EX-9.1 2 w39939exv9w1.htm EX-9.1 exv9w1
 

Exhibit 9.1
UNAUDITED PRO FORMA FINANCIAL INFORMATION
     The following unaudited pro forma financial statements give effect to the September 18, 2007 sale of VSK. The unaudited pro forma condensed consolidated balance sheet and statements of operations filed with this report are presented for illustrative purposes only. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 has been prepared to reflect the sale of VSK as if such sale had taken place on such date, and is not necessarily indicative of the financial position of the Company had the sale occurred on that date. The unaudited pro forma condensed consolidated results of operations for the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005 and 2004, have been prepared assuming that the transaction occurred on January 1, 2006 and are not necessarily indicative of the results of operations for future periods or the results that actually would have been realized had we sold VSK as of those dates. The unaudited pro forma financial statements, including notes thereto, should be read in conjunction with the historical financial statements of the Company included in our Form 10-K for the year ended December 31, 2006 and the unaudited financial statements filed in our Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.

 

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                         
    June 30, 2007  
    Historical     VSK Disposition     Pro Forma  
ASSETS
                        
Current Assets
                        
Cash and cash equivalents
   $ 6,159     $ 41,841 (1) (2)   $ 48,000  
Restricted cash
     6,091       —       6,091  
Accounts receivable, net
     15,524       (8,866 )(2)     6,658  
Costs and accrued earnings on uncompleted contracts
     15,652       —       15,652  
Inventories, net
     25,237       (1,854 )(2)     23,383  
Prepaid and other current assets
     3,778       (1,163 )(2)     2,615  
Assets held for sale
     3,422       —       3,422  
 
                  
Total current assets
     75,863       29,958       105,821  
 
                  
 
                        
Property, Plant and Equipment, net
     31,837       (4,709 )(2)     27,128  
 
                  
 
                        
Other Assets
                        
Intangible assets, net
     9,048       (40 )(2)     9,008  
Goodwill
     16,335       (5,008 )(2)     11,327  
Deferred tax asset
     —       12,015 (5)        
 
             (12,015 )(3)     —  
Other assets
     145       (27 )(2)     118  
 
                  
Total other assets
     25,528       (5,075 )     20,453  
 
                  
 
                        
TOTAL ASSETS
   $ 133,228     $ 20,174     $ 153,402  
 
                  
 
                        
CURRENT LIABILITIES
                        
Bank overdraft facility
   $ 9,057     $ —     $ 9,057  
Current maturities of long-term debt
     9,216       (182 )(2)     9,034  
Accounts payable
     16,722       (3,673 )(2)     13,049  
Accrued liabilities
     16,934       (944 )(2)     15,990  
Deferred revenue
     1,347       (1,347 )(2)     —  
Customer deposits
     12,061       (37 )(2)     12,024  
Foreign exchange contracts
     8       (8 )(2)     —  
Income taxes
     4,097       (743 )(2)     3,354  
Liabilities held for sale
     2,443       —       2,443  
 
                  
Total current liabilities
     71,885       (6,934 )     64,951  
 
                  
 
                        
LONG TERM OBLIGATIONS
                        
Long-term debt, less current maturities and unamortized discount
     3,496       (204 )(2)     3,292  
Senior secured convertible notes
     32,607       —       32,607  
Deferred tax liability, non-current
     15       (15 )(2)     —  
Derivative instrument
     294       —       294  
Other long-term liabilities
     576       —       576  
 
                  
Total long-term obligations
     36,988       (219 )     36,769  
 
                  
 
                        
TOTAL LIABILITIES
     108,873       (7,153 )     101,720  
 
                  
 
                        
CONTINGENCIES AND COMMITMENTS
                        
 
                        
STOCKHOLDERS’ EQUITY
                        
 
                        
Preferred stock, no par value; authorized 1,000,000 shares; none issued
     —               —  
Common stock, par value, $.10 per share; authorized 30,000,000 shares; issued and outstanding, 7,800,912 at June 30, 2007
     780       —       780  
Capital in excess of par value
     53,428       —       53,428  
Retained deficits
     (48,640 )     12,015 (5)        
 
             19,029 (3)     (17,596 )
Accumulated other comprehensive income
     18,787       (3,717 )(2)     15,070  
 
                  
Total stockholders’ equity
     24,355       27,327       51,682  
 
                  
 
                        
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   $ 133,228     $ 20,174     $ 153,402  
 
                  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                         
    Six months ended June 30, 2007  
    Historical     VSK Disposition     Pro Forma  
Revenues
   $ 34,505     $ (16,694 )(4)   $ 17,811  
 
                        
Cost and expenses
                        
Cost of sales
     32,769       (9,435 )(4)     23,334  
Selling and administrative
     18,998       (3,952 )(4)     15,046  
Research and development
     3,680       (1,653 )(4)     2,027  
 
                  
 
                        
Operating loss
     (20,942 )     (1,654 )     (22,596 )
 
                  
 
                        
Other income (expenses)
                        
Interest income
     420       (103 )(4)     317  
Interest expense
     (8,286 )     80 (4)     (8,206 )
Net (loss) gain on fair value of senior convertible notes and warrants
     (7,766 )     —       (7,766 )
Other-net
     9       (140 )(4)     (131 )
 
                  
 
     (15,623 )     (163 )     (15,786 )
 
                  
 
                        
Loss from continuing operations before income taxes
     (36,565 )     (1,817 )     (38,382 )
 
                        
Income tax expense
     779       (761 )(4)     18  
 
                  
 
                        
Loss from continuing operations
     (37,344 )     (1,056 )     (38,400 )
 
                        
Discontinued operations, net of tax
     (4,665 )     —       (4,665 )
 
                  
 
                        
NET LOSS
   $ (42,009 )   $ (1,056 )   $ (43,065 )
 
                  
 
                        
Loss per share — basic and diluted:
                        
 
                        
Net loss from continuing operations
   $ (5.74 )           $ (5.90 )
Net loss from discontinued operations
     (0.72 )             (0.71 )
 
                    
Total loss per share — basic and diluted
   $ (6.46 )           $ (6.61 )
 
                    
 
                        
Weighted average number of common shares:
                        
 
                        
Basic
     6,510,211               6,510,211  
Diluted
     6,510,211               6,510,211  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                         
    Year ended December 31, 2006  
    Historical     VSK Disposition     Pro Forma  
Revenues
   $ 121,680     $ (31,130 )(4)   $ 90,550  
 
                        
Cost and expenses
                        
Cost of sales
     102,903       (17,647 )(4)     85,256  
Selling and administrative
     34,520       (7,061 )(4)     27,459  
Research and development
     7,919       (2,928 )(4)     4,991  
 
                  
 
                        
Operating loss
     (23,662 )     (3,494 )     (27,156 )
 
                  
 
                        
Other income (expenses)
                        
Interest income
     1,050       (183 )(4)     867  
Interest expense
     (9,015 )     132 (4)     (8,883 )
Net gain on fair value of senior convertible notes and warrants
     1,901       —       1,901  
Other-net
     1,967       (231 )(4)     1,736  
 
                  
 
     (4,097 )     (282 )     (4,379 )
 
                  
 
                        
Loss from continuing operations before income taxes
     (27,759 )     (3,776 )     (31,535 )
 
                        
Income tax expense
     12,598       (1,258 )(4)     11,340  
 
                  
 
                        
Loss from continuing operations
     (40,357 )     (2,518 )     (42,875 )
 
                        
Discontinued operations, net of tax
     (740 )     —       (740 )
 
                  
 
NET LOSS
   $ (41,097 )   $ (2,518 )   $ (43,615 )
 
                  
 
                        
Loss per share — basic and diluted:
                        
 
                        
Net loss from continuing operations
   $ (6.66 )           $ (7.07 )
Net loss from discontinued operations
     (0.12 )             (0.12 )
 
                    
Total loss per share — basic and diluted
   $ (6.78 )           $ (7.19 )
 
                    
 
                        
Weighted average number of common shares:
                        
 
                        
Basic
     6,065,732               6,065,732  
Diluted
     6,065,732               6,065,732  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                         
    Six months ended June 30, 2006  
    Historical     VSK Disposition     Pro Forma  
Revenues
   $  64,765     $ (14,343 )(4)   $ 50,422  
 
                        
Cost and expenses
                        
Cost of sales
     50,503       (8,119 )(4)     42,384  
Selling and administrative
     17,345       (3,619 )(4)     13,726  
Research and development
     3,409       (1,500 )(4)     1,909  
 
                  
 
                        
Operating loss
     (6,492 )     (1,105 )     (7,597 )
 
                  
 
                        
Other income (expenses)
                        
Interest income
     286       (78 )(4)     208  
Interest expense
     (3,715 )     61 (4)     (3,654 )
Net (loss) gain on fair value of senior convertible notes and warrants
     1,014       —       1,014  
Other-net
     959       (85 )(4)     874  
 
                  
 
     (1,456 )     (102 )     (1,558 )
 
                  
 
                        
Loss from continuing operations before income taxes
     (7,948 )     (1,207 )     (9,155 )
 
                        
Income tax expense (benefit)
     —       (1,084 )(4)     (1,084 )
 
                  
 
                        
Loss from continuing operations
     (7,948 )     (123 )     (8,071 )
 
                        
Discontinued operations, net of tax
     (796 )     —       (796 )
 
                  
 
                        
NET LOSS
   $  (8,744 )   $ (123 )   $  (8,867 )
 
                  
 
                        
Loss per share — basic and diluted:
                        
 
                        
Net loss from continuing operations
   $  (1.32 )           $  (1.34 )
Net loss from discontinued operations
     (0.13 )             (0.13 )
 
                    
Total loss per share — basic and diluted
   $  (1.45 )           $  (1.47 )
 
                    
 
                        
Weighted average number of common shares:
                        
 
                        
Basic
     6,029,251               6,029,251  
Diluted
     6,029,251               6,029,251  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                           
    Year ended December 31, 2005  
    Historical     VSK Disposition       Pro Forma  
 
Revenues
   $ 106,198     $ (30,761 ) (4)   $ 75,437  
 
                          
Cost and expenses
                          
Cost of sales
     89,917       (16,480 ) (4)     73,437  
Selling and administrative
     32,085       (6,570 ) (4)     25,515  
Research and development
     6,752       (2,682 ) (4)     4,070  
 
                    
 
                          
Operating loss
     (22,556 )     (5,029 )       (27,585 )
 
                    
 
                          
Other income (expenses)
                          
Interest income
     557       (209 ) (4)     348  
Interest expense
     (2,563 )     79   (4)     (2,484 )
Other—net
     (1,970 )     (258 ) (4)     (2,228 )
 
                    
 
     (3,976 )     (388 )       (4,364 )
 
                    
 
                          
Loss from continuing operations before income taxes and cumulative effect of accounting change
     (26,532 )     (5,417 )       (31,949 )
 
                          
Income tax expense (benefit)
     (35 )     (2,001 ) (4)     (2,036 )
 
                    
 
                          
Loss from continuing operations before cumulative effect of accounting change
     (26,497 )     (3,416 )       (29,913 )
 
                          
Discontinued operations, net of tax
     (7,130 )     —         (7,130 )
 
                          
Cumulative effect of accounting change, net of tax benefit of $2,726
     (5,293 )     —         (5,293 )
 
                    
 
                          
NET LOSS
   $ (38,920 )   $ (3,416 )     $ (42,336 )
 
                    
 
                          
Loss per share — basic and diluted:
                          
 
                          
Net loss from continuing operations before cumulative effect of accounting change
   $ (4.60 )             $ (5.20 )
Net loss from discontinued operations
     (1.24 )               (1.24 )
Cumulative effect of accounting change, net of income taxes
     (0.92 )               (0.92 )
 
                      
Total loss per share — basic and diluted
   $ (6.76 )             $ (7.36 )
 
                      
 
                          
Weighted average number of common shares:
                          
 
                          
Basic
     5,754,951                 5,754,951  
Diluted
     5,754,951                 5,754,951  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)
                         
    Year ended December 31, 2004  
    Historical     VSK Disposition     Pro Forma  
 
                        
Revenues
   $ 139,766     $ (29,826 )(4)   $ 109,940  
 
                        
Cost and expenses
                        
Cost of sales
     102,161       (15,166 )(4)     86,995  
Selling and administrative
     25,964       (6,389 )(4)     19,575  
Research and development
     4,321       (2,454 )(4)     1,867  
 
                  
 
                        
Operating income
     7,320       (5,817 )     1,503  
 
                  
 
                        
Other income (expenses)
                        
Interest income
     527       (230 )(4)     297  
Interest expense
     (2,440 )     47  (4)     (2,393 )
Other-net
     (663 )     (137 )(4)     (800 )
 
                  
 
     (2,576 )     (320 )     (2,896 )
 
                  
 
                        
Income (loss) from continuing operations before income taxes
     4,744       (6,137 )     (1,393 )
 
                        
Income tax expense (benefit)
     1,720       (2,195 )(4)     (475 )
 
                  
 
                        
Income (loss) from continuing operations
     3,024       (3,942 )     (918 )
 
                        
Discontinued operations, net of tax
     (1,654 )     —       (1,654 )
 
                  
 
                        
NET INCOME (LOSS)
   $ 1,370     $ (3,942 )   $  (2,572 )
 
                  
 
                        
Income (loss) per share — basic:
                        
 
                        
Net income (loss) from continuing operations
   $ 0.53             $  (0.16 )
Net loss from discontinued operations
     (0.30 )             (0.30 )
 
                    
Total income (loss) per share — basic
   $ 0.25             $  (0.46 )
 
                    
 
                        
Income (loss) per share — diluted:
                        
 
                        
Net income (loss) from continuing operations
   $ 0.53             $  (0.16 )
Net loss from discontinued operations
     (0.29 )             (0.30 )
 
                    
Total income (loss) per share — diluted
   $ 0.24             $ (0.46 )
 
                    
 
                        
Weighted average number of common shares:
                        
 
                        
Basic
     5,568,183               5,568,183  
Diluted
     5,745,282               5,568,183  
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

 

The Allied Defense Group, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial statements give effect to the pro forma adjustments necessary to reflect the disposition of VSK Electronics NV as if the disposition was effective for the periods presented in the unaudited pro forma condensed consolidated statements of operations and as of June 30, 2007, in the unaudited pro forma condensed consolidated balance sheet. The Company’s historical amounts represent the Company’s consolidated balance sheets and statements of operations derived from our Annual report on Form 10-K for the years ended December 31, 2006, 2005 and 2004 and quarterly reports on Forms 10-Q for the periods ended June 30, 2007 and 2006.
PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed consolidated statements of operations and balance sheet reflect the effect of the following pro forma adjustments:
     
(1)   To record the net cash received upon the sale of VSK, as follows:
         
Gross cash proceeds, including $62 related to working capital adjustments
   $  49,066  
 
        
Funds held in escrow
     (2,760 )
 
        
Investment banker, legal, accounting and other transaction costs, including management incentives
     (2,968 )
 
      
 
        
Net cash received
     43,338  
 
        
Less: VSK’s cash balance at 6/30/2007
     (1,497 )
 
      
 
        
Net proforma adjustment to cash
   $  41,841  
 
      
     
(2)   To remove the assets, liabilities and accumulated other comprehensive income of VSK at June 30, 2007.
 
(3)   To record the estimated gain on the sale of VSK, as follows:
         
Net cash received
   $  43,338  
Net assets sold
     (16,011 )
Other comprehensive income related to VSK
     3,717  
 
      
 
        
Gain before income taxes
     31,044  
 
        
Income taxes*
     (12,015 )
 
      
 
        
Net gain †
   $  19,029  
 
      
 
*   - This income tax amount is not expected to be paid, as the gain from the sale of VSK was offset by existing net operating loss carryforwards. This $12,015 benefit will be reported as a reduction of the income tax provision for continuing operations.
 
†   - The Stock Purchase Agreement requires a total of $2,760 be held in escrow pending the resolution of certain contingencies. Such amounts have been excluded from the net pro forma gain calculation in the table above. If these contingencies are resolved in favor of the Company, the additional consideration received will serve to increase the Company’s gain on the sale of VSK.

 

 

The Allied Defense Group, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
     
(4)   To remove revenue and expenses of VSK for the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005 and 2004.
 
(5)   To reverse the valuation allowance recorded against the deferred tax benefit related to $35,338 of net operating loss carryforwards previously determined to expire unused.