SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

               For the quarterly period ended           June 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 of                    (I.R.S. Identification No.)
incorporation or organization)


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


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


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

           Yes  X    No
               ---      ---

Indicate by check mark 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. 13,178,018 shares of common
stock as of August 1, 2003.

<PAGE>
                          UNITED INDUSTRIAL CORPORATION


                                      INDEX
<TABLE>
<CAPTION>
                                                                                Page #
                                                                                ------
<S>                                                                            <C>
Part I - Financial Information

   Item 1.  Financial Statements

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

                     Consolidated Condensed Statements of Operations -
                     Three Months and Six Months Ended June 30, 2003 and
                     2002                                                          3

                     Consolidated Condensed Statements of Cash Flows
                     Six Months Ended June 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.  Qualitative and Quantitative Disclosures about Market Risk            22

   Item 4.  Controls and Procedures                                               22


PART II - Other Information                                                       23

</TABLE>




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

<TABLE>
<CAPTION>
                                                                                         JUNE 30               DECEMBER 31
                                                                                           2003                    2002
                                                                                         --------                --------
<S>                                                                                   <C>                     <C>
ASSETS                                                                                  (Unaudited)
------
Current Assets
           Cash and cash equivalents                                                      $  5,384                $ 3,635
           Trade receivables                                                                35,324                 37,688
           Inventories
             Finished goods & work-in-process                                               32,274                 19,515
             Materials & supplies                                                            1,297                  1,436
                                                                                         ---------              ---------
                                                                                            33,571                 20,951
           Federal income taxes receivable                                                     -                   15,509
           Deferred income taxes                                                             5,077                  4,528
           Prepaid expenses & other current assets                                           2,377                  1,351
           Assets of discontinued operations                                                19,865                 14,042
                                                                                         ---------              ---------
                     Total Current Assets                                                  101,598                 97,704
Deferred income taxes                                                                       11,576                 11,531
Other assets                                                                                 7,465                  7,421
Insurance receivable - asbestos litigation                                                  20,343                 20,343
Property & equipment - less allowances
 for depreciation (2003-$87,663; 2002-$86,400)                                              21,817                 21,196
                                                                                         ---------              ---------
                                                                                          $162,799               $158,195
                                                                                         =========              =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
           Accounts payable                                                               $ 12,397               $ 11,711
           Accrued employee compensation & taxes                                            11,380                 12,043
           Customer advances                                                                 5,222                  6,211
           Federal income taxes payable                                                      3,753                    -
           Reserve for contract losses                                                       1,986                  2,050
           Other current liabilities                                                         4,148                  3,682
           Liabilities of discontinued operations                                            8,191                 11,513
                                                                                         ---------              ---------
                     Total Current Liabilities                                              47,077                 47,210
Other long-term liabilities                                                                 23,072                 23,226
Minimum pension liability                                                                   11,234                  8,276
Reserve for asbestos litigation                                                             31,767                 31,852

Shareholders' Equity
           Common stock $1.00 par value
           Authorized - 30,000,000 shares; outstanding 13,176,418 shares and
           13,067,918 shares - June 30, 2003 and December 31, 2002 (net of
           shares in treasury)                                                              14,374                 14,374
           Additional capital                                                               89,676                 92,085
           Retained deficit                                                                (12,683)               (16,254)
           Treasury stock, at cost, 1,197,730 shares
           at June 30, 2003 and 1,306,230 shares at
           December 31, 2002                                                                (9,456)               (10,312)
           Accumulated other comprehensive loss                                            (32,262)               (32,262)
                                                                                         ---------              ---------
Total Shareholders' Equity                                                                  49,649                 47,631
                                                                                         ---------              ---------
                                                                                          $162,799               $158,195
                                                                                         =========              =========
</TABLE>
See accompanying notes

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

<TABLE>
<CAPTION>
                                                                       Three Months Ended                   Six Months Ended
                                                                             June 30                             June 30
                                                                    -------------------------           -------------------------
                                                                      2003           2002                 2003           2002
                                                                      ----           ----                 ----           ----
                                                                                            (Unaudited)
<S>                                                                <C>             <C>                  <C>            <C>
 Net sales                                                          $ 86,037         $ 65,328            $158,479        $122,195
 Cost of sales                                                        68,532           53,710             126,928          99,772
                                                                    --------         --------            --------        --------
 Gross profit                                                         17,505           11,618              31,551          22,423

 Selling & administrative expenses                                   (10,736)          (9,730)            (22,123)        (18,275)
 Pension income                                                          135              743                 271             842
 Other operating income (expense) - net                                 (429)               6                (674)           (422)
                                                                    --------         --------            --------        --------

 Total operating income                                                6,475            2,637               9,025           4,568
                                                                    --------         --------            --------        --------

 Non-operating income and (expense)
    Interest income                                                       32               28                  40              44
    Other income                                                          64               60                 136              59
    Interest expense                                                     -               (120)                (24)           (421)
    Equity in net income (loss) of joint venture                           9               (1)                  9              57
    Other expenses                                                       (94)             (91)               (187)           (206)
                                                                    --------         --------            --------        --------
                                                                          11             (124)                (26)          (467)
                                                                    --------         --------            --------        --------
 Income from continuing operations before income taxes                 6,486            2,513               8,999           4,101

 Income taxes                                                          2,292              830               3,167           1,387
                                                                    --------         --------            --------        --------

 Income from continuing operations                                     4,194            1,683               5,832           2,714

 Loss from discontinued operations - net of income tax
   credit $693 and $6,691 for the three months and $1,217
   and $13,289 for the six months ended June 30, 2003 and
   2002, respectively                                                 (1,286)         (12,430)             (2,260)        (24,690)
                                                                    --------         --------            --------        --------

 Net income (loss)                                                  $  2,908         $(10,747)           $  3,572        $(21,976)
                                                                    ========         ========            ========        ========

   Basic earnings per share:
     Income from continuing operations                                 $ .32            $ .13               $ .45          $  .21
                                                                       =====            =====               =====          ======
     Loss from discontinued operations                                 $(.10)           $(.96)              $(.17)         $(1.90)
                                                                       =====            =====               =====          ======
     Net income (loss)                                                 $ .22            $(.83)              $ .27          $(1.69)
                                                                       =====            =====               =====          ======

   Diluted earnings per share:
     Income from continuing operations                                 $ .31            $ .12               $ .43          $  .20
                                                                       =====            =====               =====          ======
     Loss from discontinued operations                                 $(.09)           $(.90)              $(.17)         $(1.80)
                                                                       =====            =====               =====          ======
     Net income (loss)                                                 $ .21            $(.78)              $ .26          $(1.60)
                                                                       =====            =====               =====          ======
</TABLE>

 See accompanying notes

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

<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED JUNE 30
                                                                 ------------------------
                                                               2003                   2002
                                                               ----                   ----
<S>                                                        <C>                   <C>
OPERATING ACTIVITIES                                                   (Unaudited)
--------------------
Net income (loss)                                            $  3,572              $(21,976)
Adjustments to reconcile net income (loss)
 to net cash provided by (used for)
 operating activities:
 Loss from discontinued operations,
    net of income taxes                                         2,260                24,690
 Pension expense, net                                           2,959                   358
 Continuing operations tax refund,resulting
    from discontinued operations losses                        16,822                   -
 Depreciation and amortization                                  2,591                 6,020
 Deferred income taxes                                           (594)                 (422)
 Decrease in provision for contract losses                        (64)                 (477)
 Changes in operating assets and liabilities                  (11,783)                 (383)
 (Increase) decrease in other assets - net                       (128)                  538
 Decrease in long-term liabilities                               (240)                 (164)
 Increase (decrease) in federal income
    taxes payable                                               2,440                (7,639)
 Equity in income of investee company                              (9)                  (57)
 Restructuring charge                                             -                     421
                                                             --------               -------
 Net Cash Provided by Continuing Operations                    17,826                   909
 Net Cash Used for
   Discontinued Operations                                     (9,814)               (5,824)
                                                             --------               -------
 Net Cash Provided by (Used for)
   Operating Activities                                         8,012                (4,915)

INVESTING ACTIVITIES
--------------------
Purchase of property and equipment                             (3,101)                 (518)
Capital expenditures for discontinued operations                  -                     (67)
Increase in amount due from investee for
    discontinued operations                                    (1,591)               (1,655)
Repayment of advances by investee of discontinued
    operations                                                    -                   1,686
Repayment of advances by investee                                 -                     255
Advances to investee                                              -                    (194)
                                                             --------               -------
 Net Cash Used for Investing Activities                        (4,692)                 (493)

FINANCING ACTIVITIES
--------------------
Proceeds from exercise of stock options                         1,043                 1,741
Dividends                                                      (2,614)               (1,298)
Proceeds from borrowings                                          -                   2,100
                                                             --------               -------
 Net Cash (Used for) Provided by
    Financing Activities                                       (1,571)                2,543
                                                             --------               -------
 Increase (Decrease) in cash and cash equivalents               1,749                (2,865)
 Cash and cash equivalents at beginning of period               3,635                 5,496
                                                             --------               -------
 Cash and cash equivalents at end of period                  $  5,384               $ 2,631
                                                             ========               =======
</TABLE>
See accompanying notes

                                       4
<PAGE>
                 UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES


    Notes to Consolidated Condensed Financial Statements

    June 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 six month period ended June 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>
                                                                                            Reconci-
    (dollars in thousands)                 Defense           Energy            Other        liations          Totals
                                           -------           ------            -----        --------          ------
<S>                                     <C>              <C>               <C>            <C>              <C>
    Three months ended June 30, 2003
    --------------------------------
    Revenues from external customers      $ 78,415          $ 7,622           $  -            $  -           $ 86,037
    Equity profit in venture                     9              -                -               -                  9
    Segment profit (loss)                    6,117              805             (436)            -              6,486

    Income before income taxes                                                                               $  6,486
                                                                                                             ========

    Six months ended June 30, 2003
    ------------------------------
    Revenues from external customers      $143,890          $14,589           $  -            $  -           $158,479
    Equity profit in venture                     9              -                -               -                  9
    Segment profit (loss)                    8,307            1,556             (864)            -              8,999

    Income before income taxes                                                                                $ 8,999
                                                                                                              =======

    Three months ended June 30, 2002
    --------------------------------
    Revenues from external customers       $57,788          $ 7,540           $  -            $  -           $ 65,328
    Equity  loss in venture                     (1)             -                -               -                 (1)
    Segment profit (loss)                    2,777               87             (351)            -              2,513

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

    Six months ended June 30, 2002
    ------------------------------
    Revenues from external customers      $107,029          $15,166           $  -            $  -           $122,195
    Equity profit in venture                    57              -                -               -                 57
    Segment profit (loss)                    6,407           (1,793)            (513)            -              4,101

    Income before income taxes                                                                                $ 4,101
                                                                                                              =======
</TABLE>
                                       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                       Six Months Ended
(Dollars in thousands, except per share data)                    June 30                                  June 30
                                                       -----------------------------            --------------------------
                                                         2003                 2002                2003              2002
                                                         ----                 ----                ----              ----
<S>                                                   <C>                  <C>                 <C>                <C>
Income from continuing operations
  As reported                                           $4,194               $1,683              $5,832            $2,714
  Total employee stock compensation
    expense determined under fair
    value method, net of tax                              (161)                (196)               (354)             (375)
                                                        ------               ------              ------            ------
   Pro forma                                            $4,033               $1,487              $5,478            $2,339
                                                        ======               ======              ======            ======
Income per common share from continuing
  operations: As reported:
       Basic                                              $.32                 $.13                $.45              $.21
       Diluted                                             .31                  .12                 .43               .20
   Pro forma:
       Basic                                               .31                  .11                 .42               .18
       Diluted                                             .29                  .11                 .40               .17

</TABLE>

NOTE D - WEIGHTED AVERAGE SHARES

<TABLE>
<CAPTION>
                                              Three Months Ended                              Six Months Ended
                                                   June 30                                        June 30
                                       ------------------------------------           -----------------------------------
                                           2003                    2002                   2003                  2002
                                           ----                    ----                   ----                  -----
<S>                                   <C>                      <C>                   <C>                     <C>
Weighted average shares                 13,140,418              13,025,018             13,104,168             12,998,060
Dilutive effect of stock options           536,816                 805,011                576,973                727,550
                                        ----------              ----------             ----------             ----------
Diluted weighted average shares         13,677,234              13,830,029             13,681,141             13,725,610
                                        ==========              ==========             ==========             ==========
</TABLE>

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

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

Reduction of deferred
  compensation liability                $   52            $  114                 $  104             $  114
Consulting and legal fees related
  to asbestos matters                     (425)              -                     (667)               -
Amortization of intangibles                (56)              (56)                  (111)              (115)
Expenses related to closing
    of subsidiary                          -                 (52)                   -                 (421)
                                        ------            ------                 ------             ------

Total other operating income
 (expenses), net                        $ (429)           $    6                 $ (674)            $ (422)
                                        ======            ======                 ======             ======

OTHER INCOME, NET
-----------------

Royalties and commissions               $   39            $  -                   $   53             $   10
(Loss) gain on sale of assets              (14)              -                       33                -
Other                                       39                60                     50                 49
                                        ------            ------                 ------             ------

Total other income                      $   64            $   60                 $  136             $   59
                                        ======            ======                 ======             ======

OTHER EXPENSES
--------------

Miscellaneous items, none of
   which are material                      (94)              (91)                  (187)              (206)
                                        ------            ------                 ------             ------

Total other expenses                    $  (94)           $  (91)                $ (187)            $ (206)
                                        ======            ======                 ======             ======

</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 July 1, 2003.
The Company is in the process of evaluating the impact of this new statement on
the Company's financial statements.




                                       8
<PAGE>
NOTE G - DISCONTINUED BUSINESS SEGMENT

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

                                                    June 30         December 31
(Dollars in Thousands)                               2003               2002
                                                     ----               ----
Assets
------
Current Assets
   Trade receivables                                $11,159            $   908
   Inventories    3,476                               9,013
   Prepaid expenses and other current assets             51                 51
   Deferred taxes   3,588                             4,070
   Advances to investee                               1,591                 -
                                                    -------            -------

Total Current Assets                                $19,865            $14,042
                                                    =======            =======

Liabilities
-----------
Current Liabilities
   Accounts payable                                 $ 1,348            $ 1,674
   Accrued employee compensation and taxes              932              1,052
   Customer advances                                    142              1,087
   Reserve for contract losses                        5,769              7,300
   Other                                                -                  400
                                                    -------            -------

Total Liabilities                                   $ 8,191            $11,513
                                                    =======            =======

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

<TABLE>
<CAPTION>
                                        Three Months Ended                            Six Months Ended
                                              June 30                                      June 30
                                    ----------------------------              ---------------------------------
                                       2003               2002                   2003                   2002
                                       ----               ----                   ----                   -----
<S>                                <C>                <C>                     <C>                    <C>
Revenue                              $ 4,661           $ 10,688                $ 8,143                $ 23,073
                                     =======           ========                =======                ========

Loss before income taxes             $(1,979)          $(19,121)               $(3,477)               $(37,979)
Credit for income taxes                 (693)            (6,691)                (1,217)                (13,289)
                                     -------           --------                -------                --------
Net Loss from discontinued
 operations                          $(1,286)          $(12,430)               $(2,260)               $(24,690)
                                     =======           ========                =======                ========

                                                                                      Six Months Ended
                                                                                           June 30
                                                                              ---------------------------------
                                                                                   2003                 2002
                                                                                   ----                 ----
Net Cash (Used for) Provided by
   Discontinued Operations
Net Loss                                                                       $ (2,260)               $(24,690)
Changes in operating assets and liabilities                                      (6,505)               (11,690)
Decrease in deferred taxes                                                          482                     -
(Decrease) increase in reserve
 for impairment and contract losses                                              (1,531)                  2,701
Provision for loss on sale of contracts                                             -                    21,500
Other                                                                               -                     6,355
                                                                               --------                --------
Net Cash Used for
 Discontinued Operations                                                       $ (9,814)               $ (5,824)
                                                                               ========                ========
</TABLE>
                                       9
<PAGE>
NOTE H  - COMMITMENTS AND CONTINGENCIES

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 believes that the ultimate amount of liability, if any,
under the pending litigation will not have a materially adverse effect on the
Company's financial position, results of operations or cash flows.

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

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

The litigation is pending in Michigan, Mississippi, New York, North Dakota and
Wisconsin. During 2002 UIC and Detroit Stoker experienced a significant increase
in the volume of asbestos bodily-injury claims. As of June 30, 2003, the Company
has received notice that it has been named as a defendant in 499 active cases
involving approximately 18,476 asbestos bodily injury claimants, of which at
least 450 cases involving some 18,400 claimants were filed before January 1,
2003. Most of these lawsuits do not include specific dollar claims for damages,
and many include a number of plaintiffs and multiple defendants. Based on
historical data and the large increase in claimants over and above the projected
incidence of disease relative to the Company's products, management believes the
claimants in the vast majority of these cases will not be able to demonstrate
that they have been exposed to the Company's asbestos-containing products or
suffered any compensable loss as a result of such exposure. The direct
asbestos-related expenses of the Company for defense and indemnity for the past
five years were not material.

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.


                                       10
<PAGE>
Also in 2002, the Company retained another consultant (Insurance Consultant) to
work with the Company to project its insurance coverage, including a non-binding
sharing agreement with certain of its primary insurance carriers that has been
in effect for approximately five years. The Insurance Consultant has prepared a
report evaluating the Company's potential insurance coverage for defense costs
and indemnification for asbestos bodily-injury claims. The Insurance
Consultant's conclusion was primarily based on a review of the Company's
coverage history, application of reasonable assumptions on the allocation of
coverage consistent with industry standards, an assessment of the
creditworthiness of the insurance carriers, experience and a review of the
report of the Asbestos Consultant.

Based on these assumptions, other variables, and the reports of both the
Asbestos and Insurance Consultants that were completed during the first quarter
of 2003, the Company recorded a reserve for its bodily injury liabilities for
asbestos-related matters through 2012 in the amount of $31,852,000 as of
December 31, 2002, including damages and defense costs. The Company also
recorded an estimated insurance recovery as of December 31, 2002 of $20,343,000
reflecting the estimate determined to be probable of being available to mitigate
the Company's potential asbestos liability through 2012. The asbestos liability
for the three months ended June 30, 2003 decreased by $85,000 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. 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.

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


                                       11
<PAGE>
The Company is involved in various other lawsuits and claims, including other
environmental matters, 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.

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 June 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.

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. AAI has guaranteed certain performance criteria associated
with the contractual obligations of ETI. In addition, the ability of ETI to
perform under its obligations is, in part, dependent on the performance of other
parties, including AAI, Skoda and other subcontractors. Thus, the ability to
timely perform under these contracts is outside AAI's control. In addition,
while its operating affiliates performed under their contracts during the year,
during 2001 Skoda declared bankruptcy in the Czech Republic. During 2002, the
discontinued transportation operations began recording 100% of ETI's losses
because of Skoda's apparent inability to meet its financial obligations under
ETI's shareholder agreement. The additional losses recorded by the Company for
Skoda's 65% share of ETI's losses totaled $133,000 and $1,460,000 during the
second quarter of 2003 and 2002, respectively, and $257,000 and $5,767,000 for
the first six months of 2003 and 2002, respectively. If Skoda is required to
provide ETI with additional funding beyond the amounts already provided for by
AAI on Skoda's behalf and it fails to do so, or if ETI is unable to meet its
performance obligations, the performance guarantees by AAI could have a material
adverse effect on the Company's results of operations, liquidity or financial
condition. AAI monitors the progress of ETI, Skoda and ETI's other
subcontractors.

In February 2000, the Czech Export Bank (CEB) approved credit facilities to ETI
and two Skoda subsidiaries in order to finance the design and manufacture of
electric trolley buses for the city and county of San Francisco (MUNI). These
credit facilities, partially guaranteed by the Czech Government's Export
Guarantee and Insurance Corporation (EGAP), were repaid during 2002.

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

                                       12
<PAGE>
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 it is expected to be eliminated
when the MUNI customer accepts certain deliveries during 2003. 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 EGAP.

In addition, regarding other existing surety bonds that guarantee performance
under the MUNI contract, the Company has previously agreed to indemnify the
surety, if necessary, for up to approximately $33,000,000. These bonds and the
Company's related indemnification obligations are expected 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 when such bond, that is expected to be about
$20,000,000, is issued. The Company will likely be required to provide the
surety with some amount of collateral to support this indemnity.

Although AAI may provide up to $3,000,000 of funds to ETI on a temporary basis,
it is expected that ETI will have sufficient working capital to complete the
MUNI program and repay such advances.

The 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 this bond. In
February 2003, the Company was released from this $16,000,000 bond.


NOTE I  - DIVIDENDS

A quarterly dividend of $0.10 per share was paid on June 3, 2003.





                                       13
<PAGE>
ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

Forward Looking Information

This report contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on management's expectations, estimates, projections and
assumptions. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," and variations of such words and similar expressions
are intended to identify such forward looking statements which include, but are
not limited to, projections of revenues, earnings, segment performance, cash
flows and contract awards. These forward looking statements are subject to risks
and uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements. These
risks and uncertainties include, but are not limited to, the following: the
Company's successful execution of internal performance plans; performance issues
with key suppliers, subcontractors and business partners; the ability to
negotiate financing 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 ecomonic 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 six month
periods ended June 30, 2003 compared to three and six months ended June 30,
2002.

Consolidated net sales from continuing operations increased by $20,709,000 or
31.7% to $86,037,000 in the second quarter of 2003 from $65,328,000 during the
same period in 2002. The Defense segment increased sales by $20,627,000 or 35.7%
to $78,415,000 in the second quarter of 2003 from $57,788,000 during the same
period in 2002. The increase was generally due to the commencement of the
full-rate production contract of the Shadow 200 Tactical Unmanned Air Vehicle
(TUAV) and increased production of the Joint Services Electronic Combat Systems
Tester (JSECST). The Energy segment sales increased $82,000 or 1.1% to
$7,622,000 during the second quarter of 2003 from $7,540,000 during the same
period in 2002.

Consolidated net sales from continuing operations increased by $36,284,000 or
29.7% to $158,479,000 in the first six months of 2003 from $122,195,000 during
the same period in 2002. The Defense segment increased sales by $36,861,000 or
34.4% to $143,890,000 in the first six months of 2003 from $107,029,000 during
the same period in 2002. The increase was generally due to the commencement of


                                       14
<PAGE>
the full-rate production contract of the Shadow 200 TUAV and increased
production of the JSECST. The Energy segment sales decreased $577,000 to
$14,589,000 in the first six months of 2003 from $15,166,000 during the same
period in 2002. This decrease was in the contract and renewal parts product
lines.
The gross margin for continuing operations increased $5,887,000 or 50.6% to
$17,505,000 (20.4% of sales) from $11,618,000 (17.8% of sales) in the second
quarter of 2003 compared to the second quarter of 2002. The Defense segment
gross margin increased $4,547,000 or 45.6% to $14,510,000 (18.5% of sales) from
$9,963,000 (17.2% of sales) in the second quarter of 2003 compared to the second
quarter of 2002. The increase was primarily attributable to increased sales
volume in the UAV and Simulation and Test product lines. The increase in the
Defense segment margin was partially offset by lower pension plan performance.
The pension expense included in the cost of sales in this segment was $1,635,000
and $1,325,000 in the second 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. The gross margin in the Energy segment
increased $1,340,000 or 81.0% to $2,995,000 (39.3% of sales) from a gross profit
of $1,655,000 (22.0% of sales) during the second quarter of 2003 compared to the
second quarter of 2002. This increase is generally attributable to lower cost
castings, the manufacturing of which was outsourced in connection with the
decision to close the foundry operated by Midwest Metallurgical Laboratory, Inc.
(Midwest), a wholly owned indirect subsidiary of the Company in the Energy
Segment, during 2002. Also, the Energy segment cost of sales for second quarter
of 2002 included a charge of $1,120,000 for accelerated depreciation of assets
related to the closing of Midwest (See "Restructuring Charges", below.)

The gross margin for continuing operations increased $9,128,000 or 40.7% to
$31,551,000 (19.9% of sales) from $22,423,000 (18.4% of sales) for the first six
months of 2003 compared to the same period in 2002. The Defense segment gross
margin increased $5,321,000 or 26.1% to $25,706,000 (17.9% of sales) from
$20,385,000 (19.0% of sales) for the first six 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. The decrease in defense
margins as a percentage of sales was due to lower pension plan performance 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
six months of 2003 was $3,230,000 compared to pension expense of $1,200,000
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
$3,807,000 or 186.8% to $5,845,000 (40.1% of sales) from a gross margin of
$2,038,000 (13.4% of sales)during the first six months of 2003 compared to the
same period in 2002. The Energy segment cost of sales for the first six months
2002 included a charge of $3,420,000 for accelerated depreciation of assets
related to the closing of Midwest (See "Restructuring Charges", below.) Also,
this increase is attributable to lower cost castings, the manufacturing of which
was outsourced in connection with the decision to close the foundry operated by
Midwest in the Energy Segment, during 2002.

Selling and administrative expenses for continuing operations for the second
quarter of 2003 increased $1,006,000 or 10.3% to $10,736,000 (12.5% of sales)
from $9,730,000 (14.9% of sales) compared to the same period in 2002. The


                                       15
<PAGE>
overall increase in selling and administrative expenses occurred primarily in
the Defense segment. Selling and administrative expenses in the Defense segment
increased $1,520,000 or 21.2% to $8,683,000 (11.1% of sales) in the second
quarter of 2003 from $7,163,000 (12.4% of sales) in the second quarter of 2002.
The overall increase in these expenses in the Defense segment was due to a
general increase in costs of $946,000, $325,000 reallocated corporate expenses
primarily caused by a reduced allocation base in the discontinued transportation
operations and higher research and development, and bid and proposal costs of
$249,000. Selling and administrative expenses in the Energy segment decreased
$319,000 or 14.0% to $1,959,000 (25.7% of sales)in the second quarter of 2003
from $2,278,000 (30.2% of sales)in the second quarter of 2002. Selling and
administrative expenses in the Other segment decreased $197,000. 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
$3,848,000 or 21.1% to $22,123,000 (14.0% of sales) from $18,275,000 (15.0% of
sales) in the first six 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 $4,470,000 or 32.8% to $18,111,000 (12.6% of sales) in the first six
months of 2003 from $13,641,000 (12.7% of sales) in the first six months of
2002. The overall increase in these expenses in the Defense segment was due to
higher research and development, and bid and proposal costs of $2,063,000, a
general increase in costs of $1,757,000, and $650,000 reallocated corporate
expenses primarily caused by a reduced allocation base in the discontinued
transportation operations. Selling and administrative expenses in the Energy
segment decreased $304,000 or 7.1% to $4,009,000 (27.5% of sales)in the first
six months of 2003 from $4,313,000 (28.4% of sales)in the first six months of
2002. Selling and administrative expenses in the Other segment decreased
$319,000.

Other operating expenses of the continuing operations in the second quarter of
2003 increased by $435,000 from the second quarter of 2002 primarily due to
asbestos related consulting and legal expenses in the energy segment. These
expenses were associated with the reports of outside consultants engaged to
assess the Company's asbestos liability and related anticipated insurance
recoveries.

Other operating expenses of the continuing operations in the first six months of
2003 increased by $252,000 from the first six months of 2002. This increase
occurred primarily due to asbestos related expenses of $667,000 in 2003 offset
by expenses of $421,000 in 2002, related to the closing of Midwest both of which
occurred in the energy segment.

Other income from the continuing operations increased $4,000 and $77,000 in the
second quarter and first six months of 2003 compared with the second quarter and
first six months 2002, respectively.

Income before income taxes for continuing operations increased $3,973,000 or
158.1% to $6,486,000 in the second quarter of 2003 from $2,513,000 for the same
period in 2002. The increase was primarily attributable to increased sales
volume in the UAV and Simulation and Test product lines. In addition, the 2002
quarter included a charge of $1,172,000 for the accelerated depreciation of
assets and expenses related to the closing of the Energy segment's foundry,


                                       16
<PAGE>
Midwest Metallurgical Laboratory, Inc. which ceased operations effective May 17,
2002.

Income before income taxes for continuing operations increased $4,898,000 or
119.4% to $8,999,000 in the first six months of 2003 from $4,101,000 for the
same period in 2002. The first six months of 2002 included a charge of
$3,841,000 for the accelerated depreciation of assets and expenses related to
the closing of Midwest. The increase was also attributable to increased sales
volume in the UAV and Simulation and Test product lines of the Defense segment.


Since December 31, 2002, the funded backlog related to continuing operations
decreased $44,223,000 or 14.7%. The Defense segment's funded backlog was
$251,717,000 at June 30, 2003 compared to $296,117,000 at December 31, 2002. The
decrease was generally due to the commencement of the full-rate production
contract of the Shadow 200 TUAV and increased production of the JSECST as well
as the timing of certain contract awards. After the 2003 second quarter closed,
the Company was awarded a $37.7 million order related to its C-17 Maintenance
Trainer Systems Program. The Energy segment's funded backlog was $5,476,000 at
June 30, 2003 compared to $5,299,000 at December 31, 2002.

Sales in the discontinued transportation operations decreased $6,027,000 or
56.4% in the second quarter of 2003 to $4,661,000 from $10,688,000 during the
same period in 2002. This was due to a reduction in production on existing
contracts and contracts that were sold in 2002.

Sales in the discontinued transportation operations decreased $14,930,000 or
64.7% in the first half of 2003 to $8,143,000 from $23,073,000 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, during the three months ended June 30, 2003 in the
discontinued transportation operations was $1,979,000 compared to a loss of
$19,121,000 in the same period of 2002. Included in the 2003 loss is $1,264,000
of costs related to idle capacity that cannot be allocated to the remaining
contracts, $511,000 of general and administrative expenses and $204,000 of an
equity loss related to general and administrative expenses incurred by Electric
Transit, Inc. (ETI), the Company's joint venture with Skoda, a Czech Republic
firm. Included in the 2002 loss was a $12,800,000 provision related to the sale
of the Company's two overhaul contracts with the New Jersey Transit Corporation
and the Maryland Transit Administration, as well as related assets and
liabilities, to ALSTOM Transportation, Inc. The transaction closed on July 26,
2002. Also included in the second quarter 2002 loss was an increase of
approximately $1,200,000 in estimated costs to complete remaining contracts,
$800,000 of general and administrative expenses, and $2,100,000 of other costs
related to the disposal of the conveyed contracts. Further, the Company recorded
a provision of approximately $2,200,000 related to estimated contract losses by
ETI.

The loss, before taxes, during the six months ended June 30, 2003 in the
discontinued transportation operations was $3,477,000 compared to a loss of
$37,979,000 in the same period of 2002. Included in the 2003 loss is $2,179,000
of costs related to idle capacity that cannot be allocated to the remaining
contracts, $903,000 of general and administrative expenses and $395,000 of an


                                       17
<PAGE>
equity loss related to general and administrative expenses incurred by ETI.
Included in the 2002 loss was a $21,500,000 provision related to the sale of the
Company's two overhaul contracts with the New Jersey Transit Corporation and the
Maryland Transit Administration, as well as related assets and liabilities, to
ALSTOM Transportation, Inc. Also included in the loss during the first six
months of 2002 was an increase of approximately $2,400,000 in estimated costs to
complete remaining contracts, $1,600,000 of general and administrative expenses,
and $3,600,000 of other disposition costs related to the conveyed contracts.
Further, the Company recorded an equity loss of approximately $8,900,000 related
to estimated contract losses by ETI.

The amounts recorded as ETI equity losses during the three and six month periods
ending June 30, 2003 and 2002 represent 100% 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.

During the completion of the existing transportation work, the Company
anticipates that the amount of overhead to be absorbed by the San Francisco
electric trolley bus contract will not be sufficient to cover the total overhead
incurred. The Company's discontinued transportation operations will expense
these costs as incurred. These charges are expected to be approximately
$2,500,000 to $3,500,000 subsequent to June 30, 2003. Further, general and
administrative expenses that will be expensed as incurred are expected to be
about $2,600,000. In addition, upon completion of transportation's production
operations the Company contemplates a charge associated with the idle facility,
primarily future operating lease costs, of approximately $750,000. Subleasing
the facility space may mitigate these costs.

The Company believes the existing transportation work will be completed by
December 31, 2003. No assurances can be given, however, as to the actual amount
of the Company's liability to complete the one remaining contract for the San
Francisco electric trolley buses, and exit the discontinued operations.





                                       18
<PAGE>
Liquidity and Capital Resources

Cash and cash equivalents increased $1,749,000 to $5,384,000 at June 30, 2003
from $3,635,000 at December 31, 2002. Net cash provided by operating activities
by the continuing operations was $17,826,000 in the first six months of 2003.
Changes in operating assets and liabilities used cash of $11,783,000 primarily
by increases in inventory of $12,620,000. The increases in inventory primarily
relate to the timing of customer deliveries and milestone payments on certain
defense related contracts, which should be fulfilled during the second half of
2003. Cash received from the exercise of stock options was $1,043,000 compared
to $1,741,000 in 2002. The net cash used by operating activities of discontinued
operations was $9,814,000 in the first six months of 2003. This use is primarily
due to increased accounts receivable from ETI that is expected to be collected
as ETI completes its deliveries and obligations to MUNI under its contract.

In addition, in April 2003, the Company filed an application for a tax refund of
$16,822,055, related to the Company's 2002 net loss. At June 30, 2003, the
Company had received all of the refund.

As of June 30, 2003, the Company has recorded net deferred tax assets of
approximately $16,653,000. Management believes the Company will generate
sufficient taxable income in future years to realize this benefit.

Although the Company has experienced lower pension results 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 plan 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 borrowing, subject to a borrowing base. Credit advances may increase to
$32,000,000 provided that amounts in excess of $25,000,000 are
cash-collateralized. In March 2003, a Waiver and Amendment Agreement was entered
into whereby covenant violations as of December 31, 2002 were waived and the
covenants were amended. At June 30, 2003 there were no cash borrowings under the
Agreement. The letter of credit obligations outstanding at June 30, 2003 were
$4,180,000.

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 June 30, 2003, the
subsidiary had no cash borrowings and $484,000 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.

                                       19
<PAGE>
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.

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 June 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.

In February 2000, the Czech Export Bank (CEB) approved credit facilities to ETI
and two Skoda subsidiaries in order to finance the design and manufacture of
electric trolley buses for the city and county of San Francisco (MUNI). These
credit facilities, partially guaranteed by the Czech Government's Export
Guarantee and Insurance Corporation (EGAP), were repaid during 2002.

The Company has previously agreed to guaranty 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 it is expected to be eliminated
when the MUNI customer accepts certain deliveries during 2003. 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 EGAP.

In addition, regarding other existing surety bonds that guarantee performance
under the MUNI contract, the Company has previously agreed to indemnify the
surety, if necessary, for up to approximately $33,000,000. These bonds and the
Company's related indemnification obligations are expected 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 when such bond, that is expected to be about


                                       20
<PAGE>
$20,0000,000, is issued. The Company will likely be required to provide the
surety with some amount of collateral to support this indemnity.

Although AAI may provide up to $3,000,000 of funds to ETI on a temporary basis,
it is expected that ETI will have sufficient working capital to complete the
MUNI program and repay such advances.

The 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 this bond. In
February 2003, the Company was released from this $16,000,000 bond.

The Company is involved in various lawsuits and claims, including asbestos
related litigation and 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.













                                       21
<PAGE>
ITEM 3  - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

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


ITEM 4  - CONTROLS AND PROCEDURES

(a) The Company'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 June 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 June 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 June 30, 2003, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.










                                       22
<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 6  -  EXHIBITS AND REPORTS ON FORM 8-K

(1) Exhibits:

            3.1         Certificate of Amendment to the Restated Certificate of
                        Incorporation of the Company.*

            10.1        Employment Agreement dated as of June 18, 2003 between
                        the Company and Frederick M. Strader.

            31.1        Certification of Chief Executive Officer of the Company
                        pursuant to Rule 13a-14(a) of the Exchange Act.

            31.2        Certification of Chief Financial Officer of the Company
                        pursuant to the Rule 13a-14(a) of the Exchange Act.

            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.

                        *Incorporated by reference to the Company's Registration
                        Statement on Form S-8, filed with the Securities and
                        Exchange Commission on July 21, 1998.

(2) Reports on Form 8-K:

            On May 14, 2003, the Registrant filed a current report on Form 8-K
containing its press release announcing its financial results for the first
quarter ended March 31, 2003.

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


                                       23
<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  August 11, 2003                   By: /s/ James H. Perry
      ---------------                       -------------------------------
                                            James H. Perry
                                            Chief Financial Officer,
                                            Vice President and Treasurer



















                                       24
<PAGE>
                          UNITED INDUSTRIAL CORPORATION

                        INDEX OF EXHIBITS FILED HEREWITH


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

   3.1      Certificate of Amendment to the Restated Certificate of
            Incorporation of the Company.*

   10.1     Employment Agreement dated as of June 18, 2003 between the Company
            and Frederick M. Strader.

   31.1     Certification of Chief Executive Officer of the Company pursuant to
            Rule 13a-14(a) of the Exchange Act.

   31.2     Certification of Chief Financial Officer of the Company pursuant to
            the Rule 13a-14(a) of the Exchange Act.

   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.

            *Incorporated by reference to the Company's Registration Statement
            on Form S-8, filed with the Securities and Exchange Commission on
            July 21, 1998.










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