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, 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 June 30, 1999:
4,831,080.
Allied Research Corporation
INDEX
- ------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION - UNAUDITED NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998............... 2,3
Condensed Consolidated Statements of (Loss) Earnings
Three months and six months ended June 30, 1999
and 1998.......................................... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998........... 5,6
Notes to Condensed Consolidated Financial Statements..... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 10
PART II. OTHER INFORMATION........................................ 16
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
- ------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
CURRENT ASSETS
Cash and equivalents $15,348 $10,235
Restricted cash (notes 3 and 6) 14,093 14,014
Accounts receivable 26,019 29,446
Costs and accrued earnings on
uncompleted contracts 6,425 20,887
Inventories 5,237 3,422
Prepaid expenses and deposits 1,450 10,094
----- ------
Total current assets 68,572 88,098
PROPERTY, PLANT AND EQUIPMENT - AT COST
Buildings and improvements 11,252 12,440
Machinery and equipment 29,014 31,776
Leasehold improvements 118 118
----- ------
40,384 44,334
Less accumulated depreciation 30,522 33,103
------ ------
9,862 11,231
Land 1,149 1,298
----- -----
11,011 12,529
OTHER ASSETS
Restricted deposits (notes 3 and 6) - 6,670
Intangibles, net of amortization 4,627 4,961
Other 732 818
----- ------
5,359 12,449
$84,942 $113,076
======= ========
The accompanying notes are an integral part of these statements.
2
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
(Thousands of Dollars)
LIABILITIES
(Unaudited)
- ------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
CURRENT LIABILITIES
Notes payable $5,224 $ 3,415
Current maturities of long-term debt 1,117 1,324
Accounts and trade notes payable 18,318 25,379
Accrued liabilities 5,380 5,043
Accrued losses on contracts 818 786
Customer deposits 7,202 16,137
Income taxes 1,258 748
------ ------
Total current liabilities 39,317 52,832
LONG-TERM DEBT, less current maturities 3,021 4,431
ADVANCE PAYMENTS ON CONTRACTS - 5,850
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, 4,831,080 in 1999 and
4,757,174 in 1998 483 475
Capital in excess of par value 13,877 13,391
Retained earnings 31,951 35,111
Accumulated other comprehensive income (3,707) 986
------- ----------
42,604 49,963
------- ----------
$84,942 $113,076
======== ==========
3
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
-------------------------- ------------------------
1999 1998 1999 1998
------- -------- -------- -------
Revenue $ 10,097 $ 32,154 $ 37,579 $ 67,907
Cost and expenses
Cost of sales 10,614 24,774 33,307 53,897
Selling and administrative 3,275 3,514 5,939 6,785
Research and development 443 273 840 730
------ ------ ------ ------
14,332 28,561 40,086 61,412
------ ------ ------ ------
Operating (loss) income (4,235) 3,593 (2,507) 6,495
Other income (deductions)
Interest expense (388) (470) (723) (877)
Interest income 281 318 574 554
Other - net 69 (372) 445 (384)
------ ------ ------ ------
(38) (524) 296 (707)
------ ------ ------ ------
(Loss) earnings before
income taxes (4,273) 3,069 (2,211) 5,788
Income taxes 152 523 948 985
------ ------ ------ ------
NET (LOSS) EARNINGS $(4,425) $2,546 $(3,159) $4,803
====== ====== ======== ======
Net (loss) income per common
share
Basic $ (.93) $ .53 $ (.66) $ 1.02
====== ====== ======== ======
Diluted $ (.93) $ .53 $ (.66) $ .99
====== ====== ======== ======
Weighted average number
of shares
Basic 4,757,214 4,781,038 4,805,114 4,687,482
Diluted 4,763,653 4,835,367 4,811,670 4,833,441
4
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Six months ended June 30
-------------------------
Increase (decrease) in cash and equivalents 1999 1998
---- ----
Cash flows from operating activities
Net (loss) earnings $(3,159) $ 4,803
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 1,493 2,061
Changes in assets and liabilities
Accounts receivable 1,130 22,040
Costs and accrued earnings on uncompleted
contracts 12,507 (7,635)
Inventories (2,312) 1,401
Prepaid expenses and other assets 7,934 8,591
Accounts payable, accrued liabilities and
customer deposits (17,018) (21,952)
Income taxes 870 (429)
------- ------
Net cash provided by operating activities 1,446 8,880
Cash flows (used in) investing activities
Capital expenditures (1,512) (1,840)
Restricted cash and deposits 4,872 (10,220)
------- -------
Net cash provided by (used in) investing
activities 3,360 (12,060)
5
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Six months ended June 30
-------------------------
1999 1998
------- -------
Cash flows from financing activities
Principal payments of long-term debt (378) (1,065)
Increase in long-term debt 350 -
Net (decrease) increase in short-term borrowings 788 1,775
Stock grant/stock plan 551 685
Options exercised 16 459
Retirement - common stock (73) -
------- -------
Net cash provided by financing activities 1,254 1,854
Effects of exchange rate changes on cash (947) (337)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,113 (1,663)
Cash and equivalents at beginning of year 10,235 7,694
------- -------
Cash and equivalents at end of period $15,348 $ 6,031
======= =======
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the period for
Interest $ 479 $ 893
Taxes 1,191 1,682
6
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 1999 and December
31, 1998, the condensed consolidated statements of earnings and the condensed
consolidated statements of cash flows for the six months ended June 30, 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 June 30, 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 June 30, 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., its wholly-owned subsidiaries
Belgian Automation Units, N.V. and I.D.C.S., 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 $14,093
at June 30, 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.
7
NOTE 5 - NOTES PAYABLE
BRI has a $6,000 revolving line-of-credit agreement which had an outstanding
balance at June 30, 1999 of $5,224 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.
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 facility 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 treated as
interest. As of June 30, 1999, guarantees and performance bonds of $19.9
million ($34.1 million at December 31, 1998) remain outstanding.
Advances under the Agreements are secured by cash of $14,093. Amounts
outstanding are also collateralized by the letters of credit received under
the contracts financed, and a pledge of approximately $30 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 $2,700 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 $900 at June 30, 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 $223 at June 30, 1999 and $346 at December 31,
1998.
8
NOTE 7 - LONG-TERM FINANCING - Continued
Scheduled annual maturities of long-term obligations as of June 30, 1999 are
approximately as follows:
Year Amount
---- ------
2000 $1,117
2001 706
2002 736
2003 697
2004 400
Thereafter 482
NOTE 8 - INCOME TAXES
The Company's 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 June 30, 1999, the Company had unused foreign tax credit carryforwards
of approximately $764 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
$30,000 at June 30, 1999. 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 on a weighted average basis.
9
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 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 I.D.C.S., 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 or 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 increasing competition by foreign and domestic
competitors, including new entrants; 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 its transition from a pure
defense firm to a firm with a substantial commercial component; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental 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 for 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 and other Future Factors.
Revenue
- -------
Revenue for the first six (6) months of 1999 was $37,579, a decrease of 45% from
the comparable period in 1998, principally due to decreased revenue from Mecar.
10
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Revenue - Continued
- -------------------
Revenues by Segment - Six Months Ended
--------------------------------------
June 30, 1999 June 30, 1998
-------------------- -------------------
Percentage Percentage
of of
Amount total Amount total
Mecar $20,626 55% $53,350 79%
VSK $10,610 28% $9,665 14%
BRI $6,343 17% $4,892 7%
Revenue for the quarter ended June 30, 1999 was $10,097, a $22,057 decrease from
the quarter ended June 30, 1998. Mecar recognized revenue of $1,805 for the
second quarter of 1999, a 93% decrease from the second quarter of 1998; the
revenue of VSK Group of $5,631 for the quarter ended June 30, 1999 constitutes
an increase of 15% over the comparable period in 1998; Barnes' revenue of $2,661
for the second quarter ended June 30, 1999 constitutes a 5% increase over the
quarter ended June 30, 1998.
Mecar's lack of revenues resulted from a decrease in orders received from its
principal customers. The orders received by Mecar in June, 1999 ($42,500 from
the U.S. Government for the benefit of one of its principal customers and $3,900
from other customers) were received too late to contribute any substantial
revenue to the second quarter of 1999. Some of such revenue will be recognized
in the second half of 1999; the balance will be recognized next year.
The VSK Group has been advised that it may recommence the installation of
security systems in the branches of its principal bank customer in September,
1999. In addition, the VSK Group secured an unexpected $1 million add-on award
to the foreign hotel project which contributed to the extraordinary results
experienced by the VSK Group in calendar year 1998. Notwithstanding these
positive developments, it is unlikely that VSK will achieve in 1999 the record
results it reported in 1998. In the second half of 1998, VSK recorded record
revenues and profits from the foreign hotel project which are not expected to be
replicated in 1999.
Backlog
- -------
As of June 30, 1999, the Company's backlog was $72,000 compared with $48,000 at
December 31, 1998 and $26,000 at March 31, 1999.
At June 30, 1999 and June 30, 1998, respectively, the backlog of each of the
Company's operating units was as follows:
June 30,
------------------
1999 1998
---- ----
Mecar $52,000 $78,600
Barnes 7,000 9,300
VSK Group 13,000 17,200
11
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Backlog - Continued
- -------
Mecar's backlog at June 30, 1999 includes the $42,500 Foreign Military Sale
("FMS") contract for ammunition received from the U.S. Government for the
benefit of one of Mecar's principal customers. Mecar is also pursuing an
additional FMS contract for another caliber ammunition for the benefit of the
same customer which is currently scheduled for award in the fourth quarter of
1999. Both of these products have been developed by Mecar for new weapon
systems. It is anticipated that Mear's principal customers will purchase
substantial quantities of each caliber of ammunition over a several year period
to establish a reserve for such ammunition. Mecar has sold relatively small
quantities of the newly developed ammunition to new customers which have
purchased new weapon systems compatible with such ammunition. It is anticipated
that these customers will also purchase additional quantities of this ammunition
over the next several years to establish a comparable reserve.
It is further anticipated that Mecar will receive at least one additional
contract this year from its principal customer for ammunition which has been
traditionally manufactured by Mecar and purchased by these customers. Mecar
anticipates an award of this contract in the third quarter of 1999, however
there can be no assurance as to receipt of this or any other award.
Operating Costs and Expenses
- ----------------------------
Cost of sales for the first six months of 1999 was approximately $33,307 or 89%
of sales as compared to $53,897 or 79% for the first six months of 1998.
Cost of sales for the second three months of 1999 was approximately $10,614 or
105% of sales as compared to $24,774 or 77% of sales for the second quarter of
1998.
These additional unexpected costs were due to costs associated with performing
rework of products for customers of Mecar and Barnes. The rework is continuing
on these two contracts. While the costs reported in the second quarter of 1999
include estimated costs to complete such rework, there can be no assurance that
additional costs will not be necessary to complete the work.
Selling and administrative expenses were approximately $5,939 of revenues or 16%
of sales for the six months ended June 30, 1999, as compared to $6,785 or 10% of
sales for the six months ended June 30, 1998.
Selling and administrative expenses were approximately $3,275 or 32% of revenue
for the three months ended June 30, 1999 as compared to $3,514 or 11% for the
three months ended June 30, 1998.
The percentage increases were due to reduced volume of revenue and additional
costs associated with the proxy solicitation efforts.
12
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Research and Development
- ------------------------
Research and development expenses were 2% and 4% as a ratio of sales for each of
the six months and three months periods ended June 30, 1999 and 1998,
respectively. For the same six months and three months periods last year,
research and development expenses were 1% as a ratio of sales. These increases
are due to reduced revenues and work performed on potential contracts.
Interest Expense
- ----------------
Interest expense for the six months ending June 30, 1999 was $723, (which
included bank fees of $314) compared to $877 (which included bank fees of $204),
for the comparable period in 1998. The decrease is principally due to reduced
levels of borrowing.
Interest Income
- ---------------
Interest income for each of the three and six months ended June 30, 1999
decreased over the comparable periods of 1998, principally as a result of
decreased amounts of cash invested.
Other - Net
- -----------
Other - Net represents primarily net currency gains, net of currency losses
resulting from foreign currency transactions.
Pre-Tax (Loss) Profit
- ---------------------
Pre-Tax (Loss) Profit by Segment -
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
Mecar $(3,800) $3,700
VSK $ 2,200 $1,900
BRI $ (600) $ 200
For the second quarter of 1999, Mecar reported a pre-tax loss of $4,537, VSK
reported a pre-tax profit of $880, and Barnes reported a pre-tax loss of $605.
Income Taxes
- ------------
The effective tax rate in the first six (6) and three (3) months of 1999 differs
from the anticipated rate as a result of foreign taxes and net operating losses
in certain jurisdictions.
13
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Net Earnings
- ------------
The Company had a $3,159 net loss ($0.66 per share basic and $0.66 per share
diluted) for the first six months of 1999 compared with a $4,803 net profit
($1.02 per share basic and $.99 per share diluted) for the comparable period in
1998. The Company had a $4,425 loss ($0.93 per share basic and $0.93 diluted) in
the second quarter of 1999 compared with a $2,546 profit ($0.53 per share basic
and diluted) in the second three months of 1998.
Liquidity and Capital Resources
- -------------------------------
During the first six 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 provide financial guarantees for contracts 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 1999, Allied made additional advances to BRI to support
BRI's cash flow pending completion of, and receipt of financial payment for, a
dynamometer to a foreign customer. As a result of rework of components of the
dynamometer, there will be a delay in shipment and a corresponding delay in
receipt of payment for this product.
In the first half of 1999, Allied repurchased 11.3 shares of its common stock in
market transactions.
At June 30, 1999, the Company had unrestricted cash (i.e., cash not required by
the terms of the bank pool agreement to collateralize contracts) of
approximately $15,348 compared with approximately $6,031 and $10,235 at June 30,
1998 and at December 31, 1998, respectively.
Accounts receivable at June 30, 1999 decreased from the December 31, 1998 levels
by $3,427 due to substantial collections in the first half of 1999. Costs and
accrued earnings on uncompleted contracts decreased by $14,462 from December 31,
1998 levels due to substantial deliveries and reduced work-in-process.
Inventories increased from year-end levels by $1,815 due to increases in raw
materials in connection with recently received orders. Prepaid expenses and
deposits decreased by $8,644 primarily due to shipments during the first half of
1999. Current liabilities decreased by $13,515 from December 31, 1998 levels
principally as a result of reductions in accounts and notes payable and customer
deposits.
In summary, working capital was approximately $29,255 at June 30, 1999, which is
a decrease of $6,011 from working capital at December 31, 1998.
Year 2000 Issues
- ----------------
During 1999, the Company continued its program to prepare its systems for Year
2000 compliance. The Year 2000 issues relates to computer systems that use two
digits rather than four to defined the applicable year and whether such systems
will properly process information when the year changes to 2000.
14
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
(Thousands of Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
Year 2000 Issues - Continued
- ----------------
The Company has completed an assessment of the impact of the Year 2000 on its
purchased and internally development systems. The current purchased and
internally developed software is Year 2000 compliant. The Company is continuing
its program of formal communications with significant suppliers and customers to
determine the extent to which the Company's activities would be impacted by
those third parties' failure to remediate their own Year 2000 issues.
The estimated costs related to testing and modifying existing systems for Year
2000 compliance are approximately $250, of which 80% has been spent or committed
to date.
Year 2000 compliance is expected to be achieved no later than October, 1999. The
Company believes that with the planned modifications, Year 2000 issues will not
have a material impact on operations. However, if these modifications are not
made, or are not completed on a timely basis, Year 2000 issues could result in
the temporary inability to process orders, send invoices, or engage in similar
business activities, which would have a material impact on the Company's
operations. Failure by significant suppliers and customers to be Year 2000
compliant could also have a material impact on the Company. The amounts of
potential liability and lost revenue from the failure to be Year 2000 compliant
cannot be reasonably estimated at this time.
The Company's contingency plans are being prepared and refined and are expected
to be completed by September, 1999. These plans include the manual processes
required to perform critical business functions that could be affected by Year
2000 issues.
15
Allied Research Corporation
June 30, 1999
- ------------------------------------------------------------------------------
PART II. OTHER INFORMATION
16
Allied Research Corporation
June 30, 1999
- ------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
On June 9, 1999, the Company held its annual meeting of shareholders.
The Company's shareholders re-elected J. R. Sculley, Clifford C. Christ, Earl P.
Smith, Harry H. Warner and Robert W. Hebel as members of the Board of Directors
of the Company.
The following votes were cast in connection with the election of directors:
Nominees In favor Withheld
-------- -------- --------
J. R. Sculley 1,986,261 23,740
Clifford C. Christ 1,719,828 290,173
Robert W. Hebel 1,964,625 45,376
Harry H. Warner 1,971,563 38,438
Earl P. Smith 1,983,936 26,065
Lt. Gen. William M. Keyes 1,358,781 5,916
John P. Rigas 1,358,681 6,016
Jean-Claude Roch 1,358,781 5,916
John R. Torell, III 1,358,781 5,916
Donald Zilkha 1,356,681 8,016
The Company's shareholders ratified the appointment of Grant Thornton LLP as the
Company's independent auditors for 1999. The following votes were cast in
connection with such ratification:
For Against Abstain
--- ------- -------
3,246,697 32,842 95,159
No reports on Form 8-K were filed by the Company in the second quarter of 1999.
The following Exhibits are including in this Form 10-Q filing:
3.1 Restated By-Laws (July, 1999)
Exhibit 1
17
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: August 12, 1999 J. R. Sculley
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
18