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
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.
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.
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
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:
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.
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.

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.
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,
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.
ITEM 3.

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.
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
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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in May to elect officers for the ensuing year. Interim elections are held as required. Except as otherwise indicated, each executive officer has held his current position for the past five years.
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
PART II -------
ITEM 5.

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.

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.

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.

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.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III --------
ITEM 10.

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.

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.

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.

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.
PART IV -------
ITEM 14.

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).
(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.
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)
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.
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
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.
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.
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)
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.
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.
Schedule II -- Valuation and Qualifying Accounts
United Industrial Corporation and Subsidiaries
December 31, 1995
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.