VIA FACSIMILE AND U.S. MAIL
May 25, 2005
Charles A. Hasper
Chief Financial Officer
The Allied Defense Group, Inc.
8000 Towers Crescent Drive, Suite 260
Vienna, Virginia 22182
RE: Form 10-K for the fiscal year ended December 31, 2004
Form 10-Q for the period ended March 31, 2005
File No. 1-11376
Dear Mr. Hasper:
We have reviewed these filings and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Comment applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions, please show us in your response what the revisions will
look like. These revisions should be included in your future
filings.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations, page 23
2. In circumstances where more than one factor contributed to a
fluctuation being discussed, you should quantify the incremental
impact of each individual factor if practicable. Please refer to
Item 303(a) (3) of Regulation S-K and Financial Reporting
Codification 501.04.
Contractual Obligations and Commercial Commitments, page 30
3. Please consider revising your table of contractual cash
obligations to include the following:
* Estimated interest payments on your debt; and
* Estimated payments under your foreign exchange contracts.
Because the table is aimed at increasing transparency of cash
flow,
we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts.
At a
minimum interest payments should be disclosed in a note to the
table.
Please refer to note 46 of SEC Release 33-8350.
Financial Statements
Consolidated Balance Sheets, page F-7
4. Please provide us with additional information to help us
understand the appropriateness of your classification of
restricted
cash as a current asset. Please refer to paragraph 6(a) of
Chapter
3A of ARB 43.
Consolidated Statements of Earnings, page F-9
5. Where service revenues exceed 10% of consolidated revenues
please
separately disclose service revenues and the related cost of goods
sold. Refer to Rule 5-03(b) of Regulation S-X. Please provide us
with a breakdown of product and service revenues for the periods
presented.
Consolidated Statements of Stockholders` Equity, page F-10
6. Please disclose the accumulated balances for each
classification
of accumulated other comprehensive income (loss) on the face of
the
balance sheet or in a footnote to the financial statements as
required by paragraph 26 of SFAS 130.
Statement of Cash Flows, page F-11
7. Please tell us how you determined that changes in restricted
cash
and restricted deposits are financing activities pursuant to
paragraph 18 of SFAS 95. Please tell us why you did not consider
it
appropriate to include these changes in restricted cash and
restricted deposits in operating activities based on your
classification of restricted cash as current assets.
Note A - Summary of Significant Accounting Policies, page F-12
8. Please disclose the types of expenses that you include in the
cost
of sales line item and the types of expenses that you include in
the
selling and administrative line item. Please tell us whether you
include inbound freight charges, purchasing and receiving costs,
inspection costs, warehousing costs, internal transfer costs, and
the
other costs of your distribution network in the cost of sales line
item. With the exception of warehousing costs, if you currently
exclude a portion of these costs from cost of sales, please
disclose:
* In a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented.
* In MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of sales and others like you
exclude a portion of them from gross profit, including them
instead
in a line item, such as selling and administrative.
Restatement, page F-12
9. Please provide us with additional information to help us
understand the specific factors leading to inadequate controls
over
financial reporting to properly identify the lack of
documentation,
when these deficiencies arose, and the steps you have taken to
ensure
that such deficiencies do not recur in the future.
Inventories, page F-14
10. You indicate that inventory reserve is a critical accounting
policy; however you do not address inventory reserve in your
summary
of significant accounting policies. Please expand your accounting
policy note for inventory to include a discussion of your
inventory
reserve policy.
Revenues and Cost Recognition, page F-15
11. Please tell us more regarding the determination of the
provision
for anticipated service costs related to traditional fire and
security systems. Your disclosures should clarify whether or not
the
various elements of fire and security systems are separable into
units of accounting. Refer to paragraphs 8-10 of EITF 00-21.
Warranties, page F-16
12. Please disclose the information required by paragraph 14 of
FIN
45 regarding your product warranties.
Note B - Acquisition, page F-19
13. Please provide us with additional information to help us
understand the basis for your conclusion that the customer list
you
acquired in your purchase of Control Monitor Systems has an
indefinite life.
Note H - Goodwill, page F-23
14. Please provide us with additional information to help us
understand your evaluation of goodwill for the environmental
safety
segment, and the software training and simulation segment in light
of
their recent pretax losses.
Note N - Contingencies and Commitments, page F-25
15. It appears that there has not been any change in the suit
alleging a breach of a non-compete clause filed against one of the
VSK subsidiaries in the Belgian courts. Please revise your
disclosure to include an update of the status of this lawsuit and
disclose whether there it is reasonably possible that you may not
be
successful in your defense of this law suit.
Note U - Geographic Areas and Industry Segments, page F-32
16. Please disclose and quantify in the footnote the components of
segment profit (loss) from before taxes for the Corporate and
Other
line item for all periods presented. Please discuss in greater
detail and quantify the changes in this line item in your MD&A.
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a response letter that keys your responses to our comments
and provides any requested information. Detailed letters greatly
facilitate our review. Please file your response on EDGAR as a
correspondence file. Please understand that we may have
additional
comments after reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their 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.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Ernest Greene, Staff Accountant, at (202)
551-
3733, or in his absence, Scott Watkinson, at (202) 551-3741, if
you
have questions regarding comments on the financial statements and
related matters.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Charles A. Hasper
May 25, 2005
Page 1 of 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE