July 5, 2005
Securities and Exchange Commission
Attn: Rufus Decker, Branch Chief
Washington, DC 20549-0510
RE: | The Allied Defense Group, Inc. — Form 10-K for the Year Ended December 31, 2004 Form 10-Q for the period ended March 31, 2005 File No. 1-11376 |
Dear Mr. Decker:
In response to the Commission’s letter dated June 21, 2005, The Allied Defense Group, Inc. (the “Company”) is providing the following responses to the Commission’s request for additional information regarding our Form 10-K filing for the year ended December 31, 2004 and our Form 10-Q for the period ended March 31, 2005.
Enclosed are the Commission’s inquiries and the Company’s responses which have been numbered to correspond to the paragraph numbers contained in the June 21, 2005 letter.
The Company also acknowledges that:
• | the Company is responsible for the adequacy and accuracy of the disclosure in its filings; | |||
• | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and | |||
• | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
You may contact me (703) 847-5268 should there be any further questions.
Sincerely,
Chief Financial Officer & Treasurer
Comment Applicable To Your Overall Filing
1. | SEC Comment | |||
Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like. These revisions should be included in your future filings. | ||||
Allied We agree with the SEC that all revised disclosures should be handled on a prospective basis. Our proposed revisions will be set forth under the caption “Revised Disclosure in Future Filings.” New language proposed to address the Staff’s comments will be underlined or shown in RED to highlight the relevant language. Any related explanations or comments will be set forth under the caption “Allied.” |
Consolidated Statements of Stockholders’ Equity, page F-10
2. | SEC Comment | |||
We have reviewed your response to comment six from our letter dated May 25, 2005. It is unclear from your response whether you intend to revise your disclosure to include accumulated balances for each classification of accumulated other comprehensive income or to continue your current practice of disclosing only the components of changes. Please advise. | ||||
Allied We intend to revise our disclosure to include accumulated balances for each classification of accumulated other comprehensive income in a footnote to the financial statements as required by paragraph 26 of SFAS 130. | ||||
Revised Disclosure in Future Filings |
Retained Earnings | Accumulated other comprehensive income | Total | ||||||||||||||
Currency | ||||||||||||||||
translation | Cash flow | |||||||||||||||
adjustment | hedges | |||||||||||||||
December 31, 2003 | $ | 75,495 | $ | 16,197 | $ | — | $ | 91,692 | ||||||||
Comprehensive loss | ||||||||||||||||
Net loss | (2,865 | ) | ||||||||||||||
Currency translation adjustment | — | (2,161 | ) | |||||||||||||
Comprehensive loss | — | — | — | (5,026 | ) | |||||||||||
March 31, 2004 | $ | 72,630 | $ | 14,036 | $ | — | $ | 86,666 | ||||||||
December 31, 2004 | $ | 78,013 | $ | 24,841 | $ | — | $ | 102,854 | ||||||||
Comprehensive loss | ||||||||||||||||
Net loss | (3,393 | ) | ||||||||||||||
Currency translation adjustment | (5,006 | ) | ||||||||||||||
Change in fair value of cash flow hedges, net of tax | — | (355 | ) | |||||||||||||
Comprehensive loss | — | — | — | (8,754 | ) | |||||||||||
March 31, 2005 | $ | 74,620 | $ | 19,835 | $ | (355 | ) | $ | 94,100 | |||||||
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Statement of Cash Flows, page F-11
3. | SEC Comment | |||
We have read your response to comment seven from our letter dated May 25, 2005. Although we understand your explanation with respect to the classification of restricted cash flows associated with your senior loan facility, it is unclear why activity related to performance bonds and advance payment guarantees would not be properly classified as operating cash flows. Please provide us with additional explanation, including references to authoritative literature where appropriate, to help us understand the basis for your presentation. Please refer to paragraph 18 of SFAS 95. | ||||
Allied Based on our assessment, we have determined that restricted cash flows associated with performance bonds and advance payment guarantees should be classified as operating activities and will revise our cash flow statement in accordance with SFAS 95. See revised disclosure below. | ||||
Revised Disclosure in Future Filings Statement of Cash Flows |
2004 | 2003 | 2002 | |||||||||||
Cash flows from operating activities | |||||||||||||
Net earnings for the year | $ | 2,518 | $ | 3,928 | $ | 20,894 | |||||||
Adjustments to reconcile net earnings to net cash from (used in) continuing operating activities | |||||||||||||
Depreciation and amortization | 4,551 | 4,037 | 3,322 | ||||||||||
Unrealized losses (gains) on forward contracts | 4,217 | 1,233 | (17,165 | ) | |||||||||
Gain on sale of fixed assets | (44 | ) | (18 | ) | — | ||||||||
Deferred income taxes | (1,584 | ) | 3,384 | 6,629 | |||||||||
Provision for estimated losses on contracts | 661 | 255 | 282 | ||||||||||
Amortization of debt issue costs and conversion feature | 179 | 243 | — | ||||||||||
Common stock awards | 106 | 111 | 651 | ||||||||||
Changes in assets and liabilities | |||||||||||||
Restricted cash and restricted deposits | 2,893 | (5,807 | ) | (775 | ) | ||||||||
Accounts receivable | (10,246 | ) | 2,305 | (2,572 | ) | ||||||||
Cost and accrued earnings on uncompleted contracts | 25,635 | (830 | ) | (29,570 | ) | ||||||||
Inventories | (4,090 | ) | (1,392 | ) | (3,309 | ) | |||||||
Prepaid expenses and other assets | 1,275 | (1,609 | ) | 532 | |||||||||
Accounts payable and accrued liabilities | (22,442 | ) | 21,488 | 18,801 | |||||||||
Customer deposits | 3,100 | (928 | ) | 993 | |||||||||
Deferred compensation | 521 | 672 | 300 | ||||||||||
Income taxes | (370 | ) | (2,188 | ) | 455 | ||||||||
4,362 | 20,956 | (21,426 | ) | ||||||||||
Net cash provided by operating activities | 6,880 | 24,884 | (532 | ) | |||||||||
Cash flows from (used in) financing activities | |||||||||||||
Net (decrease) increase in short-term borrowings | (14,013 | ) | 5,780 | 3,245 | |||||||||
Proceeds from convertible subordinated debenture | — | — | 7,500 | ||||||||||
Principal payments on long-term debt and debenture | (8,279 | ) | (2,343 | ) | (1,486 | ) | |||||||
Proceeds from issuance of long-term debt | 4,781 | 1,989 | 2,796 | ||||||||||
Debt issue costs | (860 | ) | — | (158 | ) | ||||||||
Proceeds from stock purchases | 261 | 152 | 169 | ||||||||||
Option exercises | 348 | 765 | 62 | ||||||||||
Restricted cash and restricted deposits | 2,000 | — | — | ||||||||||
Net cash (used in) provided by financing activities | (15,762 | ) | 6,343 | 12,128 |
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Note H — Goodwill, page F-23
4. | SEC Comment | |||
We have read your response to comment 14 from our letter dated May 25, 2005. Please provide us with a copy of your December 31, 2004 discounted cash flow and goodwill impairment analyses for the environment safety, and software training and simulation segments. | ||||
Allied See have enclosed a copy of our December 31, 2004 discounted cash flow and goodwill impairment analyses for the environment safety, and software training and simulation segments. When you have completed your review, please return the analyses in the self-addressed, postage paid envelope. |
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