ML20195F338

1986 Annual Rept

ML20195F338
Person / Time
Site:	07000371
Issue date:	12/31/1986
From:	Colussy D UNITED NUCLEAR CORP. (SUBS. OF UNC, INC.)
To:
Shared Package
ML20195F344	List: ML20195F338 ML20196B118
References
NUDOCS 8811210341
Download: ML20195F338 (72)

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.l 1986 ANNUAL REPORT l

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i Servicellsrottsh firhrichy ist Aertspice/Aviatiors, Tchvorttirittriicatiorts, aid Defertse.

6911210341 871130 PDR ADOCK 07000371 C

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s Financial Highlights (in thousands eucpt per share amounts)

For years ended December 31, 1m 1985 Change Operations Sales and operating revenues

$572,065 $352,927

+ 62.1%

Earnings from:

Continuing operations

$ 9,433 $ 6,433

+ 46.6%

Discontinued opetations 1,081 2,837

-61.9%

Extraordinary items 7,375 8,428

- 12.5%

Net earPjngs

$ 17,889 $ 17,698

+ 1.1%

Primarys v.ings per share from:

Continuing operations S

.54

.30

+ 80.0%

Discontinued operations

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.13

-53.8%

Extraordinary item 3

.42

,38

+ 10.5%

Net earnings 1.02 5

.81

+25.9%

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Fully diluted net earnings per share

.97

.81

+ 19.8%

VO Average shares outstanding:

Primary 17,545 21,926 Fully diluted 18,547 22,015 Financial Position at End of Year Shares outstanding 15,473 21,819 Lapital expenditures

$ 27,253 $ 13,409 l

Working capital

$ 71,058 $101,811 Current ratio 1.6 to 1 2.0 to 1 Long-term debt

$137,373 $ 78,893 Shareholders' equity

$ 97,675 $1M,433 Return on average shareholders' equity 14.2 %

12.1 %

i Book value per share 6.31 $

7.08 l

See Notes 2 and 3 of Notes to Consohdated Financial Statements pr a descnytion of an quintums and disinntions cf tmsinesus.

See Notes 6 and 1I cf Notes to Conschdated Tin.mcial Statements for a descnyti<m of ntraerdenavy item <.

A Earnings From Primary Earnings Per Share-U Revenues Continuing Operations Continuing Operations (in milhuns of dollars)

(m milhons of dollars) i A Aerospace / Aviation A Telecommunications

& Defenw (40 to

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1%5 120 j933 I*

19 %

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To Our Shareholders l

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h 218% to $31.5 million from os;uce new 65,000 sq.

aggressive expansion prc,-

$9.9 million in 1985. Earn-ft. manufacturing facility gram.

ings from continuing opera-located in Norwich, Con-The Telecomnnunca-l tions were 59.4 million in necticut while maintaining tions segment continued to t

I 1986 or 47% higher than the quality, service and cost increase their share of the 9

$6.4 million earned in 1985.

performance. Backlogs international outbound l

Primary earnings per share remain high, and significant teles market, successfully I

o from continuing operations work is underway to launched their entry into were $.54 in 1986 compared develop new product lines the growing international s

to $.30 in 1985, a n 80%

at UNC Aerospace.

wice business through j

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improvement (a 116%

Aimvrk Corfuration is IDDD (International Dirett

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improvement if the 5.05 of well embarked n its expan.

Distance Dialing), and can A. cotusy Prc>ident anJ chi.-f non-recurring gain from the sien program to tevelop established firm position l

sale of our old office build-new market oppertunities.

in the International Busi-j ing is excluded from 1985).

1hrough Pacific sirmotive ness Satelhte market Significant progress While net earnings were Corporation, it 1as success-through DS A (Direct Satel-i, was made in 1986 as we slightly higher at $17.9 mil-fully reentered the large lite Acce3s) service. TR T l

continue to build on the lion for 1986 versus $17.7 JT8D engine overhaul busi-also acquired new fiber.

l major restructuring of UNC million last year, net earn-ness by revitalizing the Bur-optic transatlantic cable l

that began in 1985. We are ings per share in 1986 bank, California location capacity in both TAT-8 and h I

pleased to report another increased 26% to $1.02 com-through an integrated pro-TAT 9 designed to accom-yearof substantially pared to $.81 per share in gram of facilities upgrading, modate their long. term improved operating results 1985.

test cell refurbishment and voice expansion plans. Con-l in 1986 with all units report-Orrrafiens Rcriew new marketing campaign siderable progress also was l

ing improved performance.

Sales and earnings for directed at the commerical made in developing mar-This includes the fir t tull-UNC's major business seg-airline market. Early in keh for the eventual utiliza-year results of TRT Com-ments were all higher than 1987, Airwork also received tion of the TRT ow ned munications, Airwork last S ear while at the <,ame a $55 million five year con-orbital satellite pwitiore in Corporation cad Pacific Air-time achieving other impor-tract ftom Beech Aerospace the Atlantic and Pacific.

motive Corporation.

tant objectives necessary for Services, Inc. for overhaul The Defence segment.

Salo and I!arnings meeting their long term of PT-6 engines for the mili-through the Natul Pmfucts Silo ?r am continuing <>ner-

goals, tiry services This contract Dit i<ien, is broadening its ations in 1986 increased The Arrm/w/At'iala'n marks the tvginning of Air-product base in 1986 four 62% to $572.1 million from segment successfully com-werk's new thrust into the separate coi; tracts valued at

$352.9 million in 1985, pleted the opening and mihtary market which is a

$120 million w ere received Operating income increased integration of the UNC Acr-part of the Company's for new products that sup-2 J

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port the Navy's submarine desire to consolidate all provisions governing Chev-company's principal busi-l and surface vessel fleets operations in the Ilanford ron's actions. This agree-ness is simulator pilot train.

into the next century. The complex, UNC's responsi-ment called for UNC to ing for the U.S. Armed Division continues to bility to operate the N Reac-purchase 2 million shares of Forces as well as line main-j strengthen its competitive tor will phase out in the UNC stock held by Chev-tenance and operational l

position through additional latter part of 1987.

,in June 1986 and also support for military training l O ari n anufacturins faciiiiies investment in state-of the-Sharrhohirr Positions atends the time period aircraft. Burnside-Ott has Durins 1986. actions were u x c hasavaiiasiete saresefarrreximaieir526 and equipment.

taken regarding share-airange the orderly disposi-million and operates in a l

A new subsidiary, holder positions held by tion of the remaining 6 mil-market that is expected to l

UNC Grotech, was estalv Mauam Properties, Inc.

lion Chevron shares to a grow substantially over the fished in 1960 to develop and Chevron Corporation.

three-year period ending in next decade as the Armed

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the emerging market for These actions were under-July 1989.

Forces continue the recent

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environmental reclamation taken principally because Lowx-Term financings trend to out source pilot

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and remedial action pro-clear indications had been Early in June, two major, training and related support l

grams, building on UNC's received from analysts, simultaneous financings activities.

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20 years' esperience manag-institutions and investment were completed after a 10-l

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ing the Department of bankers that major financ-city marketing effort with Energy's ("DOE") surplus ings by UNC would be diffi-institutions and analysts.

O facilities project. This unit i

cult ar.d perhaps impossible 7he initial offering of $100 i

received its first contract until uncertainties resulting million was over-subscribed, from DOE for 5245 million from these large bkxk and a total of $138 million over a seven-year period for shareholdings were clari-was raised by selling $69 s

tailings clean-up and radon fied. In response, UNC pur-million of 7%% convertible abatement projects in sev-chared 4.4 million shares debentures and $69 million eral w estern kications cen-held by Mauam at a price of 11%% rubordinated tered in Grand Junction, b-low market and issued debentures. An esisting Colorado.

warrants to Mauam to pur.

issue of 12% subordinated

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UNC Nuclcar Indus-chase UNC shares at a price debentures with a restric-UNC's newly acquired j

BurnslJe-Ott Aviation l

frics continued to maintain appreciably above the then tive dividend clause and provides slinulator pilot j

its outstanding safety current market price. Addi.

other features was retired as training for U.S. Armed record as operator of the tionally, in Apnl 1986, a result of the fmancing.

Forces.

l government owned N-UNC's 1W4 stock purchase

.tcquisitions Reactor in llanford, Wash-agreement with Chevron in October, UNC acquired ington under contrast with Corporation was amended Burnsi.fr Off A:stion hxated DOE. In line with DOI.'s to estend certain restrictive in Pensacola, Flonda. This 3

F Goals and Strategies n

ad control sys-future. Our credibility in units are profitable and all UNC's strategic direction is tu ups track or progress the marketplace is increas-have excellent prospects for "Service Through Technol-versus our corporate plan.

ing as more analysts dis-continuing growth in reve-ogy," and our current three The objective is to maintain cover UNC's new direction.

nues and earnings. We business segments repre-a highly entrepreneurial This spring, we will take anticipate that 1987 will be sent the core areas in which atmosphere throughout the another step to reduce the the third consecutive year the Company will continue Company.

Chevron ownership, a mat-of improvement since the to grow. We want to be Our goals include ter that has been a concern Company has boen restruc-h in.olved in technology increasing sales and earn-to some potentialinvestors.

tured and given a new bec:use of its inherent ings at a 15% compound There is no question, direction. We kiok forward growth opportunities. We growth rate and maintain-however, that w hen a com-to 1987 and believe it will be understand, however, there ing a balanced operating pany takes a dramatic new another year in s.hich our are pitfalls in technology earnings base spread some-direction such as had to be performance will continue with the principal ors being what evenly over each of done at UNC, it takes time to build credibility and product obsolescense due our business segments. We to build acceptance in the strength for the Corapany to leapfrogging technology.

intend to focus on profitable marketplace. This is begin-in the marketplace fer the Because of this, our focus is growth opportunities with ning to happen.

overall benefit of UNC's on the service side of tech-a strong emphasis on return neard cf Dircctors shareholders.

nology where we apply on equity.

Special mention must be technology rather than stod Price noteu of the continuing dev; lop or manufacture Despite excellent earnings active role the UNC Board technology. With this strat-growth and a stron;; future of Directors takes in provid-Dan A. Colussy egy, we can avoid the major outlook, the UNC stock ing counsel to management.

President and financial esposure of large price has not shown compa.

On February 27,1987, Chief Esecutive Officer development expenditures table performance. This has

'miral James L. llolloway, March 5,1987 and premature product been a disappointment to 111, U.S. Navy petired) obsolescense.

your management and joined the UNC Board.

UNC operates a Ibard of Directors as I'm Admiral liolloway served highly decentralized com-sure it has been to all share-as Chief of NavalOpera-pany with each of its busi-holders. We have restruc-tions prior to his retirement nesses esercising significant tured the Company into a in 1978. Ilis esperience and autonomy. A small corpo-group of sourid businesws background will be invalu-rate staff of 35 people estab-in grow th industries. All of able as UNC addresses new lishes and guides overa!!

them are profitable today challenges in tuture ye.rs.

strategy and direcuon, and and have pro

• pats to outlook through a strong central remain profitable in the Allof the UNC operating 4

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i UNC at a Glance l

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Segment Business Recent News Outlook Aerospace / Aviatio i j

UNC Aerospace (for-Precision fabrication of Evaluating entry into Aggressive grow th to

• 1. 1. fuc s I"" "

"#"' '#I#

"E Pro sion) space applications.

business, and new product offerings.

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, O Airwork Corporation Turbine engine over-

$35 millien long term Long term growth

& Pacific Airmotive haul for business and mihtary contract espected from strong s

Corporation mi'itary aircraft, com-raeived to provide entry into commercial i

i mercial and corrmuter engine overhaul large engine and mili-l airknes and helicopters.

sen ice.

tary business.

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Bu rnside-Ott Simulator pilot training Seeking teaming oppor-Military training mar-r

_N.b %

and flight line mainte-tunities to broaden kets ;o provide strong i

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N nance and support for trainmg service future growth as Armed l

U.S. Armed Senices.

capabihties.

Sen ices continue to j

out-source training l

needs.

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Telecommunications International and Successfully launched Rapid growth antici-f T RT Com munications, Inc.

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domestic data and voice new switched Wer-pated from interna-i. i communications carrier.

national voice and tional voice and I

direct satclhte accew development of satelhte I

orhtal pimtions.

sen ice, l

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Defense l

Naval Products Product;on and fabrica.

5120 million in new Broadened product l

UNC Geotech tion of major compo-contract s awarded offerings aoure acceler-

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UNC Nuclear N'

propuhion units, engi-advanced components.

at Naval Products. Out.

nefits for reactor Naval I'mducts for ating profitable grow th l

Industries neering, environmental Geotech successfully standing growth oppor-rnlamation and reme-launthed with new $245 tunities exist in dial action sen ices, and milhon remedial a-tnin ens ironme ntal res larna-operation of a govern.

contract at Grand Junc-tion and remedial action ment ow ned reactor.

ton, Colorado. DOE businew. l'ursuing contract for the opera-other DOD and DOE tion of ilanford *chter con t ra(ts, phasing out.

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^ Operations Review Aerosjuce/Atviation Q Arms;ucr/Aciatiors is a industry in using advanced, crized communications on

% of Total Revenue rapidly growing segment high technology processes its test facility to permit cus-consistingof UNC Acro-to achieve maximum engine tomers to view real time 8%

space, Airwork, Pacific Air-performance at minimum engine pe:-formance in their motive, Aircraft Turbine cost and turnaround time.

own offices.

24 %

Service and the newly Aircraft Turbine Scrrice Airwri apgraded its acquired Burnside-Ott Avia-overhauls and repairs proprietary repair and refur-tion Corporation, engine accessories and ausil-bishing techniques that g

IINC Acrospace maw lary power units on larger restore high cost used parts ufactures large complex pre-business and commercial at savings of up to 70% of 3

h cision jet engine and aircraft aircraft. Their modern plant the cost of new parts and m6 components for the F101 in Bayshore, New York, fea-introduced a new direct l

and F110 engines used in tures state-of the-art equip.

"on-line" computer system the B1b Bomber and the F14 ment for tb-highest quality to provide immediate cus-

% of Total Operating Profit and F16 Fighter aircraft.

testing, repair and overhaul.

tomer access to its $28 mil-Their advanced capabilities These companies espect to lion parts inventory.

l include computer ccmtrol'ed capitalize on the excellent 77tc Burnsi.fr-Ott Ari.

20 %

l vacuum brazing and heat growth of the commercial ation Corr'oratiorr, acquired 36 %

l treating equipment and a and military nurkets while in October 1986, provides neve nondestructive test maintainirg lead positions simulator pilot training for h!

facility. Contra ts have in the corperate and generrJ the U.S. Armed Forces, and recently been negotiated to aviation markets.

line maintenance and opera-develop new alloy manufac-During 1986, Pacrfic Air-tional support for mditary f

1 N5 turing technologies for ermtity completed a training aircraft. They have l

future engine applicathms ma}or facilities renovation pioneered simulator instruc-(

and prototype work for program in Burbank, rali-tion to student military l

General Electric's new fo.nia to sersice the wide!y pilots and are well posi-unducted fan engine, used Pratt & Whitney JT8D tioned in this fast gnneg AirrcorA and Partfic engine. This newly reno-market.

Airmatice have leadership vated facility offers comput-positions in the overhaul tin thousand, euert empk ce data) 1956 1985 9

cnd nyair of }ct engines and Revenues

$138,786 $28.M engine related accessories.

Opnating profit

$ 14,353 $ 3.900 teach U.S. Navy stodents Total awets

$175,497 $142,3M in 11157 helicopor flight For virtually all engine type's Capital expenditures

$ 9,465 $ 7,274

.imutators in rer, acota, bipkiyees 1,654 servred, they lead the norida.

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Operations Review Telecommunications

% of Total Revenue J TRTCommunications Chy and London, England, senices and expanded provides worldwide voice also grew substantially. This switched voice senices and data telecommunica-high quality service is attrac-beginning in 1988.

10 %

tions services to government tive to hotels, multinational TRT is a principal and commercial customers, corporations, and fi: ancial shareholder in two compa-

n principally Fortune 1000 institutions and will be nies with certain rights to industrial companies and extended to additional coun-orbital positions for commu-h financial senices tries during 1987.

nications satellites-one organizations.

A significant position company has rights for two TRTcontinues to in the digital satellite busi-orbital positions in the increase their telex and high ness was achieved in 1986 Atlantic and the other has a

tw6 speed data traffic volumes, through TRT's Direct Satel-rights for tw o orbital posi.

revenues and market share.

lite Access ("DSA")-a serv-tions in the Pacific. Satellites l

Over the past su years they ice provided byleased planned for these stets will

's of Total Operating Profit have increawd their market Intelsat transponders and provide extensive telecom-I shar2 of the U.S. outbound advanced earth stations co-munications services to air-international teles market by owned with COMSAT. A lines, broadcasters and in f

sixty percent. They also packet switching network financialinstitutions.

have substantially increased was also installed to connect With an espanding inbound international traffic TRT's major cperating loca-presence in the data com-by employing innovative tions throughout the United n:unications markets, recent promotional techniques States. This network allows entries into the international combined with highly major savings in domestic voice and satellite services

\\

responsive service, transmissior* costs.

markets and a modern, 1*5 In 1986, TRT began ta Progress continues on growing telecom nunica-penetrate the $5 billion inter-the new Atlantic and Pacific tions network, TRT intends national switched voice Ocean fiber optic cable sys-to be a strong participant market. Agreements were tems. These facilities will in the rapidly growing negotiated with domestic provide major private net.

market of worldwide carriers to transmit interna-work users with high quality telecommunications' T RT's Teles Euchange at tional voice traffic via TRT's digitized voice and data the it. tauderdale opera.

digital voice switch in New (in thousana escept emphyce data) t *%

Iws York City, to a number of Revenues

$131,974

$33.557

• "' M " d ' *

• countries. Citydirect, an Operating pnet 5 10,111 5 2,W7 Total av.ets

$101,045

$91.213 tset*een the customers Opress voiceldata service Capital espenditures

$ 11,M6

$ 2,447 and T RT's computer for businesses in New York b"I network.

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Operations Review Defense

+,of Total Revenue O The Defense business for technology support of the growing reclamation and segment consists of the compact reactor programs r<, sedial action industry.

Naval Products Divisien, under the Strategic Defense For more than twenty newly formed UNC Geotech Initiative. Similar efforts F years llNC Nuclear Indus.

and UNC Nuclear Indus-further expand the utomer tries has operated the 53 %

tries, and product %se.

government owned N-l The Naraf I' rod.scts UNC Crotech is a Reactor in ilanford, Wash-Dirision fabricates major company formed in 1986 to ington under contract with g

components for reactor pro-provide management and DOE. An enviable perfor-pubion units and related technical support to govern-mance and safety record has componen:s for the U.S.

ment and industry clients on been achieved during this 1

Navy's submarine and sur-erwironmental reclamation period, concluding 1986 1*

face vessels. They also pro-and remedial action pro-with over 3.5 million vide techno:ogy services to grams. This newly formed manhours without a lost-

• .of Total Operating t'rofit customers in the Depart-entity was awarded a $245 time injury-a DOE record.

ments of Energy and million, multi-year manage-In 1985, DOE announced Defense.

ment serv;ces contract with that it would con petitively 67%

During 1986, more the U.S. Department of bid allllanford operations, 39 %

than $120 million in new Energy ("DOE") to operate on a scope much beyond l

contracts were received from and maintain their laborato-UNC's range of activities, to h

the U.S. Navy, including ries in Grand Junction. Colo-reduce the number c.f site advanced products to sup-rado, and to manage contractors. In December port their submarine fleet remedial action projects at 1986 DOE awarded West-l into the next century. The approximately 4,000 loca-inghouse Corporation the les Wsion continues to tions in western Colorado, contract to operate the strengthen its competitive castern Utah and western Ilanford complex, including position by investing in South Dakota. Cmtwh's the N Reactor and, as a state-of-the-art manufactur-highlevelof tednicaland result, UNC Nuclear Indus-ing facilities to accommodate management espertise pro-tries will phase out of this new programs and prod-vides a solid base for responsibility during 1987.

ucts, important business increased partKipation m Major components for development initiatives

"'d 'I' I"I'I'"""U' (in thousands cicept empkiya data) 1986 Iw3

'T' were also undertaken dur-Revenues SM1,25 5:No318 ing 1986. These include a Operating profit 5 15,833 $ 13,149 sut"narine fint an fat'ri-Total aweto 5 90,576 $100,%4 cated at t>NC's Naut cooperative eCort with los Capital espenditures

$ 5,828 $ 3.4%

p,,a,,,, g,i, i,;,,,,

[*P oM*'

3,831 3M7 l

Alamos NationalI& orator}-

Connecticut.

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4 Property, plant and equipment, at cost Land, buildings and improvements 61,266 47,880 Machineryand equipment 124,30,1 114,891.g 185,568 162,771 14s accumulated depreciatian 4r,178 33,0M Net property, plant and equipment 138,390 129,737 '

Cc:t in excesa of net assets of acquired companies, less accumulated amortization af $1,508 and $594, respectively 45,123 31,R13 Other assets 22,611 10,832 Totalassets

$408,%3 $390,305 Liabilities and Shareholders' Equity Current liabilities Current portion oflong-term debt 5 1,732 5 898 Accounts payable M,109 M,494 Income taxes 539 2,994 Accruals and other current liabilities 52,3M 42,982 h Totalcurrentliabilities 118,764 101,368 Long term debt 137,373 78,893 l

Deferred income taxes 6,075 4,7N l

Other noncurrent liabilities 48,314 50,122 Minorityinterest 762 785 Totalliabilitics 311,288 235,872 Shareholders' equity Series preferred stock-, par value $1 per share; Authorized 12,000,000 shares; 6,000,000 designated series A; none issued Common stock, par value 50.20 per share; Authorlieu 60,000,000 shares; ksued 17,473067 and 22,075,625 shares, respectively 3,494 4.415 l

Additional paid in capital 141,997 198,176 Retained earning (deficit)

(25,816)

(43,705) 122,675 158A96 Less treasury stock, at cost (2,000,000 and 256,258 shares, respectiveiv) 25,000 4,453 Totalsharrholders' equity 97,675, 154,433 Total t!abilitits and sha rehollers ' equity

$408,%) $390,305 se a eiv,yes me muuta twwt aatmen.

1 16

i s

~

UNC incorpaated and Subsidiaries iConsolid:ted Strt;ments cf Earnings' (Dollars in thousands except per share amounts)

Year Ended Decemtv r 31 im

.1985 im Sales and opnating revenues

$572,065 $352,927 $ 278,845 Costs and expenses Costs and operating expenses 434,797 301,215 250,418 Payments to connecting telecommunications carriers 53,361 14,187 Selling, general and administrative expenses 52,372 27,606 22,618 540,530 343.008 273,036 Operating income 31,535 9,919 5,809 Other income (expense)

Interest income 1,624 8,424 9,764 Interst expense (13,223)

(6,518)

(10,071) n Miscellaneous (614) 1,497 (2,481)

(12,213)'

3,403 (2,788)

(]'

L Earnings from continuing operations before income taxes 19,322 13,322 3,021 income tax provision 9,869 6,889 1,389 Earnings from continuing operations before extraordinary items 9,433 6,433 1,632 Eatning,(loss) from discontinued operations, r 'ofincome taxes 1,081 2,837 (123,870)

Earnings (loss) before extraordinary items 10,514 9,270 (122,238)

.Straordinary items income tax benefit of net operating loss carryfonvards 8,487 8,428 Early retirement of debt (1,112)

Net arrnings (loss)

,$ 17,889 $ 17,698 $(122,238)

Primary earnings (loss) per share Continuing operations

.54 5

.30 $

.12 Discontinued operations

.06

.13 (7.02)

Extraordinary items

.42

.38 O

"" *' * '"x' "**)

5

'2 5

• ' 5 (63)

Fully diluted earnings (loss) per share Continuing operations S

.51 $

.30 $

.12 Discontinued operations

.13 (7.02)

.40

.38 Extraordinary items Net carnings (loss)

.97 s

.81 $

(6.90) s r amemy,,,s mes to ams. sara tu umut surmmis.

17

m s

e

' UNCIncorpoteted and Subsidiaries i

Con 3olidated Statements of Changes in Financial PositiIn (Dollarsin ihousands)

Year Ended December 31, t--.

1986 198s 1%4

- Funds pnwidedfwrr.:

Earnings from continuing operations before extraordinary items

$ 9,a33 $ 6,433 $

1,632 f

Charges not requiring funds

' Deprechtion and amortization 15,819 5,288 2,567 Deterred income taxes -

94 117 1,389 Tax benefit of net opera >.ng k,ss carryfon ards 7,428 6,011 Funds provided from continuing operations 32,774 17,849 5,5 _88 t

Earnings (loss) fry discontinued opcrations 1,081 1,837 (123,e70)

Charges (credits) not requiring funds Depreciation and amortization 693 2,898 Adjustments to carrying value of assetc.

15,170 221,618 I% vision for operating losses and related costs 8,916 51,999 m

Reductionsin deferred revenues (71,438) W Deferred income tax benefit (1,389) l Tax benefit of net operating loss carryforwards 1,059 2,417 l

Funds provided from discontinued operations 2,140 36,033 79,818 l

Extraordinary item-early retirement of debt 0,112)

Issnance of common stock 159 92 100,575 Disposition of properties and affiliates 7,681 2,437 l

Additior,to debt 135,U5 77,957 6,778 Decrease (inerease) in accounts receivable 11,429 6

(3,554)

Increase (decrease) in accounts payable, accruals and ether liabilities 12,77L (11,595) 1,174 Totaf f.4nds protidal 199,320 122,023 192,816 l

Furuts usedfor:

Purchase of common stock 74,960 Additions to property, plant and equipment 27,253 13,409 13,947 Reductionsla debt 75,M1 44,712 66,275 g Acquisition of subsidiarks 7,479 164,891 Irvrease(deacase)in inventories 11,378 1,595 (3,329)

InWas1(decrease)ir.rOer assets

'8,054 (6,683)

(1,225) ptdfunds used 214,905 217,924 75,6N3

)

hicmtee (dtcreasel in can,:ul short te n inintments

$ U5,645) 5(95,901) 5 117,148 l

$er umswny bg naes u mkeJ,suunt state,nants.

I8

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UNCIncorporated and SubsWries Consolidated Statements d Changes in Shareholders' Equity

.. Dollars hi theesands)

(

Additional C en n 5td Paid-in Retained Treasury

.I Shares Par Value Capital Earnings

Share, Total Balance at December 31,1983 13,916,151

$2,783 $ %,986 $ 60,835 $ (3,897) $ 158,707 Net loss:-

(122,238)

(122,238)

Award of restricted stock under the employees' stock plan, net of fcdeitures 52,114 11 270 281 Sercise of stock options 105,726 21 l554 575 Sale o! common stock

_ 8,000,000 1,600 08,40r) 100,000 Balance at December 31,1964 22,073,991 4,415 198,210 (61,403)

(3,897) $ 137,325 Net earnings 17,698 17,698 Forfeitures of restricted stock under the employees' stock plan, net of awards (19,386)

(4)

(122)

(126) hercise of stock options 21,020 4

88 92 m Receipt of 56.258 contingent shares is;ued in

().

prior acquisition (556)

(556)

Balance at December 31,1985 22,075,625 4,415 196,176 (43,705)

(4,453) 154,433 Net earnings 17,889 17,889 Forfeitures of restricted stock under the employees' stock plan, net of awards (61)

(16) 4 (16) bercise of stock options 26,461 5

154 159 Purchase and retirement of common sharea (4,372,700)

(875)

(49,C35)

(49,960)

Retirementof treasuryshares (256,258)

(51)

(4,402) 4,453 Purchase of 2,000,000 shares for treasury (25,000)

(25,000)

Issuance of warrants 170 170 Balance at December 31,1986 17,473,067 $3,494

$144,997 $ (25,816) $(25,000) $ 97,675 sn arcryanynns to conara punw! stoorments.

l

(

I i

t 19

,..,n,-

IJNC locorporated and SutWJuries Notes to C nsolidated Financini Stat:m:nts

1. Summary of Significant Accounting Policies (i) t'amings Pcr Share. The c#culation of primary earn-(a) Basis of Prcsentation. The accompanying financial ings per share of common stock is based on the weighted statements include the accounts of the Company and its a erage number of shares outstanding, assuming the exer-subsidiaries after elimination of all significant intercom-dse of dilutive stock options and warrants. The fully pany accounts and transactions.

diluted earnings per share calculation assumes full conver-(b) Short Tenn Imtstments. Short-term investments, sion of convertible securities and exercise of stock options consisting principally of Eunxlollar deposits and bank cer-and warrants as of the beginning of the year (or date of tific:tes of deposit, are carried at cost, which approximates issue. iflater), if dilutive, and shares contingently issuable.

market.

(c) len,g-Tenn Contmcts. Revenues under fixed-price

2. Acquisitions c nd cward fee incentive contracts for the fabrication of During 1986 and 1983, the Company acquired the enti-components are recognized under the percentage-of-ties described below, which were accounted for by ihe completion method and are measured principally on purchase method of accounting. The results of operations either a cost to-cost or units-of-delivet, basis. Cost esti-of the acquired companies are included in the Company's mates are reviewed periodically at the work progresses, statement of earnings frem the dates of acquisition.

g and adjustments to revenues are reflected in the period in On October 31,19% the Con;pany, threugh a w holly-which res isions to such estimates are deemed appropriate.

owned xquisition subsidiary, acquired substantially all of Performaace incentives or penalties incorporated in cer-the operating assets of the Division of Ahlitary Aviation tain government contracts are recognized when there is

("DM A") of Burnside-Ott Aviation Training Center, Inc.

sufficient information to assess npected contract perfor-for 57 million in cash. DMA provides simulator pilot train-marice. Provisions for estimated losses on contracts are ing for the U.S. Armed forces, and line maintenance and recorded when identified.

operational support for military training aircraft. The (d)lntvntorics. Valuation of inventews is at the lower excess of the purchase price over the fair value of the oper-of cest or market. Cost is determined tong principally the ating assets acquired is being amortized over a period of first-in, first-out and average cost methods.

tu enty-five years using the straight line method. Under (c) Depr niation and Amorti::ation. The Company's facili-the terms of employment and tunus agreements entered ties and equipment are depreciated over their estimated into with certain of the former ow ners of DMA, the acqui-usefullives by the straight-line method, e scept for a por-sition subsidiarf may be required to make iocentive com-tion of the Company's Defense group tacilities, which are pensation payments based upon specified camings levels depreciated by the summf the-years digits inethod, as defined in the agreements, not to exceed $10 million (p Cost in E.tcess of Nct Asvts of Acquired Comsmics. The during the six-year priod ending December 31,1992. Any excess of acquisition cost over the fair value of tangible payments made under the terms of these agreements will h and identifiable intangible net assets of acquired compa-be recorded as expense w ben incurred.

nics ct date of acquisition is amortized o, a straight-On Septemtvr 30.19S3, the Company acquired TRT line basis over periods ranging from 25 to 40 years (see Communications, Inc. ("TRT") for 5;7.3 million in cash.

Note 2).

TRT is an international communications carrier providing (g) Pcmion Plans. Substantially all of the employees of a wide range of data and voice business communications the Company and its subsidiaries are covered by various sen ices throughout the world. The acquisition was pen: ion and retirement benefit plans. Pension cost for accomplished through an acquisition subsidiary, ICC defined benefit plans is comprised of tb actuarially com-Communications Corporation ("lCC"). which is ow ned puted normal.ost and amortisatior. ef prior service cost 84 4% by the Company and 15.o% by certain management over 30 years. The Company's policy is to fund at least the personnel of TRT.

minimum amount required by the Employee Retirement Income Security Act. The cost of defmed contribution plans is a fixed percentage of the participants' eligtble compensation.

(h) Inceme Taics. Provisions for income taxes are based on financial statement income adjusted for permanent dif-ferences. Excess investment tax creoits carried forward from 1983 will be recognized by the tiow-through method.

20

Effective Octeher 31,1483, the Company acquired Air-

3. Discontinued Operations cnd Related Litigation work Corporation and Pacific Airmotive Corporation (col.

Settlements lectively referred to as "Ainvork") for approximately $108 The Company discontinued its hiachine Tool business million in cash. The purchase price was subject to post-in 1985, and its Offshore Products and Services and hiin-closing adjustments which were finali/ed during 1986 and erals businesses in 1934. The following table summarizes resulted in a reduction in the purchase price to $103 mil-the revenues, earnings (loss) from operations and the esti-lion. Ainvork provides, to both domesiic and foreign cus-mated loss on disposal of these discontinued businesses.

tomers, turbine engine service for business and military Also, the Company has settled certain litigation which aircraft, commercial and commuter airlioes and helicop-related to its mineral operations. These settlements are ters, as well as repair and maintenance for ausiliary power included in determining the earnings (loss) from discon-units and acces;ory systems used in aircraft and for tur-tinued operations.

bine engines used by the electric utility, gas and oil, and icar Ended Duember 31, marine industries.

@uars in thousands) 19 %

IM 19s4 During 1986, the Company completed its allocation of Roenues Q the purchase prices for Ainvork r.a ERT, based on the hiachine Tools 5-5 33,409 3 22,143 results of independent apprd.als of the acquired assets.

Offshore Products v

The escess of the adjuste purchase price over the fair and Services 13,428 value of the tangible, id identifiable ir. tangible net assets hiinerals 10,321 acquired of $38.8 mitlion is being amoi. lied over a period 5-5 33,409 5 41892 of forty years using the straight.line ethod. The principal categories of non< ash assets acquired and liabilities Earnings (loss) from assumed in the acquisitions of TRT and Ainvork are as fol-operations lows: inventories $30.4 million; property, plant and equip-h1achina Tools (4 814)

(6,295) ment $98.1 million; cost in excess of net assets acquired Offshore Products

$38.8 million; other assets $33.5 million; and liabilities and Services (9,297) 557.9 million.

h1inerals (100.067)

The unaudited pro forma consolidated results of oper-(4,814) (115,659) ations of the Company as though DhlA, TRT and Ainvork Estimated loss on had been acquired on January 1,19S5 are as follows:

disposal TearInJed h1achine Tools (3,000) (12,6S6)

D"""I" M -

Offshore Products

(

(In thousands eicept per share amounts) 19 %

IW and gegyjce, (r4500)

Sales and operating revenues

$593,300 5547 000 hiinerals

( '.1,400)

(126,769)

Earnings from continuin8 (3,000)

(24,086) (181,269) operations 9,901 7A83 n' htiga6on Net eamings 18,%5 20,993 settlements and Primary earnings per share:

I"#"** I'*

O' I S' I

I Continuing coeratio.us 5

.56 5

.35 Net gain onlitigation Net earnings 1.08 r o a

5,3@

36,W 171, W in h at ns 5

.53 5

.35 Net camings 1.02 Earnings (loss) before income tases 2,300 7,500 (125,239)

Income tas benefit The unaudited pro forma information is not necessar-(espense)

(1,219) j4 663) 1,389 d, v, dicative either of results of operatiims that would m

h' ave occurred had the purchases been made at January 1, EarMngs (loss) from 1983, or of future results of operatit ns of the combinej discontinued i~

operations 5 1,081 5 2.837 5(123.870) companies, e

O 21 1

s t.;NC Incorpor:ted and Subsidune Notes to Consoliddled Financial Statements kont.)

In August 1986, the Compay sold its hfachina Tool million from Allendale htutualInsurance Company in set-business for 5900,000 in cash and 56.6 million in notes and tlement o' a suit brought by the Company for reimburse-recorded an additional 53 million loss on disposal. The mer t of ceuin property damage and business Company continues as guarantor of 56.7 million in bank interruption losses it sustained as a result of the collap< f of notes of this business. In August 1985, the Company sold a tailings structure at it<.%rch Rock mill in 1979. Thesc

ts Offshore Products and Services business to manage-settlements, net of related cost, are reflected above as a net ment of the subsidiary for 56 million in notes. This busi-gain on litigation settlements related to the discontinued ness segment was disc,ntinued effective June 30,1984 and minerals operations.

a provision for loss on disposal was made at that time. The In hiay 1984, the Con.pany e%ed into an agreement Company continues as guarantor of a $4.2 million Indus-with Chevron Corporation ("Chevron") and Gulf Oil Cor-trial Revenue Bond and approximately $5.6 million of per-potation ("Gulf") providing for the settlement of the formance bonds of this business.

Company's lawsuit against Gulf, General Atomic Com-The Company's hiineral, business was discontinued pany and Scallop Nuclear, Inc pending since hiay 1982 in as of December 31,1984. During 19S6 and 1985, the Com-a New hiesico state court. In accordance with the agree-pany pursued its plan for an orderly disposition of its min-ment, Gulf paid the Company $130 million in cash and g

eral properties and related assets. The Company sold agreed to assume certain obligations of the Company to certain buildings, equipment and a mineral property in return to a lender borrow ed uranium concentrates which 1986 and 1985.

had been carried on the Company's books as deferred rev-The net assets of discontinued operations have been enues in the amount of $71.4 million.

segregated in the 1986 and 1985 consolidated balance The agreement with Chevron also provided for the sheets and are stated at estimated net realizable value.

invutment of $100 million in 8 million newly issued These assets consist of:

shares of common stock of the Company. This stock pur-twmtvr n chase agreement was amended in April 1986, providing nutan in thousando te%

im for the sale by Chevron of its entire holdings of 8 million shares of common stock to the Company or others in 4 Current assets 5 1,913 526,8%

series of transactions. Under the agreement, the Company Other assets 2,534 157 purchased 2 million shares of common stock for $25 mil-Property, plant and equipment, net 11,851 12,244 lion ($12.50 per share) in June 1986, and agreed to pur-16,298 a%29,'

chase or arrange for the placement with third parties of 2 million shares by each July 31,1987,1988 and 1989 at the Curcent liabilities 62 16.404 then current market price of the common stock (plus a Long term debt, net ' eurrent supplemental amount payable by the Company of up to h

19

2x_,

portion

$2.50 per share to the estent such market price is less 'han Other long-term liabilities 1,074 512.50 per share). The Company intends to arrange for the 81 17,733 placement of thtse shares with third parties. To the extent Net awts of discontinued operations 16,217 21.5M any of the purchases or placements contemplated for 1987, less estuaated reahiaNe vah of 1988 and 1989 are not consummated, the Company will be assets classified as other uarent obligated to issue to Chevron additional shares of com-a w ts 3,200 6.610 mon stock (up to 500,000 shares in 1987 and up to an aggregate of 1 million shares in 1988 and 1989). In 19% 1 Net assets of discontinued million shares were escrowed for such purpose. The operations-noncurrent 513,017 514,9M shares on ned by Chevron are subject to certain restrictive During 19A the Company settled two separate suits provisions relating to voting rights and the acquisition of broeght by the Company for damages, costs and espenses additional $ Lares. The Chevron shares are to be repre-incurred in connection with certain operations of its dis-sented at all shareholders meetings fo quorum purposes continued minerals businest The aggregate amount of and are generally to be voted in proportion to the votes these settlements was approximately 56.6 million. In est by other shareholders, except that they are to be voted December 1985, the Company received approximately $37 for Nianagement's nominees for Director. Chevron's pre-vious right to vote separately on matters relating to the authorization rf new equity securities, acquisition or liqui-dation of the Company, certain acquisitions by the Com-pany involving issuance of voting securities and charter or by. law changes requiring shareholder approval termi-nattd upon the purchase of common stock made m June 1986.

22

'N T

4. Contracts in Process

6. Debt Costs and estimated earnings on uncom;31eted lons-onemtwr31 term construction contracts consist of the following:

(Dolbre in thouunde im 1985 l

onemtwe 31, Bank Term loan 5

$40,000

~

f tyrs in thouunde im i985 11%% Senior Subordinated Costs incurred and estimated Debentures due 1996 69,000 carnings on uncompleted 7%% Convertible Subordinated i

contracts

$576,747 $$70,565 Debentures due 2006 69,000 t

less billings to date 547,102 553,7M 12% Subordinated Debentures due t

$ 29,645 $ 16,811 December 1998 35,000 12% Convertible Subordinated The net amounts above are Guaranteed Debentures due included in the consolidated December 1%7 1,000 1,000 balance sheets under the following Other 3,011 3,903 Ab captions:

t Costs and estimated earnings in 142,011 79,903 -

[

escess of billings on less: Current porthm 1,732 898

[

i uncompleted contracts 5 29,645 $ 16,8M Unamortized discount 2,906 112 Other current liabilities (73)

$137,373 $78,893

$ 29,645 $ 16,811 During 1986, the Company repaid its Term l_oan and Substantially all of the amounts billed at December 31, amended the terms of its Revolving Credit Agreement 1986 and 1985 relate to contracts with the U.S. govern-pr viding f r a $35 mil' ion revohing credit facility. Bor-ment, which has a security title in the components being mwings undct the amended agreement art due thirteen fabricated.

months after demand by the bank and be ar interest, at the Unbilled amounts are recorded on the percentage of-option of the Company, at the bank's prime leno;ng rate completion method and are recoverabie from the customer r at a rate tied to the bank's cerrificate of deposit rate. At upon shipment of the product, presentation of bi;1s or December 31,1986, there were no borrowings outstanding completion of the contrxt. Substantially all of these under the revohing credit agreetnant. The Company has unbilled amounts are collectmla during 1937.

agreed to pay a commitment fee of % of 1% on the first $10 i

At December 31,1986, retainage receiv.b:c, included million of the unsecured commitment and N of 1% per

' O a=n>ticipated to be collected as follows:

i

<<e="' receiv>sie -e##'ea te 52 2 747 ooo -ai<a is

""""-"'"**""<*""*<--t'**"'"""""*

1987, $5,773,00th terms of the agreement, the Company is required, among 1988, $3,020,000; and the balance thereafter.

other things, to maintain a minimum net worth, debt to equity ratio, working rapital ratio and cash flow ratio.

5. Inventones in June 1986, the Company sold $69 million principal Inventories as of Dwember 31,1986 and 1985. consist amount of 11%% Senior Subordinated Debentures due of the following:

1996. The debentures are redeemable at any time at the option of the Company after May 1,1991 at 100% of princi-g gi Es pal am unt. Annual sinking fund payments of $12 million (Duluriin thouundo im commence in May 1993. The debt indenture contains cer.

Component parts and materials

$28,362 $23,586 tain covenants whkh. among other things, limit additional Work in process 15,275 10.706 borrowings and restrict the payment of cash dividends Supplies 2,353 2,287 and the purchase by the Company of any class of its stock

$45,990 $36,579 (except for 2 million shares of common stock purchased from Chevron in June 1986) unless the amount of such purchases does not exceed the sum of net irame plus proceeds from the sale of any shares of any class of stock subsequent to March 31,1986.

23

UNC incor;vrated and sutsudaries Notes to Consolid1ted Financi:1 St t:m:nts kont.)

In Jun( 1986, the Company sold $69 million principal 7, Other Liabilities amount of 7%% Convertible Subordinated Debentures Accruals and other current liabilities consist of the due 2006. The debentures are convertible into shares of following:

the Company's common stock at a conversion price of tworntyr n, 515, *.O per share and are redeemable (subject to certain gx,Uars in thouunde 1956 1M restrictions) at the option of the Company at declining pre-Pension plans 5 4,709 5 3.3M miums through 1996 and at the principal amount thereaf-Payroll and related expenses 16,214 15,311 ter. At.muJ si,dng fund payments of M.2 million Accruals related to discontinued

'or 'ctv in V%.

operations 4,629 7 006 m r,Gd in ther assets at December 31,1986 is Other 26,832 17,302

, y$'n q.0teU 6 m.llion of unamortized debenture

. 6

.%s h ' trecd in connection with the 1985 issu-552,344 H2,982 ww chhbentures.

At December 31,1986, other noncurrent liabilities i 4-

% he Company redeemed its outstanding include approximatch M0.9 million of accruah rdated to n

wh

>. Debentures and recorded an extraordi-discontinued operatidns.

g

' < pNtut t of $2,060,000 (51,112,000 net of income is, '4% ye

.are) for the call premium and related

8. Preferred Sto<k Purchase Rights

' 0' On October 23,1985, the Board of Directors of the

'Itw i2% Convertible Subordinated Guaranteed Company declared c. dividend of one Preferred Stod Pur-Debentures are convertible at the option of the debenture chase Right on each share of commt n stock outstanding holders into 83,333. hares of the Company's common on November 14,1985. Toe dividend is designed to assure stock at a conversion pr"e of $12 per share.

shareholders of receiving their fair share of the Company's Under the most restrictive covenants of the various net worth in the event of a takeover attempt which is no't debt arrangements, the Company had $13.1 million avail-approved by the Board cf Directors. Each Right entitles able at December 31,1986 fer cash dividends o stock the holder to acquir; one-fifth of a share of newly created purchases.

Series A Preferred Stock at an exercise price of $3.00 for Annual maturities of Icng-term debt during the next each share of Preferred Stock. The Rights trade with the five years are as follows: 1987, 51,732.900, 1988, 5662,000; common stock and are not exercisable or transferable apart 1989, 5610,000; 1940, 5474,000; 1991, 53SS,000.

irom the common stock until 10 days aftei someone acquires 25% of the common stock, or makes an offer for 25% of the common stock not conditioned on redemption a

of the Righ ts, or commences a presy solicitation w hich W

would have the effect of eliminating or diminishing the protection afforded by the Rights. No dividend of any Rights shall be considered to have been made on, and no Rights shall att.ch to, any common stock o.vned knefi-cially by the person inggering the exercise of the Rights.

The Rignts, w hich do not have any votmg rights expire on November 14,1995, and are redeemable at 5.01 per Right prior to the occurrence of one of the foregoing events.

24

D Each share of Series A Preferred Stock issuable under

10. Litigation and Contingencies the Rights wC1 have a minimum preferential quarterly div-The tailings area of the Church Ro-k mill has been idend rate of $0.75 per share. In the event of liquidation, placed on the National Priorities List by the U.S. Environ.

the holders of the preferred stock will receive a preferred mental Protection Agency ("EPA") pursuant to the Com-liquidation payment or $50 per share. Each share of pre-prehensive Environmen'al Response, Compensation and ferred riock will have one vote, voting together with the Liability Act ("CERCLA"). The Company appealed this coumon stock. The preferred stock will be redeemed at designation to the Court of Appeals for the District of

$50 per share if two consecutive quarterly dividends are Columbia. the Court ruled against the Company on all not paid on the preferred stock, if in two quarters the issues escept for the question w nether the EPA made after.tas earnings of the Company do not equal ooc and errors in applying its harard ranking system to the Church one-ht.lf times the aggegate dividends payable on the Rock site. This question will be covered in a final opinion preferred stock, or if a merger, consolidation or distribu-that has not yet been issued by the Court. CERCLA may tion of all or substantially all of the Company's assets requite espenditures or contributions by the Company in becomes effective or any other transaction becomes effec-an indeterminable amount for any studies or cleanup tive which would have the effect of denying the preferred required under this statute.

stock its right to dividends, liquidation preferences, On hlay 23,1986, the Nuclear Regulatory Commission redemption rights or voting rights. No fractional shares of issued ar order reasserting the Commission's regulatory preferred stock will be issued. Sis million shares of pre-authority over uranium milling in New hiesico, in place of ferred stock have been reserved for issuance upt. A esercise the authority fonnerly eserdsed by the state itwif. The of the Rfghts.

New hiesico hiining Association's Uranium Environmen-tal Subcommittee, of which the Compan, is a member,

9. Purchase a.ed Retirement of Common Shares has appealed the Commssion's order to the Tenth Circuit in hlarch 19%, the Company purchased from hiauam Court of Appeals, en the grounds that the Commission Properties, Inc. ("htauam") 4,372,700 shares of common unlawfully refused to provide an opportunity for com-stock. hiawam and certain related parties have agreed, ment and hearing before issuing its order. In the int (rim, until hta-;h 28,1996, rot to purchase any voting securities the Company is prepanng a reclamation plan to comply of the Company (other than pursuant to the esercise of the with the standards of the Commission, if the order is Warrants desenbed below), solicit prosies, engage in elec-upheld The Company believes that adequate provision tion contests involving the Company, propose any be si-for compliance has been accrued in the accompanying ness combination or restructuring, or otherwise seek to financial statements.

The Company is also a party to various other clainis, O ewrcise control or influence over the Company. In addi-tion to net cash paid of $49,900,000 as part of the consider-legal actions and complaints arising in the ordmary course ation far such repurchase, the Company issued Warrants of business. hianagement believes the disposition of these to purchase 3,500,000 shares of common stock at an eser-matters will not have a material adverse effect on the cise price of $13.50 per share (subject to ar.ti-dilution pro-financial position of the Company.

visions). The Warrants do not become esercisable or transferable until January 1,1988, subject to limited excep-tions, and espire on hlarch 28, lW1. The Warrants and, until htarch 28,19%, the common stock issuable upon their esercise are also sub;ect to certain restrictit ns on transfer, including rights of first refu+al in favor of the Company. The purchase price paid by the Company did not exceed the fair value of the shares acituired.

25

UNC Inmeporaeed and Sutiddarks Notes to Ccnsolidated Financial Stat:ments (cont.)

11. IncomeTases Extraordinary items in 1986 and 1985 include the utili-The income tax provision from continuing operations ration of net operating loss carryforwards from prior

.t consists of the following:

years. At December 31,1986, the Company had unused war Ended Decemtwr 31 operating loss carryforwards of approximately $75.7 mil-

- (Dollars in thouunde im 19M3 1m

!!On for financial reporting purposes, if such losses result Federal: Current 5-in the reduction of income tax liability at a future date, these losses will be available to offset future incocie tax l

&fened 1,389 Tax effect of net expense n reported earnings. For federal income tax pur-oneratingloss p ses, the Company has net operating loss carr> forwards carryforwards 8.376-6,011 of appmsirnately W.9 millbn of which $24.7 million espire in 1999 and $10.2 million espire in 2001. Unused 8,376 6.011 1,389 investment tax credit carryforwards of approximately $6.7 million espire in varying amounts over the perk >d of 1988 State:. Current 1,073 661 to 1999. The December 31,1%5 current liability for state Deferred 94 117 1,167 778 inc me taxes included approximately $2.2 million applica-g

. ble to disconti ued operations.

n Foreigni Current au' 100 i

Total tax peovision 99,889 56,889 51,389

-l Deferred tax provision is comprised of the following:

l Year F nded Decemtwr 31.

(Dollars in thousande 1986 1%5 1N

[

Tax effect of current operating losses S-

$1,389 Other 94 117 Deferred tax provision

$94 5117 51,389 l

Income tax ra es differ frocn the statutory federal income tax rate as follows:

Year Ended Decemtvr 31, 1986 1985 1%4

' ' Stitutory rate M%

46 %

46 %

f Amortization of cost in excess of net assetoof acquired companies 2

1 t

i Scok value over(under) tas l

l basis c4 acquired assets 01 1

l St:te taxes 3

3 Foreign tases 2

1 Other 1

51%

52 %

46 %

1

+

f f

i 26 i

12. Inantive Compensation Plans

13. Pension Plans The Company has three stock plans, approved by the During 1985, two defined benefit pension plans were shareholders, which provide for the granting of options adopted to provide continuing pension benefits to bar-and restricted stock to officers, key employees and outside gaining unit employees of Airwork and employees of TRT.

directors. Options are granted ot no less than fair market Benefits earned for service under prior plans were funded value on the date of grant, trcome esercisable in incre.

by annuity contracts purchased by the former ow ners.

meats, in sonw instances partially conditioned on the The total pension cost for all retirement benefit plans attainment of specific performance objectives, and espire was $6,810,000, 55,422,000 and $4,873,000, in 1986,1985, between sis and ten years from date of grant. Certain offi.

and 19M respectively.

cers and key employees have the right, in lieu of purchas-The actuarial present value of vested and non vested ing shares subject to their options, to surrender portions accumui.aed plan benefits, plan net assets and the of their options and receive common shares whose value assumed rates oi return for the defined benefit pension is equivalent to the excess of the fair market value of the plans are presented in the following table. The am sunts stock over the option price. Restricted stock issued to key presented are primarily as of October 1935 and 1984, the p employees becomes vested over a masimum ten-year most recent actuarial valuation dates, d periid, in some instances partially conditioned on the 7

toonariin thouund.)

im 1*4 attainment of specific performance objectives. A summary Actuarial present value of I

of certain plan information is as follows:

accumulated benefits har i nded Dnemtvr 31, Vested

$24,787 $22,389 Numtwr of shares:

Im IM 1*4 Non vested 5,013 3,507 Outstanding at Total 529,800 525,8 %

beginning of year 1,039,075 216,8.'6 317,779 Net assets available for bencfits

$14,611 535,548 Granted 118,000 867,784 59,400 Exercised (26,461)

(21,020) (105.726) Assumed rates of return 8%

8%

Espired or cancelled 0 3,159)

(24,565) (35,077)

The indicated pension plan assets and liabilit.ies pn-Outstanding at end of nutily represent funds provided by the federal govern-i vect 1,097,455 1.039,075 216,87o ment'and administued by a subsidiary of the Company l

Esercisable at end of pursuant to a government-owned contractor operated year 215,554 135,762 91,528 facihty management contract. Upon terminatkm of the l

Available for grant at contract the disposition of substantially all plan assets and end of year 201,001 324,79n 73,2 %

liabilities is subject to federal government approvals and l'* rice range of options policies (see also Note 16).

Outstanding 5 3.25-5 3.25-5 3.25-The Company provides certain health care and hfe 18.06 18.06 18.06 insurance benefits for retired employees. Sulwtantially all i

Esercised 5 3.25-5 3.25-5 4.13 of the Company's employees may tycome eligible for l

9.875 7.69 7.69 these tenefits after reaching normal retirement age while l

employed by the Company. The cost of providing these benefits is recogni/ed by expensing the annual insuranct premium, which is subsequently adjusted based upon actual esperi,mce. These costs approsimated $1,800,000, 51,600,000 and $1,700,000 in 1956,1985 and 19M.

i I

L l

i 27 2

UNC Incorporated and Sutwiduaes Notes to Consolidated Financial Statements (contJ

14. Leases submanr.es and surface vessels, the operation of a hiinimum rental commitments under noncancellable government-owned reactor, and engineering and environ-ope r: ting leases at December 31,1986, were as follows:

mental reclamation and remedial action services, in 1987, $12,545,000; 1988, $10,875,000; 1989, 57,541,000; December 1986, the U.S. Department of Energy, as a 1990,56,509,000; 1991, $5,598,(X10; and thereaf ter, result of a procurement policy change to consolidate oper-

$19,271,000. Rental expense for the years 1986,1985, and ations, announced that it has awarded to another com-1984 were $12,874,000,57,165,000, and $1,769,000, pany a contract to operate the comples which includes the respectively.

reactor operated by UNC's subsidiary. As a result, UNC will phase out of this responsibility during 1987. The reac-

15. Supplementary Income Statement Information tor operations contract contributed approximately $186 Supplernentary income statement information is as mdlion of revenues and $3.6 million of pretas operating follows:

profit in 1986.

wr r nded Deurntyr 31.

Revenues by business segment include trade sales to tcatars in thouund,)

Im 1%s 1%4 unaffdiated customers, as reported in the Company's con-hiaintenance and repairs

$4,991 $3,850 $3,33 solidated statements of earnings. Intersegment sales are g

Franchise, property and other not significant. In computing operating profit by segment, W

tases

$5,291 $3.s25 54,500 general corporate income and expense and interest expense, net of interest income, have been excluded.

16. Ilusiness Segment Information Identifiable assets by industry segment are those The Company, through its subsidiaries and div;sions, assets that are used in the Company's operations in each conducts a diversified business through three principal industry and do not include general cm porate assets.

se6ments: (i) Aerospace'As iation, which includes provid-General corporate assets consist ptimarily of cash, short-ing turbine engine service for business and militar:. air-term investments and office furniture and fixtures.

craft, commercial and commuter airlines and heiicopters.

The following tables set forth certain information with precision fabncation of aerospace components, simulator respect to each segment of the Company's continuing pilot training for the U.S. Armed forces, and line mainte-operations during the past three years.

nance and operational support for military traimi c air-craft; (ii) Telecommunications, which includes providing the following international and domestic telecommunica-tions services: telex and data switching: high speed data transmission; leased channd vhich includes data, voice, facsimile and mewage telegram; switched voice, direct sat-g ellite access and marine radio teles and telegraph; and (iii)

Defense, w hich includes the production and fabrication of major components for reactor propulsion units for naval l

1 l

l l

l l

l

)

l i

l t

b l

(;

tL se ~ f icar Ended Decemter 31, (tkitars in tkasands) 1986 1985 1984 Revenues

. Aerospace / Aviation

$138,786 5 28,849 5 8,591 ^

'J Telecommunications 131,974 33,537 Defense 301,305 290,318 268,887 Other 223 1,367 5572,065 ' $352.927 5278,845 i

Operating profit (loss)

Aerospace / Aviation 5 14,353 5 3,900 5 1,199 Telecommunications 10,111 2,507 Defense 15,833 13,149 18,882' Other (103)

(3,508) 40,297 19,453 16,573

_ Corporateitems (9,376)

(7,201)

(12,652)

Interest espense, net of interest income (11,599) 1,070 (900)-

Errnings from continuing operations before income tases 5 19,322 5 13,322 5 3,021 Identifiable assets Aerospace / Aviation

$175,497 5142,386 '5 6,348 Telecommunications 101,048 91,213

. Defense 90,576 100,5M 91,686 Other 413 5,254 17,755 1

Corporate 25,212' 29,324 125,321 Discontinued operations 16,217 21,564

' 61,115 5408,963 5390.305 5302.225 Depreciation and amortization espense Aerospax/ Aviation.

5 5,039 5 1,242 5 424 Telecommunications 8,355 2,021 Defense 2,267 1,N1 1,513 5

182 Other Corporate 158 229 448 g

5 15,819 5 5,288 5 2,567 Crpital additions Aerospace / Aviation 5 9,465 5 7,274 5 2.675 Telecommunications 11,846 2,487 t

Defense 5,828 3,436 MM 7,569

[

Other Corporate 114 181 297 31 2,800 i

Dientinued operations

$ 27,253 5 13,409 S 13.947 f

Sales to federal government i

Aerospace / Aviation 5 11,444 5 3,182 5 3,310 Telecommunications 8,515 1,684 6

Defense 301,249

>A),2M 268,818 j

SM1,208 5295.130 $272,128 j

Sales to foreign countries

}

latin America 5 22,777 5 3,1tB 5-i Western Europe 1e,447 3,W8 l

Far East 11,920 2,863 htiddle East 6,610 1,08n Other 3,106 _ 1,035 5 62,860 5 11.887 5 -

I 29 l

l

o s

UNC incorporated and Sutwidianes Nctes to C nsolid'ted Financini St:t^nnnts kont.)

17. Quarterly Summary (Unaudited) brst

$ccond Ibird Fourth Total (IMlars b Ov wands acept per share arnounts)

Quarter Quarter Quarter Quarter Year Year Ended December 31,1986 Fevenues

$143,512 $136,782 5137,895 $153,876 $572.065 Operating income 7,107 7,825 7,899 8,7N 31,535 Earnings from continuing operations 2,M9 2,268 1.978 2,8.E 9,433 Discontinued operations

'081 1,081 Earnings before estraordinary items 2,M9 3.M9 1,978 2.838 10.514 Ns t earnings 4,529 4,4%

3,RN 5,047 17,889 Primary earnings per share Continuing operations

.11 5

.13 $

.13 $

.18 5

.M Discontinued operations

.06

.06 Net earnings

.21

.25

.25

.33 1.02 Fully t.lluted earnings per share g

Continuing operations 5

.11 5

.12 5

.12 5

.17 5

.51 Discontinued operations

.06

.On Net earnings

.21

.24

.23

.30 97 Y ar Ended December 31,1985 Revenues

$ 73,301 5 74.6N $ 75,502 $129,520 $352,927 Operating income 1,926 1,%5 2,2X5 3,743 9,919 Earnings from continuing operations 2.865 1,S57 1,508 203 6,433 Discontinued operations 43 110 (256) 3,N0 2.837 E rni'igs before estraordinary item 2A18 1,%7 1,152 3.243 9,27t Net carnings 5,593 3.682 2,166 6,257 17,648 Primary camings (loss) per share Continuing operitions S

.13 $

.04 5

.07 5

.01 5

.30 Discontinued operations

(.01)

.14

,13 Net earnings

.26

.16

.10

.29

.81 Fully dduted earnings (loss) per share Continuing operations

.13 $

.tH

.07 $

.01 5

.30 g Dscontinued operations

(.01)

.14

.13 Net earnings

.26

.16

.10

.29

.81 Certain previously published quarterly financial data included in camings from continuing operations in have been reclassified to conform to year end 1986 the first quarter of 1985 was an af ter tas gain on the sale of presentatien, the former corporate office building of $1.1 million.

Induded in earnings from continuing operations in Induded in earnings from continuing operations in the the fourth quarter of luS6 were earnings from an acquired fourth quarter of 1485 were earnings from acquired com-company (see Note 2).

panies (see Note 2) and a $2.0 mdlion loss on a manufx-Induded in discontinued operations in the second turing contract. Also induded in discontinued operations quarter of 19% was a gain on a litigation settlement.

in the fourth quarter of 1985 w ere a provision for loss on InduJed in discontiaued operations in the third quarter of the disposal af the rnachine tool business, a provnion for th ere a gain on a htigation settlement and a provision additional costs espected to be incurred on dnpming of for loss on the sale of the machine tool business. (See mineral assets and a gain from a htigation settlement twee Note 3.)

Note 3).

Net earnings for each quarter in 19so induJe an Net earnings for each quarter in 19s5 indude an estraordinary item representing the tax benefit of net oper-estraordmary item representing the tax benefit of net oper-ating k>ss carryforwards from prior y ears. The second ating loss carryforwards from prior years.

quarter also indudes an estraordinary af ter cauharge of

$1.1 nulhon for debt retirement.

30

W e

o o

Report of Independent Certified Public Accountrnts The Board of Directors and Shareholders UNCIncorporated We have examined the cor.solidated balance sheets of UNC incorp9 rated and sub'/!-+5 as of December 31, 1986 and 1985 and the related consolidatW ;tu ments of e

earnings, changes in shareholders' equity and changes in l

financial position for each of the years in the three-year period ended December 31,1986. Our cuminations were made in accordance with generally accepted auditing stan.

dards and, accordingly, included such tests of the account-ing records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the aforementioned consolidated financial statements present fairly the financial position of UNC Ineorporated and subsidiaries at December 31,19S6 cnd 1985 and the resuhs of their operations and the ox

) changes in their financial position for each of the years in the three-year period ended December 31 1986, in con-formity with generally accepted accounting principles applied on a consistent basis.

PEAT, h1ARWlK, ht!TCIIELL & CO.

Washington, D.C.

Febmary 6,1987

/%

._r I

{

31

_m.__

i t

l l

Directors I

Walter 5. Ilo!mes, Jr.

Director Changes in a9%

(IF9)* Chamnauf the &urd of the Ccgeratam, prnmiv Charmwn if Sewral ch mges in the memtvrship of the Ibard of Directors l

the AwrlanJ Chaf bru. tite ONrr ef C l.T Towns ulcer'orathw (I.4) weurred dunng l%.

l Frederx-L Aky Allan NUtam R. Bush, formerly the bnutis e Vice Preudent of the Cor.

(197e) Prrudent of Alla n Carrtal Ccgeratam, a rrn vtc nmtu re ca;ntal and puration and a Dtrator smce 19~'9 rettred from the Ikurd in htay intestmmtfsem spn uM.r.g tn the en rgy mJetrn 0.5) lw.

1

{

D. Anan Bromley

( harles B. Renfrew and James N. Suun an. Diro-tors sirs e lwl and l

0 #7) Henry TW Il Prt+sw anJ Dirn ter 61 the A.W Wr xht %!<a*

1W. respxtn oly, and reprea.cntatn es of Ches ron Corporatm%

l Stru.f=*r leh natory at nic Unneruty 0.4) resigned from the Ibard m june 1%wnssient with the pun;hae4 l

F3.n K. Castle 2 mdhon shares of common stot k ow ned by Ches ron.

t 09M Pres.Jent a,J Chwf becutne (**icer.1FranUrd Cast!<. loc. c 1#

We gratef uuy apprnute the contnbutains rash of thew Dirn tors l

Dan A.Coluny made to UNC during their years of scru c.

(Is3 D Tmi.4mt and Chnf bnutne Cwmer <1t6. Cer;erath n. II)

Tw o nrw memtvrs. John K. Castle and Wdham C. Hittinger, pned H. Justin Danhon the fkur.t in htay 1% Their b.wkground and espenens e a di be d 973i thn Cdieye <1Fawncu The Ohio State Unnrmtv (3 4 5) ins atuable as UNC addreu.es new (ha'lenges in the s ears ahead.

Wdham C. Hittinger

.iear ong nauy cIwted to the Ibard.

HW) ReturrJ becn.tur he i vsd.mt of FCA Ccqvration. & 5) g 3, g wyu,g, c,,,,,,(,

z Jack H. W.Ubrec ht (2) Audit Committiv l

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