-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LKGL8s+7P82F27IvA8Ge0fSoCgRNOj/ZXdeye3e929DWbgUWbVhN2WjbHTje/pci jHOK6riFjHODoUH0+i9p4A== 0000909518-96-000078.txt : 19960329 0000909518-96-000078.hdr.sgml : 19960329 ACCESSION NUMBER: 0000909518-96-000078 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIAL CORP /DE/ CENTRAL INDEX KEY: 0000101271 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 952081809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04252 FILM NUMBER: 96539915 BUSINESS ADDRESS: STREET 1: 18 E 48TH ST CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2127528787 MAIL ADDRESS: STREET 1: 18 E 48TH STREET CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TOPP INDUSTRIES CORP DATE OF NAME CHANGE: 19710510 FORMER COMPANY: FORMER CONFORMED NAME: HAYES MANUFACTURING CORP DATE OF NAME CHANGE: 19660911 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K ------------- [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1995. or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from ___________ to ___________ Commission file number: 1-4252 ------ UNITED INDUSTRIAL CORPORATION - --------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 95-2081809 - ------------------------------------- ----------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) No.) 18 East 48th Street New York, New York 10017 (212) 752-8787 - --------------------------------------------------------------------------- (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - ------------------------------------- ----------------------------------- Common Stock, $1.00 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE - --------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [_]. Aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of March 1, 1996, computed by reference to the closing sale price of the registrant's Common Stock on the New York Stock Exchange Stock Exchange on such date: $51,477,821. On March 1, 1996, the registrant had outstanding 12,172,143 shares of Common Stock, par value $1.00 per share, which is the registrant's only class of common stock. DOCUMENTS INCORPORATED BY REFERENCE: 1. Certain portions of the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts I and II of this report. 2. Certain portions of the registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, in connection with the Annual Meeting of Stockholders of the registrant to be held on May 14, 1996 are incorporated by reference into Part III of this report. PART I ------ ITEM 1. BUSINESS United Industrial Corporation ("United" or the "Company") was incorporated under the laws of the State of Delaware on September 14, 1959 under the name Topp Industries Corporation. On December 31, 1959, the name of the corporation was changed to United Industrial Corporation. The operations of United consist of three principal industry segments: defense, energy systems and plastic products, conducted through four wholly-owned subsidiaries. Defense ------- AAI Corporation AAI Corporation ("AAI") is engaged in research, development and manufacture in the following major areas: (1) training and simulation systems; (2) automatic test equipment for electronic systems and components; (3) ordnance systems; (4) mechanical support systems for industrial, military, and marine applications; (5) unmanned air vehicle systems; (6) automated weather monitoring systems; and (7) transportation systems. Since its inception, AAI's business has been primarily in support of the U.S. Department of Defense ("DOD"). Since 1990, the Company has emphasized diversification into other markets to reduce its dependence on the DOD. The United States defense budget has been significantly reduced in recent years and this trend is expected to continue. In 1995 approximately 64% of the sales volume of AAI consisted of research, development and production of military items under defense contracts compared to 74% in 1994. Certain of the contracts currently being worked on by AAI involve testing systems for U.S. Navy aircraft, training equipment for the U.S. Air Force and U.S. Navy, and weapons handling systems for the U.S. Army. The balance of AAI's business consists of work performed in the non- Department of Defense markets. These areas include hydraulic test equipment, transportation equipment and weather systems. AAI was awarded a contract for 1,096 weather systems to be installed in certain government airports throughout the country. This contract was recently restructured and extended through 1997. New orders were received in 1995 for 53 additional systems. In 1995, 144 weather systems were installed bringing total systems installed since inception of the contract to 677. Because of the variety of its activities, it is not possible to state precisely the competitive position of AAI with respect to each of its product lines. In the area of training and simulation systems, AAI is one of approximately ten leading organizations developing equipment for the U.S. Government. AAI's ability to obtain orders for training and simulation systems is dependent principally on the ability, expertise and training of its 2 NYFS11...:\95\78495\0001\1196\FRM3196L.18B employees and the level of funding by the DOD and foreign military users. A number of large and small companies produce automatic test equipment that compete with AAI for market share. In the area of weapons and munitions, AAI ranks among approximately ten leading companies engaged in development work. However, AAI's production activity in this field is less significant. AAI began development in the Unmanned Air Vehicle business in 1986. The Company produced the highly successful Pioneer Unmanned Air Vehicle employed by the United States during Operation Desert Storm, and presently is pursuing contracts with foreign countries. AAI is one of several large and small competitors in this field. On January 16, 1992, AAI acquired, through a newly-formed subsidiary AAI/ACL Technologies, Inc. ("AAI/ACL"), substantially all of the assets and business of ACL Technologies, Inc., a manufacturer of hydraulic test equipment for the commercial airline and defense markets. Business results of AAI/ACL have been less than anticipated because of the continued unfavorable economic situation of the commercial airline industry in the U.S. and worldwide. However, activity in this market is beginning to recover. On March 29, 1993, the Company's Board of Directors approved a plan of reorganization and restructuring whereby, in light of existing circumstances such as the declining Department of Defense budget and the continuing financial problems of the airline industry and in order to position itself for both short and long-term growth, it took a one- time restructuring charge. The charge covered the anticipated cost of organizational and product-line changes, the consolidation of facilities, and work force reductions of approximately 300 in AAI and its four subsidiaries. The non-recurring charge of $22.5 million ($14,370,000 or $1.17 per share, net of tax benefit) was taken during 1993. As at December 31, 1993, the restructuring program was substantially completed. During 1994, $750,000 was expended. A major portion of the charge resulted from the discontinuance of operations of AAI/MICROFLITE. AAI/MICROFLITE, acquired in 1991, was formerly the commercial division of Singer-Link Corporation, a manufacturer of flight simulators and training devices for commercial aircraft. All of the remaining assets of AAI/MICROFLITE were sold in 1994. AAI's administrative offices and the major part of its manufacturing and engineering facilities are located in Hunt Valley, Maryland. Symtron Systems, Inc. On January 18, 1994, the Company acquired all of the outstanding shares of Symtron Systems, Inc. ("Symtron"), a producer of firefighter training simulators for the government, military and commercial markets. The purchase price consisted of initial cash payments of $2,000,000, assumption of certain liabilities of approximately $5,900,000 and a contingent payment, not to exceed $1,000,000, based on the profits on contracts existing at the acquisition date. In 1995, the Company made the contingent payment of $1,000,000 which was classified as selling and administrative expense in the 1995 financial statements. 3 Additionally, contingent amounts are payable if certain pretax profits, as defined in the purchase agreement, are earned for each of the years in the four year period ending December 31, 1998. Funds generated from operations and an existing line of credit were utilized to finance the purchase of Symtron. The acquisition was accounted for as a purchase, accordingly, the operations of Symtron are included in the Company's 1994 financial statements. In 1995 approximately $11,500,000 of the sales volume of Symtron consisted of production for the Navy and commercial customers. The main office and plant of Symtron are located in Fair Lawn, New Jersey. Energy Systems -------------- Detroit Stoker Company Detroit Stoker Company ("Detroit Stoker") is engaged in the design, manufacture and sale of industrial stokers, gas/oil burners, municipal solid waste combustion systems for waste to energy plants, rotary seal feeders for the metering of granular materials, replacement parts and aftermarket services. Its products are used for the generation of process steam and electric power in a wide range of industrial and municipal applications. Principal customers include public utilities, industrial manufacturing plants, universities, pulp and paper mills, sugar mills and independent power producers (non-utility generators). Its waste to energy technology is used extensively in both public and private plants which generate steam and power from municipal waste. Its solid fuel combustion technologies are particularly well suited to the burning of biomass fuels. The primary raw materials used by Detroit Stoker are iron and steel which are available from many sources. The main office and plant of Detroit Stoker are located in Monroe, Michigan. The products of Detroit Stoker compete with those of several other manufacturers. Detroit Stoker is presently marketing a liquid and gaseous fuel burning product line with low emissions for the power industry, primarily for boiler applications. Potential customers for these products consist of original boiler manufacturers as well as all major industrial and institutional energy consumers. Competition is based on several factors including price, features and performance. In 1995, Detroit Stoker withdrew from the bulk material handling systems business in a strategic move to allow better use of resources in more profitable areas. Midwest Metallurgical Laboratory, Inc. ("Midwest"), a subsidiary of Detroit Stoker, is a foundry engaged in the manufacture of grey and ductile iron, stainless steel and special alloy iron castings. Approximately 85% of the sales of Midwest are to Detroit Stoker. Midwest's plant and offices are located in Marshall, Michigan. 4 Plastic Products ---------------- Neo Products Co. Neo Products Co. ("Neo") engineers and fabricates thermoplastic products to the specifications submitted by its customers. Neo also manufactures items for point of purchase display advertising and consumer products related primarily to infants, food service equipment for a major airline and fuel tank reservoirs for the auto industry. Sales to customers of items for point of purchase display advertising represented approximately 30% of sales in 1995. These sales principally consisted of display racks and trays. Sales of consumer end use items represented 63% of sales in 1995. These sales primarily included carrier cradles, chairs and waste baskets. Sales to the auto industry represented approximately 7% of sales in 1995. The largest customer of Neo accounted for approximately 54% of sales in 1995 compared to 39% and 32% in 1994 and 1993, respectively. Neo's main office and plant are located in Chicago, Illinois. Neo is engaged in the highly competitive field of thermoplastic fabrication. Neo's operations are in potential and actual competition with fabrication facilities of some of its own customers as well as other thermoplastic fabricators. Neo has improved its competitive position by increasing the size of its larger injection molding presses to accommodate larger size molded parts. Although it is not possible to estimate the position of Neo among competitors in this field, it is believed to hold less than 1% market share. The primary raw material used by Neo is plastic resin, which is available from many sources. For additional information concerning United's subsidiaries reference is made to information set forth in the sections entitled "AAI Corporation", "Symtron Systems, Inc.", "Detroit Stoker Company" and "Neo Products Company" commencing on page 5 of United's 1995 Annual Report to Shareholders (the "Annual Report"), which sections are incorporated herein by reference. General ------- Employees As of March 1, 1996 United and its subsidiaries had approximately 2,000 employees. Approximately 200 of these employees are represented by several unions under contracts expiring between July 1997 and March 1999. United considers its employee relationships to be satisfactory. Patents United and its subsidiaries own more than 100 United States patents relating to various products, including stokers, marine equipment, ordnance and electronic equipment, and 5 firefighter trainers. In addition, United has numerous pending applications for patents. There is no assurance as to how many patents will be issued pursuant to these pending applications. The applications relate to a wide variety of fields, including automation control systems, ordnance devices, and electronic developments. No patent is considered to be of material importance to United. Research and Development During 1995, 1994 and 1993, the subsidiaries of United (exclusive of AAI) expended approximately $194,000, $98,031, and $126,300, respectively, on the development of new products and the improvement of existing products. All of the programs and the funds to support such programs are sponsored by the subsidiary involved. In addition to the above amount, AAI is substantially engaged in research and development for the U.S. Government. Backlog The backlog of orders by industry segment at December 31, 1995 and 1994 was as follows:
1995 1994 ---- ---- Defense $198,788,000 $211,751,000 Energy Systems 5,070,000 4,627,000 Plastic Products 2,349,000 1,281,000
The defense contract backlog decrease more than offsets the increase in commercial backlog of the defense segment. The increase in backlog for energy systems was due to the increased level of new contracts being awarded. Except for approximately $66,000,000 of research and development backlog, substantially all of the backlog orders at December 31, 1995 are expected to be filled in 1996. Government Contracts No single customer other than the U.S. Government, principally the Department of Defense, accounted for 10% or more of net sales during the year. Sales to the Government normally carry a lesser margin of profit than commercial sales and may be subject to price redetermination under certain circumstances. Contracts for such sales can be terminated for the convenience of the Government. Financial Information Relating to Industry Segments For financial information with respect to industry segments of United, reference is made to the information set forth in Note 13 of the Notes to Financial Statements included in Item 8 of this Report, which Note is incorporated herein by reference. 6 Foreign Operations and Export Sales United and its subsidiaries have no significant foreign operations. During 1993 export sales by United and its subsidiaries amounted to approximately $31,258,000. Export sales in 1995 and 1994 amounted to less than 10% of net sales for these years. ITEM 2. PROPERTIES United maintains executive and administrative offices at leased premises at 18 East 48th Street, New York, N.Y., which lease expires in December 1997. The following is a tabulation of the principal properties owned or leased by United's subsidiaries as at March 1, 1996. 7 Approximate Area in Square Owned Location Principal Use Feet or Leased -------- ------------- ---- --------- 1510 East First Street Machine shop, steel 194,910 Owned in Monroe, MI fabrication, floor space fee engineering and sales on 14.4 facilities of Detroit acres of Stoker land (East Building) 1426 East First Street Assembly, shipping 101,000 Owned in Monroe, MI and administrative floor space fee facilities of Detroit on 2.2 Stoker acres of land (West Building) 15290 Fifteen Mile Road Foundry, 59,386 Owned in Marshall, MI Midwest Metallurgical floor space fee on 28.4 acres of land Industry Lane Manufacturing, 770,918 Owned in Cockeysville, MD engineering floor space fee and administrative on 92 acres facilities of AAI of land Gilroy Road Additional 66,400 Leased to Hunt Valley, MD manufacturing and (Building April 22, engineering 200) 1999 facilities of AAI 1701 Pollitt Drive Administrative, 30,000 Leased to Fair Lawn, NJ engineering and June 30, manufacturing 2001 facilities of Symtron 1505 East Warner Avenue Manufacturing, 145,000 Leased to Santa Ana, CA engineering and January administrative 31, 1997 facilities of ACL Technologies 2801 Professional Parkway Manufacturing, 71,142 Leased to Ocoee, FL engineering and July 31, administrative 1996 facilities of AAI 1035 Semoran Boulevard Sales office 900 Leased to Winter Park, FL for Symtron April 30, 1997 5400 S. Kilbourn Avenue Manufacturing and 45,000 Owned in Chicago, IL administrative fee facilities of Neo For information with respect to obligations for lease rentals, see Note 9 of the Notes to Financial Statements in the Annual Report, which Note is incorporated herein by reference. United considers its properties to be suitable and adequate for its present needs. The properties are being fully utilized. 8 ITEM 3. LEGAL PROCEEDINGS The Company, along with numerous other parties, has been named in five tort actions relating to environmental matters based on allegations partially related to a predecessor's operations. These tort actions seek recovery for personal injury and property damage among other damages. One tort claim is a certified property and medical class action. The Company owned and operated a small facility at a site in the State of Arizona that manufactured semi-conductors between 1959 and 1960. All such operations of the Company were sold by 1961. Although this facility may have used trichloroethylene ("TCE") in small quantities, there is no evidence that this facility released or disposed of TCE at this site. On May 18, 1993, the State of Arizona filed suit against the Company seeking the recovery of investigative costs, injunctive relief to require the Company to perform a Remedial Investigation and Feasibility Study ("RI/FS"), and ultimately to require the remediation of alleged soil and groundwater contamination at and near a certain industrial site. Since then the State has brought in co-defendants whose operations at the site were substantially larger than those of the Company. On June 20, 1995 the Company and the State of Arizona executed an agreement in principle to settle the litigation. In exchange for a full release from liability by the State and the Arizona Department of Environmental Quality, the Company, without admitting liability, has agreed to the following: * Undertake and pay for the costs of an RI/FS Work Plan, estimated at $1,300,000. * Pay $125,000 towards past costs incurred by the State of Arizona and the Department of Environmental Quality. * Pay $125,000 towards costs of future remediation and clean-up of the site. In addition, at the time the State selects a remedy, the Company agrees to an additional contribution in the amount of a percentage of the total estimated clean-up cost not to exceed an additional $1,120,000. * The Company reserves all rights to seek contribution from other responsible parties. The Company and the State have signed a Consent Decree and Work Plan incorporating these terms and conditions. The Consent Decree has been lodged with the United States District Court for the District of Arizona for a 30-day public comment period, at the conclusion of which the parties will seek court approval of the settlement. Resolution of this matter will not have a materially adverse effect on the consolidated financial position of the Company. The Company has provided approximately $1,900,000 based on estimates of the total cost for the RI/FS, estimates of amounts specified for past costs and estimates of future remediation and clean-up costs. 9 On February 11, 1992 a complaint was filed against the Company and ten other named and ten unnamed entities in the Maricopa County Superior Court of Arizona by seven individuals seeking to represent a class. A class in excess of 10,000 was originally alleged. The plaintiffs have amended their complaint to separate the larger property damage and medical monitoring classes into smaller subclasses based on geographic location and alleged exposure to solvents. In the process of amendment, the overall sizes of the respective classes have been significantly reduced. This suit alleges that the members of the class have been exposed to contaminated groundwater in the Phoenix/ Scottsdale, Arizona area and suffer increased risk of disease and other physical effects. They also assert property damages under various theories; seek to have certain scientific studies performed concerning health risks, preventative measures and long-term effects; and seek incidental and consequential damages, punitive damages and an injunction against actions causing further exposures. The property and medical classes recently were certified. The Company has joined with the other defendants and appealed the class certification issue to the Arizona Supreme Court. The Company intends to vigorously contest these actions and believes that the resolution of these actions will not be material to the Company. Four additional lawsuits were filed on April 7, 1993, December 20, 1993, June 10, 1994 and July 18, 1995 in the Maricopa County Superior Court of Arizona. These matters allege personal injury and wrongful death by multiple plaintiffs arising from the alleged contamination in the Phoenix/Scottsdale, Arizona area. The Company intends to aggressively defend against these claims; however, at this time, no estimate can be made as to the amount or range of potential loss, if any, to the Company with respect to these matters. In comparison to the other defendants, the operations of the Company were very limited in time and size. In January 1993, Detroit Stoker was named a third-party defendant in four lawsuits pending in the United States District Court for the Northern District of Ohio. The third-party plaintiffs are ship owners who have been sued by Great Lakes maritime workers who allege personal injuries and disease as a result of exposure to asbestos while working aboard the ships. The ship owners claim that Detroit Stoker and other suppliers to the ship owners furnished products, supplies or components of the ships that contained asbestos. These cases are now consolidated in the multi-district litigation proceeding currently pending in the United States District Court in Philadelphia. Detroit Stoker intends to aggressively defend these claims, however, at this time, no estimate can be made as to the amount or range of potential loss, if any, to Detroit Stoker with respect to this action. Detroit Stoker was notified in March 1992 by the Michigan Department of Natural Resources (MDNR) that it is a potentially responsible party in connection with the clean-up of a former industrial landfill located in Port of Monroe, Michigan. MDNR is treating the Port of Monroe landfill site as a contaminated facility within the meaning of the Michigan Environmental Response Act (MERA), MCLA Section 299.601 et seq. Under MERA, if a -- --- release or a potential release of a discarded hazardous substance is or may be injurious to the environment or to the public health, safety, or welfare, MDNR is empowered to undertake or 10 compel investigation and response activities in order to alleviate any contamination threat. Detroit Stoker intends to aggressively defend these claims, however, at this time, no estimate can be made as to the amount or range of potential loss, if any, to Detroit Stoker with respect to this action. In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an indirect subsidiary of the Company, submitted to the U.S. Government (the "customer") a Request for Equitable Adjustment ("REA") totaling approximately $11,800,000 in connection with a certain contract with the subsidiary. The REA seeks monetary damages based on costs incurred by the subsidiary arising out of or in connection with customer directed suspension of work and resulting schedule delays, additional work directives, and other actions by the customer in connection with the contract for which contractors are allowed recovery under the Federal Acquisition Regulations. On July 14, 1995, the subsidiary received the final decision of the customer rejecting the REA in its entirety. To fully protect the Company's interest, on October 10, 1995, a Notice of Appeal of the final decision was filed with the Armed Services Board of Contract Appeals seeking monetary damages plus interest. While the Company believes that the formal claims asserted against the customer are meritorious and the Company will vigorously pursue recovery of the monies claimed, the customer has asserted substantive defenses to these claims. Because the proceedings are currently in the discovery phase, it is not possible at this time to determine the ultimate amount of recovery of these costs. The Company is involved in various other lawsuits and claims, including certain other environmental matters, arising out of the normal course of its business. In the opinion of management, the ultimate amount of liability, if any, under pending litigation, including claims described above, will not have a materially adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 11 EXECUTIVE OFFICERS OF THE REGISTRANT Annual elections are held in May to elect officers for the ensuing year. Interim elections are held as required. Except as otherwise indicated, each executive officer has held his current position for the past five years. Age at December 31, ------------ Name Position, Office 1995 ---- ---------------- ---- Richard R. Erkeneff* -- President of the Company (since 60 October 1995) and AAI (since November 1993); Senior Vice President of the Aerospace Group at McDonnell Douglas Corporation, an aerospace firm (October 1992 to November 1993); and President (March 1992 to October 1992) and Executive Vice President (1988 to 1992) of McDonnell Douglas Electronics Systems Company. Robert Worthing -- Vice President and General 50 Counsel of the Company (since July 18, 1995); General Counsel of AAI (since April, 1992); and Vice President and Senior Counsel of TRW's Space and Defense Sector (October 1979- January 1992). Susan Fein Zawel* -- Vice President, Corporate 41 Communications and Associate General Counsel (since June 1995), Secretary (since May 1994) and Counsel (1992 to 1995) of the Company; and part- time practice of law in public service sector (1990-1991) James H. Perry -- Chief Financial Officer (since 34 October 25, 1995) and Treasurer (since December 1994) of the Company; and Senior Manager (October 1992-November 1994) and Manager (1988-September 1992) at Ernst & Young LLP. James M. Ballantine, Jr.-- Acting President of Detroit 62 Stoker (since April 1995); President of Saddle River Partners, a consulting and investment company (since August 1992); and President of Hydrotherm, Inc., a multiplant manufacturer of boilers and air conditioning equipment (1979 to August 1992). John J. Henning -- President of Symtron (since 1988). 54 Michael A. Schillaci -- President of Neo (since 1987). 48 ____________________ * Member of the Company's Board of Directors 12 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Reference is made to the information set forth in Note 15 of the Notes to Financial Statements included in Item 8 of this Report concerning dividends, stock prices, stock listing and record holders, which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the information set forth in the sections entitled "Five-Year Financial Data" on page 38 of the Annual Report, which section is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" commencing on page 17 of the Annual Report, which section is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements included on pages 20 through 37 of the Annual Report are incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information to be set forth in the section entitled "Election of Directors" in the definitive proxy statement involving the election of directors in connection with the Annual Meeting of Stockholders of United to be held on May 14, 1996 (the "Proxy Statement"), which section (other than the Compensation Committee Report and Performance Graph) is incorporated herein by reference. The Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1995, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. The information required with respect to executive officers is set forth in Part I of this report under the heading "Executive Officers of the Registrant," pursuant to instruction 3 to paragraph (b) of Item 401 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information to be set forth in the section entitled "Election of Directors" in the Proxy Statement, which section (other than the Compensation Committee Report and Performance Graph) is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information to be set forth in the section entitled "Voting Rights" and "Security Ownership of Management" in the Proxy Statement, which sections are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the information to be set forth in the section entitled "Election of Directors" in the Proxy Statement, which section (other than the Compensation Committee Report and Performance Graph) is incorporated herein by reference. 14 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this report entitled "List of Financial Statements and Financial Statement Schedules". (3) Exhibits: (3)(a)- Restated Certificate of Incorporation of United (1). (3)(b)- Amended and Restated By-Laws of United. (10)(a)- United Industrial Corporation 1994 Stock Option Plan (1). (10)(b)- Purchase Agreement, dated January 18, 1994, between United and Symtron Systems, Inc. (1). (10)(c)- Note Purchase Agreement (the "Note Agreement") dated as of July 15, 1992 among AAI Corporation ("AAI") and Principal Mutual Life Insurance Company, The Travelers Insurance Company and The Travelers Indemnity Company of Rhode Island (the "Purchasers") (2). (10)(d)- Guaranty Agreement (the "Note Guaranty") dated as of July 15, 1992 by United in favor of the Purchasers (2). (10)(e)- Amendment No. 1 dated July 15, 1993 to the Note Agreement (3). (10)(f)- Amendment No. 1 dated July 15, 1993 to the Note Guaranty (3). (10)(g)- Amendment No. 2 to Note Agreement dated as of December 20, 1993 among AAI and the Purchasers (4). (10)(h)- Amendment No. 3 to Note Agreement dated as of October 13, 1994 among AAI and the Purchasers (5). (10)(i)- Amendment No. 2 to the Note Guaranty dated as of October 13, 1994 (5). (10)(j)- Credit Agreement dated as of October 13, 1994 among AAI, the Lenders parties thereto and First Fidelity Bank, National Association, as Agent (the "Agent") and Issuing Bank (5). (10)(k)- Pledge and Security Agreement dated as of October 13, 1994 by AAI in favor of the Agent (5). (10)(l)- Pledge and Security Agreement dated as of October 13, 1994 by the Company in favor of the Agent (5). 15 (10)(m)- Security Agreement dated as of October 13, 1994 between AAI and the Agent (5). (10)(n)- Security Agreement dated as of October 13, 1994 between each subsidiary of AAI, certain subsidiaries of the Company and the Agent (5). (10)(o)- Guaranty dated as of October 13, 1994 by the Company and certain of its subsidiaries and by each subsidiary of AAI in favor of the Agent (5). (10)(p)- Employment Agreement dated March 26, 1996, between United and Richard R. Erkeneff. (10)(q)- Employment Agreement, dated January 8, 1996, between United and Susan Fein Zawel. (10)(r)- Employment Agreement, dated February 9, 1996, between United and James H. Perry. (10)(s)- Severance Agreement, dated October 10, 1995, between United and P. David Bocksch. (11)- Computation of Earnings Per Share. (13)- United's 1995 Annual Report to Shareholders (21)- Subsidiaries of United. (23)- Consent of Independent Auditors. (27)- Financial Data Schedule. -------------------- (1) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1993. (2) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992. (3) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (4) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1994. (5) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (b) - Reports on Form 8-K - United did not file any reports on Form 8-K during the quarter ended December 31, 1995. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INDUSTRIAL CORPORATION (Registrant) By: /s/ Richard R. Erkeneff ------------------------------------- Richard R. Erkeneff, President Date: March 26, 1996 --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Name Date ---- ---- /s/Harold S. Gelb March 26, 1996 --------------------------------------- Harold S. Gelb, Chairman of the Board and Director /s/Howard M. Bloch March 26, 1996 --------------------------------------- Howard M. Bloch, Vice-Chairman of the Board and Director /s/Richard R. Erkeneff March 26, 1996 --------------------------------------- Richard R. Erkeneff, President and Chief Executive Officer and Director /s/Myron Simons March 26, 1996 ---------------------------------------- Myron Simons, Director /s/Susan Fein Zawel March 26, 1996 ---------------------------------------- Susan Fein Zawel, Vice President and Director /s/Edward C. Aldridge, Jr. March 26, 1996 ---------------------------------------- Edward C. Aldridge, Jr., Director /s/James H. Perry March 26, 1996 ---------------------------------------- James H. Perry, Treasurer (Principal Financial and Accounting Officer) 17 Annual Report on Form 10-K Item 14(a) (1) and (2), (c) and (d) List of Financial Statements and Financial Statement Schedules Certain Exhibits Financial Statement Schedules Year ended December 31, 1995 United Industrial Corporation New York, New York Form 10-K Item 14(a) (1) and (2) UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES List of Financial Statements and Financial Statement Schedules The following consolidated financial statements of United Industrial Corporation and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8: Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Operations -- Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993 Notes to Financial Statements The following consolidated financial statement schedules of United Industrial Corporation and subsidiaries are included in Item 14(d): Schedule I Condensed Financial Information of Registrant Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. F-2 Report of Independent Auditors BOARD OF DIRECTORS AND SHAREHOLDERS UNITED INDUSTRIAL CORPORATION We have audited the accompanying consolidated balance sheets of United Industrial Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Industrial Corporation and subsidiaries at December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 12 and 14 to the consolidated financial statements, effective January 1, 1993 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes. ERNST & YOUNG LLP New York, New York February 21, 1996 F-3 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Balance Sheets (Dollars in thousands) December 31 1995 1994 ------ ------ ASSETS Current Assets: Cash and cash equivalents $4,453 $5,635 Prepaid expenses and other current assets 205 208 Deferred income taxes 6,487 3,169 ------ ----- Total current assets 11,145 9,012 Equipment 342 325 Less allowances for depreciation (235) (240) -------- -------- 107 85 Other assets (principally investments in and amounts due from wholly-owned subsidiaries) 163,552 165,370 -------- -------- $174,804 $174,467 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities, including notes payable of $3,000 $7,220 $ 6,899 Income taxes - 3,333 ----- ------ Total current liabilities 7,220 10,232 Deferred income taxes $9,820 9,228 Other liabilities (principally amounts due to wholly-owned subsidiaries) 71,604 66,586 Shareholders' equity: Common Stock 14,374 14,374 Other shareholders' equity 71,786 74,047 -------- -------- 86,160 88,421 -------- -------- $174,804 $174,467 ======== ======== See notes to condensed financial statements of registrant. F-4 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Statements of Operations Year ended December 31 (DOLLARS IN THOUSANDS) 1995 1994 1993 ------- ------ ------ Management fees from wholly-owned subsidiaries $ 2,310 $2,064 $ 2,571 Other revenue (expense) - net (15) 150 41 ------- ------ ------- 2,295 2,214 2,612 Other (income) and expenses: Administrative Expenses 5,558 3,247 4,590 Interest income (2,277) (1,292) (364) Interest expense 7,174 4,708 2,110 ------- ------ ------- 10,455 6,663 6,336 ======= ====== ======= Loss before income taxes and equity in net income of subsidiaries (8,160) (4,449) (3,724) Income tax benefit 2,526 1,639 933 ------- ----- ------ Loss before equity in net income of subsidiaries (5,634) (2,810) (2,791) Equity in net income (loss) of subsidiaries 6,522 8,022 (8,232) ------- ------ ------- Net income (loss) $ 888 $5,212 $(11,023) ======= ====== ======= Dividends paid by subsidiaries to Parent $ 1,000 $ - $ 1,500 ======= ====== ======= See notes to condensed financial statements of registrant. F-5 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INDUSTRIAL CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) Year ended December 31 1995 1994 1993 ------ ------ ------ Operating activities: Net income (loss) $ 888 $5,212 $(11,023) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 17 9 33 Deferred income taxes (126) (441) (680) Undistributed (earnings) loss of subsidiaries (5,522) (8,022) 9,732 Changes in operating assets and liabilities: Income taxes (3,333) 6,951 (3,618) Prepaid expenses and other current assets 3 732 (939) Current liabilities 321 (616) (2,912) Accounts with wholly-owned subsidiaries 9,785 3,037 21,874 -------- ----- ------ Net cash provided by operating activities: 2,033 6,862 12,467 -------- ----- ------ Investing activities: Purchase of property and equipment (39) (69) - Decrease (increase) in intercompany receivables due to transfer of deferred taxes from wholly- owned subsidiaries 2,600 (3,523) 24,109 (Decrease) increase in deferred taxes resulting from transfer from wholly owned subsidiaries (2,600) 3,523 (24,109) Other, net (27) (53) - ------ -------- ------- Net cash used in investing activities $ (66) $ (122) $ - ------ ------- ------- (Condensed Statements of Cash Flows - continued on next page) F-6 Schedule I - Condensed Financial Information of Registrant United Industrial Corporation Condensed Statements of Cash Flows (continued) (DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31 1995 1994 1993 ------ ------ ------ Financing activities: Proceeds from borrowings $9,000 $12,000 $ 9,000 Payments on borrowings (9,000) (12,000) (16,000) Dividends paid (3,165) (2,571) (4,290) Purchase of treasury shares - (475) - Proceeds from exercise of stock options 16 - - ------ ------- ------- Net cash used in financing activities (3,149) (3,046) (11,290) ------ ------- ------- (Decrease) increase in cash and cash equivalents (1,182) 3,694 1,177 Cash and cash equivalents at beginning of year 5,635 1,941 764 ------ ------- ------- Cash and cash equivalents at end of year $4,453 $ 5,635 $ 1,941 ====== ======= ======= See notes to condensed financial statements of registrant. F-7 A. ACCOUNTING POLICIES BASIS OF PRESENTATION In the parent-company-only financial statements, the Company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company's share of the net income of its unconsolidated subsidiaries is reflected using the equity method. Parent-company-only financial statements should be read in conjunction with the Company's consolidated financial statements. B. EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES In 1993, included in the equity in net loss of subsidiaries is a restructuring charge of $22,500,000 ($14,370,000, net of tax benefit) regarding the Company's defense industry subsidiary. A major portion of the charge resulted from the termination of the operations of AAI/MICROFLITE, a manufacturer of flight simulators and training devices, due to a lack of new orders. Also, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes. The implementation of these accounting changes resulted in a cumulative effect charge against income of $12,890,000, net of tax benefit and a cumulative effect of $13,884,000 which reduced the 1993 net loss, respectively. Consequently, the net cumulative effect of these accounting changes resulted in a $994,000 reduction of the net loss in 1993. F-8 Schedule II -- Valuation and Qualifying Accounts United Industrial Corporation and Subsidiaries December 31, 1995
COL. A COL. B COL. C COL. D COL. E (1) (2) CHARGED TO CHARGED TO BALANCE AT BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD ----------- --------- -------- ---------- ---------- ------- YEAR ENDED DECEMBER 31, 1995: Deducted from asset account: Allowance for doubtful accounts $ 368,000 $ 43,000 $ 101,000 (A) $ 310,000 ========== ========= ============== ========== Product warranty liability $ 525,000 $ 125,000 $ 650,000 ========== ========== ========== Year ended December 31, 1994: Deducted from asset account: Allowance for doubtful account $ 418,000 $ 50,000 (B) $ 368,000 ========== ============== ========== Product warranty liability $ 800,000 $ 275,000 (B) $ 525,000 ========== ============== ========== Year ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts $ 476,000 $ 41,000 $ 99,000 (A) $ 418,000 ========== ========= ============== ========== Product warranty liability $ 950,000 $ 150,000 (B) $ 800,000 ========== ============== ========== (A) Uncollectible accounts written off, net of recoveries. (B) Reduction of valuation account.
F-9 EXHIBIT INDEX ------------- Exhibit No. Page ----------- ---- (3)(a)- Restated Certificate of Incorporation of United (1). (3)(b)- Amended and Restated By-Laws of United. (10)(a)- United Industrial Corporation 1994 Stock Option Plan (1). (10)(b)- Purchase Agreement, dated January 18, 1994, between United and Symtron Systems, Inc. (1). (10)(c)- Note Purchase Agreement (the "Note Agreement") dated as of July 15, 1992 among AAI Corporation ("AAI") and Principal Mutual Life Insurance Company, The Travelers Insurance Company and The Travelers Indemnity Company of Rhode Island (the "Purchasers") (2). (10)(d)- Guaranty Agreement (the "Note Guaranty") dated as of July 15, 1992 by United in favor of the Purchasers (2). (10)(e)- Amendment No. 1 dated July 15, 1993 to the Note Agreement (3). (10)(f)- Amendment No. 1 dated July 15, 1993 to the Note Guaranty (3). (10)(g)- Amendment No. 2 to Note Agreement dated as of December 20, 1993 among AAI and the Purchasers (4). (10)(h)- Amendment No. 3 to Note Agreement dated as of October 13, 1994 among AAI and the Purchasers (5). (10)(i)- Amendment No. 2 to the Note Guaranty dated as of October 13, 1994 (5). (10)(j)- Credit Agreement dated as of October 13, 1994 among AAI, the Lenders parties thereto and First Fidelity Bank, National Association, as Agent (the "Agent") and Issuing Bank (5). (10)(k)- Pledge and Security Agreement dated as of October 13, 1994 by AAI in favor of the Agent (5). (10)(l)- Pledge and Security Agreement dated as of October 13, 1994 by the Company in favor of the Agent (5). (10)(m)- Security Agreement dated as of October 13, 1994 between AAI and the Agent (5). (10)(n)- Security Agreement dated as of October 13, 1994 between each subsidiary of AAI, certain subsidiaries of the Company and the Agent (5). (10)(o)- Guaranty dated as of October 13, 1994 by the Company and certain of its subsidiaries and by each subsidiary of AAI in favor of the Agent (5). (10)(p)- Employment Agreement dated March 26, 1996, between United and Richard R. Erkeneff. (10)(q)- Employment Agreement, dated January 8, 1996, between United and Susan Fein Zawel. (10)(r)- Employment Agreement, dated February 9, 1996, between United and James H. Perry. (10)(s)- Severance Agreement, dated October 10, 1995, between United and P. David Bocksch. (11)- Computation of Earnings Per Share. (13)- United's 1995 Annual Report to Shareholders (21)- Subsidiaries of United. (23)- Consent of Independent Auditors. (27)- Financial Data Schedule. -------------------- (1) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1993. (2) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992. (3) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (4) Incorporated by reference to United's Annual Report on Form 10-K for the year ended December 31, 1994. (5) Incorporated by reference to United's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. EX-3.(B) 2 AMENDED AND RESTATED BY-LAWS EXHIBIT 3(b) AMENDED AND RESTATED BYLAWS OF UNITED INDUSTRIAL CORPORATION (a Delaware corporation) (As adopted by the Board of Directors of the Corporation on November 27, 1995) ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of UNITED INDUSTRIAL CORPORATION (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle and its registered agent at such address shall be The Corporation Trust Company, or such other office or agent as the Board of Directors of the Corporation (the "Board") shall from time to time select. SECTION 2. Other Offices. The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meeting. All meetings of the stockholders of the Corporation shall be held at the office of the Corporation or at such other places, within or without the State of Delaware, as may from time to time be fixed by the Board. SECTION 2. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date and time, within or without the State of Delaware, as the Board shall determine. SECTION 3. Special Meetings. Except as otherwise required by law or the Restated Certificate of Incorporation of the Corporation (the "Certificate"), special meetings of the stockholders for any purpose or purposes may be called by the majority of the entire Board or by stockholders holding together at least twenty percent (20%) of all the shares of the Corporation entitled to vote at the meeting and shall be held only for such business and at such date and time, within or without the State of Delaware, as is specified in the notice of any such special meeting of the stockholders. SECTION 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Each such notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder, or who shall sign a written waiver of notice thereof, whether before or after such meeting. Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided by law or the Certificate, shall be decided by the vote of the holders of a majority of the shares entitled to vote thereat present in person or by proxy. If there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal of any stockholder. SECTION 6. Order of Business. (a) At each meeting of the stock- holders, the Chairman of the Board, if any, or if none or in the absence of the Chairman of the Board, the Vice-Chairman, if any, or if none or in the absence of the Vice-Chairman, such person as shall be selected by the Board shall act as chairman of 2 the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. (b) At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting, (ii) pursuant to the notice provided for in Section 4 of this Article II or (iii) by any stockholder who is a holder of record at the time of the giving of such notice provided for in this Section 6, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 6. (c) For business properly to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the "Secretary") and such business must be a proper matter for stockholder action under the Delaware General Corporation Law ("DGCL"). To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of the stockholder proposing such business and all persons or entities acting in concert with the stockholder; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and all persons or entities acting in concert with such stockholder; and (iv) any material interest of the stockholder in such business. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder's proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies 3 for such annual meeting; provided, however, that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 6. The chairman of an annual meeting shall, if the facts warrant, determine that business was not properly brought before the annual meeting in accordance with the provisions of this Section 6 and, if the chairman should so determine, the chairman shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted. SECTION 7. List of Stockholders. It shall be the duty of the Secretary or other officer who has charge of the stock ledger to prepare and make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in such stockholder's name. SECTION 8. Voting. (a) At each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy appointed by instrument in writing, subscribed by such stockholder or by such stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period), and, unless the Certificate provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Corporation on the applicable record date fixed pursuant to these Bylaws. At all elections of directors the voting may but need not be by ballot and a plurality of the votes cast shall elect. Except as otherwise required by law or the Certificate, any other action shall be authorized by a majority of the votes cast. (b) Any action required or permitted to be taken at any meeting of stockholders may, except as otherwise required by law or the Certificate, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of record of the issued and outstanding capital stock of the Corporation having a majority of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and the writing or writings are filed with the permanent records of the Corporation. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 4 SECTION 9. Inspectors. The Board, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate directed or required to be exercised or done by the stockholders. SECTION 2. Number and Tenure. The Board of Directors shall be six (6) in number, which number may be changed only pursuant to an amendment to these Bylaws adopted by the affirmative vote of the holders of not less than eighty percent (80%) of the outstanding shares of stock of the Corporation entitled to vote on such amendment. Each director shall be elected to a term of office to expire at such future annual meeting of stockholders as is appropriate for the class of directors to which he is elected. The Board shall keep full and fair records of its acts and proceedings and transactions. Directors need not be stockholders. 5 SECTION 3. Notification of Nomination. Nominations for the election of directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3 of this Article III and who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at an annual meeting of stockholders, not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be selected at such meeting. Each such notice shall set forth: (i) the name and address of the stockholder who intends to make the nomination, of all persons or entities acting in concert with the stockholder, and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or entities acting in concert with the stockholder (naming such person or entities) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by the stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (v) the class and number of shares of the Corporation that are beneficially owned by the stockholder and all persons or entities acting in concert with the stockholder; and (vi) the consent of each nominee to being named in a proxy statement as nominee and to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Only such persons who are nominated in accordance with the procedures 6 set forth in this Section 3 of this Article III shall be eligible to serve as directors of the Corporation. Notwithstanding anything in the third sentence of this Section 3 of Article III to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by these Bylaws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate or these Bylaws, a majority of the entire Board shall constitute a quorum for the transaction of business at any meeting of the Board, and, except as so provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 5. Place of Meeting. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notice or waivers of notice thereof. SECTION 6. Annual Meeting. Following the annual meeting of stockholders, the newly elected Board shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of stockholders at the same place at which such stockholders' meeting is held 7 or at such other place as the Chairman of the Board, if any, or the Board shall determine. SECTION 7. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Chairman of the Board, if any, or the Board shall from time to time by resolution determine. SECTION 8. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board or by a majority of the directors then in office. SECTION 9. Notice of Meetings. Notice need not be given of regular meetings of the Board held at times and places fixed by resolution of the Board or of any adjourned meeting thereof. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such director's residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting other than for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Every such notice shall state the time and place but need not state the purpose of the meeting. SECTION 10. Organization. At all meetings of the Board, the Chairman, if any, or if none or in the Chairman's absence or inability to act, the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence or inability to act, a chairman chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board when present, and, in the Secretary's absence, the presiding officer may appoint any person to act as secretary. SECTION 11. Rules and Regulations. The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these Bylaws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper. SECTION 12. Participation in Meeting by Means of Communication Equipment. Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all 8 persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 13. Action without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board or of such committee. SECTION 14. Resignations. Any director of the Corporation may at any time resign by giving written notice to the Chairman of the Board, if any, the Vice-Chairman, if any, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 15. Removal of Directors. Any director (including all members of the Board) may be removed from office at any time, with or, except as otherwise required by law or the Certificate, without cause, by the affirmative vote of the holders of a majority of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors. SECTION 16. Vacancies. Except as otherwise required by law, the Certificate or these Bylaws, any vacancy in the Board for any reason and any newly created directorship resulting by reason of any increase in the number of directors may be filled only by the Board, by resolution adopted by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum (or by a sole remaining director); provided, however, that if the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of shares of the capital stock of the Corporation at the time outstanding having the right to vote for directors, an election to fill any such vacancy or vacancies or newly created directorship, or to replace the director or directors chosen by the directors then in office as aforesaid may be held as provided in Section 223 of the DGCL. If not so filled, any such vacancy shall be filled by the stockholders at the next annual meeting or at a special meeting called for that purpose. Any director so appointed shall hold office until such future annual meeting of stockholders as is appropriate for the class of directors to which he or she is elected and until his or her successor shall be duly elected and qualified. 9 SECTION 17. Compensation. Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees for attendance at meetings of the Board or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's duties as a director. Nothing contained in this Section 17 of this Article III shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving proper compensation therefor. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. Establishment of Committees of the Board of Directors. The Board may, in accordance with and subject to the DGCL, from time to time establish committees of the Board to exercise such powers and authorities of the Board, and to perform such other functions, as the Board may from time to time determine and specify in the resolution of appointment. Each committee must consist of two or more directors of the Corporation. SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of any committee of the Board shall be called at the request of a majority of the members thereof. Notice of each special meeting of any committee of the Board shall be given by overnight delivery service or mailed to each member, in either case addressed to such member at such member's residence or normal place of business, at least two days before the day on which the meeting is to be held or shall be sent to such members at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting other than for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these Bylaws for the conduct of its meetings as 10 such committee of the Board may deem proper. A majority of the members of any committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. Each committee of the Board shall keep written minutes of its proceedings and shall report on such proceedings to the Board. SECTION 3. Action by Written Consent. Any action required or permitted to be taken at any meeting of any committee of the Board may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. Term; Termination. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board. ARTICLE V OFFICERS SECTION 1. Number; Term of Office. The Board shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, a Chairman of the Board, a Vice-Chairman of the Board, one or more Vice-Presidents (any one or more of whom may be given an additional designation of rank, such as "Executive Vice-President" or "Senior Vice-President," or function), a Treasurer and such Assistant Secretaries, such Assistant Treasurers and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board or the President. Any two or more offices may be held by the same person. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and duties. The Board may require any officer or agent to give security for the faithful performance of such person's duties. SECTION 2. Term of Office; Removal; Remuneration. Each officer shall hold office for such term as may be prescribed by the Board and until such person's successor shall have been chosen and shall qualify, or until such person's death or resignation, or until such person's removal in the manner hereinafter provided. Any officer may be removed, either with or without cause, by the Board. The 11 remuneration of each officer shall be fixed by the Board or in such manner as the Board shall provide. SECTION 3. Resignation. Any officer may resign at any time by giving notice to the Board, the President or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term by the Board. SECTION 5. Chairman of the Board; Powers and Duties. The Chairman of the Board, if any, shall preside at all meetings of the stockholders and the Board and shall have such other powers and duties as may from time to time be assigned by the Board. SECTION 6. Vice-Chairman of the Board; Powers and Duties. In case of the absence or disability of the Chairman of the Board or a vacancy in the office, the Vice-Chairman of the Board, if any, shall perform the duties of the Chairman of the Board. The Vice-Chairman shall have such other powers and duties as may from time to time be assigned by the Board. SECTION 7. President and Chief Executive Officer. The President shall be the chief executive officer of the Corporation and shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers and may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments and shall have such other powers and perform such other duties as customarily pertain to that office and as may be assigned by the Board or the Chairman of the Board, if any. SECTION 8. Vice-President; Powers and Duties. A Vice-President may execute and deliver in the name of the Corporation powers of attorneys, contracts, bonds and other obligations and instruments pertaining to the regular course of the duties of said office and shall have such other powers and perform such other duties as may be assigned by the President or the Board. SECTION 9. Secretary and Assistant Secretary; Powers and Duties. The Secretary shall attend all meetings of the stockholders and the Board and shall keep the minutes for such meetings in one or more books provided for that purpose. The 12 Secretary shall be custodian of the corporate records, except those required to be in the custody of the Treasurer or the Controller, shall keep the seal of the Corporation, and shall execute and affix the seal of the Corporation to all documents duly authorized for execution under seal on behalf of the Corporation, and shall perform all of the duties incident to the office of Secretary, as well as such other duties as may be assigned by the President or the Board. The Assistant Secretaries shall perform such of the Secretary's duties as the Secretary shall from time to time direct. In case of the absence or disability of the Secretary or a vacancy in the office, an Assistant Secretary designated by the Chairman of the Board, if any, or by the Secretary, if the office is not vacant, shall perform the duties of the Secretary. SECTION 10. Treasurer and Assistant Treasurers; Powers and Duties. The Treasurer shall have care and custody of the funds and securities of the Corporation, shall deposit such funds in the name and to the credit of the Corporation with such depositories as the Treasurer shall approve, shall disburse the funds of the Corporation for proper expenses and dividends, and as may be ordered by the Board, taking proper vouchers for such disbursements, as well as such other duties as may be assigned by the President or the Board. The Assistant Treasurers shall perform such of the Treasurer's duties as the Treasurer shall from time to time direct. In case of the absence or disability of the Treasurer or a vacancy in the office, an Assistant Treasurer designated by the Chairman of the Board, if any, or by the Treasurer, if the office is not vacant, shall perform the duties of the Treasurer. ARTICLE VI INDEMNIFICATION SECTION 1. Scope of Indemnification. (a) Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or 13 agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 3 of this Article VI with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board. (b) If an indemnitee is not entitled to indemnification with respect to a portion of any liabilities to which such person may be subject, the Corporation shall nonetheless indemnify such indemnitee to the maximum extent for the remaining portion of the liabilities. (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the indemnitee is not entitled to indemnification. (d) To the extent permitted by law, the payment of indemnification provided for by this Article, including the advancement of expenses pursuant to Section 2 of this Article VI, with respect to proceedings other than those brought by or in the right of the Corporation, shall be subject to the conditions that the indemnitee shall give the Corporation prompt notice of any proceeding, that the Corporation shall have complete charge of the defense of such proceeding and the right to select counsel for the indemnitee, and that the indemnitee shall assist and cooperate fully in all matters respecting the proceeding and its defense or settlement. The Corporation may waive any or all of the conditions set forth in the preceding sentence. Any such waiver shall be applicable only to the specific payment for which the waiver is made and shall not in any way obligate the Corporation to grant such waiver at any future time. In the event of a conflict of interest between the indemnitee and the Corporation that would disqualify the Corporation's counsel from representing the indemnitee under the rules of professional conduct applicable to attorneys, it shall be the policy of the Corporation to waive any or all of the foregoing conditions subject to such limitations or conditions as the Corporation shall deem to be reasonable in the circumstances. 14 SECTION 2. Advancing Expenses. The right to indemnification conferred in Section 1 of this Article VI shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if required by the DGCL, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. No advance shall be made by the Corporation if a determination is reasonably and promptly made by a majority vote of disinterested directors, even if the disinterested directors constitute less than a quorum, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board or counsel at the time such determination is made, the indemnitee has acted in such a manner as to permit or require the denial of indemnification pursuant to the provisions of Section 1 of this Article VI. SECTION 3. Right of Indemnitee to Bring Suit. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this Article VI shall be contract rights. If a claim under Sections 1 and 2 of this Article VI is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by (a) the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met the applicable standard of conduct; and (b) the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such 15 suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation. SECTION 4. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 5. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any indemnitee against any expenses, judgments, fines and amounts payable as specified in this Article VI, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any indemnitee in furtherance of the provisions of this Article VI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article VI. SECTION 6. Effects of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article VI (including, without limitation, this Section 6) shall adversely affect the rights of any indemnitee under this Article VI with respect to any proceeding commenced or threatened prior to such amendment, repeal or adoption of an inconsistent provision. SECTION 7. Severability. If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI 16 containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE VII CAPITAL STOCK SECTION 1. Share Ownership. (a) Holders of shares of stock of the Corporation shall be recorded on the books of the Corporation and ownership of such stock shall be evidenced by a certificate or other form as shall be approved by the Board. Certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the President or any Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer of the Corporation, and sealed with the seal of the Corporation, which may be a facsimile thereof. Any or all such signatures and the signatures of any transfer agent or registrar may be facsimiles. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, the certificate may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. (b) The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any officer or agent designated by the Board. SECTION 2. Transfer of Shares. Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by such holder's attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and on surrender of the certificate or certificates, if any, for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. SECTION 3. Registered Stockholders and Addresses of Stockholders. (a) The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim 17 to, or interest in, such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law. (b) Each stockholder shall designate to the Secretary or transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be delivered or mailed to such person, and, if any stockholder shall fail to designate such address, corporate notices may be delivered to such person by mail directed to such person at such person's post office address, if any, as the same appears on the stock record books of the Corporation or at such person's last known post office address. SECTION 4. Lost, Stolen, Destroyed and Mutilated Certificates. The Corporation may issue to any holder of shares of stock the certificate for which has been lost, stolen, destroyed or mutilated a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction. The Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 5. Regulations. The Board may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of stock of each class of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated. SECTION 6. Fixing Date for Determination of Stockholders of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders 18 entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The Board shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. SECTION 7. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 19 ARTICLE VIII DIVIDENDS Subject always to the provisions of law and the Certificate, the Board shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to stockholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interest of the Corporation, and the Board may modify or abolish any such reserve in the manner in which it was created. ARTICLE IX CORPORATE SEAL The Board shall provide a corporate seal which shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. 20 ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board. Unless otherwise fixed by the Board, the fiscal year of the Corporation shall be the calendar year. ARTICLE XI WAIVER OF NOTICE Whenever notice is required to be given by these Bylaws, by the Certificate or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XII BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC. SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by the Treasurer. SECTION 2. Contracts. The Board may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman, if any, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers 21 incident to the ownership of stock by the Corporation. The Chairman, if any, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board, from time to time, may confer like powers upon any other person. SECTION 4. Financial Reports. The Board may appoint the primary financial officer or other fiscal officer and/or the Secretary or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. ARTICLE XIII AMENDMENTS The Board shall have the power to adopt, amend or repeal the Bylaws by the affirmative vote of at least a majority of the members then in office. Bylaws adopted by the Board may be repealed or changed, and new Bylaws made, by the stockholders, and the stockholders may prescribe that any Bylaw made by them shall not be altered, amended or repealed by the Board. Notwithstanding the foregoing, however, no amendment shall alter, change or repeal any of the provisions of Section 2 of Article III hereof unless adopted by the affirmative vote of the holders of not less than eighty percent (80%) of the outstanding shares of stock of the Corporation entitled to vote on such amendment. 22 NYFS11...:\95\78495\0001\1196\BYLN035J.12A EX-10.(P) 3 EMPLOYMENT AGREEMENT EXHIBIT 10(p) EMPLOYMENT AGREEMENT -------------------- AGREEMENT made this 26th day of March, 1996, by and between UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an address at 18 East 48th Street, New York, New York 10017 (hereinafter called "Employer"), and RICHARD R. ERKENEFF (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 employment of Employee hereunder shall be ---- effective and shall commence on January 1, 1996 (the "Effective Date") and shall terminate as of the close of business on 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 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 AAI Corporation ("AAI"), a subsidiary of Employer, which are currently located 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. The principal duties of Employee shall be to serve as President and Chief Executive Officer of Employer and AAI and, in such capacity, to render such managerial, administrative and other services to Employer and AAI and their 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 Employer or its subsidiary companies, Employee agrees to accept and serve in such office or capacity, for no additional compensation or remuneration. 4. Compensation. ------------ (a) Salary. Employer agrees to pay (or to cause AAI ------ to pay) to Employee, as compensation for all of the services to be rendered by Employee under or pursuant to this Agreement, a salary at the rate of four hundred forty thousand dollars ($440,000) per annum, commencing as of the Effective Date, 2 payable in accordance with Employer's normal payroll practices. Such salary 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. Employee shall also be eligible to receive annual discretionary bonuses as may be granted by Employer's Board of Directors, not to exceed fifty percent (50%) of his then annual base salary. (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 or AAI to executive employees of Employer or AAI to the extent Employee qualifies under the provisions of any such plans. Subject to the foregoing, Employer and AAI shall have the right to change insurance companies and modify insurance policies covering employees of Employer and AAI. Employer agrees to provide (or to cause AAI to provide) medical coverage to Employee after retirement at age 65 consistent with such coverage then provided to Employer's or AAI's executive employees. Such coverage shall be provided either through Employer's or AAI's plan or a private plan, at Employer's option, but only if and to the extent Employee does not receive such coverage from another source. Employer shall purchase and keep in effect during the term of this Agreement a key man life insurance policy with respect to Employee in the 3 amount of not less than $200,000, provided that Employer is able to obtain a policy in the amount of $5,000,000 and that Employee is insurable at normal premium rates for such a policy. Employee shall designate the beneficiary as to $200,000 of such policy, and Employer shall be the beneficiary as to any portion of such policy in excess of such amount. For purposes of Employee's participation in the AAI Pension Plan (the "Plan"), Employee shall be deemed vested in the Plan as of the Effective Date, provided, however, if he is not vested under the terms of the Plan, Employer shall make (or shall cause AAI to make) the payments to him that he otherwise would have received under the Plan had be been vested under the terms of the Plan. This provision shall have no impact, however, on the Plan and shall not be deemed an amendment of the Plan. This provision shall not apply, however, if Employee's employment by Employer is terminated prior to the third anniversary of the Effective Date either voluntarily by him or by Employer for cause as provided in Section 12 hereof. (c) Stock Options. Employer shall grant to Employee ------------- on the date hereof options to acquire 150,000 shares of common stock of Employer pursuant to the terms of Employer's 1994 Stock Option Plan (the "Plan") and the grant letter in the form annexed hereto as Exhibit A. The exercise price of such options shall be equal to the fair market value of such common stock as of the grant date. Employer shall grant to Employee (i) one year 4 after the date hereof additional options to acquire 75,000 shares and (ii) two years after the date hereof additional options to acquire 75,000 shares, all pursuant to the Plan, provided that he is employed hereunder on such dates. If for any reason the proposed amendment to increase the number of shares covered by the Plan and the number of shares subject to options any one individual may receive is not approved by Employer's stockholders at Employer's 1996 Annual Meeting, Employee shall not receive such additional options and a portion of such 150,000 options granted on the date hereof shall be terminated as provided in Exhibit A. Employer and Employee agree to consider in good faith alternative arrangements to compensate Employee for any such terminated options which are not granted or are terminated. (d) Sale of House. Employer agrees to pay or ------------- reimburse Employee for the real estate broker's commission and other customary closing costs in connection with the sale of Employee's house in Virginia, subject to appropriate gross-up for federal and state income tax purposes. If Employee sells such house for less than $408,000, Employer shall reimburse Employee for such short-fall up to a maximum amount of $33,000. (e) Vacation. Employee shall be entitled to four (4) -------- weeks vacation with pay per year. (f) Taxes. Employee understands that any and all ----- payments described in this Agreement will be subject to such tax 5 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. 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 6 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 7 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 three (3) 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 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 8 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 com- panies 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 9 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 5, 6 ---------------------- and 7 hereof shall survive the termination or expiration of this Agreement, irrespective of the reason therefor. 9. Expenses. Employer shall reimburse Employee for all -------- reasonable expenses properly 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 hereof through the date of such termination, (ii) the reimbursement, pursuant to Section 9 10 hereof, of any expenses incurred prior to the date of such termina- tion, and (iii) the continuation of Employee's base salary pursuant to Section 4(a) hereof for a period of six (6) months from the date of such termination, but not beyond the Termination Date or the date on which Employee shall commence to receive benefits pursuant to Employer's long term disability plan, as then in effect. 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 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 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: 11 (i) Employee shall have committed any material breach of any of the provisions or covenants set forth herein; or (ii) Employee shall have committed any act of gross negligence in the performance of his duties or obligations hereunder; or (iii) Employee shall have committed any material act of dishonesty or breach of trust against Employer or any of its subsidiary companies; or (iv) 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. 12 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, whether written or oral, relating to the employment of Employee. The Employment Agreement dated September 20, 1993 between AAI and Employee is hereby cancelled and shall be of no further force or effect. 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. 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 13 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. 14 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. UNITED INDUSTRIAL CORPORATION By: /s/ROBERT O. WORTHING ------------------------------------- Name: ROBERT O. WORTHING Title: VICE-PRESIDENT /s/ RICHARD R. ERKENEFF ---------------------------------------- RICHARD R. ERKENEFF Solely with respect to Section 14 hereof: AAI CORPORATION By: /s/ROBERT O. WORTHING --------------------------- Name: ROBERT O. WORTHING Title: VICE-PRESIDENT 15 NYFS11...:\95\78495\0001\70\AGR2296M.20A EX-10.(Q) 4 EMPLOYMENT AGREEMENT EXHIBIT 10(q) EMPLOYMENT AGREEMENT -------------------- AGREEMENT made this 8th day of January, 1996, by and between UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an address at 18 East 48th Street, New York, New York 10017 (hereinafter called "Employer"), and SUSAN FEIN ZAWEL (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 employment of Employee hereunder shall be ---- effective and shall commence on December 1, 1995 (the "Effective Date") and shall terminate as of the close of business on 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 which are currently located in 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 because of a change in Employer's offices to a location which is more than 50 miles from the offices presently located in New York, New York, the Employee shall have the option 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 Section 4 hereof through the date of such termination, (ii) the reimbursements pursuant to Section 9 hereof, of any expenses incurred prior to the date of such termination, and (iii) the continuation of Employee's base salary pursuant to Section 4(a) hereof for a period of six (6) months from the date of such termination, but not beyond the Termination Date. The principal duties of Employee shall be to serve as Vice President-Corporate Communications, Secretary and Associate General Counsel of Employer and, in such capacity, to render such 2 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, as well as a director of Employer, for no additional compensation or remuneration. 4. Compensation. ------------ (a) Salary. Employer agrees to pay to Employee, as ------ compensation for all of the services to be rendered by Employee under or pursuant to this Agreement, a salary at the rate of one hundred and thirty-two thousand dollars ($132,000) per annum, commencing as of the Effective Date, payable in accordance with Employer's normal payroll practices. Such salary 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. Employee shall also be eligible to receive annual discretionary bonuses as may be granted by Employer's Board of Directors. (b) Employee Benefit Plans. During the term of this ---------------------- Agreement, Employee shall be eligible to participate in any 3 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. (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 4 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. 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 5 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 her 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. 6 (d) Employee agrees that for a period of three (3) years from and after the termination or expiration of her 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 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 7 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 com- panies 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 8. Survival of Provisions. The provisions of Sections 5, 6 ---------------------- and 7 hereof shall survive the termination or expiration of this Agreement, irrespective of the reason therefor. 9. Expenses. Employer shall reimburse Employee for all -------- reasonable expenses properly 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 hereof through the date of such termination, (ii) the reimbursement, pursuant to Section 9 hereof, of any expenses incurred prior to the date of such termination, and (iii) the continuation of Employee's base salary pursuant to Section 4(a) hereof for a period of six (6) months 9 from the date of such termination, but not beyond the Termination Date or the date on which Employee shall commence to receive benefits pursuant to Employer's long term disability plan, as then in effect. 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 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 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: (i) Employee shall have committed any material breach of any of the provisions or covenants set forth herein; or 10 (ii) Employee shall have committed any act of gross negligence in the performance of her duties or obligations hereunder; or (iii) Employee shall have committed any material act of dishonesty or breach of trust against Employer or any of its subsidiary companies; or (iv) 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 11 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, 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. 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 12 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 By: /s/ RICHARD R. ERKENEFF ------------------------------------- Name: RICHARD R. ERKENEFF Title: PRESIDENT /s/ SUSAN FEIN ZAWEL ---------------------------------------- SUSAN FEIN ZAWEL 13 EX-10.(R) 5 EMPLOYMENT AGREEMENT EXHIBIT 10(r) EMPLOYMENT AGREEMENT -------------------- AGREEMENT made this 29th day of February, 1996, by and between UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an address at 18 East 48th Street, New York, New York 10017 (hereinafter called "Employer"), and JAMES H. PERRY (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 employment of Employee hereunder shall be ---- effective and shall commence on December 1, 1995 (the "Effective Date") and shall terminate as of the close of business on the date two (2) 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 which are currently located in New York, New York. 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 because of a change in Employer's offices to a location which is more than 50 miles from the offices presently located in New York, New York, the Employee shall have the option 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 hereof through the date of such termination, (ii) the reimbursements pursuant to Section 9 hereof, of any expenses incurred prior to the date of such termination, and (iii) the continuation of Employee's base salary and employee benefits pursuant to Sections 4(a) and (b) hereof for a period of six (6) months from the date of such termination, but not beyond the Termination Date. The principal duties of Employee shall be to serve as Treasurer and Chief Financial Officer of Employer and, in such 2 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, as well as a director of Employer, for no addi- tional compensation or remuneration. 4. Compensation. ------------ (a) Salary. Employer agrees to pay to Employee, as ------ compensation for all of the services to be rendered by Employee under or pursuant to this Agreement, a salary at the rate of one hundred and twenty-five thousand dollars ($125,000) per annum, commencing as of the Effective Date, payable in accordance with Employer's normal payroll practices. Such salary 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. Employee shall also be eligible to receive annual discretionary bonuses as may be granted by Employer's Board of Directors. 3 (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. (c) Vacation. Employee shall be entitled to four (4) -------- weeks vacation with pay per year. (d) 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, 4 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. 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 5 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 three (3) years from and after the termination or expiration of his 6 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 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 autho- 7 rize 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 com- panies 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 8. Survival of Provisions. The provisions of Sections 5, 6 ---------------------- and 7 hereof shall survive the termination or expiration of this Agreement, irrespective of the reason therefor. 9. Expenses. Employer shall reimburse Employee for all -------- reasonable expenses properly 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 hereof through the date of such termination, (ii) the reimbursement, pursuant to Section 9 hereof, of any expenses incurred prior to the date of such termination, and (iii) the continuation of Employee's base salary and employee benefits pursuant to Sections 4(a) and (b) hereof 9 for a period of six (6) months from the date of such termination, but not beyond the Termination Date or the date on which Employee shall commence to receive benefits pursuant to Employer's long term disability plan, as then in effect. 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 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 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: (i) Employee shall have committed any material breach of any of the provisions or covenants set forth herein; or 10 (ii) Employee shall have committed any act of gross negligence in the performance of his duties or obligations hereunder; or (iii) Employee shall have committed any material act of dishonesty or breach of trust against Employer or any of its subsidiary companies; or (iv) 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 11 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, 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. 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 12 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 By: /s/RICHARD R. ERKENEFF ------------------------------------- Name: RICHARD R. ERKENEFF Title: PRESIDENT /s/ JAMES H. PERRY ---------------------------------------- JAMES H. PERRY 13 NYFS11...:\95\78495\0001\70\AGR1226J.450 EX-10.(S) 6 EMPLOYMENT AGREEMENT EXHIBIT 10(s) AGREEMENT AGREEMENT, dated October 19, 1995, between UNITED INDUSTRIAL CORPORATION, a Delaware corporation with its principal offices at 18 East 48th Street, New York, New York 10017 (the "Company"), and P. David Bocksch ("Bocksch"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company and Bocksch are parties to an Employment Agreement dated March 16, 1995 (the "Employment Agreement") pursuant to which the Company has employed Bocksch as its President and Chief Executive Officer; and WHEREAS, Bocksch desires to resign from all of his positions with the Company and its subsidiaries, including his positions as President, Chief Executive Officer, and member of the Board of Directors of the Company; and WHEREAS, the Company is willing to accept Bocksch's resignation and has agreed to provide Bocksch severance benefits as provided herein; NOW, THEREFORE, for and in consideration of the mutual covenants, agreements, premises and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Resignation. In consideration of the terms hereof, ----------- Bocksch's employment with the Company as President and Chief Executive Officer, his position as a member of the Board of Directors of the Company and his position as an officer and/or director of any subsidiary of the Company are hereby terminated by resignation effec- tive as of the close of business, October 18, 1995. Bocksch agrees to execute all necessary documents which the Company may request of him to effectuate such resignations consistent with this agreement. 2. Severance Payment. In addition to any salary payments ----------------- owing to Bocksch through October 18, 1995 Bocksch shall receive the following payments for the periods indicated, less any payroll deductions required by law, which shall be in lieu of any other payments or benefits (including vacation) to which Bocksch otherwise might be entitled: (a) $62,500 payable in a lump sum on the date this Agreement is signed and returned to the Company; and (b) $125,000 payable in equal monthly installments for a period of five (5) months commencing November 19, 1995; and (c) payment by the Company of Bocksch's premiums for continuation of his coverage under the Company's group medical policy, as it may be amended from time to time, for himself and his eligible dependents, until the earlier of (i) Bocksch's obtaining employment from an employer who offers medical benefits or (ii) the expiration of twelve (12) months after the date this agreement is signed and returned to the Company, which continuation coverage shall be counted towards the Company's obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") to offer Bocksch the opportunity to continue his medical benefits at his own expense; and (d) reimbursement by the Company of all reasonable business expenses properly incurred by Bocksch in accordance with Company policy, and upon the submission of proper vouchers and documentation to the Company. 3. General Release of Claims. In consideration of the ------------------------- terms hereof, Bocksch has agreed to and does hereby waive any claims he may have for employment by the Company and has agreed not to seek such employment or reemployment by the Company in the future. Bocksch has further agreed to and does hereby release and forever discharge the Company and any subsidiaries and affiliates of the Company and their respective current and former officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to his employment or engagement by the Company or the termination thereof through the date of the signing of this Agreement, including, but not limited to wrongful discharge, breach of contract, tort, fraud, the Civil Rights laws, Americans with Disabilities Act, Employee Retirement Income Security Act, or any other federal, state or local law relating to employment or discrimination in employment, or otherwise. This release does not include Bocksch's right to enforce the terms of this agreement. In consideration of the terms hereof, the Company has agreed to and does hereby release and forever discharge Bocksch from any and all claims and causes of action, known or unknown, arising out of or relating to his employment by the Company or the termination thereof through the date of the signing of this Agreement. This release is subject to Paragraph 6 hereof, and 2 does not include the Company's right to enforce the terms of this Agreement. 4. Cancellation of Employment Agreement. The Employment ------------------------------------ Agreement is hereby rescinded in its entirety and shall be of no further force or effect, including, but not limited to, any right Bocksch may have had to receive any stock options thereunder. All stock options previously granted to Bocksch by the Company are hereby terminated. Notwithstanding the immediately preceding sentence, paragraph 6(d) (No solicitation of employees and customers) and paragraph 7 (Injunctive Relief) of the Employment Agreement shall remain in full force and effect for a period of twelve months after the termination of Bocksch's employment, except that paragraph 6(d)(i) shall apply with respect to any person, firm or corporation whether or not in competition with the business of the Company or any of its subsidiaries, and paragraph 6(a) (Confidentiality) of the Employment Agreement shall remain in full force and effect as specified in the Employment Agreement. 5. Return of Company Property. Bocksch agrees that he -------------------------- shall promptly return to the Company all property of the Company or its subsidiaries in his possession, custody, or control, including but not limited to all Company cars, records, computer equipment, notes, drawings, model documents and other materials (whether or not secret or confidential) and all copies thereof which he has in his possession or under his control and which he has received, prepared or otherwise acquired during his employment with the Company and which pertain to the affairs of the Company. 6. Bocksch's Representations. Bocksch represents and ------------------------- warrants to the Company that: a) he has not committed any fraudulent or illegal acts in the course of his employment with the Company; and b) he has not violated Paragraph 6(e) of the Employment Agreement. 7. Cooperation. At the Company's request, Bocksch agrees ----------- to assist and advise the Company with respect to matters in which he was involved and had knowledge as an employee or director of the Company. Such assistance and advice shall not interfere in any material respect with any other business engagements Bocksch may have. 8. Entire Agreement. This agreement sets forth the entire ---------------- understanding of the parties and, except as otherwise provided in paragraph 4 above, supersedes any and all prior agreements, oral or written, relating to Bocksch's employment by the Company or the termination thereof. 9. No modification; Successors. This agreement may not be --------------------------- modified except by a writing, signed by Bocksch and by a 3 duly authorized officer of the Company. This agreement shall be binding upon Bocksch's heirs and personal representatives, and the successors and assigns of the Company. 10. Governing Law. This agreement and the legal relations ------------- among the parties hereto shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in New York without regard to New York's conflict of laws rules. 11. Notices. All notices, requests, demands and other ------- communications permitted or required hereunder shall refer to this agreement and may be delivered personally, telecopied or sent registered or certified mail, return receipt requested or by courier service guaranteeing next-day delivery to the party at the addresses set forth above, or such other addresses as the parties may designate by like notice. a) If to the Company: United Industrial Corporation 18 East 48th Street New York, New York 10017 Attention: Susan Fein Zawel with a copy to: Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 Attention: Ted S. Waksman, Esq. b) If to Bocksch: P. David Bocksch 90 Ardmore Road Ho-Ho-Kus, New Jersey 07423 Telecopy No.: (201) 444-6355 with a copy to: Smiley, Schwartz & Captain 60 East 42nd Street New York, New York 10165 Attention: Leonard Schwartz, Esq. 12. Headings. The headings contained in this -------- agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this agreement. 4 13. Voluntary Agreement. Bocksch acknowledges that before ------------------- entering into this agreement, he had the opportunity to consult with Leonard Schwartz, Esq. and any other attorney or advisor of his choice, and he has been advised to do so if he chooses. Bocksch further acknowledges that he has entered into this agreement of his own free will, and that no promises or representations have been made to him by any person to induce him to enter into this agreement other than the express terms set forth herein. Bocksch further acknowledges that he has read this agreement and understands all of its terms, including the waiver and release of claims set forth in paragraph 3 above. IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of the date first above written. UNITED INDUSTRIAL CORPORATION By: /s/ Susan Fein Zawel --------------------- Susan Fein Zawel Vice President /s/ P. David Bocksch -------------------- P. David Bocksch 5 NYFS11...:\95\78495\0001\1156\AGR0185L.47C EX-11 7 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES Year ended December 31 1995 1994 1993 ---- ---- ---- Primary: Weighted average shares outstanding 12,169,408 12,237,468 12,258,693 Equivalent shares--dilutive stock options--based on treasury stock method using average market price 23,771 4,035 - ---------- ---------- ---------- 12,193,179 12,241,503 12,258,693 ========== ========== ========== Income (loss) before cumulative effect of accounting changes $888,000 $5,212,000 $(12,017,000) Cumulative effects as of January 1, 1993 of changes in method of accounting for: Postretirement benefits other than pensions, net of taxes - - (12,890,000) Income taxes - - 13,884,000 ----------- ----------- ------------ Net income (loss) $ 888,000 $ 5,212,000 $(11,023,000) =========== =========== ============ Earnings (loss) per share: Earnings (loss) per share before cumulative effect of accounting changes for: $ .07 $ .43 $ (.98) Postretirement benefits other than pension - - (1.05) Income taxes - - 1.13 ----------- ----------- ------------ Earnings (loss) per share $ .07 $ .43 $ (.90) =========== =========== ============
EX-13 8 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 United Industrial Corporation makes training and simulation systems, unmanned air vehicles, automated aircraft test and maintenance equipment, and combat vehicles and ordnance systems. It manufactures ground transportation components, automated weather reporting systems, and specialized firefighter training installations for domestic and international markets. The Company also produces energy systems and specialized plastic products. CONTENTS Financial Highlights 1 - ------------------------------------------------------- Letter to Shareholders 2 - ------------------------------------------------------- Year in Review 5 - ------------------------------------------------------- Management's Discussion 17 - ------------------------------------------------------- Consolidated Financial Statements 20 - ------------------------------------------------------- Report of Independent Auditors 37 - ------------------------------------------------------- Corporate Organization 39 - ------------------------------------------------------- Corporate and Shareholder Information 40 - ------------------------------------------------------- Financial Highlights - -------------------------------------------------------------------------------- United Industrial Corporation - -------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1995 1994 ================================================================================ Net sales $ 227,398 $ 209,727 Net Income $ 888 $ 5,212 Earnings per share $ .07 $ .43 Dividends paid per share $ .26 $ .28 Shareholders' equity $ 86,160 $ 88,421 Shareholders' equity per share $ 7.08 $ 7.27 Sales backlog as of year end $ 206,000 $ 218,000 Shares outstanding 12,171,000 12,167,000 ================================================================================ 1 To Our Shareholders - -------------------------------------------------------------------------------- United Industrial Corporation's net income in 1995 was $888,000 (7(cents) per share) compared with $5,212,000 (43(cents) per share) in 1994. Sales were $227 million in 1995 compared with $210 million in 1994. Business backlog at the end of 1995 was $206 million compared with $218 million at the end of 1994. During the year quarterly cash dividends of 7(cents), 7(cents), 7(cents), and 5(cents) were paid, totaling 26(cents) a share. After a long and distinguished tenure that began in 1960, Bernard Fein retired as President and Chairman of the Board of United Industrial Corporation. Harold S. Gelb, a private investor and a former senior partner of Ernst & Young, was elected Chairman. In the latter part of 1995, I accepted the position of UIC's President and Chief Executive Officer. I will continue to serve as President and CEO of AAI Corporation, UIC's largest subsidiary. United Industrial Corporation in 1995 experienced a year of both disappointment and promise. The disappointments are evident from the figures above, which show a steep decline in earnings. Profits were depleted by a number of charges arising largely from reserves taken on several contracts. The primary problem is an ongoing AAI program to upgrade four SH-60 helicopter training simulators for the U.S. Navy. This program has a long history going back to 1991. Over the years, substantial cost overruns have occurred principally as a result of actions by the customer, including requests for the performance of additional work and expensive schedule delays. We have filed a legal claim in the Armed Services Board of Contract Appeals, seeking monetary damages plus interest. While awaiting the outcome of this appeal, we have set aside reserves that we estimate will be adequate to finish the program in 1998. This has resulted in a pretax charge to 1995 earnings of approximately $6.6 million, which includes amounts to cover the costs of consolidating our helicopter simulator operations from Florida and North Carolina to our main facility at Hunt Valley, Maryland. To minimize the potential financial risk on future contracts, AAI has improved its processes for the acquisition of new business and the management of ongoing programs. AAI's crucial Defense Systems business increased this year despite massive industry consolidation. There was steady growth in sales for Pioneer unmanned air vehicles and for the widely used Moving Target Simulator (MTS II). The value of the JointSTARS simulator project was augmented. AAI's subsidiary Engineering Support, Inc. (ESI) had a notable competitive win in 1995, with the attainment of a contract for support of the Army's Gunnery Maintenance Trainer. ACL Technologies, an AAI subsidiary that manufactures fluid test systems, garnered strong bookings and sales. Weather Systems scored successes not only with its well-known ASOS, which has been installed at hundreds of U.S. airports, but also with its newer NEXWOS and ASOS II systems. The latter chalked up sales in both Saudi Arabia and Latvia. Transportation Systems progressed towards its goal of becoming a leading American producer of transit components, expanding its position in both overhaul and manufacturing. However, when the Los Angeles Transit Authority reduced by 25 percent its order for light rail cars from Siemens Transportation Systems, it became unprofitable for AAI to produce the car shells for this project. Consequently, in line with our determination to ensure profitability, we agreed with Siemens to terminate our subcontracting arrangement. In an auspicious event this year, the International Standards Organization granted AAI its highest level of certification, ISO 9001. This quality standard is recognized by more than 100 2 countries, and thus is vital to AAI's effort to grow its international sales. Moreover, since the U.S. military is urging defense contractors to use commercial standards, AAI's top ISO ranking will strengthen our position in the increasingly competitive Department of Defense marketplace. As for UIC's other subsidiaries, all three showed outstanding results in 1995. For Symtron Systems, Inc., major sales of its Airport Rescue Fire Fighter Trainers to Chicago O'Hare International Airport, Washington Dulles International Airport, and the Helena, Montana, regional airport were the chief contributors to a banner year. Detroit Stoker Company registered a 17 percent increase in sales, the lion's share attributable to its versatile Hydrograte(R) stoker that can create energy from an amazing variety of biomass fuels, ranging from paper mill wood waste to sunflower hulls. Lastly, Neo Products, aided by new injection-molding equipment, nearly doubled the previous year's operating income. I am pleased to announce three important corporate appointments: James H. Perry, UIC's Treasurer, as Chief Financial Officer; Robert W. Worthing, an experienced member of AAI's senior management team, as UIC's Vice President and General Counsel; and Susan Fein Zawel, UIC's Secretary and Associate General Counsel, as Vice President Corporate Communications. The future--1996 and beyond--holds promise for UIC. In 1995 a comprehensive strategic plan was formulated. The plan identified the Company's core competencies, its markets and strategies for growth. In the near term, we will focus on increasing market share in transit, firefighter training, and weather reporting systems while maintaining a strong position in the defense and stoker businesses. And, of course, the overall goal is the enhancement of shareholder value. /s/ Richard R. Erkeneff Richard R. Erkeneff March 3, 1996 President and Chief Executive Officer A Message from Harold S. Gelb, Chairman of the Board As the new Chairman of the Board of United Industrial Corporation, I welcome this opportunity to tell you about important changes in Board membership. Bernard Fein retired after 35 years of outstanding contributions to UIC and was named Chairman Emeritus. I was elected Chairman of the Board and Howard M. Bloch was elected Vice Chairman. Following the resignations of directors Maurice Rosenthal and Rick Bierman, we were fortunate to add to our Board Edward C. "Pete" Aldridge, Jr., Richard R. Erkeneff, and Susan Fein Zawel. Pete Aldridge is a former Secretary of the Air Force and is President and CEO of The Aerospace Corporation. Myron Simons will retire in May 1996 after years of diligent service, and the Board has nominated as his replacement E. Donald Shapiro, former dean and a Professor of Law at New York Law School and a director of a number of companies, including Loral Corporation. As you can see, we have broadened the Board with outside directors whose diverse experience and independent judgment will help us achieve our corporate objectives. With the Board's direction, our new President, Dick Erkeneff, and his management team are taking actions aimed at improving the Company's financial performance and increasing the value of your investment. 3 Within the huge dome ---------------------- of a Moving Target ---------------------- Simulator, a computer [PHOTOGRAPH OMITTED] ---------------------- directs the action ---------------------- as soldiers practice ---------------------- aiming and firing ---------------------- antiaircraft missiles. ---------------------- The Year in Review - -------------------------------------------------------------------------------- AAI CORPORATION ----------------------------------------------------------------------- For AAI, 1995 was a year in which sales were up and the company became more profitable and competitive. But charges related to past contracts eroded earnings. Most serious was the charge on a single defense program that AAI was awarded years ago. Management in 1995 set aside financial reserves that are expected to be sufficient to offset the substantial added costs incurred on this contract. Legal claims have been filed to recover contract expenditures to which AAI believes it is entitled. On the positive side, AAI in 1995 achieved the coveted ISO 9001 Certification, an internationally recognized quality standard for both commercial and defense work. Certification will give the company an edge in the struggle for competitive contracts. In its core Department of Defense (DOD) business, AAI maintained leadership in computerized training simulators and unmanned air vehicles. In the non-DOD marketplace, AAI grew its weather monitoring business, with the introduction of an important new product, and its transit business, with contracts for the refurbishing of passenger rail cars. AAI's wholly owned subsidiaries, Engineering Support, Inc. and ACL Technologies, both enhanced their market share. Defense Systems AAI's highly regarded computerized training simulators contribute significantly to the company's defense sales. Designed and built-to-order for military customers, AAI simulators provide a superior, cost-effective way for troops to master the intricacies of sophisticated weapons systems. An example is AAI's popular Moving Target Simulator (MTS II), which enables trainees to practice aiming and firing antiaircraft missiles without danger to themselves or others. Within a 40-foot-diameter dome, the MTS II computer projects graphic images with realistic infrared signatures of air-combat scenarios. As simulated missiles are fired, the computer records hits and misses. MTS II systems are presently in service in the U.S. and five other countries. A $6 million order from Japan was received in 1995 and will be delivered in 1996. AAI's computerized training - ------------------------------ simulators help troops master [PHOTOGRAPH OMITTED] - ------------------------------ sophisticated weapons systems. - ------------------------------ AAI is currently building an important new simulator for the U.S. Air Force: the computerized maintenance trainer for the Joint Surveillance Target Attack Radar System (JointSTARS). An airborne ground-surveillance system, JointSTARS employs a specially equipped E-8C aircraft to monitor troop maneuvers and other ground activity, then relays the information to a command center. Using the JointSTARS maintenance trainer, Air Force 5 technicians learn how to service the radar sensor and computers that are the heart of the apparatus. In 1995 the Air Force expanded the AAI project by enlarging the trainer's specifications and exercising an option for a second one. Total value of the contract is now over $17 million. Most of the electronic combat trainers used by the U.S. armed forces were built by AAI; at present, two different systems are in production. The Simulator for Electronic Combat Training, a computer-based system that generates a synthetic electronic combat environment, is scheduled for completion and delivery in August 1996. And the Compass Call Mission Simulator is receiving major modification under a 1995 Air Force contract worth $3.5 million, with an additional $4 million anticipated in 1996. AAI is part of a team that in 1995 was awarded the first phase of an innovative program to develop the Fire Support Combined Arms Tactics Trainer (FSCATT), a simulator that provides tactical experience to howitzer crews. FSCATT is an example of what many regard as the next generation in training simulators: distributive interactive systems. Thus, howitzer crews using FSCATT will be able to interact with soldiers using other simulator training systems--such as drivers of simulated tanks, or pilots of simulated airplanes--all within the same virtual reality battlefield. AAI's share of the initial development contract is $4 million. Production contracts will be awarded in 1996. Pioneer UAV, Inc., a joint venture between AAI and Israel Aircraft Industries, has had a busy year filling U.S. Navy orders for 30 of the Pioneer unmanned air vehicles that won plaudits in the Persian Gulf War. In September 1995, two months ahead of the scheduled delivery date to the Navy, the men and women of the Pioneer production team at AAI proudly rolled out the first of the 14-foot-long, 463-pound reconnaissance aircraft. The remaining Pioneers will be delivered through September 1996. Further orders are expected in 1996, and annual sustainment orders are anticipated for the foreseeable future. AAI also has increased its UAV business with contracts to augment the capabilities of the Pioneer system, refurbish existing aircraft, provide logistical support, and produce spare parts. Pioneer pilotless drones are now in use by the U.S. Navy and Marine Corps, based on land and aboard ships. In addition, a test system and a training system are operational. AAI's Pioneer production team is - --------------------------------- filling U.S. Navy orders for the [PHOTOGRAPH OMITTED] - --------------------------------- unmanned air vehicles that won - --------------------------------- plaudits in the Persian Gulf War. - --------------------------------- 6 The complex internal -------------------- components of this -------------------- Pioneer unmanned air [PHOTOGRAPH OMITTED] -------------------- vehicle are checked -------------------- out meticulously by -------------------- an experienced AAI -------------------- production team. -------------------- Skilled technicians -------------------- calibrate sensors [PHOTOGRAPH OMITTED] -------------------- for AAI's Next -------------------- Generation Weather -------------------- Observation System. -------------------- ESI Engineering Support, Inc. (ESI), a wholly owned AAI subsidiary with nearly 300 employees, enjoyed an outstanding year in 1995, with over $21 million in sales and higher earnings. ESI markets on-site logistical support for government-owned equipment, especially simulation systems. The subsidiary scored a major win in 1995, overcoming competition to capture a $15.4 million contract from the U.S. Army's Simulation Training and Instrumentation Command for support of Gunnery Maintenance Trainers. ESI also won 1995 contracts for logistical support of the Air Force's EF/F-111 flight simulator at Cannon Air Force Base, New Mexico, and SIMNET, the simulation networking system headquartered at Fort Knox, Kentucky, and deployed worldwide. ACL Technologies AAI's Santa Ana, California, subsidiary, ACL Technologies, a leading producer of hydraulic test equipment for the commercial aviation market and the Department of Defense, had an excellent year with sales of $13.8 million, up 35 percent from 1994. Now underway is a project for the automation of Hamilton Standard's facility for producing fuel controls for jet aircraft. Domestically 1995 orders included contracts from American Airlines, Moog, and Aeroquip, the world's largest manufacturer of pressure hoses. International orders, about a third of total business, came from Korea, Brunei, Turkey, Indonesia, Singapore, United Kingdom, South Africa, Brazil, and China. Weather Systems In 1995 AAI deployed 148 additional Automated Surface Observing Systems (ASOS) at the nation's airports, as specified by the company's recently restructured contract with the National Oceanographic and Atmospheric Administration (NOAA). Nearly 700 airports now have ASOS installations. The revised contract extends the NOAA-funded program to run through 1997 and increases its total value by $10 million. AAI is also actively pursuing several other ASOS markets and has booked 15 sales to the U.S. Air Force for 1996. AAI is proud of ASOS. Designed and assembled at the company's Hunt Valley, Maryland, facility, it has proved its effectiveness under the most severe climatic conditions on the planet. In 1995 AAI shipped two systems for Greenland--the fifth and sixth systems to be installed there--and the Navy has already set up two systems in Antarctica. Repeat orders for ASOS from such demanding locations attest to the reliability and durability of the product. AAI's newly introduced Next Generation Weather Observation System (NEXWOS) meets the need for a technologically advanced but lower-priced product. The cost advantage of NEXWOS makes it especially attractive for smaller airports, heliports, and offshore oil platforms. During its first year, NEXWOS was certified by the Federal Aviation Administration and won contracts from customers in North Carolina, Tennessee, Kentucky, Louisiana, Virginia, 9 South Dakota, and Connecticut. Preliminary indications are that sales will grow significantly in 1996. ASOS II, an international version of NEXWOS, was successfully launched in 1995 with a 22-system sale to Saudi Arabia and a contract from Latvia for Riga International Airport. ASOS II was displayed at the World Meteorological Organization Conference in Geneva and also at the Paris Air Show. Transportation Systems AAI's transportation subsidiary, Electric Transit, Inc. (ETI), has fulfilled the first phase of its contract to produce a fleet of 61 electric trolley buses for the Miami Valley Regional Transit Authority in Dayton, Ohio. A joint venture between AAI and a Czech Republic firm, SKODA, ETI accomplished the on-time delivery of three production prototype trolley buses. These nonpolluting vehicles are funded in large part by Federal Transit Administration clean air funds. After customer evaluation and approval, full-scale production will begin in late spring 1996. Meanwhile, ETI is competing for a sizable trolley contract to be awarded by San Francisco in 1996 and is seeking other opportunities elsewhere in the U.S. market. AAI transportation is expanding - ------------------------------- its position in both transit [PHOTOGRAPH OMITTED] - ------------------------------- overhaul and manufacturing. - ------------------------------- During 1995 AAI's transportation division expanded its position in both transit overhaul and transit manufacturing. This work requires precise heavy fabrication and welding skills that AAI has perfected over the years while working on Department of Defense hardware. In transit overhaul, a $2.4 million contract to refurbish 28 MARC II heavy rail cars for the Maryland Department of Transportation commuter rail service was successfully completed as scheduled. Another transit project now in progress calls for the repair of 111 trucks--the assembly to which train axles and wheels are attached--for Maryland's light rail system that connects Baltimore and its suburbs. In transit manufacturing, AAI is fabricating a large number of trucks and bolster beams for the Southeast Pennsylvania Transit Authority under a $4.1 million contract from ABB Australia. The new heavy commuter rail cars will serve Philadelphia on the Market-Frankford subway. Another manufacturing project, to produce 18 new light rail cars for Maryland's Central Light Rail Line, brought AAI $6 million in subcontracts from ABB Sweden to build the car shells, and from Adtranz in Elmira, New York, to build the trucks. After the propulsion systems and other interior equipment are installed, AAI will complete the assembly of the cars. The finished trains will provide improved transportation to the Baltimore-Washington International Airport, Penn Station (Baltimore), and the industrial base around Hunt Valley, Maryland. 10 Workers test the --------------------- wiring panel and --------------------- other features on a [PHOTOGRAPH OMITTED] --------------------- production prototype --------------------- electric trolley bus, --------------------- preparing it for --------------------- delivery on schedule. --------------------- SYMTRON SYSTEMS, INC. ----------------------------------------------------------------------- United Industrial's producer of computer-based simulation systems for training firefighters achieved record sales of $11.6 million in 1995, more than double the sales of the previous year. Bookings soared 62 percent, reflecting substantial contract awards for the company's patented Aircraft Rescue Fire Fighter Trainer (ARFFT). Symtron's computer-controlled - ----------------------------- Aircraft Rescue Fire Fighter [PHOTOGRAPH OMITTED] - ----------------------------- Trainer is environmentally - ----------------------------- friendly and safer to use. - ----------------------------- The new contracts came from Chicago O'Hare International Airport, Washington Dulles International Airport, and the Helena, Montana, regional airport. Installation of these state-of-the-art systems is currently in progress at all three sites, with work scheduled to be completed in 1996. In contrast to older training systems that burned highly polluting and hazardous aviation fuel, Symtron's computer-controlled liquid propane system is environmentally friendly and safer to use. The ARFFT includes a large mock-up of a crashed fuselage situated in a 125-foot-diameter burn area. A computer operator can ignite or extinguish the flames with a single keystroke, lessening risk to trainees learning how to rescue passengers from burning planes. A Structural Fire Fighter Trainer ordered in 1995 for Henderson, Nevada, will serve as a regional center at which local firefighters can upgrade their skills in combating home and other building fires. Structural systems also were purchased this year by a community college in Clinton, Michigan, and a fire department in Kassell, Germany. Symtron's Military Fire Fighter Trainer Program was awarded $2.7 million in increased payments on U.S. Navy contracts for systems that teach sailors how to deal with shipboard blazes. The recently passed Defense Appropriation bill offers the company the prospect of orders for a significant number of structural fire trainers to be installed on U.S. Army bases. In development at Symtron is a Mobile Aircraft Rescue Fire Fighter Trainer (MARFFT), a portable system that will be transported from site to site on two trailers and shared inexpensively among smaller airports. 12 An airport rescue - --------------------- crew uses Symtron's - --------------------- ARFFT to learn how to [PHOTOGRAPH OMITTED] - --------------------- extinguish intense - --------------------- fuel-spill fires. - --------------------- This Hydrograte - --------------------- stoker in Flint, - --------------------- Michigan, burns [PHOTOGRAPH OMITTED] - --------------------- biomass wood waste to - --------------------- generate electricity. - --------------------- DETROIT STOKER COMPANY ----------------------------------------------------------------------- United Industrial's energy-systems subsidiary registered a sharp gain in operating income in 1995 as a result of a 17 percent increase in sales coupled with savings from cost containment measures. More than 75 percent of Detroit's 1995 contracts were for Hydrograte(R) stokers and upgrading of existing stoker installations. The Hydrograte has long been popular in the pulp and paper industry, where wood waste is burned to generate process steam and electricity. This year the largest Hydrograte ever built at Detroit's Monroe, Michigan, facility was exported to Fraser Paper in New Brunswick, Canada. In addition to wood waste, other renewable biomass fuels are finding increasing favor worldwide, including such agricultural waste products as bagasse, olive pits, chicken litter, and sunflower hulls. A Hydrograte now being installed by Detroit in Bahia Blanca, Argentina, for the Cargill Corporation will be fueled with sunflower hulls. Combustion of biomass generally produces extremely little pollution, as compared with the fossil fuels. Detroit's Hydrograte can burn - ------------------------------ renewable biomass fuels that [PHOTOGRAPH OMITTED] - ------------------------------ produce very little pollution. - ------------------------------ Aftermarket sales of stoker replacement parts and retrofits remained strong in 1995, delivering profit margins that contributed significantly to earnings. Over the past two years Detroit's experienced sales and service personnel boosted the company's market share of this business by about 6 percent. Detroit's product line of natural gas and oil burners are being successfully installed on both new and older industrial boilers. The burners are designed to meet federal and state environmental laws requiring low emission levels of nitrous oxides. A recent contract from General Motors involved the repowering and fuel conversion of two existing boilers at the firm's Pontiac, Michigan, fabrication plant. NEO PRODUCTS COMPANY ----------------------------------------------------------------------- United Industrial's Chicago-based producer of custom thermoplastic parts saw record sales in 1995 and operating income nearly double that of 1994. Neo is molding all of the fuel tank reservoirs for two 1997 General Motors car models. A $4.7 million supply agreement with Tenex Corporation calls for the fabrication of a variety of office wastebaskets. Neo expects to continue its investment in modern capital equipment. 15 CONTENTS Management's Discussion and Analysis of Financial Condition and Results of Operations 17 - --------------------------------------------------------- Consolidated Balance Sheets 20 - --------------------------------------------------------- Consolidated Statements of Operations 22 - --------------------------------------------------------- Consolidated Statements of Cash Flows 23 - --------------------------------------------------------- Notes to Consolidated Financial Statements 24 - --------------------------------------------------------- Report of Independent Auditors 37 - --------------------------------------------------------- Five-Year Financial Data 38 - --------------------------------------------------------- Management's Discussion and Analysis - -------------------------------------------------------------------------------- of Financial Condition and Results of Operations Results of Operations Net sales of $227,398,000 in 1995 rose by 8% from 1994. The increase was attributable to all segments. In the defense segment, which recorded a 7% increase, the Company's diversification into transportation systems has resulted in initial program sales, and the recovery of the commercial airline industry has boosted sales of hydraulic test equipment. The synergies achieved through the combination of Symtron's engineering capabilities and AAI's manufacturing and installation capabilities have contributed to a better than twofold increase in sales of firefighter systems. In 1994, due to an overall reduction in defense spending, net sales of $209,727,000 were $43,266,000 lower than 1993 net sales of $252,993,000. The defense segment's business is heavily influenced by changes in the budgetary plans and procurement policies of the U.S. Government. Reductions in defense spending and program cancellations in recent years have adversely affected operating results. Further, government contracts are subject to price redetermination under certain circumstances and may be terminated for the convenience of the government. The Company intends to maintain a strong focus on Department of Defense (DOD) opportunities and believes it is well positioned over the long term to benefit from the demand for advanced technological systems by the U.S. and foreign governments. Sales to agencies of the U.S. Government, primarily by the defense segment, were $154,346,000 in 1995, $159,766,000 in 1994, and $172,169,000 in 1993. The Company's energy segment recorded a 17% increase in sales in 1995 as compared to 1994, primarily due to increased volume of sales of Hydrograte stokers. Sales in 1994 trailed those in 1993 by $2,559,000 generally due to lower stoker sales. Gross profit amounted to $45,259,000 or 19.9% in 1995, $46,951,000 or 22.4% in 1994, and $43,503,000 or 17.2% in 1993. In 1995, the reduction of gross profit in the defense segment resulted primarily from the recognition of approximately $10,200,000 of losses on contracts compared to $5,600,000 of losses in 1994. In 1993, such contract losses were $28,000,000. In 1995, these losses primarily pertain to reserves taken on one contract: a helicopter simulator program that eroded the current year's pretax earnings by about $6,600,000, of which approximately $5,100,000 was recorded in December when the Company finished its latest estimate to complete. The integration phase of this project has started and remains on schedule. The Company is optimistic that it has sufficiently reserved for costs to complete this contract. Also in the fourth quarter of 1995, the Company recorded a $2,000,000 charge to reflect certain finished goods and work in progress inventories related to a particular program at net realizable value. Partially offsetting these charges was the increased profitability of the Company's hydraulic test equipment business and growth in sales of certain highly profitable operational and maintenance training simulators. The increased gross profit in the energy segment was essentially due to the increased volume and profit margins on sales of Hydrograte stokers. The increase in gross profit in 1994 compared to 1993 represents improved profit performance by the defense subsidiary, including the Company's efforts to control costs on certain major long-term contracts, partially offset by lower sales of stoker equipment at the energy segment. Selling and administrative expenses as a percentage of sales were 18.1% in 1995, 19.1% in 1994, and 17.2% in 1993. The decrease in 1995 has resulted from the elimination of certain expenses produced by the Company's organizational changes in 1994 and 1993, partially offset by a $1,000,000 charge related to the 1994 acquisition of Symtron (see Note 7). The increased percentage in 1994 was due to the reduction in sales in that year. Interest income was $1,201,000 in 1995, $1,840,000 in 1994, and $3,650,000 in 1993. The decrease in interest income was principally due to the reduced note receivable balance resulting from the installment payments on such note receivable which had a 14% interest rate. 17 Interest expense was $2,360,000 in 1995, $3,202,000 in 1994, and $3,011,000 in 1993. Decreased borrowings in 1995 resulted in lower interest expense. In 1994, decreased average borrowings were offset by higher interest rates. In 1995, net income of $888,000 decreased $4,324,000 from $5,212,000 in 1994. These results compare to a loss of $12,017,000, before the effect of changes in accounting, in 1993. The reduction of net income in 1995 resulted primarily from the recognition of losses of approximately $12,200,000 by the defense subsidiary on certain long-term contracts and inventory write-offs mentioned earlier. In the Company's energy segment, increased sales volume and improved profit margins were the primary reasons behind its improved results. Net income in 1994 includes a net pension curtailment gain of $928,000 (see Note 11). In 1993, the net loss included a restructuring charge at AAI Corporation of $22.5 million (see Note 17). A major portion of the charge resulted from the termination of operations of AAI/MICROFLITE, a business acquired in 1991. Also in 1993, the net loss was reduced by $1,288,000 for tax credits for research and experimental expenditures and $994,000 resulting from a net cumulative effect of changes in accounting principles. Liquidity and Capital Resources Cash and cash equivalents amounted to $11,915,000 at the end of 1995, $6,132,000 at the end of 1994, and $3,906,000 at the end of 1993. The Company's principal uses of capital during the past several years related to acquisitions, new projects and the repayment of long-term debt. In January 1994, the Company acquired Symtron Systems, Inc., a business engaged in the development and production of patented firefighter trainers (see Note 7). Symtron serves both government and commercial markets. Net advances of $9,316,000 have been made to Symtron since its acquisition. The Company anticipates that the receipt of new contracts will enable Symtron to become self-financing. Symtron's backlog at December 31, 1995 has more than doubled from a year earlier. In 1995, the Company made a $1,000,000 payment to the previous shareholders of Symtron based on the profits on contracts existing at the acquisition date in accordance with the purchase agreement. Additionally, contingent amounts are payable if certain pretax profits, as defined in the purchase agreement, are earned for each of the years in the four year period ending December 31, 1998. Other new commercial ventures include AAI's entry into the transit systems market and introduction of the Next Generation Weather Observing System (NEXWOS)and ASOS II. In 1995, AAI's transportation subsidiary, Electric Transit, Inc. (ETI), a joint venture between AAI and a Czech Republic firm, SKODA, delivered on schedule the first pre-production electric trolley bus to the Miami Valley Regional Transit Authority (MVRTA) for service in the Dayton, Ohio, area. In 1994, ETI emerged the winner of a competition to build a fleet of 63 (subsequently reduced to 61) electric trolley buses for the MVRTA. Also in 1995, ASOS II sales were recorded to Saudi Arabia and Latvia. The Company intends to continue increasing its diversification into non-DOD markets. The Company expects to meet its cash requirements for 1996, including amounts necessary to fund new business ventures described above, from operations and borrowings under its exisiting lines of credit. The Company's defense subsidiary has a revolving credit arrangement and note agreement that contain restrictive covenants with respect to payment of dividends or advances and loans to the Company. These restrictions have not materially affected the Company's ability to meet its cash requirements. Annual installment payments of $8,540,000 on the Company's note receivable concluded in February 1995; interest income related to this note decreased by approximately $997,000 in 1995 and $1,196,000 in 1994. Factors relating to the amounts of cash from operating, financing and investing activities are explained in detail in the Consolidated Statements of Cash Flows. The Company's cash dividends of $.26 per share in 1995, $.28 per share in 1994, and $.44 per share in 1993, amounted to aggregate payments of $3,165,000 in 1995, $3,425,000 in 1994, and $5,381,000 in 1993. In 1994, the Company's customary fourth quarter dividend was declared in February 1995 ($.07 per share). The ratio of current assets to current liabilities was 2.1 at the end of 1995, 2.3 at the end of 1994, and 2.0 at the end of 1993. The current ratio decreased in 1995 principally due to the increase in the current portion of long-term debt and increased in 1994, principally due to reductions in accounts receivable from the U.S. Government and short-term borrowings. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------- Capital expenditures were $5,705,000 in 1995, $4,146,000 in 1994, and $5,931,000 in 1993. There are no material commitments for acquisition of capital assets as of December 31, 1995. On October 13, 1994, AAI entered into a two-year revolving credit agreement with two banks for $20,000,000, including a commitment for up to $10,000,000 for commercial letters of credit. The revolving credit is limited to a percentage of the eligible accounts receivable, as defined. Immediately prior to entering into this credit facility, AAI prepaid $5,000,000 of the $25,000,000 notes payable with certain insurance companies, thereby reducing the outstanding principal balance to an aggregate of $20,000,000. (See Note 6 for further information concerning these agreements.) At December 31, 1995 and 1994, AAI's net assets of approximately $68,400,000 and $66,000,000, respectively, were restricted under debt agreements. Under an additional $9,000,000 line-of-credit agreement with a bank, which expires June 30, 1996, the Company may borrow up to $9,000,000 including a commitment for up to $4,000,000 of commercial letters of credit. A wholly owned subsidiary is also a party to this agreement and may use up to $1,000,000 of the line-of-credit. At December 31, 1995 the unused portion of this credit line was $4,000,000. This agreement incorporates the covenants of the note purchase guarantee agreement and is guaranteed by a subsidiary of the Company. The Company believes it will be able to renew this agreement or obtain comparable financing on substantially similar terms. Long-term debt less the current portion amounted to $13,750,000, $20,000,000, and $25,000,000 at December 31, 1995, 1994 and 1993, respectively. The debt amounted to 13.8%, 18.4% and 22.6% of total capitalization in 1995, 1994, and 1993, respectively. Earnings per share has been computed using the weighted average number of the common and common equivalent shares outstanding and the assumed exercise of all stock options having exercise prices less than the average market price of the common stock using the treasury stock method. Environmental and Other Litigation The Company and the State of Arizona signed a Consent Decree and Work Plan to settle a suit related to a small manufacturing facility operated by the Company between 1959 and 1960. Without admitting liability, and in exchange for a full release from liability by the State of Arizona Department of Environmental Quality, the Company has agreed to undertake and pay for a Remedial Investigation and Feasibility Study plus amounts for past and future costs. The total estimated cost to the Company is approximately $1,900,000, including the Company's best estimate of its share of the clean-up costs, which are capped at $1,120,000 (see Note 16). In May 1995, a subsidiary of the Company submitted a Request for Equitable Adjustment to the U.S. Government for approximately $11,800,000 related to a helicopter simulator contract (see Note 16). While the Company believes that the formal claims asserted against the customer are meritorious, the customer has asserted substantive defenses to these claims. Because the proceedings are currently in the discovery phase, it is not possible at this time to determine the ultimate amount of recovery of these costs. 19 Consolidated Balance Sheets - -------------------------------------------------------------------------------- United Industrial Corporation ================================================================================ (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 11,915 $ 6,132 Trade receivables: U.S. Government 20,650 24,613 Other 12,261 8,951 - -------------------------------------------------------------------------------- 32,911 33,564 Inventories 47,922 53,486 Note receivable -- current portion -- 8,540 Prepaid expenses and other current assets 1,761 1,667 Deferred income taxes 6,487 3,169 - -------------------------------------------------------------------------------- Total Current Assets 100,996 106,558 - -------------------------------------------------------------------------------- Other Assets 39,524 37,022 Property and Equipment Land 1,886 2,471 Buildings and improvements 48,106 47,736 Machinery and equipment 73,978 72,157 Furniture and fixtures 5,253 5,360 - -------------------------------------------------------------------------------- 129,223 127,724 Less allowances for depreciation and amortization 86,637 82,510 - -------------------------------------------------------------------------------- 42,586 45,214 - -------------------------------------------------------------------------------- $183,106 $188,794 ================================================================================ 20 ================================================================================ (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current Liabilities Short-term borrowings $ 3,000 $ 4,200 Accounts payable 10,132 8,769 Accrued employee compensation and taxes 6,536 6,526 Customer advances 6,384 6,981 Provision for contract losses 10,751 10,474 Federal income taxes -- 3,333 Current portion of long-term debt 6,250 -- Other liabilities 4,472 5,664 - -------------------------------------------------------------------------------- Total Current Liabilities 47,525 45,947 - -------------------------------------------------------------------------------- Long-Term Debt, Less Current Portion 13,750 20,000 Postretirement Benefits Other Than Pensions 21,322 20,618 Other Liabilities 4,529 4,580 Deferred Income Taxes 9,820 9,228 Shareholders' Equity Common stock-par value $1.00 per share Authorized shares -- 15,000,000 Outstanding shares: 1995 -- 12,170,793; 1994 -- 12,167,493 14,374 14,374 Additional capital 91,421 94,596 Retained earnings (deficit) (2,311) (3,199) Cost of shares in treasury: 1995 -- 2,203,355 shares; 1994 -- 2,206,655 shares (17,324) (17,350) - -------------------------------------------------------------------------------- Total Shareholders' Equity 86,160 88,421 - -------------------------------------------------------------------------------- $ 183,106 $ 188,794 ================================================================================ See notes to financial statements 21 Consolidated Statements of Operations - -------------------------------------------------------------------------------- United Industrial Corporation ================================================================================ (Dollars in thousands, except per share data) Year ended December 31 1995 1994 1993 - -------------------------------------------------------------------------------- Net Sales $ 227,398 $ 209,727 $ 252,993 Operating costs and expenses: Cost of sales 182,139 162,776 209,490 Selling and administrative 41,246 39,990 43,429 Pension plan curtailment income -- net -- (928) -- Loss (gain) on sale of assets -- net 336 (1,166) (1,595) Other income -- net (127) (734) (41) Interest income (1,201) (1,840) (3,650) Interest expense 2,360 3,202 3,011 Restructuring charge -- -- 22,500 - -------------------------------------------------------------------------------- Total Operating Costs and Expenses 224,753 201,300 273,144 - -------------------------------------------------------------------------------- Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Changes 2,645 8,427 (20,151) Provision (credit) for income taxes Federal: Current 4,139 2,232 (3,705) Deferred (2,726) 522 (4,405) State 344 461 (24) - -------------------------------------------------------------------------------- Income Taxes (Credit) 1,757 3,215 (8,134) - -------------------------------------------------------------------------------- Income (Loss) Before Cumulative Effect of Accounting Changes 888 5,212 (12,017) - -------------------------------------------------------------------------------- Cumulative effect as of January 1, 1993 of changes in method of accounting for: Postretirement benefits other than pensions, net of taxes -- -- (12,890) Income taxes -- -- 13,884 - -------------------------------------------------------------------------------- Net Income (Loss) $ 888 $ 5,212 $ (11,023) - -------------------------------------------------------------------------------- Earnings (Loss) Per Share: Earnings (loss) per share before cumulative effect of accounting changes $ .07 $ .43 $ (.98) Cumulative effect of accounting changes for: Postretirement benefits other than pensions -- -- (1.05) Income taxes -- -- 1.13 - -------------------------------------------------------------------------------- Earnings (Loss) Per Share $ .07 $ .43 $ (.90) ================================================================================ See notes to financial statements 22 Consolidated Statements of Cash Flows - -------------------------------------------------------------------------------- United Industrial Corporation ================================================================================ (Dollars in thousands) Year ended December 31 1995 1994 1993 - -------------------------------------------------------------------------------- Operating Activities - -------------------------------------------------------------------------------- Net income (loss) $ 888 $ 5,212 $(11,023) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting for: Postretirement benefits other than pensions -- -- 19,531 Income taxes -- -- (13,884) Depreciation and amortization 8,300 8,291 7,430 Deferred income taxes (2,726) 1,223 (10,905) Restructuring charge, net of expenditures of $7,928 -- -- 14,572 Loss (gain) on disposal of property and equipment 336 (1,166) (1,595) Changes in operating assets and liabilities, net: (Decrease) increase in current income taxes (3,333) 6,951 (6,602) Decrease in trade receivables 653 12,611 4,313 Decrease (increase) in inventories 5,564 (6,218) 8,791 (Increase) decrease in prepaid expenses and other current assets (94) 1,019 (964) Decrease in accounts payable, accruals, advances and other current liabilities (139) (6,081) (9,222) Other -- net (3,175) (7,495) 536 - -------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 6,274 14,347 978 - -------------------------------------------------------------------------------- Investing Activities - -------------------------------------------------------------------------------- Purchase of property and equipment (5,705) (4,146) (5,931) Acquisition of business -- net of cash received -- (2,291) -- Net proceeds from disposals of property and equipment 370 7,264 2,374 Other -- net -- 590 (2,165) Decrease in note receivable 8,540 8,540 8,540 - -------------------------------------------------------------------------------- Net Cash Provided By Investing Activities 3,205 9,957 2,818 - -------------------------------------------------------------------------------- Financing Acitivities - -------------------------------------------------------------------------------- Increase in long-term liabilities 653 2,468 1,951 Proceeds from borrowings 9,000 12,000 12,721 Payments on long-term debt and borrowings (10,200) (33,500) (12,880) Dividends (3,165) (2,571) (4,290) Purchase of treasury shares -- (475) -- Proceeds from exercise of stock options 16 -- -- - -------------------------------------------------------------------------------- Net Cash Used in Financing Activities (3,696) (22,078) (2,498) - -------------------------------------------------------------------------------- Increase in Cash and Cash Equivalents 5,783 2,226 1,298 - -------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 6,132 3,906 2,608 - -------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 11,915 $ 6,132 $ 3,906 ================================================================================ See notes to financial statements 23 Notes to Financial Statements - -------------------------------------------------------------------------------- United Industrial Corporation NOTE 1. NATURE OF OPERATIONS - -------------------------------------------------------------------------------- United Industrial Corporation is a high technology company applying the majority of its resources to the research, development and production of military electronics and aerospace systems and components under defense contracts. Other products include weather monitoring systems, transportation systems, firefighter training systems, energy systems for industry and utilities, and plastic products. The principal lines of business are defense and related products, energy generating systems and plastic products. 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 the 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%. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of these investments reported in the balance sheet approximates their fair value. Inventories: Inventories are stated at the lower of cost or market. At December 31, 1995 and 1994, approximately 7% 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 $4,177,000 higher than reported on December 31, 1995 and $4,174,000 higher than reported on December 31, 1994. In 1994 certain inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years. The effect was to increase net income by $159,000 ($.01 per share) in 1994. Inventories include amounts principally related to long-term contracts of the Company's defense subsidiary, 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 these contracts are accounted for based on the units delivered. See Note 4. 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. 24 Earnings per Share: Earnings per share has been computed using the weighted average number of the common and common equivalent shares outstanding, and assuming exercise of all stock options having exercise prices less than the average market price of the common stock using the treasury stock method: 12,193,179 in 1995, 12,241,503 in 1994, and 12,258,693 in 1993. Stock Based Compensation: The Company grants stock options for a fixed number of shares to employees with an exercise price not less than market value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and intends to continue to do so. New Accounting Pronouncements: In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The Company will adopt SFAS No. 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. NOTE 3. TRADE RECEIVABLES - -------------------------------------------------------------------------------- Amounts due from the U.S. Government primarily related to long-term contracts of the Company's defense subsidiary were as follows: (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Amounts billed $13,882 $18,741 Unbilled recoverable costs and earned fees 6,521 5,500 Retainage per contract provisions 247 372 - -------------------------------------------------------------------------------- $20,650 $24,613 ================================================================================ Billed and unbilled amounts above include $4,405,000 and $4,415,000 at December 31, 1995 and 1994, respectively, related to contracts for which the Company's defense subsidiary is a subcontractor to other government contractors. Unbilled recoverable costs and earned fees substantially represent amounts that will be collected within one year. Retainage amounts will generally be billed over the next twelve months. NOTE 4. INVENTORIES - -------------------------------------------------------------------------------- (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Finished goods and work in progress $ 13,642 $ 16,537 - -------------------------------------------------------------------------------- Costs and earnings relating to long-term contracts 61,906 67,105 Deduct progress payments related to long-term contracts (32,363) (34,608) - -------------------------------------------------------------------------------- Costs and earnings in excess of billings 29,543 32,497 - -------------------------------------------------------------------------------- Total finished goods and work in progress 43,185 49,034 Materials and supplies 4,737 4,452 - -------------------------------------------------------------------------------- $ 47,922 $ 53,486 ================================================================================ The inventoried costs associated with long-term contracts include costs and earnings ($29,543,000 in 1995 and $32,497,000 in 1994) 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 subsidiary and the amounts billable to the customer under the terms of the specific contracts. Estimates of final 25 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 $10,200,000 ($6,059,000, net of tax benefit, or $.50 per share) during 1995 and $5,600,000 ($3,461,000 net of tax benefit, or $.28 per share) during 1994, resulting primarily from revision of cost estimates on certain major long-term contracts. Some of these losses represent charges for costs incurred in excess of earnings under a certain government fixed price contract as a result of changes, delays and disruptions to that contract and that are currently the subject of formal claims asserted by the Company against the customer. Costs and earnings in excess of billings include amounts on certain government contracts in excess of negotiated contract value. These amounts totalled approximately $12,000,000 at December 31, 1995 and $11,205,000 at December 31, 1994 and are or will be the subject of formal claims if not resolved via negotiation. The carrying amounts in costs and earnings in excess of billings are based on costs incurred to date and management's best estimate of the costs that will be incurred to complete performance of the related contract. Regarding a certain helicopter simulator program for the U.S. Government, the Company believes that the formal claims asserted against the customer are meritorious. The customer has asserted substantive defenses to these claims. Because the proceedings are currently in the discovery phase, it is not possible at this time to determine the ultimate amount of recovery of these costs. It is reasonably possible that the Company's estimates of recoverable costs may change in the near term as a result of the proceedings with respect to the Company's formal claims and other ongoing negotiations with the customer. 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. The Company has estimated $7,700,000 as the net realizable value of certain non-contract related finished goods and work in progress inventory. The Company has identified a number of potential buyers for a substantial portion of the inventory. However, the Company faces significant competition from other producers of similar products. It is reasonably possible that the Company may not be able to finalize an agreement for the sale of this inventory due to competition and technological limitations. If this occurs, the net realizable value of this inventory could be reduced in the near term. NOTE 5. OTHER ASSETS - -------------------------------------------------------------------------------- (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Net pension asset $25,534 $22,337 Patents and other intangible assets 9,771 11,464 Other 4,219 3,221 - -------------------------------------------------------------------------------- $39,524 $37,022 ================================================================================ 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 15 years. Amortization expense amounted to $1,694,000 in 1995, $1,683,000 in 1994, and $538,000 in 1993. Accumulated amortization amounted to $5,003,000 and $3,309,000 at December 31, 1995 and 1994, respectively. During 1994, the Company acquired approximately $7 million of patents and other intangible assets related to the purchase of Symtron Systems, Inc. NOTE 6. LONG-TERM DEBT AND CREDIT ARRANGEMENTS - -------------------------------------------------------------------------------- In 1992, AAI Corporation (a wholly owned subsidiary) entered into a note purchase agreement with certain insurance companies for $25,000,000. The proceeds of the note were principally used to repay 26 the then outstanding borrowings of AAI. The interest rate is 8.65% and is payable semi-annually. AAI prepaid $5,000,000 of the note in 1994. The remaining principal is to be repaid in three equal annual payments of $6,250,000 commencing July 31, 1996, and a final payment of $1,250,000 in 1999. The Company is a guarantor of the agreement and together with AAI must comply with certain covenants including, but not limited to, provisions related to dividends, indebtedness, working capital, net worth, interest coverage and debt to equity ratios. On October 13, 1994, AAI entered into a two year revolving credit agreement with two banks for $20,000,000, including a commitment for up to $10,000,000 of commercial letters of credit. The revolving credit is limited to a percentage of the eligible accounts receivable, as defined. The agreement provides that AAI may select among several interest rate options. The agreement provides for restrictive covenants among which are the maintenance of a certain capital base, as defined; leverage and cash flow coverage ratios; limitations on indebtedness; and limitations on transfers of funds and use of such funds by the Company or its wholly owned subsidiaries. Borrowings under the credit agreement and the outstanding notes with the insurance companies are collateralized by the capital stock and assets of AAI and its wholly owned subsidiaries and certain wholly owned subsidiaries of the Company. Such borrowings are guaranteed by the Company, certain of its wholly owned subsidiaries and all AAI wholly owned subsidiaries. There were no borrowings outstanding under the credit agreement at December 31, 1995. At December 31, 1995 and 1994, AAI's net assets of approximately $68,400,000 and $66,000,000, respectively, were restricted under debt agreements. Under an additional line-of-credit agreement with a bank, the Company may borrow up to $9,000,000 including a commitment for up to $4,000,000 of commercial letters of credit. Detroit Stoker Company, a wholly owned subsidiary, also a party to the agreement, may use up to $1,000,000 of the line-of-credit including commercial letters of credit. At December 31, 1995, the unused portion of this credit line was $4,000,000 of which $2,000,000 may be used for commercial letters of credit. The credit agreement expires June 30, 1996, and requires commitment fees which are not material. The agreement incorporates the covenants of the note purchase guaranty agreement and is guaranteed by a subsidiary of the Company. The carrying amounts of the Company's borrowings under its short-term revolving credit agreements and long-term debt approximate their fair value. Interest expense was $2,360,000 in 1995, $3,202,000 in 1994, and $3,011,000 in 1993. Interest paid was $2,270,000 in 1995, $3,323,000 in 1994, and $2,950,000 in 1993. The weighted average interest rate on short-term borrowings outstanding at December 31, 1995 and 1994, was 7.14% and 7.67%, respectively. NOTE 7. ACQUISITIONS - -------------------------------------------------------------------------------- On January 18, 1994, the Company purchased all the outstanding shares of Symtron Systems, Inc. (Symtron), a producer of firefighter training simulators for government and commercial markets. The purchase price consisted of cash payments of $2,000,000, assumption of certain liabilities of approximately $5,900,000, and a contingent payment of up to $1,000,000, based on profits on contracts existing at the acquisition date. In 1995, the Company made the contingent payment of $1,000,000, which was classified as selling and administrative expense in the 1995 financial statements. Additionally, contingent amounts are payable if certain pretax profits, as defined in the purchase agreement, are earned for each of the years in the four year period ending December 31, 1998. Funds generated from operations and an existing line of credit were utilized to finance the purchase of Symtron. The acquisition was accounted for as a purchase; accordingly, the operations of Symtron are included in the Company's 1994 financial statements from the date of acquisition. Total revenues of Symtron in 1993 and 1992 were less than 3% of the consolidated sales of the Company and total assets were less than 2% of consolidated assets. 27 NOTE 8. STOCK OPTIONS - -------------------------------------------------------------------------------- In May 1994, the shareholders approved the 1994 Stock Option Plan, which provides for the granting of options with respect to the purchase of an aggregate of up to 600,000 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 are exercisable over a period determined by the Board of Directors, but no longer than ten years after the date they are granted. During 1994, options were granted for 94,000 shares at exercise prices of $4.50 and $4.75 per share. (Number of shares) - -------------------------------------------------------------------------------- Outstanding, December 31, 1994 $4.50 and $4.75 94,000 Granted $5.50 and $6.25 139,000 Cancelled $4.75 to $6.25 (115,700) Exercised $4.75 (3,300) - -------------------------------------------------------------------------------- Outstanding, December 31, 1995 $4.50 to $5.50 114,000 - -------------------------------------------------------------------------------- Exercisable, December 31, 1995 $4.50 and $4.75 85,000 - -------------------------------------------------------------------------------- Available for grant, end of year 482,700 ================================================================================ NOTE 9. LEASES - -------------------------------------------------------------------------------- Total rental expense for all operating leases amounted to $2,632,000 in 1995, $2,714,000 in 1994, and $2,803,000 in 1993. Contingent rental payments were not significant. The future minimum rental commitments as of December 31, 1995, for all noncancelable leases were $2,200,000 in 1996; $765,000 in 1997; $532,000 in 1998; $315,000 in 1999; $240,000 in 2000; and $120,000 thereafter. NOTE 10. CHANGES IN SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
Minimum Retained Pension Share- Common Additional Earnings Treasury Liability holders' (Dollars in thousands) Stock Capital (Deficit) Stock Adjustment Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1992 $ 14,374 $ 99,496 $ 4,573 $ (16,875) -- $ 101,568 Net loss -- -- (11,023) -- -- (11,023) Cash dividends declared ($.35 per share) -- (2,329) (1,961) -- -- (4,290) Adjustment for minimum pension liability -- -- -- -- $ (901) (901) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1993 14,374 97,167 (8,411) (16,875) (901) 85,354 Net income -- -- 5,212 -- -- 5,212 Cash dividends declared ($.21 per share) -- (2,571) -- -- -- (2,571) Purchase of 91,200 shares -- -- -- (475) -- (475) Adjustment for minimum pension liability -- -- -- -- 901 901 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 14,374 94,596 (3,199) (17,350) -- 88,421 Net income -- -- 888 -- -- 888 Cash dividends declared ($. 26 per share) -- (3,165) -- -- -- (3,165) Stock options -- (10) -- 26 -- 16 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $ 14,374 $ 91,421 $ (2,311) $ (17,324) -- $ 86,160 ===================================================================================================================================
28 NOTE 11. PENSION ARRANGEMENTS AND SPECIAL TERMINATION BENEFITS - -------------------------------------------------------------------------------- The Company and its subsidiaries have a number of noncontributory defined benefit pension plans covering substantially all employees. Plans covering salaried and management employees provide pension benefits that are based on the employee's average compensation for the highest five consecutive years before retirement and years of service. Plans covering hourly employees and union members generally provide benefits of stated amounts for each year of service. The Company's funding policy for the plans is to make the minimum annual contributions required by applicable regulations. A summary of the components of net periodic pension cost for the plans is as follows: (Dollars in thousands) 1995 1994 1993 - -------------------------------------------------------------------------------- Service cost--benefits earned during the period $ 682 $ 3,238 $ 3,045 Interest cost on projected benefit obligation 10,689 10,507 10,388 Actual return on plan assets (29,770) (1,891) (12,671) Net amortization and deferral 19,075 (8,898) 2,168 Curtailment (gain) expense -- (928) 698 - -------------------------------------------------------------------------------- Total pension costs $ 676 $ 2,028 $ 3,628 ================================================================================ Assumptions primarily used in the accounting for the plans were: 1995 1994 1993 - -------------------------------------------------------------------------------- Weighted-average discount rates 7.3% 8.5% 7.5% Rates of increase in compensation levels 4% 4% 4% Expected long-term rate of return on assets 8.5% 8.5% 8.5% ================================================================================ The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets at December 31, 1995 and 1994, for the Company's pension plans: Plans with assets in excess of accumulated benefit obligation: (Dollars in thousands) 1995 1994 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 146,015 $ 118,900 - -------------------------------------------------------------------------------- Accumulated benefit obligation $ 147,838 $ 122,407 - -------------------------------------------------------------------------------- Projected benefit obligation $ 148,024 $ 122,469 Plan assets at fair value 158,663 135,511 - -------------------------------------------------------------------------------- Projected benefit obligation less than plan assets 10,639 13,042 Unrecognized net loss including prior service cost 15,427 9,861 Unrecognized net asset at beginning of year, net of amortization (532) (566) - -------------------------------------------------------------------------------- Net pension asset recognized in the Consolidated Balance Sheets $ 25,534 $ 22,337 ================================================================================ The plans' assets are invested in listed stocks and bonds and interest-bearing cash equivalents. On November 30, 1994, the energy systems segment suspended future benefit accruals by freezing the non-union employees' defined benefit plan. This resulted in a pension curtailment gain of $1,092,000 ($675,000 net of taxes or $.06 per share). The Company replaced the defined benefit plan with a defined contribution benefit plan. Employee contributions and employer matching are based on specified formulas. In addition, a curtailment loss of $164,000 ($101,000 net of tax benefit or $.01 per share) was recognized for another plan due to reductions of staffing levels at the Company's defense segment. On December 31, 1994, the defense segment merged its two defined benefit plans, and in 1995 converted them into a single cash balance plan. In accordance with the Cash Balance Plan, a participant's benefit includes the actuarial equivalent of the participant's accrued benefit under the applicable predecessor 29 plan, annual allocations based upon a percentage of salary, and interest earned on such participant's account. The defense segment also amended its 401 (k) plan in 1995 to provide for employer matching contributions based on specified formulas. The effect of the changes in the plans' status has been reflected as of December 31, 1994. During 1993, the curtailment expense was included in the restructuring charge (see Note 17). NOTE 12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - -------------------------------------------------------------------------------- In addition to the Company's defined benefit pension plans, a subsidiary of the Company sponsors a defined benefit health care plan that provides postretirement medical benefits to full-time employees who have worked 10 years and attained age 62 or 30 years of service with the Company. The plan is non-contributory for retirees and contributory for spouses. The retiree spousal contributions are adjusted annually. Both the retiree and spousal plan contain cost-sharing features such as deductibles and coinsurance. The accounting for the plan anticipates future cost sharing changes to the written plan that are consistent with the Company's expressed intent to increase the spousal contribution to the point that the entire cost for spouses will be contributory at the end of 7 years commencing from January 1, 1996, and limit the amount it will contribute for retiree insurance costs, as well as each active employee who later becomes a retiree, to no more than double the amount which the Company paid for coverage on January 1, 1993. The actuarial and recorded liabilities for these benefits have not been funded. The accumulated benefit obligation was determined using the unit credit method and an assumed discount rate of 7.5% in 1995 and 8.5% in 1994. The assumed health care cost trend rate used was 11.6% for medical and 6.2% for dental decreasing to 6% and 5%, respectively, in the year 2003. An increase of 1% in the health care trend rate would not materially increase the cost or accumulated postretirement benefit due to the limit of the Company not being obligated to pay more than double the amount which the Company was paying for coverage on January 1, 1993. Another subsidiary also sponsors a defined benefit health care plan that provides postretirement medical and dental benefits to full-time employees who have worked 10 years and attained age 60. Dental benefits cease for both retiree and spouse once the retiree reaches age 65. Surviving spouses are eligible for pre-retirement death benefits. Employees aged 55, but less than 60, with at least 20 years of service receive only medical benefits commencing when the retiree reaches age 65. No dental benefit is provided. The accumulated benefit obligation was determined using the unit credit method and an assumed discount rate of 7.25% in 1995 and 8.5% in 1994. The assumed health care cost trend rate was 11.3% decreasing to 6% in 10 years. The health care cost trend rate assumption has a significant effect on the amounts reported. A 1% increase in the health care trend rate would increase the accumulated postretirement benefit obligation at December 31, 1995 by $1,256,000 at year-end 1996. The effect of a 1% increase in the health care trend rate would not materially increase the net periodic cost. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that the projected future cost of providing postretirement benefits, such as health and life insurance, be recognized as an expense as employees render service instead of when the benefits are paid. The effect of adopting the new rules increased the 1993 loss before the cumulative effect of accounting changes by $693,000 ($441,000, or $.04 per share net of tax benefit). The cumulative effect of this change in accounting increased the 1993 net loss by $12,890,000 or $1.05 per share net of tax benefit. The costs of certain health care provided by the Company for eligible retired employees were $1,694,000 in 1995, $1,719,000 in 1994, and $1,177,000 in 1993. 30 The following table shows the two plans' combined funded status reconciled with the amounts recognized in the Company's statements of financial position: (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 15,184 $ 12,516 Fully eligible active plan participants 1,378 1,345 Other active plan participants 9,083 6,949 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 25,645 20,810 Unrecognized net loss (4,323) (192) - -------------------------------------------------------------------------------- Accrued postretirement benefit obligation $ 21,322 $ 20,618 ================================================================================ Net periodic postretirement benefit cost included the following components: (Dollars in thousands) Year ended December 31 1995 1994 1993 - -------------------------------------------------------------------------------- Service cost $ 548 $ 516 $ 522 Interest cost 1,824 1,615 1,613 Curtailment gain -- -- (265) - -------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 2,372 $ 2,131 $ 1,870 ================================================================================ NOTE 13. INDUSTRY SEGMENTS DATA - -------------------------------------------------------------------------------- The Company is engaged in the design, development, manufacture, and sale of products in three principal industries: electronics, aerospace, firefighter training, and ordnance systems for defense and other government and non-government entities in the United States and abroad; energy systems for industries and utilities; and specialty plastic products. Sales to agencies of the United States Government, primarily by the defense segment, were $154,346,000 in 1995, $159,766,000 in 1994, and $172,169,000 in 1993. No single customer, other than the United States Government, accounted for 10 percent or more of net sales in any year. In 1993, export sales amounted to $31,258,000 and were composed primarily of sales to Asia and Europe. Export sales in 1995 and 1994 amounted to less than 10% of net sales in those years. 31 (Dollars in thousands) 1995 1994 1993 - -------------------------------------------------------------------------------- Net Sales Defense $ 188,111 $ 175,535 $ 216,436 Energy Systems 32,549 27,835 30,394 Plastic Products 6,738 6,357 6,163 - -------------------------------------------------------------------------------- Total Net Sales $ 227,398 $ 209,727 $ 252,993 ================================================================================ Operating Income (Loss) Defense $ 6,436 $ 10,831 $ (20,396)(a) Energy Systems 2,598 1,884 3,720 Plastic Products 389 219 474 Corporate (6,778) (4,507) (3,949) - -------------------------------------------------------------------------------- Total Operating Income (Loss) $ 2,645 $ 8,427 $ (20,151)(a) ================================================================================ Identifiable Assets Defense $ 150,507 $ 151,202 $ 155,822 Energy Systems 23,103 21,313 20,414 Plastic Products 2,943 2,899 2,645 Corporate 6,553 13,380 23,772 - -------------------------------------------------------------------------------- Total Identifiable Assets $ 183,106 $ 188,794 $ 202,653 ================================================================================ Capital Expenditures Defense $ 4,572 $ 3,304(b)(c) $ 4,395 Energy Systems 805 624 1,387 Plastic Products 289 149 149 Corporate 39 69 -- - -------------------------------------------------------------------------------- Total Capital Expenditures $ 5,705 $ 4,146(b)(c) $ 5,931 ================================================================================ Depreciation Expense Defense $ 5,616 $ 5,470 $ 4,999 Energy Systems 839 917 840 Plastic Products 134 101 90 Corporate 17 8 7 - -------------------------------------------------------------------------------- Total Depreciation Expense $ 6,606 $ 6,496 $ 5,936 ================================================================================ (a) Includes restructuring charge of $22,500,000 as described in Note 17. (b) Excludes assets acquired in the Symtron acquisition of $8,761,000 in 1994. (c) Excludes $1,322,000 of assets transferred from inventory. Operating income for each segment is total revenue less operating expenses, excluding interest and corporate management fees. Research and development costs included in costs and expenses amounted to $2,270,000 in 1995, $1,839,000 in 1994, and $1,518,000 in 1993. Corporate income (loss) includes net interest (expense) income of ($1,159,000) in 1995, ($1,362,000) in 1994, and $639,000 in 1993. Corporate assets consist primarily of cash and cash equivalents. 32 NOTE 14. INCOME TAXES - -------------------------------------------------------------------------------- Effective January 1, 1993, the Company adopted the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, 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. Prior to the adoption of this statement, income tax expense was determined using the deferred method whereby deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated and reversed. The Company elected to adopt SFAS No. 109 by reporting the cumulative effect of the change in the method for accounting for income taxes as of the beginning of 1993. The cumulative effect of this accounting change amounted to $13,884,000 ($1.13 per share), which reduced the 1993 net loss. The effect of the change in accounting for the years ended December 31, 1994 and 1993 was not material. Prior years' financial statements have not been restated to apply the provision of SFAS No. 109. Following is a reconciliation of the difference between total tax expense (benefit) and the amount computed by applying the federal statutory income tax rate (34%) to income or (loss) from operations before income taxes: (Dollars in thousands) 1995 1994 1993 - -------------------------------------------------------------------------------- Federal income taxes (benefit) at statutory rate $ 899 $ 2,865 $(6,851) State income taxes, net of federal income tax benefit 227 304 (16) Provision for nondeductible expenses (including $340 related to contingent payment on Symtron acquisition) 460 -- -- Research credit -- -- (1,288) Other -- net 171 46 21 - -------------------------------------------------------------------------------- Income Taxes (Credit) $ 1,757 $ 3,215 $(8,134) ================================================================================ In 1993, credits for research and experimental expenditures (research credit) of $1,288,000 were recognized, thereby increasing the current federal income tax credit. Approximately $726,000 of this research credit resulted from payments received in 1993 related to amended returns of prior years and $562,000 principally resulted from the extension of the research credit which had previously expired in June 1992. No research or experimental credits were recognized in the provision for income taxes in 1995 and 1994. Income tax payments were $7,400,000 in 1995, $3,609,000 in 1993, and a refund of $2,879,000 in 1994. 33 Deferred income tax balances: (Dollars in thousands) December 31 1995 1994 - -------------------------------------------------------------------------------- Deferred Tax Asset Losses on long-term contracts not currently deductible $ 4,145 $ 3,575 Postretirement benefits other than pensions and other employee benefits 9,562 10,231 Product warranty and other provisions 1,504 1,463 Vacation pay accruals 539 468 Basis differences for asset sales 1,803 1,697 Other 64 248 - -------------------------------------------------------------------------------- Total Deferred Tax Asset 17,617 17,682 ================================================================================ Deferred Tax Liability Pension plans and other employee benefits (11,487) (11,380) Excess tax depreciation (7,681) (9,716) Patent amortization (1,594) -- Installment gain -- (2,643) Other (188) (2) - -------------------------------------------------------------------------------- Total Deferred Tax Liability (20,950) (23,741) - -------------------------------------------------------------------------------- Net Deferred Tax Liability $ (3,333) $ (6,059) ================================================================================ The net deferred tax liability is classified as follows: Net current deferred income tax asset $ 6,487 $ 3,169 - -------------------------------------------------------------------------------- Net non-current deferred income tax liability $ (9,820) $ (9,228) - -------------------------------------------------------------------------------- The acquisition of Symtron had the effect of increasing deferred tax liabilities in 1994 by approximately $1,859,000 for the difference between the book and tax basis of assets and liabilities assumed on the date of acquisition. NOTE 15. SELECTED QUARTERLY DATA (UNAUDITED) - --------------------------------------------------------------------------------
(Dollars in thousands, except per share data 1995 1994 and stock prices) Fourth Third Second First Fourth Third Second First - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 64,308 $ 53,568 $ 57,869 $ 51,653 $ 57,725 $ 59,710 $ 42,216 $ 50,076 Gross profit 9,059(a) 10,735 12,692 12,773 11,628 12,782 11,272 11,269 Net income (loss) (1,999)(a) 423 1,324 1,140 1,212 1,538 1,408 1,054 ======================================================================================================================= Earnings (loss) per share $ (.16)(a) $ .04 $ .11 $ .09 $ .10 $ .13 $ .11 $ .09 ======================================================================================================================= Dividends declared per share $ .05 $- $ .14 $ .07 $- $ .07 $ .07 $ .07 - ----------------------------------------------------------------------------------------------------------------------- Stock prices: High $ 6 1/8 $ 7 1/8 $ 7 1/4 $ 5 3/4 $ 5 7/8 $ 6 $ 6 1/8 $ 6 5/8 Low $ 4 3/8 $ 5 5/8 $ 5 1/4 $ 4 7/8 $ 4 1/2 $ 4 1/4 $ 4 1/8 $ 5 1/8 =======================================================================================================================
(a) The Company recorded charges of $6,261,000 for the revision of contract loss estimates and $2,000,000 to write down certain non-contractual work in progress and finished goods inventory to net realizable value in the fourth quarter of 1995. The Company's common stock is listed on the New York Stock Exchange. The approximate number of shareholders of record as of February 29, 1996, was 4,000. The debt covenants recited in Note 6 have certain restrictions on the payment of dividends. 34 NOTE 16. 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 owned and operated a small facility at a site in the State of Arizona that manufactured semi-conductors between 1959 and 1960. All such operations of the Company were sold by 1961. Although this facility may have used trichloroethylene (TCE) in small quantities, there is no evidence that this facility released or disposed of TCE at this site. On May 18, 1993, the State of Arizona filed suit against the Company seeking the recovery of investigative costs, injunctive relief to require the Company to perform a Remedial Investigation and Feasibility Study (RI/FS), and ultimately to require the remediation of alleged soil and groundwater contamination at and near a certain industrial site. Since then the State has brought in co-defendants whose operations at the site were substantially larger than those of the Company. On June 20, 1995 the Company and the State of Arizona executed an agreement in principle to settle the litigation. In exchange for a full release from liability by the State and the Arizona Department of Environmental Quality, the Company without admitting liability, has agreed to the following: o Undertake and pay for the costs of an RI/FS Work Plan, estimated at $1,300,000. o Pay $125,000 towards past costs incurred by the State of Arizona and the Department of Environment Quality. o Pay $125,000 towards costs of future remediation and clean-up of the site. In addition, at the time the State selects a remedy, the Company agrees to an additional contribution in the amount of a percentage of the total estimated clean-up cost not to exceed an additional $1,120,000. o The Company reserves all rights to seek contribution from other responsible parties. The Company and the State have signed a Consent Decree and Work Plan incorporating these terms and conditions. The Consent Decree has been lodged with the United States District Court for the District of Arizona for a 30-day public comment period, at the conclusion of which the parties will seek court approval of the settlement. Resolution of this matter will not have a materially adverse effect on the consolidated financial position of the Company. The Company has provided approximately $1,900,000 based on estimates of the total cost for the RI/FS, estimates of amounts specified for past costs, and estimates of future remediation and clean-up costs. In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an indirect subsidiary of the Company, submitted to the U.S. Government (the "customer") a Request for Equitable Adjustment (REA) totaling approximately $11,800,000 in connection with a certain contract with the subsidiary. The REA seeks monetary damages based on costs incurred by the subsidiary arising out of or in connection with customer directed suspension of work and resulting schedule delays, additional work directives, and other actions by the customer in connection with the contract for which contractors are allowed recovery under the Federal Acquisition Regulations. On July 14, 1995, the subsidiary received the final decision of the customer rejecting the REA in its entirety. To fully protect the Company's interest, on October 10, 1995, a Notice of Appeal of the final decision was filed with the Armed Services Board of Contract Appeals seeking monetary damages plus interest. While the Company believes that the formal claims asserted against the customer are meritorious and the Company will vigorously pursue recovery of the monies claimed, the customer has asserted substantive defenses to these claims. Because the proceedings are currently in the discovery phase, it is not possible at this time to determine the ultimate amount of recovery of these costs. The Company is involved in various other lawsuits and claims, including certain other environmental matters, arising out of the normal course of its business. In the opinion of management, the ultimate amount of liability, if any, under pending litigation, including claims described above, will not have a materially adverse effect on the Company. 35 NOTE 17. RESTRUCTURING - -------------------------------------------------------------------------------- On March 29, 1993, the Company's Board of Directors approved a plan of reorganization and restructuring of the operations of its defense industry subsidiary, AAI Corporation. The Company estimated and recorded in the first quarter a restructuring charge of $23,000,000 ($14,700,000 or $1.20 per share net of tax benefit). The plan of reorganization and restructuring, which was considered necessary due to the declining Department of Defense budget and continuing financial problems of the airline industry, included costs of organizational and product-line changes, consolidation of facilities and work force reductions of approximately 300 at AAI and its four subsidiaries. A major portion of the charge resulted from the termination of the operations of AAI/MICROFLITE, a manufacturer of flight simulators and training devices, due to a lack of significant new orders. AAI/MICROFLITE was acquired in 1991. AAI/MICROFLITE had net sales of $646,000 and incurred pretax losses of $2,561,000 ($1,690,000 or $.14 per share, net of tax benefit) in 1993. As of December 31, 1993, the restructuring program was substantially completed. During 1994, $750,000 related to the consolidation and discontinuation of certain manufacturing activities was expended. The net loss for 1993 includes $22,500,000 of pretax charges ($14,370,000 or $1.17 per share net of tax benefit) which consisted of $13,822,000 of write-downs to reduce the carrying value of affected assets, including certain inventories, intangibles and an office/manufacturing complex at AAI/MICROFLITE, to net realizable value, $6,683,000 of employee-related expenses associated with the consolidation, relocation, and termination of certain operations, and $1,995,000 of other expenses. Assets held for sale of $5,439,000 at December 31, 1993, relate to the remaining assets of AAI/MICROFLITE, including the office/manufacturing complex. The Company sold these assets in 1994, which resulted in a gain of $1,304,000. The restructuring program was completed in 1994. 36 Report of Independent Auditors - -------------------------------------------------------------------------------- Board of Directors and Shareholders United Industrial Corporation New York, New York We have audited the accompanying consolidated balance sheets of United Industrial Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Industrial Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Notes 12 and 14 to the consolidated financial statements, effective January 1, 1993 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes. ERNST & YOUNG LLP New York, New York February 21, 1996 37 Five-Year Financial Data - -------------------------------------------------------------------------------- United Industrial Corporation
=============================================================================================================================== (Dollars in thousands, except per share data) Year ended December 31 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------- Operating Data - ------------------------------------------------------------------------------------------------------------------------------- Net Sales $227,398 $209,727 $ 252,993 $ 251,315 $ 258,012 Operating costs 223,385 202,766 252,919 242,304 238,767* Interest (income) expense -- net 1,159 1,362 (639) (686) (1,587) Income (loss) before income taxes 2,645 8,427 (20,151)(a) 10,071(b) 21,276* Income taxes (credit) 1,757 3,215 (8,134) 3,678 11,817(c) Income (loss) from continuing operations before cumulative effect of accounting changes 888 5,212 (12,017)(a) 6,393(b) 9,459(c)* Cumulative effect of accounting changes -- -- 994 -- -- Income (loss) from continuing operations 888 5,212 (11,023)(a) 6,393(b) 9,459(c)* Earnings (loss) per share: Income (loss) before cumulative effect of accounting changes .07 .43 (.98)(a) .52(b) .77(c)* Cumulative effect of accounting changes -- -- .08 -- -- Earnings (loss) .07 .43 (.90)(a) .52(b) .77(c)* Cash dividends paid on common stock 3,165 3,425 5,381 7,845 7,840 Cash dividends declared per common share .26 .21 .35 .64 .64 Shares outstanding as of year end (in thousands) 12,171 12,167 12,259 12,259 12,252 - ------------------------------------------------------------------------------------------------------------------------------- Financial Position - ------------------------------------------------------------------------------------------------------------------------------- Total assets $183,106 $188,794 $ 202,653 $ 226,958 $ 208,885 Property and equipment 42,586 45,214 46,635 57,074 61,789 Long-term debt 13,750 20,000 25,000 25,880 7,365 Shareholders' equity 86,160 88,421 85,354 101,568 102,963 Shareholders' equity per share 7.08 7.27 6.96 8.29 8.40 - ------------------------------------------------------------------------------------------------------------------------------- Financial Ratios - ------------------------------------------------------------------------------------------------------------------------------- Return on shareholders' equity 1.0% 6.0% -- 6.3% 9.2% Net income as a percent of sales .4 2.5 -- 2.5 3.7 Long-term debt as a percent of total capitalization 13.8 18.4 22.6 20.3 6.7 - ------------------------------------------------------------------------------------------------------------------------------- Statistical Data - ------------------------------------------------------------------------------------------------------------------------------- Sales backlog as of year end $206,000 $218,000 $ 208,000 $ 239,000 $ 235,000 Capital expenditures 5,705 4,146 5,931 5,547 4,885 Depreciation and amortization 8,300 8,291 7,430 9,200 8,416 Number of employees 2,000 1,900 2,300 2,600 2,700 ===============================================================================================================================
(a) Includes restructuring charge of $22,500,000 ($14,400,000 or $1.17 per share net of income tax benefit) (b) Includes special termination benefits cost of $1,191,000 ($786,000 or $.06 per share). (c) Includes a charge for prior years' federal income tax and interest of $2,670,000 or $.22 per share. * Includes income of $4,556,000 ($3,007,000 or $.25 per share, net of taxes) related to a claim settlement and special termination benefits cost of $3,638,000 ($2,401,000 or $.20 per share, net of tax benefit). 38 Corporate Organization - -------------------------------------------------------------------------------- United Industrial Corporation Board of Directors - -------------------------------------------------------------------------------- Harold S. Gelb, Chairman of the Board Howard M. Bloch, Vice Chairman of the Board Edward C. Aldridge, Jr., President and Chief Executive Officer The Aerospace Corporation Richard R. Erkeneff, President and Chief Executive Officer of the Company and AAI Corporation Myron Simons, Business Consultant 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 President of the Company Corporate Officers - -------------------------------------------------------------------------------- Richard R. Erkeneff, President and Chief Executive Officer Robert W. Worthing, Vice President and General Counsel James H. Perry, 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 G. Russell Zink, Vice President and General Manager, Weather Systems Jackson R. Bell, Vice President and General Manager, Transportation Systems Thomas E. Wurzel, Vice President and General Manager, Fluid Test Systems Joseph F. Burger, Vice President and General Manager, Operations Howard E. Butz, Director, Total Quality David A. Powell, Director, Information Technology Suzan J. Feild, Director, Human Resourses Detroit Stoker Company James M. Ballentine, Acting President and Chief Executive Officer Mark A. Eleniewski, Executive Vice President Gary K. Ludwig, Vice President, Finance Alan H. Miller, Director, Human Resources Neo Products Company Michael A. Schillaci, President and Chief Executive Officer Leonard M. Peznowski, Controller Symtron Systems, Inc. John J. Henning, President and Chief Executive Officer James W. Hanson, Vice President and General Manager J. Thomas Roeder, Vice President of Marketing and Sales Hy Luft, Vice President, Programs Richard A. Brandt, Treasurer and Secretary 39 Corporate and Shareholder Information - -------------------------------------------------------------------------------- United Industrial Corporation Corporate Headquarters 18 East 48th Street New York, New York 10017 (212) 752-8787 Subsidiaries AAI Corporation P.O. Box 126 Hunt Valley, Maryland 21030 (410) 666-1400 Detroit Stoker Company 1510 East First Street Monroe, Michigan 48161 (313) 241-9500 Symtron Systems, Inc. 17-01 Pollitt Drive Fair Lawn, New Jersey 07410 (201) 794-0200 Neo Products Company 5400 South Kilbourn Avenue Chicago, Illinois 60632 (312) 585-2500 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 telephone or by writing to: American Stock Transfer and Trust Company 40 Wall Street New York, New York 10005 (718) 234-2700 Shareholder Relations Security analysts, investment professionals and shareholders should direct their inquiries to: Shareholder Relations United Industrial Corporation 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 14, 1996, 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 Annual Report on Form 10-K as filed with the Securities and Exchange Commission may be obtained without cost by writing to: Shareholder Relations United Industrial Corporation Stock Listing United Industrial Corporation common stock is traded on the New York Stock Exchange (Symbol: UIC) Designed and Produced by Taylor & Ives, Inc., NYC Writing: Walter Schneir Major photography: Ted Horowitz, Kay Chernush pages 4 and 13 40 EX-21 9 SUBSIDIARIES OF UNITED INDUSTRIAL CORP EXHIBIT 21 SUBSIDIARIES OF UNITED INDUSTRIAL CORPORATION March 1, 1996 Approximate Percentage of State Voting (or Securities jurisdiction) Owned by in which Immediate Name Incorporated Parent - -------------------------------------------------------------------------------- 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 Systems Management, Inc. Maryland 100 (b) AAI Medical, Inc. Maryland 100 (b) AAI MICROFLITE Simulation International Corporation Maryland 100 (b) AAI/ACL Technologies, Inc. Maryland 100 (b) AAI California Carshells, Inc. Maryland 100 (b) Electric Transit, Inc. Ohio 53 (b) Detroit Stoker Company Michigan 100 (a) Midwest Metallurgical Laboratory, Inc. Michigan 100 (c) Neo Products Co. Illinois 100 (a) Symtron Systems, Inc. New Jersey 100 (a) U.I.C.-Del. Corporation Delaware 100 (a) -------------------- (a) Percentage owned by United Industrial Corporation ("United"). (b) Percentage owned by AAI Corporation. (c) Percentage owned by Detroit Stoker Company. All of the subsidiaries listed above are included in the consolidated financial statements of United. EX-23 10 AUDITOR'S CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 33-57065) pertaining to the United Industrial Corporation 401(k) Retirement Savings Plan, and in the Registration Statement (Form S-8, No. 33-53911) pertaining to the United Industrial Corporation 1994 Stock Option Plan, of our report dated February 21, 1996, with respect to the consolidated financial statements and schedules included in the Annual Report (Form 10-K) for the year ended December 31, 1995. ERNST & YOUNG LLP New York, New York March 27, 1996 EX-27 11 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR DEC-31-1995 DEC-31-1995 11,915 0 32,911 0 47,922 100,996 129,223 86,637 183,106 47,525 18,279 0 0 14,374 71,786 183,106 227,398 227,398 182,139 223,385 209 0 1,159 2,645 1,757 888 0 0 0 888 .07 .07
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