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, 1997
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, 1997: 4,528,058.
<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, 1996 and March 31, 1997.............................................2,3
Condensed Consolidated Statements of Earnings
Three months ended March 31, 1997 and 1996.........................................4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996.........................................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...................................................................................13
</TABLE>
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C>
CURRENT ASSETS
Cash and equivalents, including restricted cash $21,621 $32,860
Accounts receivable 21,043 11,889
Costs and accrued earnings on uncompleted contracts 7,321 14,694
Inventories 6,069 7,171
Prepaid expenses and deposits 3,209 3,880
------- -------
Total current assets 59,263 70,494
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings and improvements 12,431 13,316
Machinery and equipment 30,716 33,030
------- -------
43,147 46,346
Less accumulated depreciation 31,210 33,106
------- -------
11,937 13,240
Land 1,311 1,412
------- -------
13,248 14,652
OTHER ASSETS
Intangibles, net of amortization 5,732 6,124
Other 689 678
------- -------
6,421 6,802
------- -------
$78,932 $91,948
======= =======
</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, 1997 December 31, 1996
-------------- -----------------
<S> <C>
CURRENT LIABILITIES
Notes payable $ 1,022 $ 3,318
Current maturities of long-term debt 12,336 14,099
Accounts and trade notes payable 14,489 18,571
Accrued liabilities 4,389 4,702
Customer deposits 5,252 10,935
Income taxes 1,343 805
-------- --------
Total current liabilities 38,831 52,430
LONG-TERM DEBT, less current maturities 6,999 7,443
DEFERRED INCOME TAXES 599 628
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, 4,528,058
in 1997 and 4,443,092 in 1996 453 444
Capital in excess of par value 11,508 10,846
Retained earnings 19,465 17,482
Accumulated foreign currency translation adjustment 1,077 2,675
-------- --------
32,503 31,447
-------- --------
$78,932 $91,948
======= =======
</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
---------------------------
1997 1996
----- ----
<S> <C>
Revenue $ 29,765 $ 23,527
Cost and expenses
Cost of sales 24,275 18,395
Selling and administrative 3,322 3,464
Research and development 367 411
------------ ------------
27,964 22,270
Operating income 1,801 1,257
Other income (deductions)
Interest expense (508) (678)
Interest income 253 397
Other - net 639 (116)
------------ ------------
384 (397)
Earnings before income taxes 2,185 860
Income taxes 201 224
------------ ------------
NET EARNINGS $ 1,984 $ 636
============ ============
Net income per common share $ .44 $ .14
============== =============
Weighted average number of shares 4,472,340 4,422,634
</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 1997 1996
---- ----
<S> <C>
Cash flows from operating activities
Net earnings $ 1,983 $ 636
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization 403 352
Changes in assets and liabilities
Accounts receivable (9,176) 1,879
Costs and accrued earnings on uncompleted contracts 6,316 (2,174)
Inventories 590 (234)
Prepaid expenses and other assets 375 (340)
Accounts payable, accrued liabilities and
customer deposits (7,943) (1,212)
Income taxes 608 361
-------- ----------
Net cash (used in ) operating activities (6,844) (732)
Cash flows (used in) investing activities
Capital expenditures (326) (114)
-------- ----------
Net cash (used in ) investing activities (326) (114)
Cash flows from financing activities
Principal payments of long-term debt - (1,291)
Net increase (decrease) in short-term borrowings (2,700) (924)
Stock award/stock plan 494 32
Options exercised 176 -
Deposits - restricted cash - 2,340
-------- ----------
Net cash (used by) provided by financing activities (2,030) 157
Effects of exchange rate changes on cash (2,038) (694)
-------- ----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (11,238) (1,383)
Cash and equivalents at beginning of year 32,859 15,744
-------- ----------
Cash and equivalents at end of period $ 21,621 $14,362
======== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest 220 $ 516
Taxes 150 60
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of March 31, 1997 and December
31, 1996, the condensed consolidated statements of earnings and the
condensed consolidated statements of cash flows for the three months ended
March 31, 1997 and 1996, 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, 1997 and 1996
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, 1996 Form 10-K filed with the Securities and Exchange Commission,
Washington, D.C. 20549. The results of operations for the period ended March
31, 1997 and 1996 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).
Mecar, S.A.'s wholly-owned Belgian subsidiaries include, 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").
Significant intercompany transactions have been eliminated in consolidation.
NOTE 3 - RESTRICTED CASH
Mecar is generally required under the terms of its contracts with foreign
governments to provide performance bonds, advance payment guarantees and
letters of credit. The credit facility agreements used to provide these
financial guarantees generally place restrictions on cash deposits and other
liens on Mecar's assets. Cash totaling approximately $17,729 at March 31,
1997 ($20,116 at December 31, 1996) are restricted or pledged as collateral
for various bank agreements and are comprised as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Cash
Credit facility and related term loan agreements $12,163 $18,382
Other bank guarantees and letters of credit 1,306 1,734
Notes payable - -
------- -------
$13,469 $20,116
======= =======
</TABLE>
6
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - INVENTORIES
Inventories are composed of raw materials and supplies.
NOTE 5 - NOTES PAYABLE
Barnes and Reinecke has a $1,250 revolving line-of-credit agreement which
had an outstanding balance at March 31, 1997 of $750. The outstanding
borrowings under the similar line were $250 at December 31, 1996. The
line-of-credit bears interest at the prime rate plus .5% and expires in
June, 1997. 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 $878 line-of-credit agreement with a foreign bank which has a
balance of $272 at March 31, 1997 and no balance at December 31, 1996. The
line is secured by a cash deposit pledge equal to the full amount of the
line.
NOTE 6 - CREDIT FACILITY
The Company is obligated under a credit agreement (the old 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 old 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, 1997,
the credit facility had been fully utilized and guarantees of $10,507 remain
outstanding.
The Company has a credit agreement (the new Agreement) with a banking pool
comprised of five foreign banks that provide similar credit facilities for
new contracts. The bank fee structure under the new Agreement and the old
Agreement is similar.
At March 31, 1997, advances under the old agreement were secured by deposits
of $5,045, plus term deposits of $10,599. The term deposits correspond to
the term loan agreement with two of the institutions in its foreign banking
pool. The proceeds were place in deposit accounts as collateral for credit
facility advances made by the pool under the old Agreement. 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. Both Agreements provide 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.
The Company is also liable for guarantees and other instruments issued on
its behalf by other banks which approximate $1,734 at March 31, 1997, which
are collateralized by $1,252 of time deposits.
7
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM FINANCING
Mecar is obligated on an approximately $5,000 mortgage on its manufacturing
and administration facilities. As amended, the balance of the loan is
payable in annual principal installments of approximately $600 and matures
in 2004. The Company is also obligated on several mortgages on The VSK
Group's buildings which has a balance of approximately $1,200 at March 31,
1997. The mortgages are payable in annual installments of approximately $250
plus interest.
Barnes & Reinecke is obligated on two notes payable to its bank which have a
total balance due of $183 at March 31, 1997 and $292 at December 31, 1996.
Scheduled annual maturities of long-term obligations as of March 31, 1997
are approximately as follows:
Year Amount
---- ------
1997 $12,336
1998 1,700
1999 1,200
2000 1,200
2001 800
Thereafter 2,100
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 $2,200 at March 31, 1997, which under Belgian law cannot be
carried back but may be carried forward indefinitely.
As of March 31, 1997, the Company had unused foreign tax credit
carryforwards of approximately $750 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
$21,000 at March 31, 1997 and $18,800 at December 31, 1996. Determination of
the amount of unrecognized deferred tax liabilities is not practicable.
8
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
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
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
The Company conducts its business through its wholly-owned subsidiaries:
Mecar, S.A., ("Mecar"), a Belgian corporation; Barnes & Reinecke, Inc.
("Barnes"), a Delaware corporation, headquartered in Illinois; Allied
Research Corporation Limited ("Limited"), a U.K. company; as well as a
group of Belgian corporations acquired by Mecar in 1994 and 1995 led
by VSK Electronics, N.V., Teletechnique General, S.A. and IDCS, S.A.
(collectively, the "VSK Group"). This discussion refers to the financial
condition and results of operations of the company on a consolidated basis.
Revenue
Revenue for the first three months of 1997 was $29,765, an increase of 27%
over the comparable period in 1996, principally due to increased revenue
from Mecar. Mecar sales were $23,258, or up 47% compared to the period ended
March 31, 1996. Barnes' revenue was $2,276, down 33% compared to the same
period in 1996 principally due to delays in obtaining financing on a key
contract. The VSK Group's revenue for the quarter was about the same as the
prior period at approximately $4,250. Limited did not have revenue this
period or in last year's comparable period.
Backlog
As of March 31, 1997, the Company's backlog was approximately $145,000
compared with $79,600 at December 31, 1996 and $60,333 at March 31, 1996.
During the first quarter of 1997, Mecar received an order for $84 million
from its principal customer.
Operating Costs and Expenses
Cost of sales for the first three months of 1997 were approximately $24,275,
or 82% of sales, as compared to $18,395, or 78%, for the first three months
of 1996. The increase is primarily due to the product mix.
Selling and administrative expenses were approximately $3,322, or 11% of
revenue, for the three months ended March 31, 1997 as compared to $3,464, or
15%, for the three months ended March 31, 1996. This decrease is a result of
increased revenue.
Research and Development
Research and development expenses were 1% as a ratio of sales at March 31,
1997 and 2% as a ratio of sales for the three month period ended March 31,
1996, a decrease primarily due to an increase in volume.
10
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Interest Expense
Interest expense for the first three months of 1997 decreased, compared to
the same period in 1996, 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, 1997, Other - Net represents primarily
currency gains, net of currency losses, resulting from foreign currency
transactions.
Net Earnings
The Company earned a $1,984 profit ($.44 per share) compared with a $0.636
profit ($0.14 per share) in the first three months of 1996. The increased
net earnings was primarily attributable to an increased volume of business
at Mecar.
Liquidity and Capital Resources
During the first three months of 1997 and throughout 1996, Allied funded its
operations principally with internally generated cash and back-up credit
facilities required for foreign government contracts. 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. At March 31, 1997, the Company had
unrestricted cash (i.e., cash not required by the terms of the bank pool
agreement to collateralize contracts) of approximately $8,152, compared with
approximately $12,000 at December 31, 1996. The decrease in unrestricted
cash was caused in large part by substantial payments during the first
quarter of 1997, of Company payables and other liabilities. The Company
anticipates receiving a down payment on the large contract that was awarded
in the first quarter 1997 of approximately $4,000 and upon receipt, that
down payment will be pledged as collerateral.
Accounts receivable at March 31, 1997 increased over December 31, 1996 by
$9,153 and cost and accrued earnings on uncompleted contracts decreased by
$7,372 from March 31, 1996 levels. Inventories decreased $1,102. Prepaid
expenses and deposits decreased $673 primarily due to a decrease in prepaid
expenses. Current liabilities decreased by $13,600 from December 31, 1996
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 $20,433 at March 31, 1997,
which is an increase of $2,369 from December 31, 1996. The increase is
primarily attributable to operating activities at Mecar.
11
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1997
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
None.
12
<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: May 2, 1997 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $21,621,000
<SECURITIES> 0
<RECEIVABLES> 21,043,000
<ALLOWANCES> 0
<INVENTORY> 6,069,000
<CURRENT-ASSETS> 59,263,000
<PP&E> 0
<DEPRECIATION> 13,248,000
<TOTAL-ASSETS> 78,932,000
<CURRENT-LIABILITIES> 38,830,000
<BONDS> 0
0
0
<COMMON> 453,000
<OTHER-SE> 32,000,000
<TOTAL-LIABILITY-AND-EQUITY> 32,503,000
<SALES> 29,765,000
<TOTAL-REVENUES> 29,765,000
<CGS> 24,275,000
<TOTAL-COSTS> 27,964,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,000
<INCOME-PRETAX> 2,185,000
<INCOME-TAX> 201,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,984,000
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
