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, 2001
-------------
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, 2001: 4,910,228.
ALLIED RESEARCH CORPORATION
INDEX
================================================================================
PART I. FINANCIAL INFORMATION - UNAUDITED PAGE
NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 2001 and December 31, 2000................ 2
Condensed Consolidated Statements of Earnings
Three months and six months ended June 30, 2001
and 2000........................................... 3
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2001 and 2000............ 4
Notes to Condensed Consolidated Financial Statements...... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
PART II. OTHER INFORMATION......................................... 13
Allied Research Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
(Unaudited)
================================================================================
ASSETS June 30, 2001 December 31, 2000
------------- -----------------
CURRENT ASSETS
Cash and equivalents $ 9,298 $ 7,570
Restricted cash 10,998 3,010
Accounts and note receivable 10,188 18,662
Costs and accrued earnings on uncompleted contracts 31,574 34,136
Inventories 5,602 5,911
Fair value of forward exchange contracts 4,949 -
Prepaid expenses 3,419 2,996
-------- -------
Total current assets 76,028 72,285
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation 11,140 11,675
OTHER ASSETS
Intangibles, net of accumulated amortization 2,836 3,252
Deferred taxes 225 406
Other 125 139
-------- -------
3,186 3,797
-------- -------
$ 90,354 $87,757
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 3,442 $ 3,699
Current maturities of long-term debt 844 1,079
Accounts payable 12,886 22,009
Accrued liabilities 8,974 4,823
Customer deposits 9,177 5,777
Forward exchange contract commitments 4,949 -
-------- -------
Total current liabilities 40,272 37,387
LONG-TERM DEBT, less current maturities 3,058 3,529
DEFERRED INCOME TAXES - 121
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, 4,910,228 in 2001 and 4,812,464 in 2000 491 481
Capital in excess of par value 14,422 13,689
Retained earnings 43,471 40,306
Accumulated other comprehensive loss (11,360) (7,756)
-------- -------
47,024 46,720
-------- -------
$ 90,354 $87,757
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
2
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands of Dollars)
(Unaudited)
================================================================================
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue $ 25,837 $ 28,548 $ 42,847 $ 52,022
Cost and expenses
Cost of sales 18,427 23,628 30,449 42,585
Selling and administrative 2,899 2,266 5,601 4,603
Research and development 380 353 833 749
---------- ---------- ---------- ----------
21,706 26,247 36,883 47,937
---------- ---------- ---------- ----------
Operating income 4,131 2,301 5,964 4,085
Other (income) deductions
Interest income (139) (201) (274) (315)
Interest expense 405 370 800 524
Other 211 (286) (230) (153)
---------- ---------- ---------- ----------
477 (117) 296 56
---------- ---------- ---------- ----------
Earnings before discontinued operation and income taxes 3,654 2,418 5,668 4,029
Income tax expense 1,632 969 2,503 1,613
---------- ---------- ---------- ----------
Earnings from continuing operations 2,022 1,449 3,165 2,416
Discontinued operation -
Engineering and technical segment
Income from operations, net of income taxes - - - 54
Gain on sale, net of income taxes - 31 - 462
---------- ---------- ---------- ----------
- 31 - 516
---------- ---------- ---------- ----------
NET EARNINGS $ 2,022 $ 1,480 $ 3,165 $ 2,932
========== ========== ========== ==========
Earnings per share
Basic
Continuing operations $ .41 $ .30 $ .65 $ .50
Discontinued operation - .01 - .11
---------- ---------- ---------- ----------
Net income (loss) $ .41 $ .31 $ .65 $ .61
========== ========== ========== ==========
Diluted
Continuing operations $ .41 $ .30 $ .65 $ .50
Discontinued operation - .01 - .11
---------- ---------- ---------- ----------
Net income (loss) $ .41 $ .31 $ .65 $ .61
========== ========== ========== ==========
Weighted average number of common shares:
Basic 4,906,717 4,753,513 4,888,716 4,849,812
Diluted 4,911,796 4,754,619 4,890,843 4,815,577
The accompanying notes are an integral part of these consolidated financial
statements.
3
Allied Research Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
========================================================================================================================
Six months ended June 30
--------------------------
Increase (decrease) in cash and equivalents 2001 2000
----------- ---------
Cash flows from continuing operating activities
Net earnings $ 3,165 $ 2,932
Adjustments to reconcile net earnings to net cash provided by (used in) continuing
operating activities
Depreciation and amortization 729 754
Gain on sale of discontinued operation - (462)
Loss from discontinued operation - (54)
Common stock award 533 -
Changes in assets and liabilities
Accounts receivable 7,354 (1,204)
Costs and accrued earnings on uncompleted contracts (403) (21,876)
Inventories (214) (576)
Prepaid expenses and other assets 687 (1,188)
Accounts payable, accrued liabilities and customer deposits 747 16,011
Income taxes (77) 1,861
----------- --------
Net cash provided by (used in) continuing operating activities 12,521 (3,802)
Cash flows (used in) investing activities
Capital expenditures (1,368) (2,084)
Proceeds from sale of stock of subsidiary - 2,822
Payment for acquisition, net of cash acquired - (826)
Proceeds from sale of fixed assets 159 -
----------- --------
Net cash (used in) provided by investing activities (1,209) (3,228)
Cash flows from financing activities
Proceeds from long-term debt 359 429
Principal payments on long-term debt (714) (123)
Net (decrease) increase in short-term borrowings (506) 7,712
Proceeds from employee stock purchases 209 172
Options exercised - 116
Retirement of common stock - (123)
Restricted cash and restricted deposits (7,988) (3,140)
----------- --------
Net cash (used in) provided by financing activities (8,640) 8,183
----------- --------
Net increase in cash from continuing operations 2,672 1,153
Effects of exchange rate changes on cash (944) 1,537
----------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,728 2,690
Cash and equivalents at beginning of year 7,570 5,968
----------- --------
Cash and equivalents at end of period $ 9,298 $ 8,658
=========== ========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the period for
Interest $ 459 $ 513
Taxes 762 618
The accompanying notes are an integral part of these consolidated financial
statements.
4
ALLIED RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Thousands of Dollars)
(Unaudited)
================================================================================
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 2001 and December 31,
2000, the condensed consolidated statements of earnings for the three and six
month periods ended June 30, 2001 and 2000 and the condensed consolidated
statements of cash flows for the six months ended June 30, 2001 and 2000, 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, 2001 and 2000 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America 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, 2000 Form 10-K filed with the Securities and Exchange
Commission, Washington, D.C. 20549. The results of operations for the three
and six month periods ended June 30, 2001 and 2000 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 effective March 2000) and
Allied Research Corporation Limited (Limited), a United Kingdom company and
ARC International Sales Corporation, a Barbados corporation (both of which are
inactive).
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).
NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It specifies necessary
conditions to be met to designate a derivative as a hedge. As amended by SFAS
No.'s 137 and 138, SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. As a result, the Company
implemented SFAS No. 133 effective January 1, 2001. Prior to adoption of SFAS
No. 133, gains and losses arising from the use of derivative instruments were
deferred until realized.
5
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
================================================================================
NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS - Continued
The Company estimates fair value based on quotes obtained from the
counterparties to the derivative contracts. The Company recognizes the fair
value of derivative contracts that expire in less than one year as current
assets or liabilities. Those that expire in more than one year are recognized
as long-term assets or liabilities. If the derivative is designated as a
hedge, depending on the nature of the hedge, changes in fair value are either
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings.
Gains and losses from settlements of derivative contracts are reported as a
component of other income. Changes in the fair value of derivative contracts
prior to settlement are also reported as a component of other income.
NOTE 4 - 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 $10,998 and $3,010 included in current assets at June 30,
2001 and December 31, 2000, respectively, was restricted or pledged as
collateral for these agreements and other obligations.
NOTE 5 - 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.
NOTE 6 - INVENTORIES
Inventories are composed of raw materials and supplies.
NOTE 7 - NOTES PAYABLE
Mecar has a line-of-credit of up to $7,221 for working capital. Approximately
$3,442 of the line was used at June 30, 2001 and $2,800 was outstanding at
December 31, 2000.
6
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
================================================================================
NOTE 8 - CREDIT FACILITY
The Company is obligated under various credit agreements (the "Agreements")
with its foreign banking pool 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, 2001 and December
31, 2000, guarantees and performance bonds of $20,558 and $22,687,
respectively, remain outstanding.
Advances under the Agreements are secured by restricted cash at June 30, 2001
and December 31, 2000 of $10,998 and $3,010, 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 9 - LONG-TERM FINANCING
Mecar is obligated on a mortgage with a balance of approximately $1,200 on its
manufacturing and administration facilities. The loan is payable in annual
principal installments of approximately $422 and matures in 2004. The Company
is also obligated on several mortgages on the VSK Group's buildings which have
a balance of approximately $282 at June 30, 2001. These mortgages are payable
in annual installments of approximately $49 plus interest.
Scheduled annual maturities of long-term obligations as of June 30, 2001 are
approximately as follows:
Year Amount
----- ------
2002 $844
2003 974
2004 945
2005 944
2006 195
NOTE 10 - INCOME TAXES
As of December 31, 2000, the Company had unused foreign tax credit
carryforwards of approximately $288 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
$10,700 at June 30, 2001. Determination of the amount of unrecognized deferred
tax liabilities is not practicable.
7
Allied Research Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
================================================================================
NOTE 11 - EARNINGS (LOSS) PER SHARE
Incremental shares from the assumed conversion of stock options outstanding
have been included in the diluted per share computation.
8
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2001
(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, 2000 and the
Quarterly Report on Form 10-Q for the period ended March 31, 2001 and presumes
that readers have access to, and will have read, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in such
Forms 10-K and 10-Q.
The Company conducts its business through its wholly-owned subsidiaries:
Mecar, S.A. ("Mecar"), a Belgian corporation; and a group of Belgian
corporations led by VSK Electronics, N.V., Tele Technique General, S.A.,
Vigitec S.A. and IDCS, N.V. (collectively, the "VSK Group"). This discussion
refers to the financial condition and results of operations of the Company on
a consolidated basis. All dollars are in thousands except per share amounts.
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.
9
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Revenue
-------
Allied had revenue of $42,847 in the first six months of 2001, which was 82%
of its revenue in the first six months of 2000.
Revenues by Segment
1/st/ Six Months 2001 1/st/ Six Months 2000
--------------------- ---------------------
Percentage Percentage
Amount of total Amount of total
------ ------------ ------ ------------
Mecar $32,885 77% $41,850 80%
VSK Group $ 9,962 23% $10,172 20%
Revenue for the quarter ended June 30, 2001 was $25,837, a $2,711 decrease
from revenue earned in the second quarter of 2000. Mecar's second quarter
2001 revenue was $21,000, a 9% decrease from revenue earned in the second
quarter of 2000. The reduction in sales from 2000 levels is attributable to
an increase in revenue from the Company's independent distributor/value added
reseller. These contracts generally have lower sales values than Mecar's
traditional direct sales, however, they do not adversely impact the Company's
gross margins or profitability. The VSK Group's revenue in the second three
months of 2001 decreased by $500, or 9% from its revenue in the second three
months of 2000. In each instance, the 2001 results were adversely affected by
currency fluctuations.
Backlog
-------
As of June 30, 2001, the Company's backlog was $53,400 compared to $63,500 at
December 31, 2000. The June 30, 2001 backlog consists of backlog of
approximately $44,600 and $8,800 at Mecar and the VSK Group, respectively.
Operating Costs and Expenses
----------------------------
Cost of sales for the first six months of 2001 was approximately $30,449, or
71% of revenue, as compared to $42,585, or 82% of revenue, for the first six
months of 2000.
Cost of sales as a percentage of sales for the second quarter of 2001 was
approximately 71% compared with 83% for the same period in 2000.
As previously discussed under Revenue, the reduction in cost of sales in 2001
result primarily from cost reductions effected by increases in product sales
to the Company's independent distributor.
Selling and administrative expenses were approximately $5,601, or 13% of
revenue, for the six months ended June 30, 2001, as compared to $4,603, or 9%
or revenue, for the six months ended June 30, 2000.
Selling and administrative expenses in the second quarter of 2001 were $633
greater than those incurred in 2000.
10
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Selling and administrative expenses in the first half of 2001 were greater
than in the same 2000 period in part due to increased acquisition search and
analysis activities and costs incurred with respect to the new management team
of the Company.
Research and Development
------------------------
Research and development costs incurred in the first six months of 2001
increased by $84 over costs incurred in the same period of 2000.
Research and development costs incurred in the second three months of 2001
increased slightly over comparable 2000 levels.
Interest Income
---------------
Interest income decreased in each of the first six months of 2001 and in the
second quarter of 2001 from 2000 levels principally due to decreased interest
rates and lower amounts of cash invested.
Interest Expense
----------------
Interest expense increased by 53% in the first six months of 2001 compared to
the same period in 2000 and in the second quarter of 2001 increased by 9%
compared to the amount incurred in 2000.
Such increases were experienced principally as a result of an increase in
borrowings at Mecar under its line-of-credit.
Other - Net
-----------
Other-net represents primarily currency gains/currency losses, resulting from
foreign currency transactions for the periods ending June 30, 2001 and 2000.
Pre-Tax Profit From Continuing Operations
-----------------------------------------
Pre- Tax Profit by Segment
--------------------------
1/st/ Six Months
--------------------------
2001 2000
------ ------
Mecar $4,600 $2,300
VSK Group $1,600 $1,500
Corporate and other $ (500) $ 200
11
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Mecar's pre-tax profit for the first six months of 2001 increased by $2,300,
or 100% over its pre-tax profit for the comparable 2000 period. Slightly more
than half of Mecar's 2001 revenue was from indirect sales to its independent
distributor/value added reseller. Such contracts produce less revenue than
direct sales but do not adversely affect profitability, since there is
corresponding cost reduction.
The VSK Group's 2001 pre-tax profit increased by $100, or 7%, over its 2000
performance, notwithstanding substantial currency fluctuations, principally
due to increased efficiency in operations.
Income Taxes
------------
The effective income tax expense in the first six months of 2001 was 44%
compared to 40 % in the first half of 2000.
Net Earnings
------------
The Company earned a $3,165 net profit from continuing operations ($.65 per
share basic and diluted) in the first six months of 2001 compared with $2,416
in the first half of 2000 ($.50 per share basic and diluted).
In the second quarter of 2001, the Company earned $2,022 from continuing
operations (or $.41 per share basic and diluted) compared with $1,449 (or $.30
per share basic and diluted) in the second quarter of 2000.
In addition, in the first quarter of 2000, the Company reported (i) a $462
gain, net of income taxes, on the sale of its former subsidiary Barnes &
Reinecke, Inc. ("BRI") and (ii) a $54 profit from discontinued operations
(i.e., the operations of BRI prior to sale).
Liquidity
---------
Working capital, which includes restricted cash, was approximately $35,756 at
June 30, 2001, which is an increase of $858 from the December 31, 2000 level.
Allied's current working capital is required for operations and to support
credit facility agreements.
During the first six months of 2001, Allied funded its operations principally
with internally generated cash and back-up credit facilities required for
foreign government contracts. In addition, Mecar utilized a $7,221 line-of-
credit, which is scheduled to be repaid on or before October 31, 2001.
As of June 30, 2001, the Company had unrestricted cash (i.e., cash not
required by the terms of the bank pool agreement to collateralize contracts)
of approximately $9,298 compared with approximately $7,570 at December 31,
2000. Restricted cash increased to almost $11,000 as of June 30, 2001 due in
part to the expiration of the bank pool's partial waiver of the restricted
cash requirement.
Accounts receivable at June 30, 2001 decreased from December 31, 2000 levels
by $8,474 due to collections in shipments made at year-end. Costs and accrued
earnings on uncompleted contracts decreased by $2,562 from December 31, 2000
levels due to decreased levels of work-in-progress. Inventories decreased
from year-end levels by $309 due to decreased purchases during the first half
of 2001. Current liabilities increased by $2,885 from December 31, 2000
levels principally as a result of increases in customer deposits and accrued
expenses to meet increased production levels and FASB 133 reporting
requirements.
12
Allied Research Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
June 30, 2001
(Thousands of Dollars)
(Unaudited)
- --------------------------------------------------------------------------------
Allied's stockholders' equity as of June 30, 2001 was adversely affected by
the deterioration of the value of the Euro verses the U.S. dollar during the
first half of 2001, resulting in a $3,604 increase in "Accumulated other
comprehensive loss".
Allied is continuing to explore alternate methods of obtaining financing
necessary to implement its growth plans.
Allied's ability to cover its anticipated future operating and capital
requirements is dependent upon its ability to generate positive cash flow from
the operations of its subsidiaries, particularly the operations of Mecar.
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, 2000.
13
Allied Research Corporation
June 30, 2001
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 6, 2001, the Company held its annual meeting of shareholders.
The Company's shareholders re-elected J. H. Binford Peay, III, J. R. Sculley,
Clifford C. Christ, Harry H. Warner, 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:
Nominees In Favor Withheld
-------- -------- --------
J. H. Binford Peay, III 3,872,495 111,138
Clifford C. Christ 3,889,273 94,360
Ronald H. Griffith 3,887,631 96,002
J. R. Sculley 3,868,985 114,648
Harry H. Warner 3,889,526 84,107
The Company's shareholders approved the 2001 Equity Incentive Plan of the
Company. The following votes were cast in connection with such approval:
For Against Abstain
--- ------- -------
3,294,233 682,198 7,202
The Company's shareholders ratified the appointment of Grant Thornton LLP as
the Company's independent auditors for 2001. The following votes were cast in
connection with such ratification:
For Against Abstain
--- ------- -------
3,967,220 10,251 6,162
Reports on Form 8-K
-------------------
On June 25, 2001, the Company filed a Form 8-K reporting the adoption of a new
shareholders rights plan.
14
Allied Research Corporation
June 30, 2001
- --------------------------------------------------------------------------------
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/ John G. Meyer, Jr.
--------------------------------
Date: July 31, 2001 John G. Meyer, Jr.
Executive Vice President,
Chief Operating Officer and
Acting Chief Financial Officer
15