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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2001.

or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________

Commission file number: 1-4252
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UNITED INDUSTRIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

Delaware 95-2081809
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

570 Lexington Avenue
New York, New York 10022
(212) 752-8787
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- ------------------------------------
Common Stock, $1.00 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)

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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_].


[Cover page 1 of 2 pages]


Aggregate market value of the voting stock (which consists solely of shares of
Common Stock) held by non-affiliates of the registrant as of March 4, 2002,
computed by reference to the closing sale price of the registrant's Common Stock
on the New York Stock Exchange on such date: $214,549,797.

On March 4, 2002, the registrant had outstanding 12,963,918 shares of Common
Stock, par value $1.00 per share, which is the registrant's only class of common
stock.

DOCUMENTS INCORPORATED BY REFERENCE:

1. Certain portions of the registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 2001 are incorporated by reference into
Parts I and II of this report.

2. Certain portions of the registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, in connection with the 2002 Annual Meeting of Shareholders of
the registrant are incorporated by reference into Part III of this report.


[Cover page 2 of 2 pages]


PART I

Forward Looking Information

This Annual 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; legal proceedings; 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 constraints or difficulties;
legislative or regulatory actions impacting the Company's energy segment and
transportation business; 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 statements or to
disclose any facts, events or circumstances after the date hereof that may
affect the accuracy of any forward looking statements.

ITEM 1. BUSINESS

At December 31, 2001, the operations of United Industrial Corporation ("United")
consist of three principal business segments: defense, energy systems and
transportation, principally conducted through two wholly-owned subsidiaries.

Defense

AAI Corporation

AAI Corporation ("AAI") is engaged in engineering, development and manufacturing
of Unmanned Aerial Vehicle ("UAV") platforms, Electronic Warfare ("EW") test and
training systems, military and commercial simulators, automated test systems,
and advanced boresight equipment. In addition, AAI provides sophisticated
engineering, logistics, and maintenance services, which complement its key
product platforms, as well as those of other original equipment manufacturers.
AAI's advanced products designed for military customers include such high
profile programs as the Shadow UAV system, recently selected as the U.S. Army's
Tactical Unmanned Aerial Vehicle platform, and the Joint Services Electronic
Combat Systems Tester, employed by all U.S. military branches to ensure optimal
airborne EW operations. AAI's aerospace products, utilized by numerous military
and commercial customers worldwide, offer superior test and maintenance
capabilities for the F-16, many Boeing airframes, various General


2


Electric and Pratt & Whitney aircraft engines, and other aviation equipment. AAI
supplies its high quality aerospace test equipment to provide depot maintenance
services to foreign and domestic military aviation customers. In 2001
approximately 77% of the sales volume of AAI consisted of research, development
and production of military items under domestic defense contracts compared to
73% in 2000. International defense contracts including foreign military sales
through the U.S. government, accounted for 24.2% of company sales in 2001 as
compared to 20.0% in 2000. These contracts generally related to unmanned aerial
vehicle systems and weapon training systems for foreign governments.

Because of the variety of its activities, it is not possible to state precisely
the competitive position of AAI with respect to each of its product lines. In
the area of training and simulation systems, AAI is one of approximately ten
leading organizations developing equipment for the U.S. Government. AAI's
ability to obtain orders for training and simulation systems is dependent
principally on the ability, expertise and training of its employees and the
level of funding by the DOD and foreign military users. A number of large and
small companies produce automatic test equipment that compete with AAI for
market share. In the area of weapons and munitions, AAI ranks among
approximately ten leading companies engaged in development work. However, AAI's
production activity in this field is less significant. AAI began development in
the UAV business in 1986. In 1999 the Company was awarded a contract to provide
the next generation of tactical UAV's to the U.S. Army. AAI also produces the
highly successful Pioneer UAV employed by the United States during Operation
Desert Storm and in the conflicts in Somalia and Bosnia. In addition, AAI has
other UAV systems and products which it markets internationally. AAI is one of
several large and small competitors in this field.

AAI's administrative offices and its principal manufacturing and engineering
facilities are located in Hunt Valley, Maryland.

Energy Systems

Detroit Stoker Company

Detroit Stoker Company ("Detroit Stoker") is a leading supplier of stokers and
related combustion equipment for the production of steam used in heating,
industrial processing and electric power generation around the world. Detroit
Stoker offers a full line of stokers for burning bituminous and lignite coals as
well as biomass, municipal solid waste and industrial by-products. Detroit
Stoker also provides auxiliary equipment and services including fuel feed and
ash removal systems, gas/oil burners and complete aftermarket services for its
products. Principal markets include Pulp and Paper, Public Utilities,
Independent Power Producers, Industrial manufacturing, Institutional and
Cogeneration facilities. The products of Detroit Stoker compete with those of
several other manufacturers. Competition is based on several factors including
price, features and performance.

Detroit Stoker's waste to energy technology is used extensively in both public
and private plants that generate steam and power from municipal waste. Its solid
fuel combustion technologies are particularly well suited for biomass fuels that
generate power from waste products such as bark, sugar cane husks, sawdust,
sunflower hulls, and poultry litter. The combustion of biomass fuels is gaining
worldwide popularity, as it does not contribute to global warming.


3


Detroit Stoker exports its products to Europe, Asia, South America and
Australia, and is a market leader in North America. Detroit Stoker's
globalization strategy is to further expand both its customer and supplier base
in each of these regions.

Detroit Stoker's administrative offices and its principal manufacturing
operations are located in Monroe, Michigan. Detroit Stoker also operates a
foundry through a subsidiary (Midwest Metallurgical Laboratory, Inc.) in
Marshall, Michigan. The foundry is engaged in the manufacture of grey and
ductile iron, stainless steel and special alloy iron castings that are
principally used in Detroit Stoker's products.

On March 15, 2002 Detroit Stoker announced that it will cease its foundry
operation effective May 17, 2002. Detroit Stoker will purchase its necessary
castings from lower cost sources. It is projected that this decision will
significantly improve operating margins. The Company estimates that during 2002
Detroit Stoker will incur severance and other cash charges totaling
approximately $1,000,000. In addition, the Company will write off the net book
value of the assets related to its foundry facility of approximately $3,500,000
during the foundry's operating period in 2002.

Transportation

AAI Transportation Systems, a division of AAI, is engaged in the manufacturing
and integration of transit systems primarily for municipal customers within the
United States. Its products and services are focused in overhaul, fabrication,
assembly and systems integration.

Electric Transit, Inc. ("ETI"), a corporation owned 35% by AAI and 65% by Skoda,
a Czech Republic firm, has become one of the domestic market leaders in
manufacturing electric trolley buses. It has won contracts in both Dayton, Ohio
for the Miami Valley Regional Transit Authority and the city and county of San
Francisco. ETI is an unconsolidated affiliate of AAI and accordingly, AAI
records its equity share of income or loss in ETI. Under these contracts which
are valued at $32 million and $192 million, respectively, AAI has received
subcontracts of $9.4 million and $62.5 million, respectively.

In addition to its electric trolley bus business, AAI performs overhaul and
remanufacturing work for a variety of transit customers and produces an
assortment of transit equipment including fabricated trucks for both heavy and
light railcars.

The products and services of Transportation Systems compete with those of
several other larger as well as smaller manufacturers. The main office and
operating facilities are located in Hunt Valley, Maryland.

On March 27, 2002, AAI entered into a definitive agreement to sell its overhaul
contracts with the New Jersey Transit Authority and the Maryland Mass Transit
Authority, and related assets, for approximately $21.4 million, subject to
certain agreed upon adjustments. The agreement provides for AAI to be released
under all performance bonds and obligations under the two overhaul contracts,
and provides for AAI to receive a cost plus fee contract to perform work on the
two overhaul contracts for the purchaser during a transition period not to
exceed six months. The sale of the two overhaul contracts is subject to
customary closing conditions, including obtaining certain third party consents,
governmental approvals and the purchaser obtaining the


4


requisite performance bonds. The sale is expected to close before May 31, 2002,
although no assurance can be given that the closing will occur. Following the
sale, AAI Transportation System's operations will include just one ongoing
program, the San Francisco Municipal Railway program being executed by ETI,
described above, which is well into its production phase.

AAI Transportation Systems is being accounted for as discontinued operations.
See Note 16 to the Financial Statements included in Item 8 of this Report.

For additional information concerning United's subsidiaries reference is made to
information set forth in the Letter to Shareholders contained in United's 2001
Annual Report to Shareholders (the "Annual Report"), which letter is
incorporated herein by reference. Reference is also made to the information set
forth in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report, which section is
incorporated herein by reference.

General

Employees

As of March 1, 2002 United and its continuing subsidiaries had approximately
1,500 employees. Approximately 106 of these employees are represented by two
unions under contracts expiring between July 2003 and January 2004. United
considers its employee relationships to be satisfactory.

Patents

United and its subsidiaries own more than 100 United States patents relating to
various products, including electronic, ordnance and marine equipment and
stokers. In addition, United has pending applications for patents. There is no
assurance as to how many patents will be issued pursuant to these pending
applications. The applications relate to a wide variety of fields, including
ordnance devices, ground support equipment and electronic developments. No
patent is considered to be of material importance to United.

Research and Development

During 2001, 2000 and 1999, the subsidiaries of United (exclusive of AAI)
expended approximately $478,982, $165,707 and $117,000, respectively, on the
development of new products and the improvement of existing products. All of the
programs and the funds to support such programs are sponsored by the subsidiary
involved. In addition to the above amount, AAI is engaged in research and
development primarily for the U.S. Government.

Backlog

The backlog of orders by industry segment at December 31, 2001 and 2000 was as
follows:


5


2001 2000
---- ----
Defense 201,221,000 190,161,000

Energy Systems 6,122,000 4,633,000

Transportation $164,891,000* $219,176,000

* Includes $137,923,000 of backlog in respect of the two overhaul contracts
that the Company has agreed to sell.

Except for approximately $47,321,000, and excluding the two Transportation
segment overhaul contracts that the Company has agreed to sell, substantially
all of the backlog orders at December 31, 2001 are expected to be filled in
2002.

Government Contracts

No single customer other than the U.S. Government, principally the Department of
Defense, accounted for 10% or more of net sales during the year. Sales to the
U.S. Government normally carry a lesser margin of profit than commercial sales
and may be subject to price redetermination under certain circumstances.
Contracts for such sales can be terminated for the convenience of the U.S.
Government.

Financial Information Relating to Industry Segments

For financial information with respect to industry segments of United, reference
is made to the information set forth in Note 11 of the Notes to Financial
Statements included in Item 8 of this Report, which Note is incorporated herein
by reference.

Foreign Operations and Export Sales

United and its subsidiaries have no significant foreign operations. During 2001,
2000 and 1999, export sales by United and its subsidiaries amounted to
approximately $54,670,000, $57,110,000 and $42,120,000, respectively.

ITEM 2. PROPERTIES

United maintains executive and administrative offices at leased premises at 570
Lexington Avenue, New York, N.Y., which lease expires in August 2008. The
following is a tabulation of the principal properties owned or leased by
United's subsidiaries as at March 23, 2002.



Approximate
Area Owned
Location Principal Use in Square Feet or Leased
- -------- ------------- -------------- ---------

1510 East First Street Machine shop, steel fabrication, 194,910 floor space Owned in fee
Monroe, MI engineering and sales facilities of on 14.4 acres of land
Detroit Stoker (East Building)



6




Approximate
Area Owned
Location Principal Use in Square Feet or Leased
- -------- ------------- -------------- ---------

1426 East First Street Assembly, shipping and administrative 101,000 floor space Owned in fee
Monroe, MI facilities of Detroit Stoker on 2.2 acres of land
(West Building)

15290 Fifteen Mile Road Foundry, 59,386 floor space Owned in fee
Marshall, MI Midwest Metallurgical on 28.4 acres of land

2735 W Fifth Assembly and Administrative Facility 59,000 Leased to
North Street of AAI November 30, 2002
Summerville, SC

Industry Lane Manufacturing, engineering and 429,750 floor space Owned in fee
Hunt Valley, MD administrative facilities of AAI on 64 acres of land

Clubhouse Road Manufacturing, engineering and Leased to:
Hunt Valley, MD administrative facilities of AAI 317,831 October 31, 2003
22,410 November 30, 2003

3200 Enterprise Street Manufacturing, engineering and 131,544 Leased to April
Brea, CA administrative facilities 2009
of ACL Technologies

1213 Jefferson Davis Highway Office Space 2,200 Leased to February
Arlington, VA 22202 28, 2006


For information with respect to obligations for lease rentals, see Note 8 to
the Financial Statements in the Annual Report, which Note is incorporated herein
by reference. United considers its properties to be suitable and adequate for
its present needs. The properties are being substantially utilized.

ITEM 3. LEGAL PROCEEDINGS

Detroit Stoker was notified in March 1992 by the Michigan Department of Natural
Resources ("MDNR") that it is a potentially responsible party in connection with
the clean-up 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


7


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.

The Company is involved in various other lawsuits and claims, including certain
other environmental matters, 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 materially
adverse effect on the Company's financial position, results of operations or
cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Annual elections are held in May to elect officers for the ensuing year. Interim
elections are held as required. Except as otherwise indicated, each executive
officer has held his current position for the past five years.

Age at
Name Position, Office December 31, 2001
---- ---------------- -----------------

Richard R. Erkeneff* -- President of the Company (since 66
October 1995) and AAI (since
November 1993).

Robert Worthing -- Vice President and General Counsel 56
of the Company (since July 1995);
General Counsel of AAI (since April
1992).

Susan Fein Zawel* -- Vice President, Corporate 47
Communications and Associate General
Counsel (since June 1995), Secretary
(since May 1994) and Counsel (1992
to 1995) of the Company.

James H. Perry -- Vice President (since May 1998), 40
Chief Financial Officer (since
October 1995) and Treasurer (since
December 1994) of the Company; Vice
President, Chief Financial Officer
and Treasurer of AAI (since July
2000).

- ----------
* Member of the Company's Board of Directors


8


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

Reference is made to the information set forth in Note 14 to the Financial
Statements included in Item 8 of this Report concerning dividends, stock prices,
stock listing and number of record holders, which information is incorporated
herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

Reference is made to the information set forth in the section entitled
"Five-Year Financial Data" in the Annual Report, which section is incorporated
herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Reference is made to the information set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report, which section is incorporated herein by
reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information regarding Quantitative and Qualitative
Disclosures About Market Risk contained in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report, which section is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent auditors and consolidated financial statements
included in the Annual Report are incorporated herein by reference.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


9


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the definitive proxy statement involving the election
of directors in connection with the 2002 Annual Meeting of Shareholders of
United (the "Proxy Statement"), which section (other than the Compensation
Committee Report, Audit Committee Report and Performance Graph) is incorporated
herein by reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 2001, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.

The information required with respect to executive officers is set forth in Part
I of this report under the heading "Executive Officers of the Registrant,"
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report, Audit Committee Report and Performance Graph) is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to the information to be set forth in the section entitled
"Voting Rights" and "Security Ownership of Management" in the Proxy Statement,
which sections are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the Proxy Statement, which section (other than the
Compensation Committee Report, Audit Committee Report and Performance Graph) is
incorporated herein by reference.


10


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) and (2) - The response to this portion of Item 14 is submitted as
a separate section of this report entitled "List of
Financial Statements and Financial Statement Schedules".

(3) Exhibits:

(3)(a)- Restated Certificate of Incorporation of United (1).

(3)(b)- Amended and Restated By-Laws of United (2).

(10)(a)- United Industrial Corporation 1994 Stock Option Plan, as
amended (3).

(10)(b)- United Industrial Corporation 1996 Stock Option Plan for
Nonemployee Directors (4).

(10)(c)- Loan and Security Agreement dated as of June 28, 2001
among United and certain of its subsidiaries, as
Borrowers, and Fleet Capital Corporation, as Lender (5).

(10)(d)- Pledge Agreement dated as of June 28, 2001 among United
and certain of its subsidiaries, as Pledgors, and Fleet
Capital Corporation, as Lender (5).

(10)(e)- Waiver, Amendment and Consent Agreement dated as of
March 6, 2002 among United and certain of its
subsidiaries, as Borrowers, and Fleet Capital
Corporation, as Lender.

(10)(f)- Employment Agreement, dated December 8, 1998, between
United and Richard R. Erkeneff (1).

(10)(g)- Amendment No. 1 dated as of June 1, 2001 to the
Employment Agreement dated as of December 8, 1998 by and
between United and Richard R. Erkeneff (5).

(10)(h)- Employment Agreement, dated March 3, 2000, between
United and Susan Fein Zawel (6).

(10)(i)- Employment Agreement, dated March 3, 2000, between
United and Robert Worthing (6).

(10)(j)- Employment Agreement, dated March 3, 2000, between
United and James H. Perry (6).

(10)(k)- Master Agreement, dated as of March 27, 2002, between
ALSTOM Transportation Inc. and AAI Corporation.

(13)- United's 2001 Annual Report to Shareholders.

(21)- Subsidiaries of United.

(23)- Consent of Independent Auditors.
- ----------

11


(1) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1998.
(2) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1995.
(3) Incorporated by reference to United's Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on January
10, 1997.
(4) Incorporated by reference to United's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on June 26,
1997.
(5) Incorporated by reference to United's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001.
(6) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1999.

(b) Reports on Form 8-K - United did not file any Current Reports on Form 8-K
during the quarter ended December 31, 2001.


12


Annual Report on Form 10-K

Item 14(a) (1) and (2), (c) and (d)

List of Financial Statements and Financial Statement Schedules

Certain Exhibits

Financial Statement Schedules


Year ended December 31, 2001

United Industrial Corporation

New York, New York


Form 10-K--Item 14(a) (1) and (2)

UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES

List of Financial Statements and Financial Statement Schedules

The following consolidated financial statements of United Industrial Corporation
and subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended December 31, 2001, are incorporated by reference
in Item 8:

Consolidated Balance Sheets--December 31, 2001 and 2000

Consolidated Statements of Operations--
Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
Notes to Financial Statements

The following consolidated financial statement schedule of United Industrial
Corporation and subsidiaries is included in Item 14(d):

Schedule II Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.


F-2


REPORT OF INDEPENDENT AUDITORS

We have audited the consolidated financial statements of United Industrial
Corporation and subsidiaries as of December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001, and have issued our
report thereon dated March 8, 2002. Our audits also included the financial
statement schedule listed in Item 14(d) of this Annual Report (Form 10-K). This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


/s/ ERNST & YOUNG LLP

New York, New York
March 8, 2002


F-3


Schedule II -- Valuation and Qualifying Accounts

United Industrial Corporation and Subsidiaries

December 31, 2001



Col. A Col. B Col. C Col. D Col. E
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End of
Description of Period Expenses (Describe) (Describe) Period
----------- --------- -------- ---------- ---------- ------

Year ended December 31, 2001:
Deducted from asset account:
Allowance for doubtful accounts $ 235,000 $ 235,000
========== ==========
Product warranty liability $5,154,000 $3,504,000(B) $1,650,000
========== ========== ==========
Year ended December 31, 2000:
Deducted from asset account:
Allowance for doubtful accounts $ 235,000 $ 235,000
========== ==========
Product warranty liability $5,600,000 $1,300,000(A) $1,746,000(B) $5,154,000
========== ========== ========== ==========
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 235,000 $ 235,000
========== ==========
Product warranty liability $ 640,000 $5,000,000(A) $ 40,000(B) $5,600,000
========== ========== ========== ==========


(A) In February 2000, the Company was informed of a warranty issue by one
of its customers. Based upon this information, the Company recorded a $5
million provision for the estimate of the future warranty costs to be
incurred. This amount was recorded in the fourth quarter of 1999. In 2000
this provision was increased by $1.3 million.

(B) Product warranty expenditures.


F-4


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)


By: /s/ Richard R. Erkeneff
----------------------------------
Richard R. Erkeneff, President

Date: March 21, 2002
--------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

Name Date
---- ----


/s/ Harold S. Gelb March 21, 2002
- ------------------------------------
Harold S. Gelb,
Chairman of the Board and Director


/s/ Joseph S. Schneider March 21, 2002
- ------------------------------------
Joseph S. Schneider, Director


/s/ Richard R. Erkeneff March 21, 2002
- ------------------------------------
Richard R. Erkeneff, President and
Chief Executive Officer and Director


March __, 2002
- ------------------------------------
Warren G. Lichtenstein, Director


/s/ E. Donald Shapiro March 21, 2002
- ------------------------------------
E. Donald Shapiro, Director


/s/ Susan Fein Zawel March 21, 2002
- ------------------------------------
Susan Fein Zawel,
Vice President and Director


/s/ James H. Perry March 21, 2002
- ------------------------------------
James H. Perry,
Vice President, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)



EXHIBIT INDEX

(3)(a)- Restated Certificate of Incorporation of United (1).

(3)(b)- Amended and Restated By-Laws of United (2).

(10)(a)- United Industrial Corporation 1994 Stock Option Plan, as amended
(3).

(10)(b)- United Industrial Corporation 1996 Stock Option Plan for Nonemployee
Directors (4).

(10)(c)- Loan and Security Agreement dated as of June 28, 2001 among United
and certain of its subsidiaries, as Borrowers, and Fleet Capital
Corporation, as Lender (5).

(10)(d)- Pledge Agreement dated as of June 28, 2001 among United and certain
of its subsidiaries, as Pledgors, and Fleet Capital Corporation, as
Lender (5).

(10)(e)- Waiver, Amendment and Consent Agreement dated as of March 6, 2002
among United and certain of its subsidiaries, as Borrowers, and
Fleet Capital Corporation, as Lender.

(10)(f)- Employment Agreement, dated December 8, 1998, between United and
Richard R. Erkeneff (1).

(10)(g)- Amendment No. 1 dated as of June 1, 2001 to the Employment Agreement
dated as of December 8, 1998 by and between United and Richard R.
Erkeneff (5).

(10)(h)- Employment Agreement, dated March 3, 2000, between United and Susan
Fein Zawel (6).

(10)(i)- Employment Agreement, dated March 3, 2000, between United and Robert
Worthing (6).

(10)(j)- Employment Agreement, dated March 3, 2000, between United and James
H. Perry (6).

(10)(k)- Master Agreement, dated as of March 27, 2002, between ALSTOM
Transportation Inc. and AAI Corporation.

(13)- United's 2001 Annual Report to Shareholders.

(21)- Subsidiaries of United.

(23)- Consent of Independent Auditors.

- ----------
(1) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1998.
(2) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1995.
(3) Incorporated by reference to United's Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on January
10, 1997.
(4) Incorporated by reference to United's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on June 26,
1997.


(5) Incorporated by reference to United's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001.
(6) Incorporated by reference to United's Annual Report on Form 10-K for
the year ended December 31, 1999.


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