-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UNa0FsPHwvcx9v2+wU5fuCV8yNH4ZE/O/ynPR7YBRbAJKp1VFGkpsTriyeTTFAHi GHjtIusF6Q7+zHOc7VYC5w== 0000950168-99-002758.txt : 19991108 0000950168-99-002758.hdr.sgml : 19991108 ACCESSION NUMBER: 0000950168-99-002758 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED RESEARCH CORP CENTRAL INDEX KEY: 0000003952 STANDARD INDUSTRIAL CLASSIFICATION: ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES) [3480] IRS NUMBER: 042281015 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11376 FILM NUMBER: 99741468 BUSINESS ADDRESS: STREET 1: 8000 TOWERS CRESCENT DR STREET 2: STE 750 CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7038475268 MAIL ADDRESS: STREET 1: 8000 TOWERS CRESCENT DRIVE STREET 2: STE 750 CITY: VIENNA STATE: VA ZIP: 22182 FORMER COMPANY: FORMER CONFORMED NAME: ALLIED RESEARCH ASSOCIATES INC DATE OF NAME CHANGE: 19880601 10-Q 1 ALLIED RESEARCH CORPORATION 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Mark one (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1999 ------------------ OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________ to _______________________ Commission File Number 0-2545 ---------------------- ALLIED RESEARCH CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 04-2281015 - ------------------------------ --------------------------- (State or other jurisdiction of (I.R.S. Employer Number) incorporation or organization) 8000 Towers Crescent Drive, Suite 750 Vienna, Virginia 22182 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 847-5268 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 1999: 4,845,758 ALLIED RESEARCH CORPORATION INDEX
- ------------------------------------------------------------------------------------------------------------------- PAGE PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER Item 1. Financial Statements Condensed Consolidated Balance Sheets December 31, 1998 and September 30, 1999.........................................3,4 Condensed Consolidated Statements of Earnings Three months and nine months ended September 30, 1999 and 1998.....................5 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 1999 and 1998......................................6 Notes to Condensed Consolidated Financial Statements........................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................11 PART II. OTHER INFORMATION..........................................................................15
ALLIED RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS) ASSETS (UNAUDITED) - --------------------------------------------------------------------------------
September 30, 1999 December 31, 1998 ------------------ ----------------- CURRENT ASSETS Cash and equivalents $14,396 $10,235 Restricted cash (notes 3 and 6) 11,303 14,014 Accounts receivable 17,920 29,446 Costs and accrued earnings on uncompleted contracts 7,277 20,887 Inventories 4,201 3,422 Prepaid expenses and deposits 1,601 10,094 ------- ------- Total current assets 56,698 88,098 PROPERTY, PLANT AND EQUIPMENT - AT COST Buildings and improvements 11,811 12,440 Machinery and equipment 29,796 31,776 Leasehold improvements 123 118 ------- ------- 41,730 44,334 Less accumulated depreciation 32,096 33,103 ------- ------- 9,634 11,231 Land 1,190 1,298 ------- ------- 10,824 12,529 OTHER ASSETS Restricted deposits (notes 3 and 6) - 6,670 Intangibles, net of amortization 4,623 4,961 Other 600 818 ------- ------- 5,223 12,449 ------- ------- $72,745 $113,076 ====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 3 ALLIED RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED (THOUSANDS OF DOLLARS) LIABILITIES (UNAUDITED) - --------------------------------------------------------------------------------
September 30, 1999 December 31, 1998 ------------------ ----------------- CURRENT LIABILITIES Notes payable $ 5,619 $ 3,415 Current maturities of long-term debt 1,025 1,324 Accounts and trade notes payable 8,059 25,379 Accrued liabilities 6,631 5,043 Accrued losses on contracts 340 786 Customer deposits 6,551 16,137 Income taxes 1,211 748 ------- ------- Total current liabilities 29,436 52,832 LONG-TERM DEBT, less current maturities 3,122 4,431 ADVANCE PAYMENTS ON CONTRACTS - 5,850 STOCKHOLDERS' EQUITY Preferred stock, no par value; authorized, 10,000 shares; none issued - - Common stock, par value, $.10 per share; authorized 10,000,000 shares; issued and outstanding, 4,845,758 in 1999 and 4,757,174 in 1998 485 475 Capital in excess of par value 13,953 13,391 Retained earnings 28,073 35,111 Accumulated other comprehensive (loss) income (2,324) 986 ------- ------- 40,187 49,963 ------- ------- $72,745 $113,076 ====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 4 ALLIED RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (THOUSANDS OF DOLLARS) (UNAUDITED) - --------------------------------------------------------------------------------
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- REVENUE $10,176 $31,001 $47,755 $98,908 COSTS AND EXPENSES Cost of sales 9,386 24,847 41,603 79,670 Selling and administrative 3,915 2,576 10,944 8,435 Research and development 414 721 1,254 1,451 ------- ------- ------- ------- 13,715 28,144 53,801 89,556 ------- ------- ------- ------- Operating (loss) income (3,539) 2,857 (6,046) 9,352 OTHER INCOME (DEDUCTIONS) Interest expense (490) (581) (1,213) (1,458) Interest income 276 542 850 1,096 Other - net 119 (39) 564 (423) ------- ------- ------- ------- (95) (78) 201 (785) ------- ------- ------- ------- (Loss) earnings before income taxes (3,634) 2,779 (5,845) 8,567 INCOME TAXES 245 999 1,193 1,984 ------- ------- ------- ------- NET (LOSS) EARNINGS $ (3,879) $ 1,780 $ (7,038) $ 6,583 ======= ====== ======= ====== NET (LOSS) INCOME PER COMMON SHARE Basic $ (.80) $ .38 $ (1.46) $ 1.40 ======= ====== ======= ====== Diluted $ (.80) $ .37 $ (1.46) $ 1.38 ======= ====== ======= ====== WEIGHTED AVERAGE NUMBER OF SHARES Basic 4,835,821 4,743,777 4,815,464 4,706,453 Diluted 4,838,078 4,764,151 4,820,025 4,764,086
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 5 ALLIED RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED) - --------------------------------------------------------------------------------
Nine months ended September 30 ----------------- Increase (decrease) in cash and equivalents 1999 1998 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) earnings $(7,038) $ 6,583 Adjustments to reconcile net earnings to net cash (used in) operating activities Depreciation and amortization 1,928 909 Changes in assets and liabilities Accounts receivable 8,826 19,159 Costs and accrued earnings on uncompleted contracts 10,900 (10,264) Inventories (1,232) 2,625 Prepaid expenses and other assets (5,975) (12,153) Accounts payable, accrued liabilities and customer deposits (11,970) 3,292 Income taxes 843 1,240 ------- ------- Net cash (used in) provided by operating activities (3,718) 11,391 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital expenditures (2,055) (559) Restricted cash and deposits 6,473 (9,722) ------- ------- Net cash provided by (used in) investing activities 4,418 (10,281) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments of long-term debt (1,378) (52) Net increase in long-term borrowings 350 - Net increase in short-term borrowings 3,038 1,225 Stock grant/stock plan 628 1,210 Options exercised 16 (227) Retirement - common stock (73) - ------- ------- Net cash provided by financing activities 2,581 2,156 EFFECTS OF EXCHANGE RATE CHANGES ON CASH 880 1,871 ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 4,161 5,137 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 10,235 7,693 ------- ------- CASH AND EQUIVALENTS AT END OF PERIOD $ 14,396 $ 12,830 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - ------------------------------------------------- Cash paid during the period for Interest $ 702 $ 720 Taxes 1,147 2,500
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 6 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheets as of September 30, 1999 and December 31, 1998, the condensed consolidated statements of earnings and the condensed consolidated statements of cash flows for the nine months ended September 30, 1999 and 1998, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flow at September 30, 1999 and 1998 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1998 Form 10-K filed with the Securities and Exchange Commission, Washington, D.C. 20549. The results of operations for the period ended September 30, 1999 and 1998 are not necessarily indicative of the operating results for the full year. NOTE 2 - PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of Allied Research Corporation (a Delaware Corporation) and the Company's wholly-owned subsidiaries, ARC Europe, S.A. (a Belgian Company), Allied Research Corporation Limited (a United Kingdom Company) and Barnes & Reinecke, Inc. (a Delaware Corporation). ARC Europe, S.A. was formed as a management company in July 1999. ARC Europe, S.A.'s wholly-owned Belgian subsidiaries include, Mecar, S.A., Sedachim, S.I., Tele Technique Generale, and VSK Electronics, N.V., its wholly-owned subsidiaries Belgian Automation Units, N.V. and I.D.C.S., N.V., (collectively "The VSK Group"). Significant intercompany transactions have been eliminated in consolidation. NOTE 3 - RESTRICTED CASH Mecar is generally required under the terms of its contracts with foreign governments to provide performance bonds, advance payment guarantees and letters of credit. The credit facility agreements used to provide these financial guarantees generally place restrictions on cash deposits and other liens on Mecar's assets. Cash deposits received from a customer of BRI are also restricted by its credit facility agreement. VSK also has pledged certain term deposits to secure outstanding bank guarantees. Cash of $11,303 at September 30, 1999 ($14,014 and long-term deposits of $6,670 at December 31, 1998) are restricted or pledged as collateral for these bank agreements. NOTE 4 - INVENTORIES Inventories are composed of raw materials and supplies. 7 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 5 - NOTES PAYABLE BRI has a $6,000 revolving line-of-credit agreement which had an outstanding balance at September 30, 1999 of $5,619 and $3,415 at December 31, 1998. The current line-of-credit bears interest at the prime rate and expires February 2000. Borrowings under the line-of-credit are secured by eligible accounts receivable, as defined in the agreement, and are guaranteed by the Company. The agreement contains covenants requiring the maintenance of certain financial ratios and other matters. NOTE 6 - CREDIT FACILITY The Company is obligated under various credit agreements (the Agreements) with its foreign banking pool and its domestic bank that provide credit facilities primarily for letters of credit, bank guarantees, performance bonds and similar instruments required for specific sales contracts. The Agreements provide for certain bank charges and fees as the facility is used, plus fees of 2% of guarantees issued and annual fees of 1.25% - 1.35% of letters of credit and guarantees outstanding. These fees are treated as interest. As of September 30, 1999, guarantees and performance bonds of $11.2 million ($34.1 million at December 31, 1998) remain outstanding. Advances under the Agreements are secured by cash of $11,303. Amounts outstanding are also collateralized by the letters of credit received under the contracts financed, and a pledge of approximately $30 million on Mecar's assets. Certain Agreements provide for restrictions on payments or transfers to Allied and its affiliates for management fees, intercompany loans, loan payments, the maintenance of certain net worth levels and other provisions. NOTE 7 - LONG-TERM FINANCING Mecar is obligated on an approximately $2,758 mortgage on its manufacturing and administration facilities. As amended, the balance of the loan is payable in annual principal installments of approximately $550 (except for the annual principal installment in the year 2000 of $810) and matures in 2004. The Company is also obligated on several mortgages on The VSK Group's buildings which have balances of approximately $1,094 at September 30, 1999. The mortgages are payable in annual installments of approximately $250 plus interest. Barnes & Reinecke is obligated on a notes payable to its bank which has an outstanding balance due of $295 at September 30, 1999 and $346 at December 31, 1998. 8 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 7 - LONG-TERM FINANCING - CONTINUED Scheduled annual maturities of long-term obligations as of September 30, 1999 are approximately as follows: Year Amount ---- ------ 2000 $1,025 2001 706 2002 736 2003 697 2004 400 Thereafter 583 NOTE 8 - INCOME TAXES The Company's provision for income taxes differs from the anticipated combined federal and state statutory rates due to operating losses in certain jurisdictions and earnings from certain foreign subsidiaries. As of December 31, 1998, the Company had unused foreign tax credit carryforwards of approximately $734 which expire through 2001. Deferred tax liabilities have not been recognized for bases differences related to investments in the Company's Belgian and United Kingdom subsidiaries. These differences, which consist primarily of unremitted earnings intended to be indefinitely reinvested, aggregated approximately $33,000 at December 31, 1998. Determination of the amount of unrecognized deferred tax liabilities is not practicable. NOTE 9 - EARNINGS (LOSS) PER SHARE Stock options outstanding have been included in the diluted per share computation on a weighted average basis. NOTE 10 - RECLASSIFICATION Certain items in September 30, 1999 and 1998 financial statements have been reclassified to conform to the current presentation. 9 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- The Company conducts its business through its subsidiaries: Mecar, S.A., ("Mecar"), a Belgian corporation and Barnes & Reinecke, Inc. ("Barnes" or "BRI"), a Delaware corporation, headquartered in Illinois; as well as a group of Belgian corporations acquired in 1994 and 1995 led by VSK Electronics, N.V., Teletechnique General, S.A. and I.D.C.S., S.A. (collectively, the "VSK Group"). This discussion refers to the financial condition and results of operations of the Company on a consolidated basis. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on current expectations, estimates and projections about the Company and the industries in which it operates. In addition, other written or oral statements which constitute forward-looking statements may be made by or on behalf of the Company. Words such as "expects", "anticipates", "intends", "plans" "believes", "seeks", "estimates", or variations of such words or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include increasing competition by foreign and domestic competitors, including new entrants; substantial reliance on Mecar's principal customers to continue to acquire Mecar's products on a regular basis; the cyclical nature of the Company's military business; rapid technological developments and changes and the Company's ability to continue to introduce competitive new products and services on a timely, cost effective basis; the ability of the Company to successfully continue its transition from a pure defense firm to a firm with a substantial commercial component; the mix of products/services; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes which may affect the level of purchases made by customers; changes in environmental and other domestic and foreign governmental regulations; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support the Company's future business. These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions including interest rate and currency exchange rate fluctuations and other Future Factors. REVENUE Revenue for the first nine (9) months of 1999 was $47,755, or 48% of the comparable period in 1998, principally due to decreased revenue from Mecar. 10 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- REVENUE - CONTINUED Revenues by Segment - Nine Months Ended ----------------------------------------------- September 30, 1999 September 30, 1998 ------------------- ------------------- Percentage Percentage Amount of total Amount of total ------ ---------- ------ ---------- Mecar $23,780 50% $76,287 77% VSK 14,673 31% 14,978 15% BRI 9,302 19% 7,643 8% Mecar recognized revenue of $23,780 for the third quarter of 1999, or 31% of the revenue earned in the third quarter of 1998; the revenue of VSK Group of $14,673 for the quarter ended September 30, 1999 constitutes a decrease of 2% from the comparable period in 1998; and, Barnes' revenue of $9,302 for the third quarter ended September 30, 1999 constitutes a 21% increase over the quarter ended September 30, 1998. Revenue for the quarter ended September 30, 1999 was $10,176, or 33% of the quarter ended September 30, 1998. Mecar's decrease in revenues resulted from reductions in customer orders received in 1998 and through the first five months of 1999. Since June 1, 1999, Mecar has received orders for approximately $73,500. These orders will begin to have a positive impact on Mecar's operations in the fourth quarter of 1999, as raw materials are received and production commences. BACKLOG As of September 30, 1999, the Company's backlog was $83,800 compared with $48,000 at December 31, 1998 and $72,000 at June 30, 1999. At September 30, 1999 and 1998, respectively, the backlog of each of the Company's operating units was as follows: September 30, ------------- 1999 1998 ---- ---- Mecar $64,300 $59,000 Barnes 6,800 12,400 VSK Group 12,700 17,100 OPERATING COSTS AND EXPENSES Cost of sales for the first nine (9) months of 1999 was approximately $41,426, or 87% of sales as compared to $79,670, or 81% for the first nine (9) months of 1998. Cost of sales for the third three months of 1999 was approximately $9,386 or 92% of sales as compared to $24,847, or 80% of sales for the third quarter of 1998. 11 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- OPERATING COSTS AND EXPENSES - CONTINUED Selling and administrative expenses were approximately $10,944 of revenues or 23% of sales for the nine (9) months ended September 30, 1999, as compared to $8,435 or 9% of sales for the nine months ended September 30, 1998. Selling and administrative expenses were approximately $3,915 or 38% of revenue for the three months ended September 30, 1999 as compared to $2,576, or 8% for the three months ended September 30, 1998. This increase is primarily due to legal fees and other costs associated with the 1999 proxy contest, nonrecurring severance cost associated with a former officer of the Company and investment advisor fees. RESEARCH AND DEVELOPMENT Research and development expenses were 3% and 4%, respectively, as a ratio of sales for each of the nine (9) months and three (3) months periods ended September 30, 1999 and 1998. INTEREST EXPENSE Interest expense for the nine (9) months ending September 30, 1999 was $1,213, compared to $1,458 for the comparable period in 1998, and $490 compared to $581 for the comparable three month period. All such decreases are principally due to reduced levels of borrowing and reduced bank fees and charges. INTEREST INCOME Interest income for each of the nine (9) months and three (3) months periods of 1999 decreased from the comparable periods of 1998, principally as a result of decreased amounts of cash invested. OTHER - NET Other - Net represents primarily net currency gains, net of currency losses resulting from foreign currency transactions for the nine (9) months and three months ended September 30, 1999. The fluctuation of currency rates resulted in the increase in the current period. PRE-TAX (LOSS) PROFIT Pre-Tax (Loss) Profit by Segment - Nine months Ended ---------------------------------------------------- September 30, 1999 September 30, 1998 ------------------ ------------------ Mecar $(7,820) $2,930 VSK 2,673 3,207 BRI (698) 446 The decline in Mecar's performance results from a combination of decreased revenue and unexpected costs incurred in reworking various products for customers. VSK continues to achieve excellent profits, although not at the record level achieved in 1998. BRI's decline in 1999 results primarily from unanticipated costs incurred in finishing its large dynomometer contract and delays in receipt of other expected orders. INCOME TAXES The effective tax rate in the first nine (9) months of 1999 differs from the anticipated rate as a result of foreign taxes and net operating losses in certain jurisdictions. 12 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- NET EARNINGS The Company had a $7,038 net loss ($1.46 per share basic and diluted) for the first nine (9) months of 1999 compared with a $6,583 net profit ($1.40 per share basic and $1.38 per share diluted) for the comparable period in 1998. The Company had a $3,879 loss ($0.80 per share basic and diluted) in the third quarter of 1999 compared with a $1,780 profit ($0.38 per share basic and $0.37 per share diluted) in the third three months of 1998. LIQUIDITY AND CAPITAL RESOURCES During the first nine (9) months of 1999 and throughout 1998, Allied funded its operations principally with internally generated cash and back-up credit facilities required for foreign government contracts. Mecar continues to provide bonds and guarantees for contracts via credit facilities supplied by a foreign bank pool. Mecar is limited by its bank pool agreement in the amounts it may transfer to Allied or other affiliates. The VSK Group continues to reduce its bank and other long-term indebtedness. BRI continues to operate on borrowings under its bank line of credit. Due to the losses year to date, BRI is in violation of one or more financial covenants in its line of credit agreement. The company expects to fully retire the line of credit from proceeds received from the sale of the dynomometer. At September 30, 1999, the Company had unrestricted cash (i.e., cash not required by the terms of the bank pool agreement to collateralize contracts) of approximately $14,396 compared with approximately $12,830 and $10,235 at September 30, 1998 and at December 31, 1998, respectively. Accounts receivable at September 30, 1999 decreased from the December 31, 1998 levels by $11,526 due to substantial collections in the first half of 1999. Costs and accrued earnings on uncompleted contracts decreased by $13,610 from December 31, 1998 levels due to decreased levels of work-in-process. Inventories increased from year-end levels by $779 due to anticipated production levels in the fourth quarter of 1999. Prepaid expenses and deposits decreased by $8,493 primarily due to lower levels of prepayments. Current liabilities decreased by $23,396 from December 31, 1998 levels principally as a result of reductions in accounts and notes payable. In summary, working capital was approximately $27,262 at September 30, 1999, which is a decrease of $8,004 from working capital at December 31, 1998, primarily as a result of current year operating losses. YEAR 2000 ISSUES During 1999, the Company has continued its program to prepare its systems for Year 2000 compliance. The Year 2000 issues relates to computer systems that use two digits rather than four to define the applicable year and whether such systems will properly process information when the year changes to 2000. The Company has completed an assessment of the impact of the Year 2000 on its purchased and internally development systems. The current purchased and internally developed software is Year 2000 compliant. The Company is continuing its program of formal communications with significant suppliers and customers to determine the extent to which the Company's activities would be impacted by those third parties' failure to remediate their own Year 2000 issues. 13 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- YEAR 2000 ISSUES - CONTINUED The estimated costs related to testing and modifying existing systems for Year 2000 compliance are approximately $250, substantially all of which has been spent or committed to date. Year 2000 compliance is expected to be achieved no later than the end of November 1999. The Company believes that with the planned modifications, Year 2000 issues will not have a material impact on operations. However, if these modifications are not made, or are not completed on a timely basis, Year 2000 issues could result in the temporary inability to process orders, send invoices, or engage in similar business activities, which would have a material impact on the Company's operations. Failure by significant suppliers and customers to be Year 2000 compliant could also have a material impact on the Company. The amounts of potential liability and lost revenue from the failure to be Year 2000 compliant cannot be reasonably estimated at this time. The Company's contingency plans are being prepared and refined and are expected to be completed by early November 1999. These plans include the manual processes required to perform critical business functions that could be affected by Year 2000 issues. 14 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 (THOUSANDS OF DOLLARS) (UNAUDITED) - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION None. 15 ALLIED RESEARCH CORPORATION - -------------------------------------------------------------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIED RESEARCH CORPORATION /s/ W. Glenn Yarborough, Jr. Date: November 5, 1999 ------------------------------- W. Glenn Yarborough, Jr. President, Chief Executive Officer and Chief Financial Officer 16 EX-27 2 FDS
5 1,000 9-MOS SEP-30-1999 SEP-30-1999 25,699,000 0 17,920,000 0 4,201,000 56,698,000 42,920,000 32,096,000 72,745,000 29,436,000 0 0 0 485,000 39,702,000 72,745,000 47,755,000 47,755,000 41,603,000 53,801,000 0 0 1,213,000 (5,845,000) 1,193,000 (7,038,000) 0 0 0 (7,038,000) (1.46) (1.46)
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