Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Liquidation Basis of Accounting

With the authorization of the Plan of Dissolution, the Company adopted the liquidation basis of accounting effective as the close of business on September 30, 2010. The liquidation basis of accounting will continue to be used by the Company until such time that the plan is terminated. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value and liabilities are stated at their estimated settlement amounts, which estimates will be periodically reviewed and adjusted as appropriate. Consolidated statements of net assets (liquidation basis) and consolidated statements of changes in net assets (liquidation basis) are the principal financial statements presented under the liquidation basis of accounting. The valuations of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances associated with carrying out the Plan of Dissolution based on the assumptions set forth below. The actual values and costs associated with carrying out the Plan of Dissolution are expected to differ from the amounts shown herein because of the inherent uncertainty and will be greater than or less than the amounts recorded. Such differences may be material. In particular, the estimates of the Company’s costs will vary with the length of time it operates under the Plan of Dissolution. Accordingly, it is not possible to predict the aggregate amount or timing of future distributions to stockholders, as long as the plan is in effect, and no assurance can be given that the amount of liquidating distributions to be received will equal or exceed the estimate of net assets in liquidation presented in the accompanying consolidated statements of net assets (liquidation basis).Under the liquidation basis of accounting, the carrying amounts of assets as of the close of business on September 30, 2010, the date of the authorization of the Plan of Dissolution by the Company, were adjusted to their estimated net realizable values and liabilities, including the estimated costs associated with implementing the Plan of Dissolution, were stated at their estimated settlement amounts. Such value estimates were updated by the Company as of December 31, 2011 and December 31, 2012. The majority of net assets in liquidation at December 31, 2011 and December 31, 2012 were highly liquid and did not require adjustment as their estimated net realizable value approximates their current book value. The exception is the short-term investments which are subject to changes in market value.

The Company is also required to estimate and accrue the costs associated with implementing and completing the Plan of Dissolution under the liquidation basis of accounting. These amounts can vary significantly due to, among other things, the costs of retaining personnel and others to oversee the liquidation, including compensation for remaining directors, insurance costs, fees for legal and other professional service providers, income taxes, and miscellaneous other costs, partially offset by estimated future interest earnings on the Company’s short-term investments. Such net costs were estimated to be $1,577 as of December 31, 2012.

The estimated net costs to be incurred during liquidation as of December 31, 2012 are as follows:


Estimated net costs to be incurred during liquidation:
Compensation for remaining employees and directors	$	193
Compliance and other office costs		236
Insurance Fees		210
Professional Fees		878
Income Taxes		150

Subtotal		1,667
Less: interest income on cash and investment balances		(90	)

Total net costs to be incurred during liquidation	$	1,577

These estimates are based on assumptions regarding the Company’s ability to settle outstanding obligations to creditors, resolve outstanding litigation, and the ultimate timing of distributions to its stockholders, but does not include settlement amounts, fines or penalties, if any, that the Company might incur as a result of the DOJ subpoena or any other legal proceedings. These estimates will be reviewed quarterly and adjusted as projections and assumptions change.

Principles of Consolidation

As of December 31, 2012, the consolidated financial statements of the Company include the accounts of Allied and its wholly-owned subsidiaries, which are as follows:

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ARC Europe, a Belgian company,

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Allied Research BV (“BV”), a Dutch company,

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Allied Research Cooperative (“Coop”) and,

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ADG Sub USA, Inc. (“USA”)

On September 1, 2010, as discussed in Note A, Chemring acquired the assets of Mecar USA and the stock of Mecar, a wholly owned subsidiary of ARC Europe.

Significant intercompany transactions have been eliminated in the consolidation.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and investment income and expenses during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at period-end exchange rates. Income and expense items are converted into U.S. dollars at average rates of exchange prevailing during the period.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Reclassification

Reclassifications have been made to the prior year financial statements in order to conform to the current year presentation.

Short-term investments

Cash in excess of funds required for immediate use by the Company has been invested with the primary goal to preserve capital. As such, the funds are invested in short-term, high-quality, fixed-income securities which have a maturity of less than 12 months and are accounted for at fair value. As of December 31, 2012 and December 31, 2011, the fair value of these investments was $28,604 and $27,895, respectively, and was included in short-term investments on the consolidated statements of net assets.

In addition to short-term investments, the Company invests in money market funds which are classified as cash equivalents. Amounts are transferred between short-term investments and money market funds based on investment availability and yield.

Concentrations of Credit Risk

Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

Reportable segments

Prior to September 2010, the Company operated within two operating segments: Mecar and Mecar USA. In September 2010, the Company completed the divesture of Mecar and Mecar. As a result, Allied no longer has operating segments.

Recent Accounting Pronouncements

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011.

Under the liquidation basis of accounting, the Company does not expect any recent accounting pronouncements to impact the Consolidated Statement of Net Assets.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

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ALLIED DEFENSE GROUP INC 10-K