ML20006B019

Annual Rept for 1988

ML20006B019
Person / Time
Site:	07000371
Issue date:	12/31/1988
From:	Colussy D UNITED NUCLEAR CORP. (SUBS. OF UNC, INC.)
To:
Shared Package
ML20006B016	List: ML20006B015 ML20006B019 ML20260L195 ML20260L199 ML20260L203 ML20260L206 ML20260L210 ML20260L215 ML20260L220
References
NUDOCS 9001310195
Download: ML20006B019 (35)

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FinancialHighlights:

_'(In thousands except per share amounts)-

- l l

For years ended Decernher 31, 1988 1987 Change -

- Operating Data i

!=

Sales and operating revenues

$400,444 -

$355,630

+13%

j

_ 37%

.l Cperating Income 24,767' 18,084:

+

I-

. Earnings from:

~ 4,941

_- +56%

4 l

Continuing operations 7,714' Discontinued operations 12,221 5,933

+106%

-l Extraordinary item -

7,203 -

n.m.

Change in accounting principle

• 3,915 n.m.

Net Earnings 5 23,850

-5:18,077

-+32%'

. Financial Data I

Shareholders' equity

$134,059 5108,078-

+24% _

i Tbtal assets 407,987-

-440,400.

-7%

]

Working Capital 121,882-110,309

.+ 10%

Long-term debt 158,103 175,890-

'-10%

~

Capital expenditures 41,003'

' 26,173

+57%

j Return on average shareholders' equity 19.7% -

,17.6%

-+12%

a Shares outstanding 16,898 16,592

'j Per Share Data I

l Primary earnings from:

i Continuing operations 5

.46 5

.31

+48%

l Discontinued operations

.73

.37

+ 97%

i Extraordinary item

.44 n.m.

l Change in accounting principle *

.23_

n.m.

i Net earnings 1.42 1.12'

+27% -

~

Fully diluted net earnings 1.36 1.07

- +27%

llook value 7.93-6.51

+22% -

i

• t/facnw January 1. t 988, the Company eJopted the provisions ofSEAS No. 96 *Accounnngfor incarno Tktes." resultmg in this cumulatin adJaion to earnings. -

i Primary Earnings Per Share-Ilook Value Per Share Long Term Debt.

- Continuing Operations

- (in millies o/Jottars; -

$.50

$8.0

$200 SAO

$180

$6.0

$.30

$160

$4.0

$.20

$140 '

$ 10

$120

.0 0

$100 86 87 88 86 87 -

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1 To Our Shareholders:

a j

h7MWyFy@pVM3gymq Theyear 1988 was one of signif-Corporate Developments I\\((h@k[

Mdk T[M icant progress and accomplish.

Late in 1988, we sold our tele-h,;

[.

N ment for UNC Incorporated. It communications business, TRT,

., x

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y4g s'? W J 7 %m markedthe fourth consecutiveyear realizing a gain of $11.2 million.

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. of financial improvement. Sales -

Earlier in the year, our aerospace.

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and operating revenues rose 13%;

activity was strengthened'by the cn v ' - t c'.

M earnings from continuing opera-acquisitions of Tri Industries, M,"Ei.*

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g tions increased 56%; total long-Inc., and Alloy Spot Welders. As a 4

$A%d N

term debt decreased by 30% from result of these transactions, the.

i h,5, sn its third quarter peak; and share-Company's strategic direction 'is '

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holders'equityincreased 24%.

now more sharply focused, and

$J2M N

Progress was realized as our our field operations are organized' l

c rp rate res urces were applied into three' separate operating.

Dan A. Colussy, President and to building those businesses which groups: Aerospace, Aviation, and ChiefExecutiw Officer are moving the Company into the Technology. We have placed our 1990's. Meaningful steps were -

most experienced and knowledge-

!)

taken to improve the strategic able operating managers into key.

=

direction of the Company and its positions in each of the groups.

l organizational structure.- Growth This organizational streamlining was achieved in our existing prod-enabled one layer of senior man-I uct lines as well as growth from agement to be elimiriated."

new units created from existing In support of our strategy to j

businesses and by acquisitions, create value by establishing new-j l

Accomplishments in 1988 placed!

operating units ' from existing l

the Company in a position to take ones, five additional subsidiaries-advantage of evolving trends in were formed in 1988: UNC Ana-both the government 'and private

.lytical Services, UNC Component sectors.

Repair, UNC Reclamation, UNC Overall,1988 was another pos-Remediation, and UNC Support '

j itive year, providing a sound ba-Services. Each 'of these busmesses j

sis for continued progress and

- builds on experience and technol-growth in 1989.

ogy we have gained within' the L

Company and improves our com-petitive position in the markets in.

i which we serve, l/

In February 1989, George V.

(

McGowan, Chairman and Chief Executive Officer of Baltimore.

Gas and Electric, 'and -General '

USAF-g.

Lawrence A. Skantze, 1

2 i;

f' Retir after a period 'of decline and flat experience and proprietary tech--

1O pany'ed, were elected to the Com-s Board of Directors. Both activity volumes. Continued nology, we believe the outlook for gentlemen have strengths and growth in the commercial aviation our Environmental companies is experience-in areas that fit industry is forecast. The outsourc-one of increased opportunities in-

- extremely well with UNC's strate-ing of overhaul and repair busi-both commercial and government

- gic direction, ness from the Defense Department remediation and reclamation. We:

is expected to increase as the mili-see this group making a significant :

Strategic Overview tary seeks ways to lower expendi-contribution to UNC as we move

~

As we move'into 1989, all of tures under reduced budgets while into the 1990's, our operating groups are profit-maintaining operations. Building able and have positive operating on our existing base of expenise, Outlook trends which should continue and exploiting the opportunities UNC emerged from 1988 as a throughout the year. Our stream-we see in the independent over-financially stronger company with lined corporate organization and haul and repair market, we expect -

a well-defined strategic-direction strengthened group managements increasing volumes in our large and broader capabilities. This-will have positive impact in the engine overhaul business this year.

could not have occurred without markets we serve during 1989 and The climate in the defense the continuing suppo't of you, the years beyond.

industry in 1989 is one of reduced the shareholder, the 'significant The aerospace industry climate spending, stretch-out of procure-involvement of our Board of shows declining military procure-ment periods, and an increase in Directors, and the ongoing contri-ments but with increased commer-the outsourcing of training and butions of our employees, cus--

cial sales as a result of the record maintenance business to the pri-tomers, and suppliers. The Com-number of new airliners ordered vate sector. While our Defense pany is better positioned" to in 1988, in addition, both the air-companies experienced. reduced continue to capitalize on = the lines and the military are seeking earnings in 1988, we anticipate trends and forces within'the indus-to become more efficient by plac-improvement in 1989 in this area tnes it serves. The year 1989 will ing a greater emphasis on the as new orders from naval subma-be one of continued growth and repair of existing parts rath.:r than rine component manufacturing earnings improvement for UNC.~

the purchase of new parts. To regain stability and as we continue meet these opportunities, we have to capitalize on our ability to effi-l increased our aerospace capabili-ciently deliver support services to -

O --

ties by broadening our product the military, lines, expanding further into the In the environmental area, component repair -business, and there is a strong clean-up commit-Dan A. Colussy starting to sell spare parts directly ment from the Federal govern-President and.

I to the military, ment for correcting the " sins of the Chief Executive Officer l

Trends in the aviation overhaul past." Trends and legislation also March 1,1989 --

l and repair industry indicate a point to increasing regulatory i

recovery in corporate aviation focus on the elimination of haz-ardous waste. Because of our 4,

3 4

l a

i UNC At A Glance operating Units Location Aerospace / Aviation Aerospace Tri-Industries Terre Haute, IN l

UNC Aerospace /Norwich Norwich and Montville, C1 j

Alloy Spot Welders West Los Angeles, CA Component Repair Terre Haute, IN l

1 1

l Aviation gy f.f(' A j -

l Airwork Millville, NJ; Atlanta, GA;

8 Dayton, OH; Hartford, CT; i

Houston, TX; Miami, FL; 3

Wichita, KS Pacific Airmotive llurbank, CA; Phoenix, AZ; Portland, OR

• 2 Aircraft Turbine Service llayshore, NY Technology Defense o

an u' s

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UNC Naval Products Uncasville, CT

~

UNC Analytical Services Albuquerque, NM

' ' ~

~ ' ' " ' '

UNC Support Services Annapolis, MD; Pensacola, I

FL; Fort Rucker, At th 1

l 1

l l

Environmental UNC Geotech Grand Junction, CO UNC Remediation Grand Junction, CO l

l UNC Reclamation Mulberry, F1 e

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C rre:: Services M rket Operating Hthlights Outlook M}Urecision fabrication and l

Original equipment manu-Broadened engine parts prod-Strong growth expected in repair of components for tur-facturers, replacement parts, uct lines and began selling

'the sales of parts to the mili-i

bine engines for commercial and repair markets for com.

spare parts to the military, tary and component repair and trilitary aerospace mercial and military Signed a long-term agree-business. Increasing commer-

>l applications.

programs, ment with American Airlines cial sales to OEM while mili-for component repair work.

tary sales decline.

Aircraft turbine engine over-Business aircraft and military Awarded military contract to Continued increase in large -

haul and maintenance ser-aircraft, commercial and overhaul helicopter engines.

and small engine overhaul.

vices, overhaul and mainte-

' commuter airlines, helicop.

Established relationships and repair business, nance for auxiliary power ters, engine manufacturers,.

with several U.S. regional Improved operating profits units and accessory systems industrial power generation, and Latin American airlines due to productivity and pric-in aircraft.

and leasing companies, to overhaul theirJT8D ing improvements, ensimes.

1 Manufactureof advanced Department of Defense, Awarded contracts totalling Increase in opportunities technology components for Department of Energy.

$117.5 million for work on from military outsourcing of submarines; pilot training components for the Depart-support and analytical ser-and aircraft maintenance ment of Energy; awarded a vices. Continued support of services; high technology

$70 million, multi-year con-current and future nava) sub-

onsulting services.

tract to provide helicopter marine programs.

pilot training to the U.S.

Army.

I i

L Remedial and reclamation DOE, epa, USAF, U.S.

Completion of over 1,000 Increased opportunities in services; clean-up of contam.

Army, and the growing com-environmental clean-up proj-commercial and government i

inated sites; recycling of haz-mercial environmental serv-ects for DOE. Received -

remediation and reclamation

-l ardous materials from ices marketplace.

second-year rating of excel-services.

industrial waste streams, lent from DOE. Established UNC Reclamation and UNC Remediation.

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V Environmental tary technology developed during term surveillance and mainte-A in 1988, the Company's envi-almost thirty years in the mineral nance of all completed DOE 4

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significant growth with the desi-Strategically, the Company's should sustain our programmatic sion to emphasize environmental remedial action programs per-efforts in this area beyond the next

'p services and ex'pand efforts in this formed for DOE were increased in decade.

rapidly exparding market. New size and diversified in scope to During 1988, the Company units were formed while current include the EPA and U.S. Air moved to exploit the expertise business was increased as this area Force projec;s. The Company also developed from government reme-

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s 9-4 s,, vg '} ICChnolo,,gyl ~ L Defense these facilities will place the Com-UNC continues so supply compo. The Defense companics, while pany in a strong position to partic-h nents for the naval nuclear fleet as g profitable in 1988, experienced a ipate in~ the SSN 21 and other decrease in revenues and operat-submarine programs in the wc!/ as mcreeung its lecel of support ing profits. At the same time, next decade. .and consultmg services provided to these companies were able to capi-Further broadening of the a talire on the Defense Depart-Company's suppon to the Defense DoD and DOE. ment's increasing use of the industry in 1988 occurred with prn ate sector in providing pilot the increase in development work d training and aircraft maintenance on new concept steam generators services and gain new business and the reorganization of the i from the military. Albuquerque field office into a The Company's long-term sup-company which now provides k l port of building components for planning, analysis and. manage-J the naval nuclear flect continued ment services for Defense systems J in 19G8. Strong efforts were also. and programs. ~ made to develop new business and During 1988, the decision was g. accelerate existing work to pre-made to capitalize on increased serve earnings and personnel dur-outsourcing of training and main-ing the transition'between major tenance activities by the Depart-submarine programs, ment of Defense, and concentrate Work continued on the expan-resources in a more effective gov-80 sion of production facilities in ernment contracting operation. As Connecticut. All major building a result, a major three year con-i construction for the new facilities tract was competitively obtained ,.J g g j i was completed on schedule and for the training of the U.S. Army's '{ 's 4 i within budget. Completion of helicopter pilots at Fort Rucker, I ,a Alabama. During 1989, similar g efforts are planned to increase the 1. . ff Company's level of business in this growing market. e $d s se i 3 3 ? ; 6 A

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Selected FinancialInformation Year inded Decernber 31 (Ibilars in thouundi except per share anmunts) 1988 1987 1986 1983 1984 Operating Results. Revenues by business segments Aerospace / Aviation $223,220 $175,672 $133,746 $ 28,849 $ 8,591-Technology 177,224 179,958-120,011 104,645-120,226 Other 223 1,367 - $400,444 $355,630 $253,757 $133,717 $ 130,184 - Earnings (loss) from: Continuing operations $' 7,714 $ _ ' 4,941. $ - 5,869 - $. 4,368 $. 3) Discontinued operations 12,221, 5,933 4,645 : '4,902 _(122,321)- Extraordinary items -7,203 7,375- - 8,428: -} Cumulative effect of change in accounting principle 3,915 1 Net earnings (loss) $ 23,850 - $ 18,077 ~ $ - 17,889 - $ 17,698 $(122,238) Primary earnings (loss)per share: Continuing operations .46 $ .31 .34 $ .20-_$, .03 Discontinued operations '.73 .37 .26 .23 > (6.93) Extraordinaryitems. .44 _ .42 .38 Cumulative effect of change in accounting principle .23 Net earnings (loss) 1.42 1.12 L $ 1.02 $ .81 $. (6.90) Fully diluted earnings (loss) per share: q Continuing operations .44 .29 S ,32 $ .20- $- .03 - _ J Discontinued operations .70 .35 .26 .23 (6.93) _j Extraordinary items .43 .41 .38 i Cumulative effect of change in accounting prir.ciple .22 j Net earnings (loss) 1.36 $ 1.07 $ .99 .81 $ ' (6.90)'- Average number of shares outstanding: . 21,926 17,638. l Primary 16,822 16,132 17,545 i Fully diluted ' 17,522 16,832 18,014 22,015 -17,638 Financial Position Data Working capital $121,882 $110,309 $_ 71,058 ' $101,81'1 ' $ 149,394 ? Current ratio 2.6 to 1 2.0 to 1 ' l.6 to 1 - 2.0 to 1 2.7 to 1--- Total assets $407,987 $440,400- $408,963; $390,305. ' $ 302,225 - Long-term debt $158,103 $175,890 ' $137,373 $ 78,893 $.38,661. Shareholders' equity $134,059 $108,078.. $ 97,675 : $154,433 $ 137,325 - Long term debt to capitalization - 54.1 % 61.9 % 58.4 % 33.8 % 22.0%. l Return on average shareholders' equity 19.7 % 17.6 % l 14.2% ' 12.1% l(82.6)%. . j Other 1 Capital expenditures 5 41,003 $ 26,173 ~ $ 27,253 $ 13,409 $ 13,947' Depreciation and amortization $ 21,147 $ 16,602 $ 15,819 $ 5,218 $.2,554 Employees 3,768 4,260 6,295 6,175 ' 4,300_. 1 Shareholders 9,766 10,168 10,652' -11,724 '12,692 j 1 l l See Notes 2 and 3 of Notes to Consolsdated FunancialSt.stementsfor a descriptson of acquisitsons and daspositions. See Notes 6 and 11 of Notes to Consolidated Financial Statementsfor a descrsptson of extraordmary items. 12. Y

Management's Discussion and Analysis ofFinancial Condition and Results of Operations Liquidity and Capital Resources ' Shareholders' equity was $134.1 million at December In 1988, net cash flows from operating activities pro-31,1988 and $108.1 million at December 31,1987. vided $12.4 million of which $10.9 million represents The increase of $26.0 million was principally due to net payment to the Company by Western Union Telegraph earnings for the year. Company in settlement of prior litigation, while net cash Capital expenditures in 1988 amounted to $41.0 mil-flows for investment and financing activities used funds lion compared with $26.2 million in 1987, it is antici-of $22.4 million resulting in a $10.0 million decrease in pated that 1989 capital expenditure requirements will be. cash and short-term investments. During 1988, cash principally financed from internally generated funds, used for acquisitions, capital additions, and net debt ! case arrangements and revolving credit borrowings, reduction exceeded proceeds from the sale of the Com-The Company does not believe that inflation has sig-pany's Telecommunications business by $22.9 million, nificantly affected operating results for 1988. As a result At December 31,1988, the Company's working cap-of the Company's acquisitions during the past three years ital was $121.9 million and its current ratio was 2.6 to 1. a major part of its inventories and property, plant and . Average working capital was 29% of sales and operating . equipment were recorded at values that approximated 1 revenues in 1988 compared with 26% in 1987. The ratio their current fair values. Most ofits other business is per-of cash, marketable securities and receivables to total formed under contracts which contain escalation clauses current liabilities was 1.1 to 1 at December 31,1988. . that compensate for the effects ofinflation, and 1987. Effective January 1,1988, the Company prospec-Long-term debt including the current portion, was tively adopted Financial Accounting Standards Board $159.1 million at December 31,1988 compared with Statement of Financial Accounting Standards No. 96, $176.6 million at December 31,1987. The net decrease Accounting for income Taxes ("SFAS No. 96"). The i L in long-term debt during 1988 is principally due to effect on years prior to 1988 of changing to this standard i repayment of borrowings made under a bank revolving was $3.9 million which primarily represents a reduction ; credit facility. in deferred taxes that are no longer payable. This At December 31,1988, the Company had an unused amount is reflected in the Consolidated Statement of: balance of $47.0 million available under a revolving Earnings as the cumulative effect of change in accounting I LO., credit facility and $16.0 million available in short-term principle. l ^ lines of credit. 1 'i i Revenues by Segment Operating Income by Segment l (m mdhons of dollars) (m mdhoes of dollars) $$00 540 i 5400 j 530 I I l 5300 Ill ll $20 $200 '1, $10 $100 l 0 0 '86 87 88 66 87 88 r O Aemspace/ Aviation B Technology 1 i O 13. j

~ Results of Continuing Oper::tions Overview 1988 Compared with 1987 The Company's operations have been classified into Revenues increased 547.5 million in the Aerospace / two segments: Aerospace / Aviation and Technology. Aviation segment in 1988 to 5223.2 rnillion primarily Aerospace / Aviation includes the precision fabrication of due to the added revenues from the acquisition of Tri-aircraft engine components, and turbine engine overhaul industries, Inc. ("Tri"). Additionally, turbine engine ser-service for business and military aircraft and commuter vice revenues were up 515.5 million (10.5%). The and regional airlines. Technology includes the production improvement in operating income of 510.7 million was and fabrication of power units used for naval subma-due to contributions from Tri and overhaul services rines, providing pilot training for the U.S. Armed Serv-which was partially offset by some weakening in other ices and line maintenance and operational support for units' margins. mi.'itary training aircraft, and engineering, reclamation, Tichnology segment revenues decreased $2.7 million and remedial action services. during 1988 to 5177.2 million. Revenues from the man-la 1988, the Company sold its Telecommunications ufacture of power units for naval submarines decreased business and in 1987 disposed of its Reactor Operations $7.6 million primarily due to fewer new contract awards business. Accordingly, the operatmg results of these busi-in 1988 resulting from a reduction of U.S. Government nesses have been classified as discontinued operations procurements for the government fiscal year ended Sep-cnd appropriate prior year amounts have been restated tember 30,1988. Revenues from the Company's envi-(see Note 3). Additional segment data are provided in ronmental reclamation and remedial action services Note 17 of Notes to Consolidated Financial Statements, business increased 57.1 million (20.2%) as a result of an expanded scope of work in assigned programs. Revenues generated by the pilot training and support services busi-nesses were down 51.9 million (6.3%) principally due to a phase out of a contract. Operating income of this seg-ment was down 54.2 million principally due to lower volume in the naval submarines and pilot training and support services businesses which was partially offset by an increase in award fees carned on environmental serv. h I ices contracts. interest expense increased 56.1 million as a result of higher average debt levels resulting primarily from the Shareholders'1:quity .. th,, aw/ d.ab.) 1987 Compared with 1986 3go Revenues improved $41.9 million in the Aerospace / Aviation segment in 1987 to $175.7 million. Revenues from the Company's turbine engine service operations were 5147.5 million in 1987, a 32% increase over the 5:20 unit's $111.7 million revenues in 1986. This increase 5:00 s 80 0 $6 87 88 O 14

includes revenues from the wnice of Pratt & Whitney operations, which were acquired in November 1985, ' O.. JT8D engines at the Company's facilities in Burbank, were $111.7 million in 1986 and $16.2 million for the California,which were renovated for this purpose during two month period in 1985. Revenues generated from the 1986, as well as increased volume in other engine service fabrication of acrospace components improved 59.4 mil-programs. Revenues from the fabrication of acrospace lion, a 74% increase, resulting from increased deliveries components improved 56.1 million, a 28% increase, of jet engine components for use in the F 14 /F 16 fighter resulting from increased deliveries of jet engine compo-programs and the B-1 B bomber program. Operating nents for use in the F 14 /F 16 fighter aircraft programs. income improved $10.0 million to 513.9 million in Operating income of this segment decreased 50.5 million 1986. The increase represents a full year of turbine to $13.4 million in 1987. The decrease is due to lower engine service operations in 1986 versus two months in margins from the engine service unit during the initial 1985 and growth in the aerospace comp (ments fabrica-period of JT8D businesses, which was partially offset by tion business, g:in from the sale of parts and equipment, and from Technology segment revenues increased $15.4 mil-improved margins in the acrospace components business, lion during 1986 to 5120.0 million. Manufacturing reve-Technology segment revenues increased $59.9 mil-nues improved $6.0 million, a 6% increase, primarily as lion during 1987 to 5179.9 million. Revenues from the a result of higher volume due to additional contract manufacture of power units for naval submarines awards, in October 1986. +he Company's newly estab-improved 54.0 million, a 4% increase, primarily as a lished environmental reclamation and remedial action result of higher volume due to additional contract services unit began work on a five year management awards. Revenues from the Company's environmental services contract with the U.S. Depanment of Energy reclamation and remedial action services business formed dealing with the disposal of uranium mill tailings in cer-in October 1986, were 535.0 million in 1987 and 54.3 tain western states. Revenues of $4.3 million were gener. million for the three month period in 1986. Revenues ated by this unit in the fourth quaner of 1986. Revenues from the Company's pilot training and support services of 55.0 million were generated by the Company's pilot business acquired October 31,1986, were 530.1 million training and support services business acquired October in 1987 and 55.0 million for the two month period in 31,1986. Segment operating income increased $3.1 mil-1986. Segment operating income increased 52.3 million O to $14.9 million in 1987 principally due to a full year of lion to $12.6 million principally due to improved manu-facturing results in 1986. The results for 1985 had been income from the pilot training and support services adversely affected by a loss on a manufacturing contract, business. Interest income decreased 56.8 million principally Interest income decreased 50.9 million in 1987 due to the liquidation of shon term investments during because fewer funds were available for investment due to the latter pan of 1985 to provide funds for acquisitions, business expansion. Interest expense increased $1.8 mil-Interest expense increased 53.4 million as a result of lion as a result of higher average debt levels in 1987. higher average debt balances incurred in connection with the Company's financial restructuring during the year. 1986 Compared with 1985 Other income decreased $2.2 million, as the 1985 Revenues increased $104.9 million in the Aerospace / results included a pretax gain of approximately $2.3 mil-Aviation segment during 1986 to $133.7 million. Reve-tion on the sale of the former corporate office building, nues from the Company's turbine engine service

O 13

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UNC Inwrgwwated and hub 6ulianre Consolidated Balance Sheets L December 31. (Dollars in thousands) 1988 1957 Assets Current assets Cash and short-term investments 5 7,536 5 17,511 Accounts receivable, less allowance for doubtful accounts of 53,227 and $3,039, respectively 75,535 100,729 Unbilled costs and accrued profits on contracts in progress 42,867 34,233. inventories 67,089 54,916 Other 6,916 9,475 Totalcurrent assets 199,943 216,864 Net assets of discontinued operations 10,560 11,365 Property, plant and equipment, at cost Land, buildings and improvements 64,119 63,148 Machinery and equipment 89,971 144,236 154,090 207,384 Less accumulated depreciation 50,527 61,661 Net property, plant and equipment 103,563 145,723 Cost in excess of net assets of acquired companies,less accumulated amortization of $4,476 and $2,814, respectively 79,698 44,621 Other assets 14,223 21,827 Totalassets $407.987 ' 5440,400 Liabilitics and Shareholders' Equity Current liabilities Short term debt 5 4,000 h Current portion of long-term debt 1,028 721 Accounts payable 27,307 57,725 Income taxes 1,337 1,071 Accruals and other current liabilities 44.389 '47,038 Totalcurrentliabilities 78,061 106,555 i Long term debt 158.103 -175,890 Deferred income: axes 2,275 6,367 Other noncurrent liabilities 35,489 42,655 855 Minority interest 7btalliabilities '273,928 332,322 Shareholders' equity Series preferred stock, par value 51 per share; Authorized 12,000,000 shares; 250,000 designated Series A junior Participating Preferred Stock, none issued Common stock, par value 50.20 per share; Authorized 50,000,000 shares; issued 17,597,947 and 17,489,288 shares, respectively 3,520' 3,498 Additional paid in capital 123,178 123,274 Retained earnings (deficit) 16.111 (7,739). 142,809 119,033 Less treasury stock, at cost (700,000 and 897,100 shares, respectively) 8,750 10.955 lbtalshareholders' equity 134,059 108,078 Tbtalliabilities and shareholders' equity $407,987 - 5440,400 l See acwmpanymg notes to wnsohdatedpnanaalstatements. 16 l

UNC incorpormd ud subudiaries Co solidatedStatements ofEarnings A Year I.nded December 31. ) (Dulim in thousandi escept per share amounts) 196s 19s7 1966 Sales and operating revenues $400,444 $355,630 $253,757 e-Costs and expenses Costs and operating expenses 324,303-291,413 201,911 Selling, general and administrative expenses 51,374 46,133 34,072 375,677 337,546 235,983 Operatingincome 24,767 18,084 17,774 Other income (expense) Interest income 688 685 1,624 Interest expense (16,460) (10,332) (8,536) l Miscellaneous (385) (264) (53) (16,157) (9,911) (6,965) Earnings from continuing operations before income taxes 8,610 8,173-10,809 Income tax provision (896) (3,232) (4,940) Earnings from continuing operations 7,714 4,941 5,869 l, Earnings from discontinued operations, net of income taxes 12,221 5,933 ' 4,645 Earnings before extraordinary items and cumulative effect of change in accounting principle 19,935 10,874 10,514 l Extraordinary items Income tax benefit of net operating loss carryforwards 7,203 8,487 Early retirement of debt (1,112) Cumulative effect of change in accounting principle 3,915 Net carnings $ 23.850 $ 18,077. $ 17,889 Primary earnings per share i Continuing operations .46 .31 5 .34 Disccmtinued operations .73 .37 .26 i Extraordinary items ,44 ,42 Cumulative effect of change ir accounting principle .23 Net carnings 1.42-1.12 1.02 [ Fully diluted earnings per share Continuing operations 5 .44 .29 .32 Discontinued operations .70 .35 .26 Extraordinary items .43 .41 Cumulative effect of change in accounting principle .22 Nct carnings 5 1.36 1.07 5 .99 I s 't 5 4 p xj see eaumpanymg notes to consohdatedfmancialstatements. P 17

UNC Inurpuratest and subset.c, Consolidated Statements of Cash Flows hat Ended Dece,nbet sI, [Dullars in thousands) 19st 1987 1946 i d Cash flows from operating activities: Net income 5 23,850 $ 18,077 5 17,889 Adjustments to reconcile net income te net cash provided by operating

4 activities:

Depreciation and amortim., 21,147 16,602 15,819 l Cumulative effect of a change m m principle (3,915) Provision for losses on accounts recen.aue 1,581 327 15 Gain on sale of Telecommunications business (11,231) Changes in assets and liabilities net of effects of acquisitions and divestitures: (Increase) decrease in accounts receivable 1,671 (6.638) 17,414 i (Increase)in unbilled costs and accrued profits on contracts in progress (8,634) (4,588) (12,761) _5,690) (8,926) (11,378) l ( (Increase)in inventory (Increase) decrease in other current assets 1,563 (1,202) 1,528 j (Increase) decrease in other noncurrent assets (3,837) 778 (8,758) l Increase (decrease)in accounts payable 2,380 (6,384) 9,615 i increase (decrease)in accruals and other current liabilities (1,318). (5,346). 3,642 Increase (decrease)in income taxes payable 1,163 532 (2,455) increase (decrease)in deferred taxes (177) 292 1,371 l Increase (decrease)in other noncurrent liabilities (6,153) (7,759) 696 Total adjustments (11.450) (22,312) 14,748 l Net cash and short term investments provided (used) by operating activities 12,400 (4,235) 32,637 l! Cash flows from investing activities: i Net proceeds from sale of assets 805 7,374 1,937 l Additions to property, plant and equipment (41,003) (26,173) (27,253) l Acquisition af subsidiaries, net of cash acquired (51,943) (783) (7,479) increase in ownership of Telecommunications business (2,811) Cash received from sale of Telecommunications business 89,417 Net cash and short term investments (used)in investing activities (5.535) (19.582) (32,795) Cash flows from financing activities: Additions to debt 121,700 68,139 236,155 Reductions in debt (139,074) (30,633) (176,841) Purchase of Company common stock for treasury (330) (74,960) Net proceeds from sale of treasury stock 9,568. Payment to selling stockholder in connection with secondary offering of (16,361) common stock Other transactions net $34 (551) 159 Net cash and short term investments provided (used) infinancing _ 29,832 (15,487) [ _ _,16,840) ( activities Net increase (decrease)in cash and short term investments (9,975) 6,015 (15,645) Cash and short-term investments at beginning of year 17,511 11,496 27,141 Cish and short term investments at end of year $ 7,536 ' $ 17,511 5 11.496 O1 Ser accompanyng notes to consolndatedfsnancialstatements. 18 [ t

(fNC incorpurated and sut.udiance Consolidated St:tements of Changes in Shareholders' Equity /^N Addniunal Retamed ( ). Common stod Paid-In Laqunp Trenury '^ (Dutters in thousands)

share, Par %1ue Carnal (D,fut)

. shares Total e Balance at December 31,1985 22,075,625 $4,415 $198,176 $(43,705) $ (4,453) $154,433 Net earnings 17,889 17,889 Forfeitures of restricted stock under the e employees' stock plan, net of awards (61) (16) (16) Exercise of stock options 26,461 5 154 159 Purchase and retirement of common shares (4,372,700) (875) (49,085) (49,960) Retirement of treasury shares (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-Net earnings 18,077 18,077 Forfeitures of restricted stock under the employees' stock plan (289) (2) (2) Exercise of stock options 16,510 4 131 135 Sale of 1,150,000 shares of treasury stock (4,807) 14,375 9,568 Contractual payment to Chevron in connection with secondary offering of common stock (16,361) (16,361) Expense of registration ($18) ($18) Purchase of 47,100 shares for treasury (330) (330) Redemption of preferred stock purchase rights (166) (166) Balance at December 31,1987 17,489,288 $3,498 $123,274 5 (7,739) $(10,955) $108,078 Net earnings 23,850 [ 23,850 Adjustment of employess'stoci: plans 119 2 2 V; Exercise of stock options 89,400 18 514 i $32 Common shares issued and treasury shares used to increase ownership in Telecommunications Business 19,140 4 (612) 2,205 1,597 Balance at December 31,1988 17,597,947 $3,520 $123,178 $ 16,111 $ (8.750) $134,059 f a l .q Y) see accompanyng notes to consohdatedfsnannat staurments. 19 I

UNC incorporated and subuhane, Notes to Consolidated FinancialStaternents l

1. Summary of Significant Accounting Policies ognized for the tax consequences of" temporary differ-(a) Basis of Presentation. The accompanying finan-ences" by applying enacted statutory tax rates applicable cial statements include the accounts of the Company and to future years to differences between the financial state-its subsidiaries after climination of all significant inter-ment carrying amounts and the tax bases of existing

-] company accounts and transactions, assets and liabilities. The Company elected to adopt (b)She t TennInnestwents. Short terminvestments, SFAS No. 96 in 1988 and has reponed the cumulative d consisting principally of Eurodollar deposits and bank effect of the change in the method of accounting for j certificates of deposit, are carried at cost, which approxi. income taxes as of January 1,1988 in the 1988 consoli-mates market, dated statement of earnings. In addition, under the terms l i (c) Long 7crm Contracts. Revenues under fixed price of this statement, the benefits of the Company's net oper-cnd award fee incentive contracts for the fabrication of ating loss carryforwards have been offset against income components are recognized under the percentage-of-tax expense for both earnings from continuing and dis-completion method and are measured principally on continued operations for the year ended December 31, either a cost to cost or units-of delivery basis. Cost esti. 1988 rather than as an extraordinary item as required mates are reviewed periodically as the work progresses, under the prior accounting standards. Prior year end adjustments to revenues are reflected in the period in amounts have not been restated for the impact of SFAS - which revisions to such estimates are deemed appropri-No. 96. Investment tax credits are accounted for using i ate. Perfonnance incentives or penalties incorporated in the flow through method. Prior to 1988, provisions for cenain government contracts are recognized when there income taxes were based on financial statement income j is sufficient information to assess expected contract per-adjusted for permanent differences. formance. Provisions for estimated losses on contracts (i) Earnings Per Share. The calculation of primary are recorded when identified. earnings per share of common stock is based on the (d) lnerntories. Valuation of inventories is at the weighted average number of dares outstanding, assum-lower of cost or market. Cost is determined using princi-ing the exercise of stodoptions and warrants where the pally the first in, first out and average cost methods, impact is dilutive. The fully diluted earnings per share (c) Depreciation and Amorti:ation. The Company's calculation assumes full conversion of convenible securi-h facilities and equipment are depreciated over their esti-ties and exercise of stock options and warrants as of the mated usefullives by the straight line method, except for beginning of the year (m date of issue,iflater),if dilu-a portion of the Company's Technology group facilities, tive, and shares contingently issuable. which are being depreciated by the sum-of the-years dig-(i) Statement of Cash Flors, in 1988, the Company its method. adopted Financial Accounting Standards Board State-(/) Cost in Excess of Net Assets of Acquired Com-ment of Financial Accounting Standards No. 95, State-i panies. The excess of acquisition cost over the fair value ment of Cash Flows ("SFAS No. 95") and accordingly, of tangible and identifiable intangible net assets of has presented a statement of cash flows. Prior financial ecquired companies at the date of acquisition is amor-statements have been restated to provide a comparative tired on a straight line basis over periods ranging from format. For purposes of the statement of cash flows, the 23 to 40 years (see Note 2). Company considers all highly liquid debt investments (g) Pension Plans. Substantially all of the employees purchased with a maturity of three months or less to be ? of the Company and its subsidiaries are covered by vari-cash equivalents. ous pension and retirement benefit plans. Defined benefit plans are noncontributory providing for pension benefits

2. Acquisitions based on average final pay or stated amounts and years

- During 1988, the Company acquired the entities of service. Prior service costs for defined benefit plans are described below, which were accounted for by the pur-tmonized over the estimated remaining service period of chase method of accounting. The results of operations of-participants. The Company's policy is to fund at least the the acquired companies are included in the Company's minimum amount required by the Employee Retirement statement of carnings for the period in which they were income Security Act. The cost of defined contribution owned by the Company. J' plins is a fixed percentage of the panicipants' eligible On February 10,1988, the Company acquired the compensation. The Company implemented the provi-stock of Tri-industries, Inc. (Tri) for approximately + l sions of Statement of Financial Accounting Standards 547.2 million. Tri is involved in the fabrication and No. 87-Employer's Accounting for Pensions in 1987. repair of major precision turbine engine components for (h)lncome 'E2xes. SFAS No. 96, Accounting for a broad range of engine manufacturers and end users. To s income Taxes, was issued by the Financial Accounting fund the acquisition, the Company entered into a term d Standards Board in December 1967 and requires a loan with its bank group. The loan was repaid in Decem-change from the deferred method to the asset and liabil-ber 1988. The excess of the purchase price over the fair f ity method of accounting for income trxes. Under the asset and liability method, deferred income taxes are rec-q 20

value of the tangible and identifiable intangible net assets

3. Discontinued Operations and Related Litigation acquired is being amortired over a period of forty years Settiements V) using the straight line method. Under the purchase agree-The Company discontinued its Telecommunications ment, the Company may be required to make contingent business in 1988, Reactor Operations in 1987, and its payments to the former owners based upon specified hiachine Tool and hiinerals businesses in 1985 and earnings levels as defined in the agreement, not to exceed 1984, respectively, in 1988 and 1986, the Comp'any set-53.0 million during the two year period ending Decem-tied certain litigation which related to its rnineral opera-

) ber 31,1989. The total carned under these agreements tions. These settlements are included in determining the through December 31,1988 of $1.3 million has been earnings from discontinued operations. The following recorded as additional cost in excess of net assets of table summarizes the revenues, earnings from operations acquired companies and is being amortired over the and the estimated gain (loss) on disposal of these discon-l remaining amortization period using the straight line tinued businesses for each of the three years ended method. Any further amounts earned under this agree-December 31,1988. ment will be recorded in a similar manner. On hiay 19,1988, the Company acquired substan-

• "' L"d'd D'"'"*' 3 8 '

tially all of the awets and certain liabilities of Alloy Spot (DaHa'$ m 'hauu"d') l'88 8'A' l'8' Welders (" Alloy") for approximately $2.3 million in Revenues i cash. Alloy manufactures and aswmbles aircraft compo-Telecommunications $129,423 5140,224 5131,974 nents and performs resistance welding for the acrospace Reactor Operations 113,124 186,334 and aviation industry. The excess of the purchaee price 5129,423 5253,348 531 R,308 over the fait value of the tangible and identifiabic intan-Earnings from gible net awets acquired is being amortired over a period operations of forty years using the straight line method. The Com-Telecommunications $ l917 5 8,906 5 4,863 pany may be required to make contingent payments to Reactor Operations 2,042 3,650 the former owners based upon specified net sales levels as 1,917 10,948 8,513 defined m the agreement, not to exceed $1.5 million dur-Estimated gain (loss) ing the three-year period ending hiay 19,1991. Any on disposal ,h amounts carned under the terms of this agreement will be Telecommunications 11,231 [b recorded as additional cost in excess of net assets of Reactor Operations 1,096 acquired companies and will be amortired over the Machine Tools (3,000) remaining amortization period using the straight line 11,231 1,096 (3,000) method. "'"i"80 'I The following unaudited pro forma consolidated results of operations give effect to the acquisition of Tri ,Ni,f,"nts and as though it had occurred on January 1,1987. The income taxes 13,148 12,044 5,513 results of operations of Alloy are not included since their Net gaii. on litigation operations would not have a significant effect on consoli-settlements related dated results. to mineral operations 1,631 3.300 (in thouunds ciari per iharc amounn) Deces [t ' "[' 87 gg gy gg Sales and operating revenues $393,342 Income tax expense (2,558) (6,111) (6,168) Earnings from continuing operations 8,541 Earnings from Net earnings 24,434 l I rimary earnings per share: discontinued Continuing operations 5 .53 operations $ 12.221 5 5,933 5 4.645 l Net earnings 1.51 Fully diluted earnings per share: In September 1988, the Company signed a definitive Continuing operations 5 .51 agreement for the sale ofits Telecommunications busi-l Net earning. 1.45 ness and accordingly accounted for this business segment as a discontinued operation. At the time of the signing of The unaudited pro forma information is not neces-the definitive agreement, the Company estimated the sarily indicative either of results of operations that would s les price of the segment to be approximately 595 mil-O - have occurred had the purchase been made at January 1, lion b sed on the forecasted fmancial statements of the b 1987, or of future results of operations of the combined business at closing. This estimated sales price has been companies' subsequently reduced to approximately 592.1 million based on the updated financial statements of the busi. 21

UNCIncorpursted and bulwduren l Notes to Consolidated Financd Statements, coztinued { ness. This reduction was due to the Company receiving tion of book net operating loss carryforwards classified favorable cash flows of approximately $3 million from as extraordinary items and $1,033,000 and $810,000 g the segment between the signing of the definitive agree-respectively of current state and foreign ta :. The remain-ment and closing as compared to those initially fore-ing balance of $474,000 in 1987 and 5199,000 in 1986 c:sted. In December 1988, pursuant to the sale consists of deferred state tax. agreement, the Company received $89.4 million in cash The following table summarires the composition of end recorded a receivable of $2.7 million for its 98.0% the net assets of discontinued operations which are stated interest in this business. The final selling price is subject at estimated net realirable value: tu certain adjustments stated in the agreement, which will be determined during 1989. The 511.2 million esti-D*'ab" 3 '- mated pretax gain from the sale of this business was (Dallar5 6a thauwad0 l'88 l'87 recorded in December 1988. During 1988 the Company Current asse S 5 2,937 5 1,697 completed the transaction which increased its ownership Other assets 2,179 2.781 interest in this business from 84.4% to 90.8% by issuing property, plant and equipment, net 9,141 10,134 216,240 shares of Company stock (197,100 of which 14,2$7 14,612 w:re held as treasury stock) and paying 5954,000 to cer-i.ess estimated realizable value of trin minority interest shareholders who effective Septem. assets classified as ether current her 30,1987 exercised their option under the terms of a assets 3,697 3,23 shareholders agreement to sell to the Company all or a Net assets of discontmued operations $10,$60 $11.365 ponion of their ownership in the business. Additionally, during 1988 the Company increased itrs ownership inter-est in this business from 90.8% to 98.0% by exercising In 1988 and 1986, the Company settled several sepa-certain warrants to purchase additional shares in rate suits brought by the Company for damages, costs. exchange for a 54 million forgiveness of debt and pur-and expenses incurred in c nnection with cenain opera-chasing certain outstanding shares held by an existing n ns fits discontinued minerals business. The aggre-minority shareholder for $1,857,000. gate amount of these settlements was approximately $2.3 milhon m 1988 and $6.6 milhon m 1986. These in December 1986, the U.S. Department of Energy settlements, net of related cost, are reDected above as a ( DOE ), as a result of a procurement puhey change i net gain on litigation settlements related to the discontin-consolidate operations, announced that u had awarded ued minerals operations. to another company a contract to operate the complex which mcluded the reactor formerly operated by the in 1984 Chevton Corporation (" Chevron") acquired Company's subsidiary. The Company s contract with the 8.0 million shares of common stock from the Company DOE to operate the reactor was tenninated effective June for a purchase price of $12.50 per share pursuant to a 28,1987. The Company decided not to pursue simdar stock parchase agreement entered into in connection contracts in this hne of business and adopted a formal with a litigation settlement between the Company and plan of dispot.ition, resultmg m these operations bemg Gulf oil Corporation related to the Company's discon-discontinued in December 1987. The gain of 51.1 mil. tinued minerals business, in April 1986, the Company lion on disposal of these operations arises from the par-entered into an amendment to the agreement, providing tial settlement of certain claims related to the reactor f r the disposition of Chevron's entire holdings of com-operating contract, mon st ck in a series of transactions which, at the option ir August 1986, the Company sold its Machine Tool f the Company, may be placements with third parties or business for 50.9 million in cash cnd $6.6 million in P" "P""Y' I notes and recorded an additional $3.0 million loss on in accordance wah the agreement, the Company pur-chased 2.0 milhon shares of common stock for $25.0 disposal.The Company continues as guarantor of 55.7 million in bank notes of this business. The Company nulhon m June 1986. The purchase price paid by the continues as guarantor of a 52.6 million Industrial Reve-Company did not exceed the fair value of the shares nue Bond related to its Offshore Products and Services acquired, in June 1987, the Company concluded an business which was discontinued in 1984 and sold in ff-riy, f 5.75 milli n shares of common stock, at a 1985 to management of the subsidiary for 56.0 miliion pnce f $8J5 per share, The offering consisted of a sec-ondary offen,ng of 4.6 milhon shares held by Chevron c [me tax expense reflected in the above table con-and a primary offering of 1.15 million shares of the' sists primarily of current federalincome tax expense of Company s treasury stock. The amended stock purchase ' 51,134,000 and state and foreign income tax expense of agreement provides for the Company to purchase or $1,424,000 for the year ended December 31,1988. For arrange f r the placement with third parties of the g the years ended December 31,1987 and 1986, income remaining 1.4 million shcres held by Chevron prior to tax expense includes federal income taxes of $4,604,000 July 31,089. and 55,159,000, respectively, which are offset by utiliza. In c nnecti n with the placement of 4.6 million shares m 1987, the Company paid Chevron $16.4 mil-22

I lion representing the aggregate difference between the net

6. Debt

/m\\ proceeds of the offering and the amount calculated under i V the agreement which did not exceed th( fair value of the I*'ak' 3 8 - stock at the date the agreement was reached. The (Dolim 6a ihouuadi) I'88 1987 amended stock purchase agreement also provides for the Bank Revolving Credit and Company to deliver up to 0.7 million shares of common Term Loan 5 18,000 $ 38,500 stock to Chevron to the extent the final placement of 1,4 11 W% Senior Subordinated million shares is not consumrnated by July 31.1989. The Debentures due 1996 69,000 69,000 j Company has placed 0,7 million shares in escrow for 7W% convertible subordinated Debentures due 2006 69,000 69,000 such purpose. The shares owned by Chevron are subject Other 5,600 2,798 to certain restrictive provisions relating to voting rights cnd the acqeisition of additional shares. The common 161,600 179,298 shares are to be represented at all shareholders meetings l'$s: Current portion 1,028 721 i Unamortired discount 2.469 2,687 for quorum purposes and are generally to be voted in proportion to the votes cast by other shareholders, $1$8,103 $175,890 except that they are to be voted for hianagement's nomi- [ nees for Director. hianagement intends to arrange for the On February 10,1988 the Company entered into a t placement of these remaining shares with third parties. 554.0 million Term Loan agreement to finance the acqui. sition of Tri Industries, Inc. (see Note 2). This loan

4. Contracts in Progress agreement amended certain covenants relating to the Unbilled costs and accrued profits on contracts in Company's Bank Revolving Credit and Term Loan and progress consist of the following:

contained additional covenants which, among other 3 things, prohibited the payment of cash dividends. The U"*" Company paid off this debt on December 22,1988 with itwnm anihouund ) toss t9s7 hbW hM & 4 dbE mm eim Costs incurred and accrued profits tions business (see Note 3). on contracts in progress $ 458,857 $301,229 On hiarch 17,1987 the Company entered into an Less progress billings to date 415,990 466,996 unsecured revolving credit and term loan agreement with i Unbilled costs and accrued profits a group of banks, which was amended on December 10, on contracts in progress $ 42,867 5 34,233 1987, providing for the availability of $65.0 million on a [ revolving credit basis through hiarch 17,1990. The bal-Substantially all of the amounts billed at December ance then outstanding will be converted to a five year 31,1988 and 1987 relate to contracts and subcontracts term loan payable in twenty equal quarterly installments. with the U.S. government, which has a security title in At the Company's option, interest is payable at the prime the components being fabricated, rate,3 /4% above an adjusted London interbank offering i Unbilled amounts are recorded on the percentage-of. rate, or 3/4% above an adjusted domestic certificate of completion method and are recoverable from the cus-deposit rate. The Company has agreed to pay commit-tomer upon shipment of the product, presentation of ment fees ranging from 3/8 of 1% to 1/2 of 1% on the bills or completion of the contract. Substantially all of unused portion of the line, Under the terms of the agree-these unbilled amounts are collectrble during 1989, ment, the Company is required, among other things, to At December 31,1988, retainage receivable, maintain a minimum current ratio, working capitallevel, I included in accounts receivable, amounted to debt to capitalization ratio and fixed charges coverage $10,451,000 which is anticipated to be collected as fol-ratio. The agreement also contains certain other limita-lows: 1989,53,960,000; 1990,52,944,000; and the tions on the creation of indebtedness and long term lease balance thereafter. obligations, limits dividends to 60% of net income l earned after December 31,1986, and restricts the pur-

5. Inventories chase by the Company of any clast of its stock (except inventories as of December 31,1988 and 1987, con-for any contractual payments to be m de in conjunction sist of the following:

with the purchase or placement of the common stock held by Chevron). December 31, (Dulle in thouunds) 198s 1987 (3 Component parts and materials $41,737 $36,900 U Work in process 22,452 13,405 ,j Supplies 2.900 2,611 $67,089 $54,916 23 i

UNC inmyuratal and subuharm Notes to Consolidated FinancialStatements, conti::ued As of December 31,1988 the Company has short-At December 31,1988 and 1987, other noncurrent term lines of credit with four banks totaling 520.0 mil-liabilities include approximately $27.7 million and $34.1 lion, $16.0 million of which was unuwd. million, respectively, of accruals related to discontinued The 11 W% Senior Subordinated Debentures due operations. 1996 are redeemable at any time at the option of the Company after May 1,1991 at 100% of princi;,al

8. Preferred Stock Purchase Rights cmount. Annual sinking fund payments of $12.0 million On September 25,1987, the Board of Directors of commence.in May 1993. The debt indenture contains the Company declared a dividend of one Preferred Share certain covenants which, among other things, limit addi-Purchase Right for each share of common Stock out-tional borrowings and restrict the payment of cash divi-standing on October 19,1987. Each Right entitles the dends and the purchase by the Company of any class of holder to acquire one one-hundredth of a share of newly its stock (except for 2 million shares of common stock created Series A junior Participating Preferred Stock at purchased from Chevron in June 1986) unless the an ext.rcise price of $50 per one one-hundredth of a Pre-amount of such purchases does not exceed the sum of net ferred Share. The Rights trade with the common stock income plus proceeds from the sale of any 6 hares of any and are not exercisable or transferable apart from the clau of stock subsequent to March 31,1986.

common stock until 10 days after a person or group The 7%% Convertible Subordinated Debentures acquires, or announces a tender offer for 20% or more of duc 2006 are convertible into shares of the Company's the Company's outstanding common stock, common stock at a conversion price of $15.40 per share if the Company is acquired in a merger or other busi-and are redermable (subject to certain restrictions) at the ness combination, each Right will entitle its holder to option of the Company at declining premiums through purchase, at the Right's then current exercise price, a 1996 and at the principal amount thereafter. Annual number of the acquiring company's shares having a mar-sinking fund payments of $4.2 million commence in ket value at that time of twice the Rights' exercise price. 1996. In addition,if someone acquires 20% or more of the included in other aucts at December 31,1988 is Company'6 outstanding common stock, each Right will appmximately $3.8 million of unamortired debenture entitle its holder (other than the acquiring person) to pur. issue expenses incurred in connection with the issuance chase, at the Right's then current exercise price, a num-of the above debentures in 1986, her of the Company's common shares having a market g in June 1986, the Company redeemed its outstanding value of twice the Rights' exercise price. 12% Subordinated Debentures and recorded an extraor-Prior to the acquisition by someone of beneficial dinary pretax charge of $2,060,000 ($1,112,000 net of ownership of 20% or more of the Company's common income taxes,50.06 per share) for the call premium and stock, the Rights are redeemable for 5.01 per Right related expense. cither at the option of the Board of Directors or automat-Under the most restrictive covenants of the various ically in connection with the consummation of any ten-debt arrangements, the Company had $25.2 million der offer at a cash price per share equal to or greater than available at December 31,1988 for cash dividends and the price approved by stockholders at a special meeting $36.2 million available for placements or purchases of which would be called under certain circumstances in the Company's common stock held by Chevron. accordance with procedures cc ntained in the Rights Annual maturities of long term debt during the next Plan. The Rights expire on October 19,1997. l five years are as follows: 1989,51,028,000;1990, The Company redeemed Rights issued under a prior $4,544,000; 1991, 54,465,000; 1992, 54,217,000; rights plan by payment of 5.01 per Right to stockholders 1993,516,047,000, of record on October 19,1987.

7. Other Liabilities

9. Purchase and Retirement of Common Shares l

Accruals and other current liabilities consist of the in March 1986, the Company purchased from Maa-following: xam Properties, Inc. ("Maxxam") 4,372,700 shares of common stock. Maxxam and certain related parties have D* 31 agreed, for a ten-year period ending March 28,1996,. i l (nonm in somna ma us7 not to purchase any voting securities of the Company Pemion plam 5 3,787 5 4,274 (other than pursuant to the exercise of the Warrants I l p:yroll and related expemes 10,142 10,824 described below), solicit proxies, engage in election con-Accruals related to discontinued tests involving the Company, propose any business com-operations 8,595 5,600 bination or restructuring, or otherwise seek to exercise Other 21,865 26,340 control or influence over the Company, in addition to ne 544,389 547,038 cash paid of $49,960,000 as part of the consideration for such repurchase, the Company issued Warrants to pur-chase 3,500,000 shares of common stock at an exercise 24 '

price of $13.50 per share (subject to anti-dilution provi-y., t na,a n,ambe, n, (m'v) sions). The Warrants became exercisable and transfer-m,u,,. in simne ins in7 ieu tble on January 1,1988, and expire on March 28,1991. Federah Current $385 $ 172 5 The Warrants and, until March 28,1996, the common Deferred (461) (172) cock issuable upon their exercise are also subject to cer-g,,ff,,, og ne, tain restrictions on transfer, including rights of first operating loss refusal in favor of the Company. The purchase price paid carryforwards 2.598 4,277 by the Company did not exceed the fair value of the (70 2.598 4,277 shares acquired. State: Current 942 1,152 768

10. Litigation and Contingencies Deferred 30

($28) (105) The mill tailings area of the Company's wholly 972 624 663 owned subsidiary, United Nuclear Corporation's (" United Nuclear") facility located in Church Rock, Foreign: Current 10 New Mexico has been placed on the National Priorities hahax pmsion s8% $3,232 54,M0 List by the U.S. Environmental Protection Agency (" EPA") pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (" CERCLA"). Deferred tax provision is comprised of the following: EPA has completed its remedial investigation, feasibility Y ' "d'd ""'"'b" 3 8 ' study ("Rl/TS") and record of decision. The record of decision prescribes the remediation of certain ground-

• '"' '" ' h"""d4 8'""

'*87 8 '" water on or adjacent to the Church Rock site. United Net change in temporary Nudear currently is wgotiating a consent decree with differences primarily related EPA relating to such groundwater remediation. The to disposed aswts 5(461) 5 5 groundwater remediation prescribed by the record of State tax and financial reporting differences related to the sale decision is substantially similar to that contained in the "I '* "

• i " ""

(528) United Nuclear ecclamation plan approved by the ID Nuclear Regulatory Commission during 1988. "I".ium tax provided m. V CERCLA may require expenditures or contributions other 30 (103) by the Company with respect to EPA's costs of conduct-ing its Rl/TS, and future oversight activities. The Com-Deferred tax provision 5(431) 5(700) 5(105) pany believes that adequate provision for reclamation and remediation expenses presently anticipated at the The deferred income tax liability presented in the Church Rock facility, including any payments required 1988 consolidated balance sheet represents income taxes by EPA, has been accrued in the accompanying financial at enacted statutory rates on temporary differences. Tem-statements, porary differences consist primarily of excess tax over The Company is also a party to various other claims, book depreciation and accruals related to the Company's legal actions and complaints arising in the ordinary discontinued operations, course of business. Management believes the disposition income tax rates differ from the statutory federal i j of these matters will not have a material adverse effect on income tax rate as follows: the financial position of the Company. Yra, I nded D,amb,,3 i, 11, income Taxes

• '"* '" 'h"""d4 8"8 '

8"7 ' "f. In 1988, the Company adopted SFAS No. 96, Statutory : ate 34 % 40 % 46% Accounting for income Taxes, and elected to report the Utilization of net operating loss effects of its application as a cumulative effect of a carryforwards (34) change in accounting principle as of January 1,1988. Amortization of cost in excess of net The effect of adopting this statement was to increase net assets of acquired companies 3 6 4 alue un enax baus M earnings by $3.9 million. In addition, in 1988, under SFAS No. 96, the effects of utiliration of net operating 3,,,",',,"x,',' If 4 ~ 7 loss carryforwards reduce the income tax provision of

othe, 4

3 continuing and discontinued operations, in prior years, 10 % 40% 46% recognition of the benefits of net operating loss carry-n ('j forwards were reported as extraordinary items. The income tax provision from continuing opera-tions consists of the following: 25 i

^ .a l'NC lamrpurated :nd Subsiaanes Notes to Consolidated Financial Statements, continued At December 31,1988, the Company had unused 13, Pensioit Plans operatingloss carryforwards of approximately $30.0 Net pension cost for defined benefit plans in 1988 g million for financial reporting purposes, if such losses and 1987 ' included the following components: result in the reduction of income tax liability at a future date, these losses will be available to offset future income Year L'*d i D'"*b" ' ' ' tax expense on reported earnings. For federal income tax "'"" in Amandi) 1988 19s7 purposes, the Company has net operating loss carry-forwards of approximately $6.1 million which if not Service cost $826 $279 l used will expire in 2001. Unused investment tax credit Interest cost 530 63 carryforwards of approximately $6.7 million expire in Actual (gain) loss on plan assets (832) 11 Other 152 (17) varying amounts over the period 1989 to 2001 if not used. $ 676 $336

12. Incentive Compensation Plans The Company has stock plans, approved by the The following table sets forth the plans' status, shareholders, which provide for the granting of options cnd restricted stock to officers and key employees.

Deamber 31, Options are granted at no less than fair market value on (Dal:ariin ihouundi) 1988 19s7 the date of grant, become exercisable in increments, in Assets Anumulmed Anumulawd some instances partially conditioned on the attainment of L=cced Benefa' acnerie. specific performance objectives, and expire between six ^","*j,',"' ' *'",d I;,,d 3 cnd ten years from the date of grant. A summary of cer-i tiin plan information is as follows: b $(5,773) $(1,436) $(3,969) Plan assets at fair value 7,271 252 1,093 ny,g, 3,, Plan assets in excess (Number of shares) 1988 19s7 1986 (deficit) of projected Outstanding at benefit obligation 1,498 (1,184) - (2,876) ca 1,158,990 1,097,455 1,039,075 (325) (15) Granted 292,898 132,500 118,000 Unrecognized net Exercised (89,400) (16,510) (26,461) transition E** (' c ce d (302.073) (54,455) (33,159) Pension liability under e d i ear 1.060.415 1.158,990 1.097,455 Exercisable at Accmnulatect benefit end of year 488,154 544,606 215,554 bligation $ 3,893 $1,435- $ 1,979 Available for Vested benefit obligation 2,368 1,314 1,381 grant at end t of year 70,348 97,892 201,001 The weighted-average discount rate and rate of Price range of increase in future compensation levels used in determin-options ing the actuarial present value of projected benefit obli-Outstanding 5 4.13-3.25-3.25-gation were 9% and 6%, respectively. The expected 1 ng-tum rate of retum on assets was Wo. Exercised 5 .2 - 32-6.06 11.125 9.575 Differences between expected and actual return on assets are recogruzed over the estimated remam, g serv. m ice period of plan participants. l l O 26 '

A The 1988 amounts include pension plans whose

16. Cash flows assets exceed the accumulated benefit obligation due to Cash payments for income taxes were $2.0 million,

' the acquisition of Tri. Industries, Inc.,in 1988 (see Note 50.5 million and 53.5 million in 1988,1987 and 1986,

2) and the transfer of plan assets of several pension plans respectively, in these periods, interest payments net of funded by the U.S. Government covering certain employ.

capitalized interest were $22.3 million,514.3 million ces working under a U.S. Government contract related and $10.5 million, respectively, to the Company's environmental reclamation and reme. In connection with the acquisition of companies, the dial action business. The decrease in the projected benefit . Company assumed liabilities of $7.7 million in 1988 obligation and plan assets from 1987 in the pension (see Note 2). plans whose accumulated benefit obligation exceeds plan assets is due primarily to the sale of the Company's Tele.

17. Business Segment Information communications business (see Note 3).

The Company, through its subsidiaries, conducts a The total pension cost for all retirement benefit plans diversified business through two principal segments: (i) was $1,641,000,51,428,000 and $1,273,000, in 1988, Aerospace / Aviation, which includes providing turbine 1987, and 1986, respectively, of these amounts engine service for business and military aircraft and com-5965,000,51,092,000, and $884,000, respectively, muter and regional airlines, and precision fabrication of relate solely to the Company's defined contribution plan. aerospace components; and (ii) Technology, which Plan assets consist principally of investments in com-includes the production and fabrication of power units mercial paper, marketable securities, certificates of uwd for naval submarines, providing simulator pilot deposit and U.S. Government obligations. training for the U.S. Armed Forces and line maintenance The Company provides certain health care and life and operational support for military training aircraft, insurance benefits for retired employees. Substantially all and engineering, reclamanon and remedial action of the Company's employees may become eligible for services. these benefits after reaching normal retirement age while Revenues by business segment include trade sales to employed by the Company. The cost of providing these unaffiliated customers, as reported in the Company's benefits is recognized by expensing the annual insurance consolidated statements of earnings. Intersegment sales q premium, which is subsequently adjusted based upon are not significant, in computing operating profit by seg-actual experience. These costs approximated $260,000, ment, general corporate income and expenses and inter-5307,000, and $250,000 in 1988,1987, and 1986. est expense have been excluded. Identifiable assets by industry segment are those

14. Leases assets that are used in the Company's operations in each Minimum rental commitments under noncancellable industry and do not include general corporate assets.

operating leases at December 31,1988, were as fol-General corporate assets consist primarily of cash, short. lows: 1989, 56,260,792; 1990, 55,172,650; 1991, term investments and office furniture and fixtures. 54,720,134 ; 1992, 52,638,61 1 ; 1993, 51,583,911 ; and thereafter,52,533,818. Rental expenses for the years 1988,1987, and 1986 were 55,650,000,53,100,000 and $2,370,000, respectively, i

15. Supplementary income Stateauent Information l.

Supplementary income statement infarmation is as follows: j be rnded twember 31 (Dollars in thouunds) 19N8 1987 1986 Maintenance and repairs 54,953 53,742 53,585 Franchise, property and other taxes $2,844 51,696 51,618 l ! O. 11NC incorpceted and Subsuliar,es Notes to Consolidated Financial Statements, continued . The following tables set forth certain information of certain products and services by industry segment in with respect to each segment of the Company's continu. prior years has been restated to conform to the 1988 h ' ing operations during the past three years. The grouping presentation. Year Ended December 31, (Dollars in tiiousands) 1988 1987 1986 Revenues Aerospace / Aviation $223,220 $175,672 5133,746 Technology 177,224 179,938 120,011 $400,444 $355,630 $253,757 Operating income Aerospace / Aviation $ 24,030 $ 13,376 $ 13,904 Technology 10,683 14,925 12.632 34,713 28,301 26,536 Corporate items (10,331) (10,481) (8,815) Interest expense (net t.f interest income) (15,772) (9,647) (6,912) Earnings from continuing operations before income axes $ 8,610 $ 8,173 $ 10,809 Identifiable amts Aerospace / Aviation $254,927 $188,467 $163,128 Technology 119,688 96,810 85,025 Other 413 Corporate 19,115 20,107 25,212 Discontinued operations 14,257 135,016 135,185, $407,987 $440,400 $408,963 Depreciation and amortization expense Aerospace / Aviation 5 6,675 $ 4,447 $ 5,035 Technology 3.897 2,778 2,256 Corporate 739 183 158 Discontinued operations 9,836 9,194 8,370 $ 21,147 5 16,602 $ 15,819 Capital additions Aerospace / Aviation $ 5,349 5 3,555 $ 9,465 Technology 23.966 7,604 5,828 Corporate 251 1,269 114 Discontinued operations 11.437 13,745 11,846 5 41,003 $ 26,173 $ 27,253 Sales to federal government Aerospace /Avution $ 28,817 $ 15,321 5 6,404 Technology 176,231 179,497 120,011 Di. continued Operations 11,141 124,109-194,793 $216,189 $318,927 $321,208 Sales to foreign countries Continuing operations $ 36,196 5 31,364 $ 24,001 Discontinued operations 32,372 37,562 38,859 $ 68,568 $ 68,926 5 62,860 0 28

18. Quarterly Summary (Unaudited) 7v Ilret second Third fouri hg (Dollars,n thou ands encept per share amounts)

Quarter Quarter Quarter Quarter Year Year Ended December 31,1988 Revenues $98,445 $98,351 $100,785 $102,863 $400,444 Operating income 3,503 6,673 3,813 6.776 24,767 Earnings from continuing operations 2,008 2,866 1,439 1,401 7,714 Earnings from discontinued operaticms 3,092 (148) 368 8,909 12,221 i Earnings before cumulative effect of change in accounting I principle $,100 2,718 1,807 10,310 19,93$ l l Net earnings 9,015 2,718 1,807 10,310-23,850 1 Primary earnings per share Continuing operations .12 5 .17 .09 .08 5 46 Discontinued operations .19 (.01) .02 .33 .73 Net earnings .34 .16 .11 .61 1.42 Tully diluted earnings per share Continuing operations S .12 16 .08 .08 .44 Discontinued operations .18 (.01) .02 .31 .70 Net earnings .52 .15 .10 .59 1.36 Year Ended December 31,1987 Revenues $ 82,911 $87,891 5 90,169 $ 94,639 $335,630 Operating income 4,726 4.533 4,677 4,126 18,084 Earnings from continuing operations 1,304 1,257 1,075 1,30$ 4,941 Earnings from discontinued operations 1,60$ 1,410 1,811 1,107 5,933 Earnings before extraordinary item 2,909 2,667 2,886 2,412 10,874 Net earnings 5,033 4,616 3,034 3,374 18,077 Primary earnings per share 7,\\ / Continuing operations 5 .09 .08 .06 .08 .31 b Discontinued operations .10 .09 .11 .06 .37 Net earnings .33 .29 .30 .20 1.12 Fully diluted earnings per share Continuing operations 5 .08 .08 5 .06 .08 .29 Discontinued operations .10 ,08 .10 .06 .35 Net earnings .31 .28 .28 .19 1.07 2 Certain previously published quanerly financial data The founh quaner of 1988 includes a gain on have been restated as the result of the decision to discon. the disposal of the Telecommunications business (see tinue the Company's Telecommunications business (see Note 3). Note 3). Net earnings for each quarter in 1987 include an Net earnings for the first quarter of 1988 include the extraordinary item representing the tax benefit of net cumulative effect of a change in accounting principle operating loss carryforwards from prior years, a reflecting the adoption of SFAS No. 96, included in dis-Included in earnings from continuing operations in continued operations in the first quarter of 1988 was a the fourth quarter of 1987 were earnings of $0.7 million gain on a litigation settlement and the $3.0 million from the sale of aircraft engine parts and equipment reduction of certain accrued contingent liabilities, inventory. a [%)- J l 29 5

Report ofindepende::t Certsfied Public Accourtants The Board of Directors and Shareholders i UNCincorporated: h We have audited the consolidated balance sheets of UNC Incorporated and subsidiaries as of December 31,1988 cnd 1987 and the related consolidated statements of c:rnings, changes in shareholders' equity and cash flows for each of the years in the three-year period ended .i December 31,1988. These consolidated financial state-ments are the responsibility of the Company's manage-ment. Our responsibility is to express an opinion on t these consolidated financial statements based on our udits. We conducted our audits in accordance with gener-cily accepted auditing standards. Those standards I require that we plan and perform the audit to obtain rea-sonable assurance about whether the financial statements cre free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An cudit also includes assessing the accounting principles and significant estimates made by management, as well ts evaluating the overall financial statement presenta- ? tion. M believe Iliat our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements i referred to above present fairly, in all material respects, the financial position of UNC incorporated and sub-h sidiaries at December 31,1988 and 1987, and the results of their operations and their cash flows for each of the years in the three year period ended December 31,1988, in conformity with generally accepted accounting principles. As discussed in Note 11 to the consolidated finan-cial statements, the Company adopted Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes in 1988. PEAT MARWICK MAIN & CO. Washington, D.C. February 6,1989 l O '30

Directors 1 w y ~ k k ~ 4 4 .a... g t 6 %' alter 4. Holines, Jr. IredernL Aleg Allan it Allan linmitri John K. Castle Dan 4. Colus9 I 4'M ' ( 'batrmart of I 4's President of.Allan 14t. ' Ilenrs I ord 11 IYh6 Pressdent and I 961

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Corporate Officers Shareholderinf:nnation Dan A.Colussy Annual Meeting Ivesident and Chirf Executine Officer The annual meeting of the shareholders will be held at 10:00 %rnon E. Hux A.M. on Friday, April 28,19N, at the Ramada Inn,173 Group Vice President, Arrospace Jennifer Road, Anr.apolis, Maryland 21401. Nicholas C. Kaufman Common Stock Group Ykrlyrsident,3rcknology The com non stock of UNC incorporated, a Delaware Marc R.jartman awpcention, is hued on the New York, Midwest, Pacific and Vice President Gosernment N/ airs and Marketing International Stock Exchanges. The stock exchange symbolis - UNC. The Corporation appears in the New York Stock Richard H. Lange Exchange composite listing as UNC. Vicc 14esblent, General Counseland Secretary Market Price Data Paul L McLain The principal market for the common stock of UNC Vice ivrsident,1:inancial Control' incorporated is the New Wrk Stock Exchange. The common - Robert L. Pevenstein stock is also listed on the Pacific, Midwnt and International Vice Ivesident I:inam e and Chief hnancial Officer Stock Exchanges. At December 31,1988,there were 9,766 11ruce R. Robinson imidns of record of common suick. The accompanying able Vice President, Corporate Deartopment simws the high and low prien for UNC's aimmon stock in the periods indicated. See Note 6 of Notes to Consolidated Gregory M. liubb 17inancial $tatements for a dneription of rntrictions on the Treasurn payment of dividends. 1938 1987 Operating Units g,,,,,,,y ig, u,, g,,3 i,, March 31 $ H.63 $$.kB $11.00 18.25 Junc30 111.23 57.73 510.73 $R.88 UNC Aerospace Group september 30 $10.3s 19.50 $13.63 59.75 Wrnon E. Hux, Chairman December 31 110.50 57.63 512.HR $4.30 james W. I aris, President Tri Industnes, Terre Haute,1N (812)234 1591 ,I.ransfer Agent and I egistrar Robert P. lcrenri, President Manufacturers Hanover Trust Co. is the transfer agent and Norwich Dnision, Norwich, CT (203)R23 6500 registrar for UNC incorporated Common Stock. Notices Serafin Montes, President regarding changes of addrns, lost or stolen stock certificates Alloy Spot Wciders, W: 1 os Angeln, CA (213)272 0297 and transfers of stock, other than a purchase and sale which William M. Lund, Vice lycsident muu be handled through a broker. should be directed to Component Repair Dis ision, Terre Haute, IN (812)234 1591 Manufacturers Hanover Trust Co., Secunties llokler Relatim Dept.,450 ht 33rd $treet, New York, NY 10001 Tilephone UNC Aviation Group (212)613 7147. Robert D. Iloyne, President Airuttk Corporation, Millville, NJ (609)R25-6000 Reports Additinnalinformation, including copies of UNC's Iorm 10 K Ronald 1.. Yates, Presidcut Pac @c Airmotive Corporation, ilurbank, CA (818)R42 5171 Annual Report filed with the Securities and Exchange Commission, and shareholder publications including Annual James A. Willis, Vice President, General Manager Reports, Quarterly Reports and Proxy Statements, may be Aircraft Turbine Sen' ice,llayshore NY($16)242-4330 obtained without charge from Investor Relations, UNC UNC Technology Group incorporated,175 AdmiralCochrane Drive, Annapolis, - Nicholas C. Kaufman, President Maryland 21401 73 >4. Telephone (301) 266-7333, UNC Nasul Products, Uncasville, CT (203)S48-1511 Investor Relations Paul V. Roundy !!!,lvesident David L. Dragics' Dirccior oflmestor Relations i UNCSupport Sen. ices, Annapolis, MD (301)266-1380 Telephone (301) 266-7333 1.eemard A.Pasquini, President independent Accountants UNC AnalyticalSenices, Albuquerque,NM(505)R83 6901 Peat Marwick Main & Co. John R. liolliger, President 2001 M $treet, N.W. UNC Grotech, Grand junction, CO (303)242-8621 WaMnguin, D.C. 20036 Steven R. Morgan,14csident UNC R eclamation Mulberry, I'L (813)428 1457 Thomas L. Dabrowski, JYrsident UNC Remediation, Grand Junction, CO (303)243-8970 'L 32

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