SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q



(Mark One)

           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934
[X]
          For the quarterly period ended    September 30, 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                    (I.R.S. Identification No.)
 of incorporation or organization)


                    124 Industry Lane, Hunt Valley, MD 21030
 ------------------------------------------------------------------------------
                    (Address of principal executive offices)


                    570 Lexington Avenue, New York, NY 10022
-------------------------------------------------------------------------------
              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 reports), 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. 13,589,018 shares of common
stock as of November 1, 2003.

<PAGE>
                          UNITED INDUSTRIAL CORPORATION


                                      INDEX

<TABLE>
<C>                                                                                 <C>

                                                                                             Page #
                                                                                             ------
Part I - Financial Information

   Item 1.  Financial Statements

                     Consolidated Condensed Balance Sheets - Unaudited
                     September 30, 2003 and December 31, 2002                                      2

                     Consolidated Condensed Statements of Operations - Unaudited
                     Three Months and Nine Months Ended
                     September 30, 2003 and 2002                                                   3

                     Consolidated Condensed Statements of Cash Flows - Unaudited
                     Nine Months Ended September 30, 2003 and 2002                                 4

                     Notes to Consolidated Condensed Financial Statements                          5


   Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations                                         14

   Item 3.  Quantitative and Qualitative Disclosures
            about Market Risk                                                                     24

   Item 4. Controls and Procedures                                                                24


PART II - Other Information                                                                       25

</TABLE>

                                       1
<PAGE>
                         PART I - FINANCIAL INFORMATION
                          ITEM I - FINANCIAL STATEMENTS
                  UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                    September 30                December 31
                                                                                      2003                          2002
                                                                                   -----------                 -----------
ASSETS                                                                             (Unaudited)
------
<S>                                                                              <C>                        <C>
Current Assets
           Cash and cash equivalents                                                  $12,373                     $ 3,635
           Trade receivables                                                           49,272                      37,688
           Inventories
             Finished goods & work-in-process                                          14,904                      19,515
             Materials & supplies                                                       1,240                       1,436
                                                                                   -----------                 -----------
                                                                                       16,144                      20,951
           Federal income taxes receivable                                                -                        15,509
           Deferred income taxes                                                        5,643                       4,528
           Prepaid expenses & other current assets                                      2,165                       1,351
           Assets of discontinued operations                                           12,106                      14,042
                                                                                   -----------                 -----------
                     Total Current Assets                                              97,703                      97,704
Deferred income taxes                                                                  11,548                      11,531
Other assets                                                                            7,612                       7,421
Insurance receivable - asbestos litigation                                             20,324                      20,343
Property & equipment - less allowances
 for depreciation (2003-$88,824; 2002-$86,400)                                         21,669                      21,196
                                                                                   -----------                 -----------
                                                                                     $158,856                    $158,195
                                                                                   ===========                 ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
           Accounts payable                                                           $11,037                    $ 11,711
Accrued employee compensation & taxes                                                  11,647                      12,043
           Customer advances                                                            5,639                       6,211
           Federal income taxes payable                                                 5,279                         -
           Reserve for contract losses                                                  2,035                       2,050
           Other current liabilities                                                    4,498                       3,682
           Liabilities of discontinued operations                                      15,489                      11,513
                                                                                   -----------                 -----------
                     Total Current Liabilities                                         55,624                      47,210
Other long-term liabilities                                                            23,012                      23,226
Minimum pension liability                                                              12,596                       8,276
Reserve for asbestos litigation                                                        31,647                      31,852

Shareholders' Equity
           Common stock $1.00 par value
           Authorized - 30,000,000 shares; outstanding 13,414,018 shares and
           13,067,918 shares - September 30, 2003 and December 31, 2002 (net of
           shares in treasury)                                                         14,374                      14,374
           Additional capital                                                          88,080                      92,085
           Retained deficit                                                           (26,633)                    (16,254)
           Treasury stock, at cost, 960,130 shares
           at September 30, 2003 and 1,306,230 shares at
           December 31, 2002                                                           (7,582)                    (10,312)
           Accumulated other comprehensive loss                                       (32,262)                    (32,262)
                                                                                   -----------                 -----------
Total Shareholders' Equity                                                             35,977                      47,631
                                                                                   -----------                 -----------
                                                                                      158,856                    $158,195
                                                                                   ===========                 ===========
</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements


                                       2
<PAGE>
                  UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                (Dollars in Thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                Three Months Ended                       Nine Months Ended
                                                                   September 30                           September 30
                                                                 -----------------                      ------------------
                                                            2003                2002                 2003               2002
                                                            ----                ----                 ----               ----
                                                                                      (Unaudited)
<S>                                                  <C>                 <C>                <C>                 <C>
 Net sales                                               $ 69,273             $ 67,109           $ 227,752            $189,304
 Cost of sales                                             53,733               51,703             180,661             151,475
                                                         ---------            ---------           ---------           ---------
 Gross profit                                              15,540               15,406              47,091              37,829

 Selling & administrative expenses                         11,299                8,508              33,422              26,783
 Pension income                                              (135)                (408)               (406)             (1,250)
 Other operating (income) expense - net                        21                   (2)                695                 420
                                                         ---------            ---------           ---------           ---------

 Total operating income                                     4,355                7,308              13,380              11,876
                                                         ---------            ---------           ---------           ---------

 Non-operating income and (expense)
    Interest income                                            44                    2                  84                  46
    Other income                                               48                   10                 184                  69
    Interest expense                                          (16)                (141)                (40)               (562)
    Equity in net income
       of joint venture                                        45                   10                  54                  67
    Other expenses                                            (85)                (146)               (272)               (352)

                                                               36                 (265)                 10                (732)
                                                         ---------            ---------           ---------           ---------
 Income from continuing operations
    before income taxes                                     4,391                7,043              13,390              11,144

 Income taxes                                               1,590                2,581               4,757               3,968
                                                         ---------            ---------           ---------           ---------

 Income from continuing operations                          2,801                4,462               8,633               7,176

 Loss from discontinued operations -
   net of income tax credit of $9,015 and
   $993 for the three months and
   $10,232 and $14,281 for the nine months
   ended September 30, 2003 and 2002,
   respectively                                           (16,751)              (1,844)            (19,011)            (26,535)
                                                         ---------            ---------           ---------           ---------

 Net (loss) income                                      $ (13,950)             $ 2,618           $ (10,378)           $(19,359)
                                                         =========            =========           =========           =========

   Basic earnings per share:
     Income from continuing operations                      $ .21                $ .34               $ .66              $  .55
                                                         =========            =========           =========           =========
     Loss from discontinued operations                     $(1.26)               $(.14)             $(1.44)             $(2.04)
                                                         =========            =========           =========           =========
     Net (loss) income                                    $ (1.05)               $ .20               $(.79)             $(1.49)
                                                         =========            =========           =========           =========

   Diluted earnings per share:
     Income from continuing operations                      $ .21                $ .32               $ .63              $  .52
                                                         =========            =========           =========           =========
     Loss from discontinued operations                     $(1.23)               $(.13)             $(1.39)             $(1.93)
                                                         =========            =========           =========           =========
     Net (loss) income                                     $(1.03)               $ .19              $ (.76)             $(1.41)
                                                         =========            =========           =========           =========

</TABLE>

 See accompanying Notes to Consolidated Condensed Financial Statements.


                                       3
<PAGE>
                  UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                    Nine Months Ended September 30
                                                                                    ------------------------------
                                                                                       2003                  2002
                                                                                       ----                  ----
OPERATING ACTIVITIES                                                                         (Unaudited)
--------------------
<S>                                                                             <C>                  <C>
Net loss                                                                           $ (10,378)            $(19,359)
Adjustments to reconcile net loss
 to net cash provided by (used for)
 operating activities:
 Loss from discontinued operations,
    net of income tax benefit                                                         19,011               26,535
 Pension expense, net                                                                  4,438                  550
 Continuing operations tax refund,resulting
    from discontinued operations losses                                               16,822                  -
 Depreciation and amortization                                                         3,906                7,390
 Increase in deferred income taxes                                                    (1,133)                 (73)
 Decrease in provision for contract losses                                               (15)                (297)
 Changes in operating assets and liabilities                                          (8,908)              (1,098)
 (Increase) decrease in other assets - net                                              (268)                (416)
 Decrease in long-term liabilities                                                      (538)              (2,621)
 Increase (decrease) in federal income
    taxes payable                                                                      3,966               (6,620)
 Equity in net income of joint venture                                                   (54)                 (67)
 Restructuring charge                                                                    492                  425
                                                                                    ---------            ---------
 Net Cash Provided by Continuing Operations                                           27,341                4,349
 Net Cash Used for
   Discontinued Operations                                                           (13,098)             (26,373)
                                                                                    ---------            ---------
 Net Cash Provided by (Used for)
   Operating Activities                                                               14,243              (22,024)

INVESTING ACTIVITIES
Purchase of property and equipment                                                    (4,213)              (1,898)
Proceeds from sale of assets for
   discontinued operations                                                                 -               20,756
Increase in amount due from investee for
    discontinued operations                                                           (1,722)              (1,168)
Repayment of advances by investee of discontinued
    operations                                                                         1,722                  232
Advances to joint venture                                                                  -                  (97)
Repayment of advances by joint venture                                                     -                   64
                                                                                    ---------            ---------

 Net Cash (Used for) Provided by Investing Activities                                 (4,213)              17,889

FINANCING ACTIVITIES
Proceeds from exercise of stock options                                                2,663                1,830
Dividends                                                                             (3,955)              (2,605)
Proceeds from borrowings                                                                   -                2,250
                                                                                    ---------            ---------
 Net Cash (Used for) Provided by
    Financing Activities                                                              (1,292)               1,475
                                                                                    ---------            ---------
 Increase (Decrease) in cash and cash equivalents                                      8,738               (2,660)
 Cash and cash equivalents at beginning of period                                      3,635                5,496
                                                                                    ---------            ---------
 Cash and cash equivalents at end of period                                         $ 12,373              $ 2,836
                                                                                    =========            =========

</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements.


                                       4
<PAGE>
                 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES


    Notes to Consolidated Condensed Financial Statements

    September 30, 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 nine month period
    ended September 30, 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

<TABLE>
<CAPTION>

    (dollars in thousands)                                           Defense          Energy             Other             Totals
                                                                     -------          ------             ------            ------
<S>                                                               <C>              <C>             <C>               <C>
    Three months ended September 30, 2003
    -------------------------------------
    Revenues from external customers                                 $62,242          $ 7,031          $    -              $69,273
    Equity profit in venture                                              45              -                 -                   45
    Segment profit (loss)                                              3,809            1,145             (563)              4,391

    Income before income taxes                                                                                             $ 4,391
                                                                                                                          ========

    Nine months ended September 30, 2003
    ------------------------------------
    Revenues from external customers                                $206,132          $21,620           $   -             $227,752
    Equity profit in venture                                              54              -                 -                   54
    Segment profit (loss)                                             12,116            2,701           (1,427)             13,390

    Income before income taxes                                                                                            $ 13,390
                                                                                                                          ========

    Three months ended September 30, 2002
    -------------------------------------
    Revenues from external customers                                 $59,126          $ 7,983          $   -              $ 67,109
    Equity profit in venture                                              10              -                -                    10
    Segment profit                                                     5,129            1,726              188               7,043

    Income before income taxes                                                                                            $  7,043
                                                                                                                          ========

    Nine months ended September 30, 2002
    ------------------------------------
    Revenues from external customers                                $166,155          $23,149           $  -              $189,304
    Equity profit in venture                                              67              -                -                    67
    Segment profit (loss)                                             11,536              (66) (1)        (326)             11,144
                                                                                                                          --------

    Income before income taxes                                                                                            $ 11,144
                                                                                                                          ========

</TABLE>

-----------------
(1)Includes a $4,708 restructuring charge related to the closing of a foundry
operated by Midwest Metallurgical Laboratory, Inc., a wholly owned indirect
subsidiary of the Company reported in the Energy segment.


                                       5
<PAGE>
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 outstanding 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:


<TABLE>
<CAPTION>

                                                              Three Months Ended                        Nine Months Ended
(Dollars in Thousands, except per share data)                   September 30                              September 30
                                                         ---------------------------                ------------------------
                                                              2003                 2002                2003              2002
                                                              ----                 ----                ----              ----
<S>                                                    <C>                  <C>                  <C>             <C>
Income from continuing operations
  As reported                                              $ 2,801               $4,462              $8,633            $7,176
  Total employee stock compensation
    expense determined under fair
    value method, net of tax                                   161                  199                 514               573
                                                        ----------           ----------          ----------        ----------
   Pro forma                                               $ 2,640             $  4,263            $  8,119         $   6,603
                                                        ==========           ==========          ==========        ==========
Income per common share
from continuing operations:
As reported:
       Basic                                                  $.21                 $.34                $.66              $.55
       Diluted                                                 .21                  .32                 .63               .52
   Pro forma:
       Basic                                                   .20                  .33                 .62               .51
       Diluted                                                 .19                  .31                 .59               .48


NOTE D - WEIGHTED AVERAGE SHARES

                                                              Three Months Ended                       Nine Months Ended
                                                                 September 30                             September 30
                                                         ---------------------------                ------------------------
                                                           2003                 2002                   2003           2002
                                                           ----                 ----                   ----           -----
Weighted average shares                                 13,267,238           13,065,485          13,158,525        13,020,535
Dilutive effect of stock options                           330,180              670,434             494,708           708,512
                                                        ----------           ----------          ----------        ----------

Diluted weighted average shares                         13,597,418           13,735,919          13,653,233        13,729,047
                                                        ==========           ==========          ==========        ==========
</TABLE>


                                       6
<PAGE>
NOTE E - OTHER OPERATING EXPENSES, NET, OTHER INCOME, NET, OTHER EXPENSES

<TABLE>
<CAPTION>
                                                            Three Months Ended                        Nine Months Ended
                                                             September 30                              September 30
                                                         -----------------------                 ------------------------
                                                         2003              2002                   2003              2002
                                                        ------            ------                 ------            ------
<S>                                                <C>               <C>                    <C>              <C>
(Dollars in Thousands)
OTHER OPERATING EXPENSES, NET

Reduction of deferred
  compensation liability                               $  (34)           $  (57)                $ (138)          $  (171)
Consulting and legal fees related
  to asbestos matters                                       -                 -                    667                 -
Amortization of intangibles                                55                51                    166               166
Expenses related to closing
    of subsidiary                                           -                 4                      -               425
                                                       -------           -------                -------           -------

Total other operating (income)
 expenses, net                                         $   21           $    (2)                $  695            $  420
                                                       =======           =======                =======           =======

OTHER INCOME, NET

Royalties and commissions                              $    6             $  10                 $   59            $   11
Insurance adjustment                                       34                 -                     34                 -
(Loss) gain on sale of assets                              (2)                -                     31                 -
Other                                                      10                 -                     60                58
                                                       -------           -------                -------           -------

Total other income                                     $   48            $   10                 $  184            $   69
                                                       =======           =======                =======           =======

OTHER EXPENSES

Miscellaneous items, none of
   which are material                                      85               146                    272               352
                                                       -------           -------                -------           -------

Total other expenses                                   $   85            $  146                  $ 272             $ 352
                                                       =======           =======                =======           =======

</TABLE>


                                       7
<PAGE>
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 July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("FAS 146"). FAS 146 nullifies the
accounting for restructuring costs provided in EITF Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." FAS 146
requires that a liability associated with an exit or disposal activity be
recognized and measured at fair value only when incurred. In addition, one-time
termination benefits should be recognized over the period employees will render
service, if the service period required is beyond a minimum retention period.
FAS 146 is effective for exit or disposal activities initiated after December
31, 2002. Management does not expect that the application of the provisions of
FAS 146 will have a material impact on the Company's consolidated financial
statements.

In January 2003, the FASB issued Interpretation No. 46,"Consolidation of
Variable Interest Entities" which requires the consolidation of variable
interest entities, as defined. This interpretation is applicable to variable
interest entities created after January 31, 2003. Variable interest entities
created prior to February 1, 2003, must be consolidated effective December 15,
2003. The Company is in the process of evaluating the impact of this new
statement on the Company's financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments With Characteristics of Both Liabilities and Equity." SFAS No. 150
changes the classification in the statement of financial position of certain
common financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to recognize
changes in fair value or redemption amount, as applicable, in earnings. SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003, and with one exception, is effective at the beginning of the first
interim period beginning after June 15, 2003. The effect of adopting SFAS No.
150 will be recognized as a cumulative effect of an accounting change as of the
beginning of the period of adoption. Restatement of prior periods is not
permitted. SFAS No. 150 did not have any impact on the Company's financial
position or results of operations.



                                       8
<PAGE>
NOTE G - DISCONTINUED BUSINESS SEGMENT

Assets and liabilities of the discontinued transportation operations have been
reclassified as current as follows:

<TABLE>
<CAPTION>
                                                                                     September 30          December 31
(Dollars in Thousands)                                                                   2003                2002
                                                                                         ----                ----
<S>                                                                               <C>                 <C>
Assets
Current Assets
   Trade receivables                                                                    $    -              $   908
   Inventories                                                                              172               9,013
   Prepaid expenses and other current assets                                                 51                  51
   Deferred taxes                                                                        11,883               4,070
                                                                                       --------             -------


Total Current Assets                                                                   $ 12,106             $14,042
                                                                                       ========             =======

Liabilities
Current Liabilities
   Accounts payable                                                                     $   754             $ 1,674
   Accrued employee compensation and taxes                                                  758               1,052
   Customer advances                                                                          1               1,087
   Reserve for shutdown costs, impairment and other                                       5,019               7,300
   Other                                                                                  8,957                 400
                                                                                         ------             -------

Total Liabilities                                                                      $ 15,489             $11,513
                                                                                       ========             =======

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


                                                              Three Months Ended                           Nine Months Ended
                                                                September 30                                September 30
                                                          --------------------------                  --------------------------
                                                            2003               2002                   2003                    2002
                                                            ----               ----                   ----                    -----

Revenue                                                  $ 3,870            $ 2,124                $12,013                $ 25,197
                                                       ==========         ==========             ==========              ==========

Loss before income taxes                               $ (25,766)           $(2,837)              $(29,243)               $(40,816)
Income taxes benefit                                       9,015                993                 10,232                  14,281
                                                       ----------         ----------             ----------              ----------
Net Loss from discontinued
 operations                                            $ (16,751)          $ (1,844)              $(19,011)               $(26,535)
                                                       ==========         ==========             ==========              ==========


                                                                                                           Nine Months Ended
                                                                                                            September 30
                                                                                                       ------------------------
                                                                                                      2003                 2002
                                                                                                      ----                 ----
Net Cash (Used for) Provided by
   Discontinued Operations
Net Loss                                                                                         $ (19,011)               $(26,535)
Changes in operating assets and liabilities                                                         16,007                  19,397
Increase in deferred taxes                                                                          (7,813)                 (3,000)
Decrease in reserve
 for shutdown costs, impairment and other                                                           (2,281)                (28,054)

Other                                                                                                  -                    11,819
                                                                                                  ---------              ----------
Net Cash Used for
 Discontinued Operations                                                                         $ (13,098)              $ (26,373)
                                                                                                 ==========              =========
</TABLE>

                                       9
<PAGE>
NOTE H  - COMMITMENTS AND CONTINGENCIES

Overview
--------

The Company is involved in various lawsuits and claims, including asbestos
related litigation and environmental matters. 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 of the Company (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. No assurance can be given, however, as to the actual
amount of the Company's liabilities or recoveries, and the differences from
estimated amounts could be material.

Detroit Stoker Company Environmental Matter
-------------------------------------------

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 any potential claims. Management does not believe
that the resolution of this matter will have a materially adverse effect on the
Company's financial condition or results of operations. No assurances can be
given, however, as to the actual extent to which the Company may be determined
to be liable, if at all.

Asbestos
--------

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

The asbestos litigation is pending in Michigan, Mississippi, and North Dakota.
During 2002, UIC and Detroit Stoker experienced a significant increase in the
volume of asbestos bodily-injury claims. As of September 30, 2003, the Company
has received notice that it has been named as a defendant in 507 active cases
involving approximately 18,590 asbestos bodily injury claimants, of which at
least 18,000 claimants are involved in cases 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 vast
majority of claimants in 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 were
not material.


                                       10
<PAGE>
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 Asbestos
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 estimated 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. The
asbestos liability for the three and nine months ended September 30, 2003
decreased by $120,000 and $205,000, respectively, due to the payment of claim
related expenses.

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. Beyond 2012 a reasonable
estimate cannot be determined. 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.

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.


                                       11
<PAGE>
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, Management believes that although asbestos
claims could have a material adverse effect on the Company's financial condition
or results 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.

Other Lawsuits and Claims
-------------------------

The Company is involved in various other lawsuits and claims, including another
environmental matter, arising out of the normal course of its continuing and
discontinued businesses. 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. No assurances can be given, however, as to
the actual amount of the Company's liabilities or recoveries, and the
differences from estimated amounts could be material.

Other Performance Guarantees
----------------------------

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 September 30, 2003. No assurances can be
given, however, as to the Company's liability if the Company's partners or
subcontractors are unable to perform their obligations.

Discontinued Transportation Operations Performance Guarantees
-------------------------------------------------------------

In connection with the discontinued transportation operations, AAI Corporation
(AAI), a wholly owned subsidiary of the Company, owns 35% of Electric Transit,
Inc. (ETI). The remaining 65% of ETI is owned by Skoda, a.s. (Skoda), a Czech
Republic company. ETI's one remaining production contract is with the San
Francisco Municipal Railway (MUNI) and involves the design and manufacture of
273 electric trolley buses (ETB's). In executing its contract with MUNI, ETI has
entered into subcontracts with AAI, certain Skoda operating affiliates and
others. Both AAI and the Skoda operating affiliates have essentially completed
their initial delivery requirements and are now subject to warranty
requirements. Currently, ETI is in the process of completing the final assembly
and delivery of the remaining ETB's. At November 1, 2003, ETI had delivered 235
of the 273 ETB's in the MUNI order. In addition, ETI is completing a retrofit
program that incorporates final design changes for many of the previously
delivered buses.


                                       12
<PAGE>
The Company has agreed to certain indemnification obligations related to surety
bond arrangements between ETI and its MUNI customer.

The first of these surety bond indemnification obligations is associated with
progress payments received by ETI that related to the MUNI contract. In January
2003, this bond was reduced to $9,100,000 and reduced again in August of 2003 to
$1,350,000. The elimination of this bond is related to the MUNI customer's
acceptance of certain deliveries. Although the Company previously agreed to
jointly and severally indemnify the surety up to the full value of this progress
payment bond, if necessary, Skoda retains its 65% obligation that is partially
guaranteed by the Czech Export Bank.

In addition, regarding the two other existing surety bonds that guarantee
performance (Performance Bond), and payment to subcontractors and vendors for
labor and materials (Labor and Materials Bond) provided to ETI under the MUNI
contract, the Company has previously agreed to indemnify the surety, if
necessary, for up to approximately $14,800,000 under each bond. Unless a claim
is made against the bonds, they and the Company's related indemnification
obligations are contractually required to be released upon ETI's issuance of a
warranty bond at the conclusion of the production phase of the contract. The
Company has previously agreed to indemnify the surety up to 35% of the warranty
bond amount which would be expected to be about $20,000,000. The Company will
likely be required to provide the surety with some amount of collateral to
support this indemnity.

The ability of ETI to perform under its obligations is, in part, dependent on
the performance of other parties, including AAI, the Skoda operating affiliates
and other subcontractors. Thus, the ability to timely perform under these
contracts is outside AAI's control. In addition, while Skoda's operating
affiliates performed under their contracts with ETI through September 30, 2003,
during 2001 Skoda declared bankruptcy in the Czech Republic. During 2002, the
discontinued transportation operations of the Company began recording 100%,
instead of 35%, of ETI's losses because of Skoda's apparent inability to meet
its financial obligations under ETI's shareholder agreement and AAI's
contractual indemnification of the surety of certain of ETI's performance
criteria noted above. The additional losses recorded by the Company for Skoda's
65% share of ETI's losses totaled $15,596,000 and $66,000 during the third
quarter of 2003 and 2002, respectively, and $15,853,000 and $5,832,000 for the
first nine months of 2003 and 2002, respectively. Since January 1, 2002, AAI has
recorded $33,117,000 of losses related to ETI that represent Skoda's 65% share.
If Skoda is required to provide ETI with additional funding beyond the amounts
already provided for by AAI on Skoda's behalf and Skoda continues to fail to do
so, or if ETI is unable to meet its performance obligations, the performance
criteria indemnification agreements by AAI could have a material adverse effect
on the Company's results of operations, liquidity or financial condition. AAI
monitors the progress of ETI, Skoda and ETI's other subcontractors.

AAI has agreed to provide up to $3,000,000 of funds to ETI pursuant to a
callable on demand revolving credit agreement. Accordingly, it is expected that
ETI will have sufficient working capital to complete the MUNI program. At
September 30, 2003 there were no borrowings under this agreement by ETI.


                                       13
<PAGE>
Although AAI has essentially completed its MUNI subcontract effort, it has
continued to provide support to ETI as ETI satisfies its remaining commitment to
MUNI. Skoda's apparent inability to fund its share of ETI's obligations coupled
with the additional losses expected to be incurred by ETI have caused the
Company to reassess its continued support of ETI while ETI pursues opportunities
to mitigate the MUNI program's cost growth.

The Company believes it has provided for ETI's estimated MUNI program losses
through completion as well as its accounts receivable from ETI that may not be
recoverable from ETI due to ETI's poor financial condition. In addition, the
Company is investigating its loss mitigation alternatives that could provide a
recovery in whole or part of such receivables and/or reduction of the losses
incurred by ETI and/or funded to ETI by the Company. No assurances can be given,
however, as to the amount, if any, or timing of a recovery.

ETI's Dayton electric trolley bus contract that is currently in its warranty
phase, required a performance bond of about $16,000,000 that was outstanding at
December 31, 2002. The Company had agreed to jointly and severally indemnify the
surety, if necessary, under that bond. In February 2003, the Company was
released from this $16,000,000 bond.

On July 26, 2002, the Company sold two transportation overhaul contracts with
the New Jersey Transit Corporation and Maryland Transit Administration and
related assets and liabilities to Alstom Transportation, Inc. ("Alstom"). The
Company agreed to indemnify Alstom against certain breaches by AAI of
representations and covenants pursuant to the Master Agreement ("Agreement").
Certain of such indemnity claims are subject to a requirement that notice be
given within nine months of the closing and are subject to a maximum exposure of
$4,250,000. Other indemnification claims are not so limited.

On March 3, June 5 and November 5, 2003, Alstom raised certain indemnification
matters totaling about $19 million to the Company to be discussed by Alstom's
and the Company's respective managements.

The Company has requested further documentation concerning Alstom's claims.
These matters are still pending and the Company is unable to determine whether
the Company may have any liability with repect thereto, and if so, to what
extent.


NOTE I  - DIVIDENDS

A quarterly dividend of $0.10 per share was paid on September 12, 2003.


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


                                       14
<PAGE>
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 agreements 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 constraints 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 statement.

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 three month and nine month
periods ended September 30, 2003 compared to three and nine months ended
September 30, 2002.

Consolidated net sales from continuing operations increased by $2,164,000 or
3.2% to $69,273,000 in the third quarter of 2003 from $67,109,000 during the
same period in 2002. The Defense segment increased sales by $3,116,000 or 5.3%
to $62,242,000 in the third quarter of 2003 from $59,126,000 during the same
period in 2002. The Defense segment increase was generally due to the
commencement of the full-rate production contract for the Shadow 200 Tactical
Unmanned Aerial Vehicle (TUAV) and increased production of the Joint Services
Electronic Combat Systems Tester (JSECST) partially offset by the completion of
certain foreign Unmanned Aerial Vehicle (UAV) programs in 2003. Additionally,
revenues of $3,208,000 associated with the Shadow TUAV deployment in support of
Operation Iraqi Freedom were recognized during the quarter. The Energy segment
sales decreased $952,000 or 11.9 % to $7,031,000 during the third quarter of
2003 from $7,983,000 during the same period in 2002 due to the timing of orders
and deliveries to customers.

Consolidated net sales from continuing operations increased by $38,448,000 or
20.3% to $227,752,000 in the first nine months of 2003 from $189,304,000 during
the same period in 2002. The Defense segment increased sales by $39,977,000 or
24.1% to $206,132,000 in the first nine months of 2003 from $166,155,000 during
the same period in 2002. The increase was generally due to the commencement of
the Shadow 200 TUAV full-rate production contract and increased production of
the JSECST. Additionally, the Defense segment recorded revenues of $5,322,000
related to deployment of the Shadow TUAV in support of Operation Iraqi Freedom.
The Energy segment sales decreased $1,529,000 or 6.6% to $21,620,000 in the
first nine months of 2003 from $23,149,000 during the same period in 2002. This
decrease was due to the timing of orders and deliveries to customers.


                                       15
<PAGE>
The gross margin for continuing operations increased $134,000 or 0.9% to
$15,540,000 (22.4% of sales) from $15,406,000 (23.0% of sales) in the third
quarter of 2003 compared to the third quarter of 2002. The Defense segment gross
margin increased $466,000 to $12,537,000 (20.1% of sales) from $12,071,000
(20.4% of sales) in the third quarter of 2003 compared to the third quarter of
2002. The increase was primarily attributable to increased sales volume in the
UAV and Simulation and Test product lines. In addition, the increase in the
Defense segment margin in 2003 was partially offset by lower pension plan
performance which resulted in higher pension expense. The pension expense
included in the cost of sales in this segment was $1,615,000 and $600,000 in the
third quarter of 2003 and 2002, respectively. The increase in pension expense
was due primarily to the downward trend in the securities markets and interest
rates as of the pension plan's most recent measurement date of December 31,
2002. Although the total gross profit amount in the Defense segment increased
during the third quarter of 2003 compared to 2002, the gross profit as a percent
of sales decreased. During the third quarter of 2002, the program mix in the
Defense segment included higher margin international sales that favorably
impacted earnings. However, during the third quarter of 2003 the Defense segment
experienced improved margins on domestic programs. The gross margin in the
Energy segment decreased $332,000 to $3,003,000 (42.7% of sales) from a gross
profit of $3,335,000 (41.8% of sales) during the third quarter of 2003 compared
to the third quarter of 2002. This decrease is generally attributable to a
decrease in the overall sales volume during the third quarter of 2003. The
overall gross margin percentage increased however, primarily due to changes in
the product mix of sales.

The gross margin for continuing operations increased $9,262,000 or 24.5% to
$47,091,000 (20.7% of sales) from $37,829,000 (19.9% of sales) for the first
nine months of 2003 compared to the same period in 2002. The Defense segment
gross margin increased $5,788,000 to $38,243,000 (18.6% of sales) from
$32,455,000 (19.5% of sales) for the first nine months of 2003 compared to the
same period in 2002. The increase was primarily attributable to increased sales
volume in the UAV and Simulation and Test product lines. Although the total
gross profit amount in the Defense segment increased during the first nine
months of 2003 compared to 2002, the gross profit as a percent of sales
decreased. During the first nine months of 2002, the program mix in the Defense
segment that included higher margin international sales favorably impacted
earnings. However, during the first nine months of 2003 the Defense segment
experienced improved margins on domestic programs. The decrease in defense
margins as a percentage of sales in 2003 was also due to higher pension plan
expense in 2003 as well as an insurance recovery of $271,000 in the first
quarter of 2002. The pension expense included in cost of sales in the Defense
segment for the first nine months of 2003 was $4,844,000 compared to pension
expense of $1,800,000 included in the cost of sales in the same period of 2002.
The increase in pension expense was due primarily to the downward trend in the
securities markets and interest rates as of the pension plan's most recent
measurement date of December 31, 2002. The gross margin in the Energy segment
increased $3,475,000 to $8,848,000 (40.9% of sales) from a gross margin of
$5,373,000 (23.2% of sales) during the first nine months of 2003 compared to the
same period in 2002. The Energy segment cost of sales for the first nine months
2002 included a charge of $3,420,000 for accelerated depreciation of assets
related to the closing of Midwest Metallurgical Laboratory, Inc. (Midwest) a
previously indirect subsidiary of the Company in the Energy Segment engaged in
foundry operations (See "Restructuring Charges", below.) Also, contributing to
the margin increase was lower cost castings, the manufacturing of which was
outsourced in connection with the decision to close Midwest during 2002.


                                       16
<PAGE>
Selling and administrative expenses for continuing operations for the third
quarter of 2003 increased $2,791,000 or 32.8% to $11,299,000 (16.3% of sales)
from $8,508,000 (12.7% of sales) compared to the same period in 2002. The
overall increase in selling and administrative expenses occurred primarily in
the Defense segment. Selling and administrative expenses in the Defense segment
increased $1,926,000 or 27.6% to $8,912,000 (14.3% of sales) in the third
quarter of 2003 from $6,986,000 (11.8% of sales) in the third quarter of 2002.
The overall increase in these expenses in the Defense segment was due to a
general increase in costs of $927,000, reallocated corporate expenses of
$350,000 primarily caused by reduced allocations to the discontinued
transportation operations, licensing fees of $250,000 associated with a
cooperative marketing agreement, higher research and development, and bid and
proposal costs of $217,000 and increases in insurance expenses of $182,000.
Selling and administrative expenses in the Energy segment decreased $4,000 or
0.2% to $2,024,000 (28.8% of sales) in the third quarter of 2003 from $2,028,000
(25.4% of sales) in the third quarter of 2002. Selling and administrative
expenses in the Other segment increased $869,000 of which $492,000 was related
to severance costs for terminated employees incurred in connection with the
closing of the New York office and the relocation of the investor relations,
Corporate Secretary and certain accounting functions to the Company's
headquarters in Hunt Valley, Maryland, which is also the headquarters of the
Company's AAI Corporation Defense segment subsidiary, as well as $377,000 of
other costs associated with the New York office. 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 for continuing operations increased
$6,640,000 or 24.8% to $33,422,000 (14.7% of sales) from $26,783,000 (14.2% of
sales) in the first nine months of 2003 compared to the same period in 2002. The
overall increase in selling and administrative expenses occurred primarily in
the Defense segment. Selling and administrative expenses in the Defense segment
increased $6,397,000 or 31.0% to $27,024,000 (13.1% of sales) in the first nine
months of 2003 from $20,627,000 (12.4% of sales) in the first nine months of
2002. The overall increase in these expenses in the Defense segment was due to a
general increase in costs of $1,518,000, higher research and development, and
bid and proposal costs of $2,280,000, $1,000,000 of reallocated corporate
expenses primarily caused by a reduced allocation base in the discontinued
transportation operations, increases in insurance expenses of $659,000,
licensing fees of $500,000 associated with a cooperative marketing agreement and
studies performed by outside consultants of $440,000. Selling and administrative
expenses in the Energy segment decreased $308,000 or 4.9% to $6,033,000 (27.9%
of sales) in the first nine months of 2003 from $6,341,000 (27.4% of sales) in
the first nine months of 2002. Selling and administrative expenses in the Other
segment increased $551,000 due primarily to the closing of the New York office
and the relocation of the investor relations, Corporate Secretary and certain
accounting functions to the Company's headquarters in Hunt Valley, Maryland,
which is also the headquarters of the Company's AAI Corporation Defense segment
subsidiary.

Other operating expenses of the continuing operations in the third quarter of
2003 increased by $23,000 from the third quarter of 2002.

Other operating expenses of the continuing operations in the first nine months
of 2003 increased by $275,000 from the first nine months of 2002. The 2003
results include asbestos related expenses of $667,000. The 2002 results included
$425,000, related to the closing of Midwest both of which occurred in the Energy
segment.


                                       17
<PAGE>
Other income from the continuing operations increased $38,000 and $115,000 in
the third quarter and first nine months of 2003 compared with the third quarter
and first nine months 2002, respectively.

Income before income taxes for continuing operations decreased $2,652,000 or
37.7% to $4,391,000 in the third quarter of 2003 from $7,043,000 for the same
period in 2002. The decrease was primarily attributable to an increase in
pension expenses and increases in the general and administrative costs in the
Defense and Other segments.

Income before income taxes for continuing operations increased $2,246,000 or
20.2% to $13,390,000 in the first nine months of 2003 from $11,144,000 for the
same period in 2002. The increase was attributed to increased sales volume in
the UAV and Simulation and Test product lines of the Defense segment, partially
offset by increased pension expenses and increased Defense and Other segment
general and administrative costs. In addition, the first nine months of 2002
included a charge of $3,845,000 for the accelerated depreciation of assets and
expenses related to the closing of Midwest.

Since December 31, 2002, the funded backlog (orders placed for which funds have
been appropriated or purchase orders received) related to continuing operations
decreased $13,008,000 or 4.3%. The Defense segment's funded backlog was
$282,969,000 at September 30, 2003 compared to $296,117,000 at December 31,
2002. The decrease was generally due to the increased production associated with
the TUAV and JSECST contracts, partially offset by additional orders received
associated with the Company's C-17 Maintenance Trainer program. The Energy
segment's funded backlog was $5,439,000 at September 30, 2003 compared to
$5,299,000 at December 31, 2002.

Sales in the discontinued transportation operations increased $1,746,000 or
82.2% during the third quarter of 2003 to $3,870,000 from $2,124,000 during the
same period in 2002. This was due to increased deliveries under its one
remaining contract.

Sales in the discontinued transportation operations decreased $13,184,000 or
52.3% in the first nine months of 2003 to $12,013,000 from $25,197,000 during
the same period in 2002. This was due to the planned decrease in production on
existing contracts and contracts that were sold in 2002.

The loss, before taxes in the discontinued transportation operations, during the
three months ended September 30, 2003 was $25,765,000 compared to a loss of
$2,837,000 in the same period of 2002. The 2003 results include a loss of
$23,994,000 primarily related to the loss estimated to be incurred by Electric
Transit, Inc. (ETI), in which the Company's AAI subsidiary is a 35% stockholder,
to complete the production and warranty phases of its one remaining contract to
provide electric trolley buses to the San Francisco Municipal Railway (MUNI).
Also included in the 2003 loss is $1,392,000 of costs related to idle capacity
that cannot be allocated to the Company's now substantially completed MUNI
subcontract and $376,000 of general and administrative expenses. Included in the
third quarter 2002 loss was $1,339,000 of general and administrative expenses
and $815,000 of costs related to idle capacity that cannot be allocated to the
Company's MUNI subcontract. In addition, the 2002 third quarter included an
increase of approximately $582,000 in estimated costs to complete the Company's
MUNI subcontract. Further, the Company recorded a provision of approximately
$101,000 of losses related to ETI.


                                       18
<PAGE>
The loss, before taxes, during the nine months ended September 30, 2003 in the
discontinued transportation operations was $29,242,000 compared to a loss of
$40,816,000 in the same period of 2002. The 2003 results include a loss of
$24,389,000 primarily related to the loss estimated to be incurred by ETI to
complete the production and warranty phases of its one remaining contract to
provide electric trolley buses to MUNI. This loss consists of $23,800,000
related to estimated future contract losses and $589,000 related to general and
administrative expenses incurred by ETI. Also included in the 2003 loss is
$3,572,000 of costs related to idle capacity that cannot be allocated to the
Company's now substantially completed MUNI subcontract and $1,281,000 of general
and administrative expenses. Included in the 2002 loss was a $21,500,000
provision related to the sale of the Company's overhaul contracts. Also included
in the loss during the first nine months of 2002 was an increase of
approximately $2,933,000 in estimated costs to complete remaining contracts,
$3,002,000 of general and administrative expenses, and $4,408,000 of other
disposition costs related to the conveyed contracts. Further, the Company
recorded a loss of approximately $8,973,000 related to estimated contract losses
by ETI.

The amounts recorded as ETI losses during the three and nine month periods
ending September 30, 2003 and 2002 represent 100%, instead of 35%, of the losses
expected to be incurred by ETI in executing its electric trolley bus programs
since it is unlikely that Skoda will have the financial capability to fund its
65% share of such losses and AAI's guaranty of certain of ETI's performance
criteria described below.

During the completion of the discontinued transportation operations, the Company
anticipates that the amount of overhead to be absorbed by its now substantially
completed MUNI subcontract will not be sufficient to cover the total overhead
incurred. The Company's discontinued transportation operations will expense the
unabsorbed overhead as incurred. These charges are expected to be approximately
$3,000,000 to $3,500,000 from October 1, 2003 through the third quarter of 2004.
Further, general and administrative expenses related to the discontinued
transportation operations that likewise will be expensed as incurred from
October 1, 2003 through the third quarter of 2004 are expected to be about
$1,300,000. In addition, upon completion of the discontinued transportation's
production operations the Company contemplates a charge associated with the idle
facility, primarily future operating lease costs, of approximately $1,000,000.
Subleasing the facility space may mitigate these costs. Including the unabsorbed
overhead, general and administrative expenses, and operating lease costs
described above, the Company expects that it may fund the discontinued
transportation operations about $18 million over the next ten years. No
assurances can be given, however, as to the actual amount of the Company's
liability concerning ETI's obligation to complete its one remaining contract to
deliver electric trolley buses to MUNI, and exit the discontinued operations.


                                       19
<PAGE>
Liquidity and Capital Resources
-------------------------------

Cash and cash equivalents increased $8,738,000 to $12,373,000 at September 30,
2003 from $3,635,000 at December 31, 2002. Net cash provided by operating
activities by the continuing operations was $27,341,000 in the first nine months
of 2003. Net cash provided by operating activities of the continuing operations
increased primarily due to an increase in income from continuing operations and
the receipt of a tax refund of $16,822,055, related to the Company's 2002 net
loss from discontinued operations, partially offset by changes in operating
assets and liabilities. The net cash used by operating activities of
discontinued operations was $13,098,000 in the first nine months of 2003. This
use is primarily due to the losses incurred by ETI as it completes its
deliveries and obligations to MUNI under its contract.

Cash used by investing activities was $4,213,000 primarily due to the
acquisition of equipment and tooling in the Defense segment in order to support
increased production associated with various government contracts.

Net Cash used by financing activities was $1,292,000. This was primarily due to
the payment of dividends offset by the receipt of cash through the exercise of
employee stock options. Cash received from the exercise of stock options was
$2,663,000 compared to $1,830,000 in 2002.

In November 2003, the Board of Directors of the Company authorized the
repurchase of up to $10 million of the Company's common stock. The timing of the
buy-back and the exact number of shares purchased will depend on market
conditions. No repurchases have yet been made under this program.

As of September 30, 2003, the Company has recorded net deferred tax assets of
approximately $17,191,000. Management believes the Company will generate
sufficient taxable income in future years to realize this benefit.

Although the Company has experienced higher pension plan expense due to the
downward trend in interest rates and pension asset losses in the securities
markets as of the measurement date of December 31, 2002, 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 pension plan that covers certain
employees in the Energy segment.

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 borrowings, subject to a borrowing base. The Agreement provides for up to
$25,000,000 of credit advances, with a $10,000,000 cash borrowing sublimit.
Credit advances may increase to $32,000,000 provided that amounts in excess of
$25,000,000 are cash-collateralized. At September 30, 2003 there were no cash
borrowings under the Agreement. The letter of credit obligations outstanding at
September 30, 2003 under the Agreement were $4,004,000. During the third quarter
of 2003, an amendment to the Agreement was entered into whereby, among other
things, the financial covenants were modified and the amount of the Company's
Common Stock that may be repurchased during the term of the Agreement was
increased from $5,000,000 to $10,000,000. Subsequently, Fleet Capital
Corporation delivered a letter to the Company which, among other things, further
modified the financial covenants and instituted a borrowing base reserve of
$6,000,000 on the total credit facility, with a $3,000,000 reserve being applied
to the $10,000,000 cash borrowing sublimit (resulting in maximum cash borrowing
availability of $7,000,000).


                                       20
<PAGE>
In addition, 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 September 30,
2003, the subsidiary had no cash borrowings and $687,000 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 Company (Detroit Stoker), a wholly owned subsidiary of the
Company, ceased its 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 had written off the value of
all Midwest's assets in 2002.

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
2003.

On October 31, 2003, the Company closed its New York office and relocated the
corporate activities handled at that location to its existing facility in Hunt
Valley, Maryland. Accordingly, the Company recorded a charge of $492,000, during
the third quarter of 2003 related to severance costs for the former employees at
that location. In the fourth quarter of 2003, the Company anticipates a charge
of about $450,000 related to the closure of the New York facility.

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 September 30, 2003. No assurances can be
given, however, as to the Company's liability if the Company's partners or
subcontractors are unable to perform their obligations.

The Company has previously agreed to certain indemnification obligations related
to surety bond arrangements between ETI and its MUNI customer.

The first of these surety bond indemnification obligations is associated with
progress payments received by ETI that related to the MUNI contract. In January
2003, this bond was reduced to $9,100,000 and further reduced to $1,350,000 in
August 2003. The elimination of this bond is related to the MUNI customer's
acceptance of certain deliveries. At November 1, 2003 ETI had delivered 235
electric trolley buses of the 273 vehicles ordered. Although the Company agreed
to jointly and severally indemnify the surety up to the full value of this
progress payment bond, if necessary, Skoda retains its 65% obligation that is
partially guaranteed by the Czech Export Bank.


                                       21
<PAGE>
In addition, regarding the two other existing surety bonds that guarantee
performance and payment to subcontractors and vendors for labor and materials
provided to ETI under the MUNI contract, the Company has previously agreed to
indemnify the surety, if necessary, for up to approximately $14,800,000 under
each bond. Unless a claim is made against the bonds, they and the Company's
related indemnification obligations are contractually required to be released
upon ETI's issuance of a warranty bond at the conclusion of the production phase
of ETI's contract. The Company has previously agreed to indemnify the surety up
to 35% of the warranty bond amount, which would be expected to be about
$20,0000,000. The Company will likely be required to provide the surety with
some amount of collateral to support this indemnity.

The ability of ETI to perform under its obligations is, in part, dependent on
the performance of other parties, including AAI, the Skoda operating affiliates
and other subcontractors. Thus, the ability to timely perform under these
contracts is outside AAI's control. In addition, while Skoda's operating
affiliates performed under their contracts with ETI through September 30, 2003,
during 2001 Skoda declared bankruptcy in the Czech Republic. During 2002, the
discontinued transportation operations of the Company began recording 100%,
instead of 35%, of ETI's losses because of Skoda's apparent inability to meet
its financial obligations under ETI's shareholder agreement and AAI's
contractual indemnification of the surety of certain of ETI's performance
criteria noted above. The additional losses recorded by the Company for Skoda's
65% share of ETI's losses totaled $15,596,000 and $66,000 during the third
quarter of 2003 and 2002, respectively, and $15,853,000 and $5,832,000 for the
first nine months of 2003 and 2002, respectively. Since January 1, 2002, AAI has
recorded $33,117,000 of losses related to ETI that represent Skoda's 65% share.
If Skoda is required to provide ETI with additional funding beyond the amounts
already provided for by AAI on Skoda's behalf and Skoda continues to fail to do
so, or if ETI is unable to meet its performance obligations, the performance
criteria indemnification agreements by AAI could have a material adverse effect
on the Company's results of operations, liquidity or financial condition. AAI
monitors the progress of ETI, Skoda and ETI's other subcontractors.

AAI has agreed to provide up to $3,000,000 of funds to ETI pursuant to a
callable on demand revolving credit agreement. Accordingly, it is expected that
ETI will have sufficient working capital to complete the MUNI program. At
September 30, 2003 there were no borrowings under this agreement by ETI.

Although AAI has essentially completed its MUNI subcontract effort, it has
continued to provide support to ETI as ETI satisfies its remaining commitment to
the MUNI customer. Skoda's apparent inability to fund its share of ETI's
obligations coupled with the additional losses expected to be incurred by ETI
have caused the Company to reassess its continued support of ETI while ETI
pursues opportunities to mitigate the MUNI program's cost growth.

The Company believes it has provided for ETI's estimated MUNI program losses
through completion as well as its accounts receivable from ETI that may not be
recoverable from ETI due to ETI's poor financial condition. In addition, the
Company is investigating its loss mitigation alternatives that could provide a
recovery in whole or part of such receivables and/or reduction of the losses
incurred by ETI and/or funded to ETI by the Company. No assurances can be given,
however, as to the amount, if any, or timing of a recovery.


                                       22
<PAGE>
ETI's Dayton electric trolley bus contract required a performance bond of about
$16,000,000 that was outstanding at December 31, 2002. The Company had agreed to
jointly and severally indemnify the surety, if necessary, under that bond. In
February 2003, the Company was released from this $16,000,000 bond.

On July 26, 2002, the Company sold two transportation overhaul contracts with
the New Jersey Transit Corporation and Maryland Transit Administration and
related assets and liabilities to Alstom Transportation, Inc. ("Alstom"). The
Company agreed to indemnify Alstom against certain breaches by AAI of
representations and covenants pursuant to the Master Agreement ("Agreement").
Certain of such indemnity claims are subject to a requirement that notice be
given within nine months of the closing and are subject to a maximum exposure of
$4,250,000. Other indemnification claims are not so limited.


On March 3, June 5 and November 5, 2003, Alstom raised certain indemnification
matters to the Company to be discussed by Alstom's and the Company's respective
managements.

The Company has requested further documentation concerning Alstom's claims.
These matters are still pending and the Company is unable to determine whether
the Company may have any liability with respect thereto, and if so, to what
extent.

The Company is involved in various lawsuits and claims, including asbestos
related litigation and environmental matters. 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 (except as set forth in the financial
statements and notes thereto referenced in the next sentence). 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.



                                       23
<PAGE>
ITEM 3  - QUANTITATIVE AND QUALITATIVE 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

The Company's management evaluated, with the participation of the Company's
principal executive and principal financial officers, the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of September 30, 2003. Based on their evaluation, the Company's
principal executive and principal financial officers concluded that the
Company's disclosure controls and procedures were effective as of September 30,
2003.

There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Company's fiscal quarter ended September 30, 2003, that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.



                                       24
<PAGE>
                 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 and to Note H to
the financial statements included herein, which information is incorporated
herein by reference.

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

(a) The Annual Meeting of Shareholders of the Registrant was held on October 8,
2003.

(b) Thomas A. Corcoran and General Paul X. Kelley (ret.) were elected directors
at the meeting, for terms ending in 2006. The incumbent directors whose terms of
office continued after the meeting are Richard R. Erkeneff, Glen M. Kassan,
Warren G. Lichtenstein and Joseph S. Schneider.

(c) Voting for the election of directors of the Registrant:

                                               FOR         WITHHELD
                                               ---         --------
           Thomas A. Corcoran              11,859,182       725,282
           Paul X. Kelley                  11,856,632       727,832

Other Matters:

10,518,333 shares were voted in favor of the proposal to ratify the appointment
of Ernst & Young LLP as independent auditors of the Registrant for 2003, with
491,602 shares voted against, 1,604,592 abstentions and no broker non-votes.

7,876,871 shares were voted in favor of the proposal to amend the United
Industrial 1994 Stock Option Plan and the compensation provided thereunder, with
1,805,218 shares voted against, 76,952 abstentions and no broker non-votes.

ITEM 6  -  EXHIBITS AND REPORTS ON FORM 8-K

(1) Exhibits:


               10.1 Fourth Amendment dated as of March 31, 2003 among the
                    Company and certain of its subsidiaries, as Borrowers, and
                    Fleet Capital Corporation, as Lender, to the Loan and
                    Security Agreement dated as of June 28,2001 among them(the
                    "Loan Agreement").

               10.2 Fifth Amendment dated as of September 30, 2003 among the
                    Company and certain of its subsidiaries, as Borrowers, and
                    Fleet Capital Corporation, as Lender, to the Loan Agreement.

               10.3 Letter from Fleet Capital Corporation to the Company dated
                    November 12, 2003, amending the Loan Agreement.

               31.1 Certification of Chief Executive Officer of the Company
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

               31.2 Certification of Chief Financial Officer of the Company
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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


(2) Reports on Form 8-K:

           On August 1, 2003, the Registrant filed a current report on Form 8-K
containing its press release announcing its financial results for the second
quarter ended June 30, 2003.



                                       25
<PAGE>
                                   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   November 13, 2003                      By: /s/ James H. Perry
       -----------------                         -------------------------------
                                                 James H. Perry
                                                 Chief Financial Officer,
                                                 Vice President and Treasurer



                                       26
<PAGE>
                          UNITED INDUSTRIAL CORPORATION

                        INDEX OF EXHIBITS FILED HEREWITH


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


    10.1   Fourth Amendment dated as of March 31, 2003 among the
           Company and certain of its subsidiaries, as Borrowers, and
           Fleet Capital Corporation, as Lender, to the Loan and
           Security Agreement dated as of June 28,2001 among them(the
           "Loan Agreement").                                             28

    10.2   Fifth Amendment dated as of September 30, 2003 among the
           Company and certain of its subsidiaries, as Borrowers, and
           Fleet Capital Corporation, as Lender, to the Loan Agreement.   34

    10.3   Letter from Fleet Capital Corporation to the Company dated
           November 12, 2003, amending the Loan Agreement.                41

    31.1   Certification of Chief Executive Officer of the Company
           pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     42

    31.2   Certification of Chief Financial Officer of the Company
           pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     43

    32.1   Certification of the Chief Executive Officer of the Company
           pursuant to 18 U.S.C. '1350, as adopted by Section 906 of
           the Sarbanes-Oxley Act of 2002.                                44

    32.2   Certification of the Chief Financial Officer of the Company
           pursuant to 18 U.S.C. '1350, as adopted by Section 906 of
           the Sarbanes-Oxley Act of 2002.                                45


                              27