/\rl~IC I ! PROPERTY OF "(HE EATIlE PUBLIC UBRA~

ANNUAL REPT~·

BUSINESS & ECONOMICS PRESIDENT'S MESSAGE

For all eleven years of its operation, your interested in the details of the debentures and Company has finished each fiscal year in a the facts reported to the Securities and Ex­ stronger financial position than the last. In the change Commission are referred to the pros­ same period, the Company has become nation­ pectus related thereto. ally recognized as a leading supplier of com­ Our dynamic industry continues to experience plete automatic control systems and control rapid growth and change. A sizeable portion devices for both military and commercial of the Company's effort continues to be applied applications. We are looking toward our future toward increasing our design technical skills with optimism and assurance. and engineering test facilities.

The past year has been an eventful one in Recent additions to our testing laboratory in­ Company operations and a successful one from clude a radiation test chamber and an expanded the earnings standpoint. Probably the out­ air flow testing section. The air flow test sec­ standing highlights of the year were the 92% tion will be further increased to provide the increase in sales from $6,112,233 last year to necessary capability to match our increasing $11,680,119 and the increase in earnings from participation in space environmental control $363,596 to $696,817. Employment increased systems. from 673 to 880 and plant area from 73,000 square feet to 91,000 square feet. During the year, the Company completed the first phase of a special management training In February, the need for additional funds to course designed to utilize more fully the capa­ finance the Company's increasing volume of bilities of its key personnel. Of particular inter­ business prompted the Directors to authorize est is the planned expansion of sales programs public issue of 200,000 shares of common to establish a wider base for both foreign and stock. At $14 per share this issue was quickly domestic sales and service. oversubscribed, and subsequent trading over the counter has been brisk. The Company has Confidence in United Control employee­ over 2,000 individual stockholders, including company relationships was reaffirmed by the 23% of the company employees. A number production employees when, in a National of investment trusts and insurance companies Labor Relations representation vote on Octo­ have included stock of the Company in their ber 15, 1959, their vote against union repre­ portfolios, adding further strength and prestige sentation was in excess of 3 to 1. to its continuing high marketability. The Com­ pany is currently concluding with underwriters I wish to thank the officers and employees of the sale of $2,500,000 in convertible subordi­ the Company, whose loyal and diligent efforts nated debentures, much of which will be used have made possible a successful year's opera­ to construct a new plant and to provide for tions and are contributing to United Control's increased product development. Those who are continuing progress.

Sincerely yours, ~~~

LOUIS P. HANSON, President PRINCIPAL DIRECTORS: OCCUPATION:

William E. Boeing, Jr. President and Director, Mesabi Western Corporation Jake GraybeaL. .. __ .... _.. _._yice.President, United Control Corp. Louis P. Hanson. __ ._ ... __ ._ .. _.President, United Control Corp. Paul W. Kitto_ .... _.. _._._ ... _...Vice·President, Pacific National Bank 0/ Seattle Martin K. Lilleberg_. . Vice·President, United Control Corp. Eugene A. Shurtleff._... . Vice·President, Blyth & Company, Inc. Howard H. Suskin_._. Treasurer, United Control Corp.

OFFICERS: Louis P. Hanson .__ .. .President

Howard H. Suskin._ .. .. _. __ Treasurer and General Manager Martin K. LilIeberg. .__ ._._Vice.President

Jake GraybeaL_ .. _._ .. __... _.. _.Yice·President

Albert M. Bledsoe..... _._._._. Secretary and Director 0/ Public Relations

TRANSFER AGENT: Pacific National Bank of Seattle

REGISTRAR: National Bank of Commerce, Seattle

AUDITOR: Lybrand, Ross Bros. & Montgomery, Seattle

SPECIAL COUNSEL: Holman, Mickelwait, Marion, Black & Perkins, Seattle

COUNSEL: Merle D. Cohn, Seattle HOWARD H. SUSKIN, JAKE GRAYBEAL, MARTIN K. LILLEBERG, JOHN M. MIX, Treasurer and General Manager Vice President Vice President Manager, Sales Department

$10

$9

$8

Sales growth reflects the $7

degree of success achieved $6 in a dynamic and highly $5 competitive industry. The insignia of United Control Corporation will be found on equipment installed in many areas on today's high-performance aircraft and missiles. On aircraft, equipment manufactured by the Company is located in crew, passenger and equipment compartments, and is an inte­ gral part of electrical, hydraulic and pneu­ Aero Italiane, Internationali Lockheed Aircraft Service, Inc. matic systems. For missiles, the Company Air France The Martin Company supplies systems and accessories used in the Air India International Corp. McDonnell Aircraft Corporation guidance, fuel storage, power plant and acces­ AiResearchAviation Service National Airlines sory power area. American Airlines, Inc. Norair Div. of Northrup Corp. Atlantic Aviation North American Aviation, Inc. Our reputation for product design integrity, Avco Manufacturing Corporation Northwest Airlines, Inc. quality and reliability, on-time delivery and Avro Aircraft Limited Olympic Airways Beckman Instruments, Inc. competitive cost - all contribute to new sales Pacific Airmotive Corporation Beech Aircraft Corporation Pan American World Airways, Inc. and the successful introduction of new prod­ Bendix Products, Bendix Aviation Corp. Philippine Air Lines ucts. The chart illustrates the broad areas of Benson Mfg. Company Qantas Empire Airways Limited use for which United Control has designed These are representative of the numer­ Boeing Airplane Company Raytheon Co. and sold nearly 500 different· products over ous commercial and military air and Braniff International Airways Republic Aviation Corporation BritiEh Overseas Airways Corporation the past four years. space vehicles equipped with prod­ Royal Dutch Airlines (KLM) Canadair Limited Rohr Aircraft Corporation ucts from United Control Corporation. Marketing of United Control's diversified Canadian Pacific Airways Sabena Belgian World Airlines CeEsna Aircraft Co. products is accomplished by application engi­ Scandinavian Airlines System Chance Vought Aircraft Sikorsky Aircraft Corporation neers in the field, supplemented by syst~ms Continental Airlines South African Airways Convair, A Division of analysts and product design specialists from Sperry Gyroscope Company General Dynamics Corp. the home office as required. Unusual problems Stratos-Division of Fairchild Engine Cubana are met by designating a special technical and Airplane Corp. Curtiss-Wright Corp. Swedlow, Inc. "task force" to integrate the skills of all de­ Delta Airlines Swissair partments of the Company into a unified effort. Deutche Lufthansa Temco Aircraft Corporation Douglas Aircraft Company, Inc. Trans-Canada Air Lines This year marked a significant gain in the ._~ ~'"""_ Eastern Airlines 5'- .. '--._ __-;::. Trans-World Airlines, Inc. Company's commercial sales volume, up from Erco Division, ACF Industries, Inc. \ ~.....-- '" Transport Aeriens Intercontinenoux .... Foote Brothers 8% in 1958 to the current level of about 15% Union Aeromaritime de Transport VALVES, ACTUATORS, SOLIO STATE ELECTRICAL of total sales. Today's most advanced com­ Grumman Aircraft Engineering CONVERTERS AND OTHER PRODUCTS .~ IKORSICYI"_'~I' ..... _ Corporation United Air Lines LIQUID LEVEL SWITCHES AND THERMAL SWITCHES mercial aircraft utilize United Control prod­ Hughes Tool Company United States Air Force ucts specified by the original manufacturers Irish Air Lines United States Army for use by foreign and domestic airlines. In­ Japan Air Lines United States Navy Kaman Aircraft Corp. Yard Incorporated cluded in this growing list are: BOEING 707, Varig Airlines, Inc. CANADAIR CL-44, DOUGLAS DC-8, NORTH AMERICAN Link Aviation, Inc. SABRELINER, CONVAIR 880, GRUMMAN GULFSTREAM AND Lockheed Aircraft Corporation Vertol Aircraft Corp. SIKORSKY HELICOPTERS. ENGIN£ ERING AND DEVEL OPMEN r

The Company's engineering department in­ cludes design specialists in both electrical and mechanical engineering, supported by quali­ fied experts in electronic circuit theory, ther­ modynamics, performance analysis, reliability and design evaluation. Because of the rapid advancement in many fields effecting the tech­ nologies used in design, the Company's re­ search and development staff also includes chemists, metallurgists, physicists and radi­ ologists...... During the past year, research and develop­ ...... \. ment efforts have contributed to advances in ...... 'J.~, •••:." • .., product capability in warning systems, tem­ J'J•••,...fi...'1J ' ~ ­ perature controls, environmental control sys­ ~...... tems and servo systems...... " ... The design and development of new basic "building blocks" for use in new products is a major aspect of the Company's research and - development. These building blocks include improved transducers, amplifiers, actuating devices and solid-state components. During the year, new products in this category have included a transistorized servo amplifier, a modulating cryogenic valve, proportional power magnetic amplifiers and cooling effect ADJUSTING AIRFLOW IN NEW FACILITY transducers. Specialists are engaged continuously in im­ proving electronic packaging designs, evalua­ tion of new plating and finishing techniques, and development of improved assembly and fabrication processes. United Control planning provides an environ­ ment that continues to attract and retain out­ standing engineering talent. These capable scientists and engineers will continue the Company's research and development efforts during the coming year. _ANT A r

Present plant facilities are contained in twelve buildings in a quarter-mile radius. Facilities and capabilities include:

ENGINEERING MODEL SHOP

SHEET :\IETAL AND MACHINE SHOPS

SUB-ASSEMBLY AREA

FINAL ASSEMBLY AREA IRIDITING ALUMINUM SUB·CHASSIS INSPECTION OF TEMPERATURE SENSORS TEST INSTRUMENTATIO:'I' Design, calibration and maintenance

ENVIRONMENTAL TESTING Vibration, altitude, shock, temperature, acceleration, humidity, rain, sunlight, radiant heat, immersion, and accelerated corrOSlOn.

PROCESSES Engraving, photo engraving, plating, ano­ dizing, iriditing, silk screening, printed circuitry, hermetic sealing, vapor and ultrasonic degreasing, steel pickling, painting, plastic molding and encapsu­ lation.

Analog computer facilities, costing approxi­ mately $100,000, simulate the operation of systems and components for boost-glide ve­ hicles and space craft. Twenty current develop­ ment programs from single items to complete major systems include:

In-Flight Propellant Utilization - Gyro Temperature Control- Space Vehicle Environmental Control­ Cooling Effect Control- Signal Conditioners and Data Converters -lee Detection - Guidance Control and Fuel Management - Solid-State Switching­ Longitudinal Stability Margin Control- High Tem­ perature Transducers - Static Electrical System Accessories - Propellan t Loading Systems - Ad­ vanced Warning Systems - Field Support and Service Equipment. To the· Board of Directors ASSETS United Control Corporation Current assets: 1959 1958 Seattle, Washington Cash . $ 558,784 $ 441,121 We have examined the balance sheets of UNITED CON· TROL CORPORATION as of August 31, 1959 and 1958 and Receivables from customers, including termination claims of $182,540 and the related combined statements of earnings, capital sur· for and respectively . 3,137,845 1,173,284 plus and earnings retained in the business for the years $87,769 1959 1958, then ended all of which include the effect of the merger Inventories, at lower of cost or market: on November 28, 1958 with Camp Enterprises, Inc., Union Raw materials and purchased and fabricated parts . 1,281,096 1,268,443 Bay Building Company and Olip Building Corporation. Owing to the fact that we were engaged to make our orig· Work in process .. 1,362,095 1,280,714 inal examination in 1958. we were not present at the time physical inventories were taken as of August 31, 1957, nor Finished goods . 118,784 58,121 were we able to apply alternative auditing procedures with Prepaid expenses and deposits . 28,896 11,136 respect to such inventory quantities. However, our exam· ination disclosed no information which would lead us to Total current assets . 6,487,500 4,232,819 believe that that inventory and the cost of goods sold arc not fairly stated. In all other respects our examination was Investments in common stocks, at cosL .. 40,704 21,000 made in accordance with generally accepted auditing standards, and accordingly included such tests of the' Property, plant and equipment, at cost: accounting records and such other auditing procedures as 30,000 30,000 we considered necessary in the circumstances. Land . In our opinion, the accompanying financial statements Land held for future plant site . 325,414 316,714 present fairly the financial position of United Control Buildings . 184,188 105,554 Corporation at August 31, 1959 and 1958 and, with the explanation in the preceding paragraph as to the limitation EquipmenL . 534,348 308,647 on inventory examination, the results of operations for the years then ended, in conformity with generally ac· Leasehold improvements . 34,979 93,946 cepted accounting principles applied on a consistent basis, Construction in progress . 21,591 except for the changes described in the note to the financial statements entitled "Changes in Accounting Methods" with 1,130,520 854,861 which changes we concur. Less, allowance for depreciation and amortization . 300,9<)5 211,344 LYBRAND, ROSS BROS. & MONTGOMERY 829,525 643,517 Seattle, Washington November 2, 1959 Deferred charges and other assets . 113,686 52,858 $7,471,415 $4,950,194

CAPITAL AND PRINCIPLES OF COMBINATION combined results of operations of the individual constituent charging such items to costs and expenses when issued from During November, 1958, the following business combinations were companies. central stores; effected by and between United Control Corporation (the Company) , (d) The authorized capital stock of the Company was changed (2) Deferred charge accounting for the costs of tools and dies Camp Enterprises, Inc. (Camp), Union Bay Building Company on November 29,1958, from 1,500 shares of $100 par value com· whereby such costs are amortized over the expected production (Union Bay), and Olip Building Corporation (Olip) : mon voting stock to 1,500,000 shares of $1 par value common period of the related product rather than charged to costs and (a) The original stockholders transferred to the Company, as voting stock, a.nd 450,000 shares of the new stock were there· expenses as incurred; a contribution to capital on November 21,1958, (1) the indebt· after issued to the original stockholders of the Company in (3) Deferred charge accounting for vacations (which were edness of Camp t0 them for fees and commissions totaling exchange for their 584 shares of the old stock. In connection earned to a greater than average extent during the first eight $59,681, and (2) all of the outstanding shares of capital stock with this stock split, $391,600 of earnings retained in the busi· months of the calendar year 1959, by reawn of overtime hours of Camp, which shares had been acquired by them on October ness was capitalized. worked), whereby the accruals for the costs thereof are amor· 31, 1958. tized equally over the months of the year, rather than charged CHANGES IN ACCOUNT CLASSIFICATIONS (b) On November 28, 1958, 48 shares of the Company's $100 to costs and expenses as accrued. par value common stock were issued to the original stockholders Effective September 1, 1958, the Company adopted a completely of the Company in exchange for all of the outstanding shares revised chart of cost and expense accounts. The revisions preclude As a result of the foregoing changes in accounting methods, the net of stock of Union Bay. precise compariwns of the respective classifications of costs and earnings for the year ended August 31, 1959, after provision for income taxes, were approximately $101,950 greater than they would expenses for the year ended August 31, 1959, with the preceding (c) Further on November 28, 1958, Camp, Union Bay and Olip have been had the methods not been changed. were merged into the Company under circumstances that, for year. However, these revisions have no significant effect on the accounting purposes, warranted treatment of the merger as a determination of net earnings. NOTE PAYABLE TO BANK pooling of interests. This means (1) that for balance sheet pur· The Company's bank credit agreement providing for a maximum CHANGES IN ACCOUNTING METHODS poses the assets, liabilities and earnings retained in the business line of credit on a revolving fund basis of $2,000,000, subject to as reflected on the books and records of the merged companies During 1959 the Company adopted the following changes in account· certain limitations, expires December 31, 1959. The Company's are carried forward in the same amounts to the surviving com· ing methods: customers' accounts receivable have been assigned to the bank as pany, and (2) that the statement of earnings includes the 0) Inventory accounting for engineering stores instead of collateral. LIABILITIES Current liabilities: 1959 1958 Notes payable: Bank . $ 792,244 $1,098,209 Current installments of long-term debL __ ._. __ ..__ . ._. _ 18,056 51,821 ---- 810,300 1,150,030 Accounts payable, trade . .. ._. __ 587,755 1,100,518 UNITED Accrued salaries and wages_. . . ._...... 296,007 187,353 CONTROL Contribution to profit-sharing retirement trusL .__ ... ._ 176,760 126,288 Federal taxes on income ._...... _... 711,000 651,741 CORPORATION Other accrued taxes and expenses .. _ 62,958 56,255 BALANCE SHEETS Total current liabiIi ties __ . .. 2,644,780 3,272,185 Long-term debt, less current installments above_. ..__ .._ 115,617 146,073 August 31, 1959 and 1958 Accrued compensation due officers_...... _. __ ._. _ 382,069 367,235 Commitments and contingencies (See Note)

CAPITAL Common stock: $1 par value, authorized 1,500,000 shares, outstanding 650,000 shares ._ 650,000 $100 par value, authorized 1,500 shares, outstanding 584 shares ._ 58,400 Capital surplus as annexed . .__ .. _ 2,340,512 73,081 Earnings retained in the business, as annexed ..__ .. .. _ 1,338,437 1,033,220 4,328,949 1,164,701 $7,471,415 $4,950,194

(The accompanying notes are an integral part of the financial statements.)

The Company has for the calendar years 1951 through 1958 author­ LONG-TERM DEBT year ended August 31, 1956. In connection therewith, the Service ized salaries for its officers in excess of the amount permitted to be These obligations consist of the following: has asserted income tax deficiencies against the Company for the disbursed under the applicable credit agreements, which limitations Interest Maturity August 31, August 31, three years ended August 31, 1956, totaling approximately $87,000 were removed, effective January 1, 1959, as to future compensation. Description Rate Date 1959 1958 plus interest of $20,000, the basis of the deficiencies being the dis­ The Company's indebtedness to officers for such accrued but unpaid Mortgage note to bank allowance as a deduction of accrued but unpaid officers' compen­ compensation is subordinated under the credit agreement in the (paid January, 1959) .. . 5% Feb. 10,1960 5 31,833 sation. The Company is protesting the position of the Service and Real estate installment on November 5, 1958, filed a petition in The Tax Court of the United aggregate amount of $382,069. purchase contracts... . 6 Various 8119,858 150,999 No dividends, except dividends payable in the form of shares of Real estate installment States. Should the position of the Service be upheld the Company stock of the Company, may be declared or paid without the written purchase contracts...... 5 Aug. I, 1968 13,815 15,062 may be subject to further similar disallowances for the three years consent of the bank. The Company is required to maintain a ratio Totals.. _ 5133,673 5197,89-1 ended August 31, 1959, with additional tax deficiencies and accrued of 1.75 of current assets to 1 of current liabilities, including as a Less current installments..... 18.056 51.821 interest aggregating approximately $58,000 at August 31, 1959. In current liability the principal amount of balance due bank under Non-current portion... 5115.617 5146,073 the opinion of Merle D. Cohn, counsel for the Company, the Com­ pany will be successful in this matter, and therefore no provision the credit agreement. COMMITMENTS AND CONTINGENCIE'S has been made in the accounts for any deficiencies arising from the PROFIT-SHARING RETIREMENT PLAN Sales recorded prior to September 1, 1957, subject to the provisions Effective September 1, 1957, the Company established a qualified position of the Service. The federal income tax returns of Camp, of the Renegotiation Act of 1951, as amended, have been reviewed Union Bay and OJip (now merged) have not been examined and trusteed non·contributory profit-sharing retirement plan for its em­ by the Renegotiation Board and, in the absence of unusual circum­ ployees under which the Company contributes annually a varying reported upon by the Service, but the Company management does stances, renegotiation proceedings were waived. Sales recorded since percentage of its net earnings before payment of corporate income not believe that any final determination of tax liabilities against taxes. Under the plan the payments during the past two years have that date remain subject to review, but the Company management these three companies will have a material effect upon the financial been restricted to an overall limitation of 7%% of the total annual believes that no refund will be payable, and that no unusual circum­ position of the Company. straight-time payroll for all participants. Employees who are at least stances have occurred or will occur to reopen any prior years. See the President's message concerning the proposed sale of con· 21 years of age and complete one year of continuous employment The federal income tax returns of the Company have been examined vertible subordinated debentures and use of the proceeds thereof become participants. and reported upon by the Internal Revenue Service through the in connection with a building program. COMBINED STATEMENTS for the years ended August 31, 1959 and 1958

EARNINGS: PEOPLE 1959 1958 Sales, less returns and allowances . $1l,680,1l9 6,1l2,233 Costs of goods sold . 7,708,758 3,422,832 Through partial tuition reimbursement for Gross profit . 3,971,361 2.689,401 Research and development . 915,140 861,660 approved outside educational courses, per­ Field servicing and rework 27,605 81,650 sonnel are encouraged to improve their skills. Selling, general and administrative . 1,430,716 830,969 2,373,461 1,774,279 Entry-worker training classes, in-plant "crafts­ Operating income after provision for depreciation and amortization of man schools" and supervisor courses also are $89,651 in 1959 and $86,968 in 1958 . 1,597,900 915,122 conducted. Promotions are from within the Other deductions: Interest.. . . 53,490 54,203 Company whenever feasible. Contribution to employees' profit·sharing retirement trust... 177,095 127,288 Miscellaneous...... 4,848 230,585 186,339 Earnings before provision for federal income taxes...... 1,367,315 728,783 Federal income taxes : . 670,493 365,137 Net Earnings.. .. 696,317 363,596 Net earnings per share of common stock (1). $ 1.27 $ .31

(l) :'Jet earnings per share gives effect to the Ch~ln~l' of previnusly outstanding stuck at August 31,1958 in In ~50.000 shares at NO\,('lllbef 30, 1958. and the issuance of 200.000 shan's for c,lsh at the cnd of February, 1959; i.c., 4!lO.OOO shares for 1958, and 550,000 shares for 19!19, which represents the weighted average of the number of shares outstanding ('aeh month during such year.

CAPITAL SURPLUS: 1959 1958 Balance at beginning of year . $ 73,031 TRAINING UPGRADES SKILLS Contribution to capital by the original stockholders of the Company of certain indebtedness of Camp Enterprises, Inc . $ 59,681 In 1957, the Company established a non-con­ Amounts remlting from mergers of Camp and Union Bay Building Company, tribut~ry employee profit-sharing retirement treating such mergers as a pooling of interests: Capital stock of Camp (contributed) . . 10,200 program which qualifies under the Internal Excess of amount in nion Bay capital stock account ($8,000) over par value ($4,300) of Company's stock issued in exchange therefor..... 3,200 Revenue Code. Any employee 21 or over who Excess received from sale of 200,000 shares of capital stock over par value has completed a full year of employment is thereof ($2,600,000) less expenses of issue ($332,569) . 2,267,431 eligible. Company contributions are directly Balance at end of year . $ 2,340,512 $ 73,081 related to profits, not to exceed 71/2'70 of the total straight-time earnings of the participants EARNINGS RETAINED IN THE BUSINESS: in anyone year. Shares are held in trust and Balance at beginning of year . $ 1,033,220 $ 669,624 invested, to earn interest for the participant Add, net earnings for the year per accompanying statement.. . 696,317 363,596 1,730,037 1,033,220 until his retirement or separation. Current Less, transfer to capital stock as authorized by the Board of Directors in connec- tion with recapitalization...... 391,600 share value averages approximately $793. for Balance at end of year . $ 1,338,437 $1,033,220 each two-year participant.

(The accompanying notes are an integral part 0/ the financial statements.) TOMORROW'S CHALLENGE

Today's technology moves infinity a little closer. Tomorrow's will bring it nearer still, because of man's need to know.

On man's first dramatic flight into space, electronic controls will meter the air he breathes, register the conditions he encounters and guide him safely home.

Electronic controls offer exciting promise also in home and hospital, farm and factory, bringing new dimensions to your life ... to make it both longer and more dynamic.

United Control Corporation is privileged to be a part of this progress.