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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934
 
For Quarter Ended:     June 30, 2002 Commission File No. 001-16821

UNITED DEFENSE INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)
     
Delaware
   52-2059782
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)

1525 Wilson Boulevard, Suite 700,

Arlington, Virginia, 22209-2411
(703) 312-6100
(Address and telephone number of principal executive offices of
Registrant and each Co-Registrant)

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

     
Title of each class Name of exchange on which registered
Common Stock, par value $.01 per share
  New York Stock Exchange

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

None

      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, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      As of July 31, 2002, the aggregate market value of the common stock held by non-affiliates of the registrant was $570,499,700 based on the closing price of $21.77 per share on the New York Stock Exchange on such date.

      Common Stock, $.01 par value 51,465,234 Shares Outstanding as of July 31, 2002.

 

UNITED DEFENSE INDUSTRIES, INC.

INDEX

             
Page
PART I — FINANCIAL INFORMATION
Item 1.
  Unaudited Consolidated Financial Statements — United Defense Industries, Inc.     2  
    Unaudited Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002     2  
    Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2001 and 2002     3  
    Unaudited Consolidated Statement of Changes in Stockholders’ Deficit for the six months ended June 30, 2002     4  
    Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002     5  
    Notes to Unaudited Consolidated Financial Statements     6  
Item 2.
  Management’s Discussion and Analysis of the Results of Operations and Financial Condition     8  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk     21  
PART II — OTHER INFORMATION
Item 1.
  Legal Proceedings     22  
Item 4.
  Submission of Matters to a Vote of Security Holders     22  
Item 6.
  Exhibits and Reports on Form 8-K     22  
Signature     23  

1

 

UNITED DEFENSE INDUSTRIES, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)
                     
December 31, 2001 June 30, 2002
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 90,535     $ 124,550  
 
Trade receivables
    78,387       96,496  
 
Long-term contract inventories
    368,167       454,579  
 
Other current assets
    14,406       14,422  
     
     
 
   
Total current assets
    551,495       690,047  
Property, plant and equipment, net
    90,352       85,308  
Goodwill, net
    97,582       101,434  
Intangible assets, net
    8,327       5,922  
Prepaid pension and postretirement benefit cost
    127,828       129,116  
Restricted cash
    14,950       18,141  
Other assets
    21,758       36,140  
     
     
 
Total assets
  $ 912,292     $ 1,066,108  
     
     
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
               
 
Current portion of long-term debt
  $ 8,307     $ 8,307  
 
Accounts payable, trade and other
    88,273       101,208  
 
Advanced payments
    394,771       499,185  
 
Accrued and other liabilities
    114,807       106,132  
     
     
 
   
Total current liabilities
    606,158       714,832  
Long-term liabilities:
               
 
Long-term debt, net of current portion
    422,593       414,287  
 
Accrued pension and postretirement benefit cost
    22,487       18,554  
 
Other liabilities
    27,420       28,513  
     
     
 
Total liabilities
    1,078,658       1,176,186  
Commitments and contingencies (Note 4)
               
Stockholders’ deficit:
               
 
Common stock $.01 par value, 150,000,000 shares authorized; 50,915,689 and 51,407,564 issued and outstanding at December 31, 2001 and June 30, 2002, respectively
    509       514  
 
Additional paid-in-capital
    167,457       169,617  
 
Deferred compensation
    (648 )     (598 )
 
Retained deficit
    (329,528 )     (283,213 )
 
Accumulated other comprehensive (loss) gain
    (4,156 )     3,602  
 
Total stockholders’ deficit
    (166,366 )     (110,078 )
     
     
 
 
Total liabilities and stockholders’ deficit
  $ 912,292     $ 1,066,108  
     
     
 

See accompanying notes.

2

 

UNITED DEFENSE INDUSTRIES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except shares and per share data)
                                     
Three Months Ended June 30, Six Months Ended June 30,
2001 2002 2001 2002
Revenue:
                               
 
Sales
    346,728       318,038       638,808       674,481  
Costs and expenses:
                               
 
Cost of sales
    282,195       248,102       513,388       544,696  
 
Selling, general and administrative expenses
    36,323       32,368       78,551       60,485  
 
Research and development
    5,241       9,550       9,608       15,214  
     
     
     
     
 
   
Total expenses
    323,759       290,020       601,547       620,395  
     
     
     
     
 
Income from operations
    22,969       28,018       37,261       54,086  
Other income (expense):
                               
 
Earnings related to investments in foreign affiliates
    (672 )     6,309       (18 )     7,213  
 
Interest income
    1,076       979       2,747       2,158  
 
Interest expense
    (6,286 )     (6,252 )     (12,480 )     (12,393 )
     
     
     
     
 
Income before income taxes
    17,087       29,054       27,510       51,064  
Provision for income taxes
    1,377       1,757       6,670       4,507  
     
     
     
     
 
Income before extraordinary item
    15,710       27,297       20,840       46,557  
Extraordinary item — net loss from early extinguishment of debt
    —       —       —       (242 )
     
     
     
     
 
Net income
    15,710       27,297       20,840       46,315  
     
     
     
     
 
Earnings per common share — basic:
                               
 
Income before extraordinary item
  $ 0.39     $ 0.53     $ 0.51     $ 0.91  
 
Extraordinary item
    —       —       —       (0.01 )
     
     
     
     
 
 
Net income
  $ 0.39     $ 0.53     $ 0.51     $ 0.90  
     
     
     
     
 
 
Weighted average common shares outstanding
    40,730,071       51,196,184       40,656,286       51,097,051  
Earnings per common share — diluted:
                               
 
Income before extraordinary item
  $ 0.37     $ 0.52     $ 0.49     $ 0.88  
 
Extraordinary item
    —       —       —       (0.01 )
     
     
     
     
 
 
Net income
  $ 0.37     $ 0.52     $ 0.49     $ 0.87  
     
     
     
     
 
 
Weighted average common shares outstanding
    42,992,850       52,710,059       42,774,634       52,676,701  

See accompanying notes.

3

 

UNITED DEFENSE INDUSTRIES, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(In thousands)
                                                 
Accumulated
Additional other
Common Paid-In Deferred Retained Comprehensive
Stock Capital Compensation Deficit (Loss)/Income Total
Balance, December 31, 2001
  $ 509     $ 167,457     $ (648 )   $ (329,528 )   $ (4,156 )   $ (166,366 )
Amortization of deferred stock compensation
    —       —       50       —       —       50  
Exercise of options
    5       2,160       —       —       —       2,165  
Net foreign currency translation adjustment
    —       —       —       —       6,753       6,753  
Change in fair value of foreign currency and interest rate hedges
    —       —       —       —       1,005       1,005  
Net income for the six months ended June 30, 2002
    —       —       —       46,315       —       46,315  
     
     
     
     
     
     
 
Balance, June 30, 2002
  $ 514     $ 169,617     $ (598 )   $ (283,213 )   $ 3,602     $ (110,078 )
     
     
     
     
     
     
 

See accompanying notes

4

 

UNITED DEFENSE INDUSTRIES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)
                   
Six Months Ended June 30,
2001 2002
Operating activities
                
Net income
  $ 20,840     $ 46,315  
Adjustments to reconcile net income to cash provided by operating activities:
               
 
Depreciation
    6,977       10,266  
 
Amortization of software
    3,332       2,802  
 
Amortization of intangible assets
    27,049       2,352  
 
Amortization of financing costs
    3,121       1,349  
 
Non-cash compensation
    —       50  
 
Extraordinary loss from early extinguishment of debt
    —       242  
Changes in assets and liabilities:
               
 
Trade receivables
    25,712       (16,576 )
 
Inventories
    (22,167 )     (75,065 )
 
Other assets
    (2,261 )     (19,115 )
 
Prepaid pension and postretirement benefit cost
    (1,996 )     (1,288 )
 
Accounts payable, trade and other
    (8,865 )     12,139  
 
Advanced payments
    10,539       94,853  
 
Accrued and other liabilities
    (16,790 )     (9,369 )
 
Accrued pension and postretirement benefit cost
    (2,183 )     (3,933 )
     
     
 
Cash provided by operating activities
    43,308       45,022  
     
     
 
Investing activities
                
 
Capital expenditures
    (8,188 )     (7,484 )
 
Disposal of property, plant and equipment
    249       —  
 
Purchase of Cell ITS, net of $0.2 million cash acquired
    —       (4,135 )
     
     
 
Cash used in investing activities
    (7,939 )     (11,619 )
     
     
 
Financing activities
                
 
Payments on long-term debt
    (86,757 )     (8,306 )
 
Proceeds from sale of common stock
    650       2,164  
     
     
 
Cash used in financing activities
    (86,107 )     (6,142 )
     
     
 
Effect of exchange rate changes on cash and marketable securities
    120       6,753  
(Decrease)increase in cash and marketable securities
    (50,618 )     34,014  
Cash and marketable securities, beginning of year
    113,357       90,535  
     
     
 
Cash and marketable securities, end of period
  $ 62,739     $ 124,549  
     
     
 

See accompanying notes

5

 

UNITED DEFENSE INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2002

1.     Basis of Presentation

      The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. Financial information as of December 31, 2001 has been derived from the audited financial statements of United Defense Industries, Inc. (the “Company”), but does not include all the disclosures required by generally accepted accounting principles. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments, consisting of normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2002 and the results of its operations for the three months and six months ended June 30, 2002, and cash flows for the six months ended June 30, 2002. The results of operations are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

2.     Changes in Accounting Principles

      In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, (the “Statements”) effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and indefinite-lived intangible assets are no longer amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

      On January 1, 2002, the Company began to apply the new rules on accounting for goodwill and other intangible assets and ceased the amortization of goodwill. The following information reconciles reported net income and earnings per share to adjusted net income and earnings per share, excluding the goodwill amortization previously recognized.

                                   
Three Months Ended June 30, Six Months Ended June 30,
2001 2002 2001 2002