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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

--------------------
FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 2003
--------------------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934


For the transition period from ____________________ to _______________________

Commission file number #1-4252

UNITED INDUSTRIAL CORPORATION
(Exact name of registrant as specified in its charter)



Delaware 95-2081809
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)


570 Lexington Avenue, New York, NY 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices)


Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such report), and (2) has been subject to such filing requirements for
the past 90 days.

Yes X No
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)

Yes (X) No ( )

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 13,070,918 shares of common
stock as of May 1, 2003.





UNITED INDUSTRIAL CORPORATION




Index

Page
----

Part I - Financial Information

Item 1. Financial Statements

Consolidated Condensed Balance Sheets - Unaudited
March 31, 2003 and December 31, 2002..............................................................1

Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2003 and 2002 .......................................................2

Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002........................................................3

Notes to Consolidated Condensed Financial Statements..............................................4


Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................................................13


Item 3. Qualitative and Quantitative Disclosures
about Market Risk................................................................................18


Item 4. Controls and Procedures..........................................................................18


Part II - Other Information.........................................................................................20









PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)

March 31 December 31
2003 2002
--------- ---------
(Unaudited)

ASSETS
Current Assets
Cash and cash equivalents $ 6,023 $ 3,635
Trade receivables 32,151 37,688
Inventories
Finished goods & work-in-process 13,915 19,515
Materials & supplies 1,417 1,436
--------- ---------
15,332 20,951
Federal income tax receivable 15,128 15,509
Deferred income taxes 4,528 4,528
Prepaid expenses & other current assets 1,444 1,351
Assets of discontinued operations 16,571 14,042
--------- ---------
Total Current Assets 91,177 97,704
Deferred income taxes 10,906 11,531
Other assets 7,875 7,421
Insurance receivable - asbestos litigation 20,343 20,343
Property & equipment - less allowances
for depreciation (2003 - $86,666;
2002 - $86,400) 21,221 21,196
--------- ---------
$151,522 $158,195
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 10,449 $ 11,711
Accrued employee compensation & taxes 9,001 12,043
Customer advances 5,227 6,211
Reserve for contract losses 2,367 2,050
Other current liabilities 2,271 3,682
Liabilities of discontinued operations 10,457 11,513
--------- ---------
Total Current Liabilities 39,772 47,210
Other Long-term Liabilities 23,148 23,226
Minimum Pension Liability 9,735 8,276
Reserve for Asbestos Litigation 31,852 31,852
Shareholders' Equity
Common stock $1.00 par value Authorized - 30,000,000 shares;
Outstanding 13,070,918 shares and 13,067,918 shares -
March 31, 2003 and December 31, 2002
(net of shares in treasury) 14,374 14,374
Additional capital 90,782 92,085
Retained earnings (deficit) (15,590) (16,254)
Treasury stock, at cost, 1,303,230
shares at March 31, 2003 and
1,306,230 at December 31, 2002 (10,289) (10,312)
Accumulated other comprehensive loss (32,262) (32,262)
--------- ---------
Total Shareholder's Equity 47,015 $47,631
--------- ---------
$151,522 $158,195
========= =========



See accompanying notes



1



UNITED INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)


Three Months Ended March 31
---------------------------
2003 2002
---- ----
(Unaudited)

Net sales $ 72,442 $ 56,867
Cost of sales 58,396 46,062
-------- --------
Gross profit 14,046 10,805

Selling & administrative expenses (11,387) (8,545)
Pension income 136 99
Other operating expense - net (245) (428)
-------- --------

Total operating income 2,550 1,931
-------- --------

Non-operating income and (expense)
Interest income 10 16
Other income 72 -
Interest expense (26) (301)
Equity in net income of joint venture - 58
Other expenses (93) (116)
-------- --------
(37) (343)
-------- --------
Income from continuing operations
before income taxes 2,513 1,588
Income taxes 875 557
-------- --------

Income from continuing operations 1,638 1,031

Loss from discontinued operations - net of income tax credits of $524 and $6,598
for the three months ended March 31, 2003
and 2002, respectively (974) (12,260)
-------- --------

Net income (loss) $ 664 $(11,229)
======== =========
Basic earnings per share:
Income from continuing operations $ .13 $ .08
===== =====
Loss from discontinued operations $(.08) $(.95)
===== =====
Net income $ .05 $(.87)
===== =====

Diluted earnings per share:
Income from continuing operations $ .12 $ .08
===== =====
Loss from discontinued operations $(.07) $(.90)
===== =====
Net income$ .05 $(.82)
===== =====




See accompanying notes



2





UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Dollars in Thousands)

Three Months Ended March 31
2003 2002
---- ----
OPERATING ACTIVITIES
- --------------------

Net income (loss) $ 664 $(11,229)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Loss from discontinued operations,
net of income taxes 974 12,260
Pension expense (income) 1,459 (224)
Depreciation and amortization 1,277 3,662
Deferred income taxes 625 (903)
Increase (decrease) in reserve
for contract losses 317 2
Changes in operating assets and liabilities 4,363 (528)
(Increase) decrease in other assets - net (1,967) 189
Increase (decrease) in long-term liabilities 1,382 (25)
Increase (decrease) in federal income
taxes receivable 381 (2,587)
Equity in income of investee company - (58)
Restructuring charge - 369
-------- --------


NET CASH PROVIDED BY CONTINUING OPERATIONS 9,475 928
NET CASH PROVIDED BY (USED FOR)
DISCONTINUED OPERATIONS (4,559) (5,121)
-------- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 4,916 (4,193)

INVESTING ACTIVITIES
- --------------------
Purchase of property and equipment (1,248) (248)
Capital expenditures for discontinued
operations - (38)
Repayment of advances by investee - 153
Advances to investee - (96)
-------- --------

NET CASH USED FOR INVESTING ACTIVITIES (1,248) (229)

FINANCING ACTIVITIES
- --------------------
Proceeds from exercise of stock options 27 1,060
Dividends (1,307) (1,298)
Proceeds from borrowings - 1,300
-------- --------

NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (1,280) 1,062
-------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,388 (3,360)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,635 5,496
-------- --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,023 $ 2,136
======== =========




See accompanying notes


3


UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

March 31, 2003

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months period ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2002.




NOTE B - SEGMENT INFORMATION - CONTINUING OPERATIONS

Reconci-
(Dollars in thousands) Defense Energy Other liations Totals
------- ------ ----- -------- ------

Three months ended March 31, 2003
Revenues from external customers $65,475 $ 6,967 $ - $ - $72,442
Equity profit in ventures - - - - -
Segment profit (loss) 2,190 751 (428) - 2,513

Income before income taxes $2,513
======

Three months ended March 31, 2002
Revenues from external customers $49,241 $ 7,626 - $ - $56,867
Equity profit in ventures 58 - - - 58
Segment profit (loss) 3,630 (1,880) (162) - 1,588

Income before income taxes $ 1,588
=======






4

NOTE C - STOCK-BASED COMPENSATION

The Company has elected to continue to account for its stock-based compensation
plan in accordance with Accounting Principles Board Opinion No. 25, (Accounting
for Stock Issued to Employees) (APB 25), whereby compensation cost for stock
options is recognized in income based on the excess, if any, of the quoted
market price of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire the stock. Had compensation
cost been determined consistent with the fair value method set forth under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), for all
awards during 2003 and 2002 under the plans, income and income per common share
from continuing operations would have decreased to the pro forma amounts
indicated below:




MARCH 31,
(Dollars in thousands, except per share data) 2003 2002


Income from continuing operations:
As reported $1,638 $1,031
Total employee stock
compensation expense
determined under fair
value method, net of tax (193) (179)
Pro forma 1,445 852
Income per common share from continuing operations: As reported:
Basic .13 .08
Diluted .12 .08
Pro forma:
Basic .11 .07
Diluted .11 .06



The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003 and 2002, dividend yields of 2.0%; expected
volatility of 44%; risk-free interest rates of 4.6%; and expected lives of ten
years. The weighted-average fair value of an option granted was $8.95 for the
year ended December 31, 2002.


5




NOTE D - WEIGHTED AVERAGE SHARES

Three Months Ended March 31
2003 2002
---- ------


Weighted average shares 13,067,918 12,971,101

Dilutive effect of stock options 617,129 650,090
---------- ----------
Diluted weighted average shares 13,685,047 13,621,191
========== ==========


NOTE E - OTHER OPERATING EXPENSES, OTHER INCOME, NET, OTHER EXPENSES

Three Months Ended March 31
2003 2002
---- ----
Other Operating Expenses, Net
Expenses related to closing of subsidiary $ - $(369)
Reduction of deferred compensation liablity 52 -
Amortization of intangibles (55) (59)
Consulting and legal fees related to
Asbestos matters (242) -
------ ------

Total other operating expenses, net $(245) $(428)
====== ======


Other Income
Royalties and commissions $ 14 $ -
Gain on sale of assets 47 -
Other 11 -
------ ------
Total other income (expense) $ 72 $ -
====== ======

Other Expenses
- --------------
Expenses relating to a previously
disposed subsidiary $ - $ (32)
Miscellaneous items, none of which are material (93) (84)
------ ------


Total other expenses $ (93) $(116)
====== ======




6

NOTE F - NEW ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board issued FASB Statement
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.
Statement 148 amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to Statement 123's
fair value method of accounting for stock-based employee compensation. Statement
148 also amends the disclosure provision of Statement 123 and APB Opinion No.
28, Interim Financial Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While the
Statement does not amend Statement 123 to require companies to account for
employee stock options using the fair value method, the disclosure provisions of
Statement 148 are applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using the
fair value method of Statement 123 or the intrinsic value method of Opinion 25.
The adoption of Statement 148 did not have a material effect on the Company's
financial position or results of operations.

In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
Accounting for Assets Retirement Obligations (FAS 143). The statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company adopted the provisions of FAS 143 effective January 1, 2003.
The adoption of Statement No. 143 did not affect the Company's results of
operations on financial position.





7




NOTE G - DISPOSED BUSINESS

Assets and liabilities of the discontinued operations reclassified as current
were as follows:

March 31 December 31
(Dollars in thousands) 2003 2002
---- ----

Assets
Current Assets
Trade receivables $ 329 $ 908
Inventories 7,547 9,013
Prepaid expenses and other current assets 51 51
Deferred taxes 3,034 3,034
-------- --------

Total Current Assets 10,961 13,006
Non Current Assets
Deferred taxes 1,036 1,036
Receivable from investee 4,574 -
-------- --------


Total Assets $16,571 $14,042
======== ========


Liabilities
Current Liabilities
Accounts payable $ 1,454 $ 1,674
Accrued employee compensation and taxes 862 1,052
Customer advances 820 1,087
Provision for contract losses 7,010 7,300
Other 311 400
-------- --------


Total Liabilities $10,457 $11,513
======== ========


Summary results of the transportation segment which have been classified
separately, were as follows:

Three Months Ended March 31
2003 2002
---- ----

Revenue $ 3,482 $ 12,385
======== ========


Loss before income taxes $ (1,498) $(18,858)
Credit for income taxes (524) (6,598)
-------- --------
Net loss from discontinued operations $ (974) $(12,260)
======== ========


Net Cash (Used for) Provided by
Discontinued Operations
Net Loss $ (974) $(12,260)
Changes in operating assets and liabilities (3,295) (10,498)
Increase (decrease) in provisions for
impairment and contract losses (290) 17,637
Other - -
-------- --------
Net Cash Provided by (Used for)
Discontinued Operations $ (4,559) $ (5,121)
======== ========




8

NOTE H - COMMITMENTS AND CONTINGENCIES

The Company is involved in various lawsuits and claims, including asbestos
related litigation and one environmental matter. Except as set forth below,
there have been no material changes in litigation since the Company filed its
annual report on Form 10-K for the year ended December 31, 2002, and except as
set forth below, management believes that the ultimate amount of liability, if
any, under the pending litigation will not have a materially adverse effect on
the Company's financial position, results of operations or cash flows.

Detroit Stoker Company (Detroit Stoker), a wholly owned subsidiary of the
Company, was notified in March 1992 by the Michigan Department of Natural
Resources (MDNR) that it is a potentially responsible party in connection with
the cleanup of a former industrial landfill located in Port of Monroe, Michigan.
MDNR is treating the Port of Monroe landfill site as a contaminated facility
within the meaning of the Michigan Environmental Response Act (MERA). Under
MERA, if a release or a potential release of a discarded hazardous substance is
or may be injurious to the environment or to the public health, safety, or
welfare, MDNR is empowered to undertake or compel investigation and response
activities in order to alleviate any contamination threat. Detroit Stoker
intends to aggressively defend these claims. At this time, no estimate can be
made as to the amount or range of potential loss, if any, to Detroit Stoker with
respect to this action, or whether MDNR will proceed.

UIC and its Detroit Stoker subsidiary have been named as defendants in
asbestos-related personal injury litigation. Neither UIC nor Detroit Stoker
fabricated, milled, mined, manufactured or marketed asbestos. The Company
stopped the use of asbestos-containing materials in connection with its products
in 1981.

The litigation is pending in Michigan, Mississippi, New York, North Dakota and
Wisconsin. During 2002 UIC and Detroit Stoker experienced a significant increase
in the volume of asbestos bodily-injury claims. As of April 30, 2003, the
Company has received notice that it has been named as a defendant in 485 active
cases involving approximately 18,463 asbestos bodily injury claimants, of which
about 450 cases involving some 18,400 claimants were filed before January 1,
2003. Most of these lawsuits do not include specific dollar claims for damages,
and many include a number of plaintiffs and multiple defendants. Based on
historical data and the large increase in claimants over and above the projected
incidence of disease relative to the Company's products, management believes the
claimants in the vast majority of these cases will not be able to demonstrate
that they have been exposed to the Company's asbestos-containing products or
suffered any compensable loss as a result of such exposure. The direct
asbestos-related expenses of the Company for defense and indemnity for the past
five years was not material.



9

During 2002, the Company engaged a consulting firm (Asbestos Consultant) with
expertise in evaluating asbestos bodily-injury claims to work with the Company
to project the amount that the Company would pay for its asbestos-related
liabilities and defense costs. The methodology employed by the Consultant to
project the Company's asbestos-related liabilities and defense costs is
primarily based on (1) estimates of the labor force exposed to asbestos in the
Company's products, (2) epidemiological modeling of asbestos-related disease
manifestation, and (3) estimates of claim filings and settlement and defense
costs that may occur in the future. The Company's limited claims history was not
a significant variable in developing the estimates because such history was not
significant as compared to the number of claims filed in 2002.

Also in 2002, the Company retained another consultant (Insurance Consultant) to
work with the Company to project its insurance coverage, including a non-binding
sharing agreement with certain of its primary insurance carriers that has been
in effect for approximately five years. The Insurance Consultant has prepared a
report evaluating the Company's potential insurance coverage for defense costs
and indemnification for asbestos bodily-injury claims. The Insurance
Consultant's conclusion was primarily based on a review of the Company's
coverage history, application of reasonable assumptions on the allocation of
coverage consistent with industry standards, an assessment of the
creditworthiness of the insurance carriers, experience and a review of the
report of the Asbestos Consultant.

Based on these assumptions, other variables, and the reports of both the
Asbestos and Insurance Consultants that were completed during the first quarter
of 2003, the Company recorded a reserve for its bodily injury liabilities for
asbestos-related matters through 2012 in the amount of $31,852,000 as of
December 31, 2002, including damages and defense costs. The Company also
recorded an estimated insurance recovery as of December 31, 2002 of $20,343,000
reflecting the estimate determined to be probable of being available to mitigate
the Company's potential asbestos liability through 2012. These amounts remained
unchanged during the first quarter of 2003.

Management has concluded that consideration of asbestos-related activity through
2012 represents a period for which a reasonable and reliable forecast of
liability and insurance recoveries can be projected. That conclusion is based
upon a number of factors, including 1) the uncertainties inherent in estimating
asbestos claims, payments and insurance recoveries, 2) knowledge that prior to
2002 the number of claims filed against the Company and the related average
settlement costs were not significant, and 3) consultations with the Asbestos
and Insurance Consultants. Accordingly, the net provision does not take into
account either asbestos liabilities or insurance recoveries for any period past
2012.


10

The Company believes that its ultimate net asbestos-related contingent liability
(i.e., its indemnity or other claim disposition costs plus related legal fees
less insurance recoveries) cannot be estimated with certainty. Projecting future
events, such as the number of new claims expected to be filed each year, the
average cost of resolving each claim, coverage issues among layers of insurers
and the continuing solvency of various insurance companies is subject to many
uncertainties which could cause the actual liabilities and insurance recoveries
to be higher or lower than those recorded or projected, and such differences
could be material. Moreover, were Federal tort reform legislation to be enacted,
the assumptions used in determining the potential liability could be materially
impacted.

After considering the efforts of both consultants and based upon the facts as
now known, including the reasonable possibility that claims will be received and
paid over the next 50 year period, the Company's management believes that
although asbestos claims could have a material adverse effect on the Company's
financial condition or result of operations in a particular reporting period,
asbestos claims should not have a material adverse effect on the Company's long
term financial condition, liquidity or results of operations. No assurance can
be given, however, as to the actual amount of the Company's liability for such
present and future claims or insurance recoveries, and the differences from
estimated amounts could be material.

The Company is involved in various other lawsuits and claims, including a
certain other environmental matter, arising out of the normal course of its
business. In the opinion of management, the ultimate amount of liability, if
any, under pending litigation, including claims described above, will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.

In connection with certain of its contracts, the Company commits to certain
performance guarantees. The ability of the Company to perform under these
guarantees may, in part, be dependent on the performance of other parties,
including partners and subcontractors. If the Company is unable to meet these
performance obligations, the performance guarantees could have a material
adverse effect on product margins and the Company's results of operations,
liquidity or financial position. The Company monitors the progress of its
partners and subcontractors and does not believe that their performance will
adversely affect these contracts as of March 31, 2003.

In connection with the discontinued transportation operations, AAI Corporation
(AAI), a wholly owned subsidiary of the Company, has guaranteed certain
performance criteria associated with the contractual obligations of ETI, a
company owned 35% by AAI and 65% by Skoda, a.s. (Skoda), a Czech Republic
company. The ability of ETI to perform under these contracts may, in part, be
dependent on the performance of other parties, including AAI, Skoda and other
subcontractors. Thus, the ability to timely perform under these contacts may be
outside AAI's control. In addition, while its operating affiliates performed
under their contracts during the year, during 2001 Skoda declared bankruptcy.


11

During 2002, the transportation segment recorded 100% of the ETI loss because of
Skoda's inability to meet its financial obligations under ETI's shareholder
agreement. The additional losses recorded by the Company for Skoda's 65% share
of ETI totaled $17,264,000 during 2002 and $124,000 during the first quarter of
2003. If Skoda is required to provide ETI with additional funding beyond the
amounts already provided for by AAI on Skoda's behalf and it fails to do so, or
if ETI is unable to meet its performance obligations, the performance guarantees
by AAI could have a material adverse effect on the Company's results of
operations, liquidity or financial condition. AAI monitors the progress of Skoda
and ETI's other subcontractors.

In February 2000, the Czech Export Bank (CEB) approved credit facilities to ETI
and two Skoda subsidiaries in order to finance the design and manufacture of
electric trolley buses for the city and county of San Francisco (MUNI). These
credit facilities which were repaid during 2002 were partially guaranteed by the
Czech Government's Export Guarantee and Insurance Corporation (EGAP). In
addition, the Company previously agreed to assume joint and several liability on
a progress payment bond totaling approximately $22,000,000 at December 31, 2002.
In January 2003, this bond was reduced to $9,100,000. This progress payment bond
is expected to be eliminated when the MUNI customer accepts certain deliveries
during 2003. Although the Company has accepted full responsibility under the
progress payment bond, Skoda retains its 65% obligation that is partially
guaranteed by EGAP. In addition, previously existing bonds that guarantee
performance under the MUNI contract obligate the Company to indemnify the
surety, if necessary, for up to approximately $33,000,000. These bonds as well
as the Company's related indemnification obligations are expected to be released
upon ETI's issuance of a warranty bond. The Company has previously agreed to
indemnify the surety up to 35% of the warranty bond amount when such bond is
issued. Although AAI may provide funds to ETI on a temporary basis it is
expected that ETI will have sufficient working capital to complete the MUNI
program.

The Dayton electric trolley buses contract required a performance bond of about
$16,000,000 that was outstanding at December 31, 2002. The Company was jointly
and severally liable. In February 2003, the Company was released from this
$16,000,000 bond.



NOTE I - DIVIDENDS

A quarterly dividend of 10(cent) per share was paid on April 1, 2003.



12

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward Looking Information
- ---------------------------

This report contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; the ability to
negotiate financing arrangements with lenders; outcome of current and future
litigation; the accuracy of the Company's analysis of its potential asbestos
related exposure and insurance coverage; product demand and market acceptance
risks; the effect of economic conditions; the impact of competitive products and
pricing; product development, commercialization and technological difficulties;
capacity and supply constrains or difficulties; legislative or regulatory
actions impacting the Company's energy segment and discontinued transportation
operation; changing priorities or reductions in the U.S. Government defense
budget; contract continuation and future contract awards; and U.S. and
international military budget constraints and determinations. The Company makes
no commitment to update any forward looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward looking statements.


Results of Operations
- ---------------------

The following information primarily relates to the continuing operations of
United Industrial Corporation and consolidated subsidiaries. The transportation
segment is reflected as a discontinued operation in the Company's consolidated
condensed financial statements as of and for the period ended March 31, 2003 and
2002.

Three months ended March 31, 2003 compared to three months ended March 31, 2002.



13

Consolidated net sales from continuing operations increased by $15,575,000 or
27.4% to $72,442,000 in the first quarter of 2003 from $56,867,000 during the
same period in 2002. The Defense segment sales increased by $16,234,000 or 33.0%
to $65,475,000 in the first quarter of 2003 from $49,241,000 during the same
period in 2002. The increase was in the UAV and simulation and test product
lines. The Energy segment's sales decreased $659,000 or 8.6% to $6,967,000
during the first quarter of 2003 from $7,626,000 in the first quarter of 2002
due to lower sales of new equipment.

Gross margin percentage for continuing operations was 19.4% in the first quarter
of 2003 and 19.0% in the first quarter of 2002. The Defense segment gross margin
was $11,196,000 or 17.1% of sales in the first three months of 2003 and
$10,423,000 or 21.2% of sales in the first quarter of 2002. Cost of sales for
the March 31, 2002 quarter in the Defense segment was reduced by a $271,000
insurance recovery. The related expense was charged to cost of sales in a
previous period. The pension expense which is included in cost of sales in the
Defense segment for the first three months of 2003 was $1,595,000 compared to
pension income of $125,000 in the first quarter of 2002. This decrease was due
primarily to the downward trend in the securities markets and interest rates.
The gross margin percentage was also reduced during the first quarter of 2003
compared to the first quarter of 2002 because sales growth regarding certain
contracts recognized lower profit margins during their early stages of execution
in accordance with Company policy. Gross margin in the Energy segment was
$2,851,000 or 40.9% of sales in the first three months of 2003 and $383,000 or
5% of sales in the first quarter of 2002. This increase is attributable to lower
cost castings, the manufacturing of which was outsourced in connection with the
decision to close the foundry operated by Midwest Metallurgical Laboratory, Inc.
(Midwest), a wholly owned indirect subsidiary of the Company in the Energy
Segment, during 2002. Included in the first quarter of 2002 is a charge of
$2,300,000 for accelerated depreciation of assets related to the closing of
Midwest. (See "Restructuring Charge," below.)

Selling and administrative expenses for continuing operations for the three
months ended March 31, 2003 increased $2,842,000 or 33.3% to $11,387,000 from
$8,545,000 in the first quarter of 2002. Selling and administrative expenses in
the Defense segment increased $2,950,000 or 45.6% to $9,428,000 in the first
three months of 2003 from $6,478,000 in the first quarter of 2002. In pursuit of
several program opportunities the Defense segment incurred higher research and
development, and bid and proposal costs of $1,849,000, a general increase in
costs of $801,000, and $300,000 reallocated corporate expenses primarily caused
by a reduced allocation base in the discontinued transportation operations. The
Company will likely maintain higher general and administrative expenses during
2003, including those related to aggressive pursuit of new business
opportunities, in support of its growth objectives. Selling and administrative
expenses in the Energy segment increased $15,000 to $2,050,000 in the first
three months of 2003 from $2,035,000 in the first quarter of 2002. The Other
egment had income of $91,000 due to administrative fees received from the


14

Defense and Energy segments. Other operating expenses decreased $183,000
primarily due to the elimination of expenses of $369,000 associated with the
closing of Midwest in 2002, partially offset by fees related to asbestos matters
of $242,000.

Other income from continuing operations increased $73,000 in the three months
ended March 31, 2003 from the same period last year primarily due primarily to a
gain on the sale of assets in the Energy segment of $47,000.

Income before income taxes for continuing operations increased $925,000 or 58.2%
to $2,513,000 in the three months ended March 31, 2003 from $1,588,000 for the
same period last year. The 2002 quarter included a charge of $2,669,000 for the
accelerated depreciation of assets and expenses related to the closing of
Midwest, which ceased operations, effective May 17, 2002. In addition, the first
quarter of 2003 included non-cash pension plan expense of $1,459,000 and
asbestos related consulting and professional fees of $242,000. The first quarter
of 2002 included non-cash pension plan income of $224,000 and an insurance
recovery of $271,000.

Since December 31, 2002, the backlog related to continuing operations decreased
$7,296,000 or 2.4% from $301,416,000 at December 31, 2002. The Defense segment
backlog was $288,379,000 at March 31, 2003 compared to $296,117,000 at December
31, 2002. The Energy segment backlog was $5,741,000 at March 31, 2003 compared
to $5,299,000 at December 31, 2002.

In March 2002, the Company entered into an agreement to sell its two overhaul
contracts with the New Jersey Transit Authority and Maryland Mass Transportation
Authority, as well as related assets. During March 2002 the Company recorded a
$10,200,000 provision for the impairment of transportation assets associated
with the sale and close out of these contracts.

Sales in the discontinued transportation operations decreased $8,903,000 to
$3,482,000 in the three months ended March 31, 2003 from $12,385,000 in the same
period last year. This decrease was due to the production levels on contracts to
be essentially completed during 2003 and contracts which were sold in 2002. The
loss before taxes decreased to $1,498,000 in the first three months ended March
31, 2003 from $18,858,000 in the same period last year.

The Company recorded a $191,000 provision for losses by ETI. This provision
represents 100% of the losses incurred by ETI primarily related to ETI's general
and administrative expenses incurred during the 2003 first quarter, since it is
unlikely that Skoda will have the financial capability to fund its 65% share of
such losses.

During the completion of the existing transportation work, the Company
anticipates that the amount of overhead to be absorbed by the San Francisco
electric trolley bus contract will not be sufficient to cover the total overhead
incurred. The Company's discontinued transportation operations will expense the


15

unabsorbed overhead as incurred. These charges are expected to be in the range
of $3,500,000 to $4,500,000 subsequent to March 31, 2003. Further, general and
administrative expenses that will be expensed as incurred are expected to be
about $3,000,000. In addition, upon completion of transportation's production
operations the Company contemplates a charge associated with the idle facility,
primarily future operating lease costs, of approximately $750,000. Subleasing
the facility space may mitigate these costs.

No assurances can be given, however, as to the actual amount of the Company's
liability to complete the one remaining contract for the San Francisco electric
trolley buses, and exit the discontinued operations.

Liquidity and Capital Resources
- -------------------------------

Cash and cash equivalents increased $2,388,000 to $6,023,000 at March 31, 2003
from $3,635,000 at December 31, 2002. Net cash provided by operating activities
by the continuing operations was $9,475,000 in the first three months of 2003.
The net cash used for operating activities of discontinued operations was
$4,559,000 in the first quarter of 2003. The net cash provided by operating
activities in the first quarter of 2003 was $4,916,000. Changes in operating
assets and liabilities generated cash of $4,363,000 primarily by decreases in
inventory of $5,619,000, trade receivables of $5,537,000, partially offset by a
decrease in customer advances of $984,000, decrease in employee compensation
payable of $3,042,000 and a decrease in accounts payable of $1,262,000.

In April 2003, the Company filed an application for a tax refund of
approximately $16,822,000, related to the Company's 2002 net loss. At May 13,
2003, the Company had received $16,149,000 of the refund. The balance of the
cash refund is expected to be received by June 30, 2003. Although the Company
has experienced lower pension results due to a decline in stock market values
and interest rates, the Company does not anticipate having to contribute cash to
its pension plan during 2003. However, it plans to contribute $118,000 to the
union plan in the energy segment.

As of March 31, 2003, the Company has recorded net deferred tax assets of
approximately $15,400,000. Management believes the Company will generate
sufficient taxable income in future years to realize this benefit.

On June 28, 2001, the Company and certain of its subsidiaries entered into a
Loan and Security Agreement (the "Agreement") with Fleet Capital Corporation.
The Agreement has a term of three years and provides for letters of credit and
cash borrowing, subject to a borrowing base. Credit advances may increase to
$32,000,000 provided that amounts in excess of $25,000,000 are
cash-collateralized. In March 2003, a Waiver and Amendment Agreement was entered
into whereby covenant violations as of December 31, 2002 were waived and the
covenants were amended. At March 31, 2003 there were no cash borrowings under
the Agreement. The letter of credit obligations outstanding at March 31, 2003
were $4,095,000.


16

A subsidiary of the Company also has a $2,000,000 line of credit with a bank
which may be used for cash borrowings or letters of credit. This agreement
renewed the previous agreement until May 1, 2004. At March 31, 2003, the
subsidiary had no cash borrowings and $671,000 of letters of credit outstanding.
The Company currently has no significant fixed commitment for capital
expenditures. The Company expects that available cash and existing lines of
credit will be sufficient to meet its cash requirements for the remainder of the
year.


Restructuring Charges
- ---------------------

Detroit Stoker ceased the foundry operation conducted by its wholly owned
subsidiary, Midwest Metallurgical Laboratory, Inc. ("Midwest"), effective May
17, 2002. In conjunction with the ceased operations the Company has written off
the value of all Midwest's assets.

During 2002 Detroit Stoker incurred severance and other cash charges totaling
approximately $1,287,000 related to the restructuring including operating losses
of Midwest. In addition, the Company accelerated depreciation of its foundry
facility during the foundry's operating period in 2002. Depreciation of this
facility was $3,420,000 during 2002. No additional expenses were incurred in the
first quarter of 2003.


Contingent Matters
- ------------------

In connection with certain of its contracts, the Company commits to certain
performance guarantees. The ability of the Company to perform under these
guarantees may, in part, be dependent on the performance of other parties,
including partners and subcontractors. If the Company is unable to meet these
performance obligations, the performance guarantees could have a material
adverse effect on product margins and the Company's results of operations,
liquidity or financial position. The Company monitors the progress of its
partners and subcontractors and does not believe that their performance will
adversely affect these contracts as of March 31, 2003.

In February 2000, the Czech Export Bank ("CEB") approved credit facilities to
ETI and two Skoda subsidiaries in order to finance the design and manufacture of
electric trolley buses for the city and county of San Francisco ("MUNI"). These
credit facilities which were repaid during 2002 were partially guaranteed by the
Czech Government's Export Guarantee and Insurance Corporation ("EGAP"). In
addition, the Company previously agreed to assume joint and several liability on
a progress payment bond totaling approximately $22,000,000 at December 31, 2002.
In January 2003, this bond was reduced to $9,100,000. This progress payment bond
is expected to be eliminated when the MUNI customer accepts certain deliveries
during 2003. Although the Company has accepted full responsibility under the
progress payment bond, Skoda retains its 65% obligation that is partially
guaranteed by EGAP. In addition, previously existing bonds that guarantee


17

performance under the MUNI contract obligate the Company to indemnify the
surety, if necessary, for up to approximately $33,000,000. These bonds are
expected to be released upon ETI's issuance of a warranty bond. It is expected
that there will be sufficient working capital to complete the MUNI program. The
Dayton electric trolley buses contract required a performance bond of about
$16,000,000 that was outstanding at December 31, 2002. The Company was jointly
and severally liable. In February 2003, the Company was released from this
$16,000,000 bond.

The Company is involved in various lawsuits and claims, including asbestos
related litigation and one environmental matter. There have been no material
changes in litigation since the Company filed its annual report on Form 10-K for
the year ended December 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2002 and to
Note H to the financial statements included herein.


ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions, and some of these transactions are
denominated in foreign currencies. As a result, the Company's financial results
could be affected by changes in foreign exchange rates. To mitigate the effect
of changes in these rates, the Company has entered into foreign exchange
contracts. There has been no material change in the firmly committed sales
exposures and related derivative contracts from December 31, 2002. (See Item 7A
- - Form 10-K for December 31, 2002.)


ITEM 4 - CONTROLS AND PROCEDURES

(a) The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities
and Exchange Commission. Such information is accumulated and communicated to the
Company's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company's management, including its principal executive officer
and principal financial officer, recognizes that any set of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.

Within 90 days prior to the filing date of this quarterly report on Form 10-Q,
the Company has carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's principal
executive officer and the Company's principal financial officer, of the


18

effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on such evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective.

(b) There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date of their evaluation in connection with the preparation of
this quarterly report on Form 10-Q.




19

UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Part II - Other Information


ITEM 1 - LEGAL PROCEEDINGS

Reference is made to the information contained in the section entitled
"Contingent Matters" under Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth above, which information
is incorporated herein by reference and to Note H to the financial statements
included herein.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

99.1 Certification of the Chief Executive Officer of the Company
pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of
the Sarbanes-Oxley Act of 2002.

99.2 Certification of the Chief Financial Officer of the Company
pursuant to 18 U.S.C.ss.1350, as adopted by Section 906 of
the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

On March 11, 2003, the Registrant filed a current report on form 8-K
containing its press release announcing its financial results for the fourth
quarter and full year ended December 31, 2002.



20

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


UNITED INDUSTRIAL CORPORATION



Date May 14, 2003 By: /s/ James H. Perry
James H. Perry
Chief Financial Officer,
Vice President and Treasurer





21

CERTIFICATIONS

I, Richard R. Erkeneff, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Industrial
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and


22

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 14, 2003 /s/ Richard R. Erkeneff
--------------------------
Richard R. Erkeneff
Chief Executive Officer





23

I, James H. Perry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of United Industrial
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and


24

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 14, 2003 /s/ James H. Perry
------------------------------
James H. Perry
Chief Financial Officer




25


UNITED INDUSTRIAL CORPORATION AND SUBSDIARIES

INDEX OF EXHIBITS FILED HEREWITH



Exhibit No. Page
- ----------- ----

99.1 Certification of the Chief Executive Officer Of the Company pursuant
to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002. 27

99.2 Certification of the Chief Financial Officer of the Company pursuant
to 18 U.S.C.ss.1350, as adopted by Section 906 of the Sarbanes-Oxley
Act of 2002. 28





26