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, 1996
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, 1996: 4,440,387.
<PAGE>
ALLIED RESEARCH CORPORATION
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 and September 30, 1996.........................................2,3
Condensed Consolidated Statements of Earnings
Three months and nine months ended September 30, 1996 and 1995.....................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995......................................5
Notes to Condensed Consolidated Financial Statements........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................10
PART II. OTHER INFORMATION...................................................................................14
</TABLE>
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C>
CURRENT ASSETS
Cash and equivalents, including restricted cash $12,629 $15,744
Accounts receivable 23,934 21,091
Costs and accrued earnings on uncompleted contracts 8,606 6,311
Inventories 7,068 6,337
Prepaid expenses 1,589 1,113
------- -------
Total current assets 53,826 50,596
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings 13,218 14,247
Machinery and equipment 32,554 35,189
------- -------
45,772 49,436
Less accumulated depreciation 31,966 33,330
------- -------
13,806 16,106
Land 1,425 1,545
------- -------
Total property, plant and equipment 15,231 17,651
OTHER ASSETS
Deposit - restricted cash 12,828 18,492
Intangibles 6,490 7,085
Other 291 429
------- -------
Total other assets 19,609 26,006
------- -------
$88,666 $94,253
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(Thousands of Dollars)
LIABILITIES
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C>
CURRENT LIABILITIES
Notes payable $ 823 $ 485
Current maturities of long-term debt 1,374 2,786
Accounts and trade notes payable 17,918 17,787
Accrued liabilities 5,291 5,289
Customer deposits 11,488 9,900
Income taxes 829 371
--------- ---------
Total current liabilities 37,723 36,618
LONG-TERM DEBT, less current maturities 21,345 28,435
DEFERRED INCOME TAXES 1,059 847
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 4,440,387
in 1996 and 4,422,056 in 1995 444 442
Capital in excess of par value 10,830 10,745
Retained earnings 14,484 12,676
Accumulated foreign currency translation adjustment 2,781 4,490
--------- ---------
Total stockholders' equity 28,539 28,353
--------- ---------
$88,666 $94,253
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C>
Revenue $17,547 $16,530 $64,078 $38,958
Cost and expenses
Cost of sales 13,206 13,947 48,930 33,741
Selling and administrative 2,672 2,128 9,795 7,903
Research and development 488 181 1,262 674
--------- --------- -------- ---------
16,366 16,256 59,987 42,318
Operating income (loss) 1,181 274 4,091 (3,360)
Other income (deductions)
Interest expense (825) (695) (2,365) (2,273)
Interest income 781 546 1,512 1,617
Other - net (438) 160 (669) 372
--------- --------- -------- ---------
(482) 11 (1,522) (284)
--------- --------- -------- ---------
Earnings (loss) before
income taxes 699 285 2,569 (3,644)
Income taxes 178 70 761 623
--------- --------- -------- ---------
NET EARNINGS (LOSS) $ 521 $ 215 $ 1,808 $(4,267)
========= ========= ======== =========
Net income (loss) per common share $ .12 $ .05 $ .41 $ (.97)
========= ========= ======== =========
Weighted average number of shares 4,437,438 4,409,577 4,430,136 4,404,146
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30
Increase (decrease) in cash and equivalents 1996 1995
-------- --------
<S> <C>
Cash flows from operating activities
Net earnings (loss) $ 1,808 $(4,267)
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization 1,337 1,734
Changes in assets and liabilities
Accounts receivable (3,741) 11,187
Costs and accrued earnings on uncompleted contracts (2,841) (3,039)
Inventories (1,225) (130)
Prepaid expenses and other assets (164) (453)
Accounts payable, accrued liabilities and customer deposits 3,289 (4,129)
Income taxes 475 (125)
------- -------
Net cash provided by (used in) operating activities (1,062) 778
Cash flows (used in) investing activities
Capital expenditures (267) (925)
Acquisitions (net of cash acquired) -- (2,600)
------- -------
Net cash (used in ) investing activities (267) (3,525)
Cash flows from financing activities
Principal payments of long-term debt (5,879) (4,309)
Net increase in long-term borrowings -- 1,281
Net increase (decrease) in short-term borrowings 801 (9,180)
Stock option/stock plan 87 58
Deposits - restricted cash 5,664 6,400
------- -------
Net cash (used in) provided by financing activities 673 (5,750)
Effects of exchange rate changes on cash (2,459) 186
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,115) (8,311)
Cash and equivalents at beginning of year 15,744 43,606
------- -------
Cash and equivalents at end of period $12,629 $35,295
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest $ 689 $ 1,002
Taxes 455 373
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of September 30, 1996 and
December 31, 1995, the condensed consolidated statements of earnings and the
condensed consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995, 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,
1996 and 1995 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, 1995 Form 10-K filed with the Securities and Exchange Commission,
Washington, D.C. 20549. The results of operations for the period ended
September 30, 1996 and 1995 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, Mecar, S.A. (a Belgian Company),
Allied Research Corporation Limited (a United Kingdom Company), Barnes &
Reinecke, Inc. (a Delaware Corporation), and ARC Services, Inc. (a
Delaware Corporation).
Mecar, S.A.'s wholly-owned Belgian subsidiaries include, Mecar Immobliere
S.A. (IMMO), Sedachim, S.I., Tele Technique Generale, Management Export
Services, N.V. (MES), I.D.C.S., N.V. (which was acquired May 9, 1995), VSK
France, a French company formed in 1995 and VSK Electronics N.V. and its
wholly-owned subsidiaries, Classics, B.V.B.A. Detectia, N.V. and
Belgian Automation Units, N.V., (collectively "The VSK Group"). A
minority interest owned by VSK Electronics in Building Control Services,
N.V. (BCS) was accounted for under the equity method in 1995. BCS and MES
were liquidated in 1995. IMMO was liquidated in 1996. In addition, the
Company effectively ceased operations of ARC Services, Inc. in December,
1995. VSK France was put into liquidation effective December 31, 1995.
The VSK Group acquisitions were accounted for as purchases, and revenue and
results of operations from June 1, 1994 and May 9, 1995 (dates of
acquisition), have been consolidated.
Significant intercompany transactions have been eliminated in consolidation.
NOTE 3 - ACQUISITION
On May 31, 1994, the Company's wholly-owned subsidiary, Mecar S.A., acquired
The VSK Group, a group of Belgian companies, as well as a minority interest
in a Belgian company, for approximately $6,072 and on May 9, 1995, VSK
Electronics N.V. acquired I.D.C.S., N.V. a Belgian company and its minority
interest in Belgian Automation Unites, N.V. for a total of $2,972.
6
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITION - Continued
The companies manufacture, distribute and service an integrated line of
industrial security products, including devices such as building access
control, parking control, intrusion and fire detection and intrusion and
fire alarms.
The acquisitions have been accounted for as purchases and the purchase
prices in excess of the net assets acquired have been reflected in
intangibles. The financial statements include the results of operations
since the dates of acquisition. Pro forma financial data for these
acquisitions prior to the dates of acquisition would not have a material
effect on reported results.
May 9, 1995 May 31, 1994
Fair value of tangible assets acquired $2,587 $7,720
Liabilities assumed 855 6,285
--- -----
Net assets acquired 1,732 1,435
Purchase price 2,972 6,072
----- -----
Excess of cost over assets acquired $1,240 $4,637
===== =====
NOTE 4 - 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, until the customer accepts delivery. Cash deposits
totaling approximately $20,753 and $29,051 ($12,828 of which is classified
as long-term at September 30, 1996 and $18,492 at December 31, 1995), as of
September 30, 1996 and December 31, 1995, respectively, are restricted or
pledged as collateral for various bank agreements and are comprised as
follows:
1996 1995
-------- --------
Cash
Credit facility and related term loan agreements $ 6,095 $ 7,775
Other bank guarantees and letters of credit 1,830 1,769
Notes payable -- 1,035
-------- --------
7,925 10,559
Deposits - restricted cash - long-term
Credit facility and related term loan agreements 12,828 18,492
------- -------
$20,753 $29,051
======= =======
7
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - INVENTORIES
Inventories consist of the following:
September 30, 1996 December 31, 1995
Raw materials and supplies $7,068 $6,337
====== ======
NOTE 6 - NOTES PAYABLE
At September 30, 1996 and December 31, 1995, secured short-term loans of
$823 and $485, respectively, were outstanding. BRI has two $500 three year
term loan facilities at 2% over prime with an outstanding balance at
September 30, 1996 of $740 for capital improvements and a $1,000 revolving
line-of-credit which had an outstanding balance of $425 at September 30,
1996. The line bears interest at the rate of prime plus .5%. The credit
facility is secured by BRI's eligible accounts receivable and Allied's
guarantee. The former agreement was a $750 revolving line-of-credit
agreement which had an outstanding balance of $445 as of December 31, 1995.
NOTE 7 - CREDIT FACILITY
Mecar is obligated under an amended credit agreement (the Agreement) with a
banking pool comprised of foreign banks that provided credit facilities
primarily for letters of credit, bank guarantees, performance bonds and
similar instruments required for specific sales contracts. The Agreement
provides for certain bank charges and fees, plus an annual fee of
approximately 2% of guarantees issued. As of September 30, 1996, guarantees
of $17,027 remain outstanding.
Advances under the credit facility and other guarantees were secured by
deposits of $20,753 of which $12,828 is long-term at September 30, 1996 and
deposits of $26,247 at December 31, 1995, $18,492 of which is classified as
long-term deposit at December 31, 1995. Amounts outstanding were also
collateralized by pledges of approximately $27,600 on Mecar's assets,
letters of credit and certain funds received under the contracts financed.
The Agreement provides for restrictions on payments or transfers to Allied
and ARCL for management fees, intercompany loans, loan payments, the
maintenance of certain net worth, income and loss levels and the payment of
bank fees and charges as defined in the Agreement.
NOTE 8 - INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The Company's provision for income taxes differs from the anticipated
combined federal and state statutory rates due to operating losses and
earnings from foreign subsidiaries.
8
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES Continued
The Company's Belgian subsidiaries have unused net operating losses of
approximately $18,700 at September 30, 1996, which under Belgian law cannot
be carried back but may be carried forward indefinitely, and are subject to
annual limitations for 1996.
As of September 30, 1996, the Company had unused foreign tax credit
carryforwards of approximately $700 which expire through 2000.
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
$16,500 at September 30, 1996 and December 31, 1995. Determination of the
amount of unrecognized deferred tax liabilities is not practicable.
NOTE 9 - EARNINGS (LOSS) PER SHARE
Stock options outstanding have not been included in the per share
computation because there would not be a material effect on earnings (loss)
per share.
9
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
The Company conducts its business through its wholly-owned subsidiaries:
Mecar, S.A., ("Mecar"), a Belgian corporation, and its subsidiaries, Mecar
Immobliere, S.A., Sedachim, S.I., as well as Tele Technique Generale, VSK
Electronics, N.V., Classics, B.V.B.A., Detectia, N.V., I.D.C.S., N.V., and
Belgian Automation Units, N.V. (collectively "The VSK Group"): Barnes &
Reinecke, Inc., ("Barnes") a Delaware corporation, headquartered in
Illinois; Allied Research Corporation Limited, ("Limited") a U.K. Company;
and ARC Services, Inc., ("Services") a Delaware corporation, headquartered
in Vienna, Virginia. This discussion refers to the financial condition and
results of operations of the Company on a consolidated basis.
Sales
Revenue for the first nine months of 1996 was $64,078, a 64% increase from
the comparable period in 1995, principally due to Mecar's increase in
revenue. Mecar revenue was $41,933, up 129% compared to the period ended
September 30, 1995. Barnes revenues was $9,058, up 25% compared to the same
period in 1995. The VSK Group's revenue for the first nine months of 1996
was $13,085 compared to $13,348 in 1995 (provided, however, the prior year
only included I.D.C.S. for the post-May, 1995 period). Limited and Services
did not have significant revenue this period or in last year's comparable
period.
Revenue for the quarter ended September 30, 1996 was $17,547, a 6% increase
from revenue for the quarter ended September 30, 1995. Mecar recognized
revenue of $10,724 for the quarter ended September 30, 1996, a 2% decrease
over quarter ended September 30, 1995. Barnes' revenue of $2,659 for the
quarter ended September 30, 1996 constituted an 18% decrease over the
quarter ended September 30, 1995; the revenue of The VSK Group of $4,163 for
the quarter ended September 30, 1996 constituted a 76% increase over the
quarter ended September 30, 1995.
The increase in Mecar's revenue and revenue from The VSK Group during the
first nine (9) months of 1996 resulted principally from a higher backlog of
orders at the end of calendar year 1995 than at the end of calendar year
1994 and continued new orders in 1996. Similarly, Barnes' improved
performance principally resulted from continued execution of the order it
received during calendar year 1995 for the benefit of a foreign-based
customer.
Results of Operations
The Company recognized a profit for the first nine (9) months of 1996 of
$1,808, compared with a loss of $4,267 for the first nine (9) months of
1995. The improvement is principally attributable to increased amounts of
business at each of the operating units. The $521 profit earned by the
Company for the three (3) month period ended September 30, 1996 was slightly
in excess of the $215 profit earned by the Company in the third quarter of
1995 due to product mix.
The results of operations for the third quarter of 1996 were adversely
affected by delays experienced by Mecar in receipt of certain raw materials
from various vendors. Such supplies have now either been received or
management has received assurance of future receipt of such materials such
that timely completion of the relevant contracts should not be jeopardized.
10
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Results of Operations - Continued
The foregoing paragraph contains a forward-looking statement concerning the
Company's anticipated performance of certain of its contracts. Such
forward-looking statement is made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Readers are cautioned
that all forward-looking statements involve risks and uncertainties that
could cause actual events to differ materially from those projected. If the
raw materials are not timely delivered, or Mecar encounters other unexpected
vendor or manufacturing difficulties, it could experience additional delays
in completing its contracts which would result in delays in revenue
recognition as well as potential contract-specified financial penalties.
Backlog
As of September 30, 1996, the Company's backlog was $103,552 compared
with $98,906 at June 30, 1996 and $68,100 at December 31, 1995.
Mecar's backlog at September 30, 1996 was $78,132 compared with $73,351 as
of June 30, 1996.
Barnes' backlog as of September 30, 1996 was $8,765 compared with $7,763 as
of June 30, 1996.
The backlog of The VSK Group as of September 30, 1996 was $16,665 compared
with $17,792 as of June 30, 1996.
Operating Costs and Expenses
Cost of sales for the first nine months of 1996 was approximately $48,930 or
76% of sales as compared to $33,741 or 87% for the first nine months of
1995. Cost of sales for the quarter ended September 30, 1996 was $13,206 or
75% of sales compared to 84% of sales for the same period the previous year.
The percentage decrease is primarily due to the increased amounts of revenue
in 1996 and the product mix.
Selling and administrative expenses were approximately $9,795 or 15% of
revenues for the nine months ended September 30, 1996 as compared to $7,903
or 20% for the nine months ended September 30, 1995. Selling and
administrative expenses for the quarter ended September 30, 1996 were $2,672
or 15% of sales compared to 13% of revenue for the same period in the
previous year. The percentage increase for the third quarter reflects
increased expenditures in business development and marketing activities.
Research and Development
Research and development expenses were 2% of sales for the nine month period
and 3% of sales for the three month period ended September 30, 1996 as
compared with 2% for the corresponding periods in 1995. This increase is due
to increased efforts to expand product lines.
11
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Operating Results
Operating income was $4,091 for the first nine months of 1996 (or 6.4% of
revenue). This compares with an operating loss of $3,360 for the nine months
ended September 30, 1995. During the third quarter of 1996, the Company had
operating income of $1,181 (or 6.7% of revenue) compared with operating
income of $274 for the quarter ended September 30, 1995. The improved
results are primarily attributable to increased amounts of revenue at each
of the Company's operating units. In addition, the 1995 results were
adversely affected by the shutdown of Mecar's facilities due to the April,
1995 explosion.
Interest Expense
Interest expense for the nine months ending September 30, 1996 was
approximately the same as for the nine months ended September 30, 1995.
Interest expense increased by approximately 19% for the three month period
ended September 30, 1996 over the same period in 1995 due to increased
levels of borrowing.
Interest Income
Interest income decreased for the first nine months of 1996 over the
comparable period in 1995 as a result of lower levels of cash. Interest
income increased for the three month period ended September 30, 1996 over
the same period in 1995 due to increased cash levels.
Other - Net
For the nine months ended September 30, 1996, Other - Net represents
primarily currency losses, net of currency gains, resulting from foreign
currency transactions.
Liquidity and Capital Resources
During the first nine months of 1996 and throughout 1995, Allied funded its
operations principally with internally generated cash and back-up credit
facilities required for foreign government contracts. At September 30, 1996,
the Company had unrestricted cash (i.e., cash not required by the terms of
the bank agreement to collateralize contracts) of approximately $4,704, as
compared with approximately $4,564 at June 30, 1996 and $5,185 at December
31, 1995.
As described in prior filings, Mecar's bank pool facility has been
historically guaranteed, in part, by the regional government in Belgium (the
"Walloon Region"). The additional financing necessary for the contracts
received by Mecar in the second quarter of 1996 was based upon the partial
guarantee by the Walloon Region. Representatives of the Walloon Region have
advised Mecar that the partial guarantee will not be available to finance
additional contracts for the foreseeable future given the improved financial
condition of Mecar. Such action will not affect the guarantees currently in
place for existing contracts. Further, management believes that future
contracts will be financable by the bank pool without benefit of the Walloon
Region partial guarantee.
12
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources - Continued
One of the four banks comprising the bank pool has advised Mecar that it has
established a maximum exposure limit with respect to Mecar which may
preclude it from participating in future contract financings. Management has
been engaged in active negotiations with other banks seeking the entry of
such banks into the bank pool and management believes that one or more
additional banks will agree to participate in the bank pool.
The foregoing paragraphs contain forward-looking statements concerning
Mecar's financing. Such forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that all forward-looking statements involve
risks and uncertainties that could cause actual events to differ materially
from those projected. Changes in the credit philosophies of the relevant
banks, changes in the relevant bank representatives or actual or perceived
changes in Mecar's financial condition could cause the above-stated
forward-looking statements to not come to fruition.
Accounts receivable at September 30, 1996 increased over December 31, 1995
by $2,843 and cost and accrued earnings on uncompleted contracts increased
by $2,295 from 1995 as a result of an increase in production. Inventories
and prepaid expenses remained level. Current liabilities increased by $1,105
from December 31, 1995 levels as a result of increased customer deposits and
payments on current maturities of long-term debt. At September 30, 1996,
Barnes had a line-of-credit balance of $425, compared with $445 as of
December 31, 1995.
Long-term debt (including current maturities thereof) as of September 30,
1996, decreased by approximately $8,502 from December 31, 1995 as a result
of a decrease in the term loan provided by certain of Mecar's banks (the
"Term Loan"). The Term Loan decrease was occasioned by the decrease in the
bank pools exposure from the expiration of advance payment guarantees and
performance bonds.
In summary, working capital was approximately $16,103 at September 30,
1996, which is an increase of $2,125 from December 31, 1995.
13
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
September 30, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
None.
14
<PAGE>
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/ J. R. Sculley
-----------------------------
Date: November 13, 1996 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Sep-30-1996
<CASH> $12,629,000
<SECURITIES> $0
<RECEIVABLES> $23,934,000
<ALLOWANCES> $0
<INVENTORY> $7,068,000
<CURRENT-ASSETS> $53,826,000
<PP&E> $45,772,000
<DEPRECIATION> $31,966,000
<TOTAL-ASSETS> $88,666,000
<CURRENT-LIABILITIES> $37,723,000
<BONDS> $0
$0
$0
<COMMON> $444,000
<OTHER-SE> $28,095,000
<TOTAL-LIABILITY-AND-EQUITY> $88,666,000
<SALES> $64,078,000
<TOTAL-REVENUES> $64,078,000
<CGS> $48,930,000
<TOTAL-COSTS> $59,987,000
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $2,365,000
<INCOME-PRETAX> $2,569,000
<INCOME-TAX> $761,000
<INCOME-CONTINUING> $0
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $1,808,000
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
