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Allied Defense Group Inc Reports Operating Results (10-Q)

May 11, 2012 | About:

Allied Defense Group Inc (ADG) filed Quarterly Report for the period ended 2012-03-31.

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:

On June 24, 2010, the Company signed a definitive purchase and sale agreement (the Agreement) with Chemring Group PLC (Chemring) pursuant to which Chemring agreed to acquire substantially all of the assets of the Company for $59.6 million in cash and the assumption of certain liabilities. On September 1, 2010, the Company completed the asset sale to Chemring contemplated by the Agreement. Chemring acquired all of the capital stock of Mecar for $45.8 million in cash, and separately Chemring acquired substantially all of the assets of Mecar USA for $13.8 million in cash and the assumption by Chemring of certain specified liabilities of Mecar USA. A portion of the purchase price was paid through the repayment of certain intercompany indebtedness owed to the Company that would otherwise have been cancelled at closing. $15 million of the proceeds from the sale was deposited into escrow to secure the Companys indemnification obligations under the Agreement.

Net assets in liquidation at March 31, 2012 are $44.032 million compared to $44.333 million at December 31, 2011. The change in net assets in liquidation is due to: (i) adjustments of assets to fair value, (ii) income earned on investments, and (iii) adjustments to estimated costs to be incurred during liquidation. The net assets in liquidation per share as of March 31, 2012 has been adjusted to $5.35 as compared to $5.38 as of December 31, 2011, $5.37 as of September 31, 2011, $5.40 as of June 30, 2011 and $5.54 as of March 31, 2011 and December 31, 2010.

The change in net assets in liquidation during the three months ended March 31, 2012 is the net effect of valuation changes to the net assets, income earned on assets, and changes in the estimated net costs to be incurred during liquidation. Adjusting net assets to fair market value decreased the net assets in liquidation by $0.015 million. The estimated net costs to be incurred during liquidation increased by $0.288 million. Estimated income earned during liquidation increased by $0.002 million. The net effect was a decrease of $0.301 million in net assets in liquidation for the three months ended March 31, 2012.

As of December 31, 2011, the estimated total net costs to be incurred during liquidation were $2.688 million, consisting of $2.888 million estimated costs offset by $0.200 million of investment income. During the quarter ended March 31, 2012, $0.572 million of costs were incurred. The estimate of costs to be incurred during liquidation was increased by $0.288 million. This is the net effect of a $0.027 million increase in compensation for remaining employees and directors principally due to a final 401k plan contribution; $0.015 million increase in compliance and other office costs due to additional accruals related to audit and review services; $0.224 million increase in insurance fees, primarily due to the amortization of prepaid insurance and write-off of the prepaid balance; and $0.022 million increase in professional fees due to amounts accrued not previously included in the estimated net costs to liquidate. As of March 31, 2012, the estimate of remaining costs to be incurred through 2013 is $2.604 million. Future investment income is estimated to be $0.158 million resulting in estimated total net costs to be incurred during liquidation of $2.446 million as of March 31, 2012.

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, $6.669 million (5.0 million), $5.2 million and $0.863 million, respectively. At March 31, 2012, no amount has been accrued related to these indemnifications as a liability is not deemed probable.

Read the The complete Report

About the author:

10qk
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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