<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 2000 Commission File No. 333-43619
UNITED DEFENSE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 52-2059782
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Guarantors and Co-registrants
Iron Horse Investors, L.L.C. Delaware 52-2059783
UDLP Holdings Corp. Delaware 52-2059780
United Defense, L.P. Delaware 54-1693796
------------------
1525 Wilson Boulevard, Suite 700
Arlington, VA 22209
(703) 312-6100
(Address and telephone number of principal executive offices of
each registrant and co-registrant)
Registrant's telephone number, including area code (703) 312-6100
Indicate by checkmark 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
requirement for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of May 5, 2000:
No. of Par
Shares Value
------ -----
United Defense Industries, Inc. ...................... 18,042,524 $0.01
Iron Horse Investors, L.L.C. .......................... -none-
UDLP Holdings Corp. ................................... 1,000 $0.01
United Defense, L.P. .................................. -none-
================================================================================
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
INDEX
-----
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1 - Unaudited Consolidated Financial Statements -
Iron Horse Investors, L.L.C.
Unaudited Consolidated Balance Sheets as of December 31,
1999 and March 31, 2000 1
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 2000 2
Unaudited Consolidated Statement of Members' Capital
for the Three Months Ended March 31, 2000 3
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 2000 4
Notes to Unaudited Consolidated Financial Statements 5-6
Unaudited Consolidated Financial Statements -
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000 7
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 2000 8
Unaudited Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 2000 9
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 2000 10
Notes to Unaudited Consolidated Financial Statements 11-12
Item 2 - Management's Discussion and Analysis of the Results
of Operations and Financial Condition 13-16
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 17
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
INDEX
-----
PART II - OTHER INFORMATION PAGE
- --------------------------- ----
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURE
- ---------
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
Assets ---------------------------------------------------
<S> <C> <C>
Current assets:
Cash and marketable securities $ 94,325 $ 51,818
Trade receivables 57,198 67,569
Inventories 254,750 260,850
Other current assets 4,056 4,401
---------------------------------------------------
Total current assets 410,329 384,638
Property, plant and equipment, net 84,693 81,358
Intangible assets, net 254,276 239,636
Prepaid pension and postretirement benefit cost 119,883 121,564
Other assets 6,156 5,221
---------------------------------------------------
Total assets $875,337 $832,417
===================================================
Liabilities and Capital
Current liabilities:
Current portion of long-term debt $ 23,086 $ 23,086
Accounts payable, trade and other 64,639 48,536
Advanced payments 303,065 309,649
Accrued and other liabilities 91,340 95,243
---------------------------------------------------
Total current liabilities 482,130 476,514
Long-term liabilities:
Accrued pension and postretirement benefit cost 5,075 5,195
Long-term debt net of current portion 326,757 290,933
Other liabilities 35,675 34,835
---------------------------------------------------
Total liabilities 849,637 807,477
Minority interest 3,944 3,913
Commitments and contingencies (Note 2)
Members' capital 21,756 21,027
---------------------------------------------------
Total liabilities and members' capital $875,337 $832,417
===================================================
</TABLE>
1
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
------------------------------------------------------
<S> <C> <C>
Revenue:
Sales $264,530 $266,894
Costs and expenses:
Cost of sales 221,151 215,056
Selling, general and
administrative expenses 36,763 42,177
Research and development 1,723 3,663
------------------------------------------------------
Total expenses 259,637 260,896
Earnings related to investments
in foreign affiliates 317 846
------------------------------------------------------
Income from operations 5,210 6,844
Other income (expense):
Interest income 364 1,081
Interest expense (10,776) (8,110)
------------------------------------------------------
Loss before income taxes and
minority interest (5,202) (185)
Provision for income taxes 625 575
------------------------------------------------------
Loss before minority interest (5,827) (760)
Minority interest 239 31
------------------------------------------------------
Net loss $ (5,588) $ (729)
======================================================
</TABLE>
2
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statement
of Members' Capital
(In thousands)
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Balance, December 31, 1999 $21,756
Net loss for the three months ended March 31, 2000 (729)
--------
Balance, March 31, 2000 $21,027
========
</TABLE>
3
<PAGE>
Iron Horse Investors, L.L.C.
Unaudited Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
-------------------------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (5,588) $ (729)
Adjustments to reconcile net loss to cash
provided by(used in) operating activities:
Depreciation 17,164 6,337
Amortization 19,024 17,460
Minority interest (239) (31)
Other 475 -
Changes in assets and liabilities:
Trade receivables (1,703) (9,874)
Inventories (11,584) (5,546)
Other assets (2,322) 225
Prepaid pension and postretirement benefit cost (2,063) (1,681)
Accounts payable, trade and other (38,601) (16,284)
Advanced payments 16,856 6,556
Accrued and other liabilities 26,953 1,184
Accrued pension and postretirement benefit cost 277 120
-------------------------------------------------------
Cash provided by (used in) operating activities 18,649 (2,263)
-------------------------------------------------------
Investing activities
Capital spending (8,468) (2,919)
Disposal of property, plant and equipment 314 101
Purchase of Barnes & Reinecke, net of $1.2 million
cash acquired - (1,602)
-------------------------------------------------------
Cash used in investing activities (8,154) (4,420)
-------------------------------------------------------
Financing activities
Payments on long-term debt (57,000) (35,824)
-------------------------------------------------------
Cash used in financing activities (57,000) (35,824)
-------------------------------------------------------
Decrease in cash and marketable securities (46,505) (42,507)
Cash and marketable securities, beginning of period 85,520 94,325
-------------------------------------------------------
Cash and marketable securities, end of period $ 39,015 $ 51,818
=======================================================
</TABLE>
4
<PAGE>
Iron Horse Investors, L.L.C.
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
1. Basis of Presentation
The financial information presented as of any other date than December 31 has
been prepared from the books and records without audit. Financial information
as of December 31 has been derived from the audited financial statements of Iron
Horse Investors, L.L.C. (the "Company"), but does not include all the
disclosures required by generally accepted accounting principles. In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments, consisting of only normal recurring adjustments necessary to
present fairly the Company's financial position as of March 31, 2000, and the
results of its operations and cash flows for the periods ended March 31, 2000
and 1999. The results of operations are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
2. Commitments and Contingencies
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, the breach of contract lawsuit brought against the Company by
Alliant Techsystems, Inc. ("Alliant") in Minnesota state court was dismissed on
February 15, 2000. The time within which Alliant could have appealed such
dismissal has since expired, without any appeal having been taken, and thus the
dismissal has become final. Such dismissal, taken in combination with the
previous dismissal of Alliant's federal court lawsuit against the Company
regarding the same subject matter, as described in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, means that all of Alliant's
legal proceedings against the Company regarding Alliant's work on the U.S.
Army's M109A6 Paladin program have been concluded without any judgment, damage
award, or other adverse finding against the Company.
The Company is a defendant in a so-called qui tam lawsuit filed jointly under
the U.S. Civil False Claims Act (the "FCA") by one present and one former
employee of the Company's Armament Systems Division ("ASD") in Fridley,
Minnesota, U.S. ex rel. Seman and Shukla v. United Defense, et al. This
-------------------------------------------------------
lawsuit, as well as litigation considerations generally pertaining to FCA
matters, is more fully described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. No significant developments in the lawsuit
have occurred subsequent to December 31, 1999. Management does not believe that
the outcome of the case will have a material adverse effect on the Company.
<PAGE>
Iron Horse Investors, L.L.C.
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(continued)
3. Business Purchase
On March 6, 2000, United Defense Industries, Inc. acquired all of the issued and
outstanding capital stock of Barnes & Reinecke, Inc. ("BRI"), a provider of
systems technical support and performance upgrades and modernization of defense
equipment, in exchange for approximately $2.8 million in cash and a $0.9 million
note payable to Allied Research Corporation (the parent company of BRI). The
transaction was accounted for as a purchase. Accordingly, the financial
statements reflect the results of operations of BRI since the date of
acquisition.
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
Assets -------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and marketable securities $ 94,325 $ 51,818
Trade receivables 57,198 67,569
Inventories 254,750 260,850
Other current assets 4,056 4,401
-------------------------------------------------------
Total current assets 410,329 384,638
Property, plant and equipment, net 84,693 81,358
Intangible assets, net 254,276 239,636
Prepaid pension and postretirement benefit cost 119,883 121,564
Other assets 4,817 3,882
-------------------------------------------------------
Total assets $ 873,998 $ 831,078
=======================================================
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 23,086 $ 23,086
Accounts payable, trade and other 64,639 48,536
Advanced payments 303,065 309,649
Accrued and other liabilities 91,340 95,243
-------------------------------------------------------
Total current liabilities 482,130 476,514
Long-term liabilities:
Accrued pension and postretirement benefit cost 5,075 5,195
Long-term debt net of current portion 326,757 290,933
Other liabilities 35,675 34,835
-------------------------------------------------------
Total liabilities 849,637 807,477
Commitments and contingencies (Note 2)
Stockholders' Equity :
Common Stock $.01 par value, 20,000,000 shares
authorized; 18,042,524 issued and outstanding
at December 31, 1999 and March 31, 2000 180 180
Additional paid-in-capital 180,245 180,245
Stockholders' loans (1,339) (1,339)
Retained deficit (154,725) (155,485)
-------------------------------------------------------
Total stockholders' equity 24,361 23,601
-------------------------------------------------------
Total liabilities and stockholders' equity $ 873,998 $ 831,078
=======================================================
</TABLE>
7
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
------------------------------------------------------
<S> <C> <C>
Revenue:
Sales $264,530 $266,894
Costs and expenses:
Cost of sales 221,151 215,056
Selling, general and .
administrative expenses 36,763 42,177
Research and development 1,723 3,663
------------------------------------------------------
Total expenses 259,637 260,896
Earnings related to investments
in foreign affiliates 317 846
------------------------------------------------------
Income from operations 5,210 6,844
Other income (expense):
Interest income 364 1,081
Interest expense (10,776) (8,110)
------------------------------------------------------
Total other expense (10,412) (7,029)
------------------------------------------------------
Loss before income taxes (5,202) (185)
Provision for income taxes 625 575
------------------------------------------------------
Net loss $ (5,827) $ (760)
======================================================
</TABLE>
8
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statement
of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Stockholders'
Stock Capital Deficit Loans Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $180 $180,245 $(154,725) $(1,339) $24,361
Net loss for the three months ended
March 31, 2000 (760) (760)
-------------------------------------------------------------------------------------
Balance, March 31, 2000 $180 $180,245 $(155,485) $(1,339) $23,601
=====================================================================================
</TABLE>
9
<PAGE>
United Defense Industries, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
-----------------------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (5,827) $ (760)
Adjustments to reconcile net loss to cash
provided by(used in) operating activities:
Depreciation 17,164 6,337
Amortization 19,024 17,460
Other 475 -
Changes in assets and liabilities:
Trade receivables (1,703) (9,874)
Inventories (11,584) (5,546)
Other assets (2,322) 225
Prepaid pension and postretirement benefit cost (2,063) (1,681)
Accounts payable, trade and other (38,601) (16,284)
Advanced payments 16,856 6,556
Accrued and other liabilities 26,953 1,184
Accrued pension and postretirement benefit cost 277 120
-----------------------------------------------------
Cash provided by (used in) operating activities 18,649 (2,263)
-----------------------------------------------------
Investing activities
Capital spending (8,468) (2,919)
Disposal of property, plant and equipment 314 101
Purchase of Barnes & Reinecke, net of $1.2 million
cash acquired - (1,602)
-----------------------------------------------------
Cash used in investing activities (8,154) (4,420)
-----------------------------------------------------
Financing activities
Payments on long-term debt (57,000) (35,824)
-----------------------------------------------------
Cash used in financing activities (57,000) (35,824)
-----------------------------------------------------
Decrease in cash and marketable securities (46,505) (42,507)
Cash and marketable securities, beginning of period 85,520 94,325
-----------------------------------------------------
Cash and marketable securities, end of period $ 39,015 $ 51,818
=====================================================
</TABLE>
10
<PAGE>
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
1. Basis of Presentation
The financial information presented as of any other date than December 31 has
been prepared from the books and records without audit. Financial information
as of December 31 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 financial statements contain
all adjustments, consisting of only normal recurring adjustments necessary to
present fairly the Company's financial position as of March 31, 2000, and the
results of its operations and cash flows for the periods ended March 31, 2000
and 1999. The results of operations are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
2. Commitments and Contingencies
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, the breach of contract lawsuit brought against the Company by
Alliant Techsystems, Inc. ("Alliant") in Minnesota state court was dismissed on
February 15, 2000. The time within which Alliant could have appealed such
dismissal has since expired, without any appeal having been taken, and thus the
dismissal has become final. Such dismissal, taken in combination with the
previous dismissal of Alliant's federal court lawsuit against the Company
regarding the same subject matter, as described in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, means that all of Alliant's
legal proceedings against the Company regarding Alliant's work on the U.S.
Army's M109A6 Paladin program have been concluded without any judgment, damage
award, or other adverse finding against the Company.
The Company is a defendant in a so-called qui tam lawsuit filed jointly under
the U.S. Civil False Claims Act (the "FCA") by one present and one former
employee of the Company's Armament Systems Division ("ASD") in Fridley,
Minnesota, U.S. ex rel. Seman and Shukla v. United Defense, et al. This
-------------------------------------------------------
lawsuit, as well as litigation considerations generally pertaining to FCA
matters, is more fully described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. No significant developments in the lawsuit
have occurred subsequent to December 31, 1999. Management does not believe that
the outcome of the case will have a material adverse effect on the Company.
<PAGE>
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
(continued)
3. Business Purchase
On March 6, 2000, the Company acquired all of the issued and outstanding capital
stock of Barnes & Reinecke, Inc. ("BRI"), a provider of systems technical
support and performance upgrades and modernization of defense equipment, in
exchange for approximately $2.8 million in cash and a $0.9 million note payable
to Allied Research Corporation (the parent company of BRI). The transaction was
accounted for as a purchase. Accordingly, the financial statements reflect the
results of operations of BRI since the date of acquisition.
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
----------------------------------------------------
March 31, 2000
--------------
Forward-Looking Statements
Management's Discussion and Analysis of the Results of Operations and Financial
Condition contains forward-looking statements that are based on management's
expectations, estimates, projections and assumptions. Words such as "expects,"
"anticipates," "plans," "believes," "estimates," variations of these words, and
similar expressions are intended to identify forward-looking statements which
include but are not limited to projections of revenues, earnings, performance,
cash flows and contract awards. Forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These statements are not guarantees of future performance and involve
certain risks and uncertainties which are difficult to predict. Therefore,
actual future results and trends may differ materially from those made in or
suggested by any forward-looking statements due to a variety of factors,
including: the ability of United Defense Industries, Inc. (the "Company") to
design and implement key technological improvements (such as, for example in the
Crusader program) and to execute its internal performance plans; performance
issues with key suppliers and subcontractors; developments with respect to
contingencies such as legal proceedings and environmental matters; labor
negotiations; changing priorities or reductions in the U.S. government defense
budget, including developments in the U.S. Army's Medium Force Brigade
initiative; the performance of, and political and other risks associated with,
the Company's international operations and joint ventures; and the termination
of government contracts due to unilateral government action. For additional
information, see "Risk Factors" in the Company's Registration Statement on Form
S-4, SEC File Number 333-43619.
The following discussion and analysis should be read in conjunction with the
financial statements and related notes and the other financial information,
included elsewhere in this report, and with the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
<PAGE>
Introduction
In October 1997, Iron Horse Investors, L.L.C. ("Iron Horse") was funded with
$173 million of equity capital from several partnerships controlled by The
Carlyle Group. The equity was invested in the Company. On October 6, 1997, the
Company acquired (the "Acquisition") directly or through its wholly owned
subsidiary, UDLP Holdings Corp., 100% of the partnership interests in United
Defense, L.P. ("UDLP") for $880.0 million from FMC Corporation ("FMC") and
Harsco Corporation ("Harsco"). This price was subsequently adjusted downward by
$16.1 million to reflect adjustment clauses in the Acquisition Agreement.
United Defense Industries, Inc. is the only asset of Iron Horse. Accordingly,
Management's Discussion and Analysis of the Results of Operations and Financial
Condition is the same for both Iron Horse and United Defense Industries, Inc.
The Company's subsidiary guarantors, UDLP Holdings Corp. and UDLP, are directly
or indirectly wholly owned by the Company and both such subsidiary guarantors
have guaranteed the Company's 8 3/4% Senior Subordinated Notes on a full,
unconditional, and joint and several basis. Any non-guarantor subsidiaries have
assets, equity, income and cash flows on an individual and combined basis less
than 3% of related amounts of the Company. Accordingly, separate financial
statements of those subsidiaries are not considered material or provided herein.
Overview
The Company is a supplier of tracked, armored combat vehicles and weapons
delivery systems to the U.S. Department of Defense ("DoD") and a number of
allied military forces worldwide. The Company's products include critical
elements of the U.S. military's tactical force structure. The Company had a
firm funded backlog of approximately $1.6 billion as of March 31, 2000, a
substantial majority of which is derived from sole-source, prime contracts.
Approximately 75% of the Company's sales for the first three months of 2000 were
to the U.S. government, primarily to agencies of the DoD (excluding Foreign
Military Sales), or through subcontracts with other government contractors.
In the Company's Report on Form 10-K for the year ended December 31, 1999,
considerable uncertainty was expressed regarding whether, when, or to what
extent the U.S. Army might procure so-called medium armored vehicles ("MAVs") as
part of the Medium Force Brigade initiative. Elements in the Army leadership
have from time to time expressed a predisposition that MAVs be wheeled. For
military combat vehicles, there are substantial manufacturing, design, and
engineering differences between wheeled and tracked vehicles, and the Company
historically has not produced wheeled vehicles. On April 6, 2000 the Army
issued a request for proposals for MAVs, expressing the Army's intent to acquire
up to five brigade sets (up to 295 MAVs per brigade) over a period of eight
years. The Army's proposal request did not state any preference for either
wheeled or tracked vehicles, and Army spokesmen have indicated that the Army has
not predetermined whether the MAV procurement will select wheeled rather than
tracked
<PAGE>
vehicles. The Company intends to submit one or more proposals to supply the
Company's products in response to the Army's competitive MAV solicitation, but
there can be no assurance that (i) the MAV solicitation will result in the award
of any contract(s) for MAVs, (ii) Congress will provide appropriations
sufficient to permit the purchase of MAVs under any contract(s) so awarded, or
(iii) that any MAV contract would be awarded to the Company, as opposed to one
or more of its competitors.
For a more detailed description of the Company's business and principal
operating programs, see the Form 10-K for the year ended December 31, 1999.
The only material change to the Company's major programs from those described in
the Company's Form 10-K other than additional funding as new contracts are
negotiated and awarded, is that the Company's Turkish joint venture, FNSS,
recently negotiated terms and conditions to supply 211 armored combat vehicles
to Malaysia. FNSS expects to receive a contract award of $279 million for these
vehicles in the second quarter of 2000. This award will not only provide much
needed backlog for FNSS to stay in production, but will also allow the
liquidation of approximately 70% of the potential "offset" penalty associated
with the initial supply contract with the Turkish government. See Note 9 of the
Company's December 31, 1999 Form 10K for further discussion of the potential
"offset" obligation.
Results of Operations
Three Months Ended March 31, 2000 ("Three Months 2000") Compared with Three
Months Ended March 31, 1999 ("Three Months 1999").
Revenue. Revenue in the Three Months 2000 was $266.9 million, a slight increase
of $2.4 million from the Three Months 1999. The increase in revenue was due to
the higher shipments of Bradley vehicles and naval launchers, and of M88 armored
recovery vehicle kits for co-production in Egypt. These increases were
substantially offset by lower billings for the Crusader program, the completion
of MLRS shipments to Japan during the Three Months 1999 and the wind down of the
M109 Paladin program in June 1999.
Gross Profit. Gross profit for the first quarter 2000 of $51.8 million rose by
$8.5 million, or 19.5% from the Three Months 1999. The gross profit percentage
was higher by 3.0 percentage points from 16.4% for the Three Months 1999 to
19.4% for the Three Months 2000. The primary reason for the increase in gross
profit was due to the lower depreciation for fixed assets established in
connection with the allocation of the Acquisition purchase price.
Selling, general and administrative expenses. Selling, general and
administrative expenses were higher by $5.4 million, or 14.7%, to $42.2 million
for the Three Months 2000 from $36.8 million for the Three Months 1999. The
unfavorable variance was due to heavier spending for proposals and marketing
activity which is expected to continue in the second quarter 2000. This higher
spending activity was partially offset by lower depreciation and amortization of
assets established in conjunction with the Acquisition.
<PAGE>
Research and development. Research and development costs were $3.7 million for
the Three Months 2000 which was $1.9 million, or 112.6%, more than the Three
Months 1999. The steep climb in spending was to respond to the Army's Medium
Force Brigade initiatives.
Earnings from foreign affiliates. Earnings from foreign affiliates were $0.8
million in the Three Months 2000, up by 166.9% from $0.3 million in the Three
Months 1999. The increase was the result of increased income from the
Company's joint venture in Turkey.
Interest expense. Net interest expense for the Three Months 2000 was $7.0
million compared with $10.4 million for the Three Months 1999. The decline in
interest expense is the result of lower debt levels.
Net loss. As a result of the foregoing, there was a net loss of $0.8 million in
the Three Months 2000 compared with a net loss of $5.8 million in the Three
Months 1999.
Liquidity
During the Three Months 2000, cash used in operating activities was $2.3 million
compared with cash provided of $18.6 million for the Three Months 1999.
Although the net loss of $0.8 million for the Three Months 2000 was $5.0 million
less than the net loss in the Three Months 1999, the improvement in
profitability was due to a decrease of $12.4 million in non-cash costs related
to depreciation and amortization of assets established in conjunction with the
Acquisition. The Three Months 2000 operating cash flow also was adversely
affected by increases to operating working capital during the period, primarily
to fund increases in receivables and decreases in accounts payable.
Cash used for investing activities was $4.4 million during the Three Months 2000
versus $8.2 million for the Three Months 1999. The reduced use of funds was the
result of lower capital spending for software in 2000 partially offset by the
purchase of Barnes & Reinecke, Inc. ("BRI").
Cash used for financing activities was applied to pay down debt of $35.8 million
and $57.0 million in 2000 and 1999 respectively.
<PAGE>
IRON HORSE INVESTORS, L.L.C.
UNITED DEFENSE INDUSTRIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK
-----------
March 31, 2000
--------------
In October 1997, the Company entered into a three year interest rate swap
agreement involving the exchange of floating rate interest payment obligations
for fixed rate interest payment obligations. The notional amount of this
interest rate swap agreement is $160 million. The Company entered into this
agreement as a hedge to manage interest costs and risks associated with
fluctuating interest rates. For additional information, see Note 12 to the
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999. As of March 31, 2000, the Company has
debt totaling $314 million of which $124 million was subject to variable
interest rates.
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
March 31, 2000
ITEM 1. Legal Proceedings
-----------------
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, the breach of contract lawsuit brought against the Company by
Alliant Techsystems, Inc. ("Alliant") in Minnesota state court was dismissed on
February 15, 2000. The time within which Alliant could have appealed such
dismissal has since expired, without any appeal having been taken, and thus the
dismissal has become final. Such dismissal, taken in combination with the
previous dismissal of Alliant's federal court lawsuit against the Company
regarding the same subject matter, as described in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, means that all of Alliant's
legal proceedings against the Company regarding Alliant's work on the U.S.
Army's M109A6 Paladin program have been concluded without any judgment, damage
award, or other adverse finding against the Company.
For a description of the Company's so-called qui tam case under the U.S. Civil
False Claims Act, U.S. ex rel. Seman and Shukla v. United Defense L.P., et al.,
-------------------------------------------------------------
please refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURE
---------
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.
By: /s/ Francis Raborn
------------------
Francis Raborn
Principal Financial and
Accounting Officer
and Authorized Signatory
Dated: May 8, 2000
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