-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IVWqiLhnPN6u+BGUZs636vLn/J65Y2nBs4UM7KLa+Bv2TRrhFIR7RXG+y1MAIdD9 SQcmD/kUOjJZNvGAYwrbRQ== 0000909518-03-000547.txt : 20030812 0000909518-03-000547.hdr.sgml : 20030812 20030812114957 ACCESSION NUMBER: 0000909518-03-000547 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIAL CORP /DE/ CENTRAL INDEX KEY: 0000101271 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 952081809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04252 FILM NUMBER: 03836493 BUSINESS ADDRESS: STREET 1: 570 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2127528787 MAIL ADDRESS: STREET 1: 570 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TOPP INDUSTRIES CORP DATE OF NAME CHANGE: 19710510 FORMER COMPANY: FORMER CONFORMED NAME: HAYES MANUFACTURING CORP DATE OF NAME CHANGE: 19660911 10-Q 1 mv8-11_10q.txt 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. UNITED INDUSTRIAL CORPORATION INDEX
Page # ------ 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
1 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands)
JUNE 30 DECEMBER 31 2003 2002 -------- -------- 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 ========= =========
See accompanying notes 2 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (Unaudited) 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) ===== ===== ===== ======
See accompanying notes 3 UNITED INDUSTRIAL CORPORATION & SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
SIX MONTHS ENDED JUNE 30 ------------------------ 2003 2002 ---- ---- 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 ======== =======
See accompanying notes 4 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
Reconci- (dollars in thousands) Defense Energy Other liations Totals ------- ------ ----- -------- ------ 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 =======
5 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:
Three Months Ended Six Months Ended (Dollars in thousands, except per share data) June 30 June 30 ----------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- 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
NOTE D - WEIGHTED AVERAGE SHARES
Three Months Ended Six Months Ended June 30 June 30 ------------------------------------ ----------------------------------- 2003 2002 2003 2002 ---- ---- ---- ----- 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 ========== ========== ========== ==========
6 NOTE E - OTHER OPERATING EXPENSES, NET, OTHER INCOME, NET, OTHER EXPENSES
Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ---------------------------- 2003 2002 2003 2002 ------ ------ ------ ------ (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) ====== ====== ====== ======
7 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 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:
Three Months Ended Six Months Ended June 30 June 30 ---------------------------- --------------------------------- 2003 2002 2003 2002 ---- ---- ---- ----- 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) ======== ========
9 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 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 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 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 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 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 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 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 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 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 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 $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 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 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 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 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. 25 EX-10 3 jd8-6ex10_1.txt 10.1 EXHIBIT 10.1 UNITED INDUSTRIAL CORPORATION EMPLOYMENT AGREEMENT FREDERICK M. STRADER EMPLOYMENT AGREEMENT made as of this 18th day of June, 2003 by and between UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an address 570 Lexington Avenue, New York, New York 10022 (hereinafter called "Employer"), and FREDERICK M. STRADER, having an address at 501 Whithorn Court, Timonium, MD 21093 (hereinafter called "Employee"). W I T N E S S E T H: In consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. Employment. Employer agrees to employ Employee and Employee agrees to serve Employer upon the terms and conditions hereinafter set forth. 2. Term. The term of Employee's employment under this Agreement shall commence on August 1, 2003 (the "Effective Date") and, subject to the provisions of Sections 5 and 6 hereof, terminate as of the close of business at the date that is one (1) year after the Effective Date (the "Scheduled Termination Date", and such year, the "Initial Term"); provided, that the term of this Agreement shall automatically renew for up to two (2) additional one (1) year terms (each, a "Renewal Term", and each of the Initial Term and each Renewal Term, a "Compensation Year") unless either party gives written notice of non-renewal to the other at least sixty (60) days prior to the end of the Initial Term or Renewal Term, as applicable. The period from the Effective Date through the date of termination of Employee's employment hereunder is referred to as the term of this Agreement. This Agreement shall be of no force or effect if Employee's current employment by AAI Corporation ("AAI"), a subsidiary of Employer, is terminated for any reason whatsoever prior to the Effective Date. 3. Duties and Extent of Services. (a) Employee agrees to serve Employer and, consistent with his position, its subsidiaries faithfully and to the best of his ability under the direction of the Board of Directors of Employer, devoting his entire business time, energy and skill to his full time employment duties hereunder; provided, that subject to the approval of the Board of Directors of Employer, Employee may serve on the board of directors of companies other than Employer and its subsidiaries. The principal place of employment of Employee shall be at the offices of AAI, which are currently located in Hunt Valley, Maryland. Employee understands and agrees, however, that in connection with his employment hereunder, he may be required from time to time to travel on behalf of Employer. (b) The principal duties of Employee shall be to serve as President and Chief Executive Officer of Employer and AAI and, in such capacity, to render such managerial, administrative and other services to Employer and AAI and their subsidiaries as normally are associated with and incident to such positions as Employer from time to time may require of him. If, during the term of this Agreement, the Board of Directors of Employer so determines, in its absolute discretion, to elect Employee to any additional office of Employer or its subsidiaries consistent with his position, or a director of Employer or its subsidiaries, Employee agrees to accept and serve in such office or capacity, for no additional compensation or remuneration. If Employee is elected a director of Employer, he agrees to resign as a director if so requested by the Board of Directors of Employer, following the termination of his employment by Employer for any reason. 4. Compensation. (a) Base Compensation. Employer agrees to pay to Employee, as compensation for all of the services to be rendered by Employee under or pursuant to this Agreement, a salary ("Base Compensation") at the annual rate of $340,000, which amount shall be payable in accordance with the normal payroll practices of Employer. Employee shall be reviewed annually and shall be entitled to such increases in Base Compensation as the Board of Directors may determine in its discretion. (b) Incentive Compensation. Employee shall also be entitled to participate in Employer's Performance Sharing Plan (or such other similar bonus or incentive plan approved by Employer's Board of Directors and its Compensation Committee), that will afford Employee an opportunity to earn incentive compensation ("Incentive Compensation") of (x) up to 100% (with a target of 50%) of his Base Compensation, based upon meeting certain goals and benchmarks (the "Base Incentive Compensation"), or, in lieu thereof, (y) such greater amount as the Board of Directors may determine in its discretion (the "Increased Incentive Compensation"). (c) Employee Benefit Plans. During the term of this Agreement, Employee shall be eligible to participate in any life insurance, medical, retirement, pension, profit sharing, disability or other benefit plans or arrangements now or hereafter generally made available by Employer to executive employees of Employer to the extent Employee qualifies under the provisions of any such plans; provided, that the amount and quality of employee benefits shall not, individually or in the aggregate, decrease to an amount and quality that is less than those existing for Employee's benefit on the Effective Date. Subject to the foregoing, Employer shall have the right to change insurance companies and modify insurance policies covering employees of Employer. (d) Stock Options. Subject to the terms and conditions of this Section 4(d), Employer shall grant to Employee on the Effective Date stock options (the "Stock Options") to acquire 125,000 shares of common stock of Employer ("Common Stock") pursuant to the terms of Employer's 1994 Stock Option Plan (the "1994 Plan"), and a stock option agreement consistent with the terms and conditions of this Section 4(d) and mutually acceptable to Employer and Employee. The exercise price of the Stock Options shall be the price per share as quoted on the New York Stock Exchange at the close of business on the Effective Date. One-third of the Stock Options shall vest on each of the Effective Date and the first and second anniversaries thereof (such that the 2 Stock Options shall be fully vested on the second anniversary of the Effective Date). The Corporation's Board of Directors shall propose and recommend a resolution for stockholder approval of an increase in the number of shares authorized for issuance under the 1994 Plan at Employer's next annual meeting of stockholders on October 8, 2003. If such approval is not obtained or if such meeting is not held because of a Change of Control (as hereinafter defined), then the foregoing grant of Stock Options shall be null and void. Employer shall use commercially reasonable efforts to structure the Stock Options such that, to the extent possible, they qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), subject to the limitations set forth in the Code. Employer makes no guaranty, however, that any of the Stock Options will in fact so qualify. The stock acquired upon exercise of the Stock Options shall be registered under the Securities Act of 1933, as amended, pursuant to Employer's currently effective Registration Statement on Form S-8 relating to the 1994 Plan, subject to any necessary amendments thereto. (e) Automobile Allowance. Employer shall pay to Employee an automobile allowance of twelve thousand dollars ($12,000) per annum, commencing as of the Effective Date, payable in accordance with Employer's normal payroll practices. (f) Vacation. Employee shall be entitled to four (4) weeks vacation with pay per year. (g) Taxes. Employee understands that any and all payments described in this Agreement will be subject to such tax treatment as applies thereto, and to such withholding as may be required under applicable tax laws. 5. Termination. (a) Termination by Employer for Cause. Employer shall have the right to terminate the employment of Employee under this Agreement under the following circumstances (any such termination, a termination for "Cause"), upon written notice to Employee describing the Cause: (i) Employee shall have committed any material breach of any of the provisions or covenants set forth herein; provided, that, except where such breach is willful, Employer shall provide written notice of such breach to Employee, and Employee shall have 10 days after receipt of such notice to cure such breach; (ii) Employee shall have committed any act of gross negligence in the performance of his duties or obligations hereunder; (iii) Employee shall have committed any material act of dishonesty or breach of trust against Employer or any of its subsidiaries; (iv) Employee's conviction of, or plea of nolo contendere to, a felony; or 3 (v) Employee shall have committed any material breach of any of the provisions of Employer's Standards of Business Conduct Policy; provided, that, except where such breach is willful, Employer shall provide written notice of such breach to Employee, and Employee shall have 10 days after receipt of such notice to cure such breach. (b) Resignation by Employee for Good Reason. Employee shall have the right to terminate his employment under this Agreement under the following circumstances (any such termination, a termination for "Good Reason"): (i) a change in the location of the primary worksite of Employee that is more than 25 miles from its present location; (ii) the assignment to Employee of any duties or responsibilities materially inconsistent with Employee's position as set forth in Section 3 hereof, Employee's removal from such position or a substantial diminution in such position, duties or responsibilities, which is not remedied by Employer within ten days after receipt of written notice thereof from Employee (except, after a Change of Control of Employer (as defined below), if Employee remains the Chief Executive Officer of AAI); (iii) a reduction in Employer's compensation pursuant to Section 4(a) or (b) hereof as in effect on the Effective Date or as increased from time to time; or (iv) a failure of Employer to continue to provide Employee with benefits substantially as contemplated by Section 4(c) hereof. (c) Disability. If Employee shall be incapacitated by reason of mental or physical disability or otherwise during the term of this Agreement so that he is prevented from performing his principal duties and services hereunder for a period of three (3) consecutive months or one or more periods aggregating three (3) months during any twelve (12) month period, Employer shall have the right to terminate this Agreement by sending written notice of termination to Employee, and thereupon his employment pursuant to this Agreement shall terminate. (d) Death. In the event of the death of Employee during the term hereof, this Agreement shall automatically terminate. 6. Effect of Termination. Upon the termination of Employee's employment with Employer, pursuant to Section 5 or otherwise (e.g., upon the Scheduled Termination Date, by Employer without Cause, by Employee without Good Reason or at the election of either Employer or Employee following the term of this Agreement), no further payments or compensation of any type shall be made or shall be payable to Employee hereunder notwithstanding any other provision of this Agreement, except as follows: (a) Outstanding Base Compensation. In the case of any termination, Employee shall be entitled to any compensation due pursuant to Section 4(a) hereof through the date of termination. 4 (b) Outstanding Expenses. In the case of any termination, Employee shall be entitled to any reimbursement, pursuant to Section 11 hereof, of expenses incurred by Employee through the date of termination. (c) Outstanding Incentive Compensation. In the case of any termination other than by Employer for Cause, including termination by Employee without Good Reason, prior to the end of any Compensation Year, Employee shall be entitled to receive a pro rata portion of his Incentive Compensation for such Compensation Year due pursuant to Section 4(b) hereof, based on the number of days employed during such Compensation Year. (d) Severance Compensation. In the case of any termination (whether during the term of this Agreement or thereafter) other than by Employer for Cause, death, or by Employee without Good Reason, then Employee shall be entitled to severance compensation ("Severance Compensation") equal to (x) one hundred fifty percent (150%) of Employee's annualized salary at the time of termination (the "Base Severance Compensation") plus (y) fifty percent (50%) of the amount calculated pursuant to the foregoing clause (x) (the "Incentive Severance Compensation"), payable in equal installments at such times and in accordance with the normal payroll practices of Employer over a period of eighteen months following the date of termination or, at Employee's option following a Change of Control, in a lump sum; provided, that in the case of a termination for disability, the Severance Compensation shall be reduced by amounts payable to Employee under Employer sponsored Short Term and Long Term Disability insurance policies in respect of the period of eighteen (18) months following the date of termination. (e) Benefits. In the case of any termination (whether during the term of this Agreement or thereafter) other than by Employer for Cause, death, or by Employee without Good Reason, then Employee shall be entitled to continuation of the same or equivalent employee benefits as in effect on the date of termination for a period of eighteen months following termination. (f) Stock Options. In the case of any termination (whether during the term of this Agreement or thereafter) other than by Employer for Cause, death, or by Employee without Good Reason, then any and all unexercised and unexpired stock options awarded to Employee (other than those awarded pursuant to Section 4(d) hereof) shall fully vest. (g) Success Bonus. If so provided by Section 7, Employee shall be entitled to receive the Success Bonus in accordance with Section 7. (h) Vacation. In the case of any termination, Employee shall be entitled to be paid for any accrued and unused vacation time at the rate of Base Compensation then in effect. 7. Change of Control. (a) Success Bonus. In addition to any other compensation payable to Employee hereunder, Employer shall pay to Employee upon the closing date of a 5 Change of Control of Employer (as defined below) an amount equal to 50% of the annual Base Compensation in effect on the closing date of the Change of Control (or, if Employee's employment hereunder is then terminated (other than as specified in the following proviso), the Base Compensation in effect on the date of such termination), net of reduction for any applicable withholding taxes (the "Success Bonus"); provided, that the Success Bonus shall not be paid if, prior to the closing date of the Change of Control, Employee's employment hereunder has been terminated by Employer for Cause or by Employee without Good Reason. "Change of Control" shall mean (i) any person or other entity (other than any of the Employer's subsidiaries), including any person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the beneficial owner, as defined in Rule 13d-3 of such Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of Employer normally entitled to vote for the election of directors of Employer (the "Voting Stock"), (ii) the sale of all or substantially all of the property or assets of Employer, (iii) the consolidation or merger of Employer with another corporation or other entity (other than with any of Employer's subsidiaries), the consummation of which would result in the stockholders of Employer immediately before the occurrence of the consolidation or merger owning, in the aggregate, less than 50% of the Voting Stock of the surviving entity, or (iv) a change in the Board of Directors occurs with the result that the members of the Board of Directors on the Effective Date (the "Incumbent Directors") no longer constitute a majority of such Board of Directors, provided that any person becoming a director whose election or nomination for election was supported by a majority of the Incumbent Directors shall be considered an Incumbent Director for purposes hereof. (b) Stock Options. On the closing date of a Change of Control, any and all unexercised and unexpired stock options awarded to Employee (other than those awarded pursuant to Section 4(d) hereof) shall fully vest (except if Employee had theretofore been terminated by Employer for Cause, due to his death or by Employee without Good Reason). (c) No Excess Parachute Payments. Notwithstanding any other provision contained herein, Employee shall not receive any payment that would result in Employee receiving an "excess parachute payment" as defined in Section 280G of the Code. 8. No Competition. Employee agrees that during the term of this Agreement he will not, within the continental United States, directly or indirectly, engage or participate or make any financial investments in or become employed by or render advisory or other services to or for any person, firm or corporation, or in connection with any business activity, other than that of Employer and its subsidiaries, directly or indirectly in competition with any of the business operations or activities of Employer and its subsidiaries. Nothing herein contained, however, shall restrict Employee from making any investments in any company whose stock is listed on a national securities exchange or actively traded in the over the counter market, so long as such investment does not give him the right to control or influence the policy decisions of any such business or enterprise which is or might be directly or indirectly in competition with any of such business operations or activities of Employer or any of its subsidiaries. 6 9. Confidentiality; etc. (a) Employee, during the term of this Agreement and thereafter, will not divulge, furnish or make accessible to anyone (other than in the regular course of business of Employer or any of its subsidiaries) any knowledge or information with respect to confidential or secret methods, processes, plans or materials of Employer or any of its subsidiaries, or with respect to any other confidential or secret aspects of the business of Employer or any of its subsidiaries (the "Confidential Information"). The term "Confidential Information" does not, however, include information which was or becomes generally available to the public other than as a result of an unauthorized disclosure by Employee. (b) Employee agrees to communicate and to make known to Employer all knowledge possessed by him relating to any methods, developments, inventions and/or improvements, whether patented, patentable or unpatentable which concerns in any way the business of Employer or any of its subsidiaries or the general industry of which they are a part, from the time of entering upon employment until the termination thereof, and whether acquired by Employee before or during the term of his employment; provided, that nothing herein shall be construed as requiring any such communication where the method, development, invention and/or improvement is lawfully protected from disclosure as the trade secret of a third party, including, without limitation, any former employer of Employee or by any other lawful bar to such communication. (c) Any methods, developments, inventions and/or improvements, whether patentable or unpatentable, along the lines of the business of Employer or any of its subsidiaries, which Employee may conceive of or make while in the employ of Employer, shall be and remain the property of Employer. Employee agrees promptly to communicate and disclose all such methods, developments, inventions and/or improvements to Employer and to execute and deliver to Employer any instruments deemed necessary by Employer to effect disclosure and assignment thereof to it. Employee further agrees, on request of Employer, to execute patent applications based on such methods, developments, inventions and/or improvements, including any other instruments deemed necessary by Employer for the prosecution of such patent applications or the acquisition of Letters Patent in the United States and/or any foreign countries. (d) Employee agrees that for a period of two (2) years from and after the termination of his employment with Employer, whether pursuant to the terms of this Agreement or otherwise, he will not: (i) directly or indirectly solicit, raid, entice or induce any employee of Employer or of any of its subsidiaries to be employed by any person, firm or corporation which is, directly or indirectly, in competition with the business or activities of Employer or any of its subsidiaries; (ii) directly or indirectly approach any such employee for these purposes; 7 (iii) authorize or knowingly approve the taking of such actions by other persons on behalf of any such person, firm or corporation, or assist any such person, firm or corporation in taking such action; (iv) directly or indirectly solicit, raid, entice or induce any person, firm or corporation (other than the U.S. Government or its agencies) who or which on the date hereof is, or at any time during the period of employment hereunder shall be, a customer of Employer or of any of its subsidiaries to become a customer for the same or similar products which it purchased from Employer or any of its subsidiaries, of any other person, firm or corporation, and Employee shall, not approach any such customer for such purpose or authorize or knowingly approve the taking of such actions by any other person. (e) Employee agrees that during the term of his employment by Employer, whether under this Agreement or otherwise, he will not, unless authorized by Employer, at any time enter into, on behalf of Employer or any of its subsidiaries, or cause Employer or any of its subsidiaries to enter into, directly or indirectly, any transactions with any business organization in which he or any member of his immediate family may be interested as a partner, trustee, director, officer, employee, shareholder, lender of money or guarantor (other than interests, solely as an investment, in publicly registered securities of any business organization, which interests are (i) not as a controlling person of such business organization, (ii) not as a member of a group that controls such business organization, and (iii) not as a direct or indirect owner of 5% or more of any class of securities of such business organization). 10. Injunctive Relief. Employee acknowledges that the services to be rendered by him hereunder are of a special, unique and extraordinary character and that it would be very difficult or impossible to replace such services and further that irreparable injury would be sustained by Employer and its subsidiaries in the event of a violation by Employee of any of the provisions of this Agreement, and by reason thereof Employee consents and agrees that if he violates any of the provisions of this Agreement, Employer shall be entitled to an injunction to be issued by any court of competent jurisdiction restraining him from committing or continuing any violation of this Agreement. 11. Expenses. Employer shall reimburse Employee for all reasonable expenses incurred by him on behalf of Employer in the performance of his duties hereunder, provided that proper vouchers are submitted to Employer by Employee evidencing such expenses and the purposes for which the same were incurred. 12. No Conflicting Agreements. Employee represents and warrants that he is not a party to any agreement, contract or understanding, whether employment or otherwise, which would in any way restrict or prohibit him from undertaking or performing employment in accordance with the terms and conditions of this Agreement. 13. Entire Agreement. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, and no statement, representation, warranty or covenant has been made by either party except as expressly set forth herein. This Agreement shall not be changed or terminated 8 orally. As of the Effective Date, this Agreement supersedes and cancels all prior agreements between the parties or any subsidiary of Employer whether written or oral, relating to the employment of Employee, including, without limitation, that certain agreement dated February 8, 2001 and the Success Bonus Agreement dated April 10, 2002. 14. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Maryland, without regard to its conflict of laws principles, and all disputes hereunder shall be resolved in the federal or state courts located in Maryland. In any dispute relating to this Agreement, the prevailing party shall be entitled to be reimbursed its reasonable attorneys fees and costs from the nonprevailing party. 15. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, telecopied or mailed, first class, postage prepaid, certified mail, return receipt requested, to each of the parties at its or his address or telecopy number above written or as set forth beneath their signatures below or at such other address or telecopy number as either of the parties may designate in conformity with the foregoing. 16. Section Headings. The Section headings set forth in this Agreement are for convenience only and shall not be considered as part of this Agreement in any respect nor shall they in any way affect the substance of any provisions contained in this Agreement. 17. Successors and Assigns. This Agreement shall not be assignable by Employee. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs and personal representatives of Employee and the successors and assigns of Employer. 18. Severability. If, at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provisions of this Agreement. 19. Indemnification. Employer shall indemnify Employee to the fullest extent provided for by the indemnification statutes of the General Corporate Law of Delaware, 8 Del. C. ss. 145 (2002) (the "Indemnification Section") and, in addition, in accordance with any other rights such persons may have under a resolution of the stockholders of the corporation, a resolution of its Board of Directors or under Employer's Certificate of Incorporation or by-laws, as amended and restated from time to time, or pursuant to any insurance policy, any agreement or otherwise. During the term of this Agreement, Employer shall continue to maintain in full force and effect directors and officers liability insurance in amounts deemed reasonable by the Board of Directors, provided that such coverage remains available at premium costs deemed reasonable by the Board of Directors. 9 20. Securities Law Filings. Employer shall reimburse Employee for the reasonable expenses, including attorneys fees, associated with the filings Employee is required to make with the Securities and Exchange Commission from time to time in connection with his purchase, sale and holding of Employer's stock in the public trading market, but only if Employer does not offer to have its attorneys prepare such filings for Employee. 21. Survival. For the avoidance of doubt, it is understood that the provisions of Sections 6, 7, 9(a), (c) and (d) and 10 through 21 (other than the second sentence of Section 19) shall remain in effect following and survive the termination of Employee's employment hereunder. [Signatures Follow] 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the day and year first above written. UNITED INDUSTRIAL CORPORATION By: /s/ Richard R. Erkeneff ----------------------------------------- Richard R. Erkeneff President and CEO Fax No.: (212) 838 4629 /s/ Frederick M. Strader ----------------------------------------- Frederick M. Strader Fax No.: 11 EX-31 4 mv8-11ex31_1.txt 31.1 EXHIBIT 31.1 Certification Pursuant to Rule 13a-14(a) of the exchange act I, Frederick M. Strader, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 of United Industrial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 --------------- /s/ Frederick M. Strader - ------------------------------ Frederick M. Strader Chief Executive Officer 2 EX-31 5 mv8-11ex31_2.txt 31.2 EXHIBIT 31.2 Certification Pursuant to Rule 13a-14(a) of the exchange act I, James H. Perry, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 of United Industrial Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 --------------- /s/ James H. Perry - ------------------------------- James H. Perry Chief Financial Officer 2 EX-32 6 mv8-11ex32_1.txt 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Frederick M. Strader, as Chief Executive Officer of United Industrial Corporation (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: a. the accompanying Form 10-Q report for the period ended June 30, 2003 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13a or 15(d) of the Securities Exchange Act of 1934, as amended; and b. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 11, 2003 /s/ Frederick M. Strader --------------------------------- Frederick M. Strader Chief Executive Officer EX-32 7 mv8-11ex32_2.txt 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, James H. Perry, as Chief Financial Officer of United Industrial Corporation (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: a. the accompanying Form 10-Q report for the period ended June 30, 2003 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13a or 15(d) of the Securities Exchange Act of 1934, as amended; and b. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 11, 2003 /s/ James H. Perry -------------------------------- James H. Perry Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----