<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____TO____
COMMISSION FILE NUMBER 1-5530
ALLIED PRODUCTS CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0292230
- - -------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
10 SOUTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 454-1020
NOT APPLICABLE
----------------------------------------------
(former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 9,104,482 common shares, $.01
par value, as of July 31, 1994.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
CONSOLIDATED BALANCE SHEETS-
December 31, 1993 and June 30, 1994
CONSOLIDATED STATEMENTS OF INCOME (LOSS)-
Three and Six Months Ended June 30, 1993 and 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS-
Six Months Ended June 30, 1993 and 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. NOT APPLICABLE
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
INTRODUCTION
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments of a recurring nature which
are, in the opinion of management, necessary to present fairly the consolidated
financial information required therein. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
The results of operations for the three and six month periods ended June 30,
1993 and 1994 are not necessarily indicative of the results to be expected for
the full year.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND JUNE 30, 1994
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
12/31/93 6/30/94
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 44,416,000 $ 2,801,000
------------- -------------
Notes and accounts receivable, less allowances
of $1,996,000 and $1,537,000, respectively $ 44,415,000 $ 64,205,000
------------- -------------
Inventories:
Raw materials $ 9,407,000 $ 11,658,000
Work in process 18,161,000 8,791,000
Finished goods 17,156,000 13,953,000
------------- -------------
$ 44,724,000 $ 34,402,000
------------- -------------
Prepaid expenses $ 1,915,000 $ 1,304,000
------------- -------------
Total current assets $ 135,470,000 $ 102,712,000
------------- -------------
PLANT AND EQUIPMENT, AT COST:
Land $ 2,454,000 $ 2,413,000
Buildings and improvements 34,573,000 34,161,000
Machinery and equipment 37,946,000 38,667,000
------------- -------------
$ 74,973,000 $ 75,241,000
Less-Accumulated depreciation and amortization 43,923,000 45,476,000
------------- -------------
$ 31,050,000 $ 29,765,000
------------- -------------
OTHER ASSETS:
Notes receivable, due after one year $ 8,465,000 $ 7,924,000
Deferred charges(goodwill),net of amortization 16,693,000 15,659,000
Other 362,000 982,000
------------- -------------
$ 25,520,000 $ 24,565,000
------------- -------------
$ 192,040,000 $ 157,042,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND JUNE 30, 1994
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
12/31/93 6/30/94
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving credit agreement $ -- $ 7,868,000
Revolver loan 4,382,000 --
Current portion of long-term debt 39,343,000 1,004,000
Accounts payable 13,957,000 14,928,000
Accrued expenses 46,124,000 38,685,000
-------------- --------------
Total current liabilities $ 103,806,000 $ 62,485,000
-------------- --------------
LONG-TERM DEBT, LESS CURRENT PORTION SHOWN ABOVE $ 10,622,000 $ 10,222,000
-------------- --------------
OTHER LONG-TERM LIABILITIES $ 2,701,000 $ 2,757,000
-------------- --------------
REDEEMABLE PREFERRED STOCK: $10.81 SERIES C
CUMULATIVE PREFERRED STOCK; STATED VALUE $100
PER SHARE; AUTHORIZED 150,000 SHARES; ISSUED AND
OUTSTANDING 129,000 AND 122,000 AT DECEMBER 31,
1993 AND JUNE 30, 1994, RESPECTIVELY $ 12,900,000 $ 12,200,000
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' INVESTMENT:
Preferred Stock-
Series B Variable Rate Cumulative Preferred
stock, stated value $50 per share; authorized
350,000 shares; issued and outstanding
180,800 and 163,800 shares at December 31,
1993 and June 30, 1994, respectively $ 9,040,000 $ 8,190,000
Undesignated-authorized 1,500,000 shares;
none issued -- --
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued 9,089,748
and 9,104,482 shares at December 31, 1993 and
June 30, 1994, respectively 91,000 91,000
Additional paid-in capital 92,395,000 92,224,000
Retained earnings (deficit) (39,515,000) (31,127,000)
-------------- --------------
$ 62,011,000 $ 69,378,000
-------------- --------------
$ 192,040,000 $ 157,042,000
-------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------
6/30/93 6/30/94
------------- -------------
<S> <C> <C>
Net sales from continuing operations $ 59,086,000 $ 57,255,000
Cost of products sold 42,170,000 41,467,000
------------- -------------
Gross profit $ 16,916,000 $ 15,788,000
------------- -------------
Other costs and expenses-
Selling and administrative expenses $ 8,407,000 $ 7,652,000
Interest expense 1,633,000 469,000
Other (income) expense, net 1,475,000 409,000
------------- -------------
$ 11,515,000 $ 8,530,000
------------- -------------
Income before taxes from continuing
operations $ 5,401,000 $ 7,258,000
Provision for income taxes 185,000 266,000
------------- -------------
Income from continuing operations $ 5,216,000 $ 6,992,000
------------- -------------
Discontinued operations (net of tax):
Income(loss) from operations $ 1,613,000 $ (2,136,000)
Gain on disposition of discontinued
operations -- 1,135,000
------------- -------------
Income (loss) from discontinued
operations $ 1,613,000 $ (1,001,000)
------------- -------------
Net income $ 6,829,000 $ 5,991,000
------------- -------------
------------- -------------
Net income applicable to common
stock $ 6,314,000 $ 5,524,000
------------- -------------
------------- -------------
Earning (loss) per common share:
Continuing operations $ .52 $ .72
Discontinued operations .18 ( .11)
------------- -------------
Income per common share $ .70 $ .61
------------- -------------
------------- -------------
Average number of common shares
outstanding 8,987,000 9,104,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
---------------------------------
6/30/93 6/30/94
-------------- --------------
<S> <C> <C>
Net sales from continuing operations $ 118,979,000 $ 116,469,000
Cost of products sold 88,489,000 85,454,000
-------------- --------------
Gross profit $ 30,490,000 $ 31,015,000
-------------- --------------
Other costs and expenses-
Selling and administrative expenses $ 16,520,000 $ 15,928,000
Interest expense 3,313,000 1,523,000
Other (income) expense, net 1,795,000 793,000
-------------- --------------
$ 21,628,000 $ 18,244,000
-------------- --------------
Income before taxes from continuing
operations $ 8,862,000 $ 12,771,000
Provision for income taxes 312,000 482,000
-------------- --------------
Income from continuing operations $ 8,550,000 $ 12,289,000
-------------- --------------
Discontinued operations (net of tax):
Income(loss) from operations $ 4,217,000 $ (3,085,000)
Gain on disposition of discontinued
operations -- 135,000
-------------- --------------
Income (loss) from discontinued
operations $ 4,217,000 $ (2,950,000)
-------------- --------------
Net income $ 12,767,000 $ 9,339,000
-------------- --------------
-------------- --------------
Net income applicable to common
stock $ 11,704,000 $ 8,388,000
-------------- --------------
-------------- --------------
Earning (loss) per common share:
Continuing operations $ .84 $ 1.24
Discontinued operations .47 ( .32)
-------------- --------------
Income per common share $ 1.31 $ .92
-------------- --------------
-------------- --------------
Average number of common shares
outstanding 8,927,000 9,099,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1993 1994
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 12,767,000 $ 9,339,000
Adjustments to reconcile net income
to net cash provided from (used for)
operating activities:
Income on disposition of discontined operations -- (135,000)
Effect of provision for restructuring costs 700,000 --
Depreciation and amortization 4,398,000 2,731,000
Amortization of deferred charges and
(credits), net (108,000) 1,034,000
Changes in noncash assets and liabilities,
net of effects of assets/businesses sold
and noncash transactions:
(Increase) in accounts receivable (2,595,000) (16,603,000)
Decrease in inventories 19,164,000 7,457,000
(Increase) decrease in prepaid expenses (2,522,000) 611,000
Increase (decrease) in accounts payable and
accrued expenses 14,355,000 (6,886,000)
Other, net 305,000 (30,000)
-------------- --------------
Net cash provided from (used for) operating
activities $ 46,464,000 $ (2,482,000)
-------------- --------------
Cash Flows from Investing Activities:
Additions to plant and equipment $ (3,000,000) $ (2,389,000)
Proceeds from the sale of assets/businesses 9,609,000 --
Proceeds from sales of plant and equipment 3,021,000 763,000
-------------- --------------
Net cash provided from (used for) investing
activities $ 9,630,000 $ (1,626,000)
-------------- --------------
Cash Flows from Financing Activities:
Borrowing under the revolving credit agreement $ -- $ 31,700,000
Proceeds from issuances of long-term debt 33,348,000 --
Borrowings under the revolver loan agreements 77,497,000 29,243,000
Payments under the revolving credit agreement -- (14,500,000)
Payments under the revolver loan agreements (56,566,000) (48,508,000)
Payments of short and long-term debt (78,298,000) (33,192,000)
Payments of preferred stock redemptions and
dividends (1,367,000) (2,501,000)
Stock option transactions 485,000 251,000
-------------- --------------
Net cash (used for) financing activities $ (24,901,000) $ (37,507,000)
-------------- --------------
Net increase (decrease) in cash and cash
equivalents $ 31,193,000 $ (41,615,000)
Cash and cash equivalents at beginning
of year 5,446,000 44,416,000
-------------- --------------
Cash and cash equivalents $ 36,639,000 $ 2,801,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1993 1994
------------ ------------
<S> <C> <C>
Supplemental Information:
(A) Noncash investing and financing activities:
1. Series B Preferred stock dividends paid
through the issuance of common stock $ 398,000 $ --
------------ ------------
------------ -------------
2. Series B Preferred stock redemptions
($2,350,000) and dividends ($509,000)
paid through the issuance of subord-
inated debt, net of $631,000 cash paid $ 2,228,000 $ --
------------ ------------
------------ ------------
3. Series C Preferred stock dividends paid
through the issuance of common stock $ 405,000 $ --
------------ ------------
------------ ------------
4. Series C Preferred stock redemptions
($1,400,000) and dividends ($1,159,000)
paid through the issuance of subord-
inated debt, net of $775,000 cash paid $ 1,784,000 $ --
------------ ------------
------------ ------------
5. Interest expense paid through the
issuance of subordinated debt $ 100,000 $ --
------------ ------------
------------ ------------
6. Debt assumed by purchasers of
businesses sold $ 533,000 $ --
------------ ------------
------------ ------------
7. Proceeds (Short-Term Note Receivable)
received from the sales of a discont-
tinued operation $ -- $ 3,402,000
------------ ------------
------------ ------------
(B) Interest paid during the period $ 6,019,000 $ 2,308,000
------------ ------------
------------ ------------
(C) Income/franchise taxes paid during the
period, net of refunds $ 266,000 $ 248,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
ALLIED PRODUCTS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
<TABLE>
<CAPTION>
12/31/93 6/30/94
------------- --------------
<S> <C> <C>
Salaries and wages $ 7,051,000 $ 5,050,000
Warranty 9,658,000 9,066,000
Insurance 9,096,000 7,600,000
Restructuring and other
facility close down costs 6,141,000 3,332,000
Pensions, including retirees
health 3,712,000 3,910,000
Taxes, other than income taxes 1,742,000 1,611,000
Environmental matters 4,354,000 4,622,000
Other 4,370,000 3,494,000
------------ -------------
$ 46,124,000 $ 38,685,000
------------ -------------
------------ -------------
</TABLE>
(2) EARNINGS PER COMMON SHARE
Earnings per common share for periods in 1993 is based on the average
number of common shares outstanding (8,987,000 and 8,927,000 for the second
quarter and first half of 1993, respectively) after reducing net income for
preferred dividend requirements ($515,000 and $1,063,000 during the second
quarter and first half of 1993, respectively). Earnings per common share for
periods in 1994 is based on the average number of common shares outstanding
(9,104,000 and 9,099,000 for second quarter and first half of 1994,
respectively) after reducing net income for preferred dividend requirements
($467,000 and $951,000 during the second quarter and first half of 1994,
respectively).
(3) DISPOSITION/SALES OF ASSETS
During 1993, the Company sold its Smith Energy Services and White-New Idea
divisions. The Company also closed down and liquidated the R/B Die & Prototype,
International Agro, Kewanee Farm Equipment and Charles City Foundry and
Machining divisions during 1993. During the second quarter of 1994, the Company
entered into an agreement to sell certain assets of the Cooper division which
transaction subsequently closed. The Company has included the results of these
operations and, in 1993, an allocation of financing costs, administrative and
interest expenses and related restructuring costs provisions, net of income
taxes, under the caption "Discontinued operations - Income (loss) from
operations."
<PAGE>
During the first quarter of 1994, the Company signed a letter of intent in
relation to the sale of the Cooper division. The Company recorded a provision of
$1,000,000 in the first quarter of 1994 for the estimated loss related to this
agreement. The purchaser failed to close despite several postponements of the
closing date. As noted above, during the second quarter of 1994, the Company
entered into an agreement to sell certain assets of the Cooper division with a
new purchaser. The disposition resulted in a gain of $1,135,000, including the
reversal of the $1,000,000 provision recorded in the first quarter of 1994, and
is included under the caption "Discontinued operations - Gain on disposition of
discontinued operation."
(4) RESTRUCTURING COSTS
During the first half and second quarter of 1993 and 1994, expenditures of
approximately $5,500,000 ($3,300,000 in the second quarter) and $2,200,000
($1,100,000 in the second quarter), respectively, were charged against the
provisions for restructuring costs established in 1991 and 1992, and the first
quarter of 1993.
(5) DEFERRED COMPENSATION
Income from continuing operations in the second quarter and first half of
1993 includes a charge of $1,230,000 for deferred compensation related to the
retirement of certain executive officers of the Company.
(6) FINANCIAL ARRANGEMENTS
During the first quarter of 1994, the Company terminated separate debt
financing agreements at the former Bush Hog, Verson, and Coz subsidiaries
through the completion of a new Revolving Credit Agreement. This new three year
$50,000,000 Revolving Credit Agreement with two banks, dated March 17, 1994,
provides for up to $35,000,000 in working capital related loans and up to
$15,000,000 in standby letters of credit required for the Company's self-
insurance programs and for other commercial purposes. Interest is at prime rate
or at other rates as provided within the agreement. This facility is
collateralized principally by the Company's receivables and inventories;
however, all collateral is subject to release if the Company attains certain
financial results for the first nine months of 1994 or for any four consecutive
fiscal quarters starting January 1, 1994, which the Company anticipates will be
attained. Under the Revolving Credit Agreement, the Company must meet certain
periodic financial tests, including minimum net worth, minimum operating income,
ratio of funded debt to operating income, and ratio of operating income to
interest expense. As a result of this financing, Bush Hog Corporation, Verson
Corporation and Coz Corporation subsidiaries were dissolved and their assets
were conveyed to the parent company, Allied Products Corporation.
<PAGE>
(7) CONTINGENT LIABILITIES
The Company is involved in a number of legal proceedings as a defending
party, including product liability claims for which additional liability is
reasonably possible. It is the Company's policy to reserve on a non-discounted
basis for all known product liability claims, with necessary reserves determined
in consultation with independent insurance companies and legal counsel. Payment
of these claims may take place over the next several years. However, after
consideration of relevant data (review of insurance coverage, accruals, etc.),
management believes that the eventual outcome of these matters will not have a
material adverse effect on the Company's financial position.
At June 30, 1994, the Company was contingently liable for approximately
$679,000 primarily relating to outstanding letters of credit.
(8) INCOME TAXES
The provision for income taxes in the first half of 1993 and 1994 is
$453,000 and $375,000, respectively. The allocation of the provision for income
taxes in the Consolidated Statements of Income (Loss) for the six months ended
June 30, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Continuing operations $ 312,000 $ 482,000
Discontinued operations - Income
(loss) from operations 141,000 (112,000)
Discontinued operations - Gain on
disposition of discontinued
operations -- 5,000
------------ ------------
Total provision $ 453,000 $ 375,000
------------ ------------
------------ ------------
</TABLE>
The provision for income taxes in the first half of 1993 and 1994 differs
from amounts computed by applying the statutory rate to pre-tax income as
follows:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Income tax at statutory rates $ 4,494,000 $ 3,400,000
Utilization of net operating loss
carryforwards (4,078,000) (3,369,000)
Permanent book over tax, net of
tax over book, differences
on acquired assets 53,000 455,000
Others (16,000) (111,000)
------------ ------------
Total provision $ 453,000 $ 375,000
------------ ------------
------------ ------------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OPERATING RESULTS
During 1993, the Company sold the Smith Energy Services and White-New Idea
Farm Equipment divisions for cash. The Company also closed down and liquidated
the R/B Die & Prototype, International Agro, Kewanee Farm Equipment and Charles
City Foundry and Machining operations during 1993. During the first quarter of
1994, the Company signed a letter of intent in relation to the Cooper division.
The Company recorded a provision of $1,000,000 in the first quarter of 1994 for
the estimated loss related to the agreement. The purchaser failed to close
despite several postponements of the closing date. Later in the second quarter
of 1994, the Company entered into an agreement to sell certain assets of the
Cooper division to a new purchaser, which transaction subsequently closed. The
Company has included the results of these operations and, in 1993, an allocation
of financing costs, administrative and interest expenses and related
restructuring cost provisions under the caption "Discontinued operations (net of
tax)- Income (loss) from operations" in the accompanying Consolidated Statements
of Income (Loss). Previously issued financial statements for 1993 have been
restated to reflect the effect of these discontinued operations.
FIRST HALF OF 1994 COMPARED TO FIRST HALF OF 1993
Net sales from continuing operations in the first half of 1994 were
$116,469,000 representing a slight decrease from net sales from continuing
operations of $118,979,000 reported in the first half of 1993. Income from
continuing operations in the first half of 1994 was $12,289,000 compared to
income from continuing operations of $8,550,000 in the first half of the prior
year. Net income in the first half of current year was $9,339,000 compared to
net income of $12,767,000 reported in the first half of 1993.
At the Bush Hog division, net sales increased by over 11% in the first half
of 1994 compared to the same six month period of the prior year. The increase
was primarily related to the disc mower and loader product lines. These
increases were partially offset by lower peanut combine sales. In general, the
agricultural equipment industry has experienced improvement over the prior year
due to a number of factors, including improved farm income, higher crop prices,
increased planted acreage, and farmers' improved financial position. Earlier
fears of a possible drought in the midwest during 1994 were dispelled by
sufficient precipitation in this region of the country. Recent flooding rains in
the southeastern portion of the United States has raised concerns that as much
as 10% of the peanut crop may have suffered damage. The Bush Hog division has
experienced no negative effect from this situation at this time. Cattle prices
have weakened, resulting in little sale growth in the rotary cutter product line
in 1994. Gross profits and gross profit margins have improved at the Bush Hog
division in the first half of 1994 compared to the first half of 1993.
<PAGE>
Approximately 75% of the increase in gross profits was related to increased
sales volume as discussed above. A favorable mix of products sold and the effect
of price increases also contributed to an improved gross profit. These increases
were partially offset by increased cash discounts and slightly decreased
manufacturing efficiency resulting from extreme facility utilization in the
first half of 1994.
At the Verson division, net sales decreased by approximately 20% in the
first half of 1994 compared to the first half of 1993. The entire decrease was
related to lower press manufacturing revenues in the current year's six-month
period. During the first half of 1993, production continued on a large press
order for Chrysler. Most of the production on that order was completed prior to
the end of 1993. New production in the first half of 1994 to replace the work
completed did not materialize in sufficient amounts. New orders for presses have
been received in the latter part of the second quarter and early part of the
third quarter which should result in increased productivity and improved
profitability for the remainder of 1994 and into 1995. Partially offsetting the
effect of decreased press manufacturing sales was increased press rebuild
revenue in the first half of 1994. While gross profits decreased at the Verson
division (due to lower sales volume as discussed above), gross profit margins
increased. The increase was the result of several factors, including improved
margins on parts sales (price increase in the first quarter of 1994), improved
mix of products sold (as discussed above) and lower warranty costs due to
decreased sales volume and customer mix.
At the Coz division, net sales increased in the first half of 1994 by over
5%. The overall increase in net sales was related to changes in customer base
(new customers and order increases from larger steady customers) as well as
increased selling prices. Gross profits increased in the first half of 1994 due
primarily to increases in sales volume. There were no significant changes in
gross profit margins in the first half of 1994 compared to the first half of
1993. Margin improvements from increased selling prices were offset by the
effect of cost increases and the mix of products sold (the sales increase was
associated with inventory requiring more production content).
Selling and administrative expenses decreased to $15,928,000 (13.7% of net
sales from continuing operations) in the first half of 1994 compared to expenses
of $16,520,000 (13.9% of net sales from continuing operations) in the first half
of 1993. Decreases were generally associated with ongoing cost reduction
programs within the operating divisions of the Company, lower insurance costs
throughout the Company and decreased corporate administrative expenses due to
staff and other cost reduction measures implemented throughout 1993. These
decreases were partially offset by increased commissions (agricultural equipment
sales increased in the first half of 1994 and are generally commissioned sales)
and other normal increases experienced in operations throughout the Company.
The decrease in interest expense ($1,523,000 in the first half of 1994
compared to $3,313,000 after allocation to discontinued operations in 1993) was
directly related to a significantly reduced borrowing level and the effects of
lower average interest rates associated with outstanding debt in the current
<PAGE>
year.
Other expense in the first half of 1994 was $793,000 compared to other
expense of $1,795,000 reported in the first half of 1993. In the first half of
1993, the Company provided $1,230,000 for deferred compensation related to the
retirement of certain executive officers of the Company. Decreases in interest
income in the first half of 1994 (due to lower cash balances invested in short-
term financial instruments) was partially offset by the effect of decreased idle
facility expenses in the current year.
In the first half of 1994, loss from discontinued operations was primarily
represented by the operating losses incurred at the Cooper division, which sale
is described above. Other losses from discontinued operations in the first half
of 1994 include ongoing costs (insurance, utilities, taxes, clean up) of
facilities related to operations which were shut down during 1993. Operating
income from discontinued operations in the first half of 1993 included the
profitable results of the White-New Idea division which was sold at the end of
that year. The prime manufacturing and selling period for this division was the
first half of the year due to the nature of the products sold. Discontinued
operations in the first half of 1993 also include the results of the Charles
City division. In the early part of 1993, the Company announced the closing of
this operation. Upon notification of the closure, customers ordered more than
normal quantities of products from this machining and foundry division to bridge
their manufacturing needs until another source of product could be identified,
resulting in above normal operating profits at the division. The operating
results of other discontinued operations discussed above, an allocation of
financing costs, administrative and interest expenses and related restructuring
cost provisions, were also included.
During the first quarter of 1994, the Company signed a letter of intent in
relation to the sale of the Cooper division. The Company recorded a provision of
$1,000,000 in the first quarter of 1994 for the estimated loss related to this
agreement. The purchaser failed to close despite several postponements of the
closing date. During the second quarter of 1994, the Company entered into an
agreement to sell certain assets of the Cooper division to a new purchaser. The
final disposition resulted in a gain of $1,135,000, including the reversal of
the $1,000,000 provision recorded in the first quarter of 1994, and is included
under the caption "Discontinued operations - Gain on disposition of discontinued
operations."
SECOND QUARTER OF 1994 COMPARED TO SECOND QUARTER OF 1993
Net sales from continuing operations in the second quarter of 1994 were
$57,255,000, representing a 3% decrease from net sales from continuing
operations of $59,086,000 reported in the second quarter of 1993. Income from
continuing operations increased by over 34% to $6,992,000 in the second quarter
of 1994 from $5,216,000 reported in the same quarter of the prior year. Net
income in the second quarter of 1994 was $5,991,000 compared to net income of
$6,829,000 in the second quarter of 1993.
<PAGE>
Net sales at the Bush Hog division in the second quarter of 1994
approximated net sales reported in the second quarter of 1993. Increased sales
within the loader product line (due in general to better market conditions) were
offset by the effect of lower peanut combine sales (due to product carryover
from the prior year at dealers). Rotary cutter sales also decreased slightly in
the second quarter of 1994. The decrease in gross profits in the second quarter
of 1994 (approximately 1%) was not considered significant. Gross profit margins
increased slightly in the second quarter of 1994 in comparison to the gross
profit margins in the second quarter of the prior year.
Net sales at the Verson division decreased approximately 7% in the second
quarter of 1994 compared to the second quarter of 1993. The entire decrease was
associated with lower press manufacturing revenue in the current year's quarter.
As noted above, production was completed during 1993 on a large press order from
Chrysler. Gross profits and gross profit margins decreased at the Verson
division in the second quarter of 1994 compared to the same quarter of the prior
year. Approximately one-third of the decrease in gross profits was related to
the effect of lower sales volume. The decrease in gross profit margins and the
remaining portion of the decrease in gross profits was associated with the
effects of decreased facility utilization in 1994. Orders necessary to maintain
1993 facility utilization levels were not received until late in, and subsequent
to the end of the second quarter of 1994.
During the latter portions of the second quarter of 1994, the Company
entered into a new three-year labor agreement with the union workers at this
division. Wage increases of 5% in the first year and 4% in each of the remaining
years were agreed upon.
Net sales at the Coz division increased by over 4% in the second quarter of
1994 compared to the second quarter of the prior year. Reasons for the increase
in net sales for the second quarter of 1994 are similar to the reasons for the
year to date increases in net sales as noted above. Gross profits and gross
profit margins improved during the second quarter of 1994 compared to the second
quarter of 1993. The favorable effects of increased selling prices and the mix
of products sold were partially offset by the effects of increased shipping
expenses due both to increased volume of shipments and increased container
costs.
Selling and administrative expenses decreased in the second quarter of 1994
to $7,652,000 (13.4% of net sales from continuing operations) in comparison to
selling and administrative expenses of $8,407,000 (14.2% of net sales from
continuing operations) in the second quarter of 1993. At the divisional
manufacturing level, insurance costs have decreased in the current year's second
quarter. Corporate administrative expenses have also decreased, primarily in the
areas of professional fees and bank charges. The Company also restructured its
Management Information System (MIS) function during 1993, resulting in savings
during the current year. These decreases were partially offset by normal cost
increases (salaries, fringe benefits, supplies) in both administrative and
selling expenses.
<PAGE>
The decrease in interest expense ($469,000 in the second quarter of 1994
compared to $1,633,000 after allocation to discontinued operations in the second
quarter of 1993) was directly related to significantly reduced cost of
borrowings and borrowing levels in the current year. Proceeds received from the
sale of the White-New Idea division at the end of 1993 were used to reduce
outstanding debt. In addition, the Company entered into a new three year
Revolving Credit Agreement during the first quarter of 1994 which included more
favorable interest rates than prior borrowings.
Other expense in the second quarter of 1994 was $409,000 compared to other
expense of $1,475,000 reported for in the second quarter of 1993. In the second
quarter of 1993, the Company provided $1,230,000 for deferred compensation as
noted above. Decreases in interest income (as discussed above) in the second
quarter of 1994 were offset by the effects of lower loan cost amortization and
increased gains on the disposition of idle facilities.
Operating losses associated with discontinued operations for the second
quarter of 1994 included operating losses of the Cooper division and ongoing
costs related to operations shut down during 1993. Operating income of
discontinued operations in the second quarter of 1993 include the profitable
results of White-New Idea (which was sold at the end of 1993) and the Charles
City machining and foundry division which was closed in the third quarter of
1993. This latter operation generated greater than normal profits in the second
quarter of 1993 as customers increased their orders in advance of the scheduled
closing of this division. The operating results of other discontinued operations
(R/B Die & Prototype, International Agro, Smith Energy Services, Kewanee Farm
Equipment and Cooper) and an allocation of financing costs, administrative and
interest expenses were also included in 1993.
Reference is made to the above discussion relating to the year to date
operating results for a description of the transactions regarding the gain on
disposition of discontinued operations.
FINANCIAL CONDITION AND LIQUIDITY
Working capital at June 30, 1994 was $40,227,000 (current ratio of 1.46 to
1.0) versus working capital of $31,664,000 (current ratio of 1.31 to 1.0) at
December 31, 1993. Net receivables increased by almost $20,000,000 since the end
of 1993. Over half of this increase was related to the Bush Hog division where
sales have increased in 1994 as described above. Cash collections associated
with the sale of agricultural equipment to dealers are dependent upon the retail
sale of the products by the dealer. Sales to dealers are typically strong in the
first half of the year, just prior to the use season by the farmer. Extended
payment terms are offered to dealers in the form of floor plan financing which
is customary in the agricultural equipment industry. Receivables also increased
significantly at the Verson division due to significant press shipments in the
latter portions of the second quarter of 1994. Another significant increase in
receivables is a direct result of the sale of the Cooper division as the Company
accepted a short-term note of $3,402,000 in exchange for certain assets of this
<PAGE>
discontinued operation. Inventory levels have decreased by over $10,000,000
since the end of 1993. The vast majority of the decrease was related to the
Verson division. As noted above, significant press shipments occurred in the
second quarter of 1994. Also resulting in decreased inventory levels is the
effect of the sale of the Cooper division. Inventory levels at the Bush Hog
division increased as the division is in the process of manufacturing inventory
related to harvesting equipment typically sold in the third quarter.
At the end of 1993, the Company sold for cash substantially all of the
assets and liabilities of the White-New Idea Farm Equipment division. Proceeds
from the disposition were used to pay all amounts due under a restrictive credit
agreement which had, for the past four years, seriously hampered the Company's
ability to operate in a prudent and business-like manner. The sale of the Cooper
division, as previously described, marks the successful completion of the
Company's operations divestiture program.
During the first half of 1994, the Company terminated separate debt
financing agreements at the Bush Hog, Verson and Coz divisions through the
completion of a new Revolving Credit Agreement. Reference is made to Note 6 of
Notes to Consolidated Financial Statements regarding a further description of
this financial arrangement.
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 27, 1994 the Registrant held its annual meeting of shareholders.
Copies of the related proxy statement have been previously filed with the
Securities and Exchange Commission. The following items were voted on by the
Company's shareholders:
The first item voted on was the election of six Directors. Proxies for the
meeting were solicited pursuant to Regulation 14A. There were no solicitations
in opposition to the management's nominees as listed in the proxy statement. The
nominees received the following number of votes of Common and Preferred Shares:
CLASS A DIRECTORS - TERM EXPIRES IN 1997 - MR. RICHARD A. DREXLER AND
MR. JOHN W. PUTH
For Mr. R. Drexler - 8,158,706; withheld from Mr. R. Drexler -114,132
and for Mr. J. Puth - 8,165,102; withheld from Mr. J. Puth -107,736.
CLASS B DIRECTORS - TERM EXPIRES IN 1995 - MR. JAMES J. HAYDEN AND
MR. STANLEY J. GOLDRING
For Mr. J. Hayden - 8,159,926; withheld from Mr. J. Hayden -
112,912 and for Mr. S. Goldring - 8,166,399; withheld from Mr. S.
Goldring -106,439. Mr. Lloyd Drexler and Mr. John Jones terms of
office as Class B directors continued after the meeting.
CLASS C DIRECTORS - TERM EXPIRES IN 1996 - MR. KENNETH B. LIGHT AND
MR. WILLIAM FISCHER
For Mr. K. Light - 8,165,407; withheld from Mr. K. Light -
107,431 and for Mr. W. Fischer - 8,165,418; withheld from Mr. W.
Fischer - 107,420. Mr. S. S. Sherman term of office as a Class C
director continued after the meeting.
Approximately 1,140,000 shares held by brokers and nominees were not voted
in the election of the directors.
The second item voted on was a proposed amendment to the Company's 1977
Incentive Stock Plan. The amendment would have the effect of extending the
period of time during which an option holder may exercise the option following
retirement from the Company. The proposition received the following number of
votes of Common and Preferred Shares:
FOR AGAINST ABSTAIN
--- ------- -------
7,743,397 451,702 77,739
<PAGE>
Approximately 1,140,000 shares held by brokers and nominees were not voted
on in this proposal.
The third item voted on was the adoption of the 1993 Directors Incentive
Stock Plan. The purpose of the plan is to assist the Company in attracting to
and retaining on the Board of Directors individuals of significant personal
qualifications and experience. The plan authorizes the distribution of up to
120,000 shares of the Company Common Stock to members of the Board of Directors
who are not employees of the Company. The proposition received the following
number of votes of Common and Preferred Shares:
FOR AGAINST ABSTAIN
--- ------- -------
7,671,400 495,608 105,830
Approximately 1,140,000 shares held by brokers and nominees were not voted
on in this proposal.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - there were no reports on Form 8-K for the three
months ended June 30, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED PRODUCTS CORPORATION
-------------------------------------
(REGISTRANT)
August 12, 1994 Kenneth B. Light
- - --------------- ----------------------------------------------
Kenneth B. Light,
Executive Vice President, Chief Administrative
officer and Secretary; Director
August 12, 1994 Robert J. Fleck
- - --------------- ----------------------------------------------
Robert J. Fleck,
Vice President - Accounting and
Chief Accounting Officer
