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, 1999
--------------
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, 1999: 4,830,716.
<PAGE>
ALLIED RESEARCH CORPORATION
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
Item 1.Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1998 and March 31, 1999.............................2,3
Condensed Consolidated Statements of Earnings
Three months ended March 31, 1999 and 1998.........................4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998.........................5
Notes to Condensed Consolidated Financial Statements......................6
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................9
PART II. OTHER INFORMATION........................................................11
</TABLE>
<PAGE>
ALLIED RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
March 31, 1999 December 31, 1998
-------------- -----------------
CURRENT ASSETS
Cash and equivalents $11,542 $10,235
Restricted cash (notes 3 and 6) 11,336 14,014
Accounts receivable 45,298 29,446
Costs and accrued earnings on uncompleted contracts 4,802 20,887
Inventories 4,151 3,422
Prepaid expenses and deposits 1,509 10,094
------- -------
Total current assets 78,638 88,098
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings and improvements 11,600 12,440
Machinery and equipment 29,685 31,776
Leasehold improvements 119 118
------- -------
41,404 44,334
Less accumulated depreciation 31,247 33,103
------- -------
10,157 11,231
Land 1,198 1,298
------- -------
11,355 12,529
OTHER ASSETS
Restricted deposits (notes 3 and 6) 6,737 6,670
Intangibles, net of amortization 4,830 4,961
Other 776 818
------- -------
12,343 12,449
------- -------
$102,336 $113,076
======== ========
</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>
<S> <C> <C> <C>
March 31, 1999 December 31, 1998
-------------- -----------------
CURRENT LIABILITIES
Notes payable $ 5,330 $ 3,415
Current maturities of long-term debt 556 1,324
Accounts and trade notes payable 26,826 25,379
Accrued liabilities 4,308 5,043
Accrued losses on contracts 1,030 786
Customer deposits 1,464 16,137
Income taxes 1,478 748
------- -------
Total current liabilities 40,992 52,832
LONG-TERM DEBT, less current maturities 4,008 4,431
ADVANCE PAYMENTS ON CONTRACTS 5,850 5,850
DEFERRED INCOME TAXES - -
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, 4,830,716
in 1999 and 4,757,174 in 1998 483 475
Capital in excess of par value 13,874 13,391
Retained earnings 36,378 35,111
Accumulated other comprehensive income 751 985
------- -------
51,486 49,963
------- -------
$102,336 $113,076
======== ========
</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>
<S> <C>
Three months ended March 31
---------------------------
1999 1998
-------- --------
REVENUE $ 27,482 $ 35,753
COST AND EXPENSES
Cost of sales 22,693 29,123
Selling and administrative 2,664 3,271
Research and development 397 457
-------- --------
25,754 32,851
-------- --------
Operating income 1,728 2,902
OTHER INCOME (DEDUCTIONS)
Interest expense (335) (407)
Interest income 293 236
Other - net 376 (12)
-------- --------
334 (183)
-------- --------
Earnings before income taxes 2,062 2,719
INCOME TAXES 796 462
-------- --------
NET EARNINGS $ 1,266 $ 2,257
============ ============
NET INCOME PER COMMON SHARE
Basic $ .27 $ .49
============ ============
Diluted $ .27 $ .48
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 4,779,223 4,646,008
Diluted 4,785,937 4,692,067
</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>
<S> <C>
Three months ended March 31
---------------------------
Increase (decrease) in cash and equivalents 1999 1998
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,266 $2,257
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities
Depreciation and amortization 568 497
Changes in assets and liabilities
Accounts receivable (17,969) 22,736
Costs and accrued earnings on uncompleted 14,948 (9,588)
contracts
Inventories (1,034) 4,087
Prepaid expenses and other assets 7,294 (1,485)
Accounts payable, accrued liabilities and
customer deposits (7,980) (18,731)
Income taxes 1,062 640
------- ------
Net cash (used in ) provided by operating (1,845) 413
activities
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Capital expenditures (560) (413)
Restricted cash and restricted deposits 2,678 -
------- ------
Net cash provided by (used in ) investing 2,118 (413)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 350 -
Principal payments of long-term debt (354) (17)
Net increase (decrease) in short-term borrowings 1,115 (742)
Stock award/stock plan 503 715
Options exercised 16 346
Net (increase) in long-term deposits (67) (4,746)
Retirement of common stock (28) -
------- ------
Net cash provided by (used in) financing activities 1,535 (4,444)
Effects of exchange rate changes on cash (501) (289)
------- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,307 (4,733)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 10,235 7,694
------- ------
CASH AND EQUIVALENTS AT END OF PERIOD $ 11,542 2,961
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 316 $ 476
Taxes 214 399
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of March 31, 1999 and December
31, 1998, the condensed consolidated statements of earnings and the condensed
consolidated statements of cash flows for the three months ended March 31,
1999 and 1998, 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, 1999 and 1998 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,
1998 Form 10-K filed with the Securities and Exchange Commission, Washington,
D.C. 20549. The results of operations for the period ended March 31, 1999 and
1998 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), and 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, 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 deposits received from a customer of BRI are
also restricted by its credit facility agreement. VSK also has pledged
certain term deposits to secure outstanding bank guarantees. Cash of $11,336
and long-term deposits of $6,737 at March 31, 1999 ($14,014 and long-term
deposits of $6,670 at December 31, 1998) are restricted or pledged as
collateral for these bank agreements.
NOTE 4 - INVENTORIES
Inventories are composed of raw materials and supplies.
6
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - NOTES PAYABLE
BRI has a $6,000 revolving line-of-credit agreement which had an outstanding
balance at March 31, 1999 of $5,330 and $3,415 at December 31, 1998. The
current line-of-credit bears interest at the prime rate and expires February
2000. 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.
The Company is also obligated on various vehicles, equipment and other
operating loans.
NOTE 6 - CREDIT FACILITY
The Company is obligated under various credit agreements (the Agreements)
with its foreign banking pool and its domestic bank that provided 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 line is used,
plus fees of 2% of guarantees issued and annual fees of 1.25% - 1.35% of
letters of credit and guarantees outstanding. As of March 31, 1999,
guarantees and performance bonds of $20.9 million ($34.1 million at December
31, 1998) remain outstanding.
Advances under the Agreements are secured by cash of $11,336 and long-term
cash deposits of $6,737. Amounts outstanding are also collateralized by the
letters of credit received under the contracts financed, and a pledge of
approximately $32 million on Mecar's assets. Certain 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 other provisions.
NOTE 7 - LONG-TERM FINANCING
Mecar is obligated on an approximately $3,000 mortgage on its manufacturing
and administration facilities. As amended, the balance of the loan is payable
in annual principal installments of approximately $550 (except for the annual
principal installment in the year 2000 of $810) and matures in 2004. The
Company is also obligated on several mortgages on The VSK Group's buildings
which has a balance of approximately $800 at March 31, 1999. The mortgages
are payable in annual installments of approximately $250 plus interest.
Barnes & Reinecke is obligated on a notes payable to its bank which has an
outstanding balance due of $247 at March 31, 1999 and $346 at December 31,
1998.
Scheduled annual maturities of long-term obligations as of March 31, 1999 are
approximately as follows:
Year Amount
---- ------
2000 $ 556
2001 1,300
2002 1,100
2003 900
2004 500
Thereafter 208
7
<PAGE>
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
The provision for income taxes differs from the anticipated combined federal
and state statutory rates due to operating loss carryovers and earnings from
foreign subsidiaries.
As of March 31, 1999, the Company had unused foreign tax credit
carryforwards of approximately $764 which expire through 2001.
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
$30,000 at March 31, 1999 and at December 31, 1998. Determination of the
amount of unrecognized deferred tax liabilities is not practicable.
NOTE 9 - EARNINGS (LOSS) PER SHARE
Stock options outstanding have been included in the diluted per share
computation.
8
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
The Company conducts its business through its wholly-owned subsidiaries:
Mecar, S.A., ("Mecar"), a Belgian corporation and Barnes & Reinecke, Inc.
("Barnes"), a Delaware corporation, headquartered in Illinois; as well as a
group of Belgian corporations acquired 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 (3) three months of 1999 was $27,482, a decrease of
23% from the comparable period in 1998, principally due to decreased revenue
from Mecar .
Revenues by Segment
----------------------------------------------
1st Quarter 1999 1st Quarter 1998
------------------ -------------------
Percentage Percentage
Amount of total Amount of total
------ --------- ------ ---------
Mecar $18,821 69% $28,615 80%
VSK $4,979 18% $4,781 13%
BRI $3,682 13% $2,357 7%
Mecar's performance continues to suffer as a result of lack of orders from
its principal customers.
BACKLOG
As of March 31, 1999, the Company's backlog was $26,000 compared with
$48,000 at December 31, 1998 and $121,000 at March 31, 1998. The March 31,
1999 backlog consisted of backlog of approximately $6,000, $13,000 and
$7,000 at Mecar, VSK Group and BRI, respectively.
OPERATING COSTS AND EXPENSES
Cost of sales for the first three months of 1999 were approximately $22,693,
or 83% of sales, as compared to $29,123, or 81%, for the first three months
of 1998. The change is due to the product mix
Selling and administrative expenses were approximately $2,664, or 10% of
revenue, for the three months ended March 31, 1999 as compared to $3,271, or
9%, for the three months ended March 31, 1998.
RESEARCH AND DEVELOPMENT
Research and development expenses were 1% of sales for each of the three
month periods ended March 31, 1999 and 1998.
INTEREST EXPENSE
Interest expense for the first three months of 1999 decreased, compared to
the same period in 1998, as a result of decreased borrowing levels.
9
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest income for the 1999 period increased over the same three month
period of 1998 due to increased levels of cash.
OTHER - NET
Other - Net represents primarily currency gains, net of currency losses,
resulting from foreign currency transactions for the three months ended
March 31, 1999. The difference over the same period ended March 31, 1998
results from the fluctuation of currency rates.
PRE-TAX PROFIT
Pre-Tax Profit by Segment
--------------------------------------------
1st Quarter 1999 1st Quarter 1998
----------------- -----------------
Percentage Percentage
Amount of total Amount of total
------ -------- ------ --------
Mecar $ 737 36% $1,636 60%
VSK $1,320 64% $ 960 35%
BRI $ 5 - % $ 123 5%
INCOME TAXES
The effective tax rate in the first quarter of 1999 was 39% as compared to
17% in the first quarter of 1998. The increase is the result of the
utilization during 1998 of Mecar's tax loss carryforwards.
NET EARNINGS
The Company earned a $1,266 profit ($0.27 per share basic and diluted) in
the first three months of 1999 compared with a $2,257 profit ($0.49 per
share basic and $0.48 diluted) in the first three months of 1998. The
decreased net earnings were primarily attributable to a decreased volume of
business at Mecar.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1999 and throughout 1998, 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. Since the end of 1998, Allied has
made intercompany loans to BRI to support BRI's cash flow, pending
completion of BRI's contract to supply a dynamometor to a foreign customer.
At March 31, 1999, the Company had unrestricted cash (i.e., cash not
required by the terms of the bank pool agreement to collateralize contracts)
and deposits of approximately $11,542 compared with approximately $10,235 at
the year ended December 31, 1998.
10
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1999
(THOUSANDS OF DOLLARS)
(UNAUDITED)
- --------------------------------------------------------------------------------
Accounts receivable at March 31, 1999 increased from December 31, 1998
levels by $15,850 due to substantial shipments at the end of the first
quarter of 1999. Costs and accrued earnings on uncompleted contracts
decreased by $16,085 from December 31, 1998 levels due to decreased levels
of work-in-progress. Inventories increased from year-end levels by $729 due
to purchases on anticipated contracts. Prepaid expenses and deposits
decreased by $8,584 primarily due to expenses related to shipments during
the quarter. Current liabilities decreased by $11,838 from December 31, 1998
levels principally as a result of reductions in customer deposits.
In summary, working capital was approximately $37,646 at March 31, 1999,
which is an increase of $2,378 from working capital at December 31, 1998.
The increase is primarily attributable to the Company's continuing
profitability and a reduction in current liabilities.
11
<PAGE>
ALLIED RESEARCH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1999
(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: April 27, 1999 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000003952
<NAME> ALLIED RESEARCH CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,542,000
<SECURITIES> 0
<RECEIVABLES> 45,298,000
<ALLOWANCES> 0
<INVENTORY> 4,151,000
<CURRENT-ASSETS> 78,638,000
<PP&E> 42,602,000
<DEPRECIATION> 31,247,000
<TOTAL-ASSETS> 102,336,000
<CURRENT-LIABILITIES> 40,992,000
<BONDS> 0
0
0
<COMMON> 483,000
<OTHER-SE> 51,003,000
<TOTAL-LIABILITY-AND-EQUITY> 102,336,000
<SALES> 27,482,000
<TOTAL-REVENUES> 27,482,000
<CGS> 22,693,000
<TOTAL-COSTS> 25,754,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335,000
<INCOME-PRETAX> 2,062,000
<INCOME-TAX> 796,000
<INCOME-CONTINUING> 1,266,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,266,000
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
