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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2001 Commission File No. 333-43619
UNITED DEFENSE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware 52-2059782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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)
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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 [X] No [_]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. Common Stock
outstanding as of October 12, 2001.
No. of shares Par Value
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United Defense Industries, Inc. ......................... 18,106,467 $0.01
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UNITED DEFENSE INDUSTRIES, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
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Item 1 - Unaudited Consolidated Financial Statements -
United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets as of
December 31, 2000 and September 30, 2001 1
Unaudited Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 2000
and 2001 2
Unaudited Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 2001 3
Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 2001 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2 - Management's Discussion and Analysis of the Results
of Operations and Financial Condition 7-13
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURE
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United Defense Industries, Inc.
Unaudited Consolidated Balance Sheets
(In thousands)
Assets December 31, 2000 September 30, 2001
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Current assets:
Cash and cash equivalents $ 113,357 $ 120,240
Trade receivables 109,705 119,429
Inventories 259,238 348,183
Other current assets 13,083 12,686
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Total current assets 495,383 600,538
Property, plant and equipment, net 80,775 76,120
Intangible assets, net 191,720 167,407
Prepaid pension and postretirement benefit cost 123,100 126,684
Restricted cash 23,528 14,623
Other assets 3,588 5,517
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Total assets $ 918,094 $ 990,889
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Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 23,086 $ 17,000
Accounts payable, trade and other 86,117 87,012
Advanced payments 342,394 395,969
Accrued and other liabilities 104,168 94,899
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Total current liabilities 555,765 594,880
Long-term liabilities:
Long-term debt net of current portion 246,491 583,000
Accrued pension and postretirement benefit cost 28,515 21,939
Other liabilities 41,428 38,944
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Total liabilities 872,199 1,238,763
Commitments and contingencies
Stockholders' Equity (Deficit):
Common Stock $.01 par value, 20,000,000 shares authorized;
18,036,667 and 18,106,467 issued and outstanding
at December 31, 2000 and September 30, 2001, respectively 180 181
Additional paid-in capital 180,031 -
Stockholders' loans (1,236) -
Retained deficit (133,080) (243,720)
Accumulated other comprehensive loss - (4,335)
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Total stockholders' equity (deficit) 45,895 (247,874)
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Total liabilities and stockholders' equity (deficit) $ 918,094 $ 990,889
============================================
See accompanying notes.
1
United Defense Industries, Inc.
Unaudited Consolidated Statements of Operations
(In thousands)
Three months Three months Nine months Nine months
ended ended ended ended
September 30, 2000 September 30,2001 September 30, 2000 September 30,2001
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Revenue:
Sales $ 303,283 $ 275,055 $ 867,426 $ 913,863
Costs and expenses:
Cost of sales 230,637 215,448 687,801 728,836
Selling, general and
administrative expenses 42,290 52,646 130,717 132,816
Research and development 2,873 6,810 12,287 16,418
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Total expenses 275,800 274,904 830,805 878,070
Earnings related to investments
in foreign affiliates 966 58 2,676 6,417
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Income from operations 28,449 209 39,297 42,210
Other income (expense):
Interest income 938 1,874 2,672 4,621
Interest expense (7,858) (6,735) (23,163) (19,215)
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Total other expense (6,920) (4,861) (20,491) (14,594)
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Income(loss) before income taxes 21,529 (4,652) 18,806 27,616
Provision for income taxes 421 12 2,224 6,682
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Income(loss) before extraordinary
item 21,108 (4,664) 16,582 20,934
Extraordinary item - net (loss)gain from
early extinguishment of debt - (22,599) 680 (22,599)
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Net income(loss) $ 21,108 $ (27,263) $ 17,262 $ (1,665)
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See accompanying notes.
2
United Defense Industries, Inc.
Unaudited Consolidated Statement
of Stockholders' Equity
(In thousands)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Stockholders'
Stock Capital Deficit Loss Loans Total
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Balance, December 31, 2000 $ 180 $ 180,031 $(133,080) $ - $ (1,236) $ 45,895
Issuance of common stock 1 697 - - - 698
Payment of stockholders' loans - - - - 1,236 1,236
Cash dividends ($16 per share) - (180,728) (108,975) - - (289,703)
Net foreign currency translation
adjustment - - - (2,108) - (2,108)
Cumulative effect of change in
accounting principle-foreign
currency hedges - - - (951) - (951)
Change in fair value of foreign
currency hedges - - - (1,276) - (1,276)
Net loss for the nine months
ended September 30, 2001 - - (1,665) - - (1,665)
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Total comprehensive loss (6,000)
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Balance, September 30, 2001 $ 181 $ - $(243,720) $ (4,335) $ - $(247,874)
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See accompanying notes.
3
United Defense Industries, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Nine months Nine months
ended ended
September 30, 2000 September 30, 2001
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Operating activities
Net income(loss) $ 17,262 $ (1,665)
Adjustments to reconcile net income(loss) to cash
provided by operating activities:
Depreciation 18,073 15,797
Amortization 53,410 38,623
Amortization of financing costs 2,394 3,183
Net (gain) loss from early extinguishment of debt (680) 22,599
Changes in assets and liabilities:
Trade receivables (33,231) (9,724)
Inventories 27,486 (88,945)
Other assets 1,756 6,465
Prepaid pension and postretirement benefit cost (5,299) (3,584)
Accounts payable, trade and other (19,534) 895
Advanced payments (20,525) 53,575
Accrued and other liabilities 5,655 (13,981)
Accrued pension and postretirement benefit cost (305) (6,576)
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Cash provided by operating activities 46,462 16,662
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Investing activities
Capital spending (11,717) (13,318)
Disposal of property, plant and equipment 385 289
Purchase of Barnes & Reinecke, net of $1.2 million
cash acquired (1,634) -
Purchase of Bofors Weapon Systems, net of $35.2 million
cash acquired 14,007 -
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Cash provided by (used in) investing activities 1,041 (13,029)
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Financing activities
Payments on long-term debt (73,299) (269,577)
Proceeds from senior secured facility - 600,000
Payment of premium on extinguishment of subordinated debt - (18,074)
Payment of stockholders' loans - 1,236
Dividend payments - (289,703)
Payments for financing cost - (19,222)
Proceeds from sale of common stock 95 698
Repurchase of common stock (205) -
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Cash (used in) provided by financing activities (73,409) 5,358
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Effect of exchange rate changes on cash - (2,108)
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(Decrease) increase in cash and cash equivalents (25,906) 6,883
Cash and cash equivalents, beginning of period 94,325 113,357
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Cash and cash equivalents, end of period $ 68,419 $ 120,240
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See accompanying notes.
4
United Defense Industries, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 2001
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 normal recurring adjustments
necessary to present fairly the Company's financial position as of September 30,
2001, and the results of its operations for the three and nine months ended
September 30, 2000 and 2001. The results of operations are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. 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, 2000.
2. Recapitalization
In August 2001, the Company completed a recapitalization that included
a refinancing of all of the existing indebtedness. In connection with the
refinancing, the Company entered into a new senior secured credit facility
consisting of $600 million in term loans and a $200 million revolving credit
facility. The Company used a portion of the proceeds from the term loans to pay
a $289.7 million dividend to the holders of its common stock and expects to pay
an additional $100 million dividend to the holders of common stock. In addition,
a portion of the proceeds from the term loans was used to complete a tender
offer for the remaining $182.8 million outstanding principal amount of the 8.75%
senior subordinated notes due 2007. The Company also paid from the debt proceeds
$19.2 million of financing costs which have been deferred and $18.6 million of
performance bonuses, consulting and management fees which are included in costs
and expenses for the three and nine months ended September 30, 2001. The
extinguishment of the existing debt resulted in a net loss of $22.6 million,
reported as an extraordinary item, which consisted of an $18.1 million tender
premium paid to the debt holders and a write-off of $4.5 million in unamortized
financing costs.
Outstanding borrowings on the new term loan facilities were $600
million at September 30, 2001. The facilities bear interest at variable rates
with a weighted average rate of 6.78% at September 30, 2001. These loans are due
through 2009 and provide for quarterly principal and interest payments.
5
The revolving credit facility provides for loans and letters of credit
and matures in 2007. The Company has outstanding letters of credit under the
facility of $118 million at September 30, 2001. There was $82 million available
under the revolving credit facility at September 30, 2001. The Company is
obligated to pay a fee of 0.50% on the unused revolving credit facility.
Amounts outstanding under the senior secured credit facility are
secured by a lien on all the assets of the Company and its domestic
subsidiaries.
Mandatory prepayments and reductions of outstanding secured principal
amounts are required upon the occurrence of certain events. The senior credit
facility contains customary covenants restricting the incurrence of debt,
encumbrances on and sales of assets, limitations on mergers and certain
acquisitions, limitations on changes in control, certain restrictions on payment
of dividends, provision for the maintenance of certain financial ratios, and
various other financial covenants and restrictions. Under the terms of the
agreement, subject to certain restrictions, the Company is permitted to pay up
to an additional $100 million in dividends through February 28, 2002.
3. Changes in Accounting Principle
Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended. The
statement requires that an entity recognize all derivatives as either assets or
liabilities.
At December 31, 2000, the Company had foreign exchange contracts which
were designated as cash flow hedges. The fair value of the contracts was a
liability of $0.95 million at December 31, 2000. The transition adjustment to
implement this new standard on January 1, 2001, which is presented as a
cumulative effect of change in accounting principle, was charged to accumulated
other comprehensive loss within stockholders' equity. The application of this
new standard is reflected in our financial statements for the nine months ended
September 30, 2001.
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 will no longer be 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.
The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the non-amortization provisions of the Statements is expected to result in an
increase in net income of approximately $4 million in 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill as
of January 1, 2002 and has not yet determined what the effect of these tests
will be on the earnings and financial position of the Company.
6
UNITED DEFENSE INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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September 30, 2001
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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; 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.
The following discussion and analysis should be read in conjunction
with the unaudited 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, 2000.
7
Introduction
In October 1997, the Company's direct parent, Iron Horse Investors,
L.L.C. ("Iron Horse"), was funded 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").
Overview
The Company is a supplier of 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 $2.0 billion as of September 30, 2001, a
substantial majority of which is derived from sole-source, prime contracts.
Approximately 77% of the Company's sales for the first nine months of 2001 were
to the U.S. government, primarily to agencies of the DoD (excluding Foreign
Military Sales), or through subcontracts with other government contractors.
Administration Defense Review. The Company believes that the
Administration may continue to review the Defense Department's principal
missions, priorities, and programs on an ongoing basis, but that any near-term
review was largely conducted with the September 30, 2001 announced completion
of the so-called Quadrennial Defense Review ("QDR"). As understood by the
Company, the QDR does not call for any significant changes in the principal
U.S. programs in which the Company participates. The Administration's FY02
budget also would not result in any significant change to the Company's
principal programs, but such result could be affected by the as-yet unknown
outcome of the FY02 appropriation legislation yet to be considered by Congress.
Finally, the Company is unable to predict whether the events of September 11,
2001 and ensuing military actions might result in some further review(s) of
U.S. defense missions, policies, and programs by the Administration and/or
Congress, nor what impact any such review(s) might have on the Company.
The only material change to the Company's major programs from those
described in the Company's Form 10-K report, other than normal additional
funding as new contracts are negotiated and awarded, was the signing of a
multi-year contract to upgrade Bradley Fighting Vehicles for approximately $700
million over a three-year period.
For a more detailed description of the Company's business and principal
operating programs, see the Form 10-K report for the year ended December 31,
2000.
8
Results of Operations
Three Months Ended September 30, 2001 Compared with Three Months Ended
September 30, 2000.
Revenue. Revenue for the three months ended September 30, 2001 was
$275.1 million which was $28.2 million below the comparable period in 2000. The
main driver for the decline was lower sales of Bradley upgrades as customer
acceptance was changed to when the vehicle is fielded versus when production is
complete and there were less requirements for fielding in the third quarter of
2001. Also contributing to the decline was the shipment completion prior to the
three months ended September 30, 2001 of M88 kits to Egypt, MLRS vehicles to
Greece, kits for M113 carriers to the U.S. government, and the upgrade of naval
ordnance for Venezuela. The decline was partially offset by increased billings
for the Crusader and the DD21 destroyer development programs.
Gross Profit. Gross profit for the three months ended September 30,
2001 was $59.6 million which was $13.0 million less than the same prior period
in 2000. The gross profit rate declined 2.3 points to 21.7% in the three month
period in 2001. The reduction in gross profit was related to the lower volume
discussed above, shipment of lower margin units in 2001 versus the prior year,
and favorable contract adjustments that occurred in 2000.
Selling, general and administrative expenses. Selling , general and
administrative expenses were $52.6 million for the three months ended September
30, 2001 which was an increase of $10.3 million over the comparable period in
2000. Spending was higher due to having Bofors Defence for the full period, the
payment of performance bonuses, consulting and management fees. The increase was
partially offset by reduced amortization of intangible assets related to
acquisitions and lower bid and proposal costs.
Research and development. Research and development costs were up $3.9
million to $6.8 million for the three months ended September 30, 2001 over the
comparable period in 2000. The reasons for the increase are having Bofors
Defence for the full three month period, higher spending associated with the
new DD21 destroyer program, and the accounting for an "other transaction" type
of contract as research and development cost.
9
Earnings from foreign affiliates. Earnings from foreign affiliates were
$0.1 million in the three months ended September 30, 2001 compared with $1.0
million the same period last year. Earnings recognized from the Turkey joint
venture was higher during the same period in 2000.
Interest expense. Net interest expense was $4.9 million for the three
months ended September 30, 2001 or $2.0 million lower than the comparable
period in the prior year. The lower expense was the result of favorable interest
rates and higher cash balances available to generate income.
Extraordinary item. During the three months ended September 30, 2001,
the Company had a charge of $22.6 million for the early liquidation of senior
subordinated notes in August 2001. The extraordinary item consisted of an $18.1
million tender premium paid to the debt holders and a write-off of $4.5 million
unamortized financing costs.
Net income(loss). As a result of the foregoing, we had a net loss of
$27.3 million in the three month period ended September 30, 2001 compared with
net income of $21.1 million in the comparable period of 2000.
Nine Months Ended September 30, 2001 Compared with Nine Months Ended
September 30, 2000.
Revenue. Our revenue for the nine months ended September 30, 2001 was
$913.9 million, an increase of $46.4 million, or 5.4%, from the comparable 2000
period. This increase resulted primarily from the inclusion of nine months of
revenue from Bofors Defence, which we acquired in September 2000. Revenue for
2001 also increased as a result of higher billings for the Crusader and Advanced
Gun System development programs, increases in upgrades of the Hercules tank
recovery vehicle and increased shipments of vehicles and kits to foreign
customers, such as amphibious assault vehicles to Korea, self-propelled
howitzers to Egypt and armored personnel carriers to Canada. These increases
were partially offset by decreases in sales of upgrades of the Bradley family of
vehicles, principally as a result of the change in the timing of revenue
recognition which relies upon customer acceptance, and a reduction in shipments
of co-production kits to Egypt, amphibious assault vehicle kits to Spain,
multiple launch rocket system vehicles to Greece and kit sales to the U.S.
Government. Under the recent Bradley contract, customer acceptance is deferred
until units are fielded by the U.S. Army.
Gross Profit. As a result of our increased sales, gross profit
increased $5.4 million, or 3.0%, to $185.0 million for the nine months ended
September 30, 2001. Our gross profit margin of 20.2% for the nine months ended
September 30, 2001 is slightly less than our 20.7% gross profit margin for the
comparable 2000 period, primarily as a result of the effects of LIFO accounting.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased $2.1 million, or 1.6%, to $132.8 million for
the nine months ended September 30, 2001. This increase resulted primarily from
the inclusion of Bofors Defence for the entire period, and performance bonuses
and consulting and management fees paid in conjunction with our August 2001
recapitalization. These increases were partially offset by reduced amortization
of goodwill and other intangibles and lower bid and proposal costs in this
period compared to the prior year period when we incurred significant costs in
connection with our unsuccessful bid for the Interim Armored Vehicle program.
Research and Development. Research and development costs were
$16.4 million for the nine months ended September 30, 2001, a $4.1 million, or
33.6%, increase from the prior year period. This increase resulted
10
from the inclusion of Bofors Defence for the entire 2001 period and increased
spending associated with missile launch systems, the Advanced Gun System, work
for the DD 21 destroyer program and on other technologies that we believe will
enhance our ability to compete for future programs.
Earnings from Foreign Affiliates. Earnings from foreign affiliates for
the nine months ended September 30, 2001 were $6.4 million, a $3.7 million, or
139.8%, increase from the prior year period. This increase was due to income
recognition for an end of contract adjustment at our joint venture in Saudi
Arabia.
Net Interest Expense. Net interest expense for the nine months ended
September 30, 2001 was $14.6 million, a $5.9 million decline from the prior year
period. This decrease was the result of lower debt levels during the first seven
months of 2001, declines in interest rates and higher interest income on higher
average cash balances in 2001.
Provision for Income Taxes. The provision for income taxes for the nine
months ended September 30, 2001 increased $4.5 million over the prior
period, primarily as a result of increased taxes for the state of Pennsylvania
and to reflect a provision for Bofors Defence, partially offset by the
reduction in foreign sales corporation taxes due to the application of the new
"FSC Repeal and Extraterritorial Income Exclusion Act of 2000" to foreign
sales.
Extraordinary Item. During the nine months ended September 30, 2001, we
incurred a $22.6 million charge for the early retirement of our senior
subordinated notes in August 2001. This charge was taken in conjunction with
the recapitalization and was comprised of an $18.1 million tender premium paid
to the debt holders and a write-off of $4.5 million in unamortized finance
charges. During the same period in 2000, we had a $0.7 million extraordinary
gain related to the purchase of some of these subordinated notes for less than
their principal amount.
Net Income. As a result of the foregoing, we had a net loss of
$1.7 million, including an extraordinary charge of $22.6 million for the early
retirement of debt, for the nine months ended September 30, 2001, a $18.9
million decline from the prior year period.
11
Liquidity, Capital Resources and Financial Condition
Cash provided by operating activities was $16.7 million for the nine months
ended September 30, 2001, a decrease of $29.8 million from the prior year
period. The primary reason for this decrease was a significant build-up of
inventories net of increased advance payments associated with producing units
for several foreign customers, which we will ship in later periods.
Cash used in investing activities was $13.0 million for the nine months
ended September 30, 2001, compared to $1.0 million of cash provided by
investing activities for the prior year period. Our principal use of cash in
investing activities is for capital equipment and software. Bofors Defence had
a significant cash balance when we acquired it, which resulted in positive cash
flows from investing activities in 2000.
Cash provided by financing activities was $5.4 million for the nine months
ended September 30, 2001, compared to $73.4 million of cash used during the
2000 period. The net cash provided during 2001 is primarily the result of our
August 2001 refinancing of all of our indebtedness, offset by principal
repayments on that debt of $86.8 million prior to the refinancing. The primary
use of cash in 2000 was for debt repayments.
12
In August 2001, we refinanced all of our existing indebtedness. In
connection with the refinancing, we entered into a new senior secured credit
facility, consisting of $600.0 million in term loans and a $200.0 million
revolving credit facility. Our new credit facility agreement requires mandatory
principal repayments of $5.7 million in 2001, $32.6 million in 2002 and $42.6
million per year from 2003 to 2006. These payments will reduce cash available
for other corporate purposes. We expect interest charges under the new financing
to be approximately $15 million in 2001. Interest charges in future years will
depend upon periodic fluctuations in LIBOR and our outstanding debt balances.
Although we cannot predict our future interest expense, we expect those charges
to be substantially in excess of those in 2000 and 2001.
Our effective tax rate is substantially lower than the statutory tax rate
because of tax net operating losses generated in 1997 and 1998 which are being
utilized in subsequent years. We expect our tax payments will be lower than the
statutory tax rate on any income earned at least through the end of 2002.
Based on our current level of operations and our anticipated growth, we
believe that our cash from operations, together with other available sources of
liquidity, including borrowings available under our revolving credit facility,
will be sufficient to fund our anticipated capital expenditures and required
payments of principal and interest on our debt for the foreseeable future. Our
growth and acquisition strategy, however, may require substantial additional
capital. We cannot assure you that we will be able to raise any necessary
additional funds through bank financing or the issuance of equity or debt
securities on terms acceptable to us, if at all. Any additional equity or
equity-convertible financing in the future may dilute your investment in the
company.
13
UNITED DEFENSE INDUSTRIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
----------------------------------------------
MARKET RISK
-----------
September 30, 2001
Forward Currency Exchange Risk.
We conduct some of our operations outside the U.S. in functional
currencies other than the U.S. dollar. To mitigate the risk associated with
fluctuating currencies on short term foreign currency-denominated transactions,
Bofors Defence (a wholly owned Swedish subsidiary) enters into foreign currency
forward exchange contracts. As of September 30, 2001, the net value of foreign
forward contracts was $6.5 million and the fair value of those contracts was
$4.3 million. We account for these contracts as hedges.
We plan to enter into interest rate protection agreements to mitigate
risks associated with variable interest rate borrowings under our senior secured
credit facility. The interest rate protection agreements will provide protection
against increases in interest rates on borrowings.
Borrowings under our senior secured credit facility are sensitive to
changes in interest rates. The weighted average interest rate on our borrowings
outstanding under the senior secured credit facility as of September 30, 2001
was 6.78% per annum.
14
PART II
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OTHER INFORMATION
-----------------
September 30, 2001
ITEM 1. Legal Proceedings
The Company is subject to claims and lawsuits arising in the
ordinary course of business. Management believes that the outcome of any such
proceedings to which the Company is a party will not have a material adverse
effect on the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
15
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: October 22, 2001