Defense contractor eyes other markets

'A MAJOR NEW DIRECTION'

December 21, 1992|By Ted Shelsby | Ted Shelsby,Staff Writer

It's Jay R. Sculley's time to fight off the wolves.

Three years ago, when Allied Research Corp.'s board appointed as chief executive Reinald W. Carter, an accountant with experience punching cows on a ranch in Australia, they laughed and said: "Throw him to the wolves and hold him responsible."

It was not a fair fight. Since early 1990, Mr. Carter has completely transformed the Baltimore-based defense contractor, taking it from annual losses and sales of about $45 million to a thriving business with sales in excess of $200 million and record earnings, which are expected to top $14 million this year.

Along the way, Allied's stock shot up like of the company's artillery rounds, from about 75 cents a share to nearly $17.

Mr. Sculley, who takes over as president and chief executive at the end of the month, knows he has a tough act to follow.

He may laugh about the challenge ahead, but the former assistant secretary of the Army, who has a doctorate in environmental engineering from the Johns Hopkins University, has already thought about his own battle plan to keep Allied moving ahead during a period of declining Department of Defense spending.

Lucky for him, Allied sells a lot of its products -- things like anti-tank ammunition, artillery shells and rifle grenades -- to foreign countries that it claims are "friendly to the U.S." And while the Pentagon spending is on the way down, Allied expects orders from its principal customers to continue at high levels for some time to come.

But Mr. Sculley is not taking any chances, already looking at new markets. It seems a bit ironic, but the company is looking at disposing huge stockpiles of ammunition that, with Allied's help, the U.S. has accumulated since World War I.

Mr. Sculley says Allied may also be moving into the business of cleaning up chemical waste stored at military installations around the country.

"This is a major new direction for us," Mr. Sculley said of the disposal of explosives in ammunition, from handguns to giant artillery

pieces. "But who knows better how to take something apart and demilitarize it than the people who put it together."

During a recent interview at his office on the 22nd floor of the Legg Mason Tower, he said the company is currently negotiating for patent rights for certain processes that would use a sulfur-based formula to decompose the explosives.

If things go as planned, he said, Allied could enter the new business as early as the first quarter of the new year.

Mr. Sculley realizes that Allied doesn't have the resources "to go head to head against the nation's

big environmental cleanup companies," but he feels confident that it can find its own niche in the market, which has been estimated at $150 billion to $200 billion worldwide.

If its move into the munitions disposal business proves successful, Mr. Sculley said, it could lead to the formation of a new division that would likely be based in the Baltimore/Washington area. Now, it has only a small headquarters staff in Baltimore.

In a recent research report, Ashish R. Thadhani, who follows Allied for Ladenburg, Thalmann & Co. Inc., said: "We do not expect these activities to form an integral part of the company's operations prior to 1994. If the endeavor were to prove successful, management indicated that total revenues could reach $300 million by 1997."

The Ladenburg, Thalmann report recommended Allied's stock as buy, "particularly for high-risk/reward oriented investors."

Stressing that Allied would be taking the relative conservative approach of not diversifying beyond its "core capabilities," Mr. Sculley mentioned another new business that fits this business philosophy.

Allied reached an agreement earlier this month with Steyr-Daimler-Puch Spezialfahrzeug AG (SSF), a large Austrian producer of automobiles, trucks, buses, military vehicles and small arms.

The deal involves production and marketing projects throughout the world.

2& One of the first projects would be

the establishment of a turnkey ammunition plant for an Asian country. As is common, Allied did not identify the customer.

The Austrian company is to provide the investment funds. For its part, Allied is to chip in the ammunition technology, manufacturing layouts, site and training.

The agreement will also be looking at the possibility of U.S. government purchases of SSF's Pandur light armored vehicle.

Allied's major manufacturing arm, MECAR S.A., is located in Belgium. It operates an engineering services division, Barnes & Reinecke Inc., in Elk Grove, Ill.

Mr. Sculley has been a director of Allied since early 1991. He became an employee in May, when he became president and chief operating officer.

A 1962 graduate of the Virginia Military Institute with a degree in civil engineering, Mr. Sculley served four years with the Air Force as an aide to Gen. Gabriel P. Disosway, the Air Force commander in Europe.

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