<PAGE>
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 June 30, 2000
-------------
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 260
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 June 30, 2000: 4,857,184.
<PAGE>
ALLIED RESEARCH CORPORATION
INDEX
--------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999.......................... 2
Condensed Consolidated Statements of Operations
Three months and six months ended June 30, 2000 and 1999..... 3
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999...................... 4
Notes to Condensed Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
PART II. OTHER INFORMATION................................................. 13
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 8,658 $ 5,968
Restricted cash 7,648 4,508
Accounts receivable 10,190 9,278
Costs and accrued earnings on uncompleted contracts 33,355 14,109
Inventories 3,860 3,519
Prepaid expenses 1,651 972
Net assets of discontinued operation - 4,199
------- -------
Total current assets 65,362 42,553
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation 11,181 10,262
OTHER ASSETS
Intangibles, net of accumulated amortization 4,160 4,255
Deferred taxes 1,747 2,924
Other 1,085 137
------- -------
6,992 7,316
------- -------
$83,535 $60,131
======= =======
CURRENT LIABILITIES
Notes payable $ 7,515 $ 609
Current maturities of long-term debt 1,348 1,225
Accounts payable 19,538 10,757
Accrued liabilities 7,082 2,983
Customer deposits 2,026 492
Income taxes 1,276 664
------- -------
Total current liabilities 38,785 16,730
LONG-TERM DEBT, less current maturities 2,820 3,080
CONTINGENCIES AND COMMITMENTS - -
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, 4,857,184 in 2000 and 4,836,722 in 1999 485 484
Capital in excess of par value 14,068 13,907
Retained earnings 34,016 31,084
Accumulated other comprehensive loss (6,639) (5,154)
------- -------
41,930 40,321
------- -------
$83,535 $60,131
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 28,548 $ 7,436 $ 52,022 $ 31,236
Cost and expenses
Cost of sales 23,628 7,944 42,585 27,568
Selling and administrative 2,266 2,688 4,603 4,803
Research and development 353 443 749 840
---------- ---------- ---------- ----------
26,247 11,075 47,937 33,211
---------- ---------- ---------- ----------
Operating income (loss) 2,301 (3,639) 4,085 (1,975)
Other (income) deductions
Interest income (201) (188) (315) (407)
Interest expense 370 259 524 461
Other (286) (69) (153) (445)
---------- ---------- ---------- ----------
(117) 2 56 (391)
---------- ---------- ---------- ----------
Earnings (loss) before discontinued operation and
income taxes 2,418 (3,641) 4,029 (1,584)
Income tax expense 969 455 1,613 1,249
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations 1,449 (4,096) 2,416 (2,833)
Discontinued operation -
Engineering and technical segment
(Loss) income from operations, net of income taxes - (329) 54 (326)
Gain on sale, net of income taxes 31 - 462 -
---------- ---------- ---------- ----------
31 (329) 516 (326)
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) $ 1,480 $ (4,425) $ 2,932 $ (3,159)
========== ========== ========== ==========
Earnings per share
Basic
Continuing operations $ .30 $ (.86) $ .50 $ (.59)
Discontinued operation .01 (.07) .11 (.07)
---------- ---------- ---------- ----------
Net income (loss) $ .31 $ (.93) $ .61 $ (.66)
========== ========== ========== ==========
Diluted
Continuing operations .30 (.86) $ .50 $ (.59)
Discontinued operation .01 (.07) .11 (.07)
---------- ---------- ---------- ----------
Net income (loss) $ .31 $ (.93) $ .61 $ (.66)
========== ========== ========== ==========
Weighted average number of common shares:
Basic 4,753,513 4,757,214 4,849,812 4,805,114
Diluted 4,754,619 4,757,214 4,815,577 4,805,114
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30
------------------------
<S> <C> <C>
Increase (decrease) in cash and equivalents 2000 1999
-------- --------
Cash flows from continuing operating activities
Net earnings (loss) $ 2,932 $ (3,159)
Adjustments to reconcile net earnings to net cash (used in) provided by continuing
operating activities
Depreciation and amortization 754 1,300
Gain on sale of discontinued operation (462) -
Income (loss) from discontinued operation (54) 326
Changes in assets and liabilities
Accounts receivable (1,204) 2,811
Costs and accrued earnings on uncompleted contracts (21,876) 12,615
Inventories (576) (2,320)
Prepaid expenses and other assets (1,188) 8,018
Accounts payable, accrued liabilities and customer deposits 16,011 (17,249)
Income taxes 1,861 839
-------- --------
Net cash (used in) provided by continuing operating activities (3,802) 3,181
Cash flows (used in) investing activities
Capital expenditures (2,084) (1,498)
Proceeds from sale of stock of subsidiary 2,822 -
Restricted cash and restricted deposits (3,140) 5,024
Payment for acquisition, net of cash acquired (826) -
-------- --------
Net cash (used in) provided by investing activities (3,228) 3,526
Cash flows from financing activities
Proceeds from long-term debt 429 -
Principal payments on long-term debt (123) -
Net increase (decrease) in short-term borrowings 7,712 (1,371)
Stock award/stock plan 172 551
Options exercised 116 16
Net (decrease) increase in long-term deposits - 350
Retirement of common stock (123) (73)
-------- --------
Net cash provided by (used in) financing activities 8,183 (527)
-------- --------
Net increase in cash from continuing operations 1,153 6,180
Effects of exchange rate changes on cash 1,537 (947)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,690 5,233
Cash and equivalents at beginning of year 5,968 10,233
-------- --------
Cash and equivalents at end of period $ 8,658 $ 15,466
======== ========
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Cash paid during the period for
Interest $ 513 $ 273
Taxes 618 1,162
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 2000 and December
31, 1999, the condensed consolidated statements of operations and the
condensed consolidated statements of cash flows for the six months ended June
30, 2000 and 1999, 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 flows at June 30, 2000 and 1999 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,
1999 Form 10-K filed with the Securities and Exchange Commission, Washington,
D.C. 20549. The results of operations for the six month periods ended June
30, 2000 and 1999 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 its subsidiaries, ARC
Europe, S.A. (ARC Europe), a Belgian company, Barnes & Reinecke, Inc. (BRI), a
Delaware Corporation (which discontinued operations) and Allied Research
Corporation Limited (Limited), a United Kingdom company.
ARC Europe includes its wholly-owned subsidiaries Mecar S.A. (Mecar) and the
VSK Group of companies. Mecar includes a related Belgian subsidiary,
Sedachim, S.I. The VSK Group is comprised of Tele Technique Generale, S.A.,
I.D.C.S., N.V. and VSK Electronics N.V. and its wholly-owned subsidiaries,
Belgian Automation Units, N.V. and Vigitec S.A. (Vigitec), which was acquired
in a purchase transaction on December 14, 1999.
Significant intercompany transactions have been eliminated in consolidation.
NOTE 3 - RESTRICTED CASH
Mecar is generally required under the terms of its contracts to provide
performance bonds, advance payment guarantees and letters of credit. The
credit facility agreements used to provide these financial guarantees place
restrictions on cash deposits and other liens on Mecar's assets. The VSK
Group has also pledged certain term deposits to secure outstanding bank
guarantees.
Restricted cash of $7,648 and $4,508 included in current assets at June 30,
2000 and December 31, 1999, respectively, was restricted or pledged as
collateral for these agreements and other obligations.
NOTE 4 - DISCONTINUED OPERATION
On December 10, 1999, the Company contracted to sell the engineering and
technical segment of its business. Settlement of the sale occurred on March
10, 2000 and resulted in a gain of $462, net of taxes.
5
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
NOTE 5 - INVENTORIES
Inventories are composed of raw materials and supplies.
NOTE 6 - NOTES PAYABLE
Mecar has a line-of-credit of up to $10,000 for working capital.
Approximately $7,515 of the line was used at June 30, 2000. There was no
amount outstanding at December 31, 1999.
NOTE 7 - CREDIT FACILITY
The Company is obligated under various credit agreements (the "Agreements")
with its foreign banking pool and its domestic bank that provide 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. These fees are charged to interest expense. As of
June 30, 2000 and December 31, 1999, guarantees and performance bonds of
$20,558 and $6,913, respectively, remain outstanding.
Advances under the Agreements are secured by restricted cash at June 30, 2000
and December 31, 1999 of $7,648 and $4,508, respectively. Amounts outstanding
are also collateralized by the letters of credit received under the contracts
financed, and a pledge of approximately $26 million on Mecar's assets.
Certain Agreements provide for restrictions on payments or transfers to Allied
and its affiliates for management fees, intercompany loans, loan payments, the
maintenance of certain net worth levels and other provisions.
NOTE 8 - LONG-TERM FINANCING
Mecar is obligated on a mortgage with a balance of approximately $2,000 on its
manufacturing and administration facilities. The loan is payable in annual
principal installments of approximately $550 and matures in 2004. The Company
is also obligated on several mortgages on the VSK Group's buildings which have
a balance of approximately $800 at June 30, 2000. These mortgages are payable
in annual installments of approximately $250 plus interest.
Scheduled annual maturities of long-term obligations as of June 30, 2000 are
approximately as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2001 $1,348
2002 1,049
2003 966
2004 794
2005 11
</TABLE>
6
<PAGE>
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
As of December 31, 1999, the Company had unused foreign tax credit
carryforwards of approximately $1,400 which expire through 2004.
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
$12,400 at June 30, 2000. Determination of the amount of unrecognized
deferred tax liabilities is not practicable.
NOTE 10 - EARNINGS (LOSS) PER SHARE
Incremental shares from the assumed conversion of stock options outstanding
have been included in the diluted per share computation.
7
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
The following is intended to update the information contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and the
Company's Quarterly Report on Form 10-Q for the three month period ended March
31, 2000 and presumes the readers have access to, and will have read,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in such Form 10-K and Form 10-Q.
The Company conducts its business through its subsidiary, ARC Europe, S. A.
("ARC Europe"). ARC Europe includes its subsidiaries, Mecar, S.A. ("Mecar"), a
Belgian corporation; and a group of Belgian corporations acquired in 1994,
1995 and 1999 led by VSK Electronics, N.V., Teletechnique General, S.A., IDCS,
N.V. and Vigitec S.A. (collectively, the "VSK Group"). This discussion refers
to the financial condition and results of operations of the Company on a
consolidated basis.
Forward-Looking Statements
--------------------------
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that are based on current
expectations, estimates and projections about the Company and the industries
in which it operates. In addition, other written or oral statements which
constitute forward-looking statements may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", or variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions ("Future Factors") which are difficult to
predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecast in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Future Factors include substantial reliance on Mecar's principal customers to
continue to acquire Mecar's products on a regular basis; the cyclical nature
of the Company's military business; rapid technological developments and
changes and the Company's ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the ability of the
Company to successfully continue to increase the commercial component of its
business; the mix of products/services; domestic and foreign governmental
fiscal affairs and public policy changes which may affect the level of
purchases made by customers; changes in environmental and other domestic and
foreign governmental regulations; continued availability of financing,
financial instruments and financial resources in the amounts, at the times and
on the terms required to support the Company's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates; general domestic and
international economic conditions, including interest rate and currency
exchange rate fluctuations; increasing competition by foreign and domestic
competitors, including new entrants; and other Future Factors.
8
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
Revenue
-------
Revenue for the first (6) six months of 2000 was $52,022, an increase of 67%
over the comparable period in 1999, principally due to increased revenue from
Mecar.
<TABLE>
<CAPTION>
Revenues by Segment
Six months ended June 30,
2000 1999
---------------------- ----------------------
Percentage Percentage
Amount of total Amount of total
------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Mecar $41,431 80% $20,626 66%
VSK Group $10,591 20% $10,610 34%
</TABLE>
Revenue for the quarter ended June 30, 2000 was $28,548, a $21,112 increase
over the quarter ended June 30, 1999. Mecar had revenue of $22,816 for the
second quarter of 2000, a $21,178 increase over the second quarter of 1999;
and the revenue of the VSK Group of $5,732 for the quarter ended June 30, 2000
increased by 2% over the comparable period in 1999.
Mecar's increased revenue is principally due to increased business from its
historic customer base as well as increased revenues from previously announced
FMS contracts. Mecar's revenue continues to be derived from direct and
indirect sales to foreign governments. Sales to Mecar's principal customers
continue to represent the vast majority of its sales. Sales to these
principal customers have historically been made with the assistance of an
independent marketing representative, which also provided significant product
and customer support. Mecar has designated an affiliate of the representative
as its distributor/value added reseller of products to the principal
customers. Accordingly, in the future, it is expected that Mecar's revenue
will be primarily in the form of indirect sales to these principal customers.
While this may result in lower Mecar revenue in future periods, the Company
does not anticipate that this change will adversely affect Mecar, its
operations, or its profitability.
The revenue of the VSK Group reflects the December 2000 acquisition of
Vigitec, S.A. Revenue from the other VSK Group entities decreased during the
first half of 2000 as compared to the first half of 1999. The Company
believes that such decrease reflects a temporary lull in the business of the
VSK Group.
The revenue of the Company was also adversely affected by currency
fluctuations in the first half of 2000. For example, the revenue of the VSK
Group for the first half of 2000 increased by approximately 13.4% over the
comparable 1999 period in Belgian francs, the functional currency of the VSK
Group.
Backlog
-------
As of June 30, 2000, the Company's backlog was $94,000 compared with $105,000
at December 31, 1999 and $117,000 at March 31, 2000.
9
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
At June 30, 2000 and 1999, respectively the backlog of each of the Company's
operating units was as follows:
<TABLE>
<CAPTION>
June 30,
--------------------
2000 1999
------ -------
<S> <C> <C>
Mecar $82,000 $52,000
VSK Group 12,000 13,000
</TABLE>
Operating Costs and Expenses
----------------------------
Cost of sales for the first six (6) months of 2000 was approximately $42,585,
or 82% of revenue, as compared to $27,568, or 88% of revenue, for the first
six (6) months of 1999.
Cost of sales for the second quarter of 2000 was approximately $23,628, or 83%
of revenue compared to $7,944, or 107% of revenue for the second quarter of
1999.
Selling and administrative expenses were approximately $4,603, or 9% of
revenue, for the six (6) months ended June 30, 2000, as compared to $4,803, or
15% of revenue, for the six (6) months ended June 30, 1999.
Selling and administrative expenses were approximately $2,266, or 8% of
revenue for the three months ended June 30, 2000 as compared to $2,688, or 36%
for the three months ended June 30, 1999.
Selling and administrative expenses in the first half of 1999 were adversely
affected by a proxy contest.
Research and Development
------------------------
Research and development expenses were 1.4% and 1.2% as a percentage of sales
for the six (6) months and three (3) months periods ended June 30, 2000,
respectively, as compared to 2.7% and 6%, respectively, for the comparable
periods in 1999.
Interest Income
---------------
Interest income for the first six (6) months and three (3) months periods of
2000 was comparable to the corresponding periods of 1999.
Interest Expense
----------------
Interest expense (including bank fees) for the six (6) months ended June 30,
2000 was $524, compared to $461 for the comparable period in 1999. Similarly,
interest expense increased during the second quarter of 2000 compared to the
second quarter of 1999. All such increases are principally due to increased
levels of borrowing at Mecar.
Other - Net
-----------
Other - Net represents primarily currency gains, net of currency losses,
resulting from foreign currency transactions for the periods ended June 30,
1999 and 2000.
10
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
Pre-Tax Profit from Continuing Operations
-----------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
------ ------
<S> <C> <C>
Mecar $2,526 $(3,784)
VSK Group 1,503 $ 2,200
</TABLE>
The Company's return to profitability is attributable to the increased revenue
at Mecar.
Income Taxes
------------
The effective tax rate in the first six (6) months of 2000 was 40%. In the
first six (6) months of 1999, the effective tax rate differs from the
anticipated rate due to net operating losses.
Net Earnings
------------
The Company earned a $2,416 net profit from continuing operations ($.50 per
share basic and diluted) for the first six (6) months of 2000 compared with a
$2,833 net loss from continuing operations ($0.59 per share basic and diluted)
for the comparable period in 1999. The Company earned a $1,449 profit from
continuing operations ($0.30 per share basic and diluted) in the second
quarter of 2000 compared with a $4,096 loss from continuing operations ($0.86
per share basic and diluted) in the second quarter of 1999.
In addition, in the first half of 2000, the Company reported (i) a $462 gain,
net of income taxes, on the sale of Barnes and Reinecke, Inc. ("BRI") and (ii)
a $54 profit from discontinued operations (i.e., the operations of BRI prior
to the sale) compared to a $326 loss from discontinued operations during the
first six (6) months of 1999.
Given the substantial amount of Mecar backlog scheduled for completion during
the balance of calendar year 2000, the Company anticipates that profits for
the third and fourth quarters of 2000 will be in excess of the profits
reported in the first half of 2000.
Liquidity and Capital Resources
-------------------------------
During the first six (6) months of 2000 and throughout 1999, the Company
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.
The VSK Group continues to reduce its bank and other long-term indebtedness.
In the second quarter of 2000, the Company made an advance to fund Mecar's
working capital requirement. The advance has been repaid to the Company.
In the first half of 2000, the Company repurchased 15,000 shares of its common
stock in market transactions.
11
<PAGE>
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
June 30, 2000
(Thousands of Dollars)
(Unaudited)
--------------------------------------------------------------------------------
At June 30, 2000, the Company had unrestricted cash (i.e., cash not required
by the terms of the bank pool agreement to collateralize contracts) of
approximately $8,658 compared with approximately $5,968 at December 31, 1999.
Accounts receivable at June 30, 2000 increased from December 31, 1999 levels
by $912 due to increased shipments in the first half of 2000. Costs and
accrued earnings on uncompleted contracts increased by $19,246 over December
31, 1999 levels due to increased levels of work-in-progress. Inventories
increased from year-end levels by $341 due to increased purchases during the
first half of 2000. Current liabilities increased by $22,055 from December
31, 1999 levels principally as a result of increases in accounts and notes
payable and accrued expenses to meet increased production levels.
In summary, working capital was approximately $26,577 at June 30, 2000, which
is an increase of $754 over working capital at December 31, 1999.
Quantitative and Qualitative Market Risk Disclosure
---------------------------------------------------
No material changes have occurred in the quantitative and qualitative market
risk disclosures of the Company as presented in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
12
<PAGE>
Allied Research Corporation
June 30, 2000
-------------------------------------------------------------------------------
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 7, 2000, the Company held its annual meeting of shareholders.
The Company's shareholders re-elected W. Glenn Yarborough, Jr., J. R. Sculley,
Clifford C. Christ, Harry H. Warner, J. H. Binford Peay, III, Bruce W. Waddell
and Ronald H. Griffith as members of the Board of Directors of the Company.
The following votes were cast in connection with the election of directors:
<TABLE>
<CAPTION>
Nominees In Favor Withheld
-------- -------- --------
<S> <C> <C>
Clifford C. Christ 3,396,699 211,984
Ronald H. Griffith 3,402,121 206,562
J. H. Binford Peay, III 3,399,121 209,562
J. R. Sculley 3,392,637 216,046
Bruce W. Waddell 3,394,121 214,562
Harry H. Warner 3,402,979 205,704
W. Glenn Yarborough, Jr. 3,570,908 37,775
</TABLE>
The Company's shareholders ratified the appointment of Grant Thornton LLP as
the Company's independent auditors for 2000. The following votes were cast in
connection with such ratification:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
3,586,712 16,187 5,784
</TABLE>
No reports on Form 8-K were filed by the Company in the second quarter of
2000.
13
<PAGE>
Allied Research Corporation
June 30, 2000
--------------------------------------------------------------------------------
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/ W. Glenn Yarborough, Jr.
----------------------------
Date: August 1, 2000 W. Glenn Yarborough, Jr.
President,
Chief Executive Officer and
Chief Financial Officer
14
