-----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, PTYh1BFMWY/Fz7UaJ3ep46J3uImxrfQsTFQpTZaT78eNxTFyJb8pTeCjJAJoadR1 LgkkSuNeLkuWjiabqOZAvQ== /in/edgar/work/0001021408-00-003173/0001021408-00-003173.txt : 20001025 0001021408-00-003173.hdr.sgml : 20001025 ACCESSION NUMBER: 0001021408-00-003173 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED RESEARCH CORP CENTRAL INDEX KEY: 0000003952 STANDARD INDUSTRIAL CLASSIFICATION: [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: 744727 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 0001.txt ALLIED RESEARCH CORPORATION 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, 2000 ------------------ 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 260 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, 2000: 4,832,153 Allied Research Corporation INDEX - -------------------------------------------------------------------------------- PAGE PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER Item 1. Financial Statements Condensed Consolidated Balance Sheets December 31, 1999 and September 30, 2000.......................... 3 Condensed Consolidated Statements of Operations Three months and nine months ended September 30, 2000 and 1999.... 4 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2000 and 1999..................... 5 Notes to Condensed Consolidated Financial Statements.................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 9 Item 3. Quantitative and Qualitative Market Risk Disclosure................... 14 PART II. OTHER INFORMATION..................................................... 15
Allied Research Corporation CONDENSED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) ASSETS (Unaudited) - --------------------------------------------------------------------------------
September 30, 2000 December 31, 1999 ------------------ ----------------- CURRENT ASSETS Cash and equivalents $ 4,419 $ 5,968 Restricted cash 3,444 4,508 Accounts receivable 12,096 9,278 Costs and accrued earnings on uncompleted contracts 39,840 14,109 Inventories 4,408 3,519 Prepaid expenses 7,385 972 Net assets of discontinued operation - 4,199 -------- ------- Total current assets 71,592 42,553 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation 10,646 10,262 OTHER ASSETS Intangibles, net of accumulated amortization 3,706 4,255 Deferred taxes 250 2,924 Other 120 137 -------- ------- 4,076 7,316 -------- ------- $ 86,314 $60,131 ======== ======= CURRENT LIABILITIES Notes payable $ 4,717 $ 609 Current maturities of long-term debt 1,139 1,225 Accounts payable 19,597 10,757 Accrued liabilities 4,640 2,983 Customer deposits 10,062 492 Income taxes 1,686 664 -------- ------- Total current liabilities 41,841 16,730 LONG-TERM DEBT, less current maturities 3,269 3,080 CONTINGENCIES AND COMMITMENTS - - 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, 4,832,153 in 2000 and 4,836,722 in 1999 483 484 Capital in excess of par value 13,874 13,907 Retained earnings 37,136 31,084 Accumulated other comprehensive loss (10,289) (5,154) -------- ------- 41,204 40,321 -------- ------- $ 86,314 $60,131 ======== =======
The accompanying notes are an integral part of these statements. 3 Allied Research Corporation CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands of Dollars) (Unaudited) - --------------------------------------------------------------------------------
Three months ended Nine months ended September 30, September 30, ------------------------ ----------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenue $ 25,308 $ 7,216 $ 77,332 $ 38,452 Costs and expenses Cost of sales 17,180 6,938 59,766 33,416 Selling and administrative 3,200 3,431 7,804 9,324 Research and development 337 414 1,086 1,254 ---------- ---------- ---------- ---------- 20,717 10,783 68,656 43,994 ---------- ---------- ---------- ---------- Operating income (loss) 4,591 (3,567) 8,676 (5,542) Other (income) deductions Interest income (199) (225) (514) (632) Interest expense 401 343 925 804 Other - net (877) (122) (1,030) (567) ---------- ---------- ---------- ---------- (675) (4) (619) (395) ---------- ---------- ---------- ---------- Earnings (loss) before discontinued operation and income taxes 5,266 (3,563) 9,295 (5,147) Income tax expense 2,146 147 3,759 1,396 ---------- ---------- ---------- ---------- Earnings (loss) from continuing operation 3,120 (3,710) 5,536 (6,543) Discontinued operation - Engineering and technical segment Income (loss) from operations, net of income taxes - (169) 54 (495) Gain on sale, net of income taxes - - 462 - ---------- ---------- ---------- ---------- - (169) 516 (495) ---------- ---------- ---------- ---------- NET EARNINGS (LOSS) $ 3,120 $ (3,879) $ 6,052 $ (7,038) ========== ========== ========== ========== Earnings (loss) per share Basic Continuing operations $ .64 $ (.77) $ 1.14 $ (1.36) Discontinued operation - (.03) .11 (.10) ---------- ---------- ---------- ---------- Net income (loss) $ .64 $ (.80) $ 1.25 $ (1.46) ========== ========== ========== ========== Diluted Continuing operations $ .64 $ (.77) $ 1.14 $ (1.36) Discontinued operation - (.03) .11 (.10) ---------- ---------- ---------- ---------- Net income (loss) $ .64 $ (.80) $ 1.25 $ (1.46) ========== ========== ========== ========== Weighted average number of shares Basic 4,845,079 4,835,821 4,848,235 4,815,464 Diluted 4,847,445 4,838,078 4,854,685 4,820,025
The accompanying notes are an integral part of these statements. 4 Allied Research Corporation CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars) (Unaudited) - --------------------------------------------------------------------------------
Nine months ended September 30, ------------------- Increase (decrease) in cash and equivalents 2000 1999 -------- -------- Cash flows from operating activities Net earnings (loss) $ 6,052 $ (6,543) Adjustments to reconcile net earnings to net cash (used in) operating activities Depreciation and amortization 2,515 1,658 Gain on sale of discontinued operations (462) - (Income) loss from discontinued operations (54) 495 Changes in assets and liabilities Accounts receivable (2,932) 10,369 Costs and accrued earnings on uncompleted contracts (29,441) 11,048 Inventories (1,421) (1,248) Prepaid expenses and other assets (5,615) (5,959) Accounts payable, accrued liabilities and customer deposits 22,195 (12,274) Income taxes 1,319 816 -------- -------- Net cash used in continuing operating activities (7,844) (2,133) Cash flows from (used in) investing activities Capital expenditures (3,028) (2,037) Restricted cash and deposits (1,064) 6,670 -------- -------- Net cash (used in) provided by investing activities (4,092) 4,633 Cash flows from financing activities Principal payments of long-term debt (799) (976) Proceeds from long-term borrowings 862 - Net increase in short-term borrowings 6,370 834 Stock grant/stock plan 255 628 Options exercised 115 16 Retirement - common stock (387) (73) -------- -------- Net cash provided by financing activities 6,416 429 Net cash provided by (used in) discontinued operations 516 (495) Effects of exchange rate changes on cash 3,455 880 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,549) 3,809 Cash and equivalents at beginning of period 5,968 10,235 -------- -------- Cash and equivalents at end of period $ 4,419 $ 14,042 ======== ======== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash paid during the period for Interest $ 791 $ 379 Taxes 5,991 1,147
The accompanying notes are an integral part of these statements. 5 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (THOUSANDS OF DOLLARS) (Unaudited) - ------------------------------------------------------------------------------- NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheets as of September 30, 2000, the condensed consolidated statements of operations for the three and six month periods ended September 30, 2000 and 1999, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999, 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 as of September 30, 2000, results of operations for the three and nine month periods ended September 30, 2000 and 1999 and changes in cash flows for the nine month periods ended September 30, 2000 and 1999 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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, 1999 Form 10-K and the Company's March 31, 2000 and June 30, 2000 Forms 10-Q filed with the Securities and Exchange Commission, Washington, D.C. 20549. The results of operations for the three and nine month periods ended September 30, 2000 and 1999 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 its subsidiaries, ARC Europe, S.A. (ARC Europe), a Belgian company, Barnes & Reinecke, Inc. (BRI), a Delaware Corporation (which discontinued operations) and Allied Research Corporation Limited (Limited), an inactive United Kingdom company. ARC Europe includes its wholly-owned subsidiaries Mecar S.A. (Mecar) and the VSK Group of companies. Mecar includes a related Belgian subsidiary, Sedachim, S.I. The VSK Group is comprised of Tele Technique Generale, S.A., I.D.C.S., S.A. and VSK Electronics N.V. and its wholly-owned subsidiaries, Belgian Automation Units, N.V. and Vigitec S.A. (Vigitec), which was acquired in a purchase transaction on December 14, 1999. Significant intercompany transactions have been eliminated in consolidation. NOTE 3 - RESTRICTED CASH Mecar is generally required under the terms of its contracts to provide performance bonds, advance payment guarantees and letters of credit. The credit facility agreements used to provide these financial guarantees place restrictions on cash deposits and other liens on Mecar's assets. The VSK Group has also pledged certain term deposits to secure outstanding bank guarantees. Restricted cash of $3,444 and $4,508 included in current assets at September 30, 2000 and December 31, 1999, respectively, was pledged as collateral for these agreements and other obligations. 6 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED September 30, 2000 (THOUSANDS OF DOLLARS) (Unaudited) - ------------------------------------------------------------------------------- NOTE 4 - DISCONTINUED OPERATION On December 10, 1999, the Company contracted to sell BRI, the engineering and technical segment of its business. Settlement of the sale occurred on March 10, 2000 and resulted in a gain of $462, net of taxes. NOTE 5 - INVENTORIES Inventories are composed of raw materials and supplies. NOTE 6 - NOTES PAYABLE Mecar has a $10,000 line-of-credit for working capital. Approximately $4,226 of the line was used at September 30, 2000. There was no amount outstanding at December 31, 1999. NOTE 7 - CREDIT FACILITY The Company is obligated under various credit agreements (the "Agreements") with its foreign banking pool 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 credit 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 charged to interest expense. As of September 30, 2000 and December 31, 1999, guarantees and performance bonds of $19,581 and $20,558, respectively, remain outstanding. The Company's obligations under the Agreements are secured by restricted cash at September 30, 2000 and December 31, 1999 of $3,444 and $4,508, respectively. Amounts outstanding are also collateralized by the letters of credit received under the contracts financed, and a pledge of approximately $26 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 8 - LONG-TERM FINANCING Mecar is obligated on a mortgage with a balance of approximately $1,700 on its manufacturing and administration facilities. The loan is payable in annual principal installments of approximately $500 and matures in 2004. The Company is also obligated on several mortgages on the VSK Group's buildings which have a balance of approximately $335 at September 30, 2000. These mortgages are payable in annual installments of approximately $250 plus interest. 7 ALLIED RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED September 30, 2000 (THOUSANDS OF DOLLARS) (Unaudited) - -------------------------------------------------------------------------------- NOTE 8 - LONG-TERM FINANCING - Continued Scheduled annual maturities of long-term obligations as of September 30, 2000 are approximately as follows: Year Amount ---- ------ 2001 $1,139 2002 1,130 2003 957 2004 942 2005 240 NOTE 9 - INCOME TAXES As of December 31, 1999, the Company had unused foreign tax credit carryforwards of approximately $1,400 which expire through 2004. Deferred tax liabilities have not been recognized for basis 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 $18,400 at September 30, 2000. Determination of the amount of unrecognized deferred tax liabilities is not practicable. NOTE 10 - EARNINGS (LOSS) PER SHARE Incremental shares from the assumed conversion of stock options outstanding have been included in the diluted per share computation. 8 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 2000 (Thousands of Dollars) (Unaudited) - -------------------------------------------------------------------------------- The following is intended to update the information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and the Company's Quarterly Reports on Forms 10-Q for the periods ended March 31, 2000 and June 30, 2000 and presumes that readers have access to, and will have read, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in such Form 10-K and Forms 10-Q. The Company conducts its business through its subsidiary, ARC Europe S.A. ("ARC Europe"). ARC Europe operates through its subsidiaries, Mecar, S.A. ("Mecar"), a Belgian corporation; and a group of Belgian corporations led by VSK Electronics, N.V., Tele Technique Generale, S.A., IDCS, N.V. and VIGITEC, 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 and 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 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 to increase the commercial component of its business; the mix of products/services; domestic and foreign governmental fiscal affairs 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; increasing competition by foreign and domestic competitors, including new entrants; and other Future Factors. 9 ALLIED RESEARCH CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 2000 (Thousands of Dollars) (Unaudited) - -------------------------------------------------------------------------------- Revenue -------
Revenues by Segment Nine months ended September 30, Three months ended September 30, 2000 1999 2000 1999 ------------------- ------------------- ------------------- ------------------ Percentage Percentage Percentage Percentage Amount of total Amount of total Amount of total Amount of total ------- ---------- ------- ---------- ------- ---------- ------ ---------- Mecar $63,171 82% $23,780 50% $21,738 86% $3,153 44% VSK Group 14,161 18% 14,673 31% 3,570 14% 4,063 56%
The Company's revenue was adversely affected by currency fluctuations in the first nine months of 2000. Mecar operates principally in Euros and the VSK Group operates principally in Belgian francs. For the nine month period ended September 30, 2000, the values of the Euro and the Belgian franc have declined by 14% versus the U.S. dollar. Revenue for the first nine months of 2000 was $77,332, an increase of $38,879 over the comparable period in 1999, principally due to increased revenue from Mecar. A substantial portion of Mecar's third quarter 2000 revenue is from sales to its recently designated distributor/value added reseller. Revenue from the VSK Group decreased during the first nine months of 2000 as compared to the same period in 1999. The Company believes that such decrease reflects a return to normal growth after the surge of business in 1999 from Y2K system updates. Revenue increased 16% over the comparable period in 1999 when calculated in its functional currency (Belgian francs). Backlog ------- As of September 30, 2000, the Company's backlog was $87,300 compared with $105,000 at December 31, 1999 and $77,000 at September 30, 1999. The backlog of each of the Company's operating units was as follows: September 30, ------------------ 2000 1999 ------- ------- Mecar $76,800 $64,300 VSK Group 10,500 12,700 Operating Costs and Expenses ---------------------------- Cost of sales for the first nine months of 2000 was approximately $59,766, or 77% of sales as compared to $33,416, or 87% of sales for the first nine months of 1999. 10 Allied Research Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED September 30, 2000 (Thousands of Dollars) (Unaudited) - -------------------------------------------------------------------------------- Cost of sales for the third quarter of 2000 was approximately $17,180, or 68% of sales as compared to $6,938, or 96% of sales for the third quarter of 1999. The percentage decrease experienced in 2000 results from the increased revenue at Mecar and Mecar's rework of product in 1999. Selling and administrative expenses were approximately $7,804, or 10% of sales for the nine months ended September 30, 2000, as compared to $9,324 or 24% of sales for the nine months ended September 30, 1999. Selling and administrative expenses were approximately $3,200, or 13% of revenue for the three months ended September 30, 2000 as compared to $3,431, or 48% for the three months ended September 30, 1999. Selling and administrative expenses in 1999 were adversely affected by a proxy contest. In addition, the Company continues to implement its cost control program. Research and Development ------------------------ Research and development expenses were 1% as a ratio of sales for each of the nine months and three months periods ended September 30, 2000. For the nine month period ended September 30, 1999, the ratio to sales was 3%. For the three month period ended September 30, 1999 it was 6%. Interest Income --------------- Interest income for each of the nine months and three months periods of 2000 decreased from the comparable periods of 1999, principally as a result of decreased amounts of cash invested. Interest Expense ---------------- Interest expense (including bank fees) for the nine months ended September 30, 2000 was $925 compared to $804 for the comparable period in 1999. Interest expense increased during the third quarter of 2000 compared to the third quarter of 1999 by approximately $58. All such increases are principally due to increased levels of borrowing at Mecar. Other - Net ----------- The increase in Other - Net represents net currency gains, resulting from foreign currency transactions for the nine months ended September 30, 2000. 11 Allied Research Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED September 30, 2000 (Thousands of Dollars) (Unaudited) - -------------------------------------------------------------------------------- Pre-Tax Profit from Continuing Operations ----------------------------------------- Nine months ended September 30, 2000 1999 ---- ---- Mecar $7,156 $(7,820) VSK Group 2,139 2,673 The Company's return to profitability is attributable to the increased revenue at Mecar. The Company has begun to realize increased pre-tax profit margins as a percentage of its gross revenue resulting from sales to its distributor/value added reseller. The VSK Group's 1999 profits were favorably impacted by a surge in Y2K system updates. Income Taxes ------------ The effective tax rate in the first nine months of 2000 and the quarter ended September 30, 2000 was 40%. In the first nine months of 1999, the effective rate differs from the anticipated rate due to net operating losses not recognized for financial reporting purposes. Net Earnings ------------ The Company earned a $5,536 net profit from continuing operations ($1.14 per share basic and diluted) for the first nine months of 2000 compared with a $6,543 net loss from continuing operations ($1.36 per share basic and diluted) for the comparable period in 1999. The Company earned a $3,120 profit from continuing operations ($0.64 per share basic and diluted) in the third quarter of 2000 compared with a $3,710 loss from continuing operations ($.77 per share basic and diluted) in the comparable 1999 period. As indicated above, the Company's increase in profit results from a significant increase in sales over previous periods and increased profit margins. The Company's ability to sustain these margins and results is dependent upon future contract awards and product mix. In addition, in the first nine months of 2000, the Company reported (i) a $462 gain, net of income taxes, on the sale of Barnes and Reinecke, Inc. ("BRI") and (ii) a $54 profit from discontinued operations (i.e., the operations of BRI prior to the sale) compared to a $495 loss from discontinued operations during the first nine months of 1999. Liquidity and Capital Resources ------------------------------- Mecar continues to finance its activities 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. 12 Allied Research Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED September 30, 2000 (Thousands of Dollars) (Unaudited) - -------------------------------------------------------------------------------- During the first nine months of 2000, Mecar utilized a $10,000 line of credit provided by certain members of the bank pool. At September 30, 2000, Mecar was indebted under the line of credit for $4,226. During the second quarter of 2000, Allied made an advance to Mecar to assist it with its working capital requirements, which loan has been repaid. In the third quarter of 2000, Allied made an additional advance to fund Mecar's working capital requirements. The advance is scheduled to be repaid to Allied in the fourth quarter of 2000. The VSK Group funds its operations principally with internally generated cash and continues to reduce its bank and other long-term indebtedness. In the first nine months of 2000, Allied repurchased 48,688 shares of its common stock in market transactions. At September 30, 2000, the Company had unrestricted cash (i.e., cash not required by the terms of the bank pool agreement to collateralize contracts) of approximately $4,419 compared with approximately $8,658 and $5,968 at September 30, 1999 and at December 31, 1999, respectively. Accounts receivable at September 30, 2000 increased from December 31, 1999 levels by $2,818 due to increased shipments in the first nine months of 1999. Costs and accrued earnings on uncompleted contracts increased by $25,731 over December 31, 1999 levels due to increased levels of work-in-progress. Inventories increased from year-end levels by $889 due to receipt of increased shipments of raw material during the first nine months of 2000. Prepaid expenses and deposits increased by $6,413 primarily due to increases in prepayments of taxes and insurance costs relating to new contracts. Current liabilities increased by $25,111 from December 31, 1999 levels principally as a result of increases in accounts, notes payable, and customer deposits. In summary, working capital was approximately $29,751 at September 30, 2000, which is an increase of $3,928 over working capital at December 31, 1999. Year 2000 Issues ---------------- To date, the Company has not encountered any significant effects of the Year 2000 issue either internally or with third parties. The Company cannot guarantee that problems will not occur in the future or have not yet been detected. 13 Allied Research Corporation QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE September 30, 2000 (Unaudited) - -------------------------------------------------------------------------------- No material changes have occurred in the quantitative and qualitative market risk disclosures of the Company as presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 14 ALLIED RESEARCH CORPORATION September 30, 2000 - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION No reports on Form 8-K were filed by the Company in the third quarter of 2000. 15 ALLIED RESEARCH CORPORATION September 30, 2000 - -------------------------------------------------------------------------------- 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: October 24, 2000 W. Glenn Yarborough, Jr. President, Chief Executive Officer and Chief Financial Officer 16 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,419,000 0 12,096,000 0 4,408,000 71,592,000 37,513,000 26,867,000 86,314,000 41,841,000 0 0 0 483,000 40,721,000 86,314,000 77,332,000 74,332,000 59,766,000 68,656,000 0 0 925,000 9,295,000 3,759,000 5,536,000 516,000 0 0 6,052,000 1.25 1.25
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