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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

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

THE SECURITIES EXCHANGE ACT OF 1934




|                                  |                              
|--------------------------------- | -----------------------------
|For Year Ended: December 31, 2001 | Commission File No. 001-16821



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UNITED DEFENSE INDUSTRIES, INC.

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 52-2059782                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)



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

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

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

None


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o

Indicate by check mark if the disclosure of
delinquent filers pursuant to Item 405 or
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in part III of this Form 10-K or any
amendment to this
Form 10-K þ

As of March 15, 2002, the aggregate market
value of the common stock held by non affiliates of the
registrant was $644,184,720 based on the closing price of $25.95
per share on the New York Stock Exchange on such date.

Common Stock, $.01 par value 51,038,534 Shares
Outstanding as of March 15, 2002

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the registrants
definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A no later
than April 30, 2002, is incorporated by reference in
Part III of this Report.



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TABLE OF CONTENTS



|                                                   |                                                                                                   |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                 
|PART 1                                            
|                                                   | ITEM 1. Description of Business                                                                  
|                                                   | ITEM 2. Properties                                                                               
|                                                   | ITEM 3. Legal Proceedings                                                                        
|                                                   | ITEM 4. Submission of Matters to a Vote of Security Holders                                      
|PART II                                           
|                                                   | ITEM 5. Market for Registrants Stock and Related Stockholder Matters                            
|                                                   | Item 6. Selected Financial Data                                                                  
|                                                   | ITEM 7. Managements Discussion and Analysis of the Results of Operations and Financial Condition
|                                                   | Item 7A. Quantitative and Qualitative Disclosure about Market Risk                               
|                                                   | ITEM 8. Consolidated Financial Statements and Supplementary Data                                 
|                                                   | ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     
|PART III                                          
|                                                   | ITEM 10. Directors and Executive Officers                                                        
|                                                   | ITEM 11. Executive Compensation                                                                  
|                                                   | ITEM 12. Principal Stockholders                                                                  
|                                                   | ITEM 13. Certain Transactions                                                                    
|PART IV                                           
|                                                   | ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                        
|SIGNATURES                                        
|Agreement to Purchase Dated October 29, 2001      
|1st Amendment to Employment Agreement D V Kolovat 
|1st Amendment to Employment Agreement D A Wagner  
|Consent of Ernst & Young LLP                      
|Consent of Report of Ind. Auditor (Andersen)      
|Consent of Report of Ind. Auditor (Authur Andersen
|Comfirmation letter regarding Andersen            



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TABLE OF CONTENTS

|                                                                                                                                                                                                                                                                               |  |                                                                                        |    |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                                                                                                                                                                                                               |  |                                                                                        |    | Page
|                                                                                                                                                                                                                                                                               |  |                                                                                        |    |     
|PART I                                                                                                                                                                                                                                                                        
|Item 1.                                                                                                                                                                                                                                                                        |  | Business                                                                               |    |      | 2  | 
|Item 2.                                                                                                                                                                                                                                                                        |  | Properties                                                                             |    |      | 11 | 
|Item 3.                                                                                                                                                                                                                                                                        |  | Legal Proceedings                                                                      |    |      | 11 | 
|Item 4.                                                                                                                                                                                                                                                                        |  | Submission of Matters to a Vote of Security
	Holders                                   |    |      | 11 | 
|PART II                                                                                                                                                                                                                                                                       
|Item 5.                                                                                                                                                                                                                                                                        |  | Market for Registrants Common Equity and
	Related Shareholder Matters                 |    |      | 13 | 
|Item 6.                                                                                                                                                                                                                                                                        |  | Selected Consolidated Financial Data                                                   |    |      | 13 | 
|Item 7.                                                                                                                                                                                                                                                                        |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 15 | 
|Item 7A                                                                                                                                                                                                                                                                        |  | Quantitative and Qualitative Disclosures about
	Market Risk                            |    |      | 22 | 
|Item 8.                                                                                                                                                                                                                                                                        |  | Consolidated Financial Statements and
	Supplementary Data                              |    |      | 24 | 
|Item 9.                                                                                                                                                                                                                                                                        |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |    |      | 25 | 
|PART III                                                                                                                                                                                                                                                                      
|Items 10, 11, 12 and 13 are incorporated by
	reference from the Companys definitive Proxy Statement for
	its 2002 Annual Meeting of Stockholders, which will be filed
	with the Securities and Exchange Commission pursuant to
	Regulation 14A no later than April 30,
	2002. |  |                                                                                        | 26 |     
|PART IV                                                                                                                                                                                                                                                                       
|Item 14.                                                                                                                                                                                                                                                                       |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |      | 27 | 



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Special Note Regarding Forward-Looking
Statements

This report on Form 10-K 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 and to execute its
internal performance plans; changing priorities or reductions in
the U.S. government defense budget; the Companys ability
to win and retain government contracts; changes in defense
procurement models; the impact on the Companys operating
results of the timing of manufacturing and delivery of products
under U.S. Government contracts; termination of government
contracts due to unilateral government action; The
Companys ability to make and successfully integrate
acquisitions; performance issues with key suppliers and
subcontractors; developments with respect to contingencies such
as legal proceedings and environmental matters; labor
negotiations; the performance of, and political and other risks
associated with, the Companys international operations and
joint ventures; and the effect on our financial and operating
activity of the Companys significant level of debt. For
additional information, see Risk Factors in the
Companys Registration Statement on Form S-1, SEC File
Number 333-71986.

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PART 1




ITEM
1.     Description of
Business

Overview

The Company is a global leader in the design,
development and production of combat vehicles, artillery, naval
guns, missile launchers and precision munitions used by the U.S.
Department of Defense (DoD) and more than 40 foreign
militaries. The Companys primary military programs include
upgrades of the Bradley Fighting Vehicle (BFV) and
its derivatives, and development for the Crusader Field
Artillery System (Crusader). These two key programs
comprise approximately 40% of the Companys annual
revenues. The BFV is the leading domestically produced vehicle
able to fulfill the dual role of troop transport and armored
fighting vehicle. The Company has maintained its prime
contractor position on the Bradley program since production
began in 1981, and has added a number of technology-based
upgrades and derivative vehicles that continue to extend the
programs life cycle. Building on over twenty years of
experience on the M109 self-propelled howitzer and upgrades, the
Company is also the prime contractor for the development of the
Crusader. The U.S. Army has identified the Crusader as its
planned multi-billion dollar next-generation field artillery
system. In addition to managing the fighting vehicle and
howitzer programs, the Company serves as the prime contractor
for a number of mission-critical military programs, several of
which have spanned decades, including the M88 tank recovery
vehicle since 1960, the M113 armored personnel carrier since
1960, and the U.S. Navys Mk45 naval gun system since 1968.

Products and Programs

The Companys portfolio consists of a
balanced mix of current production, upgrade and life-cycle
support, and development programs. Revenue generated from each
of our major programs and details of selected programs are
discussed below.

|                                           |       |                         |       |         |  |      |       |         |  |  |       |         | 
|------------------------------------------ | ----- | ----------------------- | ----- | ------- |  | ---- | ----- | ------- |  |  | ----- | ------- | 
|                                           |       |                        
|                                           |       | Year Ended December 31,
|                                           |       |                        
|                                           |       | 1999                    |       | 2000    |  | 2001
|                                           |       |                         |       |         |  |     
|Bradley Family of Vehicles                 |       |                         | 223.6 |         |  |      | 284.8 |         |  |  | 275.7 |        
|Naval Ordnance(a)                          |       |                         | 112.8 |         |  |      | 175.5 |         |  |  | 230.7 |        
|Vertical Launch System                     |       |                         | 119.0 |         |  |      | 98.8  |         |  |  | 85.4  |        
|Crusader                                   |       |                         | 252.3 |         |  |      | 184.5 |         |  |  | 262.0 |        
|Combat, Engineering & Recovery Vehicles(b) |       |                         | 175.8 |         |  |      | 144.5 |         |  |  | 102.0 |        
|M109 Howitzer System                       |       |                         | 128.4 |         |  |      | 42.1  |         |  |  | 30.1  |        
|Assault Amphibious Vehicles                |       |                         | 90.3  |         |  |      | 57.0  |         |  |  | 55.3  |        
|Other                                      |       |                         | 111.3 |         |  |      | 196.7 |         |  |  | 277.3 |        
|                                           |       |                         |       |         |  |      |       |         |  |  |       |        
|                                           | Total |                         | $     | 1,213.5 |  |      | $     | 1,183.9 |  |  | $     | 1,318.5 | 
|                                           |       |                         |       |         |  |      |       |         |  |  |       |        



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|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(a) | Includes Mk 45, Advanced Gun Systems
	(AGS), and other naval services and equipment.



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes vehicles such as the M88 recovery
	vehicle, Grizzly breaching system, M9 ACE and other engineering
	related equipment.

The Bradley Fighting Vehicle.The Company has been the sole-source,
prime contractor of the BFV to the U.S. Army since its initial
production in 1981. The BFV is a tracked armored vehicle with a
25mm cannon, TOW missiles and a stabilized turret, and is the
leading domestically produced vehicle able to fulfill the dual
role of troop transport and armored fighting vehicle. The BFV is
outfitted with armor and day/night sights, and can transport up
to nine soldiers across rough terrain. The vehicles
combination of lethality, survivability, and mobility has
established it as a critical component of the U.S.
governments full-spectrum warfare strategy. A total of
6,742 BFVs have been built, of which 400 were for the Saudi
Arabian Army.

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Although new BFVs are no longer being built, the
Company derives significant revenue from upgrading the
Armys existing fleet of BFVs. The Company initiated
delivery of the latest upgrade, the BFV A3 version, in
October of 1998 as part of a low rate initial production
contract awarded in July of 1997. The BFV A3 provides
enhancements such as situation awareness capability and improved
lethality, survivability and sustainability and is a key
component to the U.S. Armys program to digitize the
battlefield. The U.S. Army is currently planning to upgrade
1,037 older version BFVs to the A3 configuration, with annual
funding allocations over the eleven-year period between
FY1997-2007. The Company has been awarded four single year
contracts (FY1997-2000) for a total of 203 vehicles, and in May
2001 the Company received a multi-year contract (FY01-03) for an
additional 389 vehicles. Of these 592 vehicles, 45
were sold in 2001 and 114 in prior years.

BFV Derivatives and Support.The BFV has served as a platform for a
number of derivative vehicles developed by the Company. One such
derivative, the Multiple Launch Rocket System (MLRS)
carrier, was developed to provide a carrier for a long-range
rocket artillery system and is outfitted with rockets, a
launcher and fire control system developed and produced by
Lockheed Martin Missiles and Fire Control. The Company was
awarded a contract to initiate an MLRS remanufacture program,
with the first delivery completed in August 1997. Another
derivative, the Fire Support Vehicle, supports armor and
mechanized forces by pinpointing enemy targets using laser
technology, which allows more accurate and timely calls for fire
from the artillery. The Company provided 22 kits to convert
BFVs under a workshare arrangement with Red River Army depot to
produce Fire Support Vehicles. Another such vehicle is the
Command and Control Vehicle (C2V). The C2V is a
self-contained vehicle that keeps pace with armored maneuver
forces while providing the crew with a protected environment.
The Company was awarded the three year production contract for
C2V conversions in December 1998 with scheduled deliveries to be
completed in May 2001. However, the Army removed additional
production funding for the C2V in FY01 and cancelled the FY00
award. Finally, the Armys Linebacker air defense vehicle
integrates the BFV with Stinger missiles and adds improvements
to turret fire control, target acquisition subsystems and
survivability. The Company received a new contract for
Linebacker conversions in July 1998 and completed delivery in
1999.

In addition to the development and manufacture of
BFV derivatives, the Company provides BFV upgrade kits and field
services. Kits allow for the upgrade of BFVs to incorporate
advances in technology. The Company also deploys experts to
provide on-site training and advice to customers, complete
maintenance and repairs, and assess the necessity of replacement
parts. The Company is also under contract with the U.S.
Armys Simulation, Training and Instrumentation Command for
the development and demonstration of a multi-purpose
simulator/trainer for the BFV family of vehicles. An award for
the production and installation of 13 Bradley Advanced
Training Systems (BATS) was received in July 1999
and deliveries will be completed by the second quarter of 2002.
A second year production for a follow on quantity of 11 BATS is
in process with an award projected by March 2002.

Mk45 Naval Gun System (Mk45).The Company is the sole source
producer of the Navys 5-inch Mk45 gun system for the
Navys newest class of destroyers, the Arleigh Burke DDG 51
class (DDG51). The company is under contract for
FY00 and FY01 requirements. The U.S. Navy currently plans to
continue building DDG51 class ships through FY07. The Company is
also the prime contractor for the Naval Surface Fire Support
(NSFS) program. This NSFS program includes upgrading
the Mk45 gun system with the capability to fire Extended Range
Guided Munitions. Due to the NSFS program, the Company
anticipates a sole-source contract to upgrade Mk45 guns on the
Navys Ticonderoga class ships from Mod2 to Mod4
configuration, which extends the Mk45s range and improves
surface fire support capability. The company has already been
contracted to upgrade the first eight MK45 guns to the Mod4
configuration for the cruisers. Furthermore, the U.S. government
supports foreign allied navies having compatible armaments, and
has recently increased its assistance to the Companys
efforts to place Mk45s on foreign ships. Management believes the
improvements included in the Mod4 configuration, which provide
significantly greater range will make the Mk45 more competitive
internationally. In December 1999, the Company made its first
international sale of Mk45 Mod4 to Korea.

Overhaul, Repair, Maintenance and Other.The Company also provides aftermarket
service for the Mk45 and smaller caliber gun mounts, guided
missile launching systems, vertical launching systems, surface
vessel torpedo tubes, gun fire control systems, target and decoy
launchers and other naval Combat Systems equipment. Work is
performed for the U.S. Navy and various international allied
forces. These services include engineering,

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repair, upgrade, maintenance, logistic support,
replacement parts and onboard technical assistance. A
significant amount of the service work is performed at the
Companys Louisville operation which is located at the
facilities of the former U.S. Navy operated Naval Ordnance
Station. Service work is also done in San Diego, CA; Norfolk,
VA; and Mayport, FL.


Advanced Gun System (AGS).The U.S. Navy is currently developing
its next-generation destroyer, the DD-X, with land attack as its
primary mission. The Company is the sole-source developer of
AGS, the primary gun weapon system on DD-X. The Company is on
both industry teams, which are competing to develop and produce
the DD-X. Each of the destroyers is expected to have two AGS on
board, providing the equivalent firepower of two battalions of
Army M198 howitzers, at ranges of up to 100 nautical miles.
Funded gun development was initiated in 1999, with completion of
development scheduled for 2006. The Company is currently in
system development and demonstration for the AGS. The prototype
ship is scheduled to begin construction in FY05. In addition to
designing the gun and associated magazine, the Company has been
selected at the source selection authority for projectile
development.

Submarine Propulsor.The Company is the sole-source prime contractor of U.S.
submarine propulsors, a position gained through high-precision
machinery, advances manufacturing facilities and extensive
experience with a variety of materials. Propulsors enable a
submarine to travel at required speeds while maintaining minimal
noise levels. The company is currently under contract to produce
five propulsors for Virginia Class submarines for delivery
through 2004. The first unit was delivered in November 2001 one
month ahead of schedule.

Mk41 Vertical Launching System.The VLS is the U.S. Navys
primary missile launcher on surface combatants, firing the
anti-air Standard Missile, strike mission-related Tomahawk
cruise missile, vertical launch anti-submarine rocket
(VLASROC), and ship self-defense Sea Sparrow
missile. The Company manufactures all the major structural
assemblies and electrical cables for the VLS launcher under
subcontract to Lockheed Martin Corporation, the prime contractor
of the VLS launcher. The Company is the designated mechanical
design agent for the VLS launcher and is the design agent for
all VLS canisters. The Company is the sole-source, prime
contractor of VLS canisters to the US Navy and foreign navies.
Each new missile introduced requires a new canister development
program. United Defense designs and tests the new canister and
then, as the sole source manufacturer, produces and delivers the
canisters to the U. S. Navy. The U.S. Navy installs the VLS,
like the Mk45, on all DDG51s, each of which contains twelve
8-cell VLS modules. The DDG51 program is planned to continue
production through 2007. In 1998, the Company entered into a
multi-year launcher production contract with Lockheed Martin
Corporation, which completes production deliveries in 2003. The
Company is currently negotiating three additional option years
that will provide launcher production and ancillary work through
2006. In 1999, the Company entered into a five-year contract
with the U.S. Navy for VLS canisters. In 2001, the Company
extended until December 31, 2011 its current VLS teaming
agreement with Lockheed Martin which covers both U.S. and
foreign sales of the VLS.

The U.S. Navy is currently developing its
next-generation destroyer, the DD-X. The DD-X program plan calls
for inclusion of multi-mission vertical launchers in the ship
design, and demonstration of an Advanced VLS. The Company is
supporting the Advanced VLS development on both industry teams,
which are competing to develop and produce the DD-X. The
Advanced VLS will likely be compatible with the existing
MK 41 VLS canister inventory, for which the Company is the
design agent and sole source supplier. The DD-X program is
planned to enter production in 2005.

Crusader Advanced Artillery System.The Crusader is an integrated and
automated two-vehicle artillery system consisting of a 155-mm,
self-propelled howitzer and resupply vehicle. The resupply
vehicle has two variations, one tracked and one wheeled. The
Company is the sole-source, prime contractor and systems
integrator responsible for the design and development of the
Crusader, including delivery of a prototype system, under a
$1.7 billion Program Definition Risk Reduction contract,
which is scheduled to be completed in 2003. The follow on
development phase, known as Systems Development and
Demonstration (SD&D), is scheduled to begin in
2003, with delivery of the first SD&D prototype in 2004. Low
Rate Initial Production is scheduled to begin in Elgin, Oklahoma
in 2006, reflecting the Armys latest funding schedule. The
Army plan calls for fielding 480 Crusader systems.

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The Crusader is designed to achieve the U.S.
Armys stated objectives for the next-generation howitzer.
These specifications include: (i) increased mobility,
(ii) increased lethality, (iii) improved
survivability, (iv) better sustainability, and
(v) increased strategic deployability. The Crusader is
being designed to be the first howitzer capable of keeping pace
with the mechanized maneuver force, and will be a key part of
the Armys counterattack corps. The Crusader is also being
designed to provide substantially greater responsiveness and
high rates of fire through long-range and accurate firings
enabled by the vehicles advanced autoloading technology
and actively-cooled cannon, thereby giving it a multiple round
simultaneous impact capability. This firing capability is being
designed to allow commanders to extend and dominate the battle
space and set a higher tempo for land operations. The Crusader
is being developed with an embedded digitized command, control,
communications and intelligence system for enhanced situational
awareness, and for new capabilities for battlefield movement and
resupply.

M88 Armored Recovery Vehicle
(M88).The Company has
been the sole-source, prime contractor of the M88 to the U.S.
Army since 1960. The M88 currently has an installed base of more
than 3,325 vehicles in 19 countries throughout the world. The
M88 performs towing, lifting and winching tasks in the recovery
of impaired tanks or in basic tracked vehicle maintenance. In
preparation for the deployment of heavier M1 tanks by the U.S.
Army, in 1986 the Company began the development effort for the
M88A2 (HERCULES) upgrade. M88A2 HERCULES uses a hull
designed for the recovery mission and is thoroughly proven by
U.S. Army testing. Key upgrades include improved power-assisted
braking, improved steering, improved electrical system and
increased engine horsepower. M88A2 HERCULES features overlay
armor protection, ballistic skirts, a longer 35-ton boom, a
70-ton constant pull main winch with 280 feet of cable and
an auxiliary 3-ton winch to aid main winch cable deployment.
These capabilities enable a single system with three crewmembers
to carry a tank turret or upright and tow an M1A1/ A2 tank;
these tasks would otherwise require eight soldiers and two
recovery vehicles. The M88A2 HERCULES is a low acquisition,
operation and maintenance cost recovery system for 70-ton
vehicles. In addition to the development and manufacturing of
vehicles, the Company also provides M88 upgrade kits, spare
parts, field services, conduct maintenance and repairs, and
provide expert on-site and off-site training to customers. The
U.S. Army has been awarding annual contracts for M88 upgrades
since 1994 and the U.S. Marine Corps (USMC) contract
started in 2000. The Company is currently under contract to
deliver 51 vehicles through April 2003 and is in negotiations
for the FY02 award of 27 additional vehicles to the U.S.
Army and USMC. The company also has an ongoing co-production
contract with Egypt for 63 M88A2 HERCULES and is in
negotiations for an award of 3 additional vehicles to
Egypt. This vehicle has also been fielded in both Thailand and
Kuwait. The M88A2 HERCULES is the recovery system of choice for
todays 70-ton combat vehicles, and management believes
that the Companys years of experience in developing and
manufacturing give it an edge in pursuing additional domestic
and international opportunities.

In-Stride Breacher (Grizzly).The Grizzly is a 70-ton vehicle
currently under development designed to clear mines and other
complex obstacles. Mounted on a modified M1 chassis, the Grizzly
features a mine-clearing blade controlled by complex software
that provides automatic depth control. It is also equipped with
a power-driven arm for digging, grappling and lifting, as well
as seven external cameras for vision and remote operation, with
full electronic integration. Currently nearing completion of the
EMD phase, the programs low rate initial production funds
were cancelled by the Office of the Secretary of Defense
(OSD) in December 1999. This action was taken
by OSD solely due to not having sufficient funds to support the
Armys Medium Force Brigade initiative. The three Heavy
Armor Divisions that remain still require the in-stride, complex
obstacle breaching capabilities that the Company believes can
only be accomplished by Grizzly. As a result of this
requirement, the development program was extended through
February 2002.

M9 Armored Combat Earthmover (M9
ACE).The M9 ACE is an 18-ton,
fully tracked, aluminum armored vehicle, used on the battlefield
to bulldoze, rough grade, excavate, haul and scrape. With a crew
of one, the multi-purpose M9 ACE can attain road speeds of
up to 35 miles per hour, and unlike a standard bulldozer,
requires no transport vehicle. It is also small and light enough
to be transported in C-130 aircraft. The M9 ACE can serve
as the prime mover of vehicles weighing up to 39,000 pounds
and can clear debris left in the wake of battles or civil
disasters. The Company completed production of 52 vehicles
in November 1999. Those vehicles have been fielded to Engineer
Units at Ft. Hood, Texas and Ft. Stewart, GA.

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M109 Self-Propelled Howitzer
(M109).The M109 has been
the most widely used field artillery vehicle for the U.S.
military and certain foreign governments since it was first
produced by the Company in 1974. The M109 is recognized for its
ability to deliver rapid and high volume artillery support and
to maximize survivability through mobility. The latest
generation of the M109, the M109A6 Paladin, is the most advanced
M109 upgrade fielded to date. The Company completed deliveries
of 7 Paladins in 2001 and received a follow-on order for
18 additional units in January 2002. The Company has
various non-production activities on Paladin, specifically
engineering and training contracts. The Company also designs and
produces unique configurations of the M109 and offers M109
upgrade kits, servicing and training to various foreign
governments.

M992 Field Artillery Ammunition Supply Vehicle
(FAASV).The single
mission of the FAASV, the battlefield partner of the M109, is to
safely transport personnel, ammunition, and supplies to howitzer
artillery vehicles on the battlefield during both firing and
non-firing conditions. By utilizing synchronized and
semi-automated resupply strategies and mechanisms to carry the
M109 ammunition, the FAASV enables the howitzer to remain in the
field longer and thereby increase its lethality. The heavily
armored chassis provides ballistic protection to its munitions
supply crew and accommodates all standard 155mm rounds. In 1999,
the Company completed a production contract for 96 new vehicles
and 36 converted vehicles. The Company was awarded an option to
deliver 6 additional converted FAASVs in 2000, and production
for those vehicles was completed in 2000.

Assault Amphibious Vehicle (AAV).The AAV has been the U.S. Marine
Corps amphibious assault vehicle for over two decades with
more than 1,500 vehicles delivered. In July 1998, the Company
was awarded a $158 million four year contract by USMC
to rebuild the existing fleet of AAVs in a partnering
arrangement with the Albany, Georgia and Barstow, California
Marine Corps Logistic Bases. The Company currently produces
different kit configurations of the AAV for foreign customers
such as Korea, Spain and Italy, and then assists these countries
in assembling the kits locally.

M113 Armored Personnel Carrier
(M113).The M113 has been
the main troop transport vehicle used by the U.S. military and
allied governments throughout the world, with more than
80,000 units delivered since initial production in 1960.
The Company has produced several M113 models in cooperation
with U.S. allies, including various configurations of the
Armored Infantry Fighting Vehicle, historically produced in
Europe and currently produced by the Companys Turkish
affiliate, FNSS. The U.S. Army, which received its last delivery
of new M113s from the Company in 1992, continues to upgrade its
M113s to the latest A3 configuration. This upgrade work
currently occurs in the Companys Anniston, Alabama
facility and continues to be a source of revenue for the
Company. The upgrade work is performed in a partnering
arrangement with the Anniston Army Depot. Currently, the
Armys new budget discontinues funding for additional M113
upgrades after 2002.

In addition, the Company is supplying kits for
the Canadian Army to upgrade their M113A2 vehicles to the latest
M113A3 configuration and to produce the new improved Mobile
Tactical Vehicle Light (MTVL). The MTVL variant,
which is a patented UDLP M113 derivative, has significantly
more cross-country mobility, payload capacity and under armor
volume than the standard M113A3.

Bofors Defence (Bofors) Programs.United Defense Industries acquired
Bofors Weapon Systems, a Swedish Company, in September 2000 from
Celsius AB. Subsequent to the acquisition the name was changed
to Bofors Defence. The purpose of this acquisition is to provide
a base for the expansion of United Defenses business
within the European Union. Bofors is active in four major
business areas: Field Artillery Systems, Air Defence and Naval
Gun Systems, Combat Vehicle Systems and Product Support.
Bofors key competencies are in the area of Precision
Strike and Intelligent Systems. During 2000 Bofors received key
contracts to commence the manufacture of intelligent munitions
(the BONUS program) for the Swedish Government and to adapt a
battalion of CV9040 vehicles for peacekeeping duties. Bofors
entered 2001 with a backlog of approximately $240 million.
During 2001, key orders were received for additional 57mm Naval
Guns for Mexico and additional BONUS Munitions components for
France. The Company announced an agreement on February 15,
2002 under which Bofors will acquire Cell ITS, a subsidiary of
the Swedish company, Cell Networks AB. Cell ITS is a provider of
simulation products for combat systems and other defense
applications.

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Joint Ventures

The Company has two joint ventures, one located
in Turkey and the other in Saudi Arabia. These joint ventures
are accounted for on an equity basis, as the company does not
control them.

FNSS-Turkey.The
FMC-Nurol Savunma Sistemleri A.S. (FNSS) joint
venture was formed in 1987 to pursue armored combat vehicle
sales to the Turkish Army. The Company owns 51% of FNSS. The
initial contract, which became effective in 1989, was for 1,698
vehicles consisting of four types of armored vehicles:
personnel carrier, fighting vehicle, TOW missile vehicle and
mortar vehicle, all using a common chassis. The initial
production contract for 1,698 vehicles has been completed, and
follow-on contracts for 551 and 114 additional personnel carrier
vehicles were respectively signed in 2000 and 2001. In 1998,
FNSS signed its first export contract with the United Arab
Emirates (Abu Dhabi) to provide 133 vehicles comprised of a mix
of forward observation vehicles, engineer squad vehicles and
recovery vehicles, with deliveries starting mid 1999 and ending
in early 2001. In August 2000, FNSS signed a second major export
order to supply 211 vehicles in eleven configurations to the
government of Malaysia. This contract will also include
co-production through a sublicensee company in Malaysia. The
orders for the Turkish government and the Malaysian government
provide backlog into 2005.

FNSS is pursuing new business opportunities with
the Turkish government for amphibious vehicles, self-propelled
howitzers and tank modernization. FNSS is also pursuing
additional orders with the UAE and Malaysia, as well as other
export opportunities within its licensed territory, which
includes much of the Middle East and Southeast Asia.

United Defense
Systems-Arabia (UDS).The Company owns 51% of United Defense Systems, in
partnership with Al-Hejailan Projects Engineering Company, Ltd.
The joint venture has U.S. Foreign Military Sales contracts to
support the Royal Saudi Land Forces Infantry Corps. One set of
contracts, worth approximately $300 million, was for
logistics and training support for Bradley Fighting Vehicle
units. Such work was discontinued in early 2002 and UDS does not
anticipate any future sales for Bradley logistics and training
support. In early 1997, UDS was awarded a second contract to
commence the modernization of 523 of Saudi Arabias
M113s from a fleet of approximately 1,700 vehicles, to an
A3 configuration. Because of overall budgeting constraints
affecting the Saudi Arabian government, the funding for the
M113 program has been stretched out, with the result that
UDS operated the program at a substantially reduced level during
1999 through 2001. Current funding will support work in Saudi
Arabia through April of 2002. As a result of the uncertainty of
future funding and the prospect that future work might only be
available on less attractive contractual terms, the Company is
evaluating its options regarding its ownership of UDS including
potentially selling its interests.

Research and Development and Engineering
Capabilities

Among the DoD procurement requirements is the
research and development of new technologies for application to
weapon systems and upgrades. The Companys ability to
compete for defense contracts depends to a large extent on the
success and innovation of its research and development programs.

The Companys engineering capability has
been a critical component of its success. Extensive experience
in simulation, systems integration, armor, mobility,
survivability and armaments, as well as its software
development, engineering and electronics capabilities, have
allowed the Company to stay at the forefront of the development,
manufacture and upgrade of its products.

The Company expended $12.8 million,
$15.8 million and $23.7 million on research and
development in 1999, 2000 and 2001, respectively, a substantial
portion of which was included in overhead allocable to both U.S.
government and foreign government contracts.

Government Contracts; Regulatory
Matters

Management expects that, for the foreseeable
future, approximately 80% -85% of the Companys sales will
continue to result from contracts with the U.S. government,
either directly, through prime contractors, or pursuant to the
U.S. governments Foreign Military Sales (FMS)
program. The Companys U.S. government business is
performed under cost-plus contracts (cost-plus-fixed-fee,
cost-plus-incentive-fee, or cost-plus-award-fee) and

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under fixed-price contracts (firm fixed-price,
fixed-price incentive, or fixed-price-level-of-effort).
Generally, the Companys engineering and development
programs are performed under cost-plus contracts, while the
production contracts are awarded on a fixed-price basis.
Cost-plus and fixed-price contracts accounted for approximately
33% and 67% respectively of the Companys business in 2001.


The Companys U.S. government business is
subject to unique procurement and administrative rules based on
both laws and regulations. These laws and rules include
compliance with socio-economic requirements, the distribution of
costs to contracts and the non-reimbursement of certain costs
such as lobbying expenses. The Companys contract
administration and cost accounting policies and practices are
subject to oversight by government inspectors, technical
specialists and auditors.

Certain of the Companys sales occur
pursuant to the FMS program, in which the U.S. Government
(i) enters into an agreement to provide military equipment
and/or services to a foreign government, and then
(ii) enters into a conventional procurement contract with a
U.S. contractor to supply such goods and/or services. Thus the
Companys FMS contracts are subject to the same regulatory
oversight and legal risks described for ordinary U.S. government
procurement contracts below.

Certain of the Companys sales are Direct
Commercial Sales to foreign governments. These sales are subject
to U.S. Government approval and licensing under the Arms Export
Control Act. Legal restrictions on sales of sensitive U.S.
technology also limit the extent to which the Companys
foreign joint ventures can sell our products to foreign
governments or private parties.

U.S. government contracts are, by their terms,
subject to termination by the U.S. government either for its
convenience or for default by the contractor. In addition, U.S.
government contracts are conditioned upon the continuing
availability of Congressional appropriations. Congress usually
appropriates funds for a given program on a September 30
fiscal year basis, even though contract performance may take
many years. Consequently, at the outset of a major program, the
contract is usually partially funded, and additional monies are
normally committed to the contract by the procuring agency only
as appropriations are made by Congress for future fiscal years.

As is common in the industry, the Company is
subject to business risks, including changes in governmental
appropriations, national defense policies or regulations,
service modernization plans, and availability of funds. Any of
these factors could materially adversely affect the
Companys business with the U.S. government in the future.

Competition

In the market it serves the Company faces a
variety of major domestic and foreign competitors including
Alvis, The Boeing Company, General Dynamics Corporation, General
Motors Corporation, GIAT, Kraus Maffei Wegmann, Lockheed Martin
Corporation, Oto Breda, Raytheon Company, Steyr and Textron.

Management believes that the Company will
continue to be able to compete successfully based upon the
quality, technological advancement and cost competitiveness of
its products and services. As the electronic and software
content of the Companys products increases, the Company
may encounter future competition from electronics and aerospace
companies whose activities historically have been largely
unrelated to the Companys products and programs. The
Companys ability to compete for defense contracts depends
to a large extent on the success and innovation of its research
and development programs, its capability as a systems
integrator, its willingness to partner with military industrial
facilities owned by DoD, known as depots, its ability to offer
best value to its government customers, and its readiness in
facilities, equipment and personnel to undertake the programs
for which it competes.

In some instances, programs are sole-sourced by
the U.S. government to a single supplier, and in other cases
involve a prime contractor and multiple suppliers. In cases
where the Company is the sole-source provider, there may be
other suppliers who have the capability to compete for the
programs involved, but they can only enter or reenter the market
if the U.S. government should choose to reopen the particular
program to competition. The Companys customers,
particularly the industrial facilities operated by DoD, often
compete with the Company for aftermarket business, such as
upgrade work and various overhaul and servicing work performed
by the Company.

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Army Transformation

The U.S. Army has undertaken extensive efforts to
transform its combat force toward a lighter, more rapidly
deployable force. As a primary element of the transformation
involves the shift to substantially lighter combat vehicles, the
transformation initiative poses business and technological
challenge for the Company. To date, the two new transformation
initiatives undertaken by the Army are the Interim Armored
Vehicles program and the Future Combat System program.
Additionally, the Army has stated that the Crusader program, in
which the Company has played a key role since its inception,
will also provide an important element of the Armys
transformation.

Interim Armored Vehicles
(IAV).Beginning in early
2000, the Army announced its intention to procure, on an urgent
basis, several brigades of light, under 20 tons, vehicles
using primarily existing technology. The IAV competition arose
in the context of an increased use of wheeled combat vehicles by
a number of European and other foreign armies. Historically, the
Company had produced vehicles which operated on tracks rather
than wheels, reflecting both our customers preferences and
our belief in the superior off-road, cross-country and obstacle
crossing performance of tracked vehicles. The Company proposed
tracked vehicles in the IAV competition, but in November 2000
the Army announced that it had selected a competitors
wheeled design for the IAV. (In December 2000 the Company
protested, to the General Accounting Office (GAO),
the Armys IAV contract award to a wheeled vehicle
competitor, on the ground of substantial irregularities in the
Armys conduct of the IAV procurement. The GAO, in an April
2001 decision, rejected the Companys protest. The Army
indicates that the IAV program is expected to run until at least
2008 and cost in excess $6 billion in development and
production costs.

The Company believes that, both because of the
absolute scale of the IAV program and its continued cost growth,
one principal effect of the programs continuation will be
to divert funds which would otherwise most likely have been used
to fund the Companys programs. For example, the Company
believes that the M113 upgrade, C2V, and Grizzly programs have
all been pared back or curtailed in order to free up funding, at
least in part, for the IAV program. Additionally, the
Armys selection of a wheeled vehicle for the IAV may
encourage the funding of future wheeled vehicle programs in the
U.S. and elsewhere, and the Company does not currently offer a
wheeled combat vehicle.

Future Combat Systems (FCS).While the Army envisions the IAV as an
interim solution to its transformation needs, it has announced
the FCS program as its longer term solution. FCS would use
enhanced battlefield knowledge and extensive electronic
networking to field, beginning in 2010, a new array of sensors,
weapons, and combat equipment, potentially manned and/or
unmanned, in order to provide lighter and more rapidly
deployable Army units. In an initial, conceptually-oriented
phase of work on the program during 2000 and 2001, the Company
participated as a subcontractor in a team led by Science
Applications International Corporation (SAIC).
During the fall of 2001, the Army restructured the FCS program
with an emphasis on according the principal organizational role
in the program to a so-called lead systems integrator
(LSI). In the competition for approximately
$150 million in concept development work under the
restructured FCS program, the Company participated on a team led
by General Dynamics Corporation, but on March 7, 2002 the
Army awarded the LSI role to a competing team led by The Boeing
Company and SAIC. Since the Company does not understand the
Boeing-SAIC team to possess significant combat vehicle
expertise, the Company expects to remain a viable competitor to
participate, most likely as a subcontractor to the LSI, in the
development and/or production of any ground combat vehicle
component(s) in the FCS program. However, the FCS program
remains at such an early stage that the Company is unable to
predict whether the program would ultimately include a
significant ground combat vehicle element, and if so, whether
the Company would succeed in providing any of the design,
development, or hardware associated with the combat vehicle
element.

Major Customers

The Companys sales are predominantly
derived from contracts with agencies of the U.S. government. See
Note 13 to the Consolidated Financial Statements, included
in Item 8.

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Backlog

As of December 31, 2001, the Companys
funded backlog was approximately $1.9 billion, roughly
equivalent to year-end 2000. Funded backlog does not include the
awarded but unfunded portion of total contract values. This
backlog provides management with a useful tool to project sales
and plan its business on an on-going basis. A substantial
majority of this backlog is expected to be earned as revenues by
the end of 2002.

Intellectual Property

Although the Company owns a number of patents and
has filed applications for additional patents, it does not
believe that its operations depend upon its patents. In
addition, the Companys U.S. government contracts
generally license it to use patents owned by others. Similar
provisions in the U.S. government contracts awarded to
other companies make it impossible for the Company to prevent
the use by other companies of its patents in most domestic work.
Additionally, the Company owns certain data rights in its
products under certain of its government contracts. The
protection of data developed by the Company from use by other
government contractors is from time to time a source of
negotiation between the Company and the U.S. government, and the
extent of the Companys data rights in any particular
product generally depends upon the degree to which that product
was developed by the Company, rather than with
U.S. government funds. The Company routinely enters into
confidentiality and non-disclosure agreements with its employees
to protect its trade secrets.

Employees

At December 31, 2001, the Company had
approximately 5,300 employees and approximately 300
contract workers, excluding employees of the foreign joint
ventures. Approximately 1,500 of these employees at six
locations are represented by nine unions, including the Glass,
Molders, Pottery, Plastics and Allied Workers (Anniston); the
International Association of Machinists (Louisville and San
Jose); the United Automobile, Aerospace and Agricultural
Implement Workers (Minneapolis); the International Guards
(Minneapolis); the International Brotherhood of Teamsters (San
Jose); the United Steelworkers (York); Armament Systems Guards
Firefighters (Fridley); the Swedish Trade Union Cooperation
(Sweden); and the Federation of Salaried Employees in Industry
and Services (Sweden). While we have from time to time
experienced strikes by our unionized employees, we believe that
currently relations with employees are good.

Sources and Availability of Raw
Materials

The Companys manufacturing operations
require raw materials, primarily aluminum and steel, which are
purchased in the open market and are normally available from a
number of suppliers. The Company also purchases a variety of
electronic and mechanical components for which the Company has
multiple commercial sources. The Company has not experienced any
significant delays in obtaining timely deliveries of essential
raw materials.

Environmental Matters

The Companys operations are subject to
federal, state and local laws and regulations relating to, among
other things, emissions to air, discharges to water, the
handling and disposal of hazardous and solid wastes and the
cleanup of hazardous substances (Environmental
Laws). The Company continually assesses its compliance
status and believes that its operations currently are in
substantial compliance with Environmental Laws.

Operating and maintenance costs associated with
environmental compliance and prevention of contamination at the
Companys facilities are a normal, recurring part of
operations, are not significant relative to total operating
costs or cash flows, and are generally allowable as contract
costs under the Companys contracts with the
U.S. government (Allowable Costs). Such costs
have not been material in the past and, based on information
presently available to the Company and on U.S. government
environmental policies relating to Allowable Costs in effect at
this time, all of which are subject to change, are not expected
to have a material adverse effect on the Company.

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Under existing U.S. environmental laws,
potentially responsible parties are jointly and severally liable
and, therefore, the Company is potentially liable to the
government or third parties for the full cost of remediating
contamination at its sites or at third party sites. In the
unlikely event that the Company were required to fully fund the
remediation of a site, the statutory framework would allow us to
pursue rights of contribution from other potentially responsible
parties.

Since at least the end of World War II, the
Company, including its predecessors, has operated the Fridley,
Minnesota facility on behalf of the U.S. Government. At
such government-owned facilities, environmental compliance and
remediation costs have historically been the responsibility of
the government, and the Company relied, and continues to rely
with respect to past contamination, upon government funding to
pay such costs. While the government to date has paid for all of
the remediation costs on its portion of the Fridley site, there
can be no assurance that it will continue to do so.

Based on historical experience, the Company
expects that a significant percentage of the total remediation
and compliance costs associated with its facilities will
continue to be Allowable Costs. As of December 31, 2001 the
Company has a reserve for approximately $14 million to
cover any remediation and compliance costs that may not be
allowable costs under its U.S. government contracts.
Management believes that the reserve is sufficient and does not
expect that such costs will materially adversely affect the
Company.




ITEM
2.     Properties

The Companys principal manufacturing and
research and development activities are located in four main
facilities: Fridley, Minnesota; York, Pennsylvania; Louisville,
Kentucky; and Santa Clara, California. The Company currently
uses the 1,712,240 square foot Fridley facility under a
month-to-month agreement with the U.S. Government. However,
the Company has entered into a proposed agreement with the
Government under which the Company would purchase the Fridley
facility. The York facility consists of 996,518 square feet
and is owned by the Company. The Company lease its
633,609 square foot Louisville facility pursuant to a lease
expiring in August 2002. The main Santa Clara facility occupies
124,940 square feet under a lease that expires in
October 2011. In addition, the Company owns or leases
approximately 25 additional administrative offices,
manufacturing facilities, and warehouse locations throughout the
U.S. and in Sweden.




ITEM 3.     Legal
Proceedings

From time to time the Company is involved in
legal proceedings arising in the ordinary course of its
business. The Company believes that it has adequately reserved
for these liabilities and that there is no litigation pending
that could have a material adverse effect on its results of
operations and financial condition. As a government contractor,
the Company is subject to the audit, review, and investigative
authority of various U.S. Government agencies. Depending
upon the particular jurisdictional statute, violations of
federal procurement rules may result in contract price
reductions or refunds, civil penalties, and/or criminal
penalties. Government contractors which violate the False Claims
Act and/or other applicable laws may be suspended or debarred
from receiving further government contracts. In the
Companys sixty-year history as a U.S. Government
contractor, the government has never sought to suspend or debar
the Company. However, given the Companys dependence on
U.S. Government contracts, suspension or debarment could
readily have a material adverse effect on the Company. The
Companys policy is to cooperate with governmental
investigations and inquiries regarding compliance matters, and
it also makes voluntary disclosures of compliance issues to
governmental agencies as appropriate. The Company is currently
providing information on compliance matters to various
government agencies, and it expects to continue to do so in the
future.




ITEM
4.     Submission of Matters to a
Vote of Security Holders

On December 6, 2001, the holder of a
majority of the Companys common stock consented in
writing, without a meeting, to (i) immediately amend the
Companys Certificate of Incorporation to increase the
authorized number of shares of the Companys common stock
from 20,000,000 to 150,000,000; (ii) to further amend the
Companys Certificate of Incorporation, upon closing of an
initial public offering for the Companys common stock, to
authorize the Company to issue up to 50,000,000 shares of
preferred stock, in such series and

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with such rights, including but not limited to
rights pertaining to voting, redemption, conversion, and
liquidation preferences, as the Board of Directors may fix; and
(iii) to amend the Companys Bylaws, upon closing of
an initial public offering for the Companys common stock,
to set forth detailed provisions regarding the proposal of
business and the nomination of persons for election to the Board
of Directors at annual or special meetings of the Companys
stockholders. Such consent represented the casting of 17,300,000
votes in favor of each of the foregoing matters, and no votes
abstained or were cast in opposition.


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PART II




ITEM 5.     Market
for Registrants Stock and Related Stockholder
Matters

Our sole class of common equity is the
Companys $0.01 par value common stock, which is traded on
the New York Stock Exchange (NYSE) under the symbol
UDI. Trading in our common stock commenced on the
NYSE on December 14, 2001. As of March 1, 2002, there
were 53 shareholders of record with approximately 8,100
beneficial shareholders of the Companys common stock.

The table below shows, for the quarters
indicated, the reported high and low trading prices of the
Companys common stock on NYSE.

|                   |                                              |             |   |       |  |  |   |       | 
|------------------ | -------------------------------------------- | ----------- | - | ----- |  |  | - | ----- | 
|                   |                                              |            
|                   |                                              | Price Range
|                   |                                              |            
|                   |                                              | High        |   | Low  
|                   |                                              |             |   |      
|Calendar Year 2001 |                                              |             |   |       |  |  |   |      
|                   | Fourth Quarter (beginning December 14, 2001) |             | $ | 21.94 |  |  | $ | 18.99 | 
|Calendar Year 2002 |                                              |             |   |       |  |  |   |      
|                   | First Quarter (through March 8, 2002)        |             | $ | 28.47 |  |  | $ | 19.60 | 

As part of the recapitalization transaction
described in Item 7 below, the Company paid two dividends
in 2001. The first dividend of $289.7 million at $7.11 per
share was paid on August 13. The second dividend of
$92.0 million, or $5 per share was paid on
November 26. No further dividend distributions are
anticipated. In addition, the Companys $800 million
senior secured credit agreement includes provisions restricting
its ability to pay dividends in the future.

No unregistered securities were sold by the
Company during the period, 1999  2001.

On December 13, 2001 the Companys
Registration Statement on Form S-1, Commission file no.
333-71986 (the Registration Statement), was declared
effective. The Registration Statement registered a total of
21,100,000 shares of the Companys $0.01 par value common
stock, of which 9,250,000 shares were offered by the Company and
11,850,000 shares were offered by selling stockholders. The
managing underwriters for the offering were Lehman Brothers and
Goldman, Sachs & Co. All such shares were sold at $19.00 per
share on December 14, 2001, resulting in an aggregate
offering price of $400,900,000, of which $175,750,000 pertained
to shares sold by the Company and the remaining $225,150,000
pertained to shares sold by selling stockholders. Pursuant to
the terms of the underwriting described in the Registration
Statement, the underwriters were entitled to elect, not later
than January 13, 2001, to sell up to 3,165,000 further
shares of common stock, all from selling stockholders. On
January 13, 2001 the underwriters elected to sell an
additional 2,499,000 such shares.

In connection with the foregoing offering, the
Company paid underwriting discounts and commissions of
$10,545,000 and other issue costs of $2,611,000. With the
remaining proceeds, $163,400,000 of debt under the senior
secured credit facility created in the recapitalization was
repaid.




Item 6.     Selected
Financial Data

The following tables sets forth the
Companys selected consolidated financial data for the
periods indicated. The Company has derived its consolidated
statement of operations data for the years ended
December 31, 1998, 1999, 2000 and 2001, the three months
ended December 31, 1997 and its balance sheet data as of
December 31, 1997, 1998, 1999, 2000 and 2001, as well as
the statements of operations and balance sheet data for the
predecessor company as of and for the nine months ended
September 30, 1997, from the Companys consolidated
financial statements, which Ernst & Young LLP, its
independent auditors, have audited. The historical results
presented are not necessarily indicative of future results. You
should read the information set forth below in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Companys
consolidated financial statements and their related notes
included elsewhere in this document.

The Companys predecessor company is United
Defense, L.P., which was acquired on October 6, 1997. As a
result of adjustments to the carrying value of assets and
liabilities pursuant to this transaction, the financial

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position and results of operations for periods
subsequent to the acquisition are not comparable to those of our
predecessor. In addition, on March 6, 2000, the Company
acquired all of the outstanding stock of Barnes & Reinecke,
Inc., and on September 6, 2000, it acquired all of the
outstanding stock of Bofors Defence. Accordingly, the financial
statements reflect the results of operations of the acquired
entities since the respective dates of acquisition. These
acquisitions affect the comparability of the financial data for
the periods presented.


|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |            |         | 
|---------------------------------------------------- | ------------------------------------------ | --------------------------------------------------- | ------- | -------------- | ------- | ----------------------- | ------- | ---------- | --------- | ---- | --------- | ---------- | ------- | - | --------- | ---------- | ------- | - | --------- | ---------- | ------- | - | --------- | ---------- | ------- | 
|                                                     |                                            |                                                     |         |               
|                                                     |                                            | Predecessor                                         |         | United Defense
|                                                     |                                            |                                                     |         |               
|                                                     |                                            | Nine months                                         |         | Three months   |         |                        
|                                                     |                                            | ended                                               |         | ended          |         | Year ended December 31,
|                                                     |                                            | September 30,                                       |         | December 31,   |         |                        
|                                                     |                                            | 1997                                                |         | 1997           |         | 1998                    |         | 1999       |           | 2000 |           | 2001      
|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |           
|                                                     |                                            |                                                    
|                                                     |                                            | (In thousands, except in shares and per share data)
|Net sales                                            |                                            | $                                                   | 913,925 |                |         | $                       | 342,627 |            |           | $    | 1,217,555 |            |         | $ | 1,213,526 |            |         | $ | 1,183,886 |            |         | $ | 1,318,538 |           
|Net income before extraordinary item                 |                                            |                                                     | 78,130  |                |         |                         | (36,259 | )          |           |      | (122,598  | )          |         |   | 2,938     |            |         |   | 18,165    |            |         |   | 37,022    |           
|Net income(loss)                                     |                                            |                                                     | 78,130  |                |         |                         | (36,259 | )          |           |      | (122,598  | )          |         |   | 2,938     |            |         |   | 18,845    |            |         |   | 8,776     |           
|                                                     |                                            | Total assets                                        |         |                | 626,658 |                         |         |            | 1,246,083 |      |           |            | 977,450 |   |           |            | 853,142 |   |           |            | 895,820 |   |           |            | 912,292 | 
|Long term debt, including current portion            |                                            |                                                     |        |                |         |                         | 659,800 |            |           |      | 506,986   |            |         |   | 349,843   |            |         |   | 269,577   |            |         |   | 430,900   |           
|Cash dividends declared per common
	stock  August   |                                            |                                                     |        |                |         |                         |        |            |           |      |          |            |         |   |          |            |         |   |          |            |         | $ | 7.11      |           
|Cash dividends declared per common
	stock  November |                                            |                                                     |        |                |         |                         |        |            |           |      |          |            |         |   |          |            |         |   |          |            |         | $ | 5.00      |           
|                                                    
|Per Share Data:                                      |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|Earnings per common share  basic                    |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | (Loss) income before extraordinary Item    |                                                     |         | N/A            |         |                         | $       | (0.93      | )         |      | $         | (3.08      | )       |   | $         | 0.07       |         |   | $         | 0.45       |         |   | $         | 0.90       |        
|                                                     | Extraordinary item                         |                                                     |         | N/A            |         |                         |         |           |           |      |           |           |         |   |           |           |         |   |           | 0.01       |         |   |           | (0.69      | )      
|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | Net (loss) income                          |                                                     |         | N/A            |         |                         | $       | (0.93      | )         |      | $         | (3.08      | )       |   | $         | 0.07       |         |   | $         | 0.46       |         |   | $         | 0.21       |        
|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | Weighted average common shares outstanding |                                                     |         | N/A            |         |                         |         | 38,923,929 |           |      |           | 39,815,942 |         |   |           | 40,593,348 |         |   |           | 40,584,049 |         |   |           | 41,264,914 |        
|Earnings per common share  diluted                  |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | (Loss) income before extraordinary item    |                                                     |         | N/A            |         |                         | $       | (0.93      | )         |      | $         | (3.08      | )       |   | $         | 0.07       |         |   | $         | 0.43       |         |   | $         | 0.86       |        
|                                                     | Extraordinary item                         |                                                     |         | N/A            |         |                         |         |           |           |      |           |           |         |   |           |            |         |   |           | 0.01       |         |   |           | (0.66      | )      
|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | Net (loss) income                          |                                                     |         | N/A            |         |                         | $       | (0.93      | )         |      | $         | (3.08      | )       |   | $         | 0.07       |         |   | $         | 0.44       |         |   | $         | 0.20       |        
|                                                     |                                            |                                                     |         |                |         |                         |         |            |           |      |           |            |         |   |           |            |         |   |           |            |         |   |           |           
|                                                     | Weighted average common shares outstanding |                                                     |         | N/A            |         |                         |         | 38,923,929 |           |      |           | 39,815,942 |         |   |           | 42,052,127 |         |   |           | 42,419,473 |         |   |           | 43,203,511 |        

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The selected quarterly financial data presented
below are derived from the Companys consolidated unaudited
financial statements:

|                                            |                                            |                                      |       |              |   |              |       |              |   |   |       |      |  |   |       |      | 
|------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----- | ------------ | - | ------------ | ----- | ------------ | - | - | ----- | ---- |  | - | ----- | ---- | 
|                                            |                                            |                                     
|                                            |                                            | 2000                                
|                                            |                                            |                                     
|                                            |                                            | Three months                         |       | Three months |   | Three months |       | Three months
|                                            |                                            | ended                                |       | ended        |   | ended        |       | ended       
|                                            |                                            | March 31                             |       | June 30      |   | Sept 30      |       | Dec 31      
|                                            |                                            |                                      |       |              |   |              |       |             
|                                            |                                            |                                     
|                                            |                                            | (In millions, except per share data)
|Sales                                       |                                            | $                                    | 266.9 |              |   | $            | 297.2 |              |   | $ | 303.3 |      |  | $ | 316.5 |     
|Gross Profit                                |                                            |                                      | 51.8  |              |   |              | 55.1  |              |   |   | 72.7  |      |  |   | 60.4  |     
|Net income (loss) before extraordinary item |                                            |                                      | (1.2  | )            |   |              | (4.4  | )            |   |   | 20.1  |      |  |   | 3.7   |     
|Net income (loss) after extraordinary item  |                                            |                                      | (1.2  | )            |   |              | (3.7  | )            |   |   | 20.1  |      |  |   | 3.7   |     
|                                           
|Per Share Data:                             |                                            |                                      |       |              |   |              |       |              |   |   |       |      |  |   |       |     
|Earnings per common share  basic           |                                            |                                      |       |              |   |              |       |              |   |   |       |      |  |   |       |     
|                                            | (Loss) income before extraordinary item    |                                      | $     | (0.03        | ) |              | $     | (0.10        | ) |   | $     | 0.49 |  |   | $     | 0.09 | 
|                                            | Net (loss) income after extraordinary item |                                      |       | (0.03        | ) |              |       | (0.09        | ) |   |       | 0.49 |  |   |       | 0.09 | 
|Earnings per common share  diluted         |                                            |                                      |       |              |   |              |       |              |   |   |       |      |  |   |       |     
|                                            | (Loss) income before extraordinary item    |                                      | $     | (0.03        | ) |              | $     | (0.10        | ) |   | $     | 0.47 |  |   | $     | 0.09 | 
|                                            | Net (loss) income after extraordinary item |                                      |       | (0.03        | ) |              |       | (0.09        | ) |   |       | 0.47 |  |   |       | 0.09 | 

|                                            |                                            |                                      |       |              |  |              |       |              |  |   |       |       |   |   |       |      | 
|------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----- | ------------ |  | ------------ | ----- | ------------ |  | - | ----- | ----- | - | - | ----- | ---- | 
|                                            |                                            |                                     
|                                            |                                            | 2001                                
|                                            |                                            |                                     
|                                            |                                            | Three months                         |       | Three months |  | Three months |       | Three months
|                                            |                                            | ended                                |       | ended        |  | ended        |       | ended       
|                                            |                                            | March 31                             |       | June 30      |  | Sept 30      |       | Dec 31      
|                                            |                                            |                                      |       |              |  |              |       |             
|                                            |                                            |                                     
|                                            |                                            | (In millions, except per share data)
|Sales                                       |                                            | $                                    | 292.1 |              |  | $            | 346.7 |              |  | $ | 275.1 |       |   | $ | 404.6 |     
|Gross Profit                                |                                            |                                      | 60.9  |              |  |              | 64.5  |              |  |   | 59.6  |       |   |   | 73.8  |     
|Net income (loss) before extraordinary item |                                            |                                      | 5.1   |              |  |              | 15.7  |              |  |   | 4.6   |       |   |   | 11.6  |     
|Net income (loss) after extraordinary item  |                                            |                                      | 5.1   |              |  |              | 15.7  |              |  |   | (18.0 | )     |   |   | 6.0   |     
|                                           
|Per Share Data:                             |                                            |                                      |       |              |  |              |       |              |  |   |       |       |   |   |       |     
|Earnings per common share  basic           |                                            |                                      |       |              |  |              |       |              |  |   |       |       |   |   |       |     
|                                            | (Loss) income before extraordinary item    |                                      | $     | 0.13         |  |              | $     | 0.39         |  |   | $     | 0.10  |   |   | $     | 0.28 | 
|                                            | Net (loss) income after extraordinary item |                                      |       | 0.13         |  |              |       | 0.39         |  |   |       | (0.45 | ) |   |       | 0.14 | 
|Earnings per common share  diluted         |                                            |                                      |       |              |  |              |       |              |  |   |       |       |   |   |       |     
|                                            | (Loss) income before extraordinary item    |                                      |       | 0.12         |  |              |       | 0.37         |  |   |       | 0.10  |   |   |       | 0.27 | 
|                                            | Net (loss) income after extraordinary item |                                      |       | 0.12         |  |              |       | 0.37         |  |   |       | (0.43 | ) |   |       | 0.14 | 

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|        |                                                                                            
|------- | -------------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion and Analysis
	of the Results of Operations and Financial
	Condition

The following discussion and analysis should be
read in conjunction with the financial statements and related
notes and the other financial information, included elsewhere in
this report. This discussion contains forward-looking statements
about our business and operations. Our actual results could
differ materially from those anticipated in such forward-looking
statements.

Overview

United Defense is a leader in the design,
development and production of combat vehicles, artillery, naval
guns, missile launchers and precision munitions used by the U.S.
Department of Defense and more than 40 foreign militaries. For
many of the key U.S. Department of Defense programs, the Company
is the sole-source prime contractor and systems integrator. The
Company conducts its global operations through its manufacturing
facilities in the United States and Sweden, through
manufacturing joint ventures in Turkey and Saudi Arabia, and
through co-production programs with various other governments
and foreign contractors.

The Carlyle Group formed the Company in October
1997 to facilitate the acquisition of United Defense, L.P.,
the predecessor. As a result of purchase price adjustments to
the carrying value of the acquired assets and liabilities of
United Defense, L.P., the financial position and results of
operations for periods subsequent to the acquisition are not
comparable to those of the predecessor Company. In addition,
comparability of the results of operations since then have been
affected by the March 2000 acquisition of Barnes &
Reinecke, Inc. and the September 2000 acquisition of Bofors
Weapon Systems AB, which was renamed Bofors Defence. The
financial statements reflect the results of operations of those
acquired entities from their respective dates of acquisition.
The Carlyle Group continues to own a significant portion of the
Companys common stock. Individuals affiliated with The
Carlyle Group are expected to continue to influence our
operations.

On December 14, 2001 the Company completed
its initial public offering of 9,250,000 shares of common stock
at $19 per share. Immediately prior to the offering, it effected
a 2.25 to 1 stock split by way of a stock dividend on its common
stock which is reflected in the discussion of all periods in
this report. The Company used the proceeds of the offering to
reduce the principal amount outstanding under its senior secured
credit facility by $163.4 million. The debt repayment
resulted in a charge of $5.6 million in unamortized finance
costs reported as an extraordinary item.

The Companys results of operations,
particularly its revenue, gross profits and cash flows, vary
significantly from period to period, depending largely upon the
timing of our delivery of finished products, the terms of our
contracts and our level of export sales. As a result,
period-to-period comparisons may show substantial changes
disproportionate to its underlying business activity.

The Companys contracts typically fall into
two categories, cost-plus and fixed-price contracts. The
Companys contracts for research, engineering, prototypes,
repair and maintenance and some other matters are typically
cost-plus arrangements, under which it is reimbursed for
approved costs and fee. The production contracts are typically
fixed-price arrangements under which the Company assume the risk
of cost overruns and receive the benefit of cost savings. All of
its U.S. Government contracts, whether the Company is the prime
contractor or a subcontractor, is subject to audit and cost
controls. As a result, the U.S. Department of Defense typically
has the right to object to its costs as not allowable or as
unreasonable, which can increase the costs it bears rather than
recovering as costs reimbursed or allowed in its negotiation of
fixed-price contracts.

The Company recognizes sales on its fixed-price
production contracts when the risks and rewards of ownership
have been transferred to the customer. For its U.S. Department
of Defense production contracts, those criteria are typically
met when the manufacture of the product is completed and the
customer has certified it as meeting the contract specifications
and as having passed quality control tests. However, under
recent Bradley production contracts, sales are not recognized
until the U.S. Army fields individual units because it is at
that point that the risks and rewards of ownership are
transferred. This contractual provision extends the period of
time during which these vehicles are carried as inventory and
may result in an uneven distribution of revenue from these
contracts between periods. For its foreign production contracts,
sales are generally recorded upon shipment of products to the
customer which corresponds to when the risks and rewards of
ownership transfer. The Company tends to deliver products to its
foreign customers in lots, which also results in an inventory
build-up pending delivery. Sales under cost reimbursement
contracts are recorded as costs are incurred.

The Company uses the contract method of
accounting for its fixed-price contracts and therefore records
its gross margin on each unit produced at the time sale is
recognized, based on an estimate of the margin that will be

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realized over the life of the related contract.
The Company currently evaluates its estimates of gross margin
three times each year and uses the cumulative catch-up method to
recognize changes in its estimates of sales and gross margins
during the period in which those changes are determined. The
Company charges any anticipated losses on a contract to
operations as soon as those losses are determined. The principal
components of its operating costs for production contracts are
materials, subcontractor costs, labor and overhead. The
principal operating costs for engineering and development
contracts are compensation costs for the engineers and designers
and related overhead necessary to support those personnel. All
of these operating costs are charged to inventory as incurred.
The Company also uses the last-in, first-out, or LIFO, method of
accounting, which generally results in higher cost of sales in
periods when current costs of the inventory are higher than
comparable costs in prior periods and a periodic charge to
earnings to reflect changes in the costs of components of
inventory. The Company expenses selling, general,
administrative, and research and development costs in the period
incurred. The major components of these costs include
compensation, overhead and amortization of goodwill and other
intangibles.


Results of Operations

Year Ended
December 31, 2001 Compared to Year Ended December 31,
2000.

Revenue.Revenue for
2001 was $1,318.5 million, an increase of $134.6 million or
11.4% from $1,183.9 million for 2000. The higher revenue
was due to both having a full year of the Bofors acquisition
instead of just four months as was the case in 2000,
resulting in an increase of $69.9 million, increased
revenue from Crusader of $77.5 million and Naval Ordnance
programs revenue, including the first propulsor unit delivery
for the new Virginia class submarine, of $55.2 million. These
increases were partially offset by a decline in shipment of
Armored Recovery vehicles under a co-production contract with
Egypt.

Gross Profit.Gross
profit increased $18.9 million, or 7.9%, to $258.9 million
for the year 2001 as a result of increased sales. Gross profit
margin of 19.6% for 2001 was slightly less than the 20.3% gross
profit margin for 2000, primarily as a result of positive
contract profit adjustments in 2000.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses increased $6.0 million, or 3.5% to
$179.7 million for 2001. The increase was attributable to
the inclusion of Bofors Defence for the entire 2001 period
resulting in an increase of $11.8 million and expenses
incurred in connection with the August 2001 recapitalization.
These increases were partially offset by reduced amortization of
purchase price related to acquisitions, agents commissions and
bid and proposal costs.

Research and
Development.Research and development
costs were $23.7 million for 2001, an increase of
$7.9 million, or 50.2%, from the prior year. This increase
resulted 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-X
destroyer program and on other technologies which we believe
will enhance the Companys ability to compete for future
programs.

Earnings from Foreign
Affiliates.Earnings from foreign
affiliates for 2001 were $10.2 million, a
$11.4 million increase from the prior year. This increase
was primarily due to an increase in the Companys share of
income recognized by the joint venture in Saudi Arabia due to a
change in estimated contract costs and fees recorded by that
joint venture and increased earnings from the joint venture in
Turkey reflecting the resumption of production in 2001.

Net Interest
Expense.Net interest expense for 2001
was $22.7 million, a $2.4 million decline from the
prior year. This decrease was the result of a decline in
interest rates and higher interest income on higher average cash
balances in 2001.

Provision for Income
Taxes.The provision for income taxes
for 2001 was $5.9 million, a decrease of $0.1 million
from the prior year. The reduction in foreign sales corporation
taxes due to the application to foreign sales of the new
FSC Repeal and Extraterritorial Income Exclusion Act of
2000 more than offset an increase in state taxes in 2001.

Extraordinary Item.The Company recorded a charge of $28.2 million during the
year 2001 comprised of a tender premium of $18.1 million
and amortization of financing costs for $10.1 million for
debt prepayment. In 2000, it incurred a $0.7 million
extraordinary gain related to the purchase of some of these
subordinated notes for less than their principal amount.

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Net Income.As a
result of the foregoing, the Company had net income of
$8.8 million, after the extraordinary loss for the early
retirement of debt, for the year ended 2001, a
$10.1 million decline from the prior year.

Year Ended
December 31, 2000 Compared to Year Ended December 31,
1999.

Revenue.2000
revenue of $1,183.9 million declined $29.6 million, or
2.4%, from revenue of $1,213.5 million for 1999. The
decrease primarily resulted from the winding down and closing of
the Paladin production operation in June 1999, which accounted
for $45.8 million in sales during the first six months of
1999, a decrease of $67.8 million in billings for the
Crusader development program and the completion of shipments for
several programs in 1999. These declines were partially offset
by the additional sales of $58.5 million generated by
Barnes & Reinecke and Bofors Defence, both of which
were acquired in 2000, increased shipments of $61.2 million
of Bradley upgrades and by engineering development sales for the
Advanced Gun System.

Gross Profit.Gross
profit increased $18.4 million, or 8.3%, to $240.0 million
for 2000. This gross profit increase was primarily due to the
reduced depreciation and amortization costs of
$28.0 million related to assets revalued in connection with
the acquisition of United Defense, L.P. and higher award fees
for the Crusader program, partially offset by the lower sales
volume described above and the effects of LIFO accounting.

Selling, General and Administrative
Expenses.Selling, general and
administrative expenses increased $5.8 million, or 3.5%, to
$173.7 million for 2000. This increase was primarily the
result of heavy spending for marketing activity and proposals,
principally for the IAV program, and expenses associated with
businesses acquired in 2000. These increases were partially
offset by lower depreciation and amortization of intangible
assets revalued in connection with the acquisition of United
Defense, L.P.

Research and
Development.Research and development
costs were $15.8 million for 2000, a $3.0 million, or
23.3%, increase over 1999. During 2000, research and development
spending increased to support the Companys unsuccessful
effort in pursuit of an award related to the IAV program. In
addition, net research and development cost in 1999 was
favorably affected by the reimbursement of research and
development costs incurred in prior periods in connection with
the development of the Advanced Gun System.

Earnings from Foreign
Affiliates.The loss recognized from
foreign affiliates was $1.3 million in 2000. The
$2.9 million decrease from the prior year was primarily due
to a loss in 2000 related to its Turkish joint venture.

Net Interest
Expense.Net interest expense for 2000
was $25.1 million, an $11.9 million decrease from 1999
as a result of lower debt levels.

Net Income.As a
result of the foregoing, the Company had net income of
$18.8 million in 2000, including an extraordinary gain of
$0.7 million from the early retirement of debt, compared to
net income of $2.9 million for 1999.

Year Ended
December 31, 1999 Compared to Year Ended December 31,
1998.

Revenue.Revenue for
1999 was $1,213.5 million, a decline of $4.0 million, or
0.3%, from 1998. The lower revenue was largely due to the
winding down of the Paladin artillery upgrade program at the end
of the second quarter of 1999 resulting in a $69.5 million
reduction and the completion of self-propelled howitzer and
armored personnel carrier shipments to foreign customers. These
declines were offset by higher revenue from the shipments of
Vertical Launch Systems, increased billings for the Crusader
program and new deliveries of armored combat earth movers, self
propelled howitzers and rebuilt assault amphibious vehicles.

Gross Profit.Gross
profit increased $103.4 million, or 87.4%, to
$221.6 million for 1999. Gross profit margin improved to
18.3% for 1999 from 9.7% for 1998. This improvement was due to
lower costs related to assets revalued in connection with our
acquisition of United Defense, L.P. In addition, in 1998 the
Company incurred a non-cash pension charge of $27.5 million
related to restructuring one of its business units, and wrote
off and charged cost of sales for unusable capitalized software
related to manufacturing systems and other impaired
manufacturing assets totaling $11.7 million.

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Selling, General and Administrative
Expenses.Selling, general and
administrative expenses were $167.9 million in 1999, a
decrease of $5.0 million, or 2.9%, from 1998. This decrease
in expenses resulted from lower depreciation and amortization of
goodwill and other intangible assets compared to 1998.

Earnings from Foreign
Affiliates.Earnings from foreign
affiliates were $1.6 million in both 1998 and 1999.

Net Interest
Expense.Net interest expense declined
27.1% from 1998 to $37.0 million for 1999 as a result of
lower debt levels in 1999.

Net Income.As a
result of the foregoing, the Company had net income of
$2.9 million for 1999 compared with a net loss of
$122.6 million for 1998.

Liquidity, Capital Resources and Financial
Condition

The Companys primary source of liquidity is
cash provided by operations. It had generated positive cash flow
from operating activities since the formation of United Defense
Industries, Inc. in October 1997.

The Companys liquidity requirements depend
on a number of factors, including the timing of production under
U.S. Government and foreign sales contracts. Payments on these
contracts are typically received based on performance milestones
or when a specified percentage of contract expenses is incurred.
These advance payments help reduce the need to finance working
capital. However, working capital needs fluctuate between
periods as a result of changes in program status and the timing
of payments by program. For example, under the recent production
contract related to the Bradley program, final payment for each
vehicle is not received until the U.S. Army fields the vehicle,
which may be significantly later than the time at which the
finished vehicle passes all required certifications.

Cash provided by operating activities was
$90.3 million for 2001, a decrease of $5.0 million
from the prior year. The primary reason for this decrease was a
significant build-up of inventories net of advance payments
associated with producing units for several foreign customers,
which will ship in later periods.

Cash provided by operating activities for 2000
and 1999 was $95.3 million and $189.6 million,
respectively. During 2000, cash provided by operating activities
was significantly lower than in recent years. The majority of
cash was generated by net income plus depreciation and
amortization of $113.9 million, but it was adversely affected by
increases in working capital, primarily to fund an increase in
receivables. Cash provided by operating activities in 2000 was
also adversely affected by non-recurring costs (net of
recoveries of allowable costs under U.S. Government contracts)
of $9.4 million incurred in connection with our
unsuccessful bid for the Interim Armored Vehicle program. In
1999 cash flow was principally due to net income plus
depreciation and amortization of $136.7 million, and
significant collections of progress payments from the U.S.
Government and foreign advance payments.

Cash used in investing activities was
$22.4 million for 2001, compared with $2.9 million of
cash provided by investing activities for 2000. Principal use of
cash in investing activities is for capital equipment and
software. Bofors Defence had a significant cash balance when the
Company acquired it, which resulted in positive cash flows from
investing activities in 2000. The Company anticipates making
capital expenditures of approximately $25.0 to
$30.0 million per year for each of the next several years.
The Company expects to finalize the purchase of our Fridley,
Minnesota facility from the U.S. Government for
$8.8 million in the first quarter of 2002, but since it is
an installment purchase, cash flows will not be significantly
impacted.

Cash used for financing activities was
$88.9 million during 2001, compared with $79.2 million
and $157.1 million used during 2000 and 1999, respectively.
The cash provided during 2001 was primarily the result of the
August 2001 refinancing of all of indebtedness and the initial
public offering in December 2001. These proceeds were used in
principal repayments on debt under the old and new senior credit
facilities of $474.0 million, retirement cost of
subordinated debt of $18.1 million, payment of dividends to
shareholders of $381.7 million and other financing and
issuance costs of $32.2 million. The primary use of cash in
2000 and 1999 was for debt repayments.

On August 13, 2001, the Company refinanced
all of the existing indebtedness. In connection with the
refinancing, the Company entered into a new senior secured
credit facility, consisting of $600.0 million in term

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loans and a $200.0 million revolving credit
facility. A portion of the proceeds from the term loans was to
pay dividends of $381.7 million. 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
aggregate principal amount of its 8.75% senior subordinated
notes, as well as an $18.1 million prepayment premium. As
of December 31, 2001, the Company had letters of credit
issued under the facility of $114 million and unused
borrowing capacity of approximately $86 million under the
revolving credit facility. The Company is obligated to pay a fee
of 0.50% on the unused revolving credit facility. The required
principal repayment for 2002 is $8.3 million. Interest
charges in future years will depend upon periodic fluctuations
in LIBOR and the outstanding debt balances. If there are no cash
outlays for acquisitions, net interest expense is expected to be
comparable to 2000 and 2001.


Borrowings under the senior secured credit
facility are sensitive to changes in interest rates. As of
December 31, 2001, the interest rate on the
$70.2 million Term A borrowings was 4.93% and on the
$360.7 million Term B borrowings was 5.18%. Loans made
pursuant to the Term A and Term B loan facilities
require equal quarterly amortization payments. The payment
schedule as of December 31, 2001 is as follows:

|               |       |       |         |                        |  |             |       |             |  |               |        |        |  |   |        |         |  |   |         |         | 
|-------------- | ----- | ----- | ------- | ---------------------- |  | ----------- | ----- | ----------- |  | ------------- | ------ | ------ |  | - | ------ | ------- |  | - | ------- | ------- | 
|               |       |       |         |                       
|               |       |       |         | Payments Due by Period
|               |       |       |         |                       
|               |       |       |         | Less than              |  |            
|Long-Term Debt |       | Total |         | 1 year                 |  | 1 - 3 years |       | 4 - 5 years |  | After 5 years
|               |       |       |         |                        |  |             |       |             |  |              
|Term A         |       | $     | 70,185  |                        |  | $           | 3,694 |             |  | $             | 44,327 |        |  | $ | 22,164 |         |  | $ |        |        
|Term B         |       |       | 360,715 |                        |  |             | 4,613 |             |  |               | 55,354 |        |  |   | 95,944 |         |  |   | 204,804 |        
|               |       |       |         |                        |  |             |       |             |  |               |        |        |  |   |        |         |  |   |         |        
|               | Total |       | $       | 430,900                |  |             | $     | 8,307       |  |               | $      | 99,681 |  |   | $      | 118,108 |  |   | $       | 204,804 | 

On December 14, 2001 the Company completed
an initial public offering of 9,250,000 shares of common stock
at $19 per share. Immediately prior to the offering, the Company
effected a 2.25 to 1 stock split by way of a stock
dividend on the common stock which is reflected in the
discussion of all periods in this report. The proceeds of the
offering were used to reduce the principal amount outstanding
under the senior secured credit facility by $163.4 million.
The debt repayment resulted in a charge of $5.6 million in
unamortized finance costs reported as an extraordinary item.

Based on the current level of operations and
anticipated growth, the Company believes that cash from
operations, together with other available sources of liquidity,
including borrowings available under the revolving credit
facility, will be sufficient to fund anticipated capital
expenditures and required payments of principal and interest on
debt through at least December 31, 2002. Growth and
acquisition strategy, however, may require substantial
additional capital.

Significant Accounting Policies

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. In particular, estimates are used for
contract costs and revenues used in the earnings recognition
process accruals related to environmental and other liabilities,
allowance for doubtful accounts, and pension and other
retirement costs. Actual results could differ from those
estimates.

Investments in Affiliated
CompaniesThe Companys
investment in 51% owned foreign joint ventures in Turkey and
Saudi Arabia are accounted for by using the equity method
because it does not control the joint ventures although it has
the ability to exercise significant influence over their
operating and financial policies. The difference between the
carrying amounts of the joint ventures recorded and the
proportionate share of the underlying equity in the net assets
of the joint ventures was $5.6 million as of
December 31, 2000. The difference relates to the step up in
the carrying amount of the investments to their fair value in
connection with the application of purchase accounting for the
acquisition of UDLP in 1997, which was being amortized based on
the earnings in the joint ventures recognized, consistent with
the valuation method used to determine the purchase price
adjustments. As of December 31, 2001 the step up in the
carrying amount of the investments to their fair value had been
fully amortized.

Turkey Joint Venture Offset
ObligationThe Companys joint
venture affiliate in Turkey FNSS, is required by agreement with
its customer to achieve a significant level of export sales by
October 2002 or pay a penalty of

20



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9% of the shortfall in required export sales
which penalty could be as high as $40 million. This
commitment is commonly referred to as an offset
obligation. There can be no assurance that FNSS will be able to
completely fulfill its offset obligations or renegotiate an
acceptable alternative, in which case future dividends the
Company might otherwise expect to receive from FNSS could be
diminished. Export sales by FNSS from a recently signed contract
with the government of Malaysia are expected to satisfy a
significant portion of the offset exposure. Consequently, equity
in earnings was increased by approximately $8.6 million
during the year 2001 as a result of a reduction in FNSS
expected offset obligation. The reduction in the estimate of
offset obligation resulted from significant progress during 2001
on execution of the contract with Malaysia and the receipt in
September 2001 of written acknowledgement by the Turkish
government that sales made under that contract will qualify for
satisfaction of the offset obligation.


Derivatives and Hedging
ActivitiesEffective January 1,
2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as
amended. As a result of the adoption of SFAS 133, the
Company recognizes all derivative financial instruments, such as
foreign exchange contracts, in the consolidated financial
statements at fair value regardless of the purpose or intent for
holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in the
results of operations or in stockholders equity as a
component of other comprehensive income, depending on whether
the derivative financial instrument qualifies for hedge
accounting and, if so, whether it qualifies as a fair value
hedge or cash flow hedge. Generally, changes in fair values of
the derivatives accounted for as fair value hedges are recorded
in the results of operations along with the portions of the
changes in the fair values of the hedged items that relate to
the hedged risks. Changes in fair values of derivatives
accounted for as cash flow hedges, to the extent they are
effective as hedges, are recorded in other comprehensive income.
Changes in fair values of derivatives not qualifying as hedges
are reported in the results of operations.

The Companys subsidiary, Bofors, had
forward exchange contracts with a notional contract value of
$14.2 million at December 31, 2001. These contracts,
which were designated as cash flow hedges, were entered into to
hedge firm commitments related to purchases or sales denominated
in foreign currencies. The fair value of the contracts required
establishing 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 and the
subsequent change in market value of $1.3 million for the
year ended 2001 were charged to accumulated other comprehensive
loss within stockholders equity.

New Accounting
PronouncementsIn June 2001, the
Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and indefinite-live intangible assets 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.
The Company will perform the first of the required impairment
tests of goodwill during the first quarter of 2002 and does not
believe that the effect of these tests will have an impact on
our earnings and financial position.

In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets and supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations for
a disposal of a segment of a business. FAS 144 is effective
for fiscal years beginning after December 15, 2001, with
earlier application encouraged. The Company expects to adopt
FAS 144 as of January 1, 2002 and it does not expect
that the adoption of the Statement will have a significant
impact on the Companys financial position and results of
operations.

Pensions and Other Postretirement
BenefitsThe majority of the
Companys domestic employees are covered by retirement
plans. Plans covering salaried employees provide pension
benefits based on years of

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service and compensation. Plans covering hourly
employees generally provide benefits of stated amounts for each
year of service. The funding policy is to make contributions
based on the projected unit credit method and to limit
contributions to amounts that are currently deductible for tax
purposes. With the exception of Bofors, most of the employees
are also covered by postretirement health care and life
insurance benefit programs. Employees generally become eligible
to receive benefits under these plans after they retire when
they meet minimum retirement age and service requirements. The
cost of providing most of these benefits is shared with retirees.


The following table summarizes the assumptions
used in the determination of net pension and postretirement
benefit costs and benefit obligations for the years ended
December 31, 1999, 2000 and 2001:

|                               |  |                         |       |      |  |      |       |  |  |  |       | 
|------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                               |  |                        
|                               |  | Year ended December 31,
|                               |  |                        
|                               |  | 1999                    |       | 2000 |  | 2001
|                               |  |                         |       |      |  |     
|Weighted-average assumptions   |  |                         |       |      |  |      |       |  |  |  |       | 
|Discount rate                  |  |                         | 7.50% |      |  |      | 7.50% |  |  |  | 7.00% | 
|Expected return on plan assets |  |                         | 9.00% |      |  |      | 9.00% |  |  |  | 9.00% | 
|Rate of compensation increase  |  |                         | 5.00% |      |  |      | 5.00% |  |  |  | 4.50% | 

The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the
pension plan with accumulated benefit obligations in excess of
plan assets were $12.6 million, $6.8 million and
$1.0 million, respectively, at December 31, 2000 and
$11.3 million, $8.3 million and $2.0 million,
respectively, at December 31, 2001.

For measurement purposes, a 10% annual rate of
increase in the per capita cost of covered health care benefits
is assumed for 2001. The rate was assumed to decrease to 5% in
2006 and remain at that level thereafter. Assumed health care
cost trend rates have an effect on the amounts reported for the
postretirement health care plan. A one-percentage-point change
in assumed health care cost trend rates would have the following
effects (in thousands):

|                                                         |  |             |       |             |  |   |      |  
|-------------------------------------------------------- |  | ----------- | ----- | ----------- |  | - | ---- | -
|                                                         |  | 1% Increase |       | 1% Decrease
|                                                         |  |             |       |            
|Effect on total of service and interest cost
	components |  | $           | 114   |             |  | $ | (88  | )
|Effect on the postretirement benefit obligation          |  | $           | 1,079 |             |  | $ | (870 | )




Item 7A.     Quantitative
and Qualitative Disclosure about Market Risk

All of our financial instruments that are
sensitive to market risk are entered into for purposes other
than trading.

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 enters into foreign currency forward exchange contracts.
The Company does not enter into foreign currency forward
exchange contracts for trading purposes. The following table
provides information concerning the U.S. dollar functional
currency of Bofors forward exchange contracts at
December 31, 2001. The table presents the U.S. dollar
equivalent notional amounts and weighted average contractual
exchange rates by

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expected maturity dates. These notional amounts
generally are used to calculate the contractual payments to be
exchanged under the contract.


|                                         |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |        | 
|---------------------------------------- | --------------------------------- | ------------------------------- | - | ----- |  | ---- | - | ----- |  | ----- | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                         |                                   |                                 |   |       |  |     
|                                         |                                   | Expected Maturity Date          |   |       |  |     
|                                         |                                   |                                 |   |       |  | Fair
|                                         |                                   | 2002                            |   | 2003  |  | 2004 |   | Total |  | Value
|                                         |                                   |                                 |   |       |  |      |   |       |  |      
|                                         |                                   |                                
|                                         |                                   | (US $ equivalent in thousands):
|Receive Swedish krona/pay U.S. dollars   |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |       
|                                         | Contract amount                   |                                 | $ | 9,137 |  |      | $ |      |  |       | $ |      |  |  | $ | 9,137 |  |  | $ | 11,547 | 
|                                         | Average contractual exchange rate |                                 |   | 8.52  |  |      |   |      |  |       |   |      |  |  |   | 8.52  |  |  |   |        | 
|Receive British pounds/pay Swedish krona |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |       
|                                         | Contract amount                   |                                 | $ | 3,296 |  |      | $ |      |  |       | $ |      |  |  | $ | 3,296 |  |  | $ | 3,354  | 
|                                         | Average contractual exchange rate |                                 |   | 15.25 |  |      |   |      |  |       |   |      |  |  |   | 15.25 |  |  |   |        | 
|Receive euro/pay Swedish krona           |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |       
|                                         | Contract amount                   |                                 | $ | 1,472 |  |      | $ |      |  |       | $ |      |  |  | $ | 1,472 |  |  | $ | 1,592  | 
|                                         | Average contractual exchange rate |                                 |   | 8.73  |  |      |   |      |  |       |   |      |  |  |   | 8.73  |  |  |   |        | 
|Receive U.S. dollars/pay Swedish krona   |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |       
|                                         | Contract amount                   |                                 | $ | 37    |  |      | $ |      |  |       | $ |      |  |  | $ | 37    |  |  | $ | 38     | 
|                                         | Average contractual exchange rate |                                 |   | 10.50 |  |      |   |      |  |       |   |      |  |  |   | 10.50 |  |  |   |        | 
|Receive Swedish krona/pay euro           |                                   |                                 |   |       |  |      |   |       |  |       |   |       |  |  |   |       |  |  |   |       
|                                         | Contract amount                   |                                 | $ | 2,283 |  |      | $ | 2,688 |  |       | $ | 2,689 |  |  | $ | 7,660 |  |  | $ | 7,674  | 
|                                         | Average contractual exchange rate |                                 |   | 9.46  |  |      |   | 9.54  |  |       |   | 9.55  |  |  |   | 9.52  |  |  |   |        | 

Interest Rate
Risk

Borrowings under our senior secured credit
facility are sensitive to changes in interest rates. As of
December 31, 2001, the interest rate on the
$70.2 million Term A borrowings was 4.93% and on the
$360.7 million Term B borrowings was 5.18%. Loans made
pursuant to the Term A loan facility require equal
quarterly amortization payments of $3.7 million beginning
on December 31, 2002, with a final payment due on
August 13, 2007. Loans made pursuant to the Term B
facility require quarterly amortization payments of
$4.6 million beginning on December 31, 2002 until
September 30, 2007, and $34.1 million each quarter
thereafter with a final payment due on August 13, 2009. The
weighted average interest rate on all of our borrowings
outstanding under the senior secured credit facility as of
December 31, 2001 was 5.14% per annum.

In January 2002 we entered into a three year
interest rate protection agreement to mitigate risks associated
with variable interest rate borrowings under our senior secured
credit facility. The notional amount of this interest rate swap
agreement is $173 million. We entered into this agreement
as a hedge to manage interest costs and risks associated with
fluctuating interest rates. The agreement entitles us to pay a
base interest rate amount of 3.45%, in return for the right to
receive a floating interest rate which is based on three month
LIBOR as of each quarterly measurement date. In the event the
three month LIBOR at the measurement date exceeds 6%, the base
interest rate is adjusted to the then effective LIBOR up to a
maximum of 8%. The net cash amounts paid or received on the
agreement are accrued and recognized as an adjustment to
interest expense.

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ITEM
8.     Consolidated Financial
Statements and Supplementary Data

The following consolidated financial statements
of United Defense Industries, Inc. are provided in response to
the requirements of Item 8:

UNITED DEFENSE INDUSTRIES, INC.

|                                                                                                                 |  |  |     | 
|---------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Report of Independent Auditors (Ernst & Young
	LLP)                                                              |  |  | F-1 | 
|Independent Auditors Report (Andersen)                                                                          |  |  | F-2 | 
|Independent Auditors Report (Arthur
	Andersen & Co)                                                             |  |  | F-3 | 
|Consolidated Balance Sheets as of
	December 31, 2000 and 2001                                                    |  |  | F-4 | 
|Consolidated Statements of Operations for the
	years ended December 31, 1999, 2000 and 2001                      |  |  | F-5 | 
|Consolidated Statements of Stockholders
	Equity (Deficit) for the years ended December 31, 1999,
	2000 and 2001 |  |  | F-6 | 
|Consolidated Statements of Cash Flows for the
	years ended December 31, 1999, 2000 and 2001                      |  |  | F-7 | 
|Notes to Consolidated Financial Statements                                                                       |  |  | F-8 | 

24



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors

UNITED DEFENSE INDUSTRIES, INC.


We have audited the accompanying consolidated
balance sheets of United Defense Industries, Inc. (a subsidiary
of Iron Horse Investors, L.L.C.) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders equity (deficit), and
cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial
statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedules
based on our audits. The financial statements of the Turkish
Joint Venture and the Saudi Arabian Joint Venture, (entities in
which the Company has 51% interests), and, as to the Saudi
Arabian Joint Venture, are presented in accordance with
accounting principles generally accepted in Saudi Arabia, have
been audited by other auditors whose reports have been furnished
to us; insofar as our opinion on the consolidated financial
statements relates to data included for the Turkish Joint
Venture and the Saudi Arabian Joint Venture, used by the
Companys management for equity accounting purposes (before
conversion to accounting principles generally accepted in the
United States as to the Saudi Arabian Joint Venture), it is
based solely on their reports.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation (including the conversion of
the financial statements of the Saudi Arabian Joint Venture to
accounting principles generally accepted in the United States).
We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the
reports of other auditors, the financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of United Defense Industries, Inc. and
subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

January 28, 2002

McLean, Virginia


F-1



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors of

FNSS SAVUNMA SISTEMLERI ANONIM SIRKETI:


We have audited the balance sheets of FNSS
Savunma Sistemleri Anonim Sirketi (a Turkish
corporation  the Company) as of
December 31, 2001 and 2000, and the related statements of
operations, shareholders equity and cash flows for the
years then ended (not included herein). These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above (not included herein) present fairly, in all material
respects, the financial position of FNSS Savunma Sistemleri
Anonim Sirketi as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.



| |                                                      
| | -----------------------------------------------------
| | /s/ A.A. AKTIF ANALIZ                                
| | SERBEST MUHASEBECILIK MALI MÜSAVIRLIK ANONIM
	SIRKETI
| | Member of Andersen Worldwide                         

Ankara, Turkey

January 24, 2002


F-2



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To: The Partners of 
   UNITED DEFENSE SYSTEMS

We have audited the balance sheet of UNITED
DEFENSE SYSTEMS (a Saudi limited liability Company) as of
December 31, 2001 and the related statements of income,
changes in partners equity and cash flows for the year
then ended, and the notes from 1 to 12 which are an integral
part of these financial statements (not included herein). These
financial statements are the responsibility of the
Companys management and have been prepared by them in
accordance with Article (175) of the Companies Regulations.
Our responsibility is to express our opinion on these financial
statements based on our audit and the information and
explanations we obtained which we considered necessary for the
purposes of our audit.

We conducted our audit in accordance with
generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statements presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred
to above (not included herein):



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Present fairly, in all material respects, the
	financial position of United Defense Systems as of
	December 31, 2001 and the results of its operations and its
	cash flows for the year then ended based on the presentation and
	disclosure of the information included in the financial
	statements and in conformity with generally accepted accounting
	principles in Saudi Arabia suitable to the Companys
	operations as summarized in Note 2.
|
| | 2. | Comply with the financial statement preparation
	and presentation requirement of the Commercial Code and the
	Companys by-laws and are computerized in accordance with
	the related commercial books regulations and are maintained in
	Arabic in the Kingdom of Saudi Arabia.                                                                                                                                                                      

/s/ ARTHUR ANDERSEN & CO.

5 Dhu Al-Qaadah 1422H (February 17, 2002)

 Riyadh, Saudi Arabia

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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |          |           |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ------- | ------------ | ------- |  | ------- | -------- | --------- | -
|                                                |                                                                                                                                                                                | December 31,                                          |         | December 31,
|                                                |                                                                                                                                                                                | 2000                                                  |         | 2001        
|                                                |                                                                                                                                                                                |                                                       |         |             
|                                                |                                                                                                                                                                                |                                                      
|                                                |                                                                                                                                                                                | (In thousands)                                       
|ASSETS                                         
|Current assets:                                 |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                | Cash and cash equivalents                                                                                                                                                      |                                                       | $       | 113,357      |         |  | $       | 90,535   |          
|                                                | Trade receivables                                                                                                                                                              |                                                       |         | 109,705      |         |  |         | 78,387   |          
|                                                | Long-term contract inventories                                                                                                                                                 |                                                       |         | 259,238      |         |  |         | 368,167  |          
|                                                | Other current assets                                                                                                                                                           |                                                       |         | 13,083       |         |  |         | 14,406   |          
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total current assets                                  |         |              | 495,383 |  |         |          | 551,495   |  
|Property, plant and equipment, net              |                                                                                                                                                                                |                                                       | 80,775  |              |         |  | 77,500  |         
|Goodwill, net                                   |                                                                                                                                                                                |                                                       | 107,650 |              |         |  | 97,582  |         
|Intangible assets, net                          |                                                                                                                                                                                |                                                       | 54,690  |              |         |  | 33,834  |         
|Prepaid pension and postretirement benefit cost |                                                                                                                                                                                |                                                       | 123,100 |              |         |  | 127,828 |         
|Restricted cash                                 |                                                                                                                                                                                |                                                       | 23,528  |              |         |  | 14,950  |         
|Other assets                                    |                                                                                                                                                                                |                                                       | 9,644   |              |         |  | 9,103   |         
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total assets                                          |         | $            | 894,770 |  |         | $        | 912,292   |  
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY
	(DEFICIT)
|Current liabilities:                            |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                | Current portion of long-term debt                                                                                                                                              |                                                       | $       | 23,086       |         |  | $       | 8,307    |          
|                                                | Accounts payable, trade and other                                                                                                                                              |                                                       |         | 86,117       |         |  |         | 88,273   |          
|                                                | Advanced payments                                                                                                                                                              |                                                       |         | 342,394      |         |  |         | 394,771  |          
|                                                | Accrued and other liabilities                                                                                                                                                  |                                                       |         | 103,118      |         |  |         | 114,807  |          
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total current liabilities                             |         |              | 554,715 |  |         |          | 606,158   |  
|Long-term liabilities:                          |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                | Long-term debt, net of current portion                                                                                                                                         |                                                       |         | 246,491      |         |  |         | 422,593  |          
|                                                | Accrued pension and postretirement benefit cost                                                                                                                                |                                                       |         | 28,515       |         |  |         | 22,487   |          
|                                                | Other liabilities                                                                                                                                                              |                                                       |         | 23,148       |         |  |         | 27,420   |          
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total liabilities                                     |         |              | 852,869 |  |         |          | 1,078,658 |  
|Commitments and contingencies (Notes 9 &
	10)   |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|Stockholders Equity (Deficit):                 |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                | Common Stock $.01 par value, 45,000,000 shares
	authorized; 40,582,501 and 50,915,689 shares issued and
	outstanding at December 31, 2000 and December 31,
	2001, respectively |                                                       |         | 406          |         |  |         | 509      |          
|                                                | Additional paid-in-capital                                                                                                                                                     |                                                       |         | 179,805      |         |  |         | 167,457  |          
|                                                | Deferred Compensation                                                                                                                                                          |                                                       |         |             |         |  |         | (648     | )        
|                                                | Stockholders loans                                                                                                                                                            |                                                       |         | (1,236       | )       |  |         |         |          
|                                                | Retained deficit                                                                                                                                                               |                                                       |         | (137,074     | )       |  |         | (329,528 | )        
|                                                | Accumulated other comprehensive loss                                                                                                                                           |                                                       |         |             |         |  |         | (4,156   | )        
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total stockholders equity (deficit)                  |         |              | 41,901  |  |         |          | (166,366  | )
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         
|                                                |                                                                                                                                                                                | Total liabilities and stockholders equity
	(deficit) |         | $            | 894,770 |  |         | $        | 912,292   |  
|                                                |                                                                                                                                                                                |                                                       |         |              |         |  |         |         

See accompanying notes.

F-4



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |           |           |  
|---------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------- | ------ | --------- | --------- | ---- | ------ | --------- | --------- | - | ------- | --------- | --------- | -
|                                                                             |                                                               |                       
|                                                                             |                                                               | Year ended December 31
|                                                                             |                                                               |                       
|                                                                             |                                                               | 1999                   |        | 2000      |           | 2001
|                                                                             |                                                               |                        |        |           |           |     
|                                                                             |                                                               |                       
|                                                                             |                                                               | (In thousands)        
|Revenue:                                                                     |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             | Sales                                                         |                        | $      | 1,213,526 |           |      | $      | 1,183,886 |           |   | $       | 1,318,538 |          
|Costs and expenses:                                                          |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             | Cost of sales                                                 |                        |        | 991,907   |           |      |        | 943,892   |           |   |         | 1,059,687 |          
|                                                                             | Selling, general and administrative expenses                  |                        |        | 167,877   |           |      |        | 173,694   |           |   |         | 179,714   |          
|                                                                             | Research and development                                      |                        |        | 12,782    |           |      |        | 15,760    |           |   |         | 23,666    |          
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             |                                                               | Total expenses         |        |           | 1,172,566 |      |        |           | 1,133,346 |   |         |           | 1,263,067 |  
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|Income from operations                                                       |                                                               |                        | 40,960 |           |           |      | 50,540 |           |           |   | 55,471  |          
|Other income (expense):                                                      |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             | Earnings (loss) related to investments in
	foreign affiliates |                        |        | 1,639     |           |      |        | (1,262    | )         |   |         | 10,156    |          
|                                                                             | Interest income                                               |                        |        | 1,820     |           |      |        | 4,152     |           |   |         | 5,781     |          
|                                                                             | Interest expense                                              |                        |        | (38,835   | )         |      |        | (29,265   | )         |   |         | (28,486   | )        
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             |                                                               | Total other expense    |        |           | (35,376   | )    |        |           | (26,375   | ) |         |           | (12,549   | )
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|Income before income taxes                                                   |                                                               |                        | 5,584  |           |           |      | 24,165 |           |           |   | 42,922  |          
|Provision for income taxes                                                   |                                                               |                        | 2,646  |           |           |      | 6,000  |           |           |   | 5,900   |          
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|Income before extraordinary item                                             |                                                               |                        | 2,938  |           |           |      | 18,165 |           |           |   | 37,022  |          
|Extraordinary item  net gain
	(loss) from early extinguishment of bond debt |                                                               |                        |       |           |           |      | 680    |           |           |   | (28,246 | )        
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             |                                                               | Net income             |        | $         | 2,938     |      |        | $         | 18,845    |   |         | $         | 8,776     |  
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|Earnings per common share-basic:                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             | Income before extraordinary item                              |                        | $      | 0.07      |           |      | $      | 0.45      |           |   | $       | 0.90      |          
|                                                                             | Extraordinary item                                            |                        |        |          |           |      |        | 0.01      |           |   |         | (0.69     | )        
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             |                                                               | Net income             |        | $         | 0.07      |      |        | $         | 0.46      |   |         | $         | 0.21      |  
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|Earnings per common share-diluted:                                           |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             | Income before extraordinary item                              |                        | $      | 0.07      |           |      | $      | 0.43      |           |   | $       | 0.86      |          
|                                                                             | Extraordinary item                                            |                        |        |          |           |      |        | 0.01      |           |   |         | (0.66     | )        
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          
|                                                                             |                                                               | Net income             |        | $         | 0.07      |      |        | $         | 0.44      |   |         | $         | 0.20      |  
|                                                                             |                                                               |                        |        |           |           |      |        |           |           |   |         |          

See accompanying notes.

F-5



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |       |        |   |  |   |          |   |  |   |        |   |  |   |          |  
|---------------------------------------------------------------------------- |  | -------------- | --- | ---------- |  | ------------ | -------- | ------------- |  | -------- | ---- | ------------- |  | ----- | ------ | - |  | - | -------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                             |  |                |     |            |  |              |          |               |  |          |      | Accumulated   |  |      
|                                                                             |  |                |     | Additional |  |              |          |               |  |          |      | Other         |  |      
|                                                                             |  | Common         |     | Paid-In    |  | Deferred     |          | Stockholders |  | Retained |      | Comprehensive |  |      
|                                                                             |  | Stock          |     | Capital    |  | Compensation |          | Loans         |  | Deficit  |      | Loss          |  | Total
|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |      
|                                                                             |  |               
|                                                                             |  | (In thousands)
|Balance, December 31, 1998                                                   |  | $              | 406 |            |  | $            | 179,990  |               |  | $        |     |               |  | $     | (1,339 | ) |  | $ | (158,857 | ) |  | $ |       |   |  | $ | 20,200   |  
|Issuance of Common Stock                                                     |  |                |    |            |  |              | 29       |               |  |          |     |               |  |       |       |   |  |   |         |   |  |   |       |   |  |   | 29       |  
|Net income for the year ended December 31,
	1999                             |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   | 2,938    |   |  |   |       |   |  |   | 2,938    |  
|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |       |        |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balance, December 31, 1999                                                   |  |                | 406 |            |  |              | 180,019  |               |  |          |     |               |  |       | (1,339 | ) |  |   | (155,919 | ) |  |   |       |   |  |   | 23,167   |  
|Issuance of Common Stock                                                     |  |                |    |            |  |              | 45       |               |  |          |     |               |  |       | 50     |   |  |   |         |   |  |   |       |   |  |   | 95       |  
|Repurchase of Common Stock                                                   |  |                |    |            |  |              | (259     | )             |  |          |     |               |  |       | 53     |   |  |   |         |   |  |   |       |   |  |   | (206     | )
|Net income for the year ended December 31,
	2000                             |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   | 18,845   |   |  |   |       |   |  |   | 18,845   |  
|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |       |        |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balance, December 31, 2000                                                   |  |                | 406 |            |  |              | 179,805  |               |  |          |     |               |  |       | (1,236 | ) |  |   | (137,074 | ) |  |   |       |   |  |   | 41,901   |  
|Issuance of stock options                                                    |  |                |    |            |  |              | 810      |               |  |          | (648 | )             |  |       |       |   |  |   |         |   |  |   |       |   |  |   | 162      |  
|Exercise of stock options                                                    |  |                | 10  |            |  |              | 4,842    |               |  |          |     |               |  |       |       |   |  |   |         |   |  |   |       |   |  |   | 4,852    |  
|Payment of stockholders loans                                               |  |                |    |            |  |              |         |               |  |          |     |               |  |       | 1,236  |   |  |   |         |   |  |   |       |   |  |   | 1,236    |  
|Cash dividend  August ($7.11 per
	share)                                    |  |                |    |            |  |              | (180,502 | )             |  |          |     |               |  |       |       |   |  |   | (109,201 | ) |  |   |       |   |  |   | (289,703 | )
|Cash dividend  November ($5.00
	per share)                                  |  |                |    |            |  |              |          |               |  |          |     |               |  |       |       |   |  |   | (92,029  | ) |  |   |       |   |  |   | (92,029  | )
|Sale of common stock (net of $13,156 issuance
	cost)                         |  |                | 93  |            |  |              | 162,502  |               |  |          |     |               |  |       |        |   |  |   |         |   |  |   |       |   |  |   | 162,595  |  
|Net foreign currency translation                                             |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   |         |   |  |   | (1,910 | ) |  |   | (1,910   | )
|Cumulative effect of change in accounting
	principle-foreign currency hedges |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   |         |   |  |   | (951   | ) |  |   | (951     | )
|Change in fair value of foreign currency hedges                              |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   |         |   |  |   | (1,295 | ) |  |   | (1,295   | )
|Net income for the year ended December 31,
	2001                             |  |                |    |            |  |              |         |               |  |          |     |               |  |       |       |   |  |   | 8,776    |   |  |   |       |   |  |   | 8,776    |  
|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |       |        |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balance, December 31, 2001                                                   |  | $              | 509 |            |  | $            | 167,457  |               |  | $        | (648 | )             |  | $     |       |   |  | $ | (329,528 | ) |  | $ | (4,156 | ) |  | $ | (166,366 | )
|                                                                             |  |                |     |            |  |              |          |               |  |          |      |               |  |       |        |   |  |   |          |   |  |   |        |   |  |   |          |  

See accompanying notes.

F-6



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |          |        | 
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------- | ------------------------------------------------------- | -------- | -------- | ------ | ---- | ------- | ------- | ------ | - | ------- | -------- | ------ | 
|                                                                               |                                                                        |                                                        
|                                                                               |                                                                        | Years ended December 31                                
|                                                                               |                                                                        |                                                        
|                                                                               |                                                                        | 1999                                                    |          | 2000     |        | 2001
|                                                                               |                                                                        |                                                         |          |          |        |     
|                                                                               |                                                                        |                                                        
|                                                                               |                                                                        | (In thousands)                                         
|Operating activities                                                           |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Net income                                                                     |                                                                        | $                                                       | 2,938    |          |        | $    | 18,845  |         |        | $ | 8,776   |         
|Adjustments to reconcile net income to cash
	provided by operating activities: |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|                                                                               |                                                                        | Depreciation                                            |          |          | 55,528 |      |         |         | 23,882 |   |         |          | 22,663 | 
|                                                                               |                                                                        | Amortization                                            |          |          | 72,408 |      |         |         | 68,422 |   |         |          | 46,595 | 
|                                                                               |                                                                        | Amortization of financing costs                         |          |          | 5,791  |      |         |         | 2,759  |   |         |          | 3,938  | 
|                                                                               |                                                                        | Non-cash compensation                                   |          |          |       |      |         |         |       |   |         |          | 162    | 
|                                                                               |                                                                        | Net (gain) loss from early extinguishment of bond
	debt |          |          |       |      |         |         | (680   | ) |         |          | 28,246 | 
|                                                                               |                                                                        | Other                                                   |          |          | 1,123  |      |         |         |       |   |         |          |       | 
|Changes in assets and liabilities:                                             |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|                                                                               | Trade receivables                                                      |                                                         |          | 7,197    |        |      |         | (35,954 | )      |   |         | 31,318   |       
|                                                                               | Inventories                                                            |                                                         |          | (407     | )      |      |         | 11,608  |        |   |         | (108,929 | )     
|                                                                               | Other assets                                                           |                                                         |          | 1,195    |        |      |         | 5,931   |        |   |         | 60       |       
|                                                                               | Prepaid pension and postretirement benefit cost                        |                                                         |          | 4,029    |        |      |         | (3,217  | )      |   |         | (4,728   | )     
|                                                                               | Accounts payable, trade and other                                      |                                                         |          | (23,858  | )      |      |         | 9,525   |        |   |         | 2,156    |       
|                                                                               | Advanced payments                                                      |                                                         |          | 44,670   |        |      |         | (9,522  | )      |   |         | 52,377   |       
|                                                                               | Accrued and other liabilities                                          |                                                         |          | 28,554   |        |      |         | 2,075   |        |   |         | 13,715   |       
|                                                                               | Accrued pension and postretirement benefit cost                        |                                                         |          | (9,535   | )      |      |         | 1,672   |        |   |         | (6,028   | )     
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Cash provided by operating activities                                          |                                                                        |                                                         | 189,633  |          |        |      | 95,346  |         |        |   | 90,321  |         
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Investing activities                                                           |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|                                                                               | Capital spending                                                       |                                                         |          | (25,246  | )      |      |         | (19,721 | )      |   |         | (22,375  | )     
|                                                                               | Disposal of property, plant and equipment                              |                                                         |          | 1,532    |        |      |         | 560     |        |   |         |         |       
|                                                                               | Purchase of Barnes & Reinecke, net of
	$1.2 million cash acquired      |                                                         |          |         |        |      |         | (1,634  | )      |   |         |         |       
|                                                                               | Purchase of Bofors Weapon Systems, net of
	$45.6 million cash acquired |                                                         |          |         |        |      |         | 23,663  |        |   |         |         |       
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Cash (used in)provided by investing activities                                 |                                                                        |                                                         | (23,714  | )        |        |      | 2,868   |         |        |   | (22,375 | )       
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Financing activities                                                           |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|                                                                               | Payments on long-term debt                                             |                                                         |          | (157,143 | )      |      |         | (79,071 | )      |   |         | (473,972 | )     
|                                                                               | Proceeds from senior secured facility                                  |                                                         |          |         |        |      |         |        |        |   |         | 635,295  |       
|                                                                               | Payment of premium on retirement of subordinated
	debt                 |                                                         |          |         |        |      |         |        |        |   |         | (18,074  | )     
|                                                                               | Proceeds from sale of common stock                                     |                                                         |          | 29       |        |      |         | 95      |        |   |         | 180,603  |       
|                                                                               | Issuance costs for sale of common stock                                |                                                         |          |         |        |      |         |        |        |   |         | (13,156  | )     
|                                                                               | Payment of stockholders loans                                         |                                                         |          |         |        |      |         |        |        |   |         | 1,236    |       
|                                                                               | Dividend payments                                                      |                                                         |          |         |        |      |         |        |        |   |         | (381,732 | )     
|                                                                               | Payments for financing and transaction cost                            |                                                         |          |         |        |      |         |        |        |   |         | (19,058  | )     
|                                                                               | Repurchase of common stock                                             |                                                         |          |         |        |      |         | (206    | )      |   |         |         |       
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Cash used in financing activities                                              |                                                                        |                                                         | (157,114 | )        |        |      | (79,182 | )       |        |   | (88,858 | )       
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Effect of exchange rate changes on cash                                        |                                                                        |                                                         |         |          |        |      |        |         |        |   | (1,910  | )       
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         
|Decrease in cash and cash equivalents                                          |                                                                        |                                                         | 8,805    |          |        |      | 19,032  |         |        |   | (22,822 | )       
|Cash and cash equivalents, beginning of year                                   |                                                                        |                                                         | 85,520   |          |        |      | 94,325  |         |        |   | 113,357 |         
|Cash and cash equivalents, end of period                                       |                                                                        | $                                                       | 94,325   |          |        | $    | 113,357 |         |        | $ | 90,535  |         
|                                                                               |                                                                        |                                                         |          |          |        |      |         |         |        |   |         |         

See accompanying notes.

F-7



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                                     
|-- | --------------------------------------------------------------------
|1. | Basis of Presentation, Recapitalization and
	Initial Public Offering

United Defense Industries, Inc. (the
Company) is a subsidiary of Iron Horse Investors,
L.L.C. (Iron Horse) and was formed for the primary
purpose of facilitating the acquisition of United Defense, L.P.
(UDLP) by Iron Horse. Iron Horse is owned by an
investment group led by The Carlyle Group (Carlyle).
On October 6, 1997, the Company acquired 100% of the
partnership interests of UDLP from FMC Corporation
(FMC) and Harsco Corporation (Harsco)
(the Sellers).

The Companys business is operated in a
single reportable segment involving the design, development and
production of combat vehicles, artillery, naval guns, missile
launchers and precision munitions used by the U.S. Department of
Defense and allied militaries around the world. The Company
believes its operating results are driven principally by the
business activities related to its major military programs.
Currently the Company is the sole-source, prime contractor to
the U.S. Department of Defense for many of these programs.

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 term loans and a
$200 million revolving credit facility (see Note 9).
The Company used a portion of the proceeds from the term loans
to pay total dividends of $381.7 million dividend to the
holders of its 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
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
finance costs.

On December 14, 2001 the Company completed
an initial public offering of 9,250,000 shares at $19 per share.
Immediately prior to the offering, the Company effected a
2.25 to 1 stock dividend on the Companys common
stock which has been retroactively applied to all periods
presented. The Company used the proceeds of the offering to
reduce the principal amount outstanding under the senior secured
credit facility by $163.4 million. The debt repayment
resulted in a charge of $5.6 million in unamortized finance
costs reported as an extraordinary item.

The financial statements include the accounts of
the Company and its subsidiaries. Intercompany accounts and
transactions are eliminated in consolidation.



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



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform with the current presentation.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. In particular, estimates are used for
contract costs and revenues used in the earnings recognition
process, accruals related to environmental and other
liabilities, allowance for doubtful accounts, and pension and
other retirement costs. Actual results could differ from those
estimates.

F-8



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of investments
with initial maturities of three months or less.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment is recorded at
cost. Depreciation is provided principally on the
sum-of-the-years digits and straight-line methods over estimated
useful lives of the assets (land improvements  twenty
years; buildings  twenty to thirty-five years; and
machinery and equipment  two to twelve years).

Maintenance and repairs are expensed as incurred.
Expenditures that extend the useful life of property, plant and
equipment or increase its productivity are capitalized and
depreciated.



| |                                                             
| | ------------------------------------------------------------
| | Long-lived Assets, Including Intangible
	Assets and Goodwill

The Company evaluates on a quarterly basis its
long-lived assets to be held and used, including certain
identifiable intangible assets and goodwill, to determine
whether any events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The Company
bases its evaluation on such impairment indicators as the nature
of the assets, the future economic benefit of the assets, any
historical or future profitability measurements, as well as
other external market conditions or factors that may be present.
If such impairment indicators are present or other factors exist
that indicate that the carrying amount of the asset may not be
recoverable, the Company would use an estimate of the
undiscounted value of expected future operating cash flows to
determine whether the asset is recoverable and measure the
amount of any impairment as the difference between the carrying
amount of the asset and its estimated fair value. The fair value
would be estimated using valuation techniques such as market
prices for similar assets or discounted future operating cash
flows.



| |                                     
| | ------------------------------------
| | Investments in Affiliated
	Companies

The Companys investment in 51% owned
foreign joint ventures in Turkey and Saudi Arabia are accounted
for by using the equity method because the Company does not
control the joint ventures although it has the ability to
exercise significant influence over their operating and
financial policies. Equity in earnings from these investments
was $1.6 million, $(1.3) million and
$10.2 million for the years ended December 31, 1999,
2000 and 2001, respectively. The following table summarizes
financial information for these joint ventures (in thousands):

|                      |  |             |         |      |  |   |         | 
|--------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                      |  |            
|                      |  | December 31
|                      |  |            
|                      |  | 2000        |         | 2001
|                      |  |             |         |     
|Current assets        |  | $           | 161,902 |      |  | $ | 193,809 | 
|Noncurrent assets     |  |             | 32,806  |      |  |   | 31,591  | 
|Current liabilities   |  |             | 199,577 |      |  |   | 186,986 | 
|Long-term liabilities |  |             | 975     |      |  |   | 30,482  | 

|              |  |             |         |      |  |      |        |   |  |   |        | 
|------------- |  | ----------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | 
|              |  |            
|              |  | December 31
|              |  |            
|              |  | 1999        |         | 2000 |  | 2001
|              |  |             |         |      |  |     
|Sales         |  | $           | 127,115 |      |  | $    | 76,735 |   |  | $ | 71,337 | 
|Cost of sales |  |             | 89,447  |      |  |      | 61,053 |   |  |   | 38,822 | 
|Net income    |  |             | 16,490  |      |  |      | (2,486 | ) |  |   | 19,129 | 

The difference between the carrying amounts of
the joint ventures recorded by the Company and its proportionate
share of the underlying equity in the net assets of the joint
ventures was $5.6 million as of December 31, 2000. The
difference relates to the step up in the carrying amount of the
investments to their fair value in connection with the
application of purchase accounting for the acquisition of UDLP
in 1997, which was being amortized based on the earnings in the
joint ventures recognized by the Company, consistent with the

F-9



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

valuation method used to determine the purchase
price adjustments. As of December 31, 2001 the step up in
the carrying amount of the investments to their fair value has
been fully amortized.



| |                
| | ---------------
| | Restricted Cash

Restricted cash consists mainly of cash held in
escrow as required under the Bofors purchase agreement (See
Note 3) and statutory requirements in Sweden to set aside
cash for pension obligations. The restricted cash required under
the purchase agreement relates to certain letters of credit, and
the restriction will expire upon release of the former owners of
Bofors as guarantors under the letters of credit.



| |                  
| | -----------------
| | Advanced Payments

Advanced payments by customers for deposits on
orders not yet billed and progress payments on
contracts-in-progress are recorded as current liabilities.



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

The Company recognizes sales on most production
contracts as deliveries are made or accepted. Gross margin on
sales is based on the estimated margin to be realized over the
life of the related contract. Sales under cost reimbursement
contracts for research, engineering, prototypes, repair and
maintenance and certain other contracts are recorded as costs
are incurred and include estimated fees in the proportion that
costs incurred to date bear to total estimated costs. Changes in
estimates for sales and profits are recognized in the period in
which they are determinable using the cumulative catch-up
method. Claims are considered in the estimated contract
performance at such time as realization is probable. Any
anticipated losses on contracts (i.e., cost of sales exceeds
sales) are charged to operations as soon as they are
determinable.

The Company incurs bid and proposal costs that
are charged to the contract when the activity is pursuant to
contractual requirements or is in response to activity that
requires an equitable adjustment to an existing contract.
Accordingly, bid and proposal costs incurred prior to contract
awards may be charged to the contract if specifically authorized
in writing by the customer as precontract costs.

At December 31, 2000 and 2001, included in
trade receivables are $7.3 million and $8.6 million
related to contractual revenue that had not been billed to
customers. These amounts are generally billable within the
following year.

Stock-Based
Compensation

The Company accounts for stock options under
Accounting Principle Board Opinion No. 25. Accordingly, the
Company records compensation expense in its consolidated
statements of operations if the option price is less than fair
value of the common stock at the date an option is granted. The
Company recorded compensation expense of $0.2 million in
2001. See Note 11 for the pro forma effect on operating
results had the Company recorded compensation expense for the
fair value of stock options.

Income
Taxes

The Company accounts for income taxes under the
liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws expected to be
effective when these differences reverse.

F-10



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Derivatives
and Hedging Activities

Effective January 1, 2001, the Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. As a
result of the Companys adoption of SFAS 133, the
Company recognizes all derivative financial instruments, such as
foreign exchange contracts, in the consolidated financial
statements at fair value regardless of the purpose or intent for
holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in the
results of operations or in stockholders equity as a
component of other comprehensive income, depending on whether
the derivative financial instrument qualifies for hedge
accounting and, if so, whether it qualifies as a fair value
hedge or cash flow hedge. Generally, changes in fair values of
the derivatives accounted for as fair value hedges are recorded
in the results of operations along with the portions of the
changes in the fair values of the hedged items that relate to
the hedged risks. Changes in fair values of derivatives
accounted for as cash flow hedges, to the extent they are
effective as hedges, are recorded in other comprehensive income.
Changes in fair values of derivatives not qualifying as hedges
are reported in the results of operations.

The Companys subsidiary, Bofors, had
forward exchange contracts with a notional contract value of
$14.2 million at December 31, 2001. These contracts,
which were designated as cash flow hedges, were entered into to
hedge firm commitments related to purchases or sales denominated
in foreign currencies. 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 and the subsequent change in market value
of $1.3 million for the year ended 2001 were charged to
accumulated other comprehensive loss within stockholders
equity.

New
Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board issued SFAS No. 141, Business
Combinations, and No. 142, Goodwill and Other
Intangible Assets, (the Statements) effective
for fiscal years beginning after December 15, 2001. Under
the new rules, goodwill and indefinite-lived intangible assets
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.
The Company will perform the first of the required impairment
tests of goodwill during the first quarter of 2002 and does not
believe that the effect of these tests will have an impact on
the earnings and financial position of the Company.

In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting
and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations for a disposal
of a segment of a business. FAS 144 is effective for fiscal
years beginning after December 15, 2001, with earlier
application encouraged. The Company expects to adopt FAS 144 as
of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant impact on the
Companys financial position and results of operations.

3.     Business
Purchase

On October 6, 1997, the Company acquired
100% of the partnership interests of UDLP and certain other
related business assets of FMC. The purchase price including
expenses was $864 million after an adjustment of
$16 million agreed to during 1998. The Company financed the
acquisition through a cash equity investment and

F-11



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

debt. The excess purchase price over the book
value of the net assets acquired in the amount of
$733 million was allocated to inventory; property, plant
and equipment; other tangible assets; and intangible assets
based on managements estimate of their fair values. The
remaining excess purchase price was allocated to goodwill and
was being amortized over thirty years. Under the new provisions
of the SFAS No. 142, beginning in 2002 goodwill will no
longer be amortized but will be subject to annual impairment
tests.

On March 6, 2000, the Company acquired all
of the outstanding stock of Barnes & Reinecke, Inc.
(BRI), a subsidiary of Allied Research Corporation
(ARC), headquartered in Arlington Heights, Illinois.
BRI specializes in providing systems technical support and
performance upgrades of defense equipment for U.S. and foreign
governments. As consideration for the purchase, the Company paid
BRIs former owner, ARC, $3.7 million in cash and
notes. The transaction was accounted for as a purchase.
Accordingly, the financial statements reflect the results of
operations of BRI since the date of acquisition.

On September 6, 2000, the Company acquired
all of the outstanding stock of Bofors Defence
(Bofors) through a newly-created wholly-owned
Swedish subsidiary of the Company, Bofors Defense Holding AB. As
consideration for the purchase, the Company paid Bofors
former owner, Celsius AB, 187.3 million Swedish Krona
(approximately US $19.4 million). The acquisition was
accounted for as a purchase and the financial statements reflect
the results of operations of Bofors since the date of
acquisition. Bofors net assets were $23.5 million and
$26.7 million at December 31, 2000 and 2001,
respectively.

Bofors produces artillery systems, air defense
and naval guns, combat vehicle turrets and smart munitions.
Although the Swedish government is the primary customer, Bofors
is dependent on exports for approximately half of its total
sales.

The unaudited pro forma results below assume the
Bofors acquisition occurred at the beginning of each year
presented (in thousands, except per share data).

|                                     |                                      |      |           |      |  |   |           |      | 
|------------------------------------ | ------------------------------------ | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                     |                                      | 1999 |           | 2000
|                                     |                                      |      |           |     
|Sales                                |                                      | $    | 1,470,016 |      |  | $ | 1,270,904 |     
|Net income before extraordinary item |                                      |      | 10,073    |      |  |   | 18,618    |     
|Net income                           |                                      |      | 10,073    |      |  |   | 19,298    |     
|Basic earnings per share:            |                                      |      |           |      |  |   |           |     
|                                     | Net income before extraordinary item |      |           | 0.25 |  |   |           | 0.46 | 
|                                     | Net income                           |      |           | 0.25 |  |   |           | 0.48 | 
|Diluted earnings per share:          |                                      |      |           |      |  |   |           |     
|                                     | Net income before extraordinary item |      |           | 0.24 |  |   |           | 0.44 | 
|                                     | Net income                           |      |           | 0.24 |  |   |           | 0.45 | 

The unaudited pro forma combined results of
operations are not necessarily indicative of the actual results
that would have occurred had the acquisition been consummated at
the beginning of the year indicated or of future operations
under the ownership and management of the Company.

4.     Inventories

The majority of the Companys inventories
are related to contracts in process and are recorded at cost
determined on a LIFO basis. Inventory costs include
manufacturing overhead. The current replacement cost of LIFO
inventories exceeded their recorded values by approximately
$5.2 million at December 31, 1999, $12.6 million
at December 31, 2000, and $16.1 million at
December 31, 2001.

F-12



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Property,
Plant and Equipment

Property, plant and equipment consist of the
following (in thousands):

|                                   |  |             |          |      |  |   |          |  
|---------------------------------- |  | ----------- | -------- | ---- |  | - | -------- | -
|                                   |  |            
|                                   |  | December 31
|                                   |  |            
|                                   |  | 2000        |          | 2001
|                                   |  |             |          |     
|Buildings                          |  | $           | 42,413   |      |  | $ | 43,130   |  
|Machinery and equipment            |  |             | 175,501  |      |  |   | 172,401  |  
|Land and improvements              |  |             | 8,338    |      |  |   | 8,822    |  
|Construction in progress           |  |             | 7,848    |      |  |   | 9,257    |  
|                                   |  |             |          |      |  |   |          |  
|                                   |  |             | 234,100  |      |  |   | 233,610  |  
|Less: accumulated depreciation     |  |             | (153,325 | )    |  |   | (156,110 | )
|                                   |  |             |          |      |  |   |          |  
|Property, plant and equipment, net |  | $           | 80,775   |      |  | $ | 77,500   |  
|                                   |  |             |          |      |  |   |          |  

6.     Intangible
Assets

Intangible assets consist of the following (in
thousands):

|                                   |  |             |          |      |  |   |          |  
|---------------------------------- |  | ----------- | -------- | ---- |  | - | -------- | -
|                                   |  |            
|                                   |  | December 31
|                                   |  |            
|                                   |  | 2000        |          | 2001
|                                   |  |             |          |     
|Firm business and ongoing programs |  | $           | 172,736  |      |  | $ | 172,736  |  
|Computer software                  |  |             | 42,280   |      |  |   | 43,823   |  
|Non-compete agreements             |  |             | 27,000   |      |  |   | 27,000   |  
|Deferred charges                   |  |             | 8,548    |      |  |   | 13,107   |  
|                                   |  |             |          |      |  |   |          |  
|                                   |  |             | 250,564  |      |  |   | 256,666  |  
|Accumulated amortization           |  |             | (195,874 | )    |  |   | (222,832 | )
|                                   |  |             |          |      |  |   |          |  
|                                   |  | $           | 54,690   |      |  | $ | 33,834   |  
|                                   |  |             |          |      |  |   |          |  

The firm business and ongoing programs are being
amortized based on revenues of related contracts or programs.
The computer software and other intangibles are being amortized
on a straight line basis over their estimated useful lives which
is three to five years for computer software and six years for
other intangibles. Deferred charges consist of financing costs
associated with the acquisition of debt and are amortized based
on the effective interest method, accelerated if early payments
of outstanding debt are made.

7.     Accrued and
other liabilities

Accrued and other liabilities consist of the
following (in thousands):

|                             |  |             |         |      |  |   |         | 
|---------------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                             |  |            
|                             |  | December 31
|                             |  |            
|                             |  | 2000        |         | 2001
|                             |  |             |         |     
|Accrued payroll and benefits |  | $           | 62,061  |      |  | $ | 77,743  | 
|Contract related reserves    |  |             | 19,781  |      |  |   | 17,547  | 
|Other accrued liabilities    |  |             | 21,276  |      |  |   | 19,517  | 
|                             |  |             |         |      |  |   |         | 
|                             |  | $           | 103,118 |      |  | $ | 114,807 | 
|                             |  |             |         |      |  |   |         | 

F-13



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.     Pensions and
Other Postretirement Benefits

The majority of the Companys domestic
employees are covered by retirement plans. Plans covering
salaried employees provide pension benefits based on years of
service and compensation. Plans covering hourly employees
generally provide benefits of stated amounts for each year of
service. The Companys funding policy is to make
contributions based on the projected unit credit method and to
limit contributions to amounts that are currently deductible for
tax purposes.

With the exception of Bofors, most of the
Companys employees are also covered by postretirement
health care and life insurance benefit programs. Employees
generally become eligible to receive benefits under these plans
after they retire when they meet minimum retirement age and
service requirements. The cost of providing most of these
benefits is shared with retirees. The Company has reserved the
right to change or eliminate these benefit plans.

Bofors has a statutory pension obligation of
$23.0 million and $16.5 million which is included in
accrued pension and postretirement benefit cost on
the consolidated balance sheets at December 31, 2000 and
December 31, 2001, respectively. Bofors pension obligation
is administered by an agent of the Swedish government using
methods and assumptions different from those used to determine
domestic amounts. Accordingly, the following tables do not
include this liability.

F-14



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The change in benefit obligation and plan assets
of the plans and prepaid or accrued pension and postretirement
costs recognized in the balance sheets at December 31, 2000
and 2001 are as follows (in thousands):

|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |       | 
|----------------------------------------------------------------- | ----------------------------------------------- | ---------------- | ------- | -------------- | - | ---- | ------- | ------- | - | - | ------ | ----- |  | - | ------- | ----- | 
|                                                                  |                                                 |                  |         |                |   |     
|                                                                  |                                                 |                  |         | Postretirement
|                                                                  |                                                 | Pension Benefits |         | Benefits      
|                                                                  |                                                 |                  |         |               
|                                                                  |                                                 | 2000             |         | 2001           |   | 2000 |         | 2001   
|                                                                  |                                                 |                  |         |                |   |      |         |        
|Change in benefit obligation                                      |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Benefit obligation at beginning of year                           |                                                 | $                | 422,314 |                |   | $    | 471,634 |         |   | $ | 49,187 |       |  | $ | 49,230  |      
|Service cost                                                      |                                                 |                  | 14,256  |                |   |      | 15,256  |         |   |   | 1,260  |       |  |   | 1,208   |      
|Interest cost                                                     |                                                 |                  | 32,847  |                |   |      | 35,325  |         |   |   | 3,565  |       |  |   | 3,070   |      
|Net benefits paid, including settlements                          |                                                 |                  | (22,895 | )              |   |      | (20,249 | )       |   |   | (4,486 | )     |  |   | (2,949  | )    
|Actuarial (gain) loss                                             |                                                 |                  | 13,309  |                |   |      | 36,249  |         |   |   | (296   | )     |  |   | (3,348  | )    
|Plan amendments                                                   |                                                 |                  | 11,803  |                |   |      | 2,505   |         |   |   |       |       |  |   |        |      
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Benefit obligation at end of year                                 |                                                 |                  | 471,634 |                |   |      | 540,720 |         |   |   | 49,230 |       |  |   | 47,211  |      
|Change in plan assets                                             |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Fair value of plan assets at beginning of year                    |                                                 |                  | 537,769 |                |   |      | 595,579 |         |   |   | 51,828 |       |  |   | 61,816  |      
|Actual return on plan assets                                      |                                                 |                  | 79,747  |                |   |      | 31,945  |         |   |   | 11,581 |       |  |   | 4,310   |      
|Employer contributions                                            |                                                 |                  | 958     |                |   |      | 1,426   |         |   |   | 2,893  |       |  |   | 2,831   |      
|Net benefits paid, including settlements                          |                                                 |                  | (22,895 | )              |   |      | (20,249 | )       |   |   | (4,486 | )     |  |   | (2,949  | )    
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Fair value of plan assets at end of year                          |                                                 |                  | 595,579 |                |   |      | 608,701 |         |   |   | 61,816 |       |  |   | 66,008  |      
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Funded status                                                     |                                                 |                  | 123,945 |                |   |      | 67,981  |         |   |   | 12,586 |       |  |   | 18,797  |      
|Unrecognized actuarial (gain) loss                                |                                                 |                  | (25,029 | )              |   |      | 29,710  |         |   |   | (8,418 | )     |  |   | (10,204 | )    
|Unrecognized prior service cost                                   |                                                 |                  | 14,528  |                |   |      | 15,522  |         |   |   |       |       |  |   |        |      
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Net amount recognized                                             |                                                 | $                | 113,444 |                |   | $    | 113,213 |         |   | $ | 4,168  |       |  | $ | 8,593   |      
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Amounts recognized in the consolidated balance
	sheet consist of: |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|                                                                  | Prepaid pension and postretirement benefit cost |                  | $       | 118,932        |   |      | $       | 119,235 |   |   | $      | 4,168 |  |   | $       | 8,593 | 
|                                                                  | Accrued pension and postretirement benefit cost |                  |         | (5,488         | ) |      |         | (6,022  | ) |   |        |      |  |   |         |      | 
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      
|Net amount recognized                                             |                                                 | $                | 113,444 |                |   | $    | 113,213 |         |   | $ | 4,168  |       |  | $ | 8,593   |      
|                                                                  |                                                 |                  |         |                |   |      |         |         |   |   |        |       |  |   |         |      

The following table summarizes the assumptions
used in the determination of net pension and postretirement
benefit costs and benefit obligations for the years ended
December 31, 1999, 2000 and 2001:

|                               |  |                         |      |      |  |      |      |   |  |  |      |  
|------------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                               |  |                        
|                               |  | Year ended December 31,
|                               |  |                        
|                               |  | 1999                    |      | 2000 |  | 2001
|                               |  |                         |      |      |  |     
|Weighted-average assumptions   |  |                         |      |      |  |      |      |   |  |  |      |  
|Discount rate                  |  |                         | 7.50 | %    |  |      | 7.50 | % |  |  | 7.00 | %
|Expected return on plan assets |  |                         | 9.00 | %    |  |      | 9.00 | % |  |  | 9.00 | %
|Rate of compensation increase  |  |                         | 5.00 | %    |  |      | 5.00 | % |  |  | 4.50 | %

F-15



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following tables show the components of the
net periodic benefit cost (in thousands):

|                                              |  |                         |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                              |  |                        
|                                              |  | Year ended December 31,
|                                              |  |                        
|                                              |  | 1999                    |         | 2000 |  | 2001
|                                              |  |                         |         |      |  |     
|Pension Benefits                              |  |                         |         |      |  |      |         |   |  |   |         |  
|Service cost                                  |  | $                       | 13,747  |      |  | $    | 14,256  |   |  | $ | 15,256  |  
|Interest cost                                 |  |                         | 27,982  |      |  |      | 32,847  |   |  |   | 35,325  |  
|Expected return on plan assets                |  |                         | (45,213 | )    |  |      | (47,904 | ) |  |   | (50,807 | )
|Net amortization and recognized losses        |  |                         | 1,324   |      |  |      | 1,993   |   |  |   | 1,830   |  
|Special termination benefits and curtailments |  |                         | 650     |      |  |      |        |   |  |   |        |  
|                                              |  |                         |         |      |  |      |         |   |  |   |         |  
|Net periodic benefit cost (income)            |  | $                       | (1,510  | )    |  | $    | 1,192   |   |  | $ | 1,604   |  
|                                              |  |                         |         |      |  |      |         |   |  |   |         |  

|                                       |  |                         |        |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  |                        
|                                       |  | Year ended December 31,
|                                       |  |                        
|                                       |  | 1999                    |        | 2000 |  | 2001
|                                       |  |                         |        |      |  |     
|Postretirement benefits                |  |                         |        |      |  |      |        |   |  |   |        |  
|Service cost                           |  | $                       | 1,489  |      |  | $    | 1,260  |   |  | $ | 1,208  |  
|Interest cost                          |  |                         | 3,420  |      |  |      | 3,565  |   |  |   | 3,070  |  
|Expected return on plan assets         |  |                         | (4,797 | )    |  |      | (4,938 | ) |  |   | (5,332 | )
|Net amortization and recognized losses |  |                         |       |      |  |      | (35    | ) |  |   | (540   | )
|                                       |  |                         |        |      |  |      |        |   |  |   |        |  
|Net periodic benefit cost(income)      |  | $                       | 112    |      |  | $    | (148   | ) |  | $ | (1,594 | )
|                                       |  |                         |        |      |  |      |        |   |  |   |        |  

Pension special termination benefits and
curtailments cost relates to various early retirement incentive
and involuntary workforce reduction programs related to the
Companys downsizing and consolidation of operations.

The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for the
pension plan with accumulated benefit obligations in excess of
plan assets were $12.6 million, $6.8 million and
$1.0 million, respectively, at December 31, 2000 and
$11.3 million, $8.3 million and $2.0 million,
respectively, at December 31, 2001.

For measurement purposes, a 10% annual rate of
increase in the per capita cost of covered health care benefits
is assumed for 2001. The rate was assumed to decrease to 5% in
2006 and remain at that level thereafter. Assumed health care
cost trend rates have an effect on the amounts reported for the
postretirement health care plan. A one-percentage-point change
in assumed health care cost trend rates would have the following
effects (in thousands):

|                                                         |  |             |       |             |  |   |      |  
|-------------------------------------------------------- |  | ----------- | ----- | ----------- |  | - | ---- | -
|                                                         |  | 1% Increase |       | 1% Decrease
|                                                         |  |             |       |            
|Effect on total of service and interest cost
	components |  | $           | 114   |             |  | $ | (88  | )
|Effect on the postretirement benefit obligation          |  | $           | 1,079 |             |  | $ | (870 | )

F-16



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Long-term
Debt

Borrowings under long-term debt arrangements are
as follows (in thousands):

|                                 |  |             |         |      |  |   |         | 
|-------------------------------- |  | ----------- | ------- | ---- |  | - | ------- | 
|                                 |  |            
|                                 |  | December 31
|                                 |  |            
|                                 |  | 2000        |         | 2001
|                                 |  |             |         |     
|Senior secured credit facilities |  | $           | 86,757  |      |  | $ | 430,900 | 
|Senior subordinated notes        |  |             | 182,820 |      |  |   |        | 
|                                 |  |             |         |      |  |   |         | 
|                                 |  |             | 269,577 |      |  |   | 430,900 | 
|Less: current portion            |  |             | 23,086  |      |  |   | 8,307   | 
|                                 |  |             |         |      |  |   |         | 
|                                 |  | $           | 246,491 |      |  | $ | 422,593 | 
|                                 |  |             |         |      |  |   |         | 

Cash paid for interest was $36.2 million,
$26.5 million and $24.5 million for the years ended
December 31, 1999, 2000 and 2001, respectively.

$725 Million
Senior Secured Credit Facility through August 2001

In October 1997, the Company entered into a
senior secured credit facility that included $495 million
of term loan facilities and a $230 million revolving credit
facility. Outstanding borrowings on the term loan were
$149.8 million and $86.8 million at December 31,
1999 and 2000, respectively. As described below, this credit
facility was replaced with a new $800 million senior
secured credit facility in August 2001.

The term loan facilities bore interest at
variable rates with a weighted average rate of 8.82% and 7.91%
at December 31, 1999 and 2000, respectively. These loans
were due through 2006 and provided for quarterly principal
payments.

The revolving credit facility provided for loans
and letters of credit and matures in 2003. The Company had
outstanding letters of credit under the facility of
$142 million at December 31, 2000. There was
$88 million available under the revolving credit facility
at December 31, 2000. The Company was obligated to pay a
fee of 0.25% on the unused revolving credit facility.

Amounts outstanding under the senior secured
credit facility were secured by a lien on all the assets of the
Company and its domestic subsidiaries.

Mandatory prepayments and reductions of
outstanding principal amounts were required upon the occurrence
of certain events. The senior secured credit facility contained
customary covenants restricting the incurrence of debt,
encumbrances on and sales of assets, limitations on mergers and
certain acquisitions, limitations on changes in control,
provision for the maintenance of certain financial ratios, and
various other financial covenants and restrictions.

$200 Million
Senior Subordinated Notes through August 2001

In October 1997, the Company issued
$200 million of senior subordinated notes. The senior
subordinated notes were unsecured, bore interest at 8.75%
payable semiannually, and were scheduled to mature in 2007. The
payment of principal and interest was subordinated in right of
payment to all senior debt.

The senior subordinated notes were not redeemable
other than in connection with a public equity offering or a
change in control prior to November 2002, at which time the
notes were redeemable at a premium, initially at 104.375% of the
principal amount. The senior subordinated notes had customary
covenants for subordinated debt facilities including the right
to require repurchase upon a change in control, restrictions on
payment of dividends, and restrictions on the acquisition of
equity interests by the Company.

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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company received authorization from its
bank-lending group in February 1999 to purchase up to
$50 million of the senior subordinated notes. During 2000
the Company purchased approximately $17 million of its
senior subordinated notes in the open market.

As described below, in August 2001, a portion of
the proceeds from a new $800 million senior secured credit
facility was used to complete a tender offer for the outstanding
senior subordinated notes. The extinguishment of the 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 $4.5 million
write-off of related unamortized financing costs.

$800 Million
Senior Secured Credit Facility

In August 2001, the Company entered into a credit
facility with various banks that included $600 million of
term loan facilities and a $200 million revolving credit
facility.

Outstanding borrowings on the new term loan
facilities were $430.9 million at December 31, 2001.
The facilities bear interest at variable rates with a weighted
average rate of 5.14% at December 31, 2001. These loans are
due through 2009 and provide for quarterly principal and
interest payments.

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
approximately $114 million at December 31, 2001, and
there was $86 million available under the revolving credit
facility at December 31, 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 principal amounts are required upon the occurrence
of certain events, including the sale of common stock in an
initial public offering. The senior secured 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.

The terms of the agreement allowed the Company to
pay approximately $381.7 million in dividends to holders of
common stock. In addition to dividends and the tender for the
senior subordinated notes, the Company 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 year ended December 31, 2001.

Pursuant to the terms of agreement entered into
under the senior secured credit facility, the Companys
applicable margin for the term loans may be reduced if the
Companys secured leverage ratio (as defined in the
Agreement) decreases. The Companys results during the year
ended December 31, 2001 exceeded the required level ratio
targets resulting in a reduction of the margin in the interest
rates and reduced pricing for letters of credit, effective as of
January 1, 2002.

On January 30, 2002 the Company made an
additional debt prepayment under the senior secured credit
facility for $8.3 million, resulting in a charge of
$0.5 million in unamortized finance costs reported as an
extraordinary item.

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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Annual
Maturities

Annual maturities of long-term debt as of
December 31, 2001 are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 8,307   | 
|2003       |  |   | 33,227  | 
|2004       |  |   | 33,227  | 
|2005       |  |   | 33,227  | 
|2006       |  |   | 33,227  | 
|Thereafter |  |   | 289,685 | 
|           |  |   |         | 
|           |  | $ | 430,900 | 
|           |  |   |         | 

10.     Commitments
and Contingencies

Termination
Claims

The Grizzly programs funds (see
Item 1) were cancelled by the Office of the Secretary of
Defense (OSD) in December 1999. This action was
taken by OSD solely due to not having sufficient funds to
support the Armys Medium Force Brigade initiative. The
three Heavy Armor Divisions that remain still require the
in-stride, complex obstacle breaching capabilities that the
Company believes can only be accomplished by Grizzly. As a
result of this requirement, the development program has been
extended numerous times since 2000. The contractual end-date of
the program was February 15, 2002. Two prototype vehicles
were delivered to the Army during the week of February 11,
2002 and the related system support package is being delivered
per the customers direction. The Grizzly is a fully-funded
cost plus contract with a value of approximately $150 million.

The Company submitted a Termination Settlement
Proposal to the Defense Contract Management Agency on
March 14, 2001, requesting reimbursement for minimum fee,
severance and other termination expenses.

Operating
Leases

The Company leases office space, plants and
facilities, and various types of manufacturing, data processing
and transportation equipment. Rent expense for the years ended
December 31, 1999, 2000, and 2001 was $12.4 million,
$14.2 million and $13.5 million, respectively. Several of
one companys leases contain escalation clauses that
increase in rent based on future increases in the Consumer Price
Index. Minimum future rentals under noncancellable leases are
estimated to be $12.3 million in 2002, $10.1 million
in 2003, $9.7 million in 2004, $8.7 million in 2005,
$8.1 million in 2006 and $8.1 million thereafter.

Legal
Proceedings

Alliant Techsystems, Inc. (Alliant),
a subcontractor to the Company in connection with the M109A6
Paladin howitzer prime contract, filed a lawsuit against the
Company and its prior owners in Minnesota state court. The
lawsuit arose out of a U.S. Army-directed termination for
convenience in 1996 of certain subcontract work under the
program which, until the time of termination, had been performed
by Alliant and was thereafter replaced by a subcontract which
the Company awarded to another contractor, Sechan Electronics.
The breach of contract litigation by Alliant against the Company
was concluded by pretrial dismissal, without any judgment,
damage award, or other adverse finding having been made against
the Company. No settlement payment was made in connection with
such dismissal.

The Company was a defendant in a qui tam case
filed jointly under the U.S. Civil False Claims Act (the
FCA) by one present and one former employee of ours
in Fridley, Minnesota. The case, U.S. ex rel. Seman
and Shukla v. United Defense, FMC Corp., and Harsco
Corp., was filed against the Company and its prior owners on

F-19



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

July 23, 1997 in the U.S. District Court for
the District of Minnesota and primarily alleged that the Company
improperly obtained payment under various of our government
contracts by supplying components which did not comply with
applicable technical specifications. The relators
complaint did not quantify the alleged damages, but sought the
full range of treble damages, civil penalties, and attorney fees
available under the FCA.

A complete settlement of such action was
negotiated by the parties, and consented to by the U.S.
Government, under which the Company is to pay a total of
$6 million to settle the case, divided into installments
payable over a three-year period. The amount of the settlement
had been fully accrued as of December 31, 2000 in accrued
and other liabilities. No finding of wrongdoing was made against
the Company, and no other administrative or legal action is to
be taken against the Company in respect of matters alleged in
the case. On March 9, 2001, the settlement was approved by
the court, and has accordingly become final.

The Company may be 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
party will not have a material adverse effect on the Company.

Environmental
Matters

The Company spends certain amounts annually to
maintain compliance with environmental laws. Operating and
maintenance costs associated with environmental compliance and
prevention of pollution at the Companys facilities are a
normal, recurring part of operations, are not significant
relative to total operating costs or cash flows, and are
generally allowable as contract costs under the Companys
contracts with the U.S. government (Allowable Costs).

As with compliance costs, a significant portion
of the Companys expenditures for remediation at its
facilities consists of Allowable Costs. As of December 31,
2001 the Company has accrued approximately $14 million to
cover any investigation and/or remediation costs that may not be
Allowable Costs under U.S. government contracts. The amount
accrued is based on estimated liabilities for each site in which
the Company is able to make reasonable estimates. The Company
does not believe there are significant uncertainties affecting
the estimated liabilities or amounts that will be paid in the
near term. The most significant of the estimated liabilities is
based on the Companys experience related to ongoing
remediation efforts. In addition, pursuant to the terms of the
acquisition of UDLP, the Sellers are required to reimburse the
Company for 75% of certain remediation costs that are
Non-Allowable Costs through the year 2007 for environmental
losses previously identified by the Company to the Sellers.
Accordingly, the Company has recorded a receivable for
$1.6 million expected to be reimbursed over the next
6 years by the Sellers under the terms of the acquisition
agreement.

Turkey Joint
Venture Offset Obligation

The Companys joint venture in Turkey is
required by agreement with its customer to achieve a significant
level of export sales by October 2002 (this commitment is
commonly referred to as an offset obligation) or pay
a penalty of 9% of the shortfall in required export sales which
penalty could be as high as $40 million. There can be no
assurance that the joint venture will be able to completely
fulfill its offset obligations or renegotiate an acceptable
alternative, in which case the Company may have to fund its
proportionate share of any offset obligation through additional
investments in the joint venture. At December 31, 2000, the
Companys equity accounting for the joint venture assumed
the joint venture would be obligated for approximately
$30 million of the total penalty exposure of which the
Companys 51% share would be approximately $15 million.

The joint ventures accrual for this
obligation was made prior to 1998. The Companys equity in
earnings from the joint venture was not significantly affected
by changes in the joint ventures offset obligation during
1999 and 2000. Export sales by the joint venture from a recently
signed contract with the government of Malaysia are expected to
satisfy a significant portion of this exposure. Consequently,
the Companys equity in earnings was increased by
approximately $8.6 million during the year ended
December 31, 2001 as a result of a reduction in

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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the joint ventures expected offset
obligation. The reduction in the estimate of offset obligation
resulted from significant progress during 2001 on execution of
the contract with Malaysia and the receipt in September 2001 of
written acknowledgement by the Turkish government that sales
made under that contract will qualify for satisfaction of the
offset obligation.

The Company accounts for its 51% investment in
the joint venture by using the equity method rather than
consolidating it because the Company does not control the joint
venture, although it does have the ability to exercise
significant influence over the operating and financial policies
of the joint venture.

11.     Stockholders
Equity



| |                     
| | --------------------
| | Common Stock Options

During 1998, the Company adopted the 1998 Stock
Option Plan (the Option Plan) under which 3,201,300
shares of common stock were reserved for issuance at
December 31, 2001. The options generally vest over a period
of 10 years; however, vesting may be accelerated over
5 years if certain targets related to earnings and cash
flow are met.

|                                       |  |                         |           |          |  |      |      |          |  |      |           |          |  |   |      |  |  |  |            |   |  |   |      | 
|-------------------------------------- |  | ----------------------- | --------- | -------- |  | ---- | ---- | -------- |  | ---- | --------- | -------- |  | - | ---- |  |  |  | ---------- | - |  | - | ---- | 
|                                       |  |                        
|                                       |  | Year ended December 31,
|                                       |  |                        
|                                       |  |                         |           | Weighted |  |      |      | Weighted |  |      |           | Weighted
|                                       |  |                         |           | average  |  |      |      | average  |  |      |           | average 
|                                       |  |                         |           | exercise |  |      |      | exercise |  |      |           | exercise
|                                       |  | 1999                    |           | price    |  | 2000 |      | price    |  | 2001 |           | price   
|                                       |  |                         |           |          |  |      |      |          |  |      |           |         
|Options outstanding, beginning of year |  |                         | 3,231,000 |          |  | $    | 4.44 |          |  |      | 3,280,275 |          |  | $ | 4.52 |  |  |  | 3,231,900  |   |  | $ | 4.61 | 
|Options granted                        |  |                         | 69,750    |          |  |      | 8.89 |          |  |      | 51,750    |          |  |   | 9.66 |  |  |  | 168,428    |   |  |   | 5.94 | 
|Options canceled                       |  |                         | (13,950   | )        |  |      | 8.03 |          |  |      | (90,000   | )        |  |   | 4.44 |  |  |  | (100,574   | ) |  |   | 4.44 | 
|Options exercised                      |  |                         | (6,525    | )        |  |      | 4.44 |          |  |      | (10,125   | )        |  |   | 4.44 |  |  |  | (1,083,188 | ) |  |   | 4.48 | 
|                                       |  |                         |           |          |  |      |      |          |  |      |           |          |  |   |      |  |  |  |            |   |  |   |      | 
|Options outstanding end of year        |  |                         | 3,280,275 |          |  |      | 4.52 |          |  |      | 3,231,900 |          |  |   | 4.61 |  |  |  | 2,216,566  |   |  |   | 4.80 | 
|                                       |  |                         |           |          |  |      |      |          |  |      |           |          |  |   |      |  |  |  |            |   |  |   |      | 
|Options exercisable end of year        |  |                         | 941,456   |          |  |      | 4.63 |          |  |      | 1,535,018 |          |  |   | 4.58 |  |  |  | 1,684,988  |   |  |   | 4.75 | 
|                                       |  |                         |           |          |  |      |      |          |  |      |           |          |  |   |      |  |  |  |            |   |  |   |      | 

The following table summarizes options data as of
December 31, 2001:

|                         |       |                     |           |                     |  |             |       |              |  |          |     |     |  |  |           |           |  |   |       |      | 
|------------------------ | ----- | ------------------- | --------- | ------------------- |  | ----------- | ----- | ------------ |  | -------- | --- | --- |  |  | --------- | --------- |  | - | ----- | ---- | 
|                         |       |                     |           |                    
|                         |       | Options Outstanding |           | Options Exercisable
|                         |       |                     |           |                    
|                         |       |                     |           | Weighted            |  |            
|                         |       | Number              |           | Weighted            |  | average     |       | Number       |  | Weighted
|                         |       | as of               |           | average             |  | remaining   |       | as of        |  | average 
|                         |       | December 31,        |           | exercise            |  | contractual |       | December 31, |  | exercise
|Range of exercise prices |       | 2001                |           | price               |  | life        |       | 2001         |  | price   
|                         |       |                     |           |                     |  |             |       |              |  |         
|$4.44                    |       |                     | 2,070,638 |                     |  | $           | 4.44  |              |  |          | 7.2 |     |  |  | 1,594,410 |           |  | $ | 4.44  |     
|$8.89  $11.11           |       |                     | 139,500   |                     |  |             | 9.61  |              |  |          | 8.2 |     |  |  | 84,150    |           |  |   | 9.79  |     
|$15.56                   |       |                     | 6,428     |                     |  |             | 15.56 |              |  |          | 9.6 |     |  |  | 6,428     |           |  |   | 15.56 |     
|                         |       |                     |           |                     |  |             |       |              |  |          |     |     |  |  |           |           |  |   |       |     
|                         | Total |                     |           | 2,216,566           |  |             |       | 4.80         |  |          |     | 7.2 |  |  |           | 1,684,988 |  |   |       | 4.75 | 
|                         |       |                     |           |                     |  |             |       |              |  |          |     |     |  |  |           |           |  |   |       |     

Options granted in 1999 were at $8.89 per share
and had an estimated grant date fair value of $4.25 per option.
Options were granted at $8.89 and $11.11 during the year ended
December 31, 2000 and had an estimated weighted average
fair value on the date of grant of $3.09. Options were granted
at $4.44, $8.89, $11.11, and $15.56 during the year ended
December 31, 2001 and had an estimated weighted average
fair value on the date of grant of $5.38. The Company recorded
compensation cost of $0.2 million.

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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Had compensation cost for the Companys
stock option plans been determined based upon the fair value at
the grant date for awards under the plan consistent with the
methodology prescribed under Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based
Compensation, the Companys net income in 1999 would
have been approximately $1.7 million ($0.04 per basic and
diluted share), the net income in 2000 would have been
approximately $17.6 million ($0.43 and $0.41 per basic and
diluted share, respectively), and the net income in 2001 would
have been approximately $7.5 million ($0.18 and $0.17 per basic
and diluted share, respectively). The effect of applying SFAS
No. 123 on the net income as stated above is not
necessarily representative of the effects on reported net income
(loss) for future years due to, among other things,
(1) the vesting period of the stock options and
(2) additional stock options that may be granted in future
years.

The fair value of each option grant is estimated
on the date of grant using the minimum value model for options
granted in 1999 and 2000 and the Black-Scholes model for options
granted in 2001 with the following assumptions: dividend yield
of 0%; risk-free interest rates of 6.5%, 5.5% and 6.25%,
respectively; and expected life of the option term of
10 years, 7 years and 7 years, respectively; and
volatility, where applicable, of 0.357.

Employee
Stock Purchase Plan

Under the Employee Stock Purchase Plan (the
ESPP), certain employees are provided the
opportunity to purchase shares of the Companys common
stock at its estimated fair value. Certain of these purchases
were eligible for financing provided by the Company. Related
loans including interest at 7.5%, were repaid in August 2001.

12.     Income
Taxes

The Companys provision for income taxes
consists of the following components:

|        |       |      |       |       |  |      |       |       |  |   |       |       | 
|------- | ----- | ---- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|        |       | 1999 |       | 2000  |  | 2001
|        |       |      |       |       |  |     
|Federal |       | $    | 2,193 |       |  | $    | 3,766 |       |  | $ | 570   |      
|Foreign |       |      |      |       |  |      | 1,400 |       |  |   | 2,222 |      
|State   |       |      | 453   |       |  |      | 834   |       |  |   | 3,108 |      
|        |       |      |       |       |  |      |       |       |  |   |       |      
|        | Total |      | $     | 2,646 |  |      | $     | 6,000 |  |   | $     | 5,900 | 
|        |       |      |       |       |  |      |       |       |  |   |       |      

The Companys current tax liability for all
periods consists of the current tax liabilities of its wholly
owned Foreign Sales Corporation, Alternative Minimum Tax
liabilities, current state tax liabilities in jurisdictions that
impose minimum taxes or restrict use of net operating loss
carryforwards, and the tax expense of its wholly owned foreign
subsidiaries.

The Companys effective tax rate differed
from the statutory federal income tax rate because of the
following differences:

|                                                             |  |      |        |      |  |      |        |   |  |  |        |  
|------------------------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                             |  | 1999 |        | 2000 |  | 2001
|                                                             |  |      |        |      |  |     
|Statutory federal tax rate                                   |  |      | 35.0%  |      |  |      | 35.0%  |   |  |  | 35.0%  |  
|Effect of taxes on joint venture/ foreign earnings           |  |      | 0%     |      |  |      | 4.2%   |   |  |  | 5.2%   |  
|Sales Corporation/extraterritorial income
	exclusion benefit |  |      | (17.1% | )    |  |      | (5.2%  | ) |  |  | (5.1%  | )
|Disallowed expenses and other                                |  |      | 72.9%  |      |  |      | 15.4%  |   |  |  | (18.4% | )
|Change in valuation allowance                                |  |      | (43.4% | )    |  |      | (24.6% | ) |  |  | (3.0%  | )
|                                                             |  |      |        |      |  |      |        |   |  |  |        |  
|Effective tax rate                                           |  |      | 47.4%  |      |  |      | 24.8%  |   |  |  | 13.7%  |  
|                                                             |  |      |        |      |  |      |        |   |  |  |        |  

F-22



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the net deferred tax asset are
as follows (in thousands):

|                                                |  |              |         |      |  |   |         |  
|----------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                |  |             
|                                                |  | December 31,
|                                                |  |             
|                                                |  | 2000         |         | 2001
|                                                |  |              |         |     
|Deferred tax assets:                            |  |              |         |      |  |   |         |  
|Alternative Minimum Tax Credits                 |  | $            | 1,944   |      |  | $ | 2,514   |  
|Accrued expenses                                |  |              | 7,749   |      |  |   | 13,347  |  
|Net operating loss carryforwards                |  |              | 74,192  |      |  |   | 64,111  |  
|Depreciation                                    |  |              | 9,042   |      |  |   | 6,916   |  
|                                                |  |              |         |      |  |   |         |  
|                                                |  |              | 92,927  |      |  |   | 86,888  |  
|Deferred tax liabilities:                       |  |              |         |      |  |   |         |  
|Intangibles, accrued compensation, and benefits |  |              | (32,986 | )    |  |   | (17,438 | )
|Other                                           |  |              | (6,129  | )    |  |   | (16,888 | )
|                                                |  |              |         |      |  |   |         |  
|                                                |  |              | (39,115 | )    |  |   | (34,326 | )
|                                                |  |              |         |      |  |   |         |  
|Net deferred tax asset                          |  |              | 53,812  |      |  |   | 52,562  |  
|Valuation allowance                             |  |              | (53,812 | )    |  |   | (52,562 | )
|                                                |  |              |         |      |  |   |         |  
|Net deferred taxes on balance sheet             |  | $            |        |      |  | $ |        |  
|                                                |  |              |         |      |  |   |         |  

The net deferred tax asset at December 31,
2000 and 2001 has been offset by a valuation allowance. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion
or all of the deferred tax assets will be realized. The ultimate
realization of the deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
the temporary differences become deductible and any limitations
applied to the use of carryforward tax attributes.

The Company has approximately $160 million
in net operating loss carryforwards which expire at varying
dates through 2017. The future period utilization of these
losses may be limited in the event of certain changes in the
Companys ownership.

13.     Fair Value of
Financial Instruments

The carrying amount of the Companys
financial instruments included in current assets and current
liabilities approximates their fair value due to their
short-term nature. At December 31, 2000, fair market value
of the Companys long-term debt was estimated to be
$86.6 million and $171.9 million for the senior credit
facility and subordinated debt, respectively. At
December 31, 2001, the fair market value of the
Companys long-term debt was estimated to be
$430.9 million for the senior secured credit facility.

The fair values of the senior credit facility
represent managements best estimates based on other
financial instruments with similar characteristics. Since the
facility has variable rate debt, its fair value approximates its
carrying amount. The fair values of the subordinated debt are
based on quoted market prices.

14.     Significant
Customer and Export Sales

Sales to various agencies of the U.S. Government
aggregated $995.0 million, $832.9 million and
$1,013.2 million during the years ended December 31,
1999, 2000 and 2001, respectively.

At December 31, 2000 and 2001, trade
accounts receivable from the U.S. Government totaled
$66.8 million and $36.5 million, respectively.

Export sales, including sales to foreign
governments transacted through the U.S. Government, were
$218.6 million, $297.6 million and $182.4 million
during the years ended December 31, 1999, 2000 and 2001,

F-23



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UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

respectively. In addition there were sales to
foreign governments transacted by the Companys foreign
subsidiary of $53.4 million and $123.0 million during
the years ended December 31, 2000 and 2001, respectively.

15.     Related Party
Transactions

In accordance with the management agreement
between the Company and Carlyle an annual fee of
$2.0 million for various management services was paid to
Carlyle during the years ended December 31, 1999, 2000 and
2001.

The Company incurred $18.6 million in
expenses in connection with the August 2001 recapitalization
(see Note 9), including performance bonuses of $11.1 paid
to management and outside directors and consulting and
management fees of $7.5 million which includes
$2.3 million paid to Carlyle, which is included in selling,
general and administrative expenses. Additionally, Carlyle was
paid a fee of $1.2 million for investment banking services,
which is included in deferred financing costs.

The Company expects investment funds sponsored by
Carlyle will continue to own a significant portion of its common
shares after the initial public offering. Individuals affiliated
with Carlyle are expected to continue to influence the
Companys operations. The Company has entered into
agreements with four affiliates of its principal stockholder
whereby the Company has agreed to designate one nominee to the
Companys board of directors on behalf of each of these
entities. These agreements will remain in effect so long as Iron
Horse owns greater than 20% of the Companys voting stock.

One of the Companys directors was formerly
affiliated with a law firm that provides services to the
Company. Amounts paid to the law firm for such services were
approximately $51,000, $138,000 and $11,518 for the years ended
December 31, 1999, 2000 and 2001, respectively.



|    |                       
|--- | ----------------------
|16. | Employees Thrift Plan

Substantially all of the Companys domestic
employees are eligible to participate in defined contribution
savings plans designed to comply with the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA) and
Section 401(k) of the Internal Revenue Code. Charges
against income for matching contributions to the plans were
$8.1 million, $7.9 million, and $8.8 million in the
years ended December 31, 1999, 2000 and 2001, respectively.



|    |                                                               
|--- | --------------------------------------------------------------
|17. | Earnings Per Share and Unaudited Pro Forma
	Earnings Per Share

Basic and diluted earnings per share results for
all periods presented were computed based on the net income for
the respective periods. The weighted average number of common
shares outstanding during the period was used in the calculation
of basic earnings per share and this number of shares was
increased by the effects of dilutive stock options based on the
treasury stock method in the calculation of diluted earnings per
share.

F-24



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##### Table of Contents



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |       |  
|--------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------- | ----- | -
|                                                                      |                                                                   |                                      
|                                                                      |                                                                   | Year ended December 31,              
|                                                                      |                                                                   |                                      
|                                                                      |                                                                   | 1999                                  |        | 2000 |  | 2001
|                                                                      |                                                                   |                                       |        |      |  |     
|                                                                      |                                                                   |                                      
|                                                                      |                                                                   | (In thousands, except per share data)
|Net income:                                                           |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Income before extraordinary item                                      |                                                                   | $                                     | 2,938  |      |  | $    | 18,165 |      |  | $ | 37,022  |      
|Extraordinary item  net gain
	(loss) from extinguishment of debt     |                                                                   |                                       |       |      |  |      | 680    |      |  |   | (28,246 | )    
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Net income for basic and diluted computations                         |                                                                   | $                                     | 2,938  |      |  | $    | 18,845 |      |  | $ | 8,776   |      
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Average common shares outstanding:                                    |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Average number of common shares outstanding for
	basic computations   |                                                                   |                                       | 40,593 |      |  |      | 40,584 |      |  |   | 41,265  |      
|Dilutive stock options-based on the treasury
	stock method            |                                                                   |                                       | 1,459  |      |  |      | 1,835  |      |  |   | 1,939   |      
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Average number of common shares outstanding for
	diluted computations |                                                                   |                                       | 42,052 |      |  |      | 42,419 |      |  |   | 43,204  |      
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Earnings per share:                                                   |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Earnings per share  basic:                                           |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|                                                                      | Income before extraordinary item                                  |                                       | $      | 0.07 |  |      | $      | 0.45 |  |   | $       | 0.90  |  
|                                                                      | Extraordinary item  net gain
	(loss) from extinguishment of debt |                                       |        |     |  |      |        | 0.01 |  |   |         | (0.69 | )
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|                                                                      | Net income                                                        |                                       | $      | 0.07 |  |      | $      | 0.46 |  |   | $       | 0.21  |  
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|Earnings per share  diluted:                                         |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|                                                                      | Income before extraordinary item                                  |                                       | $      | 0.07 |  |      | $      | 0.43 |  |   | $       | 0.86  |  
|                                                                      | Extraordinary item  net gain
	(loss) from extinguishment of debt |                                       |        |     |  |      |        | .01  |  |   |         | (0.66 | )
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      
|                                                                      | Net income                                                        |                                       | $      | 0.07 |  |      | $      | 0.44 |  |   | $       | 0.20  |  
|                                                                      |                                                                   |                                       |        |      |  |      |        |      |  |   |         |      

F-25



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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|ITEM 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

None.

25



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##### Table of Contents






PART III






|         |                                  
|-------- | ---------------------------------
|ITEM 10. | Directors and Executive
	Officers

The information with respect to directors and
executive officers required by this Item 10 is incorporated
in this report by reference to the information set forth under
the captions Election of Directors and
Executive Officers in our definitive Proxy Statement
for our 2002 Annual Meeting of Stockholders, which will be filed
with the Commission no later than April 30, 2002.






|         |                       
|-------- | ----------------------
|ITEM 11. | Executive Compensation

The information required by this Item 11 is
incorporated in this report by reference to the information set
forth under the captions Executive Compensation and
Employment Agreements in our definitive Proxy
Statement for our 2002 Annual Meeting of Stockholders which will
be filed with the Commission no later than April 30, 2002.
The sections entitled Compensation Committee Report on
Executive Compensation and Performance Graph
in the Proxy Statement are not incorporated herein by reference.
Information relating to certain filings on Forms 3, 4
and 5 is contained in the Proxy Statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance.






|         |                       
|-------- | ----------------------
|ITEM 12. | Principal Stockholders

The information required by this Item 12 is
incorporated in this report by reference to the information set
forth under the caption Security Ownership of Certain
Beneficial Owners and Management in our definitive Proxy
Statement for our 2002 Annual Meeting of Stockholders which will
be filed with the Commission no later than April 30, 2002.






|         |                     
|-------- | --------------------
|ITEM 13. | Certain Transactions

The information required by this Item 13 is
incorporated in this report by reference to the information set
forth under the caption Certain Relationships and Related
Transactions in our definitive Proxy Statement for our
2002 Annual Meeting of Stockholders which will be filed with the
Commission no later than April 30, 2002.

26



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##### Table of Contents






PART IV




ITEM
14.Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

(a) The following documents are included as
part of this Annual Report on Form 10-K:

1. The index of the financial statements has
been included with Item 8.

2. Financial statement schedules:

United Defense Industries, Inc.

Valuation and Qualifying Accounts


For Years Ended December 31, 1999, 2000
and 2001

Schedule II

|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |        |        | 
|----------------------------- | -------------------------------------------- | ---------- | - | ---------- | ------ | ---------- | - | ----------- | ----- | ---------- | - | -- | -- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                              |                                              |            |   |            |        |            |   |            
|                              |                                              |            |   | Additions  |        |            |   |            
|                              |                                              |            |   |            |        |            |   |            
|                              |                                              | Balance at |   | Charged to |        | Charged to |   |             |       | Balance at
|                              |                                              | Beginning  |   | costs &    |        | other      |   | Deductions/ |       | End of    
|Description                   |                                              | of Period  |   | expenses   |        | accounts   |   | Payments    |       | Period    
|                              |                                              |            |   |            |        |            |   |             |       |           
|Year Ended December 31, 1999: |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              | Reserve for remediation and compliance costs |            | $ | 12,930     |        |            | $ | 170         |       |            | $ |   |    |  | $ |      |       |  | $ | 13,100 |       
|                              | Restructuring reserve                        |            |   | 8,700      |        |            |   |            |       |            |   |   |    |  |   | 7,100 |       |  |   | 1,600  |       
|                              | Litigation reserve                           |            |   |           |        |            |   | 5,100       |       |            |   |   |    |  |   |      |       |  |   | 5,100  |       
|                              | Allowance for Doubtful Accounts              |            |   | 1,327      |        |            |   | 677         |       |            |   |    |    |  |   | 1,177 |       |  |   | 827    |       
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              |                                              | Total      |   | $          | 22,957 |            |   | $           | 5,947 |            |   | $  |   |  |   | $     | 8,277 |  |   | $      | 20,627 | 
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|Year Ended December 31, 2000: |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              | Reserve for remediation and compliance costs |            | $ | 13,100     |        |            | $ | 1,155       |       |            | $ |   |    |  | $ |      |       |  | $ | 14,255 |       
|                              | Restructuring reserve                        |            |   | 1,600      |        |            |   |            |       |            |   |   |    |  |   | 500   |       |  |   | 1,100  |       
|                              | Litigation reserve                           |            |   | 5,100      |        |            |   | 3,000       |       |            |   |   |    |  |   | 1,854 |       |  |   | 6,246  |       
|                              | Allowance for Doubtful Accounts              |            |   | 827        |        |            |   | 274         |       |            |   |   |    |  |   | 38    |       |  |   | 1,063  |       
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              |                                              | Total      |   | $          | 20,627 |            |   | $           | 4,429 |            |   | $  |   |  |   | $     | 2,392 |  |   | $      | 22,664 | 
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|Year Ended December 31, 2001: |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              | Reserve for remediation and compliance costs |            | $ | 14,255     |        |            | $ |            |       |            | $ |   |    |  | $ |      |       |  | $ | 14,255 |       
|                              | Restructuring reserve                        |            |   | 1,100      |        |            |   |            |       |            |   |   |    |  |   | 1,100 |       |  |   |       |       
|                              | Litigation reserve                           |            |   | 6,246      |        |            |   |            |       |            |   |   |    |  |   | 1,724 |       |  |   | 4,522  |       
|                              | Allowance for Doubtful Accounts              |            |   | 1,063      |        |            |   | 1,039       |       |            |   | 51 |    |  |   | 114   |       |  |   | 2,039  |       
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       
|                              |                                              | Total      |   | $          | 22,664 |            |   | $           | 1,039 |            |   | $  | 51 |  |   | $     | 2,938 |  |   | $      | 20,816 | 
|                              |                                              |            |   |            |        |            |   |             |       |            |   |    |    |  |   |       |       |  |   |       

All other schedules have been omitted because
they are inapplicable, not required, or the information is
included elsewhere in the consolidated financial statements or
notes thereto.

(b) Reports on Form 8-K filed in the
fourth quarter of 2001.

None.

27



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##### Table of Contents



(c) Index of Exhibits. See below.

|        |          |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | -------- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |                       
|No.     |          | Description of Exhibit
|        |          |                       
|        | 3.1(1)   |                        |  | Second Amended and Restated Certificate of
	Incorporation of United Defense Industries, Inc.                                                                                                                                                                                                                                                                                                                                                                     
|        | 3.2(1)   |                        |  | Second Amended and Restated Bylaws of United
	Defense Industries, Inc.                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1(1)   |                        |  | Form of stock certificate of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.2(2)   |                        |  | Form of Stockholders Agreement, by and among Iron
	Horse Investors, L.L.C., United Defense Industries, Inc. and
	each other holder of Common Stock.                                                                                                                                                                                                                                                                                                              
|        | 4.3(2)   |                        |  | Stockholders Agreement, dated as of July 22,
	1998, by and between Iron Horse Investors, L.L.C., United
	Defense Industries, Inc., the UDLP Non-Qualified Trust and
	United Defense, L.P.                                                                                                                                                                                                                                                                        
|        | 4.4(1)   |                        |  | Credit Agreement dated as of August 13, 2001
	among Iron Horse Investors, L.L.C., United Defense Industries,
	Inc., various lending institutions party thereto, Deutsche Banc
	Alex. Brown Inc. and Lehman Brothers Inc., as co-lead arrangers,
	Citicorp USA, Inc., The Bank of Nova Scotia and Credit Lyonnais
	New York Branch as Documentation Agents, Bankers Trust Company
	as Administrative Agent and Lehman Commercial Paper Inc. as
	Syndication Agent.
|        | 4.5(2)   |                        |  | United Defense 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.6(2)   |                        |  | Form of Option Contract.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.7(2)   |                        |  | United Defense Industries, Inc. Equity Purchase
	Plan.                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.8(1)   |                        |  | Registration Rights Agreement by and between Iron
	Horse Investors, L.L.C. and United Defense Industries, Inc.                                                                                                                                                                                                                                                                                                                                                   
|        | 4.9(1)   |                        |  | Management Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.10(1)  |                        |  | UDLP Employees Pension Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.11(1)  |                        |  | UDLP Excess Pension Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 4.12(1)  |                        |  | United Defense, L.P. Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4.13(1)  |                        |  | Form of Retention Bonus Plan Award Letter.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4.14(1)  |                        |  | Severance Pay Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.15(1)  |                        |  | Amendment and Waiver to Credit Agreement dated as
	of October 15, 2001.                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4.16(1)  |                        |  | Amendment to Credit Agreement dated as of
	October 26, 2001.                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.1(1)  |                        |  | Sub-Lease Agreement among the Louisville/
	Jefferson County Development Authority, Inc. and United Defense,
	L.P., as amended by that certain First Amendment to Sublease of
	Real and Personal Property Agreement among the Louisville/
	Jefferson County Development Authority, Inc. and United Defense,
	L.P., as supplemented by Modifications Nos. 1-12.                                                                                                    
|        | 10.2(1)  |                        |  | Facilities contract number N00024-93-E-8521,
	dated November 16, 1992 among United Defense, L.P.,
	Armament Systems Divisions and the U.S. Government Naval Sea
	Systems Command for the use of the government owned facility
	located at 4800 East River Road, Minneapolis, MN 55459,
	including Amendment dated September 30, 2001.                                                                                                                            
|        | 10.3(7)  |                        |  | Agreement to purchase, dated October 29,
	2001 among United Defense, L.P., Armament Systems Divisions and
	the United States of America acting by and through the
	Administrator of General Services, certain real estate known as
	the Naval Industrial Reserve Ordnance Plant, Fridley, Minnesota
	located at 4800 East River Road, Fridley, MN 55421.                                                                                                         
|        | 10.4(2)  |                        |  | Management Agreement dated October 6, 1997
	among United Defense Industries, Inc., United Defense, L.P. and
	TC Group Management, L.L.C.                                                                                                                                                                                                                                                                                                                         
|        | 10.5(3)  |                        |  | Professional Service Agreement with J.H. Binford
	Peay, III.                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.6(3)  |                        |  | Professional Service Agreement with John M.
	Shalikashvili.                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.7(4)  |                        |  | Professional Service Agreement with Robert M.
	Kimmitt.                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.8(5)  |                        |  | Executive Compensation Agreement with Thomas W.
	Rabaut, dated as of May 21, 1999.                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.9(1)  |                        |  | First Amendment to Employment Agreement with
	Thomas W. Rabaut, dated as of July 18, 2001.                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.10(5) |                        |  | Executive Compensation Agreement with David V.
	Kolovat, dated as May 21, 1999.                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.11(7) |                        |  | First Amendment to Employment Agreement with
	David V. Kolovat, dated as of July 18, 2001.                                                                                                                                                                                                                                                                                                                                                                       

28



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##### Table of Contents



|        |          |                        |  |                                                                                                       
|------- | -------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit |          |                       
|No.     |          | Description of Exhibit
|        |          |                       
|        | 10.12(5) |                        |  | Executive Compensation Agreement with Peter C.
	Woglom, dated as of May 21, 1999.                     
|        | 10.13(1) |                        |  | First Amendment to Employment Agreement with
	Peter C. Woglom, dated as of July 18, 2001.             
|        | 10.14(5) |                        |  | Executive Compensation Agreement with Francis
	Raborn, dated as of May 21, 1999.                      
|        | 10.15(1) |                        |  | First Amendment to Employment Agreement with
	Francis Raborn, dated July 18, 2001.                    
|        | 10.16(5) |                        |  | Executive Compensation Agreement with Dennis A.
	Wagner, III, dated as of May 21, 1999.               
|        | 10.17(7) |                        |  | First Amendment to Employment Agreement with
	Dennis A. Wagner, III, dated July 18, 2001.             
|        | 21.1(6)  |                        |  | Subsidiaries of United Defense Industries, Inc.                                                       
|        | 23.1(7)  |                        |  | Consent of Ernst & Young LLP.                                                                         
|        | 23.2(7)  |                        |  | Consent: Report of Independent Auditor (Andersen).                                                    
|        | 23.3(7)  |                        |  | Consent: Report of Independent Auditor (Authur
	Andersen & Co.).                                      
|        | 99.1(7)  |                        |  | Confirmation letter regarding Andersens
	quality control system for accounting and auditing practice.



---



|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Companys
	Registration Statement on Form S-1 (333-71986) filed with
	the Securities and Exchange Commission on October 22, 2001.
|   
|(2) | Incorporated by reference to the Companys
	Registration Statement on Form S-8 (333-60207) filed with
	the Securities and Exchange Commission on July 30, 1998.   
|   
|(3) | Incorporated by reference to the Companys
	Report on Form 10-Q for the quarter ended June 30,
	1998.                                                             
|   
|(4) | Incorporated by reference to the Companys
	Report on Form 10-K for the year ended December 31,
	1998.                                                            
|   
|(5) | Incorporated by reference to the Companys
	Report on Form 10-Q for the quarter ended June 30,
	1999.                                                             
|   
|(6) | Incorporated by reference to the Companys
	Report on Form 10-K for the year ended December 31,
	2000.                                                            
|   
|(7) | Filed herewith.                                                                                                                                                   

29



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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                                  
| | Chief Financial Officer and Principal
	Financial
| | and Accounting Officer of the
	Registrant       

Pursuant to the requirements of the Securities
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates indicated.

|                                                  |  |                                                  |  |                |  | 
|------------------------------------------------- |  | ------------------------------------------------ |  | -------------- |  | 
|                                                  |  |                                                  |  |               
|Name                                              |  | Title                                            |  | Date          
|                                                  |  |                                                  |  |               
|                                                 
|/s/ THOMAS W. RABAUTThomas W. Rabaut              |  | President, Chief Executive Officer
	and Director |  | March 15, 2002
|                                                 
|/s/ FRANCIS RABORNFrancis Raborn                  |  | Chief Financial Officer and Director             |  | March 15, 2002
|                                                 
|/s/ WILLIAM E. CONWAY, JR.William E. Conway, Jr.  |  | Chairman of the Board                            |  | March 15, 2002
|                                                 
|/s/ FRANK C. CARLUCCIFrank C. Carlucci            |  | Director                                         |  | March 15, 2002
|                                                 
|/s/ PETER J. CLAREPeter J. Clare                  |  | Director                                         |  | March 15, 2002
|                                                 
|/s/ ALLAN M. HOLTAllan M. Holt                    |  | Director                                         |  | March 15, 2002
|                                                 
|/s/ ROBERT M. KIMMITTRobert M. Kimmitt            |  | Director                                         |  | March 15, 2002
|                                                 
|/s/ JOHN M. SHALIKASHVILIJohn M. Shalikashvili    |  | Director                                         |  | March 15, 2002
|                                                 
|/s/ J. H. BINFORD PEAY, IIIJ.H. Binford Peay, III |  | Director                                         |  | March 15, 2002

30