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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

o   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: 001-16821

UNITED DEFENSE INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its charter)
     
Delaware
   52-2059782
(State or other jurisdiction of incorporation)   (IRS Employer Identification No.)
 
1525 Wilson Boulevard, Suite 700
Arlington, Virginia
   22209
(Address of Principal Executive Offices)   (Zip Code)

(703) 312-6100

(Registrant’s telephone number, including area code)

(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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      At October 31, 2003, there were 52,134,384 shares outstanding of the Registrant’s common stock, par value $.01 per share.

 

UNITED DEFENSE INDUSTRIES, INC.

INDEX

             
Page
PART I — FINANCIAL INFORMATION
Item 1.
  Unaudited Consolidated Financial Statements — United Defense Industries, Inc.        
    Consolidated Balance Sheets as of December 31, 2002 and September 30, 2003 (unaudited)     2  
    Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2003     3  
    Unaudited Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended September 30, 2003     4  
    Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2003     5  
    Notes to Unaudited Consolidated Financial Statements     6  
Item 2.
  Management’s Discussion and Analysis of the Results of Operations and Financial Condition     13  
Item 3.
  Quantitative and Qualitative Disclosures about Market Risk     18  
Item 4.
  Controls and Procedures     18  
PART II — OTHER INFORMATION
Item 6.
  Exhibits and Reports on Form 8-K     19  
Signature     20  
Certifications     21  

1

 

UNITED DEFENSE INDUSTRIES, INC.

 
CONSOLIDATED BALANCE SHEETS
(In thousands)
                     
December 31, 2002 September 30, 2003
(Unaudited)
ASSETS
Current assets:
               
   
Cash and cash equivalents
  $ 106,802     $ 241,114  
   
Trade receivables, net
    192,166       200,662  
   
Inventories
    399,189       330,652  
   
Deferred tax asset
    25,436       —  
   
Other current assets
    15,458       15,765  
     
     
 
 
Total current assets
    739,051       788,193  
Property, plant and equipment, net
    170,378       179,009  
Goodwill, net
    341,962       341,962  
Intangible assets, net
    32,624       21,041  
Prepaid pension and postretirement benefit cost
    120,987       124,439  
Restricted cash
    10,120       11,333  
Other assets
    38,848       43,960  
     
     
 
Total assets
  $ 1,453,970     $ 1,509,937  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
               
   
Current portion of long-term debt
  $ 13,011     $ 39,032  
   
Accounts payable, trade and other
    121,801       98,099  
   
Advanced payments
    491,217       457,797  
   
Accrued and other liabilities
    140,914       125,732  
     
     
 
 
Total current liabilities
    766,943       720,660  
Long-term liabilities:
               
   
Long-term debt, net of current portion
    576,989       537,957  
   
Accrued pension and postretirement benefit cost
    51,964       58,822  
   
Deferred tax liability
    15,124       23,002  
   
Other liabilities
    72,655       84,139  
     
     
 
 
Total liabilities
    1,483,675       1,424,580  
Commitments and contingencies
               
Stockholders’ (deficit) equity:
               
   
Common stock $.01 par value, 150,000,000 shares authorized; 51,695,109 and 52,095,884 issued and outstanding at December 31, 2002 and September 30, 2003, respectively
    517       521  
 
Additional paid-in-capital
    177,740       180,027  
 
Deferred compensation
    (547 )     (487 )
 
Retained deficit
    (194,952 )     (83,107 )
 
Accumulated other comprehensive loss
    (12,463 )     (11,597 )
     
     
 
 
Total stockholders’ (deficit) equity
    (29,705 )     85,357  
     
     
 
Total liabilities and stockholders’ equity (deficit)
  $ 1,453,970     $ 1,509,937  
     
     
 

      See accompanying notes.

2

 

UNITED DEFENSE INDUSTRIES, INC.

 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per share data)
                                     
Three months ended Nine months ended
September 30, September 30,
2002 2003 2002 2003
Revenue:
                               
 
Sales
  $ 529,701     $ 507,915     $ 1,204,182     $ 1,527,891  
Costs and expenses:
                               
 
Cost of sales
    426,976       400,298       971,672       1,210,061  
 
Selling, general and administrative expenses
    37,528       38,065       98,013       117,003  
 
Research and development
    7,640       10,717       22,854       16,752  
     
     
     
     
 
   
Total expenses
    472,144       449,080       1,092,539       1,343,816  
     
     
     
     
 
Income from operations
    57,557       58,835       111,643       184,075  
Other income (expense):
                               
 
Earnings (loss) related to investments in foreign affiliates
    (561 )     5,003       6,652       16,658  
 
Interest income
    1,188       1,012       3,346       2,909  
 
Interest expense
    (12,611 )     (7,100 )     (25,246 )     (21,801 )
     
     
     
     
 
Total other expense
    (11,984 )     (1,085 )     (15,248 )     (2,234 )
Income before income taxes
    45,573       57,750       96,395       181,841  
Provision for income taxes
    493       20,360       5,000       69,996  
     
     
     
     
 
Net income
  $ 45,080     $ 37,390     $ 91,395     $ 111,845  
     
     
     
     
 
Earnings per common share-basic
  $ 0.88     $ 0.72     $ 1.78     $ 2.16  
     
     
     
     
 
 
Weighted average common shares outstanding
    51,513,743       52,029,410       51,239,233       51,883,593  
Earnings per common share-diluted
  $ 0.85     $ 0.71     $ 1.73     $ 2.12  
     
     
     
     
 
 
Weighted average common shares outstanding
    52,759,182       52,994,910       52,706,671       52,802,260  

      See accompanying notes.

3

 

UNITED DEFENSE INDUSTRIES, INC.

 
UNAUDITED CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
                                                 
Accumulated
Additional Other
Common Paid-In Deferred Retained Comprehensive
Stock Capital Compensation Deficit (Loss)/Gain Total
Balance, December 31, 2002
   $ 517     $ 177,740     $ (547 )   $ (194,952 )   $ (12,463 )   $ (29,705 )
     
     
     
     
     
     
 
Amortization of deferred stock compensation
    —       —       60       —       —       60  
Exercise of stock options
    4       2,287       —       —       —       2,291  
Net foreign currency translation
    —       —       —       —       1,270       1,270  
Change in fair value of foreign currency and interest rate hedges, net of tax
    —       —       —       —       (404 )     (404 )
Net income for the nine months ended September 30, 2003
    —       —       —       111,845       —       111,845  
                                             
 
Total comprehensive income
                                            112,711  
     
     
     
     
     
     
 
Balance, September 30, 2003
   $ 521     $ 180,027     $ (487 )   $ (83,107 )   $ (11,597 )   $ 85,357  
     
     
     
     
     
     
 

      See accompanying notes.

4

 

UNITED DEFENSE INDUSTRIES, INC.

 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                   
Nine months ended
September 30,
2002 2003
Operating activities
                
Net income
  $ 91,395     $ 111,845  
Adjustments to reconcile net income to cash provided by operating activities:
               
 
Depreciation
    17,664       20,170  
 
Amortization of software
    4,131       3,585  
 
Amortization of other intangibles
    6,444       11,261  
 
Amortization of financing costs
    2,481       2,524  
 
Net loss from early extinguishment of debt
    1,859       —  
 
Deferred tax provision
    —       33,314  
Changes in assets and liabilities:
               
 
Trade receivables
    (53,827 )     (6,733 )
 
Inventories
    19,845       71,006  
 
Other assets
    (6,220 )     (7,719 )
 
Prepaid pension and postretirement benefit cost
    (2,185 )     (3,452 )
 
Accounts payable, trade and other
    (10,184 )     (24,626 )
 
Advanced payments
    44,321       (37,572 )
 
Accrued and other liabilities
    (35,334 )     (6,635 )
 
Accrued pension and postretirement benefit cost
    (4,665 )     5,252  
     
     
 
Cash provided by operating activities
    75,725       172,220  
     
     
 
Investing activities
                
 
Capital expenditures
    (13,174 )     (32,247 )
 
Purchase of Cell ITS, net of $0.2 million cash acquired
    (4,135 )     —  
 
Purchase of USMR, net of $7.3 million cash acquired
    (307,404 )     —  
     
     
 
Cash used in investing activities
    (324,713 )     (32,247 )
     
     
 
Financing activities
                
 
Payments on long-term debt
    (90,900 )     (13,011 )
 
Proceeds from senior secured facility
    300,000       —  
 
Proceeds from sale of common stock
    3,281       2,291  
 
Payments for financing and transaction cost
    (5,470 )     —  
     
     
 
Cash provided by (used in) financing activities
    206,911       (10,720 )
     
     
 
Effect of exchange rate changes on cash
    6,312       5,059  
(Decrease) increase in cash and cash equivalents
    (35,765 )     134,312  
Cash and cash equivalents, beginning of year
    90,535       106,802  
     
     
 
Cash and cash equivalents, end of period
  $ 54,770     $ 241,114  
     
     
 

See accompanying notes.

5

 

UNITED DEFENSE INDUSTRIES, INC.

 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003

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, 2002 presented in this quarterly report has been derived from the audited financial statements of United Defense Industries, Inc., but does not include all the associated 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 our financial position as of September 30, 2003 and the results of operations for the three months and nine months ended September 30, 2002 and 2003 and cash flows for the nine months ended September 30, 2002 and 2003. The results of operations are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, and June 30, 2003.

2.     Summary of Significant Accounting Principles

     Stock-Based Compensation

      At September 30, 2003, we had a stock-based employee compensation plan, which is described more fully in our Form 10-K for the year ended December 31, 2002. We account for the plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, we record compensation expense over the vesting period in our consolidated statements of operations if the option price is less than fair value of the common stock at the date an option is granted. The compensation expense recorded in the financial statements reflects the amortization based on vesting of stock options. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

                                   
Three months ended Nine months ended
September 30, September 30,
2002 2003 2002 2003
(In thousands, except per share data)
Net income, as reported
  $ 45,080     $ 37,390     $ 91,395     $ 111,845  
Add back: Compensation expense recorded, net of