Trends In Liquidity And Capital Resources
Allied experienced liquidity problems during 1990 and the
first portion of 1991 due to substantial operating losses experienced during
1988 and 1989 as well as the pledge of cash needed to accommodate the then
increasing backlog of orders. The liquidity improved significantly in 1991-1993.
The substantial losses incurred in 1994 caused a decline in liquidity which
decline continued throughout 1995 due to the more modest losses incurred in
1995. A further decline in liquidity is forecast for 1996 unless MECAR obtains
and finances substantial contracts from its principal customer base or other
customers. If such contracts are not timely obtained, the continued decline in
liquidity will cause Allied to accelerate its ongoing program to reduce
operating costs, seek additional capital and/or take other currently
unidentified actions to remedy the liquidity deficiency.
Liquidity.
Allied's liquidity continued to decline in 1995, principally
as a result of non-profitable operations at MECAR. Working capital was
approximately $13.98 at December 31, 1995, which is a decrease of $2.47 from the
December 31, 1994 level. The working capital is required for operations and to
support credit facility agreements.
Accounts receivable at December 31, 1995 decreased from
December 31, 1994 by $.7 due to larger collections at the end of 1995. Costs and
accrued earnings on uncompleted contracts decreased by $2.08 from 1994 as a
result of lower levels of work in process at 1995 year-end. Inventory increased
by $2.01 over 1994, generally as a result of longer production times. Prepaid
expenses and deposits decreased $.11 due to a decline in new orders. Current
liabilities decreased by $26.07 from 1994 levels as a result of the completion
and final delivery of various contracts and an increase in long-term debt.
During 1995, 1994 and 1993, Allied funded its operations
principally with internally generated cash and back-up credit facilities
required for foreign government contracts.
Allied and its subsidiaries implemented substantial cost
cutting initiatives in 1995. Allied reduced its general and administrative
expenditures by 17%; similarly, MECAR reduced its expenditures by 2%. The London
office of Limited was closed in late 1994 which resulted in substantial cost
savings in 1995. Services projects were wound down throughout 1995 which
resulted in a reduction in costs of 45%. Selling and administrative expenses for
Allied increased by $.13 in 1995 over 1994 since the 1995 expenses included a
full year of such expenses at VSK (as opposed to seven (7) months in 1994) as
well as almost eight (8) months of such expenses at IDCS.
17
<PAGE>
Research and development costs increased in 1994 over 1993
levels due to additional efforts by MECAR in broadening its product lines. In
addition, Services continued to expend funds in its efforts to bring its
demilitarization and water purification efforts to market.
Interest Income
Interest income decreased in 1995 from 1994 due to the
utilization of cash for unprofitable operations and reduced cash deposits
associated with the Term Loan agreement.
Interest income decreased in 1994 from 1993 due to the
utilization of cash for unprofitable operations and the acquisition of The VSK
Group.
Interest Expense
Interest expense decreased in 1995 from 1994 as a result of a
decrease in outstanding debt and credit facilities fees.
Interest expense decreased in 1994 from 1993 as a result of a
decrease in outstanding debt and credit facilities fees.
Other - Net
Allied had a gain in 1995 of $2.0 from other sources,
principally consisting of net currency gains occasioned by the weakened U.S.
dollar.
Allied had a gain in 1994 of $1.3 from other sources,
principally consisting of net currency gains occasioned by the weakened U.S.
dollar. In 1993, Allied had a net loss of $1.0 including a net currency loss of
$1.2.
Income Taxes
The 1995 effective tax rate was 58.6% primarily due to the
losses incurred at MECAR (which can only be carried forward) and foreign tax
rate differentials in the U.S.
The 1994 effective tax rate was 6.5% due to the losses
incurred at MECAR (which can only be carried forward) and in the U.S.
Net Earnings (Loss)
The Company incurred a $2.01 loss in 1995 compared with a loss
of $10.94 in 1994. BRI and The VSK Group operated at a profit in 1995; MECAR and
Services operated at a loss. The loss
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<PAGE>
Allied Research Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------- ------------
<S> <C> <C> <C>
Revenue (note M) $65,768,907 $ 69,846,845 $147,097,482
Costs and expenses
Cost of sales 49,896,794 63,976,951 118,897,942
Selling and administrative 15,758,673 15,631,256 11,655,229
Research and development 2,087,278 1,262,333 841,685
Restructuring charge (note R) - 326,831 2,883,289
---------- ------------ -----------
67,742,745 81,197,371 134,278,145
---------- ------------ -----------
Operating income (loss) (1,973,838) (11,350,526) 12,819,337
Other income (deductions)
Interest income 1,770,278 3,539,888 4,327,313
Interest expense (3,034,537) (3,768,788) (4,108,053)
Other - net (note O) 1,968,478 1,306,083 (1,003,059)
------------ ------------- -------------
704,219 1,077,183 (783,799)
------------ ------------- -------------
Earnings (loss) before
income taxes (1,269,619) (10,273,343) 12,035,538
Income taxes (notes A and P) 743,652 667,763 4,040,416
------------ -------------- -------------
NET (LOSS) EARNINGS $ (2,013,271) $ (10,941,106) $ 7,995,122
=========== ============ =============
Earnings (loss) per common share (note S) $( .46) $(2.49) $1.73
===== ===== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
