##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K


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


THE SECURITIES EXCHANGE ACT OF 1934




|                                  |                              
|--------------------------------- | -----------------------------
|For Year Ended: December 31, 2004 | Commission File No. 001-16821




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.)




1525 Wilson Boulevard, Suite 700,


Arlington, Virginia, 22209-2411


(703) 312-6100


(Address and telephone number of principal executive offices
of


Registrant)





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


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|         |  |                                                                                                                  |  |      |    | 
|-------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                                  |  | Page |   
|         |  |                                                                                                                  |  |      |   
|PART I  
|Item 1.  |  | Business                                                                                                         |  |      | 2  | 
|Item 2.  |  | Properties                                                                                                       |  |      | 26 | 
|Item 3.  |  | Legal Proceedings                                                                                                |  |      | 26 | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  |      | 27 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities |  |      | 27 | 
|Item 6.  |  | Selected Financial Data                                                                                          |  |      | 28 | 
|Item 7.  |  | Managements Discussion and Analysis of Results of
    Operations and Financial Condition                        |  |      | 29 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                       |  |      | 40 | 
|Item 8.  |  | Consolidated Financial Statements and Supplementary Data                                                         |  |      | 41 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                         |  |      | 42 | 
|Item 9A. |  | Controls and Procedures                                                                                          |  |      | 42 | 
|Item 9B. |  | Other Information                                                                                                |  |      | 45 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                                               |  |      | 45 | 
|Item 11. |  | Executive Compensation                                                                                           |  |      | 45 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters               |  |      | 45 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                                   |  |      | 45 | 
|Item 14. |  | Principal Accountant Fees and Services                                                                           |  |      | 45 | 
|PART IV 
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                       |  |      | 46 | 



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Special Note Regarding Forward-Looking Statements




1



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PART I




|        |                        
|------- | -----------------------
|ITEM 1. | Description of Business

Overview








2



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Business Segments, Products and Programs




|                                        |  |                     |         |  |      |   |         | 
|--------------------------------------- |  | ------------------- | ------- |  | ---- | - | ------- | 
|                                        |  | Twelve Months Ended |        
|                                        |  | December 31,        |        
|                                        |  |                     |        
|                                        |  | 2003                |         |  | 2004 |  
|                                        |  |                     |         |  |      |  
|                                        |  | (In millions)       |        
|Defense Systems:                        |  |                     |         |  |      |   |         | 
|Bradley Family of Vehicles              |  | $                   | 292.6   |  |      | $ | 368.9   | 
|Naval Ordnance                          |  |                     | 269.3   |  |      |   | 353.8   | 
|Vertical Launch Systems                 |  |                     | 115.4   |  |      |   | 119.7   | 
|Future Combat Systems                   |  |                     | 239.5   |  |      |   | 220.4   | 
|Artillery Systems                       |  |                     | 108.4   |  |      |   | 144.5   | 
|Combat, Engineering & Recovery Vehicles |  |                     | 99.6    |  |      |   | 91.7    | 
|Assault, Amphibious Vehicles            |  |                     | 132.0   |  |      |   | 68.2    | 
|Other                                   |  |                     | 250.5   |  |      |   | 352.2   | 
|                                        |  |                     |         |  |      |  
|Total Defense Systems                   |  | $                   | 1,507.3 |  |      | $ | 1,719.4 | 
|Ship Repair and Maintenance             |  |                     | 545.3   |  |      |   | 573.0   | 
|                                        |  |                     |         |  |      |  
|Total                                   |  | $                   | 2,052.6 |  |      | $ | 2,292.4 | 
|                                        |  |                     |         |  |      |  



| |                        
| | -----------------------
| | Defense Systems Segment

The Bradley Fighting Vehicle (BFV).








3



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BFV Derivatives and Support.




Mk45 Naval Gun System (Mk45).


Advanced Gun System (AGS).




4



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Medium Caliber Gun Systems.












5



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Minor Caliber Gun System.






Submarine Propulsor.


Launching Systems.








6



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Future Combat Systems (FCS).












7



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M109 Self-Propelled Howitzer (M109).


Objective Force Indirect Fire, Non-Line-of-Sight Cannon
(NLOS-C).


M88 Armored Recovery Vehicle (M88).




8



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Assault Amphibious Vehicle (AAV).


M113 Armored Personnel Carrier (M113).








| |                
| | ---------------
| | Bofors Defence.









9



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Munitions.




Military Vehicle Tracks.




| |                                    
| | -----------------------------------
| | Ship Repair and Maintenance Segment

Ship Repair and Maintenance.




10



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11



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Joint Venture




FNSS-Turkey.


Research, Development, and Engineering Capabilities










12



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13



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tm tm tm tm tm




Competition






14



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Major Customers




Backlog




Intellectual Property




Employees




15



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Sources and Availability of Raw Materials




Environmental Matters














16



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Available Information  Corporate Governance
Materials


www.uniteddefense.com


Risk Factors




| |                                       
| | --------------------------------------
| | Our government contracts entail risks.





| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on key contracts with U.S. Government
    entities for a significant portion of our sales. A substantial
    reduction in these contracts would materially adversely affect
    our operating results.





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in defense procurement models may make it more
    difficult for us to successfully bid on projects as a prime
    contractor and limit sole-source opportunities available to
    us.



17



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| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The ultimate results of the U.S. Armys
    transformation effort are uncertain, and the scale of the effort
    has reduced and may further reduce funding for other
    U.S. Army programs in which we participate.





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Government contracts contain termination provisions
    unfavorable to us and are subject to audit and modification by
    the government at its sole discretion.





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | suspend or permanently prevent us from receiving new contracts
    or extending existing contracts based on violations or suspected
    violations of procurement laws or regulations;
|
| |  | terminate our existing contracts;                                                                                                                                                     
|
| |  | reduce the value of our existing contracts;                                                                                                                                           
|
| |  | audit and object to our contract-related costs and fees,
    including allocated indirect costs;                                                                                      
|
| |  | control, and under certain circumstances prohibit the export of
    our products; and                                                                                                 
|
| |  | change certain terms and conditions in our contracts.                                                                                                                                 





18



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| |                                                             
| | ------------------------------------------------------------
| | Government contracts are subject to competitive
    bidding.





| |   |                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the frequent need to bid on programs in advance of the
    completion of their design, which may result in unforeseen
    technological difficulties and/or cost overruns;                                                                            
|
| |  | the substantial time and effort, including design, development
    and marketing activities, required to prepare bids and proposals
    for contracts that may not be awarded to us, such as the
    contract for the U.S. Armys Stryker program; and
|
| |  | the design complexity and rapid rate of technological
    advancement of defense related products.                                                                                                                                                    





| |                                                                                
| | -------------------------------------------------------------------------------
| | Our fixed-price and cost-plus contracts may commit us to
    unfavorable terms.









19



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| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Intense competition could limit our ability to win and
    retain government contracts.





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | the effectiveness of our research and development programs;                                                     
|
| |  | our ability to offer better program performance than our
    competitors at a lower cost to the U.S. Government;
|
| |  | the location of our ship repair facilities in relation to
    U.S. Navy homeports; and                          
|
| |  | the readiness of our facilities, equipment and personnel to
    undertake the programs for which we compete.    







| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We cannot guarantee the success of our strategy to pursue
    multi-ship, multi-option contracts awarded by the U.S. Navy
    for work on Atlantic Fleet surface ships.



20



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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | The maintenance and establishment of teaming agreements is
    important to our business.







| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating performance is heavily dependent upon the
    timing of manufacturing and delivery of products under our
    U.S. Government contracts.







| |                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The operating performance of our Ship Repair and
    Maintenance business segment is heavily dependent on the
    deployment and maintenance schedules of the U.S. Navy, as
    well as the U.S. Government budgetary cycle.





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | A reduction in the U.S. defense budget could result
    in a decrease in our revenue.



21



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| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are not successful in integrating the new and
    complex technologies to be used in our products, our business
    could be materially and adversely affected.







| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | frequent need to bid on programs before their design is
    completed, which may result in unforeseen engineering
    difficulties and/or cost overruns;
|
| |  | delays in delivery of necessary components or their
    scarcity; and                                                                                   
|
| |  | limitations on the availability of human resources, such as
    software engineers and information technology professionals.                            



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our international operations and foreign joint venture
    subject us to risks that could materially adversely affect our
    results of operations and financial condition.





| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | devaluations and fluctuations in currency exchange rates;                                                                                                                                                                                            
|
| |  | the ability to obtain distributions of cash which require the
    approval of joint venture partners;                                                                                                                                                
|
| |  | changes in, or changes in interpretations of, foreign
    regulations that may adversely affect our ability to sell
    certain products or repatriate profits to the United States;                                                                 
|
| |  | imposition of limitations on conversions of foreign currencies
    into U.S. dollars;                                                                                                                                                                
|
| |  | imposition or increase of withholding and other taxes on
    remittances and other payments by foreign subsidiaries;                                                                                                                                 
|
| |  | hyperinflation or political instability in the countries in
    which we operate or sell;                                                                                                                                                            
|
| |  | imposition or increase of investment and other restrictions by
    foreign governments;                                                                                                                                                              
|
| |  | the potential imposition of trade or foreign exchange
    restrictions or increased tariffs;                                                                                                                                                         
|
| |  | U.S. arms export control regulations and policies that
    restrict our ability to supply foreign affiliates and
    customers; and                                                                                                                  
|
| |  | local political pressure to shift from majority to minority
    ownership positions in joint ventures, which could further
    reduce our ability to influence the conduct, strategy and
    profitability of these ventures.                        
|
| |  | changes in overall diplomatic and security relationships between
    the United States and various foreign countries, such as the
    strains that emerged with respect to Turkey in the context of
    U.S. military operations in Iraq during 2003.



22



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| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not have the ability to make acquisitions, develop
    strategic alliances, expand or implement new joint ventures, or
    successfully implement and maintain co-production
    programs.







| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Significant risks are inherent in the day-to-day
    operations of our ship repair and maintenance business.





| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We may experience labor disruptions associated with the
    expiration of our collective bargaining agreements.





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to receive or retain the necessary
    licenses or authorizations required for us to sell our products
    overseas.



23



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| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Our significant level of debt may adversely affect our
    financial and operating activity.







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require us to use a substantial portion of our cash flow from
    operations to pay interest and principal on our debt, thereby
    reducing the availability of that cash flow for other purposes
    such as capital expenditures, research and development, and
    other investments;                                                                                                                                                                                                      
|
| |  | limit our ability to obtain additional financing for
    acquisitions, investments, working capital and other
    expenditures, which may limit our ability to carry out our
    business strategy;                                                                                                                                                                                                                                                                                            
|
| |  | result in higher interest expense if interest rates increase on
    our floating rate borrowings;                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | heighten our vulnerability to downturns in our business or in
    the general economy and restrict us from making acquisitions,
    introducing new technologies and products, or exploiting
    business opportunities; or                                                                                                                                                                                                                                                                    
|
| |  | subject us to covenants that limit our ability to borrow
    additional funds, dispose of assets or pay cash dividends, or
    that require us to maintain or meet specified financial ratios
    or tests, with any failure by us to comply with those covenants
    potentially resulting in an event of default on that debt and a
    foreclosure on the assets securing that debt, which would have a
    material adverse effect on our financial position and results of
    operations.



| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on key management and technical personnel and
    may not be able to retain those employees or recruit additional
    qualified personnel.





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Environmental laws and regulations may subject us to
    significant liabilities.



24



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| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We may need to raise additional capital on terms
    unfavorable to our stockholders.





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Acting in a subcontractor role on FCS may reduce our
    control over and financial results from the program.



25



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| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Decline in the value of the securities held by our
    employee retirement plans would adversely affect our retiree
    benefit expense and funding levels.





|        |           
|------- | ----------
|ITEM 2. | Properties







|        |                  
|------- | -----------------
|ITEM 3. | Legal Proceedings





26



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



PART II




|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|ITEM 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities





|                    |                                         |      |   |       |     |  |   |       | 
|------------------- | --------------------------------------- | ---- | - | ----- | --- |  | - | ----- | 
|                    |                                         | High |   |       | Low | 
|                    |                                         |      |   |       |     | 
|Calendar Year 2003: |                                         |      |   |       |     |  |   |      
|                    | First Quarter                           |      | $ | 24.75 |     |  | $ | 20.06 | 
|                    | Second Quarter                          |      |   | 27.12 |     |  |   | 21.00 | 
|                    | Third Quarter                           |      |   | 29.69 |     |  |   | 25.19 | 
|                    | Fourth Quarter                          |      |   | 34.15 |     |  |   | 28.33 | 
|Calendar Year 2004: |                                         |      |   |       |     |  |   |      
|                    | First Quarter                           |      | $ | 34.31 |     |  | $ | 28.72 | 
|                    | Second Quarter                          |      |   | 35.75 |     |  |   | 31.55 | 
|                    | Third Quarter                           |      |   | 40.24 |     |  |   | 33.45 | 
|                    | Fourth Quarter                          |      |   | 48.98 |     |  |   | 38.34 | 
|Calendar Year 2005: |                                         |      |   |       |     |  |   |      
|                    | First Quarter (as of February 28, 2005) |      | $ | 55.07 |     |  | $ | 43.59 | 







| |                                         
| | ----------------------------------------
| | Repurchase of Common Stock by the Issuer



27



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|                                  |  |              |         |  |               |                   |       |                    |                    |  |                       |  |  |   |         | 
|--------------------------------- |  | ------------ | ------- |  | ------------- | ----------------- | ----- | ------------------ | ------------------ |  | --------------------- |  |  | - | ------- | 
|                                  |  |              |         |  |               | Total Number of   |       |                    |                   
|                                  |  |              |         |  |               | Shares (or Units) |       |                    | Approximate Dollar | 
|                                  |  | Total Number |         |  | Average Price |                   |       | Purchased as Part  |                    |  | Value of Shares (or   | 
|                                  |  | of Shares    |         |  | Paid per      |                   |       | of Publicly        |                    |  | Units) that may yet   | 
|                                  |  | (or Units)   |         |  | Share         |                   |       | Announced Plans or |                    |  | be Purchased Under    | 
|Period                            |  | Purchased    |         |  | (or Unit)     |                   |       | Programs           |                    |  | the Plans or Programs | 
|                                  |  |              |         |  |               |                   |       |                    |                    |  |                       | 
|                                  |  |              |         |  |               |                   |       | (In thousands)     |                   
|April 1 to April 30, 2004         |  |              | 0       |  |               | $                 |      |                    |                    |  | 0                     |  |  | $ | 100,000 | 
|May 1 to May 30, 2004             |  |              | 269,500 |  |               | $                 | 34.30 |                    |                    |  | 269,500               |  |  |   | 90,756  | 
|June 1 to June 30, 2004           |  |              | 599,300 |  |               | $                 | 33.26 |                    |                    |  | 599,300               |  |  |   | 70,823  | 
|July 1 to July 30, 2004           |  |              | 65,200  |  |               | $                 | 33.98 |                    |                    |  | 65,200                |  |  |   | 68,608  | 
|August 1 to August 30, 2004       |  |              | 160,100 |  |               | $                 | 36.90 |                    |                    |  | 160,100               |  |  |   | 62,700  | 
|September 1 to September 30, 2004 |  |              | 535,400 |  |               | $                 | 39.21 |                    |                    |  | 535,400               |  |  |   | 41,707  | 
|October 1 to October 31, 2004     |  |              | 648,700 |  |               | $                 | 39.61 |                    |                    |  | 648,700               |  |  |   | 16,010  | 
|November 1 to November 30, 2004   |  |              | 213,600 |  |               | $                 | 40.98 |                    |                    |  | 213,600               |  |  |   | 7,257   | 
|December 1 to December 31, 2004   |  |              | 0       |  |               | $                 |      |                    |                    |  | 0                     |  |  |   | 7,257   | 





|        |                        
|------- | -----------------------
|ITEM 6. | Selected Financial Data





|                                          |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |           |        |  |   |           |        | 
|----------------------------------------- | ---------------------------------------------------- | ------------------------------------- | --------- | ------ | ---- | - | --------- | ------ |  | - | --------- | ------ |  | ---- | --------- | ------ |  | - | --------- | ------ | 
|                                          |                                                      | Year Ended December 31,               |          
|                                          |                                                      |                                       |          
|                                          |                                                      | 2000                                  |           |        | 2001 |   |           | 2002   |  |   | 2003      |        |  | 2004 |          
|                                          |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |          
|                                          |                                                      | (In thousands, except per share data) |          
|Net sales                                 |                                                      | $                                     | 1,183,886 |        |      | $ | 1,318,538 |        |  | $ | 1,725,346 |        |  | $    | 2,052,591 |        |  | $ | 2,292,355 |       
|Net income                                |                                                      |                                       | 18,845    |        |      |   | 8,776     |        |  |   | 134,576   |        |  |      | 140,648   |        |  |   | 166,113   |       
|Total assets                              |                                                      |                                       | 895,820   |        |      |   | 925,118   |        |  |   | 1,453,970 |        |  |      | 1,597,508 |        |  |   | 1,601,574 |       
|Long term debt, including current portion |                                                      |                                       | 269,577   |        |      |   | 430,900   |        |  |   | 590,000   |        |  |      | 576,989   |        |  |   | 524,947   |       
|Cash dividends declared per common share  |                                                      |                                       |          |        |      | $ | 9.33      |        |  |   |          |        |  |      |          |        |  |   |          |       
|Per Share Data:                           |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |           |        |  |   |           |       
|Earnings per common share  basic         |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |           |        |  |   |           |       
|                                          | Net income                                           |                                       | $         | 0.46   |      |   | $         | 0.21   |  |   | $         | 2.62   |  |      | $         | 2.71   |  |   | $         | 3.20   | 
|                                          |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |          
|                                          | Weighted average common shares outstanding           |                                       |           | 40,584 |      |   |           | 41,265 |  |   |           | 51,349 |  |      |           | 51,955 |  |   |           | 51,866 | 
|Earnings per common share  diluted       |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |           |        |  |   |           |       
|                                          | Net income                                           |                                       | $         | 0.44   |      |   | $         | 0.20   |  |   | $         | 2.55   |  |      | $         | 2.66   |  |   | $         | 3.15   | 
|                                          |                                                      |                                       |           |        |      |   |           |        |  |   |           |        |  |      |          
|                                          | Weighted average common shares outstanding  diluted |                                       |           | 42,419 |      |   |           | 43,204 |  |   |           | 52,797 |  |      |           | 52,943 |  |   |           | 52,790 | 

28



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



Overview












Critical Accounting Policies




Revenue and Cost Recognition.


29



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Investments in Affiliated Companies.


Accrued Environmental Liabilities.


30



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Pension and Other Retirement Costs.






31



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Results of Operations




|                                                      |                             |                                                    |         |           |           |   |         |           |           |   |         |           |           |  
|----------------------------------------------------- | --------------------------- | -------------------------------------------------- | ------- | --------- | --------- | - | ------- | --------- | --------- | - | ------- | --------- | --------- | -
|                                                      |                             | Year Ended December 31,                            |        
|                                                      |                             |                                                    |        
|                                                      |                             | 2002                                               |         |           | 2003      |   |         | 2004      |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | (In thousands)                                     |        
|Revenue:                                              |                             |                                                    |         |           |           |   |         |           |           |   |         |          
|                                                      | Defense Systems             |                                                    | $       | 1,469,961 |           |   | $       | 1,507,253 |           |   | $       | 1,719,357 |          
|                                                      | Ship Repair and Maintenance |                                                    |         | 255,385   |           |   |         | 545,338   |           |   |         | 572,998   |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Total Revenue                                      |         |           | 1,725,346 |   |         |           | 2,052,591 |   |         |           | 2,292,355 |  
|Cost of sales:                                        |                             |                                                    |         |           |           |   |         |           |           |   |         |          
|                                                      | Defense Systems             |                                                    |         | 1,172,450 |           |   |         | 1,163,223 |           |   |         | 1,311,751 |          
|                                                      | Ship Repair and Maintenance |                                                    |         | 216,166   |           |   |         | 476,483   |           |   |         | 495,555   |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Total cost of sales                                |         |           | 1,388,616 |   |         |           | 1,639,706 |   |         |           | 1,807,306 |  
|Gross Profit:                                         |                             |                                                    |         |           |           |   |         |           |           |   |         |          
|                                                      | Defense Systems             |                                                    |         | 297,511   |           |   |         | 344,030   |           |   |         | 407,606   |          
|                                                      | Ship Repair and Maintenance |                                                    |         | 39,219    |           |   |         | 68,855    |           |   |         | 77,443    |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Total gross profit                                 |         |           | 336,730   |   |         |           | 412,885   |   |         |           | 485,049   |  
|Gross profit % of sales:                              |                             |                                                    |         |           |           |   |         |           |           |   |         |          
|                                                      | Defense Systems             |                                                    |         | 20.2      | %         |   |         | 22.8      | %         |   |         | 23.7      | %        
|                                                      | Ship Repair and Maintenance |                                                    |         | 15.4      | %         |   |         | 12.6      | %         |   |         | 13.5      | %        
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Total gross profit % of sales                      |         |           | 19.5      | % |         |           | 20.1      | % |         |           | 21.2      | %
|Selling, general and administrative expenses:         |                             |                                                    |         |           |           |   |         |           |           |   |         |          
|                                                      | Defense Systems             |                                                    | $       | 122,088   |           |   | $       | 125,448   |           |   | $       | 125,937   |          
|                                                      | Ship Repair and Maintenance |                                                    |         | 20,718    |           |   |         | 38,017    |           |   |         | 40,048    |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Total selling, general and administrative expenses |         |           | 142,806   |   |         |           | 163,465   |   |         |           | 165,985   |  
|Research and development                              |                             |                                                    | 27,673  |           |           |   | 29,810  |           |           |   | 32,568  |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|Income from operations                                |                             |                                                    | 166,251 |           |           |   | 219,610 |           |           |   | 286,496 |          
|Earnings related to investments in foreign affiliates |                             |                                                    | 13,874  |           |           |   | 19,758  |           |           |   | 6,376   |          
|                                                      | Interest income             |                                                    |         | 4,218     |           |   |         | 3,911     |           |   |         | 4,781     |          
|                                                      | Interest expense            |                                                    |         | (34,608   | )         |   |         | (28,030   | )         |   |         | (26,537   | )        
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Net interest expense                               |         |           | (30,390   | ) |         |           | (24,119   | ) |         |           | (21,756   | )
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      | Income before income taxes  |                                                    |         | 149,735   |           |   |         | 215,249   |           |   |         | 271,116   |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|Provision for income taxes                            |                             |                                                    | 15,159  |           |           |   | 74,601  |           |           |   | 105,003 |          
|                                                      |                             |                                                    |         |           |           |   |         |           |          
|                                                      |                             | Net income                                         |         | $         | 134,576   |   |         | $         | 140,648   |   |         | $         | 166,113   |  
|                                                      |                             |                                                    |         |           |           |   |         |           |          



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Revenue.


Gross Profit.


32



---



##### 





Selling, General and Administrative Expenses.


Research and Development.


Earnings from Foreign Affiliates.


Net Interest Expense.


Provision for Income Taxes.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002

Revenue. USS John F. Kennedy.


Gross Profit.


33



---



##### 



Selling, General and Administrative Expenses.


Research and Development.


Earnings from Foreign Affiliates.


Net Interest Expense.


Provision for Income Taxes.


Liquidity, Capital Resources and Financial Condition
















34



---



##### 











|               |       |                        |         |           |        |   |        |             |  |   |             |         |  |   |        |        | 
|-------------- | ----- | ---------------------- | ------- | --------- | ------ | - | ------ | ----------- |  | - | ----------- | ------- |  | - | ------ | ------ | 
|               |       | Payments Due by Period |        
|               |       |                        |        
|               |       |                        |         | Less than |        |   |       
|Long-Term Debt |       | Total                  |         |           | 1 year |   |        | 1 - 3 years |  |   | 4 - 5 years |        
|               |       |                        |         |           |        |   |        |             |  |   |             |        
|Term A         |       | $                      | 63,411  |           |        | $ | 25,365 |             |  | $ | 38,046      |         |  | $ |       |       
|Term B         |       |                        | 461,536 |           |        |   | 26,678 |             |  |   | 336,148     |         |  |   | 98,710 |       
|               |       |                        |         |           |        |   |        |             |  |   |             |        
|               | Total |                        | $       | 524,947   |        |   | $      | 52,043      |  |   | $           | 374,194 |  |   | $      | 98,710 | 
|               |       |                        |         |           |        |   |        |             |  |   |             |        



Other Factors






Emerging trends and uncertainties




35



---



##### 











Ground Combat Vehicles




36



---



##### 











37



---



##### 







Naval Weapon Systems








38



---



##### 







Ship Repair and Maintenance






Turkish Joint Venture




39



---



##### 



Contractual Obligations




|                             |       |                        |       |          |      |   |      |           |  |   |           |       |  |            |       |       |  |   |      |      | 
|---------------------------- | ----- | ---------------------- | ----- | -------- | ---- | - | ---- | --------- |  | - | --------- | ----- |  | ---------- | ----- | ----- |  | - | ---- | ---- | 
|                             |       | Payments due by period |      
|                             |       |                        |      
|                             |       |                        |       | 2010 and |     
|                             |       | Total                  |       |          | 2005 |   |      | 2006-2007 |  |   | 2008-2009 |       |  | thereafter |      
|                             |       |                        |       |          |      |   |      |           |  |   |           |       |  |            |      
|                             |       | (In millions)          |      
|Long term debt               |       | $                      | 524.9 |          |      | $ | 52.0 |           |  | $ | 176.8     |       |  | $          | 296.1 |       |  | $ |     |     
|Capital lease obligations    |       |                        |      |          |      |   |     |           |  |   |          |       |  |            |      |       |  |   |     |     
|Operating leases             |       |                        | 82.9  |          |      |   | 15.9 |           |  |   | 22.6      |       |  |            | 16.4  |       |  |   | 28.0 |     
|Service contract obligations |       |                        | 12.9  |          |      |   | 3.3  |           |  |   | 6.7       |       |  |            | 2.9   |       |  |   |     |     
|Purchase obligations(a)      |       |                        |      |          |      |   |     |           |  |   |          |       |  |            |      |       |  |   |     |     
|                             |       |                        |       |          |      |   |      |           |  |   |           |       |  |            |      
|                             | Total |                        | $     | 620.7    |      |   | $    | 71.2      |  |   | $         | 206.1 |  |            | $     | 315.4 |  |   | $    | 28.0 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Although we have significant other purchase obligations, most
    commonly in the form of purchase orders, the timing of the
    purchase is often variable rather than specific and the payments
    due are substantially reimbursed by the customer through
    overhead rates, progress payments, milestone payments, and cost
    reimbursable contract terms at substantially the same time as
    payment is made. Accordingly, these obligations are not included
    in the table above.

Commercial Commitments






|         |                                                              
|-------- | -------------------------------------------------------------
|ITEM 7A. | Quantitative and Qualitative Disclosure about Market
    Risk





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





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





40



---



##### 







|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 8. | Consolidated Financial Statements and Supplementary
    Data



UNITED DEFENSE INDUSTRIES, INC.


|                                                                                                                                  |  |  |     | 
|--------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Report of Independent Registered Public Accounting Firm
    (Ernst & Young LLP)                                                   |  |  | F-1 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2004                                                                      |  |  | F-2 | 
|Consolidated Statements of Operations for the years ended
    December 31, 2002, 2003 and 2004                                    |  |  | F-3 | 
|Consolidated Statements of Changes in Stockholders Equity
    (Deficit) for the years ended December 31, 2002, 2003 and
    2004 |  |  | F-4 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2002, 2003 and 2004                                    |  |  | F-5 | 
|Notes to Consolidated Financial Statements                                                                                        |  |  | F-6 | 

41



---



##### 



REPORT OF ERNST & YOUNG LLP,


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















F-1



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


CONSOLIDATED BALANCE SHEETS


|                                                |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |         |           | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------------ |  | ------- | ------- | --------- | 
|                                                |                                                                                                                                                                                                                      | December 31,                               |         |         | December 31, | 
|                                                |                                                                                                                                                                                                                      | 2003                                       |         |         | 2004         | 
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | (In thousands)                             |        
|ASSETS                                         
|Current assets:                                 |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |        
|                                                | Cash and cash equivalents                                                                                                                                                                                            |                                            | $       | 286,730 |              |  | $       | 307,258 |          
|                                                | Trade receivables, net                                                                                                                                                                                               |                                            |         | 168,625 |              |  |         | 202,980 |          
|                                                | Long-term contract inventories                                                                                                                                                                                       |                                            |         | 392,850 |              |  |         | 324,937 |          
|                                                | Other current assets                                                                                                                                                                                                 |                                            |         | 20,127  |              |  |         | 34,029  |          
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total current assets                       |         |         | 868,332      |  |         |         | 869,204   | 
|Property, plant and equipment, net              |                                                                                                                                                                                                                      |                                            | 181,283 |         |              |  | 199,507 |        
|Goodwill                                        |                                                                                                                                                                                                                      |                                            | 342,843 |         |              |  | 355,653 |        
|Intangible assets, net                          |                                                                                                                                                                                                                      |                                            | 14,222  |         |              |  | 9,956   |        
|Prepaid pension and postretirement benefit cost |                                                                                                                                                                                                                      |                                            | 128,997 |         |              |  | 120,459 |        
|Restricted cash                                 |                                                                                                                                                                                                                      |                                            | 12,244  |         |              |  | 13,201  |        
|Other assets                                    |                                                                                                                                                                                                                      |                                            | 49,587  |         |              |  | 33,594  |        
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total assets                               |         | $       | 1,597,508    |  |         | $       | 1,601,574 | 
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                               
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) 
|Current liabilities:                            |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |        
|                                                | Current portion of long-term debt                                                                                                                                                                                    |                                            | $       | 52,043  |              |  | $       | 52,043  |          
|                                                | Accounts payable, trade and other                                                                                                                                                                                    |                                            |         | 118,316 |              |  |         | 132,480 |          
|                                                | Advanced payments                                                                                                                                                                                                    |                                            |         | 462,304 |              |  |         | 372,889 |          
|                                                | Current tax liability                                                                                                                                                                                                |                                            |         |        |              |  |         | 25,159  |          
|                                                | Deferred tax liability                                                                                                                                                                                               |                                            |         | 16,280  |              |  |         | 20,000  |          
|                                                | Accrued and other liabilities                                                                                                                                                                                        |                                            |         | 146,493 |              |  |         | 170,164 |          
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total current liabilities                  |         |         | 795,436      |  |         |         | 772,735   | 
|Long-term liabilities:                          |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |        
|                                                | Long-term debt, net of current portion                                                                                                                                                                               |                                            |         | 524,946 |              |  |         | 472,904 |          
|                                                | Accrued pension and postretirement benefit cost                                                                                                                                                                      |                                            |         | 51,538  |              |  |         | 46,317  |          
|                                                | Deferred tax liability                                                                                                                                                                                               |                                            |         | 17,695  |              |  |         | 5,166   |          
|                                                | Other liabilities                                                                                                                                                                                                    |                                            |         | 80,812  |              |  |         | 78,336  |          
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total liabilities                          |         |         | 1,470,427    |  |         |         | 1,375,458 | 
|Commitments and contingencies                   |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |        
|Stockholders equity:                           |                                                                                                                                                                                                                      |                                            |         |         |              |  |         |        
|                                                | Common stock $.01 par value, 150,000,000 shares
    authorized; 52,220,189 issued and outstanding at
    December 31, 2003; 53,103,539 and 50,611,739 issued and
    outstanding, respectively, at December 31, 2004 |                                            |         | 522     |              |  |         | 506     |          
|                                                | Additional paid-in-capital                                                                                                                                                                                           |                                            |         | 183,337 |              |  |         | 198,083 |          
|                                                | Deferred compensation                                                                                                                                                                                                |                                            |         | (197    | )            |  |         | (3,322  | )        
|                                                | Retained (deficit) earnings                                                                                                                                                                                          |                                            |         | (54,304 | )            |  |         | 27,834  |          
|                                                | Accumulated other comprehensive (loss) gain                                                                                                                                                                          |                                            |         | (2,277  | )            |  |         | 3,015   |          
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total stockholders equity                 |         |         | 127,081      |  |         |         | 226,116   | 
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 
|                                                |                                                                                                                                                                                                                      | Total liabilities and stockholders equity |         | $       | 1,597,508    |  |         | $       | 1,601,574 | 
|                                                |                                                                                                                                                                                                                      |                                            |         |         |              | 



F-2



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                   |                                                       |                                       |           |           |           |   |           |           |           |   |           |           |           |  
|---------------------------------- | ----------------------------------------------------- | ------------------------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | - | --------- | --------- | --------- | -
|                                   |                                                       | Year Ended December 31,               |          
|                                   |                                                       |                                       |          
|                                   |                                                       | 2002                                  |           |           | 2003      |   |           | 2004      |          
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   |                                                       | (In thousands, except per share data) |          
|Sales                              |                                                       | $                                     | 1,725,346 |           |           | $ | 2,052,591 |           |           | $ | 2,292,355 |          
|Costs and expenses:                |                                                       |                                       |           |           |           |   |           |           |           |   |           |          
|                                   | Cost of sales                                         |                                       |           | 1,388,616 |           |   |           | 1,639,706 |           |   |           | 1,807,306 |          
|                                   | Selling, general and administrative expenses          |                                       |           | 142,806   |           |   |           | 163,465   |           |   |           | 165,985   |          
|                                   | Research and development                              |                                       |           | 27,673    |           |   |           | 29,810    |           |   |           | 32,568    |          
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   |                                                       | Total expenses                        |           |           | 1,559,095 |   |           |           | 1,832,981 |   |           |           | 2,005,859 |  
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|Income from operations             |                                                       |                                       | 166,251   |           |           |   | 219,610   |           |           |   | 286,496   |          
|Other income (expense):            |                                                       |                                       |           |           |           |   |           |           |           |   |           |          
|                                   | Earnings related to investments in foreign affiliates |                                       |           | 13,874    |           |   |           | 19,758    |           |   |           | 6,376     |          
|                                   | Interest income                                       |                                       |           | 4,218     |           |   |           | 3,911     |           |   |           | 4,781     |          
|                                   | Interest expense                                      |                                       |           | (34,608   | )         |   |           | (28,030   | )         |   |           | (26,537   | )        
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   |                                                       | Total other expense, net              |           |           | (16,516   | ) |           |           | (4,361    | ) |           |           | (15,380   | )
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|Income before income taxes         |                                                       |                                       | 149,735   |           |           |   | 215,249   |           |           |   | 271,116   |          
|Provision for income taxes         |                                                       |                                       | 15,159    |           |           |   | 74,601    |           |           |   | 105,003   |          
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   |                                                       | Net income                            |           | $         | 134,576   |   |           | $         | 140,648   |   |           | $         | 166,113   |  
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|Earnings per common sharebasic:   |                                                       | $                                     | 2.62      |           |           | $ | 2.71      |           |           | $ | 3.20      |          
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   | Weighted average common shares outstandingbasic      |                                       |           | 51,349    |           |   |           | 51,955    |           |   |           | 51,866    |          
|Earnings per common sharediluted: |                                                       | $                                     | 2.55      |           |           | $ | 2.66      |           |           | $ | 3.15      |          
|                                   |                                                       |                                       |           |           |           |   |           |           |          
|                                   | Weighted average common shares outstandingdiluted    |                                       |           | 52,797    |           |   |           | 52,943    |           |   |           | 52,790    |          



F-3



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY (DEFICIT)


|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |   |         |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | -------------- | --- | ---------- | ------- | - | ------- | ------------ | -------- | ----------- | --------- | ----- |  | ------------- | -------- | - | ----- | - | ------- | - |  | - | -------- | -
|                                                                                  |  |                |     |            |         |   |         |              |          | Accumulated |           |       | 
|                                                                                  |  |                |     | Additional |         |   |         |              | Retained |             |           | Other |  |               |         
|                                                                                  |  | Common         |     |            | Paid-In |   |         | Deferred     |          |             | (Deficit) |       |  | Comprehensive |          |   |      
|                                                                                  |  | Stock          |     |            | Capital |   |         | Compensation |          |             | Earnings  |       |  | (Loss)/Gain   |          |   | Total |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|                                                                                  |  | (In thousands) |    
|Balance, December 31, 2001                                                        |  | $              | 509 |            |         | $ | 167,457 |              |          | $           | (648      | )     |  | $             | (329,528 | ) |       | $ | (4,156  | ) |  | $ | (166,366 | )
|Amortization of deferred stock compensation                                       |  |                |    |            |         |   |        |              |          |             | 101       |       |  |               |         |   |       |   |        |   |  |   | 101      |  
|Exercise of stock options                                                         |  |                | 8   |            |         |   | 3,515   |              |          |             |          |       |  |               |         |   |       |   |        |   |  |   | 3,523    |  
|Tax benefit from stock options                                                    |  |                |     |            |         |   | 6,768   |              |          |             |           |       |  |               |          |   |       |   |        |   |  |   | 6,768    |  
|Net foreign currency translation                                                  |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 4,400   |   |  |   | 4,400    |  
|Change in fair value of foreign currency and interest rate
    hedges, net of tax |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | (2,165  | ) |  |   | (2,165   | )
|Minimum pension liability, net of tax                                             |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | (10,542 | ) |  |   | (10,542  | )
|Net income for the year ended December 31, 2002                                   |  |                |    |            |         |   |        |              |          |             |          |       |  |               | 134,576  |   |       |   |        |   |  |   | 134,576  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Total comprehensive income                                                        |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |   |         |   |  |   | 126,269  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Balance, December 31, 2002                                                        |  | $              | 517 |            |         | $ | 177,740 |              |          | $           | (547      | )     |  | $             | (194,952 | ) |       | $ | (12,463 | ) |  | $ | (29,705  | )
|Amortization of deferred stock compensation                                       |  |                |    |            |         |   |        |              |          |             | 350       |       |  |               |         |   |       |   |        |   |  |   | 350      |  
|Exercise of stock options                                                         |  |                | 5   |            |         |   | 2,847   |              |          |             |          |       |  |               |         |   |       |   |        |   |  |   | 2,852    |  
|Tax benefit from stock options                                                    |  |                |     |            |         |   | 2,750   |              |          |             |           |       |  |               |          |   |       |   |         |   |  |   | 2,750    |  
|Net foreign currency translation                                                  |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 2,371   |   |  |   | 2,371    |  
|Change in fair value of foreign currency and interest rate
    hedges, net of tax |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 478     |   |  |   | 478      |  
|Minimum pension liability, net of tax                                             |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |   | 7,337   |   |  |   | 7,337    |  
|Net income for the twelve months ended December 31, 2003                          |  |                |    |            |         |   |        |              |          |             |          |       |  |               | 140,648  |   |       |   |        |   |  |   | 140,648  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Total comprehensive income                                                        |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |   |         |   |  |   | 150,834  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Balance, December 31, 2003                                                        |  | $              | 522 |            |         | $ | 183,337 |              |          | $           | (197      | )     |  | $             | (54,304  | ) |       | $ | (2,277  | ) |  | $ | 127,081  |  
|Issuance of restricted stock awards                                               |  |                |    |            |         |   | 4,798   |              |          |             | (4,798    | )     |  |               |         |   |       |   |        |   |  |   |         |  
|Amortization of deferred stock compensation                                       |  |                |    |            |         |   |        |              |          |             | 1,673     |       |  |               |         |   |       |   |        |   |  |   | 1,673    |  
|Exercise of stock options                                                         |  |                | 9   |            |         |   | 12,495  |              |          |             |          |       |  |               |         |   |       |   |        |   |  |   | 12,504   |  
|Tax benefit from stock options                                                    |  |                |    |            |         |   | 6,350   |              |          |             |          |       |  |               |         |   |       |   |        |   |  |   | 6,350    |  
|Shares repurchased                                                                |  |                | (24 | )          |         |   | (8,744  | )            |          |             |          |       |  |               | (83,975  | ) |       |   |        |   |  |   | (92,743  | )
|Shares invested in rabbi trust                                                    |  |                | (1  | )          |         |   | (153    | )            |          |             |          |       |  |               |         |   |       |   |        |   |  |   | (154     | )
|Net foreign currency translation                                                  |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 1,103   |   |  |   | 1,103    |  
|Change in fair value of foreign currency and interest rate
    hedges, net of tax |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 4,308   |   |  |   | 4,308    |  
|Unrealized gains on investment                                                    |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | 78      |   |  |   | 78       |  
|Minimum pension liability, net of tax                                             |  |                |    |            |         |   |        |              |          |             |          |       |  |               |         |   |       |   | (197    | ) |  |   | (197     | )
|Net income for the twelve months ended December 31, 2004                          |  |                |    |            |         |   |        |              |          |             |          |       |  |               | 166,113  |   |       |   |        |   |  |   | 166,113  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Total comprehensive income                                                        |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |   |         |   |  |   | 171,405  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  
|Balance, December 31, 2004                                                        |  | $              | 506 |            |         | $ | 198,083 |              |          | $           | (3,322    | )     |  | $             | 27,834   |   |       |   | 3,015   |   |  | $ | 226,116  |  
|                                                                                  |  |                |     |            |         |   |         |              |          |             |           |       |  |               |          |   |       |  



F-4



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                  |                                                             |                         |          |          |      |   |         |         |   |   |          |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------- | -------- | -------- | ---- | - | ------- | ------- | - | - | -------- | ------- | -
|                                                                                  |                                                             | Year Ended December 31, |         
|                                                                                  |                                                             |                         |         
|                                                                                  |                                                             | 2002                    |          |          | 2003 |   |         | 2004    |  
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|                                                                                  |                                                             | (In thousands)          |         
|Operating activities                                                              |                                                             |                         |          |          |      |   |         |         |   |   |          |        
|Net income                                                                        |                                                             | $                       | 134,576  |          |      | $ | 140,648 |         |   | $ | 166,113  |        
|Adjustments to reconcile net income to cash provided by
    operating activities: |                                                             |                         |          |          |      |   |         |         |   |   |          |        
|                                                                                  | Depreciation                                                |                         |          | 25,346   |      |   |         | 27,853  |   |   |          | 31,755  |  
|                                                                                  | Amortization of software                                    |                         |          | 5,375    |      |   |         | 4,852   |   |   |          | 4,414   |  
|                                                                                  | Amortization of other intangible assets                     |                         |          | 10,533   |      |   |         | 15,297  |   |   |          | 8,077   |  
|                                                                                  | Write-off of goodwill due to closure of shipyard facilities |                         |          |         |      |   |         |        |   |   |          | 4,496   |  
|                                                                                  | Amortization of financing costs                             |                         |          | 6,247    |      |   |         | 3,283   |   |   |          | 2,900   |  
|                                                                                  | Deferred tax provision                                      |                         |          | (1,239   | )    |   |         | 43,317  |   |   |          | (5,413  | )
|Changes in operating assets and liabilities, net of effect of
    acquisitions    |                                                             |                         |          |          |      |   |         |         |   |   |          |        
|                                                                                  | Trade receivables, net                                      |                         |          | (53,164  | )    |   |         | 28,253  |   |   |          | (25,730 | )
|                                                                                  | Inventories                                                 |                         |          | (4,711   | )    |   |         | 4,047   |   |   |          | 76,112  |  
|                                                                                  | Other assets                                                |                         |          | (3,716   | )    |   |         | (16,419 | ) |   |          | 19,988  |  
|                                                                                  | Prepaid pension and postretirement benefit cost             |                         |          | 6,841    |      |   |         | (8,010  | ) |   |          | 8,538   |  
|                                                                                  | Accounts payable, trade and other                           |                         |          | 20,335   |      |   |         | (8,427  | ) |   |          | 11,554  |  
|                                                                                  | Advanced payments                                           |                         |          | 58,867   |      |   |         | (35,431 | ) |   |          | (92,437 | )
|                                                                                  | Current tax liability                                       |                         |          |         |      |   |         |        |   |   |          | 25,106  |  
|                                                                                  | Accrued and other liabilities                               |                         |          | (10,469  | )    |   |         | 27,619  |   |   |          | 7,902   |  
|                                                                                  | Accrued pension and postretirement benefit cost             |                         |          | (15,522  | )    |   |         | (3,116  | ) |   |          | (6,490  | )
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Cash provided by operating activities                                             |                                                             |                         | 179,299  |          |      |   | 223,766 |         |   |   | 236,885  |        
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Investing activities                                                              |                                                             |                         |          |          |      |   |         |         |   |   |          |        
|                                                                                  | Capital expenditures                                        |                         |          | (22,772  | )    |   |         | (43,610 | ) |   |          | (42,386 | )
|                                                                                  | Purchase of Cell ITS, net of $0.2 million cash acquired     |                         |          | (4,135   | )    |   |         |        |   |   |          |        |  
|                                                                                  | Purchase of USMR, net of $7.3 million cash acquired         |                         |          | (306,949 | )    |   |         |        |   |   |          |        |  
|                                                                                  | Purchase of Kaiser Compositek, Cercom and Hawaii Shipyards  |                         |          |         |      |   |         |        |   |   |          | (44,622 | )
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Cash used in investing activities                                                 |                                                             |                         | (333,856 | )        |      |   | (43,610 | )       |   |   | (87,008  | )      
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Financing activities                                                              |                                                             |                         |          |          |      |   |         |         |   |   |          |        
|                                                                                  | Payments on long-term debt                                  |                         |          | (140,900 | )    |   |         | (13,011 | ) |   |          | (52,043 | )
|                                                                                  | Proceeds from senior secured facility                       |                         |          | 300,000  |      |   |         |        |   |   |          |        |  
|                                                                                  | Proceeds from sale of common stock                          |                         |          | 3,523    |      |   |         | 2,852   |   |   |          | 12,504  |  
|                                                                                  | Common stock repurchased                                    |                         |          |         |      |   |         |        |   |   |          | (92,743 | )
|                                                                                  | Payments for financing and transaction costs                |                         |          | (5,470   | )    |   |         |        |   |   |          |        |  
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Cash used in financing activities                                                 |                                                             |                         | 157,153  |          |      |   | (10,159 | )       |   |   | (132,282 | )      
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Effect of exchange rate changes on cash                                           |                                                             |                         | 13,671   |          |      |   | 9,931   |         |   |   | 2,933    |        
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Increase in cash and cash equivalents                                             |                                                             |                         | 16,267   |          |      |   | 179,928 |         |   |   | 20,528   |        
|Cash and cash equivalents, beginning of year                                      |                                                             |                         | 90,535   |          |      |   | 106,802 |         |   |   | 286,730  |        
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  
|Cash and cash equivalents, end of period                                          |                                                             | $                       | 106,802  |          |      | $ | 286,730 |         |   | $ | 307,258  |        
|                                                                                  |                                                             |                         |          |          |      |   |         |         |  



F-5



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2004




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









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



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





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





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





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



F-6



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Long-lived Assets





| |                                     
| | ------------------------------------
| | Goodwill and Other Intangible Assets







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



F-7



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |  |                |         |  |      |   |        | 
|------------------- |  | -------------- | ------- |  | ---- | - | ------ | 
|                    |  | December 31,   |        
|                    |  |                |        
|                    |  | 2003           |         |  | 2004 |  
|                    |  |                |         |  |      |  
|                    |  | (In thousands) |        
|Current assets      |  | $              | 174,023 |  |      | $ | 51,025 | 
|Non-current assets  |  |                | 43,790  |  |      |   | 21,051 | 
|Current liabilities |  |                | 184,816 |  |      |   | 51,405 | 

|              |  |                |         |  |      |   |         |      |  |   |         | 
|------------- |  | -------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|              |  | December 31,   |        
|              |  |                |        
|              |  | 2002           |         |  | 2003 |   |         | 2004 | 
|              |  |                |         |  |      |   |         |      | 
|              |  | (In thousands) |        
|Sales         |  | $              | 198,123 |  |      | $ | 220,206 |      |  | $ | 184,356 | 
|Cost of sales |  |                | 116,000 |  |      |   | 130,100 |      |  |   | 98,294  | 
|Net income    |  |                | 37,106  |  |      |   | 36,228  |      |  |   | 33,332  | 



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





| |                         
| | ------------------------
| | Deferred Financing Costs





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





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |            
| | -----------
| | Inventories



F-8



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









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



F-9



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                            |                       |                                       |         |      |      |   |         |      |  |   |         |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------------------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- | 
|                                                                                                                                            |                       | December 31,                          |        
|                                                                                                                                            |                       |                                       |        
|                                                                                                                                            |                       | 2002                                  |         |      | 2003 |   |         | 2004 | 
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|                                                                                                                                            |                       | (In thousands, except per share data) |        
|Reported net income                                                                                                                         |                       | $                                     | 134,576 |      |      | $ | 140,648 |      |  | $ | 166,113 |     
|Add back: Compensation expense recorded, net of related
    tax effects                                                                     |                       |                                       | 61      |      |      |   | 507     |      |  |   | 1,025   |     
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    tax effects |                       |                                       | (878    | )    |      |   | (5,748  | )    |  |   | (7,291  | )   
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|Pro forma net income                                                                                                                        |                       | $                                     | 133,759 |      |      | $ | 135,407 |      |  | $ | 159,847 |     
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|Earnings per share:                                                                                                                         |                       |                                       |         |      |      |   |         |      |  |   |         |     
|                                                                                                                                            | Basic  as reported   |                                       | $       | 2.62 |      |   | $       | 2.71 |  |   | $       | 3.20 | 
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|                                                                                                                                            | Basic  pro forma     |                                       | $       | 2.60 |      |   | $       | 2.61 |  |   | $       | 3.08 | 
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|                                                                                                                                            | Diluted  as reported |                                       | $       | 2.55 |      |   | $       | 2.66 |  |   | $       | 3.15 | 
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 
|                                                                                                                                            | Diluted  pro forma   |                                       | $       | 2.53 |      |   | $       | 2.56 |  |   | $       | 3.03 | 
|                                                                                                                                            |                       |                                       |         |      |      |   |         |      | 





|                                |  |       |     |  |      |  |      |      |  |  |      |  
|------------------------------- |  | ----- | --- |  | ---- |  | ---- | ---- |  |  | ---- | -
|                                |  | 2002* |     |  | 2003 |  |      | 2004 | 
|                                |  |       |     |  |      |  |      |      | 
|Risk-free interest rate         |  |       | N/A |  |      |  | 3.5  | %    |  |  | 3.12 | %
|Expected dividend yield         |  |       | N/A |  |      |  | 0.0  | %    |  |  | 0.0  | %
|Expected volatility             |  |       | N/A |  |      |  | 32.8 | %    |  |  | 25.9 | %
|Expected option term (in years) |  |       | N/A |  |      |  | 7    |      |  |  | 5    |  






|  |                                       
|- | --------------------------------------
|* | No stock options were granted in 2002.





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



F-10



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                     
| | --------------------
| | Rabbi Trust Accounts







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





| |             
| | ------------
| | Income Taxes





| |                                   
| | ----------------------------------
| | Derivatives and Hedging Activities



F-11



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                             
| | ----------------------------
| | Asset Retirement Obligations







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









F-12



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 .






|   |             
|-- | ------------
|3. | Acquisitions





F-13



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|              |                                     |                                       |           |      |      |   |           |      |  |   |           |      | 
|------------- | ----------------------------------- | ------------------------------------- | --------- | ---- | ---- | - | --------- | ---- |  | - | --------- | ---- | 
|              |                                     | December 31,                          |          
|              |                                     |                                       |          
|              |                                     | 2002                                  |           |      | 2003 |   |           | 2004 | 
|              |                                     |                                       |           |      |      |   |           |      | 
|              |                                     | (In thousands, except per share data) |          
|Sales         |                                     | $                                     | 1,976,589 |      |      | $ | 2,052,591 |      |  | $ | 2,292,355 |     
|Cost of sales |                                     |                                       | 1,604,266 |      |      |   | 1,639,706 |      |  |   | 1,807,306 |     
|Net Income    |                                     | $                                     | 137,328   |      |      |   | 140,648   |      |  | $ | 166,113   |     
|              | Earnings per common share  basic   |                                       | $         | 2.67 |      |   | $         | 2.71 |  |   | $         | 3.20 | 
|              | Earnings per common share  diluted |                                       | $         | 2.60 |      |   | $         | 2.66 |  |   | $         | 3.15 | 











F-14



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|4. | Property, Plant and Equipment



|                                   |  |                |          |   |      |   |          |  
|---------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | -
|                                   |  | December 31,   |         
|                                   |  |                |         
|                                   |  | 2003           |          |   | 2004 |  
|                                   |  |                |          |   |      |  
|                                   |  | (In thousands) |         
|Buildings                          |  | $              | 65,784   |   |      | $ | 73,725   |  
|Machinery and equipment            |  |                | 186,076  |   |      |   | 201,692  |  
|Dry docks and piers                |  |                | 72,232   |   |      |   | 76,056   |  
|Land and improvements              |  |                | 22,143   |   |      |   | 24,991   |  
|Software                           |  |                | 39,941   |   |      |   | 43,990   |  
|Construction in progress           |  |                | 14,790   |   |      |   | 13,811   |  
|                                   |  |                |          |   |      |  
|                                   |  |                | 400,966  |   |      |   | 434,265  |  
|Less: Accumulated depreciation     |  |                | (219,683 | ) |      |   | (234,758 | )
|                                   |  |                |          |   |      |  
|Property, plant and equipment, net |  | $              | 181,283  |   |      | $ | 199,507  |  
|                                   |  |                |          |   |      |  



|   |                               
|-- | ------------------------------
|5. | Goodwill and Intangible Assets



|                                               |  |                |         |  |                 |   |         |       |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- |  | --------------- | - | ------- | ----- |  | - | ------- | -
|                                               |  | Defense        |         |  | Ship Repair and |   |         |      
|                                               |  | Systems        |         |  | Maintenance     |   |         | Total | 
|                                               |  |                |         |  |                 |   |         |       | 
|                                               |  | (In thousands) |        
|Balance as of December 31, 2002                |  | $              | 101,624 |  |                 | $ | 240,338 |       |  | $ | 341,962 |  
|Foreign currency translation gain              |  |                | 881     |  |                 |   |        |       |  |   | 881     |  
|                                               |  |                |         |  |                 |   |         |       | 
|Balance as of December 31, 2003                |  | $              | 102,505 |  |                 | $ | 240,338 |       |  | $ | 342,843 |  
|Loss related to closure of shipyard facilities |  |                |        |  |                 |   | (4,496  | )     |  |   | (4,496  | )
|Acquisitions                                   |  |                | 7,437   |  |                 |   | 9,458   |       |  |   | 16,895  |  
|Foreign currency translation gain              |  |                | 411     |  |                 |   |        |       |  |   | 411     |  
|                                               |  |                |         |  |                 |   |         |       | 
|Balance as of December 31, 2004                |  | $              | 110,353 |  |                 | $ | 245,300 |       |  | $ | 355,653 |  
|                                               |  |                |         |  |                 |   |         |       | 



|                                           |  |                |         |   |      |   |         |  
|------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                           |  | December 31,   |        
|                                           |  |                |        
|                                           |  | 2003           |         |   | 2004 |  
|                                           |  |                |         |   |      |  
|                                           |  | (In thousands) |        
|Contract rights and customer relationships |  | $              | 29,527  |   |      | $ | 32,839  |  
|Non-compete agreements                     |  |                | 29,000  |   |      | $ | 2,500   |  
|Other                                      |  |                | 690     |   |      | $ | 690     |  
|                                           |  |                |         |   |      |  
|Total                                      |  |                | 59,217  |   |      |   | 36,029  |  
|Less: accumulated amortization             |  |                | (44,995 | ) |      | $ | (26,073 | )
|                                           |  |                |         |   |      |  
|Intangible assets, net                     |  | $              | 14,222  |   |      | $ | 9,956   |  
|                                           |  |                |         |   |      |  



F-15



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|      |  |                |       | 
|----- |  | -------------- | ----- | 
|      |  | (In thousands) |      
|      |  |                |      
|2005  |  | $              | 5,987 | 
|2006  |  |                | 3,752 | 
|2007  |  |                | 100   | 
|2008  |  |                | 100   | 
|2009  |  |                | 17    | 
|      |  |                |      
|Total |  | $              | 9,956 | 
|      |  |                |      



|   |                              
|-- | -----------------------------
|6. | Accrued and Other Liabilities



|                             |  |                |         |  |      |   |         | 
|---------------------------- |  | -------------- | ------- |  | ---- | - | ------- | 
|                             |  | December 31,   |        
|                             |  |                |        
|                             |  | 2003           |         |  | 2004 |  
|                             |  |                |         |  |      |  
|                             |  | (In thousands) |        
|Accrued payroll and benefits |  | $              | 73,838  |  |      | $ | 92,580  | 
|Contract related reserves    |  |                | 30,676  |  |      |   | 30,616  | 
|Other accrued liabilities    |  |                | 41,979  |  |      |   | 46,968  | 
|                             |  |                |         |  |      |  
|Total                        |  | $              | 146,493 |  |      | $ | 170,164 | 
|                             |  |                |         |  |      |  



|   |                                           
|-- | ------------------------------------------
|7. | Pensions and Other Postretirement Benefits







F-16



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |        |   |   |        |        |  
|---------------------------------------------------------------- | ----------------------------------------------- | ---------------- | ------- | -------------- | -------- | - | ------- | ------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                 |                                                 |                  |         | Postretirement |         
|                                                                 |                                                 | Pension Benefits |         |                | Benefits |  
|                                                                 |                                                 |                  |         |                |          |  
|                                                                 |                                                 | 2003             |         |                | 2004     |   |         | 2003    |   |   | 2004   |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|                                                                 |                                                 | (In thousands)   |        
|Change in benefit obligation                                     |                                                 |                  |         |                |          |   |         |         |   |   |        |        |   |   |        |       
|Benefit obligation at beginning of year                          |                                                 | $                | 658,527 |                |          | $ | 723,559 |         |   | $ | 50,572 |        |   | $ | 57,007 |       
|Service cost                                                     |                                                 |                  | 17,778  |                |          |   | 19,557  |         |   |   | 1,477  |        |   |   | 1,487  |       
|Interest cost                                                    |                                                 |                  | 41,522  |                |          |   | 43,442  |         |   |   | 3,316  |        |   |   | 3,212  |       
|Net benefits paid, including settlements                         |                                                 |                  | (26,693 | )              |          |   | (27,407 | )       |   |   | (3,858 | )      |   |   | (3,985 | )     
|Actuarial loss                                                   |                                                 |                  | 32,067  |                |          |   | 43,008  |         |   |   | 5,500  |        |   |   | 3,192  |       
|Plan amendments                                                  |                                                 |                  | 358     |                |          |   |        |         |   |   |       |        |   |   | 2,632  |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Benefit obligation at end of year                                |                                                 | $                | 723,559 |                |          | $ | 802,159 |         |   | $ | 57,007 |        |   | $ | 63,545 |       
|Change in plan assets                                            |                                                 |                  |         |                |          |   |         |         |   |   |        |        |   |   |        |       
|Fair value of plan assets at beginning of year                   |                                                 | $                | 578,806 |                |          | $ | 697,810 |         |   | $ | 60,328 |        |   | $ | 71,444 |       
|Actual return on plan assets                                     |                                                 |                  | 142,938 |                |          |   | 81,529  |         |   |   | 11,682 |        |   |   | 4,425  |       
|Employer contributions                                           |                                                 |                  | 2,758   |                |          |   | 8,009   |         |   |   | 3,292  |        |   |   | 3,236  |       
|Net benefits paid, including settlements                         |                                                 |                  | (26,692 | )              |          |   | (27,407 | )       |   |   | (3,858 | )      |   |   | (3,985 | )     
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Fair value of plan assets at end of year                         |                                                 | $                | 697,810 |                |          | $ | 759,941 |         |   | $ | 71,444 |        |   | $ | 75,120 |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Funded status                                                    |                                                 | $                | (25,749 | )              |          | $ | (42,218 | )       |   | $ | 14,437 |        |   | $ | 11,574 |       
|Unrecognized actuarial loss (gain)                               |                                                 |                  | 97,609  |                |          |   | 109,823 |         |   |   | (2,047 | )      |   |   | 1,777  |       
|Unrecognized prior service cost                                  |                                                 |                  | 13,557  |                |          |   | 11,725  |         |   |   | 1,059  |        |   |   | 3,501  |       
|Unrecognized transition obligation                               |                                                 |                  |        |                |          |   |        |         |   |   |       |        |   |   | 153    |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Net amount recognized                                            |                                                 | $                | 85,417  |                |          | $ | 79,330  |         |   | $ | 13,449 |        |   | $ | 17,005 |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Amounts recognized in the consolidated balance sheet consist of: |                                                 |                  |         |                |          |   |         |         |   |   |        |        |   |   |        |       
|                                                                 | Prepaid pension and postretirement benefit cost |                  | $       | 113,251        |          |   | $       | 100,907 |   |   | $      | 15,746 |   |   | $      | 19,552 |  
|                                                                 | Accrued pension and postretirement benefit cost |                  |         | (33,173        | )        |   |         | (27,244 | ) |   |        | (2,297 | ) |   |        | (2,547 | )
|                                                                 | Accumulated other comprehensive income          |                  |         | 5,339          |          |   |         | 5,667   |   |   |        |       |   |   |        |       |  
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       
|Net amount recognized                                            |                                                 | $                | 85,417  |                |          | $ | 79,330  |         |   | $ | 13,449 |        |   | $ | 17,005 |       
|                                                                 |                                                 |                  |         |                |          |   |         |         |   |   |        |       



F-17



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |                |        |  |      |   |        | 
|------------------------------ |  | -------------- | ------ |  | ---- | - | ------ | 
|                               |  | December 31,   |       
|                               |  |                |       
|                               |  | 2003           |        |  | 2004 |  
|                               |  |                |        |  |      |  
|                               |  | (In thousands) |       
|Projected benefit obligation   |  | $              | 59,510 |  |      | $ | 63,406 | 
|Accumulated benefit obligation |  |                | 55,348 |  |      |   | 58,716 | 
|Fair value of plan assets      |  |                | 24,519 |  |      |   | 32,018 | 



|                                   |  |                  |         |   |                |   |         |      |  |   |        |   |  |   |        |  
|---------------------------------- |  | ---------------- | ------- | - | -------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                   |  | Pension Benefits |         |   | Other Benefits |  
|                                   |  |                  |         |   |                |  
|                                   |  | 2003             |         |   | 2004           |   |         | 2003 |  |   | 2004   |  
|                                   |  |                  |         |   |                |   |         |      |  |   |        |  
|                                   |  | (In thousands)   |        
|Service cost                       |  | $                | 17,778  |   |                | $ | 19,557  |      |  | $ | 1,477  |   |  | $ | 1,487  |  
|Interest cost                      |  |                  | 41,522  |   |                |   | 43,442  |      |  |   | 3,316  |   |  |   | 3,212  |  
|Expected return on plan assets     |  |                  | (54,236 | ) |                |   | (56,731 | )    |  |   | (5,200 | ) |  |   | (5,451 | )
|Amortization of prior service cost |  |                  | 1,792   |   |                |   | 1,831   |      |  |   | 136    |   |  |   | 190    |  
|Recognized net actuarial loss      |  |                  | 2,224   |   |                |   | 6,774   |      |  |   | 2      |   |  |   | 62     |  
|                                   |  |                  |         |   |                |   |         |      |  |   |        |  
|Net periodic benefit cost          |  | $                | 9,080   |   |                | $ | 14,872  |      |  | $ | (269   | ) |  | $ | (499   | )
|                                   |  |                  |         |   |                |   |         |      |  |   |        |  



|                                                                                    |  |                  |         |   |                |   |     |      |  |  |      |  |  |  |     | 
|----------------------------------------------------------------------------------- |  | ---------------- | ------- | - | -------------- | - | --- | ---- |  |  | ---- |  |  |  | --- | 
|                                                                                    |  | Pension Benefits |         |   | Other Benefits |  
|                                                                                    |  |                  |         |   |                |  
|                                                                                    |  | 2003             |         |   | 2004           |   |     | 2003 |  |  | 2004 | 
|                                                                                    |  |                  |         |   |                |   |     |      |  |  |      | 
|                                                                                    |  | (In thousands)   |        
|(Decrease) Increase in minimum liability included in other
    comprehensive income |  | $                | (12,231 | ) |                | $ | 328 |      |  |  | N/A  |  |  |  | N/A | 



|                              |  |          |     |   |          |  |      |      |  |  |      |   |  |  |      |  
|----------------------------- |  | -------- | --- | - | -------- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                              |  | Pension  |     |   | Other    | 
|                              |  | Benefits |     |   | Benefits | 
|                              |  |          |     |   |          | 
|                              |  | 2003     |     |   | 2004     |  |      | 2003 |  |  | 2004 |  
|                              |  |          |     |   |          |  |      |      |  |  |      |  
|Discount rate                 |  |          | 6.0 | % |          |  | 5.75 | %    |  |  | 6.0  | % |  |  | 5.75 | %
|Rate of compensation increase |  |          | 4.0 | % |          |  | 4.0  | %    |  |  | 4.0  | % |  |  | 4.0  | %



|                              |  |          |     |   |          |  |     |      |  |  |      |   |  |  |     |  
|----------------------------- |  | -------- | --- | - | -------- |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                              |  | Pension  |     |   | Other    | 
|                              |  | Benefits |     |   | Benefits | 
|                              |  |          |     |   |          | 
|                              |  | 2003     |     |   | 2004     |  |     | 2003 |  |  | 2004 |  
|                              |  |          |     |   |          |  |     |      |  |  |      |  
|Discount rate                 |  |          | 6.5 | % |          |  | 6.0 | %    |  |  | 6.5  | % |  |  | 6.0 | %
|Expected return on assets     |  |          | 8.5 | % |          |  | 8.5 | %    |  |  | 7.7  | % |  |  | 7.7 | %
|Rate of compensation increase |  |          | 4.5 | % |          |  | 4.0 | %    |  |  | 4.5  | % |  |  | 4.0 | %



F-18



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                     |                                                                                       |      |  |      |      |  |  |      |  
|------------------------------------ | ------------------------------------------------------------------------------------- | ---- |  | ---- | ---- |  |  | ---- | -
|                                     |                                                                                       | 2003 |  |      | 2004 | 
|                                     |                                                                                       |      |  |      |      | 
|Defense Systems segment:             |                                                                                       |      |  |      |      |  |  |     
|                                     | Health care cost trend rate assumed for next year                                     |      |  | 7.0  | %    |  |  | 15.0 | %
|                                     | Rate to which the cost trend rate is assumed to decline (the
    ultimate trend rate) |      |  | 5.0  | %    |  |  | 5.0  | %
|                                     | Year that the rate reaches the ultimate trend rate                                    |      |  | 2006 |      |  |  | 2015 |  
|Ship Repair and Maintenance segment: |                                                                                       |      |  |      |      |  |  |     
|                                     | Health care cost trend rate assumed for next year                                     |      |  | 9.0  | %    |  |  | 15.0 | %
|                                     | Rate to which the cost trend rate is assumed to decline (the
    ultimate trend rate) |      |  | 5.25 | %    |  |  | 5.0  | %
|                                     | Year that the rate reaches the ultimate trend rate                                    |      |  | 2011 |      |  |  | 2015 |  



|                                             |  |                |         |  |                |   |          |  
|-------------------------------------------- |  | -------------- | ------- |  | -------------- | - | -------- | -
|                                             |  | 1-Percentage   |         |  | 1-Percentage   |  
|                                             |  | Point Increase |         |  | Point Decrease |  
|                                             |  |                |         |  |                |  
|Effect on total of service and interest cost |  | $              | 74,273  |  |                | $ | (66,570  | )
|Effect on postretirement benefit obligation  |  |                | 951,081 |  |                |   | (853,130 | )

Plan Assets




|                  |       |                |      |       |                   |  |      |       |   |  |      |       |   |  |      |       |  
|----------------- | ----- | -------------- | ---- | ----- | ----------------- |  | ---- | ----- | - |  | ---- | ----- | - |  | ---- | ----- | -
|                  |       | Pension Plan   |      |       | Retiree Benefit   | 
|                  |       | Percentage of  |      |       | Plan Percentage   | 
|                  |       | Plan Assets at |      |       | of Plan Assets at | 
|                  |       | December 31,   |      |       | December 31,      | 
|                  |       |                |      |       |                   | 
|Asset Category    |       | 2003           |      |       | 2004              |  |      | 2003  |   |  | 2004 |      
|                  |       |                |      |       |                   |  |      |       |   |  |      |      
|Equity securities |       |                | 97.2 | %     |                   |  | 96.7 | %     |   |  | 98.8 | %     |   |  | 99.3 | %    
|Debt securities   |       |                | 0.0  | %     |                   |  | 0.0  | %     |   |  | 0.0  | %     |   |  | 0.0  | %    
|Real estate       |       |                | 2.5  | %     |                   |  | 2.9  | %     |   |  | 0.0  | %     |   |  | 0.0  | %    
|Other             |       |                | 0.3  | %     |                   |  | 0.4  | %     |   |  | 1.2  | %     |   |  | 0.7  | %    
|                  |       |                |      |       |                   |  |      |       |   |  |      |      
|                  | Total |                |      | 100.0 | %                 |  |      | 100.0 | % |  |      | 100.0 | % |  |      | 100.0 | %
|                  |       |                |      |       |                   |  |      |       |   |  |      |      



F-19



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Contributions




Estimated Future Benefit
Payments




|            |  |                  |         |  |                |   |        | 
|----------- |  | ---------------- | ------- |  | -------------- | - | ------ | 
|            |  | Pension Benefits |         |  | Other Benefits |  
|            |  |                  |         |  |                |  
|            |  | (In thousands)   |        
|2005        |  | $                | 30,839  |  |                | $ | 3,009  | 
|2006        |  |                  | 32,381  |  |                |   | 3,259  | 
|2007        |  |                  | 34,468  |  |                |   | 3,519  | 
|2008        |  |                  | 37,308  |  |                |   | 3,648  | 
|2009        |  |                  | 39,595  |  |                |   | 3,848  | 
|2010  2014 |  |                  | 246,983 |  |                |   | 23,183 | 



|   |               
|-- | --------------
|8. | Long-term Debt



|                                 |                       |                |         |        |      |   |         |        | 
|-------------------------------- | --------------------- | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                 |                       | December 31,   |        
|                                 |                       |                |        
|                                 |                       | 2003           |         |        | 2004 |  
|                                 |                       |                |         |        |      |  
|                                 |                       | (In thousands) |        
|Senior secured credit facilities |                       | $              | 576,989 |        |      | $ | 524,947 |       
|                                 | Less: current portion |                |         | 52,043 |      |   |         | 52,043 | 
|                                 |                       |                |         |        |      |  
|Total                            |                       | $              | 524,946 |        |      | $ | 472,904 |       
|                                 |                       |                |         |        |      |  



| |                               
| | ------------------------------
| | Senior Secured Credit Facility











F-20



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                  
| | -----------------
| | Annual Maturities



|      |  |                |         | 
|----- |  | -------------- | ------- | 
|      |  | (In thousands) |        
|      |  |                |        
|2005  |  | $              | 52,043  | 
|2006  |  |                | 52,043  | 
|2007  |  |                | 124,731 | 
|2008  |  |                | 197,420 | 
|2009  |  |                | 98,710  | 
|      |  |                |        
|Total |  | $              | 524,947 | 
|      |  |                |        



|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies



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





F-21



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                 
| | ----------------
| | Operating Leases





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





Environmental Matters








F-22



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                     
|--- | --------------------
|10. | Stockholders Equity



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



F-23



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |  |                                       |           |          |       |   |      |        |          |  |           |   |  |          |       |  |       |  |           |   |  |   |       | 
|-------------------------------------- |  | ------------------------------------- | --------- | -------- | ----- | - | ---- | ------ | -------- |  | --------- | - |  | -------- | ----- |  | ----- |  | --------- | - |  | - | ----- | 
|                                       |  | 2002                                  |           |          | 2003  |   |      | 2004   |         
|                                       |  |                                       |           |          |       |   |      |        |         
|                                       |  |                                       |           | Weighted |       |   |      |        | Weighted |  |           |   |  | Weighted |      
|                                       |  |                                       |           | Average  |       |   |      |        | Average  |  |           |   |  | Average  |      
|                                       |  |                                       |           | Exercise |       |   |      |        | Exercise |  |           |   |  | Exercise |      
|                                       |  | Shares                                |           |          | Price |   |      | Shares |          |  | Price     |   |  | Shares   |       |  | Price | 
|                                       |  |                                       |           |          |       |   |      |        |          |  |           |   |  |          |       |  |       | 
|                                       |  | (In thousands, except per share data) |          
|Options outstanding, beginning of year |  |                                       | 2,221,178 |          |       | $ | 4.80 |        |          |  | 1,424,653 |   |  | $        | 4.91  |  |       |  | 3,114,901 |   |  | $ | 17.94 | 
|Options granted                        |  |                                       |          |          |       |   |     |        |          |  | 2,215,323 |   |  |          | 23.16 |  |       |  | 500,000   |   |  |   | 31.80 | 
|Options cancelled                      |  |                                       | (19,350   | )        |       |   | 4.44 |        |          |  |          |   |  |          |      |  |       |  | (38,374   | ) |  |   | 24.50 | 
|Options exercised                      |  |                                       | (777,175  | )        |       |   | 4.58 |        |          |  | (525,075  | ) |  |          | 4.59  |  |       |  | (883,355  | ) |  |   | 14.10 | 
|                                       |  |                                       |           |          |       |   |      |        |          |  |           |   |  |          |       |  |       | 
|Options outstanding, end of year       |  |                                       | 1,424,653 |          |       | $ | 4.91 |        |          |  | 3,114,901 |   |  | $        | 17.94 |  |       |  | 2,693,172 |   |  | $ | 21.69 | 
|                                       |  |                                       |           |          |       |   |      |        |          |  |           |   |  |          |       |  |       | 
|Options exercisable, end of year       |  |                                       | 950,780   |          |       | $ | 4.99 |        |          |  | 1,734,576 |   |  | $        | 14.74 |  |       |  | 1,950,187 |   |  | $ | 20.18 | 
|                                       |  |                                       |           |          |       |   |      |        |          |  |           |   |  |          |       |  |       | 



|                         |  |                     |           |          |                     |   |       |             |  |  |              |  |  |          |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | -------- | ------------------- | - | ----- | ----------- |  |  | ------------ |  |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |          | Options Exercisable |  
|                         |  |                     |           |          |                     |  
|                         |  |                     |           | Weighted |                     |   |      
|                         |  | Number as           |           |          | Weighted            |   |       | Average     |  |  | Number as    |  |  | Weighted |          
|                         |  | of                  |           |          | Average             |   |       | Remaining   |  |  | of           |  |  | Average  |          
|                         |  | December 31,        |           |          | Exercise            |   |       | Contractual |  |  | December 31, |  |  | Exercise |          
|Range of Exercise Prices |  | 2004                |           |          | Price               |   |       | Life        |  |  | 2004         |  |  | Price    |          
|                         |  |                     |           |          |                     |   |       |             |  |  |              |  |  |          |          
|$4.44                    |  |                     | 392,938   |          |                     | $ | 4.44  |             |  |  | 4.00         |  |  |          | 345,687   |  |  | $ | 4.44  | 
|$7.11  $8.89            |  |                     | 43,312    |          |                     | $ | 8.31  |             |  |  | 5.60         |  |  |          | 38,249    |  |  | $ | 8.24  | 
|$11.11                   |  |                     | 17,100    |          |                     | $ | 11.11 |             |  |  | 5.80         |  |  |          | 14,399    |  |  | $ | 11.11 | 
|$21.85                   |  |                     | 7,323     |          |                     | $ | 21.85 |             |  |  | 8.10         |  |  |          | 7,323     |  |  | $ | 21.85 | 
|$23.15  $24.98          |  |                     | 1,740,166 |          |                     | $ | 23.16 |             |  |  | 8.00         |  |  |          | 1,381,516 |  |  | $ | 23.16 | 
|$31.80                   |  |                     | 492,333   |          |                     | $ | 31.80 |             |  |  | 9.10         |  |  |          | 163,013   |  |  | $ | 31.80 | 
|                         |  |                     |           |          |                     |   |       |             |  |  |              |  |  |          |          
|                         |  |                     | 2,693,172 |          |                     | $ | 21.69 |             |  |  | 7.57         |  |  |          | 1,950,187 |  |  | $ | 20.18 | 
|                         |  |                     |           |          |                     |   |       |             |  |  |              |  |  |          |          





F-24



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |         |  |        |  |     |          |  |  |         | 
|------------------------------------- | ------- |  | ------ |  | --- | -------- |  |  | ------- | 
|Restricted Stock at December 31, 2004 |        
|                                      |        
|Outstanding                           |         |  | Vested |  |     | Unvested | 
|                                      |         |  |        |  |     |          | 
|                                      | 148,172 |  |        |  | 914 |          |  |  | 147,258 | 



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



|                 |  |      |        |  |      |   |        |      |  |   |         |  
|---------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | -
|                 |  | 2002 |        |  | 2003 |   |        | 2004 | 
|                 |  |      |        |  |      |   |        |      | 
|Federal: current |  | $    |       |  |      | $ | 19,874 |      |  | $ | 83,725  |  
|deferred         |  |      | 6,333  |  |      |   | 34,976 |      |  |   | (6,156  | )
|Foreign: current |  |      | 2,533  |  |      |   | 5,769  |      |  |   | 4,286   |  
|deferred         |  |      |       |  |      |   |       |      |  |   | 150     |  
|State: current   |  |      | 5,384  |  |      |   | 8,985  |      |  |   | 23,877  |  
|deferred         |  |      | 909    |  |      |   | 4,997  |      |  |   | (879    | )
|                 |  |      |        |  |      |   |        |      | 
|Total: current   |  |      | 7,917  |  |      |   | 34,628 |      |  |   | 111,888 |  
|deferred         |  |      | 7,242  |  |      |   | 39,973 |      |  |   | (6,885  | )
|                 |  |      |        |  |      |   |        |      | 
|                 |  | $    | 15,159 |  |      | $ | 74,601 |      |  | $ | 105,003 |  
|                 |  |      |        |  |      |   |        |      | 





|                                                  |  |      |       |    |      |  |      |      |  |  |      |   
|------------------------------------------------- |  | ---- | ----- | -- | ---- |  | ---- | ---- |  |  | ---- | --
|                                                  |  | 2002 |       |    | 2003 |  |      | 2004 | 
|                                                  |  |      |       |    |      |  |      |      | 
|Statutory federal tax rate                        |  |      | 35.0  | %  |      |  | 35.0 | %    |  |  | 35.0 | % 
|Effect of taxes on joint venture/foreign earnings |  |      | 0.6   | %  |      |  | 0.1  | %    |  |  | 0.6  | % 
|Extraterritorial income exclusion benefit         |  |      | (1.5  | %) |      |  | (1.4 | %)   |  |  | (1.1 | %)
|Disallowed expenses and other                     |  |      | 4.3   | %  |      |  | 2.4  | %    |  |  | 4.3  | % 
|Change in valuation allowance                     |  |      | (33.3 | %) |      |  | 0.2  | %    |  |  | (0.2 | %)
|State income taxes                                |  |      | 4.9   | %  |      |  | 5.1  | %    |  |  | 5.5  | % 
|Foreign tax credit                                |  |      |      |    |      |  | (6.7 | %)   |  |  | (5.4 | %)
|                                                  |  |      |       |    |      |  |      |      | 
|Effective tax rate                                |  |      | 10.0  | %  |      |  | 34.7 | %    |  |  | 38.7 | % 
|                                                  |  |      |       |    |      |  |      |      | 

F-25



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  | December 31, |        
|                                                |  |              |        
|                                                |  | 2003         |         |   | 2004 |  
|                                                |  |              |         |   |      |  
|Deferred tax assets:                            |  |              |         |   |      |   |         |  
|Accrued expenses                                |  | $            | 8,439   |   |      | $ | 15,429  |  
|Foreign tax credit carryovers                   |  |              |        |   |      |   | 7,505   |  
|Depreciation                                    |  |              | 276     |   |      |   |        |  
|Pension liabilities                             |  |              | 3,348   |   |      |   | 7,218   |  
|Currency hedges and interest rate swaps         |  |              | 2,623   |   |      |   |        |  
|Tax LIFO provision                              |  |              | 1,663   |   |      |   | 4,311   |  
|                                                |  |              |         |   |      |  
|                                                |  | $            | 16,349  |   |      | $ | 34,463  |  
|Deferred tax liabilities:                       |  |              |         |   |      |   |         |  
|Purchased fixed assets and intangibles          |  |              | (5,648  | ) |      |   | (2,146  | )
|Intangibles, accrued compensation, and benefits |  |              | (23,884 | ) |      |   | (22,742 | )
|Equity in FNSS earnings                         |  |              | (6,882  | ) |      |   | (63     | )
|Bofors in-country deferred taxes                |  |              |        |   |      |   | (2,673  | )
|Currency hedges and interest rate swaps         |  |              |        |   |      |   | (302    | )
|Engineering expenses                            |  |              | (13,430 | ) |      |   | (20,088 | )
|Depreciation                                    |  |              |        |   |      |   | (4,110  | )
|                                                |  |              |         |   |      |  
|                                                |  |              | (49,844 | ) |      |   | (52,124 | )
|Net deferred tax liability                      |  |              | (33,495 | ) |      |   | (17,661 | )
|Valuation allowance                             |  |              | (480    | ) |      |   | (7,505  | )
|                                                |  |              |         |   |      |  
|Net deferred tax liability on balance sheet     |  | $            | (33,975 | ) |      | $ | (25,166 | )
|                                                |  |              |         |   |      |  





F-26



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                    
|--- | -----------------------------------
|12. | Fair Value of Financial Instruments







|    |                                      
|--- | -------------------------------------
|13. | Significant Customer and Export Sales









|    |                           
|--- | --------------------------
|14. | Related Party Transactions









F-27



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                             
|--- | ----------------------------
|15. | Other Employee Benefit Plans









|    |                   
|--- | ------------------
|16. | Earnings Per Share



F-28



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------------------------------ |  | -------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                         |  | December 31,        
|                                                                         |  |                     
|                                                                         |  | 2002                 |         | 2003 |  | 2004
|                                                                         |  |                      |         |      |  |     
|                                                                         |  | (In thousands except
|                                                                         |  | per share data)     
|Net income:                                                              |  |                      |         |      |  |      |         |  |  |   |         | 
|Net income for basic and diluted computations                            |  | $                    | 134,576 |      |  | $    | 140,648 |  |  | $ | 166,113 | 
|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 
|                                                                        
|Average common shares outstanding:                                       |  |                      |         |      |  |      |         |  |  |   |         | 
|Average common shares outstanding for basic computations                 |  |                      | 51,349  |      |  |      | 51,955  |  |  |   | 51,866  | 
|Dilutive stock options and restricted shares-treasury stock
    method   |  |                      | 1,448   |      |  |      | 988     |  |  |   | 924     | 
|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 
|Average number of common shares outstanding for diluted
    computations |  |                      | 52,797  |      |  |      | 52,943  |  |  |   | 52,790  | 
|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 
|Earnings per share:                                                      |  |                      |         |      |  |      |         |  |  |   |         | 
|Earnings per common sharebasic                                          |  | $                    | 2.62    |      |  | $    | 2.71    |  |  | $ | 3.20    | 
|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 
|Earnings per common sharediluted:                                       |  | $                    | 2.55    |      |  | $    | 2.66    |  |  | $ | 3.15    | 
|                                                                         |  |                      |         |      |  |      |         |  |  |   |         | 



|    |                                 
|--- | --------------------------------
|17. | Information on Business Segments



F-29



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|------------------------------------------------------------ |  | -------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                             |  | December 31,  
|                                                             |  |               
|                                                             |  | 2002           |           | 2003 |  | 2004
|                                                             |  |                |           |      |  |     
|                                                             |  | (in thousands)
|Sales:                                                       |  |                |           |      |  |      |           |   |  |   |           |  
|Defense Systems                                              |  | $              | 1,469,961 |      |  | $    | 1,507,253 |   |  | $ | 1,719,357 |  
|Ship Repair and Maintenance                                  |  |                | 255,385   |      |  |      | 545,338   |   |  |   | 572,998   |  
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Total sales                                                  |  |                | 1,725,346 |      |  |      | 2,052,591 |   |  |   | 2,292,355 |  
|Earnings related to investments in foreign affiliates:       |  |                |           |      |  |      |           |   |  |   |           |  
|Defense Systems                                              |  |                | 13,874    |      |  |      | 19,758    |   |  |   | 6,376     |  
|Ship Repair and Maintenance                                  |  |                |          |      |  |      |          |   |  |   |          |  
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Total earnings related to investments in foreign affiliates: |  |                | 13,874    |      |  |      | 19,758    |   |  |   | 6,376     |  
|Depreciation and amortization:                               |  |                |           |      |  |      |           |   |  |   |           |  
|Defense Systems                                              |  |                | 31,331    |      |  |      | 27,324    |   |  |   | 24,505    |  
|Ship Repair and Maintenance                                  |  |                | 9,787     |      |  |      | 20,513    |   |  |   | 24,156    |  
|Corporate                                                    |  |                | 136       |      |  |      | 165       |   |  |   | 81        |  
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Total depreciation and amortization                          |  |                | 41,254    |      |  |      | 48,002    |   |  |   | 48,742    |  
|Capital spending:                                            |  |                |           |      |  |      |           |   |  |   |           |  
|Defense Systems                                              |  |                | 17,341    |      |  |      | 21,123    |   |  |   | 32,297    |  
|Ship Repair and Maintenance                                  |  |                | 5,385     |      |  |      | 22,425    |   |  |   | 9,621     |  
|Corporate                                                    |  |                | 46        |      |  |      | 62        |   |  |   | 468       |  
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Total capital spending                                       |  |                | 22,772    |      |  |      | 43,610    |   |  |   | 42,386    |  
|Income before interest and taxes:                            |  |                |           |      |  |      |           |   |  |   |           |  
|Defense Systems                                              |  |                | 182,026   |      |  |      | 230,909   |   |  |   | 276,760   |  
|Ship Repair and Maintenance                                  |  |                | 18,501    |      |  |      | 30,839    |   |  |   | 37,394    |  
|Corporate                                                    |  |                | (20,402   | )    |  |      | (22,380   | ) |  |   | (21,282   | )
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Total income before interest and taxes                       |  |                | 180,125   |      |  |      | 239,368   |   |  |   | 292,872   |  
|Interest, net                                                |  |                | (30,390   | )    |  |      | (24,119   | ) |  |   | (21,756   | )
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  
|Income before income taxes                                   |  | $              | 149,735   |      |  | $    | 215,249   |   |  | $ | 271,116   |  
|                                                             |  |                |           |      |  |      |           |   |  |   |           |  

|                            |  |      |           |      |  |   |           | 
|--------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                            |  | 2003 |           | 2004
|                            |  |      |           |     
|Total assets:(a)            |  |      |           |      |  |   |           | 
|Defense Systems             |  | $    | 856,319   |      |  | $ | 840,552   | 
|Ship Repair and Maintenance |  |      | 438,575   |      |  |   | 436,249   | 
|Corporate and eliminations  |  |      | 302,614   |      |  |   | 324,773   | 
|                            |  |      |           |      |  |   |           | 
|Total assets                |  | $    | 1,597,508 |      |  | $ | 1,601,574 | 
|                            |  |      |           |      |  |   |           | 






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

F-30



---



##### 



UNITED DEFENSE INDUSTRIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|18. | Quarterly Financial Data (Unaudited)

|                                  |  |                                      |       |              |  |               |       |              |  |   |       |  |  |   |       | 
|--------------------------------- |  | ------------------------------------ | ----- | ------------ |  | ------------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|                                  |  | 2003                                
|                                  |  |                                     
|                                  |  | Three months                         |       | Three months |  | Three months  |       | Three months
|                                  |  | ended                                |       | ended        |  | ended         |       | ended       
|                                  |  | March 31,                            |       | June 30,     |  | September 30, |       | December 31,
|                                  |  |                                      |       |              |  |               |       |             
|                                  |  | (In millions, except per share data)
|Sales                             |  | $                                    | 466.5 |              |  | $             | 553.5 |              |  | $ | 507.9 |  |  | $ | 524.7 | 
|Gross Profit                      |  |                                      | 103.9 |              |  |               | 106.3 |              |  |   | 107.6 |  |  |   | 95.1  | 
|Net income                        |  |                                      | 38.3  |              |  |               | 36.1  |              |  |   | 37.4  |  |  |   | 28.8  | 
|Per Share Data:                   |  |                                      |       |              |  |               |       |              |  |   |       |  |  |   |       | 
|Earnings per common sharebasic   |  | $                                    | 0.74  |              |  | $             | 0.70  |              |  | $ | 0.72  |  |  | $ | 0.55  | 
|Earnings per common sharediluted |  | $                                    | 0.73  |              |  | $             | 0.68  |              |  | $ | 0.71  |  |  | $ | 0.54  | 

|                                  |  |                                      |       |              |  |               |       |              |  |   |       |  |  |   |       | 
|--------------------------------- |  | ------------------------------------ | ----- | ------------ |  | ------------- | ----- | ------------ |  | - | ----- |  |  | - | ----- | 
|                                  |  | 2004                                
|                                  |  |                                     
|                                  |  | Three months                         |       | Three months |  | Three months  |       | Three months
|                                  |  | ended                                |       | ended        |  | ended         |       | ended       
|                                  |  | March 31,                            |       | June 30,     |  | September 30, |       | December 31,
|                                  |  |                                      |       |              |  |               |       |             
|                                  |  | (In millions, except per share data)
|Sales                             |  | $                                    | 547.1 |              |  | $             | 576.3 |              |  | $ | 573.4 |  |  | $ | 595.6 | 
|Gross Profit                      |  |                                      | 112.0 |              |  |               | 121.1 |              |  |   | 136.7 |  |  |   | 115.3 | 
|Net income                        |  |                                      | 41.9  |              |  |               | 40.8  |              |  |   | 52.2  |  |  |   | 31.2  | 
|Per Share Data:                   |  |                                      |       |              |  |               |       |              |  |   |       |  |  |   |       | 
|Earnings per common sharebasic   |  | $                                    | 0.80  |              |  | $             | 0.78  |              |  | $ | 1.01  |  |  | $ | 0.61  | 
|Earnings per common sharediluted |  | $                                    | 0.78  |              |  | $             | 0.765 |              |  | $ | 0.99  |  |  | $ | 0.60  | 



|    |                  
|--- | -----------------
|19. | Subsequent Events



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





| |                       
| | ----------------------
| | Cash Dividend Declared





| |                                
| | -------------------------------
| | Recent Developments (Unaudited)



F-31



---



##### 





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





|         |                        
|-------- | -----------------------
|ITEM 9A. | Controls and Procedures



| |                                   
| | ----------------------------------
| | Disclosure Controls and Procedures









| |                                                                    
| | -------------------------------------------------------------------
| | Managements Report on Internal Control over Financial
    Reporting











42



---



##### 









| |                                          
| | -----------------------------------------
| | Thomas W. Rabaut, Chief Executive Officer
|
| | Francis Raborn, Chief Financial Officer  

43



---



##### 



Report of Ernst & Young LLP,


Independent Registered Public Accounting Firm,


on Internal Control over Financial Reporting

















44



---



##### 











|         |                  
|-------- | -----------------
|ITEM 9B. | Other Information



PART III




|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | Directors and Executive Officers of the Registrant





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





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | Certain Relationships and Related Transactions





|         |                                       
|-------- | --------------------------------------
|ITEM 14. | Principal Accountant Fees and Services



45



---



##### 



PART IV




|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | Exhibits and Financial Statement Schedules







Schedule II:


|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |   |        |        |  |   |        |        | 
|----------------------------- | -------------------------------------------- | -------------- | - | --------- | ---------- |  | - | ---------- | ----- |  | ----------- | ----- | ------ | ------------- | - | ------ | ------ |  | - | ------ | ------ | 
|                              |                                              |                |   | Additions |            |  |   |            |      
|                              |                                              |                |   |           |            |  |   |            |      
|                              |                                              | Balance at     |   |           | Charged to |  |   | Charged to |       |  |             |       |       
|                              |                                              | Beginning      |   |           | costs &    |  |   | other      |       |  | Deductions/ |       |        | Balance at    |  
|Description                   |                                              | of Period      |   |           | expenses   |  |   | accounts   |       |  | Payments    |       |        | End of Period |  
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|                              |                                              | (In thousands) |  
|Year Ended December 31, 2002: |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |   |        |        |  |   |       
|                              | Reserve for remediation and compliance costs |                | $ | 14,255    |            |  | $ | 3,727      |       |  | $           | 9,500 | (a)    |               | $ |       |        |  | $ | 27,482 |       
|                              | Restructuring reserve                        |                |   | 8,268     |            |  |   | 3,549      |       |  |             | 1,300 |        |               |   | 8,031  |        |  |   | 5,086  |       
|                              | Litigation reserve                           |                |   | 4,522     |            |  | $ | 540        |       |  |             |      |        |               |   | 1,869  |        |  |   | 3,193  |       
|                              | Allowance for Doubtful Accounts              |                |   | 2,039     |            |  |   | 459        |       |  |             | 629   |        |               |   | 795    |        |  |   | 2,332  |       
|                              | Tax Valuation Allowance                      |                |   | 52,562    |            |  |   |           |       |  |             |      |        |               |   | 52,562 |        |  |   |       |       
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|                              |                                              | Total          |   | $         | 81,646     |  |   | $          | 8,275 |  |             | $     | 11,429 |               |   | $      | 63,257 |  |   | $      | 38,093 | 
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|Year Ended December 31, 2003: |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |   |        |        |  |   |       
|                              | Reserve for remediation and compliance costs |                | $ | 27,482    |            |  | $ | 7,388      |       |  | $           |      |        |               | $ | 1,707  |        |  | $ | 33,163 |       
|                              | Restructuring reserve                        |                |   | 5,086     |            |  |   | 843        |       |  |             |      |        |               |   | 1,781  |        |  |   | 4,148  |       
|                              | Litigation reserve                           |                |   | 3,193     |            |  |   |           |       |  |             |      |        |               |   | 3,193  |        |  |   |       |       
|                              | Allowance for Doubtful Accounts              |                |   | 2,332     |            |  |   | 376        |       |  |             | 102   |        |               |   | 7      |        |  |   | 2,803  |       
|                              | Tax Valuation Allowance                      |                |   |          |            |  |   | 480        |       |  |             |      |        |               |   |       |        |  |   | 480    |       
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|                              |                                              | Total          |   | $         | 38,093     |  |   | $          | 9,087 |  |             | $     | 102    |               |   | $      | 6,688  |  |   | $      | 40,594 | 
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|Year Ended December 31, 2004: |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |   |        |        |  |   |       
|                              | Reserve for remediation and compliance costs |                | $ | 33,163    |            |  | $ | 1,467      |       |  | $           |      |        |               | $ | 2,246  |        |  | $ | 32,384 |       
|                              | Restructuring reserve                        |                |   | 4,148     |            |  |   |           |       |  |             | 346   |        |               |   | 1,434  |        |  |   | 3,060  |       
|                              | Allowance for Doubtful Accounts              |                |   | 2,803     |            |  |   | 231        |       |  |             |      |        |               |   | 301    |        |  |   | 2,733  |       
|                              | Tax Valuation Allowance                      |                |   | 480       |            |  |   | 7,505      |       |  |             |      |        |               |   | 480    |        |  |   | 7,505  |       
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  
|                              |                                              | Total          |   | $         | 40,594     |  |   | $          | 9,203 |  |             | $     | 346    |               |   | $      | 4,461  |  |   | $      | 45,682 | 
|                              |                                              |                |   |           |            |  |   |            |       |  |             |       |        |               |  






|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(a) | Liability was recorded in connection with our acquisition of
    USMR in July, 2002.







46



---



##### 



|        |          |  |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -------- |  | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  |                        
|No.     |          |  | Description of Exhibits
|        |          |  |                        
|        | 2.1(4)   |  |                         | Agreement and Plan of Merger by and among United Defense
    Industries, Inc., UDII Torch Acquisition Corporation, United
    States Marine Repair, Inc., and TC Group L.L.C. as
    representative dated May 27, 2002                                                                                                                                                                                                                                                                                                            
|        | 3.1(1)   |  |                         | Second Amended and Restated Certificate of Incorporation of
    United Defense Industries, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 3.2(6)   |  |                         | Third Amended and Restated Bylaws of United Defense Industries,
    Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4.1(1)   |  |                         | Form of stock certificate of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 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(8)  |  |                         | Modification No. 13 to the Sub-Lease Agreement among the
    Louisville/ Jefferson County Development Authority, Inc. and
    United Defense, LP, 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, LP                                                                                                                                                                            
|        | 10.4(8)  |  |                         | Amendment dated June 6, 2003 to the Facilities contract
    number N00024-93-E-8521, dated November 16, 1992 among
    United Defense, LP, Armament Systems Divisions and the
    U.S. Government Naval Sea Systems Command                                                                                                                                                                                                                                                                                                       
|        | 10.6(8)  |  |                         | Employment Agreement with Alexander J. Krekich, dated as of
    December 12, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.7(3)  |  |                         | Employment Agreement with Thomas W. Rabaut, dated as of
    May 21, 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.8(1)  |  |                         | First Amendment to Employment Agreement with Thomas W. Rabaut,
    dated as of July 18, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.9(3)  |  |                         | Employment Agreement with Francis Raborn, dated as of
    May 21, 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.10(1) |  |                         | First Amendment to Employment Agreement with Francis Raborn,
    dated July 18, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.11(8) |  |                         | Amended and Restated Credit Agreement dated as of
    August 13, 2001 and amended and restated as of July 2,
    2002 among United Defense Industries, Inc., various lending
    institutions, Deutsche Bank Securities, Inc. and Lehman
    Brothers, Inc., as co-lead arrangers, Deutsche Bank
    Trust Company Americas, as Administrative Agent, Lehman
    Commercial Paper, Inc., as Syndication Agent and Citicorp USA,
    Inc., The Bank of Nova Scotia and Credit Lyonnais New York
    Branch, as Documentation Agents
|        | 10.12(8) |  |                         | United Defense Incentive Award Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.13(2) |  |                         | Form of Option Contract                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.14(5) |  |                         | Amendment No. 1 to United Defense Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.15(5) |  |                         | Amendment No. 2 to United Defense Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.17(1) |  |                         | Management Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.18(1) |  |                         | UDLP Employees Pension Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.19(1) |  |                         | UDLP Excess Pension Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.20(1) |  |                         | Form of Retention Bonus Plan Award Letter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.21(1) |  |                         | Severance Pay Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.22(8) |  |                         | First Amendment to Credit Agreement dated as of
    November 19, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.23(7) |  |                         | Indemnification agreements with each of the following directors
    and executive officers: Elmer Doty, John W. Hendrix,
    Keith B. Howe, Alan J. Krekich, David V. Kolovat,
    Dennis A. Wagner III, Frank C. Carlucci,
    Peter J. Clare, William E. Conway, Jr., C. Thomas
    Faulders, III, Adm. Robert J. Natter (Ret.), Gen.
    J.H. Binford Peay, III (Ret.), Thomas W. Rabaut,
    Francis Raborn, General John M. Shalikashvilli (Ret.)                                                                            
|        | 23.1(10) |  |                         | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 31.1(10) |  |                         | Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 31.2(10) |  |                         | Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

47



---



##### 



|        |          |  |                         |                                         
|------- | -------- |  | ----------------------- | ----------------------------------------
|Exhibit |          |  |                        
|No.     |          |  | Description of Exhibits
|        |          |  |                        
|        | 32.1(10) |  |                         | Certification of Chief Executive Officer
|        | 32.2(10) |  |                         | Certification of Chief Financial Officer






|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 1999.                                                                 
|   
|(4) | Incorporated by reference to the Companys Report on
    Form 8-K filed June 4, 2002.                                                                                   
|   
|(5) | Incorporated by reference to the Companys Report on
    Form 10-Q for the year ended September 30, 2002.                                                               
|   
|(6) | Incorporated by reference to the Companys Report on
    Form 8-K filed December 7, 2004.                                                                               
|   
|(7) | Incorporated by reference to the Companys Report on
    Form 8-K filed December 10, 2004.                                                                              
|   
|(8) | Incorporated by reference to the Companys Report on
    Form 10-K filed March 8, 2004.                                                                                 
|   
|(9) | Incorporated by reference to the Companys Report on
    Form 8-K filed January 11, 2005.                                                                               



|     |               
|---- | --------------
|(10) | Filed herewith

48



---



##### 






SIGNATURES






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

| |                                                
| | -----------------------------------------------
| |                                                
| | Francis Raborn                                 
| | Chief Financial Officer and Principal Financial
| | and Accounting Officer of the Registrant       





|                                                           |  |                                                          |  |               |  | 
|---------------------------------------------------------- |  | -------------------------------------------------------- |  | ------------- |  | 
|Name                                                       |  | Title                                                    |  | Date         
|                                                           |  |                                                          |  |              
|                                                          
|/s/ Thomas W. RabautThomas
    W. Rabaut                   |  | President, Chief Executive Officer
    and Director      |  | March 2, 2005
|                                                          
|/s/ Francis RabornFrancis
    Raborn                       |  | Vice President, Chief Financial
    Officer and Director |  | March 2, 2005
|                                                          
|/s/ William E. Conway,
    Jr.William
    E. Conway, Jr.   |  | Chairman of the Board                                    |  | March 2, 2005
|                                                          
|/s/ Frank C. CarlucciFrank
    C. Carlucci                 |  | Director                                                 |  | March 2, 2005
|                                                          
|/s/ Peter J. ClarePeter
    J. Clare                       |  | Director                                                 |  | March 2, 2005
|                                                          
|/s/ C. Thomas Faulders,
    IIIC.
    Thomas Faulders, III |  | Director                                                 |  | March 2, 2005
|                                                          
|/s/ John M.
    ShalikashviliJohn
    M. Shalikashvili     |  | Director                                                 |  | March 2, 2005
|                                                          
|/s/ J. H. Binford Peay,
    IIIJ.H.
    Binford Peay, III  |  | Director                                                 |  | March 2, 2005
|                                                          
|/s/ Robert J. NatterRobert
    J. Natter                   |  | Director                                                 |  | March 2, 2005

49