SecProbe.io

CORRESP
1
filename1.htm

corresp

July 5, 2005

Securities and Exchange Commission

Attn: Rufus Decker, Branch Chief

Washington, DC 20549-0510

    RE:

    The Allied Defense Group, Inc. — Form 10-K for the Year Ended December 31, 2004

Form 10-Q for the period ended March 31, 2005

File No. 1-11376

Dear Mr. Decker:

In response to the Commission’s letter dated June 21, 2005, The Allied Defense Group, Inc. (the
“Company”) is providing the following responses to the Commission’s request for additional
information regarding our Form 10-K filing for the year ended December 31, 2004 and our Form 10-Q
for the period ended March 31, 2005.

Enclosed are the Commission’s inquiries and the Company’s responses which have been numbered to
correspond to the paragraph numbers contained in the June 21, 2005 letter.

The Company also acknowledges that:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in its
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.

You may contact me (703) 847-5268 should there be any further questions.

Sincerely,

Charles A. Hasper

Chief Financial Officer & Treasurer

Comment Applicable To Your Overall Filing

    1.

    SEC Comment

    Where a comment below requests additional disclosures or other revisions to be made, please
show us in your supplemental response what the revisions will look like. These revisions
should be included in your future filings.

    Allied

We agree with the SEC that all revised disclosures should be handled on a prospective basis.
Our proposed revisions will be set forth under the caption “Revised Disclosure in Future
Filings.” New language proposed to address the Staff’s comments will be underlined or shown
in RED to highlight the relevant language. Any related explanations or comments will be set
forth under the caption “Allied.”

Consolidated Statements of Stockholders’ Equity, page F-10

    2.

    SEC Comment

    We have reviewed your response to comment six from our letter dated May 25, 2005. It is
unclear from your response whether you intend to revise your disclosure to include accumulated
balances for each classification of accumulated other comprehensive income or to continue your
current practice of disclosing only the components of changes. Please advise.

    Allied

We intend to revise our disclosure to include accumulated balances for each classification of
accumulated other comprehensive income in a footnote to the financial statements as required
by paragraph 26 of SFAS 130.

    Revised Disclosure in Future Filings

    Retained
Earnings

    Accumulated other
 comprehensive income

    Total

    Currency

    translation

    Cash flow

    adjustment

    hedges

    December 31, 2003

    $
    75,495

    $
    16,197

    $
    —

    $
    91,692

    Comprehensive loss

    Net loss

    (2,865
    )

    Currency translation adjustment

    —

    (2,161
    )

    Comprehensive loss

    —

    —

    —

    (5,026
    )

    March 31, 2004

    $
    72,630

    $
    14,036

    $
    —

    $
    86,666

    December 31, 2004

    $
    78,013

    $
    24,841

    $
    —

    $
    102,854

    Comprehensive loss

    Net loss

    (3,393
    )

    Currency translation adjustment

    (5,006
    )

    Change in fair value of cash
flow hedges, net of tax

    —

    (355
    )

    Comprehensive loss

    —

    —

    —

    (8,754
    )

    March 31, 2005

    $
    74,620

    $
    19,835

    $
    (355
    )

    $
    94,100

1

Statement of Cash Flows, page F-11

    3.

    SEC Comment

    We have read your response to comment seven from our letter dated May 25, 2005. Although we
understand your explanation with respect to the classification of restricted cash flows
associated with your senior loan facility, it is unclear why activity related to performance
bonds and advance payment guarantees would not be properly classified as operating cash flows.
Please provide us with additional explanation, including references to authoritative
literature where appropriate, to help us understand the basis for your presentation. Please
refer to paragraph 18 of SFAS 95.

    Allied

Based on our assessment, we have determined that restricted cash flows associated with
performance bonds and advance payment guarantees should be classified as operating activities
and will revise our cash flow statement in accordance with SFAS 95. See revised disclosure
below.

    Revised Disclosure in Future Filings

Statement of Cash Flows

    2004

    2003

    2002

    Cash flows from operating activities

    Net earnings for the year

    $
    2,518

    $
    3,928

    $
    20,894

    Adjustments to reconcile net earnings to net
cash from (used in) continuing operating activities

    Depreciation and amortization

    4,551

    4,037

    3,322

    Unrealized losses (gains) on forward contracts

    4,217

    1,233

    (17,165
    )

    Gain on sale of fixed assets

    (44
    )

    (18
    )

    —

    Deferred income taxes

    (1,584
    )

    3,384

    6,629

    Provision for estimated losses on contracts

    661

    255

    282

    Amortization of debt issue costs and conversion feature

    179

    243

    —

    Common stock awards

    106

    111

    651

    Changes in assets and liabilities

Restricted cash and restricted deposits

    2,893

    (5,807
    )

    (775
    )

    Accounts receivable

    (10,246
    )

    2,305

    (2,572
    )

    Cost and accrued earnings on uncompleted contracts

    25,635

    (830
    )

    (29,570
    )

    Inventories

    (4,090
    )

    (1,392
    )

    (3,309
    )

    Prepaid expenses and other assets

    1,275

    (1,609
    )

    532

    Accounts payable and accrued liabilities

    (22,442
    )

    21,488

    18,801

    Customer deposits

    3,100

    (928
    )

    993

    Deferred compensation

    521

    672

    300

    Income taxes

    (370
    )

    (2,188
    )

    455

    4,362

    20,956

    (21,426
    )

    Net cash provided by operating activities

    6,880

    24,884

    (532
    )

    Cash flows from (used in) financing activities

    Net (decrease) increase in short-term borrowings

    (14,013
    )

    5,780

    3,245

    Proceeds from convertible subordinated debenture

    —

    —

    7,500

    Principal payments on long-term debt and debenture

    (8,279
    )

    (2,343
    )

    (1,486
    )

    Proceeds from issuance of long-term debt

    4,781

    1,989

    2,796

    Debt issue costs

    (860
    )

    —

    (158
    )

    Proceeds from stock purchases

    261

    152

    169

    Option exercises

    348

    765

    62

    Restricted cash and restricted deposits

    2,000

    —

    —

    Net cash (used in) provided by financing
activities

    (15,762
    )

    6,343

    12,128

2

Note H — Goodwill, page F-23

    4.

    SEC Comment

    We have read your response to comment 14 from our letter dated May 25, 2005. Please provide
us with a copy of your December 31, 2004 discounted cash flow and goodwill impairment analyses
for the environment safety, and software training and simulation segments.

    Allied

See have enclosed a copy of our December 31, 2004 discounted cash flow and goodwill impairment
analyses for the environment safety, and software training and simulation segments. When you
have completed your review, please return the analyses in the self-addressed, postage paid
envelope.

3