Allied Defense Group Inc (ADG, Financial) filed Quarterly Report for the period ended 2011-09-30.
Allied Defense Group Inc has a market cap of $50.16 million; its shares were traded at around $0 with a P/E ratio of 0.6.
The Company incurred net liquidating costs of $258,000 during the quarter ended September 30, 2011. The estimated net costs to be incurred decreased by $45,000, including accrued liabilities that were combined with estimated net costs to be incurred during liquidation. Three primary factors caused the gross increase of $458,000 in the estimated costs during the quarter. First, in order to estimate costs to be incurred during liquidation, the Company includes an estimate of defense costs (including attorneys fees) but does not include any estimates of settlement amounts, fines or penalties for any legal proceedings. As a result, any settlement amounts, fines or penalties we incur will reduce our net assets in liquidation. The Company settled a lawsuit filed by a former executive officer of the Company for a payment of $200,000. This settlement accounts for a reduction in our net assets in liquidation by approximately $150,000 for compliance and other office costs ($200,000 less estimated defense costs which will not be incurred due to the settlement prior to trial). Secondly, after the filing of the Certificate of Dissolution, the Company requested a no-action letter from the Securities and Exchange Commission to allow the Company to cease filing Forms 10-K and Q. During the three months ended September 30, 2011, the request was denied and the Company will continue to file Forms 10-K and 10-Q causing an increase of $260,000 for related professional services required to prepare such filings including audit and consulting fees. Third, the Company increased the estimate for the insurance costs for the remaining liquidation period from original estimates by $50,000.
Our estimated costs to be incurred during liquidation consist of $0.836 million, $1.681 million, and $0.992 million in costs to be incurred in 2011, 2012, and 2013, respectively. The total costs are offset by anticipated interest income of $0.2 million related to short-term investments. To the extent that we are able to resolve the DOJ/SEC matter and make final distributions to stockholders prior to the end of 2013, we may be able to minimize certain of these costs and increase our distribution to the stockholders.
Our estimate of $3.310 million in net remaining costs to be incurred during liquidation consists of $0.387 million in compensation for remaining employees and directors; $0.814 million for compliance and other office costs, including resident filing fees and costs to settle remaining leases; $0.416 million for insurance; $0.1743 million in fees for professional service providers including legal representation relating to the DOJ subpoena; and $0.15 million in income taxes related to the repatriation of foreign monies; offset by interest income of $0.2 million estimated to be received on our cash and short-term investment balances during liquidation. Our estimates are based on the assumption that liquidation will occur no later than December 31, 2013. As reported in the table below, during 2011 we reduced the estimated net costs to be incurred during liquidation by $0.805 million as we incurred various expenses, net of income received. We increased the estimated net costs an additional $0.152 million due to changes in estimates, primarily due to the extension of the anticipated liquidation terms to include fiscal year 2013.
The Company has sold its SeaSpace, Titan, the VSK Group, GMS and NSM subsidiaries in separate transactions starting with the first transaction closing in 2007. In each transaction, the Company agreed to indemnify the purchaser for periods subsequent to closing for losses arising from breaches of representations, warranties and covenants. Indemnification periods varied based on the particular representation, warranty or covenant covered, the vast majority of which have all expired. As of September 30, 2011, the only remaining indemnification obligations relate to representations and warranties concerning taxes, environmental matters, breaches of title, breaches of authorization and fraud. For SeaSpace, Titan, the VSK Group, GMS and NSM, these indemnification provisions have been capped at $1.0 million, $0.950 million, $6.806 million (5.0 million), $5.2 million and $0.863 million, respectively. At September 30, 2011, no amount has been accrued related to these indemnifications as a liability is not deemed probable.
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Allied Defense Group Inc has a market cap of $50.16 million; its shares were traded at around $0 with a P/E ratio of 0.6.
Highlight of Business Operations:
Net assets in liquidation at September 30, 2011 are $44.240 million compared to $45.629 million at December 31, 2010. The change in net assets in liquidation is due to: (i) adjustments of assets to fair value and (ii) adjustments to estimated costs to be incurred during liquidation. The net assets in liquidation per share as of September 30, 2011 have been reduced to $5.37 as compared to $5.54 as of December 31, 2010 and March 31, 2011 and $5.40 as of June 30, 2011.The Company incurred net liquidating costs of $258,000 during the quarter ended September 30, 2011. The estimated net costs to be incurred decreased by $45,000, including accrued liabilities that were combined with estimated net costs to be incurred during liquidation. Three primary factors caused the gross increase of $458,000 in the estimated costs during the quarter. First, in order to estimate costs to be incurred during liquidation, the Company includes an estimate of defense costs (including attorneys fees) but does not include any estimates of settlement amounts, fines or penalties for any legal proceedings. As a result, any settlement amounts, fines or penalties we incur will reduce our net assets in liquidation. The Company settled a lawsuit filed by a former executive officer of the Company for a payment of $200,000. This settlement accounts for a reduction in our net assets in liquidation by approximately $150,000 for compliance and other office costs ($200,000 less estimated defense costs which will not be incurred due to the settlement prior to trial). Secondly, after the filing of the Certificate of Dissolution, the Company requested a no-action letter from the Securities and Exchange Commission to allow the Company to cease filing Forms 10-K and Q. During the three months ended September 30, 2011, the request was denied and the Company will continue to file Forms 10-K and 10-Q causing an increase of $260,000 for related professional services required to prepare such filings including audit and consulting fees. Third, the Company increased the estimate for the insurance costs for the remaining liquidation period from original estimates by $50,000.
Our estimated costs to be incurred during liquidation consist of $0.836 million, $1.681 million, and $0.992 million in costs to be incurred in 2011, 2012, and 2013, respectively. The total costs are offset by anticipated interest income of $0.2 million related to short-term investments. To the extent that we are able to resolve the DOJ/SEC matter and make final distributions to stockholders prior to the end of 2013, we may be able to minimize certain of these costs and increase our distribution to the stockholders.
Our estimate of $3.310 million in net remaining costs to be incurred during liquidation consists of $0.387 million in compensation for remaining employees and directors; $0.814 million for compliance and other office costs, including resident filing fees and costs to settle remaining leases; $0.416 million for insurance; $0.1743 million in fees for professional service providers including legal representation relating to the DOJ subpoena; and $0.15 million in income taxes related to the repatriation of foreign monies; offset by interest income of $0.2 million estimated to be received on our cash and short-term investment balances during liquidation. Our estimates are based on the assumption that liquidation will occur no later than December 31, 2013. As reported in the table below, during 2011 we reduced the estimated net costs to be incurred during liquidation by $0.805 million as we incurred various expenses, net of income received. We increased the estimated net costs an additional $0.152 million due to changes in estimates, primarily due to the extension of the anticipated liquidation terms to include fiscal year 2013.
The Company has sold its SeaSpace, Titan, the VSK Group, GMS and NSM subsidiaries in separate transactions starting with the first transaction closing in 2007. In each transaction, the Company agreed to indemnify the purchaser for periods subsequent to closing for losses arising from breaches of representations, warranties and covenants. Indemnification periods varied based on the particular representation, warranty or covenant covered, the vast majority of which have all expired. As of September 30, 2011, the only remaining indemnification obligations relate to representations and warranties concerning taxes, environmental matters, breaches of title, breaches of authorization and fraud. For SeaSpace, Titan, the VSK Group, GMS and NSM, these indemnification provisions have been capped at $1.0 million, $0.950 million, $6.806 million (5.0 million), $5.2 million and $0.863 million, respectively. At September 30, 2011, no amount has been accrued related to these indemnifications as a liability is not deemed probable.
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