United Industrial Corporation
United Industrial Corporation
Incorporated: 1959 as Topp Industries Corporation
Sales: $216.98 million (1999)
Stock Exchanges: New York
Ticker Symbol: UIC
NAIC: 333319 Other Commercial and Service Industry Machinery Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing; 336411 Aircraft Manufacturing; 485112 Commuter Rail Systems; 562213 Solid Waste Combustors and Incinerators
United Industrial Corporation (UIC) is a diversified holding company. It once owned a leader maker of surgical gloves; in 2000 its subsidiaries manufactured waste incinerators (Detroit Stoker) and computer-controlled firefighter training systems (Symtron). AAI Corp., long UIC’s largest contributor of revenues, makes unmanned aerial vehicles (UAVs), ordnance, and training and simulation systems for defense forces. Electric Transit, Inc., a joint venture with the Czech SKODA Group, makes electric trolley cars.
In the 1950s, Bernard Fein, a retired lawyer and an early HAM radio buff, built up a large holding in United Industrial Corp. (SEC records indicate that the company was called Hayes Manufacturing Corp. until 1966.) United Industrial Corp. (UIC) merged with Topp Industries, a West Coast electronics firm, in 1959. Fein reportedly opposed the union. Within a few months of the merger, Fein told Forbes, Topp management went on a buying spree, acquiring a cement aggregate company, a road-building company, an Ohio-based rubber company, and Phoenix-based U.S. Semiconductor. Further, Topp had carried certain R&D costs as inventory, which led to UIC posting a $6.4 million loss the year after the merger. It also led to the New York Stock Exchange suspending the company’s stock from trading in January 1961 and delisting it that September. As Fein had helped turn around several other firms, he was called upon to do the same at UIC, which was $10 million in debt and had a negative net worth approaching $500,000.
Fein did not file for bankruptcy protection, as many expected. Three troubled subsidiaries were sold off, which reduced debt, and the workforce was reduced by 500 to about 3,000 employees. Fein increased production and sales at UIC’s remaining subsidiaries. UIC was able to post a $3 million profit in 1962. Annual sales reached the $60 million range in the mid-1960s.
The Perry Rubber Company tripled its production and doubled its market share of surgical gloves in five years, while simultaneously expanding its product line. To complement UIC’s most profitable enterprise, in October 1964 UIC acquired an 85 percent interest in Shampaine Industries, Inc., a privately owned manufacturer of medical equipment and furniture based in St. Louis. At the time of the purchase, Shampaine was losing about $1.5 million a year on annual sales of $11 million. UIC announced the purchase of a 28.5 percent stake in the I.E. Kleinert Rubber Company for $2 million in August 1966. Kleinert was profitable on $ 18 million a year in sales of rubber and plastic goods such as shower caps and shower curtains.
Another major UIC subsidiary, Baltimore-based Aircraft Armaments, Inc. (AAI), provided the U.S. military with ordnance and training devices. Former engineers at Glenn Martin Co. (later part of Martin Marietta) had started the company in 1950. UIC also built this line of business by acquisition. AAI bought a 51 percent interest in Burtek, Inc. of Tulsa, Oklahoma in August 1963 for a reported $1 million. Burtek produced missile and aircraft training systems and had sales in excess of $3 million a year.
In the early 1960s, UIC reduced its dependence on government contracts from 90 percent to 25 percent of business, according to Financial World. Other holdings included venerable incinerator manufacturer Riley Stoker, aggregates and concrete supplier Southern Pacific Milling, and road equipment maker Trucks & Equipment, Inc. In December 1964, the revitalized UIC became the first company in the history of the New York Stock Exchange to have its stock relisted.
Record Growth in the 1970s and 1980s
Profits reached $4.7 million on sales of $92 million in 1976. Several consecutive years of record profits followed. UIC averaged earnings growth of more than 20 percent a year at the end of the decade.
In the late 1970s, AAI (now formally named AAI Corp.) branched out beyond its traditional research and development activities into manufacturing. Electronics systems such as simulators, test equipment, and weapons systems accounted for most of AAFs business, although it continued to develop new munitions and ordnance. AAI was the prime contractor for most of its manufacturing projects, but it also supplied Ford Aerospace and Harsco Corp. UIC revenues reached $165 million in 1980, with a net income of $8.3 million. AAI accounted for half of each. This unit was developing a RDF light tank that could be readily airlifted and cost a fraction of the price of a conventional tank.
By this time, the Perry Rubber business had transformed into Affiliated Hospital Products Inc., a publicly traded company in which UIC held a 72.1 percent interest. It had a sales volume of $48 million in 1980. As the country’s leading supplier of surgical gloves, the unit had suffered from an increase in rubber prices in the late 1970s.
UIC sold its money-losing Carrom Division, which made furniture for patient waiting rooms, in December 1980. There were also difficulties at Detroit Stoker, where United Steel-workers staged a strike in October 1981.
In spite of these problems, UIC’s consolidated revenues continued to rise, reaching $283 million in 1983. Barren’s noted that by 1984, UIC had posted a dozen years of record sales and profits. Defense contracting and a new line of generic drugs fueled growth in the early 1980s, while Detroit Stoker’s combustion equipment business slowed.
Powered by Cold War demand, AAI then accounted for two-thirds of UIC’s revenues. It was the leading producer of simulators and training equipment for electronic warfare. It also was developing new kinetic energy artillery shells. In August 1984, AAI contracted to adapt Israeli-developed Mastiff drone aircraft for the U.S. market. At its peak, AAI employed 3,500 workers. Manufacturing accounted for 60 percent of its revenues in the mid-1980s.
At this time, Affiliated Hospital’s surgical glove sales were falling due to reduced Medicare and Medicaid budgets, though its new line of generic drugs allowed the unit to continue to grow. In January 1985, UIC announced that it was selling its share in Affiliated Hospital to Smith & Nephew for $58 million.
A Slow-Down in the 1990s
UIC’s sales reached $315 million in 1988, with earnings of $17 million. The company was debt-free. The end of the Cold War, a slow economy, and bad luck, however, made the early 1990s a difficult period for UIC.
UIC bought Microflite for $16 million in 1991, a purchase that proved to be disastrous. Microflite made flight simulators for commercial aircraft; it was bought to make AAI less dependent on government contracts. CAE-Link Corp. sued Microflite for patent infringement soon after the deal, however. The Persian Gulf War and a global recession crippled the aviation industry, leading to mass lay-offs of pilots and little market for flight simulators. UIC unloaded Microflite after three costly years.
Among UIC’s diversified holdings was the Spectrum Group, which marketed Hot Shot and Rid-A-Bug pesticides. AAI accounted for 80 percent of UIC’s revenues, however, and it was dependent on defense contracts and civil aviation—both struggling industries. AAI lost $20 million on sales of $216 million in 1993, and parent company UIC lost $11 million on sales of $253 million.
AAI, which had grown rapidly under the defense buildup of the Reagan years, shed more than 2,000 jobs in the early 1990s. UIC hired Richard E. Erkeneff, formerly with McDonnell Douglas Corp., to turn around AAI in the fall of 1993. A restructuring was announced the next spring. AAI was divided into four segments: defense systems, fluid test, transportation, and weather. There were few jobs left to trim by that time, although AAI also exited a joint venture to build a simulated ride for a Las Vegas resort. A venture to produce simulators for U.S. Navy helicopters was also unprofitable. UIC finally was allowed to leave the contract in November 1996.
AAI had begun to take a loss on fire trainers, which were expensive to build. These devices electronically controlled fires in buildings, aircraft, and ships in order to train firefighters. In early 1994, UIC bought AAFs main fire trainer competitor, New Jersey-based Symtron Systems Inc. The purchase left AAI with a 75 percent market share in the fire trainer business. All of this work was shifted to Symtron.
United Industrial Corporation is a customer-driven organization committed to enhancing shareholder value by delivering high quality products, systems, and services to selected defense and industrial markets. We value responsiveness to customers, careful stewardship of corporate assets, team-work, and innovation, and we reward excellence in achieving these goals.
In February 1994, AAI entered into a joint venture to launch the first American electric trolley bus company in nearly 40 years: Electric Transit Inc.. AAFs partner was SKODA, a Czech industrial manufacturing company founded in the 1860s. UIC had been producing electric trolleys at its Dayton, Ohio facility and maintained and overhauled transit vehicles for the state of Maryland.
Management Shake-Up in 1995
Corporate turnaround specialist P. David Bocksch was hired as CEO in April 1995. He was credited with turning around New York container maker Flexi-Van Corp. and overseeing a fourfold increase in business at the leading security firm, Pinkerton’s Inc. At UIC, Bocksch planned to sell off Detroit Stoker Co., Neo Products Co., and other marginal business. According to the Baltimore Sun, he also felt that Fein, then 87, was too old to function effectively as chairman. Further, Bocksch wanted to bring more outside directors into the board dominated by Fein’s relatives and friends.
The Baltimore Sun reported that Bernard Fein’s daughter, Susan Fein Zawel, plotted against Bocksch to protect her own job as counsel and secretary. Needing an experienced hand to implement his strategy of acquisitions and divestments, Bocksch tried to replace her with AAF‘s head of legal affairs, Robert W. Worthing. Zawel refused to accept the consulting contract Bocksch offered. She also maintained that there was no power struggle. There was, however, a major shake-up in UIC’s executive ranks in October 1995. Bocksch resigned; the chief financial officer, Thomas J. Carmody, was fired. Bernard Fein resigned as board chairman a few days later, although he remained a director. In fact, a third of the board was replaced.
Harold S. Gelb, formerly a senior partner with the Ernst & Young accounting firm, was designated Fein’s successor in November 1995. (He was also a friend and neighbor to Fein, according to the Sun.) AAI’s CEO, Richard Erkeneff, was named president and CEO at UIC in January 1996 after filling that role on an interim basis.
The instability at the top seemed to have an effect on financial performance. UIC managed only a $880,000 profit on sales of $227 million in 1995. Westport, Connecticut-based COMPO Consulting Group was brought in after the management upheaval to evaluate UIC’s various lines of business. Prospects for the company’s Pioneer UAV (unmanned aerial vehicle) program appeared promising. AAI was the only company producing the drones in quantity. Simulation and testing programs remained active. In May 1997, Romania bought a Shadow 600 UAV and a Moving Target Simulator from AAI for $20 million.
Other high-tech projects under development included the Objective Individual Combat Weapon and the Advanced Boresight Equipment system. UIC also was pursuing logistics support contracts with other aerospace companies and end users. In July 1997, AAI’s engineering unit landed a $35 million Air Force contract to upgrade devices used to train mechanics for the C-17 transport aircraft.
UIC sold Neo Products Co. in September 1997. The thermoplastics unit had contributed just one percent of UIC’s earnings the year before. The sale to a group of private investors garnered about $1.5 million plus a share of earnings for a couple of years. UIC’s weather systems subsidiary, AAI Systems Management, Inc., was sold the next month to All Weather, Inc. for about $20 million. Weather Systems had contributed a quarter of UIC’s pretax earnings.
UIC was announcing improved results by the end of 1997. Electric Transit won a $174 million contract to supply San Francisco’s MUNI program, although UIC later was forced to cover partner SKODA’s share of financing. There was also strong interest worldwide in AAI’s various training simulators at the end of the decade.
In late 1999, AAI won a $42 million Army contract for Shadow 200 UAVs to evaluate. If chosen for production, the contract had a potential value of more than $300 million over five years.
AAI Corporation; Detroit Stoker Company; ETI (35%); UIC Products Co.; UIC International, Ltd. (Barbados).
Commercial and Defense Simulation and Test Systems; Unmanned Air Vehicles; Engineering and Maintenance Services; Transportation Systems; Energy Systems.
DRS Technologies; ECC Group plc; General Atomics Aeronautical Systems Inc.; Lockheed Martin Corporation; Northrop Grumman Corporation; Racal Defense Systems; Reflectone Inc.; Smith Group.
- AAI Corp. established by former Martin engineers.
- UIC merges with free-spending Topp Industries.
- UIC is delisted from the New York Stock Exchange; Bernard Fein takes over.
- UIC is allowed back on the Big Board.
- A dozen years of sales and earnings growth begins.
- Surgical glove business is sold to Smith & Nephew.
- UIC posts a loss as defense and civil aviation industries suffer.
- Symtron Systems is acquired; Electric Transit venture is launched.
- A management shake-up ends with Fein’s resignation as chairman.
Dorfman, John, “Look, Ma, No Hands,” Forbes, October 11, 1982, pp. 139-40.
Gordon, Mitchell, “Defense and Drugs: They’re Big Ingredients in United Industrial’s Gains,” Barron’s, September 24, 1984, pp. 54–56.
——, “On the Beam: United Industrial Is Targeted for Fresh Earnings Growth,” Barron’s, November 23, 1981, pp. 50–51.
Marcial, Gene G., “This Armsmaker Is ‘A Sitting Duck,’ “Business Week, March 22, 1999, p. 94.
Martin, Ellen James, “Gelb Is Named Chairman at United Industrial Corp.,” Baltimore Sun, November 4, 1995, p. 13C.
Shelsby, Ted, “AAI Corp. Restructuring to Cut Costs, Few Jobs,” Baltimore Sun, June 28, 1994, p. 13C.
——, “AAI Parent to Buy Chief Competitor in Fire Training Simulators,” Baltimore Sun, January 25, 1994, p. 12C.
——, “AAI’s Parent Attributes Profit Drop to a Contract; No Chief at the Moment at United Industrial Corp.,” Baltimore Sun, November 1, 1995 P- 4C.
——, “Rescue Attempt Rattles UIC,” Baltimore Sun, May 13, 1996, P. 11C.
“United Industrial to Win Relisting,” Financial World, November 18, 1964, pp. 14, 21–22.
—Frederick C. Ingram