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 March 31, 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 March 31, 1996: 4,430,233.
<PAGE>
ALLIED RESEARCH CORPORATION
INDEX
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 and March 31, 1996...............2,3
Condensed Consolidated Statements of Earnings
Three months ended March 31, 1996 and 1995...........4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995.........5,6
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...........................................13
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents, including restricted cash $14,362 $15,744
Accounts receivable 19,173 21,091
Costs and accrued earnings on uncompleted contracts 8,407 6,312
Inventories 6,311 6,337
Prepaid expenses 1,391 1,112
------- -------
Total current assets 49,644 50,596
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings 13,692 14,248
Machinery and equipment 34,304 35,189
------- -------
47,996 49,437
Less accumulated depreciation 32,796 33,330
------- -------
15,200 16,107
Land 1,476 1,545
------- -------
Total property, plant and equipment 16,676 17,652
OTHER ASSETS
Deposit - restricted cash 16,152 18,492
Intangibles 6,616 7,085
Other 38 428
------- -------
Total other assets 22,806 26,005
------- -------
$89,126 $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>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 449 $ 485
Current maturities of long-term debt 1,709 2,787
Accounts and trade notes payable 19,643 17,786
Accrued liabilities 4,747 5,289
Customer deposits 6,379 9,900
Income taxes 729 371
------- -------
Total current liabilities 33,656 36,618
LONG-TERM DEBT, less current maturities 26,358 28,435
DEFERRED INCOME TAXES 847 847
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 4,430,233 443 442
in 1996 and 4,422,056 in 1995
Capital in excess of par value 10,777 10,745
Retained earnings 13,312 12,676
Accumulated foreign currency translation adjustment 3,733 4,490
------- -------
Total stockholders' equity 28,265 28,353
------- -------
$89,126 $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 March 31
1996 1995
<S> <C> <C>
Revenue $ 23,527 $ 9,153
Cost and expenses
Cost of sales 18,395 9,050
Selling and administrative 3,464 2,269
Research and development 411 195
---------- ----------
22,270 11,514
Operating income (loss) 1,257 (2,361)
Other income (deductions)
Interest expense (678) (794)
Interest income 397 820
Other - net (116) (259)
---------- ----------
(397) (233)
Earnings (loss) before income taxes 860 (2,594)
Income taxes 224 130
---------- ----------
NET EARNINGS (LOSS) $ 636 $ (2,724)
========== ==========
Net income (loss) per common share $ .14 $ (.62)
========== ==========
Weighted average number of shares 4,422,634 4,398,512
</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>
Three months ended March 31
Increase (decrease) in cash and equivalents 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 636 $(2,724)
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization 352 472
Changes in assets and liabilities
(Increase) decrease in
Accounts receivable 1,879 4,302
Costs and accrued earnings on uncompleted contracts (2,174) (1,325)
Inventories (234) (43)
Prepaid expenses and other assets (340) (433)
Increase (decrease) in
Accounts payable, accrued liabilities and
customer deposits (1,212) (9,201)
Income taxes 361 500
------- -------
Net cash (used in) provided by
operating activities (732) (8,452)
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Capital expenditures (114) (322)
------- -------
Net cash (used in) investing activities (114) (322)
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (1,291) -
Net increase in long-term borrowings - 435
Net increase (decrease) in short-term borrowings (924) 1,285
Stock award/stock plan 32 20
Common shares purchased and retired - -
Deposits - restricted cash 2,340 (760)
------- -------
Net cash provided by financing activities 157 980
Effects of exchange rate changes on cash (694) 2,827
------- -------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,383) (4,967)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 15,744 43,606
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $14,362 $38,639
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 516 $ 1,841
Taxes 60 410
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of March 31, 1996 and December
31, 1995, the condensed consolidated statements of earnings and the
condensed consolidated statements of cash flows for the three months ended
March 31, 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 March 31, 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 March
31, 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., Sedachim, S.I., Tele Technique Generale and VSK
Electronics N.V. and its wholly-owned subsidiaries, Classics, B.V.B.A.
Dectectia, N.V., IDCS, N.V. and Belgian Automation Units, N.V. (collectively
"The VSK Group").
IDCS, N.V. was acquired on May 9, 1995, and was accounted for as a
purchase, and revenue and results of operations from that date forward have
been consolidated.
During 1995, Mecar's wholly-owned subsidiaries Management Export Services,
N.V. and its minority interest in Building Control Services, N.V. were
liquidated. In addition, the Company effectively ceased operations of
its wholly-owned subsidiary ARC Services, Inc. in December, 1995.
VSK France is also being liquidated effective December 31, 1995.
Significant intercompany transactions have been eliminated in consolidated.
NOTE 3 - ACQUISITION
On May 9, 1995, the VSK Group acquired IDCS, N.V. a Belgian company, for
approximately $2,972.
This company manufactures, distributes and services an integrated line of
industrial security products, including devices such as buildings access
control, parking control, intrusion and fire detection and intrusion and
fire alarms.
7
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITION - Continued
The acquisition has been accounted for as a purchase and the purchase price
in excess of the net assets acquired has been reflected in intangibles. The
financial statements include the results of operations since the date of
acquisition. Pro forma financial data for these acquisitions prior to the
date of acquisition would not have a material affect on reported results.
Fair value of tangible assets acquired $2,587
Liabilities assumed 855
------
Net assets acquired 1,732
Purchase price 2,972
------
Excess of cost over assets acquired $1,240
======
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. Cash and long-term deposits totaling approximately
$25,897 ($16,152 of which is classified as a long-term deposit) at March 31,
1996 ($29,051 at December 31, 1995) are restricted or pledged as collateral
for various bank agreements and are comprised as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash
Credit facility and related term loan agreements $ 6,362 $ 7,755
Other bank guarantees and letters of credit 2,348 1,769
Notes payable 1,035 1,035
------- -------
9,745 10,559
Deposit - restricted cash - long-term
Credit facility and related term loan agreements 16,152 18,492
------- -------
$25,897 $29,051
======= =======
</TABLE>
NOTE 5 - INVENTORIES
Inventories consist of the following:
March 31, 1996 December 31, 1995
Raw materials and supplies $6,311 $6,337
====== ======
8
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE
At March 31, 1996 and December 31, 1995, secured short-term loans of $72
and of 337 were outstanding with certain banks.
Barnes and Reinecke has a $750 revolving line-of-credit agreement which had
no outstanding balance at March 31, 1996. The outstanding borrowings under
the similar line were $445 at December 31, 1995. The line-of-credit bears
interest at the prime rate plus 1.5% and expires in July, 1996. 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.
Mecar has a $1,035 line-of-credit agreement with a foreign bank which was
unused at March 31, 1996 and at December 31, 1995. The line is secured by a
cash deposit pledge equal to the full amount of the line.
NOTE 7 - CREDIT FACILITY
The Company is obligated under a credit agreement (the Agreement) with a
banking pool comprised of four 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 as the line is used, plus an
annual fee of approximately 2% of guarantees issued. As of March 31, 1996,
the credit facility had been fully utilized and guarantees of $17,964 remain
outstanding.
At March 31, 1996, advances under the credit facility were secured by
deposits of $6,362, plus term deposits of $16,152. There is $16,152
classified as long-term deposit at March 31, 1996 and $18,492 at December
31, 1995. Amounts outstanding are 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 levels and the payment of bank fees and charges as defined in the
Agreement. The Agreement also requires Allied to increase Mecar's capital by
approximately $8,600 during 1996 by agreeing to cancel certain intercompany
indebtedness.
The Company is also liable for guarantees and other instruments issued on
its behalf by other banks which approximate $1,670 at March 31, 1996, which
are collateralized by $1,048 of time deposits.
Mecar is obligated on an approximately $5,400 mortgage on its manufacturing
and administration facilities. As amended, the balance of the loan is
payable in annual principal installments of approximately $600 commencing in
January 1996 (except for the annual principal installment in the year 2000
which is approximately $800) and the entire balance matures in 2004. The
Company is also obligated on several mortgages on The VSK Group's buildings
which has a balance of approximately $1,800 at March 31, 1996. The mortgages
are payable in annual installments of approximately $250 plus interest.
9
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM FINANCING - Continued
Scheduled annual maturities of long-term obligations as of March 31, 1996
are approximately as follows:
Year Amount
1996 $ 2,086
1997 21,020
1998 1,629
1999 1,162
2000 995
Thereafter 1,175
-------
$28,067
=======
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 provision for income taxes differs from the anticipated combined federal
and state statutory rates due to operating losses and earnings from foreign
subsidiaries.
The Company's Belgian subsidiaries have unused net operating losses of
approximately $17,000 at March 31, 1996, which under Belgian law cannot be
carried back but may be carried forward indefinitely, and are subject to
annual limitations.
As of March 31, 1996, the Company had unused foreign tax credit
carryforwards of approximately $1,100 which expire through 2009.
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 March 31, 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.
10
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
March 31, 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., Tele Technique Generale, as well as VSK
Electronics, N.V., Classics, B.V.B.A., Detectia, N.V. IDCS, N.V. and Belgian
Automation Units, N.V. (collectively "The VSK Group"): Barnes & Reinecke,
Inc., ("Barnes") a Delaware corporation, headquarterd 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.
During 1995, Mecar's wholly-owned subsidiaries Management Export Services,
N.V. and its minority interest in Building Control Services, N.V. were
liquidated. In addition, the Company effectively ceased operations of
its wholly-owned subsidiary ARC Services, Inc. in December, 1995.
VSK France is also being liquidated effective December 31, 1995.
SALES
Revenue for the first three months of 1996 was $23,527, an increase of 157%
over the comparable period in 1995, due to increases in revenues by all
operating subsidiary groups. Mecar sales were $15,825, or up 404% compared
to the period ended March 31, 1995. Barnes revenues were $3,415, up 67%
compared to the same period in 1995. The VSK Group's revenues for the
quarter were $4,284 compared to $3,944 for 1995, however, the prior year did
not include IDCS, N.V. which was acquired in May, 1995. Limited and Services
did not have revenues this period or in last year's comparable period.
BACKLOG
As of March 31, 1996, the Company's backlog was $60,333 compared with
$68,100 at December 31, 1995. Mecar's backlog at March 31, 1996 was
approximately $30,771. As of March 31, 1995, the Company's backlog was
$40,730, $13,100 of which was Mecar's backlog. During the quarter, Mecar
received orders for $12 million, although no direct orders were received
from Mecar's principal customer.
OPERATING COSTS AND EXPENSES
Cost of sales for the first three months of 1996 were approximately $18,395
or 78% of sales as compared to $9,050 or 99% for the first three months of
1995. The decrease is primarily due to the product mix.
Selling and administrative expenses were approximately $3,464 or 15% of
revenues for the three months ended March 31, 1996 as compared to $2,269 or
25% for the three months ended March 31, 1995. This decrease is a result of
increased volumes of revenue.
RESEARCH AND DEVELOPMENT
Research and development expenses were 2% as a ratio of sales for the
three month period ended March 31, 1996 and 1995.
11
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - CONTINUED
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
OPERATING INCOME
There was operating income of $1,257 for the first three months or 5% of
revenues for the quarter ended March 31, 1996. This compares with an
operating loss of $2,361 for the three months ended March 31, 1995. This
increase is primarily because of increased revenues from all subsidiaries.
INTEREST EXPENSE
Interest expense for the first three months of 1996 decreased, compared to
the same period in 1995, as a result of decreased borrowing levels.
INTEREST INCOME
Interest income decreased as a result of a decrease in funds available for
investment.
OTHER - NET
For the three months ended March 31, 1996, Other - Net represents primarily
currency losses, net of currency gains, resulting from foreign currency
transactions.
LIQUIDITY AND CAPITAL RESOURCES
During the first three 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 March 31, 1996, the
Company had unrestricted cash (i.e., cash not required by the terms of the
bank agreement to collateralize contracts) of approximately $4,617. Mecar is
limited by its bank pool agreement in the amounts it may transfer to Allied
or other affiliates.
Accounts receivable at March 31, 1996 decreased over December 31, 1995 by
$1,918 and costs and accrued earnings on uncompleted contracts increased by
$2,095 from 1995. Inventories remained level. Prepaid expenses and deposits
increased $279 primarily due to the increase in prepaid expenses. Current
liabilities decreased by $2,962 from December 31, 1995 levels as a result of
decreases in accounts payable, notes payables, current maturities on
long-term debt, accrued liabilities and customer deposits.
In summary, working capital was approximately $15,988 at March 31, 1996,
which is an increase of $2,200 from December 31, 1995. The increase is
primarily attributable to cash generated from operating activities.
12
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - CONTINUED
March 31, 1996
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
None.
13
<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
---------------------------------
Date: May 15, 1996 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,362,000
<SECURITIES> 0
<RECEIVABLES> 19,173,000
<ALLOWANCES> 0
<INVENTORY> 6,311,000
<CURRENT-ASSETS> 49,644,000
<PP&E> 49,472,000
<DEPRECIATION> 32,796,000
<TOTAL-ASSETS> 89,126,000
<CURRENT-LIABILITIES> 33,656,000
<BONDS> 0
<COMMON> 443,000
0
0
<OTHER-SE> 27,822,000
<TOTAL-LIABILITY-AND-EQUITY> 89,126,000
<SALES> 23,527,000
<TOTAL-REVENUES> 23,527,000
<CGS> 18,395,000
<TOTAL-COSTS> 22,270,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 678,000
<INCOME-PRETAX> 860,000
<INCOME-TAX> 224,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
