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Audited Financial Statements
United Defense, L.P.
As of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996
with Report of Independent Auditors
[ERNST & YOUNG LOGO]
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United Defense, L.P.
Audited Financial Statements
As of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996
CONTENTS
Report of Independent Auditors...................................... 1
Audited Financial Statements
Balance Sheets...................................................... 2-3
Statements of Income................................................ 4
Statements of Partners' Capital..................................... 5
Statements of Cash Flows............................................ 6
Notes to Financial Statements....................................... 7-17
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[ERNST & YOUNG LETTERHEAD]
Report of Independent Auditors
Partners
United Defense, L.P.
We have audited the accompanying balance sheets of United Defense, L.P. as of
December 31, 1996 and 1995, and the related statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Defense, L.P. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 15, 1997
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United Defense, L.P.
Balance Sheets
DECEMBER 31
1996 1995
-----------------------
(In Thousands)
ASSETS
Current assets:
Cash and marketable securities $ 23 $ 896
Short-term investment with FMC Corporation 19,497 30,350
Trade receivables 85,483 98,929
Inventories (Note 3) 345,738 232,285
Other current assets 4,021 9,165
-------- --------
Total current assets 454,762 371,625
Investments in affiliated companies 7,192 7,662
Property, plant and equipment (Note 4) 466,493 475,891
Less -- accumulated depreciation 359,163 360,087
-------- --------
Net property, plant and equipment 107,330 115,804
Patents and deferred charges (Note 5) 34,194 39,132
Prepaid pension cost (Note 6) 41,501 35,381
-------- --------
Total assets $644,979 $569,604
======== ========
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DECEMBER 31
1996 1995
-----------------------
(In Thousands)
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable, trade and other $ 71,723 $ 98,385
Advanced payments 258,990 194,276
Accrued and other liabilities 72,400 62,698
Due to FMC Corporation for current services 5,094 5,011
-------- --------
Total current liabilities 408,207 360,370
Accrued pension cost (Note 6) 25,641 17,765
Accrued postretirement benefit cost (Note 7) 31,493 35,036
-------- --------
Total liabilities 465,341 413,171
Commitments and contingencies (Notes 9, 11, and 12)
Partners' capital
FMC Corporation 136,889 122,989
Harsco Corporation 42,749 33,444
-------- --------
Total partners' capital 179,638 156,433
-------- --------
Total liabilities and partners' capital $644,979 $569,604
======== ========
See accompanying notes.
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United Defense, L.P.
Statements of Income
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
(In Thousands)
Revenue:
Sales $1,029,333 $ 967,553 $1,076,259
Costs and expenses:
Cost of sales 820,845 746,701 809,813
Selling, general and administrative
expenses 128,455 122,675 131,822
Research and development 12,853 12,422 16,311
---------- --------- ----------
962,153 881,798 957,946
---------- --------- ----------
Income from operations 67,180 85,755 118,313
Other income (expense):
Earnings related to investments in
foreign affiliates 31,916 21,393 12,471
Interest 1,933 2,744 2,569
Miscellaneous, net -- (798) 52
---------- --------- ----------
Income before income taxes 101,029 109,094 133,405
Provision for income taxes (Note 2) 2,859 1,429 3,878
---------- --------- ----------
Net income $ 98,170 $ 107,665 $ 129,527
========== ========= ==========
See accompanying notes.
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United Defense, L.P.
Statements of Partners' Capital
FMC HARSCO TOTAL
-------------------------------------------
(In Thousands)
Initial partnership contributions as of
January 1, 1994 $ 124,740 $ 29,600 $ 154,340
Distributions 1994 (90,117) (70,054) (160,171)
1994 Net income 69,736 59,791 129,527
--------- -------- ---------
Balance, December 31, 1994 104,359 19,337 123,696
Distributions 1995 (37,117) (37,811) (74,928)
1995 Net income 55,747 51,918 107,665
--------- -------- ---------
Balance, December 31, 1995 122,989 33,444 156,433
Distributions 1996 (36,999) (37,966) (74,965)
1996 Net income 50,899 47,271 98,170
--------- -------- ---------
Balance, December 31, 1996 $ 136,889 $ 42,749 $ 179,638
========= ======== =========
See accompanying notes.
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United Defense, L.P.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 98,170 $ 107,665 $ 129,527
Adjustments for noncash components of net income:
Depreciation 26,327 26,728 28,993
Amortization of restructuring costs 12,667 -- --
Other 519 (3,543) 78
Changes in assets and liabilities:
Trade receivables 13,446 (17,678) 7,401
Inventories (113,453) (49,320) (2,609)
Other current assets 5,144 780 (964)
Prepaid pension cost (6,120) (3,446) (5,898)
Restructuring costs (7,778) (23,498) (7,044)
Accounts payable, trade and other (26,662) 23,327 (2,290)
Advanced payments 64,714 28,859 (8,613)
Accrued and other liabilities 9,702 4,038 21,912
Due to FMC Corporation for current services 83 2,498 2,513
Accrued pension cost 7,876 5,419 6,072
Accrued postretirement benefit costs (3,543) (7,171) (3,069)
--------- --------- ---------
Cash provided by operating activities 81,092 94,658 166,009
INVESTING ACTIVITIES
Capital spending (22,396) (24,124) (18,259)
Disposal of property, plant and equipment 4,543 3,640 1,138
Short-term investment with FMC Corporation 10,853 (30,350) --
--------- --------- ---------
Cash used in investing activities (7,000) (50,834) (17,121)
FINANCING ACTIVITIES
Cash contributions from Partners 41,670
Partner distributions (74,965) (74,928) (160,171)
--------- --------- ---------
Cash used in financing activities (74,965) (74,928) (118,501)
--------- --------- ---------
Increase (decrease) in cash and marketable securities (873) (31,104) 30,387
Cash and marketable securities, beginning of period 896 32,000 1,613
--------- --------- ---------
Cash and marketable securities, end of period $ 23 $ 896 $ 32,000
========= ========= =========
See accompanying notes.
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United Defense, L.P.
Notes to Financial Statements
As of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996
1. FORMATION OF UNITED DEFENSE, L.P.
On January 28, 1994, FMC Corporation (FMC) and Harsco Corporation (Harsco)
announced completion of a series of agreements to combine certain assets and
liabilities of FMC's Defense Systems Group (DSG) and Harsco's BMY Combat Systems
Division (BMY). The effective date of the combination was January 1, 1994. The
combined company, United Defense, L. P. (the partnership), will operate as a
limited partnership. FMC is the Managing General Partner with a 60% equity
interest and Harsco Defense Holding is a Limited Partner holding a 40% equity
interest.
The partnership designs, develops and manufactures various tracked armored
combat vehicles and a wide spectrum of weapons delivery systems for the armed
forces of the United States and nations around the world.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the partnership and its wholly
owned subsidiaries. Intercompany accounts and transactions are eliminated in
consolidation.
SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes,
in particular, estimates of contract cost and revenues used in the earnings
recognition process. Actual results could differ from those estimates.
REVENUE RECOGNITION FOR CONTRACTS-IN-PROGRESS
Sales are recognized on most production contracts as deliveries are made or
accepted. Sales under cost reimbursement contracts for research, engineering,
prototypes, repair and
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United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION FOR CONTRACTS-IN-PROGRESS (CONTINUED)
maintenance and certain other contracts are recorded as costs are incurred and
include estimated fees in the proportion that costs incurred to date bear to
total estimated costs. Changes in estimates for sales and profits are recognized
in the period in which they are determinable using the cumulative catch-up
method. Claims are considered in the estimated contract performance at such time
as realization is probable. Any anticipated losses on contracts are charged to
operations as soon as they are determinable.
During 1996, the partnership recognized a $14.3 million reduction in cost of
sales as a result of a settlement with the U.S. government on the cost of a
component supplied by the U.S. government on a group of related contracts.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
on the last-in, first-out (LIFO) basis, except for inventories relating to
long-term contracts. Inventoried costs relating to long-term contracts not
valued on the LIFO basis are stated at the actual production cost incurred to
date, reduced by amounts recognized as cost of sales. The costs attributed to
units delivered under contracts are based on gross margins expected to be
realized over the life of the related contract. Gross margins are based on the
estimated revenue less the estimated cost of all units expected to be produced
over the life of the related contract.
Inventory costs include manufacturing overhead. Costs normally associated with
general and administrative functions, independent research and bid and proposal
are expensed as incurred.
BMY had followed the accounting practice of capitalizing general and
administrative expense in inventory. To conform with the partnership's
accounting policy and the agreement between FMC and Harsco, $7.4 million of such
expenses, which were included in the inventory contributed by Harsco, were
charged against income during 1994.
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United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN AFFILIATED COMPANIES
The investment in a majority owned foreign joint venture in Turkey is carried at
cost since there is uncertainty regarding the partnership's ability to control
this venture or to repatriate earnings, and because of the extreme volatility of
foreign exchange rates in the country in which this venture is active. Income is
recognized as dividends are received. In 1996, the partnership changed its
method of accounting for its investment in a foreign-owned joint venture in
Saudi Arabia from the cost to the equity method. Equity in earnings from this
venture was $4.6 million for 1996. Dividends received were $28.1 million, $21.4
million and $12.4 million during 1996, 1995 and 1994, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is provided
principally on the sum-of-the-years digits and straight-line methods over
estimated useful lives of the assets (land improvements - twenty years;
buildings - twenty to thirty-five years; and machinery and equipment - three to
twelve years). Gains and losses realized upon sale or retirement of assets are
included in other income.
Maintenance and repairs are expensed as incurred. Expenditures that extend the
useful life of property, plant and equipment or increase its productivity are
capitalized and depreciated.
ADVANCED PAYMENTS RECEIVED FROM CUSTOMERS
Amounts advanced by customers as deposits on orders not yet billed and progress
payments on contracts-in-progress are recorded as current liabilities.
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximated their carrying values at
December 31, 1996 and 1995. Fair values have been determined through information
obtained from market sources and management estimates.
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United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL
Under the Participation Agreement between FMC and Harsco each partner generally
is financially accountable to the partnership for environmental conditions
occurring prior to formation of the partnership at facilities or properties
previously operated or used in their respective businesses, to the extent that
costs incurred are not recovered from third parties or not covered by
environmental accruals contributed by the parties at formation. At December 31,
1996 and 1995, $4.2 million and $4.9 million, respectively, of the FMC
contributed accruals and $1.4 million and $1.7 million, respectively, of the
Harsco contributed accruals are unused.
INCOME TAXES
As a limited partnership, income or loss passes to the partners and is taxable
at that level, except for taxes payable on the income of the partnership's
Foreign Sales Corporation (FSC) subsidiary. The FSC paid income taxes amounting
to $1.8 million, $3.5 million and $3.6 million during 1996, 1995 and 1994,
respectively.
CASH FLOWS
Marketable securities consists of investments with initial maturities of three
months or less.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1994 the partnership adopted the provisions of FAS 112,
"Employer's Accounting for Postemployment Benefits." This statement requires
accrual of liabilities for postemployment benefits provided to former or
inactive employees, their beneficiaries, and covered dependents after
employment, but before retirement, if those liabilities can be reasonably
estimated. Adoption of FAS 112 resulted in a charge to the partnership's 1994
earnings amounting to $826,000.
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United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified in the accompanying financial
statements to conform with the current year's presentation.
3. INVENTORIES
The current replacement cost of LIFO inventories exceeded their recorded values
by approximately $31.7 million and $25.4 million at December 31, 1996 and 1995,
respectively. Inventories on long-term contracts carried at actual production
cost total approximately $12.6 million and $25 million at December 31, 1996 and
1995, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
1996 1995
-------- --------
Buildings $ 55,305 $ 53,272
Machinery and equipment 382,573 395,468
Land and improvements 17,008 16,798
Construction in progress 11,607 10,353
-------- --------
466,493 475,891
Less: Accumulated depreciation 359,163 360,087
-------- --------
Net Property, plant and equipment $107,330 $115,804
======== ========
5. ADVANCE AGREEMENT
In October 1994 the partnership entered into an Advance Agreement with the U.S.
Department of Defense. Under the terms of the Agreement, the partnership is
permitted to defer certain costs associated with consolidation and restructuring
of its ground systems businesses that are incurred from January 1, 1994 through
June 30, 1996. Costs deferred will then be allocated ratably to contracts with
the Department of Defense for
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United Defense, L.P.
Notes to Financial Statements (continued)
5. ADVANCE AGREEMENT (CONTINUED)
thirty-six months beginning January 1, 1996. As of December 31, 1996 and 1995,
consolidation and restructuring costs deferred amount to $38.3 million and $30.5
million, respectively, and are included in patents and deferred charges in the
accompanying balance sheet. Accumulated amortization as of December 31, 1996 was
$12.7 million.
6. RETIREMENT PLANS
Substantially all of the partnership's domestic employees are covered by
retirement plans. Plans covering salaried employees provide pension benefits
based on years of service and compensation. Plans covering hourly employees
generally provide benefits of stated amounts for each year of service.
The partnership's funding policy is to make contributions based on the projected
unit credit method and to limit contributions to amounts that are currently
deductible for tax purposes.
The following table summarizes the assumptions used and the components of the
net pension cost for the years ended December 31, 1996, 1995 and 1994:
------------------------------------------
Assumptions: 1996 1995 1994
-------- -------- --------
Weighted average discount rate 8.00% 8.00% 8.00%
Rates of increase in future compensation levels 5.00% 5.00% 5.00%
Weighted average expected long-term asset return 9.62% 9.62% 9.60%
Components: (In Thousands)
Service cost $ 9,191 $ 8,744 $ 9,976
Interest cost on projected benefit obligation 19,826 18,008 16,967
Actual return on plan assets -- investment gains (61,135) (76,878) (6,106)
Net amortization and deferral 34,918 55,886 (16,238)
-------- -------- --------
Net pension cost $ 2,800 $ 5,760 $ 4,599
======== ======== ========
As part of the partnership's downsizing and consolidation program, an incentive
benefit package, which lowered the early retirement penalty, was offered to
salaried and non-union hourly employees who were at least fifty-five years of
age with ten or more years of service. In addition to the voluntary program,
early retirement penalties were also adjusted for certain salaried and hourly
employees affected by the downsizing and consolidation.
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United Defense, L.P.
Notes to Financial Statements (continued)
6. RETIREMENT PLANS (CONTINUED)
Pension expense includes a $1.2 million, $3.7 million and $3.8 million charge
related to special termination benefits (early retirement incentive) and a $0.4
million, $1.0 million and $0.9 million curtailment charge included in net
amortization and deferral relating to the elimination of employees for 1996,
1995 and 1994, respectively.
The funded status of the plans and accrued pension cost recognized in the
partnership's financial statements as of December 31, 1996 and 1995 are as
follows (in thousands):
1996 1995
------------------------------------------------------------
Over-funded Under-funded Over-funded Under-funded
Plans Plans Plans Plans
----------- ------------ ----------- ------------
Actuarial present value of benefits for
service rendered to date:
Accumulated benefit obligation based on
salaries to date, including vested
benefits of $219,217 for 1996 and
$197,675 for 1995 $(106,965) $(125,579) $(102,852) $(108,287)
--------- --------- --------- ---------
Additional benefits based on estimated future
salary levels -- (37,115) -- (32,366)
--------- --------- --------- ---------
Projected benefit obligation (106,965) (162,694) (102,852) (140,653)
Plan assets at fair market value (1) 208,380 175,830 182,507 153,565
--------- --------- --------- ---------
Plan assets in excess of projected benefit
obligation 101,415 13,136 79,655 12,912
Unrecognized net transition asset (8,512) 1,179 (10,640) 1,575
Unrecognized prior-service cost 5,756 6,550 2,776 7,535
Unrecognized net gain (57,158) (46,506) (36,410) (39,787)
--------- --------- --------- ---------
Net prepaid (accrued) pension cost $ 41,501 $ (25,641) $ 35,381 $ (17,765)
--------- --------- --------- ---------
(1) Primarily equities, bonds and fixed income securities.
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Substantially all of the partnership's employees are covered by postretirement
health care and life insurance benefit programs. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age and
service requirements. The cost of providing most of these benefits is shared
with retirees. The partnership has reserved the right to change or eliminate
these benefit plans.
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United Defense, L.P.
Notes to Financial Statements (continued)
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
During 1995, the partnership's medical contributions for certain hourly
employees were capped. This change, effective January 1, 1995, reduced the
benefit obligation by $9.9 million, amortizable over the remaining years of
service to full eligibility. Postretirement expenses in 1996 and 1995 include a
$0.9 million gain.
Postretirement expense in 1995 includes a $2.8 million curtailment gain as a
result of the partnership's downsizing and consolidation program.
The partnership funds a trust for retiree health and life benefits for employees
previously covered under the FMC benefit plans. During 1995, the partnership
began funding for benefits previously covered under the Harsco plan.
Actuarial assumptions used to determine costs and the benefit obligation include
a discount rate of 8% and weighted average expected return on long-term assets
of 9% for 1996, 1995, and 1994. The assumed rate of future increases in per
capita cost of health care benefits was 10% in 1996 and 1995, decreasing to 6%
by the year 2001 and after. Increasing the health care cost trend rates by one
percentage point would increase the accumulated benefit obligation by
approximately $2.8 million and would increase annual service and interest costs
by approximately $0.3 million.
The following table summarizes the components of net postretirement benefit cost
for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
------- ------- -------
(In Thousands)
Service cost $ 1,174 $ 1,412 $ 1,372
Interest cost on accumulated postretirement benefit obligation 4,159 3,935 4,576
Actual return on plan assets -- investment (gains) losses (4,916) (4,468) 364
Net amortization and deferral 981 (1,685) (2,203)
------- ------- -------
Net periodic postretirement benefit cost $ 1,398 $ (806) $ 4,109
======= ======= =======
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United Defense, L.P.
Notes to Financial Statements (continued)
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
The funded status of the plans and accrued postretirement benefit cost
recognized in the partnership's financial statements as of December 31, 1996 and
1995 are as follows:
1996 1995
-------- --------
Accumulated postretirement obligation:
Retirees $(35,734) $(33,135)
Fully eligible active participants (5,515) (5,244)
Other active participants (14,905) (14,433)
-------- --------
Accumulated postretirement benefit obligation (56,154) (52,812)
Plan assets at fair market value (1) 38,630 32,164
-------- --------
Accumulated postretirement benefit obligation in excess of plan
assets (17,524) (20,648)
Unrecognized net gains (13,969) (14,388)
-------- --------
Accrued postretirement benefit cost $(31,493) $(35,036)
======== ========
(1) Primarily equities and fixed income securities.
8. EMPLOYEES' THRIFT AND STOCK PURCHASE PLAN
Substantially all of the partnership's employees are eligible to participate in
the partnership's defined contribution savings plans designed to comply with the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and
Section 401(k) of the Internal Revenue Code. Charges against income for matching
contributions to the plans were $7.7 million, $6.6 million and $6.2 million in
1996, 1995 and 1994, respectively.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The partnership leases office space, plants and facilities, and various types of
manufacturing, data processing and transportation equipment. Rent expense for
1996, 1995 and 1994 was $12.9 million, $12.8 million and $10.8 million,
respectively. Minimum future rentals under noncancellable leases, excluding a
related party lease (See Note 12), are estimated to be payable $8.4 million in
1997, $6.4 million in 1998, $3.5 million in 1999, $0.6 million in 2000, $0.5
million in 2001, and $0.6 million thereafter. The real estate leases generally
provide for payment of property taxes, insurance and repairs by the partnership.
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United Defense, L.P.
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The partnership is subject to claims and suits arising in the ordinary course of
its operations. In the opinion of management, the ultimate resolution of any
current pending legal proceedings will not have a material effect on the
partnership's financial position or results of operations.
At December 31, 1996, the partnership has outstanding letters of credit in the
amount of $80.1 million as collateral for performance on long-term contracts.
10. PARTNERS' CAPITAL
Under the agreements of formation of the partnership, FMC and Harsco were
required to contribute net assets with an historical net book value of $154.3
million.
The agreement provides for allocation of profits and losses and distribution of
available cash generally on the basis of the partner's equity ownership
interests, after giving effect to a limited partner preferred distribution and
certain other items as agreed to by the partners. Under the terms of the
partnership agreement the partnership is required to make quarterly tax
distributions to each partner equal to the product of (i) such partner's share
of the adjusted taxable income of the partnership times (ii) 40%. In addition,
the partnership is required to make certain other distributions to the partners.
Such required distributions are also made with reference to the partnership's
adjusted taxable income.
FMC has the option to purchase or cause the partnership to purchase Harsco's
interest in the partnership for 110% of the appraised value of Harsco's interest
in the partnership subject to adjustment, as provided for in the partnership
agreement. Harsco has the option to require the partnership to purchase its
interest in the partnership for 95% of the appraised value of its partnership
interest similarly subject to adjustment as provided for in the partnership
agreement.
11. SIGNIFICANT CUSTOMER AND EXPORT SALES
Sales to various agencies of the U.S. Government aggregated $819.9 million,
$719.1 million and $614.9 million during 1996, 1995 and 1994, respectively. At
December 31, 1996 and 1995, trade accounts receivable from the U.S. Government
totaled $44.1 million and $77.4 million, respectively. Export sales, including
sales to foreign governments transacted through the U.S. Government, were $194.2
million, $216.3 million and $280.6 million during 1996, 1995 and 1994,
respectively.
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United Defense, L.P.
Notes to Financial Statements (continued)
12. RELATED PARTY TRANSACTIONS
The partnership has contracted with FMC for various administrative and support
services. These services include computer services, systems and programming,
data communications, employee relocation support, payroll processing, insurance
and general management support. During the years ended December 31, 1996, 1995
and 1994, the partnership paid $35.2 million, $39.8 million and $42.4 million,
respectively, to FMC for their support.
The partnership leases office and manufacturing facilities in San Jose,
California from FMC. Under the lease agreement monthly rent payments are
comprised of fixed base rent plus depreciation on the facilities. Fixed base
rent is $2.0 million per year and the lease expires December 31, 2003. During
1996, 1995 and 1994 the partnership incurred rent amounting to $3.7 million,
$3.9 million and $4.2 million, respectively, under this lease.
Sales of inventory to FMC during 1996, 1995 and 1994 amounted to $1.1 million,
$1.5 million and $2.8 million, respectively. Management believes that such
transactions were consummated on terms substantially similar to those that would
arise in transactions with third parties.
During 1995, the partnership entered into an agreement with FMC and Harsco
whereby the partnership's excess cash balances up to $40 million are invested
with FMC. Interest on these funds is earned based on the average monthly cost of
FMC's U.S. dollar revolver-related short-term borrowings for such month. In
addition, the partnership may offer short-term loans, not to exceed ninety days,
to the partners if funds are not immediately needed for working capital.
Interest on short-term borrowings is equal to LIBOR without premium. Interest on
all loans to FMC totaled $1.8 million and $1.1 million in 1996 and 1995.
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