Employer in the performance of her duties
hereunder, provided that proper vouchers are submitted to Employer by Employee
evidencing such expenses and the purposes for which the same were incurred.
10. DISABILITY. If Employee shall be incapacitated by reason of
mental or physical disability or otherwise during the term of this Agreement so
that she is prevented from performing her principal duties and services
hereunder for a period of three (3) consecutive months or one or more periods
aggregating three (3) months during any twelve (12) month period, Employer shall
have the right to terminate this Agreement by sending written notice of
termination to Employee, and thereupon her employment pursuant to this Agreement
shall terminate and Employee shall be entitled to no further payments hereunder,
other than (i) for any compensation due pursuant to Section 4 (a)(i),(iv) and
(v) hereof, and (ii) the reimbursement, pursuant to Section 9 hereof, of any
expenses incurred prior to the date of such termination. For purposes of this
Section 10, amounts payable under subsection (i) hereof shall be inclusive of
amounts paid to Employee in lieu of normal cash compensation under Employer
sponsored Short Term and Long Term Disability Insurance policies during the
eighteen months following cessation of employment. In other words, Employer will
pay only that amount in excess of the insurance payments made each month that is
necessary to provide Employee with cash compensation equal to what would have
been paid pursuant to Section 4 but for the insurance payments.
11. DEATH. In the event of the death of Employee during the term
hereof, this Agreement shall automatically terminate and Employer shall have no
further obligations hereunder, other than to pay to Employee's estate any
compensation due pursuant to Section 4 (a)(i) and (iv) hereof through the date
of such termination and to reimburse, pursuant to Section 9 hereof, any expenses
incurred by Employee through the date of such termination.
12. TERMINATION BY EMPLOYER FOR CAUSE. Employer shall have the
right to terminate the employment of Employee under this Agreement as well as
any and all payments to be made hereunder, other than for any compensation due
pursuant to Section 4 (a)(i) hereof through the date of such termination and any
reimbursement, pursuant to Section 9 hereof, of expenses incurred by Employee
through the date of such termination, if Employee shall commit any of the
following acts of default:
(a) Employee shall have committed any material breach of any
of the provisions or covenants set forth herein; or
7
<PAGE>
(b) Employee shall have committed any act of gross
negligence in the performance of his duties or obligations hereunder; or
(c) Employee shall have committed any material act of
dishonesty or breach of trust against Employer or any of its subsidiary
companies; or
(d) Employee's conviction of, or plea of NOLO CONTENDERE to,
a felony.
If Employer elects to terminate this Agreement as set forth above,
Employer shall send written notice to Employee terminating this Agreement and
describing the action of Employee constituting the act of default, and thereupon
no further payments of any type shall be made or shall be payable to Employee
hereunder notwithstanding any other provisions of this Agreement, except as set
forth in the first sentence of this Section 12.
13. NO CONFLICTING AGREEMENTS. Employee represents and warrants
that she is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would in any way restrict or prohibit her from
undertaking or performing employment in accordance with the terms and conditions
of this Agreement.
14. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof, and no
statement, representation, warranty or covenant has been made by either party
except as expressly set forth herein. This Agreement shall not be changed or
terminated orally. This Agreement supersedes and cancels all prior agreements
between the parties, or any subsidiary of Employer whether written or oral,
relating to the employment of Employee.
15. APPLICABLE LAW. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York, without
regard to its conflict of laws principles.
16. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, telecopied or mailed, first class, postage
prepaid, certified mail, return receipt requested, to each of the parties at its
or her address above written or as set forth beneath their signatures below or
at such other address or telecopy number as either of the parties may designate
in conformity with the foregoing.
8
<PAGE>
17. SECTION HEADINGS. The Section headings set forth in this
Agreement are for convenience only and shall not be considered as part of this
Agreement in any respect nor shall they in any way affect the substance of any
provisions contained in this Agreement.
18. SUCCESSORS AND ASSIGNS. This Agreement shall not be assignable
by Employee. All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs and
personal representatives of Employee and the successors and assigns of Employer.
19. SEVERABILITY. If, at any time subsequent to the date hereof,
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION EMPLOYEE
By: /s/ Richard R. Erkeneff /s/ Susan Fein Zawel
----------------------- --------------------
Richard R. Erkeneff Susan Fein Zawel
President & CEO Fax: (914) 684-1084
Fax No.: (212) 838-4629
9
<PAGE>
EXHIBIT 10(L)
UNITED INDUSTRIAL CORPORATION
EMPLOYMENT AGREEMENT
R. W. WORTHING
AGREEMENT made this 3rd day of March 2000, by and between UNITED
INDUSTRIAL CORPORATION, a Delaware corporation having an address 570 Lexington
Avenue, New York, New York 10022 (hereinafter called "Employer"), and ROBERT W.
WORTHING, having an address at 16326 Matthews Road, Monkton, Maryland 21111
(hereinafter called "Employee").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee
agrees to serve Employer upon the terms and conditions hereinafter set forth.
2. TERM. The term of this Agreement shall commence January 3, 2000,
(the "Effective Date") and subject to the provisions of Sections 3,4, and 10,
hereof, terminate as of the close of business at the date three (3) years after
the Effective Date (the "Termination Date"). The period from the Effective Date
through the Termination Date is referred to as the term of this Agreement.
3. DUTIES AND EXTENT OF SERVICES. Employee agrees to serve Employer
and its subsidiary companies faithfully and to the best of his ability under the
direction of the Board of Directors and President of Employer, devoting his
entire business time, energy and skill to his duties hereunder. The principal
place of employment of Employee shall be at the offices of Employer currently
located at Industry Lane in Hunt Valley, Maryland. Employee understands and
agrees, however, that in connection with his employment hereunder, he may be
required from time to time to travel on behalf of Employer. If the principal
place of employment of the Employee shall change prior to the Termination Date
because of a change in Employer's or AAI Corporation's offices to a location
which is more than 50 miles from the offices presently located at Industry Lane,
the Employee shall have the option within 30 days after such change to terminate
this Agreement by sending written notice of termination to Employer, and
thereupon his employment pursuant to this Agreement shall terminate and Employee
shall be entitled to no further payments hereunder, other than (i) for any
compensation due pursuant to Section 4 and (ii) the reimbursements pursuant to
Section 9 hereof, of any expenses incurred prior to the date of such
termination.
<PAGE>
The principal duties of Employee shall be to serve as Vice
President and General Counsel of Employer and, in such capacity, to render such
managerial, administrative and other services to Employer and its subsidiaries
as normally are associated with and incident to such positions as Employer from
time to time may require of him. If, during the term of this Agreement, the
Board of Directors of Employer so determines, in its absolute discretion, to
elect Employee to any additional office of Employer or its subsidiary companies
consistent with his position, or a director of its subsidiary companies,
Employee agrees to accept and serve in such office or capacity for no additional
compensation or remuneration.
4. COMPENSATION.
(a) CASH COMPENSATION. Employer agrees to pay to Employee, as
compensation for all of the services to be rendered by Employee under or
pursuant to this Agreement, compensation as follows.
(i) Employee shall receive as compensation for his
services hereunder an annual salary ("Base Compensation") of $220,043.00, which
sum shall be payable in accordance with the normal payroll practices of
Employer. Employee shall be reviewed annually and shall be entitled to such
increases in his Base Compensation as the Board of Directors may determine,
considering the recommendation of the President and Chief Executive Officer.
(ii) Employee shall also be entitled to participate in
Employer's Performance Sharing Plan ("PSP"; or such other similar bonus or
incentive plan approved by Employer's Board of Directors and its Compensation
Committee), that will afford Employee an opportunity to earn incentive
compensation equivalent to a sum derived using at least the same target
incentive percentage (40%) as used under the 1999 plan. The plan shall be based
upon meeting certain goals and benchmarks. In its discretion, the Board of
Directors may award Employee such greater sum as it may determine.
(iii) Such salary and incentive shall be subject to annual
review by Employer's Board of Directors and, at the discretion of the Board, may
be increased, but not decreased below such amount and the incentive shall be not
less than the sum resulting under the PSP process.
(iv) If Employee's employment terminates due to any reason
other than "for cause," including Employee's voluntary termination, prior to the
end of the Compensation Year, Employee shall be entitled to an incentive
compensation award at least equal to the sum calculated for his base salary in
accordance with the PSP, but pro rata to the number of days employed
2
<PAGE>
during the Compensation Year. If Employee's employment is terminated "for
cause" prior to the time that the Earned Incentive Compensation is approved
by the Employer's Board of Directors for employees of Employer generally,
Employee shall not be entitled to any incentive compensation.
(v) If during the term of this Agreement, or if this
Agreement is not renewed or superceded, after the term of this Agreement,
Employee's employment ceases for any reason other than "for cause," death, or
Employee's voluntary departure (other than for "Good Reason" as defined below),
the Employee shall be entitled, in addition to the compensation provided for
above, to a sum equivalent to not less than his "Base Severance Compensation"
that is a sum equal to one hundred fifty percent (150%) of Employee's annualized
salary plus an Incentive Compensation Award equal to forty-two percent (42%) of
the 150% annualized salary, payable in accordance with the normal payroll
practices of Employer over a period of eighteen months following cessation of
employment. If the date employment ceases is prior to the last eighteen (18)
months of the term of this Agreement, the Employee shall be compensated for the
remainder of this Agreement at his annualized salary plus an Incentive
Compensation Award equal to the sum calculated for his base salary in accordance
with the PSP or, if more, the amount provided for under the "Base Severance
Compensation." Under the circumstances above, any and all stock options awarded
to Employee that have not expired by the terms of each grant shall fully vest
for purposes of each such grant.
For purposes hereof, "Good Reason" shall mean any
of the following, unless consented to by Employee in writing:
(a) a termination by Employee pursuant to Section 3
hereof;
(b) the assignment to Employee of any duties
materially inconsistent with Employee's position as set forth in Section 3
hereof, Employee's removal from such position or a substantial diminution in
such position, duties or responsibilities, which is not remedied by Employer
within ten days after receipt of written notice thereof from Employee;
(c) a reduction in Employer's compensation pursuant
to Sections 4(a) (i) and (ii) hereof as in effect on the date hereof or as
increased from time to time; or
(d) a failure of Employer to continue to provide
Employee with benefits substantially as contemplated by Section 4(b) hereof.
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<PAGE>
(b) EMPLOYEE BENEFIT PLANS. During the term of this
Agreement, Employee shall be eligible to participate in any life insurance,
medical, retirement, pension or profit-sharing, disability or other benefit
plans or arrangements now or hereafter generally made available by Employer to
executive employees of Employer to the extent Employee qualifies under the
provisions of any such plans. Subject to the foregoing, Employer shall have the
right to change insurance companies and modify insurance policies covering
employees of Employer. In addition, notwithstanding any provision herein to the
contrary, Employee shall be entitled to continuation of the same or equivalent
benefits during the months following cessation of employment so long as Employee
is entitled to payments pursuant to Section 4 hereof.
(c) AUTOMOBILE ALLOWANCE. Employer shall pay to Employee an
automobile allowance of ten thousand dollars ($10,000) per annum, commencing as
of the Effective Date, payable in accordance with Employer's normal payroll
practices.
(d) VACATION. Employee shall be entitled to four (4) weeks
vacation with pay per year.
(e) TAXES. Employee understands that any and all payments
described in this Agreement will be subject to such tax treatment as applies
thereto, and to such withholding as may be required under applicable tax laws.
5. NO COMPETITION. Employee agrees that during the term of this
Agreement he will not, within the continental United States, directly or
indirectly, engage or participate or make any financial investments in or become
employed by or render advisory or other services to or for any person, firm or
corporation, or in connection with any business activity, other than that of
Employer and its subsidiary companies, directly or indirectly in competition
with any of the business operations or activities of Employer and its subsidiary
companies. Nothing herein contained, however, shall restrict Employee from
making any investments in any company whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market, so long
as such investment does not give him the right to control or influence the
policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of Employer or any of its subsidiary companies.
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<PAGE>
6. CONFIDENTIALITY; ETC.
(a) Employee will not divulge, furnish or make accessible to
anyone (other than in the regular course of business of Employer or any of its
subsidiary companies) any knowledge or information with respect to confidential
or secret methods, processes, plans or materials of Employer or any of its
subsidiary companies, or with respect to any other confidential or secret
aspects of the business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known to
Employer all knowledge possessed by him relating to any methods, developments,
inventions and/or improvements, whether patented, patentable or unpatentable
which concerns in any way the business of Employer or any of its subsidiary
companies or the general industry of which they are a part, from the time of
entering upon employment until the termination thereof, and whether acquired by
Employee before or during the term of his employment; PROVIDED, HOWEVER, that
nothing herein shall be construed as requiring any such communication where the
method, development, invention and/or improvement is lawfully protected from
disclosure as the trade secret of a third party, including, without limitation,
any former employer of Employee or by any other lawful bar to such
communication.
(c) Any methods, developments, inventions and/or improvements,
whether patentable or unpatentable, along the lines of the business of Employer
or any of its subsidiary companies, which Employee may conceive of or make while
in the employ of Employer, shall be and remain the property of Employer.
Employee agrees promptly to communicate and disclose all such methods,
developments, inventions and/or improvements to Employer and to execute and
deliver to Employer any instruments deemed necessary by Employer to effect
disclosure and assignment thereof to it. Employee further agrees, on request of
Employer, to execute patent applications based on such methods, developments,
inventions and/or improvements, including any other instruments deemed necessary
by Employer for the prosecution of such patent applications or the acquisition
of Letters Patent in the United States and/or any foreign countries.
(d) Employee agrees that for a period of two (2) years from and
after the termination or expiration of his employment by Employer, whether
pursuant to the terms of this Agreement or otherwise, he will not:
(i) directly or indirectly solicit, raid, entice or
induce any employee of Employer or of any of its subsidiary companies to be
employed
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<PAGE>
by any person, firm or corporation which is, directly or indirectly, in
competition with the business or activities of Employer or any of its subsidiary
companies; or
(ii) directly or indirectly approach any such employee
for these purposes; or
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or corporation, or
assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or
induce any person, firm or corporation (other than the U.S. Government or its
agencies) who or which on the date hereof is, or at any time during the period
of employment hereunder shall be, a customer of Employer or of any of its
subsidiary companies to become a customer for the same or similar products which
it purchased from Employer or any of its subsidiary companies, of any other
person, firm or corporation, and Employee shall, not approach any such customer
for such purpose or authorize or knowingly approve the taking of such actions by
any other person.
(e) Employee agrees that during the term of his employment by
Employer, whether under this Agreement or otherwise, he will not at any time
enter into, on behalf of Employer or any of its subsidiary companies, or cause
Employer or any of its subsidiary companies to enter into, directly or
indirectly, any transactions with any business organization in which he or any
member of his immediate family may be interested as a partner, trustee,
director, officer, employee, shareholder, lender of money or guarantor.
7. INJUNCTIVE RELIEF. Employee acknowledges that the services to be
rendered by him hereunder are of a special, unique and extraordinary character
and that it would be very difficult or impossible to replace such services and
further that irreparable injury would be sustained by Employer and its
subsidiary companies in the event of a violation by Employee of any of the
provisions of this Agreement, and by reason thereof Employee consents and agrees
that if he violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction to be issued by any court of competent jurisdiction
restraining him from committing or continuing any violation of this Agreement.
8. SURVIVAL OF PROVISIONS. The provisions of Sections 4, 5, 6, 7,
and 10 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reason therefor.
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<PAGE>
9. EXPENSES. Employer shall reimburse Employee for all reasonable
expenses incurred by him on behalf of Employer in the performance of his duties
hereunder, provided that proper vouchers are submitted to Employer by Employee
evidencing such expenses and the purposes for which the same were incurred.
10. DISABILITY. If Employee shall be incapacitated by reason of
mental or physical disability or otherwise during the term of this Agreement so
that he is prevented from performing his principal duties and services hereunder
for a period of three (3) consecutive months or one or more periods aggregating
three (3) months during any twelve (12) month period, Employer shall have the
right to terminate this Agreement by sending written notice of termination to
Employee, and thereupon his employment pursuant to this Agreement shall
terminate and Employee shall be entitled to no further payments hereunder, other
than (i) for any compensation due pursuant to Section 4 (a)(i),(iv) and (v)
hereof, and (ii) the reimbursement, pursuant to Section 9 hereof, of any
expenses incurred prior to the date of such termination. For purposes of this
Section 10, amounts payable under subsection (i) hereof shall be inclusive of
amounts paid to Employee in lieu of normal cash compensation under Employer
sponsored Short Term and Long Term Disability Insurance policies during the
eighteen months following cessation of employment. In other words, Employer will
pay only that amount in excess of the insurance payments made each month that is
necessary to provide Employee with cash compensation equal to what would have
been paid pursuant to Section 4 but for the insurance payments.
11. DEATH. In the event of the death of Employee during the term
hereof, this Agreement shall automatically terminate and Employer shall have no
further obligations hereunder, other than to pay to Employee's estate any
compensation due pursuant to Section 4 (a)(i) and (iv) hereof through the date
of such termination and to reimburse, pursuant to Section 9 hereof, any expenses
incurred by Employee through the date of such termination.
12. TERMINATION BY EMPLOYER FOR CAUSE. Employer shall have the right
to terminate the employment of Employee under this Agreement as well as any and
all payments to be made hereunder, other than for any compensation due pursuant
to Section 4 (a)(i) hereof through the date of such termination and any
reimbursement, pursuant to Section 9 hereof, of expenses incurred by Employee
through the date of such termination, if Employee shall commit any of the
following acts of default:
(a) Employee shall have committed any material breach of any
of the provisions or covenants set forth herein; or
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<PAGE>
(b) Employee shall have committed any act of gross negligence
in the performance of his duties or obligations hereunder; or
(c) Employee shall have committed any material act of
dishonesty or breach of trust against Employer or any of its subsidiary
companies; or
(d) Employee's conviction of, or plea of NOLO CONTENDERE to,
a felony.
If Employer elects to terminate this Agreement as set forth above,
Employer shall send written notice to Employee terminating this Agreement and
describing the action of Employee constituting the act of default, and thereupon
no further payments of any type shall be made or shall be payable to Employee
hereunder notwithstanding any other provisions of this Agreement, except as set
forth in the first sentence of this Section 12.
13. NO CONFLICTING AGREEMENTS. Employee represents and warrants
that he is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would in any way restrict or prohibit him from
undertaking or performing employment in accordance with the terms and conditions
of this Agreement.
14. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof, and no
statement, representation, warranty or covenant has been made by either party
except as expressly set forth herein. This Agreement shall not be changed or
terminated orally. This Agreement supersedes and cancels all prior agreements
between the parties, or any subsidiary of Employer whether written or oral,
relating to the employment of Employee.
15. APPLICABLE LAW. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York, without
regard to its conflict of laws principles.
16. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, telecopied or mailed, first class, postage
prepaid, certified mail, return receipt requested, to each of the parties at its
or his address above written or as set forth beneath their signatures below or
at such other address or telecopy number as either of the parties may designate
in conformity with the foregoing.
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<PAGE>
17. SECTION HEADINGS. The Section headings set forth in this
Agreement are for convenience only and shall not be considered as part of this
Agreement in any respect nor shall they in any way affect the substance of any
provisions contained in this Agreement.
18. SUCCESSORS AND ASSIGNS. This Agreement shall not be assignable
by Employee. All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs and
personal representatives of Employee and the successors and assigns of Employer.
19. SEVERABILITY. If, at any time subsequent to the date hereof,
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION EMPLOYEE
By: /s/ Richard R. Erkeneff /s/ Robert W. Worthing
----------------------- ----------------------
Richard R. Erkeneff Robert W. Worthing
President & CEO Fax: (410) 472-0851
Fax No.: (212) 838-4629
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<PAGE>
EXHIBIT 10(M)
UNITED INDUSTRIAL CORPORATION
EMPLOYMENT AGREEMENT
J. H. PERRY
AGREEMENT made this 3rd day of March, 2000, by and between UNITED
INDUSTRIAL CORPORATION, a Delaware corporation having an address 570 Lexington
Avenue, New York, New York 10022 (hereinafter called "Employer"), and JAMES H.
PERRY, having an address at 8 Carolyn Court, Owings Mills, Maryland 21117
(hereinafter called "Employee").
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee and Employee
agrees to serve Employer upon the terms and conditions hereinafter set forth.
2. TERM. The term of this Agreement shall commence January 3,
2000 (the "Effective Date") and subject to the provisions of Sections 3,4,and 10
hereof, terminate as of the close of business at the date three (3) years after
the Effective Date (the "Termination Date"). The period from the Effective Date
through the Termination Date is referred to as the term of this Agreement.
3. DUTIES AND EXTENT OF SERVICES. Employee agrees to serve
Employer and its subsidiary companies faithfully and to the best of his ability
under the direction of the Board of Directors and President of Employer,
devoting his entire business time, energy and skill to his duties hereunder. The
principal place of employment of Employee shall be at the offices of Employer
currently located at Industry Lane in Hunt Valley, Maryland. Employee
understands and agrees, however, that in connection with his employment
hereunder, he may be required from time to time to travel on behalf of Employer.
If the principal place of employment of the Employee shall change prior to the
Termination Date because of a change in Employer's or AAI Corporation's offices
to a location which is more than 50 miles from the offices presently located at
Industry Lane, the Employee shall have the option within 30 days after such
change to terminate this Agreement by sending written notice of termination to
Employer, and thereupon his employment pursuant to this Agreement shall
terminate and Employee shall be entitled to no further payments hereunder, other
than (i) for any compensation due pursuant to Section 4 and (ii) the
reimbursements pursuant to Section 9 hereof, of any expenses incurred prior to
the date of such termination.
<PAGE>
The principal duties of Employee shall be to serve as Vice
President and Chief Financial Officer of Employer and, in such capacity, to
render such managerial, administrative and other services to Employer and its
subsidiaries as normally are associated with and incident to such positions as
Employer from time to time may require of him. If, during the term of this
Agreement, the Board of Directors of Employer so determines, in its absolute
discretion, to elect Employee to any additional office of Employer or its
subsidiary companies consistent with his position, or a director of its
subsidiary companies, Employee agrees to accept and serve in such office or
capacity for no additional compensation or remuneration.
4. COMPENSATION.
(a) CASH COMPENSATION. Employer agrees to pay to Employee, as
compensation for all of the services to be rendered by Employee under or
pursuant to this Agreement, compensation as follows.
(i) Employee shall receive as compensation for his
services hereunder an annual salary ("Base Compensation") of $200,720.00, which
sum shall be payable in accordance with the normal payroll practices of
Employer. Employee shall be reviewed annually and shall be entitled to such
increases in his Base Compensation as the Board of Directors may determine,
considering the recommendation of the President and Chief Executive Officer.
(ii) Employee shall also be entitled to participate in
Employer's Performance Sharing Plan ("PSP"; or such other similar bonus or
incentive plan approved by Employer's Board of Directors and its Compensation
Committee), that will afford Employee an opportunity to earn incentive
compensation equivalent to a sum derived using at least the same target
incentive percentage (40%) as used under the 1999 plan). The plan shall be based
upon meeting certain goals and benchmarks. In its discretion, the Board of
Directors may award Employee such greater sum as it may determine.
(iii) Such salary and incentive shall be subject to
annual review by Employer's Board of Directors and, at the discretion of the
Board, may be increased, but not decreased below such amount and the incentive
shall be not less than the sum resulting under the PSP process.
(iv) If Employee's employment terminates due to any
reason other than "for cause," including Employee's voluntary termination, prior
to the end of the Compensation Year, Employee shall be entitled to an incentive
compensation award at least equal to the sum calculated for his base salary in
accordance with the PSP, but pro rata to the number of days employed
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<PAGE>
during the Compensation Year. If Employee's employment is terminated "for cause"
prior to the time that the Earned Incentive Compensation is approved by the
Employer's Board of Directors for employees of Employer generally, Employee
shall not be entitled to any incentive compensation.
(v) If during the term of this Agreement, or if this
Agreement is not renewed or superceded, after the term of this Agreement,
Employee's employment ceases for any reason other than "for cause," death, or
Employee's voluntary departure (other than for "Good Reason" as defined below),
the Employee shall be entitled, in addition to the compensation provided for
above, to a sum equivalent to not less than his "Base Severance Compensation"
that is a sum equal to one hundred fifty percent (150%) of Employee's annualized
salary plus an Incentive Compensation Award equal to thirty-five percent (35%)
of the 150% annualized salary, payable in accordance with the normal payroll
practices of Employer over a period of eighteen months following cessation of
employment. If the date employment ceases is prior to the last eighteen (18)
months of the term of this Agreement, the Employee shall be compensated for the
remainder of this Agreement at his annualized salary plus an Incentive
Compensation Award equal to the sum calculated for his base salary in accordance
with the PSP or, if more, the amount provided for under the "Base Severance
Compensation." Under the circumstances above, any and all stock options awarded
to Employee that have not expired by the terms of each grant shall fully vest
for purposes of each such grant.
For purposes hereof, "Good Reason" shall mean any
of the following, unless consented to by Employee in writing:
(a) a termination by Employee pursuant to Section 3
hereof;
(b) the assignment to Employee of any duties
materially inconsistent with Employee's position as set forth in Section 3
hereof, Employee's removal from such position or a substantial diminution in
such position, duties or responsibilities, which is not remedied by Employer
within ten days after receipt of written notice thereof from Employee;
(c) a reduction in Employer's compensation pursuant
to Sections 4(a) (i) and (ii) hereof as in effect on the date hereof or as
increased from time to time; or
(d) a failure of Employer to continue to provide
Employee with benefits substantially as contemplated by Section 4(b) hereof.
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<PAGE>
(b) EMPLOYEE BENEFIT PLANS. During the term of this
Agreement, Employee shall be eligible to participate in any life insurance,
medical, retirement, pension or profit-sharing, disability or other benefit
plans or arrangements now or hereafter generally made available by Employer to
executive employees of Employer to the extent Employee qualifies under the
provisions of any such plans. Subject to the foregoing, Employer shall have the
right to change insurance companies and modify insurance policies covering
employees of Employer. In addition, notwithstanding any provision herein to the
contrary, Employee shall be entitled to continuation of the same or equivalent
benefits during the months following cessation of employment so long as Employee
is entitled to payments pursuant to Section 4 hereof.
(c) AUTOMOBILE ALLOWANCE. Employer shall pay to Employee an
automobile allowance of ten thousand dollars ($10,000) per annum, commencing as
of the Effective Date, payable in accordance with Employer's normal payroll
practices.
(d) VACATION. Employee shall be entitled to four (4) weeks
vacation with pay per year.
(e) TAXES. Employee understands that any and all payments
described in this Agreement will be subject to such tax treatment as applies
thereto, and to such withholding as may be required under applicable tax laws.
5. NO COMPETITION. Employee agrees that during the term of this
Agreement he will not, within the continental United States, directly or
indirectly, engage or participate or make any financial investments in or become
employed by or render advisory or other services to or for any person, firm or
corporation, or in connection with any business activity, other than that of
Employer and its subsidiary companies, directly or indirectly in competition
with any of the business operations or activities of Employer and its subsidiary
companies. Nothing herein contained, however, shall restrict Employee from
making any investments in any company whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market, so long
as such investment does not give him the right to control or influence the
policy decisions of any such business or enterprise which is or might be
directly or indirectly in competition with any of such business operations or
activities of Employer or any of its subsidiary companies.
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<PAGE>
6. CONFIDENTIALITY; ETC.
(a) Employee will not divulge, furnish or make accessible to
anyone (other than in the regular course of business of Employer or any of its
subsidiary companies) any knowledge or information with respect to confidential
or secret methods, processes, plans or materials of Employer or any of its
subsidiary companies, or with respect to any other confidential or secret
aspects of the business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known to
Employer all knowledge possessed by him relating to any methods, developments,
inventions and/or improvements, whether patented, patentable or unpatentable
which concerns in any way the business of Employer or any of its subsidiary
companies or the general industry of which they are a part, from the time of
entering upon employment until the termination thereof, and whether acquired by
Employee before or during the term of his employment; PROVIDED, HOWEVER, that
nothing herein shall be construed as requiring any such communication where the
method, development, invention and/or improvement is lawfully protected from
disclosure as the trade secret of a third party, including, without limitation,
any former employer of Employee or by any other lawful bar to such
communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of the
business of Employer or any of its subsidiary companies, which Employee may
conceive of or make while in the employ of Employer, shall be and remain the
property of Employer. Employee agrees promptly to communicate and disclose all
such methods, developments, inventions and/or improvements to Employer and to
execute and deliver to Employer any instruments deemed necessary by Employer to
effect disclosure and assignment thereof to it. Employee further agrees, on
request of Employer, to execute patent applications based on such methods,
developments, inventions and/or improvements, including any other instruments
deemed necessary by Employer for the prosecution of such patent applications or
the acquisition of Letters Patent in the United States and/or any foreign
countries.
(d) Employee agrees that for a period of two (2) years from
and after the termination or expiration of his employment by Employer, whether
pursuant to the terms of this Agreement or otherwise, he will not:
(i) directly or indirectly solicit, raid, entice or
induce any employee of Employer or of any of its subsidiary companies to be
employed
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<PAGE>
by any person, firm or corporation which is, directly or indirectly, in
competition with the business or activities of Employer or any of its subsidiary
companies; or
(ii) directly or indirectly approach any such employee
for these purposes; or
(iii) authorize or knowingly approve the taking of such
actions by other persons on behalf of any such person, firm or corporation, or
assist any such person, firm or corporation in taking such action; or
(iv) directly or indirectly solicit, raid, entice or
induce any person, firm or corporation (other than the U.S. Government or its
agencies) who or which on the date hereof is, or at any time during the period
of employment hereunder shall be, a customer of Employer or of any of its
subsidiary companies to become a customer for the same or similar products which
it purchased from Employer or any of its subsidiary companies, of any other
person, firm or corporation, and Employee shall, not approach any such customer
for such purpose or authorize or knowingly approve the taking of such actions by
any other person.
(e) Employee agrees that during the term of his employment by
Employer, whether under this Agreement or otherwise, he will not at any time
enter into, on behalf of Employer or any of its subsidiary companies, or cause
Employer or any of its subsidiary companies to enter into, directly or
indirectly, any transactions with any business organization in which he or any
member of his immediate family may be interested as a partner, trustee,
director, officer, employee, shareholder, lender of money or guarantor.
7. INJUNCTIVE RELIEF. Employee acknowledges that the services to
be rendered by him hereunder are of a special, unique and extraordinary
character and that it would be very difficult or impossible to replace such
services and further that irreparable injury would be sustained by Employer and
its subsidiary companies in the event of a violation by Employee of any of the
provisions of this Agreement, and by reason thereof Employee consents and agrees
that if he violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction to be issued by any court of competent jurisdiction
restraining him from committing or continuing any violation of this Agreement.
8. SURVIVAL OF PROVISIONS. The provisions of Sections 4, 5, 6, 7,
and 10 hereof shall survive the termination or expiration of this Agreement,
irrespective of the reason therefor.
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<PAGE>
9. EXPENSES. Employer shall reimburse Employee for all reasonable
expenses incurred by him on behalf of Employer in the performance of his duties
hereunder, provided that proper vouchers are submitted to Employer by Employee
evidencing such expenses and the purposes for which the same were incurred.
10. DISABILITY. If Employee shall be incapacitated by reason of
mental or physical disability or otherwise during the term of this Agreement so
that he is prevented from performing his principal duties and services hereunder
for a period of three (3) consecutive months or one or more periods aggregating
three (3) months during any twelve (12) month period, Employer shall have the
right to terminate this Agreement by sending written notice of termination to
Employee, and thereupon his employment pursuant to this Agreement shall
terminate and Employee shall be entitled to no further payments hereunder, other
than (i) for any compensation due pursuant to Section 4 (a)(i),(iv) and (v)
hereof, and (ii) the reimbursement, pursuant to Section 9 hereof, of any
expenses incurred prior to the date of such termination. For purposes of this
Section 10, amounts payable under subsection (i) hereof shall be inclusive of
amounts paid to Employee in lieu of normal cash compensation under Employer
sponsored Short Term and Long Term Disability Insurance policies during the
eighteen months following cessation of employment. In other words, Employer will
pay only that amount in excess of the insurance payments made each month that is
necessary to provide Employee with cash compensation equal to what would have
been paid pursuant to Section 4 but for the insurance payments.
11. DEATH. In the event of the death of Employee during the term
hereof, this Agreement shall automatically terminate and Employer shall have no
further obligations hereunder, other than to pay to Employee's estate any
compensation due pursuant to Section 4 (a)(i) and (iv) hereof through the date
of such termination and to reimburse, pursuant to Section 9 hereof, any expenses
incurred by Employee through the date of such termination.
12. TERMINATION BY EMPLOYER FOR CAUSE. Employer shall have the
right to terminate the employment of Employee under this Agreement as well as
any and all payments to be made hereunder, other than for any compensation due
pursuant to Section 4 (a)(i) hereof through the date of such termination and any
reimbursement, pursuant to Section 9 hereof, of expenses incurred by Employee
through the date of such termination, if Employee shall commit any of the
following acts of default:
(a) Employee shall have committed any material breach of any
of the provisions or covenants set forth herein; or
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<PAGE>
(b) Employee shall have committed any act of gross negligence
in the performance of his duties or obligations hereunder; or
(c) Employee shall have committed any material act of
dishonesty or breach of trust against Employer or any of its subsidiary
companies; or
(d) Employee's conviction of, or plea of NOLO CONTENDERE to,
a felony.
If Employer elects to terminate this Agreement as set forth above,
Employer shall send written notice to Employee terminating this Agreement and
describing the action of Employee constituting the act of default, and thereupon
no further payments of any type shall be made or shall be payable to Employee
hereunder notwithstanding any other provisions of this Agreement, except as set
forth in the first sentence of this Section 12.
13. NO CONFLICTING AGREEMENTS. Employee represents and warrants
that he is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would in any way restrict or prohibit him from
undertaking or performing employment in accordance with the terms and conditions
of this Agreement.
14. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof, and no
statement, representation, warranty or covenant has been made by either party
except as expressly set forth herein. This Agreement shall not be changed or
terminated orally. This Agreement supersedes and cancels all prior agreements
between the parties, or any subsidiary of Employer whether written or oral,
relating to the employment of Employee.
15. APPLICABLE LAW. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York, without
regard to its conflict of laws principles.
16. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, telecopied or mailed, first class, postage
prepaid, certified mail, return receipt requested, to each of the parties at its
or his address above written or as set forth beneath their signatures below or
at such other address or telecopy number as either of the parties may designate
in conformity with the foregoing.
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<PAGE>
17. SECTION HEADINGS. The Section headings set forth in this
Agreement are for convenience only and shall not be considered as part of this
Agreement in any respect nor shall they in any way affect the substance of any
provisions contained in this Agreement.
18. SUCCESSORS AND ASSIGNS. This Agreement shall not be assignable
by Employee. All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs and
personal representatives of Employee and the successors and assigns of Employer.
19. SEVERABILITY. If, at any time subsequent to the date hereof,
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION EMPLOYEE
By: /s/ Richard R. Erkeneff /s/ James H. Perry
----------------------- -----------------------
Richard R. Erkeneff James H. Perry
President & CEO Fax: (410) 654-1813
Fax No.: (212) 838-4629
9
<PAGE>
9
<PAGE>
Exhibit 13
ANNUAL REPORT 1999
UNITED INDUSTRIAL CORPORATION
[GRAPHIC OMITTED]
<PAGE>
UNITED INDUSTRIAL CORPORATION IS
CONTENTS
3 Financial Highlights
4 Letter to Shareholders
8 Letters of Appreciation from our Customers
10 Unmanned Aerial Vehicles
12 Simulation and Test Systems
18 Engineering and Maintenance Services
20 Transportation Systems
22 Energy Systems
24 Board of Directors
25 Management's Discussion
31 Consolidated Financial Statements
35 Notes to Financial Statements
50 Report of Independent Auditors
51 Five-Year Financial Data
52 Corporate Organization
<PAGE>
a high technology 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 ordnance systems.
It also manufactures ground transportation components, combustion equipment for
biomass and refuse fuels, and specialized firefighter training installations.
United Industrial Corporation 1
<PAGE>
United Industrial Corporation is a customer-driven organization committed to
enhancing shareholder value by delivering high quality products, systems, and
services to selected defense and industrial markets.
We value responsiveness to customers, careful stewardship of corporate assets,
teamwork, and innovation, and we reward excellence in achieving these goals.
2 Mission Statement
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 216,979 $ 204,305 $ 235,183
Net income 6,277 13,011 14,825
Earnings per share
basic .51 1.06 1.22
diluted .50 1.03 1.19
Earnings before special items(a) 6,277 10,343 6,981
Dividends paid per share .40 .40 .29
Shareholders' equity 111,055 109,441 102,024
Shareholders' equity per share 9.03 8.93 8.33
Sales backlog as of year end $ 293,000 $ 210,000 $ 188,000
Shares outstanding 12,294,000 12,250,000 12,249,000
---------------------------------------
</TABLE>
(a) Excludes the effect of special items and income from divested businesses.
See pages 25-28 for further information.
United Industrial Corporation 3
<PAGE>
TO OUR SHAREHOLDERS
[PHOTO OMITTED]
In many respects, 1999 was an excellent year for United Industrial. We achieved
important new contracts that have expanded the scope and scale of our operations
and pave the way for future growth. We reinforced our leadership position in key
market niches and we continued to build our presence overseas. We introduced
innovative new products that have been well-received by customers, and we saw
the benefits of investments we have made to enhance our capabilities. All of
these are important elements of United Industrial's long-term strategy, and we
are excited about our accomplishments in each of these areas.
In spite of these successes, the Company's overall performance in 1999 was
disappointing. Difficulties in our transportation operations resulted in
earnings for the year that were below last year's level. Net income was $6.3
million, or $0.50 per diluted share, including $13.1 million ($8.2 million after
taxes) in transportation-related losses, compared to net income before special
items of $10.3 million, or $0.82 per diluted share, in 1998. As discussed below,
we have taken steps to address the issues in the transportation business, and we
expect these operations to achieve profitable results in the second half of
2000.
Net sales in 1999 reached $217.0 million, up from $204.3 million last
year. With several new programs underway and additional contract awards
scheduled for 2000, we expect to begin to see accelerated revenue growth in the
quarters ahead. Backlog at year-end increased substantially to $293.0 million,
up 40% from $210.0 million at year-end in 1998, and our balance sheet remains
very strong.
4 Letter to Shareholders
<PAGE>
KEY PRIORITIES IN 2000
As we look ahead, our energies are firmly focused on generating greater value
for our shareholders. United Industrial common stock, like many other small-cap
value stocks, has not enjoyed the appreciation in value that other stocks have
achieved in today's market. As a result, we are now taking a careful look at our
business to identify additional ways in which we can build increased value for
our shareholders.
At the same time, we are continuing to implement the strategies that have
served us well in the past. With our specialized technical expertise in areas
such as unmanned aerial vehicles, simulation and test systems, and engineering
and maintenance services, we possess real competitive advantages that
differentiate our products and services in the marketplace. We will continue to
leverage these capabilities to capitalize on new opportunities to grow our
business. In particular, we are focusing in the near term on the following key
priorities:
DEVELOPING INNOVATIVE NEW PRODUCTS. Our engineers and technicians are at the
forefront of technological change in our markets, and we are constantly
incorporating innovative new features into our products to better serve our
customers' needs. We view our research and development capabilities as a key
factor in our ongoing ability to deliver superior value to our customers, and
the investments we have made in recent years are yielding tremendous results.
Our new products are experiencing outstanding customer acceptance and have
enabled us to capture additional contracts throughout the world, as we continue
to solidify our position as a leading defense contractor in our niche markets.
A prime example of this strategy at its best was our December 1999 win of
a $41.8 million contract to develop the Tactical Unmanned Aerial Vehicle (TUAV)
for the U.S. Army. The TUAV is the first in a new generation of UAVs that will
play a critical role in future combat operations. Our success in winning this
program was a direct result of the rigorous development program we have
implemented for our Shadow UAVs. Since their introduction in 1992, we have
continuously updated the design and features of the Shadow unmanned aircraft, so
that the Army now has the benefit of our many years of experience with this
product line and its related Pioneer UAV. For us, this contract award represents
a spectacular, high-level endorsement of our capabilities in the UAV market and
positions us to play a meaningful role in the U.S. military's UAV programs for
some time.
In simulation and test systems, our state-of-the-art technologies in
on-board training systems have allowed us to become a leader in this specialized
market. We are currently executing two
Left:
Richard R. Erkeneff,
President and Chief
Executive Officer
Right:
Harold S. Gelb,
Chairman of the Board
United Industrial Corporation 5
<PAGE>
key programs for the U.S. Navy, the Generic Navy Stimulator/Simulator (GNSS) and
the Carry-on-Combat Systems Trainer (COCST). Moreover, based on our work, we are
now being called upon by foreign customers in search of on-board training
expertise, including the Royal Australian Navy.
In addition, our introduction of new advanced boresighting equipment (ABE)
is attracting a range of new customers. Utilizing computer and laser gyroscope
components, we have developed a new technology for the precision alignment of
parts. This technology has now been embraced by the U.S. Navy and U.S. Air
Force, as well as by the Eurofighter Industry Consortium, which has selected AAI
to provide four ABE systems to support the Eurofighter 2000 Typhoon Aircraft.
Our first international ABE award, the Eurofighter contract should lead to
additional opportunities in Europe and elsewhere around the world.
EXPANDING IN THE HIGH-GROWTH SERVICES MARKET. Some time ago, we recognized the
fast-growing demand for engineering- and maintenance-related services, both in
the defense industry as well as in markets such as commercial aviation. We saw
this trend accelerating, in large part, by customers' increased use of
outsourcing to meet their specialized needs, and, with our core competencies, we
began concentrating our attention on winning this new business.
In particular, our Engineering Support Inc. (ESI) and our AAI/ACL
Technologies subsidiaries have done an outstanding job of capitalizing on these
new opportunities. One of ESI's most successful programs has been a C-17
Aircraft contract for the U.S. Air Force, which has grown in value to over $101
million since the initial contract award in 1997. At AAI/ACL, major wins have
included a $28 million program for the construction of an F-16 Maintenance Depot
in Egypt and a $5.4 million contract to perform maintenance services at British
Airways' new facility outside London.
BUILDING OUR PRESENCE OVERSEAS. A key element of our strategy has been to enter
new international markets, and we have been strengthening our presence overseas.
Foreign contracts represented approximately 20% of our sales in both 1999 and
1998, up significantly from prior years' levels. Moreover, new orders booked
during 1999 consisted of 17% of international bookings, up from 14% in the prior
year. Importantly, this backlog of work spans many of our subsidiaries, so that
our continued international growth is not tied to any single business area.
[GRAPHIC OMITTED]
During 1999, United Industrial continued to strengthen
its presence in international markets, winning new
contracts in the foreign countries highlighted below.
6 Letter to Shareholder
<PAGE>
Key highlights in our overseas expansion in 1999 include the Egyptian F-16
Depot project, the on-board training systems program for the Royal Australian
Navy and the ABE Eurofighter contract, all discussed above, as well as UAV
programs in Romania and Asia. Outside of the defense industry, our Symtron
Systems firefighter training systems business is implementing programs in Europe
and Asia and our Detroit Stoker subsidiary has expanded its business in Germany,
Canada and New Zealand.
ACHIEVING PROFITABILITY OF TRANSPORTATION SEGMENT. We are committed to producing
profitable results in our transportation business. Our performance in this
segment in 1999 was negatively impacted by a number of factors, including a
warranty reserve related to certain transportation work completed prior to 1999
and, very significantly, the difficulties of our Czech joint venture partner,
Skoda, a.s., in receiving financing for its portion of our joint contracts.
Together, through Electric Transit, Inc. (ETI), Skoda and United Industrial have
succeeded in winning two of the most significant electric trolley bus programs
in the nation in recent years, including a $174 million program for the San
Francisco Municipal Railway (of which United Industrial's portion is $54
million). Skoda's financing difficulties, due in part to an economic downturn in
the Czech Republic, resulted in additional costs for ETI's programs in 1999. We
worked closely with Skoda over the course of the year to obtain financing, and,
in February 2000, we finalized Skoda and ETI's financing arrangements. With the
San Francisco program underway, we now expect the performance of the
transportation segment to achieve profitability in the second half of 2000. As
we move ahead, we will continue to evaluate the role of our transportation
operations within our overall portfolio of businesses.
Independently from ETI, we are pursuing opportunities in the rail vehicle
overhaul segment of the marketplace, where we have identified significant
potential for growth. In fact, we are now implementing a major $71 million
program for the New Jersey Transit Authority and a $15 million emergency rail
rehabilitation program for the Washington Metro Area Transit Authority, while
actively considering other attractive prospects in this sector.
CONFIDENCE IN THE FUTURE. With these initiatives in place and our continued
focus on delivering exceptional quality and attentive service for our customers,
we are confident in United Industrial's long-term growth and success. We have a
talented and dedicated management team, an excellent financial position, and
unique capabilities that distinguish us in our markets. Moreover, we are
determined to leverage these strengths through new avenues to deliver greater
value for our shareholders.
We would like to thank all of our 1,600 associates for their hard work in
1999. The Company's many achievements last year are directly attributable to
their outstanding efforts. We would also like to acknowledge our customers for
their ongoing support. To you, our shareholders, we thank you for your continued
interest in United Industrial, and we pledge to you that we are devoting our
full attention and resources to increasing the value of your investment in 2000
and in the new millennium.
Sincerely,
/s/ Richard R. Erkeneff
Richard R. Erkeneff
President and Chief Executive Officer
/s/ Harold S. Gelb
Harold S. Gelb
Chairman of the Board
[GRAPHIC OMITTED]
United Industrial Corporation 7
<PAGE>
LETTERS OF APPRECIATION FROM OUR CUSTOMERS
"Pioneer has proven invaluable to the peacekeeping missions in Bosnia as well as
to the current NATO military actions in Kosovo..."
"You have been instrumental in the development of the software design that will
be implemented into COCST. Your attention to detail, work ethic, technical
abilities and communication skills are the major reasons for the success of
these efforts to date."
"Your support of the ICBM program is to be commended. Support by your upper
management, in establishing a schedule and continually striving to meet that
schedule, is commendable."
"In Bosnia the Pioneer Team coordinated and efficiently dispatched a Tiger Team
to return to service, repair, and establish a spares package which provided 90%
mission readiness under extreme hostile conditions in remote areas..."
[GRAPHIC OMITTED]
8 Letters of Appreciation from our Customers
<PAGE>
"The AAI Shadow 600 Unmanned Aerial Vehicle System provides an excellent
observation and reconnaissance platform for the Armed Forces of
Romania...AAICORPORATION has provided training and technical assistance to the
Romanian Air Force during the past 18 months in an outstanding manner."
"The ABE system has proven to be exceptionally fast, accurate, easy to use, and
has enabled us to dramatically reduce the time required to align the C-17."
"ABE is a revolutionary system, and we are implementing the use of ABE
throughout The Boeing Airlift & Transport Division, as well as field support
equipment for the C-17 aircraft."
"Your Engineering Team was certainly 'customer' focused...They have exceeded our
expectations...Through their efforts, the Navy will be getting a 'first class'
facility when the relocation is complete for conducting propulsion system
RDT&E."
[GRAPHIC OMITTED]
United Industrial Corporation 9
<PAGE>
UNMANNED AERIAL VEHICLES
Our AAI subsidiary capped off the year with a spectacular win in its Unmanned
Aerial Vehicle (UAV) business. Reinforcing its leadership position in the
development, production and support of UAV systems, AAI led a team that was
awarded a contract in December to provide the U.S. Army's new Tactical Unmanned
Aerial Vehicle (TUAV) system. The first in a new generation of UAVs, the TUAV
will serve as the primary source of real-time combat reconnaissance,
surveillance, and targeting information.
The initial contract, valued at $41.8 million, calls for the manufacture
and support of four low-rate production TUAV systems, which will be tested
operationally by the Army. The Army will have options to then purchase six to
ten full-rate production systems, and, over the longer term, plans to have a
total inventory of 44 TUAVs, representing a total contract value to AAI of more
than $300 million over the next five years.
The Army's selection of the AAI-led team followed an intense review and
competition that included a 3-week system capability demonstration. Our
successful prototype was based on our Shadow family of UAVs, first flown in
1992, and which has benefited from a continuous development program and our
experience producing technically mature UAVs, including both the Pioneer UAV
system and the Shadow.
In addition to winning this important TUAV contract, we implemented a
number of UAV programs for customers over the course of 1999. Highlights
included the completion of ground and flight testing for our UAV Common
Automatic Recovery System (UCARS) for the U.S. Navy and Marine Corps;
[GRAPHIC OMITTED]
10 Unmanned Aerial Vehicles
<PAGE>
[GRAPHIC OMITTED]
[PHOTO OMITTED]
JOSEPH G. THOMAS
VICE PRESIDENT AND DEPUTY
GENERAL MANAGER, UAV SYSTEMS
completion of training and certification for the Romanian UAV program; and
completion of all training activities for a UAV program for a Southeast Asian
customer. Based on our strong performance, both the Romanian Ministry of Defense
and the Southeast Asian customer have plans to utilize AAI for additional UAV
work in the near future.
In looking ahead, we expect our work on the TUAV program to play a
valuable role in enabling us to continue to increase our share of both the
domestic and international UAV markets. We have enjoyed a successful 14-year
history producing UAV systems that have been fielded by customers worldwide, and
we know there is excellent potential for us to continue to grow this business.
"The U.S. Army's selection of AAI to develop its new tactical UAV solidifies our
position as the premier supplier of tactical UAVs worldwide. The contract draws
upon our proven capabilities with the Shadow UAV system, and, since the Army
intends to field significant numbers of TUAV systems, will provide us with an
exciting new revenue stream in our UAV business."
AAI technicians check the mounting of a Shadow 200
Tactical UAV on a hydraulic launcher. The compact size
and efficient mobility of the Shadow 200 system, coupled
with its performance test results, were key factors in
the Army's selection of AAI as the TUAV system
contractor.
United Industrial Corporation 11
<PAGE>
SIMULATION AND TEST SYSTEMS
Among United Industrial's core strengths is our unparalleled capability in the
production and support of simulation and test systems. Our technical expertise
and our experience with a wide range of applications have distinguished us
within our industry and continue to provide our AAI subsidiary with exciting
opportunities. During 1999, we built on our strengths to expand many existing
programs underway, while winning important new contracts that position us for
future growth. These include programs for various branches of the U.S. military,
as well as for commercial customers and foreign governments.
One key area in which AAI has excelled has been in the production of
shipboard training systems. Our work has included two important programs for the
U.S. Navy: the Generic Navy Stimulator/Simulator (GNSS), a contract now valued
at $16 million, and the Carry-on-Combat Systems Trainer (COCST), now valued at
$9.3 million. Both systems help to train shipboard radar operators by creating a
realistic combat environment. Under the GNSS contract, we have successfully
completed acceptance testing of the first units ordered by the Navy, and we have
received orders for approximately 180 more. The COCST, now in development, calls
for us to incorporate the state-of-the-art features of the GNSS in a more
transportable design. Production is slated to begin in early 2000.
Based on our leadership in this market, we were awarded, in June 1999, a
$19 million program to develop six On-Board Training systems and two land-based
Software Support Centers to be used in upgrading six guided missile frigates for
the Royal Australian Navy - our first international On-Board Training program.
We plan to continue to extend our presence in this segment of the international
marketplace.
In a related area, work has proceeded very well on our Surveillance Radar
Training Set (SRTS), which will be used to train technicians in the maintenance
of sophisticated radar equipment for the
"The JSECST program takes advantage of AAI's leadership
in the production of simulation and test systems for
major defense systems. Our technologies and skills in
this specialized area provide us with a solid business
base as well as ongoing opportunities to develop new
products for new customers."
[PHOTO OMITTED]
MICHAEL F. BROWNE
DIRECTOR, TEST AND
ELECTRONIC WARFARE SYSTEMS
12 Simulation and Test Systems
<PAGE>
[GRAPHIC OMITTED]
The JSECST stimulates electronic warfare radar detection
devices to assure mission readiness. At left, members of
the Eglin Air Force Base's 33rd Fighter Wing work with
AAI on testing the JSECST system for the F-15C/D Air
Superiority Aircraft. Above, the JSECST display system
provides all instructions for the aircraft test.
United Industrial Corporation 13
<PAGE>
[PHOTO OMITTED]
CHERYL A. BITNER
PROGRAM DIRECTOR, SIMULATIONS SYSTEMS
AWACS E-3 aircraft. During 1999, we completed the first of three incremental
deliveries to the U.S. Air Force, under this $21.7 million contract, with the
second two deliveries scheduled in the summer and fall of 2000.
The Joint Service Electronic Combat Systems Tester (JSECST), valued at
$27.8 million, continues to be a key program for AAI. We expect the U.S.
Government to begin independent operational testing of the system in mid-2000,
with production to commence in 2001. This program, which is currently supported
by the U.S. Air Force, U.S. Navy and the Australian Government for various
applications, offers significant potential for further expansion.
We were awarded two key Advanced Boresight Equipment (ABE) programs in
1999. The U.S. Navy ordered a total of eight ABE systems, at a contract value of
$4.4 million, four of which the Navy will use to boresight aircraft weapons and
equipment and four of which the Air Force will use in support of its C-17
Globemaster aircraft program. Under the second contract, valued at $4.2 million,
the Eurofighter Industry Consortium selected AAI to provide four ABE systems to
support the Eurofighter 2000 Typhoon Aircraft. This award represented the first
international sale of our new advanced boresighting technology.
Other key contract awards during 1999 included a $3.5 million contract
from Raytheon Company to produce 17 computer control kits and simulated
ammunition sets in support of the Fire Support Combined Arms Tactical Trainer; a
$3.1 million contract to upgrade 14 MHU-204/M Munitions Handling Units; and a
$6.6 million contract to design and deliver a new Control Center Computer System
for O-Hare International Airport in Chicago, Illinois. We also received
additional funding on our Projectile Detection and Cueing program for the U.S.
Army and our Novel Penetrator Fuze contract for GRC International.
SYMTRON SYSTEMS
Our Symtron Systems subsidiary, which produces simulation systems for use in
training firefighters, turned in a
The USS Porter, shown here, features AAI's new Generic
Navy Stimulator/Simulator as part of the ship's Battle
[GRAPHIC Forces Tactical Training System. In a typical training
OMITTED] exercise, sailors perform detection, controlling and
engagement procedures, while operating combat systems
controls and tactical displays.
14 Simulation and Test Systems
<PAGE>
[GRAPHIC OMITTED]
solid performance last year. Our core competencies in this very specialized
market provide us distinct competitive advantages in winning new business. In
1999, we leveraged these strengths successfully to attract a range of new
customers around the world.
Within the United States, we received contracts for firefighter training
systems from a number of state and local municipalities, including Eugene,
Oregon; Suffolk County, New York; the State of Tennessee; Byron, Illinois;
Bellevue, Nebraska; and Allentown, Pennsylvania. We also continue to implement
programs for various branches of the U.S. Armed Forces. Internationally, we have
forged partnerships with Kawasaki Heavy Industries in Asia and Krantz-TKT in
Europe, which have led to opportunities in those markets.
Our efforts in 1999 were highlighted by accomplishments on two key
programs. In October 1999, we completed our work for one of the largest
firefighter training complex systems in the world, located at Monroe County, New
York. Our state-of-the-art equipment serves as the backbone of this facility,
and we are optimistic our work on this project will position us as a preferred
provider for similar contracts in the future. Second, we completed 22 of 26
deliveries of various mobile and structural training systems to U.S. Army
facilities around the world, under the Army's Simulation, Training and
Instrumentation Command, reinforcing our relationship with this important area
of the U.S. Armed Services.
AAI/ACL TECHNOLOGIES
AAI/ACL Technologies (ACL), which specializes in equipment for hydraulic, fuel
and pneumatic testing, achieved a record year in 1999 by expanding its business
in both foreign and domestic markets. ACL's total sales rose by more than 69%
and new orders increased by more than 38%, providing this subsidiary with its
largest backlog in its history.
United Industrial Corporation 15
<PAGE>
[GRAPHIC OMITTED]
16 Simulation and Test Systems
<PAGE>
[GRAPHIC OMITTED]
"1999 was AAI/ACL Technologies' best year ever. We
experienced substantial growth in all aspects of our
business and secured important new contracts that will
provide for future success. Key highlights included our
completion of the British Airways Component Engineering
Facility near London and our installation of an F-16
Pneumatic Test Facility for the Government of Taiwan."
[PHOTO OMITTED]
THOMAS E. WURZEL
PRESIDENT, AAI/ACL TECHNOLOGIES
A technician adjusts a pneumatic actuator on ACL
[GRAPHIC equipment used to test F-16 fuel components at far left,
OMITTED] while two technicians assemble pneumatic test stands in
support of ACL's growing space launch vehicle business.
One of the most exciting developments of the year was ACL's award of a $28
million program for the construction of an F-16 Maintenance Depot in Egypt. ACL
will serve as the Integration Contractor and will purchase and manufacture much
of the required test equipment and tooling. This contract represents a major
milestone in ACL's growth and follows its successful record of serving the F-16
depot programs.
In addition, ACL has pursued new avenues for expansion in the "space
business." We are currently providing pneumatic panels for the launch pad for
Lockheed Martin's Atlas 5 program, and we are working with Boeing to provide
servocomponent panels for its Delta IV EELV Program as well as other support
equipment for its new launch vehicle manufacturing facility in Alabama, under a
$6 million contract.
The commercial airline industry continues to be an important market for
us. Over the course of the year, we extended our relationship with British
Airways, entering a ten-year $5.4 million maintenance contract, and we were
awarded a new $1 million contract from United Airlines. Outside of the
commercial sector, ACL completed testing of a five-cell pneumatic test facility
for the Republic of China Air Force, under a $2.3 million contract.
This year also marked the completion of our relocation of the McClellan
Air Force Base in Sacramento, California to Hill Air Force Base in Ogden, Utah,
under a $10 million contract. Working together with our sister company
Engineering Support Inc., we earned an evaluation of "excellent" by the U.S. Air
Force following completion of this project.
United Industrial Corporation 17
<PAGE>
ENGINEERING AND MAINTENANCE SERVICES
[GRAPHIC OMITTED]
Engineering Support, Inc. (ESI), our Engineering & Maintenance Services
subsidiary, achieved its third consecutive year of record sales, bookings and
profits in 1999. Sales increased 45% for the year, while new bookings rose 80%
and profits jumped by 38%. With steady growth expected again in 2000, we are
well on our way to establishing ESI as a market leader with a substantial
revenue base.
A key highlight of the year was the continuing expansion of our contract
with the U.S. Air Force to upgrade Maintenance Training Systems for the C-17
Aircraft. During 1999, we received an additional $28 million in funding for this
program, bringing the total contract value to over $101 million. We completed
our first deliveries of the modified training equipment to McChord Air Force
Base in Washington and Charleston Air Force Base in South Carolina two months
ahead of schedule. Moreover, in further recognition of our contributions on this
important program, Boeing selected ESI to be its provider of maintenance
training equipment services for future C-17 international and commercial sales.
Another key contract we have successfully grown is our $44 million program
to upgrade Gunnery Maintenance Trainers for the U.S. Army's Simulation, Training
and Instrumentation Command. As part of this program, we received an additional
$3.5 million award to provide in-country technical support for all U.S. Army
training devices in Bosnia. This contract is being extended through 2000 and
will now also incorporate a component to provide support for the Army's C4I
programs.
As a complement to our engineering services business, we have developed
valuable expertise in logistics support, including major relocation projects.
During the year, we successfully completed a relocation program, valued at $10.3
million, for the U.S. Navy, which entailed relocating the Navy's Trenton, New
Jersey Engine Test Facility to Patuxent River, Maryland. We are now assisting
with installation work at the new facility, under an extended contract. Members
of this team also worked together with United Industrial's AAI/ACL Technologies
subsidiary to successfully move the hydraulics and electrical accessories shops
of McClellan Air Force Base in California to Hill Air Force Base in Utah.
18 Engineering and Maintenance Services
<PAGE>
[GRAPHIC OMITTED]
We recognize there are further opportunities for ESI to support the
activities of other United Industrial subsidiaries. As a result, we have
expanded our Logistics Support staff and capabilities, and we are already
pursuing a number of new programs. These include providing Logistics Support and
Field Support Teams for AAI's Tactical Unmanned Aerial Vehicles (TUAV) contract
and developing logistics products such as training and technical publications
for the Transportation Systems business.
[PHOTO OMITTED]
MAURICE P. RANC
VICE PRESIDENT AND GENERAL
MANAGER, DEFENSE SYSTEMS
AND ENGINEERING AND MAINTENANCE SERVICES
"Drawing upon our engineering strengths, ESI has worked
closely with the U.S. Air Force in integrated product
[GRAPHIC teams to introduce high fidelity maintenance training
OMITTED] solutions for the C-17 aircraft. Together, we have
developed a superior trainer at a significantly lower
cost to the Air Force."
Improvements to the trainer's cockpit displays,
instruments and controls at far left, support more
realistic, high fidelity training, while 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.
United Industrial Corporation 19
<PAGE>
TRANSPORTATION SYSTEMS
[GRAPHIC OMITTED]
20 Transportation Systems
<PAGE>
"The New Jersey Transit contract, the largest rail car
project to be undertaken by AAI to date, accelerates our
expansion into rail vehicle overhaul services. This is a
high-potential growth market where we can apply our
technical skills."
[PHOTO OMITTED]
JOHN T. MERRY
VICE PRESIDENT AND GENERAL
MANAGER, TRANSPORTATION SYSTEMS
AAI technicians are shown here modifying the structure
[GRAPHIC of New Jersey Comet II cars to incorporate new doors
OMITTED] that will enable entry from either ground or platform
levels.
As part of our growth strategy, we are actively expanding our presence in the
rail vehicle overhaul segment of the transportation industry. This is a market
with great potential where we believe we can leverage United Industrial's
resources and capabilities to become a significant competitor.
A major milestone in this strategy was our receipt of a substantial
overhaul contract for the New Jersey Transit Authority in February 1999. Under
this $71 million program, we are now upgrading 116 Comet II commuter railroad
cars. This project is scheduled for completion in May 2001. In addition, we are
pursuing opportunities for similar overhaul programs for the Baltimore
Metropolitan Transit Authority and the Washington Metropolitan Area Transit
Authority.
Our joint venture with Czech firm Skoda, Electric Transit Inc. (ETI),
moved forward on two key electric trolley bus programs during the year. In July
1999, we delivered the last of 54 electric trolley buses to the Miami Valley
Regional Transit Authority in Ohio, successfully completing this $32.5 million
contract.
In addition, work on our program for the San Francisco Municipal Railway
is underway. We have delivered two standard prototype buses for testing, the
first of which has successfully completed its 9,000 mile acceptance test. Based
on our customer's enthusiastic response to the prototypes, we are moving ahead
on production and expect to deliver the first buses in late 2000. United
Industrial's portion of this contract is valued at approximately $54 million.
United Industrial Corporation 21
<PAGE>
ENERGY SYSTEMS
Detroit Stoker, our energy systems subsidiary, made significant strides last
year in expanding its business overseas, while taking advantage of opportunities
in the U.S. market, where deregulation and the robust economy have bolstered
demand for alternative energy sources. In addition, our strong service focus and
our experience in customizing solutions to meet customers' diverse energy needs
have enhanced our ability to win new business.
SIGNIFICANT POTENTIAL FOR OVERSEAS EXPANSION
Overseas markets offer the greatest potential for expansion, and our team has
worked diligently to take advantage of emerging opportunities. Currently, more
than one-third of Detroit Stoker's new contract orders originate from overseas
customers.
Demand in markets such as Germany, New Zealand and Canada continues to be
buoyed by increasing interest in environmentally friendly biomass fuels. In
Germany, for example, customers are utilizing Detroit Stoker
<PAGE>
technology to produce electricity and generate process steam from biomass
waste streams, such as bark, wood waste and shavings. Our ability to help
customers to harness resources such as these to meet their energy needs is a
powerful competitive advantage, and we plan to continue to leverage this core
competency to gain entry into new markets.
22 Energy Systems
[GRAPHIC OMITTED]
"The installation of Detroit Stoker's advanced stoker
technology has enabled our customers worldwide to
improve operating performance and efficiencies while
lowering fuel consumption, resulting in higher overall
returns."
The 17 MWE Independent Power Renewable Biomass Energy
Plant, pictured here, utilizes virgin forest wood,
community brush, recycled wood pallets and landfill gas
for fuel production. The plant was recently retrofitted
with Detroit Stoker products, leading to improved
results.
[PHOTO OMITTED]
MICHAEL J. DIMONTE
PRESIDENT, DETROIT STOKER
NEW GROWTH OPPORTUNITIES IN THE U.S.
Deregulation of the energy industry in the U.S., coupled with rising demand for
electricity, has provided an environment in which independent power producers
(IPP) have flourished. These IPPs have looked to us to help them manage greater
demand through plant refurbishments and upgrades, which have enhanced plant
efficiency and lowered operating costs.
At the same time, we have enabled coal-based producers to better compete against
their gaseous fuel counterparts through the design of advanced technologies that
improve performance and emissions without sacrificing combustion efficiency.
In fact, customer demand for enhanced operating performance and lower
emissions continues to boost sales of our Hydrograte(R) stoker technology in the
U.S. The Hydrograte efficiently burns high-moisture content fuels, such as wood
waste, to produce electricity and process steam. We are seeing greater interest
in the U.S. in this type of system and completed two significant projects in the
States of Massachusetts and Virginia in 1999.
ENHANCING OUR VALUE TO OUR CUSTOMERS
As part of our ongoing customer service focus, we launched a number of
initiatives in 1999 to further improve Detroit Stoker's products and services
for customers. From introducing new standardized equipment to reducing
production cycles, these steps are enabling us to achieve new heights in meeting
and exceeding our customers' expectations. We fully intend to build on this
success and our market leadership position in the future, through continued
innovation and our relentless commitment to excellence.
United Industrial Corporation 23
<PAGE>
Vice President
Corporate
Communications,
Associate General Counsel and
Secretary of United Industrial Corporation.
Director since 1995.
President and Chief Executive Officer
of the Aerospace
Corporation.
Director since 1995.
The Joseph Solomon Distinguished
Professor of Law and
former Dean/Professor
of Law of New York
Law School.
Director since 1996.
President of JSA
Partners, Inc. and Chairman and
Co-Founder of JSA Research, Inc.
Director since 1998.
Chairman of the
Board of United
Industrial Corporation.
Director since 1995.
President and CEO
of United Industrial
Corporation and
AAI Corporation.
Director since 1995.
BOARD OF DIRECTORS
Susan Fein Zawel
Edward C. Aldridge, Jr.
[GRAPHIC
E. Donald Shapiro OMITTED]
Joseph S. Schneider
Harold S. Gelb
Chairman of the Board
Richard R. Erkeneff
President and CEO
24 Board of Directors
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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. 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. 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%. The defense segment's
business is heavily influenced by changes in the budgetary plans and procurement
policies of the U.S. Government. Reduction in defense spending and program
cancellations in recent years have adversely affected operating results.
Further, government contracts are subject to price redetermination under certain
circumstances and may be terminated for the convenience of the government. The
Company intends to maintain a strong focus on Department of Defense
opportunities and believes it is well positioned over the long term to benefit
from the demand for advanced technological systems by the U.S. and foreign
governments.
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. 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. These decreases were due to a reduction in
customer capital spending. In February 2000, the energy segment received a
contract valued at $6,400,000.
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 Electric Transit, Inc. ("ETI").
These difficulties were alleviated in early 2000 through successful negotiations
for MUNI program related credit facilities. ETI is owned 65% by Skoda a.s. and
35% by the Company. Transportation's backlog increased to $135,018,000 at
December 31, 1999 from $53,860,000 at December 31, 1998 generally due to a
contract award to overhaul railcars for New Jersey Transit.
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 last 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
will likely require a significant warranty effort. Consequently, the Company
recorded a $5 million 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
United Industrial Corporation 25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (continued)
proposal in May 1999 to purchase Skoda's electric trolley bus manufacturing
subsidiary and its interest in the ETI joint venture, which was later withdrawn.
Other expense -- net amounted to a net expense of $2,246,000 in 1999
compared to a net expense of $2,783,000 in 1998. These losses 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 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
has 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, all
the financial arrangements have been completed, and it is expected that there
will now be sufficient working capital for ETI to perform the MUNI contract.
With the completion of new financing arrangements for ETI in February 2000 and
the warranty matter noted above accounted for, the Company expects its
transportation business to achieve profitability in the second half of 2000. At
the same time, the Company continues to explore strategic alternatives for the
transportation business.
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).
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997.
Net sales of $204,305,000 in 1998 decreased 13% from $235,183,000 in 1997. The
1997 sales included $29,838,000 of sales from the Neo Products Co., the
operating assets of which were sold in August 1997 and the Weather Systems
business (together the "Disposed Businesses") sold in September 1997. Excluding
the sales from the Disposed Businesses, net sales decreased $1,040,000 or less
than 1% from 1997 to 1998.
Excluding the disposed Weather Systems business, the net sales in the
defense segment increased 2% or $2,770,000 to $153,201,000 in 1998 from
$150,431,000 in 1997. Sales in 1998 were negatively affected by the delayed
commencement of certain programs caused by procurement deferments. However,
these delays had a positive effect on the Company's 1998 backlog. Backlog in the
defense segment at December 31, 1998 was $146,634,000, which was an increase of
$24,743,000 or 20.3% from $121,891,000 at December 31, 1997. Sales to agencies
of the U.S. Government, primarily by the defense segment, were $106,763,000 in
1998 and $128,423,000 in 1997. Included in these figures are Weather Systems
business sales of $25,233,000 in 1997. Export sales by the defense segment were
$31,117,000 in 1998 and $33,025,000 in 1997, a decrease of $1,908,000, or 5.8%.
This decrease reflected a $6,800,000 reduction of shipments on an export
contract of $1,600,000 in 1998 as compared to $8,400,000 in 1997.
26 Financials
<PAGE>
Net sales in the energy segment decreased 9%, or $3,473,000 to $34,454,000
in 1998 from $37,927,000 in 1997, due primarily to the reduction of replacement
parts sales. Backlog in the energy segment was $9,334,000 at December 31, 1998,
representing an increase of $318,000 or 3.5%, greater than the backlog of
$9,016,000 at the 1997 year-end.
Net sales in the transportation segment were $16,650,000 during 1998 as
compared to $16,987,000 during 1997. In addition, transportation's backlog
decreased by $3,449,000, or 6.0% to $53,860,000 at year-end 1998 from
$57,309,000 at year-end 1997.
Gross profit decreased to $52,271,000 in 1998 from $58,628,000 in 1997.
The gross margin percentage increased to 25.6% in 1998 from 24.9% in 1997.
Excluding the Disposed Businesses, the gross profit was $52,697,000 in 1997. The
gross margin percentage decreased from 25.7% to 25.6%. In the defense segment,
the gross margin percentage decreased to 26.2% in 1998 from 26.9% in 1997.
Excluding the Weather Systems business from the defense segment, the gross
margin percentage decreased to 26.2% in 1998 from 27.7% in 1997. This reduction
in gross margin was primarily due to significant profitability recorded during
1997 regarding major contracts to deliver an unmanned air vehicle system and an
air defense training system. The 2.3% decrease in the gross margin percentage in
the energy segment to 36% in 1998 from 38.3% in 1997 was generally attributable
to decreased sales and competitive market conditions. The transportation segment
experienced negative gross margins of $347,000 in 1998 and $3,568,000 in 1997.
The transportation segment experienced high initial costs to establish itself in
the marketplace.
Selling and administrative expenses as a percentage of net sales were
20.6% in 1998 and 18.3% in 1997. Excluding the Disposed Businesses, the selling
and administrative expenses as a percentage of net sales were 19.3% in 1997.
Selling and administrative expenses decreased $976,000 in 1998 compared to 1997.
Excluding the Disposed Businesses, the selling and administrative expenses
increased $2,394,000, or 6%. The increase was generally attributable to
litigation expenses, partially offset by various operating efficiencies.
Interest expense was $170,000 in 1998 and $915,000 in 1997. The decrease was due
to reduced borrowings.
Other expense (income) -- net amounted to a net expense of $2,783,000 in
1998 compared to income of $1,150,000 in 1997. The increase in net expenses of
$3,933,000 was due to an increase in the equity in the loss of investees of
$2,577,000 in 1998 and $764,000 in 1997. The Company's interest in Electric
Transit, Inc. ("ETI"), a company owned 35% by AAI and 65% by Skoda, a Czech
Republic firm, has resulted in losses of $3,060,000 and $1,020,000 recorded by
AAI during 1998 and 1997, respectively. The losses incurred by ETI were caused
by costs necessary to establish itself in the industry, cost growth on ETI's
scope of work regarding its contract to deliver electric trolley buses to the
Miami Valley Regional Transit Authority as well as increased selling, general
and administrative expenses. Also, 1997 other income included the proceeds from
a favorable litigation settlement, net of related legal expenses of
approximately $3,000,000, partially offset by an increase in a charge related to
a contingent payment of $664,000 to the sellers of an acquired subsidiary. In
1998, the contingent payment was $268,000.
Interest income increased $2,231,000 due to increased investments.
In 1998, net income decreased $1,814,000, or 12.2%, to $13,011,000, or
$1.03 per diluted share, from $14,825,000, or $1.19 per diluted share, in 1997.
The 1998 net income includes gains on sales of several buildings and related
land of $4,332,000 ($2,696,000, net of taxes, or $.22 per diluted share), a tax
contingency reduction of $4,458,000 ($2,920,000, net of taxes, or $.23 per
diluted share) partially offset by a litigation settlement expense of $4,500,000
($2,948,000, net of taxes, or $.24 per diluted share). Included in the 1997 net
income was income from a favorable litigation settlement, a net gain on the
sales of the Disposed Businesses of $8,470,000, net of taxes, or $.68 per
diluted share, partially offset by a reserve
United Industrial Corporation 27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (continued)
recorded in the third quarter related to a local tax matter. For 1997, income,
net of taxes, related to the Disposed Businesses totaled $1,595,000, or $.13 per
diluted share. Excluding the above special items and income from divested
businesses, net income increased to $10,343,000, or $.82 per diluted share, for
the year ended 1998 from $6,981,000, or $.56 per diluted share, for 1997.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $13,092,000 at the end of 1999 and
$21,126,000 at the end of 1998. At December 31, 1998, the Company had invested
$4,702,000 in marketable securities.
The Company expects to meet its cash requirements for 2000, including
amounts necessary to fund business ventures, from current cash, operations and
borrowings available under its existing line of credit. The Company is currently
negotiating a replacement line of credit 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.
The Company paid cash dividends of $.40 per share in 1999, $.40 per share
in 1998 and $.29 per share in 1997. Aggregate payments amounted to $4,910,000 in
1999, $4,927,000 in 1998 and $3,536,000 in 1997.
The ratio of current assets to current liabilities was 1.9 at the end of
1999 and 2.3 at the end of 1998. During 1998, the Company repurchased 148,300
shares of stock in the open market at a cost of $1,475,000.
Capital expenditures were $12,530,000 in 1999 and $14,032,000 in 1998.
There were no material commitments for acquisition of capital assets as of
December 31, 1999.
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, 1999, 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 $12,500,000. The Agreement provides for restrictive covenants
among which are debt service coverage ratio, quick ratio, senior debt ratio and
a tangible net worth requirement, all as defined. All assets now owned or
hereafter acquired by the Company and its subsidiaries are pledged as collateral
under the Agreement.
In March 2000, the Agreements were amended to extend the expiration date
to January 11, 2001, increase the sublimit on letter of credit obligations to
$16,500,000 and to limit the aggregate amount of advances to be made to a
borrowing base, as defined.
28 Financials
<PAGE>
Qualitative and Quantitative Disclosures about Market Risk
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions, and some of these transactions are
denominated in foreign currencies. As a result, the Company's financial results
could be affected by changes in foreign exchange rates. To mitigate the effect
of changes in these rates, the Company has entered into two foreign exchange
forward contracts.
The following table presents firmly committed sales exposures and related
derivative contracts.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE
(In thousands, except average contract rate) 2000 2001 2002 2003 2004 THEREAFTER TOTAL DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Firmly committed sales contracts
Spanish Pesetas $ 773 $ -- $ -- $ -- $ -- $ -- $ 773
Australian Dollars -- -- -- 501 380 190 1,071
Related forward contracts to sell
currencies for U.S. dollars
Spanish Pesetas
Notional amount (USD) $ 505 -- -- -- -- -- $ 505
Average contract rate (ESP/USD) 153.9 -- -- -- -- -- -- $ (33)
Australian Dollars
Notional amount (USD) $ -- $ -- $ -- $ 502 $ 462 $ -- $ 964
Average contract rate (AUD/USD) -- -- -- .6429 .6429 -- -- $ (107)
====================================================================================================================================
</TABLE>
Environmental and Other Litigation
The Company, along with numerous other parties, has been named in five tort
actions relating to environmental matters based on allegations partially related
to a predecessor's operations. These tort actions seek recovery for personal
injury and property damage among other damages. One tort claim is a certified
property and medical class action. The Company reached a written settlement of
all these matters with the plaintiffs for, among other items, a cash payment of
$4,250,000.
The Superior Court of Maricopa County has scheduled a hearing for final
approval of the settlement for March 14, 2000. See Note 15.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed
United Industrial Corporation 29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (continued)
approximately $210,000 during 1999 in connection with remediating its systems.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Management does not
anticipate that the adoption of the new Statement will have a significant effect
on earnings or the financial position of the Company.
Forward Looking Information
This Annual Report contains "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; legal proceedings;
product demand and market acceptance risks; the effect of economic conditions;
the impact of competitive products and pricing; product development,
commercialization and technological difficulties; capacity and supply
constraints or difficulties; legislative or regulatory actions impacting the
Company's energy segment and transportation business; changing priorities or
reductions in the U.S. Government defense budget; contract continuation and
future contracting awards; and U.S. and international military budget
constraints and determinations.
30 Financials
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
UNITED INDUSTRIAL CORPORATION
YEAR ENDED DECEMBER 31
----------------------------------
(Dollars in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
Net Sales $ 216,979 $ 204,305 $ 235,183
Operating costs and expenses:
Cost of sales 161,554 152,034 176,555
Selling and administrative 45,829 42,031 43,007
Gains on sale of assets -- net -- (4,918) (13,306)
Other expense (income) -- net 2,246 2,783 (1,150)
Interest income (1,908) (3,675) (1,444)
Interest expense 160 170 915
----------------------------------
Total Operating Costs and Expenses 207,881 188,425 204,577
- -------------------------------------------------------------------------------
Income Before Income Taxes 9,098 15,880 30,606
Provision (credit) for income taxes
Federal
Current 3,181 8,950 6,802
Deferred (1,165) (3,109) 1,176
State 805 (2,972) 7,803
- -------------------------------------------------------------------------------
Income Taxes 2,821 2,869 15,781
----------------------------------
Net Income $ 6,277 $ 13,011 $ 14,825
- -------------------------------------------------------------------------------
Earnings Per Share
Basic $ .51 $ 1.06 $ 1.22
----------------------------------
Diluted $ .50 $ 1.03 $ 1.19
- -------------------------------------------------------------------------------
See notes to financial statements
United Industrial Corporation 31
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED INDUSTRIAL CORPORATION
DECEMBER 31
-------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 13,092 $ 21,126
Marketable securities -- 4,702
Trade receivables
U.S. Government 21,763 13,294
Other 26,632 27,250
-------------------
48,395 40,544
Inventories 42,187 23,569
Prepaid expenses and other current assets 3,239 2,067
Deferred income taxes 3,041 1,526
-------------------
Total Current Assets 109,954 93,534
- --------------------------------------------------------------------------------
Other Assets 56,005 56,421
Property and Equipment
Land 501 501
Buildings and improvements 40,065 36,277
Machinery and equipment 76,256 71,449
Furniture and fixtures 5,259 4,982
-------------------
122,081 113,209
Less allowances for depreciation and amortization 86,248 82,643
- --------------------------------------------------------------------------------
35,833 30,566
- --------------------------------------------------------------------------------
$201,792 $180,521
- --------------------------------------------------------------------------------
32 Financials
<PAGE>
DECEMBER 31
----------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,837 $ 12,235
Accrued employee compensation and taxes 7,710 8,320
Customer advances 25,705 4,303
Provision for contract losses 7,026 4,558
Federal income taxes 636 2,973
Other liabilities 7,847 8,255
----------------------
Total Current Liabilities 58,761 40,644
- --------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions 24,614 23,136
Other Liabilities 3,887 4,175
Deferred Income Taxes 3,475 3,125
Shareholders' Equity
Common stock -- par value $1.00 per share
Authorized shares -- 30,000,000
Outstanding shares:
1999 -- 12,294,138; 1998 -- 12,250,063 14,374 14,374
Additional capital 89,483 89,583
Retained earnings 23,616 22,249
Cost of shares in treasury:
1999 -- 2,080,010 shares; 1998 -- 2,124,085 shares (16,418) (16,765)
----------------------
Total Shareholders' Equity 111,055 109,441
----------------------
$ 201,792 $ 180,521
- --------------------------------------------------------------------------------
See notes to financial statements
United Industrial Corporation 33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED INDUSTRIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,277 $ 13,011 $ 14,825
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,682 7,816 9,559
Deferred income taxes (1,165) (3,109) 1,176
Gains on sale of assets -- (4,918) (13,306)
Changes in operating assets and liabilities -- net
(Decrease) increase in current income taxes (2,337) 2,343 (333)
(Increase) decrease in trade receivables (7,851) (12,725) 7,855
(Increase) decrease in inventories (18,618) 8,221 5,839
Increase in prepaid expenses and
other current assets (1,172) (425) (494)
Increase (decrease) in customer advances 21,402 761 (2,331)
(Decrease) increase in accounts payable, accruals,
advances and other current liabilities (948) 5,305 1,441
Other -- net (2,498) (1,412) (96)
--------------------------------
Net Cash Provided By Operating Activities 772 14,868 24,135
INVESTING ACTIVITIES
- --------------------------------------------------------------------------------------
Decrease (increase) in advances to investee 3,703 (12,735) (9,639)
Sale (purchase) of marketable securities 4,702 1,400 (6,102)
Purchase of property and equipment (12,530) (14,032) (6,926)
Net proceeds from sale of assets -- 19,850 19,183
--------------------------------
Net Cash Used For Investing Activities (4,125) (5,517) (3,484)
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------------
Proceeds from borrowings -- -- 6,250
Payments on long-term debt and borrowings -- (5,729) (14,271)
Dividends (4,910) (4,927) (3,536)
Purchase of treasury shares -- (1,475) --
Proceeds from exercise of stock options 229 808 577
- --------------------------------------------------------------------------------------
Net Cash Used for Financing Activities (4,681) (11,323) (10,980)
- --------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (8,034) (1,972) 9,671
- --------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 21,126 23,098 13,427
--------------------------------
Cash and Cash Equivalents at End of Year $ 13,092 $ 21,126 $ 23,098
- --------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
34 Financials
<PAGE>
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, firefighter training
systems, and energy systems for industry and utilities.
The principal business segments are defense and related products, ground
transportation systems and energy generating systems.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years have been
reclassified to conform to the current year's classifications. The Company
includes in income its proportionate share of the net earnings or losses of
unconsolidated investees, when the 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 investment grade
bonds, commercial paper and other short-term investment funds.
Inventories
Inventories are stated at the lower of cost or market. At December 31, 1999 and
1998, approximately 6% and 9%, respectively, of total inventory was priced by
the last-in, first-out (LIFO) method with the remainder priced at actual,
average, or standard cost. If the first-in, first-out (FIFO) method of inventory
pricing had been used, inventories would have been approximately $3,691,000
higher than reported on December 31, 1999 and $3,851,000 higher than reported on
December 31, 1998.
Inventories include amounts principally related to long-term contracts of
the Company's defense segment, as determined by the percentage-of-completion
method of accounting. Sales and gross profit are principally recognized as work
is performed based on the relationship between actual costs incurred and total
estimated costs at completion. Alternatively, certain contracts provide for the
production of various units throughout the contract period and, sales and gross
profit on these contracts are accounted for based on the units delivered. See
Note 5.
Property and Equipment
Property and equipment are stated at cost. The policy of the Company is to
provide for depreciation on the straight-line, sum-of-the-years digits, and
declining-balance methods, by annual charges to operations calculated to
amortize the cost over the estimated useful lives of the various classes of
property and equipment.
United Industrial Corporation 35
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
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, warrants and convertible securities 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 8.
Foreign Currency Contracts
The Company enters into forward exchange contracts to manage its exposure
against foreign currency fluctuations on sales transactions denominated in
foreign currencies. The contract obligates the Company to exchange predetermined
amounts of the foreign currency at certain dates, or to make an equivalent U.S
dollar payment equal to the value of such exchanges. The Company does not hold
or issue financial instruments for trading purposes. At December 31, 1999 the
Company had entered into foreign currency forward contracts with a large
financial institution for Spanish pesetas and Australian dollars with an
aggregate notional value of $1,469,000, and an aggregate loss of $140,000 based
on fair market value. The Company accounts for these contracts under the accrual
method.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Management does not
anticipate that the adoption of the new Statement will have a significant effect
on earnings or the financial position of the Company.
NOTE 3 MARKETABLE SECURITIES
At December 31, 1999, the Company had no short-term investments. At December 31,
1998, the Company's short-term investments consisted of debt securities, whose
carrying amount was $4,702,000, which approximated market value and were
classified as held-to-maturity securities. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity.
36 Financials
<PAGE>
NOTE 4 TRADE RECEIVABLES
Amounts due from the U.S. Government primarily related to long-term contracts of
the Company's defense segment were as follows:
DECEMBER 31
---------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Amounts billed $16,592 $ 8,589
Unbilled recoverable costs and earned fees 4,979 4,413
Retainage per contract provisions 192 292
---------------------
$21,763 $13,294
---------------------
Billed and unbilled amounts above include $3,727,000 and $1,738,000 at
December 31, 1999 and 1998, respectively, related to contracts for which a
subsidiary of the Company is a subcontractor to other government contractors.
Unbilled recoverable costs and earned fees represent amounts that will be
substantially collected within one year. Retainage amounts will generally be
billed over the next twelve months.
NOTE 5 INVENTORIES
DECEMBER 31
--------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Finished goods and work in progress $ 6,448 $ 5,173
--------------------
Costs and earnings relating to long-term contracts 43,642 29,094
Deduct progress payments related to long-term contracts (11,188) (14,116)
--------------------
Costs and earnings in excess of billings 32,454 14,978
--------------------
Total finished goods and work in progress 38,902 20,151
Materials and supplies 3,285 3,418
--------------------
$ 42,187 $ 23,569
--------------------
The inventoried costs associated with long-term contracts include costs
and earnings of $32,454,000 in 1999 and $14,978,000 in 1998 of incomplete
contracts not yet billable to the customer. These amounts represent the
difference between the percentage-of-completion method of accounting for
long-term contracts used to record operating results by the Company's defense
segment and the amounts billable to the customer under the terms of the specific
contracts. Estimates of final contract costs and earnings (including earnings
subject to future determination through negotiation or other procedures) are
reviewed and revised periodically throughout the lives of the contracts.
Adjustments of earnings resulting from the revisions are recorded on a current
basis. The Company recognized losses of $7,680,000 ($4,815,000 net of tax
benefit) and $1,999,000 ($1,236,000 net of tax benefit) during 1999 and 1998,
respectively, resulting primarily from revision of cost estimates on certain
major long-term contracts.
Included in the 1999 and 1998 costs and earnings in excess of billings
were $2,284,000 and $2,150,000, respectively, on certain government contracts in
excess of the negotiated contract values which are, or will be, the subject of
formal claims if not resolved by negotiation.
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.
United Industrial Corporation 37
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
NOTE 6 OTHER ASSETS
DECEMBER 31
---------------------
(Dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Net pension asset $39,262 $34,799
Advances to investee 12,444 16,147
Patents and other intangible assets, net 3,855 4,730
Other 444 745
---------------------
$56,005 $56,421
---------------------
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
$885,000 in 1999, $1,526,000 in 1998, and $1,543,000 in 1997. Accumulated
amortization amounted to $9,970,000 and $9,085,000 at December 31, 1999 and
1998, respectively. Receivables from investees under subcontracts of $5,821,000
and $6,228,000 are classified as accounts receivable at December 31, 1999 and
1998, respectively.
NOTE 7 LONG-TERM DEBT AND CREDIT ARRANGEMENTS
On June 11, 1997, the Company and its subsidiaries entered into a Revolving Line
of Credit Loan Agreement, Term Loan Agreement and Security Agreement
("Agreement") (amending and restating a credit agreement, dated as of October
13, 1994) with an institutional lender. In July 1997, the Company borrowed
$6,250,000 under the Term Loan Agreement, at LIBOR plus a fluctuating margin.
The principal was payable in sixty consecutive monthly installments. At December
31, 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 $12,500,000. The Revolving Line of Credit Loan Agreement expires
June 11, 2000. The Company is currently negotiating a replacement line of credit
and expects such negotiation to be successful. The letter of credit obligations
outstanding at December 31, 1999 and 1998 under the Agreement were $9,779,000
and $7,129,000, 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 $160,000 in 1999, $170,000 in 1998 and $915,000 in
1997. Interest paid was $166,000 in 1999, $494,000 in 1998 and $1,290,000 in
1997.
38 Financials
<PAGE>
NOTE 8 STOCK OPTIONS
In May 1994, the shareholders approved the 1994 Stock Option Plan ("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 1999, 1998 and 1997 under the
plans, net income and net income per common share would have decreased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
(Dollars in thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $ 6,277 $ 13,011 $ 14,825
Pro forma 5,566 12,406 14,536
Net income per common share:
As reported:
Basic .51 1.06 1.22
Diluted .50 1.03 1.19
Pro forma:
Basic .45 1.01 1.19
Diluted .44 .98 1.17
------------------------------------
</TABLE>
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 1999, 1998 and 1997, respectively: dividend
yields of 3.9%, 3.5% and 3.7%; expected volatility of 39%, 31% and 37%;
risk-free interest rates of 4.7%, 5% and 6.2%; and expected lives of three to
five years in 1999 and five years in 1998 and 1997. The weighted-average fair
value of an option granted was $2.64, $2.78 and $2.19 for the years ended
December 31, 1999, 1998 and 1997, respectively.
United Industrial Corporation 39
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
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, 1997 467 $ 5.23
Granted 483 7.35
Exercised (109) 5.31
Canceled (1) 4.75
- --------------------------------------------------------------------------------
Balance at December 31, 1997 840 6.44
- --------------------------------------------------------------------------------
Granted 538 12.01
Exercised (148) 5.38
Canceled (4) 7.50
- --------------------------------------------------------------------------------
Balance at December 31, 1998 1,226 9.01
- --------------------------------------------------------------------------------
Granted 489 9.36
Exercised (42) 5.47
- --------------------------------------------------------------------------------
Balance at December 31, 1999 1,673 9.20
- --------------------------------------------------------------------------------
DECEMBER 31
- --------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Exercisable 833 411 155
Available for future grants 727 615 546
- --------------------------------------------------------------------------------
The weighted-average remaining life for options outstanding as of December
31, 1999, is 6.8 years. The following table summarizes information about stock
options outstanding at December 31, 1999:
SHARES (in thousands)
- --------------------------------------------------------------------------------
RANGE OF EXERCISE PRICES EXERCISABLE OUTSTANDING
- --------------------------------------------------------------------------------
$4.50 to $7.00 301 326
$7.50 to $9.50 260 719
$10.25 to $13.00 272 628
- --------------------------------------------------------------------------------
833 1,673
- --------------------------------------------------------------------------------
NOTE 9 LEASES
Total rental expense for all operating leases amounted to $2,883,000 in 1999,
$2,178,000 in 1998 and $1,543,000 in 1997. Contingent rental payments were not
significant.
The future minimum rental commitments as of December 31, 1999, for all
noncancellable leases are $3,351,000 in 2000; $2,757,000 in 2001; $2,493,000 in
2002; $1,936,000 in 2003, and $975,000 in 2004.
40 Financials
<PAGE>
NOTE 10 CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARE-
SHARES COMMON ADDITIONAL RETAINED TREASURY HOLDERS'
(In thousands) OUTSTANDING STOCK CAPITAL EARNINGS STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 12,174 $ 14,374 $ 90,196 $ 2,876 $ (17,301) $ 90,145
Net income -- -- -- 14,825 -- 14,825
Cash dividends declared ($.29 per share) -- -- -- (3,536) -- (3,536)
Stock options 109 -- (267) -- 857 590
Employee awards 1 -- -- -- -- --
Exchange of shares* (35) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 12,249 14,374 89,929 14,165 (16,444) 102,024
Net income -- -- -- 13,011 -- 13,011
Cash dividends declared ($.40 per share) -- -- -- (4,927) -- (4,927)
Shares repurchased (148) -- -- -- (1,475) (1,475)
Stock options 148 -- (346) -- 1,154 808
Employee awards 1 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 12,250 14,374 89,583 22,249 (16,765) 109,441
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Shareholder surrendered 565,444 common shares in exchange for 530,444 shares.
This transaction affected treasury shares.
NOTE 11 PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several qualified and non-qualified pension plans and other
postretirement benefit plans for its employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 1999, and a statement of
the funded status as of December 31 of both years.
United Industrial Corporation 41
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 155,899 $ 144,370 $ 25,072 $ 22,476
Service cost 1,608 1,377 590 612
Interest cost 10,370 10,618 1,595 1,662
Amendments -- 1,008 -- --
Curtailments 2,134 -- 1,328 --
Actuarial loss (gain) (14,379) 11,897 (3,515) 1,846
Administrative expenses (30) (38) -- --
Settlements (14,674) -- -- --
Benefits paid (14,054) (13,333) (1,520) (1,524)
Special termination benefits 2,960 -- -- --
- -------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 129,834 $ 155,899 $ 23,550 $ 25,072
- -------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 193,724 $ 184,120
Actual return on plan assets 26,850 22,975
Administrative expenses (30) (38)
Settlements (14,674) --
Benefits paid (14,054) (13,333)
- -------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 191,816 $ 193,724
- -------------------------------------------------------------------------------------------------------
Funded (underfunded) status of the plan $ 61,982 $ 37,825 $ (23,550) $ (25,072)
Unrecognized net transition (asset) obligation (269) (357) (549) --
Unrecognized net actuarial (gain) loss (20,343) 559 (822) 1,455
Unrecognized prior service cost (2,108) (3,228) 307 481
- -------------------------------------------------------------------------------------------------------
Prepaid benefit (accrued cost) $ 39,262 $ 34,799 $ (24,614) $ (23,136)
- -------------------------------------------------------------------------------------------------------
Weighted-average Assumptions
Discount rate 8% 7% 8% 6.75%
Expected return on plan assets 8.5% 8.5%
Rate of compensation increase 4% 4%
- -------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 7 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.25 percent in 2001 and remain at that level
thereafter.
42 Financials
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service cost $ 1,608 $ 1,377 $ 912 $ 590 $ 612 $ 555
Interest cost 10,370 10,618 10,388 1,595 1,662 1,568
Expected return on plan assets (16,003) (15,250) (13,928) -- -- --
Amortization of prior service cost (413) (413) (497) 44 46 43
Amortization of unrecognized transition assets (88) (88) (88) -- -- --
Settlement-- curtailment 25 -- -- 760 -- --
Recognized net actuarial loss -- (3) (5) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Benefit (income) cost $ (4,501) $ (3,759) $ (3,218) $ 2,989 $ 2,320 $ 2,166
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one-percentage-point change in the assumed health care cost
trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
(Dollars in thousands) INCREASE DECREASE
- --------------------------------------------------------------------------------
Effect on total of service and interest cost
components in 1999 $ 108 $ (104)
Effect on postretirement benefit obligation as of
December 31, 1999 $1,029 $(1,019)
- --------------------------------------------------------------------------------
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 $1,303,000 in 1999, $1,309,000 in 1998, and $1,304,000 in 1997.
NOTE 12 INDUSTRY SEGMENT DATA
The Company has three reportable segments: defense, transportation and energy
systems. Other includes the corporate office and dormant corporations. The
defense segment's products include unmanned aerial vehicles, training and
simulation systems, automated aircraft test and maintenance equipment,
specialized firefighter training installations, and combat vehicles and ordnance
systems. The transportation segment manufactures and overhauls transit systems
and components. The energy segment manufactures combustion equipment for biomass
and refuse fuels.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
Intersegment sales and transfers are recorded at the Company's cost; there
is no intercompany profit or loss in intersegment sales or transfers. The
Company's reportable segments are business units that offer different products.
The reportable segments are each managed separately because they manufacture and
distribute products with different production processes.
Sales to agencies of the United States Government, primarily by the
defense segment, were $133,328,000 in 1999, $106,763,000 in 1998 and
$128,423,000 in 1997. No single customer, other than the United States
Government, accounted for 10 percent or more of net sales in any year. Export
sales were $42,120,000 in 1999, $40,994,000 in 1998 and $41,832,000 in 1997.
United Industrial Corporation 43
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
<TABLE>
<CAPTION>
(Dollars in thousands) DEFENSE TRANSPORTATION ENERGY OTHER RECONCILIATIONS TOTALS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $ 175,664 $ 16,987 $ 37,927 $ 4,605 $ -- $ 235,183
Intersegment revenues 1,402 -- -- -- (1,402) --
Equity profit (loss) in ventures 256 (1,020) -- -- -- (764)
Interest income 3,207 -- 166 9,668 (11,597) 1,444
Interest expense 2,876 180 20 9,436 (11,597) 915
Depreciation and amortization expense 8,018 526 815 200 -- 9,559
Gain (loss) on sale of assets 14,169 -- -- (863) -- 13,306
Segment profit (loss) 33,592 (6,767) 7,661 (3,880) -- 30,606
Segment assets 150,507 16,793 32,435 200,215 (218,751) 181,199
Capital expenditures 5,405 1,009 486 26 -- 6,926
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44 Financials
<PAGE>
----------------------------------
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Revenues
Total external revenues for
reportable segments $ 216,979 $ 204,305 $ 235,183
Intersegment revenues for
reportable segments 2,103 3,759 1,402
Elimination of intersegment
revenues (2,103) (3,759) (1,402)
- -------------------------------------------------------------------------------
Total Consolidated Revenues $ 216,979 $ 204,305 $ 235,183
- -------------------------------------------------------------------------------
Profit or Loss
Income before income taxes for
reportable segments $ 9,098 $ 15,880 $ 30,606
- -------------------------------------------------------------------------------
Assets
Total assets for reportable
segments $ 351,731 $ 415,627 $ 399,950
Elimination of intercompany
receivables (7,886) (29,957) (35,103)
Elimination of investment in
consolidated subsidiaries (125,345) (189,174) (170,901)
Reclassification of deferred
tax liabilities (16,708) (15,975) (12,747)
- -------------------------------------------------------------------------------
Total Consolidated Assets $ 201,792 $ 180,521 $ 181,199
- -------------------------------------------------------------------------------
Other significant items
Elimination of intercompany
interest $ 6,384 $ 12,294 $ 11,597
-------------------------------------
Segment profit (loss) includes research and development costs amounting to
$2,630,000 in 1999, $989,000 in 1998 and $2,067,000 in 1997, principally in the
defense segment.
NOTE 13 INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. In addition, the effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.
Following is a reconciliation of the difference between total tax expense
and the amount computed by applying the federal statutory income tax rate to
income from operations before income taxes:
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Federal income taxes at statutory rate $ 3,094 $ 5,481 $ 10,712
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) 531 (1,961) 5,072
Provision for nondeductible
expenses (including $94 and
$238 related to contingent
payments in 1998 and 1997
on an acquisition) 296 378 537
Non-taxable income (548) (651) (632)
Other--net (552) (378) 92
- -------------------------------------------------------------------------------
Income Taxes $ 2,821 $ 2,869 $ 15,781
--------------------------------
Income tax payments were $4,600,000 in 1999, $6,000,000 in 1998 and
$6,875,000 in 1997.
United Industrial Corporation 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
Deferred Income Tax Balances:
DECEMBER 31
--------------------
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
Deferred Tax Assets
Losses on long-term contracts not currently deductible $ 4,330 $ 1,571
Postretirement benefits other than pensions
and other employee benefits 10,307 9,989
Product warranty and other provisions 3,827 4,550
Vacation pay accruals 733 739
Other 99 75
- -------------------------------------------------------------------------------
Total Deferred Tax Assets 19,296 16,924
--------------------
Deferred Tax Liability
Pension plans and other employee benefits (15,852) (14,246)
Excess tax depreciation (2,349) (2,763)
Patent amortization (938) (1,156)
Other (591) (358)
- -------------------------------------------------------------------------------
Total Deferred Tax Liability (19,730) (18,523)
- --------------------------------------------------------------------------------
Net Deferred Tax Liability $ (434) $ (1,599)
--------------------
The net deferred tax liability is classified as follows:
Net current deferred income tax assets $ 3,041 $ 1,526
- -------------------------------------------------------------------------------
Net non-current deferred income tax liability $ (3,475) $ (3,125)
--------------------
46 Financials
<PAGE>
14 SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share
data and stock prices) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 63,783 $ 52,094 $ 54,032 $ 47,070 $ 57,159 $ 49,979 $ 49,940 $ 47,227
Gross profit 11,693 14,572 14,105 15,055 15,229 11,634 12,006 13,402
Net income 443 2,096 1,424 2,314 6,029(a) 2,361 2,298 2,323
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share
Basic $ .03 $ .17 $ .12 $ .19 $ .49 $ .19 $ .19 $ .19
Diluted $ .03 $ .17 $ .11 $ .19 $ .48 $ .19 $ .18 $ .18
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared per share$ .10 $ .10 $ .10 $ .10 $ .10 $ .10 $ .10 $ .10
- ------------------------------------------------------------------------------------------------------------------------------------
Stock prices:
High $9 3/4 $11 3/8 $12 1/2 $11 7/8 $11 3/4 $13 1/2 $13 15/16 $13 9/16
Low $7 15/16 $7 3/8 $9 11/16 $8 9/16 $8 7/16 $9 10/16 $1 11/16 $9 1/4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a) Includes net gain on sale of assets of $4,332,000 ($2,696,000 net of
taxes), a tax contingency reduction of $4,458,000 ($2,920,000 net of
taxes) and a litigation settlement expense of $4,500,000 ($2,948,000 net
of taxes)
The Company's common stock is listed on the New York Stock Exchange. The
approximate number of shareholders of record as of February 29, 2000 was 2,300.
NOTE 15 COMMITMENTS AND CONTINGENCIES
The Company, along with numerous other parties, has been named in five tort
actions in Maricopa County Superior Court relating to environmental matters
based on allegations partially related to a predecessor's operation of a small
facility at a site in the State of Arizona that manufactured semi-conductors
between 1959 and 1960. All such operations of the Company were sold by 1961.
These tort actions seek recovery for personal injury and property damage among
other damages based on exposure to solvents allegedly released at the site.
These suits allege that the plaintiffs have been exposed to contaminated
groundwater in the Phoenix/Scottsdale, Arizona area and suffer increased risk of
disease and other physical effects. They also assert property damages under
various theories; seek to have certain scientific studies performed concerning
health risks, preventative measures and long-term effects; and seek incidental
and consequential damages, punitive damages, and an injunction against actions
causing further exposures.
The Company reached an agreement to settle all of these matters with the
plaintiffs for, among other items, a cash payment of $4,250,000. The Superior
Court of Maricopa County has scheduled a hearing for final approval of the
settlement for March 14, 2000.
Detroit Stoker was notified in March 1992 by the Michigan Department of
Natural Resources ("MDNR") that it is a potentially responsible party in
connection with the clean-up of a former industrial landfill located in Port of
Monroe, Michigan. MDNR is treating the Port of Monroe landfill site as a
contaminated facility within the meaning of the Michigan Environmental Response
Act ("MERA"). Under MERA, if a release or a potential release of a discarded
hazardous substance is or may
United Industrial Corporation 47
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (continued)
be injurious to the environment or to the public health, safety or welfare, MDNR
is empowered to undertake or compel investigation and response activities in
order to alleviate any contamination threat. Detroit Stoker intends to
aggressively defend these claims. At this time, no estimate can be made as to
the amount or range of potential loss, if any, to Detroit Stoker with respect to
this action.
The Company is involved in various other lawsuits and claims, including
certain other environmental matters, arising out of the normal course of its
business. In the opinion of management, the ultimate amount of liability, if
any, under pending litigation, including claims described above, will not have a
materially adverse effect on the Company.
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, 1999.
NOTE 16 DISPOSED BUSINESSES
In August 1997, the Company sold substantially all the operating assets of Neo
Products Co. for $587,000 in cash and promissory notes of $853,000 secured by a
mortgage on all fixed assets sold. The contract contains an "earn out" provision
based on net income earned through August 2002. The sale resulted in a loss of
$340,000, after taxes.
In September 1997, the Company sold all the capital stock of AAI Systems
Management, Inc., its Weather Systems Business, for $18,500,000 in cash and a
promissory note of $2,375,000. The sale resulted in a realized gain of
$14,169,000 ($8,810,000 net of taxes).
The Consolidated Statements of Operations include the combined net sales
of the two divested companies, totaling $29,838,000 and the combined net income
totaling $1,595,000 for the year ended December 31, 1997.
NOTE 17 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income $ 6,277,000 $13,011,000 $14,825,000
Basic earnings per share--
weighted-average shares 12,275,000 12,307,000 12,195,000
Effect of dilutive securities:
employee stock options 234,000 302,000 225,000
- --------------------------------------------------------------------------------
Diluted earnings per share--
adjusted weighted-average
and assumed conversions 12,509,000 12,609,000 12,420,000
- --------------------------------------------------------------------------------
Basic earnings per share $ .51 $ 1.06 $ 1.22
- --------------------------------------------------------------------------------
Diluted earnings per share $ .50 $ 1.03 $ 1.19
-----------------------------------------
48 Financials
<PAGE>
NOTE 18 INVESTMENT IN UNCONSOLIDATED INVESTEES
In 1993, AAI Corporation, a wholly owned subsidiary of the Company ("AAI"),
organized a new subsidiary Electric Transit, Inc., to manufacture electric
trolley buses for the U.S. market. In 1994 and again in 1995, ETI conveyed
equity interests (in ETI) to Skoda, a Czech Republic firm. Consequently, ETI is
owned 35% by AAI, and 65% by Skoda. 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
$32,000,000 and $174,000,000, respectively, AAI has received subcontracts of
$9,350,000 and $54,358,000 respectively.
In connection with these contracts, AAI has guaranteed attainment of
certain performance criteria. The ability of ETI to perform under these
contracts may, in part, be dependent on the performance of other parties,
including AAI, Skoda and other subcontractors. Thus, the ability to timely
deliver such equipment may be outside AAI's control. If ETI is unable to meet
its performance obligations, these performance guarantees could have a material
adverse effect on product margins and the Company's results of operations,
liquidity or financial condition. AAI monitors the progress of Skoda and ETI's
other subcontractors.
In February 2000 the Czech Export Bank (CEB) approved credit facilities to
finance the MUNIproject partially guaranteed by the Czech government's Export
Guarantee and Insurance Corporation (EGAP), to ETI and two Skoda subsidiaries.
In conjunction with the ETI credit facility, the Company has agreed to assume
the responsibility of new supplemental funding, if necessary, to ensure contract
performance as well as assume joint and several liability on progress payment
bonds. The Company has agreed to indemnify the MUNIproject's surety in full for
its liability under these bonds, if any, which will increase from approximately
$31 million at December 31, 1999 to $45 million before diminishing and
ultimately being eliminated as deliveries are accepted by the MUNIcustomer.
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 MUNIcontract obligates the Company to indemnify the surety, if necessary for
up to approximately $15 million. In February 2000, all financial arrangements
had been completed, and it is expected that there will be sufficient working
capital to complete the MUNI program.
Due to Skoda's inability to fund ETI during 1999 as required by ETI's
shareholder agreement, AAI had assumed that responsibility in its entirety.
While Skoda still had the obligation to provide funding, during 1999 AAI
recorded 100% of ETI's loss totaling $3,362,000 ($2,108,000, net of taxes).
These losses were primarily generated by cost growth on the Dayton program. All
the trolley buses for Dayton have been delivered to and accepted by the customer
and the program has now been substantially completed. At December 31, 1999, AAI
had advanced, net of its investment and cumulative losses in ETI, $6,797,000 to
ETI. In addition, AAI has accounts receivable from ETI for work performed on
both the Dayton and San Francisco projects of $2,152,000. These amounts totaling
$8,949,000 are recoverable out of proceeds from the Dayton and San Francisco
customers. In 1999 the Company recorded $2,185,000 ($1,370,000, net of taxes)
that represents the loss in excess of AAI's 35% equity interest in ETI.
Summary financial information of the Electric Transit, Inc. entity is as
follows:
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Current assets $ 33,984 $ 23,123 $ 27,672
Plant, property and equipment
and other assets 4,819 4,643 216
Current liabilities 54,550 40,058 35,200
Net sales 18,615 20,922 1,655
Gross profit (loss) (2,853) (7,357) (1,800)
Net loss (3,362) (7,981) (3,415)
------------------------------------
United Industrial Corporation 49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
UNITED INDUSTRIAL CORPORATION
United Industrial Corporation
Board of Directors and Shareholders
United Industrial Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 29, 2000
50 Financials
<PAGE>
FIVE-YEAR FINANCIAL DATA
UNITED INDUSTRIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousand, except per share data) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data
Net Sales $ 216,979 $ 204,305 $ 235,183 $ 220,822 $ 227,398
Operating costs 207,383 194,065 219,562 209,162 223,385
Interest (income) expense - net (1,748) (3,505) (529) 964 1,159
Income before income taxes 9,098 15,880 30,606 10,641 2,645
Income taxes 2,821 2,869 15,781 4,237 1,757
Net income 6,277 13,011 14,825 6,404 888
Earnings per Share:
Basic .51 1.06 1.22 .53 .07
Diluted .50 1.03 1.19 .52 .07
Cash dividends paid on common stock 4,910 4,927 3,536 2,434 3,165
Cash dividends declared per common share .40 .40 .29 .20 .26
Shares outstanding as of year end (in thousands) 12,294 12,250 12,249 12,174 12,171
----------------------------------------------------------------
FINANCIAL POSITION
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 201,792 $ 180,521 $ 181,199 $ 177,780 $ 181,303
Property and equipment 35,833 30,566 25,576 41,534 42,586
Long-term debt -- -- 4,479 -- 13,750
Shareholders' equity 111,055 109,441 102,024 90,145 86,160
Shareholders' equity per share 9.03 8.93 8.33 7.40 7.08
----------------------------------------------------------------
FINANCIAL RATIOS
- --------------------------------------------------------------------------------------------------------------------------
Return on shareholders' equity 5.7% 11.9% 14.5% 7.1% 1.0%
Net income as a percent of sales 2.9 6.4 6.3 2.9 .4
Long-term debt as a percent of total capitalization -- -- 4.2 -- 13.8
----------------------------------------------------------------
STATISTICAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Sales backlog as of year end $ 293,000 $ 210,000 $ 188,000 $ 159,000 $ 206,000
Capital expenditures 12,530 14,032 6,926 6,299 5,705
Depreciation and amortization 7,682 7,816 9,559 8,306 8,300
Number of employees 1,600 1,800 1,800 1,900 2,000
----------------------------------------------------------------
</TABLE>
United Industrial Corporation 51
<PAGE>
CORPORATE ORGANIZATION
BOARD OF DIRECTORS
Harold S. Gelb
Chairman of the Board
Richard R. Erkeneff
President and Chief Executive
Officer of the Company and
AAI Corporation
Edward C. Aldridge, Jr.
President and
Chief Executive Officer
The Aerospace Corporation
Joseph S. Schneider
President
JSA Partners, Inc.
E. Donald Shapiro
Professor of Law
New York Law School
Susan Fein Zawel
Vice President Corporate Communications,
Associate General Counsel and
Secretary of the Company
Honorary Director (nonvoting)
Bernard Fein
Chairman Emeritus
Retired Chairman and
Chief Executive Officer
CORPORATE OFFICERS
Richard R. Erkeneff
President and
Chief Executive Officer
Robert W. Worthing
Vice President and
General Counsel
James H. Perry
Vice President,
Chief Financial Officer
and Treasurer
Susan Fein Zawel
Vice President Corporate
Communications, Associate General
Counsel and Secretary
Edward A. Smolinski
Assistant Treasurer and
Assistant Secretary
SENIOR MANAGEMENT
AAI Corporation
Richard R. Erkeneff
President and
Chief Executive Officer
Paul J. Michaud
Vice President, Chief Financial
Officer and Treasurer
Robert W. Worthing
Vice President, General Counsel
and Secretary
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.
John T. Merry
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
SYMTRON SYSTEMS, INC.
John J. Henning
President and Chief
Executive Officer
James W. Hanson
Vice President and
General Manager
Richard A. Brandt
Treasurer
52 Corporate Organization
ANNUAL REPORT 1999
UNITED INDUSTRIAL CORPORATION
570 Lexington Avenue
New York, NY 10022
212.752.8787
212.838.4629 fax
www.unitedindustrial.com
[GRAPHIC OMITTED] UNITED INDUSTRIAL
C O R P O R A T I O N
<PAGE>
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
SYMTRON SYSTEMS, INC.
17-01 Pollitt Drive
Fair Lawn, New Jersey 07410
201.794.0200
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Shareholders may obtain information relating to their share position, dividends,
transfer requirements, lost certificates and other related matters by
contacting:
American Stock Transfer
and Trust Company
40 Wall Street
New York, New York 10005
800.937.5449
www.amstock.com
For information about the Company's Dividend Reinvestment and Share Purchase
Plan, contact:
American Stock Transfer
and Trust Company
800.278.4353
www.amstock.com
SHAREHOLDER RELATIONS
Security analysts, investment professionals and shareholders should direct their
inquiries to:
Investor Relations
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10:00 a.m. on
Tuesday, May 9, 2000, at:
The Park Lane Hotel
36 Central Park South
New York, New York
CORPORATE COUNSEL
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
FORM 10-K REPORT
A copy of the United Industrial Corporation Annual Report on
Form 10-K as filed with the Securities and Exchange Commission may be obtained
without cost by writing to:
Susan Fein Zawel, Secretary
United Industrial Corporation
570 Lexington Avenue
New York, New York 10022
STOCK LISTING
[GRAPHIC OMITTED]
United Industrial Corporation common stock is traded on the New York Stock
Exchange (Ticker Symbol: UIC)
INTERNET ADDRESS
http://www.unitedindustrial.com
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNITED INDUSTRIAL CORPORATION
March 3, 2000
<TABLE>
<CAPTION>
State Approximate
(or jurisdiction) Percentage of Voting
in which Securities Owned by
Name Incorporated Immediate Parent
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
AAI Corporation Maryland 100% (a)
A.A.I. Engineering Support, Inc. Maryland 100 (b)
A.A.I. International, Inc. Delaware 100 (b)
Seti, Inc. Pennsylvania 100 (b)
AAI Medical, Inc. Maryland 100 (b)
AAI MICROFLITE Simulation International
Corporation Maryland 100 (b)
AAI/ACL Technologies, Inc. Maryland 100 (b)
AAI/ACL Technologies Europe Limited Britain 100 (c)
AAI California Carshells, Inc. Maryland 100 (b)
AAI Aerospace Services Corp. Maryland 100 (b)
AAI Romania Technologies, S.R.L. Romania 100 (b)
Detroit Stoker Company Michigan 100 (a)
Midwest Metallurgical Laboratory, Inc. Michigan 100 (d)
UIC Products Co. Illinois 100 (a)
Symtron Systems, Inc. New Jersey 100 (a)
U.I.C. International, Ltd. Barbados 100 (a)
</TABLE>
- ------------------------
(a) Percentage owned by United Industrial Corporation ("United").
(b) Percentage owned by AAI Corporation.
(c) Percentage owned by AAI/ACL Technologies, Inc.
(d) Percentage owned by Detroit Stoker Company.
All of the subsidiaries listed above are included in the consolidated financial
statements of United.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of United Industrial Corporation and in the Registration Statement (Form S-8,
No. 33-57065) pertaining to the United Industrial Corporation 401(k) Retirement
Savings Plan, in the Registration Statements (Form S-8, Nos. 33-53911, 333-19517
and 333-59487) pertaining to the United Industrial Corporation 1994 Stock Option
Plan, and in the Registration Statement (Form S-8, No. 333-30103) pertaining to
the United Industrial Corporation 1996 Stock Option Plan for Nonemployee
Directors, of our reports dated February 29, 2000, with respect to the
consolidated financial statements of United Industrial Corporation included in
the Annual Report To Shareholders of United Industrial Corporation for the
fiscal year ended December 31, 1999, and with respect to the financial statement
schedule included in this Annual Report (Form 10-K).
ERNST & YOUNG LLP
New York, New York
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,092
<SECURITIES> 0
<RECEIVABLES> 48,395
<ALLOWANCES> 0
<INVENTORY> 42,187
<CURRENT-ASSETS> 109,954
<PP&E> 122,081
<DEPRECIATION> 86,248
<TOTAL-ASSETS> 201,792
<CURRENT-LIABILITIES> 58,761
<BONDS> 3,887
0
0
<COMMON> 14,374
<OTHER-SE> 96,681
<TOTAL-LIABILITY-AND-EQUITY> 201,792
<SALES> 216,979
<TOTAL-REVENUES> 218,887
<CGS> 161,554
<TOTAL-COSTS> 207,383
<OTHER-EXPENSES> 2,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 9,098
<INCOME-TAX> 2,821
<INCOME-CONTINUING> 6,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,277
<EPS-BASIC> .51
<EPS-DILUTED> .50
</TABLE>
