##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-Q




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




o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934






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 |  | 22209-2411                       
|(Address of Principal Executive Offices)                 |  | (Zip Code)                       




(703) 312-6100






þ o


þ o












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##### 



UNITED DEFENSE INDUSTRIES, INC.


INDEX


|                               |  |                                                                                                                        |    |      |    | 
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                               |  |                                                                                                                        |    | Page |   
|                               |  |                                                                                                                        |    |      |   
|PART I  FINANCIAL INFORMATION
|Item 1.                        |  | Consolidated Financial Statements  United Defense
    Industries, Inc.                                                |    |      |    | 
|                               |  | Consolidated Balance Sheets as of December 31, 2004 and
    March 31, 2005 (unaudited)                                 |    |      | 2  | 
|                               |  | Unaudited Consolidated Statements of Operations for the three
    months ended March 31, 2004 and 2005                 |    |      | 3  | 
|                               |  | Unaudited Consolidated Statements of Changes in
    Stockholders Equity for the three months ended
    March 31, 2005 |    |      | 4  | 
|                               |  | Unaudited Consolidated Statements of Cash Flows for the three
    months ended March 31, 2004 and 2005                 |    |      | 5  | 
|                               |  | Notes to Unaudited Consolidated Financial Statements                                                                   |    |      | 6  | 
|Item 2.                        |  | Managements Discussion and Analysis of the Results of
    Operations and Financial Condition                          |    |      | 15 | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                                             |    |      | 20 | 
|Item 4.                        |  | Controls and Procedures                                                                                                |    |      | 20 | 
|PART II  OTHER INFORMATION   
|Item 2.                        |  | Repurchase of Common Stock by the Issuer                                                                               |    |      | 21 | 
|Item 6.                        |  | Exhibits                                                                                                               |    |      | 21 | 
|Signature                      |  |                                                                                                                        | 22 |     

1



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##### 



UNITED DEFENSE INDUSTRIES, INC.


CONSOLIDATED BALANCE SHEETS


(In thousands)


|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |         |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | --------- | ----------- | -------------- | - | --------- | ------- | ------- | 
|                                                |                                                                                                                                                                                                                                  | December 31, 2004                               |           |             | March 31, 2005 |  
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|                                                |                                                                                                                                                                                                                                  |                                                 |           | (Unaudited) |               
|ASSETS                                         
|Current assets:                                 |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |        
|                                                |                                                                                                                                                                                                                                  | Cash and cash equivalents                       |           | $           | 307,258        |   |           | $       | 287,375 | 
|                                                |                                                                                                                                                                                                                                  | Trade receivables, net                          |           |             | 202,980        |   |           |         | 187,444 | 
|                                                |                                                                                                                                                                                                                                  | Long-term contract inventories                  |           |             | 324,937        |   |           |         | 336,936 | 
|                                                |                                                                                                                                                                                                                                  | Other current assets                            |           |             | 34,029         |   |           |         | 32,647  | 
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|                                                | Total current assets                                                                                                                                                                                                             |                                                 |           | 869,204     |                |   |           | 844,402 |        
|Property, plant and equipment, net              |                                                                                                                                                                                                                                  |                                                 | 199,507   |             |                |   | 200,313   |        
|Goodwill, net                                   |                                                                                                                                                                                                                                  |                                                 | 355,653   |             |                |   | 358,137   |        
|Intangible assets, net                          |                                                                                                                                                                                                                                  |                                                 | 9,956     |             |                |   | 9,757     |        
|Prepaid pension and postretirement benefit cost |                                                                                                                                                                                                                                  |                                                 | 120,459   |             |                |   | 118,451   |        
|Restricted cash                                 |                                                                                                                                                                                                                                  |                                                 | 13,201    |             |                |   | 12,404    |        
|Other assets                                    |                                                                                                                                                                                                                                  |                                                 | 33,594    |             |                |   | 33,188    |        
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|Total assets                                    |                                                                                                                                                                                                                                  | $                                               | 1,601,574 |             |                | $ | 1,576,652 |        
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|                                               
|LIABILITIES AND STOCKHOLDERS EQUITY           
|Current liabilities:                            |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |        
|                                                |                                                                                                                                                                                                                                  | Current portion of long-term debt               |           | $           | 52,043         |   |           | $       | 52,043  | 
|                                                |                                                                                                                                                                                                                                  | Accounts payable, trade and other               |           |             | 132,480        |   |           |         | 116,102 | 
|                                                |                                                                                                                                                                                                                                  | Advanced payments                               |           |             | 372,889        |   |           |         | 367,388 | 
|                                                |                                                                                                                                                                                                                                  | Current tax liability                           |           |             | 25,159         |   |           |         | 12,660  | 
|                                                |                                                                                                                                                                                                                                  | Deferred tax liability, net                     |           |             | 20,000         |   |           |         | 20,499  | 
|                                                |                                                                                                                                                                                                                                  | Accrued and other liabilities                   |           |             | 170,164        |   |           |         | 158,523 | 
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|                                                | Total current liabilities                                                                                                                                                                                                        |                                                 |           | 772,735     |                |   |           | 727,215 |        
|Long-term liabilities:                          |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |        
|                                                |                                                                                                                                                                                                                                  | Long-term debt, net of current portion          |           |             | 472,904        |   |           |         | 459,894 | 
|                                                |                                                                                                                                                                                                                                  | Accrued pension and postretirement benefit cost |           |             | 46,317         |   |           |         | 45,945  | 
|                                                |                                                                                                                                                                                                                                  | Deferred tax liability                          |           |             | 5,166          |   |           |         | 4,923   | 
|                                                |                                                                                                                                                                                                                                  | Other liabilities                               |           |             | 78,336         |   |           |         | 79,674  | 
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|Total liabilities                               |                                                                                                                                                                                                                                  |                                                 | 1,375,458 |             |                |   | 1,317,651 |        
|Commitments and contingencies                   |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |        
|Stockholders equity:                           |                                                                                                                                                                                                                                  |                                                 |           |             |                |   |           |        
|                                                | Common stock $.01 par value, 150,000,000 shares
    authorized; 53,103,539 and 50,611,739 issued and outstanding at
    December 31, 2004; 53,338,426 and 50,846,626 issued and
    outstanding, respectively, at March 31, 2005 |                                                 |           | 506         |                |   |           | 508     |        
|                                                | Additional paid-in-capital                                                                                                                                                                                                       |                                                 |           | 198,083     |                |   |           | 213,525 |        
|                                                | Deferred compensation                                                                                                                                                                                                            |                                                 |           | (3,322      | )              |   |           | (10,208 | )      
|                                                | Retained earnings                                                                                                                                                                                                                |                                                 |           | 27,834      |                |   |           | 54,165  |        
|                                                | Accumulated other comprehensive gain                                                                                                                                                                                             |                                                 |           | 3,015       |                |   |           | 1,011   |        
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|                                                | Total stockholders equity                                                                                                                                                                                                       |                                                 |           | 226,116     |                |   |           | 259,001 |        
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  
|Total liabilities and stockholders equity      |                                                                                                                                                                                                                                  | $                                               | 1,601,574 |             |                | $ | 1,576,652 |        
|                                                |                                                                                                                                                                                                                                  |                                                 |           |             |                |  



2



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##### 



UNITED DEFENSE INDUSTRIES, INC.


UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share data)


|                                  |                                                       |                    |         |         |         |   |         |         |         | 
|--------------------------------- | ----------------------------------------------------- | ------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                  |                                                       | Three months ended |        
|                                  |                                                       | March 31,          |        
|                                  |                                                       |                    |        
|                                  |                                                       | 2004               |         |         | 2005    |  
|                                  |                                                       |                    |         |         |         |  
|Sales                             |                                                       | $                  | 547,077 |         |         | $ | 544,060 |        
|Costs and expenses:               |                                                       |                    |         |         |         |   |         |        
|                                  | Cost of sales                                         |                    |         | 435,087 |         |   |         | 437,442 |        
|                                  | Selling, general and administrative expenses          |                    |         | 38,759  |         |   |         | 40,586  |        
|                                  | Merger related expenses                               |                    |         |        |         |   |         | 4,054   |        
|                                  | Research and development                              |                    |         | 6,553   |         |   |         | 4,743   |        
|                                  |                                                       |                    |         |         |         |  
|                                  |                                                       | Total expenses     |         |         | 480,399 |   |         |         | 486,825 | 
|                                  |                                                       |                    |         |         |         |  
|Income from operations            |                                                       |                    | 66,678  |         |         |   | 57,235  |        
|Other income (expense):           |                                                       |                    |         |         |         |   |         |        
|                                  | Earnings related to investments in foreign affiliates |                    |         | 5,816   |         |   |         |        |        
|                                  | Interest income                                       |                    |         | 973     |         |   |         | 1,822   |        
|                                  | Interest expense                                      |                    |         | (6,454  | )       |   |         | (6,683  | )      
|                                  |                                                       |                    |         |         |         |  
|Total other income (expense)      |                                                       |                    | 335     |         |         |   | (4,861  | )      
|                                  |                                                       |                    |         |         |         |  
|Income before income taxes        |                                                       |                    | 67,013  |         |         |   | 52,374  |        
|Provision for income taxes        |                                                       |                    | 25,130  |         |         |   | 19,677  |        
|                                  |                                                       |                    |         |         |         |  
|Net income                        |                                                       | $                  | 41,883  |         |         | $ | 32,697  |        
|                                  |                                                       |                    |         |         |         |  
|Earnings per common share-basic   |                                                       | $                  | 0.80    |         |         | $ | 0.64    |        
|                                  |                                                       |                    |         |         |         |  
|                                  | Weighted average common shares outstanding            |                    |         | 52,400  |         |   |         | 50,752  |        
|Earnings per common share-diluted |                                                       | $                  | 0.78    |         |         | $ | 0.63    |        
|                                  |                                                       |                    |         |         |         |  
|                                  | Weighted average common shares outstanding            |                    |         | 53,368  |         |   |         | 51,889  |        



3



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##### 



UNITED DEFENSE INDUSTRIES, INC.


UNAUDITED CONSOLIDATED STATEMENTS


OF CHANGES IN STOCKHOLDERS EQUITY


(In thousands)


|                                                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------ | --- | ---------- | ------- | - | ------- | ------------ |  | ----------- | -------- | - |  | ------------- | ------ | - | ----- | - | ------ | - |  | - | ------- | -
|                                                                                  |  |        |     |            |         |   |         |              |  | Accumulated |          |   | 
|                                                                                  |  |        |     | Additional |         |   |         |              |  |             | Other    |   |  |              
|                                                                                  |  | Common |     |            | Paid-In |   |         | Deferred     |  |             | Retained |   |  | Comprehensive |        |   |      
|                                                                                  |  | Stock  |     |            | Capital |   |         | Compensation |  |             | Earnings |   |  | (Loss)/Gain   |        |   | Total |  
|                                                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |  
|Balance, December 31, 2004                                                        |  | $      | 506 |            |         | $ | 198,083 |              |  | $           | (3,322   | ) |  | $             | 27,834 |   |       | $ | 3,015  |   |  | $ | 226,116 |  
|Issuance of restricted stock awards                                               |  |        |     |            |         |   | 7,558   |              |  |             | (7,558   | ) |  |               |        |   |       |   |        |   |  |   |        |  
|Amortization of deferred stock compensation                                       |  |        |    |            |         |   |        |              |  |             | 672      |   |  |               |       |   |       |   |       |   |  |   | 672     |  
|Exercise of stock options                                                         |  |        | 2   |            |         |   | 5,097   |              |  |             |         |   |  |               |       |   |       |   |       |   |  |   | 5,099   |  
|Tax benefit from stock options                                                    |  |        |    |            |         |   | 2,787   |              |  |             |         |   |  |               |       |   |       |   |       |   |  |   | 2,787   |  
|Cash dividend ($0.125 per share)                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               | (6,366 | ) |       |   |        |   |  |   | (6,366  | )
|Net foreign currency translation                                                  |  |        |    |            |         |   |        |              |  |             |         |   |  |               |       |   |       |   | (1,182 | ) |  |   | (1,182  | )
|Change in fair value of foreign currency and interest rate
    hedges, net of tax |  |        |    |            |         |   |        |              |  |             |         |   |  |               |       |   |       |   | (763   | ) |  |   | (763    | )
|Change in unrealized appreciation on investment                                   |  |        |    |            |         |   |        |              |  |             |         |   |  |               |       |   |       |   | (59    | ) |  |   | (59     | )
|Minimum pension liability, net of tax                                             |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |   |        |   |  |   |        |  
|Net income for the three months ended March 31, 2005                              |  |        |     |            |         |   |         |              |  |             |          |   |  |               | 32,697 |   |       |   |        |   |  |   | 32,697  |  
|                                                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |  
|Total comprehensive income                                                        |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |   |        |   |  |   | 30,693  |  
|                                                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |  
|Balance, March 31, 2005                                                           |  | $      | 508 |            |         | $ | 213,525 |              |  | $           | (10,208  | ) |  | $             | 54,165 |   |       | $ | 1,011  |   |  | $ | 259,001 |  
|                                                                                  |  |        |     |            |         |   |         |              |  |             |          |   |  |               |        |   |       |  



4



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##### 



UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                                                  |                                                                                     |                    |         |         |      |   |         |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------ | ------- | ------- | ---- | - | ------- | ------- | -
|                                                                                  |                                                                                     | Three months ended |        
|                                                                                  |                                                                                     | March 31,          |        
|                                                                                  |                                                                                     |                    |        
|                                                                                  |                                                                                     | 2004               |         |         | 2005 |  
|                                                                                  |                                                                                     |                    |         |         |      |  
|Operating activities                                                              |                                                                                     |                    |         |         |      |   |         |        
|Net income                                                                        |                                                                                     | $                  | 41,883  |         |      | $ | 32,697  |        
|Adjustments to reconcile net income to cash provided by
    operating activities: |                                                                                     |                    |         |         |      |   |         |        
|                                                                                  | Depreciation                                                                        |                    |         | 6,754   |      |   |         | 6,758   |  
|                                                                                  | Amortization of software                                                            |                    |         | 1,221   |      |   |         | 735     |  
|                                                                                  | Amortization of other intangibles                                                   |                    |         | 1,720   |      |   |         | 1,598   |  
|                                                                                  | Amortization of financing costs                                                     |                    |         | 759     |      |   |         | 555     |  
|                                                                                  | Deferred tax provision                                                              |                    |         | 2,336   |      |   |         | 416     |  
|Changes in operating assets and liabilities, net of effect of
    acquisitions    |                                                                                     |                    |         |         |      |   |         |        
|                                                                                  | Trade receivables                                                                   |                    |         | (54,399 | )    |   |         | 14,780  |  
|                                                                                  | Inventories                                                                         |                    |         | 30,288  |      |   |         | (10,692 | )
|                                                                                  | Other assets                                                                        |                    |         | 19,940  |      |   |         | 2,772   |  
|                                                                                  | Prepaid pension and postretirement benefit cost                                     |                    |         | 1,561   |      |   |         | 2,008   |  
|                                                                                  | Accounts payable, trade and other                                                   |                    |         | (24,615 | )    |   |         | (15,086 | )
|                                                                                  | Advanced payments                                                                   |                    |         | 1,861   |      |   |         | (5,046  | )
|                                                                                  | Current tax liability                                                               |                    |         |        |      |   |         | (12,532 | )
|                                                                                  | Accrued and other liabilities                                                       |                    |         | 7,286   |      |   |         | (8,184  | )
|                                                                                  | Accrued pension and postretirement benefit cost                                     |                    |         | (3,686  | )    |   |         | 629     |  
|                                                                                  |                                                                                     |                    |         |         |      |  
|Cash provided by operating activities                                             |                                                                                     |                    | 32,909  |         |      |   | 11,408  |        
|                                                                                  |                                                                                     |                    |         |         |      |  
|Investing activities                                                              |                                                                                     |                    |         |         |      |   |         |        
|                                                                                  | Capital expenditures                                                                |                    |         | (5,056  | )    |   |         | (6,534  | )
|                                                                                  | Purchase of Engineered Plastic Designs, Inc., net of
    $0.2 million cash acquired |                    |         |        |      |   |         | (7,997  | )
|                                                                                  | Purchase of Kaiser Compositek, Cercom and Hawaii Shipyards                          |                    |         | (45,766 | )    |   |         |        |  
|                                                                                  |                                                                                     |                    |         |         |      |  
|Cash used in investing activities                                                 |                                                                                     |                    | (50,822 | )       |      |   | (14,531 | )      
|                                                                                  |                                                                                     |                    |         |         |      |  
|Financing activities                                                              |                                                                                     |                    |         |         |      |   |         |        
|                                                                                  | Payments on long-term debt                                                          |                    |         | (13,010 | )    |   |         | (13,010 | )
|                                                                                  | Proceeds from sale of common stock                                                  |                    |         | 3,290   |      |   |         | 5,099   |  
|                                                                                  | Dividend payment                                                                    |                    |         |        |      |   |         | (6,366  | )
|                                                                                  |                                                                                     |                    |         |         |      |  
|Cash used in financing activities                                                 |                                                                                     |                    | (9,720  | )       |      |   | (14,277 | )      
|Effect of exchange rate changes on cash                                           |                                                                                     |                    | (2,688  | )       |      |   | (2,483  | )      
|                                                                                  |                                                                                     |                    |         |         |      |  
|Decrease in cash and cash equivalents                                             |                                                                                     |                    | (30,321 | )       |      |   | (19,883 | )      
|Cash and cash equivalents, beginning of year                                      |                                                                                     |                    | 286,730 |         |      |   | 307,258 |        
|                                                                                  |                                                                                     |                    |         |         |      |  
|Cash and cash equivalents, end of period                                          |                                                                                     | $                  | 256,409 |         |      | $ | 287,375 |        
|                                                                                  |                                                                                     |                    |         |         |      |  



5



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##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


March 31, 2005




|   |                      
|-- | ---------------------
|1. | Basis of Presentation





|   |                                             
|-- | --------------------------------------------
|2. | Summary of Significant Accounting Principles



| |                                                             
| | ------------------------------------------------------------
| | Revenue and Profit Recognition for
    Contracts-in-Progress







| |                         
| | ------------------------
| | Stock-Based Compensation



6



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##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                                                                    |                       |                       |        |      |      |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | --------------------- | ------ | ---- | ---- | - | ------ | ---- | 
|                                                                                                                                                    |                       | Three months ended    |       
|                                                                                                                                                    |                       | March 31,             |       
|                                                                                                                                                    |                       |                       |       
|                                                                                                                                                    |                       | 2004                  |        |      | 2005 |  
|                                                                                                                                                    |                       |                       |        |      |      |  
|                                                                                                                                                    |                       | (In thousands, except |       
|                                                                                                                                                    |                       | per share data)       |       
|Reported net income                                                                                                                                 |                       | $                     | 41,883 |      |      | $ | 32,697 |     
|Add back: Compensation expense recorded, net of related tax
    effects                                                                             |                       |                       | 162    |      |      |   | 419    |     
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                       |                       | (1,708 | )    |      |   | (1,396 | )   
|                                                                                                                                                    |                       |                       |        |      |      |  
|Pro forma net income                                                                                                                                |                       | $                     | 40,337 |      |      | $ | 31,720 |     
|                                                                                                                                                    |                       |                       |        |      |      |  
|Earnings per share:                                                                                                                                 |                       |                       |        |      |      |   |        |     
|                                                                                                                                                    | Basic  as reported   |                       | $      | 0.80 |      |   | $      | 0.64 | 
|                                                                                                                                                    |                       |                       |        |      |      |  
|                                                                                                                                                    | Basic  pro forma     |                       | $      | 0.77 |      |   | $      | 0.63 | 
|                                                                                                                                                    |                       |                       |        |      |      |  
|                                                                                                                                                    | Diluted  as reported |                       | $      | 0.78 |      |   | $      | 0.63 | 
|                                                                                                                                                    |                       |                       |        |      |      |  
|                                                                                                                                                    | Diluted  pro forma   |                       | $      | 0.76 |      |   | $      | 0.61 | 
|                                                                                                                                                    |                       |                       |        |      |      |  



| |                 
| | ----------------
| | Restricted Stock





| |                 
| | ----------------
| | Stock Repurchase



7



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Dividend





| |                              
| | -----------------------------
| | New Accounting Pronouncements







|   |                                    
|-- | -----------------------------------
|3. | Investments in Affiliated Companies





|              |  |                    |        |  |      |   |        |  
|------------- |  | ------------------ | ------ |  | ---- | - | ------ | -
|              |  | Three months ended |       
|              |  | March 31,          |       
|              |  |                    |       
|              |  | 2004               |        |  | 2005 |  
|              |  |                    |        |  |      |  
|              |  | (In thousands)     |       
|Sales         |  | $                  | 51,607 |  |      | $ | 1,800  |  
|Cost of sales |  |                    | 24,235 |  |      |   | 1,038  |  
|Net income    |  |                    | 11,405 |  |      |   | (3,849 | )



|   |                     
|-- | --------------------
|4. | Comprehensive Income





|   |               
|-- | --------------
|5. | Long-term Debt



8



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                                           
|-- | ------------------------------------------
|6. | Pension and Other Post Retirement Benefits



|                                    |  |                  |         |   |                |   |         |      |  |   |        |   |  |   |        |  
|----------------------------------- |  | ---------------- | ------- | - | -------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                    |  | Pension Benefits |         |   | Other Benefits |  
|                                    |  |                  |         |   |                |  
|                                    |  | 2004             |         |   | 2005           |   |         | 2004 |  |   | 2005   |  
|                                    |  |                  |         |   |                |   |         |      |  |   |        |  
|                                    |  | (In thousands)   |        
|Service cost                        |  | $                | 4,775   |   |                | $ | 5,192   |      |  | $ | 386    |   |  | $ | 416    |  
|Interest cost                       |  |                  | 10,696  |   |                |   | 11,367  |      |  |   | 838    |   |  |   | 895    |  
|Expected return on plan assets      |  |                  | (14,154 | ) |                |   | (15,121 | )    |  |   | (1,363 | ) |  |   | (1,456 | )
|Amortization of prior service costs |  |                  | 458     |   |                |   | 458     |      |  |   | 34     |   |  |   | 130    |  
|Amortization of of net loss         |  |                  | 1,390   |   |                |   | 1,930   |      |  |   | 5      |   |  |   | 40     |  
|                                    |  |                  |         |   |                |   |         |      |  |   |        |  
|Net periodic benefit cost           |  | $                | 3,165   |   |                | $ | 3,826   |      |  | $ | (100   | ) |  | $ | 25     |  
|                                    |  |                  |         |   |                |   |         |      |  |   |        |  



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



| |                   
| | ------------------
| | Termination Claims





9



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Legal Proceedings







| |                      
| | ---------------------
| | Environmental Matters







10



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |             
|-- | ------------
|8. | Acquisitions











|   |                   
|-- | ------------------
|9. | Earnings Per Share



11



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                 
|--- | --------------------------------
|10. | Information on Business Segments





|                                                            |  |                    |         |   |      |   |         |  
|----------------------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | -
|                                                            |  | Three months ended |        
|                                                            |  | March 31,          |        
|                                                            |  |                    |        
|                                                            |  | 2004               |         |   | 2005 |  
|                                                            |  |                    |         |   |      |  
|                                                            |  | (In thousands)     |        
|Sales:                                                      |  |                    |         |   |      |   |         |  
|Defense Systems                                             |  | $                  | 409,888 |   |      | $ | 408,718 |  
|Ship Repair and Maintenance                                 |  |                    | 137,189 |   |      |   | 135,342 |  
|                                                            |  |                    |         |   |      |  
|Total sales                                                 |  |                    | 547,077 |   |      |   | 544,060 |  
|Earnings related to investments in foreign affiliates:      |  |                    |         |   |      |   |         |  
|Defense Systems                                             |  |                    | 5,816   |   |      |   |        |  
|Ship Repair and Maintenance                                 |  |                    |        |   |      |   |        |  
|                                                            |  |                    |         |   |      |  
|Total earnings related to investments in foreign affiliates |  |                    | 5,816   |   |      |   |        |  
|Depreciation and amortization:                              |  |                    |         |   |      |   |         |  
|Defense Systems                                             |  |                    | 5,641   |   |      |   | 5,637   |  
|Ship Repair and Maintenance                                 |  |                    | 4,031   |   |      |   | 3,437   |  
|Corporate                                                   |  |                    | 23      |   |      |   | 17      |  
|                                                            |  |                    |         |   |      |  
|Total depreciation and amortization                         |  |                    | 9,695   |   |      |   | 9,091   |  
|Capital spending:                                           |  |                    |         |   |      |   |         |  
|Defense Systems                                             |  |                    | 3,353   |   |      |   | 4,898   |  
|Ship Repair and Maintenance                                 |  |                    | 1,485   |   |      |   | 1,591   |  
|Corporate                                                   |  |                    | 218     |   |      |   | 45      |  
|                                                            |  |                    |         |   |      |  
|Total capital spending                                      |  |                    | 5,056   |   |      |   | 6,534   |  
|Income before interest and taxes:                           |  |                    |         |   |      |   |         |  
|Defense Systems                                             |  |                    | 70,139  |   |      |   | 59,333  |  
|Ship Repair and Maintenance                                 |  |                    | 6,727   |   |      |   | 7,496   |  
|Corporate                                                   |  |                    | (4,372  | ) |      |   | (9,594  | )
|                                                            |  |                    |         |   |      |  
|Total income before interest and taxes                      |  |                    | 72,494  |   |      |   | 57,235  |  
|Interest, net                                               |  |                    | (5,481  | ) |      |   | (4,861  | )
|                                                            |  |                    |         |   |      |  
|Income before income taxes                                  |  | $                  | 67,013  |   |      | $ | 52,374  |  
|                                                            |  |                    |         |   |      |  

12



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                            |  |                |           |  |           |   |           | 
|--------------------------- |  | -------------- | --------- |  | --------- | - | --------- | 
|                            |  | December 31,   |           |  | March 31, |  
|                            |  | 2004           |           |  | 2005      |  
|                            |  |                |           |  |           |  
|                            |  | (In thousands) |          
|Total assets: (a)           |  |                |           |  |           |   |           | 
|Defense Systems             |  | $              | 840,552   |  |           | $ | 837,201   | 
|Ship Repair and Maintenance |  |                | 436,249   |  |           |   | 435,533   | 
|Corporate and eliminations  |  |                | 324,773   |  |           |   | 303,918   | 
|                            |  |                |           |  |           |  
|Total assets                |  | $              | 1,601,574 |  |           | $ | 1,576,652 | 
|                            |  |                |           |  |           |  






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Goodwill and other intangible assets and related amortization,
    and net pension and other post retirement benefits are included
    in the respective business segments. Corporate assets primarily
    include cash and cash equivalents and deferred financing costs.



|    |             
|--- | ------------
|11. | Income Taxes







|    |                           
|--- | --------------------------
|12. | Related Party Transactions









13



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                                          
|--- | -----------------------------------------
|13. | Recent Developments and Subsequent Events

http://www.sec.gov www.uniteddefense.com




14



---



##### 





|        |                                                                                                                   
|------- | ------------------------------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of the Results
    of Operations and Financial Condition  March 31,
    2005

Special Note Regarding Forward Looking Statements




Overview












15



---



##### 





Business Segments, Products and Programs




|                            |                                         |                    |       |       |      |   |       |      | 
|--------------------------- | --------------------------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ---- | 
|                            |                                         | Three months ended |      
|                            |                                         | March 31,          |      
|                            |                                         |                    |      
|                            |                                         | 2004               |       |       | 2005 |  
|                            |                                         |                    |       |       |      |  
|                            |                                         | (In millions)      |      
|Defense Systems:            |                                         |                    |       |       |      |   |       |     
|                            | Bradley Family of Vehicles              |                    | $     | 112.4 |      |   | $     | 71.2 | 
|                            | Naval Ordnance                          |                    |       | 73.5  |      |   |       | 74.2 | 
|                            | Vertical Launch Systems                 |                    |       | 28.8  |      |   |       | 28.6 | 
|                            | Future Combat Systems                   |                    |       | 67.4  |      |   |       | 44.8 | 
|                            | Artillery Systems                       |                    |       | 27.2  |      |   |       | 29.5 | 
|                            | Combat, Engineering & Recovery Vehicles |                    |       | 24.9  |      |   |       | 20.3 | 
|                            | Assault, Amphibious Vehicles            |                    |       | 7.0   |      |   |       | 42.8 | 
|                            | Other                                   |                    |       | 68.7  |      |   |       | 97.4 | 
|                            |                                         |                    |       |       |      |  
|Total Defense Systems       |                                         |                    | 409.9 |       |      |   | 408.8 |     
|Ship Repair and Maintenance |                                         |                    | 137.2 |       |      |   | 135.3 |     
|                            |                                         |                    |       |       |      |  
|Total                       |                                         | $                  | 547.1 |       |      | $ | 544.1 |     
|                            |                                         |                    |       |       |      |  



Emerging Trends and Uncertainties




Recent Developments




16



---



##### 







17



---



##### 



Results of Operations




|                                                      |                             |                    |         |         |      |  |         |         |  
|----------------------------------------------------- | --------------------------- | ------------------ | ------- | ------- | ---- |  | ------- | ------- | -
|                                                      |                             | Three months ended |        
|                                                      |                             | March 31,          |        
|                                                      |                             |                    |        
|                                                      |                             | 2004               |         |         | 2005 | 
|                                                      |                             |                    |         |         |      | 
|                                                      |                             | (In thousands)     |        
|Revenue:                                              |                             |                    |         |         |      |  |         |        
|                                                      | Defense Systems             |                    | $       | 409,888 |      |  | $       | 408,718 |  
|                                                      | Ship Repair and Maintenance |                    |         | 137,189 |      |  |         | 135,342 |  
|                                                      |                             |                    |         |         |      | 
|Total Revenue                                         |                             |                    | 547,077 |         |      |  | 544,060 |        
|Cost of sales:                                        |                             |                    |         |         |      |  |         |        
|                                                      | Defense Systems             |                    |         | 312,422 |      |  |         | 317,423 |  
|                                                      | Ship Repair and Maintenance |                    |         | 122,665 |      |  |         | 120,019 |  
|                                                      |                             |                    |         |         |      | 
|Total cost of sales                                   |                             |                    | 435,087 |         |      |  | 437,442 |        
|Gross Profit:                                         |                             |                    |         |         |      |  |         |        
|                                                      | Defense Systems             |                    |         | 97,466  |      |  |         | 91,295  |  
|                                                      | Ship Repair and Maintenance |                    |         | 14,524  |      |  |         | 15,323  |  
|                                                      |                             |                    |         |         |      | 
|Total gross profit                                    |                             |                    | 111,990 |         |      |  | 106,618 |        
|Gross profit % of sales:                              |                             |                    |         |         |      |  |         |        
|                                                      | Defense Systems             |                    |         | 23.8    | %    |  |         | 22.3    | %
|                                                      | Ship Repair and Maintenance |                    |         | 10.6    | %    |  |         | 11.3    | %
|                                                      |                             |                    |         |         |      | 
|Total gross profit % of sales                         |                             |                    | 20.5    | %       |      |  | 19.6    | %      
|Selling, general and administrative expenses:         |                             |                    |         |         |      |  |         |        
|                                                      | Defense Systems             |                    | $       | 30,962  |      |  | $       | 32,758  |  
|                                                      | Ship Repair and Maintenance |                    |         | 7,797   |      |  |         | 7,828   |  
|                                                      |                             |                    |         |         |      | 
|Total selling, general and administrative expenses    |                             |                    | 38,759  |         |      |  | 40,586  |        
|Merger related expenses                               |                             |                    |        |         |      |  | 4,054   |        
|Research and development                              |                             |                    | 6,553   |         |      |  | 4,743   |        
|                                                      |                             |                    |         |         |      | 
|Income from operations                                |                             |                    | 66,678  |         |      |  | 57,235  |        
|Earnings related to investments in foreign affiliates |                             |                    | 5,816   |         |      |  |        |        
|                                                      | Interest income             |                    |         | 973     |      |  |         | 1,822   |  
|                                                      | Interest expense            |                    |         | (6,454  | )    |  |         | (6,683  | )
|                                                      |                             |                    |         |         |      | 
|Net interest expense                                  |                             |                    | (5,481  | )       |      |  | (4,861  | )      
|                                                      |                             |                    |         |         |      | 
|                                                      | Income before income taxes  |                    |         | 67,013  |      |  |         | 52,374  |  
|                                                      |                             |                    |         |         |      | 
|Provision for income taxes                            |                             |                    | 25,130  |         |      |  | 19,677  |        
|                                                      |                             |                    |         |         |      | 
|                                                      | Net income                  |                    | $       | 41,883  |      |  | $       | 32,697  |  
|                                                      |                             |                    |         |         |      | 



| |        
| | -------
| | Revenue



18



---



##### 





| |             
| | ------------
| | Gross profit





| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses





| |                        
| | -----------------------
| | Merger related expenses





| |                         
| | ------------------------
| | Research and development





| |                                 
| | --------------------------------
| | Earnings from foreign affiliates





| |                 
| | ----------------
| | Interest expense





| |                           
| | --------------------------
| | Provision for Income Taxes



Liquidity, Capital Resources and Financial Condition






19



---



##### 











|        |                                                                                
|------- | -------------------------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk  March 31, 2005





| |                               
| | ------------------------------
| | Forward Currency Exchange Risk





| |                   
| | ------------------
| | Interest Rate Risk





|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures







20



---



##### 



PART II


OTHER INFORMATION


March 31, 2005




|        |                                         
|------- | ----------------------------------------
|Item 2. | Repurchase of Common Stock by the Issuer





|                                  |  |                      |         |  |                     |                   |       |                 |                     |  |                       |  |  |   |         | 
|--------------------------------- |  | -------------------- | ------- |  | ------------------- | ----------------- | ----- | --------------- | ------------------- |  | --------------------- |  |  | - | ------- | 
|                                  |  |                      |         |  |                     | Total number of   |       |                 |                    
|                                  |  |                      |         |  |                     | shares (or units) |       |                 | Approximate dollar  | 
|                                  |  |                      |         |  |                     | purchased as part |       |                 | value of shares (or | 
|                                  |  | Total number         |         |  | Average             |                   |       | of publicly     |                     |  | units) that may yet   | 
|                                  |  | of shares (or units) |         |  | price paid          |                   |       | announced plans |                     |  | be purchased under    | 
|Period                            |  | purchased            |         |  | per share (or unit) |                   |       | or programs     |                     |  | the plans or programs | 
|                                  |  |                      |         |  |                     |                   |       |                 |                     |  |                       | 
|                                  |  |                      |         |  |                     |                   |       | (In thousands)  |                    
|April 1 to April 30, 2004         |  |                      | 0       |  |                     | $                 |      |                 |                     |  | 0                     |  |  | $ | 100,000 | 
|May 1 to May 30, 2004             |  |                      | 269,500 |  |                     | $                 | 34.30 |                 |                     |  | 269,500               |  |  |   | 90,756  | 
|June 1 to June 30, 2004           |  |                      | 599,300 |  |                     | $                 | 33.26 |                 |                     |  | 599,300               |  |  |   | 70,823  | 
|July 1 to July 30, 2004           |  |                      | 65,200  |  |                     | $                 | 33.98 |                 |                     |  | 65,200                |  |  |   | 68,608  | 
|August 1 to August 30, 2004       |  |                      | 160,100 |  |                     | $                 | 36.90 |                 |                     |  | 160,100               |  |  |   | 62,700  | 
|September 1 to September 30, 2004 |  |                      | 535,400 |  |                     | $                 | 39.21 |                 |                     |  | 535,400               |  |  |   | 41,707  | 
|October 1 to October 31, 2004     |  |                      | 648,700 |  |                     | $                 | 39.61 |                 |                     |  | 648,700               |  |  |   | 16,010  | 
|November 1 to November 30, 2004   |  |                      | 213,600 |  |                     | $                 | 40.98 |                 |                     |  | 213,600               |  |  |   | 7,258   | 
|December 1 to December 31, 2004   |  |                      | 0       |  |                     | $                 |      |                 |                     |  | 0                     |  |  |   | 7,258   | 
|January 1 to March 5, 2005        |  |                      | 0       |  |                     | $                 |      |                 |                     |  | 0                     |  |  |   | 0       | 





|        |         
|------- | --------
|Item 6. | Exhibits





| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1 Agreement and Plan of Merger, dated as of March 6,
    2005, among United Defense Industries, Inc., BAE North America,
    and Ute Acquisition Company, Inc. (Incorporated by reference to
    exhibit 2.1 on our Form 8-K/A filed March 17, 2005).
|
| | 31.1 Certification of Chief Executive Officer.                                                                                                                                                                                                         
|
| | 31.2 Certification of Chief Financial Officer.                                                                                                                                                                                                         
|
| | 32.1 Certification of Chief Executive Officer.                                                                                                                                                                                                         
|
| | 32.2 Certification of Chief Financial Officer.                                                                                                                                                                                                         

21



---



##### 



SIGNATURE






| |                                    
| | -----------------------------------
| | United Defense Industries,
    Inc.
| | (registrant)                       



| |     |                   
| | --- | ------------------
| | By: | /s/ Francis Raborn

| |                                           
| | ------------------------------------------
| |                                           
| | Francis Raborn                            
| | Principal Financial and Accounting Officer
| | and Authorized Signatory                  



22